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 August 31, 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

575 Fifth Avenue, 37th floor
New York, New York                                                     10017
===============================================================================
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  outstanding  at the close of
business on October 11, 1996 was 2,168,403.


<PAGE>


                             THE MICROCAP FUND, INC.

                                      INDEX


PART I.       FINANCIAL INFORMATION

Item 1.       Financial Statements.

Statements  of Assets and  Liabilities  as of August 31,  1996  (Unaudited)  and
February 29, 1996

Schedule of Portfolio Investments as of August 31, 1996 (Unaudited)

Statements  of  Operations  for the Three  Months Ended August 31, 1996 and 1995
(Unaudited)

Statements  of  Operations  for the Six Months  Ended  August 31,  1996 and 1995
(Unaudited)

Statements of Changes in Net Assets for the Six Months ended August 31, 1996 and
1995 (Unaudited)

Statements  of Cash Flows for the Six  Months  ended  August  31,  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>
                                                                                       August 31, 1996          February 29,
                                                                                         (Unaudited)                1996
ASSETS

Portfolio investments at fair value (cost $2,712,250 at
<S>     <C>    <C>    <C>    <C>                                                     <C>                     <C>

   August 31, 1996 and $4,783,156 at February 29, 1996) - Note 9                      $     3,700,375         $      6,939,805
Cash and cash equivalents                                                                   5,606,111                9,878,280
Receivable from securities sold                                                               270,632                  199,375
Accrued interest receivable                                                                    91,734                  349,781
Deferred organizational costs (net of accumulated amortization of
   $135,943 at August 31, 1996 and $116,257 at February 29, 1996)                              60,922                   80,608
Other assets                                                                                  123,232                  120,862
                                                                                      ---------------         ----------------
   Total assets                                                                             9,853,006               17,568,711
                                                                                      ---------------         ----------------

LIABILITIES

Accounts payable - legal fees                                                                 506,192                  163,263
Accounts payable - other                                                                      113,189                  170,290
                                                                                      ---------------         ----------------
   Total liabilities                                                                          619,381                  333,553
                                                                                      ---------------         ----------------

NET ASSETS

Preferred Stock,  par value $.01;  2,000,000 shares  authorized;  440,800 shares
   issued and 207,103  shares  outstanding at August 31, 1996 and 440,800 issued
   and 265,317 shares outstanding at February 29, 1996
   - Note 3                                                                                     2,071                    2,653
Common Stock, par value $.01; 10,000,000 shares authorized;
   2,458,630 shares issued and 2,168,403 shares outstanding at
   August 31, 1996 and 2,388,253 shares issued and 2,098,026
   outstanding at February 29, 1996 - Note 3                                                   24,586                   23,883
Additional paid-in-capital - Note 3                                                        11,611,405               19,441,478
Net unrealized appreciation of portfolio investments                                          988,125                2,156,649
Accumulated net investment loss                                                            (1,035,138)                 (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                                                                               10,460,618               18,462,151

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

Net assets                                                                            $     9,233,625         $     17,235,158
                                                                                      ===============         ================

Net assets per share of common stock                                                          $ 3.80                  $  7.25
                                                                                              ======                  =======

Net assets per share of preferred stock                                                       $ 4.76                  $  7.61
                                                                                              ======                  =======
</TABLE>

See notes to financial statements.



<PAGE>


THE MICROCAP FUND, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS (UNAUDITED)
August 31, 1996
<TABLE>

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

Unigene Laboratories, Inc.(A)
Warrant to purchase 615,000 shares of Common Stock
<S>     <C>    <C>    <C>                                                      <C>                 <C>                  <C>

   at $1.375 per share, expiring 7/7/00                                         $           0       $      538,125       5.83%
                                                                                -------------       --------------

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:

Bennett Environmental Inc. (B)
450,000 shares of Common Stock                                                         47,250               47,250        .51%
                                                                                -------------       --------------

First Colony Acquisition Corp.*
106,562 shares of Preferred Stock                                                     594,174              594,174
6% Convertible Promissory Note due 11/1/97                                          1,343,326            1,343,326
Warrant to purchase 7,560 shares of Common Stock
   at $5.00 per share, expiring 1/24/00                                                     0                    0
                                                                                -------------       --------------
                                                                                    1,937,500            1,937,500      20.98%
                                                                                -------------       --------------

Oh-La-La! Inc.
9% Convertible Senior Note                                                            140,000              140,000
9% Convertible Senior Note                                                            100,000              100,000
                                                                                -------------       --------------
                                                                                      240,000              240,000       2.60%
                                                                                -------------       --------------

Optiva Corporation
150,000 shares of Common Stock                                                        487,500              937,500      10.15%
                                                                                -------------       --------------      -----

Total Portfolio Investments(C)                                                  $   2,712,250       $    3,700,375      40.07%
                                                                                =============       ==============      ===== 
</TABLE>

<PAGE>

* 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.

(A)  On July 1, 1996, the Fund transferred warrants to purchase 60,000 shares of
     Unigene Laboratories,  Inc. common stock to certain individuals for payment
     of consulting and portfolio  transaction  costs incurred in connection with
     the Fund's investment in Unigene.

(B)  Subsequent  to  the  end  of  the  quarter,   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.

(C)  In June 1996,  the Fund sold warrants to purchase  60,000 shares of Accumed
     International,  Inc.  common  stock  for  $154,647,  realizing  a  gain  of
     $149,630.  In July 1996,  the Fund sold its  investment  in Shells  Seafood
     Restaurants, Inc. for $2.7 million, realizing a gain of $2,110,000. Also in
     July,  the  Fund  received   $163,205  from   International   Communication
     Technologies,  Inc., representing repayment of its $150,000 note due to the
     Fund, along with accrued interest thereon.

     See notes to financial statements.

<PAGE>


THE MICROCAP FUND, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
For the Three Months Ended August 31,

<TABLE>

                                                                                                  1996               1995
                                                                                             ---------------      -------
<S>                                                                                         <C>                 <C>

INVESTMENT INCOME AND EXPENSES

Income:
   Interest from U.S. Treasury Bills and repurchase agreements                               $       142,057      $      84,983
   Interest and dividends from portfolio investments                                                  27,543            221,525
                                                                                             ---------------      -------------
   Total investment income                                                                           169,600            306,508
                                                                                             ---------------      -------------

Expenses:
   Administrative fee                                                                                 29,033             43,291
   Legal fees                                                                                        189,061             57,004
   Accounting fees                                                                                     7,955              9,200
   Salary expense                                                                                     93,016             59,943
   Amortization of deferred organizational costs                                                       9,843              9,843
   Transfer agent and custodian fees                                                                   5,822              5,688
   Directors' fees and expenses                                                                       24,010              5,000
   Consulting fees                                                                                   (39,946)                 -
   Insurance expense                                                                                   8,680              6,372
   Mailing and printing                                                                               19,516             10,744
   Other operating expenses                                                                           28,334              7,240
                                                                                             ---------------      -------------
   Total expenses                                                                                    375,324            214,325
                                                                                             ---------------      -------------

Net investment income (loss)                                                                        (205,724)            92,183
                                                                                             ---------------      -------------

NET REALIZED AND UNREALIZED GAIN (LOSS)
   FROM PORTFOLIO INVESTMENTS

Net realized gain from portfolio investments                                                       2,364,630                  -
Change in net unrealized appreciation or depreciation of
   portfolio investments                                                                          (3,449,058)           485,019
                                                                                             ---------------      -------------
Net realized and unrealized gain (loss) from portfolio investments                                (1,084,428)           485,019
                                                                                             ---------------      -------------

NET INCREASE (DECREASE) IN NET ASSETS
   RESULTING FROM OPERATIONS                                                                 $    (1,290,152)     $     577,202
                                                                                             ===============      =============

</TABLE>

See notes to financial statements.




<PAGE>


THE MICROCAP FUND, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
For the Six Months Ended August 31,

<TABLE>

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

INVESTMENT INCOME AND EXPENSES

Income:
<S>                                                                                         <C>               <C>

   Interest from U.S. Treasury Bills and repurchase agreements                               $      270,530     $       200,948
   Interest and dividends from portfolio investments                                                 84,041             291,408
                                                                                             --------------     ---------------
   Total investment income                                                                          354,571             492,356
                                                                                             --------------     ---------------

Expenses:
   Administrative fee                                                                                81,997              86,023
   Legal fees                                                                                       769,605              70,494
   Accounting fees                                                                                   32,133              16,419
   Salary expense                                                                                   178,919             102,445
   Amortization of deferred organizational costs                                                     19,686              19,686
   Transfer agent and custodian fees                                                                  9,279              11,378
   Directors' fees and expenses                                                                      44,688              12,952
   Consulting fees                                                                                   85,094                   -
   Insurance expense                                                                                 20,046              12,794
   Mailing and printing                                                                              44,360              15,011
   Other operating expenses                                                                          66,159               8,211
                                                                                             --------------     ---------------
   Total expenses                                                                                 1,351,966             355,413
                                                                                             --------------     ---------------

Net investment income (loss)                                                                       (997,395)            136,943
                                                                                             --------------     ---------------

NET REALIZED AND UNREALIZED GAIN FROM
   PORTFOLIO INVESTMENTS

Net realized gain (loss) from portfolio investments                                               2,659,872            (351,344)
Change in net unrealized appreciation or depreciation of
   portfolio investments                                                                         (1,168,524)            852,394
                                                                                             --------------     ---------------
Net realized and unrealized gain from portfolio investments                                       1,491,348             501,050
                                                                                             --------------     ---------------

NET INCREASE IN NET ASSETS RESULTING
   FROM OPERATIONS                                                                           $      493,953     $       637,993
                                                                                             ==============     ===============

</TABLE>

See notes to financial statements.



<PAGE>


THE MICROCAP FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED)
For the Six Months Ended August 31,

<TABLE>

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

Change in net assets resulting from operations:
<S>                                                                                      <C>                  <C>

Net investment income (loss)                                                              $       (997,395)    $        136,943
Net realized gain (loss) from portfolio investments                                              2,659,872             (351,344)
Change in net unrealized appreciation or depreciation of
   portfolio investments                                                                        (1,168,524)             852,394
                                                                                          ----------------     ----------------
     Net increase in net assets resulting from operations                                          493,953              637,993
                                                                                          ----------------     ----------------

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                                                     (8,001,533)            (441,875)
Net assets at beginning of period                                                               17,235,158           17,715,073
                                                                                          ----------------     ----------------

NET ASSETS AT END OF PERIOD                                                               $      9,233,625     $     17,273,198
                                                                                          ================     ================
</TABLE>


See notes to financial statements.



<PAGE>


THE MICROCAP FUND, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Six Months Ended August 31,

<TABLE>

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

CASH FLOWS USED FOR OPERATING ACTIVITIES
<S>                                                                                          <C>               <C>

Net investment income (loss)                                                                  $     (997,395)   $       136,943
Adjustments to reconcile net investment income (loss) to cash
   used for operating activities:
Amortization of discounted receivable                                                                      -             (2,000)
Amortization of deferred organizational costs                                                         19,686             19,686
Consulting fees paid in-kind                                                                         105,000                  -
Increase (decrease) in payables                                                                      285,828            (56,347)
(Increase) decrease in receivables and other assets                                                  255,677           (163,932)
                                                                                              --------------    ---------------
Cash flows used for operating activities                                                            (331,204)           (65,650)
                                                                                              --------------    ---------------

CASH FLOWS PROVIDED FROM (USED FOR) INVESTING
   ACTIVITIES

Purchase of portfolio investments                                                                    (51,411)        (3,750,000)
Net proceeds from the sale of portfolio investments                                                2,605,932          1,122,656
Repayment of notes                                                                                 2,000,000          1,940,000
                                                                                              --------------    ---------------
Cash flows provided from (used for) investing activities                                           4,554,521           (687,344)
                                                                                              --------------    ---------------

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)
                                                                                              --------------    ---------------

Decrease in cash and cash equivalents                                                             (4,272,169)        (1,832,862)
Cash and cash equivalents at beginning of period                                                   9,878,280          9,033,750
                                                                                              --------------    ---------------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                                                    $    5,606,111    $     7,200,888
                                                                                              ==============    ===============

</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 included in 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 during the quarter.

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 six months ended August 31, 1996,
self-administration  expenses  totaled  $29,033 and $81,997,  respectively.  The
administrative fee for the three and six months ended August 31, 1995, under the
previous  administrative   arrangement  with  CAAM,  was  $43,291  and  $86,023,
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>

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                     70,377          703            (121)     (58,214)       (582)         -              -

Return  of capital distribution                                   (7,829,952)

Balance at August 31, 1996           2,458,630     $  24,586   $   11,611,405     207,103     $ 2,071    290,227     $ 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 six months ended August 31, 1996, 58,214 shares
of preferred stock were converted into 70,377 shares of common stock.

4.     Litigation
The  Fund  is 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 alleges breach of
contract  and  fraud  in  connection  with the  termination  of  employment  and
consulting  agreements between him and the Fund and claims damages in the amount
of $200,000,  plus punitive  damages.  The Fund has  answered,  moved to dismiss
portions of, and asserted  affirmative defenses to, the Statement of Claim. This
arbitration,  which had been stayed by agreement  of the  parties,  has recently
been  reopened by claimant,  Warner.  Management  of the Fund  believes that the
allegations  in the  Statement of Claim are without  merit and intends to defend
the arbitration vigorously.

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 a former  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, alleges fraud,  breach of fiduciary duties
and violations of the Investment  Company Act of 1940. The complaint claims that
the defendants, through a pattern of deception and fraudulent concealments, used
the Fund to  collect  underwriting,  placement,  consulting  and other  fees and
warrants from the Fund's  portfolio  companies for the benefit of the defendants
instead of acting in the best  interests of the Fund and its  shareholders.  The
claim alleges that the  defendants'  illegal actions have damaged the Fund in an
amount of not less than $5 million.

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.

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 proceeding pending in the United States Bankruptcy Court
for the  Southern  District of New York,  95 B 45197 (TLB).  In that  bankruptcy
proceeding,  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 ("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.

The Fund is 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 alleges that Kamal Mustafa, the former president and a former director
of the Fund, and president of Bluestone Capital Partners,  an investment banking
firm  controlled  by Mr.  Mustafa,  caused  the Fund to  defame  Mr.  Falk.  The
complaint seeks $20 million in damages from the defendants,  including the Fund.
In light of the conclusory  nature of the complaint,  the Fund has no basis upon
which to conclude it has any liability and intends to contest the action.

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.
<PAGE>

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. The Fund expects that additional distributions will
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  will  establish  an  escrow  account
containing  $250,000 in cash or cash  equivalents  to provide for any  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 August 31,  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           $       594,174                  6.43%
Common Stock and Warrants                                     534,750                 1,522,875                 16.49%
Debt Securities                                             1,583,326                 1,583,326                 17.15%
                                                     ----------------           ---------------             ----------

Total                                                $      2,712,250           $     3,700,375                 40.07%
                                                     ================           ===============             ==========

Country/Geographic Region

Eastern United States                                $      1,937,500           $     2,475,625                 26.81%
Western United States                                         727,500                 1,177,500                 12.75%
Canada                                                         47,250                    47,250                   .51%
                                                     ----------------           ---------------             ----------

Total                                                $      2,712,250           $     3,700,375                 40.07%
                                                     ================           ===============             ==========

Industry

Biotechnology                                        $              0           $       538,125                  5.83%
Consumer Products                                           2,425,000                 2,875,000                 31.13%
Environmental Services                                         47,250                    47,250                   .51%
Food Services                                                 240,000                   240,000                  2.60%
                                                     ----------------           ---------------             ----------

Total                                                $      2,712,250           $     3,700,375                 40.07%
                                                     ================           ===============             ==========
</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.    Subsequent Event
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.


12.    Interim Financial Statements
The unaudited financial  statements  presented as of August 31, 1996 and for the
three and six 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.

As of August 31, 1996, the Fund had cash and cash equivalents of $5,606,111. 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 six months
ended August 31, 1996 was $142,057 and $270,530,  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. Raymond Troubh and certain of the Fund's former directors and officers.
Pursuant  to  such  agreements,  the  Fund  will  establish  an  escrow  account
containing  $250,000 in cash or cash  equivalents  to provide for any  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  August 31,  1996,  the Fund had a net realized and
unrealized  loss from its portfolio  investments of  $1,084,428,  comprised of a
$2,364,630  net  realized  gain  from  portfolio  investments  and a  $3,449,058
decrease  in net  unrealized  appreciation  of  investments  for the three month
period.  For the six months ended  August 31, 1996,  the Fund had a net realized
and unrealized gain from its portfolio investments of $1,491,348, comprised of a
$2,659,872  net  realized  gain  from  portfolio  investments  and a  $1,168,524
decrease in net unrealized appreciation of investments.

The  $2,364,630  net  realized  gain for the three months ended August 31, 1996,
includes the 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
quarter, the Fund sold its remaining 60,000 Accumed  International,  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. During its first fiscal quarter ended May 31,
1996,  the Fund had a net realized gain of $295,242,  resulting from the sale of
190,000 Accumed common stock warrants and 12,500 shares of Accumed common stock.

For the three and six months ended  August 31, 1996,  the Fund had a decrease in
net  unrealized  appreciation  of  investments  of  $3,449,058  and  $1,168,524,
respectively. The $1,168,524 decrease in net unrealized appreciation for the six
months ended August 31, 1996, is comprised of a $1,381,261 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 six months ended August 31, 1995,  the Fund had a net realized loss from
its portfolio investments of $351,344.  The Fund had no realized gains or losses
from its portfolio  investments during the fiscal quarter ended August 31, 1995.
During the  quarter  ended May 31,  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). 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 at these companies.

For the three and six months ended August 31, 1995,  the Fund had a net increase
in unrealized  appreciation of its portfolio  investments  totaling $485,019 and
$852,394,  respectively.  The $852,394  increase for the six months ended August
31,  1995  consisted  of a  $1,461,769  net  unrealized  gain due to the  upward
revaluation of the Fund's portfolio investments for the six month period, offset
by a $609,375  transfer from unrealized gain to realized gain due to the sale of
the Fund's investment in Silverado Foods during the quarter ended May 31, 1995.

Investment Income and Expenses
For the  three  months  ended  August  31,  1996  and  1995,  the Fund had a net
investment loss of $205,724 and net investment income of $92,183,  respectively.
For the six months ended August 31, 1996 and 1995, the Fund had a net investment
loss of  $997,395  and net  investment  income of  $136,943,  respectively.  The
increase  in net  investment  loss for the six  months  ended  August  31,  1996
compared to the same period in 1995 was due to a $137,785 decrease in investment
income and a $996,553  increase in operating  expenses for the 1996 period.  The
Fund's  reduced  investment  income  primarily  resulted from a sharp 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  increase in legal fees for the 1996 period,
which totaled $769,605,  as compared to $70,494 for the 1995 period. The rise in
legal fees reflects the increased legal proceedings involving the Fund (see Note
4 of Notes to Financial Statements),  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
six months ended August 31, 1996 compared to the same period in 1995. Consulting
fees of $85,094  incurred  during the 1996 period,  primarily  resulted from 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. There were no such consulting fees
incurred during the 1995 period.  Salary expense  increased  $76,474,  including
severance  payments,  totaling  $60,000,  made  to  officers  and  employees  in
connection  with  the  Fund's  plan of  liquidation.  Other  operating  expenses
increased  $57,948 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 six months ended August 31,
1996. The administration expense incurred by the Fund for the three months ended
August  31,  1996  and  1995  was  $29,033  and   $43,291,   respectively.   The
administration  expense incurred by the Fund for the six months ended August 31,
1996 and 1995 was $81,997 and $86,023, 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.

Net Assets
For the six months ended August 31,  1996,  the Fund had a $493,953  increase in
net assets  from  operations,  comprised  of the  $1,491,348  net  realized  and
unrealized gain from portfolio investments offset by the $997,395 net investment
loss for the 1996 period.  The Fund's net assets 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 $9,233,625 at August 31, 1996, representing a decrease of
$8,001,533  from net assets of  $17,235,158  at February 28, 1996. At August 31,
1996,  the net asset  value per share of common  stock and  preferred  stock was
$3.80 and $4.76 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  $332,289,  or $1.25 per share of preferred stock
and the dilution to common shareholders of $332,289, or $.16 per share of common
stock. Additionally, the results from operations for the six months ended August
31,  1996  increased  the Fund's net assets by $.20 and $.21 per share of common
and preferred  stock,  respectively.  The  distribution  paid to shareholders on
August  30,  1996,  reduced  the  Fund's net assets by $3.50 per share of common
stock and $4.375 per share of preferred stock.

At August  31,  1995,  the Fund's net assets  were  $17,273,198,  a decrease  of
$441,875  from net  assets of  $17,715,073  at  February  28,  1995.  Net assets
resulting from operations for the period increased  $637,993 which was comprised
of $136,943 of net investment income and $501,050 of net realized and unrealized
gain  from  portfolio  investments.  This  increase  was more  than  offset by a
$1,079,868 decrease in net assets due to the repurchase of 262,727 shares of the
Fund's common stock in the public market during the period.

At August 31, 1995,  the net asset value per share of common stock and preferred
stock was $7.18 and $7.54 per share, 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 the net asset value per share
of common stock and preferred stock for the six months ended August 31, 1995 are
discussed below.

On  March  20,  1995,  the  Fund  issued  a  20%  preferred  stock  dividend  to
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 six months ended August 31, 1995, the Fund repurchased 262,727 shares
of 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 results from  operations  for the six months ended August 31,
1995 of $637,993 increased the Fund's net asset value by $.26 and $.28 per share
of common stock and preferred stock, respectively.

Summary of Changes to Net Assets for the Six Months Ended August 31, 1996

Portfolio  transactions  completed  during the six months ended August 31, 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 six
month period by $1,266,627. The Fund's net asset value was further increased for
the period from the $224,721  upward  revaluation of the Fund's 615,000  Unigene
common stock warrants.  The completed  portfolio  transactions  and revaluations
increased  the Fund's net asset value on a net basis by  $1,491,348  for the six
months  ended  August  31,  1996.  The  increase  in net assets  from  portfolio
transactions for the period was offset by a $997,395 net investment loss for the
six month period.

<TABLE>


                                                                                    Fair Value                  Effect on
Investment                                                   Return                 at 2/29/96                 Net Assets
<S>                                                    <C>                       <C>                       <C>

Sales and Write-Offs for six months ended 8/31/96:
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 six months ended 8/31/96:
Unigene Laboratories, Inc. (warrants)                                                                               224,721

Sub-total from portfolio transactions                                                                             1,491,348

Net investment loss for six months ended 8/31/96                                                                  (997,395)
                                                                                                            ---------------

Net Change to Net Assets for Six Months Ended
   August 31, 1996                                                                                          $       493,953
                                                                                                            ===============

</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.

The  Fund  is 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 alleges breach of
contract  and  fraud  in  connection  with the  termination  of  employment  and
consulting  agreements between him and the Fund and claims damages in the amount
of $200,000,  plus punitive  damages.  The Fund has  answered,  moved to dismiss
portions of, and asserted  affirmative defenses to, the Statement of Claim. This
arbitration,  which had been stayed by agreement  of the  parties,  has recently
been  reopened by claimant,  Warner.  Management  of the Fund  believes that the
allegations  in the  Statement of Claim are without  merit and intends to defend
the arbitration vigorously.

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 a former  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, alleges fraud,  breach of fiduciary duties
and violations of the Investment  Company Act of 1940. The complaint claims that
the defendants, through a pattern of deception and fraudulent concealments, used
the Fund to  collect  underwriting,  placement,  consulting  and other  fees and
warrants from the Fund's  portfolio  companies for the benefit of the defendants
instead of acting in the best  interests of the Fund and its  shareholders.  The
claim alleges that the  defendants'  illegal actions have damaged the Fund in an
amount of not less than $5 million.

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.

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 proceeding pending in the United States Bankruptcy Court
for the  Southern  District of New York,  95 B 45197 (TLB).  In that  bankruptcy
proceeding,  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 ("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.

The Fund is 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 alleges that Kamal Mustafa, the former president and a former director
of the Fund, and president of Bluestone Capital Partners,  an investment banking
firm  controlled  by Mr.  Mustafa,  caused  the Fund to  defame  Mr.  Falk.  The
complaint seeks $20 million in damages from the defendants,  including the Fund.
In light of the conclusory  nature of the complaint,  the Fund has no basis upon
which to conclude it has any liability and intends to contest the action.
<PAGE>

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.

A special meeting of the Fund's  shareholders  was held on July 23, 1996. At the
meeting,  the shareholders  approved the 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 results of the voting on the  proposal  to approve  the Plan of  Liquidation
were as follows:
                                  FOR         AGAINST            ABSTENTION 

Common stock and 
Preferred stock 
voting as a single class
                             1,379,504.50     18,428.75                0

Preferred stock                104,906         2,239                   0


Item 5.       Other Information.

In July  1996,  Raymond S.  Troubh  was  appointed  President,  Chief  Executive
Officer, Treasurer,  Secretary and Director of the Fund. All of the Fund's other
officers and employees have  resigned.  It is expected that Mr. Troubh will hold
such  offices and  maintain  responsibility  for the  liquidation  of the Fund's
remaining  assets,  until the Fund is terminated  and its  remaining  assets are
transferred to a liquidating trust. At that time, it is expected that Mr. Troubh
will become the independent  liquidating trustee responsible for liquidating the
remaining assets.

On August 30, 1996, in connection with the Plan of Liquidation, 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.

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.


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

              (a)  Exhibits

(2) Plan of  Liquidation  (incorporated  herein by reference to Exhibit A to the
Fund's proxy statement dated June 26, 1996)

(10.1)  Agreement  dated as of July 24, 1996 between the Fund and Mr. Raymond S.
Troubh

(10.2) Form of Indemnification  Agreement effective as of August 1, 1996 between
the Fund and the  Indemnitee  named therein  (entered into with James E. Brands,
Richard L.  Hubbell,  Leonard J.  DeRoma,  Jeffrey  Lewis,  Robert W.  Naismith,
Raymond S. Troubh and Robert D. Tucker)

                    (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:         October 15, 1996