N-Q 1 ssfiiiformn-qsept06.htm SSF III FORM N-Q SEPT 2006 SSF III Form N-Q Sept 2006
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-Q

QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS 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)
 
527 MADISON AVENUE, SUITE 2600, 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) 319-6670
 
Date of fiscal year end:
DECEMBER 31, 2006
 
Date of reporting period:
SEPTEMBER 30, 2006
 
Form N-Q is to be used by management investment companies, other than small
business investment companies registered on Form N-5 (SS 239.24 and 274.5 of
this chapter), to file reports with the Commission not later than 60 days after
the close of the first and third fiscal quarters, pursuant to rule 30b-1 under
the Investment Company Act of 1940 (17 CFR 270.30b1-5). The Commission may
use the information provided on Form N-Q in its regulatory, disclosure review,
inspection, and policymaking roles.

A registrant is required to disclose the information specified by Form N-Q,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-Q
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.  Schedule of Investments.


 
SPECIAL SITUATIONS FUND III, L.P.
 		    
 
  
(A Limited Partnership) 
    
         
 
  
PORTFOLIO OF INVESTMENTS
 		    
         
 
SEPTEMBER 30, 2006
 		    
 
  
(Unaudited) 
    
     
 
Fair 
Shares
 
Common Stocks
 
Value 
         
 
   
Aerospace 0.15%
    
78,294
  
SPACEHAB, Inc.
$
58,721
         
   
Automotive Components 0.98%
    
22,371
  
Rush Enterprises, Inc. - Class A
  
373,148
         
   
Biotechnology 6.97%
    
122,000
  
Aastrom Bioscience, Inc.
  
141,520
18,360
  
Combinatorx, Inc.
  
114,383
23,790
  
Cyclacel Pharmaceuticals, Inc.
  
114,192
89,127
  
La Jolla Pharmaceutical Company
  
331,555
86,027
  
Medivation, Inc.
 
769,941
35,587
  
Metabasis Therapeutics, Inc.
  
199,999
28,400
  
Opexa Therapeutics, Inc.
  
195,960
66,709
  
Sangamo BioSciences, Inc.
  
370,902
100,000
  
Tapestry Pharmaceuticals, Inc.
  
208,000
59,053
  
YM Biosciences, Inc. (Canada)
  
197,237
       
2,643,689
         
   
Building Materials 1.84%
    
207,300
  
American Mold Guard, Inc.
  
468,498
9,920
  
L.B. Foster Company
  
159,712
400
  
Patrick Industries, Inc.
  
4,976
12,700
  
Viceroy Homes, Ltd. (Canada)
  
56,839
300
  
WFI Industries, Inc. (Canada)
  
6,735
       
696,760
         
   
Chemicals 0.89%
    
40,500
  
KMG Chemicals, Inc.
  
339,390
         
   
Communication Equipment - Software 2.94%
    
443,157
  
ION Networks, Inc.
 
30,577
122,015
  
MetaSolv, Inc.
  
369,706
41,186
  
PC-Tel, Inc.
  
432,453
180,869
  
Vertical Communication, Inc.
  
99,478
330,340
  
Vertical Communication, Inc. (Restricted)
  
181,687
       
1,113,901
         
   
Communication Products - Equipment 1.78%
    
91,763
  
Centillium Communications, Inc.
  
187,197
165,607
  
NMS Communications Corporation
  
479,432
9,672
  
Tut Systems, Inc.
  
9,188
       
675,817
         
   
Computer Equipment 0.97%
    
31,403
  
Optimal Group, Inc. (Canada)
  
369,299
         
         
         
 
 

 
SPECIAL SITUATIONS FUND III, L.P.
 		    
 
  
(A Limited Partnership) 
    
         
 
  
PORTFOLIO OF INVESTMENTS
 		    
         
 
SEPTEMBER 30, 2006
 		    
 
  
(Unaudited) 
    
     
 
Fair 
Shares
 
Common Stocks (Continued)
 
Value 
         
 

   
Computer Peripherals 0.83%
    
24,792
 
Immersion Corporation
$
177,263
10,399
 
Printronix, Inc.
 
138,826
 
 
 
 
316,089
 
 
      
   
Computer Services - Software 7.91%
    
160,453
  
ClickSoftware Technologies, Ltd. (Israel)
  
378,669
15,000
  
CryptoLogic, Inc. (Canada)
 
330,600
302,600
  
Excapsa Software, Inc. (Canada)
  
252,078
430,000
  
Interplay Entertainment Corporation (Restricted)
  
-
36,698
  
LocatePlus Holdings Corporation (Restricted)
  
27,891
126,845
  
Net Perceptions, Inc.
 
228,321
61,832
  
Phoenix Technologies, Ltd.
  
265,878
110,505
  
Primal Solutions, Inc.
  
20,996
137,133
  
Quovadx, Inc.
  
357,917
18,700
  
Radware, Ltd. (Israel)
  
253,759
76,225
  
SumTotal Systems, Inc.
  
567,876
58,796
  
SupportSoft, Inc.
  
256,938
238,778
  
Unify Corporation
  
59,694
       
3,000,617
         
   
Computer Systems 4.46%
    
9,685
  
3D Systems Corporation
  
177,623
76,108
  
Adept Technology, Inc.
 
872,198
30,195
  
Performance Technologies, Inc.
  
205,326
49,233
  
SeaChange International, Inc.
  
437,681
       
1,692,828
         
   
Consumer Services 0.00%
    
46,889
  
OneTravel Holdings, Inc. (Restricted)
 
938
         
   
Contract Research Manufacturing 0.02%
    
2,000
  
Bio Imaging Technologies, Inc.
  
8,460
         
   
Data Security 0.11%
    
11,700
  
Entrust, Inc.
  
40,482
         
   
Diagnostics 0.60%
    
91,307
  
Ciphergen Biosystems, Inc.
  
121,438
30,710
  
Curagen Corporation
  
105,643
       
227,081
         
   
Electronic Components 3.28%
    
137,082
  
American Technology Corporation
  
523,653
25,351
  
Frequency Electronics, Inc.
  
328,802
40,125
  
Interlink Electronics, Inc.
  
106,331
206,633
  
Tvia, Inc.
 
285,155
       
1,243,941
         
         
         
 
 
 
SPECIAL SITUATIONS FUND III, L.P.
 		    
 
  
(A Limited Partnership) 
    
         
 
  
PORTFOLIO OF INVESTMENTS
 		    
         
 
SEPTEMBER 30, 2006
 		    
 
  
(Unaudited) 
    
     
 
Fair 
Shares
 
Common Stocks (Continued)
 
Value 
         
 
   
Electronic Equipment 1.30%
    
198,705
  
Iteris Holdings, Inc.
$
494,775
         
   
Electronic Instruments 1.96%
    
29,311
 
Image Sensing Systems, Inc.
 
365,801
31,623
 
Metretek Technologies, Inc.
 
377,579
 
 
 
 
743,380
 
 
 
 
 
 
 
Electronic Semiconductor 0.62%
    
66,254
  
PSi Technologies Holdings, Inc. (Philippines)
 
40,415
26,987
  
ParkerVision, Inc.
 
196,195
       
236,610
         
   
Energy - Oil & Gas 1.12%
    
27,129
  
Willbros Group, Inc. (Panama)
  
423,755
         
   
Energy - Services 0.25%
    
6,500
  
Allis-Charlmers Energy, Inc.
  
95,160
         
   
Energy - Technology 0.93%
    
132,401
  
Catalytica Energy Systems, Inc.
  
146,965
104,500
  
Quantum Fuel Systems Technologies Worldwide, Inc.
  
206,910
       
353,875
         
   
Financial Services - Miscellaneous 0.06%
    
6,500
  
MicroFinancial Incorporated
  
21,190
         
   
Gold Mining 0.67%
    
205,536
  
MK Resources Company
 
252,809
         
   
Healthcare Services 1.66%
    
60,219
  
Syntax-Brillian Corp.
  
283,631
28,968
  
U.S. Physical Therapy, Inc.
  
345,299
       
628,930
         
   
Healthcare - Specialized Products & Services 1.41%
    
32,282
  
American Dental Partners, Inc.
  
533,944
         
   
Housing - Construction 2.02%
    
55,567
  
Cavalier Homes, Inc.
  
177,259
46,965
  
Modtech Holdings, Inc.
  
261,126
34,612
  
U.S. Home Systems, Inc.
 
327,429
       
765,814
         
   
Information Services 1.32%
    
141,187
  
Guideline, Inc.
  
211,781
413,500
  
Pfsweb, Inc.
  
289,450
       
501,231
         
         
         
 
 
 
SPECIAL SITUATIONS FUND III, L.P.
 		    
 
  
(A Limited Partnership) 
    
         
 
  
PORTFOLIO OF INVESTMENTS
 		    
         
 
SEPTEMBER 30, 2006
 		    
 
  
(Unaudited) 
    
     
 
Fair 
Shares
 
Common Stocks (Continued)
 
Value 
         

   
Insurance 1.99%
    
77,541
  
AmCOMP, Inc.
$
753,699
16
  
Renaissance Acceptance Group, Inc.
  
-
       
753,699
         
   
Internet Commerce 1.01%
    
140,391
 
Corillian Corporation
 
384,671
 
 
 
 
 
 
 
Media 0.12%
 
 
26,500
 
DHX Media (Canada)
 
43,881
 
 
 
 
 
 
 
Medical Devices & Equipment 9.53%
 
 
40,984
 
ATS Medical, Inc.
 
96,722
24,143
 
Applied Imaging Corporation
 
74,118
107,845
 
Cardica, Inc.
 
452,949
29,500
 
Medwave, Inc.
 
48,380
48,204
 
Natus Medical Incorporated
 
657,985
84,157
 
Orthovita, Inc.
 
293,708
104,522
 
Precision Optics Corporation, Inc.
 
41,809
34,217
 
Quidel Corporation
 
483,144
58,213
 
Regeneration Technologies, Inc.
 
408,655
168,587
 
Sonic Innovations, Inc.
 
691,207
26,363
 
Vnus Medical Technologies, Inc.
 
175,314
582,784
 
World Heart Corporation (Canada)
 
192,319
 
 
 
 
3,616,310
 
 
 
 
 
 
 
Medical Instruments 1.46%
 
 
27,790
 
Caprius, Inc.
  
18,758
101,012
  
Electro-Optical Sciences, Inc. (Australia)
  
536,374
       
555,132
         
   
Oil Equipment 0.00%
    
650
  
Beluga Composites Corporation
  
-
         
   
Online Services 2.98%
    
51,129
  
The Knot, Inc.
 
1,131,485
         
   
Paper - Packaging 0.45%
    
47,850
  
Chase Packaging Corporation
  
-
23,700
  
Pope & Talbot, Inc.
  
170,775
       
170,775
         
   
Practice Management 0.45%
    
18,068
  
IntegraMed America, Inc.
  
171,465
         
         
         
 
 
 
SPECIAL SITUATIONS FUND III, L.P.
 		    
 
  
(A Limited Partnership) 
    
         
 
  
PORTFOLIO OF INVESTMENTS
 		    
         
 
SEPTEMBER 30, 2006
 		    
 
  
(Unaudited) 
    
     
 
Fair 
Shares
 
Common Stocks (Continued)
 
Value 
         

   
Restaurant 1.69%
   
71,761
  
Buca, Inc.
$
378,181
69,507
  
Monterey Gourmet Foods, Inc.
 
262,736
       
640,917
         
   
Retail 5.74%
   
37,704
  
1-800 CONTACTS, INC.
 
565,183
32,997
  
Bakers Footwear Group, Inc.
 
435,231
61,701
  
Dover Saddlery, Inc.
  
453,811
18,478
  
EZCORP, Inc.
  
714,729
46,237
  
Odimo Incorporated
 
9,247
       
2,178,201
         
   
Semiconductor 0.52%
    
35,077
  
CEVA, Inc.
  
198,536
         
   
Semiconductor Equipment 3.99%
   
48,021
  
HI/FN, Inc.
  
226,179
101,660
  
Integral Vision, Inc.
  
60,996
109,215
  
Nova Measuring Instruments, Ltd. (Israel)
  
203,140
56,274
  
Tegal Corporation
 
235,788
73,699
  
Ultra Clean Holdings, Inc.
 
787,105
       
1,513,208
         
   
Services 2.30%
   
49,337
  
Collectors Universe, Inc.
  
688,251
13,638
  
OPNET Technologies, Inc.
 
178,794
1,000
  
TRX, Inc.
  
5,060
       
872,105
         
   
Specialty Pharmaceuticals 0.05%
    
8,466
  
Critical Therapeutics, Inc.
  
20,318
         
   
Technology - Miscellaneous 3.15%
   
108,445
  
iPass, Inc.
  
507,523
87,284
  
Intermap Technologies Corp. (Canada)
 
390,639
327,761
  
Supercom, Ltd. (Israel)
  
295,885
       
1,194,047
         
   
Telecom Equipment 2.56%
   
54,043
  
COMARCO, Inc.
 
480,983
89,800
  
Network Equipment Technologies, Inc.
  
369,976
97,808
  
Peco II, Inc.
 
121,282
       
972,241
         
   
Telecom Services 2.83%
   
46,356
  
SpectraLink Corporation
  
380,583
69,810
  
WPCS International Incorporated
 
693,213
       
1,073,796
         
         
         
 
 
 
SPECIAL SITUATIONS FUND III, L.P.
 		    
 
  
(A Limited Partnership) 
    
         
 
  
PORTFOLIO OF INVESTMENTS
 		    
         
 
SEPTEMBER 30, 2006
 		    
 
  
(Unaudited) 
    
     
 
Fair 
Shares
 
Common Stocks (Continued)
 
Value 
         

   
Telecommunications 0.95%
    
360,122
  
Emrise Corp.
$
360,122
         
   
Transportation 0.26%
   
61,900
  
Railpower Technologies Corporation (Canada)
  
98,627
         
   
Total Common Stocks 89.11%
 
33,802,170
         
     
 
Fair 
Shares
  
Preferred Stocks
 
Value 
         
   
Business Services 0.28%
    
24
  
UTIX Group, Inc. convertible
$
105,000
         
   
Computer Services - Software 0.45%
    
42,750
 
Zhongpin, Inc. convertible (Restricted)
 
171,000
 
 
 
 
 
 
 
Data Security 0.67%
 
 
100,739
 
Verdasys, Inc. Series B convertible (Restricted)
 
254,668
 
 
 
 
 
 
 
Electronic - Display 0.64%
 
 
549,484
 
E Ink Corporation (Restricted)
 
241,773
 
 
 
 
 
 
 
Medical Instruments 0.03%
 
 
1,612
 
Caprius, Inc. convertible
 
10,881
 
 
 
 
 
 
 
Transportation 0.22%
 
 
26,885
 
Velocity Express Corporation 6% convertible
 
83,612
 
 
 
 
 
 
 
Total Preferred Stocks 2.29%
  
866,934
         
Principal
    
 
Fair 
Amount
  
Corporate Bonds
 
Value 
         
   
Computer Peripherals 0.82%
    
$306,246
  
Immersion Corporation 5% convertible, due 12/22/09
$
311,636
         
   
Computer Services - Software 0.03%
    
$11,000
  
Primal Solutions, Inc. 5%, due 3/31/08 (Restricted)
  
11,000
€ 169,260
  
Titus Interactive 2%, due 7/1/05 (France)
  
-
       
11,000
         
   
Consumer Products 0.32%
    
$120,886
  
Rockford Corporation 4.5% convertible, due 6/11/09
 
120,886
         
   
Total Corporate Bonds 1.17%
  
443,522
         
         
 
 
SPECIAL SITUATIONS FUND III, L.P.
 		    
 
  
(A Limited Partnership) 
    
         
 
  
PORTFOLIO OF INVESTMENTS
 		    
         
 
SEPTEMBER 30, 2006
 		    
 
  
(Unaudited) 
    
     
 
Fair 
Warrants
  
Warrants
 
Value 
         

   
Biotechnology 0.43%
    
33,316
  
Alliance Pharmaceutical Corp. 10/30/06
$
-
10,074
  
Isis Pharmaceutical, Inc. 8/23/10
  
28,006
96,038
  
La Jolla Pharmaceutical Company 12/14/10
 
8,643
3,847
  
Metabasis Therapeutics, Inc. 9/30/10
  
4,886
142,000
  
Opexa Therapeutics, Inc. 4/13/11
  
45,440
100,000
  
Tapestry Pharmaceuticals, Inc. 4/6/11
  
75,000
       
161,975
         
   
Biotechnology - Drug Delivery 0.00%
    
32,134
  
Aradigm Corporation 3/10/07
  
-
16,790
  
Aradigm Corporation 11/10/07
  
-
       
-
         
   
Building Materials 0.30%
    
200,000
  
American Mold Guard, Inc. Class A
  
60,000
200,000
  
American Mold Guard, Inc. Class B
  
54,000
       
114,000
         
   
Business Services 0.04%
    
1,500,000
  
UTIX Group, Inc. 1/13/11
  
15,000
         
   
Communication Equipment - Software 0.02%
    
20,148
 
MetaSolv, Inc. 10/27/10
 
7,253
91,874
 
Vertical Communications, Inc. 9/30/06
 
-
9,523
 
Vertical Communications, Inc. 9/28/15 (Restricted)
 
-
3,614
 
Vertical Communications, Inc. 12/16/08 (Restricted)
 
-
 
 
 
 
7,253
 
 
 
 
 
 
 
Communication Products - Equipment 0.05%
 
 
4,663
 
Superconductor Technologies, Inc. 3/10/07
 
-
34,453
 
Superconductor Technologies, Inc. 9/26/07
 
-
59,336
 
Tut Systems, Inc. 7/22/10
 
17,207
 
 
 
 
17,207
 
 
 
 
 
 
 
Computer Peripherals 0.06%
 
 
6,105
 
Cambridge Display Technology, Inc. 12/22/10 (United Kingdom)
 
10,867
6,538
 
Immersion Corporation 12/23/09 
 
11,572
 
 
 
 
22,439
 
 
 
 
 
 
 
Computer Services - Software 0.01%
    
805,910
  
LocatePlus Holding Corporation 7/8/10 (Restricted)
 
-
55,000
  
Primal Solutions, Inc. 3/31/11 (Restricted)
  
-
74,914
  
Unify Corporation 4/26/09
 
2,997
21,375
  
Zhongpin, Inc. 1/30/11 (Restricted)
  
-
       
2,997
         
 
 
SPECIAL SITUATIONS FUND III, L.P.
 		    
 
  
(A Limited Partnership) 
    
         
 
  
PORTFOLIO OF INVESTMENTS
 		    
         
 
SEPTEMBER 30, 2006
 		    
 
  
(Unaudited) 
    
     
 
Fair 
Warrants
  
Warrants (Continued)
 
Value 
         

   
Computer Systems 0.38%
    
134,321
 
Adept Technology, Inc. 11/18/08
$
143,723
 
 
 
 
 
 
 
Consumer Products 0.02%
 
 
5,713
 
Rockford Corporation 6/11/09
 
6,398
 
 
 
 
 
 
 
Consumer Services 0.00%
 
 
187,557
 
OneTravel Holdings, Inc. 4/14/10 (Restricted)
 
-
 
 
 
 
 
 
 
Diagnostics 0.09%
 
 
6,100
 
Solexa, Inc. 11/23/10
 
15,677
7,787
 
Solexa, Inc. 1/18/11
 
20,246
 
 
 
 
35,923
 
 
 
 
 
 
 
Electronic Components 0.21%
 
 
32,422
 
American Technology Corporation 8/6/10
 
64,520
14,450
 
American Technology Corporation 7/18/09
 
17,195
 
 
 
 
81,715
 
 
 
 
 
 
 
Electronic Equipment 0.00%
 
 
57,087
 
Iteris Holdings, Inc. B 9/28/11
 
-
 
 
 
 
 
 
 
Electronic Semiconductor 0.03%
 
 
6,447
 
ParkerVision, Inc. 3/10/10
 
12,249
 
 
 
 
 
 
 
Energy - Technology 0.00%
 
 
10,692
 
Arotech Corporation 6/30/08
 
-
4,680
 
Arotech Corporation 12/31/08
 
-
 
 
 
 
-
 
 
 
 
 
 
 
Information Services 0.04%
 
 
48,355
 
Guideline, Inc. 5/10/09
 
16,441
 
 
 
 
 
 
 
Medical Devices & Equipment 0.01%
 
 
9,210
 
Orthovita, Inc. 6/26/08
 
3,316
536,190
 
World Heart Corporation 9/22/08 (Canada)
 
-
 
 
 
 
3,316
 
 
 
 
 
 
 
Medical Information Systems 0.00%
 
 
177,300
 
LifeRate Systems, Inc. 11/14/07
 
-
         
   
Medical Instruments 0.01%
    
222,320
  
Caprius, Inc. 2/15/10
  
2,223
4,477
  
Caprius, Inc. 2/16/11
  
1,253
       
3,476
         
         
 
 
SPECIAL SITUATIONS FUND III, L.P.
 		    
 
  
(A Limited Partnership) 
    
         
 
  
PORTFOLIO OF INVESTMENTS
 		    
         
 
SEPTEMBER 30, 2006
 		    
 
  
(Unaudited) 
    
     
 
Fair 
Warrants
  
Warrants (Continued)
 
Value 
   

   
Semiconductor Equipment 0.04%
    
60,250
 
Tegal Corporation 7/14/10
$
2,410
270,793
 
Tegal Corporation 9/19/10
 
13,540
16,622
 
Trikon Technologies, Inc. 10/22/07 (United Kingdom)
 
-
 
 
 
 
15,950
 
 
 
 
 
 
 
Technology - Miscellaneous 0.23%
    
75,316
  
Intermap Technologies Corp. 3/17/08 (Canada)
 
39,917
90,990
  
Supercom, Ltd. 12/9/10 (Israel)
  
49,135
       
89,052
         
   
Telecom Services 0.71%
    
12,152
  
GoAmerica, Inc. 12/19/08
  
-
705,171
  
WPCS International Incorporated 11/16/09
 
267,965
       
267,965
         
   
Telecommunications 0.00%
    
6,431
  
Q Comm International, Inc. 6/24/08
  
1,286
         
   
Therapeutics 0.04%
    
12,868
  
Critical Therapeutics, Inc. 6/6/10
 
5,533
47,506
  
Memory Pharmaceuticals Corp. 9/22/10
  
10,471
       
16,004
         
   
Total Warrants 2.72%
  
1,034,369
         
   
TOTAL INVESTMENTS (cost $33,045,741) 95.28%
$
36,146,995
         
         
     
 
Fair 
Shares
  
Securities Sold Short
 
Value 
         
   
Diagnostics 0.09%
    
4,000
  
Solexa, Inc.
$
35,280
         
   
TOTAL SECURITIES SOLD SHORT (proceeds $34,022) 0.09%
$
35,280
         
   
All percentages are relative to Partners' Capital.
    
       
 
 
 All securities are non-income producing except for 3D Systems Corporation,    
 
Chitaly Holdings Limited, Collectors Universe, Inc., CryptoLogic, Inc.,
    
 
 
Frequency Electronics, Inc., Immersion Corporation, LocatePlus Holdings
    
 
 
 Corporation, Primal Solutions, Inc., Printronix, Inc., Rockford Corporation,    
 
 
 Stellent, Inc. and Velocity Express Corporation.    
         
         
         
 
 
SPECIAL SITUATIONS FUND III, L.P.
 		    
 
  
(A Limited Partnership) 
    
         
 
  
PORTFOLIO OF INVESTMENTS
 		    
         
 
SEPTEMBER 30, 2006
 		    
 
  
(Unaudited) 
    

         
% of
 
 
 
 
 
Partners'
Industry Concentration
 
 
Total
 
Capital
 
 
 
 
 
 

Aerospace
 
$
58,721
 
0.15
Automotive Components
   
373,148
 
0.98
Biotechnology
    
2,805,664
 
7.40
Biotechnology - Drug Delivery
    
-
 
0.00
Building Materials
    
810,760
 
2.14
Business Services
 
 
120,000
 
0.32
Chemicals
 
 
339,390
 
0.89
Communication Equipment - Software
 
 
1,121,154
 
2.96
Communication Products - Equipment
 
 
693,024
 
1.83
Computer Equipment
 
 
369,299
 
0.97
Computer Peripherals
 
 
650,164
 
1.71
Computer Services - Software
 
 
3,185,614
 
8.40
Computer Systems
 
 
1,836,551
 
4.84
Consumer Products
 
 
127,284
 
0.34
Consumer Services
 
 
938
 
0.00
Contract Research Manufacturing
 
 
8,460
 
0.02
Data Security
 
 
295,150
 
0.78
Diagnostics
 
 
227,724
 
0.60
Electronic Components
 
 
1,325,656
 
3.49
Electronic - Display
 
 
241,773
 
0.64
Electronic Equipment
 
 
494,775
 
1.30
Electronic Instruments
 
 
743,380
 
1.96
Electronic Semiconductor
 
 
248,859
 
0.66
Energy - Oil and Gas
 
 
423,755
 
1.12
Energy - Services
 
 
95,160
 
0.25
Energy - Technology
 
 
353,875
 
0.93
Financial Services
 
 
21,190
 
0.06
Gold Mining
 
 
252,809
 
0.67
Healthcare Services
 
 
628,930
 
1.66
Healthcare - Specialized Products & Services
 
 
533,944
 
1.41
Housing - Construction
 
 
765,814
 
2.02
Information Services
 
 
517,672
 
1.36
Insurance
 
 
753,699
 
1.99
Internet Commerce
 
 
384,671
 
1.01
Media
 
 
43,881
 
0.12
Medical Devices & Equipment
 
 
3,619,626
 
9.55
Medical Information Systems
 
 
-
 
0.00
Medical Instruments
 
 
569,489
 
1.50
Oil Equipment
 
 
-
 
0.00
 
 
 
 
 
 
 
 
        
 
 
SPECIAL SITUATIONS FUND III, L.P.
 		    
 
  
(A Limited Partnership) 
    
         
 
  
PORTFOLIO OF INVESTMENTS
 		    
         
 
SEPTEMBER 30, 2006
 		    
 
  
(Unaudited) 
    

         
% of
 
 
 
 
 
Partners'
Industry Concentration (Continued)
 
 
Total
 
Capital
 
 
 
 
 
 


Online Services
 
$
1,131,485
 
2.98
Paper - Packaging
 
 
170,775
 
0.45
Practice Management
 
 
171,465
 
0.45
Restaurant
 
 
640,917
 
1.69
Retail
 
 
2,178,201
 
5.74
Semiconductor
 
 
198,536
 
0.52
Semiconductor Equipment
 
 
1,529,158
 
4.03
Services
 
 
872,105
 
2.30
Specialty Pharmaceuticals
 
 
20,318
 
0.05
Technology - Miscellaneous
 
 
1,283,099
 
3.38
Telecom Equipment
 
 
972,241
 
2.56
Telecom Services
 
 
1,341,761
 
3.54
Telecommunications
 
 
361,408
 
0.95
Therapeutics
 
 
16,004
 
0.04
Transportation
 
 
182,239
 
0.48
 
 
 
 
 
 
 
 
 
 
 
 
TOTAL PORTFOLIO
 
$
36,111,715
 
95.19%
 
 
 
 
 
 
 
 
        
 
Item 2.  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 3.  Exhibits

Separate certifications for the registrant’s principal executive officer and principal financial officer, as required by rule 30a-2(a) under the Investment Company Act of 1940, are attached as EX99.CERT.



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: November 28, 2006


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: November 28, 2006


By: __/s/Rose M. Carling ______________
Rose M. Carling, Principal Financial Officer

Date: November 28, 2006