UNITED STATES
                    SECURITIES AND EXCHANGE COMMISSION
                           WASHINGTON, D.C.  20549

                                 FORM 10-Q


      [x]     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
              EXCHANGE ACT OF 1934

                      For quarterly period ended JuneSeptember 30, 1999

      [ ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
              SECURITIES EXCHANGE ACT OF 1934

              For the transition period from ___________ to _________________

                     Commission File Number:  0-20671

            RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
            -------------------------------------------------------------------__________________________________________________
          (Exact name of registrant as specified in its charter)

                 Texas                        75-2533518
            -------------------------------------------------------------------__________________________________________________
          (State or other jurisdiction           (I.R.S.jurisdiction(I.R.S. Employer I.D. No.)
                    of incorporation or organization)

          8080 North Central Expressway, Dallas, Texas  75206-1857
          -------------------------------------------------------------------________________________________________________________
             (Address of principal executive offices)(Zip Code)

                         214/891-8294
          -------------------------------------------------------------------________________________________________________________
            (Registrant's telephone number, including area code)

    Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                     Yes      X         No
                            -----     -----_____     _____
 4,142,942 shares of common stock outstanding at JuneSeptember 30, 1999.

 The Registrant's Registration Statement on Form N-2 was declared effective by
the Securities and Exchange Commission on May 6, 1994.


                      PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

            RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.

                   Statement of Assets and Liabilities
                              (Unaudited)

                         Assets
                                                        
                                         December 31, 1998 JuneSeptember 30, 1999
                                          -----------------   -------------
                                                               
Cash                                           $ 2,573,144        $ 3,098,8256,535,823
Accounts receivable                                361,374            386,593242,842
Accounts receivable-brokerage                          -0-              5,281
Temporary investments at cost                          -0-       1,996,1145,355
Investments, at market value, cost of
 $36,828,731 and $35,917,709$36,220,712                    39,251,507         45,615,38241,909,633
Organizational costs, net of accumulated
 amortization                                       83,820                -0-
Other assets                                        52,880             39,76072,373
                                               -----------        -----------
                                               $42,322,725        $51,141,955$48,766,026
                                               ===========        ===========
                   Liabilities and Net Assets

Liabilities:
 Accounts payable - related parties           $    218,079        $ 1,239,6801,643,168
 Accounts payable - trade                          214,100             53,10837,685
 Dividends payable                                 414,845          302,8961,484,137
                                               -----------        -----------
                                                   847,024          1,595,6843,164,990
                                               -----------        -----------
Net Assets:
 Common stock, $1 par value;
  20,000,000 shares authorized;
  4,342,942 issued, 4,143,448
  and 4,142,942 outstanding                      4,342,942          4,342,942
 Additional paid-in capital                     36,258,896         36,258,896
 Treasury stock at cost,
   199,494 shares at December
   31, 1998 and 200,000 shares
   at JuneSeptember 30, 1999                        (1,661,439)        (1,665,219)
  Undistributed net investment income            2,535,302          10,609,6526,664,417
                                               -----------        -----------
   Net assets                                   41,475,701         49,546,27145,601,036
                                               -----------        -----------
                                               $42,322,725        $51,141,955$48,766,026
                                               ===========        ===========
   Net asset value per share                        $10.01             $11.96$11.01
                                                    ======             ======

See accompanying notes to financial statements. 
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC. Statement of Operations (Unaudited) Three Months Ended JuneSept. 30, SixNine Months Ended JuneSept. 30, 1998 1999 1998 1999 ----------- ------------ ----------- ----------- ----------------------- Investment Income: Interest $ 572,596571,179 $ 320,943 $1,184,777145,033 $ 815,4881,755,956 $ 960,521 Dividends -0- 78,733 -0- 314,8977,994 26,301 7,994 341,198 Other investment income 96,500 9,625 390,988 29722,500 (27,361) 413,488 (27,064) ----------- ---------- ---------- ----------- ----------- ------------ Total investment income 669,096 409,301 1,575,765 1,130,682601,673 143,973 2,177,438 1,274,655 ----------- ---------- ---------- ----------- ----------- ------------ Expenses: Amortization 31,092 -0- 61,84231,433 0 93,275 83,820 Bank charges 5,502 5,361 9,774 10,6916,088 6,575 15,862 17,266 Directors' fees 16,000 14,000 38,500 28,00011,500 15,500 50,000 43,500 Legal and professional 29,745 22,761 57,662 51,07613,876 40,077 71,538 91,153 Management fees 295,102 235,390 457,718 445,852 Taxes 7,330 27,840 7,890 27,840170,261 229,104 627,979 674,956 Other 53,246 70,231 92,865 110,62027,852 41,494 128,607 179,954 ----------- ---------- ---------- ----------- ----------- ------------ Total expenses 438,017 375,583 726,251 757,899261,010 332,750 987,261 1,090,649 ----------- ---------- ---------- ----------- ----------- ------------ Net investment income 231,079 33,718 849,514 372,783340,663 (188,777) 1,190,177 184,006 Realized gain on investments 2,504,596 3,824,391 2,504,596 3,824,3910 5,430,972 2,504,583 9,255,363 Unrealized gain (loss) on investments (2,829,090) 1,190,168 4,499,723 7,274,888(9,763,815) (4,008,753) (5,264,079) 3,266,135 ----------- ---------- --------------------- ----------- ----------- Net increase (decrease) in net assets resulting from operations $ (93,415) $5,048,277 $7,853,833 $11,472,062 ============$(9,423,152) $1,233,442 $(1,569,319) $12,705,504 =========== ========== ===================== =========== See accompanying notes to financial statements.
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC. Statement of Changes in Net Assets (Unaudited) Three Months Ended JuneSept. 30, SixNine Months Ended JuneSept. 30, 1998 1999 1998 1999 ----------- ----------- ----------- ----------- Increase (decrease) in net assets resulting from operations Investment income - net $ 231,079340,663 $ 33,718(188,777) $ 849,5141,190,177 $ 372,783184,006 Realized gain on investment 2,504,596 3,824,391 2,504,596 3,824,3910 5,430,972 2,504,583 9,255,363 Unrealized gain (loss) on investments (2,829,090) 1,190,168 4,499,723 7,274,888(9,763,815) (4,008,753) (5,264,079) 3,266,135 ----------- ----------- ----------- ----------- Net increase (decrease) in net assets resulting from operations (93,415) 5,048,277 7,853,833 11,472,062(9,423,152) 1,233,442 (1,569,319) 12,705,504 Distributions to shareholders (2,932,935) (3,065,777) (3,314,615) (3,397,712)(424,763) (5,178,677) (3,739,378) (8,576,389) Cost of shares repurchased (842,455) -0- (842,455)(24,405) 0 (866,860) (3,780) ----------- ----------- ----------- ----------- Total increase (decrease) (3,868,805) 1,982,500 3,696,763 8,070,570(9,872,320) (3,945,235) (6,175,557) 4,125,335 Net assets Beginning of period 52,062,928 47,563,77148,194,123 49,546,271 44,497,360 41,475,701 ----------- ----------- ----------- ----------- End of period $48,194,123 $49,546,271 $48,194,123 $49,546,271$38,321,803 $45,601,036 $38,321,803 $45,601,036 =========== =========== =========== ===================== See accompanying notes to financial statements.
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC. Notes to Financial Statements JuneSeptember 30, 1999 1. Organization and Business Purpose Renaissance Capital Growth & Income Fund III, Inc. (the "Fund"), a Texas Corporation, was incorporated on January 20, 1994, and had no operations prior to June 24, 1994. The Fund seeks to achieve current income and capital appreciation potential by investing primarily in convertible debenture and convertible preferred stock investments of small and medium size companies which are in need of capital and which the Fund believes offer the opportunity for growth. The Fund has elected to be treated as a business development company under the Investment Company Act of 1940, as amended ("1940 Act"). 2. Significant Accounting Policies A. Federal Income Taxes - The Fund intends to elect the special income tax treatment available to "regulated investment companies" under Subchapter M of the Internal Revenue Code in order to be relieved of federal income tax on that part of its net investment income and realized capital gains that it pays out to its shareholders. The Fund's policy is to comply with the requirements of the Internal Revenue Code that are applicable to regulated investment companies and to distribute all its taxable income to its shareholders. Therefore, no federal income tax provision is required. B. Distributions to Shareholders - Dividends to shareholders are recorded on the ex-dividend date. The Fund declared and paid a $0.74 capital gain dividend in the quarter ended June 30, 1999, and has also declared a $1.25 capital gain dividend which will bewas payable August 31, 1999 to shareholders of record as of August 10, 1999. The ex-dividend date iswas August 6, 1999. This dividend iswas from gains made on the sale of part of the Fund's common stock position in JAKKS Pacific, Inc. and the closing of the purchase of TAVA Technologies, Inc. by Real Software, Inc. for $8.00 per share. C. Management Estimates - The financial statements have been prepared in conformity with generally accepted accounting principles. The preparation of the accompanying financial statements requires estimates and assumptions made by management of the Fund that affect the reported amounts of assets and liabilities as of the date of the statements of financial condition and income and expenses for the period. Actual results could differ significantly from those estimates. D. Financial Instruments - In accordance with the reporting requirements of Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments," the Company calculates the fair value of its financial instruments and includes this additional information in the notes to the financial statements when the fair value is different than the carrying value of those financial instruments. When the fair value reasonably approximates the carrying value, no additional disclosure is made. 3. Organization Expenses In connection with the offering of its shares, the Fund paid Renaissance Capital Group, Inc. (the "Investment Adviser") organizational expenses of $623,544. Such expenses were deferred and amortized on a straight-line basis over a five-year period. These expenses were fully amortized in a prior period. RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC. Notes to Financial Statements (Continued) June 30, 1999 4. Investment Advisory Agreement The Investment Adviser for the Fund is registered as an investment adviser under the Investment Advisers Act of 1940. Pursuant to an Investment Advisory Agreement, the Investment Adviser performs certain services, including certain management, investment advisory and administrative services necessary for the operation of the Fund. The Investment Adviser receives a fee equal to .4375% (1.75% annually) of the Net RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC. Notes to Financial Statements (Continued) September 30, 1999 4. Investment Advisory Agreement (continued) Assets each quarter. The Fund accrued a liability of $235,390$229,104 for such operational management fees performed during the quarter ended JuneSeptember 30, 1999. In addition, the Fund has agreed to pay the Investment Adviser an incentive fee equal to 20% of any net realized capital gains after allowance for any unrealized capital loss of the Fund. This management incentive fee is calculated on a quarterly basis. TheIn the third quarter, the Fund realized a capital gaingains of $4,780,489$6,788,716 on the sale of 303,37090,000 shares of JAKKS Pacific, Inc. common stock.stock and the sale of the fund's entire investment in TAVA Technologies, Inc. The gain is shown on the accompanying statement of operations net of the $956, 098$1,357,744 management incentive fee payable to the Investment Adviser. 5. Capital Share Transactions As of JuneSeptember 30, 1999 there were 20,000,000 shares of $1 par value capital stock authorized, 4,342,942 shares issued, 4,142,942 shares outstanding, and additional paid-in capital aggregating $38,936,619. Year-to-date transactions in capital stock are as follows: Shares Amount --------- ----------- Balance December 31, 1998 4,143,448 $38,940,399 Shares repurchased (506) (3,780) --------- ----------- Balance JuneSeptember 30, 1999 4,142,942 $38,936,619
6. Related Party Transactions The Investment Adviser is reimbursed by the Fund for certain administrative expenses under the Investment Advisory Agreement. Such expenses were $3,636$25,513 for the quarter ended JuneSeptember 30, 1999. 7. Temporary Investments Temporary investments are currently held in a money market fund made up of U.S. Treasury obligations. As additional cash is realized from the liquidation of investments, temporary investments will also be comprised ofobligations and in U. S. Government and Agency obligations having slightly higher yields and maturity dates of three months or less. These investments qualify for investment as permitted in Section 55(a) (1) through (5) of the 1940 Act. RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC. Notes to Financial Statements (Continued) June 30, 1999 8. Investments The Fund invests primarily in convertible securities and equity investments of companies that qualify as Eligible Portfolio Companies as defined in Section 2(a) (46) of the 1940 Act or in securities that otherwise qualify for investment as permitted in Section 55(a) (1) through (5). Under the provisions of the 1940 Act at least 70% of the Fund's assets must be invested in Eligible Portfolio Companies. These stocks are carried RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC. Notes to Financial Statements (Continued) September 30, 1999 8. Investments (continued) on the Statement of Assets and Liabilities as of JuneSeptember 30, 1999 at fair value, as determined in good faith by the Investment Adviser. TheSome securities held by the Fund are unregistered and their value does not necessarily represent the amounts that may be realized from their immediate sale or disposition. TheSome investments held by the Fund are convertible into the common stock of the issuer at a set conversion price. The common stock acquired upon exercise of the conversion feature is generally unregistered and is thinly to moderately traded but is not otherwise restricted. The Fund generally may register and sell such securities at any time with the Fund paying the costs of registration, although the Fund may be entitled to demand registrations and other registration rights which vary from investment to investment. The preferred stock positions often have call options, usually commencing three years subsequent to issuance, at prices specified in the stock purchase agreements, and typically have a dividend right. INVESTMENT VALUATION SUMMARY CONVERSION FAIR COST OR FACE VALUE VALUE Bentley Pharmaceuticals, Inc. 12% Convertible Debenture 744,800 1,000,000 990,0001,040,000 1,029,600 Common Stock 791,229 1,635,300 1,618,947 Dexterity Surgical, Inc. 9% Convertible Debenture 1,500,000 1,523,438 1,508,2041,500,000 1,500,000 8% Convertible Preferred Stock 1,000,000 1,015,626 1,005,470890,626 890,626 Common Stock 500,000 203,125 201,094148,438 146,954 Display Technologies, Inc. 8.75% Convertible Debenture 1,750,000 1,750,000 1,750,000 5.25% Convertible Preferred 500,000 500,000 500,000 Common Stock 878,189 845,492 837,037764,969 757,320 Warrants to purchase 105,000 shares -0- -0- -0- Warrants to purchase 15,000 shares -0- -0- -0- The Dwyer Group, Inc. Common Stock 1,966,632 1,307,813 1,294,7351,687,500 1,670,625 eOriginal, Inc. (formerly Document Authentication Systems) Bridge Loan 219,250 219,250 219,250 5% Convertible Preferred Stock 1,500,000 1,500,000 1,500,0001,738,700 1,738,700 1,738,700 Warrants to purchase 659 shares 165 165 165 Fortune Natural Resources Corp. 12% Convertible Debenture 350,000 464,437 459,793 Grand Adventures Tour & Travel Publishing Corp. 10% Convertible Debenture 350,000 350,000 350,000 Integrated Security Systems, Inc. Demand Promissory NotesNote 115,000 115,000 115,000 Convertible Promissory Note 375,000 405,601 381,265375,000 375,000 9% Convertible Debenture 2,084,101 2,254,170 2,133,9552,084,101 2,084,101 Common Stock 215,899 233,517 231,182184,831 182,983 Warrants to purchase 689,299 shares 3,750 20,071 19,0923,750 3,750 RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC. Notes to Financial Statements (Continued) JuneSeptember 30, 1999 8. Investments (continued) INVESTMENT VALUATION SUMMARY
CONVERSION FAIR COST OR FACE VALUE VALUE Interscience Computer Corporation 8% Promissory Note 500,000 500,000 500,000 Common Stock 4,000,000 820,400 812,1961,312,500 1,299,375 Warrants to purchase 500,000 shares -0- -0- -0- Warrants to purchase 250,000 shares -0- 62,500 8,750 Intile Designs, Inc. Common Stock 500,000 78,150 50,00031,250 31,250 JAKKS Pacific, Inc. Common Stock 4,255,625 16,490,296 16,325,3933,738,125 17,383,688 17,209,850 NewCare Health Corporation 8.5% Convertible Debenture 2,500,000 2,500,000 1,150,000250,000 Options -0- -0- -0- Optical Security Group, Inc. 8% Convertible Debenture 500,000 500,000 500,000 Play by Play Toys & Novelties, Inc. 8% Convertible Debenture 2,500,000 2,500,000 2,500,000 Poore Brothers, Inc. 9% Convertible Debenture 1,718,094 1,932,856 1,816,8852,147,618 2,018,761 Common Stock 154,628 206,171 143,801229,079 165,334 Warrants to purchase 25,000 shares -0- 3,125 2,9386,250 5,875 RailAmerica, Inc. 6% Convertible Debenture 500,000 500,000 500,000 Warrants to purchase 15,000 shares -0- -0- -0- Simtek Corporation 9% Convertible Debenture 750,000 750,000 750,000 TAVA Technologies, Inc. Common Stock 1,163,947 5,477,480 5,422,705 ThermoView Industries, Inc. 10% Convertible Preferred Stock 250,000 250,000 250,000150,000 150,000 Common Stock 250,000 308,594 240,078156,250 96,874 Voice It Worldwide, Inc. 8% Convertible Debenture 2,450,000 2,450,000 1,470,000750,000 Common Stock 1,046,400 411,250 141,000440,672 -0- Warrants to purchase 500,000 shares -0- -0- -0- ---------- ---------- ---------- 35,917,709 48,941,890 45,615,39236,220,712 46,852,624 41,909,633 ========== ========== ========== The fair value of debt securities and preferred securities convertible into common stock is the sum of (a) the value of such securities without regard to the conversion feature, and (b) the value, if any, of the conversion feature. The fair value of debt of debt securities without regard to conversion features is determined on the basis of the terms of the debt security, the interest yield and the financial condition of the issuer. The fair value of preferred securities without regard to conversion features is determined on the basis of the terms of the preferred security, its dividend, and its liquidation and redemption rights. The fair value of the conversion features of a security, if any, are based on fair values as of this date less an allowance, as appropriate, for costs of registration, if any, and selling expenses. Publicly traded securities, or securities that are convertible into publicly traded securities, are valued at the last sale price, or at the average closing bid and asked price, as of the valuation date. While these valuations are believed to represent fair value, these values do not necessarily reflect amounts which may be ultimately realized upon disposition of such securities.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (1) Material Changes in Financial Condition The following portfolio transactions are noted for the quarter ended JuneSeptember 30, 1999 (portfolio companies are herein referred to as the "Company"): Bentley Pharmaceuticals,Display Technologies, Inc. (BNT)(DTEK) In the secondthird quarter of 1999, the Fund purchasedinvested an additional 145,100$500,000 into the Company by purchasing 5,000 shares of the Company's Series A Cumulative Convertible Preferred Stock (the "Preferred"). The Preferred pays dividends at a rate of 5.25% per year from July 30, 1999, the date the Preferred was issued, which are payable quarterly on the last day of March, June, September, and December of each year commencing on the first such dividend payment following the issuance. The Preferred is convertible into common stock of the Company at the rate of $3.50 per share, subject to downward adjustments in the event the Company issues, sells, distributes, or otherwise transfers shares of its common stock, other than the result of exercise of options, warrants, or conversion rights outstanding on the original issuance date, for a consideration per share less than the conversion price in effect immediately prior to such issuance. The Preferred has a liquidation preference equal to 100% of the dollar amount invested by the Fund, has voting rights equal to the number of whole shares of common stock into which the Preferred is convertible at the conversion price then in effect, and further entitles the Preferred Shareholders to vote as a single class. The Preferred shall be redeemed on the fifth anniversary date of issuance or in the event of a "default" as defined in the Certificate of Designation of Series A Preferred Stock. Finally, the preferred will automatically be converted into the Company's common stock at the then prevailing conversion price if the closing price for the Company's common stock for a period of twenty consecutive trading days following the second anniversary of the original issuance date exceeds 200% of the conversion price then in effect. As additional consideration for the Fund's agreement to invest in the Preferred, the Fund received warrants to purchase 15,000 shares of the Company's common stock at $3.50 on the open market for $291,222, a cost basis of $2.01 per share. Dexterity Surgical, Inc. (DEXT) In the second quarter, the conversion prices on the Fund's convertible debenture and convertible preferred stock investments were reduced to $1.60 per share according to the automatic reset provisions of the respective investment agreements.or before July 30, 2004. In addition to the Fund's conversion price resets,investment in the Series A Cumulative Convertible Preferred Stock and warrants of the Company, Renaissance U.S.US Growth and Income Trust PLC ("RUSGIT") also hadinvested $500,000 into the conversion prices on its convertible debentureSeries A Cumulative Convertible Preferred Stock and convertible preferred stock investments resetwarrants to $1.60 per share pursuant to the automatic reset provisions of the respective investment agreements. Display Technologies, Inc. (DTEK) In the second quarter of 1999, the Fund purchased an additional 93,200purchase 15,000 shares of the Company's common stock onunder the open market for $378,189, a cost basis of $4.06 per share. Fortune Natural Resources Corporation (FPX)same terms and conditions as the Fund. eOriginal, Inc. (Private) In the second quarter, of 1999,the Company raised sufficient equity capital allowing it to force the Fund to convert its $219,250 Bridge Loan plus $19,450 in accrued interest into the Company's Series B-1 Preferred Stock. In addition to the conversion priceof the Fund's Bridge Note into Series B-1 Preferred, the Bridge Note and accrued interest of RUSGIT was converted into Series B-1 Preferred Stock of the Company. Grand Adventures Tour and Travel Publishing Corp. (GATT) In the third quarter, the Fund invested $350,000 into the Convertible Debentures of the Company. The Debentures accrue interest at 10% payable quarterly and mature on the Fund'sfourth anniversary of the date of the initial closing. The Debentures are convertible debentures was reset to $0.3297into the Company's common stock at $2.65 per share according to the provisionsfor any portion of the Convertible Debenture Agreements.debentures the Fund converts on or before September 21, 2000. For any portion of the debentures converted after September 21, 2000, the Fund's conversion price is $2.50 per share. The debentures are redeemable by the Company at any time after the later of one year from the date of the initial closing or the first day after which, at the close of the trading on the ten preceding days, the per share "bid" price is at least $7. The Debentures offer its holders demand and piggyback registration rights, with demand rights only being available if a majority of holders of Debentures file the requisite registration statement, and also contain some standard anti-dilution provisions. In addition to the Fund's conversion price reset,investment in the Convertible Debentures of the Company, RUSGIT also hadinvested $400,000 in the conversion price on its convertible debentures reset to $0.3297 per share pursuant toCompany's Convertible Debentures under the provisions ofsame terms and conditions as the Convertible Debenture Agreement.Fund's investment. Integrated Security Systems, Inc. (IZZI) In June 1999,the third quarter, the Fund advanced $115,000 to the Company completedpursuant to a 9% Promissory Note. The principal balance and all accrued unpaid interest on the sale of its Golston subsidiary for $4.7 million. The Golston subsidiary represented partNote is due and payable on or before May 12, 2000 and the Note is secured by the assets of the collateral securing the Fund's convertible debenturesCompany and convertible notes. The Company used $322,601 to repay the Fund for its March 8, 1999 bridge loan of $200,000 plus $122,601 in accrued interest and overdue advisory fees owedsubsidiaries, which security is subordinated to the Fund. RUSGIT also had its bridge loan, accrued interest thereon, and overdue advisory fees repaid out ofCompany's credit facility with the Golston sale proceeds. Intile Designs, Inc. (IDESQ) In the second quarter ofFrost National Bank. Subsequent to September 30, 1999, the Fund was advised thatadvanced an additional $150,000 to the Company had filed for bankruptcy protection pursuant to Chapter 11purchase 7,500 shares of the Bankruptcy Code. JAKKS Pacific, Inc. (JAKK) In the second quarter of 1999, the Fund converted its entire convertible debenture investment into common stock of the CompanySeries D Cumulative Convertible Preferred Stock (the "Preferred"). The Preferred accrues dividends cumulatively at a rate of $5.759% to be paid at four equal quarterly installments on December 31, March 31, June 30, and September 30, beginning with December 31, 1999, and entitles the holder to voting privileges equal to one vote for each share of common stock into which the Preferred is convertible. The Preferred converts into common stock at a rate $0.80 per share. Alsoshare, is redeemable by the Company at its option at any time on or after November 15, 2004, and carries a liquidation preference equal to 100% of the dollar amount invested by the Fund. As additional consideration for the Fund's investment in the second quarter,Preferred Stock, the Fund sold 303,370 shares of the Company's common stock for total proceeds of $6,524,864.08, for a gain of $4,780,489.12. The average price on the second quarter sales of the Company's common stock was $21.51 per share. On July 1, 1999, the Fund converted its entire convertible preferred stock investment intoreceived warrants to purchase 125,000 shares of the Company's common stock at $1.00 per share on or before October 11, 2004. RUSGIT also invested $115,000 pursuant to a 9% Promissory Note in the third quarter. In addition, RUSGIT purchased $150,000 of the Company's Series D Cumulative Convertible Preferred Stock and received warrants to purchase 125,000 shares. All of these investments were made by RUSGIT under the same terms and conditions as the Fund's investments. Interscience Computer Corp. (IEIC) In the third quarter, the Fund advanced the Company $500,000 pursuant to an 8% Promissory Note which matures October 31, 2000. The Note is secured by the assets of the Company and is subordinated only to the Company's senior lender. As additional consideration for advancing the Company money, the Fund received warrants to purchase 250,000 shares of IEIC common at $0.50 per share on or before July 3, 2001. JAKKS Pacific, Inc. (JAKK) In the third quarter, the Fund sold 90,000 shares of common stock resulting in proceeds of $2,770,018.44, or $30.78 per share, representing a gain of $2,252,518.44. At September 30, 1999, the Fund still owned 463,565 shares having a cost basis of $3,738,125.13. Also in the third quarter, the Fund converted its entire preferred stock investment having a cost basis of $3,000,000 into 335,195 shares of the Company's common stock, a rate of $8.95 per share. Subsequent to June 30, 1999, the Fund sold an additional 70,000 shares of the Company's common stock for total proceeds of $2,112,976.15, representing a gain of $1,710,476.22. The average sales price of shares sold after June 30, 1999 was $30.19 per share. Following the 70,000 share sale, the Fund owned 483,565 shares of the Company's common stock. NewCare Health Corp. (NWCA)(NWCAQ) In the secondthird quarter, the Fund reset the conversion pricetook additional reserves on its convertible debentures to $0.8363 per share according to the automatic reset provisions of the Convertible Debenture Agreement. Following the reset, the Company filed for bankruptcy. The Manager immediately placed a $1,350,000 reserve on the Fund's convertible debenture positioninvestment in the Company, which has been approved by the Board of Directors as of Junereducing its valuation to $250,000 at September 30, 1999. The reserves have been placed because the Company is in bankruptcy. This asset value may change asPlay By Play Toys & Novelties, Inc. (PBYP) Subsequent to September 30, 1999, the bankruptcy proceeding progresses. Company closed on a refinance of its senior lending facility and simultaneously restructured the terms of the Fund's Convertible Debentures. As a result of the refinancing, the Fund amended its Convertible Debentures so that interest now accrues at 10.5% and the maturity of the Debentures is now December 31, 2000. In addition, to the Fund's conversion price reset, RUSGIT alsoFund was granted security interests in all the assets of the Company and its subsidiaries and had the conversion price on its convertible debenturesthe Debentures reset to $0.8363equal the lesser of (a) $16.00 per share pursuantand (b) the greater of (i) $6.00 per share and (ii) the average closing price of the common stock for the trading days included in the thirty day period beginning on the date following the date of the closing of the refinance. Further, a second reset will occur if the Debentures are not redeemed in full on or before December 31, 2000. As consideration for the restructuring of the Fund's Debentures, the Fund agreed to waive the automatic reset provisionsCompany's default position and restructure covenants contained in the Debentures. Poore Brothers, Inc. (SNAK) Subsequent to September 30, 1999, the Company changed its trading symbol from POOR to SNAK. RailAmerica, Inc. (RAIL) In the quarter ended September 30, 1999, the Fund invested $500,000 in Convertible Debentures of RailAmerica, Inc. The Debentures bear interest at 6%, are due and payable on or before July 31, 2004, and are convertible into the Company's common stock at $10 per share, which conversion price is subject to certain anti-dilution provisions. The Company may, at its option, redeem the outstanding principal amount of the Debentures in whole or in part if the closing price per share of common stock as reported on the NASDAQ National Market is above 200% of the conversion price for ten consecutive trading days, subject to adjustment as set forth in the Convertible Debenture Agreement. Additionally, RUSGIT placed a $1,350,000 reserve on its convertible debenture investment. Simtek Corporation (SRAM) InAs additional consideration for the quarter ended June 30, 1999,Fund's investment, the Company granted the Fund had the conversion price on its convertible debenture reset from $0.35 per share to $0.195 per share according to the automatic reset provisions of the Convertible Debenture Agreement. RUSGIT also had its convertible debenture conversion price reset to $0.195 according to the automatic reset provisions of its Convertible Debenture Agreement. TAVA Technologies, Inc. (TAVA) In the second quarter, the Fund exercised its warrants enabling the Fund to purchase 25,00015,000 shares of the Company's common stock at $1.50$10.50 per share.share on or before August 5, 2004. In addition to the Fund exercised option rights on 20,851 shares, which shares were purchased for a total of $l26,447, or $6.06 per share. On July 20, 1999,Fund's investment, RUSGIT also invested $500,000 into the Company announced the closing of the salesubordinated Convertible Debentures of the Company and also received warrants to Real Software for $8.00 per share. The total proceeds topurchase 15,000 shares of the Company's common stock, which investments were made under the same terms and conditions as the Fund's investment. Voice It Worldwide, Inc. (MEMOQ) In the third quarter, the Fund as a resulttook additional reserves on its investments in the Company and reduced the fair value of the transaction were $5,700,144, representing a gain of $4,536,197.all its investments to $750,000 at September 30, 1999. The Company is in bankruptcy. (2) Material Changes in Operations NetThe Fund had a net investment incomeloss of $33,718$188,777 for the quarter ended JuneSeptember 30, 1999, as comparedin comparison to Junenet investment income of $340,663 booked by the Fund in the third quarter ended September 30, 1998, reflects a decrease of $197,361.$529,440. This reported decrease is primarily attributable to a reserve taken of prior accrued income on the Voice It Worldwide, Inc. and the NewCare Health, Inc. portfolio investmentinvestments along with a conversion of debt investmentsinstruments to common stock resulting in a decrease of current income. During the secondthird quarter, the Fund experienced $1,190,168$4,008,753 of unrealized gainslosses resulting from an increasea decrease in the fair value of its investments. Pending investment in portfolio investments, funds are invested in temporary cash accounts and in government securities. At June 30, 1999, all of these funds were held in a money market fund made up of U.S. Treasury obligations and temporary investments comprised of U.S. Government and Agency obligations having slightly higher yields and maturity dates of three months or less. During the quarter ended JuneSeptember 30, 1999, the Registrant paid dividend distributions of income and capital gains dividends to shareholders in the amount of $3,131,380, and$302,896, which represent the dividend payable from the previous quarter. The Registrant also accrued dividendsa capital gains dividend payable to shareholders in the amount of $3,065,777.$5,178,677, of which $3,694,540 has been paid to shareholders, and $1,484,137 is being used to purchase Fund shares pursuant to the Dividend Reinvestment Plan. (2) Year 2000 Many computer software systems in use today cannot process date-related information from and after January 1, 2000. The Investment Advisor has taken steps to review and modify its computer systems as necessary and is prepared for the Year 2000. In addition, the Fund has inquired of its major service providers as well as its portfolio companies to determine if they are in the process of reviewing their systems with the same goals. The majority of all providers and portfolio companies have represented that they are either taking the necessary steps to be prepared or are currently prepared for the Year 2000. Should any of the computer systems employed by the major service providers, or companies in which the Fund has an investment, fail to process this type of information properly, that could have a negative impact on the Fund's operations and the services provided to the Fund's stockholders. It is anticipated that the Fund will incur no material expenses related to the Year 2000 issues. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Fund has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC. August 12,November 15, 1999 /S/ --------------------------------------------------__________________________________________________ Russell Cleveland, President and Chairman August 12,November 15, 1999 /S/ --------------------------------------------------__________________________________________________ Barbe Butschek, Corp. Secretary and Treasurer