UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended June 30, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 12 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number: 0-20671
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
_________________________________________________________
(Exact name of registrant as specified in its charter)
Texas 75-2533518
_________________________________________________________
(State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
8080 North Central Expressway,
Dallas, Texas 75206-1857
_________________________________________________________
(Address of principal executive offices) (Zip Code)
214-891-8294
_________________________________________________________
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports, and (2) has been subject to such
filing requirements for the past 90 days.
Yes __x__ No _____
4,361,618 shares of common stock were outstanding at August 9, 2002.
The Registrant's Registration Statement on Form N-2 was declared effective by
the Securities and Exchange Commission on May 6, 1994.
1
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Renaissance Capital Growth & Income Fund III, Inc.
Statements of Assets and Liabilities
Assets December 31,2001 June 30,2002
Cash and cash equivalents $27,125,926 $21,162,268
Investments at fair value, cost
of $35,015,807 and $31,042,363
December 31,2001 and June 30,
2002, respectively 49,762,340 48,594,406
Interest receivable 114,539 112,974
Prepaid expenses 13,863 995
------------ -------------
$77,016,668 $69,870,643
============ =============
Liabilities and Net Assets
Liabilities:
Securities sold under
agreements to repurchase 22,197,146 16,366,698
Accounts payable 13,472 15,338
Accounts payable - affiliate 268,542 275,250
Dividends payable - -
----------- ------------
22,479,160 16,657,286
----------- ------------
Net assets:
Common stock, $1 par value; authorized
20,000,000 shares; 4,561,618 issued;
4,361,618 shares outstanding 4,561,618 4,561,618
Additional paid-in-capital 37,125,714 37,125,714
Treasury stock at cost, 200,000 shares
at December 31, 2001, and at
June 30, 2002 (1,665,220) (1,665,220)
Distributions in excess of net
investment income (231,137) (936,405)
Accumulated net realized loss on
securities transactions - (3,424,393)
Net unrealized appreciation of
investments 14,746,533 17,552,043
----------- ------------
Net assets, equivalent to
$12.50 and $12.20
per share at December 31, 2001
June 30, 2002, respectively 54,537,508 53,213,357
Commitments and contingencies - -
----------- ------------
$77,016,668 $69,870,643
=========== ============
See accompanying notes to financial statements.
2
Renaissance Capital Growth & Income Fund III, Inc.
Statement of Investments
(unaudited)
June 30, 2002
--------------------------------------------------
Interest Due Fair % of
Rate Date Cost Value Net
Assets
Eligible Portfolio Investments -
Convertible Debentures and Promissory notes (1)
Active Link Communications, Inc. -
Convertible bridge note (2) 12.00% 05/02 $ 63,632 $ 63,632 0.12%
Convertible note (2) 8.00% 09/30/02 $ 125,000 $ 125,000 0.23%
Convertible note (2) 8.00% 09/30/02 $ 250,000 $ 250,000 0.47%
Dexterity Surgical, Inc. -
Convertible debenture (2) 9.00% 12/19/04 $ 1,316,282 $ 816,282 1.53%
EDT Learning, Inc. -
Convertible redeemable
note (2) 12.00% 03/29/12 $ 500,000 $ 500,000 0.94%
eOriginal, Inc. -
Senior Secured Notes (4) 12.00% 06/30/02 $ 676,183 $ 676,183 1.27%
Integrated Security Systems, Inc. -
Promissory notes (5) 8.00% 01/25 -
05/14/02 $ 250,000 $ 250,000 0.47%
3
Renaissance Capital Growth & Income Fund III, Inc.
Statement of Investments
(unaudited)
June 30, 2002
--------------------------------------------------
Interest Due Fair % of
Rate Date Cost Value Net
Assets
Eligible Portfolio Investments -
Convertible Debentures and Promissory notes (1)
Laserscope -
Convertible debenture (2) 8.00% 02/11/07 $ 1,500,000 $ 4,518,400 8.49%
Simtek Corporation -
Convertible debenture (2) 7.50% 06/28/09 $ 1,000,000 $ 1,000,000 1.88%
----------- ----------- ------
$ 5,681,097 $ 8,199,497 15.41%
(1) Valued at fair value as determined by the Investment Advisor (note 5).
(2) Restricted securities under Rule 144 (note 6).
(3) Company is liquidating in bankruptcy.
(4) Securities in a privately owned company.
(5) Securities have no provision that allows conversion into a security for
which there is a public market.
(6) Includes Miscellaneous Securities, securities of privately owned companies,
securities with no conversion feature, and securities for which there is no
market.
4
Renaissance Capital Growth & Income Fund III, Inc.
Statement of Investments
(unaudited)
June 30, 2002
--------------------------------------------------
Interest Due Fair % of
Rate Date Cost Value Net
Assets
Other Portfolio Investments -
Convertible Debentures and
Promissory notes (1)
CareerEngine Network, Inc. -
Convertible debenture (2) 12.00% 03/31/10 $ 250,000 $ 250,000 0.47%
----------- ----------- ------
$ 250,000 $ 250,000 0.47%
(1) Valued at fair value as determined by the Investment Advisor (note 5).
(2) Restricted securities under Rule 144 (note 6).
(3) Company is liquidating in bankruptcy.
(4) Securities in a privately owned company.
(5) Securities have no provision that allows conversion into a security for
which there is a public market.
(6) Includes Miscellaneous Securities, securities of privately owned companies,
securities with no conversion feature, and securities for which there is no
market.
5
Renaissance Capital Growth & Income Fund III, Inc.
Statement of Investments (continued)
(unaudited)
June 30, 2002
----------------------------------------------
Fair % of
Shares Cost Value Net
Assets
Eligible Portfolio Investments -
Common Stock, Preferred Stock, and
Miscellaneous Securities (1)
Bentley Pharmaceuticals, Inc. -
Common stock 400,000 $ 500,000 $ 4,579,681 8.61%
CaminoSoft Corporation -
Common stock 1,750,000 $ 4,000,000 $ 952,875 1.79%
Common stock (2) 708,333 $ 875,000 $ 316,208 0.59%
Dexterity Surgical, Inc. -
Preferred stock - A (2) 500 $ 500,000 $ 0 0.00%
Preferred stock - B (2) 500 $ 500,000 $ 0 0.00%
Common stock (2) 260,000 $ 635,000 $ 0 0.00%
eOriginal, Inc. -
Series A preferred stock (4) 6,000 $ 1,500,000 $ 4,794,000 9.01%
Series B-1 preferred stock (4) 1,785 $ 392,700 $ 1,426,215 2.68%
Series B-3 preferred stock (4) 447 $ 107,280 $ 357,153 0.67%
Series C-1 preferred stock (4) 2,353 $ 2,000,050 $ 2,000,050 3.76%
6
Renaissance Capital Growth & Income Fund III, Inc.
Statement of Investments (continued)
(unaudited)
June 30, 2002
----------------------------------------------
Fair % of
Shares Cost Value Net
Assets
Eligible Portfolio Investments -
Common Stock, Preferred Stock, and
Miscellaneous Securities (1)
Fortune Natural Resources, Inc. -
Common stock 1,322,394 $ 545,500 $ 314,201 0.59%
Integrated Security Systems, Inc. -
Common stock 393,259 $ 215,899 $ 159,624 0.30%
Common stock - PIK (2) 68,435 $ 19,508 $ 26,375 0.05%
Series D preferred stock (2) 187,500 $ 150,000 $ 92,250 0.17%
Series F preferred stock (2) 2,714,945 $ 542,989 $ 1,046,339 1.97%
Series G preferred stock (2) 18,334,755 $ 3,666,951 $ 7,016,215 13.19%
JAKKS Pacific, Inc. -
Common stock 87,347 $ 521,172 $ 1,531,446 2.88%
Poore Brothers, Inc. -
Common stock (2) 2,016,357 $ 2,078,170 $ 5,541,358 10.41%
7
Renaissance Capital Growth & Income Fund III, Inc.
Statement of Investments (continued)
(unaudited)
June 30, 2002
----------------------------------------------
Fair % of
Shares Cost Value Net
Assets
Eligible Portfolio Investments -
Common Stock, Preferred Stock, and
Miscellaneous Securities (1)
Simtek Corporation -
Common stock (2) 1,000,000 $ 195,000 $ 244,400 0.46%
ThermoView Industries, Inc. -
Common stock (2) 31,851 $ 415,384 $ 31,848 0.06%
Verso Technologies, Inc. -
Common stock (2) 179,375 $ 512,500 $ 84,306 0.16%
Miscellaneous securities $ 5,915 $ 651,071 1.22%
----------- ----------- ------
$19,879,018 $31,165,615 58.57%
(1) Valued at fair value as determined by the Investment Advisor (note 5).
(2) Restricted securities under Rule 144 (note 6).
(3) Company is liquidating in bankruptcy.
(4) Securities in a privately owned company.
(5) Securities have no provision that allows conversion into a security for
which there is a public market.
(6) Includes Miscellaneous Securities, securities of privately owned companies,
securities with no conversion feature, and securities for which there is no
market.
8
Renaissance Capital Growth & Income Fund III, Inc.
Statement of Investments (continued)
(unaudited)
June 30, 2002
----------------------------------------------
Fair % of
Shares Cost Value Net
Assets
Other Portfolio Investments -
Common Stock, Preferred Stock, and
Miscellaneous Securities (1)
Bentley Pharmaceuticals, Inc. -
Common stock 259,979 $ 535,168 $ 2,976,552 5.59%
Canterbury Consulting Group -
Common stock 103,000 $ 98,511 $ 100,950 0.19%
DaisyTek International Corporation -
Common stock 20,000 $ 264,353 $ 335,808 0.63%
Dave & Buster's, Inc. -
Common stock 100,000 $ 653,259 $ 1,201,860 2.26%
The Dwyer Group, Inc. -
Common stock 675,000 $ 1,966,632 $ 2,759,872 5.19%
EDT Learning, Inc. -
Common stock 31,600 $ 16,590 $ 27,843 0.05%
9
Renaissance Capital Growth & Income Fund III, Inc.
Statement of Investments (continued)
(unaudited)
June 30, 2002
----------------------------------------------
Fair % of
Shares Cost Value Net
Assets
Other Portfolio Investments -
Common Stock, Preferred Stock, and
Miscellaneous Securities (1)
I-Flow Corp -
Common stock 64,520 $ 168,252 $ 148,842 0.28%
Precis, Inc.
Common stock 93,700 $ 993,897 $ 839,507 1.58%
US Home Systems -
Common stock 110,000 $ 535,587 $ 588,060 1.11%
----------- ----------- ------
$ 5,232,249 $ 8,979,294 16.87%
----------- ----------- ------
$31,042,364 $48,594,406 91.32%
=========== =========== ======
(1) Valued at fair value as determined by the Investment Advisor (note 5).
(2) Restricted securities under Rule 144 (note 6).
(3) Company is liquidating in bankruptcy.
(4) Securities in a privately owned company.
(5) Securities have no provision that allows conversion into a security for
which there is a public market.
(6) Includes Miscellaneous Securities, securities of privately owned companies,
securities with no conversion feature, and securities for which there is no
market.
10
Renaissance Capital Growth & Income Fund III, Inc.
Statement of Investments (continued)
(unaudited)
June 30, 2002
----------------------------------------------
Fair % of
Shares Cost Value Net
Assets
Other Portfolio Investments -
Allocation of Investments -
Restricted Shares, Unrestricted Shares,
and Other Securities
Restricted Securities Under Rule 144 $15,595,416 $22,422,613 42.14%
Unrestricted Securities $10,764,820 $16,267,121 30.57%
Other Securities (6) $ 4,682,128 $ 9,904,672 18.61%
(1) Valued at fair value as determined by the Investment Advisor (note 5).
(2) Restricted securities under Rule 144 (note 6).
(3) Company is liquidating in bankruptcy.
(4) Securities in a privately owned company.
(5) Securities have no provision that allows conversion into a security for
which there is a public market.
(6) Includes Miscellaneous Securities, securities of privately owned companies,
securities with no conversion feature, and securities for which there is no
market.
11
Renaissance Capital Growth & Income Fund III, Inc.
Statement of Investments
(unaudited)
December 31, 2001
-------------------------------------------------
Interest Due Fair % of
Rate Date Cost Value Net
Assets
Eligible Portfolio Investments -
Convertible Debentures and
Promissory notes (1)
Active Link Communications, Inc. -
Convertible bridge note (2) 12.00% 05/02 $ 116,667 $ 150,792 0.28%
Convertible note (2) 8.00% 09/30/02 $ 125,000 $ 161,563 0.30%
Convertible note (2) 8.00% 09/30/02 $ 250,000 $ 288,125 0.53%
Dexterity Surgical, Inc. -
Convertible debenture (2) 9.00% 12/19/04 $ 1,329,577 $ 1,329,577 2.44%
Display Technologies, Inc. -
Convertible debenture (2) 8.75% 03/02/05 $ 1,750,000 $ 0 0.00%
eOriginal, Inc. -
Promissory note (4) 12.00% 06/30/02 $ 500,000 $ 500,000 0.92%
Integrated Security Systems, Inc. -
Promissory notes (5) 8.00% 01/25-
05/14/02 $ 200,000 $ 200,000 0.37%
12
Renaissance Capital Growth & Income Fund III, Inc.
Statement of Investments
(unaudited)
December 31, 2001
-------------------------------------------------
Interest Due Fair % of
Rate Date Cost Value Net
Assets
Eligible Portfolio Investments -
Convertible Debentures and
Promissory notes (1)
Laserscope -
Convertible debenture (2) 8.00% 02/11/07 $ 1,500,000 $ 2,770,000 5.08%
Northwestern Steel & Wire Corp. -
Debt (3)(5) N/A N/A $ 127,500 $ 127,500 0.23%
----------- ----------- -----
$ 5,898,744 $ 5,527,557 10.14%
(1) Valued at fair value as determined by the Investment Advisor (note 5).
(2) Restricted securities under Rule 144 (note 6).
(3) Company is liquidating in bankruptcy.
(4) Securities in a privately owned company.
(5) Securities have no provision that allows conversion into a security for
which there is a public market.
(6) Includes Miscellaneous Securities, securities of privately owned companies,
securities with no conversion feature, and securities for which there is no
market.
13
Renaissance Capital Growth & Income Fund III, Inc.
Statement of Investments (continued)
(unaudited)
December 31, 2001
----------------------------------------------
Fair % of
Shares Cost Value Net
Assets
Other Portfolio Investments -
Common Stock, Preferred Stock, and
Miscellaneous Securities (1)
CareerEngine Network, Inc. -
Convertible debenture (2) 12.00% 03/31/10 $ 250,000 $ 250,000 0.46%
Play by Play Toys & Novelties -
Convertible debenture (3) 10.50% 12/31/00 $ 2,425,748 $ 500,000 0.92%
RailAmerica, Inc. -
Convertible debenture 6.00% 07/31/04 $ 500,000 $ 715,770 1.31%
----------- ----------- ------
$ 3,175,748 $ 1,465,770 2.69%
(1) Valued at fair value as determined by the Investment Advisor (note 5).
(2) Restricted securities under Rule 144 (note 6).
(3) Company is liquidating in bankruptcy.
(4) Securities in a privately owned company.
(5) Securities have no provision that allows conversion into a security for
which there is a public market.
(6) Includes Miscellaneous Securities, securities of privately owned companies,
securities with no conversion feature, and securities for which there is no
market.
14
Renaissance Capital Growth & Income Fund III, Inc.
Statement of Investments (continued)
(unaudited)
December 31, 2001
----------------------------------------------
Fair % of
Shares Cost Value Net
Assets
Eligible Portfolio Investments -
Common Stock, Preferred Stock, and
Miscellaneous Securities (1)
Bentley Pharmaceuticals, Inc. -
Common stock 400,000 $ 500,000 $ 4,035,240 7.40%
CaminoSoft Corp. -
Common stock 1,750,000 $ 4,000,000 $ 2,858,625 5.24%
Common stock (2) 708,333 $ 875,000 $ 1,048,625 1.92%
Dexterity Surgical, Inc. -
Preferred stock - A (2) 500 $ 500,000 $ 5,769 0.01%
Preferred stock - B (2) 500 $ 500,000 $ 5,769 0.01%
Common stock (2) 260,000 $ 635,000 $ 0 0.00%
Display Technologies, Inc. -
Common stock (2) 127,604 $ 500,000 $ 0 0.00%
eOriginal, Inc. -
Series A, preferred stock (4) 6,000 $ 1,500,000 $ 4,794,000 8.79%
Series B-1, preferred stock (4) 1,785 $ 392,700 $ 1,426,215 2.62%
Series B-3, preferred stock (4) 447 $ 107,280 $ 357,153 0.65%
Series C-1, preferred stock (4) 2,353 $ 2,000,050 $ 2,000,050 3.67%
15
Renaissance Capital Growth & Income Fund III, Inc.
Statement of Investments (continued)
(unaudited)
December 31, 2001
----------------------------------------------
Fair % of
Shares Cost Value Net
Assets
Eligible Portfolio Investments -
Common Stock, Preferred Stock, and
Miscellaneous Securities (1)
Fortune Natural Resources Corp. -
Common stock 1,322,394 $ 545,500 $ 209,467 0.38%
Integrated Security Systems, Inc. -
Common stock 393,259 $ 215,899 $ 159,624 0.29%
Common stock - PIK (2) 13,463 $ 3,366 $ 5,189 0.01%
Series D, preferred stock (2) 187,500 $ 150,000 $ 92,250 0.17%
Series F, preferred stock (2) 2,714,945 $ 542,989 $ 1,046,339 1.92%
Series G, preferred stock (2) 18,334,755 $ 3,666,951 $ 7,016,215 12.86%
JAKKS Pacific, Inc. -
Common stock 87,347 $ 521,172 $ 1,638,674 3.00%
Poore Brothers, Inc. -
Common stock (2) 1,931,357 $ 1,963,170 $ 4,488,689 8.23%
Simtek Corp. -
Common stock (2) 1,000,000 $ 195,000 $ 394,800 0.72%
16
Renaissance Capital Growth & Income Fund III, Inc.
Statement of Investments (continued)
(unaudited)
December 31, 2001
----------------------------------------------
Fair % of
Shares Cost Value Net
Assets
Eligible Portfolio Investments -
Common Stock, Preferred Stock, and
Miscellaneous Securities (1)
ThermoView Industries, Inc. -
Common stock (2) 31,851 $ 415,384 $ 27,433 0.05%
Verso Technologies, Inc. -
Common stock (2) 179,375 $ 512,500 $ 219,196 0.40%
Miscellaneous Securities $ 5,915 $ 1,040,722 1.91%
----------- ----------- ------
$20,247,876 $32,870,044 60.27%
----------- ----------- ------
(1) Valued at fair value as determined by the Investment Advisor (note 5).
(2) Restricted securities under Rule 144 (note 6).
(3) Company is liquidating in bankruptcy.
(4) Securities in a privately owned company.
(5) Securities have no provision that allows conversion into a security for
which there is a public market.
(6) Includes Miscellaneous Securities, securities of privately owned companies,
securities with no conversion feature, and securities for which there is no
market.
17
Renaissance Capital Growth & Income Fund III, Inc.
Statements of Investments (continued)
(unaudited)
December 31, 2001
----------------------------------------------
Fair % of
Shares Cost Value Net
Assets
Other Portfolio Investments -
Common Stock, Preferred Stock, and
Miscellaneous Securities (1)
Bentley Pharmaceuticals, Inc. -
Common stock 524,979 $ 1,470,478 $ 5,296,037 9.71%
Dave & Busters, Inc. -
Common stock 100,000 $ 653,259 $ 621,720 1.14%
Display Technologies, Inc. -
Common stock (2) 13,880 $ 549,741 $ 0 0.00%
Preferred stock (2) 5,000 $ 500,000 $ 0 0.00%
Dwyer Group, Inc.
Common stock 675,000 $ 1,966,631 $ 3,307,838 6.07%
EDT Learning, Inc. -
Common stock 31,600 $ 16,590 $ 45,988 0.08%
Precis, Inc. -
Common stock 6,200 $ 36,740 $ 74,884 0.14%
18
Renaissance Capital Growth & Income Fund III, Inc.
Statements of Investments (continued)
(unaudited)
December 31, 2001
----------------------------------------------
Fair % of
Shares Cost Value Net
Assets
Other Portfolio Investments -
Common Stock, Preferred Stock, and
Miscellaneous Securities (1)
RailAmerica, Inc. -
Common stock 40,000 $ 500,000 $ 493,696 0.91%
Miscellaneous Securities $ 0 $ 58,806 0.11%
----------- ----------- ------
$ 5,693,439 $ 9,898,969 18.15%
----------- ----------- ------
$35,015,807 $49,762,340 91.24%
=========== =========== ======
Allocation of Investments -
Restricted Shares, Unrestricted Shares,
and Other Securities
Restricted Securities Under Rule 144 $16,830,345 $19,300,331 35.39%
Unrestricted Securities $13,352,017 $19,957,563 36.59%
Other Securities (6) $ 4,833,445 $10,504,446 19.26%
(1) Valued at fair value as determined by the Investment Advisor (note 5).
(2) Restricted securities under Rule 144 (note 6).
(3) Company is liquidating in bankruptcy.
(4) Securities in a privately owned company.
(5) Securities have no provision that allows conversion into a security for
which there is a public market.
(6) Includes Miscellaneous Securities, securities of privately owned companies,
securities with no conversion feature, and securities for which there is no
market.
19
Renaissance Capital Growth & Income Fund III, Inc.
Statements of Operations
Three Months Ended June 30,
2001 2002
Income:
Interest $ 19,829 $ 93,430
Dividend Income 32,063 24,728
Commitment and other fees (1,820) -
------------ -------------
50,072 118,158
------------ -------------
Expenses:
General and administrative 146,882 159,287
Incentive fee 911,857 -
Interest expense - 14,745
Legal and professional fees 71,015 99,158
Management fees 239,559 233,831
------------ -------------
1,369,313 507,021
------------ -------------
Net investment income (loss) (1,319,241) (388,863)
Realized and unrealized gain (loss)
on investments:
Net unrealized appreciation
(depreciation) on investments 2,619,010 (1,985,523)
Net realized gain (loss) on
investments 4,559,287 (49,164)
------------- -------------
Net gain (loss) on investments 7,178,297 (2,034,687)
------------- -------------
Net income (loss) $5,859,056 $(2,423,550)
============= =============
Net income (loss) per share $ 1.34 $ (0.56)
============= =============
See accompanying notes to financial statements.
20
Renaissance Capital Growth & Income Fund III, Inc.
Statements of Operations
Six Months Ended June 30,
2001 2002
Income:
Interest $ 314,565 $ 186,104
Dividend Income 55,392 43,238
Commitment and other fees 4,600 -
------------- -------------
374,557 229,342
------------- -------------
Expenses:
General and administrative 210,818 246,609
Incentive fee 911,857 -
Interest expense - 44,401
Legal and professional fees 112,052 165,289
Management fees 449,365 478,313
1,684,092 934,612
------------ -------------
Net investment income (loss) (1,309,535) (705,270)
Realized and unrealized gain (loss)
on investments:
Net unrealized appreciation
(depreciation) on investments 5,476,742 2,805,510
Net realized gain (loss) on
investments 2,091,629 (3,424,391)
------------ -------------
Net gain on investments 7,568,371 (618,881)
------------ -------------
Net income $6,258,836 $(1,324,151)
============ =============
Net income (loss) per share $ 1.43 $ (0.30)
============ =============
See accompanying notes to financial statements.
21
Renaissance Capital Growth & Income Fund III, Inc.
Statement of Changes in Net Assets
Three Months Ended June 30,
2001 2002
From operations:
Net investment income $(1,319,241) $ (388,863)
Net realized gain (loss) on investments 4,559,287 (49,164)
Increase (decrease) in unrealized
appreciation on investments 2,619,010 (1,985,523)
------------ -------------
Net increase in net assets resulting
from operations 5,859,056 (2,423,550)
------------ -------------
From distributions to stockholders:
Common dividends from net
investment income - -
Common dividends from realized
gains - -
Common dividends from other
sources - -
------------ ------------
Net decrease in net assets
resulting from distributions - -
------------ ------------
From capital transactions:
Shares issued - -
Purchase of treasury stock - -
------------ ------------
Net increase (decrease) in net assets
resulting from capital contributions - -
------------ ------------
Total increase in net assets 5,859,056 (2,423,550)
Net assets:
Beginning of period 47,745,847 55,636,907
------------ -----------
End of period $53,604,903 $53,213,357
============ ===========
See accompanying notes to financial statements.
22
Renaissance Capital Growth & Income Fund III, Inc.
Statement of Changes in Net Assets
Six Months Ended June 30,
2001 2002
From operations:
Net investment income $(1,309,535) $ (705,270)
Net realized gain (loss) on investments 2,091,629 (3,424,391)
Increase (decrease) in unrealized
appreciation on investments 5,476,742 2,805,510
------------ ------------
Net increase in net assets resulting
from operations 6,258,836 (1,324,151)
------------ ------------
From distributions to stockholders:
Common dividends from net
investment income - -
Common dividends from realized
gains - -
Common dividends from other
sources - -
------------ ------------
Net decrease in net assets
resulting from distributions - -
------------ ------------
From capital transactions:
Shares issued - -
Purchase of treasury stock - -
------------ ------------
Net increase (decrease) in net assets
resulting from capital contributions - -
------------ ------------
Total increase in net assets 6,258,836 (1,324,151)
Net assets:
Beginning of period 47,346,067 54,537,508
------------ -------------
End of period $53,604,903 $53,213,357
============ =============
See accompanying notes to financial statements.
23
Renaissance Capital Growth & Income Fund III, Inc.
Statement of Cash Flows
Three Months Ended June 30,
2001 2002
Cash flows from operating activities:
Net income $ 5,859,056 $ (2,423,550)
Adjustments to reconcile net income to
net cash provided by (used in) operation
activities:
Net unrealized (appreciation)
depreciation on investments (2,619,010) 1,985,523
Net realized (gain) loss on investments (4,559,287) 49,164
(Increase) decrease in interest receivable 391,401 (49,445)
(Increase) decrease in other assets (1,771,129) 6,470
Increase (decrease) in accounts payable 16,568 (18,238)
Increase (decrease) in accounts payable -
affiliate 1,002,266 17,539
Increase (decrease) in other liabilities (2,058,780) (4,331,990)
------------ ------------
Net cash provided by (used in)
operating activities (3,738,915) (4,764,527)
------------ ------------
Cash flows from investing activities:
Purchase of investments (1,263,340) (2,584,815)
Proceeds from sale of investments 7,520,576 3,016,629
Repayment of debentures and notes 28,674 577,162
------------ ------------
Net cash provided by (used in)
investing activities 6,285,910 1,008,976
------------ ------------
Cash flows from financing activities:
Net proceeds from issuance of shares - -
Purchase of treasury shares - -
Cash dividends - -
------------ ------------
Net cash used in financing activities - -
------------ ------------
Net increase (decrease) in cash and cash
equivalents 2,546,995 (3,755,551)
Cash and cash equivalents at beginning of the
period 19,017,192 24,917,818
------------ ------------
Cash and cash equivalents at end of the period $21,564,187 $21,162,267
============ ============
Cash paid during the period for interest $ 0 $ 14,745
Cash paid during the period for income/excise
taxes $ 32,011 $ 25,779
Noncash investing activities: During the quarter ended March 31, 2002, the Fund
received common stock in settlement of amounts due for interest and
dividends totaling $9,397.
See accompanying notes to financial statements.
24
Renaissance Capital Growth & Income Fund III, Inc.
Statement of Cash Flows
Six Months Ended June 30,
2001 2002
Cash flows from operating activities:
Net income $ 6,258,836 $ (1,324,151)
Adjustments to reconcile net income to
net cash provided by (used in) operation
activities:
Net unrealized (appreciation)
depreciation on investments (5,476,742) (2,805,509)
Net realized (gain) loss on investments (2,091,629) 3,424,392
(Increase) decrease in interest receivable 218,070 (14,577)
(Increase) decrease in other assets (1,764,731) 12,868
Increase (decrease) in accounts payable 11,893 1,866
Increase (decrease) in accounts payable -
affiliate 1,017,413 6,706
Increase (decrease) in other liabilities (1,574,275) (5,830,448)
------------ ------------
Net cash provided by (used in)
operating activities (3,401,165) (6,528,853)
------------ ------------
Cash flows from investing activities:
Purchase of investments (1,388,340) (3,985,044)
Proceeds from sale of investments 8,059,372 3,941,141
Repayment of debentures and notes 87,780 609,097
------------ ------------
Net cash provided by (used in)
investing activities 6,758,812 565,194
------------ ------------
Cash flows from financing activities:
Net proceeds from issuance of shares - -
Purchase of treasury shares - -
Cash dividends - -
------------ ------------
Net cash used in financing activities - -
Net increase (decrease) in cash and cash
equivalents 3,357,647 (5,963,659)
Cash and cash equivalents at beginning of the
period 18,206,540 27,125,926
------------ ------------
Cash and cash equivalents at end of the period $21,564,187 $21,162,267
Cash paid during the period for interest $ 0 $ 44,401
Cash paid during the period for income/excise
taxes $ 32,011 $ 25,779
Noncash investing activities: During the quarter ended March 31, 2002, the Fund
received common stock in settlement of amounts due for interest and
dividends totaling $9,397. During the quarter ended June 30, 2002, the Fund
received common stock in settlement of amounts due from interest and
dividends totaling $6,745.
See accompanying notes to financial statements.
25
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
Notes to Financial Statements
June 30, 2002
(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 offered to sell
shares in the Fund until closing of the offering on December 31, 1994. The
Prospectus of the Fund required minimum aggregate capital contributions by
shareholders of not less than $2,500,000 and allowed for maximum capital
contributions of $100,000,000. 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 Renaissance Capital Group,
Inc. (Investment Advisor) believes offers the opportunity for growth. The
Fund is a non-diversified closed-end investment company and has elected to
be treated as a business development company under the Investment Company
Act of 1940, as amended (1940 Act).
(2) Summary of Significant Accounting Policies
(a) Valuation of Investments
Portfolio investments are stated at quoted market or fair value as
determined by the Investment Advisor (note 5). 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.
(b) Other
The Fund follows industry practice and records security transactions
on the trade date. Dividend income is recorded on the ex-dividend
date. Interest income is recorded as earned on the accrual basis.
(c) Cash and Cash Equivalents
The Fund considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents.
26
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
Notes to Financial Statements
June 30, 2002
(d) 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 RIC requirements and to distribute all of its
taxable investment income and long-term capital gains within the
defined period under the IRC to qualify as a regulated investment
company. 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.
(e) Net Income per Share
Net income per share is based on the weighted average of shares
outstanding of 4,361,618 during each period.
(f) 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 as to the valuation of
investments that affect the amounts and disclosures in the financial
statements. Actual results could differ from these estimates.
(3) Management and Organization Fees
The Investment Adviser for the Fund is registered as an investment adviser
under the Investment Advisers Act of 1940. Pursuant to an Investment
Advisory Agreement (the 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 administrative expenses. A summary of fees and
reimbursements paid by the Fund under the Agreement, the Prospectus, and
the original offering document are as follows:
27
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
Notes to Financial Statements
June 30, 2002
o The Investment Adviser receives a fee equal to 0.4375% (1.75%
annually) of the Net Assets each quarter. The Fund incurred $233,831
for such management fees for the quarter ended June 30, 2002, and
$478,312 for the six months ended June 30, 2002. Amounts payable for
such fees at June 30, 2002, were $233,831.
o The Investment Adviser was reimbursed by the Fund for administrative
expenses paid by the Investment Adviser on behalf of the Fund. Such
reimbursements were $28,190 for the quarter ended June 30, 2002, and
$41,434 for the six months ended June 30, 2002, and are included in
general and administrative expenses in the accompanying statements of
operations.
o The Investment Adviser is to receive an incentive fee in an amount
equal to 20% of any of the Fund's realized capital gains computed net
of all realized capital losses and cumulative unrealized depreciation
of the Fund, which fee is to be accrued and paid on a quarterly basis.
The Fund did not incur any incentive fees for the quarter ended June
30, 2002, or for the six months ended June 30, 2002..
(4) Eligible Portfolio Companies and Investments
(a) 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). 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 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.
(b) Investments. Investments are carried in the statements of assets and
liabilities as of December 31, 2001, and June 30, 2002, 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. The Fund
may register and sell such securities at any time with the Fund paying
the costs of registration. Interest on the convertible securities are
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
28
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
Notes to Financial Statements
June 30, 2002
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, and other factors.
(5) Valuation of Investments
On a quarterly basis, Renaissance Group prepares a valuation of the assets
of the Fund subject to the approval of the Board of Directors. The
valuation principles are as follows:
o Generally, the guiding principle for valuation is application of
objective standards. The objective standards for determining market
prices and applying valuation methodologies will govern in all
situations except where a debt issuer is in default.
o Generally, the fair value of debt securities and preferred securities
convertible into common stock is the sum of (a) the value of such
securities without regard to the conversion feature, and (b) the
value, if any, of the conversion feature. The fair value of debt
securities without regard to conversion features is determined on the
basis of the terms of the debt security, the interest yield, and the
financial condition of the issuer. The fair value of preferred
securities without regard to conversion features is determined on the
basis of the terms of the preferred security, its dividend, and its
liquidation and redemption rights and absent special circumstances
will typically be equal to the lower of cost or 120% of the value of
the underlying common stock. The fair value of the conversion features
of a security, if any, are based on fair values of the derivative
securities as of the relevant date less an allowance, as appropriate,
for costs of registration, if any, and selling expenses.
o Portfolio investments for which market quotations are readily
available and which are freely transferable are valued as follows: (i)
securities traded on a securities exchange or the Nasdaq or in the
over-the-counter market are valued at the closing price on, or the
last trading day prior to, the date of valuation, and (ii) securities
traded in the over-the-counter market that do not have a closing price
on, or the last trading day prior to, the date of valuation are valued
at the average of the closing bid and ask price for the last trading
day on, or prior to, the date of valuation. Securities for which
market quotations are readily available but are restricted from free
trading in the public securities markets (such as Rule 144 stock) are
valued by discounting the closing price or the closing bid and ask
prices, as the case may be, for the last trading day on, or prior to,
the date of valuation to reflect the liquidity caused by such
restriction, but taking into consideration the existence, or lack
thereof, of any contractual right to have the securities registered
and freed from such trading restrictions.
29
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
Notes to Financial Statements
June 30, 2002
o Because 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 will govern the value of the
enterprise. This valuation method will cause the Fund's initial
investment in the private entity to be valued at cost. Thereafter, new
issuances of equity or equity-linked securities by a portfolio company
will be used to determine enterprise value as they will provide the
most objective and independent basis for determining the worth of the
issuer.
There can be no assurance that stated market rates for private equity
valuations will stay constant, or that future equity raises will value
the portfolio company at levels equal to or greater than the prior
equity financing for the issuer. As a result, the Fund's valuation of
a privately held portfolio company may be subject to downward
adjustment that would directly impact the Fund's net asset value and
which could result in a substantial reduction in both the fund's net
assets and the amount of income available for distribution to
shareholders.
o Where a portfolio company is in default on a debt instrument held by
the Fund, and no market exists for that instrument, then the fair
value for the investment is determined on the basis of appraisal
procedures established in good faith by the Investment Adviser. This
type of fair value determination is based upon numerous factors such
as the portfolio company's earnings and net worth, market prices for
comparative investments (similar securities in the market place), the
terms of the Fund's investment, and a detailed assessment of the
portfolio company's future financial perspective. In the event of
unsuccessful operations by a portfolio company, the appraisal may be
based upon a net realizable value when that investment is liquidated.
As of December 31, 2001, and June 30, 2002, the net unrealized
appreciation associated with investments held by the Fund was
$14,746,533, and $17,552,043 respectively.
30
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
Notes to Financial Statements
June 30, 2002
(6) Restricted Securities
As indicated on the statement of investments as of June 30, 2002, 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 (note 5).
(7) Securities Sold Under Agreements to Repurchase
Securities sold under agreements to repurchase are collateralized by
$16,996,888 in Federal securities and $1,700,000 in cash held by the broker
and are included in cash and cash equivalents and investments on the
statement of assets and liabilities as of June 30, 2002.
31
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
Notes to Financial Statements
June 30, 2002
(8) Financial Highlights
Selected per share data and ratios for each share of common stock
outstanding throughout the three months ended June 30, 2001 and 2002, are
as follows:
2001 2002
---- ----
Net asset value, beginning of period $ 10.95 $ 12.75
Net investment income (loss) $ (0.30) $ (0.09)
Net realized and unrealized gain on investments $ 1.64 $ (0.46)
--------- ---------
Total return from investment operations $ 1.34 $ (0.55)
--------- ---------
Net asset value, end of period $ 12.29 $ 12.20
========= =========
Per share market value, end of period $ 10.50 $ 10.00
Portfolio turnover rate (quarterly) 2.76% 3.18%
Quarterly return (a) 14.29% -7.41%
Ratio to average net assets (quarterly) (b):
Net investment income (loss) -2.60% -0.71%
Expenses, excluding incentive fees 0.90% 0.93%
Expenses, including incentive fees 2.70% 0.93%
(a) Quarterly 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 AICPA guidelines.
(b) Average net assets have been computed based on quarterly valuations.
32
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
Notes to Financial Statements
June 30, 2002
Selected per share data and ratios for each share of common stock
outstanding throughout the six months ended June 30, 2001 and 2002, are as
follows:
2001 2002
---- ----
Net asset value, beginning of period $ 10.86 $ 12.50
Net investment income (loss) $ (0.30) $ (0.16)
Net realized and unrealized gain on investments $ 1.73 $ (0.14)
--------- ---------
Total return from investment operations $ 1.43 $ (0.30)
--------- ---------
Net asset value, end of period $ 12.29 $ 12.20
========= =========
Per share market value, end of period $ 10.50 $ 10.00
Portfolio turnover rate (six months) 3.04% 6.00%
Six month return (a) 16.67% -3.01%
Ratio to average net assets (six months) (b):
Net investment income (loss) -2.64% -1.30%
Expenses, excluding incentive fees 1.56% 1.72%
Expenses, including incentive fees 3.40% 1.72%
(a) Six 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 AICPA guidelines.
(b) Average net assets have been computed based on quarterly valuations.
33
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Material Changes in Portfolio Investments
The following portfolio transactions are noted for the quarter ended June
30, 2002 (portfolio companies are herein referred to as the "Company"):
Active Link Communications, Inc. (OTC:ACVE) In the second quarter of 2002,
the Company continued to pay down the principal balance of its convertible
bridge loan with the Fund. In total, the Company repaid $34,395 of
principal outstanding on the convertible bridge loan, and at June 30, 2002,
the Company had $63,632 remaining on the loan.
Bentley Pharmaceuticals, Inc. (AMEX:BNT) In the second quarter of 2002, the
Fund sold 265,000 shares of Bentley common stock in the open market
realizing proceeds of $3,016,629, representing a gain of $2,081,317. At
June 30, 2002, the Fund had 659,979 shares of BNT remaining having a basis
of $1,035,168 or $1.57 per share.
Canterbury Consulting Group (NASDAQ:CITI) In the second quarter of 2002,
the Fund purchased 103,000 shares of the Company's common stock in the open
market for $98,511 or $0.96 per share. All stock is freely tradeable. This
is a new investment for the Fund. Canterbury provides computer and
management training programs and technology consulting services to Fortune
1,000 companies.
DaisyTek International, Inc. (NASDAQ:DZTK) In the second quarter of 2002,
the Fund purchased an additional 10,000 shares of the Company's common
shares in the open market. At June 30, 2002, the Fund owned 20,000 of DZTK
stock having a basis of $264,353, or $13.22 per share. All stock is freely
tradeable.
eOriginal, Inc. (Private) In the second quarter of 2002, the Fund made a
follow-on investment in the Company by advancing $101,183 to purchase
Senior Secured Promissory Notes of eOriginal. The notes bear interest at
12%, payable at maturity on June 30, 2002, and are secured by all
intellectual property and software owned by the Company.
Fortune Natural Resources Corp. (OTC:FPXA) In the second quarter of 2002,
the Company redeemed the Fund's Series B Preferred stock for $121,545, of
which $120,000 represented repayment of principal and the remainder
represented payment of dividends at 10% for the term that the Series B
Preferred stock was outstanding. As consideration for the Preferred
investment, the Fund received a three-year warrant to purchase 36,000
shares of the Company's common stock at an exercise price of $0.25 per
share.
I-Flow Corporation (NASDAQ:IFLO) In the second quarter of 2002, the Fund
purchased an additional 47,020 shares of the Company's common stock in the
open market. At June 30, 2002, the Fund owned 64,520 shares of common stock
having a basis of $168,252, or $2.61 per share. All stock is freely
tradeable.
34
Integrated Security Systems, Inc. (OTC:IZZI) In the second quarter of 2002,
the Fund received 23,782 shares of the Company's common stock as payment in
kind for dividends on the Fund's Series D Convertible Preferred stock.
These shares were paid to the Fund at an average rate of $0.28 per share.
Northwestern Steel and Wire Corp. (Bankruptcy) In the second quarter of
2002, the Fund wrote off its entire investment in this Company resulting in
a net realized loss to the Fund of $127,500.
Play by Play Toys and Novelties, Inc. (Bankruptcy) In the second quarter of
2002, the Fund received $422,767 in proceeds from the Company's liquidation
in bankruptcy. Following the application of these proceeds, the Fund wrote
off its remaining investment in Play by Play resulting in a net realized
loss to the Fund of $2,002,981.
Precis, Inc. (NASDAQ:PCIS) In the second quarter of 2002, the Fund
purchased an additional 47,500 shares of the Company's common stock in the
open market. At June 30, 2002, the Fund owned 93,700 shares of the
Company's common stock at a cost of $993,897, or $10.61 per share. All
stock is freely tradeable.
Simtek Corporation (OTC:SRAM) In June 2002, the Fund made a follow-on
investment in the Company by purchasing $1,000,000 of 7.5% Convertible
Debentures. The debentures accrue interest quarterly, are due June 28,
2009, and are convertible into shares of the Company's common stock at a
rate of $0.312 per share. The debentures contain the Fund's standard
anti-dilution provisions and also entitle the Fund to certain registration
rights.
US Home Systems (NASDAQ:USHS) In the second quarter of 2002, the Fund
purchased 110,000 shares of the Company's common stock in the open market
for $535,587, a rate of $4.87 per share. All stock is freely tradeable.
This is a new investment for the Fund.
US Home Systems is engaged in the manufacture, design, sale, and
installation of quality specialty home improvement products with specific
emphasis on kitchen and bath improvements, and also provides consumer
financing services to the home improvement and remodeling industry. The
Company's home improvement product lines include replacement kitchen
cabinetry, kitchen cabinet refacing and counter top products utilized in
kitchen remodeling, bathroom refacing and related products utilized in
bathroom remodeling, and replacement windows. The Company provides through
its wholly owned subsidiary, First Consumer Credit, Inc., consumer
financing to the home improvement and remodeling industry.
35
Results of Operations for the Quarter Ended June 30, 2002
For the quarter ended June 30, 2002, the Fund had a net investment
loss of ($388,863) compared to a net investment loss of ($1,319,241) in the
second quarter of 2001. Most of the difference came from reduced expenses
in the second quarter of 2002 versus the same period of a year ago. No
incentive fees were incurred by the Fund in the current year second quarter
versus $911,857 in incentive fees incurred in the second quarter of 2001.
Additionally, management fees were slightly below last year's level as they
decreased 2.4% to $233,831 due to lower valuations for portfolio holdings.
These reductions in expenses were slightly offset by general and
administrative fees that rose 8.5% to $159,287 versus $146,882 in the same
period of 2001, as well as higher legal and professional fees for the
quarter. Interest income rose from $19,829 in the three months ended June
30, 2001, to $93,430 in the three months ended June 30, 2002, due to a
higher concentration of the Fund's holdings in interest bearing
instruments. Net income in the second quarter of 2002 was ($2,423,550) due
to an increase in the unrealized depreciation on investments of
($1,985,523) and a realized loss on investments of ($49,164). In the second
quarter of 2001, the Fund had net income of $5,859,056 as a result of net
realized gains on investments of $4,559,287 and net unrealized appreciation
on investments of $2,619,010.
For the six months ended June 30, 2002, the Fund incurred a net
investment loss of ($705,270) versus a loss of ($1,309,535) for the same
period of 2001. Again, the reduction in net investment loss was driven
primarily by lower expenses as a result of no net realized gains being
taken on investments and no accruals of incentive fees so far in 2002. For
the first six months of 2001, incentive fees of $911,857 were incurred by
the Fund due to the realization of gains on sales of portfolio investments.
For the six months of 2002, general and administrative expenses increased
17% to $246,609 and legal and professional fees rose from $112,052 in the
first six months of 2001 to $165,289 for the first six months of 2002.
Management fees for the first six months of 2002 were also slightly higher
than in the same period of 2001 due higher valuations for portfolio
investments over the period. For the first two quarters of 2002, the Fund
realized a net loss of ($1,324,151) due to the realization of losses on
portfolio investments of ($3,424,391) offset by unrealized appreciation on
the investment portfolio of $2,805,510. In the first six months of 2001,
the Fund's net income was $6,258,836 as a result of realized gains taken on
investments of $2,091,629 together with unrealized appreciation on
portfolio holdings of $5,476,742.
Liquidity and Capital Resources
For the three months ended June 30, 2002, net assets decreased by
($2,423,550) giving the fund net assets of $53,213,357 at June 30, 2002, or
$12.20 per share. The reduction in net assets is due to the net investment
loss of ($388,863), combined with lower valuations of portfolio investments
and net realized losses on investments of ($49,164). The Fund's losses on
Northwestern Steel and Wire Corp. and Play by Play Toys and Novelties,
Inc., were $127,500 and $2,002,981, respectively. Offsetting these losses
were gains taken on the sale of 265,000 shares of Bentley Pharmaceuticals
which resulted in net proceeds of $3,016,629 which represented a gain of
$2,081,317.
36
At the end of the second quarter of 2002, the Fund had net cash and
cash equivalents of $4,795,570 versus net cash and cash equivalents of
$4,219,131 at March 31, 2002. The increase in cash and cash equivalents
results from cash proceeds realized on the sale of common stock of Bentley
Pharmaceuticals. The Fund's interest receivable increased from $70,276 at
March 31, 2002, to $112,974 at June 30, 2002.
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.
37
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(1) Amended Code of Ethics
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Fund
has duly caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
August 9, 2002
________________________________________________________
Russell Cleveland, President and CEO
(Principal Executive Officer)
August 9, 2002
________________________________________________________
Barbe Butschek, Chief Financial Officer
(Principal Financial Officer)
38
EXHIBIT 1
Renaissance Capital Growth and Income Fund III, Inc.
Renaissance Capital Group, Inc.
CODE OF ETHICS
Adopted , July 11, 2002
As Required by Rule 17j-1 under the Investment Company Act of 1940
Section 1: Statement of Purpose and Applicability
(A) Covered Entities and Their Relationships
(1) The Company. Renaissance Capital Growth and Income Fund III,
Inc., a Texas corporation (the "Company"), has elected to be
regulated as a business development company (a "BDC") under the
Investment Company Act of 1940, as amended (the "1940 Act").
(2) The Adviser. Renaissance Capital Group, Inc., a Texas corporation
(the "Adviser"), is registered as an investment adviser under the
Investment Advisers Act of 1940 and is the investment adviser of
the Company.
(B) Statement of Purpose
(l) Introduction. Like an investment company registered under the
1940 Act, an investment company that has elected to be regulated
as a BDC has a fiduciary duty to its shareholders, a duty that is
recognized under the federal securities laws and regulations
governing the Company's operations. In particular, the 1940 Act
establishes as a matter of federal law the fiduciary status of
affiliates of an investment company vis-a-vis such company and
regulates and controls the relationship among: an investment
company; its directors, officers and employees; its investment
advisers; and directors, officers and employees of such advisers.
The 1940 Act specifically prohibits certain types of financial
transactions involving, directly or indirectly, both an
investment company and its investment adviser or directors,
officers or employees of such adviser unless prior approval is
obtained from the U.S. Securities and Exchange Commission (the
"SEC").
An underlying policy of the 1940 Act is to prohibit any person
who is connected with an investment company or an investment
Code of Ethics Page 1 of 20
Revised July 11, 2002
adviser of such company from deriving hidden profit from his or
her association with such company. The 1940 Act, among other
things, prohibits persons affiliated with an investment company
from engaging in practices that constitute fraud or deceit upon
the company or its shareholders, including the practice by its
directors, officers or employees or of any investment adviser or
its directors, officers or employees of trading privately (i.e.,
for their own accounts) in securities at a time when the
investment company is caused to trade in the same securities in
order to benefit these affiliated persons. Thus, the 1940 Act
requires investment company directors, officers and employees as
well as investment advisers, directors, officers and employees of
investment advisers and other affiliates to serve the company
with undivided loyalty.
(2) Code of Ethics. Rule 17j-1, promulgated by the SEC pursuant to
Section 17(j) of the 1940 Act and made applicable to BDCs by
Section 59 of the 1940 Act, makes it unlawful for affiliated
persons of the Company or the Adviser, in connection with the
purchase or sale, directly or indirectly, by such person of any
Security Held or to Be Acquired by the Company, to: (i) employ
any device, scheme or artifice to defraud the Company; (ii) make
any untrue statement of a material fact to the Company or omit to
state a material fact necessary in order to make the statements
made, in light of the circumstances under which they are made to
the Company, not misleading; (iii) engage in any act, practice,
or course of business that operates or would operate as a fraud
or deceit upon the Company; or (iv) engage in any manipulative
practice with respect to the Company.
Rule 17j-1 also requires investment companies and their
investment advisers (including subadvisers) and principal
underwriters to adopt written codes of ethics reasonably designed
to prevent their officers and directors, as well as any employees
who participate in the selection of a company's portfolio
securities or who have access to information regarding a
company's impending purchases and sales of portfolio securities,
from engaging in conduct prohibited by the rule as described in
(i) - (iv) above. Therefore, the Board of Directors of the
Company and the Board of Directors of the Adviser have each
adopted the conduct standards contained in this Code of Ethics
(the "Code") for such individuals.
This Code is based upon the following general fiduciary
principles:
(a) the duty at all times to place the interests of shareholders
first;
(b) the requirement that all personal securities transactions be
conducted consistent with the Code and in such a manner as
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to avoid any actual or potential conflict of interest or any
abuse of an individual's position of trust and
responsibility; and
(c) the fundamental standard that investment company personnel
should not take inappropriate advantage of their positions.
(3) Scope of the Code. This Code constitutes the Code of Ethics of the
Company and of the Adviser. This Code covers the conduct (including
the personal securities transactions) of each director and officer of
the Company or the Adviser, as well as certain employees of the
Company or the Adviser (or of another company in a control
relationship to the Company or the Adviser) and certain natural
persons in a control relationship to the Company or the Adviser.
Section II: Definitions
(A) Access Person. "Access Person" means any director, officer, or
Advisory Person of the Company or the Adviser.
(B) Adviser. The "Adviser" means Renaissance Capital Group, Inc., a Texas
corporation.
(C) Advisory Person. "Advisory Person" of the Company or the Adviser
means: (i) any employee of the Company or the Adviser (or of any
company in a control relationship to the Company or the Adviser), who,
in connection with his or her regular functions or duties, makes,
participates in, or obtains information regarding the purchase or sale
of Covered Securities by the Company, or whose functions relate to the
making of any recommendations with respect to such purchases or sales;
and (ii) any natural person in a control relationship to the Company
or the Adviser who obtains information concerning recommendations made
to the Company with regard to the purchase or sale of Covered
Securities by the Company.
A person does not become an "Advisory Person" simply by virtue of: (1)
normally assisting in the preparation of public reports, or receiving
public reports, but not receiving information about current
recommendations or trading of securities; or (2) a single instance of
obtaining knowledge of current recommendations or trading activity; or
infrequently and inadvertently obtaining such knowledge.
(D) Beneficial Interest. "Beneficial Interest" includes any entity,
person, trust, or account with respect to which an Access Person
exercises investment discretion or provides investment advice. A
beneficial interest shall be presumed to include all accounts in the
name of or for the benefit of the Access Person, his or her spouse,
dependent children, or any person living with him or her or to whom he
or she contributes economic support.
(E) Beneficial Ownership. "Beneficial Ownership" shall be interpreted in
the same manner as it would be under Rule 16a-l(a)(2) under the 1934
Act,
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except that the determination of direct or indirect Beneficial
Ownership shall apply to all securities, and not just equity
securities, that an Access Person has or acquires. Rule 16a-1(a)(2)
provides that the term "beneficial owner" means any person who,
directly or indirectly, through any contract, arrangement,
understanding, relationship, or otherwise, has or shares a direct or
indirect pecuniary interest in any equity security. Therefore, an
Access Person may be deemed to have Beneficial Ownership of securities
held by members of his or her immediate family sharing the same
household, or by certain partnerships, trusts, corporations, or other
arrangements.
(F) Company. The "Company" means Renaissance Capital Growth and Income
Fund III, Inc., a Texas corporation.
(G) Control. "Control" shall have the same meaning as that set forth in
Section 2(a)(9) of the 1940 Act, which defines control to mean the
power to exercise a controlling influence on the management or
policies of a company, unless such power is solely the result of an
official position with such company. Any person who owns beneficially,
either directly or through one or more controlled companies, more than
25 percent of the voting securities of a company is presumed to
control such company. Any person who does not so own more than 25
percent of the voting securities of any company is presumed not to
control such company.
(H) Covered Security. "Covered Security" means a security as defined in
Section 2(a)(36) of the 1940 Act, except that it does not include: (i)
direct obligations of the Government of the United States; (ii)
bankers' acceptances, bank certificates of deposit, commercial paper
and high quality short-term debt instruments, including repurchase
agreements; and (iii) shares issued by open-end investment companies
registered under the 1940 Act.
(I) Designated Officer. "Designated Officer" shall mean the officer of the
Company or the Adviser designated from time to time by the Board of
Directors of the Company or the Adviser, respectively, to be
responsible for management of compliance with this Code. The
Designated Officer may appoint a designee to carry out certain of his
or her functions pursuant to this Code.
(J) Disinterested Director. "Disinterested Director" means a director of
the Company who is not an "interested person" of the Company within
the meaning of Section 2(a)(19) of the 1940 Act, and who would not be
required to make a report under Section 4 of this Code solely by
reason of being a director of the Company.
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(K) Initial Public Offering. "Initial Public Offering" means an offering
of securities registered under the 1933 Act, the issuer of which,
immediately before the registration, was not subject to the reporting
requirements of Sections 13 or 15(d) of the 1934 Act.
(L) Investment Personnel. "Investment Personnel" of the Company or the
Adviser means: (i) an employee of the Company or the Adviser (or of
any company in a control relationship to the Company or the Adviser)
who, in connection with his or her regular functions or duties, makes
or participates in making recommendations regarding the purchase or
sale of securities by the Company; and (ii) any natural person who
controls the Company or the Adviser and who obtains information
concerning recommendations made to the Company regarding the purchase
or sale of securities by the Company.
(M) Limited Offering. "Limited Offering" means an offering that is exempt
from registration under the 1933 Act pursuant to Section 4(2) or
Section 4(6) or pursuant to Rule 504, Rule 505, or Rule 506 under the
1933 Act.
(N) Portfolio Manager. "Portfolio Manager" means the person or persons
primarily responsible for the day-to-day management purchase and sale
of securities by the Company.
(O) Purchase or Sale of a Covered Security. "Purchase or Sale of a Covered
Security" includes, among other things, the writing of an option to
purchase or sell a Covered Security, or the use of a derivative
product to take a position in a security.
(P) SEC. "SEC" means the U. S. Securities and Exchange Commission.
(Q) Security Held or to Be Acquired. A "Security Held or to Be Acquired"
means: (i) with respect to the Disinterested Directors of the Company
(a) any Covered Security which, within the most recent 15 days, is or
has been held by the Company or is being or has been considered by the
Company or the Adviser for purchase by the Company; and (b) any option
to purchase or sell, and any security convertible into or exchangeable
for, a Covered Security described in clause (a); and (ii) with respect
to any Access Person of the Company or the Adviser not included in
clause (i) (a) any Covered Security which, within the most recent 15
days, is or has been held by the Company or other Advisory Client of
the Adviser or is being or has been considered by the Company or the
Adviser for purchase by the Company or other Advisory Client of the
Adviser; and (b) any option to purchase or sell, and any security
convertible into or exchangeable for, a Covered Security described in
clause (a).
(R) 1933 Act. "1933 Act" means the Securities Act of 1933, as amended, and
all regulations promulgated thereunder.
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(S) 1934 Act. "1934 Act" means the Securities Exchange Act of 1934, as
amended, and all regulations promulgated thereunder.
(T) 1940 Act. "1940 Act" means the Investment Company Act of 1940, as
amended, and all regulations promulgated thereunder.
Section III: Standards of Conduct
(A) General Standards
(1) No Access Person shall engage, directly or indirectly, in any
business transaction or arrangement for personal profit that is
inconsistent with the best interests of the Company or its
shareholders; nor shall he or she make use of any confidential
information gained by reason of his or her employment by or
affiliation with the Company or the Adviser or affiliates thereof
in order to derive a personal profit for himself or herself or
for any Beneficial Interest, in violation of the fiduciary duty
owed by the Company's affiliates to the Company and its
shareholders.
(2) Any Access Person recommending or authorizing the purchase or
sale of a Covered Security by the Company shall, at the time of
such recommendation or authorization, disclose any Beneficial
Interest in, or Beneficial Ownership of, such Covered Security or
the issuer thereof.
(3) No Access Person shall dispense any information concerning
securities holdings or securities transactions of the Company to
anyone outside the Company, without obtaining prior written
approval from the Designated Officer of the Company or the
Adviser, as the case may be, or such person or persons as these
individuals may designate to act on their behalf. Notwithstanding
the preceding sentence, such Access Person may dispense such
information without obtaining prior written approval:
(a) when there is a public report containing the same
information;
(b) when such information is dispensed in accordance with
compliance procedures established to prevent conflicts of
interest between the Company and its affiliates;
(c) when such information is reported to directors of the
Company;
(d) in the ordinary course of his or her duties on behalf of the
Company; or
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(e) as required by applicable law.
(4) All personal securities transactions should be conducted
consistent with this Code and in such a manner as to avoid actual
or potential conflicts of interest, the appearance of a conflict
of interest, or any abuse of an individual's position of trust
and responsibility with respect to the Company.
(B) Prohibited Transactions
(1) General Prohibition. No Access Person shall purchase or sell,
directly or indirectly, any securities of the Company or any
Security Held or to Be Acquired in which he or she has, or by
reason of such transaction acquires, any direct or indirect
Beneficial Ownership, unless such purchase or sale has been
pre-cleared by the Designated Officer. Such pre-clearance shall
be effective for 5 days, subject to nullification at any time
during the 5-day period by the Designated Officer in order to
prevent a violation of the Code. Pre-clearance may be conducted
verbally, subject to the requirement and request, affirmative or
negative, that it be documented in writing as soon as
practicable. A form for pre-clearance of transactions in the
securities of the Company and/or any Security Held or to Be
Acquired is attached hereto as Exhibit A.
(2) Initial Public Offerings and Private Placements. No Investment
Personnel shall acquire, directly or indirectly, any securities
in which he or she by reason of such transaction acquires any
direct or indirect Beneficial Ownership pursuant to an Initial
Public Offering or Limited Offering, unless such Investment
Personnel shall have obtained prior written approval for such
purpose from the Designated Officer of the Company or the
Adviser. In determining whether such prior approval shall be
granted, the Designated Officer shall take into account whether
the opportunity to purchase such Covered Securities is being
offered to such Investment Personnel because of his or her
position with the Company or the Adviser, and whether the
opportunity to purchase such Covered Securities should be
reserved for the Company. Investment Personnel who purchase
Covered Securities pursuant to such prior approval shall disclose
that investment if they later become aware of or play a part in
the Company's subsequent consideration of an investment in the
issuer of the Covered Securities. In such circumstances, the
Company's decision to purchase Covered Securities of the issuer
shall be subject to an independent review by an Advisory Person
with no personal interest in the issuer.
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(3) Blackout Periods
(a) Open Order Blackout Period. No Advisory Person shall
purchase or sell, directly or indirectly, any Securities in
which he or she has, or by reason of such transaction
acquires, any direct or indirect Beneficial Ownership on any
day during which the Company has a pending "buy" or "sell"
order in that same Security until that order is executed or
withdrawn.
(b) Fifteen Day Blackout Period. No Portfolio Manager shall
purchase or sell, directly or indirectly, any Securities in
which he or she has, or by reason of such transaction
acquires, any direct or indirect Beneficial Ownership within
seven days before and after the Company trades in that
security.
(4) Short-Term Trading. No Advisory Person shall profit in the
purchase and sale, or sale and purchase, directly or indirectly,
of the same (or equivalent) securities in which he or she has, or
by reason of such transaction acquires, any direct or indirect
Beneficial Ownership within 60 calendar days. Exceptions to this
short-term trading prohibition may be made on a case-by-case
basis with the prior written approval of the Designated Officer
of the Company or the Adviser when no abuse appears to be
involved and the equities of the situation strongly support such
an exception. A form for approval of Short-Term Trading is
attached hereto as Exhibit B.
(5) Gifts. No Investment Personnel may accept, directly or
indirectly, any gift, favor, or service of significant value from
any person with whom he or she transacts business on behalf of
the Company or the Adviser under circumstances when to do so
would conflict with the Company's best interests or would impair
the ability of such person to be completely disinterested when
required, in the course of business, to make judgments and/or
recommendations on behalf of the Company.
(6) Service as Director. No Investment Personnel shall serve on the
Board of Directors of a publicly traded company without notice to
the Designated Officer of the Company or the Adviser.
(C) Exempted Transactions. The prohibitions of Sections III(A) and (B) of
this Code shall not apply to the following transactions, although the
reporting provisions of Section IV(B) of this Code, which requires
mandatory reporting of Covered Securities transactions by certain
Access Persons, will continue to apply to such transactions where
applicable:
(1) Purchases or sales effected in any account over which the Access
Person has no direct or indirect influence or control.
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(2) Purchases or sales that are non-volitional on the part of either
the Access Person or the Company.
(3) Purchases that are part of an automatic dividend reinvestment
plan.
(4) Purchases effected upon the exercise of rights issued by an
issuer pro rata to all holders of a class of its Covered
Securities, to the extent such rights were acquired from such
issuer, and sales of such rights so acquired.
(5) Purchases or sales that receive the prior approval of the
Designated Officer of the Company or the Adviser because the
Designated Officer has determined that particular purchase or
sale to be only remotely potentially harmful to the Company,
because they would be very unlikely to affect a highly
institutional market, or because they clearly are not related
economically to the Covered Securities to be purchased, sold, or
held by the Company.
Section IV: Procedures to Implement Code of Ethics
The following procedures have been established to assist Access Persons in
avoiding a violation of this Code, and to assist the Company and the Adviser in
preventing, detecting, and imposing sanctions for violations of this Code. Every
Access Person must follow these procedures. Questions regarding these procedures
should be directed to the Designated Officer of the Company or the Adviser.
(A) Applicability
All Access Persons are subject to the reporting requirements set forth
in Section IV(B) except:
(1) with respect to transactions effected for, and Covered Securities
held in, any account over which the Access Person has no direct
or indirect influence or control;
(2) a Disinterested Director, who would be required to make a report
solely by reason of being a Director, need not make: (1) an
initial holdings or an annual holdings report; and (2) a
quarterly transaction report, unless the Disinterested Director
knew or, in the ordinary course of fulfilling his or her official
duties as a Director, should have known that during the 15-day
period immediately before or after such Disinterested Director's
transaction in a Covered Security, the Company purchased or sold
the Covered Security, or the Company or its investment adviser
considered purchasing or selling the Covered Security;
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(3) an Access Person to the Adviser need not make a quarterly
transaction report to the Adviser if all the information in the
report would duplicate information required to be recorded under
Rule 204- 2(a)(12) or Rule 204-2(a)(13) under the Investment
Advisers Act of 1940, as amended;
(4) an Access Person need not make a quarterly transaction report if
the report would duplicate information contained in broker trade
confirmations or account statements received by the Company with
respect to the Access Person in the time required by subsection
(B)(2) of this Section IV, if all of the information required by
subsection (B)(2) of the Section IV is contained in the broker
trade confirmations or account statements, or in the records of
the Company, as specified in subsection (B)(4) of this Section
IV.
(B) Reporting Requirements
(1) Initial Holdings Report. An Access Person must file an initial
holdings report not later than 10 days after that person became
an Access Person. The initial holdings report must: (a) contain
the title, number of shares and principal amount of each Covered
Security in which the Access Person had any direct or indirect
beneficial ownership when the person because an Access Person;
(b) identify any broker, dealer, or bank with whom the Access
Person maintained an account in which any Covered Securities were
held for the direct or indirect benefit of the Access Person as
of the date the person became an Access Person; and (c) indicate
the date that the report is filed with the Designated Person. A
copy of a suggested form of such report is attached hereto as
Exhibit C.
(2) Quarterly Transaction Report. An Access Person must file a
quarterly transaction report not later than 10 days after the end
of a calendar quarter.
(a) With respect to any transaction made during the reporting
quarter in a Covered Security in which such Access Person
had any direct or indirect beneficial ownership, the
quarterly transaction report must contain: (i) the
transaction date, title, interest date and maturity date (if
applicable), the number of shares, and the principal amount
of each Covered Security; (ii) the nature of the transaction
(i.e., purchase, sale, or any other type of acquisition or
disposition); (iii) the price of the Covered Security at
which the transaction was effected; (iv) the name of the
broker, dealer, or bank through which the transaction was
effected; and (v) the date that the report is submitted by
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the Access Person. A copy of a suggested form of such report
is attached hereto as Exhibit D.
(3) Annual Holdings Report. An Access Person must file an annual
holdings report not later than 30 days after the end of a
fiscal year. The annual holdings report must contain the
following information (which information must be current as
of a date no more than 30 days before the report is
submitted): (a) the title, number of shares, and principal
amount of each Covered Security in which the Access Person
had any direct or indirect beneficial ownership; (b) the
name of any broker, dealer, or bank in which any Covered
Securities are held for the direct or indirect benefit of
the Access Person; and (c) the date the report is submitted.
As copy of a suggested form of such report is attached
hereto as Exhibit E.
(4) Account Statements. Every Advisory Person shall direct his
or her broker to provide to the Designated Officer of the
Company or the Adviser (1) duplicate confirmations of all
transactions in any Covered Security in which he or she has,
or by reason of such transaction acquires, any direct or
indirect Beneficial Ownership, and (2) copies of periodic
statements for all investment accounts in which he or she
has Beneficial Ownership.
(5) Company Reports. No less frequently than annually, the
Company and Adviser must furnish to the Board of Directors
of the Company, and the Board of Directors of the Company
must consider, a written report that:
(a) describes any issues arising under the Code or
procedures since the last report to the Board of
Directors of the Company, including but not limited to,
information about material violations of the code or
procedures and sanctions imposed in response to the
material violations; and
(b) certifies that the Company or the Adviser, as the case
may be, has adopted procedures reasonably designed to
prevent Access Persons from violating the Code.
(C) Disclaimer of Beneficial Ownership. Any report required under this
Section IV may contain a statement that the report shall not be
construed as an admission by the person submitting such duplicate
confirmation or account statement or making such report that he or she
has any direct or indirect beneficial ownership in the Covered
Security to which the report relates.
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(D) Review of Reports. The reports required to be submitted under this
Section IV shall be delivered to the Designated Officer. The
Designated Officer shall review such reports to determine whether any
transactions recorded therein constitute a violation of the Code.
Before making any determination that a violation has been committed by
any Access Person, such Access Person shall be given an opportunity to
supply additional explanatory material. The Designated Officer shall
maintain copies of the reports as required by Rule 17j-1(f).
(E) Acknowledgment and Certification. Upon becoming an Access Person and
annually thereafter, each Access Person shall sign an acknowledgment
and certification of his or her receipt of and intent to comply with
this Code in the form attached hereto as Exhibit F and return it to
the Designated Officer. Each Access Person must also certify annually
that he or she has read and understands the Code and recognizes that
he or she is subject to the Code. In addition, each Access Person must
certify annually that he or she has complied with the requirements of
the Code and that he or she has disclosed or reported all personal
securities transactions required to be disclosed or reported pursuant
to the requirements of the Code. The form attached hereto as Exhibit F
shall be used for the annual certification of compliance.
(F) Records. The Company and Adviser shall each maintain records with
respect to this Code in the manner and to the extent set forth below,
which records may be maintained on microfilm or electronic storage
media under the conditions described in Rule 31a-2(f)(1) under the
1940 Act and shall be available for examination by representatives of
the SEC.
(1) A copy of this Code and any other Code of Ethics of the Company
or the Adviser, as the case may be, that is, or at any time
within the past five years has been, in effect shall be
maintained in an easily accessible place;
(2) A record of any violation of this Code and of any action taken as
a result of such violation shall be maintained in an easily
accessible place for a period of not less than five years
following the end of the fiscal year in which the violation
occurs;
(3) A copy of each report made by an Access Person or duplicate
account statement received pursuant to this Code, including any
information provided in lieu of the reports under subsection
(A)(3) of this Section IV, shall be maintained for a period of
not less than five years from the end of the fiscal year in which
it is made or the information is provided, the first two years in
an easily accessible place;
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(4) A record of all persons who are, or within the past five years
have been, required to make reports pursuant to this Code, or who
are or were responsible for reviewing these reports, shall be
maintained in an easily accessible place;
(5) A copy of each report required under subsection (B)(5) of this
Section IV shall be maintained for at least five years after the
end of the fiscal year in which it is made, the first two years
in an easily accessible place; and
(6) A record of any decision, and the reasons supporting the
decision, to approve the direct or indirect acquisition by an
Access Person of beneficial ownership in any securities in an
Initial Public Offering or Limited Offering shall be maintained
for at least five years after the end of the fiscal year in which
the approval is granted.
(G) Confidentiality. All reports of Covered Securities transactions,
duplicate confirmations, account statements, and any other information
filed with the Company or furnished to any person pursuant to this
Code shall be treated as confidential, but are subject to review as
provided herein and by representatives of the SEC or otherwise to
comply with applicable law or the order of a court of competent
jurisdiction.
(H) Dual Reporting Obligations. Employees, officers and directors of the
Adviser subject to substantially similar reporting obligations set
forth under this or another code of ethics for the Adviser are not
also subject to the reporting requirements set forth in this Code.
(I) Obligation to Report a Violation. Every Access Person who becomes
aware of a violation of this Code by any person must report it to the
Designated Officer, who shall report it to appropriate management
personnel. The management personnel will take such disciplinary action
that they consider appropriate under the circumstances. In the case of
officers or other employees of the Company or Adviser, as the case may
be, such action may include removal from office. If the management
personnel consider disciplinary action against any person, they will
cause notice thereof to be given to that person and provide to that
person the opportunity to be heard. The Board of Directors of the
Company or the Adviser, as applicable, will be notified, in a timely
manner, of remedial action taken with respect to violations of the
Code.
Section V: Sanctions
Upon determination that a violation of this Code has occurred, the Board of
Directors of the Company or the Adviser, as applicable, may impose such
sanctions as it deems appropriate, including, among other things, a letter
Code of Ethics Page 13 of 20
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of censure or suspension or termination of the employment of the violator.
All violations of this Code and any sanctions imposed with respect thereto
shall be periodically reported to the Board of Directors of the Company.
Section VI : Monitoring of Service Providers
The Designated Officer of the Company shall, prior to effectiveness of this
Code, and periodically thereafter as appropriate, verify that the Adviser
has adopted this or another code of ethics and that such code of ethics
meets all applicable legal requirements and is consistent with the goals
and scope of this Code.
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EXHIBIT A
PRE-CLEARANCE FOR TRANSACTION IN SECURITIES OF RENN
AND/OR
SECURITIES HELD OR TO BE ACQUIRED
Name of Access Person: _____________________________________
Security To Be Purchased or Sold: _____________________________________
Nature of Transaction (Buy or Sell): _____________________________________
Date of Request: _____________________________________
The undersigned hereby gives notice of his/her desire to transact in the
above-referenced security as indicated. Please advise that you have reviewed and
consent to the proposed transaction by signing in the space provided below.
____________________________________
By:
Title:
APPROVED:
_____________________________________
By:
Title:
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EXHIBIT B
APPROVAL FOR SHORT-TERM TRADING EXCEPTION
Name of Access Person: _____________________________________
Security To Be Purchased or Sold: _____________________________________
Nature of Transaction (Buy or Sell): _____________________________________
Holding Period of Security: _____________________________________
Reason for Transaction: _____________________________________
_____________________________________________________________________
_____________________________________________________________________
Date of Request: _____________________________________
The undersigned hereby gives notice of his/her desire to execute the
above-referenced short-term security transaction as indicated. Please advise
that you have reviewed and consent to the proposed transaction by signing in the
space provided below.
____________________________________
By:
Title:
APPROVED:
_____________________________________
By:
Title:
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EXHIBIT C
INITIAL HOLDINGS REPORT
Name______________________________ Date_______________________
NAME OF ISSUER DESCRIPTION OF SECURITIES
I certify that the foregoing is a complete and accurate list of all securities
in which I have any Beneficial Ownership.
______________________________
Signature
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EXHIBIT D
QUARTERLY TRANSACTION REPORT
Name_________________________________ Date_____________________
SECURITIES FIRM
NAME AND ADDRESS ACCOUNT NUMBER ACCOUNT NAME(s)
I certify that the foregoing is a complete and accurate list of all securities
accounts in which I have any Beneficial Ownership.
_______________________________
Signature
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EXHIBIT E
ANNUAL HOLDINGS REPORT
Name______________________________ Date_______________________
NAME OF ISSUER DESCRIPTION OF SECURITIES
I certify that the foregoing is a complete and accurate list of all securities
in which I have any Beneficial Ownership.
________________________________
Signature
________________________________
Date
Code of Ethics Page 19 of 20
Revised July 11, 2002
EXHIBIT F
ACKNOWLEDGMENT AND CERTIFICATION
I acknowledge receipt of the Code of Ethics of Renaissance Capital Growth
and Income Fund III, Inc. and Renaissance Capital Group, Inc. I have read and
understand such Code of Ethics and agree to be governed by it at all times.
Further, if I have been subject to the Code of Ethics during the preceding year,
I certify that I have complied with the requirements of the Code of Ethics and
have disclosed or reported all personal securities transactions required to be
disclosed or reported pursuant to the requirements of the Code of Ethics.
___________________________________
(signature)
___________________________________
(please print name)
Date:__________________________
Code of Ethics Page 20 of 20
Revised July 11, 2002