June 30, 1998
__________________________________
Special Situations Second
Fund III, L.P. Quarter
Report
SPECIAL SITUATIONS FUND III, L.P.
INDEX TO SECOND QUARTER REPORT
JUNE 30, 1998
_________________________________________________________________________
<TABLE>
<S> <C>
PAGE
Statement of financial condition 1
Portfolio of investments 2
Statement of operations 11
Statement of changes in partners' capital 12
Notes to the financial statements 13
</TABLE>
SPECIAL SITUATIONS FUND III, L.P.
(A Limited Partnership)
STATEMENT OF FINANCIAL CONDITION
JUNE 30, 1998
(Unaudited)
<TABLE>
<S> <C>
ASSETS - NOTE 2
Investments, at value (cost $140,238,867) $ 152,775,611
Cash and cash equivalents 21,631,127
Receivable for investments sold 3,911,693
Other assets 44,847
--------------
Total Assets $ 178,363,278
--------------
--------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Payable for Units repurchased - Note 4 $ 11,492,231
Payable for investments purchased - Note 2 4,147,598
Securities sold short, at value 6,045,685
(proceeds $6,258,624)-Note 10
Accrued expenses 166,129
Administrator's fee payable - Note 7 332,267
------------
Total Liabilities $ 22,184,030
------------
Partners' Capital - Note 1,3 and 4
Limited partners $ 142,670,727
Corporate general partner 8,295,006
Individual general partners 5,213,515
--------------
Total Partners' Capital $ 156,179,248
--------------
Total Liabilities and Partners' Capital $ 178,363,278
--------------
--------------
</TABLE>
________________________________________________________________________
See the accompanying Notes to the Financial Statements.
1
SPECIAL SITUATIONS FUND III, L.P.
(A Limited Partnership)
PORTFOLIO OF INVESTMENTS
JUNE 30, 1998
(Unaudited)
Shares Common Stocks Value
- --------------------------------------------------------------------------
<TABLE>
<C> <C> <C>
Aerospace 3.84%
177,600 Commander Aircraft $ 449,550
120,000 LMI Aerospace, Inc. 1,245,000
371,500 SPACEHAB, Incorporated 4,295,464
---------
5,990,014
---------
Automotive 0.49%
66,100 Lund International Holdings, Inc. 751,887
289,000 Steel City Products, Inc. 10,476
---------
762,363
---------
Biotechnology 3.09%
250,600 Alteon, Inc. 877,100
225,000 Anika Therapeutics, Inc. 3,290,625
57,200 BioTransplant Incorporated 200,200
73,900 Diacrin, Inc. 461,875
----------
4,829,800
----------
Broadcast 0.57%
361,900 Accom, Inc,(a) 192,259
470,200 Film Roman, Inc. 705,300
-------
897,559
--------
Building Materials 0.04%
2,200,000 Contempri Homes, Inc. -
162,000 Lincoln Logs, Ltd. (a) 63,605
-------
63,605
-------
Communications Products 2.60%
167,500 8x8, Inc. 816,562
148,000 Blonder Tongue Laboratories, Inc. 1,739,000
444,800 MicroFrame, Inc. (a) 1,501,200
---------
4,056,762
---------
_________________________________________________________________________
See the accompanying Notes to the Financial Statements.
2
SPECIAL SITUATIONS FUND III, L.P.
(A Limited Partnership)
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 1998
(Unaudited)
Shares Common Stocks (Continued) Value
- ---------------------------------------------------------------------------
Computer Equipment 4.33%
326,500 Artecon, Inc. $ 816,250
188,100 Blue Wave Systems, Inc. 658,350
219,800 Castelle 439,600
379,500 Check Technology Corporation (a) 1,470,562
280,600 Media 100, Inc. 1,069,787
2,500 Netrix Corporation 5,156
317,000 Tridex Corporation 2,298,250
---------
6,757,955
---------
Computer Services 0.27%
35,000 Cognizant Technology Solutions Corporation 422,187
-------
Computer Training 0.19%
31,250 Mentortech, Inc. 164,062
25,649 Mentortech, Inc.(Restricted) 134,657
-------
298,719
-------
Distribution 0.64%
211,800 Ellett Brothers, Inc. 1,006,050
---------
Electronic Components 7.70%
233,200 AMX Corporation 1,763,575
153,200 AstroPower, Inc. 1,273,475
393,579 Barringer Technologies, Inc. (a) 3,714,397
177,700 Energy Conversion Devices, Inc. 1,721,469
75,000 FLIR Systems, Inc. 1,293,750
580,500 Stocker & Yale, Inc. 2,249,437
----------
12,016,103
----------
Energy Services 0.08%
187,500 TGC Industries, Inc. (a) 128,906
----------
Gold Mining 0.66%
1,094,000 MK Gold Company 1,025,625
---------
_________________________________________________________________________
See the accompanying Notes to the Financial Statements.
3
SPECIAL SITUATIONS FUND III, L.P.
(A Limited Partnership)
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 1998
(Unaudited)
Shares Common Stocks (Continued) Value
- ---------------------------------------------------------------------------
Healthcare-Specialized Products & Services 1.47%
212,397 Accuhealth, Inc. (a) $ 358,420
552,300 Matria Healthcare, Inc. 1,933,050
---------
2,291,470
---------
Healthcare Management 3.65%
256,500 BMJ Medical Management, Inc. 1,154,250
373,900 Mednet International, Ltd. 732,844
495,000 Mednet International, Ltd.-Mercer 970,200
330,000 Physicians' Specialty Corp. 2,846,250
---------
5,703,544
---------
Manufacturer-Consumer Products 3.30%
333,100 Educational Insights, Inc. 666,200
133,900 Toymax International, Inc. 920,562
262,800 Zindart Limited 3,564,225
---------
5,150,987
---------
Medical Devices and Equipment 13.13%
412,500 Aksys Ltd. 2,423,437
926,500 Applied Imaging Corporation 2,258,344
836,393 Biocircutis Corporation (a) 8,364
127,500 Calypte Biomedical Corporation 513,984
300,039 Cardiac Control Systems, Inc. (a) 115,515
411,600 EP MedSystems, Inc. 1,029,000
595,700 Hemagen Diagnostics, Inc. 856,319
431,600 Image Guided Technologies, Inc. 809,250
281,400 IRIDEX Corporation 2,251,200
1,050,000 Laserscope, Inc. 2,493,750
787,677 Medical Graphics Corporation (a) 2,215,342
235,500 Optical Sensors Incorporated 883,125
364,100 Thoratec Laboratories Corporation 3,003,825
212,200 Zoll Medical Corporation 1,644,550
----------
20,506,005
----------
_________________________________________________________________________
See the accompanying Notes to the Financial Statements.
4
SPECIAL SITUATIONS FUND III, L.P.
(A Limited Partnership)
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 1998
(Unaudited)
Shares Common Stocks (Continued) Value
- --------------------------------------------------------------------------
Medical Imaging 1.47%
224,300 EPIX Medical, Inc. $ 2,299,075
---------
Medical Information Systems 0.48%
1,100,000 LifeRate Systems, Inc. 378,125
1,000,000 LifeRate Systems, Inc. (Restricted) 378,125
---------
756,250
---------
Music 0.93%
196,000 Platinum Entertainment, Inc. $ 1,445,500
----------
Paper-Packaging 0.06%
593,749 Chase Packaging Corporation 95,000
---------
Photonics 0.67%
150,000 Thermo Vision Corporation 1,050,000
---------
Retail 13.34%
179,700 CyberShop International, Inc. 2,021,625
194,700 EZCORP, Inc. 2,129,531
763,000 Jos. A. Bank Clothiers, Inc. (a) 6,294,750
289,000 Oakhurst Capital, Inc. (a) 279,969
666,900 One Price Clothing Stores, Inc. 2,021,541
55,300 PawnMart, Inc. 193,550
112,800 Shoe Pavilion, Inc. 1,029,300
295,700 The Sportsman's Guide, Inc. 1,330,650
73,564 Tractor Supply Company 1,829,904
151,200 Travis Boats & Motors, Inc. 3,704,400
----------
20,835,220
----------
Savings & Loan 0.65%
323,300 Meritor Savings Bank 1,018,395
---------
Software 21.71%
160,000 Ansoft Corporation 1,860,000
106,600 Best Software, Inc. 2,251,925
290,550 Concentra Corporation 1,162,200
494,300 Connect, Inc. 1,019,494
- ---------------------------------------------------------------------------
See the accompanying Notes to the Financial Statements.
5
SPECIAL SITUATIONS FUND III, L.P.
(A Limited Partnership)
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 1998
(Unaudited)
Shares Common Stocks (Continued) Value
- ---------------------------------------------------------------------------
Software (Continued)
186,500 C*ATS Software, Inc. $ 979,125
300,900 Enlighten Software Solutions, Inc. 827,475
446,300 Expert Software, Inc. 1,840,987
323,440 Fourth Shift Corporation 889,460
251,200 Gensym Corporation 1,114,700
986,500 Indenet, Inc. 2,897,844
252,500 Mechanical Dynamics, Inc. 2,777,500
312,700 OrCad, Inc. 3,048,825
300,500 Rogue Wave Software, Inc. 2,366,437
1,725,569 Silicon Valley Research, Inc. (a) 1,024,556
34,300 Telescan, Inc. 265,825
103,900 Template Software, Inc. 1,142,900
265,900 TSR, Inc. 2,991,375
457,600 ULTRADATA Corporation 2,402,400
356,603 Versant Object Technology Corporation 1,426,412
890,200 White Pine Software, Inc. 1,613,487
----------
33,902,927
----------
Specialty Financial 4.22%
105,500 Medallion Financial Corporation 2,901,250
207,700 MFC Bancorp Ltd. 2,128,925
152,300 United Panam Financial Corp. 1,561,075
---------
6,591,250
---------
Technology CAD/CAM/CAE .84%
260,000 Helisys, Ltd. 114,400
643,300 Spatial Technology, Inc. 1,206,187
---------
1,320,587
---------
Transportation 2.07%
150,500 Aramex International Limited 1,580,250
845,000 Country Wide Transport Services, Inc. 1,647,750
---------
3,228,000
---------
Total Common Stocks 92.49% $144,449,858
-----------
- ---------------------------------------------------------------------------
See the accompanying Notes to the Financial Statements.
6
SPECIAL SITUATIONS FUND III, L.P.
(A Limited Partnership)
PORTOFLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 1998
(UNAUDITED)
Shares Preferred Stocks Value
- ------------------------------------------------------------------------
Energy Services 0.74%
150,000 TGC Industries, Inc. (a) $1,162,500
Healthcare-Specialized Products & Services 0.54%
425,000 Accuhealth, Inc. convertible preferred (a) 850,000
Medical Devices 0.48%
23,437 KeraVision, Inc. convertible preferred 749,984
---------
Total Preferred Stocks 1.76% 2,762,484
---------
Principal
Amount Corporate Bonds Value
- ---------------------------------------------------------------------------
Savings & Loan 0.78%
$ 1,315,000 Westfed Holding, Inc., convertible subordinated,
debentures, due 9-15-99 $1,216,375
Building Materials 0.10%
150,000 Lincoln Logs, Ltd., convertible subordinated,
debentures, due 6-30-98 (a) 150,000
---------
Total Corporate Bonds 0.88% 1,366,375
---------
Warrants Warrants Value
- ---------------------------------------------------------------------------
Biotechnology 0.14%
202,000 Diacrin, Inc. 12/31/00 $ 214,625
--------
- ---------------------------------------------------------------------------
See the accompanying Notes to the Financial Statements.
7
SPECIAL SITUATIONS FUND III, L.P.
(A Limited Partnership)
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 1998
(Unaudited)
Shares Warrants (Continued) Value
- ---------------------------------------------------------------------------
Broadcasting 0.00%
43,125 Children's Broadcasting Corporation 1/8/01 $ 431
---------
Building Materials 0.00%
733,334 Contempri Homes, Inc. 4/11/98 -
---------
Electronic Components 1.38%
229,167 Barringer Technologies, Inc. 5/9/00 1,713,594
200,000 Energy Conversion Devices, Inc. 7/31/01 437,500
---------
2,151,094
---------
Entertainment 0.01%
153,500 Byron Preiss Multimedia Company, Inc. 5/11/99 16,885
---------
Medical Devices and Equipment 0.03%
102,000 Biocircuits Corporation 11/23/98 (Restricted) -
693,333 Biocircuits Corporation 1/3/99 (Restricted) -
27,731 Cardiac Control Systems, Inc. 3/31/99 (Restricted) -
200,000 Hemagen Diagnostics, Inc. 2/28/01 50,000
---------
50,000
---------
Medical Information Systems 0.01%
1,100,000 Liferate Systems, Inc. 11/14/07 11,000
1,100,000 Liferate Systems, Inc. 11/14/07 (Restricted) 11,000
---------
22,000
---------
------------------------------------------------------------------------
See the accompanying Notes to the Financial Statements.
8
- - SPECIAL SITUATIONS FUND III, L. P.
(A Limited Partnership)
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30,1998
(Unaudited)
Warrants Warrants (Continued) Value
- ---------------------------------------------------------------------------
Retail 0.07%
95,000 Pawnmart, Inc. A 3/11/03 $ 68,281
90,000 Pawnmart, Inc. B 3/11/04 33,750
---------
102,031
---------
Software 0.01%
75,000 Prologic Management System, Inc. 3/14/99 5,859
862,069 Silicon Valley Research, Inc. 4/15/00 (a) 8,621
---------
14,480
---------
Total Warrants 1.65% 2,571,546
---------
Units Units Value
- ---------------------------------------------------------------------------
Communications Products 0.65%
133,621 MicroFrame, Inc. (a) $ 1,018,860
Computer Services 0.30%
629,310 Silicon Valley Research, Inc. 465,688
Housing - Construction 0.09%
281,600 Boulevard Investments Group 140,800
---------
Total Units 1.04% 1,625,348
---------
TOTAL INVESTMENTS 97.82% $ 152,775,611
----------
----------
------------------------------------------------------------------------
See the accompanying Notes to the Financial Statements.
9
SPECIAL SITUATIONS FUND III, L. P.
(A Limited Partnership)
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30,1998
(Unaudited)
Securities Sold Short
Shares Common Stocks Value
- ---------------------------------------------------------------------------
Business Services 0.53%
27,500 Labor Ready, Inc. $ 830,156
---------
Healthcare - Drugs 0.52%
36,900 Zonagen, Inc. 809,494
---------
Healthcare Information Systems 0.71%
15,000 Shared Medical, Inc. 1,101,562
---------
Investment Banking - Brokerage 0.12%
12,500 Friedman, Billings, Ramsey Group, Inc. 180,496
---------
Medical Devices and Equipment 0.93%
115,800 Possis Medical, Inc. 1,447,505
---------
Restaurants 0.59%
54,200 Friendly Ice Cream Corporation 914,625
--------
- - Software 0.49%
14,700 Pegasystems, Inc. 398,737
41,800 TRO Learning, Inc. 363,137
---------
761,874
---------
TOTAL SECURITIES SOLD SHORT 3.89% 6,045,685
---------
---------
</TABLE>
(A) Affiliated issuer under the Investment Company Act of 1940, inasmuch as
the Fund owns more thatn 5% of the voting securities of the issuer.
All percentages are relative to Partners' Capital.
------------------------------------------------------------------------
See the accompanying Notes to the Financial Statements.
10
SPECIAL SITUATIONS FUND III, L.P.
(A Limited Partnership)
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(Unaudited)
___________________________________________________________________________
<TABLE>
<S> <C>
INCOME
Net realized gains on investments $ 21,949,103
Net unrealized loss on investments (25,748,083)
-----------
Net loss on investment portfolio (3,798,980)
Interest 320,906
Dividends 142,863
----------
Total $ (3,335,211)
----------
EXPENSES
Administrator's fee - Note 7 $ 663,799
Professional Fees 180,600
Independent general partners' fees 15,000
Other 58,002
----------
Total 917,401
------------
Net loss $(4,252,612)
------------
------------
</TABLE>
___________________________________________________________________________
See the accompanying Notes to the Financial Statements.
11
SPECIAL SITUATIONS FUND III,L.P.
(A Limited Partnership)
STATEMENT OF CHANGES IN PARTNERS' CAPTIAL
(Information Subsequent to December 31, 1997 is Unaudited)
___________________________________________________________________________
<TABLE>
<S> <C> <C> <C> <C> <C>
Per Limited Corporate Individual
Partners' Limited General General
Unit Partners Partner Partners Total
---------- --------- ---------- ----------- ---------
YEAR ENDED
DECEMBER 31, 1997:
BALANCE
DECEMBER 31, 1996 $134,152,825 5,279,461 4,035,214 143,467,500
Capital contributions 4,743,293 - - 4,743,293
Transfers - (50,000) 50,000 -
Allocation of net income:
Corporate General
Partner (20%) - 7,007,988 - 7,007,988
Partners (80%) 26,003,482 1,252,423 776,048 28,031,953
Repurchases (9,244,023) (3,500,000)(1,000,000)(13,744,023)
----------- ----------- -------- -----------
BALANCE,
DECEMBER 31, 1997 $25,000 155,655,577 9,989,872 3,861,262 169,506,711
-------
SIX MONTHS ENDED
JUNE 30, 1998
Capital contributions 2,417,500 - 2,417,500
Transfers - (1,484,482) 1,484,482 -
Allocation of net Loss:
$ (618) (3,909,999) (210,384) (132,229) (4,252,612)
-------
Repurchases (11,492,351) - - (11,492,351)
----------- ----------- ---------- ----------
BALANCE,
JUNE 30, 1998 $25,000 142,670,727 8,295,006 5,213,515 156,179,248
------- ----------- --------- --------- ------------
------- ----------- --------- --------- ------------
</TABLE>
See Note 4 for changes in Units outstanding.
________________________________________________________________________
See the accompanying Notes to the Financial Statements.
12
SPECIAL SITUATIONS FUND III, L.P.
(A Limited Partnership)
NOTES TO THE FINANCIAL STATEMENTS
(Information Subsequent to December 31, 1997 is Unaudited)
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. The Fund will continue until December
31, 2010 unless further extended or sooner terminated asprovided 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 a majority 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 reported sales price on the last business day
of the reporting period. Securities for which no sale occurredon such
day are valued at the average of the highest bid and lowestasked
prices on the last trading day. Securities for which marketquotations
are not available are valued at fair value as determined in good faith
by the Individual General Partners. Securitiestransactions are
recorded on trade date. Realized gains and losseson sales of
securities are determined using the specific identificationcost
method. Dividend income is recorded on the ex-dividend date, and
interest income is recorded on the accrual basis.
13
SPECIAL SITUATIONS FUND III, L.P.
(A Limited Partnership)
NOTES TO THE FINANCIAL STATEMENTS
(Information Subsequent to December 31, 1997 is Unaudited)
NOTE 2- ACCOUNTING POLICIES (CONTINUED):
Cash and cash equivalents include cash held in money market funds.
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.
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.
14
SPECIAL SITUATIONS FUND III, L.P.
(A Limited Partnership)
NOTES TO THE FINANCIAL STATEMENTS
(Information Subsequent to December 31, 1997 is Unaudited)
NOTE 4- PARTNER CAPITAL ACCOUNT TRANSACTIONS (CONTINUED):
The Fund also has the right to sell additional Units at the
beginning of each fiscal period.
Corporate Individual
Limited General General
Partners Partner Partner Total
__________ __________ ____________ _______
<TABLE>
<S> <C> <C> <C> <C>
Balance, December 31, 1996 5,366.1129 211.1784 161.4086 5,738.6999
Additional Units sold 189.7317 - - 189.7317
Transfers - (2.0000) 2.0000 -
Semi-annual adjustment
of Units 1,040.1393 330.4164 31.0419 1,401.5976
Repurchases (369.7609) (140.0000) (40.0000)(549.7609)
----------- --------- --------- ---------
Balance, December 31, 1997 6,226.2230 399.5948 154.4505 6,780.2683
Additional Units sold 96.7000 - - 96.7000
Transfer - (59.3793) 59.3793 -
Semi-annual adjustment
of Units (156.4000) (8.4154) (5.2892)(170.1046)
Repurchases (459.6940) - - (459.6940)
----------- ---------- --------- --------
Balance, June 30, 1998 5,706.8290 331.8001 208.5406 6,247.1697
----------- --------- -------- ---------
</TABLE>
NOTE 5- PURCHASES AND SALES OF SECURITIES:
Purchases and sales of securities for the six months ended June 30,
1998 aggregated $103,505,921 and $105,797,572, 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.
15
SPECIAL SITUATIONS FUND III, L.P.
(A Limited Partnership)
NOTES TO THE FINANCIAL STATEMENTS
(Information Subsequent to December 31, 1997 is Unaudited)
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:
Six Months Years Ended
Ended June 30, December 31,
--------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Ratio of total expenses 1.04%* .98% 1.00% 1.18% 1.19%
to average net assets
Ratio of net income (loss) (4.83%)* 21.84% 39.58% 38.09% 11.18%
to average net assets
Portfolio turnover rate 62.61% 139.70% 228.0% 245.2% 233.4%
*Annualized
16
SPECIAL SITUATIONS FUND III, L.P.
(A Limited Partnership)
NOTES TO THE FINANCIAL STATEMENTS
(Information Subsequent to December 31, 1997 is Unaudited)
NOTE 9- RETURN ON PARTNER INVESTMENT:
At June 30, 1998, the value of a $25,000 investment made at each
respective subscription date is as follows:
Subscription Date Value
----------------- -----
January 1, 1994 $60,155
January 1, 1995 54,995
July 1, 1995 48,695
January 1, 1996 40,609
July 1, 1996 30,656
January 1, 1997 29,014
July 1, 1997 27,482
January 1, 1998 24,382
NOTE 10- 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.
17
</TABLE>
