-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FuuPCjT+6a90ssnqofHz7vxk+/QBF832PpHpxRBOtgHGxPiCd3qsxsml9c1m09c4 Bb7wu5CV/3YFGT0DyBHxEw== 0000914248-04-000001.txt : 20040112 0000914248-04-000001.hdr.sgml : 20040112 20040112162836 ACCESSION NUMBER: 0000914248-04-000001 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20030630 FILED AS OF DATE: 20040112 EFFECTIVENESS DATE: 20040112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SPECIAL SITUATIONS FUND III L P CENTRAL INDEX KEY: 0000914248 IRS NUMBER: 133737427 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-08110 FILM NUMBER: 04520958 BUSINESS ADDRESS: STREET 1: 153 E 53 ST 51ST FL CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2128325300 MAIL ADDRESS: STREET 1: 153 EAST 53RD STREET 51ST FLOOR CITY: NEW YORK STATE: NY ZIP: 10022 N-CSR 1 ncsrjune2003.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-08110 SPECIAL SITUATIONS FUND III, L.P. (Exact name of registrant as specified in charter) 153 EAST 53RD STREET, 55TH FLOOR, NEW YORK, NEW YORK 10022 (Address of principal executive offices) (Zip code) Allen Levithan, Esq. Lowenstein Sandler, PC 65 Livingston Avenue Rosedale, NJ 07068-1791 (Name and address of agent for service) Registrant?s telephone number, including area code (212) 207-6500 Date of fiscal year end: DECEMBER 31, 2003 Date of reporting period: JUNE 30, 2003 Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles. A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget ("OMB") control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. ? 3507. Item 1. Reports to Stockholders. June 30, 2003 __________________________________ Special Situations Second Fund III, L.P. Quarter Report SPECIAL SITUATIONS FUND III, L.P. ------------------------------------------------- INDEX TO SECOND QUARTER REPORT JUNE 30, 2003 __________________________________________________________________ PAGE ------- Statement of Financial Condition 1 Portfolio of Investments 2 Statement of Operations 9 Statement of Changes in Partners' Capital 10 Notes to the Financial Statements 11 SPECIAL SITUATIONS FUND III, L.P. (A Limited Partnership) STATEMENT OF FINANCIAL CONDITION JUNE 30, 2003 _________________________________________________________________ ASSETS Investments, at fair value (cost $219,162,347) $ 275,047,157 Cash and cash equivalents 31,210,615 Receivable for investments sold 6,238,174 Other assets 690,764 ------------- Total Assets $ 313,186,710 ------------- LIABILITIES AND PARTNERS' CAPITAL Liabilities Payable for Units repurchased $ 6,621,233 Securities sold short, at fair value(proceeds $2,204,184) 2,452,394 Payable for investments purchased 2,648,184 Administrator's fee payable 938,088 Accrued expenses 349,304 ------------- Total Liabilities $ 13,009,205 ------------- Partners' Capital Limited Partners $ 276,043,881 Corporate General Partner 17,936,956 Individual General Partners 6,196,668 ------------- Total Partners' Capital 300,177,505 ------------- Total Liabilities and Partners' Capital $ 313,186,710 ------------- See the accompanying Notes to the Financial Statements. 1 SPECIAL SITUATIONS FUND III, L.P. (A Limited Partnership) PORTFOLIO OF INVESTMENTS JUNE 30, 2003 Fair Shares Common Stocks Value _____________________________________________________________________ Aerospace 0.34% 1,075,500 SPACEHAB, Incorporated (a) $ 1,021,725 ------------ Automotive Components 2.05% 2,202,800 Amerigon Incorporated (a) 6,145,812 ------------ Biotechnology 6.99% 215,862 Adolor Corporation 2,648,626 670,300 ArQule, Inc. 2,815,260 574,132 Corixa Corporation 4,443,782 375,000 Dendreon Corporation 2,227,500 256,198 Discovery Laboratories, Inc. 1,644,791 215,000 Discovery Laboratories, Inc. (Restricted) 1,182,500 712,600 Paradigm Genetics, Inc. 1,011,892 820,628 VIVUS, Inc. 4,144,171 61,500 Vicuron Pharmaceuticals, Inc. 873,300 ____________ 20,991,822 ------------ Biotechnology-Drug Delivery 0.96% 601,851 DepoMed, Inc. 2,888,885 ___________ CAD/CAM/CAE 1.63% 463,730 Ansoft Corporation 4,892,352 ------------ Communications Equipment - Software 1.49% 268,118 Artisoft, Inc. (a) 428,989 172,333 Artisoft, Inc. (Restricted)(a) 275,733 1,049,082 ION Networks, Inc. (a) 89,172 632,000 MetaSolv, Inc. 1,238,720 1,778,600 Visual Networks, Inc. (a) 2,436,682 ----------- 4,469,296 ----------- Communications Products - Equipment 5.46% 2,423,400 NMS Communication Corporation (a) 4,776,521 254,900 RADVision, Ltd. 1,707,830 2,839,714 Superconductor Technologies, Inc.(a) 6,332,562 738,600 Telular Corporation (a) 3,567,438 ---_______ 16,384,351 ----------- Fair Shares Common Stocks (Continued) Value Computer Services - Software 19.04% 2,022,896 Attunity, Ltd. (Israel) (a) 2,346,559 1,450,150 Brio Software, Inc. 3,364,348 690,100 CryptoLogic, Inc. (Canada)(a) 5,161,948 400,000 Docent, Inc. 1,359,999 879,750 dot com Entertainment Group, Inc. (Canada)(a) 307,913 566,400 eCollege.com (a) 6,434,304 888,833 First Virtual Communications, Inc.(a) 3,946,418 535,100 Gensym Corporation (a) 374,570 1,507,100 Landacorp, Inc. (a) 2,501,786 402,600 Made2Manage Systems, Inc. (a) 2,258,586 1,134,200 Net Perceptions, Inc. (a) 1,814,720 2,994,812 ON Technology Corporation (a) 7,241,455 3,698,539 ONYX Software Corporation (a) 3,624,568 See the accompanying Notes to the Financial Statements. 2 SPECIAL SITUATIONS FUND III, L.P. (A Limited Partnership) PORTFOLIO OF INVESTMENTS JUNE 30, 2003 Fair Shares Common Stocks (Continued) Value 42,000 Phoenix Technologies, Ltd. 238,980 772,100 Quovadx, Inc. 2,061,507 974,350 Rogue Wave Software, Inc. (a) 2,796,385 1,251,900 SupportSoft, Inc. 8,112,312 621,290 Witness Systems, Inc. 3,212,069 ----------- 57,158,427 ----------- Computer Systems 2.38% 474,200 Pinnacle Systems, Inc. 5,073,940 216,200 SeaChange International, Inc. 2,062,548 --------- 7,136,488 --------- Consumer Products 1.80% 1,686,500 Meade Instruments Corp. (a) 5,396,800 _________ Data Security 2.36% 1,024,150 Datakey, Inc. (a) 716,905 276,800 Entrust, Inc. 783,344 201,034 SafeNet, Inc. 5,576,683 --------- 7,076,932 --------- Electronic Components 4.24% 1,200,724 AMX Corporation (a) $ 3,602,172 182,800 Frequency Electronics, Inc. 1,663,480 454,800 Peerless Systems Corporation 1,150,644 2,152,800 Tvia, Inc. (a) 2,217,384 212,550 Zoran Corporation 4,078,835 ----------- 12,712,515 ----------- Electronic Equipment 0.37% 1,624,600 Odetics, Inc. (a) 1,103,103 ---------- Electronic Semiconductor 0.53% 759,600 PSi Technologies Holdings, Inc.(Philippines)(a) 1,579,968 ---------- Energy - Oil & Gas 1.18% 179,900 Core Laboratories, N.V. 1,942,920 153,100 Willbros Group, Inc. 1,590,709 --------- 3,533,629 _________ Energy - Technology 1.29% 862,027 Arotech Corporation 689,622 425,682 Catalytica Energy Systems, Inc. 1,149,341 120,000 Global Thermoelectric, Inc. (Canada) 222,000 812,100 Quantum Fuel Systems Technologies Worldwide, Inc. 1,810,983 --------- 3,871,946 __________ Financial Services- Miscellaneous 0.54% 68,000 ASTA Funding, Inc. 1,632,000 _________ Gold Mining 0.65% 2,570,000 MK Gold Company (a) 1,953,200 ---------- _________________________________________________________________________ See the accompanying Notes to the Financial Statements. 3 SPECIAL SITUATIONS FUND III, L.P. (A Limited Partnership) PORTFOLIO OF INVESTMENTS (CONTINUED) JUNE 30, 2003 Shares Common Stocks (Continued) Fair Value Healthcare Services 0.83% 1,163,272 I-many, Inc. 1,233,068 97,000 U.S. Physical Therapy, Inc. 1,267,790 __________ 2,500,858 __________ Healthcare-Specialized Products & Services 1.34% 254,700 BioSphere Medical, Inc. 1,528,200 176,550 EPIX Medical, Inc. 2,480,528 --------- 4,008,728 --------- Insurance 0.00% 200 Renaissance Acceptance Group, Inc. $ - _________ Information Services 0.56% 1,561,671 EDGAR Online, Inc. (a) 1,686,605 ---------- Media 0.25% 1,679,040 Audible, Inc. (a) 822,730 --------- Medical Devices & Equipment 10.58% 1,400,127 Applied Imaging Corporation (a) 2,086,189 998,751 Aradigm Corporation 1,787,764 386,440 Given Imaging Ltd.(Israel) 3,265,418 295,400 Invivo Corporation 5,146,163 989,782 Laserscope, Inc. (a) 7,858,869 1,192,698 LifeCell Corporation (a) 6,082,760 729,325 Micro Therapeutics, Inc. 3,099,631 11,323 PharmaNetics, Inc. 65,673 12,252 Possis Medical, Inc. 166,260 65,567 Precision Optics Corporation, Inc. 153,426 565,168 Sonic Innovations, Inc. 2,034,605 -------- 31,746,758 ---------- Medical-Instruments 2.06% 590,000 Intuitive Surgical, Inc. 4,478,100 379,747 OrthoLogic Corp. 1,720,254 ---------- 6,198,354 __________ Online Services 1.59% 1,732,150 The Knot, Inc. (a) 4,763,413 ---------- Paper-Packaging 0.00% 593,749 Chase Packaging Corporation - ---------- Pharmaceutical Products 0.89% 213,267 Axcan Pharma, Inc. (Canada) 2,678,634 ----------- Restaurant 1.21% 274,515 Benihana Inc. Class A (a) 3,623,598 100 Cosi, Inc. 133 ------------- 3,623,731 ------------- _________________________________________________________________________ See the accompanying Notes to the Financial Statements. 4 SPECIAL SITUATIONS FUND III, L.P. (A Limited Partnership) PORTFOLIO OF INVESTMENTS (CONTINUED) JUNE 30, 2003 Fair Shares Common Stocks (Continued) Value Retail 6.71% 161,300 1-800 CONTACTS, INC. 3,969,593 2,162,061 EZCORP, Inc. (a) 9,411,450 388,794 Gaiam, Inc. 2,301,660 266,225 J.Jill Group, Inc. 4,461,931 ------------- 20,144,634 ------------- Security Equipment 0.15% 45,000 American Science & Engineering, Inc. 445,500 ___________ Semiconductor 1.57% 994,570 Sipex Corporation 4,724,208 ------------ Semiconductor Equipment 1.86% 1,042,200 Nova Measuring Instruments Ltd. (a) 3,606,012 559,815 Trikon Technologies, Inc. 1,987,343 ------------ 5,593,355 ___________ Services 0.38% 330,475 Collectors Universe, Inc. 1,130,225 ------------ Specialized Services 0.69% 1,122,900 NIC, Inc. 3,267,639 ------------ Technology - Miscellaneous 1.57% 252,700 Culp, Inc. 1,743,630 1,555,400 Pinnacor, Inc. 2,986,368 ------------ 4,729,998 ------------ Telecom Equipment 0.35% 1,686,222 Peco II, Inc. 1,045,458 ------------- Therapeutics 0.94% 186,000 Corvas international, Inc. 502,200 492,000 Pharmacyclics, inc. 2,332,080 __________ 2,834,280 __________ Total Common Stocks 87.25% 261,894,359 --------------- Shares Preferred Stocks Fair Value Communication Products - Equipment 0.24% 1,140,000 Artisoft, Inc. (a) $ 718,200 ----------- Electronics Instruments 0.13% 825 Metretek Technologies, Inc. 8% 412,500 ---------- Medical Devices & Equipment 0.15% 7,625 PharmaNetics, Inc. 6% 442,250 -------- Total Preferred Stocks 0.52% 1,572,950 ---------- ________________________________________________________________________ See the accompanying Notes to the Financial Statements. 5 SPECIAL SITUATIONS FUND III, L.P. (A Limited Partnership) PORTFOLIO OF INVESTMENTS (CONTINUED) JUNE 30, 2003 Principal Fair Amount Corporate Bonds Value Computer Services - Software 0.01% 2,100,000 EURO Titus Interactive, 2% due 7/1/05 (France) $ 37,500 ---------- Retail 0.60% 1,800,000 Bakers Footwear Group. 7%, due 4/4/07 1,800,000 ---------- Total Corporate Bonds 0.61% 1,837,500 ---------- Units Units Fair Value Telecommunications 0.34% 72,800 Q Comm International, Inc. $ 1,019,200 ----------- Total Units 0.34% 1,019,200 __________ Fair Warrants Warrants Value Automotive Componets 0.37% 869,750 Amerigon Incorporated 2/25/07 (a) $ 1,113,280 ------------ Biotechnology 0.41% 642,900 Alliance Pharmaceutical Corp. 10/30/06 64,290 294,648 Discovery Laboratories 11/5/07 1,178,592 43,000 Discovery Laboratories (Restricted) 9/19/10 - --------- 1,242,882 --------- Biotechnology - Drug Delivery 0.22% 210,648 DepoMed, Inc. 4/21/08 661,435 _________ Communication Equipment - Software 0.09% 1,140,000 Artisoft, Inc. 9/30/06 (a) 91,200 586,600 ION Network, Inc. 2/14/07 (a) 175,980 --------- 267,180 --------- Communication Products - Equipment 0.36% 57,861 Superconductor Technologies, Inc. 3/10/07(a) 45,132 427,500 Superconductor Technologies, Inc. 9/26/07 (a) 367,650 433,375 Superconductor Technologies, Inc. 12/18/07(Rest)(a)658,730 --------- 1,071,512 --------- Computer Services - Software 0.30% 1,557,792 Attunity, Ltd. A 10/25/05 (Israel) (a) 342,714 519,264 Attunity, Ltd. B 10/25/05 (Israel) (a) 98,660 375,000 Burst.com, Inc. 1/27/05 - 1,250,000 First Virtual Communications, Inc. 4/12/07 (a) 450,000 862,500 Interplay Entertainment Corp. 3/29/06 - -------- 891,374 Data Security 0.05% -------- 650,000 Datakey, Inc. 2/16/06 (a) 156,000 -------- Electronic Equipment 0.11% 708,350 Odetics, Inc. A 8/16/07 (a) 162,921 708,350 Odetics, Inc. B 8/16/07 (a) 162,921 -------- 325,841 -------- ___________________________________________________________________________ See the accompanying Notes to the Financial Statements. 6 SPECIAL SITUATIONS FUND III, L.P. (A Limited Partnership) PORTFOLIO OF INVESTMENTS JUNE 30, 2003 Warrants Warrants (continued) Fair Value Electronic Instruments 0.00% 82,500 Metretek Technologies, Inc. 12/9/04 - -------- Energy - Miscellaneous 0.00% 180,000 Boots & Coots International Well Control 5/14/04(Rest) 28,800 -------- Energy - Oil & Gas 0.02% 72,414 Edge Petroleum Corporation 5/6/04 $ 60,104 ----------- Energy - Technology 0.01% 315,151 Electric Fuel Corporation 5/7/06 37,818 ----------- Information Services 0.01% 150,000 EDGAR Online, Inc. 1/8/06 (a) 27,000 ----------- Media 0.04% 627,906 Audible, Inc. 2/15/07 (a) 106,744 ----------- Medical Devices & Equipment 0.46% 90,000 Applied Imaging Corporation 12/14/03 (a) 900 268,600 Applied Imaging Corporation 7/29/06 (a) 85,952 398,733 Aradigm Corporagion 3/10/07 442,594 269,249 Cardima, Inc. 2/25/05 45,772 218,750 LifeCell Corporation 7/6/06 (a) 761,250 26,250 PharmaNetics, Inc. 2/25/05 14,700 10,760 Possis Medical, Inc. 3/6/04 17,862 47,476 SpectRx, Inc. 6/4/06 22,788 ---------- 1,391,818 ---------- Medical Information Systems 0.00% 2,200,000 LifeRate Systems, Inc. 9/14/07 (a) - ---------- Restaurant 0.45% 207,000 Benihana Inc. 6/1/04 (a) 1,341,360 Retail 0.00% 96,450 Gemstar-TV Guide International, Inc. A 11/2/04 - 47,143 Gemstar-TV Guide International, Inc. B 12/21/05 - 90,000 PawnMart, Inc. B 3/11/04 - ---------- - ---------- Total Warrants 2.91% 8,723,148 ___________ TOTAL INVESTMENTS 91.63% 275,047,157 _____________ ____________ _________________________________________________________________________ See the accompanying Notes to the Financial Statements. 7 SPECIAL SITUATIONS FUND III, L.P. (A Limited Partnership) PORTFOLIO OF INVESTMENTS JUNE 30, 2003 Securities Sold Short Fair Shares Common Stock Value Biotechnology 0.20% 56,800 CryoLife, Inc. $ 587,880 Financial Services - Miscellaneous 0.01% 648 Travelers Property Casualty Corp. (New) Cl A 10,303 1,331 Travelers Property Casualty Corp. (New) Cl B 20,990 _______ 31,293 Medical Devices & Equipment 0.07% 15,000 Possis Medical, Inc. 203,550 ________ Retail 0.24% 42,500 West Marine, Inc. 739,925 _______ Semiconductor 0.30% 36,600 Power Integrations, Inc. 889 746 ________ TOTAL SECURITIES SOLD SHORT 0.82% $2,452,394 ------------ ____________
(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. 8 SPECIAL SITUATIONS FUND III, L.P (A Limited Partnership) STATEMENT OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 2003 ______________________________________________________________________ INCOME Net realized gain on investments $ 21,594,137 Net change in unrealized appreciation 54,313,092) -------------- Net gain on investment portfolio 75,907,229 Interest 168,469 Dividends 257,571 Securities lending fees 251,460 -------------- Total 76,584,729 -------------- -------------- EXPENSES Administrator's fee $ 938,088 Professional fees 422,025 Independent General Partners' fees 30,000 Other 141,540 ------------- Total 1,531,653 ------------- Net Income $ 75,053,076 ------------- ------------- See the accompanying Notes to the Financial Statements. 9 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, 2002: BALANCE, DECEMBER 31, 2001 248,351,589 13,199,827 5,848,579 267,399,995 Capital contributions 26,387,250 - - 26,387,250 Allocation of net loss (51,601,615) (2,508,613) (1,111,516) (55,221,744) Repurchases --------- (9,124,838) - - (9,124,838) ------------ ----------- ---------- ---------- - -- BALANCE, DECEMBER 31, 2002 $25,000 214,012,386 10,691,214 4,737,063 229,440,663 ------- ------------ ----------- ---------- ---------- - -- SIX MONTHS ENDED JUNE 30, 2003: Capital contributions 2,300,000 - 5,000 2,305,000 Allocation of net income: Corporate General Partner ? Performance 3,966,266 - 3,966,266 Partners 66,352,729 3,279,476 1,454,605 71,086,810 Repurchases (6,621,234) - - (6,621,234) ------------ --------- --------- ----------- - - BALANCE, JUNE 30, 2003 $ 25,000 $276,043,881 $17,936,956 $6,196,668 $300,177,505 ------- ------------ ----------- ---------- ------------ - -
See the accompanying Notes to the Financial Statements. 10 SPECIAL SITUATIONS FUND III, L.P. (A Limited Partnership) NOTES TO THE FINANCIAL STATEMENTS Information Subsequent to December 31, 2002 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 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. Cash and cash equivalents consist principally of cash balances in a brokerage account. 11 The Fund entered into an agreement to lend portfolio securities to a qualified borrower in order to earn additional income. The terms of the lending agreement require that loans are secured by cash or securities with an aggregate market value at lease equal to a percentage of the market value of the loaned securities agreed upon by the borrower and the Fund (which shall be not less than 100% of the market value of the loaned securities),computed on a daily basis. If the borrower defaults on its obligation to return the securities loaned because of insolvency or other reasons, the Fund could experience delays and costs in recovering the securities loaned or in gaining access to collateral. At June 30, 2003, the value of the loaned securities and corresponding collateral (U.S. Treasury Obligations) receive was $2,909,110 and $2,967,720, respectively. 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 to MGP will not apply to future periods until the loss has been recovered. For purposes of the performance allocation, net income was reduced by the loss carryover from December 31, 2002 of $55,221,744. 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. 12 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, 2001 9,934.0635 527.9932 233.9431 10,695.9998 Additional Units sold1,055.4900 - - 1,055.4900 Semi-annual adjustment of Units (2,064.0645) (100.3446) (44.4606) (2,208.8697) Repurchases (364.9935) - - (364.9935) ------------ ---------- ----------- ------------ Balance, December 31, 2002 8,560.4955 427.6486 189.4825 9,177.6266 Additional units sold 92.0000 - .2000 92.2000 Semi-annual adjustment of Units 2,654.1092) 289.8297 58.1842 3,002.1231 Repurchases (264.8494) - - (264.8494) ----------- ----------- ------------ ------------ Balance, JUNE 30, 2003 11,041.7553 717.4783 247.8667 12,007.1003 ----------- ----------- ------------ ----------
NOTE 5- PURCHASES AND SALES OF SECURITIES: Purchases and sales of securities for the year ended JUNE 30, 2003 aggregated $56,457,062 and $84,143,200, respectively. 13 SPECIAL SITUATIONS FUND III, L.P. (A Limited Partnership) NOTES TO THE FINANCIAL STATEMENTS 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. 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, Six Months Ended June 30, 2003 2002 2001 2000 1999 1998 ------ ----- ------- ------ ------- Ratio of total expenses 1.24%* 0.97% 0.89% 0.85% 1.03% 1.02% to average net assets Ratio of net income 60.56%* (22.16)% 16.62% 15.19% 68.01% (12.73)% (loss) to average net assets Portfolio turnover rate 24.61% 60.28% 92.33% 102.49% 140.88% 114.61%
*Annualized 14 SPECIAL SITUATIONS FUND III, L.P. (A Limited Partnership) NOTES TO THE FINANCIAL STATEMENTS NOTE 9- RETURN ON PARTNER INVESTMENT: At JUNE 30, 2003, the value of a $25,000 investment made at each respective subscription date is as follows: Subscription Date Value ---------------------- ------ January 1, 1994 $124,732 January 1, 1995 114,031 July 1, 1995 100,970 January 1, 1996 84,203 July 1, 1996 63,565 January 1, 1997 60,160 July 1, 1997 56,985 January 1, 1998 50,556 July 1, 1998 51,837 January 1, 1999 57,467 July 1, 1999 53,025 January 1, 2000 34,561 July 1, 2000 29,604 January 1, 2001 30,277 July 1, 2001 26,467 January 1, 2002 26,460 July 1, 2002 30,186 January 1, 2003 32,669 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. 15 Item 2. Code of Ethics. Not applicable at this time. Item 3. Audit Committee Financial Expert. Not applicable at this time. Item 4. Principal Accountant Fees and Services. Not applicable at this time. Item 5. Audit Committee of Listed Registrants. Not applicable. Item 6. [Reserved] Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies Not applicable at this time. Item 8. [Reserved] Item 9. Controls and Procedures. (a) Based on an evaluation of the registrant's disclosure controls and procedures as of a date within 90 days of the filing date of this report, the registrant?s principal executive and principal financial officers, or persons performing similar functions, concluded that the disclosure controls and procedures are effective. (b) There were no significant changes in the registrant's internal control over financial reporting that occurred during the registrant's last fiscal half-year that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting. Item 10. Exhibits. (a)(1) NOT APPLICABLE. (a)(2) CERTIFICATIONS REQUIRED BY ITEM 10(a)(2) OF FORM N-CSR ARE FILED HEREWITH AS EX-99.CERT. (b) CERTIFICATIONS REQUIRED BY ITEM 10(b) OF FORM N-CSR ARE FILED HEREWITH AS EX-99.906CERT. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SPECIAL SITUATIONS FUND III, L.P. By: __/s/ Austin Marxe_______________ Austin Marxe, Principal Executive Officer Date: January 12, 2004 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: _/s/ Austin Marxe_______________________ Austin Marxe, Principal Executive Officer Date January 12, 2004 By: __/s/Rose M. Carling ______________ Rose M. Carling, Principal Financial Officer Date January 12, 2004 22 S5313/1 12/31/2003 1479168.02 EX-99.906CERT EX-99.906CERT EX-99.906CERT 3 ex99906certjune2003.txt CERTIFICATION Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 The undersigned, Principal Executive Officer of Special Situations Fund III, L.P. (the "Registrant"), with respect to the Registrant's Form N-CSR for the period ended June 30, 2003 as filed with the Securities and Exchange Commission, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. such Form N-CSR fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. the information contained in such Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Dated: January 12, 2004 ___/s/Austin Marxe_______________ Austin Marxe, Principal Executive Officer A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Registrant and will be retained by the Registrant and furnished to the Securities and Exchange Commission (the "Commission") or its staff upon request. This certification is being furnished to the Commission solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Form N-CSR filed with the Commission. CERTIFICATION Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 The undersigned, Principal Financial Officer of Special Situations Fund III, L.P. (the "Registrant"), with respect to the Registrant's Form N-CSR for the period ended June 30, 2003 as filed with the Securities and Exchange Commission, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. such Form N-CSR fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. the information contained in such Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Dated: January 12, 2004 _/s/ Rose M. Carling________________ Rose M. Carling, Principal Financial Officer A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Registrant and will be retained by the Registrant and furnished to the Securities and Exchange Commission (the "Commission") or its staff upon request. This certification is being furnished to the Commission solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Form N-CSR filed with the Commission. EX-99.906CERT EX-99.906CERT EX-99 4 ex99certjune2003.txt CERTIFICATION I, Austin Marxe, certify that: 1. I have reviewed this report on Form N-CSR of Special Situations Fund III, L.P.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: January 12, 2004 _/s/Austin Marxe__________________ Austin Marxe, Principal Executive Officer CERTIFICATION I, Rose M. Carling, certify that: 1. I have reviewed this report on Form N-CSR of Special Situations Fund III, L.P.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: January 12, 2004 /s/Rose M. Carling Rose M. Carling, Principal Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----