December 31, 1999
__________________________________
Special Situations Annual
Fund III, L.P. Report
SPECIAL SITUATIONS FUND III, L.P.
----------------------------------
INDEX TO ANNUAL REPORT
DECEMBER 31, 1999
<TABLE>
____________________________________________________________________
<S> <C>
PAGE
----
Independent Auditors' Report 1
Statement of Financial Condition 2
Portfolio of Investments 3
Statement of Operations 11
Statement of Changes in Partners' Capital 12
Notes to the Financial Statements 13
</TABLE>
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, 1999, 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 Fund's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with 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, 1999
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 provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Special Situations
Fund III, L.P. at December 31, 1999, 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
New York, New York
February 10, 2000
1
SPECIAL SITUATIONS FUND III, L.P.
(A Limited Partnership)
STATEMENT OF FINANCIAL CONDITION
DECEMBER 31, 1999
ASSETS - NOTE 2
Investments, at fair value (cost $111,635,464) $ 180,771,415
Cash and cash equivalents 53,799,208
Receivable for investments sold 8,510,161
Other assets 104,830
----------------
Total Assets $ 243,185,614
----------------
----------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Payable for Units repurchased - Note 4 $ 21,435,339
Securities sold short, at fair value 2,456,010
(proceeds $3,236,871) Note 10
Payable for investments purchased - Note 2 5,475,548
Administrator's fee payable - Note 7 357,475
Accrued expenses 162,945
----------------
Total Liabilities $ 29,887,317
----------------
Partners' Capital- Notes 1,3 and 4
Limited Partners $ 194,712,153
Corporate General Partner 14,866,034
Individual General Partners 3,720,110
----------------
Total Partners' Capital 213,298,297
----------------
Total Liabilities and Partners' Capital $ 243,185,614
----------------
----------------
_____________________________________________________________________________
See the accompanying Notes to the Financial Statements.
2
SPECIAL SITUATIONS FUND III, L.P.
(A Limited Partnership)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
Fair
Shares Common Stocks Value
- -------------------------------------------------------------------------------
Aerospace 0.94%
372,600 SPACEHAB, Incorporated $ 2,002,725
---------
Automotive 0.23
82,900 Lund International Holdings, Inc. 487,038
289,000 Steel City Products, Inc. 11,560
---------
498,598
---------
Beverages - Alcohol 0.62 %
127,200 Ravenswood Winery, Inc. 1,335,600
---------
Biotechnology 2.31%
162,400 ArQule, Inc. 1,664,600
1,215,000 La Jolla Pharmaceutical Company (a) 3,075,469
186,000 Molecular Biosystems, Inc. 186,000
---------
4,926,069
---------
Broadcasting 0.30%
357,400 Accom, Inc. 245,715
254,900 Film Roman, Inc. 398,281
---------
643,993
---------
Capital Equipment 1.25%
174,500 Quixote Corporation 2,661,125
---------
Communications Products 5.40%
253,000 Corsair Communications, Inc. 2,055,625
422,500 ION Networks, Inc. 9,453,438
----------
11,509,063
----------
Computer Equipment 1.18%
52,000 Network Computing Devices, Inc. 403,000
59,550 SeaChange International, Inc. 2,106,581
---------
2,509,581
---------
_____________________________________________________________________________
See the accompanying Notes to the Financial Statements
3
SPECIAL SITUATIONS FUND III, L.P.
(A Limited Partnership)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1999
Fair
Shares Common Stocks (Continued) Value
- -------------------------------------------------------------------------------
Computer Services - Software 2.67%
72,100 Navidec,Inc. $ 865,200
305,100 Peerless Systems Corporaton 2,364,525
186,700 Pomeroy Computer Resources, Inc. 2,462,106
---------
5,691,831
---------
Computer Systems 0.62%
241,700 I.D. Systems,Inc. 1,329,350
---------
Electronic Componets 7.22%
431,440 Barringer Technologies, Inc.(a) 2,696,497
444,500 Blue Wave Systems, Inc. 4,111,625
121,200 Ezenia,Inc. 950,669
181,800 Frequency Electronics, Inc. 1,886,175
348,800 Panja, Inc. 5,755,200
---------
15,400,166
---------
Electronic Equipment 1.23%
175,000 Information Resources, Inc. (Restricted) 2,625,000
---------
Electronic Instruments 1.28%
156,000 AstroPower, Inc. 2,184,000
42,600 FVC.com, Inc. 497,888
9,000 Metretek Technologies,Inc. 42,750
----------
2,724,638
----------
Energy- Miscellaneous 0.12%
600,000 Boots & Coots International Well Control (Restricted) 262,500
----------
Energy - Oil & Gas 0.61%
451,379 Edge Petroleum Corporation (a) 1,297,715
----------
Entertainment 0.01%
9,165 Plantinum Entertainment, Inc. 22,912
---------
- ------------------------------------------------------------------------------
See the accompanying Notes to the Financial Statements.
4
SPECIAL SITUATIONS FUND III, L.P.
(A Limited Partnership)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1999
Fair
Shares Common Stocks (Continued) Value
- -------------------------------------------------------------------------------
Financial Services - Miscellaneous 1.29%
151,200 MCM Capital Group, Inc. 585,900
185,500 MicroFinancial Incorporation 2,168,031
---------
2,753,931
---------
Food 0.13%
86,700 Opta Food Ingredients, Inc. 270,938
---------
Gold Mining 0.96%
2,174,500 MK Gold Company (a) 2,038,594
---------
Healthcare Management 0.78%
918,500 Apache Medical Systems, Inc. (a) 1,320,344
124,633 Mednet International, Ltd. 345,234
---------
1,665,578
---------
Healthcare-Specialized Products & Services 0.01%
122,800 Accuhealth, Inc. (a) 15,350
100,729 Accuhealth, Inc. (a) (Restricted) 12,591
---------
27,941
---------
Internet Commerce 1.48%
170,400 Garden.com, Inc. 1,480,350
336,600 Salon.com, Inc. 1,683,000
---------
3,163,350
Manufacturer-Consumer Products 0.76%
235,200 Zindart Limited 1,617,000
---------
Medical - Drugs 1.57%
224,300 EPIX Medical, Inc. 2,243,000
---------
Medical Devices & Equipment 13.61%
539,500 Aksys, Ltd. $ 2,630,063
1,070,400 Applied Imaging Corporation (a) 1,338,000
89,823 Cambridge Heart, Inc. 308,766
433,200 EP MedSystems, Inc. 2,057,700
425,700 Image Guided Technologies, Inc. (a) 292,669
545,700 IRIDEX Corporation (a) 4,843,087
- ------------------------------------------------------------------------------
See the accompanying Notes to the Financial Statements
5
SPECIAL SITUATIONS FUND III, L.P.
(A Limited Partnership)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1999
Fair
Shares Common Stocks (Continued) Value
- -------------------------------------------------------------------------------
Medical Devices & Equipment (continued)
104,200 Invivo Corporation $ 1,263,425
397,200 Laserscope, Inc. 384,788
736,800 Optical Sensors Incorporated (a) 460,500
88,345 Possis Medical, Inc. 690,195
24,000 Protocol Systems, Inc. 216,000
352,500 Precision Optics Corporation (a) 6,212,812
644,600 Somnus Medical Technologies, Inc. 1,692,075
794,000 The Spectranetics Corporation 3,126,375
369,400 Thoratec Laboratories Corporation 3,509,300
----------
29,025,755
----------
Medical Information Systems 3.21%
526,580 CIMA Labs Inc. 6,845,540
---------
Paper-Packaging 0.00%
593,749 Chase Packaging Corporation 2,969
---------
Restaurant 0.71%
746,100 Famous Dave's of America, Inc. (a) 1,515,516
---------
Retail 8.44%
242,500 1-800 CONTACTS, INC. 6,562,654
291,800 EZCORP, Inc. 1,167,200
114,600 GAIAM, Inc. 1,819,275
705,300 J.Jill Group, Inc. (a) 2,909,363
673,400 Jos.A Bank Clothiers, Inc. (a) 2,020,200
53,000 SkyMall, Inc. 390,875
172,400 Travis Boats & Motors, Inc. 2,068,800
128,600 West Marine, Inc. 1,060,950
----------
17,999,317
----------
Services 1.36%
463,000 Collectors Universe, Inc. 2,893,750
---------
Software 12.65%
297,300 ANSYS, Inc. 3,270,300
368,340 Fourth Shift Corporation 2,555,359
535,500 Gensym Corporation (a) 3,079,125
- -------------------------------------------------------------------------------
See the accompanying Notes to the Financial Statements.
6
SPECIAL SITUATIONS FUND III, L.P.
(A Limited Partnership)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1999
Fair
Shares Common Stocks (Continued) Value
- -------------------------------------------------------------------------------
Software (continued)
23,000 Interplay Entertainment Corporation $ 67,562
284,500 Mechanical Dynamics, Inc. 1,458,062
115,052 Mustang.com, Inc. 1,797,687
360,000 Silicon Valley Research, Inc. (a) 129,600
482,900 White Pine Software, Inc. (a) 11,831,050
182,292 White Pine Software, Inc. (a)(Restricted) 2,800,005
---------
26,988,750
----------
Specialty Financial 2.89%
201,000 Medallion Financial Corporation 3,605,438
288,900 MFC Bancorp Ltd. 2,563,987
---------
6,169,425
---------
Technology CAD/CAM/CAE 2.11%
945,900 Spatial Technology, Inc. (a) 4,493,025
----------
Transportation 0.75%
152,400 Aramex International Limited 1,400,175
820,000 Country Wide Transport Services, Inc. (a) 205,000
---------
1,605,175
---------
Total Common Stocks 78.18% 166,760,420
-----------
Shares Preferred Stocks Value
_______________________________________________________________________________
Energy Services 0.14%
150,300 TGC Industrices, Inc. (a) $ 309,994
--------
Healthcare-Specialized Products & Services 0.05%
425,000 Accuhealth, Inc. convertible preferred (a) 106,250
--------
Retail 0.31%
6,600 SkyMall, Inc. convertible preferred 660,000
---------
Total Preferred Stocks 0.50% 1,076,244
---------
---------
- ------------------------------------------------------------------------------
See the accompanying Notes to the Financial Statements.
7
SPECIAL SITUATIONS FUND III, L.P.
(A Limited Partnership)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1999
Fair
Warrants Warrants Value
- -------------------------------------------------------------------------------
Biotechnology 0.02%
271,000 Diacrin, Inc. 12/31/00 $ 33,875
----------
Broadcasting 0.00%
43,125 Children's Broadcasting Corporation 1/8/01 -
---------
Computer Services 0.00%
38,235 SkyLynx Communications, Inc. 5/20/00 382
--------
Communications Products 2.07%
81,121 ION Networks, Inc. 4/25/00 1,693,401
133,621 ION Networks, Inc. 6/7/02 2,722,528
---------
4,415,929
---------
Electronic Components 0.63%
229,167 Barringer Technologies, Inc. 5/9/00 (a) 954,480
200,000 Energy Conversion Devices, Inc. 7/31/01 387,500
---------
1,341,980
---------
Energy- Miscellaneous 0.00%
300,000 Boots & Coots International Well Control 5/14/02(R) -
180,000 Boots & Coots International Well Control 5/14/04(R) -
---------
---------
Energy - Oil & Gas 0.00%
72,414 Edge Petroleum Corporation 5/5/04 (a) 7,241
---------
Medical Devices & Equipment 2.92%
5,771 Cambridge Heart, Inc. 6/9/03 (Restricted) 577
341,200 Hemagen Diagnostics, Inc. 2/28/01 42,650
13,252 Possis Medical, Inc. 6/2/03 1,325
375,000 Precision Optics Corporation 8/5/04 (a) 6,187,500
---------
6,232,052
----------
Medical Information Systems 0.00%
1,100,000 LifeRate Systems, Inc. 9/14/07 (a) -
1,100,000 LifeRate Systems, Inc. 9/14/07 (a) (Restricted) -
-------
-
- -----------------------------------------------------------------------------
See the accompanying Notes to the Financial Statements.
8
SPECIAL SITUATIONS FUND III, L.P.
(A Limited Partnership)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1999
Fair
Warrants Warrants (continued) Value
- -------------------------------------------------------------------------------
Retail 0.03%
95,000 PawnMart, Inc. A 3/11/03 $ 22,266
90,000 PawnMart, Inc. B 3/11/04 14,062
96,450 SkyMall, Inc. A 11/02/04 24,113
47,143 SkyMall, Inc. B 12/21/05 -
--------
60,441
--------
Software 0.33%
102,564 Mustang.com, Inc. 10/10/04 702,051
1,369,479 Silicon Valley Research, Inc. 4/15/00 (a)(Restricted) -
--------
702,051
---------
Total Warrants 6.00% 12,793,951
----------
----------
Fair
Units Units Value
_______________________________________________________________________________
Housing-Construction 0.07%
281,600 Boulevard Investment Group $ 140,800
-------
-----------
TOTAL INVESTMENTS 84.75% $ 180,771,415
-----------
-----------
_____________________________________________________________________________
See the accompanying Notes to the Financial Statments
9
SPECIAL SITUATIONS FUND III, L.P.
(A Limited Partnership)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1999
Securities Sold Short Fair
Shares Common Stocks (Continued) Value
- -------------------------------------------------------------------------------
Healthcare-Drugs 0.63%
26,300 Shared Medical Systems Corporation $ 1,339,604
----------
Medical Devices & Equipment 0.46%
126,100 Possis Medical, Inc. 985,156
----------
Retail 0.06%
5,000 eToys, Inc. 131,250
----------
TOTAL SECURITIES SOLD SHORT 1.15% $ 2,456,010
----------
----------
</TABLE>
(a) Affiliated issuer under the Investment Company Act of 1940,
inasmuch as the Fund owns more than 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 YEAR ENDED DECEMBER 31, 1999
_____________________________________________________________________________
INCOME
Net realized gain on investments $ 54,938,652
Net change in unrealized appreciation 49,952,429
------------
Net gain on investment portfolio 104,891,081
Interest 461,364
Dividends 414,223
-----------
Total 105,766,668
------------
------------
EXPENSES
Administrator's fee - Note 7 $ 1,155,656
Professional fees 301,008
Independent General Partners' fees 30,000
Other 92,355
------------
Total 1,579,019
------------
Net Income $104,187,649
------------
------------
______________________________________________________________________________
See the accompanying Notes to the Financial Statements.
11
SPECIAL SITUATIONS FUND III,L.P.
(A Limited Partnership)
STATEMENT OF CHANGES IN PARTNERS' CAPTIAL
______________________________________________________________________________
<TABLE>
<S> <C> <C> <C> <C> <C>
Per Limited Corporate Individual
Partners' Limited General General
Unit Partners Partner Partners Total
---------- --------- ---------- ----------- ----------
YEAR ENDED
DECEMBER 31, 1998:
BALANCE,
DECEMBER 31, 1997 $ 155,655,577 $ 9,989,872 $3,861,262 $169,506,711
Capital contributions 4,150,000 - - 4,150,000
Transfers - (2,602,867) 2,602,867 -
Allocation of net loss (18,053,984) (913,319) (752,425) (19,719,728)
Repurchases (19,092,686) - - (19,092,686)
----------- ----------- --------- ------------
BALANCE,
DECEMBER 31, 1998 $25,000 122,658,907 6,473,686 5,711,704 134,844,297
-------
SIX MONTHS ENDED
JUNE 30, 1999:
Capital contributions 1,750,000 - - 1,750,000
Transfers - (776,763) 776,763 -
Allocation of net income 2,094 10,419,808 477,143 543,438 11,440,389
-------
Repurchases (4,596,550) - (2,000,000) 6,596,550)
----------- ----------- ---------- -----------
BALANCE,
JUNE 30, 1999 $25,000 130,232,165 6,174,066 5,031,905 141,438,136
-------
SIX MONTHS ENDED
DECEMBER 31, 1999:
Capital contributions 548,240 - - 548,240
Allocation of net income
Corporate General Partner
Performance allocation - 16,893,584 - 16,893,584
Partners $13,356 69,867,087 3,298,384 2,688,205 75,853,676
Repurchases ------- (5,935,339) (11,500,000)(4,000,000)(21,435,339)
----------- ----------- --------- -----------
BALANCE,
DECEMBER 31, 1999 $25,000 $194,712,153 $14,866,034 $3,720,110 $213,298,297
------- ------------ ---------- ---------- -----------
</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
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 reported sales price on the last business day of the
reporting period. Securities for which no sale occurred on such day
are valued at the average of the highest bid and lowest 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.
13
SPECIAL SITUATIONS FUND III, L.P.
(A Limited Partnership)
NOTES TO THE FINANCIAL STATEMENTS
NOTE 2- ACCOUNTING POLICIES (CONTINUED):
Cash and cash equivalents consist principally of cash balances in
brokerage account.
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 INCOME AND LOSSES:
Net income isallocated; first, to MGP to the extent of any previous net
losses allocated to MGP in excess of the other partners' capital
balance; 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 a 20% performance allocation to MGP. If there
is a loss for an accounting period, the performance allocation to MGP
will not apply to future periods until the loss has been recovered.
For purposes of the performance allocation, net income for the year
ended December 31, 1999 was reduced by a loss carryover from December
31, 1998 of $19,719,728.
Net Losses are allocated to the partners in proportion to the number of
Units held by each, provided, however, that net 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.
14
SPECIAL SITUATIONS FUND III, L.P.
(A Limited Partnership)
NOTES TO THE FINANCIAL STATEMENTS
NOTE 4- PARTNER CAPITAL ACCOUNT TRANSACTIONS (CONTINUED):
In May 1999, the Fund offered to repurchase up to 592.1387 Units (10%
of its outstanding Units at June 30, 1999 after the semi-annual
adjustment of Units). 263.8620 Units were tendered for repurchase.
In November 1999, the Fund offered to repurchase up to 938.9345 Units
(10% of its outstanding Units at December 31, 1999 after the semi-
annual adjustment of Units). 857.4136 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 are as follows:
<TABLE>
<S> <C> <C> <C> <C>
Corporate Individual
Limited General General
Partners Partner Partners Total
__________ __________ __________ __________
Balance, December 31, 1997 6,226.2231 399.5948 154.4505 6,780.2684
Additional units sold 166.0000 - - 166.0000
Transfers - (104.1147) 104.1147 -
Semi-annual adjustment of Units (722.1594) (36.5327) (30.0970) (788.7891)
Repurchases (763.7074) - - (763.7074)
----------- ---------- --------- ---------
Balance, December 31, 1998 4,906.3563 258.9474 228.4682 5,393.7719
Additional units sold 70.0000 - - 70.0000
Transfers - (31.0705) 31.0705 -
Semi-annual adjustment of Units 416.7923 19.0857 21.7375 457.6155
Repurchases (183.8620) - (80.0000) (263.8620)
----------- ---------- --------- ----------
Balance, June 30, 1999 5,209.2866 146.9626 201.2762 5,657.5254
Additional units sold 21.9296 - - 21.9296
Semi-annual adjustment of Units 2,794.6835 807.6787 107.5282 3,709.8904
Repurchases (237.4136) (460.0000) (160.0000) (857.4136)
----------- --------- --------- ----------
Balance, December 31, 1999 7,788.4861 594.6413 148.8044 8,531.9318
----------- --------- -------- ----------
----------- --------- -------- ----------
</TABLE>
15
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, 1999
aggregated $202,593,916 and $257,712,154, 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,
-----------------------------------------------
1999 1998 1997 1996 1995 1994
---- ---- ---- ---- ----- ----
Ratio of total expenses 1.03% 1.02% .98% 1.00% 1.18% 1.19%
to average net assets
Ratio of net income 68.01% (12.73%) 21.84% 39.58% 38.09% 11.18%
(loss) to average net
assets
Portfolio turnover rate 140.88% (114.61%) 139.7% 228.0% 245.2% 233.4%
16
SPECIAL SITUATIONS FUND III, L.P.
(A Limited Partnership)
NOTES TO THE FINANCIAL STATEMENTS
NOTE 9- RETURN ON PARTNER INVESTMENT:
At December 31, 1999, the value of a $25,000 investment made at each
respective subscription date is as follows:
Subscription Date Value
----------------- -----
January 1, 1994 $90,225
January 1, 1995 82,485
July 1, 1995 73,037
January 1, 1996 60,908
July 1, 1996 45,980
January 1, 1997 43,517
July 1, 1997 41,220
January 1, 1998 36,570
July 1, 1998 37,497
January 1, 1999 41,569
July 1, 1999 38,356
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
