<PAGE>

                                   EXHIBIT 13

                               2003 ANNUAL REPORT

<PAGE>
                                                                               .
                                                                               .
                                                                               .

FINANCIAL REPORT

CONTENTS

<TABLE>
<S>      <C>
 5       SELECTED FINANCIAL DATA

 6       MANAGEMENT'S DISCUSSION AND ANALYSIS
         OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

13       INDEPENDENT AUDITORS' REPORT

32       SHAREHOLDERS INFORMATION

33       OFFICERS & DIRECTORS
</TABLE>

                                       4

<PAGE>

MACC PRIVATE EQUITIES INC. AND SUBSIDIARY
SELECTED FINANCIAL DATA
FOR THE FISCAL YEARS ENDING SEPTEMBER 30

<TABLE>
<CAPTION>
                                      2003              2002              2001             2000               1999
----------------------------------------------------------------------------------------------------------------------
<S>                               <C>               <C>               <C>               <C>               <C>
Investment (expense) income       $ (2,206,134)         (926,634)         (284,263)           50,810            (7,459)
net of tax

Net realized (loss) gain on         (3,600,749)       (4,592,480)        2,488,350        (2,266,652)        3,293,177
investments, net of tax

Net change in unrealized             2,896,291         1,132,647        (8,477,187)        4,478,415          (607,771)
appreciation/depreciation         ------------      ------------      ------------      ------------      ------------
on investments

Net (decrease) increase           $ (2,910,592)       (4,386,467)       (6,273,100)        2,262,573         2,677,947
in net assets from operations     ============      ============      ============      ============      ============

Net (decrease) increase in               (1.25(1))         (1.88(1))         (2.69(1))          0.97(2)           1.15(3)
net assets from operations        ============      ============      ============      ============      ============
per common share

Total assets                      $ 41,233,118        44,013,701        41,395,958        46,607,466        38,535,445
                                  ============      ============      ============      ============      ============

Total long term debt              $ 27,940,000        27,934,004        20,972,463        20,320,922        13,763,123
                                  ============      ============      ============      ============      ============
</TABLE>

(1)  Computed using 2,329,255 shares outstanding at September 30, 2003,
     September 30, 2002 and September 30, 2001.

(2)  Per share data have been restated to reflect a 20% stock split effected in
     the form of a stock dividend on March 31, 2001.

(3)  Per share data have been restated to reflect a 20% stock split effected in
     the form of a stock dividend on March 31, 2001 and a 20% stock split
     effected in the form of a stock dividend on March 31, 2000.

                                       5

<PAGE>

MACC PRIVATE EQUITIES INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

         This Annual Report contains certain forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995 (the "1995
Act"). Such statements are made in good faith by MACC pursuant to the
safe-harbor provisions of the 1995 Act, and are identified as including terms
such as "may," "will," "should," "expects," "anticipates," "estimates," "plans,"
or similar language. In connection with these safe-harbor provisions, MACC has
identified herein important factors that could cause actual results to differ
materially from those contained in any forward-looking statement made by or on
behalf of MACC, including, without limitation, the high risk nature of MACC's
portfolio investments, the effects of general economic conditions on MACC's
portfolio companies, the effects of recent or future losses on the ability of
MorAmerica Capital to comply with applicable regulations of the Small Business
Administration and MorAmerica Capital's ability to obtain future funding, any
failure to achieve annual investment level objectives, changes in prevailing
market interest rates, contractions in the markets for corporate acquisitions
and initial public offerings, and an adverse outcome on the pending arbitration
proceedings against MorAmerica Capital. MACC further cautions that such factors
are not exhaustive or exclusive. MACC does not undertake to update any
forward-looking statement which may be made from time to time by or on behalf of
MACC.

RESULTS OF OPERATIONS

         MACC's investment income includes income from interest, dividends and
fees. Investment expense, net represents total investment income minus total
operating expenses and income tax expense. The main objective of portfolio
company investments is to achieve capital appreciation and realized gains in the
portfolio. These gains and losses are not included in investment expense, net.
However, another one of MACC's on-going goals is to achieve net investment
income and increased earnings stability. In this regard, a significant
proportion of new portfolio investments are structured so as to provide a
current yield through interest or dividends. MACC also earns interest on
short-term investments of cash.

FISCAL 2003 COMPARED TO FISCAL 2002

<TABLE>
<CAPTION>
                                                 For the year ended
                                                     September 30,
                                             ----------------------------
                                                2003              2002            CHANGE
                                             ----------------------------       -----------
<S>                                          <C>               <C>              <C>
Investment income                            $ 2,544,725        2,997,551         (452,826)
Operating expenses                            (4,735,859)      (3,825,185)        (910,674)
Income tax expense                               (15,000)         (99,000)          84,000
                                             -----------       ----------       ----------

Investment expense, net                       (2,206,134)        (926,634)      (1,279,500)
                                             -----------       ----------       ----------

Net realized loss on investments              (3,600,749)      (4,592,480)         991,731

Net change in unrealized depreciation/
  appreciation on investments                  2,896,291        1,132,647        1,763,644
                                             -----------       ----------       ----------

Net loss on investments                         (704,458)      (3,459,833)       2,755,375
                                             -----------       ----------       ----------

Net change in net assets from operations     $(2,910,592)      (4,386,467)       1,475,875
                                             ===========       ==========       ==========

Net asset value:

         Beginning of period                 $      6.72             8.60
                                             ===========      ===========

         End of period                       $      5.47             6.72
                                             ===========      ===========
</TABLE>

                                       6

<PAGE>

MACC PRIVATE EQUITIES INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTINUED...

INVESTMENT INCOME

         During the fiscal year ended September 30, 2003, total investment
income was $2,544,725, a decrease of 15% from fiscal year 2002 investment income
of $2,997,551. The decrease during the current year was the net result of
decreases in interest income of $342,804, or 16%, dividend income of $64,840, or
10% and processing fees of $80,195, or 78%, and an increase in other income of
$35,013, or 37%. MACC attributes the decease in interest income primarily to no
new investments made during fiscal year 2003, the placing of debt portfolio
securities issued by five portfolio companies on non-accrual of interest status
during fiscal year 2003, MACC's receipt of $1,425,013 in principal payments on
several of its debt portfolio investments and the write-off of two portfolio
company debt security investments totaling $1,723,857. In most cases, MACC is
subordinated to senior secured financing and its ability to collect interest is
subject to the terms of the senior financing and subordination agreements. A
significant number of the portfolio investments that were placed on non-accrual
of interest status during fiscal years 2003 and 2002 had ceased making current
interest payments to MACC as a result of these subordination provisions.
Dividend income for fiscal years 2003 and 2002 represents dividends received on
eight existing portfolio companies, five of which are distributions from limited
liability companies. Dividend income decreased in fiscal year 2003 because the
distributions from the limited liability companies during fiscal year 2002 were
larger than the distributions in fiscal year 2003. Processing fees decreased in
fiscal year 2003 primarily as a result of fewer new and follow-on investments
made during fiscal year 2003. The increase in other income is due to advisory
fees received on two portfolio companies during fiscal year 2003, as compared to
advisory fees received on only one portfolio company in fiscal year 2002. The
timing and amount of dividend income, income from the collection of processing
fees on new investments and other income are difficult to predict.

OPERATING EXPENSES

         Net operating expenses of MACC increased by 24% in fiscal year 2003 to
$4,735,859 from $3,825,185 in fiscal year 2002. The relative increase in net
operating expenses is the net result of increases of $185,548, or 9%, in
interest expense, $705,014, or 194%, in professional fees, $288,743 in net
unrealized loss on other assets, and a decrease of $217,000, or 19%, in
management fees (net of management fees waived). Interest expense increased due
to the accrual of a full year of interest during fiscal year 2003 on additional
borrowings of $6,955,000 from the Small Business Administration in fiscal year
2002. Professional fees increased primarily due to increased legal expenses due
to arbitration proceedings related to the sale of a former portfolio company and
compliance with new securities and exchange corporate governance requirements.
Because these arbitration proceedings are expected to conclude during the first
half of fiscal year 2004, MACC expects legal expenses for fiscal year 2004 to be
less than in fiscal year 2003. Net unrealized loss on other assets increased
$288,743 primarily due to the change in the other assets loss provision which
was recorded in fiscal year 2003. Management fees (net of management fees
waived) decreased due to MACC's investment advisor agreeing to a voluntary,
temporary reduction in management fees to reduce the expenses of MACC.

NET INVESTMENT EXPENSE

         MACC had investment expense, net in fiscal year 2003 of $2,206,134, an
increase of 138% from investment expense, net of $926,634 in fiscal year 2002.
The increase in investment expense, net is the net result of the decrease in
investment income and increase in operating expenses described above.

REALIZED LOSS ON DISPOSITION OF INVESTMENTS

         MACC recorded a net realized loss on investments in fiscal 2003 of
$3,600,749, as compared to a net realized loss of $4,592,480 in fiscal year
2002. The fiscal year 2003 net realized loss is the net result of $875,137 of
realized gains from three portfolio companies and the recovery of $42,605 from
one portfolio company investment which was written off in a prior period, offset
by a realized loss of $236,785 from the sale of one portfolio company, of which
$335,002 was previously recorded as unrealized depreciation, and realized losses
of $4,281,706 from the write-off of four portfolio companies, of which
$3,716,076 was previously recorded as unrealized depreciation. Management does
not attempt to maintain a comparable level of realized gains quarter to quarter
but instead attempts to maximize total investment portfolio appreciation through
realizing gains in the disposition of securities and investing in new portfolio
investments.

                                       7

<PAGE>

CHANGES IN UNREALIZED APPRECIATION/DEPRECIATION OF INVESTMENTS

         MACC had unrealized depreciation of $278,560 at September 30, 2003, a
positive change of $2,896,291, or 91%, from the $3,174,851 of unrealized
depreciation at September 30, 2002. This resulted in a net loss on investments
for fiscal year 2003 of $704,458, as compared to a net loss on investments of
$3,459,833 for fiscal year 2002. The fiscal year 2003 change in unrealized
appreciation/depreciation is the net effect of increases in fair value of seven
portfolio companies totaling $2,820,241, decreases in fair value of thirteen
portfolio companies totaling $3,673,462, the reversal of appreciation of
$301,566 in one portfolio investment from the sale of warrants resulting in a
realized gain, the reversal of depreciation of $335,002 in one portfolio
investment from the sale of the investment resulting in a realized loss, and the
reversal of $3,716,076 of depreciation resulting from the write-off of the
investment in four portfolio investments.

         Net change in unrealized appreciation/depreciation on investments
represents the change for the period in the unrealized appreciation net of
unrealized depreciation on MACC's total investment portfolio. When MACC
increases the fair value of a portfolio investment above its cost, the
unrealized appreciation for the portfolio as a whole increases, and when MACC
decreases the fair value of a portfolio investment below its cost, unrealized
depreciation for the portfolio as a whole increases. When MACC sells an
appreciated portfolio investment for a gain, unrealized appreciation for the
portfolio as a whole decreases as the gain is realized. Similarly, when MACC
sells or writes off a depreciated portfolio investment for a loss, unrealized
depreciation for the portfolio as a whole decreases as the loss is realized.

CHANGES IN NET ASSETS FROM OPERATIONS

         As a result of the items described above, MACC experienced a decrease
of $2,910,592, or 19%, in net assets during fiscal year 2003, and the resulting
net asset value per share was $5.47 at September 30, 2003, as compared to $6.72
at September 30, 2002. Management attributes these disappointing results
primarily to the negative effect that general economic conditions during fiscal
year 2003 had on MACC's investment income and the valuation of certain portfolio
investments, and the negative effects that increased professional fees and
interest expense had on MACC's operating expenses. Nevertheless, the majority of
MACC's forty portfolio companies continue to perform well. MACC realized gains
on three portfolio companies and seven portfolio investments increased in value
during fiscal year 2003. If the economy continues to improve over the next
twelve months, management believes MACC's portfolio is positioned to be able to
realize significant gains.

          To mitigate the effects of the current economic environment on MACC's
operating performance during fiscal 2003, MACC's investment advisor voluntarily
agreed to reduce the amount of management fees payable by MACC from January 1,
2003 through February 29, 2004. In addition, MACC reduced its projected
investment rate and projected borrowing rate in the revised fiscal 2003 budget.
Recent years have been difficult years for the venture capital industry, with
few comparisons to past business cycles. The declines in the stock market,
increased regulations, world tensions, terrorism and the continuing conflict in
Iraq, all contribute to increased risk and uncertainty to future performance of
MACC's investment portfolio. If the economy continues to improve, management
believes MACC's investment portfolio will benefit from improved operating
performance at a number of portfolio companies and from a more robust market for
corporate acquisitions and investments.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

         To date, MACC has relied upon several sources to fund its investment
activities, including MACC's cash and money market accounts and the Small
Business Investment Company ("SBIC") leverage program operated by the Small
Business Administration (the "SBA").

         MACC, through its wholly-owned subsidiary, MorAmerica Capital, from
time to time may seek to procure additional capital through the SBIC leverage
program to provide a portion of its investment capital requirements. At present,
capital with a commitment period of up to four years is available through the
SBIC leverage program and MACC anticipates that capital will be available in
future periods.

         As an SBIC, MorAmerica Capital is required to comply with the
regulations of the SBA (the "SBA Regulations"). These regulations include the
capital impairment rules, as defined by Regulation 107.1830 of the SBA
Regulations. As of September 30, 2003, the capital of MorAmerica Capital was
impaired less than the maximum impairment percentage permitted under SBA
Regulations. No assurances can be given, however, that MorAmerica Capital will
continue to be less than the maximum impairment percentage in future periods if
MorAmerica Capital continues to experience negative operating results. If
MorAmerica Capital would exceed the maximum impairment percentage in future
periods, a number of events could occur which could have a material adverse
effect on the financial position, results of operations, cash flow and liquidity
of MACC and MorAmerica Capital. MorAmerica Capital is currently limited by the
SBA Regulations in the amount of distributions it may make to MACC. Because MACC
historically has relied in large part on distributions from MorAmerica Capital
to fund its operating expenses and other cash

                                       8

<PAGE>

requirements, MACC is currently evaluating a number of alternatives to seek to
provide sufficient liquidity at the parent-company level.

         As of September 30, 2003, MACC's cash and money market accounts totaled
$722,691. MACC has commitments for an additional $3,500,000 and $6,500,000 in
SBA guaranteed debentures, which expire on September 30, 2005 and September 30,
2007, respectively. Subject to the risks and uncertainties described in this
annual report, including the pending arbitration proceedings described in note 5
to the consolidated financial statements, MACC believes that its existing cash
and money market accounts, the $10,000,000 SBA commitments, and other
anticipated cash flows, will provide adequate funds for MACC's anticipated cash
requirements during fiscal year 2004, including portfolio investment activities,
interest payments on outstanding debentures payable and administrative expenses.
MACC's current investment objective is to invest up to $2,500,000 in new and
follow-on investments during fiscal year 2004, subject to further adjustment
based upon current economic and operating conditions.

         Debentures payable are composed of $27,940,000 in principal amount of
SBA-guaranteed debentures issued by MACC's subsidiary, MorAmerica Capital, which
mature as follows: $2,150,000 in fiscal year 2005, $1,000,000 in fiscal year
2007, $2,500,000 in fiscal year 2009, $9,000,000 in fiscal year 2010, $5,835,000
in fiscal year 2011, and $7,455,000 in fiscal year 2012. The $2,150,000 due in
fiscal year 2005 had an original maturity date of September 1, 2003. MACC was
not allowed by the SBA to rollover the $2,150,000 into a new ten year debenture.
Instead, the SBA agreed to not exercise its right to demand payment of the
debenture before November 1, 2004. Subject to the risks and uncertainties
described in this annual report, it is anticipated MorAmerica Capital will be
able to roll over these debentures with new ten-year debentures when they
mature.

         MACC currently anticipates that it will rely primarily on its current
cash and money market accounts, the SBIC capital program and its cash flows from
operations to fund its investment activities and other cash requirements during
fiscal year 2004. In fiscal year 2004, through December 5, 2003, MACC has
received approximately $5,150,000 in cash proceeds from the sale of three
portfolio investments. MACC also anticipates that its investment advisor will
agree to voluntarily reduce its management fee through February 29, 2004.
Although management believes these sources will provide sufficient funds for
MACC to meet its fiscal year 2004 investment level objective and other
anticipated cash requirements, there can be no assurances that the SBIC capital
program will continue to be available to MACC, that MACC's cash flows from
operations will be as projected, or that MACC's cash requirements will be as
projected. MACC's cash flow has been negatively affected by expenses associated
with the pending arbitration proceedings described in Note 5 to the Consolidated
Financial Statements. An adverse outcome on such arbitration proceedings could
further adversely affect MACC's cash flow.

PORTFOLIO ACTIVITY

         MACC's primary business is investing in and lending to businesses
through investments in subordinated debt (generally with detachable equity
warrants), preferred stock and common stock. The total portfolio value of
investments in publicly and non-publicly traded securities was $38,601,177 and
$40,626,478 at September 30, 2003 and September 30, 2002, respectively. During
fiscal year 2003, MACC invested $1,301,027 in follow-on investments in seven
existing portfolio companies. Management views investment objectives for any
given year as secondary in importance to MACC's overriding concern of investing
in only those portfolio companies which satisfy MACC's investment criteria.

         MACC frequently co-invests with other funds managed by MACC's
investment advisor. When it makes any co-investment with these related funds,
MACC follows certain procedures consistent with orders of the Securities and
Exchange Commission for related party co-investments to reduce or eliminate
conflict of interest issues. Of the $1,301,027 invested during fiscal year 2003,
$779,527 represented co-investments with funds managed by MACC's investment
advisor.

                                       9

<PAGE>

VALUATION CHANGES

         The following table presents those portfolio investments held at
September 30, 2003 with respect to which the valuation changed from September
30, 2002:

                                   FAIR VALUE

<TABLE>
<CAPTION>
          PORTFOLIO COMPANY              SEPTEMBER 30, 2003     SEPTEMBER 30, 2002
<S>                                      <C>                    <C>
A-Plus Galvanizing, Inc.                     $  297,001              847,001
Architectural Art Mfg., Inc.                    680,001              780,001
Big J Enterprises, LLC                          750,750              703,250 *
Deluxe Ice Cream Acquisition Corporation        526,024              546,024 *
Divine, Inc.                                         88               21,042
Direct Mail Holding, LLC                      2,403,070            1,604,000 *
Gregg Manufacturing, Inc.                     1,566,720            1,147,000
Hicklin Engineering, L.C.                       994,386              840,127
Inergy, LP                                    3,568,570            2,606,240
KW Products, Inc.                               641,959              737,862 *
Linton Truss Corporation                        450,015              540,015 *
M.A. Gedney Company                             484,458              825,203 *
Miles Media Group, Inc.                       1,474,500            1,690,500 *
Monitronics International, Inc.                 183,035              605,582
Morgan Ohare, Inc.                            1,822,501            1,766,251
NewPath Communications, LC                            1              211,846
Organized Living, Inc.                        1,324,203            1,474,203 *
Penn Wheeling Acquisition Company, LLC        2,323,500            1,942,388
RSI Holdings, Inc.                                    1              922,709 *
Simoniz USA, Inc.                               809,592            1,111,158 *
TransCore Holdings, Inc.                              1              532,761
</TABLE>

*  September 30, 2002 valuations have been adjusted for additional amounts
   invested or partial disposition of the portfolio investment for purposes of
   comparison.

CRITICAL ACCOUNTING POLICY

         Investments in securities traded on a national securities exchange (or
reported on the NASDAQ national market) are stated at the average of the bid
price on the three final trading days of the valuation period which is not
materially different from the bid price on the final day of the period.
Restricted and other securities for which quotations are not readily available
are valued at fair value as determined by the Board of Directors. Among the
factors considered in determining the fair value of investments are the cost of
the investment; developments, including recent financing transactions, since the
acquisition of the investment; the financial condition and operating results of
the investee; the long-term potential of the business of the investee; and other
factors generally pertinent to the valuation of investments. However, because of
the inherent uncertainty of valuation, those estimated values may differ
significantly from the values that would have been used had a ready market for
the securities existed, and the differences could be material.

         In the valuation process, MorAmerica Capital uses financial information
received monthly, quarterly, and annually from its portfolio companies which
includes both audited and unaudited financial statements. This information is
used to determine financial condition, performance, and valuation of the
portfolio investments.

         Realization of the carrying value of investments is subject to future
developments. Investment transactions are recorded on the trade date and
identified cost is used to determine realized gains and losses. Under the
provisions of SOP 90-7, the fair value of loans and investments in portfolio
securities on February 15, 1995, the fresh-start date, is considered the cost
basis for financial statement purposes.

                                       10

<PAGE>

DETERMINATION OF NET ASSET VALUE

         The net asset value per share of MACC's outstanding common stock is
determined quarterly, as soon as practicable after and as of the end of each
calendar quarter, by dividing the value of total assets minus total liabilities
by the total number of shares outstanding at the date as of which the
determination is made.

         In calculating the value of total assets, securities that are traded in
the over-the-counter market or on a stock exchange are valued in accordance with
the current valuation policies of the Small Business Administration ("SBA").
Under SBA regulations, publicly traded equity securities are valued by taking
the average of the close (or bid price in the case of over-the-counter equity
securities) for the valuation date and the preceding two days. This policy
differs from the Securities and Exchange Commission's guidelines which utilize
only a one day price measurement. MACC's use of SBA valuation procedures did not
result in a material variance as of September 30, 2003, from valuations using
the Securities and Exchange Commission's guidelines.

         All other investments are valued at fair value as determined in good
faith by the Board of Directors. The Board of Directors has determined that all
other investments will be valued initially at cost, but such valuation will be
subject to quarterly adjustments and on such other interim periods as are
justified by material portfolio company events if the Board of Directors
determines in good faith that cost no longer represents fair value.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

         MACC is exposed to market risk from changes in market prices of
publicly traded equity securities held in the MACC consolidated investment
portfolio. At September 30, 2003, publicly traded equity securities in the MACC
consolidated investment portfolio were recorded at a fair value of $3,568,659.
In accordance with MACC's valuation policies and SBA regulations, the fair value
of publicly traded equity securities is determined based upon the average of the
closing prices (or bid price in the case of over-the-counter equity securities)
for the valuation date and the preceding two days. The publicly traded equity
securities in the MACC consolidated investment portfolio thus have exposure to
price risk, which is estimated as the potential loss in fair value due to a
hypothetical 10% adverse change in quoted market prices, and would amount to a
decrease in the recorded value of such publicly traded equity securities of
approximately $356,866. Actual results may differ.

         MACC is also exposed to market risk from changes in market interest
rates that affect the fair value of MorAmerica Capital's debentures payable
determined in accordance with Statement of Financial Accounting Standards No.
107, Disclosures About Fair Value of Financial Instruments. The estimated fair
value of MorAmerica Capital's outstanding debentures payable at September 30,
2003, was $30,545,000, with a cost of $27,940,000. Fair value of MorAmerica
Capital's outstanding debentures payable is calculated by discounting cash flows
through estimated maturity using the borrowing rate currently available to
MorAmerica Capital for debt of similar original maturity. None of MorAmerica
Capital's outstanding debentures payable are publicly traded. Market risk is
estimated as the potential increase in fair value resulting from a hypothetical
0.5% decrease in interest rates. Actual results may differ.

<TABLE>
<CAPTION>
                        2003
------------------------------------------------
<S>                                  <C>
Fair Value of Debentures Payable     $30,545,000

Amount Above Cost                    $ 2,605,000

Additional Market Risk               $   802,000
</TABLE>

PORTFOLIO RISKS

         Pursuant to Section 64(b)(1) of the Investment Company Act of 1940, a
business development company is required to describe the risk factors involved
in an investment in the securities of such company due to the nature of MACC's
investment portfolio. Accordingly, MACC states that:

         The portfolio securities of MACC consist primarily of securities issued
by small, privately held companies. Generally, little or no public information
is available concerning the companies in which MACC invests, and MACC must rely
on the diligence of the Investment Advisor to obtain the information necessary
for MACC's investment decisions. In order to maintain their status as business
development companies, MACC and MorAmerica Capital both must invest at least 50%
of their total assets in the types of portfolio investments described by
Sections 55(a)(1) though 55(a)(3) of the Investment Company Act of 1940, as
amended.

                                       11

<PAGE>

These investments generally are securities purchased in private placement
transactions from small privately held companies. Typically, the success or
failure of such companies depends on the management talents and efforts of one
person or a small group of persons, so that the death, disability or resignation
of such person or persons could have a materially adverse impact on such
companies. Moreover, smaller companies frequently have smaller product lines and
smaller market shares than larger companies and may be more vulnerable to
economic downturns. Because these companies will generally have highly leveraged
capital structures, reduced cash flows resulting from an economic downturn may
adversely affect the return on, or the recovery of, MACC's investments.
Investment in these companies therefore involves a high degree of business and
financial risk, which can result in substantial losses and should be considered
speculative.

         MACC's investments primarily consist of securities acquired from the
issuers in private transactions, which are usually subject to restrictions on
resale and are generally illiquid. No established trading market generally
exists with regard to such securities, and most of such securities are not
available for sale to the public without registration under the Securities Act
of 1933, as amended, which involves significant delay and expense.

         The investments of MACC are generally long-term in nature. Some
existing investments do not bear a current yield and a return on such
investments will be earned only after the investment matures or is sold. Most
investments are structured so as to return a current yield throughout most of
their term. However, these investments will typically produce gains only when
sold in five to seven years. There can be no assurance, however, that any of
MACC's investments will produce current yields or gains.

OPERATIONS RISKS

         MACC generally relies on portfolio investment divestitures and
liquidity events, as well as increases in fair value of portfolio investments,
to provide for increases in net asset value in any period. MACC typically relies
on the sale of portfolio companies in negotiated transactions and on the initial
public offering of portfolio company securities to provide for portfolio
investment divestitures and liquidity events. Accordingly, a general contraction
in the markets for corporate acquisitions and/or initial public offerings could
adversely affect MACC's ability to realize capital gains, if any, from the sale
of its portfolio company securities. The SBIC guidelines under which MorAmerica
Capital operates permit the MorAmerica Capital Board of Directors to determine
increases in fair value of unliquidated portfolio investments based upon a
number of factors, including subsequent financings provided to portfolio
companies. Accordingly, decreases in the supply of additional capital to MACC's
portfolio companies could adversely affect MorAmerica Capital's ability to
achieve increases, if any, in fair value of its portfolio investments. MACC's
failure to achieve its investment level objectives for any particular year or
years could also adversely affect the rate of increase, if any, in net asset
value.

INTEREST RATE RISKS

         MACC faces several risks in relation to changes in prevailing market
interest rates. First, at September 30, 2003, MACC had outstanding $27,940,000
in principal amount of SBA-guaranteed debentures issued by MACC's subsidiary,
MorAmerica Capital, which mature as follows: $2,150,000 in 2005, $1,000,000 in
2007, $2,500,000 in 2009, $9,000,000 in 2010, $5,835,000 in 2011, and $7,455,000
in 2012. These debentures provide for a fixed rate of interest, and accordingly,
changes in market interest rates will have no effect on the amount of interest
paid by MACC with respect to the SBA-guaranteed debentures which are presently
outstanding. However, if MorAmerica Capital were to re-finance any of the
maturing SBA-guaranteed debentures by issuing additional SBA-guaranteed
debentures at a time when market interest rates have increased relative to the
rates paid on the maturing debentures, then MACC may incur higher interest
expenses during subsequent periods, and MACC's ability during such periods to
achieve a net operating profit, if any, could be adversely affected.

         Second, MACC has stated that one of its goals is to structure portfolio
investments to provide a current yield in order to provide MACC with earnings
stability. These investments typically provide for a fixed preferred dividend or
interest rate. Accordingly, MACC's ability to earn a net operating profit under
its current strategy could be adversely affected by a decrease in market
interest rates over the next several years because the increased level of
portfolio investments anticipated to be made during this period would reflect
these lower interest rates, which would adversely affect MACC's projected total
income over the foreseeable future.

         Third, many of MACC's portfolio companies have or may issue debt senior
to MACC's investment. The payment of principal and interest due on MACC's
investment, therefore, will generally be subordinate to payments due on any such
senior debt. Moreover, senior debt typically bears interest at a floating rate,
whereas MACC's investments generally do not. Any increase in market interest
rates may put significant economic pressure on those portfolio companies that
have issued senior debt which bears interest at a floating rate. Accordingly,
MACC's ability to achieve net operating income and generally to realize gains
from its portfolio investments may be adversely affected by an increase in
market interest rates.

                                       12

<PAGE>

INDEPENDENT AUDITORS' REPORT

BOARD OF DIRECTORS AND SHAREHOLDERS
MACC PRIVATE EQUITIES INC.:

         We have audited the accompanying consolidated balance sheet of MACC
Private Equities Inc. and subsidiary (the Companies), including the consolidated
schedule of investments, as of September 30, 2003, and the related consolidated
statements of operations and cash flows for the year ended September 30, 2003
and the consolidated statements of changes in net assets for the years ended
September 30, 2003 and 2002, and the financial highlights for each of the five
years in the period then ended. These consolidated financial statements and
financial highlights are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial highlights based on our audit.

         We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation or
examination of securities owned as of September 30, 2003. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

         In our opinion, the aforementioned consolidated financial statements
and financial highlights present fairly, in all material respects, the financial
position of MACC Private Equities Inc. and subsidiary as of September 30, 2003,
and the results of their operations and their cash flows for the year then ended
and changes in net assets for the years ended September 30, 2003 and 2002, and
the financial highlights for each of the five years in the period then ended, in
conformity with accounting principles generally accepted in the United States of
America.

/s/ KPMG LLP

Des Moines, Iowa
November 7, 2003

                                       13

<PAGE>

MACC PRIVATE EQUITIES INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2003

<TABLE>
<S>                                                                                       <C>
ASSETS

Loans and investments in portfolio securities, at market or fair value (note 2):
     Unaffiliated companies (cost of $13,439,514)                                         $ 12,803,914
     Affiliated companies (cost of $20,949,721)                                             20,875,512
     Controlled companies (cost of $4,490,502)                                               4,921,751
Cash and money market accounts                                                                 722,691
Other assets, net (note 1)                                                                   1,909,250
                                                                                          ------------

         Total assets                                                                     $ 41,233,118
                                                                                          ============

LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
     Debentures payable (note 3)                                                          $ 27,940,000
     Incentive fees payable (note 5)                                                            27,528
     Accrued interest                                                                          185,664
     Accounts payable and other liabilities                                                    334,014
                                                                                          ------------

         Total liabilities                                                                  28,487,206
                                                                                          ------------

Net assets (note 3)
     Common stock, $.01 par value per share; authorized 4,000,000 shares;
         issued and outstanding 2,329,255 shares                                                23,293
     Additional paid-in-capital                                                             13,001,179
     Unrealized depreciation on investments (note 2)                                          (278,560)
                                                                                          ------------

         Total net assets                                                                   12,745,912
                                                                                          ------------

Commitments and contingency (note 5)

         Total liabilities and net assets                                                 $ 41,233,118
                                                                                          ============

Net assets per share                                                                      $       5.47
                                                                                          ============
</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                       14

<PAGE>

MACC PRIVATE EQUITIES INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 2003

<TABLE>
<S>                                                                             <C>
Investment income:
     Interest
        Unaffiliated companies                                                  $   455,137
        Affiliated companies                                                      1,040,270
        Controlled companies                                                        256,142
        Other                                                                        27,807
     Dividends
        Unaffiliated companies                                                      315,066
        Affiliated companies                                                        275,169
        Controlled companies                                                         23,442
     Processing fees                                                                 22,741
     Other                                                                          128,951
                                                                                -----------

         Total income                                                             2,544,725
                                                                                -----------

Operating expenses:
     Interest expenses (note 3)                                                   2,195,886
     Management fees (note 5)                                                     1,083,575
     Professional fees                                                            1,068,511
     Net unrealized loss on other assets                                            288,743
     Other                                                                          279,565
                                                                                -----------

         Total operating expenses before management fees waived                   4,916,280
         Management fees waived (notes 5 and 6)                                    (180,421)
                                                                                -----------

         Net operating expenses                                                   4,735,859
                                                                                -----------

         Investment expense, net before tax expense                              (2,191,134)

Income tax expense (note 4)                                                         (15,000)
                                                                                -----------

         Investment expense, net                                                 (2,206,134)
                                                                                -----------

Realized and unrealized (loss) gain on investments (note 2):
     Net realized loss on investments:
        Unaffiliated companies                                                     (464,441)
        Affiliated companies                                                     (3,136,308)
     Net change in unrealized depreciation/appreciation on investments            2,896,291
                                                                                -----------

         Net loss on investments                                                   (704,458)
                                                                                -----------

         Net change in net assets from operations                               $(2,910,592)
                                                                                ===========
</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                       15

<PAGE>

MACC PRIVATE EQUITIES INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED SEPTEMBER 30, 2003 AND 2002

<TABLE>
<CAPTION>
                                                                      2003                 2002
---------------------------------------------------------------------------------------------------
<S>                                                               <C>                    <C>
Operations:
   Investment expense, net                                        $ (2,206,134)            (926,634)
   Net realized loss on investments                                 (3,600,749)          (4,592,480)
   Net change in unrealized appreciation/depreciation
      on investments                                                 2,896,291            1,132,647
                                                                  ------------           ----------

                  Net change in net assets from operations          (2,910,592)          (4,386,467)

Net assets:
   Beginning of period                                              15,656,504           20,042,971
                                                                  ------------           ----------

   End of period                                                  $ 12,745,912           15,656,504
                                                                  ============           ==========
</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                       16
<PAGE>

MACC PRIVATE EQUITIES INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED SEPTEMBER 30, 2003

<TABLE>
<S>                                                                                <C>
Cash flows from operating activities:
     Decrease in net assets from operations                                        $(2,910,592)
                                                                                   -----------

     Adjustments to reconcile decrease in net assets from operations to net cash
          used in operating activities:
            Net realized and unrealized loss on investments                            704,458
            Net unrealized loss on other assets                                        288,743
            Change in incentive fees payable, accrued interest,
                     accounts payable and other liabilities                            152,222
            Other                                                                     (265,677)
                                                                                   -----------

                  Total adjustments                                                    879,746
                                                                                   -----------

                    Net cash used in operating activities                           (2,030,846)
                                                                                   -----------

Cash flows from investing activities:
     Proceeds from disposition of and payments on loans and
          investments in portfolio securities                                        2,316,961
     Purchases of loans and investments in portfolio securities                     (1,301,027)
                                                                                   -----------

                      Net cash provided by investing activities                      1,015,934
                                                                                   -----------

Cash flows from financing activities:
     Debt commitment fee                                                               (65,000)
                                                                                   -----------

                      Net cash used in financing activities                            (65,000)
                                                                                   -----------

                      Net decrease in cash and cash equivalents                     (1,079,912)

Cash and cash equivalents at beginning of period                                     1,802,603
                                                                                   -----------

Cash and cash equivalents at end of period                                         $   722,691
                                                                                   ===========

Supplemental disclosure of cash flow information -
     Cash paid during the year for interest                                        $ 2,088,201
                                                                                   ===========

Supplemental disclosure of noncash investing and financing information -
      Assets received in exchange of securities                                    $   739,868
                                                                                   ===========
</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                       17
<PAGE>

MACC PRIVATE EQUITIES INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003

(1)      SUMMARY OF SIGNIFICANT ACCOUNTING POLICES AND RELATED MATTERS

         (a)      BASIS OF PRESENTATION

         The consolidated financial statements include the accounts of MACC
         Private Equities Inc. (Equities) and its wholly owned subsidiary,
         MorAmerica Capital Corporation (MACC). Equities and MACC (the Company)
         are qualified as business development companies under the Investment
         Company Act of 1940. All material intercompany accounts and
         transactions have been eliminated. The consolidated financial
         statements have been prepared in accordance with accounting principles
         generally accepted in the United States of America for investment
         companies.

         On February 15, 1995, the Company consummated a plan of reorganization
         as confirmed by the United States Bankruptcy Court for the Northern
         District of Iowa on December 28, 1993. As of February 15, 1995, the
         Company adopted fresh-start reporting in accordance with American
         Institute of Certified Public Accountants (AICPA) Statement of Position
         (SOP) 90-7, Financial Reporting by Entities in Reorganization Under the
         Bankruptcy Code, resulting in the Company's assets and liabilities
         being adjusted to fair values.

         (b)      USE OF ESTIMATES

         The preparation of consolidated financial statements in conformity with
         accounting principles generally accepted in the United States of
         America requires management to make estimates and assumptions that
         affect the reported amounts of assets and liabilities and disclosure of
         contingent assets and liabilities at the date of the consolidated
         financial statements, and the reported amounts of revenues and expenses
         during the reporting period. Actual results could differ from those
         estimates.

         (c)      CASH EQUIVALENTS

         For purposes of reporting cash flows, the Company considers
         certificates of deposit and U. S. treasury bills with maturities of
         three months or less from the date of purchase and money market
         accounts to be cash equivalents. At September 30, 2003, cash
         equivalents consisted of $688,246 of money market funds.

         (d)      LOANS AND INVESTMENTS IN PORTFOLIO SECURITIES

         Investments in securities traded on a national securities exchange (or
         reported on the NASDAQ national market) are stated at the average of
         the bid price on the three final trading days of the valuation period
         which is not material from the bid price on the final day of the
         period. Restricted and other securities for which quotations are not
         readily available are valued at fair value as determined by the Board
         of Directors. Realization of the carrying value of investments is
         subject to future developments (see note 2). Investment transactions
         are recorded on the trade date. Identified cost is used to determine
         realized gains and losses. Under the provisions of SOP 90-7, the fair
         value of loans and investments in portfolio securities on February 15,
         1995, the fresh-start date, is considered the cost basis for financial
         statement purposes.

         (e)      OTHER ASSETS

         Other assets include accrued interest receivable on portfolio loans of
         $1,730,327 at September 30, 2003, which is presented net of a reserve
         of $1,333,746.

         (f)      REVENUE RECOGNITION

         Dividend income is recognized on the ex-dividend date and interest
         income is accrued on a daily basis.

         In conjunction with the investment process, the Company negotiates
         non-refundable processing fees with many companies it evaluates for
         investment. These fees are compensation for time and efforts of the
         investment advisory personnel and for reimbursement of expenses related
         to the due diligence, and are recognized as income when received.

         (g)      INCOME TAXES

         Equities and MACC are members of a consolidated group for income tax
         purposes.

                                       18
<PAGE>

         Deferred tax assets and liabilities are recognized for the future tax
         consequences attributable to differences between the consolidated
         financial statement carrying amounts of existing assets and liabilities
         and their respective tax bases and operating loss carryforwards.
         Deferred tax assets and liabilities are measured using enacted tax
         rates expected to apply to taxable income in the years in which those
         temporary differences are expected to be recovered or settled. The
         effect of a change in tax rates on deferred tax assets and liabilities
         is recognized in the period that includes the enactment date.

         (h)      DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

         Statement of Financial Accounting Standards (SFAS) No. 107, Disclosures
         About Fair Value of Financial Instruments, requires that disclosures be
         made regarding the estimated fair value of financial instruments, which
         are generally described as cash, contractual obligations, or rights to
         pay or receive cash. The carrying amount approximates fair value for
         certain financial instruments because of the short-term maturity of
         these instruments, including cash, incentive fee payable, accrued
         interest, accounts payable and other liabilities.

         Portfolio investments are recorded at fair value. The consolidated
         schedule of investments discloses the applicable fair value and cost
         for each security investment, which aggregated to $38,601,177 and
         $38,879,737, respectively, at September 30, 2003.

         The estimated fair value of long-term debt is $30,545,000, with a cost
         of $27,940,000, at September 30, 2003. This fair value amount was
         calculated by discounting future cash flows through estimated maturity
         using the borrowing rate currently available to the Company for debt of
         similar original maturity.

(2)      LOANS AND INVESTMENTS IN PORTFOLIO SECURITIES

         Loans and investments in portfolio securities include debt and equity
         securities in small business concerns located throughout the
         continental United States, with a concentration in the Midwest. The
         Company determined that the fair value of its portfolio securities was
         $38,601,177 at September 30, 2003. Among the factors considered by the
         Company in determining the fair value of investments were the cost of
         the investment; developments, including recent financing transactions,
         since the acquisition of the investment; the financial condition and
         operating results of the investee; the long-term potential of the
         business of the investee; and other factors generally pertinent to the
         valuation of investments. However, because of the inherent uncertainty
         of valuation, those estimated values may differ significantly from the
         values that would have been used had a ready market for the securities
         existed, and the differences could be material.

         The Company acquired its portfolio securities by direct purchase from
         the issuers under investment representation and values the securities
         on the premise that, in most instances, they may not be sold without
         registration under the Securities Act of 1933. The price of securities
         purchased was determined by direct negotiation between the Company and
         the seller. All portfolio securities, other than a portion of the
         securities held of Devine, Inc. (formerly Delano Technology
         Corporation, acquired on October 16, 2000), are considered to be
         restricted in their disposition and illiquid at September 30, 2003.

(3)      DEBENTURES PAYABLE

         Debentures of MACC guaranteed by the Small Business Administration
         (SBA) of $27,940,000 at September 30, 2003 are unsecured. In accordance
         with SOP 90-7, the debentures then outstanding were revalued to fair
         value on February 15, 1995. Maturities of the debentures are as
         follows:

<TABLE>
<CAPTION>
                                                            FIXED
YEAR ENDING SEPTEMBER 30:               DEBENTURES      INTEREST RATE
                                       ------------    ---------------
<S>                                    <C>             <C>
     2005                              $  2,150,000         3.13    %
     2007                                 1,000,000         7.55
     2009                                 2,500,000         7.83
     2010                                 9,000,000         8.48
     2011                                 5,835,000         6.89
     2012                                 7,455,000         7.03
                                       ------------         ====
                                       $ 27,940,000
                                       ============
</TABLE>

         On October 20, 2003, the Company received notification from the SBA
         that it will not exercise its right to demand payment on $2,150,000 of
         debentures which matured on September 1, 2003 before November 1, 2004.

                                       19
<PAGE>

         The debentures contain restrictions on the acquisition or repurchase of
         MACC's capital stock, distributions to MACC's shareholder other than
         out of undistributed net realized earnings, officers' salaries, and
         certain other matters. At September 30, 2003, MACC does not have
         accumulated undistributed net realized earnings (computed under SBA
         guidelines) available for distribution to Equities.

         MACC has a commitment letter for $10,000,000 with the SBA to issue
         debentures, which expire on September 30, 2005. At September 30, 2003,
         $3,500,000 of this commitment remained unused. On October 1, 2002, MAAC
         received a commitment letter for $6,500,000 with the SBA to issue
         debentures, which expire on September 30, 2007. At September 30, 2003,
         $6,500,000 of this commitment remained unused.

(4)      INCOME TAXES

         Income tax expense differed from the amounts computed by applying the
         United States federal income tax rate of 34% to pretax loss due to the
         following:

<TABLE>
<S>                                                                  <C>
Computed "expected" tax benefit                                      $  (985,000)
Increase (reduction) in income taxes resulting from:
     State income tax expense                                             15,000
     Nontaxable dividend income                                          (39,000)
     Change in the beginning of the period valuation allowance for
        deferred tax assets                                            1,087,000
     Other                                                               (63,000)
                                                                     -----------
              Income tax expense                                     $    15,000
                                                                     ===========
</TABLE>

         The tax effects of temporary differences that give rise to significant
         portions of the deferred tax assets at September 30, 2003 are as
         follows:

<TABLE>
<S>                                                                  <C>
Deferred tax assets:
     Net operating loss carryforwards                                $ 7,994,000
     Unrealized depreciation on investments                              524,000
     Other                                                               574,000
                                                                     -----------

              Total gross deferred tax assets                          9,092,000

Less valuation allowance                                              (7,973,000)
                                                                     -----------
              Net deferred tax assets                                  1,119,000

Deferred tax liabilities:
     Equity investments                                                 (795,000)
     Other assets received in lieu of cash                              (324,000)
                                                                     -----------
              Net deferred tax assets                                $        --
                                                                     ===========
</TABLE>

         The net change in the total valuation allowance for the year ended
         September 30, 2003 was an increase of $1,087,000. In assessing the
         realizability of deferred tax assets, management considers whether it
         is more likely than not that some portion or all of the deferred tax
         assets will not be realized. The ultimate realization of deferred tax
         assets is dependent upon the generation of future taxable income during
         the periods in which those temporary differences become deductible.
         Management considers projected future taxable income and tax planning
         strategies in making this assessment. In order to fully realize the
         gross deferred tax assets, the Company will need to generate future
         taxable income of approximately $19.9 million prior to the expiration
         of the net operating loss carryforwards in 2008-2023. The Company had a
         taxable loss of approximately $5.9 million for the year ended September
         30, 2003. Based upon the level of historical taxable income of MACC and
         projections for future taxable income over the periods in which the
         deferred tax assets are deductible, management believes it is more
         likely than not the Company will realize the benefits of these
         deductible differences, net of the existing valuation allowance at
         September 30, 2003.

         At September 30, 2003, the Company has net operating loss carryforwards
         for federal income tax purposes of approximately $19.9 million, which
         are available to offset future federal taxable income, if any, through
         2023. Approximately $15.9 million of the carryforwards are available
         for the year ending September 30, 2004, with approximately $1 million
         additionally available annually thereafter.

                                       20
<PAGE>

(5)      COMMITMENTS AND CONTINGENCY

         (a)      MANAGEMENT AGREEMENTS

         Equities has an investment advisory agreement (the Agreement) with
         InvestAmerica Investment Advisors, Inc. (IAIA). Three of Equities'
         officers are officers and stockholders of IAIA. The management fee is
         equal to 2.5% of the assets under management, on an annual basis. The
         management fee is calculated excluding MACC. In addition, Equities
         contracted to pay an incentive fee of 13.4% of the net capital gains
         (as defined in the Agreement) before taxes on the disposition of
         investments. The Agreement may be terminated by either party upon sixty
         days' written notice. Total management fees under the Agreement
         amounted to $12,448 for the year ended September 30, 2003. There were
         no incentive fees accrued or paid under the Agreement in 2003.

         MACC has a separate investment advisory agreement with IAIA. This
         agreement may be terminated by either party upon sixty days written
         notice. The fee is equal to 2.5% of the Capital Under Management (as
         defined in the Agreement) on an annual basis, but in no event more than
         2.5% per annum of the Assets Under Management, or 7.5% of Regulatory
         Capital (as defined in the Agreement). However, during fiscal 2003,
         MACC's investment advisor agreed to a voluntary, temporary reduction in
         management fees from January 1, 2003 through February 29, 2004. This
         temporary agreement changed the management fee to be $68,750 per month
         not to exceed the calculation specified in the current advisory
         agreement. In addition, MACC contracted to pay IAIA 13.4% of the net
         capital gains, before taxes, on investments in the form of an incentive
         fee. Net capital gains, as defined in the agreement, are calculated as
         gross realized gains, minus the sum of capital losses, less any
         unrealized depreciation, including reversals of previously recorded
         unrealized depreciation, recorded during the year, and net investment
         losses, if any, as reported on page 4c, line 33 of the SBA Form 468.1.
         Capital losses and realized capital gains are not cumulative under the
         incentive fee computation. Payments for incentive fees resulting from
         noncash gains are deferred until the assets are sold.

         Total management fees (net of management fees waived) under this
         agreement amounted to $890,706 for the year ended September 30, 2003.
         Incentive fees are an expense in determining net realized gain (loss)
         on investments in the consolidated statement of operations. No
         incentive fees were earned or paid for the year ended September 30,
         2003. Approximately $27,000 of incentive fees related to noncash gains
         from prior years is being deferred as described above.

         (b)      LOSS CONTINGENCY

         MACC is party to arbitration proceedings instituted by TransCore
         Holding, Inc., a company (Buyer) seeking indemnification under the
         Stock Purchase Agreement (the Stock Purchase Agreement), pursuant to
         which MACC and certain other individuals and institutional investors
         (collectively, the Sellers) sold their interest in a former portfolio
         company investment (Portfolio Company). The arbitration proceedings are
         being administered by JAMS. Under the Stock Purchase Agreement, the
         Sellers agreed to indemnify Buyer for breaches of representations and
         warranties as to Portfolio Company made by the Sellers. Buyer claims
         that accounting irregularities at Portfolio Company resulted in a
         breach of the Sellers' representations and warranties. The Sellers have
         retained counsel and forensic accountants to defend the Sellers against
         Buyer's claim for indemnification. Following discovery, depositions and
         other preliminary proceedings, in June the formal arbitration
         proceedings commenced and are being intensively contested by all
         parties. Based on the current schedule for the arbitration, a decision
         will not be rendered until at least February, 2004. Based on its
         evaluation of the Buyer's claim and discussions with external legal
         counsel, Equities believes that it is reasonably possible that a loss
         may have been incurred as result of the indemnification claim, against
         which no accrual for loss has been made as of September 30, 2003,
         because the amount of the possible loss, and therefore its materiality
         to the financial statements, cannot be estimated. MACC intends to
         continue vigorously defending this arbitration. MACC received
         approximately $939,000 of proceeds from the sale of the Portfolio
         Company. MACC owns debt securities of Buyer with a cost of $508,761 and
         warrants with a cost of $24,000 received as part of the sale. Buyer has
         defaulted on interest payments due on these debt securities. On March
         31, 2003, MACC reduced the valuation of the debt securities by $254,380
         in light of the interest default and information regarding the related
         dispute as of that date. On June 30, 2003, MACC further reduced the
         valuation of these debt securities by $254,380 to $1 and reduced the
         valuation of the warrants to zero based upon the continuing interest
         default and additional information regarding the related dispute as of
         that date.

                                       21
<PAGE>

(6)      FINANCIAL HIGHLIGHTS

         The Company has presented the following disclosures pertaining to
         common stockholders, as required by the AICPA Audit and Accounting
         Guide for Investment Companies, for the years ended September 30:

<TABLE>
<CAPTION>
                                                   2003        2002        2001        2000       1999
                                                 --------    --------    --------    --------   --------
<S>                                              <C>         <C>         <C>         <C>        <C>
Per Share Operating Performance
  (For a share of capital stock outstanding
     throughout the period (1)):
     Net asset value, beginning of period        $   6.72        8.60       11.01       10.04       8.38
                                                 --------    --------    --------    --------   --------

        Income from investment operations:
           Net investment (expense) income          (0.95)      (0.40)      (0.12)       0.02         --
           Net realized and unrealized (loss)
               gain on investment transactions      (0.30)      (1.48)      (2.57)       0.95       1.15
           Allocation of income tax benefit to
               additional paid-in capital              --          --        0.28          --        .51
                                                 --------    --------    --------    --------   --------
                    Total from investment
                       operations                   (1.25)      (1.88)      (2.41)       0.97       1.66
                                                 --------    --------    --------    --------   --------

        Net asset value, end of period           $   5.47        6.72        8.60       11.01      10.04
                                                 ========    ========    ========    ========   ========

        Closing market price                     $   2.52        3.40        6.06        7.66       8.51
                                                 ========    ========    ========    ========   ========
</TABLE>

<TABLE>
<CAPTION>
                                                   2003        2002         2001         2000         1999
                                               -----------    -------      -------      -------      -------
<S>                                            <C>            <C>          <C>          <C>          <C>
Total return
        Net asset value basis                     (18.59)%    (21.89)      (21.81)        9.67        19.85
        Market price basis                        (25.88)%    (43.89)      (20.89)       (9.99)       48.26

Net asset value, end of period
    (in thousands)                             $  12,746      15,657       20,043       25,646       23,394

Ratio to average net assets:
    Investment (expense) income, net (1)          (15.60)%     (4.85)       (1.21)        0.21        (0.04)
    Operating and income tax expense (1) (2)      (33.60)%    (20.52)      (14.14)      (11.41)      (11.10)
</TABLE>

(1)      Per share data reflects a 30% stock split effected in the form of a
         stock dividend on March 31, 1999, a 20% stock split effected in the
         form of a stock dividend on March 31, 2000 and a 20% stock split
         effected in the form of a stock dividend on March 31, 2001.

(2)      As discussed in note 5, MACC's investment advisor agreed to a
         voluntary, temporary reduction in management fees from January 1, 2003
         through February 29, 2004. Due to the agreement, the investment advisor
         voluntarily waived $180,421 of management fees. Excluding the effect of
         the waiver, the operating and income tax expense ratio for the year
         ended September 30, 2003 was (35.10)%.

The ratios of investment (expense) income, net to average net assets, of
operating and income tax expenses to average net assets and total return are
calculated for common stockholders as a class. Total return, which reflects the
annual change in net assets, was calculated using the change in net assets
between the beginning and end of the year. An individual common stockholders'
return may vary from these returns.

                                       22
<PAGE>

MACC PRIVATE EQUITIES INC. AND SUBSIDIARY
CONSOLIDATED SCHEDULE OF INVESTMENTS
SCHEDULE 1 - SEPTEMBER 30, 2003

MANUFACTURING:

<TABLE>
<CAPTION>
                                                                                                   PERCENT OF
                COMPANY                                                 SECURITY                   NET ASSETS     VALUE       COST
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>                                          <C>         <C>         <C>
Architectural Art Manufacturing, Inc.                 12% debt security, due June 15, 2005 (c)                 $  680,000    780,000
   Wichita, Kansas                                    Warrant to purchase 11,143 common shares (c)                      1          1
      Manufacturer of industrial and commercial                                                                ----------  ---------
      boilers and shower doors, frames and enclosures                                                             680,001    780,001
                                                                                                               ----------  ---------

Aviation Manufacturing Group, LLC (a)                 14% debt security, due October 1, 2007                      616,000    616,000
   Yankton, South Dakota                              154,000 units preferred                                     154,000    154,000
      Manufacturer of flight critical parts           Membership interest                                              39         39
      for aircraft                                                                                             ----------  ---------

                                                                                                                  770,039    770,039
                                                                                                               ----------  ---------

B & B Molders, LLC                                    11% debt security, due December 31, 2004                    850,031    850,031
   Mishawaka, Indiana                                                                                          ----------  ---------
      Manufacturer of custom plastic injection
      molded products for the RV and other industries

Central Fiber Corporation                             12% debt security, due December 31, 2005                    350,000    350,000
   Wellsville, Kansas                                 12% debt security, due December 31, 2005                     91,123     91,123
      Recycles and manufactures                       Warrant to purchase 490.67 common shares (c)                213,333         --
      cellulose fiber products                                                                                 ----------  ---------

                                                                                                                  654,456    441,123
                                                                                                               ----------  ---------

Deluxe Ice Cream Acquisition Corporation (a)          14,600 shares Series A preferred (c)                        146,000    146,000
   Salem, Oregon                                      Warrant to purchase common shares (c)                       380,024         24
      Ice cream and novelty dessert manufacturer      Warrant to purchase common shares (c)                            --         --
                                                      Warrant to purchase common shares (c)                            --         --
                                                                                                               ----------  ---------
                                                                                                                  526,024    146,024
                                                                                                               ----------  ---------

DTMP Acquisition Company (a)                          14% debt security, due June 30, 2006                      1,170,753  1,170,753
   Lebanon, Missouri                                  25,666.67 shares Series A preferred (c)                     252,389    252,389
      Metal stamping                                  45.26 shares common (c)                                       4,277      4,277
                                                      Warrant to purchase 8,555.55 common shares (c)                   17         17
                                                                                                               ----------  ---------

                                                                                                                1,427,436  1,427,436
                                                                                                               ----------  ---------

Gregg Manufacturing, Inc. (a)                         12% debt security, due July 1, 2004                         943,500    943,500
   Irvine, California                                 545,750 units of 8% preferred (c)                           520,700    166,500
      Manufacturer of Bible covers and Christian      136,438 units of common (c)                                  80,655     37,000
      themed apparel and gifts                        Warrant to purchase 74,000 units of common (c)               21,865         --
                                                                                                               ----------  ---------

                                                                                                                1,566,720  1,147,000
                                                                                                               ----------  ---------

Handy Industries, LLC (a)                             12.5% debt security, due January 8, 2007                    890,222    890,222
   Marshalltown, Iowa                                 167,171 units Class B preferred (c)                         167,171    167,171
      Manufacturer of lifts for motorcycles,          Membership interest                                           1,357      1,357
      trucks and industrial metal products                                                                     ----------  ---------

                                                                                                                1,058,750  1,058,750
                                                                                                               ----------  ---------
</TABLE>

                                       23
<PAGE>

MACC PRIVATE EQUITIES INC. AND SUBSIDIARY
CONSOLIDATED SCHEDULE OF INVESTMENTS
SCHEDULE 1 - SEPTEMBER 30, 2003

MANUFACTURING CONTINUED:

<TABLE>
<CAPTION>
                                                                                                 PERCENT OF
                COMPANY                                                SECURITY                  NET ASSETS     VALUE       COST
----------------------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>                                         <C>         <C>         <C>
Hicklin Engineering, L.C. (a)                        10% debt security, due December 31, 2003                $  740,000    740,000
   Des Moines, Iowa                                  Membership interest                                        254,386        127
      Manufacturer of auto and truck transmission                                                            ----------  ---------
      and brake dynamometers                                                                                    994,386    740,127
                                                                                                             ----------  ---------

Humane Manufacturing, LLC (b)                        12% debt security, due April 3, 2004                       784,300    784,300
   Baraboo, Wisconsin                                Membership interest (c)                                    101,200    101,200
      Manufacturer of rubber mats for anti-fatigue,                                                          ----------  ---------
      agricultural, exercise and roofing markets                                                                885,500    885,500
                                                                                                             ----------  ---------

KW Products, Inc. (a)                                11% debt security, due June 15, 2005 (c)                   267,254    267,254
   Marion, Iowa                                      11% debt security, due June 15, 2005 (c)                   281,795    281,795
      Manufacturer of automobile aftermarket         29,340 common shares (c)                                    92,910     92,910
      engine and brake repair machinery              Warrant to purchase 8,879 common shares (c)                     --         --
                                                                                                             ----------  ---------

                                                                                                                641,959    641,959
                                                                                                             ----------  ---------

Linton Truss Corporation                             542.8 common shares (c)                                         --         --
   Delray Beach, Florida                             400 shares Series 1 preferred (c)                          450,000     40,000
      Manufacturer of residential roof               Warrant to purchase common shares (c)                           15         15
      and floor truss systems                        Warrant to purchase common shares (c)                           --         --
                                                     Warrant to purchase common shares (c)                           --         --
                                                                                                             ----------  ---------

                                                                                                                450,015     40,015
                                                                                                             ----------  ---------

M.A. Gedney Company (a)                              Warrant to purchase 2,006 common shares (c)                     --         --
   Chaska, Minnesota                                 14% debt security, due July 22, 2007 (c)                    76,261    286,971
      Pickle processor                               10% debt security, due July 3, 2009 (c)                    258,198  1,050,868
                                                     Warrant to purchase 497,535 common shares (c)                   --         --
                                                     10% loan, due on demand                                    100,000    100,000
                                                     10% loan, due on demand                                     50,000     50,000
                                                                                                             ----------  ---------

                                                                                                                484,459  1,487,839
                                                                                                             ----------  ---------

Magnum Systems, Inc. (a)                             12% debt security, due July 31, 2006                       574,163    574,163
   Parsons, Kansas                                   48,038 common shares (c)                                    48,038     48,038
      Manufacturer of industrial bagging             292,800 shares preferred (c)                               304,512    304,512
      equipment                                      Warrant to purchase 56,529 common shares (c)               210,565        565
                                                                                                             ----------  ---------

                                                                                                              1,137,278    927,278
                                                                                                             ----------  ---------

Penn Wheeling Acquisition Company, LLC (a)           13% debt security, due March 10, 2007                      694,000    694,000
   Glen Dale, West Virginia                          62 units Class B membership interest (c)                   928,880     62,000
      Metal closure manufacturer                     24 units Class C membership interest (c)                   361,120     24,000
                                                     13% debt security, due March 10, 2007                      203,300    203,000
                                                     8 units Class C membership interest (c)                         --         --
                                                     13% debt security, due March 10, 2007                      136,500    136,500
                                                     3 units Class C membership interest (c)                         --         --
                                                                                                             ----------  ---------

                                                                                                              2,323,500  1,119,500
                                                                                                             ----------  ---------
</TABLE>

                                       24
<PAGE>

MACC PRIVATE EQUITIES INC. AND SUBSIDIARY
CONSOLIDATED SCHEDULE OF INVESTMENTS
SCHEDULE 1 - SEPTEMBER 30, 2003

MANUFACTURING CONTINUED:

<TABLE>
<CAPTION>
                                                                                                  PERCENT OF
                COMPANY                                                SECURITY                   NET ASSETS    VALUE        COST
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>                                          <C>        <C>          <C>
Pratt-Read Corporation (a)                           13,889 shares Series A Preferred                        $   750,000     750,000
   Bridgeport, Connecticut                           Warrants to purchase common shares (c)                           --          --
      Manufacturer of screwdriver shafts and         7,718 shares Series A preferred                             416,667     416,667
      handles and other hand tools                   Warrant to purchase common shares (c)                            --          --
                                                     13% debt security, due July 26, 2006                        277,800     277,800
                                                     Warrant to purchase common shares (c)                            --          --
                                                     Warrant to purchase common shares (c)                            --          --
                                                                                                             -----------  ----------

                                                                                                               1,444,467   1,444,467
                                                                                                             -----------  ----------

Simoniz USA, Inc.                                    12% debt security, due April 1, 2008                        809,592     809,592
   Bolton, Connecticut                                                                                       -----------  ----------
      Producer of cleaning and wax
      products under both the Simoniz
      brand and private label brand names

Spectrum Products, LLC (b)                           13% debt security, due October 9, 2006                    1,077,650   1,077,650
   Missoula, Montana                                 385,000 units Series A preferred                            385,000     385,000
      Manufacturer of equipment for the              Membership interest                                             351         351
      swimming pool industry                                                                                 -----------  ----------

                                                                                                               1,463,001   1,463,001
                                                                                                             -----------  ----------

         Total manufacturing                                                                        142.54%   18,167,614  16,179,682
                                                                                                    ======   -----------  ----------

SERVICE:

A-Plus Galvanizing, Inc.                             12% debt security, due February 11, 2005 (c)                297,000     847,000
   Salina, Kansas                                    Warrant to purchase 16,940 common shares (c)                      1           1
      Specialty metal galvanizing                                                                            -----------  ----------
                                                                                                                 297,001     847,001
                                                                                                             -----------  ----------

Big J Enterprises, LLC (b)                           Membership interest                                         750,750     263,250
   Albuquerque, New Mexico                                                                                   -----------  ----------
      Electrical-mechanical contractor with an
      in-plant construction and maintenance focus

Concentrix Corporation (a)                           3,758,750 shares Series A preferred (c)                   1,503,500   2,255,250
   Pittsford, New York                               130,539 shares Series C preferred (c)                        78,323     104,431
      Provides marketing outsourcing solutions       261,078 shares Series D preferred (c)                       208,862     208,862
      including telemarketing, fulfillment           67,407 shares Series D preferred (c)                         53,926      53,926
      and web communications                                                                                 -----------  ----------
                                                                                                               1,844,611   2,622,469
                                                                                                             -----------  ----------

Direct Mail Holding, LLC (a)                         537.634 units of preferred (c)                              537,634     537,634
   Mt. Pleasant, Iowa                                Membership interest                                       1,865,436     476,366
      Provider of turnkey services for non-profit                                                            -----------  ----------
      fund raising                                                                                             2,403,070   1,014,000
                                                                                                             -----------  ----------
</TABLE>

                                       25
<PAGE>

MACC PRIVATE EQUITIES INC. AND SUBSIDIARY
CONSOLIDATED SCHEDULE OF INVESTMENTS
SCHEDULE 1 - SEPTEMBER 30, 2003

SERVICE CONTINUED:

<TABLE>
<CAPTION>
                                                                                                 PERCENT OF
                COMPANY                                            SECURITY                      NET ASSETS    VALUE        COST
----------------------------------------------------------------------------------------------------------------------------------
<S>                                              <C>                                             <C>         <C>         <C>
FreightPro, Inc.                                 14.5% debt security, due February 21, 2007                  $  262,500    262,500
   Overland Park, Kansas                         Warrant to purchase 243,810 common shares (c)                        1          1
      Internet based outsource provider of       14.5% debt security, due February 15, 2007                      87,500     87,500
      freight logistics                          Warrant to purchase 81,270 common shares (c)                         1          1
                                                 Warrant to purchase 41,097.80 common shares (c)                     --         --
                                                                                                             ----------  ---------

                                                                                                                350,002    350,002
                                                                                                             ----------  ---------

Inergy, LP                                       Membership interest                                          3,568,570  1,596,000
   Kansas City, Missouri                                                                                     ----------  ---------
      Propane distributor

JHT Holdings, Inc.                               1,238 shares Class A common (c)                                780,020    975,026
   Joplin, Missouri                                                                                          ----------  ---------
      Provider of truck drive-away, internet
      based auction and related services to the
      commercial truck industry

Lee Mathews Equipment, Inc.                      12% debt security, due March 10, 2005                          500,000    500,000
   Kansas City, Missouri                         Warrant to purchase 153,654 common shares (c)                       30         30
      Distributor of industrial pump systems     12% debt security, due March 10, 2005                           60,606     60,606
                                                                                                             ----------  ---------

                                                                                                                560,636    560,636
                                                                                                             ----------  ---------

Monitronics International, Inc.                  73,214 common shares (c)                                       183,035     54,702
   Dallas, Texas                                                                                             ----------  ---------
      Provides home security systems
      monitoring services

Morgan Ohare, Inc. (b)                           0% debt security, due January 1, 2007 (c)                    1,068,750  1,125,000
   Addison, Illinois                             14% debt security, due January 1, 2007 (c)                     375,000    375,000
      Fastener plating and heat treating         57 common shares (c)                                                 1          1
                                                 14% debt security, due January 1, 2007 (c)                      75,000     75,000
                                                 14% debt security, due January 1, 2007 (c)                     225,000    225,000
                                                 14% debt security, due January 1, 2007 (c)                      56,250     56,250
                                                 14% debt security, due January 1, 2007 (c)                      22,500     22,500
                                                                                                             ----------  ---------

                                                                                                              1,822,501  1,878,751
                                                                                                             ----------  ---------
</TABLE>

                                       26
<PAGE>

MACC PRIVATE EQUITIES INC. AND SUBSIDIARY
CONSOLIDATED SCHEDULE OF INVESTMENTS
SCHEDULE 1 - SEPTEMBER 30, 2003

SERVICE CONTINUED:

<TABLE>
<CAPTION>
                                                                                                   PERCENT OF
                COMPANY                                             SECURITY                       NET ASSETS    VALUE       COST
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>                                            <C>        <C>         <C>
Organized Living, Inc.                              400,000 shares Series A preferred (c)                     $   250,000    400,000
   Lenexa, Kansas                                   145,204 shares Series A preferred (c)                         143,227    143,227
      Retail specialty stores for storage and       130,435 shares Series B preferred (c)                         150,000    150,000
      organizational products                       43,478 shares Series B preferred (c)                           50,001     50,001
                                                    41,680 shares Series B preferred (c)                           47,932     47,932
                                                    94,241 shares Series C preferred (c)                          120,029    120,029
                                                    71,428.5714 shares Series C preferred (c)                     100,000    100,000
                                                    9,295 shares Series C preferred 9 (c)                          13,012     13,012
                                                    104,167 shares Series D preferred (c)                         250,001    250,001
                                                    34,722 shares Series D preferred (c)                               --         --
                                                    Escrow agreement (c)                                          200,000    200,000
                                                                                                              ----------- ----------

                                                                                                                1,324,202  1,474,202
                                                                                                              ----------- ----------

SMWC Acquisition Co., Inc. (a)                      10% debt security, due on demand (c)                          102,605    102,605
   Kansas City, Missouri                            13% debt security due May 19, 2007 (c)                        110,000    110,000
      Steel warehouse distribution and processing   1,320 shares common (c)                                        42,900     42,900
                                                    Warrant to purchase 1,100 common shares (c)                        --         --
                                                    Warrant to purchase 1,100 common shares (c)                        --         --
                                                    176,550 shares Series A preferred (c)                         353,100    353,100
                                                                                                              ----------- ----------

                                                                                                                  608,605    608,605
                                                                                                              ----------- ----------

TransCore Holdings, Inc                             7% debt security, due February 6, 2009 (c)                          1    245,159
   Hummelstown, Pennsylvania                        13% debt security, due December 31, 2006 (c)                       --    263,602
      Legal, audit, logistical and internet         Warrant to purchase 1,296.48 common shares (c)                     --     24,000
      e-business services for the trucking industry Warrant to purchase 107.82 common shares (c)                       --         --
                                                                                                              ----------- ----------

                                                                                                                        1    532,761
                                                                                                              ----------- ----------

Warren Family Funeral Homes, Inc.                   12% debt security, due June 29, 2006                           96,250     96,250
   Topeka, Kansas                                   Warrant to purchase 231 common shares (c)                           8          8
      Provider of value priced funeral services     12% debt security, due June 29, 2006                          192,500    192,500
                                                    Warrant to purchase 115.5 common shares (c)                         4          4
                                                                                                              ----------- ----------

                                                                                                                  288,762    288,762
                                                                                                              ----------- ----------

                  Total services                                                                    115.97%    14,781,766 13,066,167
                                                                                                    ======    ----------- ----------

TECHNOLOGY AND COMMUNICATIONS:

Divine, Inc.                                        8,904 common shares (c)                                            89  1,832,160
   Chicago, Illinois                                                                                          ----------- ----------
      Database mining and analysis
</TABLE>

                                       27
<PAGE>

MACC PRIVATE EQUITIES INC. AND SUBSIDIARY
CONSOLIDATED SCHEDULE OF INVESTMENTS
SCHEDULE 1 - SEPTEMBER 30, 2003

TECHNOLOGY AND COMMUNICATIONS CONTINUED:

<TABLE>
<CAPTION>
                                                                                                 PERCENT OF
                COMPANY                                       SECURITY                           NET ASSETS     VALUE      COST
----------------------------------------------------------------------------------------------------------------------------------
<S>                                           <C>                                                <C>         <C>         <C>
Feed Management Systems, Inc. (a)             540,551 common shares (c)                                      $  760,500  1,327,186
   Fairmont, Minnesota                        47,709 shares Series A Preferred (c)                               27,306     47,709
      Batch feed software and systems         66,600 shares Series A preferred (c)                               38,118     66,600
      and B2B internet services               400,000 shares Series A preferred (c)                             228,936    400,000
                                              160,000 shares Series A preferred (c)                             160,000    160,000
                                              12% debt security, due May 20, 2008 (c)                            74,000     74,000
                                              Warrant to purchase 92,500 Series A preferred (c)                      --         --
                                              12% debt security, due August 21, 2008 (c)                         74,000     74,000
                                              Warrant to purchase 74,000 Series A preferred (c)                      --         --
                                                                                                             ----------  ---------

                                                                                                              1,362,860  2,149,495
                                                                                                             ----------  ---------

Miles Media Group, Inc. (a)                   1,000 common shares (c)                                           440,000    440,000
   Sarasota, Florida                          100 common options (c)                                                 --         --
      Tourist magazine publisher              12% debt security, due September 24, 2007                         158,925    374,925
                                              150 shares Series A preferred (c)                                 375,000    375,000
                                              Warrant to purchase 831 common shares (c)                              75         75
                                              12% debt security, due September 24, 2007                         124,992    124,992
                                              50 shares Series A preferred (c)                                  125,000    125,000
                                              Warrant to purchase 92 common shares (c)                                8          8
                                              12% debt security, due June 30, 2008                              250,000    250,000
                                              Warrant to purchase 500 shares common (c)                             500        500
                                                                                                             ----------  ---------

                                                                                                              1,474,500  1,690,500
                                                                                                             ----------  ---------

NewPath Communications, LC (a)                10% debt security, due April 16, 2002 (c)                               1    847,000
   Des Moines, Iowa                           Membership interest (c)                                                --        385
      Rural cable TV network provider                                                                        ----------  ---------
                                                                                                                      1    847,385
                                                                                                             ----------  ---------

Phonex Broadband Corporation                  1,855,302 shares Series A preferred (c)                         1,155,000  1,155,000
   Midvale, Utah                                                                                             ----------  ---------
      Power line communications

Portrait Displays, Inc. (a)                   12% debt security, due April 1, 2005                              256,846    256,846
   Pleasanton, California                     8% debt security, due April 1, 2009 (c)                           100,001    100,001
      Designs and markets pivot enabling      8% debt security, due April 1, 2012 (c)                           449,999    750,001
      software for LCD computer monitors      Warrant to purchase 12,240 common shares (c)                           --         --
                                              Warrant to purchase 27,160 common shares (c)                           --         --
                                                                                                             ----------  ---------

                                                                                                                806,846  1,106,848
                                                                                                             ----------  ---------

RSI Holdings, Inc.                            Warrant to purchase 1,188 common shares (c)                             1         --
   Fargo, North Dakota                        Warrant to purchase 562 common shares (c)                              --         --
      Satellite simulcast communications and                                                                 ----------  ---------
      services to the gaming industry                                                                                 1         --
                                                                                                             ----------  ---------
</TABLE>

                                       28
<PAGE>

MACC PRIVATE EQUITIES INC. AND SUBSIDIARY
CONSOLIDATED SCHEDULE OF INVESTMENTS
SCHEDULE 1 - SEPTEMBER 30, 2003

TECHNOLOGY AND COMMUNICATIONS CONTINUED:

<TABLE>
<CAPTION>
                                                                                              PERCENT OF
                COMPANY                                       SECURITY                        NET ASSETS     VALUE        COST
----------------------------------------------------------------------------------------------------------------------------------
<S>                                           <C>                                             <C>         <C>          <C>
Snapnames.com, Inc.                           10% debt security, due March 15, 2007                           852,500      852,500
   Portland, Oregon                           Warrant to purchase 465,000 common shares (c)                        --           --
      Domain name management                                                                              -----------  -----------
                                                                                                              852,500      852,500
                                                                                                          -----------  -----------

         Total technology and communications                                                    44.34%      5,651,797    9,633,888
                                                                                                =====     -----------  -----------


                                                                                                          $38,601,177  $38,879,737
                                                                                                          ===========  ===========
</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED SCHEDULE OF INVESTMENTS.

                                       29
<PAGE>

MACC PRIVATE EQUITIES INC. AND SUBSIDIARY
CONSOLIDATED SCHEDULE OF INVESTMENTS CONTINUED...
SCHEDULE 1 - SEPTEMBER 30, 2003

(a)      Affiliated company. Represents ownership of greater than 5% to 25% of
         the outstanding voting securities of the issuer, and is or was an
         affiliate of MACC Private Equities Inc. as defined in the Investment
         Company Act of 1940 at or during the period ended September 30, 2003.
         Transactions during the period in which the issuers were affiliated
         companies are as follows:

<TABLE>
<CAPTION>
                                           BEGINNING    PURCHASE       SALES       ENDING       DIVIDEND     INTEREST   NET REALIZED
             DESCRIPTION                     COST         COST          COST        COST         INCOME       INCOME    GAINS/LOSSES
----------------------------------------  -----------  -----------  -----------  -----------  -----------  -----------  ------------
<S>                                       <C>          <C>          <C>          <C>          <C>          <C>          <C>
Aviation Manufacturing Group, LLC         $   770,039           --           --      770,039       10,302       86,240           --
Concentrix Corporation                      2,568,543       53,926           --    2,622,469           --        1,541           --
Deluxe Ice Cream Acquisition Corporation      733,517           --      587,493      146,024           --       83,391           --
Direct Mail Holding, LLC                      585,000      429,000           --    1,014,000      109,822           --           --
DTMP Acquisition Company                    1,275,013      152,423           --    1,427,436           --      152,423           --
Eagle West, L.L.C.                          1,243,306           --    1,243,306           --           --           --   (1,243,306)
Feed Management Systems, Inc.               2,001,495      148,000           --    2,149,495           --        4,169           --
Gregg Manufacturing, Inc.                   1,147,000           --           --    1,147,000           --      113,283           --
Handy Industries, LLC                       1,058,750           --           --    1,058,750       40,401      112,823           --
Hicklin Engineering, L.C.                     740,127           --           --      740,127       21,311       74,000           --
KW Products, Inc.                             650,061           --        8,102      641,959           --       14,396           --
MA Gedney Company                           1,325,270      162,569           --    1,487,839           --       13,767           --
Magnum Systems, Inc.                          927,278           --           --      927,278           --       68,900           --
Miles Media Group, Inc.                     1,440,000      250,500           --    1,690,500           --       67,657          500
NewPath Communications, LC                    847,385           --           --      847,385           --           --           --
Penn Wheeling Acquisition Company, LLC.     1,119,500           --           --    1,119,500           --      172,818           --
Portrait Displays, Inc.                     1,000,002      166,746       59,900    1,106,848           --       33,966      150,000
Pratt-Read Corporation                      1,361,127       83,340           --    1,444,467       93,333       25,176           --
SMWC Acquisition Co., Inc.                    506,000      102,605           --      608,605           --       15,720           --
Water Creations, Inc.                       2,042,270        1,232    2,043,502           --           --           --   (2,043,502)
                                          -----------  -----------  -----------  -----------  -----------  -----------  -----------

Total                                     $23,341,683    1,550,341    3,942,303   20,949,721      275,169    1,040,270   (3,136,308)
                                          ===========  ===========  ===========  ===========  ===========  ===========  ===========
</TABLE>

(b)      Controlled company. Represents ownership of greater than 25% of the
         outstanding voting securities of the issuer, and is or was a controlled
         affiliate of MACC Private Equities Inc. as defined in the Investment
         Company Act of 1940 at or during the period ended September 30, 2003.
         Transactions during the period in which the issuers were controlled
         affiliates are as follows:

<TABLE>
<CAPTION>
                                           BEGINNING      PURCHASE      SALES       ENDING       DIVIDEND    INTEREST   NET REALIZED
        DESCRIPTION                          COST           COST         COST        COST         INCOME      INCOME    GAINS/LOSSES
-------------------------                 -----------     --------    ---------   ----------     --------   ----------  ------------
<S>                                       <C>             <C>         <C>         <C>            <C>        <C>         <C>

Big J Enterprises, LLC                    $   825,750           --      562,500      263,250           --       13,246            --
Humane Manufacturing, LLC                     885,500           --           --      885,500           --       94,116            --
Morgan Ohare, Inc.                          1,878,751           --           --    1,878,751           --        6,740            --
Spectrum Products, LLC                      1,463,001           --           --    1,463,001       23,442      142,040            --
                                          -----------     --------    ---------   ----------     --------   ----------  ------------

Total                                     $ 5,053,002           --      562,500    4,490,502       23,442      256,142            --
                                          ===========     ========    =========   ==========     ========   ==========  ============
</TABLE>

(c)      Presently nonincome producing.

SEE ACCOMPANYING NOTES TO CONSOLIDATED SCHEDULE OF INVESTMENTS.

                                       30
<PAGE>

MACC PRIVATE EQUITIES INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 2003

(A)      For investments held at the February 15, 1995 fresh-start date, the
         stated cost represents the fair value at the fresh-start date.

(B)      At September 30, 2003, all securities, except for a portion of the
         securities held of Divine, Inc. (formerly Delano Technology
         Corporation), are considered to be restricted in their disposition and
         are stated at what the Board of Directors considers to be fair market
         value.

(C)      At September 30, 2003, the cost of securities for federal income tax
         purposes was $38,423,084, and the aggregate unrealized
         appreciation/depreciation (including other basis differences) based on
         that cost was:

<TABLE>
<S>                               <C>
Unrealized appreciation           $ 8,989,502
Unrealized depreciation            (8,811,409)
                                  -----------
     Net unrealized depreciation  $   178,093
                                  ===========
</TABLE>

(D)      The Company owns a portfolio which includes investments in restricted
         securities of small businesses. Within this portfolio, thirty of these
         restricted securities include registration rights and ten of these
         restricted securities do not include registration rights. Within the
         thirty securities that include registration rights, the actual rights
         include the following general characteristics:

         1.       The securities generally provide for demand rights as follows:

                  a.       The demand rights may only be required from a low of
                           25% of the security holders to a high of a majority
                           of the security holders.

                  b.       The security holders may require from one to two
                           demand registrations.

                  c.       The small businesses are generally only required to
                           use "best efforts" to comply with the demands.

         2.       The securities generally allow the security holders to
                  register securities if the small business registers its
                  securities, i.e. "piggyback rights."

                  a.       Piggyback rights generally may be accessed by
                           individual security holders.

                  b.       Under piggyback rights, the small business and its
                           investment bankers are only required to use best
                           efforts to comply with the right.

         3.       The Company expects that, in general, the securities that they
                  will acquire in the future will include demand and piggyback
                  rights.

                                       31
<PAGE>

MACC PRIVATE EQUITIES INC. AND SUBSIDIARY
SHAREHOLDER INFORMATION

-        Stock Transfer Agent

Mellon Investor Services LLC, 85 Challenger Road, Ridgefield Park, New Jersey
07660 (telephone (800) 288-9541 and (800) 231-5469 (TDD), and
www.melloninvestor.com) serves as transfer agent and registrar for MACC's common
stock. Certificates to be transferred should be mailed directly to the transfer
agent, preferably by registered mail.

-        Shareholders

MACC had approximately 2,209 record holders of its common stock at November 28,
2003.

-        Annual Meeting

The Annual Meeting of Shareholders of MACC will be held on Tuesday, February 24,
2004, at 10:00 a.m. at the Little America Hotel, 500 South Main St., Salt Lake
City, Utah 84101.

-        Dividends

MACC has no history of paying cash dividends and does not anticipate declaring
any cash dividends in the foreseeable future, but intends to retain all
earnings, if any, for use in MACC's business. During fiscal year 2003 MACC did
not declare a dividend payment. The payment of dividends, if any, in the future
is within the discretion of the Board of Directors and will depend upon MACC's
earnings, capital requirements, financial condition and other relevant factors.
MACC does not presently have any type of dividend reinvestment plan.

-        Market Prices

The common stock of MACC is traded on the over-the-counter market through the
National Association of Securities Dealers Automated Quotation ("NASDAQ")
SmallCap Market under the symbol "MACC." At the close of business on October 31,
2003, the bid price for shares of MACC's common stock was $3.01. The following
high and low bid quotations for the shares during each quarterly period ended on
the date shown below of MACC's fiscal years 2003 and 2002 were taken from
quotations provided to MACC by the National Association of Securities Dealers,
Inc:

<TABLE>
<CAPTION>
                       High   Low
-----------------------------------
<S>                   <C>     <C>

December 31, 2001     $ 8.75  5.55

March 31, 2002          6.40  4.56

June 30, 2002           4.58  3.76

September 30, 2002      4.00  3.25

December 31, 2002       4.04  2.75

March 31, 2003          3.18  2.05

June 30, 2003           3.40  2.20

September 30, 2003      3.13  2.43
-----------------------------------
</TABLE>

Such over-the-counter market quotations reflect inter-dealer prices without
retail markup, markdown or commission and may not represent actual transactions.

                                       32
<PAGE>

OFFICERS AND DIRECTORS

FUND MANAGER
InvestAmerica Investment Advisors, Inc.

OFFICERS
DAVID R. SCHRODER
President and Secretary

ROBERT A. COMEY
Executive Vice President and Treasurer

KEVIN F. MULLANE
Senior Vice President

MICHAEL H. REYNOLDSON
Vice President

BOARD OF DIRECTORS

PAUL M. BASS, JR. - DALLAS, TEXAS
Chairman of the Company, Vice Chairman of First
Southwest Company, a regional investment banking firm

ROBERT A. COMEY - CEDAR RAPIDS, IOWA
Executive Vice President of the Company, Executive Vice
President of InvestAmerica Investment Advisors, Inc.

MICHAEL W. DUNN - MANCHESTER, IOWA
President, Farmers and Merchants Savings Bank

HENRY T. MADDEN - IOWA CITY, IOWA
Adjunct Professor, School of Management, Retired
University of Iowa and Management Consultant

KENT I. MADSEN - SALT LAKE CITY, UTAH
Manager, Atlas Management Partners, LLC and
Managing Director, Wasatch Venture Fund

GORDON J. ROTH - NEWPORT BEACH, CALIFORNIA
Chief Financial Officer, Chief Operating Officer,
Roth Capital Partners, LLC

DAVID R. SCHRODER - CEDAR RAPIDS, IOWA
President of the Company, President of
InvestAmerica Investment Advisors, Inc.

JOHN D. WOLFE - MOUNT VERNON, IOWA
Retired from career in retail banking and mortgage lending

GEOFFREY T. WOOLLEY - BOSTON, MASSACHUSETTS
Founding Manager, Dominion Ventures Inc.

                                       33

<PAGE>

OFFICE LOCATIONS

         -    HEADQUARTERS

              InvestAmerica Investment Advisors, Inc.
              101 Second Street SE, Suite 800
              Cedar Rapids, Iowa  52401
              (319) 363-8249

         -    REGIONAL OFFICES

              InvestAmerica Investment Advisors, Inc.
              911 Main Street, Suite 2424
              Kansas City, Missouri  64105
              (816) 842-0114

              InvestAmerica Investment Advisors, Inc.
              H.H. Hall Building
              10000 NE 7th Avenue, Suite 345
              Vancouver, Washington  98685
              (360) 573-5067

STOCK TRANSFER AGENT

            Mellon Investor Services LLC
            P.O. Box 3315 - South Hackensack - NJ 07606
            OR 85 Challenger Road - Ridgefield Park - NJ 07660
            (800) 288-9541 & (800) 231-5469 (TDD)
            Web site: www.melloninvestor.com

                                       34

<PAGE>

                    MACC PRIVATE EQUITIES INC. PRIVACY NOTICE

         As a result of Federal legislation, we are now required to notify each
of our individual shareholders of record of our policies with regard to privacy
of our shareholders' personal financial information. Accordingly, we wanted to
take this opportunity to show our dedication to the privacy of the personal
information of our shareholders and to provide a description of our privacy
policies and the procedures we take in order to protect your personal financial
information.

                TYPES OF NONPUBLIC PERSONAL INFORMATION COLLECTED

         The only types of nonpublic personal information that we collect with
respect to our shareholders are the name of each shareholder, the address and
telephone number of each shareholder, the social security number of each
shareholder, and the total number of shares held by each of our shareholders.
This information is gathered only for those shareholders whose shares are
registered in the their own names (as opposed to being registered in your
broker's or other "street" name).

                TYPES OF NONPUBLIC PERSONAL INFORMATION DISCLOSED

         As we place the privacy of our current and former shareholders'
personal financial information at a premium, we do not disclose any nonpublic
personal information about our current or former shareholders to anyone, except
as may be permitted by law.

                 SECURITY OF YOUR NONPUBLIC PERSONAL INFORMATION

         In our efforts to protect your personal financial information, we
restrict access to nonpublic personal information about you those parties within
our company who need to know the information in order to provide products or
services to you. We maintain physical and procedural safeguards that comply with
federal regulations to guard your nonpublic personal information.

                                       35