Indicate by check mark if disclosure by delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any statement to this Form 10-K. o

Large Accelerated Filer oAccelerated Filer oNon-accelerated filer x

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act. Yes o No x

The aggregate market value of the voting and non-voting common equity held by non-affiliates, based on the closing price of such the Registrant’s Common Stock as of ~~March 1,~~June 29, 2007, was ~~$37,632,379.~~$36,082,059. As of March ~~15, 2007,~~24, 2008, there were 4,463,967 shares of Registrant’s Common Stock outstanding.

Certain of the statements included below, including those regarding future financial performance or results that are not historical facts, contain “forward-looking” information as that term is defined in the Securities Exchange Act of 1934, as amended. The words “expect,” “believe,” “anticipate,” “project,” “estimate,” and similar expressions are intended to identify forward-looking statements. The Fund cautions readers that any such statements are not guarantees of future performance or events and that such statements involve risks, uncertainties and assumptions, including but not limited to industry conditions, general economic conditions, interest rates, competition, ability of the Fund to successfully manage its growth, and other factors discussed or included by reference in this Annual Report on Form 10-K. Should one or more of these risks or uncertainties materialize or should the underlying assumptions prove incorrect, those actual results and outcomes may differ materially from those indicated in the forward-looking statements.

Item 1. Business.

Renaissance Capital Growth & Income Fund III, Inc., (the “Fund” or the “Registrant”) is a non-diversified, closed-end fund that has elected to be treated as a business development company (a “BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). The Fund, a Texas corporation, was organized and commenced operations in 1994.

The investment objective of the Fund is to provide its ~~shareholders~~stockholders long-term capital appreciation by investing primarily in privately placed convertible securities and equity securities of emerging growth companies.

RENN Capital Group, Inc. (“RENN Group” or the “Investment Adviser”), a Texas corporation, serves as the ~~investment adviser~~Investment Adviser to the Fund. In this capacity, RENN Group is primarily responsible for the selection, evaluation, structure, valuation, and administration of the Fund’s investment ~~portfolio.~~portfolio, subject to the supervision of the Board of Directors. RENN Group is a registered investment adviser under the Investment ~~Advisers~~Advisors Act of 1940, as amended (the ~~“Advisers~~“Advisors Act”).

Generally, investments are, and will continue to be, in companies that have their common stock registered for public trading under the Securities Exchange Act of 1934, as amended (the “1934 Act”), or companies that in the opinion of the Investment Adviser have the ability to effect a public offering within three to five years. The Fund generally invests in privately placed convertible preferred stock, orcommon stock, and warrants and debentures of a company to be held in the Fund’s portfolio (“Portfolio Company”). ~~These~~The convertible preferred stock, warrants and debentures securities typically are convertible into, or exchangeable for, the common stock of the Portfolio Company. While such common stock of the Portfolio Company may be publicly traded, the common stock acquired by the Fund is often unregistered. Therefore, such

~~-4-~~

From inception through December 31, ~~2006,~~2007, the Fund had made investments in ~~seventy-five (75)~~eighty-four (84) different Portfolio Companies having an aggregate cost of ~~$96,818,111.~~$106,144,160. At December 31, ~~2006,~~2007, the Fund had active investments in ~~thirty (30)~~thirty-seven (37) Portfolio Companies. The Fund does not focus on particular industry segments. Instead, the Fund makes investment decisions using a bottom-up analysis of the potential Portfolio Company, with no predetermined industry bias.

Under the provisions of the 1940 Act, a Business Development Company generally is required to invest at least 70% of its assets directly in “Eligible Portfolio Companies” and temporary investments in “cash items” pending other investments. The term ~~Eligible~~“Eligible Portfolio ~~Company~~Company” generally includes any issuer that (1) is organized under the laws of, and has its principal place of business in, any U.S. state or states; (2) is not an investment company and (3) does not have any class of securities listed on a national securities exchange. The Fund determines whether any prospective investment is in an Eligible Portfolio Company at the time the investment is made, and the calculation of the requisite percentage is also made at that time and is based on the most recent valuation of the Fund’s assets. Under the 1940 Act, a Business Development Company may invest up to 30% of its funds in companies that do not qualify as Eligible Portfolio Companies. In the event the Fund has less than 70% of its assets in the securities of Eligible Portfolio Companies, then the Fund will be prohibited from making investments in companies that are not Eligible Portfolio Companies until such time as the percentage of eligible investments again are at least equal to the 70% threshold.

Pending investment in securities of Eligible Portfolio Companies or other Portfolio Companies, the Registrant’s funds are invested in short-term investments consisting primarily of cash or U.S. Government and agency obligations.

At December 31, ~~2006,~~2007, the Fund’s investment assets were classified by amount as follows:

			Percentage
Classification	Value		of Net Assets
Investments in Eligible Portfolio	$	23,553,371		62.38	%
Companies (including cash and
cash equivalents, net of liabilities)
Other Portfolio Investments		14,205,777		37.62


	$	37,759,148		100.00	%

Percentage

Classification

Value

of Assets

Investments in Eligible Portfolio $ 30,958,459 64.0 %
Companies (including cash and cash equivalents, net of liabilities)
Other Portfolio Investments 17,408,983 36.0 %
$ 48,367,442 100.0 %

The investment objective of the Fund is to provide its ~~shareholders~~stockholders with long-term capital appreciation by investing primarily in privately placed convertible debt and equity securities of emerging growth public companies. The Fund seeks to provide returns to ~~shareholders~~stockholders through cash dividends of net investment income and through distributions of realized gains.

The Fund invests in the securities of emerging growth companies that are generally not available to the public and which typically require substantial financial commitment. An ~~emerging~~“emerging growth ~~company~~company” is generally considered to have the following attributes: (1) either a publicly held company with a relatively small market capitalization or a privately held company; (2) an established operating history but of a limited period so as to not have fully developed its market potential for the products or services offered; and (3) a provider of a new or unique product or service that allows the company an opportunity for exceptional growth. Emerging growth companies typically require non-conventional sources of financing because the extent and nature of the market for their products or services is not fully known. Consequently, there is uncertainty as to the rate and extent of growth and also uncertainty as to the capital and human resources required to achieve the goals sought.

With respect to investments in emerging growth companies, the Fund emphasizes investing in convertible debentures or convertible preferred stock of publicly held companies that the Fund anticipates will be converted into common stock and registered for public sale within three to five years after the private placement. In addition, the Fund ~~will invest~~invests in privately placed common stock of publicly traded issuers that are initially restricted from trading. To a lesser extent, the Fund may participate in bridge financings in the form of loans or other preferred securities which are convertible into common stock of the issuer or issued together with equity participation, or both, for companies which the Fund anticipates will complete a stock offering or other financing within a year from the date of the investment. The Fund may also make bridge loans, either secured or unsecured, intended to carry the borrower to a private placement or an initial public offering, or to a merger, acquisition, or other strategic transaction.

Generally, the debt securities of Portfolio Companies have an initial fixed term of five to seven years, with no amortization of the principal amount for the initial two to three years. Further, privately-placed investments in Portfolio Companies will be individually negotiated, non-registered for public trading, and will be subject to legal and contractual investment restrictions. Accordingly, the Fund’s securities of Portfolio Companies are generally considered non-liquid.

~~-6-~~

In the event the Fund elects to participate as a member of the Portfolio Company’s Board of Directors, either through advisory or full membership, the Fund’s nominee to the board will generally be selected from among the officers of RENN Group. When, at the discretion of RENN Group, a suitable nominee is not available from among its officers, RENN Group will select, as alternate nominees, outside consultants who have prior experience as an independent outside director of a public company. At December 31, ~~2006,~~2007, officers of the Fund served as directors of ~~six~~nine of the Fund’s portfolio companies. The Fund makes available significant managerial assistance to its portfolio companies through participating in discussions with management and review of various management reports.

Although the Fund has no intent to change its current investment objectives, they may be changed without a vote of the holders of a majority of the Fund’s common stock.

It is the policy of the Fund not to structure off-balance-sheet arrangements.

The 1940 Act was enacted to regulate investment companies. In 1980, the 1940 Act was amended by the adoption of the Small Business Investment Incentive Act. The purpose of the amendment was to remove regulatory burdens on professionally managed investment companies engaged in providing capital to smaller companies. The Small Business Investment Incentive Act established a new type of investment company specifically identified as a Business Development Company as a way to encourage financial institutions and other major investors to provide a new source of capital for small developing businesses.

A business development company (“BDC”) is a closed-end management investment company that generally makes 70% or more of its investments in “Eligible Portfolio Companies” and “cash items” pending other investment. Under the 1940 Act, only certain companies may qualify as “Eligible Portfolio Companies.” To be an “Eligible Portfolio Company,” the company must satisfy the following:

~~Therefore, the Investment Adviser believes that “Eligible~~“Eligible Portfolio Companies” are, generally, those companies that, while being publicly held, ~~may~~might not have or do not have a ~~broad based~~broad-based market for their securities, or the securities that they wish to offer are restricted from public trading until registered. ~~Further, while the 1940 Act allows a BDC to “control” a Portfolio Company, it is not the general policy of the Fund to acquire a controlling position in its portfolio companies.~~ The Fund ~~only~~ provides or offers to provide managerial assistance, and in certain circumstances ~~seeks to limit its “control” position by contracting~~contracts for the right to have a designee of the Fund be elected to the board of directors of the Portfolio Company, or be ~~selected~~designated as an advisory director. While these are the Fund’s general policies, the application of these policies, of necessity, varies with each investment situation.

The BDC election exempts the Fund from some provisions of the 1940 Act. However, except for those specific provisions, the Fund will continue to be subject to all provisions of the 1940 Act not otherwise exempted, including the following:

In accordance with the conditions of an exemptive order of the SEC permitting co-investments (the “Co-investment Order”), many of the Fund’s acquisitions and dispositions of

~~-8-~~

The Co-investment Order provides that the Investment Adviser will review private placement investment opportunities on behalf of the Fund, including investments being considered on behalf of its ~~Advisor Affiliated~~Adviser-Affiliated Funds. If the Investment Adviser determines that any such investment is an eligible co-investment opportunity, the Fund must be offered the opportunity to invest in such investment in an amount recommended by the Adviser. Securities purchased by the Fund in a co-investment transaction with ~~Advisor Affiliated~~Adviser-Affiliated Funds will consist of the same class of securities and will have the same rights, price, terms and conditions. Any such co-investment transaction must be approved by the Fund’s Board of Directors, including a majority of its independent directors. The Fund will not make any direct investment in the securities of any issuers in which the ~~Advisor Affiliated~~other Adviser-Affiliated Funds, ~~but not the Fund, has previously made a private placement,~~already hold an interest, except for follow-on investments ~~that meet~~in entities under a previous co-investment in which the ~~same requirements.~~Fund also participated. To the extent that the amount of a follow-on investment opportunity is not based on the amount of the Fund’s and the ~~Advisor Affiliated~~Adviser-Affiliated Funds’ initial investments, the relative amount of investment by the ~~Advisor Affiliated~~Adviser-Affiliated Funds and the Fund will be based on the ratio of the Fund’s remaining funds available for investment to the aggregate of the Fund’s and the ~~Advisor Affiliated~~Adviser-Affiliated Funds’ remaining funds available for investment. The Co-investment Order also provides that the Fund will have the opportunity to dispose of any securities in which the Fund and the Advisor Affiliated Funds have invested at the same price, terms and conditions. The Fund will participate in any such disposition to the extent that a majority of its independent directors believe it is in its best interest.

The Fund will bear no more than its own transaction costs.

RENN Group is the ~~investment adviser~~Investment Adviser to the Fund pursuant to the Advisory Agreement (the “Advisory Agreement”). RENN Group is registered as an ~~investment adviser~~Investment Adviser under the Advisers Act and is subject to its filing and other requirements. The Advisers Act also provides restrictions on the activities of registered advisers in order to protect clients from manipulative or deceptive practices.

The Advisory Agreement is further subject to the 1940 Act, which requires that the Advisory Agreement, in addition to having to be initially ratified by the holders of a majority of the outstanding shares of the Fund, must precisely describe all compensation to be paid to RENN Group, must be approved annually by a majority vote of the Board of Directors of the Fund, may be terminated without penalty on ~~not more than~~at least 60 days notice by a vote of the holders of a majority of the outstanding shares of the Fund or by the vote of the Funds’ directors or the Adviser, and must automatically terminate in the event of assignment.

Pursuant to the Advisory Agreement, RENN Group receives a management fee equal to a quarterly rate of 0.4375% of the Fund’s net assets, as determined at the end of such quarter with each such payment to be due on the last day of the calendar quarter. In addition, under the Advisory Agreement, RENN Group receives an incentive fee in an amount equal to 20% of the Fund’s realized capital gains in excess of realized capital losses of the Fund after allowance for any unrealized capital losses in the portfolio investments of the Fund. The incentive fee is calculated and paid on an annual basis.

At December 31, ~~2006,~~2007, the Fund had active investments in the following companies:

Access Plans USA, Inc. ~~(formerly Precis, Inc.) (NASDAQ:~~(Nasdaq:AUSA)

Access Plans USA, Inc. develops and distributes ~~a broad array of~~various health insurance products ~~to individuals and families~~ and non-insurance health care discount programs to ~~affordably address the needs of uninsured or underinsured individuals. The Company also provides third party claims administration, provider network management,~~individuals, families, affinity groups and ~~utilization management services to employers and employee groups.~~

At December 31, ~~2006,~~2007, the Fund owned a total of 890,500 shares of the company’s common stock, ~~having~~options to purchase 3,659 shares of common stock at $2.30 per share and options to purchase 2,439 shares of common stock at $2.25 per share. These securities have a cost basis of $2,139,777.

AdStar, Inc. ~~(NASDAQ:~~(Nasdaq:ADST)

AdStar, Inc. ~~is a leading provider of remote advertising~~provides technology ~~products and~~ services to the classified advertising ~~industry. AdStar transforms publishers’ websites into full service classified ad sales channels for their print~~industry in the United States. It offers services using its proprietary software that electronically connects advertisers with newspaper publishing systems, as well as online advertising formats. The company enables professional advertising agencies, businesses, and ~~on-line classified ad departments.~~individuals to send ads to publishers electronically.

During the fourth quarter of 2007, the Fund sold 15,731 shares of common stock for $7,014, recognizing a loss of $12,266.

At December 31, ~~2006,~~2007, the Fund owned ~~269,231~~253,500 shares of common stock in the company, having a cost basis of ~~$350,000.~~$330,718.

Advance Nanotech, Inc. (OTCBB:AVNA)

600 Lexington Avenue, 29^th Floor, New York, New York 10022

Advance Nanotech, Inc. ~~is working on~~engages in the ~~development~~acquisition and commercialization of ~~nanotechnology. The company focuses its research on nano-enabled electronics, biopharma~~nanotechnologies in the areas of homeland security and ~~materials. Advanced Nanotech has established relationships with academic institutions.~~display.

In the ~~first~~second quarter of ~~2006,~~2007, the Fund ~~received 5,796~~sold 165,000 shares of ~~the company’s~~ common stock asfor $64,154, recognizing a ~~penalty for breach~~loss of ~~the company’s obligation to cause the Fund’s securities to be registered for resale under the Securities Act of 1933, as amended.~~$254,647.

At December 31, ~~2006,~~2007, the Fund owned ~~170,796~~5,796 shares of common stock and warrants to purchase 82,500 shares of common stock. These securities have a cost basis of ~~$330,000.~~$11,199.

Asian Financial, Inc. (Duoyuan Digital Printing Technology) (Private)

Duoyuan Digital Printing Technology ~~manufactures commercial~~engages in the design, development, and manufacture of offset printing ~~machines~~equipment and solutions in the People’s Republic of China. Duoyuan Digital Printing Technology is in the process of going through a reverse merger with a public shell known as Asian Financial, Inc.

~~During the fourth quarter of 2006, the Fund acquired 130,208 shares of the company’s common stock for $500,000 in a private placement.~~

Bovie Medical Corporation (AMEX:BVX)

Bovie Medical Corporation ~~manufactures, markets~~engages in the manufacture and ~~develops~~marketing of medical products and the development of related technologies. The company ~~also manufactures a variety of specialty lighting instruments for use~~offers electrosurgery products, which include desiccators, generators, electrodes, electrosurgery pencils, and various ancillary disposable products used in ~~ophthalmology, general~~ surgery ~~hip replacement surgery and~~ for the ~~placement~~cutting and coagulation of ~~endotracheal tubes.~~tissue, Bovie/Aaron 800 and 900 High Frequency Desiccators, which are designed for dermatology and plastic surgery for removing small skin lesions and growths, Bovie/Aaron 950 that is developed for outpatient surgical procedures used in various specialties, including dermatology, gynecology, and plastic surgery, Bovie/Aaron 1250, an electrosurgery generator, and Bovie/Aaron 2250/IDS 300, which is a multipurpose digital electrosurgery generator for the surgi-center market.

~~During the first quarter of 2006, the Fund added $3,300 to its cost basis to reflect the added cost of registering the Fund’s shares.~~

BPO Management Services, Inc. (AMEX:BVX)

BPO Management Services, Inc. provides business process outsourcing (BPO) services in the United States and Canada. It offers a range of services, including human resources, information technology, enterprise content management, and finance and accounting to support the back-office functions of middle-market enterprises on an outsourced basis.

In the quarter ended June 30, 2007, the Fund bought 104,167 shares of Series D preferred stock for $1,000,000 ($9.60 per share). Such shares are convertible into 1,666,667 common shares. The Fund also received warrants to purchase 833,334 shares and 1,666,667 shares of common stock at $0.90 per share and $1.25 per share, respectively. Additionally, the Fund received a J warrant, which gives the Fund the right to purchase 104,167 shares of Series D-2 preferred stock at $14.40. Such shares are convertible into 1,666,667 common shares. If the J warrant is exercised, the Fund will receive warrants to purchase another 833,334 shares and 1,666,667 shares of common stock at $1.35 per share (C warrants) and $1.87 (D warrants) per share, respectively.

During the fourth quarter of 2007, the Fund agreed to exercise half of the J warrant at $0.60 per share rather than $0.90 per share. In addition, the strike price on half of the C warrants was reset to $0.01 and the strike price on half of the D warrants was reset to $1.10. This transaction required a cash outlay of $500,000.

At December 31, 2007, the Fund owned 104,167 shares of Series D preferred stock. Such shares are convertible into 1,666,667 common shares. The Fund also held warrants to purchase 833,334 shares and 1,666,667 shares of common stock at $0.90 per share and $1.25 per share, respectively. In addition, the Fund owned 52,084 shares of Series D-2 preferred stock. The Fund held a J warrant to purchase another 52,084 shares of Series D-2 preferred stock. If the J warrant is exercised, the Fund will receive a C warrant to purchase 416,667 shares of common stock at $1.35 per share and 416,667 shares of common stock at $0.01. Additionally, if the J warrant is exercised, the Fund will receive a D warrant to purchase 833,334 shares of common stock at $1.87 per share and 833,334 shares of common stock at $1.10 per share.

CaminoSoft ~~Corporation creates intelligent~~Corp. engages in the development and marketing of enterprise data ~~storage~~management software for small and ~~management infrastructures by facilitating~~medium-sized organizations. It offers software solutions that store, manage, and safeguard data ~~storage, retrieval, protection,~~created in a business and ~~performance measurement and management.~~

At December 31, ~~2006,~~2007, the Fund held a $250,000 promissory note. The Fund also owned 3,539,414 shares of common stock in the company having a basis of $5,275,000. Additionally, the Fund owned warrants to purchase 1,602,779 shares common at exercise prices ranging from $0.53 per share to $1.11 per share, with varying expiration dates, and options to purchase 94,200 shares common with strike prices ranging from $0.41 per share to $0.61 per share.

~~-11-~~

Chardan South China ~~Security & Surveillance Technology, Inc.~~Acquisition Corporation (OTCBB:~~CSCT)~~CSCA)

Chardan South China ~~Security & Surveillance Technology, Inc. engages~~Acquisition Corporation is an engineering company, providing design, construction, and installation services for distributed power generation and micro power networks in China. Subsequent to December 31, 2007, the ~~manufacture, distribution, installation, and maintenance of security and surveillance systems in the People’s Republic of China. The~~ company ~~offers embedded digital video recorders, PC digital video recorders, mobile digital video recorders, digital cameras, and auxiliary apparatus.~~changed its name to A-Power Energy Generation Systems, Ltd. (Nasdaq:APWR).

During the third quarter of ~~2006,~~2007, the Fund purchased ~~142,857~~48,000 shares of common stock ~~and warrants to purchase 28,571 shares of common stock at $4.80 per share~~ for ~~$500,000 in a private placement.~~$409,256.

At December 31, ~~2006,~~2007, there was no change in the ~~Fund owned 142,857 shares of common stock and warrants to purchase 28,571 shares of the company’s common stock with an exercise price of $4.80 per share.~~Fund’s ownership in these securities.

Comtech Group, Inc. provides customized module design solutions to ~~telecom equipment, mobile device and consumer~~ electronic manufacturers in China.

During the second quarter of 2007, the Fund sold 100,000 shares of common stock for $1,869,947, realizing a gain of $1,519,947.

At December 31, ~~2006,~~2007, the Fund held ~~300,000~~200,000 shares of the company’s common stock, with a cost basis of ~~$1,186,019.~~$836,019.

eOriginal, Inc. (Private)

e~~Original,~~eOriginal, Inc. has a patented process for creating, executing, storing and retrieving legal documents in an electronic format.

At December 31, ~~2006,~~2007, the Fund owned 10,680 shares of Series A Convertible Preferred Stock; 25,646 shares of Series B Convertible Preferred Stock; 51,249 shares of Series C Convertible Preferred Stock; ~~16,057~~36,711 shares of ~~the company’s~~ Series D Convertible Preferred Stock; warrants to purchase 2,258 shares of Series A Convertible Preferred Stock at an exercise price of $16.12 per share and warrants to purchase ~~15,530~~14,861 shares of common stock ~~of the company~~ at exercise prices ranging from $16.12 to ~~$31.14~~$20.97 per share. The aggregate cost basis is $6,872,270.

Gaming & Entertainment Group, Inc. ~~(OTC:~~(OTCPK:GMEI)

Gaming & Entertainment Group, Inc. ~~designs~~engages in the development, commercialization, and ~~develops~~licensing of software for amusement and gaming ~~systems, software, game content~~machines for the United Kingdom and ~~networks. The company’s~~European gaming ~~systems and game libraries are in amusement arcades, casinos, betting shops and bingo halls.~~markets.

During the fourth quarter of 2007, the Fund sold 500,000 shares of common stock for $4,722, realizing a loss of $495,278.

At December 31, ~~2006,~~2007, the Fund owned ~~612,500~~112,500 common shares having a cost of ~~$550,625 and warrants to purchase 500,000 common shares at $1.50 per share.~~$50,625.

Gasco Energy, Inc. (AMEX:GSX)

Gasco Energy, Inc. ~~is an oil and gas company whose focus is exploration and development of domestic~~operates as a natural gas ~~properties located~~and petroleum exploration, development and production company in the ~~Rocky Mountain regions of Utah and Wyoming.~~western United States.

~~At December 31, 2006,~~During the fourth quarter of 2007, the Fund ~~owned 3,777,082~~sold 766,080 shares of common stock ~~(acquired via private placements)~~for $1,745,851, realizing a gain of $961,202.

At December 31, 2007, the Fund owned 775,586 shares of common stock having a cost of ~~$1,250,000.~~$465,352. The fund also held options to buy 18,750 shares of the company’s common stock at exercise prices ranging from $1.00 to $2.15.

Global Axcess Corporation (OTCBB:GAXC)

Global Axcess Corporation ~~provides turnkey ATM management solutions that include cash, project~~owns and ~~account management services. Additionally,~~operates automated teller machines (ATM) with locations primarily in the ~~company provides traditional transaction processing to its customers.~~eastern and southwestern United States.

At December 31, ~~2006,~~2007, the Fund owned 953,333 shares of common stock having a cost basis of $1,261,667 and warrants to purchase 1,486,667 shares of common stock at prices ranging from $1.75 per share to $5.00 per share.

~~-13-~~

Hemcure, Inc. (AuraSound) (OTCBB:HMCU)

11839 East Smith Avenue, Santa Fe Springs, CA 70670

Hemcure, Inc. engages in the development, commercialization and sale of audio products, sound systems and audio components using its patented and proprietary electromagnetic technology. Its products include micro-audio speakers, speaker component products, such as loudspeaker transducers and home and pro audio products, including home audio systems, home theater systems and subwoofers.

In the quarter ended June 30, 2007, the Fund bought 1,000,000 shares of common stock for $1,000,000. The Fund also received warrants to purchase 1,000,000 shares of common stock at $1.50 per share. Additionally, the Fund received a J warrant, which gives the Fund the right to purchase 370,370 shares of common stock at $1.35. If the J warrant is exercised, the Fund will receive warrants to purchase another 370,370 shares of common stock at $1.50 per share. AuraSound completed a reverse merger with Hemcure, Inc.

At December 31, 2007, there was no change in the Fund’s ownership of these securities.

Hemobiotech, Inc. (OTCBB:HMBT)

~~14221 Dallas Parkway,~~5001 Spring Valley Road, Suite ~~1500,~~1040 West, Dallas, TX ~~75254~~75244

Hemobiotech, Inc. is a biopharmaceutical company ~~that develops~~engaged in the research and development of human blood ~~substitutes. The company’s product,~~substitute technology licensed from Texas Tech University Health Science Center School of Medicine (TTUHSC) in Texas. It focuses primarily on the production of HemoTech, is an oxygen-carrying solution that performs like red blood cells.

~~In the first quarter of 2006, the Fund exercised warrants to purchase 588,240 shares of common stock for $623,534. The Fund also purchased 10,000 shares of common stock for $22,220 in the open market.~~

~~In the second quarter of 2006, the Fund bought 52,595 shares of common stock for $118,015 in the open market.~~

At December 31, ~~2006,~~2007, the Fund owned 1,200,000 shares of common stock. The stock had a cost basis of $1,284,117.

HLS Systems International, Inc. (OTCBB:HLSYF)

625 Broadway, Suite 1111, San Diego, CA 92101

HLS Systems International, Inc. operates as a holding company for Beijing HollySys Company Ltd. and Hangzhou HollySys Automation Co., Ltd. Those companies manufacture and market industrial automation and control systems.

During the third quarter of 2007, the Fund bought 58,500 shares of common stock for $498,557.

At December 31, 2007, there was no change in the Fund’s ownership of these securities.

i2Telecom International, Inc. (OTCBB:ITUI)

1200 Abernathy Road, Suite 1800, Atlanta, GA 30328

i2Telecom International, Inc. ~~is a~~provides telecommunications ~~service provider~~services employing voice over ~~internet~~Internet protocol (VoIP) technology. ~~i2Telecom controls its own proprietary technology and outsources its production and service functions to strategic partners.~~

~~During the fourth quarter of 2006, the Fund received 237,510 shares of common stock as payment in kind for a dividend on certain preferred stock held by the Fund.~~

At December 31, ~~2006,~~2007, the Fund owned ~~625 shares of preferred stock convertible into 781,250 shares of common stock, 237,510~~4,165,316 shares of common stock and warrants to purchase ~~390,625~~78,125 shares of common stock at $0.20 per share. These securities had a cost basis of ~~$654,950.~~$711,200.

iLinc Communications, Inc. (AMEX:ILC)

2999 North 44^th44th Street, Suite 650, Phoenix, AZ 85018

iLinc Communications, Inc. provides ~~web~~Web conferencing ~~virtual classroom~~ and ~~web collaboration software. The company’s~~audio conferencing software and ~~services enable sales, training, marketing and support professionals to collaborate in real-time via the internet.~~services.

At December 31, ~~2006,~~2007, the Fund owned a total of 23,266 shares of common stock having a cost basis of $13,908. In addition, the Fund owned a $500,000 12% Convertible Subordinated Note convertible into ILC common at a rate of $1.00 per share.

~~-14-~~

~~Information Intellect, Inc. (Private)~~

~~1351 Dividend Drive, Suite G, Marietta, GA 30067~~

Information Intellect, Inc. delivers enterprise asset management solutions through the integration of software applications and services. The company’s solutions enable customers to manage their asset portfolios to meet their strategic objectives such as improving cash flow, cutting capital and O&M expenditures, enhancing workforce productivity, reducing equipment downtime and measuring project/asset performance.

~~At December 31, 2006, the Fund owned 666,666 shares of Series A preferred stock convertible to common stock at $1.50 per share having a cost basis of $999,999.~~

Integrated Security Systems, Inc. (OTCBB:IZZI)

~~8200 Springwood~~2009 Chenault Drive, Suite ~~230, Irving,~~114, Carrollton, TX ~~75063~~75006

Integrated Security Systems, Inc. ~~is a company which designs, develops, manufactures, sells~~engages in the design, development, manufacture, distribution and ~~services commercial~~servicing of security and traffic control ~~devices. In addition,~~products used in the ~~company sells fully integrated turnkey security systems that control~~commercial, industrial and ~~monitor access to governmental, commercial and industrial sites.~~government sectors.

In the first quarter of 2006, the Fund received 115,020 shares of common stock as interest on certain notes. The Fund also received 32,955 shares of common stock as a fee for allowing the company to extend the maturity date of certain notes. Russell Cleveland received 25,363 shares of common stock for serving on the company’s board of directors. Mr. Cleveland assigned this stock to the Fund.

In the second ~~quarter~~and fourth quarters of ~~2006,~~2007, the Fund ~~received common stock of the company as payment~~invested 750,000 in ~~kind for interest on certain~~8% convertible promissory notes owned by the Fund. The Fund received 160,294 shares of the company’s common stock having an imputed cost of $17,644. The Fund also invested an additional $400,000 in a 6% convertible debenture issued by the company.

In the third quarter of 2006, the Fund received 134,074 shares of the company’s common stock, having an imputed cost of $17,644, as payment in kind for interest on promissory notes owned by the Fund.

In the fourth quarter of 2006, the Fund received 107,533 shares of the company’s common stock, having an imputed cost of $11,699, as payment in kind for interest on promissory notes owned by the Fund. Russell Cleveland received his director’s fee in the form of 26,262 shares of the company’s common stock. He assigned those shares to the Fund.notes.

At December 31, ~~2006,~~2007, the Fund ~~owned: $700,000~~owned $1,650,000 of 8% promissory ~~notes; $200,000 of 7% promissory notes;~~notes, $500,000 of 8% convertible promissory ~~notes;~~notes, $400,000 of 6% convertible promissory ~~notes; 187,500~~notes, 7,500 shares of 9% preferred stock, convertible at $0.80 per share, with a cost basis of ~~$150,000; 31,339,033~~$150,000, 32,909,091 shares of common stock with a cost basis of ~~$5,924,281;~~$6,061,792, options to purchase ~~41,034~~7,069 shares of common stock, ~~with exercise prices ranging from $0.21 to $0.49 per share;~~ warrants to purchase 514,706 shares of common stock at $0.34 per share and warrants to purchase 250,000 shares of common stock at exercise price of $0.40 per share.

~~-15-~~

~~Inyx, Inc. (OTCBB:IYXI)~~

~~801 Brickell, 9~~^th ~~Floor, Miami, FL 33131~~

~~Inyx, Inc. is a developer and manufacturer of specialized drug delivery pharmaceutical products.~~

At December 31, 2006, the Fund owned 300,000 shares of the company’s common stock having a cost basis of $300,000, and owned 150,000 warrants to purchase common stock, with half being exercisable at $1.00 per share, and half being exercisable at $1.35 per share.

Medical Action Industries, Inc. ~~(NASDAQ:~~(Nasdaq:MDCI)

800 Prime Place, Hauppauge, NY 11788

Medical Action Industries, Inc. develops, manufactures, markets and distributes a variety of disposable ~~surgical related~~medical products.

At December 31, ~~2006,~~2007, the Fund owned a total of ~~20,100~~30,150 shares of MDCI common stock having a cost basis of $237,209.

Murdoch Security & Investigations, Inc. (Private)

2777 Summer Street, Stamford, CT 06905

Murdoch Security & Investigations, Inc. is a full service security company providing uniformed guard services and other custom security solutions to private and public sector clients throughout the northeastern United States.

During the third and fourth quarters of 2007, the Fund bought 2,000,000 shares of common stock and warrants to purchase 2,000,000 shares of common stock at $0.70 per share for a total of $1,000,000.

At December 31, 2007, was no change in the Fund’s ownership of these securities.

Narrowstep, Inc. (OTCBB:NRWS)

202 Carnegie Center, Suite 101, Princeton, NJ 08540

Narrowstep, Inc. operates in the field of Internet-based video content delivery. The company develops, produces, transmits, and manages streaming video broadcasts via the Internet and television (TV) channels in Europe, Asia and the United States.

During the third quarter of 2007, the Fund bought 4,000,000 shares of common stock and warrants to purchase 2,000,000 shares of common stock at $0.50 for $1,000,000.

At December 31, 2007, was no change in the Fund’s ownership of these securities.

Nutradyne Group, Inc. (OTCBB:NTRG)

927 Canada Court, City of Industry, CA 91748

Nutradyne Group, Inc. offers wholesale distribution of medicines in China. The company also operates retail pharmacy stores. The company’s products include traditional Chinese medicines, traditional Chinese medical teas, chemical pharmaceutics preparation, natural health products, healthy food, cosmetics and medical equipment. It owns and operates 14 retail medical stores in China. This company was formerly known as Digital Learning Institute, Inc.

At December 31, 2007, the Fund held 13,917 shares of the company’s common stock, with a cost basis of $12,500.

PetroHunter Energy Corporation (OTCBB:PHUN)

1875 Lawrence Street, Suite 1400, Denver, CO 80202

PetroHunter Energy Corporation engages in the exploration and production of oil and gas properties. It owns interest in the Buckskin Mesa project comprising 20,000 net acres in Rio Blanco County, the Piceance II project consisting of 27 producing nonoperated wells and 16 nonproducing operated wells, the South Bronco project and the Gibson Gulch project, Colorado. The company also holds various interests in Australia, including the Beetaloo project comprising 7 million net contiguous acres and the Northwest Shelf project, which consists of an exploration permit with 20,000 acres in Western Australia.

During the fourth quarter of 2007, the Fund bought a $1,000,000 8.5% convertible debenture issued by PetroHunter. In connection with that purchase, the Fund also received warrants to purchase 6,666,667 shares of common stock at $0.255 per share.

At December 31, 2007, there was no change in the Fund’s ownership of these securities.

Pipeline Data, Inc. (OTCBB:PPDA)

1515 Hancock Street Suite 301, Quincy, MA 02169

Pipeline Data, Inc. provides merchant payment processing services and related software products in the United States. ~~It also provides~~The Company delivers credit and debit card-based payment processing solutions primarily to small to medium-sized merchants that operate in physical ‘brick and mortar’ business environments, over the Internet, or in mobile or wireless settings through cellular-based wireless devices. In addition, the company provides electronic transaction authorization services, data capture and reporting services, shopping cart technology, and gateway and communication interfaces, as well as software products and services.

~~During the second quarter of 2006, the Fund purchased an 8% convertible debenture and warrants to purchase 150,000 shares of common stock for $500,000.~~

At December 31, ~~2006,~~2007, the Fund held a $500,000 8% convertible debenture and warrants to purchase 150,000 shares of common stock at $1.40 per share.

Points International Ltd. (OTCBB:PTSEF)

179 John Street 8th Floor, Toronto, ON, Canada M5T 1X4

Points International, Ltd. ~~provides information technology solutions to the loyalty industry. It~~ owns and operates Points.com, ~~a reward~~an online loyalty program management portal that enables consumers to earn, buy, ~~gift,~~ share, redeem, and swap and redeem miles and points with various loyalty programs and retail ~~partners worldwide.~~partners.

During the ~~fourth~~first quarter of ~~2006,~~2007, the Fund bought ~~800,000~~100,000 shares of common stock ~~in the open market~~ for ~~$428,000.~~$64,000.

At December 31, ~~2006,~~2007, the Fund owned a total of ~~800,000~~900,000 shares of common stock having a cost basis of ~~$428,000.~~$492,000.

~~-16-~~

~~PracticeXpert, Inc. (OTCBB:PXPT)~~Shea Development Corporation (Nasdaq:SDLP)

~~10833 Washington Boulevard, Culver City, CA 90232~~1351 Dividend Drive, Suite G, Marietta, GA 30067

~~PracticeXpert, Inc.~~Shea Development Corporation provides ~~healthcare technology~~business process management (BPM) software solutions and service offerings in the United States and internationally. It offers custom programming services to ~~medical practitioners. The company’s services revolve around~~build configurable enterprise software solutions for revenue and financial management systems, enterprise application integration, user-interface frameworks, middle-tier frameworks, military and commercial modeling and simulation, and military C3 Centers (Command, Control, and Communications). After December 31, 2007, this company changed its ~~hand-held patient encounter system, Pxpert, and include medical billing, transcription, collections, clinical trial accruals, contracting and practice management.~~name to Riptide Worldwide, Inc. (OTCBB:RTWW).

At December 31, ~~2006,~~2007, the Fund owned ~~4,166,667 shares of common stock and warrants to purchase 4,166,667~~1,838,396 shares of the company’s common stock ~~at $0.12 per share,~~ having a cost basis of ~~$500,000.~~$1,093,332.

Silverleaf Resorts, Inc. (Nasdaq:SVLF)

1221 River Bend Drive, Suite 120, Dallas, TX 75247

Silverleaf Resorts, Inc. engages in the development, marketing and operation of timeshare resorts in the United States. It operates resorts under the brands ‘getaway resorts’ and ‘destination resorts’. The company markets and sells vacation intervals in its resorts, which also offer amenities, such as fishing, boating, horseback riding, swimming, tennis and golf.

During the first quarter of 2007, the Fund bought 100,000 shares of common stock for $430,000.

At December 31, 2007, the was no change in the Fund’s ownership of these securities.

Simtek Corporation ~~(NASDAQ:~~(Nasdaq:SMTK)

4250 Buckingham Drive Suite 100, Colorado Springs, CO 80907

Simtek Corporation, is a fabless semiconductor company, ~~supplying innovative products to a worldwide marketplace. The company has~~engages in the design and ~~manufacturing expertise in a variety~~marketing of ~~technologies, including high performance non-volatile~~re-programmable, nonvolatile semiconductor memory ~~application specific integrated circuits, and data communications.~~

In the first quarter of 2006, Robert Pearson received options to purchase 12,369 shares of common stock at $0.27 per share as payment for having served as a member of the company’s board of directors. Mr. Pearson assigned the options to the Fund.

~~In the second quarter of 2006, the Fund purchased 11,596 shares of common stock and warrants to purchase 85,876 shares of the company’s common stock at $0.33 per share for $4,294.~~

In the third quarter of 2006, the Fund converted $100,000 of a $1,000,000 debenture into 454,545 shares of common stock. The Fund also purchased 1,265,823 shares of common stock and warrants to purchase 189,874 shares of common stock at $0.54 per share for $500,000.

~~In the fourth quarter of 2006, the company declared a 10-for-1 reverse stock split.~~products.

At December 31, ~~2006,~~2007, the Fund owned ~~$900,000~~$700,000 in 7.5% convertible debentures having a conversion rate of $2.20 per share and ~~640,763~~731,672 shares of common stock having a basis of ~~$1,799,294.~~$1,999,294. The Fund also owned warrants to purchase 59,242 shares, 8,588 of which are convertible at $3.30 per share, 12,500 at $12.50 per share, 12,500 at $15.00 per share, 6,667 at $5.00 per share and 18,987 at $5.40 per share. Finally, the ~~Fund~~fund held options to purchase ~~3,910~~7,078 shares at prices ranging from $1.65 per share to $11.60 per share.

~~-17-~~

Symbollon Pharmaceuticals, Inc. ~~(NASDAQ:SYMBA)~~(Nasdaq:SMTK)

37 Loring Drive, Framingham, MA 01702

Symbollon Pharmaceuticals, Inc. ~~engages~~is engaged in the development ~~and commercialization~~ of iodine-based products for infection control and treatment in biomedical and ~~bioagricultural industries in the United States. It~~bio-agricultural industries. The company develops a proprietary iodine technology that enhances the therapeutic index of iodine that has applications in ~~women's~~women’s healthcare and infection control. The company also develops IodoZyme, a bovine teat sanitizer product and IoGen, an oral dosage for the prevention and treatment of certain female health problems, including various types of premenopausal breast cancer, fibrocystic breast disease and endometriosis.

In the ~~second~~third quarter of ~~2006,~~2007, the Fund purchased ~~250,000~~357,143 shares of common stock and warrants to purchase ~~250,000~~357,143 shares of the company’s common stock at $1.00 per share for ~~$250,000 in a private placement.~~$250,000.

At December 31, ~~2006,~~2007, the Fund owned ~~250,000~~607,143 shares of common stock having a basis of ~~$250,000.~~$500,000. The Fund also owned warrants to purchase ~~250,000~~607,143 shares at $1.00 per share.

US Home Systems ~~(NASDAQ:~~(Nasdaq:USHS)

750 State Highway 121 Bypass, Suite 170, Lewisville, TX 75067

USU.S. Home Systems, ~~is engaged~~Inc. engages in the manufacture or procurement, design, sale and installation of ~~quality~~ specialty home improvement products ~~with specific emphasis on~~in the United States. Its product lines include kitchen improvement products, such as cabinet doors, drawers, drawer fronts, drawer boxes, matching valances, molding, add-on or replacement cabinets, space organizers, lazy susans, and ~~bath improvements. The company provides through its wholly owned subsidiary, First Consumer Credit, Inc., consumer financing to the home~~slide-out shelving and bathroom improvement products, including acrylic tub liners and ~~remodeling industry.~~wall surrounds, vanity cabinetry refacing and replacement vanity cabinets, bowls, faucets, commodes and shower doors.

During the second quarter, the Fund sold 55,000 shares of common stock for $662,811, realizing a gain of 403,599.

At December 31, ~~2006,~~2007, the Fund owned ~~110,000~~55,000 shares of the company’s common stock having a cost basis of ~~$535,587.~~$276,375.

~~Vaso Active Pharmaceuticals,~~Vertical Branding, Inc. ~~(NASDAQ:VAPH)~~(OTCBB:VBDG)

~~99 Rosewood Drive,~~16000 Ventura Boulevard, Suite ~~260, Danvers, MA 01923~~301, Encino, CA 91436

~~Vaso Active Pharmaceuticals,~~Vertical Branding, Inc. ~~holds~~is a consumer product branding, marketing and distributing company in the ~~exclusive, worldwide license to commercialize, sell~~United States. The company offers personal care, fitness, beauty and ~~distribute over-the-counter pharmaceutical~~household products. It sells its products ~~incorporating the patented trans dermal drug delivery technology of the company’s major stockholder, BioChemics, Inc.~~through its retail distribution business, catalogues, international distribution channels and other non-electronic distribution outlets.

During the fourth quarter of 2007, the Fund bought 1,666,667 shares of common stock for $1,000,000. In connection with that purchase, the Fund also received warrants to purchase 8333,333 shares of common stock at $1.00 and warrants to purchase 833,333 shares of common stock at $1.50 per share.

At December 31, ~~2006,~~2007, was no change in the ~~Fund owned 150,000 shares~~Fund’s ownership of ~~the company’s common stock having a cost basis of $250,000.~~these securities.

~~-18-~~

VALUATION OF INVESTMENTS

On a ~~quarterly~~weekly basis, RENN Group prepares a valuation to determine fair value of the ~~assets~~investments of the ~~Fund, subject to the approval of the~~Fund. The Board of Directors of the ~~Fund.~~Fund approves the valuation on a quarterly basis. Interim board involvement may occur if material issues arise before quarter end. The valuation principles are described below.

v·

The common stock of companies listed on an exchange, Nasdaq or in the over-the-counter market is valued at the closing price on the date of valuation.

v·

The unlisted preferred stock of companies with common stock listed on an exchange, Nasdaq or in the over-the-counter market is valued at the closing price of the common stock into which the preferred stock is convertible on the date of valuation. ~~If the preferred stock is redeemable, the preferred stock is valued at the greater of cost or market.~~

v·

Debt securities are valued at fair value. We consider, among other things, whether a debt issuer is in default or bankruptcy. We also consider the underlying collateral. Fair value is generally determined to be the greater of ~~(i) cost~~the face value of the debt or ~~(ii)~~ the market value of the underlying common stock into which the ~~debt~~ instrument ~~is convertible. In cases where the debt instrument is in default or the company is in bankruptcy, the value will~~may be ~~(i) the value of the underlying common stock, (ii) the value of the collateral, if secured, or (iii) zero, if the common stock has no value and there is no collateral.~~converted.

v·

The unlisted in-the-money options or warrants of companies with the underlying common stock listed on an exchange, Nasdaq or in the over-the-counter market are valued at ~~the~~fair value (the positive difference between the closing price of the underlying common stock and the strike price of the warrant or ~~option.~~option). Fair value is generally determined to be the intrinsic value of the option or warrant. An out-of-the money warrant or option has no ~~intrinsic~~ value; thus, we assign no value to it.

Investments in privately held entities are valued at fair value. If there is no independent and objective pricing authority (i.e. a public market) for such investments, ~~in privately held entities,~~fair value is based on the latest sale of equity securities to independent third parties by the entity governs the value of that enterprise. This valuation method causes the Fund’s initial investment in the private entity to be valued at cost. Thereafter, new issuances or offers of equity or equity-linked securities by the portfolio company to new investors will be used to determine enterprise value as they will provide the most objective and independent basis for determining the worth of the issuer. Whereparties. If a private entity does not have an independent value established over an extended period of time, then the Investment Adviser will determine fair value on the basis of appraisal procedures established in good faith and approved by the Board of Directors.

~~COMPETITION FOR INVESTMENTS~~PERSONNEL

The Fund has significant competition for investment proposals. Competitive sources for growth capital for the industry include insurance companies, banks, equipment leasing firms, investment bankers, venture capital and private equity funds, money managers, hedge funds, and private investors. Many of these sources have substantially greater financial resources than are available to the Fund. Therefore, the Fund will have to compete for investment opportunities based on its ability to respond to the needs of the prospective portfolio company and its willingness to provide management assistance. In some instances, the Fund’s requirements that the Fund provide management assistance will cause the Fund to be non-competitive.

~~-19-~~

~~PERSONNEL~~

The Fund has no employees, but instead has contracted RENN Group pursuant to the Advisory Agreement to provide all management and operating activities. RENN Group currently has eleven employees who are engaged in performing the duties and functions required by the Fund. At the present time, a substantial portion of RENN Group’s staff time is devoted to activities of the Fund. However, because of the diversity of skills required, the Fund cannot afford to employ all these persons solely for its own needs, and therefore, these employees are not engaged solely in activities of the Fund.

No accurate data or estimate is available as to the percentage of time, individually or as a group, that will be devoted to the affairs of the Fund. The officers and employees have and will devote such time as is required, in their sole discretion, for the conduct of business, including the provision of management services to Portfolio Companies.

RENN Group currently serves as the Investment Manager to Renaissance US Growth Investment Trust PLC (“RUSGIT”). RUSGIT is a public limited company registered in the United Kingdom and listed on the London Stock Exchange. RUSGIT invests in privately placed convertible securities issued by companies similar to the investments of the Fund. RUSGIT invests pari-passu with the Fund on all relevant terms, except that amounts invested may differ.

RENN Group also serves as the Investment Adviser to US Special Opportunities Trust PLC (“USSOT”) and is specifically responsible for managing the Growth Portfolio for USSOT Growth (“USSOT Growth”). USSOT is a public limited company registered in the United Kingdom and listed on the London Stock Exchange. USSOT Growth invests in publicly traded equities, fixed-income and convertible securities of publicly traded issuers, and also invests in privately placed convertible instruments issued by companies similar to the investments of the Fund. For privately placed investments, USSOT Growth invests on a pari-passu basis with the Fund as to all relevant terms of the investment, except that amounts invested may differ.

RENN Group also serves as the Investment Adviser to Premier RENN US Emerging Growth Fund Limited (“PRENN”). PRENN is an open-end investment company registered with limited liability in Guernsey. PRENN invests primarily in privately placed equity and convertible debt securities issued by companies similar to the investments of the Fund. PRENN invests pari-passu with the Fund on all relevant terms, except that amounts invested may differ.

CODE OF ETHICS

The Fund and RENN Group have adopted a Code of Ethics pursuant to Rule 17j-1 under the 1940 Act applicable to all of their respective officers and employees. The Code of Ethics is on public file with, and is available from, the Securities and Exchange Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling the Commission at (202)-942-8090, and this Code of Ethics is available on the EDGAR database as an exhibit to the Fund’s Form 10-Q for the quarter ended June 30, 2002, which is found on the Commission internet site at http://www.sec.gov. A copy of this Code of Ethics may be obtained, after paying a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov, or by writing the Commission’s Public Reference Section, Washington, D.C. 20549-0102. We have made the Fund’s Code of Ethics available on our website at www.renncapital.com.

~~-20-~~

Item 1A. Risk Factors.

You should carefully consider the risks described below and all other information contained in this annual report on Form 10-K, including our consolidated financial statements and the related notes thereto before making a decision to purchase our common stock. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties not presently known to us, or not presently deemed material by us, may also impair our operations and performance. If any of the following risks actually occur, our business, financial condition or results of operations could be materially adversely affected. If that happens, the trading price of our common stock could decline, and you may lose all or part of your investment.

~~Failure~~We May be Unable to ~~Meet Listing Standards~~Participate in Certain Investment Opportunities. ~~In July 2004, due to our inability to complete our audit and file our Form 10-K for the year ended December 31, 2003 in~~As a ~~timely manner, the Fund’s common stock was delisted from Nasdaq. We have now become current in our SEC filings, and~~Business Development Company, we are ~~attempting~~required to ~~list~~invest at least 70% of our ~~common stock on the American Stock Exchange. However, there can be no assurance that~~assets directly in “Eligible Portfolio Companies”. As a result, we will ~~meet the American Stock Exchange listing standards or~~be unable to make new investments in companies that are not considered Eligible Portfolio Companies if at any ~~other listing standards.~~time we have less than 70% of our portfolio invested in companies that are Eligible Portfolio Companies.

Our Growth is Dependent on Investing in Quality Transactions. Sustaining growth depends on our ability to identify, evaluate, finance, and invest in companies that meet our investment criteria. Accomplishing such results on a cost-effective basis is a function of our marketing capabilities and skillful management of the investment process. Failure to achieve future growth could have a material adverse effect on our business, financial condition, and results of operations.

Failure to Invest Capital Effectively May Decrease Our Stock Price. If we fail to invest our capital effectively, our return on equity may be decreased, which could reduce the price of the shares of our common stock.

Highly Competitive Market for Investments. ~~We compete with a number of~~The Fund has significant competition for investment opportunities. Competitive sources for growth capital for the industry include insurance companies, banks, equipment leasing firms, investment bankers, venture capital and private equity funds, ~~other investment entities~~money managers, hedge funds, and ~~individuals for investment opportunities. Some~~private investors. Many of these ~~competitors are~~sources have substantially ~~larger and have~~ greater financial resources ~~and some~~than are ~~subject~~available to ~~different and frequently less stringent regulation. As a result of this competition, we may not be able~~the Fund. Therefore, the Fund will have to ~~take advantage of attractive~~compete for investment opportunities ~~from time~~based on its ability to ~~time~~respond to the needs of the prospective portfolio company and ~~there can~~its willingness to provide management assistance. In some instances, the Fund’s requirements that the Fund provide management assistance will cause the Fund to be ~~no assurance that we will be able to identify and make investments that satisfy our objectives.~~non-competitive.

Lack of Publicly Available Information on Certain Portfolio Companies. Some of the securities in our portfolio are issued by privately held companies. There is generally little or no publicly available information about such companies, and we must rely on the diligence of our management to obtain the information necessary for our decision to invest. There can be no assurance that such diligence efforts will uncover all material information necessary to make fully informed investment decisions.

Dependence on Key Management. Selecting, structuring and closing our investments depends upon the diligence and skill of our management, which is responsible for identifying, evaluating, negotiating, monitoring and disposing of our investments. Our management's capabilities will significantly impact our results of operations. If we lose any member of our

~~-21-~~

management team and ~~he/~~he or she cannot be promptly replaced with an equally capable team member, our results of operations could be significantly impacted.

Failure to Deploy Capital ~~may~~May Lower Returns. Our failure to successfully deploy sufficient capital may reduce our return on equity.

Results May Fluctuate. Our operating results may fluctuate materially due to a number of factors including, among others, variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which we encounter competition in our portfolio companies’ markets, the ability to find and close suitable investments, and general economic conditions. As a result of these factors, results for any period should not be relied upon as being indicative of performance in future periods.

Uncertain Value of Certain Restricted Securities. Our net asset value is based on the values assigned to the various investments in our portfolio, determined in good faith by our board of directors. Because of the inherent uncertainty of the valuation of portfolio securities which do not have readily ascertainable market values, our fair value determinations may differ materially from the values which would be applicable to unrestricted securities having a public market.

Illiquid Securities May Adversely Affect Our Business. Our portfolio contains securities which are subject to restrictions on sale because they were acquired from issuers in "private placement" transactions or because we are deemed to be an affiliate of the issuer. Unless an exemption from the registration requirements of the Securities Act of 1933 is available, we will not be able to sell these securities publicly without the expense and time required to register the securities under applicable federal and state securities laws. In addition, contractual or practical limitations may restrict our ability to liquidate our securities in portfolio companies, because we may own a relatively large percentage of the issuer's outstanding securities. Sales may also be limited by unfavorable market conditions. The illiquidity of our investments may preclude or delay the disposition of such securities, which may make it difficult for us to obtain cash equal to the value at which we record our investments.

Regulated Industry. Publicly traded investment funds are highly regulated. Changes in securities laws or regulations governing our operations or our failure to comply with those laws or regulations may adversely affect our business.

Failure to Qualify for Favorable Tax Treatment. We may not qualify for ~~conduit~~pass-through tax treatment as a ~~Regulated Investment Company~~regulated investment company ("RIC") if we are unable to comply with the requirements of Subchapter M of the Internal Revenue Code. ~~If we fail to satisfy such requirements and cease~~Failure to qualify ~~for conduit tax treatment, we will be~~as a regulated investment company would subject the Fund to federal ~~taxes on our~~income tax as if it were an ordinary corporation, which would result in a substantial reduction in both the Fund’s net ~~investment income.~~assets and the amount of income available for distribution to stockholders. The loss of this pass-through tax treatment could have a material adverse effect on the total return, if any, obtainable from an investment in our common stock.

Highly Leveraged Portfolio Companies. Some of our portfolio companies could incur substantial indebtedness in relation to their overall capital base. Such indebtedness often ~~has a term that will require~~requires the balance of the loan to be refinanced when it matures. If portfolio companies cannot generate adequate cash flow to meet the principal and interest payments on their indebtedness, the value of our investments could be reduced or eliminated through foreclosure on the portfolio company's assets or by the portfolio company's reorganization or bankruptcy.

~~-22-~~

~~bankruptcy.~~

Our Common Stock Often Trades at a Discount. ~~Our common~~The Fund’s stock ~~often~~frequently trades at a discount from net asset value. ~~Our common stock is traded over-the-counter in the pink sheets.~~ Stockholders desiring liquidity ~~may~~usually sell their shares at current market value, ~~which has often been below net asset value. Shares of closed-end investment companies frequently trade at discounts from~~and therefore may not realize the full net asset value ~~which~~of their shares. This is a risk separate and distinct from the risk that a fund's performance ~~will~~may cause its net asset value to decrease.

Nature of Investment in Our Common Stock. Our stock is intended for investors seeking long-term capital appreciation. Our investments in portfolio securities generally require some time to reach maturity, and such investments generally are illiquid. An investment in our shares should not be considered a complete investment program. Each prospective purchaser should take into account his or her investment objectives as well as his or her other investments when considering the purchase of our shares.

Our Stock Price May Fluctuate Significantly. The market price of our common stock may fluctuate significantly. The market price and marketability of shares of our common stock may from time to time be significantly affected by numerous factors, including our investment results, market conditions, and other influences and events over which we have no control and that may not be directly related to us.

~~We May be Unable~~Failure to ~~Participate in Certain Investment Opportunities~~Meet Listing Standards. ~~As a Business Development Company,~~We are current in our SEC filings, and we ~~are required to invest at least 70% of~~believe we have met all our ~~assets directly in Eligible Portfolio Companies. Currently less than 70% of our assets are in Eligible Portfolio Companies and therefore~~listing requirements on the American Stock Exchange. However, there can be no assurance that we will continue to meet the American Stock Exchange listing standards or any other listing standards and the stock could be ~~unable to make new investments in companies that are not considered Eligible Portfolio Companies until we are above the 70% threshold.~~delisted.

Item 2. Properties

The Fund’s business activities are conducted from the offices of RENN Group, which offices are currently leased until November 30, 2010 in a multi-story general office building in Dallas, Texas. The use of such office facilities, including office furniture, phone services, computer equipment, and files are provided by RENN Group at its expense pursuant to the Advisory Agreement.

Item 3. Legal Proceedings

None

Item 4. Submission of Matters to a Vote of Security Holders

None.

~~-23-~~26

Part II

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters

TRADING

The Fund’s common stock ~~was previously~~is traded on the Nasdaq National Market System (“NMS”) under the trading symbol RENN. As a result of the Fund’s inability to complete the audit of its financial statements and file its Form 10-K for the fiscal year ended December 31, 2003 in a timely manner, in July 2004 the Fund’s common stock was delisted from NMS and is currently trading over-the-counter in the pink sheets. The Fund has applied to list its common stock on the American Stock ~~Exchange.~~

Exchange under the ticker RCG. The following table sets forth, for the periods indicated, the high and low closing sale prices for the Common Stock asas: (i) reported on ~~Bloomberg.~~

High Low
Year ended December 31, 2006
First quarter $ 13.00 $ 9.90
Second quarter $ 11.08 $ 9.80
Third quarter $ 11.61 $ 10.40
Fourth quarter $ 11.61 $ 10.50

Year ended December 31, 2005
First quarter $ 13.85 $ 11.25
Second quarter $ 12.00 $ 10.40
Third quarter $ 11.55 $ 10.70
Fourth quarter $ 11.80 $ 10.32

~~NUMBER OF HOLDERS~~

~~As of December 31, 2006, there~~Bloomberg and (ii) adjusted for dividends. The prices listed as “adjusted for dividends” were ~~approximately 707 record holders~~derived by (i) using the average price per share during the period, and (ii) adding to the share price all dividends paid on the shares since the inception of the ~~Fund’s common stock. This total does not include shareholders with shares held under beneficial ownership~~Fund in ~~nominee name or within clearinghouse positions of brokerage firms or banks.~~1994.

	As Stated				Adjusted For Dividends
	Low		High		Low		High

First quarter 2007	$	9.00	$	10.15	$	24.62	$	25.77
Second quarter 2007	$	8.85	$	9.50	$	24.47	$	25.12
Third quarter 2007	$	7.75	$	9.05	$	23.37	$	24.67
Fourth quarter 2007	$	5.90	$	7.98	$	21.62	$	23.60

First quarter 2006	$	9.90	$	13.00	$	23.81	$	26.81
Second quarter 2006	$	9.80	$	11.08	$	23.81	$	25.09
Third quarter 2006	$	10.40	$	11.61	$	24.41	$	25.72
Fourth quarter 2006	$	10.50	$	11.61	$	24.66	$	26.12

The following section contains more information regarding the dividends the Fund has paid since inception.

DIVIDENDS

In the past, the Fund has provided returns to ~~shareholders~~stockholders through cash dividends and deemed dividends of its net investment income and of realized gains. At December 31, ~~2006,~~2007, the Fund ~~had~~has declared a total of ~~$13.81~~$13.91 per share in cash dividends to its ~~shareholders~~stockholders since inception in 1994.

~~On November 9, 2006,~~ Since inception the ~~Board~~fund has declared deemed dividends of ~~Directors~~$4.98 per share and paid taxes of the Fund voted to suspend the Fund’s policy of declaring regular quarterly dividends, and adopted a dividend policy subject to review by the Board of Directors to consider a declaration of a cash dividend or a deemed dividend. Upon declaration of a deemed dividend by the Board instead of a cash dividend, the Fund’s net capital gains will be retained by the Fund and deemed as having been paid to shareholders on the last day of the calendar year, and the Fund pays a 35% tax on such retained capital gains$1.74 per share on behalf of ~~the shareholders. The Fund’s shareholders are deemed to have received the dividend as~~stockholders on these dividends for a ~~capital gain dividend and are deemed to have paid the tax actually paid by the Fund.~~

~~-24-~~

~~Shareholders receive a tax credit that they can use to offset their tax on the~~net deemed dividend ~~or for other purposes. The shareholders also increase their cost basis in their shares in the Fund by the amount~~ of ~~the deemed dividend, net of taxes paid by the Fund and~~$3.24 per share deemed paid ~~by the shareholder.~~to stockholders.

The Fund has no fixed dividend ~~policy regarding realized capital gains or unrealized capital appreciation earned by the Fund.~~policy. The Fund’s Board of Directors will ~~review~~periodically consider the declaration of either a cash dividend or a deemed ~~dividend, or the retention~~dividend. “Deemed dividends” are declared dividends of ~~any such~~ realized capital gains ~~from time~~that are retained in the Fund for investment and are deemed by the IRS to ~~time.~~be distributed to the Fund’s stockholders if the Fund transmits 35% of the deemed dividends to the IRS as tax deposits on behalf of the stockholders and advises the stockholders how to apply the tax deposit to their personal taxes for that year. Under the Internal Revenue Code the Fund must withhold taxes at the maximum corporate rate of 35% and the remainder of the dividend is retained by the Fund for investment. The stockholders are allowed to increase their basis in their holdings by their share of the amount retained for investment, and to claim as a tax payment the portion of the withholdings remitted by the Fund to the IRS on their behalf.

During the year ended December 31, ~~2006,~~2007, the Fund realized taxable net long-term capital gains of ~~$19,793,605,~~$4,689,640 or ~~$4.43~~$1.05 per share. From these net capital gains, cash dividends of ~~$0.40~~$0.10 per share were distributed. In addition to the cash dividend, the Fund elected to retain ~~an estimated $18,008,018~~$4,243,244 of net capital gains and designated this amount as a deemed dividend paid to ~~shareholders~~stockholders of record on December 31, ~~2006.~~2007. The Fund paid federal income taxes on behalf of ~~shareholders~~stockholders of 35% of the deemed dividend amount, ~~equivalent~~equal to ~~$6,302,806~~$1,485,135 or ~~$1.41~~$0.33 per share. ~~The net asset value of the Fund was adjusted downward by $1.41 per share as of December 31, 2006 to account for the federal tax on the deemed dividend.~~

DIVIDEND REINVESTMENT PLAN

Pursuant to the Dividend Reinvestment Plan (the “Reinvestment Plan”) any ~~shareholders~~stockholders whose shares are registered in their own names will be deemed to have elected to have all dividends and distributions automatically reinvested in Fund shares pursuant to the Reinvestment Plan unless and except for each such ~~shareholder~~stockholder who individually elects to receive such on a current basis in lieu of reinvestment. In the case of ~~shareholders~~stockholders such as banks, brokers or nominees that hold shares for others who are beneficial owners (“Nominee ~~Shareholders”~~Stockholders”), the Plan Agent, American Stock Transfer & Trust Co. (the “Plan Agent”) will administer the Reinvestment Plan on the basis of the number of shares certified by such Nominee ~~Shareholders~~Stockholders as registered for ~~shareholders~~stockholders that have not elected to receive dividends and distributions in cash.

Investors that own shares registered in the name of a Nominee ~~Shareholder~~Stockholder should consult with such nominee as to participation or withdrawal from such plan.

Participants also have the option, commencing on January 1 of each year, of making additional annual cash payments to the Reinvestment Plan in any amount of $1,000 or more up to $10,000. Larger amounts may be accepted with the prior approval of the Fund.

All communications regarding the Reinvestment Plan should be directed to the Plan Agent.

NUMBER OF HOLDERS

~~Since the Board has suspended~~As of December 31, 2007, there were approximately 646 record holders of the Fund’s ~~policy~~common stock. This total does not include stockholders with shares held under beneficial ownership in nominee name or within clearinghouse positions of declaring regular quarterly dividends, there will be no quarterly cash dividends unless declared by the Board of Directors, and therefore no contributions under the Reinvestment Plan are currently anticipated.brokerage firms or banks.

~~-25-~~28

Item 6. Selected Financial Data.

The following selected financial data for the period January 1, ~~2002~~2003 through December 31, ~~2006~~2007 is derived from the Fund’s audited Financial Statements and should be read in conjunction with the Fund’s Financial Statements and Notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Item 7 of this Annual Report on Form 10-K. ~~The selected financial data for the period ended December 31, 2002 is unaudited.~~

	Selected Financial Data													Selected Financial Data
	2006			2005			2004		2003		2002			2007			2006			2005			2004		2003
Gross income (loss), including net realized gain (loss)	$	14,444,683		$	6,569,365		$	14,514,741	$	11,670,287	$	(2,856,608	)	$	4,215,319		$	14,444,683		$	6,569,365		$	14,514,741	$	11,670,287
Net unrealized appreciation (depreciation) on investments		(13,339,923	)		(19,537,884	)		9,397,996		20,137,393		(8,380,055	)		(12,797,981	)		(13,339,923	)		(19,537,884	)		9,397,996		20,137,393
Net income (loss)		(4,035,913	)		(16,023,666	)		18,971,481		28,741,964		(12,837,439	)		(10,161,897	)		(4,035,913	)		(16,023,666	)		18,971,481		28,741,964
Net income (loss) per share		(0.90	)		(3.60	)		4.36		6.60		(2.94	)		(2.28	)		(0.90	)		(3.60	)		4.36		6.60
Total assets		58,649,555			62,548,375			117,387,109		101,866,011		55,592,067			40,123,140			58,649,555			62,548,375			117,387,109		101,866,011
Net assets		48,367,442			54,188,943			74,582,499		69,405,964		46,103,648			37,759,148			48,367,442			54,188,943			74,582,499		69,405,964
Net assets per share		10.84			12.14			17.14		15.95		10.59			8.46			10.84			12.14			17.14		15.95

The primary purpose of the Fund is to provide capital to emerging growth public companies whose ability to service the securities is sufficient to provide income to the Fund and whose growth potential is sufficient to provide opportunity for long-term capital appreciation.

On March 1, 2007, the Fund and RENN Group entered into an amendment to the Advisory Agreement. The amendment ~~clarifies~~clarified that the Fund will pay RENN Group an incentive fee in an amount equal to 20% of all net realized capital gains, if any, computed net of all realized capital losses and unrealized capital depreciation of the Fund. The calculation of the incentive fee ~~will~~does not incorporate any offset of unrealized capital depreciation by unrealized capital appreciation. The effect of the use of this method to calculate the incentive fee is that each year, the cumulative performance of the Fund since its inception will provide the basis for the calculation of the incentive fee.

The Agreement also ~~clarifies~~clarified that the base management fee paid to RENN Group will be assessed following the assessment of the incentive fee. Thus, the base management fee will be calculated net of any incentive fee payable.

The operating income for the Fund is investment income, either in the form of interest on debentures, dividends on stock, or interest on securities held pending investment in portfolio companies. The Fund ~~also~~primarily generates income through capital gains. ~~Further,~~Furthermore, the Fund in some cases receives due diligence, commitment, and closing fees, as well as other similar types of revenue. Director’s compensation received by RENN Group (or its personnel) for services to a Portfolio Company on behalf of the Fund is paid to the Fund.

During the year ended December 31, ~~2006,~~2007, the Fund invested ~~$2,178,000~~$6,837,813 in ~~five (5)~~nine (9) new portfolio investments and invested an additional ~~$1,938,806~~$2,488,233 in follow-on investments in ~~twelve (12)~~eight (8) portfolio companies. Cash ~~distributions~~dividends declared to ~~investors~~stockholders in ~~2006~~2007 amounted to ~~$1,785,588~~$446,397 or ~~$0.40~~$0.10 per ~~share, which was capital gain.~~share. In addition to the cash ~~distributions,~~dividends, the Fund elected to retain ~~$18,008,018~~$4,243,244 of capital gains and has designated them as a deemed dividend paid to ~~shareholders~~stockholders of record on December 31, ~~2006.~~2007. The Fund paid ~~the~~ federal income taxes on behalf of the stockholders on the undistributed realized gains at a rate of 35%, equivalent to ~~$6,302,806~~$1,485,135 or ~~$1.41~~$0.33 per ~~share on behalf of the shareholders of record as of December 31, 2006.~~share. During ~~2006,~~2007, gains were realized from the sale of securities of ~~Laserscope, Metasolv,~~China Security & Surveillance Technology, Inc., ~~Digital Learning Management Corp.~~Comtech Group, Gasco Energy, Inc., Inyx, Inc., and ~~Advanced Refractive Technologies, Inc. (formerly VisiJet, Inc.) and~~US Home Systems, offset by realized losses from ~~recoveries related to bankruptcy distributions from Daisytek International Corp. and Dexterity Surgical,~~the sale of securities of AdStar, Inc., ~~offset by a realized loss taken on an investment in PhotoMedex,~~Advance Nanotech, Inc., Gaming & Entertainment Group, Inc., PracticeXpert, Inc., and Vaso Active Pharmaceuticals, Inc. Net operating loss for ~~2006~~2007 was ~~$4,035,913~~$10,161,897 and net cash ~~provided by~~used in operating activities was ~~$12,370,722.~~$11,155,551. The Fund did not issue any new shares pursuant to the Dividend Reinvestment Plan during the year ended December 31, 2007. However, those stockholders who participated in the dividend reinvestment plan ~~during~~purchased 25,200 shares in the open market from cash dividends paid in 2007.

At December 31, ~~2006,~~2007, the Fund had ~~$14,835,500~~$3,679,949 in cash and cash equivalents, and ~~$10,282,113~~$2,363,992 in liabilities. RENN Group believes that current cash and securities levels are sufficient to pay expenses as they come due and to make investments.

The majority of the Fund’s investments in Portfolio Companies are individually negotiated, ~~non-registered~~are initially not registered for public trading, and are subject to legal and contractual investment restrictions. Accordingly, many of the Portfolio Investments are considered non-liquid. This lack of liquidity primarily affects the ability to make new investments.

From time to time, funds or securities are deposited in margin accounts and invested in government securities. Government securities used as cash equivalents typically consist of U. S. Treasury securities or other U. S. Government and Agency obligations having slightly higher yields and maturity dates of three months or less when purchased. These investments qualify for investment as permitted in Section 55(a)(1) through (5) of the 1940 Act. These securities are generally valued at market price as market prices are generally available for these securities.

2007 Compared to 2006

During the year ended December 31, 2007, the Fund made additional portfolio investments aggregating $9,326,046 compared to $4,116,806 in 2006. The Fund realized proceeds from the sale of investments in the amount of $8,792,947 compared to $20,932,760 in 2006. The Fund’s 2007 net loss of $10,161,897 is due to a combination of a net investment loss of $752,646, net decrease in unrealized appreciation on investments of $12,797,981, and net realized gain on investments (net of income tax paid on behalf of the stockholders of $1,485,135) of $3,388,730.

Interest income increased from $340,145 during 2006 to $345,510 during 2007. Dividend income during 2007 was $432,478 compared to $584,139 for 2006. The decrease was primarily due to fewer dividends being earned on the lower cash equivalent balances. Commitment and other fee income increased to $48,601 in 2007 from $27,684 in 2006.

Legal and professional fees decreased 45.7%, from $651,701 in 2006 to $354,127 for 2007, primarily due to a reduction in audit and consulting services during 2007 (the Fund’s 2003 through 2005 audits were completed during 2006). There is no incentive fee due to the Adviser for 2007 compared to $3,157,367 in 2006, primarily due to aggregate net realized gains being offset by capital unrealized depreciation in 2007. Management fees decreased to $792,545 in 2007 from $935,776 in 2006, a decrease of 15.3% due to the reduction in net asset values in 2007 as a result of capital gains dividends and lower portfolio values in 2007.

A net loss of $4,035,913 in 2006 increased to a net loss of $10,161,897 in 2007. The Fund had a net realized gain on investments (net of income tax paid on behalf of the stockholders of $1,485,135) of $3,388,730 in 2007, compared to $13,492,715 in 2006. In 2006 the Fund’s net change in unrealized depreciation on investments was $13,339,923, compared to $12,797,981 in 2007. The variance is due to lower portfolio market values on investments held at year end.

2006 Compared to 2005

During the year ended December 31, 2006, the Fund made additional portfolio investments aggregating $4,116,806 compared to $5,038,466 in 2005. The Fund realized proceeds from the sale of investments in the amount of $20,932,760 compared to $13,632,705 in 2005. The Fund’s 2006 net loss of $4,035,913 is due to a combination of a net investment loss of $4,188,705, net decrease in unrealized appreciation on investments of $13,339,923, and net realized gain on investments (net of income tax paid on behalf of the ~~shareholders~~stockholders of $6,302,806) of $13,492,715.

Interest income increased 79.5%, from $189,496 in 2005 to $340,145 in 2006. During 2006 the Fund made new debt investments, and in 2005 the Fund realized a loss on interest receivable for Digital Learning Management Corporation and Advanced Refractive Technologies, Inc. (formerly VisiJet). Dividend income during 2006 was $584,139 compared to $193,402 for 2005. The increase was primarily due to dividends earned on higher cash equivalent balances from proceeds from the sale of Laserscope common stock. Commitment and other fee income decreased to $27,684 in 2006 from $255,146 in 2005.

On December 6, 2005, ~~Renn~~RENN Group entered into a settlement agreement with the SEC with respect to the calculation of the advisory fees paid by the Fund under the Advisory Agreement (the “SEC Settlement”). Fee income for 2005 was greater than for 2006 primarily due to a penalty payment of $100,000 to the Fund by Renn Group under the SEC Settlement, a late filing fee paid to the Fund by Gaming & Entertainment Group, Inc., and a refund of advisory fees previously paid to ~~Renn~~RENN Group for prior periods.

Legal and professional fees increased 120.7%, from $295,305 in 2005 to $651,701 for 2006, primarily due to an increase in accounting and consulting fees ~~as we~~resulting from the completion of the audits for the Fund’s fiscal years 2003 through 2005 (all of which were completed ~~our 2003 thru 2005 audits during 2006,~~in 2006), offset by a decrease in legal fees and insurance expense. Incentive

~~-28-~~

Net loss of $16,023,666 in 2005 decreased to a net loss of $4,035,913 in 2006. The Fund had a net realized gain on investments (net of income tax paid on behalf of the ~~shareholders~~stockholders of $6,302,806) of $13,492,715 in 2006, compared to $5,931,321 in 2005. The Fund experienced a decrease in net decrease in unrealized appreciation on investments of $19,537,884 in 2005, compared to a net decrease in unrealized appreciation on investments in 2006 of $13,339,923. The variance is due to lower portfolio market values on investments held at year end.

General and administrative expenses, including interest expense and legal fees, but excluding incentive and management fees, decreased 26.2%, from $983,616 in 2004 to $725,753 for 2005. Incentive fees decreased 51.3%, $1,216,467 in 2005 compared to $2,497,422 in 2004 because there were greater net realized capital gains achieved on investments during 2004. Management fees decreased to $1,112,927 in 2005 from $1,460,218 in 2004, a decrease of 23. 8% due to lower portfolio values.

The Fund has a contract for the purchase of services under which it will have future commitments: the Advisory Agreement, pursuant to which RENN Group has agreed to serve as the Fund’s ~~investment adviser.~~Investment Adviser. Such agreement has contractual obligations with fees which are based on values of the portfolio investments which the Fund owns. For further information regarding the Fund’s obligations under the ~~investment advisory agreement~~Investment Advisory Agreement, see Note 4 of the Financial Statements.

~~-29-~~

Item 7A. Quantitative and Qualitative Disclosure About Market ~~Risk~~Risk.

The Fund is subject to financial market risks, including changes in market interest rates as well as changes in marketable equity security prices. The Fund does not use derivative financial instruments to mitigate any of these risks. The return on the Fund’s investments is generally not affected by foreign currency fluctuations.

A majority of the Fund’s net assets consists of common stocks and warrants and options to purchase common stock in publicly traded companies. These investments are directly exposed to equity price risk, in that a percentage change in these equity prices would result in a similar percentage change in the fair value of these securities.

A lesser percentage of the Fund’s net assets consist of ~~fixed rate~~fixed-rate convertible debentures and other debt instruments as well as convertible preferred securities. Since these instruments are generally priced at a fixed rate, changes in market interest rates do not directly impact interest income, although they could impact the Fund’s yield on future investments in debt instruments. In addition, changes in market interest rates are not typically a significant factor in the Fund’s determination of fair value of its debt instruments, as it is generally assumed they will be held to maturity, and their fair values are determined on the basis of the terms of the particular instrument and the financial condition of the issuer.

A small percentage of the Fund’s net assets consist of equity investments in private companies. The Fund would anticipate no impact on these investments from modest changes in public market equity prices. However, should significant changes in market prices occur, there could be a longer-term effect on valuations of private companies which could affect the carrying value and the amount and timing of proceeds realized on these investments.

Item 8. Financial Statements and Supplementary Data.

The financial statements filed as part of this report are listed in “Index to Financial Statements” on page F-1 hereof.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

On January 19, 2006, the Audit Committee of the Board of Directors dismissed Ernst & Young LLP (“E&Y”) as the Fund’s independent registered public accounting firm because E&Y advised the Audit Committee that E&Y would not be able to begin the audit engagement until May 2006.

Item ~~9A.~~9A(T). Controls and Procedures.

~~The Fund has in place systems relating to~~Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(3) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) required by Exchange Act Rules 13a-15(b) or 15d-15(e)), as of the ~~1934 Act). Our~~end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of that date to provide reasonable assurance that the information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by us in such reports is accumulated and communicated to our management, including the principal executive officer and principal financial officer, ~~evaluated~~as appropriate to allow timely decision regarding required disclosure.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we assessed the effectiveness of ~~these disclosure controls and procedures~~our internal control over financial reporting as of the end of the period covered by this report based on the framework in “Internal Control—Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that assessment, our ~~fiscal year ended December 31, 2006 in connection with the preparation of this report. They~~Chief Executive Officer and Chief Financial Officer concluded that ~~the controls and procedures were effective and adequate at that time. There were no significant changes in the Fund’s~~our internal control over financial reporting ~~during~~was effective to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statement for external purposes in accordance with United States generally accepted accounting principles.

Our independent registered public accounting firm, KBA Group LLP, has not issued an attestation report on our internal control over financial reporting.

Evaluation of Changes in Internal Control Over Financial Reporting

During the fourth quarter of fiscal ~~2006~~2007, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, ~~the Fund’s~~our internal control over financial reporting.

Item 9B. Other Information.

Item 10. Directors and Executive Officers of Registrant.

Pursuant to the Fund’s Articles of Incorporation and Bylaws, the Board of Directors consists of five directors and is divided into three ~~classes. Each~~classes, with each class ~~serves~~to serve for a three-year ~~term.~~term or until a successor is elected. The term of office of the Class One ~~director~~directors will expire at the 2007 annual meeting of ~~shareholders,~~stockholders, the term of office of the Class Two directors will expire at the 2008 annual meeting of ~~shareholders,~~stockholders, and the term of office of the Class Three directors will expire at the 2009 annual meeting of ~~shareholders.~~stockholders.

Because the Board of Directors is divided into classes, only those directors in a single class may be changed in any one year. Consequently, changing a majority of the Board of Directors would require two years (although under Texas law, procedures exist to remove directors, even if they are not then standing for reelection and, under SEC regulations, procedures exist for including appropriate ~~shareholder~~stockholder proposals in the annual proxy statement). Having a classified Board of Directors, which may be regarded as an “anti-takeover” provision, may make it more difficult for ~~shareholders~~stockholders of the Fund to change the majority of directors, thus having the effect of maintaining the continuity of management.

Class One Directors - Term expires at the 2007 Annual Meeting

Peter Collins, age ~~62,~~63, has been a financial and management consultant to closely-held businesses for the past ten years in the USA, the UK, and Europe, in areas of finance, start-ups, joint ventures, and mergers and acquisitions. He has advised companies in every segment of industry (including manufacturing, distribution, service, agriculture, construction, and multimedia) and in all stages of development (from start-up to bankruptcy). Mr. Collins was educated in England, where he received a B.Sc. in Civil Engineering from Liverpool University and ana M.Sc. in Business Administration from The City University, London. He has served as a Class One Director since 1994.

J. Philip McCormick, age ~~64,~~65, has been an independent investor and corporate advisor since 1999; He served as Executive Vice President and Chief Financial Officer of Highway Master Communication, Inc. from 1997 to 1998; Senior Vice President and Chief Financial Officer of Enserch Exploration, Inc. from 1995 to 1997; Senior Vice President - Transmission of Lone Star Gas Company, a division of Enserch Corporation, from 1993 to 1995; Senior Vice President — Finance of Lone Star Gas Company from 1991 to 1993; and Audit Partner, member of senior management and member of the Board of Directors of KPMG and KMG Main Hurdman from 1973 to 1991. He has served as a Class One Director since 2006.

Class Two Director - Term expires at the 2008 Annual Meeting

Charles C. Pierce, Jr., age ~~72,~~73, is the retired Vice-Chairman of Dain Rauscher, Inc., and he worked in the securities industries for 42 years. Mr. Pierce was a former president on the Texas Stock & Bond Dealers Association, an organization that advised the Texas Legislature on certain industry matters. He was also chairman of the South Central District of the Security Industry Association covering Texas, Oklahoma, New Mexico, Kansas and Colorado. He is a private investor. He has served as a Class Two Director since 2002.

Class Three Directors - Term Expires at the 2009 Annual Meeting

Russell Cleveland, age ~~68,~~69, is the Chairman of the Board, President, Chief Executive Officer, and Director of the Fund since 1994. He is a Chartered Financial Analyst with more than 35 years experience as a specialist in investments in smaller capitalization companies. A graduate of the Wharton School of Business, Mr. Cleveland has served as President of the Dallas Association of Investment Analysts. Mr. Cleveland is also the President, Chief Executive Officer, sole Director, and the majority ~~shareholder~~stockholder of RENN Group, the ~~investment adviser~~Investment Adviser to the Fund. RENN Group is also the ~~investment manager~~Investment Manager of Renaissance US Growth Investment Trust PLC (“RUSGIT”) and the ~~investment adviser~~Investment Adviser to US Special Opportunities Trust PLC, investment trusts listed on the London Stock Exchange, and ~~Premier RENN US Emerging Growth Fund Limited,~~ Premier RENN US Emerging Growth Fund Limited, an open-ended investment company registered with limited liability in Guernsey. Mr. Cleveland also serves on the Boards of Directors of RUSGIT, ~~Tutogen Medical, Inc.,~~ CaminoSoft Corp., Cover-All Technologies, Inc., Integrated Security Systems, Inc., Access Plans USA, ~~Inc. and Digital Recorders, Inc.~~Inc.. He has served as a Class Three Director since 1994.

Ernest C. Hill, age ~~66,~~67, has a broad background in convertible securities analysis with major NYSE brokerage firms and institutional investors. He specializes in computer-aided investment analysis and administrative procedures. Mr. Hill was awarded a Ford Fellowship to the Stanford School of Business, where he received an MBA, with honors, in Investment and Finance. Mr. Hill’s prior experience ~~included~~includes service as Assistant Professor of Finance, Southern Methodist University and Associate Director of the Southwestern Graduate School of Banking. He has served as a Class Three Director since 1994.

~~-33-~~

The Board of Directors has determined that all of the Fund’s directors, other than Russell Cleveland, the President and Chief Executive Officer of the Fund, are independent directors. Certain information concerning the Fund’s directors is set forth below:

Russell Cleveland⁽²⁾

Committees and Meetings

The Board of Directors held ~~twenty-three (23)~~eighteen (18) meetings or executed consent actions in lieu of meetings during ~~2006,~~2007, and each director attended or executed at least seventy-five per cent (75%) of these meetings and consent actions.

The Audit Committee

During ~~2006,~~2007, the Audit Committee consisted of Ernest C. Hill ~~Chair,~~Chairman, Peter Collins, Charles C. Pierce, Jr. and ~~Edward O. Boshell, Jr.~~ J. Philip ~~McCormick was added to the Audit Committee in March 2006.~~McCormick. The Audit Committee held ~~four (4)~~nine (9) meetings in ~~2006.~~2007. The Audit Committee is comprised entirely of independent ~~directors. The Audit Committee~~directors, and is appointed by the Board of Directors to assist the Board in fulfilling its oversight responsibilities. The Audit Committee’s primary duties and responsibilities are to:

The Fund’s independent auditors must report directly to the Audit Committee.

The Board of Directors has determined that J. Philip McCormick satisfies the standard for “audit committee financial expert” within the meaning of the rules of the SEC. The SEC rules provide that audit committee financial experts do not have any additional duties, obligations or liabilities and are not considered experts under the U.S. Securities Act of 1933.

The Nominating and Corporate Governance Committee

The Nominating and Corporate Governance Committee was created in January 2004 and is responsible for nominating individuals to serve as directors. The Nominating and Corporate Governance Committee is composed entirely of independent Fund directors. Its members are Chairman Charles C. Pierce, Jr., ~~Chair,~~ Ernest C. Hill, and Peter Collins.

The Committee considers and recommends nominees for election as directors of the Fund. Stockholders wishing to recommend qualified candidates for consideration by the Fund may do so by writing to the Secretary of the Fund at the address shown in the Notice providing the candidate’s name, biographical data and qualifications. In its assessment of each potential candidate, the Committee reviews the nominee’s judgment, experience, independence, financial literacy, knowledge of emerging growth companies, understanding of the Fund and its investment objectives and such other factors as the Committee may determine. The Committee also takes into account the ability of a director to devote the time and effort necessary to fulfill his or her responsibilities. At the direction of the Board of Directors, the Committee also considers various corporate governance policies and procedures.

Russell Cleveland, age ~~68,~~69, has served as Chairman of the Board, President, Chief Executive Officer, and a Class Three director of the Fund since 1994. He has also served as the President, Chief Executive Officer, sole Director, and the majority ~~shareholder~~stockholder of RENN Group since 1994. He is a Chartered Financial Analyst with more than 35 years experience as a specialist in investments for smaller capitalization companies. A graduate of the Wharton School of Business, Mr. Cleveland has served as President of the Dallas Association of Investment Analysts. Mr. Cleveland also serves on the Boards of Directors of Renaissance US Growth Investment Trust PLC, BPO Management Services, Inc., CaminoSoft Corp., Tutogen Medical, Inc., Cover-All Technologies, Inc., Integrated Security Systems, Inc., and Access Plans USA, Inc.

Barbe Butschek, age ~~52,~~53, has served as the Secretary and Treasurer of the Fund since 1994. She currently serves as Senior Vice-President, Secretary and Treasurer of RENN Group and has served with RENN Group in various capacities since 1977.

~~-36-~~

Robert C. Pearson, age ~~71,~~72, has served as Vice President of the Fund since April 1997. He joined RENN Group in April 1997 and is Senior Vice-President - Investments. Mr. Pearson brought more than thirty years of experience to RENN Group’s corporate finance function. From May 1994 to May 1997, Mr. Pearson was an independent financial management consultant. From May 1990 to May 1994, he served as Chief Financial Officer and Executive Vice-President of Thomas Group, Inc., a management consulting firm, where he was instrumental in moving a small privately held company from a start-up to a public company with more than $40 million in revenues. Prior to 1990, Mr. Pearson was responsible for all administrative activities for the Superconducting Super Collider Laboratory. In addition, from 1960 to 1985, Mr. Pearson served in a variety of positions at Texas Instruments in financial planning and analysis, holding such positions as Vice-President - Controller and Vice-President - Finance. Mr. Pearson holds a BS in Business from the University of Maryland and was a W.A. Paton Scholar with an MBA from the University of Michigan. He is a director of eOriginal, Inc., CaminoSoft Corp., Information Intellect, Simtek Corporation and ~~Simtek Corporation.~~Vertical Branding.

Scott E. Douglass, age ~~48,~~49, has served as a Vice President of the Fund since November 2004. He has worked for three sell-side firms in the roles of institutional sales and investment banking. Prior to that he was a commercial loan officer for the First National Bank of Boston and Fleet Financial Group which are now part of Bank of America. He holds a Masters Degree in Business Administration from the Olin Graduate School of Business at Babson College.

Z. Eric Stephens, age ~~38,~~39, has served as a Vice President of RENN Group since January 2006 and a Vice President of the Fund since August 2006. His responsibilities with RENN Group include due diligence, portfolio monitoring and portfolio selection. Previously, Mr. Stephens was a director with CBIZ Valuation Group, a national valuation consulting firm. While with CBIZ, he valued public and private companies, performed purchase price allocations and goodwill impairment tests, wrote fairness opinions and solvency opinions and acted as an expert witness. Prior to working for CBIZ, Mr. Stephens was a staff accountant with the U.S. Securities and Exchange Commission. While with the SEC, he conducted on-site examinations of investment companies and investment advisers. Mr. Stephens has a BA in economics and finance from Southwestern Oklahoma State University and an MBA from Texas A&M University and is a Chartered Financial Analyst.

~~-37-~~

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Fund's officers and directors and persons who own more than 10% of a registered class of the Fund's equity securities to file reports of ownership and changes in ownership with the SEC. Officers, directors, and greater than 10% beneficial owners are required by SEC regulations to furnish the Fund with copies of all Section 16(a) forms they file. ~~A Form 3 was not filed for J. Philip McCormick upon his election to the Board, but has been subsequently filed.~~ The Fund believes that during the fiscal year ended December 31, ~~2006,~~2007, all other Section 16(a) filings relating to the Fund's Common Stock applicable to its officers, directors, and greater than 10% beneficial owners were timely filed.

Item 11. Executive Compensation.

The Fund has no employees, and therefore does not compensate any employees. Officers of the Fund receive no compensation from the Fund. The Fund has never issued options or warrants to officers or directors of the Fund. The Fund does not have any stock option plan or similar plan, retirement or pension plan, or any other form of compensatory plan for employees. Instead, the Fund has contracted with RENN Group pursuant to the Advisory Agreement to provide all management and operating activities.

Directors who are not employees of either the Fund or RENN Group receive a monthly fee of ~~$1,500,~~$2,000 ($3,000 per month for the Chairman of the Audit Committee), plus $750 and out-of-pocket expenses for each quarterly valuation meeting attended. The Fund does not pay any fees to, or reimburse expenses of, its directors who are considered “interested persons” of the Fund. The aggregate compensation for the period from January 1 to December 31, ~~2006,~~2007, that the Fund paid each director, and the aggregate compensation paid to each director for the most recently completed fiscal year by other funds to which RENN Group provided investment advisory services is set forth below:

Item 12. Security Ownership of Certain Beneficial Owners and Management.

The Fund has no equity compensation plans. The following table sets forth certain information known to the Fund with respect to beneficial ownership of the Fund’s Common Stock as of December 31, ~~2006~~2007 (i) for all persons who are beneficial owners of 5% or more of the outstanding shares of the Fund’s Common Stock (ii) each director and nominee for director of the ~~Fund,~~Fund; and (iii) all executive officers and directors of the Fund as a group:

Item 13. Certain Relationships and Related Transactions.

RENN Group provides investment advisory services to the Fund pursuant to the Advisory Agreement between the Fund and RENN Group. The Advisory Agreement is reviewed and approved annually by the Fund’s Board of Directors, including its independent directors. Pursuant to the Advisory Agreement, RENN Group receives a management fee equal to a quarterly rate of 0.4375% of the Fund’s net assets, as determined at the end of such quarter with each such payment to be due on the last day of the calendar quarter. In addition, under the Advisory Agreement, RENN Group receives an incentive fee in an amount equal to 20% of the Fund’s realized capital gains in excess of realized capital losses, ~~of the Fund~~ after allowance for any unrealized capital ~~losses in on~~depreciation of the portfolio investments of the Fund. The incentive fee is calculated and paid, if due, on an annual basis.

~~-39-~~

In ~~2006,~~2007, the Fund incurred a management fee to RENN Group of ~~$935,776~~$792,545 of which ~~$485,463~~$428,251 was paid in ~~2006 and an~~2007. There was no incentive fee ~~of $3,157,367 of which $0 was paid during 2006.~~incurred for 2007. The Fund also received director’s fees from portfolio companies with respect to Mr. Cleveland’s and Mr. Pearson’s services as a director. Russell Cleveland and Barbe Butschek own 80% and 20%, respectively, of the Common Stock of RENN Group. The sole director of RENN Group is Russell Cleveland.

Item 14. Principal Accountant Fees and Services.

As disclosed in Item 9, Ernst & Young LLP was dismissed as the Fund’s auditor and did not complete the audit for the fiscal year ended December 31, 2003. KBA Group LLP was subsequently engaged in January 2006 to complete the audit, and therefore received no fees for professional services during the fiscal year ended December 31, 2005.

Audit Fees were for professional services rendered for the audit of the Fund’s annual financial statements and review of the ~~interim~~Fund’s quarterly financial ~~statements included in quarterly reports and services that are normally provided by~~statements. No non-audit fees were paid to the independent audit firm of KBA Group ~~LLP in connection with statutory and regulatory filings or engagements.~~LLP.

No Other Fees were paid by the Fund to KBA Group LLP for the fiscal years ended December 31, ~~2006~~2007 or ~~2005.~~2006.

⁵	~~Incorporated by reference from Form N-2 as filed with the Securities and Exchange Commission February 25, 1994 (Registration No. 33-75758).~~

~~SIGNATURES~~Signatures

Date: March ~~16, 2007~~


/s/ KBA GROUP LLP
KBA Group LLP Dallas, TX

~~/s/ KBA GROUP LLP~~

~~KBA Group LLP~~March 26, 2008

ASSETS
2006 2005

Cash and cash equivalents $ 14,835,500 $ 8,396,052
Investments at fair value, cost of $38,413,046 and $35,433,480 in 2006 and 2005, respectively 43,642,143 54,002,499

Interest and dividend receivables, net of reserves 146,146 48,226
Prepaid and other assets 25,766 101,598
$ 58,649,555 $ 62,548,375

LIABILITIES AND NET ASSETS

Liabilities:
Due to broker $ - $ 2,075,975
Accounts payable 168,845 86,782
Accounts payable - dividends - 4,145,686
Accounts payable - affiliate 3,810,462 2,050,989
Taxes payable on behalf of stockholders 6,302,806 -
10,282,113 8,359,432
Commitments and contingencies

Net assets:
Common stock, $1 par value; authorized 20,000,000 shares; 4,673,867 issued; 4,463,967 shares outstanding 4,673,867 4,673,867
Additional paid-in-capital 28,494,233 32,681,024
Treasury stock at cost, 209,900 shares (1,734,967 ) (1,734,967 )
Net realized gain on investments retained 11,705,212 -
Net unrealized appreciation of investments 5,229,097 18,569,019
Net assets, equivalent to $10.84 and $12.14 per share at December 31, 2006 and 2005, respectively 48,367,442 54,188,943
$ 58,649,555 $ 62,548,375

	2007			2006
ASSETS
Cash and cash equivalents	$	3,679,949		$	14,835,500
Investments at fair value, cost of $43,820,011
and $38,413,046 at December 31, 2007 and
2006, respectively		36,251,126			43,642,143
Interest and dividends receivable		141,402			146,146
Prepaid and other assets		50,663			25,766

	$	40,123,140		$	58,649,555

LIABILITIES AND NET ASSETS

Liabilities:
Accounts payable	$	57,726		$	168,845
Dividends payable		446,397			--
Accounts payable - affiliate		374,734			3,810,462
Taxes payable on behalf of stockholders		1,485,135			6,302,806

		2,363,992			10,282,113

Commitments and contingencies

Net assets:
Common stock, $1 par value; authorized
20,000,000 shares; 4,673,867 issued;
4,463,967 shares outstanding		4,673,867			4,673,867
Additional paid-in-capital		27,925,813			28,494,233
Treasury stock at cost, 209,900 shares		(1,734,967	)		(1,734,967	)
Net realized gain on investments retained		14,463,320			11,705,212
Net unrealized appreciation (depreciation) of
investments		(7,568,885	)		5,229,097

Net assets, equivalent to $8.46 and $10.84
per share at December 31, 2007 and
2006, respectively		37,759,148			48,367,442

	$	40,123,140		$	58,649,555

Note 1 -Organization and ~~2004~~

~~(2)~~Note 2 -Summary of Significant Accounting Policies

~~Summary of Significant Accounting Policies~~

~~(a)~~

~~Valuation of Investments~~

Valuation of Investments

Note 3 -Due to/from Broker

~~(4)~~

~~Management and Incentive Fees and Reimbursement~~

~~F-19~~

Note 5 -Eligible Portfolio Companies and Investments

Note 6 -Valuation of Investments

Note 7 -Restricted Securities

~~Renaissance Capital Growth &~~ Note 8 -Income ~~Fund III, Inc.~~

Renaissance Capital Growth & Income Fund III, Inc.

Notes to Financial Statements

December 31, 2007, 2006, ~~2005~~ and ~~2004~~2005 (continued)

Note 9 -Commitments and Contingencies

Note 10 -Financial Highlights - unaudited

Note 11 -Selected Quarterly Data

Renaissance Capital Growth & Income Fund III, Inc.

Notes to Financial Statements

December 31, 2007, 2006, and 2005 (continued)

Note 11 - Selected Quarterly Data (continued)

2006

1^st

2^nd

3^rd

4^th

Quarter

Quarter

Quarter

Quarter
Net investment loss $ (373,174 ) $ (434,530 ) $ (83,166 ) $ (3,297,835 )

Net unrealized appreciation (depreciation) on investments (225,650 ) (14,928,440 ) (2,379,862 ) 4,194,029

Net realized gain (loss) on investments 1,188,192 17,623,044 874,823 109,462

Income tax expense paid on behalf of stockholders - - - (6,302.806 )

Net income (loss) $ 589,368 $ 2,260,074 $ (1,588,205 ) $ (5,297,150 )

Net income (loss) per share $ 0.13 $ 0.51 $ (0.36 ) $ (1.18 )

Weighted average shares outstanding 4,463,967 4,463,967 4,463,967 4,463,967

Texas			75-2533518
(State of incorporation or organization)			(I.R.S. Employer Identification No.)

Suite 210, LB 59, 8080 North Central Expressway, Dallas, Texas	75206
(Address of principal executive offices)	(Zip Code)

		Name of each exchange
Title of each class		on which registered
~~None~~ Common	~~None~~	American Stock Exchange

	Selected Per Share Data															Selected Per Share Data
	2006			2005			2004			2003			2002			2007			2006			2005			2004			2003
Investment income		0.21			0.14			0.15			0.46			0.13			0.19			0.21			0.14			0.15			0.46
Operation expenses		(1.14	)		(0.66	)		(1.12	)		(0.70	)		(0.36	)
Operating expenses																	(0.36	)		(1.14	)		(0.66	)		(1.12	)		(0.70	)
Interest expense		(0.01	)		(0.02	)		(0.02	)		(0.01	)		(0.01	)		0.00			(0.01	)		(0.02	)		(0.02	)		(0.01	)
Net investment loss		(0.94	)		(0.54	)		(0.98	)		(0.25	)		(0.24	)		(0.17	)		(0.94	)		(0.54	)		(0.98	)		(0.25	)
Tax return of capital		0.00			0.00			0.00			0.00			(0.10	)
Cash distributions from net capital gains		(0.40	)		(1.33	)		(3.17	)		(1.25	)		0.00			(0.10	)		(0.40	)		(1.33	)		(3.17	)		(1.25	)
Net realized gain (loss) on investments		4.43			1.33			3.18			2.22			(0.79	)		1.09			4.43			1.33			3.18			2.22
Taxes paid on behalf of stockholders		(1.41	)		-			-			-			-			(0.33	)		(1.41	)		-			-			-
Net increase (decrease) in unrealized appreciation of investments		(2.99	)		(4.38	)		2.16			4.64			(1.91	)		(2.87	)		(2.99	)		(4.38	)		2.16			4.64
Increase (decrease) in net asset value		(1.30	)		(5.00	)		1.19			5.36			(3.04	)		(2.38	)		(1.30	)		(5.00	)		1.19			5.36
Capital stock transactions		0.00			0.35			0.00			0.00			(0.02	)		0.00			0.00			0.35			0.00			0.00
Effect of share change		0.00			(0.43	)		0.00			0.00			0.02			0.00			0.00			(0.43	)		0.00			0.00
Net Asset Value:
Beginning of year		12.14			17.14			15.95			10.59			13.63			10.84			12.14			17.14			15.95			10.59
End of year		10.84			12.14			17.14			15.95			10.59			8.46			10.84			12.14			17.14			15.95

Name, Address⁽¹⁾ and Age	Positions Held with Fund	Director’s Term of Office and Length of Time Served	Principal Occupation(s) During Past 5 Years	Number of Portfolios in Fund Complex Overseen by Director	Other Director- ships Held by Director
Peter Collins Age 63	Director	Class One Director since 1994. Term expires at 2007 Annual Meeting.	Consultant	1	None

J. Philip McCormick Age 65	Director	Class One Director since 2006. Term expires at 2007 Annual Meeting.	Consultant	1	None

Charles C. Pierce, Jr. Age 73	Director	Class Two Director since 2002. Term expires at 2008 Annual Meeting.	Retired Vice-Chairman of Dain Rauscher and private investor	1	None

Ernest C. Hill Age 67	Director	Class Three Director since 1994. Term expires at 2009 Annual Meeting.	Consultant	1	None

TABLE OF CONTENTS

PART I

Item 1.		Business		4
Item 1A.		Risk Factors	21	23
Item 2.		Properties	23	26
Item 3.		Legal Proceedings	23	26
Item 4.		Submission of Matters to a Vote of Security Holders	23	26

PART II

Item 5.		Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	24	27
Item 6.		Selected Financial Data	26	29
Item 7.		Management’s Discussion and Analysis of Financial Condition	27	30
		and Results of Operations
Item 7A.		Quantitative and Qualitative Disclosure About Market Risk	30	33
Item 8.		Financial Statements and Supplementary Data	30	34
Item 9.		Changes in and Disagreements with Accountants on Accounting and	30
	Financial Disclosure		34
Item ~~9A.~~9A(T).		Controls and Procedures	31	34
Item 9B.		Other Information	31	35

		PART III

Item 10.		Directors and Executive Officers of Registrant	32	36
Item 11.		Executive Compensation	38	42
Item 12.		Security Ownership of Certain Beneficial Owners and Management	39	43
Item 13.		Certain Relationships and Related Transactions	39	44
Item 14.		Principal Accountant Fees and Services	40	44

PART IV

Item 15.		Exhibits, Financial Statement Schedules	40	45
Signatures			42	47
Index to Financial Statements				F-1
Financial Statements				F-2 TO ~~F-26~~F-27

	High		Low
Year ended December 31, 2006
First quarter	$	13.00	$	9.90
Second quarter	$	11.08	$	9.80
Third quarter	$	11.61	$	10.40
Fourth quarter	$	11.61	$	10.50

Year ended December 31, 2005
First quarter	$	13.85	$	11.25
Second quarter	$	12.00	$	10.40
Third quarter	$	11.55	$	10.70
Fourth quarter	$	11.80	$	10.32

Name of Director	*Dollar Range of Equity Securitiesin the Fund**		Aggregate Dollar Range of Equity Securities inFunds in Fund Complex*
Peter Collins		$10,001 to $50,000		$10,001 to $50,000
J. Philip McCormick		$10,001 to $50,000		$10,001 to $50,000
Charles C. Pierce, Jr.		$10,001 to $50,000		$10,001 to $50,000
Ernest C. Hill		$0		$0
Russell Cleveland		0ver $100,000		0ver $100,000

Name of Director	Dollar Range* of Equity Securities in the Fund	Aggregate Dollar Range of Equity Securities in Funds in Fund Complex*
Peter Collins	$10,001 to $50,000	$10,001 to $50,000
J. Philip McCormick	$0	$0
Charles C. Pierce, Jr.	$10,001 to $50,000	$10,001 to $50,000
Ernest C. Hill	$0	$0
Edward O. Boshell, Jr. (former director)	over $100,000	over $100,000
Russell Cleveland	over $100,000	over $100,000

Name	Fees Earned or Paid in Cash ($)		Stock Awards ($)		Option Awards ($)		Non-Equity Incentive Plan Compensation ($)		Change in Pension Value and Nonqualified Deferred Compensation Earnings		All Other Compensation ($)		Total ($)			Fees Earned or Paid in Cash		Stock Awards		Option Awards		Non-Equity Incentive Plan Compensation		Change in Pension Value and Nonqualified Deferred Compensation Earnings		All Other Compensation		Total
Russell Cleveland ⁽¹⁾	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0
Peter Collins	$	21,000	$	0	$	0	$	0	$	0	$	0	$	21,000	$	26,000	$	0	$	0	$	0	$	0	$	0	$	26,000
Ernest C. Hill	$	21,000	$	0	$	0	$	0	$	0	$	0	$	21,000	$	36,000	$	0	$	0	$	0	$	0	$	0	$	36,000
Edward O. Boshell, Jr. (former director)	$	21,000	$	0	$	0	$	0	$	0	$	0	$	21,000
Charles C. Pierce, Jr.	$	21,000	$	0	$	0	$	0	$	0	$	0	$	21,000	$	26,000	$	0	$	0	$	0	$	0	$	0	$	26,000
J. Philip McCormick	$	17,250	$	0	$	0	$	0	$	0	$	0	$	17,250	$	26,000	$	0	$	0	$	0	$	0	$	0	$	26,000

Name of Beneficial Owner	Number of Shares Beneficially Owned Directly or Indirectly			Percent of Class			Number of Shares Beneficially Owned Directly or Indirectly			Percent of Class
Russell Cleveland, President, Chief Executive Officer, and Director⁽¹⁾		368,970	⁽²⁾		8.3	%
Edward O. Boshell, Jr., Former Director		29,923	⁽³⁾		0.7	%
Russell Cleveland, Chairman, President, Chief Executive Officer, and Director⁽¹⁾								412,770	⁽²⁾		9.3	%
Peter Collins, Director		2,480	⁽⁴⁾		0.1	%		2,341	⁽³⁾		0.1	%
Charles C. Pierce, Jr., Director		2,239			0.1	%		2,250			0.1	%
Ernest C. Hill, Director		0			0.0	%		0			0.0	%
J. Philip McCormick		0			0.0	%
All directors and officers of the Fund as a group (10 persons)		415,475			9.3	%

J. Philip McCormick, Director								3,500			0.1	%

Fee Category	Fiscal 2006 Fees		Fiscal 2005 Fees		Fiscal 2007 Fees Fiscal 2005 Fees		Fiscal 2006 Fees

Audit Fee	$	334,950	$	0	$	148,575	$	334,950
Other Fees		0		0		0		0
Total Fees	$	334,950	$	0	$	148,575	$	334,950


	Renaissance Capital Growth & Income Fund III, Inc.
		(Registrant)
	By:	/s/ Russell Cleveland

		Russell Cleveland, Chairman and President

Signature	Capacity in Which Signed	Date


/s/ Russell Cleveland		~~March 16, 2007~~
Russell Cleveland	Chairman, President and Director	March 26, 2008


/s/ Barbe Butschek		~~March 16, 2007~~
Barbe Butschek	Secretary and Treasurer	March 26, 2008


/s/ Ernest C. Hill		~~March 16, 2007~~
Ernest C. Hill	Director	March 26, 2008


/s/ Peter Collins		~~March 16, 2007~~
Peter Collins	Director	March 26, 2008


/s/ J. Philip McCormick		~~March 16, 2007~~
J. Philip McCormick	Director	March 26, 2008


/s/ Charles C. Pierce, Jr. Charles C. Pierce, Jr.	Director	March 26, 2008
		~~March 16, 2007~~
~~Charles C. Pierce, Jr.~~	~~Director~~

		Page

Report of Independent
Registered Public Accounting Firm			F-2

Statements of Assets and Liabilities
December 31, ~~2006~~2007 and ~~2005~~2006			F-3

Schedules of Investments
December 31, ~~2006~~2007 and ~~2005~~2006			F-4 through F-13

Statements of Operations
Years ended December 31, 2007, 2006, ~~2005,~~ and ~~2004~~2005			F-14

Statements of Changes in Net Assets
Years ended December 31, 2007, 2006, ~~2005,~~ and ~~2004~~2005			F-15

Statements of Cash Flows
Years ended December 31, 2007, 2006, ~~2005,~~ and ~~2004~~2005			F-16 through F-17

Notes to Financial Statements	~~F-17~~		F-18 through ~~F-26~~F-27

	2007
										% of
	Interest			Maturity				Fair		Investment
	Rate			Date		Cost		Value		Assets
Eligible Portfolio Investments -
Convertible Debentures and
Promissory Notes

CaminoSoft Corp. -
Promissory note (2)		7.00	%		01/19/08	$	250,000	$	250,000		0.69	%

Integrated Security Systems, Inc. -
Convertible Promissory note (2)		6.00			09/30/08		400,000		400,000		1.10
Promissory note (2)		8.00			09/30/08		525,000		525,000		1.45
Promissory note (2)		7.00			09/30/08		200,000		200,000		0.55
Promissory note (2)		8.00			09/30/08		175,000		175,000		0.48
Promissory note (2)		8.00			09/30/08		450,000		450,000		1.24
Convertible promissory note (2)		8.00			12/14/08		500,000		500,000		1.38
Promissory note (2)		8.00			12/12/08		300,000		300,000		0.83

iLinc Communications, Inc. -
Convertible debenture		12.00			03/29/12		500,000		500,000		1.38

PetroHunter Energy Corp -
Convertible debenture (1)		8.50			11/05/12		1,000,000		1,466,667		4.05

Pipeline Data, Inc. -
Convertible debenture		8.00			06/29/10		500,000		500,000		1.38

Simtek Corporation -
Convertible debenture (2)		7.50			06/28/09		700,000		738,182		2.04

						$	5,500,000	$	6,004,849		16.57	%

	2006
					Fair		% of Net
	Shares		Cost		Value		Assets
Eligible Portfolio Investments -
Common Stock, Preferred Stock, and Miscellaneous Securities

Advance Nanotech, Inc. - Common stock (2)		170,796	$	330,000	$	121,265		0.28	%

CaminoSoft Corp. - Common stock		3,539,414		5,275,000		1,592,736		3.65

Digital Learning Management Corporation - Common stock (2)		166,666		12,500		13,333		0.03

eOriginal, Inc. -
Series A, preferred stock (1)(3)		10,680		4,692,207		332,575		0.76
Series B, preferred stock (1)(3)		25,646		620,329		798,616		1.83
Series C, preferred stock (1)(3)		51,249		1,059,734		1,595,894		3.66
Series D, preferred stock (1)(3)		16,057		500,000		500,015		1.15

Gaming & Entertainment Group, Inc. -
Common stock		500,000		500,000		12,500		0.03
Common stock (2)		112,500		50,625		2,813		0.01

Gasco Energy, Inc. -
Common stock		1,541,666		1,250,000		3,777,082		8.65

Global Axcess Corporation - Common stock		953,333		1,261,667		352,733		0.81

Hemobiotech, Inc. - Common stock		1,137,405		1,143,882		2,331,680		5.34

i2 Telecom -
Convertible Preferred (2)		625		618,750		85,938		0.20
Common stock (2)		237,510		36,200		26,126		0.06

Information Intellect -
Common stock (1)(3)		666,666		999,999		999,999		2.29

Supplemental disclosure of cash flow information:

Cash paid during the period for Interest	$	—	$	60,188	$	93,847

Taxes paid on behalf of stockholders/excise taxes	$	6,302,806	$	12,378	$	6,824

Supplemental disclosure of non-cash financing transaction:

Cash dividends declared from realized gains but not yet paid	$	446,397	$	—	$	—

2006 - Capital gain	$	1,785,588

2005 - Capital gain	$	5,931,273

2004 - Capital gain	$	13,794,946

	2006			2005
Net asset value, beginning of year	$	12.14		$	17.14
Effect of share change		-			(.43	)

Net investment loss		(.93	)		(.54	)
Net realized and unrealized gain (loss) on investments		.03			(3.05	)

Total return from investment operations		(.90	)		(3.59	)

Distributions:
From net capital gains		(.40	)		(1.33	)

Contributions:
From sale of common stock		-			.35

Net asset value, end of year	$	10.84		$	12.14

Per share market value, end of year	$	10.50		$	11.00

Portfolio turnover rate		8.95	%		8.30	%

Annual return (a)		(4.55	)%		(15.06	)%

Ratio to average net assets (b):
Net investment loss		(7.84	)%		(3.81	)%
Expenses, excluding incentive fees		3.71	%		2.90	%
Expenses, including incentive fees		9.62	%		4.82	%

	2007			2006
Net asset value, beginning of period	$	10.84		$	12.14

Net investment loss		(0.17	)		(0.93	)

Net realized and unrealized gain (loss)
on investment		(2.11	)		0.03

Total return from investment operations		(2.28	)		(0.90	)

Distributions:		(0.10	)		(0.40	)

Net asset value, end of period	$	8.46		$	10.84

Per share market value, end of period	$	6.15		$	10.50

Portfolio turnover rate		21.11	%		8.95	%

Annual return (a)		(41.43	)%		(4.55	)%

Ratio to average net assets (b):
Net investment loss		(1.65	)%		(7.84	)%
Expenses, including incentive fees		3.46	%		3.71	%
Expenses, excluding incentive fee		3.46	%		9.62	%

	2006
	1^st			2^nd			3^rd			4^th
	Quarter			Quarter			Quarter			Quarter

Net investment income (loss)	$	(373,174	)	$	(434,530	)	$	(83,166	)	$	(3,297,835	)
Net unrealized appreciation (depreciation)		(225,650	)		(14,928,440	)		(2,379,862	)		4,194,029
Net realized gain (loss) on investments		1,188,192			17,623,044			874,823			109,462
Income tax expense paid on behalf of stockholders		-			-			-			(6,302,806	)
Net income (loss)	$	589,368		$	2,260,074		$	(1,588,205	)	$	(5,297,150	)

Net income (loss) per share	$	0.13		$	0.51		$	(0.36	)	$	(1.18	)

Weighted average shares outstanding		4,463,967			4,463,967			4,463,967			4,463,967