<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant _X_
Filed by a Party other than the Registrant
Check the appropriate box:
___ Preliminary Proxy Statement
___ Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2)
_X_ Definitive Proxy Statement
___ Definitive Additional Materials
___ Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
MACC PRIVATE EQUITIES INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than
the Registrant
Payment of Filing Fee (Check the appropriate box)
___ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A
___ $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3)
___ Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11
1) Title of each class of securities to which transaction applies:
______________________________________________________________________
2) Aggregate number of securities to which transaction applies:
______________________________________________________________________
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
______________________________________________________________________
4) Proposed maximum aggregate value of transaction:
______________________________________________________________________
5) Total fee paid:
______________________________________________________________________
_X_ Fee paid previously with preliminary materials
___ Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid: $125
-----------------------------------------------
2) Form, Schedule or Registration Statement No.: Schedule 14A
-------------------------
3) Filing Party: MACC Private Equities Inc.
---------------------------------------------------------
4) Date Filed: December 14, 1995
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<PAGE> 2
[MACC LOGO]
PRIVATE EQUITIES INC.
101 Second Street, S.E., Suite 800
Cedar Rapids, Iowa 52401
January 12, 1996
To the Shareholders of MACC Private Equities Inc:
The Annual Meeting of Shareholders of our Corporation will
be held on Tuesday, February 27, 1996, at 10:00 a.m. at the
Second Floor Ballroom of the Five Seasons Hotel, 350 First
Avenue N.E., in Cedar Rapids, Iowa.
A Notice of the meeting, a Proxy and Proxy Statement
containing information about matters to be acted upon are
enclosed. In addition, the MACC Private Equities Inc. Annual
Report for the fiscal year ended September 30, 1995, is
enclosed and provides information regarding the financial
results of the Corporation for the year. Holders of Common
Stock are entitled to vote at the Annual Meeting on the basis
of one vote for each share held. If you attend the Annual
Meeting in February, you retain the right to vote in person
even though you previously mailed the enclosed Proxy.
It is important that your shares be represented at the
meeting whether or not you are personally in attendance, and I
urge you to review carefully the Proxy Statement and sign, date
and return the enclosed Proxy at your earliest convenience. I
look forward to meeting you and, together with our Directors
and Officers, reporting our activities and discussing the
Corporation's business and its prospects. I hope you will be
present.
Very truly yours,
Paul M. Bass, Jr.
Paul M. Bass, Jr.
Chairman of the Board
<PAGE> 3
[MACC LOGO]
PRIVATE EQUITIES INC.
101 Second Street, S.E., Suite 800
Cedar Rapids, Iowa 52401
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD FEBRUARY 27, 1996
To the Shareholders of MACC Private Equities Inc:
NOTICE IS HEREBY GIVEN that the Annual Meeting of the
Shareholders of MACC Private Equities Inc., a Delaware
corporation (the "Corporation"), will be held on Tuesday,
February 27, 1996, at 10:00 a.m., central time, at the Second
Floor Ballroom of the Five Seasons Hotel, 250 First Avenue
N.E., in Cedar Rapids, Iowa, for the following purposes:
1. To elect three directors to serve until the 1999
Annual Meeting of Shareholders or until their respective
successors shall be elected and qualified;
2. To ratify the appointment of KPMG Peat Marwick LLP as
independent auditors;
3. To approve for a one-year period the policy and
practice of the Corporation of issuing shares of Common Stock
of the Corporation at less than net asset value per share; and
4. To transact such other business as may properly come
before the meeting and any adjournment thereof.
Only holders of Common Stock of the Corporation of record
at the close of business on December 29, 1995, will be entitled
to notice of, and to vote at, the meeting and any adjournment
thereof.
By Order of the Board of Directors
DAVID R. SCHRODER
Secretary
Cedar Rapids, Iowa
January 12, 1996
Your officers and directors desire that all shareholders be
present or represented at the Annual Meeting. Even if you plan
to attend in person, please date, sign and return the enclosed
proxy in the enclosed postage-prepaid envelope at your earliest
convenience so that your shares may be voted. If you do attend
the meeting in February, you retain the right to vote even
though you mailed the enclosed proxy. The proxy must be signed
by each registered holder exactly as the stock is registered.
<PAGE> 4
[MACC LOGO]
PRIVATE EQUITIES INC.
101 Second Street, S.E., Suite 800
Cedar Rapids, Iowa 52401
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD FEBRUARY 27, 1996
This Proxy Statement is furnished in connection with the
solicitation by the Board of Directors of MACC Private Equities
Inc., a Delaware corporation (the "Corporation"), of proxies to
be voted at the Annual Meeting of Shareholders to be held on
Tuesday, February 27, 1996, or any adjournment thereof. The
date on which this Proxy Statement and the enclosed form of
proxy are first being sent or given to shareholders of the
Corporation is on or about January 12, 1996.
PURPOSES OF THE MEETING
The Annual Meeting of the Shareholders is to be held for
the purposes of (1) electing three persons to serve as
directors of the Corporation until the 1999 Annual Meeting of
Shareholders, or until their respective successors shall be
elected and qualified (see ELECTION OF DIRECTORS); (2)
ratifying the appointment by the Board of Directors of KPMG
Peat Marwick LLP as independent auditors (see RATIFICATION OF
APPOINTMENT OF INDEPENDENT AUDITORS); (3) approving for a
one-year period the policy and practice of the Corporation of
issuing shares of Common Stock of the Corporation at less than
net asset value per share (see ISSUANCE OF COMMON STOCK); and
(4) transacting such other business as may properly come before
the meeting or any adjournment thereof.
To be elected a director, each nominee must receive the
favorable vote of the holders of a majority of the shares of
Common Stock entitled to vote and represented at the Annual
Meeting. In order to ratify the appointment of KPMG Peat
Marwick as independent auditors for the Corporation for the
year ending September 30, 1996, the ratification proposal must
receive the favorable vote of a majority of the shares of
Common Stock entitled to vote and represented at the Annual
Meeting. In order to approve for a one-year period the policy
and practice of the Corporation of issuing shares of Common
Stock at less than net asset value per share, the proposal must
receive the favorable vote of: (1) a majority of the
outstanding shares of Common Stock entitled to vote at the
meeting; and (2) a majority of the outstanding shares of Common
Stock entitled to vote at the meeting which are not held by
affiliated persons of the Corporation.
<PAGE> 5
The Board of Directors unanimously recommends that the
shareholders vote FOR the election as directors of the persons
named under ELECTION OF DIRECTORS, FOR the ratification of the
appointment of KPMG Peat Marwick LLP as independent auditors,
and FOR the approval for a one-year period of the policy and
practice of the Corporation of issuing shares of Common Stock
of the Corporation at less than net asset value per share.
VOTING AT THE MEETING
The record date for holders of Common Stock entitled to
notice of, and to vote at, the Annual Meeting of Shareholders
is the close of business on December 29, 1995, at which time
the Corporation had outstanding and entitled to vote at the
meeting 996,539 shares of Common Stock.
The presence, in person or by proxy, of the holders of a
majority of the shares of Common Stock outstanding and entitled
to vote at the Annual Meeting is necessary to constitute a
quorum. Abstentions and shares held by brokers, banks, other
institutions and nominess that are voted on any matter at the
Annual Meeting are included in determining the presence of a
quorum for the transaction of business at the commencement of
the Annual Meeting and on those matters for which the broker,
nominee or fiduciary has authority to vote. In deciding all
questions, a shareholder shall be entitled to one vote, in
person or by proxy, for each share of Common Stock held in his
name at the close of business on the record date.
Each proxy delivered to the Corporation, unless the
shareholder otherwise specifies therein, will be voted FOR the
election as directors of the persons named under ELECTION OF
DIRECTORS, FOR the ratification of the appointment by the Board
of Directors of KPMG Peat Marwick LLP as independent auditors
and FOR the approval for a one-year period of the policy and
practice of the Corporation of issuing shares of Common Stock
of the Corporation at less than net asset value per share. In
each case where the shareholder has appropriately specified how
the proxy is to be voted, it will be voted in accordance with
his specification. As to any other matter or business which
may be brought before the meeting, a vote may be cast pursuant
to the accompanying proxy in accordance with the judgment of
the person or persons voting the same, but neither management
nor the Board of Directors of the Corporation knows of any such
other matter or business. Any shareholder has the power to
revoke his proxy at any time insofar as it is then not
exercised by giving notice of such revocation, either
personally or in writing, to the Secretary of the Corporation
or by the execution and delivery to the Corporation of a new
proxy dated subsequent to the original proxy.
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<PAGE> 6
Stock Ownership of Certain Beneficial Owners
As of November 30, 1995, there were 996,539 shares
outstanding. No person is known by the Corporation to own
beneficially more than 5% of its shares. As of that date, the
Corporation's Officers and Directors as a group, seven in
number, beneficially owned 52,837 shares of the Corporation's
stock, representing approximately 5.3% of outstanding shares.
ELECTION OF DIRECTORS
The Corporation's Bylaws provide for a Board of Directors
composed of seven Directors, divided into three classes.
Directors are elected to serve three-year terms. Three
directors are proposed to be elected at the meeting to serve
until the 1999 Annual Meeting of Shareholders or until their
respective successors shall be elected and qualified. The
persons named in the accompanying form of proxy intend to vote
such proxy for the election of the nominees named below as
directors of the Corporation to serve until the 1999 Annual
Meeting of Shareholders or until their respective successors
shall be elected and qualified, unless otherwise properly
indicated on such proxy. If any nominee shall become
unavailable for any reason, the persons named in the
accompanying form of proxy are expected to consult with the
Board of Directors of the Corporation in voting the shares
represented by them at the Annual Meeting. The Board of
Directors has no reason to doubt the availability of any of the
nominees and no reason to believe that any of the nominees will
be unable or unwilling to serve the entire term for which
election is sought.
Nominees for Director
The names of the nominees, along with certain information
concerning them, are set forth below.
PAUL M. BASS, JR.
Mr. Bass, age 60, has been a director of the Corporation
and of the Corporation's wholly-owned subsidiary, MorAmerica
Capital Corporation ("MorAmerica Capital"), since 1994. From
1988 to present, Mr. Bass has also served as Vice Chairman of
First Southwest Company, a regional investment banking firm.
Mr. Bass specializes in corporate finance, investment
management and public finance. Mr. Bass is also presently a
Director and Chairman of the Audit Committee of First
Nationwide Bank F.S.B., Keystone Consolidated Industries (also
Chairman of the Audit Committee), Source Services, Inc., and
Chairman of the Board of Richman Gordman 1/2 Price Stores,
Inc. Mr. Bass holds a B.B.A. in finance from Southern
Methodist University.
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<PAGE> 7
DAVID R. SCHRODER
Mr. Schroder, age 52, has been President, Secretary and a
Director of the Corporation since 1994. Since 1985, Mr.
Schroder has been a principal of InvestAmerica Venture Group,
Inc. ("Venture Group") and is presently President and a
Director. From 1985 to 1994, Venture Group provided management
and investment services to MorAmerica Capital. Venture Group
presently provides management and investment services to a
private investment partnership, the Iowa Venture Capital Fund,
L.P. Mr. Schroder is also President, Secretary and a Director
of InvestAmerica N.D. Management, Inc., which provides
management and investment services to North Dakota Small
Business Investment Company ("NDSBIC"), A North Dakota Limited
Partnership. Mr. Schroder is also President, Secretary and a
Director of InvestAmerica N.D., L.L.C., the general partner of
NDSBIC. Mr. Schroder is President and a Director of the
investment advisor to the Corporation and to MorAmerica
Capital, InvestAmerica Investment Advisors, Inc. (the
"Investment Advisor"). As a representative of the Investment
Advisor and Venture Group, Mr. Schroder also serves on the
boards of directors of several of the Corporation's portfolio
companies.
ROBERT A. COMEY
Mr. Comey, age 49, has served as Vice President, Treasurer
and a Director of the Corporation since 1994. Mr. Comey was
named Executive Vice President of the Company in 1995. Since
1986, Mr. Comey has been a principal of Venture Group and is
presently Executive Vice President, Treasurer and a Director.
From 1985 to 1994, Venture Group provided management and
investment services to MorAmerica Capital. Venture Group
presently provides management and investment services to a
private investment partnership, the Iowa Venture Capital Fund,
L.P. Mr. Comey is also Executive Vice President, Treasurer and
a Director of InvestAmerica N.D. Management, Inc., which
provides management and investment services to NDSBIC. Mr.
Comey is also Executive Vice President, Treasurer, and a
Director of InvestAmerica N.D., L.L.C., the general partner of
NDSBIC. Mr. Comey is a Director, Executive Vice President,
Treasurer, and Assistant Secretary of the Investment Advisor.
As a representative of the Investment Advisor and Venture
Group, Mr. Comey also serves on the boards of directors of
several of the Corporation's portfolio companies.
The following table sets forth the name of each nominee for
election to the Board of Directors of the Corporation and the
amount and percentage of Common Stock of the Corporation
beneficially owned (as that term is defined in the rules and
regulations of the Securities and Exchange Commission) by each
nominee as of November 30, 1995.
-4-
<PAGE> 8
<TABLE>
<CAPTION>
Shares Owned Percent
Name of Nominee Beneficially* of Class
--------------- ------------- --------
<S> <C> <C>
Paul M. Bass, Jr. 10,980 1.1%
David R. Schroder (1) 15,623 1.6%
Robert A. Comey (1) 14,954 1.5%
</TABLE>
* Each of the persons named in the above table has sole
voting and investment power with respect to the shares
indicated to be beneficially owned.
(1) As principals, officers and directors of the
Investment Advisor, Messrs. Schroder and Comey are "interested
persons" of the Corporation, as that term is defined in Section
2(a)(19) of the Investment Company Act of 1940.
Other Directors
The names of the other Directors of the Corporation, whose
terms of office extend beyond the 1996 Shareholders Meeting,
along with certain information concerning them, are set forth
below.
HENRY T. MADDEN
Mr. Madden, age 66, has been a consultant to development
stage companies. Since 1995, Mr. Madden has been an
independent trustee of Berthel Growth and Income Trust I. In
1986, Mr. Madden organized the Institute for Entrepreneurial
Management in the University of Iowa College of Business
Administration. As Director of the Institute, Mr. Madden
advises potential and new entrepreneurs and teaches courses on
entrepreneurship in the M.B.A. program.
JOHN D. WOLFE
Mr. Wolfe, age 69, had been employed for many years by the
Morris Plan companies prior to the 1985 bankruptcy of
MorAmerica Financial Corporation and Morris Plan Liquidation
Company (the "Debtors"), and was President of the Morris Plan
Company of Iowa. Following the 1988 reorganization of the
Debtors, Mr. Wolfe served as voting trustee for the MorAmerica
Financial Corporation stock and President of both Debtors. Mr.
Wolfe retired from most positions several years ago, but
remains a director of MorAmerica Capital. Mr. Wolfe returned
from retirement to serve as voting trustee and President and
Director of the Debtors during the Debtors' 1993 bankruptcy
case.
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<PAGE> 9
MICHAEL W. DUNN
Mr. Dunn, age 46, has been C.E.O. since 1980 and President
since 1983 of Farmers & Merchants Savings Bank of Manchester,
Iowa. Mr. Dunn is also presently a member of the boards of
Security Savings Bank of Eagle Grove, Iowa, and F&M Shares
Corp. and Dunn Shares, Inc., both bank holding companies.
JAMES L. MILLER
Mr. Miller, age 54, was employed by Armstrong's, Inc.
department stores from 1967 until 1992. His capacities
included serving as a member of the Board of Directors and
Executive Committee and as Vice President and C.F.O., Treasurer
and Controller. Armstrong's, founded in 1890, operated two
retail department stores and filed for protection under Chapter
11 of the Bankruptcy Code in November, 1990. A liquidating
plan of reorganization was confirmed in March, 1991, and its
stores were closed and assets liquidated. In 1992 and 1993,
Mr. Miller was custom sales manager for Custom Audio/Video,
Hiawatha, Iowa. Mr. Miller is currently developing a new
business for Communications Plus, as associate dealer for AT&T
products and services, and developing business for Excel
Mortgage, Inc., a mortgage broker located in Iowa City, Iowa.
Meetings and Committees of the Board of Directors
The Board of Directors of the Corporation has established
an Audit Committee, a Nominating Committee and an Investment
Committee to assist the Board in carrying out its duties. The
Audit Committee makes recommendations to the Board of Directors
regarding the engagement of the independent auditors for audit
and non-audit services; evaluates the independence of the
auditors; and reviews with the independent auditors the fee,
scope and timing of audit and non-audit services. The Audit
Committee also is charged with monitoring the Corporation's
Policy Against Insider Trading and Prohibited Transactions and
its Code of Conduct.
The Nominating Committee recommends to the Board of
Directors nominations for Director of the Corporation. The
Nominating Committee presently has no established procedures
for considering shareholders' recommendations for Director
nominees, but shareholders may propose nominees for Director by
following the procedures set forth in the section of this Proxy
Statement entitled "SHAREHOLDER PROPOSALS FOR 1997 ANNUAL
MEETING."
The Investment Committee assists the full Board of
Directors with oversight of the Corporation's investment
portfolio and evaluates any proposed revisions to the
Corporation's investment policy. The Investment Committee also
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<PAGE> 10
assures compliance with the Corporation's policy regarding
investments made in participation with other funds managed by
the Investment Advisor.
The present members of the Corporation's Audit Committee
include Michael W. Dunn, James L. Miller and John D. Wolfe.
Henry T. Madden, James L. Miller, and David R. Schroder and
Robert A. Comey (as alternate members with a single vote on any
issue) are presently members of the Investment Committee. The
Nominating Committee presently consists of Henry T. Madden,
John D. Wolfe and James L. Miller. During the fiscal year of
the Corporation ended September 30, 1995, six meetings of the
Board of Directors were held. In addition, four meetings of
the Audit Committee, one meeting of the Nominating Committee
and no meetings of the Investment Committee were held. Each of
the directors attended all of the meetings of the Board of
Directors and all of the meetings held by the committees of the
Board on which that director served.
Performance Graph
Set forth below is a line graph comparing the value of $100
invested on March 2, 1995 (the day on which the Common Stock
began trading on the NASDAQ SmallCap Market) in shares of the
Common Stock (based on the closing market bid price of the
Common Stock) with the cumulative total return of $100 invested
on the same date in the NASDAQ Stock Market Index (U.S.
companies) and the NASDAQ Financial Stocks Total Return Index.
[PERFORMANCE CHART]
<TABLE>
<CAPTION>
3/2/95 3/31/95 4/28/95 5/31/95 6/30/95 7/31/95 8/31/95 9/29/95
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NASDAQ 100.00 102.94 106.24 109.02 117.68 126.17 128.76 131.60
Financial 100.00 101.15 102.93 106.21 109.53 114.81 120.70 124.79
MACC 100.00 153.85 161.54 169.23 200.00 203.85 207.69 226.92
</TABLE>
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<PAGE> 11
Compensation of Directors and Executive Officers
Compensation of Directors
Pursuant to the investment advisory agreements of the
Corporation and MorAmerica Capital with the Investment Advisor,
Directors of the Corporation and of MorAmerica Capital who are
also officers or directors of the Investment Advisor receive no
compensation for serving on the Boards of Directors of the
Corporation and of MorAmerica Capital. All other Directors of
the Corporation, other than the Chairman of the Board, receive
$8,000 per year plus $400 per Board of Directors meeting
attended and $250 per committee meeting attended, all as total
compensation for serving on the Boards of Directors of both the
Corporation and MorAmerica Capital. The Corporation's Chairman
of the Board receives $2,000 per month plus $400 per Board of
Directors meeting attended and $250 per committee meeting
attended, all as total compensation for serving as the Chairman
of the Board of Directors of the Corporation and MorAmerica
Capital. In addition, the Corporation reimburses all
reasonable expenses of the Directors and the Chairman of the
Board in attending Board of Directors and committee meetings.
Directors' meetings are normally held on a quarterly basis.
Summary Compensation Table
The following table sets forth certain details of
compensation paid to Directors during fiscal year 1995, which
includes compensation for serving on the Boards of Directors of
the Corporation, MorAmerica Capital and other wholly owned
subsidiaries of the Corporation. The Corporation presently
maintains no pension or retirement plans for its Directors.
<TABLE>
<CAPTION>
Name and Aggregate Compensation
Position From Corporation(1)
-------- -----------------
<S> <C>
Paul M. Bass, Jr., $ 21,600
Chairman of the Board
David R. Schroder, -0-
Director, President and
Secretary
Robert A. Comey, -0-
Director, Executive
Vice President and
Treasurer
Henry T. Madden, 6,400
Director
John D. Wolfe, 7,650(2)
Director
</TABLE>
-8-
<PAGE> 12
<TABLE>
<S> <C>
Michael W. Dunn, 7,650
Director
James L. Miller, 7,650
Director
</TABLE>
(1) Consists only of directors' fees and does not include
reimbursed expenses. The Corporation presently maintains no
pension or retirement plans for its Directors.
(2) Of the $7,650 earned by Mr. Wolfe in fiscal year 1995,
$7,400 was paid by the Corporation during fiscal year 1995.
The remaining $250 was deferred at the election of Mr. Wolfe
and will be paid without interest during fiscal year 1996.
Compensation of Executive Officers
The Corporation has no employees and does not pay any
compensation to any of its officers. All of the Corporation's
officers and staff are employed by the Investment Advisor,
which pays all of their cash compensation.
Section 16(a) Reporting Compliance
Pursuant to Section 16(a) of the Securities Exchange Act of
1934, as amended, officers and directors of the Corporation and
persons beneficially owning 10% or more of the Corporation's
Common Stock must file reports on Forms 3, 4 and 5 regarding
changes in their holdings of the Corporation's securities with
the Securities and Exchange Commission. Based solely upon a
review of copies of these reports sent to the Secretary of the
Corporation, the Corporation believes that all Forms 3, 4, and
5 required to be filed by all such persons have been properly
filed with the Securities and Exchange Commission.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS VOTE FOR THE ELECTION AS DIRECTORS OF THE PERSONS
NAMED UNDER "ELECTION OF DIRECTORS."
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
A majority of those members of the Board of Directors of
the Corporation who are not "interested persons" of the
Corporation (as defined in Section 2(a)(19) of the Investment
Company Act of 1940) voted in favor of the appointment of KPMG
Peat Marwick LLP to serve as the Corporation's independent
auditors for the fiscal year ended September 30, 1995.
As recommended by the Audit Committee of the Corporation's
Board of Directors, the Board of Directors also appointed the
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<PAGE> 13
firm of KPMG Peat Marwick LLP as independent auditors for the
fiscal year ending Septembe 30, 1996, subject to approval by
the shareholders. If the Stockholders ratify the selection of
KPMG Peat Marwick LLP as the Corporation's auditors, they will
also serve as independent auditors for all subsidiaries of the
Corporation. A representative of KPMG Peat Marwick LLP is
expected to be present at the Annual Meeting with an
opportunity to make a statement, and will be available to
respond to appropriate questions.
In order to ratify the appointment of KPMG Peat Marwick LLP
as independent auditors for the Corporation for the year ending
September 30, 1996, the proposal must receive the favorable
vote of a majority of the shares entitled to vote and
represented at the Annual Meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS VOTE FOR THE RATIFICATION OF KPMG PEAT MARWICK LLP
AS THE INDEPENDENT AUDITORS FOR THE CORPORATION FOR THE YEAR
ENDING SEPTEMBER 30, 1996.
ISSUANCE OF COMMON STOCK
To date, the Corporation has relied upon several sources to
fund its investment activities, including the Corporation's
U.S. treasury bills, cash and cash equivalents, and the Small
Business Investment Company ("SBIC") capital program operated
by the Small Business Administration (the "SBA"). In response
to recent federal budget reduction proposals, the availability
of capital through the SBIC capital program is being debated.
Both the SBA and the SBIC trade association have put forth
plans to support continued SBIC capital availability. Although
the Corporation does not presently need additional capital to
fund its current investment activities, any possible future
SBIC industry capital shortfalls would have to be sought from
private or public funding sources.
One such funding source would be the issuance of some or
all of the 1,003,461 shares of authorized but unissued Common
Stock of the Corporation. The Corporation presently has
996,539 shares issued and outstanding. Accordingly, if the
Corporation were to issue all of the remaining authorized but
unissued shares of Common Stock, the number of shares issued
and outstanding would increase by approximately 101%.
If the Corporation were to issue any of all of such shares,
the shares would be offered at a price approximately equal to
the then-prevailing market price for the Corporation's Common
Stock. Since the Corporation's Common Stock began trading on
The NASDAQ SmallCap Market in March, 1995, it has consistently
traded at a discount from net asset value per
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<PAGE> 14
share. Accordingly, if the Corporation were to issue
additional shares of Common Stock to fund investment activities
at any time during the next year, such shares would be sold at
a price less than net asset value per share if the prevailing
market price for the Common Stock were less than net asset
value per share.
The Corporation has elected treatment as a business
development company ("BDC") under the Investment Company Act of
1940, as amended (the "Act"). Pursuant to Section 63 of the
Act, a BDC may not issue shares of common stock at less than
net asset value per share unless such issuance has been
approved by the holders of a majority of the BDC's outstanding
voting securities and by a majority of such holders who are not
affiliated persons of the BDC. In addition, a majority of the
directors of the BDC who are not interested persons of the BDC
must first determine that any such issuance would be in the
best interests of the Corporation and its shareholders, and in
consultation with the underwriter, that the offering price
would be not less than a price which closely approximates
market price.
Such shares may be issued pursuant to a secondary public
offering by the Corporation, which may involve significant
delay and expense. Alternatively, the shares may be privately
placed with one or more accredited investors, as that term is
defined under federal securities laws, or institutional
investors, including, without limitation, banks, insurance
companies, pension funds and mutual funds.
Before voting on this proposal or giving proxies with
regard to this matter, shareholders should consider the
potentially dilutive effect of the issuance of shares of the
Corporation's Common Stock at less than net asset value per
share on net asset value per outstanding share of Common Stock,
and that such dilutive effect may result in a decrease in the
market price of the Corporation's common stock. Shareholders
should also consider that holders of the Corporation's Common
Stock have no subscription, preferential or preemptive rights
to additional shares of the Common Stock, and thus any future
issuance of shares may tend to dilute shareholders' holdings of
the Common Stock as a percentage of shares outstanding.
The issuance of the additional shares of Common Stock may
have an indirect effect on the gross amount of management fees
paid by the Corporation to the Investment Advisor and on the
amount of total expenses as a percentage of net assets. The
Corporation's and MorAmerica Capital's Investment Advisory
Agreements with the Investment Advisor provide for a management
fee payable to the Investment Advisor as compensation for
managing the investment portfolios of the Corporation and
MorAmerica Capital. With regard to the Corporation, the
-11-
<PAGE> 15
management fee is computed as a percentage of assets under
management. The proceeds payable to the Corporation from the
issuance of the additional shares of Common Stock would
increase assets under management, as would any other form of
capital-raising transaction, and would cause a corresponding
increase in the gross amount of management fees paid to the
Investment Advisor, but would not increase or decrease the
management fee as a percentage of assets under management. The
proceeds payable to the Corporation from the issuance of the
additional shares of Common Stock may also tend to decrease the
Corporation's total expenses as a percentage of net assets.
If shareholders approve this proposal, then until the 1997
Annual Meeting, no further shareholder approval would be
solicited by the Corporation with regard to the issuance of the
additional shares of Common Stock. The Corporation presently
anticipates annually soliciting shareholders with regard to the
policy and practice of issuing shares of Common Stock at a
price less than net asset value per share in order to provide
the Corporation with this flexibility.
In the absence of shareholder approval of this proposal,
the Corporation may not have the flexibility to fund its
investment activities through the issuance of additional shares
of Common Stock. If shareholders approve this proposal, the
Corporation will not engage in any such issuance unless the
required majority of the Corporation's disinterested Directors
first determines that such issuance is in the best interests of
the Corporation and its shareholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE FOR THE PROPOSAL APPROVING FOR A ONE-YEAR
PERIOD THE POLICY AND PRACTICE OF THE CORPORATION OF ISSUING
SHARES OF COMMON STOCK OF THE CORPORATION AT LESS THAN NET
ASSET VALUE PER SHARE.
OTHER BUSINESS
The Board of Directors knows of no other business to be
presented for action at the Meeting. If any matters do come
before the the Meeting on which action can properly be taken,
it is intended that the proxies shall vote in accordance with
the judgment of the person or persons exercising the authority
conferred by the proxy at the Meeting.
SHAREHOLDER PROPOSALS FOR 1997 ANNUAL MEETING
Under the rules of the Securities and Exchange Commission,
any shareholder proposal to be considered by the Corporation
for inclusion in the proxy material for the February, 1997
-12-
<PAGE> 16
Annual Meeting of Shareholders must be received by the
Secretary of the Corporation, 101 Second Street, S.E., Suite
800, Cedar Rapids, Iowa 52401, no later than September 12,
1996. The submission of a proposal does not guarantee its
inclusion in the proxy statement or presentation at the annual
meeting unless certain securities laws requirements are met.
In addition, under the Corporation's Bylaws, shareholders
desiring to nominate persons for election as Directors or to
propose other business for consideration at an annual meeting
must generally notify the Secretary of the Corporation in
writing not less than 60 days, nor more than 90 days prior to
the first anniversary of the preceding year's annual meeting.
Shareholders' notices must contain the specific information set
forth in the Corporation's Bylaws. A copy of the Corporation's
Bylaws will be furnished to shareholders without charge upon
written request to the Secretary of the Corporation.
EXPENSES OF SOLICITATION OF PROXIES
In addition to the use of the mails, proxies may be
solicited by personal interview and telephone by directors,
officers and other employees of the Corporation, who will not
receive additional compensation for such services. The
Corporation may employ Chemical Mellon Shareholder Services to
aid in the solicitation of proxies at an estimated fee of
$3,500 plus $4.50 per shareholder solicited. The Corporation
will also request brokerage houses, nominees, custodians and
fiduciaries to forward soliciting materials to the beneficial
owners of stock held of record by them and will reimburse such
persons for forwarding materials. The cost of soliciting
proxies will be borne by the Corporation.
ANNUAL REPORT
The Annual Report to Shareholders covering the fiscal year
ended September 30, 1995, accompanies this proxy statement, but
is not deemed a part of the proxy soliciting material.
A copy of the fiscal year 1995 Form 10-K report to the
Securities and Exchange Commission, excluding exhibits, will be
mailed to shareholders without charge upon written request to
David R. Schroder, Secretary, MACC Private Equities Inc., 101
Second Street, S.E., Suite 800, Cedar Rapids, Iowa 52401. Such
requests must set forth a good faith representation that the
requesting party was either a holder of record or a beneficial
owner of Common Stock of the Corporation on December 29, 1995.
Exhibits to the Form 10-K will be mailed upon similar request
and payment of specified fees.
-13-
<PAGE> 17
Please date, sign and return the proxy at your earliest
convenience in the enclosed envelope. No postage is required
for mailing in the United States. A prompt return of your
proxy will be appreciated as it will save the expense of
further mailings and telephone solicitations.
By Order of the Board of Directors
DAVID R. SCHRODER
Secretary
Cedar Rapids, Iowa
January 12, 1996
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<PAGE> 18
MACC PRIVATE EQUITIES INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR
ANNUAL MEETING OF STOCKHOLDERS
FEBRUARY 27, 1996
The undersigned hereby appoints Paul M. Bass, Jr., David R. Schroder and
James L. Miller and each of them, with full power of substitution, and hereby
authorizes them to represent the undersigned and to vote all of the shares of
Common Stock in MACC PRIVATE EQUITIES INC. (the "Company") held of record by
the undersigned on December 29, 1995, at the Annual Meeting of Stockholders of
the Company to be held on February 27, 1996 and any adjournment(s) thereof.
This proxy when properly executed will be voted as directed by the undersigned
stockholder. If directions are not indicated, the proxy will be voted to elect
the nominees described in item 1 and for items 2, 3 and 4.
(CONTINUED, AND TO BE SIGNED ON REVERSE SIDE)
- -------------------------------------------------------------------------------
/\ FOLD AND DETACH HERE /\
<PAGE> 19
<TABLE>
<S><C>
- ---------------------------------------------------------------------------------------------------------------------------
(CONTINUED FROM REVERSE SIDE) I plan to attend
PLEASE MARK YOUR VOTE AS IN THIS EXAMPLE / / the meeting
/ /
1. To elect three directors to serve until the 1999 Annual Meeting of Shareholders or until their
respective successors shall be elected and qualified;
FOR WITHHOLD NOMINEES: Paul M. Bass, Jr., David R. Schroder, and Robert A. Comey
all authority for
Nominees all Nominees (INSTRUCTION: To withhold authority to vote for any individual nominee, write the nominee's
name on the space provided below.)
/ / / /
__________________________________________________________________________________________
2. To ratify the appointment 3. To approve for a one year period the policy 4. To transact such other business as
of KPMG Peat Marwick LLP and practice of the Corporation of issuing may properly come before the meeting
as independent auditors shares of Common Stock of the Corporation and any adjournment thereof.
for fiscal year 1996. at less than net asset value per share.
FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
/ / / / / / / / / / / /
_____________________________________________________
Signature Date
_____________________________________________________
Signature Date
Please sign your name exactly as it appears hereon.
If signing for estates, trusts, corporations or
partnerships, title or capactiy should be stated.
If shares are held jointly, each holder should sign.
-------------------------------------------
PLEASE MARK INSIDE BLUE BOXES SO THAT DATA PLEASE SIGN, DATE AND RETURN THIS PROXY USING THE
PROCESSING EQUIPMENT WILL RECORD YOUR VOTES ENCLOSED ENVELOPE.
- ---------------------------------------------------------------------------------------------------------------------------
/\ FOLD AND DETACH HERE /\
</TABLE>
<PAGE> 20
-------
M A C C
=======
PRIVATE EQUITIES INC.
ANNUAL REPORT
SEPTEMBER 30, 1995
<PAGE> 21
TABLE OF CONTENTS
Page
----
Letter to our Shareholders. . . . . . . . . . . 1
Selected Financial Data . . . . . . . . . . . . 4
Management's Discussion and
Analysis. . . . . . . . . . . . . . . . . . . 5
Financial Statements. . . . . . . . . . . . . . 11
Notes to Consolidated Financial Statements. . . 15
Schedule of Investments . . . . . . . . . . . . 22
Notes to Schedule of Investments. . . . . . . . 29
Report of Independent Accountants . . . . . . . 31
Shareholder Information . . . . . . . . . . . . 32
Directors and Officers. . . . . . . . . . . . . 33
<PAGE> 22
TO OUR SHAREHOLDERS
The purpose of this letter to shareholders is to provide a
summary of items and events that are important to understanding
the business, financial condition and results of operations of
MACC Private Equities Inc. (the "Corporation") and its wholly
owned subsidiary, MorAmerica Capital Corporation ("MorAmerica
Capital"), as of September 30, 1995.
Progress Toward Corporate Goals
We are pleased to report that from the effective date of
the Corporation's registration statement, February 15, 1995,
through its fiscal year end, September 30, 1995, the
Corporation substantially achieved its primary corporate goals
for fiscal year 1995. These goals included realizing growth in
shareholder value, providing liquidity to support future
investment activities, and achieving stability as it
transitioned to operating as a public company.
Since February 15, 1995, shareholders of the Corporation
have achieved significant growth in the value of their
investments, both in terms of net asset value per share and
market price. As indicated in the following financial
statements and illustrated in the chart below, the
Corporation's net asset value per share increased from $14.75
on February 15, 1995, to $17.24 on September 30, 1995, for an
increase of approximately 16.9% during this seven and one-half
month period. The chart also illustrates the growth in the
closing market bid price for the common stock from $5 at March
31, 1995, to $7 3/8 at September 30, 1995, an increase of
approximately 48% during this six-month period.
As described in detail in the "Management's Discussion and
Analysis" section of this Annual Report, the Corporation and
its predecessors relied in the past on MorAmerica Capital's
access to the Small Business Investment Company capital program
to provide liquidity for investment activities. The
Corporation effectively compensated for the possible reduction
in federal funding for this program by maintaining a
significant portion of its assets in U.S. treasury bills, cash
and cash equivalents during fiscal year 1995. These liquid
assets were valued at $11,855,627 on September 30, 1995.
Financial Performance
Based upon a number of measures, the Corporation and
MorAmerica Capital achieved a number of financial results
worthy of mention during the past seven and one-half months and
fiscal year, respectively. As noted above, the Corporation
achieved a net asset value of $17,182,121 as of September 30,
1995, outpacing by approximately 184% the projected net asset
value at that date anticipated in the Plan of Reorganization of
the Corporation's predecessor entities.
<PAGE> 23
MorAmerica Capital achieved noteworthy results as well.
For its fiscal year ended September 30, 1995, MorAmerica
Capital achieved its highest number of new investments since
1984. Additionally, MorAmerica Capital earned its fifth best
pretax net income level of the past fifteen years. Based on
this and other developments, the Board of Directors increased
MorAmerica Capital's paid-in-capital from $7,270,000 to
$8,500,000. This change increases MorAmerica Capital's maximum
single investment size to $1,700,000 and thus permits larger
investments as called for by the Corporation's growth plans.
Operations - Investment and Divestiture Activity
For the twelve months ended September 30, 1995, the
Corporation made total investments of $4,082,089 in eight new
portfolio companies and in follow-on investments in three
existing portfolio companies. The Corporation's
investment-level objectives on a consolidated basis call for
new and follow-on investments of approximately $7,000,000
during fiscal year 1996.
Divestitures and portfolio company liquidity events for
both the Corporation's seven and one-half month period and for
the Corporation's fiscal 1995 were significant. During the
seven and one-half month period, the Corporation received
publicly traded common stock of Physicians Sales and Service,
Inc. (NYSE: PSSI) in a pooling of interests with Taylor
Medical, Inc. Also during the period, the Corporation received
publicly traded common stock of the Arcadian Corporation (NYSE:
ACA). The Arcadian Corporation stock is restricted through
January, 1996. In the four and one-half month period ended on
February 15, 1995, the Corporation recorded net gains of
$4,048,500 from the sale of NorthWord Press, Inc. in December,
1994, and $2,644,958 from the sale of Diversified CPC
International, Inc. in the first half of February, 1995. The
Corporation continues to review a number of promising
investment prospects and will pursue profitable divestiture
opportunities whenever possible.
In conclusion, fiscal year 1995 was an eventful and
profitable year for the Corporation and for its shareholders.
We appreciate the trust placed in us by shareholders, and we
will strive to continue to reward that trust through returns on
your investment.
Paul M. Bass, Jr., Chairman David R. Schroder, President
-2-
<PAGE> 24
PER SHARE DATA CHART
QUARTER
ENDED MARCH 31, 1995 JUNE 30, 1995 SPETEMBER 30, 1995
<TABLE>
<S> <C> <C> <C>
NET ASSET VALUE PER SHARE $14.47 14.66 17.24
MARKET BID PRICE PER SHARE $ 5.00 6.50 7.375
</TABLE>
-3-
<PAGE> 25
Selected Financial Data
MACC Private Equities Inc. (1)
As discussed in detail in the Notes to Consolidated
Financial Statements and in Management's Discussion and
Analysis of Financial Condition and Results of Operations,
February 15, 1995 was the effective date of a Plan of
Reorganization resulting from bankruptcy proceedings of the
Corporation's predecessor companies. Because the Corporation
adopted fresh-start accounting, the Financial Statements on a
fresh-start basis are not comparable to those of the
predecessor companies. Accordingly, the Financial Statements
and information in the following Selected Financial Data table
are presented on a predecessor-successor company basis.
<TABLE>
<CAPTION>
Seven and One- Four and One-
Half Months Half Months YEARS ENDED SEPTEMBER 30
Ended Sept. 30, Ended Feb. 15, -------------------------------------------------
1995 1995 1994 1993 1992(4) 1991(4)
--------------- -------------- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Investment income
(expense) net $103,653 (525,592)(2) (1,613,419)(2) (2,613,832)(2) (5,144,766) (4,282,820)
Net realized gain
(loss) on investments 1,102,697 4,514,338 (448,784) 1,051,036 395,704 1,408,154
Net change in net
unrealized appreciation/
depreciation
on investments $586,458 (948,191) 2,292,753 (3,391,714) (2,467,761) 391,304
---------- ---------- ---------- ----------- ----------- -----------
Net increase in net
assets or decrease
(increase) in net
deficit from
operations $1,792,808 3,548,371 230,550 (4,954,510) (7,216,823) (2,483,362)
========== ========== ========== =========== =========== ===========
Extraordinary item -
gain on extinguish-
ment of debt - - 11,622,270 - - -
---------- ---------- ---------- ----------- ----------- -----------
Net increase in net
assets or decrease
(increase) in net
deficit from opera-
tions $1,792,808 3,548,371 11,852,820 (4,954,510) (7,216,823) (2,483,362)
========== ========== ========== =========== =========== ===========
Net increase in net
assets or decrease
(increase) in net
deficit from opera-
tions per common
share before extra-
ordinary item $1.80 3.56(3) 119.52 (2,568.43) (3,741.22) (1,287.38)
========== ========== ========== =========== =========== ===========
</TABLE>
-4-
<PAGE> 26
<TABLE>
<CAPTION>
Seven and One- Four and One-
Half Months Half Months YEARS ENDED SEPTEMBER 30
Ended Sept. 30, Ended Feb. 15, -------------------------------------------------
1995 1995 1994 1993 1992(4) 1991(4)
------------------------------- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Extraordinary item
per common share - - 6,025.02 - - -
----------- ---------- ---------- ----------- ----------- ------------
Net increase in net
assets or net
decrease
(increase) in
net deficit from
operations per
common share $1.80 3.56 6,144.54 (2,568.43) (3,741.22) (1,287.38)
=========== ========== ========== =========== ========== ============
Total assets $28,006,385 25,775,717 22,781,482 22,995,992 27,307,503 35,293,442
=========== ========== ========== =========== ========== ============
Total long term
debt $10,228,647 10,224,152 54,772,521 65,764,431 64,785,150 65,396,586
=========== ========== ========== =========== ========== ============
</TABLE>
(1) Four and one-half months ended February 15, 1995 and fiscal years
ended September 30, 1994, through 1991, 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 years ended September 30, 1992
and 1991 have been derived from MorAmerica Financial Corporation's
unaudited consolidated statements of operations.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
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 which 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"). 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 in the United States Bankruptcy Court for the
-5-
<PAGE> 27
Northern District of Iowa, Cedar Rapids Division (the
"Bankruptcy Court") (Case Nos. 93-10268LC and 93-10269LC,
jointly administered). 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 on February 15, 1995. 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.
As discussed in detail in the Notes to Consolidated
Financial Statements, because the Corporation adopted
fresh-start accounting on February 15, 1995, the effective date
of the Plan, the Financial Statements on a fresh-start basis
are not comparable to those of the predecessor companies.
Accordingly, the Financial Statements are presented on a
predecessor-successor company basis. However, for purposes of
the following discussion, the results of operations for the
four and one-half months ended February 15, 1995 and the seven
and one-half months ended September 30, 1995, have been
combined.
Results of Operations
Total 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;
however, 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 the twelve months
ended September 30, 1995, total income was $1,722,477, total
operating expenses were $2,060,508, tax benefit equaled
$170,000, and net investment expense was $168,031. The
Corporation reserved $200,000 for potential losses from a
personal injury lawsuit against a subsidiary of the
Corporation. This amount constitutes a significant portion of
other operating expenses for the seven and one-half months
ended September 30, 1995. In spite of this reserve, the net
investment expense of $168,031 for the twelve-month period was
a substantial improvement over net investment expense in prior
years. The Corporation views this as a significant step toward
meeting one of the Corporation's long-term goals of achieving
net investment income and increased earnings stability. In
order to progress further toward this goal, the Corporation
intends to repurchase during fiscal year 1996 up to five
percent of the outstanding shares of the Corporation's Common
-6-
<PAGE> 28
Stock from holders of fewer than 100 shares each. The
Corporation believes that these repurchases may result in lower
shareholder communication expenses.
Net realized gain on investments for the twelve months
ended September 30, 1995 totaled $5,462,035. These gains have
substantially contributed to the net change in net assets from
operations of $5,341,179 for the twelve-month period.
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.
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 and cash equivalents, and the Small
Business Investment Company ("SBIC") capital program operated
by the Small Business Administration (the "SBA"). As of
September 30, 1995, the Corporation's U.S. treasury bills, cash
equivalents and cash collectively totaled $11,855,627. The
Corporation believes that this provides adequate funds for the
Corporation's planned $7,000,000 in new and follow on
investment activities over the next twelve month period.
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
subsidary MorAmerica Capital which mature as follows:
$2,450,000 in 2000, $5,690,000 in 2001 and $2,150,000 in 2003.
In response to recent federal budget reduction proposals,
the availability of capital through the SBIC capital program is
being debated. Both the SBA and the SBIC trade association
have put forth plans to support continued SBIC capital
availability. If at some point in the future the Corporation's
U.S. treasury bills, cash and cash equivalents were
insufficient to fund its investment activities and funding from
the SBIC capital program were not available at that time, any
deficiencies may have to be sought from public or private
funding sources. As discussed in detail in the Corporation's
Proxy Statement relating to its Annual Meeting of Shareholders
to be held February 27, 1996, the Corporation has requested its
shareholders to approve the policy and practice of the
Corporation of issuing shares of common stock for a price less
than net asset value per share in order to have the flexibility
to compensate for this contingency. There can be no assurance
that shareholders will approve this proposal.
-7-
<PAGE> 29
Portfolio Activity
During twelve months ended on September 30, 1995, the
Corporation invested $4,082,089 in eleven portfolio companies.
Of this amount, $3,723,144 was invested in eight new portfolio
companies and $358,945 was invested in follow-on investments in
three existing portfolio companies.
Portfolio Changes
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, 1995.
<TABLE>
<CAPTION>
FAIR VALUE
-----------------------------------------
Twelve Months Twelve Months
Portfolio Company Ended 9/30/95 Ended 9/30/94
----------------- ------------- -------------
<S> <C> <C>
Arcadian Corporation $2,779,943 $1,599,228
Environmental Solvents Corp. 341,453 227,636
The Forgotten Woman 300,000 500,000
Physicians Sales & Service/ 1,174,123 925,479
Taylor Medical Inc.
Portrait Display Labs, Inc. 445,001 750,001
Smith Pipe & Steel Co. 444,694 318,475
West End All Natural 0 300,000
Soda Brew, L.P.
</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
-8-
<PAGE> 30
of September 30, 1995, 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 investment 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
Pursuant to Section 64(b)(1) of the Investment Company Act
of 1940, a business development company is required to describe
the risk factors involved in an investment in the securities of
such company due to the nature of the Corporation's investment
portfolio. Accordingly, the Corporation states that:
The portfolio securities of the Corporation consist
primarily of securities issued by small, privately held
companies. Generally, little or no public information is
available concerning the companies in which the Corporation
invests, and the Corporation must rely on the diligence of the
Investment Advisor to obtain the information necessary for the
Corporation's investment decisions. In order to maintain their
status as business development companies, the Corporation and
MorAmerica Capital both must invest at least 50% of their total
assets in the types of portfolio investments described by
Sections 55(a)(1) though 55(a)(3) of the Investment Company Act
of 1940, as amended. These investments generally are
securities purchased in private placement transactions from
small privately held companies. Typically, the success or
failure of such companies depends on the management talents and
efforts of one person or a small group of persons, so that the
death, disability or resignation of such person or persons
could have a materially adverse impact on such companies.
Moreover, smaller companies frequently have smaller product
lines and smaller market shares than larger companies and may
be more vulnerable to economic downturns. Because these
companies will generally have highly leveraged capital
structures, reduced cash flows resulting from an economic
downturn may adversely affect the return on, or the recovery
of, the Corporation's investments. Investment in these
companies therefore involves a high degree of business and
financial risk, which can result in substantial losses and
should be considered speculative.
The Corporation's investments primarily consist of
securities acquired directly from the issuers in private
transactions, which are usually subject to restrictions on
resale and are generally illiquid. No established trading
-9-
<PAGE> 31
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 eight 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.
[Balance of this page intentionally left blank]
-10-
<PAGE> 32
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Consolidated Balance Sheet
September 30, 1995
<TABLE>
<CAPTION>
Assets
<S> <C>
Loans and investments in portfolio securities
at market or fair value, cost of $11,728,872(note 3) $ 12,315,330
U.S. treasury bills, at cost which approximates market 10,047,197
Cash and cash equivalents 1,808,430
Receivables:
Dividends and interest 264,526
Investment securities sold 1,858,436
Other assets, net 700,466
Deferred income taxes(note 5) 1,012,000
------------
Total assets $ 28,006,385
============
Liabilities and Stockholder's Equity
Liabilities:
Debentures payable net of discount(note 4) $ 10,228,647
Accrued interest 259,662
Accounts payable and other liabilities(note 6) 335,955
------------
Total liabilities 10,824,264
------------
Stockholders' equity(note 2):
Common stock, $0.1 par value per share.
Authorized 2,000,000 shares; issued 996,539 shares. 9,965
Additional paid-in capital(note 5) 15,379,348
Net investment income 103,653
Net realized gain on investments 1,102,697
Unrealized appreciation on investments 586,458
------------
Total stockholders' equity 17,182,121
------------
Commitments and contingency(note 6).
Total liabilities and stockholders' equity $ 28,006,385
============
Net assets per share $ 17.24
============
</TABLE>
See accompanying notes to consolidated financial statements.
-11-
<PAGE> 33
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
MACC Private MorAmerica
Equities Inc. Financial Corp.
(Successor Co.) - (Predecessor Co.) -
See note 1 See note 1
Seven and one-half Four and one-half
months ended months ended
September 30, February 15,
1995 1995
---- ----
<S> <C> <C>
Investment income:
Interest $ 728,919 253,737
Dividends 432,209 195,205
Earnings of liquidating trust 79,907 -
Other 25,197 7,303
---------- ---------
Total income 1,266,232 456,245
---------- ---------
Operating expenses:
Interest 552,046 328,532
Management fees (note 6) 380,982 217,844
Professional and stock transfer fees 167,871 106,742
Other operating expenses (note 6) 295,133 74,811
Change in provision for doubtful accounts (63,453) -
---------- ---------
Total operating expenses 1,332,579 727,929
---------- ---------
Investment expense, net
before income tax benefit (66,347) (271,684)
Income tax benefit (note 5) 170,000 -
---------- ---------
Investment income (expense), net 103,653 (271,684)
---------- ---------
Realized and unrealized gain on investments (note 3):
Net realized gain on investments 947,697 4,514,338
Net change in unrealized
appreciation on investments 586,458 (948,191)
---------- ---------
Net gain on investments
before income tax benefit 1,534,155 3,566,147
Income tax benefit (note 5) 155,000 -
---------- ---------
Net gain on investments 1,689,155 3,566,147
---------- ---------
Net change in net assets from
operations before reorganization items 1,792,808 3,294,463
Reorganization items:
Professional fees - 97,946
Adjustment to allowance on notes receivable - (286,006)
Fresh-start adjustment to debentures payable - (65,848)
---------- ---------
- (253,908)
---------- ---------
Net change in net assets from operations $1,792,808 3,548,371
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
-12-
<PAGE> 34
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Net Assets (Deficit)
<TABLE>
<CAPTION>
MACC Private MorAmerica
Equities Inc. Financial Corp. MorAmerica
(Successor Co.) - (Predecessor Co.) - Financial Corp.
See note 1 See note 1 (Predecessor Co.) -
Seven and one-half Four and one-half See note 1
months ended months ended Year ended
September 30, February 15, September 30,
1995 1995 1994
---- ---- ----
<S> <C> <C> <C>
Operations:
Net investment income (expense) $ 103,653 (271,684) (988,892)
Net realized gain (loss) on investments 1,102,697 4,514,338 (448,784)
Net change in unrealized appreciation/
depreciation on investments 586,458 (948,191) 2,292,753
------------- ------------- -------------
Net increase in
net assets from operations 1,792,808 3,294,463 855,077
Reorganization items - professional fees and other -- 253,908 (624,527)
Extraordinary item - gain on
extinguishment of debt (note 2) -- -- 11,622,270
Recognized income tax benefit of preconfirmation
net operating losses (note 5) 687,000 -- --
Cancellation of debt to prepetition debt holders
through issuance of common stock (note 2) -- 46,615,347 --
------------- ------------- -------------
Net increase in net assets 2,479,808 50,163,718 11,852,820
Net assets (deficit):
Beginning of period 14,702,313 (35,461,405) (47,314,225)
------------- ------------- -------------
End of period $ 17,182,121 14,702,313 (35,461,405)
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
- 13 -
<PAGE> 35
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
MACC Private MorAmerica
Equities Inc. Financial Corp.
(Successor Co.)-- (Predecessor Co.)--
See note 1 See note 1
Seven and one-half Four and one-half
months ended months ended
September 30, February 15,
1995 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Increase in net assets from operations $ 1,792,808 3,294,463
------------- --------------
Adjustments to reconcile increase
in net assets from operations to
net cash used in operating activities:
Reorganization item - professional fees - (97,946)
Change in provision for doubtful accounts (63,453) -
Net realized and unrealized
gain on investments (1,534,155) (3,566,147)
Deferred income taxes (325,000) -
Other 5,230 5,321
Change in assets and liabilities:
(Increase) decrease in receivables (1,933,172) 7,290
Decrease (increase) in other assets 187,974 (349,373)
(Decrease) increase in accrued interest,
accounts payable, and other liabilities (193,400) 405,387
------------- --------------
Total adjustments (3,855,976) (3,595,468)
------------- --------------
Net cash used in operating activities (2,063,168) (301,005)
------------- --------------
Cash flows from investing activities:
Proceeds from disposition of and payments on
loans and investments in portfolio securities 1,938,041 9,904,937
Purchases of loans and investments
in portfolio securities (2,897,529) (714,145)
Proceeds from disposition of other investments 4,211,496 14,137,594
Purchases of other investments (7,469,125) (12,559,479)
------------- --------------
Net cash (used in) provided
by investing activities (4,217,117) 10,768,907
------------- --------------
Cash flows from financing activities -
principal payments on long-term debt - (607,669)
------------- --------------
Net (decrease) increase in cash
and cash equivalents (6,280,285) 9,860,233
Cash and cash equivalents at beginning of period 12,536,088 2,675,855
------------- --------------
Cash and cash equivalents at end of period $ 6,255,803 12,536,088
============= ==============
Supplemental disclosure of cash flow information -
cash paid during the period for interest $ 507,306 373,271
============= ==============
Supplemental disclosures of noncash
investing and financing information:
Proceeds from sale of investment held in escrow $ 42,296 46,644
============= ==============
Cancellation of debt to prepetition debt
holders through issuance of common stock $ - 46,615,347
============= ==============
</TABLE>
See accompanying notes to consolidated financial statements.
-14-
<PAGE> 36
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1995
(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.
Since the financial statements on a fresh-start basis are not
comparable with those of the Predecessor Company, the Company has
presented the financial statements on a predecessor-successor
company basis.
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, overnight repurchase agreements,
and money market deposit accounts to be cash equivalents. At
September 30, 1995, such amounts totaled $6,083,215.
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 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 3). 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.
Allowance for Possible Loan and Note Losses
Loan and note losses are accounted for under the allowance method,
whereby losses and recoveries are charged or credited directly to
the allowance. The amount of the allowance is determined on the
basis of several factors, including past loss experience,
evaluation of potential losses in the loan and note portfolio,
prevailing and anticipated economic conditions, and reviews and
examination of the loan and note portfolio by management. Loans and
notes, net are included in other assets and amounted to $190,255 at
September 30, 1995.
(Continued)
-15-
<PAGE> 37
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.
(2) Plan of Reorganization
As stated in note 1, on February 15, 1995, the Company consummated the
Plan as confirmed by the United States Bankruptcy Court for the
Northern District of Iowa on December 28, 1993.
Under the Plan, Class H creditors under a prior plan of reorganization
(Old Plan) (excluding debt to a subsidiary of MorAmerica Financial
Corporation) were divided into Class H-1 (claims exceeding $7,621)
and Class H-2 (claims less than $7,621). Class H-2 creditors
received cash equal to approximately 5.9 percent of the outstanding
principal amount of such claims. Class H-1 creditors received pro
rata 31.1 percent of common stock of Equities in exchange for their
claims. Class K creditors under the Old Plan were divided into
Class K-1 and K-2 based upon claims less than or exceeding $1,297.
Class K-2 creditors received cash equal to approximately 12.7
percent of the outstanding principal amount of such claims. Class
K-1 creditors received 68.9 percent of common stock of Equities in
exchange for their claims. The Class N interests under the Old Plan
(MorAmerica Financial Corporation stockholders) were canceled.
The following condensed consolidated balance sheet reflects the impact
that the consummation of the Plan had on the Company's financial
position as of February 15, 1995, under the provisions of SOP
90-7, as discussed in note 1:
(Continued)
-16-
<PAGE> 38
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(2) Plan of Reorganization, Continued
<TABLE>
<CAPTION> Historical Adjusted
balance balance
sheet Cancellation Cancellation Issuance Fresh- sheet
February 15, of of of new start February 15,
1995 debt(a) stock(b) stock(c) adjustments(d) 1995
---- ------- -------- -------- -------------- ----
<S> <C> <C> <C> <C> <C> <C>
Assets
------
Loans and investments
in portfolio securities $ 9,722,120 -- -- -- -- 9,722,120
U.S. treasury bills 13,009,482 -- -- -- -- 13,009,482
Cash and cash equivalents 1,868,801 -- -- -- -- 1,868,801
Receivables and other assets 1,175,314 -- -- -- -- 1,175,314
------------ ------------ ------------ ------------ ------------ ------------
Total assets $25,775,717 -- -- -- -- 25,775,717
============ ============ ============ ============ ============ ===========
Liabilities and
Stockholders' Equity
--------------------
Liabilities not subject
to compromise:
Debentures payable $10,290,000 -- -- -- (65,848) 10,224,152
Other liabilities 849,252 -- -- -- -- 849,252
------------ ------------ ------------ ------------ ------------ ------------
11,139,252 -- -- -- (65,848) 11,073,404
------------ ------------ ------------ ------------ ------------ ------------
Liabilities subject to compromise:
Notes payable 43,592,430 (43,592,430) -- -- -- --
Accrued interest and
other liability 3,022,917 (3,022,917) -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
46,615,347 (46,615,347) -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Total liabilities 57,754,599 (46,615,347) -- -- (65,848) 11,073,404
------------ ------------ ------------ ------------ ------------ ------------
Stockholders' (deficit) equity:
Capital stock 4,628 -- (4,628) 9,965 -- 9,965
Preferred stock 5,890,930 -- (5,890,930) -- -- --
Additional paid-in capital 2,708,688 -- (2,708,688) 14,626,500 65,848 14,692,348
Treasury stock (7,088,747) -- 7,088,747 -- -- --
Accumulated deficit (30,344,278) 46,615,347 1,515,499 (14,636,465) (3,150,103) --
Net unrealized depreciation
of loans and investments
in portfolio securities 3,150,103 -- -- -- 3,150,103 --
------------ ------------ ------------ ------------ ------------ ------------
Stockholders' (deficit) equity (31,978,882) 46,615,347 -- -- 65,848 14,702,313
------------ ------------ ------------ ------------ ------------ ------------
Total liabilities and
stockholders' equity $25,775,717 -- -- -- -- 25,775,717
============ ============ ============ ============ ============ ===========
(Continued)
</TABLE>
-17-
<PAGE> 39
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(2) Plan of Reorganization, Continued
The balance sheet reflects adjustments to record:
(a) Cancellation of Debt
To reflect the cancellation of debt through elimination of
$43,592,430 of notes payable and $3,022,917 of accrued interest
related to the notes payable and obligation due to the Central
States Southeast and Southwest Area Health and Welfare Pension
Fund.
(b) Cancellation of Stock
To reflect the cancellation of old ownership rights totaling
$1,515,499.
(c) Issuance of New Stock
To reflect the issuance of 996,539 shares of new common stock
to prepetition debt holders.
(d) Fresh Start Adjustments
Reflects fresh start adjustments including the reclassification
of accumulated deficit and net unrealized depreciation on loans
and investments in portfolio securities into additional
paid-in-capital under fresh start reporting.
(3) Loans and Investments in Portfolio Securities
Loans and investments in portfolio securities include debt and equity
securities in small business concerns located primarily in the
Midwest, Texas, and Florida. The Company determined that the fair
value of its portfolio securities was $12,315,330 at September
30, 1995. Among the factors considered by the Company in
determining the fair value of investments are the cost of the
investment; developments, including recent financing transactions,
since the acquisition of the investment; the financial condition and
operating results of the investee; the long-term potential of the
business of the investee; and other factors generally pertinent to
the valuation of investments.
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, 1995, except for Physician Sales and Services, Inc.
(29,603 common shares carried at $1,174,123 with a cost of $270,789)
and Apertus Technologies, Inc. (28,922 common shares carried at
$242,222 with a cost of $250,537) are considered to be restricted in
their disposition and are illiquid.
(Continued)
-18-
<PAGE> 40
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(4) Debentures Payable
Debentures of MACC guaranteed by the Small Business Administration
(SBA) of $10,290,000 at September 30, 1995 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, 1995, none of
MACC's undistributed net realized earnings (computed under SBA
guidelines) of $4,333,201 were available for distribution to
Equities.
(5) Income Taxes
Components of income tax benefit (all of which is deferred) for the
seven and one-half months ended September 30, 1995 consist of
$250,000 for federal benefit and $75,000 of state benefit. No
income tax expense or benefit is recorded for the four and one-half
month period ended February 15, 1995.
Income taxes for the seven and one-half months ended September 30, 1995
and the four and one-half months ended February 15, 1995 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>
<CAPTION>
Seven and one-half Four and one-half
months ended months ended
September 30, 1995 February 15, 1995
<S> <C> <C>
Computed "expected" tax expense $ 499,000 1,206,000
Increase (reduction) in income taxes resulting from:
State income taxes, net of federal tax effect (50,000) -
Nontaxable dividend income and other earnings (174,000) (66,000)
Nondeductible reorganization costs - 33,000
Change in the beginning of the period balance of
the valuation allowance for deferred tax assets (600,000) (1,180,000)
Other - 7,000
---------- ----------
Income tax benefit $ (325,000) -
========== ==========
</TABLE>
(Continued)
-19-
<PAGE> 41
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(5) Income Taxes, Continued
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets at September 30, 1995 are as
follows:
<TABLE>
<S> <C>
Net operating loss carryforwards $ 6,200,000
Built-in capital loss carryforward at
fresh-start date 491,000
Other 211,000
-----------
Total gross deferred tax assets 6,902,000
Less valuation allowance 5,890,000
-----------
Net deferred tax assets $ 1,012,000
===========
</TABLE>
The $1,012,000 of deferred tax assets include $687,000 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
$14,692,348, resulting in a balance of $15,379,348 at September 30,
1995.
The valuation allowance for deferred tax assets as of September 30,
1994 was $13,600,000. The net change in the total valuation
allowance for the year ended September 30, 1995 was a decrease of
$7,710,000. 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 loss for the periods
October 1, 1994 through February 15, 1995 and February 16, 1995
through September 30, 1995 was approximately $419,000. 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, 1995.
Subsequently recognized tax benefits relating to the valuation
allowance for deferred tax assets as of September 30, 1995 will
primarily be allocated to additional paid-in capital under the
provisions of SOP 90-7.
At September 30, 1995, the Company has net operating loss carryforwards
for federal income tax purposes of approximately $15,500,000 which
are available to offset future federal taxable income, if any,
through 2009. Approximately $2,446,000 of the carryforwards are
available for the year ending September 30, 1996, with approximately
$1,004,000 available annually thereafter. Approximately $13,142,000
of net operating loss carryforwards at fresh-start date were lost
due to ownership change rules in the Internal Revenue Code.
(Continued)
-20-
<PAGE> 42
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(6) Commitments and Contingency
Management Agreements
Effective October 1, 1994, Equities entered into an investment advisory
agreement (the Agreement) with InvestAmerica Investment Advisors,
Inc. (IAIA). Four of Equities' officers are officers and
stockholders of IAIA. The Agreement has a two-year term, renewable
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 sixty days
written notice. Total expenses under the Agreement amounted to
$69,107 for the seven and one-half months ended September 30, 1995
and $26,719 for the four and one-half months ended February 15,
1995. There were no incentive fees accrued or paid under the
Agreement.
Effective October 1, 1994, MACC entered into a separate investment
advisory agreement with IAIA. This agreement has a two-year term,
renewable annually thereafter by the board of directors of MACC.
The fee is equal to 2.5 percent of the capital under management on
an annual basis, but in no event more than 2.5 percent of the assets
under management on an annual basis; plus $6,000 per month through
January 31, 1995 (which then decreased to $5,000 per month from
February 1, 1995 to 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 $311,875 for the seven and one-half months ended September 30,
1995 and $191,125 for the four and one-half month period ended
February 15, 1995. Total incentive fees were $-0- for the seven and
one-half month period ended September 30, 1995 and $1,032,800 for
the four and one-half month period ended February 15, 1995. At
September 30, 1995, incentive fees payable amounted to $59,195.
Contingency
MRS, a wholly owned subsidiary of Equities is a defendant in a personal
injury lawsuit. MRS has recorded a $200,000 provision for estimated
loss on the lawsuit at September 30, 1995. Management believes
that any loss on ultimate disposition of the matter will not be
materially greater than the provision and is the legal
responsibility of MRS. The amount provided is included in accounts
payable and other liabilities on the balance sheet and in other
operating expenses in the consolidated statement of operations for
the seven and one-half months ended September 30, 1995.
-21-
<PAGE> 43
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Consolidated Schedule of Investments
September 30, 1995
<TABLE>
<CAPTION>
Stated
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, expires
Recycles and manufactures October 29, 2002 $ - -
cellulose fiber products *Warrants to purchase 10.4 common
shares at $1.00, expires
October 29, 2002 - -
15.60% *12% Debt security, due November 1, 1999 400,000 400,000
------- -------
400,000 400,000
------- -------
Cirque Corporation 2.77% *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 93,943 93,943
Holland, Michigan
Manufacturer of precision metal gauges
Houghton Acquisition Corporation *Warrants to purchase 897.7014
Alton, Illinois common shares at $1.00 26 26
Manufacturer of rotors for use in 4,000 Shares Class A Pfd. 400,000 400,000
subfractional horsepower motors ------- -------
10.32% 400,026 400,026
------- -------
</TABLE>
-22-
<PAGE> 44
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Consolidated Schedule of Investments, Continued
<TABLE>
<CAPTION>
Stated
Company Equity Security Value cost
------- ------ -------- ----- ------
<S> <C> <C> <C> <C>
Manufacturing, continued:
J-Tec Associates, Inc. *Warrants to purchase 3,200 common shares
Cedar Rapids, Iowa at $0.1375, expires December 1, 1995 $ - -
Designer and manufacturer of gaseous *87,413 Shares Series C Pfd. at $2.86 9,248 9,248
flow measurement and metering devices *51,129 Shares of Series E Pfd. at $27.83 52,635 52,635
*5,244 Shares Series C Pfd. at $2.86 555 555
*31,250 Shares Series D Pfd. at $1.60 1,849 1,849
*58 Common shares at $6.044 13 13
------- -------
6.43% 64,300 64,300
------- -------
Linton Truss Corp. 14% Debt security, due March 1, 2001 442,500 442,500
Delray Beach, Florida *Warrant to purchase 14.68% of
Markets and manufactures common shares, expires
residential roof and floor truss systems February 24, 2005 15 15
------- -------
14.68% 442,515 442,515
------- -------
Mesa Industries, Inc. 13% Debt security, due November 19, 1998 62,500 62,500
Elkhorn, Wisconsin 13% Debt security, due November 19, 1998 37,500 37,500
Manufacturer of folding tables
------- -------
- 100,000 100,000
------- -------
Microdynamics, Inc. - *Three-year royalty participation 58,603 126,803
Dallas, Texas and escrow receivable ------- -------
Manufacturer of microprocessor-based
footwear and apparel equipment
</TABLE>
-23-
<PAGE> 45
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Consolidated Schedule of Investments, Continued
<TABLE>
<CAPTION>
Percent of Stated
Company Equity Security net assets Value cost
------- ------ -------- ---------- ----- ------
<S> <C> <C> <C> <C> <C>
Manufacturing, continued:
Monitronics 1.33% *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. 400,001 750,001
Freemont, California 9% Debt security, due November 21, 1995 45,000 45,000
Distributes monitors for *Warrants to purchase 16,071 common
portable computers shares at $.14, expires August 23, 1998 - -
------- ------
7.90% 445,001 795,001
------- ------
Quaker City Castings, Inc. 13.5% Debt security, due December 10, 1998 56,000 56,000
Salem, Ohio *Warrants to purchase 16.6% of
Foundry producing gray and ductile common shares at $2.00 - -
iron and steel castings 400 Shares Cum. Redeemable Pfd. at $1,000 627,197 627,197
100 Shares Series B Pfd. at $1,000 156,799 156,799
------- ------
16.66% 839,996 839,996
------- ------
West End All Natural Soda Brew, L.P. *120,000 Shares Class B Pfd. at $.01 - 600,000
St. Louis, Missouri *72,868 Common shares at $.01 - -
Producer of soda brew
------- ------
5.70% - 600,000
------- ------
Total manufacturing 18.82 % 3,234,294 4,252,287
------- --------- --------
Chemicals:
Arcadian Corp. Less than 154,764 Common shares at $3.33 2,779,943 2,063,520
Memphis, Tennessee 1.00% --------- ---------
Manufacturer of ammonia
and nitrogen solutions
</TABLE>
-24-
<PAGE> 46
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Consolidated Schedule of Investments, Continued
<TABLE>
<CAPTION>
Percent of Stated
Company Equity Security net assets Value cost
------- ------ -------- ---------- ----- ------
<S> <C> <C> <C> <C> <C>
Chemicals, continued:
Coastwide Energy Services, Inc. *Warrants to purchase 742 common shares
Dallas, Texas at $1.54, expires December 22, 1996 $ 2,969 -
Supplier of diesel fuel, *Warrants to purchase 742 common shares
lubricants, chemicals, at $6.83, expires December 22, 1996 - -
and logistical support to
oil and gas exploration
production companies Less than
---------- ----------
1.00% 2,969 -
---------- ----------
Environmental Solvents
Corporation *5% Debt security, due October 30, 1998 46,663 31,109
Jacksonville, Florida *7% Debt security, due June 30, 1999 25,810 17,207
Developer and manufacturer of *416,667 Shares of Series A-1 Conv. Pfd.
nontoxic, environmentally safe and 276,143 Shares of Series B-1 Pfd. 265,980 177,320
solvents for industrial *16,667 Common shares at $.30 3,000 2,000
cleaning applications
---------- ----------
12.20% 341,453 227,636
---------- ----------
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 *25 Common shares - -
ethyl alcohol products
---------- ----------
8.75% 500,000 500,000
---------- ----------
Total chemicals 21.09 % 3,624,365 2,791,156
----- ---------- ----------
</TABLE>
-25-
<PAGE> 47
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Consolidated Schedule of Investments, Continued
<TABLE>
<CAPTION>
Stated
Company Equity Security Value cost
------- ------ -------- ----- ------
<S> <C> <C> <C> <C>
Service/Merchandising:
Apertus Technologies, Inc. Less than
Eden Prairie, Minnesota 1.00% *28,922 Common shares at $8.66 $ 242,222 250,536
Acquires, develops, markets, ---------- -------
and licenses IBM and IBM
compatible mainframe software
The Forgotten Woman, Inc. 6.07% 40,000 Shares of Conv. Pfd. at $12.50 300,000 500,000
Long Island City, New York ---------- -------
Retail woman's clothing store
specializing in large sizes
Organized Living, Inc. 6.00% 400,000 Shares Series A Pfd. 400,000 400,000
Lenexa, Kansas ---------- -------
Retail specialty store for storage
and organizational products
Physician Sales and Services, Inc. Less than *29,603 Common shares 1,174,122 270,786
Beaumont, Texas 1.00% ---------- -------
Distributor of medical supplies to
physician and alternate care markets
Potpourri Collection, Inc. Variable debt security, due May 31, 2001 400,000 400,000
Medfield, Massachusetts *Warrants to purchase 40 common
Gift and stitchery mail shares at $.01, expires December 23, 2001 - -
order catalog retailer ---------- -------
3.46% 400,000 400,000
---------- -------
</TABLE>
-26-
<PAGE> 48
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Consolidated Schedule of Investments, Continued
<TABLE>
<CAPTION>
Percent of Stated
Company Equity Security net assets Value cost
------- ------ -------- ---------- ----- ------
<S> <C> <C> <C> <C> <C>
Service/Merchandising, continued:
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 *Warrant to purchase 33,852 common shares
and public records at $1.00, expires January 25, 2000 100 100
management software *Warrant to purchase 14,505 common
shares at $1.00, expires
December 13, 2004 100 100
-------- --------
28.80% 500,200 500,200
-------- --------
Smith Pipe and Steel Company *47,308 Shares Series A Pfd. at $1.00 47,308 47,308
Phoenix, Arizona *18,923 Common shares at $1.00 397,386 271,167
Distributor of pipe, steel,
and building products
-------- --------
9.00% 444,694 318,475
-------- --------
Tuttle Design Building, Inc. 12% Debt security, due April 1, 2000 675,000 675,000
Lakeworth, Florida *Warrant to purchase 13.5% of common
Distributor of ornamental plants shares, expires March 28, 2005 14 14
to retailers and provider of
irrigation and landscaping services -------- --------
13.50% 675,014 675,014
-------- --------
Total service/merchandising 24.07 % 4,136,252 3,315,011
------- -------- --------
Other:
Biomune, Inc. - *Intercreditor agreement
Lenexa, Kansas sharing in operating cash
Manufactures and markets flow over 12-year period 1 50,000
veterinary vaccine products -------- --------
</TABLE>
-27-
<PAGE> 49
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Consolidated Schedule of Investments, Continued
<TABLE>
<CAPTION>
Percent of Stated
Company Equity Security net assets Value cost
------- ------ -------- ---------- ----- ------
<S> <C> <C> <C> <C> <C>
Other, continued:
Miles Media Group, Inc. *Warrants to purchase common shares at
Sarasota, Florida variable prices, expires February 2, 2001 $ - -
Tourist magazine publisher *Warrants to purchase 1,799 common
shares at $52.64, expires June 1, 2002 - -
12% Loan, due June 1, 1997 200,000 200,000
*4,500 Shares Red. Pfd. at $100.00 450,000 450,000
*1,550 Shares Class A Conv. Pfd. at $32.26 50,003 50,003
*5,000 Shares Class C Conv. Pfd. at $10.00 50,000 50,000
*1,000 Shares Red. Pfd. at $100.00 100,000 100,000
*Warrants to purchase 1,100 common shares
at variable prices, expires
December 1, 2001 - -
------- -------
26.70% 850,003 850,003
------- -------
Northword Holding Corp. *325.8 Shares Red. Pfd. at $1,000 325,800 325,800
Minocqua, Wisconsin *235 Common shares at $615.38 144,615 144,615
Publisher of nature related books, *Earnout warrant - -
calendars, posters, and
audio products" *Earnout warrant - -
------- -------
2.57% 470,415 470,415
------- -------
Total others 7.68 % 1,320,419 1,370,418
---- --------- ---------
$ 12,315,330 11,728,872
========== ==========
</TABLE>
-28-
<PAGE> 50
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Consolidated Schedule of Investments, Continued
Notes to the Consolidated Schedule of Investments
*Presently nonincome producing
Notes:
(a) For investments held at the February 15, 1995 fresh-start
date, the stated cost represents the fair value of the
investments at the fresh-start date.
(b) At September 30, 1995, all securities, except for Physician
Sales and Services, Inc. and 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, 1995, the cost of securities for federal
income tax purposes was $13,543,241 and the aggregate
unrealized appreciation and depreciation based on that cost
was:
<TABLE>
<CAPTION>
<S> <C>
Unrealized appreciation $ 3,832,824
Unrealized depreciation (5,060,735)
----------------------
Net unrealized depreciation $ (1,227,911)
======================
</TABLE>
(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 11 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.
(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.
-29-
<PAGE> 51
MACC PRIVATE EQUITIES INC. AND SUBSIDIARIES
Consolidated Schedule of Investments, Continued
Notes to the Consolidated Schedule of Investments, Continued
Notes, continued:
(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.
-30-
<PAGE> 52
[KPMG PEAT MARWICK 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, 1995 and the related consolidated statements
of operations and cash flows for the seven and one-half months ended September
30, 1995 and the four and one-half months ended February 15, 1995, and the
consolidated statements of changes in net assets (deficit) for the seven and
one-half months ended September 30, 1995 and the four and one-half months ended
February 15, 1995 and the year ended September 30, 1994. 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 audits.
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, 1995. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
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 financial statements are presented on a predecessor/successor
company basis.
As explained in note 3, the consolidated financial statements include
securities valued at $8,119,042 at September 30, 1995 whose values have been
estimated by the board of directors in the absence of readily ascertainable
market values. We have reviewed the procedures used by the board of directors
in arriving at the estimated value of such securities and have inspected
underlying documentation, and, in the circumstances, we believe the procedures
are reasonable and the documentation appropriate. However, because of the
inherent uncertainty of valuation, those estimated values may differ
significantly from the values that would have been used had a ready market for
the securities existed, and the differences could be material.
In 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, 1995, and the results of its
operations and its cash flows for the year then ended, and changes in net
assets (deficit) for the years ended September 30, 1995 and 1994 in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Des Moines, Iowa
November 1, 1995
-31-
<PAGE> 53
SHAREHOLDER INFORMATION
Stock Transfer Agent
Chemical Mellon 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 4,645 record holders of
its common stock at November 2, 1995.
Annual Meeting
The Annual Meeting of Shareholders of the Corporation will
be held on Tuesday, February 27, 1996, at 10:00 a.m. at the
Second Floor Ballroom of 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 has 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." At the
close of business on November 30, 1995, the bid price for
shares of the Corporation's common stock was $6 3/4. The
following high and low bid quotations for the shares during
each period of the Corporation's fiscal year 1995 (since the
initiation of trading) listed below were taken from quotations
provided to the Corporation by the National Association of
Securities Dealers, Inc.
<TABLE>
<CAPTION>
High Low
-------------------------------------------------
<S> <C> <C>
Thirty Days
Ended March 31, 1995.................. $5 $3
Three Months Ended
June 30, 1995......................... 6 1/2 5
Three Months Ended
September 30, 1995.................... 7 3/8 6 1/2
</TABLE>
Such over-the-counter market quotations reflect
inter-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions.
-32-
<PAGE> 54
---------------------------------------------------
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
STEVEN J. MASSEY
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
5380A
-33-
<PAGE> 55
-----------------
M A C C
-----------------
-----------------
Private Equities Inc.
101 Second Street, S.E., Suite 800
Cedar Rapids, Iowa 52401
