EXCELSIOR VENTURE PARTNERS III LLC - 10-Q Quarterly Report

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended January 31, 2005

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

For the transition period from to

Commission file number 000-29665

EXCELSIOR VENTURE PARTNERS III, LLC

(Exact Name of Registrant as Specified in Its Charter)


DELAWARE		13-4102528
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

225 High Ridge Road, Stamford, CT		06905
(Address of Principal Executive Offices)		(Zip Code)

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


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

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

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

EXCELSIOR VENTURE PARTNERS III, LLC

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


	INDEX	PAGE NO.
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements	1

	Portfolio of Investments as of January 31, 2005 and October 31, 2004	2

	Statements of Assets and Liabilities at January 31, 2005 and October 31, 2004	9

	Statements of Operations for the three-month periods ended January 31, 2005 and January 31, 2004	10

	Statements of Changes in Net Assets for the three-month periods ended January 31, 2005 and January 31, 2004	11

	Statements of Cash Flows for the three-month periods ended January 31, 2005 and January 31, 2004	12

	Financial Highlights for the three-month periods ended January 31, 2005 and January 31, 2004	13

	Notes to Financial Statements	14

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	23

Item 4.	Controls and Procedures	23

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	23

Item 2.	Changes in Securities and Use of Proceeds	23

Item 3.	Defaults Upon Senior Securities	23

Item 4.	Submission of Matters to a Vote of Security Holders	23

Item 5.	Other Information	23

Item 6.	Exhibits and Reports on Form 8-K	24

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements.

Excelsior Venture Partners III, LLC

Portfolio of Investments (Unaudited)


	January 31, 2005
	Value		Percent of Net Assets
PORTFOLIO STRUCTURE
SHORT-TERM INVESTMENTS:
MONEY MARKET INSTRUMENTS	$	40,234,006	32.84	%
INVESTMENT COMPANIES		927,901	0.76	%
PRIVATE COMPANIES		62,972,864	51.39	%
PUBLIC COMPANY		6,563,632	5.36	%
PRIVATE INVESTMENT FUNDS		6,839,094	5.58	%

TOTAL INVESTMENTS		117,537,497	95.93	%
OTHER ASSETS & LIABILITIES (NET)		4,982,109	4.07	%

NET ASSETS	$	122,519,606	100.00	%

Excelsior Venture Partners III, LLC

Portfolio of Investments


	October 31, 2004
	Value		Percent of Net Assets
PORTFOLIO STRUCTURE
SHORT-TERM INVESTMENTS:
MONEY MARKET INSTRUMENTS	$	44,139,985	38.03	%
INVESTMENT COMPANIES		1,386,211	1.19	%
PRIVATE COMPANIES		60,065,508	51.75	%
PUBLIC COMPANIES		4,682,927	4.03	%
PRIVATE INVESTMENT FUNDS		5,456,505	4.70	%

TOTAL INVESTMENTS		115,731,136	99.70	%
OTHER ASSETS & LIABILITIES (NET)		348,297	0.30	%

NET ASSETS	$	116,079,433	100.00	%

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

Excelsior Venture Partners III, LLC

Portfolio of Investments January 31, 2005 (Unaudited)


Principal Amount/Shares			Acquisition Date ##	Value (Note 1)
	MONEY MARKET INSTRUMENTS — 32.84%
$	4,000,000	Washington Bank Mutual Note 2.35%, 02/02/05 (Cost $4,000,000)		$	4,000,000
	3,000,000	Societe Generale Commercial Paper 2.27%, 02/03/05 (Cost $2,999,433)			2,999,433
	4,000,000	Coca-Cola Commercial Paper 2.24%, 02/03/05 (Cost $3,999,253)			3,999,253
	3,000,000	Federal Home Loan Bank Corp. Discount Note 2.23%, 02/04/05 (Cost $2,999,257)			2,999,257
	4,000,000	Federal National Mortgage Assoc. Discount Note 2.26%, 02/04/05 (Cost $3,998,996)			3,998,996
	3,500,000	UBS Financial Commercial Paper 2.29%, 02/04/05 (Cost $3,499,111)			3,499,111
	3,750,000	New Center Asset Trust Commercial Paper 2.34%, 02/08/05 (Cost $3,748,050)			3,748,050
	3,000,000	Morgan Stanley Commercial Paper 2.52%, 02/08/05 (Cost $2,998,320)			2,998,320
	4,000,000	GE Capital Commercial Paper 2.32%, 02/11/05 (Cost $3,997,164)			3,997,164
	4,000,000	Bank of America Note 2.23%, 02/14/05 (Cost $4,000,000)			4,000,000
	4,000,000	Goldman Sachs Commercial Paper 2.51%, 02/17/05 (Cost $3,994,422)			3,994,422

		TOTAL MONEY MARKET INSTRUMENTS (Cost $40,234,006)			40,234,006

	PUBIC COMPANY — 5.36%
	Common Stocks — 5.36%
	Life Sciences — 5.36%
	485,961	Adeza Biomedical Corp.			6,563,632

		(Nasdaq: ADZA)
		TOTAL COMMON STOCKS (Cost $3,000,000)			6,563,632

	PRIVATE COMPANIES , #, @ — 51.39%**
	Common Stocks — 0.00%
	Capital Equipment — 0.00%
	157,396	MIDAS Vision Systems, Inc.	03/03		—

	Life Sciences — 0.00%
	46,860	Genoptix, Inc.	07/03		—

					—
	Semiconductor — 0.00%
	708,955	Monterey Design Systems, Inc.	06/03		—

		TOTAL COMMON STOCKS (Cost $8,750,000)			—

	Preferred Stocks — 47.02%
	Capital Equipment — 0.00%
	933,593	MIDAS Vision Systems, Inc., Series A-1	03/03		—

	Consumer Products — 0.00%
	517,260	Senomyx, Inc., Series E	11/01		—

	Enterprise Software — 9.35%
	7,564,077	LogicLibrary, Inc., Series A	01/02, 08/03, 05/04, 12/04		3,458,450
	20,000,000	***Pilot Software Inc., Series A	05/02 & 04/03		4,000,000
	19,995,000	***Datanautics Inc., Series A	01/04		4,000,000

					11,458,450
	Information Services — 0.00%
	4,425	Cenquest, Inc., Series 2	7/01		—

	Life Sciences — 4.51%
	1,999,999	Archemix Corporation, Inc., Series A	08/02, 01/03, 11/03		1,999,999
	466,666	Archemix Corporation, Inc., Series B	03/04 & 09/04		466,666
	942,481	Genoptix, Inc., Series B-1	12/01		1,253,500
	1,403,696	Genoptix, Inc., Series B-2	07/03, 09/03, 12/03		1,250,000
	620,580	Genoptix, Inc., Series C	08/04 & 01/05		554,178

					5,524,343
	Medical Technology — 5.24%
	4,166,667	Tensys Medical, Inc., Series C	03/02		5,000,000
	1,187,500	Tensys Medical, Inc., Series D	05/04		1,425,000

					6,425,000

Excelsior Venture Partners III, LLC

Portfolio of Investments January 31, 2005 — (continued)


Principal Amount /Shares/ Percent Owned			Acquisition Date ##	Value (Note 1)
	Optical — 11.19%
	4,330,504	LightConnect, Inc., Series B	07/01	5,000,000
	12,292,441	LightConnect, Inc., Series C	12/02	992,000
	956,234	NanoOpto Corporation, Series A-1	10/01& 03/02	—
	3,023,399	NanoOpto Corporation, Series B	09/03, 11/03, 01/04, 07/04	1,655,118
	5,333,333	OpVista, Inc., Series B	07/01	—
	12,671,059	OpVista, Inc., Series C	09/03	5,000,000
	102,040	OpVista, Inc., Series D	11/04	1,058,000

				13,705,118
	Semiconductor — 11.30%
	7,000,000	Chips & Systems, Inc., Series A	03/04	3,500,000
	3,333,333	Monterey Design Systems, Inc., Series 2	06/03	600,000
	1,538,461	NetLogic Microsystems, Inc., Series D	08/01	—
	2,211,898	Silverback Systems, Inc., Series B-1	02/02	450,052
	34,364,257	Silverback Systems, Inc., Series C	03/03, 09/03, 04/04	4,298,896
	3,096,551	Virtual Silicon Technology, Inc., Series C	12/01	5,000,000

				13,848,948
	Wireless — 5.43%
	4,433,333	Ethertronics, Inc., Series B	06/01, 09/02, 07/03, 05/04	6,650,000

		TOTAL PREFERRED STOCKS (Cost $67,685,700)		57,611,859

	Notes — 4.38%
	Enterprise Software — 2.10%
$	573,270	***Datanautics, Inc., Bridge Note	12/04 & 01/05	573,270
	2,000,000	***Pilot Software, Inc., Bridge Note	08/04, 09/04, 10/04, 11/04, 12/04	2,000,000

	Semiconductor—1.66 %
	211,185	Virtual Silicon Technology, Inc., Bridge Note	10/04 &12/04	211,185
	1,159,883	Chips & Systems, Inc., Bridge Note	11/04 & 01/05	1,159,883
	666,667	Silverback Systems, Inc., Bridge Note	01/05	666,667

	Wireless — .21 %
	250,000	Ethertronics, Inc., Bridge Note		250,000

	Optical — .41 %
	500,000	NanoOpto Corp., Bridge Note		500,000

		TOTAL NOTES (Cost $5,361,005)		5,361,005

	Warrants — 0.00%
	Wireless — 0.00%
	100,000	Ethertronics, Inc.	09/02	—
	115,000	Ethertronics, Inc.	07/03	—
	66,667	Ethertronics, Inc.	08/03	—

				—
		TOTAL WARRANTS (Cost $0.00)

		TOTAL — PRIVATE COMPANIES (Cost $81,796,705)		62,972,864

	PRIVATE INVESTMENT FUNDS @, # — 5.58%
	0.40%	Advanced Technology Ventures VII, LP	08/01-10/04	720,624
	1.48%	Burrill Life Sciences Capital Fund	12/02-12/04	902,672
	1.35%	CHL Medical Partners II, LP	01/02-11/04	632,377
	4.94%	CMEA Ventures Partners, LP	12/03-01/05	271,020

Excelsior Venture Partners III, LLC

Portfolio of Investments January 31, 2005 — (continued)


Principal Amount/Shares/ Percent Owned		Acquisition Date ##	Value (Note 1)
0.36%	Morgenthaler Partners VII, LP	07/01-01/05		1,376,456
0.60%	Prospect Venture Partners II, LP	06/01-01/05		1,452,266
0.90%	Sevin Rosen Fund VI, LP	10/04-01/05		300,000
2.36%	Tallwood II, LP	12/02-11/04		747,891
1.75%	Valhalla Partners II, LP	10/03-12/04		435,788

	TOTAL — PRIVATE INVESTMENT FUNDS (Cost $8,035,002)			6,839,094

INVESTMENT COMPANIES — 0.76%
927,901	Dreyfus Government Cash Management Fund Institutional Shares (Cost $927,901)			927,901

TOTAL INVESTMENTS (Cost $133,993,614) — 95.93%				117,537,497
OTHER ASSETS & LIABILITIES (NET) — 4.07%				4,982,109

NET ASSETS — 100.00%			$	122,519,606

#	Restricted as to public resale.

##	Required disclosure for restricted securities only.

@	Non-income producing securities only.

**	At January 31, 2005 the Company owned 5% or more of the company’s outstanding shares thereby making the company an affiliate as defined by the Investment Company Act of 1940. Total market value of affiliated securities owned at January 31, 2005 was $58,963,226.

***	At January 31, 2005 the Company owned 25% or more of the company’s outstanding shares thereby making the company a controlled affiliate as defined by the Investment Company Act of 1940. Total market value of controlled affiliated securities owned at January 31, 2005 was $10,573,270.

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

Excelsior Venture Partners III, LLC

Portfolio of Investments October 31, 2004


Principal Amount/Shares			Acquisition Date	Value (Note 1)
	MONEY MARKET INSTRUMENTS — 38.03%
$	3,000,000	UBS Financial Commercial Paper 1.75%, 11/01/04		$	2,999,854
	3,000,000	Morgan Stanley Commercial Paper 1.79%, 11/02/04			2,999,702
	4,000,000	Federal Home Loan Mortgage Corp. Discount Note 1.75%, 11/02/04			3,999,611
	6,000,000	Federal Home Loan Mortgage Corp. Discount Note 1.715%, 11/02/04			5,999,428
	3,000,000	Danske Bank Commercial Paper 1.76%, 11/03/04			2,999,560
	3,000,000	Du Pont Commercial Paper 1.75%, 11/03/04			2,999,563
	9,900,000	Federal Home Loan Bank Discount Note 1.70%, 11/04/04			9,898,130
	3,750,000	Caterpillar Finance Commercial Paper 1.73%, 11/10/04			3,748,198
	8,500,000	Federal National Mortgage Association Discount Note 1.72%, 11/10/04			8,495,939

		TOTAL MONEY MARKET INSTRUMENTS (Cost $44,139,985)			44,139,985

	PUBLIC COMPANIES , # — 4.03%**
		Common Stocks — 4.03%
		Consumer Products — 2.56%
	428,572	Senomyx, Inc.	06/04		2,976,005

		Semiconductor — 1.47%
	384,615	Netlogic Microsystems Inc.	07/04		1,706,922

		TOTAL PUBLIC COMPANIES (Cost $6,500,000)			4,682,927

	PRIVATE COMPANIES , #, @ — 51.75%**
		Common Stocks — 0.00%
		Capital Equipment — 0.00%
	157,396	MIDAS Vision Systems, Inc.	03/03		—

		Life Sciences — 0.00%
	46,860	Genoptix, Inc.	07/03		—

		Semiconductor — 0.00%
	708,955	Monterey Design Systems, Inc.	06/03		—

		TOTAL COMMON STOCKS (Cost $8,750,000)			—

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

Excelsior Venture Partners III, LLC

Portfolio of Investments October 31, 2004 — (continued)


Shares		Acquisition Date	Value (Note 1)
	PRIVATE COMPANIES , #, @ — (continued)**
	Preferred Stocks — 51.03%
	Capital Equipment — 0.00%
933,593	MIDAS Vision Systems, Inc., Series A-1	03/03	$	—

	Enterprise Software — 9.83%
19,995,000	***Datanautics, Inc., Series A Preferred	01/04		4,000,000
7,454,720	LogicLibrary, Inc., Series A	01/02, 08/03, 05/04		3,408,450
20,000,000	***Pilot Software Inc., Series A	05/02 & 04/03		4,000,000

				11,408,450

	Information Services — 0.00%
4,425	Cenquest, Inc., Series 2	07/01		—

	Life Sciences — 7.10%
647,948	Adeza Biomedical Corporation, Series 5	09/01		3,000,000
1,999,999	Archemix Corporation, Series A	08/02, 01/03, 11/03		1,999,999
466,666	Archemix Corporation, Series B	03/04 & 09/04		466,666
942,481	Genoptix, Inc., Series B-1	12/01		1,253,500
1,403,696	Genoptix, Inc., Series B-2	07/03, 09/03, 12/03		1,250,000
310,290	Genoptix, Inc., Series C	08/04		277,089

				8,247,254

	Medical Technology — 5.54%
4,166,667	Tensys Medical, Inc., Series C	03/02		5,000,000
1,187,500	Tensys Medical, Inc., Series D	05/04		1,425,000

				6,425,000

	Optical — 10.90%
4,330,504	LightConnect, Inc., Series B	07/01		5,000,000
12,292,441	LightConnect, Inc., Series C	12/02		992,000
956,234	NanoOpto Corporation, Series A-1	10/01 & 3/02		—
3,023,399	NanoOpto Corporation, Series B	09/03, 11/03, 01/04, 07/04		1,655,118
5,333,333	OpVista, Inc., Series B	07/01		—
12,671,059	OpVista, Inc., Series C	09/03		5,000,000

				12,647,118

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

Excelsior Venture Partners III, LLC

Portfolio of Investments October 31, 2004 — (continued)


Principal Amount/Shares			Acquisition Date	Value (Note 1)
		PRIVATE COMPANIES , #, @ — (continued)**
		Preferred Stocks — (continued)
		Semiconductor — 11.93%
	7,000,000	Chips & Systems, Inc., Series A	03/04	$	3,500,000
	3,333,333	Monterey Design Systems, Inc., Series 2	06/03		600,000
	2,211,898	Silverback Systems, Inc., Series B-1	02/02		450,052
	34,364,257	Silverback Systems, Inc., Series C	03/03, 09/03, 04/04		4,298,896
	3,096,551	Virtual Silicon Technology, Inc., Series C	12/01		5,000,000

					13,848,948

		Wireless — 5.73%
	4,433,333	Ethertronics, Inc., Series B	06/01, 09/02, 07/03, 05/04		6,650,000

		TOTAL PREFERRED STOCKS (Cost $69,300,611)			59,226,770

		Notes — 0.72%
		Enterprise Software — 0.65%
$	750,000	***Pilot Software Inc., Bridge Note, 9%, 04/22/05	08/04 & 09/04, 10/04		750,000
		Semiconductor — 0.07%
$	88,738	Virtual Silicon Technology, Inc., Bridge Note, 6%, 04/22/05	10/04		88,738

		TOTAL NOTES (Cost $838,738)			838,738

		Warrants — 0.00%
		Wireless — 0.00%
	100,000	Ethertronics, Inc.	09/02		—
	115,000	Ethertronics, Inc.	07/03		—
	66,667	Ethertronics, Inc.	08/03		—

					—
		TOTAL WARRANTS (Cost $0)			—

		TOTAL — PRIVATE COMPANIES (Cost $78,889,349)			60,065,508

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

Excelsior Venture Partners III, LLC

Portfolio of Investments October 31, 2004 — (continued)


Percent Owned		Acquisition Date	Value (Note 1)
PRIVATE INVESTMENT FUNDS , # — 4.70%**
0.40%	Advanced Technology Ventures VII, L.P.	08/01-04/04	$	715,058
1.44%	Burrill Life Sciences Capital Fund	12/02-08/04		829,098
1.35%	CHL Medical Partners II, L.P.	01/02-02/04		482,377
1.04 %	CMEA Ventures, L.P.	12/03-04/04		121,020
0.36%	Morgenthaler Partners VII, L.P.	07/01-07/04		1,076,400
0.58%	Prospect Venture Partners II, L.P.	06/01-09/04		1,325,462
0.90 %	Sevin Rosen Fund VI, L.P.	10/04		90,000
2.36%	Tallwood II, L.P.	12/02-09/04		597,891
1.70%	Valhalla Partners, L.P.	10/03-09/04		219,199

	TOTAL — PRIVATE INVESTMENT FUNDS (Cost $6,614,318)			5,456,505


Shares
INVESTMENT COMPANIES — 1.19%
1,386,211	Dreyfus Government Cash Management Fund Institutional Shares (Cost $1,386,211)			1,386,211

	TOTAL INVESTMENTS (Cost $137,529,863) — 99.70%			115,731,136
	OTHER ASSETS & LIABILITIES (NET) — 0.30%			348,297

	NET ASSETS — 100.00%		$	116,079,433

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

#	Non-income producing securities.

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

***

At October 31, 2004, the Company owned 25% or more of the company’s outstanding voting shares or a controlling interest thereby making the company a controlled affiliate as defined by the Investment Company Act of 1940. Total value of controlled affiliated securities owned at October 31, 2004 was $8,750,000.

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

Excelsior Venture Partners III, LLC

Statements of Assets and Liabilities


	January 31, 2005 (Unaudited)			October 31, 2004
ASSETS:
Unaffiliated Issuers at value (Cost $49,196,909 and $52,140,514, respectively)	$	48,001,001		$	55,665,628
Controlled Affiliated Issuers at value (Cost $10,573,270 and $8,750,000, respectively)		10,573,270			8,750,000
Non Controlled Affiliated Issuers at value (Cost $74,223,435 and $76,639,349, respectively)		58,963,226			51,315,508

Investments, at value (Cost $133,993,614 and $137,529,863, respectively) (Note 1)		117,537,497			115,731,136

Cash and cash equivalents		—			—
Interest receivable		54,861			10,575
Other receivables		5,621,536			1,243,730
Prepaid insurance		45,606			3,791

Total Assets		123,259,500			116,989,232

LIABILITIES:
Management fees payable (Note 2)		617,633			583,569
Professional fees payable		34,736			184,559
Administration fees payable (Note 2)		54,086			50,936
Board of Managers’ fees payable (Note 2)		9,123			68,000
Other payables		24,316			22,735

Total Liabilities		739,894			909,799

NET ASSETS	$	122,519,606		$	116,079,433

NET ASSETS consist of:
Paid-in capital	$	138,975,723		$	137,878,170
Unrealized depreciation on investments		(16,456,117	)		(21,798,737	)

Total Net Assets	$	122,519,606		$	116,079,433

Units of Membership Interest Outstanding (Unlimited Number of no par value units authorized)		295,210			295,210

NET ASSET VALUE PER UNIT	$	415.03		$	393.21

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

Excelsior Venture Partners III, LLC

Statements of Operations (Unaudited)


	Three Months Ended January 31,
	2005			2004
INVESTMENT INCOME:
Interest income from unaffiliated investments	$	187,600		$	122,135
Interest income from affiliated investments		43,256			6,729
Dividend income		7,224			1,195

Total Income		238,080			130,059

EXPENSES:
Management fees (Note 2)		617,033			609,842
Administration fees (Note 2)		33,895			35,341
Professional fees		38,564			35,288
Board of Managers’ fees (Note 2)		15,123			15,124
Insurance Expense		14,091			20,116
Custodian fees		4,537			5,636
Miscellaneous fees		4,043			4,033

Total Expenses		727,286			725,380

NET INVESTMENT LOSS		(489,206	)		(595,321	)

NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: (Note 1)
Net realized gain on investments on affiliated investments		1,586,759			—
Net change in unrealized appreciation (depreciation) on investments		5,342,620			(888,390	)

NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS		6,929,379			(888,390	)

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS	$	6,440,173		$	(1,483,711	)

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

Excelsior Venture Partners III, LLC

Statements of Changes in Net Assets (Unaudited)


	Three Months Ended January 31,
	2005			2004
OPERATIONS:
Net investment loss	$	(489,206	)	$	(595,321	)
Net realized gain on investments		1,586,759			—
Net change in unrealized appreciation (depreciation) on investments		5,342,620			(888,390	)

Net increase (decrease) in net assets resulting from operations		6,440,173			(1,483,711	)

NET INCREASE (DECREASE) IN NET ASSETS		6,440,173			(1,483,711	)
NET ASSETS:
Beginning of period		116,079,433			122,457,853

End of period	$	122,519,606		$	120,974,142

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

Excelsior Venture Partners III, LLC

Statements of Cash Flows (Unaudited)


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

Net cash provided by operating activities		—			69,209

Net change in cash		—			69,209

Cash at beginning of period		—			3,738,154

Cash at end of period	$	—		$	3,807,363

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

Excelsior Venture Partners III, LLC

Financial Highlights (Unaudited)

Per Unit Operating Performance: (1)


	Three Months Ended January 31,
	2005			2004
NET ASSET VALUE, BEGINNING OF PERIOD	$	393.21		$	414.82
INCOME FROM INVESTMENT OPERATIONS:
Net investment loss		(1.65	)		(2.02	)
Net realized and unrealized gain (loss) on investment transactions		23.47			(3.01	)

Total from investment operations		21.82			(5.03	)

NET ASSET VALUE, END OF PERIOD	$	415.03		$	409.79

TOTAL NET ASSET VALUE RETURN (3), (4)		5.55	%		(1.21	)%

RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000’s)	$	122,520		$	120,974
Ratios to average net assets: (2)
Net expenses		2.44	%		2.38	%
Net investment loss		(1.64	)%		(1.96	)%
Portfolio Turnover Rate (3)		8.94	%		0.09	%

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

(2)	Annualized.

(3)	Not annualized.

(4)

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

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

EXCELSIOR VENTURE PARTNERS III, LLC

NOTES TO FINANCIAL STATEMENTS

January 31, 2005 (Unaudited)

Note 1 — Significant Accounting Policies

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

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

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

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

A. Investment Valuation:

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

The value for securities for which no public market exists is difficult to determine. Generally, such investments will be valued on a “going concern” basis without giving effect to any disposition costs. There is a range of values that is reasonable for such investments at any particular time. Initially, direct investments are valued based upon their original cost until developments provide a sufficient basis for use of a valuation other than cost. Upon the occurrence of developments providing a sufficient basis for a change in valuation, direct investments will be valued by the “private market” or “appraisal” methods of valuation. The private market method shall only be used with respect to reliable third party transactions by sophisticated, independent investors. The appraisal method shall be based upon such factors affecting the investee company such as earnings, net worth, reliable private sale prices of the investee company’s securities, the market prices for similar securities of

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

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

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

B. Security transactions and investment income:

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

C. Income taxes:

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

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

D. Dividends to members:

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

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

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

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

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

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

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

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

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

As of January 31, 2005 and October 31, 2004, Excelsior Venture Investors III, LLC had an investment in the Company of $77,779,489 and $73,691,035, respectively. This represents an ownership interest of 63.48% in the Company as of both dates.

On November 23, 2004, the Company engaged Deloitte & Touche LLP (“D&T”) as the Company’s independent public accountants for the fiscal year ended October 31, 2004, replacing Ernst & Young LLP (“E&Y”), the Company’s prior independent public accountants. E&Y was terminated by the Company on October 28, 2004 as a result of concerns regarding their independence at the time of issuance of their report on the Company’s October 31, 2003 financial

statements. These concerns are the result of certain real estate consulting services performed by E&Y on a contingent fee basis for Charles Schwab & Co., Inc., an affiliate of the Company’s Investment Adviser.

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

Note 3 — Purchases and Sales of Securities

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


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

Note 4 — Commitments

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

Note 5 — Transactions with Affiliated Companies

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


				For the Three Months Ended January 31, 2005
Name of Investment	Shares/Par Held at October 31, 2004	October 31, 2004 Value		Purchases / Conversion Acquisitions		Sale/ Conversion Proceeds		Interest Received		Realized Gain (Loss)		Shares/Par Held at January 31, 2005	January 31, 2005 Value (Note 1)
Controlled Affiliates
Pilot Software Inc., Series A Preferred	20,000,000	$	4,000,000	$	—	$	—	$	—	$	—	20,000,000	$	4,000,000
Pilot Software Inc., Bridge Note, 9%	750,000		750,000	$	1,250,000	$	—	$	33,288	$	—	2,000,000	$	2,000,000
Datanautics Inc., Series A Preferred	19,995,000	$	4,000,000	$	—	$	—	$	—	$	—	19,995,000	$	4,000,000
Datanautics Inc., Bridge Note	—		—	$	573,270	$	—	$	—	$	—	573,270	$	573,270

Total Controlled Affiliates		$	8,750,000	$	1,823,270	$	—	$	33,288	$	—		$	10,573,270


				For the Three Months Ended January 31, 2005
Name of Investment	Shares/Par Held at October 31, 2004	October 31, 2004 Value		Purchases / Conversion Acquisitions		Sale/ Conversion Proceeds		Interest Received		Realized Gain (Loss)		Shares/Par Held at January 31, 2005	January 31, 2005 Value (Note 1)
Non Controlled Affiliates
Adeza Biomedical Corp., Series 5 Preferred	647,948	$	3,000,000	$	—	$	—	$	—	$	—	485,961	$	6,563,632
Archemix Corporation, Series A Preferred	1,999,999		1,999,999		—		—		—		—	1,999,999		1,999,999
Archemix Corporation, Series B Preferred	466,666		466,666		—		—		—		—	466,666		466,666
Cenqest, Inc., Series 2 Preferred	4,425		—		—		—		—		—	4,425		—
Chips & Systems, Inc. Series A Preferred	7,000,000		3,500,000		—		—		—		—	7,000,000		3,500,000
Chips & Systems, Inc. Bridge Note	—		—		1,159,883		—		7,398		—	1,159,883		1,159,883
Ethertronics Inc., Series B Preferred	4,433,333		6,650,000		—		—		—		—	4,433,333		6,650,000
Ethertronics Inc., Warrant	281,667		—		—		—		—		—	281,667		—
Ethertronics Inc., Bridge Note	—		—		250,000		—		—		—	250,000		250,000
Genoptix, Inc., Series B-1 Preferred	942,481		1,253,500		—		—		—		—	942,481		1,253,500
Genoptix, Inc., Series B-2 Preferred	1,403,696		1,250,000		515,148		—		—		—	1,403,696		1,250,000
Genoptix, Inc., Common Stock	46,860		—		—		—		—		—	46,860		—
Genoptix, Inc., Series C Preferred	310,290		277,089		—		—		—		—	620,580		554,178
LightConnect, Inc., Series B Preferred	4,330,504		5,000,000		—		—		—		—	4,330,504		5,000,000
LightConnect, Inc., Series C Preferred	12,292,441		992,000		—		—		—		—	12,292,441		992,000
LogicLibrary, Inc., Series A Preferred	7,454,720		3,408,450		50,000		—		—		—	7,564,077		3,458,450
MIDAS Vision Systems, Inc., Series A-1 Preferred	933,593		—		—		—		—		—	933,593		—
MIDAS Vision Systems, Inc., Common Stock	157,396		—		—		—		—		—	157,396		—
Monterey Design Systems, Inc., Common Stock	708,955		—		—		—		—		—	708,955		—
Monterey Design Systems, Inc., Series 2 Preferred	3,333,333		600,000		—		—		—		—	3,333,333		600,000
NanoOpto Corp., Series A-1 Preferred	956,234		—		—		—		—		—	956,234		—
NanoOpto Corp., Series B Preferred	3,023,399		1,655,119		—		—		—		—	3,023,399		1,655,118
NanoOpto Corp., Bridge Note	—		—		500,000		—		—		—	500,000		500,000
OpVista, Inc., Series B Preferred	5,333,333		—		—		—		—		—	5,333,333		—
OpVista, Inc., Series C Preferred	12,671,059		5,000,000		—		—		—		—	12,671,059		5,000,000
OpVista, Inc., Series D Preferred	—		—		1,058,000		—		—		—	102,404		1,058,000
Silverback Systems, Inc., Series B-1 Preferred	2,211,898		450,051		—		—		—		—	2,211,898		450,051
Silverback Systems, Inc., Series C Preferred	34,364,257		4,298,896		—		—		—		—	34,364,257		4,298,897
Silverback Systems, Inc., Bridge Note	—		—		666,667		—		—		—	666,667		666,667
Tensys Medical, Inc., Series C Preferred	4,166,667		5,000,000		—		—		—		—	4,166,667		5,000,000
Tensys Medical, Inc., Series D Preferred	1,187,500		1,425,000		—		—		—		—	1,187,500		1,425,000
Virtual Silicon Technology, Inc., Series C Preferred	3,096,551		5,000,000		—		—		—		—	3,096,551		5,000,000
Virtual Silicon Technology, Inc., Bridge Note	88,738		88,738		122,447		—		2,570		—	211,185		211,185

Total Non Controlled Affiliates		$	51,315,508	$	4,322,145	$	—	$	9,968	$	—		$	58,963,226


							For the Year Ended October 31, 2004
Name of Investment	Shares/ Principal Amount Held at October 31, 2003		October 31, 2003 Value		Purchases / Conversion Acquisitions		Sale/ Conversion Proceeds			Interest Received		Realized Gain (Loss)			Shares/ Principal Amount Held at October 31, 2004	October 31, 2004 Value (Note 1)
Controlled Affiliates
Pilot Software Inc., Series A Preferred		20,000,000	$	4,000,000	$	—	$	—		$	—	$	—		20,000,000	$	4,000,000
Pilot Software Inc., Bridge Note, 9%		—		—		750,000		—			9,062		—		750,000		750,000
Datanautics Inc., Series A Preferred		—		—		4,000,000					—		—		19,995,000		4,000,000
Datanautics, Inc., Promissory Note 3%		4,000,000		4,000,000		—		(4,000,000	)		—		—		—		—

Total Controlled Affiliates			$	8,000,000	$	4,750,000	$	(4,000,000	)	$	9,062	$	—			$	8,750,000


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

Total Non Controlled Affiliates			$	48,405,544	$	12,844,569	$	(8,090,579	)	$	6,729	$	(2,559,421	)		$	51,315,508

Note 6 — Pending Litigation

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

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

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

Note 7 — Guarantees

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

Note 8 — Subsequent Events

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

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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

Realized and Unrealized Gains and Losses from Portfolio Investments

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

Investment Income and Expenses

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

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

Net Assets

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

Liquidity and Capital Resources

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

At January 31, 2005, the Company held $0 in cash and $41,161,907 in short-term investments as compared to $0 held in cash and $45,526,196 in short-term investments at October 31, 2004. The decrease in short-term investments from October 31, 2004 was due to new and follow-on investments in private companies as well as capital calls for private investment funds. The Company, during this period funded additional capital, totaling $1,472,864, per its commitments to the private investment funds. In connection with the Company’s total commitments to private funds in the amount of $25,700,000 since inception, the Company, through January 31, 2005, has contributed $8,197,525 or 31.9 % of the total capital committed thus far. The Company also participated in follow-on financing rounds, totaling $5,907,346, for several of its private companies.

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

Application of Critical Accounting Policies

Under the supervision of the Company’s Valuation and Audit Committees, consisting of the independent Managers of the Company, the Investment Adviser makes certain critical accounting estimates with respect to the valuation of private portfolio investments. These estimates could have a material impact on the presentation of the Company’s financial condition because in total, they currently represent 57.0% of the Company’s net assets. For the private investments held at January 31, 2005, changes to these estimates, i.e. changes in the valuations of these private investments, resulted in a $0 change in net asset value from October 31, 2004.

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

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

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

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

Item 3.

Quantitative and Qualitative Disclosures about Market Risk.

Equity Price Risk

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

Item 4.

Controls and Procedures.

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

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

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings.

None.

Item 2.

Changes in Securities and Use of Proceeds.

None.

Item 3.

Defaults Upon Senior Securities.

None.

Item 4.

Submission of Matters to a Vote of Security Holders.

None.

Item 5.

Other Information.

None.

Item 6.

Exhibits and Reports on Form 8-K.

(a)

Exhibits.


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

31.2		Certification of Treasurer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(b) Reports on Form 8-K.


(1)		On November 2, 2004, the Company filed a Current Report on Form 8-K to report under Item 4.01 a change in the Company’s certifying accountant.

(2)		On November 4, 2004, the Company filed a Current Report on Form 8-K/A to report under Items 4.01 and 9.01 that the Company filed as an Exhibit the response of Ernst & Young LLP to the disclosures made in the report on Form 8-K filed by the Company on November 2, 2004.

(3)		On November 29, 2004, the Company filed a Current Report on Form 8-K to report under Item 4.01 that Deloitte & Touche LLP was the Company’s certifying accountant.

SIGNATURES

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


	EXCELSIOR VENTURE PARTNERS III, LLC

Date: March 16, 2005	By:	/s/ Douglas A. Lindgren
		Douglas A. Lindgren
		Chief Executive Officer

Date: March 16, 2005	By:	/s/ Robert F. Aufenanger
		Robert F. Aufenanger
		Treasurer
		(Principal Financial Officer)

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