<PAGE>   1
                                   EXHIBIT 13


                       1996 Annual Report to Stockholders

<PAGE>   2
--------------------------------------------------------------------------------



                                     M A C C
                              Private Equities Inc.



                                  ANNUAL REPORT

                               SEPTEMBER 30, 1996




--------------------------------------------------------------------------------
<PAGE>   3
CORPORATE PROFILE


        MACC Private Equities Inc. (Nasdaq National Market: MACC) (the
"Corporation") is a Delaware corporation, formed on March 3, 1994, to be the
successor in interest to MorAmerica Financial 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.

        As business development companies, the Corporation and MorAmerica
Capital focus the majority of their investing activities in U.S.-owned
businesses with annual sales volume 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 companies 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 and service businesses with no focus on any single technology or
industry.

                     MACC PRIVATE EQUITIES INC. SHARE DATA


                                    [GRAPH]


   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
================================================================================
<TABLE>
<S>                                                <C>
To Our Shareholders..............................   3
Selected Financial Data..........................   5
Management's Discussion and Analysis.............   6
Financial Statements.............................  15
Shareholder Information..........................  35
</TABLE>
================================================================================



                                       2
<PAGE>   4

TO OUR SHAREHOLDERS

        Although Fiscal Year 1996 was a year of progress for the Corporation and
our shareholders, the year was also a year of loss. On September 11, 1996, Steve
Massey, Vice President of both the Corporation and the Investment Adviser,
passed away. Steve was a valued and respected member of our team. We will truly
miss him and extend our most sincere sympathies to his family.

PROGRESS TOWARD CORPORATE GOALS

        When we started Fiscal Year 1996, the Corporation reaffirmed its primary
goal of increased shareholder value. A 3% increase in net asset value per share
and a 29% increase in closing market bid price per share were achieved this
year.

        Several factors contributed to our progress toward this objective.
First, the Corporation invested $5,135,249 during Fiscal Year 1996. When
contrasted with a total of $4,082,089 invested during the twelve months ended
September 30, 1995, this 25.8% increase in portfolio investment activity was
substantial. The higher level of new and follow-on investments was desirable in
order to replenish and to increase the Corporation's total number of portfolio
investments.

        Most of the Corporation's portfolio investments are expected to mature
in five to seven years. Therefore, the Corporation's higher investment levels in
fiscal years 1995 and 1996 support additional possible long-term capital growth.

       In order to increase long-term shareholder value, the Corporation took
several steps to raise the market price per share compared to the net asset
value per share ("book value per share"). Although not technically a closed-end
mutual fund, in some respects, the Corporation is valued like one by market
participants. In recent months, shares of closed-end mutual funds generally have
traded at substantial discounts from book value per share. As illustrated in the
MACC Private Equities Inc. Share Data chart on page 2, shares of the
Corporation's Common Stock ended fiscal year 1995 with a closing market bid
price per share of $7 3/8 on September 30, 1995, which represented 43% of the
book value per share of $17.24 on that date.

        In an important step to increase the market price in comparison to the
book value per share, the Corporation sought to improve liquidity for the
Corporation's shareholders by changing the trading market for the Corporation's
Common Stock. On February 8, 1996, the Corporation announced that the primary
trading market for the Corporation's Common Stock would advance from the Nasdaq
SmallCap Market to the Nasdaq National Market. This move met with the immediate
approval of the market, and on February 9, 1996, the bid price for shares of the
Common Stock closed up 1/8 at $8, which represented 46% of the book value per
share of $17.52 at December 31, 1995.


             MACC PRIVATE EQUITIES INC. PRICE/BOOK VALUE PER SHARE



                                    [GRAPH]

    In an additional step that helped to increase shareholder value, the
Corporation undertook a Commission-Free Shareholder Sales Plan during fiscal
year 1996. Pursuant to this program, the Corporation repurchased 50,715 shares
of the Common Stock from those shareholders who owned less than 100 shares each.
These shareholders had expressed an interest in an economical way to achieve
liquidity in their investments (without incurring brokerage costs), and the
Corporation was pleased to provide this service to its shareholders.

    Our shareholders further benefited from an Agreement, dated May 13, 1996,
with Zions Bancorporation (Nasdaq National Market: ZION)



                                       3
<PAGE>   5

("Zions"), a regional bank holding company. Zions is an experienced venture
capital investor through its ownership of the Wasatch Venture Fund. Pursuant to
this Agreement, Zions agreed to purchase 20,000 shares of the Corporation's
Common Stock for a price equal to the March 31, 1996, book value per share of
$17.70, and indicated its intention to increase its total ownership of the
Corporation's Common Stock to up to 25% of the issued and outstanding shares
through additional open-market purchases. Zions' willingness to purchase shares
of the Common Stock at a price equal to 100% of book value per share represented
a significant vote of confidence in your Corporation from an experienced player
in our industry. Following the announcement of the Agreement on May 15, 1996,
the market bid price for shares of the Common Stock closed up $ 1 1/4 at $10 1/4
on May 16, 1996, which represented 58% of book value per share of $17.70 at
March 31, 1996.

     From September 30, 1995, to September 30, 1996, shareholders have achieved
significant growth in the value of their investments in the Corporation, both in
terms of the increase in the market price and in terms of the decrease in the
gap between market price and book value per share. Over the life of the
Corporation, as is indicated in the MACC Private Equities Inc. Share Data chart
on page 2, the closing market bid price for the Corporation's Common Stock
increased from $5 on March 31, 1995 (the last day of the first month in which
trading in the Corporation's Common Stock commenced) and from $7 3/8 on
September 30, 1995, to $9 1/2 on September 30, 1996, increases of 90% and 29%,
respectively. We were pleased with the results of our efforts in this regard and
will continue to build value to reward our shareholders.

FINANCIAL PERFORMANCE

        The Corporation achieved a net asset value per share of $17.71 as of
September 30, 1996, an increase of approximately 3% as compared to net asset
value per share of $17.24 on September 30, 1995. Additionally, the Corporation
achieved net realized gains on portfolio investments of $906,172 and a pre-tax
net change in net assets from operations of $(1,255).

    In connection with the Agreement with Zions, the Board of Directors
increased MorAmerica Capital's paid-in-capital from $7,575,000 to $10,110,000.
This change increases MorAmerica Capital's maximum single investment size from
$1,675,000 to $2,181,800 and thus supports larger investments as projected in
the Corporation's growth plans.

OPERATIONS - INVESTMENT AND DIVESTITURE ACTIVITY

     During Fiscal Year 1996, the Corporation made total investments of
$5,135,249 in four new portfolio companies and in follow-on investments in eight
existing portfolio companies. The Corporation's investment-level objectives on a
consolidated basis call for new and follow-on investments of approximately
$8,500,000 during fiscal year 1997.

     Divestitures and portfolio company liquidity events for fiscal year 1996
were significant with $2,182,973 in realized gains from the sale of investments
in six portfolio companies. Over the same period, $1,276,801 in realized losses
were recognized from four portfolio companies, for a net realized gain on
investments of $906,172.

    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 1996 was an eventful year for the Corporation
and our shareholders. 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)


                    For the Fiscal Years Ending September 30,



<TABLE>
<CAPTION>
                                                 Seven and One-  Four and One-
                                                   Half Months    Half Months
                                              Ended Sept.  30,  Ended Feb. 15,
                                       1996              1995         1995           1994             1993           1992(4)
                                       ----              ----         ----           ----             ----           ----
          
<S>                              <C>              <C>            <C>             <C>               <C>             <C>
Investment (expense)             $    (89,576)       103,653        (17,776)(2)  (1,613,419)(2)    (2,613,832)(2)  (5,144,766)
income net

Net realized gain (loss) on           514,172      1,102,697      4,514,338        (448,784)        1,051,036         395,704
investments, net of tax

Net change in  unrealized
appreciation/depreciation on
investments                          (641,851)       586,458       (948,191)      2,292,753        (3,391,714)     (2,467,761)
                                 ------------     ----------     ----------     -----------      ------------     -----------

Net (decrease)  increase in
net assets or (increase)         $   (217,255)     1,792,808      3,548,371         230,550        (4,954,510)     (7,216,823)
decrease in net deficit from     ============     ==========     ==========     ===========      ============     ===========
operations

Extraordinary item - gain                   -              -              -        11,622,270               -               -
on extinguishment of debt        ------------     ----------     ----------     -----------      ------------     -----------


Net (decrease) increase in
net assets or (increase)
decrease in net deficit from     $   (217,255)     1,792,808      3,548,371      11,852,820        (4,954,510)     (7,216,823)
operations                       ============     ==========     ==========     ===========      ============     ===========


Net (decrease) increase in
net assets or (increase)
decrease in net deficit from
operations per common            $      (0.23)(5)       1.80           3.56 (3)      119.52         (2,568.43)      (3,741.22)
share before extraordinary       ============     ==========     ==========     ===========      ============     ===========
item

Extraordinary item per                     -               -              -        6,025.02                 -               -
common share                     ------------     ----------     ----------     -----------      ------------     -----------


Net (decrease) increase in
net assets or net (increase)
decrease in net deficit from     $      (0.23)          1.80           3.56        6,144.54         (2,568.43)      (3,741.22)
operations per common            ============     ==========     ==========     ===========      ============     ===========
share

Total assets                     $ 27,906,798     28,006,385     25,775,717      22,781,482        22,995,992      27,307,503
                                 ============     ==========     ==========     ===========      ============     ===========

Total long term debt             $ 10,236,250     10,228,647     10,224,152      54,772,521        65,764,431      64,785,150
                                 ============     ==========     ==========     ===========      ============     ===========
</TABLE>

-----------------

1 Four and one-half months ended February 15, 1995 and fiscal years ended
  September 30, 1994, through 1992, 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, 1994 and 1993, respectively.

3 Computed using 996,539 shares outstanding at February 15, 1995.

4 Data related to operations for the year ended September 30, 1992, have been
  derived from MorAmerica Financial Corporation's unaudited consolidated
  statement of operations.

5 Computed using 964,098 shares outstanding at September 30, 1996.



                                       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




                                       6


<PAGE>   8
Capital because the continuing business of the Corporation on a consolidated
basis has 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 the
10-year period 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
ten fiscal years ended September 30, 1996, 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,   
                                    1996           1995               1955          1994           1993         1994
                                    ----           ----               ---           ----           ----         ----
                                                                                                            
<S>                               <C>             <C>               <C>              <C>         <C>            <C>
Investment (expense)              $ (266)           (66)             (204)        (1,011)        (1,135)          (513)
income before income tax                                                                                    
                                                                                                            
Income tax benefit                   176            170                40              0              0            126
                                  ------          -----            ------          -----         ------         ------  
                                                                                                            
Investment (expense)                                                                                        
income, net                          (90)           104              (164)        (1,011)        (1,135)          (387)
                                  ------         ------            ------         ------         ------         ------
                                                                                                            
Net realized gain (loss) on                                                                                 
investments before income tax        906            948             6,217           (449)         1,051            396
                                                                                                            
Income tax (expense) benefit        (392)           155            (1,206)             0              0           (179)
                                  ------          -----            ------          -----         ------         ------  
                                                                                                            
Net realized gain (loss) on                                                                                 
investments, net                     514          1,103             5,011           (449)         1,051            217
                                  ------          -----            ------          -----         ------         ------  
                                                                                                            
Net change in unrealized                                                                                    
appreciation/depreciation on                                                                                
investments                         (642)           586            (3,150)         2,340         (2,394)        (2,468)
                                  ------          -----            ------          -----         ------         ------  
                                                                                                            
Net (decrease) increase in                                                                                  
net assets from operations        $ (218)         1,793             1,697            880         (2,478)        (2,638)
                                  ======          =====            ======          =====         ======         ====== 
</TABLE>
                         

------------------------
1 Fiscal year 1996 and 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>
                                     1991        1990         1989         1988         1987        1986
                                     ----        ----         ----         ----         ----        ----
<S>                                 <C>          <C>         <C>           <C>         <C>          <C>
Investment (expense)
income before income tax             (816)        (172)        (646)      (1,191)      (1,471)      (1,066)


Income tax benefit                    314           68          263            0            0            0
                                    -----       ------       ------       ------        -----       ------

Investment (expense)
income, net                          (502)        (104)        (383)      (1,191)      (1,471)      (1,066)
                                    -----       ------       ------       ------        -----       ------

Net realized gain (loss) on
investments before income tax       1,779        6,852       17,907        4,675          170       (1,100)

Income tax (expense) benefit         (685)      (2,725)      (7,310)        (125)           0           35
                                    -----       ------       ------       ------        -----       ------


Net realized gain (loss) on
investments, net                    1,094        4,127       10,597        4,550          170       (1,065)
                                    -----       ------       ------       ------        -----       ------

Net change in unrealized
appreciation/depreciation on
investments                           392       (6,081)      (4,417)      (2,256)       4,446        2,443
                                    -----       ------       ------       ------        -----       ------

Net (decrease) increase in
net assets from operations            984       (2,058)       5,797        1,103        3,145          312
                                    =====       ======       ======       ======        =====       ======
</TABLE>


--------------------

1 Fiscal year 1996 and 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,
and realized gains and losses from, and unrealized appreciation and depreciation
in, portfolio investments are not included within total investment income.
However, consistent with one of the Corporation's long-term goals of achieving
net investment income and increased earnings stability in future years, 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 funds.

    For fiscal year 1996, total investment income was $1,689,791, total
operating expenses were $1,955,367, tax benefit equaled $176,000, and net
investment expense was $89,576. During the twelve months ended September 30,
1995, the Corporation had reserved $200,000 for a potential loss from a personal
injury lawsuit against a subsidiary of the Corporation. This lawsuit was settled




                                       8

<PAGE>   10
during fiscal year 1996 at a cost to the Corporation of $187,500. The
Corporation expects to recoup 35% of this sum from the liquidation estate of the
Corporation's insurer, and a corresponding receivable was booked during fiscal
year 1996.

    The net investment expense of $89,576 for the current fiscal year was an
improvement over net investment expense for the twelve months ended September
30, 1995, of $168,031. This net investment expense level also represents a
substantial improvement over the net investment expense of MorAmerica Capital
for fiscal years prior to the twelve months ended September 30, 1995. The
Corporation views this as a significant step toward meeting its goal of
achieving net investment income and increased earnings stability, and
anticipates that the higher level of current-yielding portfolio investments to
be made in future periods may increase total income during such periods.

    In order to progress further toward this goal by decreasing operating
expenses, the Corporation instituted a program whereby during fiscal year 1996
it repurchased 50,715 of the outstanding shares of the Corporation's Common
Stock from holders owning fewer than 100 shares ("odd-lot shareholders"). These
repurchases removed approximately 676 beneficial owners of the Common Stock, and
accordingly, the Corporation believes that these repurchases may result in lower
shareholder communication expenses in future periods.

    Net realized gain on investments for fiscal year 1996 totaled $906,172.
These gains substantially contributed to the net gain on investments before
income taxes of $264,321 for the current fiscal year. While the Corporation had
a net decrease in net assets from operations of $217,255, this decrease was
offset on a net asset per share basis by the Corporation's Common Stock
repurchases from odd-lot shareholders. The net effect of these repurchases,
which were made at market price in accordance with the rules of the Securities
and Exchange Commission, was an increase of approximately $.39 in net asset
value per share of the Common Stock. Because of the substantial interest and
participation in this program by the odd-lot shareholders and because a
significant percentage of the Corporation's shareholder base continues to
consist of odd-lot shareholders, the Corporation intends to offer a similar
program during fiscal year 1997. To the extent that the Common Stock continues
to trade at a significant discount from net asset value per share, the
Corporation anticipates that the fiscal year 1997 repurchase program, if
completed, would also result in an increase in net asset value per share.

    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 and
1996, MorAmerica Capital recorded higher levels of new and follow-on portfolio
investments, and the Corporation anticipates that MorAmerica Capital will
continue these higher 




                                       9
<PAGE>   11
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. Accordingly, the
Corporation anticipates that it may realize fewer portfolio company liquidity
events and divestitures and may experience a higher level of unrealized
depreciation and/or realized losses on portfolio investments over the next one
to three years, and, as a result, the Corporation's net asset value growth, if
any, may slow over this period. The Corporation anticipates that the growth rate
in net asset value per share will increase again over the next three to ten year
period, and will be reflective of the recent and anticipated higher investment
levels.

                                  Income Taxes

    During fiscal year 1996 the Corporation utilized a portion of its deferred
tax assets relating to net operating loss carry forwards at the fresh-start date
and utilized all of its capital loss carryforwards generated in fiscal year
1995. Under fresh-start reporting, such utilization resulted in a charge to
operations of $184,000 during the current year for the reduction in deferred tax
assets. Also during fiscal year 1996, the Corporation recorded a net increase of
$81,000 in deferred tax assets based upon its projection of future taxable
income, resulting in an increase in paid in capital of $265,000 for the current
year under fresh-start reporting. During the Fourth Quarter, income tax expense
and the income tax effect credited to paid-in capital were reduced by $386,000
and $440,000 respectively.

              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 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.

    As of September 30, 1996, the Corporation's U.S. treasury bills, cash
equivalents and cash collectively totaled $14,181,406. The Corporation believes
that this provides adequate funds for the Corporation's planned $8,500,000 in
new and follow-on investment activities during fiscal year 1997. The Corporation
does not now 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.




                                       10
<PAGE>   12

    Liquidity for the next several 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.

    While additional capital is not anticipated to be required during fiscal
year 1997, the Corporation anticipates that it may seek additional capital in
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 as the outstanding SBA-guaranteed debentures become due and payable and
for other corporate purposes.

                               Portfolio Activity

    The Corporation's investment level objectives for fiscal year 1996 called
for total new and follow-on investments of $7,000,000. During this period, the
Corporation invested $5,135,249 in twelve portfolio companies. Of this amount,
$4,110,584 was invested in four new portfolio companies and $1,024,665 was
invested in follow-on investments in eight existing portfolio companies.
Although the Corporation did not achieve its investment level objective for the
current fiscal year, the $5,135,249 in total new and follow-on investments made
during fiscal year 1996 represents a substantial improvement over total
portfolio investment levels of prior one-year periods. Management attributes the
Corporation's lower than planned investment level during fiscal year 1996 to the
highly competitive industry in which the Corporation operates and the attendant
difficulty in predicting the timing of new and follow-on portfolio investments.
Management views investment level 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.

    During fiscal year 1996, the Corporation undertook two initiatives which may
contribute to its ability to achieve its investment level objectives during
future periods. On May 13, 1996, the Corporation entered into an Agreement (the
"Agreement") with Zions Bancorporation (Nasdaq National Market: "ZION")
("Zions"), pursuant to which Zions purchased 20,000 newly issued shares of the
Corporation's Common Stock, and further indicated its intention to increase its
total ownership of the Corporation's Common Stock up to 25% of the issued and
outstanding shares. The Corporation anticipates that its new relationship with
Zions, an experienced venture capital investor through its subsidiary, Zions
First National Bank (the "Bank"), and the Bank's subsidiary, the Wasatch Venture
Fund ("Wasatch"), may stimulate increased deal flow for the Corporation during
future periods. In addition, during fiscal year 1996 the Corporation increased
MorAmerica Capital's paid-in-capital from $7,575,000 to $10,110,000. This change
resulted in an increase in MorAmerica Capital's maximum single investment size
from $1,675,000 to $2,181,800, and thus may make available more potential
portfolio investments to MorAmerica Capital during future periods.

                                Portfolio Changes


                                       11
<PAGE>   13

    Set forth in the table below are the significant increases and decreases in
fair value of portfolio company securities held by the Corporation at September
30, 1996, as compared with fair value at September 30, 1995.

<TABLE>
<CAPTION>
                                                       FAIR VALUE
                                      -------------------------------------------
Portfolio Company                     September 30, 1996       September 30, 1995
-----------------                     ------------------       ------------------
<S>                                         <C>                      <C>    
Apertus Technologies                        $ 81,945                 242,222
Environmental Solvents Corp.                       1                 341,453
The Forgotten Woman                             --                   300,000
Houghton Acquisition                         994,173                 400,026
Microdynamics                                   --                    58,603
Portrait Display Labs, Inc.                  650,002                 445,001
</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, 1996, 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.

                                      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:



                                       12
<PAGE>   14

     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. Many
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 to be made in the future are expected to be structured so as to
return current yields throughout most of the terms of such investments, but will
only produce capital gains, if any, after approximately five to seven years due
to accompanying equity features. There can be no assurance, however, that any of
the Corporation's investments will produce current yields or capital gains.

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, if any, in any period. The
Corporation has stated above that it anticipates that the rate of growth in net
asset value will slow over the next several years, but that the rate of growth
in net asset value may increase following that period due to the higher
investment levels achieved in the last two 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






                                       13
<PAGE>   15

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.

     In addition, 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, and have in
the past been partially funded with the proceeds from the sale of SBA-
guaranteed debentures, which also provide for a fixed rate of interest.
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 rates, which would adversely affect the Corporation's projected total
income over the foreseeable future.


                  [Remainder of page intentionally left blank]




                                       14

<PAGE>   16
                       [KPMG PEAT MARWICK LLP LETTERHEAD]



                          INDEPENDENT AUDITORS' REPORT

Board of Directors
MACC Private Equities Inc.:

We have audited the accompanying consolidated balance sheet of MACC Private
Equities Inc. and subsidiaries, including the consolidated schedule of
investments, as of September 30, 1996, and the related consolidated statements
of operations and cash flows for the year ended September 30, 1996, and the
consolidated statements of changes in net assets for the year ended September
30, 1996, the seven and one-half months ended September 30, 1995, and the four
and one-half months ended February 15, 1995. 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, 1996. 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 audits provide a reasonable basis
for our opinion.

As explained in note 1, MACC Private Equities Inc. and subsidiaries (successor
company) consummated a plan of reorganization on February 15, 1995, and adopted
fresh-start reporting in accordance with AICPA Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization Under the Bankruptcy Code."
Since the financial statements on a fresh-start basis are not comparable with
those of MorAmerica Financial Corporation and subsidiaries (predecessor
company), the statements of changes in net assets are presented on a
predecessor/successor company basis for 1995.

In our opinion, the aforementioned consolidated financial statements present
fairly, in all material respects, the financial position of MACC Private
Equities Inc. and subsidiaries as of September 30, 1996, and the results of its
operations and its cash flows for the year then ended, and changes in net assets
for the year ended September 30, 1996, the seven and one-half months ended
September 30, 1995, and the four and one-half months ended February 15, 1995, in
conformity with generally accepted accounting principles.

                                   KPMG PEAT MARWICK LLP


Des Moines, Iowa
October 30, 1996





                                      15
<PAGE>   17
                  MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES

                           Consolidated Balance Sheet

                               September 30, 1996



<TABLE>
<CAPTION>
                                     ASSETS
                                     ------
<S>                                                                     <C>
Loans and investments in portfolio securities
  at market or fair value, cost of $11,676,141 (note 2)                 $11,620,748
U.S. treasury bills, at cost, which approximates market                  12,202,414
Certificates of deposit                                                   1,657,801
Cash                                                                        321,191
Other assets, net                                                         1,011,644
Deferred income taxes (note 5)                                            1,093,000
                                                                        -----------
        Total assets                                                    $27,906,798
                                                                        ===========

                      LIABILITIES AND STOCKHOLDERS' EQUITY
                      ------------------------------------

Liabilities:
  Debentures payable, net of discount (note 3)                          $10,236,250
  Accrued interest                                                          259,662
  Accounts payable and other liabilities (note 6)                           333,117
                                                                        -----------
        Total Liabilities                                                10,829,029
                                                                        -----------
Stockholders' equity (notes 3 and 4):
  Common stock, $.01 par value per share;
    authorized 2,000,000 shares; issued 964,098 shares.                       9,641
  Additional paid-in-capital (notes 4 and 5)                             15,492,575
  Net investment income                                                      14,077
  Net realized gain on investments                                        1,616,869
  Unrealized depreciation on investments                                    (55,393)
                                                                        -----------
        Total stockholders' equity                                       17,077,769
                                                                        -----------
Commitments (note 6).
        Total liabilities and stockholders' equity                      $27,906,798
                                                                        ===========

Net assets per share                                                    $  17.71
                                                                        ===========
</TABLE>

          See accompanying notes to consolidated financial statements.




                                      16
<PAGE>   18
                  MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES

                      Consolidated Statement of Operations

                         Year ended September 30, 1996



<TABLE>
<CAPTION>

<S>                                                                     <C>
Investment income:
  Interest                                                              $ 1,405,681
  Dividends                                                                 108,373
  Other                                                                     175,737
                                                                        -----------
        Total income                                                      1,689,791
                                                                        -----------
Operating expenses:
  Interest                                                                  892,235
  Management fees (note 6)                                                  609,436
  Professional fees                                                         224,753
  Other operating expenses                                                  273,587
  Change in provision for doubtful accounts                                 (44,644)
                                                                        -----------
        Total operating expenses                                          1,955,367
                                                                        -----------
        Investment expense, net
          before income tax benefit                                        (265,576)

Income tax benefit (note 5)                                                 176,000
                                                                        -----------
        Investment expense, net                                             (89,576)
                                                                        -----------
Realized and unrealized gain on investments (note 2):
  Net realized gain on investments                                          906,172
  Net change in unrealized appreciation/
    depreciation on investments                                            (641,851)
                                                                        -----------
        Net gain on investments
          before income taxes                                               264,321

Income tax expense (note 5)                                                (392,000)
                                                                        -----------
        Net loss on investments                                            (127,679)
                                                                        -----------
        Net change in net assets from operations                        $  (217,255)
                                                                        ===========
</TABLE>

          See accompanying notes to consolidated financial statements.




                                      17
<PAGE>   19
                  MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES

                Consolidated Statements of Changes in Net Assets

<TABLE>
<CAPTION>
                                                                                        MACC Private          MorAmerica
                                                                  MACC Private          Equities Inc.       Financial Corp.
                                                                  Equities Inc.       (Successor Co.) -   (Predecessor Co.) -
                                                                (Successor Co.) -        See note 1          See note 1
                                                                   See note 1        Seven and one-half   Four and one-half
                                                                   Year ended           months ended        months ended
                                                                  September 30,         September 30,       February 15,
                                                                      1996                  1995                1995
                                                                  ------------          ------------        -----------
<S>                                                               <C>                   <C>                  <C>
Operations:
   Net investment (expense) income                                $   (89,576)             103,653              (271,684)
   Net realized gain on investments, net of tax                       514,172            1,102,697             4,514,338
   Net change in unrealized (depreciation)
     appreciation on investments                                     (641,851)             586,458              (948,191)
                                                                  -----------           ----------           -----------
        Net (decrease) increase in
          net assets from operations                                 (217,255)           1,792,808             3,294,463

Issuance of common stock (note 4)                                     354,000                  -                     -
Repurchase/retirement of common stock (note 4)                       (506,097)                 -                     -
Reorganization items - professional fees and other                        -                    -                 253,908
Recognized income tax benefit of
   preconfirmation net operating losses (note 5)                      265,000              687,000                   -
Cancellation of debt to prepetition debt holders
   through issuance of common stock                                       -                    -              46,615,347
                                                                  -----------           ----------           -----------
        Net (decrease) increase in net assets                        (104,352)           2,479,808            50,163,718

Net assets (deficit):
   Beginning of period                                             17,182,121           14,702,313           (35,461,405)
                                                                  -----------           ----------           -----------
   End of period                                                  $17,077,769           17,182,121            14,702,313
                                                                  ===========           ==========           ===========
</TABLE>

          See accompanying notes to consolidated financial statements.





                                      18
<PAGE>   20
                  MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES

                      Consolidated Statement of Cash Flows

                         Year ended September 30, 1996



<TABLE>
<CAPTION>

<S>                                                                             <C>
Cash flows from operating activities:
   Decrease in net assets from operations                                       $   (217,255)
                                                                                ------------
   Adjustments to reconcile decrease
      in net assets from operations to
      net cash provided by operating activities:
         Change in provision for doubtful accounts                                   (44,644)
         Net realized and unrealized gain on investments                            (264,321)
         Deferred income taxes                                                       184,000
         Other                                                                        21,793
         Change in assets and liabilities:
            Receivables and other assets                                           1,654,204
            Accrued interest, accounts payable, and other liabilities                 (2,838)
                                                                                ------------
                Total adjustments                                                  1,548,194
                                                                                ------------
                Net cash provided by operating activities                          1,330,939
                                                                                ------------
Cash flows from investing activities:
   Proceeds from disposition of and payments on
      loans and investments in portfolio securities                                5,640,383
   Purchases of loans and investments
      in portfolio securities                                                     (5,135,249)
   Proceeds from disposition of other investments                                 18,399,967
   Purchases of other investments                                                (21,273,735)
                                                                                ------------
                Net cash used in investing activities                             (2,368,634)
                                                                                ------------
Cash flows from financing activities:
   Proceeds from issuance of common stock                                            354,000
   Retirement of common stock                                                       (506,097)
                                                                                ------------
                Net cash used in financing activities                               (152,097)
                                                                                ------------
                Net decrease in cash and cash equivalents                         (1,189,792)

Cash and cash equivalents at beginning of year                                     6,255,803
                                                                                ------------
Cash and cash equivalents at end of year                                        $  5,066,011
                                                                                ============
Supplemental disclosures of cash flow information:
   Cash paid during the year for interest                                       $    878,482
                                                                                ============
Supplemental disclosure of noncash
   investing and financing information -
         Assets received in lieu of cash                                        $    124,000
                                                                                ============
</TABLE>

          See accompanying notes to consolidated financial statements.




                                      19
<PAGE>   21
                  MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                               September 30, 1996

 (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 subsidiaries,
           MorAmerica Capital Corporation (MACC) and MorAmerica Realty Services,
           Inc. (MRS) (the Company, Successor Company) on February 15, 1995, and
           thereafter and MorAmerica Financial Corporation and subsidiaries (the
           Predecessor Company) prior to February 15, 1995. Equities and MACC
           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. Since February 15, 1995, as discussed
           below, the financial statements are presented in accordance with
           AICPA Statement of Position 90-7, "Financial Reporting by Entities in
           Reorganization Under the Bankruptcy Code," (SOP 90-7).

        On February 15, 1995, the Company consummated a plan of reorganization
           (the Plan) as confirmed by the United States Bankruptcy Court for the
           Northern District of Iowa on December 28, 1993. Under terms of the
           Plan, the Predecessor Company, exclusive of MACC and MRS, merged into
           Equities. As of February 15, 1995, the Company adopted fresh-start
           reporting in accordance with SOP 90-7, resulting in the Company's
           assets and liabilities being adjusted to fair values. Although the
           financial statements on a fresh-start basis are not comparable with
           those of the Predecessor Company, the Company has presented the 1995
           statement of changes in net assets on a predecessor-successor company
           basis. As part of the reorganization, $46,615,347 of debt was
           canceled through issuance of common stock, as shown in the changes in
           net assets for the four and one-half months ended February 15, 1995.

       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, 1996, such amounts totaled $4,744,820.

       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.



                                                                     (Continued)


                                      20

<PAGE>   22
                   MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(1)    Summary of Significant Accounting Policies and Related Matters, Continued

       Income Taxes

       Equities and its subsidiaries 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 on deferred tax assets and liabilities of a change in tax
           rates 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 $11,620,748 and
           $11,676,141, respectively, at September 30, 1996.

       The estimated fair value of long-term debt is $10,600,000 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.

 (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 Florida. The Company determined that the fair value of its
           portfolio securities was $11,620,748 at September 30, 1996. Among the
           factors considered by the Company in determining the fair value of
           investments were the cost of the investment; developments, including
           recent financing transactions, since the acquisition of the
           investment; the financial condition and operating results of the
           investee; the long-term potential of the business of the investee;
           and other factors generally pertinent to the valuation of
           investments. However, because of the inherent uncertainty of
           valuation, those estimated values may differ significantly from the
           values that would have been used had a ready market for the
           securities existed, and the differences could be material.

       The Company acquired its portfolio securities by direct purchase from the
           issuers under investment representation and values the securities on
           the premise that, in most instances, they may not be sold without
           registration under the Securities Act of 1933. The price of
           securities purchased was determined by direct negotiation between the
           Company and the seller. All portfolio securities at September 30,
           1996, except for Apertus Technologies, Inc. (28,922 common shares
           carried at $81,945 with a cost of $250,536), are considered to be
           restricted in their disposition and are illiquid.



                                                                     (Continued)



                                      21
<PAGE>   23
                   MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(3)    Debentures Payable

       Debentures of MACC guaranteed by the Small Business Administration (SBA)
           of $10,290,000 at September 30, 1996, are unsecured. 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, 1996, $2,432,077 of MACC's
           undistributed net realized earnings (computed under SBA guidelines)
           of $6,137,393 were available for distribution to Equities.

(4)    Stockholders' Equity

       Transactions in common stock during the year ended September 30, 1996,
           were as follows:

<TABLE>
<CAPTION>
                                                     Shares          Amount
                                                     ------          ------
<S>                                                  <C>           <C> 
        Purchase and retirement of shares (1)        (50,715)      $(506,080)
        Retirement of shares              (2)         (1,726)            (17)
        Issuance of shares                (3)         20,000         354,000
                                                   ---------       ---------
                 Net change                          (32,441)      $(152,097)
                                                   =========       =========
</TABLE>

       The purchase, retirement, and issuance of shares reduced common stock by
           $324. Amounts greater than par were allocated to additional paid-in
           capital, reducing the balance by $151,773 to $15,227,575 before the
           recognized tax benefits of pre-confirmation net operating losses
           (note 5).

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

                (2)   The Company retired shares held by subsidiaries of the
                      Company.

                (3)   On May 13, 1996, the Company entered into an agreement
                      with Zions Bancorporation (Zions), providing for the
                      issuance of 20,000 shares of common stock. The agreement
                      provides that, without the prior approval of the Company's
                      board of directors, Zions shall not purchase more than 25
                      percent of the Company's outstanding common stock.

                                                                     (Continued)


                                      22
<PAGE>   24
                   MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(5)    Income Taxes

       Income tax expense at September 30, 1996, consists of the following
           components:

<TABLE>
<CAPTION>
                        Federal       State         Total
                        -------       -----         -----
<S>                    <C>             <C>          <C>   
         Current       $ 24,000         8,000        32,000
         Deferred       138,000        46,000       184,000
                       --------      --------      --------
                       $162,000        54,000       216,000
                       ========      ========      ========
</TABLE>

       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 expense                                        $        -
          Increase (reduction) in income taxes resulting from:
               State income taxes, net of federal tax effect                          36,000
               Nontaxable dividend income                                            (37,000)
               Recognized tax benefit of
                   pre-confirmation net operating losses                             265,000
               Change in the beginning of the period balance
                   valuation allowance for deferred tax assets                       (80,000)
               Other                                                                  32,000
                                                                                 -----------
                       Income tax expense                                        $   216,000
                                                                                 ===========
</TABLE>

       The tax effects of temporary differences that give rise to significant
           portions of the deferred tax assets at September 30, 1996, are as
           follows:

<TABLE>
<S>                                                                              <C>         
          Net operating loss carryforwards                                       $  5,416,000
          Unrealized depreciation on investments                                    1,360,000
          Other                                                                       127,000
                                                                                 ------------
                       Total gross deferred tax assets                              6,903,000

          Less valuation allowance                                                  5,810,000
                                                                                 ------------
                       Net deferred tax assets                                   $  1,093,000
                                                                                 ============
</TABLE>

       The $1,093,000 of deferred tax assets include $265,000 related to net
           operating losses at the fresh-start date. This benefit, under SOP
           90-7, has been credited to additional paid-in capital of $15,227,575,
           resulting in a balance of $15,492,575 at September 30, 1996.


                                                                     (Continued)


                                      23
<PAGE>   25
                   MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

 (5)   Income Taxes, Continued

       The valuation allowance for deferred tax assets as of September 30, 1995,
           was $5,890,000. The net change in the total valuation allowance for
           the year ended September 30, 1996, was a decrease of $80,000. 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 deferred tax assets, the Company will
           need to generate future taxable income of approximately $17 million
           prior to the expiration of the net operating loss carryforwards in
           2009. Taxable income for the year ended September 30, 1996, was
           approximately $1,547,000. Based upon the level of historical taxable
           income of MACC and projections for future taxable income over the
           periods 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, 1996.

       Subsequently recognized tax benefits relating to the valuation allowance
           for deferred tax assets as of September 30, 1996, will primarily be
           allocated to additional paid-in capital under the provisions of SOP
           90-7.

       At  September 30, 1996, the Company has net operating loss carryforwards
           for federal income tax purposes of approximately $13,542,000, which
           are available to offset future federal taxable income, if any,
           through 2009. Approximately $1,492,000 of the carryforwards are
           available for the year ending September 30, 1997, 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, 1997, 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 expenses under the Agreement amounted
           to $110,436 for the year ended September 30, 1996. There were no
           incentive fees accrued or paid under the Agreement.

       MACC has a separate investment advisory agreement with IAIA. This
           agreement expires September 30, 1997, 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 (as defined in the
           agreement), before taxes, on investments in the form of an incentive
           fee. Capital losses and realized capital gains are not cumulative
           under the incentive fee computation. Total expenses (exclusive of
           incentive fees) under this agreement amounted to $499,000 for the
           year ended September 30, 1996. Total incentive fees were $539,896 for
           the year ended September 30, 1996. Incentive fees are an expense in
           determining net realized gain (loss) on investments in the
           consolidated statement of operations. At September 30, 1996,
           incentive fees payable amounted to $203,733.




                                      24
<PAGE>   26
                                                                Schedule 1


                  MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES

                      Consolidated Schedule of Investments

                               September 30, 1996

<TABLE>
<CAPTION>
                Company                     Equity                Security                         Value            Cost
                -------                     ------                --------                         -----            ----
<S>                                         <C>       <C>                                        <C>              <C>
Manufacturing:
  Central Fiber Corporation                           *Warrants to purchase 18.4 common
    Wellsville, Kansas                                 shares at $1.00, expire
    Recycles and manufactures                          October 29, 2002                          $      -              -
      cellulose fiber products                        *Warrants to purchase 10.4 common
                                                       shares at $1.00, expire
                                                       October 29, 2002                                 -              -
                                                      12% Debt security, due November 1, 1999        400,000        400,000
                                                                                                 -----------     ----------
                                            15.60%                                                   400,000        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
                                                                                                 -----------     ----------
                                             5.50%                                                 1,254,903      1,254,903
                                                                                                 -----------     ----------
  Cirque Corporation                         2.45%    *100,000 Shares Series A Pfd. at $3.35         335,000        335,000
    Salt Lake City, Utah                                                                         -----------     ----------
    Develops, manufactures, and markets
      computer pointing devices

  Hemco Corporation                          -        12% Debt security, due November 20, 1996        12,429         12,429
    Holland, Michigan                                                                            -----------     ----------
    Manufacturer of precision metal gauges
</TABLE>




                                      25
<PAGE>   27
                                                              Schedule 1. Cont'd

                  MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES

                Consolidated Schedule of Investments, Continued

                               September 30, 1996
<TABLE>
<CAPTION>
                Company                       Equity                 Security                            Value             Cost
                -------                       ------                 --------                        ------------      ------------
<S>                                           <C>        <C>                                         <C>               <C>
Manufacturing, continued:
  Houghton Acquisition Corporation                       *Warrants to purchase 897.7014
    Alton, Illinois                                        common shares at $1.00                    $    594,173                26
    Manufacturer of rotors for use in                    4,000 Shares Class A Pfd.                        400,000           400,000
      subfractional horsepower motors                                                                ------------      ------------
                                              10.32%                                                      994,173           400,026
                                                                                                     ------------      ------------

  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
                                                                                                     ------------      ------------
                                              4.90%                                                        64,300            64,740
                                                                                                     ------------      ------------

  KW Products, Inc.                                      Variable rate debt security, due
    Cedar Rapids, Iowa                                     January 1, 2001                                358,307           358,307
    Manufacturer of automobile after-market              *29,340 Common shares at $.01                        293               293
      engine and brake repair machinery                  Variable rate debt security, due
                                                           January 1, 2001                                224,517           224,517
                                                                                                     ------------      ------------
                                              28.50%                                                      583,117           583,117
                                                                                                     ------------      ------------
</TABLE>



                                      26
<PAGE>   28
                                                              Schedule 1. Cont'd

                  MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES

                Consolidated Schedule of Investments, Continued

                               September 30, 1996
<TABLE>
<CAPTION>
                Company                       Equity                 Security                            Value             Cost
                -------                       ------                 --------                        ------------      ------------
<S>                                           <C>        <C>                                         <C>               <C>
Manufacturing, continued:
  Linton Truss Corp.                                     14% Debt security, due March 1, 2001        $    418,710           418,710
    Delray Beach, Florida                                *Warrant to purchase 14.68% of
    Markets and manufactures residential                   common shares, expires February 24, 2005            15                15
      roof and floor truss systems                       *542.8 Common shares at $73.69                    40,000            40,000
                                                         *400 Shares Series 1 Pfd.                        --                --
                                                                                                     ------------      ------------
                                              18.50%                                                      458,725           458,725
                                                                                                     ------------      ------------

  Monitronics                                  1.29%     *73,214 Common Shares                             54,910            54,703
    Dallas, Texas                                                                                    ------------      ------------
    Manufacturer and installer of home
      security systems and monitoring services

  Portrait Display Labs, Inc.                            *535,715 Shares Series B Pfd.                    550,001           750,001
    Freemont, California                                 *Warrants to purchase 16,071 common
    Designs and markets portrait monitors                  shares at $.14, expire August 23, 1998         --                --     
      for personal computers                             *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            --                --
                                                                                                     ------------      ------------
                                               6.10%                                                      650,002           850,002
                                                                                                     ------------      ------------
</TABLE>




                                      27
<PAGE>   29
                                                          Schedule 1, Cont'd

                  MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES

                Consolidated Schedule of Investments, Continued

                               September 30, 1996


<TABLE>
<CAPTION>
                                                                                               Percent of
        Company                              Equity            Security                        net assets      Value        Cost
        -------                              ------            --------                        ----------      -----        ----
<S>                                          <C>      <C>                                      <C>          <C>          <C>
Manufacturing continued:
 Taylor Holdings, Inc.                                8% Debt security, due May 31, 2003                    $ 574,163      574,163
   Kansas City, Missouri                             *48,038 Common shares at $1.00                            48,038       48,038
   Manufacturer of industrial                        *292,800 Shares Pfd. at $1.04                            304,512      304,512
     bagging equipment                               *Warrant to purchase 56,529 common shares
                                                        at $1.00, expires May 31, 2002                            565          565
                                                                                                           ----------   ----------
                                            16.80%                                                            927,278      927,278
                                                                                                           ----------   ----------
     Total manufacturing                                                                         33.58%     5,734,837    5,340,923
                                                                                                 ------    ----------   ----------
Chemicals:
 Environmental Solvents Corporation                  *5% Debt security, due October 30, 1998                      -         31,109
   Jacksonville, Florida                             *7% Debt security, due June 30, 1999                         -         17,207
   Developer and manufacturer of nontoxic,           *416,667 Shares of Series A-1 Conv. Pfd.
     environmentally safe solvents for                  and 276,143 Shares of Series B-1 Pfd.                     -        177,320
     industrial cleaning applications                *16,667 Common shares at $.30                                  1        2,000
                                                     *8% Debt security, due November 1, 1998                      -         26,977
                                                     *8% Debt security, due November 1, 1998                      -         10,554
                                                     *8% Debt security, due December 31, 1996                     -         15,550
                                                                                                           ----------   ----------
                                            12.20%                                                                  1      280,717
                                                                                                           ----------    ----------
</TABLE>





                                      28
<PAGE>   30
                                                             Schedule 1, Cont'd


                  MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES

                Consolidated Schedule of Investments, Continued

<TABLE>
<CAPTION>
                                                                                Percent of
    Company                    Equity           Security                        net assets       Value           Cost
    -------                    ------           --------                        ----------       -----           ----
<S>                            <C>              <C>                             <C>              <C>            <C>
Chemicals, continued:
  Pharmco Products, Inc.                12% Debt security, due April 1, 2000                    $333,250        333,250
    Brookfield, Connecticut             16,675 Shares Class A Res. Pfd.                          166,750        166,750
    Distributor and
       processor of ethyl               *25 Common shares
       alcohol products
                                                                                                --------        -------
                                8.75%                                                            500,000        500,000
                                                                                                --------        -------
        Total Chemicals                                                           2.93%          500,001        780,717
                                                                                  ----          --------        -------
Service/Merchandising:
  Apertus Technologies, Inc.  Less than
    Eden Prairie, Minnesota     1.00%   *28,922 common shares at $8.66                            81,945        250,536
    Acquires, develops,                                                                         --------        -------
    markets, and licenses
    IBM  and IBM compatible
    mainframe software

  Organized Living, Inc.                400,000 Shares Series A Pfd.
                                           convertible at $1.00                                  400,000        400,000
    Lenexa, Kansas                      100,000 Shares Series B Pfd.
                                           convertible at $1.15                                  150,000        400,000
                                                                                                --------        -------
    Retail specialty store
      for storage and
      organizational products   6.00%                                                            550,000        550,000
                                                                                                --------        -------
Physician Sales and Services, Inc.
  Beaumont, Texas
  Distributor of medical
    supplies to physician     Less than
    and alternate care markets  1.00%   *1,008 Common shares                                    --------        -------
</TABLE>





                                      29

<PAGE>   31
                                                              Schedule I, Cont'd

                 MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES

               Consolidated Schedule of Investments, Continued

                              September 30, 1996

<TABLE>
<CAPTION>
                Company                 Equity                  Security                                      Value          Cost  
                -------                 ------                  --------                                      -----          ----  
<S>                                     <C>     <C>                                                         <C>           <C>      
Service/Merchandising, continued:                                                                                                  
  Potpourri Collection, Inc.                                                                                                       
    Medfield, Massachusetts                     Variable debt security, due May 31, 2001                    $  400,000      400,000
    Gift and stitchery mail order               *Warrants to purchase 40 common                                                    
      catalog retailer                            shares at $.01, expire December 23, 2001                        --           --  
                                                                                                            ----------    ---------
                                         3.46%                                                                 400,000      400,000
                                                                                                            ----------    ---------
  Progressive Solutions, Inc.                   12% Debt security, due December 31, 1999                       150,000      150,000
    Salt Lake City, Utah                        12% Debt security, due March 31, 2000                          350,000      350,000
    Develops court automated software and       *Warrant to purchase 33,852 common shares                                          
      public records management software          at $0.0066, expires January 25, 2000                             100          100
                                                *Warrant to purchase 14,505 common shares                                          
                                                  at $0.0069, expires December 13, 2004                            100          100
                                                12% Debt security, due December 31, 1999                       125,000      125,000
                                                *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                                 --           --  
                                                                                                            ----------    ---------
                                        28.80%                                                                 625,200      625,200
                                                                                                            ----------    ---------
  Sight & Sound Distributors, Inc.              12.5% Debt security, due April 22, 2001                      1,333,333    1,333,333
    St. Louis, Missouri                         *Warrant to purchase 53,911 common shares                                          
    National video products distributor           at $.01, expires April 22, 2007                                 --           --  
                                                                                                            ----------    ---------
                                         5.67%                                                               1,333,333    1,333,333
                                                                                                            ----------    ---------
</TABLE>




                                      30

<PAGE>   32
                                                              Schedule I, Cont'd

                 MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES

               Consolidated Schedule of Investments, Continued

                              September 30, 1996

<TABLE>
<CAPTION>
                                                                                              Percent of
                Company                 Equity                  Security                      net assets      Value          Cost  
                -------                 ------                  --------                      ----------      -----          ----  
<S>                                     <C>     <C>                                           <C>           <C>           <C>      
Service/Merchandising, continued:                                                                                                  
  Tuttle Design Building, Inc.                  12% Debt security, due April 1, 2000                        $  675,000      675,000
    Lakeworth, Florida                          *18 Common shares at $200.00                                     3,600        3,600
    Distributor of ornamental and bedding       *3,964 Shares Series 1 Pfd.                                    396,400      396,400
      plants to retailers and provider of       *Warrant to purchase a variable number of common
      irrigation and landscaping services         shares at variable prices, expires March 28, 2005                 14           14
                                                                                                            ----------    ---------
                                        10.50%                                                               1,075,014    1,075,014
                                                                                                            ----------    ---------
      Total service/merchandising                                                               23.81%       4,065,492    4,234,083
                                                                                               ------       ----------    ---------

Other:
  Miles Media Group, Inc.                       *Warrants to purchase 570 common
    Sarasota, Florida                             shares at $52.64, expire Februry 2, 2001                          
    Tourist magazine publisher                  *Warrant to purchase 1,799 common                                 --           --
                                                  shares at $52.64, expire June 1, 2002
                                                12% Loan, due June 1, 1997                                        --           --
                                                *4,500 Shares Red. Pfd. at $100.00                             200,000      200,000
                                                *1,550 Shares Class A Conv. Pfd. at $32.26                     450,000      450,000
                                                *5,000 Shares Class C Conv. Pfd. at $10.00                      50,003       50,003
                                                *1,000 Shares Red. Pfd. at $100.00                              50,000       50,000
                                                *Warrants to purchase 1,100 common shares                      100,000      100,000
                                                  shares at $186, expire December 1, 2001                         --           --
                                                                                                            ----------    ---------
                                        26.70%                                                                 850,003      850,003
                                                                                                            ----------    ---------
</TABLE>




                                      31
<PAGE>   33

                                                             SCHEDULE 1, Cont'd


                  MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES

                Consolidated Schedule of Investments, Continued

                               September 30, 1996

<TABLE>
<CAPTION>
                                                                                           Percent of
    Company                                Equity                Security                   net assets      Value          Cost
    -------                                ------                --------                   ----------      -----          ----
<S>                                        <C>      <C>                                     <C>           <C>            <C>        
Other, continued:
 Northword Holding Corp.                            *325.8 Shares Red. Pfd. at $1,000.00                                          
  Minocqua, Wisconsin                               *235 Common shares at $615.38                         $   325,800      325,800 
  Publisher of nature-related books,                *Earnout warrant                                          144,615      144,615
   calendars, posters, and audio products           *Earnout warrant                                             -            -
                                                                                                                 -            -
                                                                                                          -----------    ----------
                                           2.57%                                                              470,415       470,415
                                                                                                          -----------    ----------
    Total others                                                                                7.73%       1,320,418     1,320,418
                                                                                              -------     -----------    ---------- 
                                                                                                          $11,620,748    11,676,141
                                                                                                          ===========    ==========
</TABLE>
 
*Presently nonincome producing


                                      32
<PAGE>   34
                                                        Schedule 1. Cont'd


                  MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES

                Consolidated Schedule of Investments, Continued

                               September 30, 1996


Notes to the Consolidated Schedule of Investments

        (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, 1996, 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
             subsidiaries (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, 1996, the cost of securities for federal income
             tax purposes was $14,772,588, and the aggregate unrealized
             appreciation and depreciation based on that cost was:

                        Unrealized appreciation                 $    594,148
                        Unrealized depreciation                   (3,695,987)
                                                                ------------
                                Net unrealized depreciation     $ (3,101,839)
                                                                ============





                                      33
<PAGE>   35
                                                        Schedule 1. Cont'd


                  MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES

                Consolidated Schedule of Investments, Continued

                               September 30, 1996


Notes to the Consolidated Schedule of Investments, Continued

        (e)  The Company owns a portfolio which includes investments in
             restricted securities of small businesses.  Within this portfolio,
             16 of these restricted securities include registration rights, and
             6 of these restricted securities do not include registration
             rights.

             Within the 16 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 3,541 record holders of its common
stock at November 29, 1996.

ANNUAL MEETING

          The Annual Meeting of Shareholders of the Corporation will be held on
Tuesday, February 25, 1997, 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 dividends and does not
anticipate declaring any dividends in the foreseeable future, but instead
intends to retain all earnings, if any, for use in the Corporation's business.
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 had been traded in the
over-the-counter market through the National Association of Securities Dealers
Automated Quotation ("Nasdaq") SmallCap Market since March 2, 1995, under the
symbol "MACC." On February 13, 1996, the primary trading market for shares of
the Corporation's common stock advanced to the Nasdaq National Market. At the
close of business on November 29, 1996, the bid price for shares of the
Corporation's common stock was $10 1/4. 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 1996 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, 1995                $ 7 1/2               6 1/2
   March 31, 1996                     9                   6 7/8
   June 30, 1996                      11 1/8              8 3/4
   September 30, 1996                 11 1/8              9 1/4
</TABLE>

     Such over-the-counter market quotations reflect inter-dealer prices,
without retail mark-up, markdown 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




                                      36