FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

(Mark One)

[X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
      EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2000

                                       or

[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
      EXCHANGE ACT OF 1934

Commission File Number 0-19509

                              EQUUS II INCORPORATED
                ------------------------------------------------
             (Exact name of registrant as specified in its charter)

                 DELAWARE                                 76-0345915
       ------------------------------                 -----------------
      (State or other jurisdiction of                (I.R.S. Employer
      incorporation or organization)                 Identification No.)

      2929 Allen Parkway, Suite 2500
               HOUSTON, TEXAS                          77019-2120
      -----------------------------------              ----------
           (Address of principal                       (Zip Code)
            executive offices)

Registrant's telephone number, including area code: (713)  529-0900
                                                    ---------------

Securities registered pursuant to Section 12(b) of the Act:

            Title of each class                 Name of each exchange
                                                 on which registered

            COMMON STOCK                        NEW YORK STOCK EXCHANGE

Securities registered pursuant to Section 12(g) of the Act:  None

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No

Approximate aggregate market value of common stock held by non-affiliates of the
registrant: $49,991,116 computed on the basis of $10.125 per share, closing
price of the common stock on the New York Stock Exchange Inc. on November 10,
2000. For the purpose of calculating this amount only, all directors and
executive officers of the registrant have been treated as affiliates. There were
6,414,804 shares of the registrant's common stock, $.001 par value, outstanding,
as of November 10, 2000. The net asset value of a share at September 30, 2000
was $15.75.

Documents incorporated by reference:  None
<PAGE>
                              EQUUS II INCORPORATED
                            (A Delaware Corporation)

                                      INDEX


<TABLE>
<CAPTION>
PART I.  FINANCIAL INFORMATION                                                  PAGE
                                                                                ----
<S>                                                                             <C>
         Item 1. Financial Statements

               Balance Sheets

               - September 30, 2000 and December 31, 1999......................    1

               Statements of Operations

               - For the three months ended September 30, 2000 and 1999........    2

               - For the nine months ended September 30, 2000 and 1999 ........    3

               Statements of Changes in Net Assets

               - For the nine months ended September 30, 2000 and 1999 ........    4

               Statements of Cash Flows

               - For the nine months ended September 30, 2000 and 1999 ........    5

               Selected Per Share Data and Ratios

               - For the nine months ended September 30, 2000 and 1999 ........    7

               Schedule of Portfolio Securities

               - September 30, 2000 ...........................................    8

               Notes to Financial Statements...................................   14

         Item 2. Management's Discussion and Analysis of Financial
                 Condition and Results of Operations ..........................   20

         Item 3. Quantitative and Qualitative Disclosure about Market Risk ....   25

PART II. OTHER INFORMATION

         Item 6. Exhibits and Reports on Form 8-K .............................   25

SIGNATURE .....................................................................   25
</TABLE>
                                       ii
<PAGE>
PART I.   FINANCIAL INFORMATION

ITEM 1.   FINANCIAL STATEMENTS

                              EQUUS II INCORPORATED
                                 BALANCE SHEETS
                    SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                     2000             1999
                                                                 -------------    -------------
<S>                                                              <C>              <C>
Assets

Investments in portfolio securities at fair value
     (cost $120,137,620 and $116,473,793, respectively) ......   $ 105,969,317    $ 115,373,205
Temporary cash investments, at cost which
     approximates fair value .................................      60,041,662       50,334,180
Cash .........................................................           5,514        5,485,502
Accounts receivable ..........................................             867        1,050,606
Accrued interest receivable ..................................       4,148,399        2,778,922
                                                                 -------------    -------------
          Total assets .......................................     170,165,759      175,022,415
                                                                 -------------    -------------
Liabilities and net assets

Liabilities:
     Accounts payable ........................................         391,935          696,501
     Due to management company ...............................         452,606          507,094
     Notes payable to bank ...................................      78,800,000       72,400,000
                                                                 -------------    -------------
          Total liabilities ..................................      79,644,541       73,603,595
                                                                 -------------    -------------
Commitments and contingencies

Net assets:
     Preferred stock, $.001 par value, 5,000,000 shares
        authorized, no shares outstanding ....................            --               --
     Common stock, $.001 par value, 25,000,000 shares
        authorized, 6,480,504 and 6,839,331 shares outstanding           6,481            6,839
     Additional paid-in capital ..............................      99,253,248      102,676,963
     Notes receivable from officers related to
        731,662 shares of common stock .......................     (10,132,925)     (10,132,925)
     Undistributed net investment income .....................         849,817             --
     Undistributed net capital gains .........................      14,712,900        9,968,531
     Unrealized depreciation of portfolio securities, net ....     (14,168,303)      (1,100,588)
                                                                 -------------    -------------
          Total net assets ...................................   $  90,521,218    $ 101,418,820
                                                                 =============    =============
          Net assets per share ...............................   $       15.75    $       16.61
                                                                 =============    =============
</TABLE>
                        The accompanying notes are an
                 integral part of these financial statements

                                       1
<PAGE>


                              EQUUS II INCORPORATED
                           STATEMENTS OF OPERATIONS
            FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                           2000            1999
                                                                       ------------    ------------
<S>                                                                    <C>             <C>
Investment income:
     Income from portfolio securities ..............................   $  1,225,265    $  1,196,829
     Interest from temporary cash investments ......................         44,291          10,020
     Interest on notes receivable from officers ....................         26,079            --
                                                                       ------------    ------------
          Total investment income ..................................      1,295,635       1,206,849
                                                                       ------------    ------------
Expenses:
     Management fees ...............................................        452,606         558,926
     Director fees and expenses ....................................         58,164          70,617
     Professional fees .............................................         28,245          43,751
     Administrative fees ...........................................         12,500          12,500
     Mailing, printing and other expenses ..........................         41,605          18,078
     Interest expense ..............................................        557,193         338,787
     Franchise taxes ...............................................          7,840           8,880
                                                                       ------------    ------------
          Total expenses ...........................................      1,158,153       1,051,539
                                                                       ------------    ------------
Net investment income ..............................................        137,482         155,310
                                                                       ------------    ------------
Realized gain on sales of portfolio securities, net ................      3,397,734      11,523,178
                                                                       ------------    ------------
Unrealized appreciation (depreciation) of portfolio securities, net:
     End of period .................................................    (14,168,303)      9,878,277
     Beginning of period ...........................................     (2,873,741)     25,173,816
                                                                       ------------    ------------
     Unrealized depreciation during the period .....................    (11,294,562)    (15,295,539)
                                                                       ------------    ------------
     Total decrease in net assets from operations ..................   $ (7,759,346)   $ (3,617,051)
                                                                       ============    ============
</TABLE>
                        The accompanying notes are an
                 integral part of these financial statements

                                       2
<PAGE>
                              EQUUS II INCORPORATED
                            STATEMENTS OF OPERATIONS
              FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                           2000            1999
                                                                       ------------    ------------
<S>                                                                    <C>             <C>
Investment income:
     Income from portfolio securities ..............................   $  3,714,325    $  3,657,716
     Interest from temporary cash investments ......................         98,888          46,386
     Interest on notes receivable from officers ....................         75,238            --
     Other income ..................................................        244,231            --
                                                                       ------------    ------------
          Total investment income ..................................      4,132,682       3,704,102
                                                                       ------------    ------------
Expenses:
     Management fees ...............................................      1,456,650       1,672,319
     Director fees and expenses ....................................        176,815         208,792
     Professional fees .............................................         68,405         163,427
     Administrative fees ...........................................         37,500          37,500
     Mailing, printing and other expenses ..........................         70,868          55,744
     Interest expense ..............................................      1,351,162       1,826,036
     Franchise taxes ...............................................        121,465          82,569
                                                                       ------------    ------------
          Total expenses ...........................................      3,282,865       4,046,387
                                                                       ------------    ------------
Net investment income (loss) .......................................        849,817        (342,285)
                                                                       ------------    ------------
Realized gain on sales of portfolio securities, net ................      4,744,369      30,405,864
                                                                       ------------    ------------
Unrealized appreciation (depreciation) of portfolio securities, net:
     End of period .................................................    (14,168,303)      9,878,277
     Beginning of period ...........................................     (1,100,588)     44,311,697
                                                                       ------------    ------------
     Unrealized depreciation during the period .....................    (13,067,715)    (34,433,420)
                                                                       ------------    ------------
     Total decrease in net assets from operations ..................   $ (7,473,529)   $ (4,369,841)
                                                                       ============    ============
</TABLE>
                        The accompanying notes are an
                 integral part of these financial statements

                                       3
<PAGE>
                              EQUUS II INCORPORATED
                       STATEMENTS OF CHANGES IN NET ASSETS
              FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                               2000             1999
                                                         -------------    -------------
<S>                                                      <C>              <C>
Operations:

     Net investment income (loss) ....................   $     849,817    $    (342,285)
     Realized gain on sales of portfolio
        securities, net ..............................       4,744,369       30,405,864
     Unrealized depreciation of portfolio
         securities during period ....................     (13,067,715)     (34,433,420)
                                                         -------------    -------------
Decrease in net assets from operations ...............      (7,473,529)      (4,369,841)
                                                         -------------    -------------
Capital Transactions:

     Shares issued through exercise of stock options .            --         11,124,086
     Notes receivable from sale of 654,358 shares of
     of common stock .................................            --        (11,124,086)
     Interest on non-recourse portion of officer notes         335,915             --
     Repurchase shares of common stock ...............      (3,759,988)            --
                                                         -------------    -------------
Decrease in net assets from capital transactions .....      (3,424,073)            --
                                                         -------------    -------------
Decrease in net assets ...............................     (10,897,602)      (4,369,841)

Net assets at beginning of period ....................     101,418,820      116,155,028
                                                         -------------    -------------
Net assets at end of period ..........................   $  90,521,218    $ 111,785,187
                                                         =============    =============
</TABLE>
                        The accompanying notes are an
                 integral part of these financial statements

                                       4
<PAGE>
                              EQUUS II INCORPORATED
                            STATEMENTS OF CASH FLOWS
              FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                2000             1999
                                                           -------------    -------------
<S>                                                        <C>              <C>
Cash flows from operating activities:
     Interest and dividends received ...................   $   2,031,259    $   1,320,959
     Cash paid to management company, directors,
        bank and suppliers .............................      (3,548,790)      (4,101,095)
                                                           -------------    -------------
        Net cash used by operating activities ..........      (1,517,531)      (2,780,136)
                                                           -------------    -------------
Cash flows from investing activities:
     Purchase of portfolio securities ..................      (9,952,562)     (18,521,639)
     Proceeds from sales of portfolio securities .......       6,753,517       44,249,052
     Principal payments from portfolio companies .......       5,355,763        4,272,725
     Advance to portfolio company ......................            --            (24,483)
     Repayment from portfolio company ..................          50,263          250,000
                                                           -------------    -------------
        Net cash provided by investing activities ......       2,206,981       30,225,655
                                                           -------------    -------------
Cash flows from financing activities:
     Advances from bank ................................     230,000,000      156,850,000
     Repayments to bank ................................    (223,600,000)    (209,500,000)
     Repurchase of common stock ........................      (3,847,094)            --
     Payments received on officer notes ................         991,161             --
     Dividend payments .................................          (6,023)            --
                                                           -------------    -------------
        Net cash provided (used) by financing activities       3,538,044      (52,650,000)
                                                           -------------    -------------
Net increase (decrease) in cash and cash equivalents ...       4,227,494      (25,204,481)

Cash and cash equivalents at beginning of period .......      55,819,682       60,253,990
                                                           -------------    -------------
Cash and cash equivalents at end of period .............   $  60,047,176    $  35,049,509
                                                           =============    =============
</TABLE>
                        The accompanying notes are an
                 integral part of these financial statements

                                       5
<PAGE>
                              EQUUS II INCORPORATED
                           STATEMENTS OF CASH FLOWS
             FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
                                   (Unaudited)
                                   (Continued)
<TABLE>
<CAPTION>
                                                                                       2000            1999
                                                                                   ------------    ------------
<S>                                                                                <C>             <C>
Reconciliation of decrease in net assets from operations to net cash used by
     operating activities:

Decrease in net assets from operations .........................................   $ (7,473,529)   $ (4,369,841)

Adjustments to reconcile decrease in net assets from operations to net cash used
     by operating activities:

     Realized gain on sale of portfolio securities, net ........................     (4,744,369)    (30,405,864)
     Unrealized depreciation of portfolio
         securities during period ..............................................     13,067,715      34,433,420
     Accrued interest and dividends exchanged for
         portfolio securities ..................................................     (1,067,861)     (1,134,232)
     Increase in accrued interest receivable ...................................     (1,033,562)     (1,248,911)
     Amortization of commitment fee ............................................           --            28,125
     Decrease in accounts payable ..............................................       (211,437)        (60,984)
     Decrease in amount due to management company ..............................        (54,488)        (21,849)
                                                                                   ------------    ------------
Net cash used by operating activities ..........................................   $ (1,517,531)   $ (2,780,136)
                                                                                   ============    ============
</TABLE>
                        The accompanying notes are an
                 integral part of these financial statements

                                       6
<PAGE>
                              EQUUS II INCORPORATED
        SUPPLEMENTAL INFORMATION - SELECTED PER SHARE DATA AND RATIOS
            FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                  2000         1999
                                                                --------     --------
<S>                                                             <C>          <C>
Investment income ...........................................   $   0.70     $   0.75

Expenses ....................................................       0.56         0.82
                                                                --------     --------
Net investment income (loss) ................................       0.14        (0.07)

Realized gain on sale of portfolio securities, net ..........       0.80         6.13

Unrealized depreciation of portfolio securities during period      (2.20)       (6.95)
                                                                --------     --------
Decrease in net assets from operations ......................      (1.26)       (0.89)
                                                                --------     --------
Capital Transactions:

Effect of common stock repurchase ...........................       0.34         --

Interest on non-recourse portion of officer notes ...........       0.06         --
                                                                --------     --------
Increase in net assets from capital transactions ............       0.40         --
                                                                --------     --------
Net decrease in net assets ..................................      (0.86)       (0.89)

Net assets at beginning of period ...........................      16.61        23.45
                                                                --------     --------
Net assets at end of period .................................   $  15.75     $  22.56
                                                                ========     ========
Ratio of expenses before interest to average net assets .....       2.01%        1.95%

Ratio of expenses to average net assets .....................       3.42%        3.55%

Ratio of net investment income (loss) to average net assets .       0.89%       (0.30)%

Ratio of decrease in net assets from operations
     to average net assets ..................................      (7.79)%      (3.83)%
</TABLE>
                        The accompanying notes are an
                 integral part of these financial statements

                                       7
<PAGE>
                              EQUUS II INCORPORATED
                        SCHEDULE OF PORTFOLIO SECURITIES
                               SEPTEMBER 30, 2000
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                         DATE OF
       PORTFOLIO COMPANY                           INITIAL INVESTMENT             COST            FAIR VALUE
       -----------------                           ------------------           ---------         ----------
<S>                                                <C>                          <C>               <C>
A. C. Liquidating Corporation                        February 1985
  -10% secured promissory notes                                                $  188,014         $     --

Allied Waste Industries, Inc. (NYSE - AW)              March 1989
  -900,000 shares of common stock                                               3,121,565          8,020,688

The Bradshaw Group                                      May 2000
  -1,335,000 shares of preferred stock                                          1,335,000          1,335,000
  -Warrant to purchase 2,229,450 shares of
   common stock at $.01 through May 2008                                                1                  1

Champion Window, Inc.                                  March 1999
  -1,400,000 shares of common stock                                             1,400,000          5,250,000
  -20,000 shares of preferred stock                                             2,000,000          2,247,500
  -12% subordinated promissory note                                             3,500,000          3,500,000

Container Acquisition, Inc.                          February 1997
  -1,370,000 shares of common stock                                             1,370,000          2,870,000
  -64,283 shares of preferred stock                                             6,428,300          6,428,300
  -Conditional warrant to buy up to
   370,588 shares of common stock
   at $0.01 per share through June 2003                                             1,000              1,000

The Drilltec Corporation                              August 1998
  -140,000 shares of common stock                                               1,400,000                  -
  -6,476 shares of preferred stock                                              6,245,000                  -
  -Prime +9.75% promissory note                                                 1,000,000          1,000,000
  -Warrant to buy 10% of the common
    equity for $100 through September 2002                                              -                  -
                                                                                        -                  -
Drypers Corporation (OTCBB - DYPR)                     July 1991
  -3,677,906 shares of common stock                                             9,328,556            805,577

Equicom, Inc.                                          July 1997
  -452,000 shares of common stock                                                 141,250                  -
  -657,611 shares of preferred stock                                            6,576,110          2,000,000
  -10% promissory note                                                          2,505,750          2,505,750

Equipment Support Services, Inc.                     December 1999
  -35,000 shares of common stock                                                  101,500            101,500
  -35,000 shares of preferred stock                                             1,929,000          1,929,000
  -8% promissory note                                                           1,138,000          1,138,000
</TABLE>
                        The accompanying notes are an
                 integral part of these financial statements

                                       8
<PAGE>
                              EQUUS II INCORPORATED
                        SCHEDULE OF PORTFOLIO SECURITIES
                               SEPTEMBER 30, 2000
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                         DATE OF
         PORTFOLIO COMPANY                          INITIAL INVESTMENT           COST           FAIR VALUE
         -----------------                          ------------------        -----------       ----------
<S>                                                 <C>                       <C>               <C>
FS Strategies, Inc.                                     June 2000
  -110,000 shares of common stock                                             $ 5,500,000       $ 5,500,000

GCS RE, Inc.                                          February 1989
  -1,000 shares of common stock                                                   132,910           600,000

Hot & Cool Holdings, Inc.                               March 1996
  -9% subordinated note                                                         1,075,000                 -
  -10% subordinated notes                                                       2,200,000                 -
  -12% promissory notes                                                         2,500,000                 -
  -19,665 shares of Series A 8%
   preferred stock                                                                786,631                 -
  -6,000 shares of Series B 8%
   preferred stock                                                                300,000                 -
  -Warrants to buy up to 14,942 shares
   of common stock at $0.01 per share
   through March 2006                                                                   -                 -
  -Warrants to buy up to 16,316 shares
   of common stock at $26.00 per share
   through April 2007                                                                   -                 -
  -Warrant to buy 10,000 shares of
   common stock at $0.01 through
   February 28, 2003                                                                    -                 -

LG&E Energy Corp. (NYSE - LGE)                          July 1999
  -17,739 shares of common stock                                                  922,676           420,492
  -Earnout on sale of CRC Holding Corp.                                         1,192,114                 -

NCI Building Systems, Inc. (NYSE - NCS)                 April 1989
  -200,000 shares of common stock                                                 159,784         2,925,000

Paracelsus Healthcare Corporation                     December 1990
  (OTCBB - PLHC)
  -2,018,213 shares of common stock                                             5,278,748            59,620
</TABLE>
                        The accompanying notes are an
                 integral part of these financial statements

                                       9
<PAGE>
                              EQUUS II INCORPORATED
                        SCHEDULE OF PORTFOLIO SECURITIES
                               SEPTEMBER 30, 2000
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                          DATE OF
                PORTFOLIO COMPANY                   INITIAL INVESTMENT            COST           FAIR VALUE
                -----------------                   ------------------         -----------     -------------
<S>                                                 <C>                        <C>             <C>
Petrocon Engineering, Inc.                            September 1998
  -12% promissory note                                                         $ 4,663,356       $ 4,663,356
  -887,338 shares of common stock                                                      635               635
  -8% Series B junior subordinated
   promissory note                                                               2,659,332         2,659,332
  -Warrant to buy up to 1,552,571
   shares of common stock at $0.01
   per share through March 2009                                                          -                 -

 Raytel Medical Corporation                             August 1997
    (NASDAQ - RTEL)
  -33,073 shares of common stock                                                   330,730            41,341

The ServiceMaster Company                                May 1999
    (NYSE-SVM)
  -Warrant to buy up to 29,411 shares
   of common stock at $51 per share
   through September 2001                                                                -                 -

Sovereign Business Forms, Inc.                          August 1996
  -15,659 shares of preferred stock                                              1,565,900         1,565,900
  -15% promissory notes                                                          2,717,461         2,717,461
  -Warrant to buy 551,894 shares of
   of common stock at $1 per share
   through August 2006                                                                   -         1,062,891
  -Warrant to buy 25,070 shares of
   common stock at $1.25 per share
   through October 2007                                                                  -            42,015
  -Warrant to buy 273,450 shares of
   common stock at $1 per share
   through October 2009                                                                  -           526,637

Spectrum Management, LLC                               December 1999
  -285,000 Units of Class A
   equity interest                                                               2,850,000         2,850,000

Stephen L. LaFrance Holdings, Inc.                    September 1997
  -2,498,452 shares of preferred stock                                           2,498,452         2,498,452
  -Warrant to buy 269 shares of
   common stock for $0.01 per share
   through September 2007                                                                -         6,000,000
</TABLE>
                        The accompanying notes are an
                 integral part of these financial statements

                                       10
<PAGE>
                              EQUUS II INCORPORATED
                        SCHEDULE OF PORTFOLIO SECURITIES
                               SEPTEMBER 30, 2000
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                              DATE OF
     PORTFOLIO COMPANY                                   INITIAL INVESTMENT        COST                FAIR VALUE
     -----------------                                   ------------------        -----               ----------
<S>                                                      <C>                      <C>                  <C>
Sternhill Partners I, LP                                    March 2000
  -3% limited partnership interest                                                 $ 600,000             $ 700,000

Strategic Holdings, Inc.                                  September 1995
  -3,089,751 shares of common stock                                                3,088,389               844,791
  -3,822,157 shares of Series B                                                    3,820,624             3,820,624
   preferred stock
  -15% promissory note                                                             6,750,000             6,750,000
  -Warrants to buy 225,000 shares of
   common stock at $0.4643 per share
   through August 2005                                                                     -                     -
  -Warrant to buy 100,000 shares of
   common stock at $1.50 per share
   through August 2005                                                                     -                     -
  -Warrant to buy 2,219,237 shares
   of common stock at $0.01 per share
   through November 2005                                                                   -               584,585
  -1,000 shares of SMIP, Inc.
   common stock                                                                      150,000               150,000
  -15% promissory note of SMIP, Inc.                                                 175,000               175,000

Summit/DPC Partners, L.P.                                  October 1995
  -36.11% limited partnership interest                                             3,326,565            10,000,000

Travis International, Inc.                                December 1986
  -98,761 shares of common stock                                                       5,398             1,000,000

Tulsa Industries, Inc.                                    December 1997
  -27,500 shares of common stock                                                      33,846                     -
  -181,589 shares of Series A
   preferred stock                                                                 5,466,154                     -
  -1,058 shares of Series B
   preferred stock                                                                 1,058,000             1,058,000
  -Junior participation in promissory note                                           655,769               655,769

Turfgrass America, Inc.                                      May 1999
  -3,167,756 shares of common stock                                                  600,000               600,000
  -12% subordinated promissory note                                                3,565,000             3,565,000
</TABLE>
                        The accompanying notes are an
                 integral part of these financial statements

                                       11
<PAGE>
                              EQUUS II INCORPORATED
                        SCHEDULE OF PORTFOLIO SECURITIES
                               SEPTEMBER 30, 2000
                                   (Unaudited)
<TABLE>
<CAPTION>
                                               DATE OF
            PORTFOLIO COMPANy              INITIAL INVESTMENT        COST          FAIR VALUE
            ----------------              --------------------       -----        -----------
<S>                                       <C>                     <C>             <C>
United Industrial Services, Inc.             July 1998
  -35,000 shares of preferred stock                               $ 3,500,000     $ 2,500,000
  -Warrants to buy 63,637 shares of
   common stock at $0.01 through
   June 2008                                                              100             100

Vanguard VII, L.P.                           June 2000
  -1.3% limited partnership interest                                  300,000         300,000
                                                                -------------    ------------
  Total                                                         $ 120,137,620    $105,969,317
                                                                =============    ============
</TABLE>
                        The accompanying notes are an
                 integral part of these financial statements

                                       12
<PAGE>
                              EQUUS II INCORPORATED
                        SCHEDULE OF PORTFOLIO SECURITIES
                               SEPTEMBER 30, 2000
                                   (Continued)

       Substantially all of the Fund's portfolio securities are restricted from
public sale without prior registration under the Securities Act of 1933. The
Fund negotiates certain aspects of the method and timing of the disposition of
the Fund's investment in each portfolio company, including registration rights
and related costs.

       In connection with the investments in Allied Waste Industries, Inc.,
Champion Window, Inc., Container Acquisition, Inc., The Drilltec Corporation,
Drypers Corporation, FS Strategies, Inc., Hot & Cool Holdings, Inc., Sovereign
Business Forms, Inc., Strategic Holdings, Inc., Turfgrass America, Inc. and
United Industrial Services, Inc. rights have been obtained to demand the
registration of such securities under the Securities Act of 1933, providing
certain conditions are met. The Fund does not expect to incur significant costs,
including costs of any such registration, in connection with the future
disposition of its portfolio securities.

       As defined in the Investment Company Act of 1940, at September 30, 2000,
the Fund was considered to have a controlling interest in The Bradshaw Group,
Champion Window, Inc., Container Acquisition, Inc., The Drilltec Corporation,
Drypers Corporation, Equicom, Inc., FS Strategies, Inc., Sovereign Business
Forms, Inc., Spectrum Management LLC, Strategic Holdings, Inc., Tulsa
Industries, Inc. and United Industrial Services, Inc. The fair values of the
Fund's investments in publicly traded securities include discounts from the
closing market prices to reflect the estimated effects of restrictions on the
sale of such securities at September 30, 2000. Such discounts, shown in the
following table, total $495,963 or $0.08 per share as of September 30, 2000.

                                                                   DISCOUNT FROM
                                                                    MARKET VALUE
                                                                   -------------
Allied Waste Industries, Inc. .................................    $     248,063
Drypers Corporation ...........................................          227,914
LG&E Energy Corporation .......................................           13,005
Paracelsus Healthcare Corporation .............................            6,981
                                                                   -------------
      Total discount ..........................................    $     495,963
                                                                   =============

       Income was earned in the amount of $2,444,997 and $3,216,189 for the nine
months ended September 30, 2000 and 1999, respectively, on portfolio securities
of companies in which the Fund has a controlling interest.

       As defined in the Investment Company Act of 1940, all of the Fund's
investments are in eligible portfolio companies. The Fund provides significant
managerial assistance to all of the portfolio companies in which it has
invested, except Equipment Support Services, Inc., LG&E Energy Corp., Raytel
Medical Corporation, Sternhill Partners I, L.P., Summit/DPC Partners, L.P. and
Vanguard VII, L.P. The Fund provides significant managerial assistance to
portfolio companies that comprise 86% of the total value of the investments in
portfolio companies at September 30, 2000.

                        The accompanying notes are an
                 integral part of these financial statements

                                       13
<PAGE>
                              EQUUS II INCORPORATED
                          NOTES TO FINANCIAL STATEMENTS
                          SEPTEMBER 30, 2000, AND 1999


(1)   ORGANIZATION AND BUSINESS PURPOSE

      Equus II Incorporated (the "Fund"), a Delaware corporation with perpetual
existence, was formed by Equus Investments II, L.P. (the "Partnership") on
August 16, 1991. On July 1, 1992, the Partnership was reorganized and all of the
assets and liabilities of the Partnership were transferred to the Fund in
exchange for shares of common stock of the Fund. The shares of the Fund trade on
the New York Stock Exchange under the symbol EQS.

      The Fund seeks to achieve capital appreciation by making investments in
equity and equity-oriented securities issued by privately-owned companies in
transactions negotiated directly with such companies. The Fund seeks to invest
primarily in companies which intend to acquire other businesses, including
leveraged buyouts. The Fund may also invest in recapitalizations of existing
businesses or special situations from time to time. The Fund's investments in
Portfolio Companies consist principally of equity securities such as common and
preferred stock, but also include other equity-oriented securities such as debt
convertible into common or preferred stock or debt combined with warrants,
options or other rights to acquire common or preferred stock. Current income is
not a significant factor in the selection of investments. The Fund elected to be
treated as a business development company under the Investment Company Act of
1940, as amended.

(2)   MANAGEMENT

      The Fund has entered into a management agreement with Equus Capital
Management Corporation, a Delaware corporation (the "Management Company").
Pursuant to such agreement, the Management Company performs certain services,
including certain management and administrative services necessary for the
operation of the Fund. The Management Company receives a management fee at an
annual rate of 2% of the net assets of the Fund, paid quarterly in arrears. The
Management Company also receives compensation for providing certain investor
communication services, of which $37,500 is included in the accompanying
Statements of Operations for each of the nine months ended September 30, 2000
and 1999.

      The Management Company is controlled by a privately-owned corporation.

      As compensation for services rendered to the Fund, each director who is
not an officer of the Fund receives an annual fee of $25,000 paid quarterly in
arrears, a fee of $3,000 for each meeting of the Board of Directors attended in
person, a fee of $1,500 for participation in each telephonic meeting of the
Board of Directors and for each committee meeting attended ($500 for each
committee meeting if attended on the same day as a Board Meeting), and
reimbursement of all out-of-pocket expenses relating to attendance at such
meetings. In addition, each director who is not an officer of the Fund is
granted incentive stock options to purchase shares of the Fund's stock from time
to time. (See Note 10). Certain officers and directors of the Fund serve as
directors of Portfolio Companies, and may receive and retain fees, including
non-employee director stock options, from such Portfolio Companies in
consideration for such service.

                                       14
<PAGE>
(3)   SIGNIFICANT ACCOUNTING POLICIES

      Valuation of Investments - Portfolio investments are carried at fair value
with the net change in unrealized appreciation or depreciation included in the
determination of net assets. Investments in companies whose securities are
publicly traded are valued at their quoted market price, less a discount to
reflect the estimated effects of restrictions on the sale of such securities
("Valuation Discount"), if applicable. Cost is used to approximate fair value of
other investments until significant developments affecting an investment provide
a basis for use of an appraisal valuation. Thereafter, portfolio investments are
carried at appraised values as determined quarterly by the Management Company,
subject to the approval of the Board of Directors. Appraisal valuations are
based upon such factors as the Portfolio Company's earnings, cash flow and net
worth, the market prices for similar securities of comparable companies and an
assessment of the company's future financial prospects. In the case of
unsuccessful operations, the appraisal may be based upon liquidation value.
Appraisal valuations are necessarily subjective. The fair market values of debt
securities, which are generally held to maturity, are determined on the basis of
the terms of the debt securities and the financial conditions of the issuer.
Because of the inherent uncertainty of the valuation of portfolio securities
which do not have readily ascertainable market values, amounting to $103,002,976
(including $9,306,377 in publicly-traded securities, net of a $495,963 Valuation
Discount) and $111,571,919 (including $17,228,705 in publicly-traded securities,
net of a $2,554,017 Valuation Discount) at September 30, 2000 and December 31,
1999, respectively, the Fund's estimate of fair value may significantly differ
from the fair value that would have been used had a ready market existed for the
securities. Appraised values do not reflect brokers' fees or other normal
selling costs or management incentive fees which might become payable on
disposition of such investments.

      On a daily basis, the Fund adjusts its net asset value for the changes in
the value of its publicly held securities and material changes in the value of
its private securities and reports those amounts to Lipper Analytical Services,
Inc. Weekly and daily net asset values appear in various publications, including
BARRON'S and THE WALL STREET JOURNAL and on the Fund's website at
www.equuscap.com.

      Investment Transactions - Investment transactions are recorded on the
accrual method. Realized gains and losses on investments sold are computed on a
specific identification basis.

      Cash Flows - For purposes of the Statements of Cash Flows, the Fund
considers all highly liquid temporary cash investments purchased with an
original maturity of three months or less to be cash equivalents.

      Income Taxes - No provision for federal income taxes has been made in the
accompanying financial statements as the Fund has qualified for pass-through
treatment as a "regulated investment company" under Subchapter M of the Internal
Revenue Code of 1986. As such, all net income is allocable to the stockholders
for inclusion in their respective tax returns. Net capital losses are not
allocable to the shareholders but can be carried over to offset future earnings
of the Fund.

(4)   BOOK TO TAX RECONCILIATION

      The Fund accounts for dividends in accordance with Statement of Position
93-2 which relates to the amounts distributed by the Fund as net investment
income or net capital gains, which are often not equal to the corresponding
income or gains shown in the Fund's financial statements. The Internal Revenue
Service approved the Fund's request, effective October 31, 1998, to change its
year-end for determining capital gains for federal income tax purposes from
December 31 to October 31, which allows current year dividends to be paid prior
to the end of the calendar year. The Fund had undistributed capital gains
(losses) of $9,946,780 and $(6,558,635) for the period from November 1, 1999 to
December 31,

                                       15
<PAGE>
1999 and November 1, 1998 to December 31, 1998, respectively. The Fund realized
net capital gains of $4,744,369 and $30,405,864 for the nine months ended
September 30, 2000 and 1999, respectively. Therefore, for tax purposes, the Fund
had net capital gains of $14,691,149 and $23,847,229 for the eleven months ended
September 30, 2000 and 1999 respectively. The Fund had net investment income for
tax purposes of $557,298 for the nine months ended September 30, 2000. In
addition, the Fund had $21,751 of capital gains and $108,174 of net investment
income from 1999 that was declared as a dividend in August 2000 for distribution
in December 2000.

      The following is a reconciliation of the difference in the Fund's net
realized gain or loss on the sale of portfolio securities for book and tax
purposes. (See Note 12 for losses realized subsequent to September 30, 2000.)

                                                      2000             1999
                                                  ------------     ------------
Net realized gain on the sales
  of portfolio securities, book .............     $  4,744,369     $ 30,405,864
Undistributed 1999 net capital gains ........        9,946,780             --
Undistributed 1998 net capital losses .......             --         (6,558,635)
                                                  ------------     ------------

Net realized gain on the sales
  of portfolio securities, tax ..............     $ 14,691,149     $ 23,847,229
                                                  ============     ============


(5)   DIVIDENDS

      The Fund declared undistributed capital gains of $21,751 from 1999 and
undistributed net investment income of $108,174 from 1999 as a dividend in
August 2000 to be distributed in December 2000.

      The Fund declared no dividends during the nine months ended September 30,
1999. The Fund has adopted a policy to make dividend distributions of at least
$0.60 per share on an annual basis. In the event that taxable income, including
realized capital gains, exceeds $0.60 per share in any year, additional
dividends may be declared to distribute such excess. See Note 12.

(6)   TEMPORARY CASH INVESTMENTS

      Temporary cash investments, which represent the short-term utilization of
cash prior to investment in securities of portfolio companies, distributions to
the shareholders or payment of expenses and notes payable, consist of
$60,041,662 in money market accounts with Bank of America, N.A. earning interest
at a range of 4.82% to 5.00 % per annum at September 30, 2000.

(7)   ACCOUNTS RECEIVABLE

      At December 31, 1999, the accounts receivable balance was $1,050,606, and
primarily consisted of $991,161 in principal due on the notes receivable from
officers that were issued to the Fund upon exercise of their stock options. The
$991,161 was received in January 2000. In addition, $38,818 was included in
receivables due from two portfolio companies as reimbursement for expenses
related to such investments. The $38,818 of receivables was reimbursed to the
Fund by September 2000.

                                       16
<PAGE>
(8)   PORTFOLIO SECURITIES

      During the nine months ended September 30, 2000, the Fund invested
$7,435,001 in four new companies and made follow-on investments of $3,585,422 in
eight companies, including $1,067,861 in accrued interest and dividends received
in the form of additional portfolio securities and accretion of original issue
discount on a promissory note. In addition, the Fund realized a net capital gain
of $4,744,369 during the nine months ended September 30, 2000.

      During the nine months ended September 30, 1999, the Fund invested
$14,619,898 in four new companies and made follow-on investments of $7,280,660
in eleven portfolio companies, including $1,134,232 in accrued interest and
dividends received in the form of additional portfolio securities and accretion
of original issue discount on a promissory note. In addition, the Fund realized
a net capital gain of $30,405,864 during the nine months ended September 30,
1999.

(9)   NOTES PAYABLE TO BANK

      The Fund has a $100,000,000 line of credit promissory note with Bank of
America N.A., with interest payable at 1/2% over the rate earned in its money
market account. The Fund had $60,000,000 and $50,000,000 outstanding on such
note at September 30, 2000 and December 31, 1999, respectively that was secured
by $60,000,000 and $50,000,000 of the Fund's temporary cash investments. The
line of credit promissory note expires July 1, 2001.

      The Fund has a $40,000,000 revolving line of credit with Bank of America,
N.A. that expired on July 1, 2000. The Fund had $18,800,000 and $22,400,000
outstanding under such line of credit at September 30, 2000 and December 31,
1999, respectively, which is secured by the Fund's investments in portfolio
securities. The interest rate ranges from prime -1/2% to prime +1/4% or LIBOR +
1.65%. The Fund also pays interest at the rate of 1/4% per annum on the unused
portion of the line of credit. On July 1, 2000, the revolving line of credit was
reduced to $32,500,000 and the maturity date was extended to July 1, 2001.

      The average daily balances outstanding on the Fund's notes payable during
the nine months ended September 30, 2000 and 1999, were $20,399,903 and
$30,246,154, respectively.

(10)  STOCK OPTION PLAN

      Shareholders have approved the Equus II Incorporated 1997 Stock Incentive
Plan ("Stock Incentive Plan"), which authorizes the Fund to issue options to the
directors and officers of the Fund in an aggregate amount of up to 20% of the
outstanding shares of common stock of the Fund.

      The Stock Incentive Plan also provides that each director who is not an
officer of the Fund is, on the first business day following each annual meeting,
granted an incentive stock option ("Director Options") to purchase 2,000 shares
of the Fund's common stock. On May 10, 2000, options to acquire an aggregate
total of 12,000 shares for $9.94 per share were issued to the directors.

      Under the Stock Incentive Plan, options to purchase 306,773 and 296,773
shares of the Fund's common stock with a weighted average exercise price of
$18.71 and $17.66 per share were outstanding at September 30, 2000 and 1999,
respectively. Outstanding options at September 30, 2000 have exercise prices
ranging from $9.94 to $27.44 and expire in May 2007 through May 2010. No options
were exercised during the nine months ended September 30, 2000. On September 30,
1999, options to purchase 654,358 shares of common stock of the Fund were
exercised by the officers of the Fund for $17 per share. The exercise price of
$11,124,086 was paid in the form of promissory notes from the officers

                                       17
<PAGE>
to the Fund. The notes bear interest at 5.42% per annum, have limited recourse
and are due on or before September 30, 2008. The notes are secured by the
654,358 shares, including any proceeds or dividends paid thereon. During 1999, a
dividend of $4.25 per share was paid by the Fund. As a result of this dividend,
135,608 additional shares were issued to the officers and pledged to the Fund.
In addition, principal payments of $991,161, representing 58,304 shares, were
made on the notes. As a result of the additional shares issued and payments
made, the notes are secured by 789,966 shares of common stock and the
outstanding note balance is $10,132,925 at September 30, 2000.

       The notes receivable, as well as 731,662 of such shares of pledged common
stock, are not included in the Fund's net asset value per share. The shares of
stock financed by the notes from the officers will be included in the net asset
value per share as the shares are paid for or released from collateral. Shares
may be released as payments on the notes are made or as the value of the
collateral increases. Generally accepted accounting principles require that the
options issued to the officers be accounted for using variable plan accounting
due to the limited recourse provision of such notes. Additionally, the dividends
paid on the non-recourse portion of the notes are required to be recorded as
compensation expense in the statements of operations, and interest recorded on
the non-recourse portion of the notes is required to be recorded as an increase
to additional paid-in capital. Accordingly, for the nine months ended September
30, 2000, interest of $335,915 was credited to additional paid-in capital.
Additionally, the limited recourse notes receivable from the officers are
required to be recorded as a reduction of net assets. As of September 30, 2000
and December 31, 1999, the accrued interest on the notes receivable from the
officers was $491,260 and $153,622, respectively. If the notes and the shares
were included in the Fund's balance sheet, the net asset value would have been
$17.51 per share at September 30, 2000.

      As of September 30, 2000 and 1999, all outstanding options, except the
12,000 Director Options issued in 2000, were "out of the money" and would not
have had a dilutive effect on net assets per share if exercised, assuming the
Fund would use the proceeds from the exercise of such options to purchase shares
at the market price pursuant to the treasury stock method.

(11)  COMMITMENTS AND CONTINGENCIES

      The Fund has made a commitment to invest,  under certain  circumstances,
up to an additional $150,000 in Equicom,  Inc., $500,000 in Sovereign Business
Forms,  Inc.,$2,400,000  in  Sternhill  Partners  I, L.P.,  $750,000  in Tulsa
Industries, Inc. and $2,700,000 in Vanguard VII, L.P.

      The Fund and certain of the portfolio companies are involved in asserted
claims and have the possibility for unasserted claims which may ultimately
affect the fair value of the Fund's portfolio investments. In the opinion of
management, the financial position or operating results of the Fund will not be
materially affected by these claims.

       During 2000, the Fund completed the 300,000 share purchase program
announced in 1999 with the repurchase of 191,127 shares for $1,976,152. On May
11, 2000 the Fund announced it would purchase up to an additional 400,000 shares
of common stock in open market transactions over the next six months, subject to
market conditions and limitations. As of September 30, 2000, the Fund had
repurchased 167,700 shares of the 400,000 shares for $1,783,861, $28,827 of
which is included in accounts payable at September 30, 2000. The 167,700 shares
were repurchased at an average discount of 36.8% from net asset value.

(12)  SUBSEQUENT EVENTS

      Subsequent to September 30, 2000, the Fund repaid a net $62,550,000 of
notes payable to the bank.

                                       18
<PAGE>
      Subsequent to September 30, 2000, the Fund repurchased an additional
65,700 shares of common stock for $673,865.

      On October 10, 2000, Drypers Corporation ("DYPR") filed a voluntary
petition for reorganization pursuant to Chapter 11 of the U.S. Bankruptcy Code
due to increased pressure on cash flows, a termination of its license agreement
with Procter & Gamble, and other matters. Subsequent to September 30, 2000, the
Fund sold 1,703,200 shares of DYPR common stock for $83,002, realizing a capital
loss of $7,270,848.

      As of September 15, 2000, Paracelsus Healthcare Corporation ("PLS") filed
a voluntary petition for reorganization pursuant to Chapter 11 of the U.S.
Bankruptcy Code. On October 27, 2000, the Fund sold 173,868 shares of common
stock for $4,460, realizing a capital loss of $974,839.

      In addition to the DYPR and PLS capital losses, the Fund realized the
following capital losses subsequent to September 30, 2000 for the tax year ended
October 31, 2000:

      o     sale of 17,739 common shares of LG&E Energy Corporation for
            $434,808, realizing a capital loss of $487,868;

      o     sale of Hot & Cool Holdings, Inc. preferred shares for $1, realizing
            a capital loss of $1,086,631; and

      o     the write-off of 140,000 shares of common stock and 6,476 shares of
            preferred stock of The Drilltec Corporation, realizing a capital
            loss of $7,645,000.

       In November 2000, the Fund declared a dividend of $0.60 per share, the
majority of which will be a return of capital. The dividend will be paid to the
shareholders of record on November 20, 2000. Shareholders may elect to receive
the dividend in cash, or it may be paid by the issuance of additional shares of
common stock. Payment of the dividend will occur on or before December 29, 2000.

                                       19
<PAGE>
ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
            RESULTS OF OPERATIONS.

LIQUIDITY AND CAPITAL RESOURCES

      At September 30, 2000, the Fund had $105,969,317 of its assets invested in
portfolio securities of 29 companies, and has committed to invest up to an
additional $6,500,000 in five of such companies. Current temporary cash
investments, anticipated future investment income, proceeds from borrowings, and
proceeds from the sale of existing portfolio securities are believed to be
sufficient to finance these commitments. At September 30, 2000, the Fund had
$18,800,000 outstanding on a $32,500,000 revolving line of credit loan from a
bank.

      Net cash used by operating activities was $1,517,531 and $2,780,136 for
the nine months ended September 30, 2000 and 1999, respectively.

         At September 30, 2000, the Fund had $60,041,662 of its total assets of
$170,165,759 invested in temporary cash investments consisting of money market
securities. This amount includes proceeds of $60,000,000 from a $100,000,000
note payable to a bank that is utilized to enable the Fund to achieve adequate
diversification to maintain its pass-through tax status as a regulated
investment company. Such amount was repaid to the bank on October 2, 2000.

      The Fund has the ability to borrow funds and issue forms of senior
securities representing indebtedness or stock, such as preferred stock, subject
to certain restrictions. Net investment income and net realized gains from the
sales of portfolio investments are intended to be distributed at least annually,
to the extent such amounts are not reserved for payment of contingencies or to
make follow-on or new investments. Management believes that the availability
under its line of credit, as well as the ability to sell its investments in
publicly traded securities, are adequate to provide payment for any expenses and
contingencies of the Fund.

      The Fund reserves the right to retain net long-term capital gains in
excess of net short-term capital losses for reinvestment or to pay contingencies
and expenses. Such retained amounts, if any, will be taxable to the Fund as
long-term capital gains and stockholders will be able to claim their
proportionate share of the federal income taxes paid by the Fund on such gains
as a credit against their own federal income tax liabilities. Stockholders will
also be entitled to increase the adjusted tax basis of their Fund shares by the
difference between their undistributed capital gains and their tax credit.

      The Fund may repurchase its shares, subject to the restrictions of the
Investment Company Act. On May 11, 2000, the Board of Directors approved a
program to purchase up to 400,000 shares of the Fund's common stock, pursuant to
which the Fund repurchased 167,700 shares for $1,783,861 through September 30,
2000. Such stock was repurchased at an average discount of 36.8% from net asset
value.

RESULTS OF OPERATIONS

INVESTMENT INCOME AND EXPENSE

      Net investment income (loss) after all expenses amounted to $849,817 and
$(342,285) for the nine months ended September 30, 2000 and 1999, respectively.
The increase in net investment income in 2000 is due to a decrease in interest
expense, professional fees and other expenses and an increase in other income.
Interest expense decreased to $1,351,162 in 2000 from $1,826,036 in 1999 due to
a decrease in the average daily balances outstanding on the lines of credit to
$20,399,903 during the nine months ended September 30, 2000 from $29,513,553
during the comparable period in 1999. In the

                                       20
<PAGE>
second quarter of 2000, the Fund received a refund of legal fees that had been
previously paid in conjunction with the lawsuit related to Champion Healthcare
Corporation and Paracelsus Healthcare Corporation. The other income recorded in
2000 is a fee received in conjunction with the Fund's investment in FS
Strategies, Inc.

      The Management Company receives management fee compensation at an annual
rate of 2% of the net assets of the Fund paid quarterly in arrears. Such fees
amounted to $1,456,650 and $1,672,319 during the nine months ended September 30,
2000 and 1999, respectively. The decrease in management fees during the nine
months ended September 30, 2000 was due to the decrease in net assets.

      Shareholders have approved the Equus II Incorporated 1997 Stock Incentive
Plan ("Stock Incentive Plan") which authorizes the Fund to issue options to the
directors and officers of the Fund in an aggregate amount of up to 20% of the
outstanding shares of common stock of the Fund

      The Stock Incentive Plan also provides that each director who is not an
officer of the Fund is, on the first business day following each annual meeting,
granted an incentive stock option ("Director Options") to purchase 2,000 shares
of the Fund's common stock.

      Under the Stock Incentive Plan, options to purchase 306,773 and 296,773
shares of the Fund's common stock with a weighted average exercise price of
$18.71 and $17.66 per share were outstanding at September 30, 2000 and 1999,
respectively. Outstanding options at September 30, 2000 have exercise prices
ranging from $9.94 to $27.44 and expire in May 2007 through May 2010. On
September 30, 1999, options to purchase 654,358 shares of common stock of the
Fund were exercised by the officers of the Fund for $17 per share. The exercise
price of $11,124,086 was paid in the form of promissory notes from the officers
to the Fund. The notes bear interest at 5.42% per annum, have limited recourse
and are due on or before September 30, 2008. The notes are secured by the
654,358 shares, including any proceeds or dividends paid thereon. During 1999, a
dividend of $4.25 per share was paid. As a result of the dividend, 135,608
additional shares were issued to the officers and pledged to the Fund. In
addition, principal payments of $991,161, representing 58,304 shares, were made
on the notes. As a result of the additional shares issued and payments made, the
notes are secured by 789,966 shares of common stock and the outstanding note
balance is $10,132,925 at September 30, 2000.

      The notes receivable, as well as 731,662 of such shares of common stock,
are not included in the Fund's net asset value per share. The shares of stock
financed by the notes from the officers will be included in the net asset value
per share as the shares are paid for or released from collateral. Shares may be
released as payments on the notes are made or as the value of the collateral
increases. Generally accepted accounting principles require that the options
issued to the officers be accounted for using variable plan accounting due to
the limited recourse provision of such notes. Additionally, the dividends paid
on the non-recourse portion of the notes are required to be recorded as
compensation expense in the statements of operations, and interest recorded on
the non-recourse portion of the notes is required to be recorded as an increase
to additional paid-in capital. Accordingly, for the nine months ended September
30, 2000, interest of $335,915 was credited to additional paid-in capital.
Additionally, the limited recourse notes receivable from the officers are
required to be recorded as a reduction of net assets. As of September 30, 2000
and December 31, 1999, the accrued interest on the notes receivable from the
officers was $491,260 and $153,622, respectively. If the notes and the shares
were included in the Fund's balance sheet, the net asset value would have been
$17.51 per share at September 30, 2000.

      As of September 30, 2000 and 1999, all outstanding options, except the
12,000 Director Options issued in 2000, were "out of the money" and would not
have had a dilutive effect on net assets per share if exercised, assuming the
Fund would use the proceeds from the exercise of such options to repurchase
shares at the market price pursuant to the treasury stock method.

                                       21
<PAGE>
REALIZED GAINS AND LOSSES ON SALES OF PORTFOLIO SECURITIES

      During the nine months ended September 30, 2000, the Fund realized net
capital gains of $4,744,369 as a result of additional compensation related to
the previous sale of three Portfolio Companies. The Fund realized a capital gain
of $680,636 as a result of additional compensation from the escrow account
related to the 1998 sale of WMW Industries. The Fund realized a capital gain of
$653,697 as a result of additional compensation from the escrow account related
to the 1999 sale of HTD Corporation. The Fund also wrote off a receivable from
Restaurant Development Group realizing a capital loss of $8,315. In addition,
during the quarter, the Fund received proceeds from Video Rental of
Pennsylvania, Inc. in the amount of $3,722,349 for repayment of the outstanding
notes payable and $250,000 for redemption of the common and preferred stock and
did not realize a capital gain. The Fund also received proceeds from Equus Video
Corporation and realized a capital loss of $5,919.

      In addition, the Fund sold 237,364 shares of LG&E Energy Corp ("LGE")
common stock for $5,759,059 realizing a capital gain of $2,399,812. Also, as a
result of the earn out related to the sale of CRC Holding, the Fund received
cash of $994,458 and 17,739 shares of LGE and realized the $994,458 as a capital
gain.

      During the nine months ended September 30, 1999, the Fund realized net
capital gains of $30,405,864 from the sale of securities of seven Portfolio
Companies, as follows:

      o     54,334 shares of United Rentals, Inc. for $1,738,036, realizing a
            capital gain of $1,737,639;

      o     134,472 common shares of United States Filter Corporation for
            $3,884,978 realizing a capital gain of $2,324,700;

      o     100,000 shares of Allied Waste Industries commons stock for
            $1,832,122 realizing a capital gain of $1,357,966;

      o     1,125,000 shares of American Residential Services, Inc. for
            $6,468,750 realizing a capital gain of $3,468,478;

      o     149,337 shares of Travis International for $6,668,987, including a
            $479,849 promissory note, realizing a capital gain of $6,114,095;

      o     its investment in HTD Corporation for $12,877,114, realizing a
            capital gain of $3,341,546; and

      o     its investment in CRC Holdings, realizing a capital gain of
            $12,128,572.

      The Fund sold CRC Holdings to LGE and received $12,128,572 in cash and
 121,504 shares of LGE common stock. An additional 115,860 shares of LGE stock
 are being held in escrow to secure contractual representations and warranties.
 In addition, LGE has committed to pay up to an additional $11.7 million to the
 Fund if the CRC business sold to LGE achieves certain levels of financial
 performances through March 31, 2002.

      The Fund also realized a capital gain as a result of the receipt of
$654,570 in additional compensation from the escrow account related to the 1998
sale of WMW Industries, Inc. In addition, Atlas Acquisition paid $128,298 in
principal on its outstanding junior participation note and the Fund realized a
loss of $721,702 on the remaining balance of the note.

                                       22
<PAGE>
DEPRECIATION OF PORTFOLIO SECURITIES

      Net unrealized depreciation on investments increased $13,067,715 during
the nine months ended September 30, 2000, from $1,100,588 to $14,168,303. Such
net increase resulted from increases in the estimated fair value of securities
of seven of the Fund's Portfolio Companies aggregating $10,530,498, decreases in
the estimated fair value of securities of ten of the Fund's Portfolio Companies
aggregating $20,476,333 and the transfer of $3,121,880 in net unrealized
appreciation to net realized loss from the sale of securities of two Portfolio
Companies.

      Net unrealized appreciation on investments decreased $34,443,420 during
the nine months ended September 30, 1999, from $44,311,697 to $9,878,277. Such
net decrease resulted from decreases in the estimated fair value of securities
of six of the Fund's Portfolio Companies aggregating $17,156,508, an increase in
the estimated fair value of securities of seven Portfolio Companies of
$7,105,937, and the transfer of $24,382,849 in net unrealized appreciation to
net realized gains from the sale of investments in seven Portfolio Companies and
the write-off of one Portfolio Company.

DIVIDENDS

      The Fund declared undistributed capital gain of $21,751 from 1999 and
undistributed net investment income of $108,174 from 1999 as a dividend in
August 2000 to be distributed in December 2000. The Fund declared no dividends
for the nine months ended September 30, 1999.

PORTFOLIO INVESTMENTS

      During the nine months ended September 30, 2000, the Fund invested
$7,435,001 in four new companies and made follow-on investments of $3,585,422 in
eight portfolio companies, including $1,067,861 in accrued interest and
dividends received in the form of additional portfolio securities and accretion
of original issue discount on a promissory note.

      During 2000, the Fund advanced $476,000 to The Drilltec Corporation
pursuant to a prime + 9.75% promissory note, $514,996 to Equicom, Inc. pursuant
to a 10% promissory note and $500,000 to Hot & Cool Holdings, Inc. pursuant to a
12% promissory note.

      During the nine months ended September 30, 2000, the Fund received an
additional 4,593 and 1,011 shares of preferred stock of Container Acquisition,
Inc and Sovereign Business Forms, Inc. ("Sovereign") in payment of $459,300 and
$101,100 in dividends, respectively. In addition, Sovereign elected to convert
$417,461 of accrued interest into the balance of the 15% promissory notes due to
the Fund.

      On February 28, 2000, the Fund invested an additional $726,565 in
Summit/DPC Partners to allow the partnership to purchase additional shares of
Doane Pet Care Enterprises, Inc. common stock.

      On March 15, 2000, the Fund committed to invest up to $3,000,000 in
Sternhill Partners I, L.P., a fund formed to invest in private, early-stage,
emerging-growth companies involved in information technology and, on limited
occasions, life science technologies. $600,000 of such commitment has been
funded through September 30, 2000.

      As of September 30, 2000, the original issue discount accretion on the
discounted 12% subordinated promissory note due from Turfgrass America, Inc.
("Turfgrass") amounted to $90,000, bringing the balance of the note to
$3,565,000 at September 30, 2000. The original issue discount is being accreted
over the life of the note.

                                       23
<PAGE>
      During the second quarter of 2000, the Fund committed to invest up to
$3,000,000 in Vanguard VII, L.P., a fund formed to invest in seed and early
stage communications, internet and life sciences technology companies. The
Fund's investment consists of a 1.4% limited partnership interest. $300,000 of
this commitment has been funded through September 30, 2000.

      During May 2000, the Fund invested $1,335,001 in The Bradshaw Group, a
company that provides innovative printing solutions primarily for customers in
need of high speed mass printings. The Fund's investment consists of 8%
redeemable preferred stock and a warrant to acquire 2,229,450 shares of common
stock at $0.01 per share through May 2008.

      During June 2000, the Fund invested $5,500,000 in FS Strategies, Inc., a
company formed to acquire the stock of Initial Staffing Services ("Initial") and
EESIS, Inc. ("EESIS"). Initial provides temporary staffing and permanent
placement services. EESIS is a web based human resources solutions provider. The
Fund's investment consists of 110,000 shares of common stock.

SUBSEQUENT EVENTS

      Subsequent to September 30, 2000, the Fund repaid a net $62,550,000 of
notes payable to the bank.

      Subsequent to September 30, 2000, the Fund repurchased an additional
65,700 shares of common stock for $673,865.

      On October 10, 2000, Drypers Corporation ("DYPR") filed a voluntary
petition for reorganization pursuant to Chapter 11 of the U.S. Bankruptcy Code
due to increased pressure on cash flows, a termination of its license agreement
with Procter & Gamble, and other matters. Subsequent to September 30, 2000, the
Fund sold 1,703,200 shares of DYPR common stock for $83,002, realizing a capital
loss of $7,270,848.

      As of September 15, 2000, Paracelsus Healthcare Corporation ("PLS") filed
a voluntary petition for reorganization pursuant to Chapter 11 of the U.S.
Bankruptcy Code. On October 27, 2000, the Fund sold 173,868 shares of common
stock for $4,460, realizing a capital loss of $974,839.

      In addition to the DYPR and PLS capital losses, the Fund realized the
following capital losses subsequent to September 30, 2000 for the tax year ended
October 31, 2000:

      o     sale of 17,739 common shares of LG&E Energy Corporation for
            $434,808, realizing a capital loss of $487,868;

      o     sale of Hot & Cool Holdings, Inc. preferred shares for $1, realizing
            a capital loss of $1,086,631; and

      o     the write-off of 140,000 shares of common stock and 6,476 shares of
            preferred stock of the Drilltec Corporation, realizing a capital
            loss of $7,645,000.

      In November 2000, the Fund declared a dividend of $0.60 per share, the
 majority of which will be a return of capital. The dividend will be paid to the
 shareholders of record on November 20, 2000. Shareholders may elect to receive
 the dividend in cash, or it may be paid by the issuance of additional shares of
 common stock. Payment of the dividend will occur on or before December 29,
 2000.

                                       24
<PAGE>
ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

      The Fund is subject to financial market risks, including changes in
interest rates with respect to its investments in debt securities and its
outstanding debt payable, as well as changes in marketable equity security
prices. The Fund does not use derivative financial instruments to mitigate any
of these risks. The return on the Fund's investments is generally not affected
by foreign currency fluctuations.

      The Fund's investment in portfolio securities consists of some fixed rate
debt securities. Since the debt securities are generally priced at a fixed rate,
changes in interest rates do not directly impact interest income. In addition,
changes in market interest rates are not typically a significant factor in the
Fund's determination of fair value of these debt securities. The Fund's debt
securities are generally held to maturity and their fair values are determined
on the basis of the terms of the debt security and the financial condition of
the issuer.

      The Fund's liabilities consist of debt payable to a financial institution.
The revolving credit facilities are priced at floating rates of interest, with a
basis of LIBOR or prime rate at the Fund's option. As a result of the floating
rate, a change in interest rates could result in either an increase or decrease
in the Fund's interest expense.

      A portion of the Fund's investment portfolio consists of debt and equity
investments in private companies. The Fund would anticipate no impact on these
investments from modest changes in public market equity prices. However, should
significant changes in market equity prices occur, there could be a longer-term
effect on valuations of private companies, which could affect the carrying value
and the amount and timing of gains realized on these investments. A portion of
the Fund's investment portfolio also consists of common stocks and warrants to
purchase common stock in publicly traded companies. These investments are
directly exposed to equity price risk, in that a hypothetical ten percent change
in these equity prices would result in a similar percentage change in the fair
value of these securities.

ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K.

      (a)   EXHIBITS

      10.   Material Contracts

      (b)   REPORTS ON FORM 8-K

      No reports on Form 8-K were filed by the Fund during the period for which
this report is filed.

                                    SIGNATURE

      Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has caused this report to be signed by the
undersigned, thereunto duly authorized.


Date:  November 14, 2000                  EQUUS II INCORPORATED

                                          /S/NOLAN LEHMANN
                                          Nolan Lehmann
                                          President and Principal Financial
                                          and Accounting Officer

                                       25