-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, K7ix6OGs0Z3wD8AcWg2g51zEckjnCXyT9BsVQpADLIE84sTNHyuu76bDqnggasZf zaQGt3rg38jTTAtZTDglpg== 0000950172-02-000511.txt : 20020415 0000950172-02-000511.hdr.sgml : 20020415 ACCESSION NUMBER: 0000950172-02-000511 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20020131 FILED AS OF DATE: 20020318 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EXCELSIOR VENTURE PARTNERS III LLC CENTRAL INDEX KEY: 0001103076 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 814-00209 FILM NUMBER: 02577888 BUSINESS ADDRESS: STREET 1: C/O UNITED STATES TRUST CO OF NEW YORK STREET 2: 114 WEST 47TH ST CITY: NEW YORK STATE: NY ZIP: 10036-1532 BUSINESS PHONE: 2128523949 MAIL ADDRESS: STREET 1: C/O UNITED STATES TRUST CO OF NEW YORK STREET 2: 114 WEST 47TH ST CITY: NEW YORK STATE: NY ZIP: 10036-1532 10-Q 1 bos233365.txt 10Q 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, 2002 --------------------------------------- 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 (I.R.S. Employer of Incorporation or Organization) Identification No.) 114 West 47th Street, New York, NY 10036-1532 - ----------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, Including Area Code (212) 852-1000 ------------------- - ----------------------------------------------------------------------------- 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 [ ] 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, 2002. 1 Statement of Assets and Liabilities at January 31, 2002 and October 31, 2001. 3 Statement of Operations for the three-month periods ended January 31, 2002 and 4 January 31, 2001. Statement of Changes in Net Assets for the three-month periods ended January 31, 5 2002 and January 31, 2001. 5 Statement of Cash Flows for the three-month periods ended January 31, 2002 and 6 January 31, 2001. Financial Highlights for the three-month period ended January 31, 2002. 7 Notes to Financial Statements. 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of 10 Operations. Item 3. Quantitative and Qualitative Disclosures about Market Risk. 11 PART II. OTHER INFORMATION Item 1. Legal Proceedings. 11 Item 2. Changes in Securities and Use of Proceeds. 11 Item 3. Defaults Upon Senior Securities. 11 Item 4. Submission of Matters to a Vote of Security Holders. 12 Item 5. Other Information. 12 Item 6. Exhibits and Reports on Form 8-K. 12 SIGNATURES
PART I. FINANCIAL INFORMATION Item 1. Financial Statements.
Excelsior Venture Partners III, LLC Portfolio of Investments (Unaudited) - ----------------------------------------------------------------------------------------------------- January 31, 2002 ----------------------------- PORTFOLIO STRUCTURE - ------------------- SHORT-TERM INVESTMENTS: U.S. GOVERNMENT AGENCY OBLIGATIONS $ 94,909,143 64.97% PRIVATE COMPANIES 47,249,994 32.35% PRIVATE INVESTMENT FUNDS 535,445 0.37% ------------ ---------- TOTAL INVESTMENTS 142,694,582 97.69% OTHER ASSETS & LIABILITIES (NET) 3,374,903 2.31% ------------- ---------- NET ASSETS $ 146,069,485 100.00% ============= =========== See Notes to Financial Statements.
Excelsior Venture Partners III, LLC Portfolio of Investments (Unaudited) - ----------------------------------------------------------------------------------------------------------------------- January 31, 2002 --------------------------------- Principal Acquisition Value Amount/Shares Date ## (Note 1) - ------------- ------------ -------------- U.S. GOVERNMENT AGENCY OBLIGATIONS -- 64.97% $95,000,000 U.S. Treasury Bills 1.66%, 2/12/02 $ 94,909,143 -------------- Total - U.S. Government Agency Obligations (Cost $94,909,143) 94,909,143 PRIVATE COMPANIES #,@ -- 32.35% 647,948 Adeza Biomedical Corporation, Series 5 Preferred 9/01 3,000,000 2,419,355 Ancile Pharmaceuticals, Inc., Series D Preferred 11/01 3,000,000 44,247,788 Cenquest, Inc., Series I Preferred 07/01 1,999,995 2,333,333 Ethertronics, Inc., Series B Preferred 6/01 3,500,000 1,879,699 Genoptix, Inc., Series B Preferred 12/01 2,500,000 4,330,504 LightConnect, Inc., Series B Preferred 07/01 5,000,000 2,000,000 LogicLibrary, Inc., Series A Preferred 01/02 2,000,000 15,739,638 MIDAS Vision Systems, Inc., Series C Preferred 12/01 3,999,999 4,750,000 Monterey Design Systems, Inc., Series I Preferred 12/01 4,750,000 857,143 NanoOpto Corporation, Series A-1 Preferred 10/01 2,000,000 1,538,461 NetLogic Microsystems, Inc., Series D Preferred 8/01 5,000,000 5,333,333 OpVista, Inc., Series B Preferred 07/01 4,000,000 517,260 Senomyx, Inc., Series E Preferred 11/01 1,500,000 5,000,000 Virtual Silicon Technology, Inc., Series C Preferred 12/01 5,000,000 ------------- Total - Private Companies (Cost $47,249,999) 47,249,994 PRIVATE INVESTMENT FUNDS #,@ -- 0.37% 150,000 Advanced Technology Ventures VII, L.P. 08/01-12/01 130,702 50,000 CHL Medical Partners II, L.P. 01/02 50,000 150,000 Morgenthaler Venture Partners VII, L.P. 07/01 138,204 270,429 Prospect Venture Partners II, L.P. 06/01-12/01 216,539 ------------- Total - Private Investment Funds (Cost $620,429) 535,445 ------------- TOTAL INVESTMENTS (Cost $142,779,571*) -- 97.69% 142,694,582 OTHER ASSETS & LIABILITIES (NET) -- 2.31% 3,374,903 NET ASSETS -- 100.00% $146,069,485 ============= * Aggregate cost for federal tax and book purposes. # Restricted as to public resale. Acquired between June 1, 2001 and January 31, 2002. Total cost of restricted securities at January 31, 2002 aggregated $47,870,428. Total market value of restricted securities owned at January 31, 2002 was $47,785,439 or 32.72%. ## Required disclosure for restricted securities only. @ Non-income producing securities. See Notes to Financial Statements.
Excelsior Venture Partners III, LLC Statement of Assets and Liabilities - ------------------------------------------------------------------------------------------------------------------ January 31, 2002 October 31, 2001 ------------------ ------------------- (Unaudited) ASSETS: Investment Securities, at Cost $ 142,779,571 $ 139,742,790 ================== =================== Investment Securities, at Value $ 142,694,582 $ 139,676,495 Cash and Cash Equivalents 4,289,916 8,433,122 Receivables: Interest 9,932 -- Receivable due from Distributor 50,000 50,000 Prepaid Assets 36,574 43,070 ------------------ ------------------- Total Assets 147,081,004 148,202,687 ------------------ ------------------- LIABILITIES: Management Fees Payable 738,122 1,377,259 Administration and Shareholder Servicing Fees Payable 135,795 249,241 Managers' Fees Payable 15,123 45,000 Offering Costs Payable 93,880 93,880 Accrued Expenses and Other Payables 28,599 16,529 ------------------ ------------------- Total Liabilities 1,011,519 1,781,909 NET ASSETS $ 146,069,485 $ 146,420,778 ================== =================== NET ASSETS consist of: Accumulated Undistributed Net Investment Income $ 10,494 $ 343,692 Accumulated Net Realized Gain on Investments 7,198 6,599 Net Unrealized (Depreciation) on Investments (84,989) (66,295) Paid in Capital 146,136,782 146,136,782 ------------------ ------------------- Total Net Assets $ 146,069,485 $ 146,420,778 ================== =================== Units of Membership Interest Outstanding 295,210 295,210 ------------------ ------------------- NET ASSET VALUE PER UNIT $ 494.80 $ 495.99 ================== =================== See Notes to Financial Statements.
Excelsior Venture Partners III, LLC Statement of Operations (Unaudited) - ---------------------------------------------------------------------------------------------------------------- Three Months Ended January 31, 2002 2001 ------------- -------------- INVESTMENT INCOME: Interest Income $ 555,267 $ -- -------------- -------------- Total Income 555,267 -- -------------- -------------- EXPENSES: Management Fees 738,121 -- Professional Fees 50,411 -- Administration Fees 46,996 -- Managers' Fees 38,123 -- Custodian Fees 4,537 -- Printing Fees 3,781 -- Insurance 6,496 -- -------------- -------------- Total Expenses 888,465 -- NET INVESTMENT (LOSS) (333,198) -- -------------- -------------- REALIZED AND UNREALIZED GAIN/ (LOSS) ON INVESTMENTS Net Realized Gain on Security Transactions 599 -- Change in Unrealized (Depreciation) on Investments (18,694) -- -------------- -------------- NET REALIZED AND UNREALIZED (LOSS) ON INVESTMENTS (18,095) -- -------------- -------------- NET (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ (351,293) $ -- ============== ============== See Notes to Financial Statements.
Excelsior Venture Partners III, LLC Statement of Changes in Net Assets (Unaudited) - ------------------------------------------------------------------------------------------------ Three Months Ended January 31, 2002 2001 -------------- -------------- OPERATIONS: Net Investment (Loss) $ (333,198) $ -- Net Realized Gain on Investments 599 -- Change in Unrealized (Depreciation) on Investments (18,694) -- -------------- -------------- Net (Decrease) in Net Assets Resulting from Operations (351,293) -- DISTRIBUTION TO SHAREHOLDERS FROM: Net Investment Income -- -- Net Realized Gain on Investments -- -- -------------- -------------- NET DECREASE IN NET ASSETS (351,293) -- NET ASSETS: Beginning of Period 146,420,778 500 -------------- -------------- End of Period $146,069,485 $ 500 ============== ============== See Notes to Financial Statements.
Excelsior Venture Partners III, LLC Statement of Cash Flows (Unaudited) - ------------------------------------------------------------------------------------------------ Three Months Ended January 31, 2002 2001 -------------- -------------- CASH FLOWS FROM INVESTING AND OPERATING ACTIVITIES: Proceeds from Sales of Short-Term Investments $ 429,450,648 $ -- Purchase of Short-Term Investments (409,582,429) -- Purchase of Investment (22,905,000) -- Investment Loss (342,531) -- Operating Expenses Paid (763,894) -- -------------- -------------- Net Cash Used for Investing and Operating Activities (4,143,206) -- -------------- -------------- CASH FLOWS FROM FINANCING ACTIVITIES: Capital Contributions -- -- Net Increase/(Decrease) in Cash (4,143,206) -- CASH AT BEGINNING OF PERIOD 8,433,122 500 -------------- -------------- CASH AT END OF PERIOD $ 4,289,916 $ 500 ============== ============== See Notes to Financial Statements.
Excelsior Venture Partners III, LLC Financial Highlights (Unaudited) - --------------------------------------------------------------------------- Per Unit Operating Performance: (1) Three Months Ended January 31, 2002 ------------------ NET ASSET VALUE, BEGINNING OF PERIOD $ 495.99 INCOME FROM INVESTMENT OPERATIONS: Net Investment Loss (1.13) Net Realized Gain 0.00 Net Unrealized Loss on Investments (0.06) ------------------ Total From Investment Operations (1.19) ------------------ NET ASSET VALUE, END OF PERIOD $ 494.80 ================== TOTAL NET ASSET VALUE RETURN (3) (0.24)% ================== Ratios and supplemental data: Net Assets, End of Period (000's) $ 146,069 Ratios to Average Net Assets (2) Net Expenses 2.43% Net Investment Loss (0.91)% Turnover (3) 0.00% (1) Selected data for a unit of membership interest outstanding throughout the period (2) Annualized (3) Non-annualized See Notes to Financial Statements. Excelsior Venture Partners III, LLC Notes to Financial Statements (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 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. As of January 31, 2002 the Company had sold 295,210 units via a public offering which closed on May 11, 2001. The duration of the Company is ten years (subject to two, two-year extensions) from the final subscription closing, 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. Certain costs incurred in connection with the initial offering of units totaled $1,468,218. Each member's 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 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 Advisers (as defined below) or a committee of the Board under the supervision of the Board pursuant to certain valuation procedures summarized below. Securities having remaining maturities of 60 days or less 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" method 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 Advisers or a committee 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. At January 31, 2002, market quotations were not readily available for securities valued at $47,785,439. Such securities were valued by the Investment Advisers (as hereinafter defined), 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 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. D. Dividends to members: Dividends from net investment income and distributions from net realized capital gains, if any, will be declared and paid at least once a year. Dividends from net investment income totaled $0 for the three-month period ended January 31, 2002. E. Other: The Company treats all highly-liquid financial instruments that mature within three months as cash equivalents. Note 2 -- Investment Advisory Fee, Administration Fee and Related Party Transactions U.S. Trust Company (the "Investment Adviser") serves as the investment adviser to the Company pursuant to an Investment Advisory Agreement with the Company. Each of United States Trust Company of New York ("U.S. Trust NY") and U.S. Trust Company, N.A. serve as the investment sub-advisers to the Company pursuant to investment sub-advisory agreements with U.S. Trust Company and the Company. Pursuant to the investment sub-advisory agreements, U.S. Trust Company pays investment management fees to U.S. Trust NY and U.S. Trust Company, N.A. U.S. Trust Company, U.S. Trust NY and U.S. Trust Company, N.A. are together referred to as the "Investment Advisers." In return for its services and expenses which U.S. Trust Company assumes under the Investment Advisory Agreement, the Company will pay U.S. Trust Company, on a quarterly basis, a management fee at an annual rate equal to 2.00% of the Company's average quarterly net assets through the fifth anniversary of the first closing date and 1.00% of net assets thereafter. In addition to the management fee, U.S. Trust Company 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, less cumulative realized capital losses, current net unrealized capital depreciation on all of the Company's investments and cumulative net expenses of the Company. The Incentive Carried Interest will be determined annually as of the end of each calendar year. U.S. Trust Company is a Connecticut state bank and trust company. U.S. Trust NY is a New York state-chartered bank and trust company and a member of the Federal Reserve System. U.S. Trust Company, N.A. is a nationally chartered bank. Each is 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"), an indirect wholly-owned subsidiary of PNC Bank N.A., as administrator, accounting and investor services agent and transfer 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 $11,000 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. U.S. Trust Company paid the Distributor from its own assets an amount equal to 0.02% of the total of all subscriptions received in this offering. U.S. Trust Company 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 this 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, 2002, Excelsior Venture Investors III, LLC had an investment in the Company of $92,729,704. This represents an ownership interest of 63.483% in the Company. Note 3 -- Purchases and Sales of Securities: Excluding short-term investments, the Company had $22,905,000 in purchases and $0 in sales of securities for the three-month period ended January 31, 2002. Note 4 -- Organization Fees The Company incurred organization fees totaling $154,976 which were expensed in the fiscal period ended October 31, 2001. As a result of the Company's final closing held on May 11, 2001, the Company will be reimbursed for $50,000 in organizational expenses from the Distributor. Note 5 -- Commitments As of January 31, 2002, the Company had committed $11,000,000 to private fund investments, $620,429 of which has been invested. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Results of Operations - --------------------- Three-Month Period Ended January 31, 2002 as Compared to the Similar Period in 2001 The Company's net asset value per unit of membership interest was $494.80 at January 31, 2002, a decrease of $1.19 per unit from the net asset value per unit of membership interest of $495.99 at October 31, 2001. This decrease is principally the result of operating expenses exceeding investment income during the period. During the period, the Company completed direct investments in Ancile Pharmaceuticals, Inc., Senomyx, Inc., MIDAS Vision Systems, Inc., Genoptix, Inc., Virtual Silicon Technology, Inc., Monterey Design Systems, Inc. and LogicLibrary, Inc. The Company also contributed capital to Advanced Technology Ventures VII, L.P., CHL Medical Partners II, L.P., Morgenthaler Venture Partners VII, L.P. and Prospect Venture Partners II, L.P., each a private equity fund. The Company's operations commenced April 5, 2001; therefore, there is no comparable period in 2001. Realized and Unrealized Gains and Losses from Portfolio Investments - ------------------------------------------------------------------- For the three-month period ended January 31, 2002, the Company had a net realized gain on security transactions of $599. For the three-month period ended January 31, 2002, the Company had a net change in unrealized depreciation on investments of $18,694. The realized gains were principally the result of the Company's sale of short-term investments. The change in unrealized depreciation was principally the result of a decline in the value of short-term investments. The Company's operations commenced April 5, 2001; therefore, there is no comparable period in 2001. Investment Income and Expenses - ------------------------------ For the three-month period ended January 31, 2002, the Company had interest income of $555,267 and net operating expenses of $888,465, resulting in net investment loss of $333,198. The Company's operations commenced April 5, 2001; therefore, there is no comparable period in 2001. U.S. Trust Company (the "Investment Adviser") and United States Trust Company of New York and U.S. Trust Company, N.A. (each an "Investment Sub-Adviser" and together with U.S. Trust Company, 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 Adviser, the Company pays a management fee based upon a percentage of the net assets of the Company invested or committed to be invested in certain types of investments and an incentive fee based in part on a percentage of realized capital gains of the Company. Such fee is determined and payable quarterly. For the three-month period ended January 31, 2002, the Investment Adviser earned $738,121 in management fees. The Company's operations commenced April 5, 2001; therefore, there is no comparable period in 2001. Net Assets - ---------- At January 31, 2002, the Company's net assets were $146,069,485, a decrease of $351,293 from net assets of $146,420,778 at October 31, 2001. The primary reason for the decrease was the result of a net investment loss for the three-month period ended January 31, 2002. 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 companies. The Company invests its available cash in short-term investments of marketable securities pending distribution to investors. At January 31, 2002, the Company held $4,289,916 in cash and $142,694,582 in investments as compared to $8,433,122 in cash and $139,676,495 in investments at October 31, 2001. These changes from October 31, 2001 were due to purchases and sales of short-term investments made by the Company during the period in order to provide liquidity for the purchase of direct investments and private fund investments. In connection with the Company's commitments to private funds in the amount of $11,000,000 since inception, a total of $10,379,571 has been contributed by the Company through January 31, 2002. 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 equity securities in private companies and private investment funds 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 equity securities in response to changes in market prices. Thus, these equity securities are not subject to equity price risk. As of January 31, 2002, the Company held no investments in the equity securities of public companies. 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. On December 20, 2001, the Board (including a majority of the managers that are not interested persons of the Company) approved an Investment Sub-Advisory Agreement (the "Sub-Advisory Agreement") among the Company, U.S. Trust Company and U.S. Trust Company, N.A. Pursuant to the Sub-Advisory Agreement, U.S. Trust Company, N.A., serves as an investment sub-adviser to the Company and receives an investment management fee from U.S. Trust Company. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. (10) Form of Investment Sub-Advisory Agreement among the Company, U.S. Trust Company and U.S. Trust Company, N.A. (b) Reports on Form 8-K. None. 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 14, 2002 By: /s/ David I. Fann ------------------------------- David I. Fann (Co-Principal Executive Officer) Date: March 14, 2002 By:/s/ Douglas A. Lindgren ------------------------------- Douglas A. Lindgren (Co-Principal Executive Officer) Date: March 14, 2002 By:/s/ Brian F. Schmidt ------------------------------- Brian F. Schmidt (Principal Financial and Accounting Officer) EX-10 3 bos225814.txt EXHIBIT 10 - INVESTMENT SUB-ADVISORY AGREEMENT Exhibit 10 ---------- INVESTMENT SUB-ADVISORY AGREEMENT INVESTMENT SUB-ADVISORY AGREEMENT (the "Agreement") dated as of December 21, 2001 by and among Excelsior Venture Partners III, LLC, a Delaware limited liability company (the "Company"), U.S. Trust Company ("UST"), a Connecticut state bank and trust company and U.S. Trust Company, N.A. ("USTNA"), a national banking association. WHEREAS, the Company is a closed-end, management investment company that has elected to be treated as a business development company under the Investment Company Act of 1940, as amended; WHEREAS, UST is the investment adviser to the Company; WHEREAS, United States Trust Company of New York ("USTNY") has heretofore been retained by UST to render investment sub-advisory services, and UST desires to retain USTNY in such capacity; WHEREAS, UST desires to retain USTNA to render additional investment sub-advisory services to the Company, and USTNA is willing to so render such services. NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, it is agreed between the parties hereto as follows: 1. Definitions. As used in this Agreement, the following terms have the meanings set forth below: (a) "Board of Managers" means the board of managers of the Company; (b) "Company" means Excelsior Venture Partners III, LLC; (c) "Disabling Conduct" means, on the part of the investment sub-adviser, any willful misfeasance, bad faith, or gross negligence in the performance of its duties owed to the Company, or reckless disregard of its obligations and duties owed to the Company; (d) "Disinterested Manager" has the meaning set forth in Section 10 hereof; (e) "Exchange Act" means the Securities Exchange Act of 1934, as amended; (f) "Indemnified Person" has the meaning set forth in Section 10 hereof; (g) "Investment Company Act" means the Investment Company Act of 1940, as amended; (h) "Investment Advisory Agreement" means the agreement between the Company and UST dated as of May 11, 2001 (i) "Manager" means any member of the Board of Managers; (j) "Operating Agreement" means the Limited Liability Company Operating Agreement of the Company; (k) "Registration Statement" means the Registration Statement of the Company under the Securities Act (File No. 333-30986); (l) "Securities Act" means the Securities Act of 1933, as amended; (m) "Unit" has the meaning set forth in the Operating Agreement. (n) "UST" means U.S. Trust Company; (o) "USTNA" means U.S Trust Company of California; (p) "USTNY" means United States Trust Company of New York. 2. Appointment. UST hereby appoints USTNA to act as investment sub-adviser to the Company for the period and on the terms set forth in this Agreement. USTNA accepts such appointment and agrees to render the services herein set forth for the compensation herein provided. USTNA may, in its discretion, provide such services through its own employees or the employees of one or more affiliated companies that are qualified to act as investment sub-adviser to the Company under applicable law and are under the common control of U.S. Trust Corporation provided (i) that all persons, when providing services hereunder, are functioning as part of an organized group of persons, and (ii) the use of an affiliate's employees does not result in an assignment of this agreement under the Investment Company Act; and (iii) the use of an affiliate's employees has been approved by the Board of Managers of the Company. 3. Delivery of Documents. UST has furnished USTNA with copies properly certified or authenticated of each of the following: (a) Certificate of Formation of the Company dated February 18, 2000; (b) Operating Agreement; (c) Investment Advisory Agreement; (d) Resolutions of the Board of Managers of the Company authorizing the appointment of UST as the investment adviser for the Company and the execution and delivery of the Investment Advisory Agreement; (e) Resolutions of the Board of Managers of the Company authorizing the appointment of USTNA as the Company's investment sub-adviser and the execution and delivery of this Agreement; and (f) the Registration Statement. UST will furnish USTNA from time to time with copies of all amendments of or supplements to the foregoing, if any. 4. Sub-Advisory Services. Subject to the supervision of the Board of Managers of the Company and the oversight of UST, at the request of UST, USTNA will provide a continuous investment program for the Company, including investment research and management with respect to all securities and investments of the Company. At the request of UST, USTNA will determine what securities and other investments will be purchased, retained or sold by the Company. At the request of UST, USTNA will perform any or all of the other duties of UST under the Investment Advisory Agreement. USTNA will provide the services rendered by it hereunder in accordance with the Company's investment objectives and policies as stated in the Prospectus, the Company's policies and procedures and the requirements applicable to UST under the Investment Advisory Agreement. USTNA further agrees that it: (a) will conform with all applicable rules and regulations of the Securities and Exchange Commission, and will in addition conduct its activities under this Agreement in accordance with applicable law, including but not limited to applicable banking law; (b) will not make loans for the purpose of purchasing or carrying Company Units, or make loans to the Company; (c) will place orders pursuant to its investment determinations for the Company either directly with the issuer or with any broker or dealer selected by it. In placing orders with brokers and/or dealers, USTNA shall use its best efforts to obtain the most favorable execution of its orders, after taking into account all factors it deems relevant, including the breadth of the market in the security, the price of the security, the financial condition and execution capability of the broker and/or dealer, and the reasonableness of the commission, if any, both for the specific transaction and on a continuing basis. Consistent with this obligation, USTNA may, to the extent permitted by law, purchase and sell portfolio securities to and from brokers who provide brokerage and research services (within the meaning of Section 28(e) of the Exchange Act) to or for the benefit of the Company and/or other accounts over which USTNA or any of its affiliates exercises investment discretion. USTNA is authorized to pay to a broker who provides such brokerage and research services a commission for effecting a securities transaction which is in excess of the amount of commission another broker would have charged for effecting that transaction if USTNA determines in good faith that such commission was reasonable in relation to the value of the brokerage and research services provided by such broker. This determination may be viewed in terms of either that particular transaction or of the overall responsibilities of USTNA with respect to the accounts as to which it exercises investment discretion; (d) will maintain books and records with respect to the securities and other investment transactions entered into pursuant to this Agreement and will render to UST and the Company's Board of Managers such periodic and special reports as they may request; (e) will treat confidentially and as proprietary information of the Company all records and other information relative to the Company and prior, present or potential shareholders, and will not use such records and information for any purpose other than performance of its responsibilities and duties hereunder, except after prior notification to and approval in writing by the Company, which approval shall not be unreasonably withheld and may not be withheld where USTNA may be exposed to civil or criminal contempt proceedings for failure to comply, when requested to divulge such information by duly constituted authorities, or when so requested by the Company. Nothing contained herein, however, shall prohibit USTNA from advertising or soliciting the public generally with respect to other products or services, regardless of whether such advertisement or solicitation may include prior, present or potential shareholders of the Company. 5. Services Not Exclusive. The investment sub-advisory services rendered by USTNA hereunder are not to be deemed exclusive, and USTNA shall be free to render similar services to others so long as its services under this Agreement are not impaired thereby. 6. Books and Records. USTNA shall provide the Company with all records concerning USTNA's activities that the Company is required by law to maintain. Any records required to be maintained and preserved pursuant to the provisions of Rule 31a-1 and Rule 31a-2 under the Investment Company Act which are prepared or maintained by USTNA on behalf of the Company are the property of the Company and will be surrendered promptly to the Company on request. The Company also shall comply with all reasonable requests for information by the Company's officers or Board of Managers, including information required for the Company's filings with the Securities and Exchange Commission and state securities commissions. 7. Expenses. (a) USTNA shall furnish, at its own expense, all office space, office facilities, equipment and personnel necessary or appropriate to the performance of its duties under this Agreement. USTNA shall pay the salaries and fees of all officers and employees of the Company performing services related to USTNA's duties under this Agreement. (b) It is understood that the Company will pay all of its expenses and liabilities, including all of such fees and expenses as set forth in the Investment Advisory Agreement. 8. Compensation. For the services provided and the expenses assumed pursuant to this Agreement, UST will pay USTNA a fee or fees as may be agreed to in writing by UST and USTNA. 9. Limitation of Liability of the Investment Sub-Adviser. (a) USTNA hereby is notified expressly of the limitation of Managers' liability as set forth in the Operating Agreement and agrees that any obligation of the Company arising in connection with this Agreement shall be limited in all cases to the Company and its assets, and USTNA shall not seek satisfaction of any such obligation from any Manager of the Company. (b) USTNA shall give the Company the benefit of its best judgment and efforts in rendering services under this Agreement. In the absence of Disabling Conduct, USTNA shall not be liable to the Company or to any member of the Company or any other person for any act or omission in the course of, or connected with, rendering services under this Agreement or for any losses that may be sustained in the purchase, holding or sale of any security. 10. Indemnification. The Company will indemnify USTNA, its affiliates and each of their officers, directors, employees, members and agents (each an "Indemnified Person") against, and hold each of them harmless from, any and all losses, claims, damages, liabilities or expenses (including reasonable counsel fees and expenses) incurred by any of them in connection with or resulting from the actions or inactions of any Indemnified Person in connection with the performance of or under this Agreement not resulting from Disabling Conduct by the respective Indemnified Person. Indemnification shall be made only following: (i) a final decision on the merits by a court or other body before whom the proceeding was brought that the Indemnified Person was not liable by reason of Disabling Conduct; or (ii) in the absence of such a decision, a reasonable determination, based upon a review of the facts, that the Indemnified Person was not liable by reason of Disabling Conduct by (a) the vote of a majority of a quorum of Managers of the Company who are not "interested persons" of USTNA ("Disinterested Managers") or (b) independent legal counsel in a written opinion. The Indemnified Person shall be entitled to advances from the Company for payment of the reasonable expenses incurred by it in connection with the matter as to which it is seeking indemnification in the manner and to the fullest extent permissible under the Delaware Limited Liability Company Act. The Indemnified Person shall provide to the Company a written affirmation of its good faith belief that the standard of conduct necessary for indemnification by the Company has been met and a written undertaking to repay any such advance if it should ultimately be determined that the standard of conduct has not been met. In addition, at least one of the following additional conditions shall be met: (a) the Indemnified Person shall provide security in form and amount acceptable to the Company for its undertaking; (b) the Company is insured against losses arising by reason of the advance; or (c) a majority of a quorum of Disinterested Managers, or independent legal counsel, in a written opinion, shall have determined, based on a review of facts readily available to the Company at the time the advance is proposed to be made, that there is reason to believe that the Indemnified Person will ultimately be found to be entitled to indemnification. No provision of this Agreement shall be construed to protect any Indemnified Person from liability in violation of Section 17(h) or (i) of the Investment Company Act. 11. Effective Date; Termination; Amendments. (a) This Agreement shall be effective as of the date first above written and, unless terminated sooner as provided herein, shall continue until the second anniversary of the execution of this Agreement. Thereafter, unless terminated sooner as provided herein, this Agreement shall continue in effect for successive annual periods, provided that such continuance is specifically approved at least annually by the vote of a majority of the Board of Managers of the Company who are not parties to this Agreement or interested persons of any such party, cast in person at a meeting called for the purpose of voting on such continuance, and either: (i) the vote of a majority of the outstanding voting securities of the Company; or (ii) the vote of a majority of the full Board of Managers. (b) This Agreement may be terminated at any time, without the payment of any penalty, either by: (i) the Company, by action of the Board of Managers or by vote of a majority of the outstanding voting securities of the Company, on 60 days' written notice to USTNA; or (ii) USTNA, on 90 days' written notice to the Company. This Agreement shall terminate immediately in the event of its assignment. (c) An affiliate of USTNA may assume USTNA's obligations under this Agreement provided that: (i) the affiliate is qualified to act as an investment sub-adviser to the Company under applicable law; (ii) the assumption will not result in a change of actual control or management of USTNA; and (iii) the assumption of USTNA's obligations by the affiliate is approved by the Board of Managers of the Company. (d) This Agreement may be amended only if such amendment is approved, to the extent required by the Investment Company Act, by the vote of a majority of the outstanding voting securities of the Company and by vote of a majority of the Board of Managers who are not parties to this Agreement or interested persons of any such party, cast in person at a meeting called for the purpose of voting on such amendment. (e) As used in this Agreement, the terms "specifically approved at least annually," "majority of the outstanding voting securities," "interested persons" and "assignment" shall have the same meanings as such terms have in the Investment Company Act and the regulations thereunder. 12. Notices. All notices and other communications hereunder shall be in writing or by confirm in telegram, cable, telex, or facsimile sending device. Notices shall be addressed: (a) if to USTNA, to: U.S. Trust Company, N.A., 5 Palo Alto Square, 9th Floor, 3000 El Camino Road, Palo Alto, California 94306; (b) if to UST, to: U.S. Trust Company, 225 High Ridge Road, Stamford, Connecticut 06905; or (c) if to the Company, to: Excelsior Venture Partners III, LLC, 114 W. 47th Street, New York, New York 10036, Attn: David I. Fann. 13. Governing Law. This Agreement shall be construed in accordance with the laws of the State of New York without giving effect to the choice of law provisions thereof, to the extent that such laws are consistent with the provisions of the Investment Company Act and the regulations thereunder. 14. Miscellaneous. The captions in this Agreement are included for the convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. Should any part of this Agreement be held or made invalid by a court decision, statute, regulation, or otherwise, the remainder of this Agreement shall not be affected thereby. This Agreement shall be binding and shall inure to the benefit of the parties hereto and their respective successors, to the extent permitted by law. IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed by their officers designated below as of the day and year first above written. EXCELSIOR VENTURE PARTNERS III, LLC By: ____________________________________ Name: David I. Fann Title: Co-Chief Executive Officer U.S. TRUST COMPANY By: ____________________________________ Name: Title: U.S. TRUST COMPANY, N.A. By: ____________________________________ Name: Title: -----END PRIVACY-ENHANCED MESSAGE-----