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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS

PURSUANT TO SECTIONS 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934



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

For the fiscal year ended October 31, 2006

OR



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

For the transition period from  to

Commission
file number: 000-29665

EXCELSIOR VENTURE PARTNERS III, LLC

(Exact Name of Registrant as Specified in Its Charter)



|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|DELAWARE                                                       |  | 13-4102528                       
|(State or Other Jurisdiction of Incorporation or Organization) |  | (IRS Employer Identification No.)

225 High Ridge Road

Stamford, CT 06905

(Address of Principal Executive Offices)

Registrants telephone number, including area code: (203) 352-4400

Securities registered pursuant to Section 12(b) of the Act: NONE

Securities
registered pursuant to Section 12(g) of the Act:

UNITS OF MEMBERSHIP INTEREST WITHOUT PAR VALUE

(Title of Class)

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

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

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

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

Large accelerated filer ̈Accelerated file ̈Non-accelerated filer  x

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

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

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

The registrants common stock is not listed on any exchange nor does it trade on any established securities market or other market.



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##### Table of Contents

TABLE OF CONTENTS



|         |  |                                                                                       |  |                      
|-------- |  | ------------------------------------------------------------------------------------- |  | ---------------------
|Item No. |  |                                                                                       |  | Form 10-K Report Page
|         |  | PART I                                                                                |  |                      
|         |  |                                                                                      
|1.       |  | Business                                                                              |  | 1                    
|2.       |  | Properties                                                                            |  | 8                    
|3.       |  | Legal Proceedings                                                                     |  | 8                    
|4.       |  | Submission of Matters to a Vote of Security Holders                                   |  | 8                    
|         |  |                                                                                      
|         |  | PART II                                                                               |  |                      
|         |  |                                                                                      
|5.       |  | Market for Registrants Common Equity and Related Stockholder Matters                 |  | 8                    
|6.       |  | Selected Financial Data                                                               |  | 8                    
|7.       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 9                    
|7A.      |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 12                   
|8.       |  | Financial Statements and Supplementary Data                                           |  | 12                   
|9.       |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  |  | 34                   
|9A       |  | Controls and Procedures                                                               |  | 34                   
|         |  |                                                                                      
|         |  | PART III                                                                              |  |                      
|         |  |                                                                                      
|10.      |  | Managers and Executive Officers of the Registrant                                     |  | 35                   
|11.      |  | Executive Compensation                                                                |  | 37                   
|12.      |  | Security Ownership of Certain Beneficial Owners and Management                        |  | 38                   
|13.      |  | Certain Relationships and Related Transactions                                        |  | 39                   
|14.      |  | Principal Accountant Fees and Services                                                |  | 39                   
|         |  |                                                                                      
|         |  | PART IV                                                                               |  |                      
|         |  |                                                                                      
|15.      |  | Exhibits and Financial Statement Schedules                                            |  | 40                   



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##### Table of Contents

FACTORS THAT MAY AFFECT FUTURE RESULTS

The Companys prospects, including the prospects of the underlying investments are subject to certain uncertainties and risks. This Annual Report on
Form 10-K contains certain forward-looking statements within the meaning of the federal securities laws that also involve substantial uncertainties and risks. The Companys future results may differ materially from its historical results and
actual results of the Company and its underlying investments could differ materially from those projected in the forward-looking statements as a result of certain risk factors. Readers should pay particular attention to the considerations
described in the section of this report entitled Managements Discussion and Analysis of Financial Condition and Results of Operations. Readers should also carefully review the risk factors described in the other documents the
Company files, or has filed, from time to time with the Securities and Exchange Commission.



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##### Table of Contents

PART I



|ITEM 1. | BUSINESS.
|------- | ---------

Overview

Excelsior Venture Partners III, LLC (the Company or the Fund) is a Delaware limited liability company organized on
February 18, 2000. The Company is a non-diversified, closed-end management investment company operating as a business development company (BDC) under the Investment Company Act of 1940, as amended (Investment Company
Act), and, in connection with its initial offering of units, registered said offering of units under the Securities Act of 1933, as amended (the Securities Act). BDCs are a special type of Investment Company, as defined and
regulated by the Investment Company Act, which focus primarily on investing in the privately issued securities of eligible portfolio companies, as defined by the Investment Company Act. A BDC must also make available significant managerial
assistance to such companies. The Companys investment objective is to achieve long-term capital appreciation 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 Advisers (defined herein) believe offer significant long-term capital appreciation.

UST Advisers Inc. serves as Investment Adviser to the Company. United States Trust Company acting through its registered investment advisory division,
U.S. Trust - New York Asset Management Division, serves as Investment Sub-Adviser to the Company (together, the Investment Advisers). The Investment Advisers provide investment management services to the Company pursuant to an investment
advisory agreement dated September 8, 2000 and an investment sub-advisory agreement dated September 8, 2000 (together the Investment Agreements). UST Advisers, Inc. is a wholly-owned subsidiary of United States Trust
Corporation, National Association, which in turn is a registered financial holding company. U.S. Trust Corporation is an indirect wholly-owned subsidiary of The Charles Schwab Corporation. All officers of the Company are employees and/or officers of
the Investment Advisers. The Investment Advisers are responsible for performing the management and administrative services necessary for the operation of the Company.

Pursuant to a Registration Statement on Form N-2 (File 333-30986), which was originally declared effective on September 7, 2000, the Company was authorized to offer an unlimited number of units of membership
interest with no par value. The Company sold 295,210 units via a public offering, which closed on May 11, 2001, for gross proceeds totaling $147,605,000. Units of the Company were made available through Charles Schwab & Co., Inc., the
Companys principal distributor (the Distributor).

The Company incurred offering costs associated with the public
offering totaling $1,468,218. Net proceeds to the Company from the public offering, after offering costs, totaled $146,136,782.

The
Companys Certificate of Formation provides that the duration of the Company will be ten years from the final subscription closing date, subject to the rights of the Board of Managers to extend the term for up to two additional two-year
periods.



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##### Table of Contents

The following is a summary of the Companys investment portfolio.

LOGO



|* | This amount represents money market instruments and other cash equivalents held to fund follow-on investments in private companies, to meet contractual commitments to private
investment funds and operation expense requirements of the Fund.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Investments Held  Private

Archemix Corporation(Archemix)

Description: Archemix is a biopharmaceutical company
leading the development of aptamers as a new class of directed therapeutics for the prevention and treatment of chronic and acute disease. Aptamers can be used in a wide range of disease areas, including many of those currently addressed by
protein-based therapeutics, and can be produced quickly and economically. With a portfolio of over 300 patents and patent applications, Archemix holds the key to the development of aptamer technology and its implications for the pharmaceutical
industry. The company is focused on using its expertise to aggressively pursue drug discovery and development in a variety of areas. As of October 31, 2006, the Fund has invested $2.7 million in Archemix.

2006 Activity and Outlook: The company signed a partnership with Elan Corp. for the development of aptamer-based therapies for auto-immune diseases. The company
also signed an expanded partnership with Nuvelo. In both cases, the partnerships allow for initial payments to Archemix, payments for reaching milestones with specific therapeutic compounds, and sharing of royalties from the eventual products that
are co-developed by Archemix and its partners. The company will continue to seek the establishment of additional aptamer development and marketing relationships in other therapeutic areas.

Cydelity(Cydelity, formerly Datanautics, Inc.)

Description: In August 2004, the company was repositioned to develop products for the high growth area of Internet Security and Online Fraud Management and was subsequently named Cydelity. This market opportunity is a logical
extension to the companys existing web analytics technology, as it has a number of capabilities that can be applied to this rapidly emerging market segment. The decision to reposition the company was driven primarily by significant market need
to proactively avoid some of the recent high profile security infringements. The specific focus area for the companys technology is in controlling and monitoring fraudulent access and behavior by individuals who have (or appear to have) valid
system/network credentials. As of October 31, 2006, the Fund has invested $6.4 million in Cydelity, and had previously invested $4 million in Datanautics.

2006 Activity and Outlook: Although Cydelity has been meeting investor milestones in product development, management and operations, it had significant difficulties in attracting outside investor capital. Since the Fund is unable to
support the company on its own, the Cydelity board has decided to pursue M&A activities to sell the company. Currently the company is in discussions with potential acquirers with a transaction anticipated in the first quarter of 2007.

Ethertronics, Inc. (Ethertronics)

Description: Ethertronics designs and manufactures the industrys only Isolated Magnetic DipoleTM(IMD) internal antennas for wireless devices. Used in cellular and wireless LAN applicationsphones, notebooks, LAN cards, PDAs, Bluetooth devices and GPS receiversIMD antennas provide longer-range, increased signal
strength and improved voice/data quality inside buildings, particularly in noisy environments and in fringe network coverage areas. As of October 31, 2006, the Fund has invested $8.6 million in Ethertronics.

2006 Activity and Outlook: In 2006, Ethertronics met all the sales, operations and cash flow goals set by the investors and board. The company has become a key
supplier to top tier vendors like Amoi, Casio, Compal, HP, Lenovo, Mobicom, Samsung, Symbol/Motorola and Techfaith. The company has an aggressive growth plan for next year including achieving cash flow breakeven by mid 2007.

Genoptix, Inc. (Genoptix)

Description:
Genoptix provides Personalized Medicine Services to hematologists and oncologists and their patients through its CLIA- and CAP-certified testing laboratory to aid in the treatment of blood and bone-marrow malignancies. Genoptixs Personalized
Medicine Services combines proprietary and exclusive tests with advanced clinical techniques to provide comprehensive evaluation to individual patients. The companys tests monitor an individual patients response to chemotherapeutic
agents in leukemia and other blood-related cancers. These services help physicians deliver personalized patient management which results in accurate diagnoses, more effective treatment, reduced adverse effects, enhanced monitoring and improved
outcomes. As of October 31, 2006, the Fund has invested $4.8 million in Genoptix.



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##### Table of Contents

2006 Activity and Outlook: Genoptix has expanded its business significantly in the past year. To support further
growth, Genoptix moved to a new location for its headquarters and laboratory facilities in Carlsbad CA, north of San Diego. Genoptix increased the suite of tests it offers to include a new circulating tumor cell test made by Veridex, a Johnson and
Johnson company. Genoptix was one of the first two laboratories to offer the CellSearch System, the only FDA cleared test that identifies circulating tumor cells (CTCs) in patients with metastatic breast cancer. Genoptix also presented at the UBS
Global Healthcare conference

LogicLibrary, Inc. (LogicLibrary)

Description: LogicLibrary is the leading provider of a software system that enables the management and reuse of software development assets for large enterprises and IT environments. The companys
patent-pending technology provides a comprehensive and collaborative approach for creating, migrating and integrating enterprise applications for use in service-oriented architecture, web services and other software development initiatives. As of
October 31, 2006, the Fund has invested $5.0 million in LogicLibrary.

2006 Activity and Outlook: LogicLibrary promoted its former head of
Marketing to be the new CEO of the company and he has re-energized the companys sales and marketing efforts. LogicLibrary recently announced a significant expansion of its relationship with IBM Global Services and released version 5.0 of its
flagship Logidex product. As is the case with several others of our portfolio companies, LogicLibrary and its Board of Directors are exploring certain potential M&A opportunities given what we perceive as the desire on the part of certain larger
software vendors to build up their positions in the service-oriented architecture software development where LogicLibrary is positioned.

NanoOpto
Corporation (NanoOpto)

Description: NanoOpto Corporation is applying proprietary nano-fabrication technology to the rapid
design and high volume manufacturing of nano-optic devices for optical components and systems for consumer electronics, commercial, and communications platforms. The companys nanometer scale optical function design capability combined with
wafer-scale manufacturing methods delivers optical components that allow rapid prototyping, higher performance and lower systems cost. Both independently and with industry partners, NanoOpto uses its technology to produce superior versions of
standard optical components and new classes of integrated optical subassemblies for both custom and general applications. As of October 31, 2006, the Fund has invested $4.6 million in NanoOpto.

2006 Activity and Outlook: In 2006, the company successfully scaled manufacturing and operations capabilities and has started supplying sample products to
companies like Sony, Omnivision, Flextronics, Panasonic and JVC. The company also built a strong relationship with Sumitomo Metals Mining Company which controls a large portion of the global market for garnet substrate on which many of
NanoOptos products are imprinted. The company also signed a strategic joint development and sales agreement with Moxtek, one of the large suppliers to the consumer electronics industry.

OpVista, Inc. (OpVista)

Description:
OpVista provides advanced optical network solutions for advanced video and IP services. The companys reconfigurable optical transport systems are uniquely suited to deliver triple play convergence, especially advanced video and IP services,
for cable and communications service providers. As of October 31, 2006, the Fund has invested $13.7 million in OpVista.

2006 Activity and
Outlook: In 2006, the company has become one of the leading suppliers of advance video solutions to the cable markets and is a preferred vendor for Cox, Time Warner Cable, TW Telco, Liberty Media, Service Electric and others. It has done an
excellent job in meeting all the revenues, operations, management and product development milestones. During 2006, the company has made good progress in outsourcing manufacturing and plans to improve margins by consistent cost reductions. The
company has a 10% market share in its market segments behind Cisco and Fujitsu and anticipates more than doubling its revenues in the next 12 months. The company was also able to raise a large financing round from Doll Capital  a top tier
venture firm in Silicon Valley  to meet the expansion and working capital needs.



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Pilot Software, Inc. (Pilot)

Description: Pilot provides operational performance management solutionsa combination of domain expertise, a proven approach and award-winning softwarethat enable organizations to rapidly achieve
objectives by aligning execution with strategy. Sample customers who are using Pilots solutions include: Kaplan University, Pinellas county, Santa Barbara county, GSA, American Heart Association, HealthNet, KLA-Tencor, Coors/Molson,
K-Mart/Sears Holdings and Yahoo. As of October 31, 2006, the Fund has invested $9.5 million in Pilot.

2006 Activity and Outlook: The market
for Operational Performance management appears to be ramping up in the next 12-18 months and Pilot is positioned well to take advantage of that growth. In the last 2 quarters the average deal size that the company won has increased significantly and
the company has met its revenue goals. The management team has also done an excellent job in managing the expenses and the current plan is to achieve cash flow break even by md-2007. Recently, Pilot was approached by a later stage venture firm for
making working capital investments and the Fund is exploring these potential investment options for growth. Since the Fund is the largest shareholder in Pilot, it is also exploring M&A opportunities on a selective basis.

Silverback Systems, Inc. (Silverback)

Description: The company designs, manufactures and markets components which enable IP storage solutions and true network convergence for SAN, NAS and LAN. Silverback accelerates the design and performance of storage networking
equipment through a comprehensive package of silicon, firmware and drivers. Also, because the company offers a complete development program, they accelerate the adoption of IP storage by helping equipment vendors provide a cost effective deployment
solution for small, medium and eventually large enterprises. As of October 31, 2006, the Fund has invested $8.3 million in Silverback.

2006
Activity and Outlook: The company was successful in receiving a new strategic investment from Network Appliance and is one of the preferred vendors for the SMB business within NetApp. Despite this the company required significant amount of
capital for its next phase of growth. Most of the existing investors, including the Fund, were unable to meet the large financing needs and the company was not successful in attracting outside capital. Based on this, the board and investors have
decided to pursue M&A opportunities and the company has received an offer from a large semiconductor company. Negotiations are under way now and the plan is to consummate a sale by the first quarter of 2007.

Tensys Medical, Inc.(Tensys)

Description:
Tensys designs, develops, manufactures and markets a continuous, non-invasive arterial blood pressure management system. This method is more effective than intermittent cuff-based systems and far less invasive than arterial cannulation. As of
October 31, 2006, the Fund has invested $6.5 million in Tensys.

2006 Activity and Outlook: Tensys continues to invest in research and
development to refine its non-invasive blood-pressure-monitoring products to improve market acceptance. Feedback on the companys existing products indicate that usability issues present a key stumbling block as any device being sold into the
highly complex operating room environment must integrate with and complement existing staff behaviors. As a result, development efforts for the next-generation Tensys product centers around simplifying the cuff that is placed on a patients
wrist and providing a product that gives initial data to practitioners about patient conditions within seconds of application.

Exits

The Fund liquidated its interest in seven of its portfolio companies since inception. As a result of these exits, the Fund realized proceeds of $25.9 million. Total cost
for these seven companies was $35.6 million:

EVP III liquidated its interest in Adeza Biomedical Corporation(Adeza), a developer of
diagnostic products for womens healthcare. In liquidating this investment, the Fund realized proceeds of $6.9 million on its original $3.0 million investment in Adeza.

The Fund sold its interest in NetLogic Microsystems(NetLogic), a manufacturer of products that enable the global infrastructure of networking and optical communications to achieve their highest
performance. As a result of the sale, the Fund realized proceeds of $4.4 million on its original $5.0 million investment in NetLogic.



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The Fund liquidated Gyration, a provider of hardware and software solutions for business communication, PC and
gaming markets. The Fund received proceeds of $7.9 million on its original $6.8 million investment following the liquidation of the company.

The Fund sold
its interest in Senomyx, a developer of flavors, flavor enhancers and taste modulators for the packaged food and beverage industry. The Fund realized proceeds of $3.7 million on its original $1.5 million investment in Senomyx.

Monterey Design Systems(Monterey), a developer of advanced physical software solutions for the semiconductor industry, was sold in the second
quarter. As a result of the sale, the Fund received proceeds of $0.8 million on its original $7.8 million investment in Monterey.

The Fund sold its
interest in LightConnectwhich manufactures innovative MEMS (micro electro-mechanical systems) components and modules for next generation optical networks. As a result of the sale in the second quarter 2006, the Fund received proceeds of $1.5
million on its original $6.0 million investment in LightConnect.

The Fund sold its interest in Virtual Silicon Technologies(VST) and
received proceeds of $0.7 million. The Fund originally invested $5.6 million in VST.

Since its inception, the Fund has written four investments down to
zero. These write downs represent a collective $15.9 million in total cost across the four investments:

The Fund made a $4.9 million investment in
Chips and Systems, of which the initial investment was made in March 2004. Due to lack of support from external and current investors the company is currently in bankruptcy proceedings and will attempt to wind up its affairs by year-end 2006.

Ancile Pharmaceuticals (Ancile) was a specialized pharmaceutical company focused on the development of prescription botanical drugs.
Since the data for a new drug trial did not show clear efficacy, investors chose not to continue funding the company. The Fund invested a total of $3.9 million in Ancile.

A $2.0 million investment in Cenquest, Inc. (Cenquest) was written down due to the companys disappointing execution in a highly competitive industry. Cenquest was focused on the corporate
training industry by acting as an intermediary provider of accredited business and management degree programs to large corporations.

MIDAS Vision
Systems, Inc. (MIDAS), a developer of automated optical inspection systems, was unable to reverse sales declines due to the significant drop-off in capital expenditure spending in the semiconductor industry in 2001-2002. As a result,
the Fund wrote down its $5.1 million investment, made in December 2001 and March 2003.

Investments Held  Third Party Investment Funds

Advanced Technology Ventures VII, L.P. (ATV) is a $700 million venture capital fund targeting multi-stage information technology,
communications and life sciences companies. As of October 31, 2006, ATV has drawn a net of approximately $1.9 million of the Funds $2.7 million capital commitment. At October 31, 2006, the total value (fair market value plus net
distributions) of this investment was $1.7 million.

Burrill Life Sciences Capital Fund (Burrill) is a $200 million venture capital fund
established to invest primarily in innovative, early-stage life science venture opportunities. As of October 31, 2006, Burrill has drawn a net of approximately $1.6 million of the Funds $3.0 million capital commitment. At October 31,
2006, the total value (fair market value plus net distributions) of this investment was $1.4 million.

CHL Medical Partners II, L.P.
(CHL) is a $125 million venture capital fund targeting start-up and early-stage medical technology and life sciences companies. As of October 31, 2006, CHL has drawn a net of



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approximately $1.4 million of the Funds $2.0 million capital commitment. At October 31, 2006, the total value (fair market value plus net
distributions) of this investment was $1.4 million.

CMEA Ventures VI, L.P. (CMEA) is a $100 million venture capital fund targeting both
early life science and information technology companies. As of October 31, 2006, CMEA has drawn a net of approximately $1.0 million of the Funds $3.0 million capital commitment. At October 31, 2006, the total value (fair market value
plus net distributions) of this investment was $1.1 million.

Morgenthaler Venture Partners VII, L.P. (Morgenthaler) is an $850 million
venture capital fund targeting multi-stage information technology, communications and health care companies. As of October 31, 2006, Morgenthaler has drawn a net of approximately $2.3 million of the Funds $3.0 million capital commitment.
At October 31, 2006, the total value (fair market value plus net distributions) of this investment was $1.9 million.

Prospect Venture Partners II,
L.P. (Prospect) is a $500 million venture capital fund targeting multi-stage life sciences companies. As of October 31, 2006, Prospect has drawn a net of approximately $2.3 million of the Funds $3.0 million capital
commitment. At October 31, 2006, the total value (fair market value plus net distributions) of this investment was $2.3 million.

Sevin Rosen IX,
L.P. (Sevin Rosen) is a top-tier early-stage venture capital firm, which closed a $305 million venture capital fund dedicated to early-stage technology investments. As of October 31, 2006, Sevin Rosen has drawn a net of
approximately $1.3 million of the Funds $3.0 million capital commitment. At October 31, 2006, the total value (fair market value plus net distributions) of this investment was $1.2 million.

Tallwood II, L.P. (Tallwood) is a $150 million venture capital fund established to invest in attractive, early-stage growth companies possessing
leading-edge technology in the semiconductor industry. As of October 31, 2006, Tallwood has drawn a net of approximately $2.0 million of the Funds $3.0 million capital commitment. At October 31, 2006, the total value (fair market
value plus net distributions) of this investment was $1.6 million.

Valhalla Partners, L.P. (Valhalla) is a $200 million venture capital
fund established to invest in attractive early-stage venture capital investments in information technology companies in the Mid-Atlantic region. As of October 31, 2006, Valhalla has drawn a net of approximately $1.7 million of the Funds
$3.0 million capital commitment. At October 31, 2006, the total value (fair market value plus net distributions) of this investment was $1.6 million.

Looking forward, and as the portfolio enters into its harvest stage, we intend to continue to direct the Funds resources toward those companies we believe have the greatest potential for successful exits and
manage these companies in a judicious manner. We are optimistic about the longer-term prospects of the Funds portfolio. Overall, we believe that the Fund is currently positioned to create value for its investors as it enters its harvest stage.

For additional information concerning the Companys investments, see the financial statements beginning on page 12 of this report.

Competition

The Company encounters
competition from other entities and individuals having similar investment objectives. Primary competition for desirable investments comes from investment partnerships, venture capital affiliates of large industrial and financial companies,
investment companies and wealthy individuals. Some of the competing entities and individuals have investment managers or advisers with greater experience, resources and managerial capabilities than the Company and may therefore be in a stronger
position than the Company to obtain access to attractive investments. To the extent that the Company can compete for such investments, it may not be able to do so on terms as favorable as those obtained by larger, more established investors.

Employees

At October 31, 2006,
the Company had no full-time employees. All personnel of the Company are employed by and compensated by the Investment Advisers pursuant to the Investment Agreements.



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|ITEM 2. | PROPERTIES.
|------- | -----------

The Company does not own or lease any
physical properties.



|ITEM 3. | LEGAL PROCEEDINGS.
|------- | ------------------

None.



|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
|------- | ----------------------------------------------------

None.

PART II



|ITEM 5. | MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
|------- | ----------------------------------------------------------------------

Market Information

The Company has an unlimited number of no par value units authorized. As of October 31, 2006, 295,210
units of membership interest were issued and outstanding. There is no established public trading market for the Company's units of membership interest.

Holders

There were 261 holders of units of membership interest as of December 31, 2006.

Dividends and Distributions

Fiscal Year Ended
October 31, 2006. There were no dividends or distributions paid during fiscal year 2006.

Fiscal Year Ended October 31,
2005. A distribution of $36.84 per share was made to unitholders during the fiscal year ended October 31, 2005.

For additional
information concerning the payment of dividends, see Significant Accounting Policies in the notes to the financial statements of the Company included in Item 8 hereof.



|ITEM 6. | SELECTED FINANCIAL DATA.
|------- | ------------------------

($ in 000s except for per unit
data)



|                             |  |          |         |   |          |   |         |          |  |   |          |   |  |          |         |   |  |   |         |  
|---------------------------- |  | -------- | ------- | - | -------- | - | ------- | -------- |  | - | -------- | - |  | -------- | ------- | - |  | - | ------- | -
|Fiscal Year Ended            |  | 10/31/06 |         |   | 10/31/05 |   |         | 10/31/04 |  |   | 10/31/03 |   |  | 10/31/02 |        
|Financial Position           |  |          |         |   |          |   |         |          |  |   |          |   |  |          |         |   |  |   |         |  
|Investments in securities    |  | $        | 75,889  |   |          | $ | 92,593  |          |  | $ | 115,731  |   |  | $        | 119,500 |   |  | $ | 138,513 |  
|Other Assets                 |  |          | 31      |   |          |   | 1,362   |          |  |   | 1,258    |   |  |          | 3,744   |   |  |   | 1,063   |  
|Total Assets                 |  |          | 75,920  |   |          |   | 93,955  |          |  |   | 116,989  |   |  |          | 123,244 |   |  |   | 139,576 |  
|Liabilities                  |  |          | 358     |   |          |   | 606     |          |  |   | 910      |   |  |          | 786     |   |  |   | 1,081   |  
|Net Assets                   |  |          | 75,562  |   |          |   | 93,349  |          |  |   | 116,079  |   |  |          | 122,458 |   |  |   | 138,495 |  
|Changes in Net Assets        |  |          |         |   |          |   |         |          |  |   |          |   |  |          |         |   |  |   |         |  
|Net investment income (loss) |  |          | (638    | ) |          |   | (1,311  | )        |  |   | (2,318   | ) |  |          | (2,077  | ) |  |   | (1,659  | )
|Net (loss) on investments    |  |          | (17,148 | ) |          |   | (10,544 | )        |  |   | (4,060   | ) |  |          | (13,960 | ) |  |   | (6,267  | )
|Dividends                    |  |          |        |   |          |   | 10,876  |          |  |   |         |   |  |          |        |   |  |   |        |  
|Per Unit Data                |  |          |         |   |          |   |         |          |  |   |          |   |  |          |         |   |  |   |         |  
|Net Assets                   |  | $        | 255.96  |   |          | $ | 316.21  |          |  | $ | 393.21   |   |  | $        | 414.82  |   |  | $ | 469.14  |  
|Dividends Paid               |  |          |        |   |          |   | 36.84   |          |  |   |         |   |  |          |        |   |  |   |        |  



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##### Table of Contents

|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
|------- | --------------------------------------------------------------------------------------

Liquidity and Capital Resources

The Company focuses 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
October 31, 2006, the Company held $2,934 in cash and cash equivalents and $14,422,438 short-term investments as compared to $574,146 in cash and cash equivalents and $28,598,294 in short-term investments at October 31, 2005. The decrease
in cash and short-term investments from October 31, 2005 was primarily due to new and follow-on investments in private companies as well as capital invested in private investment funds. This was partially offset by proceeds received from the
sale of investments and distribution received from the private investment funds. The Company during this period funded additional capital per its commitments to all of its 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 October 31, 2006, has contributed $15,509,306 or 60.35% of the total capital committed to nine private investment funds. During the fiscal year
ended October 31, 2006, the Company also participated in follow-on financing rounds for several of its private companies totaling $12,322,877.

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.

Results of Operations

Investment Income and Expenses

For the fiscal year ended October 31, 2006, the Company had investment income of $1,238,630, primarily from investments in short-term securities, and
net operating expenses of $1,876,947, resulting in a net investment loss of ($638,317). For the fiscal year ended October 31, 2005, the Company had investment income of $1,299,082, primarily from investments in short-term securities, and net
operating expenses of $2,609,971, resulting in a net investment loss of ($1,310,889). For the fiscal year ended October 31, 2004, the Company had investment income of $540,784, primarily from investments in short-term securities, and net
operating expenses of $2,859,165, net of expenses reimbursed by the Investment Advisor of $99,275, resulting in a net investment loss of ($2,318,381). The decrease in investment income for the year ended October 31, 2006 is due to decrease in
interest income from investment in the private companies. The decrease in operating expenses was due primarily to a decline in management fees as a result of reduced net assets under management during the period and the change of the management fee
at an annual rate equal to 2.00% of the Companys which was from the end of the quarter net assets through the fifth anniversary of the first closing date of April 5, 2001, to 1.00% of net assets thereafter. The increase in investment
income for the year ended October 31, 2005 is due to an increase in interest income from investments in the private companies and from an increase in interest earned on short-term securities. The decrease in operating expenses was primarily due
to a decline in management fees which resulted from a reduced level of net assets under management during the period. For fiscal 2004, the decline in investment income is due to a decline in interest earned on short-term securities, as well as a
decrease in the level of assets invested in short-term securities due to the Companys investment in private companies and private investment funds. Net operating expenses decreased during fiscal 2004 compared to fiscal 2003 due to reduced
management fees paid to the Investment Advisers.



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For the fiscal year ending October 31, 2006, 2005 and 2004 the Investment Advisers earned
$1,231,320, $2,082,454 and $2,402,059 in management fees, respectively. Management fees, recorded during the period ended October 31, 2006 decreased over the period ended October 31, 2005 due to a decrease in net assets and the change of
the management fee at an annual rate equal of 2.00% to 1.00% of net assets. The decrease in 2005 and 2004 is a result of the fact that net assets decreases for the periods of calculation of management fees during those periods. The Investment
Advisers provide investment management and administrative services required for the operation of the Company. 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. This fee is determined and payable quarterly.

Net Assets

The Companys net assets were $75,562,092, or a net asset value per unit of $255.96, at October 31, 2006. This represents a decline of
($17,786,755), or ($60.25) per unit, from net assets of $93,348,847, or $316.21 per unit, at October 31, 2005. The decrease resulted principally from i) a net investment loss of ($638,317), or ($2.16) per unit, ii) a net realized loss on
investment as describe below, of ($4,513, 734) or ($15.29) per unit, and iii) a net change in unrealized depreciation as describe below, of ($12,634,704) or ($42.80)per unit.

The Companys net assets were $93,348,847, or a net asset value per unit of $316.21, at October 31, 2005. This represents a decline of
($22,730,586), or ($77.00) per unit, from net assets of $116,079,433, or $393.21 per unit, at October 31, 2004. The decrease resulted principally from i) a distribution to members of $10,875,536 or $36.84 paid on April 22, 2005, ii) a net
investment loss of ($1,310,889), or ($4.44) per unit, iii) a net realized loss on investment as describe below, of ($8,527, 063) or ($28.89) per unit, and iii) a net change in unrealized depreciation as describe below, of ($2,017,098) or ($6.83) per
unit.

Realized and Unrealized Gains and Losses from Portfolio Investments

The realized loss of ($4,513,734) for the fiscal year ended October 31, 2006 was principally the result of the Companys sale of LightConnect
Inc, a private company investment which resulted in a loss of ($4,519,334).

The net change in unrealized (depreciation) of ($12,634,704)
for the year ended October 31, 2006 was principally the result of a decrease in the valuation of Silverback Systems, Inc of ($6,720,039) and OpVista Inc of ($5,685,700) both private company investments.

The realized loss of ($8,527,063) for the fiscal year ended October 31, 2005 was principally the result of i) the Companys sale of Monterey
Design Systems which resulted in a realized loss of ($6,968,823) ii) the sale of Virtual Silicon Technology, Inc resulting in a realized loss of ($4,885,416) and iii) the reclassification of Cenquest Inc., from unrealized depreciation to realized
loss of ($2,000,000). The realized loss was partially offset by the realized gain of $3,932,996 on the sale of Adeza Biomedical Corporation common shares and a realized gain of $2,160,665 on the sale of Senomyx, Inc. common shares.

The net change in unrealized (depreciation) of ($2,017,098) for the year ended October 31, 2005 was principally the combination of: i) the sale of
Monterey Design Systems, a private company investment, which resulted in a decrease in unrealized depreciation of approximately $7,150,000 ii) the sale of Netlogic Microsystems common shares, a public company investment, which resulted in a decrease
in unrealized depreciation of $3,293,078, iii) the sale of Senomyx common shares, a public company investment, which resulted in an increase in unrealized depreciation of $1,476,005, iv) an increase of $4,941,133 due to the write-down of
Chips & Systems, a private company investment, vi) an increase of $605,357 due to the write-down of Genoptix, a private company investment, vii) an increase of $4,000,000 due to the write-down of Cydelity, Inc., viii) an increase of
$4,000,000 due to the write-down of Tensys Medical Inc., a private company investment, ix) a decrease of $747,387 due to the write-up of NanoOpto Corporation, a private company investment and x) the reclassification of Cenquest, Inc from unrealized
depreciation to realized loss of $2,000,000.



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The realized loss for the fiscal year ended October 31, 2004 was principally the result of the
conclusion of Ancile Pharmaceuticals general assignment for the benefit of creditors, where the assets of the business have been sold and its affairs wound up. The Company received no further distributions and accordingly reclassified
$3,850,000 of unrealized depreciation to net realized loss on investments. This loss was offset by one of the Companys investments, Gyration, Inc., which entered into a merger agreement. On August 19, 2004, the Company received proceeds
totaling $6,948,069 as a cash consideration for its investment in Gyration, Inc., and as of October 31 2005 the company received an additional $700,346 that was held in escrow. In August 2004, the Company recorded a realized gain on the
transaction of $1,284,391.

The net change in unrealized depreciation for the fiscal year ended October 31, 2004 was principally the
result of a decrease in the valuation of Monterey Design Systems, a private company investment, by ($4,800,000), a decrease in the value of NetLogic Microsystems, Inc. (NASDAQ: NETL) by ($3,293,078), a decrease in the valuation of OpVista, a private
company investment, by ($1,500,000), and other net unrealized losses related to the Companys investments totaling ($1,289,192). Offsetting the losses was the reclassification of $3,850,000 of unrealized depreciation to net realized loss on its
investment in Ancile Pharmaceuticals. In addition, the Company recorded unrealized appreciation in the amount of $4,051,437 related to its investment in LightConnect and $1,476,005 related to Senomyx (NASDAQ: SNMX), a public company investment. The
Company utilized a discount of 30% in the valuation of both of its public holdings as of October 31, 2004. The discount utilized reflects the inability of the Company to sell its shares due to contractual lock-up agreements in place after
initial public offerings of common shares of both companies.

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 Advisers
make 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 81.35% of the Companys net assets. For the private investments held at October 31, 2006, changes to these estimates, i.e. changes in the valuations of these private investments, resulted in a $12.6 million decrease in net asset
value from October 31, 2005.

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

Initially, direct private company investments are valued based upon their original cost until developments provide a sufficient basis for use of a
valuation other than cost. Upon the occurrence of developments providing a sufficient basis for a change in valuation, direct private company investments will be valued by the private market or appraisal methods of valuation.
The private market method shall only be used with respect to reliable third party transactions by sophisticated, independent investors. The appraisal method shall be based upon such factors affecting the company such as earnings, net worth, reliable
private sale prices of the Companys securities, the market prices for similar securities of comparable companies, an assessment of the companys future prospects or, if appropriate, liquidation value. The values for the investments
referred to in this paragraph will be estimated regularly by the Investment Adviser or a committee of the Board of Managers, (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 Advisers, the Investment Advisers, 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.



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



|ITEM 7A. | 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 81.35% of net assets, which are not publicly traded. These investments are recorded at fair value as determined by the Investment Advisers in accordance with valuation guidelines adopted
by the Board of Managers. This method of valuation does not result in increases or decreases in the fair value of these securities in response to changes in market prices. Thus, these securities are not subject to equity price risk normally
associated with public equity markets, except that to the extent that the private investment funds hold underlying public securities, the Company is indirectly exposed to equity price risk associated with the public markets. At October 31, 2006
and October 31, 2005, the Company was not subject to equity price risk normally associated with public equity markets, except to the extent that the private investment funds that the Company has invested in has, from time to time, interests in
securities which may be publicly traded.



|ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
|------- | --------------------------------------------



|                                                                                                                                     |  |   
|------------------------------------------------------------------------------------------------------------------------------------ |  | --
|Report of Independent Registered Public Accounting Firm                                                                              |  | 13
|                                                                                                                                     | 
|Portfolios of Investments at October 31, 2006 and October 31, 2005                                                                   |  | 14
|                                                                                                                                     | 
|Statements of Assets and Liabilities at October 31, 2006, and October 31, 2005                                                       |  | 22
|                                                                                                                                     | 
|Statements of Operations for the years ended October 31, 2006, October 31, 2005 and October 31, 2004                                 |  | 23
|                                                                                                                                     | 
|Statements of Changes in Net Assets for the years ended October 31, 2006, October 31, 2005 and October 31, 2004                      |  | 24
|                                                                                                                                     | 
|Statements of Cash Flows for the years ended October 31, 2006, October 31, 2005 and October 31, 2004                                 |  | 25
|                                                                                                                                     | 
|Financial Highlights for the years ended October 31, 2006, October 31, 2005, October 31, 2004, October 31, 2003 and October 31,2002. |  | 26
|                                                                                                                                     | 
|Notes to Financial Statements                                                                                                        |  | 27

Note - All other schedules are omitted because of the absence of conditions under which they are
required or because the required information is included in the financial statements or the notes thereto.



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Members and Board of Managers of

Excelsior Venture Partners III, LLC

We have audited the accompanying
statements of assets and liabilities of Excelsior Venture Partners III, LLC (the Fund), including the portfolio of investments, as of October 31, 2006 and 2005, and the related statements of operations, changes in net assets and its
cash flows for each of the three years in the period ended October 31, 2006, and the financial highlights for each of the four years in the period ended October 31, 2006. These financial statements and financial highlights are the
responsibility of the Funds management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The financial highlights for the year ended October 31, 2002 were audited by
other auditors whose report, dated December 17, 2002, expressed an unqualified opinion on such financial highlights.

We conducted our audits in
accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights
are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds internal control over financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2006 and 2005, by correspondence with the custodian and the management of the private investment funds. We believe that our audits
provide a reasonable basis for our opinion.

As discussed in Note 1(a), the financial statements include investment securities valued at $61,466,377 and
$63,994,789 as of October 31, 2006 and 2005, respectively, representing 81.35% and 68.55%, respectively, of net assets, whose values have been estimated by the Investment Advisor, under the supervision of the Board of Managers, in the absence
of readily ascertainable market values. We have reviewed the procedures used by the Investment Adviser in preparing the valuations of investment securities and have inspected the underlying documentation, and in the circumstances we believe the
procedures are reasonable and the documentation appropriate. However, in the case of those securities with no readily ascertainable market value, because of the inherent uncertainty of valuation, the Investment Advisers estimate of values may
differ significantly from the values that would have been used had a ready market existed for the securities and the differences could be material.

In our
opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Excelsior Venture Partners III, LLC. as of October 31, 2006 and 2005, the results of its
operations, the changes in its net assets and its cash flows for each of the three years in the period ended October 31, 2006, and the financial highlights for each of the four years in the period ended October 31, 2006, in conformity with
accounting principles generally accepted in the United States of America.

LOGO

December 21, 2006

New
York, NY



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Excelsior Venture Partners III, LLC

Portfolio of Investments at October 31, 2006



|                        |            |  |                                                        |                     |                                              |                |   |           
|----------------------- | ---------- |  | ------------------------------------------------------ | ------------------- | -------------------------------------------- | -------------- | - | ----------
|Principal Amount/Shares |            |  |                                                        | Acquisition Date ## |                                              | Value (Note 1)
|                        |            |  | MONEY MARKET INSTRUMENTS  17.71%                      |                     |                                              |                |   |           
|$                       | 1,500,000  |  | Federal Farm Credit Bank Discount Note 5.07%, 11/01/06 |                     |                                              |                | $ | 1,500,000 
|                        | 6,890,000  |  | Federal Farm Credit Bank Discount Note 5.09%, 11/13/06 |                     |                                              |                |   | 6,878,310 
|                        | 2,000,000  |  | Federal Home Loan Bank Discount Note 5.09%, 11/01/06   |                     |                                              |                |   | 2,000,000 
|                        | 3,000,000  |  | Federal Home Loan Bank Discount Note 5.065%, 11/01/06  |                     |                                              |                |   | 3,000,000 
|                        |            |  |                                                        |                     |                                              |                |   |           
|                        |            |  | TOTAL MONEY MARKET INSTRUMENTS (Cost $13,378,310)      |                     |                                              |                |   | 13,378,310
|                        |            |  |                                                        |                     |                                              |                |   |           
|                        |            |  | PRIVATE COMPANIES **  64.82%                          |                     |                                              |                |   |           
|                        |            |  | Common Stocks #, @ 1.50%                              |                     |                                              |                |   |           
|                        |            |  | Capital Equipment  0.00%                              |                     |                                              |                |   |           
|                        | 157,396    |  | MIDAS Vision Systems, Inc.                             |                     | 03/03                                        |                |   |          
|                        |            |  |                                                        |                     |                                              |                |   |           
|                        |            |  | Enterprise Software  0.00%                            |                     |                                              |                |   |           
|                        | 1,000,000  |  | ***Cydelity, Inc.                                      |                     | 01/04                                        |                |   |          
|                        |            |  |                                                        |                     |                                              |                |   |           
|                        |            |  | Life Sciences  0.00%                                  |                     |                                              |                |   |           
|                        | 46,860     |  | Genoptix, Inc.                                         |                     | 07/03                                        |                |   |          
|                        |            |  |                                                        |                     |                                              |                |   |           
|                        |            |  | Optical  1.50%                                        |                     |                                              |                |   |           
|                        | 1,079,541  |  | OpVista, Inc,.                                         |                     | 06/06                                        |                |   | 1,138,542 
|                        |            |  |                                                        |                     |                                              |                |   |           
|                        |            |  | Semiconductor  0.00%                                  |                     |                                              |                |   |           
|                        | 40,026     |  | Silverback Systems, Inc.                               |                     | 04/06                                        |                |   |          
|                        |            |  |                                                        |                     |                                              |                |   |           
|                        |            |  | TOTAL COMMON STOCKS (Cost $19,190,611)                 |                     |                                              |                |   | 1,138,542 
|                        |            |  |                                                        |                     |                                              |                |   |           
|                        |            |  | Preferred Stocks #  61.39%                            |                     |                                              |                |   |           
|                        |            |  | Capital Equipment @  0.00%                            |                     |                                              |                |   |           
|                        | 933,593    |  | MIDAS Vision Systems, Inc., Series A-1                 |                     | 03/03                                        |                |   |          
|                        |            |  |                                                        |                     |                                              |                |   |           
|                        |            |  | Enterprise Software @  25.82%                         |                     |                                              |                |   |           
|                        | 19,995,000 |  | ***Cydelity, Inc., Series A                            |                     | 01/04                                        |                |   |          
|                        |            |  |                                                        |                     |                                              |                |   |           
|                        | 19,702,277 |  | ***Cydelity, Inc., Series A-1                          |                     | 05/06                                        |                |   | 3,940,456 
|                        | 25,535,051 |  | ***Cydelity, Inc., Series A-2                          |                     | 05/06                                        |                |   | 2,500,009 
|                        | 7,762,821  |  | ***LogicLibrary, Inc., Series A                        |                     | 01/02, 12/04,02/05, 08/05,03/06, 08/06,09/06 |                |   | 3,549,296 
|                        | 3,080,464  |  | ***LogicLibrary, Inc., Series A-1                      |                     | 08/03 & 05/04                                |                |   | 1,408,450 
|                        | 46,362,656 |  | ***Pilot Software Inc., Series A                       |                     | 05/02, 04/03,06/05                           |                |   | 8,110,096 
|                        |            |  |                                                        |                     |                                              |                |   |           
|                        |            |  |                                                        |                     |                                              |                |   | 19,508,307
|                        |            |  |                                                        |                     |                                              |                |   |           

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



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Excelsior Venture Partners III, LLC

Portfolio of Investments at October 31, 2006



|                       |  |                                           |  |                           |  |               
|---------------------- |  | ----------------------------------------- |  | ------------------------- |  | --------------
|Shares/PrincipalAmount |  |                                           |  | Acquisition Date ##       |  | Value (Note 1)
|                       |  | PRIVATE COMPANIES **,  (continued)       |  |                           |  |               
|                       |  | Preferred Stocks #  (continued)          |  |                           |  |               
|                       |  | Life Sciences  7.43%                     |  |                           |  |               
|1,999,999              |  | Archemix Corporation, Series A            |  | 08/02, 01/03,11/03        |  | 1,999,999     
|700,000                |  | Archemix Corporation, Series B            |  | 03/04, 09/04,12/05        |  | 700,000       
|942,481                |  | Genoptix, Inc., Series 1-A @              |  | 08/04                     |  | 950,822       
|1,403,696              |  | Genoptix, Inc., Series 1-B @              |  | 08/04                     |  | 950,822       
|620,580                |  | Genoptix, Inc., Series 1-C @              |  | 08/04, 01/05              |  | 554,178       
|728,413                |  | Genoptix, Inc., Series 1-D @              |  | 05/05                     |  | 461,815       
|                       |  |                                           |  |                           |  |               
|                       |  |                                           |  |                           |  | 5,617,636     
|                       |  |                                           |  |                           |  |               
|                       |  | Medical Technology @  3.21%              |  |                           |  |               
|4,166,667              |  | Tensys Medical, Inc., Series C            |  | 03/02                     |  | 1,887,160     
|1,187,500              |  | Tensys Medical, Inc., Series D            |  | 05/04                     |  | 537,840       
|                       |  |                                           |  |                           |  |               
|                       |  |                                           |  |                           |  | 2,425,000     
|                       |  |                                           |  |                           |  |               
|                       |  | Optical @  11.40%                        |  |                           |  |               
|956,234                |  | NanoOpto Corporation, Series A-1          |  | 10/01 & 3/02              |  | 840,912       
|3,023,399              |  | NanoOpto Corporation, Series B            |  | 09/03, 11/03,01/04, 07/04 |  | 1,286,155     
|1,682,470              |  | NanoOpto Corporation, Series C            |  | 03/05                     |  | 733,389       
|1,234,263              |  | NanoOpto Corporation, Series D            |  | 05/06                     |  | 382,622       
|5,089,790              |  | OpVista, Inc., Series AA                  |  | 06/06, 08/06              |  | 5,367,967     
|                       |  |                                           |  |                           |  |               
|                       |  |                                           |  |                           |  | 8,611,045     
|                       |  |                                           |  |                           |  |               
|                       |  | Semi-Conductor @  2.12%                  |  |                           |  |               
|7,000,000              |  | Chips & Systems, Inc., Series A           |  | 03/04                     |  |              
|772,503                |  | Silverback Systems, Inc., Series A-2      |  | 04/06                     |  |              
|559,993                |  | Silverback Systems, Inc., Series B        |  | 04/06                     |  | 1,600,000     
|                       |  |                                           |  |                           |  |               
|                       |  |                                           |  |                           |  | 1,600,000     
|                       |  |                                           |  |                           |  |               
|                       |  | Wireless @  11.41%                       |  |                           |  |               
|4,433,333              |  | Ethertronics, Inc., Series B              |  | 06/01, 09/02,07/03, 05/04 |  | 6,650,000     
|1,316,793              |  | Ethertronics, Inc., Series C              |  | 05/05, 10/05,07/06        |  | 1,975,190     
|                       |  |                                           |  |                           |  |               
|                       |  |                                           |  |                           |  | 8,625,190     
|                       |  |                                           |  |                           |  |               
|                       |  | TOTAL PREFERRED STOCKS (COST $62,048,095) |  |                           |  | 46,387,178    
|                       |  |                                           |  |                           |  |               

Notes to Financial Statements are an Integral Part of these Financial Statements.



15



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##### Table of Contents

Excelsior Venture Partners III, LLC

Portfolio of Investments October 31, 2006  (continued)



|                       |           |   |  |                                                        |                     |                     |                |           
|---------------------- | --------- | - |  | ------------------------------------------------------ | ------------------- | ------------------- | -------------- | ----------
|Shares/PrincipalAmount |           |   |  |                                                        | Acquisition Date ## |                     | Value (Note 1)
|                       |           |   |  | PRIVATE COMPANIES **,  (continued)                    |                     |                     |                |           
|                       |           |   |  | Notes@  1.93%                                         |                     |                     |                |           
|                       |           |   |  | Enterprise Software  1.86%                            |                     |                     |                |           
|$                      | 1,404,600 |   |  | ***Pilot Software Inc., 9.00% Bridge Note              |                     | 08/06, 10/06        |                | 1,404,600 
|                       |           |   |  |                                                        |                     |                     |                |           
|                       |           |   |  | Medical Technology  0.07%                             |                     |                     |                |           
|$                      | 52,017    |   |  | Tensys Medical, Inc., 8.00% Bridge Note                |                     | 07/06               |                | 52,017    
|                       |           |   |  |                                                        |                     |                     |                |           
|                       |           |   |  | Semi-Conductor  0.00%                                 |                     |                     |                |           
|$                      | 1,441,133 |   |  | Chips & Systems, Inc., 6.00% Bridge Note, March 2005 # |                     | 11/04, 01/05, 02/05 |                |          
|                       |           |   |  |                                                        |                     |                     |                |           
|                       |           |   |  | TOTAL NOTES (COST $2,897,750)                          |                     |                     |                | 1,456,617 
|                       |           |   |  |                                                        |                     |                     |                |           
|                       |           |   |  | Warrants #, @  0.00%                                  |                     |                     |                |           
|                       |           |   |  | Optical  0.00%                                        |                     |                     |                |           
|                       | 229,410   |   |  | NanoOpto Corp. Series C (expiration date 12/09)        |                     | 12/04               |                |          
|                       |           |   |  | Wireless  0.00%                                       |                     |                     |                |           
|                       | 281,667   |   |  | Ethertronics, Inc. Series B (expiration date 09/07)    |                     | 09/02, 07/03, 08/03 |                |          
|                       | 214,073   |   |  | Ethertronics, Inc. Series C (expiration date 01/09)    |                     | 05/05, 10/05, 07/06 |                |          
|                       |           |   |  |                                                        |                     |                     |                |           
|                       |           |   |  | TOTAL WARRANTS (Cost $0)                               |                     |                     |                |          
|                       |           |   |  |                                                        |                     |                     |                |           
|                       |           |   |  | TOTAL  PRIVATE COMPANIES (Cost $84,136,456)           |                     |                     |                | 48,982,337
|                       |           |   |  |                                                        |                     |                     |                |           
|                       |           |   | 
|Percent Owned          |           |   |  |                                                        |                     |                     |               
|                       |           |   |  | PRIVATE INVESTMENT FUNDS **, #  16.52%                |                     |                     |                |           
|                       | 0.39      | % |  | Advanced Technology Ventures VII, L.P.                 |                     | 08/01-09/06         |                | 1,342,895 
|                       | 1.58      | % |  | Burrill Life Sciences Capital Fund                     |                     | 12/02-09/06         |                | 1,311,766 
|                       | 1.35      | % |  | CHL Medical Partners II, L.P.                          |                     | 01/02-10/06         |                | 1,024,130 
|                       | 1.04      | % |  | CMEA Ventures VI, L.P.                                 |                     | 12/03-08/06         |                | 1,086,085 
|                       | 0.36      | % |  | Morgenthaler Partners VII, L.P.                        |                     | 07/01-10/06         |                | 1,620,474 
|                       | 0.58      | % |  | Prospect Ventures Partners II, L.P.                    |                     | 06/01-10/06         |                | 1,801,556 
|                       | 0.98      | % |  | Sevin Rosen Fund IX, L.P.                              |                     | 10/04-09/06         |                | 1,151,676 
|                       | 2.36      | % |  | Tallwood II, L.P.                                      |                     | 12/02-05/06         |                | 1,513,112 
|                       | 1.70      | % |  | Valhalla Partners, L.P.                                |                     | 10/03-06/06         |                | 1,632,346 
|                       |           |   |  |                                                        |                     |                     |                |           
|                       |           |   |  | TOTAL PRIVATE INVESTMENT FUNDS (Cost $13,780,450)      |                     |                     |                | 12,484,040
|                       |           |   |  |                                                        |                     |                     |                |           

Notes to Financial Statements are an Integral Part of these Financial Statements.



16



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##### Table of Contents

|          |  |                                                                                |  |   |            |  
|--------- |  | ------------------------------------------------------------------------------ |  | - | ---------- | -
|          |  | INVESTMENT COMPANIES  1.38%                                                   |  |   |           
|1,044,128 |  | Dreyfus Government Cash Management Fund Institutional Shares (Cost $1,044,128) |  |   | 1,044,128  |  
|          |  |                                                                                |  |   |            |  
|          |  | TOTAL INVESTMENTS (Cost $112,339,344)  100.43%                                |  |   | 75,888,815 |  
|          |  | OTHER ASSETS & LIABILITIES (NET) (0.43%)                                      |  |   | (326,723   | )
|          |  |                                                                                |  |   |            |  
|          |  | NET ASSETS  100.00%                                                           |  | $ | 75,562,092 |  
|          |  |                                                                                |  |   |            |  

---

|** | Restricted as to public resale. Acquired between June 1, 2001 and October 31, 2006. Total cost of restricted securities at October 31, 2006 aggregated $97,916,906.
Total value of restricted securities owned at October 31, 2006 was $61,466,377 or 81.35% of net assets.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



|@ | At October 31, 2006, the Company owned 5% or more of the companys outstanding voting shares thereby making the company an affiliate as defined by the Investment Company
Act of 1940, as amended. Total value of affiliated securities owned at October 31, 2006 (including investments in controlled affiliates) was $46,282,338.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|*** | At October 31, 2006, 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, 2006 was $20,912,907.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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

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



17



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##### Table of Contents

Excelsior Venture Partners III, LLC

Portfolio of Investments at October 31, 2005



|                       |            |  |                                                                |                     |                            |                |   |           
|---------------------- | ---------- |  | -------------------------------------------------------------- | ------------------- | -------------------------- | -------------- | - | ----------
|PrincipalAmount/Shares |            |  |                                                                | Acquisition Date ## |                            | Value (Note 1)
|                       |            |  | MONEY MARKET INSTRUMENTS  29.44%                              |                     |                            |                |   |           
|$                      | 7,000,000  |  | Federal Farm Credit Bank Discount Note 3.67%, 11/2/05          |                     |                            |                | $ | 6,999,286 
|$                      | 4,000,000  |  | Danske Commercial Paper 3.82%, 11/7/05                         |                     |                            |                |   | 3,997,453 
|$                      | 7,500,000  |  | Federal Home Loan Bank Discount Note 3.68%, 11/07/05           |                     |                            |                |   | 7,495,400 
|$                      | 5,000,000  |  | Federal Home Loan Mortgage Corp. Discount Note 3.72%, 11/08/05 |                     |                            |                |   | 4,996,383 
|$                      | 4,000,000  |  | Morgan Stanley Commercial Paper 3.84%, 11/08/05                |                     |                            |                |   | 3,997,013 
|                       |            |  |                                                                |                     |                            |                |   |           
|                       |            |  | TOTAL MONEY MARKET INSTRUMENTS (Cost $27,485,535)              |                     |                            |                |   | 27,485,535
|                       |            |  |                                                                |                     |                            |                |   |           
|                       |            |  | PRIVATE COMPANIES **  58.88%                                  |                     |                            |                |   |           
|                       |            |  | Common Stocks #, @ 0.00%                                      |                     |                            |                |   |           
|                       |            |  | Capital Equipment  0.00%                                      |                     |                            |                |   |           
|                       | 157,396    |  | MIDAS Vision Systems, Inc.                                     |                     | 03/03                      |                |   |          
|                       |            |  |                                                                |                     |                            |                |   |           
|                       |            |  | Enterprise Software  0.00%                                    |                     |                            |                |   |           
|                       | 1,000,000  |  | ***Cydelity, Inc.                                              |                     | 01/04                      |                |   |          
|                       |            |  |                                                                |                     |                            |                |   |           
|                       |            |  | Life Sciences  0.00%                                          |                     |                            |                |   |           
|                       | 46,860     |  | Genoptix, Inc.                                                 |                     | 07/03                      |                |   |          
|                       |            |  |                                                                |                     |                            |                |   |           
|                       |            |  | TOTAL COMMON STOCKS (Cost $5,247,500)                          |                     |                            |                |   |          
|                       |            |  |                                                                |                     |                            |                |   |           
|                       |            |  | Preferred Stocks # 53.56%                                     |                     |                            |                |   |           
|                       |            |  | Capital Equipment @  0.00%                                    |                     |                            |                |   |           
|                       | 933,593    |  | MIDAS Vision Systems, Inc., Series A-1                         |                     | 03/03                      |                |   |          
|                       |            |  |                                                                |                     |                            |                |   |           
|                       |            |  | Enterprise Software @ 13.40%                                  |                     |                            |                |   |           
|                       | 19,995,000 |  | ***Cydelity, Inc., Series A                                    |                     | 01/04                      |                |   |          
|                       | 6,530,581  |  | ***LogicLibrary, Inc., Series A                                |                     | 01/02, 12/04,02/05 & 08/05 |                |   | 2,985,916 
|                       | 3,080,464  |  | ***LogicLibrary, Inc., Series A-1                              |                     | 08/03 & 05/04              |                |   | 1,408,450 
|                       | 46,362,656 |  | ***Pilot Software Inc., Series A                               |                     | 05/02, 04/03,06/05         |                |   | 8,110,096 
|                       |            |  |                                                                |                     |                            |                |   |           
|                       |            |  |                                                                |                     |                            |                |   | 12,504,462
|                       |            |  |                                                                |                     |                            |                |   |           
|                       |            |  | Life Sciences  5.76%                                          |                     |                            |                |   |           
|                       | 1,999,999  |  | Archemix Corporation, Series A                                 |                     | 08/02, 01/03,11/03         |                |   | 1,999,999 
|                       | 466,666    |  | Archemix Corporation, Series B                                 |                     | 03/04 & 09/04              |                |   | 466,666   
|                       | 942,481    |  | Genoptix, Inc., Series 1-A @                                   |                     | 08/04                      |                |   | 950,822   
|                       | 1,403,696  |  | Genoptix, Inc., Series 1-B @                                   |                     | 08/04                      |                |   | 950,822   
|                       | 620,580    |  | Genoptix, Inc., Series 1-C @                                   |                     | 08/04, 01/05               |                |   | 554,178   
|                       | 728,413    |  | Genoptix, Inc., Series 1-D @                                   |                     | 05/05                      |                |   | 461,815   
|                       |            |  |                                                                |                     |                            |                |   |           
|                       |            |  |                                                                |                     |                            |                |   | 5,384,302 
|                       |            |  |                                                                |                     |                            |                |   |           

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



18



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##### Table of Contents

Excelsior Venture Partners III, LLC

Portfolio of Investments at October 31, 2005



|                       |            |  |                                                   |                     |                                              |                |   |           
|---------------------- | ---------- |  | ------------------------------------------------- | ------------------- | -------------------------------------------- | -------------- | - | ----------
|Shares/PrincipalAmount |            |  |                                                   | Acquisition Date ## |                                              | Value (Note 1)
|                       |            |  | PRIVATE COMPANIES **, @  (continued)             |                     |                                              |                |   |           
|                       |            |  | Preferred Stocks #  (continued)                  |                     |                                              |                |   |           
|                       |            |  | Medical Technology @  2.60%                      |                     |                                              |                |   |           
|                       | 4,166,667  |  | Tensys Medical, Inc., Series C                    |                     | 03/02                                        |                |   | 1,887,160 
|                       | 1,187,500  |  | Tensys Medical, Inc., Series D                    |                     | 05/04                                        |                |   | 537,840   
|                       |            |  |                                                   |                     |                                              |                |   |           
|                       |            |  |                                                   |                     |                                              |                |   | 2,425,000 
|                       |            |  |                                                   |                     |                                              |                |   |           
|                       |            |  | Optical @  18.01%                                |                     |                                              |                |   |           
|                       | 4,330,504  |  | LightConnect, Inc., Series B                      |                     | 07/01                                        |                | $ | 5,000,000 
|                       | 12,292,441 |  | LightConnect, Inc., Series C                      |                     | 12/02                                        |                |   | 992,000   
|                       | 956,234    |  | NanoOpto Corporation, Series A-1                  |                     | 10/01 & 3/02                                 |                |   | 1,116,350 
|                       | 3,023,399  |  | NanoOpto Corporation, Series B                    |                     | 09/03, 11/03,01/04, 07/04                    |                |   | 1,286,155 
|                       | 1,682,470  |  | NanoOpto Corporation, Series C                    |                     | 03/05                                        |                |   | 733,389   
|                       | 5,333,333  |  | OpVista, Inc., Series B                           |                     | 07/01                                        |                |   |          
|                       | 12,671,059 |  | OpVista, Inc., Series C                           |                     | 09/03                                        |                |   | 5,000,000 
|                       | 10,368,483 |  | OpVista, Inc., Series D                           |                     | 11/04                                        |                |   | 1,058,000 
|                       | 15,935,224 |  | OpVista, Inc., Series E                           |                     | 05/05, 06/05                                 |                |   | 1,626,030 
|                       |            |  |                                                   |                     |                                              |                |   |           
|                       |            |  |                                                   |                     |                                              |                |   | 16,811,924
|                       |            |  |                                                   |                     |                                              |                |   |           
|                       |            |  | Semi-Conductor @  5.09%                          |                     |                                              |                |   |           
|                       | 7,000,000  |  | Chips & Systems, Inc., Series A                   |                     | 03/04                                        |                |   |          
|                       | 2,211,898  |  | Silverback Systems, Inc., Series B-1              |                     | 03/03 & 09/03                                |                |   | 1,415,615 
|                       | 34,364,257 |  | Silverback Systems, Inc., Series C                |                     | 03/03, 09/03,04/04                           |                |   | 3,333,333 
|                       |            |  |                                                   |                     |                                              |                |   |           
|                       |            |  |                                                   |                     |                                              |                |   | 4,748,948 
|                       |            |  |                                                   |                     |                                              |                |   |           
|                       |            |  | Wireless @  8.70%                                |                     |                                              |                |   |           
|                       | 4,433,333  |  | Ethertronics, Inc., Series B                      |                     | 06/01, 09/02,07/03, 05/04                    |                |   | 6,650,000 
|                       | 980,172    |  | Ethertronics, Inc., Series C                      |                     | 05/05, 10/05                                 |                |   | 1,470,258 
|                       |            |  |                                                   |                     |                                              |                |   |           
|                       |            |  |                                                   |                     |                                              |                |   | 8,120,258 
|                       |            |  |                                                   |                     |                                              |                |   |           
|                       |            |  | TOTAL PREFERRED STOCKS (COST $65,779,204)         |                     |                                              |                |   | 49,994,894
|                       |            |  |                                                   |                     |                                              |                |   |           
|                       |            |  | Notes @  5.32%                                   |                     |                                              |                |   |           
|                       |            |  | Enterprise Software  3.21%                       |                     |                                              |                |   |           
|$                      | 3,000,000  |  | ***Cydelity, Inc., 8.00% Bridge Note, March, 2006 |                     | 12/04, 01/05,02/05, 03/05,04/05, 05/05,07/05 |                |   | 3,000,000 
|                       |            |  |                                                   |                     |                                              |                |   |           

Notes to Financial Statements are an Integral Part of these Financial Statements.



19



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##### Table of Contents

Excelsior Venture Partners III, LLC

Portfolio of Investments October 31, 2005  (continued)



|                       |           |  |                                                                     |                     |                     |                |   |           
|---------------------- | --------- |  | ------------------------------------------------------------------- | ------------------- | ------------------- | -------------- | - | ----------
|Shares/PrincipalAmount |           |  |                                                                     | Acquisition Date ## |                     | Value (Note 1)
|                       |           |  | PRIVATE COMPANIES **, @  (continued)                               |                     |                     |                |   |           
|                       |           |  | Notes  (continued)                                                 |                     |                     |                |   |           
|                       |           |  | Semi-Conductor  2.11%                                              |                     |                     |                |   |           
|$                      | 1,441,133 |  | Chips & Systems, Inc., 6.00% Bridge Note, March 2005 #              |                     | 11/04, 01/05, 02/05 |                |   |          
|$                      | 1,333,335 |  | Silverback Systems, Inc., 5.00% Bridge Note, January 2006           |                     | 01/05 & 04/05       |                |   | 1,333,335 
|$                      | 635,871   |  | Silverback Systems, Inc., 5.00% Bridge Note, July 2006              |                     | 07/05               |                |   | 635,871   
|                       |           |  |                                                                     |                     |                     |                |   |           
|                       |           |  |                                                                     |                     |                     |                |   | 1,969,206 
|                       |           |  | TOTAL NOTES (COST $6,410,339)                                       |                     |                     |                |   | 4,969,206 
|                       |           |  |                                                                     |                     |                     |                |   |           
|                       |           |  | Warrants #, @  0.00%                                               |                     |                     |                |   |           
|                       |           |  | Enterprise Software  0.00%                                         |                     |                     |                |   |           
|                       | 7,500,000 |  | ***Cydelity, Inc. Series A (expiration dates 12/08 and 07/09)       |                     | 12/04 & 07/05       |                | $ |          
|                       |           |  | Optical  0.00%                                                     |                     |                     |                |   |           
|                       | 229,410   |  | NanoOpto Corp. Series C (expiration date 12/09)                     |                     | 12/04               |                |   |          
|                       |           |  | Semiconductor  0.00%                                               |                     |                     |                |   |           
|                       | 4,173,033 |  | Silverback Systems, Inc. Series C (expiration date 01/12 and 07/12) |                     | 01/05, 04/05, 07/05 |                |   | 196       
|                       |           |  | Wireless  0.00%                                                    |                     |                     |                |   |           
|                       | 281,667   |  | Ethertronics, Inc. Series B (expiration date 09/07)                 |                     | 09/02, 07/03, 08/03 |                |   |          
|                       | 163,580   |  | Ethertronics, Inc. Series C (expiration date 01/09)                 |                     | 05/05 & 10/05       |                |   |          
|                       |           |  |                                                                     |                     |                     |                |   |           
|                       |           |  | TOTAL WARRANTS (Cost $196)                                          |                     |                     |                |   | 196       
|                       |           |  |                                                                     |                     |                     |                |   |           
|                       |           |  | TOTAL  PRIVATE COMPANIES (Cost $77,437,239)                        |                     |                     |                |   | 54,964,296
|                       |           |  |                                                                     |                     |                     |                |   |           
|                       |           |  |                                                                    
|Percent Owned          |           |  |                                                                     |                     |                     |               
|                       |           |  | PRIVATE INVESTMENT FUNDS **, #  9.68%                              |                     |                     |                |   |           
|                       | 0.39%     |  | Advanced Technology Ventures VII, L.P.                              |                     | 08/01-10/05         |                |   | 919,392   
|                       | 1.55%     |  | Burrill Life Sciences Capital Fund                                  |                     | 12/02-10/05         |                |   | 988,026   
|                       | 1.35%     |  | CHL Medical Partners II, L.P.                                       |                     | 01/02-08/05         |                |   | 630,925   
|                       | 1.04%     |  | CMEA Ventures, L.P.                                                 |                     | 12/03-10/05         |                |   | 532,630   
|                       | 0.36%     |  | Morgenthaler Partners VII, L.P.                                     |                     | 07/01-08/05         |                |   | 1,505,173 
|                       | 0.57%     |  | Prospect Ventures Partners II, L.P.                                 |                     | 06/01-10/05         |                |   | 1,756,519 
|                       | 0.98%     |  | Sevin Rosen Fund IX, L.P.                                           |                     | 10/04-10/05         |                |   | 705,979   
|                       | 2.36%     |  | Tallwood II, L.P.                                                   |                     | 12/02-08/05         |                |   | 1,072,808 
|                       | 1.70%     |  | Valhalla Partners, L.P.                                             |                     | 10/03-10/05         |                |   | 919,041   
|                       |           |  |                                                                     |                     |                     |                |   |           
|                       |           |  | TOTAL PRIVATE INVESTMENT FUNDS (Cost $10,373,375)                   |                     |                     |                |   | 9,030,493 
|                       |           |  |                                                                     |                     |                     |                |   |           

Notes to Financial Statements are an Integral Part of these Financial Statements.



20



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##### Table of Contents

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

---

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



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



|@ | At October 31, 2005, the Company owned 5% or more of the companys outstanding voting shares thereby making the company an affiliate as defined by the Investment Company
Act of 1940, as amended. Total value of affiliated securities owned at October 31, 2005 (including investments in controlled affiliates) was $52,497,631.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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

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



21



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##### Table of Contents

Excelsior Venture Partners III, LLC

Statements of Assets and Liabilities



|                                                                                             |  |             |             |   |      |   |             |  
|-------------------------------------------------------------------------------------------- |  | ----------- | ----------- | - | ---- | - | ----------- | -
|                                                                                             |  | October 31, |            
|                                                                                             |  | 2006        |             |   | 2005 |  
|ASSETS:                                                                                      |  |             |             |   |      |   |             |  
|Unaffiliated Issuers at value (Cost $30,902,887 and $41,438,334, respectively)               |  | $           | 29,606,477  |   |      | $ | 40,095,452  |  
|Controlled Affiliated Issuers at value (Cost $24,912,907 and $19,504,462, respectively)      |  |             | 20,912,907  |   |      |   | 15,504,462  |  
|Non Controlled Affiliated Issuers at value (Cost $56,523,550 and $55,466,112, respectively)  |  |             | 25,369,431  |   |      |   | 36,993,169  |  
|                                                                                             |  |             |             |   |      |   |             |  
|Investments, at value (Cost $112,339,344 and $116,408,908, respectively) (Note 1)            |  |             | 75,888,815  |   |      |   | 92,593,083  |  
|                                                                                             |  |             |             |   |      |   |             |  
|Cash and cash equivalents                                                                    |  |             | 2,934       |   |      |   | 574,146     |  
|Distributions receivable                                                                     |  |             |            |   |      |   | 600,031     |  
|Interest receivable                                                                          |  |             | 24,939      |   |      |   | 182,860     |  
|Other receivables                                                                            |  |             | 1,945       |   |      |   | 1,945       |  
|Prepaid insurance                                                                            |  |             | 1,378       |   |      |   | 2,380       |  
|                                                                                             |  |             |             |   |      |   |             |  
|Total Assets                                                                                 |  |             | 75,920,011  |   |      |   | 93,954,445  |  
|                                                                                             |  |             |             |   |      |   |             |  
|LIABILITIES:                                                                                 |  |             |             |   |      |   |             |  
|Management fees payable (Note 2)                                                             |  |             | 190,458     |   |      |   | 469,295     |  
|Professional fees payable                                                                    |  |             | 87,000      |   |      |   | 64,255      |  
|Board of Managers fees payable (Note 2)                                                     |  |             | 22,000      |   |      |   | 8,000       |  
|Administration fees payable (Note 2)                                                         |  |             | 53,961      |   |      |   | 53,861      |  
|Other payables                                                                               |  |             | 4,500       |   |      |   | 10,187      |  
|                                                                                             |  |             |             |   |      |   |             |  
|Total Liabilities                                                                            |  |             | 357,919     |   |      |   | 605,598     |  
|                                                                                             |  |             |             |   |      |   |             |  
|NET ASSETS                                                                                   |  | $           | 75,562,092  |   |      | $ | 93,348,847  |  
|                                                                                             |  |             |             |   |      |   |             |  
|NET ASSETS consist of:                                                                       |  |             |             |   |      |   |             |  
|Paid-in capital                                                                              |  | $           | 112,012,621 |   |      | $ | 117,164,672 |  
|Unrealized (depreciation) on investments                                                     |  |             | (36,450,529 | ) |      |   | (23,815,825 | )
|                                                                                             |  |             |             |   |      |   |             |  
|Total Net Assets                                                                             |  | $           | 75,562,092  |   |      | $ | 93,348,847  |  
|                                                                                             |  |             |             |   |      |   |             |  
|Units of Membership Interest Outstanding (Unlimited Number of no par value units authorized) |  |             | 295,210     |   |      |   | 295,210     |  
|                                                                                             |  |             |             |   |      |   |             |  
|NET ASSET VALUE PER UNIT                                                                     |  | $           | 255.96      |   |      | $ | 316.21      |  
|                                                                                             |  |             |             |   |      |   |             |  

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



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Excelsior Venture Partners III, LLC

Statements of Operations



|                                                                |  |                           |             |   |                           |   |             |                           |  |   |            |  
|--------------------------------------------------------------- |  | ------------------------- | ----------- | - | ------------------------- | - | ----------- | ------------------------- |  | - | ---------- | -
|                                                                |  | Year EndedOctober 31,2006 |             |   | Year EndedOctober 31,2005 |   |             | Year EndedOctober 31,2004 | 
|INVESTMENT INCOME:                                              |  |                           |             |   |                           |   |             |                           |  |   |            |  
|Interest income from unaffiliated investments                   |  | $                         | 978,408     |   |                           | $ | 962,657     |                           |  | $ | 510,260    |  
|Interest income from affiliated investments                     |  |                           | 218,652     |   |                           |   | 299,031     |                           |  |   | 15,791     |  
|Dividend income                                                 |  |                           | 41,570      |   |                           |   | 37,394      |                           |  |   | 14,733     |  
|                                                                |  |                           |             |   |                           |   |             |                           |  |   |            |  
|Total Income                                                    |  |                           | 1,238,630   |   |                           |   | 1,299,082   |                           |  |   | 540,784    |  
|                                                                |  |                           |             |   |                           |   |             |                           |  |   |            |  
|EXPENSES:                                                       |  |                           |             |   |                           |   |             |                           |  |   |            |  
|Management fees (Note 2)                                        |  |                           | 1,231,320   |   |                           |   | 2,082,454   |                           |  |   | 2,402,059  |  
|Professional fees                                               |  |                           | 295,751     |   |                           |   | 224,021     |                           |  |   | 231,291    |  
|Administration fees (Note 2)                                    |  |                           | 146,003     |   |                           |   | 134,829     |                           |  |   | 139,525    |  
|Board of Managers fees (Note 2)                                |  |                           | 98,500      |   |                           |   | 60,000      |                           |  |   | 68,000     |  
|Insurance                                                       |  |                           | 44,032      |   |                           |   | 63,069      |                           |  |   | 79,607     |  
|Custodian fees                                                  |  |                           | 32,901      |   |                           |   | 29,175      |                           |  |   | 21,948     |  
|Miscellaneous fees                                              |  |                           | 28,440      |   |                           |   | 16,423      |                           |  |   | 16,010     |  
|                                                                |  |                           |             |   |                           |   |             |                           |  |   |            |  
|Total Expenses                                                  |  |                           | 1,876,947   |   |                           |   | 2,609,971   |                           |  |   | 2,958,440  |  
|Less expense reimbursed by affiliate (Note 2)                   |  |                           |            |   |                           |   |            |                           |  |   | (99,275    | )
|Net Expenses                                                    |  |                           | 1,876,947   |   |                           |   | 2,609,971   |                           |  |   | 2,859,165  |  
|                                                                |  |                           |             |   |                           |   |             |                           |  |   |            |  
|NET INVESTMENT (LOSS)                                           |  |                           | (638,317    | ) |                           |   | (1,310,889  | )                         |  |   | (2,318,381 | )
|                                                                |  |                           |             |   |                           |   |             |                           |  |   |            |  
|NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:(Note 1) |  |                           |             |   |                           |   |             |                           |  |   |            |  
|Net realized gain (loss) on affiliated investments              |  |                           | (4,507,186  | ) |                           |   | (10,112,825 | )                         |  |   | 4,210      |  
|Net realized gain (loss) on unaffiliated investments            |  |                           | (6,548      | ) |                           |   | 1,585,762   |                           |  |   | (2,559,421 | )
|Net change in unrealized (depreciation) on investments          |  |                           | (12,634,704 | ) |                           |   | (2,017,098  | )                         |  |   | (1,504,828 | )
|                                                                |  |                           |             |   |                           |   |             |                           |  |   |            |  
|NET REALIZED AND UNREALIZED (LOSS) ON INVESTMENTS               |  |                           | (17,148,438 | ) |                           |   | (10,544,161 | )                         |  |   | (4,060,039 | )
|                                                                |  |                           |             |   |                           |   |             |                           |  |   |            |  
|NET (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS          |  | $                         | (17,786,755 | ) |                           | $ | (11,855,050 | )                         |  | $ | (6,378,420 | )
|                                                                |  |                           |             |   |                           |   |             |                           |  |   |            |  

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



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Excelsior Venture Partners III, LLC

Statements of Changes in Net Assets



|                                                       |  |                           |             |   |                           |   |             |                           |  |   |             |  
|------------------------------------------------------ |  | ------------------------- | ----------- | - | ------------------------- | - | ----------- | ------------------------- |  | - | ----------- | -
|                                                       |  | Year EndedOctober 31,2006 |             |   | Year EndedOctober 31,2005 |   |             | Year EndedOctober 31,2004 | 
|OPERATIONS:                                            |  |                           |             |   |                           |   |             |                           |  |   |             |  
|Net investment (loss)                                  |  | $                         | (638,317    | ) |                           | $ | (1,310,889  | )                         |  | $ | (2,318,381  | )
|Net realized (loss) on investments                     |  |                           | (4,513,734  | ) |                           |   | (8,527,063  | )                         |  |   | (2,555,211  | )
|Net change in unrealized (depreciation) on investments |  |                           | (12,634,704 | ) |                           |   | (2,017,098  | )                         |  |   | (1,504,828  | )
|                                                       |  |                           |             |   |                           |   |             |                           |  |   |             |  
|Net (decrease) in net assets resulting from operations |  |                           | (17,786,755 | ) |                           |   | (11,855,050 | )                         |  |   | (6,378,420  | )
|                                                       |  |                           |             |   |                           |   |             |                           |  |   |             |  
|DISTRIBUTIONS TO UNITHOLDERS:                          |  |                           |             |   |                           |   |             |                           |  |   |             |  
|Distributions                                          |  |                           |            |   |                           |   | (10,875,536 | )                         |  |   |            |  
|                                                       |  |                           |             |   |                           |   |             |                           |  |   |             |  
|Net (Decrease) in Net Assets                           |  |                           | (17,786,755 | ) |                           |   | (22,730,586 | )                         |  |   | (6,378,420  | )
|                                                       |  |                           |             |   |                           |   |             |                           |  |   |             |  
|NET ASSETS:                                            |  |                           |             |   |                           |   |             |                           |  |   |             |  
|Beginning of period                                    |  |                           | 93,348,847  |   |                           |   | 116,079,433 |                           |  |   | 122,457,853 |  
|                                                       |  |                           |             |   |                           |   |             |                           |  |   |             |  
|End of period                                          |  | $                         | 75,562,092  |   |                           | $ | 93,348,847  |                           |  | $ | 116,079,433 |  
|                                                       |  |                           |             |   |                           |   |             |                           |  |   |             |  

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



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Excelsior Venture Partners III, LLC

Statements of Cash Flows



|                                                                                                                                |  |                           |             |   |                           |   |             |                           |  |   |             |  
|------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------- | ----------- | - | ------------------------- | - | ----------- | ------------------------- |  | - | ----------- | -
|                                                                                                                                |  | Year EndedOctober 31,2006 |             |   | Year EndedOctober 31,2005 |   |             | Year EndedOctober 31,2004 | 
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                                                           |  |                           |             |   |                           |   |             |                           |  |   |             |  
|Net (decrease) in net assets resulting from operations                                                                          |  | $                         | (17,786,755 | ) |                           | $ | (11,855,050 | )                         |  | $ | (6,378,420  | )
|Adjustments to reconcile net (decrease) in net assets from operations to net cash (used in) / provided by operating
activities: |  |                           |             |   |                           |   |             |                           |  |   |             |  
|Net change in unrealized depreciation on investments                                                                            |  |                           | 12,634,704  |   |                           |   | 2,017,098   |                           |  |   | 1,504,828   |  
|Purchase of investments                                                                                                         |  |                           | (17,056,870 | ) |                           |   | (21,298,464 | )                         |  |   | (16,483,800 | )
|Proceeds received from the sale of investments and distributions from private investment funds                                  |  |                           | 2,436,843   |   |                           |   | 16,964,454  |                           |  |   | 8,205,129   |  
|Realized loss on sale of investments- net                                                                                       |  |                           | 4,513,734   |   |                           |   | 8,527,063   |                           |  |   | 2,555,211   |  
|Change in short-term investments- net                                                                                           |  |                           | 14,175,856  |   |                           |   | 16,927,902  |                           |  |   | 7,987,809   |  
|Decrease (increase) in receivable from affiliate                                                                                |  |                           |            |   |                           |   | 99,275      |                           |  |   | (99,275     | )
|Decrease (increase) in other receivable                                                                                         |  |                           | 600,031     |   |                           |   | 542,479     |                           |  |   | (1,142,510  | )
|Decrease (increase) in interest receivable                                                                                      |  |                           | 157,921     |   |                           |   | (172,285    | )                         |  |   | (10,168     | )
|Decrease (increase) in prepaid insurance                                                                                        |  |                           | 1,002       |   |                           |   | 1,411       |                           |  |   | (799        | )
|(Decrease) in management fee payable                                                                                            |  |                           | (278,837    | ) |                           |   | (114,274    | )                         |  |   | (33,753     | )
|Increase (decrease) in Board of Managers fees payable                                                                          |  |                           | 14,000      |   |                           |   | (60,000     | )                         |  |   | 8,000       |  
|Increase (decrease) in other expenses payable                                                                                   |  |                           | 17,159      |   |                           |   | (129,927    | )                         |  |   | 149,594     |  
|                                                                                                                                |  |                           |             |   |                           |   |             |                           |  |   |             |  
|Net cash (used in) / provided by operating activities                                                                           |  |                           | (571,212    | ) |                           |   | 11,449,682  |                           |  |   | (3,738,154  | )
|                                                                                                                                |  |                           |             |   |                           |   |             |                           |  |   |             |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                                                           |  |                           |             |   |                           |   |             |                           |  |   |             |  
|Cash distributions to unitholders                                                                                               |  |                           |            |   |                           |   | (10,875,536 | )                         |  |   |            |  
|                                                                                                                                |  |                           |             |   |                           |   |             |                           |  |   |             |  
|Net cash used in financing activities                                                                                           |  |                           |            |   |                           |   | (10,875,536 | )                         |  |   |            |  
|                                                                                                                                |  |                           |             |   |                           |   |             |                           |  |   |             |  
|Net change in cash                                                                                                              |  |                           | (571,212    | ) |                           |   | 574,146     |                           |  |   | (3,738,154  | )
|                                                                                                                                |  |                           |             |   |                           |   |             |                           |  |   |             |  
|Cash at beginning of period                                                                                                     |  |                           | 574,146     |   |                           |   |            |                           |  |   | 3,738,154   |  
|                                                                                                                                |  |                           |             |   |                           |   |             |                           |  |   |             |  
|Cash at end of period                                                                                                           |  | $                         | 2,934       |   |                           | $ | 574,146     |                           |  | $ |            |  
|                                                                                                                                |  |                           |             |   |                           |   |             |                           |  |   |             |  
|SUPPLEMENTAL INFORMATION:                                                                                                       |  |                           |             |   |                           |   |             |                           |  |   |             |  
|Non-cash distributions received from private investment funds:                                                                  |  | $                         | 0           |   |                           | $ | 88,121      |                           |  | $ | 0           |  

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



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Excelsior Venture Partners III, LLC

Financial Highlights  Selected Per Unit Data and Ratios

Per Unit Operating Performance:(1)



|                                                              |  |                           |        |    |                           |   |        |                           |  |   |                           |      |  |                           |         |    |  |   |         |     
|------------------------------------------------------------- |  | ------------------------- | ------ | -- | ------------------------- | - | ------ | ------------------------- |  | - | ------------------------- | ---- |  | ------------------------- | ------- | -- |  | - | ------- | ----
|                                                              |  | Year EndedOctober 31,2006 |        |    | Year EndedOctober 31,2005 |   |        | Year EndedOctober 31,2004 |  |   | Year EndedOctober 31,2003 |      |  | Year EndedOctober 31,2002 |        
|NET ASSET VALUE, BEGINNING OF PERIOD                          |  | $                         | 316.21 |    |                           | $ | 393.21 |                           |  | $ | 414.82                    |      |  | $                         | 469.14  |    |  | $ | 495.99  |     
|INCOME FROM INVESTMENT OPERATIONS:                            |  |                           |        |    |                           |   |        |                           |  |   |                           |      |  |                           |         |    |  |   |         |     
|Net investment loss                                           |  |                           | (2.16  | )  |                           |   | (4.44  | )                         |  |   | (7.85                     | )    |  |                           | (7.04   | )  |  |   | (5.62   | )   
|Net realized and unrealized (loss) on investment transactions |  |                           | (58.09 | )  |                           |   | (35.72 | )                         |  |   | (13.76                    | )    |  |                           | (47.28  | )  |  |   | (21.23  | )   
|                                                              |  |                           |        |    |                           |   |        |                           |  |   |                           |      |  |                           |         |    |  |   |         |     
|Total from investment operations                              |  |                           | (60.25 | )  |                           |   | (40.16 | )                         |  |   | (21.61                    | )    |  |                           | (54.32  | )  |  |   | (26.85  | )   
|                                                              |  |                           |        |    |                           |   |        |                           |  |   |                           |      |  |                           |         |    |  |   |         |     
|DISTRIBUTIONS                                                 |  |                           |       |    |                           |   | (36.84 | )                         |  |   |                          |      |  |                           |        |    |  |   |        |     
|                                                              |  |                           |        |    |                           |   |        |                           |  |   |                           |      |  |                           |         |    |  |   |         |     
|Total Distributions                                           |  |                           |       |    |                           |   | (36.84 | )                         |  |   |                          |      |  |                           |        |    |  |   |        |     
|                                                              |  |                           |        |    |                           |   |        |                           |  |   |                           |      |  |                           |         |    |  |   |         |     
|NET ASSET VALUE, END OF PERIOD                                |  | $                         | 255.96 |    |                           | $ | 316.21 |                           |  | $ | 393.21                    |      |  | $                         | 414.82  |    |  | $ | 469.14  |     
|                                                              |  |                           |        |    |                           |   |        |                           |  |   |                           |      |  |                           |         |    |  |   |         |     
|TOTAL NET ASSET VALUE RETURN (3)                              |  |                           | (19.05 | )% |                           |   | (11.24 | )%                        |  |   | (5.21                     | )%   |  |                           | (11.58  | )% |  |   | (5.41   | )%  
|                                                              |  |                           |        |    |                           |   |        |                           |  |   |                           |      |  |                           |         |    |  |   |         |     
|RATIOS AND SUPPLEMENTAL DATA (5):                             |  |                           |        |    |                           |   |        |                           |  |   |                           |      |  |                           |         |    |  |   |         |     
|Net Assets, End of Period (000s)                             |  | $                         | 75,562 |    |                           | $ | 93,349 |                           |  | $ | 116,079                   |      |  | $                         | 122,458 |    |  | $ | 138,495 |     
|Ratios to Average Net Assets:                                 |  |                           |        |    |                           |   |        |                           |  |   |                           |      |  |                           |         |    |  |   |         |     
|Gross Expenses                                                |  |                           | 2.18   | %  |                           |   | 2.45   | %                         |  |   | 2.45                      | %    |  |                           | 2.27    | %  |  |   | 2.43    | %   
|Net Expenses                                                  |  |                           | 2.18   | %  |                           |   | 2.45   | %                         |  |   | 2.37                      | %(4) |  |                           | 2.27    | %  |  |   | 2.36    | %(2)
|Net Investment Income (Loss)                                  |  |                           | (0.74  | )% |                           |   | (1.23  | )%                        |  |   | (1.92                     | )%   |  |                           | (1.61   | )% |  |   | (1.15   | )%  
|Portfolio Turnover Rate                                       |  |                           | 4      | %  |                           |   | 24     | %                         |  |   | 11                        | %    |  |                           | 0       | %  |  |   | 0       | %   



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



|(2) | Net of organization expense reversal.
|--- | -------------------------------------



|(3) | 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 are not traded. Therefore market value total investment return is not calculated.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | Net of reimbursement from affiliate of $99,275 or $0.37 per share. See Note 2.
|--- | ------------------------------------------------------------------------------



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

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



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EXCELSIOR VENTURE PARTNERS III, LLC

NOTES TO FINANCIAL STATEMENTS

October 31, 2006

Note
1  Significant Accounting Policies

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

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

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

The following is a summary of the Companys significant
accounting policies. Such policies are in conformity with generally accepted accounting principles for investment companies and are consistently followed in the preparation of the financial statements. Generally accepted accounting principles in the
United States require management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from these estimates.

A. Investment Valuation:

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

The value for securities for which no public market exists is difficult to determine. Generally,
such investments will be valued on a going concern basis without giving effect to any disposition costs. There is a range of values that is reasonable for such investments at any particular time. Initially, direct investments are valued
based upon their original cost until developments provide a sufficient basis for use of a valuation other than 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



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by sophisticated, independent investors. The appraisal method shall be based upon such factors affecting the investee company such as earnings, net worth,
reliable private sale prices of the investee companys securities, the market prices for similar securities of comparable companies, an assessment of the investee companys future prospects or, if appropriate, liquidation value. The values
for the investments referred to in this paragraph will be estimated regularly by the Investment Adviser or a committee of the Board under the supervision of the Board of Managers and, in any event, not less frequently than quarterly. However, there
can be no assurance that such value will represent the return that might ultimately be realized by the Company from the investments.

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

At October 31, 2006 and October 31, 2005, market quotations were not readily available for the
Companys portfolio of securities valued at $61,466,377 or 81.35% of net assets and $63,994,789 or 68.55% of net assets, respectively. Such securities were valued by the Investment Adviser, under the supervision of the Board of Managers.
Because of the inherent uncertainty of valuation, the estimated values may differ significantly from the values that would have been used had a ready market for the securities existed, and the differences could be material.

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 October 31, 2006, the Company has not received information to determine the tax cost of the
Private Investment Funds as of October 31, 2006. At December 31, 2005 and December 31, 2004, the Private Investment Funds had a cost basis for tax purposes of $9,315,233 and $6,388,718, respectively. Based on values of the Private
Investment Funds as of October 31, 2006, and after adjustment for purchases and sales between December 31, 2005 and October 31, 2006, this results in net unrealized appreciation for tax purposes on the Private Investment Funds of
$373,810. The cost basis for federal tax purposes of the Companys other investments is $100,558,894, and those investments had net depreciation on a tax basis at October 31, 2006 of $38,794,561. The cost basis for federal tax purposes of
the Companys other investments at October 31, 2005, was $106,035,533, and those investments had net depreciation on a tax basis at October 31, 2005 of $22,472,943.



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

UST Advisers, Inc. (USTA) which has its principal offices at 225 High Ridge Road, Stamford, Connecticut 06905, is a Delaware corporation and
registered investment adviser (the Investment Adviser). The Investment Adviser is a wholly-owned subsidiary of United States Trust Company, National Association (USTC-NA). USTC-NA is a wholly-owned subsidiary of U. S. Trust
Corporation (U.S. Trust), a registered financial holding company, which has its principal offices at 114 West 47thStreet, New York, New York 10036-1532, and which is, in turn, a wholly-owned subsidiary of The Charles Schwab Corporation (Schwab), which has its principal offices at 120 Kearney Street, San Francisco, California 94108.

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

Under the Agreement for the services provided, the Investment Adviser is entitled to receive a management fee at an annual rate equal to 2.00% of the
Companys end of the quarter net assets through the fifth anniversary of the first closing date of April 5, 2001, and 1.00% of net assets thereafter. Prior to December 16, 2005 and pursuant to a sub-advisory agreement (the
Sub-Advisory Agreement) among the Company, the former Investment Adviser, and United States Trust Company of New York (U.S. Trust NY), U.S. Trust NY served as the investment sub-adviser (the Investment
Sub-Adviser) to the Company and received an investment management fee from the former Investment Adviser and Investment Adviser. As of October 31, 2006 and October 31, 2005, $190,458 and $469,295 were payable to the Investment
Adviser and former Investment Adviser, respectively.

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

In addition
to the management fee, the Investment Adviser is entitled to allocations and distributions equal to the Incentive Carried Interest. The Incentive Carried Interest is an amount equal to 20% of the excess, if any, of the Companys cumulative
realized capital gains on Direct Investments, over the sum of (a) cumulative realized capital losses on investments of any type (b) cumulative gross unrealized capital depreciation on investments of any type and (c) cumulative net
expenses. Direct Investments means Company investments in domestic and foreign companies in which the equity is closely held by company founders, management, and/or a limited number of institutional investors and negotiated private investments in
public companies. As of October 31, 2006 and October 31, 2005, there was no Incentive Carried Interest earned by the Investment Adviser or the former Investment Adviser.

Pursuant to an Administration, Accounting and Investor Services Agreement, the Company retains PFPC Inc. (PFPC), a majority-owned subsidiary
of The PNC Financial Services Group, as administrator, accounting and investor services agent. In addition, PFPC Trust Company serves as the Companys custodian. In consideration for its services, the Company (i) pays PFPC a variable fee
between 0.105% and 0.07%, based on average quarterly net assets, payable monthly, subject to a minimum quarterly fee of approximately $30,000, (ii) pays annual fees of approximately $36,667 for taxation services and (iii) reimburses PFPC
for out-of-pocket expenses. Administration fees for the year ended October 31, 2006 amounted to $146,003, of which $53,961 was payable at October 31, 2006. Administration fees for the year ended October 31, 2005 amounted to $134,829,
of which $53,861 was payable at October 31, 2005. Administration fees for the year ended October 31, 2004 amounted to $139,525.

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



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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 a $10,000 as an annual retainer and the Chairman of the Board receives an additional $1,000
annual retainer. Also, each member of the Board will receive $2,000 per quarterly meeting attended. In addition, each Board member will receive $500 per quarterly telephonic meeting and $500 for any other telephonic special meeting. For each audit
committee meeting attended, Board members will receive $1,500, while the Chairman of the Audit Committee will receive an additional $1,000 retainer. Each member of the Board is reimbursed for expenses incurred for attending meetings. No person who
is an officer, manager or employee of U.S. Trust, or its subsidiaries, who serves as an officer, manager or employee of the Company receives any compensation from the Company. For the years ended October 31, 2006, 2005 and 2004 the Board of
Directors fees totaled $98,500, $60,000 and $68,000 of which $22,000, $8,000 and $68,000 was payable at October 31, 2006, 2005 and 2004, respectively.

As of October 31, 2006, and October 31, 2005 Excelsior Venture Investors III, LLC had an investment in the Company of $47,969,297 and $59,260,913, respectively. This represents an ownership interest of
63.48% in the Company as of both dates.

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

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

Note 3  Purchases and Sales of Securities

Excluding short-term investments, the Company had $17,056,870, $21,298,464, $16,483,800 in purchases and $2,436,843, $16,964,454, $8,205,129 in sales of
securities for the periods ending October 31, 2006, October 31, 2005 and October 31, 2004, respectively.

Note
4  Commitments

As of October 31, 2006, the Company had outstanding investment commitments totaling $10,190,694.



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Note 5  Transactions with Affiliated Companies

An affiliated company is a company in which the Company has ownership of more than 5% of the voting securities. The Company did not receive dividends from
affiliated companies during the year ended October 31, 2006 and October 31, 2005. Transactions with companies, which are or were affiliates, were as follows:



|                                                 |  |                                               |  |                       |            |                                   |   |                                     |  |   |                  |   |                     |   |        |                                               |   |                                |   |  |            |  |   |           
|------------------------------------------------ |  | --------------------------------------------- |  | --------------------- | ---------- | --------------------------------- | - | ----------------------------------- |  | - | ---------------- | - | ------------------- | - | ------ | --------------------------------------------- | - | ------------------------------ | - |  | ---------- |  | - | ----------
|                                                 |  |                                               |  |                       |            |                                   |   | For the Year Ended October 31, 2006 |  |  
|Name ofInvestment                                |  | Shares/PrincipalAmount Held atOctober 31,2005 |  | October 31,2005 Value |            | Purchases /ConversionAcquisitions |   | Sale/Conversion Proceeds            |  |   | InterestReceived |   | RealizedGain (Loss) |   |        | Shares/PrincipalAmount Held atOctober 31,2006 |   | October 31,2006 Value (Note 1)
|Controlled Affiliates                            |  |                                               |  |                       |            |                                   |   |                                     |  |   |                  |   |                     |   |        |                                               |   |                                |   |  |            |  |   |           
|Pilot Software Inc., Series A Preferred          |  | 46,362,656                                    |  | $                     | 8,110,096  |                                   | $ |                                    |  | $ |                 |   |                     | $ |       |                                               | $ |                               |   |  | 46,362,656 |  | $ | 8,110,096 
|Pilot Software Inc., Bridge Note, 9%             |  |                                              |  |                       |           |                                   |   | 1,404,600                           |  |   |                 |   |                     |   | 19,484 |                                               |   |                               |   |  | 1,404,600  |  |   | 1,404,600 
|LogicLibrary, Inc., Series A Preferred           |  | 6,530,581                                     |  |                       | 2,985,916  |                                   |   | 563,380                             |  |   |                 |   |                     |   |       |                                               |   |                               |   |  | 7,762,821  |  |   | 3,549,296 
|LogicLibrary, Inc., Series A-1 Preferred         |  | 3,080,464                                     |  |                       | 1,408,450  |                                   |   |                                    |  |   |                 |   |                     |   |       |                                               |   |                               |   |  | 3,080,464  |  |   | 1,408,450 
|Cydelity Inc. Series A Preferred                 |  | 19,995,000                                    |  |                       |           |                                   |   |                                    |  |   |                 |   |                     |   |       |                                               |   |                               |   |  | 19,995,000 |  |   |          
|Cydelity Inc. Series A-1 Preferred               |  |                                              |  |                       |           |                                   |   | 3,940,456                           |  |   |                 |   |                     |   |       |                                               |   |                               |   |  | 19,702,277 |  |   | 3,940,456 
|Cydelity Inc. Series A-2 Preferred               |  |                                              |  |                       |           |                                   |   | 2,500,009                           |  |   |                 |   |                     |   |       |                                               |   |                               |   |  | 25,535,051 |  |   | 2,500,009 
|Cydelity Inc. Common Stock                       |  | 1,000,000                                     |  |                       |           |                                   |   |                                    |  |   |                 |   |                     |   |       |                                               |   |                               |   |  | 1,000,000  |  |   |          
|Cydelity Inc. Series A Warrants                  |  | 7,500,000                                     |  |                       |           |                                   |   |                                    |  |   |                 |   |                     |   |       |                                               |   |                               |   |  |           |  |   |          
|Cydelity Inc., Bridge Note, 8%                   |  | 3,000,000                                     |  |                       | 3,000,000  |                                   |   | 700,000                             |  |   | (3,700,000       | ) |                     |   |       |                                               |   |                               |   |  |           |  |   |          
|                                                 |  |                                               |  |                       |            |                                   |   |                                     |  |   |                  |   |                     |   |        |                                               |   |                                |   |  |            |  |   |           
|Total Controlled Affiliates                      |  |                                               |  | $                     | 15,504,462 |                                   | $ | 9,108,445                           |  | $ | (3,700,000       | ) |                     | $ | 19,484 |                                               | $ |                               |   |  |            |  | $ | 20,912,907
|Non-Controlled Affiliates                        |  |                                               |  |                       |            |                                   |   |                                     |  |   |                  |   |                     |   |        |                                               |   |                                |   |  |            |  |   |           
|Chips & Systems, Inc., Series A Preferred        |  | 7,000,000                                     |  |                       |           |                                   |   |                                    |  |   |                 |   |                     |   |       |                                               |   |                               |   |  | 7,000,000  |  |   |          
|Chips & Systems, Inc. Bridge Note                |  | 1,441,133                                     |  |                       |           |                                   |   |                                    |  |   |                 |   |                     |   |       |                                               |   |                               |   |  | 1,441,133  |  |   |          
|Ethertronics, Inc., Series B Preferred           |  | 4,433,333                                     |  |                       | 6,650,000  |                                   |   |                                    |  |   |                 |   |                     |   |       |                                               |   |                               |   |  | 4,433,333  |  |   | 6,650,000 
|Ethertronics, Inc., Series B Warrants            |  | 281,667                                       |  |                       |           |                                   |   |                                    |  |   |                 |   |                     |   |       |                                               |   |                               |   |  | 281,667    |  |   |          
|Ethertronics, Inc., Series C Warrants            |  | 163,580                                       |  |                       |           |                                   |   |                                    |  |   |                 |   |                     |   |       |                                               |   |                               |   |  | 214,073    |  |   |          
|Ethertronics, Inc., Bridge Note                  |  |                                              |  |                       |           |                                   |   | 500,000                             |  |   | (500,000         | ) |                     |   |       |                                               |   |                               |   |  |           |  |   |          
|Ethertronics, Inc., Series C Preferred           |  | 980,172                                       |  |                       | 1,470,258  |                                   |   | 504,932                             |  |   |                 |   |                     |   |       |                                               |   |                               |   |  | 1,316,793  |  |   | 1,975,190 
|Genoptix, Inc., Series 1-A Preferred             |  | 942,481                                       |  |                       | 950,822    |                                   |   |                                    |  |   |                 |   |                     |   |       |                                               |   |                               |   |  | 942,481    |  |   | 950,822   
|Genoptix, Inc., Series 1-B Preferred             |  | 1,403,696                                     |  |                       | 950,822    |                                   |   |                                    |  |   |                 |   |                     |   |       |                                               |   |                               |   |  | 1,403,696  |  |   | 950,822   
|Genoptix, Inc., Common Stock                     |  | 46,860                                        |  |                       |           |                                   |   |                                    |  |   |                 |   |                     |   |       |                                               |   |                               |   |  | 46,860     |  |   |          
|Genoptix, Inc., Series 1-C Preferred             |  | 620,580                                       |  |                       | 554,178    |                                   |   |                                    |  |   |                 |   |                     |   |       |                                               |   |                               |   |  | 620,580    |  |   | 554,178   
|Genoptix, Inc., Series 1-D Preferred             |  | 728,413                                       |  |                       | 461,815    |                                   |   |                                    |  |   |                 |   |                     |   |       |                                               |   |                               |   |  | 728,413    |  |   | 461,815   
|LightConnect, Inc., Series B Preferred           |  | 4,330,504                                     |  |                       | 5,000,000  |                                   |   |                                    |  |   | (5,000,000       | ) |                     |   |       |                                               |   | (3,771,140                     | ) |  |           |  |   |          
|LightConnect, Inc., Series C Preferred           |  | 12,292,441                                    |  |                       | 992,000    |                                   |   |                                    |  |   | (992,000         | ) |                     |   |       |                                               |   | (748,194                       | ) |  |           |  |   |          
|MIDAS Vision Systems, Inc., Series A-1 Preferred |  | 933,593                                       |  |                       |           |                                   |   |                                    |  |   |                 |   |                     |   |       |                                               |   |                               |   |  | 933,593    |  |   |          
|MIDAS Vision Systems, Inc., Common Stock         |  | 157,396                                       |  |                       |           |                                   |   |                                    |  |   |                 |   |                     |   |       |                                               |   |                               |   |  | 157,396    |  |   |          
|NanoOpto Corp., Series A-1 Preferred             |  | 956,234                                       |  |                       | 1,116,350  |                                   |   |                                    |  |   |                 |   |                     |   |       |                                               |   |                               |   |  | 956,234    |  |   | 840,912   
|NanoOpto Corp., Series B Preferred               |  | 3,023,399                                     |  |                       | 1,286,155  |                                   |   |                                    |  |   |                 |   |                     |   |       |                                               |   |                               |   |  | 3,023,399  |  |   | 1,286,155 
|NanoOpto Corp., Series C Preferred               |  | 1,682,470                                     |  |                       | 733,389    |                                   |   |                                    |  |   |                 |   |                     |   |       |                                               |   |                               |   |  | 1,682,470  |  |   | 733,389   
|NanoOpto Corp., Series C Warrants                |  | 229,410                                       |  |                       |           |                                   |   |                                    |  |   |                 |   |                     |   |       |                                               |   |                               |   |  | 229,410    |  |   |          
|NanoOpto Corp., Series D Preferred               |  |                                              |  |                       |           |                                   |   | 382,622                             |  |   |                 |   |                     |   |       |                                               |   |                               |   |  | 1,234,263  |  |   | 382,622   
|OpVista, Inc., Series AA Preferred               |  |                                              |  |                       |           |                                   |   | 4,508,179                           |  |   |                 |   |                     |   |       |                                               |   |                               |   |  | 5,089,790  |  |   | 5,367,967 
|OpVista, Inc., Series B Preferred                |  | 5,333,333                                     |  |                       |           |                                   |   |                                    |  |   | (4,000,000       | ) |                     |   |       |                                               |   |                               |   |  |           |  |   |          
|OpVista, Inc., Series C Preferred                |  | 12,671,059                                    |  |                       | 5,000,000  |                                   |   |                                    |  |   | (2,500,000       | ) |                     |   |       |                                               |   |                               |   |  |           |  |   |          
|OpVista, Inc., Series D Preferred                |  | 10,368,483                                    |  |                       | 1,058,000  |                                   |   | 1,058,000                           |  |   | (1,058,000       | ) |                     |   |       |                                               |   |                               |   |  |           |  |   |          
|OpVista, Inc., Series E Preferred                |  | 15,935,224                                    |  |                       | 1,626,030  |                                   |   | 1,626,030                           |  |   | (1,626,031       | ) |                     |   |       |                                               |   |                               |   |  |           |  |   |          
|OpVista, Inc., Common Stock                      |  |                                              |  |                       |           |                                   |   | 9,184,031                           |  |   |                 |   |                     |   |       |                                               |   |                               |   |  | 1,079,541  |  |   | 1,138,542 
|OpVista, Inc. 8% Bridge Note                     |  |                                              |  |                       |           |                                   |   | 1,727,599                           |  |   | (1,727,599       | ) |                     |   |       |                                               |   |                               |   |  |           |  |   |          
|OpVista, Inc., Warrants                          |  |                                              |  |                       |           |                                   |   | 8,681                               |  |   | (8,681           | ) |                     |   |       |                                               |   | (8,681                         | ) |  |           |  |   |          
|Silverback Systems, Inc., Common                 |  |                                              |  |                       |           |                                   |   | 4,759,081                           |  |   |                 |   |                     |   |       |                                               |   |                               |   |  | 40,026     |  |   |          
|Silverback Systems, Inc., Series B               |  |                                              |  |                       |           |                                   |   | 1,500,781                           |  |   |                 |   |                     |   |       |                                               |   |                               |   |  | 559,993    |  |   | 1,600,000 
|Silverback Systems, Inc., Series A-2 Preferred   |  |                                              |  |                       |           |                                   |   | 2,070,310                           |  |   |                 |   |                     |   |       |                                               |   |                               |   |  | 772,503    |  |   |          
|Silverback Systems, Inc., Series B-1 Preferred   |  | 2,211,898                                     |  |                       | 1,415,615  |                                   |   |                                    |  |   | (1,415,615       | ) |                     |   |       |                                               |   |                               |   |  |           |  |   |          
|Silverback Systems, Inc., Series C Preferred     |  | 34,364,257                                    |  |                       | 3,333,333  |                                   |   |                                    |  |   | (3,343,467       | ) |                     |   |       |                                               |   |                               |   |  |           |  |   |          
|Silverback Systems, Inc., 5% Bridge Notes        |  | 1,969,206                                     |  |                       | 1,969,206  |                                   |   | 300,000                             |  |   | (2,269,206       | ) |                     |   |       |                                               |   |                               |   |  |           |  |   |          
|Silverback Systems, Inc., Series C Warrant       |  | 4,173,033                                     |  |                       | 196        |                                   |   |                                    |  |   | (196             | ) |                     |   |       |                                               |   | (195                           | ) |  |           |  |   |          
|Tensys Medical, Inc., Bridge Note                |  |                                              |  |                       |           |                                   |   | 52,017                              |  |   |                 |   |                     |   |       |                                               |   |                               |   |  | 52,017     |  |   | 52,017    
|Tensys Medical, Inc., Series C Preferred         |  | 4,166,667                                     |  |                       | 1,887,160  |                                   |   |                                    |  |   |                 |   |                     |   |       |                                               |   |                               |   |  | 4,166,667  |  |   | 1,887,160 
|Tensys Medical, Inc., Series D Preferred         |  | 1,187,500                                     |  |                       | 537,840    |                                   |   |                                    |  |   |                 |   |                     |   |       |                                               |   |                               |   |  | 1,187,500  |  |   | 537,840   
|                                                 |  |                                               |  |                       |            |                                   |   |                                     |  |   |                  |   |                     |   |        |                                               |   |                                |   |  |            |  |   |           
|Total Non -Controlled Affiliates                 |  |                                               |  | $                     | 36,993,169 |                                   | $ | 28,182,263                          |  | $ | (24,440,795      | ) |                     | $ | 0      |                                               | $ | (4,528,210                     | ) |  |            |  | $ | 25,369,431
|                                                 |  |                                               |  |                       |            |                                   |   |                                     |  |   |                  |   |                     |   |        |                                               |   |                                |   |  |            |  |   |           



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|                                                     |  |                                               |  |                       |            |                                   |   |                                     |  |   |                  |   |                     |   |         |                                               |   |                               |   |  |            |  |   |           
|---------------------------------------------------- |  | --------------------------------------------- |  | --------------------- | ---------- | --------------------------------- | - | ----------------------------------- |  | - | ---------------- | - | ------------------- | - | ------- | --------------------------------------------- | - | ----------------------------- | - |  | ---------- |  | - | ----------
|                                                     |  |                                               |  |                       |            |                                   |   | For the Year Ended October 31, 2005 |  |  
|Name ofInvestment                                    |  | Shares/PrincipalAmount Held atOctober 31,2004 |  | October 31,2004 Value |            | Purchases /ConversionAcquisitions |   | Sale/Conversion Proceeds            |  |   | InterestReceived |   | RealizedGain (Loss) |   |         | Shares/PrincipalAmount Held atOctober 31,2005 |   | October 31,2005Value (Note 1)
|Controlled Affiliates                                |  |                                               |  |                       |            |                                   |   |                                     |  |   |                  |   |                     |   |         |                                               |   |                               |   |  |            |  |   |           
|Pilot Software Inc., Series A Preferred              |  | 20,000,000                                    |  | $                     | 4,000,000  |                                   | $ | 4,110,096                           |  | $ |                 |   |                     | $ |        |                                               | $ |                              |   |  | 46,362,656 |  | $ | 8,110,096 
|Pilot Software Inc., Bridge Note, 9%                 |  | 750,000                                       |  |                       | 750,000    |                                   |   | 1,500,000                           |  |   | (2,250,000       | ) |                     |   | 101,034 |                                               |   |                              |   |  |           |  |   |          
|LogicLibrary, Inc., Series A Preferred               |  | 4,374,256                                     |  |                       | 2,000,000  |                                   |   | 985,916                             |  |   |                 |   |                     |   |        |                                               |   |                              |   |  | 6,530,581  |  |   | 2,985,916 
|LogicLibrary, Inc., Series A-1 Preferred             |  | 3,080,464                                     |  |                       | 1,408,450  |                                   |   |                                    |  |   |                 |   |                     |   |        |                                               |   |                              |   |  | 3,080,464  |  |   | 1,408,450 
|Cydelity Inc. Series A Preferred                     |  | 19,995,000                                    |  |                       | 4,000,000  |                                   |   |                                    |  |   |                 |   |                     |   |        |                                               |   |                              |   |  | 19,995,000 |  |   |          
|Cydelity Inc. Common Stock                           |  | 1,000,000                                     |  |                       |           |                                   |   |                                    |  |   |                 |   |                     |   |        |                                               |   |                              |   |  | 1,000,000  |  |   |          
|Cydelity Inc. Series A Warrants                      |  |                                              |  |                       |           |                                   |   |                                    |  |   |                 |   |                     |   |        |                                               |   |                              |   |  | 7,500,000  |  |   |          
|Cydelity Inc., Bridge Note, 8%                       |  |                                              |  |                       |           |                                   |   | 3,000,000                           |  |   |                 |   |                     |   | 123,531 |                                               |   |                              |   |  | 3,000,000  |  |   | 3,000,000 
|                                                     |  |                                               |  |                       |            |                                   |   |                                     |  |   |                  |   |                     |   |         |                                               |   |                               |   |  |            |  |   |           
|Total Controlled Affiliates                          |  |                                               |  | $                     | 12,158,450 |                                   | $ | 9,596,012                           |  | $ | (2,250,000       | ) |                     | $ | 224,565 |                                               | $ |                              |   |  |            |  | $ | 15,504,462
|Non-Controlled Affiliates                            |  |                                               |  |                       |            |                                   |   |                                     |  |   |                  |   |                     |   |         |                                               |   |                               |   |  |            |  |   |           
|Adeza Biomedical Corp., Series 5 Preferred           |  | 647,948                                       |  | $                     | 3,000,000  |                                   | $ |                                    |  | $ | (6,932,996       | ) |                     | $ |        |                                               | $ | 3,932,996                     |   |  |           |  | $ |          
|Cenquest, Inc., Series 2 Preferred                   |  | 4,425                                         |  |                       |           |                                   |   |                                    |  |   |                 |   |                     |   |        |                                               |   | (2,000,000                    | ) |  |           |  |   |          
|Chips & Systems, Inc., Series A Preferred            |  | 7,000,000                                     |  |                       | 3,500,000  |                                   |   |                                    |  |   |                 |   |                     |   |        |                                               |   |                              |   |  | 7,000,000  |  |   |          
|Chips & Systems, Inc. Bridge Note                    |  |                                              |  |                       |           |                                   |   | 1,441,133                           |  |   |                 |   |                     |   | 4,084   |                                               |   |                              |   |  | 1,441,133  |  |   |          
|Ethertronics, Inc., Series B Preferred               |  | 4,433,333                                     |  |                       | 6,650,000  |                                   |   |                                    |  |   |                 |   |                     |   |        |                                               |   |                              |   |  | 4,433,333  |  |   | 6,650,000 
|Ethertronics, Inc., Series B Warrants                |  | 281,667                                       |  |                       |           |                                   |   |                                    |  |   |                 |   |                     |   |        |                                               |   |                              |   |  | 281,667    |  |   |          
|Ethertronics, Inc., Series C Warrants                |  |                                              |  |                       |           |                                   |   |                                    |  |   |                 |   |                     |   |        |                                               |   |                              |   |  | 163,580    |  |   |          
|Ethertronics, Inc., Bridge Note                      |  |                                              |  |                       |           |                                   |   | 250,000                             |  |   | (250,000         | ) |                     |   | 3,311   |                                               |   |                              |   |  |           |  |   |          
|Ethertronics, Inc., Series C Preferred               |  |                                              |  |                       |           |                                   |   | 1,470,258                           |  |   |                 |   |                     |   |        |                                               |   |                              |   |  | 980,172    |  |   | 1,470,258 
|Genoptix, Inc., Series 1-A Preferred                 |  | 942,481                                       |  |                       | 1,253,500  |                                   |   |                                    |  |   |                 |   |                     |   |        |                                               |   |                              |   |  | 942,481    |  |   | 950,822   
|Genoptix, Inc., Series 1-B Preferred                 |  | 1,403,696                                     |  |                       | 1,250,000  |                                   |   |                                    |  |   |                 |   |                     |   |        |                                               |   |                              |   |  | 1,403,696  |  |   | 950,822   
|Genoptix, Inc., Common Stock                         |  | 46,860                                        |  |                       |           |                                   |   |                                    |  |   |                 |   |                     |   |        |                                               |   |                              |   |  | 46,860     |  |   |          
|Genoptix, Inc., Series 1-C Preferred                 |  | 310,290                                       |  |                       | 277,089    |                                   |   | 277,089                             |  |   |                 |   |                     |   |        |                                               |   |                              |   |  | 620,580    |  |   | 554,178   
|Genoptix, Inc., Series 1-D Preferred                 |  |                                              |  |                       |           |                                   |   | 461,815                             |  |   |                 |   |                     |   |        |                                               |   |                              |   |  | 728,413    |  |   | 461,815   
|LightConnect, Inc., Series B Preferred               |  | 4,330,504                                     |  |                       | 5,000,000  |                                   |   |                                    |  |   |                 |   |                     |   |        |                                               |   |                              |   |  | 4,330,504  |  |   | 5,000,000 
|LightConnect, Inc., Series C Preferred               |  | 12,292,441                                    |  |                       | 992,000    |                                   |   |                                    |  |   |                 |   |                     |   |        |                                               |   |                              |   |  | 12,292,441 |  |   | 992,000   
|MIDAS Vision Systems, Inc., Series A-1 Preferred     |  | 933,593                                       |  |                       |           |                                   |   |                                    |  |   |                 |   |                     |   |        |                                               |   |                              |   |  | 933,593    |  |   |          
|MIDAS Vision Systems, Inc., Common Stock             |  | 157,396                                       |  |                       |           |                                   |   |                                    |  |   |                 |   |                     |   |        |                                               |   |                              |   |  | 157,396    |  |   |          
|Monterey Design Systems, Inc., Common Stock          |  | 708,955                                       |  |                       |           |                                   |   |                                    |  |   |                 |   |                     |   |        |                                               |   | (4,750,000                    | ) |  |           |  |   |          
|Monterey Design Systems, Inc., Series 2 Preferred    |  | 3,333,333                                     |  |                       | 600,000    |                                   |   |                                    |  |   | (781,176         | ) |                     |   |        |                                               |   | (2,218,825                    | ) |  |           |  |   |          
|NanoOpto Corp., Series A-1 Preferred                 |  | 956,234                                       |  |                       |           |                                   |   |                                    |  |   |                 |   |                     |   |        |                                               |   |                              |   |  | 956,234    |  |   | 1,116,350 
|NanoOpto Corp., Series B Preferred                   |  | 3,023,399                                     |  |                       | 1,655,119  |                                   |   |                                    |  |   |                 |   |                     |   |        |                                               |   |                              |   |  | 3,023,399  |  |   | 1,286,155 
|NanoOpto Corp., Bridge Note                          |  |                                              |  |                       |           |                                   |   | 500,000                             |  |   | (511,288         | ) |                     |   | 11,288  |                                               |   |                              |   |  |           |  |   |          
|NanoOpto Corp., Series C Preferred                   |  |                                              |  |                       |           |                                   |   |                                    |  |   |                 |   |                     |   |        |                                               |   |                              |   |  | 1,682,470  |  |   | 733,389   
|NanoOpto Corp., Series C Warrants                    |  |                                              |  |                       |           |                                   |   |                                    |  |   |                 |   |                     |   |        |                                               |   |                              |   |  | 229,410    |  |   |          
|OpVista, Inc., Series B Preferred                    |  | 5,333,333                                     |  |                       |           |                                   |   |                                    |  |   |                 |   |                     |   |        |                                               |   |                              |   |  | 5,333,333  |  |   |          
|OpVista, Inc., Series C Preferred                    |  | 12,671,059                                    |  |                       | 5,000,000  |                                   |   |                                    |  |   |                 |   |                     |   |        |                                               |   |                              |   |  | 12,671,059 |  |   | 5,000,000 
|OpVista, Inc., Series D Preferred                    |  |                                              |  |                       |           |                                   |   | 1,058,000                           |  |   |                 |   |                     |   |        |                                               |   |                              |   |  | 10,368,483 |  |   | 1,058,000 
|OpVista, Inc., Series E Preferred                    |  |                                              |  |                       |           |                                   |   | 1,626,030                           |  |   |                 |   |                     |   |        |                                               |   |                              |   |  | 15,935,224 |  |   | 1,626,030 
|Silverback Systems, Inc., Series B-1 Preferred       |  | 2,211,898                                     |  |                       | 450,051    |                                   |   |                                    |  |   |                 |   |                     |   |        |                                               |   |                              |   |  | 2,211,898  |  |   | 1,415,615 
|Silverback Systems, Inc., Series C Preferred         |  | 34,364,257                                    |  |                       | 4,298,896  |                                   |   |                                    |  |   |                 |   |                     |   |        |                                               |   |                              |   |  | 34,364,257 |  |   | 3,333,333 
|Silverback Systems, Inc., 5% Bridge Notes            |  |                                              |  |                       |           |                                   |   | 1,969,206                           |  |   |                 |   |                     |   | 55,783  |                                               |   |                              |   |  | 1,969,206  |  |   | 1,969,206 
|Silverback Systems, Inc., Series C Warrant           |  |                                              |  |                       |           |                                   |   | 196                                 |  |   |                 |   |                     |   |        |                                               |   |                              |   |  | 4,173,033  |  |   | 196       
|Tensys Medical, Inc., Series C Preferred             |  | 4,166,667                                     |  |                       | 5,000,000  |                                   |   |                                    |  |   |                 |   |                     |   |        |                                               |   |                              |   |  | 4,166,667  |  |   | 1,887,160 
|Tensys Medical, Inc., Series D Preferred             |  | 1,187,500                                     |  |                       | 1,425,000  |                                   |   |                                    |  |   |                 |   |                     |   |        |                                               |   |                              |   |  | 1,187,500  |  |   | 537,840   
|Virtual Silicon Technology, Inc., Series C Preferred |  | 3,096,551                                     |  |                       | 5,000,000  |                                   |   |                                    |  |   | (607,446         | ) |                     |   |        |                                               |   | (4,392,554                    | ) |  |           |  |   |          
|Virtual Silicon Technology, Inc., Bridge Note        |  | 88,738                                        |  |                       | 88,738     |                                   |   | 492,862                             |  |   |                 |   |                     |   |        |                                               |   | (492,862                      | ) |  |           |  |   |          
|                                                     |  |                                               |  |                       |            |                                   |   |                                     |  |   |                  |   |                     |   |         |                                               |   |                               |   |  |            |  |   |           
|Total Non -Controlled Affiliates                     |  |                                               |  | $                     | 45,440,393 |                                   | $ | 9,546,589                           |  | $ | (9,082,906       | ) |                     | $ | 74,466  |                                               | $ | (9,921,245                    | ) |  |            |  | $ | 36,993,169
|                                                     |  |                                               |  |                       |            |                                   |   |                                     |  |   |                  |   |                     |   |         |                                               |   |                               |   |  |            |  |   |           

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



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Note 6  Pending Litigation

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

The former Investment Adviser, certain of its affiliates and others have also been named in four
class action lawsuits and derivative actions which allege that the former Investment Adviser, certain of its affiliates and others allowed certain parties to engage in illegal and improper mutual fund trading practices, which allegedly caused
financial injury to the shareholders of certain mutual funds managed by the former Investment Adviser. Each seeks unspecified monetary damages and related equitable relief.

The class and derivative actions described above were transferred to the United States District Court for the District of Maryland for coordinated and
consolidated pre-trial proceedings. In November 2005, the Maryland court dismissed many of the plaintiffs claims in both the class action and derivative lawsuits. Several affiliates of the former Investment Adviser and individual defendants
have also been dismissed. Plaintiffs claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and under Section 36(b) and 48(a) of the Investment Company Act of 1940, as amended, however, have not been
dismissed. Discovery has commenced with respect to plaintiffs remaining claims.

While the ultimate outcome of these matters cannot
be predicted with any certainty at this time, based on currently available information and consultation with counsel, the Investment Adviser believes that the pending Investigations and private lawsuits are not likely to materially affect the
Investment Advisers ability to provide investment management services to the Company. Neither the Investment Adviser nor the Company are a subject of the Investigations nor a party to the lawsuits described above.

Note 7  Guarantees

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

Note 8  New Accounting Pronouncement

In July 2006, the Financial Accounting Standards Board (FASB) issued Interpretation 48, Accounting for Uncertainty in Income Taxes
 an interpretation of FASB Statement 109 (FIN 48). FIN 48 clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position must meet before being recognized in the financial statements. FIN 48 is
effective for fiscal years beginning after December 15, 2006. The company is in the process of evaluating the effects of the adoption of FIN 48 on the financial statements.

FASB issued a Statement No. 157 in September 2006, Fair Value Measurements, which is effective for financial statements issued for fiscal years
beginning after November 15, 2007, and interim periods within those fiscal years. This statement provides enhanced guidance for using fair value to measure assets and liabilities. It clarifies fair value, establishes a framework for measuring
fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. The standard applies



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whenever other standards require (or permit) assets or liabilities to be measured at fair value. The standard does not expand the use of fair value in any
new circumstances. The company is reviewing the statement and its impact on the financial statements.

Note 9  Subsequent Events

On November 20, 2006, Schwab announced an agreement to sell U.S. Trust, a wholly-owned subsidiary of Schwab, to the Bank of America Corporation
(the Sale). The Sale of U.S. Trust includes all of U.S. Trusts subsidiaries, including USTA, the Companys Investment Adviser, and U.S. Trust NY, the Companys Investment Sub-Adviser. The Sale is subject to Federal
Reserve Board and other regulatory approvals.

USTA will continue to serve as the investment adviser to the Company after the Sale,
although U.S. Trust N.Y. will cease to serve as the Investment Sub-Adviser. However, due to the change in ownership of USTA and U.S. Trust N.Y., the Sale may have the effect of terminating the existing investment advisory agreement between the
Company and USTA. Accordingly, it is anticipated that the Company will enter into a new investment advisory agreement with USTA upon consummation of the Sale (collectively, the New Advisory Agreement). The New Advisory Agreement will be
subject to the approval of the Board of Managers and the members of the Company. The proposed New Advisory Agreement will be submitted to the members of the Company for approval late in the first quarter or early in the second quarter of 2007. A
proxy statement will be mailed to the members of the Company in the first quarter of 2007 that will provide further details with respect to the Sale and the proposed New Advisory Agreement.



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

There has been a change in the Companys independent registered public accounting firm (see Note 2 to the financial statements), however there were
no disagreements or reportable events.



|ITEM 9A. | CONTROLS AND PROCEDURES.
|-------- | ------------------------

(a) Evaluation of
Disclosure Controls and Procedures. As of October 31, 2006 (the end of the period covered by this report), the Companys principal executive officers and principal financial officer evaluated the effectiveness of the Companys
disclosure controls and procedures (as defined in 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 significant changes in the Companys internal controls over financial reporting or in other factors that could significantly affect these controls subsequent to the date of their evaluation, nor were there any
significant deficiencies or material weaknesses in the Companys internal controls over financial reporting. Accordingly, no corrective actions were required or undertaken.



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PART III



|ITEM 10. | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
|-------- | ---------------------------------------------------

Managers
and Officers

Set forth below are names, ages, positions and certain other information concerning the current managers and certain
officers of the Company as of October 31, 2006.



|                                                                                                                     |  |                                                          |  |                                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |                                                        
|-------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------- |  | -------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------
|Name, Address and Age                                                                                                |  | Position(s)Held with theCompany                          |  | Term ofOffice andLength of Time Served |  | Principal Occupation During Past Five Years                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  | Number of Portfoliosin Fund Complex Overseenby Manager*
|Disinterested Managers                                                                                              
|                                                                                                                     |  |                                                          |  |                                       
|Mr. Gene M. Bernstein, 59 United States
Trust Company, National Association 114 West 47th
Street New York, NY 10036  |  | Manager and Member of the Audit and Valuation Committees |  | Since Company inception                |  | Mr. Bernstein is Director of NIC Holding Corp. He was Dean of the Skodneck Business Development Center at Hofstra University from 2000-2001. Prior to that, Mr. Bernstein was President and Vice
Chairman at Northville Industries, a petroleum marketing, distribution, trading and storage company and wholly-owned subsidiary of NIC Holding Corp. Mr. Bernstein also serves as a director or manager of Excelsior Private Equity Fund II, Inc.,
Excelsior Venture Investors III, LLC, Excelsior Venture Partners III, LLC and Excelsior Directional Hedge Fund of Funds, LLC.                                                                                                                                                                                                                                               |  | 4                                                      
|                                                                                                                     |  |                                                          |  |                                       
|Mr. Victor F. Imbimbo, 54 United States
Trust Company, National Association 114 West 47th
Street New York, NY 10036  |  | Manager and Member of the Audit and Valuation Committees |  | Since Company inception                |  | Mr. Imbimbo is the President and CEO of Caring Today, LLC., the publisher of Caring Today Magazine, the leading information resource within the family caregivers market. Prior to this, Mr.
Imbimbo, was Executive Vice President of TBWA\New York and President for North America with TBWA/WorldHealth, a division of TBWA Worldwide where he directed consumer marketing program development for healthcare companies primarily within the
pharmaceutical industry. Mr. Imbimbo serves as a director or manager of Excelsior Private Equity Fund II, Inc., Excelsior Venture Partners III, LLC, Excelsior Venture Investors III, LLC and Excelsior Directional Hedge Fund of Funds, LLC. Mr. Imbimbo
is a Board member for Vertical Branding, Inc, a public company specializing in direct response branding and marketing. |  | 4                                                      
|                                                                                                                     |  |                                                          |  |                                       
|Mr. Stephen V. Murphy, 61 United States
Trust Company, National Association 114 West 47th
Street New York, NY 10036  |  | Manager and Member of the Audit and Valuation Committees |  | Since Company inception                |  | Mr. Murphy is President of S.V. Murphy & Co., an investment banking firm. Mr. Murphy serves as a director or manager of Excelsior Private Equity Fund II, Inc., Excelsior Venture Partners
III, LLC, Excelsior Venture Investors III, LLC and Excelsior Directional Hedge Fund of Funds, LLC. He also serves on the board of directors of The First of Long Island Corporation, The First National Bank of Long Island and Bowne & Co.,
Inc.                                                                                                                                                                                                                                                                                                                                                                                    |  | 4                                                      
|                                                                                                                    
|Interested Manager                                                                                                  
|                                                                                                                     |  |                                                          |  |                                       
|Mr. John C. Hover II, 63** United States
Trust Company, National Association 114 West 47th
Street New York, NY 10036 |  | Manager and Chairman of the Board                        |  | Since Company inception                |  | Mr. Hover was an Executive Vice President of U.S. Trust Company (retired since 1998). Mr. Hover serves as chairman of the board of directors or managers of Excelsior Private Equity Fund II,
Inc., Excelsior Venture Partners III, LLC and Excelsior Venture Investors III, LLC. He also serves on the board of directors of Tweedy, Browne Fund, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  | 3                                                      



|* | The Fund Complex consists of Excelsior Private Equity Fund II, Inc., Excelsior Venture Partners III, LLC, Excelsior Venture Investors III, LLC and Excelsior
Directional Hedge Fund of Funds, LLC.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|** | Mr. Hover is considered an interested person, as defined by the Investment Company Act of 1940, as amended, of the Company due to the fact that he holds securities
of The Charles Schwab Corporation, a parent company of the Investment Adviser.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Officers



|                                                                                                                 |  |                                  |  |                                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|---------------------------------------------------------------------------------------------------------------- |  | -------------------------------- |  | -------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Name, Address and Age                                                                                            |  | Position(s) Held withthe Company |  | Term ofOffice andLength of Time Served |  | Principal Occupation During Past Five Years                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Mr. Robert Aufenanger, 53 UST Advisers,
Inc. 225 High Ridge Road Stamford, CT 06905                              |  | Treasurer andSecretary           |  | SinceApril,2003                        |  | Senior Vice President, U.S. Trust. Prior to U.S. Trust, Mr. Aufenanger worked as a consultant to various clients in the fund industry and prior to this was Chief Financial Officer for Icon
Holdings Corp.                                                                                                                                                                                                                                                                                                             
|                                                                                                                 |  |                                  | 
|Mr. Leo P. Grohowski, 48* United States Trust
Company, National Association 114 W. 47thStreet New York, NY
10036 |  | Co-ChiefExecutive Officer        |  | SinceDecember,2005                     |  | Mr. Grohowski is Executive Vice President and Chief Investment Officer of U.S. Trust. Prior to joining U.S. Trust in October, 2005, Mr. Grohowski was chief investment officer of Deutsche Asset
Management Americas and Scudder Investments (2002-2005). From 1999-2002, Mr. Grohowski was chief investment officer of Deutsche Bank Private Banking. Prior to that, he worked at Bankers Trust where he served as a senior trust investment officer of
the Private Bank and head of the U.S. Investment Strategy Group
|                                                                                                                 |  |                                  | 
|Mr. Raghav V. Nandagopal, 44 UST Advisers,
Inc. 225 High Ridge Road Stamford, CT 06905                           |  | Co-ChiefExecutive Officer        |  | SinceJune, 2005                        |  | Senior Vice President, U.S. Trust. Prior to U.S. Trust, Mr. Nandagopal held positions at McKinsey & Company and AT&T Capital.                                                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                 |  |                                  | 
|Mr. Lee A. Gardella, 39 UST Advisers,
Inc. 225 High Ridge Road Stamford, CT 06905                                |  | Vice President                   |  | SinceCompany,inception                 |  | Senior Vice President, U.S. Trust.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|                                                                                                                 |  |                                  | 
|Mr. Hiam Arfa, 47 United States Trust
Company, National Association 114 W. 47thStreet New York, NY
10036         |  | Chief ComplianceOfficer          |  | SinceOctober,2006                      |  | Prior to joining U.S. Trust: Associate Director of Compliance, Bear Stearns Asset Management (11/2004-09/2006); and Vice President Regulatory Compliance, JP Morgan Asset Management
(08/1998-11/2004).                                                                                                                                                                                                                                                                                                                 

All officers of the Company are employees and/or officers of the Investment Adviser.

Officers of the Company are elected by the Managers and hold office until they resign, are removed or are otherwise disqualified to serve.



|* | On December 7, 2006, Mr. Grohowski resigned as the Companys Co-Chief Executive Officer. On December 7, 2006, David Bailin was appointed by the Board of Managers
to be the Companys Co-Chief Executive Officer.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Audit Committee Financial Expert

Mr. Murphy is the audit committee financial expert as defined by SEC rules and is independent, as the term is used in Item 7(d)(3)(iv) of Schedule 14A under the Securities Exchange Act of 1934.

Code of Ethics

As of the end of the
period, October 31, 2006, the Company has adopted a code of ethics, which complies with the criteria provided in SEC rules, and applies to its principal executive officer, the principal financial officer and any other officers who serve a
similar function. A copy of the code of ethics is incorporated herein by reference in Item 15 of this Form 10-K.

Section 16(a) Beneficial
Ownership Reporting Compliance

Under the federal securities laws, the Companys managers and executive officers and any persons
holding more than 10% of the Companys outstanding units are required to report their ownership of units and any changes in the ownership of the Companys units to the Company and the Securities and Exchange Commission. To the best of the
Companys knowledge, the Companys managers and executive officers have satisfied these filings.



|ITEM 11. | EXECUTIVE COMPENSATION.
|-------- | -----------------------

The Company has no
full-time employees. Pursuant to the Investment Agreements, the Investment Advisers employ and compensate all of the personnel of the Company, and also furnish all office facilities, equipment, management and other administrative services required
for the operation of the Company. In consideration of the services rendered by the Investment Advisers, the Company will pay a management fee based upon average quarterly net assets and an incentive fee based in part on a percentage of realized
capital gains of the Company.

Managers receive compensation of $10,000 as an annual retainer and the Chairman of the Board receives an
additional $1,000 annual retainer. Also, each member of the Board will receive $2,000 per quarterly meeting attended. In addition, each Board member will receive $500 per quarterly telephonic meeting and $500 for any other telephonic special
meeting. For each audit committee meeting attended, Board members will receive $1,500, while the Chairman of the Audit Committee will receive an additional $1,000 retainer. Each member of the Board is reimbursed for expenses incurred for attending
meetings. The Company does not have a stock option plan, other long-term incentive plan, retirement plan or other retirement benefits.

The
following chart provides certain information about the fees received by the managers in the fiscal year ended October 31, 2006.



|                               |  |                                         |        |                                                                         |   |                 |  
|------------------------------ |  | --------------------------------------- | ------ | ----------------------------------------------------------------------- | - | --------------- | -
|Name of Person/Position        |  | Aggregate Compensation From The Company |        | Total Compensation From the Company And Fund Complex * Paid to Managers |  
|John C. Hover II Manager       |  | $                                       | 17,500 |                                                                         | $ | 38,750 (3 Funds | )
|Gene M. Bernstein Manager      |  | $                                       | 22,000 |                                                                         | $ | 70,500 (4 Funds | )
|Stephen V. Murphy Manager      |  | $                                       | 23,000 |                                                                         | $ | 71,500 (4 Funds | )
|Victor F. Imbimbo, Jr. Manager |  | $                                       | 22,000 |                                                                         | $ | 69,500 (4 Funds | )



|* | The Fund Complex includes Excelsior Private Equity Fund II, Inc., Excelsior Venture Partners III, LLC, Excelsior Venture Investors III, LLC and Excelsior Directional
Hedge Fund of Funds, LLC. The parenthetical number represents the number of investment companies (including the Company) from which such person receives compensation that is considered a part of the same Fund Complex as the Company.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

|ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
|-------- | ---------------------------------------------------------------

As of October 31, 2006, certain beneficial owners, the managers, the Chief Executive Officer and the managers and executive officers as a group held of record the following shares. Except as set forth below, to
the Companys knowledge and based solely on a review of Forms 13D and 13G filed with the Securities and Exchange Commission (or the lack of such filings, as the case may be), no other person beneficially owned more than 5% of the Companys
shares.



|                             |  |                                                                                                                         |  |                                           |  |                  |  
|---------------------------- |  | ----------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------- |  | ---------------- | -
|Title of Class               |  | Name and Address of Beneficial Owner                                                                                    |  | Amount and Nature of Beneficial Ownership |  | Percent of Class |  
|Units of membership Interest |  | Excelsior Venture Investors III, LLC 225 High Ridge
Road Stamford, CT 06905                                             |  | 187,409 units                             |  | 63.5             | %
|                             |  |                                                                                                                         | 
|Units of membership Interest |  | John C. Hover II c/o United States Trust Company,
National Association, 114 West 47th Street, New York, NY 10036-1532.  |  | 200 units                                 |  | *                |  
|                             |  |                                                                                                                         | 
|Units of membership Interest |  | Gene M. Bernstein c/o United States Trust Company,
National Association, 114 West 47th Street, New York, NY 10036-1532. |  | 300 units                                 |  | *                |  
|                             |  |                                                                                                                         | 
|Units of membership Interest |  | Stephen V. Murphy c/o United States Trust Company,
National Association, 114 West 47th Street, New York, NY 10036-1532. |  | 200 units                                 |  | *                |  
|                             |  |                                                                                                                         | 
|Units of membership Interest |  | Managers and executive officers as a group (3 persons)                                                                  |  | 700 units                                 |  | *                |  



|* | Less than one percent.
|- | ----------------------



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##### Table of Contents

|ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
|-------- | -----------------------------------------------

The Company has engaged in no transactions with the managers or executive officers other than as described above or in the notes to the financial statements.



|ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES.
|-------- | ---------------------------------------

Audit Fees



| | (a) | The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the audit of the registrant's annual financial
statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years are $94,650 for 2005 and $108,160 for 2006.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Audit-Related Fees



| | (b) | The aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountant that are reasonably related to the performance of the
audit of the registrant's financial statements and are not reported under paragraph (a) of this Item are $0 for 2005 and $0 for 2006.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Tax Fees



| | (c) | The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning are $0
for 2005 and $0 for 2006.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

All Other Fees



| | (d) | The aggregate fees billed in each of the last two fiscal years for products and services provided by the principal accountant, other than the services reported in paragraphs
(a) through (c) of this Item are $0 for 2005 and $0 for 2006.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

PART IV



|ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
|-------- | -------------------------------------------



|(a) | 1.      Financial Statements
|--- | ----------------------------

The financial statements listed in Item 8, Financial Statements and Supplementary Data, beginning on page 12 are filed as part of this report.



| | 2. | Financial Statement Schedules
| | -- | -----------------------------

The financial
statement schedules listed in Item 8, Financial Statements and Supplementary Data, beginning on page 12 are filed as part of this report.



| | 3. | Exhibits
| | -- | --------



|        |  |                                                                                                                                                                              
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(3)(a)  |  | Certificate of Formation of Limited Liability Company1                                                                                                                       
|        | 
|(3)(b)  |  | Certificate of Amendment1                                                                                                                                                    
|        | 
|(3)(c)  |  | Form of Limited Liability Company Operating Agreement1                                                                                                                       
|        | 
|(4)     |  | For instruments defining the rights of security holders see Exhibits (3)(a), (b) and (c), (10)(h),(i),(j) and (k) hereto and the Specimen Certificate of the Company's units1
|        | 
|(10)(a) |  | Form of Investment Advisory Agreement1                                                                                                                                       
|        | 
|(10)(b) |  | Form of Investment Sub-Advisory Agreement1                                                                                                                                   
|        | 
|(10)(c) |  | Form of Distribution Agreement1                                                                                                                                              
|        | 
|(10)(d) |  | Form of Selling Agent Agreement1                                                                                                                                             
|        | 
|(10)(e) |  | Form of Custodian Agreement1                                                                                                                                                 
|        | 
|(10)(f) |  | Form of Administration, Accounting and Investor Services Agreement1                                                                                                          
|        | 
|(10)(g) |  | Form of Escrow Agreement1                                                                                                                                                    
|        | 
|(10)(h) |  | Form of Subscription Agreement for investment in units of the Company1                                                                                                       
|        | 
|(10)(i) |  | Form of Subscription Agreement with Charles Schwab & Co., Inc. for investment in units of the Company1                                                                       
|        | 
|(10)(j) |  | Amended and Restated Agreement with respect to Seed Capital2                                                                                                                 
|        | 
|(10)(k) |  | Form of Subscription Agreement between the Company and Excelsior Venture Investors III, LLC1                                                                                 
|        | 
|(10)(l) |  | Investment Sub-Advisory Agreement dated December 21, 2001 among the Company, U.S. Trust Company and U.S. Trust Company, N.A.3                                                
|        | 
|(14)    |  | Code of Ethics                                                                                                                                                               
|        | 
|(31.1)  |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                          



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##### Table of Contents

|        |  |                                                                                                                       
|------- |  | ----------------------------------------------------------------------------------------------------------------------
|        | 
|(31.2)  |  | Certification of Treasurer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                 
|        | 
|(32.1)  |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|        | 
|(99)(a) |  | Audit Committee Charter                                                                                               



|1 | Incorporated by reference to the Companys Registration Statement on Form N-2/A as filed with the Securities and Exchange Commission on August 10, 2000
(File No. 333-30986).
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|2 | Incorporated by reference to the Companys Registration Statement on Form N-2/A as filed with the Securities and Exchange Commission on November 14, 2000
(File No. 333-30986).
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|3 | Incorporated by reference to the Companys Quarterly Report on Form 10-Q as filed with the Securities and Exchange Commission on March 18, 2002.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

SIGNATURES

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



|                       |  |  |  |                                     |  |                          |  |                                                            
|---------------------- |  |  |  | ----------------------------------- |  | ------------------------ |  | -----------------------------------------------------------
|                       |  |  |  | EXCELSIOR VENTURE PARTNERS III, LLC
|                       |  |  | 
|Date: January 25, 2007 |  |  |  | By:                                 |  | /S/ David Bailin        
|                       |  |  |  |                                     |  |                          |  | David Bailin                                               
|                       |  |  |  |                                     |  |                          |  | Co-Chief Executive Officer (co-principal executive
officer)
|                       |  |  | 
|Date: January 25, 2007 |  |  |  | By:                                 |  | /S/ Raghav V. Nandagopal
|                       |  |  |  |                                     |  |                          |  | Raghav V. Nandagopal                                       
|                       |  |  |  |                                     |  |                          |  | Co-Chief Executive Officer (co-principal executive
officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:



|                                                  |  |                                                             |  |                 
|------------------------------------------------- |  | ----------------------------------------------------------- |  | ----------------
|Signature                                         |  | Title                                                       |  | Date            
|                                                  |  |                                                            
|/s/ David Bailin David
Bailin                     |  | Co-Chief Executive Officer (co-principal executive
officer) |  | January 25, 2007
|                                                  |  |                                                            
|/S/ Raghav V. Nandagopal Raghav V.
Nandagopal     |  | Co-Chief Executive Officer (co-principal executive
officer) |  | January 25, 2007
|                                                  |  |                                                            
|/S/ Robert F. Aufenanger Robert F.
Aufenanger     |  | Treasurer (principal financial officer)                     |  | January 25, 2007
|                                                  |  |                                                            
|/S/ John C. Hover II John C. Hover
II             |  | Chairman of the Board and Director                          |  | January 25, 2007
|                                                  |  |                                                            
|/S/ Gene M. Bernstein Gene M.
Bernstein           |  | Director                                                    |  | January 25, 2007
|                                                  |  |                                                            
|/S/ Stephen V. Murphy Stephen V.
Murphy           |  | Director                                                    |  | January 25, 2007
|                                                  |  |                                                            
|/S/ Victor F. Imbimbo, Jr. Victor F.
Imbimbo, Jr. |  | Director                                                    |  | January 25, 2007



42