N-30D 1 n30ddec01.txt December 31, 2001 __________________________________ Special Situations Annual Fund III, L.P. Report SPECIAL SITUATIONS FUND III, L.P. ------------------------------------------------- INDEX TO ANNUAL REPORT DECEMBER 31, 2001 _______________________________________________________________________________ PAGE ------- Independent Auditors' Report 1 Statement of Financial Condition 2 Portfolio of Investments 3 Statement of Operations 10 Statement of Changes in Partners' Capital 11 Notes to the Financial Statements 12 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, 2001, 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 auditing standards generally accepted in the United States of America. 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, 2001 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, 2001, 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 accounting principles generally accepted in the United States of America. ANCHIN, BLOCK & ANCHIN LLP New York, New York February 7, 2002 1 SPECIAL SITUATIONS FUND III, L.P. (A Limited Partnership) STATEMENT OF FINANCIAL CONDITION DECEMBER 31, 2001 ___________________________________________________________ ASSETS - NOTE 2 Investments, at fair value (cost $195,735,772) $ 248,789,513 Cash and cash equivalents 27,793,597 Receivable for investments sold 5,256,773 ---------------- Total Assets $ 281,839,883 ------------- LIABILITIES AND PARTNERS' CAPITAL Liabilities Payable for Units repurchased - Note 4 $ 8,862,527 Securities sold short, at fair value (proceeds $1,764,275)- Note 10 1,580,667 Payable for investments purchased - Note 2 2,903,957 Administrator's fee payable - Note 7 937,802 Accrued expenses 154,935 ---------------- Total Liabilities $ 14,439,888 ---------------- Partners' Capital- Notes 1,3 and 4 Limited Partners $ 248,351,589 Corporate General Partner 13,199,827 Individual General Partners 5,848,579 ------------------ Total Partners' Capital 267,399,995 ----------------- Total Liabilities and Partners' Capital $ 281,839,883 ------------------ See the accompanying Notes to the Financial Statements. 2 SPECIAL SITUATIONS FUND III, L.P. (A Limited Partnership) PORTFOLIO OF INVESTMENTS DECEMBER 31, 2001 Fair Shares Common Stocks Value Aerospace 0.20% 700,000 SPACEHAB, Incorporated (a) $ 539,000 --------------- Biotechnology 5.85% 167,862 Adolor Corporation 3,013,123 665,725 Alliance Pharmaceutical Corp. (a) 2,263,465 365,800 ArQule, Inc. 6,218,600 660,000 Interleukin Genetics, Inc. 897,600 570,000 Paradigm Genetics, Inc. 3,249,000 -------------- 15,641,788 -------------- Communications 1.44% 501,923 ACT Teleconferencing, Inc. (a) 3,839,711 ------------- Communications Products - Equipment 2.48% 170,765 ION Networks, Inc. 124,658 708,700 Telular Corporation (a) 6,505,866 ------------ 6,630,524 ----------- Computer Equipment 2.88% 645,300 Procom Technology, Inc. 2,064,960 164,950 SeaChange International, Inc. 5,628,094 ------------ 7,693,054 See the accompanying Notes to the Financial Statements. 3 SPECIAL SITUATIONS FUND III, L.P. (A Limited Partnership) PORTFOLIO OF INVESTMENTS DECEMBER 31, 2001 Fair Shares Common Stocks (Continued) Value Computer Services - Software 21.57% 1,138,400 3Dfx Interactive, Inc. $ 552,124 350,000 Ansoft Corporation 5,110,000 166,000 ANSYS, Inc. 4,091,900 2,077,056 Attunity, Ltd. (Restricted) (a) 2,700,173 446,300 Brio Software, Inc. 1,285,344 110,100 Clarus Corporation 687,024 132,100 CryptoLogic, Inc. (Canada) 2,344,775 436,200 dot com Entertainment Group, Inc. (Canada) 549,612 674,200 eCollege.com 2,137,214 421,800 Eloquent, Inc. 265,734 2,877,270 Extensity, Inc. (a) 6,272,449 1,211,364 First Virtual Communications, Inc. 1,296,159 532,100 Gensym Corporation (a) 319,260 134,400 Interplay Entertainment Corp. (a) 61,824 1,725,000 Interplay Entertainment Corp. (Restricted) (a) 793,500 1,198,500 Landacorp, Inc. (a) 1,498,125 275,300 Made2Manage Systems, Inc. (a) 1,004,845 284,500 Mechanical Dynamics, Inc. 2,802,325 1,435,100 Net Perceptions, Inc. (a) 2,439,670 1,300 ON Technology Corporation (a) 4,121 3,253,012 ON Technology Corporation (Restricted) (a) 2,700,000 523,400 Peerless Systems Corporation 654,250 852,600 Pinnacle Systems, Inc. 6,769,644 141,666 Private Business, Inc. 226,666 422,600 Quovadx, Inc. 3,866,790 842,450 Rogue Wave Software, Inc. (a) 2,695,840 598,600 Sagent Technology, Inc. 568,670 637,100 Support.com, Inc. 3,994,617 ----------- 57,692,655 Data Security 3.74% 341,750 SafeNet, Inc. 6,472,745 243,800 Visionics Corporation 3,518,034 ---------- 9,990,779 --------- ______________________________________________________________________________ See the accompanying Notes to the Financial Statements. 4 SPECIAL SITUATIONS FUND III, L.P. (A Limited Partnership) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2001 Fair Shares Common Stocks (Continued) Value Electronic Components 6.95% 870,599 AMX Corporation (a) $ 2,028,496 182,800 Frequency Electronics, Inc. 2,559,200 567,132 OmniVision Technology, Inc. 5,092,845 2,074,800 Tvia, Inc. (a) 3,630,900 161,900 Zoran Corporation 5,284,416 ------------- - - 18,595,857 ------------- - - Electronic Equipment 3.14% 1,024,150 Datakey, Inc. (a) 3,830,321 366,827 Electric Fuel Corporation 680,933 663,462 KVH Industries, Inc. (a) 3,947,599 ------------ - 8,386,853 ---------- - - Electronic Instruments 1.32% 402,306 Genus, Inc. 977,604 603,500 Nova Measuring Instruments Ltd. 2,564,875 ---------- - - 3,542,479 ----------- - Energy - Miscellaneous 0.00% 300,000 Boots & Coots International Well - Control, Inc. (Restricted) ---------- Energy - Oil & Gas 0.42% 210,000 Edge Petroleum Corporation 1,113,000 ---------- - Financial Services - Miscellaneous 1.76% 459,100 MicroFinancial Incorporated 4,705,775 --------- - Food 1.33% 304,651 Suprema Specialties, Inc. 3,564,417 ---------- - Gold Mining 0.51% 2,570,000 MK Gold Company (a) 1,362,100 ----------- Healthcare - Specialized Products & Services 1.24% 294,500 BioSphere Medical, Inc. 3,319,015 ----------- - _______________________________________________________________________________ See the accompanying Notes to the Financial Statements. 5 SPECIAL SITUATIONS FUND III, L.P. (A Limited Partnership) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2001 Fair Shares Common Stocks (Continued) Value Internet Commerce 0.28% 1,232,350 The Knot, Inc. (a) $739,410 ----- - -------- Medical - Drugs 0.65% 388,426 OraPharma, Inc. 1,744,033 ----- - ------- Medical Devices & Equipment 14.29% 709,700 Aksys, Ltd. $ 3,300,105 1,131,327 Applied Imaging Corporation (a) 3,043,270 481,000 Aradigm Corporation 3,415,100 220,200 Given Imaging Ltd. 3,932,772 102,400 Invivo Corporation 1,375,232 857,100 Laserscope, Inc. (a) 2,142,750 1,255,225 LifeCell Corporation (a) 2,849,361 227,650 Micro Therapeutics, Inc. 1,431,918 154,000 Miravant Medical Technologies 1,479,940 1,400,000 Optical Sensors Incorporated (a) 644,000 360,250 ORATEC Interventions, Inc. 2,330,818 209,400 PharmaNetics, Inc. 1,518,150 374,300 Precision Optics Corporation, Inc. 269,496 373,300 The Spectranetics Corporation 1,336,414 237,380 SpectRx, Inc. 1,637,922 331,500 Thoratec Laboratories Corporation 5,635,500 269,100 V.I. Technologies, Inc. 1,870,245 ----- - ------- 38,212,993 ----- - ------- Medical Instruments 2.15% 574,000 Intutive Surgical, Inc. 5,757,220 ------ - ------ Paper-Packaging 0.00% 593,749 Chase Packaging Corporation 5,937 ------ - ----- Pharmaceutical Products 0.73% 137,767 Axcan Pharma, Inc. (Canada) 1,956,291 ------ - ----- See the accompanying Notes to the Financial Statements. 6 SPECIAL SITUATIONS FUND III, L.P. (A Limited Partnership) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2001 Fair Shares Common Stocks (Continued) Value Restaurant 2.96% 236,100 Benihana Inc. Class A (a) 3,553,305 260,200 BRIAZZ, Inc. 260,200 36,800 Dave & Buster's, Inc. 231,104 523,200 Famous Dave's of America, Inc. 3,824,592 181,200 New World Restaurant Group, Inc. (a) 48,924 ------------- 7,918,125 ------------- Retail 14.88% 127,500 1-800 CONTACTS, INC. 1,586,100 2,115,900 EZCORP, Inc. (a) 3,723,984 302,400 Gaiam, Inc. (a) 6,592,320 1,141,700 iGo Corporation 536,599 466,500 J.Jill Group, Inc. 10,043,745 309,425 Movado Group, Inc. 5,940,960 ------------- 28,423,708 ------------- Services 0.27% 554,700 Collectors Universe, Inc. 715,563 ------------ Telecommunications 0.13% 73,000 NMS Communication Corporation 351,860 ------------- Transportation 0.93% 245,400 Aramex International Limited (Jordan) 2,478,540 ------------- Total Common Stocks 87.85% 234,920,687 --------------- _______________________________________________________________________________ See the accompanying Notes to the Financial Statements. 7 SPECIAL SITUATIONS FUND III, L.P. (A Limited Partnership) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2001 Fair Shares Preferred Stocks Value Communication Products - Equipment 1.88% 1,140,000 Artisoft, Inc. (Restricted) (a) $1,949,400 3,075 Novatel Wireless, Inc. 6.5% (a) 3,075,000 --------- 5,024,400 ------------ Electronics Instruments 0.06% 825 Metretek Technologies, Inc. 8% 164,621 ----- Energy - Services 0.04% 105,300 TGC Industries, Inc. (a) 117,936 ------- Medical Devices 0.36% 13,125 PharmaNetics, Inc. 6% 951,563 - - --------- Restaurant 1.16% 3,099 New World Coffee-Manhattan Bagel, Inc. Series F (Rest)(a) 3,099,382 - - --------- Total Preferred Stocks 3.50% 9,357,901 --- - -------- Principal Fair Amount Corporate Bonds Value Computer Services - Software 0.11% 2,100,000 EURO Titus Interactive, 2% due 7/1/05 284,100 ---- - ------ Total Corporate Bonds 0.11% 284,100 ---- - ----- _______________________________________________________________________________ See the accompanying Notes to the Financial Statements. 8 SPECIAL SITUATIONS FUND III, L.P. (A Limited Partnership) PORTFOLIO OF INVESTMENTS DECEMBER 31, 2001 Fair Warrants Warrants Value Biotechnology 0.15% 642,900 Alliance Pharmaceutical Corp. 10.30/06 (a) $ 321,450 330,000 Interleukin Genetics, Inc. 1/26/06 82,500 ---------- 403,950 ---------- Communication Products - Equipment 0.05% 847,600 Artisoft, Inc. 9/30/06 (Restricted) (a) 84,760 292,400 Artisoft, Inc. 9/30/06 (a) 29,240 1,198,052 Novatel Wireless, Inc. 12/21/05 (a) - -- - --------- 114,000 Computer Services - Software 0.00% -- - --------- 1,557,792 Attunity, Ltd. A 10/25/05 (Restricted) (a) - 519,264 Attunity, Ltd. B 10/25/05 (Restricted) (a) - 375,000 Burst.com, Inc. 1/27/05 - 862,500 Interplay Entertainment Corp. 3/29/06 (a) - --- - --------- - Electronic Equipment 0.53% ------------ 650,000 Datakey, Inc. 2/16/06 (a) 1,326,000 315,151 Electric Fuel Corporation 5/7/06 78,788 ---- - --------- 1,404,788 --- - --------- Electronic Instruments 0.03% 337,403 Genus, Inc. 5/17/06 84,350 82,500 Metretek Technologies, Inc. 12/9/04 4,125 -- - -------- 88,475 - - -------- Energy - Miscellaneous 0.01% 300,000 Boots & Coots International Well Control 5/14/02 (Rest) 15,000 180,000 Boots & Coots International Well Control 5/14/04 (Rest) 18,000 ---------- 33,000 - - -------- _______________________________________________________________________________ See the accompanying Notes to the Financial Statements. 9 SPECIAL SITUATIONS FUND III, L.P. (A Limited Partnership) PORTFOLIO OF INVESTMENTS DECEMBER 31, 2001 Fair Warrants Warrants (Continued) Value Energy - Oil & Gas 0.01% 72,414 Edge Petroleum Corporation 5/5/04 36,207 -------- Medical Devices & Equipment 0.22% 90,000 Applied Imaging Corporation 12/14/03 (a) 22,500 66,836 Cardima, Inc. 2/14/05 (Restricted) - 154,167 Cardima, Inc. 2/14/05 161,875 248,700 Hemagen Diagnostics, Inc. 4/30/02 17,409 218,750 LifeCell Corporation 7/6/06 (a) 203,438 350,000 Optical Sensors Incorporated 12/21/06 - 26,250 PharmaNetics, Inc. 2/25/05 13,125 13,252 Possis Medical, Inc. 6/2/03 91,439 10,760 Possis Medical, Inc. 3/6/04 (Restricted) 69,832 47,476 SpectRx, Inc. 6/4/06 11,869 --------- 591,487 --------- 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) - - - --------- - - - --------- Restaurant 0.58% 200,000 Benihana Inc. 6/1/04 (a) 1,554,000 2,411,548 New World Coffee-Manhattan Bagel, Inc. 5/16/06 (Rest) (a) - - - --------- 1,554,000 - --------- Retail 0.00% 95,000 PawnMart, Inc. A 3/11/03 - 90,000 PawnMart, Inc. B 3/11/04 - 96,450 Gemstar-TV Guide International, Inc. A 11/02/04 - 47,143 Gemstar-TV Guide International, Inc. B 12/21/05 - ----- - ------ - ---- - ------- _______________________________________________________________________________ See the accompanying Notes to the Financial Statements. 10 SPECIAL SITUATIONS FUND III, L.P. (A Limited Partnership) PORTFOLIO OF INVESTMENTS DECEMBER 31, 2001 Fair Warrants Warrants (Continued) Value Specialized Services 0.00% 91,667 RateXchange Corporation 3/21/03 918 ------------ Total Warrants 1.58% 4,226,825 -------- - ---- TOTAL INVESTMENTS 93.04% $ 248,789,513 ------------ - ----- Securities Sold Short Fair Shares Common Stock Value Leisure 0.16% 15,000 Carnival Corporation $ 421,200 ------------ - -- Restaurant 0.30% 30,000 McDonald's Corporation 794,047 ----------- - - Specialized Services 0.13% 22,000 Sotheby's Holdings, Inc. 365,420 ----------- - TOTAL SECURITIES SOLD SHORT 0.59% $ 1,580,667 ---------------
(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. 11 SPECIAL SITUATIONS FUND III, L.P (A Limited Partnership) STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2001 _______________________________________________________________________________ INCOME Net realized gain on investments $ 27,885,652 Net change in unrealized appreciation 14,504,885 -------------- Net gain on investment portfolio 42,390,537 Interest 1,416,462 Dividends 327,321 ---------------- Total 44,134,320 ---------------- ---------------- EXPENSES Administrator's fee - Note 7 $ 1,886,149 Professional fees 242,105 Independent General Partners' fees 30,000 Other 96,100 --------------- Total 2,254,354 -------------- Net Income $41,879,966 ------------ ---------------- See the accompanying Notes to the Financial Statements. 12 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 -------------- YEAR ENDED DECEMBER 31, 2000: BALANCE, DECEMBER 31, 1999 $ 194,712,153 $14,866,034 $3,720,110 $213,298,297 Capital contributions 1,475,000 - 1,475,000 Transfers (2,325,622) 2,325,622 Allocation of net income: Corporate General Partner-Performance 8,972,959 - 8,972,959 Partners 27,817,388 1,612,473 874,314 30,304,175 Repurchases (10,724,338) (12,000,000) (2,500,000) (25,224,338) ------------- ------------ --------- -- ----------- BALANCE, DECEMBER 31, 2000 $25,000 213,280,203 11,125,844 4,420,046 228,826,093 ---------- SIX MONTHS ENDED JUNE 30, 2001: Capital contributions 11,225,000 - - 11,225,000 Transfers (592,248) 592,248 Allocation of net income: Corporate General Partner- Performance - 7,239,693 - 7,239,693 Partners $ 3,598 32,309,182 1,515,920 721,333 34,546,435 Repurchases ---------- (9,768,537) - - (9,768,537) ------------ ------------- ------ --- ---------- BALANCE, JUNE 30, 2001 $25,000 247,045,848 19,289,209 5,733,627 272,068,684 --------- SIX MONTHS ENDED DECEMBER 31, 2001: Capital contributions 4,100,000 - - 4,100,000 Transfers (113,363) 113,363 Allocation of net income: Corporate General Partner - Performance - 18,768 - 18,768 Partners $ 7 68,268 5,213 1,589 75,070 Repurchases ----------- (2,862,527) (6,000,000) - (8,862,527) ------------- ------------ - --------- ------------ BALANCE, DECEMBER 31, 2001 $25,000 $248,351,589 $13,199,827 $5,848,579 $267,399,995 ----------- -------------- ------------ -- -- ----------- -------------
See Note 4 for changes in Units outstanding. See the accompanying Notes to the Financial Statements. 13 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 shall have perpetual existence unless sooner dissolved 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. 14 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 a 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 PROFITS AND LOSSES: Net income is 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% performance allocation to MGP. If there is a loss for an accounting period, the performance allocation will not apply to future periods until the loss has been recovered. For purposes of the performance allocation, net income for the six months ended June 30, 2001 was reduced by a loss carryover from December 31, 2000 of $5,587,662. Net 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. 15 SPECIAL SITUATIONS FUND III, L.P. (A Limited Partnership) NOTES TO THE FINANCIAL STATEMENTS NOTE 4- PARTNER CAPITAL ACCOUNT TRANSACTIONS (CONTINUED): The Fund has the right to sell additional Units at the beginning of each fiscal period. Changes in Units outstanding are as follows: Corporate Individual Limited General General Partners Partner Partners Total __________ __________ __________ __________ Balance, December 31, 1999 7,788.4861 594.6413 148.8044 8,531.9318 Additional units sold 59.0000 - - 59.0000 Transfers - (93.0248) 93.0248 - Semi-annual adjustment of Units 1,112.6955 423.4173 34.9726 1,571.0854 Repurchases (428.9735) (480.0000) (100.0000) (1,008.9735) ---------------- -------------- ------------- -------- ------- Balance, December 31, 2000 8,531.2081 445.0338 176.8018 9,153.0437 Additional Units sold 449.0000 - - 449.0000 Transfers - (23.6899) 23.6899 - Semi-annual adjustment of Units 1,292.3673 350.2245 28.8533 1,671.4451 Repurchases (390.7415) - (390.7415) ---------------- ----------- ------------- -------- ------ Balance, June 30, 2001 9,881.8339 771.5684 229.3450 10,882.7473 Additional units sold 164.0000 - 164.0000 Transfers - (4.5345) 4.5345 - Semi-annual adjustment of Units 2.7307 0.9592 0.0636 3.7535 Repurchases (114.5010) (240.0000) - (354.5010) --------------- -------------- -------------- --------- ----- Balance, December 31, 2001 9,934.0636 527.9931 233.9431 10,695.9998 -------------- --------------- -------------- ------
NOTE 5- PURCHASES AND SALES OF SECURITIES: Purchases and sales of securities for the year ended December 31, 2001 aggregated $200,464,641 and $202,795,047, 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 partner's respective share of the Fund's income and expenses reported for income tax purposes. 16 SPECIAL SITUATIONS FUND III, L.P. (A Limited Partnership) NOTES TO THE FINANCIAL STATEMENTS 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: Year Ended December 31, 2001 2000 1999 1998 1997 ------ ----- ------- ------ ------- Ratio of total expenses 0.89% 0.85% 1.03% 1.02% 0.98% to average net assets Ratio of net income 16.62% 15.19% 68.01% (12.73%) 21.84% (loss) to average net assets Portfolio turnover rate 91.33% 102.49% 140.88% 114.61% 139.70%
17 SPECIAL SITUATIONS FUND III, L.P. (A Limited Partnership) NOTES TO THE FINANCIAL STATEMENTS NOTE 9- RETURN ON PARTNER INVESTMENT: At December 31, 2001, the value of a $25,000 investment made at each respective subscription date is as follows: Subscription Date Value ---------------------- ------ January 1, 1994 $117,850 January 1, 1995 107,739 July 1, 1995 95,399 January 1, 1996 79,557 July 1, 1996 60,058 January 1, 1997 56,840 July 1, 1997 53,840 January 1, 1998 47,766 July 1, 1998 48,977 January 1, 1999 54,296 July 1, 1999 50,100 January 1, 2000 32,654 July 1, 2000 27,971 January 1, 2001 28,606 July 1, 2001 25,007 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. 18