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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K
(Mark One)

[X]  ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
     1934 (FEE REQUIRED)

For the fiscal period ended December 31, 2001

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

Commission File Number 0-17526

                          EQUUS CAPITAL PARTNERS, L.P.
                          ----------------------------
             (Exact name of registrant as specified in its charter)

                Delaware                                 76-0264305
      -------------------------------      ------------------------------------
      (State or other jurisdiction of      (I.R.S. Employer Identification No.)
       incorporation or organization)

      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:  None

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

                      Units of Limited Partners' Interests
                      ------------------------------------
                                (Title of Class)

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[ ]

Indicate by check mark if disclosure of delinquent filers pursuant to item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in the definitive proxy or information statement
incorporated by reference in Part III of this 10-K. [X]

As of December 31, 2001, 12,187 units ("Units") of limited partners' interests
in the Partnership were held by non-affiliates of the registrant. The net asset
value of a Unit at December 31, 2001 was $124.55. There is no established market
for such Units.

                   Documents incorporated by reference: None.
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                                TABLE OF CONTENTS
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PART I

Item  1.    Business ................................................................1

Item  2.    Properties ..............................................................9

Item  3.    Legal Proceedings .......................................................9

Item  4.    Submission of Matters to a Vote of Security
               Holders .............................................................10

PART II

Item  5.    Market for the Registrant's Units
               and Related Unitholder Matters ......................................10

Item  6.    Selected Financial Data ................................................11

Item  7.    Management's Discussion and Analysis of
               Financial Condition and Results of
               Operations ..........................................................12

Item 7A.    Quantitative and Qualitative Disclosure About Market Risk ..............16

Item  8.    Financial Statements and Supplementary
               Data ................................................................17

Item  9.    Changes in and Disagreements with Accountants on
               Accounting and Financial Disclosure .................................33

PART III

Item 10.    Directors and Executive Officers of
               the Registrant ......................................................33

Item 11.    Executive Compensation .................................................36

Item 12.    Security Ownership of Certain
               Beneficial Owners and Management ....................................39

Item 13.    Certain Relationships and Related
               Transactions ........................................................40

PART IV

Item 14.    Exhibits, Financial Statement Schedules
               and Reports on Form 8-K .............................................40
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Item 1. Business.
------  --------

     Equus Capital Partners, L.P. (the "Partnership") is a limited partnership
organized under Delaware law on December 1, 1988, and has elected to be a
business development company under the Investment Company Act of 1940 (the
"Investment Company Act"). The Partnership's total contributed capital was
$12,435,691, consisting of $12,307,375 for 12,310 Units from 1,428 limited
partners, $125,316 from the Managing Partner and $3,000 from the Independent
General Partners. The investment objective of the Partnership is to achieve
current income and capital appreciation principally by making investments in
"mezzanine" securities, consisting primarily of subordinated debt or preferred
stock combined with equity participations in common stock or rights to acquire
common stock, and subsequently disposing of such investments. The Partnership
Agreement provided for termination of the Partnership on December 31, 1999,
subject to the right of the Independent General Partners to extend the term for
up to four additional years if they determine it is in the best interest of the
Partnership. In 2000 and 1999, the agreement was extended through December 31,
2001 and 2000, respectively. At a meeting in November 2001, the Independent
General Partners extended the termination date for an additional one year to
December 31, 2002. The Partnership has only two remaining investments, and is
planning to dispose of such investments and distribute the proceeds from such
dispositions before the end of 2002. The Partnership will be dissolved after the
disposition of the two remaining investments. The Managing Partner is wholly
owned by Equus Capital Management Corporation.

     Equus Capital Corporation, a Delaware corporation (the "Managing Partner"),
is the managing general partner of the Partnership and is responsible for
approving the Partnership's investments, arranging additional financing for
companies in which the Partnership invests ("Portfolio Companies") and providing
management assistance to Portfolio Companies.

     Two independent individuals (the "Independent General Partners") also serve
as general partners of the Partnership. The Independent General Partners are
responsible for providing overall guidance and supervision of the Partnership,
approving the Partnership's investments and performing various duties imposed on
disinterested directors of a business development company by the Investment
Company Act. Among other things, the Independent General Partners supervise the
management arrangements for the Partnership, the custody arrangements with
respect to portfolio securities, the selection of independent accountants,
fidelity bonding and any transactions with affiliates.

     The Partnership has engaged Equus Capital Management Corporation, a
Delaware corporation (the "Management Company"), to provide certain management
and administrative services to the Partnership. Subject to the supervision of
the Independent General Partners, the Management Company performs, or arranges
for third parties to perform, the management, certain investment advisory and
other services necessary for the operation of the Partnership. The Management
Company identifies, evaluates, structures, monitors and arranges for the
disposition of the Partnership's investments, and provides managerial assistance
to the Portfolio Companies. The Management Company manages the Partnership's
cash and short-term, interest-bearing investments. The Management Company also
provides the Partnership, at the Management Company's expense, with the office
space, facilities, equipment and personnel (whose salaries and benefits are paid
by the Management Company) necessary to enable the Partnership to conduct its
business.

     The Managing Partner and the Management Company are sometimes referred to
herein collectively as "Management."

     The Partnership's office is located at 2929 Allen Parkway, Suite 2500,
Houston, Texas 77019- 2120, and its telephone number is (713) 529-0900.

     The Partnership has no employees.

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General

     The investment objective of the Partnership is to achieve current income
and capital appreciation principally by making investments in "mezzanine"
securities, consisting primarily of subordinated debt or preferred stock
combined with equity participations in common stock or rights to acquire common
stock, and subsequently disposing of such investments. Such investments are
collectively referred to herein as "Enhanced Yield Investments." The Partnership
completed its initial investment program in 1993, and has made and may only make
follow-on investments in existing portfolio companies after such date.

Coinvestments

     The Partnership coinvested in certain Enhanced Yield Investments with Equus
II Incorporated, a Delaware corporation ("EQS"). The Partnership and Management
obtained an order from the Securities and Exchange Commission (the "SEC")
exempting the Partnership from certain prohibitions contained in the Investment
Company Act relating to coinvestments by the Partnership and EQS. Under the
terms of the order, Enhanced Yield Investments purchased by the Partnership and
EQS were required to meet certain guidelines or be approved in advance by the
Managing Partner and the Independent General Partners and were required to
satisfy certain conditions established by the SEC.

Temporary Investments

     Pending investment in Enhanced Yield Investments or distribution to
partners, the Partnership invests its available funds in interest-bearing bank
accounts, money market mutual funds, U.S. Treasury securities and/or
certificates of deposit with maturities of less than one year (collectively,
"Temporary Investments"). Temporary Investments also include commercial paper
(rated or unrated) and other short- term securities. Temporary Investments
constituting cash, cash items, securities issued or guaranteed by the U.S.
Treasury or U.S. Government agencies and high quality debt securities
(commercial paper rated in the two highest rating categories by Moody's Investor
Services, Inc. or Standard & Poor's Corporation, or if not rated, issued by a
company having an outstanding debt issue so rated) with maturities of less than
one year at the time of investment will qualify for determining whether the
Partnership has 70% of its total assets invested in Managed Companies (as
hereafter defined) or in qualified Temporary Investments for purposes of the
business development company provisions of the Investment Company Act. See
"Regulation" below.

     The Partnership's Enhanced Yield Investments generally are unrated
securities. Such securities would, however, if rated, typically be classified as
speculative securities that generally would be of the type rated BB/Ba to
CCC/Caa.

Current Portfolio Companies

     The following is a description of the Partnership's investments as of
December 31, 2001:

     Artegraft, Inc.

     Artegraft, Inc. ("Artegraft"), Morristown, New Jersey, manufactures and
distributes a specialty surgical product line consisting of bovine vascular
prostheses used in hemodialysis and other healthcare procedures. Since 1996,
Artegraft has been in dispute with Johnson & Johnson, the former owner of the
business, over issues stemming from its acquisition by Artegraft. In January
2002, the arbitrators ruled in favor of Johnson & Johnson on most of the issues.
Accordingly, Artegraft is considering its options, which will most likely result
in a restructuring of its outstanding indebtedness. As such, the Partnership has
reduced the value of this investment effective as of December 31, 2001. At
December 31, 2001, the Partnership's investment in Artegraft, valued at $0, with
a cost of $954,597, consisted of $702,500 in a 7% demand promissory note,
$252,047 in a 9% demand promissory note, and warrants to buy up to 1,000 and
4,000 shares of common stock for $0.01 and $17.50 per share, respectively. The
Partnership's investment

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represents a 24% fully-diluted equity interest in Artegraft. Tracy H. Cohen, a
Vice President of the Managing Partner, serves as a director of Artegraft.

     MaxTech Holdings, Inc.

     MaxTech Holdings, Inc. ("MaxTech"), Dallas, Texas, provided environmental
and engineering consulting services throughout the United States. During 2001,
MaxTech sold its services business, but continues to own several tracts of real
estate, which it intends to sell. At December 31, 2001, the Partnership's
investment in MaxTech, valued at $1,100,000 with a cost of $15,781, consisted of
59,875 shares of common stock. During 2001, the Partnership received proceeds
from the redemption of its preferred stock and received a partial payment
pursuant to a plan of liquidation on its common stock. Gary L. Forbes, a Vice
President of the Managing Partner and Management Company, serves on the Board of
Directors of MaxTech.

Previously Owned Portfolio Companies

     AutoCorp, Inc. ("AutoCorp")

     In 1991, the Partnership advanced $1,650,000 to AutoCorp in exchange for
$1,050,000 in subordinated 12.5% term notes and a $600,000, 12.5% subordinated
convertible promissory note. AutoCorp, doing business as Pettigrew-Smith Auto
Supply, was a retail distributor of auto parts and supplies in Houston, Texas.
During 1992, the Partnership was repaid its principal and interest on its
investment in AutoCorp.

     CMC Holdings, Inc. ("CMC")

     In November 1992, the Partnership made its initial investment in CMC
Holdings, Inc. which was formed to acquire Cliff's Restaurants, a chain of
upscale hamburger restaurants in Houston, Texas. Through December 31, 1995, the
Partnership had invested $2,488,000 in CMC. On December 22, 1995, the
Partnership contributed $1,174,500 of its notes receivable from CMC to E-B
Holdings, Inc. The balance of its investment was written off in December 1995,
resulting in a realized capital loss of $1,313,500.

     Drypers Corporation

     Drypers Corporation ("Drypers"), Houston, Texas, manufactured and marketed
disposable baby diapers and other consumer products under the trade name
Drypers(R) and under various store label brands. Drypers had manufacturing
facilities in Marion, Ohio; Vancouver, Washington; Buenos Aires, Argentina;
Guadalajara, Mexico; Sao Paulo, Brazil; Puerto Rico and Malaysia. During 2000,
the Partnership sold 104,900 shares of commons stock for $6,862, resulting in a
realized capital loss of $820,295. At December 31, 2000, due to Drypers
declaring bankruptcy, the remaining 121,690 shares of Drypers were deemed
worthless and abandoned, resulting in a realized capital loss of $487,257.

     E-B Holdings, Inc.

     E-B Holdings, Inc. ("E-B"), Houston, Texas, owned interests in two
restaurants in the Houston area. The Partnership's investment in E-B, with a
cost of $580,293, consisted of 12% promissory notes valued at $290,000. In
December 1999, the Partnership sold its investment for $290,000, net of
expenses, realizing a capital loss of $290,293.

     Garden Ridge Corporation (NASDAQ: GRDG)

     Garden Ridge Corporation ("GRDG"), Houston, Texas, is a specialty retailer
of crafts and home decorative items. GRDG operates 33 megastores in 12 states
and is continuing its expansion into other areas of the United States. The
Partnership's investment in GRDG with an original cost of $770,228,

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consisted of 106,841 shares of common stock, 14,802 shares of preferred stock,
and $529,913 in subordinated promissory notes. From 1995 to 1999, the
Partnership sold its investment in GRDG, resulting in capital gains of
$2,421,648.

     Independent Gas Company Holdings, Inc.

     Independent Gas Company Holdings, Inc. ("IGC"), Canute, Oklahoma, acquires
and manages established propane gas distributors, primarily serving rural Texas
and Oklahoma markets. The Partnership's investment in IGC, with an original cost
of $1,519,977, consisted of 16,267 shares of common stock, 1,281 shares of 9%
Series A preferred stock and 215 shares of Series C preferred stock. On
September 14, 1998, the Partnership sold its investment in IGC for $4,051,340,
realizing a capital gain of $2,531,363.

     Industrial Equipment Rentals, Inc.

     Industrial Equipment Rentals, Inc. ("IER"), Houma, Louisiana, rents
industrial equipment from locations in Texas, Louisiana, Alabama and
Mississippi, primarily to refineries, petrochemical plants and oil and gas
operations along the Gulf Coast corridor. The Partnership's investment in IER,
with a cost of $808,300, consisted of 91,115 shares of common stock, 2,685
shares of 6% cumulative junior preferred stock and $538,889 in a 12%
subordinated debenture. On August 1, 1997, the Partnership sold its investment
in IER for $2,493,791 realizing a capital gain of $1,685,491. In addition,
during 1998, the Partnership received an additional $210,049 in proceeds from
the sale, which had been previously deposited into an escrow account, and
recognized the amount as a realized capital gain.

     Medifit of America, Inc.

     Medifit of America, Inc. ("Medifit"), Teaneck, New Jersey, provided
comprehensive outpatient rehabilitation services from over 15 facilities in six
states. Medifit sold the majority of its assets. The Partnership's investment in
Medifit had a cost of $1,000,163, and consisted of 190,476 shares of Series D
preferred stock and warrants to buy 9,054 and 76,379 shares of common stock for
$3.75 and $0.01 per share, respectively. On December 21, 1997, the Partnership
sold its investment in Medifit for $10, realizing a capital loss of $1,000,153.

     Paracelsus Healthcare Corporation (OTCBB: PLHC)

     Paracelsus Healthcare Corporation ("PLHC"), Houston, Texas, owned or
operated, directly or through hospital partnerships, ten acute-care hospitals in
six states. PLHC declared bankruptcy in September 2000, and is in the process of
liquidating its assets. The Partnership wrote off its entire investment in March
2001, realizing a capital loss of $1,181,124.

     Tennis Cards, Inc. ("TCI")

     During August 1992, the Partnership advanced $150,000 to TCI in exchange
for a 10% subordinated promissory note. In addition, the Partnership received
warrants to buy up to 63 shares of common stock of TCI for $1,000 per share
through August 24, 1997. Tennis Cards, Inc. had an exclusive license to print
and market trading cards featuring selected professional tennis players. On
December 29, 1993, the Partnership foreclosed on certain assets of TCI and
realized a net capital loss of $150,000. In February 2001, the Partnership sold
the entire inventory of tennis trading cards, realizing a capital gain of
$49,500.

Ongoing Management Support

     Successful Enhanced Yield Investments typically require active monitoring
of, and significant participation in, major business decisions of Portfolio
Companies. In many cases, representatives of Management serve as members of the
board of directors of Portfolio Companies. Such management

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assistance is required of a business development company and is intended to
enable the Partnership to provide guidance and management assistance with
respect to such matters as capital structure, budgets, profit goals,
diversification strategy, financing requirements, management additions or
replacements and development of a public market for the securities of the
Portfolio Company. In connection with their service as directors of Portfolio
Companies, officers and directors of Management may receive and retain
directors' fees or reimbursement for expenses incurred. When necessary,
Management, on behalf of the Partnership may also assign staff professionals
with financial or management expertise to assist Portfolio Company management on
specific problems.

Follow-On Investments

     Following its initial investment in a Portfolio Company, the Partnership
may be requested to make additional or follow-on investments ("Follow-on
Investments") in the Portfolio Company. Follow-on Investments may be made to
take advantage of warrants or other preferential rights granted to the
Partnership or otherwise to increase the Partnership's position in a successful
or promising Portfolio Company. The Partnership may also be called upon to
provide additional equity or mezzanine financing needed by a Portfolio Company
to fully implement its business plans, to develop a new line of business or to
recover from unexpected business problems. The Partnership may borrow an amount
up to 20% of its partners' capital to make Follow-on Investments in Portfolio
Companies. In addition, the Partnership may reinvest cash receipts and proceeds
from the disposition of Enhanced Yield Investments in Follow-on Investments.

Disposition of Investments

     The Managing Partner is responsible (subject to the supervision of the
Independent General Partners) for the decision and, together with the Management
Company, the actions to dispose of an Enhanced Yield Investment. In structuring
investments, the Partnership endeavors to reach appropriate agreements or
understandings with a prospective Portfolio Company with respect to the method
and timing of the disposition of the Partnership's investment and, if
appropriate, will seek to obtain registration rights at the expense of the
Portfolio Company. The Partnership bears the costs of disposing of an investment
to the extent not paid by the Portfolio Company.

     Under certain circumstances the Partnership may distribute marketable
portfolio securities in kind to limited partners. Sales of such securities by
limited partners may be subject to legal or practical restrictions and may also
entail certain expenses.

Valuation

     On a quarterly basis, the Managing Partner performs a valuation of the
investments held by the Partnership, subject to the approval of the Independent
General Partners. Valuations of enhanced yield investments are performed in
accordance with generally accepted accounting principles and the financial
reporting policies of the Securities and Exchange Commission ("SEC"). The
applicable methods prescribed by such principles and policies are described
below.

     The fair value of investments for which no market exists is determined on
the basis of procedures established in good faith by the Managing Partner and
approved quarterly by the Independent General Partners. As a general principle,
the current "fair value" of an investment would be the amount the Partnership
might reasonably expect to receive for it upon its current sale. There is a
range of values that are reasonable for such investments at any particular time.
Generally, cost is the primary factor used to determine fair value until
significant developments affecting the Portfolio Company (such as results of
operations or changes in general market conditions) provide a basis for use of
an appraisal valuation.

     Appraisal valuations are based upon such factors as a Portfolio Company's
earnings, cash flow and net worth, the market prices for similar securities of
comparable companies, an assessment of the

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company's current and future financial prospects and various other factors and
assumptions. In the case of unsuccessful operations, the appraisal may be based
upon liquidation value. Appraisal valuations are necessarily subjective and the
Managing Partner's estimate of values may differ materially from amounts
actually received upon the disposition of portfolio securities. Also, failure by
a Portfolio Company to achieve its business plan or obtain and maintain its
financing arrangements could result in a significant and rapid change in its
value.

     The Partnership may also use, when available, third-party transactions in a
Portfolio Company's securities as the basis of valuation (the "private market
method"). The private market method will be used only with respect to completed
transactions or firm offers made by sophisticated, independent investors.

     The Partnership investments for which market quotations are readily
available and which are freely transferable are valued at the closing price on
the date of valuation. For securities which are in a class of public securities
but are restricted from free trading (such as Rule 144 stock), valuation is set
by discounting the closing price to reflect the estimated effects of the
illiquidity caused by such restrictions. The fair 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 condition of the issuer. Certificates
of deposit purchased by the Partnership generally will be valued at their face
value, plus interest accrued to the date of valuation.

     The Independent General Partners review the valuation policies on a
quarterly basis to determine their appropriateness and may also hire independent
firms to review the Managing Partner's methodology of valuation or to conduct an
independent valuation.

Partnership Borrowings - Risks of Leverage

     On February 16, 1994, the General Partners approved an investment policy
allowing the Partnership to borrow an amount up to 20% of its partners' capital
for Follow-on Investments. The Partnership is permitted under the Investment
Company Act to borrow funds if, immediately after the borrowing, it will have an
asset coverage (as defined in the Investment Company Act) of at least 200%. That
is, the Partnership may borrow funds in an amount up to 50% of the value of its
assets (including investments made with borrowed funds). The amount and nature
of any Partnership borrowing will depend upon a number of factors over which
neither the Independent General Partners, the Management Company, nor the
Managing Partner has control, including general economic conditions, conditions
in the financial markets and the impact of the financing on the tax treatment of
the limited partners.

     As a result of borrowing money, the Partnership may be exposed to the risks
of leverage, which may be considered a speculative investment technique. The use
of leverage, even on a short-term basis, could have the effect of magnifying
increases or decreases in the Partnership's net asset value. While the "spread"
between the current yield on the Partnership's investments and the cost of any
loan would augment the partners' return from the Partnership, if the spread
narrows (because of an increase in the cost of debt or insufficient income on
the Partnership's investments), distributions to the partners would be adversely
affected. If the spread were reversed, the Partnership might be unable to meet
its obligations to its lenders, which might then seek to cause the Partnership
to liquidate some or all of its investments. There can be no assurance that the
Partnership would realize full value for its investments or recoup all of its
capital if its portfolio investments were involuntarily liquidated.

     The costs of borrowing money may exceed the income from the portfolio
securities purchased by the Partnership with the borrowed money. The Partnership
will suffer a decline in net asset value if the investment performance of the
additional securities purchased with borrowed money fails to cover their cost to
the Partnership (including any interest paid on the money borrowed). A decline
in net asset value could affect the ability of the Partnership to make
distributions to partners. If the asset coverage for debt securities issued by
the Partnership declines to less than 200 percent (as a result of market
fluctuations or otherwise), the Partnership may be required to sell a portion of
its investments when it may be

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disadvantageous to do so.

     The Partnership did not borrow any funds in 2001. The Partnership had a
line of credit in the amount of $250,000 with Bank of America, N.A., which
expired in 2000.

Operating Expenses

     The Management Company, at its expense, provides the Partnership with
office space, facilities, equipment and personnel (whose salaries and benefits
are paid by the Management Company) necessary for the conduct of the
Partnership's business and pays all costs related to proposed acquisitions of
portfolio securities that are not completed, unless such proposed acquisitions
have been previously approved by the Independent General Partners.

     The Partnership pays certain expenses relating to its operations,
including: the Management Fee; the Management Company Incentive Fee; and the
Fund Administration Fee (all as defined under "Management Agreement"); fees and
expenses of the Independent General Partners; finder's fees; direct costs of
proposed investments in Portfolio Companies, whether or not completed, if such
proposed investments have been approved for acquisition by the Independent
General Partners; fees of unaffiliated transfer agents, registrars and
disbursing agents; portfolio transaction expenses; interest, legal and
accounting expenses; costs of printing and mailing proxy materials and reports
to limited partners; custodian fees; taxes; litigation costs; costs of disposing
of investments including brokerage fees and commissions; and other extraordinary
or nonrecurring expenses properly payable by the Partnership.

Custodian

     The Partnership acts as the custodian of its securities to the extent
permitted under the Investment Company Act and is subject to the restrictions
imposed on self-custodians by the Investment Company Act and the rules and
regulations thereunder. The Partnership has entered into an agreement with
National Fiduciary Services, NA, (formerly Southwest Guaranty Trust Company),
Houston, Texas, with respect to the safekeeping of such securities. The
principal business office of such trust company is 2121 Sage Road, Suite 150,
Houston, Texas 77056.

Transfer and Disbursing Agent

     The Management Company acts as the transfer agent and disbursing agent for
the Partnership. The Management Company is paid for such services on terms
approved by the Independent General Partners as being no less favorable to the
Partnership than those obtainable from unaffiliated parties.

Risk Factors

     An investment in Units of limited partnership interest in the Partnership
involves a number of risks due to the nature of the Partnership's investment
portfolio. Investments in mezzanine securities involve a high degree of business
and financial risk and can result in substantial losses. In the event that a
Portfolio Company cannot generate adequate cash flow to meet its debt service,
the Partnership's investment could be reduced or eliminated through foreclosure
on the Portfolio Company's assets or the Portfolio Company's reorganization or
bankruptcy. The Enhanced Yield Investments acquired by the Partnership may
require four to seven years to reach maturity and generally are illiquid. This
lack of liquidity may preclude or delay any disposition of such investments, or
reduce proceeds that might otherwise be realized from any such dispositions.
After its initial investment in a Portfolio Company, the Partnership may be
called upon from time to time to provide additional funds to such company. There
can be no assurance that the Partnership will have sufficient funds, or be
willing, to make such investments. The Partnership's inability or unwillingness
to make a Follow-on Investment could adversely affect an investment in a
Portfolio Company. The Partnership is a "non-diversified" company as defined in
the Investment Company Act. The Partnership is not limited in the proportion of
its assets that may be invested in securities of a single

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issuer, and, accordingly, an investment in the Partnership may, under certain
circumstances, present greater risk to an investor than an investment in a
diversified company. Also see "Partnership Borrowings."

     Valuation of Investments - Enhanced Yield Investments are carried at fair
value with the net change in unrealized appreciation or depreciation included in
the determination of partners' capital. 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, if applicable. Cost is used to approximate fair value until
significant developments affecting an Enhanced Yield Investment provide a basis
for use of an appraisal valuation. Thereafter, Enhanced Yield Investments are
carried at appraised values as determined quarterly by the Managing Partner,
subject to the approval of the Independent General Partners. The fair 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 condition of the
issuer. Because of the inherent uncertainty of the valuation of Enhanced Yield
Investments which do not have readily ascertainable market values, the Managing
Partner's estimate of fair value may significantly differ from the fair value
that would have been used had a ready market existed for such investments. See
"Valuation".

Regulation

     The Partnership has elected to be treated as a business development company
under the Investment Company Act in order to provide for incentive compensation
to the Management Company and the Managing Partner based on the capital
appreciation of the Partnership's investments. The Partnership may not withdraw
its election to be treated as a business development company without first
obtaining the approval of a majority in interest of its limited partners.

     The following brief description of the Investment Company Act is qualified
in its entirety by reference to the full text of the Investment Company Act and
the rules thereunder.

     A business development company must be operated for the purpose of
investing in the securities of certain present and former "eligible portfolio
companies" or certain bankrupt or insolvent companies and must make available
significant managerial assistance to portfolio companies. An eligible portfolio
company generally is a company that (i) is organized under the laws of, and has
its principal place of business in, any state or states, (ii) is not an
investment company and (iii)(a) does not have a class of securities registered
on an exchange or included in the Federal Reserve Board's over-the-counter
margin list, (b) is actively controlled by the business development company
acting either alone or as part of a group acting together and an affiliate of
the business development company is a member of the portfolio company's board of
directors or (c) meets such other criteria as may be established by the SEC.
Control is presumed to exist where the business development company owns more
than 25% of the outstanding voting securities of a portfolio company.

     "Making available significant managerial assistance" is defined under the
Investment Company Act to mean (i) any arrangement whereby a business
development company, through its directors, officers, employees or general
partners, offers to provide and, if accepted, does provide significant guidance
and counsel concerning the management, operations or business objectives or
policies of a portfolio company or (ii) the exercise of a controlling influence
over the management or policies of a portfolio company by the business
development company acting individually or as part of a group of which the
business development company is a member acting together which controls such
company. A business development company may satisfy the requirements of clause
(i) with respect to a portfolio company by purchasing securities of such a
company as part of a group of investors acting together if one person in such
group provides the type of assistance described in such clause. However, the
business development company will not satisfy the general requirement of making
available significant managerial assistance if it only provides such assistance
indirectly through an investor group. A business development company need only
extend significant managerial assistance with respect to portfolio companies
which are treated as

                                        8
<PAGE>

Qualifying Assets (as defined below) for the purpose of satisfying the 70% test
discussed below.

     The Investment Company Act prohibits or restricts the Partnership from
investing in certain types of companies, such as brokerage firms, insurance
companies, investment banking firms and investment companies. Moreover, the
Investment Company Act limits the type of assets that the Partnership may
acquire to "Qualifying Assets" and certain assets necessary for its operations
(such as office furniture, equipment and facilities) if, at the time of the
acquisition, less than 70% of the value of the Partnership's total assets
consists of qualifying assets. Qualifying Assets include (i) securities of
companies that were eligible portfolio companies at the time that the
Partnership acquired their securities; (ii) securities of companies that are
actively controlled by the Partnership; (iii) securities of bankrupt or
insolvent companies that are not otherwise eligible portfolio companies; (iv)
securities acquired as Follow-on Investments in companies that were eligible
portfolio companies at the time of the Partnership's initial acquisition of
their securities but are no longer eligible portfolio companies, provided that
the Partnership has maintained a substantial portion of its initial investment
in such companies; (v) securities received in exchange for or distributed on or
with respect to any of the foregoing; and (vi) cash items, government securities
and high-quality, short-term debt. The Investment Company Act also places
restrictions on the nature of the transactions in which, and the persons from
whom, securities can be purchased in order for such securities to be considered
Qualifying Assets. As a general matter, Qualifying Assets may only be purchased
from the issuer or an affiliate in a transaction not constituting a public
offering. The Partnership may not purchase any security on margin, except such
short-term credits as are necessary for the clearance of portfolio transactions,
or engage in short sales of securities.

     The Partnership is permitted by the Investment Company Act, under specified
conditions, to issue multiple classes of senior debt and a single class of
limited partners' interests senior to the Units if its asset coverage, as
defined in the Investment Company Act, is at least 200% after the issuance of
the debt or the senior limited partners' interests. In addition, provision must
be made to prohibit any distribution to limited partners for the repurchase of
any Unit unless the asset coverage ratio is at least 200% at the time of the
distribution or repurchase.

     Many of the transactions involving the Partnership and its affiliates (as
well as affiliates of such affiliates) require the prior approval of a majority
of the Independent General Partners and a majority of the Independent General
Partners having no financial interest in the transactions. However, certain
transactions involving closely affiliated persons of the Partnership, including
its General Partners and the Management Company, require the prior approval of
the SEC. In general (a) any person who owns, controls or holds with power to
vote more than 5% of the outstanding Units, (b) any director, executive officer
or general partner of such person and (c) any person who directly or indirectly
controls, is controlled by or is under common control with such person, must
obtain the prior approval of a majority of the Independent General Partners and,
in some situations, the prior approval of the SEC, before engaging in certain
transactions involving the Partnership or any company controlled by the
Partnership. In accordance with the Investment Company Act, a majority of the
General Partners must be persons who are not "interested persons" as defined in
such act. Except for certain transactions which must be approved by the
Independent General Partners, the Investment Company Act generally does not
restrict transactions between the Partnership and its portfolio companies.

Item 2. Properties.
------- -----------

     The Partnership does not have an interest in any physical properties.

Item 3. Legal Proceedings.
------- ------------------

     The Partnership is not involved in any legal proceedings.

                                        9
<PAGE>

Item 4. Submission of Matters to a Vote of Security Holders.
------- ----------------------------------------------------

     No matters were submitted to a vote of security holders during the fourth
quarter of 2001.

Item 5. Market for the Registrant's Units and Related Unitholder Matters.
------- ------------------------------------------------------------------

     There is no established public trading market for the Partnership's Units.
The Partnership had 1,341 limited partners at December 31, 2001. The Partnership
made cash distributions of $4,616,250 and $615,500 or $375 and $50 per Unit to
limited partners during 2001 and 2000, respectively. No cash distributions were
made in 1999.

                                       10
<PAGE>

Item 6. Selected Financial Data.
------- ------------------------

     Following is a summary of selected financial data of the Partnership for
the five years ended December 31, 2001.

<TABLE>
<CAPTION>
                                                2001           2000           1999          1998           1997
                                             -----------    -----------    ----------    -----------    ----------
<S>                                          <C>            <C>            <C>           <C>            <C>
Investment income                            $ 1,559,409    $    84,962    $  120,554    $    62,301    $  296,812

Net investment income (loss)                 $ 1,448,567    $   (92,680)   $  (88,420)   $  (191,167)   $  (45,796)

Realized gain (loss) on sales
 of enchanced yield investments, net         $   833,595    $(1,307,552)   $  363,179    $ 2,741,412    $      839

Increase (decrease) in unrealized
 appreciation of enhanced yield
 investments, net                            $(1,380,238)   $ 1,562,997    $  (76,503)   $(2,457,625)   $1,754,670

Net increase in partners'
 capital from operations                     $   901,924    $   162,765    $  198,256    $    92,620    $1,709,713

Distributions to partners                    $ 4,664,198    $   621,892    $       --    $ 3,731,359    $2,487,572

Total assets                                 $ 1,614,831    $ 5,377,105    $5,850,232    $ 5,645,576    $9,280,649

Partners' capital, end of year               $ 1,572,031    $ 5,334,305    $5,793,432    $ 5,595,176    $9,233,915

Cost of enhanced yield
 investments made during year                $    71,325    $   187,122    $  702.500    $        --    $    5,413

Net cash provided (used) by
 operating activities                        $ 1,395,351    $  (152,431)   $ (141,049)   $  (128,119)   $  (29,230)

Per Unit of limited partners' interest:

Net investment income (loss)                 $    116.46    $     (7.45)   $   (7.11)    $    (15.37)   $    (3.68)

Realized gain (loss) on sales of
 enhanced yield investments, net             $     67.02    $   (105.13)   $    29.20    $    220.41    $     0.07

Increase (decrease) in unrealized
 appreciation of enhanced yield
 investments, net                            $   (110.99)   $    125.66    $    (6.15)   $   (197.59)   $   141.07

Distributions to partners                    $    375.00    $     50.00    $       --    $    300.00    $   200.00

Partners' capital, end of year               $    124.55    $    427.03    $   463.95    $    448.01    $   740.56
</TABLE>

                                       11
<PAGE>

Item 7. Management's Discussion and Analysis of Financial Condition and Results
------- ------------------------------------------------------------------------
        of Operations.
        --------------

Significant Accounting Policies

     Valuation of Investments - Enhanced yield investments are carried at fair
value with the net change in unrealized appreciation or depreciation included in
the determination of partner's capital. Valuations of enhanced yield investments
are performed in accordance with generally accepted accounting principles and
the financial reporting policies of the Securities and Exchange Commission
("SEC"). The applicable methods prescribed by such principles and policies are
described below:

     Publicly-traded Enhanced Yield Investments - Investments in companies whose
     ------------------------------------------
securities are publicly traded are valued at their quoted market price at the
close of business on the valuation date, less a discount to reflect the
estimated effects of restrictions on the sale of such securities ("Valuation
Discount"), if applicable.

     Privately-held Enhanced Yield Investments - The fair value of investments
     -----------------------------------------
for which no market exists (including most investments made by the Partnership)
is determined by the Managing Partner on the basis of procedures established in
good faith by the Managing Partner and approved by the Independent General
Partners of the Partnership. As a general principle, the current "fair value" of
an investment would be the amount the Partnership might reasonably expect to
receive for it upon its current sale. Appraisal valuations are necessarily
subjective and the Managing Partner's estimate of values may differ materially
from amounts actually received upon the disposition of enhanced yield
investments.

     Generally, cost is the primary factor used to determine fair value until
significant developments affecting the Portfolio Company (such as results of
operations or changes in general market conditions) provide a basis for use of
an appraisal valuation. Thereafter, Enhanced Yield Investments are carried at
appraised values as determined quarterly by the Managing Partner, subject to the
approval of the Independent General Partners. Appraisal valuations are based
upon such factors as a Portfolio Company's earnings, cash flow and net worth,
the market prices for similar securities of comparable companies, an assessment
of the company's current and future financial prospects and various other
factors and assumptions. In the case of unsuccessful operations, the appraisal
may be based upon liquidation value.

     Most of the Partnership's common equity investments may be appraised at a
multiple of free cash flow generated by the Portfolio Company in its most recent
fiscal year, less outstanding funded indebtedness and other senior securities
such as preferred stock. Projections of current year free cash flow may be
utilized and adjustments for non-recurring items are considered. Multiples
utilized are estimated based on the Management Company's experience in the
private company marketplace, and are necessarily subjective in nature. Most of
the Portfolio Companies utilize a high degree of leverage. From time to time,
Portfolio Companies are in default of certain covenants in their loan
agreements. In the event a Portfolio Company cannot generate adequate cash flow
to meet the principal and interest payments on such indebtness or is not
successful in refinancing the debt upon its maturity, the Partnership's
investment could be reduced or eliminated through foreclosure on the Portfolio
Company's assets or the Portfolio Company's reorganization or bankruptcy. When
the Managing Partner has a reasonable belief that the Portfolio Company will be
able to restructure the loan agreements to adjust for any defaults, the
Portfolio Company's securities continue to be valued assuming that the company
is a going concern. The Partnership may also use, when available, third-party
transactions in a Portfolio Company's securities as the basis of valuation (the
"private market method"). The private market method will be used only with
respect to completed transactions or firm offers made by sophisticated,
independent investors.

     The fair 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. Certificates of deposit

                                       12
<PAGE>

purchased by the Fund generally will be valued at their face value, plus
interest accrued to the date of valuation.

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

     Income Taxes - No provision for income taxes has been made since all income
and losses are allocable to the partners for inclusion in their respective tax
returns. Profits and Losses for tax purposes are determined and allocated as of
the end of each calendar quarter. Profits and Losses are allocated first to
reflect such cash distributions made or scheduled to be made (other than as to
distributions of capital), and thereafter in a manner designed to reflect cash
distributions projected to be made.

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

     Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires the use of certain
estimates and assumptions by management in determining the reported amounts of
assets and liabilities, disclosure of contingent liabilities as of the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Because uncertainties with respect to such
estimates and assumptions are inherent in the preparation of financial
statements, actual results could differ from these estimates.

Liquidity and Capital Resources

     The Partnership's total contributed capital was $12,435,691, consisting of
$12,307,375 (net of $2,625 in selling commission discounts on sales to
affiliates) for 12,310 units of limited partners' interests ("Units") from 1,428
limited partners, $125,316 from the Managing Partner and $3,000 from the
Independent General Partners. Net proceeds to the Partnership, after payment of
selling commissions and wholesale marketing assistance fees of $1,228,375 and
payment of $615,500 as reimbursement of offering costs, were $10,591,816.

     At December 31, 2001, the Partnership had $970,378 (at cost) invested in
Enhanced Yield Investments of two companies, which have an estimated fair value
of $1,100,000 at such date.

     At December 31, 2001, the Partnership had $461,183 in cash and temporary
cash investments. In order to allow Follow-on Investments in Enhanced Yield
Investments when such opportunities arise, the Partnership may utilize proceeds
from existing Enhanced Yield Investments. Management believes that temporary
cash investments and proceeds from existing Enhanced Yield Investments provide
the Partnership with the liquidity necessary to pay operating expenses of the
Partnership as well as make certain Follow-on Investments.

     Net investment income and the proceeds from the sale of Enhanced Yield
Investments are distributed to the extent such amounts are not reserved for
payment of expenses and contingencies or used to make Follow-on Investments in
existing Enhanced Yield Investments.

Results of Operations

Investment Loss and Expenses

     Net investment income (loss) after all expenses amounted to $1,448,567,
$(92,680) and $(88,420) for the years ended December 31, 2001, 2000 and 1999,
respectively. Interest income from temporary cash investments was $38,281,
$23,355 and $8,631 for the years ended December 31, 2001, 2000 and

                                       13
<PAGE>

1999, respectively. The higher amounts in 2001 and 2000 as compared to 1999 were
due to the higher average balance of temporary cash investments resulting from
proceeds received by the Partnership in 2001 and 2000 from the sale of Enhanced
Yield Investments. The Partnership earned $1,152,128, $61,607 and $111,923 in
income from Enhanced Yield Investments during the years ended December 31, 2001,
2000 and 1999, respectively. The higher amount in 2001 as compared to 2000 and
1999 was due to dividends paid in arrears by MaxTech Holdings, Inc.

     Mailing and printing expenses were $7,368, $7,191 and $16,908 for the years
ended December 31, 2001, 2000 and 1999, respectively. The decrease in 2001 and
2000 as compared to 1999 is primarily due to the effort of management to reduce
costs related to the quarterly and annual reports during the latter stages of
the Partnership's term.

     The Management Company receives a management fee equal to 2.5% of the
Available Capital. "Available Capital" is the amount of net offering proceeds
from the sale of Units reduced by capital distributed to the holders of the
Units and realized losses from the Partnership's investments. Such fee amounted
to $1,586, $76,438 and $83,677 for the years ended December 31, 2001, 2000 and
1999, respectively. The steady decrease in management fees is due to the
decrease in Available Capital for each respective year. Based on the level of
Available Capital at December 31, 2001, the Management Company will receive no
additional management fees from the Partnership. The Management Company is also
allocated an incentive fee equal to 10% of the Partnership's cumulative
distributions from Enhanced Yield Investments (excluding returns of capital)
over the life of the Partnership, subject to payment of a priority return to the
limited partners. The cumulative accrued priority return amounted to $3,210,033
and $3,619,246 at December 31, 2001 and 2000, respectively. Based on current
valuations of Enhanced Yield Investments, the Management Company would not
receive any incentive fee upon the sale of the Partnership's investments.
Management fees and other expenses incurred directly by the Partnership are paid
with funds provided from operations.

Realized Gain or Loss on Enhanced Yield Investments

     During 2001, the Partnership realized a net capital gain of $833,595. In
1993, the Partnership wrote off its investment in Tennis Cards, Inc. and
foreclosed on its collateral which consisted of an inventory of tennis trading
cards. On February 22, 2001, the Partnership sold the entire inventory of tennis
trading cards for net proceeds of $49,500. In addition, the Partnership wrote
off its entire investment in Paracelsus Healthcare Corporation, which went
through bankruptcy, realizing a capital loss of $1,181,124. Also, the
Partnership received proceeds from the redemption of its preferred stock and
received a partial payment pursuant to a plan of liquidation on its common stock
of MaxTech Holdings, Inc. ("MaxTech"), realizing a capital gain of $1,965,219.
MaxTech sold all of its business operations and is attempting to sell its
remaining assets, which primarily consists of real estate. The Partnership
expects to receive additional liquidating payments from MaxTech in the future.

     During 2000, the Partnership realized a capital loss of $1,307,552. In
October 2000, the Partnership sold 104,900 shares of common stock of Drypers
Corporation ("Drypers") for $6,862, realizing a capital loss of $820,295.
Effective December 31, 2000, due to Drypers declaring bankruptcy, the remaining
121,690 shares of Drypers common stock were deemed worthless and were abandoned,
realizing a capital loss of $487,257.

     During 1999, the Partnership realized a net capital gain of $363,179. In
December 1999, the Partnership realized a capital gain of $653,472 from the sale
of 57,376 shares of Garden Ridge Corporation ("GRDG") common stock for $659,847.
In addition, the Partnership sold its investment in E-B Holdings, Inc. for
$290,000, realizing a capital loss of $290,293.

Unrealized Gains on Enhanced Yield Investments

     Unrealized appreciation of Enhanced Yield Investments decreased by
$1,380,238 during the year

                                       14
<PAGE>

ended December 31, 2001. Such decrease resulted from the net decrease in the
estimated fair value of Enhanced Yield Investments in two companies in the
amount of $974,547 and the transfer of net unrealized appreciation to net
realized gains from the write-off and partial sale of two Enhanced Yield
Investments in the amount of $405,691.

     Unrealized appreciation of Enhanced Yield Investments increased by
$1,562,997 during the year ended December 31, 2000. Such increase resulted from
the increase of $1,000,000 in the estimated fair value of Enhance Yield
Investments of one company, the decrease in the estimated fair value of Enhanced
Yield Investments of one company of $222,552 and the transfer of $785,549 from
net unrealized depreciation to net realized loss from the sale and abandonment
of one Enhanced Yield Investment.

     Unrealized appreciation of Enhanced Yield Investments decreased by $76,503
during the year ended December 31, 1999. Such decrease resulted from the
increase of $1,000,000 in the estimated fair value of Enhanced Yield Investments
of one company, the decrease in the estimated fair value of Enhanced Yield
Investments of three companies of $718,479 and the transfer of $358,024 from net
unrealized appreciation to net realized gains from the sale of two Enhanced
Yield Investments.

Distributions

     The Partnership made cash distributions of $4,616,250 or $375 per Unit and
$621,892 or $50 per Unit to the limited Partners for the years ended 2001 and
2000, respectively. No cash distributions were made by the Partnership during
the year ended December 31, 1999. Cumulative cash distributions to limited
partners from inception to December 31, 2001 were $12,567,797, or $1,025.53 per
weighted average number of Units outstanding.

Enhanced Yield Investments

     The Partnership made no new investments in 2001, 2000 or 1999.

     During 2001, the Partnership received management fees in the amount of
$37,500 and note payments in the amount of $26,800, including interest of $525,
from Artegraft, Inc., both in the form of a 9% demand note.

     During 2000, the Partnership received management fees in the amount of
$54,167 and note payments in the amount of $133,055, including interest in the
amount of $12,156, from Artegraft, Inc., in the form of a 9% demand note.

     In September and October 2000, respectively, Paracelsus Healthcare
Corporation ("PLHC") and Drypers Corporation ("Drypers") filed for protection
under Chapter 11 of the Federal Bankruptcy Code. PLHC negotiated a plan of
reorganization with its primary creditors and emerged from bankruptcy in March
2001, at which time the Partnership's investment became worthless. The assets
and businesses of Drypers were sold at auction through the bankruptcy process,
with no proceeds available for common shareholders. Effective December 31, 2000,
the remaining shares of Drypers were deemed worthless and abandoned.

     During 1999, the Partnership made a Follow-on Investment of $702,500 in an
Enhanced Yield Investment of one Portfolio Company, which included $390,000
converted from an account receivable. In addition, during 1999, the Fund
received an additional 202,232 shares of Paracelsus Healthcare Corporation
("PLHC") common stock pursuant to a price adjustment from the merger of Champion
Healthcare Corporation, a former portfolio company, with PLHC in 1996.

     Both of the companies in which the Partnership held investments at December
31, 2001 are privately held. They each have a small number of shareholders and
do not generally make financial

                                       15
<PAGE>

information available to the public. However, each company's operations and
financial information are reviewed by the General Partners to determine the
proper valuation of the Partnership's investment.

Item 7A. Quantitative and Qualitative Disclosure About Market Risk
-------- ---------------------------------------------------------

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

     The Partnership'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 Partnership's determination of fair values of these debt
securities. The Partnership'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. In addition, there were no
significant changes to the factors that affect market risk from 2000 to 2001.

     The Partnership's investment portfolio consists of debt and equity
investments in private companies. The Partnership 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.

                                       16
<PAGE>

Item 8.  Financial Statements and Supplementary Data.
-------  --------------------------------------------

                    Report of Independent Public Accountants
                    ----------------------------------------

To the Independent General Partners of
   Equus Capital Partners, L.P.:

We have audited the accompanying statements of assets, liabilities and partners'
capital of Equus Capital Partners, L.P. (a Delaware limited partnership),
including the schedules of enhanced yield investments, as of December 31, 2001
and 2000, and the related statements of operations, changes in partners' capital
and cash flows for each of the three years in the period ended December 31,
2001, and the selected per unit data and ratios for each of the five years in
the period ended December 31, 2001. These financial statements and selected per
unit data and ratios are the responsibility of Equus Capital Corporation (the
"Managing Partner"). Our responsibility is to express an opinion on these
financial statements, schedules of enhanced yield investments and selected per
unit data and ratios based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
selected per unit data and ratios are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements and selected per unit data and ratios.
Our procedures included physical inspection or confirmation of securities owned
as of December 31, 2001 and 2000. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

As discussed in Note 3, the financial statements include enhanced yield
investments valued at $1,100,000 (70% of partners' capital) and $5,123,337 (96%
of partners' capital) as of December 31, 2001 and 2000, respectively, whose
values have been estimated by the Managing Partner and approved by the
Independent General Partners in the absence of readily ascertainable market
values. We have reviewed the procedures used by the Managing Partner in arriving
at its estimate of value of such investments and have inspected the underlying
documentation, and, in the circumstances, we believe the procedures are
reasonable and the documentation is appropriate. However, because of the
inherent uncertainty of valuation, the Managing Partner's estimate of values may
differ significantly from the values that would have been used had a ready
market existed for the investments and the differences could be material.

In our opinion, the financial statements and selected per unit data and ratios
referred to above present fairly, in all material respects, the financial
position of Equus Capital Partners, L.P. as of December 31, 2001 and 2000, and
the results of its operations, changes in its partners' capital and its cash
flows for each of the three years in the period ended December 31, 2001, and the
selected per unit data and ratios for each of the five years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in United States.

/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP

Houston, Texas
March 11, 2002

                                       17
<PAGE>

                          EQUUS CAPITAL PARTNERS, L.P.
                          ----------------------------
             STATEMENTS OF ASSETS, LIABILITIES AND PARTNERS' CAPITAL
             -------------------------------------------------------
                           DECEMBER 31, 2001 AND 2000
                           --------------------------

                                                           2001          2000
                                                         ----------   ----------

Assets
------
Enhanced yield investments, at fair value
    (cost of $970,378 and $3,613,477, respectively)      $1,100,000   $5,123,337
Temporary cash investments, at cost which
    approximates fair value                                 459,877      212,275
Cash                                                          1,306        3,036
Accrued interest receivable                                  53,648       38,457
                                                         ----------   ----------

     Total assets                                        $1,614,831   $5,377,105
                                                         ----------   ----------

Liabilities and Partner's Capital
---------------------------------

Liabilities:
    Accounts payable                                     $   42,800   $   42,800
                                                         ----------   ----------
       Total liabilities                                     42,800       42,800
                                                         ----------   ----------
Commitments and contingencies

Partners' capital:
    Managing partner                                         38,270       75,892
    Independent general partners                                601        1,651
    Limited partners (12,310 Units issued and
        outstanding)                                      1,533,160    5,256,762
                                                         ----------   ----------
     Total partners' capital                              1,572,031    5,334,305
                                                         ----------   ----------

     Total liabilities and partners' capital             $1,614,831   $5,377,105
                                                         ==========   ==========

                          The accompanying notes are an
                  integral part of these financial statements.

                                       18
<PAGE>

                          EQUUS CAPITAL PARTNERS, L.P.
                          ----------------------------
                            STATEMENTS OF OPERATIONS
                            ------------------------
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
              ----------------------------------------------------

<TABLE>
<CAPTION>
                                                             2001           2000         1999
                                                          -----------    -----------   ---------
<S>                                                       <C>            <C>           <C>
Investment income:

   Income from enhanced yield investments                 $ 1,521,128    $    61,607   $ 111,923
   Interest from temporary cash investments                    38,281         23,355       8,631
                                                          -----------    -----------   ---------

   Total investment income                                  1,559,409         84,962     120,554
                                                          -----------    -----------   ---------
Expenses:
   Management fee                                               1,586         76,438      83,677
   Independent general partners' fees                          37,500         39,012      44,293
   Professional fees                                           44,453         34,931      43,885
   Mailing and printing expenses                                7,368          7,191      16,908
   Interest expense                                                --             --          96
   Administrative fees                                         19,935         20,070      20,115
                                                          -----------    -----------   ---------

Total expenses                                                110,842        177,642     208,974
                                                          -----------    -----------   ---------
Net investment income (loss)                                1,448,567        (92,680)    (88,420)
                                                          -----------    -----------   ---------
Realized gain (loss) on sales of enhanced
   yield investments, net:                                    833,595     (1,307,552)     363,179
                                                          -----------    -----------   ---------
Unrealized appreciation (depreciation) of enhanced yield
   investments, net:
   End of year                                                129,622      1,509,860     (53,137)
   Beginning of year                                        1,509,860        (53,137)     23,366
                                                          -----------    -----------   ---------
Increase (decrease) in unrealized appreciation, net        (1,380,238)     1,562,997     (76,503)
                                                          -----------    -----------   ---------
Net increase in partners' capital from operations         $   901,924    $   162,765   $ 198,256
                                                          ===========    ===========   =========
</TABLE>

                          The accompanying notes are an
                  integral part of these financial statements.

                                       19
<PAGE>

                          EQUUS CAPITAL PARTNERS, L.P.
                          ----------------------------
                   STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
                   ------------------------------------------
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
              ----------------------------------------------------

<TABLE>
<CAPTION>
                                                                    Independent
                                                        Managing      General       Limited
                                            Total       Partner       Partners      Partners
                                         -----------    --------    -----------    ----------
<S>                                      <C>            <C>         <C>            <C>
Partners' capital,
   December 31, 1998                     $ 5,595,176    $ 78,501      $ 1,722      $5,514,953
                                         -----------    --------      -------      ----------
Investment activities:
   Investment income                         120,554       1,206           34         119,314
   Expenses                                  208,974       2,090           59         206,825
                                         -----------    --------      -------      ----------

      Net investment loss                    (88,420)       (884)         (25)        (87,511)

Realized gain on sales of enhanced
   yield investment, net                     363,179       3,632          103         359,444

Decrease in unrealized appreciation
   of enhanced yield investments, net        (76,5O3)       (765)         (22)        (75,716)
                                         -----------    --------      -------      ----------

Net increase in partners' capital            198,256       1,983           56         196,217
                                         -----------    --------      -------      ----------
Partners' capital,
   December 31, 1999                     $ 5,793,432    $ 80,484      $ 1,778      $5,711,170
                                         ===========    ========      =======      ==========
</TABLE>

                          The accompanying notes are an
                  integral part of these financial statements.

                                       20
<PAGE>

                          EQUUS CAPITAL PARTNERS, L.P.
                          ----------------------------
                   STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
                   ------------------------------------------
               FOR THE YEARS ENDED DECEMBER 31 2001, 2000 AND 1999
               ---------------------------------------------------
                                   (Continued)

<TABLE>
<CAPTION>
                                                                Independent
                                                     Managing     General      Limited
                                          Total      Partner      Partners     Partners
                                       -----------   --------   -----------   -----------
<S>                                    <C>           <C>        <C>           <C>
Partners' capital,
   December 31, 1999                   $ 5,793,432   $ 80,484     $ 1,778       5,711,170
                                       -----------   --------     -------     -----------
Investment activities:
   Investment income                        84,962        850          24          84,088
   Expenses                                177,642      1,777          50         175,815
                                       -----------   --------     -------     -----------
     Net investment loss                   (92,680)      (927)        (26)        (91,727)

Realized loss on sales of enhanced
  yield investments, net                (1,307,552)   (13,076)       (371)     (1,294,105)

Increase in unrealized appreciation
  of enhanced yield investments; net     1,562,997     15,630         443       1,546,924

Distribution to partners                  (621,892)    (6,219)       (173)       (615,500)
                                       -----------   --------     -------     -----------
Net decrease in partners' capital         (459,127)    (4,592)       (127)       (454,408)
                                       -----------   --------     -------     -----------
Partners' capital,
   December 31, 2000                   $ 5,334,305   $ 75,892     $ 1,651     $ 5,256,762
                                       ===========   ========     =======     ===========
</TABLE>

                          The accompanying notes are an
                  integral part of these financial statements.

                                       21
<PAGE>

                          EQUUS CAPITAL PARTNERS, L.P.
                          ----------------------------
                     STATEMENTS OF CHANGES PARTNERS' CAPITAL
                     ---------------------------------------
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
              ----------------------------------------------------
                                   (Continued)

<TABLE>
<CAPTION>
                                                                 Independent
                                                      Managing     General        Limited
                                           Total      Partners    Partners        Partners
                                        -----------   --------   -----------    -----------
<S>                                     <C>           <C>        <C>            <C>
Partners' capital,
    December 31, 2000                   $ 5,334,305   $ 75,892     $ 1,651      $ 5,256,762
                                        -----------   --------     -------      -----------
Investment activities:
    Investment income                     1,559,409     15,594         442        1,543,373
    Expenses                                110,842      1,108          31          109,703
                                        -----------   --------     -------      -----------
    Net investment income                 1,448,567     14,486         411        1,433,670

Realized gain on sales of enhanced
   yield investments, net                   833,595      8,336         237          825,022

Decrease in unrealized appreciation
   of enhanced yield investments, net    (1,380,238)   (13,802)       (392)      (1,366,044)

Distributions to partners                (4,664,198)   (46,642)     (1,306)      (4,616,250)
                                        -----------   --------     -------      -----------

Net decrease in partners' capital        (3,762,274)   (37,622)     (1,050)      (3,723,602)
                                        -----------   --------     -------      -----------
Partners' capital,
   December 31, 2001                    $ 1,572,031   $ 38,270     $   601      $ 1,533,160
                                        ===========   ========     =======      ===========
</TABLE>

                          The accompanying notes are an
                  integral part of these financial statements.

                                       22
<PAGE>

                          EQUUS CAPITAL PARTNERS, L.P.
                          -----------------------------
                            STATEMENTS OF CASH FLOWS
                            ------------------------
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
              ----------------------------------------------------

<TABLE>
<CAPTION>
                                                 2001           2000         1999
                                              -----------    ---------    ----------
<S>                                           <C>            <C>          <C>
Cash flows from operating activities:
   Interest received                          $ 1,506,193    $  29,211    $   71,525
   Cash paid to management company,
     general partners, bank and suppliers        (110,842)    (181,642)     (212,574)
                                              -----------    ---------    ----------

     Net cash provided (used) by operating      1,395,351     (152,431)     (141,049)
     activities

Cash flows from investing activities:
   Purchase of enhanced yield investments              --           --      (312,500)
   Sale of enhanced yield investments           3,514,719      296,862       704,413
   Repayment of enhanced yield investments             --        9,300        93,000
                                              -----------    ---------    ----------

     Net cash provided by investing
        activities                              3,514,719      306,162       484,913
                                              -----------    ---------    ----------

Cash flows from financing activities:
   Advances on note payable from bank                  --           --        20,000
   Repayments on note payable to bank                  --           --       (20,000)
   Distributions to partners                   (4,664,198)    (621,892)           --
                                              -----------    ---------    ----------

   Net cash used by financing
      activities                               (4,664,198)    (621,892)           --
                                              -----------    ---------    ----------
   Net increase (decrease) in cash and
      cash equivalents                            245,872     (468,161)      343,864

   Cash and cash equivalents at
      beginning of year                           215,311      683,472       339,608
                                              -----------    ---------    ----------

   Cash and cash equivalents at end
      of year                                 $   461,183    $ 215,311    $  683,472
                                              ===========    =========    ==========
</TABLE>

                          The accompanying notes are an
                  integral part of these financial statements.

                                       23
<PAGE>

                          EQUUS CAPITAL PARTNERS, L.P.
                          ----------------------------
                            STATEMENTS OF CASH FLOWS
                            ------------------------
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999
              -----------------------------------------------------
                                   (Continued)

<TABLE>
<CAPTION>
                                                      2001           2000          1999
                                                   -----------    -----------    ---------
<S>                                                <C>            <C>            <C>
Reconciliation of net increase in partners'
 capital from operations to net cash used
 by operating activities:

Net increase in partners' capital
 from operations                                   $   901,924    $   162,765    $ 198,256

Adjustments to reconcile net increase in
 partners' capital from operations to
 net cash used by operating activities:

Realized (gain) loss on sales of enhanced
 yield investments, net                               (833,595)     1,307,552     (363,179)
(Increase) decrease in unrealized
 appreciation of enhanced yield
 investments, net                                    1,380,238     (1,562,997)      76,503
Income received in the form of
 enhanced yield investments                            (38,025)       (66,323)          --
Decrease (increase) in accounts receivable                  --          5,736       (5,736)
Decrease (increase) in accrued
  interest receivable                                  (15,191)         4,836      (43,293)
Decrease in accounts payable                                --         (4,000)      (3,600)
                                                   -----------    -----------    ---------
Net cash provided (used) by operating activities   $ 1,395,351    $   152,431    $ 141,049
                                                   ===========    ===========    =========
</TABLE>

                          The accompanying notes are an
                  integral part of these financial statements.

                                       24
<PAGE>

                          EQUUS CAPITAL PARTNERS, L.P.
                          ----------------------------
                        SELECTED PER UNIT DATA AND RATIOS
                        ---------------------------------
                   FOR THE FIVE YEARS ENDED DECEMBER 31, 2001
                   ------------------------------------------

<TABLE>
<CAPTION>
                                             2001        2000        1999       1998        1997
                                           --------    --------    -------    --------    --------
<S>                                        <C>         <C>         <C>        <C>         <C>
Selected per unit data:

Investment income                          $ 125.38    $   6.83    $  9.69    $   5.01    $  23.86
Expenses                                       8.91       14.28      16.80       20.38       27.54
                                           --------    --------    -------    --------    --------
Net investment income (loss)                 116.47       (7.45)     (7.11)     (15.37)      (3.68)
Realized gain (loss) on sales of
   enhanced yield investments, net            67.02     (105.13)     29.20      220.41        0.07
Increase (decrease) in unrealized
   appreciation of enhanced yield
   investments, net                         (110.97)     125.66      (6.15)    (197.59)     141.07
                                           --------    --------    -------    --------    --------
Net increase in partners'
   capital from operations                    72.52       13.08      15.94        7.45      137.46
Distributions to partners                   (375.00)     (50.00)        --     (300.00)    (200.00)
                                           --------    --------    -------    --------    --------
Net increase (decrease) in
   partners' capital                        (302.48)     (36.92)     15.94     (292.55)     (62.54)
Partners' capital, beginning of year         427.03      463.95     448.01      740.56      803.10
                                           --------    --------    -------    --------    --------
Partners' capital, end of year             $ 124.55    $ 427.03    $463.95    $ 448.01    $ 740.56
                                           ========    ========    =======    ========    ========
Selected ratios:

Ratio of expenses to average
   partners' capital                           3.23%       3.21%      3.68%       3.43%       3.57%
Ratio of net investment income (loss) to
   average partners' capital                  42.23%      (1.67)%    (1.56)%    (2.59)%      (0.48)%
Ratio of total increase
   in partners' capital from
   operations to average
   partners' capital                          26.29%       2.94%      3.50%       1.25%      17.81%
Total return on partners' capital             16.98%       2.89%      3.56%       1.01%      17.12%
</TABLE>

                          The accompanying notes are an
                  integral part of these financial statements.

                                       25
<PAGE>

                          EQUUS CAPITAL PARTNERS. L.P.
                          ----------------------------
                     SCHEDULE OF ENHANCED YIELD INVESTMENTS
                     --------------------------------------
                                DECEMBER 31, 2001
                                -----------------

<TABLE>
<CAPTION>
                                           Date Of Initial
Portfolio Company                            Investment         Cost      Fair Value
-----------------                          ---------------    --------    ----------
<S>                                         <C>               <C>         <C>
Artegraft, Inc.                             January 1993
 - 9% demand promissory note                                  $252,047    $       --
 - 7% demand promissory note                                   702,500            --
 - Warrant to buy up to 1,000 shares of
   common stock at $.01 per share
   through December 31, 2002                                        10            --
 - Warrant to buy up to 4,000 shares
   of common stock at $ 17.50 per share
   through December 31, 2002                                        40            --

MaxTech Holdings, Inc.                       March 1991
 - 59,875 shares of common stock                                15,781     1,100,000
                                                              --------    ----------

   Total                                                      $970,378    $1,100,000
                                                              ========    ==========
</TABLE>

     All of the Partnership's Enhanced Yield Investments are restricted from
public sale without prior registration under the Securities Act of 1933. The
Partnership negotiates certain aspects of the method and timing of the
disposition of the Partnership's Enhanced Yield Investments in each Portfolio
Company, including registration rights and related costs. The Partnership 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, all of the Partnership's
investments are to eligible Enhanced Yield Investments. The Partnership provides
significant. managerial assistance to all of the Portfolio Companies in which it
has invested.

                          The accompanying notes are an
                  integral part of these financial statements.

                                       26
<PAGE>

                          EOUUS CAPITAL PARTNERS, L .P
                          ----------------------------
                     SCHEDULE OF ENHANCED YIELD INVESTMENTS
                     --------------------------------------
                                DECEMBER 31, 2000
                                -----------------

<TABLE>
<CAPTION>
                                                             Date Of
Portfolio Company                                       Initial Investment      Cost      Fair Value
-----------------                                       ------------------   ----------   ----------
<S>                                                     <C>                  <C>          <C>
Artegraft. Inc.                                            January 1993
- 12% junior term promissory note                                            $   26,800   $   26,800
- 9% promissory note                                                            187,222      187,222
- 7% demand promissory note                                                     702,500      702,500
- Warrant to buy up to 1,000 shares of common
  stock at $.01 per share through December 31, 2002                                  10           --
- Warrant to buy up to 4,000 shares of common
  stock at $17.50 per share through December 31, 2002                                40           --

MaxTech Holdings, Inc.                                      March 1991
- 59.875 shares of common stock                                                  15,781    1,120,000
- 2,200,000 shares of 10% cumulative convertible
  preferred stock                                                             1,500,000    3,080,000

Paracelsus Healthcare Corporation                           April 1991
(OTCBB - PLHC)
- 540,481 shares of common stock                                              1,181,124        6,815
                                                                             ----------   ----------
Total                                                                        $3,613,477   $5,123,337
                                                                             ==========   ==========
</TABLE>

                          The accompanying notes are an
                  integral part of these financial statements.

                                       27
<PAGE>

                          EQUUS CAPITAL PARTNERS, L.P.
                          ----------------------------
                          NOTES TO FINANCIAL STATEMENTS
                          -----------------------------
                        DECEMBER 31, 2001, 2000, AND 1999
                        ---------------------------------

(1)  Organization and Business Purpose
     ---------------------------------

     Equus Capital Partners, L.P. (the "Partnership"), a Delaware limited
partnership, completed the sale of 12,310 units of limited partners' interest
("Units") to 1,428 limited partners as of December 31, 1990. Each Unit required
a capital contribution to the Partnership of $1,000 less applicable selling
commission discounts and may not be sold, transferred or assigned without the
consent of Equus Capital Corporation, a Delaware corporation (the "Managing
Partner"), which consent may not be unreasonably withheld.

     The Partnership seeks to achieve current income and capital appreciation
principally by making investments in "mezzanine" securities, consisting
primarily of subordinated debt or preferred stock combined with equity
participations in common stock or rights to acquire common stock, and
subsequently disposing of such investments ("Enhanced Yield Investments"). The
Partnership has elected to be treated as a business development company under
the Investment Company Act of 1940, as amended. The Partnership was scheduled to
terminate by December 31, 1999, subject to the right of the Independent General
Partners (as defined below) to extend the term for up to four additional years
if they determine that such extension is in the best interest of the
Partnership. The agreement has been extended through December 31, 2002. The
Partnership has only two remaining investments, and is planning to dispose of
such investments and distribute the proceeds from such dispositions before the
end of 2002. The Partnership will be dissolved after the disposition of the two
remaining investments. The Managing Partner is wholly owned by Equus Capital
Management Corporation.

(2)  Management
     ----------

     The Partnership currently has three general partners, consisting of the
Managing Partner and two independent, individual general partners (the
"Independent General Partners"). As compensation for services rendered to the
Partnership through December 31, 2001, each Independent General Partner receives
an annual fee of $13,500 and a fee of $1,500 for each meeting of the Independent
General Partners attended and reimbursement of all out-of-pocket expenses
relating to attendance at such meetings. The annual fee will be discontinued and
the meeting fee will be reduced to $750 in 2002. Pursuant to the Partnership
agreement, the Managing Partner has made a general partner's capital
contribution to the Partnership of $125,316, or approximately one percent of the
Partnership's contributed capital, and each Independent General Partner has made
a capital contribution of $1,000.

     The Partnership 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 management
and administrative services necessary for the operation of the Partnership. The
Management Company receives a management fee at an annual rate equal to 2.5% of
the available capital and is payable quarterly in arrears. Since Available
Capital, as calculated, was depleted in the third quarter of 2001, no additional
management fees are payable. In addition, the Management Company will receive an
incentive fee equal to 10% of the Partnership's cumulative distributions from
Enhanced Yield Investments (excluding returns of capital) over the life of the
Partnership, subject to payment of a priority return to the limited partners.
Payment of the incentive fees is subject to the payment of $3,210,033 and
$3,619,246 in cumulative accrued priority returns owed to limited partners at
December 31, 2001 and 2000, respectively (See Note 4). It is highly unlikely
that any incentive fees will be paid. The Management Company also receives
compensation for providing certain

                                       28
<PAGE>

administrative services to the Partnership on terms determined by the
Independent General Partners as being no less favorable to the Partnership than
those obtainable from competent unaffiliated parties. Certain officers of the
Management Company serve as directors of Portfolio Companies, and receive and
retain fees in consideration for such service. The Management Company also has
management agreements with the Managing Partner and Equus II Incorporated
("EQS"), a Delaware corporation, and with Equus Equity Appreciation Fund L.P.
("EEAF"), a Delaware limited partnership.

     The Managing Partner is a wholly-owned subsidiary of the Management
Company, which in turn is controlled by a privately owned corporation. The
Managing Partner is also the managing general partner of EEAF.

(3)  Significant Accounting Policies
     -------------------------------

     Valuation of Investments - Enhanced yield investments are carried at fair
value with the net change in unrealized appreciation or depreciation included in
the determination of partner's capital. Valuations of enhanced yield investments
are performed in accordance with generally accepted accounting principles and
the financial reporting policies of the Securities and Exchange Commission
("SEC"). The applicable methods prescribed by such principles and policies are
described below:

     Publicly-traded Enhanced Yield Investments - Investments in companies whose
     ------------------------------------------
securities are publicly traded are valued at their quoted market price at the
close of business on the valuation date, less a discount to reflect the
estimated effects of restrictions on the sale of such securities ("Valuation
Discount"), if applicable.

     Privately-held Enhanced Yield Investments - The fair value of investments
     -----------------------------------------
for which no market exists (including most investments made by the Partnership)
is determined on the basis of procedures established in good faith by the
Managing Partner and approved by the Independent General Partners of the
Partnership. As a general principle, the current "fair value" of an investment
would be the amount the Partnership might reasonably expect to receive for it
upon its current sale. Appraisal valuations are necessarily subjective and the
Managing Partner's estimate of values may differ materially from amounts
actually received upon the disposition of enhanced yield investments.

     Generally, cost is the primary factor used to determine fair value until
significant developments affecting the Portfolio Company (such as results of
operations or changes in general market conditions) provide a basis for use of
an appraisal valuation. Thereafter, Enhanced Yield Investments are carried at
appraised values as determined quarterly by the Managing Partner, subject to the
approval of the Independent General Partners. Appraisal valuations are based
upon such factors as a Portfolio Company's earnings, cash flow and net worth,
the market prices for similar securities of comparable companies, an assessment
of the company's current and future financial prospects and various other
factors and assumptions. In the case of unsuccessful operations, the appraisal
may be based upon liquidation value.

     Most of the Partnership's common equity investments may be appraised at a
multiple of free cash flow generated by the Portfolio Company in its most recent
fiscal year, less outstanding funded indebtedness and other senior securities
such as preferred stock. Projections of current year free cash flow may be
utilized and adjustments for non-recurring items are considered. Multiples
utilized are estimated based on the Management Company's experience in the
private company marketplace, and are necessarily subjective in nature. Most of
the Portfolio Companies utilize a high degree of leverage. From time to time,
Portfolio Companies are in default of certain covenants in their loan
agreements. In the event a Portfolio Company cannot generate adequate cash flow
to meet the principal and interest payments on such indebtness or is not
successful in refinancing the debt upon its maturity, the Partnership's
investment could be reduced or eliminated through foreclosure on the Portfolio
Company's assets or the Portfolio Company's reorganization or bankruptcy. When
the Managing Partner has a reasonable belief that the

                                       29
<PAGE>

Portfolio Company will be able to restructure the loan agreements to adjust for
any defaults, the Portfolio Company's securities continue to be valued assuming
that the company is a going concern. The Partnership may also use, when
available, third-party transactions in a Portfolio Company's securities as the
basis of valuation (the "private market method"). The private market method will
be used only with respect to completed transactions or firm offers made by
sophisticated, independent investors.

     The fair 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. Certificates of deposit purchased by the
Partnership generally will be valued at their face value, plus interest accrued
to the date of valuation.

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

     Income Taxes - No provision for income taxes has been made since all income
and losses are allocable to the partners for inclusion in their respective tax
returns. Profits and Losses for tax purposes are determined and allocated as of
the end of each calendar quarter. Profits and Losses are allocated first to
reflect such cash distributions made or scheduled to be made (other than as to
distributions of capital), and thereafter in a manner designed to reflect cash
distributions projected to be made.

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

     Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires the use of certain
estimates and assumptions by management in determining the reported amounts of
assets and liabilities, disclosure of contingent liabilities as of the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Because uncertainties with respect to such
estimates and assumptions are inherent in the preparation of financial
statements, actual results could differ from these estimates.

(4)  Allocations and Distributions
     -----------------------------

     The Partnership's cumulative net distributions from Enhanced Yield
Investments in excess of returns of capital will be shared in proportion to the
partners' capital contributions until the limited partners have received a
priority return, and thereafter are designed so that such distributions
generally will ultimately be shared 80% by the general and limited partners in
proportion to their capital contributions, 10% by the Managing Partner as an
incentive distribution and 10% by the Management Company as an incentive fee.
The priority return of $3,210,033 and $3,619,246 at December 31, 2001 and 2000,
respectively, is equal to the cumulative, non-compounded return on the average
daily amount of the gross capital contributions represented by Enhanced Yield
Investments ranging from 10 to 12% per annum, depending on the date of the
original contribution, less amounts previously distributed related to such
return. For financial reporting purposes, net unrealized appreciation or
depreciation is allocated to the partners' capital accounts as if it were
realized. Based on current valuations of Enhanced Yield Investments, the
Management Company would not receive any incentive fee upon the sale of the
Partnership's investments.

     Income from any source other than Enhanced Yield Investments is generally
allocated to the partners in proportion to the partners' capital contributions.
Indirect expenses of the Partnership are allocated between Enhanced Yield
Investments and Temporary Cash Investments on a pro-rata basis based on the
average assets from each type of investment.

                                       30
<PAGE>

     Subject to certain provisions in the Partnership agreement, net investment
income and gains and losses on investments are generally allocated between the
general partners and the limited partners on the same basis as cash
distributions.

(5)  Temporary Cash Investments
     --------------------------

     Temporary cash investments, which represent the short-term utilization of
cash prior to investment in Enhanced Yield Investments, distributions to the
partners or payment of expenses, consisted of money market accounts earning
interest ranging from 0.75% to 2.00% at December 31, 2001.

(6)  Enhanced Yield Investments
     --------------------------

     The Partnership made no new investments during the year ended December 31,
2001. During the year ended December 31, 2001, the Partnership received
management fees in the amount of $37,500 and note payments in the amount of
$26,800, including interest of $525, from Artegraft, Inc., both in the form of a
9% demand note.

     During the year ended December 31, 2001, the Partnership realized a net
capital gain of $833,595. In 1993, the Partnership wrote off its investment in
Tennis Cards, Inc. and foreclosed on its collateral which consisted of an
inventory of tennis trading cards. On February 22, 2001, the Partnership sold
the entire inventory of tennis trading cards for net proceeds of $49,500. In
addition, the Partnership wrote off its entire investment in Paracelsus
Healthcare Corporation, which went through bankruptcy, realizing a capital loss
of $1,181,124. Also, the Partnership received proceeds from the redemption of
its preferred stock and received a partial payment pursuant to a plan of
liquidation on its common stock of MaxTech Holdings, Inc. ("MaxTech"), realizing
a capital gain of $1,965,219. MaxTech sold all of its business operations and is
attempting to sell its remaining assets, which primarily consist of real estate.
The Partnership expects to receive additional liquidating payments from MaxTech
in the future.

     During 2000, the Partnership received management fees in the amount of
$54,167 and note payments in the amount of $133,055, including interest in the
amount of $12,156, from Artegraft, Inc., in the form of a 9% demand note.

     In September and October 2000, respectively, Paracelsus Healthcare
Corporation ("PLHC") and Drypers Corporation ("Drypers") filed for protection
under Chapter 11 of the Federal Bankruptcy Code. PLHC negotiated a plan of
reorganization with its primary creditors and emerged from bankruptcy in March
2001, at which time the Partnership's investment became worthless. The assets
and businesses of Drypers were sold at auction through the bankruptcy process,
with no proceeds available for common shareholders. Effective December 31, 2000,
the remaining shares of Drypers were deemed worthless and were abandoned.

     The Partnership made a Follow-On Investment of $702,500 in an Enhanced
Yield Investment of one Portfolio Company during the year ended December 31,
1999, which included $390,000 converted from an accounts receivable. The
Partnership made no new investments during the year. In addition, the
Partnership realized net capital gains of $363,179 from the sale of investments
in two Portfolio Companies during 1999. Also, during 1999, the Fund received an
additional 202,232 shares of PLHC common stock pursuant to a price adjustment
from the Champion Healthcare merger with PHLC.

(7)  Unrealized Appreciation on Enhanced Yield Investments
     -----------------------------------------------------

     Unrealized appreciation of Enhanced Yield Investments decreased by
$1,380,238 during the year ended December 31, 2001. Such decrease resulted from
the net decrease in the estimated fair value of two Enhanced Yield Investments
in two companies in the amount of $974,547 and the transfer of net unrealized
appreciation to net realized gains from the write-off and partial sale of two
Enhanced Yield Investments in the amount of $405,691.

                                       31
<PAGE>

     Unrealized appreciation of Enhanced Yield Investments increased by
$1,562,997 during the year ended December 31, 2000. Such increase resulted from
the increase of $1,000,000 in the estimated fair value of one Enhance Yield
Investment, the decrease in the estimated fair value of one Enhanced Yield
Investment of $222,552 and the transfer of $785,549 from net unrealized
depreciation to net realized loss from the sale and abandonment of one Enhanced
Yield Investment.

                                       32
<PAGE>

Item 9. Changes in and Disagreements with Accountants on Accounting and
------- ---------------------------------------------------------------
        Financial Disclosure.
        ---------------------

     None.

Item 10. Directors and Executive Officers of the Registrant.
-------- ---------------------------------------------------

     The Partnership has no directors or officers. On December 31, 2001, the
Partnership was managed by the Managing Partner and two Independent General
Partners.

     Certain information regarding the Independent General Partners is set forth
below:

     John M. Ivancevich, age 61, has been an Independent General Partner of the
Partnership since 1989. He has been Executive Vice President for Academic
Affairs and Provost at the University of Houston since July 1995 and was Dean of
the College of Business Administration at the University of Houston from 1988 to
July 1995. Dean Ivancevich has held the Hugh Roy and Lillie Cranz Cullen
Distinguished Professorship of Management since 1979. Between 1974 and 1988,
Dean Ivancevich held various positions in the College of Business
Administration, including Chairman of the Department of Organizational Behavior
and Management and Associate Dean for Research.

     Williston B. Symonds, age 68, was an Independent General Partner of the
Partnership from 1989 until his death in December 2001. He was an independent
consultant since 1981 with temporary affiliations with companies in the energy
and telecommunications industries. From 1983 to 1985 he was with Advanced
Telecommunications Corporation, a provider of alternate long distance telephone
services and consulting engineering, as a director, Vice President-Finance,
Secretary and Treasurer and from 1984 as President and Treasurer. He was also a
certified public accountant.

     John W. Storms, 57, became an Independent General Partner of the
Partnership effective December 31, 2001. He has been the Managing General
Partner of Storms & Critz, Certified Public Accountants since May 1988. He has
also served as a director of Equus II Incorporated since October 1991 and was an
Independent General Partner of Equus II's predecessor from its inception in
1987.

     The Independent General Partners make up the audit committee and do not
have separate nominating or compensation committees, but act on such matters as
a committee of the whole. The business address of Messrs. Ivancevich and Storms
is 2929 Allen Parkway, Suite 2500, Houston, Texas 77019.

Filing of Reports of Unit Ownership

     Under the federal securities laws, the Partnership's general partners and
any persons holding more than ten percent of the Partnership's Units are
required to report their ownership of the Partnership's Units and any changes in
that ownership to the Partnership and the SEC. Specific due dates for these
reports have been established by regulation and the Partnership is required to
report any failure to file by these due dates. All of these filings were
satisfied by the Partnership's general partners and ten percent holders,
pursuant to Section 16(2) of the Securities Exchange Act of 1934.

     As of March 8, 2002, the Partnership believes that all of the Partnership's
general partners and ten percent holders are current in their filings. In making
these statements, the Partnership has relied on the transfer records of the
Partnership and copies of reports that they have filed with the SEC.

Managing Partner
----------------

     The Managing Partner is a corporation organized under the laws of the State
of Delaware in September 1983. The Managing Partner was organized to serve as
managing general partner of Equus Investments I, L.P., Equus Investments II,
L.P., the Partnership and similar partnerships which may be

                                       33
<PAGE>

formed. The Managing Partner, subject to the supervision of the Independent
General Partners, has exclusive power and authority to manage and control the
Partnership. The Managing Partner is a registered investment adviser under the
Investment Advisers Act of 1940 ("the Investment Advisers Act").

     The following is a list of the directors and officers of the Managing
Partner:

                  Name                 Age                 Position
                  ----                 ---                 --------
         Sam P. Douglass               69          Chairman of the Board and
                                                    Chief Executive Officer
         Nolan Lehmann                 57          President and Director
         Randall B. Hale               39          Vice President and Director
         Paula T. Douglass             50          Director
         S.Preston Douglass, Jr.       40          Director
         Tracy H. Cohen                35          Vice President and Secretary
         Gary L. Forbes                58          Vice President

     Sam P. Douglass has been Chairman of the Board of the Managing Partner
since its formation in September 1983 and became Chief Executive Officer in
December 1989. Mr. Douglass is also Chairman of the Board and Chief Executive
Officer of the Management Company and Equus II Incorporated. Since December
1978, he has served as Chairman and Chief Executive Officer of Equus Corporation
International, a privately-owned corporation engaged in a variety of investment
activities. Mr. Douglass is a director of Advanced Technical Products, Inc.

     Nolan Lehmann has been the President of the Managing Partner since May 1990
and a director since December 1989. From its formation in September 1983 to May
1990 he was Executive Vice President. Mr. Lehmann is also President and a
director of the Management Company and Equus II Incorporated. He is a director
of Allied Waste Industries, Inc. Mr. Lehmann is a certified public accountant.

     Randall B. Hale has been a Vice President of the Managing Partner, Equus II
Incorporated and the Management Company since November 1992. He was elected a
director of the Managing Partner and Management Company in February 1996. From
June 1985 to October 1992, he was employed by Arthur Andersen LLP. He is a
director of Industrial Data Services Corporation. Mr. Hale is a certified public
accountant.

     Paula T. Douglass has been a director of the Management Company since July
1993. She was elected director of the Managing Partner in February 1996. From
September 1989 to September 1990, she was employed as an attorney by Fulbright &
Jaworski. Since December 1978, she has been a director of Equus Corporation
International. She is a licensed attorney. From February 1998 through November
2000, Ms. Douglass was Chairman and Chief Executive Officer of Cinema Film
Systems Texas, Inc.

     S. Preston Douglass, Jr. has been a director of the Management Company
since July 1993. He was elected director of the Managing Partner in February
1996. He has been President and Chief Executive Officer of Corpus Christi Harley
Davidson, Inc. since March 2000. He was a partner at Wallace, Machann, Jackson,
Williams and Douglass where he was employed from January 1989 to March 2000. He
was a prosecutor in the 216th Judicial District in Kerrville, Texas from
December 1987 to December 1988. He is a licensed attorney.

     Tracy H. Cohen was elected a Vice President of the Managing Partner in
April 1995 and is the Manager of the Investor Relations Department for the
Management Company, where she has been employed since April 1995. She has been a
Vice President of Equus II Incorporated since May 1995. From September 1990 to
April 1995, she was employed by Arthur Andersen LLP. Ms. Cohen is a certified
public accountant.

                                       34
<PAGE>

     Gary L. Forbes was a director of the Managing Partner from January 1992 to
November 1995 and has been a Vice President of the Managing Partner and the
Management Company since November 1991. He was a director of the Management
Company from July 1993 to November 1995. He has been a Vice President of Equus
II Incorporated since December 1991. He is also a director of Advanced Technical
Products, Inc., Consolidated Graphics, Inc., and NCI Building Systems, Inc. Mr.
Forbes is a certified public accountant.

     There is no family relationship between any Independent General Partner and
any director or officer of the Managing Partner. Paula T. Douglass is the wife
of Sam P. Douglass, and S. Preston Douglass, Jr. is the son of Sam P. Douglass.

     The business address of Messrs. Douglass, Lehmann, Hale, Cahill, Forbes and
Ms. Douglass and Cohen is 2929 Allen Parkway, Suite 2500, Houston, Texas 77019.
The business address of Mr. S. Preston Douglass, Jr. is 2626 S. Padre Island
Dr., Corpus Christi, Texas 78415.

     The Managing Partner has contributed $125,316 to the Partnership,
representing approximately 1% of total capital contributions to the Partnership.

     The Managing Partner is a wholly-owned subsidiary of the Management
Company. As a result of its stock ownership in the Management Company, Equus
Corporation International has 80% voting control of the Management Company.
Equus Corporation International has its principal offices at 2929 Allen Parkway,
Suite 2500, Houston, Texas 77019.

Management Company

     The Management Company was organized as a Delaware corporation in 1983 and
maintains its offices at 2929 Allen Parkway, Suite 2500, Houston, Texas 77019.
The Management Company's sole activity is to provide management, administrative
and investment advisory services for the Partnership, Equus II Incorporated and
Equus Equity Appreciation Fund, L.P. The Management Company is a registered
investment adviser under the Investment Advisers Act.

     The directors and officers of the Management Company are Sam P. Douglass,
Chairman of the Board and Chief Executive Officer, Nolan Lehmann, President and
a director, Randall B. Hale, Vice President, Secretary and director, Paula T.
Douglass, director, S. Preston Douglass, Jr., director and Gary L. Forbes, Vice
President. See "Managing Partner" above for information concerning Messrs. Sam
P. Douglass, Lehmann, Hale, S. Preston Douglass, Jr., Forbes and Ms. Douglass.

     As a result of its stock ownership in the Management Company, Equus
Corporation International has 80% voting control of the Management Company.
Equus Corporation International is a privately owned corporation engaged in a
variety of investment activities. The business address of Equus Corporation
International is 2929 Allen Parkway, Suite 2500, Houston, Texas 77019.

The Management Agreement

     The Management Agreement provides that the Management Company receive as
compensation for its services a management fee (the "Management Fee") at an
annual rate of 2.5% of Available Capital of the Partnership, paid quarterly in
arrears. Management fees of $1,586, $76,438 and $83,677 were paid during the
years ended December 31, 2001, 2000 and 1999, respectively.

     The Management Agreement also provides that the Management Company will be
paid as the Management Company Incentive Fee an amount equal to 10% of the
excess of distributions from Enhanced Yield Investments over distributions from
Enhanced Yield Investments representing returns of capital over the life of the
Partnership, subject to payment of the priority return to the Limited Partners.
The cumulative amount of the Management Company Incentive Fee will be determined
as of the end of each fiscal quarter and upon termination of the Partnership.
If, at the end of any such period or upon

                                       35
<PAGE>

termination, net payments previously made to the Management Company exceed 10%
of the Partnership's cumulative distributions, including the priority return,
from Enhanced Yield Investments less unrealized capital depreciation, the
Management Company will be required to repay all or a portion of the Management
Company Incentive Fee previously received. At December 31, 2001, payment of
incentive fees is subject to the payment of $3,210,033 in cumulative accrued
priority returns owed to limited partners.

     The Investment Advisers Act restricts the aggregate amount of the
Management Company Incentive Fee and distributions with respect to the Managing
Partner's incentive distribution to 20% of the Partnership's net realized
capital gains less unrealized capital depreciation. This restriction does not
apply, however, to the Partnership's ordinary interest and dividend income.

     The Management Agreement provides for indemnification by the Partnership of
the Management Company and its officers and directors, to the fullest extent
allowed by law, against any threatened, pending or completed action to the
extent that the activities giving rise to such action were performed in good
faith either on behalf of the Partnership or in furtherance of the interests of
the Partnership and in a manner reasonably believed by the indemnified person to
be within the scope of the authority conferred by the Management Agreement or by
law, so long as such person was not guilty of bad faith, negligence, misconduct
or any breach of fiduciary duty owed to the Partnership. Indemnification is
limited by Section 17(d) of the Investment Company Act.

     The Management Agreement was approved by the Independent General Partners
and was submitted to the first annual meeting of Limited Partners for their
approval. Unless earlier terminated, the Management Agreement will remain in
effect from year to year if approved by (i) a majority of the General Partners
or a majority in interest of Limited Partners and (ii) a majority of the
Independent General Partners. The Management Agreement is not assignable and may
be terminated without penalty on 60 days' written notice at the option of either
party or by a vote of a majority in interest of Limited Partners.

     As compensation for the specified administrative services to be rendered by
the Management Company, the Management Company is paid a fee (the "Fund
Administration Fee") of $15 per Limited Partner account per year and is
reimbursed for certain out-of-pocket expenses relating to such services. Such
terms and conditions must be approved by the Independent General Partners,
however, as being not less favorable to the Partnership than those obtainable
from competent unaffiliated third parties. The amount of compensation payable to
the Management Company is reviewed annually by the Independent General Partners
and, subject to the limitation contained in the previous sentence, may be
increased or decreased by the Independent General Partners to provide for such
compensation as the Independent General Partners may in good faith deem
reasonable. Administration fees were $19,935, $20,070 and $20,115 for the years
ended December 31, 2001, 2000 and 1999, respectively.

     The Management Company is a registered investment adviser under the
Investment Advisers Act.

Item 11. Executive Compensation.
-------- -----------------------

     The following table sets forth all cash compensation paid to the
Independent General Partners during or with respect to 2001 for services
rendered in all capacities to the Partnership.

         Number of             Capacities in                 Cash
         persons in group      which served               compensation
         ----------------      -------------              ------------
                2              Independent General        $37,500
                                 Partners

     Through December 31, 2001, each Independent General Partner received from
the Partnership an annual fee of $13,500, a fee of $1,500 for each meeting of
the Independent General Partners attended and

                                       36
<PAGE>

reimbursement for all out-of-pocket expenses relating to attendance at such
meetings. The annual fee was discontinued effective December 31, 2001 and the
meeting fee will be reduced to $750 in 2002. Independent General Partners do not
receive any additional compensation from the Partnership or its Portfolio
Companies for any additional services rendered.

     The Partnership has no directors, executive officers or employees and
therefore paid no other compensation during 2001.

Distributions and Allocations of Profits and Losses

Distributions

     Subject to the Priority Return, the Partnership's cumulative net
distributions from Enhanced Yield Investments in excess of returns of capital
generally are to be shared 80% by the Limited Partners and the General Partners
in proportion to their Capital Contributions, 10% by the Managing Partner as an
incentive distribution and 10% by the Management Company as an incentive fee.

     Current Returns. All cash dividends, interest and other income received by
the Partnership in excess of expenses of operation and reserves for expenses and
Follow-on Investments are to be distributed to the Partners at least annually as
follows:

          (a)  From Enhanced Yield Investments,

          first, 99% to the Limited Partners and the Independent General
          Partners, as a class, and 1% to the Managing Partner, until the
          Limited Partners, as a class, have received from cumulative
          distributions from Enhanced Yield Investments made by the Partnership
          (other than as a return of capital), an amount equal to the sum of (i)
          an aggregate return (cumulative but not compounded) ranging from 12%
          to 10% per annum (depending on when the Limited Partner made his
          Capital Contribution) on the average daily amount of Gross Capital
          Contributions represented by Enhanced Yield Investments (the "Priority
          Return"), and (ii) any outstanding Compensatory Payment (as defined
          below),

          second, 79% to the Limited Partners and the Independent General
          Partners, as a class, and 21% to the Managing Partner until the
          Managing Partner has received from all distributions with respect to
          Enhanced Yield Investments made by the Partnership (other than as a
          return of capital), an amount equal to 11% of all such distributions
          (10 percentage points being an incentive distribution, the "MGP
          Incentive Distribution"), except that if there are any outstanding
          Deferred Distribution Amounts (defined below), such distribution will,
          to the extent permitted by the Partnership Agreement, first be made
          solely to the Managing Partner until such amount is distributed to it,
          and

          third, thereafter, 89% to the Limited Partners and the Independent
          General Partners, as a class, and 11% to the Managing Partner (10
          percentage points being an MGP Incentive Distribution).

          (b)  From Temporary Investments, 99% to the Limited Partners and the
               Independent General Partners, as a class, and 1% to the Managing
               Partner.

     The Priority Return is 12% for Capital Contributions made prior to June 30,
1989, 11% for Capital Contributions made between July 1 and September 30, 1989
and 10% for Capital Contributions made thereafter.

     Capital Transactions. All proceeds from the disposition of Enhanced Yield
Investments and Temporary Investments, including distributions of returns of
capital from investments ("Capital Transactions"), that are not utilized or
reserved for Follow-on Investments or used to pay, or reserved for

                                       37
<PAGE>

the payment of, outstanding obligations or expenses of the Partnership
(including the Management Company Incentive Fee), will be distributed as soon as
practicable after such Capital Transactions as follows:

          (a)  From Enhanced Yield Investments,

          first, 99% to the Limited Partners and the Independent General
          Partners, as a class, and 1% to the Managing Partner, until the
          Limited Partners, as a class, have received from cumulative
          distributions from Enhanced Yield Investments, an amount equal to the
          sum of (i) the Priority Return and (ii) any outstanding Compensatory
          Payment,

          second, to the Managing Partner, the Independent General Partners and
          the Limited Partners, as a class, in proportion to their respective
          "Net Capital Contributions" (Capital Contributions net of selling
          commissions and organizational, offering and marketing expenses) until
          the Limited Partners, as a class, have received from cumulative
          distributions from Enhanced Yield Investments (a) the portion of their
          Net Capital Contributions represented by Enhanced Yield Investments
          then or theretofore liquidated and not reinvested plus (b) an amount
          equal to the sum of (i) the Priority Return and (ii) any outstanding
          Compensatory Payment, except that if there are any outstanding
          Deferred Distribution Amounts, such distribution will, to the extent
          permitted by the Partnership Agreement, first be made solely to the
          Managing Partner until such amount is distributed to it,

          third, 79% to the Limited Partners and the Independent General
          Partners, as a class, and 21% to the Managing Partner, until the
          Managing Partner has received from all distributions made with respect
          to Enhanced Yield Investments, 11% of all such distributions (10
          percentage points being an MGP Incentive Distribution), other than as
          a return of capital, and

          fourth, thereafter 89% to the Limited Partners and the Independent
          General Partners, as a class, and 11% to the Managing Partner (10
          percentage points being an MGP Incentive Distribution).

          (b)  From Temporary Investments,

          first, to the Managing Partner, the Independent General Partners and
          the Limited Partners, as a class, in proportion to their respective
          Net Capital Contributions until the Limited Partners, as a class, have
          received from cumulative distributions other than distributions from
          Enhanced Yield Investments the portion of their Net Capital
          Contributions represented by Temporary Investments then or theretofore
          liquidated and not reinvested, and

          second, 99% to the Limited Partners and the Independent General
          Partners, as a class, and 1% to the Managing Partner.

     For purposes of the distribution described above, "Gross Capital
Contributions represented by Enhanced Yield Investments" is the total cost of
Enhanced Yield Investments grossed up for the related selling commissions,
marketing and sales expenses and organization and offering expenses, without
regard to selling discounts or waivers of selling commissions or wholesale
marketing assistance fees.

     The Managing Partner will make certain payments to the Partnership
("Compensatory Payments") in an amount equal to the cumulative amount by which
cumulative net proceeds received from the disposition of Enhanced Yield
Investments are less than the cost of such investments, but only to the extent
of cumulative MGP Incentive Distributions previously received by the Managing
Partner.

     In addition, to the extent that making any distributions from the proceeds
of any Capital Transaction would result in the Managing Partner receiving
cumulative distributions relating to the disposition of Capital Transactions in
excess of 11% (10% as an MGP Incentive Distribution and 1%

                                       38
<PAGE>

based on contributed capital) of the cumulative capital gains realized (net of
realized capital losses and unrealized net capital depreciation), such
distributions will instead be deferred (the "Deferred Distribution Amount").

     Distributions to Limited Partners are allocated among such Limited Partners
in proportion to the respective number of Units held by such Limited Partners
and based on the Priority Return they are entitled to receive.

     As soon as possible after the Partnership's termination, the Managing
Partner, or a liquidating trustee, will liquidate the Partnership and the
Partners will receive a liquidating distribution of the remaining assets based
upon their allocable share thereof.

Allocations

     Profits and Losses for tax purposes are determined and allocated as of the
end of each calendar quarter. Profits and Losses are allocated first to reflect
such cash distributions made or scheduled to be made (other than as to
distributions of capital), and thereafter in a manner designed to reflect cash
distributions projected to be made.

Item 12. Security Ownership of Certain Beneficial Owners and Management.
-------- ---------------------------------------------------------------

     To the best knowledge of the Partnership, no person beneficially owns more
than five percent of the Units of limited partners' interests in the
Partnership. The Partnership has no other class of security currently
outstanding. No Independent General Partner of the Partnership owns any Units of
limited partners' interests in the Partnership.

     Set forth below is information as of December 31, 2001, with respect to the
ownership of Units by the directors and officers of the Managing Partner.

                                   Units
Name                         Beneficially Owned     Percentage
----                         ------------------     ----------

Tracy H. Cohen
(Vice President and
Secretary)                           38 (1)            .31%

Sam P. Douglass
(Chairman and
Director)                             5                .04%

Gary L. Forbes
(Vice President)                     58 (1)            .47%

Randall B. Hale
(Vice President and
Director)                            43 (1)            .35%

Nolan Lehmann
(President and
Director)                            69 (1)            .56%

All directors and officers
of the Managing Partner
as a group (eight persons)           99                .80%

     (1) includes 38 units owned by GRN Partners of which Ms. Cohen and Messrs.
         Forbes, Hale, and

                                       39
<PAGE>

         Lehmann are general partners.

     There exists no arrangement known to the Partnership, the operation of
which may at a subsequent date result in a change of control of the Partnership.

Item 13. Certain Relationships and Related Transactions.
-------- -----------------------------------------------

     Reference is made in Items 10 and 11 to the information set forth under the
captions "The Management Agreement" and "The Management Company" and to the
information set forth under the captions "Managing Partner" and "Distributions
and Allocation of Profits and Losses" for information concerning certain
relationships and transactions between the Managing Partner and the Management
Company.

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
-------- ----------------------------------------------------------------

(a)(1)   Financial Statements                                              Page
         --------------------                                              ----

     Report of Independent Public Accountants                               17

     Statements of Assets, Liabilities and Partners'                        18
     Capital at December 31, 2001 and 2000

     Statements of Operations for the years ended                           19
     December 31, 2001, 2000 and 1999

     Statements of Changes in Partners' Capital
     for the years ended December 31, 2001, 2000 and 1999                   20

     Statements of Cash Flows for the years ended
     December 31, 2001, 2000 and 1999                                       23

     Selected Per Unit Data and Ratios for the
     five years ended December 31, 2001                                     25

     Schedules of Enhanced Yield Investments
     at December 31, 2001 and 2000                                          26

     Notes to Financial Statements                                          28

     All other information required in the financial statement schedules has
been incorporated in the financial statements or notes thereto or has been
omitted since the information is not applicable, not present or not present in
amounts sufficient to require submission of the schedule.

(a)(3) Exhibits

3.   Articles of Incorporation and By-laws.

     (a)  Certificate of Limited Partnership of the Partnership dated November
          30, 1988. [Incorporated by reference to Form N-3 Exhibit 1.1 to
          Registration Statement, File No. 33-25985].

     (b)  Amended and Restated Agreement of Limited Partnership of the
          Partnership dated as of October 6, 1989. [Incorporated by reference to
          Exhibit 3(e) to the Partnership's Annual Report on Form 10-K, filed
          March 30, 1990.]

4.   Instruments defining the rights of security holders, including debentures

     (a)  Amended and Restated Agreement of Limited Partnership of the
          Partnership dated as of

                                       40
<PAGE>

          October 6, 1989. [Incorporated by reference to Exhibit 3(e) to the
          Partnership's Annual Report on Form 10-K, filed March 30, 1990]

     (b)  Form of Subscription Agreement [Incorporated by reference to Form N-2,
          Exhibit B to Prospectus, File No 33-25958].

10.  Material Contracts

     (a)  Management Agreement between the Partnership and Equus Capital
          Management Corporation dated October 6, 1989. [Incorporated by
          reference to Exhibit 10(a) to the Partnership's Annual Report on Form
          10-K filed March 30, 1990.]

     (b)  Service Agreement between the Partnership and Equus Capital Management
          Corporation dated October 6, 1989. [Incorporated by reference to
          Exhibit 10(b) to the Partnership's Annual Report on Form 10-K filed
          March 30, 1990.]

     (c)  Safekeeping Agreement between the Partnership and Southwest Guaranty
          Trust Company dated January 2, 1991. [Incorporated by reference to
          Exhibit 10(d) to the Partnership's Annual Report on Form 10-K filed
          March 21, 1991.]

     (d)  Reports on Form 8-K
          -------------------
          No reports on Form 8-K were filed by the Partnership during the period
          for which this report is filed.

     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.

                                                 EQUUS CAPITAL PARTNERS, L.P.


                                                 By: Equus Capital Corporation,
                                                     Managing Partner


                                                 By: /s/ Nolan Lehmann
                                                     ---------------------------
                                                     Nolan Lehmann, President

Date:   March 19, 2002

                                       41
<PAGE>

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.

        Signature                           Title                     Date
        ---------                           -----                     ----

EQUUS CAPITAL CORPORATION
Managing General Partner


By: /s/ Nolan Lehmann                                            March 19, 2002
   -----------------------------
   Nolan Lehmann                  President


    /s/ John M. Ivancevich                                       March 19, 2002
   -----------------------------
   John M. Ivancevich             Independent
                                  General Partner


    /s/ John W. Storms                                           March 19, 2002
   -----------------------------
   John W. Storms                 Independent
                                  General Partner


    /s/ Nolan Lehmann                                            March 19, 2002
   -----------------------------
   Nolan Lehmann                  President and Director of the
                                  Managing Partner (principal
                                  Financial and Accounting Officer
                                  of the Managing Partner)


    /s/ Sam P. Douglass                                          March 19, 2002
   -----------------------------
   Sam P. Douglass                Chairman of the Board and Chief
                                  Executive Officer of the Managing
                                  Partner


    /s/ Randall B. Hale                                          March 19, 2002
   -----------------------------
   Randall B. Hale                Director of the Managing
                                  Partner


    /s/ Paula T. Douglass                                        March 19, 2002
   -----------------------------
   Paula T. Douglass              Director of the Managing
                                  Partner


    /s/ S. Preston Douglass, Jr.                                 March 19, 2002
   ------------------------------
   S.Preston Douglass, Jr.        Director of the Managing
                                  Partner

                                      42