ITEM 3. LEGAL PROCEEDINGS
Management is not currently aware of any litigation that will have material adverse impact on the Company's consolidated financial condition, or the results of operations.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the fourth quarter of 1996.
PART II
ITEM 5.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market Information
The information under the caption "Market for Cathay Bancorp, Inc. Stock" on page 37 and under the caption "Additional Information" on page 68 of the Company's Annual Report to Stockholders is incorporated herein by reference.
(b) Holders
As of March 7, 1997, there were approximately 1,850 holders of record of the Company's Common Stock.
(c) Dividends
The information in Note 10 to the Consolidated Financial Statements on pages 55 and 56 of the Company's Annual Report to Stockholders is incorporated herein by reference.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA
The information under the caption "Selected Consolidated Financial Data" on page 13 of the Company's Annual Report to Stockholders is incorporated herein by reference.
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 14 through 36 of the Company's Annual Report to Stockholders is incorporated herein by reference.
ITEM 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Independent Auditors' Report and the Company's Consolidated Financial Statements and Notes thereto on pages 39 through 63 of the Company's Annual Report to Stockholders is incorporated herein by reference. See Item 14 of this report for information concerning financial statements filed with this report.
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information under the caption "Election of Directors" on pages 3 through 6 of the Company's definitive Proxy Statement relating to its 1997 Annual Meeting of Stockholders (the "Proxy Statement") is incorporated herein by reference.
The following persons are the executive officers and other significant officers of the Company and/or Cathay Bank:
Gerald T. Deal, age 83, Vice-Chairman of the Boards of Directors of Bancorp and Cathay Bank since 1994; Chairman of the Board of Directors of Bancorp from 1990 until 1994; Chairman of the Board of Directors of Cathay Bank from 1964 until 1994 and director of Cathay Bank since 1962; Chairman of the Board of Directors of CIC from 1985 until 1994 and director of CIC since 1984. Mr. Deal resigned as a director and Vice-Chairman of the Boards of Directors of Bancorp and Cathay Bank effective as of December 31, 1996.
George T.M. Ching, age 82, Vice-Chairman of the Board of Directors of Bancorp since 1990; Vice-Chairman of the Board of Directors of Cathay Bank since 1985, President of Cathay Bank from 1962 until 1985 and director of Cathay Bank since 1962; President of CIC since 1985 and director of CIC since 1984.
Dunson K. Cheng, age 52, Chairman of the Board of Directors of each of Bancorp, Cathay Bank and CIC since 1994; President of Bancorp since 1990; President of Cathay Bank since 1985 and director of Cathay Bank since 1982; Secretary of CIC from 1985 until 1994; Chief Executive Officer of CIC since 1995 and director of CIC since 1984.
Wilbur K. Woo, age 81, Secretary of Bancorp since 1990; Secretary of the Board of Directors of Cathay Bank since 1980 and director of Cathay Bank since 1978; Director of CIC since 1987.
Anthony M. Tang, age 43, Executive Vice President of Bancorp and Cathay Bank since 1994; Senior Vice President of Bancorp and Cathay Bank from 1990 until 1994; Chief Financial Officer and Treasurer of Bancorp since 1990; Chief Lending Officer of Cathay Bank since 1985; and director of Cathay Bank since 1986.
Milly W. Joe, age 59, Senior Vice President and Cashier of Cathay Bank since 1989; and Vice President and Cashier of Cathay Bank from 1981 to 1989. Ms. Joe has been associated with Cathay Bank since 1968.
Irwin Wong, age 49, Senior Vice President for Branch Administration of Cathay Bank since 1989; and Vice President for Branch Administration from 1988 until 1989. Mr. Wong was employed by Security Pacific National Bank as a Vice President and Manager from 1983 until 1988.
Elena Chan, age 45, Senior Vice President and Chief Financial Officer of Cathay Bank since December 1992; Vice President of Finance from March 1992 to November 1992; and Vice President and Internal Auditor of Cathay Bank from 1985 to February 1992.
All of the above-named officers were elected on April 18, 1996 at a regular Board of Directors meeting. The term of office of each officer is from the time of appointment until the next annual organizational meeting of the Board of Directors of Bancorp or Cathay Bank (or action in lieu of a meeting) and until the appointment of his or her successor unless, before that
time, the officer resigns or is removed or is otherwise disqualified from serving as an officer of Bancorp or Cathay Bank.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION
The information under the captions "Information Concerning Management Compensation", "Compensation Committee Interlocks and Insider Participation", "Compensation Committee Report on Executive Compensation" and "Comparative Stock Performance" on pages 8 through 13 of the Company's Proxy Statement is incorporated herein by reference.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The information under the captions "Principal Holders of Securities" on page 2 and "Election of Directors" on pages 3 through 6 of the Company's Proxy Statement is incorporated herein by reference.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the captions "Election of Directors" on pages 3 through 6 and "Certain Transactions" on page 14 of the Company's Proxy Statement is incorporated herein by reference.
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
Documents Filed as Part of this Report
(a)(1) Financial Statements
Financial Statements of Cathay Bancorp, Inc. and Subsidiary*
- ----------------- *Parent-only condensed financial information of the Company as of December 31, 1996 and 1995 and for the years ended December 31, 1996, 1995 and 1994 is included in Note 14 to the Consolidated Financial Statements on pages 60 through 62 of the Annual Report to Stockholders, which is incorporated herein by reference.
(a)(2) Financial Statement Schedules
Schedules have been omitted since they are not applicable, they are not required, or the information required to be set forth in the schedules is included in the Consolidated Financial Statements or notes thereto incorporated by reference into this report.
(a)(3) Exhibits
3.1 Restated Articles of Incorporation. Previously filed with the Securities and Exchange Commission as an exhibit to Registration Statement No. 33-33767 and incorporated herein by reference.
3.2 Restated Bylaws. Previously filed with the Securities and Exchange Commission as an exhibit to Registrant's Annual Report on Form 10-K for the year ended December 31, 1990 and incorporated herein by reference.
4.1 Shareholders Rights Plan. Previously filed with the Securities and Exchange Commission as an exhibit to Registrant's Annual Report on Form 10-K for the year ended December 31, 1990 and incorporated herein by reference.
10.1 Form of Indemnity Agreements between the Company and its directors and certain officers. Previously filed with the Securities and Exchange Commission as an exhibit to Registration Statement No. 33-33767 and incorporated herein by reference.
10.2 Employee Stock Ownership Plan and Trust of the Company and First Amendment thereto. Previously filed with the Securities and Exchange Commission as an exhibit to Registration Statement No. 33-33767 and incorporated herein by reference.
10.3 Dividend Reinvestment Plan of the Company. Previously filed with the Securities and Exchange Commission as an exhibit to Registration Statement No. 33-33767 and incorporated herein by reference.
10.4 Second Amendment to the Cathay Bank Employee Stock Ownership Plan and Trust. Previously filed with the Securities and Exchange Commission as an exhibit to Registrant's Annual Report on Form 10-K for the year ended December 31, 1991 and incorporated herein by reference.
10.5 Third Amendment to the Cathay Bank Employee Stock Ownership Plan and Trust. Previously filed with the Securities and Exchange Commission as an exhibit to Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 and incorporated herein by reference.
10.6 Fourth Amendment to the Cathay Bank Employee Stock Ownership Plan and Trust. Previously filed with the Securities and Exchange Commission as an exhibit to Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 and incorporated herein by reference.
10.7 Fifth Amendment to the Cathay Bank Employee Stock Ownership Plan and Trust. Previously filed with the Securities and Exchange Commission as an exhibit to Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 and incorporated herein by reference.
10.8 Sixth Amendment to the Cathay Bank Employee Stock Ownership Plan and Trust. Previously filed with the Securities and Exchange Commission as an exhibit to Registrant's Annual Report on Form 10-K for the year ended December 31, 1991 and incorporated herein by reference.
10.9 Seventh Amendment to the Cathay Bank Employee Stock Ownership Plan and Trust. Previously filed with the Securities and Exchange Commission as an exhibit to Registrant's Annual Report on Form 10-K for the year ended December 31, 1991 and incorporated herein by reference.
10.10 Eighth Amendment to the Cathay Bank Employee Stock Ownership Plan and Trust. Previously filed with the Securities and Exchange Commission as an exhibit to Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 and incorporated herein by reference.
13.1 Certain portions of the Registrant's 1996 Annual Report to Stockholders incorporated herein by reference.
22.1 Subsidiaries of the Company
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a report on Form 8-K dated May 30, 1996 to report the announcement of the merger with First Public and a report on Form 8-K dated November 18, 1996 to report the completion of the merger with First Public. A subsequent report on Form 8-K/A dated February 13, 1997 was filed to amend the report on Form 8-K dated November 18, 1996.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CATHAY BANCORP, INC.
Date: March 26, 1997 By: /s/ Dunson K. Cheng ----------------------------- Dunson K. Cheng Chairman and President
POWERS OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Dunson K. Cheng and Anthony M. Tang, jointly and severally, his attorneys-in-fact, each with the power of substitution, for him in any and all capacities, to sign any amendments to this Annual Report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
[SIGNATURES CONTINUED]
[SIGNATURES CONTINUED]
EXHIBIT INDEX
Exhibit No. Description ------- -----------------------------------------------------------------
3.1 Restated Articles of Incorporation. Previously filed with the Securities and Exchange Commission as an exhibit to Registration Statement No. 33-33767 and incorporated herein by reference.
3.2 Restated Bylaws. Previously filed with the Securities and Exchange Commission as an exhibit to Registrant's Annual Report on Form 10-K for the year ended December 31, 1990 and incorporated herein by reference.
4.1 Shareholders Rights Plan. Previously filed with the Securities and Exchange Commission as an exhibit to Registrant's Annual Report on Form 10-K for the year ended December 31, 1990 and incorporated herein by reference.
10.1 Form of Indemnity Agreements between the Company and its directors and certain officers. Previously filed with the Securities and Exchange Commission as an exhibit to Registration Statement No. 33-33767 and incorporated herein by reference.
10.2 Employee Stock Ownership Plan and Trust of the Company and First Amendment thereto. Previously filed with the Securities and Exchange Commission as an exhibit to Registration Statement No. 33-33767 and incorporated herein by reference.
10.3 Dividend Reinvestment Plan of the Company. Previously filed with the Securities and Exchange Commission as an exhibit to Registration Statement No. 33-33767 and incorporated herein by reference.
10.4 Second Amendment to the Cathay Bank Employee Stock Ownership Plan and Trust. Previously filed with the Securities and Exchange Commission as an exhibit to Registrant's Annual Report on Form 10-K for the year ended December 31, 1991 and incorporated herein by reference.
10.5 Third Amendment to the Cathay Bank Employee Stock Ownership Plan and Trust. Previously filed with the Securities and Exchange Commission as an exhibit to Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 and incorporated herein by reference.
10.6 Fourth Amendment to the Cathay Bank Employee Stock Ownership Plan and Trust. Previously filed with the Securities and Exchange Commission as an exhibit to Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 and incorporated herein by reference.
10.7 Fifth Amendment to the Cathay Bank Employee Stock Ownership Plan and Trust. Previously filed with the Securities and Exchange Commission as an exhibit to Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 and incorporated herein by reference.
10.8 Sixth Amendment to the Cathay Bank Employee Stock Ownership Plan and Trust. Previously filed with the Securities and Exchange Commission as an exhibit to Registrant's Annual Report on Form 10-K for the year ended December 31, 1991 and incorporated herein by reference.
10.9 Seventh Amendment to the Cathay Bank Employee Stock Ownership Plan and Trust. Previously filed with the Securities and Exchange Commission as an exhibit to Registrant's Annual Report on Form 10-K for the year ended December 31, 1991 and incorporated herein by reference.
10.10 Eighth Amendment to the Cathay Bank Employee Stock Ownership Plan and Trust. Previously filed with the Securities and Exchange Commission as an exhibit to Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 and incorporated herein by reference.
13.1 Certain portions of the Registrant's 1996 Annual Report to Stockholders incorporated herein by reference.
22.1 Subsidiaries of the Company
27 Financial Data Schedule


Item 1. Business.
Formation
WestMed Venture Partners 2, L.P. (the "Partnership" or the "Registrant") is a Delaware limited partnership organized in April 1988. In July 1988, the Partnership elected to operate as a business development company under the Investment Company Act of 1940, as amended (the "1940 Act"). The Partnership's investment objective is to achieve long-term capital appreciation from its portfolio of venture capital investments, consisting of companies engaged in the health-care industry. The Partnership considers this activity to constitute the single industry segment of venture capital investing.
The general partners of the Partnership consist of two individuals (the "Independent General Partners") and WestMed Venture Management 2, L.P., a Delaware limited partnership (the "Managing General Partner"). The general partner of the Managing General Partner is Medical Venture Holdings, Inc. ("MVH"), a Delaware corporation and an affiliate of Oppenheimer & Co., Inc. ("Opco").
The Partnership publicly offered 60,000 units of limited partnership interest (the "Units") at $500 per Unit. The Units were registered under the Securities Act of 1933, as amended, pursuant to a Registration Statement on Form N-2 (File No. 33-21281) which was declared effective on August 5, 1988. The Partnership held its initial and final closings on September 1, 1988 and October 1, 1989, respectively, and terminated the offering on February 15, 1990. As a result of the public offering, the Partnership accepted subscriptions for a total of 38,727 Units. Gross capital contributions to the Partnership in connection therewith totaled $19,559,091; $19,363,500 from the limited partners (the "Limited Partners" and collectively with the Managing General Partner, the "Partners") and $195,591 from the Managing General Partner.
The Venture Capital Investments
From its inception through December 31, 1996, the Partnership had invested $15.4 million in ten portfolio companies (including venture capital fees and other acquisition costs totaling $981,000). At December 31, 1996, the Partnership's investment portfolio consisted of eight active investments with a cost of $9.1 million and a fair value of $6.6 million. From its inception through December 31, 1996, the Partnership had liquidated investments with an aggregate cost of $6.3 million. These liquidated investments returned $2.2 million to the Partnership resulting in a cumulative net realized loss of $4.0 million. At December 31, 1996, the Partnership had a cumulative net loss from its venture capital investments totaling $3.8 million, including $241,000 of cumulative interest and other income from portfolio investments. During the year ended December 31, 1996, the Partnership invested $1.2 million in two existing portfolio companies and wrote-off $1.0 million of the cost of an additional portfolio investment. The venture capital investments made during 1996 and other events affecting the Partnership's portfolio investments are listed below.
During 1996, the Partnership made follow-on investments in Hepatix, Inc. totaling $1,159,481, including venture capital fees totaling $66,195. Also during 1996, in connection with a financial restructuring of Hepatix, the Partnership wrote-off the cost of the old common stock and common stock warrants of Hepatix previously held, realizing a loss of $1,025,168.
In May 1996, IVF America, Inc. changed its name to Integramed America, Inc. In July 1996, the Partnership's warrant to purchase 18,340 common shares of Integramed America, Inc. expired unexercised.
In September 1996, the Partnership completed a $42,399 follow-on investment in Sennes Drug Innovations, Inc., including venture capital fees totaling $2,423, acquiring a 10% promissory note due 10/7/97.
Competition
The Partnership encounters competition from other entities having similar investment objectives. Primary competition for venture capital investments has been from venture capital partnerships, venture capital affiliates of large industrial and financial companies, small business investment companies and wealthy individuals. Competition has also been from foreign investors and from large industrial and financial companies investing directly rather than through venture capital affiliates. The Partnership has frequently been a co-investor with other professional venture capital groups and these relationships have expanded the Partnership's access to investment opportunities.
Employees
The Partnership has no employees. The Managing General Partner, subject to the supervision of the Independent General Partners, manages and controls the Partnership's venture capital investments. The Managing General Partner performs, or arranges for others to perform, the management and administrative services necessary for the operation of the Partnership and is responsible for managing the Partnership's short-term investments.
Item 2.

Item 2. Properties.
The Partnership does not own or lease physical properties.
Item 3.

Item 3. Legal Proceedings.
The Partnership is not a party to any material pending legal proceedings.
Item 4.

Item 4. Submission of Matters to a Vote of Security Holders.
A Special Meeting of Limited Partners was held on June 21, 1996 with respect to 1) a proposal to allow the Managing General Partner to retain the services of a Sub-Manager to assist the Managing General Partner in the performance of its duties to the Partnership and 2) a proposal to amend the Partnership Agreement to reduce the minimum number of Individual General Partners from three to two. At the meeting, both such proposals were approved.
PART II
Item 5.

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
There is no established public trading market for the Partnership's Units and it is not anticipated that any public market for the Units will develop. The approximate number of individual holders of Units at December 31, 1996 was 4,000.
In November 1996, the General Partners approved a cash distribution to Partners totaling $3.0 million. The distribution was paid on January 31, 1997 to Limited Partners of record on December 31, 1996. The Partnership did not make any cash distributions to Partners during the years ended December 31, 1995 and 1994. Cumulative cash distributions paid, or accrued, to Partners from inception through December 31, 1996 totaled $3,289,717; $3,256,820 to the Limited Partners, or approximately $84.00 per Unit, and $32,897 to the Managing General Partner.
Pursuant to the Partnership's agreement of limited partnership, as amended (the "Partnership Agreement"), the Partnership's net income and net realized gains from all sources are allocated to all Partners, in proportion to their capital contributions, until all Partners have been allocated an amount equal to 6% per annum, simple interest, on their total Adjusted Invested Capital; i.e., original capital contributions reduced by previous distributions (the "Priority Return"). Thereafter, net income and net realized gains from venture capital investments in excess of the amount used to cover the Priority Return are allocated 20% to the Managing General Partner and 80% to all Partners in proportion to their capital contributions. Any net income from non-venture capital investments in excess of the amount used to cover the Priority Return is allocated to all Partners in proportion to their capital contributions. Realized losses are allocated to all Partners in proportion to their capital contributions, provided that, if realized gains had been previously allocated in the 80-20 ratio discussed above, then losses are allocated in the reverse order in which profits were allocated.
Item 6.

Item 6. Selected Financial Data.
($ In Thousands, Except For Per Unit Information)
* Limited Partners were admitted to the Partnership in 12 separate closings from October 1, 1988 to October 1, 1989. Per Unit amounts shown above are based on average allocations to all Limited Partners and do not reflect specific Limited Partner allocations, which are determined by the original closing date associated with the Units held by each Limited Partner.
Item 7.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Liquidity and Capital Resources During the year ended December 31, 1996, the Partnership invested $1.2 million (including venture capital fees totaling $69,000) in two existing portfolio companies. From its inception through December 31, 1996, the Partnership had invested an aggregate of $15.4 million in ten portfolio companies (including acquisition costs and venture capital fees totaling $981,000). At December 31, 1996, the Partnership had invested approximately 89% of its original $17.3 million of net proceeds received from the offering of Units.
At December 31, 1996, the Partnership held $4.9 million in cash and short-term investments; $4.5 million in short-term securities with maturities of less than three months and $394,000 in an interest-bearing cash account. Such investments provide the Partnership with the liquidity necessary to make investments in venture situations as opportunities for investment arise. The Partnership earned interest totaling $283,000, $375,000, and $288,000 from such investments for the years ended December 31, 1996, 1995 and 1994, respectively. Interest earned from short-term investments in future periods is subject to fluctuations in short-term interest rates and changes in funds available for investment. It is anticipated that funds needed to cover the Partnership's future investments and operating expenses will be obtained from existing cash reserves, interest earned from its short-term securities and proceeds from the sale of portfolio investments.
On November 12, 1996, the General Partners approved a cash distribution to Partners totaling $3,012,100. The distribution was paid on January 31, 1997 to Limited Partners of record on December 31, 1996.
Results of Operations
Investment Income and Expenses - For the years ended December 31, 1996, 1995 and 1994, the Partnership had a net investment loss (investment income less operating expenses) of $190,000, $63,000 and $88,000, respectively.
The increased net investment loss for 1996 compared to 1995 includes a $92,000 decrease in interest earned from short-term investments and a $21,000 decrease in income from portfolio investments. The reduction in interest earned from short-term investments primarily resulted from reduced interest rates and a decrease in funds available for investment in such securities during 1996. The decrease in interest from portfolio investments primarily was due to a reversal during 1996 of accrued interest relating to promissory notes due from Hepatix, Inc. Also contributing to the increase in net investment loss for 1996 compared to 1995 was a $42,000 increase in professional fees, primarily due to increased legal fees relating to the preparation of a proxy statement in connection with the Special Meeting of Limited Partners held on June 21, 1996. Partially offsetting the increase in legal fees was a $35,000 reduction of the management fee, as discussed below.
The reduced net investment loss for 1995 compared to 1994 was the result of a $99,000 increase in investment income, primarily resulting from an $87,000 increase in interest earned from short-term investments during 1995, partially offset by a $73,000 increase in operating expenses. The increase in interest earned from short-term investments was the result of an increase in short-term interest rates during 1995 as compared to 1994. The increase in operating expenses for 1995 compared to 1994 included increases in insurance expense of $34,000, mailing and printing expense of $23,000 and professional fees of $27,000. The Partnership initiated directors and officers liability insurance coverage for its Independent General Partners, beginning in August 1994, increasing insurance expense for 1995 compared to 1994. The increases to mailing and printing expense and professional fees primarily resulted from corrections to prior year accruals. These increases in operating expense for 1995 were partially offset by a $12,000 reduction in the management fee, as discussed below.
Pursuant to a management agreement between the Partnership and the Managing General Partner, the Managing General Partner is responsible for the management, administrative and certain investment advisory services necessary for the operation of the Partnership. For such services, the Managing General Partner receives a management fee at the annual rate of 2% of the lesser of (1) the net assets of the Partnership or (2) the net contributed capital of the Partnership; i.e., gross capital contributions to the Partnership, net of selling commissions and organizational expenses, reduced by capital distributed. Such fee is determined and paid quarterly. For the years ended December 31, 1996, 1995 and 1994 the management fee was $225,000, $260,000 and $272,000, respectively. The decrease in the management fee for the respective periods was due to a decrease in the net assets of the Partnership during each respective period. To the extent possible, the management fee and other operating expenses are paid with funds provided from operations. Funds provided from operations are obtained from interest received from short-term investments, interest and dividend income from portfolio investments and proceeds from the sale of portfolio investments.
Realized Gains and Losses from Portfolio Investments - For the year ended December 31, 1996, the Partnership had a $1 million net realized loss from its portfolio investments. In September 1996, Hepatix, Inc. completed a post-bankruptcy financing and recapitalization, resulting in the write-off of the Partnership's $1,025,000 investment in the company's old common stock.
For the year ended December 31, 1995, the Partnership had a $91,000 realized loss from its portfolio investments, resulting from the write-off of acquisition costs and venture capital fees relating to its investment in Hepatix.
There were no realized gains or losses from portfolio investments for the year ended December 31, 1994.
Unrealized Gains and Losses and Changes in Unrealized Appreciation or Depreciation of Portfolio Investments - For the year ended December 31, 1996, the Partnership had a $666,000 net unrealized loss, resulting from the net downward revaluation of its portfolio investments. Additionally, $1,025,000 was transferred to realized loss due to the partial write-off of the Partnership's investment in the common stock of Hepatix, as discussed above. The $1,025,000 transfer to realized loss, partially offset by the $666,000 additional unrealized loss, resulted in a $359,000 increase in net unrealized appreciation of investments for 1996.
For the year ended December 31, 1995 the Partnership had an $800,000 net unrealized loss from its portfolio investments resulting from a $1.5 million downward revaluation of Hepatix, which was partially offset by a $712,000 net upward revaluation of the Partnership's publicly-held securities. As a result, net unrealized appreciation of investments declined by $800,000 for 1995.
For the year ended December 31, 1994, the Partnership had a net unrealized loss from its portfolio investments of $198,000, resulting from the net downward revaluation of its portfolio investments during 1994.
Net Assets - For the year ended December 31, 1996, the Partnership had an $856,000 net decrease in net assets from operations, comprised of the net investment loss of $190,000 and the net realized loss from portfolio investments of $1,025,000. These losses were offset by the $359,000 increase in net unrealized appreciation of investments for 1996. The Partnership's net assets were further reduced by the $3.0 million accrued cash distribution to Partners, which was approved in November 1996. As a result, the Partnership's net assets were $8.3 million at December 31, 1996, down from $12.2 million at December 31, 1995.
The Partnership had a $953,000 decrease in net assets from operations for the year ended December 31, 1995, resulting from the $63,000 net investment loss, the $91,000 net realized loss from portfolio investment and the $800,000 reduction to net unrealized appreciation of investments for 1995. There were no cash distributions paid or accrued during 1995.
For the year ended December 31, 1994, the Partnership had a $286,000 net decrease in net assets from operations, comprised of the $88,000 net investment loss and the $198,000 net decrease in net unrealized appreciation of investments for 1994. There were no cash distributions paid or accrued during 1994.
The net asset value per $500 Unit, including an allocation of the net unrealized depreciation of investments, at December 31, 1996, 1995 and 1994 was $213, $312 and $336, respectively. Such per Unit amounts are based on average allocations to all Limited Partners and do not reflect specific Limited Partner allocations, which are determined by the original closing date associated with the Units held by each Limited Partner.
Summary of Changes to Net Assets for the Year Ended December 31, 1996
The write-off of a portion of the Partnership's investment in Hepatix, Inc. during 1996, resulted in a realized loss of $1,025,168. As shown below, due to reserves taken in prior periods, this write-off reduced the Partnership's net asset value for 1996 by $512,584. This decrease was further reduced by the downward revaluation of the Partnership's remaining portfolio investments during 1996, as shown below. The completed portfolio transactions and revaluations reduced the Partnership's net asset value on a net basis by $666,293 for 1996. The Partnership's net assets were further reduced by the $190,079 net investment loss for 1996.
(1) Adjusted for follow-on investments made during 1996.
Item 8.

Item 8. Financial Statements and Supplementary Data.
WESTMED VENTURE PARTNERS 2, L.P. INDEX
Independent Auditors' Report
Balance Sheets as of December 31, 1996 and 1995
Schedule of Portfolio Investments as of December 31, 1996
Schedule of Portfolio Investments as of December 31, 1995
Statements of Operations for the years ended December 31, 1996, 1995 and 1994
Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994
Statements of Changes in Partners' Capital for the years ended December 31, 1994, 1995 and 1996
Notes to Financial Statements
NOTE - All other schedules are omitted because of the absence of conditions under which they are required or because the required information is included in the financial statements or the notes thereto.
INDEPENDENT AUDITORS' REPORT
WestMed Venture Partners 2, L.P.:
We have audited the accompanying balance sheets of WestMed Venture Partners 2, L.P. (the "Partnership"), including the schedules of portfolio investments, as of December 31, 1996 and 1995, and the related statements of operations, cash flows, and changes in partners' capital for each of the three years in the period ended December 31, 1996. 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 audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned at December 31, 1996 and 1995 by correspondence with the custodian; where confirmation was not possible, we performed other audit procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material respects, the financial position of WestMed Venture Partners 2, L.P. at December 31, 1996 and 1995, and the results of its operations, its cash flows and the changes in its partners' capital for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles.
As explained in Note 2, the financial statements include securities valued at $3,317,907 and $6,050,203 at December 31, 1996 and 1995, respectively, representing 40% and 50% of net assets, respectively, whose values have been estimated by the Managing General Partner in the absence of readily ascertainable market values. We have reviewed the procedures used by the Managing General Partner in arriving at its estimate of value of such securities and have inspected underlying documentation, and, in the circumstances, we believe the procedures are reasonable and the documentation appropriate. However, because of the inherent uncertainty of valuation, those estimated values may differ significantly from the values that would have been used had a ready market for the securities existed, and the differences could be material.
Deloitte & Touche LLP
New York, New York February 20, 1997
WESTMED VENTURE PARTNERS 2, L.P. BALANCE SHEETS December 31,
LIABILITIES AND PARTNERS' CAPITAL
See notes to financial statements.
WESTMED VENTURE PARTNERS 2, L.P. SCHEDULE OF PORTFOLIO INVESTMENTS December 31, 1996
Active Portfolio Investments:
WESTMED VENTURE PARTNERS 2, L.P. SCHEDULE OF PORTFOLIO INVESTMENTS - continued December 31, 1996
SUPPLEMENTAL INFORMATION: LIQUIDATED PORTFOLIO INVESTMENTS(E)
(A) Public company
(B) In February 1996, the Partnership made a $93,286 follow-on investment in Hepatix, Inc., acquiring a 10% convertible note and a warrant to purchase 186,572 shares of common stock at $.01 per share. In June 1996, the Partnership made an additional $29,572 follow-on investment in Hepatix, acquiring a 10% promissory note. The Partnership paid the Managing General Partner venture capital fees totaling $7,445 relating to these investments. In September 1996, in connection with a financial restructuring of Hepatix, the Partnership invested an additional $969,478 and exchanged its $491,986 convertible notes, its $29,572 promissory note, and accrued interest of $950 for 1,484,123 shares of the company's preferred stock. The Partnership paid the Managing General Partner $58,750 in venture capital fees relating to this additional investment in Hepatix. Additionally, the Partnership wrote- off the cost of its common stock and common stock warrants of Hepatix previously held, realizing a loss of $1,025,168.
(C) In May 1996, IVF America, Inc. changed its name to Integramed America, Inc. In July 1996, the Partnership's warrant to purchase 18,340 common shares of Integramed America, Inc. expired unexercised.
(D) In September 1996, the Partnership completed a $39,976 follow-on investment in Sennes Drug Innovations, Inc., acquiring a 10% promissory note due 10/7/97. The Partnership paid the Managing General Partner $2,423 in venture capital fees relating to this investment.
(E) Amounts provided for "Supplemental Information: Liquidated Portfolio Investments" are cumulative from inception through December 31, 1996.
* May be deemed an affiliated person of the Partnership as defined in the Investment Company Act of 1940.
See notes to financial statements.
WESTMED VENTURE PARTNERS 2, L.P. SCHEDULE OF PORTFOLIO INVESTMENTS December 31, 1995
(A) Public company
* May be deemed an affiliated person of the Partnership as defined in the Investment Company Act of 1940.
See notes to financial statements.
WESTMED VENTURE PARTNERS 2, L.P. STATEMENTS OF OPERATIONS For the Years Ended December 31,
See notes to financial statements.
WESTMED VENTURE PARTNERS 2, L.P. STATEMENTS OF CASH FLOWS For the Years Ended December 31,
See notes to financial statements.
WESTMED VENTURE PARTNERS 2, L.P. STATEMENTS OF CHANGES IN PARTNERS' CAPITAL For the Years Ended December 31, 1994, 1995 and 1996
(A) The net asset value per unit of limited partnership interest, including an allocation of net unrealized depreciation of investments, is $213, $312 and $336 at December 31, 1996, 1995 and 1994, respectively. Such per Unit amounts are based on average allocations to all limited partners and do not reflect specific limited partner allocations, which are determined by the original closing date associated with the units of limited partnership interest held by each limited partner.
See notes to financial statements.
WESTMED VENTURE PARTNERS 2, L.P. NOTES TO FINANCIAL STATEMENTS
1. Organization and Purpose
WestMed Venture Partners 2, L.P. (the "Partnership") was formed under Delaware law in April 1988. The Partnership operates as a business development company under the Investment Company Act of 1940, as amended. The Partnership is a closed-end partnership and accordingly its units of limited partnership interest ("Units") are not redeemable by the Partnership. A total of 38,727 Units were sold to limited partners ("Limited Partners" and together with the Managing General Partner (as hereinafter defined), the "Partners") at $500 per Unit.
The general partners of the Partnership include two individuals (the "Independent General Partners") and the managing general partner, WestMed Venture Management 2, L.P., a Delaware limited partnership (the "Managing General Partner" and collectively with the Independent General Partners, the "General Partners"). The general partner of the Managing General Partner is Medical Venture Holdings, Inc., a Delaware corporation affiliated with Oppenheimer & Co., Inc. ("Opco"). The limited partners of the Managing General Partner are Oppenheimer Holdings, Inc., MVP Holdings, Inc. and BSW, Inc., a Delaware corporation owned by John A. Balkoski, Philippe L. Sommer and Howard S. Wachtler. Alsacia Venture Management, Inc. (the "Sub-Manager"), a corporation controlled by Philippe L. Sommer, is the sub-manager of the Partnership pursuant to a sub-management agreement among the Partnership, the Managing General Partner and the Sub-Manager. The Sub-Manager has been retained by the Managing General Partner to assist the Managing General Partner in the performance of its duties to the Partnership.
Opco, a member firm of the New York Stock Exchange, the National Association of Securities Dealers, Inc., and all principal United States securities exchanges, is a diversified investment banking and securities firm and registered investment advisor, providing a broad range of services to individual, corporate, and institutional clients. Opco operates in the capacity of broker and dealer for its customers, as well as trader for its own account. The services provided by Opco and its subsidiaries, and the activities in which it is engaged, include securities brokerage, securities research, customer financing, securities trading, corporate finance, mergers and acquisitions, underwriting and investment advisory services.
The Partnership's objective is to achieve long-term capital appreciation from its portfolio of venture capital investments, consisting of companies engaged in the health care industry. The Partnership is scheduled to terminate on December 31, 1998. However, the General Partners can extend the term for up to two additional two-year periods, if they determine that such extensions are in the best interest of the Partnership.
2. Summary of Significant Accounting Policies
Valuation of Investments - Portfolio investments are carried at fair value as determined quarterly by the Managing General Partner under the supervision of the Independent General Partners. The fair value of publicly-held portfolio securities is adjusted to the closing public market price for the last trading day of the accounting period discounted for sales restrictions. Factors considered in the determination of an appropriate
WESTMED VENTURE PARTNERS 2, L.P. NOTES TO FINANCIAL STATEMENTS
discount include, underwriter lock-up or Rule 144 trading restrictions, insider status where the Partnership either has a representative serving on the board of directors of the portfolio company under consideration or is greater than a 5% shareholder thereof, and other liquidity factors such as the size of the Partnership's position in a given company compared to the trading history of the public security. Privately-held portfolio securities are carried at cost until significant developments affecting the portfolio company provide a basis for change in valuation. The fair value of private securities is adjusted (i) to reflect meaningful third-party transactions in the private market and (ii) to reflect significant progress or slippage in the development of the company's business such that cost is no longer reflective of fair value. As a venture capital investment fund, the Partnership's portfolio investments involve a high degree of business and financial risk that can result in substantial losses. The Managing General Partner considers such risks in determining the fair value of the Partnership's portfolio investments.
Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles 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 revenues and expenses during the reporting period. Actual results could differ from those estimates.
Investment Transactions - Investment transactions are recorded on the accrual method. For portfolio investments, transactions are recorded on the date which the Partnership obtains an enforceable right to demand the securities or payment thereof. Realized gains and losses on investments sold are computed on a specific identification basis.
Statements of Cash Flows - Cash and cash equivalents include short-term interest-bearing investments in commercial paper and other money market investments. The Partnership considers its interest-bearing cash account to be cash equivalents.
Income Taxes - No provision for income taxes has been made since all income and losses are allocable to the Partners for inclusion in their respective tax returns. The Partnership's net assets for financial reporting purposes differ from its net assets for tax purposes. Net unrealized depreciation of $2.6 million at December 31, 1996, which was recorded for financial statement purposes, was not recognized for tax purposes. Additionally, from inception to December 31, 1996, other timing differences totaling $2.2 million, primarily relating to original sales commissions paid and other costs of selling the Units, have been recorded on the Partnership's financial statements but have not yet been deducted for tax purposes.
WESTMED VENTURE PARTNERS 2, L.P. NOTES TO FINANCIAL STATEMENTS
3. Allocations of Partnership Profits and Losses
Pursuant to the Partnership's agreement of limited partnership, as amended (the "Partnership Agreement"), the Partnership's net income and net realized gains from all sources are allocated to all Partners, in proportion to their capital contributions, until all Partners have been allocated an amount (the "Priority Return") equal to 6% per annum, simple interest, on their total Adjusted Invested Capital; i.e., original capital contributions reduced by previous distributions. Thereafter, net income and net realized gains from venture capital investments in excess of the amount used to cover the Priority Return are allocated 20% to the Managing General Partner and 80% to all Partners in proportion to their capital contributions. Any net income from non-venture capital investments in excess of the amount used to cover the Priority Return is allocated to all Partners in proportion to their capital contributions. Realized losses are allocated to all Partners in proportion to their capital contributions. However, if realized gains had been previously allocated in the 80-20 ratio, then losses are allocated in the reverse order in which profits were allocated. From its inception to December 31, 1996, the Partnership had a $3.8 million net loss from its venture capital investments, including $241,000 of interest and other income from portfolio investments.
4. Related Party Transactions
Pursuant to the Partnership Agreement, the Managing General Partner is entitled to receive a one-time venture capital fee equal to 5% of the gross proceeds from the sale of Units. Such fee is incurred as portfolio investments are made in the proportion of the cost of each portfolio investment to the net proceeds from the sale of Units. Venture capital fees incurred are recorded as a cost of acquiring the portfolio investment. The Partnership incurred venture capital fees of $68,618 for the year ended December 31, 1996. Cumulative venture capital fees incurred from inception to December 31, 1996 totaled $882,000.
Pursuant to a management agreement between the Partnership and the Managing General Partner, the Managing General Partner is responsible for the management, administrative and certain investment advisory services necessary for the operation of the Partnership. For such services, the Managing General Partner receives a management fee at the annual rate of 2% of the lesser of the net assets of the Partnership or the net contributed capital of the Partnership; i.e., gross capital contributions to the Partnership (net of selling commissions and organizational expenses) reduced by capital distributed. Such fee is determined and payable quarterly. The compensation of the Sub-Manager is paid directly by the Managing General Partner.
For services rendered to the Partnership, each of the two Independent General Partners receives a $5,000 annual fee and reimbursement for all out-of-pocket expenses relating to attendance at meetings of the General Partners.
WESTMED VENTURE PARTNERS 2, L.P. NOTES TO FINANCIAL STATEMENTS
5. Subsequent Event - Cash Distribution
On November 12, 1996, the General Partners approved a cash distribution to Partners totaling $3,012,100. The distribution was paid on January 31, 1997 to Limited Partners of record on December 31, 1996. Limited Partners received $2,981,979, or $77 per Unit, and the General Partner received $30,121.
6. Classification of Investments
As of December 31, 1996, the Partnership's investments were categorized as follows:
* Percentage of net assets is based on fair value.
Item 9.

Item 9. Disagreements on Accounting and Financial Disclosure.
None.
PART III
Item 10.

Item 10. Directors and Executive Officers.
The Independent General Partners
The Independent General Partners have full authority over the management of the Partnership and provide overall guidance and supervision with respect to the operations of the Partnership and perform the various duties imposed on the general partners of business development companies under the 1940 Act. In addition to general fiduciary duties, the Independent General Partners, among other things, supervise the management arrangements of the Partnership, the custody arrangement with respect to portfolio securities, the selection of accountants, fidelity bonding and the activities of the Managing General Partner. As required by the 1940 Act, a majority of the general partners must be individuals who are not "interested persons" of the Partnership as defined in the 1940 Act. In 1987, the Securities and Exchange Commission issued an exemptive order declaring that Messrs. Elliott and White, the two Independent General Partners of the Partnership, are not "interested persons" of the Partnership as defined in the 1940 Act solely by reason of their being general partners of the Partnership. Such individuals also comprise the Audit Committee of the Partnership.
Presented below is information concerning the Independent General Partners of the Partnership as of March 21, 1997:
Thomas E. White, Age 63, Independent General Partner since 1987 485 Madison Avenue New York, New York 10022 Mr. White is an attorney in private practice in New York City. He is also an independent general partner of WestMed Venture Partners, L.P. ("WVP"). From 1974 to 1983, Mr. White was Senior Vice President and Director of Howmedica, Inc. with responsibility for various health-care operations in the United States, Europe and Latin America.
Robert A. Elliott, Age 57, Independent General Partner since 1987 Elliott Investment Co. 5000 Birch Street, Suite 6200 Newport Beach, California 92660 Mr. Elliott, currently a private investor, was the Chairman and Chief Executive Officer of VLI Corporation ("VLI") from 1983 to 1987. Mr. Elliott is also an independent general partner of WVP, a member of the Board of Trustees of Chapman University and a member of the Board of Directors of two privately-held medical device companies. He is a former Director of the Health Industries Manufacturers Association. From 1979 until 1983, Mr. Elliott was Vice President and Director of Howmedica, Inc. with responsibility for the Medical Specialty Products Division, including domestic and international manufacturing and distribution.
The Managing General Partner
The Managing General Partner, subject to the supervision of the Independent General Partners, has exclusive power and authority to manage and control the Partnership's venture capital investments. Subject to the supervision of the Independent General Partners, the Managing General Partner is authorized to make all decisions regarding the Partnership's venture capital investment portfolio, including, among other things, to find, evaluate, structure, monitor and liquidate such investments and to provide, or arrange for the provision of, managerial assistance to the portfolio companies in which the Partnership invests.
The general partner of the Managing General Partner is MVH, a Delaware corporation affiliated with Opco. The limited partners of the Managing General Partner are (i) Oppenheimer Holdings, Inc. ("OHI"), a Delaware corporation and the parent of Opco, (ii) MVP Holdings, Inc. ("MVP"), a Delaware corporation, and (iii) BSW, Inc. ("BSW"), a Delaware corporation wholly-owned by John A. Balkoski, Philippe L. Sommer and Howard S. Wachtler, the individuals originally responsible for the Partnership's venture capital investments.
In June 1996, the Managing General Partner engaged Alsacia Venture Management, Inc. (the "Sub-Manager") to assist the Managing General Partner in the performance of its duties to the Partnership. The Sub-Manager is controlled by Philippe L. Sommer. The compensation of the Sub-Manager is paid directly by the Managing General Partner. No additional management fees will be incurred by the Partnership as a result of the Managing General Partner's relationship with the Sub-Manager.
Presented below is information as of March 21, 1997 concerning the directors and officers of MVH that are principally involved with the operations of the Partnership. Mr. McGrath has been a director and/or officer of MVH since June 1990. Mr. Rothstein and Ms. Fusco have been officers of MVH since April 1996 and June 1996, respectively. The address of each such person is Oppenheimer Tower, World Financial Center, New York, New York 10281.
Stephen M. McGrath, Sr., Age 61, Vice President and Director Mr. McGrath has been Executive Vice President of Opco and director of its Investment Banking Group since July 1985. He also served as President of Oppenheimer Strategic Investments, Inc. between May 1983 and April 1985. Mr. McGrath was Senior Vice President of Planning and Development at Warner- Lambert until 1985 and has been a director of Alliance Pharmaceutical Corp. since June 1989. He also serves as an executive officer and director of certain current and/or former affiliates of Opco.
Gerald A. Rothstein, Age 54, Vice President Mr. Rothstein has been a Manageing Director of Opco since 1983. He is primarily responsible for the creation of Opco's international research department and focuses upon the emerging markets of Latin America and India. Mr. Rothstein has served on Opco's Management Committee since 1983 and is also a member of Opco's Commitment and Due Diligence committees.
Ann O. Fusco, Age 42, Vice President Ms. Fusco has been Vice President of Oppenheimer Properties, Inc. since July 1986 and has been employed by Oppenheimer & Co., Inc. since April 1984. In June 1996 Ms. Fusco became Vice President of MVH. Ms. Fusco is a Certified Public Accountant in the state of New York.
There are no family relationships among any of the Independent General Partners and the officers and directors of MVH or the Sub-Manager. MVH is owned 100% by OHI.
The Sub-Manager is wholly-owned by Philippe L. Sommer. Presented below is information concerning Mr. Sommer as of March 27, 1997.
Philippe L. Sommer, Age 45, Executive Vice President and Managing Director Mr. Sommer is a Managing Director of BSW and a member of the Board of Directors of BSW, one portfolio company of the Partnership and two portfolio companies of WVP. He has been involved in health-care industry management for the past 16 years. He was a Managing Director of MVP from April 1987 to June 1990. From January 1982 to September 1986, he was a Director of Business Development for HPG and as such was responsible for directing HPG's merger and acquisition activities for medium to larger acquisitions and for the financial evaluation and valuation of all of HPG's acquisition, venture and licensing projects.
Opco, a member firm of the New York Stock Exchange, Inc., the National Association of Securities Dealers, Inc. and all principal U.S. securities exchanges, is a diversified investment banking and securities firm, providing a broad range of services to individual, corporate and institutional clients. Opco is registered as a broker-dealer and investment adviser with the Commission, and also is registered as a broker-dealer in all of the states of the United States and with the Securities Association in the United Kingdom and with the Commodity Futures Trading Commission as a futures commission merchant. Opco operates in the capacity of broker and dealer for its customers, as well as trader for its own account.
The services provided by Opco and its subsidiaries, and the activities in which it is engaged, include investment banking, securities brokerage, securities research, customer financing, securities trading and arbitrage, corporate finance, real estate financing and investment advisory services. Opco's investment banking activities include an active engagement in the health-care area. Opco provides public equity and debt financing to clients in the biotechnology, instrumentation and pharmaceutical products and services sectors in the health-care field. Opco also provides private financing, and merger, acquisition and divestiture assistance to health-care companies. Opco's Health-care Investment Banking Group is supported by Opco's securities research team which reports on public companies in the human health-care sector.
Item 11.

Item 11. Executive Compensation.
Each Independent General Partner receives an annual fee from the Partnership of $5,000 together with all out-of-pocket expenses relating to attendance at meetings of the General Partners. During 1996, Thomas White, an Independent General Partner of the Partnership, received an $11,600 payment from the Partnership relating to legal services in connection with the Sub-Management Agreement.
For the years ended December 31, 1996, 1995 and 1994, the Managing General Partner was allocated $9,000, $10,000 and $3,000 of the Partnership's net decrease in net assets from operations for each of the respective periods.
The description of the allocation and distribution of the Partnership's profits and losses to the Managing General Partner set forth in Item 5. Market for Registrant's common Equity and Related Stockholder Matters is incorporated herein by reference.
Pursuant to the Management Agreement, the Managing General Partner performs, or arranges for others to perform, the management, administrative and certain investment advisory services necessary for the operation of the Partnership. For such services, the Managing General Partner receives a management fee at the annual rate of 2% of the lesser of the net assets of the Partnership or the net contributed capital of the Partnership; i.e., gross capital contributions to the Partnership (net of selling commissions and organizational expenses) reduced by capital distributed. Such fee is determined and payable quarterly. For the years ended December 31, 1996, 1995 and 1994, the Managing General Partner received management fees of $225,000, $260,000 and $272,000 respectively.
In June 1996, the Managing General Partner engaged Alsacia Venture Management, Inc. (the "Sub-Manager") to assist the Managing General Partner in the performance of its duties to the Partnership. The Sub-Manager is controlled by Philippe L. Sommer. The compensation of the Sub-Manager is paid directly by the Managing General Partner. No additional management fees will be incurred by the Partnership as a result of the Managing General Partner's relationship with the Sub-Manager.
Pursuant to the Partnership Agreement, the Managing General Partner is entitled to receive a one-time venture capital fee equal to 5% of the gross proceeds from the sale of Units. Such fee is incurred as portfolio investments are made in the proportion of the cost of each portfolio investment to the net proceeds from the sale of Units. Venture capital fees incurred are recorded as a cost of acquiring the portfolio investments. For the years ended December 31, 1996, 1995 and 1994, the Managing General Partner received venture capital fees of $69,000, $39,000 and $79,000, respectively.
Item 12.

Item 12. Security Ownership of Certain Beneficial Owners and Management.
Security Ownership
As of March 21, 1997, no person or group is known by the Partnership to be the beneficial owner of more than 5% of the Units. The Independent General Partners and the directors, officers and employees of MVH and the Sub-Manager do not own any Units.
Item 13.

Item 13. Certain Relationships and Related Transactions.
The description of the management fee and the venture capital fee set forth in Item 11, Executive Compensation, is incorporated herein by reference.
The description of the allocation and distribution of the Partnership's profits and losses to the Managing General Partner set forth in Item 5. Market for Registrant's common Equity and Related Stockholder Matters is incorporated herein by reference.
PART IV
Item 14.

Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K.
(a) 1. Financial Statements.
Independent Auditors' Report
Balance Sheets as of December 31, 1996 and 1995
Schedule of Portfolio Investments as of December 31, 1996
Schedule of Portfolio Investments as of December 31, 1995
Statements of Operations for the years ended December 31, 1996, 1995 and 1994
Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994
Statements of Changes in Partners' Capital for the years ended December 31, 1994, 1995 and 1996
Notes to Financial Statements
2. Exhibits
3.1 Amended and Restated Certificates of Limited Partnership(3)
3.2 Amendment to Amended and Restated Certificate of Limited Partnership(3)
3.3 Partnership Agreement(1)
3.4 Amendment No. 1 to the Partnership Agreement(2)
4 Articles Five through Eleven of the Partnership Agreement(1)
10.1 Management Agreement between the Partnership and the Managing General Partner(2)
[?] Sub-Management agreement among the Partnership, the Managing General Partner and the Sub-Manager(4)
27 Financial Data Schedule
28.1 Custodian Agreement between the Partnership and Investors Fiduciary Trust Company(1)
(b) No reports on Form 8-K have been filed during the quarter for which this report is filed.
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(1) Filed as an exhibit to the Partnership's Registration Statement on Form N-2 (33-11926), and incorporated herein by reference.
(2) Filed as an exhibit to the Partnership's Report on Form 8-K dated July 10, 1990 and incorporated herein by reference.
(3) Filed as an exhibit to the Partnership's Report on Form 10-K for the year ended December 31, 1990.
(4) Filed as an exhibit to the Partnership's proxy statement dated May 17, 1996 and incorporated herein by reference.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 27th day of March 1997.
WESTMED VENTURE PARTNERS 2, L.P.
By: WestMed Venture Management 2, L.P., Managing General Partner
By: Medical Venture Holdings, Inc., General Partner
By: /s/ Stephen McGrath Stephen McGrath Executive Vice President
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated on the 27th day of March 1997.