<PAGE>   1


                                   EXHIBIT 13


                       1997 Annual Report to Stockholders


<PAGE>   2

================================================================================





















                                    M A C C
                             Private Equities Inc.



                                 ANNUAL REPORT

                               SEPTEMBER 30, 1997





















================================================================================

<PAGE>   3



CORPORATE PROFILE

        
MACC Private Equities Inc. (Nasdaq National Market: MACC) (the "Corporation")
is a Delaware corporation and the sole shareholder of MorAmerica Capital
Corporation ("MorAmerica Capital"), a small business investment company
licensed in 1959.  The Corporation and MorAmerica Capital are both regulated
under the federal securities laws  as business development companies.
        

                [MACC PRIVATE EQUITIES INC. SHARE DATA GRAPH]



<TABLE>
<CAPTION>
                NET ASSET VALUE                         MARKET BID PRICE 
                   PER SHARE                               PER SHARE
                ---------------                         ----------------
<S>                 <C>                                    <C>  
 3/31/95*           $13.15                                   $ 4.55
 6/30/95*           $13.33                                   $ 5.91 
 9/30/95*           $15.67                                   $ 6.7  
12/31/95*           $15.93                                   $ 6.25 
 3/31/96*           $16.09                                   $ 7.95 
 6/30/96*           $15.88                                   $10.11 
 9/30/96*           $16.1                                    $ 8.64 
12/31/96*           $16.02                                   $ 9.32 
 3/31/97            $16.16                                   $10.5  
 6/30/97            $14.71                                   $10    
 9/30/97            $14.79                                   $ 9.625
</TABLE>

                       ===================================
                       *Net asset value per share and
                        market bid price per share values
                        have been adjusted to reflect the
                        payment of a 10% stock split
                        effected in the form of a stock
                        dividend on March 31, 1997.
                       ===================================

        As business development companies, the Corporation and MorAmerica
Capital focus the majority of their investing activities in U.S.-owned
businesses with annual sales volumes ranging from $1,000,000 to $30,000,000. 
The companies also provide managerial support to their portfolio companies,
generally through membership on the board of directors.
        
        Typically, the Corporation and MorAmerica Capital invest in businesses
with at least five to eight years of operating experience; however,
occasionally a minor portion of their consolidated investment portfolio may
consist of earlier stage ventures.  MorAmerica Capital's investment  portfolio
traditionally has been concentrated on manufacturing, distribution and service
businesses with no focus on any single technology or industry.

        The investment strategy of the Corporation and MorAmerica Capital is to
realize capital gains from portfolio investment divestitures and liquidity
events five to seven years after the initial investment. In order to earn a
high return and to balance the Corporation's current expenses, the Corporation
and MorAmerica Capital seek current yielding investments with equity features,
such as preferred stock or debentures with warrants.


Table of Contents

===========================================================
  To Our Shareholders. . . . . . . . . . . . . . . .   3
  Selected Financial Data. . . . . . . . . . . . . .   5
  Management's Discussion                               
    and Analysis . . . . . . . . . . . . . . . . . .   6
  Financial Statements . . . . . . . . . . . . . . .  16
  Shareholder Information. . . . . . . . . . . . . .  35
===========================================================

                                      2
<PAGE>   4

TO OUR SHAREHOLDERS


PROGRESS TOWARD CORPORATE GOALS

As we do each year, when the Board of Directors of your Corporation first
convened in Fiscal Year 1997, we reaffirmed the Corporation's primary goal,
which is to  increase shareholder value.  Despite a decline in the
Corporation's net asset value, which is one measure of shareholder value, we
are pleased to report that your Corporation was successful in a number of other
areas last year which moved us forward toward achieving our goal of enhanced
shareholder value.
        

        One step we took this year to enhance shareholder value was the
declaration and payment of a 10% stock split effected in the form of a stock
dividend.  Approximately 94,863 newly issued shares were distributed to
shareholders of the Corporation as of March 14, 1997, under the stock dividend. 
We determined that the payment of a stock dividend was desirable in order to
increase the number of issued and outstanding shares of the Corporation's
Common Stock.  The Corporation's liquidity has been restricted due to its
relatively few issued and outstanding shares. Thus, by increasing the number of
shares outstanding through the dividend, we have attempted to address this
liquidity consideration, while at the same time rewarding our existing
shareholders.

        Also in an attempt to provide   economical liquidity for selling
shareholders and enhanced value for remaining shareholders, the Corporation, as
it had in Fiscal Year 1996, undertook a Commission-Free Shareholder Sales Plan
during Fiscal Year 1997.  Under this program during Fiscal Year 1997, the
Corporation repurchased 19,346 shares of its Common Stock from those
shareholders who owned less than 100 shares each.  Over the past two years, the
Corporation has now repurchased a total of 70,061 shares under this program. 
These shareholders had expressed an interest in an economical way to achieve
liquidity in their investments (without incurring brokerage costs), and the
Corporation was again pleased to provide this service to its shareholders.  The
Board of Directors will continue to evaluate the stock dividend,
Commission-Free Shareholder Sales Plan and other means of increasing the value
of your investment by addressing liquidity and other value creation
considerations. Another successful step taken to support our annual goal of
increased shareholder value  was that we achieved and exceeded the
Corporation's Fiscal Year 1997 investment goal of $8.5 million. The Corporation
invested $9,800,370, which exceeded our goal by 15% and exceeded 1996
investments by 91%. This investment level represents the single highest level
in the history of the Corporation and its subsidiary, MorAmerica Capital, and
we commend our management team on its ability to invest these funds in a very
competitive environment.  The Corporation views achievement of its Fiscal Year
1997 investment level goal as another example of the successful support of two
most important investment objectives, long-term capital growth and increased
earnings stability.

        As you know, the venture capital business has inherent risks and
variances which make it difficult to achieve a steady investment return.  The
"Corporate Profile" section of this Annual Report indicates that your
Corporation's portfolio investments are expected to mature in from five to
seven years after the initial investment (the "investment cycle"). Last year,
we tried to emphasize some of the risks inherent in venture capital investing.
Specifically, due to the early stage in the investment cycle of a large number
of our portfolio investments, we noted that some early losses or depreciation
might be anticipated. Portfolio investments that generate losses or
depreciation are more likely to do so early in the investment cycle, and those
portfolio investments that generate gains or appreciation are more likely to do
so later in the investment cycle.  In the three years commencing with Fiscal
Year 1995, the Corporation has invested $19,017,710 in new and follow-on
portfolio investments.  When compared with $18,424,612, the total value of the
Corporation's investment portfolio at the end of Fiscal Year 1997, it becomes
quite clear that a substantial percentage of the Corporation's portfolio
investments are early in the investment 

                                      3
<PAGE>   5
cycle.  Indeed, we did suffer significant depreciation in one of our larger 
investments in fiscal 1997 which contributed significantly to a decline in net 
asset value for the period.  The good news in this area is that the majority 
of our portfolio companies are healthy and over time may appreciate in value 
as our investments mature.
        
        Net asset value per share is not the only measure of shareholder value. 
Of at least equal importance is the market price per share of the Corporation's
common stock.  We are pleased to report that, after giving effect to the stock
dividend paid during Fiscal Year 1997, the closing bid price for shares of the
Corporation's Common Stock hit an all-time high during the third quarter of
Fiscal Year 1997.  During June, 1997, the closing market bid price for shares
of the common stock reached $11.00.  Prior to that date, the bid price for
shares of the Corporation's Common Stock had not closed above $10.11, adjusted
for the stock dividend.

        In short, during the past year, as with each year, the Corporation has
attempted to build value for our shareholders.  The results of our efforts in
this regard are best reflected in the MACC Private Equities Inc. Share Data
chart on page 2, which shows that the closing market bid price for the
Corporation's Common Stock increased from $4.55 on March 31, 1995 (the last day
of the first month in which trading in the Corporation's Common Stock
commenced) and from $8.64 on September 30, 1996, to $9.625 on September 30,
1997, increases of approximately 112% and 11%, respectively.  Importantly, we
are beginning to develop a long-term trend as illustrated by the fact that for
the two full years ended September 30, 1997, the market bid price increased by
43.6%.  We were pleased with the results of our efforts and our goal is to
continue to build value for our shareholders.

FINANCIAL PERFORMANCE

        The Corporation had a net asset value per share of $14.79 as of
September 30, 1997, a decrease of approximately 8% as compared to net asset
value per share of $16.10  on September 30, 1996, adjusted for the stock
dividend.  Additionally, the Corporation achieved net realized gains on
portfolio investments of $952,102 and a net change in net assets from
operations of ($1,501,298).

        On December 12, 1996, the Board of Directors increased MorAmerica
Capital's paid-in-capital from $10,110,000 to $10,510,000.  This change
increases MorAmerica Capital's maximum single investment size from $2,181,900
to $2,261,900 and thus supports larger investments as projected in the
Corporation's growth plans.

OPERATIONS - INVESTMENT AND DIVESTITURE ACTIVITY

        During  Fiscal Year 1997, the Corporation made total investments of
$9,800,370  in nine new portfolio companies and in follow-on investments in
seven existing portfolio companies. The Corporation's investment-level
objectives on a consolidated basis call for new and follow-on investments of
approximately $7,000,000 during Fiscal Year 1998.

        Divestitures and portfolio company liquidity events for Fiscal Year
1997 were significant with $1,223,420 in realized gains from the sale of
investments in five portfolio companies.  Over the same period, $271,318 in
realized losses were recognized from one portfolio company, for a net realized
gain on investments of $952,102.

        Most of the Corporation's portfolio investments are expected to mature
five to seven years after the initial investment. The Corporation continues to
review a number of promising investment prospects and will pursue profitable
divestiture opportunities whenever possible.

        In conclusion, Fiscal Year 1997 was an eventful year in which we saw
our closing market bid price increase and our investment rate hit an all-time
high.  We appreciate the trust placed in us by our shareholders, and we will
strive to continue to reward that trust by working to create increases in
shareholder value.



Paul M.  Bass, Jr.,                                     David R. Schroder,
Chairman                                                President

                                      4
<PAGE>   6


        SELECTED FINANCIAL DATA
        MACC PRIVATE EQUITIES INC.(1)


<TABLE>
<CAPTION>
                                            FOR THE FISCAL YEARS ENDING SEPTEMBER 30,


                                                                 Seven and One-    Four and One-                                    
                                                                    Half Months      Half Months                                    
                                                                Ended Sept. 30,   Ended Feb. 15,                                    
                                 1997             1996                     1995              1995               1994            1993
                                 ----             ----                     ----              ----               ----            ----
<S>                              <C>              <C>             <C>                  <C>            <C>            <C>            
Investment (expense) income                                                                                                         
net                                $(253,367)       (89,576)            103,653       (17,776)(2)     (1,613,419)(2)  (2,613,832)(2)
                                                                                                                                    
Net realized gain (loss) on                                                                                                         
investments, net of tax              952,102        514,172           1,102,697        4,514,338           (448,784)      1,051,036 
                                                                                                                                    
Net change in  unrealized                                                                                                           
appreciation/depreciation                                                                                                           
on investments                    (2,200,033)      (641,851)            586,458         (948,191)         2,292,753      (3,391,714)
                                 -----------     ----------           ---------       ----------       ------------     ----------- 
                                                                                                                                    
Net (decrease)  increase                                                                                                            
in net assets or (increase)                                                                                                         
decrease in net deficit from     $(1,501,298)      (217,255)          1,792,808        3,548,371            230,550      (4,954,510)
operations                       ===========     ==========           =========        ==========        ==========      ========== 
                                                                                                                                    
                                                                                                                                    
Extraordinary item - gain on 
extinguishment of debt              ________-       _______-            _______-         _______-        11,622,270          ______-
                                                                                                         ==========                 
Net (decrease) increase in net 
assets or (increase) decrease 
in net deficit from operations   $(1,501,298)      (217,255)          1,792,808        3,548,371         11,852,820      (4,954,510)
                                 ===========     ==========           =========        ==========        ==========      ========== 
                                                                                                                                    
Net (decrease) increase in net
assets or (increase) decrease 
in net deficit from operations
per common share before 
extraordinary item               $  (1.44)(4)      (0.20)(3)               1.64(3)          3.24(3)          119.52       (2,568.43)
                                 ===========     ==========                ====             ====             ======      ========== 
                                                                                                                                    
                                                                                                                                    
Extraordinary item per                                                                                                              
common share                         _______-       ______-              ______-          ______-          6,025.02          ______-
                                                                                                           ========                 
Net (decrease) increase in                                                                                                          
net assets or net (increase) 
decrease in net deficit from 
operations per common share      $     (1.44)      (0.20)(3)               1.64(3)          3.24(3)        6,144.54       (2,568.43)
                                 ===========     ==========                ====             ====           ========       ========= 
                                                                                                                                    
Total assets                     $25,995,422     27,906,798          28,006,385       25,775,717         22,781,482      22,995,992 
                                 ===========     ==========          ==========       ==========         ==========      ========== 
Total long term debt             $10,244,478     10,236,250          10,228,647       10,224,152         54,772,521      65,764,431 
                                 ===========     ==========          ==========       ==========         ==========      ========== 
</TABLE>


___________________________

(1)Four and one-half months ended February 15, 1995 and fiscal years ended
September 30, 1994, and 1993, represent selected financial data of MorAmerica
Financial Corporation, the predecessor to the Corporation.
        
(2)Including $253,908, $624,527 and $586,095 of reorganization expenses in the
four and one-half months ended February 15, 1995, and fiscal years 1994 and
1993, respectively.
        
(3)Per share data have been restated to reflect a 10% stock split effected in
the form of a stock dividend on March 31, 1997.
        
(4)Computed using 1,039,615 shares outstanding at September 30, 1997.

                                      5
<PAGE>   7

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

        This section 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 the Corporation pursuant to
the  safe-harbor provisions of the 1995 Act. In connection with these
safe-harbor provisions, the Corporation has identified in the "Risks" Section
below  important factors that could cause actual results to differ materially
from those contained in any forward-looking statement made by or on behalf of
the Corporation.   The Corporation further cautions that the factors identified
in the "Risks" Section are not exhaustive or exclusive.  The Corporation does
not undertake to update any forward-looking statement which may be made from
time to time by or on behalf of the Corporation.


                                 Introduction

        The Corporation was formed as a Delaware corporation on March 3, 1994.
The Corporation's wholly-owned subsidiary, MorAmerica Capital, is an Iowa
corporation incorporated in 1959 and has been licensed as a small business
investment corporation since that year.

        The Corporation is the successor in interest to MorAmerica Financial
Corporation ("MorAmerica Financial"), which operated a variety of financial
service businesses, principally including state-chartered savings associations
known as "Morris Plan" companies, a mortgage lending company and MorAmerica
Capital.   On February 19, 1993, MorAmerica Financial and its principal
subsidiary, Morris Plan Liquidation Company ("Morris Plan"), filed for
protection under Chapter 11 of the United States Bankruptcy Code.  On December
28, 1993, the Bankruptcy Court confirmed the MorAmerica Financial and Morris
Plan Amended Debtors' Joint Plan of Reorganization (the "Plan").

        Pursuant to the terms of the Plan, MorAmerica Financial was merged with
and into the Corporation.  The effective date of the Plan was February 15, 1995,
the date upon which all issued and outstanding shares of the Corporation's
common stock were issued to creditors of the predecessor companies.

        Because the Corporation adopted fresh-start accounting on February 15,
1995, the Financial Statements on a fresh-start basis are not comparable to
those of the predecessor companies.  Accordingly, the Consolidated Statements of
Changes in Net Assets (Deficit)  are presented on a predecessor-successor
company basis for fiscal year 1995.

        Because of the diversity of financial service businesses operated by
MorAmerica Financial, the consolidated financial statements of MorAmerica
Financial for periods ended prior to the fresh-start date are not necessarily
representative of the results of operations of the Corporation or MorAmerica
Capital because the continuing business of the Corporation on a consolidated
basis has

                                      6
<PAGE>   8

been and continues to be solely venture capital investing.  Moreover, the
portfolio investments of the Corporation and MorAmerica Capital are expected to
mature in five to seven years, and the current principals of the Investment
Advisor have managed the Corporation and MorAmerica Capital  throughout each of
the periods shown below.  Accordingly, for purposes of discussing  the results
of operations of the Corporation for the current fiscal year, as compared to
the results of operations of the Corporation and MorAmerica Capital for prior
fiscal years, the financial results of solely the venture capital operations
for the fiscal years ended September 30, 1997, through September 30, 1987, are
set forth in the following table.  The table sets forth financial information
solely for MorAmerica Capital for the years ended September 30, 1987, through
the four and one-half months ended February 15, 1995, and for the Corporation
and MorAmerica Capital on a consolidated basis for periods ended after February
15, 1995. The following table should not be relied upon to the exclusion of the
audited financial statements or the selected financial data included elsewhere
in this Annual Report.

                        VENTURE CAPITAL OPERATIONS(1)
                  FOR THE FISCAL YEARS ENDING SEPTEMBER 30,
                             (IN THOUSANDS ONLY)


<TABLE>
<CAPTION>
                                                        Seven and One-     Four and One-
                                                           Half Months       Half Months 
                                                       Ended Sept. 30,     Ended Feb. 15, 
                                         1997   1996              1995               1995       1994      1993
                                         ----   ----              ----               ----       ----      ------
<S>                                     <C>     <C>             <C>               <C>         <C>       <C>
Investment (expense) income
before income tax                        (253)  (266)              (66)              (204)    (1,011)   (1,135)
                                                                                                               
Income tax benefit                          -    176               170                 40          0         0 
                                       ------   ----             -----             ------      -----    ------

                                                                                                               
Investment (expense)                                                                                           
income, net                              (253)   (90)              104               (164)    (1,011)   (1,135)
                                       ------   ----             -----             ------      -----    ------
                                                                                                               
Net realized gain (loss) on                                                                                    
investments before income                                                                                      
tax                                       952    906               948              6,217       (449)    1,051 
                                                                                                               
Income tax (expense) benefit                -   (392)              155             (1,206)         0         0 
                                       ------   ----             -----             ------      -----    ------
                                                                                                               
Net realized gain (loss) on                                                                                    
investments, net                          952    514             1,103              5,011       (449)    1,051 
                                       ------   ----             -----             ------      -----    ------
                                                                                                               
Net change in unrealized                                                                                       
appreciation/depreciation                                                                                      
on investments                         (2,200)  (642)              586             (3,150)     2,340    (2,394)
                                       ------   ----             -----             ------      -----    ------

Net (decrease) increase in                                                                                     
net assets from operations             (1,501)  (218)            1,793              1,697        880    (2,478)
                                       ======   ====             =====             ======      =====    ======
</TABLE>

(1)Fiscal years 1997 and  1996 and the seven and one-half months ended September
30, 1995, represent selected financial data of the Corporation on a
consolidated basis.  All other periods represent selected financial data of
MorAmerica Capital on an unconsolidated basis.  Data related to the results of
operations of MorAmerica Capital on an unconsolidated basis have been derived
from MorAmerica Capital's audited Annual Financial Report on Small Business
Administration Form 468.

                                      7
<PAGE>   9

                        VENTURE CAPITAL OPERATIONS(1)
                  FOR THE FISCAL YEARS ENDING SEPTEMBER 30,
                             (IN THOUSANDS ONLY)


<TABLE>
<CAPTION>
                            1992      1991     1990     1989   1988       1987
                            ----      ----     ----     ----   ----       ----
<S>                      <C>        <C>       <C>      <C>     <C>       <C>
Investment                                                             
(expense) income                                                       
before income tax          (513)      (816)    (172)    (646)  (1,191)   (1,471)
                                                                       
Income tax benefit          126        314       68      263        0         0
                         ------      -----   ------   ------   ------    ------
                                                                       
Investment                                                             
(expense) income,                                                      
net                        (387)      (502)    (104)    (383)  (1,191)   (1,471)
                         ------      -----   ------   ------   ------    ------
                                                                       
Net realized gain                                                      
(loss) on investments                                                  
before income tax           396      1,779    6,852   17,907    4,675       170
                                                                       
Income tax                                                             
(expense) benefit          (179)      (685)  (2,725)  (7,310)    (125)        0
                         ------      -----   ------   ------   ------    ------
                                                                       
Net realized gain                                                      
(loss) on                                                              
investments, net            217      1,094    4,127   10,597    4,550       170
                         ------      -----   ------   ------   ------    ------
                                                                       
Net change in                                                          
unrealized                                                             
appreciation/depreci-                                                   
ation on investments     (2,468)       392   (6,081)  (4,417)  (2,256)    4,446
                         ------      -----   ------   ------   ------    ------
                                                                       
Net (decrease)                                                         
increase in net assets                                                 
from operations          (2,638)       984   (2,058)   5,797    1,103     3,145
                         ======      =====   ======   ======   ======    ======
</TABLE>

(1)Fiscal years 1997 and 1996 and the seven and one-half months ended September
30, 1995, represent selected financial data of the Corporation on a consolidated
basis.  All other periods represent selected financial data of MorAmerica
Capital on an unconsolidated basis.  Data related to the results of operations
of MorAmerica Capital on an unconsolidated basis have been derived from
MorAmerica Capital's audited Annual Financial Report on Small Business
Administration Form 468.
        

                            Results of Operations


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

                                      8
<PAGE>   10

        For fiscal year 1997, total investment income was $1,797,789, total
operating expenses were $2,051,156 and net investment expense was $253,367.

        During fiscal year 1997, total income of $1,797,789, increased by
$107,998, or 6%, as compared to total income of $1,689,791 for fiscal year
1996.  The increase in total income during the current year was the result of
increases in interest income and dividend income of 6% and 67%, respectively.
The Corporation attributes the increase in interest income to the higher number
of new and follow-on  debt portfolio investments made since the end of fiscal
year 1996.  The increase in dividend income is primarily attributable to
dividends paid by one new portfolio company and dividends paid by an existing
portfolio company which had not previously paid cash dividends.

        Total operating expenses of $2,051,156 of the Corporation during fiscal
year 1997 increased by $95,789, or 5%, as compared to total operating expenses
of $1,955,367 for fiscal year 1996.  The increase in total operating expenses
during the current year was the result of increases in management fees due to
increases in capital under management, and, in 1996, operating expenses included
a reduction in provision for doubtful accounts of $44,644.

        The net investment expense of $253,367 for the current fiscal year  was
an increase over net investment expense for fiscal year 1996 of $89,576. The
principal reason for the increase in net investment expense is that no income
tax benefit was recorded by the Corporation in the current fiscal year.
Excluding the effect of the income tax benefit, net investment expense before
income tax benefit was $265,576 in fiscal year 1996, and $253,267 in the current
fiscal year.  This net investment expense level also represents a substantial
improvement over the net investment expense of the Corporation and MorAmerica
Capital for periods prior to fiscal year 1996 and the fifth straight year of
declines in net investment expense before income tax for MorAmerica Capital. 
The Corporation views this as a step toward meeting its goal of achieving net
investment income and increased earnings stability, and anticipates that
current-yielding portfolio investments to be made in future periods should
increase total income during such periods.

        In order to progress further toward this goal by decreasing operating
expenses, beginning in fiscal year 1996, the Corporation instituted a program to
facilitate its repurchase of shares of its Common Stock from those shareholders
owning fewer than 100 shares ("odd-lot shareholders").   During fiscal year
1996, the Corporation repurchased 50,715 shares from odd-lot shareholders,
representing approximately 676 beneficial owners of the Common Stock. Also
pursuant to this program, during fiscal year 1997 the Corporation repurchased
approximately 19,346 shares, representing approximately 280 beneficial owners of
the Common Stock.  Accordingly, the Corporation believes that its repurchases to
date may result in lower shareholder communication expenses in future periods.

        Net realized gain on investments for fiscal year 1997 totaled $952,102.
The Corporation also recorded net change in unrealized depreciation during
fiscal year 1997 of $2,200,033.  These two items resulted in a net loss on
investments for fiscal year 1997 of $1,247,931.  The change in depreciation was
due largely to depreciation taken in one portfolio company during the year.


                                      9
<PAGE>   11
        Most of the Corporation's portfolio investments are structured to mature
in five to seven years. Management does not attempt to maintain a comparable
level of realized gains from year to year, but instead attempts to maximize
total investment portfolio appreciation through realizing gains in the
disposition of securities and investing in new portfolio investments.   Due to
the provisions of the plans of reorganization under which MorAmerica Financial
operated during 1986-1993, a substantial percentage of the proceeds from
MorAmerica Capital's portfolio company liquidity events and divestitures was
paid out to creditors of the Corporation's predecessor entities, and therefore,
MorAmerica Capital made fewer portfolio investments during this period.  During
fiscal years 1995 through 1997, MorAmerica Capital recorded higher levels of
new and follow-on portfolio investments, and the Corporation anticipates that
MorAmerica Capital will continue these higher  portfolio investment levels over
the foreseeable future.  As an ordinary element of its investment cycle, the
Corporation typically experiences unrealized depreciation and/or realized
losses on portfolio investments before it experiences unrealized appreciation
and/or realized gains.
        
        The Corporation attributes approximately $1,629,876 of the net change in
unrealized depreciation  on investment before income taxes to the write-down of
the Corporation's investment in one portfolio company recorded during the third
quarter of fiscal year 1997.  The Corporation attributes the balance of the net
change in unrealized depreciation on investment before income taxes  in fiscal
year 1997 to the earlier stage of the investment cycle of a large percentage of
the Corporation's investment portfolio, as described above.  In addition, the
Corporation anticipates that it may realize fewer portfolio company liquidity
events and divestitures and could experience a higher level of unrealized
depreciation and/or realized losses on portfolio investments over the next
several years, and, as a result, the rate of growth, if any,  in the
Corporation's net asset value  may slow over this period.  The Corporation
anticipates that the rate of growth, if any, in net asset value per share may
continue to increase over the next three to ten year period as a higher
percentage of the Corporation's portfolio investments reach maturity and
investment gains, if any, are taken.  However, it is difficult to predict the
timing and amount of gains in the investment portfolio.


             Financial Condition, Liquidity and Capital Resources

        To date, the Corporation has relied upon several sources to fund its
investment activities, including the Corporation's U.S. treasury bills, cash
equivalents and cash, and the Small Business Investment Company ("SBIC") capital
program operated by the Small Business Administration (the "SBA").

        The Corporation, through its wholly-owned subsidiary, MorAmerica
Capital, from time to time may seek to procure additional capital through the
SBIC capital program to provide a portion of its future investment capital
requirements.  At present there is availability of capital for the next three
years in commitment periods of up to five years through the SBIC program and the
Corporation anticipates that there will be capital available in future periods. 
The Corporation also believes  that recently enacted federal legislation which 
permits SBICs to obtain debt financing from federal home loan banks may provide
an additional source of debt financing for the Corporation.

                                      10
<PAGE>   12

        As of September 30, 1997, the Corporation's U.S. treasury bills, cash
equivalents and cash collectively  totaled $5,442,479.  The Corporation believes
that cash and anticipated corporate cash flows may not provide adequate funds
for the Corporation's planned $7,000,000  in new and follow-on investment
activities during fiscal year 1998. The Corporation anticipates that it will
need additional capital to meet its anticipated cash requirements over the next
twelve months, including investment activities, operating expenses and odd-lot
shareholder stock repurchases.  MorAmerica Capital expects to apply for and
issue up to an additional $2,000,000 in SBA-guaranteed debentures in fiscal year
1998.  With respect to these plans, MorAmerica Capital issued $1,000,000 in
SBA-guaranteed debentures in December, 1997.  MorAmerica Capital may also apply
for additional leverage during the next twelve months.  There can be no
assurances that the Corporation will be able to obtain any or all of the needed
capital through the SBIC capital program or other sources.

        Liquidity for the next two years will not be impacted by principal
payments on the Corporation's debentures payable because there are no scheduled
principal payments until 2000.  Debentures payable are composed of $10,290,000
in principal amount of SBA-guaranteed debentures issued by the Corporation's
subsidiary, MorAmerica Capital, which mature as follows:  $2,450,000 in 2000,
$5,690,000 in 2001 and $2,150,000 in 2003.  It is anticipated MorAmerica Capital
would be able to roll over this debt with new ten year debentures when it comes
due.

        Additional capital is anticipated to be required during fiscal year
1998, and the Corporation anticipates that it may seek additional capital in
fiscal year 1998 and future years, either in the form of additional
SBA-guaranteed debentures or participating securities issued by MorAmerica
Capital or in the form of common stock of the Corporation, to fund growth of the
Corporation, to meet principal payments, if necessary, as the outstanding
SBA-guaranteed debentures become due and payable and for other corporate
purposes.

                              Portfolio Activity

        The Corporation's investment objectives for fiscal year 1997 called for
total new and follow-on investments of $8,500,000.   During this period, the
Corporation invested $9,800,370 in 16 portfolio companies.  Of this amount,
$8,225,789 was invested in nine new portfolio companies and $1,574,581 was
invested in follow-on investments in seven existing portfolio companies. The
Corporation's investments for fiscal year 1997 not only exceeded the
Corporation's  investment objective, but also represent an all-time high and a
substantial improvement over total portfolio investments of prior one-year
periods.  The Corporation's total investments were $5,135,250 in 1996 and
$4,082,089 in 1995.  Management views investment  objectives for any given year
as secondary in importance to the Corporation's overriding concern of investing
only in those portfolio companies which satisfy the Corporation's investment
criteria.

        The Corporation attributes its higher level of investment during fiscal
year 1997 and its ability to achieve its investment level objective to a
continued strengthening of co-investment ties 

                                      11
<PAGE>   13
with investment partners who provide deal flow, a very active venture
financing market in 1997 and a continued commitment to increase the average
size of new investments.


                              Portfolio Changes

        The table below summarizes the significant increases and decreases in
fair value of portfolio company securities held by the Corporation at September
30, 1997, as compared with fair value at September 30, 1996.


<TABLE>
<CAPTION>

                                                     FAIR VALUE
                                --------------------------------------------
Portfolio Company               September 30, 1997        September 30, 1996
-----------------               ------------------        ------------------
<S>                                    <C>                         <C>      
Apertus Technologies, Inc.              $   71,703                    81,945
Central Fiber Corporation                  550,000                   400,000
Miles Media Group, Inc.                  1,100,003                   850,003
Northword Holding Corp.                    235,208                   470,415
Pharmco Products, Inc.                     820,420                   500,000
Portrait Display Inc.                      200,000                   650,002
Progressive Solutions, Inc.                875,200                   625,200
Tuttle Design Build, Inc.                        1                 1,075,014
</TABLE>

                       Determination of Net Asset Value

        The net asset value per share of the Corporation'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 liabilities
by the total number of shares outstanding at the date as of which the
determination is made.

        In calculating the value of the 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.  The Company's use of SBA valuation
procedures did not result in a material variance as of September 30, 1997, 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 semi-annual adjustments if the Board of Directors determines in good
faith that cost no longer represents fair value.

                                      12
<PAGE>   14

                                    Risks

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 the
Corporation's investment portfolio.  Accordingly, the Corporation states that:

        The portfolio securities of the Corporation consist primarily of
securities issued by small, privately held companies.  Generally, little or no
public information is available concerning the companies in which the
Corporation invests, and the Corporation must rely on the diligence of the
Investment Advisor to obtain the information necessary for the Corporation's
investment decisions.  In order to maintain their status as business development
companies, the Corporation 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.  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, the
Corporation'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.

        The Corporation's investments primarily consist of securities acquired
directly 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 the Corporation 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
the term of the investments.  However, these investments will typically produce
capital gains only when sold in five to seven years.  There can be no assurance,
however, that any of the Corporation's investments will produce current yields
or capital gains.

                                      13
<PAGE>   15

Operations Risks

        The Corporation 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.  The
Corporation has stated above that it  anticipates that the rate of growth in net
asset value may slow over the next several years depending on the timing of
gains from the current portfolio, but that the rate of growth in net asset value
may then increase for several years due to the higher investment levels achieved
in the last several fiscal years and anticipated to be achieved into the
foreseeable future.  The Corporation 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 contraction in the markets generally for
corporate acquisitions and/or initial public offerings could adversely affect
the Corporation'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 or demand for additional capital
to the Corporation's portfolio companies could adversely affect MorAmerica
Capital's ability to achieve increases, if any, in fair value of its portfolio
investments.  The Corporation'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

        The Corporation faces several risks in relation to changes in prevailing
market interest rates.  First, at September 30, 1997, the Corporation had
outstanding $10,290,000 in principal amount of SBA-guaranteed debentures issued
by the Corporation's subsidiary, MorAmerica Capital, which mature as follows:
$2,450,000 in 2000, $5,690,000 in 2001 and $2,150,000 in 2003. 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 the
Corporation 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 the Corporation may  incur higher
interest expenses during subsequent periods, and the Corporation's ability
during such periods to achieve a net operating profit, if any, could be
adversely affected.

        Second, the Corporation has stated that one of its goals is to structure
more portfolio investments to provide a current yield in order to provide the
Corporation with increased earnings stability.  These investments typically
provide for a fixed preferred dividend or interest rate.  Accordingly, the
Corporation'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

                                      14
<PAGE>   16

rates, which would adversely affect the Corporation's projected total income
over the foreseeable future.

        Third, many of the Corporation's portfolio companies have or will also
issue debt senior to the Corporation's investment.  The payment of principal and
interest due on the Corporation'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 the Corporation's
investments generally do not.  Therefore, any increase in market interest rates
may put significant economic pressure on those portfolio companies that have
issued senior debt which bears interest a floating rate.  Accordingly, the
Corporation's ability to achieve net operating income and generally to realize
on its portfolio investments may be adversely affected by an increase in market
interest rates.


                 [Remainder of page intentionally left blank]

                                      15
<PAGE>   17

                                      
                                      
                    [LETTERHEAD OF KPMG PEAT MARWICK LLP]


                                      
                                      
                         INDEPENDENT AUDITORS' REPORT
                                      
                                      

Board of Directors
MACC Private Equities Inc.:


We have audited the accompanying consolidated balance sheet of MACC Private
Equities Inc. and subsidiary, including the consolidated schedule of
investments, as of September 30, 1997, and the related consolidated statements
of operations and cash flows for the year ended September 30, 1997, and the
consolidated statements of changes in net assets for the years ended September
30, 1997 and 1996.  These consolidated financial statements are the
responsibility of the Companies' management.  Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.


We conducted our audit in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements 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, 1997.  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 present
fairly, in all material respects, the financial position of MACC Private
Equities Inc. and subsidiary as of September 30, 1997, 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, 1997 and 1996, in conformity with
generally accepted accounting principles.




                                                           KPMG Peat Marwick LLP


Des Moines, Iowa
October 30, 1997



                                      
                                      16
                                      
                                      


<PAGE>   18

                                      
                  MACC PRIVATE EQUITIES INC. AND SUBSIDIARY
                          CONSOLIDATED BALANCE SHEET
                              SEPTEMBER 30, 1997
                                      
<TABLE>
<CAPTION>                                       

                                    Assets
                                    ------
<S>                                                                 <C>
Loans and investments in portfolio securities
   at market or fair value, cost of $20,680,038 (note 2)            $18,424,612
   
U.S. treasury bills, at cost, which approximates market               2,928,924
Certificates of deposit                                               1,756,801
Cash                                                                    756,754
Other assets, net                                                     1,035,331
Deferred income taxes (note 5)                                        1,093,000
                                                                    -----------
          Total assets                                              $25,995,422
                                                                    ===========
                       Liabilities and Stockholders' Equity

Liabilities:
   Debentures payable, net of discount (note 3)                     $10,244,478
   Accrued interest                                                     259,662
   Accounts payable and other liabilities                               111,440
                                                                    -----------
          Total liabilities                                          10,615,580
                                                                    -----------
Stockholders' equity (notes 3 and 4):
   Common stock, $.01 par value per share;
     authorized 4,000,000 shares; issued 1,039,615 shares.               10,396
     

   Additional paid-in-capital (notes 4 and 5)                        15,312,381
   Net investment loss                                                 (239,290)
   Net realized gain on investments                                   2,551,781
   Unrealized depreciation on investments                            (2,255,426)
                                                                    -----------
          Total stockholders' equity                                 15,379,842
                                                                    -----------
Commitments (note 6)

          Total liabilities and stockholders' equity                $25,995,422
                                                                    ===========
Net assets per share                                                $     14.79
                                                                    ===========
</TABLE>



See accompanying notes to consolidated financial statements.

                                      
                                      
                                      
                                      17
                                      
                                      

<PAGE>   19
                                      
                                      
                  MACC PRIVATE EQUITIES INC. AND SUBSIDIARY
                     CONSOLIDATED STATEMENT OF OPERATIONS
                        YEAR ENDED SEPTEMBER 30, 1997
                                      

<TABLE>

<S>                                                                 <C>
Investment income:
   Interest                                                         $ 1,493,840
   Dividends                                                            181,378
   Other                                                                122,571
                                                                    -----------
          Total income                                                1,797,789
                                                                    -----------
Operating expenses:
   Interest                                                             891,460
   Management fees (note 6)                                             684,584
   Professional fees                                                    203,501
   Other                                                                271,611
                                                                    -----------
          Total operating expenses                                    2,051,156
                                                                    -----------
          Investment expense, net                                      (253,367)
                                                                    -----------
Realized and unrealized gain (loss) on investments (note 2):         
   Net realized gain on investments                                     952,102
   Net change in unrealized
     appreciation/depreciation on investments                        (2,200,033)
                                                                    -----------
     Net loss on investments                                         (1,247,931)
                                                                    -----------
     Net change in net assets from operations                       $(1,501,298)
                                                                    ===========
</TABLE>



See accompanying notes to consolidated financial statements.

                                      
                                      
                                      
                                      18
                                      
                                      

<PAGE>   20


                  MACC PRIVATE EQUITIES INC. AND SUBSIDIARY
                                      
               CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
                                      
                                      
                   YEARS ENDED SEPTEMBER 30, 1997 AND 1996
                                      

<TABLE>
<CAPTION>
                                                         1997            1996
                                                         ----            ----
<S>                                                 <C>              <C>
Operations:
     Net investment expense                         $  (253,367)        (89,576)
     Net realized gain on investments, net of tax       952,102         514,172
     Net change in unrealized 
       depreciation on investments                   (2,200,033)       (641,851)
                                                    -----------      ----------
          Net decrease in 
               net assets from operations            (1,501,298)       (217,255)


Issuance of common stock (note 4)                          -            354,000
Repurchase/retirement of common stock (note 4)         (180,388)       (506,097)
Recognized income tax benefit of 
     preconfirmation net operating losses                  -            265,000
Payments for fractional shares in connection
     with stock split (note 4)                         ( 16,241)           -
                                                    -----------      ----------
          Net decrease in net assets                 (1,697,927)       (104,352)

Net assets:
     Beginning of period                             17,077,769      17,182,121
                                                    -----------      ----------
     End of period                                  $15,379,842      17,077,769
                                                    ===========      ==========
</TABLE>


See accompanying notes to consolidated financial statements.



                                      
                                      19
                                      

<PAGE>   21


                  MACC PRIVATE EQUITIES INC. AND SUBSIDIARY

                     CONSOLIDATED STATEMENT OF CASH FLOWS

                        YEAR ENDED SEPTEMBER 30, 1997

<TABLE>
<CAPTION>

<S>                                                                 <C>
Cash flows from operating activities:
   Decrease in net assets from operations                           $(1,501,298)
                                                                    -----------
   Adjustments to reconcile decrease
      in net assets from operations to
      net cash used in operating activities:
          Change in provision for doubtful accounts                      86,632
          Net realized and unrealized loss on investments             1,247,931
          Other                                                          22,418
          Change in assets and liabilities:
             Receivables and other assets                               157,891
             Accrued interest, accounts payable, and other 
              liabilities                                              (221,677)
                                                                    -----------
               Total adjustments                                      1,293,195
                                                                    -----------
               Net cash used in operating activities                   (208,103)
                                                                    -----------
Cash flows from investing activities:
   Proceeds from disposition of and payments on
     loans and investments in portfolio securities                    1,466,175
   Purchases of loans and investments
     in portfolio securities                                         (9,800,370)
   Proceeds from disposition of other investments                    18,146,077
   Purchases of other investments                                   (11,570,755)
                                                                    -----------
          Net cash used in investing activities                      (1,758,873)
                                                                    -----------
Cash flows from financing activities:
   Payments for fractional shares in
     connection with stock split                                        (16,241)
   Retirement of common stock                                          (180,388)
                                                                    -----------
          Net cash used in financing activities                        (196,629)
                                                                    -----------
          Net decrease in cash and cash equivalents                  (2,163,605)
                                                                    
Cash and cash equivalents at beginning of year                        5,066,011
                                                                    -----------
Cash and cash equivalents at end of year                            $ 2,902,406
                                                                    ===========
Supplemental disclosure of cash flow information -
   Cash paid during the year for interest                           $   876,082
                                                                    ===========
Supplemental disclosure of noncash
   investing and financing information -
     Assets received in lieu of cash                                $   321,441
</TABLE>                                                            ===========




See accompanying notes to consolidated financial statements.



                                      20


<PAGE>   22
                                      
                                      
                  MACC PRIVATE EQUITIES INC. AND SUBSIDIARY
                                      
                                      
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                      
                                      
                              SEPTEMBER 30, 1997



(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS


     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).  Effective March 31, 1997,
         MorAmerica Realty Services, Inc., a former subsidiary, was merged into
         Equities.  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 financial statements have been prepared in accordance with
         generally accepted accounting principles 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 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.


     Use of Estimates


     The preparation of financial statements in conformity with generally
         accepted accounting principles 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 financial statements and the reported amounts of revenues
         and expenses during the reporting period.  Actual results could differ
         from those estimates.


     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 purchase and money market deposit accounts to
         be cash equivalents.  At September 30, 1997, such amounts totaled
         $2,145,652.


     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.  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.


                                      
                                      
                                      21
                                      
                                      

<PAGE>   23
                                      
                                      
                  MACC PRIVATE EQUITIES INC. AND SUBSIDIARY
                                      
                                      
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS, CONTINUED


     Income Taxes


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


     Deferred tax assets and liabilities are recognized for the future tax
         consequences attributable to differences between the 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.

     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, U.S. treasury bills,
         certificates of deposit, accrued interest, and accounts payable.

     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
         $18,424,612 and $20,680,038, respectively, at September 30, 1997.

     The  estimated fair value of long-term debt is $10,800,000, with cost of
         $10,290,000.  This 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.

     Effect of New Financial Accounting Standards

     SFAS 125, "Accounting for Transfers and Servicing of Financial Assets
         and Extinguishments of Liabilities," was adopted by the Company for the
         year ended September 30, 1997, and provides standards for accounting
         recognition or derecognition of assets and liabilities.  SFAS 125 had
         no material effect on the financial position and results of operations
         of the Company.

     No proposed financial accounting standards are expected to have a
         material effect on the Company.

(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 current concentrations in the Midwest
         and New England.  The Company determined that the fair value of its
         portfolio securities was $18,424,612 at September 30, 1997.  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.

                                      
                                      
                                      22
                                      
                                      
<PAGE>   24
                                      
                                      
                  MACC PRIVATE EQUITIES INC. AND SUBSIDIARY
                                      
                                      
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
                                      


(2)  LOANS AND INVESTMENTS IN PORTFOLIO SECURITIES, CONTINUED


     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 at September 30, 1997, except for
         Apertus Technologies, Inc. (28,922 common shares carried at $71,703,
         with a cost of $250,536), are considered to be restricted in their
         disposition and are illiquid.

(3)  DEBENTURES PAYABLE

     Debentures of MACC guaranteed by the Small Business Administration (SBA) of
         $10,290,000 at September 30, 1997, are unsecured.  In accordance with
         SOP 90-7, the debentures were revalued to fair value on February 15,
         1995.  Debentures payable at September 30, 1997, are recorded net of
         discount of $45,522.  Maturities of the debentures are as follows:


<TABLE>
<CAPTION>
                                                  Interest
          Year ending September 30,  Debentures     rate
          -------------------------  -----------  --------
          <S>                        <C>          <C>
                     2000            $2,450,000     9.30%
                     2001             5,690,000     9.08
                     2003             2,150,000     6.12
                                     -----------  ========
                                     $10,290,000
                                     ===========
</TABLE>


     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, 1997, $708,574 of MACC's
         undistributed net realized earnings  (computed under SBA guidelines) of
         $6,441,040 were available for distribution to Equities.

(4)  STOCKHOLDERS' EQUITY

     Transactions in common stock during the year ended September 30, 1997, were
         as follows:


<TABLE>
<CAPTION>
                                               Shares     Amount
                                              --------  ----------
       <S>                                    <C>       <C>
       Purchase and retirement of shares (1)   (19,346) $ (180,388)
       Issuance of shares (2)                   94,863           -
                                              --------  ----------
          Net change                            75,517  $ (180,388)
                                              ========  ==========
</TABLE>

     The purchase, retirement, and issuance of shares increased common stock
         by $755.  Amounts greater than par were allocated to additional paid-in
         capital, increasing the balance by $180,194 to $15,312,381.

          (1)  The Company conducted a Commission-Free Shareholder
               Sales Plan, purchasing outstanding shares from stockholders
               with less than 100 shares.


                                      
                                      
                                      23
                                      


<PAGE>   25

                                      
                  MACC PRIVATE EQUITIES INC. AND SUBSIDIARY
                                      
                                      
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
                                      
                                      

(4)  STOCKHOLDERS' EQUITY, CONTINUED

          (2)  On February 25, 1997, the Company declared a 10
               percent stock split effected in the form of a dividend to
               shareholders of record on March 14, 1997.  As part of this
               transaction, the Company made payments to shareholders
               totaling $16,241, representing the amount due for fractional
               shares.  These payments were allocated to net realized gain on
               investments.


     On February 25, 1997, the Company's shareholders approved a resolution
         to increase the number of shares authorized from 2,000,000 to
         4,000,000.

(5)  INCOME TAXES

     Income tax expense differed from the amounts computed by applying the 
         United States federal income tax rate of 34 percent to pre-tax income 
         due to the following:


<TABLE>
<S>                                                               <C>
     Computed "expected" tax benefit                              $(493,000)
     Increase (reduction) in income taxes resulting from:
         State income tax benefit, net of federal tax effect        (87,000)
         Nontaxable dividend income                                 (48,000)
         Change in the beginning of the period balance
            valuation allowance for deferred tax assets             625,000
         Other                                                        3,000
                                                                 ----------
               Income tax expense                                $     -
                                                                 ==========
</TABLE>

     The tax effects of temporary differences that give rise to significant
         portions of the deferred tax assets at September 30, 1997, are as
         follows:


<TABLE>
     <S>                                                         <C>
     Net operating loss carryforwards                            $5,441,000
     Unrealized depreciation on investments                       1,984,000
     Other                                                          103,000
                                                                 ----------
               Total gross deferred tax assets                    7,528,000
     Less valuation allowance                                     6,435,000
                                                                 ----------
               Net deferred tax assets                           $1,093,000
                                                                 ==========
</TABLE>

     The valuation allowance for deferred tax assets as of September 30,
         1996, was $5,810,000.  The net change in the total valuation allowance
         for the year ended September 30, 1997, was an increase of $625,000.  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
         million prior to the expiration of the net operating loss carryforwards
         in 2009.  The Company had no taxable income for the year ended
         September 30, 1997.  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, 1997.


                                      
                                      24
                                      


<PAGE>   26
                                      
                                      
                  MACC PRIVATE EQUITIES INC. AND SUBSIDIARY
                                      
                                      
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED



(5)  INCOME TAXES, CONTINUED

     Subsequently recognized tax benefits relating to the valuation
         allowance for deferred tax assets as of September 30, 1997, will
         primarily be allocated to additional paid-in capital under the
         provisions of SOP 90-7.

     At September 30, 1997, the Company has net operating loss
         carryforwards for federal income tax purposes of approximately
         $13,603,000, which are available to offset future federal taxable
         income, if any, through 2009.  Approximately $2,557,000 of the
         carryforwards are available for the year ending September 30, 1998,
         with approximately $1,004,000 available annually thereafter.

(6)  COMMITMENTS

     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 Agreement expires
         September 30, 1998, but may be renewed annually thereafter by the board
         of directors of Equities.  The management fee is equal to 2.5 percent
         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 percent 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 60 days written
         notice.  Total management fees under the Agreement amounted to $94,592
         for the year ended September 30, 1997.  There were no incentive fees
         accrued or paid under the Agreement in 1997.

     MACC has a separate investment advisory agreement with IAIA.  This
         agreement expires September 30, 1998, but may be renewed annually
         thereafter by the board of directors of MACC.  The fee is equal to 2.5
         percent of the capital under management (as defined in the Agreement)
         on an annual basis, but in no event more than 2.5 percent of the assets
         under management on an annual basis; plus $5,000 per month through
         September 30, 1998.  In addition, MACC contracted to pay IAIA 13.4
         percent of the net realized capital gains, before taxes, on investments
         in the form of an incentive fee.  Net realized capital gains, as
         defined in the agreement, are calculated as gross realized gains, net
         of capital losses, less any unrealized depreciation, including
         reversals of previously recorded unrealized depreciation, recorded
         during the year.  Capital losses and realized capital gains are not
         cumulative under the incentive fee computation.  Total management fees
         under this agreement amounted to $589,992 for the year ended September
         30, 1997.  Incentive fees are an expense in determining net realized
         gain (loss) on investments in the consolidated statement of operations.
         There were no incentive fees accrued or paid under this agreement in
         1997.



                                      
                                      25
                                      
                                      

<PAGE>   27

<TABLE>
<CAPTION>

                                                                                                                          Schedule 1
                                                                                                                          ----------
                                             MACC PRIVATE EQUITIES INC. AND SUBSIDIARY
                                               CONSOLIDATED SCHEDULE OF INVESTMENTS
                                                        SEPTEMBER 30, 1997
            Company                                Equity                      Security                       Value         Cost
            -------                                --------                    --------                       -----         ----
<S>                                                 <C>                 <C>                                   <C>         <C>  
Manufacturing:
     Central Fiber Corporation                                      *Warrant to purchase 18.4 common
       Wellsville, Kansas                                              shares at $1.00, expires
       Recycles and manufactures                                       October 29, 2002                     $  150,000           -
        cellulose fiber products                                    *Warrant to purchase 10.4 common
                                                                       shares at $1.00, expires
                                                                       October 29, 2002                              -           -
                                                                    12% Debt security, due January 1, 2003     400,000     400,000
                                                                                                            ----------   ---------
                                                   15.60%                                                      550,000     400,000
                                                                                                            ----------   ---------
     Centrum Industries, Inc.                                       11% Debt security, due March 31, 2001    1,254,890   1,254,890
       Holland, Ohio                                                *Warrant to purchase 627,445 common
       Holding Company with strategic basic                            shares at $2.00, expires March 8, 2004       13          13
        industry holdings                                           *Warrant to purchase 3,732 common
                                                                       shares at $2.00, expires                      -           -
                                                                       March 8, 2004
                                                                    *Warrant to purchase 4,547 common
                                                                       shares at $2.00, expires                      -           -
                                                                       March 8, 2004
                                                                    *Stock option to purchase 10,756 common
                                                                       shares at $2.00, expires                      -           -
                                                                       September 1, 2007                    ----------   ---------
                                                    5.40%                                                    1,254,903   1,254,903
                                                                                                            ----------   ---------

     Cirque Corporation                                             *100,000 Shares Series A Pfd. at $3.35     335,000     335,000
       Salt Lake City, Utah                                         *55,834 Shares Series A Pfd. at $6.00      335,004     335,004
                                                                                                            ----------   ---------
       Develops, manufactures, and markets          3.45%                                                      670,004     670,004
        PC pointing devices                                                                                 ----------   ---------

     Humane Manufacturing, LLC                                      12% Debt security, due April 3, 2002       784,300     784,300
       Baraboo, Wisconsin                                           Membership interest                        101,200     101,200
                                                                                                            ----------   ---------
       Manufacturer of rubber mats and metal       44.28%                                                      885,500     885,500
                                                                                                            ----------   ---------
        animal confinement equipment
</TABLE>



                                      26



<PAGE>   28


<TABLE>
<CAPTION>

                                                                                                                 Schedule 1, Cont'd
                                                                                                                 ------------------
                                             MACC PRIVATE EQUITIES INC. AND SUBSIDIARY
                                          CONSOLIDATED SCHEDULE OF INVESTMENTS, CONTINUED


                    Company                        Equity                   Security                             Value      Cost
                    -------                        ------                   --------                             -----      ----
<S>                                                 <C>          <C>                                        <C>           <C>
Manufacturing, continued:                                        
                                                                 
   J-Tec Associates, Inc.                                        *87,413 Shares Series C Pfd. at $2.86       $    9,245     9,248 
      Cedar Rapids, Iowa                                         *51,129 Shares Series E Pfd. at $27.83          52,622    52,635 
      Designer and manufacturer of gaseous                       *5,244 Shares Series C Pfd. at $2.86               555       555 
        and liquid flow measurement                              *31,250 Shares Series D Pfd. at $1.60            1,849     1,849 
        and metering devices                                     *58 Common shares at $6.044                         13        13 
                                                                 *3,200 Common shares at $0.1375                     16       440 
                                                                                                             ----------  --------
                                                   6.43%                                                         64,300    64,740 
                                                                                                             ----------  --------
   KW Products, Inc.                                                                                                              
      Cedar Rapids, Iowa                                         Variable rate debt security, due                                 
      Manufacturer of automobile after-market                       January 1, 2001                             418,483   418,483 
        engine and brake repair machinery                        *29,340 Common shares at $.01                   92,910    92,910 
                                                                                                             ----------  --------
                                                   28.50%                                                       511,393   511,393
                                                                                                             ----------  --------

   Linton Truss Corporation                                      *10% Debt security, due March 1, 2001          408,514   408,514 
      Delray Beach, Florida                                      *542.8 Common shares at $73.69                  40,000    40,000 
      Markets and manufactures residential                       *400 Shares Series 1 Pfd.                            -         - 
        roof and floor truss systems                             *14% Debt security, due October 31, 2001        80,000    80,000 
                                                                 *Warrant to purchase 14.682% of                                  
                                                                    common shares, expires February 24, 2005         15        15 
                                                                 *Warrant to purchase 5.0% of                                     
                                                                    common shares, expires February 24, 2005          -         - 
                                                                 *Warrant to purchase 1.224% of                                   
                                                                    common shares, expires February 24, 2005          -         - 
                                                                                                             ----------  -------- 
                                                   20.91%                                                       528,529   528,529 
                                                                                                             ----------  --------
</TABLE>



                                      27




<PAGE>   29

<TABLE>
<CAPTION>
                                                                                                             Schedule 1, Cont'd
                                                                                                             ------------------
                                             MACC PRIVATE EQUITIES INC. AND SUBSIDIARY
                                          CONSOLIDATED SCHEDULE OF INVESTMENTS, CONTINUED

             Company                         Equity         Security                                           Value        Cost
             -------                         ------         --------                                           -----        ----
<S>                                          <C>         <C>                                                  <C>           <C>
Manufacturing, continued:

  Monitronics                                1.29%      *73,214 Common shares                                 $ 73,214      54,703 
    Dallas, Texas                                                                                             --------     ------- 
    Provides home security                                                                                                         
      systems monitoring services                                                                                                  
                                                                                                                                   
  Murphey Acquisition, LLC                              12% Debt security, due November 15, 2001               937,500     937,500 
    Mishawaka, Indiana                                  Membership interest                                          -           - 
                                                                                                              --------     -------
    Manufacturer of custom plastic          19.29%                                                             937,500     937,500 
    injection molded products for the RV and                                                                  --------     -------
    other industries                                                            
  Portrait Display, Inc.                                *535,715 Shares Series B Pfd. at $1.40                  99,999     750,001 
    Freemont, California                                *Warrant to purchase 16,071 common                                         
    Designs and markets pivot enabling                     shares at $.14, expires August 23, 1998                   -           - 
    software for LCD computer monitors                  *71,429 Shares Series C Pfd. at $1.40                  100,001     100,001 
                                                        *Warrant to purchase 13,570 Series C Pfd.                                  
                                                           at $1.40, expires November 21, 2001                       -           - 
                                                        *Warrant to purchase 12,240 Series C Pfd.                                  
                                                           at $1.40, expires November 21, 2001                       -           - 
                                                        *Warrant to purchase 27,160 Series C Pfd.                                  
                                                           at $1.40, expires November 21, 2001                       -           - 
                                                                                                              --------     -------
                                             7.20%                                                             200,000     850,002
                                                                                                              --------     -------
  Simoniz USA, Inc.                                     12% Debt security, due January 2, 2002                 750,000     750,000 
    Bolton, Connecticut                                 *Warrant to purchase 6.5625% of common shares                              
    Producer of cleaning and wax                           at $7,803.72 per share, expires December 23, 2006         -           - 
                                                                                                              --------     -------
    products under the Simoniz               6.56%                                                             750,000     750,000 
                                                                                                              --------     -------
    brand and private label brand names                    
</TABLE>




                                      28

<PAGE>   30

<TABLE>
<CAPTION>
                                                                                                                 Schedule 1, Cont'd
                                                                                                                 ------------------
                                             MACC PRIVATE EQUITIES INC. AND SUBSIDIARY
                                          CONSOLIDATED SCHEDULE OF INVESTMENTS, CONTINUED
                                                                                                                    Percent of
            Company                                 Equity              Security                                    net assets   
            -------                                 ------              --------                                    ----------   
<S>                                                 <C>            <C>                                                <C>
Manufacturing, continued:                                                                                                        
                                                                                                                                 
Taylor Holdings, Inc.                                             8% Debt security, due May 31, 2003                             
  Kansas City, Missouri                                           *48,038 Common shares at $1.00                                 
  Manufacturer of industrial                                      *292,800 Shares Pfd. at $1.04                                  
   bagging equipment                                              *Warrant to purchase 56,529 common shares                      
                                                                      at $1.00, expires May 31, 2002                             
                                                    16.80%                                                                       
Tru-Circle Corporation                                            11% Debt security, due December 11, 2001                       
  Wichita, Kansas                                                 *Warrant to purchase 271,234 common shares                     
  Manufacturer of precision parts for the                             at $.45, expires December 11, 2007                         
   aircraft, aerospace, and defense industries       9.00%                                                                       
                                                                                                                                 
                                                                                                                                 
Weld Racing, Inc.                                                 13% Debt security, due June 13, 2002                           
  Kansas City, Missouri                                           *Warrant to purchase 26.9824 common shares                     
  Manufacturer of custom wheels for the                               at $1.00, expires June 13, 2008                            
   performance automotive aftermarket                4.50%                                                                       
                                                                                                                                 
  Total manufacturing                                                                                                 60.09%     
                                                                                                                    ------- 
Chemicals:                                                                                                                       
                                                                                                                                 
  Pharmco Products, Inc.                                          12% Debt security, due April 1, 2000                           
   Brookfield, Connecticut                                        16,675 Shares Class A Res. Pfd. at $10.00                      
   Distributor and processor of ethyl                             *25 Common shares                                              
    alcohol products                                 8.75%                                                                       
                                                                                                                                 
   Total chemicals                                                                                                     5.32%     
                                                                                                                    -------

                                                                     Value             Cost     
                                                                     -----             ----     
<S>                                                               <C>                <C>
<CAPTION>
Manufacturing, continued:                                                                       
                                                                                                
Taylor Holdings, Inc.                                            $  574,163           574,163   
  Kansas City, Missouri                                              48,038            48,038   
  Manufacturer of industrial                                        304,512           304,512   
   bagging equipment                                                                            
                                                                        565               565   
                                                                 ----------        ----------
                                                                    927,278           927,278  
                                                                 ----------        ----------
Tru-Circle Corporation                                            1,218,750         1,218,750   
  Wichita, Kansas                                                                               
  Manufacturer of precision parts for the                               122               122   
                                                                 ----------        ----------
   aircraft, aerospace, and defense industries                    1,218,872         1,218,872   
                                                                 ----------        ----------                               
                                                                                                
Weld Racing, Inc.                                                   700,000           700,000   
  Kansas City, Missouri                                                                         
  Manufacturer of custom wheels for the                                  32                32 
                                                                 ----------        ----------
   performance automotive aftermarket                               700,032           700,032   
                                                                 ----------        ----------                               
  Total manufacturing                                             9,271,525         9,753,456   
                                                                 ----------        ----------                               
Chemicals:                                                                                      
                                                                                                
  Pharmco Products, Inc.                                            333,250           333,250   
   Brookfield, Connecticut                                          487,170           166,750   
   Distributor and processor of ethyl                                     -                 - 
                                                                 ----------        ----------
    alcohol products                                                820,420           500,000   
                                                                 ----------        ----------                               
   Total chemicals                                                  820,420           500,000 
                                                                 ----------        ----------
</TABLE>


                                      29

<PAGE>   31
<TABLE>
<CAPTION>

 
                                                                                                                Schedule 1, Cont'd
                                             MACC PRIVATE EQUITIES INC. AND SUBSIDIARY
                                          CONSOLIDATED SCHEDULE OF INVESTMENTS, CONTINUED

       Company                                           Equity                  Security                                       
       -------                                           ------                  --------           
<S>                                                    <C>                 <C>                                                  
Service/Merchandising:                                                                                                          
   Apertus Technologies, Inc.                           Less than                                                               
       Eden Prairie, Minnesota                              1.00%          *28,922 Common shares at $8.66                       
       Acquires, develops, markets, and                                                                                         
          licenses IBM and IBM compatible                                                                                       
          mainframe software                                                                                                    
                                                                                                                                
   Concentrix Corporation                                                  11,550 Shares 10% Amortizing Pfd. at $100.00         
       Rochester, New York                                                 *Warrant to purchase 412,500 common shares           
       Provides media outsourcing solutions                                     at $.01, expires April 1, 2007                  
          to corporations including telemarketing,                         *Warrant to purchase 82,500 common shares            
          fulfillment and creative communications                               at $.01, expires April 1, 2007                  
                                                                           *Warrant to purchase 82,500 common shares            
                                                                                at $.01, expires April 1, 2007                  
                                                                           *Warrant to purchase 100,650 common shares           
                                                                                at $.01, expires April 1, 2007                  
                                                            8.25%                                                               
                                                                                                                                
   Heritage Consumer Products, LLC                                         12% Debt security, due September 1, 2004             
       Brookfield, Connecticut                                             Membership interest                                  
       Distributor of consumer over the counter             9.30%                                                               
          pharmaceutical products                                                                                               
                                                                                                                                
   NewPath Communications, LC                                              10% Debt security, due April 16, 2002                
       Des Moines, Iowa                                                    Membership interest                                  
       Rural cable TV network with subscribers              6.93%                                                               
          in Iowa, Illinois and Missouri                


                                                                           Value                     Cost     
                                                                           -----                     ----  
<CAPTION>
<S>                                                                   <C>                         <C>
Service/Merchandising:                                                                                          
   Apertus Technologies, Inc.                                                                                   
       Eden Prairie, Minnesota                                         $      71,703                 250,536    
       Acquires, develops, markets, and                                -------------             -----------   
          licenses IBM and IBM compatible                                                                       
          mainframe software                                                                                    
                                                                                                                
   Concentrix Corporation                                                  1,155,000               1,155,000    
       Rochester, New York                                                                                      
       Provides media outsourcing solutions                                      -                       -      
          to corporations including telemarketing,                                                              
          fulfillment and creative communications                                -                       -      
                                                                                                                
                                                                                 -                       -      
                                                                                                                
                                                                                 -                       -      
                                                                       -------------             -----------   
                                                                           1,155,000               1,155,000    
                                                                       -------------             -----------     
   Heritage Consumer Products, LLC                                           983,913                 983,913    
       Brookfield, Connecticut                                               147,587                 147,587    
                                                                       -------------             -----------   
       Distributor of consumer over the counter                            1,131,500               1,131,500    
          pharmaceutical products                                      -------------             -----------     
                                                                                                                
   NewPath Communications, LC                                                847,000                 847,000    
       Des Moines, Iowa                                                          385                     385    
                                                                       -------------             -----------   
       Rural cable TV network with subscribers                               847,385                 847,385   
                                                                       -------------             -----------   
          in Iowa, Illinois and Missouri                
</TABLE>


                                      30


<PAGE>   32

<TABLE>
<CAPTION>
                                                                                                                Schedule 1, Cont'd
                                             MACC PRIVATE EQUITIES INC. AND SUBSIDIARY
                                          CONSOLIDATED SCHEDULE OF INVESTMENTS, CONTINUED

               Company                            Equity                   Security                                            
               -------                            ------                   --------                                            
<S>                                               <C>              <C>
Service/Merchandising, continued:                                                                                              

   Organized Living, Inc.                                          400,000 Shares Series A Pfd. convertible at $1.00           
       Lenexa, Kansas                                              130,435 Shares Series B Pfd. convertible at $1.15           
       Retail specialty store for storage                          43,478 Shares Series B Pfd. convertible at $1.15            
          and organizational products              6.00%                                                                       
                                                                                                                               
   Potpourri Collection, Inc.                                      Variable debt security, due May 31, 2001                    
       Medfield, Massachusetts                                     *Warrant to purchase 40 common                              
       Gift and stitchery mail order                                    shares at $.01, expires December 23, 2001              
          catalog retailer                         3.46%                                                                       
                                                                                                                               
   Progressive Solutions, Inc.                                     *12% Debt security, due December 31, 1999                   
       Salt Lake City, Utah                                        *12% Debt security, due March 31, 2000                      
       Develops court automation and                               *Warrant to purchase 33,852 common shares                   
          public records management software                            at $0.0066, expires January 25, 2000                   
                                                                   *Warrant to purchase 14,505 common shares                   
                                                                        at $0.0069, expires December 13, 2004                  
                                                                   *12% Debt security, due December 31, 1999                   
                                                                   *Warrant to purchase 10,000 common shares                   
                                                                        at $14.00, expires May 28, 2002                        
                                                                   *Warrant to purchase 300 common shares                      
                                                                        at $.1667, expires May 28, 2002                        
                                                                   *12% Debt security, due May 31, 1997                        
                                                                   *12% Debt security, due on demand                           
                                                                   *15% Debt security, due on demand                           
                                                  28.80%                                                                       
                                                                                                                               
   RSI Holdings, Inc.                                              11% Debt security, August 22, 2002                          
       Fargo, North Dakota                                         *Warrant to purchase 1,188 common shares                    
       Satellite simulcast communications and                           at $251.86, expires May 22, 2007                       
          services to the gaming industry         11.88%                                                                       
</TABLE>


<TABLE>
<CAPTION>
                                                                        Value                       Cost     
                                                                        -----                       ----
<S>                                                               <C>                    <C>
Service/Merchandising, continued:                                                                             

   Organized Living, Inc.                                         $        400,000                 400,000    
       Lenexa, Kansas                                                      150,000                 150,000    
       Retail specialty store for storage                                   50,001                  50,001    
                                                                  ----------------        ----------------
          and organizational products                                      600,001                 600,001    
                                                                  ----------------        ----------------   
   Potpourri Collection, Inc.                                              383,333                 383,333    
       Medfield, Massachusetts                                                                                
       Gift and stitchery mail order                                           -                       -     
                                                                  ----------------        ----------------
          catalog retailer                                                 383,333                 383,333    
                                                                  ----------------        ----------------  
   Progressive Solutions, Inc.                                             111,600                 150,000    
       Salt Lake City, Utah                                                260,600                 350,000    
       Develops court automation and                                                                          
          public records management software                                   100                     100    
                                                                                                              
                                                                               100                     100    
                                                                            93,200                 125,000    
                                                                                                              
                                                                               -                       -      
                                                                                                              
                                                                               -                       -      
                                                                           149,000                 200,000    
                                                                           111,600                 150,000    
                                                                           149,000                 200,000   
                                                                  ----------------        ----------------
                                                                           875,200               1,175,200    
                                                                  ----------------        ----------------   

   RSI Holdings, Inc.                                                      600,000                 600,000    
       Fargo, North Dakota                                                                                    
       Satellite simulcast communications and                                  -                       -      
                                                                  ----------------        ----------------
          services to the gaming industry                                  600,000                 600,000 
                                                                  ----------------        ----------------
</TABLE>
                                       

                                      31
                                       
<PAGE>   33

<TABLE>
<CAPTION>

                                                                                                                Schedule 1, Cont'd
                                             MACC PRIVATE EQUITIES INC. AND SUBSIDIARY
                                          CONSOLIDATED SCHEDULE OF INVESTMENTS, CONTINUED

                                                                                                                           
               Company                                      Equity          Security                                       
               -------                                      ------          --------                                           
<S>                                                       <C>            <C>
Service/Merchandising, continued:                                                                                              
   Sight & Sound Distributors, Inc.                                      12.5% Debt security, due April 22, 2001               
       St. Louis, Missouri                                               *Warrant to purchase 53,911 common shares             
       National video products distributor                                    at $.01, expires April 22, 2007                  
                                                            5.67%                                                              
                                                                                                                               
   Tuttle Design Building, Inc.                                          *106,362 Shares Pfd. at $13.59                        
       Lakeworth, Florida                                                *26.14% Interest in $550,000 promissory note          
       Distributor of ornamental and bedding plants                      *8% Loan due December 31, 1999                        
          to retailers and provider of irrigation           9.00%                                                              
          and landscaping services                                                                                             
          Total service/merchandising                                                                                          
                                                                                                                               
Other:                                                                                                                         
   Miles Media Group, Inc.                                               *Warrant to purchase 570 common                       
       Sarasota, Florida                                                      shares at $52.64, expires February 2, 2001       
       Tourist magazine publisher                                        *Warrant to purchase 1,799 common                     
                                                                              shares at $52.64, expires June 1, 2002           
                                                                         12% Loan, due June 1, 1997                            
                                                                         *4,500 Shares Red. Pfd. at $100.00                    
                                                                         *1,550 Shares Class A Conv. Pfd. at $32.26            
                                                                         *5,000 Shares Class C Conv. Pfd. at $10.00            
                                                                         *1,000 Shares Red. Pfd. at $100.00                    
                                                                         *Warrant to purchase 1,100 common shares              
                                                                              shares at $186, expires December 1, 2001         
                                                           26.70%                                                              
</TABLE>

<TABLE>
<CAPTION>
                                                            Percent of                                                        
                                                            net assets             Value                      Cost          
                                                            ----------             -----                      ----
<S>                                                          <C>              <C>                          <C>
Service/Merchandising, continued:                                                                                             
   Sight & Sound Distributors, Inc.                                           $      1,333,333               1,333,333        
       St. Louis, Missouri                                                                                                    
       National video products distributor                                                 -                       -          
                                                                               ---------------           -------------
                                                                                     1,333,333               1,333,333        
                                                                               ---------------           -------------  
   Tuttle Design Building, Inc.                                                            -                 1,444,990        
       Lakeworth, Florida                                                                    1                 143,770        
       Distributor of ornamental and bedding plants                                        -                    41,116  
                                                                               ---------------           -------------
          to retailers and provider of irrigation                                            1               1,629,876        
          and landscaping services                                             ---------------           -------------  
          Total service/merchandising                        45.35%                  6,997,456               9,106,164        
                                                           -------             ---------------           -------------        
Other:                                                                                                                        
   Miles Media Group, Inc.                                                                                                    
       Sarasota, Florida                                                                   -                       -          
       Tourist magazine publisher                                                                                             
                                                                                           -                       -          
                                                                                       200,000                 200,000        
                                                                                       700,000                 450,000        
                                                                                        50,003                  50,003        
                                                                                        50,000                  50,000        
                                                                                       100,000                 100,000        
                                                                                                                              
                                                                                           -                       -          
                                                                               ---------------           -------------
                                                                                     1,100,003                 850,003
                                                                               ---------------           -------------
</TABLE>

                                       
                                      32
                                       
                                       
<PAGE>   34

<TABLE>
<CAPTION>


                                                                                                                 Schedule 1, Cont'd
                                             MACC PRIVATE EQUITIES INC. AND SUBSIDIARY
                                          CONSOLIDATED SCHEDULE OF INVESTMENTS, CONTINUED

                                                                                                                Percent of      
                         Company                         Equity            Security                             net assets  
                         -------                         ------            --------                             ----------  
<S>                                                      <C>          <C>                                         <C>
Other, continued:                                                                                                                

   Northword Holding Corporation                                      *325.8 Shares Red. Pfd. at $1,000.00                       
       Minocqua, Wisconsin                                            *235 Common shares at $615.38                              
       Publisher of nature-related books,                             *Earnout warrant                                           
          calendars, posters, and audio products                      *Earnout warrant                                           
                                                         2.10%                                                                   
          Total others                                                                                            8.65%            
                                                                                                                  -----      



                                                              Value                      Cost                        
                                                              -----                      ----
<CAPTION>
<S>                                                      <C>                          <C>
Other, continued:                                                                                         

   Northword Holding Corporation                        $        235,208                 325,800          
       Minocqua, Wisconsin                                           -                   144,615          
       Publisher of nature-related books,                            -                       -            
          calendars, posters, and audio products                     -                       -            
                                                        ----------------             -----------
                                                                 235,208                 470,415 
                                                        ----------------             -----------
          Total others                                         1,335,211               1,320,418 
                                                        ----------------             -----------
                                                        $     18,424,612              20,680,038          
                                                        ================             ===========
</TABLE>

*Presently nonincome producing





See accompanying notes to consolidated schedule of investments.


                                      33

<PAGE>   35
                                      
                                      
                  MACC PRIVATE EQUITIES INC. AND SUBSIDIARY
                                      
                NOTES TO CONSOLIDATED SCHEDULE OF INVESTMENTS
                                      
                              SEPTEMBER 30, 1997


(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, 1997, all securities except for Apertus
     Technologies, Inc. are considered to be restricted in their disposition
     and are stated at what the board of directors considers to be fair
     market value.

(C)  The percentages in the "equity" column express the actual or
     potential equity interest held by MACC Private Equities Inc. and
     subsidiary (the Companies) in each issuer.  The percentage represents
     the amount of the issuer's common stock held by the Companies as a
     percentage of the issuer's total outstanding common stock or, where the
     issuer has outstanding warrants, convertible securities, or shares
     reserved for employee stock options, the percentage reflects the
     approximate equity interest held by the Companies upon the exercise of
     all warrants, conversion rights, and reserved employee options.

(D)  At September 30, 1997, the cost of securities for federal income
     tax purposes was $23,385,033, and the aggregate unrealized appreciation
     and depreciation based on that cost was:


<TABLE>
                        <S>                           <C>
                        Unrealized appreciation       $   720,420
                        Unrealized depreciation        (5,680,841)
                                                      -----------
                        Net unrealized depreciation   $(4,960,421)
                                                      ===========
</TABLE>

(E)  The Companies own a portfolio which includes investments in
     restricted securities of small businesses.  Within this portfolio, 21
     of these restricted securities include registration rights, and 6 of
     these restricted securities do not include registration rights.  Within
     the 21 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 percent 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 Companies expect that, in general, the securities that
          they will acquire in the future will include demand and
          piggyback rights.



                                      34


<PAGE>   36

                           SHAREHOLDER INFORMATION

STOCK TRANSFER AGENT

        ChaseMellon Shareholder Services, L.L.C., 85 Challenger Road, Overpeck
Centre, Ridgefield Park, New Jersey  07660  (telephone (800) 288-9541 and (800)
231-5469 (TDD)) serves as transfer agent and registrar for the Corporation's
common stock.  Certificates to be transferred should be mailed directly to the
transfer agent, preferably by registered mail.

SHAREHOLDERS

        The Corporation had approximately 3,074 record holders of its common
stock at November 28, 1997.

ANNUAL MEETING

        The Annual Meeting of Shareholders of the Corporation will be held on
Tuesday, February 24, 1998, at 10:00 a.m. at the Five Seasons Hotel, 350 First
Avenue N.E., Cedar Rapids, Iowa.

DIVIDENDS

        The Corporation has no history of paying cash dividends and does not
anticipate declaring any cash dividends in the foreseeable future, but instead
intends to retain all earnings, if any, for use in the Corporation's business.
During fiscal year 1997, however, the Corporation declared and paid a 10% stock
split effected in the form of a stock dividend.  The payment of dividends, if
any, in the future is within the discretion of the Board of Directors and will
depend upon the Corporation's earnings, capital requirements, financial
condition and other relevant factors.  The Corporation does not presently have
any type of dividend reinvestment plan.

MARKET PRICES

        The common stock of the Corporation is traded in the over-the-counter
market through the National Association of Securities Dealers Automated
Quotation ("NASDAQ") National Market under the symbol "MACC."  At the close of
business on November 28, 1997,  the bid price for shares of the Corporation's
common stock was $9.375.  The following high and low bid quotations for the
shares during each quarterly period ended on the date shown below of the
Corporation's fiscal year 1997 were taken from quotations provided to the
Corporation by the National Association of Securities Dealers, Inc:



<TABLE>
<CAPTION>
                                                              High         Low
--------------------------------------------------------------------------------
<S>                                                           <C>        <C>
 December 31, 1996                                            $ 9.32*     8.18*
 March 31, 1997                                                10.50      9.09*
 June 30, 1997                                                 11.00     10.00 
 September 30, 1997                                            10.00      9.00 
</TABLE>


        *High and low bid quotations for the three months ended December 31,
1996, and the low bid quotation for the three months ended March 31, 1997, have
been adjusted to reflect the payment of a 10% stock split effected in the form
of a stock dividend on March 31, 1997.

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

                                      35
<PAGE>   37

                   ---------------------------------------
                                 FUND MANAGER
                   ---------------------------------------
                   InvestAmerica Investment Advisors, Inc.

                   ---------------------------------------
                              OFFICERS AND STAFF
                   ---------------------------------------

                              DAVID R. SCHRODER
                           President and Secretary

                               ROBERT A. COMEY
                    Executive Vice President and Treasurer

                               KEVIN F. MULLANE
                                Vice President

                               MARILYN M. BENGE
                             Assistant Secretary

                   ---------------------------------------
                              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,
                University of Iowa, and Management Consultant

                     JAMES L. MILLER, Cedar Rapids, Iowa
                      Self-employed, with background in
                              retail management

                    DAVID R. SCHRODER, Cedar Rapids, Iowa
                    President of the Company, President of
                   InvestAmerica Investment Advisors, Inc.

                      JOHN D. WOLFE, Mount Vernon, Iowa
                   Retired from a career in retail banking
                             and mortgage lending

                    TODD J. STEVENS, Salt Lake City, Utah
                Manager of the Utah Office of Wasatch Venture
              Fund, Manager of the Venture Capital Department of
                          Zions First National Bank

                                      36