<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from N/A to N/A
--- ---
Commission File No. 814-48
TECHNOLOGY FUNDING PARTNERS III, L.P.
----------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 94-3033783
- ------------------------------ ---------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2000 Alameda de las Pulgas, Suite 250
San Mateo, California 94403
- --------------------------------------- --------
(Address of principal executive offices) (Zip Code)
(415) 345-2200
--------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
--- ---
No active market for the units of limited partnership interest ("Units")
exists, and therefore the market value of such Units cannot be
determined.
<PAGE>
I. FINANCIAL INFORMATION
Item 1. Financial Statements
BALANCE SHEETS
- --------------
<TABLE>
<CAPTION>
(unaudited)
March 31, December 31,
1996 1995
-------- -----------
<S> <C> <C>
ASSETS
Investments:
Equity investments (cost basis
of $18,485,034 and $18,043,420 for
1996 and 1995, respectively) $31,291,648 28,554,370
Secured notes receivable, net (cost
basis of $705,000 and $533,334 for
1996 and 1995, respectively) 296,000 224,334
---------- ----------
Total investments 31,587,648 28,778,704
Cash and cash equivalents 10,699,359 12,607,605
Other assets 1,329 1,858
---------- ----------
Total $42,288,336 41,388,167
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 22,628 26,378
Due to related parties 39,224 850,679
Distributions payable -- 3,565,256
Deferred income 15,625 31,250
Other liabilities 39,816 40,431
---------- ----------
Total liabilities 117,293 4,513,994
Commitments and contingencies
(Notes 2 and 6)
Partners' capital:
Limited Partners
(Units outstanding of 160,000
in both 1996 and 1995) 29,730,530 26,660,952
General Partners 42,899 11,271
Net unrealized fair value increase
(decrease) from cost:
Equity investments 12,806,614 10,510,950
Secured notes receivable (409,000) (309,000)
---------- ----------
Total partners' capital 42,171,043 36,874,173
---------- ----------
Total $42,288,336 41,388,167
========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF OPERATIONS (unaudited)
- ------------------------------------
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
-----------------------------------
1996 1995
---- ----
<S> <C> <C>
Income:
Notes receivable interest $ 3,429 --
Short-term investment interest 160,350 43,821
Other income 15,625 18,937
--------- ---------
Total income 179,404 62,758
Costs and expenses:
Management fees 103,470 85,514
Individual general partners'
compensation 5,000 7,500
Operating expenses:
Administrative and
investor services 76,716 68,943
Investment operations 63,639 54,329
Computer services 15,995 19,077
Professional fees 10,515 12,074
--------- ---------
Total operating expenses 166,865 154,423
--------- ---------
Total costs and expenses 275,335 247,437
--------- --------
Net operating loss (95,931) (184,679)
Net realized gain from sales of
equity investments 3,189,487 453,087
Realized gains from venture
capital limited partnership
investments 46,196 --
Realized losses from investment
write-downs (38,546) --
--------- ---------
Net realized income 3,101,206 268,408
Change in net unrealized
fair value:
Equity investments 2,295,664 1,015,398
Secured notes receivable (100,000) --
--------- ---------
Net income $5,296,870 1,283,806
========= =========
Net realized income per Unit $ 19 1
========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS (unaudited)
- ------------------------------------
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
-----------------------------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Interest received $ 161,012 44,279
Cash paid to vendors (38,059) (26,877)
Cash paid to related parties (1,052,567) (234,844)
--------- ---------
Net cash used by
operating activities (929,614) (217,442)
--------- ----------
Cash flows from investing activities:
Secured notes receivable issued (171,666) --
Purchase of equity investments (1,348,602) (150,252)
Proceeds from sales of equity
investments 4,083,571 1,321,281
Distributions from venture capital
limited partnerships 23,321 1,476
--------- ---------
Net cash provided by
investing activities 2,586,624 1,172,505
--------- ---------
Cash flows from financing activities:
Distributions to Limited and General
Partners (3,565,256) (1,673,084)
--------- ---------
Net cash used by
financing activities (3,565,256) (1,673,084)
--------- ---------
Net decrease in cash
and cash equivalents (1,908,246) (718,021)
Cash and cash equivalents at beginning
of year 12,607,605 4,049,929
---------- ---------
Cash and cash equivalents at March 31 $10,699,359 3,331,908
========== =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS (unaudited) (continued)
- ------------------------------------------------
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
------------------------------------
1996 1995
---- ----
<S> <C> <C>
Reconciliation of net income to net
cash used by operating activities:
Net income $ 5,296,870 1,283,806
Adjustments to reconcile net income
to net cash used by operating activities:
Net realized gain from sales of equity
investments (3,189,487) (453,087)
Realized gains from venture capital
limited partnership investments (46,196) --
Realized losses from investment
write-downs 38,546 --
Change in net unrealized fair value:
Equity investments (2,295,664) (1,015,398)
Secured notes receivable 100,000 --
Changes in:
Due to/from related parties (811,455) (24,140)
Other, net (22,228) (8,623)
--------- ---------
Net cash used by operating activities $ (929,614) (217,442)
========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited)
- -----------------------------------------
1. General
-------
In the opinion of the Managing General Partners, the Balance Sheets as
of March 31, 1996 and December 31, 1995 and the related Statements of
Operations and Statements of Cash Flows for the three months ended March
31, 1996 and 1995, reflect all adjustments which are necessary for a
fair presentation of the financial position, results of operations and
cash flows for such periods. These statements should be read in
conjunction with the Annual Report on Form 10-K for the year ended
December 31, 1995. The following notes to financial statements for
activity through March 31, 1996 supplement those included in the Annual
Report on Form 10-K. Certain 1995 balances have been reclassified to
conform with the 1996 financial statement presentation.
The Partnership is scheduled to be dissolved on December 31, 1996. The
Managing General Partners intend to obtain Management Committee approval
for a two-year extension to December 31, 1998.
2. Related Party Transactions
--------------------------
Related party costs are included in costs and expenses shown on the
Statements of Operations. Related party expenses for the three months
ended March 31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Management fees $103,470 85,514
Reimbursable operating expenses 132,642 117,690
Individual general partners'
compensation 5,000 7,500
</TABLE>
Certain reimbursable expenses have been accrued based upon interim
estimates prepared by the Managing General Partners and are adjusted to
actual costs periodically. There were $4,734 and $817,233 due to
related parties for such expenses at March 31, 1996 and December 31,
1995, respectively.
Amounts due to related parties for management fees payable were $34,490
and $33,446 at March 31, 1996 and December 31, 1995, respectively.
Officers of the Managing General Partners occasionally receive stock
options as compensation for serving on the Boards of Directors of
portfolio companies. At March 31, 1996, the Partnership had an indirect
interest in such non-transferable PolyMedica options at an exercise
price higher than the current market value.
3. Equity Investments
------------------
A complete listing of the Partnership's equity investments at December
31, 1995 is in the 1995 Annual Report. Activity from January 1 through
March 31, 1996 consisted of:
<TABLE>
<CAPTION>
January 1 -
March 31, 1996
Principal --------------
Investment Amount or Cost Fair
Industry/Company Position Date Shares Basis Value
- ---------------- -------- ---------- --------- ----- -----
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996 $18,043,420 28,554,370
---------- ----------
Significant changes:
Communications
- --------------
Coded Communications Common
Corporation shares 04/93 72,727 (38,546) (51,346)
P-Com, Inc. Common
shares 11/95 8,672 (155,012) (172,139)
Wire Networks, Inc. Series A
Preferred
shares 02/96 159,300 215,055 215,055
Wire Networks, Inc. Series B
Preferred
shares 02/96 194,642 437,945 437,945
Computer Systems and Software
- -----------------------------
Geoworks Common
shares 08/92 36,883 (196,708) (691,556)
Geoworks Common
shares 03/94 38,415 0 412,962
Geoworks Common
shares 06/94 113,117 (496,924) (2,120,944)
Geoworks Common
shares 06/94 111,695 0 1,200,722
Environmental
- -------------
Thermatrix, Inc. Series D
Preferred
shares 02/96 200,000 500,000 500,000
Industrial/Business Automation
- ------------------------------
Electronic Designs, Common
Inc. (formerly shares
Crystallume) various 625,477 0 374,058
Medical/Biotechnology
- ---------------------
CV Therapeutics, Inc. Series G
Preferred
shares 03/96 76,134 65,470 150,745
CV Therapeutics, Inc. Common
share warrant
at $.25;
expiring
03/99 03/96 114,201 86,798 199,852
Everest & Jennings Common
International Ltd. shares 01/94 592,721 0 (81,203)
Lifecell Common 02/92 &
Corporation shares 11/95 257,829 0 439,342
Matrix
Pharmaceuticals, Common 01/92 &
Inc. shares (2) 01/95 321,633 0 971,331
Paradigm Convertible
Biosciences, Inc. note (1) 02/96 $43,334 43,904 43,904
PHERIN Corporation Series B
Preferred
shares 08/91 200,000 0 200,000
PolyMedica Common
Industries, Inc. shares 03/92 426,465 (45,440) 810,321
SyStemix, Inc. Common 08/91 &
shares 01/92 66,986 0 (159,091)
Retail/Consumer Products
- ------------------------
Yes! Entertainment Common
Corporation shares 06/95 33,333 0 69,750
---------- ----------
Total significant changes during the three months
ended March 31, 1996 416,542 2,749,708
Other changes, net 25,072 (12,430)
---------- ----------
Total equity investments at March 31, 1996 $18,485,034 31,291,648
========== ==========
(1) Convertible notes include accrued interest. The interest rate on note issued
in 1996 was 8%.
(2) Common stockholders have a right to purchase one Preferred share for each share
of common stock held, subject to certain conditions.
</TABLE
Marketable Equity Securities
- ----------------------------
At March 31, 1996 and December 31, 1995, marketable equity securities
had aggregate costs of $7,454,147 and $8,296,440, respectively, and
aggregate fair values of $19,012,333 and $17,960,638, respectively. The
net unrealized gains at March 31, 1996 and December 31, 1995 included
gross gains of $12,934,947 and $11,735,816, respectively.
Coded Communications Corporation
- --------------------------------
During the first quarter of 1996, the Managing General Partners
determined that there had been an other than temporary decline in value
of the Partnership's investment. As a result, the Partnership realized
a loss of $38,546. The Partnership also recorded a decrease in fair
value of $51,346 to reflect the unrestricted market value at March 31,
1996.
CV Therapeutics, Inc.
- ---------------------
In March 1996, the Partnership made an additional investment in the
company by purchasing 76,134 Series G Preferred shares and a warrant for
114,201 common shares at a total cost of $152,268. The fair values
above reflect the valuation on this financing, resulting in an increase
in the change in fair value of $198,329.
Geoworks
- --------
During the first quarter of 1996, the Partnership sold 150,000 common
shares of Geoworks for total proceeds of $3,813,125 and realized a gain
of $3,119,493. The Partnership recorded a decrease in the change in
fair value of $505,184. The change included a decrease of $2,118,868
due to the sale mentioned above, partially offset by an increase in
market price at March 31, 1996 for its remaining, unrestricted shares.
P-Com, Inc.
- -----------
During the first quarter of 1996, the Partnership sold all of its
investment in the company for total proceeds of $165,852 resulting in a
realized gain of $10,840.
Paradigm Biosciences, Inc.
- --------------------------
In February 1996, the Partnership issued $43,334 in convertible notes to
the company and received a warrant to purchase 5,416 Series B Preferred
shares at $2.00 per share.
PHERIN Corporation
- ------------------
The Partnership recorded an increase in fair value of $200,000, based on
the valuation set at a prior round of financing in which third parties
participated.
PolyMedica Industries, Inc.
- ---------------------------
During the first quarter of 1996, the Partnership sold 11,900 common
shares of PolyMedica Industries, Inc. for total proceeds of $104,594 and
realized a gain of $59,154. The Partnership recorded an increase in
fair value of $810,321 to reflect the market price at March 31, 1996 for
its remaining unrestricted shares.
Thermatrix, Inc.
- ----------------
In February 1996, the Partnership made an investment in the company by
purchasing 200,000 Series D Preferred shares for $500,000.
Wire Networks, Inc.
- -------------------
In February 1996, the Partnership made an investment in the company by
purchasing 159,300 Series A Preferred shares and 194,642 Series B
Preferred shares for total costs of $215,055 and $437,945, respectively.
Other Equity Investments
- ------------------------
Other significant changes reflected above relate to market value
fluctuations or the elimination of a discount relating to selling
restrictions for publicly-traded portfolio companies. The Partnership's
YES! Entertainment Corporation shares are restricted.
4. Secured Notes Receivable, Net
-----------------------------
Activity from January 1, 1996 through March 31, 1996 consisted of:
</TABLE>
<TABLE>
<S> <C>
Balance at January 1, 1996 $224,334
1996 activity:
Secured notes receivable issued 171,666
Increase in allowance for loan losses (100,000)
-------
Total secured notes receivable, net,
at March 31, 1996 $296,000
=======
</TABLE>
Activity in the allowance for loan losses was as follows:
<TABLE>
<S> <C>
Balance at January 1, 1996 $309,000
Change in net unrealized fair value of
secured notes receivable 100,000
-------
Balance at March 31, 1996 $409,000
=======
</TABLE>
The allowance for loan losses is adjusted quarterly based upon changes
to the portfolio size and risk profile. Although the allowance is
established by evaluating individual debtor repayment ability, the
allowance represents the Managing General Partners' assessment of the
portfolio as a whole.
Notes with a total cost basis of $705,000 and $533,334 were on
nonaccrual status due to uncertainties related to a borrower's financial
condition at March 31, 1996 and December 31, 1995, respectively. The
Managing General Partners continue to monitor the progress of this
company. The fair values at March 31, 1996 and December 31, 1995 are
based on the Managing General Partners' estimate of collectibility of
these notes.
5. Cash and Cash Equivalents
-------------------------
Cash and cash equivalents at March 31, 1996 and December 31, 1995
consisted of:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Demand accounts $ 50,277 20,911
Money-market accounts 10,649,082 12,586,694
---------- ----------
Total $10,699,359 12,607,605
========== ==========
</TABLE>
6. Commitments and Contingencies
-----------------------------
The Partnership is a party to financial instruments with off-balance-
sheet risk in the normal course of its business. Generally, these
instruments are commitments for future equity investment fundings,
venture capital limited partnership investments, equipment financing
commitments, or accounts receivable lines of credit that are outstanding
but not currently fully utilized by a borrowing company. As they do not
represent current outstanding balances, these unfunded commitments are
properly not recognized in the financial statements. At March 31, 1996,
the Partnership had unfunded commitments as follows:
<TABLE>
<S> <C>
Type
- ----
Equity investments $ 89,583
Term notes 720,000
Venture capital limited partnership investments 39,057
-------
Total $848,640
=======
</TABLE>
In July 1994, the Partnership guaranteed for a two-year period a $2
million loan between a financial institution and a portfolio company in
the medical/biotechnology industry. The Partnership had received a
guarantee fee of $125,000, which was recorded as deferred income and is
being amortized as other income over the two-year period. During 1996,
$15,625 was recorded as other income. The Partnership also agreed to
jointly guarantee with two affiliated partnerships a $2,000,000 line of
credit between a financial institution and a portfolio company in the
computer systems and software industry of which the Partnership's share
is $500,000. However, if the affiliated partnerships are unable to
finance their portion of the guarantee, the Partnership's share may
increase up to $1,000,000. While the Partnership expects the portfolio
companies to repay the loan or line of credit, if the portfolio
companies fail to do so, the Partnership may be liable up to $3,000,000.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
- -------------------------------
During the three months ended March 31, 1996, net cash used by operating
activities totaled $929,614. The Partnership paid management fees of
$102,426 to the Managing General Partners and reimbursed related parties
for operating expenses of $945,141. In addition, $5,000 was paid to the
individual general partners as compensation for their services. Other
operating expenses of $38,059 were paid and $161,012 in interest income
was received. Distributions totaling $3,565,256 were paid to Limited
and General Partners.
During the three months ended March 31, 1996, the Partnership funded
$171,666 in secured notes receivable and equity investments of
$1,348,602 mainly to portfolio companies in the communications and
industrial/business automation industries. Proceeds from equity
investment sales were $4,083,571 and distributions of $23,321 from
venture capital limited partnership investments were received. As of
March 31, 1996, the Partnership was committed to fund additional
investments of $848,640 and has outstanding guarantees up to $3,000,000
as discussed in Note 6 to the financial statements.
Cash and cash equivalents at March 31, 1996 were $10,699,359. Cash
reserves, interest income on short-term investments, and future proceeds
from equity investment sales are expected to be adequate to fund
Partnership operations and future investments through the next twelve
months.
Results of Operations
- ---------------------
Current quarter compared to corresponding quarter in the preceding year
- -----------------------------------------------------------------------
Net income was $5,296,870 and $1,283,806 for the three months ended
March 31, 1996 and 1995, respectively. The increase in net income was
primarily due to a $2,736,400 increase in net realized gain from sales
of equity investments, a $1,280,266 increase in the change in net
unrealized fair value of equity investments, and a $116,646 increase in
total income. These changes were partially offset by a $100,000
decrease in the change in net unrealized fair value of secured notes
receivable.
Net realized gain from sales of equity investments were $3,189,487 and
$453,087 for the quarters ended March 31, 1996 and 1995, respectively.
The 1996 gain mainly related to sales of Geoworks. The 1995 gain
primarily related to sales of UroMed Corporation and TheraTx, Inc.
During the quarter ended March 31, 1996, the increase in fair value of
equity investments of $2,295,664 was primarily due to portfolio
companies in the medical/biotechnology and industrial/business
automation industries, partially offset by decreases in portfolio
companies in the computer systems and software industry. During the
same period in 1995, the increase of $1,015,398 was primarily due to a
portfolio company in the computer systems and software industry,
partially offset by portfolio companies in the industrial/business
automation industry.
Total income increased to $179,404 during the three months ended March
31, 1996 from $62,758 for the same period in 1995. The increase was
primarily due to higher short-term investment interest from investment
sale proceeds.
During the quarter ended March 31, 1996, the Partnership recorded a
decrease in fair value of secured notes receivable of $100,000 based
upon the level of loan loss reserves deemed adequate by the Managing
General Partners. No such decrease was recorded for the same period in
1995 as the Partnership had no outstanding secured notes receivable
balances.
Given the inherent risk associated with the business of the Partnership,
the future performance of the portfolio company investments may
significantly impact future operations.
II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) No reports on Form 8-K were filed by the Partnership during the
quarter ended March 31, 1996.
(b) Financial Data Schedule for the quarter ended and as of March 31,
1996 (Exhibit 27).
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
TECHNOLOGY FUNDING PARTNERS III, L.P.
By: TECHNOLOGY FUNDING INC.
Managing General Partner
Date: May 10, 1996 By: /s/Debbie A. Wong
------------------------------------
Debbie A. Wong
Controller
<TABLE> <S> <C>
<ARTICLE>6
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FORM 10-Q AS OF MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER>1
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<PERIOD-TYPE> 3-MOS
<INVESTMENTS-AT-COST> 19,190,034
<INVESTMENTS-AT-VALUE> 31,587,648
<RECEIVABLES> 0
<ASSETS-OTHER> 1,329
<OTHER-ITEMS-ASSETS> 10,699,359
<TOTAL-ASSETS> 42,288,336
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 117,293
<TOTAL-LIABILITIES> 117,293
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 29,773,429
<SHARES-COMMON-STOCK> 160,000
<SHARES-COMMON-PRIOR> 160,000
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12,397,614
<NET-ASSETS> 42,171,043
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 163,779
<OTHER-INCOME> 15,625
<EXPENSES-NET> (275,335)
<NET-INVESTMENT-INCOME> (95,931)
<REALIZED-GAINS-CURRENT> 3,197,137
<APPREC-INCREASE-CURRENT> 2,195,664
<NET-CHANGE-FROM-OPS> 5,296,870
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 5,296,870
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 103,470
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 277,893
<AVERAGE-NET-ASSETS> 39,522,608
<PER-SHARE-NAV-BEGIN> 167
<PER-SHARE-NII> 19
<PER-SHARE-GAIN-APPREC> 0 <F1>
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 186
<EXPENSE-RATIO> .70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>
A zero value is used since the change in net unrealized fair value is
not allocated to General Partners and Limited Partners as it is not
taxable. Only taxable gains or losses are allocated in accordance with
the Partnership Agreement.
</FN>
</TABLE>
