October 1, 2007

Dear Investor:

Enclosed please find documentation that relates to the semi-annual tender offer to all limited partners of Special Situations Fund III, L.P.  To assist you in your decision, you will find:

1.   Schedule TO – providing you with various SEC required disclosures;

2.   Notice of Tender Offer – describing the terms under which you may redeem units;

3.   A Tender Form – which must be completed and in our possession by November 1, 2007 if you plan to redeem units;

4.   A return envelope for your convenience.

No action is required if you do not wish to redeem any portion of your units.

Feel free to contact us at (212) 319-6670, if you have any questions.

Sincerely,

Special Situations Funds