EXCELSIOR VENTURE PARTNERS III LLC, 497, 2000-11-27

EXCELSIOR VENTURE PARTNERS III LLC
497, 2000-11-27

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<PAGE> 1

PROSPECTUS

EXCELSIOR VENTURE PARTNERS III, LLC
$600,000,000
Units of Membership Interest
Minimum Subscription -- $100,000

Excelsior Venture Partners III, LLC, or the "Company," is a newly organized,
closed-end investment company. We have elected to be treated as a business
development company under the Investment Company Act. Our investment objective
is to achieve long-term capital appreciation. We will pursue our objective
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 our investment adviser or investment sub-adviser believe offer significant
long-term capital appreciation potential. U.S. Trust Company, the "Investment
Adviser," and United States Trust Company of New York, the "Investment
Sub-Adviser," are responsible for selecting our investments and for management
of our day-to-day affairs. The duration of the Company will be ten years from
the final subscription closing date (not later than December 31, 2000, subject
to extension as described in this prospectus). See "Description of
Units -- Term, Dissolution And Liquidation."

This prospectus contains information you should know before investing,
including risk information. Please read it before you invest and keep it for
future reference. Additional information about the Company, including the
statement of additional information dated November 20, 2000, incorporated by
reference into this prospectus, has been filed with the Securities and Exchange
Commission (the "Commission") and is available upon written or oral request
without charge. You can review the table of contents of the statement of
additional information on page 68 of this prospectus. In addition, the
Commission maintains a Web site (http://www.sec.gov) that contains material
incorporated by reference, the statement of additional information and other
information regarding registrants that file electronically with the Commission.
You may also request a free copy by writing or calling the Company at: c/o
United States Trust Company of New York, 114 West 47th Street, New York, New
York 10036-1532, (212) 852-3125. You may request a copy of the statement of
additional information at no charge by calling PFPC Inc. at 1-877-238-1968.

AN INVESTMENT IN THE COMPANY WILL BE ILLIQUID UNTIL ITS UNDERLYING
INVESTMENTS ARE DISTRIBUTED OR LIQUIDATED. INVESTORS MUST BE WILLING AND ABLE TO
BEAR THE RISKS OF AN INVESTMENT IN THE COMPANY UNTIL THAT TIME.

THESE ARE SPECULATIVE SECURITIES. YOU SHOULD INVEST ONLY IF YOU CAN AFFORD
A COMPLETE LOSS OF YOUR INVESTMENT. SEE "RISK FACTORS" BEGINNING ON PAGE 17.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE. THE COMPANY IS NOT AVAILABLE FOR INVESTMENT BY RESIDENTS IN
THE STATES OF ALABAMA, ARKANSAS, KANSAS, MAINE, MASSACHUSETTS, MISSISSIPPI AND
MISSOURI. SEE APPENDIX A FOR ADDITIONAL INFORMATION FOR RESIDENTS OF CERTAIN
STATES.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PRICE TO SALES PROCEEDS TO
PUBLIC(1) LOAD(2) COMPANY(1)
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Unit.......................... $500 None $500
-------------------------------------------------------------------------------------------------------------
Total Minimum..................... $100,000,000 None $100,000,000
-------------------------------------------------------------------------------------------------------------
Total Maximum..................... $600,000,000 None $600,000,000
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
</TABLE>

(1) The Company expects to incur organizational and offering expenses of
approximately $1,406,200. Charles Schwab & Co., Inc., the Company's
principal distributor, has agreed to pay the Company's organizational costs,
estimated to be $50,000, in the event that the Company receives
subscriptions totaling less than $300,000,000. If the Company receives
subscriptions totaling $300,000,000 or more, the Company will pay its own
organizational expenses, estimated to be $50,000. Your share of
organizational and offering costs will be deducted from your capital
contribution. At the first subscription closing the Company will issue one
Unit for each $500 of capital contributions. Thereafter, Units will be
issued at net asset value.
(2) The Investment Adviser or an affiliate has agreed to compensate the
principal distributor from its own assets, not the assets of the Company, in
an amount equal to 0.02% of the price to the public of all Units subscribed
for, and has agreed to compensate the principal distributor for the sale of
the Company's 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 Units held by investors introduced to the Company by the
principal distributor, subject to reduction after five years and elimination
upon all such fees totaling 6.5% of the gross proceeds received by the
Company from this offering.

The date of this prospectus is November 20, 2000.

<PAGE> 2

Units are made available through Charles Schwab & Co., Inc., the Company's
principal distributor (the "Distributor"). A first subscription closing will be
held on or about the fifth business day after receipt by the Company of
subscriptions totaling $100,000,000. The Company may continue to offer Units at
net asset value and accept subscriptions for such Units from time to time at
subsequent subscription closings until December 31, 2000, subject to extension.
If the minimum subscription of $100,000,000 has not been reached by such date,
or extension, the offering will terminate. See "The Offering." The Company
reserves the right to withdraw, cancel or modify the offering and to reject any
subscription in whole or in part. The Company will not accept proceeds until the
minimum subscription of $100,000,000 has been obtained. Funds transmitted by
subscribers to the Company, or to the selling agents, for investment in the
Company prior to the applicable closing date will be deposited in an
interest-bearing bank escrow account with PNC Bank, Delaware pending closing.

FOR ARIZONA RESIDENTS ONLY

THESE SECURITIES ARE REGISTERED UNDER THE SECURITIES ACT OF ARIZONA, BUT
THE FACT OF THE REGISTRATION IS NOT TO BE DEEMED A FINDING BY THE ARIZONA
CORPORATION COMMISSION OR THE DIRECTOR OF THE SECURITIES DIVISION THAT THE
PROSPECTUS IS TRUE OR ACCURATE, NOR DOES THE REGISTRATION MEAN THAT THE
COMMISSION OR THE DIRECTOR HAS PASSED ON THE MERITS OF OR OTHERWISE APPROVED THE
SECURITIES DESCRIBED IN THIS PROSPECTUS.

SEE APPENDIX A FOR ADDITIONAL INFORMATION FOR RESIDENTS OF CERTAIN STATES.

Units may be purchased only by persons who represent to the Company that the
value of their total assets (exclusive of their personal residence) less their
total liabilities is at least $1,000,000 and that the amount that they are
subscribing for does not exceed 10% of their total assets less their total
liabilities, and who make the other representations included in the Subscription
Agreement (included as Appendix C) to be entered into by each investor.

2
<PAGE> 3

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FEE TABLE................................................... 4
PROSPECTUS SUMMARY.......................................... 5
THE COMPANY................................................. 13
INVESTMENT OBJECTIVE AND POLICIES........................... 13
RISK FACTORS................................................ 17
THE OFFERING................................................ 23
USE OF PROCEEDS............................................. 25
MANAGEMENT.................................................. 25
BROKERAGE ALLOCATION AND OTHER PRACTICES.................... 46
REGULATION.................................................. 47
VALUATION OF PORTFOLIO SECURITIES........................... 49
CAPITAL ACCOUNTS, ALLOCATIONS AND DISTRIBUTIONS............. 50
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS................... 51
ERISA CONSIDERATIONS........................................ 57
DESCRIPTION OF UNITS........................................ 60
SELLING ARRANGEMENTS........................................ 63
LEGAL MATTERS............................................... 63
INDEPENDENT AUDITORS........................................ 63
AVAILABLE INFORMATION....................................... 64
REPORTS TO MEMBERS.......................................... 64
FINANCIAL STATEMENTS........................................ 64
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL
INFORMATION............................................... 68
</TABLE>

3
<PAGE> 4

FEE TABLE

UNITHOLDER TRANSACTION EXPENSES

<TABLE>
<S> <C>
Sales Load (as a percentage of offering price)............ None*
ANNUAL EXPENSES (as a percentage of net assets attributable
to Units)
Management Fees........................................... 2.00%**
Other Expenses............................................ 0.44%***
Total Annual Expenses..................................... 2.44%
</TABLE>

---------------
* A distribution fee equal to 0.02% of the total of all subscriptions received
in this offering will be paid by the Investment Adviser or an affiliate. The
Investment Adviser or an affiliate will also pay the Distributor an ongoing
fee for the sale of Units and the provision of ongoing investor services in
an amount equal to the annual rate through the fifth anniversary of the
final subscription closing date of 0.45% of the average quarterly net asset
value of all outstanding Units held by investors introduced to the Company
by the Distributor 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.

** The management fee through the fifth anniversary of the final subscription
closing date will be payable at the annual rate of 2.00% of the Company's
average quarterly net assets, determined as of the end of each fiscal
quarter. Thereafter, the management fee will be payable at the annual rate
of 1.00% of the Company's average quarterly net assets, determined at the
end of each fiscal quarter. The Investment Adviser has agreed to waive its
fee during the subscription period, which will end on the final subscription
closing date (not later than December 31, 2000, subject to extension). The
Investment Adviser is also entitled to an "Incentive Carried Interest" in an
amount equal to 20% of the Company's cumulative realized net capital gains
on investments other than private funds (determined net of cumulative
realized capital losses, current net unrealized capital depreciation on all
of the Company's investments and cumulative net expenses of the Company.)
See "Management" and "Capital Accounts, Allocations and Distributions."

*** "Other Expenses" include among other things, administration fees, legal
fees, the independent auditor's fees, printing costs and fees payable to the
independent managers.

<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment, assuming a 5% annual
return:
Example (1).............................. $35 $106 $179 $319
</TABLE>

THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN IN THE EXAMPLES.

The purpose of the above table is to assist the investor in understanding
the various costs and expenses that an investor in the Company will bear
directly or indirectly. To the extent that the Company invests in other private
funds, you will also indirectly through the Company bear your pro rata share of
the fees, expenses and any carried interest or incentive compensation paid by
such funds. For a more complete description of the various costs and expenses,
see "Management" and "Capital Accounts, Allocations and Distributions."
---------------
(1) Assumes management fee of 2.00% of the Company's net assets in years 1-5 and
1.00% thereafter and other expenses of 0.44% of the Company's net assets and
includes the Incentive Carried Interest. These expense estimates are based
on the assumption that the entire 5% annual return is the result of realized
capital gains on investments other than private funds.

4
<PAGE> 5

PROSPECTUS SUMMARY

This summary is qualified in its entirety by reference to the more detailed
information included in this prospectus, the statement of additional information
and to the Company's operating agreement (the "Operating Agreement") attached
hereto as Appendix B.

THE COMPANY

The Company is a Delaware limited liability company formed on February 18,
2000. We have elected to be treated as a business development company, or "BDC,"
under the Investment Company Act. We provide investors with the opportunity to
participate, with a minimum investment of $100,000, in direct private equity
investments and privately offered investment funds managed by third parties.
These investment opportunities are generally not available to the public and
typically require substantially larger commitments than the minimum investment
in the Company. Other advantages that may otherwise be unavailable to investors
if they were to invest directly in private equity investments include
professional management, portfolio diversification and administrative
convenience. We operate more like a private venture capital fund than a
traditional, closed-end investment company. See "The Company," "Risk Factors,"
"The Offering," "Regulation" and "Description of Units."

INVESTMENT OBJECTIVE AND POLICIES

The Company's investment objective is to achieve long-term capital
appreciation. Current income is not an objective. We will pursue long-term
capital appreciation primarily by investing in private domestic venture capital
companies and other private companies (collectively, "Venture Capital
Investments"). Venture Capital Investments are domestic companies in which the
equity is closely held by company founders, management and/or a limited number
of institutional investors. We also intend to invest to a lesser extent in
domestic and international venture capital, buyout and other private equity
funds managed by third parties ("Private Funds"), negotiated private investments
in public companies ("Private Placements in Public Companies") and foreign
companies in which the equity is closely held by company founders, management
and/or a limited number of institutional investors ("International Venture
Capital Investments"). We refer to Venture Capital Investments, Private
Placements in Public Companies and International Venture Capital Investments as
"Direct Investments." A company in which a Direct Investment is made is
considered a "Portfolio Company." Pending investment, for operating purposes and
for temporary or emergency purposes, we will make liquid investments in
short-term securities.

We currently expect to make investments in companies engaged in businesses
that are consistent with the general investment philosophy used by U.S. Trust
Corporation and its affiliated banks ("U.S. Trust") in its investment management
advisory business. With the approval of the Company's board of managers (the
"Board of Managers"), we may change this policy. U.S. Trust follows a long-term
investment philosophy and uses a growth strategy and a transaction value
strategy to guide investment decision making. The growth strategy seeks to
identify industries and companies that can provide solutions to or otherwise
benefit from markets that are growing in response to underlying trends. The
transaction value strategy involves a comparison of a company's real underlying
asset value with similar assets changing ownership in the market. It is based on
a belief that differences between a company's real asset value and the price of
its shares correct over time. U.S. Trust applies these strategies together with
a focus on longer-term investment themes that U.S. Trust believes represent
long-term trends. U. S. Trust currently believes that the following themes
represent strong and inexorable trends:

- Communications and Information

- Productivity Enhancers

- Infrastructure Development

- Early Life Cycle Companies

5
<PAGE> 6

- Demographics/Rising Living Standards

- Globalization Forces

- Business and Industrial Restructuring

Each of these is described in greater detail under the caption "Investment
Objective and Policies -- Investment Strategies." Under current market
conditions, we expect to emphasize the technological innovations that are
driving the new economy, with specific focus on information technology,
communications, life sciences and information services.

We may from time to time borrow funds in an amount up to 25% of our total
assets (after giving effect to the borrowing) in order to make additional
investments in existing Portfolio Companies (referred to as "follow-on
investments"), to maintain various regulatory qualifications, to pay
contingencies and expenses or in anticipation of the receipt of funds from
capital contributions or the disposition of investments. We do not intend to
borrow in order to make the initial investment in a company. We will not borrow
to pay the management fee payable to the Investment Adviser.

There can be no assurance that we will achieve our investment objective.
See "Investment Objective and Policies" and "Risk Factors."

MANAGEMENT AND COMPENSATION

The Investment Adviser and Investment Sub-Adviser are responsible pursuant
to the investment advisory and investment sub-advisory agreements for
identifying, evaluating, structuring, monitoring and disposing of our
investments and providing, or arranging for third parties to provide, any and
all management and administrative services reasonably necessary for the
operation of the Company and the conduct of its business.

The Investment Adviser or its affiliates have served as the investment
advisers to UST Private Equity Investors Fund, Inc. ("Fund I") and Excelsior
Private Equity Fund II, Inc. ("Fund II"), each a registered business development
company, since their inceptions in September 1994 and March 1997, respectively.
The investment management personnel of the Investment Adviser and Investment
Sub-Adviser consist of the same persons that perform the investment management
functions for Fund I and Fund II. The Company's investment objective and
policies are similar to those of Fund I and Fund II, although the Investment
Adviser and Investment Sub-Adviser expect to employ an investment strategy more
similar to that of Fund II. As of October 31, 2000, Fund I had made investments
in 12 Portfolio Companies and 6 Private Funds with an aggregate of approximately
$40 million of invested and/or committed capital. As of October 31, 2000, Fund
II had made investments in 20 Portfolio Companies and 13 Private Funds with an
aggregate of approximately $178 million of invested and/or committed capital.

Through the fifth anniversary of the final subscription closing date, the
Company will pay the Investment Adviser a management fee at an annual rate equal
to 2.00% of the Company's average quarterly net assets, determined as of the end
of each fiscal quarter. Thereafter, the management fee will be at an annual rate
of 1.00% of the Company's average quarterly net assets, determined as of the end
of each fiscal quarter. From this fee the Investment Adviser will pay the
investment advisory fee of the Investment Sub-Adviser. The Investment Adviser
has agreed to waive its management fee during the subscription period, which
will end on the final subscription closing date (not later than December 31,
2000, subject to extension).

The Investment Adviser also will be 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 all Direct Investments determined net of:

- cumulative realized capital losses on all investments of any type;

- current net unrealized capital depreciation on all investments of any
type; and

- cumulative net expenses of the Company.

6
<PAGE> 7

The Incentive Carried Interest will be determined annually as of the end of each
calendar year. The Investment Adviser's allocations and distributions will be
made net of, respectively, all prior allocations and all prior distributions
made of the Incentive Carried Interest to the Investment Adviser.

PFPC Inc. (the "Administrator"), performs certain administration,
accounting and investor services for the Company. In consideration for these
services, the Company pays the Administrator an annual fee based upon the
Company's aggregate net assets, subject to a minimum monthly fee, and will
reimburse the Administrator for certain of the Administrator's expenses.

THE OFFERING

The Company is offering investors the opportunity to subscribe to make
capital contributions to the Company in exchange for units of membership
interests ("Units") in the Company. The Company has registered the Units under
the Securities Act of 1933, as amended (the "Securities Act"). Units are made
available through Charles Schwab & Co., Inc. as principal distributor (the
"Distributor"). The Investment Adviser or an affiliate will pay the Distributor
from its own assets an amount equal to 0.02% of the total of all subscriptions
received in this offering. Units may be sold by the Distributor to investors
directly or through financial intermediaries acting as broker or agent ("Selling
Agent") for their customers. The Investment Adviser or an affiliate may
compensate from its own assets Selling Agents who sell Units of the Company to
investors. The Investment Adviser or an affiliate will also pay the Distributor
an ongoing fee for the sale of Units and the provision of ongoing investor
services in an amount equal to the annual rate through the fifth anniversary of
the final subscription closing date of 0.45% of the average quarterly net asset
value of all outstanding Units held by investors introduced to the Company by
the Distributor 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. The offering will terminate on December 31,
2000, subject to extension by the Board of Managers to a date not later than May
11, 2001 (the "Termination Date"). If the Company has not received subscriptions
totaling at least $100,000,000 by the Termination Date, the offering will
terminate. See "Risk Factors -- Minimum Proceeds; Portfolio Diversification."

We expect to have our first closing (the "first subscription closing")
approximately five business days after we have received subscriptions totaling
at least $100,000,000. The Company may continue to accept subscriptions for
Units from time to time at subsequent closings (each a "subsequent subscription
closing") until the Termination Date.

Each subscriber will be required to complete, execute and deliver to the
Company an executed copy of a subscription agreement included as Appendix C (the
"Subscription Agreement"), which will form a binding contract of the investor.
Units may be purchased only by persons who represent to the Company that the
value of their total assets (exclusive of their principal residence) less their
total liabilities is at least $1,000,000 and that the amount that they are
subscribing for does not exceed 10% of their total assets less their total
liabilities, and who make the other representations included in the Subscription
Agreement to be entered into by each investor. Funds transmitted by subscribers
to the Company, or to the Selling Agents, for investment in the Company prior to
the applicable closing date will be deposited in an interest bearing escrow
account with PNC Bank, Delaware pending each closing. Any checks should be made
payable to PNC Bank, Delaware, as "Escrow Agent," and must be transmitted by
Selling Agents directly to PFPC Inc. as Escrow Administrator by noon of the next
business day after receipt. The Company will not accept proceeds until the
minimum subscription of $100,000,000 has been obtained. Organizational and
offering costs of approximately $1,406,200, have been or will be incurred by the
Company. All or a portion of such costs have been or may be advanced by the
Investment Adviser or an affiliate and will be reimbursed by the Company.
Charles Schwab & Co., Inc., the Company's principal distributor, has agreed to
pay the Company's organizational costs, estimated to be $50,000, in the event
that the Company receives subscriptions totaling less than $300,000,000. If the
Company receives subscriptions totaling $300,000,000 or more, the Company will
pay its own organizational expenses, estimated to be $50,000. Each investor's
share of organizational and offering costs will be deducted from his or her
capital account. See "The Offering."

7
<PAGE> 8

Pursuant to the Subscription Agreement, your subscription amount is
required to be paid on or before the final subscription closing date (not later
than December 31, 2000, subject to extension). At the first subscription closing
the Company will issue one Unit for each $500 of capital contributions.
Thereafter, Units will be issued at net asset value.

ERISA Considerations. The Company intends to restrict ownership of the
Units (and other classes of equity that may be issued by the Company) by benefit
plan investors so that no assets of the Company will be deemed to be "plan
assets" subject to ERISA and/or Section 4975 of the Code as such term is defined
in the "Plan Assets Regulation" issued by the United States Department of Labor.
Although the Company intends to restrict the acquisition of the Units by benefit
plan investors (which is defined in the Plan Assets Regulation to include all
employee benefit plans, whether or not the plans are subject to ERISA and/or
Section 4975 of the Code) to less than 25% of all Units (excluding Units held
by, persons that have discretionary authority or control with respect to the
assets of an entity or that provide investment advice for a fee with respect to
such assets, or any affiliate of such a person, that are not benefit plan
investors), there can be no assurance that the ownership of the Units (or any
other class of equity securities issued by the Company) by benefit plan
investors will always remain below the 25% threshold established under the Plan
Assets Regulation.

If the assets of the Company were deemed to be "plan assets," certain
transactions that the Company might enter into, or may have entered into, in the
ordinary course of business might constitute non-exempt prohibited transactions
under ERISA and/or Section 4975 of the Code and might have to be rescinded.

In addition, each investor will be required to make certain
representations, warranties and covenants, or will be deemed to have
represented, warranted and covenanted, to the effect that its purchase of the
Units will not result in a non-exempt prohibited transaction under ERISA and/or
Section 4975 of the Code.

See "ERISA Considerations" herein for a more detailed discussion of certain
ERISA and related considerations with respect to an investment in the Units.

MINIMUM INVESTMENTS

The minimum subscription amount is $100,000. We have the right to waive the
minimum, at our discretion. See "The Offering."

USE OF PROCEEDS

We intend to apply the net proceeds of this offering to make investments in
furtherance of our investment objective and policies. We anticipate that there
will be a significant period of time (up to four years) before the Company
becomes fully invested. Although the Company intends to invest or commit to
invest more than 50% of the proceeds from the offering in Venture Capital
Investments within the earlier of (i) two years after the final subscription
closing date and (ii) two and one-half years after the commencement of this
offering, a delay is common for BDCs because of the competition for investments
in entities that meet the requirements for "qualifying assets" under the
Investment Company Act. See "Use of Proceeds."

RISK FACTORS

These are speculative securities. Units of the Company are not deposits or
obligations of, or guaranteed or endorsed by, U.S. Trust, and the Units are not
insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board
or any other agency or person.

RISKS RELATED TO THE COMPANY

UNSPECIFIED USE OF PROCEEDS. Since the Company has not identified the
particular uses for the net proceeds from this offering, prospective investors
must rely on the ability of the Investment Adviser and Investment Sub-Adviser to
identify and make portfolio investments consistent with the Company's investment
objective.

8
<PAGE> 9

LACK OF OPERATING HISTORY. While the key personnel of the Investment
Adviser and the Investment Sub-Adviser have considerable experience in venture
capital and private equity investing, the Company has recently been formed and
has no operating history of its own upon which an investor may base an
evaluation of the likely performance of the Company.

MINIMUM PROCEEDS; PORTFOLIO DIVERSIFICATION. To the extent that the
Company makes fewer investments, it may be subject to greater risks from
developments adversely affecting one or a limited number of issuers. If the
Company obtains only the minimum amount of subscriptions it will have fewer
assets to invest and will likely acquire fewer investments than it would if it
obtained more subscriptions. This would increase the Company's volatility and
risk.

RELIANCE ON THE INVESTMENT ADVISER AND THE INVESTMENT SUB-ADVISER. The
investment decisions of the Company will be made by the Investment Adviser and
the Investment Sub-Adviser. Investors will have no right to take part in the
management of the Company.

INCENTIVE CARRIED INTEREST. The Incentive Carried Interest is based on 20%
of the net realized capital gain on Direct Investments made by the Company and
may create an incentive for the Investment Adviser to cause the Company to make
investments that are riskier or more speculative than would be the case in the
absence of the Incentive Carried Interest.

POTENTIAL CONFLICTS OF INTEREST. The Investment Adviser and the Investment
Sub-Adviser and their affiliates may be subject to various conflicts of interest
in connection with their relationships and transactions with the Company. These
include conflicts associated with:

- the Incentive Carried Interest;

- investment opportunities;

- allocating management time and services;

- relationships with Portfolio Companies; and

- affiliated transactions.

See "Risk Factors -- Potential Conflicts of Interest."

LIABILITIES OF MEMBERS. You will not be liable for any obligations of the
Company in excess of your capital account balance, plus your share of
undistributed profits. If, however, you receive a distribution from the Company
and after such distribution the liabilities of the Company exceed the fair value
of the Company's assets (and you had knowledge of this fact at the time of the
distribution) you may be required to return such distribution to the Company.
The Company has no intention of making such distributions. You will not have the
right to a return of the subscription amount except in accordance with the
distribution provisions of the Operating Agreement.

NO PUBLIC OR OTHER MARKET FOR UNITS. The Company is a newly organized
entity. A member may transfer Units only by operation of law pursuant to the
death, bankruptcy, insolvency or dissolution of the member or otherwise, or with
the written consent of the Company (which it may withhold in its sole and
absolute discretion and will grant, if at all, only in extenuating
circumstances) or in connection with a transfer to a family trust or another
entity that does not result in a change of beneficial ownership. Any permitted
transferees will not, however, be allowed to become substituted members in the
Company without the consent of the Company, which consent may be withheld in our
sole and absolute discretion. No member will have the right to require the
Company to redeem his, her or its Units. In addition, none of the Company, the
Investment Adviser, the Investment Sub-Adviser or the Distributor (nor any of
their respective affiliates) will make a market in or otherwise make offers to
repurchase Units, and Units will not be traded on any securities exchange or
other market.

FOR THESE VARIOUS REASONS, AN INVESTMENT IN THE COMPANY WILL BE ILLIQUID
UNTIL ITS UNDERLYING INVESTMENTS ARE DISTRIBUTED OR LIQUIDATED. INVESTORS MUST
BE WILLING AND ABLE TO BEAR THE RISKS OF AN INVESTMENT IN THE COMPANY UNTIL THAT
TIME.

9
<PAGE> 10

TAX STATUS. At the first subscription closing, the Company will receive an
opinion of its counsel to the effect that, under current law and based on
certain assumptions and representations, the Company will be treated as a
partnership and not as a publicly traded partnership that is treated as a
corporation for federal income tax purposes. Such opinion will be based upon the
maintenance of certain factual and other conditions, the continuation of which
cannot be assured. No ruling has been or will be sought from the Internal
Revenue Service ("IRS") regarding the status of the Company as a partnership. An
opinion of counsel is not binding on the IRS or any court. If the Company were
treated as a publicly traded partnership or otherwise treated as a corporation
for federal income tax purposes, material adverse consequences for the members
would result. See "Certain Federal Income Tax Considerations -- Tax Status of
the Company."

DISTRIBUTIONS IN KIND. The Company may determine to make distributions of
securities or other property in kind. To the extent that the Company does so,
you will incur additional expenses when you determine to dispose of such
securities or other assets. In addition, the determination of whether and when
to dispose of such securities or other assets will be your responsibility. Such
securities or other property may be worth more or less when you dispose of them
than their value at the time of distribution. Although the Company generally
intends to distribute securities prior to liquidation only if such securities
are traded in an active secondary market without registration, such securities
may be subject to a minimum holding period or other limitations on resale.

REGULATION. The Company has elected to be treated as a business
development company under the Investment Company Act, and as such is subject to
numerous restrictions on the nature of its investments, the use of leverage and
the issuance of securities, options, warrants or rights, which could prohibit
the Company from investing in potentially attractive situations that might
otherwise be available. At the same time, our election to be treated as a
business development company exempts us from certain provisions of the
Investment Company Act. As a result, we operate differently than a registered
investment company and are subject to different and potentially greater risks as
compared to a registered investment company.

GENERAL RISKS OF INVESTMENTS

RISK OF PRIVATE EQUITY INVESTMENTS. Though private equity investments
offer the opportunity for significant capital gains, such investments also
involve a high degree of business and financial risk that can result in
substantial losses.

ILLIQUIDITY OF PRIVATE EQUITY INVESTMENTS. The Company anticipates that it
may take up to four years before it is fully invested or committed to invest in
Portfolio Companies, and it is unlikely that any significant distribution of the
proceeds from the disposition of private equity investments will be made until
the later years of the Company's term. Securities laws, contractual limitations
and practical limitations may inhibit the Company's ability to sell, distribute
or liquidate its investments in Portfolio Companies and could reduce the amount
of proceeds that might otherwise be realized.

NEED FOR FOLLOW-ON INVESTMENTS. There is no assurance that the Company
will have sufficient funds available or choose to make follow-on investments.
Failure to make follow-on investments may have a substantial impact on Portfolio
Companies in need of such an investment or may result in a missed opportunity
for the Company to increase its participation in a successful operation.

COMPETITION FOR INVESTMENTS. The Company expects to encounter competition
from, and to be a co-investor with, other professional venture capital, private
equity or leveraged buyout groups including several in which the Company may be
an investor.

INVESTMENT IN COMPANIES DEPENDENT UPON NEW TECHNOLOGIES. Under current
market conditions, the Company plans to focus on investments in companies that
rely significantly on technological events or advances in their product
development, production or operations. The value of the Company's Units may be
susceptible to factors affecting technology and technology-related industries
and to greater risk and market fluctuation than an investment in a fund that
invests in a broader range of portfolio securities.

BORROWING. The use of leverage even on a short-term basis could have the
effect of magnifying increases or decreases in the Company's net asset value and
could result in lenders placing restrictions on the Company
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including reserve requirements or operating restrictions that would limit the
ability of the Company to control investments or refinancing and the ability of
the Company to make distributions.

LACK OF DIVERSIFICATION. The Company intends to operate as a
non-diversified investment company within the meaning of the Investment Company
Act. A non-diversified company may invest to a greater degree in fewer issuers
than may a diversified company. As a result, the Company will be more exposed to
developments adversely affecting only one or a few companies that it has
invested in. The net asset value of a non-diversified company may be more
volatile than that of a diversified company.

ALLOCATIONS, DISTRIBUTIONS AND LIQUIDATION

The Company has been formed as a Delaware limited liability company and as
such is governed by Delaware law and the Operating Agreement that defines many
of the rights and responsibilities of the Board of Managers and members. A copy
of the Operating Agreement is attached hereto as Appendix B. Investors will
become members of the Company, which will establish a capital account for each
member. Your capital contribution and your share of items of income and gain
will be credited to your capital account, and your distributions and your share
of items of loss, deduction and expense will be debited from your capital
account.

ALLOCATIONS. The income, gain, loss, deduction and expense of the Company
generally will be determined and allocated as of the end of each tax year
(typically December 31) to reflect the economic interests of the members and the
Investment Adviser.

Allocations generally will be made in the following order:

- gains will be allocated to the Investment Adviser until the cumulative
amount of all gain that has been allocated to the Investment Adviser from
the commencement of operations equals the Incentive Carried Interest
calculated through the period for which the allocation is being made;
then

- all remaining items of income, gain, loss, deduction and expense will be
allocated to the members pro rata in accordance with their invested
capital.

DISTRIBUTIONS. The Company will distribute all cash that the Investment
Adviser does not expect to use in the operation of the Company. The Company will
consider making such distributions at least annually but, as described below,
investors should not expect distributions of cash or property during the first
several years of the Company's operations. Each year, the Investment Adviser
generally will be entitled to a distribution of the Incentive Carried Interest.
The members generally will be entitled to all amounts remaining for distribution
pro rata in accordance with their invested capital.

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. The Company will not reinvest income from its investments
or the proceeds from the sale of its investments, in each case other than in
short-term investments, except to make follow-on investments. The Company may
make distributions in kind of its property. The Company does not intend to make
any distribution if, after making such distribution, the liabilities of the
Company would exceed the fair value of the Company's assets.

LIQUIDATION. The duration of the Company will be ten years from the final
subscription closing; however, the Board of Managers has the right, in its sole
discretion, to extend the term for up to two additional two-year periods, after
which the approval of members who represent 66 2/3% of the Company's outstanding
Units may determine to extend the term of the Company. Upon dissolution of the
Company, the affairs of the Company will be wound up and its assets distributed
as provided in the Operating Agreement. See "Description of Units -- Term,
Dissolution and Liquidation."

CERTAIN FEDERAL INCOME TAX CONSIDERATIONS

The Company intends to be treated as a partnership for federal income tax
purposes. See "Certain Federal Income Tax Considerations -- Tax Status of the
Company." Thus, each member in computing its federal income tax liability for a
taxable year will be required to take into account his, her or its allocable
share
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of Company items of income, gain, loss, deduction and expense for the taxable
year of the Company ending within or with each taxable year of the member,
regardless of whether the member has received any distributions from the
Company. It is possible that a member's federal income tax liability with
respect to his, her or its allocable share of Company earnings in a particular
year could exceed the distributions to the member for the year, thus giving rise
to an out-of-pocket payment by the member.

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THE COMPANY

The Company is a newly organized, non-diversified, closed-end management
investment company which has elected to be treated as a business development
company under the Investment Company Act, and which has registered its
securities for sale under the Securities Act. The Company will offer managerial
assistance to certain Portfolio Companies. The Board of Managers may change the
Company's status as a BDC under the Investment Company Act only with the vote of
a majority of the outstanding Units. The Company provides investors with the
opportunity to participate in investments which are generally not available to
the public and typically require substantially larger financial commitments than
the minimum investment in the Company.

The Company was organized as Excelsior Private Equity Fund III, LLC, a
Delaware limited liability company, on February 18, 2000. On April 26, 2000 the
Company amended its certificate of formation to change its name from Excelsior
Private Equity Fund III, LLC to Excelsior Venture Partners III, LLC. The
business and affairs of the Company are overseen by a four member board of
managers, three of whom are not "interested persons" of the Company as that term
is defined in the Investment Company Act. The Board of Managers is analogous to
a board of directors of a corporation. Pursuant to the investment advisory and
investment sub-advisory agreements, the Investment Adviser and Investment
Sub-Adviser, subject to the supervision of the Board of Managers, are
responsible for finding, evaluating, structuring, monitoring and liquidating the
Company's investments as described in "Management" and are responsible for
providing, or arranging for third parties to provide, any and all management and
administrative services reasonably necessary for the operation of the Company
and the conduct of its business. Pursuant to the Investment Advisory Agreement,
the Investment Adviser is entitled to the management fee. Pursuant to the
Operating Agreement, the Investment Adviser is entitled to the Incentive Carried
Interest. Pursuant to the Investment Sub-Advisory Agreement, the Investment
Sub-Adviser is paid a management fee by the Investment Adviser. The Company's
principal offices are located at 114 West 47th Street, New York, New York 10036,
and the telephone number of the Company is (212) 852-3125.

The duration of the Company will be ten years from the final subscription
closing date (not later than December 31, 2000, subject to extension); however,
the Board of Managers has the right, in its sole discretion, to extend the term
for up to two additional two-year periods, after which the approval of members
who represent 66 2/3% of the Company's outstanding Units may determine to extend
the term of the Company. Upon dissolution of the Company, the affairs of the
Company will be wound up and its assets distributed as provided in the Operating
Agreement.

INVESTMENT OBJECTIVE AND POLICIES

GENERAL

The investment objective of the Company is to seek long-term capital
appreciation. Current income is not a significant factor in the selection of
investments. We will pursue long-term capital appreciation primarily by
investing in private domestic venture capital companies and other private
companies (collectively, "Venture Capital Investments"). Venture Capital
Investments are domestic companies in which the equity is closely held by
company founders, management and/or a limited number of institutional investors.
Subject to the limitations of the Investment Company Act, we also intend to
invest in domestic and international venture capital, buyout and other private
equity funds managed by third parties ("Private Funds"), negotiated private
investments in public companies ("Private Placements in Public Companies") and
foreign companies in which the equity is closely held by company founders,
management and/or a limited number of institutional investors ("International
Venture Capital Investments"). We refer to Venture Capital Investments, Private
Placements in Public Companies and International Venture Capital Investments as
Direct Investments. Pending investment, for operating purposes and for temporary
or emergency purposes, the Company will invest in interest bearing bank
accounts, money market mutual funds, U.S. treasury securities and/or
certificates of deposit with maturities of less than one year, commercial paper
and other short term securities (collectively "Short-Term Investments").
Although the Company's objective is to seek long-term capital appreciation,
there is no minimum holding period for the Company's investments and the Company
may sell

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any investment at any time that the Investment Adviser or Investment Sub-Adviser
believes it is advantageous to do so. The disposition of Direct Investments
requires the approval of the Board of Managers.

As a BDC, the Company must invest at least 70% of its assets ("qualifying
assets") in certain specified investments, including securities of companies
that qualify as "eligible portfolio companies" under the Investment Company Act.
The Company may maintain up to 30% of its assets in non-qualifying assets;
however, the Company intends to retain maximum flexibility in connection with
its investments and, therefore, does not have a policy as to the minimum
percentage of its assets that will be so invested. See "Regulation."

Venture Capital Investments

We will seek to achieve our investment objective by investing primarily in
Venture Capital Investments. We may also commit to invest funds in a Venture
Capital Investment beyond our initial investment or guarantee the obligations of
a Venture Capital Investment. We will attempt to reduce the risks inherent in
private equity investing by investing in a portfolio of companies involved in
different industries and different stages of development, through the
utilization of professional management provided by the Investment Adviser and
the Investment Sub-Adviser in the selection of private equity investments and
through the active monitoring of such investments.

Other Private Equity Investments

Subject to the limitations of the Investment Company Act, we may invest in
Private Funds, International Venture Capital Investments and Private Placements
in Public Companies (collectively, "Other Private Equity Investments"). We
generally will not make an investment in Other Private Equity Investments if,
immediately after such investment is made, more than 30% of the value of our
total investment assets would be invested in such assets. Any Private Fund
investments will generally be made in domestic or foreign venture capital,
buyout or other private equity funds managed by third parties. We do not expect
to invest more than 10% of our total assets in any one Other Private Equity
Investment. Neither the Investment Adviser nor the Investment Sub-Adviser will
have a role in the management of Private Funds. Private Funds typically charge a
management fee and an incentive fee based upon gains. These fees are in addition
to the management fees payable to the Investment Adviser, although the Incentive
Carried Interest will not be based on gains from Private Funds.

INVESTMENT STRATEGIES

The Investment Adviser or Investment Sub-Adviser will evaluate the ability
of prospective investments to produce long-term capital appreciation based upon
criteria that may be modified from time to time. The criteria that will
initially be used by the Investment Adviser and Investment Sub-Adviser in
determining whether to make an investment include:

- the presence or availability of strong management;

- the existence of a substantial market for the products or services of a
potential Portfolio Company, characterized by favorable growth potential,
or a substantial market position in a stable industry;

- evidence that a potential Portfolio Company offers a differentiated
product or service and defensible market position;

- the opportunity for liquidity to eventually be obtained for the proposed
investment through an initial public offering or through a sale of the
business; and

- the willingness of a potential Portfolio Company to permit us and our
co-investors, if any, to take a substantial position in the company and
have representation on its board of directors or a right to attend board
meetings as a nonvoting participant, so as to enable us to influence the
strategic direction of the company.

Each of these criteria need not be present in every investment.

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Although the Company is a non-diversified company as defined in the
Investment Company Act, we do not expect to invest more than 10% of our total
assets in any one Portfolio Company or Private Fund. While we retain the
flexibility to invest in all types of industries, we currently expect to make
investments in companies engaged in businesses that are consistent with the
general investment philosophy used by U.S. Trust in its investment management
advisory business. With the approval of the Board of Managers, we may change
this policy. U.S. Trust follows a long-term investment philosophy based on
identifying opportunities with sustainable fundamental values and uses two
specific portfolio strategies to guide investment decision-making.

U.S. Trust's first strategy is one of growth. This strategy seeks to
identify industries and companies with the capabilities to provide solutions to
or benefit from markets which are growing in response to underlying trends, such
as companies' need to enhance productivity through technological innovation or
the changing demographics of the U.S. population. U.S. Trust's second strategy
is a "transaction value" comparison of a company's real underlying asset value
with similar assets changing ownership in market transactions. Differences
between a company's real asset value and the price of its shares often are
corrected over time by restructuring of the assets or by market recognition of
their value.

The two portfolio strategies discussed above are applied together with
several "longer-term investment themes" to help identify specific investment
opportunities. U.S. Trust believes that the longer-term themes described below
represent strong and inexorable trends and that the beneficiaries of these
trends will be rewarded in the long-term.

- Communication and Information -- companies benefiting from the
technological and international transformation of the communications and
information industries, particularly the convergence of information,
communication and entertainment

- Productivity Enhancers -- companies benefiting from their roles as
innovators, developers and/or suppliers of goods and services which
enhance service and manufacturing productivity or companies that are the
most effective at obtaining and applying productivity enhancements

- Infrastructure Development -- companies benefiting from the development
and expansion of global infrastructure expenditure

- Early Life Cycle -- companies in an earlier stage of development looking
to exploit new market opportunities

- Demographics/Rising Living Standards -- companies concerned with the
quality characteristics, lifestyles and changing demographic profiles of
individuals, families and companies

- Globalization Forces -- companies benefiting from their position as
effective and strong competitors on a global basis

- Business and Industrial Restructuring -- companies benefiting from their
restructuring or redeployment of assets and operations in order to become
more competitive or profitable

In the context of the above, the Company expects to emphasize the
technological innovations that are driving the transformation of the economy,
with specific focus on:

- Information Technology;

- Communications;

- Life Sciences; and

- Information Services.

INVESTMENT PRACTICES

Borrowing. The Company may from time to time borrow funds for operating
purposes in an amount up to 25% of the value of its total assets (after giving
effect to the borrowing) in order to make additional

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<PAGE> 16

investments in existing Portfolio Companies, to maintain various regulatory
qualifications or to pay contingencies and expenses. If the Company borrows
funds (other than through a private loan), distributions to Unitholders or the
repurchase of Units generally is prohibited under the Investment Company Act
unless the ratio of our total assets (less liabilities and indebtedness not
subject to this test) to the amount of all such borrowings is at least 200% at
the time of and after giving effect to the distribution or repurchase. In
general, the Company does not intend to borrow for investment purposes other
than for the purpose of making additional investments in existing Portfolio
Companies and will not borrow to pay the management fee payable to the
Investment Adviser. See "Regulation."

The use of leverage even on a short-term basis will have the effect of
magnifying increases or decreases in the Company's net asset value. We also
expect that, as a condition to lending, lenders may place restrictions on us,
which may include reserve requirements or operating restrictions, and may limit
our ability to make distributions. There can be no assurance that the Company
will borrow when considered desirable. The Company may not be able to arrange
debt financing on terms acceptable to the Investment Adviser, the Investment
Sub-Adviser and the Board of Managers, or the Investment Adviser, the Investment
Sub-Adviser and the Board of Managers may believe borrowings are not in the
Company's best interest. If the Company were unable to obtain debt financing,
the Company might be required to sell a portfolio investment at an inopportune
time, or to forego the purchase of an attractive investment. In either case, the
value of the Company's investment portfolio, and of the Units, could be
adversely affected. See "Risk Factors -- Borrowing."

Other Investment Policies. The Company will not sell securities short or
on margin. Except for hedging purposes, the Company will not write puts or calls
or purchase or sell commodities or commodity contracts. The Company will not
underwrite the issuance of securities of other companies, except to the extent
the Company is deemed to be an underwriter of any company that it invests in.
Hedging instruments used to hedge Direct Investments will be treated as Direct
Investments for purposes of the Company's allocation and distribution policies.

The Company will not lend its assets to any person or individual, except
through the purchase of bonds or other debt obligations customarily sold to
institutional investors. However, the Company may, subject to limitations of the
Investment Company Act, lend portfolio securities if collateral values are
continuously maintained at no less than 100% by "marking-to-market" daily. The
collateral received will consist of cash, U.S. short-term government securities,
bank letters of credit or such other collateral as may be permitted under the
Company's investment objective and policies and by regulatory agencies and
approved by the Board of Managers of the Company. While a loan of portfolio
securities is outstanding, the Company will continue to receive the equivalent
of the interest or dividends paid by the issuer on the securities, as well as
interest on the investment of the collateral or a fee from the borrower. The
risks in lending portfolio securities, as with other extensions of secured
credit, consist of possible delay in receiving additional collateral or in
recovery of the securities or possible loss of rights in the collateral should
the borrower fail financially.

The Company will not invest in real estate or oil, gas or other mineral
leases, either directly or indirectly (including limited partnership interests
of entities which invest in real property or interests in oil, gas or minerals),
although the Company may invest in other entities whose business involves the
holding or acquisition of real estate or the holding or making of such leases.

The Company's objective and its policies (other than its status as a BDC)
are not deemed to be fundamental policies and all may be changed at any time and
from time to time by the Board of Managers without member approval.

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RISK FACTORS

The Units offered hereby involve a high degree of risk, including, but not
limited to, the risk factors described below. Each prospective investor should
carefully consider the following risk factors inherent in and affecting the
business of the Company and this offering before making an investment decision.
Prospective investors should consider the information set forth under
"Management."

RISKS RELATED TO THE COMPANY

LACK OF OPERATING HISTORY

While the key personnel of the Investment Adviser and the Investment
Sub-Adviser have considerable experience in venture capital and private equity
investing, including experience with Fund I and Fund II, the Company has
recently been formed and has no operating history of its own upon which an
investor may base an evaluation of the likely performance of the Company. See
"Management -- Investment Adviser; Investment Sub-Adviser and Compensation."

MINIMUM PROCEEDS; PORTFOLIO DIVERSIFICATION

The Company will begin operations upon the receipt of proceeds from its
initial closing after the receipt of subscriptions for capital commitments of
$100,000,000. To the extent that the Company makes fewer investments, it may be
subject to greater risks from developments adversely affecting one or a limited
number of issuers. If the Company receives only the minimum amount of
subscriptions, it will have fewer assets to invest and will likely acquire fewer
investments than it would if it received more subscriptions. This would increase
the Company's volatility and risk. See "The Offering."

RELIANCE ON THE INVESTMENT ADVISER AND THE INVESTMENT SUB-ADVISER

The investment decisions of the Company will be made by the Investment
Adviser and the Investment Sub-Adviser. Investors will have no right or power to
take part in the management of the Company and will not receive the detailed
financial information made available by issuers to the Investment Adviser and
the Investment Sub-Adviser in connection with the review of possible purchases
for the Company's portfolio. Accordingly, investors must be willing to entrust
management of the Company to the Investment Adviser and the Investment
Sub-Adviser. See "Management -- Investment Adviser; Investment Sub-Adviser and
Compensation."

REGULATION

The Company has elected to be treated as a BDC under the Investment Company
Act. The applicable provisions of the Investment Company Act impose numerous
restrictions on the activities of the Company, including restrictions on the
nature of its investments, its use of leverage and its issuance of securities,
options, warrants or rights. Among the restrictions is the requirement that a
majority of the Board of Managers be individuals who are not "interested
persons" within the meaning of the Investment Company Act and that the Company
must generally invest at least 70% of its assets in securities of companies that
meet the requirements for "eligible portfolio companies" under the Investment
Company Act. In addition, a BDC must make significant managerial assistance
available to a significant number of the companies whose securities it
purchases. The Investment Adviser and Investment Sub-Adviser believe that the
constraints applicable to BDCs are consistent with the objectives of the
Company. However, such constraints could prohibit the Company from investing in
some potentially attractive situations that might otherwise be available. At the
same time, our election to be treated as a business development company exempts
us from certain provisions of the Investment Company Act. As a result, we
operate differently than a registered investment company and are subject to
different and potentially greater risks as compared to a registered investment
company.

There are relatively few judicial decisions under and administrative
interpretations of the portions of the Investment Company Act applicable to the
Company, and there can be no assurance that such provisions will be interpreted
or administratively implemented in a manner consistent with the Company's
objectives and

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intended manner of operation. In the event that the Board of Managers determines
that it cannot operate effectively as a BDC, the Board of Managers may at some
future date decide to withdraw the Company's election to be treated as a BDC and
transform it into a registered investment company or an operating company not
subject to regulation under the Investment Company Act, or cause the Company to
be liquidated. The Company could not operate as an operating company unregulated
under the Investment Company Act consistent with its current investment
policies. Should the Board of Managers seek to withdraw the Company's election
as a BDC, it must obtain the approval of members who represent a majority of the
Company's outstanding Units. See "Description of Units."

POTENTIAL CONFLICTS OF INTEREST

The Investment Adviser and the Investment Sub-Adviser and their affiliates
may be subject to various conflicts of interest in connection with their
relationships and transactions with the Company. Such conflicts of interest
include the following:

INCENTIVE CARRIED INTEREST. The Investment Adviser receives certain
allocations and distributions determined by the amount of net realized capital
gains (net of realized capital losses and net unrealized capital depreciation)
of the Direct Investments made by the Company as set forth under "Capital
Accounts, Allocations and Distributions." This may cause the Investment Adviser
to select investments for the Company that involve greater risk than it would
select if it did not receive a portion of such capital gains.

CONFLICTS AS TO INVESTMENT OPPORTUNITIES. The Investment Adviser and its
affiliate may make investments for their own account and may be in competition
with the Company for such investments. In addition, the Investment Adviser, the
Investment Sub-Adviser and their affiliates serve as investment advisers for
their fiduciary accounts and other private or public investment vehicles that
have investment objectives identical with or similar to those of the Company.
While the Investment Adviser and Investment Sub-Adviser are obligated to
endeavor to provide the Company with continuing and suitable investment
opportunities consistent with its investment objective and policies, the
Investment Adviser and Investment Sub-Adviser are not required to present to the
Company any particular opportunity that falls within the investment objective
and policies of the Company. The Investment Adviser and Investment Sub-Adviser
will endeavor to offer to the Company on an equitable basis investment
opportunities that would be suitable for both the Company and other accounts for
which they provide discretionary investment advisory services. The Investment
Adviser and Investment Sub-Adviser will endeavor to resolve conflicts with
respect to investment opportunities in a manner deemed equitable to all and
consistent with its fiduciary duties.

ALLOCATION OF MANAGEMENT TIME AND SERVICES. The Company will not have
independent officers or employees and will rely upon the Investment Adviser, the
Investment Sub-Adviser and their affiliates for management of the Company and
its assets. The Investment Adviser and Investment Sub-Adviser believe that they
and their affiliates have or can attract sufficient personnel to discharge all
of their responsibilities to the Company. Conflicts of interest may arise in
allocating management time, services or functions between the Company and other
entities for which the Investment Adviser, the Investment Sub-Adviser and their
affiliates may provide similar services. The officers and employees of the
Investment Adviser will devote such time to the affairs of the Company as they,
in their sole discretion, determine to be necessary for the conduct of the
business of the Company.

RELATIONSHIPS WITH PORTFOLIO COMPANIES. The Investment Adviser, the
Investment Sub-Adviser and their affiliates may serve as directors or officers
of or consultants to certain Portfolio Companies and, in connection therewith,
earn various fees which may be paid in the form of cash, securities or other
consideration. Any such consideration earned from a Portfolio Company by the
Investment Adviser, the Investment Sub-Adviser or any of their officers or
directors will be paid-over to the Company. In addition, the Investment Adviser
and Investment Sub-Adviser expect that they or their affiliates will from time
to time provide investment advisory, trust, banking or insurance services to
certain Portfolio Companies in connection with their ordinary business
operations. The Investment Adviser and Investment Sub-Adviser expect that the
terms of such relationships will be consistent with the terms on which the
Investment Adviser and Investment Sub-Adviser or their affiliates generally
provide such services to their customers.

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AFFILIATED TRANSACTIONS. The Investment Company Act restricts transactions
between the Company and Portfolio Companies controlled by the Company and any
"affiliated person" of the Company (as defined in the Investment Company Act)
including, among others, the Company's officers, members of its Board of
Managers, principal Unitholders, employees, the Investment Adviser, the
Investment Sub-Adviser certain of their affiliated persons and other affiliates
of the Company. In many cases, the Investment Company Act prohibits transactions
unless the Company first applies for and obtains an exemptive order from the
Commission. Delays and costs involved in obtaining necessary approvals may
decrease the profitability of such transactions or make it impracticable or
impossible to consummate such transactions. Further, provisions of federal and
state banking regulations impose restrictions on certain types of transactions
between a bank and its affiliates. The Company does not believe that an order
from the Commission would ordinarily be required for the transactions discussed
above under "Relationships with Portfolio Companies." Certain other transactions
may require an order from the Commission. The Company may in the future engage
in such activities, but does not have a present plan to do so. The Company does
not intend to engage in such transactions unless it has obtained an order from
the Commission or determined that an order is not required.

Among such other activities are joint investments in Portfolio Companies.
The Investment Adviser, the Investment Sub-Adviser and their affiliates and
employees may in the future participate with the Company in joint investments in
Portfolio Companies and other securities and may make loans to, or other
investments in, Portfolio Companies. Any investment in the same security at or
about the same time will be required to be on a basis which, in the judgment of
the Board of Managers, is not more advantageous to such other persons than the
basis upon which the Company participates in such joint investments, will
require the prior approval of the Board of Managers, including a majority of the
disinterested members of the Board of Managers, and may require an order of the
Commission. Because of their potentially varying investment objectives or other
factors, conflicts could arise between the Company and its affiliates relating
to co-investments, which can only be resolved through the exercise by the
Investment Adviser and Investment Sub-Adviser of such judgment as is consistent
with their fiduciary duties to the Company. Even with the proper exercise of
such judgment, however, there can be no assurance that potential conflicts would
be resolved in a manner favorable to the Company.

UNSPECIFIED USE OF PROCEEDS

Inasmuch as the Company has not identified the particular uses for the net
proceeds from this offering other than to make investments on the basis of
opportunities as they may arise, prospective investors must rely on the ability
of the Investment Adviser and Investment Sub-Adviser to identify and make
portfolio investments consistent with the Company's investment objective.
Investors will not have the opportunity to evaluate personally the relevant
economic, financial and other information which will be utilized by the
Investment Adviser and Investment Sub-Adviser in deciding whether or not to make
a particular investment or to dispose of any such investment. See "Use of
Proceeds."

FEDERAL INCOME TAXATION

TAX STATUS OF THE COMPANY. At the first subscription closing, the Company
will receive an opinion of its counsel to the effect that, under current law and
based on certain assumptions and representations, the Company will be treated as
a partnership and not as a "publicly traded partnership" that is treated as a
corporation for federal income tax purposes. Such opinion will be based upon the
maintenance of certain factual and other conditions, the continuation of which
cannot be assured. No ruling has been or will be sought from the IRS regarding
the status of the Company as a partnership. An opinion of counsel is not binding
on the IRS or any court.

A limited liability company (such as the Company) that has elected to be
treated as a business development company under the Investment Company Act would
be treated as a corporation for federal income tax purposes if it were to become
a publicly traded partnership. If the Company were treated as a publicly traded
partnership or otherwise treated as a corporation for federal income tax
purposes, material adverse consequences for the members would result. The
Company would be subject to tax on its income at corporate tax rates without a
deduction for any distribution to the members, thereby materially reducing the
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<PAGE> 20

amount of any cash available for distribution to the members. In addition, the
members would be treated as shareholders for federal income tax purposes. Thus,
capital gains and losses and other income and deductions of the Company would
not be passed through to the members, and all distributions by the Company to
the members would be treated as dividends, return of capital and/or gains. See
"Certain Federal Income Tax Considerations -- Tax Status of the Company."

TAXATION OF MEMBERS ON COMPANY PROFITS AND LOSSES. The Company, if treated
as a partnership for tax purposes as discussed above, will not itself be subject
to federal income tax. Rather, each member in computing his, her or its federal
income tax liability will be required to take into account his, her or its
allocable share of Company items of income, gain, loss, deduction and expense
for the taxable year of the Company ending within or with such taxable year of
the member, regardless of whether the member has received any distributions from
the Company. Prospective investors should also be aware that they will be
subject to various limitations on their ability to deduct their allocable share
of Company losses (or items of loss and deduction thereof). For these and
various other reasons, it is possible that a member's federal income tax
liability with respect to his, her or its allocable share of Company earnings in
a particular year could exceed the cash distributions to the member for the
year, thus giving rise to an out-of-pocket payment by the member. See "Certain
Federal Income Tax Considerations -- Taxation of Members of the Company."

GENERAL. In view of the complexity of the tax aspects of the offering,
particularly in light of recent changes in the law and the fact that certain of
the tax aspects of the offering will not be the same for all investors,
prospective investors must consult their own tax advisers with specific
reference to their own tax situations prior to investing in the Company. No
assurance can be given that the current federal income tax treatment applicable
to an investment in the Company will not be modified by legislative,
administrative or judicial action in the future. Any such changes may
retroactively affect existing transactions and investments. Prospective
investors must also consult their own tax advisers with respect to the effects
of applicable state, local and non-U.S. tax laws.

The foregoing is a summary of certain significant federal income tax risks
relating to an investment in the Company. This summary should not be interpreted
as a representation that the matters referred to herein are the only tax risks
involved in this investment or that the magnitude of such risks is necessarily
equal. For a more detailed discussion of these and other federal income tax
risks of an investment in the Company, see "Certain Federal Income Tax
Considerations."

LIABILITY OF MEMBERS

You will not be liable for any obligations of the Company in excess of your
capital account balance, plus your share of undistributed profits. If, however,
you receive a distribution from the Company, and, after such distribution, the
liabilities of the Company exceed the fair value of the Company's assets (and
you had knowledge of this fact at the time of the distribution), you may be
required to return such distribution to the Company. The Company has no
intention of making such distributions. You will not have the right to a return
of the subscription amount except in accordance with the distribution provisions
of the Operating Agreement.

NO PUBLIC OR OTHER MARKET FOR UNITS

No person may become a substitute member without the written consent of the
Company, which may withhold its consent for any reason in its sole and absolute
discretion. A member may transfer Units only by operation of law pursuant to the
death, bankruptcy, insolvency or dissolution of the member or otherwise, or with
the written consent of the Company (which it may withhold in its sole and
absolute discretion and will grant, if at all, only in extenuating
circumstances) or in connection with the transfer to a family trust or another
entity that does not result in a change in beneficial ownership. Notice to the
Company of any proposed transfer must include evidence satisfactory to the
Company that the proposed transferee meets any eligibility and suitability
standards and must be accompanied by properly completed transfer documents.

Any transferee that acquires Units by operation of law as a result of
death, bankruptcy, insolvency or dissolution of a member or otherwise shall be
entitled to the allocations and distributions, if any, with respect to the Units
so acquired and to transfer those Units subject to the restrictions of the
Operating Agreement, but
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<PAGE> 21

shall not be entitled to the other rights of a member unless and until that
transferee becomes a substituted member as provided in the Operating Agreement.
If a member transfers Units with the approval of the Company under the policies
established by the Company, the Company shall promptly take all necessary
actions so that each transferee or successor to whom those Units is transferred
is admitted to the Company as a member. Each member and transferee must pay all
expenses, including attorneys' and accountants' fees, incurred by the Company in
connection with such transfer. See "Description of Units -- Summary of Limited
Liability Company Operating Agreement."

By subscribing for Units, each member will agree to indemnify and hold
harmless the Company, each member of the Board of Managers of the Company, the
Investment Adviser, the Investment Sub-Adviser, the Distributor and any of their
affiliates and controlling persons and each other member and any successor or
assign of any of the foregoing, against all losses, claims, damages,
liabilities, costs and expenses (including losses, claims, damages, liabilities,
costs and expenses of any judgments, fines and amounts paid in settlement),
joint or several, to which those persons may become subject by reason of or
arising from any transfer made by that member in violation of these provisions
or any misrepresentation made by that member in connection with any such
transfer. A similar indemnification is required to be made by a permitted
transferee.

DISTRIBUTIONS IN KIND

The Company may determine to make distributions of securities or other
property in kind. To the extent that the Company does so, you will incur
additional expenses when you determine to dispose of such securities or other
assets. In addition, the determination of whether and when to dispose of such
securities or other assets will be your responsibility. Such securities or other
property may be worth more or less when you dispose of them than their value at
the time of distribution. Although the Company generally intends to distribute
securities prior to liquidation only if such securities are traded in an active
secondary market without registration, such securities may be subject to a
minimum holding period or other limitations on resale.

GENERAL RISKS OF INVESTMENTS

RISK OF PRIVATE EQUITY INVESTMENTS

While the Company will be a non-diversified company as defined by the
Investment Company Act, it does not expect to invest more than 10% of its total
assets in any one Portfolio Company. The Company's investments in Private Funds
serve to further diversify its holdings. Since the Company's assets may be
concentrated in relatively few investments, substantial declines in the values
of its investments could have a material adverse effect on the net asset value
of the Company. Although private equity investments offer the opportunity for
significant capital gains, such investments involve a high degree of business
and financial risk that can result in substantial losses. Among these are the
risks associated with investments in companies in an early stage of development
or with little or no operating history, companies operating at a loss or with
substantial variation in operating results from period to period, companies with
the need for substantial additional capital to support expansion or to maintain
a competitive position or companies with significant financial leverage. Such
companies may also face intense competition from others including those with
greater financial resources, more extensive development, manufacturing,
distribution or other attributes over which the Company will have no control.
The Company anticipates that it may also make investments in high-technology
companies that may face risks of product obsolescence.

ILLIQUIDITY OF PRIVATE EQUITY INVESTMENTS

Because of the competition for investments that meet the requirements for
"qualifying assets," the Company anticipates that it may take up to four years
before it is fully invested or committed to invest in Portfolio Companies.
Private equity investments may typically take from two to seven years from the
date of initial investment to reach a state of maturity at which disposition can
be considered. In light of the foregoing, it is unlikely that any significant
distribution of the proceeds from the disposition of private equity investments
will be made until the later years of the Company's term.

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<PAGE> 22

The Company's private equity investments will consist primarily of
securities that are subject to restrictions on sale by the Company because they
were acquired from the issuer in "private placement" transactions or because the
Company is deemed to be an affiliate of the issuer. Generally, the Company
cannot sell these securities publicly without the expense and time required to
register the securities under the Securities Act or sell the securities under
Rule 144 or other rules under the Securities Act which permit only limited sales
under specified conditions. When restricted securities are sold to the public,
the Company may be deemed an "underwriter" or possibly a controlling person
under the Securities Act and be subject to liability as such under the
Securities Act.

In addition, contractual or practical limitations may inhibit the Company's
ability to sell, distribute or liquidate its investments in Portfolio Companies
because the issuers are privately held, because the Company owns a relatively
large percentage of the issuer's outstanding securities or because joint venture
associates, other investors, financial institutions or management are relying on
the Company's continued investment. Sales may also be limited by financial
market conditions, which may be unfavorable for sales of securities of
particular issuers or issuers in particular markets. The above limitations on
liquidity of the Company's portfolio investments could prevent a successful sale
and result in the delay of any sale or reduction in the amount of proceeds that
might otherwise be realized. Although the Company will reflect these restrictive
factors in the valuation of its investments, no assurance can be given that the
estimated values will represent the return that might ultimately be realized by
the Company from the investment. See "Valuation of Portfolio Securities."

NEED FOR FOLLOW-ON INVESTMENTS

Following its initial investments in Portfolio Companies, the Company
anticipates that it may be called upon to provide additional funds to Portfolio
Companies or have the opportunity to increase investments in successful
operations. Although the Company may borrow to make follow-on investments, there
is no assurance that the Company will make follow-on investments or that the
Company will have sufficient funds to make such investments. Any decision by the
Company not to make follow-on investments or its inability to make them may have
a substantial impact on Portfolio Companies in need of such an investment or may
result in a missed opportunity for the Company to increase its participation in
a successful operation.

COMPETITION FOR INVESTMENTS

The Company expects to encounter competition from other entities having
similar investment objectives. Historically, the primary competition for venture
capital, buyout and other private equity investments has been from venture
capital, buyout and private equity partnerships and corporations, private equity
affiliates of large industrial and financial companies, small business
investment companies and wealthy individuals. The Company will frequently be a
co-investor with other professional venture capital, private equity or leveraged
buyout groups including several in which the Company may be an investor. These
relationships with other groups should expand the Company's access to investment
opportunities.

In addition, it is possible that there may be circumstances under which an
additional investment would be considered an affiliated transaction, requiring
prior Commission approval. The receipt of an exemptive order from the Commission
could be time consuming and costly, and there can be no assurance that such
approval would be obtained.

INVESTMENT IN COMPANIES DEPENDENT UPON NEW TECHNOLOGIES

Under current market conditions, the Company plans to focus on investments
in companies that rely significantly on technological events or advances in
their product development, production or operations. The value of the Company's
Units may be susceptible to factors affecting technology and technology-related
industries and to greater risk and market fluctuation than an investment in a
fund that invests in a broader range of portfolio securities. The specific risks
faced by technology companies include:

- rapidly changing technologies and products that may quickly become
obsolete;

- changing investor sentiments and preferences with regard to technology
sector investments (which are generally perceived as risky);
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<PAGE> 23

- cyclical patterns in information technology spending which may result in
inventory write-offs;

- scarcity of management, engineering and marketing personnel with
appropriate technological training;

- the possibility of lawsuits related to technological patents and
intellectual property; and

- exposure to a high degree of government regulation, making these
companies susceptible to changes in government policy and failures to
secure regulatory approvals.

BORROWING

In general, the Company does not intend to borrow funds for investment
purposes. However, the Company may borrow funds to facilitate the making of
follow-on investments, to maintain various regulatory qualifications or to pay
contingencies and expenses. The Company will not borrow to pay the advisory fee
payable to the Investment Adviser. The Company is permitted under the Investment
Company Act to borrow funds if, immediately after the borrowing, it will have an
asset coverage (as defined in the Investment Company Act) of at least 200%. The
amount and nature of any borrowings will depend upon a number of factors over
which neither the Board of Managers nor the Investment Adviser has control,
including general economic conditions, conditions in the financial markets and
the impact of the financing on the tax treatment of the members. Subject to the
foregoing, the Company may borrow funds in an amount up to 25% of the value of
its total assets (after giving effect to the proceeds from the borrowing). See
"Investment Objective and Policies -- Borrowing" and "Regulation."

Although the Company does not intend to borrow funds to make initial
investments, the use of leverage even on a short-term basis could have the
effect of magnifying increases or decreases in the Company's net asset value.
The Company also expects that, as a condition to lending, lenders may place
restrictions on the Company, which may include reserve requirements or operating
restrictions, and may limit the ability of the Company to make distributions to
members. There can be no assurance that debt financing will be available on
terms that the Investment Adviser, Investment Sub-Adviser or Board of Managers
consider to be acceptable and in the best interests of the Company. If borrowing
is unavailable, the Company may be required to make an untimely disposition of
an investment.

LACK OF DIVERSIFICATION

The Company intends to operate as a non-diversified investment company
within the meaning of the Investment Company Act and, therefore, the Company's
investments may not be substantially diversified. In any event, the Company will
not be able to achieve the same level of diversification as much larger entities
engaged in similar activities. The Company's assets may be subject to greater
risk of loss than if they were more widely diversified, inasmuch as the failure
of one or more of a limited number of investments could have a greater adverse
effect on the Company than the failure of one of a large number of investments.
The net asset value of a non-diversified company may be more volatile than in
the case of a diversified company. See "Investment Objective and Policies."

THE OFFERING

The Company is offering investors the opportunity to subscribe to make
capital contributions to the Company in exchange for membership interests in the
Company. Units are made available through Charles Schwab & Co., Inc. as
principal distributor. The Distributor is under common control with an affiliate
of the Investment Adviser and Investment Sub-Adviser. Units may be sold by the
Distributor to investors directly or through financial intermediaries acting as
broker or agent for their customers. The Investment Adviser or an affiliate will
pay the Distributor from its own assets, and not the assets of the Company, an
amount equal to 0.02% of the total of all subscriptions received in this
offering. The Investment Adviser or an affiliate may compensate from its own
assets Selling Agents who sell Units of the Company to investors. The Investment
Adviser or an affiliate will also pay the Distributor an ongoing fee for the
sale of Units and the provision of ongoing investor services in an amount equal
to the annual rate through the fifth anniversary of the final subscription
closing date of 0.45% of the average quarterly net asset value of all
outstanding Units held by
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<PAGE> 24

investors introduced to the Company by the Distributor 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. Such ongoing investor
services may include: answering questions from the Distributor's clients and
their advisers concerning the Company and its operations; providing information
to the Distributor's clients or their advisers at the request of the Company or
the Investment Adviser; consulting upon request with the Company, the Board of
Managers or the Investment Adviser concerning investor relations; and providing
such other investor relations services as the Investment Adviser may reasonably
request. The offering will terminate on December 31, 2000, subject to extension
by the Board of Managers to a date not later than May 11, 2001. If subscriptions
for at least $100,000,000 have not been received by the Termination Date, the
offering will terminate. See "Risk Factors -- Minimum Proceeds; Portfolio
Diversification." The minimum subscription is $100,000. We have the right to
waive the minimum at our discretion.

Each investor will be required to complete, execute and deliver to the
Company an executed copy of the Subscription Agreement, which will form a
binding contract of the investor. Pursuant to the Subscription Agreement, your
subscription amount is required to be paid on or before the final subscription
closing date (not later than December 31, 2000, subject to extension). Units may
be purchased only by persons who represent to the Company that the value of
their total assets (exclusive of their principal residence) less their total
liabilities is at least $1,000,000 and that the amount that they are subscribing
for does not exceed 10% of their total assets less their total liabilities, and
who make the other representations included in the Subscription Agreement to be
entered into by each investor.

Funds transmitted by subscribers to the Company or to the Selling Agents
for investment in the Company prior to the applicable closing date will be
deposited in an interest-bearing bank escrow account with PNC Bank, Delaware
pending closing. Any checks should be made payable to PNC Bank, Delaware, as
"Escrow Agent," and must be transmitted by Selling Agents directly to PFPC Inc.
as Escrow Administrator by noon of the next business day after receipt. In the
event the Company rejects a subscriber's Subscription Agreement or a subscriber
elects to withdraw his subscription prior to his or her subscription closing
date, PFPC Inc. will promptly deliver to such subscriber all funds received; any
interest earned on such funds will be returned within five business days of the
next subscription closing after such rejection or withdrawal.

We expect that a first subscription closing will be held on or about the
fifth business day after receipt of subscriptions totaling at least
$100,000,000. The Company may continue to offer Units and accept subscriptions
for such Units from time to time at subsequent closings until the Termination
Date. Within five business days after each closing, PFPC Inc. will mail to each
subscriber checks in the respective amounts of interest earned by funds held in
escrow. If the minimum of $100,000,000 of subscriptions are received, any
charges or expenses associated with the escrow account will be paid by the
Investment Adviser or an affiliate.

The Company intends to offer to a registered investment company (the
"Feeder Fund") that will invest substantially all of its assets in the Company
the opportunity to subscribe for Units on a private placement basis. The terms
and conditions of such offering will be substantially the same as those
applicable to the offering made by the prospectus. The Company may be required
to execute the registration statement under the Securities Act of 1933, as
amended, of the Feeder Fund. In such event, the Company will be exposed to
potential liabilities under such Act arising out of the statements included in,
or excluded from, such registration statement. The Company does not intend to
accept subscriptions from all investors (including the Feeder Fund) totaling in
the aggregate more than $800,000,000. The Feeder Fund may own more than 25% of
the Company's outstanding Units.

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<PAGE> 25

USE OF PROCEEDS

If the offering is fully subscribed for, the net proceeds to the Company
through the final subscription closing, before deducting organizational and
offering expenses estimated to be approximately $1,406,200, will be
$600,000,000. Organizational and offering expenses will be payable from the
offering proceeds and will be deducted from members' capital accounts. Charles
Schwab & Co., Inc., the Company's principal distributor, has agreed to pay the
Company's organizational costs, estimated to be $50,000, in the event that the
Company receives subscriptions totaling less than $300,000,000. If the Company
receives subscriptions totaling $300,000,000 or more, the Company will pay its
own organizational expenses, estimated to be $50,000.

No portion of the net proceeds of the offering has been allocated to any
particular investment. However, the payments will be utilized in a manner
consistent with the Investment Company Act and the Company's investment
objective and policies. Pending investment, for operating purposes and for
temporary or emergency purposes, such proceeds will be invested in Short-Term
Investments.

It is anticipated that there will be a significant period of time (up to
four years) before the Company becomes fully invested. Although the Company
intends to invest or commit to invest more than 50% of the proceeds from the
offering in Venture Capital Investments within the earlier of (i) two years
after the final subscription closing date and (ii) two and one-half years after
the commencement of this offering, a delay is common for BDCs because of the
competition for investments in entities that meet the requirements for
"qualifying assets" under the Investment Company Act. Further, investments in
Venture Capital Investments and other Direct Investments may typically take from
two to seven years from the date of initial investment to reach a state of
maturity at which disposition can be considered. In light of the foregoing, it
is unlikely that any significant distribution of the proceeds from the
disposition of Venture Capital Investments and other Direct Investments will be
made until the later years of the existence of the Company. See "Risk Factors --
Illiquidity of Private Equity Investments."

MANAGEMENT

INVESTMENT ADVISER; INVESTMENT SUB-ADVISER AND COMPENSATION

Investment Adviser and Investment Sub-Adviser. U.S. Trust Company, a
Connecticut state chartered bank and trust company, will serve as the Investment
Adviser of the Company pursuant to an investment advisory agreement with the
Company (the "Investment Advisory Agreement"). United States Trust Company of
New York, a New York state chartered bank and trust company, will serve as the
Investment Sub-Adviser to the Company pursuant to an investment sub-advisory
agreement among the Investment Sub-Adviser, the Investment Adviser and the
Company (the "Investment Sub-Advisory Agreement"). U.S. Trust Company and United
States Trust Company of New York are wholly-owned subsidiaries of U.S. Trust
Corporation, a registered bank holding company. The Investment Adviser or
Investment Sub-Adviser have been the investment advisers to Fund I and Fund II,
each a registered BDC, since September 1994 and March 1997, respectively. The
investment management personnel of the Investment Adviser and Investment
Sub-Adviser consist of the same persons that perform the investment management
functions for Fund I and Fund II. United States Trust Company of New York's
principal address is 114 West 47th Street, New York, New York 10036. U.S. Trust
Company's principal address is 225 High Ridge Road, Stamford, Connecticut 06905.
On December 31, 1999, U.S. Trust's Asset Management Group, which includes U.S.
Trust Company and United States Trust Company of New York and other affiliates
of U.S. Trust Corporation, had approximately $86 billion in assets under
management.

Under the supervision of the Company's Board of Managers, the Investment
Adviser and Investment Sub-Adviser are responsible for finding, evaluating,
structuring and monitoring the Company's investments and for providing or
arranging for management and administrative services for the Company. The
investment professionals in charge of the day-to-day management of the Company
have extensive experience in venture capital and private equity investing. See
"Board of Managers, Officers and Investment Professionals" below.

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<PAGE> 26

U.S. Trust Corporation is an indirect, wholly-owned subsidiary of The
Charles Schwab Corporation ("Schwab"). Through its principal subsidiary, Charles
Schwab & Co., Inc., Schwab is the nation's fourth largest financial services
firm and the nation's largest electronic brokerage firm, in each case, as
measured by customer assets. At December 31, 1999, Schwab served 6.6 million
active accounts with $725 billion in customer assets through 340 branch offices,
four regional customer telephone service centers and automated telephone online
channels. Approximately 30% of Schwab's customer assets and approximately 13% of
its customer accounts are managed by 5,800 independent, fee-based investment
advisers served by Schwab's institutional investor segment. Charles R. Schwab is
the founder, Chairman, Co-Chief Executive Officer, a director and a significant
shareholder of Schwab.

Management Fee. In return for its services and the expenses which the
Investment Adviser assumes under the Investment Advisory Agreement, the Company
will pay the Investment Adviser, 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 at an annual rate of 1.00%
of net assets thereafter. The management fee is payable in arrears on the last
day of each fiscal quarter. The Investment Adviser has agreed to waive the
management fee during the subscription period, which will end on the final
subscription closing date. Pursuant to the Investment Sub-Advisory Agreement,
the Investment Adviser pays an investment management fee to the Investment
Sub-Adviser. See "The Company."

Investment Advisory Agreement and Investment Sub-Advisory Agreement. The
Company will enter into an investment advisory agreement with the Investment
Adviser. The Investment Adviser and the Company will enter into an investment
sub-advisory agreement with the Investment Sub-Adviser. The Investment Advisory
Agreement and Investment Sub-Advisory Agreement provide that the Investment
Adviser and Investment Sub-Adviser shall, subject to the supervision of the
Board of Managers, identify, evaluate, structure, monitor, dispose of and make
managerial assistance available to the Company's investments, and assist in the
administration of the Company's affairs. Such administrative assistance may
include: providing the Company with office space, equipment, facilities and
supplies and clerical services; keeping and maintaining certain of the books and
records of the Company, accounts and communications and correspondence with
members, preparing and assisting in preparing accounting, management and other
reports; and providing such other managerial and administrative services as may
be reasonably requested by the Company. The Company also uses the services of an
administrator, PFPC Inc.

Under the Investment Advisory Agreement and Investment Sub-Advisory
Agreement, the Company will pay all of its expenses and liabilities, including,
but not limited to, fees and expenses of the Board of Managers; fees and
expenses of the Investment Adviser; expenses of the Investment Sub-Adviser; fees
and expenses of registering the Units under federal and state securities laws;
interest; taxes; fees and expenses of the Company's legal counsel and
independent accountants; fees and expenses of the Company's administrator,
transfer agent and custodian; expenses of printing and mailing Unit
certificates, reports to members, notices to members and proxy statements;
reports to regulatory bodies; brokerage and other expenses in connection with
the execution, recording and settlement of portfolio security transactions;
expenses in connection with the acquisition and disposition of portfolio
securities or the registration of privately issued portfolio securities; costs
of third party evaluations or appraisals of the Company (or its assets) or its
actual investments; expenses of membership in investment company and other trade
associations; expenses of fidelity bonding and other insurance premiums;
expenses of members' meetings; fees payable to the National Association of
Securities Dealers, Inc. (the "NASD"), if any, in connection with this offering;
indemnification costs and expenses; fees and expenses of legal counsel to the
members of the Board of Managers who are not interested persons of the Company
(within the meaning of the Investment Company Act); and the Company's other
business and operating expenses.

The Investment Advisory Agreement and the Investment Sub-Advisory Agreement
provide for indemnification by the Company of the Investment Adviser and the
Investment Sub-Adviser, their affiliates and each of their respective officers,
directors, employees, members and agents from any and all losses, claims,
damages, liabilities or expenses (including reasonable counsel fees and
expenses) incurred by them in connection with, or resulting from, their actions
or inactions in connection with the performance of or under the Investment
Advisory Agreement and the Investment Sub-Advisory Agreement. Indemnification is
only
26
<PAGE> 27

available to the extent the loss, claim, liability or expense did not result
from willful misfeasance, bad faith or gross negligence in the performance by
the persons seeking indemnification of their duties, or the reckless disregard
of their obligations and duties, under the Investment Advisory Agreement or
Investment Sub-Advisory Agreement.

The Investment Advisory Agreement and Investment Sub-Advisory Agreement
provide that they will continue in effect for two years and that, after the
initial period of effectiveness, will 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 the 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 Units of the Company; or
(ii) the vote of a majority of the full Board of Managers of the Company. The
Investment Advisory Agreement and Investment Sub-Advisory Agreement also provide
that they 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 Units of the Company, on 60 days' written notice; or
(ii) the Investment Adviser or Investment Sub-Adviser, on 90 days' written
notice to the Company. The Investment Advisory Agreement and Investment
Sub-Advisory Agreement will terminate immediately in the event of their
"assignment" (as defined in the Investment Company Act).

INVESTMENT OPERATIONS

The Investment Adviser and/or the Investment Sub-Adviser will initiate,
screen and monitor the Company's investments.

Direct Investments will typically be structured in negotiated, private
transactions directly with the issuer. The Company's investments will generally
consist of non-publicly traded equity and equity-like securities, including
common stock, preferred stock, limited partnership interests, limited liability
company interests, warrants and convertible debentures, subject to certain
regulatory and other restrictions. In connection with most Company investments,
the Company will work with the Portfolio Company to develop and implement the
Portfolio Company's long-term financial strategy and to enhance its value.

The Investment Committee, which consists of senior investment professionals
of the Investment Sub-Adviser, will make the final investment decisions
regarding any investment proposal made by the Investment Adviser or Investment
Sub-Adviser.

Deal Origination. Investment proposals may come to the attention of the
Investment Adviser or Investment Sub-Adviser from many sources including
unsolicited proposals from the public, personal contacts of the Investment
Adviser, the Investment Sub-Adviser or their affiliates, other private equity
investors and referrals from investment banks, commercial banks, lawyers,
accountants and other members of the financial community, including U.S. Trust
personnel. The Investment Adviser and the Investment Sub-Adviser believe that
investment opportunities may also come from several venture capital and private
equity funds of which they or any of their affiliates may be an investor. Under
certain circumstances, such opportunities may require prior exemptive relief
from the Commission. See "Risk Factors -- Potential Conflicts of Interest" and
"Regulation."

Evaluation of Investment Opportunities. Prior to committing funds to an
investment opportunity, a disciplined investment process is undertaken which
includes a legal, financial, tax, industry and company due diligence
investigation by the Investment Adviser and/or the Investment Sub-Adviser to
assess the prospects and risks of the potential investment. The experience and
expertise of the officers of the Investment Adviser and the Investment
Sub-Adviser will be essential in evaluating products, markets, industry trends,
financial requirements, competition and the management team associated with a
prospective investment. Each investment will be approved by the Investment
Committee.

Structuring of Investments. The terms and conditions of the investments
acquired will result from negotiations directly with the Portfolio Company or an
affiliate thereof. The Investment Adviser or the Investment Sub-Adviser will be
responsible for conducting such negotiations on behalf of the Company and

27
<PAGE> 28

will seek to structure the terms of the investment to provide for the capital
needs and success of the issuer and at the same time to maximize the Company's
opportunity for long-term capital appreciation. An important factor in
successful private equity investing is proper structuring of the transaction in
terms of such matters as price, type of security, restrictions on use of funds,
commitments or rights to provide additional financing, control and involvement
in the issuer's business and liquidity.

Management Assistance and Monitoring of Investments. Successful business
development investing requires active monitoring and participation and influence
on major financial decisions. Representatives of the Company, the Investment
Adviser or the Investment Sub-Adviser and their affiliates will frequently serve
as members of the boards of directors or advisory boards of Portfolio Companies
or will have visitation rights to those companies. Board representation, as well
as a close working relationship with the operating management, should enable the
Company to exercise influence and provide management assistance with respect to
such matters as capital structure, budgets, profit goals, diversification
strategy, financing requirements, management additions or replacements and
developing a public market for the securities of the Portfolio Companies. The
close tracking of internal financial statements and progress reports, as well as
an active working relationship with management, form the basis of effective
portfolio monitoring and risk management.

Liquidation of Investments. In order to realize the benefits of capital
appreciation, private equity investments must be liquidated. The method and
timing of the liquidation of investments are critical elements to maximizing
portfolio return. The Company expects to liquidate its investments through a
variety of transactions, including mergers, negotiated sales of Portfolio
Companies, sales in registered public offerings, sales in the public markets of
registered securities and recapitalizations. In structuring the investments, the
Investment Adviser or the Investment Sub-Adviser will endeavor to reach such
understanding with the Portfolio Company or its affiliates as may be appropriate
as to the method and timing of liquidation of the Company's investments and will
usually seek to obtain registration rights at the expense of the issuer and
reporting compliance for eligible companies under Rule 144 under the Securities
Act. Timing of divestiture or liquidation depends on the performance of the
Portfolio Company, the ability of the Portfolio Company to refinance its
outstanding securities and other financial market opportunities. See "Risk
Factors -- Illiquidity of Private Equity Investments." The Company will bear the
costs of liquidating investments to the extent that such expenses are not paid
by the issuer. The Company may as an alternative to liquidating certain
investments distribute such investments in kind. Prior to liquidation of the
Company, the Company intends to distribute in kind only securities that may be
resold without registration under the Securities Act and for which an active
trading market exists. Such distributions may have benefits for investors,
including greater control over the timing of recognition of capital gains for
income tax purposes. Distributions in kind also involve certain expenses and
risks. See "Risk Factors -- Distributions In Kind."

ADMINISTRATOR

The Administrator, PFPC Inc., performs certain administration, accounting
and investor services for the Company. In consideration for these services, the
Company (i) pays the Administrator a variable fee between 0.105% and 0.07% based
on average quarterly net assets, subject to a minimum quarterly fee of
approximately $30,000, (ii) pays annual fees of approximately $11,000 for
taxation services and (iii) will reimburse the Administrator for out-of-pocket
expenses.

BACKGROUND

The following list includes all the private companies and private funds in
which Fund I and Fund II have invested as of October 31, 2000. Except as
otherwise noted, unrealized gain/(loss) and total value reflect the values
assigned for purposes of determining the net asset values of Fund I and Fund II.
The values of securities for which no active trading market exists or which are
subject to material restrictions on resale reflect fair value as determined
pursuant to such fund's valuation policies except as otherwise noted. All or
substantially all of the investments listed below are valued at fair value. The
list is intended to illustrate the types of investments with which the
Investment Adviser and the Investment Sub-Adviser have experience.

28
<PAGE> 29

SUMMARY OF DIRECT INVESTMENTS
MADE BY U.S. TRUST
INFORMATION AS OF OCTOBER 31, 2000
(UNAUDITED)

<TABLE>
<CAPTION>
AVERAGE TOTAL VALUE
HOLDING (COST BASIS AND REALIZED
PERIOD COST REALIZED UNREALIZED GAIN/(LOSS) AND
DIRECT INVESTMENTS (YEARS) BASIS GAIN/(LOSS) GAIN/(LOSS) UNREALIZED GAIN/(LOSS))
------------------ ------- ------------ ----------- ------------ ------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENTS REALIZED AND/OR PUBLIC
COMPANIES
Accrue Software, Inc.
(NeoVista)*................... 2.7 $ 1,038,488 $ 680,572 (371,664) $ 1,347,397
CommSite International, Inc. ... 2.6 2,718,750 106,058 -- 2,824,808
Corsair Communications, Inc. ... 2.7 3,000,003 1,743,843 -- 4,743,846
Curon Medical, Inc.**........... 1.2 6,124,144 -- 19,935,000 26,059,144
LifeMinders, Inc.***............ 1.4 11,499,997 25,208,441 30,395,298 67,103,737
QuickLogic Corporation.......... 3.9 3,000,000 5,389,571 163,101 8,552,672
Rental Service Corp. ........... 1.7 985,000 2,086,479 -- 3,071,479
Signius Corporation............. 3.1 3,418,146 (3,414,128) -- 4,018
Softcom Microsystems, Inc. ..... 1.0 4,178,649 11,241,816 -- 15,420,465
WNP Communications, Inc. ....... 0.9 5,877,855 13,338,276 -- 19,216,131
------------ ----------- ------------ ------------
SUB-TOTAL..................... $ 41,841,032 $56,380,929 $ 50,121,736 $148,343,696
============ =========== ============ ============
PRIVATE COMPANIES
Advantage Schools, Inc. ........ 2.0 $ 5,119,422 $ -- $ 6,264,725 $ 11,384,147
Best Friends Pet Care, Inc. .... 3.5 3,525,000 -- (1,762,500) 1,762,500
BPA Systems, Inc. .............. 0.4 5,000,000 -- -- 5,000,000
Captura Software, Inc. ......... 1.7 4,799,998 -- 3,078,260 7,878,258
Classroom Connect, Inc. ........ 1.9 7,999,951 -- 1,819,965 9,819,915
ePod Corporation................ 0.6 2,099,998 -- 1,071,240 3,171,239
firstsource Corporation......... 0.7 10,000,000 -- -- 10,000,000
KillerBiz, Inc. ................ 0.8 750,000 -- -- 750,000
LogicVision, Inc. .............. 2.9 1,549,499 -- 106,208 1,655,707
MarketFirst Software, Inc. ..... 1.0 6,799,543 -- -- 6,799,543
MySeasons.com, Inc. ............ 0.7 2,000,100 -- -- 2,000,100
PowerSmart, Inc. ............... 2.5 9,926,843 -- 9,014,329 18,941,172
Protogene Laboratories, Inc. ... 0.8 5,680,000 -- -- 5,680,000
ReleaseNow.com Corp. ........... 2.2 6,810,039 -- 2,646,106 9,456,145
SurVivaLink Corporation......... 2.1 7,584,999 -- -- 7,584,999
Zeus Wireless, Inc. ............ 0.9 5,000,001 -- -- 5,000,001
------------ ----------- ------------ ------------
SUB-TOTAL..................... $ 84,645,394 $ -- $ 22,238,332 $106,883,726
============ =========== ============ ============
INVESTMENTS WRITTEN OFF
AbTox, Inc. .................... 3.2 $ 2,800,001 $ -- $ (2,800,001) $ --
Cardiopulmonary Corporation..... 3.6 2,150,000 -- (2,150,000) --
Constellar Corporation.......... 2.3 6,999,995 -- (6,999,995) --
Managemark, Inc. ............... 1.4 5,500,002 -- (5,500,002) --
P2 Holdings Corp. .............. 1.3 2,750,000 (2,750,000) -- --
Party Stores Holdings, Inc. .... 1.4 2,055,206 (2,055,206) -- --
------------ ----------- ------------ ------------
SUB-TOTAL..................... $ 22,255,204 $(4,805,206) $(17,449,998) $ --
============ =========== ============ ============
TOTAL -- ALL DIRECT INVESTMENTS... 1.8 $148,741,630 $51,575,723 $ 54,910,070 $255,227,422
=== ============ =========== ============ ============
</TABLE>

---------------
* Fund I owns both restricted and unrestricted stock. Fund I's holdings of
restricted stock are valued at a 20% discount to the public market valuation
shown in the table.
** Fund II's holdings are restricted as to resale and are valued at a 25%
discount to the public market valuation shown in the table.
*** Fund II's holdings are restricted as to resale and are valued at a 20%
discount to the public market valuation shown in the table.

29
<PAGE> 30

SUMMARY OF FUND INVESTMENTS
MADE BY U.S. TRUST
INFORMATION AS OF OCTOBER 31, 2000
(UNAUDITED)

<TABLE>
<CAPTION>
TOTAL VALUE
(COST BASIS AND
REALIZED GAIN/(LOSS)
CAPITAL COST REALIZED UNREALIZED AND UNREALIZED
FUND INVESTMENTS COMMITTED BASIS GAIN/(LOSS) GAIN/(LOSS) GAIN/(LOSS))
---------------- ----------- ------------ ----------- ------------ --------------------
<S> <C> <C> <C> <C> <C>
Advanced Technology
Ventures V............ $ 3,000,000 $ 2,625,000 $ 283,911 $ 1,304,152 $ 4,213,064
Allegra Capital
Partners III.......... 2,000,000 2,000,000 2,439,444 2,081,878 6,521,321
Brand Equity Ventures... 2,500,000 2,250,000 496,877 709,960 3,456,837
Brentwood Associates
Buyout Fund II........ 2,000,000 2,000,000 -- 161,227 2,161,227
Brentwood Associates
III................... 5,000,000 1,986,642 -- (182,897) 1,803,745
Broadview Capital II.... 5,000,000 2,250,000 -- (111,964) 2,138,036
Bruckmann, Rosser,
Sherrill.............. 2,000,000 2,000,000 -- 386,593 2,386,593
Commonwealth Capital
Ventures II........... 4,000,000 3,000,000 1,349,294 94,160 4,443,453
Communications Ventures
III................... 5,000,000 5,000,000 -- 16,656,414 21,656,414
Friedman, Fleischer &
Lowe.................. 5,000,000 1,359,295 -- (216,265) 1,143,030
Mayfield Fund X......... 5,000,000 4,250,000 134,556 2,421,425 6,805,981
Mid-Atlantic Venture
Fund III.............. 5,000,000 4,650,000 -- 4,255,640 8,905,640
Morgenthaler Venture
Partners IV........... 2,000,000 2,000,000 1,655,047 3,469,449 7,124,496
Morgenthaler Venture
Partners V............ 8,000,000 6,400,000 279,025 10,129,788 16,808,812
Quad-C Partners V....... 5,000,000 3,419,719 -- 812,174 4,231,893
Sevin Rosen Fund V...... 2,000,000 2,000,000 1,410,385 3,374,934 6,785,319
Sevin Rosen Fund VI..... 2,500,000 2,387,500 3,594,693 3,251,697 9,233,891
Trinity Ventures VI..... 3,000,000 2,830,802 5,705 2,365,186 5,201,693
Vanguard Venture
Partners V............ 2,000,000 2,000,000 4,256,492 3,346,422 9,602,914
----------- ------------ ----------- ------------ ------------
TOTAL -- ALL FUND
INVESTMENTS........... $70,000,000 $ 54,408,958 $15,905,428 $ 54,309,973 $124,624,358
=========== ============ =========== ============ ============
TOTAL -- ALL
INVESTMENTS........... $203,150,588 $67,481,150 $109,220,042 $379,851,780
============ =========== ============ ============
</TABLE>

30
<PAGE> 31

INVESTMENTS REALIZED AND/OR PUBLIC COMPANIES

<TABLE>
<S> <C>
Accrue Software, Inc., Cupertino, CA ("Accrue")
Initial Investment Date: June 1997
Total Investment: $1.0 million
Total Investment Value:* $1.3 million
</TABLE>

In January 2000, Accrue (NASDAQ: ACRU) acquired NeoVista in exchange for
2.4 million shares of Accrue stock. NeoVista develops data mining software and
applications related to customer relationship management. Data mining allows
companies to discover non-obvious relationships by applying various algorithms
to data stored in databases and data warehouses and is applied to inventory
management, customer profiling, behavior prediction and fraud detection.
---------------
* Fund I owns both restricted and unrestricted stock. Fund I's holdings of
restricted stock are valued at a 20% discount to the public market valuation
shown.

<TABLE>
<S> <C>
CommSite International, Inc., Vienna, VA ("CommSite")
Initial Investment Date: April 1996
Total Investment: $2.7 million
Total Proceeds: $2.8 million
</TABLE>

CommSite is a provider of wireless towers and construction services. On May
13, 1999, American Tower Corporation, a publicly traded company, acquired
CommSite.

<TABLE>
<S> <C>
Corsair Communications, Inc., Palo Alto, CA ("Corsair")
Initial Investment Date: October 1996
Total Investment: $3.0 million
Total Investment Value: $4.7 million
</TABLE>

Corsair (NASDAQ: CAIR) is a wireless communication infrastructure company
providing pre-paid wireless handset and fraud detection software and services.
Fund I has sold all of its shares.

<TABLE>
<S> <C>
Curon Medical, Inc., Sunnyvale, CA ("Curon")
Initial Investment Date: August 1999
Total Investment: $6.1 million
Total Investment Value:** $26.1 million
</TABLE>

Curon (NASDAQ: CURN) develops and markets medical devices for the treatment
of gastrointestinal diseases using radio frequency delivered through a catheter.
Curon has developed a product targeting gastroesophageal reflux disease that
received 510(k) clearance from the Food and Drug Administration in April 2000.
On September 28, 2000, Curon completed its initial public offering of 5,000,000
shares of its common stock at a price of $11 per share. Fund II invested $6.1
million in Curon at an average cost of $2.63 per share and the company's stock,
as of October 31, 2000, was trading at $11 3/8 per share.
---------------
** Fund II's holdings are restricted as to resale and are valued at a 25%
discount to the public market valuation shown.

<TABLE>
<S> <C>
LifeMinders, Inc., Herndon, VA ("LifeMinders")
Initial Investment Date: February 1999
Total Investment: $11.5 million
Total Investment Value:*** $67.1 million
</TABLE>

LifeMinders (NASDAQ: LFMN) is an online direct marketing company that
provides personalized information or content and advertisements via email to a
community of members. Email messages contain helpful reminders and tips that
enable its members to better organize and manage their lives. As of September
30, 2000, the company had approximately 19 million members and numerous
advertising partners. LifeMinders has experienced significant membership growth
since our initial investment in February 1999, when the company had less than
50,000 members. LifeMinders held its initial public offering in November 1999.
Fund II has invested $11.5 million in LifeMinders at an average cost of $2.70
per share and the company's stock, as of October 31, 2000, was trading at
$11 5/8 per share.
---------------
*** Fund II's holdings are restricted as to resale and are valued at a 20%
discount to the public market valuation shown.

31
<PAGE> 32

<TABLE>
<S> <C>
QuickLogic Corporation, Sunnyvale, CA ("QuickLogic")
Initial Investment Date: November 1996
Total Investment: $3.0 million
Total Investment Value: $8.6 million
</TABLE>

QuickLogic (NASDAQ: QUIK) designs, manufactures and markets high-capacity
programmable logic semiconductors, known as field programmable gate arrays,
along with comprehensive design software. The company's products shorten the
design cycle time for electronic systems and accelerate time-to-market.
QuickLogic's new class of devices, embedded standard products, facilitate
extremely fast development of complex systems. QuickLogic held its initial
public offering in October 1999. As of October 31, 2000, Fund II had sold
345,865 shares of QuickLogic for $7.8 million and holds 85,170 shares, which
were trading at $8 7/8.

<TABLE>
<S> <C>
Rental Service Corp., Scottsdale, AZ ("Rental Service")
Initial Investment Date: January 1996
Total Investment: $1.0 million
Total Proceeds: $3.1 million
</TABLE>

Rental Service is a consolidator of heavy equipment rental businesses and
an outsourced provider of heavy equipment. The Company had its initial public
offering in September 1996 and was subsequently acquired by Atlas, Copco North
America in July, 1999.

<TABLE>
<S> <C>
Signius Corporation (formerly known as ProCommunications Corp.), Somerset, NJ
("Signius")
Initial Investment Date: September 1996
Total Investment: $3.4 million
Total Investment Value: $0
</TABLE>

Signius provides telemessaging services for small and medium-sized
businesses. In March 2000, Signius was sold for a nominal amount.

<TABLE>
<S> <C>
Softcom Microsystems, Inc., Fremont, CA ("Softcom")
Initial Investment Date: August 1998
Total Investment: $4.2 million
Total Proceeds: $15.4 million
</TABLE>

Softcom designs, develops and markets data acceleration products used in
high-speed communications networks. Softcom's single-chip network accelerator
solutions and integrated subsystems provide processing capabilities which help
alleviate the "data bottleneck" at the point where baseband Local Area Network
traffic moves on to a high-speed broadband Internet backbone. Softcom was sold
in August 1999 to Intel.

<TABLE>
<S> <C>
WNP Communications, Inc., Reston, VA ("WNP")
Initial Investment Date: January 1998
Total Investment: $5.9 million
Total Proceeds: $19.2 million
</TABLE>

WNP acquired broadband spectrum covering 30 of the top 50 markets in the
United States in the Local Multipoint Distribution Services auction conducted by
the FCC in 1998. Subsequently, the company was acquired in May 1999 by NextLink,
a publicly traded wireless communication services provider, for cash and stock.

32
<PAGE> 33

PRIVATE COMPANIES

<TABLE>
<S> <C>
Advantage Schools, Inc., Boston, MA ("Advantage")
Initial Investment Date: June 1998
Total Investment: $5.1 million
Investment Carrying Value: $11.4 million
</TABLE>

Advantage is an education management organization which manages public
charter schools on a for-profit basis. Advantage manages charter schools in
urban school districts in cooperation with local partners. Its schools are
publicly funded, receiving per-student capitalization rates generally consistent
with those received by other schools in the district. Founded in 1996, Advantage
currently manages 15 schools across the country.

<TABLE>
<S> <C>
Best Friends Pet Care, Inc., Norwalk, CT ("Best Friends")
Initial Investment Date: December 1996
Total Investment: $3.5 million
Total Investment Value: $1.8 million
</TABLE>

Best Friends is the largest operator of pet kennels in the United States.
The company's facilities offer a wide range of pet services including boarding,
grooming and training.

<TABLE>
<S> <C>
BPA Systems, Inc., Austin, TX ("BPA")
Initial Investment Date: June 2000
Total Investment: $5.0 million
Investment Carrying Value: $5.0 million
</TABLE>

BPA develops fulfillment software solutions that help Internet-enabled
companies rapidly take advantage of e-commerce opportunities. The BPA product
suite allows large global companies as well as internet startups to fully
integrate their existing supply chains with their e-commerce web sites.

<TABLE>
<S> <C>
Captura Software, Inc., Bothell, WA ("Captura")
Initial Investment Date: February 1999
Total Investment: $4.8 million
Investment Carrying Value: $7.9 million
</TABLE>

Captura is an e-finance application services provider developing and
marketing expense management software and solutions for large companies. The
company's products significantly increase the efficiency and lower the cost of
expense reports by providing a web-based software application that automates
much of the process. Captura's customer base includes General Motors, Ford,
Compaq and Aetna. On October 12, 2000, Captura Software filed a registration
statement with the Securities and Exchange Commission relating to a proposed
initial public offering of its common stock. Banc of America Securities LLC will
act as the lead underwriter of the offering. Other managing underwriters of the
offering include U.S. Bancorp Piper Jaffray, Wit SoundView and Pacific Crest
Securities.

<TABLE>
<S> <C>
Classroom Connect Inc., Foster City, CA ("Classroom Connect")
Initial Investment Date: September 1998
Total Investment: $8.0 million
Investment Carrying Value: $9.8 million
</TABLE>

Classroom Connect is a provider of educational Internet products to
students in the kindergarten to eighth grade market. The company offers products
and services, including proprietary instruction guides, teaching plans, seminars
and unique Internet content via electronic commerce and direct mail, to teachers
and school districts wishing to incorporate the Internet into the classroom.

33
<PAGE> 34

<TABLE>
<S> <C>
ePod Corporation, New York, NY ("ePod")
Initial Investment Date: December 1999
Total Investment: $2.1 million
Investment Carrying Value: $3.2 million
</TABLE>

ePod provides distributed e-commerce, content syndication and media
advertising services to manufacturers, retailers, web publishers and content
providers in the entertainment, retail and advertising industries. The ePod.com
commerce network uses a common merchandising infrastructure through which
companies can promote and sell products by packaging and distributing content
and merchandise through commerce-enabled showcases called ePods.

<TABLE>
<S> <C>
firstsource Corporation, Santa Ana, CA ("firstsource")
Initial Investment Date: February 2000
Total Investment: $10.0 million
Investment Value: $10.0 million
</TABLE>

firstsource is a provider of business products, services and online
business procurement solutions for small and medium-sized businesses. With
approximately 250,000 SKUs (Store Keeping Units) and numerous different service
providers, the firstsource.com web site allows customers to search, compare,
price and buy products and services directly from multiple distributors'
inventories.

<TABLE>
<S> <C>
KillerBiz, Inc., Fremont, CA ("KillerBiz")
Initial Investment Date: December 1999
Total Investment: $0.8 million
Investment Carrying Value: $0.8 million
</TABLE>

KillerBiz is an online business-to-business marketplace and software
solution connecting small businesses to suppliers of goods and services. The
company is dedicated to lowering the time and costs associated with services
procurement, while providing sellers with a cost effective means to access and
respond to qualified sales leads. The KillerBiz web site offers a
business-to-business marketplace that leverages both Extensible Mark-up Language
and patent-pending Intelligent Trained Agent technology.

<TABLE>
<S> <C>
LogicVision, Inc., San Jose, CA ("LogicVision")
Initial Investment Date: May 1997
Total Investment: $1.5 million
Total Investment Value: $1.7 million
</TABLE>

LogicVision is a developer of built-in self testing technologies used in
semiconductor design, testing and manufacture. As semiconductors become more
complex (i.e. large systems reduced to a customized chip), the need to adopt new
testing technology has become critical. LogicVision's customers include Sun
Microsystems, Cisco Systems, NCR Corp., Hitachi and Hughes. On August 11, 2000,
LogicVision filed a registration statement with the Securities and Exchange
Commission relating to a proposed initial public offering of its common stock.
Chase H&Q will act as the lead underwriter of the offering. Other managing
underwriters of the offering include Robertson Stephens and SG Cowen.

<TABLE>
<S> <C>
MarketFirst Software, Inc., Mountain View, CA ("MarketFirst")
Initial Investment Date: August 1999
Total Investment: $6.8 million
Investment Carrying Value: $6.8 million
</TABLE>

MarketFirst is a developer and marketer of hosted e-marketing software and
services targeting middle-market corporations. The company's solution is focused
on enabling and managing interactive marketing campaigns through the Internet.
The company's customers are motivated by the prospect of increasing customer
revenue, improving customer relationships and reducing costs by automating key
marketing functions with the MarketFirst solution.
34
<PAGE> 35

<TABLE>
<S> <C>
MySeasons.com, Inc., New York, NY ("MySeasons")
Initial Investment Date: February 2000
Total Investment: $2.0 million
Investment Value: $2.0 million
</TABLE>

MySeasons is a business-to-consumer and business-to-business Internet
commerce site aimed at selling gardening and related horticultural products, as
well as providing associated content to the gardening community. MySeasons is a
newly capitalized entity and represents the internet initiative of Foster &
Gallagher, a direct mail company and the largest horticulture direct marketing
retailer in the United States.

<TABLE>
<S> <C>
PowerSmart, Inc., Shelton, CT ("PowerSmart")
Initial Investment Date: January 1998
Total Investment: $9.9 million
Investment carrying Value: $18.9 million
</TABLE>

PowerSmart is a provider of "smart" battery management products designed to
maximize battery run-times and safety in laptop computers, cellular telephones
and camcorders as well as a variety of hand-held industrial devices. PowerSmart
recently introduced two new lines of Application Specific Integrated Circuits
and electronic modules that offer performance and flexibility at competitive
prices. PowerSmart was formed as a spin-off of technology and related assets
from Duracell.

<TABLE>
<S> <C>
Protogene Laboratories, Inc., Menlo Park, CA ("Protogene")
Initial Investment Date: December 1999
Total Investment $5.7 million
Investment Carrying Value: $5.7 million
</TABLE>

Protogene is a developer and manufacturer of DNA gene chip technology used
in molecular biology and genetic research. The company's products allow for
flexible, short-run testing of genetic expression that has broad applications in
genetic research and pharmaceutical development.

<TABLE>
<S> <C>
ReleaseNow.com Corp., Menlo Park, CA ("ReleaseNow")
Initial Investment Date: June 1998
Total Investment: $6.8 million
Investment Carrying Value: $9.5 million
</TABLE>

ReleaseNow is an outsourced provider of e-commerce services for vendors and
resellers of software and other digital goods. The company builds and manages
e-commerce solutions that enable customers to market, sell and deliver software
online. ReleaseNow provides software publishers, software resellers and content-
driven web sites with technology and services to establish an Internet-based
sales and distribution channel.

<TABLE>
<S> <C>
SurVivaLink Corporation, Minnetonka, MN ("SurVivaLink")
Initial Investment Date: August 1998
Total Investment: $7.6 million
Investment Carrying Value: $7.6 million
</TABLE>

SurVivaLink designs, develops and markets automated external defibrillators
("AEDs"), which are portable, emergency medical devices that deliver electrical
shocks to resuscitate victims of cardiac arrest. SurVivaLink's AEDs are small,
lightweight and easy to use, making them suitable for law enforcement personnel,
firefighters and paramedics. To date, SurVivaLink estimates that its AEDs have
been responsible for saving over 250 lives.

35
<PAGE> 36

<TABLE>
<S> <C>
Zeus Wireless, Inc., Columbia, MD ("Zeus")
Initial Investment Date: December 1999
Total Investment: $5.0 million
Investment Carrying Value: $5.0 million
</TABLE>

Zeus builds and markets long-range frequency hopping radios for commercial
and industrial facilities. The company utilizes radio frequency technology as a
substitute for wire with comparable range, reliability and security at an
equivalent price.

INVESTMENTS WRITTEN-OFF

<TABLE>
<S> <C>
AbTox, Inc., Mundelein, IL ("AbTox")
Initial Investment Date: March 1997
Total Investment: $2.8 million
Total Investment Value: $0
</TABLE>

AbTox, a manufacturer of gas plasma sterilizers, has filed for bankruptcy
due to operating problems arising from regulatory issues related to one of its
products.

<TABLE>
<S> <C>
Cardiopulmonary Corporation, Milford, CT
Initial Investment Date: November 1996
Total Investment: $2.2 million
Total Investment Value: $0
</TABLE>

Cardiopulmonary Corporation is a manufacturer of a smart ventilator used in
the acute and sub-acute hospital market that adapts to patients' changing
breathing patterns. Fund I's position has been written down pursuant to a recent
recapitalization of the company.

<TABLE>
<S> <C>
Constellar Corporation, Redwood Shores, CA ("Constellar")
Initial Investment Date: April 1998
Total Investment: $7.0 million
Total Investment Value: $0 million
</TABLE>

Constellar, a provider of enterprise application integration software and
services to large organizations in North America, Europe and Australia, was sold
in an asset purchase transaction to the Data Mirror Group. The purchase price
was $15 million, which was used to satisfy the company's debt. Although the
transaction calls for certain contingency payments to shareholders, the
investment has been fully written down.

<TABLE>
<S> <C>
Managemark, Inc., Sunnyvale, CA ("Managemark")
Initial Investment Date: June 1999
Total Investment: $5.5 million
Total Investment Value: $0 million
</TABLE>

Managemark, an Internet application software company focused on developing
finance and administration software and services for small and middle-market
firms has been unsuccessful in raising additional capital. The value of the
Managemark investment has been written down to $0 to reflect the potential for
realizing little, if any, proceeds from a quick sale of the business or the
prospects of a bankruptcy filing. Consequently, it is not likely that Fund II
will receive any proceeds from this investment and will realize a loss of $5.5
million.

36
<PAGE> 37

<TABLE>
<S> <C>
P2 Holdings Corp. (formerly known as Plynetics Express), San Leandro, CA ("P2 Holdings")
Initial Investment Date: June 1997
Total Investment: $2.8 million
Total Investment Value: $0
</TABLE>

P2 Holdings was a provider of rapid prototyping and rapid tooling services.
Fund I wrote off its investment as the company filed for bankruptcy in 1998.

<TABLE>
<S> <C>
Party Stores Holdings, Inc., Melville, NY ("Party Stores")
Initial Investment Date: May 1997
Total Investment: $2.1 million
Total Investment Value: $0
</TABLE>

Party Stores operated the Party Experience, the Paperama and Paper Cutter
retail stores. The company filed for bankruptcy in 1998. Fund I's $2.1 million
investment was written off.

PRIVATE FUNDS

<TABLE>
<S> <C>
Advanced Technology Ventures V, LP ("ATV V")
Fund Size: $175 million
Investment commitment: $3.0 million
</TABLE>

ATV V is an early-stage focused fund targeting information technology and
health care markets. Since 1979, ATV V has invested in and worked with over 100
emerging companies, including Actel, Berkeley Networks, Cadence Design Systems,
DataSage, Epigram and VLSI Technology.

<TABLE>
<S> <C>
Allegra Capital Partners III, LP ("Allegra III")
Fund Size: $40 million
Investment commitment: $2.0 million
</TABLE>

Allegra III is a later-stage focused venture fund based in New York City.
Allegra III invests primarily in companies in the telecommunications, software
and service industries with "Internet-driven" strategies. Allegra III's
principals have been investors in Autotote, Axent Technologies, Business
Evolution and Viasoft.

<TABLE>
<S> <C>
Brand Equity Ventures I, LP ("BEV")
Fund Size: $95 million
Investment commitment: $2.5 million
</TABLE>

BEV is focused on investing broadly across the consumer sector,
particularly in branded opportunities within e-commerce, retailing, direct
response and other consumer services. To date, the fund has made distributions
resulting from investments in Alloy Online and Outpost.com.

<TABLE>
<S> <C>
Brentwood Associates Buyout Fund II, LP ("Brentwood II")
Fund Size: $240 million
Investment commitment: $2.0 million
</TABLE>

Brentwood II is focused on middle-market buyouts and consolidations.
Brentwood II's strategy is to identify industries with consolidation
characteristics, develop a strategy for implementation and recruit management to
execute that strategy. Brentwood II was an investor in Rental Services and is an
investor in Classroom Connect, companies in which Fund I and Fund II,
respectively, have invested.

<TABLE>
<S> <C>
Brentwood Associates III, LP
Fund Size: $360 million
Investment commitment: $5.0 million
</TABLE>

See Brentwood II above.
37
<PAGE> 38

<TABLE>
<S> <C>
Broadview Capital II, LP ("Broadview")
Fund Size: $220 million
Investment commitment: $5.0 million
</TABLE>

Broadview is focused on buyouts and other recapitalizations within the
technology sector. The fund is sponsored by Broadview International LLC, a
leading technology mergers and acquisitions focused investment banking firm. To
date, Broadview International has advised on mergers and acquisitions for
companies such as Nokia, Fore Systems, Lycos and BMC Software and will be able
to provide Broadview with substantial resources to make its investments.

<TABLE>
<S> <C>
Bruckmann, Rosser, Sherrill & Co., LP ("BRS")
Fund Size: $375 million
Investment commitment: $2.0 million
</TABLE>

BRS is a leveraged buyout fund based in New York. The firm's portfolio
contains investments such as restaurant operators California Pizza Kitchen and
Restaurant Associates, and Doane Pet Care Enterprises, a manufacturer and
distributor of pet food.

<TABLE>
<S> <C>
Commonwealth Capital Ventures II, LP ("Commonwealth II")
Fund Size: $80 million
Investment commitment: $4.0 million
</TABLE>

Commonwealth II makes investments in early to later-stage information
technology companies in the New England region. Commonwealth II maintains a
particular focus on communications technology, Internet software and services
and e-commerce companies. Commonwealth II has been an investor in Altiga
Networks, Direct Hit Technologies and Smarterkids.com.

<TABLE>
<S> <C>
Communications Ventures III, LP ("Communications Ventures III")
Fund Size: $125 million
Investment commitment: $5.0 million
</TABLE>

Communications Ventures III invests exclusively in the communications
sector, targeting early-stage companies. As investors, the principals of
Communications Ventures III have played roles in the formation of many companies
in the communications industry, including Advanced Fibre Communications, Ascend,
Broadcom, Ciena, Copper Mountain, Digital Microwave, Digital Island, Intecom,
MCI, Newbridge, Octel, PairGain, Paradyne, Tellabs, Tut Systems and 3COM.
Communications Ventures III has made investments in Universal Access, CoSine
Communications, Sitesmith and Entera.

<TABLE>
<S> <C>
Friedman, Fleischer & Lowe, LP ("Friedman, Fleischer & Lowe")
Fund Size: $325 million
Investment commitment: $5.0 million
</TABLE>

Freidman, Fleischer & Lowe is a first-time fund focused exclusively on
participation in middle-market buyouts. The principals of Freidman, Fleischer &
Lowe have been involved in a number of buyout transactions including Young &
Rubicam, Levi-Strauss, Hoyts and Western Wireless.

<TABLE>
<S> <C>
Mayfield Fund X, LP ("Mayfield X")
Fund Size: $450 million
Investment commitment: $5.0 million
</TABLE>

Mayfield X is focused on early-stage information technology and healthcare
investments, primarily located in Silicon Valley, CA. Founded in 1969, Mayfield
X has raised over $1 billion in nine venture funds and invested in over 340
high-growth companies. Among their investments are 3COM, Compaq, Immunex,
Silicon Graphics, Citrix Systems and Legato.

38
<PAGE> 39

<TABLE>
<S> <C>
Mid-Atlantic Venture Fund III, LP ("MAVF III")
Fund Size: $60 million
Investment commitment: $5.0 million
</TABLE>

MAVF III invests in early and expansion-stage technology companies in the
Mid-Atlantic region. The principals of MAVF III have significant investment
experience and have established over the years a presence within the investment
community in the Mid-Atlantic region. The principals of MAVF III have been
investors in Visual Networks and Net2000 Communications.

<TABLE>
<S> <C>
Morgenthaler Venture Partners IV, LP ("MVP IV")
Fund Size: $135 million
Investment commitment: $2.0 million
</TABLE>

MVP IV is an early-stage venture fund, investing primarily in information
technology and healthcare companies as well as buyouts of basic businesses. The
fund's principals have been involved with successful venture capital investments
in Apple Computer, Synopsys, Atria Software, Premysis Software and
CardioThoracic. To date, Fund I has received from MVP IV shares of CheckFree
Holdings, Inktomi, Nortel, Microsoft and Guidant, as well as several cash
distributions.

<TABLE>
<S> <C>
Morgenthaler Venture Partners V, LP
Fund Size: $300 million
Investment commitment: $8.0 million
</TABLE>

See MVP IV above.

<TABLE>
<S> <C>
Quad-C Partners V, LP ("Quad-C")
Fund Size: $300 million
Investment commitment: $5.0 million
</TABLE>

Quad-C is focused on taking control positions in leveraged acquisitions and
recapitalizations of middle-market companies. Quad-C's principals have
significant operating and financial experience and have made investments across
industries such as restaurants, banking, automotive logistics and media.

<TABLE>
<S> <C>
Sevin Rosen Fund V, LP ("Sevin Rosen V")
Fund Size: $160 million
Investment commitment: $2.0 million
</TABLE>

Sevin Rosen V invests in early-stage technology companies, focusing
specifically on companies in communications and eBusiness infrastructure and
solutions, as well as those companies with Internet-enabled business models. The
principals at Sevin Rosen V have a track record that includes being early
investors in Compaq, Lotus, Cyrix, Citrix and Ciena. To date, this fund holds
investments in Capstone, Turbine and Metawave Communications and has made
distributions of stock including Ciena, Pure Atria Software and Cisco Systems.

<TABLE>
<S> <C>
Sevin Rosen Fund VI, LP
Fund Size: $165 million
Investment commitment: $2.5 million
</TABLE>

See Sevin Rosen V above.

39
<PAGE> 40

<TABLE>
<S> <C>
Trinity Ventures VI, LP ("Trinity VI")
Fund Size: $140 million
Investment commitment: $3.0 million
</TABLE>

Trinity VI is focused on investing in early to late-stage companies in the
software, communications and electronic commerce sectors. The principals of
Trinity VI have been involved with numerous successful investments, including
Extreme Networks, Kiva Software, NextCard, Quokka Sports and Starbucks.

<TABLE>
<S> <C>
Vanguard Venture Partners V, LP ("Vanguard V")
Fund Size: $55 million
Investment commitment: $2.0 million
</TABLE>

Vanguard V is an early-stage fund investing in information technology and
healthcare. Among the principals' previous successful investments are Ciena,
Advanced Fibre Communications and Network Appliances. The fund has distributed
shares of Cobalt Networks and Cisco Systems and currently holds shares of
Digital Island.

THE FOREGOING INFORMATION WITH RESPECT TO FUND I AND FUND II IS PRESENTED
TO ILLUSTRATE THE TYPES OF INVESTMENTS THAT THE INVESTMENT ADVISER AND
INVESTMENT SUB-ADVISER HAVE EXPERIENCE WITH IN THE BDC CONTEXT AND TO SHOW THE
POTENTIAL ECONOMIC BENEFITS AND RISKS INHERENT IN MAKING SUCH INVESTMENTS. THE
INFORMATION SHOWN SHOULD NOT BE CONSIDERED TO BE REPRESENTATIVE OF THE GAINS OR
LOSSES THAT THE COMPANY WILL EXPERIENCE ON ITS INVESTMENTS. IN ADDITION, THE
COMPANY MAY MAKE INVESTMENTS IN A WIDE RANGE OF BUSINESSES AND ENTITIES AND THE
FOREGOING INFORMATION SHOULD NOT BE VIEWED AS REPRESENTATIVE OF THE COMPANY'S
ACTUAL PORTFOLIO. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE
RESULTS. THE INFORMATION SET FORTH ABOVE REPRESENTS ACTUAL COST AND REALIZED AND
UNREALIZED GAIN AND LOSS FOR EACH INDIVIDUAL INVESTMENT MADE BY FUND I AND FUND
II, OTHER THAN SHORT-TERM INVESTMENTS. FUND I AND FUND II EXPERIENCED COSTS AND
EXPENSES IN MAKING SUCH INVESTMENTS, MONITORING SUCH INVESTMENTS AND, WHERE
APPLICABLE, DISPOSING OF SUCH INVESTMENTS. ADDITIONAL COSTS WILL BE EXPERIENCED
ON THE DISPOSITION OF INVESTMENTS NOT YET DISPOSED OF. UNREALIZED GAIN AND LOSS
AMOUNTS ARE BASED ON UNITED STATES TRUST COMPANY OF NEW YORK'S DETERMINATION OF
THE CURRENT VALUE OF THE INVESTMENTS, WHICH DETERMINATION ORDINARILY INVOLVES A
HIGH DEGREE OF JUDGMENT AND SUBJECTIVITY (SEE "VALUATION OF PORTFOLIO
SECURITIES"). UPON DISPOSITION, FUND I AND FUND II MAY REALIZE MORE OR LESS THAN
THE ASSIGNED VALUATION. IN ADDITION, FUND I AND FUND II ARE SUBJECT TO
INVESTMENT MANAGEMENT FEES, INCENTIVE FEES AND ONGOING OPERATING EXPENSES, NONE
OF WHICH ARE REFLECTED IN THE FOREGOING INFORMATION. FUND I AND FUND II ALSO
MAINTAINED SUBSTANTIAL HOLDINGS OF SHORT-TERM INVESTMENTS PENDING INVESTMENT IN
THE ABOVE LISTED INVESTMENTS. ACCORDINGLY, THE FOREGOING INFORMATION IS NOT
INDICATIVE OF THE ACTUAL RETURNS EXPERIENCED BY INVESTORS IN FUND I AND FUND II.

Set forth below are the performance figures for Fund I and Fund II for the
periods shown through the funds' most recent fiscal quarter ended October 31,
2000, calculated in conformity with the standardized performance methodology
required by the Securities and Exchange Commission. This required methodology,
which takes into account the return on cash and short-term securities held
pending investment in Direct Investments and Private Funds as well as all fees
and expenses of the funds, is substantially different than the internal rate of
return and other methodologies ordinarily used to measure performance in the
private equity and venture capital arena. The Investment Adviser and Investment
Sub-Adviser believe that it would be inappropriate to compare the standardized
return information for Fund I and Fund II to the internal rate of return
information provided by other private equity and venture capital managers.

<TABLE>
<CAPTION>
SINCE
1-YEAR 3-YEAR INCEPTION
------ ------ ---------
<S> <C> <C> <C>
UST Private Equity Investors Fund, Inc. 38.72% 7.63% 8.54%
Excelsior Private Equity Fund II, Inc. 35.66% N/A 20.75%
</TABLE>

40
<PAGE> 41

CODE OF ETHICS

The Company, the Distributor, the Investment Adviser and the Investment
Sub-Adviser have adopted codes of ethics under Rule 17j-1 of the Investment
Company Act that restrict the personal securities transactions of certain
associated persons of the Company, the Distributor, the Investment Adviser and
the Investment Sub-Adviser. The primary purpose of such codes is to ensure that
personal trading by their respective employees does not disadvantage the
Company. U.S. Trust portfolio managers and other investment personnel who comply
with the code of ethic's preclearance and disclosure procedures may be permitted
to purchase, sell or hold certain types of securities which also may be
purchased or sold by or are held in the fund(s) they advise. The codes of ethics
can be reviewed and copied at the Commission's Public Reference Room in
Washington, D.C. Information on the Public Reference Room can be obtained by
calling the Commission at 1-202-942-8090. The codes of ethics are also available
on the EDGAR Database on the Commission's Internet site at http://www.sec.gov or
may be obtained after paying a duplicate fee, by electronic request to the
following E-mail address: [email protected] or by writing the Commission's
Public Reference Section, Washington, D.C. 20549-0102.

BOARD OF MANAGERS, OFFICERS AND INVESTMENT PROFESSIONALS

Pursuant to the Operating Agreement, the business and affairs of the
Company will be managed under the direction of its Board of Managers. The
following are descriptions of members of the Board of Managers, and the officers
of the Company, as well as of key employees of the Investment Adviser and
Investment Sub-Adviser, including the members of the Company's Investment
Committee. Unless otherwise noted, each member of the Company's Investment
Committee has been an employee of United States Trust Company of New York for at
least the previous five years and the business address of each individual listed
below is 114 West 47th Street, New York, New York 10036. Mr. Hover may be deemed
an "interested person" of the Company, as defined in the Investment Company Act,
on the basis of his affiliation with U.S. Trust.

Board of Managers

Gene M. Bernstein (53). As of September 1, 2000, Mr. Bernstein is the Dean
of the Skodneck Business Development Center at Hofstra University in Hempstead,
New York. Prior to that, he worked at (and remains a principal of) Northville
Industries Corp., a third generation privately held petroleum marketing,
trading, storage and distribution company since 1994. While at Northville he
held positions ranging from Vice President to President to Vice-Chairman. Prior
to working at Northville Industries, he taught at the University of Notre Dame.
He is Chairman of the Board of Trustees at his alma mater, Alfred University,
from which he holds a B.A. degree in English Literature. He also has a M.A.
degree in English Literature from the University of Wisconsin and a Ph.D. in
English Literature from the University of Massachusetts. Mr. Bernstein serves as
a director of Fund I, Fund II and the Excelsior Hedge Fund of Funds I, LLC.

John C. Hover II (57).* Mr. Hover retired as Executive Vice President of
the United States Trust Company of New York in 1998 after 22 years of service.
He was responsible for the Personal Asset Management and Private Banking Group
and served as Chairman of U. S. Trust International. Prior to joining United
States Trust Company of New York, he was a commercial banker with Chemical Bank.
Mr. Hover received his B.A. degree in English Literature from the University of
Pennsylvania and a M.B.A. degree in Marketing from The Wharton School. He is a
trustee of the University of Pennsylvania, and is Chairman of the Board of
Overseers of the University's Museum of Archaeology and Anthropology. He is a
trustee and Vice President of the Penn Club of New York. Mr. Hover serves as
chairman of the board of directors of Fund I and Fund II.

Stephen V. Murphy (54). Since 1991, Mr. Murphy has been President of S.V.
Murphy & Co., Inc., an investment banking firm that specializes in mergers and
acquisitions, divestitures and strategic and capital-related advisory services
for financial and other institutions. From 1988 until 1990, he was Managing
Director of Merrill Lynch Capital Markets in charge of the Financial
Institutions Mergers and Acquisitions Department. Prior to 1988, Mr. Murphy was
Managing Director of The First Boston Corporation where he

---------------

* Interested person of the Company.
41
<PAGE> 42

headed up its Investment Banking Department's Commercial Bank Group. Mr. Murphy
holds a B.S.B.A. degree from Georgetown University and a M.B.A. degree from
Columbia University. Mr. Murphy serves as a director of Fund I, Fund II and the
Excelsior Hedge Fund of Funds I, LLC.

Victor F. Imbimbo, Jr. (47). Victor Imbimbo was the founder in 1996 of
Bedrock Communications, Inc., a consulting company addressing the merger of
traditional and digital communications solutions. He was also the founder of the
Hadley Group, a promotional marketing company, in 1985, which he ran until 1996.
Mr. Imbimbo serves as a director of Fund I, Fund II and the Excelsior Hedge Fund
of Funds I, LLC.

Officers of the Company

David I. Fann (36) is Co-Chief Executive Officer and President of the
Company and Managing Director of United States Trust Company of New York. Mr.
Fann serves as President and Chief Executive Officer of Fund I and Fund II. He
is focused on Direct Investments in information services and life sciences.
Prior to joining United States Trust Company of New York in April 1994, Mr. Fann
served in various capacities for Citibank from 1986 through 1994, including, as
a Vice President of Citibank and its small business investment company
subsidiary, Citicorp Venture Capital Ltd. from 1991 until 1994. While at
Citicorp Venture Capital Ltd., Mr. Fann invested in buyout and venture capital
transactions and venture capital funds and served on the board of directors of
several of its portfolio companies. Mr. Fann holds a B.A.S. degree in Industrial
Engineering and Economics from Stanford University. Mr. Fann serves on the
United States Trust Company of New York Portfolio Policy Committee, Strategy
Review Committee and Special Fiduciary Committee. Mr. Fann is on the boards of
Classroom Connect, Inc., Curon Medical, Inc., SurVivaLink Corp. and Protogene
Laboratories, Inc.

Douglas A. Lindgren (38) is Co-Chief Executive Officer and Chief Investment
Officer of the Company and Managing Director of United States Trust Company of
New York. Mr. Lindgren is Chief Investment Officer of Fund II and Executive Vice
President of Fund I. He is focused on Direct Investments in information
technology, information services and communications. Prior to joining United
States Trust Company of New York in April 1995, Mr. Lindgren served in various
capacities for Inco Venture Capital Management ("IVCM") from January 1988
through March 1995, including President and Managing Principal from January 1993
through March 1995. While at IVCM, Mr. Lindgren invested in venture capital and
buyout transactions and served on the board of directors of several of its
portfolio companies. Before joining IVCM, Mr. Lindgren was employed by Salomon
Brothers Inc and Smith Barney, Harris Upham & Co., Inc. He is an Adjunct
Professor of Finance at Columbia University's Graduate School of Business, where
he has taught courses on venture capital since 1993. Mr. Lindgren holds a M.B.A.
and B.A. from Columbia University. He serves on the United States Trust Company
of New York Portfolio Policy Committee. Mr. Lindgren is on the boards of
PowerSmart, Inc., MarketFirst Software, Inc., ReleaseNow.com, Corp.,
LifeMinders, Inc., Zeus Wireless, Inc. and firstsource Corporation.

Alan M. Braverman (39) is Executive Vice President of the Company and a
Managing Director of United States Trust Company of New York. He is focused on
Direct Investments in information technology, information services and
communications. Prior to joining United States Trust Company of New York in
September 2000, Mr. Braverman served as President, Business-to-Business at NBCi
since November 1999. Previously, Mr. Braverman was Head of Internet Research at
several top-level Wall Street firms. Mr. Braverman was also ranked by
Institutional Investor and the Wall Street Journal as one of the top Internet
research analysts on Wall Street. Mr. Braverman worked at Banc of America
Securities and held the position of Senior Managing Director and Head of
Internet Research there until November 1999. Mr. Braverman was Managing Director
and Head of Internet Research at Deutsche Bank Securities, the investment
banking arm of Deutsche Bank Group. From July 1996 to July 1998, he was the
senior Internet analyst at Credit Suisse First Boston. From 1995 to July 1996,
Mr. Braverman was Vice President, Internet Analysis at Hanifen Imhoff. From 1991
to 1995, Mr. Braverman served as a senior executive at U.S. West as well as
General Manager for CityKey Online, where he oversaw the national roll-out for
the company's online business. Mr. Braverman earned a B.B.A. in Finance and
Strategy from The Wharton School of the University of Pennsylvania and a M.B.A.
in Finance, Strategy and Marketing from Northwestern University's Kellogg
Graduate School of Management.

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<PAGE> 43

Lee A. Gardella (33), Vice President of the Company and Vice President of
United States Trust Company of New York, joined United States Trust Company of
New York in September 1997. He is focused on Direct Investments in information
technology companies and on fund investments. Mr. Gardella currently has
monitoring responsibilities for several Portfolio Companies including Captura
Software, Inc. and LogicVision, Inc. From July 1994 to September 1997, Mr.
Gardella held several positions with the Edison Venture Fund, an expansion-stage
venture capital firm in Lawrenceville, N.J. In addition, Mr. Gardella has worked
at Wilshire Associates and National Steel Corporation. Mr. Gardella has served
as a director of the Greater Philadelphia Venture Group. He received a M.B.A.
from the University of Notre Dame and a B.S.B.A. in Finance from Shippensburg
University. Mr. Gardella is a Chartered Financial Analyst. Mr. Gardella is on
the board of BPA Systems.

James F. Rorer (30) is Vice President of the Company and United States
Trust Company of New York. Mr. Rorer is focused on Direct Investments in
information services and life sciences. Prior to joining United States Trust
Company of New York in May 1999, he worked at Bain & Company ("Bain"), a leading
global strategic consulting firm, from September 1996 until April 1999. He was a
consultant in the Private Equity Practice, providing strategic due diligence
services to large private equity firms. In addition, Mr. Rorer also spent time
in Bain's standard consulting practice, working with companies on a variety of
strategic issues in a number of different industries including automotive,
electric power, telecommunications, consumer products and financial services.
Mr. Rorer was an investment banking analyst at CS First Boston from 1992 to
1994, where he worked on mergers and acquisitions and financing for banks and
consumer finance companies. Mr. Rorer graduated from Duke University, Phi Beta
Kappa, with a degree in Economics and Mathematics. He holds a M.B.A. from
Harvard Business School.

James F. Dorment (27) Chief Administrative Officer and Secretary of the
Company and Assistant Vice President of United States Trust Company of New York,
has been with the Private Equity Division of United States Trust Company of New
York since December 1997. Mr. Dorment is involved in all areas of investment
analysis and decision-making. From August 1995 through November 1997, he worked
in the wealth management division of United States Trust Company of New York.
Mr. Dorment graduated from Bates College with a B.A. degree in Economics. He is
a Chartered Financial Analyst and a member of the New York Society of Security
Analysts and the Association for Investment Management and Research.

Brian F. Schmidt (41) is Chief Financial Officer of the Company and Senior
Vice President of U.S. Trust Company. Mr. Schmidt is the Chief Financial Officer
of Fund I and Fund II. He is the Division Manager of Mutual Funds with U.S.
Trust Company. He is responsible for the operation and administration of the
Excelsior Family of Funds and the U.S. Trust Company Common Trust Funds. Mr.
Schmidt joined U.S. Trust Company in 1991 from Prudential Insurance Company of
America, where he was Director of Accounting. Prior to that he was a senior
accounting manager at Dreyfus Corporation. Mr. Schmidt has 20 years of
experience in financial services, concentrating in mutual funds. He received his
B.S. degree from Marist College. He is on the Accountant's and Treasurer's
Committee of the Investment Company Institute.

Frank D. Bruno (40) is Treasurer of the Company and Vice President of U.S.
Trust Company. Mr. Bruno is a Vice President in the Mutual Funds Administration
Department of an affiliate of U.S. Trust Company. Prior to joining U.S. Trust
Company, he worked for the Dreyfus Corporation and PriceWaterhouse. Mr. Bruno
received his B.S. degree from The Pennsylvania State University.

Investment Committee

Frederick B. Taylor (58) is Chairman of the Investment Committee. Mr.
Taylor is Vice Chairman and Chief Investment Officer of United States Trust
Company of New York and is a member of the board of directors and Chairman of
the Portfolio Policy Committee. He has been with United States Trust Company of
New York for over 30 years, and has been responsible for developing and
implementing the current investment policy since 1981. Mr. Taylor received his
B.A. degree from Wesleyan University, with distinction, and his M.B.A. degree
from the University of Pennsylvania, Wharton School. He is a member of the New
York Society of Security Analysts and the Association for Investment Management
and Research.

Paul K. Napoli (54) is Co-Chairman of the Investment Committee. Mr. Napoli
is an Executive Vice President of United States Trust Company of New York and is
responsible for the Personal Wealth

43
<PAGE> 44

Management Group. He is a member of the Management Committee, the Risk Policy
Committee, the Trust Committee, the Broker Relations Committee and Derivatives
Committee. Mr. Napoli received his undergraduate degree in Economics and
Mathematics from Boston College and his M.B.A. in Finance and Economics from
Columbia University. He holds the designation of Chartered Financial Analyst and
Certified Trust & Financial Adviser. Mr. Napoli is a member of the New York
Society of Security Analysts and the Association of Investment Management and
Research.

John J. Apruzzese (42) is Managing Director and Senior Portfolio Manager of
United States Trust Company of New York. Mr. Apruzzese is a Division Manager in
the Wealth Management Group. Previously, Mr. Apruzzese was a staff member of the
Labor and Human Resources Committee of the U.S. Senate and worked on federal
budget matters. Mr. Apruzzese received his B.A. from Bucknell University and his
M.B.A. from New York University. Mr. Apruzzese is a Chartered Financial Analyst,
a member of the New York Society of Security Analysts and a member of the Board
of Advisers of Outward Bound.

Richard L. Bayles (56) is Managing Director and Senior Portfolio Manager of
United States Trust Company of New York. Mr. Bayles manages the Stock Fund for
Trusts. Mr. Bayles earned his B.A. from Dartmouth College. He is a warden of St.
Bartholomew's Church in the City of New York. Mr. Bayles served with the Peace
Corps in Kenya for three years and is President of the Mid Manhattan Performing
Arts Foundation.

Edith A. Cassidy (47) is Managing Director and Division Manager at United
States Trust Company of New York. Ms. Cassidy is responsible for managing
individual client assets and a division of portfolio managers, administrators
and support staff. Ms. Cassidy is a member of United States Trust Company of New
York's Operating Committee and Portfolio Policy Committee. Upon joining U.S.
Trust in 1989, Ms. Cassidy was appointed Director of the Equity Research
Division. Prior to joining U.S. Trust in 1989, Ms. Cassidy was an investment
executive at Piper, Jaffray & Hopwood in New York City. From 1976 through 1986,
she was with International Business Machines Corporation in New York, where her
last position was Marketing Manager. Ms. Cassidy is a member of the New York
Society of Security Analysts. She is a member of the board of trustees of The
Westmoreland Davis Foundation and Learning Leaders. Ms. Cassidy received her
B.A. in 1975 from Goucher College.

Katherine T. Ellis (36) is Senior Vice President and Senior Portfolio
Manager of United States Trust Company of New York. Ms. Ellis is a Division
Manager in the Wealth Management Group. She is a member of the Portfolio Policy
Committee and has been with United States Trust Company of New York for 14
years. She earned her B.A. in Political Science from Wellesley College and her
M.B.A. with Distinction in Finance from the Stern School where she was
designated a Stern Scholar as well as a member of the Beta Gamma Sigma Honor
Society. Ms. Ellis holds the designation of Chartered Financial Analyst and is a
member of the New York Society of Security Analysts and the Association of
Investment Management and Research.

William V. Ferdinand (58) is Managing Director and Senior Investment
Officer of U.S. Trust Company. Mr. Ferdinand is responsible for managing the
investment organization of U.S. Trust Company. With eleven portfolio managers,
this group actively manages over $2.6 billion of assets. In addition, Mr.
Ferdinand is a member of the Portfolio Policy Committee, headquartered at United
States Trust Company of New York. With over 30 years of investment management
experience, he comes to U.S. Trust Company from The Penn Mutual Life Insurance
Company, where he served as Executive Vice President and Chief Investment
Officer as well as President and Chief Executive Officer of the investment
management subsidiaries. His background includes over 10 years of senior trust
investment experience in Connecticut and Pennsylvania. He is a member of the
board of directors of U.S. Trust Company. Mr. Ferdinand is a Chartered Financial
Analyst and received a B.S. degree from the University of Pennsylvania Wharton
School of Business. He earned his M.B.A. from New York University. He is a
member of the New York and International Society of Security Analysts and the
Association for Investment Management and Research.

Joseph A. Gallagher (58) is Senior Vice President of U.S. Trust Company of
New Jersey. Prior to joining U.S. Trust Company of New Jersey, Mr. Gallagher was
Managing Director of Delafield, Harvey, Tabell, which was acquired by U.S. Trust
in 1992. Previously, he held the positions of Senior Portfolio Manager in the
Private Banking and Investment Division at Citibank, N.A. and Vice
President -- Investments at United Jersey Bank. Mr. Gallagher received his B.S.
degree from Georgetown University. He is a Chartered Financial

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<PAGE> 45

Analyst and a member of the New York Society of Security Analysts and the
Association for Investment Management and Research.

Rosemary Sagar (40) is Managing Director of United States Trust Company of
New York. Ms. Sagar is responsible for U.S. Trust Company's Global Investment
Division. She is responsible for overseeing U.S. Trust's international
investment activities, including portfolio management, research and trading.
Prior to joining U.S. Trust, Ms. Sagar was senior vice president for
international equities for GE Investments in Stamford, Connecticut. During her
six years at GE, she was instrumental in growing the international assets under
management from $800 million to over $6 billion, of which about half was for
external clients. She was also Chairman of GE (UK) Common Investment Fund, GE
Company's largest pension fund outside North America, and a member of the board
of the GE Netherlands Pension Fund. From 1987 to 1990, Ms. Sagar was associate
director of research for Baring Securities. Previously, she held positions as a
vice president at Drexel Burnham Lambert and as an analyst with Morgan Stanley.
Ms. Sagar is a member of the Advisory Board of the Paris Stock Exchange. She is
a Chartered Financial Analyst. She received her M.B.A. from Columbia University,
her undergraduate degree from Boston University (summa cum laude) and studied at
the Sorbonne in Paris.

Harvey A. Seline (61) is a Managing Director and Senior Portfolio Manager
of United States Trust Company of New York. Mr. Seline is a Division Manager in
the Personal Wealth Management Group. He has been with United States Trust
Company of New York since 1969. Prior to joining U.S. Trust, he was a Trust
Investment Officer at The National Bank of Tulsa and a Trust Analyst at First
City National Bank in Houston. Mr. Seline received his B.A. from the University
of Colorado and his M.B.A. from the Columbia University Graduate School of
Business Administration. Mr. Seline is a Chartered Financial Analyst, a member
of the New York Society of Security Analysts and a member of The Association for
Investment Management and Research.

Jay B. Springer (41) is Managing Director and Senior Portfolio Manager of
United States Trust Company of New York. Mr. Springer is a Division Manager in
the Personal Wealth Management Group. Previously, he worked as a Financial
Analyst at Citibank. Mr. Springer earned his B.A., magna cum laude, from Boston
University and his M.B.A. from New York University Graduate School of Business.
He is currently a member of The New York State Bankers Association Trust
Investment Committee and is a former director of Bank Fiduciary Funds. Mr.
Springer serves on the board of directors of Christmas-in-April-USA.

David A. Tillson (51) is Managing Director and Senior Portfolio Manager of
United States Trust Company of New York. Mr. Tillson is a Division Manager in
the Personal Wealth Management Group. Prior to joining United States Trust
Company of New York, he was the President of TDA Capital Management Company,
which he formed in 1990. From 1992 until he joined U.S. Trust, he was also a
Senior Vice President at Matrix Asset Advisers. Prior to founding TDA Capital
management, he was a vice president, portfolio manager and director of research
at Management Asset Corporation. He also held positions at W.P. Carey & Company
and General Reinsurance Corporation. Mr. Tillson received his B.A. in 1971 from
Brown University and his M.B.A. in 1974 from New York University. A Chartered
Financial Analyst, Mr. Tillson is a member of the New York Society of Security
Analysts and the Association for Investment Management Research.

Leigh H. Weiss (45) is Managing Director of United States Trust Company of
New York and Manager of Institutional Equity and Balanced Portfolios. Mr. Weiss
has been with the United States Trust Company of New York since September of
1993. Prior to joining United States Trust Company of New York, he worked for
Goldman, Sachs & Co., where he had been since 1981. Mr. Weiss received his B.S.
degree in Economics from the Wharton School of the University of Pennsylvania
and he earned his M.B.A. from the University of Chicago.

David J. Williams (58) is Managing Director and Senior Portfolio Manager of
United States Trust Company of New York. He is a member of United States Trust
Company of New York's Investment Policy Committee and manages the Excelsior
Value and Restructuring Fund. Formerly, Mr. Williams was a Senior Vice President
and the Senior Investment Officer of Horizon Trust Company in Morristown, New
Jersey. He was also a Portfolio Manager with T. Rowe Price Associates, Inc. in
Baltimore, Maryland. Mr. Williams

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<PAGE> 46

received his B.A. from Yale University and his M.B.A. from Harvard University.
He is a Chartered Financial Analyst.

George C. Whiteley III (60) is Managing Director and Senior Portfolio
Manager of United States Trust Company of New York. Mr. Whiteley is a Division
Manager in the Personal Wealth Management Group. He joined the United States
Trust Company of New York in 1995. Prior to joining United States Trust Company
of New York, he worked for Chase Manhattan Bank where he was Vice President and
Chief Investment Executive of U.S. Private Banking. Mr. Whiteley received his
B.A. degree from Harvard College and was awarded his J.D. from New York
University School of Law.

BOARD OF MANAGER COMPENSATION

Each member of the Board of Managers will receive $7,000 annually and
$2,000 per meeting attended. Members of the Board of Managers are also entitled
to reimbursement of their actual out-of-pocket expenses incurred in connection
with their attendance at meetings of the Board of Managers. The Company does not
have a stock option plan, other long-term incentive plan, retirement plan or
other retirement benefits.

ESTIMATED COMPENSATION TABLE

<TABLE>
<CAPTION>
PENSION OR RETIREMENT
AGGREGATE BENEFITS ACCRUED AS ESTIMATED ANNUAL TOTAL COMPENSATION
NAME OF PERSON, COMPENSATION FROM PART OF FUND BENEFITS UPON FROM COMPANY AND
POSITION THE COMPANY EXPENSES RETIREMENT FUND COMPLEX(1)
--------------- ----------------- --------------------- ---------------- ------------------
<S> <C> <C> <C> <C>
John C. Hover II*.......... $9,750 0 0 $53,500(4 Funds)
Manager
Gene M. Bernstein.......... $9,750 0 0 $59,750(5 Funds)
Manager
Stephen V. Murphy.......... $9,750 0 0 $59,750(5 Funds)
Manager
Victor F. Imbimbo, Jr...... $9,750 0 0 $55,250(5 Funds)
Manager
</TABLE>

---------------
1 The compensation paid to such persons by the Company and Fund Complex is
estimated for the fiscal year ending October 31, 2000. The parenthetical
number represents the number of investment companies (including the Company)
from which such person receives compensation that are considered part of the
same Fund Complex as the Company.

* Interested person of the Company.

CONTROL PERSONS

Upon completion of the Offering, no person is expected to have voting
control over the Company except as set forth under "The Offering."

CUSTODIAN AND TRANSFER AGENT

PFPC Trust Company ("PFPC Trust") will serve as the Company's custodian in
accordance with the provisions of the Investment Company Act and the rules and
regulations thereunder. As such, PFPC Trust will be responsible for holding the
Company's cash and portfolio securities. PFPC Trust will also serve as the
transfer agent and distribution paying agent for the Company's Units. For its
custodian, transfer agency and paying agency services, PFPC Trust will receive
customary fees from the Company. PFPC Trust's address is: PFPC Trust Company,
8800 Tinicum Boulevard, 3rd Floor, Suite 200, Philadelphia, Pennsylvania 19153.

BROKERAGE ALLOCATION AND OTHER PRACTICES

Subject to policies established by the Board of Managers, the Investment
Adviser or Investment Sub-Adviser will arrange for the execution of the
Company's portfolio transactions and the allocation of brokerage. In executing
portfolio transactions, the Investment Adviser and Investment Sub-Adviser will
seek to obtain the most favorable execution of portfolio transactions that is
the best combination of net price and prompt reliable execution. In the
Investment Adviser's and Investment Sub-Adviser's opinion, it is not possible to
determine in advance that any particular broker will actually be able to effect
the most favorable execution because, in the context of a constantly changing
market, order execution involves judgments as to the price,

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<PAGE> 47

volume, trend and breadth of the market, possibility of a block transaction and
the broker's activity in the security, as well as its general record for prompt,
competent and reliable service in all aspects of order processing, execution and
settlement as well as anticipated commission rates.

A portion of the securities in which the Company will invest may be traded
in the over-the-counter markets, and the Company intends to deal directly with
the dealers who make markets in the securities involved, except in those
circumstances where better prices and execution are otherwise available. Under
the Investment Company Act, persons affiliated with the Company generally are
prohibited from dealing with the Company as principal in the purchase and sale
of securities. Transactions in the over-the-counter markets usually involve
transactions with dealers acting as principal for their own account. The Company
will not deal with affiliated persons as principal in such transactions;
however, affiliated persons of the Company may serve as its broker in
over-the-counter markets and other transactions conducted on an agency basis in
accordance with the Investment Company Act. If an affiliated person of the
Company is a market maker in the securities of a company, the affiliated person
will not serve as the Company's broker in the purchase of such securities.

The Investment Adviser and the Investment Sub-Adviser have no obligation to
deal with any broker or group of brokers in the execution of transactions. With
respect to certain securities, the Company's portfolio transactions may be
effected through affiliates of the Investment Adviser or the Investment
Sub-Adviser, provided it is consistent with the policy of obtaining the most
favorable execution. The Company's Board of Managers has adopted procedures to
ensure compliance with applicable regulations relating to trading of portfolio
securities.

In allocating brokerage among other brokers who are believed to be capable
of providing equally favorable execution, the Company may also take into
consideration the fact that a particular broker may, in addition to execution
capability, provide other services to the Company or the Investment Adviser, the
Investment Sub-Adviser and their affiliates, such as research and statistical
information. Research services so received are in addition to and not in lieu of
services required to be performed by the Investment Adviser or Investment
Sub-Adviser and do not reduce the investment advisory fees payable by the
Company. Such services may be useful to the Investment Adviser or the Investment
Sub-Adviser in serving the Company and other clients and, conversely, research
services obtained by the placement of brokerage business of other clients may be
useful to the Investment Adviser or the Investment Sub-Adviser in carrying out
their obligations to the Company. The Investment Adviser or the Investment
Sub-Adviser might incur significant expense were they to purchase such research
services.

PORTFOLIO TURNOVER

Because the investments of the Company generally require relatively long
periods of time to reach maturity, it is expected that the Company's portfolio
turnover will be low. There is, however, no policy limitation on the ability of
the Company to sell an investment after a short period of time. Any short-term
securities in which the Company invests will have a high rate of turnover.

Portfolio turnover will generally involve some expense to the Company,
including brokerage commissions or dealer mark-ups and other transaction costs
on the sale of securities and, where permitted, reinvestment in other
securities. The portfolio turnover rate will be computed by dividing the lesser
of the amount of the securities purchased or securities sold during the year by
the average monthly value of securities owned during the year (excluding
securities whose maturities at acquisition were one year or less).

REGULATION

The Investment Advisers Act of 1940, as amended (the "Investment Advisers
Act"), generally prohibits an investment adviser from entering into an
investment advisory contract with an investment company that provides for
compensation to the investment adviser on the basis of a share of capital gains
upon or capital appreciation of the funds or any portion of the funds of the
investment company. In 1980, Congress enacted the Small Business Investment
Incentive Act of 1980 which added provisions to the Investment Advisers Act
which permit the payment of compensation to an investment adviser to a BDC based
on capital gains.

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<PAGE> 48

In addition, the Small Business Investment Incentive Act of 1980 modified
the provisions of the Investment Company Act that are applicable to BDCs. The
BDC is considered to be a closed-end investment company as those terms are
defined in the Investment Company Act. The following is a brief description of
certain provisions of the Investment Company Act, as modified by the Small
Business Investment Incentive Act of 1980, and is qualified in its entirety by
reference to the full text of the Investment Company Act and the rules
thereunder.

Generally, to be eligible to elect BDC status, a company must engage in the
business of furnishing capital and offering significant managerial assistance to
companies that do not have ready access to capital through conventional
financial channels. A BDC must be operated for the purpose of making investments
in securities of the types required by the Investment Company Act, which types
include certain present and former "eligible portfolio companies" and certain
bankrupt or insolvent companies. A BDC need not invest in all of the possible
types of securities approved for investment by BDCs. Business development
companies must also make available significant managerial assistance to
portfolio companies. An eligible portfolio company generally is a United States
company that is not an investment company (except for wholly-owned Small
Business Investment Companies licensed by the Small Business Administration) and
that (i) does not have a class of securities registered on a national securities
exchange or included in the Federal Reserve Board's over-the-counter margin
list, (ii) is actively controlled by the BDC, either alone or as part of a group
acting together, and an affiliate of the BDC is a member of the portfolio
company's board of directors or (iii) meets such other criteria as may be
established by the Commission. Control, under the Investment Company Act, is
presumed to exist where the BDC owns 25% of the outstanding voting securities of
the portfolio company.

The Investment Company Act limits the type of assets that the Company may
acquire to "qualifying assets" and certain assets necessary for its operations
(such as office furniture, equipment, and facilities) unless, at the time of the
acquisition, at least 70% of the value of the Company's investment assets
consists of qualifying assets. Qualifying assets include: (i) securities of
companies that were eligible portfolio companies at the time the Company
acquired their securities; (ii) securities of bankrupt or insolvent companies
that are not otherwise eligible portfolio companies; (iii) securities acquired
as follow-on investments in companies that were eligible at the time of the
Company's initial acquisition of their securities but are no longer eligible,
provided that the Company has maintained a substantial portion of its initial
investment in those companies; (iv) securities received in exchange for or
distributed on or with respect to any of the foregoing; and (v) cash items,
government securities, and high-quality, short-term debt. The Investment Company
Act also places restrictions on the nature of the transactions in which, and the
persons from whom, securities can be purchased in order for the securities to be
considered qualifying assets. In addition, certain provisions of the federal
banking laws, including the Bank Holding Company Act of 1956, as amended, would
prohibit or restrict investments by the Company in securities of commercial
banking organizations.

The Company is permitted by the Investment Company Act, under specified
conditions, to issue multiple classes of senior debt and a single class of
equity senior to the Units if its asset coverage, as defined in the Investment
Company Act, is at least 200% after the issuance of the debt or equity. In
addition, provision must be made to prohibit any distribution to members or the
repurchase of any Units unless the asset coverage ratio is at least 200% at the
time of the distribution or repurchase.

After this offering, the Company may sell its securities at a price that is
below the prevailing net asset value per Unit only upon the approval by the
holders of a majority of its voting securities.

Under the Investment Company Act as amended by the Small Business
Investment Incentive Act of 1980, certain of the transactions involving the
Company and its affiliates (as well as affiliates of those affiliates) that
would previously have been prohibited without the prior approval of the
Commission require the prior approval of a majority of the disinterested members
of the Board of Managers having no financial interest in the transactions.
Certain transactions involving certain closely affiliated persons of the
Company, including the Investment Adviser, the Investment Sub-Adviser and their
officers and employees, still require the prior approval of the Commission. In
general, (i) any person who owns, controls, or holds with power to vote, more
than 5% of the outstanding Units, (ii) any director, executive officer, or
general partner of that person and (iii) any person who directly or indirectly
controls, is controlled by, or is under common control

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<PAGE> 49

with, that person, must obtain the prior approval of a majority of the
disinterested members of the Board of Managers and, in some situations, the
prior approval of the Commission, before engaging in certain transactions
involving the Company or any company controlled by the Company. The Investment
Company Act and applicable rules thereunder generally do not restrict
transactions between the Company and its Portfolio Companies. In accordance with
the Investment Company Act, a majority of the members of the Board of Managers
are not interested persons of the Company as defined in the Investment Company
Act. See "Management."

VALUATION OF PORTFOLIO SECURITIES

Under the supervision of and in accordance with procedures adopted by the
Board of Managers, the Investment Adviser or Investment Sub-Adviser, or a
committee of the Board of Managers, will value the securities in the Company's
portfolio quarterly and at such other times as, in the Board of Managers' view,
circumstances warrant. In the event of a sale by the Company of its Units, the
Company must determine the net asset value (the "NAV") of a Unit as of a date
within 48 hours before such sale (excluding Sundays and holidays) to comply with
the requirement of the Investment Company Act that securities not be sold below
NAV without member approval.

In order to determine the NAV per Unit (i) the value of the assets of the
Company, including its portfolio securities, shall be determined by the
Investment Adviser or Investment Sub-Adviser or a committee of the Board of
Managers under the supervision of the Board of Managers, (ii) the Company's
liabilities will be subtracted therefrom and (iii) the difference will be
divided by the number of outstanding Units of the Company. For purposes of this
calculation, any amount of the Incentive Carried Interest, calculated as if all
gains on investments were realized gains, that the Investment Adviser would be
entitled to distribution of if the Company had cash available for distribution
will be treated as a liability of the Company.

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. Securities for which
market quotations are not readily available and other assets will be valued at
fair value as determined in good faith by the Investment Adviser or Investment
Sub-Adviser or a committee of the Board of Managers under the supervision of the
Board of Managers and pursuant to procedures established and periodically
reviewed by the Board of Managers. Securities having remaining maturities of 60
days or less are valued at amortized cost.

The value for restricted stock investments 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. In the early stages of development, venture capital investments shall be
valued based upon their original cost to the Company, until developments
positively or negatively affecting the Portfolio Company provide a sufficient
basis for use of a valuation other than cost (such as changes in the Portfolio
Company's prospects or reliable private sales of a Portfolio Company's
securities at prices different from the value initially used by management).
Such developments may occur shortly after the Company's original investment, or
after a longer period. Upon the occurrence of developments providing a
sufficient basis for a change in valuation, venture capital investments will be
valued by the private market or appraisal methods of valuation. The Company
shall use reliable third party transactions (actual or proposed) in Portfolio
Company securities as a basis of valuation. This private market method shall
only be used with respect to actual transactions or actual firm offers by
sophisticated, independent investors. The appraisal method shall be based upon
such factors affecting the Portfolio Company as earnings, net worth, reliable
private sale prices of the Portfolio Company's securities, the market prices for
similar securities of comparable companies and an assessment of the Portfolio
Company's future prospects. In the case of unsuccessful operations, the
appraisal may be based upon liquidation value. The values for the investments
referred to in this paragraph will be estimated regularly by the Investment
Adviser or Investment Sub-Adviser or a committee 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.

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<PAGE> 50

The Company anticipates that it may invest in securities for which a public
market exists but which are "restricted securities" for purposes of the
Securities Act. In evaluating such securities, the Investment Adviser or
Investment Sub-Adviser or a committee of the Board of Managers will take into
consideration various factors, including the price at which the securities in
question were acquired relative to the market price for unrestricted shares of
the same securities at the time of such acquisition, modified as appropriate to
reflect the nature of the market in which the securities are traded, if any, the
amount of the public float, the existence and terms of any securities
registration rights, the proportion of the Portfolio Company's securities held
by the Company, changes in the financial condition and prospects of such
Portfolio Company and other factors which may affect their fair value, all in
accordance with the Investment Company Act. Restricted securities for which an
established trading market exists will typically be valued at a discount of 10%
to 40% from the public market price with the amount of the discount decreasing
as the restriction period decreases. If an established trading market does not
exist, valuations will be made consistent with the "going concern" method
described above. The Company's investments in Private Funds generally will be
valued based upon the Company's pro rata share of the value of the assets of a
Private Fund as determined by such Private Fund in accordance with its by-laws
and constitutional or other documents governing such valuation, on the valuation
date. If such valuation with respect to 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 or Investment Sub-Adviser, the
Investment Adviser or Investment Sub-Adviser, under supervision of the Board of
Managers, will determine such value based on the Investment Adviser's or
Investment Sub-Adviser's judgment of fair value on the appropriate date, less
applicable charges, if any.

CAPITAL ACCOUNTS, ALLOCATIONS AND DISTRIBUTIONS

CAPITAL ACCOUNTS. The Company will establish a capital account for each
investor who becomes a member of the Company. Your capital contribution and your
share of items of income and gain will be credited to your capital account, and
your distributions and your share of items of loss, deduction and expense will
be debited from your capital account. The Company will establish a capital
account for the Investment Adviser to which allocations in respect of the
Incentive Carried Interest will be made.

ALLOCATIONS. The income, gain, loss, deduction and expense of the Company
will be determined and allocated as of the end of each tax year (typically
December 31) to reflect the economic interests of the members and the Investment
Adviser.

Allocations generally will be made in the following order:

- gains will be allocated to the Investment Adviser until the cumulative
amount of all gains that has been allocated to the Investment Adviser
from the commencement of operations equals the Incentive Carried Interest
calculated through the end of the period for which the allocation is
being made; and

- all remaining items of income, gain, loss, deduction and expense will be
allocated to the members pro rata in accordance with their capital
contributions.

For any given period, the Incentive Carried Interest will be an amount
equal to 20% of the excess, if any, of the cumulative amount of all capital
gains realized by the Company on Direct Investments from the commencement of
operations through the end of such period over the sum of:

- the cumulative amount of all capital losses realized by the Company on
all investments of any type from the commencement of operations through
the end of such period;

- the amount of net unrealized capital depreciation on all investments of
any type determined as of the close of such period; and

- the excess, if any, of the cumulative amount of all expenses of any type
incurred by the Company over the cumulative amount of all income of any
type earned by the Company, in each case from the commencement of
operations through the end of such period.

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DISTRIBUTIONS. The Company will distribute all cash that the Investment
Adviser does not expect to use in the operation of the Company. The Company will
consider such distributions at least annually but, as described below, does not
expect to make distributions of cash or property during the first several years
of operations. Each year, the Investment Adviser generally will be entitled to a
distribution equal to the Incentive Carried Interest. The members generally will
be entitled to all amounts remaining for distribution pro rata in accordance
with their capital contributions. Upon liquidation of the Company, any cash or
other property available for distribution will be distributed to the members and
to the Manager pro rata in accordance with their respective capital account
balances. The Investment Adviser's capital account balance generally will
reflect the allocations that have been made to the Investment Adviser in respect
of the Incentive Carried Interest that have not been previously distributed to
the Investment Adviser.

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. The Company will not reinvest income from its investments
or the proceeds from the sale of its investments, in each case other than in
Short-Term Investments, except to make follow-on investments. The Company may
make distributions in kind of its property. The Company does not intend to make
any distribution if after making such distribution the liabilities of the
Company would exceed the fair value of the Company's assets.

For more detailed information concerning the Company's capital accounts,
allocations and distributions, see the statement of additional information under
the caption "Capital Accounts, Allocations and Distributions" and the Operating
Agreement.

CERTAIN FEDERAL INCOME TAX CONSIDERATIONS

The following is a summary of certain U.S. federal income tax consequences
to the initial members who are U.S. persons. The discussion is based upon the
Internal Revenue Code of 1986, as amended (the "Code"), Treasury Regulations,
judicial authorities, published positions of the IRS and other applicable
authorities, all as in effect on the date hereof and all of which are subject to
change or differing interpretations (possibly with retroactive effect). The
discussion does not address all of the tax consequences that may be relevant to
a particular member or to members subject to special treatment under federal
income tax laws (e.g., banks and certain other financial institutions, insurance
companies, tax-exempt organizations and non-U.S. persons). This discussion is
limited to members who hold their Units as capital assets. No ruling has been or
will be sought from the IRS regarding any matter discussed herein. Except as
expressed in "Tax Status of the Company" below, counsel to the Company has not
rendered any legal opinion regarding any tax consequences relating to the
Company or an investment in the Company. No assurance can be given that the IRS
would not assert, or that a court would not sustain, a position contrary to any
of the tax aspects set forth below. PROSPECTIVE INVESTORS MUST CONSULT THEIR OWN
TAX ADVISERS AS TO THE FEDERAL INCOME TAX CONSEQUENCES OF ACQUIRING, HOLDING AND
DISPOSING OF UNITS AS WELL AS THE EFFECTS OF STATE, LOCAL AND NON-U.S. TAX LAWS.

TAX STATUS OF THE COMPANY. At the first subscription closing, the Company
will receive an opinion of its counsel, Skadden, Arps, Slate, Meagher & Flom
LLP, to the effect that, under current law and based on certain assumptions and
representations, the Company will be treated as a partnership and not as a
"publicly traded partnership" that is treated as a corporation for federal
income tax purposes. An opinion of counsel is not binding on the IRS or any
court.

A limited liability company (such as the Company) that has elected to be
treated as a business development company under the Investment Company Act would
be treated as a corporation for federal income tax purposes if it were to become
a publicly traded partnership. A publicly traded partnership is a partnership
(or limited liability company intended to be treated as a partnership) the
interests of which are either traded on an established securities market or
readily tradable on a secondary market (or the substantial equivalent thereof).
Each of the Investment Adviser, the Investment Sub-Adviser and the Company has

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represented to counsel for the Company that, among other things, neither it, nor
any affiliate thereof, will participate in the establishment of an established
securities market or secondary market (or the substantial equivalent thereof)
for this purpose.

In addition, the Operating Agreement imposes significant restrictions on
transfer of Units in order to address this point. By subscribing for Units, each
member agrees to indemnify and hold harmless the Company, the Investment
Adviser, the Investment Sub-Adviser, each other member and any successor or
assign any of the foregoing, from and against all losses, claims, damages,
liabilities, costs and expenses (including losses, claims, damages, liabilities,
costs and expenses of any judgments, fines and amounts paid in settlement),
joint or several, to which those persons may become subject by reason of or
arising from any transfer made by that member in violation of the Operating
Agreement or any misrepresentation made by that member in connection with any
purported transfer. A similar indemnification is required to be made by a
permitted transferee.

Ultimately, counsel's opinion as to the treatment of the Company as a
partnership for federal income tax purposes will be based on, among other
things, the maintenance of factual conditions (including those underlying the
representations of the Investment Adviser, the Investment Sub-Adviser and the
Company), the continuation of which cannot be assured. Company's counsel will
not render a Company tax status opinion or review such factual environment after
the first subscription closing.

If the Company were treated as a publicly traded partnership or otherwise
treated as a corporation for federal income tax purposes, material adverse
consequences for the members would result. The Company would be subject to tax
on its income at corporate tax rates without a deduction for any distribution to
the members, thereby materially reducing the amount of any cash available for
distribution to the members. In addition, the members would be treated as
shareholders for federal income tax purposes. Thus, capital gains and losses and
other income and deductions of the Company would not be passed through to the
members, and all distributions by the Company to the members would be treated as
dividends, return of capital and/or gains.

The following discussion assumes that the Company will continue to be
treated as a partnership for federal income tax purposes.

TAXATION OF MEMBERS OF THE COMPANY. By reason of its treatment as a
partnership for federal income tax purposes, the Company will not itself be
subject to federal income tax. Rather, each member in computing its federal
income tax will include his, her or its allocable share of Company items of
income, gain, loss, deduction and expense for the taxable year of the Company
ending within or with the taxable year of the member. Nonliquidating cash
distributions made by the Company to a member generally will not be taxable to
the member, except to the extent that the amount of such cash distributions
exceeds the distributee's adjusted tax basis in his, her or its Units.
Nonliquidating distributions of property other than cash are also generally not
taxable. If both cash and other property are distributed by the Company to a
member, the member's adjusted tax basis in his, her or its Units will be reduced
first by the cash and then by the Company's tax basis in the other property
distributed. The member will have a tax basis in non-liquidating, non-cash
distributions of property equal to the Company's tax basis in such property (but
in no event in excess of the member's adjusted tax basis in his, her or its
Units reduced by the amount of any cash distributed in the same transaction).

For federal income tax purposes, a member's allocable share of Company tax
items will be determined by the provisions of the Operating Agreement if such
allocations have or are deemed to have "substantial economic effect" or are
determined to be in accordance with the members' interests in the Company. The
allocations under the Operating Agreement are intended to satisfy such
requirements. If, however, the IRS successfully challenged the Company's
allocations of income, gain, loss, deduction and expense, the redetermination of
the allocations to a particular member for federal income tax purposes may be
less favorable than the allocations set forth in the Operating Agreement.

The Company may derive taxable income from an investment that is not
matched by a corresponding receipt of cash. This could occur, for example, if
the Company makes an investment in certain non-U.S.

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corporations. See "Phantom Income from Company Investments in Non-U.S.
Corporations" below. This could also occur if the Company invests in an entity
that is classified as a partnership and such entity allocates income or gain to
the Company without making a corresponding distribution of cash. Moreover, the
Company is not required to make current distributions of its entire earnings. In
addition, a reduction of Company nonrecourse borrowings (as defined for federal
income tax purposes) would be treated as a constructive distribution of cash to
a member to the extent of his, her or its allocable share of such reduction,
even though an actual cash distribution is not made. Accordingly, it is possible
that a member's federal income tax liability with respect to his, her or its
allocable share of Company earnings in a particular taxable year could exceed
the cash distributions to the member for the year, thus giving rise to an
out-of-pocket payment by the member.

TAX BASIS RULES. Company distributions generally will not be taxable to a
member to the extent of such member's adjusted tax basis in his, her or its
Units. In addition, a member is allowed to deduct his, her or its allocable
share of Company losses (if any) only to the extent of such member's adjusted
tax basis in his, her, or its Units at the end of the taxable year in which the
losses occur. A member's adjusted tax basis is equal to the member's capital
contribution to the Company as adjusted by certain items. Basis is generally
increased by the member's allocable share of Company profits (and items of
income and gain) and Company nonrecourse borrowings (as defined for federal
income tax purposes). Basis is generally decreased by the member's allocable
share of Company losses (and items of loss, deduction and expense), the amount
of cash distributed by the Company to the member, the Company's tax basis of
property (other than cash) distributed by the Company to the member and any
reduction in the member's allocable share of Company nonrecourse borrowings (as
defined for federal income tax purposes).

To the extent that a member's allocable share of Company losses are not
allowed because the member has insufficient adjusted tax basis in his, her or
its Units, such disallowed losses may be carried over by the member to
subsequent taxable years and will be allowed if and to the extent of the
member's adjusted tax basis in subsequent years.

AT RISK RULES. Individuals and certain closely held C corporations are
allowed to deduct their allocable share of Company losses (if any) only to the
extent of each such member's "at risk" amount in the Company at the end of the
taxable year in which the losses occur. A member's at risk amount generally is
equal to the member's capital contribution to the Company. To the extent that a
member's allocable share of Company losses are not allowed because the member
has an insufficient amount at risk in the Company, such disallowed losses may be
carried over by the member to subsequent taxable years and will be allowed if
and to the extent of the member's at risk amount in subsequent years.

PASSIVE ACTIVITY LOSS RULES. Individuals, estates, trusts, closely held C
corporations and personal service corporations are not allowed to deduct
"passive activity losses" (as defined for federal income tax purposes) against
certain other income, such as salary or other compensation for personal
services, interest, dividends, annuities or royalties not derived in the
ordinary course of a trade or business and gain attributable to the disposition
of property that either produces such nonbusiness income or is held for
investment. The Company's investment activities generally will not constitute a
passive activity for purposes of the passive activity loss rules. Therefore, a
member will not be allowed to offset his, her or its allocable share of Company
items of income or gain with the member's passive activity losses from other
sources.

INVESTMENT INTEREST LIMITATION. Individuals and other noncorporate
taxpayers are allowed to deduct interest paid or accrued by the Company on its
indebtedness (so-called investment interest) only to the extent of each such
member's net investment income for the taxable year. A member's net investment
income generally is the excess, if any, of the member's investment income from
all sources (which is gross income from property held for investment) over
investment expenses from all sources (which are deductions allowed that are
directly connected with the production of investment income). Investment income
excludes net capital gain attributable to the disposition of property held for
investment (and thus would not include any Company gains on the sale of its
investments), unless the member elects to pay tax on such gain at ordinary
income rates.

To the extent that a member's allocable share of Company investment
interest is not allowed because the member has insufficient net investment
income, such disallowed investment interest may be carried over by
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the member to subsequent taxable years and will be allowed if and to the extent
of the member's net investment income in subsequent years. If a member borrows
to finance the purchase of Units, any interest paid or accrued on the borrowing
will be investment interest that is subject to these limitations. Since the
amount of a member's allocable share of Company investment interest that is
subject to this limitation will depend on the member's aggregate investment
interest and net investment income from all sources for any taxable year, the
extent, if any, to which Company investment interest will be disallowed under
this rule will depend on each member's particular circumstances each year.

OTHER LIMITATIONS ON DEDUCTIONS AND SPECIAL CODE PROVISIONS. Prospective
investors should be aware that they could be subject to various other
limitations on their ability to deduct their allocable share of Company losses
(or items of loss and deduction thereof). An individual, estate or trust may
deduct so-called miscellaneous itemized deductions, which include the management
fee and certain other expenses of the Company and of the Private Funds, only to
the extent that such deductions exceed 2% of the adjusted gross income of the
taxpayer. Since the amount of a member's allocable share of such expenses that
is subject to this disallowance rule will depend on the member's aggregate
miscellaneous itemized deductions from all sources and adjusted gross income for
any taxable year, the extent, if any, to which such expenses will be subject to
disallowance will depend on each member's particular circumstances each year.
Other limitations are imposed on itemized deductions of high-income individuals.

For federal income tax purposes, if a member of a limited liability company
performs services for the company and there is a related direct or indirect
allocation and distribution by the company to such member, the allocation and
distribution may be recharacterized as a fee. It is intended that the Investment
Adviser's Incentive Carried Interest constitute an allocable share of Company
earnings and not a fee. No assurance can be given, however, that the IRS could
not successfully assert that the Incentive Carried Interest be recharacterized
as a fee under these rules. If the Incentive Carried Interest were characterized
as a fee, members could be subject to the limitations on deductibility relating
to miscellaneous itemized deductions and certain other itemized deductions of
high-income individuals described in the preceding paragraph.

In addition, prospective investors should be aware that certain of the
Company's activities may be subject to various special provisions of the Code
that, among other things, defer or disallow the deductibility of certain
expenses. Organizational expenses of the Company are not currently deductible,
but may, at the election of the Company, be amortized ratably over a period of
not less than 60 months. Syndication expenses of the Company (i.e., expenditures
made in connection with the marketing and issuance of Units, including placement
fees) are neither deductible nor amortizable.

NON-U.S. CURRENCY GAINS OR LOSSES. If the Company makes an investment or
obtains financing denominated in a currency other than the U.S. dollar, then the
Company may recognize gain or loss attributable to fluctuations in such currency
relative to the U.S. dollar. The Company may also recognize gain or loss on such
fluctuations occurring between the time it obtains and disposes of non-U.S.
currency, between the time it accrues and collects income denominated in a
non-U.S. currency, or between the time it accrues and pays liabilities
denominated in a non-U.S. currency. Such gains or losses generally will be
treated as ordinary income or loss.

PHANTOM INCOME FROM COMPANY INVESTMENTS IN NON-U.S. CORPORATIONS. It is
possible that the Company may invest in non-U.S. corporations that could be
classified as "passive foreign investment companies," "controlled foreign
corporations" and "foreign personal holding companies" (each as defined for
federal income tax purposes). For federal income tax purposes, these investments
may, among other things, cause a member to recognize taxable income without a
corresponding receipt of cash, to incur an interest charge on taxable income
that is deemed to have been deferred and/or to recognize ordinary income that
would have otherwise been treated as capital gains.

NON-U.S. TAXES. Certain dividends and interest received by the Company from
sources outside of the U.S. may be subject to withholding taxes imposed by other
countries. The Company may also be subject to capital gains taxes in certain
other countries where it purchases and sells stocks and securities. Tax treaties
between the United States and other countries may reduce or eliminate such
taxes.

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The Company will inform members as to their proportionate share of non-U.S.
taxes paid by the Company, and members will be required to include such taxes in
their income. Members generally will be entitled to claim either a credit
(subject, however, to various limitations on foreign tax credits) or, if they
itemize their deductions, a deduction (subject to the limitations generally
applicable to deductions) for their share of such non-U.S. taxes in computing
their federal income taxes.

SALE OF COMPANY INVESTMENTS. The Company will generally recognize capital
gain or loss on the sale of its investments.

LIMITATION ON DEDUCTIBILITY OF CAPITAL LOSSES. Capital losses are
deductible only to the extent of capital gains (subject to an exception for
individuals under which a limited amount of capital losses may be offset against
ordinary income).

SALE OF UNITS. Members will not be able or allowed to freely sell or
otherwise transfer their Units. In addition, none of the Company, the Investment
Adviser or the Investment Sub-Adviser (or any affiliate thereof) will repurchase
any Units, except that the Company will repurchase Units upon its termination.
By subscribing for Units, each member agrees to indemnify and hold harmless the
Company, the Investment Adviser, the Investment Sub-Adviser, each other member,
and any successor or assign of any of the foregoing, from and against all
losses, claims, damages, liabilities, costs and expenses (including losses,
claims, damages, liabilities, costs and expenses of any judgments, fines and
amounts paid in settlement), joint or several, to which those persons may become
subject by reason of or arising from any transfer made by that member in
violation of the Operating Agreement or any misrepresentation made by that
member in connection with any purported transfer. A similar indemnification is
required to be made by a permitted transferee. See "Risk Factors -- No Public or
Other Market for Units."

A member that is allowed to sell his, her, or its Units will recognize gain
or loss measured by the difference between the amount realized on the sale and
the member's adjusted tax basis in the Units sold (as described in "Tax Basis
Rules" above). Such gain or loss generally will be long-term capital gain or
loss if the member held the sold Units for more than one year. The amount
realized will include the member's allocable share of Company nonrecourse
borrowings (as defined for federal income tax purposes), if any, as well as any
proceeds from the sale. Thus, a tax liability upon the sale of Units may exceed
the member's cash proceeds from the sale.

ALTERNATIVE MINIMUM TAX. In certain circumstances, individuals,
corporations and other taxpayers may be subject to an alternative minimum tax in
addition to regular tax. A member's potential alternative minimum tax liability
may be affected by reason of an investment in the Company. The extent, if any,
to which the alternative minimum tax applies will depend on each member's
particular circumstances for each taxable year.

TAX ELECTIONS. Under Section 754 of the Code, the Company may make a
generally irrevocable election to adjust the tax basis of its assets in the
event of a distribution of Company property to a member or in the event of a
transfer of Units (in which latter case basis will be adjusted with respect to
the transferee member only). The Company does not currently intend to make a
Section 754 election. The Board of Managers has sole and absolute discretion to
make all tax elections for the Company.

REPORTS TO MEMBERS. The Company has the calendar year as its taxable year.
The Company will furnish annually to each member a report containing a Schedule
K-1, which indicates each member's distributive share for each calendar year of
Company income, gain, loss, deduction and expense for use in the preparation of
the member's income tax return. The Company will endeavor to deliver Schedules
K-1 to members prior to April 15 of each year, but may not be able to do so
because, among other things, the Company may not receive, prior to April 15, a
Schedule K-1 from a Private Fund that is classified as a partnership for federal
income tax purposes in which the Company has invested. Accordingly, members may
be required to obtain extensions for filing their federal, state and local
income tax returns each year. The Company will provide members with estimated
annual federal income tax information prior to April 15, assuming the Company is
able to obtain such information.

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TAX AUDITS. Although not required to pay any federal income tax, the
Company must file a federal income tax information return each taxable year. The
IRS may audit Company returns in a unified entity proceeding at the Company
level. The Investment Adviser, who would represent the Company at such an audit
as the so-called tax matters partner, has considerable authority to make
decisions affecting the tax treatment and procedural rights of the members. The
Investment Adviser may also generally enter into settlement agreements with the
IRS that bind members and consent on behalf of the Company to extend the statute
of limitations for assessing a deficiency with respect to a Company item.
Successful adjustments by the IRS of Company items of income, gain, loss,
deduction or expense could change a member's federal, state and local income tax
liabilities.

BACKUP WITHHOLDING. The Company may be required to withhold federal income
tax at a rate of 31% on a member's allocable share of interest and dividends if
the member fails to provide the Company with his, her or its taxpayer
identification number or a certificate that he, she or it is exempt from backup
withholding, or the IRS notifies the Company that the member is subject to
backup withholding. The member may be entitled to a federal income tax credit
for the amount of any backup withholding if the required information is
furnished to the IRS.

CERTAIN CONSIDERATIONS FOR TAX-EXEMPT INVESTORS. The Company may from time
to time borrow funds for operating purposes in an amount up to 25% of the value
of its total assets (after giving effect to the borrowing) in order to make
additional investments in existing Portfolio Companies to maintain various
regulatory qualifications or to pay contingencies and expenses. To the extent
that the Company does so, an investment in the Company will generate unrelated
business taxable income ("UBTI") for federal income tax purposes for pension
funds, Keogh plans, individual retirement accounts, tax-exempt institutions and
other tax-exempt investors (and may have other adverse tax consequences for
certain tax-exempt investors, e.g., the receipt of any UBTI by a charitable
remainder trust would cause all income from all sources to be taxable to such a
trust). Accordingly, such prospective investors are urged to consult their own
tax advisers concerning possible federal, state, local and non-U.S. tax
consequences from an investment in the Company.

CERTAIN CONSIDERATIONS FOR NON-U.S. INVESTORS. The discussion under this
heading applies to certain members who are not "U.S. persons" as determined for
U.S. federal income tax purposes ("non-U.S. members"). The term "U.S. person"
means:

- a citizen or individual resident of the United States;

- a corporation or partnership created or organized under the laws of the
United States or any political subdivision thereof or therein;

- an estate the income of which is subject to U.S. federal income taxation
regardless of source; or

- a trust if (a) a U.S. court is able to exercise primary supervision over
the administration of the trust and one or more U.S. persons has the
authority to control all substantial decisions of the trust or (b) the
trust was in existence on August 20, 1996 and properly elected to
continue to be treated as a U.S. person.

Given the nature of the Company's investment activities, the Company
believes that a non-U.S. member generally should not be subject to regular U.S.
federal income taxation on his, her or its allocable share of Company income
where such member's nexus with the U.S. is solely a result of an investment in
Units. No prohibition exists on the nature of investment activities of Private
Funds in which the Company invests, and thus no assurances can be given in this
regard. Company allocations of dividends and certain interest income to non-U.S.
members will be subject to U.S. withholding tax of 30% (unless reduced or
eliminated by an applicable treaty).

If, contrary to the Company's expectations, the Company were treated as
being engaged in a U.S. trade or business, then each non-U.S. member generally
would be subject to regular U.S. federal income taxation on his, her or its
allocable share of Company income. In such case, each non-U.S. member would be
required to file a U.S. federal income tax return reporting his, her or its
allocable share of Company income and to pay U.S. federal income tax at regular
U.S. rates on that income. In addition, the Company would be required to

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withhold and pay over to the IRS certain amounts with respect to such income.
Any amount so withheld would be creditable against the non-U.S. member's
ultimate U.S. federal income tax liability, and the non-U.S. member would be
entitled to a refund to the extent that the amount withheld exceeded such
member's U.S. federal income tax liability for the tax-able year. Finally, a
corporate non-U.S. member's allocable share of Company income may be subject to
a 30% U.S. branch profits tax.

Different rules from those described above apply in the case of non-U.S.
members subject to special treatment under U.S. federal income tax law,
including a non-U.S. member:

- who has an office or fixed place of business in the U.S. or is otherwise
carrying on a U.S. trade or business;

- who is an individual present in the U.S. for 183 or more days or has a
"tax home" in the U.S. for U.S. federal income tax purposes;

- who is a former citizen or resident of the U.S.; or

- that is a controlled foreign corporation, a foreign insurance company
that holds Units in connection with a U.S. trade or business, a foreign
personal holding company or a corporation that accumulates earnings to
avoid U.S. federal income tax.

NON-U.S. MEMBERS ARE URGED TO CONSULT THEIR U.S. TAX ADVISERS REGARDING THE
TAX CONSEQUENCES OF INVESTING IN THE COMPANY.

STATE, LOCAL AND NON-U.S. TAX CONSEQUENCES. In addition to the federal
income tax consequences described above, the members, as well as the Company
itself and the entities in which the Company invests, may be subject to various
state, local and non-U.S. taxes. A member's allocable share of Company income,
gain, loss, deduction and expense may be required to be included in determining
such member's reportable income for state, local and non-U.S. tax purposes. In
addition, state, local and non-U.S. taxation of Company tax items may differ
from the treatment of such items for federal income tax purposes.

The Investment Adviser has sole and absolute discretion to file or not to
file composite, group or similar state, local and non-U.S. tax returns on behalf
of the members (where and to the extent permissible under applicable law). If
the Investment Adviser decides to make any such composite, group or similar
filing, such a filing would eliminate a member's filing requirement in such a
jurisdiction arising by reason of an investment in the Company. Each member will
be required to execute any relevant documents (including a power of attorney
authorizing such a filing), to furnish any relevant information and otherwise to
do anything necessary in order to facilitate any such composite, group or
similar filing. Any taxes paid by the Company in connection with any such
composite, group or similar filing will be treated as an advance to the relevant
members (with interest being charged thereon) and will be recouped by the
Company out of any distributions subsequently made to the relevant members. Such
advances may be funded by the Investment Adviser or an affiliate thereof (with
interest thereon). Both the deduction for interest payable by the Company to the
Investment Adviser (or an affiliate thereof) with respect to such advances, and
the corresponding income from interest received by the Company from the relevant
members, will be specially allocated to such members, and such interest expense
may be subject to limitations on deductibility (see "Investment Interest
Limitation" above). Such taxes may be higher or lower than what a member's
state, local or non-U.S. tax liability would be in the absence of such a
composite, group or similar filing.

PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISERS WITH RESPECT
TO THE STATE, LOCAL AND NON-U.S. TAX CONSEQUENCES OF ACQUIRING, HOLDING AND
DISPOSING OF UNITS.

ERISA CONSIDERATIONS

GENERAL

The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and Section 4975 of the Internal Revenue Code of 1986, as amended (the "Code"),
impose certain restrictions on (a) employee

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benefit plans (as defined in Section 3(3) of ERISA) that are subject to Title I
of ERISA, (b) plans (as defined in Section 4975(e)(1) of the Code) that are
subject to Section 4975 of the Code, including individual retirement accounts or
Keogh plans, (c) any entities whose underlying assets include plan assets by
reason of a plan's investment in such entities (each of (a), (b) and (c), a
"Plan") and (d) persons who have certain specified relationships to Plans
("Parties in Interest" under ERISA and "Disqualified Persons" under the Code).
Moreover, based on the reasoning of the United States Supreme Court in John
Hancock Life Ins. Co. v. Harris Trust and Sav. Bank, 114 S. Ct. 517 (1993), an
insurance company's general account may be deemed to include assets of the Plans
investing in the general account (e.g., through the purchase of an annuity
contract), and such insurance company might be treated as a Party in Interest
with respect to a Plan by virtue of such investment. ERISA also imposes certain
duties on persons who are fiduciaries of Plans subject to ERISA, and ERISA and
Section 4975 of the Code prohibit certain transactions between a Plan and
Parties in Interest or Disqualified Persons with respect to such Plan.
Violations of these rules may result in the imposition of excise taxes and other
penalties and liabilities under ERISA and the Code.

The United States Department of Labor (the "DOL") has promulgated a
regulation, 29 C.F.R. sec.2510.3-101 (the "Plan Assets Regulation") describing
what constitutes the assets of a Plan with respect to the Plan's investment in
an entity for purposes of the fiduciary responsibility provisions of Title I of
ERISA and Section 4975 of the Code. Under the Plan Assets Regulation, if a Plan
invests in an "equity interest" of an entity that is neither a "publicly offered
security" nor a security issued by an investment company registered under the
Investment Company Act, the Plan's assets are deemed to include both the equity
interest itself and an undivided interest in each of the entity's underlying
assets, unless it is established that the entity is an "operating company" or
that equity participation by "benefit plan investors" is not "significant."

The Units will most likely be deemed "equity interests" in the Company for
purposes of the Plan Assets Regulation; the Company will not be registered under
the Investment Company Act; and it is not likely that the Company will qualify
as an "operating company" for purposes of the Plan Assets Regulation. Therefore,
if equity participation in the Units by Benefit Plan Investors (as defined
below) is "significant" within the meaning of the Plan Assets Regulation, the
assets of the Company could be deemed to be the assets of Plans investing in the
Units. If the assets of the Company were deemed to constitute the assets of an
investing Plan, (i) transactions involving the assets of the Company could be
subject to the fiduciary responsibility and prohibited transaction provisions of
ERISA and Section 4975 of the Code, (ii) the assets of the Company could be
subject to ERISA's reporting and disclosure requirements and (iii) the fiduciary
causing the Plan to make an investment in the Units could be deemed to have
delegated its responsibility to manage the assets of the Plan.

Under the Plan Assets Regulation, equity participation in an entity by
Benefit Plan Investors is "significant" on any date if, immediately after the
most recent acquisition of any equity interest in the entity, 25% or more of the
value of any class of equity interest in the entity is held by Benefit Plan
Investors (the "25% Limitation"). The term "Benefit Plan Investor" is defined to
include any (i) "employee benefit plan" (as defined in Section 3(3) of ERISA),
whether or not subject to Title I of ERISA, including without limitation
governmental plans, foreign pension plans and church plans, (ii) "plan" (as
defined in Section 4975(e)(1) of the Code), whether or not subject to Section
4975 of the Code, including without limitation individual retirement accounts
and Keogh plans or (iii) entity whose underlying assets include plan assets by
reason of such an employee benefit plan's or plan's investment in such entity,
including without limitation, as applicable, an insurance company general
account. For purposes of making determinations under the 25% Limitation, (i) the
value of any equity interests held by a person (other than a Benefit Plan
Investor) that has discretionary authority or control with respect to the assets
of the entity or that provides investment advice for a fee (direct or indirect)
with respect to such assets, or any affiliate of such a person (each such person
or affiliate, a "Controlling Person"), is disregarded and (ii) only the
proportion of an insurance company general account's equity investment in the
entity that represents plan assets is taken into account.

RESTRICTIONS ON PURCHASE FOR PURPOSES OF THE 25% LIMITATION

The Company intends to limit equity participation in the Company by Benefit
Plan Investors to less than 25% of the Units. In order to effect this
limitation, each prospective purchaser of the Units will be required to
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make certain representations and agree to additional transfer restrictions. No
Units will be sold to prospective purchasers that have represented that they are
Benefit Plan Investors or Controlling Persons to the extent that such sale would
result in Benefit Plan Investors owning 25% or more of the Units (excluding any
Units held by Controlling Persons that are not Benefit Plan Investors). In
addition, as a condition to the transfer of Units after the initial offering
thereof, each prospective transferee will be required to make a representation
as to whether such transferee is a Benefit Plan Investor or Controlling Person,
and the Company will not register the transfer of such Units to persons that
have represented that they are Benefit Plan Investors or Controlling Persons to
the extent such transfer would result in Benefit Plan Investors owning 25% or
more of the Units (excluding any Units held by Controlling Persons that are not
Benefit Plan Investors) and such transfer shall be null and void.

SPECIAL CONSIDERATIONS APPLICABLE TO INSURANCE COMPANY GENERAL ACCOUNTS

Any purchaser that is an insurance company using the assets of an insurance
company general account should note that the Small Business Job Protection Act
of 1996 added new Section 401(c) of ERISA relating to the status of the assets
of insurance company general accounts under ERISA and Section 4975 of the Code.
Pursuant to Section 401(c), the Department of Labor issued final regulations
effective January 5, 2000 (the "General Account Regulations"), with respect to
insurance policies issued on or before December 31, 1998, that are supported by
an insurer's general account. As a result of these regulations, assets of an
insurance company general account will not be treated as "plan assets" for
purposes of the fiduciary responsibility provisions of ERISA and Section 4975 of
the Code to the extent such assets relate to contracts issued to employee
benefit plans on or before December 31, 1998 and the insurer satisfies various
conditions. Section 401(c) also provides that, except in the case of avoidance
of the General Account Regulation and actions brought by the Secretary of Labor
relating to certain breaches of fiduciary duties that also constitute breaches
of state or federal criminal law, until the date that is 18 months after the
General Account Regulations becomes final, no liability under the fiduciary
responsibility and prohibited transaction provisions of ERISA and Section 4975
of the Code may result on the basis of a claim that the assets of the general
account of an insurance company constitute the "plan assets" of any such plan.
The plan asset status of insurance company separate accounts is unaffected by
new Section 401(c) of ERISA, and separate account assets continue to be treated
as the plan assets of any such plan invested in a separate account. Purchasers
acting on behalf of an insurance company general account should note that for
purposes of determining compliance with the 25% Limitation, unless otherwise
agreed to in writing by the Company, 100% of the Units held by or on behalf of
an insurance company general account will be deemed to be held by a Benefit Plan
Investor.

ADDITIONAL PLAN INVESTMENT CONSIDERATIONS

Prior to making an investment in the Units, prospective Plan investors
should consult with their legal advisers concerning the impact of ERISA and the
Code and the potential consequences of such investment with respect to their
specific circumstances. Moreover, each Plan fiduciary should take into account,
among other considerations, whether the fiduciary has the authority to make the
investment; whether the investment constitutes a direct or indirect transaction
with a Party in Interest or Disqualified Person; the composition of the Plan's
portfolio with respect to diversification by type of asset; the Plan's funding
objectives; the tax effects of the investment; and whether under the general
fiduciary standards of investment prudence and diversification an investment in
the Units is appropriate for the Plan, taking into account the overall
investment policy of the Plan and the composition of the Plan's investment
portfolio.

Governmental plans, foreign pension plans and certain church plans are not
generally subject to the fiduciary responsibility provisions of ERISA or the
provisions of Section 4975 of the Code. However, such plans are deemed to be
"Benefit Plan Investors" within the meaning of the Plan Assets Regulation and
are subject to the 25% Limitation described herein.

The sale of any Units to a Plan is in no respect a representation by the
Company that such an investment meets all relevant legal requirements with
respect to investments by Plans generally or any particular Plan, or that such
an investment is appropriate for Plans generally or any particular Plan.
59
<PAGE> 60

DESCRIPTION OF UNITS

The Company has been formed as a Delaware limited liability company and as
such is governed by Delaware law and an operating agreement (the "Operating
Agreement") that defines many of the rights and responsibilities of the Board of
Managers and members. A copy of the form of Operating Agreement is attached
hereto as Appendix B. Investors will become members of the Company, which will
establish a capital account for each member. Your capital contribution and your
share of items of income and gain will be credited to your capital account and
your distributions and your share of items of loss, deduction and expense will
be debited from your capital account. See "Capital Accounts, Allocations and
Distributions." The fiscal year of the Company ends on October 31.

SUMMARY OF LIMITED LIABILITY COMPANY OPERATING AGREEMENT

The Operating Agreement governs the relationships, rights, and obligations
of the investors in the Company. The following is intended only as a summary of
certain provisions of the Operating Agreement not discussed elsewhere in this
prospectus. The Operating Agreement is subject to the provisions of the
Investment Company Act. The statements made herein do not purport to be complete
and are qualified by reference to the Operating Agreement. Prospective investors
should study the entire Operating Agreement before signing the Subscription
Agreement.

Fund Capital. Except as specifically provided in the Operating Agreement,
no investor is entitled to interest on any capital contribution to the Company
or on such investor's capital account. Except as otherwise provided in the
Operating Agreement, no investor has the right to withdraw, or to receive any
return of, such investor's capital contribution. No investor is required to make
any additional capital contributions to the Company beyond the amount of the
investor's subscription. See "Liability of Members" below.

Voting Rights of Investors. Investors cannot participate in the management
or control of the Company. However, the Operating Agreement provides that,
subject to certain conditions described below, the investors may vote on or
approve certain Company matters. Upon notification to the Company, investors may
obtain a list of the names and addresses (if known) of all of the investors for
a purpose reasonably related to such investor's interest as an investor in the
Company.

Subject to the provisions described below, the investors may: (i) approve
and elect and for cause disapprove and remove the members of the Board of
Managers; (ii) approve or disapprove proposed changes in the nature of the
Company's business so as to cause the Company to cease to be, or to withdraw its
election as, a BDC under the Investment Company Act; (iii) to the extent
required by the Investment Company Act, approve or disapprove any proposed
investment advisory contract or disapprove and terminate any such existing
contract; provided, however, that such contracts are also approved by a majority
of the members of the Board of Managers who are not parties to such contract or
"interested person" of any such party as such term is defined in the Investment
Company Act; (iv) to the extent required by the Investment Company Act, ratify
or reject the appointment of the independent accountants of the Company; (v) to
the extent required by the Investment Company Act, terminate the Company's
independent accountants; (vi) extend the time of termination and dissolution of
the Company, subject to the approval of a majority of the disinterested
managers; (vii) to the extent required by the Investment Company Act, consent to
the dissolution of the Company; (viii) select a liquidator in certain limited
circumstances; (ix) approve certain limited amendments to the Operating
Agreement; and (x) approve any other matters related to the business of the
Company that the Investment Company Act requires to be approved by the investors
so long as the Company is a BDC subject to the provisions of the Investment
Company Act; provided, however, that, prior to the exercise of any such right of
approval, the Board of Managers amend the Operating Agreement to reflect such
additional voting right.

Restrictions. The Operating Agreement may limit or restrict Members and
their affiliates from owning securities in, holding certain positions with or
performing certain services for media or common carrier companies in which the
Fund has acquired or is proposing to acquire any direct or indirect interest, if
such activities would result in a violation of the Communications Act of 1934 or
of the regulations of the Federal Communications Commission. Such restrictions
could prohibit members from obtaining employment with, or
60
<PAGE> 61

for, a media or common carrier company. Prospective investors are urged to
carefully read these restrictions in the Operating Agreement.

Transferability of Units. A member may transfer Units only by operation of
law pursuant to the death, bankruptcy, insolvency or dissolution of the member
or otherwise, or with the written consent of the Company (which it may withhold
in its sole and absolute discretion and will grant, if at all, only in
extenuating circumstances) or in connection with a transfer to a family trust or
another entity that does not result in a change of beneficial ownership. Any
permitted transferees will not, however, be allowed to become substituted
members in the Company without the consent of the Company, which consent may be
withheld in its sole and absolute discretion. No member will have the right to
require the Company to redeem his, her or its Units. In addition, none of the
Company, the Investment Adviser or the Investment Sub-Adviser (or any of their
respective affiliates) will make offers to repurchase Units, and Units will not
be traded on any securities exchange or other market.

The issuance of Units is not subject to any preemptive rights, redemption
rights or sinking fund and Units are not convertible into any other security of
the Company.

OUTSTANDING SECURITIES AS OF SEPTEMBER 6, 2000

<TABLE>
<CAPTION>
(1) (2) (3) (4)
AMOUNT
AMOUNT HELD BY OUTSTANDING
REGISTRANT EXCLUSIVE OF AMOUNT
TITLE OF CLASS AMOUNT AUTHORIZED OR FOR ITS ACCOUNT SHOWN UNDER(3)
-------------- ----------------- ------------------ -------------------
<S> <C> <C> <C>
Units of Membership Interest Unlimited 0 1
</TABLE>

LIABILITY OF MEMBERS

You will not be liable for any obligations of the Company in excess of your
capital account balance, plus your share of undistributed profits. If, however,
you receive a distribution from the Company, and, after such distribution, the
liabilities of the Company exceed the fair value of the Company's assets (and
you had knowledge of this fact at the time of the distribution), you may be
required to return such distribution to the Company. The Company has no
intention of making such a distribution. You will not have the right to a return
of your capital contribution except in accordance with the distribution
provisions of the Operating Agreement.

DUTY OF CARE

The Operating Agreement provides that the members of the Board of Managers
shall not be personally liable to the Company for the debts, obligations or
liabilities of the Company; obligated to cure any deficit in any capital
account; required to return all or any portion of any capital contribution; or
required to lend any funds to the Company. The Operating Agreement also provides
that no member of the Board of Managers, appropriate officer, member, investment
adviser, distributor or selling agent of or for the Units of the Company, or any
of their respective affiliates, shareholders, partners, officers, directors,
members, employees, agents and representatives shall have any liability,
responsibility, or accountability in damages or otherwise to any member or the
Company for any action or inaction on the part of the Company or otherwise in
connection with the business or affairs of the Company or any Portfolio Company.
The Operating Agreement contains provision for the indemnification, to the
extent permitted by law, of the Board of Managers, appropriate officers,
members, investment advisers, distributor or selling agent and any of their
respective affiliates, shareholders, partners, officers, directors, members,
employees, agents and representatives by the Company, but not by the members
individually, against any liability and expense to which any of them may become
liable which arises out of or in connection with the performance of their
activities on behalf of the Company. The rights of indemnification and
exculpation provided under the Operating Agreement do not provide for
indemnification against any liability to which the indemnified person would
otherwise be subject to as a result of their willful misfeasance, bad faith,
gross negligence or reckless disregard of their duties under the Operating
Agreement.

61
<PAGE> 62

AMENDMENT OF THE OPERATING AGREEMENT

Subject to the requirements of the Investment Company Act, the Board of
Managers may adopt amendments without a vote of the members provided such
amendments do not impair the limited liability of the members, adversely affect
the tax status of the Company as a partnership or increase the amounts
distributed to the investment advisers while decreasing the amounts distributed
to other members.

Amendments to the Operating Agreement may be proposed by any manager, the
Investment Adviser or by members owning in the aggregate, at least 10% of the
outstanding Units. The person or persons proposing such amendments must submit
to the Board of Managers (i) the text of the amendment, (ii) the purpose of the
amendment, and in the case of proposals by members, (iii) an opinion of counsel
reasonably acceptable to the Board of Managers that the proposed amendment is
permitted by the Investment Company Act, the Delaware Limited Liability Company
Act, applicable state and federal laws, and that the proposed amendment will not
impair the limited liability of the members or adversely affect the
classification of the Company as a partnership for federal income tax purposes.

To the extent required by the Investment Company Act, the Board of Managers
shall submit all proposals validly presented to the Board of Managers to the
members for a vote. Proposals approved by the Board of Managers will be adopted
with the affirmative vote of a majority of the members, proposals which do not
have the approval of the Board of Managers require the vote of more than 67% of
the members for adoption.

POWER OF ATTORNEY

By purchasing an interest in the Company, each member will appoint each
member of the Board of Managers and appropriate officers of the Company his or
her attorney-in-fact for purposes of filing required certificates and documents
relating to the formation and continuation of the Company as a limited liability
company under Delaware law or signing instruments effecting authorized changes
in the Company or the Operating Agreement or conveyances and other instruments
deemed necessary to effect the dissolution or termination of the Company.

The power-of-attorney is a special power-of-attorney coupled with an
interest and as such is irrevocable and continues in effect until expressly
withdrawn or the investor ceases to be a member subject to and in accordance
with the Operating Agreement.

TERM, DISSOLUTION AND LIQUIDATION

The Company will be dissolved:

- on the tenth anniversary of the Termination Date, provided that the Board
of Managers may extend termination for up to two additional periods of up
to two years each; provided further, that termination may be extended to
any later date with the approval of members holding at least two-thirds
of the total number of votes eligible to be cast;

- upon election by the Board of Managers and subject, to the extent
required by the Investment Company Act, to the consent of the members;

- upon the voluntary bankruptcy, liquidation or other dissolution of the
Company;

- on the sale or other disposition at any one time of all or substantially
all of the assets of the Company; or

- as required by operation of law.

Upon the occurrence of any event of dissolution, the Investment Adviser, or
a liquidator appointed by the Board of Managers, will be charged with winding up
the affairs of the Company and liquidating its assets. Items of income, gain,
loss, deduction and expense during the fiscal period including the period of
liquidation will be allocated as described in the section titled "Capital
Accounts, Allocations and Distributions."

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<PAGE> 63

Upon the dissolution of the Company, its assets are to be distributed (1)
first to satisfy the debts, liabilities and obligations of the Company, other
than debts to members including actual or anticipated liquidation expenses, (2)
next to satisfy debts owing to members and (3) finally to members and the
Investment Adviser proportionately in accordance with the balances in their
respective capital accounts. Assets may be distributed in kind on a pro rata
basis if the Investment Adviser or liquidator determines that such a
distribution would be in the interests of the members in facilitating an orderly
liquidation.

SELLING ARRANGEMENTS

DISTRIBUTOR

Units are offered for sale by Charles Schwab & Co., Inc., a registered
broker-dealer and the Company's distributor. Charles Schwab & Co., Inc. is a
member of the Securities Investor Protector Corporation and New York Stock
Exchange. The Distributor is an indirect, wholly owned subsidiary of The Charles
Schwab Corporation, the parent company of U.S. Trust Corporation and an
affiliate of the Investment Adviser and Investment Sub-Adviser. The Distributor
has entered into a Distribution Agreement with the Company pursuant to which the
Distributor has agreed to act as the principal distributor for the Units. This
agreement is an agency agreement only and places the Distributor under no
obligation to use its best efforts to sell the Units or otherwise solicit or
promote transactions in such Units. The Distributor will not at any time
purchase any Units for its own account and its sole function is to promote the
sale of the Company's Units. The Distributor is located at 101 Montgomery
Street, San Francisco, California 94101.

The Investment Adviser or an affiliate will pay the Distributor from its
own assets an amount equal to 0.02% of the total of all subscriptions received
in this offering. Pursuant to the Distribution Agreement, the Distributor may
enter into agreements with one or more financial intermediaries relating to the
purchase of Units through such Selling Agents acting as brokers or agents for
their customers. 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 through the fifth anniversary of
the final subscription closing date of 0.45% of the average quarterly net asset
value of all outstanding Units held by investors introduced to the Company by
the Distributor 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.

The Company has agreed to indemnify the Distributor and each Selling Agent
who enters into a selling agent agreement against certain civil liabilities,
including liabilities under the federal securities laws. However, such
indemnification is subject to the provisions of Section 17(i) of the Investment
Company Act which provides, in part, that no agreement shall contain a provision
which protects or purports to protect any principal underwriter against any
liability to the Company or its security holders to which such principal
underwriter would otherwise be subject by reason of willful misfeasance, bad
faith, or gross negligence in the performance of its duties, or by reason of its
reckless disregard of its obligations and duties under such agreement.

LEGAL MATTERS

The validity of the Units offered hereby will be passed upon for the
Company by Skadden, Arps, Slate, Meagher & Flom LLP, Boston, Massachusetts.

INDEPENDENT AUDITORS

The Statement of Assets and Liabilities of the Company included in this
prospectus has been audited by Ernst & Young, LLP, independent certified public
accountants, as stated in their report included herein, and is included herein
in reliance upon such report given on their authority as experts in auditing and
accounting. Ernst & Young, LLP is located at 787 Seventh Avenue, New York, New
York 10019.

63
<PAGE> 64

AVAILABLE INFORMATION

The Company is required to file reports, including quarterly and annual
reports, with the Securities and Exchange Commission. Information about the
Company can be reviewed and copied at the Securities and Exchange Commission's
Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for information on
the operation of the public reference room. This information is also available
on the Securities and Exchange Commission's Internet site at http://www.sec.gov
and copies may be obtained upon payment of a duplicating fee by writing the
Public Reference Section of the SEC, Washington, D.C. 20549-6009.

Investors should rely only on the information contained in this prospectus.
The Company has not authorized any other person to provide investors with
different information. If anyone provides you with different or inconsistent
information, you should not rely on it. Neither the Company, the Distributor or
any selling agent is making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. Investors should assume
that the information appearing in this prospectus is accurate as of the date on
the front cover of this prospectus only. The Company's business, financial
condition, results of operations and prospectus may have changed since that
date.

REPORTS TO MEMBERS

The Company will furnish to its members annual reports containing audited
financial statements and such other periodic reports as it may determine to
furnish or as may be required by law. The Company does not intend to hold annual
meetings of its Unitholders.

FINANCIAL STATEMENTS

The following comprise the financial statements of the Company:

- Report of Independent Auditors;

- Statement of Assets and Liabilities; and

- Notes to Financial Statements.

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<PAGE> 65

REPORT OF INDEPENDENT AUDITORS

To the Members and Board of Directors
Excelsior Venture Partners III, LLC

We have audited the accompanying statement of assets and liabilities of
Excelsior Venture Partners III, LLC (the "Fund") as of July 28, 2000. This
financial statement is the responsibility of the Fund's management. Our
responsibility is to express an opinion on this financial statement based on our
audit.

We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, the financial statement referred to above presents fairly,
in all material respects, the financial position of Excelsior Venture Partners
III, LLC at July 28, 2000, in conformity with accounting principles generally
accepted in the United States.

ERNST & YOUNG LLP

New York, New York
July 31, 2000

65
<PAGE> 66

EXCELSIOR VENTURE PARTNERS III, LLC

STATEMENT OF ASSETS AND LIABILITIES
JULY 28, 2000

<TABLE>
<S> <C>
ASSETS:
Cash...................................................... $ 500
Deferred offering costs................................... 1,356,200
----------
TOTAL ASSETS........................................... 1,356,700
==========
LIABILITIES:
Offering costs payable.................................... 1,356,200
----------
TOTAL LIABILITIES...................................... 1,356,200
----------
NET ASSETS.................................................. $ 500
==========
MEMBERSHIP INTERESTS OUTSTANDING............................ 1
==========
NET ASSET VALUE PER UNIT.................................... $ 500
----------
NET ASSETS CONSISTED OF THE FOLLOWING AT JULY 28, 2000:
Paid-in capital........................................... $ 500
----------
NET ASSETS............................................. $ 500
==========
</TABLE>

Notes to Financial Statements are an integral part of this Statement.
66
<PAGE> 67

EXCELSIOR VENTURE PARTNERS III, LLC

NOTES TO FINANCIAL STATEMENTS

NOTE 1 -- ORGANIZATION

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, and which has
registered its securities for sale under the Securities Act of 1933. The Company
was established as a Delaware limited liability company on February 18, 2000 and
maintains a fiscal year end of October 31. The Company is authorized to offer an
unlimited number of units of membership interests ("units") with no par value.
The minimum subscription is $100,000.

Certain costs incurred and to be incurred in connection with the initial
offering of shares of the Company are estimated at $1,356,200. Each member's
share of these costs will be deducted from his or her capital contribution on or
shortly after the final subscription closing. The Company has no operations to
date, other than the sale to David Fann, President and Co-CEO of the Company, of
one unit on July 7, 2000.

NOTE 2 -- OFFERING COSTS

The Company estimates incurring offering expenses of $1,356,200, comprised
of $1,025,000 for legal and consulting, $30,000 for printing, $50,000 for
advertising and marketing, $231,200 in registration, and $20,000 in other
offering costs.

NOTE 3 -- CONTINGENT LIABILITIES

The Company has entered into an agreement with Charles Schwab & Co., Inc.
("Schwab" or the "Distributor") whereby Schwab will pay the organization
expenses of the Company if the Company receives less than $300,000,000 in
subscriptions from its initial public offering of units. In the event the
Company does receive subscriptions totaling $300,000,000 or more, the Company
will pay its own organization expenses, and each member's share of these costs
will be deducted from his or her initial capital contribution on or shortly
after the final subscription closing. The Company estimates organization
expenses to be $50,000, comprised of $10,000 for audit fees and $40,000 for
legal and consulting fees.

NOTE 4 -- AGREEMENTS

In return for its services and expenses which the Investment Adviser
assumes under the Investment Advisory Agreement, the Company will pay the
Investment Adviser, 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 final closing date and 1.00% of net assets thereafter. 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 all direct investments determined net of cumulative
realized and unrealized losses on all investments of any type and of cumulative
net expenses of the Company. The Incentive Carried Interest will be determined
annually as of the end of each calendar year.

Pursuant to an Administrative, Accounting and Investor Services Agreement,
the Company retains PFPC Inc. ("PFPC"), an indirect majority-owned subsidiary of
PNC Financial Services Group Inc. f/k/a PNC Bank Corp., as Administrator. In
addition, PFPC Trust Company serves as the Fund's custodian, and PFPC serves as
transfer agent.

The Investment Adviser or an affiliate will pay the Distributor from its
own assets an amount equal to 0.02% of the total of all subscriptions received
in this offering. Pursuant to the Distribution Agreement, the Distributor may
enter into agreements with one or more financial intermediaries ("Selling
Agents") relating to the purchase of units through such Selling Agents acting as
brokers or agents for their customers. 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 this offering.

67
<PAGE> 68

TABLE OF CONTENTS OF THE
STATEMENT OF ADDITIONAL INFORMATION

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Capital Accounts, Allocations and Distributions............. B-2
Frequently Asked Questions.................................. B-3
</TABLE>

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<PAGE> 69

APPENDIX A

RESIDENTS OF THE FOLLOWING STATES MUST MEET THE
SUITABILITY STANDARDS AS SET FORTH BELOW

ARIZONA

Arizona residents must represent in writing that their investment in Units
of the Company does not represent more than ten percent of their net worth less
the value of their investments in limited partnership interests and must have
one of the following: (a) an annual gross income of at least $75,000 and a net
worth of at least $75,000 exclusive of home, car and home furnishings; (b) a net
worth of at least $225,000 exclusive of home, car and home furnishings; or (c)
in the case of sales to qualified pension or profit sharing plans or trusts,
Keogh plans or individual retirement accounts, that the net worth and income
requirements set forth in items (a) or (b) of this paragraph are met by the
fiduciary account or by the donor who directly or indirectly supplies the monies
for the purchase of the securities.

MINNESOTA

To invest in Units of the Company, Minnesota residents must qualify as an
accredited investor as that term is defined pursuant to Rule 501 of the
Securities Act of 1933, as amended.

NEBRASKA

To invest in Units of the Company, Nebraska residents must meet one of the
following: (a) individual annual taxable income of at least $200,000 in each of
the two most recent years or joint income with spouse in excess of $300,000 in
each of the two most recent years and a reasonable expectation of reaching the
same income level in the current year; or (b) individual or joint net worth with
spouse of at least $1,000,000.

NEW HAMPSHIRE

To invest in Units of the Company, New Hampshire residents must meet one of
the following: (a) annual taxable income of at least $50,000 and a net worth
exclusive of home, car and home furnishings of at least $125,000; or (b) a net
worth exclusive of home, car and home furnishings of at least $250,000.

OKLAHOMA

To invest in Units of the Company, Oklahoma residents must qualify as an
accredited investor as that term is defined pursuant to Rule 501 of the
Securities Act of 1933, as amended.

TEXAS

To invest in Units of the Company, Texas residents must qualify as an
accredited investor as that term is defined pursuant to Rule 501 of the
Securities Act of 1933, as amended.

WEST VIRGINIA

To invest in Units of the Company, West Virginia residents must meet one of
the following: (a) individual annual taxable income of at least $200,000 in each
of the two most recent years or joint income with spouse in excess of $300,000
in each of the two most recent years and a reasonable expectation of reaching
the same income level in the current year; or (b) individual or joint net worth
with spouse of at least $1,000,000.
<PAGE> 70

APPENDIX B

LIMITED LIABILITY COMPANY OPERATING AGREEMENT
OF
EXCELSIOR VENTURE PARTNERS III, LLC

This LIMITED LIABILITY COMPANY OPERATING AGREEMENT (the "Agreement") of
Excelsior Venture Partners III, LLC, a Delaware limited liability company (the
"Company"), is made as of the 26th day of May, 2000, by and among the initial
member and the other parties who shall hereafter be admitted as members and
whose names and addresses are listed from time to time as members on Schedule A
hereto as members (each, a "Member" and collectively, the "Members") and has
been executed for the purpose of providing for the operation of the Company
pursuant to the provisions of the Delaware Limited Liability Company Act.

Accordingly, in consideration of the mutual covenants contained herein, the
Members agree as follows:

ARTICLE I

DEFINITIONS

As used herein, the following terms shall have the following meanings and
all such terms which relate to accounting matters shall be interpreted in
accordance with generally accepted accounting principles in effect from time to
time except as otherwise specifically provided herein:

"Act" means the Delaware Limited Liability Company Act, as at any time now
existing or in the future.

"Adjusted Capital Account Deficit" shall mean, with respect to any Member,
the deficit balance, if any, in such Member's Capital Account as of the end of
the relevant Fiscal Period, after giving effect to the following adjustments:

(i) Credit to such Capital Account any amounts which such Member is
obligated to restore or is deemed to be obligated to restore pursuant to
Treasury Regulations under Section 704 of the Code; and

(ii) Debit to such Capital Account the items described in Treasury
Regulations Sections 1.704-l(b)(2)(ii)(d)(4), (5) and (6).

The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Treasury Regulations Section 1.704-l(b)(2)(ii)(d)
and shall be interpreted consistently therewith.

"Affiliate" shall mean an affiliated person, as that term is defined in the
Investment Company Act, of a Special Member and any officer, director, employee
or member of an investment committee of such affiliated person.

"Agreement" means this Limited Liability Company Operating Agreement as
originally executed and as amended, modified, supplemented or restated from time
to time.

"Applicable Rate" shall mean a rate per annum equal, at the time of
determination, to the sum of (i) the highest "prime rate" then published in the
"Money Rates" section of The Wall Street Journal or in such successor
publication as shall be acceptable to the Board of Managers and (ii) two percent
(2%).

"Appropriate Officer" means an officer of the Company appointed in
accordance with Section 4.7(d), who has not resigned, been removed or become
incapacitated.

"Attribution Rules" shall have the meaning specified in Section 3.21.

"Board of Managers" shall mean those natural persons who at any given time
are serving as Managers of the Company in accordance with this Agreement.

"Capital Accounts" shall have the meaning specified in Section 7.2.

"Capital Commitment" shall mean, for any Member, the amount set forth
opposite his, her or its name on Schedule A hereto, as amended from time to time
(i) to take account of Capital Contributions made by Members and (ii) as
otherwise provided in this Agreement.
<PAGE> 71

"Capital Contribution" shall mean with respect to any Member, the amount
contributed by such Member to the capital of the Company pursuant to this
Agreement.

"Capital Investment" shall mean, with respect to any Member, the Capital
Contribution of such Member net of the return to such Member by the Company of
any portion thereof.

"Closing" shall have the meaning specified in Section 7.1(a).

"Closing Date" shall have the meaning specified in Section 7.1(a).

"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time (or any corresponding provision of succeeding law).

"Communications Act" shall mean the Communications Act of 1934, as amended.

"Company" means Excelsior Venture Partners III, LLC, a Delaware limited
liability company.

"Company Expenses" means any expenses incurred by the Company during a
Fiscal Period including, but not limited to: fees and expenses of the Board of
Managers; fees and expenses of the Investment Adviser; expenses of registering
the Units for sale under federal and state securities laws and other expenses in
connection with the offering of the Units; interest; taxes; fees and expenses of
the Company's legal counsel and independent accountants; fees and expenses of
the Company's administrator, transfer agent and custodian; expenses of printing
and mailing Unit certificates (if any), reports to Members, notices to Members,
proxy statements; reports to regulatory bodies; brokerage and other expenses in
connection with the execution, recording and settlement of portfolio security
transactions; expenses in connection with the acquisition and disposition of
portfolio securities or the registration of privately issued portfolio
securities; costs of third party evaluations or appraisals of the Company (or
its assets) or its investments; expenses of membership in investment company and
other trade associations; expenses of fidelity bonding and other insurance
premiums; expenses of Members' meetings; fees payable to the National
Association of Securities Dealers, Inc. (the "NASD"), if any, in connection with
the offering of its Units; indemnification costs and expenses; fees and expenses
of counsel to the members of the Board of Managers that are not interested
persons of the Company (within the meaning of the Investment Company Act) and
all of the Company's other business and operating expenses.

"Direct Investments" means investments in domestic companies in which the
equity is closely held by company founders, management and/or a limited number
of investors, negotiated private investments in public companies and investments
in foreign companies in which the equity is closely held by company founders,
management and/or a limited number of investors.

"Disinterested Manager" shall mean any member of the Board of Managers that
is not an "interested person" of the Company as such term is defined in the
Investment Company Act, as the same may be amended from time to time.

"FCC" shall have the meaning specified in Section 3.21.

"Final Subscription Closing Date" shall mean the date of the final closing
of the offering of the Company's Units not later than December 31, 2000 or such
later date as determined by the Board of Managers.

"Fiscal Period" means the period commencing on the Closing Date, and
thereafter each period commencing on the day immediately following the last day
of the preceding Fiscal Period, and ending at the close of business on the first
to occur of the following dates:

(i) December 31 of such period; and

(ii) any other day as determined in the sole and absolute discretion
of the Board of Managers.

"Fiscal Year" means the period commencing on February 18, 2000 and ending
on the first October 31st following the Closing Date (or such earlier October
31st as the Appropriate Officers may determine), and thereafter each period
commencing on November 1st of each year and ending on October 31st of each year

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(or on the date of a final distribution pursuant to Section 13.2), unless the
Board of Managers shall designate another fiscal year for the Company.

"40 Act Majority of Members" means the lesser of (a) the holders of 67% or
more of the outstanding Units present at a meeting of Members at which the
holders of more than 50% of the outstanding Units are present in person or by
proxy or (b) more than 50% of the outstanding Units.

"Incentive Carried Interest" means, for any given Fiscal Period, an amount
equal to 20% of the excess, if any, of the cumulative amount of all capital
gains on Direct Investments realized by the Company from the commencement of
operations through the end of such Fiscal Period over the sum of:

(i) the cumulative amount of all capital losses on all investments of
any type realized by the Company from the commencement of operations
through the end of such Fiscal Period;

(ii) the excess, if any, of the aggregate amount of unrealized capital
depreciation on all Company investments of any type over the aggregate
amount of all unrealized capital appreciation on all Company investments of
any type, each as determined as of the close of such Fiscal Period; and

(iii) the excess, if any, of the cumulative amount of all expenses of
any type incurred by the Company over the cumulative amount of all income
of any type earned by the Company, in each case from the commencement of
operations through the end of such fiscal period.

"Indemnified Liabilities" shall have the meaning specified in Section
11.2(a).

"Indemnified Person" shall have the meaning specified in Section 11.2(a).

"Incapacity" shall mean as to any Person, the entry of an order for relief
in a bankruptcy proceeding ("bankruptcy"), entry of an order of incompetence or
insanity or the death, dissolution or termination (other than by merger or
consolidation), as the case may be, of such Person.

"Interest" shall mean a Member's rights and interest in the Company.

"Interested Manager" shall mean any member of the Board of Managers that is
an "interested person" of the Company as such term is defined in the Investment
Company Act, as the same may be amended from time to time.

"Investment Adviser" means any Person who is party to an Investment
Advisory Agreement with the Company.

"Investment Advisory Agreement" means any agreement between or among the
Company and any Person or Persons that provides for the provision of investment
advisory services by such Person to the Company and the payment therefor as in
effect from time to time.

"Investment Company Act" shall mean the Investment Company Act of 1940, as
amended.

"Investment Proceeds" shall have the meaning specified in Section 8.2.

"Majority in Interest of the Members" means Members who in the aggregate
own more than 50% of the outstanding Units.

"Manager" shall mean a member of the Board of Managers of the Company. Each
Manager shall be a manager within the meaning of the Act, afforded the
limitation of liability accorded to managers thereunder.

"Media or Common Carrier Company" shall have the meaning specified in
Section 3.21.

"Member" means any Person admitted to the Company as a member of the
Company pursuant to the provisions of this Agreement and named as a member of
the Company in the books and records of the Company, including any Person
admitted as a Substituted Member, in such Person's capacity as a member of the
Company. "Members" means two or more Persons acting in their capacity as members
of the Company.

"Net Loss" shall mean the net loss of the Company with respect to a Fiscal
Period, as determined for federal income tax purposes, provided that such loss
shall be decreased by the amount of all income during

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such period that is exempt from federal income tax and increased by the amount
of all expenditures made by the Company during such period that are not
deductible for federal income tax purposes and that do not constitute capital
expenditures.

"Net Profit" shall mean the net income of the Company with respect to a
Fiscal Period, as determined for federal income tax purposes, provided that such
income shall be increased by the amount of all income during such period that is
exempt from federal income tax and decreased by the amount of all expenditures
made by the Company during such period that are not deductible for federal
income tax purposes and that do not constitute capital expenditures.

"Nonrecourse Deductions" shall have the meaning set forth in Treasury
Regulations Section 1.704-2(b)(1).

"Nonrecourse Liability" shall have the meaning set forth in Treasury
Regulations Section 1.752-l(a)(2).

"Ownership Rules" shall have the meaning specified in Section 3.21.

"Partner Nonrecourse Debt" shall have the meaning set forth in Treasury
Regulations Section 1.704-2(b)(4).

"Partner Nonrecourse Debt Minimum Gain" shall have the meaning set forth in
Treasury Regulations Section 1.704-2(i)(2).

"Partner Nonrecourse Deductions" shall have the meaning set forth in
Treasury Regulations Section 1.704-2(i).

"Partnership Minimum Gain" shall have the meaning set forth in Treasury
Regulations Section 1.704-2(b)(2).

"Pass-Through Member" shall have the meaning set forth in Section 10.5.

"Permitted Transfer" shall have the meaning specified in Section 9.2(a).

"Person" means any natural person, individual, corporation, partnership,
trust, estate, limited liability company, custodian, unincorporated organization
or association or any other entity.

"Portfolio Companies" means any Person in which the Company makes an
investment, other than a Short-Term Investment.

"Portfolio Investments" means investments in Portfolio Companies and
Short-Term Investments.

"Prospectus" shall mean the prospectus of the Company as included in the
most recent effective registration statement of the Company under the Securities
Act of 1933, as amended, as such prospectus may be amended, supplemented or
modified from time to time.

"Regulatory Allocations" shall have the meaning set forth in Section
7.4(e).

"Short-Term Investments" means liquid investments in interest-bearing bank
accounts, money market mutual funds, U.S. treasury securities and/or
certificates of deposit, commercial paper and other short-term securities.

"Special Member" shall mean a Member admitted pursuant to Section 6.1.

"Subscription Agreement" means a contract for the purchase of Units.

"Substituted Member" means any Person admitted to the Company as a Member
pursuant to the provisions of Section 9.5 and shown as a Member in the books and
records of the Company.

"Supermajority of Members" means Members who in the aggregate own more than
67% of the outstanding Units.

"Tax Matters Member" shall have the meaning set forth in Section 10.5.

"Transfer" shall have the meaning specified in Section 9.2(a).
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"Treasury Regulations" shall mean the income tax regulations, including
temporary regulations, promulgated under the Code, as the same may be amended
hereafter from time to time (including corresponding provisions of succeeding
income tax regulations).

"Units" means the unlimited number of common equity interests of the
Company and are the increment by which Interests of Members other than the
Special Member are measured; and include fractions of Units as well as whole
Units. Units may be subdivided into such number of equal, undivisible shares as
the Appropriate Officers may determine.

ARTICLE II

GENERAL PROVISIONS

2.1 Formation. Excelsior Private Equity Fund III, LLC was formed as a
limited liability company under the laws of the State of Delaware by the filing
of the Certificate of Formation on the 18th day of February, 2000 pursuant to
the Act. The Company filed an Amended Certificate on the 26th day of April, 2000
changing the name of the Company to Excelsior Venture Partners III, LLC. Except
as expressly provided herein to the contrary, the rights and obligations of the
Members and the administration and termination of the Company shall be governed
by the Act.

2.2 Name. The name of the Company is "Excelsior Venture Partners III,
LLC." The name of the Company may be changed from time to time by the Board of
Managers.

2.3 Purpose. The Company has been formed initially, primarily for the
purpose of acting as a vehicle for collective investment, and may engage in any
legal activity whatsoever, without limitation. The Company is authorized and
empowered to elect to operate, and to operate, as a business development company
under the Investment Company Act.

2.4 Principal Place of Business. The Company shall maintain its office and
principal place of business at, and its business shall be conducted from, 114
West 47th Street, New York, New York 10036, or such place or places inside or
outside the United States as the Board of Managers may determine.

2.5 Registered Office and Registered Agent. The address of the Company's
registered office and registered agent for service of process in the State of
Delaware is The Corporation Trust Company, 1209 Orange Street, Wilmington, New
Castle County, Delaware 19801. The address of the Company's registered office
and registered agent for service of process in the State of Delaware of the
Company may be changed from time to time by the Board of Managers.

2.6 Term. The Company will terminate and dissolve as set forth herein on
the earlier of the tenth anniversary of the Final Subscription Closing Date, or
the dissolution prior thereto pursuant to the provisions hereof; provided,
however, that the Board of Managers may twice extend the time of termination and
dissolution beyond the tenth anniversary of the Final Subscription Closing Date,
with each such extension being for a period of not more than two years as
determined by the Board of Managers and, provided further, with the approval of
the Board of Managers, Members, by the vote of a Majority in Interest of the
Members, may extend the time of termination and dissolution of the Company to
any date.

2.7 Title to Company Property. All property owned by the Company, whether
real or personal, tangible or intangible, shall be owned by the Company as an
entity, and no Member or Manager, individually, shall have title to or any
interest in such property.

2.8 No State Law Partnership. The Members intend that the Company not be a
partnership (including a limited partnership) or joint venture and that no
Member or Manager be a partner or joint venturer of any other Member or Manager
for any purposes other than applicable tax laws. This Agreement may not be
construed to suggest otherwise. Notwithstanding the foregoing, the Members
intend that the Company shall be treated as a partnership for tax purposes.

2.9 No Liability of Members. All debts, obligations and liabilities of the
Company, whether arising in contract, tort or otherwise, shall be solely the
debts, obligations and liabilities of the Company, and no
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Member or Manager shall be obligated personally for any such debt, obligation or
liability of the Company solely by reason of being a Member or Manager.

ARTICLE III

MEMBERS; CAPITAL STRUCTURE; AND MEETINGS

3.1 Members. The name, address and Capital Commitment of each initial
Member is as set forth on Schedule A hereto. From time to time, the books and
records of the Company shall, and Schedule A hereto shall, be amended to reflect
the name, address and Capital Commitment of each Member (including, as permitted
by this Agreement, adding the name, address and Capital Contribution of each
additional Member who is admitted or becomes a Substituted Member pursuant to
the transfer of Interests and deleting the name, address and Capital Commitment
of Persons ceasing to be Members). The Members shall have the management and
voting rights set forth in this Agreement and provided under the Act and the
Investment Company Act and shall have all rights to any allocations and to any
distributions as may be authorized and set forth under this Agreement and under
the Act.

3.2 Capital Structure.

(a) Subject to the terms of this Agreement, the Company is authorized to
issue common equity interests in the Company designated as "Units," which shall
constitute an unlimited number of limited liability company interests under the
Act. Other than as set forth in this Agreement, each Unit shall be identical in
all respects with each other Unit. Units may be subdivided into such number of
equal, undivisible shares as the Appropriate Officers may determine. The
relative rights, powers, preferences, duties, liabilities and obligations of
Members shall be as set forth herein.

(b) The Company is authorized to issue Units to any Person at such prices
per Unit as may be determined by the Board of Managers or a duly authorized
committee thereof and in exchange for either capital contributions or the
provision of property, services or otherwise, as may be determined by the Board
of Managers. The number of Units issued to Members shall be listed in the
membership records of the Company, which shall be amended from time to time by
the Company as required to reflect issuances of Units to new Members, changes in
the number of Units held by Members and to reflect the addition or cessation of
Members. The number of Units held by each Member shall not be affected by any
(i) issuance by the Company of Units to other Members or (ii) change in the
Capital Account of such Member (other than such changes to reflect additional
Capital Contributions from such Member in exchange for new Units). Subject to
the requirements of the Investment Company Act, the Company is authorized to
issue options or warrants to purchase Units, restricted Units, Unit appreciation
rights, phantom Units and other securities convertible, exchangeable or
exercisable for Units, on such terms as may be determined by the Board of
Managers or a duly authorized committee thereof.

(c) In the sole discretion of the Board of Managers, the issued and
outstanding Units may be represented by certificates. In addition to any other
legend required with respect to a particular class, group or series of Units,
each such certificate shall bear the following legend:

THE UNITS REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO, AND MAY NOT
BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, ENCUMBERED, HYPOTHECATED OR
OTHERWISE DISPOSED OF WITHOUT COMPLYING WITH THE PROVISIONS OF THE
LIMITED LIABILITY COMPANY OPERATING AGREEMENT BY AND AMONG THE MEMBERS
OF EXCELSIOR VENTURES PARTNERS III, LLC (THE "COMPANY"), AS IT MAY BE
AMENDED FROM TIME TO TIME, A COPY OF WHICH IS ON FILE WITH THE
COMPANY. IN ADDITION TO THE RESTRICTIONS ON TRANSFER SET FORTH IN SUCH
AGREEMENT, NO TRANSFER OF THE INTERESTS REPRESENTED BY THIS
CERTIFICATE MAY BE MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND THE RULES AND REGULATIONS IN EFFECT THEREUNDER (THE "1933 ACT"),
AND ALL APPLICABLE STATE
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SECURITIES LAWS OR ALL APPLICABLE NON-U.S. SECURITIES LAWS OR (B) IF SUCH
TRANSFER IS PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE 1933 ACT AND PURSUANT TO SUCH EXEMPTION UNDER APPLICABLE STATE OR
NON-U.S. SECURITIES LAWS, THE HOLDER OF THIS CERTIFICATE, BY ACCEPTANCE OF
THIS CERTIFICATE, AGREES TO BE BOUND BY ALL OF THE PROVISIONS OF THE
AFORESAID AGREEMENT.

3.3 Changes to Capital Structure. Additional Persons may be admitted as
Members, and additional Units or other equity interests may be created and
issued from time to time; the terms of admission or issuance may provide for the
creation of different classes, groups or series of membership interests having
different rights, powers and duties, which rights, powers and duties may be
senior, pari passu or junior to the rights, powers and duties of the Units, as
determined by the Board of Managers. Any creation of any new class, group or
series of units or other equity interests shall be reflected in a supplemental
exhibit to this Agreement indicating such rights, powers and duties.

3.4 No Management Responsibility. No Member, in such capacity, shall
participate in the management or control of the business of or transact any
business for the Company, but may exercise the voting rights and powers of a
Member set forth in this Agreement. All management responsibility is vested in
the Board of Managers. The Members hereby consent to the taking of any action by
the Board of Managers, Appropriate Officers and the Special Member contemplated
under this Agreement or otherwise permitted under the Act.

3.5 No Authority to Act. No Member, in such capacity, shall have the power
to represent, act for, sign for, or bind the Company, except for the Special
Member to the extent expressly set forth herein. All authority to act on behalf
of the Company is vested in the Board of Managers, Appropriate Officers and the
Investment Adviser. The Members consent to the exercise by the Board of
Managers, Appropriate Officers and the Investment Adviser of the powers
conferred on them under this Agreement or otherwise permitted under the Act.

3.6 No Preemptive Rights. Holders of Units will have no preemptive rights
with respect to the issuance of any membership or other equity interest in the
Company or any other securities of the Company convertible into, or carrying
rights or options to purchase any such membership or other equity interest.

3.7 Redemption or Repurchase Rights. Except as otherwise provided in this
Agreement, the Company shall not redeem or repurchase any Member's Units and no
Member shall have the right to withdraw from the Company or to receive any
return of any Capital Commitment.

3.8 Member Meetings. Unless required by the Act or other applicable law,
the Company is not required to hold annual or other regular meetings of Members.
Special meetings of the Members may be called to consider any matter requiring
the consent of all or any of the Members pursuant to this Agreement and as
otherwise determined by the Board of Managers. Special meetings of the Members
may be called by the Board of Managers or by Members who are the holders of not
less than 66 2/3 % of the outstanding Units.

3.9 Place of Meetings. The Board of Managers may designate any place,
either within or outside of the State of Delaware, as the place of meeting for
any annual meeting or for any special meeting called by the Managers. If no
designation is made, or if a special meeting be otherwise called, the place of
meeting shall be the principal executive offices of the Company. Members may
participate in a meeting in person, by proxy or by means of a conference
telephone or similar communications equipment by which all persons participating
in the meeting can hear and speak to each other at the same time, and any such
participation in a meeting shall constitute presence in person of such Member at
such meeting.

3.10 Notice of Members' Meetings.

(a) Written notice stating the place, day and hour of the meeting and, in
case of a special meeting, the purpose for which the meeting is called shall be
delivered not less than ten days nor more than ninety days before the date of
the meeting, either personally, by facsimile, electronic mail or by postal mail,
by or at the direction of the Board of Managers or Members calling the meeting
to each Member of record entitled to vote at such meeting.

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(b) Notice to Members, if mailed by post, shall be deemed delivered as to
any Member when deposited in the United States mail, addressed to the Member,
with postage prepaid, but, if two successive letters mailed to the last-known
address of any Member are returned as undeliverable, no further notices to such
Member shall be necessary until another address for such Member is made known to
the Company. Notice to Members, if by facsimile or by electronic mail, shall be
deemed delivered upon receipt of a confirmation of transmission.

(c) At an adjourned meeting, the Company may transact any business which
might have been transacted at the original meeting without additional notice.

3.11 Waiver of Notice.

(a) When any notice is required to be given to any Member of the Company
under the provisions of this Agreement, a waiver thereof in writing signed by
the Person entitled to such notice, whether before, at, or after the time stated
therein, shall be equivalent to the giving of such notice.

(b) By attending a meeting, a Member:

(i) Waives objection to lack of notice or defective notice of such
meeting unless the Member, at the beginning of the meeting, objects to the
holding of the meeting or the transacting of business at the meeting; and

(ii) Waives objection to consideration at such meeting of a particular
matter not within the purpose or purposes described in the meeting notice
unless the Member objects to considering the matter when it is presented.

3.12 Record Dates. For the purpose of determining the Members who are
entitled to vote or act at any meeting or any adjournment thereof, or who are
entitled to participate in any distribution, or for the purpose of any other
action, the Managers may fix a date and time not more than ninety (90) days
prior to the date of any meeting of Members or other action as the date and time
of record for the determination of Members entitled to vote at such meeting or
any adjournment thereof or to be treated as Members of record for purposes of
such other action, and any Member who was a Member at the date and time so fixed
shall be entitled to vote at such meeting or any adjournment thereof or to be
treated as a Member of record for purposes of such other action, even though he
has since that date and time disposed of his Units, and no Member becoming such
after that date and time shall be so entitled to vote at such meeting or any
adjournment thereof or to be treated as a Member of record for purposes of such
other action.

3.13 Voting Record. The Person having charge of the membership records of
the Company shall make, at least two days before such meeting of Members, a
complete record of the Members entitled to vote at each meeting of Members or
any adjournment thereof, with the address of each. The record, for a period of
two days prior to such meeting, shall be kept on file at the principal executive
offices of the Company, and shall be subject to inspection by any Member for any
proper purpose germane to the meeting at any time during usual business hours;
provided, however, that such Member shall have made a demand to view such
records not less than 5 business days after receipt of notice of such meeting,
properly delivered to the Company and setting forth in reasonable detail the
purpose for which such Member desires to view such information. The original
membership records shall be the prima facie evidence as to who are the Members
entitled to examine the record or transfer books or to vote at any meeting of
Members.

3.14 Voting; Quorum of Members; Vote Required. Except as otherwise set
forth herein, each Member shall be entitled to one vote per Unit and a
proportionate fractional vote for each fractional Unit upon all matters upon
which Members have the right to vote based upon the Units of the Company as set
forth in the membership records of the Company as of the applicable record date.
The presence, in person or by proxy, of Members owning more than 50% of the
Units at the applicable record date for the action to be taken constitutes a
quorum for the transaction of business. If a quorum is present, the affirmative
vote, in person or by proxy, of the owners of more than 50% of the Units then
outstanding and represented in person or by proxy at the meeting and entitled to
vote on the subject matter shall be the act of the Members, unless the vote of a
greater proportion or number or voting by classes is required by the Act, the
Investment Company Act or this

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Agreement. If a quorum is not represented at any meeting of the Members, such
meeting may be adjourned by an Appropriate Officer.

The Members shall have the following voting rights:

(a) to the extent required by the Investment Company Act or as
otherwise provided for herein, the right to elect Managers by the
affirmative vote of a plurality of votes cast;

(b) as provided herein, the right to remove Managers for cause by the
affirmative vote of a Supermajority of Members at a meeting of Members duly
called for such purpose;

(c) to the extent required by the Investment Company Act, the right to
approve proposed changes in the nature of the Company's business so as to
cause the Company to cease to be, or to withdraw its election as, a
business development company under the Investment Company Act by the
affirmative vote of a 40 Act Majority of Members;

(d) to the extent required by the Investment Company Act, the right to
approve any proposed investment advisory agreement or to disapprove and
terminate any such existing agreement by the affirmative vote of a 40 Act
Majority of Members; provided, however, in the case of approval that such
agreement is also approved by a majority of Managers who are not parties to
such contract or "interested persons" of any such party as such term is
defined in the Investment Company Act, as the same may be amended from time
to time;

(e) to the extent required by the Investment Company Act, the right to
ratify the appointment of the independent accountants of the Company by the
affirmative vote of more than 50% of the Units then outstanding and
represented in person or by proxy at the meeting and entitled to vote;
provided, however, that such appointment is approved by a majority of the
Disinterested Managers;

(f) to the extent required by the Investment Company Act, the right to
terminate the Company's independent accountants by the affirmative vote of
a 40 Act Majority of Members;

(g) extension of the time of termination and dissolution of the
Company to the extent provided in Section 2.6 hereof by the affirmative
vote of a Majority in Interest of the Members;

(h) to the extent required by the Investment Company Act, the right to
consent to the dissolution of the Company pursuant to Section 13.1 by the
affirmative vote of a 40 Act Majority of Members;

(i) to the extent required by Section 13.2, the selection of a
liquidator by the affirmative vote of a Majority in Interest of the
Members;

(j) to the extent required by Section 14.1 or 14.3, the right to
approve certain amendments to this Agreement by the affirmative vote of a
Majority in Interest of the Members; and

(k) so long as the Company is subject to the provisions of the
Investment Company Act, the right to approve any other matters that the
Investment Company Act requires to be approved by the Members by the
affirmative vote of Members as specified in the Investment Company Act.

3.15 No Consent Required. Notwithstanding the foregoing, no vote,
approvals, or other consent shall be required of the Members to amend this
Agreement in any of the following respects: (i) to reflect any change in the
amount or character of the Capital Contribution of any Member; (ii) to admit an
additional Member or a Substituted Member or withdraw a Member in accordance
with the terms of this Agreement; (iii) to correct any false or erroneous
statement, or to make a change in any statement in order that such statement
shall accurately represent the agreement among the Members in this Agreement;
(iv) to reflect any change that is necessary to qualify the Company as a limited
liability company under the laws of any state or that is necessary or advisable
in the opinion of the Board of Managers to assure that the Company will not be
treated as a publicly traded partnership or otherwise treated as a corporation
for federal income tax purposes; (v) to reflect any change in the name or
principal place of business of the Company; (vi) to make any other change or
amendment that does not require the vote, approval or consent of Members under
the Investment Company

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Act, the Act or expressly hereunder, provided that such change or Amendment has
been approved by a majority of the Board of Managers and a majority of the
Disinterested Managers.

3.16 Limitations on Requirements for Consents. Notwithstanding any other
provisions of this Agreement, but subject to the requirements of the Investment
Company Act, in the event that counsel for the Company or counsel designated by
Members holding not less than 10% of the Units owned by all Members shall have
delivered to the Company an opinion to the effect that either the existence of a
particular consent right or particular consent rights, or the exercise thereof,
will violate the provisions of the Act or the laws of the other jurisdictions in
which the Company is then formed or qualified, will adversely affect the limited
liability of the Members, or will adversely affect the classification of the
Company as a partnership for federal or state income tax purposes, then
notwithstanding the other provisions of this agreement, the Members shall no
longer have such right, or shall not be entitled to exercise such right in the
instant case, as the case may be.

3.17 Informal Action by Members. Any action that may be taken by Members
at a meeting of Members may be taken without a meeting without prior notice and
without a vote if consent in writing setting forth the action to be taken is
signed by the Members holding not less than the minimum percentage of Units that
would be necessary to authorize or take such action at a meeting at which all
the Members were present and voted, with prompt written notice thereof delivered
to all Members. Written consent by the Members has the same force and effect as
a vote of such Members held at a duly held meeting of the Members and may be
stated as such in any document.

3.18 Voting by Ballot. Voting on any question or in any election may be by
voice vote unless the presiding officer shall order or any Member shall demand
that voting be by ballot.

3.19 No Cumulative Voting. No Members shall be entitled to cumulative
voting in any circumstance.

3.20 Representations and Warranties of Members; Indemnification.

(a) Each Member hereby represents and warrants to the Company and each
other Member as follows:

(i) In each case to the extent applicable, such Member is duly
incorporated or organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation or organization and has full
power and authority to execute and deliver this Agreement and to perform
its obligations hereunder. All requisite actions necessary for the due
authorization, execution, delivery and performance of this Agreement by
such Member have been duly taken.

(ii) Such Member has duly executed and delivered this Agreement. This
Agreement constitutes a valid and binding obligation of such Member
enforceable against such Member in accordance with its terms (except as may
be limited by bankruptcy, insolvency, or similar laws of general
application and by the effect of general principles of equity, regardless
of whether considered at law or in equity).

(iii) Such Member's authorization, execution, delivery and performance
of this Agreement does not and will not (i) conflict with, or result in a
breach, default or violation of (A) to the extent applicable, the
certificate or articles of incorporation, by-laws or other organizational
documents of such Member, (B) any material contract or agreement to which
that Member is a party or is otherwise subject, or (C) any law, order,
judgment, decree, writ, injunction or arbitration award to which that
Member is subject; or (ii) require any consent, approval, or authorization
from filing, or registration with or notice to, any governmental authority
or other Person, other than those that have already been obtained.

(iv) Such Member is familiar with the proposed business, financial
condition, properties, operations and prospects of the Company, and has
asked such questions and conducted such due diligence concerning such
matters and concerning its acquisition of any membership interests as it
has desired to ask and conduct, and all such questions have been answered
to its full satisfaction. Such Member has such knowledge and experience in
financial and business matters that it is capable of evaluating the merits
and risks of an in vestment in the Company. Such Member understands that
owning membership interests involves various risks, including the
restrictions on transferability set forth in this Agreement, lack of any
public market for such membership interests, the risk of owning its
membership interests for an indefinite period of time and the risk of
losing its entire investment in the Company. Such Member is
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able to bear the economic risk of such investment; is acquiring its
membership interests for investment and solely for its own beneficial
account and not with a view to or any present intention of directly or
indirectly selling, transferring, offering to sell or transfer,
participating in any distribution or otherwise disposing of all or a
portion of its membership interests.

(b) Each Member hereby indemnifies the Company from and against and agrees
to hold the Company free and harmless from any and all claims, losses, damages,
liabilities, judgments, fines, settlements, compromises, awards, costs, expenses
or other amounts (including without limitation any attorney fees, expert witness
fees or related costs) arising out of or otherwise related to a breach of any of
the representations and warranties of such Member as set forth in this Section
3.20.

(c) such Member shall not transfer, sell, or offer to sell such Member's
Units without compliance with the conditions and provisions of this Agreement;

(d) if such Member assigns all or any part of such Member's Units, then
until such time as one or more assignees thereof are admitted to the Company as
a Substituted Member with respect to the entire Interest so assigned, the
matters to which any holder thereof would covenant and agree if such holder were
to execute this Agreement as a Member shall be and remain true;

(e) such Member shall notify the Managers immediately if any
representations or warranties made herein or in any Subscription Agreement
should be or become untrue; and

(f) such Member shall not take any action that would have the effect of
causing the Company (i) to be treated as a publicly traded partnership for
purposes of Section 7704(b) of the Code or (ii) otherwise to be treated as a
corporation for federal income tax purposes.

3.21 Media and Common Carrier Restrictions. A "Media or Common Carrier
Company" shall mean any Person in whom the Company has acquired or is proposing
to acquire any direct or indirect interest that directly or indirectly owns,
controls or operates a broadcast radio or television station, a cable television
system, a "daily newspaper" (as such term is defined in the Attribution Rules
and/or the Ownership Rules), a multipoint multichannel distribution system, a
local multipoint distribution system, an open video system, a commercial mobile
radio service or any other communications facility the ownership of which is
subject to regulation by the Federal Communications Commission ("FCC") under (i)
the Communications Act; (ii) the Attribution Rules; or (iii) the Ownership
Rules. For purposes of this Section 3.21, "Attribution Rules" shall mean the
ownership attribution rules of the FCC, including, but not limited to, 47 C.F.R.
sec.sec. 20.6(d); 21.912, Note 1; 73.3555, Note 2(g); 76.501, Note 2(g);
76.15000(g); 101.10333(e); Attribution Reconsideration Order, 58 Rad. Reg. 2d (P
& F) 604 (1985); Further Attribution Reconsideration Order, 1 FCC Rcd 802
(1986); and "Ownership Rules" shall mean the multiple and cross-ownership rules
of the FCC including, but not limited to, 47 C.F.R. sec.sec. 20.6(a); 21.912;
73.3555; 74.931(h); 76.1501 and 101.1003(a) and any other regulations or written
policies of the FCC which limit or restrict ownership in Media or Common Carrier
Companies, all as the same may be amended or supplemented from time to time.

(a) If the Company acquires an interest in a Media Company and if as a
result of the Attribution Rules, a Member or a Media Company would, but for the
last clause of this Section 3.21(a) be in violation of:

(i) the Ownership Rules, or

(ii) the restrictions on ownership or participation in broadcast
licenses by aliens imposed by Section 310(b) of the Communications Act
or the policies and decisions of the FCC thereunder, or

(iii) the FCC's policy preventing persons from having
"meaningful" cross-interests in certain broadcast station
combinations, newspaper/broadcast station combinations, or cable
system/television station combinations serving the same market in
situations where such combinations would violate the Ownership Rules
if all such interests were attributable under the Attribution Rules,
then:

no Member nor any officer, director, member or partner of any Member nor any
person who owns more than 5% of any class of equity securities of any Member
shall, without the consent of the Investment Adviser: be an

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employee of the Company whose functions directly or indirectly relate to the
media or common carrier business of any Media or Common Carrier Company; serve
in any material capacity as an independent contractor or agent with respect to
the media or common carrier business of such Media or Common Carrier Company;
communicate on matters pertaining to the day-to-day operations of any Media or
Common Carrier Company with (A) an officer, director, partner, agent,
representative or employee of such Media or Common Carrier Company, or (B) the
Investment Adviser; perform any services for the Company that materially relate
to any Media or Common Carrier Company; become actively involved in the
management or operation of any Media or Common Carrier Company; or become
actively involved in the management or operation of the media businesses.

ARTICLE IV

MANAGEMENT OF COMPANY

4.1 Board of Managers. The governing body of the Company shall be the
Board of Managers, which shall have the power to control the management and
policies of the Company. The maximum number of managers shall initially be set
at four (4), and may be increased or decreased by action of the Board of
Managers provided that at no time shall the number of Managers be set at less
than three (3) nor more than ten (10). The Managers shall be set forth in
Schedule B hereto or in the official records of the Company. The Managers shall
hold office until their successors are approved and elected, unless they are
sooner removed pursuant to Section 4.4, or sooner resign pursuant to Section 4.3
or sooner are incapacitated pursuant to Section 4.5, as the case may be.
Managers may succeed themselves in office. No reduction in the number of
Managers shall have the effect of removing any Manager from office unless
specially removed pursuant to Section 4.4 at the time of such decrease. Subject
to the requirements of the Investment Company Act, the Board of Managers may
designate successors to fill vacancies created by an authorized increase in the
number of Managers, the resignation of a Manager pursuant to Section 4.3, the
removal of a member of the Board of Managers pursuant to Section 4.4 or the
incapacity of a Manager pursuant to Section 4.5. In the event that no Managers
remain, the Appropriate Officers shall continue the business of the Company and
shall perform all duties of the Managers under this Agreement and shall as soon
as practicable call a special meeting of Members for the purpose of approving
and electing Managers. When Managers are subject to election by Members,
Managers are elected by a plurality of the Units voting at the meeting. Managers
may, but need not be, admitted to the Company as Members to act in their
capacity as Managers.

4.2 Disinterested Managers. Subject to the requirements of the Investment
Company Act, at any time that the Company shall have in effect an election to be
treated as a business development company under the Investment Company Act, then
at least a majority of the members of the Board of Managers shall be
Disinterested Managers. If at any time the number of Disinterested Managers is
less than a majority, action shall be taken pursuant to Section 4.1 or Section
4.4 to restore the number of Disinterested Managers to at least a majority.

4.3 Resignation by a Manager. A Manager may voluntarily resign from the
Board of Managers upon the giving of notice thereof to the Company, such
resignation to take effect upon receipt of such notice by the Company or such
later date as set forth in such notice.

4.4 Removal of a Manager; Designation of a Successor Manager.

(a) Any Manager may be removed either: (i) for cause by the action of at
least two-thirds of the remaining Managers, including in the case of a
Disinterested Manager a majority of the remaining Disinterested Managers; (ii)
by failure to be re-elected by the Members at a meeting of Members duly called
by the Managers for such purpose; or (iii) for cause by the affirmative vote of
a Supermajority of Members. The removal of a Manager shall in no way derogate
from any rights or powers of such Manager, or the exercise thereof, or the
validity of any actions taken pursuant thereto, prior to the date of such
removal.

(b) Subject to Section 4.2, the remaining Managers shall designate a
successor Manager to fill any vacancy existing in the number of Managers fixed
pursuant to Section 4.2 resulting from removal of a

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Manager. Any such successor Manager shall hold office until his or her successor
has been approved and elected.

(c) Any removal of a Manager shall not affect any rights or liabilities of
the removed Manager that matured prior to such removal.

4.5 Incapacity of a Manager.

(a) In the event of the Incapacity of a Manager, the business of the
Company shall be continued with the Company property by the remaining Managers.
The remaining Managers shall, within 90 days, call a meeting of the Board of
Managers for the purpose of designating a successor Manager. Any such successor
Manager shall hold such office until his or her successor has been approved and
elected. The Managers shall make such amendments to the certificate of formation
and execute and file for recordation such amendments or other documents or
instruments as are necessary and required by the Act or this Agreement to
reflect the fact that such Incapacitated Manager has ceased to be a Manager and
the appointment of such successor Manager.

(b) In the event of the Incapacity of all Managers, an Appropriate Officer
shall as promptly as practicable convene a meeting of Members for the purpose of
electing new Managers nominated by the Special Member. Upon the Incapacity of a
Manager, the Manager shall immediately cease to be a Manager.

(c) Any such termination of a Manager shall not affect any rights or
liabilities of the Incapacitated Manager that matured prior to such Incapacity.

4.6 Continuation. In the event of the withdrawal, removal or retirement of
a Manager, the Company shall not be dissolved and the business of the Company
shall be continued by the remaining Managers.

4.7 Board of Managers Powers. Subject to the terms hereof, the Board of
Managers shall have full and complete discretion in the management and control
of the affairs of the Company, shall make all decisions affecting Company
affairs and shall have all of the rights, powers and obligations of a managing
member of a limited liability company under the Act and otherwise as provided by
law. The Board of Managers shall provide overall guidance and supervision with
respect to the operations of the Company, shall perform all duties imposed on
the directors of business development companies by the Investment Company Act,
and shall monitor the activities of the Appropriate Officers, Investment
Advisers and any administrator to the Company and distributor of the Company's
securities. Except as otherwise expressly provided in this Agreement, the Board
of Managers is hereby granted the right, power and authority to do on behalf of
the Company all things which, in its sole judgment, are necessary or appropriate
to manage the Company's affairs and fulfill the purposes of the Company. Any
determination as to what is in the interests of the Company made by the Managers
in good faith shall be conclusive. In construing the provisions of this
Agreement, the presumption shall be in the favor of a grant of power to the
Managers. The powers of the Managers include, by way of illustration and not by
way of limitation, the power and authority from time to time to do the
following:

(a) invest the assets of the Company in such investments as are
consistent with the Company's purpose and employ one or more Investment
Advisers to do the same;

(b) incur all expenses permitted by this Agreement;

(d) appoint and dismiss such Persons to serve as officers of the
Company ("Appropriate Officers") with such powers and authority as may be
provided to such Persons by the Board of Managers or by this Agreement;

(e) employ and dismiss from employment such agents, employees,
managers, accountants, attorneys, consultants and other Persons necessary
or appropriate to carry out the business and affairs of the Company,
whether or not any such Persons so employed are affiliated persons of any
Manager, and to pay such compensation to such Persons as is competitive
with the compensation paid to unaffiliated Persons in the area for similar
services;
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(f) subject to the indemnification provisions in this Agreement, pay,
extend, renew, modify, adjust, submit to arbitration, prosecute, defend or
settle, upon such terms it deems sufficient, any obligation, suit,
liability, cause of action or claim, including tax audits, either in favor
of or against the Company;

(g) enter into any sales, distribution, agency, or dealer agreements,
and escrow agreements, with respect to the sale of Units and provide for
the distribution of such Units by the Company through one or more Persons
(which may be affiliated persons of a Manager or Managers), or otherwise;
borrow money and issue multiple classes of senior indebtedness or a single
class of Interests senior to the Units to the extent permitted by the
Investment Company Act and repay, in whole or in part, any such borrowing
or indebtedness and repurchase or retire, in whole or in part, any such
Interests senior to the Units; and in connection with such loans or senior
instruments to mortgage, pledge, assign or otherwise encumber any or all
properties or assets owned by the Company, including any income therefrom,
to secure such borrowing or provide repayment thereof;

(h) establish and maintain accounts with financial institutions,
including federal or state banks, brokerage firms, trust companies, savings
and loan institutions or money market funds;

(i) make temporary investments of Company capital in Short-Term
Investments;

(j) to the extent permitted by the Investment Company Act, form or
cause to be formed one or more small business investment companies under
the Small Business Investment Fund Act of 1958, as amended;

(k) establish valuation principles and periodically apply such
principles to the Company's investment portfolio;

(l) to the extent permitted by the Investment Company Act, designate
and appoint one or more agents for the Company who shall have such
authority as may be conferred upon them by the Board of Managers and who
may perform any of the duties of, and exercise any of the powers and
authority conferred upon, the Board of Managers hereunder including, but
not limited to, designation of one or more agents as authorized signatories
on any bank accounts maintained by the Company;

(m) prosecute, protect, defend, or cause to be protected and defended,
or abandon, any patents, patent rights, copyrights, trade names, trademarks
and service marks, and any applications with respect thereto, that may be
held by the Company;

(n) take all reasonable and necessary actions to protect the secrecy
of and the proprietary rights with respect to any know-how, trade secrets,
secret processes or other proprietary information and to prosecute and
defend all rights of the Company in connection therewith;

(o) subject to the other provisions of this Agreement, to enter into,
make and perform such contracts, agreements, and other undertakings, and to
do such other acts, as it may deem necessary or advisable for, or as may be
incidental to, the conduct of the business contemplated by this Agreement,
including, without in any manner limiting the generality of the foregoing,
contracts, agreements, undertakings, and transactions with any Member,
Manager, Appropriate Officer or Investment Adviser or with any other
person, firm, or corporation having any business, financial, or other
relationship with any Member, Manager, Appropriate Officer or Investment
Adviser, provided, however, such transactions with such Persons and
entities (i) shall only be entered into to the extent permitted under the
Investment Company Act and (ii) shall be on terms no less favorable to the
Company than are generally afforded to unrelated third parties in
comparable transactions;

(p) purchase, rent or lease equipment for Company purposes;

(q) purchase and maintain, at the Company's expense, liability and
other insurance to protect the Company's assets from third party claims;
and cause the Company to purchase or bear the cost of any insurance
covering any potential liabilities of the Members, Managers, Appropriate
Officers, Investment Adviser or agents of the Company, or officers,
employees, directors, members or partners of the

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Investment Adviser or any agent of the Company as well as the potential
liabilities of any Person serving at the request of the Investment Adviser
as a director of or adviser to a Portfolio Company;

(r) cause to be paid any and all taxes, charges and assessments that
may be levied, assessed or imposed upon any of the assets of the Company;

(s) make or caused to be made any election on behalf of the Company
under the Code and other tax laws and supervise the preparation and filing
of all tax and information returns that the Company may be required to
file;

(t) take any action that may be necessary or appropriate for the
continuation of the Company's valid existence as a limited liability
company under the laws of the State of Delaware and of each other
jurisdiction in which such existence is necessary to protect the limited
liability of the Members or to enable the Company to conduct the business
in which it is engaged;

(u) admit Members to the Company in accordance with Section 7.1; admit
an assignee of a Member's Interest to be a Substituted Member in the
Company, pursuant to and subject to the terms of Section 9.5, without the
consent of any Member; admit additional Persons as members by creating and
issuing Units or other equity interests from time to time with terms of
admission or issuance providing for the creation of different classes,
groups or series of membership interests having different rights, powers
and duties, which rights, powers and duties may be senior, pari passu or
junior to the rights, powers and duties of the Units, as determined by the
Board of Managers without the consent of Members;

(v) value the assets of the Company from time to time pursuant to and
consistent with the policies of the Company with respect thereto as in
effect from time to time;

(w) borrow money or otherwise incur indebtedness to fund loans and
other investments subject to the provision of applicable law and this
Agreement; each Member expressly agrees that any such borrowing may be
secured by the assets of the Company and that its Capital Account may be
pledged by the Company to secure any such borrowing or indebtedness;

(x) delegate all or any portion of its rights, powers and authority to
any committee or subset of the Board of Managers, or to any Investment
Adviser, Appropriate Officer or agent of the Company, subject to the
control and supervision of the Managers; and

(y) perform all normal business functions, and otherwise operate and
manage the business and affairs of the Company, in accordance with and as
limited by this Agreement.

4.8 Annual and other Regular Meetings of the Board of Managers. An annual
meeting of the Board of Managers shall be held without notice other than this
provision. The Board of Managers may provide, by resolution, the time and place,
either within or without the State of Delaware, for the holding of the annual
meeting and any additional regular meetings without notice other than such
resolution.

4.9 Special Meetings of the Board of Managers. Special meetings of the
Board of Managers may be called by an Appropriate Officer or the Chairman of the
Board of Managers, or, if no such Chairman exists, at the request of any two
Managers. The person or persons authorized to call special meetings of the Board
of Managers may fix any place, either within or without the State of Delaware,
as the place for holding any special meeting of the Board of Managers called by
them.

4.10 Notice of Meetings of the Board of Managers. Written notice of any
special meeting of the Board of Managers shall be given as follows:

(a) By mail to each Manager at the Manager's mailing address at least
five business days prior to the meeting; or

(b) By personal delivery, e-mail or facsimile transmission at least
three business days prior to the meeting to each Manager.

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If mailed by post, such notice shall be deemed to be delivered when
deposited in the United States mail, so addressed, with postage thereon prepaid.
If notice be given by e-mail or facsimile transmission such notice shall be
deemed to be delivered when the e-mail or facsimile transmission is transmitted
by the sender.

(c) Any Manager may waive notice of any meeting. The attendance of a
Manager at any meeting shall constitute a waiver of notice of such meeting,
except where a Manager attends a meeting for the express purpose of
objecting to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor
the purpose of, any regular or special meeting of the Board of Managers
need be specified in the notice or waiver of notice of such meeting.

4.11 Quorum for Board of Managers Meetings. A majority of the number of
Managers shall constitute a quorum for the transaction of business at any
meeting of the Board of Managers, but if less than such majority is present at a
meeting, a majority of the Managers present may adjourn the meeting from time to
time without further notice.

4.12 Manner of Acting for Board of Managers. Except as otherwise required
by the Act, the Investment Company Act or this Agreement the act of the majority
of the Managers present at a meeting at which a quorum is present shall be the
act of the Board of Managers. Each Manager shall be entitled to one vote upon
all matters submitted to the Board of Managers.

4.13 Written Consent by Board of Managers. Unless otherwise required by
the Investment Company Act, any action required or permitted to be taken at any
meeting of the Board of Managers or by a committee thereof may be taken without
a meeting, without prior notice and without a vote if the members of the Board
of Managers or such committee that would be required to approve such action at a
meeting consent thereto in writing, and the writing or writings are filed with
the minutes of proceedings of the Board of Managers or such committee.

4.14 Participation by Electronic Means by Board of Managers. Any Manager
may participate in a meeting of the Board of Managers or any committee thereof
in person or by means of conference telephone or similar communications
equipment by which all persons participating in the meeting can hear and speak
to each other at the same time. Except for purposes of the Investment Company
Act, such participation shall constitute presence in person at the meeting.

4.15 Committees of Managers. By resolution adopted by the Board of
Managers, the Board of Managers may designate two or more Managers to constitute
a committee, any of which shall have such authority in the management of the
Company as the Board of Managers shall designate.

4.16 Manager Presumption of Assent. A Manager of the Company who is
present at a meeting of the Board of Managers at which action on any matter
taken shall be presumed to have assented to the action taken unless a dissent
shall be entered in the minutes of the meeting or unless the Manager files a
written dissent to such action with the person acting as the secretary of the
meeting before the adjournment thereof or shall forward such dissent by
registered mail to the Secretary of the Company immediately after the
adjournment of the meeting. Such right to dissent shall not apply to a Manager
who voted in favor of such action.

4.17 Manager Power to Bind Company. Unless the Board of Managers consists
of one Manager, no Manager (acting in his capacity as such) shall have any
authority to bind the Company to any third party with respect to any matter
except pursuant to a resolution expressly authorizing such action which
resolution is duly adopted by the Board of Managers by the affirmative vote
required for such matter pursuant to the terms of this Agreement.

4.18 Liability of the Managers. No Manager shall be: (i) personally liable
for the debts, obligations or liabilities of the Company, including any such
debts, obligations or liabilities arising under a judgement decree or order of a
court; (ii) obligated to cure any deficit in any Capital Account; (iii) required
to return all or any portion of any Capital Contribution; or (iv) required to
lend any funds to the Company.

4.19 Reliance by Third Parties. Persons dealing with the Company are
entitled to rely conclusively upon the power and authority of the Board of
Managers, the Appropriate Officers and the Special Member of the Company herein
set forth.
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4.20 Appointment of Auditors. Subject to the approval or ratification of
the Members and the Disinterested Managers, if and to the extent required under
the Investment Company Act, the Board of Managers, in the name and on behalf of
the Company, is authorized to appoint independent certified public accountants
for the Company.

4.21 Contracts with Affiliates. The Board of Managers may, on behalf of
the Company subject to approval by a majority of the Managers who do not have an
interest in the contract and a majority of the Disinterested Managers and to
compliance with the Investment Company Act, enter into contracts for goods or
services with any affiliate of a Manager, Member, Appropriate Officer,
Investment Adviser or any other person, provided that the charges for such goods
or services do not exceed those charged by unaffiliated Persons in the area for
similar goods and services.

4.22 Obligations of the Managers. The Managers shall devote such time and
effort to the Company business as, in their judgment, may be necessary or
appropriate to oversee the affairs of the Company.

4.23 Other Business of Managers. Any Manager and any affiliate of any
Manager may engage in or possess any interest in other business ventures of any
kind, nature or description, independently or with others, whether such ventures
are competitive with the Company or otherwise. Neither the Company nor any
Member shall have any rights or obligations by virtue of this Agreement or the
company relationship created hereby in or to such independent ventures or the
income or profits or losses derived therefrom, and the pursuit of such ventures,
even if competitive with the business of the Company, shall not be deemed
wrongful or improper. Neither the Managers nor any affiliate of any Manager
shall be obligated to present any investment opportunity to the Company.

4.24 Limitations on Board of Managers and Appropriate Officers.

(a) Notwithstanding anything expressed or implied to the contrary in this
Agreement (other than Article IX), the Board of Managers and the Appropriate
Officers shall not authorize or otherwise cause or allow the Company to purchase
all or any portion of any Member's Interest (or any attributes thereof).

(b) Notwithstanding anything expressed or implied to the contrary in this
Agreement, the Board of Managers and the Appropriate Officers shall not (i)
participate in the establishment of a secondary market (or the substantial
equivalent thereof) with respect to the Interests for purposes of Treasury
Regulation sec.1.7704-1(d)(1) or (ii) take any action that would have the effect
of causing the Company (A) to be treated as a publicly traded partnership for
purposes of Section 7704(b) of the Code or (B) otherwise to be treated as a
corporation for federal income tax purposes.

ARTICLE V

OFFICERS

5.1 Appropriate Officers. The day-to-day management and operation of the
Company and its business shall be the responsibility of the Appropriate Officers
of the Company, subject to the supervision and control of the Board of Managers.
The Appropriate Officers shall, subject to the supervision and control of the
Board of Managers, exercise all powers necessary and convenient for the purposes
of the Company, on behalf and in the name of the Company. Notwithstanding
anything to the contrary contained herein, the acts of an Appropriate Officer in
carrying on the business of the Company as authorized herein shall bind the
Company.

The Appropriate Officers of the Company shall be chosen by the Board of
Managers and shall include a President, a Secretary and a Treasurer. The Board
of Managers may also choose a Chairman of the Board of Managers (who must be a
Manager) and the following additional Appropriate Officers: a Chief Executive
Officer, a Chief Financial Officer, a Chief Operating Officer, and one or more
Vice Presidents (and, in the case of each Vice President, with such descriptive
title, if any, as the Board of Managers shall determine), Assistant Secretaries,
Assistant Treasurers and other officers. Any number of offices may be held by
the same person, unless otherwise prohibited by law. The officers of the Company
need not be Members of the Company nor, except in the case of the Chairman of
the Board, need such officers be Managers of the Company.
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5.2 Election of Officers. The Board of Managers shall elect the officers
of the Company who shall hold their offices for such terms and shall exercise
such powers and perform such duties as shall be determined from time to time by
the Board of Managers; and all officers of the Company shall hold office until
their successors are chosen and qualified, or until their earlier death,
resignation or removal. Any officer elected by the Board of Managers may be
removed at any time, with or without cause, by the affirmative vote of the Board
of Managers or upon the Incapacity of such officer. Any vacancy occurring in any
office of the Company shall be filled by the Board of Managers. The salaries of
all officers of the Company shall be fixed by the Board of Managers. The Board
of Managers may delegate such duties to any such officers or other employees,
agents and consultants of the Company as the Board of Managers deems
appropriate, including the power, acting individually or jointly, to represent
and bind the Company in all matters, in accordance with the scope of their
respective duties.

5.3 Voting Securities Owned by the Company. Powers of attorney, proxies,
waivers of notice of meeting, consents and other instruments relating to
securities owned by the Company may be executed in the name of and on behalf of
the Company by the President or any Vice President or any other officer
authorized to do so by the Board of Managers and any such officer may, in the
name of and on behalf of the Company, take all such action as any such officer
may deem advisable to vote in person or by proxy at any meeting of security
holders of any entity in which the Company may own securities and at any such
meeting shall possess and may exercise any and all rights and powers incident to
the ownership of such securities and which, as the owner thereof, the Company
might have exercised and possessed if present. The Board of Managers may, by
resolution, from time to time confer like powers upon any other person or
persons.

5.4 Chairman of the Board of Managers. The Chairman of the Board of
Managers, if there be one, shall preside at all meetings of the Members and of
the Board of Managers. The Chairman of the Board of Managers shall be selected
from time to time by the Board of Managers. The Chairman of the Board of
Managers shall possess the same power as the President to sign all contracts,
certificates and other instruments of the Company which may be authorized by the
Board of Managers. During the absence or disability of the President, the
Chairman of the Board of Managers shall exercise all the powers and discharge
all the duties of the President. The Chairman of the Board of Managers shall
also perform such other duties and may exercise such other powers as may from
time to time be assigned by this Agreement or by the Board of Managers.

5.5 President. The President shall, subject to the control of the Board of
Managers and, if there be one, the Chairman of the Board of Managers, have
general supervision of the business of the Company and shall see that all orders
and resolutions of the Board of Managers are carried into effect. The President
or, when authorized by this Agreement, the Board of Managers or the President,
the other officers of the Company shall execute all bonds, mortgages, contracts,
documents and other instruments of the Company. In the absence or disability of
the Chairman of the Board of Managers, or if there be none, the President, shall
preside at all meetings of the Members and the Board of Managers. Unless the
Board of Managers shall otherwise designate, the President shall be the Chief
Executive Officer of the Company. The President shall also perform such other
duties and may exercise such other powers as may from time to time be assigned
to such officer by this Agreement or by the Board of Managers.

5.6 Vice Presidents. At the request of the President or in the President's
absence or in the event of the President's inability or refusal to act (and if
there be no Chairman of the Board of Managers), the Vice President, or the Vice
Presidents if there is more than one (in the order designated by the Board of
Managers), shall perform the duties of the President, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
President. Each Vice President shall perform such other duties and have such
other powers and duties as the Board of Managers, the Chairman of the Board of
Managers or the President from time to time may prescribe. The Vice President
shall act under the supervision of the President. If there be no Chairman of the
Board of Managers and no Vice President, the Board of Managers shall designate
the officer of the Company who, in the absence of the President or in the event
of the inability or refusal of the President to act, shall perform the duties of
the President, and when so acting, shall have all the powers of and be subject
to all the restrictions upon the President.

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5.7 Secretary. The Secretary shall attend all meetings of the Board of
Managers and all meetings of Members and record all the proceedings thereat in a
book or books to be kept for that purpose; the Secretary shall also perform like
duties for committees of the Board of Managers when required. The Secretary
shall give, or cause to be given, notice of all meetings of the Members and
special meetings of the Board of Managers, and shall perform such other duties
as may be prescribed by the Board of Managers, the Chairman of the Board of
Managers or the President, under whose supervision the Secretary shall act. If
the Secretary shall be unable or shall refuse to cause to be given notice of all
meetings of the Members and special meetings of the Board of Managers, and if
there be no Assistant Secretary, then either the Board of Managers or the
President may choose another officer to cause such notice to be given. The
Secretary shall have custody of the seal of the Company, if any, and the
Secretary or any Assistant Secretary, if there be one, shall have authority to
affix the same to any instrument requiring it and when so affixed, it may be
attested by the signature of the Secretary or by the signature of any such
Assistant Secretary. The Secretary may give general authority to any other
officer to affix the seal of the Company and to attest to the affixing by such
officer's signature. The Secretary shall see that all books, reports,
statements, certificates and other documents and records required by law to be
kept or filed are properly kept or filed, as the case may be.

5.8 Treasurer. The Treasurer shall have the custody of the corporate funds
and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Company and shall deposit all moneys and
other valuable effects in the name and to the credit of the Company in such
depositories as may be designated by the Board of Managers. The Treasurer shall
disburse the funds of the Company as may be ordered by the Board of Managers,
taking proper vouchers for such disbursements, and shall render to the President
and the Board of Managers, at its regular meetings, or when the Board of
Managers so requires, an account of all transactions as Treasurer and of the
financial condition of the Company. If required by the Board of Managers, the
Treasurer shall give the Company a bond in such sum and with such surety or
sureties as shall be satisfactory to the Board of Managers for the faithful
performance of the duties of the office of the Treasurer and for the restoration
to the Company, in case of the Treasurer's death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and other property of
whatever kind in the Treasurer's possession or under the Treasurer's control
belonging to the Company.

5.9 Assistant Secretaries. Assistant Secretaries, if there be any, shall
perform such duties and have such powers as from time to time may be assigned to
them by the Board of Managers, the President, any Vice President, if there be
one, or the Secretary, and in the absence of the Secretary or in the event of
the Secretary's disability or refusal to act, shall perform the duties of the
Secretary, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the Secretary.

5.10 Assistant Treasurers. Assistant Treasurers, if there be any, shall
perform such duties and have such powers as from time to time may be assigned to
them by the Board of Managers, the President, any Vice President, if there be
one, or the Treasurer, and in the absence of the Treasurer or in the event of
the Treasurer's disability or refusal to act, shall perform the duties of the
Treasurer, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the Treasurer. If required by the Board of Managers,
an Assistant Treasurer shall give the Company a bond in such sum and with such
surety or sureties as shall be satisfactory to the Board of Managers for the
faithful performance of the duties of the office of Assistant Treasurer and for
the restoration to the Company, in case of the Assistant Treasurer's death,
resignation, retirement or removal from office, of all books, papers, vouchers,
money and other property of whatever kind in the Assistant Treasurer's
possession or under the Assistant Treasurer's control belonging to the Company.

5.11 Other Officers. Such other officers as the Board of Managers may
choose shall perform such duties and have such powers as from time to time may
be assigned to them by the Board of Managers, the Chairman of the Board of
Managers or the President. The Board of Managers may delegate to any other
officer of the Company the power to choose such other officers and to prescribe
their respective duties and powers.

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ARTICLE VI

INVESTMENT ADVISERS

6.1 Investment Advisers.

(a) The Investment Advisers, subject to the control and supervision of the
Board of Managers and the terms and conditions of the Investment Advisory
Agreement, are hereby granted the power and authority from time to time to do
the following: manage and control the investments of the Company, including, but
not limited to, the power to make all investment decisions regarding the
Company's investment portfolio and, among other things, to find, evaluate,
structure, monitor, sell and liquidate, upon dissolution or otherwise, such
investments, to assist the Appropriate Officers of the Company in the provision
of managerial assistance to Portfolio Companies and in connection therewith to
enter into, execute, amend, supplement, acknowledge, and deliver any and all
contracts, agreements, or other instruments for the performance of such
functions, including the investment and reinvestment of all or part of the
Company's assets, execution of portfolio transactions, and any or all related
administrative functions. The grant of power and authority to the Investment
Adviser under this Section 6.1 in no way limits the rights, powers or authority
of the Board of Managers under this Agreement, the Act or as otherwise provided
by law.

(b) The Board of Managers may admit any Investment Adviser as a Member of
the Company with the rights, powers and obligations of a Special Member as set
forth herein. A Special Member shall not make a Capital Contribution to the
Company in its capacity as Special Member and shall not be issued any Units
representing its interest as a Special Member.

6.2 Portfolio Investments.

(a) Subject to the disclosure and reporting requirements contained in
Article X or elsewhere in this Agreement, except as any Member may be entitled
to under applicable law, the Investment Adviser may keep confidential from the
Members any information known by the Investment Adviser relating to investments
made or being considered by the Company.

(b) Any and all rights, including voting rights, pertaining to any
Portfolio Investments shall be vested exclusively in the Company and may be
exercised only by the Investment Adviser acting in accordance with the terms of
this Agreement and the Investment Advisory Agreement or by the Company pursuant
to the act of an Appropriate Officer or the Board of Managers.

6.3 Withdrawal by a Special Member.

(a) Subject to clause (b) below, a Special Member may voluntarily withdraw
from the Company, at any time upon notice to the Company. Such withdrawal shall
not affect the Special Member's status as Investment Adviser under the
Investment Advisory Agreement.

(b) A Special Member shall not voluntarily withdraw from the Company if
such withdrawal would cause material adverse tax consequences to the Company and
its Members as determined by the Board of Managers in its sole and absolute
discretion.

6.4 Removal of a Special Member.

(a) Subject to clause (b) below, in the event of termination without
renewal of an Investment Advisory Agreement with respect to a Special Member,
the Special Member shall be removed and terminated as a Member.

(b) In the event of the removal of the Special Member and continuation of
the Company, the investments held by the Company at the time of removal shall be
appraised by two independent appraisers, one selected by the Special Member and
one by the Disinterested Managers. In the event that such two appraisers are
unable to agree on the value of the Company's investment portfolio, they shall
jointly appoint a third independent appraiser whose determination shall be final
and binding. The cost of the appraisal conducted by the appraiser selected by
the Special Member shall be borne by the Special Member, and the cost of the
appraisal conducted by the appraiser selected by the Disinterested Managers
shall be borne by the

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Company. The cost of the appraisal conducted by a third appraiser shall be borne
equally by the Company and by the Special Member. The Special Member shall
receive a final allocation of Net Profit or Net Loss pursuant to Article VII as
if all unrealized capital gains and losses of the Company as of the date of
removal determined on the basis of such approval were realized at such time and
the Fiscal Period ended at such time. If the Capital Account of the Special
Member has a positive balance after such allocation, the Company shall within 30
days of determination distribute such amount in cash to the Special Member or
deliver a promissory note of the Company to the Special Member, the principal
amount of which shall be equal to the amount, if any, by which the positive
amount of the Special Member's Capital Account exceeds the amount so distributed
in cash and which bears interest at a rate per annum equal to 100% of the prime
rate in effect at a major national bank selected by a majority of the
Disinterested Members at the time of removal, with interest payable annually and
principal payable, if at all, only from 20% of any available cash before any
distributions thereof are made to the Members pursuant to Article VIII. In the
event that any of the foregoing requires an exemptive order from the Securities
and Exchange Commission or its staff that is not granted, the Special Member
shall not be removed as a Member of the Company until such time as all Direct
Investments held by the Company at the time of the proposed removal have been
liquidated and allocations of Net Profit and Net Loss resulting therefrom have
been made pursuant to Article VII. In such event, the Investment Adviser upon
removal shall be entitled to payments in respect of its Capital Account as set
forth in Section 9.1(b).

6.5 Covenants of Special Member. Each Special Member covenants, warrants
and agrees with the Company and each of the other Members that the Special
Member will not:

(a) purchase all or any portion of any Member's Interest (or any
attributes thereof);

(b) participate in the establishment of a secondary market (or the
substantial equivalent thereof) with respect to the Interests for purposes
of Treasury Regulation sec.1.7704-1(d)(1); or

(c) take any action that would have the effect of causing the Company
(i) to be treated as a publicly traded partnership for purposes of Section
7704(b) of the Code or (ii) otherwise to be treated as a corporation for
federal income tax purposes.

ARTICLE VII

CAPITAL CONTRIBUTIONS, CAPITAL ACCOUNTS AND ALLOCATIONS

7.1 Capital Contributions.

(a) The initial Member or Members are as set forth on Schedule A hereto.
Additional Persons making Capital Commitments shall be admitted as Members and
added to Schedule A at one or more closings (each a "Closing"), each such
Closing to be held on such date as may be determined by the Appropriate Officers
(the date of the first such Closing being referred to as the "Closing Date").
Members not making Capital Commitments may be admitted to the Company at any
time by the act of the Managers.

(b) RESERVED

(d) Capital Contributions by the Members shall be made in dollars by wire
transfer of federal funds to an account or accounts of the Company as specified
by the Company or in such other manner as the Company may direct. No Member
shall be entitled to any interest or compensation by reason of his, her or its
Capital Contribution or by reason of being a Member. No Member shall be required
to lend any funds to the Company.

(e) At each Closing, Schedule A hereto shall be amended appropriately to
reflect the Capital Commitments of the Members, and the Appropriate Officers
shall take any appropriate action in connection therewith. Further, the
Appropriate Officers shall cause Schedule A hereto to be amended from time to
time to reflect the transfer of a Member's Interests, the admission and
withdrawal of Members and changes in Capital Commitments, which are accomplished
in accordance with the provisions hereof.

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(f) RESERVED

(g) Negative Capital Accounts. Except as may be required by law, no Member
shall be required to reimburse the Company for any negative balance in such
Member's Capital Account.

7.2 Capital Accounts. A capital account ("Capital Account") shall be
established and maintained on the Company's books with respect to each Member,
in accordance with the provisions of Treasury Regulations Section 1.704-1(b),
including the following:

(a) Each Member's Capital Account shall be increased by: (i) the amount of
that Member's Capital Contribution; (ii) the amount of Net Profit (or items
thereof) allocated to that Member; and (iii) any other increases required by the
Treasury Regulations.

(b) Each Member's Capital Account shall be decreased by: (i) the amount of
Net Loss (or items thereof) allocated to that Member; (ii) all cash amounts
distributed to that Member pursuant to this Agreement, other than any amount
required to be treated as a payment for property or services for federal income
tax purposes; (iii) the fair market value of any property distributed in kind to
that Member (net of any liabilities secured by such distributed property that
such Member is considered to assume or take subject to for federal income tax
purposes); and (iv) any other decreases required by the Treasury Regulations.

(c) All provisions of this Agreement relating to the maintenance of Capital
Accounts are intended to comply with the Code and Treasury Regulations
thereunder and shall be interpreted and applied in a manner consistent with such
law. The Managers shall make any necessary modifications to this Section 7.2 in
the event unanticipated events occur that might otherwise cause this Agreement
not to comply with such law or any changes thereto.

(d) A Manager, in its capacity as a Manager, shall not be entitled to any
distributions.

7.3 Interest. No interest shall be paid or credited to the Members with
respect to their Capital Contributions, their Capital Accounts or upon any
undistributed funds left on deposit with the Company.

7.4 Allocations to Capital Accounts.

(a) Special Member Allocations. Except as provided in this Agreement, the
capital gains realized by the Company in a Fiscal Period shall be allocated
first to the Special Member in an amount equal to the excess, if any, of the
Incentive Carried Interest as calculated for such Fiscal Period over the
cumulative amount of all capital gains allocated to the Special Member pursuant
to this Section 7.4(a) for all prior Fiscal Periods. This allocation of capital
gain shall be made out of long-term capital gain and short-term capital gain in
proportion to the amount of such gains realized in such Fiscal Period.

(b) Member Allocations. Except as provided in this Agreement, all Net
Profit (and items thereof) and all Net Loss (and items thereof) remaining after
the allocation set forth in Section 7.4(a) has been made to the Special Member
shall be allocated to the Members (other than the Special Member) in proportion
to their Capital Investments.

(d) Additional Rule. In furtherance and not in limitation of Section
7.4(a) and (b), and except as otherwise provided in this Agreement, the Board of
Managers may, in its sole and absolute discretion, allocate Net Profit (and
items thereof) and Net Loss (and items thereof) for any Fiscal Period in a
manner that the Board of Managers deems necessary or appropriate in order to
effectuate the intended economic sharing arrangement of the Members as reflected
in Article VIII.

(e) Regulatory and Related Allocations. Notwithstanding anything expressed
or implied to the contrary in this Agreement, the following special allocations
shall be made in the following order:

(i) Minimum Gain Chargeback. Except as otherwise provided in Treasury
Regulations Section 1.704-2, if there is a net decrease in Partnership
Minimum Gain during any Fiscal Period, each Member shall be specially
allocated items of Company income and gain for such Fiscal Period (and, if
necessary, subsequent Fiscal Periods) in an amount equal to such Member's
share of the net decrease in
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such Partnership Minimum Gain, as determined in accordance with Treasury
Regulations Section 1.704-2(g). Allocations pursuant to the previous
sentence shall be made in proportion to the respective amounts required to
be allocated to the Members pursuant thereto. The items to be so allocated
shall be determined in accordance with Treasury Regulations Section
1.704-2. This Section 7.4(e)(i) is intended to comply with the minimum gain
chargeback requirements in such Treasury Regulations and shall be
interpreted consistently therewith.

(ii) Partner Minimum Gain Chargeback. Except as otherwise provided in
Treasury Regulations Section 1.704-2, if there is a net decrease in Partner
Nonrecourse Debt Minimum Gain attributable to Partner Nonrecourse Debt
during any Fiscal Period, each Member shall be specially allocated items of
Company income and gain for such Fiscal Period (and, if necessary,
subsequent Fiscal Periods) in an amount equal to such Member's share, if
any, of the net decrease in Partner Nonrecourse Debt Minimum Gain
attributable to such Member's Partner Nonrecourse Debt, as determined in
accordance with Treasury Regulations Section 1.704-2(i). Allocations
pursuant to the previous sentence shall be made in proportion to the
respective amounts required to be allocated to each Member pursuant
thereto. The items to be so allocated shall be determined in accordance
with Treasury Regulations Section 1.704-2. This Section 7.4(e)(ii) is
intended to comply with the minimum gain chargeback requirements in such
Treasury Regulations and shall be interpreted consistently therewith.

(iii) Qualified Income Offset. In the event any Member unexpectedly
receives any adjustments, allocations or distributions described in
Treasury Regulations Sections 1.704-1(b)(2)(ii)(d)(4), (5) or (6) with
respect to such Member's Capital Account, items of Company income and gain
shall be specially allocated to each such Member in an amount and manner
sufficient to eliminate, to the extent required by the Treasury
Regulations, the Adjusted Capital Account Deficit of such Member as quickly
as possible; provided, however, that an allocation pursuant to this Section
7.4(e)(iii) shall be made only if and to the extent that such Member would
have an Adjusted Capital Account Deficit after all other allocations
provided for in this Section 7.4 have been tentatively made as if this
Section 7.4(e)(iii) were not in this Agreement. This Section 7.4(e)(iii) is
intended to constitute a "qualified income offset" within the meaning of
Treasury Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted
consistently therewith.

(iv) Gross Income Allocation. In the event any Member has an Adjusted
Capital Account Deficit, items of Company income and gain shall be
specially allocated to such Member in an amount and manner sufficient to
eliminate such Member's Adjusted Capital Account Deficit as quickly as
possible; provided, however, that an allocation pursuant to this Section
7.4(e)(iv) shall be made only if and to the extent that such Member would
have an Adjusted Capital Account Deficit after all other allocations
provided for in this Section 7.4 (other than Section 7.4(e)(iii)) have been
tentatively made as if this Section 7.4(e)(iv) were not in this Agreement.

(v) Nonrecourse Deductions. Any Nonrecourse Deductions for any Fiscal
Period shall be allocated to the Members in proportion to their respective
Capital Contributions.

(vi) Partner Nonrecourse Deductions. Any Partner Nonrecourse
Deductions for any Fiscal Period shall be allocated to the Member who bears
the economic risk of loss with respect to the Partner Nonrecourse Debt to
which such Partner Nonrecourse Deductions are attributable in accordance
with Treasury Regulations Section 1.704-2.

(vii) Loss Allocation Limitation. No allocation of Net Loss (or items
thereof) shall be made to any Member to the extent that such allocation
would create or increase an Adjusted Capital Account Deficit with respect
to such Member.

(f) Curative Allocations. The allocations set forth in Section 7.4(e) (the
"Regulatory Allocations") are intended to comply with certain requirements of
Treasury Regulations under Section 704 of the Code. Notwithstanding any other
provision of this Article VII (other than the Regulatory Allocations), the
Regulatory Allocations shall be taken into account in allocating other Company
items of income, gain, loss, deduction and expense among the Members so that, to
the extent possible, the net amount of such allocations

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of other Company items and the Regulatory Allocations shall be equal to the net
amount that would have been allocated to the Members pursuant to this Section
7.4 if the Regulatory Allocations had not occurred.

(g) Section 754 Adjustments. Pursuant to Treasury Regulations Section
1.704-1(b)(2)(iv)(m), to the extent an adjustment to the adjusted tax basis of
any Company asset under Section 734(b) or Section 743(b) of the Code is required
to be taken into account in determining Capital Accounts, the amount of such
adjustment to the Capital Accounts shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis) and such gain or loss shall be specially allocated to the
Members in a manner consistent with the manner in which their Capital Accounts
are required to be adjusted pursuant to such Treasury Regulations.

(h) Transfer of or Change in Interests. The Managers are authorized to
adopt any convention or combination of conventions likely to be upheld for
federal income tax purposes regarding the allocation and/or special allocation
of items of Company income, gain, loss, deduction and expense with respect to a
newly issued Interest, a transferred Interest and a redeemed Interest. Upon
admission as a Substituted Member, a transferee of an Interest shall succeed to
the Capital Account of the transferor Member to the extent it relates to the
transferred Interest.

(i) Certain Expenses. Syndication and organization expenses, as defined in
Section 709 of the Code (and, to the extent necessary as determined in the sole
and absolute discretion of the Managers, any other items) shall be allocated to
the Capital Accounts of the Members so that, as nearly as possible, the
cumulative amount of such syndication and organization expenses (and other
items, if relevant) allocated with respect to each dollar of Capital Commitment
for each Member is the same amount; provided, however, that expenses related to
the registration and public offering of Units may be allocated solely to those
Members who acquired their Interests in such public offering of Interests. The
determination of the amount of Company expenses that are related to the
registration and public offering of the Units shall be made in the sole and
absolute discretion of the Managers, which determination shall be final and
conclusive as to all Members.

(j) Allocation Periods and Unrealized Items. Subject to applicable
Treasury Regulations and other applicable law and notwithstanding anything
expressed or implied to the contrary in this Agreement, the Managers may, in
their sole and absolute discretion, determine allocations to Capital Accounts
based on an annual, quarterly or other period and/or on realized and unrealized
net increases or net decreases (as the case may be) in the fair market value of
Company property.

7.5 Tax Allocations.

(a) Items of Company income, gain, loss, deduction and expense shall be
allocated, for federal, state and local income tax purposes, among the Members
in the same manner as the Net Profit (and items thereof) and Net Loss (and items
thereof) of which such items are components were allocated pursuant to Section
7.4; provided, however, that tax allocations shall be made in accordance with
Section 704(c) of the Code and the Treasury Regulations promulgated thereunder,
to the extent so required thereby.

(b) Allocations pursuant to this Section 7.5 are solely for federal, state
and local income tax purposes and shall not affect, or in any way be taken into
account in computing, any Member's Capital Account or share of Net Profit (and
items thereof) or Net Loss (and items thereof).

(c) The Members are aware of the tax consequences of the allocations made
by this Section 7.5 and hereby agree to be bound by the provisions of this
Section 7.5 in reporting their shares of items of Company income, gain, loss,
deduction and expense.

7.6 Determinations by Managers. All matters concerning the computation of
Capital Accounts, the allocation of Net Profit (and items thereof) and Net Loss
(and items thereof), the allocation of items of Company income, gain, loss,
deduction and expense for tax purposes and the adoption of any accounting
procedures not expressly provided for by the terms of this Agreement shall be
determined by the Managers in their sole and absolute discretion. Such
determination shall be final and conclusive as to all the Members.
Notwithstanding anything expressed or implied to the contrary in this Agreement,
in the event the Managers shall determine, in their sole and absolute
discretion, that it is prudent to modify the manner in which the

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Capital Accounts, or any debits or credits thereto, are computed in order to
effectuate the intended economic sharing arrangement of the Members as reflected
in Article VIII, the Managers may make such modification in their sole and
absolute discretion without the approval of Members.

ARTICLE VIII

WITHDRAWALS AND DISTRIBUTIONS OF CAPITAL

8.1 Withdrawals and Distributions in General. No Member shall be entitled
to withdraw any amount from any Capital Account other than as provided in this
Agreement.

8.2 Distributions. After provision for Company Expenses and establishment
of working capital and other reserves as the Appropriate Officers shall deem
appropriate, the Managers may cause all cash and other property received by the
Company in respect of its investments in any Fiscal Period (collectively,
"Investment Proceeds") to be distributed as follows:

(a) First, to the Special Member in an amount equal to the excess, if
any, of the Incentive Carried Interest as calculated for such Fiscal Period
over the cumulative amount of all distributions made to the Special Member
pursuant to this Section 8.2(a) for all prior Fiscal Periods; and

(b) Second, the balance, if any, to the Members (other than the
Special Member) of record on the record date set by the Managers with
respect to such distribution, in proportion to such Member's respective
Capital Investment.

8.3 Restrictions on Distributions. Notwithstanding anything expressed or
implied to the contrary in this Agreement, no distribution shall be made if, as
determined in the sole and absolute discretion of the Managers, (i) such
distribution would violate any contract or agreement to which the Company is
then a party or any law, rule, regulation, order or directive of any
governmental authority then applicable to the Company or (ii) the amount to be
distributed pursuant to this Article VIII is immaterial.

8.4 Deemed Sale of Assets. Subject only to the requirements of the
Investment Advisers Act of 1940, as amended, for all purposes of this Agreement,
(i) any property (other than United States dollars) that is distributed in kind
to one or more Members with respect to a Fiscal Period (including, without
limitation, any such in kind property that is distributed upon the dissolution
and winding up of the Company) shall be deemed to have been sold for cash equal
to its fair market value, (ii) the unrealized gain or loss inherent in such
property shall be treated as recognized gain or loss for purposes of determining
the Net Profit and Net Loss, (iii) such gain or loss shall be allocated pursuant
to Section 7.4 for such Fiscal Period and (iv) such in kind distribution shall
be made after giving effect to such allocation.

8.5 Withholding. Notwithstanding anything expressed or implied to the
contrary in this Agreement, the Appropriate Officers are authorized to take any
action that they determine to be necessary or appropriate to cause the Company
to comply with any non-United States or United States federal, state or local
withholding requirement with respect to any allocation, payment or distribution
by the Company to any Member or other Person. All amounts so withheld, and, in
the manner determined by the Appropriate Officers, amounts withheld with respect
to any allocation, payment or distribution by any Person to the Company, shall
be treated as distributions to the applicable Members under the applicable
provision of this Agreement. If any such withholding requirement with respect to
any Member exceeds the amount distributable to such Member under this Agreement,
or if any such withholding requirement was not satisfied with respect to any
amount previously allocated, paid or distributed to such Member, such Member or
any successor or assignee with respect to such Member's Interest hereby
indemnifies and agrees to hold harmless the other Members and the Company for
such excess amount or such withholding requirement, as the case may be
(including any interest, additions and penalties).

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ARTICLE IX

WITHDRAWAL OF MEMBERS; TRANSFER OF INTERESTS;
ADMISSION OF SUBSTITUTED MEMBERS; EFFECT OF DEATH, ETC.

9.1 Withdrawal of Members.

(a) The Managers may (but shall not be required to) terminate the Interest
of any Member and cause that Member to withdraw from the Company at any time
upon at least five days' prior written notice upon (i) the request of such
Member; or (ii) a determination by the Managers that the continued participation
of that Member in the Company might adversely affect the Company by jeopardizing
the treatment of the Company as a partnership for federal income tax purposes,
involve the Company in any litigation arising out of or relating to the
participation of that Member in the Company or subject the Company to
restrictions or other adverse consequences as a result of applicable laws or
regulations. In the event that the Managers terminate a Member's Interest, that
Member shall immediately withdraw from the Company and cease to be a Member of
the Company. Such withdrawal shall occur automatically upon termination without
the necessity of any further act by the Member or any other Person. The date of
termination shall be the effective date of withdrawal of the terminated Member.

(b) The Company shall pay to the terminated Member 90% of the amount of the
terminated Member's Capital Account balance (determined in accordance with the
next sentence) within 90 days of termination or as soon thereafter as the
Company shall have sufficient funds available and shall pay the remainder upon
completion of that year's audit. The amount of the terminated Member's Capital
Account shall be determined not more than ten days prior to the date of
termination in the case of a termination pursuant to Section 9.1(a)(i) and not
more than three days prior to the date of termination in the case of a
termination pursuant to Section 9.1(a)(ii). Such amounts paid to a terminated
Member shall not be entitled to interest for any period after the date of
termination.

(c) From and after the effective date of withdrawal of a Member, such
withdrawn Member shall cease to be a Member of the Company for all purposes and
the Units of a withdrawn Member shall not be included in calculating the Units
of the Members required to take any action under this Agreement.

9.2 General Provisions Relating to Transfers of Interests.

(a) Transfers. A Member may not transfer, assign, sell, pledge,
hypothecate or otherwise dispose of any of the attributes of his, her or its
Interest (collectively, a "Transfer"), in whole or in part, to any Person except
as follows (a "Permitted Transfer"):

(i) as permitted by the operation of law pursuant to the death,
bankruptcy, insolvency or dissolution of the Member or otherwise;

(ii) in connection with the transfer to a family trust or another
entity that does not result in a change in beneficial ownership;

(iii) a Transfer meeting the conditions in Section 9.2(b); or

(iv) an assignment described in Section 9.2 (d).

Any attempted transfer of Interests, other than in strict accordance with
this Article IX, shall be null and void and of no force or effect whatsoever,
and the purported transferee shall have no rights as a Member.

(b) Conditions to Transfers. A Member shall be entitled to make a Transfer
of all or any portion of its Interests pursuant to Section 9.2(a)(iii) only upon
the Managers' determination, which determination the Managers shall make in
their sole and absolute discretion, that the Transfer meets each of the
following conditions:

(i) such Transfer, itself or together with any other Transfers,
would not result in the Company being treated as a publicly traded
partnership within the meaning of Section 7704(b) of the Code or otherwise
being treated as a corporation for federal income tax purposes;

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(ii) such Transfer does not require the registration or qualification
of such Interests pursuant to any applicable federal or state securities or
"blue sky" laws;

(iii) such Transfer does not result in a violation of other laws
ordinarily applicably to such transactions;

(iv) the transferor and purported transferee each shall have
represented to the Manager in writing that such Transfer was not effected
through a broker-dealer or matching agent that makes a market in Interests
or that provides a readily available, regular and ongoing opportunity to
Members to sell or exchange their Interests;

(v) the transferor shall reaffirm, and the purported transferee
shall affirm, in writing his, her or its agreement to indemnify as
described in Section 9.4;

(vi) such Transfer would not result in employee benefit plans (as
defined in Section 3(3) of ERISA or Code Section 4975(e)) and other benefit
plan investors (as defined in Section 2510.3-101(f) of the Department of
Labor Regulations under ERISA), directly or indirectly owning, in the
aggregate, 25% or more of the Interests (as determined in accordance with
such regulations);

(vii) no facts are known to the Managers that cause the Managers to
conclude that such transfer will have a material adverse effect on the
Company; and

(viii) the transferee has agreed in writing to become a Member to and
subject to all of the terms, obligations and limitations of this Agreement.

(c) The Managers may reasonably interpret, and are hereby authorized to
take such action as they deem necessary or desirable to effect, the provisions
of this Section 9.2. The Managers may, in their sole and absolute discretion,
amend the provisions of this Section 9.2 in such manner as may be necessary or
desirable (or eliminate or amend such provisions to the extent they are no
longer necessary or desirable) to preserve the status of the Company as a
partnership for federal income tax purposes.

(d) Notwithstanding the restrictions on transfers provided for in this
Section 9.2, a Special Member may assign the economic attributes of its
Interest, in whole or in part, to any Affiliate of such Special Member, and any
such Affiliate may further assign such economic attributes, in whole or in part,
to any other Affiliate of such Special Member, in each case without such
assignee Affiliate becoming admitted to the Company as a substituted Member
pursuant to Section 9.5.

9.3 Effect of Transfers. Upon any Permitted Transfer, the transferee of
the transferred Interest shall be entitled to receive the distributions and
allocations to which the transferring Member would be entitled with respect to
such transferred Interest, but shall not be entitled to exercise any of the
other rights of a Member with respect to such transferred Interest, including,
without limitation, the right to vote, unless and until such transferee is
admitted to the Company as a Substituted Member pursuant to Section 9.5.

9.4 Transfer Indemnity. Each Member hereby agrees to indemnify and hold
harmless the Company, the Special Member, the Managers, each Appropriate Officer
and each other Member (and any successor or assign of any of the foregoing) from
and against all costs, claims, damages, liabilities, losses and expenses
(including losses, claims, damages, liabilities, costs and expenses of any
judgments, fines and amounts paid in settlement), joint or several, to which
those persons may become subject by reason of or arising from any Transfer made
in contravention of the provisions of this Agreement or any misrepresentation
made by such Member in connection with any purported Transfer.

9.5 Substituted Members. No transferee of a transferred Interest shall be
admitted as a Member ("Substituted Member") until each of the following
conditions has been satisfied:

(a) the written consent of the Managers, which may be withheld or
granted in the sole and absolute discretion of the Managers;

(b) the execution and delivery to the Company of a counterpart of this
Agreement by the Substituted Member or its agent or attorney-in-fact;

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<PAGE> 97

(c) receipt by the Company of other written instruments that are in
form and substance satisfactory to the Managers (as determined in their
sole and absolute discretion);

(d) payment by the Substituted Member to the Company of an amount
determined by the Managers to be equal to the costs and expenses incurred
in connection with such assignment, including, without limitation, costs
incurred in preparing and filing such amendments to this Agreement as may
be required;

(e) the updating of the books and records of the Company and Schedule
A hereto to reflect the Person's admission as a Substituted Member;

(f) if required by the Managers in their sole and absolute discretion,
execution and affirmation to an instrument by the terms of which such
Person acknowledges that the relevant transfer of Interests have not been
registered under the Securities Act of 1933, as amended, or any applicable
state securities laws, and covenants, represents and warrants that such
Person acquired the relevant Interests for investment only and not with a
view to the resale or distribution thereof; and

(g) any other similar information or documentation as the Managers may
request.

9.6 Effect of Death, Etc. The death, retirement, withdrawal, expulsion,
disability, incapacity, incompetency, bankruptcy, insolvency or dissolution of a
Member, or the occurrence of any other event under the Act that terminates the
continued membership of a Member as a member of the Company, shall not cause the
Company to be dissolved and its affairs to be wound up so long as the Company
has at least one Member at all times. Upon the occurrence of any such event, the
business of the Company shall be continued without dissolution. The legal
representatives, if any, of a Member shall succeed as assignee to the Member's
Interest upon death, incapacity, incompetency, bankruptcy, insolvency or
dissolution of a Member, but shall not be admitted as a Substituted Member
except under the provisions of Section 9.5 of this Agreement and with the
written consent of the Managers, which written consent the Managers may withhold
in their sole and absolute discretion. The Units held by such legal
representative of a Member shall not be included in calculating the Units of the
Members required to take any action under this Agreement.

ARTICLE X

BOOKS AND RECORDS; REPORTS TO MEMBERS; TAX MATTERS

10.1 Books and Records. In compliance with Section 31 of the Investment
Company Act, the books and records of the Company, and a list of the names and
residence, business or mailing addresses and Interests of all Members, shall be
maintained at the principal executive offices of the Company or such other
location as the Managers' may approve. The Company shall not be required to
provide any documentation or other information to Members except that which it
is required to provide under the Investment Company Act, the Act or other
applicable law. Each Member shall have the right to obtain from the Company from
time to time upon reasonable demand for any proper purpose reasonably related to
the Member's interest as a Member of the Company, and upon paying the costs of
collection, duplication and mailing, the documents and other information which
the Company is required to provide under the Investment Company Act, the Act or
other applicable law. Any demand by a Member pursuant to this section shall be
in writing and shall state the purpose of such demand. The Company may maintain
such other books and records and may provide such financial or other statements
as the Managers or the Appropriate Officers in their discretion deem advisable.

10.2 Annual Reports to Current Members. Within 60 days after the end of
each Fiscal Year or as soon thereafter as practicable, the Company shall have
prepared and distributed to the Members, at the expense of the Company, an
annual report containing a summary of the year's activity and such financial
statements and schedules as may be required by law or as the Managers may
otherwise determine.

10.3 Accounting; Tax Year.

(a) The books and records of the Company shall be kept on the cash basis or
the accrual basis, as determined by the Managers in their sole and absolute
discretion. The Company shall report its operations for

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tax purposes on the cash method or the accrual method, as determined by the
Managers in their sole and absolute discretion. The taxable year of the Company
shall be the calendar year, unless the Managers shall designate another taxable
year for the Company that is a permissible taxable year under the Code.

(b) The books and records of the Company shall be audited by the Company's
independent accountants as of the end of each Fiscal Year, commencing with the
first partial Fiscal Year, of the Company.

10.4 Filing of Tax Returns. The Appropriate Officers shall prepare and
file, or cause the Company's accountants to prepare and file, a federal
information tax return and any required state and local income tax and
information returns for each taxable year of the Company. The Managers have sole
and absolute discretion as to whether or not to prepare and file (or cause its
accountants to prepare and file) composite, group or similar state, local and
foreign tax returns on behalf of the Members where and to the extent permissible
under applicable law. Each Member hereby agrees to execute any relevant
documents (including a power of attorney authorizing such a filing), to furnish
any relevant information and otherwise to do anything necessary in order to
facilitate any such composite, group or similar filing. Any taxes paid by the
Company in connection with any such composite, group or similar filing shall be
treated as an advance to the relevant Members (with interest being charged
thereon) and shall be recouped by the Company out of any distributions
subsequently made to such relevant Members. Such advances may be funded by
Company borrowing. Both the deduction for interest payable by the Company with
respect to any such borrowing, and the corresponding income from interest
received by the Company from the relevant Members, shall be specifically
allocated to such Members.

10.5 Tax Matters Member. The Special Member shall be designated as the tax
matters member of the Company (the "Tax Matters Member") as provided in Section
6231(a)(7) of the Code. Each Person (for purposes of this provision, a
"Pass-Through Member") that holds or controls an Interest on behalf of, or for
the benefit of another Person or Persons, or which Pass-Through Member is
beneficially owned (directly or indirectly) by another Person or Persons shall,
within 30 days following receipt from the Tax Matters Member of a notice or
document, convey such notice or other document in writing to all holders of
beneficial interests in the Company holding such Interest through such
Pass-Through Member. In the event the Company becomes the subject of an income
tax audit by any federal, state or local authority, to the extent the Company is
treated as an entity for purposes of such audit, including administrative
settlement and judicial review, the Tax Matters Member shall be authorized to
act for, and its decision shall be final and binding upon, the Company and each
Member. The Company shall bear all expenses incurred in connection with any such
audit, investigation, settlement or review.

10.6 Tax Information for Current and Former Members. Within 90 days after
the end of each taxable year of the Company or as soon thereafter as
practicable, the Company shall prepare and distribute to each Member (and, to
the extent necessary, to each former Member (or such Member's legal
representatives)), at the expense of the Company, a report setting forth in
sufficient detail such information as shall enable such Member or former Member
(or such Member's legal representatives) to prepare its respective federal,
state and local income tax returns in accordance with the laws, rules and
regulations then prevailing. The Company shall also provide Schedules K-1 to
Members as soon as practicable after the end of each taxable year of the
Company.

ARTICLE XI

LIABILITY AND INDEMNIFICATION

11.1 Liability of the Members and Managers. Except for the obligations
hereunder and under the Subscription Agreements, the liability of the Members
shall be limited to the maximum extent permitted by the Act. In no event shall
the Members be obligated to make Capital Contributions in excess of their
respective Capital Commitments. If a Member is required under the Act to return
to the Company or pay, for the benefit of creditors of the Company, amounts
previously distributed to such Member, the obligation of such Member to return
or pay any such amount to the Company shall be the obligation of such Member and

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not the obligation of the Managers. The liability of the Managers shall be
limited to the maximum extent permitted by the Act.

11.2 Indemnification.

(a) No Manager, Appropriate Officer, Member, Investment Adviser to the
Company, distributor or selling agent of or for the Units or any of their
respective affiliates, shareholders, partners, officers, directors, members,
employees, agents and representatives (each an "Indemnified Person") shall have
any liability, responsibility or accountability in damages or otherwise to any
Member or the Company for, and the Company agrees, to the fullest extent
permitted by law, to indemnify, pay, protect and hold harmless each Indemnified
Person from and against, any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, proceedings, costs, expenses and
disbursements of any kind or nature whatsoever (including, without limitation,
all reasonable costs and expenses of attorneys, defense, appeal and settlement
of any and all suits, actions or proceedings instituted or threatened against
the Indemnified Persons or the Company) and all costs of investigation in
connection therewith which may be imposed on, incurred by, or asserted against
the Indemnified Persons or the Company in any way relating to or arising out of,
or alleged to relate to or arise out of, any action or inaction on the part of
the Company, on the part of the Indemnified Persons when acting on behalf of the
Company or otherwise in connection with the business or affairs of the Company
or any Portfolio Investment, or on the part of any brokers or agents when acting
on behalf of the Company or any Portfolio Investment (collectively, the
"Indemnified Liabilities"); provided that the Company shall not be liable to any
Indemnified Person for any portion of any Indemnified Liabilities which results
from such Indemnified Person's willful misfeasance, bad faith or gross
negligence in the performance of his, her or its duties or by reason of his, her
or its reckless disregard of his, her or its obligations and duties. The
indemnification rights provided for in this Section 11.2(a) shall survive the
termination of the Company or this Agreement. Any indemnification rights
provided for in this Section 11.2(a) shall be retained by any removed, resigned
or withdrawn Manager, Member, Appropriate Officer, Investment Adviser,
distributor or selling agent and its constituent Indemnified Persons. Any
indemnification rights provided for in this Section 11.2(a) shall also be
retained by any Person who has acted in the capacity of officer, director,
partner, employee, agent, stockholder or affiliate of an Indemnified Person
after such Persons shall have ceased to hold such positions.

(b) The right of any Indemnified Person to the indemnification provided
herein shall be cumulative of, and in addition to, any and all rights to which
such Indemnified Person may otherwise be entitled by contract or as a matter of
law or equity and shall extend to such Indemnified Person's successors, assigns
and legal representatives.

(c) The provision of advances from Company funds to an Indemnified Person
for legal expenses and other costs incurred as a result of any legal action or
proceeding is permissible if (i) such suit, action or proceeding relates to or
arises out of, or is alleged to relate to or arise out of, any action or
inaction on the part of the Indemnified Person in the performance of its duties
or provision of its services on behalf of the Company or otherwise in connection
with the business or affairs of the Company or any Portfolio Investment; and
(ii) the Indemnified Person undertakes to repay any funds advanced pursuant to
this Section 11.2(c) in any case in which such Indemnified Person would not be
entitled to indemnification under Section 11.2(a). If advances are permissible
under this Section 11.2(c), the Indemnified Person shall furnish the Company
with an undertaking as set forth in clause (ii) of this paragraph and shall
thereafter have the right to bill the Company for, or otherwise request the
Company to pay, at any time and from time to time after such Indemnified Person
shall become obligated to make payment therefor, any and all amounts for which
such Indemnified Person believes in good faith that such Indemnified Person is
entitled to indemnification under Section 11.2(a) with the approval of the
Managers who are not seeking such indemnification, or if all Managers are
seeking such indemnification, the Special Member, which approval shall not be
unreasonably withheld. The person granting such approval may, but shall not be
required unless otherwise provided by applicable law, prior to approval require
an opinion of counsel to be in effect that such Indemnified Person is likely to
be entitled to indemnification. The Company shall pay any and all such bills and
honor any and all such requests for payment within sixty (60) days after such
bill or request is received by the Company, and the Company's rights to
repayment of such amounts shall be secured by the Indemnified Person's Interest
in the Company, if any, or by such other security as the Managers, or if all
Managers are seeking indemnifica-
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tion, the Special Member may require. In the event that a final judicial (or
binding arbitration) determination is made that the Company is not so obligated
in respect of any amount paid by it to a particular Indemnified Person, such
Indemnified Person will refund such amount within sixty (60) days of such final
determination, and in the event that a final determination is made that the
Company is so obligated in respect to any amount not paid by the Company to a
particular Indemnified Person, the Company will pay such amount to such
Indemnified Person within sixty (60) days of such final determination, in either
case together with interest (at the lesser of (x) the Applicable Rate and (y)
the maximum rate permitted by applicable law) from the date paid by the Company
until repaid by the Indemnified Person or the date it was obligated to be paid
by the Company until the date actually paid by the Company to the Indemnified
Person.

(d) With respect to the liabilities of the Company, all such liabilities:

(1) shall be liabilities of the Company as an entity, and shall be
paid or otherwise satisfied from the Company's assets; and

(2) except to the extent otherwise required by law, shall not in any
event be payable in whole or in part by any Member, Manager, Appropriate
Officer, Investment Adviser, distributor or selling agent, or by any
director, officer, trustee, employee, agent, shareholder, beneficiary,
member or partner of any of them.

(e) The Managers may cause the Company, at the Company's expense, to
purchase insurance to insure the Indemnified Persons against liability hereunder
(including liability arising in connection with the operation of the Company),
including, without limitation, for a breach or an alleged breach of their
responsibilities hereunder.

ARTICLE XII

COMPENSATION AND REIMBURSEMENT

12.1 Investment Adviser.

(a) Reimbursement for Company Expenses. The Company shall reimburse any
Investment Adviser for Company Expenses incurred by such Investment Adviser and
its affiliates in connection with the organization of the Company, the Company's
offer and sale of Units and the ongoing operations of the Company, subject to
the terms and conditions of the Investment Advisory Agreement between the
Company and such Investment Adviser.

(b) Advisory Fee. The Company may pay any Investment Adviser an investment
advisory fee as set forth in, and subject to the terms and conditions of, the
Investment Advisory Agreement with such Investment Adviser. The approval of any
contract or agreement pursuant to which a Person serves as an Investment Adviser
to the Company shall be subject to the applicable requirements of the Investment
Company Act.

12.2 Board of Managers. As compensation for services rendered to the
Company, the Company may pay each Manager who is not an officer, director or
employee of any Investment Adviser or its affiliates such amounts as may be
determined from time to time by the Disinterested Managers. Subject to
compliance with the Investment Company Act, the Board of Managers may establish
pensions, profit sharing, Unit purchase and other retirement, incentive or
benefit plans for Managers.

12.3 Distributor, Selling Agents, Administrator, Custodian and Other
Persons. As compensation for services rendered to the Company or its Members,
the Company may pay each distributor, selling agent, administrator, transfer
agent, custodian, accountant, attorney and other agent or independent contractor
duly engaged by or on behalf of the Company to provide such services. The
approval of any contract or agreement pursuant to which a Person serves as a
principal underwriter to the Company shall be subject to the applicable
requirements of the Investment Company Act.

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ARTICLE XIII

DISSOLUTION AND TERMINATION

13.1 Dissolution. The Company shall be dissolved upon the occurrence of
any of the following:

(a) the expiration of its term, except to the extent extended pursuant
to Section 2.6;

(b) the election by the Managers to dissolve the Company prior to the
expiration of its terms, subject, to the extent required by the Investment
Company Act, to the consent of the Members;

(d) the sale or other disposition at any one time of all or
substantially all of the assets of the Company; and

(e) dissolution required by operation of law.

Except as otherwise determined by the Managers in their sole discretion, the
Company shall not be subject to dissolution at the election of Members.

Dissolution of the Company shall be effective on the day on which the event
occurs giving rise to the dissolution, but the Company shall not terminate until
the assets of the Company have been distributed as provided in Section 13.2 and
the certificate of formation of the Company has been canceled.

13.2 Liquidation. On dissolution of the Company, a liquidator (who shall
be selected by the Board of Managers, if still constituted, and otherwise shall
be a Person proposed and approved by a Majority in Interest of the Members) and
who may be any Investment Adviser or any of its affiliates, shall cause to be
prepared a statement setting forth the assets and liabilities of the Company as
of the date of dissolution, and such statement shall be furnished to all of the
Members. Then, those Company assets that the liquidator determines should be
liquidated shall be liquidated as promptly as possible, but in an orderly and
business-like manner to maximize proceeds. Assets that the liquidator determines
to distribute in kind shall be so distributed in a manner consistent with
applicable law. If the liquidator determines that an immediate sale at the time
of liquidation of all or part of the Company assets would be unduly
disadvantageous to the Members, the liquidator may, either defer liquidation and
retain the assets for a reasonable time, or distribute the assets to the Members
in kind. The liquidator shall then wind up the affairs of the Company and
distribute the proceeds of the Company by the end of the calendar year of the
liquidation (or, if later, within 90 days after the date of such liquidation) in
the following order or priority:

(a) to the payment of the expenses of liquidation and to creditors
(including Members who are creditors, to the extent permitted by law) in
satisfaction of liabilities of the Company other than liabilities for
distributions to Members, in the order of priority as provided by law;

(b) to the setting up of any reserves that the liquidator may deem
necessary or appropriate for any anticipated obligations or contingencies
of the Company or of the liquidator arising out of or in connection with
the operation or business of the Company. Such reserves may be paid over by
the liquidator to an escrow agent or trustee proposed and approved by the
liquidator to be disbursed by such escrow agent or trustee in payment of
any of the aforementioned obligations or contingencies and, if any balance
remains at the expiration of such period as the liquidator shall deem
advisable, to be distributed by such escrow agent or trustee in the manner
hereinafter provided;

(c) to the Special Member in an amount equal to the excess, if any, of
the Incentive Carried Interest as calculated for the Fiscal Period ending
on the date of distribution over the cumulative amount of all distributions
made to the Special Member pursuant to Section 8.2 and this Section 13.2(c)
for all prior Fiscal Periods; then

(d) to the Members or their legal representatives in accordance with
the positive balances in their respective Capital Accounts, as determined
after taking into account all adjustments to Capital Accounts for all
periods.

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13.3 Termination. The liquidator shall comply with any requirements of the
Act or other applicable law pertaining to the winding up of a limited liability
company, at which time the Company shall stand terminated.

ARTICLE XIV

AMENDMENTS

14.1 Proposal of Amendments. Except as otherwise specified in this
Agreement, any amendment to this Agreement may be proposed by any Manager, by
the Investment Adviser or by Members who, in aggregate, own not less than 10% of
the Units owned by all such Members. The Person or Persons proposing such
amendment shall submit to the Board of Managers: (i) the text of such amendment;
(ii) a statement of the purpose of such amendment; and (iii) in the case of an
amendment so proposed by the Members (other than an Investment Adviser), an
opinion of counsel reasonably acceptable to the Managers obtained by the Members
proposing such amendment to the effect that such amendment is permitted by the
Investment Company Act, the Act and the laws of any other jurisdiction where the
Company is qualified to do business, will not impair the limited liability of
the Managers or Members, and will not adversely affect the classification of the
Company as a partnership for federal and state income tax purposes. To the
extent required by the Investment Company Act, the Board of Managers shall,
within 40 days after receipt from Members of a proposal under clause (iii) of
this Section 14.1 and the required opinion, give notification to all Members of
such proposed amendment, of such statement of purpose, and of such opinion of
counsel, together with the views, if any, of the Board of Managers and each
Investment Adviser with respect to such proposed amendment. All amendments
validly proposed by Members pursuant to clause (iii) of this Section 14.1 or
proposed by Managers or the Investment Adviser but requiring the approval of
Members shall be submitted to the Members for a vote no less than 10 days nor
more than 90 days after the date of mailing of notice of the proposed amendment
and will be adopted if approved (i) in the case of an amendment the adoption of
which is recommended by the Board of Managers, an affirmative vote of a Majority
in Interest of the Members, or (ii) in the case of an amendment the adoption of
which has not been recommended by the Board of Managers, an affirmative vote of
a Supermajority of Members, in each case subject to the approval of any greater
number of Members as may be required by this Agreement or applicable law.

14.2 Amendments to Be Adopted Solely by the Board of Managers. Subject to
Section 14.3, the Board of Managers may, without the consent of any Member,
amend any provision of this Agreement as set forth in Section 3.15, and execute
whatever documents may be required in connection therewith.

14.3 Amendments Not Allowable.

(a) Unless approved by a Majority in Interest of the Members affected
thereby, no amendment to this Agreement shall be permitted if the effect of such
amendment would be to:

(i) impair the limited liability of Members provided for in Section
11.1; or

(ii) adversely affect in any way the federal income tax status of the
Company as a partnership.

(b) Subject to Section 3.15(iii), unless approved by a 40 Act Majority of
Members and a Majority of the Disinterested Managers, no amendment shall be
permitted if the effect of such amendment would be to increase the amounts
distributable to the Special Member and decrease the amounts distributable to
the other Members.

ARTICLE XV

POWER OF ATTORNEY

15.1 Power of Attorney. Each Member hereby irrevocably constitutes and
appoints each Manager and each Appropriate Officer, and their respective
designees, as such Member's true and lawful agents and attorneys-in-fact, with
full power and authority in such Member's name, place, and stead, to make,
execute,

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acknowledge, deliver, swear to, file and record the following documents and
instruments in accordance with the other provisions of this Agreement;

(a) this Agreement and a certificate of formation, a certificate of
doing business under fictitious name and any other instrument or filing
which the Board of Managers or the Appropriate Officers of the Company
consider necessary or desirable to carry out the purposes of this Agreement
or the business of the Company or that may be required under the laws of
any state or local government, or of any other jurisdiction;

(b) any and all amendments, restatements, cancellations, or
modifications of the instruments described in Section 15.1(a);

(d) all documents and instruments that may be necessary or appropriate
to effect the dissolution and termination of the Company, pursuant to the
terms hereof.

15.2 Irrevocability. The foregoing power of attorney is coupled with an
interest and such grant shall be irrevocable. Such power of attorney shall
survive the subsequent Incapacity of any such Member or the transfer of any or
all of such Member's Units.

15.3 Priority of Agreement. In the event of any conflict between
provisions of this Agreement or any amendment hereto and any documents executed,
acknowledged, sworn to, or filed by any Manager or Appropriate Officer under
this power of attorney, this Agreement and its amendments shall govern.

15.4 Exercise of Power. This power of attorney may be exercised by any
Manager or Appropriate Officer either by signing separately as attorney-in-fact
for each such Member or by a single signature of any Manager or Appropriate
Officer acting as attorney-in-fact for all Members.

ARTICLE XVI

MISCELLANEOUS

16.1 Certificate of Formation. On each subsequent change in the Company
specified in the Act, the Managers shall to the extent required by the Act cause
to be executed and acknowledged an amended certificate of formation pursuant to
the provisions of the Act, which will be duly filed as prescribed by Delaware
law.

16.2 Delaware Law. This Agreement and the rights and obligations of the
parties hereunder shall be governed by, and construed and interpreted according
to, the laws of Delaware subject to the provisions of the Investment Company
Act.

16.3 Counterparts. This Agreement may be executed in counterparts, and all
counterparts so executed shall constitute one agreement that shall be binding on
all the parties hereto. Any counterpart of this Agreement that has attached to
it separate signature pages which altogether contain the signatures of all
Members or their attorneys-in-fact shall for all purposes be deemed a fully
executed instrument.

16.4 Binding upon Successors and Assigns. Subject to and unless otherwise
provided in this Agreement, each and all of the covenants, terms, provisions and
agreements herein contained shall be binding upon and inure to the benefit of
the successors, successors-in-title, heirs and assigns of the respective parties
hereto.

16.5 Notices. Any notice, offer, consent, or demand permitted or required
to be made under this Agreement to any party hereto shall be given in writing
signed by the Person giving such notice either by (i) personal delivery or (ii)
by registered or certified mail, postage prepaid, addressed to that party at the
respective address shown on the Company's books and records, or to such other
address as that party shall indicate by proper notice to the Board of Managers,
in the same manner as provided above. All notices shall be deemed effective upon
receipt or five days after the date of mailing in accordance with the above
provisions.

34
<PAGE> 104

16.6 Severability. If any provision of this Agreement, or the application
thereof, shall for any reason and to any extent be invalid or unenforceable, the
remainder of this Agreement and the application of such provision to other
Persons or circumstances shall not be effected thereby, but shall be enforced to
the maximum extent possible under applicable law.

16.7 Entire Agreement. This Agreement constitutes the entire understanding
and agreement of the parties hereto with respect to the subject hereof and
supersedes all prior agreements or understandings, written or oral, between the
parties with respect thereto.

16.8 Headings, Etc. The headings in this Agreement are inserted for
convenience of reference only and shall not affect interpretation of this
Agreement. Wherever from the context it appears appropriate, each term stated in
either the singular or the plural shall include the singular and the plural, and
pronouns stated in either the masculine or the neuter genders shall include the
masculine, the feminine and the neuter.

16.9 Legends. If certificates are issued evidencing a Member's Units, each
such certificate shall bear such legends as may be required by applicable
federal and state laws, or as may be deemed necessary or appropriate by the
Board of Managers to reflect restrictions upon transfer contemplated herein.

16.10 Waiver of Partition. Except as may otherwise be provided by law in
connection with the winding up, liquidation and dissolution of the Company, each
Member hereby irrevocably waives any and all rights that it may have to maintain
an action for partition of any of the Company's property.

16.11 Survival of Certain Provisions. All indemnities and reimbursement
obligations made pursuant to this Agreement shall survive dissolution and
liquidation of the Company until the expiration of the longest applicable
statute of limitations (including extensions and waivers) with respect to the
matter for which a party would be entitled to be indemnified or reimbursed, as
the case may be.

EXECUTED at

--------------------------------------
Initial Member

SPECIAL MEMBER

By:
--------------------------------------
President and Chief Executive
Officer

MEMBERS

(All Members now and hereafter
admitted as Members of the Company
pursuant to powers of attorney now and
hereafter executed in favor of, and
delivered to, the Managers or
Appropriate Officers)

By:
--------------------------------------
Attorney-in-Fact

35
<PAGE> 105

SCHEDULE A

EXCELSIOR VENTURE PARTNERS III, LLC

SCHEDULE OF MEMBERS
AS OF MAY 26, 2000

<TABLE>
<CAPTION>
NAME ADDRESS CAPITAL COMMITMENT
---- ------------------------------------------- ------------------
<S> <C> <C>
David I. Fann c/o United States Trust Company of New York $500
114 West 47th Street
New York, New York 10036
</TABLE>

36
<PAGE> 106

SCHEDULE B

EXCELSIOR VENTURE PARTNERS III, LLC

SCHEDULE OF MANAGERS
AS OF MAY 26, 2000

<TABLE>
<CAPTION>
NAME
----
<S> <C>
John C. Hover II
Gene M. Bernstein
Stephen V. Murphy
Victor F. Imbimbo, Jr.
</TABLE>

37
<PAGE> 107

Until February 15, 2001, all dealers effecting transactions in the Units,
whether or not participating in this distribution, may be required to deliver a
prospectus. This is in addition to the obligations of dealers to deliver a
prospectus when acting as Underwriters and with respect to their unsold
allotments or subscriptions.
<PAGE> 108

APPENDIX C

EXCELSIOR VENTURE
PARTNERS III, LLC

------------------------

SUBSCRIPTION

BOOKLET
------------------------
<PAGE> 109

EXCELSIOR VENTURE PARTNERS III, LLC

SUBSCRIPTION INSTRUCTIONS

This booklet contains documents which must be executed and returned if you
wish to invest in Excelsior Venture Partners III, LLC (the "Company"). You
should consult with an attorney, accountant, investment advisor or other advisor
regarding an investment in the Company and its suitability for you. All
Subscription Documents must be completed correctly and thoroughly or they will
not be accepted. If you wish to invest, please complete, sign and return this
Subscription Booklet and retain the Company's prospectus.

If you have any questions concerning these Subscription Documents or would
like assistance completing them, please contact your investment advisor.

INSTRUCTIONS FOR INDIVIDUALS (SUBSCRIPTIONS THROUGH A RETIREMENT PLAN, INCLUDING
IRAs AND 401ks, MUST BE MADE PURSUANT TO THE "INSTRUCTIONS FOR ENTITIES OTHER
THAN INDIVIDUALS," BELOW)

1. Fill out and sign page 11.

NOTE: By executing page 11, the investor thereby grants the Power of
Attorney contained in the Subscription Agreement under Section 1(c).

2. Return this booklet to your U.S. Trust contact or directly to the
Company at the address listed below under the heading COMPANY ADDRESS.

3. Follow the instructions listed below under the heading PAYMENT OF
CAPITAL CONTRIBUTION.

INSTRUCTIONS FOR ENTITIES OTHER THAN INDIVIDUALS (TRUSTS, CORPORATIONS,
CUSTODIANS, IRAs ETC.)

1. Direct the appropriate personnel to answer the Questionnaire found on
page 10 by initialing in the spaces provided.

2. Appropriate personnel should fill out and sign page 11.

NOTE: By executing page 11, the investor thereby grants the Power of
Attorney contained in the Subscription Agreement under Section 1(c).

3. IF THE INVESTOR IS A PARTNERSHIP, please complete Exhibit A and attach
to it a copy of the Investor's partnership agreement or other governing
instruments; IF THE INVESTOR IS A CUSTODIAN, TRUSTEE OR AGENT, please
complete Exhibit B and attach to it a copy of the Investor's trust
declaration or other governing instrument; IF THE INVESTOR IS A
CORPORATION, please complete Exhibit C and attach to it a copy of the
Investor's Articles of Incorporation and By-laws or other governing
instruments; IF THE INVESTOR IS A LIMITED LIABILITY COMPANY, please
complete Exhibit D and attach to it a copy of the Investor's operating
agreement or other governing instruments.

4. Return this booklet to your U.S. Trust contact or directly to the
Company at the address listed below under the heading COMPANY ADDRESS.

5. Follow the instructions listed below under the heading PAYMENT OF
CAPITAL CONTRIBUTION.

COMPANY ADDRESS:

Excelsior Venture Partners III, LLC
114 West 47th Street
New York, NY 10036
Attention: Katherine Hunsley

PAYMENT OF CAPITAL CONTRIBUTION

If you maintain an account with U.S. Trust, you may elect to have your
payment deducted from your designated U.S. Trust account by checking the
appropriate box on the Execution Page, or you may make your payment by wire or
check on or before the date of the closing of the Company. If you do not
maintain a U.S.

1
<PAGE> 110

Trust account, payment must be made by wire or check on or before the date of
the closing of the Company. If you elect to have your payment deducted directly
from your designated U.S. Trust account, the Company will notify U.S. Trust of
the date and time of the proposed closing at least three business days prior to
the proposed closing date. On, or before, the proposed closing date, monies will
be deducted from your designated U.S. Trust account and transmitted to the
escrow account maintained by PNC Bank, Delaware, as Escrow Agent, pending
closing. As explained in the prospectus, if subscriptions for at least
$100,000,000 have not been received by the Termination Date (as defined in the
prospectus), the offering will terminate and funds will be returned to
investors. Please carefully follow the instructions listed below to insure
proper payment.

To Pay By Check:

<TABLE>
<S> <C>
Make payable to: PNC Bank, Delaware as Escrow Agent for Excelsior Venture
Partners III, LLC
Send to: PFPC Inc.
c/o Excelsior Venture Partners III, LLC
103 Bellevue Parkway
Wilmington, DE 19809
Attention: Lisa Sparco
</TABLE>

To Pay By Wire:

IT IS IMPERATIVE THAT YOU INCLUDE YOUR NAME (OR, IF YOU ARE WIRING MONEY ON
BEHALF OF AN ENTITY, THE NAME OF THE ENTITY) IN THE REFERENCE LINE OF THE WIRE
INSTRUCTIONS.

<TABLE>
<S> <C>
Wire to: PNC Bank Delaware
ABA #: 031100089
FBO: PNC Bank, Delaware as Escrow Agent for Excelsior
Venture Partners III, LLC
Account #: 56-0401-4748
Reference: [Insert Investor's name here]
</TABLE>

THE COMPANY IS NOT AVAILABLE FOR INVESTMENT TO RESIDENTS OF ALABAMA, ARKANSAS,
KANSAS, MAINE, MASSACHUSETTS, MISSISSIPPI AND MISSOURI.

SCHEDULE A CONTAINS ADDITIONAL INFORMATION AND REQUIREMENTS FOR RESIDENTS
IN CERTAIN OTHER STATES.

See next page for tear-out prepared instructions to deliver to your
bank/financial institution.

2
<PAGE> 111

WIRING INSTRUCTIONS

<TABLE>
<S> <C>
----------------------------------------------------- Insert your
----------------------------------------------------- Bank/Financial
----------------------------------------------------- Institution name
----------------------------------------------------- and address here.
</TABLE>

Dear Sir/Madam:

Please wire ______________________________ (insert your dollar amount) from
my account number ______________________ (insert your account number) and send
the proceeds to:

PNC Bank Delaware
ABA #: 031100089
FBO: PNC Bank, Delaware as Escrow Agent for Excelsior Venture Partners III,
LLC
Account #: 56-0401-4748
Reference:

Sincerely,

<TABLE>
<S> <C>
Investor Signature ----------------------------------------------
Print name ----------------------------------------------
Address ----------------------------------------------
----------------------------------------------
----------------------------------------------
Daytime Telephone # ----------------------------------------------
</TABLE>

3
<PAGE> 112

SUBSCRIPTION AGREEMENT

Excelsior Venture Partners III, LLC
c/o United States Trust Company of New York
114 West 47th Street
New York, New York 10036

Ladies and Gentlemen:

Reference is made to the prospectus dated November 20, 2000 (the
"Prospectus") with respect to the offering of units of membership interest
("Units") in Excelsior Venture Partners III, LLC (the "Company"). Capitalized
terms used but not defined herein shall have the respective meanings given them
in the Prospectus.

The undersigned subscribing investor (the "Investor") hereby agrees as
follows:

1. Subscription for the Units.

(a) The Investor agrees to become a Member of the Company and agrees to
make a capital contribution to the Company in the amount set forth on the
Execution Page of this Subscription Agreement under the heading "Capital
Commitment" on the terms and conditions described herein and in the Prospectus.

(b) The Investor acknowledges and agrees that it is not entitled to cancel,
terminate or revoke this subscription or any agreements or power of attorney of
the Investor hereunder, except as otherwise set forth in this Section 1(b), the
Prospectus or applicable law, and such subscription and agreements and power of
attorney shall survive (i) changes in the transaction, documents and instruments
described in the Prospectus which in the aggregate are not material or which are
contemplated by the Prospectus and (ii) the death or disability of the Investor;
provided, however, that if the Company shall not have accepted this subscription
on or before December 31, 2000, subject to extension by the Company's Board of
Managers (the date of any such acceptance of this subscription the "Closing
Date"), this subscription, all agreements of the Investor hereunder and the
power of attorney granted hereby shall be cancelled and this Subscription
Agreement will be returned to the Investor.

(c) The Investor hereby irrevocably constitutes and appoints each member of
the Company's Board of Managers and the appropriate officers of the Company (and
any designee of, substitute for or successor to any of them) as the Investor's
true and lawful attorney in the Investor's name, place and stead, (i) to receive
and pay over to the Company on behalf of the Investor, to the extent set forth
in this Subscription Agreement, all funds received hereunder, (ii) to execute,
complete or correct, on behalf of the Investor, all documents to be executed by
the Investor in connection with the Investor's subscription for Units,
including, without limitation, filling in or amending amounts, dates, and other
pertinent information and (iii) to make, execute, acknowledge, deliver, swear
to, file and record: (A) this Agreement and a certificate of formation, a
certificate of doing business under fictitious name and any other instrument or
filing which the Board of Managers or the appropriate officers of the Company
consider necessary or desirable to carry out the purposes of this Subscription
Agreement, the Operating Agreement or the business of the Company or that may be
required under the laws of any state or local government or of any other
jurisdiction; (B) any and all amendments, restatements, cancellations, or
modifications of the instruments described in (A) above; (C) any and all
instruments related to the admission, removal, or withdrawal of any Member; and
(D) all documents and instruments that may be necessary or appropriate to effect
the dissolution and termination of the Company. This power of attorney shall be
deemed coupled with an interest, shall be irrevocable and shall survive any
transfer of some or all of the Investor's Units.

2. Certain Acknowledgments and Agreements of the Investor.

4
<PAGE> 113

purposes. The Investor understands that Skadden, Arps, Slate, Meagher & Flom LLP
acts as counsel only to the Company, the Investment Adviser and Investment
Sub-Adviser and no attorney-client relationship exists between Skadden, Arps,
Slate, Meagher & Flom LLP and any other person solely by reason of such person
making an investment in the Company.

3. Representations and Warranties of the Investor.

The Investor, for the Investor and for the Investor's heirs, personal
representatives, successors and assigns, makes the following representations,
declarations and warranties with the intent that the same may be relied upon in
determining the suitability of the undersigned as an investor in the Company.
The following representations, warranties and agreements shall survive the
Closing Date.

(a) The Investor has received, read carefully and understands the
Prospectus and all exhibits thereto and has consulted the Investor's own
attorney, accountant or investment advisor with respect to the investment
contemplated hereby and its suitability for the Investor. Any special
acknowledgment set forth below with respect to any statement contained in the
Prospectus shall not be deemed to limit the generality of this representation
and warranty.

(b) The value of the Investor's total assets (exclusive of the Investor's
principal residence) less the Investor's total liabilities is at least
$1,000,000. The amount that the Investor is subscribing for does not exceed 10%
of the Investor's total assets less the Investor's total liabilities.

(c) The Investor understands and acknowledges that (i) the Investor must
bear the economic risk of the Investor's investment in the Units until the
termination of the Company; (ii) the Investor has no contract, undertaking,
agreement or arrangement with any person to sell, transfer or pledge to such
person or anyone else any of the Units which the Investor hereby subscribes to
purchase or any part thereof, and the Investor has no present plans to enter
into any such contract, undertaking, agreement or arrangement; (iii) the Units
cannot be sold or transferred without the prior written consent of the Company,
which shall be granted or may be withheld in accordance with the terms of the
Operating Agreement and will be withheld if transfer would subject the Company
to adverse tax consequences; (iv) following any sale, transfer or disposition of
Units, less than 25% of the value of the class of Units may be held by "benefit
plan investors" within the meaning of DOL Regulation 2510.3-101, 29 C.F.R.
Section 2510.3-101; (v) there will be no public market for the Units; and (vi)
any disposition of the Units may result in unfavorable tax consequences to the
Investor.

(d) The Investor is aware and acknowledges that (i) the Company has no
operating history; (ii) the Units involve a substantial degree of risk of loss
of the Investor's entire investment and there is no assurance of any income from
such investment; (iii) any federal and/or state income tax benefits which may be
available to the Investor may be lost through the adoption of new laws or
regulations or changes to existing laws and regulations or changes in the
interpretation of existing laws and regulations; (iv) the Investor, in making
its investment, is relying solely upon the advice of the Investor's personal tax
advisor with respect to the tax aspects of an investment in the Company; and (v)
because there are substantial restrictions on the transferability of the Units
it may not be possible for the undersigned to liquidate its investment readily
in any event, including in case of an emergency.

(e) If the Investor is a corporation, limited liability company, trust,
partnership or other entity, the statements made by the Investor in Paragraph 7
hereto are true, correct and complete in all material respects.

(f) If the Investor is a natural person, the Investor is at least 21 years
of age and the Investor has adequate means of providing for all of his or her
current and foreseeable needs and personal contingencies and has no need for
liquidity in this investment, and if the Investor is an unincorporated
association, all of its members who are U.S. Persons (as defined in subsection
(m) of this Section 3) are at least 21 years of age.

(g) The Investor has evaluated the risks of investing in the Units, and has
determined that the Units are a suitable investment for the Investor. The
Investor can bear the economic risk of this investment and can afford a complete
loss of its investment. In evaluating the suitability of an investment in the
Units, the Investor has not relied upon any advice, representations or other
information (whether oral or written) other than as set forth in the Prospectus
and exhibits thereto, and independent investigations made by the Investor or

5
<PAGE> 114

representative(s) of the Investor that are not affiliated with the Company. The
Investor has reviewed the eligibility requirements of Schedule A, attached to
this Agreement, and to the extent applicable, meets all suitability and
eligibility requirements described therein.

(h) The Investor is knowledgeable and experienced in evaluating investments
and experienced in financial and business matters and is capable of evaluating
the merits and risks of investing in the Units. The aggregate amount of the
investments of the Investor in, and the Investor's commitments to, all similar
investments that are illiquid is reasonable in relation to the Investor's net
worth.

(i) The Investor maintains its domicile, and is not merely a transient or
temporary resident, at the residence address shown on the signature page of this
Subscription Agreement.

(j) The representations, warranties, agreements, undertakings and
acknowledgments made by the Investor in this Subscription Agreement are made
with the intent that they be relied upon by the Company, Charles Schwab & Co.,
Inc. (the "Distributor") and any selling agent in determining its suitability as
a purchaser of the Units, and shall survive its purchase. In addition, the
Investor undertakes to notify the Company immediately of any change in any
representation, warranty or other information relating to the Investor set forth
herein.

(k) The Investor, if it is a corporation, limited liability company, trust,
partnership or other entity, is duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization and the execution,
delivery and performance by it of this Subscription Agreement and the Operating
Agreement are within its powers, have been duly authorized by all necessary
corporate or other action on its behalf, require no action by or in respect of,
or filing with, any governmental body, agency or official (except as disclosed
in writing to the Company), and do not and will not contravene, or constitute a
default under, any provision of applicable law or regulation or of its
certificate of incorporation, By-laws or other comparable organizational
documents or any agreement, judgment, injunction, order, decree or other
instrument to which the Investor is a party or by which the Investor or any of
the Investor's property is bound. This Agreement constitutes, and the Operating
Agreement, when executed and delivered, will constitute, a valid and binding
agreement of the Investor, enforceable against the Investor in accordance with
its terms.

(l) If the Investor is a natural person, the execution, delivery and
performance by the Investor of this Subscription Agreement and the Operating
Agreement are within the Investor's legal right, power and capacity, require no
action by or in respect of, or filing with, any governmental body, agency or
official (except as disclosed in writing to the Company), and do not and will
not contravene, or constitute a default under, any provision of applicable law
or regulation or of any agreement, judgment, injunction, order, decree or other
instrument to which the Investor is party or by which the Investor or any of his
or her property is bound. This Subscription Agreement constitutes, and the
Operating Agreement, when executed and delivered, will constitute, a valid and
binding agreement of the Investor, enforceable against the Investor in
accordance with its terms.

(m) The Investor is a United States citizen if an individual, and if an
entity is organized under the laws of the United States or a state thereof or is
otherwise a U.S. Person(1) as defined below or as otherwise defined in Rule 902
under the U.S. Securities Act of 1933, as amended.

---------------

1 For purposes of this representation, a U.S. Person is (i) a natural person who
is a citizen of or resident in the United States; (ii) a partnership or
corporation organized or incorporated under the laws of the United States;
(iii) an estate of which any executor or administrator is a U.S. person; (iv)
a trust of which any trustee is a U.S. person; (v) an agency or branch of a
foreign entity located in the United States; (vi) a non-discretionary account
or similar account (other than an estate or trust) held by a dealer or other
fiduciary for the benefit or account of a U.S. person; (vii) a discretionary
account or similar account (other than an estate or trust) held by a dealer or
other fiduciary organized, incorporated, or (if an individual) resident in the
United States; and (viii) a partnership or corporation if (A) organized or
incorporated under the laws of any foreign jurisdiction; and (B) formed by one
or more of the above and/or one or more natural persons resident in the U.S.
principally for the purpose of investing in securities not registered under
the Securities Act, unless it is organized or incorporated, and owned, by
accredited investors (as defined in Rule 501(a)) who are not natural persons,
estates or trusts; provided, however, that the term "U.S. Person" shall not
include any person or entity that is not treated as a U.S. Person for purposes
of the Internal Revenue Code of 1986, as amended.
6
<PAGE> 115

(n) By purchase of Units, the Investor represents to the Investment
Adviser, the Investment Sub-Adviser, the Board of Managers, the Distributor and
the Company that the Investor has neither acquired nor will transfer, assign or
market any Units the Investor purchases (or any interest therein) on or through
an "established securities market" or a "secondary market (or the substantial
equivalent thereof)" within the meaning of section 7704(b) of the Internal
Revenue Code of 1986, as amended, including, without limitation, an
over-the-counter-market or an interdealer quotation system that regularly
disseminates firm buy or sell quotations. Further, the Investor agrees that, if
it determines to transfer or assign any of its Units or any interest therein
pursuant to the provisions of the Operating Agreement, it will cause its
proposed transferee to agree to the transfer restrictions set forth herein and
to make the representations set forth above.

(o) The Investor has evaluated the Prospectus and has determined that the
Investor is and will be in a financial position appropriate to enable the
Investor to realize to a significant extent the benefits described in the
Prospectus.

(p) The Investor is not a charitable remainder trust.

4. Indemnification. The Investor recognizes that the offer of the Units
was made in reliance upon the Investor's representations and warranties set
forth in Paragraph 3 above and the acknowledgments and agreements set forth in
Paragraph 2 above. The Investor agrees to provide, if requested, any additional
information that may reasonably be required to determine the eligibility of the
Investor to purchase the Units. The Investor hereby agrees to indemnify the
Company, each member of the Board of Managers of the Company, the Investment
Adviser, the Investment Sub-Adviser, the Distributor and any of their affiliates
and controlling persons and each other member and any successor or assign of the
foregoing and to hold each of them harmless from and against any loss, damage or
liability (including attorney's fees) due to or arising out of a breach of any
representation, warranty, acknowledgment or agreement of the Investor contained
in this Subscription Agreement or in any other document provided by the Investor
to the Company in connection with the Investor's investment in the Units.
Notwithstanding any provision of this Agreement, the Investor does not waive any
rights granted to it under applicable securities laws.

5. General. This Agreement (i) shall be binding upon the Investor and the
heirs, personal representatives, successors and assigns of the Investor, (ii)
shall be governed, construed and enforced in accordance with the laws of the
State of Delaware, without reference to any principles of conflicts of law
(except insofar as affected by the state securities or "blue sky" laws of the
jurisdiction in which the offering described herein has been made to the
Investor), (iii) shall survive the admission of the Investor to the Company as a
Member, and (iv) shall, if the Investor consists of more than one person, be the
joint and several obligation of all such persons.

6. Assignment. The Investor agrees that neither this Subscription
Agreement nor any rights which may accrue to the Investor hereunder may be
transferred or assigned.

7. Suitability. If the Investor is a corporation, limited liability
company, trust, partnership or other entity, the truth, correctness and
completeness of the information supplied by the Investor in the attached
Investor Questionnaire for Entities is warrantied pursuant to Paragraph 3(e)
hereof.

8. Arbitration. ANY CLAIM, CONTROVERSY, DISPUTE OR DEADLOCK ARISING UNDER
THIS AGREEMENT (COLLECTIVELY, A "DISPUTE") SHALL BE SETTLED BY ARBITRATION, IN
ACCORDANCE WITH THE RULES AND REGULATIONS OF THE NASD, EXCEPT IN THE EVENT THAT
THE NASD IS UNWILLING TO ACCEPT JURISDICTION OF THE MATTER, SUCH ARBITRATION
SHALL BE HELD IN ACCORDANCE WITH THE RULES AND REGULATIONS OF THE AMERICAN
ARBITRATION ASSOCIATION ("AAA"). ALL ARBITRATIONS SHALL BE HELD IN SAN
FRANCISCO, CALIFORNIA. ANY ARBITRATION AND AWARD OF THE ARBITRATORS, OR A
MAJORITY OF THEM, SHALL BE FINAL AND THE JUDGMENT UPON THE AWARD RENDERED MAY BE
ENTERED IN ANY STATE OR FEDERAL COURT HAVING JURISDICTION. NO PUNITIVE DAMAGES
ARE TO BE AWARDED.

7
<PAGE> 116

SCHEDULE A

RESIDENTS OF THE FOLLOWING STATES MUST MEET THE
SUITABILITY STANDARDS SET FORTH BELOW

ARIZONA

To invest in Units of the Company, Arizona residents must represent that
their investment in Units of the Company does not represent more than ten
percent of their net worth less the value of their investments in limited
partnership interests and have one of the following: (a) an annual gross income
of at least $75,000 and a net worth of at least $75,000 exclusive of home, car
and home furnishings; (b) a net worth of at least $225,000 exclusive of home,
car and home furnishings; or (c) in the case of sales to qualified pension or
profit sharing plans or trusts, Keogh plans or individual retirement accounts,
that the net worth and income requirements set forth in items (a) or (b) of this
paragraph are met by the fiduciary account or by the donor who directly or
indirectly supplies the monies for the purchase of the securities.

MINNESOTA

To invest in Units of the Company, Minnesota residents must qualify as an
accredited investor as that term is defined under Rule 501 of the Securities Act
of 1933, as amended, and as set forth in Schedule B attached hereto.

NEBRASKA

NEW HAMPSHIRE

OKLAHOMA

To invest in Units of the Company, Oklahoma residents must qualify as an
accredited investor as that term is defined under Rule 501 of the Securities Act
of 1933, as amended, and as set forth in Schedule B attached hereto.

TEXAS

To invest in Units of the Company, Texas residents must qualify as an
accredited investor as that term is defined under Rule 501 of the Securities Act
of 1933, as amended, and set forth in Schedule B attached hereto.

WEST VIRGINIA

8
<PAGE> 117

SCHEDULE B

DEFINITION OF ACCREDITED INVESTOR

"Accredited investor" shall mean any person who comes within any of the
following categories, or who the issuer reasonably believes comes within any of
the following categories, at the time of the sale of the securities to that
person:

a. A bank, or any savings and loan association or other institution
acting in its individual or fiduciary capacity; a broker or dealer; an
insurance company; an investment company or a business development
company under the Investment Company Act of 1940, as amended; a Small
Business Investment Company licensed by the U.S. Small Business
Administration; a plan established and maintained by a state, its
political subdivisions, or any agency or instrumentality of a state or
its political subdivisions, for the benefit of its employees if the plan
has total assets in excess of $5 million; an employee benefit plan whose
investment decision is being made by a plan fiduciary, which is either a
bank, savings and loan association, insurance company or registered
investment adviser, or an employee benefit plan whose total assets are
in excess of $5,000,000 or a self-directed employee benefit plan whose
investment decisions are made solely by persons that are "accredited
investors;"

b. A private business development company under the Investment Advisers
Act of 1940;

c. Any corporation, partnership, limited liability company,
Massachusetts or similar business trust or organization described in
Section 501(c)(3) of the Internal Revenue Code that has total assets in
excess of $5,000,000, and was not formed for the specific purpose of
acquiring the Units;

d. Any trust, not formed for the specific purpose of acquiring the
securities offered, with total assets in excess of $5,000,000 and whose
purchase is directed by a sophisticated person;

e. Any director, executive officer, or general partner of the Company;

f. Any natural person with:

i. a net worth, (including residence, personal property and other
assets in excess of total liabilities) taken together with the net
worth of the Investor's spouse, exceeds $1,000,000;

ii. individual gross income in excess of $200,000 (or joint income
with spouse in excess of $300,000) in each of the two previous years
and a reasonable expectation of gross individual income in excess of
$200,000 (or joint income with spouse in excess of $300,000) this
year; or

g. Any entity in which all of the equity holders are accredited
investors.

9
<PAGE> 118

INVESTOR QUESTIONNAIRE FOR ENTITIES

EXAMPLES OF ENTITIES INCLUDE, BUT ARE NOT LIMITED TO, TRUSTS, CORPORATIONS,
LIMITED PARTNERSHIPS AND LIMITED LIABILITY COMPANIES.

ENTITIES (NON-INDIVIDUALS): PLEASE COMPLETE THIS QUESTIONNAIRE.

1. Legal form of entity (corporation, partnership, trust, etc.):

Investor entity was organized under the laws of the state of

2. The fiscal year-end of the Investor is .
(Month/Day)

3. ERISA. (i) The Investor, and each account on behalf of which it is acquiring
the Units IS ____________ / IS NOT ____________ (check one): using funds to
acquire Units that constitute assets of any of the following:

(a) an "employee benefit plan" as defined in section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
whether or not it is subject to Title I of ERISA (including but not limited
to governmental plans);

(b) a plan (including IRAs) described in section 4975 of the Internal
Revenue Code of 1986, as amended (the "Code");

(c) an entity whose underlying assets include (or are deemed to
include) plan assets by reason of a plan's investment in such entity
(including but not limited to an insurance company general account, an
insurance company separate account and a collective investment fund); or

(d) an entity that otherwise constitutes a "benefit plan investor"
within the meaning of the Department of Labor Regulation, 29 C.F.R. Section
2510.3-101 (the "Plan Assets Regulation") (the plans and entities described
in clauses (a), (b), (c) and (d) above being referred to as "Benefit Plan
Investors").

(ii) The Investor, and each account on behalf of which it is acquiring the
Units, IS ____________ / IS NOT ____________ (check one) a Controlling Person. A
Controlling Person is defined as a person (other than Benefit Plan Investors)
that has discretionary authority or control with respect to the assets of an
entity or that provides investment advice for a fee (direct or indirect) with
respect to such assets, or any affiliate of such a person.

(iii) The Investor acknowledges that the Company will not register the
sale, transfer or disposition of the Units unless, following such sale, transfer
or disposition, less than twenty-five percent (25%) of the value of the class of
Units is held by Benefit Plan Investors. It further acknowledges that for
purposes of determining whether Benefit Plan Investors hold less than
twenty-five percent (25%) of the value of the Units, (a) the value of any Units
held by Controlling Persons that are not Benefit Plan Investors will be
disregarded, and (b) unless specific disclosure is made by the Investor to the
Issuer to the contrary, an insurance company general account will be treated as
if 100% of the assets of such general account constituted assets of a Benefit
Plan Investor.

The representations to be made pursuant to this paragraph (iii) shall be
deemed made on each day from the date the Investor makes such representations
through and including the date on which such Investor disposes of its interests
in the Units. The Investor understands and agrees that the information supplied
above will be used to determine whether Benefit Plan Investors own less than 25%
of the Units, both upon the original issuance of Units and upon any subsequent
transfer of any equity interest in the Company for any reason.

In evaluating the suitability of an investment in the Units, the Investor
has not relied upon any advice, representations or other information (whether
oral or written) other than as set forth in the Prospectus and exhibits thereto
and independent investigations made by the Investors or representatives of the
Investor that are not affiliated with the Company.

4. Please indicate whether or not the Investor is a U.S. pension trust or
governmental plan qualified under section 401(a) of the Code or a U.S.
tax-exempt organization qualified under section 501(c)(3) of the Code.

____ Yes ____ No

10
<PAGE> 119

EXCELSIOR VENTURE PARTNERS III, LLC

EXECUTION PAGE

IN WITNESS WHEREOF, THE UNDERSIGNED INVESTOR HAS EXECUTED THIS SUBSCRIPTION
AGREEMENT.

Mr., Mrs. Jr., Sr., II, III, IV, Esq., CPA
Ms., Dr.
-------------------------------------
(Investor/Contact Name)

RESIDENCE

Address: Telephone: ( )
----------------------------------------------------- ----------------------------------------------------

----------------------------------------------------- Fax: ( )
City: State: Zip: -----------------------------------------------
------------- ------ ---------
E-Mail:
----------------------------------------------
</TABLE>

MAILING ADDRESS (IF OTHER THAN RESIDENCE)

Title: Telephone: ( )
----------------------------------------------- -------------------------------------------
Fax: ( )
Company Name: -------------------------------------------------
---------------------------------------- E-Mail:
Address: ----------------------------------------------
---------------------------------------------

-----------------------------------------------------
City: State: Zip:
------------------ ------ ---------
</TABLE>

Investor Name:
----------------------------------------------------------------

U.S. Trust Account Number:
-----------------------------------------------------

-------------------------------------------------------------------------------
Investor Type

<TABLE>
<S> <C> <C> <C> <C>
[ ] Individual Joint: [ ] Rights of Survivorship [ ] Trust [ ] Partnership
[ ] Tenants in Common [ ] Corporation [ ] L.L.C.
</TABLE>

[ ] Other:
---------------------------------------------------------------------

Social Security/Tax ID No: Signature:
------------------------- ---------------------------------------

Print Name and Title (if applicable):

------------------------------------------------

State in which this Agreement was signed: Date of Execution: , 20
----------- -------------------- ------

</TABLE>
-------------------------------------------------------------------------------

-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
CAPITAL COMMITMENT: $ (Must be a multiple of $500 equal to or greater than $100,000.)
------------------------
-------------------------------------------------------------------------------
</TABLE>

Method of Payment: [ ] Debit U.S. Trust Account [ ] Wire [ ] Check

-------------------------------------------------------------------------------
WIRE PAYMENT INFORMATION FOR INVESTOR (FOR COMPANY DISTRIBUTIONS). IF
DISTRIBUTIONS ARE TO BE WIRED TO THE U.S. TRUST ACCOUNT NUMBER LISTED ABOVE,
CIRCLE "YES" BELOW AND LEAVE THE REMAINDER BLANK.
------------------------------------------------------------------------------
U.S. Trust Account: Yes or No

Bank Name: Bank Officer:
----------------------------------------- ----------------------------------------------------

Address: Telephone:
------------------------------------------- -------------------------------------------------------

Investor Account Number: ABA Number:
---------------------------- ------------------------------------------------------
</TABLE>

11
<PAGE> 120

EXHIBIT A

CERTIFICATE OF PARTNERSHIP INVESTOR

TO BE COMPLETED BY INVESTORS WHO ARE PARTNERSHIPS.

CERTIFICATE OF ________________________________________________________(the
"Partnership")
(Name of Partnership)

The undersigned, constituting all of the partners of the Partnership who
must consent to the proposed investment by the Partnership hereby certify as
follows:

1. That the Partnership commenced business on ____________ and was
established pursuant to a Partnership Agreement dated ____________ (the
"Agreement").

2. That a true and correct copy of the Agreement is attached hereto and
that, as of the date hereof, the Agreement has not been amended (except as to
any attached amendments) or revoked and is still in full force and effect.

3. That, as the partners of the Partnership, we have the authority to
determine, and have determined, (i) that the investment in, and the purchase of
an interest in Excelsior Venture Partners III, LLC is of benefit to the
Partnership and (ii) to make such investment on behalf of the Partnership.

4. That ____________ is authorized to execute all necessary documents in
connection with our investment in Excelsior Venture Partners III, LLC.

IN WITNESS WHEREOF, we have executed this certificate as the partners of
the Partnership this ____ day of ________, ______, and declare that it is
truthful and correct.

(Name of Partnership)

By:
--------------------------------------
Partner

(Attach extra signature pages if
necessary)

12
<PAGE> 121

EXHIBIT B

CERTIFICATE OF TRUST INVESTOR

TO BE COMPLETED BY INVESTORS WHO ARE TRUSTS.

CERTIFICATE OF (the "Trust")
(Name of Trust)

The undersigned, constituting all of the Trustees of the Trust, hereby
certify as follows:

1. That the Trust was established pursuant to a Trust Agreement dated (the
"Agreement").

2. That a true and correct copy of the Agreement is attached hereto and
that as of the date hereof, the Agreement has not been amended (except as to any
attached amendments) or revoked and is still in full force and effect.

3. That, as the Trustee(s) of the Trust, we have determined that the
investment in, and the purchase of, an interest in Excelsior Venture Partners
III, LLC is of benefit to the Trust and have determined to make such investment
on behalf of the Trust.

4. That ____________ is authorized to execute, on behalf of the Trust, any
and all documents in connection with the Trust's investment in Excelsior Venture
Partners III, LLC.

IN WITNESS WHEREOF, we have executed this certificate as the Trustee(s) of
the Trust this ____ day of ____________, ____, and declare that it is truthful
and correct.

(Name of Trust)

By:
--------------------------------------
Trustee

(Attach extra signature pages if
necessary)

13
<PAGE> 122

EXHIBIT C

CERTIFICATE OF CORPORATE INVESTOR

TO BE COMPLETED BY INVESTORS WHO ARE CORPORATIONS.

CERTIFICATE OF (the "Corporation")
(Name of Corporation)

The undersigned, being the duly elected and acting Secretary or Assistant
Secretary of the Corporation, hereby certifies as follows:

1. That the Corporation commenced business on ____________ and was
incorporated under the laws of the State of ____________ on ____________.

2. That a true and correct copy of the Articles of Incorporation and By
Laws of the Corporation is attached hereto and that, as of the date hereof, the
Articles of Incorporation and By Laws have not been amended (except as to any
attached amendments) or revoked and are still in full force and effect.

3. That the Board of Directors of the Corporation has determined, or
appropriate officers under authority of the Board of Directors have determined,
that the investment in, and purchase of, Units in Excelsior Venture Partners
III, LLC is of benefit to the Corporation and has determined to make such
investment on behalf of the Corporation. Attached hereto is a true, correct and
complete copy of resolutions of the Board of Directors (or an appropriate
committee thereof) of the Corporation duly authorizing this investment, and said
resolutions have not been revoked, rescinded or modified and remain in full
force and effect.

4. That the following named individuals are duly elected officers of the
Corporation, who hold the offices set opposite their respective names and who
are duly authorized to execute any and all documents in connection with the
Corporation's investment in Excelsior Venture Partners III, LLC, and that the
signatures written opposite their names and titles are their correct and genuine
signatures.

<TABLE>
<CAPTION>
NAME TITLE SIGNATURE
---- ----- ---------
<S> <C> <C>

----------------------------- ----------------------------- -----------------------------

----------------------------- ----------------------------- -----------------------------
</TABLE>

(Attach extra pages if necessary)

IN WITNESS WHEREOF, I have executed this certificate and affixed the seal
of this Corporation this ____ day of ________, ____, and declare that it is
truthful and correct.

(Name of Corporation)

By:
--------------------------------------
Name:
Title:

14
<PAGE> 123

EXHIBIT D

CERTIFICATE OF LIMITED LIABILITY COMPANY INVESTOR

TO BE COMPLETED BY INVESTORS WHO ARE LIMITED LIABILITY COMPANIES.

CERTIFICATE OF (the "Limited Liability Company")
(Name of Limited Liability Company)

The undersigned, being a duly elected and acting Manager of the Limited
Liability Company, hereby certifies as follows:

1. That the Limited Liability Company commenced business on ____________
and was organized under the laws of the State of ____________ on ____________.

2. That a true and correct copy of the Limited Liability Company Agreement
is attached hereto and that, as of the date hereof, the Limited Liability
Company Agreement has not been amended (except as to any attached amendments) or
revoked and is still in full force and effect.

3. That the Managers of the Limited Liability Company have determined that
the investment in, and purchase of, Units in Excelsior Venture Partners III, LLC
is of benefit to the Limited Liability Company and has determined to make such
investment on behalf of the Limited Liability Company. Attached hereto is a
true, correct and complete copy of resolutions of the Managers (or an
appropriate committee thereof) of the Limited Liability Company duly authorizing
this investment, and said resolutions have not been revoked, rescinded or
modified and remain in full force and effect.

4. That the following named individuals are duly elected managers of the
Limited Liability Company, who hold the offices set opposite their respective
names and who are duly authorized to execute any and all documents in connection
with the Limited Liability Company's investment in Excelsior Venture Partners
III, LLC, and that the signatures written opposite their names and titles are
their correct and genuine signatures.

<TABLE>
<CAPTION>
NAME TITLE SIGNATURE
---- ----- ---------
<S> <C> <C>

----------------------------- ----------------------------- -----------------------------

----------------------------- ----------------------------- -----------------------------
</TABLE>

(Attach extra pages if necessary)

IN WITNESS WHEREOF, I have executed this certificate and affixed the seal
of this Limited Liability Company this ____ day of ________, ____, and declare
that it is truthful and correct.

(Name of Limited Liability Company)

By:
--------------------------------------
Name:
Title:

15
<PAGE> 124

APPENDIX C

EXCELSIOR VENTURE
PARTNERS III, LLC

------------------------

SUBSCRIPTION

BOOKLET
------------------------
<PAGE> 125

EXCELSIOR VENTURE PARTNERS III, LLC

SUBSCRIPTION INSTRUCTIONS

If you have any questions concerning these Subscription Documents or would
like assistance completing them, please call your investment advisor.

INSTRUCTIONS FOR INDIVIDUALS (SUBSCRIPTIONS THROUGH A RETIREMENT PLAN, INCLUDING
IRAs AND 401ks, MUST BE MADE PURSUANT TO THE "INSTRUCTIONS FOR ENTITIES OTHER
THAN INDIVIDUALS," BELOW)

1. Fill out and sign page 9.

NOTE: By executing page 9, the investor thereby grants the Power of
Attorney contained in the Subscription Agreement under Section 1(c).

2. Return this booklet to Schwab at the address listed below.

3. Follow the instructions listed below under the heading PAYMENT OF
CAPITAL CONTRIBUTION.

INSTRUCTIONS FOR ENTITIES OTHER THAN INDIVIDUALS (TRUSTS, CORPORATIONS,
CUSTODIANS, IRAs, ETC.)

1. Direct the appropriate personnel to answer the Questionnaire found on
page 8 by initialing in the spaces provided.

2. Appropriate personnel should fill out and sign page 9.

NOTE: By executing page 9, the investor thereby grants the Power of
Attorney contained in the Subscription Agreement under Section 1(c).

3. IF THE INVESTOR IS A PARTNERSHIP, please complete Exhibit A; IF THE
INVESTOR IS A CUSTODIAN, TRUSTEE OR AGENT, please complete Exhibit B; IF
THE INVESTOR IS A CORPORATION, please complete Exhibit C; IF THE
INVESTOR IS A LIMITED LIABILITY COMPANY, please complete Exhibit D.

4. Return this booklet to Schwab at the address listed below.

5. Follow the instructions listed below under the heading PAYMENT OF
CAPITAL CONTRIBUTION.

PAYMENT OF CAPITAL CONTRIBUTION

Payments will be deducted from your Schwab account designated on the
Execution Page, for transmittal to the Company's escrow agent pending closing,
on or shortly before the proposed closing. The Company will notify you of the
date and time of the proposed closing at least three business days prior to the
proposed closing date. You must have a free cash balance sufficient to meet your
subscription obligation on the proposed closing date. As explained in the
prospectus, if subscriptions for at least $100,000,000 have not been received by
the Termination Date (as defined in the prospectus), the offering will terminate
and funds will be returned to investors.

RETURN DOCUMENTS TO:

Charles Schwab & Co., Inc.
Structured Products Group
345 California Street 6th Floor
San Francisco, California 94104

THE COMPANY IS NOT AVAILABLE FOR INVESTMENT TO RESIDENTS OF ALABAMA, ARKANSAS,
KANSAS, MAINE, MASSACHUSETTS, MISSISSIPPI AND MISSOURI.

SCHEDULE A CONTAINS ADDITIONAL INFORMATION AND REQUIREMENTS FOR RESIDENTS
IN CERTAIN OTHER STATES.

1
<PAGE> 126

SUBSCRIPTION AGREEMENT

Excelsior Venture Partners III, LLC
c/o United States Trust Company of New York
114 West 47th Street
New York, New York 10036

Ladies and Gentlemen:

The undersigned subscribing investor (the "Investor") hereby agrees as
follows:

1. Subscription for the Units.

2. Certain Acknowledgments and Agreements of the Investor.

The Investor understands and acknowledges that the subscription for the
Units contained herein may be accepted or rejected, in whole or in part, by the
Company in its sole and absolute discretion. No subscription shall be deemed
accepted until the subscription has actually been accepted and, if necessary,
any subsequent acts have been taken which shall be deemed an acceptance of this
Agreement by the Company for all purposes. The Investor understands that
Skadden, Arps, Slate, Meagher & Flom LLP acts as counsel only to the Company,
the Investment Adviser and Investment Sub-Adviser and no attorney-client
relationship exists

2
<PAGE> 127

between Skadden, Arps, Slate, Meagher & Flom LLP and any other person solely by
reason of such person making an investment in the Company.

3. Representations and Warranties of the Investor.

(a) The Investor and his, her or its investment manager has received, read
carefully and understands the Prospectus and all exhibits thereto and has
consulted the Investor's own attorney, accountant or investment adviser with
respect to the investment contemplated hereby and its suitability for the
Investor. Any special acknowledgment set forth below with respect to any
statement contained in the Prospectus shall not be deemed to limit the
generality of this representation and warranty. Charles Schwab & Co., Inc. (the
"Distributor") is acting solely as an agent of the Company and is not making any
recommendation concerning the Units with respect to any of its client accounts.
As such, the Distributor is not responsible for determining the suitability of
an investment in the Units for the Investor. The suitability of an investment in
the Units is the responsibility of the Investor and his, her or its investment
manager and the Investor understands that the Company and the Distributor are
relying on the Investor and his, her or its investment manager to make such
determination.

(g) The Investor and his, her or its investment manager have evaluated the
risks of investing in the Units, and has determined that the Units are a
suitable investment for the Investor. The Investor can bear the economic risk of
this investment and can afford a complete loss of its investment. In evaluating
the suitability

3
<PAGE> 128

of an investment in the Units, the Investor has not relied upon any advice,
representations or other information (whether oral or written) other than as set
forth in the Prospectus and exhibits thereto, and independent investigations
made by the Investor or representative(s) of the Investor and his, her or its
investment manager that are not affiliated with the Company. The Investor has
reviewed the eligibility requirements of Schedule A, attached to this Agreement,
and to the extent applicable, meets all suitability and eligibility requirements
described therein.

(h) The Investor and his, her or its investment manager are knowledgeable
and experienced in evaluating investments and experienced in financial and
business matters and is capable of evaluating the merits and risks of investing
in the Units. The aggregate amount of the investments of the Investor in, and
the Investor's commitments to, all similar investments that are illiquid is
reasonable in relation to the Investor's net worth.

(i) The Investor maintains its domicile, and is not merely a transient or
temporary resident, at the residence address shown on the signature page of this
Subscription Agreement.

(j) The representations, warranties, agreements, undertakings and
acknowledgments made by the Investor in this Subscription Agreement are made
with the intent that they be relied upon by the Company, the Distributor and any
selling agent in determining its suitability as a purchaser of the Units, and
shall survive its purchase. In addition, the Investor undertakes to notify the
Company immediately of any change in any representation, warranty or other
information relating to the Investor set forth herein.

---------------

(1) For purposes of this representation, a U.S. Person is (i) a natural person
who is a citizen of or resident in the United States; (ii) a partnership or
corporation organized or incorporated under the laws of the United States;
(iii) an estate of which any executor or administrator is a U.S. person;
(iv) a trust of which any trustee is a U.S. person; (v) an agency or branch
of a foreign entity located in the United States; (vi) a non-discretionary
account or similar account (other than an estate or trust) held by a dealer
or other fiduciary for the benefit or account of a U.S. person; (vii) a
discretionary account or similar account (other than an estate or trust)
held by a dealer or other fiduciary organized, incorporated, or (if an
individual) resident in the United States; and (viii) a partnership or
corporation if (A) organized or incorporated under the laws of any foreign
jurisdiction; and (B) formed by one or more of the above and/or one or more
natural persons resident in the U.S. principally for the purpose of
investing in securities not registered under the Securities Act, unless it
is organized or incorporated, and owned, by accredited investors (as defined
in Rule 501(a)) who are not natural persons, estates or trusts; provided,
however, that the term "U.S. Person" shall not include any person or entity
that is not treated as a U.S. Person for purposes of the Internal Revenue
Code of 1986, as amended.
4
<PAGE> 129

(o) The Investor and his, her or its investment manager has evaluated the
Prospectus and has determined that the Investor is and will be in a financial
position appropriate to enable the Investor to realize to a significant extent
the benefits described in the Prospectus.

(p) The Investor is not a charitable remainder trust.

4. Indemnification. The Investor recognizes that the offer of the Units
was made in reliance upon the Investor's representations and warranties set
forth in Paragraph 3 above and the acknowledgments and agreements set forth in
Paragraph 2 above. The Investor agrees to provide, if requested, any additional
information that may reasonably be required to determine the eligibility of the
Investor to purchase the Units. The Investor hereby agrees to indemnify the
Company, each member of the Board of Managers of the Company, the Investment
Adviser, the Investment Sub-Adviser, the Distributor and any of their affiliates
and controlling persons and each other member and any successor or assign of the
foregoing, and to hold each of them harmless from and against any loss, damage
or liability (including attorney's fees) due to or arising out of a breach of
any representation, warranty, acknowledgment or agreement of the Investor
contained in this Subscription Agreement or in any other document provided by
the Investor to the Company in connection with the Investor's investment in the
Units. Notwithstanding any provision of this Agreement, the Investor does not
waive any rights granted to it under applicable securities laws.

6. Assignment. The Investor agrees that neither this Subscription
Agreement nor any rights which may accrue to the Investor hereunder may be
transferred or assigned.

8. Arbitration. ANY CLAIM, CONTROVERSY, DISPUTE OR DEAD LOCK ARISING UNDER
THIS AGREEMENT (COLLECTIVELY, A "DISPUTE") SHALL BE SETTLED BY ARBITRATION, IN
ACCORDANCE WITH THE RULES AND REGULATIONS OF THE NASD, EXCEPT IN THE EVENT THAT
THE NASD IS UNWILLING TO ACCEPT JURISDICTION OF THE MATTER, SUCH ARBITRATION
SHALL BE HELD IN ACCORDANCE WITH THE RULES AND REGULATIONS OF THE AMERICAN
ARBITRATION ASSOCIATION ("AAA"). ALL ARBITRATIONS SHALL BE HELD IN SAN
FRANCISCO, CALIFORNIA. ANY ARBITRATION AND AWARD OF THE ARBITRATORS, OR A
MAJORITY OF THEM, SHALL BE FINAL AND THE JUDGMENT UPON THE AWARD RENDERED MAY BE
ENTERED IN ANY STATE OR FEDERAL COURT HAVING JURISDICTION. NO PUNITIVE DAMAGES
ARE TO BE AWARDED.

5
<PAGE> 130

SCHEDULE A

RESIDENTS OF THE FOLLOWING STATES MUST MEET THE
SUITABILITY STANDARDS SET FORTH BELOW

ARIZONA

MINNESOTA

To invest in Units of the Company, Minnesota residents must qualify as an
accredited investor as that term is defined under Rule 501 of the Securities Act
of 1933, as amended, and set forth in Schedule B attached hereto.

NEBRASKA

NEW HAMPSHIRE

OKLAHOMA

To invest in Units of the Company, Oklahoma residents must qualify as an
accredited investor as that term is defined under Rule 501 of the Securities Act
of 1933, as amended, and set forth in Schedule B attached hereto.

TEXAS

WEST VIRGINIA

6
<PAGE> 131

SCHEDULE B

DEFINITION OF ACCREDITED INVESTOR

b. A private business development company under the Investment Advisers
Act of 1940;

d. Any trust, not formed for the specific purpose of acquiring the
securities offered, with total assets in excess of $5,000,000 and whose
purchase is directed by a sophisticated person;

e. Any director, executive officer, or general partner of the Company;

f. Any natural person with:

i. a net worth, (including residence, personal property and other
assets in excess of total liabilities) taken together with the net
worth of the Investor's spouse, exceeds $1,000,000;

g. Any entity in which all of the equity holders are accredited
investors.

7
<PAGE> 132

INVESTOR QUESTIONNAIRE FOR ENTITIES

EXAMPLES OF ENTITIES INCLUDE, BUT ARE NOT LIMITED TO, TRUSTS, CORPORATIONS,
LIMITED PARTNERSHIPS AND LIMITED LIABILITY COMPANIES.

ENTITIES (NON-INDIVIDUALS): PLEASE COMPLETE THIS QUESTIONNAIRE.

1. Legal form of entity (corporation, partnership, trust, etc.):
---------------

Investor entity was organized under the laws of the state of:
----------------

2. The fiscal year-end of the Investor
is .
-------------------------------------
(Month/Day)

3. ERISA. (i) The Investor, and each account on behalf of which it is acquiring
the Units IS ____ / IS NOT ____ (check one): using funds to acquire Units that
constitute assets of any of the following:

(b) a plan (including IRAs) described in section 4975 of the Internal
Revenue Code of 1986, as amended (the "Code");

(ii) The Investor, and each account on behalf of which it is acquiring the
Units, IS ____ / IS NOT ____ (check one) a Controlling Person. A Controlling
Person is defined as a person (other than Benefit Plan Investors) that has
discretionary authority or control with respect to the assets of an entity or
that provides investment advice for a fee (direct or indirect) with respect to
such assets, or any affiliate of such a person.

In evaluating the suitability of an investment in the Units, the Investor
has not relied upon any advice, representations or other information (whether
oral or written) other than as set forth in the Prospectus and exhibits thereto
and independent investigations made by the Investor and his, her or its
investment manager that are not affiliated with the Company.

____ Yes ____ No
8
<PAGE> 133

EXCELSIOR VENTURE PARTNERS III, LLC

EXECUTION PAGE
IN WITNESS WHEREOF, THE UNDERSIGNED INVESTOR HAS EXECUTED THIS SUBSCRIPTION
AGREEMENT.
Mr., Mrs. Jr., Sr., II, III, IV, Esq., CPA
Ms., Dr. ____________________________________
(Investor/Contact Name)

<TABLE>
<S> <C>
RESIDENCE
Address: -------------------------------------------- Telephone: ( )
-----------------------------------------
----------------------------------------------------- Fax: ( )
------------------------------------------------
City: State: ____ Zip: ________ E-Mail: ---------------------------------------------
</TABLE>

<TABLE>
<S> <C>
MAILING ADDRESS (IF OTHER THAN RESIDENCE)
Title: Telephone: ( )
-----------------------------------------------
-----------------------------------------
Company Name: ----------------------------------- Fax: ( )
------------------------------------------------

Address: -------------------------------------------- E-Mail: ---------------------------------------------

-----------------------------------------------------
City: State: ____ Zip: ________
</TABLE>

Investor Name:
--------------------------------------------------------------------------------

Schwab Account Number:
-------------------------------------------------------------------------------

Investment Manager Firm Name:
-----------------------------------------------------------------------

Investment Manager Master Account Number:
---------------------------------------------------------

Your Contact at the above Firm:
------------------------------------------------------------------------

[ ] Fund will be purchased in a Retirement Account

<TABLE>
<S> <C> <C> <C> <C>
Investor Type
[ [ ] Rights of [
] Individual Joint: Survivorship [ ] Trust ] Partnership
[ ] Tenants in Common [ ] Corporation [ ] L.L.C.
[ ] QRP [ ] IRA (Type of Registration)
</TABLE>

<TABLE>
<S> <C>
[ ] Other: ________________________________________
Social Security/Tax ID No: Signature:
Print Name and Title (if applicable):
---------------------------------------------------
Social Security/Tax ID No: Signature:
Print Name and Title (if applicable):
---------------------------------------------------
State in which this Agreement was signed: Date of Execution: , 20__
</TABLE>

CAPITAL COMMITMENT: $ (Must be a multiple of $500 equal to or greater than
$100,000.)

9
<PAGE> 134

EXHIBIT A

CERTIFICATE OF PARTNERSHIP INVESTOR

TO BE COMPLETED BY INVESTORS WHO ARE PARTNERSHIPS.

CERTIFICATE OF (the "Partnership")
(Name
of
Partnership)

The undersigned, constituting all of the partners of the Partnership who
must consent to the proposed investment by the Partnership hereby certify as
follows:

1. That the Partnership commenced business on ____________ and was
established pursuant to a Partnership Agreement dated ____________ (the
"Agreement").

2. That, as the partners of the Partnership, we have the authority to
determine, and have determined, (i) that the investment in, and the purchase of
an interest in Excelsior Venture Partners III, LLC is of benefit to the
Partnership and (ii) to make such investment on behalf of the Partnership.

3. That ____________ is authorized to execute all necessary documents in
connection with our investment in Excelsior Venture Partners III, LLC.

IN WITNESS WHEREOF, we have executed this certificate as the partners of
the Partnership this __ day of ____________, ____, and declare that it is
truthful and correct.

(Name of Partnership)

By:
------------------------------------
Partner

(Attach extra signature pages if
necessary)

10
<PAGE> 135

EXHIBIT B

CERTIFICATE OF TRUST INVESTOR

TO BE COMPLETED BY INVESTORS WHO ARE TRUSTS.

CERTIFICATE OF (the "Trust")
(Name
of
Trust)

The undersigned, constituting all of the Trustees of the Trust, hereby
certify as follows:

1. That the Trust was established pursuant to a Trust Agreement dated
____________ (the "Agreement").

2. That, as the Trustee(s) of the Trust, we have determined that the
investment in, and the purchase of, an interest in Excelsior Venture Partners
III, LLC is of benefit to the Trust and have determined to make such investment
on behalf of the Trust.

3. That ____________ is authorized to execute, on behalf of the Trust, any
and all documents in connection with the Trust's investment in Excelsior Venture
Partners III, LLC.

IN WITNESS WHEREOF, we have executed this certificate as the Trustee(s) of
the Trust this __ day of ____________, ____, and declare that it is truthful and
correct.

(Name of Trust)

By:
------------------------------------
Trustee

(Attach extra signature pages if
necessary)

11
<PAGE> 136

EXHIBIT C

CERTIFICATE OF CORPORATE INVESTOR

TO BE COMPLETED BY INVESTORS WHO ARE CORPORATIONS.

CERTIFICATE OF (the "Corporation")
(Name of Corporation)

The undersigned, being the duly elected and acting Secretary or Assistant
Secretary of the Corporation, hereby certifies as follows:

1. That the Corporation commenced business on ____________ and was
incorporated under the laws of the State of ____________ on ____________.

2. That the Board of Directors of the Corporation has determined, or
appropriate officers under authority of the Board of Directors have determined,
that the investment in, and purchase of, Units in Excelsior Venture Partners
III, LLC is of benefit to the Corporation and has determined to make such
investment on behalf of the Corporation.

3. That the following named individuals are duly elected officers of the
Corporation, who hold the offices set opposite their respective names and who
are duly authorized to execute any and all documents in connection with the
Corporation's investment in Excelsior Venture Partners III, LLC, and that the
signatures written opposite their names and titles are their correct and genuine
signatures.

<TABLE>
<CAPTION>
NAME TITLE SIGNATURE
---- ----- ---------
<S> <C> <C>

----------------------------- ----------------------------- -----------------------------

----------------------------- ----------------------------- -----------------------------
</TABLE>

(Attach extra pages if necessary)

IN WITNESS WHEREOF, I have executed this certificate and affixed the seal
of this Corporation this
____ day of ________, ____, and declare that it is truthful and correct.

(Name of Corporation)

By:
--------------------------------------
Name:
Title:

12
<PAGE> 137

EXHIBIT D

CERTIFICATE OF LIMITED LIABILITY COMPANY INVESTOR

TO BE COMPLETED BY INVESTORS WHO ARE LIMITED LIABILITY COMPANIES.

CERTIFICATE OF (the "Limited Liability Company")
(Name of Limited Liability Company)

The undersigned, being a duly elected and acting Manager of the Limited
Liability Company, hereby certifies as follows:

1. That the Limited Liability Company commenced business on ____________
and was organized under the laws of the State of ____________ on ____________.

2. That the Managers of the Limited Liability Company have determined that
the investment in, and purchase of, Units in Excelsior Venture Partners III, LLC
is of benefit to the Limited Liability Company and has determined to make such
investment on behalf of the Limited Liability Company.

3. That the following named individuals are duly elected managers of the
Limited Liability Company, who hold the offices set opposite their respective
names and who are duly authorized to execute any and all documents in connection
with the Limited Liability Company's investment in Excelsior Venture Partners
III, LLC, and that the signatures written opposite their names and titles are
their correct and genuine signatures.

<TABLE>
<CAPTION>
NAME TITLE SIGNATURE
---- ----- ---------
<S> <C> <C>

----------------------------- ----------------------------- -----------------------------

----------------------------- ----------------------------- -----------------------------
</TABLE>

(Attach extra pages if necessary)

IN WITNESS WHEREOF, I have executed this certificate and affixed the seal
of this Limited Liability Company this ____ day of ________, ____, and declare
that it is truthful and correct.

(Name of Limited Liability Company)

By:
--------------------------------------
Name:
Title:

13
<PAGE> 138

EXCELSIOR VENTURE PARTNERS III, LLC

STATEMENT OF ADDITIONAL INFORMATION

Excelsior Venture Partners III, LLC (the "Company") is a newly organized,
closed-end, non-diversified management investment company that has elected to be
treated as a business development company under the Investment Company Act. This
statement of additional information relating to units of membership interest of
the Company (the "Units") does not constitute a prospectus, but should be read
in conjunction with the prospectus relating hereto dated November 20, 2000. This
statement of additional information does not include all information that a
prospective investor should consider before purchasing Units, and investors
should obtain and read the prospectus prior to purchasing such Units. A free
copy of the prospectus may be obtained by calling the Company at (212) 852-3125.
You may also obtain a copy of the prospectus on the Securities and Exchange
Commission's web site (http://www.sec.gov). Capitalized terms used but not
defined in this statement of additional information have the meanings ascribed
to them in the prospectus.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Capital Accounts, Allocations and Distributions............. B-2
Frequently Asked Questions.................................. B-3
</TABLE>

This statement of additional information is dated November 20, 2000.

B-1
<PAGE> 139

CAPITAL ACCOUNTS, ALLOCATIONS AND DISTRIBUTIONS

Allocations generally will be made in the following order:

- all remaining items of income, gain, loss, deduction and expense will be
allocated to the members pro rata in accordance with their capital
contributions.

For any given period, the allocation of gain to the Investment Adviser
described above will be made out of long-term capital gain and short-term
capital gain in proportion to the amount of such gains available for allocation.

- the cumulative amount of all capital losses realized by the Company on
all investments of any type from the commencement of operations through
the end of such period;

- the amount of net unrealized capital depreciation on all investments of
any type all determined as of the close of such period; and

To the extent that the Company distributes property in kind, the Company
will be deemed to have realized gain or loss on such property based on the value
assigned to such property in accordance with the Company's valuation procedures
to the extent permitted by the Investment Company Act. In the event of the
resignation or removal of the Investment Adviser or other termination without
reinstatement of the Investment Advisory Agreement with the Investment Adviser
or an affiliate, the assets of the Company will be valued in accordance with the
Operating Agreement as of the date of resignation, removal or termination, and
the Company will be deemed to have realized gain or loss on such assets based on
the valuations so assigned.

Notwithstanding the foregoing, the Company may, in its sole and absolute
discretion, make special allocations of items of Company income, gain, loss,
deduction and expense in order to cause the capital account balances of the
members and the Investment Adviser to reflect the economic arrangement set forth
in the following paragraph.

DISTRIBUTIONS. The Company will distribute all cash that the Investment
Adviser does not expect to use in the operation of the Company and that is
available after the payment of all expenses then due and the creation of any
reserves. The Company will consider such distributions at least annually but, as
described below, does not expect to make distributions of cash or property
during the first several years of operations. Each year, the Investment Adviser
generally will be entitled to a distribution equal to the Incentive Carried
Interest. The members generally will be entitled to all amounts remaining for
distribution pro rata in accordance with their capital contributions. Upon
liquidation of the Company, any cash or other property

B-2
<PAGE> 140

available for distribution will be distributed to the members and to the Manager
pro rata in accordance with their respective capital account balances. The
Investment Adviser's capital account balance generally will reflect the
allocations that have been made to the Investment Adviser in respect of the
Incentive Carried Interest but that have not been previously distributed to the
Investment Adviser.

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. The Company will not reinvest income from its investments
or the proceeds from the sale of its investments, in each case other than in
Short-Term Investments, except to make follow-on investments. The Company may
make distributions in kind of its property, which generally would be treated for
purposes of the Company's distribution policies as distributions of cash in an
amount equal to the current market value or fair value of such property
determined in accordance with the Company's valuation procedures. The Company
does not intend to make any distribution if after making such distribution the
liabilities of the Company would exceed the fair value of the Company's assets.

FREQUENTLY ASKED QUESTIONS

Q. HOW MANY INVESTMENTS AND WHAT TYPES OF INVESTMENTS DO YOU ANTICIPATE MAKING
WITH THIS FUND?

The Company plans to make roughly 20 to 40 investments directly in
companies and 5 to 15 investments in third-party private equity funds. The
Company intends to invest primarily in a diverse portfolio of companies that the
Investment Adviser or Investment Sub-Adviser believe are or will be rapidly
growing companies that will participate in the transformation of the economy.
The Company will also invest in third-party venture capital funds whose
investment managers the Investment Adviser or Investment Sub-Adviser believe
have the ability to achieve superior returns, as well as in select opportunities
in international venture capital and private placements in public companies.

Q. HOW DO YOU FIND/SOURCE INVESTMENT OPPORTUNITIES?

Investment opportunities are received from two general sources: referral
and direct. Deal referrals result primarily from the reputation and experience
of the Investment Adviser's and Investment Sub-Adviser's management team (the
"Team"), which has over 40 years of combined experience in venture capital
investing. Through their extensive experience, the Team has developed a rich
network of contacts that includes other venture capitalists, entrepreneurs,
investment banks, law firms, accounting firms and consulting firms. This network
provides access and referrals to a large number of private companies requiring
venture capital financing. Direct deal sources are investment opportunities that
the Company receives by contacting attractive companies directly or by companies
seeking venture capital contacting the Company directly. Direct deals are a
function of the Investment Adviser's and Investment Sub-Adviser's efforts to
target particular sectors, the Company's presence within the venture capital
community and basic marketing efforts.

Q. HOW MANY DEALS DO YOU SEE IN A GIVEN YEAR AND, OF THESE, HOW MANY WILL YOU
LIKELY INVEST IN?

The Company may be presented with as many as 2,000 to 3,000 investment
opportunities per year. After a thorough screening, evaluation and due diligence
process, the Company will generally make 10 to 20 investments a year until it is
fully invested.

Q. HOW DO YOU INITIALLY SCREEN DEAL FLOW?

The Investment Adviser and Investment Sub-Adviser have an effective and
efficient screening process. The objectives of the screening process are to
efficiently focus the resources of the Investment Adviser and Investment
Sub-Adviser and quickly identify attractive investment opportunities.

During the initial screening process the investment opportunity is routed
to a Team member with experience and expertise in the sector in which the
investment opportunity operates. That person makes an evaluation of whether the
opportunity has certain characteristics that would make it an attractive
potential

B-3
<PAGE> 141

investment. If the opportunity is deemed initially attractive, the Investment
Adviser or Investment Sub-Adviser will allocate resources to evaluate the merits
of the deal relative to our investment criteria.

The initial screening process includes the examination and evaluation of
the opportunity's quality, its fit with our investment strategy and the
potential for the company's business model. The initial screening process
includes speaking with company management, reviewing the business plan and/or
web site, understanding the business model, identifying the major risk issues,
evaluating management and developing a due diligence plan.

Q. WHAT CHARACTERISTICS DO YOU LOOK FOR IN POTENTIAL INVESTMENTS?

The Company is looking for rapidly growing companies that will participate
in the transformation of the economy. In order for an emerging company to
succeed, we believe it must possess superior management, a substantial market
opportunity, a differentiated product or service, a defensible market position
and a business model that provides operating leverage and the potential for
significant value creation.

Q. DESCRIBE YOUR INVESTMENT PROCESS.

The Company has a disciplined and thorough investment process that adheres
to its investment strategy and has the potential to generate significant capital
gains. The investment process is segmented into five areas; deal flow
generation, investment evaluation, negotiation of price and terms, value
creation and exiting. Deal flow generation is the process of attracting quality
investment opportunities and maximizing the number of deals seen. Investment
evaluation is the process of focusing the Investment Adviser's and Investment
Sub-Adviser's resources on assessing the risk and return potential of a
potential investment to identify attractive investment opportunities. Once an
attractive opportunity is identified, the Investment Adviser and Investment
Sub-Adviser use their experience to negotiate the best price and terms for that
investment. Post investment, the Investment Adviser and Investment Sub-Adviser
proactively work with the Portfolio Companies to enhance an investment's value.
Throughout the life of an investment, the Investment Adviser and Investment
Sub-Adviser evaluate the options to exit an investment and realize a return for
the Company. These options include an initial public offering and/or a sale of
the company.

Q. DESCRIBE YOUR LEVEL OF INVOLVEMENT WITH YOUR PORTFOLIO COMPANIES AFTER AN
INVESTMENT HAS BEEN MADE.

The Company will be an active investor in its Portfolio Companies.
Accordingly, the Investment Adviser and Investment Sub-Adviser do more than
identify promising investment opportunities. The Company will often appoint a
director to the board of directors of Portfolio Companies. The Investment
Adviser and Investment Sub-Adviser leverage their substantial experience with
young, rapidly growing companies to assist them with strategic and financial
planning and oversight, identifying strategic investors, recruiting executives,
attracting customers and value realization.

Q. HOW DO YOU EXIT YOUR INVESTMENTS?

There are two primary ways the Company will be exiting its investments. The
first is through the sale of a Portfolio Company to a strategic or financial
buyer and the second is taking the company public through an initial public
offering and effectively selling and/or distributing shares over time in the
aftermarket. In evaluating the options for exiting an investment, the Company's
goal is to maximize the return to our investors.

Q. HOW OFTEN WILL YOU BE REVIEWING THE HOLDINGS IN THE PORTFOLIO -- WHAT
CRITERIA WILL YOU BE USING TO VALUE THE HOLDINGS?

While Portfolio Companies will be reviewed continuously, the Company and
its underlying investments will be marked to market at the end of each fiscal
quarter. In general, Portfolio Companies will be valued initially at the cost of
the investment. The valuation will be changed when company developments or
market

B-4
<PAGE> 142

factors justify a revised valuation. This may occur for a variety of reasons,
including one or more of the following.

- A third party financing takes place in which the third party establishes
a new price for the company's shares.

- A liquidity event occurs in which the company's shares are acquired at a
certain price or the company's shares become tradable on a public market.

- Material adverse changes in the company's operating status provide reason
for a reduction in the valuation of the company.

- There is a material change in the prospects for the sector or industry in
which the company operates or in the valuations for companies in such
sector or industry.

Public Portfolio Companies with constraints on liquidity (i.e.
underwriter's lock-up, Rule 144) will be valued at an appropriate discount to
the public market price of the company's stock.

Funds in the portfolio generally will be valued based on an assessment of
the most recent information available.

Q. WHAT ARE THE INVESTMENT ADVISER'S AND INVESTMENT SUB-ADVISER'S RECORD AS
VENTURE CAPITAL INVESTORS?

To date, the Team has managed two funds: Excelsior Private Equity Fund II,
Inc., a $196 million fund capitalized in 1997, and UST Private Equity Investors
Fund, Inc., a $40 million fund capitalized in 1995. These funds have similar
investment objectives and policies to those of the Company, but there are also
important differences. The following is a summary of the aggregate performance
characteristics of these two funds through October 31, 2000:*

<TABLE>
<CAPTION>
DIRECT INVESTMENTS FUND INVESTMENTS TOTAL INVESTMENTS
------------------ ---------------- -----------------
<S> <C> <C> <C>
Invested Capital................................. $ 148.7 $ 54.4 $203.2
Unrealized Gain.................................. 54.9 54.3 109.2
Realized Gain.................................... 51.6 15.9 67.5
Total Value of Invested Capital.................. $ 255.2 $124.6 $379.9
Multiple of Invested Capital..................... 1.72x 2.29x 1.87x
Dollar-Weighted Avg. Holding Period.............. 1.8 years
</TABLE>

---------------
* All figures are from the period starting in December 1995 through October 31,
2000 and are unaudited.

SEC STANDARDIZED PERFORMANCE CALCULATION BY FUND

<TABLE>
<CAPTION>
1-YEAR 3-YEAR SINCE INCEPTION
------ ------ ---------------
<S> <C> <C> <C>
UST Private Equity Investors Fund, Inc...................... 38.72% 7.63% 8.54%
Excelsior Private Equity Fund II, Inc....................... 35.66% N/A 20.75%
</TABLE>

This required SEC methodology, which takes into account the return on cash
and short-term securities held pending investment in Direct Investments and
Private Funds as well as all fees and expenses of the funds, is substantially
different than the internal rate of return and other methodologies ordinarily
used to measure performance in the private equity and venture capital arena. The
Investment Adviser and Investment Sub-Adviser believe that it would be
inappropriate to compare the standardized return information for Fund I and Fund
II to the internal rate of return information provided by other private equity
and venture capital managers. For more information, including important
qualifications and disclosures, see the prospectus under the caption
"Management." Past performance is not an indication of future results.

Q. WHAT ARE YOUR COMPETITIVE ADVANTAGES IN THE MARKETPLACE?

The Investment Adviser and Investment Sub-Adviser are able to compete
successfully in the venture capital markets due to the Team's experience, its
proven ability to work together over the past five years and the presence of an
effective investment strategy and investment process. In addition, the
Investment Adviser and Investment Sub-Adviser benefit from their network of
professionals and technology experts at Portfolio

B-5
<PAGE> 143

Companies, at other organizations serving the venture capital industry and at
U.S. Trust. These professionals are a source of investment opportunities, as
well as expertise on the market and new technologies.

Q. WHAT TYPE OF DISTRIBUTIONS WILL BE MADE AND HOW OFTEN WILL THESE
DISTRIBUTIONS BE MADE?

Distributions made from the Company will take two forms: cash and stock.
Cash distributions will be considered no less than annually and will consist of
capital gain and/or interest earned as well as the return of capital associated
with any realized portfolio events. Stock, or in kind, distributions will be
made at the discretion of the Company as circumstances permit. There will be no
particular timing governing in kind distributions and investors will receive
notification and details of such distributions as they occur. Given the nature
of the Company's investments, you should not expect any significant
distributions during the first several years of the Company's operations.

Q. HOW AND WHEN WILL THE FUND BE LIQUIDATED/TERMINATED ("WOUND DOWN")?

The Company is "self-liquidating," meaning that proceeds and marketable
securities recognized from realization events (i.e. acquisitions, initial public
offerings, etc.) remaining after paying or reserving for Company expenses
generally will be distributed shortly after such events occur and typically will
not be reinvested in new portfolio companies. The cost basis of the Company will
be adjusted as distributions are made to reflect the portion of the distribution
representing a return of investor capital. The chart below is an example using
annual cash distributions to illustrate the mechanics of how a self-liquidating
fund works. The example assumes a $1,000 investment.

<TABLE>
<CAPTION>
PROCEEDS TO CAPITAL RETURN OF CUMULATIVE RESULTING COST
YEAR INVESTOR GAIN/(LOSS) CAPITAL PROCEEDS BASIS
---- ----------- ----------- --------- ---------- --------------
<S> <C> <C> <C> <C> <C>
1 $ 60 $ 50 $ 10 $ 60 $990
2 150 125 25 210 965
3 -- (125) -- 210 965
4 400 300 100 610 865
5 -- (200) -- 610 865
6 1,000 600 400 610 465
7 -- (200) -- 1,610 465
8 200 50 150 1,810 315
9 -- (25) -- 1,810 315
10 315 -- 315 2,125 --
</TABLE>

The above chart is for illustrative purposes only.

Q. HOW TRANSFERABLE ARE THE SHARES IN THE FUND?

The Units of the Company, in nearly all cases, are not transferable. There
are provisions that allow for the transfer of Units, at the Company's
discretion, in the following instances that do not involve a change in
beneficial ownership:

- death, bankruptcy, insolvency or dissolution of the investor holding the
Units; or

- transfers to family trusts or other entities which do not involve a
change in beneficial ownership.

If, as an investor, you would like to enact a transfer that does not fall
into one of the above categories, it is your responsibility to contact the
Company to obtain approval for such a transfer. Other than certain transfers by
operations of law (e.g., upon death) such transfers can only occur if the
consent of the Company is obtained.

Q. HOW HAVE THESE TYPES OF FUNDS PERFORMED IN THE PAST?

Historically, private equity and, more specifically, venture capital funds
as a group have tended to outperform most other asset classes. These investments
also involve much greater risk than most other asset classes, and returns can be
very volatile and differ dramatically between funds. The following table shows
the

B-6
<PAGE> 144

composite returns generated by venture capital and private equity over various
time periods compared to the total return generated by the S&P 500 over the same
holding periods.

PRIVATE EQUITY/VENTURE CAPITAL RETURNS (%)

<TABLE>
<CAPTION>
1 YR. 3 YR. 5 YR. 10 YR.
----- ----- ----- ------
<S> <C> <C> <C> <C>
VENTURE CAPITAL............................................. 143.8 63.1 51.2 27.4
All Private Equity.......................................... 58.9 34.4 29.9 21.6
S&P 500 Total Return........................................ 7.3 19.7 23.8 17.8
Russell 2000 Total Return................................... 14.3 10.6 14.3 13.6
</TABLE>

Source: Venture Economics (SDC)/NVCA, Bloomberg

Venture Economics' Private Equity Performance Index is calculated quarterly from
Venture Economics' Private Equity Performance Database ("PEPD"). The PEPD tracks
the performance of over 1,200 U.S. venture capital and buyout funds formed since
1969 and over 425 European private equity funds formed since 1980. Returns are
net to investors after fees and carried interest. Private Equity/Venture Capital
return figures represent pooled internal rates of return, net of fees, as of
June 30, 2000.

S&P 500 return figures represent annualized total returns through June 30, 2000.

Russell 2000 return figures represent annualized total returns through June 30,
2000.

Q. WHAT ARE THIRD PARTY PRIVATE EQUITY AND VENTURE CAPITAL FUNDS?

Third party private equity and/or venture capital funds are typically
limited partnerships or limited liability companies managed by investment firms,
other than the Investment Adviser or Investment Sub-Adviser. The Company invests
in third party funds to provide it with additional diversification, as well an
attractive source of potential deal flow.

Q. WHAT IS A BUSINESS DEVELOPMENT COMPANY?

A business development company, or "BDC," is a closed-end, SEC-regulated
investment company that is operated for the purpose of investing directly in
various types of companies, and makes available "significant managerial
assistance" to the companies in which it invests. The SEC requires that 70% of a
BDC's assets be invested in "eligible securities," which include securities of
private companies, securities of certain public companies as well as short-term
fixed income instruments, but not private funds.

Q. WHO CAN INVEST IN EXCELSIOR VENTURE PARTNERS III?

Units may be purchased only by persons who represent to the Company that
the value of their total assets (exclusive of their principal residence) less
their total liabilities is at least $1,000,000 and that the amount of Units that
they are subscribing for does not exceed 10% of their total assets less their
total liabilities, and who make the other representations included in the
Subscription Agreement to be entered into by each investor. Investor suitability
requirements applicable only to residents of certain states are set forth in the
prospectus. Investors should be able to tolerate the risk and illiquidity that
come with venture capital investing.

Q. WHY DID THE FUND CHOOSE TO BE A CLOSED-END FUND INSTEAD OF AN OPEN-END FUND?

The Company has been structured as a closed-end investment company to
accommodate its decision to invest in private companies and funds. An open-end
fund would be unable to invest broadly in venture capital opportunities, as it
would require a high level of liquidity not afforded by private investments to
accommodate investor redemption requests.

B-7
<PAGE> 145

Q. WHY IS THE FUND NOT TRADING ON AN EXCHANGE?

The principal reason that the Company will not trade on an exchange has to
do with the manner in which the Company has been structured for U.S. federal
income tax purposes. The Company has been structured as a limited liability
company to provide investors with the favorable pass-through tax treatment
available under the conventional limited partnership structure, while not
imposing various portfolio limitations applicable to regulated investment
companies, or "RICs," under the U.S. federal income tax code. One of the
conditions that must be met for the Company and its investors to maintain this
treatment is the absence of any market for its shares. If the Company were to be
structured as or become a "publicly-traded partnership," the Company would be
taxable at the fund level as a corporation and again at the investor level.

Q. IS AN INVESTMENT IN THE COMPANY LIQUID?

No, an investment in the Company is illiquid throughout the entire 10-14
year life of the Company. This is a very important consideration for potential
investors and they should understand that an investment in the Company is
non-redeemable, with significant limitations on transferability and is entirely
illiquid.

Q. WHAT IS THE TIME HORIZON FOR THE COMPANY TO BE FULLY INVESTED?

In the venture capital industry, "fully invested" is considered to be the
point at which no new companies and funds will enter the portfolio. We expect
the Company to be fully invested in two to four years, depending upon market
conditions and our ability to identify attractive investments for the Company.

Q. HOW WILL THE COMPANY MANAGE THE CAPITAL NOT YET INVESTED IN PORTFOLIO
COMPANIES?

Funds that have not yet been invested will be actively managed in a
portfolio comprised of cash and short-term fixed income instruments. These funds
will be managed conservatively to ensure preservation of investor principal with
modest income generation as well as ample liquidity to meet the Company's
investment needs.

Q. WHAT IS THE MANAGEMENT FEE AND CARRIED INTEREST (INCENTIVE COMPENSATION)?

The asset-based management fee for the Company will accrue on a quarterly
basis and will be 2.0% of net assets for years one through five and 1.0% of net
assets for all years thereafter. The Incentive Carried Interest will be 20% of
net realized gains net of net unrealized losses (if any) on Direct Investments
calculated on a cumulative basis. This amount will be accrued on a quarterly
basis and will paid to the Investment Adviser as appropriate concurrent with any
distributions of cash or stock made by the Company. Both the asset-based
management fee and the Incentive Carried Interest are in line with venture
capital industry practices.

Q. HOW WILL PERFORMANCE BE MEASURED?

Performance for a vehicle such as this can be measured in several ways. The
SEC requires that performance be measured according to SEC standardized return
methodologies. The Investment Adviser and Investment Sub-Adviser will monitor
their own performance using Internal Rate of Return and Multiple of Invested
Capital to determine the time and asset-weighted returns only on that capital
which has been invested. Investors, however, may wish to measure performance as
they do with investments in other assets, by adjusting the current value of the
asset ("NAV") for any dividends/distributions received to come up with a "total
return" figure. We will provide investors with a complete performance profile by
using these and other metrics and offering explanations of the methodologies
used for calculating the various performance metrics.

Q. WHAT TAX CONSEQUENCES WILL INVESTORS BEAR BY INVESTING IN THIS FUND?

The Company has been structured as a limited liability company and will be
treated as a partnership for U.S. federal income tax purposes. As a result of
this structure, investors will rely on IRS Schedule K-1 tax reporting to
determine their share of allocated income and gains.

B-8
<PAGE> 146

Q. HOW WILL I BE ABLE TO MONITOR MY INVESTMENT?

It is the goal of the Investment Adviser to provide the necessary periodic
communications to enable investors to keep abreast of the Company's developments
and investment performance. The Company will provide quarterly and annual
reports. Any questions that are not addressed in these communications can be
directed to the Company, the Investment Adviser or the Investment Sub-Adviser
through the investor's investment representative.

Q. WHEN IS THE NEXT FUND OF THIS KIND LIKELY TO COME OUT FROM U.S. TRUST?

The Investment Adviser is committed to fully investing this fund before it
raises the next fund. In the past, they have raised funds about every two to
three years. However, the actual pace of investing will differ based on
circumstances including the market environment and the quality of the
opportunities reviewed.

Q. HOW WILL DISTRIBUTIONS BE PAID OUT TO INVESTORS WHEN A COMPANY GOES PUBLIC,
IS ACQUIRED BY ANOTHER COMPANY OR IS SOLD?

In instances in which a Portfolio Company experiences a liquidity event
(i.e. acquisition, IPO), investors generally will receive either a cash or
securities distribution once the event has been "realized." In the case of
securities distributions, the Company will distribute securities so long as the
securities are not limited by any restrictions and the Company believes it could
do so without adversely impacting the Company or its investment. Cash
distributions may be made annually and will comprise all proceeds from
acquisitions and sales of public securities that are not needed to pay expenses,
establish reserves or fund the operations of the Company. Distributions of stock
will occur at the discretion of the Company.

Q. WHAT TAX REPORTS WILL INVESTORS RECEIVE AND WHEN WILL THEY RECEIVE THEM?

Because the Company is treated as a partnership for U.S. federal income tax
purposes, investors will receive IRS Schedules K-1. Investors in the Company
should anticipate that they will not receive IRS Schedules K-1 until after April
15 and those reliant on IRS Schedules K-1 for tax filing should anticipate that
they will need to file an extension. All investors in the Company and their
investment representatives will receive an IRS Schedule K-1 typically in May or
June of the following calendar year. As an example, investors will receive their
IRS Schedules K-1 governing calendar and tax year 2000 in May or June 2001. The
delay in preparation of the IRS Schedules K-1 is attributable to the Company's
role as a limited partner in other venture capital funds. As a limited partner,
the Company will not receive its IRS Schedules K-1 from these funds until the
end of March and will need this information to prepare IRS Schedules K-1 for its
investors.

Q. WHAT TYPES OF COMMUNICATIONS FROM THE COMPANY WILL INVESTORS RECEIVE?

Investors in the Company will receive the following types of communications from
the Company:

- Annual Reports including a letter to shareholders and financials;

- Quarterly Reports with qualitative and quantitative fund information; and

- Notifications and details of cash and/or stock distributions as
appropriate.

Over time, the Company may add to this list portfolio updates and other
correspondence throughout the year addressing the investment activity and
performance of the Company. Investment representatives will receive copies of
all client correspondence and may receive additional scheduled updates to
provide their clients with the most current information about the Company.

Q. WHAT FORMS DO INVESTORS NEED TO COMPLETE BEFORE INVESTING?

Investors will be sent, and must execute, a comprehensive subscription
agreement that will attest to the suitability of the investment and provide PFPC
with the necessary investor records to properly serve the investor on behalf of
the Company. In addition to the subscription agreement, the investor may need to
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complete a non-standard asset agreement or additional agreements required by the
Distributor or the Selling Agent. After all necessary agreements have been
completed, the investor's proposed investment will be reviewed and the investor
will be accepted or rejected accordingly.

Q. WHAT TYPES OF ACCOUNTS ARE ALLOWED FOR THESE INVESTMENTS?

The following is a summary list of the account types that will be permitted
to participate in Excelsior Venture Partners III:

- Individual accounts

- Joint accounts

- Corporations

- Limited Partnerships

- Limited Liability Companies

- Charitable Organizations/Foundations

The participation of any investors that are not included in the above list
can be reviewed by the relevant Selling Agent, and with consent of the Company,
can be approved for participation in the Company. An investment in the Company
generally is not appropriate for charitable remainder trusts.

Q. MAY CERTAIN BENEFIT PLAN (ERISA) INVESTORS INVEST IN THE COMPANY?

Yes, subject to certain limitations. Investments by benefit plan investors
must be held to less than 25% of the outstanding Units (not including Units held
by the manager of the Company or its affiliates). This limitation is being
imposed so that no assets of the Company will be deemed to be "plan assets"
subject to ERISA or Section 4975 of the Code under regulations issued by the
Department of Labor. This limitation will apply to all benefit plan investors
including individual retirement accounts, employee benefit plans that are not
subject to ERISA or Section 4975 of the Code and entities whose assets are
treated as plan assets for purposes of regulations issued by the Department of
Labor. Benefits plan investors will also be required to represent and warrant
that the purchase of the Units will not result in a non-exempt prohibited
transaction under ERISA or the Code. See "ERISA Considerations" in the
prospectus.

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