EXCELSIOR VENTURE PARTNERS FUND III LLC, N-2, 2000-06-05

EXCELSIOR VENTURE PARTNERS FUND III LLC
N-2, 2000-06-05

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333-
810-

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

-----------
FORM N-2
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[X] REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[ ] Pre-Effective Amendment No.
[ ] Post-Effective Amendment No.
and/or
[X] REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[ ] Amendment No.

EXCELSIOR VENTURE PARTNERS FUND III, LLC
(Exact name of registrant as specified in charter)
114 WEST 47TH STREET, NEW YORK, NEW YORK 10036-1532
(Address of Principal Executive Offices (Number, Street, City, State, Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (212) 852-3125

DAVID I. FANN
DOUGLAS A. LINDGREN
EXCELSIOR VENTURE PARTNERS FUND III, LLC
114 WEST 47TH STREET, NEW YORK 10036-1532

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(Name and Address of Agents for Service)

COPIES TO:
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<TABLE>
<S> <C>
THOMAS A. DECAPO, ESQ. RONALD A. SCHWARTZ, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP UNITED STATES TRUST COMPANY OF NEW YORK
ONE BEACON STREET 114 WEST 47TH STREET
BOSTON, MA 02108-3194 NEW YORK, NEW YORK 10036-1532
PHONE NO.: (617) 573-4814 PHONE NO.: (212) 852-1315
FAX NO.: (617) 573-4822 FAX NO.: (212) 852-1310
</TABLE>
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Approximate Date of Proposed Public Offering: As soon as
practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis in reliance on Rule 415 under the
Securities Act of 1933, other than securities offered in connection with a
dividend reinvestment plan, check the following ...........................[ ]

CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933

<TABLE>
<CAPTION>
===============================================================================
Proposed
Proposed Maximum Maximum Amount of Unit
Title of Securities Amount Offering Aggregate Registration
being Registered being Price Per Offering Price* Fee*
Registered Unit*
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<S> <C> <C> <C> <C>
Membership Interests 50,000 units $1,000 $50,000,000 $13,200
(without par value)
===============================================================================
</TABLE>

*Estimated solely for the purpose of calculating the registration fee.

The registrant hereby amends this Registration Statement under the
Securities Act of 1933 on such date or dates as may be necessary to delay
its effective date until the registrant shall file a further amendment
which specifically states that this Registration Statement shall thereafter
become effective in accordance with Section 8(a) of the Securities Act of
1933 or until this Registration Statement shall become effective on such
date as the Commission, acting pursuant to said Section 8(a), may
determine.

<TABLE>
<CAPTION>
CROSS REFERENCE SHEET

PART A
ITEM NUMBER LOCATION IN PROSPECTUS
----------- ----------------------

<S> <C> <C>
Item 1. Outside Front Cover............ Outside Front Cover

Item 2. Cover Pages; Other Offering
Information.................... Inside Front and Outside Back Cover Page

Item 3. Fee Table and Synopsis......... Fee Table; Prospectus Summary

Item 4. Financial Highlights........... Not applicable

Item 5. Plan Of Distribution........... The Offering; Selling Arrangements

Item 6. Selling Shareholders........... Not applicable

Item 7. Use of Proceeds................ Use Of Proceeds

Item 8. General Description of the Outside Front Cover; The Fund; Investment
Registrant..................... Objective and Policies; Risk Factors

Item 9. Management..................... Management

Item 10. Capital Stock, Long-Term Debt,
and Other Securities........... Description of Units

Item 11. Defaults and Arrears on Senior
Securities..................... Not applicable

Item 12. Legal Proceedings.............. Not applicable

Item 13. Table of Contents of the
Statement of Additional
Information.................... Not applicable

PART B
ITEM NUMBER

Item 14. Cover Page..................... Not applicable

Item 15. Table of Contents.............. Not applicable

Item 16. General Information and History Not applicable

Item 17. Investment Objectives and
Policies....................... Investment Objective and Policies

Item 18. Management..................... Management

Item 19. Control Persons and Principal
Holders of Securities.......... Management

Item 20. Investment Advisory and Other
Services....................... Management

Item 21. Brokerage Allocation and Other
Practices...................... Brokerage Allocation and Other Practices

Item 22. Tax Status..................... Certain Federal Income Tax Considerations

Item 23. Financial Statements........... Financial Statements
</TABLE>

[Flag]
The information in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This prospectus
is not an offer to sell these securities and is not soliciting an offer
to buy these securities in any state where the offer or sale is not permitted.

PRELIMINARY PROSPECTUS

Subject to completion, dated June 5, 2000
EXCELSIOR VENTURE PARTNERS FUND III, LLC
$[ ]
Units of Membership Interest
Minimum Subscription -- $25,000

Excelsior Venture Partners Fund III, LLC, or the Fund, is a newly
organized closed-end, non-diversified investment company. Our investment
objective is to achieve long-term capital appreciation. We will pursue our
objective by investing primarily in a portfolio of 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 Excelsior Venture
Management LLC believes offer significant long-term capital appreciation
potential. See "The Fund."

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 Registrant has been
filed with the Securities and Exchange Commission (the "Commission") and is
available upon written or oral request without charge. In addition, the
Commission maintains a Web site (http://www.sec.gov) that contains material
incorporated by reference and other information regarding registrants that
file electronically with the Commission. You may also request a free copy
by writing or calling the Fund at 114 West 47th Street, New York, New York
10036-1532, (212) 852-3125.

AN INVESTMENT IN THE FUND 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 FUND UNTIL THAT TIME.

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

THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

=============================================================================
PRICE TO SALES LOAD PROCEEDS
PUBLIC TO FUND(1)
-----------------------------------------------------------------------------
Per Unit (25 Unit Minimum) $[1,000] None $[1,000]
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Total Minimum $[ ] None $[ ]
[ ] (Units)
-----------------------------------------------------------------------------
Total Maximum $[ ] None $[ ]
[ ] (Units)
=============================================================================

(1) The Fund expects to incur organizational and offering expenses
of approximately $ .
------

Units are made available through, the Fund's principal distributor.
The closing will be held on or about the fifth business day after receipt
by the Fund of subscriptions totaling $[ ]. The Fund may continue to offer
for sale the remaining unsold Units and accept subscriptions for such Units
from time to time at subsequent subscription closings until [October 31,
2000]. See "Selling Arrangements." The Fund reserves the right to withdraw,
cancel or modify the offering and to reject any subscription in whole or in
part.

The date of this Prospectus is June , 2000.

FEE TABLE

Unitholder Transaction Expenses

SALES LOAD (as a percentage of offering price).......................... None

ANNUAL EXPENSES (as a percentage of net assets attributable to Units)
Management Fees................................................... ----%
Other Expenses.................................................... 0. %
Total Annual Expenses............................................. %
----

The Fund invests primarily in Excelsior Venture Partners III, LLC
(the "Company"). The Fund pays no advisory fee on assets invested in the
Company. Pending investment of its assets in the Company, the Fund will
invest in U.S. Government securities. The Fund will pay __________________
a fee of ____% of the Fund's net assets that are not represented by the
Fund's investment in the Company. The table and Expenses summarize the
aggregate expenses of the Fund and the Company in order to assist the
investor in understanding the various costs and expenses that an investor
in the Fund will bear directly or indirectly. The Company Management Fee
through the fifth anniversary of the Company's final subscription closing
date not later than [October 31, 20005] is 2.00% of the Company's net
assets, determined as of the end of each fiscal quarter. Thereafter, the
Company Management Fee will be 1.00% of the Company's net assets,
determined at the end of each fiscal quarter. The Company's Investment
Adviser has agreed to waive this fee during the subscription period, which
will end on the final subscription closing date not later than [October 31,
2000]. The Investment Adviser is also entitled to an Incentive Carried
Interest from the Company 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 and current net
unrealized capital depreciation on all of the Company's investments). To
the extent that the Company invests in private funds, you will also
indirectly through the Fund 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 "Allocations and Distributions." "Other Expenses" are
based on estimated amounts for the current fiscal year.

**
<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 (1).................................................. $ $ $____ $____
Example 2 (2).................................................. $ $ $____ $____
---- ----
</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.

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

(1) Assumes Company Management Fee of 2.00% of the Company's net assets
in years 1-5 and 1.00% thereafter and other expenses of 0. % of the
Fund's net assets and does not include the Incentive Carried Interest
paid by the Company.
(2) Assumes Company Management Fee of 2.00% of the Company's net assets
in years 1-5 and 1.00% thereafter and other expenses of 0. % of the
Fund's net assets and includes the Incentive Carried Interest paid by
the Company. 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.

PROSPECTUS SUMMARY

This summary is qualified in its entirety by reference to the more
detailed information included in this Prospectus and to the Operating
Agreement attached hereto as Exhibit A.

THE FUND

The Fund is a Delaware limited liability company formed on June 1,
2000. We are registered as a closed-end non-diversified investment company.
We provide investors with the opportunity to participate, with a minimum
investment of $25,000, in a portfolio of 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 Fund. 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. See "The Fund," "Regulation," "Risk Factors,"
"The Offering" and "Description of Units."

INVESTMENT OBJECTIVE AND POLICIES

The Fund's investment objective is to achieve long-term capital
appreciation. Current income is not an objective. The Fund currently
intends to seek to achieve its objective by investing its assets primarily
in Excelsior Venture Partners III, LLC, (the "Company"), a separate,
closed-end, non-diversified investment company that has elected to be a
business development company under the Investment Company Act of 1940, as
amended (the "Investment Company Act"). The Fund and the Company share
substantially the same investment objectives and policies. The Company 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.
The Company also intends 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. Pending investment, for
operating purposes and for temporary or emergency purposes, the Company
will make liquid investments in short-term securities.

The Company currently intends 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. The Company is not, however, constrained or limited in any way to
investments in such strategies and themes. 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:

o Communications and Information
o Productivity Enhancers
o Infrastructure Development
o Early Life Cycle Companies
o Demographics/Rising Living Standards
o Globalization Forces
o Business and Industrial Restructuring

Each of these is described in greater detail under the caption "Investment
Objective and Policies - Investment Strategies."

The Fund does not intend to borrow to invest in the Company. The
Company may from time to time borrow funds in an amount up to 25% of its
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. The Company
does not intend to borrow in order to make the initial investment in a
company. The Company will not borrow to pay the advisory 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

[ ] serves as investment adviser to the Fund. The Investment
Adviser serves as investment adviser to the Company. The Investment Adviser
is responsible pursuant to the Investment 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.

Affiliates of the Investment Adviser 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 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 expects to employ an investment strategy more
similar to that of Fund II. As of January 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
January 31, 2000, Fund II had made investments in 17 portfolio companies
and 13 private funds with an aggregate of approximately $156 million of
invested and/or committed capital.

The Fund will not pay [ ] an investment advisory
fee on assets invested in the Company. Through the fifth anniversary of
the Company's final subscription closing date, the Company will pay the
Investment Adviser an advisory fee equal to 2.00% of the Company's net
assets, determined as of the end of each fiscal quarter. Thereafter, the
advisory fee paid by the Company will be 1.00% of net assets, determined
as of the end of each fiscal quarter. The Fund will pay [ ]
a fee equal to ___% of net assets invested in U.S. Government securities.
The Investment Adviser has agreed to waive its advisory fee for the
Company during the subscription period, which will end on the final
subscription closing date (not later than [October 31, 2000]).

The Investment Adviser also will be entitled to allocations and
distributions from the Company 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:

o cumulative realized capital losses on all investments of any type and

o current net unrealized capital depreciation on all investments of any type.

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

Investors in the Fund will indirectly bear their pro rata portion of
the fees payable by the Company to the Investment Adviser.

THE OFFERING

The Fund is offering investors the opportunity to subscribe to make
capital contributions to the Fund in exchange for membership interests in
the Fund. The Fund is offering up to [ ] units of membership interests at a
price per unit of $1,000 (the "Units"). Units are made available through
___________, as principal distributor (the "Distributor"). Units may be
sold by the Distributor to investors through financial intermediaries
acting as broker or agent ("Selling Agent") for their customers. [
] or an affiliate may compensate from its own assets
Selling Agents who sell Units of the Fund to investors. The offering will
terminate on [ ] or such other subsequent date not later than [October 31,
2000] as the Fund may determine (the "Termination Date"). If a minimum of $
[ ] has not been subscribed for by the Termination Date, the offering will
terminate and all proceeds from the offering will be refunded to investors
with any interest earned thereon.

We expect to have our first closing (the "first subscription
closing") approximately five business days after we have received
subscriptions for at least $ [ ]. The Fund may continue to accept
subscriptions for Units from time to time at subsequent closings (each a
"subsequent subscription closing") until the Termination Date. In the event
that the Fund receives subscriptions of more than $ [ ] by the Termination
Date, the Fund may, if approved by the Board of Managers, increase the
offering, provided that in no event will the Fund accept subscriptions
totaling more than $[ ].

Each subscriber will be required to complete, execute and deliver to
the Fund an executed copy of the Subscription Agreement attached hereto as
Exhibit B (the "Subscription Agreement"), which will form a binding
contract of the investor. Amounts paid by subscribers will be deposited in
an interest-bearing bank escrow account with _______________________
pending each closing. Organizational and offering costs of approximately
$____ ($____ per Unit assuming the minimum of [ ] Units are sold, or
$_____per Unit assuming all [ ] Units are sold) have been incurred by U.S.
Trust and will be reimbursed by the Fund on or shortly after the final
subscription closing. Each investor's share of organizational and offering
costs will be deducted from his or her capital account on or shortly after
the final subscription closing. You will also indirectly bear your pro rata
portion of the organizational and offering costs of the Company. Any change
in the price of the Units will be set forth in a supplement to this
Prospectus. See "The Offering." The Fund has registered the Units under the
Securities Act of 1933, as amended (the "Securities Act").

MINIMUM INVESTMENTS

The minimum subscription amount is $25,000. We have the right to
waive the minimum, at our discretion. See "The Offering."

USE OF PROCEEDS

The Fund intends to invest the net proceeds of the offering in units
of membership interest ("Company Units") in Excelsior Venture Partners III,
LLC (the "Company"). The Company requires payment for the Company Units in
two equal installments, with the second installment payable on the first
anniversary of the termination of the offering of the Company Units.
Pending investment of its assets in the Company and payment of the second
installment, the Fund will invest its assets in U.S. Government securities.
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 at least 50% of the proceeds from its
offering in Venture Capital Investments within approximately two years
after the receipt of such proceeds, a delay is common for business
development companies such as the Company 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 FUND AND THE COMPANY

Unspecified Use of Proceeds. Since the Company in which the Fund
invests has not identified the particular uses for the net proceeds from
this offering, prospective investors must rely on the ability of the
Investment Adviser to identify and make portfolio investments consistent
with the Company's investment objective.

Lack of Operating History. While the key personnel of the Investment
Adviser and its affiliates have considerable experience in venture capital
and private equity investing, the Fund and the Company have recently been
formed and have no operating history of their own upon which an investor
may base an evaluation of the likely performance of the Fund or 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 sells only the minimum number of Units, it will have less assets to
invest and will likely acquire fewer investments than it would if it sold
more Units. This would increase the Fund's and the Company's volatility and
risk.

Reliance on the Investment Adviser. The investment decisions of the
Company will be made exclusively by the Investment 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 of 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.

Transactions with Affiliates; Potential Conflicts of Interest. The
Investment Company Act prohibits certain transactions between the Fund, the
Company and their affiliates without first obtaining an exemption order
from the Commission. Other transactions between the Fund, the Company and
their affiliates require the approval of a majority of the members of the
Board of Managers of the Fund or the Company who are not interested persons
and do not require an exemption order. These transactions may not be the
result of arms-length negotiations although the Fund and the Company will
not enter into affiliated transactions unless they believes that they are
fair to the Fund and the Company and are not the result of over-reaching by
any person. To the extent that an exemption order is required, delays and
costs involved in obtaining necessary approvals may decrease the
profitability of transactions or make them impracticable or impossible to
consummate, and there can be no assurance that the Commission will grant
exemption orders. Conflicts of interest may arise in allocating investment
and disposition opportunities, management time, services or functions
between the Company and other entities for which the Investment Adviser and
its affiliates may provide similar services.

Liabilities of Members. Except as described below, you will not be
liable for any obligations of the Fund in excess of your capital, plus your
share of undistributed profits. However, if you receive a distribution from
the Fund and after such distribution the liabilities of the Fund exceed the
fair value of the Fund'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 Fund. The Fund has no intention of making such distributions. You
will not have the right to a return of your capital contribution except in
accordance with the distribution provisions of the Operating Agreement.

No Public or Other Market for Units. The Fund 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 Fund (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 Fund without the consent of the Fund,
which consent may be withheld in our sole and absolute discretion. No
member will have the right to require the Fund to redeem his, her or its
Units. In addition, none of the Fund, the Company, [ ]
or the Distributor (nor any of their respective affiliates) will 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 FUND 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 FUND
UNTIL THAT TIME.

Tax Status. At the first subscription closing, the Fund will receive
an opinion of its counsel to the effect that, under current law and based
on certain assumptions and representations, the Fund 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. The Company will receive a similar
opinion. No ruling has been or will be sought from the Internal Revenue
Service ("IRS") regarding the status of the Fund or the Company as a
partnership. An opinion of counsel is not binding on the IRS or any court.
If the Fund or 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 Fund and the
Company."

Distributions In Kind. The Fund may determine to make distributions
of securities or other property in kind. To the extent that the Fund 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 Fund 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 in which the Fund invests 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, the Company's election to be treated as a business development
company exempts it from certain provisions of the Investment Company Act.
As a result, the Company operates differently than a registered investment
company and is subject to different and 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. The Fund's investment in the Company will
also be illiquid in that there are substantial restrictions as to transfer
of Company Units.

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.

Borrowing. The Company may borrow for investment and other purposes.
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 including
reserve requirements or operating restrictions that would limit the ability
of the Investment Adviser to control investments or refinancings 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 Fund 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 Operating Agreement is
attached hereto as Exhibit A. Investors in the Fund will become members in
the Fund, which will establish a capital account for each member. Your
capital contributions 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. All allocations and distributions made by the Fund will generally
be made pro rata in proportion to each member's interest in the Fund.

The Fund will invest in and become a member of the Company, which
will similarly establish a capital account in the Company for the Fund. The
Company will make allocations and distributions to its members, including
the Fund, as set forth below.

ALLOCATIONS. The income, gain, loss, deduction and expense of the
Company generally will be determined and allocated as of the end of each
fiscal year to reflect the economic interests of its members and the
Investment Adviser.

Company allocations generally will be made in the following manner:

o items of income, gain, loss, deduction and expense in an amount
equal to the Members' Allocation Amount will be allocated to the
members pro rata in accordance with their capital contributions,
and

o 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.

The Members' Allocation Amount is the items of income, gain, loss,
deduction and expense remaining after the required allocation has been made
to the Investment Adviser.

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 making 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 excess of the Incentive Carried Interest as
most recently calculated over the cumulative amount of all prior
distributions of Incentive Carried Interest made to the Investment Adviser.
The members generally will be entitled to all amounts remaining for
distribution pro rata in accordance with their capital contributions. The
Fund 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.

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 Fund's operations. The Fund will not reinvest income from its
investments or the proceeds from the sale of its investments.

LIQUIDATION. The Fund intends to liquidate and dissolve after the
Company has been liquidated and the Fund has liquidated and distributed all
of its assets. The duration of the Company will be ten years from its 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 of the Company who represent
66 2/3% of the Company's outstanding Units may determine to extend the term
of the Company.

TAX STATUS

Both the Fund and the Company intend to be treated as partnerships
for federal income tax purposes. See "Certain Federal Income Tax
Considerations - Tax Status of the Fund and 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 of Fund items
of income, gain, loss, deduction and expense for the taxable year of the
Fund ending within or with each taxable year of the member, regardless of
whether the member has received any distributions from the Fund. Such Fund
items will generally include the Fund's share of corresponding items of the
Company. It is possible that a member's federal income tax liability with
respect to his, her or its allocable share of Fund 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.

THE FUND

The Fund is a newly organized, non-diversified, closed-end management
investment which has registered its securities under the Securities Act of
1933 and has registered as an investment company under the Investment
Company Act of 1940, as amended (the "Investment Company Act"). The Fund
intends to invest its assets primarily in Excelsior Venture Partners III,
LLC (the "Company"). The Fund and the Company share substantially the same
investment objective and policies. 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 Fund. Pending investment in
the Company, the Fund will invest its assets in U.S. Government securities
[having a remaining maturity of one year or less].

The Fund was organized as a Delaware limited liability company on
June 1, 2000. Pursuant to the Operating Agreement, 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 or its affiliates as that
term is defined in the Investment Company Act. The Board of Managers is
analogous to a Board of Directors of a corporation. The [ ]
serves as investment adviser to the Fund. The Fund's, the Company's and
[ ] principal offices are located at 114 West 47th Street, New
York, New York 10036, and the telephone number of the Fund is (212) 852-3125.

INVESTMENT OBJECTIVE AND POLICIES

GENERAL

The investment objective of the Fund is to seek long-term capital
appreciation. The Fund currently seeks to achieve its investment objective
by investing its assets primarily in Excelsior Venture Partners III, LLC, a
separate closed-end, non-diversified investment company that has elected to
be a business development company under the Investment Company Act.

The Company requires payment for the purchase of Company Units in two
equal installments. Payment of the second installment will be required
approximately one year after the initial payment. Pending investment in the
Company and payment of the second installment, the Fund will invest in U.S.
Government securities [having a remaining maturity of one year or less]. In
the event that the Fund receives distributions of securities in kind from
the Company, the Fund may, but generally does not, expect to distribute
such securities in kind. To the extent that it does not distribute such
securities in kind, it will conduct an orderly distribution of such
securities under the direction and discretion of the [ ].
[ ] will seek to maximize the value to the Fund from such
liquidations. Although the Fund will not be required to liquidate such
securities within any stated period of time, it will generally effect
distributions at any time that it may do so at a price that equals or
exceeds the value of the securities at the time that they were received by
the Fund from the Company. The Fund will not reinvest in additional Company
Units or other equity securities the cash distributions it receives from
the Company or the cash proceeds it receives from the disposition of
securities distributed to it in kind, but will distribute such cash in
accordance with its distribution policies. Pending distribution, cash may
be invested in short-term U.S. Government securities.

The Fund and the Company share substantially the same investment
objective and policies. The Company 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, the Company also intends 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 any
investment at any time. Current income is not a significant factor in the
selection of the Company's investments.

As a BDC, the Company must invest at least 70% of its initial 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 not invest in
non-qualifying assets if after giving effect to such investment more than
30% of its assets would be invested in non-qualifying assets. The Company
does not have a policy as to the minimum percentage of its assets that will
be so invested. See "The Company" and "Regulation."

Venture Capital Investments

The Company will invest primarily in Venture Capital Investments. The
Company may also commit to invest funds in a Venture Capital Investment
beyond the initial investment or guarantee the obligations of a Venture
Capital Investment. The Company 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 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, the Company
may invest in Private Funds, International Venture Capital Investments and
Private Placements in Public Companies (collectively, "Other Private Equity
Investments"). The Company 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. The Company does not expect to invest more than
10% of its total assets in any one Other Private Equity Investment. The
Investment Adviser will not 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 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 in determining whether to make an investment
include:

(i) the presence or availability of strong management;

(ii) 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;

(iii) 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

(iv) 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.

Although the Company is a non-diversified company as defined in the
Investment Company Act, it does not expect to invest more than 10% of its
total assets in any one portfolio company or Private Fund. While the
Company retains the flexibility to invest in all types of industries, it
currently intends 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. 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.

o 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.

o 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 most effective at
obtaining and applying productivity enhancements.

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

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

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

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

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

INVESTMENT PRACTICES

Borrowing. The Fund does not intent to borrow funds to make
investments in the Company. 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. If the Company borrows
funds (other than through a private loan), distributions to Unitholders,
including the Fund, or the repurchase of the Company's Units generally is
prohibited under the Investment Company Act unless the ratio of 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. This would affect the
Fund's ability to make distributions to its shareholders. 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.
Also, as a condition to lending, lenders may place restrictions on the
Company, which may include reserve requirements or operating restrictions,
and may limit the Company's 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 and the Company's Board of Managers, or the
Investment Adviser and the Company's 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 the Units of the Fund 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.
Realized and unrealized gains and losses on hedging instruments used to
hedge Direct Investments will be treated as realized or unrealized gains or
losses on such 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.

The Fund has adopted certain fundamental investment restrictions set
forth in the Statement of Additional Information which may not be changed
unless authorized by a Unitholder vote. Except for such restrictions, the
investment objective and policies of the Fund may be changed by the
Managers of the Fund without obtaining the approval of Fund Unitholders.

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 Fund and the Company and this offering
before making an investment decision. Prospective investors should consider
the information set forth under "Management -- Potential Conflicts of
Interest."

RISKS RELATED TO THE FUND AND THE COMPANY

Lack of Operating History

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

Minimum Proceeds; Portfolio Diversification

The Company will begin operations upon the sale of a minimum of [
] Units or minimum capital commitments of $[ ]. 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 sells only the minimum number of Units, it will have less assets to
invest and will likely acquire fewer investments than it would if it sold
more Units. This would increase the Fund's and the Company's volatility and
risk.

Reliance on the Investment Adviser

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

Regulation

The Company in which the Fund invests 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
Company's 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 believes 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, the Company's election to be treated as a
business development company exempts it from certain provisions of the
Investment Company Act. As a result, the Company operates differently than
a registered investment company and is subject to different and 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
Fund's and the Company's objectives and intended manner of operation. In
the event that the Company's 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 Company's 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
"Regulation."

Transactions with Affiliates; Potential Conflicts of Interest

The Investment Company Act restricts transactions between the Company
and any "affiliated person" (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, and any
other affiliates of the Company. In many cases, the Investment Company Act
prohibits transactions between the Company and such persons 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 the
Federal Reserve Act impose restrictions on certain types of transactions
("covered transactions") between a member bank and its affiliates, as
defined in those provisions. Similar provisions apply to the Fund.

Prior to commencement of operations, the Fund's and the Company's
Board of Managers will implement written procedures approved by a majority
of their disinterested members that are designed to regulate investment
activity by affiliates in conflict with or in conjunction with the Fund's
and the Company's activities, including adopting a code of ethics
containing provisions designed to prevent employees from engaging in acts
prohibited by Rule 17j-1 under the Investment Company Act. However,
circumstances could develop which would require Commission approval in
advance of proposed transactions by the Company or its affiliates with
portfolio companies or their affiliates. Depending upon the extent of the
Investment Adviser's influence and control with respect to such portfolio
companies, the selection of any affiliates of the Investment Adviser to
perform various services for portfolio companies may not be a disinterested
decision and the terms and conditions for the performance of such services
and the amount and terms of compensation to be received therefor may not be
determined in arms-length negotiations, although the terms and conditions
of any such selection are expected to be consistent with those which would
be offered in good faith to an unaffiliated third party retained to provide
such services. The Company will not enter into any affiliated transactions
unless it believes that they are fair to the Company and not the result of
over-reaching by any person. The selection of the Investment Adviser or any
of its affiliates to perform services for a portfolio company must be
approved by a majority of the disinterested members of the Company's Board
of Managers and the independent and disinterested directors of the
portfolio company.

In addition, officers, employees and members of the Board of Managers
of the Company or officers, employees, directors, partners or members of
its affiliates, including the Investment Adviser and the Manager, may serve
as directors of or as consultants to certain portfolio companies and, in
connection therewith, may earn consulting fees, finder's fees and other
fees and commissions, which may be paid in the form of cash, securities or
other forms of consideration. While the Investment Adviser is obligated to
use its best efforts to provide the Company with a continuing and suitable
investment program consistent with its investment objective and policies,
the Investment Adviser is not required to present to the Company any
particular investment opportunity that falls within the investment
objective and policies of the Company except as set forth in the procedures
adopted by the Company's Board of Managers. Such procedures provide that
the Investment Adviser must endeavor to offer to the Company on an
equitable basis investment opportunities that would be suitable for both
the Company and other similar private equity funds for which the Investment
Adviser or any of its subsidiaries provide discretionary investment
advisory services. The Company's portfolio companies may also enter into
certain financial arrangements with the Company and/or its affiliates
subject to appropriate regulatory guidelines or approvals as required. The
Company may seek an exemption order from the Commission relieving the
Company, subject to certain terms and conditions, from certain provisions
of the Investment Company Act to permit co-investments by the Company with
certain affiliates of the Company or the Investment Adviser, including
certain companies or funds that may be set up in the future. Such
co-investments will be in specified amounts and on terms and conditions
that are the same in all material respects, subject to the availability of
capital for investment on the part of the Company and each such affiliate
and certain other considerations. There can be no assurance that the
Commission will grant such an order or that such affiliates will have
capital available to co-invest with the Company. See "Regulation." The
Investment Adviser and its affiliates will not enter into any such
arrangement with a portfolio company unless such arrangement has been
approved by a majority of the disinterested members of the Board of
Managers of the Company and by the independent directors of the portfolio
company who also have no interest in the arrangement. Because of their
potentially varying investment objectives or other factors, conflicts could
arise between the Company and its affiliates relating to such
co-investments, which can only be resolved through the exercise by the
Investment Adviser of such judgment as is consistent with its fiduciary
duties to the Company. Even with the proper exercise of such judgment,
however, there can be no assurance that potential conflicts will be
resolved in a manner favorable to the Company. The Company will not have
independent management or employees and will rely upon the Investment
Adviser, and its affiliates for management and administration of the
Company and its assets. Conflicts of interest may arise in allocating
investment opportunities, management time, services or functions between
the Company and other entities for which the Investment Adviser and its
affiliates may provide similar services. The Company's Board of Managers
will supervise the activities of the Investment Adviser. See "Management --
Potential Conflicts of Interest."

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 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 in deciding whether or not to make a particular investment or to
dispose of any such investment. See "Use of Proceeds."

FEDERAL INCOME TAXATION

A limited liability company (such as the Fund or the Company) would
be treated as a corporation for federal income tax purposes if it were to
become a publicly traded partnership. If the Fund or 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 Fund and/or the Company (as the case may
be) 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 Fund and/or the Company would not be passed through to
the members, and all distributions by the Fund and/or the Company to its
members would be treated as dividends, return of capital and/or gains. See
"Certain Federal Income Tax Considerations - Tax Status of the Fund and the
Company."

Taxation of Members on Fund Profits and Losses. The Fund and the
Company, if treated as partnerships for tax purposes as discussed above,
will not themselves 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 Fund items of
income, gain, loss, deduction and expense for the taxable year of the Fund
ending within or with such taxable year of the member, regardless of
whether the member has received any distributions from the Fund.
Prospective investors should also be aware that they will be subject to
various limitations on their ability to deduct their allocable share of
Fund 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 Fund 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.

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 Fund. No assurance can be given that the current federal income tax
treatment applicable to an investment in the Fund 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 Fund. 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 theFund, see "Certain
Federal Income Tax Considerations."

Liability of Investors

Except as described below, you will not be liable for any obligations
of the Fund in excess of your capital, plus your share of undistributed
profits. However, if you receive a distribution from the Fund and after
such distribution the liabilities of the Fund exceed the fair value of the
Fund'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 Fund.
The Fund has no intention of making such distributions. You will not have
the right to a return of your capital contribution 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 Fund, 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 Fund (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 Fund of any proposed transfer must
include evidence satisfactory to the Fund 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 the 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 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 Fund under the policies
established by the Fund, the Fund shall promptly take all necessary actions
so that each transferee or successor to whom those Units is transferred is
admitted to the Fund as a member. Each member and transferee must pay all
expenses, including attorneys' and accountants' fees, incurred by the Fund
in connection with such transfer.

By subscribing for Units, each member will agree to indemnify and
hold harmless the Fund, the Company, [ ], 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.

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
investment 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.

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
exemption order from the Commission could be time consuming and costly and
there can be no assurance that such approval would be obtained.

Borrowing

The Fund does not intend to borrow to invest in the Company, and 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 assets. See
"Investment Objective and Policies -- Borrowing."

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 Manager considers 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 Fund is offering investors the opportunity to subscribe to make
capital contributions to the Fund in exchange for membership interests in
the Fund (the "Units"). The Fund is offering up to [ ] Units at a price per
Unit of $1,000 through __________, as principal distributor. The minimum
subscription is $25,000. We have the right to waive the minimum at our
discretion. There are no sales charges or other commissions payable by the
investor to the Fund or the Distributor in connection with the purchase of
the Units. Units may be sold by the Distributor to investors through
financial intermediaries acting as broker or agent for their customers. The
Fund will pay the Distributor $_____ per Unit distributed through the
Distributor. [ ] or an affiliate, out of its own assets and
not the assets of the Fund may compensate Selling Agents who sell Units of
the Fund. If subscriptions for a minimum of [ ] Units have not been
received by the Termination Date, the offering will terminate and all
proceeds from the offering will be refunded to investors with any interest
earned thereon and without any deductions. See "Risk Factors -- Minimum
Proceeds and Portfolio Diversification."

Each investor will be required to complete, execute and deliver to
the Fund an executed copy of the Subscription Agreement, which will form a
binding contract of the investor. The Subscription Agreement must be
accompanied by a money transfer or check payable to the order of
___________________ in the amount of $1,000 for each Unit subscribed for,
representing the capital contribution per Unit.

Funds paid by subscribers will be deposited in an interest-bearing
bank escrow account with _______________________ pending each closing. In
the event the Fund rejects a subscriber's Subscription Agreement or a
subscriber elects to withdraw his subscription prior to his or her initial
subscription closing date, ________________________ 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 for at least $[ ].
The Fund may continue to offer the remaining unsold Units and accept
subscriptions for such Units from time to time at subsequent closings until
the Termination Date. In the event that the Fund receives subscriptions for
more than $[ ] by the Termination Date, the Fund may, if approved by the
Board of Managers and [ ], increase the offering,
provided that in no event will the Fund accept subscriptions totaling more
than $[ ]. Within five days after each closing, __________________________
will mail to each subscriber checks in the respective amounts of interest
earned by funds held in escrow. If the minimum of [ ] Units are sold, any
charges or expenses associated with the escrow account will be paid by
[ ].

USE OF PROCEEDS

The net proceeds to the Fund from this offering will be $[ ] if all
Units are sold and before deducting organizational and initial offering
expenses estimated to be approximately $[_________].

The Fund intends to invest substantially all of the proceeds in
Excelsior Venture Partners III, LLC (the "Company"). The Fund and the
Company share substantially the same investment objective and policies.
Pending investment, for operating purposes and for temporary or emergency
purposes, the Fund will invest in U.S. Government securities.

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 at least 50% of the proceeds
from this offering in Venture Capital Investments within approximately two
years after the receipt of such proceeds, 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."

MANAGEMENT

INVESTMENT ADVISER; COMPENSATION

[ ], will serve as the Investment Adviser of the Fund.
Investment Adviser. Excelsior Venture Management LLC, a newly formed
limited liability company that is an affiliate of United States Trust
Company of New York and U.S. Trust Company, will serve as the Investment
Adviser of the Company pursuant to an investment advisory agreement with
the Company. Affiliates of the Investment Adviser have been the Investment
Adviser to Fund I and Fund II, each a registered BDC, since September 1994
and March 1997, respectively. The investment personnel of the Investment
Adviser consist of the same persons that perform the investment management
functions for Fund I and Fund II.

The Investment Adviser is a recently organized limited liability
company that was created to provide investment management and
administrative services to the Company and to other investment funds that
may be established in the future. U.S. Trust Company and its parent
company, U.S. Trust Corporation, are members of the Investment Adviser.
Certain employees and officers of U.S. Trust Company and its affiliates are
also members of the Investment Adviser and are allocated a portion of the
Investment Adviser's net profits relating to the Incentive Carried
Interest. U.S. Trust Company is an FDIC insured, Connecticut chartered
state bank and trust company and is a subsidiary of U.S. Trust Corporation.
On December 31, 1999, U.S. Trust's Asset Management Group, which includes
United States Trust Company of New York and other affiliates of U.S. Trust
Corporation, had approximately $86 billion in assets under management. The
principal business address of the Investment Adviser is [114 West 47th Street,
New York, NY 10036].

Under the supervision of the Company's Board of Managers, the
Investment Adviser is 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
"Managers, Officers and Investment Professionals" below.

PROPOSED MERGER

On January 12, 2000, The Charles Schwab Corporation ("Schwab") and
U.S. Trust Corporation entered into a definitive agreement to merge (the
"Merger"). 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. After the Merger, U.S. Trust Corporation will be a
wholly-owned subsidiary of Schwab. The Merger is anticipated to close by
July 2000; however, it is subject to a number of conditions. Charles R.
Schwab is the founder, Chairman and Co-Chief Executive Officer and a
director and significant shareholder of Schwab.

Management Fees. The Fund will pay the Investment Adviser an
investment advisory fee equal to ____% of the Fund's net assets invested in
U.S. Government securities. The Fund will not pay the Investment Adviser an
advisory fee on assets invested in the Company. The Company will pay the
Investment Adviser, on a quarterly basis, an advisory fee equal to 2.00% of
net assets through the fifth anniversary of the Company's first closing
date and 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 Advisory Fee during the subscription period, which will
end on the final subscription date. See "The Fund" and "Regulation."

Investment Advisory Agreement. The Fund will enter into an
investment advisory agreement with the Investment Adviser. The Investment
Advisory Agreement provides that the Investment Adviser shall, subject to
the supervision of the Fund's Board of Managers, identify, evaluate,
structure, monitor and dispose of the Fund's investments, and is required
to provide, or arrange suitable third parties to provide, any and all
management and administrative services reasonably necessary for the
operation of the Fund and the conduct of its business. Such management and
administrative services include, without limitation: providing the Fund
with office space, equipment, facilities, supplies and clerical services;
keeping and maintaining the books and records of the Fund, administering
capital accounts and handling communications and correspondence with
members, preparing accounting, management and other reports; and providing
such other managerial and administrative services as may be reasonably
requested by the Fund.

Under the Investment Advisory Agreement, the Fund is obligated to
bear all costs and expenses directly allocable and identifiable to the Fund
or its business or investments, including, but not limited to, fees of the
Board of Managers; fees of the Investment Adviser; expenses of registering
the Fund's Units under federal and state securities laws; interest; taxes;
fees and expenses of the Fund's legal counsel and independent accountants;
fees and expenses of the transfer agent; expenses of printing and mailing
Units 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
Fund (or its assets) or its actual investments; expenses of membership in
investment company associations; expenses of fidelity bonding and other
insurance premiums; expenses of members' meetings; commission and state
blue sky registration fees; fees payable to the National Association of
Securities Dealers, Inc. (the "NASD"), if any, in connection with this
offering; and the Company's other business and operating expenses.

The Investment Advisory Agreement provides for indemnification by the
Fund of the Investment Adviser from any and all losses, claims, damages,
liabilities or expenses (including reasonable counsel fees and expenses)
not resulting from willful misfeasance, bad faith or gross negligence in
the performance by the Investment Adviser of its duties thereunder or the
reckless disregard of its obligations and duties under the Investment
Advisory Agreement.

The Investment Advisory Agreement provides that it shall continue in
effect for two years and that, after the initial period of effectiveness,
it 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 Fund who are not parties to the
Investment Advisory 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 Fund; or (ii) the vote of a majority of the full Board of
Managers of the Fund. The Investment Advisory Agreement also provides that
it may be terminated at any time, without the payment of any penalty,
either by: (i) the Fund, by action of the Board of Managers or by vote of a
majority of the outstanding Units of the Fund, on 60 days' written notice
to the Investment Adviser; or (ii) the Investment Adviser, on 90 days'
written notice to the Fund. The Investment Advisory Agreement will
terminate immediately in the event of its "assignment" (as defined in the
Investment Company Act).

The Company has entered into a substantially similar investment
advisory agreement with the Company.

INVESTMENT OPERATIONS

The Investment Adviser will initiate, screen and monitor the
Company's investments.

Venture Capital 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 of the Investment Adviser, which consists of
senior investment professionals of the Investment Adviser, will make the
final investment decisions regarding any investment proposal made by the
Investment Adviser.

Deal Origination. Investment proposals may come to the attention of
the Investment Adviser from many sources including unsolicited proposals
from the public, personal contacts of the Investment Adviser or its
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
believes that investment opportunities may also come from several venture
capital and private equity funds of which it or any of its affiliates may
be an investor. Under certain circumstances, such opportunities may require
prior exemptive relief from the Commission. See "Risk Factors --
Transactions with Affiliates; 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 to assess the prospects and risks
of the potential investment. The experience and expertise of the officers
of the Investment Adviser will be essential in evaluating products,
markets, industry trends, financial requirements, competition and the
management team associated with a prospective investment. Each investment
opportunity will need to be approved by the Investment Committee of the
Investment Adviser.

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 will be
responsible for conducting such negotiations on behalf of the Company and
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
or the Investment Adviser and/or its affiliates will frequently serve as
members of the board 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
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 of 1933. 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 --
Liquidity 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 of Securities
In Kind."

BACKGROUND

THE FOLLOWING LIST INCLUDES ALL THE PRIVATE COMPANIES AND PRIVATE
FUNDS IN WHICH FUND I AND FUND II HAVE INVESTED AS OF JANUARY 31, 2000 AND
AS REPORTED IN THEIR RESPECTIVE ANNUAL REPORTS AS FILED WITH THE
COMMISSION. 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. ALL OR
SUBSTANTIALLY ALL OF THE INVESTMENTS LISTED BELOW ARE VALUED AT FAIR VALUE.
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. 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'S
INVESTMENT PROFESSIONALS HAVE EXPERIENCE.

U.S. TRUST PRIVATE EQUITY INVESTMENTS (AS OF 4/30/00)

<TABLE>
<CAPTION>
Average Holding Cost Realized Unrealized Total
Period (Years) Basis Gain/(Loss) Gain/(Loss) Value
DIRECT INVESTMENTS
<S> <C> <C> <C> <C> <C>
Abtox, Inc. 3.0 $ 2,800,001 $ (2,800,001) $ - $ -
Accrue Software, Inc. (NeoVisTa)* 2.2 1,031,877 10,336 896,497 1,938,710
Advantage Schools, Inc. 1.5 4,606,551 - 6,264,725 10,871,276
Best Friends Pet Care, Inc. 3.0 3,525,000 - - 3,525,000
Captura Software, Inc. 1.1 4,799,998 - 3,078,260 7,878,258
Cardiopulmonary Corporation 3.3 2,150,000 (2,150,000) - -
Classroom Connect, Inc. 1.4 7,999,951 - 1,819,965 9,819,915
Commsite International, Inc. 2.6 2,718,750 78,309 - 2,797,059
Constellar Corporation 2.0 6,999,995 - - 6,999,995
Corsair Communications 2.7 3,000,003 1,820,397 - 4,820,399
Curon Medical, Inc. 0.7 6,124,144 - - 6,124,144
ePod Corporation 0.4 1,000,000 - - 1,000,000
firstsource Corporation 0.2 10,000,000 - - 10,000,000
Killerbiz, Inc. 0.4 500,000 - - 500,000
LifeMinders.com, Inc.* 0.9 11,499,997 - 177,612,275 189,112,272
LogicVision, Inc. 2.4 1,549,499 - 106,208 1,655,707
Managemark, Inc. 0.8 5,000,002 - - 5,000,002
MarketFirst Software, Inc. 0.6 4,999,543 - - 4,999,543
MySeasons.com, Inc. 0.2 2,000,100 - - 2,000,100
P2 Holdings Corp./Plynex 1.3 2,750,000 - (2,750,000) -
PowerSmart, Inc. 2.1 9,237,500 - 4,851,261 14,088,761
Protogene Laboratories, Inc. 0.3 5,680,000 - - 5,680,000
QuickLogic Corporation* 3.0 3,000,000 4,835,896 2,581,536 10,417,432
ReleaseNow.com, Inc. 1.7 6,810,039 - 2,646,106 9,456,145
Rental Service Corp. 1.4 985,000 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 9,998,176 1,243,640 15,420,465
Survivalink Corporation 1.6 7,584,999 - - 7,584,999
The Party Experience, Inc. 1.4 2,055,206 - (2,055,206) -
WNP Communications, Inc. 0.9 5,877,855 13,338,276 - 19,216,131
Zeus Wireless, Inc. 0.4 5,000,001 - - 5,000,001

DIRECT INVESTMENT TOTALS 1.4 $138,882,805 $ 23,803,739 $196,295,266$358,981,811

<CAPTION>
Capital Cost Realized Unrealized Total
Committed Basis** Gain/(Loss) Gain/(Loss) Value
<S> <C> <C> <C> <C> <C>
FUND INVESTMENTS
Advanced Technology Ventures V, LP 3,000,000 $ 2,175,000 $ - $ 1,201,941 $ 3,376,941
Brand Equity Ventures, LP 2,500,000 1,980,263 636,454 1,150,395 3,767,112
Brentwood Associates III, LP 5,000,000 1,803,830 - (49,585) 1,754,245
Broadview Capital Partners, LP 5,000,000 1,500,000 - (113,197) 1,386,803
Commonwealth Capital Ventures II, LP 4,000,000 2,700,000 - 1,068,762 3,768,762
Communications Ventures III, LP 5,000,000 4,625,000 - 9,383,734 14,008,734
Friedman, Fleischer & Lowe, LP 5,000,000 913,976 - (137,186) 776,790
Mayfield Fund X, LP 5,000,000 3,500,000 - 1,977,508 5,477,508
Mid-Atlantic Venture Fund III, LP 5,000,000 4,000,000 - 3,344,556 7,344,556
Morgenthaler Venture Partners V, LP 8,000,000 5,200,000 - 1,467,609 6,667,609
Quad-C Partners V, LP 5,000,000 2,609,983 - 18,789 2,628,772
Sevin Rosen Fund VI, LP 2,500,000 1,950,000 - 1,919,900 3,869,900
Trinity Ventures VI, LP 3,000,000 2,306,250 - 2,824,790 5,131,040
Allegra Capital Partners III, LP 2,000,000 2,000,000 - 2,634,526 4,634,526
Brentwood Associates II, LP 2,000,000 1,952,415 158,388 261,562 2,372,365
Bruckmann, Rosser, Sherrill, LP 2,000,000 1,848,157 152,242 234,351 2,234,750
Morgenthaler Ventures IV, LP 2,000,000 1,746,595 1,061,171 1,755,297 4,563,063
Sevin Rosen Fund V, LP 2,000,000 1,868,748 1,654,983 941,682 4,465,413
Vanguard V Venture Partner, LP 2,000,000 1,888,181 1,439,755 3,079,170 6,407,106

FUND INVESTMENT TOTALS $ 70,000,000 $46,568,397 $ 5,102,993 $ 32,964,605 $ 84,635,994

PORFOLIO TOTALS $185,451,203 28,906,732 $229,259,871 $443,617,805

*No illiquidity discount has been assigned to the Fund's position.
**Fund Investment Cost Basis includes adjustments made for realized LP distributions.
</TABLE>

INVESTMENTS LIQUIDATED (AS OF APRIL 30, 2000)

Softcom Microsystems, Inc., Fremont, CA ("Softcom")
Initial Investment Date: August 1998
Total Investment: $4.2 million
Total Proceeds:* $15.4 million

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.

*10% of proceeds remain unrealized due to escrow holdback as
part of the Intel acquisition

WNP Communications, Inc., Reston, VA ("WNP")
Initial Investment Date: January 1998
Total Investment: $5.9 million
Total Proceeds: $19.2 million

WNP acquired broadband spectrum covering 30 of the top 50 markets in
the United States in the Local Multipoint Distribution Services
("LMDS") 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.

PUBLIC COMPANIES (AS OF APRIL 30, 2000)

LifeMinders.com, Inc., Herndon, VA ("LifeMinders.com")
Initial Investment Date: February 1999
Total Investment: $11.5 million
Total Investment Value:* $184.3 million

LifeMinders.com 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 April 30, 2000, the company has approximately 13 million
members and numerous advertising partners. LifeMinders.com has
experienced significant membership growth since our initial
investment in February 1999, when the company had less than 50,000
members. LifeMinders.com recently held its initial public offering in
November 1999 (NASDAQ:LFMN). Fund II has invested $11.5 million in
Lifeminders.com at an average cost of $2.70 per share and the
company's stock, as of April 30, 2000, was trading at $44.375 per
share.

*Does not assign an illiquidity discount to the Fund's position.

PRIVATE COMPANIES (AS OF APRIL 30, 2000)

Advantage Schools, Inc., Boston, MA ("Advantage")
Initial Investment Date: June 1998
Total Investment: $4.6 million
Investment Carrying Value: $10.9 million

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 16 schools across the country.

Captura Software, Inc., Bothell, WA ("Captura")
Initial Investment Date: February 1999
Total Investment: $4.8 million
Investment Carrying Value: $7.9 million

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.

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

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.

Constellar Corporation, Redwood Shores, CA ("Constellar")
Initial Investment Date: April 1998
Total Investment: $7.0 million
Investment Carrying Value: $7.0 million

Constellar is a provider of enterprise application integration
software and services to large organizations in North America, Europe
and Australia. Constellar provides products and services that work to
untangle complex information technology environments by managing
data, making it accessible, and moving it across several different
applications. Constellar's customer list includes Sprint, British
Telecom, Deutsche Bank, NatWest, Princeton University, London Stock
Exchange, and General Electric.

Curon Medical, Inc., Sunnyvale, CA ("Curon")
Initial Investment Date: December 1999
Total Investment: $6.1 million
Investment Carrying Value: $6.1 million

Curon develops and markets medical devices for the treatment of
gastrointestinal diseases using radio frequency delivered through a
catheter. Curon had developed a product targeting gastroesophageal
reflux disease that is undergoing the Food and Drug Administration
510(k)-clearance process. Curon filed its S-1 for Initial Public
Offering.on May 25, 2000.

ePod Corporation, New York, NY ("ePod")
Initial Investment Date: December 1999
Total Investment: $1.0 million
Investment Carrying Value: $1.0 million

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.

KillerBiz, Inc., Fremont, CA ("KillerBiz")
Initial Investment Date: December 1999
Total Investment: $0.5 million
Investment Carrying Value: $0.5 million

KillerBiz is an online business-to-business marketplace connecting
small businesses to service providers. 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 through a "request-for-quote" or
"request-for-proposal" engine. The KillerBiz web site offers a
business-to-business marketplace that leverages both Extensible
Mark-up Language and patent-pending Intelligent Trained Agent
technology.

MarketFirst Software, Inc., Mountain View, CA ("MarketFirst")
Initial Investment Date: August 1999
Total Investment: $5.0 million
Investment Carrying Value: $5.0 million

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. MarketFirst filed its S-1
for Initial Public Offering on April 18, 2000.

Managemark, Inc., Sunnyvale, CA ("Managemark")
Initial Investment Date: June 1999
Total Investment: $5.0 million
Investment Carrying Value: $5.0 million

Managemark is an Internet application software company focused on
developing finance and administration software and services to small
and middle-market firms. The company's current offerings are focused
on increasing the efficiency and lowering the cost of processing
corporate expenses.

PowerSmart, Inc., Shelton, CT ("PowerSmart")
Initial Investment Date: January 1998
Total Investment: $9.2 million
Investment carrying Value: $14.1 million

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.

Protogene Laboratories, Inc., Menlo Park, CA ("Protogene")
Initial Investment Date: December 1999
Total Investment $5.7 million
Investment Carrying Value: $5.7 million

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.

ReleaseNow.com, Menlo Park, CA ("ReleaseNow")
Initial Investment Date: June 1998
Total Investment: $6.8 million
Investment Carrying Value: $9.5 million

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. ReleaseNow filed its S-1 for Initial Public
Offering on January 28, 2000.

SurVivaLink Corporation, Minnetonka, MN ("SurVivaLink")
Initial Investment Date: August 1998
Total Investment: $7.6 million
Investment Carrying Value: $7.6 million

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.

Zeus Wireless, Inc., Columbia, MD ("Zeus")
Initial Investment Date: December 1999
Total Investment: $5.0 million
Investment Carrying Value: $5.0 million

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.

SUBSEQUENT INVESTMENTS

firstsource.com, Inc., Santa Ana, CA ("firstsource")
Initial Investment Date: February 2000
Total Investment: $10.0 million
Investment Value: $10.0 million

firstsource is a provider of business products, services and online
business procurement solutions for small and medium sized business.
With approximately 250,000 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.

MySeasons.com, Inc., New York, NY ("MySeasons")
Initial Investment Date: February 2000
Total Investment: $2.0 million
Investment Value: $2.0 million

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 non-store horticulture retailer in the United States.

PRIVATE FUNDS

Advanced Technology Ventures V, LP ("ATV V")
Fund Size: $175 million
Investment commitment: $3 million

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

Brand Equity Ventures I, LP ("BEV")
Fund Size: $95 million
Investment commitment: $2.5 million

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.

Brentwood Associates III, LP ("Brentwood III")
Fund Size: $360 million
Investment commitment: $5 million

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

Broadview Capital II LP ("Broadview")
Fund Size: $220 million
Investment commitment: $5 million

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
Capital with substantial resources to make its investments.

Commonwealth Capital Ventures II, LP ("Commonwealth II")
Fund Size: $80 million
nvestment commitment: $4 million

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 has been
an investor in Altiga Networks, Direct Hit Technologies and
Smarterkids.com.

Communications Ventures III, LP ("Communications Ventures III")
Fund Size: $125 million
Investment commitment: $5 million

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.

Friedman, Fleischer & Lowe, LP ("Freidman, Fleischer & Lowe")
Fund Size: $325 million
Investment commitment: $5 million

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.

Mayfield Fund X, LP ("Mayfield X")
Fund Size: $450 million
Investment commitment: $5 million

Mayfield X is focused on early stage information technology and
healthcare investments, primarily located in Silicon Valley, CA.
Founded in 1969, Mayfield 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.

Mid-Atlantic Venture Fund III, LP ("MAVF III")
Fund Size: $60 million
Investment commitment: $5 million

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.

Morgenthaler Venture Partners V, LP ("MVP V")
Fund Size: $300 million
Investment commitment: $8 million

MVP V 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. Morgenthaler
Venture Partners IV is a Fund I holding.

Quad-C Partners V, LP ("Quad-C")
Fund Size: $300 million
Investment commitment: $5 million

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.

Sevin Rosen Fund VI, LP ("Sevin Rosen VI")
Fund Size: $165 million
Investment commitment: $2.5 million

Sevin Rosen VI 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 Funds
have a track record that includes being early investors in Compaq,
Lotus, Cyrix, Citrix, and Ciena. Sevin Rosen Fund V is a Fund I
holding.

Trinity Ventures VI, LP ("Trinity VI")
Fund Size: $140 million
Investment commitment: $3 million

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 SciQuest, NextCard, Quokka Sports, Starbucks
and Fatbrain.com.

INVESTMENTS LIQUIDATED

CommSite International, Inc., Vienna, VA ("CommSite")
Initial Investment Date: April 1996
Total Investment: $2.7 million
Total Proceeds:* $2.7 million

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

*Total proceeds include estimate of additional milestone payments to
Commsite from American Tower.

Rental Service Corp., Scottsdale, AZ ("Rental Service")
Initial Investment Date: January 1996
Total Investment: $1.0 million
Total Proceeds: $3.1 million

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.

PUBLIC COMPANIES

Corsair Communications, Inc., Palo Alto, CA. ("Corsair")
Initial Investment Date: October 1996
Total Investment: $3.0 million
Total Investment Value: $4.8 million

Corsair (NASDAQ: CAIR) is a wireless communication infrastructure
company providing pre-paid wireless handset and fraud detection
software and services.

NeoVista Software, Inc., Cupertino, CA ("Neovista")
Initial Investment Date: June 1997
Total Investment: $1.0 million
Total Investment Value:* $2.0 million

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. Data mining has been
used for inventory management, customer profiling, behavior
prediction and fraud detection. In January 2000, Accrue Software
("Accrue"; NASDAQ: ACRU) acquired NeoVista in exchange for 2.4
million shares of Accrue stock.

QuickLogic Corporation, Sunnyvale, CA ("QuickLogic")
Initial Investment Date: November 1996
Total Investment: $3.0 million
Total Investment Value:* $10.4 million

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.

*Does not assign an illiquidity discount to the Fund's position.

PRIVATE COMPANIES

Best Friends Pet Care, Inc., Norwalk, CT ("Best Friends")
Initial Investment Date: December 1996
Total Investment: $3.5 million
Total Investment Value: $3.5 million

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.

LogicVision, Inc., San Jose, CA ("LogicVision")
Initial Investment Date: May 1997
Total Investment: $1.5 million
Total Investment Value: $1.7 million

LogicVision is a developer of built-in semiconductor 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.

PRIVATE FUNDS

Allegra Capital Partners III, LP ("Allegra III")
Fund Size: $40 million
Investment commitment: $2.0 million

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's principals have been
investors in Autotote, Axent Technologies, Business Evolution and
Viasoft.

Brentwood Associates Buyout Fund II, LP ("Brentwood II")
Fund Size: $240 million
Investment commitment: $2.0 million

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 was an investor in
Rental Services and is an investor in Classroom Connect, companies in
which Fund I and Fund II, respectively, have invested. Brentwood III
is a Fund II holding.

Bruckmann, Rosser, Sherrill & Co., LP ("BRS")
Fund Size: $375 million
Investment commitment: $2.0 million

BRS is a leveraged buyout fund based in New York. The firm's
portfolio contains investments ranging from Restaurant Associates, a
restaurant operator and food service contractor, to Doane Pet Care
Enterprises, a manufacturer and distributor of pet food.

Morgenthaler Venture Partners IV, LP ("MVP IV")
Fund Size: $135 million
Investment commitment: $2.0 million

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 Nortel, Microsoft, Guidant, as
well as several cash distributions. Morgenthaler Venture Partners V
is a Fund II holding.

Sevin Rosen Fund V, LP ("Sevin Rosen V")
Fund Size: $160 million
Investment commitment: $2.0 million

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 Funds
have a track record that includes being early investors in Compaq,
Lotus, Cyrix, Citrix and Ciena. To date, this fund has made
distributions of stock including Ciena, Pure Atria Software and Cisco
Systems. Sevin Rosen Fund VI is a Fund II holding.

Vanguard Venture Partners V, LP ("Vanguard V")
Fund Size: $55 million
Investment commitment: $2.0 million

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 Cisco Systems and currently holds
Cobalt Networks, Image X, and Digital Island.

INVESTMENTS WRITTEN-OFF

AbTox, Inc., Mundelein, IL ("AbTox")
Initial Investment Date: March 1997
Total Investment: $2.8 million
Total Investment Value: $0

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

Cardiopulmonary Corporation, Milford, CT ("Cardiopulmonary Corporation")
Initial Investment Date: November 1996
Total Investment: $2.2 million
Total Investment Value: $0

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. The Fund's position has been
written down pursuant to a recent recapitalization of the company.

P2 Holdings Corp. (formerly known as Plynetic Express),
San Leandro, CA ("P2 Holdings")
Initial Investment Date: June 1997
Total Investment: $2.8 million
Total Investment Value: $0

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

Party Stores Holdings, Inc., Melville, NY ("Party Stores")
Initial Investment Date: May 1997
Total Investment: $2.1 million
Total Investment Value: $0

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

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

Signius provides telemessaging services for small and medium-sized
businesses. The Fund's investment has been written down to zero to
reflect the operating status of the company.

THE FOREGOING INFORMATION WITH RESPECT TO FUND I AND FUND II IS
PRESENTED TO ILLUSTRATE THE TYPES OF INVESTMENTS THAT THE INVESTMENT
ADVISER'S INVESTMENT PROFESSIONALS 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 INVESTMENTS THAT THE COMPANY WILL MAKE OR THE GAINS
OR LOSSES IT WILL EXPERIENCE ON ITS INVESTMENTS. 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. 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, calculated in conformity with the
standardized performance methodology required by the Securities and
Exchange Commission.

1-Year 3-Year 5-Year 10-Year
UST Private Equity Investors Fund, Inc. 28.55% 15.76% N/A N/A
Excelsior Private Equity Fund II, Inc. 76.01% N/A N/A N/A

CODE OF ETHICS

The Fund, the Company and the Investment Adviser have adopted
codes of ethics under Rule 17j-1 of the Investment Company Act which
restricts the personal securities transactions of certain of the
officers, employees, directors and Board of Managers, members of the
Company and the Investment Adviser. Its primary purpose is to ensure
that personal trading by Investment Adviser employees does not
disadvantage the Fund or the Company. U.S. Trust portfolio managers
and other investment personnel who comply with the code of ethic's
pre-clearance 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 code 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 code of
ethics is 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 Fund's Operating Agreement, the business and
affairs of the Fund will be managed under the direction of its Board
of Managers. Pursuant to the Company's Operating Agreement, the
business and affairs of the Company will be managed under the
direction of its Board of Managers. The Board of Managers of the Fund
consists of the same persons as the Board of Managers of the Company.
The following are descriptions of the members of the Board of
Managers and the officers of the Fund and the Company, as well as of
key employees of the Investment Adviser, including the members of the
Investment Adviser's Investment Committee. Unless otherwise noted,
each member of the Investment Adviser'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 Fund and the
Company, as defined in the Investment Company Act, on the basis of
his ownership of U.S. Trust Corporation stock.

Board of Managers

Gene M. Bernstein, (52). Mr. Bernstein is currently Vice Chairman
of Northville Industries Corp., a privately held corporation engaged
in petroleum, marketing, distribution and trading. Mr. Bernstein was
the President of BIG Venture Inc., a privately held golf equipment
marketing firm from March 1994 to December 1997. From 1990 until 1994,
he was the President of Northville Industries Corp. Mr. Bernstein was
Executive Vice President of Northville Industries Corp. from 1982 to
1989. Mr. Bernstein holds a B.A. degree in English Literature from
Alfred University, an 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 and Fund II.

John C. Hover II, (56). 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 the Chemical Bank. Mr. Hover
received his B.A. degree in English Literature from the University of
Pennsylvania and an M.B.A. degree in Marketing from The Wharton
School. John 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, (53). 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 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 headed up its
Investment Banking Department's Commercial Bank Group. Mr. Murphy
holds a B.S.B.A. degree from Georgetown University and an M.B.A.
degree from Columbia University. Mr. Murphy serves as a director of
Fund I and II.

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 and II.

Officers of the Company

David I. Fann, (36), Co-Chief Executive Officer and President of
the Fund and the Company and Managing Director of United States Trust
Company of New York. Mr. Fann serves as President and Chief Executive
Officer of Excelsior Private Equity Fund II, Inc. and UST Private
Equity Investors Fund, Inc. He is focused on direct investments in
healthcare, consumer services, and e-commerce. Prior to joining United
States Trust Company of New York in April of 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 the Special Fiduciary Committee. Mr. Fann is on the
Board of the Somerset Exchange Fund, Classroom Connect, Inc., Conway
Stuart Medical, Inc., SurVivaLink Corp. and Protogene Laboratories,
Inc.

Douglas A. Lindgren, (38), Co-Chief Executive Officer and Chief
Investment Officer of the Fund and the Company and Managing Director
of United States Trust Company of New York. Mr. Lindgren is Chief
Investment Officer of the Excelsior Private Equity Fund II, Inc. and
Executive Vice President of the UST Private Equity Investors Fund,
Inc. He is focused on direct investments in information technology,
Internet 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 of 1995, including President and Managing
Principal from January 1993 through March of 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 Board of Powersmart Inc.,
MarketFirst Software, Inc., Managemark, Inc., Constellar Corporation,
ReleaseNow.com, Inc., LifeMinders.com, Inc., Zeus Wireless, Inc. and
firstsource.

Lee A. Gardella, (32), Vice President of the Fund and 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, NJ. 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 an MBA from the
University of Notre Dame and BSBA in Finance from Shippensburg
University. Mr. Gardella is a Chartered Financial Analyst.

James F. Rorer, (30), Vice President of the Fund and the Company
and United States Trust Company of New York. Mr. Rorer is focused on
direct investments in healthcare, consumer services, and e-commerce.
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 1996 until April 1999. He was a consultant in
the Private Equity Practice, which provides strategic due diligence
services to large leveraged buyout 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 an M.B.A.
from Harvard Business School.

James F. Dorment, (26), Chief Administrative Officer of the Fund
and 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 Bachelor of Arts
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.

Ronald A. Schwartz, (51), Corporate Secretary of the Fund and the
Company. Mr. Schwartz is Vice President and Assistant General Counsel
of United States Trust Company of New York. Prior to joining United
States Trust Company of New York in 1991, Mr. Schwartz was associated
with the firm of Walter, Conston, Alexander & Green from 1985 through
1990, with a focus on securities law as well as mergers and
acquisitions. Mr. Schwartz received a B.A. and an M.A. degree from the
University of California at Berkeley, and a J.D. from Boalt Hall,
University of California.

Brian F. Schmidt, (41), Chief Financial Officer of the Fund and
the Company and Senior Vice President at U.S. Trust. Mr. Schmidt is
the Chief Financial Officer of Excelsior Private Equity Fund II, Inc.
and UST Private Equity Investors Fund, Inc. He is the Division Manager
of Mutual Funds with an affiliate of 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 16 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), Treasurer of the Fund and the 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 Price
Waterhouse. Mr. Bruno received his B.S. degree from The Pennsylvania
State University.

Investment Committee of the Investment Adviser

Frederick B. Taylor, (58), 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), Co-Chairman of the Investment Committee.
Mr. Napoli is an Executive Vice President and is responsible for the
Personal Wealth 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), 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), Managing Director and Senior Portfolio
Manager of United States Trust Company of New York. Mr. Bayles manages
the Common 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, Mid Manhattan Performing Arts
Foundation.

Edith Cassidy, (47), 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
the 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.

William V. Ferdinand, (58), 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 U.S. Trust Company in 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. Ferninand 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), Senior Vice President of U.S. Trust
Company of New Jersey. Prior to joining U.S. Trust, 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 Analyst and a member of the New York Society
of Security Analysts and the Association for Investment Management and
Research.

Timothy C. Pettee, (41), Managing Director of United States Trust
Company of New York. Mr. Pettee is currently the Director of Equity
Research at U.S. Trust. He is responsible for supporting over 100
portfolio managers with $40 billion plus in equity assets under
management with proprietary analysis from the research department.
Prior to joining United States Trust Company of New York, Mr. Pettee
worked for 8 years at Alliance Capital Management, LP as an analyst in
both the domestic and international research departments. In addition,
he managed the Alliance Global Leisure Fund, the Alliance American
Fund and co-managed funds run by the research department. Prior to
Alliance, Mr. Pettee was with Merrill Lynch and Bear Stearns & Co. Mr.
Pettee holds a B.A. from Boston University.

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), 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), 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 Weiss, (45), Managing Director of United States Trust
Company of New York and Manager of Institutional Equity and Balanced
Portfolios. Mr. Weiss has been with the Trust Company 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, (age), Managing Director and Senior Portfolio
Manager of United States Trust Company of New York, Mr. Williams is a
Portfolio Manager with over 20 years of investment experience. He is a
member of United States Trust Company of New York's Investment Policy
Committee and manages the 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 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), 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 Trust Company 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 Manager will receive [$9,000 annually and
$1,500 per Company meeting attended,] paid by the Company. No member of the
Board of Managers or officer will receive aggregate compensation from the
Fund and the Company in excess of [$15,000 for fiscal 2000]. 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. Neither the Fund nor the Company has a
stock option plan, other long-term incentive plan, retirement plan or other
retirement benefits.

ESTIMATED COMPENSATION TABLE

<TABLE>
<CAPTION>
AGGREGATE PENSION OR RETIREMENT ESTIMATED ANNUAL TOTAL COMPENSATION
NAME OF PERSON, COMPENSATION FROM BENEFITS ACCRUED AS BENEFITS UPON FROM COMPANY AND
POSITION THE COMPANY PART OF FUND EXPENSES RETIREMENT FUND COMPLEX
<S> <C> <C> <C> <C>

$ 0 0 $[ ] (4 Funds)

</TABLE>

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

CONTROL PERSONS

Upon completion of the Offering, no person is expected to have voting
control over the Fund.

POTENTIAL CONFLICTS OF INTEREST

[The Investment Adviser and its affiliates may be subject to various
conflicts of interest in connection with their relationships and
transactions with the Fund and the Company. The contractual and other
arrangements between the Fund, the Company, the Investment Adviser and its
affiliates have not been established by arms-length negotiations. Such
conflicts of interest may include:

Transactions with the Company and Portfolio Companies. The Investment
Adviser and its affiliates may perform various services for the Company and
its portfolio companies. Such services may include making loans to
portfolio companies, maintaining deposits of funds of portfolio companies,
serving as directors or officers of portfolio companies and providing
services in connection with mergers and acquisitions, leasing real estate
and insurance and economic forecasting. In consideration for such services,
such persons may receive various fees, commissions and reimbursements to
the extent permitted under applicable law. Depending upon the Investment
Adviser's or its affiliates' influence and control with respect to
portfolio companies, the selection of such persons to perform such services
for portfolio companies may not be a disinterested decision and the terms
and conditions for the performance of such services and the amounts and
terms of such compensation, may not be determined in arms-length
negotiations. The selection of the Investment Adviser or any of its
affiliates to perform services for a portfolio company must be approved by
a majority of the disinterested members of the Board of Managers of the
Company and the independent and disinterested directors of the portfolio
company. The interest rate and financing charges that such persons may
charge portfolio companies on funds made available to them will not exceed
those that would be charged by unrelated lending institutions on comparable
loans for the same purpose.

The Investment Company Act and the Federal Reserve Act contain
restrictions as to certain transactions among the Fund, the Company and the
Investment Adviser or their affiliates. See "Regulation." Generally,
transactions involving the Company and the Investment Adviser or certain of
their affiliates must receive the prior approval of a majority of the
disinterested members of the respective Boards of Directors or Board of
Managers having no financial interest in the proposed transaction and/or
the Commission and may be subject to certain percentage limitations,
safety-and-soundness and other requirements. There can be no assurance that
prior approval of the Commission can be obtained.

The Investment Adviser expects to provide services to other
investors, including, Fund I and Fund II, and including other investment
funds and other business development companies organized by them or their
affiliates. The Company will have no contractual or other right to such
services prior to any of such other investors. The Investment Adviser may
file on behalf of itself and the Company an application for an exemption
order from the Commission with respect to proposed joint investments by the
Company and U.S. Trust or certain of its affiliates in portfolio companies.
If an exemption order is not granted, certain joint investments with U.S.
Trust or its affiliates will be prohibited. While the Commission has
granted exemptive relief in substantially similar circumstances in the
past, no assurance can be given that an exemption order will be granted. If
the Company and U.S. Trust or its affiliates co-invest in a portfolio
company, certain conflicts may arise. See "Potential Conflicts of
Interest-- Joint Investments in Portfolio Companies and Other Securities"
and "Regulation."

Conflicts as to Investment Opportunities. The Investment Adviser and
its affiliates intend to make investments for their own account and may be
in competition with the Company for such investments. In addition, the
Investment Adviser and its affiliates may serve as investment adviser for
other private or public investment vehicles that will have investment
objectives identical with or similar to those of the Company. While the
Investment Adviser is obligated to endeavor to provide the Company with
continuing and suitable investment opportunities consistent with its
investment objective and policies, the Investment Adviser is not required
to present to the Company any particular opportunity that falls within the
investment objective and policies of the Company, except as set forth in
the procedures adopted by the Company's Board of Managers. Such procedures
provide that the Investment Adviser must endeavor to offer to the Company
on an equitable basis investment opportunities that would be suitable for
both the Company and other similar private equity funds for which the
Investment Adviser or U.S. Trust Company provide discretionary investment
advisory services. The Investment Adviser and its affiliates will endeavor
to resolve conflicts with respect to investment opportunities in a manner
deemed equitable to all and consistent with their fiduciary duties to the
Company.

Joint Investments in Portfolio Companies and Other Securities. The
Investment Adviser and its affiliates and employees may participate with
the Company as co-investors in portfolio companies and other securities and
may make loans to, or other investments in, portfolio companies. 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, and will require the prior approval
of the Company's Board of Managers, including a majority of the
disinterested members of the Company's Board of Managers. Without prior
approval by the Company's Board of Managers and/or the Commission, the
Company will not make joint investments in the securities of any entity if
the Investment Adviser or any of its affiliates have previously acquired a
security issued by such entity, provided that this prohibition does not
apply to follow-on investments or investments in public securities. In most
such instances, prior approval of the Commission of such joint investments
would be required. There can be no assurance that such approval will be
obtained. See "Regulation."

Timing of Disposition of Investments. 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 Company as set forth under "Description of the
Company - Allocations and Distributions." The interests of the Investment
Adviser may conflict with the interests of the members with respect to the
timing of the disposition of Company investments. The acts of the
Investment Adviser are subject to supervision by the Company's Board of
Managers.

Allocation of Management Time and Services. The Company will not have
independent management or employees and will rely upon the Investment
Adviser and its affiliates for management and administration of the Company
and its assets. The Investment Adviser believes that it and its 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 and its 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. The Company's Board of Investment Advisers will
supervise the activities of the Investment Adviser.

Other Relationships with Portfolio Companies. The Investment Adviser
and its affiliates may have other relationships on an on-going basis with
portfolio companies in which the company has invested. Such relationships
could influence the Investment Adviser or its affiliates to take actions,
or forbear from taking actions, which an independent investment adviser
might not take or forbear from taking. The Investment Adviser and its
affiliates will not enter into any new relationship with a portfolio
company while the Company owns more than 5% of the outstanding voting
securities unless such relationship has been approved by a majority of the
disinterested members of the Board of Managers of the Company and by the
independent directors of the portfolio company who also have no interest in
the relationship.]

CUSTODIAN AND TRANSFER AGENT

The Chase Manhattan Bank ("Chase") will serve as the Fund's and the
Company's custodian in accordance with the provisions of the Investment
Company Act and the rules and regulations thereunder. As such, Chase will
be responsible for holding the Fund's and the Company's cash and portfolio
securities. Chase will also serve as the transfer agent and distribution
paying agent for the Fund's Shares. For its custodian, transfer agency and
paying agency services, Chase will receive customary fees from the Fund.
Chase's address is: Chase Manhattan Bank, 4 New York Plaza, New York, NY
10004.

BROKERAGE ALLOCATION AND OTHER PRACTICES

Subject to policies established by the Board of Managers, the
Investment Adviser will arrange for the execution of the Company's
portfolio transactions and the allocation of brokerage. In executing
portfolio transactions, the Investment 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
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, 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 has 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, 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 and its 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 and do
not reduce the investment advisory fees payable by the Company. Such
services may be useful to the Investment 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 in carrying out its obligations to the Company. The Investment
Adviser might incur significant expense were it to purchase such research
services from the parties.

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.

As required by the Investment Company Act the majority of the members
of the Fund's Board of Directors are not interested persons as defined
within the Investment Company Act. 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

As required by the Investment Company Act, a majority of the members
of the Fund's Board of Directors are not interested persons as defined
within the Investment Company Act. 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.

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 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
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.

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, including the Fund. In addition,
the Company may repurchase its Units subject to the restrictions of the
Operating Agreement and the Investment Company Act.

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 Company's Board of Managers having no financial interest in
the transactions. Certain transactions involving certain closely affiliated
persons of the Company, including the Investment Adviser and its 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 (including the Fund), (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 with, that person, must obtain the prior approval of a
majority of the disinterested members of the Company's 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."

The Investment Company Act prohibits an investment company, such as
the Company, from knowingly participating in a joint transaction with an
affiliate of the investment company. Accordingly, the Company may not,
without exemptive relief from the Commission, participate in a joint
transaction with the Investment Adviser, certain other members of the U.S.
Trust family of companies, Fund I, Fund II or other companies or funds
which may be affiliates of the Company (collectively, "Company
Affiliates"). The Company and the Investment Adviser may submit an
application to the Commission to permit such co-investment. The Investment
Adviser believes that co-investment by the Company and any Company
Affiliates would afford the Company the ability to achieve greater
diversification and, together with any Company Affiliates, the opportunity
to exercise greater influence on the portfolio companies in which the
Company and any Company Affiliates invest together. Accordingly, the
Company may file an application that would seek an exemption order
permitting the Company and any Company Affiliates to co-invest together in
the same portfolio companies where such is consistent with investment
objectives, investment positions, investment policies, investment
strategies, investment restrictions, regulatory requirements and other
pertinent factors applicable to the Company. Although the Investment
Adviser intends to select investments for the Company and for Company
Affiliates separately, considering in each case only the investment
objectives, investment positions, available funds and other pertinent
factors of the particular investment company or fund, it is expected that
if the application for exemptive relief is granted, the Company and any
Company Affiliates may frequently co-invest in the same portfolio
companies. It is expected that prior to committing to a co-investment, a
"required majority" (as defined in the Investment Company Act) of the
members of the Board of Managers of the Company would make certain findings
concerning the fairness to the Company of the co-investment arrangement.

VALUATION OF PORTFOLIO SECURITIES

The valuation of the Fund's assets is dependent on the valuation of
the Company's portfolio securities. Because the Fund invests its assets in
an interest in the Company, the Fund's net asset value will reflect the
value of its interest in the Company (which, in turn, reflects the
underlying value of the Company's assets and liabilities). Under the
supervision of and in accordance with procedures adopted by the Company's
Board of Managers, the Investment Adviser will value the securities in the
Company's portfolio quarterly and at such other time as, in the Board's
view, circumstances warrant. In the event of a sale by the Company of its
Units, the Investment Adviser 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, will be determined by
the Investment Adviser 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 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 will typically 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 typically be valued
by appraisal valuation (the "appraisal method") by the Investment Adviser.
The appraisal method will 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. Valuations based on the
appraisal method are necessarily subjective. The Company will also use
third party transactions (actual or proposed) in the portfolio company's
securities as a basis of valuation (the "private market method"). The
private market method will only be used with respect to actual transactions
or actual firm offers by sophisticated, independent investors. The values
for the investments referred to in this paragraph will be estimated
regularly by the Investment Adviser 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.

Securities with legal, contractual or practical restrictions on
transfer may be valued at a discount (typically ranging from 10% to 40%)
from their value determined by the foregoing methods to reflect the effect
of such restrictions.

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
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, 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, the Investment Adviser will determine such value based
on the Investment 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, including the Fund.
Capital contributions and the member's share of items of income and gain
will be credited to the member's capital account, and distributions and the
member's share of items of loss, deduction and expense will be debited from
the member's 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 fiscal year
to reflect the economic interests of the members and the Investment
Adviser.

Each year, Company allocations generally will be made in the
following manner:

o items of income, gain, loss, deduction and expense in an amount
equal to the Members' Allocation Amount will be allocated to the
members pro rata in accordance with their capital contributions;
and

o 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.

The Members' Allocation Amount is the items of income, gain, loss,
deduction and expense remaining after the required allocation has been made
to the Investment Adviser.

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.

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:

o 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; and

o the amount of net unrealized capital depreciation on all
investments of any type all determined as of the close of such
period.

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. 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 excess, if any, of the Incentive Carried
Interest as most recently calculated over the cumulative amount of all
prior distributions made to the Investment Adviser in respect of the
Incentive Carried Interest determined in prior years. 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 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 and the Fund'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 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.

[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 and the
Company has 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, 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 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. 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 aggregate capital contributions 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 aggregate capital contributions
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 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 advisory 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,
in which case members could be subject to the limitations on deductibility
relating to miscellaneous itemized deductions and certain other itemized
deductions of high-income individuals described above.

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. It is possible that certain dividends and interest
received by the Company from sources outside of the U.S. will be subject to
withholding taxes imposed by other countries. In addition, 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.

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 AND TAX RATES. The Company will generally
recognize capital gain or loss on the sale of its investments. For members
who are individuals, the maximum federal income tax rate on their allocable
share of Company capital gains is 39.6% for capital assets held by the
Company for one year or less and 20% for capital assets held by the Company
for more than one year. The maximum federal income tax rate on an
individual's allocable share of Company ordinary income is 39.6%.
Corporations are subject to a maximum 35% federal income tax rate on their
allocable share of Company ordinary income and capital gains (whether
long-term or short-term).

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, neither the Company nor the
Investment Adviser (nor 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 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 - Risks Related to the Company -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. Certain recent legislative proposals
would, if enacted, require the Company to make a Section 754 election. The
Investment Adviser 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.

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 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 for federal income
tax purposes (and may have other adverse tax consequences) for pension
funds, Keogh plans, individual retirement accounts, tax-exempt institutions
and other tax-exempt investors. 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:

o a citizen or resident of the United States;
o a corporation created or organized under the laws of the
United States or any political subdivision thereof or therein;
o an estate the income of which is subject to U.S. federal
income taxation regardless of source; or
o a trust if both (a) a U.S. court is able to exercise primary
supervision over the administration of the trust and
(b) one or more U.S. persons has the authority to
control all substantial decisions of the trust.

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 as a result of an investment in Units. No
prohibition and thus no assurances can be given in this regard,
however. The Company will be subject to U.S. withholding tax of
30% on dividends and certain interest income allocable to non-U.S.
members (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 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 taxable 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 a non-U.S. member:

o who has an office or fixed place of business in the U.S. or is
otherwise carrying on a U.S. trade or business;
o who is an individual present in the United States for 183 or more
days in the taxable year of the disposition or has a "tax home" in
the United States for United States federal income tax purposes;
o who is a former citizen or resident of the United States; or
o 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 such 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.

DESCRIPTION OF UNITS

The Fund 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 Operating Agreement is
attached hereto as Exhibit A. Investors will become members of the Fund,
which will establish a capital account for each member. Your capital
contributions 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."

SUMMARY OF LIMITED LIABILITY COMPANY OPERATING AGREEMENT

The Operating Agreement governs the relationships, rights, and
obligations of the investors in the Fund. The following is intended only as
a summary of certain provisions of the Operating Agreement not discussed
elsewhere in this Prospectus. 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 Fund 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
Fund beyond the amount of the investor's subscription. See "Limited
Liability of Investors."

Voting Rights of Investors. Investors cannot participate in the
management or control of the Fund. However, the Operating Agreement
provides that, subject to certain conditions described below, the investors
may vote on or approve certain Fund matters. Upon notification to the Fund,
investors holding at least 10% of the outstanding units may, at their
expense, 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 of the Fund.

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 Fund's business so as to cause the Fund 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; (iv) to the
extent required by the Investment Company Act, ratify or reject the
appointment of the independent accountants of the Fund; (v) to the extent
required by the Investment Company Act, approve or disapprove the
appointment of each successor Investment Adviser; and (vi) approve any
other material matters related to the business of the Fund that the
Investment Company Act requires to be approved by the investors so long as
the Fund is 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.

Whenever the Fund as an investor in the Company is requested to vote
on matters pertaining to the Company, the Fund will hold a meeting of Fund
Members and will vote its interest in the Company for or against such
matters proportionately to the instructions to vote for or against such
matters received from the Fund Unitholders. The Fund shall vote shares for
which it receives no voting instructions in the same proportion as the shares
for which it receives voting instructions. Other investors in the Company may
alone or collectively acquire sufficient voting interests in the Company to
control matters relating to the operation of the Company.

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
Fund (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 Fund without the
consent of the Fund, which consent may be withheld in its sole and absolute
discretion . No member will have the right to require the Fund to redeem
his, her or its Units. In addition, neither the Fund nor the Investment
Adviser (nor 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 and
Units are not convertible into any other security of the Fund.

LIABILITY OF MEMBERS

You will not be liable for any obligations of the Fund in excess of
your capital, plus your share of undistributed profits, except that you
will be obligated to make your full subscription payment. However, if you
receive a distribution from the Fund and after such distribution the
liabilities of the Fund exceed the fair value of the Fund'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 Fund. 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 (and [ ] or its affiliates, among others) shall
not be liable to the Fund or the members for any loss or damage occasioned
by any act or omission in the performance of their respective services as
such in the absence of willful misfeasance, bad faith, gross negligence or
reckless disregard of their obligations under the Operating Agreement. The
Operating Agreement also contains provision for the indemnification, to the
extent permitted by law, of the members of the Board of Managers (and [
] and its affiliates, among others) by the Fund, 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 Fund. None of these
persons will be personally liable to a member for the repayment of any
balance in such member's capital account for contributions by such member
to the capital of the Fund or by reason of any change in the Federal or
state income tax laws applicable to the Fund or members. The rights of
indemnification and exculpation provided under the Operating Agreement do
not provide for indemnification against any liability, including liability
under Federal securities laws which, under certain circumstances, impose
liability even on persons that act in good faith, to the extent, but only
to the extent, that such indemnification would result in violation of
applicable law.

AMENDMENT OF THE OPERATING AGREEMENT

The Operating Agreement may be amended with the approval of (i) the
Board of Managers, including a majority of the independent members of the
Board of Managers, if required by the Investment Company Act and (ii) to
the extent, but only to the extent, required by the Investment Company Act,
a majority, as defined in the Investment Company Act, of the outstanding
voting securities of the Fund. Certain amendments involving capital
accounts and allocations thereto and the modification of events causing
dissolution of the Fund may not be made without the consent of any members
adversely affected thereby or unless each member has received notice of
such amendment and each member objecting to such amendment has been allowed
a reasonable opportunity to tender its entire interest for repurchase by
the Fund. However, the Board of Managers may at any time, without the
consent of the other members, amend the Operating Agreement to (i) restate
the Operating Agreement, (ii) effect compliance with applicable law or
regulation, (iii) cure any ambiguity or to correct or supplement any
provision that may be inconsistent with another provision, provided such
change does not affect the rights of any member in any material respect, or
(iv) make such changes as may be necessary to assure the Fund's continuing
eligibility to be classified for U.S. Federal income tax purposes as a
partnership which is not treated as a corporation under Section 7704 (a) of
the Code.

POWER OF ATTORNEY

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

The power-of-attorney is a special power-of-attorney coupled with an
interest in favor of [ ] and each member of the Board of
Managers 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 Fund will be dissolved:

o upon the final distribution of its assets as provided for in the
Operations Agreement; on approximately [October 31, 2010];

o upon the affirmative vote to dissolve the Fund by both (1) the Board
of Managers and (2) members holding at least two-thirds of the total
number of votes eligible to be cast by all members;

o upon the failure of members to elect successor members of the Board
of Managers at any meeting called by the Fund when no members of the
Board of Managers remain; or

o as required by operation of law.

Upon the occurrence of any event of dissolution, [ ],
or a liquidator appointed by the Board of Managers, is charged with
winding up the affairs of the Fund 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."

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

SELLING ARRANGEMENTS

___________ has entered into a Distribution Agreement with the Fund
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 Fund's Units. The address
of the Distributor is ___________________________________.

Pursuant to the Distribution Agreement, the Distributor may enter
into agreements with one or more financial intermediaries ("Selling Agent")
relating to the purchase of Units through such Selling Agents acting as
brokers or agents for their customers.

The Fund 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 person
against any liability to such company or its security holders to which it
would otherwise be subject due to such person's misfeasance, bad faith, or
gross negligence in the performance of its duties or reckless disregard of
its obligations and duties under such agreement.

The Operating Agreement of the Company contains similar provisions,
except that the Company will be dissolved, 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 such
later date with the approval of members holding at least two thirds of the
total number of votes eligible to the cast;

LEGAL MATTERS

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

EXPERTS

The Statement of Assets and Liabilities of the Fund 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.

AVAILABLE INFORMATION

The Fund is required to file reports with the Securities and Exchange
Commission. Information about the Fund can be reviewed and copied at the
SEC'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 SEC'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 Fund has not, and the Distributor 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. The Fund is not, and the Distributor is not, 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 Fund's business, financial condition, results of operations and
prospects may have changed since that date.

REPORTS TO MEMBERS

The Fund 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 Fund does not intend
to hold annual meetings of its Unitholders.

FINANCIAL STATEMENTS
[Statement of Assets and Liabilities to come]

TABLE OF CONTENTS

Page

FEE TABLE....................................................................3
PROSPECTUS SUMMARY...........................................................4
The Company................................................................4
Investment Objective and Policies..........................................4
Management and Compensation................................................5
The Offering...............................................................5
Minimum Investments........................................................6
Use of Proceeds............................................................6
Risk Factors...............................................................6
Allocations, Distributions and Liquidation.................................9
Tax Status of the Company.................................................10
THE COMPANY.................................................................11
INVESTMENT OBJECTIVE AND POLICIES...........................................11
General...................................................................11
Investment Strategies.....................................................12
Investment Practices......................................................13
RISK FACTORS................................................................14
THE OFFERING................................................................20
USE OF PROCEEDS.............................................................21
MANAGEMENT..................................................................21
Investment Adviser; Compensation..........................................21
Investment Operations.....................................................23
Background................................................................24
Code of Ethics............................................................37
Board of Managers, Officers and Investment Professionals..................37
Board of Manager Compensation.............................................41
Control Persons...........................................................43
Potential Conflicts of Interest...........................................43
Custodian and Transfer Agent..............................................44
BROKERAGE ALLOCATION AND OTHER PRACTICES....................................44
Portfolio Turnover........................................................45
REGULATION..................................................................45
VALUATION OF PORTFOLIO SECURITIES...........................................48
CAPITAL ACCOUNTS, ALLOCATIONS AND DISTRIBUTIONS.............................49
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS...................................51
DESCRIPTION OF UNITS........................................................57
Summary Of Limited Liability Company Operating Agreement..................57
Liability Of Members......................................................58
Duty Of Care..............................................................58
Amendment Of The Operating Agreement......................................58
Power Of Attorney.........................................................58
Term, Dissolution And Liquidation.........................................59
SELLING ARRANGEMENTS........................................................59
LEGAL MATTERS...............................................................60
EXPERTS.....................................................................60
AVAILABLE INFORMATION.......................................................60
REPORTS TO MEMBERS..........................................................60
FINANCIAL STATEMENTS........................................................60
Page....................................................................61

Until June , 2000 (25 days after the date of this Prospectus), 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.

INVESTMENT RESTRICTIONS

Except as described below, the Fund, as a fundamental policy, may not,
without the approval of the holders of a majority of the outstanding Units:

(1) invest 25% or more of the value of its total assets in any one
industry;

(2) issue senior securities or borrow money other than as permitted
by the Investment Company Act;

(3) make loans of money or property to any person, except through
loans of portfolio securities, the purchase of fixed income
securities consistent with the Fund's investment objectives and
policies or the entry into repurchase agreements;

(4) underwrite the securities of other issuers, except to the
extent that in connection with the disposition of portfolio
securities or the sale of its own securities the Fund may be
deemed to be an underwriter;

(5) purchase or sell real estate or interests therein provided that
the Fund may hold and sell any real estate acquired in
connection with its investment in portfolio securities; or

(6) purchase or sell commodities or commodity contracts for any
purposes except as, and to the extent, permitted by applicable
law without the Trust becoming subject to registration with the
Commodities Futures Trading Commission as a commodity pool.

"Majority of the outstanding" means (i) 67% or more of the Units
present at a meeting, if the holders of more than 50% of the outstanding
Units are present or represented by proxy, or (ii) more than 50% of the
outstanding Units, whichever is less.

In addition to the foregoing fundamental investment policies, the Trust
is
also subject to the following non-fundamental restrictions and policies, which
may be changed by the Managers. The Fund may not:

(1) Make any short sale of securities except in conformity with
applicable laws, rules and regulations and unless, giving
effect to such sale, the market value of all securities sold
short does not exceed 25% of the value of the Fund's total
assets and the Fund's aggregate short sales of a particular
class of securities does not exceed 25% of the then outstanding
securities of that class. The Fund may also make short sales
"against the box" without respect to such limitations. In this
type of short sale, at the time of the sale, the Fund owns or
has the immediate and unconditional right to acquire at no
additional cost the identical security.

(2) Purchase securities of open-end or closed-end investment
companies except in compliance with the Investment Company Act
or any exemptive relief obtained thereunder.

(3) Purchase securities of companies for the purpose of exercising
control.

Notwithstanding the foregoing limitations, the Fund may without
limitation in the Company. As a shareholder in any investment company, the
Trust will bear its ratable share of that investment company's expenses,
and would remain subject to payment of the Trust's advisory fees and other
expenses with respect to assets so invested.

The restrictions and other limitations set forth above will apply
only at the time of purchase of securities and will not be considered
violated unless an excess or deficiency occurs or exists immediately after
and as a result of an acquisition of securities.

PART C - OTHER INFORMATION

Item 24. FINANCIAL STATEMENTS AND EXHIBITS

1. Statement of Assets and Liabilities

2. Exhibits

(a) (1) Certificate of Formation of Limited Liability Company
filed June 1, 2000.
(2) Operating Agreement.*
(b) Not applicable.
(c) Not applicable.
(d) Specimen Certificate.*
(e) Not applicable.
(f) Not applicable.
(g) Form of Investment Advisory Agreement between the
Fund and [ ].*
(h) Form of Distribution Agreement between the Fund and
[ ].*
(i) Not applicable.
(j) (1) Form of Transfer Agency and Custodian Agreement
between the Fund and Chase Manhattan Bank.*
(2) Form of Escrow Agreement among the Fund,
[ ] and United States Trust Company of
New York.*
(k) Not applicable.
(l) Opinion and consent of Skadden, Arps, Slate,
Meagher and Flom LLP.*
(m) Not applicable.
(n) Consent of Ernst & Young, LLP independent auditors.*
(o) Not applicable.
(p) Form of Subscription Agreement for investment in
Units of the Fund.*
(q) Not applicable.
(r) Code of Ethics.*

* To be filed by amendment.

Item 25. MARKETING ARRANGEMENTS

See the Form of Distribution Agreement to be filed as Exhibit 2(h) as
well as the Fund's Prospectus under the caption "Selling Arrangements."

Item 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the estimated expenses, payable by the
Fund, in connection with the issuance and distribution of the securities
covered by this Registration Statement.

Securities and Exchange Commission fees........ [$ * ]
Blue Sky fees and expenses..................... [ * ]
Printing....................................... [ * ]
Legal fees and expenses........................ [ * ]
Independent auditors' fees and expenses........ [ * ]
Miscellaneous.................................. [ * ]
----------
Total........................ *
==========

* To be provided by amendment.

Item 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL

[Upon conclusion of the public offering of the Fund's shares, it is
anticipated that no person will be controlled by or under common control
with the Fund.]

Item 28. NUMBER OF HOLDERS OF SECURITIES AS OF JUNE 5, 2000

Title of Class Number of Record Holders
-------------- -------------------------

Units 0

Item 29. INDEMNIFICATION

[The Investment Advisory Agreement provides for indemnification by
the Fund of [ ], from any and all losses, claims, damages,
liabilities or expenses (including reasonable counsel fees and expenses)
not resulting from willful misfeasance, bad faith or gross negligence
in the performance by [ ] of its duties thereunder or the
reckless disregard of its obligations and duties under the Investment
Advisory Agreement.

By subscribing for Units, each member agrees to indemnify and hold
harmless the Fund, [ ], 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. The
Operating Agreement also contains provision for the indemnification, to the
extent permitted by law, of the members of the Board of Managers (and
[ ] and its affiliates, among others) by the Fund, 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 Fund. None of these
persons will be personally liable to a member for the repayment of any
balance in such member's capital account for contributions by such member
to the capital of the Fund or by reason of any change in the Federal or
state income tax laws applicable to the Fund or members. The rights of
indemnification and exculpation provided under the Operating Agreement do
not provide for indemnification of a member of the Board of Managers or the
Investment Adviser against any liability, including liability under Federal
securities laws which, under certain circumstances, impose liability even
on persons that act in good faith, to the extent, but only to the extent,
that such indemnification would result in violation of applicable law.

Pursuant to the Distribution Agreement, the Fund agrees to indemnify
selling agents against certain civil liabilities, including liabilities
under the federal securities laws.]

Item 30. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER.

[ ] is a newly organized limited liability company that
was created to provide investment management and administrative services to
the Fund and to other investment funds that may be established in the future.
For the names and principal businesses of the directors and certain senior
executive officers of [ ], including those who are engaged in any other
business, profession, vocation or employment of a substantial nature see
the Fund's Prospectus under the caption "Management."

Item 31. LOCATION OF ACCOUNTS AND RECORDS

The accounts and records of the Fund will be maintained at the office
of [ ]

Item 32. MANAGEMENT SERVICES

Except as described in the Prospectus under the caption "Management,"
the Fund is not a party to any management service related contract.

Item 33. UNDERTAKINGS

The Fund undertakes to suspend the offering of its common shares
until it amends its Prospectus if (1) subsequent to the effective date of
its Registration Statement, the net asset value declines more than 10
percent from its net asset value as of the effective date of the
Registration Statement or (2) the net asset value increases to an amount
greater than its net proceeds as stated in the Prospectus.

The Fund additionally undertakes, pursuant to Rule 415 under the
Securities Act, as follows:

(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:

(a) To include any prospectus required by Section 10(a)(3) of
the Securities Act;

(b) To reflect in the prospectus any facts or events arising
after the effective date of this Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set
forth in the Registration Statement; and

(c) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
Registration Statement;

(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new Registration Statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof; and

(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.

SIGNATURES

Pursuant to the requirements of the Securities Act, the Registrant
has duly caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of New York, State
of New York, on the 5th day of June, 2000.

EXCELSIOR VENTURE PARTNERS III, INC.

By: /s/ David I. Fann
-----------------------------------------
David I. Fann
Co-Chief Executive Officer and President
(principal executive officer)

Each person whose signature appears below hereby appoints David I.
Fann his true and lawful attorney-in-fact, with full power of such
attorney-in-fact to sign on his behalf, individually and in each capacity
stated below, any and all amendments (including post-effective amendments)
to the Registration Statement of Excelsior Venture Partners Fund III, LLC
and to file the same, with all exhibits thereto, with the Securities and
Exchange Commission.

Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed below by the following persons in the capacities
and on the dates indicated:

<TABLE>
<CAPTION>
Signature Title Date

<S> <C> <C>
/s/ David I. Fann Co-Chief Executive Officer and President June 5, 2000
--------------------------- (principal executive officer)
David I. Fann

/s/ Douglas A. Lindgren Co-Chief Executive Officer and June 5, 2000
--------------------------- Chief Investment Officer
Douglas A. Lindgren (principal financial and accounting officer)

/s/ John C. Hover II Manager June 5, 2000
--------------------------
John C. Hover II

/s/ Gene M. Bernstein Manager June 5, 2000
--------------------------
Gene M. Bernstein

/s/ Stephen V. Murphy Manager June 5, 2000
---------------------------
Stephen V. Murphy

/s/ Victor F. Imbimbo, Jr. Manager June 5, 2000
----------------------------
Victor F. Imbimbo, Jr.
</TABLE>

===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington. D.C. 20549

EXHIBITS
TO
FORM N-2

REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933:

Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. [ ]

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940:

Amendment No. [ ]

EXCELSIOR VENTURE PARTNERS FUND III, LLC
(Exact Name of Registrant as Specified in Charter)

===============================================================================

EXHIBIT INDEX

Page
Exhibit No. Exhibit Number
----------- ------- ------

(a) (1) Certificate of Formation of Limited Liability
Company filed June 1, 2000.
(2) Operating Agreement.*
(b) Not applicable.
(c) Not applicable.
(d) Specimen Certificate.*
(e) Not applicable.
(f) Not applicable.
(g) Form of Investment Advisory Agreement between the
Fund and [ ].*
(h) Form of Distribution Agreement between the Company and
[ ].*
(i) Not applicable.
(j) (1) Form of Transfer Agency and Custodian Agreement
between the Fund and Chase Manhattan Bank.*
(2) Form of Escrow Agreement among the Fund,
[ ] and United States Trust Company of
New York.*
(k) Not applicable.
(l) Opinion and consent of Skadden, Arps, Slate,
Meagher and Flom LLP.*
(m) Not applicable.
(n) Consent of Ernst & Young, LLP independent auditors.*
(o) Not applicable.
(p) Form of Subscription Agreement for investment in
shares of the Fund.*
(q) Not applicable.
(r) Code of Ethics.*

* To be filed by amendment.

EXHIBIT (A)(1)

Certificate of Formation