SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2006~~March 31, 2005

o 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)

TX	~~(State~~75-2533518
(State or other jurisdiction of incorporation or organization)	~~75-2533518~~ ~~(I.R.S.~~ (I.R.S. Employer Identification No.)


8080 N. Central Expressway, Suite 210, LB-59, Dallas, TX	75206 ~~(Address~~
(Address of principal executive offices)	~~75206~~ ~~(Zip~~ (Zip Code)

Registrant’s telephone number, including area code: 214-891-8294

(Former name, former address and former fiscal year

if changed since last report)

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule12b-2 of the Exchange Act. (Check one):

As of ~~October 31,~~December 1, 2006, the issuer had 4,463,967 shares of common stock outstanding.

RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.

~~Number~~PART I. FINANCIAL INFORMATION

Financial Statements (Unaudited)

~~PART I. FINANCIAL INFORMATION~~

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Quantitative and Qualitative Disclosures About Market Risk

Controls and Procedures

PART II. OTHER INFORMATION

Item 1.~~Legal Proceedings~~

Legal Proceedings

Item 1A.~~Risk Factors~~

Unregistered Sales of Equity Securities and Use of Proceeds

Defaults Upon Senior Securities

Submission of Matters to a Vote of Security Holders

Item 5.~~Other Information~~

Other Information

Item 6.~~Exhibits~~

PART I - FINANCIAL INFORMATION

~~ITEM~~Item 1. ~~FINANCIAL STATEMENTS~~Financial Statements

Renaissance Capital Growth & Income Fund III, Inc.

Statements of Assets and Liabilities

September 30, 2006 December 31, 2005

ASSETS
Cash and cash equivalents $ 16,441,071 $ 8,396,052
Investments at fair value, cost of $37,280,584
and $35,433,480 at September 30, 2006 and
December 31, 2005, respectively 38,315,651 54,002,499
Interest and dividends receivable 136,423 48,226
Prepaid and other assets 10,921 101,598

$ 54,904,066 $ 62,548,375

LIABILITIES AND NET ASSETS

Liabilities:
Due to broker $ — $ 2,075,975
Accounts payable 119,313 86,782
Accounts payable - affiliate 673,763 2,050,989
Accounts payable - dividends — 4,145,686

793,076 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 31,790,153 32,681,024
Treasury stock at cost, 209,900 (1,734,967 ) (1,734,967 )
Distributable earnings 18,346,870 —
Net unrealized appreciation of investments 1,035,067 18,569,019

Net assets, equivalent to $12.12 and $12.14
per share at September 30, 2006 and
December 31, 2005, respectively 54,110,990 54,188,943

$ 54,904,066 $ 62,548,375
ASSETS

	March 31, 2005			December 31, 2004

Cash and cash equivalents	$	24,962,028		$	37,278,871
Investments at fair value, cost of $36,062,057 and $38,096,399 at March 31, 2005 and December 31, 2004, respectively		56,908,970			76,203,302
Accounts receivable - settlement with affiliate		3,775,872			3,775,872
Interest and dividends receivable		106,169			95,689
Prepaid and other assets		92,796			33,375
	$	85,845,835		$	117,387,109

LIABILITIES AND NET ASSETS

Liabilities:
Due to broker	$	19,992,670		$	27,001,414
Accounts payable		96,896			51,477
Accounts payable - affiliate		3,562,507			3,697,461
Accounts payable - dividends		—			12,054,258
		23,652,073			42,804,610

Commitments and contingencies

Net assets:
Common stock, $1 par value; authorized 20,000,000 shares; 4,673,867 and 4,561,618 issued; 4,463,967 and 4,351,718 shares outstanding		4,673,867			4,561,618
Additional paid-in-capital		34,754,220			33,641,903
Treasury stock at cost, 209,900 shares		(1,734,967	)		(1,734,967	)
Distributable earnings		3,653,729			7,042
Net unrealized appreciation of investments		20,846,913			38,106,903

Net assets, equivalent to $13.93 and $17.14 per share at March 31, 2005 and December 31, 2004, respectively		62,193,762			74,582,499
	$	85,845,835		$	117,387,109

See accompanying notes

~~Renaissance Capital Growth & Income Fund III, Inc.~~

~~Schedules of Investments~~

September 30, 2006
Interest Rate

Due Date

Cost

Fair Value

% of Net Investments
Eligible Portfolio Investments -
Convertible Debentures and
Promissory Notes

CaminoSoft Corp. -
Promissory note (4) 7.00 % 01/19/08 $ 250,000 $ 250,000 0.65 %

iLinc Communications, Inc. -
Convertible promissory note (2) 12.00 03/29/12 500,000 500,000 1.30

Integrated Security Systems, Inc. -
Promissory note (4) 8.00 09/30/07 525,000 525,000 1.37
Promissory note (4) 7.00 09/30/07 200,000 200,000 0.52
Promissory note (4) 8.00 09/30/07 175,000 175,000 0.46
Convertible promissory note (2) 8.00 12/14/08 500,000 500,000 1.31

Simtek Corporation -
Convertible debenture (2) 7.50 06/28/09 900,000 2,127,273 5.55

$ 3,050,000 $ 4,277,273 11.16 %

~~See accompanying notes~~

Renaissance Capital Growth & Income Fund III, Inc.

Schedules of Investments

September 30, 2006
Interest Rate

Due Date

Cost Fair Value % of Net Investments
Other Portfolio Investments -
Convertible Debentures and
Promissory Notes

Integrated Security Systems, Inc. -
Convertible debenture (4) 6.00 % 06/16/09 $ 400,000 $ 400,000 1.04 %

Pipeline Data, Inc. -
Convertible debenture (2) 8.00 06/29/10 500,000 519,231 1.36

$
900,000
$ 919,231 2.40 %

				March 31, 2005
	Interest Rate			Due Date		Cost		Fair Value		% of Net Investments
Eligible Portfolio Investments - Convertible Debentures and Promissory Notes

CaminoSoft Corp. Promissory notes (4)		7.00	%		07/19/06	$	250,000	$	250,000		0.44	%

Digital Learning Management Corp. - Convertible debenture (2)		7.00			02/27/11		1,000,000		167,785		0.29

Hemobiotech, Inc. -
Promissory note (2)		10.00			10/27/05		250,000		250,000		0.44

iLinc Communications, Inc. - Convertible redeemable note (2)		12.00			03/29/12		500,000		500,000		0.88

Integrated Security Systems, Inc. -
Promissory notes (4)		8.00			09/30/05		525,000		525,000		0.92
Promissory notes (4)		7.00			09/30/05		200,000		200,000		0.35

Simtek Corporation - Convertible debenture		7.50			06/28/09		1,000,000		1,794,872		3.15
						$	3,725,000	$	3,687,657		6.47	%

See accompanying notes

Renaissance Capital Growth & Income Fund III, Inc.

Schedules of Investments, ~~(continued)~~continued

September 30, 2006
Shares

Cost

Fair Value

% of Net Investments
Eligible Portfolio Investments -
Common Stock, Preferred Stock,
and Miscellaneous Securities

CaminoSoft Corp. -
Common stock (2) 3,539,414 $ 5,275,000 $ 955,642 2.49

eOriginal, Inc. -
Series A, preferred stock (1)(2)(3) 10,680 4,692,207 332,575 0.87
Series B, preferred stock (1)(2)(3) 25,646 620,329 798,616 2.08
Series C, preferred stock (1)(2)(3) 51,249 1,059,734 1,595,894 4.17
Series D, preferred stock (1)(2)(3) 16,057 500,000 500,015 1.30

Gaming & Entertainment Group -
Common stock (2) 612,500 550,625 67,375 0.18

Gasco Energy, Inc. -
Common stock 1,541,666 1,250,000 4,162,498 10.86

Global Axcess Corporation -
Common stock (2) 953,333 1,261,667 371,800 0.97

Hemobiotech, Inc. -
Common stock (2) 1,137,405 1,143,882 1,592,367 4.16

Integrated Security Systems, Inc. -
Common stock (2) 31,205,238 5,909,401 4,056,681 10.59
Series D, preferred stock (2) 187,500 150,000 24,375 0.06

Inyx, Inc. -
Common stock 300,000 300,000 756,000 1.97

PracticeXpert, Inc. -
Common stock (2) 4,166,667 500,000 41,667 0.11

				March 31, 2005
	Interest Rate			Due Date		Cost		Fair Value		% of Net Investments
Other Portfolio Investments -
Convertible Debentures and Promissory Notes

Advanced Refractive Technologies (formerly VisiJet, Inc.)
Convertible debenture (2)		8.00	%		01/14/2015	$	500,000	$	557,143		0.98	%
						$	500,000	$	557,143		0.98	%

See accompanying notes

Renaissance Capital Growth & Income Fund III, Inc.

Schedules of Investments, ~~(continued)~~continued

(unaudited)

September 30, 2006
Shares

Cost

Fair Value

% of Net Investments

Eligible Portfolio Investments -
Common Stock, Preferred Stock,
and Miscellaneous Securities, continued

Simtek Corp. -
Common stock (2) 6,407,625 1,799,294 3,331,965 8.70

Symbollon Pharmaceuticals, Inc. -
Common stock (2) 250,000 250,000 312,500 0.82

Miscellaneous Securities - 562,943 1.47

$ 25,262,139 $ 19,462,913 50.80 %

			March 31, 2005
	Shares		Cost		Fair Value		% of Net Investments
Eligible Portfolio Investments - Common Stock, Preferred Stock, and Miscellaneous Securities

CaminoSoft Corp. -
Common stock		1,750,000	$	4,000,000	$	735,000		1.29	%
Common stock (2)		1,539,414		1,150,000		646,554		1.14
Common stock (2)		250,000		125,000		105,000		0.18

eOriginal, Inc. -
Series A, preferred stock (1)(3)		10,680		4,692,207		387,671		0.68
Series B, preferred stock (1)(3)		25,646		620,329		1,052,420		1.85
Series C, preferred stock (1)(3)		51,249		1,059,734		1,391,463		2.45
Series D, preferred stock (1)(3)		16,057		500,000		500,000		0.88

Gaming & Entertainment Group, Inc.- Common stock		612,500		550,625		245,000		0.43

Gasco Energy, Inc. - Common stock		1,541,667		1,250,000		4,671,251		8.21

Global Axcess Corporation - Common stock (2)		4,766,667		1,261,667		1,525,333		2.68

Hemobiotech, Inc. - Common stock (2)		294,120		250,000		250,000		0.44

Integrated Security Systems, Inc. -
Common stock (2)		27,074,179		5,568,058		9,205,221		16.18
Series D, preferred stock (2)		187,500		150,000		76,500		0.13

See accompanying notes

Renaissance Capital Growth & Income Fund III, Inc.

Schedules of Investments, ~~(continued)~~continued

(unaudited)

September 30, 2006
Shares

Cost

Fair Value

% of Net Investments
Other Portfolio Investments -
Common Stock, Preferred Stock,
and Miscellaneous Securities

AdStar, Inc. -
Common stock 269,231 $ 350,000 $ 223,462 0.58 %

Advance Nanotech, Inc. -
Common stock (2) 170,796 330,000 131,513 0.34

Bovie Medical Corporation -
Common stock (2) 500,000 907,845 3,520,000 9.19

China Security & Surveillance Technology, Inc. -
Common stock (2) 142,857 500,000 957,142 2.50

Comtech Group, Inc. -
Common stock (2) 240,000 840,000 3,597,600 9.39
Common stock 60,000 346,018 899,400 2.35

Hemobiotech, Inc. -
Common stock 62,595 140,235 87,633 0.23

i2 Telecom -
Convertible Preferred (2) 625 618,750 44,531 0.11

Information Intellect -
Series A preferred stock (1)(2)(3) 666,666 999,999 999,999 2.61

iLinc Communications, Inc. -
Common stock 23,266 13,908 11,865 0.03

Medical Action Industries, Inc. -
Common stock 20,100 237,209 540,489 1.41

			March 31, 2005
	Shares		Cost		Fair Value		% of Net Investments
Eligible Portfolio Investments - Common Stock, Preferred Stock, and Miscellaneous Securities, continued

Inyx, Inc. - Common stock (2)		300,000		300,000		309,000		0.54

Laserscope - Common stock		600,000		750,000		19,044,000		33.47

Poore Brothers, Inc. - Common stock (2)		46,027		38,835		142,223		0.25

PracticeXpert, Inc. - Common stock (2)		4,166,666		500,000		300,000		0.53

Simtek Corp. -
Common stock		1,000,000		195,000		560,000		0.98
Common stock - private placement (2)		550,661		500,000		308,370		0.54

Tarantella, Inc. - Common stock (2)		714,286		1,000,000		857,143		1.51

ThermoView Industries, Inc. - Common stock		234,951		563,060		82,233		0.14

Miscellaneous Securities				—		1,288,680		2.26
			$	25,024,515	$	43,683,062		76.76	%

See accompanying notes

Renaissance Capital Growth & Income Fund III, Inc.

Schedules of Investments, ~~(continued)~~continued

(unaudited)

September 30, 2006
Shares

Cost

Fair Value

% of Net Investments
Other Portfolio Investments -
Common Stock, Preferred Stock,
and Miscellaneous Securities, continued

Precis, Inc. -
Common stock (2) 800,000 1,998,894 1,560,000 4.07

US Home Systems, Inc. -
Common stock 110,000 535,587 1,040,600 2.72

Vaso Active Pharmaceuticals, Inc. -
Common stock 150,000 250,000 42,000 0.11

8,068,445 13,656,234 35.64 %

$ 37,280,584 $ 38,315,651 100.00 %

Allocation of Investments -
Restricted Shares, Unrestricted Shares,
and Other Securities

Restricted Securities (2) $ 24,435,358 $ 24,211,662 63.19 %
Unrestricted Securities $ 3,422,957 $ 7,763,947 20.26 %
Other Securities (5) $ 9,422,269 $ 6,340,042 16.55 %

~~(1)~~
~~Valued at fair value as determined by the Investment Adviser (Note 6).~~

~~(2)Restricted securities - securities that are not fully registered and freely tradable.~~

~~(3)Securities in a privately owned company.~~

~~(4)Securities that have no provision allowing conversion into a security for which there is a public market.~~

~~(5) Includes Miscellaneous Securities, securities of privately owned companies, securities with no conversion feature, and securities for which there is no market.~~

			March 31, 2005
	Shares		Cost		Fair Value		% of Net Investments
Other Portfolio Investments - Common Stock, Preferred Stock, and Miscellaneous Securities

AdStar, Inc. - Common stock (2)		269,231	$	350,000	$	220,769		0.39	%

Advance Nanotech, Inc. - Common stock (2)		165,000		330,000		1,196,250		2.10

Bovie Medical Corporation - Common stock (2)		300,000		525,000		705,000		1.24

Comtech Group, Inc. - Common stock (2)		240,000		840,000		1,440,000		2.53

Cybex International - Common stock (2)		145,000		478,500		584,350		1.03

iLinc Communications, Inc.- Common stock		48,266		27,033		17,859		0.03

Gasco Energy, Inc. - Common stock		750,000		639,105		2,272,500		3.99

i2 Telecom - Convertible Preferred (2)		625		618,750		581,250		1.02

Medical Action Industries, Inc. - Common stock		20,100		237,209		379,890		0.67

PhotoMedex, Inc. - Common stock		70,000		176,400		188,300		0.33

Precis, Inc. - Common stock		200,700		1,372,417		340,387		0.60

See accompanying notes

Renaissance Capital Growth & Income Fund III, Inc.

Schedules of Investments, ~~(continued)~~continued

(unaudited)

December 31, 2005
Interest

Due

Fair

% of Net

Rate

Date

Cost

Value

Investments
Eligible Portfolio Investments -
Convertible Debentures and
Promissory Notes

CaminoSoft Corp. -
Promissory note (4) 7.00 07/19/06 $ 250,000 $ 250,000 0.46 %

iLinc Communications, Inc. -
Convertible promissory note (2) 12.00 03/29/12 500,000 500,000 0.93

Integrated Security Systems, Inc. -
Promissory note (4) 8.00 09/30/06 525,000 525,000 0.97
Promissory note (4) 7.00 09/30/06 200,000 200,000 0.37
Promissory note (4) 8.00 09/30/06 175,000 175,000 0.33
Convertible promissory note (2) 8.00 12/14/08 500,000 400,000 0.74

Simtek Corporation -
Convertible debenture 7.50 06/28/09 1,000,000 1,000,000 1.85

$ 3,150,000 $ 3,050,000 5.65 %

			March 31, 2005
	Shares		Cost		Fair Value		% of Net Investments
Other Portfolio Investments - Common Stock, Preferred Stock, and Miscellaneous Securities, continued

Stonepath Group, Inc. - Common stock		131,240		246,000		141,739		0.25

Tarantella, Inc. - Common stock		202,762		186,541		243,314		0.43

US Home Systems, Inc. - Common stock		110,000		535,587		572,000		1.01

Vaso Active Pharmaceuticals, Inc. - Common stock		150,000		250,000		97,500		0.17

				6,812,542		8,981,108		15.79	%
			$	36,062,057	$	56,908,970		100.00	%

Allocation of Investments - Restricted Shares, Unrestricted Shares, and Other Securities

Restricted Securities (2)			$	16,235,810	$	19,927,891		35.02	%
Unrestricted Securities			$	11,978,977	$	31,385,845		55.15	%
Other Securities (5)			$	7,847,270	$	5,595,234		9.83	%

(1)	Valued at fair value as determined by the Investment Adviser (Note 6).

(2)	Restricted securities - securities that are not fully registered and freely tradable.

(3)	Securities in a privately owned company.

(4)	Securities that have no provision allowing conversion into a security for which there is a public market.

(5)	Includes Miscellaneous Securities, securities of privately owned companies, securities with no conversion feature, and securities for which there is no market.

See accompanying notes

109

Renaissance Capital Growth & Income Fund III, Inc.

Schedules of Investments (continued)

December 31, 2005

Fair

% of Net

Shares

Cost

Value

Investments
Eligible Portfolio Investments -
Common Stock, Preferred Stock,
and Miscellaneous Securities

CaminoSoft Corp. -
Common stock 3,539,414 $ 5,275,000 $ 3,433,232 6.36

eOriginal, Inc. -
Series A, preferred stock (1)(2)(3) 10,680 4,692,207 332,575 0.62
Series B, preferred stock (1)(2)(3) 25,646 620,329 798,616 1.48
Series C, preferred stock (1)(2)(3) 51,249 1,059,734 1,595,894 2.96
Series D, preferred stock (1)(2)(3) 16,057 500,000 500,015 0.93

Gaming & Entertainment Group -
Common stock (2) 612,500 550,625 79,625 0.15

Gasco Energy, Inc. -
Common stock 1,541,667 1,250,000 10,067,086 18.64

Global Axcess Corporation -
Common stock (2) 953,333 1,261,667 1,134,466 2.10

Hemobiotech, Inc. -
Common stock (2) 549,165 520,347 1,180,705 2.19

Information Intellect -
Series A preferred stock (1)(2)(3) 666,666 999,999 999,999 1.85

Integrated Security Systems, Inc. -
Common stock (2) 30,737,482 5,846,422 6,147,496 11.38
Series D, preferred stock (2) 187,500 150,000 45,000 0.08

				December 31, 2004
	Interest Rate			Due Date		Cost		Fair Value		% of Net Investments
Eligible Portfolio Investments - Convertible Debentures and Promissory Notes

CaminoSoft Corp. - Promissory note (4)		7.00	%		07/19/06	$	250,000	$	250,000		0.33	%

Digital Learning, Inc. - Convertible debenture (2)		7.00			02/27/11		1,000,000		1,342,282		1.76

Hemobiotech, Inc. - Promissory note (2)		10.00			10/27/05		250,000		250,000		0.33

iLinc Communications, Inc. - Convertible promissory note (2)		12.00			03/29/12		500,000		500,000		0.66

Integrated Security Systems, Inc. -
Promissory note (4)		8.00			09/30/05		525,000		525,000		0.69
Promissory note (4)		7.00			09/30/05		200,000		200,000		0.26

Simtek Corporation - Convertible debenture (2)		7.50			06/28/09		1,000,000		1,923,077		2.52
						$	3,725,000	$	4,990,359		6.55	%

See accompanying notes

Renaissance Capital Growth & Income Fund III, Inc.

Schedules of Investments (continued)

			December 31, 2004
	Interest Rate		Due Date		Cost		Fair Value		% of Net Investments
Other Portfolio Investments - Convertible Debentures and Promissory Notes

Interpool, Inc. - Convertible debenture (2)		9.25		12/27/22	$	375,000	$	375,000		0.49	%
					$	375,000	$	375,000		0.49	%

See accompanying notes

Renaissance Capital Growth & Income Fund III, Inc.

Schedules of Investments (continued)

December 31, 2005

Fair

% of Net

Shares

Cost

Value

Investments
Eligible Portfolio Investments -
Common Stock, Preferred Stock,
and Miscellaneous Securities, continued

Inyx, Inc. -
Common stock (2) 300,000 300,000 564,000 1.04

Laserscope -
Common stock 600,000 750,000 13,476,000 24.95

PracticeXpert, Inc. -
Common stock (2) 4,166,667 500,000 108,333 0.20

Simtek Corp. -
Common stock 1,550,661 695,000 449,692 0.83
Common stock (2) 3,125,000 500,000 906,250 1.68

Miscellaneous Securities - 1,960,473 3.63

$ 25,471,330 $ 43,779,457 81.07 %

			December 31, 2004
	Shares		Cost		Fair Value		% of Net Investments
Eligible Portfolio Investments - Common Stock, Preferred Stock, and Miscellaneous Securities

CaminoSoft Corp. -
Common stock		2,458,333	$	4,875,000	$	1,696,250		2.23	%
Common stock (2)		1,081,081		400,000		745,946		0.98

eOriginal, Inc. -
Series A, preferred stock (1)(3)		10,680		4,692,207		332,575		0.44
Series B, preferred stock (1)(3)		25,646		620,329		798,616		1.05
Series C, preferred stock (1)(3)		51,249		1,059,734		1,595,894		2.09
Series D, preferred stock (1)(3)		16,057		500,000		500,015		0.66

Gaming & Entertainment Group - Common stock (2)		500,000		500,000		210,000		0.28

Gasco Energy, Inc. - Common stock (2)		1,541,667		1,250,000		6,567,501		8.62

Global Axcess Corporation - Common stock (2)		4,766,667		1,261,667		1,716,000		2.25

Hemobiotech, Inc. - Common stock (2)		294,120		250,000		250,000		0.33

Integrated Security Systems, Inc. -
Common stock (2)		27,074,179		5,568,056		13,537,090		17.76
Series D, preferred stock (2)		187,500		150,000		112,500		0.15

See accompanying notes

Renaissance Capital Growth & Income Fund III, Inc.

Schedules of Investments (continued)

December 31, 2005

Fair

% of Net

Shares

Cost

Value

Investments

Other Portfolio Investments -
Common Stock, Preferred Stock,
and Miscellaneous Securities

AdStar, Inc. -
Common stock (2) 269,231 $ 350,000 $ 600,385 1.11 %

Advance Nanotech, Inc. -
Common stock (2) 165,000 330,000 341,550 0.63

Bovie Medical Corporation -
Common stock (2) 500,000 904,545 1,490,000 2.76

Comtech Group, Inc. -
Common stock (2) 300,000 1,186,019 1,863,000 3.45

i2 Telecom -
Convertible Preferred (2) 625 618,750 50,781 0.10

iLinc Communications, Inc. -
Common stock 23,266 13,908 6,282 0.01

Medical Action Industries, Inc. -
Common stock 20,100 237,209 410,844 0.76

Metasolv, Inc. -
Common stock 100,000 210,838 290,000 0.54

			December 31, 2004
	Shares		Cost		Fair Value		% of Net Investments
Eligible Portfolio Investments - Common Stock, Preferred Stock, and Miscellaneous Securities, continued

Inyx, Inc. - Common stock (2)		300,000		300,000		417,000		0.55

Laserscope - Common stock		600,000		750,000		21,546,000		28.27

Poore Brothers, Inc. - Common stock (2)		1,507,791		1,544,294		5,262,191		6.91

PracticeXpert, Inc. - Common stock (2)		4,166,666		500,000		562,500		0.74

Simtek Corp. -
Common stock (2)		550,661		500,000		330,397		0.43
Common stock		1,000,000		195,000		600,000		0.79

Tarantella, Inc. - Common stock (2)		714,286		1,000,000		1,200,000		1.57

ThermoView Industries, Inc. - Common stock		234,951		563,060		122,175		0.16

Miscellaneous Securities				—		1,051,436		1.38

			$	26,479,347	$	59,154,086		77.63	%

See accompanying notes

Renaissance Capital Growth & Income Fund III, Inc.

Schedules of Investments (continued)

December 31, 2005

Fair

% of Net

Shares

Cost

Value

Investments
Other Portfolio Investments -
Common Stock, Preferred Stock,
and Miscellaneous Securities, continued

PhotoMedex, Inc. -
Common stock 70,000 176,400 120,400 0.22

Precis, Inc. -
Common stock 800,000 1,998,894 1,232,000 2.28

US Home Systems, Inc. -
Common stock 110,000 535,587 701,800 1.30

Vaso Active Pharmaceuticals, Inc. -
Common stock 150,000 250,000 66,000 0.12

6,812,150 7,173,042 13.28 %

$ 35,433,480 $ 54,002,499 100.00 %

Allocation of Investments -
Restricted Shares, Unrestricted Shares,
and Other Securities

Restricted Securities (2) $ 14,018,375 $ 15,411,591 28.54 %
Unrestricted Securities $ 12,392,836 $ 31,253,336 57.87 %
Other Securities (5) $ 9,022,269 $ 7,337,572 13.59 %

~~(1)Valued at fair value as determined by the Investment Adviser (Note 6).~~

~~(2)Restricted securities - securities that are not fully registered and freely tradable.~~

			December 31, 2004
	Shares		Cost		Fair Value		% of Net Investments
Other Portfolio Investments - Common Stock, Preferred Stock, and Miscellaneous Securities

AdStar, Inc. - Common stock (2)		269,231	$	350,000	$	293,462		0.39	%

Bovie Medical Corporation - Common stock (2)		300,000		525,000		762,000		1.00

Comtech Group, Inc. - Common stock (2)		480,000		840,000		1,435,200		1.88

Cybex International - Common stock (2)		145,000		478,500		593,050		0.78

Dave & Busters, Inc. - Common stock		100,000		653,259		2,020,000		2.65

iLinc Communications, Inc. (formerly EDT Learning, Inc.) - Common stock		48,266		27,033		22,685		0.03

Gasco Energy, Inc. - Common stock		750,000		639,105		3,195,000		4.19

i2 Telecom - Convertible preferred stock (2)		500		500,000		500,000		0.66

Intrusion, Inc. - Convertible preferred stock (2)		100,000		500,000		500,000		0.66

Medical Action Industries, Inc. - Common stock		20,100		237,209		395,970		0.52

PhotoMedex, Inc. - Common stock		70,000		176,400		189,000		0.25

~~(3)Securities in a privately owned company.~~

~~(4)Securities that have no provision allowing conversion into a security for which there is a public market.~~

~~(5) Includes Miscellaneous Securities, securities of privately owned companies, securities with no conversion feature, and securities for which there is no market.~~

See accompanying notes

Renaissance Capital Growth & Income Fund III, Inc.

Schedules of Investments (continued)

			December 31, 2004
	Shares		Cost		Fair Value		% of Net Investments
Other Portfolio Investments - Common Stock, Preferred Stock, and Miscellaneous Securities, continued

Precis, Inc. - Common stock		200,700		1,372,417		533,862		0.70

Stonepath Group, Inc. - Common stock		131,240		246,000		157,488		0.21

Tarantella, Inc. - Common stock		202,762		186,541		340,640		0.45

US Home Systems, Inc. - Common stock		110,000		535,587		676,500		0.89

Vaso Active Pharmaceuticals, Inc. - Common stock		150,000		250,000		69,000		0.09
				7,517,051		11,683,857		15.33
			$	38,096,398	$	76,203,302		100.00	%

Allocation of Investments - Restricted Shares, Unrestricted Shares, and Other Securities

Restricted Securities (2)			$	19,542,517	$	39,385,196		51.69	%
Unrestricted Securities			$	10,706,611	$	31,564,570		41.42	%
Other Securities (5)			$	7,847,270	$	5,253,536		6.89	%

(1)	Valued at fair value as determined by the Investment Adviser (Note 6).

(2)	Restricted securities - securities that are not fully registered and freely tradable.

(3)	Securities in a privately owned company.

(4)	Securities that have no provision allowing conversion into a security for which there is a public market.

(5)	Includes Miscellaneous Securities, securities of privately owned companies, securities with no conversion feature, and securities for which there is no market.

See accompanying notes

Renaissance Capital Growth & Income Fund III, Inc.

Statements of Operations

(Unaudited)

Three Months Ended
September 30,

2006

2005

Income:
Interest income $ 125,296 $ 91,546
Dividend income 236,814 45,661
Write-off of interest receivable — (140,199 )
Other income (3,822 ) 5,386

358,288
2,394

Expenses:
General and administrative 63,538 166,376
Interest expense — 24,464
Legal and professional fees 140,140 17,420
Management fee to affiliate 237,776 278,937

441,454 487,197

Net investment loss (83,166 ) (484,803 )

Realized and unrealized gain (loss)
on investments:
Net change in unrealized appreciation
of investments (2,379,862 ) 583,608
Net realized gain on investments 874,823 1,304,189

Net gain (loss) on investments (1,505,039 ) 1,887,797

Net income (loss) $ (1,588,205 ) $ 1,402,994

Net income (loss) per share $ (0.36 ) $ 0.31

Weighted average shares outstanding 4,463,967 4,451,495

	Three Months Ended March 31,

	2005			2004
Income:
Interest income	$	83,888		$	79,963
Dividend income		17,355			20,983
Other income		50,625			28,282
		151,868			129,228

Expenses:
General and administrative		73,662			103,364
Interest expense		9,878			13,406
Legal and professional fees		131,853			129,873
Management fee to affiliate		273,293			410,131
		488,686			656,774
Net investment loss		(336,818	)		(527,546	)

Realized and unrealized gain (loss) on investments:
Net change in unrealized appreciation of investments		(17,259,989	)		10,292,651
Net realized gain on investments		4,093,083			14,163,079

Net gain (loss) on investments		(13,166,906	)		24,455,730

Net income (loss)	$	(13,503,724	)	$	23,928,184

Net income (loss) per share	$	(3.06	)	$	5.50

Weighted average shares outstanding		4,412,831			4,351,718

~~See accompanying notes~~

~~Renaissance Capital Growth & Income Fund III, Inc.~~

~~Statements of Operations~~

~~(Unaudited)~~

Nine Months Ended September 30,

2006

2005

Income:
Interest income $ 244,630 $ 263,308
Dividend income 347,037 106,705
Write-off of interest receivable — (140,199 )
Other income 19,954 72,957

611,621 302,771

Expenses:
General and administrative 235,777 267,562
Interest expense 60,188 63,485
Legal and professional fees 483,288 197,022
Management fee to affiliate 723,239 826,961

1,502,492 1,355,030

Net investment loss (890,871 ) (1,052,259 )

Realized and unrealized gain (loss)
on investments:
Net change in unrealized appreciation (depreciation)
of investments (17,533,952 ) (15,768,269 )
Net realized gain on investments 19,686,060 5,493,584

Net gain (loss) on investments 2,152,108 (10,274,685 )

Net income (loss) $ 1,261,237 $ (11,326,944 )

Net income (loss) per share $ 0.28 $ (2.54 )

Weighted average shares outstanding 4,463,967 4,451,495

See accompanying notes

Renaissance Capital Growth & Income Fund III, Inc.

Statements of Changes in Net Assets

Nine Months Ended
September 30,

2006

2005
From operations:
Net investment loss $ (890,871 ) $ (1,052,259 )
Net realized gain on investments 19,686,060 5,493,584
Net change in unrealized
appreciation on investments (17,533,952 ) (15,768,269 )

Net income (loss) 1,261,237 (11,326,944 )

From distributions to stockholders:
Common stock dividends from realized
capital gains (1,339,190 ) (1,339,189 )

From capital transactions:
Sale of common stock — 1,561,383

Total decrease in net assets (77,953 ) (11,104,750 )

Net assets:
Beginning of period 54,188,943 74,582,499

End of period $ 54,110,990 $ 63,477,749

	Three Months Ended March 31,
	2005			2004
From operations:
Net investment loss	$	(336,818	)	$	(527,546	)
Net realized gain on investments		4,093,083			14,163,079
Net change in unrealized appreciation on investments		(17,259,989	)		10,292,651

Net income (loss)		(13,503,724	)		23,928,184

From distributions to stockholders:
Common stock dividends declared from realized capital gains		(446,396	)		(435,174	)

From capital transactions:
Sale of common stock		1,561,383			—

Total increase (decrease) in net assets		(12,388,737	)		23,493,010

Net assets:
Beginning of period		74,582,499			69,405,964

End of period	$	62,193,762		$	92,898,974

See accompanying notes

Renaissance Capital Growth & Income Fund III, Inc.

Statements of Cash Flows

Nine Months Ended
September 30,

2006

2005

Cash flows from operating activities:
Net income (loss) $ 1,261,237 $ (11,326,944 )
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operation activities:
Net decrease in unrealized appreciation
on investments 17,533,952 15,768,269
Net realized gain on investments (19,686,060 ) (5,493,584 )
Decreases in accounts receivable-broker — 52,782
Increase in interest and dividends
receivable (88,197 ) (1,194,291 )
(Increase) decrease in prepaid and
other assets 90,677 (49,616 )
Increase in accounts payable 32,531 82,141
Increase (decrease) in accounts payable-
affiliate (1,377,226 ) 520,065
Decrease in due to broker (2,075,975 ) (24,955,801 )
Purchase of investments (2,984,342 ) (2,828,590 )
Proceeds from sale of investments 20,823,298 11,703,345

Net cash provided by (used in) operating activities 13,529,895 (17,722,224 )

Cash flows from financing activities:
Cash dividends (5,484,876 ) (13,393,447 )
Sale of common stock — 1,561,383

Net cash used in financing activities (5,484,876 ) (11,832,064 )

Net increase (decrease) in cash
and cash equivalents 8,045,019 (29,554,288 )

Cash and cash equivalents at beginning
of the period 8,396,052 37,278,871

Cash and cash equivalents at end of period $ 16,441,071 $ 7,724,583

Cash paid during the period Interest $ 60,188 $ 63,485

	Three Months Ended March 31,
	2005			2004
Cash flows from operating activities:
Net income (loss)	$	(13,503,724	)	$	23,928,184
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Net change in unrealized appreciation on investments		17,259,989			(10,292,651	)
Net realized gain on investments		(4,093,083	)		(14,163,079	)
(Increase) decrease in interest and dividends receivable		(10,480	)		176,628
Increase in prepaid and other assets		(59,420	)		(5,828	)
Increase in accounts payable		45,419			63,846
Decrease in accounts payable-affiliate		(134,964	)		(972,463	)
Increase (decrease) in due to broker		(7,008,744	)		3,915
Purchase of investments		(995,104	)		(4,350,738	)
Proceeds from sale of investments		7,122,539			15,814,708

Net cash provided by (used in) operating activities		(1,377,572	)		10,202,522

Cash flows from financing activities:
Cash dividends paid		(12,500,654	)		(4,134,134	)
Sale of common stock		1,561,383			—

Net cash used in financing activities		(10,939,271	)		(4,134,134	)

Net increase (decrease) in cash and cash equivalents		(12,316,843	)		6,068,388
Cash and cash equivalents at beginning of the period		37,278,871			35,255,687

Cash and cash equivalents at end of period	$	24,962,028		$	41,324,075

Cash paid during the period - interest	$	9,878		$	13,406

See accompanying notes

RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.

Notes to Unaudited Financial Statements

~~September 30, 2006~~March 31, 2005

Note 1 -

Organization and Business Purpose

Renaissance Capital Growth & Income Fund III, Inc. (the “Fund”), a Texas corporation, was formed on January 20, 1994. The Fund seeks to achieve current income and capital appreciation potential by investing primarily in unregistered equity investments and convertible issues of small and medium size companies which are in need of capital and which RENN Capital Group, Inc. (the “Investment ~~Advisor”~~Adviser”), believes offer the opportunity for growth. The Fund is a non-diversified closed-end fund and has elected to be treated as a business development company under the Investment Company Act of 1940, as amended (“1940 Act”).

Note 2 -

Summary of Significant Accounting Policies

Basis of Presentation

We have prepared the accompanying unaudited interim financial statements pursuant to the rules and regulations of the Securities and Exchange Commission, which reflect all adjustments which, in the opinion of management, are necessary to present fairly the results for the interim periods. We have omitted certain information and disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States pursuant to those rules and regulations, although we believe that the disclosures we have made are adequate to make the information presented not misleading. You should read these unaudited interim financial statements in conjunction with our audited financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, ~~2005.~~2004.

The results of operations for the interim periods are not necessarily indicative of the results we expect for the full year.

Valuation of Investments

Portfolio investments are stated at quoted market or fair value as determined by the Investment Adviser (Note 6). The securities held by the Fund are primarily unregistered and their value does not necessarily represent the amounts that may be realized from their immediate sale or disposition.

The Fund records security transactions on the trade date. Dividend income is recorded on the record date. Interest income is recorded as earned on the accrual basis.

Cash and Cash Equivalents

The Fund considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents.

RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.

Notes to Unaudited Financial Statements

March 31, 2005

Note 2 -

Summary of Significant Accounting Policies, continued

Federal Income Taxes

The Fund has elected the special income tax treatment available to “regulated investment companies” (“RIC”) under Subchapter M of the Internal Revenue Code (“IRC”) 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 IRC that are applicable to regulated investment companies. Such requirements include, but are not limited to certain qualifying income tests, asset diversification tests and distribution of substantially all of the Fund’s taxable investment income to its shareholders. It is the intent of management to comply with all IRC requirements as they pertain to the RIC and to distribute all of the Fund’s taxable investment income and long-term capital gains within the defined period under the IRC to qualify as a RIC. Failure to qualify as a RIC would subject the Fund to federal income tax as if the Fund were an ordinary corporation, which could result in a substantial reduction in the Fund’s net assets as well as the amount of income available for distribution to shareholders.

~~RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.~~

~~Notes to Unaudited Financial Statements~~

~~September 30, 2006~~

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts and disclosures in the financial statements. Actual results could differ from these estimates.

Note 3 -

Due to Broker

The Fund conducts business with various brokers for its investment activities. The clearing and depository operations for the investment activities are performed pursuant to agreements with these brokers. Due to broker represents a margin loan payable to one of these brokers, which is secured by investments in securities maintained with the lending broker as collateral for the margin loan. Cash and cash equivalents related to the margin loan payable are held by the lending broker as additional collateral for the margin loan. The Fund is subject to credit risk to the extent the brokers are unable to deliver cash balances or securities, or clear security transactions on the Fund’s behalf. The Investment Adviser actively monitors the Fund’s exposure to these brokers and believes the likelihood of loss under those circumstances is remote.

Note 4 -

Management and Incentive Fees

The Investment Adviser for the Fund is registered as an investment adviser under the Investment Advisers Act of ~~1940.~~1940 (the “Advisers Act”). Pursuant to an Investment Advisory Agreement (the “Agreement”), the Investment Adviser performs certain services, including certain management, investment advisory and administrative services necessary for the operation of the Fund. In addition, under the Agreement, the Investment Adviser is reimbursed by the Fund for certain directly allocable administrative expenses. A summary of fees and reimbursements paid by the Fund under the Agreement, isthe prospectus and the original offering document are as follows:

RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.

Notes to Unaudited Financial Statements

March 31, 2005

Note 4 -

Management and Incentive Fees, continued

The Investment Adviser 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 as of the last day of the calendar quarter. The Fund incurred ~~$723,239~~$273,293 and ~~$826,961~~$410,131 for management fees during the ~~nine months~~quarters ended ~~September 30, 2006~~March 31, 2005 and ~~2005,~~2004, respectively.

The Investment Adviser receives an incentive fee in an amount equal to 20% of the Fund’s cumulative realized capital gains in excess of cumulative realized capital losses of the Fund after allowance for any unrealized capital depreciation on the portfolio investments of the Fund at the end of the period being calculated less cumulative incentive fees previously accrued. Unrealized capital depreciation equals net unrealized capital loss on each class of security without netting net unrealized capital gains on other classes of securities. Because the incentive fee is calculated, accrued, and paid on an annual basis as of each year end and no probability or estimate of the ultimate fee can be ascertained, ~~(see note 8),~~ no incentive fee was recorded during the ~~nine months~~quarters ended ~~September 30, 2006 or 2005.~~

~~RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.~~

~~Notes to Unaudited Financial Statements~~

~~September 30, 2006~~

~~Note 4 -~~

~~Management~~March 31, 2005 and ~~Incentive Fees, continued~~

2004.

The Investment Adviser was reimbursed by the Fund for administrative expenses paid by the Investment Adviser on behalf of the Fund. Such reimbursements were ~~$49,977~~$86,139 and ~~$95,672~~$158,281 during the ~~nine months~~quarters ended ~~September 30, 2006~~March 31, 2005 and ~~2005, respectively, and are included in general and administrative expenses in the accompanying statements of operations.~~2004, respectively.

As of ~~September 30, 2006~~March 31, 2005 and December 31, ~~2005,~~2004, the Fund had an ~~accounts~~account payable to the Investment Advisor of ~~$673,763~~$3,562,507 and ~~$2,050,989,~~$3,697,461, respectively, for the amount due for the fees and expense reimbursements above.

As explained in Note 9, during 2005 the Investment Adviser resolved a dispute with the staff of the Securities and Exchange Commission involving the appropriate interpretation of section 205(b)(3) of the Advisers Act. As part of the settlement, the Investment Adviser agreed to pay $2,851,362 as a reduction of incentive fees for the period from inception through December 31, 2003. The Fund reported a receivable of $3,775,872 as of March 31, 2005 and December 31, 2004 to reflect the settlement which included interest income of $924,510, all of which was recognized in periods prior to January 1, 2004.

Note 5 -

Eligible Portfolio Companies and Investments

Eligible Portfolio Companies

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). of the 1940 Act. Under ~~the provisions of~~ the 1940 Act, at least 70% of the Fund’s assets, as defined under the 1940 Act, must be invested in Eligible Portfolio Companies. In the event the Fund has less than 70% of its assets invested in Eligible Portfolio Investments, then it will be prohibited from making non-eligible investments until such time as the percentage of eligible investments again exceeds the 70% threshold. The Fund was in compliance with these provisions at ~~September 30, 2006.~~March 31, 2005.

RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.

Notes to Unaudited Financial Statements

March 31, 2005

Note 5 -

Eligible Portfolio Companies and Investments, continued

Investments are carried in the statements of assets and liabilities at fair value, as determined in good faith by the Investment Adviser. The convertible debt securities held by the Fund generally have maturities between five and seven years and are convertible into the common stock of the issuer at a set conversion price at the discretion of the Fund. The common stock underlying these securities is generally unregistered and thinly to moderately traded, but is not otherwise restricted. Generally, the Fund ~~may~~negotiates registration rights at the time of purchase and the portfolio companies are required to register the shares within a designated period and ~~sell such securities at any time with~~ the ~~Fund paying~~cost of registration is borne by the ~~costs of registration.~~portfolio company. Interest on convertible securities is generally payable monthly. The convertible debt securities generally contain embedded call options giving the issuer the right to call the underlying issue. In these instances, the Fund has the right of redemption or conversion. The embedded call option will generally not vest until certain conditions are achieved by the issuer. Such conditions may require that minimum thresholds be met relating to underlying market prices, liquidity, or other factors.

Note 6 -

Valuation of ~~Investment~~Investments

On a quarterly basis, the Investment Adviser prepares a valuation of the assets of the Fund, subject to the approval of the Board of Directors of the Fund. The valuation principles are described below.

·	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.

The unlisted preferred stock of companies with common stock listed on an exchange, Nasdaq or in the ~~over-the -counter~~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.

~~RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.~~

~~Notes to Unaudited Financial Statements~~

~~September 30, 2006~~

~~Note 6~~

~~Valuation of Investment,~~ ~~continued~~

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 positive difference between the closing price of the underlying common stock and the strike price of the warrant or option. An out-of-the money warrant or option has no intrinsic value; thus, we assign no value to it.

Debt securities are valued at the greater of (i) cost 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 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.

RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.

Notes to Unaudited Financial Statements

March 31, 2005

Note 6 -

Valuation of Investments, continued

If there is no independent and objective pricing authority (i.e. a public market) for investments in privately held entities, 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. Where 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 Fund’s Board of Directors.

As of ~~September 30, 2006,~~March 31, 2005 and December 31, ~~2005,~~2004, the net unrealized appreciation associated with investments held by the Fund was ~~$1,035,067~~$20,846,913 and ~~$18,569,019,~~$38,106,903, respectively. ~~As of September 30, 2006~~For the periods ended March 31, 2005 and December 31, ~~2005,~~2004, the Fund had gross unrealized gains of ~~$15,072,033~~$32,786,443 and ~~$28,008,507,~~$47,453,782, respectively, and gross unrealized losses of ~~$(14,036,966)~~$11,939,529 and ~~$(9,439,488),~~$9,346,879, respectively.

Note 7 -

Restricted Securities

As indicated on the schedules of investments as of ~~September 30, 2006~~March 31, 2005 and December 31, ~~2005,~~2004, the Fund holds investments in shares of common stock, the sale of which is restricted. These securities have been valued by the Investment Adviser after considering certain pertinent factors relevant to the individual securities (See Note 6).

Note 8 -

Distribution to Shareholders

During the three months ended March 31, 2004, the Fund declared dividends of $435,172. During the three months ended March 31, 2005, the Fund declared dividends of $446,397.

Note 9 -

Settlement with the Investment Advisor

During 2004, the staff of the Securities and Exchange Commission (“SEC”) informed the Fund’s counsel of potential significant regulatory issues in connection with the Staff’s review of a registration statement for a proposed rights offering. On December 1, 2005, the Investment Adviser consented, without admitting or denying the findings, to the entry of an order by the SEC instituting public administrative and cease and desist proceedings and imposing remedial sanctions (the “Order”).

RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.

Notes to Unaudited Financial Statements

March 31, 2005

Note 9 -

Settlement with the Investment Advisor, continued

In summary, the dispute concerned the definition of the wording of the incentive fee calculation in the Advisers Act. Under Section 205(b)(3) of the Advisers Act, a performance fee may be earned. The Investment Adviser, for many years, believed the word “capital” referred to the Fund’s shareholders equity as a whole. In 2004, the SEC informed the Investment Adviser that capital depreciation in the formula referred only to unrealized capital losses on marketable securities in the portfolio and therefore the calculations in previous years were incorrect. In the Order, the SEC states that in calculating a performance-based fee under Section 205(b)(3), an Investment Adviser must account for its client’s assets on a security-by-security basis and may not take into consideration unrealized capital appreciation on any individual security or the portfolio as a whole. Section 205(b)(3) does not require that fees earned in one period be subject to repayment based upon performance in a subsequent period. If the performance fee is calculated on a cumulative basis and is based on the period since inception, the unrealized capital depreciation may be calculated for each calculation period by subtracting each security’s valuation at the end of the applicable calculation period from the original cost, as adjusted, of purchasing that security. In practice, the Investment Adviser also took into account unrealized capital appreciation, which offset unrealized capital depreciation, to calculate its performance-based fee. Thus, beginning in fiscal year 1996, the first period in which the Fund realized capital gains, the Investment Adviser’s formula for calculating that fee was not consistent with the agreed formula permitted under Section 205(b)(3).

As part of the settlement of the SEC proceedings, the Investment Adviser agreed to pay $2,851,362 for adjustments in the incentive fee from the inception through December 31, 2003, plus prejudgment interest of $924,509 and a penalty of $100,000 to the Fund.

The Investment Adviser satisfied this obligation in full as of December 8, 2005.

The effect of the SEC settlement, was reflected retroactively. As such the effect of the adjustments in incentive fees were reported in prior years as though the agreed methodology had been in place since inception. Interest received by the fund upon settlement was allocated to the years in which it was earned. The $100,000 penalty received upon settlement was reflected in the year settlement was reached (2005).

Note 10 -

Commitments and Contingencies

As disclosed in Note 4, the Fund is obligated to pay to the Investment ~~Advisor~~Adviser an incentive fee equal to 20% of the ~~Fund’s~~funds cumulative realized capital gains in excess of cumulative capital losses of the Fund after allowance for any capital depreciation on the portfolio investments of the Fund. As incentive fees on capital gains are not due to the Investment ~~Advisor~~Adviser until the capital gains are realized, any obligations for incentive fees based on unrealized capital gains are not reflected in the accompanying financial statements as there is no assurance that the unrealized gains as of the end of any period will ultimately become realized. Had an incentive fee been accrued as a liability based on all unrealized capital gains, net assets of the Fund would have been reduced by ~~$5,509,555~~$9,447,335 as of December 31, ~~2005.~~2004.

RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.

Notes to Unaudited Financial Statements

~~September 30, 2006~~March 31, 2005

Note 911 -

Financial Highlights - unaudited

Selected per share data and ratios for each share of common stock outstanding throughout the ~~nine~~three months ended ~~September 30, 2006~~March 31, 2005 and ~~2005~~2004 are as follows:

	2005			2004

Net asset value, beginning of period	$	17.14		$	15.95

Effect of share change		(.43	)		-
Net investment loss		(.08	)		(.12	)
Net realized and unrealized gain (loss) on investments		(2.95	)		5.62

Total return from investment operations		(3.46	)		5.50

Shares issued		.35			.00

Distributions		(.10	)		(.10	)

Net asset value, end of period	$	13.93		$	21.35

Per share market value, end of period	$	11.40		$	17.24

Portfolio turnover rate (quarterly)		1.50	%		6.58	%
Quarterly return (a)		(11.97	)%		28.75	%

Ratio to average net assets (quarterly) (b):
Net investment income (loss)		(0.49	)%		(0.65	)%
Expenses		.72	%		.81	%

2006

2005
Net asset value, beginning of period $ 12.14 $ 16.71

Net investment loss (0.20 ) (0.24 )
Net realized and unrealized gain on investments 0.48 (2.30 )

Total return from investment operations 0.28 (2.54 )

Capital share transactions — 0.35
Distributions (0.30 ) (0.30 )

Net asset value, end of period 12.12 14.22

Per share market value, end of period $ 11.61 $ 11.25

Portfolio turnover rate 6.40 % 4.54 %
Quarterly return (a) 5.55 % (13.13 %)
Ratio to average net assets (b):
Net investment income (loss) (1.63 %) (1.60 %)
Expenses 2.75 % 2.06 %

(a)	~~Nine~~Three month return (not annualized) was calculated by comparing the common stock price on the first day of the period to the common stock price on the last day of the period, in accordance with American Institute of Certified Public ~~Account~~Accountants guidelines.

(b)	Average net assets have been computed based on quarterly valuations.

2325

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations~~Operations..

Material Changes in Portfolio Investments

The following material portfolio transactions occurred during the quarter ended ~~September 30, 2006:~~March 31, 2005:

Advance Nanotech, Inc. (OTCBB:AVNA) During the first quarter of 2005, the Fund bought 165,000 shares of common stock and warrants to purchase 82,500 shares of common stock for $330,000.

Advanced Refractive Technologies (formerly VisiJet, Inc.) ~~(formerly known as Visijet)~~ (OTCBB:ARFR)~~: In~~ During the first quarter of ~~2006,~~2005, the Fund ~~recorded~~bought a ~~$125,000 receivable related~~convertible debenture and warrants to ~~the sale~~purchase 500,000 shares of debt securities of Advanced Refractive Technologies. The Fund received a payment of $62,500 in the second quarter of 2006. The Fund wrote-off the remaining $62,500 accrual in the third quarter of 2006.common stock at $0.40 per share for $500,000.

~~Integrated Security Systems,~~CNE Group, Inc. ~~(OTCBB:IZZI): In~~(AMEX:CNE) During the ~~third~~first quarter of ~~2006,~~2005, the Fund ~~received 134,074~~allowed warrants to purchase 62,500 shares of common stock ~~with a value of $17,644 at the time of issuance, as payment in kind for interest on promissory notes held by the Fund.~~to expire.

~~Laserscope,~~Comtech Group, Inc. (Nasdaq:~~LSCP):~~COGO) During the ~~third~~first quarter of ~~2006,~~2005, the company declared a 1 for 2 stock split. After the stock split, the Fund ~~tendered options to purchase 34,923~~held 240,000 shares of the company’s common ~~stock, realizing proceeds of $843,192 representing a gain of $843,192.~~stock.

~~Metasolv,~~Dave & Buster’s, Inc. ~~(OTCBB:MSLV):~~(NYSE:DAB) During the ~~third~~first quarter of ~~2006,~~2005, the Fund sold 100,000 shares of common stock realizing proceeds of ~~$304,970~~$1,894,526, representing a gain of ~~$94,132.~~$1,241,267.

~~Simtek Corporation~~Gaming & Entertainment Group, Inc. (Nasdaq:GMEI) During the first quarter of 2005, the company incurred a penalty for failing to comply with the terms of its offering. Thus, the Fund received 112,500 shares of common stock with an implied cost basis of $50,625.

i2 Telecom International, Inc. (OTCBB:~~SRAM): During~~ITUI) In the first quarter ~~ended September 30, 2006,~~of 2005, the Fund bought 125 shares of Series D preferred stock and warrants to purchase 78,125 shares of common stock for $118,750.

Interpool, Inc. (AMEX:IPX) In the first quarter of 2005, the Fund sold a $375,000 9.25% debenture realizing proceeds of $408,750, representing a gain of $33,750.

Intrusion, Inc. (OTCBB:INTZ) In the first quarter of 2005, the Fund converted ~~a $100,000 debenture into 454,545~~$500,000 of preferred stock to 159,033 shares of common stock. The Fund ~~also purchased 1,265,823~~immediately sold the common stock realizing proceeds of $740,361, representing a gain of $240,361.

Poore Brothers, Inc. (Nasdaq:SNAK) In the quarter ended March 31, 2005, the Fund sold 1,461,764 shares of common stock ~~and warrants to purchase 189,874 shares~~realizing proceeds of ~~common stock at $0.54 per share for $500,000.~~$4,078,903, representing a gain of $2,573,444.

Results of Operations for the ~~Three Months~~Quarter Ended ~~September 30, 2006~~March 31, 2005

For the quarter ended ~~September 30, 2006,~~March 31, 2005, the Fund had a net investment loss of ~~$83,166~~$336,818 compared to ~~a net investment loss of $484,803~~$527,546 for the ~~third~~first quarter of ~~2005.~~2004. This change was due in large part to ~~an increase~~a decrease in ~~investment income~~expenses from ~~$2,394~~$656,774 for the ~~third~~first quarter of ~~2005~~2004 to ~~$358,288~~$488,686 for the comparable period of ~~2006.~~2005. This ~~increase~~decrease in ~~investment income~~expenses was primarily attributable to ~~higher interest and dividend income~~a decrease in management fee for the ~~third~~first quarter of ~~2006. Interest~~2005. Other income increased $22,343 primarily from ~~$91,546 for~~ the ~~three months ended September 30, 2005 to $125,296 for the same period~~receipt of ~~2006, primarily as~~ a ~~result of the recovery of interest income~~late S-3 filing fee from ~~iLinc Communications,~~Gaming & Entertainment Group, Inc. that had been previously written off. Dividend income for the three-month period ended September 30, 2006, was $236,814 versus $45,661 for the same period in 2005 as a result of higher balances in 2006 of short-term treasury investments that earn dividends. There were no interest receivable write-offs during ~~the three months ended September 30, 2006; however, during the comparable period of 2005, the Fund wrote off $140,199 of interest that was determined to be uncollectable.~~

~~Expenses decreased from $487,197 for~~ the quarter ended ~~September 30, 2005 to $441,454 for the third quarter of 2006.~~ March 31, 2005.

General and administrative expenses decreased for the third quarter of 2006 to $63,538 from $166,376 for the third quarter of 2005, primarily due to decreased travel, subscriptions, bank charges, and insurance expenses, offset by higher investor relations and director fee expenses. Interest expense decreased from $24,464 for the thirdfirst quarter of 2005 to $0$73,662 from $103,364 for the first quarter of 2004 as a result of no annual fee being paid for NASDAQ listing for 2005. Management fees decreased from $410,131 for the first quarter of 2004 to $273,293 for the comparable period of ~~2006 as a result of repayment of margin balances in June 2006. Legal and professional fees increased from $17,420 for the third quarter of~~ 2005 to $140,140 in the same period of 2006 as a result of higher audit and consulting fees for the third quarter of 2006. These increased fees were a result of the Fund completing the 2003, 2004 and 2005 audits during 2006 and starting the reviews of 2006 quarterly financial information. Management fees decreased from $278,937 for the third quarter of 2005 to $237,776 for the third quarter of 2006 as a result of lower market values for portfolio investments at ~~September 30, 2006.~~March 31, 2005.

Net change in unrealized appreciation was an increase of $10,292,651 for the quarter ended ~~September 30, 2005 was $583,608. For the quarter ended September 30, 2006~~March 31, 2004. The net change in unrealized appreciation was a decrease of ~~$2,379,862 as a result~~$17,259,989 for the quarter ended March 31, 2005. The variance was due to the fluctuation of ~~fluctuations in~~ market values ~~of securities~~ at each quarter end and the realization of gains ~~or losses~~ upon the disposition of investments.

~~Realized~~Net realized gains decreased from ~~$1,304,189~~$14,163,179 for the quarter ended ~~September 30, 2005~~March 31, 2004 to ~~$874,823~~$4,093,083 for the same period ~~in 2006. The difference is~~of 2005. During the ~~result of fewer~~quarter ended March 31, 2004 the Fund realized gains ~~recorded from~~primarily on the sale of ~~investments during the quarter ended September 30, 2006.~~

Laserscope common stock. For ~~the nine months ended September 30, 2006, the Fund experienced net investment loss in the amount of $890,871, compared to a net investment loss in the amount of $1,052,259 for~~ the same period in 2005. This change was due in part to an increase in investment income from $302,771 for the nine months ended September 30, 2005 to $611,621 for the comparable period of 2006. This increase in investment income was partially attributable to higher dividend income being earned in 2006. Dividend income for the nine-month period ended September 30, 2006 was $347,037 versus $106,705 for the same period in 2005 as a result of higher balances in 2006 of short-term treasury investments that earn dividends. There were no interest receivable write-offs during the nine months ended September 30, 2006~~; however, during the comparable period~~ of 2005 ~~the Fund wrote off $140,199 of interest that was determined to be uncollectable.~~

Expenses increased from $1,355,030 for the nine months ended September 30, 2005 to $1,502,492 for the same period in 2006. General and administrative expenses decreased from $267,562 in the nine months ended September 30, 2005, to $235,777 for the same period in 2006,gains were realized primarily due to lower subscription, and insurance expenses, offset by higher investor relations, printing, taxes, and director’s fee expenses in 2006. Legal and professional fees increased from $197,022 for the nine months ended September 30, 2005 to $483,288 for the nine months ended September 30, 2006 as a result of higher audit and consulting fees for the nine months ended September 30, 2006. These increased fees were a result of the Fund completing the 2003, 2004 and 2005 audits during 2006 and starting the reviews of 2006 quarterly financial information. Management fees decreased from $826,961 for the nine months ended September 30, 2005, to $723,239 for the same period in 2006, due to lower market values for portfolio investments at September 30, 2006.

~~Net change in unrealized appreciation~~ on investments was a decrease of $15,768,269 for the nine months ended September 30, 2005, and $17,533,952 for the nine months ended September 30, 2006. The difference between the net change for the two periods is the result of fluctuations in market values of securities at each quarter end and the realization of gains or losses upon disposition of investments.

~~Realized gains increased from $5,493,584 for the nine months ended September 30, 2005 to $19,686,060 for the same period in 2006, as a result of gains earned from~~ the sale of ~~investments (primarily Laserscope) during the nine months ended September 30, 2006.~~common stock from Poore Brothers, Inc. and Dave & Buster’s, Inc.

Liquidity and Capital Resources

For the ~~nine~~three months ended ~~September 30, 2006,~~March 31, 2005, net assets decreased from ~~$54,188,943~~$74,582,499 at December 31, ~~2005~~2004 to ~~$54,110,990~~$62,193,762 at ~~September 30, 2006.~~March 31, 2005. This decrease is primarily attributable to ~~dividends declared of $1,339,190~~a decrease in net unrealized appreciation due to fluctuations in market values. This decrease was partially offset by increased distributable net ~~income~~capital gains from the sale of ~~1,261,237 for~~investments and additional paid in capital from the ~~nine months~~issuance of shares per the dividend reinvestment plan in the quarter ended ~~September 30, 2006.~~March 31, 2005.

At the end of the ~~third~~first quarter of ~~2006,~~2005, the Fund had cash and cash equivalents of ~~$16,441,071~~$24,962,028 versus cash and cash equivalents of ~~$8,396,052~~$37,278,871 at December 31, ~~2005.~~2004. This ~~increase is~~decrease was primarily attributable to the ~~receipt~~January 2005 payment of ~~proceeds of $18,464,321 from~~ the ~~sale of Laserscope common stock.~~dividend payable at December 31, 2004. The Fund’s interest and dividends receivable increased from ~~$48,226~~$95,689 at December 31, 2004 to $106,169 at March 31, 2005 primarily due to ~~$136,423 at September 30, 2006 due primarily to more dividends being recorded on higher short-term treasury~~interest accrued from an additional investment ~~balances. In addition,~~in an Advanced Refractive Technologies convertible debenture during the ~~nine months~~quarter ended ~~September 30, 2006, the Fund purchased an additional promissory note and convertible debenture from Integrated Security Systems, Inc. and a convertible debeture from Pipeline Data, Inc.~~March 31, 2005.

During the nine months ended September 30, 2006, the Fund paid the accounts payable due to broker margin balance with part of the proceeds from the sale of Laserscope. Also, the dividend payable of $4,145,686 to shareholders of record as of December 30, 2005 was paid on January 12, 2006.

Accounts payable increased from ~~$86,782~~$51,477 at December 31, ~~2005~~2004 to ~~$119,313~~$96,896 at ~~September 30, 2006~~March 31, 2005 primarily due to the accrual of ~~audit and consulting fees. Finally, accounts~~legal fees during the quarter ended March 31, 2005. Accounts payable to affiliate decreased from ~~$2,050,989~~$3,697,461 at December 31, 2004 to $3,562,507 at March 31, 2005 ~~to $673,763 at September 30, 2006, reflecting the payments of accrued management and incentive fees~~due to the ~~Fund’s investment adviser.~~payment of expenses and management fees accrued at December 31, 2004 offset by the accrual of management fee for the first quarter of 2005.

Due to broker decreased from $27,001,414 at December 31, 2004 to $19,992,670 at March 31, 2005. Due to broker represents a margin loan. The margin loan payable at December 31, 2004 was paid in January 2005. During March 2005 the Fund acquired a new margin loan.

During the ~~nine months~~quarter ended ~~September 30, 2006~~March 31, 2005 the Fund paid ~~$5,484,876~~$12,500,654 of dividends to shareholders of which ~~$4,145,686~~$12,054,258 was capital gains dividend payable at December 31, ~~2005~~2004 and ~~$1,339,190~~$446,396 was payment of dividends declared during the ~~nine months~~quarter ended ~~September 30, 2006.~~

~~During the nine months ended September 30, 2006, the Fund invested $2,984,342 in new and follow-on investments compared to $2,828,590 for the same period in~~March 31, 2005. During the nine months ended September 30, 2006, the Fund received $20,823,298 in proceeds from the sale of the securities of various portfolio companies, including $18,464,321 from the sale of Laserscope common stock and a recovery of $1,091,200 of the Fund’s original $3,135,000 investment in Dexterity Surgical, Inc. which had previously been written-off. During the same nine month period of 2005, the Fund received $11,964,359 in proceeds from the sale of portfolio company securities.

The majority of the Fund’s investments in portfolio companies are individually negotiated, non-registered for public trading, and are subject to legal and contractual investment restrictions. Accordingly, the Fund’s portfolio investments are generally considered non-liquid. This lack of liquidity primarily affects the Fund’s ability to make new investments and distributions to shareholders.

Pending investment in portfolio investments, funds are invested in temporary cash accounts and in government securities. Government securities used as cash equivalents will 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. These investments qualify for investment as permitted in Section 55(a)(1) through (5) of the 1940 Act.

Contractual Obligations

The Fund has a contract for the purchase of services under which it will have future commitments: the investment advisory agreement, pursuant to which RENN Capital Group, Inc. has agreed to serve as the Fund’s 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 see Note 4 of the Financial Statements.

Because the Fund does not enter into other long-term debt obligations, capital lease obligations, operating lease obligations, or purchase obligations, a table of contractual obligations has not been presented.

Item 3. Quantitative and Qualitative Disclosure About Market 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~~consist of common ~~stocks~~stock, 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 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~~anticipates 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 4. Controls and Procedures.

The Fund has in place systems relating to disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934). Our principal executive officer and principal financial officer evaluated the effectiveness of these disclosure controls and procedures as of the end of our quarter ended ~~September 30, 2006~~March 31, 2005 in connection with the preparation of this report. They concluded that the controls and procedures were effective and adequate at that time. There were no significant changes in the Fund’s internal control over financial reporting during the ~~third~~first quarter of fiscal ~~2006~~2005 that have materially affected, or are reasonably likely to materially affect, the Fund’s internal control over financial reporting.

Item 1.

Legal Proceedings

Item 1A.

Risk Factors

You should carefully consider the risks described below and all other information contained in this quarterly report on Form 10-Q, including our 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 to Meet Listing Standards. It is uncertain whether our common stock will meet the requirements for listing on Nasdaq, or any other stock exchange or quotation service.

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 a timely manner, the Fund’s common stock was delisted from Nasdaq. As we become current with the delinquent filings, we will attempt to relist with Nasdaq or a national stock exchange, but there is no certainty that we will be able to do so.

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 private equity funds, other investment entities and individuals for investment opportunities. Some of these competitors are substantially larger and have greater financial resources, and some are subject to different and frequently less stringent regulation. As a result of this competition, we may not be able to take advantage of attractive investment opportunities from time to time and there can be no assurance that we will be able to identify and make investments that satisfy our objectives.

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

Failure to Deploy Capital 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 tax treatment as a 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 to qualify for conduit tax treatment, we will be subject to federal taxes on our net investment income. 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 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.

Our Common Stock Often Trades at a Discount. Our common stock often trades at a discount from net asset value. Our common stock is traded over-the-counter in the pink sheets. Stockholders desiring liquidity may 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 net asset value, which is a risk separate and distinct from the risk that a fund's performance will 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.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Item 3.

Defaults Upon Senior Securities

/s/ Russell Cleveland	~~RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.~~	December 19, 2006
Russell Cleveland, President and Chief Executive Officer (Principal Executive Officer)


~~/s/ Russell Cleveland~~			~~November 14, 2006~~
~~Russell Cleveland, President~~ ~~and Chief Executive Officer~~ ~~(Principal Executive Officer)~~



~~/s/~~/s/ Barbe Butschek			~~November 14,~~December 19, 2006
Barbe Butschek, Chief Financial Officer (Principal Financial Officer)

		Page Number
~~Number~~PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)		3
~~PART I. FINANCIAL INFORMATION~~

~~Item 1.~~ ~~Financial Statements (Unaudited)~~			3

Statements of Assets and Liabilities as of ~~September 30, 2006~~March 31, 2005 and December 31, ~~2005~~		2004	3


Schedules of Investments as of ~~September 30, 2006~~March 31, 2005 and December 31, ~~2005~~		2004	4


Statements of Operations for the three months ended March 31, 2005 and ~~nine months ended September 30, 2006 and 2005~~2004			15	16


Statements of ~~Change~~Changes in Net Assets for the ~~nine~~three months ended ~~September 30, 2006~~March 31, 2005 and ~~2005~~		2004	17


Statements of Cash Flows for the ~~nine~~three months ended ~~September 30, 2006~~March 31, 2005 and ~~2005~~		2004	18


Notes to Financial Statements			19

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations			24	26

Item 3.	Quantitative and Qualitative Disclosures About Market Risk			28	29

Item 4.	Controls and Procedures	29
		28


PART II. OTHER INFORMATION

Item 1.~~Legal Proceedings~~	Legal Proceedings		29	30

Item 1A.~~Risk Factors~~	Risk Factors		29	30

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds			32	33

Item 3.	Defaults Upon Senior Securities			32	33

Item 4.	Submission of Matters to a Vote of Security Holders			32	33

Item 5.~~Other Information~~	Other Information		32	33

Item 6.~~Exhibits~~	Exhibits		32	33

	September 30, 2006			December 31, 2005

ASSETS
Cash and cash equivalents	$	16,441,071		$	8,396,052
Investments at fair value, cost of $37,280,584
and $35,433,480 at September 30, 2006 and
December 31, 2005, respectively		38,315,651			54,002,499
Interest and dividends receivable		136,423			48,226
Prepaid and other assets		10,921			101,598

	$	54,904,066		$	62,548,375

LIABILITIES AND NET ASSETS

Liabilities:
Due to broker	$	—		$	2,075,975
Accounts payable		119,313			86,782
Accounts payable - affiliate		673,763			2,050,989
Accounts payable - dividends		—			4,145,686

		793,076			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		31,790,153			32,681,024
Treasury stock at cost, 209,900		(1,734,967	)		(1,734,967	)
Distributable earnings		18,346,870			—
Net unrealized appreciation of investments		1,035,067			18,569,019

Net assets, equivalent to $12.12 and $12.14
per share at September 30, 2006 and
December 31, 2005, respectively		54,110,990			54,188,943

	$	54,904,066		$	62,548,375

	September 30, 2006
	Interest Rate			Due Date		Cost		Fair Value		% of Net Investments
Eligible Portfolio Investments -
Convertible Debentures and
Promissory Notes

CaminoSoft Corp. -
Promissory note (4)		7.00	%		01/19/08	$	250,000	$	250,000		0.65	%

iLinc Communications, Inc. -
Convertible promissory note (2)		12.00			03/29/12		500,000		500,000		1.30

Integrated Security Systems, Inc. -
Promissory note (4)		8.00			09/30/07		525,000		525,000		1.37
Promissory note (4)		7.00			09/30/07		200,000		200,000		0.52
Promissory note (4)		8.00			09/30/07		175,000		175,000		0.46
Convertible promissory note (2)		8.00			12/14/08		500,000		500,000		1.31

Simtek Corporation -
Convertible debenture (2)		7.50			06/28/09		900,000		2,127,273		5.55

						$	3,050,000	$	4,277,273		11.16	%

					December 31, 2005
	Interest		Due				Fair		% of Net
	Rate		Date		Cost		Value		Investments
Eligible Portfolio Investments -
Convertible Debentures and
Promissory Notes

CaminoSoft Corp. -
Promissory note (4)		7.00		07/19/06	$	250,000	$	250,000		0.46	%

iLinc Communications, Inc. -
Convertible promissory note (2)		12.00		03/29/12		500,000		500,000		0.93

Integrated Security Systems, Inc. -
Promissory note (4)		8.00		09/30/06		525,000		525,000		0.97
Promissory note (4)		7.00		09/30/06		200,000		200,000		0.37
Promissory note (4)		8.00		09/30/06		175,000		175,000		0.33
Convertible promissory note (2)		8.00		12/14/08		500,000		400,000		0.74

Simtek Corporation -
Convertible debenture		7.50		06/28/09		1,000,000		1,000,000		1.85

					$	3,150,000	$	3,050,000		5.65	%

	Three Months Ended September 30,
	2006			2005

Income:
Interest income	$	125,296		$	91,546
Dividend income		236,814			45,661
Write-off of interest receivable		—			(140,199	)
Other income		(3,822	)		5,386
		358,288			2,394

Expenses:
General and administrative		63,538			166,376
Interest expense		—			24,464
Legal and professional fees		140,140			17,420
Management fee to affiliate		237,776			278,937

		441,454			487,197

Net investment loss		(83,166	)		(484,803	)

Realized and unrealized gain (loss)
on investments:
Net change in unrealized appreciation
of investments		(2,379,862	)		583,608
Net realized gain on investments		874,823			1,304,189

Net gain (loss) on investments		(1,505,039	)		1,887,797

Net income (loss)	$	(1,588,205	)	$	1,402,994

Net income (loss) per share	$	(0.36	)	$	0.31

Weighted average shares outstanding		4,463,967			4,451,495

	Nine Months Ended September 30,
	2006			2005

Income:
Interest income	$	244,630		$	263,308
Dividend income		347,037			106,705
Write-off of interest receivable		—			(140,199	)
Other income		19,954			72,957

		611,621			302,771

Expenses:
General and administrative		235,777			267,562
Interest expense		60,188			63,485
Legal and professional fees		483,288			197,022
Management fee to affiliate		723,239			826,961

		1,502,492			1,355,030

Net investment loss		(890,871	)		(1,052,259	)

Realized and unrealized gain (loss)
on investments:
Net change in unrealized appreciation (depreciation)
of investments		(17,533,952	)		(15,768,269	)
Net realized gain on investments		19,686,060			5,493,584

Net gain (loss) on investments		2,152,108			(10,274,685	)

Net income (loss)	$	1,261,237		$	(11,326,944	)

Net income (loss) per share	$	0.28		$	(2.54	)

Weighted average shares outstanding		4,463,967			4,451,495

	Nine Months Ended September 30,
	2006			2005
From operations:
Net investment loss	$	(890,871	)	$	(1,052,259	)
Net realized gain on investments		19,686,060			5,493,584
Net change in unrealized
appreciation on investments		(17,533,952	)		(15,768,269	)

Net income (loss)		1,261,237			(11,326,944	)

From distributions to stockholders:
Common stock dividends from realized
capital gains		(1,339,190	)		(1,339,189	)

From capital transactions:
Sale of common stock		—			1,561,383

Total decrease in net assets		(77,953	)		(11,104,750	)

Net assets:
Beginning of period		54,188,943			74,582,499

End of period	$	54,110,990		$	63,477,749