Renaissance Capital Growth & Income Fund III, Inc.
2007 Annual Report

Dear Fellow Shareholder,

 

Enclosed is the 2007 Form 10-K which contains a complete description of your Fund, along with audited results. Additionally, enclosed is the 2007 proxy statement for election of Directors. You can vote by mail, telephone or electronically. Your vote is important. The Annual Meeting will be held at 8 a.m. on Friday, May 16, 2008 at the Hilton Anatole Hotel, 2201 Stemmons Freeway, Dallas, Texas. The meeting will be followed by the RENN III Annual Investor Conference which will conclude at noon, followed by a luncheon buffet. A number of your portfolio companies will make presentations. I hope you can join us for this interesting day.

 

Markey Comment

 

Ordinarily, I do not comment on the stock market because our long-term success is founded on individual company selection. However, since there is currently so much pessimism a little perspective on the market may be helpful. When I joined the investment firm of Kidder, Peabody & Co. in the 1960’s, I had a personal meeting with Mr. Albert Gordon, the Senior Partner, in which he gave me a few words of wisdom for my career. Mr. Gordon, by the way, made a fortune on Wall Street and is still alive today, over 100 years of age. One of the main statements he made was for me to expect a major market decline or correction every five to six years. He said, that while many would be panicking, these periods would be great opportunities to lay a foundation for exceptional gains in the next few years. This proved to be among the best advice I ever received. This current period appears to be one of these opportunistic periods.

 

One commentator recently expressed that while Wall Street has been in trouble, Main Street seems to be doing just fine. Much of the negative news already seems to be discounted in the stock market. In 2007, according to Morningstar, the average micro cap stock was down 42% and, of course, had much further declines in early 2008. With this in mind I am expecting a much better stock market in the second half of 2008 and into 2009.

 

Dividends and Performance Record

 

Through 2007, your Fund has paid a total of $18.89 per share in distributions of this $13.91 was in cash and the remaining in deemed dividends. For 2007, the deemed dividend was $0.95 per share. When the Fund declares a deemed dividend instead of a cash distribution, the Fund pays a 35% tax on the retained capital gains. The shareholders are deemed to have received the deemed dividend as a capital gain dividend and the shareholders are deemed to have paid the tax actually paid by the Fund on their behalf. Thus, they receive a tax credit that they can use to offset their tax on the deemed dividend or for other purposes. For an investor in tax deferred accounts, i.e., IRA’s, a refund of the tax can be obtained from the IRS. This information is reported to shareholders on IRS Form 2439. The shareholders also increase their cost basis in their shares in the Fund by the net amount of the deemed dividend, $0.62 (representing the $0.95 deemed dividend less the $0.33 deemed tax paid). The reason for the deemed dividend is to enable your Fund to have capital for new investments. In the first quarter the Fund declared a cash dividend of $0.10 per share, payable March 31, 2008. Dividends are considered by the Board on a quarterly basis, and are subject to change depending on financials. However, the Board hopes to maintain the quarterly $0.10 rate.

 

Over the years, the Fund has paid significant dividends which are deducted from the share price when the stock goes ex-dividend. In the Form 10-K, on the trading schedule, is the price range of the shares with a schedule also showing the amount adjusted for dividends. This is important for shareholders to view. Even with the major market decline, a $100,000 investment made when the Fund began, with all dividends reinvested, would be worth $220,445 as of January 14, 2007, according to American Stock Transfer.

 

Portfolio Strategy

 

Our portfolio strategy has been to invest in companies which are lead by entrepreneurial CEO’s who have a vision for substantial growth, and where your Fund can be an early investor in the growth process. Underneath this strategy is selecting major areas of interest where we see superior growth and an investment opportunity. Among these currently are US traded Chinese companies, new medical devices, revolutionary drug products, emerging software products, specialty technology companies, unique energy development, internet business of various types, and special situations with superior growth potential. We actively work with many of these companies helping them achieve their goals. The holdings as of December 31, 2007 are listed in the 10-K. We are optimistic about many of our holdings over the next several years and appreciate the continued support of our shareholders.

 

Sincerely,

 

Russell Cleveland  

President