1997
__________________________________
Special Situations Annual
Fund III, L.P. Report
SPECIAL SITUATIONS FUND III, L.P.
----------------------------------
INDEX TO ANNUAL REPORT
DECEMBER 31, 1997
____________________________________________________________________
PAGE
----
Independent auditors' report 1
Statement of financial condition 2
Portfolio of investments 3
Statement of operation 8
Statement of changes in partners' capital 9
Notes to the financial statements 10
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, 1997, 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, 1997,
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 audits 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, 1997, 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
February 9, 1998
1
SPECIAL SITUATIONS FUND III, L.P.
(A Limited Partnership)
STATEMENT OF FINANCIAL CONDITION
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS - NOTE 2
Investments, at value (cost $125,970,463) $ 162,668,203
Cash and cash equivalents 25,656,183
Receivable for investments sold 4,547,488
Other assets 29,695
--------------
Total Assets $ 192,901,569
--------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Payable for Units repurchased - Note 4 $ 11,748,320
Payable for investments purchased - Note 2 1,321,872
Securities sold short, at value (proceeds $11,654,439)- Note 11 9,854,413
Accrued expenses 128,466
Administrator's fee payable - Note 7 341,787
--------------
Total Liabilities $ 23,394,858
--------------
Partners' Capital - Notes 1,3 and 4
Limited partners $ 155,655,577
Corporate general partner 9,989,872
Individual general partners 3,861,262
--------------
Total Partners' Capital $ 169,506,711
--------------
Total Liabilities and Partners' Capital $ 192,901,569
--------------
Net asset value per Limited Partners' Unit $ 25,000
</TABLE>
--------------
_____________________________________________________________________________
See the accompanying Notes to the Financial Statements.
2
SPECIAL SITUATIONS FUND III, L.P.
(A Limited Partnership)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<C> <C> <C>
Shares Common Stocks Value
- -------------------------------------------------------------------------------
147,500 8x8, Inc. $ 1,613,281
135,700 AccelGraphics, Inc, 636,094
589,600 Accom, Inc.(a) 773,850
212,397 Accuhealth, Inc. (a) 345,145
412,500 Aksys Ltd. 2,371,875
26,100 Alcide Corporation 1,592,100
175,500 Allstar Systems, Inc. 712,969
224,500 Alteon Inc. 1,641,656
233,200 AMX Corporation 1,340,900
80,000 Analytical Surveys, Inc. 2,740,000
225,000 Anika Therapeutics, Inc. 2,095,312
494,800 Applied Imaging Corp. 1,005,062
125,500 Aramex International Limited 1,882,500
171,800 Aviation Distributors, Inc. 859,000
376,079 Barringer Technologies, Inc. (a) 5,406,129
106,600 Best Software, Inc. 986,050
102,650 Biocircuits Corporation (a) 89,819
1,988,333 Biocircuits Corporation (Restricted) (a) 1,739,791
160,200 BioTransplant Incorporated 921,150
148,000 Blonder Tongue Laboratories, Inc. 2,099,750
375,000 Brilliant Digital Entertainment, Inc. 1,757,812
186,500 C*ATS Software, Inc. 944,156
400,000 Calypte Biomedical Corporation (Restricted) 1,550,000
300,039 Cardiac Control Systems, Inc. (a) 168,772
197,000 Castelle 418,625
176,000 Catalyst International, Inc. 715,000
51,020 Celerity Systems, Inc. 153,061
119,200 Central Financial Acceptance Corporation 1,147,300
175,500 Ceradyne, Inc. 691,031
593,749 Chase Packaging Corporation 44,531
455,000 Check Technology Corporation (a) 1,763,125
187,600 Commander Aircraft 445,550
325,450 Concentra Corporation (a) 1,322,141
145,000 Concentra Corporation (Restricted) (a) 589,062
2,200,000 Contempri Homes, Inc. 0
800,000 Country Wide Transport Services, Inc. (a) 900,000
82,800 Data Translation, Inc. 170,775
106,700 Diversified Corporate Resources, Inc. 853,600
_______________________________________________________________________________
See the accompanying Notes to the Financial Statements.
3
SPECIAL SITUATIONS FUND III, L.P.
(A Limited Partnership)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<C> <C> <C>
Shares Common Stocks (Continued) Value
- -------------------------------------------------------------------------------
93,500 ECCS, Inc. $ 607,750
333,100 Educational Insights, Inc. 718,230
211,800 Ellett Brothers, Inc. 1,171,508
224,300 EPIX Medical, Inc. 2,915,900
164,500 EZCORP, Inc. 1,912,312
191,200 Faroudja, Inc. 1,983,700
414,700 Film Roman, Inc. 699,806
85,200 First Sierra Financial, Inc. 1,512,300
323,440 Fourth Shift Corporation 970,320
291,200 Gensym Corporation 1,328,600
388,800 Gentia Software PLC-SP ADR 1,069,200
23,500 Health Fitness Corporation 36,719
90,000 Healthworld Corporation 1,085,625
270,000 Helisys, Inc. 118,125
540,700 Hemagen Diagnostics, Inc. 1,081,400
251,000 Image Guided Technologies, Inc. (a) 909,875
986,500 Indenet, Inc. (a) 2,466,250
360,300 Intelligent Medical Imaging, Inc. 1,306,087
281,900 Intensiva Healthcare Corporation 2,114,250
281,400 IRIDEX Corporation 2,145,675
763,000 Jos. A. Bank Clothiers, Inc. (a) 4,101,125
47,800 Kentek Information Systems, Inc. 322,650
1,100,000 LifeRate Systems, Inc. (a) 687,500
162,000 Lincoln Logs, Ltd.(a) 103,777
252,500 Mechanical Dynamics, Inc. 1,688,594
105,500 Medallion Financial Corporation 2,321,000
235,100 Media 100, Inc. 1,175,500
446,709 Medical Graphics Corporation (a) 2,010,190
375,000 Mednet International, Ltd. 1,481,250
455,192 Mentortech, Inc. 256,045
207,700 MFC Bancorp Ltd. 2,362,587
455,000 MicroFrame, Inc.(a) 611,383
186,400 Mizar, Inc. 1,118,400
1,094,000 MK Gold Company (a) 1,641,000
129,875 Movado Group, Inc. 2,987,125
289,000 Oakhurst Capital, Inc.(a) 270,937
177,000 Optical Sensors Incorporated 951,375
312,700 OrCad, Inc. 2,657,950
______________________________________________________________________________
See the accompanying Notes to the Financial Statements.
4
SPECIAL SITUATIONS FUND III, L.P.
(A Limited Partnership)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<C> <C> <C>
Shares Common Stocks (Continued) Value
- -------------------------------------------------------------------------------
64,500 Penn Treaty American Corp. $ 2,047,875
83,300 Photon Dynamics, Inc. 281,137
151,600 Photran Corporation 663,250
210,000 Platinum Entertainment, Inc. 1,417,500
163,600 Raytel Medical Corporation 1,901,850
117,500 Schuff Steel Company 1,277,812
1,725,569 Silicon Valley Research, Inc. (a) 1,132,362
151,000 Simione Central Holdings, Inc. 1,359,000
129,500 SL Industries, Inc. 1,529,719
371,500 SPACEHAB, Incorporated 3,923,969
473,500 Spatial Technology, Inc. (a) 739,844
658,100 Specs Music (a) 411,312
289,000 Steel City Products, Inc. 11,560
275,500 Storage Dimensions, Inc. 1,033,125
81,100 Strategia Corporation 618,387
103,900 Template Software, Inc. 1,532,525
187,500 TGC Industries, Inc.(a) 210,937
150,000 Thermo Vision Corporation 1,218,750
260,700 Thoratec Laboratories Corporation 1,727,137
149,600 Toymax International, Inc. 1,290,300
488,400 Trans World Entertainment Corp. 9,462,652
212,500 Transcrypt International, Inc. 5,285,937
151,200 Travis Boats & Motors, Inc. 3,647,700
153,100 Tridex Corporation 746,362
88,000 TSR, Inc. 1,375,000
448,800 ULTRADATA Corporation (a) 1,374,450
354,400 Ultrafem, Inc. 332,250
356,603 Versant Object Technology Corporation 4,925,579
834,600 White Pine Software, Inc. (a) 2,295,150
151,800 Zindart Limited 2,087,250
200,200 Zoll Medical Corporation 1,063,562
----------
154,313,237
-----------
_______________________________________________________________________________
See the accompanying Notes to the Financial Statements.
5
SPECIAL SITUATIONS FUND III, L.P.
(A Limited Partnership)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<C> <C> <C>
Shares Preferred Stocks Value
_______________________________________________________________________________
425,000 Accuhealth, Inc. convertible preferred (a) $ 850,000
64,306 Celerity Systems, Inc. Series A convertible preferred 192,917
31,718 Celerity Systems, Inc. Series B convertible preferred 95,155
150,000 TGC Industries, Inc. Series C 8 1/2 % preferred (a) 1,162,500
----------
2,300,572
----------
<C> <C> <C>
Principal Corporate Bonds Value
_______________________________________________________________________________
760,000 Connect, Inc. 5% convertible debentures, due 10/1/99 $ 760,000
150,000 Lincoln Logs, Ltd. convertible subordinated, 484,500
debentures, due 6/30/98 (a) --------
1,244,500
Warrants Warrants Value
- -------------------------------------------------------------------------------
27,500 Barringer Technologies, Inc. 5/9/98 (a) $ 341,412
229,167 Barringer Technologies, Inc. 5/9/00 (a) 2,845,105
255,000 Biocircuits Corporation 11/23/98 (Restricted) (a) 63,750
1,733,333 Biocircuits Corporation 1/3/99 (Restricted) (a) 433,333
153,500 Byron Preiss Multimedia Company, Inc. 5/11/99 23,977
27,731 Cardiac Control Systems, Inc. 3/31/99 (Restricted) (a) --
43,125 Children's Broadcasting Corporation 1/8/01 431
253,327 Connect, Inc. 11/3/00 (Restricted) 25,333
1,100,000 LifeRate Systems, Inc. 11/14/07 (a) 55,000
70,900 Nam Tai Electronics, Inc. 11/24/00 203,837
75,000 Prologic Management Systems, Inc. 3/14/99 4,687
862,069 Silicon Valley Research, Inc. 4/15/00 (a) 43,103
---------
4,039,968
---------
_______________________________________________________________________________
See the accompanying Notes to the Financial Statements.
6
SPECIAL SITUATIONS FUND III, L.P.
(A Limited Partnership)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<C> <C> <C>
Units Units Value
_______________________________________________________________________________
140,800 Boulevard Investment Group $ 70,400
133,621 MicroFrame, Inc. 233,837
629,310 Silicon Valley Research, Inc. (Restricted) 465,689
---------
769,926
TOTAL INVESTMENTS $ 162,668,203
------------
------------
Securities Sold Short
Shares Common Stock Value
- -------------------------------------------------------------------------------
20,000 ABR Informations Services, Inc. $ 477,500
10,000 America Online, Inc. 905,000
7,500 Cardiovascular Dynamics, Inc. 41,250
26,500 CKE Restaurants, Inc. 1,116,312
12,500 Friedman, Billings, Ramsey Group, Inc. 224,219
68,000 Friendly Ice Cream Corporation 790,500
22,000 InVision Technologies, Inc. 167,750
15,000 Microsoft Corporation 1,938,750
20,500 National TechTeam, Inc. 184,500
18,500 Pegasystems, Inc. 373,469
71,900 Philip Services Corp. 1,033,562
8,600 Serologicals Corporation 223,600
15,300 Skyes Enterprises Incorporated 298,350
19,000 TeleTech Holdings, Inc. 216,125
17,000 The Learning Company, Inc. 273,062
11,400 The North Face, Inc. 250,800
33,500 Tommy Hilfiger Corporation 1,176,687
31,800 Tro Learning, Inc. 162,975
----------
TOTAL SECURITIES SOLD SHORT 9,854,413
----------
</TABLE>
(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.
7
SPECIAL SITUATIONS FUND III, L.P.
(A Limited Partnership)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
_____________________________________________________________________________
<TABLE>
<S> <C>
INCOME
Net realized gains on investments $ 29,727,839
Net unrealized gains on investments 6,020,717
------------
Net gains on investment portfolio 35,748,556
Interest 633,995
Dividends 227,846
-----------
Total income $ 36,610,397
-----------
-----------
<S> <C>
EXPENSES
Administrator's fee - Note 7 $ 1,207,392
Professional fees 219,050
Independent general partners' fees 30,000
Other 114,015
------------
Total expenses 1,570,457
------------
Net income $ 35,039,940
------------
------------
</TABLE>
______________________________________________________________________________
See the accompanying Notes to the Financial Statements.
8
SPECIAL SITUATIONS FUND III,L.P.
(A Limited Partnership)
STATEMENT OF CHANGES IN PARTNERS' CAPTIAL
______________________________________________________________________________
<TABLE>
Per Limited Corporate Individual
Partners' Limited General General
Unit Partners Partner Partners Total
---------- --------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED
DECEMBER 31, 1996: $ 93,588,614 5,966,439 5,670,653 105,225,706
BALANCE,
DECEMBER 31, 1995
Capital contributions 7,679,291 - 929 7,680,220
Transfers - (210,828) 210,828 -
Allocation of net income:
Corporate General
Partner (20%) - 10,686,440 - 10,686,440
Partners (80%) 38,255,548 2,337,410 2,152,804 42,745,762
Repurchases (5,370,628)(13,500,000)(4,000,000)(22,870,628)
----------- ----------- --------- ------------
BALANCE,
DECEMBER 31, 1996 $25,000 134,152,825 5,279,461 4,035,214 143,467,500
-------
SIX MONTHS ENDED
JUNE 30, 1997:
Capital contributions 2,753,293 - - 2,753,293
Transfers - ( 50,000) 50,000 -
Allocation of net income:
Corporate General
Partner (20%) - 2,036,879 - 2,036,879
Partners (80%) $ 1,393 7,628,496 291,389 227,631 8,147,516
-------
Repurchases - Note 4 (2,020,703) - - ( 2,020,703)
----------- ----------- ---------- -----------
BALANCE,
JUNE 30, 1997 $25,000 142,513,911 7,557,729 4,312,845 154,384,485
-------
SIX MONTHS ENDED
DECEMBER 31, 1997:
Capital contributions 1,990,000 - - 1,990,000
Allocation of net income:
Corporate General
Partner (20%) - 4,971,109 - 4,971,109
Partners (80%) $ 3,179 18,374,986 961,034 548,417 19,884,437
-------
Repurchases (7,223,320) (3,500,000)(1,000,000)(11,723,320)
----------- ----------- --------- -----------
BALANCE,
DECEMBER 31, 1997 $25,000 $155,655,577 $9,989,872 $3,861,262 169,506,711
------- ------------ ---------- ---------- -----------
</TABLE>
See Note 4 for changes in Units outstanding.
_____________________________________________________________________________
See the accompanying Notes to the Financial Statements.
9
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. 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 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 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.
10
SPECIAL SITUATIONS FUND III, L.P.
(A Limited Partnership)
NOTES TO THE FINANCIAL STATEMENTS
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 the close 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.
11
SPECIAL SITUATIONS FUND III, L.P.
(A Limited Partnership)
NOTES TO THE FINANCIAL STATEMENTS
NOTE 4- PARTNER CAPITAL ACCOUNT TRANSACTIONS (CONTINUED):
In May 1997, the Fund offered to repurchase up to 584.8832 Units (10%
of its outstanding Units at June 30, 1997) at $25,000 per Unit.
80.8281 Units were tendered for repurchase.
In November 1997, the Fund offered to repurchase up to 625.4979 Units
(10% of its outstanding Units at December 31, 1997) at $25,000 per
Unit. 468.9328 Units were tendered for repurchase.
The Fund also has the right to sell additional Units at the beginning
of each fiscal period.
Changes in Units outstanding:
<TABLE>
Corporate Individual
Limited General General
Partners Partner Partner Total
__________ __________ __________ __________
<S> <C> <C> <C> <C>
Balance, December 31, 1995 3,743.5445 238.6575 226.8262 4,209.0282
Additional units sold 307.1716 - 0.0372 307.2088
Transfers - (8.4331) 8.4331 -
Allocation of additional units 1,530.2219 520.9540 86.1121 2,137.2880
Repurchases (214.8251) (540.0000) (160.0000) (914.8251)
----------- ---------- --------- ---------
Balance, December 31, 1996 5,366.1129 211.1784 161.4086 5,738.6999
Additional units sold 110.1317 - - 110.1317
Transfers - (2.0000) 2.0000 -
Allocation of additional units 305.1399 93.1307 9.1052 407.3758
Repurchases (80.8281) - - (80.8281)
----------- ---------- --------- ----------
Balance, June 30, 1997 5,700.5564 302.3091 172.5138 6,175.3793
Additional units sold 79.6000 - - 79.6000
Allocation of additional units 734.9994 237.2857 21.9367 994.2218
Repurchases (288.9328) (140.0000) (40.0000) (468.9328)
---------- ---------- --------- ----------
Balance, December 31, 1997 6226.2230 399.5948 154.4505 6780.2683
---------- ---------- --------- ----------
</TABLE>
12
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, 1997
aggregated 209,393,817 and 225,009,915, 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:
<TABLE>
Years Ended
December 31,
----------------------
1997 1996 1995 1994
---- ---- ----- ----
<S> <C> <C> <C> <C>
Ratio of total expenses to average net .98% 1.00% 1.18% 1.19%
assets
Ratio of net income to average net 21.84% 39.58% 38.09% 11.18%
assets
Portfolio turnover rate 139.7% 228.0% 245.2% 233.4%
Average commission rate paid $ .0356 $.0389 (a) (a)
(a) This disclosure is not required prior to 1996
</TABLE>
13
SPECIAL SITUATIONS FUND III, L.P.
(A Limited Partnership)
NOTES TO THE FINANCIAL STATEMENTS
NOTE 9- RETURN ON PARTNER INVESTMENT:
At December 31, 1997, the value of a $25,000 investment made at each
respective subscription date is as follows:
Subscription Date Value
----------------- -----
January 1, 1994 $61,680
January 1, 1995 $56,389
July 1, 1995 $49,930
January 1, 1996 $41,639
July 1, 1996 $31,433
January 1, 1997 $29,749
July 1, 1997 $28,179
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
balances in the accounts over the amount of insurance maintained by
the broker is approximitely $ 3,316,000 at December 31, 1997.
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.
14
