-----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, D9nISwHrJnSDCvr6P5UMNW30qGXDmjtBWXWoXP9IrQl1OtdKksa2VHbVr2Opd4be 9JJYXiB6cArZ2vap4Ppm0A== 0000912057-96-016672.txt : 19960809 0000912057-96-016672.hdr.sgml : 19960809 ACCESSION NUMBER: 0000912057-96-016672 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960808 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SPECIAL SITUATIONS FUND III L P CENTRAL INDEX KEY: 0000914248 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 133737427 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-08110 FILM NUMBER: 96606035 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-30D 1 2ND QUARTER REPORT JUNE 30, 1996 ----------------------------- SPECIAL SITUATIONS SECOND FUND III, L.P. QUARTER REPORT SPECIAL SITUATIONS FUND III, L.P. (A Limited Partnership) STATEMENT OF FINANCIAL CONDITION JUNE 30, 1996 (Unaudited) - -------------------------------------------------------------------------------- ASSETS - NOTE 2 Investments, at value (cost $97,511,454) $124,071,799 Cash and cash equivalents 31,408,182 Receivable for investments sold 2,999,420 Organization costs, net 74,237 ------------ Total Assets $158,553,638 ------------ ------------ LIABILITIES AND PARTNERS' CAPITAL LIABILITIES Payable for Units repurchased - Note 4 $12,726,302 Payable for investments purchased - Note 2 4,497,759 Securities sold short, at value (proceeds $4,624,012) - Note 10 3,748,334 Accrued expenses 111,038 Administrator's fee payable - Note 7 270,385 ----------- Total Liabilities 21,353,818 ----------- PARTNERS' CAPITAL - NOTES 1, 3 AND 4 Limited partners 124,627,306 Corporate general partner 8,280,293 Individual general partners 4,292,221 ------------ Total Partners' Capital 137,199,820 ------------ Total Liabilities and Partners' Capital $158,553,638 ------------ ------------ Net asset value per Limited Partners' Unit $ 25,000 ------------ ------------ - -------------------------------------------------------------------------------- See the accompanying Notes to the Financial Statements. 1 SPECIAL SITUATIONS FUND III, L.P. (A Limited Partnership) PORTFOLIO OF INVESTMENTS JUNE 30, 1996 (UNAUDITED) SHARES COMMON STOCKS VALUE - -------------------------------------------------------------------------------- 86,900 Accom, Inc. $ 347,600 108,800 Accuhealth, Inc. (a) 231,200 25,100 Accuhealth, Inc. (Restricted) (a) - 179,000 Alteon Inc. 1,969,000 174,934 Applied Biometrics, Inc. 2,777,077 90,500 Applied Digital Access, Inc. 950,250 108,000 ARIAD Pharmaceuticals, Inc. 459,000 91,800 Asahi/America, Inc. 858,330 54,000 Avigen, Inc. 378,000 173,500 Bally Total Fitness Holding Corporation 759,062 271,686 Barringer Technologies, Inc. (a) 781,097 146,700 BioTransplant Incorporated 1,191,937 83,800 Blonder Tongue Laboratories, Inc. 1,277,950 144,000 Brookstone, Inc. 1,620,000 176,300 Byron Preiss Multimedia Company, Inc. (a) 1,057,800 80,400 C*ATS Software, Inc. 482,400 150,000 Caledonia Mining Corporation 618,750 300,039 Cardiac Control Systems, Inc. (a) 867,935 74,600 Carnegie Group, Inc. 652,750 185,000 Castelle 1,433,750 213,000 Ceradyne, Inc. 2,343,000 146,200 Cerion Technologies Inc. 1,425,450 455,000 Check Technology Corporation (a) 4,379,375 287,300 Chic By H.I.S, Inc. 1,508,325 109,100 Children's Broadcasting Corporation 763,700 74,500 Cinar Films, Inc. 1,620,375 136,500 Collaborative Clinical Research, Inc. 1,586,812 259,300 Commander Aircraft (a) 1,069,612 90,000 Community Care of America, Inc. 1,080,000 145,100 Computer Learning Centers, Inc. 3,119,650 193,150 Concentra Corporation 1,158,900 70,000 Conceptus, Inc. 1,190,000 2,200,000 Contempri Homes, Inc. 701,360 334,500 Country Wide Transport Services, Inc. (a) 62,719 164,062 CPAC, Inc. 1,681,641 44,000 Craig Consumer Electronics, Inc. 286,000 129,900 CytoTherapeutics, Inc. 1,445,137 132,900 Eagle Point Software Corporation 930,300 88,200 Edelbrock Corporation 1,543,500 211,800 Ellett Brothers, Inc. 1,323,750 290,000 EP MedSystems, Inc. 1,595,000 - -------------------------------------------------------------------------------- 2 PORTFOLIO OF INVESTMENTS (CONTINUED) JUNE 30, 1996 (UNAUDITED) SHARES COMMON STOCKS (CONTINUED) VALUE - -------------------------------------------------------------------------------- 125,200 Exactech, Inc. 1,001,600 130,400 EZCORP, Inc. 880,200 97,500 Flamel Technologies S.A. 786,094 272,940 Fourth Shift Corporation 1,808,227 68,500 Fusion Medical Technologies, Inc. 483,781 56,500 Grand Prix Association of Long Beach, Inc. 536,750 123,700 Gynecare, Inc. 974,137 96,300 Health Power, Inc. 698,175 95,868 Hirsch International Corp. 1,833,471 10,700 Hoenig Group Inc. 42,800 35,400 Hooper Holmes, Inc. 469,050 121,100 InSite Vision Incorporated 696,325 75,000 ISG Technologies, Inc. 318,750 578,000 Jos. A. Bank Clothiers, Inc. (a) 2,673,250 988,800 Kurzweil Applied Intelligence, Inc. (Restricted)(a) 1,977,600 76,000 KVH Industries, Inc. 693,500 40,100 La Jolla Pharmaceutical Company 220,550 185,846 LifeRate Systems, Inc. (a) 1,417,076 162,000 Lincoln Logs, Ltd. (a) 50,625 287,000 Little Switzerland, Inc. 1,506,750 209,500 Lunn Industries, Inc. 288,062 139,000 Maverick Tube Corporation 1,633,250 71,000 Meadow Valley Corporation 417,125 105,500 Medallion Financial Corp. 1,318,750 235,400 Medical Graphics Corporation (a) 1,934,694 375,000 Mednet International, Ltd. 1,896,750 1,151,000 Memorex Telex N.V. ADR 1,438,750 455,000 MicroFrame, Inc. (a) 881,562 69,400 Micrografx, Inc. 1,014,975 126,200 Mizar, Inc. 820,300 70,000 Movado Group, Inc. 1,619,500 224,400 National Picture & Frame Company 2,412,300 60,000 Northland Cranberries, Inc. 1,800,000 289,000 Oakhurst Capital, Inc. (a) 334,156 143,000 Odetics, Inc. 2,180,750 91,100 Open Plan Systems, Inc. 1,093,200 234,700 Osteotech, Inc. (a) 1,701,575 - -------------------------------------------------------------------------------- 3 PORTFOLIO OF INVESTMENTS (CONTINUED) JUNE 30, 1996 (UNAUDITED) SHARES COMMON STOCKS (CONTINUED) VALUE - -------------------------------------------------------------------------------- 300,000 PC Etcetera, Inc. (Restricted) (a) - 64,500 Penn Treaty American Corp. 1,386,750 61,700 Photran Corporation 617,000 92,500 PixTech 624,375 64,000 Plasma & Materials Technologies, Inc. 960,000 50,000 Pomeroy Computer Resources 750,000 83,600 Raytel Medical Corporation 1,065,900 320,000 Ringer Corporation 760,000 42,400 Rochester Medical Corporation 784,400 303 Royal International Optical Corporation 227,250 127,600 SoftQuad International, Inc. 707,781 54,800 Software Spectrum, Inc. 1,274,100 139,500 SONUS Pharmaceuticals, Inc. 2,824,875 319,000 Specs Music 518,375 289,000 Steel City Products, Inc. 18,062 150,000 Targeted Genetics Corporation 712,500 204,600 Total Containment, Inc. (a) 716,100 253,800 Trans World Entertainment Corp. 1,729,012 110,000 Travis Boats & Motors, Inc. 1,003,750 112,900 Tridex Corporation 1,213,675 75,100 Triple P N.V. 459,987 85,300 Tripos, Inc. 746,375 66,200 Tuesday Morning Corporation 885,425 181,000 Ultimate Electronics, Inc. 950,250 183,300 ULTRADATA Corporation 1,420,575 18,000 Ultrafem, Inc. 355,500 218,500 Vacation Break U.S.A., Inc. 2,813,148 194,300 Vanguard Airlines, Inc. 1,748,700 180,000 Western Transmedia Company, Inc. 337,500 -------------- 118,994,269 -------------- SHARES PREFERRED STOCKS VALUE - -------------------------------------------------------------------------------- 425,000 Accuhealth, Inc. convertible preferred (a) 850,000 105,000 Biocircuits Corporation Series A convertible preferred 176,400 160,764 Celerity Systems, Inc. Series A convertible preferred 272,521 79,296 Celerity Systems, Inc. Series B convertible preferred 155,420 -------------- 1,454,341 -------------- -------------- AMOUNT CORPORATE BONDS VALUE - -------------------------------------------------------------------------------- 560,000 Children's Broadcasting Corporation due 7-8-96 560,000 250,000 Celerity Systems, Inc. 10% note, due 11-30-96 250,000 150,000 Lincoln Logs, Ltd., convertible subordinated, debentures, due 6-30-98 150,000 -------------- 960,000 -------------- -------------- - -------------------------------------------------------------------------------- 4 PORTFOLIO OF INVESTMENTS (CONTINUED) JUNE 30, 1996 (UNAUDITED) WARRANTS WARRANTS VALUE - -------------------------------------------------------------------------------- 350,000 ATS Medical, Inc. 3/2/97 $ 262,500 27,500 Barringer Technologies, Inc. 5/9/98 - 153,500 Bryon Preiss Multimedia Company, Inc. 5/11/99 249,437 127,551 Celerity Systems, Inc. Series B 3/31/97 - 43,125 Children's Broadcasting Corporation 1/8/2001 - 733,334 Contempri Homes, Inc. 4/11/97 - 250,000 Country Wide Transport Services, Inc. 1/15/97 - 160,644 IBAH, Inc. 8/10/2000 910,851 78,500 Meadow Valley Corporation 10/16/2000 117,750 126,436 PC Etcetera, Inc. 3/15/99 - 25,000 PC Etcetera, Inc. (Restricted) 3/15/99 - 75,000 Prologic Management System, Inc. 3/14/99 56,250 71,000 Semiconductor Laser International Corp. 3/19/2000 213,000 57,000 Solar-Mates, Inc. 9/29/99 114,000 179,000 Superior Energy Services, Inc. Class A 7/6/97 22,375 295,000 Versus Technology, Inc. Class A 2/15/95 - -------------- 1,946,163 -------------- -------------- SHARES UNITS VALUE - -------------------------------------------------------------------------------- 229,167 Barringer Technologies, Inc. (Restricted) (a) 550,000 133,621 MicroFrame, Inc. (Restricted) 167,026 -------------- 717,026 -------------- Total Investments $ 124,071,799 -------------- -------------- SECURITIES SOLD SHORT SHARES COMMON STOCK VALUE - -------------------------------------------------------------------------------- 5,000 Cerner Corporation $ 106,875 22,500 Cygnus Therapeutic Systems 343,125 7,500 Daka International, Inc. 176,250 18,000 Edmark Corporation 360,000 15,200 First Merchants Acceptance Corporation 300,200 39,500 Hawaiian Airlines, Inc. 197,500 2,500 Heartport, Inc. 75,625 39,400 Isolyser Company, Inc. 472,800 26,300 Micron Technology, Inc. 680,512 6,000 Morrow Snowboards, Inc. 63,000 15,000 QUEST Medical, Inc. 106,875 7,500 Segue Software, Inc. 223,125 17,000 SoftKey International, Inc. 321,937 40,700 SyQuest Technology, Inc. 320,510 -------------- Total Securities Sold Short $ 3,748,334 -------------- -------------- - -------------------------------------------------------------------------------- (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. 5 SPECIAL SITUATIONS FUND III, L.P. (A Limited Partnership) STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED) - -------------------------------------------------------------------------------- INCOME Net realized gains on investments 37,186,500 Net unrealized gains on investments 6,419,599 --------------- Net gains on investment portfolio 43,606,099 Interest 308,865 Dividends 19,955 Other income 19,460 --------------- Total income 43,954,379 --------------- EXPENSES Administrator's fee - Note 7 488,843 Professional fees 112,000 Independent general partners' fees 15,000 Amortization of organization costs 14,847 Other 43,493 --------------- Total expenses 674,183 --------------- Net income 43,280,196 --------------- --------------- - -------------------------------------------------------------------------------- See the accompanying Notes to the Financial Statements. 6 SPECIAL SITUATIONS FUND III, L.P. (A Limited Partnership) STATEMENT OF CHANGES IN PARTNERS' CAPITAL (INFORMATION SUBSEQUENT TO DECEMBER 31, 1995 IS UNAUDITED)
Per Limited Corporate Individual Partners' Limited General General Unit Partners Partner Partners Total ------------ --------------- ----------------- ---------------- ---------------- YEAR ENDED DECEMBER 31, 1995: BALANCE DECEMBER 31, 1994 67,221,191 4,452,038 3,659,674 75,332,903 Capital contributions 5,086,487 - - 5,086,487 Transfers 1,408 (592,189) 590,781 - Allocation of net income: Corporate General Partner (20%) - 7,038,906 - 7,038,906 Partners (80%) 24,817,741 1,917,684 1,420,198 28,155,623 Repurchases (3,538,213) (6,850,000) - (10,388,213) ----------- --------- --------- ---------- BALANCE, DECEMBER 31, 1995 25,000 93,588,614 5,966,439 5,670,653 105,225,706 --------- --------- SIX MONTHS ENDED JUNE 30, 1996: Capital contributions 1,419,291 - 929 1,420,220 Transfers - (210,828) 210,828 - Allocation of net income: Corporate General Partner (20%) - 8,656,039 - 8,656,039 Partners (80%) 8,117 30,845,703 1,868,643 1,909,811 34,624,157 ----------- ----------- Repurchases - Note 4 (1,226,302) (8,000,000) (3,500,000) (12,726,302) ----------- --------- --------- ---------- BALANCE, JUNE 30, 1996 25,000 124,627,306 8,280,293 4,292,221 137,199,820 ----------- ----------- --------- --------- ------------ ----------- ----------- --------- --------- ------------
See Note 4 for changes in Units outstanding. - ------------------------------------------------------------------------------- See the accompanying Notes to the Financial Statements. 7 SPECIAL SITUATIONS FUND III, L.P. (A Limited Partnership) NOTES TO THE FINANCIAL STATEMENTS (INFORMATION SUBSEQUENT TO DECEMBER 31, 1995 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. Commencing December 31, 1994, the Fund, as an interval fund, allows investors to semi-annually redeem or acquire units of the Fund ("Units") (see Note 4). 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 75% 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. 8 SPECIAL SITUATIONS FUND III, L.P. (A Limited Partnership) NOTES TO THE FINANCIAL STATEMENTS (INFORMATION SUBSEQUENT TO DECEMBER 31, 1995 IS UNAUDITED) NOTE 2 - ACCOUNTING POLICIES (CONTINUED): 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. Cash and cash equivalents include cash held in money market funds. Organization costs are amortized over a sixty month period. 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 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. 9 SPECIAL SITUATIONS FUND III, L.P. (A Limited Partnership) NOTES TO THE FINANCIAL STATEMENTS (INFORMATION SUBSEQUENT TO DECEMBER 31, 1995 IS UNAUDITED) NOTE 4 - PARTNER CAPITAL ACCOUNT TRANSACTIONS (CONTINUED): In May 1996, the Fund offered to repurchase up to 599.7045 Units (10% of its outstanding Units at June 30, 1996) at $25,000 per Unit. 509.0521 Units were tendered for repurchase. The Fund also has the right to sell additional Units at each fiscal period. As of July 1, 1996, the Fund sold 250.4 additional Units at $25,000 each. Changes in Units outstanding:
Corporate Individual Limited General General Partners Partner Partners Total ---------- ---------- ---------- ----------- Balance, December 31, 1994 2,688.8476 178.0815 146.3870 3,013.3161 Additional units sold 203.4595 - - 203.4595 Transfers 0.0563 (23.6876) 23.6313 - Allocation of additional units 992.7096 358.2636 56.8079 1,407.7811 Repurchases (141.5285) (274.0000) - (415.5285) ----------- ---------- -------- ----------- Balance, December 31, 1995 3,743.5445 238.6575 226.8262 4,209.0282 Additional units sold 56.7716 - 0.0372 56.8088 Transfers - (8.4331) 8.4331 - Allocation of additional units 1,233.8281 420.9873 76.3924 1,731.2078 Repurchases (49.0521) (320.0000) (140.0000) (509.0521) ----------- ---------- -------- ----------- Balance, June 30, 1996 4,985.0921 331.2117 171.6889 5,487.9927 ----------- ---------- -------- ----------- ----------- ---------- -------- -----------
NOTE 5 - PURCHASES AND SALES OF SECURITIES: Purchases and sales of securities for the six months ended June 30, 1996 aggregated $159,796,044 and $184,735,414, respectively. 10 SPECIAL SITUATIONS FUND III, L.P. (A Limited Partnership) NOTES TO THE FINANCIAL STATEMENTS (INFORMATION SUBSEQUENT TO DECEMBER 31, 1995 IS UNAUDITED) 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:
Six Months Ended Years Ended June 30, December 31, ------------------- 1996 1995 1994 ---- ---- ---- Ratio of total expenses to average net assets 1.05%* 1.18% 1.19% Ratio of net income to average net assets 67.60%* 38.09% 11.18% Portfolio turnover rate 141.2% 245.2% 233.4% Average commission rate paid $.0406 * Annualized
11 SPECIAL SITUATIONS FUND III, L.P. (A Limited Partnership) NOTES TO THE FINANCIAL STATEMENTS (INFORMATION SUBSEQUENT TO DECEMBER 31, 1995, IS UNAUDITED NOTE 9 - RETURN ON PARTNER INVESTMENT: At June 30, 1996, the value of a $25,000 investment made at each respective subscription date is as follows: Subscription Date Value ----------------- ------ January 1, 1994 $49,057 January 1, 1995 $44,848 July 1, 1995 $39,711 January 1, 1996 $33,117 NOTE 10 - SECURITIES SOLD SHORT: The Partnership is subject to certain inherent risks arising from its activities of selling securities short. The ultimate cost to the Partnership to acquire these securities may exceed the liability reflected in the financial statements. In addition, the Partnership is required to maintain collateral with the broker to secure these short positions. 12 -----END PRIVACY-ENHANCED MESSAGE-----