1996
__________________________________
Special Situations Annual
Fund III, L.P. Report
<PAGE>
INDEPENDENT AUDITORS' REPORT
-----------------------------
TO THE PARTNERS OF
SPECIAL SITUATIONS FUND III, L.P.:
We have audited the accompanying statement of financial condition of
Special Situations Fund III, L.P., including the portfolio of investments, as
of December 31, 1996, and the related statement of operations for the year then
ended and the statement of changes in partners' capital for each of the two
years in the period 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 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 as of December 31, 1996,
by correspondence with the custodian and brokers. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Special Situations
Fund III, L.P. at December 31, 1996, the results of its operations for the year
then ended and the changes in its partners' capital for each of the two years
in the period then ended in conformity with generally accepted accounting
principles.
Anchin, Block & Anchin LLP
CERTIFIED PUBLIC ACCOUNTANTS
New York, New York
January 30, 1997
<PAGE>
SPECIAL SITUATIONS FUND III, L.P.
(A Limited Partnership)
STATEMENT OF FINANCIAL CONDITION
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS - NOTE 2
Investments, at value (cost $107,236,992) $ 138,851,648
Cash and cash equivalents 19,309,289
Receivable for investments sold 3,639,746
Other assets 69,558
--------------
Total Assets $ 161,870,241
--------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Payable for Units repurchased - Note 4 $ 10,144,326
Payable for investments purchased - Note 2 1,459,329
Securities sold short, at value (proceeds $7,033,582)-Note 11 6,171,189
Accrued expenses 91,240
Administrator's fee payable - Note 7 536,657
--------------
Total Liabilities $ 18,402,741
--------------
Partners' Capital - Note 1,3 and 4
Limited partners $ 134,152,825
Corporate general partner 5,279,461
Individual general partners 4,035,214
--------------
Total Partners' Capital $ 143,467,500
--------------
Total Liabilities and Partners' Capital $ 161,870,241
--------------
Net asset value per Limited Partners' Unit $ 25,000
--------------
</TABLE>
_____________________________________________________________________________
See the accompanying Notes to the Financial Statements.
1
<PAGE>
SPECIAL SITUATIONS FUND III, L.P.
(A Limited Partnership)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
Shares Common Stocks Value
- -------------------------------------------------------------------------------
589,600 Accom, Inc.(a) $ 1,031,800
42,351 Accuhealth, Inc. (Restricted) (a) 31,763
108,800 Accuhealth, Inc.(a) 81,600
179,000 Alteon Inc. 939,750
218,200 AMX Corporation 1,281,925
90,734 Applied Biometrics, Inc. 1,179,542
207,700 Arbatax International, Inc. 1,411,711
150,700 Asahi/America, Inc. 1,224,437
31,000 Aztec Manufacturing Co. 259,625
239,900 Bally Total Fitness Holding Corporation 1,904,206
502,580 Barringer Technologies, Inc. (a) 4,209,104
306,250 Biocircuits Corporation (a) 890,039
166,700 BioTransplant Incorporated 1,083,550
134,900 Blonder Tongue Laboratories, Inc. 1,180,375
150,000 Brilliant Digital Entertainment, Inc. 562,500
144,000 Brookstone, Inc. 1,512,000
176,300 Byron Preiss Multimedia Company, Inc.(a) 418,712
183,200 C*ATS Software, Inc. 801,500
106,800 California Micro Devices Corporation 607,425
107,000 Calyptic Biomedical Corporation 882,750
285,714 Cardiac Control Systems, Inc. (a) 428,571
14,325 Cardiac Control Systems, Inc. (Restricted)(a) 21,487
150,000 Castelle 862,500
193,600 Catalyst International, Inc. 895,400
60,000 CCA Industries, Inc. 138,750
127,551 Celerity Systems, Inc. 250,000
175,500 Ceradyne, Inc. 1,316,250
455,000 Check Technologies Corporation (a) 3,469,375
305,800 Chic By H.I.S., Inc. 1,452,550
220,200 Children's Broadcasting Corporation 1,018,425
256,300 Commander Aircraft 512,600
230,300 Community Care of America, Inc. 949,987
212,150 Concentra Corporation 1,909,350
2,200,000 Contempri Homes, Inc. 468,600
164,062 CPAC, Inc. 2,460,937
255,300 C.R. Anthony Company 1,499,887
110,900 Cubist Pharmaceuticals, Inc. 679,262
235,900 CytoTherapeutics, Inc. 2,123,100
38,775 Data Translation, Inc. 155,100
116,000 Duckwall-ALCO Stores, Inc. 1,653,000
199,200 Eagle Point Software Corporation 1,020,900
_______________________________________________________________________________
See the accompanying Notes to the Financial Statements.
2
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
Shares Common Stocks (Continued) Value
- -------------------------------------------------------------------------------
55,000 ECsoft Group plc 529,375
88,200 Edelbrock Corporation 1,411,200
323,700 Educational Insights, Inc. 728,325
211,800 Ellett Brothers, Inc. 1,059,000
335,500 EP MedSystems, Inc. 1,551,687
85,700 Exactech, Inc. 782,012
164,500 EZCORP, Inc. 1,048,687
288,240 Fourth Shift Corporation 1,657,380
36,800 Hi-Rise Recycling Systems, Inc. 142,600
123,700 Hooper Holmes, Inc. 2,149,287
117,600 Image Guided Technologies, Inc. 705,600
293,000 Intelligent Medical Imaging, Inc. 1,831,250
226,500 Intensiva Healthcare Corporation 2,548,125
172,900 IRIDEX Corporation 1,296,750
763,000 Jos. A. Bank Clothiers, Inc. (a) 3,290,437
988,800 Kurzweil Applied Intelligence, Inc. (a) 3,028,200
172,500 La Jolla Pharmaceutical Company 1,035,000
162,000 Lincoln Logs, Ltd.(a) 46,980
287,000 Little Switzerland, Inc. 1,309,437
186,000 Lunn Industries, Inc. 174,375
73,900 Maverick Tube Corporation 942,225
105,500 Medallion Financial Corporation 1,608,875
98,600 Media 100, Inc. 875,075
283,900 Medical Graphics Corporation (a) 1,490,475
375,000 Mednet International, Ltd. 1,867,500
455,000 MicroFrame, Inc.(a) 710,937
162,700 Mizar, Inc. 793,162
66,200 MLC Holdings, Inc. 628,900
79,000 Movado Group, Inc. 2,152,750
213,200 National Picture & Frame Company 2,132,000
111,000 NeoMedia Technologies, Inc. 624,375
125,000 Norland Medical Systems, Inc. 843,750
120,000 Northland Cranberries, Inc. 2,760,000
289,000 Oakhurst Capital, Inc.(a) 343,187
110,700 Odetics, Inc. 1,881,900
94,100 Open Plan Systems, Inc. 823,375
234,700 Osteotech, Inc. 1,642,900
250,000 PC Etcetera, Inc.(a) 490,000
50,000 PC Etcetera, Inc. (Restricted)(a) --
64,500 Penn Treaty American Corp. 1,677,000
125,000 Photon Dynamics, Inc. 953,125
215,000 Photran Corporation 806,250
231,000 Physiometrix, Inc. 808,500
64,000 Plasma & Materials Technologies, Inc. 752,000
______________________________________________________________________________
See the accompanying Notes to the Financial Statements.
3
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
Shares Common Stocks (Continued) Value
- -------------------------------------------------------------------------------
354,200 PowerCerv Corporation 1,771,000
121,300 PREMIS Corporation 682,312
106,900 Quality Semiconductor, Inc. 962,100
83,600 Raytel Medical Corporation 919,600
345,400 Ringer Corporation 518,100
303 Royal International Optical Corporation 227,250
300,000 RSI Systems, Inc.(a) 525,000
442,500 Silicon Valley Research, Inc. 885,000
109,200 SL Industries, Inc. 846,300
54,800 Software Spectrum, Inc. 1,602,900
138,600 SONUS Pharmaceuticals, Inc. 4,123,350
371,500 SPACEHAB, Incorporated 2,229,000
519,400 Specs Music (a) 584,325
289,000 Steel City Products, Inc. 20,230
94,000 Steiner Leisure, Inc. 1,891,750
75,000 Streicher Mobile Fueling, Inc. 646,875
82,500 Summit Design, Inc. 845,625
268,500 Superconductor Technologies, Inc. 1,057,219
187,500 TGC Industries, Inc.(a) 281,250
253,800 Trans World Entertainment Corp. 1,812,291
146,200 Travis Boats & Motors, Inc. 1,882,325
121,400 Tridex Corporation 1,563,025
103,800 Tripos, Inc. 1,219,358
344,300 ULTRADATA Corporation 1,420,237
357,500 U.S. Energy Systems, Inc. (a) 1,430,000
156,700 Vacation Break U.S.A., Inc. 3,173,175
121,000 Virus Research Institute, Inc. 665,500
----------
132,499,380
Shares Preferred Stocks Value
_______________________________________________________________________________
425,000 Accuhealth, Inc. convertible preferred (a) $ 850,000
160,764 Celerity Systems, Inc. Series A convertible preferred 271,691
79,296 Celerity Systems, Inc. Series B convertible preferred 123,702
57,500 Tescorp, Inc. convertible preferred 298,281
150,000 TGC Industries, Inc. (a) 1,350,000
----------
2,893,674
----------
_______________________________________________________________________________
See the accompanying Notes to the Financial Statements.
4
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
Principal Corporate Bonds Value
_______________________________________________________________________________
150,000 Lincoln Logs, Ltd. convertible subordinated, $ 150,000
debentures, due 6/30/98 (a)
Warrants Warrants Value
- -------------------------------------------------------------------------------
27,500 Barringer Technologies, Inc. 5/9/98 (a) $ 176,550
229,167 Barringer Technologies, Inc. 5/9/2000 (a) 1,471,251
306,250 Biocircuits Corporation 10/20/97 (a) 38,281
153,500 Bryon Preiss Multimedia Company, Inc. 5/11/99 (a) 110,336
127,551 Celerity Systems, Inc. Series B 3/31/97 --
43,125 Children's Broadcasting Corporation 1/8/2000 4,312
733,334 Contempri Homes, Inc. 4/11/97 --
160,644 IBAH, Inc. 8/10/2000 710,046
114,700 NeoMedia Technologies, Inc. 11/25/2001 150,544
126,436 PC Etcetera, Inc. 3/15/99 (a) --
25,000 PC Etcetera, Inc. (Restricted) 3/15/99 --
75,000 Prologic Management Systems, Inc. 3/14/99 37,500
85,000 Rocky Mountain Internet, Inc. 9/5/99 47,812
75,000 Streicher Mobile Fueling, Inc. 12/11/2000 215,625
150,000 U.S. Energy Systems, Inc. 12/2/2000 112,500
---------
3,074,757
---------
Units Units Value
_______________________________________________________________________________
133,621 MicroFrame, Inc. $ 233,837
---------
Total Investments $ 138,851,648
------------
------------
_____________________________________________________________________________
See the accompanying Notes to the Financial Statements.
5
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
Securities Sold Short
Shares Common Stock Value
- -------------------------------------------------------------------------------
10,000 ABR Information Services, Inc. $ 393,750
7,600 American Eagle Outfitters, Inc. 59,850
7,500 APAC TeleServices, Inc. 287,812
1,400 Aurum Software, Inc. 32,375
13,200 Cylink Corporation 171,600
7,500 Daka International, Inc. 72,187
15,200 First Merchants Acceptance Corporation 290,700
17,000 Learning Company, Inc. 244,375
2,000 Level 8 Systems, Inc. 31,000
30,000 Micron Technology, Inc. 873,750
6,000 Morrow Snowboards, Inc. 39,750
13,000 National TechTeam, Inc. 260,000
7,500 Netscape Communications Corporation 426,560
25,000 Northland Cranberries, Inc. 575,000
42,700 Odetics, Inc. 725,900
19,500 Pegasystems, Inc. 587,437
4,500 Precision Response Corporation 158,062
12,000 Premenos Technology Corp. 103,500
9,000 Skyes Enterprises Incorporated 337,500
40,700 SyQuest Technology, Inc. 150,081
20,000 Ultrafem, Inc. 350,000
----------
Total Securities Sold Short 6,171,189
----------
----------
_______________________________________________________________________________
(a) Affiliated company under the Investment Company Act of 1940, inasmuch
as the Fund owns more than 5% of the voting securities of the issuer.
See the accompanying Notes to the Financial Statements.
6
<PAGE>
SPECIAL SITUATIONS FUND III, L.P.
(A Limited Partnership)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
_____________________________________________________________________________
<TABLE>
<S> <C>
INCOME
Net realized gains on investments $ 42,561,972
Net unrealized gains on investments 11,460,625
------------
Net gains on investment portfolio 54,022,597
Interest 655,191
Dividends 84,915
Other 19,505
-----------
Total income $ 54,782,208
-----------
-----------
EXPENSES
Administrator's fee - Note 7 $ 1,025,500
Professional Fees 183,250
Independent general Partners' fees 30,000
Other 111,256
------------
Total expenses 1,350,006
------------
Net income $ 53,432,202
------------
------------
</TABLE>
______________________________________________________________________________
See the accompanying Notes to the Financial Statements.
7
<PAGE>
<TABLE>
SPECIAL SITUATIONS FUND III,L.P.
(A Limited Partnership)
STATEMENT OF CHANGES IN PARTNERS' CAPTIAL
______________________________________________________________________________
Per Limited Corporate Individual
Partners' Limited General General
Unit Partners Partner Partners Total
---------- --------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED
DECEMBER 31, 1995: $ 67,221,191 4,452,038 3,659,674 75,332,903
Capital contributions 5,086,487 - - 5,086,487
Transfers 1,408 (592,189) 590,781 -
Allocation of net income:
Corporate General
Partner (20%) - 7,038,906 - 7,038,906
Partners (80%) 24,817,741 1,917,684 1,420,198 28,155,623
Repurchases (3,538,213) (6,850,000) - (10,388,213)
----------- ----------- --------- ------------
BALANCE,
DECEMBER 31, 1995 $25,000 93,588,614 5,966,439 5,670,653 105,225,706
-------
SIX MONTHS ENDED
JUNE 30, 1996:
Capital contributions 1,419,291 - 929 1,420,220
Transfers - (210,828) 210,828) -
Allocation of net income:
Corporate General
Partner (20%) - 8,656,039 - 8,656,039
Partners (80%) $ 8,117 30,845,703 1,868,643 1,909,811 34,624,157
-------
Repurchases - Note 4 (1,226,302) (8,000,000)(3,500,000)(12,726,302)
----------- ----------- ---------- -----------
BALANCE,
JUNE 30, 1996 $25,000 124,627,306 8,280,293 4,292,221 137,199,820
-------
SIX MONTHS ENDED
DECEMBER 31, 1996:
Capital contributions 6,260,000 - - 6,260,000
Allocation of net income:
Corporate General
Partner (20%) - 2,030,401 - 2,030,401
Partners (80%) $ 1,415 7,409,845 468,767 242,993 8,121,605
-------
Repurchases - Note 4 (4,144,326) (5,500,000) (500,000)(10,144,326)
----------- ----------- --------- -----------
BALANCE,
DECEMBER 31, 1996 $25,000 $134,152,825 $5,279,461 $4,035,214 143,467,500
------- ------------ ---------- ---------- -----------
See Note 4 for changes in Units outstanding.
</TABLE>
_____________________________________________________________________________
See the accompanying Notes to the Financial Statements.
8
<PAGE>
SPECIAL SITUATIONS FUND III, L.P.
(A Limited Partnership)
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1- GENERAL:
Special Situations Fund III, L.P. (the "Fund") was organized under the
Delaware Revised Uniform Limited Partnership Act on October 18, 1993,
and commenced investment operations on January 1, 1994. The Fund is a
closed-end interval fund registered under the Investment Company Act of
1940. Commencing December 31, 1994, the Fund, as an interval fund,
allows investors to semi-annually redeem or acquire units of the Fund
("Units") (see Note 4). The Fund will continue until December 31, 2010
unless further extended or sooner terminated as provided for in the
Agreement of Limited Partnership (the "Agreement").
The Agreement provides for not less than three "Individual General
Partners" and a "Corporate General Partner". The General Partners, as
a group, must own not less than one percent (1%) of the Fund's
outstanding Units.
The Corporate General Partner and Investment Adviser is MGP Advisers
Limited Partnership ("MGP"), of which the General Partner is AWM
Investment Company, Inc. ("AWM"). Austin W. Marxe, an Individual
General Partner of the Fund and a limited partner of MGP owns directly
and indirectly 75% of MGP and AWM. Mr. Marxe is primarily
responsible for managing the Fund's investments and performing certain
administrative services on its behalf.
The Fund seeks long-term capital appreciation by investing primarily in
equity securities and securities with equity features of publicly
traded companies which possess a technological, market or product
niche, which may be, for various reasons, undervalued, or with
prospects of going private or being acquired.
NOTE 2- ACCOUNTING POLICIES:
Securities traded on a securities exchange or on the NASDAQ System are
valued at the last sales price. Other securities traded in the over-
the-counter market are valued at the average of the bid and asked
prices on the last trading day. Securities for which market quotations
are not available are valued at fair value as determined in good faith
by the Individual General Partners. Securities transactions are
recorded on trade date. Realized gains and losses on sales of
securities are determined using the specific identification cost
method. Dividend income is recorded on the ex-dividend date, and
interest income is recorded on the accrual basis.
9
<PAGE>
SPECIAL SITUATIONS FUND III, L.P.
(A Limited Partnership)
NOTES TO THE FINANCIAL STATEMENTS
NOTE 2- ACCOUNTING POLICIES (CONTINUED):
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.
Cash and cash equivalents include cash held in money market funds.
NOTE 3- ALLOCATION OF ACCOUNTING PROFITS AND LOSSES:
Profits are allocated; first, to MGP to the extent of any previous net
losses allocated to MGP in excess of the other Partners' capital
balances; next, to the Partners in proportion to the number of Units
held by each to the extent of net losses previously allocated to them;
and, thereafter, 80% to the Partners in proportion to the number of
Units held by each and 20% to MGP.
Losses are allocated to the Partners in proportion to the number of
Units Held by each, provided, however, that losses in excess of an
Individual General Partner's or a Limited Partner's capital balance
will be allocated to MGP.
NOTE 4- PARTNER CAPITAL ACCOUNT TRANSACTIONS:
All net income allocated to Partners will be reinvested. In order to
maintain a $25,000 price per Unit, the number of Units held by each
Partner at the close of each fiscal period (generally June 30 and
December 31, commencing December 31, 1994), is adjusted to equal the
Partner's capital account divided by $25,000.
As of each fiscal period, the Fund will offer to repurchase at least
10% and no more than 25% of the outstanding Units. The repurchase
request deadline will generally be June 16, and December 17, of each
year.
10
<PAGE>
SPECIAL SITUATIONS FUND III, L.P.
(A Limited Partnership)
NOTES TO THE FINANCIAL STATEMENTS
NOTE 4- PARTNER CAPITAL ACCOUNT TRANSACTIONS (CONTINUED):
In May 1996, the Fund offered to repurchase up to 599.7045 Units (10%
of its outstanding Units at June 30, 1996) at $25,000 per Unit.
509.0521 Units were tendered for repurchase.
In November 1996 the Fund offered to repurchase up to 573.8393 Units
(10% of its outstanding Units at December 31, 1996) at $25,000 per
Unit. 405.7730 Units were tendered for repurchase.
The Fund also has the right to sell additional Units at each fiscal
period.
<TABLE>
Changes in Units outstanding:
Corporate Individual
Limited General General
Partners Partner Partner Total
__________ __________ __________ __________
<S> <C> <C> <C> <C>
Balance, December 31, 1994 2,688.8476 178.0815 146.3870 3,013.3161
Additional Units sold 203.4595 - - 203.4595
Transfers 0.0563 (23.6876) 23.6313 -
Allocation of additional Units 992.7096 358.2636 56.8079 1,407.7811
Repurchases (141.5285) (274.0000) - (415.5285)
----------- ---------- --------- ---------
Balance, December 31, 1995 3,743.5445 238.6575 226.8262 4,209.0282
Additional Units sold 56.7716 - 0.0372 56.8088
Transfer - (8.4331) 8.4331 -
Allocation of additional Units 1,233.8281 420.9873 76.3924 1,731.2078
Repurchases (49.0521) (320.0000) (140.0000) (509.0521)
----------- ---------- --------- ----------
Balance, June 30, 1996 4,985.0921 331.2117 171.6889 5,487.9927
Additional units sold 205.4000 - - 250.4000
Allocation of additional Units 296.3938 99.9667 9.7197 406.0802
Repurchases (165.7730) (220.0000) (20.0000) (405.7730)
---------- ---------- --------- ----------
Balance, December 31, 1996 5,366.1129 211.1784 161.4086 5,738.6999
---------- ---------- --------- ----------
</TABLE>
11
<PAGE>
SPECIAL SITUATIONS FUND III,L.P.
(A Limited Partnership)
NOTES TO THE FINANCIAL STATEMENTS
NOTE 5- PURCHASES AND SALES OF SECURITIES:
Purchases and sales of securities for the year ended December 31, 1996
aggregated 277,343,778 and 300,342,610, respectively.
NOTE 6- INCOME TAXES:
No provision for income taxes has been made in the accompanying
financial statements as each Partner is individually responsible for
reporting income or loss based upon the respective share of the Fund's
income and expenses reported for income tax purposes.
NOTE 7- RELATED PARTY TRANSACTIONS:
AWM is the administrator of the Fund. The administrator's fee is
computed monthly at an annual rate of .75% of the average net assets.
The Fund pays each Independent General Partner an annual fee of
$10,000.
NOTE 8- SUPPLEMENTARY FINANCIAL INFORMATION:
Years Ended
December 31,
----------------------
1996 1995 1994
---- ---- -----
<TABLE>
<S> <C> <C> <C>
Ratio of total expenses to average net 1.00% 1.18% 1.19%
assets
Ratio of net income to average net 39.58% 38.09% 11.18%
assets
Portfolio turnover rate 228.0% 245.2% 233.4%
Average commission rate paid $ .0389 (a) (a)
(a) This disclosure is not required prior to 1996
</TABLE>
12
<PAGE>
SPECIAL SITUATIONS FUND III, L.P.
(A Limited Partnership)
NOTES TO THE FINANCIAL STATEMENTS
NOTE 9- RETURN ON PARTNER INVESTMENT:
<TABLE>
At December 31, 1996, the value of a $25,000 investment made at each
respective subscription date is as follows:
Subscription Date Value
----------------- -----
<S> <C>
January 1, 1994 $51,833
January 1, 1995 $47,387
July 1, 1995 $41,959
January 1, 1996 $34,991
July 1, 1996 $26,415
</TABLE>
NOTE 10- CASH CREDIT RISK CONCENTRATION
The Fund maintains cash balances in a brokerage account with a broker
who is a member of the New York Stock Exchange. The excess of the
balance in the account over the amount of insurance maintained by the
broker is approximitely $ 663,000 at December 31, 1996.
NOTE 11- SECURITIES SOLD SHORT:
The Fund is subject to certain inherent risks arising from its
activities of selling securities short. The ultimate cost to the
Fund to acquire these securities may exceed the liability
reflected in the financial statements. In addition, the Fund is
required to maintain collateral with the broker to secure these short
positions.
13
