TECHNOLOGY FUNDING PARTNERS III L P
Technology Funding Partners III, L.P. (the Partnership or the Registrant) was formed as a Delaware limited partnership on December 4, 1986.  For the period from December 5, 1986, through March 25, 1987, the Partnership was inactive.  The Partnership filed a registration statement with the Securities and Exchange Commission on March 25, 1987, and commenced selling Units of limited partnership interest (Units) in April 1987.  On June 2, 1987, the minimum number of Units required to commence Partnership operations (6,000) had been sold.  The offering terminated with 160,000 Units sold on February 3, 1989.  The Partnership's original contributed capital was $40,040,054, consisting of $40,000,000 from Limited Partners for 160,000 Units and $40,054 from the General Partners, Technology Funding Ltd. (TFL) and Technology Funding Inc. (TFI).  The General Partners do not own any Units.  The principal investment objectives of the Partnership are long- term capital appreciation from venture capital investments in new and developing companies and preservation of Limited Partner capital through risk management and active involvement with such companies (portfolio companies).  The Partnership's investments in portfolio companies primarily consist of equity securities such as common and preferred shares, but also include debt convertible into equity securities and warrants and options to acquire equity securities.  Although venture capital investments offer the opportunity for significant 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 variations in operating results from period to period, and companies with the need for substantial additional capital to support expansion or to achieve or maintain a competitive position.  Such companies may face intense competition, including competition from companies with greater financial resources, more extensive development, manufacturing, marketing and service capabilities, and a larger number of qualified managerial and technical personnel.  There is no ready market for many of the Partnership's investments. The Partnership's investments in portfolio companies are generally subject to restrictions on sale because they were acquired from the issuer in private placement transactions or because the Partnership is an affiliate of the issuer.  The Partnership was organized as a business development company under the Investment Company Act of 1940, as amended (the Act), and operates as a non-diversified investment company, as defined in the Act.  The Partnership's term was extended for a two-year period to December 31, 1998, pursuant to unanimous approval by the Management Committee on September 13, 1996.  The Partnership term was further extended to December 31, 2000, with an amendment by the Management Committee and approved by a majority of the Limited Partners.  On October 25, 2000, the Management Committee voted to extend the life of the Partnership to December 31, 2002.  On November 8, 2002, the Limited Partners approved an extension of the Partnership's term to December 31, 2004, and authorized additional one-year extensions to the term of the Partnership through December 31, 2006.  At the March 12, 2004 meeting, the Management Committee approved the extension of the Partnership's term to December 31, 2006.  In December of 2005, the Management Committee and the Managing General Partners adopted a plan of liquidation and began the implementation thereof.  As part of the plan of liquidation and in conjunction with the anticipated dissolution and then liquidation of the Partnership, the Independent General Partners also approved the retention of an independent third party to assist in the sale of the Partnership's holdings.  On February 15, 2006, the Independent General Partners approved a resolution directing the Managing General Partners to notice a Special Meeting of the Partnership at which meeting the Limited Partners would be asked to vote upon a proposal to dissolve the Partnership prior to its scheduled termination date of December 31, 2006, to place the Partnership's assets and liabilities in a liquidating trust to be formed for that purpose, and to withdraw the Partnership's election as a Business Development Company under the 1940 Act.  Once the Liquidating Trust is formed and the Partnership's assets and liabilities are transferred to the Liquidating Trust, the Partnership shall be terminated for purposes of Delaware law and the terms of the Liquidating Trust Agreement will govern disposition of assets, proceeds and expenses.  Further, the Managing General Partners have informed the Management Committee that they are only willing to continue funding the Partnership's operating expenditures through the completion of a prompt liquidation (estimated to be three to six months).  Any proceeds from the liquidation of the assets of the Partnership will be paid first to creditors of the Partnership including the Managing General Partners as provided in Section 15.02 of the Limited Partnership Agreement.  The amount owed to the Managing General Partners as creditors is expected to continue to increase until proceeds from the sale of assets allow payments to all of the creditors.  Based on changing market conditions and new information, it is possible that the net proceeds from sale of the Partnership's assets could be greater than or less than the aggregate estimated liquidation values presented in the balance sheet.  If the aggregate proceeds are ultimately less than the values presented, it is possible that the sale proceeds will not be sufficient to meet the Partnership's obligations to the creditors.  If that is the case, the limited partners may receive no proceeds upon completion of the liquidation process.  Absent timely liquidation events and cash proceeds to support the continuing operation of the Partnership, the Managing General Partners may accelerate liquidation efforts to minimize further increases in the obligations to creditors.  As of January 31, 2006, substantially all of the publicly traded holdings had been liquidated.  As of December 31, 2005, all of the Partnership's holdings in privately held companies were valued at their estimated liquidation value.  Upon dissolution, the Partnership, whether by vote at the proposed special meeting or by operation of the Partnership Agreement, will go into liquidation and pursuant to the Partnership Agreement will accrue all estimated liquidation costs and any future operating costs including administrative and investor services, computer services, record retention costs, professional fees and estimated legal costs of the Partnership through final termination, as provided for in the Partnership Agreement.  Based on prior experience, management estimates it will take no more than three to six months to liquidate all remaining investments.  In the meantime, an Independent Third Party has been assisting in the sale of Partnership holdings and will continue to solicit interest in purchasing those holdings.  If no third party makes a bid acceptable to the Liquidating Trustee (who shall be the Management Committee, if still constituted, and otherwise shall be a Person proposed and approved by a Majority in Interest of the Limited Partners), the Managing General Partners may offer to acquire the remaining assets from the Liquidating Trust for the fair value at the time of the transaction.  From December 31, 2005, through termination, the Partnership will continue to incur costs similar to those experienced in prior years under normal operating procedures except that there would be no charges related to ongoing investment operations.
The Registrant has no material physical properties.
From time to time, the Partnership is subject to routine litigation incidental to the business of the Partnership. Although there can be no assurances as to the ultimate disposition of these matters, it is the opinion of the Managing General Partners, based upon the information available at this time, that the expected outcome of these matters, individually or in the aggregate, will not have a material adverse effect on the results of operations and financial condition of the Partnership.
The following matters were voted on by the Limited Partners in 2005:  The election of two Independent General Partners each to serve for a three-year term or until the earlier termination of the Partnership;  The election of two Managing General Partners each to serve for a three-year term or until the earlier termination of the Partnership;  Ratification of the Independent General Partners' appointment of Grant Thornton LLP as independent registered public accountants of the Partnership.  After Grant Thornton subsequently terminated the client-auditor relationship between the Partnership and Grant Thornton, the Independent General Partners voted to ratify their appointment of Heard, McElroy & Vestal, LLP (the Heard Group) as independent registered public accountants of the Partnership.                                  PART II
(a) There is no established public trading market for the Units.          (b) At December 31, 2005, there were 5,682 record holders of             Units.          (c) The Registrant, being a partnership, does not pay dividends.             Cash distributions, however, may be made to the partners             pursuant to the Partnership Agreement.
Net (decrease) increase in  partners' capital resulting  from operations per Unit              (42.96)       (2.54)         1.06        (54.05)      (3.36)  Total assets                         3,109,711   10,341,535    10,268,968     8,224,129  17,025,262
Financial Condition, Liquidity and Capital Resources - ----------------------------------------------------  The Partnership operates as a business development company under the Investment Company Act of 1940 and makes venture capital investments in new and developing companies.  The Partnership's financial condition is dependent upon the success of the portfolio companies.  There is no ready market for many of the Partnership's investments.  It is possible that some of its venture capital investments may be a complete loss or may be unprofitable and that others will appear likely to become successful, but may never realize their potential.  The valuation of the Partnership's investments in securities for which there are no available market quotes is subject to the estimate of the Managing General Partners in accordance with the valuation guidance described in Note 1 to the financial statements.  In the absence of readily obtainable market values, the estimated fair value of the Partnership's investments may differ significantly from the values that would have been used had a ready market existed.  As described in Note 1 to the financial statements, the Partnership is currently in liquidation and all remaining investments are being carried at their estimated liquidation value.  For the year ended December 31, 2005, net cash used by operating activities totaled $1,748,510.  The Partnership paid management fees of $86,790 to the Managing General Partners and reimbursed related parties for operating expenses of $3,188,912.  The Partnership also made advances of $1,372,452 to Dakota Arms, Inc., a portfolio company, during 2005.  In addition, $64,500 was paid to the Independent General Partners as compensation for their services.  Interest income of $45,401 was received.  The Partnership funded equity investments of $300,000, issued $542,383 of notes receivable, received $3,444,146 in proceeds from sales of equity investments, and received $175,000 in note repayments. During 2005, the Partnership received $59,127 in cash distributions from venture capital limited partnership investments.  At December 31, 2005, there were no unfunded commitments.  Other net receipts were $82,853.  Cash and cash equivalents at December 31, 2005, were $123,740.  At December 31, 2005, there was no restricted cash.   Results of Operations - ---------------------  2005 compared to 2004 - ---------------------  The net decrease in partners' capital resulting from operations was $6,942,382 in 2005 compared to a decrease of $410,710 in 2004.  Unrealized depreciation on equity investments was $8,732,024 and $3,799,597 at December 31, 2005 and 2004, respectively.  In 2005, the net increase in unrealized depreciation of equity investments of $3,465,004 was primarily attributable to a decrease in management's valuation of privately held securities.  During the year ended December 31, 2004, the net decrease in unrealized depreciation of equity investments of $1,745,305 was primarily attributable to the write-off of WorldRes.com, Inc. and the sale of LifeCell Corporation, iVillage Inc. and Acusphere, Inc.  During 2005, the Partnership recorded realized losses from investment write-offs of $505.  During 2004, the Partnership recorded a realized loss from investment write-offs of $2,870,965, which represents the Partnership's total investment in WorldRes.com, Inc. and Delphi Ventures, L.P.  During 2005, net realized gain from sales of equity investments was $912,001, primarily from gains on the sale of shares of VenCore Solutions, LLC and Endocare, Inc.  During 2004, net realized gain from sales of equity investments totaled $2,863,502, primarily from the sale of shares of LifeCell Corporation.  At December 31, 2005 and 2004, no other income was received.  Investment expenses were $4,493,402 and $2,219,501 for 2005 and 2004, respectively.  Interest income was $45,401 and $24,586 for 2005 and 2004, respectively.  During 2005, the Partnership recorded net realized gains from venture capital limited partnership investments of $59,127 compared to gains of $46,363 during 2004.  The gains represented distributions from profits of venture capital limited partnerships.  Given the inherent risk associated with the business of the Partnership, the future performance of the portfolio company investments may significantly impact future operations.  2004 compared to 2003 - ---------------------  The net decrease in partners' capital resulting from operations was $410,710 in 2004 compared to an increase of $2,015,811 in 2003.  Unrealized depreciation on equity investments was $3,799,597 and $5,544,902 at December 31, 2004 and 2003, respectively.  During the year ended December 31, 2004, the net decrease in unrealized depreciation of equity investments of $1,745,305 was primarily attributable to the write-off of WorldRes.com, Inc. and the sale of LifeCell Corporation, iVillage Inc. and Acusphere, Inc.  In 2003, the net decrease in unrealized depreciation of equity investments of $4,646,626 was primarily attributable to an increase in the publicly traded prices of iVillage Inc. and Acusphere, Inc., partially offset by write-offs of Pherin Pharmaceuticals, Inc. and Pharmadigm, Inc.  During 2004, the Partnership recorded no unrealized depreciation of notes receivable.  During 2003, the Partnership recorded an increase in unrealized depreciation of notes receivable of $10,437, primarily related to the payment of notes receivable by Avalon Vision Solutions, Inc.  During 2004, the Partnership recorded a realized loss from investment write-offs of $2,870,965, which represents the Partnership's total investment in WorldRes.com, Inc. and Delphi Ventures, L.P.  During 2003, the Partnership recorded realized losses from investment write-offs of $1,370,039, which represents the Partnership's total investment in Pherin Pharmaceuticals, Inc. and Pharmadigm, Inc.  During 2004, net realized gain from sales of equity investments totaled $2,863,502, primarily from the sale of shares of LifeCell Corporation.  During 2003, net realized gain from sales of equity investments was $181,132, primarily from gains on the sale of shares of Virage, Inc. and White Electronic Designs Corporation.  Other income was $212,860 for the year ended December 31, 2003, $193,830 of which was from the settlement of disputed legal fees related to an arbitration settlement.  At December 31, 2004, no other income was received.  Investment expenses were $2,219,501 and $2,013,782 for 2004 and 2003, respectively.  Interest income was $24,586 and $56,905 for 2004 and 2003, respectively.  During 2004, the Partnership recorded net realized gains from venture capital limited partnership investments of $46,363 compared to gains of $291,672 during 2003.  The gains represented distributions from profits of venture capital limited partnerships.  Given the inherent risk associated with the business of the Partnership, the future performance of the portfolio company investments may significantly impact future operations.
The Partnership is subject to financial market risks, including changes in interest rates with respect to its investments in debt securities and interest-bearing cash equivalents as well as changes in marketable equity security prices.  The Partnership does not use derivative financial instruments to mitigate any of these risks.  The return on the Partnership's investments is generally not affected by foreign currency fluctuations.  The Partnership does not have a significant exposure to public market price fluctuations as the Partnership primarily invests in private business enterprises.  However, should significant changes in market equity prices occur, there could be a longer-term effect on valuations of private companies, which could affect the carrying value and the amount and timing of gains or losses realized on these investments.  Since there is typically no public market for the Partnership's investments in private companies, the valuation of the investments is subject to the estimate of the Partnership's Managing General Partners.  In the absence of a readily ascertainable market value, the estimated value of the Partnership's investments in private companies may differ significantly from the values that would be placed on the portfolio if a ready market existed. The Partnership's portfolio also includes common stocks in publicly traded companies.  These investments are directly exposed to equity price risk, in that a hypothetical 10 percent change in these equity prices would result in a similar percentage change in the fair value of these securities.  The Partnership's investments also include some debt securities.  Since the debt securities are generally priced at a fixed rate, changes in interest rates do not directly impact interest income.  The Partnership's debt securities are generally held to maturity or converted into equity securities of private companies.  As described in Note 1 to the financial statements, the Partnership is currently in liquidation and all remaining investments are being carried at their estimated liquidation value.
The financial statements of the Registrant are set forth in Item 15.
On August 18, 2005, Technology Funding Partners III, L.P., (the "Partnership") filed a Current Report on Form 8-K/A disclosing that on August 16, 2005, Grant Thornton LLP (Grant Thornton) terminated the client-auditor relationship between Grant Thornton and the Partnership.  There were no disagreements with the Partnership's former accountants, Grant Thornton, on any matter of accounting principles, financial statement disclosure, or auditing scope or procedure for the two years ended December 31, 2004, and the subsequent interim period through the date of termination.  On October 24, 2005, the chairman of the Partnership's Audit Committee approved the retention of the Heard Group as the Partnership's independent registered accounting firm.  The Partnership has not consulted with the Heard Group regarding the application of accounting principles to a specific completed or contemplated transaction, or the type of audit opinion that might be rendered on the Partnership's financial statements, or any other matter set forth in Item 304 (a) (2) of Regulation S-K (Reg. ss. 229.304 (a) (2)) during the last two fiscal years or thereafter through the date of this report, and no written or oral advice was provided that was an important factor considered by the Partnership in reaching a decision as to any accounting, auditing, or financial reporting issue.
The signing officer is responsible for establishing and maintaining disclosure controls and procedures for Technology Funding Partners III, L.P.  Such officer has concluded (based upon his evaluation of these controls and procedures as of a date within 90 days of the filing of this report) that Technology Funding Partners III, L.P.'s disclosure controls and procedures are effective to ensure that information required to be disclosed by Technology Funding Partners III, L.P. in this report is accumulated and communicated to Technology Funding Partners III, L.P.'s management, including its principal executive officers as appropriate, to allow timely decisions regarding required disclosure.  The certifying officer also has indicated that there were no significant changes in Technology Funding Partners III, L.P.'s internal controls or other factors that could significantly affect such controls subsequent to the date of their evaluation, and there were no corrective actions with regard to significant deficiencies and material weaknesses.  PART III
As a partnership, the Registrant has no directors or executive officers.  The Management Committee is responsible for the management and administration of the Partnership.  The members of the Management Committee consist of two Independent General Partners and a representative from Technology Funding Ltd., a California limited partnership (TFL).  TFL and its wholly owned subsidiary, Technology Funding Inc., a California corporation (TFI), are the Managing General Partners.  Reference is made to the information regarding Independent General Partners and the Managing General Partners in the Registrant's Proxy Statement related to the Meeting of Limited Partners held on May 20, 2005, which information is incorporated herein by reference.  Code of Ethics - --------------  The Partnership's Code of Ethics applies to the Independent General Partners as well as Technology Funding corporate officers and employees.  The Independent General Partners review and approve the Code of Ethics on an annual basis.  The Code of Ethics is attached as an exhibit (see Item 15 - Exhibits) and is also available on the Partnership's web site, www.techfunding.com.  Any amendments to, or waivers from, any provision of the Code that applies to any of the Independent General Partners or executive officers will be disclosed on the web site.  Audit Committee - ---------------  As of December 31, 2004, the Independent General Partners had established an Audit Committee of the Whole to oversee the accounting and financial reporting processes on behalf of the Independent General Partners. The Audit Committee of the Whole consisted of all of the Independent General Partners for each Technology Funding partnership with John W. Muncaster acting as liaison with the Managing General Partners.  On March 11, 2005, the Independent General Partners restructured the Audit Committee of the Whole.  An Audit Committee was established whereby Michael S. Tempesta, an Independent General Partner, will serve as Audit Committee Chairman and the remaining two Independent General Partners will serve as Audit Committee members.  The Independent General Partners are  "independent" as defined by the Securities and Exchange Commission.  The Independent General Partners have determined that the Audit Committee and the Audit Committee of the Whole did not have any member that would be considered an "audit committee financial expert" as that term is defined in Section 407 of the Sarbanes-Oxley Act of 2002.  Given the anticipated termination date for the Partnership, the Independent General Partners have determined that the expense and the difficulty of recruiting a financial expert to serve on the Audit Committee outweigh any benefit to the Fund.
The Registrant has no officers, directors or employees.  In 2005, the Partnership incurred management fees of $82,298.  The fees are designed to compensate the Managing General Partners for General Partner Overhead incurred in performing management duties for the Partnership.  General Partner Overhead (as defined in the Partnership Agreement) includes the General Partners' share of rent, utilities, property taxes and the cost of capital equipment and the general and administrative expenses paid by Managing General Partners in performing their obligations to the Partnership.  The Partnership is governed by a Management Committee that consists of the Independent General Partners and one representative from the Managing General Partners.  As compensation for their services, each of the Independent General Partners receive $14,000 annually plus $1,500 for each attended meeting of the Management Committee and committees thereof.  In 2005, $64,000 in aggregate of such compensation was paid.  The Independent General Partners are reimbursed for all out-of-pocket expenses relating to attendance of the meetings, committees or otherwise of the Management Committee.  As disclosed in Footnote 3, the Managing General Partners are reimbursed for expenses related to providing services to the Partnership including compensation to individuals who are officers or partners of the Managing General Partners; such persons are not officers, directors, or employees of the Partnership and receive no direct compensation from the Partnership.
Not applicable.  No Limited Partner beneficially holds more than 5 percent of the aggregate number of Units held by all Limited Partners, and neither the Managing General Partners nor any of their officers, directors or partners own any Units.  The Independent General Partners each own eight Units.  The Management Committee controls the affairs of the Partnership pursuant to the Partnership Agreement.
The Registrant, or its investee companies, have engaged in no transactions with the Managing General Partners or their officers and partners other than as described above, in the notes to the financial statements, or in the Prospectus.
Audit Fees - ----------  The Partnership paid aggregate fees of approximately $90,421 and $72,202 to its independent public accountants, the Heard Group, and Grant Thornton LLP, for professional services rendered to the Partnership with respect to audits of the annual financial statements and reviews of the quarterly financial statements for the years ended December 31, 2005 and 2004, respectively.  Tax Fees - --------  The Partnership paid aggregate fees of approximately $12,411 and $19,778 to WTAS, Inc., and Grant Thornton LLP for tax-related services rendered to the Partnership for the years ended December 31, 2005 and 2004, respectively.  These services included preparation of the Partnership's tax returns.  All Other Fees - --------------  The Partnership did not pay any fees to the Heard Group, WTAS, Inc., or Grant Thornton LLP for services, other than the services referred to above, for the years ended December 31, 2005 and 2004, respectively.  Audit Committee Pre-Approval Policies and Procedures - ----------------------------------------------------  The Independent General Partners have established procedures for the pre-approval of auditing services and non-auditing services to be performed by the Partnership's independent public accountants. Such pre-approval can be given as part of the Independent General Partners' annual approval of the scope of the engagement of the independent public accountants or on an individual basis. Approved non-auditing services must be disclosed in the Partnership's periodic public reports.  The Independent General Partners pre-approved all of the non-audit services provided by the independent public accountants in 2005.   PART IV
(a)  List of Documents filed as part of this Annual Report on Form               10-K              (1)  Financial Statements - the following financial                   statements are filed as a part of this Report:  Reports of Independent Registered Public Accounting Firms as of December 31, 2005 and 2004 and for the three years ended December 31, 2005.                  Balance Sheets as of December 31, 2005 and 2004                  Statements of Investments as of December 31, 2005 and 2004                  Statements of Operations for the years                    ended December 31, 2005, 2004 and 2003                   Statements of Partners' Capital for the years                    ended December 31, 2005, 2004 and 2003                   Statements of Cash Flows for the years                    ended December 31, 2005, 2004 and 2003                   Notes to Financial Statements              (2)  Financial Statement Schedules                    All schedules have been omitted because they are not                    applicable or the required information is included                    in the financial statements or the notes thereto.              (3)  Exhibits                    14.1  Code of Ethics for the Registrant                   31.1  Section 302 Sarbanes-Oxley Certifications                   32.1  Section 906 Sarbanes-Oxley Certifications       REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM - -------------------------------------------------------  To the Partners of      Technology Funding Partners III, L.P.:  We have audited the accompanying balance sheet of Technology Funding Venture Partners III, L.P. (a Delaware limited partnership, in process of liquidation) (the Partnership), including the statement of investments, as of December 31, 2005, and the related statements of operations, partners' capital and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit.  We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included physical inspection of securities owned as of December 31, 2005. We believe our audit provides a reasonable basis for our opinion.  As described in Note 1 to the financial statements, in December 2005, the Management Committee and the Managing General Partners of the Partnership adopted a plan of liquidation and began the implementation thereof. As part of the plan of dissolution and then liquidation of the Partnership, the Independent General Partners also approved the retention of an independent third party to assist in the sale of the Partnership's holdings. Further, the Managing General Partners have informed the Management Committee that they are only willing to continue funding the Partnership's operating expenditures through the completion of a prompt liquidation (estimated to be three to six months). As a result, as of December 31, 2005, the Partnership changed its basis of accounting to the liquidation basis. Accordingly, the carrying values of the remaining assets as of December 31, 2005, are presented at estimated realizable value assuming prompt liquidation as determined by the Management Committee. It is possible that these estimates and the amount of time required to liquidate the remaining investments will change as the Managing General Partners gain additional information from their efforts to sell the remaining investments and from information provided by the third party retained to assist in selling the assets. We have reviewed the procedures applied by the Managing General Partners under the direction of the Management Committee in valuing such assets and have inspected underlying documentation; while in the circumstances the procedures appear to be reasonable and the documentation appropriate, determination of liquidation values involves subjective judgment which is not susceptible to substantiation by auditing procedures.  In our opinion, subject to the effect on the financial statements of the valuation of the remaining assets by the Managing General partners under the direction of the Management Committee as described in the preceding paragraph, the financial statements referred to above present fairly, in all material respects, the financial position of Technology Funding Venture Partners III, L.P. as of December 31, 2005, and the results of its operations, changes in partners' capital, and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America applied on the basis described in the preceding paragraph.   _______________________             /S/ HEARD, MCELROY, VESTAL, LLP Shreveport, Louisiana March 20, 2006     REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM - -------------------------------------------------------  To the Partners of      Technology Funding Partners III, L.P.:  We have audited the accompanying balance sheet of Technology Funding Partners III, L.P. (a Delaware limited partnership) (the Fund), including the statement of investments, as of December 31, 2004, and the related statements of operations, partners' capital, and cash flows for each of the two years in the period ended December 31, 2004.  These financial statements are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements based on our audits.  We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  Our procedures included physical inspection of securities owned as of December 31, 2004. We believe that our audits provide a reasonable basis for our opinion.  In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Technology Funding Partners III, L.P. as of December 31, 2004, and the results of its operations, changes in partners' capital, and its cash flows for the two years in the period ended December 31, 2004 in conformity with accounting principles generally accepted in the United States of America.   Albuquerque, New Mexico                      /S/GRANT THORNTON LLP March 11, 2005          BALANCE SHEETS - --------------                                                          December 31,                                                 ------------------------                                                   2005            2004                                                 --------        --------    ASSETS  Equity investments (cost basis of  $11,620,237 and $8,557,775 for 2005  and 2004, respectively)                     $ 2,888,213     $ 4,758,178  Cash and cash equivalents                        123,740       1,872,250 Prepaid expenses                                  89,116         147,024 Due from portfolio company                            --       3,554,210 Other assets                                       8,642           9,873                                               ----------      ----------       Total assets                           $ 3,109,711     $10,341,535                                               ==========      ==========  LIABILITIES AND PARTNERS' CAPITAL  Accounts payable and accrued expenses        $    67,384     $    42,604 Due to related parties, net                      242,598         556,820 Other liabilities                                  7,914           7,914                                               ----------      ----------       Total liabilities                          317,896         607,338  Commitments and contingencies  See Note 9  Partners' capital  (160,000 Limited Partner Units   outstanding)                                 2,791,815       9,734,197                                               ----------      ----------       Total liabilities        and partners' capital                 $ 3,109,711     $10,341,535                                               ==========      ==========   The accompanying notes are an integral part of these financial statements.   STATEMENTS OF INVESTMENTS - -------------------------                                           Principal                                         Amount or    December 31, 2005      December 31, 2004 Industry                                Shares at    -----------------      ----------------- (1)                         Investment December 31,  Cost       Fair        Cost        Fair Company           Position     Date       2005       Basis      Value       Basis       Value - -------------     --------  ----------  ----------   -----      -----       -----       -----         Equity Investments - ------------------  Short Term Investments - ----------------------  Privately Held Securities Available for Immediate Sale - ------------------------------------------------------ Medical - -------- 26.4% and 7.6% at December 31, 2005 and 2004, respectively - --------------------------------------------------------- Sanarus Medical,   Preferred    2000-  Inc. (a) (b)      shares       2004    1,841,179 $2,080,085  $  736,551  $1,779,888  $  735,876  Public Securities Available for Immediate Sale - ---------------------------------------------- Medical - ------- 11.2% and 12.9% at December 31, 2005 and 2004, respectively - ----------------------------------------------------------- Endocare, Inc.     Common       1996-  (b)               shares       2004      114,505    286,261     313,743   1,457,963   1,255,066       STATEMENTS OF INVESTMENTS (continued) - ------------------------------------  Long Term Investments - ---------------------  Communications - -------------- 0.0% and 1.7% at December 31, 2005 and 2004, respectively - ----------------------------------------------------------- iVillage Inc.      Common       1996-                    shares       2004            0         --          --     152,401     169,950                                                    ---------   ---------   ---------   --------- Environmental - ------------- 0.0% and 0.0% at December 31, 2005 and 2004, respectively - --------------------------------------------------------- Triangle           Common  Biomedical        shares  Sciences, Inc.(a) and                    attached                    warrants at                    $28.00;                    expiring                    2009         1999        4,099     83,891          --      83,891          --                                                    ---------   ---------   ---------   ---------  High Tech/Financial - ------------------- 0.0% and 5.2% at December 31, 2005 and 2004, respectively - --------------------------------------------------------- VenCore Solutions, LLC  LLC (a)(b)        units        2002            0         --          --     625,000     250,000 VenCore Solutions, Bridge  LLC (b)(2)        loan         2004            0         --          --     444,347     177,738 VenCore Solutions,  LLC (a)(b)        various      2004            0         --          --          --      75,924                                                   ----------  ----------  ----------  ----------                                                           --          --   1,069,347     503,662                                                   ----------  ----------  ----------  ----------  STATEMENTS OF INVESTMENTS (continued) - ------------------------------------  Information Technology - ---------------------- 10.2% and 4.3% at December 31, 2005 and 2004, respectively - ---------------------------------------------------------- KeyEye  Communications,   Preferred    2002-  Inc. (a)(b)       shares       2004    5,366,165  1,050,000     210,000   1,050,000     420,000 KeyEye  Communications,   Bridge  Inc. (b)          loan (2)     2005      367,383    368,672      73,734          --          --                                                    ---------   ---------   ---------   ---------                                                    1,418,672     283,734   1,050,000     420,000                                                    ---------   ---------   ---------   --------- Medical/Biotechnology - --------------------- 14.9% and 6.7% at December 31, 2005 and 2004, respectively - ----------------------------------------------------------- CellzDirect, Inc.  Preferred    2002-                    shares       2004    2,029,232    783,882     313,553     783,882     313,553 Various                         1999-  investments       various      2004      various    764,875     102,800     903,803     336,239                                                   ----------  ----------  ----------  ----------                                                    1,548,757     416,353   1,687,685     649,792                                                   ----------  ----------  ----------  ----------             STATEMENTS OF INVESTMENTS (continued) - ------------------------------------  Retail/Consumer Products - ------------------------ 40.8% and 7.8% at December 31, 2005 and 2004, respectively - --------------------------------------------------------- Dakota Arms,       Preferred  Inc. (a) (b)      shares       2004      285,715    500,001     100,000     500,001     100,000 Dakota Holdings,   LLC  LLC (a) (b)       units        2004    2,945,000  5,041,250   1,030,750     150,000     262,500 Dakota Holdings,   Bridge  LLC (b)           loan (2)     2005       35,412     35,412       7,082          --          --                                                    ---------   ---------   ---------   ---------                                                    5,576,663   1,137,832     650,001     762,501                                                    ---------   ---------   ---------   ---------  Venture Capital Limited Partnership Investments - ----------------------------------------------- 0.0% and 2.7% at December 31, 2005 and 2004, respectively - --------------------------------------------------------- Various            Ltd.  investments       partnership  interests various    various    625,908          --     626,599     261,331                                                   ----------  ----------  ----------  ----------   Total investments - 103.5% and 48.9% at  December 31, 2005 and 2004, respectively        $11,620,237 $ 2,888,213 $ 8,557,775 $ 4,758,178                                                   ==========  ==========  ==========  ==========            Legends and footnotes:  - --  No investment held at end of period. 0   Investment active with a cost basis or fair value of zero.  (a) Equity security acquired in a private placement transaction; resale may be subject to certain selling restrictions. (b) Portfolio company is an affiliate of the Partnership; resale may be subject to certain selling restrictions.  (1) Represents the total fair value of a particular industry segment as a percentage of partners' capital at 12/31/05 and 12/31/04. (2) The Partnership has no income-producing equity investments except for convertible notes which include accrued interest.  Interest rates on such notes range from 4.79 percent to 8 percent.     The accompanying notes are an integral part of these financial statements.     STATEMENTS OF OPERATIONS - ------------------------                                          For the Years Ended December 31,                                       ----------------------------------                                        2005          2004          2003                                        ----          ----          ----     Investment income:   Notes receivable interest        $   44,640    $   19,347    $   44,125   Short-term investment interest          761         5,239        12,780                                     ---------     ---------     ---------       Total investment income          45,401        24,586        56,905  Investment expenses:   Management fees                      82,298       109,147        87,781   Independent General    Partners' compensation              64,500        71,125        60,000   Administrative and    investor services                1,971,567     1,330,864     1,265,638   Investment operations               577,746       513,022       357,264   Computer services                   166,678       105,963        87,908   Professional fees                   163,190        89,380       155,191   Bad debt expense                  1,467,423            --            --                                     ---------     ---------     ---------       Total investment expenses     4,493,402     2,219,501     2,013,782                                     ---------     ---------     --------- Net investment loss                (4,448,001)   (2,194,915)   (1,956,877)                                     ---------     ---------     ---------  Net realized gain from   sales of equity investments         912,001     2,863,502       181,132 Realized gain from venture capital   limited partnership investments      59,127        46,363       291,672 Realized loss from investment   write-offs                             (505)   (2,870,965)   (1,370,039)                                     ---------     ---------     --------- Net realized gain (loss)              970,623        38,900      (897,235)                                     ---------     ---------     ---------   STATEMENTS OF OPERATIONS (continued) - -----------------------------------                                       For the Years Ended December 31,                                      ----------------------------------                                        2005         2004          2003                                        ----         ----          ----     (Increase) decrease in unrealized  depreciation:   Equity investments               (3,465,004)    1,745,305     4,646,626   Notes receivable                         --            --        10,437                                     ---------     ---------     --------- Net (increase) decrease in  unrealized depreciation           (3,465,004)    1,745,305     4,657,063                                     ---------     ---------     ---------  Other income                               --            --       212,860                                     ---------     ---------     --------- Net (decrease) increase in  partners' capital resulting  from operations                  $(6,942,382)   $ (410,710)  $ 2,015,811                                     =========     =========     ========= Net (decrease) increase in  partners' capital resulting  from operations per Unit         $    (42.96)   $    (2.54)  $      1.06                                     =========     =========     =========                        The accompanying notes are an integral part of these financial statements.    STATEMENTS OF PARTNERS' CAPITAL - -------------------------------   For the years ended December 31, 2005, 2004 and 2003:                                 Limited       General                               Partners      Partners         Total                               --------      --------         -----      Partners' capital,   January 1, 2003           $11,411,295  $(3,282,199)   $ 8,129,096  Net investment loss                  --   (1,956,877)    (1,956,877) Net realized income (loss)       78,024     (975,259)      (897,235) Net (increase) decrease in  unrealized depreciation       (119,426)   4,776,489      4,657,063 Other income                    210,731        2,129        212,860                              ----------    ---------     ---------- Partners' capital,   December 31, 2003         $11,580,624  $(1,435,717)   $10,144,907   Net investment loss          (2,172,966)     (21,949)    (2,194,915) Net realized income              38,511          389         38,900 Net decrease in  unrealized depreciation      1,727,852       17,453      1,745,305                              ----------    ---------     ---------- Partners' capital,   December 31, 2004         $11,174,021  $(1,439,824)   $ 9,734,197  Net investment loss          (4,403,520)     (44,481)    (4,448,001) Net realized income             960,917        9,706        970,623 Net increase in  unrealized depreciation     (3,430,354)     (34,650)    (3,465,004)                              ----------    ---------     ---------- Partners' capital,   December 31, 2005         $ 4,301,064  $(1,509,249)   $ 2,791,815                              ==========    =========     ==========    The accompanying notes are an integral part of these financial statements.   , STATEMENTS OF CASH FLOWS - ------------------------                                          For The Years Ended December 31,                                      -----------------------------------                                       2005           2004          2003                                      ------         ------        ------     Net (decrease) increase in  partners' capital resulting  from operations                   $(6,942,382) $  (410,710)  $ 2,015,811  Adjustments to reconcile net  (decrease) increase in  partners' capital resulting  from operations to net cash  used by operating activities:   Bad debt expense                   1,467,423           --            --   Net realized gain from sales    of equity investments              (912,001)  (2,863,502)     (181,132)   Realized gain from venture    capital limited partnership    investments                         (59,127)     (46,363)     (291,672)   Realized loss from    investment write-offs                   505    2,870,965     1,370,039   Net decrease (increase) in    unrealized depreciation:     Equity investments               3,465,004   (1,745,305)   (4,646,626)     Notes receivable                        --           --       (10,437)   Net changes in operating assets and    liabilities:     Accrued interest on notes      receivable                         (1,065)     (19,347)       37,119     Other receivable, net                   --           --       774,298     Restricted cash                         --      600,000      (600,000)     Prepaid expenses                    57,908       57,908        57,909     Due from related parties                --   (2,764,189)     (233,201)     Accounts payable and accrued      expenses                           24,780      (19,480)       (3,361)     Due to related parties, net       (314,222)          --       (47,611)     Due from portfolio company, net (1,372,452)          --            --     Other assets and liabilities,      net                                 1,231       12,561       (46,768)     Purchase of equity investments    (300,000)  (2,263,403)     (609,483)     Issuance of notes receivable      (542,383)          --            --     Repayments of notes receivable     175,000           --            --     Proceeds from sales of equity      investments                     3,444,146    7,685,808       535,440     Distributions from venture      capital limited partnerships       59,127       46,363       291,672                                     ----------    ---------    ----------   Net cash (used) provided by    operating activities             (1,748,510)   1,141,306    (1,588,003)                                     ----------    ---------    ----------   STATEMENTS OF CASH FLOWS (continued) - -----------------------------------                                        For The Years Ended December 31,                                      -----------------------------------                                       2005           2004          2003                                      ------         ------        ------                                        ---------     ---------    ---------- Net (decrease) increase in cash  and cash equivalents             (1,748,510)    1,141,306    (1,588,003)  Cash and cash equivalents  at beginning of year              1,872,250       730,944     2,318,947                                    ---------     ---------    ---------- Cash and cash equivalents  at end of year                   $  123,740    $1,872,250   $   730,944                                    =========     =========    ==========  Supplemental disclosure of non-cash  activity:   Amortization of deferred gain on    Warrants (See Note 9)                  --    $  60,000    $       --    Conversion of due from    portfolio company, net to    investments                    $3,459,239    $      --    $       --                            ==========      ==========      ===========          The accompanying notes are an integral part of these financial statements.    NOTES TO FINANCIAL STATEMENTS - -----------------------------  1.  Summary of Significant Accounting Policies     ------------------------------------------  Organization - ------------  Technology Funding Partners III, L.P., (the Partnership or the Registrant) is a limited partnership organized under the laws of the State of Delaware on December 4, 1986, to make venture capital investments in new and developing companies.  The Partnership elected to be treated as a business development company under the Investment Company Act of 1940, as amended (the Act), and operates as a non-diversified investment company, as defined in the Act.  The Managing General Partners are Technology Funding Ltd. (TFL) and Technology Funding Inc. (TFI), a wholly owned subsidiary of TFL. There are three Independent General Partners.  The Independent General Partners and a representative from TFL constitute the Management Committee, which is responsible for the management and administration of the Partnership.  For the period from December 5, 1986, through March 25, 1987, the Partnership was inactive.  The Partnership filed a registration statement with the Securities and Exchange Commission on March 25, 1987, and commenced selling Units of limited partnership interest (Units) in April 1987.  On June 2, 1987, the minimum number of Units required to commence Partnership operations (6,000) had been sold.  The offering terminated with 160,000 Units sold on February 3, 1989.  The Partnership's original contributed capital was $40,040,054, consisting of $40,000,000 from Limited Partners for 160,000 Units and $40,054 from General Partners.  The General Partners do not own any Units.  The Partnership was scheduled to be dissolved on December 31, 1996, but the term was extended for a two-year period to December 31, 1998, pursuant to unanimous approval by the Management Committee on September 13, 1996.  The Partnership term was further extended to December 31, 2000, with an amendment by the Management Committee and approved by a majority of the Limited Partners.  On October 25, 2000, the Management Committee voted to extend the life of the Partnership to December 31, 2002.  On November 8, 2002, the Limited Partners approved an extension of the Partnership's term to December 31, 2004, and authorized the Partnership's Management Committee to extend the Partnership for up to two one-year additional terms.  At the March 12, 2004, meeting, the Management Committee approved an extension of the Partnership's term to December 31, 2006.  Liquidation of the Partnership - ------------------------------  In December of 2005, the Management Committee and the Managing General Partners adopted a plan of liquidation and began the implementation thereof.  As part of the plan of liquidation and in conjunction with the anticipated dissolution and then liquidation of the Partnership, the Independent General Partners also approved the retention of an independent third party to assist in the sale of the Partnership's holdings.  On February 15, 2006, the Independent General Partners approved a resolution directing the Managing General Partners to notice a Special Meeting of the Partnership at which meeting the Limited Partners would be asked to vote upon a proposal to dissolve the Partnership prior to its scheduled termination date of December 31, 2006, to place the Partnership's assets and liabilities in a liquidating trust to be formed for that purpose, and to withdraw the Partnership's election as a Business Development Company under the 1940 Act.  Once the Liquidating Trust is formed and the Partnership's assets and liabilities are transferred to the Liquidating Trust, the Partnership shall be terminated for purposes of Delaware law and the terms of the Liquidating Trust Agreement will govern disposition of assets, proceeds and expenses.  Further, the Managing General Partners have informed the Management Committee that they are only willing to continue funding the Partnership's operating expenditures through the completion of a prompt liquidation (estimated to be three to six months).  Any proceeds from the liquidation of the assets of the Partnership will be paid first to creditors of the Partnership including the Managing General Partners as provided in Section 15.02 of the Limited Partnership Agreement.  The amount owed to the Managing General Partners as creditors is expected to continue to increase until proceeds from the sale of assets allow payments to all of the creditors.  Based on changing market conditions and new information, it is possible that the net proceeds from sale of the Partnership's assets could be greater than or less than the aggregate estimated liquidation values presented in the balance sheet.  If the aggregate proceeds are ultimately less than the values presented, it is possible that the sale proceeds will not be sufficient to meet the Partnership's obligations to the creditors.  If that is the case, the limited partners may receive no proceeds upon completion of the liquidation process.  Absent timely liquidation events and cash proceeds to support the continuing operation of the Partnership, the Managing General Partners may accelerate liquidation efforts to minimize further increases in the obligations to creditors.  As of January 31, 2006, substantially all of the publicly traded holdings had been liquidated.  As of December 31, 2005, all of the Partnership's holdings in privately held companies were valued at their estimated liquidation value.  Upon dissolution, the Partnership, whether by vote at the proposed special meeting or by operation of the Partnership Agreement, will go into liquidation and pursuant to the Partnership Agreement will accrue all estimated liquidation costs and any future operating costs including administrative and investor services, computer services, record retention costs, professional fees and estimated legal costs of the Partnership through final termination, as provided for in the Partnership Agreement.  Based on prior experience, management estimates it will take no more than three to six months to liquidate all remaining investments.  In the meantime, an Independent Third Party has been assisting in the sale of Partnership holdings and will continue to solicit interest in purchasing those holdings.  If no third party makes a bid acceptable to the Liquidating Trustee (who shall be the Management Committee, if still constituted, and otherwise shall be a Person proposed and approved by a Majority in Interest of the Limited Partners), the Managing General Partners may offer to acquire the remaining assets from the Liquidating Trust for the fair value at the time of the transaction.  From December 31, 2005, through termination, the Partnership will continue to incur costs similar to those experienced in prior years under normal operating procedures except that there would be no charges related to ongoing investment operations.  Preparation of Financial Statements and Use of Estimates - --------------------------------------------------------  The accompanying financial statements have been prepared on the accrual basis of accounting of a partnership in liquidation.  The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period.  Actual results could differ from those estimates. Significant estimates include the estimate of fair value of investments, liabilities and contingencies.  Because of the inherent uncertainty of valuation, the estimated fair value of investments may differ significantly from the values that would have been used had a ready market for investments existed, and the differences could be material.  Investments - -----------  Investments are carried at estimated liquidation amounts, which management believes approximate estimated fair value as determined below:  Equity Investments - ------------------  The Management Committee has the authority to establish valuation procedures and periodically apply such procedures to the Partnership's investment portfolio.  In fulfilling this responsibility, the Managing General Partners under the direction of the Management Committee periodically update and revise the valuation procedures used to determine fair value in order to reflect new events, changing market conditions, more experience with investee companies or additional information, any of which may require the revision of previous estimating procedures.  Unrestricted publicly traded securities are valued at the closing sales price or bid price that is available on a national securities exchange or over-the-counter market.  Valuation discounts of 5 percent to 50 percent are applied to publicly traded securities subject to resale restrictions resulting from Rule 144 or contractual lock-ups, such as those commonly associated with underwriting agreements or knowledge of material non-public information.  The fair value of all other investments is determined in good faith by the Managing General Partners under the direction of the Management Committee after consideration of available relevant information.  There is no ready market for the Partnership's investments in private companies or unregistered securities of public companies.  Fair value is generally defined as the amount the Partnership could reasonably expect to receive for an investment in an orderly disposition based on a current sale. Significant factors considered in the estimation of fair value include the inherent illiquidity of and lack of marketability associated with venture capital investments in private companies or unregistered securities, the investee company's enterprise value established in the last round of venture financing, changes in market conditions since the last round of venture financing or since the last reporting period, the value of a minority interest in the investee company, contractual restrictions on resale typical of venture financing instruments, the investee company's financial position and ability to obtain any necessary additional financing, the investee company's performance as compared to its business plan, and the investee company's progress towards initial public offering. The values determined for the Partnership's investments in these securities are based upon available information at the time the good faith valuations are made and do not necessarily represent the amount which might ultimately be realized, which could be higher or lower than the reported fair value. It is possible that these estimates of value and the estimated amount of time required to liquidate the assets will change as the Managing General Partners gain additional information from their efforts to sell the remaining investments and from information provided by the third party retained to assist in selling the assets.  At December 31, 2005 and 2004, the investment portfolio included private company investments and venture capital limited partnership investments totaling $2,574,470 and $3,149,716, respectively, whose fair values were established in good faith by the Managing General Partners under the direction of the Management Committee in the absence of readily ascertainable market values.  Because of the inherent uncertainty in the valuation, the values may differ significantly from the values that would have been used had a ready market for the securities existed, and the differences could be material.  Venture capital limited partnership investments are valued based on the fair value of the underlying investments.  Based on recent market analysis and attempts to liquidate the Partnerships interests in its venture capital limited partnership investments, management has valued all remaining interests at $0.  Limited partnership distributions that are a return of capital reduce the cost basis of the Partnership's investment. Distributions from limited partnership cumulative earnings are reflected as realized gains by the Partnership.  In the case of an other-than-temporary decline in fair value below cost basis, an appropriate reduction in the cost basis is recognized as a realized loss with the new cost basis being adjusted to equal the fair value of the investment. Cost basis adjustments are reflected as "Realized loss from investment write-offs" or "Net realized loss from venture capital limited partnership investments" on the Statements of Operations.  Sales of equity investments are recorded on the trade date.  The basis on which cost is determined in computing realized gains or losses is specific identification.  Notes Receivable - ----------------  The fair value of notes receivable is determined in good faith by the Managing General Partners under the direction of the Management Committee. Fair value is generally defined as the amount the Partnership could reasonably expect to receive from another party wishing to acquire the notes and accrued interest on the valuation date.  The values determined for the Partnership's notes receivable are based upon available information at the time the good faith valuations are made and do not necessarily represent the amount which might ultimately be realized which could be higher or lower than the reported fair value.  When the Managing General Partners' assessment of fair value indicates that future collectibility of interest or principal is in doubt, notes are placed on non-accrual status.  Cash, Cash Equivalents and Restricted Cash - ------------------------------------------  Cash, cash equivalents and restricted cash are principally comprised of cash invested in demand accounts and money market instruments and are stated at cost plus accrued interest.  The Partnership considers all money market and short-term investments with an original maturity of three months or less to be cash equivalents.  Net (Decrease) Increase in Partners' Capital Resulting from Operations Per - -------------------------------------------------------------------------- Unit - ----  Net (decrease) increase in partners' capital resulting from operations per Unit is calculated by dividing the weighted average number of Units outstanding of 160,000 for the years ended December 31, 2005, 2004 and 2003, into the total net (decrease) increase in partners' capital resulting from operations allocated to the Limited Partners.  The Managing General Partners contributed 0.1 percent of total Limited Partner capital contributions and did not receive any Partnership Units.  Provision for Income Taxes - --------------------------  No provision for income taxes has been made by the Partnership as the Partnership is not directly subject to taxation.  The partners are to report their respective shares of Partnership income or loss on their individual tax returns.  The accompanying financial statements are prepared using accounting principles generally accepted in the United States which may not equate to tax accounting.  The cost of investments on a tax basis at December 31, 2005 and 2004, was $12,619,543 and $10,850,363, respectively.  At December 31, 2005 and 2004, gross unrealized depreciation on investments based on cost for federal income tax purposes were as follows:                                          December 31,   December 31,                                           2005           2004                                       ------------   ------------    Unrealized appreciation               $    81,507    $   266,699 Unrealized depreciation                (9,812,837)    (6,358,884)                                         ---------      --------- Net unrealized depreciation           $(9,731,330)   $(6,092,185)                                         =========      =========   Reclassifications - -----------------  Certain balances in prior periods have been reclassified in accordance with current year balances for comparability.  2.  Basis of Accounting and Presentation of the Statements     ------------------------------------------------------  As of December 31, 2005, the Partnership is in liquidation and will not continue as a going concern.  The accompanying financial statements are shown on the liquidation basis, and all amounts have been presented at their estimated liquidation value, which management believes approximates its historical basis of accounting and as a result, no specific adjustments have been made to the amounts presented or to the labeling of the statements to reflect liquidation accounting.  3.  Related Party Transactions     --------------------------  Related party costs are included in costs and expenses shown on the Statements of Operations.  Related party costs in 2005, 2004 and 2003 were as follows:                                           For the Years Ended December 31,                                      -----------------------------------                                       2005          2004           2003                                      ------        ------         ------     Management fees                    $  82,298    $  109,147    $   87,781 Independent General  Partners' compensation               64,500        71,125        60,000 Reimbursable operating expenses:   Administrative, investor    services and professional    fees                            2,134,757     1,420,244     1,420,829   Investment operations              577,746       513,022       357,264   Computer services                  166,678       105,963        87,908    Management fees are equal to one quarter of one percent of the fair value of Partnership assets for each quarter.  Management fees compensate the Managing General Partners solely for General Partner Overhead (as defined in the Partnership Agreement) incurred in supervising the operation and management of the Partnership and the Partnership's investments. Management fees due to the Managing General Partners were $4,307 and $8,799 and were included in due to related parties, net at December 31, 2005 and 2004, respectively.  As compensation for their services, each of the Independent General Partners receives $14,000 annually plus $1,500 for attendance at each meeting of the Management Committee or committee thereof.  The Independent General Partners are reimbursed for all out-of-pocket expenses relating to attendance of the meetings, committees or otherwise of the Management Committee.  The Independent General Partners each own eight Units.  The Partnership reimburses the Managing General Partners for operating expenses incurred in connection with the business of the Partnership. Reimbursable operating expenses include expenses (other than Organizational and Offering and General Partner Overhead) such as investment operations, administrative and investor services, and computer services. The Managing General Partners of this Partnership serve in a similar capacity for other partnerships, and all reimbursed expenses are allocated to the various partnerships based on a number of factors including the size of each partnership, the number of active portfolio companies, and the amount of time spent by various employees of the Managing General Partners on the specific affairs of any one partnership.  Amounts due to related parties for such expenses totaled $238,291 and $548,021 at December 31, 2005 and 2004, respectively.  Under the terms of a computer service agreement, Technology Administrative Management, a division of TFL, charges the Partnership for its share of computer support costs.  These amounts are included in computer services expenses.  Retention bonuses were offered to and accepted by key employees of the Managing General Partners in late 2002. The expense for these bonuses, which were approved by the Independent General Partners during the September 2002 Management Committee meeting, was prepaid by the Partnership in October and December 2002. At December 31, 2005, the amount of prepaid operating expenses was $272,793, and is being amortized over the remaining expected employment period.  During 2005, 2004 and 2003, the Partnership recognized $57,908, $57,908 and $57,909 as operating expense related to the amortization of retention bonuses.  The bonuses, incremented by annual salary increases, will be paid to those individuals who are still full-time employees of the Managing General Partners in April 2007.  Upon the resignation of personnel no adjustment to the retention bonus amount previously paid by the Partnership to the Managing General Partners shall occur until a replacement person is hired.  As of December 31, 2005 and 2004, the Partnership had a gross due from related party receivable of $0 and $3,554,210, respectively, related to its investment in Dakota Holdings, LLC and Dakota Arms, Inc.  During 2005, the Partnership advanced additional funds of $1,372,452 to the company for operations.  During 2005, the Partnership recorded an allowance for doubtful accounts of $1,467,423 against the receivable.  At December 31, 2005, $4,891,250 of this receivable was converted into additional equity investments in Dakota Holdings and the remaining $35,412 was converted into a bridge loan with an interest rate of 4.79 percent.  As a result of the conversion, the allowance for doubtful accounts as described above was reclassified to unrealized depreciation in the accompanying statements.  Officers of the Managing General Partners occasionally receive stock options as compensation for serving on the Boards of Directors of portfolio companies.  It is the Managing General Partners' policy that all such compensation be transferred to the investing partnerships.  If the options are non-transferable, they are not recorded as an asset of the Partnership. Any profit from the exercise of such options will be transferred if and when the options are exercised and the underlying stock is sold by the officers.  Any such profit is allocated amongst the Partnership and affiliated partnerships based upon their proportionate investments in the portfolio company.  One of the Managing General Partners serves as interim CEO and Chairman of the Board for Dakota Arms, Inc., a portfolio company. The Managing General Partner does not receive any compensation for these services.  4.  Allocation of Profits and Losses     --------------------------------  In accordance with the Partnership Agreement (see Note 1), net profits and losses of the Partnership are allocated based on the beginning-of-year partners' capital balances as follows:     (a)  Profits:      (i)   First, to those partners with deficit capital account           balances until such deficits have been eliminated; then      (ii)  Second, to the partners as necessary to offset net decrease           in partners' capital resulting from operations previously           allocated under (b)(ii) below and sales commissions; then      (iii) Third, 75 percent to the Limited Partners as a group in           proportion to the number of Units held, 5 percent to the           Limited Partners in proportion to the Unit Months of each           Limited Partner, and 20 percent to the Managing General           Partners.  Unit months are the number of half months a Unit           would be outstanding if held from the date the original holder           of such Unit was deemed admitted into the Partnership until           the termination of the offering of Units.     (b) Losses:      (i)   First, to the partners as necessary to offset the net profit           previously allocated to the partners under (a)(iii) above; then      (ii)  99 percent to the Limited Partners and 1 percent to the Managing           General Partners.  Losses allocable to Limited Partners in excess of their capital account balances will be allocated to the Managing General Partners. Net profits thereafter, otherwise allocable to those Limited Partners, are allocated to the Managing General Partners to the extent of such losses.  Losses from unaffiliated venture capital limited partnership investments are allocated pursuant to section (b) above.  Gains are allocated 99 percent to Limited Partners and 1 percent to the Managing General Partners.  In no event are the Managing General Partners allocated less than 1 percent of the net realized profit or loss of the Partnership.  5.  Equity Investments     ------------------  All investments are valued at fair value as determined in good faith by the Managing General Partners.  Marketable Equity Securities - ----------------------------  At December 31, 2005 and 2004, marketable equity securities had aggregate costs of $669,136 and $2,132,167, respectively, and aggregate fair values of $313,743 and $1,608,462, respectively.  The net unrealized gain at December 31, 2005 and 2004, included gross gains of $27,482 and $62,865, respectively.  Restricted Securities - ---------------------  At December 31, 2005 and 2004, restricted securities had aggregate costs of $10,951,101 and $6,425,608, respectively, and aggregate fair values of $2,574,470 and $3,149,716, respectively, representing 92.2 percent and 32.4 percent, respectively, of the total partners' capital of the Partnership.   Significant purchases, sales and write-offs of equity investments during 2005 are as follows:  Acambis Plc - ------------  In March 2005, the Partnership sold its entire investment in the company for proceeds of $4,350 and recorded a realized gain of $4,350.  This investment was written off for book purposes in 2002.  CheckTech Financial Corporation - -------------------------------  In March 2005, the Partnership invested in the company with a bridge loan in the amount of $75,000 with a fixed interest rate of 10 percent.  Payment was due upon demand.  An additional 20 percent interest preference premium will be payable upon a liquidation event.  In August 2005, the company repaid the face value of $75,000 and accrued interest of $40,233 to the Partnership.  CollaGenex Pharmaceuticals, Inc. - --------------------------------  In March 2005, the Partnership sold its entire investment in the company for proceeds of $33,432 and recorded a realized loss of $21,012.  Dakota Holdings, LLC - --------------------  In December 2005, the Partnership converted its due from portfolio company of $4,926,662 to $4,891,250 of LLC units and the remaining $35,412 into a bridge loan with an interest rate of 4.79 percent.  Endocare, Inc. - --------------  In June 2005, the Partnership sold part of its investment in the company for proceeds of $135,443 and recorded a realized gain of $14,107.  In July and August 2005, the Partnership sold additional interests in the company for proceeds of $996,340 and recorded a realized gain of $187,124.  During the fourth quarter of 2005, the Partnership sold additional interests in the company for proceeds of $265,834 and recorded a realized gain of $24,684.  Icagen, Inc. - ------------  In September 2005, the Partnership sold its entire interest in Icagen for proceeds of $47,312.  This investment had been previously written off; therefore, the Partnership recorded a gain of $47,312.  iVillage Inc. - -------------  In March 2005, the Partnership sold its entire investment in the company for proceeds of $151,725 and recorded a realized loss of $668.  KeyEye Communications, Inc. - ---------------------------  In December 2005, the Partnership issued a bridge loan to the company in the amount of $367,383 with an interest rate of 8 percent.  Natus Medical, Inc. - -------------------  In June 2005, the Partnership sold its entire investment in the company for proceeds of $163,052 and recorded a realized gain of $78,570.  OW&W Pacrim Investments Limited - -------------------------------  In March 2005, the Partnership received notice that the venture capital limited partnership was terminating.  The Partnership expects no return on its investment and wrote off its entire investment in the venture capital limited partnership and realized a loss of $505.  Sanarus Medical, Inc. - ---------------------  In January 2005, the Partnership purchased 375,939 Series D Preferred shares at a cost of $300,000.  VenCore Solutions, LLC - ----------------------  In January 2005, the company converted the Partnership's three bridge loans, including accrued interest, at a cost of $444,124 into 444,124 Series A Units in accordance with the terms of the agreement.  In June 2005, the Partnership invested in the company with a convertible bridge loan in the amount of $100,000 with a fixed interest rate of 10 percent. Payment was due upon maturity at November 1, 2005.  In October 2005, the Partnership received full repayment of the bridge loan.  In addition, the Partnership sold its entire interest in VenCore for proceeds of $1,646,658 and recorded a realized gain of $577,534.  Venture Capital Limited Partnership Investments - -----------------------------------------------  During the first quarter of 2005, the Partnership received a cash distribution of $4,500, which was recorded as a realized gain.  During the fourth quarter of 2005, the Partnership received cash distributions of $54,627, which were recorded as realized gains.  Other Equity Investments - ------------------------  Other significant changes reflected in the Statements of Investments relate to market value fluctuations for publicly traded portfolio companies or changes in the fair value of private companies as determined in accordance with the policy described in Note 1 to the financial statements.  6.  Net Decrease (Increase) in Unrealized Depreciation of Equity     -------------------------------------------------------------     Investments     -----------  In accordance with the accounting policy as stated in Note 1, the Statements of Operations includes a line item entitled "Net decrease (increase) in unrealized depreciation of equity investments."  The table below discloses details of the changes:                                              For the Years Ended December 31,                                          ----------------------------------                                            2005          2004        2003                                           ------        ------      ------     Unrealized (depreciation)  appreciation from cost of  marketable equity securities        $ (355,393)  $  (523,705) $ 1,045,766  Unrealized depreciation from  cost of non-marketable equity  securities                          (8,376,631)   (3,275,892)  (6,530,668)  Unamortized deferred gain (Note 9)           --           --       (60,000)                                      ----------    ----------    --------- Unrealized depreciation from  cost at end of year, net of  unamortized deferred gain           (8,732,024)  (3,799,597)   (5,544,902)  Unrealized depreciation from cost  at beginning of year, net of  unamortized deferred gain           (3,799,597)  (5,544,902)  (10,191,528)  Reclass of allowance for doubtful  accounts                              1,467,423           --            --                                      ----------    ---------    ---------- Net decrease (increase) in  unrealized depreciation of  equity investments                 $(3,465,004) $ 1,745,305   $ 4,646,626                                      ==========    ==========    =========   7.  Cash and Cash Equivalents     -------------------------  Cash and cash equivalents at December 31, 2005 and 2004, consisted of:                                             2005                 2004                                          ------               ------    Demand accounts                      $  123,206           $1,871,598 Money market accounts                       534                  652                                       ---------            ---------   Total                              $  123,740           $1,872,250                                       =========            =========  Restricted cash                      $       --                   -- Unrestricted cash                       123,740            1,872,250                                       ---------             --------   Total                              $  123,740           $1,872,250                                       =========            =========   8.  Distributions     -------------  There were no distributions in 2005 or 2004.  9.  Commitments and Contingencies     -----------------------------  From time to time the Partnership becomes 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, 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 not recognized in the financial statements.  From time to time, the Partnership is subject to routine litigation incidental to the business of the Partnership.  Although there can be no assurances as to the ultimate disposition of these matters, it is the opinion of the Managing General Partners, based upon the information available at this time, that the expected outcome of these matters, individually or in the aggregate, will not have a material adverse effect on the results of operations and financial condition of the Partnership.  In September 2003, the Partnership guaranteed a line of credit (agreement) for Atherotech, Inc. with a bank. Atherotech, Inc. is a portfolio company of an affiliated partnership under which the Partnership has common control. In exchange for the guarantee, Atherotech, Inc. had issued the Partnership a warrant, with the right to purchase stock at a future date, which was to expire September 8, 2010.  The terms of the warrant stated that (a) if the guarantee is in place for less than 6 months from the date of the guarantee, the warrant is exercisable for 42,418 of Preferred Series E shares;  (b) if the guarantee is in place for 6 to 9 months from the date of the guarantee, the warrant is exercisable for an additional 31,813 of Preferred Series E shares;  (c) if the guarantee is in place for more than 9 months from the date of the guarantee, the warrant is exercisable for an additional 42,418 of Preferred Series E shares; and (d) if at any time prior to the termination date any demand for payment is made upon the guarantee, the warrant is exercisable for an additional 42,418 Preferred Series E shares.  The maximum potential amounts for future payments (undiscounted) that the Partnership would be required to make under the guarantee is the amount of the pledged collateral plus accrued interest. The guarantee was to remain in effect as long as Atherotech's agreement with the bank remained outstanding. In the event of Atherotech's default on the agreement, the bank would take the pledged collateral and accrued interest, as security for the performance of Atherotech's obligation.  The Partnership recorded this transaction as a deferred gain for the fair value of the warrants earned, recognized over the estimated life of the guarantee.  As of December 31, 2003, there was a deferred gain of $60,000. In August 2004, Atherotech, Inc. retired the line of credit, and the bank released the Partnership's guarantee.  The deferred gain was fully recognized as of December 31, 2004.  10. Financial Highlights     --------------------                                          For The Years Ended December 31,                                      -----------------------------------                                       2005           2004          2003                                      ------         ------        ------     (all amounts on a per Unit basis) Net asset value,  beginning of period                  $69.84        $72.38        $71.32  (Loss) gain from investment  operations:   Net investment loss                 (27.53)       (13.58)           --   Net realized and unrealized    (loss) gain on investments         (15.43)        11.04          1.06                                        -----         -----         -----   Total from investment operations    (42.96)        (2.54)         1.06                                        -----         -----         ----- Net asset value, end of period         26.88        $69.84        $72.38                                        =====         =====         =====  Total return                          (61.51)%       (3.51)%        1.48%  Ratios to average net assets:   Net investment loss                  (56.91)%      (19.10)%           0%   Expenses                             (58.07)%      (19.51)%      (17.52)%    Pursuant to the Partnership Agreement, net profit shall be allocated first to those Partners with deficit capital account balances until such deficits have been eliminated. The net asset values shown above assume the Partnership is in liquidation.  Per the terms of the limited partnership agreement, subsequent to final liquidation of all partnership assets, the General Partners would be required to contribute capital equal to the amount of the General Partners' deficit capital account, if applicable.                                                                     SIGNATURES                               ----------  Pursuant to the requirements 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.                               TECHNOLOGY FUNDING LTD.                               Managing General Partners      Date:  March --, 2006    By:       /s/Charles R. Kokesh                                --------------------------------                                       Charles R. Kokesh                                       President, Chief Executive Officer                                       Chief Financial Officer and                                       Chairman of Technology Funding Inc.                                       and Managing General Partner of                                       Technology Funding Ltd.   Pursuant to the requirements of the Securities Exchange Act of 1934, this Report on Form 10-K has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:            Signature           Capacity               Date           ---------           --------               ----   /s/Charles R. Kokesh         President, Chief       March --, 2006 - ------------------------      Executive Officer,     Charles R. Kokesh         Chief Financial Officer                               and Chairman of                               Technology Funding Inc.                               and Managing General                               Partner of Technology                               Funding Ltd.    The above represents a majority of the Board of Directors of Technology Funding Inc. and the General Partners of Technology Funding Ltd.  Technology Funding Partners III, L.P.      10:18 AM     03/28/06 (a Delaware limited partnership, in process of liquidation)    Page 26 of 47 Technology Funding Partners III, L.P. (a Delaware limited partnership, in process of liquidation)     EX-14 2 p3q405coe.txt              TECHNOLOGY FUNDING PARTNERS III, L.P. TECHNOLOGY FUNDING VENTURE PARTNERS IV, An Aggressive Growth Fund, L.P. TECHNOLOGY FUNDING VENTURE PARTNERS V, An Aggressive Growth Fund, L.P.                              CODE OF ETHICS                        Adopted Under Rule 17j-1                        Effective March 10, 2006  Technology Funding Partners III, L.P., Technology Funding Venture Partners IV, An Aggressive Growth Fund, L.P., Technology Funding Venture Partners V, An Aggressive Growth Fund, L.P. (each a "Fund" and collectively, the "Funds") are confident that their respective officers, directors, partners, employees and other persons involved with the Funds' business act with integrity and good faith.  Each Fund recognizes, however, that personal interests may conflict with the Fund's interests where officers, directors, partners, employees and certain other persons:      Know about the Fund's present or future portfolio transactions; or      Have the power to influence the Fund's portfolio transactions; and      Engage in securities transactions in their personal account(s).  In an effort to prevent conflicts of interest from arising, and in accordance with Rule 17j-1 under the Investment Company Act of 1940, each Fund has adopted this Code of Ethics (the "Code") to address transactions and conduct that may create conflicts of interest, establish reporting requirements, and create enforcement procedures. Definitions of underlined terms used throughout the Code are included in Appendix I.  I.  ABOUT THIS CODE OF ETHICS      A.  Who is Covered by the Code?          Each Fund's access persons are covered under this Code.         Each Fund's access persons generally are:           All directors and partners of the Fund,          both interested and independent;  All Fund Officers;  All employees who, in connection with their regular duties, participate in the selection of the Fund's Securities, or have access to information regarding the Fund's purchase or sale of Securities; and  Natural persons in a control relationship to the Fund who obtain information concerning recommendations about the purchase or sale of a Security by the Fund ("Natural Control Persons").      B.  What Rules Apply to Me?  This Code sets forth specific prohibitions and restrictions. They apply to all access persons of a Fund except where otherwise noted.  The Code also sets out reporting requirements for access persons.  For the reporting requirements that apply to you, please refer to Parts A, B and C, as indicated below:  Independent Directors and Independent Partners Part A  Interested Directors, Interested Partners, Part B Fund Officers, and employees with information access Natural Control Persons Part C  II.  STATEMENT OF GENERAL PRINCIPLES  In recognition of the trust and confidence placed in a Fund by its shareholders, and because the Fund believes that its operations should benefit its shareholders, each Fund has adopted the following principles to be followed by its access persons:  A.  The interests of the Fund's shareholders are paramount.  You must place shareholder interests before your own.  B.  You must accomplish all personal securities transactions in a manner that avoids any conflict (or the appearance of a conflict) between your personal interests and the interests of the Fund or its shareholders.  C.  You must avoid actions or activities that allow (or appear to allow) you or your family to benefit from your position with the Fund, or that bring into question your independence or judgment.    III.  GENERAL PROHIBITION AGAINST FRAUD, DECEIT AND MANIPULATION  Access persons may not, in connection with the purchase or sale, directly or indirectly, of a Security held or to be acquired by a Fund (or any series thereof):  A.  Employ any device, scheme or artifice to defraud the Fund;  B.  Make to the Fund any untrue statement of a material fact or omit to state to the Fund a material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading;  C.  Engage in any act, practice or course of business that operates or would operate as a fraud or deceit upon the Fund; or  D.   Engage in any manipulative practice with respect to the Fund.  IV.  PROHIBITIONS AND RESTRICTIONS FOR ACCESS PERSONS  A.  Blackout Period on Personal Securities Transactions  This restriction applies to:  (i) access persons who, in connection with their regular duties, make, participate in, or obtain information regarding the purchase or sale of Securities by a Fund or whose functions relate to the making of any recommendations with respect to the purchases or sales and (ii) Natural Control Persons.  These persons may not purchase or sell, directly or indirectly, any Security in which they have (or by reason of such transaction acquire) any beneficial ownership on the same day as the same (or a related) Security is being purchased or sold by a Fund (or any series thereof).  B.  Prohibition on Selling Recently Acquired Securities  This prohibition applies to: (1) access persons who, in connection with their regular duties, make, participate in, or obtain information regarding the purchase or sale of Securities by a Fund; or whose functions relate to the making of any recommendations with respect to the purchases or sales and (ii) Natural Control Persons.  These persons may not sell a Security within 60 days of acquiring that Security.  C.  Pre-Approval for IPOs and Limited Offerings  This restriction applies to: (i) access persons who, in connection with their duties, make or participate in making recommendations regarding the purchase or sale of any securities by a Fund and (ii)  Natural Control Persons.  These persons must obtain approval from the Review Officer (as defined in Section VI below) before directly or indirectly acquiring beneficial ownership of any securities in an IPO or limited offering.  D.  Limits on Accepting or Receiving Gifts.  Access persons cannot accept or receive any gift of more than de minimis value from any person or entity in connection with a Fund's (or any series thereof) entry into a contract, development of an economic relationship, or other course of dealing by or on behalf of the Fund.  V.  REPORTING REQUIREMENTS  Subject to Section X hereof, access persons of a Fund must comply with the reporting requirements set forth in Parts A-C.  VI.  REVIEW AND ENFORCEMENT OF THE CODE  A.  Appointment of a Review Officer.  A review officer ("Review Officer") will be appointed by the Fund's Managing General Partner or Managing Member to perform the duties described herein.  B.  The Review Officer's Duties and Responsibilities.  (1)  The Review Officer shall notify each person who becomes an access person of a Fund and who is required to report under this Code of Ethics of their reporting requirements no later than 10 days before the first quarter in which such person is required to begin reporting.  (2)  The Review Officer will, on a quarterly basis, compare all reported personal securities transactions with a Fund's completed portfolio transactions and a list of Securities that were being considered for purchase or sale by a Fund's investment adviser(s) during the period to determine whether a Code violation may have occurred. Before determining that a person has violated the Code, the Review Officer must give the person an opportunity to supply explanatory material.  (3)  If the Review Officer finds that a Code violation has occurred, or believes that a Code violation may have occurred, the Review Officer must submit a written report regarding the possible violation, together with the confidential report and any explanatory material provided by the person, to the Managing General Partner or Managing Member and the legal counsel ("Counsel") for the Fund.  The Managing General Partner or Managing Member and Counsel will determine whether the person violated the Code.  (4)  No person is required to participate in a determination of whether he or she has committed a Code violation or discuss the imposition of any sanction against himself or herself.  (5)  The Review Officer will submit his or her own reports, as may be required pursuant to Parts A-C hereof, to an Alternate Review Officer who shall fulfill the duties of the Review Officer with respect to the Review Officer's reports.  (6)  The Review Officer will create a written report detailing any approval(s) granted to access persons for the purchase of securities offered in connection with an IPO or limited offering.  The report must include the rationale supporting any decision to approve such a purchase.  C.  Resolution; Sanctions.  If the Managing General Partner or Managing Member and Counsel determine that a person has violated the Code pursuant to paragraph B. (3) above, the Managing General Partner or Managing Member will approve a proposed resolution of the situation and submit the proposed resolution, with a report on the violation, to the Board at the next regularly scheduled Board meeting unless, in the Managing General Partner or Managing Member sole discretion, circumstances warrant an earlier report.  In lieu of proposing a resolution to the Board, the Managing General Partner or Managing Member may, if appropriate, impose upon the person a resolution and/or sanctions that the he deems appropriate.     VII.  ANNUAL WRITTEN REPORTS TO THE BOARD  At least annually, the Review Officer, investment adviser(s) and principal underwriter(s) (if required) will provide written reports to a Fund's Board as follows:  A.  Issues Arising Under the Code.  The reports must describe any issue(s) that arose during the previous year under the codes or procedures thereto, including any material code or procedural violations, and any resulting sanction(s).  B.  The Review Officer, Managing General Partner or Managing Member, investment adviser(s) and principal underwriter(s) may report to the Board more frequently as they deem necessary or appropriate and shall do so as requested by the Board.  C.  Certification.  Each report must be accompanied by a certification to the Board that the Fund, investment adviser(s) and principal underwriter(s) have adopted procedures reasonably necessary to prevent their access persons from violating their respective code of ethics.  VIII.  INTERRELATIONSHIP WITH OTHER CODES OF ETHICS  A.  General Principle: Overlapping Responsibilities.  A person who is both an access person of a Fund and an access person of an investment adviser to or principal underwriter for a Fund is only required to report under and otherwise comply with the investment adviser's or principal underwriter's code of ethics, provided that such code has been adopted pursuant to and in compliance with Rule 17j-1.  These access persons, however, remain subject to the principles and prohibitions in Sections II and III hereof.  B.  Procedures.  Each such investment adviser and principal underwriter of a Fund must:  (1)  Submit to the Board of the Fund a copy of its code of ethics adopted pursuant to or in compliance with Rule 17j-1;  (2)  Promptly furnish to the Fund, upon request, copies of any reports made under its code of ethics by any person who is also covered by the Fund's Code; and  (3)  Promptly report to the Fund in writing any material amendments to its code of ethics, along with the certification described under Section VII.C. above.  IX.  RECORDKEEPING  Each Fund will maintain the records set forth below.  These records will be maintained in accordance with Rule 31a-2 under the 1940 Act and the following requirements.  They will be available for examination by representatives of the Securities and Exchange Commission and other regulatory agencies.  A.  A copy of this Code and any other code adopted by a Fund, which is, or at any time within the past five years has been, in effect will be preserved in an easily accessible place.  B.  A record of any Code violation and of any sanctions taken will be preserved in an easily accessible place for a period of at least five years following the end of the fiscal year in which the violation occurred.  C.  A copy of each Quarterly Transaction Report, Initial Holdings Report, and Annual Holdings Report submitted under this Code, including any information provided in lieu of any such reports made under the Code (see Parts A-C for more information about reporting), will be preserved for a period of at least five years from the end of the fiscal year in which it is made, for the first two years in an easily accessible place.  D.  A record of all persons, currently or within the past five years, who are or were required to submit reports under this Code, or who are or were responsible for reviewing these reports, will be maintained in an easily accessible place.  E.  A copy of each annual report required by Section VII of this Code must be maintained for at least five years from the end of the fiscal year in which it is made, for the first two years in any easily accessible place.  F.  A record of any decision, and the reasons supporting the decision, to approve the acquisition of securities acquired in an IPO or limited offering, for at least five years after the end of the fiscal year in which the approval is granted.   X.  MISCELLANEOUS  A.  Confidentiality.  All reports and other information submitted to a Fund pursuant to this Code will be treated as confidential, provided that such reports and information may be produced to the Securities and Exchange Commission and other regulatory agencies.  B.  Interpretation of Provisions.  The Board may from time to time adopt such interpretations of this Code as it deems appropriate.  C.  Compliance Certification.  Within 10 days of becoming an access person of a Fund, and each year thereafter, each such person must complete the Compliance Certification, attached as Appendix V.  Adopted this 11th day of March, 2005.                              PART A             INDEPENDENT DIRECTORS AND INDEPENDENT PARTNERS  I.  QUARTERLY TRANSACTION REPORTS  (A)  Subject to Section II. (B) below, each quarter, you must report all of your Securities transactions effected, as well as any securities accounts you established, during the quarter.  You must submit your report to the Review Officer no later than 10 days after the end of each calendar quarter.  A Quarterly Personal Securities Transactions Report Form is included as Appendix II.  (B)  If you had no reportable transactions and did not open any securities accounts during the quarter, you are still required to submit a report.  Please note on your report that you had no reportable items during the quarter, and return it, signed and dated.  (C)  You need not submit a quarterly report if the report would duplicate information in broker trade confirmations or account statements received by the Fund, provided that all required information is contained in the broker trade confirmations or account statements and is received by the Review Officer no later than 10 days after the end of the calendar quarter. Please see the Review Officer for more information about this reporting mechanism.  II.  WHAT MUST BE INCLUDED IN YOUR QUARTERLY REPORTS?  (A)  You must report all transactions in Securities that: (i) you directly or indirectly beneficially own or (ii) because of the transaction, you acquire direct or indirect beneficial ownership.  You must also report any account you established during the quarter in which any securities were held for your direct or indirect benefit.  (B)  Notwithstanding Section I above, reports of individual Securities transactions are required only if you knew at the time of the transaction, or in the ordinary course of fulfilling your official duties as a Trustee, director or partner should have known, that during the 15-day period immediately preceding or following the date of your transaction, the same Security was purchased or sold, or was being considered for purchase or sale, by the Fund (or any series thereof).  The "should have known" standard does not:  imply a duty of inquiry;  presume you should have deduced or extrapolated from discussions or memoranda dealing with the Fund's (or a series) investment strategies; or  impute knowledge from your awareness of the Fund's (or a series) portfolio holdings, market considerations, or investment policies, objectives and restrictions.  III.  WHAT MAY BE EXCLUDED FROM YOUR QUARTERLY REPORTS?  You are not required to detail or list the following items on your quarterly report:  (A)  Purchases or sales effected for any account over which you have no direct or indirect influence or control;  (B)  Purchases you made solely with the dividend proceeds received in a dividend reinvestment plan or that are part of an automatic payroll deduction plan, where you purchased a Security issued by your employer;  (C)  Purchases effected on the exercise of rights issued by an issuer pro rata to all holders of a class of its Securities, as long as you acquired these rights from the issuer, and sales of such rights;  (D)  Purchases or sales which are non-volitional, including purchases or sales upon the exercise of written puts or calls and sales from a margin account pursuant to a bona fide margin call; and  (E)  Purchases or sales of any of the following securities:  Direct obligations of the U.S. government;  Banker's acceptances, bank certificates of deposit, commercial paper and high quality short-term debt instruments, including repurchase agreements; and  Shares issued by registered, open-end investment companies.  You may include a statement in your report that the report shall not be construed as your admission that you have any direct or indirect beneficial ownership in the Security included in the report.                               PART B      INTERESTED DIRECTORS, INTERESTED PARTNERS, FUND OFFICERS AND                  EMPLOYEES WITH INFORMATION ACCESS  I.   REQUIRED REPORTS  (A)  Initial Holdings Report.  You must submit a listing of all Securities that you beneficially own, as well as all of your securities accounts, as of the date that you first become subject to this Code's reporting requirements.  You must submit this list to the Review Officer within 10 days of the date you first become subject to this Code's reporting requirements.  An Initial Holdings Report Form is attached as Appendix III.  (B)  Annual Holdings Report.  Each year, you must submit to the Review Officer a listing of all Securities you beneficially own, as well as all of your securities accounts.  Your list must be current as of a date no more than 30 days before you submit the report.  An Annual Holdings Report Form is attached as Appendix IV.  (C)  Quarterly Transaction Reports.  (1)  Each quarter, you must report all of your Securities transactions effected, as well as any securities accounts you established, during the quarter.  You must submit your report to the Review Officer no later than 10 days after the end of each calendar quarter.  A Quarterly Personal Securities Transactions Report Form is included as Appendix II.  (2)  If you had no reportable transactions and did not open any securities accounts during the quarter, you are still required to submit a report.  Please note on your report that you had no reportable items during the quarter, and return it, signed and dated.  (3) You need not submit a quarterly report if the report would duplicate information contained in broker trade confirmations or account statements received by the Fund, provided that all required information is contained in the broker trade confirmations or account statements and is received by the Review Officer no later than 10 days after the end of the calendar quarter.  Please see the Review Officer for more information about this reporting mechanism.   II.  WHAT MUST BE INCLUDED IN YOUR REPORTS?  You must report all transactions in Securities that: (i) you directly or indirectly beneficially own; or (ii) because of the transaction, you acquire direct or indirect beneficial ownership. You must also report all of your accounts in which any securities were held for your direct or indirect benefit.  III.  WHAT MAY BE EXCLUDED FROM YOUR REPORTS?  You are not required to detail or list the following items on your reports:  (A)  Purchases or sales effected for any account over which you have no direct or indirect influence or control;  (B)  Purchases you made solely with the dividend proceeds received in a dividend reinvestment plan or that are part of an automatic payroll deduction plan, where you purchased a Security issued by your employer;  (C)  Purchases effected on the exercise of rights issued by an issuer pro rata to all holders of a class of its Securities, as long as you acquired these rights from the issuer, and sales of such rights;  (D)  Purchases or sales which are non-volitional, including purchases or sales upon the exercise of written puts or calls and sales from a margin account pursuant to a bona fide margin call; and  (E)  Purchases or sales of any of the following securities:  Direct obligations of the U.S. government;  Banker's acceptances, bank certificates of deposit, commercial paper and high quality short-term debt instruments, including repurchase agreements; and  Shares issued by registered, open-end investment companies.  You may include a statement in your report that the report shall not be construed as your admission that you have any direct or indirect beneficial ownership in the Security included in the report.                                  PART C                          NATURAL CONTROL PERSONS  I.   REQUIRED REPORTS  (A)  Initial Holdings Report.  You must submit a listing of all Securities you beneficially own, as well as all of your securities accounts, as of the date that you first become subject to this Code's reporting requirements.  You must submit this list to the Review Officer within 10 days of the date you first become subject to this Code's reporting requirements.  An Initial Holdings Report Form is attached as Appendix III.  (B)  Annual Holdings Report.  Each year, you must submit to the Review Officer a listing of all Securities you beneficially own, as well as all of your securities accounts.  Your list must be current as of a date no more than 30 days before you submit the report.  An Annual Holdings Report Form is attached as Appendix IV.  (C)  Quarterly Transaction Reports.  (1)  Each quarter, you must report all of your Securities transactions effected, as well as any securities accounts you established, during the quarter.  You must submit your report to the Review Officer no later than 10 days after the end of each calendar quarter.  A Quarterly Personal Securities Transactions Report Form is included as Appendix II.  (2)  If you had no reportable transactions and did not open any securities accounts during the quarter, you are still required to submit a report.  Please note on your report that you had no reportable items during the quarter, and return it, signed and dated.  (3)  You need not submit a quarterly report if the report would duplicate information contained in broker trade confirmations or account statements received by the Fund, provided that all required information is contained in the broker trade confirmations or account statements and is received by the Review Officer no later than 10 days after the end of the calendar quarter.  Please see the Review Officer for more information about this reporting mechanism.   II.  WHAT MUST BE INCLUDED IN YOUR REPORTS?  You must report all transactions in Securities that: (i) you directly or indirectly beneficially own; or (ii) because of the transaction, you acquire direct or indirect beneficial ownership. You must also report all of your accounts in which any securities were held for your direct or indirect benefit.  III.  WHAT MAY BE EXCLUDED FROM YOUR REPORTS?  You are not required to detail or list the following items on your reports:  (A)  Purchases or sales effected for any account over which you have no direct or indirect influence or control;  (B)  Purchases you made solely with the dividend proceeds received in a dividend reinvestment plan or that are part of an automatic payroll deduction plan, where you purchased a Security issued by your employer;  (C)  Purchases effected on the exercise of rights issued by an issuer pro rata to all holders of a class of its Securities, as long as you acquired these rights from the issuer, and sales of such rights;  (D)  Purchases or sales which are non-volitional, including purchases or sales upon the exercise of written puts or calls and sales from a margin account pursuant to a bona fide margin call; and  (E)  Purchases or sales of any of the following securities:  Direct obligations of the U.S. government;  Banker's acceptances, bank certificates of deposit, commercial paper and high quality short-term debt instruments, including repurchase agreements; and  Shares issued by registered, open-end investment companies.  You may include a statement in your report that the report shall not be construed as your admission that you have any direct or indirect beneficial ownership in the Security included in the report.                             APPENDIX I                             DEFINITIONS                            General Note  The definitions and terms used in this Code of Ethics are intended to mean the same as they do under the 1940 Act and the other federal securities laws.  If a definition hereunder conflicts with the definition in the 1940 Act or other federal securities laws, or if a term used in this Code is not defined, you should follow the definitions and meanings in the 1940 Act or other federal securities laws, as applicable.  Access person means:  any director, partner or officer of a Fund;  any employee of a Fund (or of any company in a control relationship to the fund) who, in connection with his or her regular functions or duties, makes, participates in, or obtains information regarding the purchase or sale of Securities by the Fund or whose functions relate to the making of any recommendations with respect to the purchases or sales; and  any natural person in a control relationship to a Fund who obtains information concerning recommendations made to the Fund with regard to the purchase or sale of securities by the Fund.  Beneficial ownership means the same as it does under Section 16 of the Securities Exchange Act of 1934 and Rule 16a-1(a)(2) thereunder.  You should generally consider yourself the "beneficial owner" of any securities in which you have a direct or indirect pecuniary interest. In addition, you should consider yourself the beneficial owner of securities held by your spouse, your minor children, a relative who shares your home, or other persons by reason of any contract, arrangement, understanding or relationship that provides you with sole or shared voting or investment power.  Control means the same as it does under Section 2(a)(9) of the 1940 Act. Section 2(a)(9) provides that "control" means the power to exercise a controlling influence over the management or policies of a company, unless such power is solely the result of an official position with such company.  Ownership of 25% or more of a company's outstanding voting securities is presumed to give the holder of such securities control over the company.  The facts and circumstances of a given situation may counter this presumption.  Fund Officers' means any person lawfully elected by the Board and authorized to act on behalf of the Fund.  As of March 12, 2004, there are no Fund Officers.  High quality short-term debt instrument means any instrument that has a maturity at issuance of less than 366 days and that is rated in one of the two highest rating categories by a nationally recognized statistical rating organization (e.g., Moody's Investors Service).  Independent Director and Independent Partner means a director or partner, respectively of a Fund who is not an "interested person" of the Fund within the meaning of Section 2(a)(19) of the 1940 Act.  As of March 12, 2004, each Fund's Independent Directors and Independent Partners are:  Technology Funding Partners III, LP         G. Whitney Baines           Michael Tempesta           A. Logan Craft  Technology Funding Venture Partners IV, An Aggressive Growth Fund, LP         John Patrick O'Grady           D.W. Frommer II           John Muncaster  Technology Funding Venture Partners V, An Aggressive Growth Fund, LP        Ben H. Crawford        Harry E. Kitch        Richard A. Marcum  IPO (Initial Public Offering) means an offering of securities registered under the Securities Act of 1933, the issuer of which, immediately before registration, was not subject to the reporting requirements of Section 13 or Section 15(d) of the Securities Exchange Act of 1934.  Interested Director and Interested Partner means a director or partner, respectively of a Fund who is an "interested person" of the Fund within the meaning of Section 2(a)(19) of the 1940 Act.  As of March 12, 2004 each Fund's Interested Directors and Interested Partners are:  Technology Funding Ltd. Charles R. Kokesh  Technology Funding Inc. Charles R. Kokesh Peter F. Bernardoni  Limited offering means an offering that is exempt from registration under the Securities Act of 1933 pursuant to Section 4(2), Section 4(6), Rule 504, Rule 505 or Rule 506 (e.g., private placements).  Purchase or sale of a Security includes, among other things, the writing of an option to purchase or sell a Security.  Security means the same as it does under Section 2(a)(36) of the 1940 Act, except that it does not include direct obligations of the U.S. government, bankers' acceptances, bank certificates of deposit, commercial paper, high quality short-term debt instruments, including repurchase agreements, or shares issued by registered, open-end investment companies.  A Security held or to be acquired by a Fund (or a series thereof) means: (A) any Security that within the most recent 15 days (i) is or has been held by the Fund; or (ii) is being or has been considered by the Fund's adviser for purchase by the Fund; and (B) any option to purchase or sell, and any security convertible into or exchangeable for, any Security.  A Security is being purchased or sold by a Fund (or a series thereof) from the time a purchase or sale program has been communicated to the person who places buy and sell orders for the Fund until the program has been fully completed or terminated.  A Security is being considered for purchase by a Fund (or a series thereof) when a Security is identified as such by the investment adviser(s) to the Fund                                  APPENDIX V                         COMPLIANCE CERTIFICATION                          INITIAL CERTIFICATION  I certify that I: (i)   have received, read and reviewed the Code of Ethics; (ii)  understand the policies and procedures in the Code; (iii) recognize that I am subject to such policies and procedures; (iv)  understand the penalties for non-compliance; (v)   will fully comply with the Code of Ethics; and (vi)  have fully and accurately completed this Certificate.  Signature: Name: ____________________________________________________  Date Submitted: _____________________________________________________  Date Due: ___________________________________________________________  ANNUAL CERTIFICATION  I certify that I: (i)   have received, read and reviewed the Code of Ethics; (ii)  understand the policies and procedures in the Code; (iii) recognize that I am subject to such policies and procedures; (iv)  understand the penalties for non-compliance; (v)   have complied with the Code of Ethics and any applicable reporting requirements during this past year; (vi)  have fully disclosed any exceptions to my compliance with the Code below; (vii) will fully comply with the Code of Ethics; and (vi)  have fully and accurately completed this Certificate.  EXCEPTION(S): ______________________________________________________________________  Signature:____________________________________________________________  Name:_________________________________________________________________  Date Submitted:_______________________________________________________  Date Due:_____________________________________________________________   Technology Funding Partners III, L.P. (a Delaware limited partnership)  Page 1 of 18    EX-31 3 p3q405exh31.txt                                                             EXHIBIT 31.1                          CERTIFICATION PURSUANT TO                             SECTION 302 OF                      THE SARBANES-OXLEY ACT OF 2002   I, Charles R. Kokesh, President, Chief Executive Officer, Chief Financial Officer and Chairman of Technology Funding Inc. and Managing General Partner of Technology Funding Ltd., certify that:  1. I have reviewed this annual report on Form 10-K of Technology Funding Partners III, L.P.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant is made known to me by others within the entity, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the Evaluation Date); and c) presented in this annual report my conclusions about the effectiveness of the disclosure controls and procedures based on my evaluation as of the Evaluation Date; 5. I have disclosed, based on my most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of my most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.  Date:  March 27, 2006    By:      /s/Charles R. Kokesh                                --------------------------------                                      Charles R. Kokesh                                      President, Chief Executive                                      Officer, Chief Financial                                      Officer and Chairman of                                      Technology Funding Inc. and                                      Managing General Partner of                                      Technology Funding Ltd. Technology Funding Partners III, L.P. (a Delaware limited partnership)  Page 1 of 2    EX-32 4 p3q405exh32.txt                                                            EXHIBIT 32.1                CERTIFICATION PURSUANT TO 18 U.S.C SECTION 1350,                   AS ADOPTED PURSUANT TO SECTION 906 OF                     THE SARBANES-OXLEY ACT OF 2002   In connection with the Technology Funding Partners III, L.P. (the Partnership) Annual Report on Form 10-K for the year ending December 31, 2005, as filed with the Securities and Exchange Commission (the Report), I Charles R. Kokesh, President, Chief Executive Officer, Chief Financial Officer and Chairman of Technology Funding Inc. and Managing General Partner of Technology Funding Ltd., certify, pursuant to 18 U.S.C. Section 1350, as added Section 906 of the Sarbanes-Oxley Act of 2002, that:  1. The Report fully complies with the requirements of Section 15(d) of the Securities Exchange Act of 1934; and  2. To my knowledge, the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership as of and for the period covered by the Report.   Date:  March 27, 2006     By:   /s/  Charles R. Kokesh                                --------------------------------                                      Charles R. Kokesh                                      President, Chief Executive                                      Officer, Chief Financial                                      Officer and Chairman of                                      Technology Funding Inc. and                                      Managing General Partner of                                      Technology Funding Ltd.   Technology Funding Partners III, L.P. (a Delaware limited partnership)  Page 1 of 1    -----END PRIVACY-ENHANCED MESSAGE-----