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 the Quarterly Period Ended November 30, 1996

Or

[  ]     Transition Report Pursuant to Section 13 or 15(d) of the Securities 
          Exchange Act of 1934

For the transition period from                        to
                             Commission file number 0-21160


                             THE MICROCAP FUND, INC.
===============================================================================
             (Exact Name of Registrant as Specified in its Charter)


Maryland                                                             13-3698251
===============================================================================
(State or Other Jurisdiction of            (I.R.S. Employer Identification No.)
Incorporation or Organization)


Ten Rockefeller Plaza
Suite 712
New York, New York                                                     10020
===============================================================================
(Address of Principal Executive Offices)                             (Zip Code)


Registrant's Telephone Number, Including Area Code:  (800) 888-6534


Not applicable
===============================================================================
Former name, former address and former fiscal year, if changed since last report


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

The number of shares of the Registrant's  common stock  outstanding at the close
of business on January 10, 1997 was 2,171,853.


<PAGE>


                             THE MICROCAP FUND, INC.

                                      INDEX


PART I.       FINANCIAL INFORMATION

Item 1.       Financial Statements.

Statements of Assets and Liabilities as of November 30, 1996 (Unaudited) and 
February 29, 1996

Schedule of Portfolio Investments as of November 30, 1996 (Unaudited)

Statements of Operations for the Three Months Ended November 30, 1996 and 1995 
(Unaudited)

Statements of Operations for the Nine Months Ended November 30, 1996 and 1995 
(Unaudited)

Statements of Changes in Net Assets for the Nine Months ended  November 30, 1996
and 1995 (Unaudited)

Statements of Cash Flows for the Nine Months ended November 30, 1996 and 1995 
(Unaudited)

Notes to Financial Statements (Unaudited)

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


PART II.      OTHER INFORMATION

Item 1.       Legal Proceedings.

Item 2.       Changes in Securities.

Item 3.       Defaults upon Senior Securities.

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

Item 5.       Other Information.

Item 6.       Exhibits and Reports on Form 8-K.



<PAGE>


===============================================================================
                         PART I - FINANCIAL INFORMATION
===============================================================================

Item 1.       Financial Statements.

THE MICROCAP FUND, INC.
STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>

                                                                                      November 30, 1996      February 29,
                                                                                         (Unaudited)                1996
ASSETS

Portfolio investments at fair value (cost $2,712,250 at
<S>         <C> <C>      <C>                    <C> <C>                               <C>                     <C>             
   November 30, 1996 and $4,783,156 at February 29, 1996)                             $     3,430,597         $      6,939,805
Cash and cash equivalents                                                                   5,157,643                9,878,280
Deposit in escrow - Note 8                                                                    250,197                        -
Receivable from securities sold                                                                     -                  199,375
Accrued interest receivable                                                                    15,350                  349,781
Deferred organizational costs (net of accumulated amortization of
   $145,786 at November 30, 1996 and $116,257 at February 29, 1996)                            51,079                   80,608
Other receivables                                                                              56,884                   64,429
Other assets                                                                                   52,934                   56,433
                                                                                      ---------------         ----------------
   Total assets                                                                             9,014,684               17,568,711
                                                                                      ---------------         ----------------

LIABILITIES

Accounts payable - legal fees                                                                 899,258                  163,263
Accounts payable - other                                                                      122,951                  170,290
                                                                                      ---------------         ----------------
   Total liabilities                                                                        1,022,209                  333,553
                                                                                      ---------------         ----------------

NET ASSETS

Preferred Stock,  par value $.01;  2,000,000 shares  authorized;  440,800 shares
  issued and 204,343 shares  outstanding at November 30, 1996 and 440,800 issued
  and 265,317 shares
  outstanding at February 29, 1996 - Note 3                                                     2,043                    2,653
Common Stock, par value $.01; 10,000,000 shares authorized;
  2,462,080 shares issued and 2,171,853 shares outstanding at
  November 30, 1996 and 2,388,253 shares issued and 2,098,026
  outstanding at February 29, 1996 - Note 3                                                    24,621                   23,883
Additional paid-in-capital                                                                 11,611,398               19,441,478
Net unrealized appreciation of portfolio investments                                          718,347                2,156,649
Accumulated net investment loss                                                            (2,006,510)                 (37,743)
Distributions in excess of net investment loss                                               (345,581)                (345,581)
Accumulated net realized loss from portfolio investments                                     (784,850)              (2,779,188)
                                                                                      ---------------         ----------------
  Sub-total                                                                                 9,219,468               18,462,151

Less: Treasury Stock at cost (290,227 shares of Common Stock)                              (1,226,993)              (1,226,993)
                                                                                      ---------------         ----------------

Net Assets                                                                            $     7,992,475         $     17,235,158
                                                                                      ===============         ================

Net assets per share of common stock                                                          $ 3.29                  $  7.25
                                                                                              ======                  =======

Net assets per share of preferred stock                                                       $ 4.12                  $  7.61
                                                                                              ======                  =======
</TABLE>

See notes to financial statements.

<PAGE>


===============================================================================
THE MICROCAP FUND, INC.
===============================================================================
SCHEDULE OF PORTFOLIO INVESTMENTS (UNAUDITED)
As of November 30, 1996
<TABLE>

                                                                                                                            % of
Issuer / Position                                                                   Cost             Fair Value       Net Assets(1)
Publicly-Held Securities:

Bennett Environmental Inc.(2)
<C>                                                                             <C>                 <C>                  <C>  
112,500 shares of Common Stock                                                  $      47,250       $      106,227       1.33%
                                                                                 ------------        -------------

Unigene Laboratories, Inc.
Warrant to purchase 615,000 shares of Common Stock
   at $1.375 per share, expiring 7/7/00                                                     0              499,995       6.26%
                                                                                -------------       --------------

YES! Entertainment Corporation
Warrant to purchase 11,438 shares of Common Stock
   at $15.30 per share, expiring 7/16/98                                                    0                    0           0%
                                                                                -------------       --------------

Privately-Held Securities:


First Colony Acquisition Corp.*
106,562 shares of Preferred Stock                                                     594,174              505,048
6% Convertible Promissory Note due 11/1/97                                          1,343,326            1,141,827
Warrant to purchase 7,560 shares of Common Stock
   at $5.00 per share, expiring 1/24/00                                                     0                    0
                                                                                -------------       --------------
                                                                                    1,937,500            1,646,875      20.60%
                                                                                -------------       --------------

Oh-La-La! Inc.
9% Convertible Senior Notes                                                           240,000              240,000       3.00%
                                                                                -------------       --------------

Optiva Corporation
150,000 shares of Common Stock                                                        487,500              937,500      11.73%
                                                                                -------------       --------------      ------

Total Portfolio Investments                                                     $   2,712,250       $    3,430,597      42.92%
                                                                                =============       ==============      ======
</TABLE>



* May be deemed an "affiliated  person" of the Fund as defined in the Investment
Company Act of 1940.

(1)  Represents fair value as a percentage of net assets.

(2)  In  September  1996,  Bennett  Environmental  Inc.  became a listed  public
     company on the Montreal Stock Exchange. In connection with the listing, the
     company  effected a four-for-one  reverse split of its  outstanding  common
     stock. As a result, the Fund exchanged its 450,000 common shares of Bennett
     for 112,500 shares of the company's common stock.

     See notes to financial statements.


<PAGE>


THE MICROCAP FUND, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
For the Three Months Ended November 30,

<TABLE>

                                                                                                  1996               1995
                                                                                             ---------------      -------

INVESTMENT INCOME AND EXPENSES

Income:
<S>                                                                                          <C>                  <C>          
   Interest from U.S. Treasury Bills and repurchase agreements                               $        94,868      $     108,455
   Interest and dividends from portfolio investments                                                 (47,463)            47,315
                                                                                             ----------------     -------------
   Total investment income                                                                            47,405            155,770
                                                                                             ---------------      -------------

Expenses:
   Administrative expense                                                                             17,289             42,510
   Legal fees                                                                                        890,897            170,225
   Accounting fees                                                                                    40,372             35,650
   Salary expense                                                                                          0             58,832
   Amortization of deferred organizational costs                                                       9,843              9,843
   Transfer agent and custodian fees                                                                   6,094              6,589
   Directors' fees and expenses                                                                        3,191             10,000
   Consulting fees                                                                                    25,500             25,503
   Insurance expense                                                                                   7,634              6,515
   Mailing and printing                                                                                5,255             (3,053)
   Other operating expenses                                                                           12,702             30,237
                                                                                             ---------------      -------------
   Total expenses                                                                                  1,018,777            392,851
                                                                                             ---------------      -------------

Net investment loss                                                                                 (971,372)          (237,081)
                                                                                             ----------------     --------------

NET REALIZED AND UNREALIZED GAIN (LOSS)
   FROM PORTFOLIO INVESTMENTS

Net realized loss from portfolio investments                                                               0           (376,015)
Change in net unrealized appreciation or depreciation of
   portfolio investments                                                                            (269,778)           305,062
                                                                                             ----------------     -------------
Net realized and unrealized loss from portfolio investments                                         (269,778)           (70,953)
                                                                                             ----------------     --------------

NET DECREASE IN NET ASSETS RESULTING
   FROM OPERATIONS                                                                           $    (1,241,150)     $    (308,034)
                                                                                             ================     ==============
</TABLE>


See notes to financial statements.



<PAGE>


THE MICROCAP FUND, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
For the Nine Months Ended November 30,

<TABLE>

                                                                                                 1996                 1995
                                                                                             --------------     ----------

INVESTMENT INCOME AND EXPENSES

Income:
<S>                                                                                          <C>                <C>            
   Interest from U.S. Treasury Bills and repurchase agreements                               $      365,398     $       309,403
   Interest and dividends from portfolio investments                                                 36,578             338,723
                                                                                             --------------     ---------------
   Total investment income                                                                          401,976             648,126
                                                                                             --------------     ---------------

Expenses:
   Administrative expense                                                                            99,286             128,533
   Legal fees                                                                                     1,660,502             240,719
   Accounting fees                                                                                   72,505              52,069
   Salary expense                                                                                   178,919             161,277
   Amortization of deferred organizational costs                                                     29,529              29,529
   Transfer agent and custodian fees                                                                 15,373              17,967
   Directors' fees and expenses                                                                      47,879              22,952
   Consulting fees                                                                                  110,594              25,503
   Insurance expense                                                                                 27,680              19,309
   Mailing and printing                                                                              49,615              11,958
   Other operating expenses                                                                          78,861              38,448
                                                                                             --------------     ---------------
   Total expenses                                                                                 2,370,743             748,264
                                                                                             --------------     ---------------

Net investment loss                                                                              (1,968,767)           (100,138)
                                                                                             ---------------    ----------------

NET REALIZED AND UNREALIZED GAIN (LOSS)
   FROM PORTFOLIO INVESTMENTS

Net realized gain (loss) from portfolio investments                                               2,659,872            (727,359)
Change in net unrealized appreciation or depreciation of
   portfolio investments                                                                         (1,438,302)          1,157,456
                                                                                             ---------------    ---------------
Net realized and unrealized gain from portfolio investments                                       1,221,570             430,097
                                                                                             --------------     ---------------

NET INCREASE (DECREASE) IN NET ASSETS
   RESULTING FROM OPERATIONS                                                                 $     (747,197)    $       329,959
                                                                                             ===============    ===============
</TABLE>


See notes to financial statements.



<PAGE>


THE MICROCAP FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED)
For the Nine Months Ended November 30,

<TABLE>

                                                                                                1996                 1995
                                                                                          ----------------     ----------

Change in net assets resulting from operations:

<S>                                                                                       <C>                  <C>              
Net investment loss                                                                       $     (1,968,767)    $       (100,138)
Net realized gain (loss) from portfolio investments                                              2,659,872             (727,359)
Change in net unrealized appreciation or depreciation of
   portfolio investments                                                                        (1,438,302)           1,157,456
                                                                                          -----------------    ----------------
     Net increase (decrease) in net assets resulting from operations                              (747,197)             329,959
                                                                                          -----------------    ----------------

Change in net assets from distributions:

Distribution from net realized gains                                                              (665,534)                   -
Return of capital distribution                                                                  (7,829,952)                   -
                                                                                          -----------------    ----------------
     Decrease in net assets from distributions                                                  (8,495,486)                   -
                                                                                          -----------------    ----------------

Change in net assets from capital stock transactions:

Common Stock repurchased                                                                                 -           (1,079,868)
                                                                                          ----------------     ----------------

Total decrease in net assets for the period                                                     (9,242,683)            (749,909)
Net assets at beginning of period                                                               17,235,158           17,715,073
                                                                                          ----------------     ----------------

NET ASSETS AT END OF PERIOD                                                               $      7,992,475     $     16,965,164
                                                                                          ================     ================
</TABLE>


See notes to financial statements.



<PAGE>


THE MICROCAP FUND, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Nine Months Ended November 30,

<TABLE>

                                                                                                   1996              1995
                                                                                              --------------    ---------

CASH FLOWS USED FOR OPERATING ACTIVITIES

<S>                                                                                           <C>               <C>             
Net investment loss                                                                           $   (1,968,767)   $      (100,138)
Adjustments to reconcile net investment income (loss) to cash
   used for operating activities:
Amortization of discounted receivable                                                                      -             (3,000)
Amortization of deferred organizational costs                                                         29,529             29,529
Consulting payment made in-kind                                                                      105,000                  -
Increase (decrease) in payables                                                                      688,656           (121,377)
Decrease in receivables and other assets                                                             345,475             49,332
                                                                                              --------------    ---------------
Cash flows used for operating activities                                                            (800,107)          (145,654)
                                                                                              ---------------   ---------------

CASH FLOWS PROVIDED FROM INVESTING ACTIVITIES

Purchase of portfolio investments                                                                    (51,411)        (3,937,500)
Net proceeds from the sale of portfolio investments                                                2,876,564          1,427,759
Deposits placed in escrow                                                                           (250,197)                 -
Repayment of notes                                                                                 2,000,000          3,940,000
                                                                                              --------------    ---------------
Cash flows provided from investing activities                                                      4,574,956          1,430,259
                                                                                              --------------    ---------------

CASH FLOWS USED FOR FINANCING ACTIVITIES

Common stock repurchased                                                                                   -         (1,079,868)
Cash distribution to stockholders                                                                 (8,495,486)                 -
                                                                                              ---------------   ---------------
Cash flows used for financing activities                                                          (8,495,486)        (1,079,868)
                                                                                              ---------------   ---------------

Increase (decrease) in cash and cash equivalents                                                  (4,720,637)           204,737
Cash and cash equivalents at beginning of period                                                   9,878,280          9,033,750
                                                                                              --------------    ---------------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                                                    $    5,157,643    $     9,238,487
                                                                                              ==============    ===============
</TABLE>


See notes to financial statements.


<PAGE>


THE MICROCAP FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

Reference is made to the Fund's  February 29, 1996 annual report on Form 10-K as
filed with the  Securities  and Exchange  Commission  for the Notes to Financial
Statements that remain  unchanged.  The following notes are included as a result
of changes subsequent to February 29, 1996.

1.     Organization and Purpose
The MicroCap Fund, Inc. (the "Fund"),  formerly known as Commonwealth Associates
Growth  Fund,  Inc.,  is a  non-diversified,  closed-end  management  investment
company operating as a business development company under the Investment Company
Act of 1940. The Fund was  incorporated  under the laws of the State of Maryland
on January 26, 1993.  The Fund's  investment  objective is to achieve  long-term
capital  appreciation  of assets by  investing  in  securities  of emerging  and
established   companies  that  management   believes  offer  significant  growth
potential. The Fund's shareholders have approved a Plan of Liquidation. See Note
5 below.

2.     Related Party Transactions
Commonwealth   Associates  Asset  Management  Inc.  ("CAAM"),  an  affiliate  of
Commonwealth Associates,  the underwriter of the Fund's initial public offering,
was the Fund's  administrator  from its  inception to December 10, 1995.  During
such time, CAAM was responsible for the management and  administrative  services
necessary for the operation of the Fund and received an administrative fee at an
annual rate of 1% of the Fund's net  assets.  Such fee was  determined  and paid
quarterly.  On October 11, 1995,  CAAM terminated the  administrative  agreement
with the Fund effective  December 10, 1995. From such date to present,  the Fund
has been self  administered.  For the three and nine months  ended  November 30,
1996,  self-administration  expenses totaled $17,289 and $99,286,  respectively.
The  administrative  fee for the three and nine months ended  November 30, 1995,
under the  previous  administrative  arrangement  with  CAAM,  was  $42,510  and
$128,533, respectively.

On July 24, 1996,  the Fund  entered  into an agreement  with Raymond S. Troubh,
whereby Mr.  Troubh will provide  management  services to the Fund in connection
with its Plan of  Liquidation.  For services to be rendered under the agreement,
Mr.  Troubh  will  receive  $8,500  per  month,  plus 1% of the  amount  of each
distribution  (other than the  initial  distribution  paid on August 30,  1996),
plus,  at the time any  proceeds of sale or other  revenues  are received by the
Fund in excess of the Fund's  investment in a particular  asset, Mr. Troubh will
receive  5% of such  excess for  amounts  received  in 1996 or 1997,  4% of such
excess for amounts  received in 1998,  2% in 1999 and 0%  thereafter;  provided,
however,  that in no event shall the total  compensation  paid to Mr.  Troubh be
less than $250,000.
<TABLE>

3.     Capital Stock Transactions

                                      Number of                  Additional      Number of               Number of
                                       Common                      Paid-in       Preferred               Treasury
                                       Shares       Amount         Capital        Shares       Amount     Shares       Amount

<S>                 <C> <C>           <C>          <C>         <C>                <C>         <C>        <C>                 
Balance at February 29, 1996          2,388,253    $  23,883   $  19,441,478      265,317     $ 2,653    290,227$   1,226,993

Conversion of preferred stock
   into common stock                     73,827          738            (128)     (60,974)       (610)         -               -

Return  of capital distribution                                   (7,829,952)

Balance at November 30, 1996         2,462,080$    24,621  $   11,611,398       204,343 $     2,043290,227     $    1,226,993
                                     ====================  ==============   =========== ==================     ==============
</TABLE>

On March 20, 1995, the Fund paid a stock dividend to  shareholders  of record on
March  13,  1995 in  shares  of  preferred  stock  at the rate of .2  shares  of
preferred  stock  for  each  share  of  common  stock.  The  preferred  stock is
convertible  into shares of the Fund's  common stock at any time until  February
27, 1998. Each share of preferred  stock is convertible  into (i) 1.05 shares of
common stock from the date of issuance  through  February  29,  1996,  (ii) 1.25
shares of common  stock from March 1, 1996  through  February 28, 1997 and (iii)
1.33 shares of common  stock from March 1, 1997 through  February 27, 1998.  The
preferred stock will  automatically  convert into common stock on the earlier of
(i) a sale,  transfer or other  distribution  of the shares of common stock upon
which the dividend has been paid or (ii) February 27, 1998. The preferred  stock
is  non-transferable.  During the nine months ended  November  30, 1996,  60,974
shares of preferred stock were converted into 73,827 shares of common stock.

4.     Litigation
On April 19, 1996, the Fund filed a complaint against Commonwealth Associates, a
registered  broker-dealer  and the  underwriter  of the  Fund's  initial  public
offering,   Michael  S.  Falk,  the  chief  executive  officer  of  Commonwealth
Associates,  a minority  shareholder  and  director of the Fund,  and Stephen J.
Warner,  a former  executive  officer of Commonwealth  Associates and the former
president of the Fund. The civil action, which was filed in federal court in the
Southern  District of New York,  alleged fraud,  breach of fiduciary  duties and
violations of the Investment Company Act of 1940. On December 24, 1996, the Fund
and  the  defendants  agreed  to a  settlement  of the  complaint,  whereby  the
defendants will make  settlement  payments to the Fund totaling  $1,150,000.  In
connection therewith, the Fund received $500,000 in December 1996. The remaining
balance of the settlement payments will be paid in installments through December
15, 1997 and will earn  interest at an annual  rate of 4.50%.  Additionally,  as
part of the  settlement,  the Fund and the  defendants  agreed to pursue  claims
against former counsel to the Fund. The Fund would be entitled to receive 50% of
any  recovery  from  such  claims,   after  the  reimbursement  to  Commonwealth
Associates of all costs and expenses associated with pursuing the claims.

The Fund  was a  respondent  in an  arbitration  claim  Warner  v.  Commonwealth
Associates  Growth  Fund,  Inc.  before  the  American  Arbitration  Association
commenced in December  1995 by Stephen J. Warner,  the former  president,  chief
executive officer and portfolio manager of the Fund. The claim alleged breach of
contract  and  fraud  in  connection  with the  termination  of  employment  and
consulting  agreements  between  him  and  the  Fund.  In  connection  with  the
settlement  agreement  discussed  above,  Mr.  Warner has agreed to dismiss  all
claims associated with this action.

The Fund was a  defendant  in an action  brought by  Michael  S. Falk,  a former
director of the Fund,  in the Supreme  Court of New York on June 19,  1996.  The
complaint alleged that Kamal Mustafa, the former president and a former director
of the Fund,  and president of Bluestone  Capital  Partners  L.P., an investment
banking firm controlled by Mr.  Mustafa,  caused the Fund to defame Mr. Falk. In
connection with the settlement agreement discussed above, Mr. Falk has agreed to
dismiss all claims associated with this action.

The Fund is a creditor of PSSS, Inc. f/k/a Oh-La-La! Inc. ("PSSS"), which is the
subject of  proceedings  under chapter 11 of the United States  Bankruptcy  Code
pending in San Francisco, California (the "Bankruptcy Case"). In connection with
the Bankruptcy Case, Oh-La-La!  International,  S.A.  ("International"),  one of
PSSS's  largest  shareholders,  has filed a  precautionary  proof of claim  (the
"Precautionary  Proof of Claim"), on behalf of International and other similarly
situated  shareholders of PSSS,  against,  among others, the Fund, certain other
creditors of PSSS, and parties  involved in the intended  underwriting  for, and
conduct of, an initial  public  offering which PSSS had  anticipated  would have
occurred in or about 1994. The Precautionary  Proof of Claim alleges a claim for
damages as a result of, among other things,  (a) the failure to  effectuate  the
intended initial public offering, and (b) the Bankruptcy  Court-approved sale of
PSSS's assets, which was allegedly prejudicial to PSSS's shareholders.  PSSS and
International  have taken no other  action  regarding  this claim.  The Fund has
denied liability for the claims set forth in the  Precautionary  Proof of Claim.
Resolution efforts are ongoing.

Regency  Holdings   (Cayman)  Inc.   ("Holdings")  and  Regency  Maritime  Corp.
("Maritime"),   Plaintiffs  v.  The  MicroCap  Fund,  Inc.  f/k/a   Commonwealth
Associates  Growth Fund, Inc., et al. Regency Holdings (Cayman) Inc. and Regency
Maritime Corp.  (collectively  "Regency")  along with other related entities are
debtors in a bankruptcy case pending in the United States  Bankruptcy  Court for
the Southern  District of New York, 95 B 45197 (TLB). In that  bankruptcy  case,
Regency  initiated an adversary  proceeding  against the Fund and certain  other
persons and entities to recover monies that it paid them on the ground that such
payments  constituted  voidable  preferences under the Bankruptcy Code.  Regency
maintains  that a payment  Regency made to the Fund between 90 days and one year
prior to the filing of Regency's bankruptcy petition in the amount of $1,940,000
to satisfy a bridge  loan the Fund made to  Regency,  is a  voidable  preference
because  Kamal  Mustafa,  the former  president  of the Fund,  was a director of
Regency  (and  therefore an insider) for a portion of the time that such amounts
were due and owing.  Regency also maintains that such relationship had an impact
on Regency's decision to pay these funds. Additionally, Regency maintains that a
payment  of  $145,728  made by Regency  to the Fund to redeem  certain  warrants
issued  with  respect  to the loan  transaction  was made  within 90 days of the
filing of the bankruptcy petition and is therefore a voidable preference without
regard to whether Mustafa was an insider. In an amended complaint,  Regency also
asserted that the payments to the Fund constitute a fraudulent transfer,  as the
payments  were in fact made by Maritime and not Holdings.  Regency  asserts that
Maritime had no obligation to make such payments and received no value for them.
The Fund has served an answer denying the  allegations of the amended  complaint
and is vigorously contesting Regency's claims. At the present time, discovery is
underway to determine the validity of the allegations asserted by Regency.

5.     Plan of Liquidation
On May 9, 1996,  the Fund's  Board of  Directors  adopted a Plan of  Liquidation
pursuant to which the Fund will convert its remaining assets into cash,  provide
for all of its liabilities and distribute the net cash to shareholders. The Plan
of Liquidation  was approved at a special  meeting of  shareholders  on July 23,
1996.  In connection  with the Fund's  liquidation  process,  each of the Fund's
directors, other than Mr. Troubh, has resigned from the Board of Directors.

6.     Distribution
On August 30,  1996,  the Fund made an  initial  liquidating  cash  distribution
totaling  $8,495,486  to  shareholders  of  record on August  15,  1996.  Common
shareholders received $3.50 per share and preferred shareholders received $4.375
per share.  The amount paid to common  shareholders  was  comprised of $0.274 of
long-term  capital  gain and $3.226 of return of  capital.  The  amount  paid to
preferred  shareholders  was  comprised of $0.343 of long-term  capital gain and
$4.032 of return of capital.  Additional  distributions may be made from time to
time from the  proceeds  of asset  sales,  after the  payment of and reserve for
liabilities. At any time prior to one year from the date of approval of the Plan
of  Liquidation,  any  remaining  assets  of the Fund will be  transferred  to a
liquidating trust to be supervised by an independent trustee.

7.     Director's Fees and Expenses
During the periods reported, each non-affiliated director of the Fund's Board of
Directors  received  an annual  fee of $2,500  and $250 for each  meeting of the
Board of  Director's  and each  committee  meeting of the Board  attended.  Each
non-affiliated  director also received reimbursement for all out-of-pocket costs
incurred to attend such meetings.

8.     Other Information
On July 15, 1996,  the Fund entered into a settlement  agreement with a group of
shareholders of the Fund's common stock that had solicited proxies in opposition
to the  Fund's  Plan of  Liquidation  (the "13D  Group").  Under the  settlement
agreement,  the Fund and the 13D Group agreed that,  (i) certain  members of the
13D Group and affiliated  persons would cease to have business  dealings with or
receive compensation from the Fund, (ii) a 13D Group member would have the right
to receive  notice of and attend all meetings of the Board of Directors  and any
committee  meeting thereof,  and (iii) subject to the approval of the Securities
and Exchange  Commission (the "SEC"), the Fund would reimburse the 13D Group for
its reasonable out of pocket  expenses up to $120,000 in connection with the 13D
Group's efforts.  An application  relating to such  reimbursement by the Fund to
the 13D Group was filed with the SEC on September 27, 1996.

Effective on August 1, 1996,  the Fund entered into  indemnification  agreements
with Mr. Raymond Troubh and certain of the Fund's former directors and officers.
Pursuant  to such  agreements,  the Fund  established  an  escrow  account  that
contains  approximately  $250,000  in cash or cash  equivalents  to provide  for
potential  legal fees and settlement  payments  relating to certain actions that
may arise against such individuals relating to activity involving the Fund.

9.     Classification of Portfolio Investments
As of November 30, 1996,  the Fund's  investments  in portfolio  companies  were
categorized as follows:
<TABLE>
                                                                                                                 % of
Type of Investments                                        Cost                   Fair Value                  Net Assets*

<S>                                                  <C>                        <C>                              <C>  
Preferred Stock                                      $        594,174           $       505,048                  6.32%
Common Stock                                                  534,750                 1,543,722                 19.31%
Debt Securities                                             1,583,326                 1,381,827                 17.29%
                                                     ----------------           ---------------             ----------

Total                                                $      2,712,250           $     3,430,597                 42.92%
                                                     ================           ===============             ==========

Country/Geographic Region

Eastern United States                                $      1,937,500           $     2,146,870                 26.86%
Western United States                                         727,500                 1,177,500                 14.73%
Canada                                                         47,250                   106,227                  1.33%
                                                     ----------------           ---------------             ----------

Total                                                $      2,712,250           $     3,430,597                 42.92%
                                                     ================           ===============             ==========

Industry

Biotechnology                                        $              0           $       499,995                  6.26%
Consumer Products                                           2,425,000                 2,584,375                 32.34%
Environmental Services                                         47,250                   106,227                  1.32%
Food Services                                                 240,000                   240,000                  3.00%
                                                     ----------------           ---------------             ----------

Total                                                $      2,712,250           $     3,430,597                 42.92%
                                                     ================           ===============             ==========
</TABLE>

* Percentage of net assets is based on fair value.

10.    Reclassifications
Certain  reclassifications were made to the prior period financial statements in
order to conform to the current period presentation.

11.    Interim Financial Statements
The unaudited financial statements presented as of November 30, 1996 and for the
three and nine month periods then ended,  reflect all adjustments  necessary for
the fair presentation of the interim periods.


<PAGE>


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

Liquidity and Capital Resources

On July  23,  1996,  the  Fund's  shareholders  approved  a Plan of  Liquidation
pursuant to which the Fund will convert its remaining assets into cash,  provide
for all of its  liabilities  and  distribute  the net cash to  shareholders.  On
August 30, 1996, in connection  with the Plan of  Liquidation,  the Fund made an
initial  liquidating  distribution  of $8,495,486 to  shareholders  of record on
August 15, 1996.  The Fund will continue to liquidate  its remaining  assets and
make additional  cash  distributions  to  shareholders  after the payment of and
reserve for all current and  contingent  liabilities.  At any time prior to July
23, 1997, any remaining  assets of the Fund will be transferred to a liquidating
trust to be supervised by an independent trustee. It is expected that Mr. Troubh
will become the independent  liquidating trustee responsible for liquidating the
Fund's remaining assets.

As of November 30, 1996,  the Fund had cash and cash  equivalents of $5,157,643.
The  Fund  invests  its  available  cash in U.S.  Treasury  Bills  or  overnight
repurchase agreements collateralized by securities issued by the U.S. Government
or its agencies.  Interest  earned from such  investments for the three and nine
months ended November 30, 1996 was $94,868 and $365,398, respectively.  Interest
earned from such  investments  in future periods is subject to  fluctuations  in
short-term interest rates and changes in the Fund's available cash balances.

Effective on August 1, 1996,  the Fund entered into  indemnification  agreements
with Mr.  Troubh and  certain  of the  Fund's  former  directors  and  officers.
Pursuant to such  agreements,  the Fund has  established  an escrow account that
contains  approximately  $250,000  in cash and cash  equivalents  to provide for
potential  legal fees and settlement  payments  relating to certain actions that
may arise against such individuals relating to activity involving the Fund.

Results of Operations

Realized and Unrealized Gains and Losses from Portfolio Investments
For the three  months  ended  November  30,  1996,  the Fund had a $269,778  net
unrealized loss from its portfolio  investments resulting from a decrease in net
unrealized  appreciation of investments for the three month period. The Fund had
no realized gains or losses from its portfolio  investments for the three months
ended  November 30, 1996.  For the nine months ended November 30, 1996, the Fund
had a net  realized  and  unrealized  gain  from its  portfolio  investments  of
$1,221,570,   comprised  of  a  $2,659,872  net  realized  gain  from  portfolio
investments  and  a  $1,438,302  decrease  in  net  unrealized  appreciation  of
investments.

The  $2,659,872  net realized gain for the nine months ended  November 30, 1996,
includes  the  July  1996  sale  of the  Fund's  investment  in  Shells  Seafood
Restaurants,  Inc.  for  $2,700,000,  which  resulted  in  a  realized  gain  of
$2,110,000.  Also  during the nine  month  period,  the Fund sold its  remaining
60,000 Accumed  International,  Inc. (formerly Alamar Biosciences,  Inc.) common
stock warrants for $154,647, realizing a gain of $149,630. Additionally,  during
the period, the Fund completed the transfer of 60,000 Unigene Laboratories, Inc.
common  stock  warrants  to certain  individuals,  representing  the  payment of
consulting  fees incurred in connection  with the Fund's  investment in Unigene.
The transaction  resulted in the recognition of a $105,000  realized gain, which
has been equally  offset by $105,000 of consulting  fee expense  recorded by the
Fund over several  fiscal  quarters.  The Fund also had a net  realized  gain of
$295,242  during the period,  resulting from the sale of 190,000  Accumed common
stock warrants and 12,500 shares of Accumed common stock.

For the three and nine months ended  November 30, 1996,  the Fund had a decrease
in net  unrealized  appreciation  of  investments  of $269,778  and  $1,438,302,
respectively.  The $1,438,302  decrease in net unrealized  appreciation  for the
nine months ended November 30, 1996, is comprised of a $1,111,483 net unrealized
gain due to the upward  revaluation  of certain  portfolio  investments  for the
period,  primarily  Shell's Seafood  Restaurants,  Inc.,  offset by a $2,549,785
reduction in net  unrealized  appreciation  due to the transfer from  unrealized
gain to realized  gain  relating to the  portfolio  sales  completed  during the
period, as discussed above.

For the  three and nine  months  ended  November  30,  1995,  the Fund had a net
realized  loss  from  its  portfolio   investments  of  $376,015  and  $727,359,
respectively.  During the three  months ended  November 30, 1995,  the Fund sold
150,000 common shares of Accumed common stock in the public market for $159,375,
realizing a loss of $128,081.  In September 1995, the Fund sold 55,555 shares of
YES!  Entertainment  Corporation common stock in the public market for $305,538,
realizing a loss of $393,662.  Also, during the quarter ended November 30, 1995,
the Fund realized a gain of $145,728 from the redemption of its Regency Holdings
(Cayman),  Inc.  warrants  back to the company.  In May 1995,  the Fund sold its
337,500 shares of Silverado Foods,  Inc. common stock for $822,656,  realizing a
gain  of  $672,656.   In  March  1995,  the  Fund  sold  its  investment  in  SR
Communications  Corp. ("SRC") for $200,000 in cash and a $40,000 promissory note
(including  $4,000 of imputed  interest) payable in March 1996. This transaction
resulted  in a net  realized  loss of  $14,000.  Also,  in May  1995,  the  Fund
wrote-off its $60,000  investment in Radiator King  International,  Inc. and its
$950,000 investment in Weir-Jones Marketing, Inc. due to continued operating and
financial difficulties of these companies.

For the  three and nine  months  ended  November  30,  1995,  the Fund had a net
increase  in  unrealized  appreciation  of its  portfolio  investments  totaling
$305,062 and  $1,157,456,  respectively.  The  $1,157,456  increase for the nine
months ended November 30, 1995 consisted of a $1,366,456 net unrealized gain due
to the  upward  revaluation  of the  Fund's  portfolio  investments  offset by a
$209,000 net transfer from unrealized gain to realized gain relating to the sale
of the Fund's investments in Silverado Foods,  Regency,  YES!  Entertainment and
Accumed,  as discussed  above.  The $1,366,456 net unrealized  gain for the nine
months ended November 30, 1995,  includes the $1,500,000  upward  revaluation of
the Fund's investment in Shells Seafood  Restaurants,  Inc., which completed its
initial public offering in April 1996.

Investment Income and Expenses
For the three  months  ended  November  30,  1996 and  1995,  the Fund had a net
investment  loss of $971,372  and  $237,081,  respectively.  For the nine months
ended  November  30,  1996  and  1995,  the Fund  had a net  investment  loss of
$1,968,767 and $100,138,  respectively.  The increase in net investment loss for
the nine months ended  November 30, 1996 compared to the same period in 1995 was
due to a $246,150  decrease in  investment  income and a $1,622,479  increase in
operating  expenses for the 1996 period.  The Fund's reduced  investment  income
primarily resulted from a decline in interest earned from portfolio investments,
due to the reduced amount of interest bearing  portfolio  securities held by the
Fund during the 1996 period compared to the same period in 1995. The increase in
operating  expenses  primarily is attributable  to the  significant  increase in
legal  fees for the 1996  period,  which  totaled  $1,660,502,  as  compared  to
$240,719  for the  1995  period.  The  rise in legal  fees  primarily  is due to
litigation  costs and other  legal fees  relating to several  legal  proceedings
involving  the Fund  (see  Note 4 of Notes to  Financial  Statements),  and also
includes legal fees incurred in connection with the continued  restructuring  of
certain of the Fund's portfolio  investments  during the 1996 period and matters
relating to the Fund's July 23, 1996 special meeting of shareholders and Plan of
Liquidation.

The Fund had additional  increases in certain other  operating  expenses for the
nine  months  ended  November  30,  1996  compared  to the same  period in 1995.
Consulting fees of $110,594  incurred during the 1996 period,  includes  $74,424
relating  to the July 1, 1996  transfer  of 60,000  Unigene  Laboratories,  Inc.
common stock warrants to consultants for payment of portfolio  transaction  fees
and  consulting  services  relating to the Fund's  investment in Unigene.  Other
operating expenses increased $40,413 for the 1996 period compared to 1995 period
primarily due to an increase in investor  relations  expenses  relating to press
releases and other announcements made by the Fund.

From the  inception of the Fund to December 10,  1995,  Commonwealth  Associates
Asset Management,  Inc. ("CAAM") was responsible for the administrative services
necessary  for the  operation  of the Fund.  In return for such  services,  CAAM
received an administrative fee at the annual rate of 1% of the net assets of the
Fund.  Such fee was determined and payable  quarterly.  Since December 11, 1995,
the Fund has been self administered. As a result, the Fund provided for and paid
its own administrative expenses for the three and nine months ended November 30,
1996. The administrative expense incurred by the Fund for the three months ended
November  30,  1996  and  1995  was  $17,289  and  $42,510,   respectively.  The
administrative  expense  incurred by the Fund for the nine months ended November
30, 1996 and 1995 was $99,286 and $128,533, respectively.

On July 15, 1996,  the Fund entered into a settlement  agreement with a group of
shareholders of the Fund's common stock that had solicited proxies in opposition
to the  Fund's  Plan of  Liquidation  (the "13D  Group").  Under the  settlement
agreement,  the Fund and the 13D Group agreed that,  (i) certain  members of the
13D Group and affiliated  persons would cease to have business  dealings with or
receive compensation from the Fund, (ii) a 13D Group member would have the right
to receive  notice of and attend all meetings of the Board of Directors  and any
committee  meeting thereof,  and (iii) subject to the approval of the Securities
and Exchange  Commission (the "SEC"), the Fund would reimburse the 13D Group for
its reasonable out of pocket  expenses up to $120,000 in connection with the 13D
Group's efforts.  An application  relating to such  reimbursement by the Fund to
the 13D Group was filed with the SEC on September 27, 1996.

On December 24, 1996, the Fund and the defendants  agreed to a settlement of its
complaint  against  Commonwealth  Associates,  Michael Falk and Stephen  Warner,
whereby  the  defendants  will make  settlement  payments  to the Fund  totaling
$1,150,000.  In connection  therewith,  the Fund  received  $500,000 in December
1996.  The  remaining  balance  of the  settlement  payments  will  be  paid  in
installments  through December 15, 1997 and will earn interest at an annual rate
of 4.50%. See Note 4 of Notes to Financial Statements.

Net Assets
For the nine months ended November 30, 1996, the Fund had a $747,197 decrease in
net assets resulting from operations, comprised of the $1,968,767 net investment
loss,  partially  offset by the $1,221,570 net realized and unrealized gain from
portfolio investments. The Fund's net assets also were reduced by the $8,495,486
cash  distribution  made to  shareholders  on August 30, 1996. As a result,  the
Fund's net assets were $7,992,475 at November 30, 1996,  representing a decrease
of $9,242,683  from net assets of  $17,235,158 at February 29, 1996. At November
30, 1996, the net asset value per share of common stock and preferred  stock was
$3.29 and $4.12 per share, respectively,  compared to $7.25 and $7.61 per share,
respectively, at February 29, 1996.

On March 1, 1996, the conversion ratio of the Fund's preferred stock into common
stock  increased  from  1.05 per  share to 1.25 per  share.  The  change in such
conversion ratio resulted in an additional allocation of net assets to preferred
shareholders of  approximately  $319,525,  or $1.26 per share of preferred stock
and the dilution to common shareholders of $319,525, or $.15 per share of common
stock.  Additionally,  the  results  of  operations  for the nine  months  ended
November  30,  1996  reduced the Fund's net assets by $.31 and $.37 per share of
common and preferred stock, respectively.  The distribution paid to shareholders
on August  30,  1996 also  reduced  the  Fund's net assets by $3.50 per share of
common stock and $4.375 per share of preferred stock.

At November  30,  1995,  the Fund's net assets were  $16,965,164,  a decrease of
$749,909  from net  assets of  $17,715,073  at  February  28,  1995.  Net assets
resulting  from  operations  for  the  nine  month  period  increased  $329,959,
comprised  of $100,138 of net  investment  loss and $430,097 of net realized and
unrealized gain from portfolio  investments.  This increase was more than offset
by a $1,079,868 decrease in net assets resulting from the repurchase by the Fund
of 262,727 shares of its common stock in the public market during the period.

At  November  30,  1995,  the net asset  value  per  share of  common  stock and
preferred stock was $7.06 and $7.41, respectively. At February 28, 1995, the net
asset value per share of common stock was $8.04.  There was no  preferred  stock
outstanding  on February 28,  1995.  The changes in net asset value per share of
common stock and preferred stock for the nine months ended November 30, 1995 are
discussed below.

On March 20, 1995, the Fund issued a 20% preferred  stock dividend to the Fund's
common  shareholders of record on March 13, 1995. Based on the Fund's net assets
of  $17,715,073  at February  28,  1995,  such  dividend  resulted in an initial
allocation  of net  assets  to  preferred  shareholders  of  approximately  $3.1
million,  or $6.97 per share of preferred stock. The allocation of net assets to
preferred shareholders, therefore, resulted in a dilution to common shareholders
of approximately $3.1 million, or $1.40 per share of common stock.  Furthermore,
during the nine months ended  November 30, 1995,  the Fund  repurchased  262,727
shares  of its  common  stock for  $1,079,868.  The  effect of such  repurchases
increased the net asset value per share of common stock and  preferred  stock by
$.28 and $.29, respectively.  The increase in net assets from operations for the
nine months ended  November 30, 1995 of $329,959  increased  the net asset value
per share of common and preferred stock by $.14 and $.15, respectively.

Summary of Changes to Net Assets for the Nine Months Ended November 30, 1996

Portfolio transactions completed during the nine months ended November 30, 1996,
resulted in a realized gain of $2,659,872.  As shown below,  these  transactions
returned  $4,632,189  to the Fund and increased its net asset value for the nine
month period by  $1,266,627.  This  increase,  however,  was offset by a $45,057
downward  revaluation  of  the  Fund's  remaining  portfolio  investments.   The
completed portfolio transactions and revaluations increased the Fund's net asset
value on a net basis by $1,221,570  for the nine months ended November 30, 1996.
The increase in net assets from portfolio  transactions  for the period was more
than offset by the $1,968,767 net investment loss for the nine month period.


<PAGE>



<TABLE>

                                                                                    Fair Value                  Effect on
Investment                                                   Return                 at 2/29/96                 Net Assets

Sales and Write-Offs for nine months ended 11/30/96:
<S>                                                     <C>                       <C>                       <C>            
Shell's Seafood Restaurants, Inc.                       $     4,010,000           $    3,058,750            $       951,250
Accumed International, Inc. warrants                            467,976                  224,825                    243,151
Accumed International, Inc. stock (1)                            49,213                   51,411                     (2,198)
Unigene Laboratories, Inc. warrants (2)                         105,000                   30,576                     74,424
                                                        ---------------           --------------            ---------------

Sub-total from sales and write-offs                     $     4,632,189           $    3,365,562                  1,266,627
                                                        ===============           ==============            ===============

Revaluations for nine months ended 11/30/96:
Unigene Laboratories, Inc. (warrants)                                                                               186,591
First Colony Acquisition Corp.                                                                                     (290,625)
Bennett Environmental Inc.                                                                                           58,977
                                                                                                            ---------------
Sub-total from revaluations                                                                                         (45,057)
                                                                                                            ----------------

Sub-total from portfolio transactions                                                                             1,221,570

Net investment loss for nine months ended 11/30/96                                                          (1,968,767)
                                                                                                -----------------------

Net Change to Net Assets for Nine Months Ended
   November 30, 1996                                                                                        $      (747,197)
                                                                                                            ================
</TABLE>

(1) The  12,500  shares of Accumed  common  stock sold  during the  period,  was
acquired by the Fund during the same period for  $51,411.  (2) The return  shown
from the Unigene  warrants is a non-cash  item  resulting  from the  transfer of
60,000 warrants to cover consulting costs.


<PAGE>


                           PART II - OTHER INFORMATION

Item 1.       Legal Proceedings.

On April 19, 1996, the Fund filed a complaint against Commonwealth Associates, a
registered  broker-dealer  and the  underwriter  of the  Fund's  initial  public
offering,   Michael  S.  Falk,  the  chief  executive  officer  of  Commonwealth
Associates,  a minority  shareholder  and  director of the Fund,  and Stephen J.
Warner,  a former  executive  officer of Commonwealth  Associates and the former
president of the Fund. The civil action, which was filed in federal court in the
Southern  District of New York,  alleged fraud,  breach of fiduciary  duties and
violations of the Investment Company Act of 1940. On December 24, 1996, the Fund
and  the  defendants  agreed  to a  settlement  of the  complaint,  whereby  the
defendants will make  settlement  payments to the Fund totaling  $1,150,000.  In
connection therewith, the Fund received $500,000 in December 1996. The remaining
balance of the settlement payments will be paid in installments through December
15, 1997 and will earn  interest at an annual  rate of 4.50%.  Additionally,  as
part of the  settlement,  the Fund and the  defendants  agreed to pursue  claims
against former counsel to the Fund. The Fund would be entitled to receive 50% of
any  recovery  from  such  claims,   after  the  reimbursement  to  Commonwealth
Associates of all costs and expenses associated with pursuing the claims.

The Fund  was a  respondent  in an  arbitration  claim  Warner  v.  Commonwealth
Associates  Growth  Fund,  Inc.  before  the  American  Arbitration  Association
commenced in December  1995 by Stephen J. Warner,  the former  president,  chief
executive officer and portfolio manager of the Fund. The claim alleged breach of
contract  and  fraud  in  connection  with the  termination  of  employment  and
consulting  agreements  between  him  and  the  Fund.  In  connection  with  the
settlement  agreement  discussed  above,  Mr.  Warner has agreed to dismiss  all
claims associated with this action.

The Fund was a  defendant  in an action  brought by  Michael  S. Falk,  a former
director of the Fund,  in the Supreme  Court of New York on June 19,  1996.  The
complaint alleged that Kamal Mustafa, the former president and a former director
of the Fund,  and president of Bluestone  Capital  Partners  L.P., an investment
banking firm controlled by Mr.  Mustafa,  caused the Fund to defame Mr. Falk. In
connection with the settlement agreement discussed above, Mr. Falk has agreed to
dismiss all claims associated with this action.

The Fund is a creditor of PSSS, Inc. f/k/a Oh-La-La! Inc. ("PSSS"), which is the
subject of  proceedings  under chapter 11 of the United States  Bankruptcy  Code
pending in San Francisco, California (the "Bankruptcy Case"). In connection with
the Bankruptcy Case, Oh-La-La!  International,  S.A.  ("International"),  one of
PSSS's  largest  shareholders,  has filed a  precautionary  proof of claim  (the
"Precautionary  Proof of Claim"), on behalf of International and other similarly
situated  shareholders of PSSS,  against,  among others, the Fund, certain other
creditors of PSSS, and parties  involved in the intended  underwriting  for, and
conduct of, an initial  public  offering which PSSS had  anticipated  would have
occurred in or about 1994. The Precautionary  Proof of Claim alleges a claim for
damages as a result of, among other things,  (a) the failure to  effectuate  the
intended initial public offering, and (b) the Bankruptcy  Court-approved sale of
PSSS's assets, which was allegedly prejudicial to PSSS's shareholders.  PSSS and
International  have taken no other  action  regarding  this claim.  The Fund has
denied liability for the claims set forth in the  Precautionary  Proof of Claim.
Resolution efforts are ongoing.

Regency  Holdings   (Cayman)  Inc.   ("Holdings")  and  Regency  Maritime  Corp.
("Maritime"),   Plaintiffs  v.  The  MicroCap  Fund,  Inc.  f/k/a   Commonwealth
Associates  Growth Fund, Inc., et al. Regency Holdings (Cayman) Inc. and Regency
Maritime Corp.  (collectively  "Regency")  along with other related entities are
debtors in a bankruptcy case pending in the United States  Bankruptcy  Court for
the Southern  District of New York, 95 B 45197 (TLB). In that  bankruptcy  case,
Regency  initiated an adversary  proceeding  against the Fund and certain  other
persons and entities to recover monies that it paid them on the ground that such
payments  constituted  voidable  preferences under the Bankruptcy Code.  Regency
maintains  that a payment  Regency made to the Fund between 90 days and one year
prior to the filing of Regency's bankruptcy petition in the amount of $1,940,000
to satisfy a bridge  loan the Fund made to  Regency,  is a  voidable  preference
because  Kamal  Mustafa,  the former  president  of the Fund,  was a director of
Regency  (and  therefore an insider) for a portion of the time that such amounts
were due and owing.  Regency also maintains that such relationship had an impact
on Regency's decision to pay these funds. Additionally, Regency maintains that a
payment  of  $145,728  made by Regency  to the Fund to redeem  certain  warrants
issued  with  respect  to the loan  transaction  was made  within 90 days of the
filing of the bankruptcy petition and is therefore a voidable preference without
regard to whether Mustafa was an insider. In an amended complaint,  Regency also
asserted that the payments to the Fund constitute a fraudulent transfer,  as the
payments  were in fact made by Maritime and not Holdings.  Regency  asserts that
Maritime had no obligation to make such payments and received no value for them.
The Fund has served an answer denying the  allegations of the amended  complaint
and is vigorously contesting Regency's claims. At the present time, discovery is
underway to determine the validity of the allegations asserted by Regency.

Item 2.       Changes in Securities.

Not applicable.

Item 3.       Defaults Upon Senior Securities.

Not applicable.

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

Not applicable.

Item 5.       Other Information.

Not applicable.

Item 6.       Exhibits and Reports on Form 8-K.

              (a)  Exhibits

                    (27)       Financial Data Schedule

              (b)  Reports on Form 8-K

                   None.


<PAGE>


                                   SIGNATURES



Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized and in the capacity indicated.



              THE MICROCAP FUND, INC.


                    /s/           Raymond S. Troubh
              Raymond S. Troubh
              President, Chief Executive Officer, Treasurer, Secretary and 
              Director
              (Principal Executive and Principal Financial and Accounting 
              Officer)




Date:         January 14, 1997