UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

             QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                      For the Period Ended: September 30, 1998

                         Commission File Number 0-16531

                        EQUITABLE CAPITAL PARTNERS, L.P.
      (Exact name of registrant as specified in its governing instruments)

              Delaware                               13-3486115
      (State or other jurisdiction         (IRS Employer Identification No.)
     of incorporation or organization)

                           1345 Avenue of the Americas
                            New York, New York 10105
              (Address of principal executive offices and zip code)

  Registrant's telephone number, including area code:(212) 969-1000

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

     Title of each class             Name of each exchange on which registered
           None                                  Not Applicable

           Securities registered pursuant to Section 12(g) of the Act
                      Units of Limited Partnership Interest
                                (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 .

Selected  information  from the Prospectus,  dated July 15, 1988, and filed with
the Securities and Exchange Commission on July 19, 1988 (File No. 33-20093),  is
incorporated  by reference into Parts I, II and III of this Quarterly  Report on
Form 10-Q.



<PAGE>
                        EQUITABLE CAPITAL PARTNERS, L.P.

                                TABLE OF CONTENTS

                         PART I - FINANCIAL INFORMATION




                                                              Page
Item 1.  Financial Statements


Statements of Assets, Liabilities and Partners'
  Capital as of September 30, 1998 and December 31, 1997        5

Statements of Operations  
  For the Three and Nine Months Ended 
  September 30, 1998 and 1997                                   6

Statements of Changes in Net Assets 
  For the Nine Months Ended September 30, 1998 and 1997         7

Statements of Cash Flows 
  For the Nine Months Ended September 30, 1998 and 1997         8

Statement of Changes in Partners' Capital 
  For the Nine Months Ended September 30, 1998                  9

Schedule of Portfolio Investments        
  For the Nine Months Ended September 30, 1998                 10

Supplemental Schedule of Realized Gains and Losses
  For the Nine Months Ended September 30, 1998                 12

Notes to Financial Statements                                  13


Item 2.  Management's Discussion and Analysis of
  Financial Condition and Results of Operations                19


                PART II - OTHER INFORMATION

Item 6.  Exhibits                                              22




<PAGE>
<TABLE>
<CAPTION>
                                       EQUITABLE CAPITAL PARTNERS,L.P.
                                           STATEMENTS OF ASSETS
                                    LIABILITIES AND PARTNERS' CAPITAL
                                                (UNAUDITED)


<S>                                                              <C>                  <C>                       <C>
                                                                                                            
ASSETS:                                                                Notes       September 30, 1998        December 31, 1997
                                                                                       (Unaudited)
     Investments                                                      2,10,12
         Enhanced Yield Investments at Value-
              Managed Companies
              (amortized cost of $12,806,732 at
              September 30, 1998 and $16,931,732
              at December 31, 1997)                                                                  $ -              $ 7,589,732
              Non-Managed Companies
              (amortized cost of $3,584,607 at
              September 30, 1998 and $13,766,546
              at December 31, 1997)                                                                    -                7,555,572
         Temporary Investments
              (at amortized cost )                                                             5,188,690                8,098,650

     Cash                                                                                        402,797                   47,134
     Interest Receivable                                               2,12                            -                   64,768
     Receivable on Investments Sold                                    2,10                      961,151                        -
     Note Receivable                                                    3,4                    1,455,454                1,484,748

TOTAL ASSETS                                                                                 $ 8,008,092             $ 24,840,604
                                                                                             ===========             ============

LIABILITIES AND PARTNERS' CAPITAL

     Liabilities                                                                                            
         Professional Fees Payable                                       9                      $ 41,076                 $ 41,548
         Independent General Partners' Fees Payable                      8                        11,118                   12,396
         Fund Administrative Expenses Payable                            7                        51,934                   50,149
         Other Accrued Liabilities                                                                 6,224                    4,725
              Total Liabilities                                                                  110,352                  108,818

     Partners' Capital
         Managing General Partner                                       3,4                    1,004,563                1,134,402
         Limited Partners (284,611 Units)                                4                     6,893,177               23,597,384
              Total Partners' Capital                                                          7,897,740               24,731,786

TOTAL LIABILITIES AND PARTNERS' CAPITAL                                                      $ 8,008,092             $ 24,840,604
                                                                                             ===========             ============

               See the Accompanying Notes to Financial Statements.

</TABLE>


<PAGE>
<TABLE>
<CAPTION>
                        EQUITABLE CAPITAL PARTNERS, L.P.
                            STATEMENTS OF OPERATIONS
                                   (UNAUDITED)


<S>                                                           <C>              <C>             <C>            <C>
                                                                For the Three Months Ended       For the Nine Months Ended
                                                               September 30,   September 30,    September 30,  September 30,
                                                                   1998             1997             1998           1997      
                                                               -------------   -------------   -------------   ------------
INVESTMENT INCOME- Notes 2,12:
    Interest and Discount Income                               $     71,920    $    350,243    $    235,083    $  2,187,617
    Dividend Income                                                    --              --              --           136,678
        TOTAL INVESTMENT INCOME                                      71,920         350,243         235,083       2,324,295

EXPENSES:
    Investment Advisory Fee- Note 6                                 281,413         281,413         844,239         932,442
    Fund Administration Fees and Expenses- Note 7                   126,933         173,086         459,603         553,687
    Independent General Partners'
     Fees and Expenses- Note 8                                       40,768          39,556         120,272         109,609
    Professional Fees - Note 9                                         --            31,000          12,988          62,050
    Insurance Fees                                                     --              --              --             6,017
    Valuation Expenses                                                 --             2,500           7,762           6,000
        TOTAL EXPENSES                                              449,114         527,555       1,444,864       1,669,805

NET INVESTMENT (LOSS) INCOME                                       (377,194)       (177,312)     (1,209,781)        654,490

NET CHANGE IN UNREALIZED APPRECIATION
    (DEPRECIATION) ON INVESTMENTS- Note 12                        8,420,399       8,888,987        (838,324)    (20,943,490)

NET REALIZED (LOSS) GAIN ON INVESTMENTS- Note 10                (11,365,664)    (10,727,598)     (7,999,877)     16,546,648

NET DECREASE IN NET ASSETS
    RESULTING FROM OPERATIONS                                  $ (3,322,459)   $ (2,015,923)   $(10,047,982)   $ (3,742,352)
                                                               ============    ============    ============    ============


                      See the Accompanying Notes to Financial Statements.
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                        EQUITABLE CAPITAL PARTNERS, L.P.
                       STATEMENTS OF CHANGES IN NET ASSETS
                                   (UNAUDITED)


<S>                                                                          <C>                      <C>
                                                                                      For the Nine Months Ended
                                                                              September 30, 1998          September 30, 1997
                                                                              ------------------          ------------------
FROM OPERATIONS:

   Net Decrease in Net Assets
      Resulting from Operations                                                    $ (10,047,982)              $ (3,742,352)

   Cash Distributions to Partners                                                     (6,756,770)               (76,692,223)

   Reduction in Managing General Partners' Contribution                                  (29,294)                  (341,148)

   Total Decrease                                                                    (16,834,046)               (80,775,723)

NET ASSETS:

   Beginning of Period                                                                24,731,786                110,708,174

   End of Period                                                                    $  7,897,740               $ 29,932,451
                                                                                    ============               ============

               See the Accompanying Notes to Financial Statements.
</TABLE>


<PAGE>
<TABLE>
<CAPTION>
                        EQUITABLE CAPITAL PARTNERS, L.P.
                            STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<S>                                                                       <C>              <C>          
                                                                                    For the Nine Months Ended
INCREASE (DECREASE) IN CASH                                                   September 30, 1998    September 30, 1997
CASH FLOWS FROM OPERATING ACTIVITIES:                                         ------------------    ------------------            
        Interest and Discount Income                                          $           19,899    $        1,822,856
        Fund Administration Fees & Expenses                                             (457,819)             (538,697)
        Investment Advisory Fee                                                         (844,239)             (932,442)
        Independent General Partners' Fees and Expenses                                 (121,549)             (121,665)
        Valuation Expenses                                                                (6,262)              (11,948)
        Sale (Purchase) of Temporary Investments, Net                                  3,189,910            17,280,120
        Proceeds from Sales and Principal Payments of
           Enhanced Yield Investments                                                  5,345,953            59,209,146
        Professional Fees                                                                (13,460)              (57,533)
        Insurance Fees                                                                      --                  (3,742)
           Net Cash Provided by Operating Activities                                   7,112,433            76,646,095
CASH FLOWS FROM FINANCING ACTIVITIES:
        Cash Distributions to Partners                                                (6,756,770)          (76,692,223)
           Net Cash Used in Financing Activities                                      (6,756,770)          (76,692,223)
Net Increase(Decrease) in Cash                                                           355,663               (46,128)
Cash at the Beginning of the Period                                                       47,134                91,206
Cash at the End of the Period                                                 $          402,797    $           45,078
                                                                              ==================    ==================


                                                    RECONCILIATION OF NET DECREASE IN NET ASSETS RESULTING FROM
                                                    OPERATIONS TO NET CASH PROVIDED BY OPERATING ACTIVITIES

Net Decrease In Net Assets
     Resulting From Operations                                                $      (10,047,982)   $       (3,742,352)

Adjustments to Reconcile Net Decrease in Net Assets
        Resulting from Operations to Net Cash Provided by Operating
        Activities:
Decrease in Investments                                                               16,535,741            59,942,618
Increase in Accrued Interest and other Investment Income                                (215,184)             (501,439)
Decrease in Prepaid Expenses                                                                --                   2,650
Net Change in Unrealized Depreciation on Investments                                     838,324            20,943,490
Increase in Fund Administration Expenses Payable                                           1,785                14,989
Increase (Decrease) in Other Accrued Liabilities                                           1,499                (5,948)
Decrease in Independent General Partners' Fees Payable                                    (1,278)              (12,056)
(Decrease) Increase in Professional Fees Payable                                            (472)                4,143
        Total Adjustments                                                             17,160,415            80,388,447
Net Cash Provided by Operating Activities                                     $        7,112,433    $       76,646,095
                                                                              ==================    ==================


               See the Accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                        EQUITABLE CAPITAL PARTNERS, L.P.
                   STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
                                   (UNAUDITED)

<S>                                                  <C>      <C>                 <C>             <C>
                                                                   Managing         Limited
                                                      Notes    General Partner     Partners          Total
                                                      -------  ---------------    ------------     ------------

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998

Partners' Capital at January 1, 1998                              $ 1,134,402     $ 23,597,384     $ 24,731,786
Cash Distributions to Partners                                           (105)      (6,756,665)      (6,756,770)
Reduction in Managing General Partners' Contribution    3             (29,294)               -          (29,294)
Allocation of Net Investment Loss                       11            (12,098)      (1,197,683)      (1,209,781)
Allocation of Net Unrealized Depreciation
   on Investments                                       12             (8,343)        (829,981)        (838,324)
Allocation of Net Realized Loss on Investments                        (79,999)      (7,919,878)      (7,999,877)
Partners' Capital at September 30, 1998                           $ 1,004,563      $ 6,893,177      $ 7,897,740
                                                                  ===========      ===========      ===========


               See the Accompanying Notes to Financial Statements.

</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                          EQUITABLE CAPITAL PARTNERS, L.P.
                                         SCHEDULE OF PORTFOLIO INVESTMENTS
                                                SEPTEMBER 30, 1998
                                                    (UNAUDITED)
                                
<S>                <C>                                        <C>           <C>            <C>           <C>           <C>
   PRINCIPAL                                                      INVESTMENT     INVESTMENT     AMORTIZED     VALUE      % OF TOTAL
 AMOUNT/SHARES                  INVESTMENT                            DATE          COST          COST       (NOTE 2)    INVESTMENTS
---------------  --------------------------------------------     -----------    ----------    ----------    ---------   -----------
                    ENHANCED YIELD INVESTMENTS

                    MANAGED COMPANIES

                    MISCELLANEOUS MANUFACTURING

                    QUANTEGY ACQUISITION CORP.
                    (FORMERLY AMPEX RECORDING MEDIA CORP.)
        162 Shares  Quantegy Acquisition Corp., Common Stock          11/13/95  $  3,464,732    $3,464,732   $         0
                                                                                ------------    ----------   -----------
                                                                                   3,464,732     3,464,732             0       0.00
                                                                                ------------    ----------   -----------------------
                    LEATHER AND LEATHER PRODUCTS

                    LEATHER U.S., INC. - NOTE 12
                    (FORMERLY UNITED STATES LEATHER HOLDINGS, INC.)
      795.00 Shares Leather U.S., Inc., Common Stock                  04/09/96     9,342,000     9,342,000             0
                                                                                ------------   -----------   -----------
                                                                                   9,342,000     9,342,000             0       0.00
                                                                                ------------   -----------   -----------------------

                    TOTAL INVESTMENT IN  MANAGED  COMPANIES                     $ 12,806,732  $ 12,806,732   $         0       0.00%
                    ---------------------------------------                     ------------  ------------   -----------------------

                    NON-MANAGED COMPANIES

                    MISCELLANEOUS RETAIL

                    R&S/STRAUSS, INC.
                    (FORMERLY WSR ACQUISITION CORPORATION)
  $      1,274,607  R&S/Strauss, Inc.,
                       Sr. Sub. Nt. 15% due 05/31/00*(a)              06/13/90     1,274,607     1,274,607              0
  $      2,310,000  R&S/Strauss, Inc., 
                       Sr. Sub. Nt. 15% due 05/31/00*(a)              06/13/90     2,310,000     2,310,000              0
                                                                                 -----------  ------------    -----------
                                                                                   3,584,607     3,584,607              0      0.00
                                                                                 -----------  ------------    ----------------------

                    TOTAL INVESTMENT IN NON-MANAGED  COMPANIES                   $ 3,584,607   $ 3,584,607    $         0      0.00
                    ------------------------------------------                   -----------   -----------    ---------------------

                    TOTAL INVESTMENT IN ENHANCED YIELD INVESTMENTS               $16,391,339   $16,391,339    $         0      0.00%
                    ----------------------------------------------               -----------   -----------    ---------------------
</TABLE>

                             See the Accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
                                               EQUITABLE CAPITAL PARTNERS, L.P.
                                              SCHEDULE OF PORTFOLIO INVESTMENTS
                                                     SEPTEMBER 30, 1998
                                                 (CONCLUDED)(UNAUDITED)

<S>             <C>                                                 <C>           <C>          <C>         <C>            <C>

   PRINCIPAL                                                        INVESTMENT    INVESTMENT    AMORTIZED     VALUE     % OF TOTAL
 AMOUNT/SHARES                        INVESTMENT                       DATE          COST          COST      (NOTE 2)   INVESTMENTS
--------------  -------------------------------------------------- ------------ --------------- ---------- ---------- --------------

                   TEMPORARY INVESTMENTS

                   COMMERCIAL PAPER

$      5,200,000   Federal Home Loan Mortgage Disc Note,
                     5.22% due 10/16/98                                9/29/98  $   5,187,182  $  5,188,690   $  5,188,690
                                                                                -------------  ------------   ------------
                   TOTAL INVESTMENT IN COMMERCIAL PAPER                         $   5,187,182  $  5,188,690   $  5,188,690   100.00%
                                                                                -------------  ------------   ---------------------


                   TOTAL TEMPORARY INVESTMENTS                                  $   5,187,182  $  5,188,690   $  5,188,690   100.00%
                                                                                -------------  ------------   ---------------------

                   TOTAL INVESTMENT PORTFOLIO                                   $  21,578,521  $ 21,580,029   $  5,188,690   100.00%
                                                                                =============  ============   =====================


                   SUMMARY OF INVESTMENTS
                   Subordinated Notes                                           $   3,584,607  $  3,584,607   $          0     0.00%
                   Common Stock and Warrants                                       12,806,732     3,464,732              0     0.00
                   Temporary Investments                                            5,187,182     5,188,690      5,188,690   100.00
                                                                                -------------  ------------   ---------------------
                                                                                $  21,578,521  $ 21,580,029   $  5,188,690   100.00%
                                                                                =============  ============   =====================

                   *  Restricted Security
                  (a) Non-accrual investment status.
          
</TABLE>
                             See the Accompanying Notes to Financial Statements.


<PAGE>
<TABLE>
<CAPTION>
                                        EQUITABLE CAPITAL PARTNERS, L.P.
                              SUPPLEMENTAL SCHEDULE OF REALIZED GAINS AND LOSSES
                                    FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
                                                   (UNAUDITED)

<S>                                                        <C>              <C>          <C>            <C>            <C>
                                                                         PAR VALUE OR
                                                          DATE OF          NUMBER OF      AMORTIZED       NET          REALIZED
SECURITY                                                TRANSACTION          SHARES         COST        PROCEEDS      GAIN (LOSS)
------------------------------------                    -----------      ------------     ----------   ----------    ----------- 

Lexmark International Group, Inc. 
   Common Stock                                           various            92,636      $   617,576   $3,724,832   $  3,107,256

MTI Holdings, Inc. 
   12% Sr. Sec. Note                                      3/12/98           220,102          220,102      220,102             --
   Common Stock                                                              15,772          236,580      236,580             --
   Common Stock Purchase Warrants                                             4,397             --             --             --


Total Net Realized Gains for the
 Three Months Ended March 31, 1998                                                        $ 1,074,258   $4,181,514   $  3,107,256
                                                                                         ===========   ==========   ============

MTI Holdings, Inc. 
   Common Stock                                                              15,772      $       --    $  617,497   $    617,497 (A)
   Common Stock Purchase Warrants                                             4,397              --       107,072        107,072 (A)

Polaris Pool Systems, Inc. 
  Common Stock                                            4/23/98                --             --          3,561          3,561 (B)

R&S/ Strauss, Inc. 
   15% Sr. Sub. Note                                      6/17/98        $  540,393      $   540,393       70,794       (469,599)

Total Net Realized Gain for the
  Three Months Ended June 30, 1998                                                           540,393      798,924        258,531
                                                                                         ===========   ==========   ============
Pergament Home Centers, Inc.
  Floating Rate Demand Note                               7/24/98        $3,236,800     $  2,699,404  $   571,200  $  (2,128,204) 
  Common Stock Class B                                                      380.800        8,568,000           --     (8,568,000)
  Common Stock Class C                                                      135.912               --           --             --

Western Pioneer, Inc.                                
   Common Stock                                           9/15/98        $9,460,000        1,219,460      550,000       (669,460)
   Common Stock Purchase Warrants                                           162,161               --           --             --


Total Net Realized Loss for the
  Three Months Ended September 30, 1998                                                  $12,486,864   $1,121,200   $(11,365,664)
                                                                                         ===========   ==========   ============  

Total Net Realized Loss for the
  Nine Months Ended September 30, 1998                                                   $14,101,515   $6,101,638   $ (7,999,877)
                                                                                         ===========   ==========   ============


(A)  Proceeds represent our portion of an escrow account which is expected to be released in the next quarter.

(B)  Procceds represent a distribution to the Fund from the escrow account.

</TABLE>
               See the Accompanying Notes to Financial Statements.

<PAGE>

                        EQUITABLE CAPITAL PARTNERS, L.P.
                          NOTES TO FINANCIAL STATEMENTS
                                 SEPTEMBER 30, 1998
                                   (UNAUDITED)

1.  Organization and Purpose

    Equitable  Capital  Partners,  L.P.  (the  "Fund")  was  formed  along  with
Equitable Capital Partners  (Retirement  Fund), L.P. (the "Retirement Fund," and
collectively  with the Fund referred to as the "Funds") and the  Certificates of
Limited  Partnership  were filed  under the  Delaware  Revised  Uniform  Limited
Partnership Act on February 2, 1988. The Funds' operations  commenced on October
13, 1988.

    On July 22,  1993,  Equitable  Capital  Management  Corporation  ("Equitable
Capital"),  formerly the Managing General Partner and investment  adviser of the
Funds,  transferred   substantially  all  of  the  assets  comprising  Equitable
Capital's business to Alliance Capital Management L.P. ("Alliance  Capital") and
its  wholly-owned  subsidiary,  Alliance  Corporate  Finance Group  Incorporated
("Alliance  Corporate").  In  connection  with  such  transaction,  the  limited
partners,  (the  "Limited  Partners")  of  the  Funds  voted  to  approve  a new
investment  advisory agreement between the Funds and Alliance Corporate and also
voted to admit Alliance  Corporate as Managing  General  Partner of the Funds to
succeed Equitable  Capital.  Accordingly,  on July 22, 1993, the closing date of
the  transaction  described  above,  (i) Alliance  Corporate was admitted as the
successor  Managing General Partner of the Funds (ii) Equitable Capital withdrew
from the Funds as Managing  General  Partner and assigned all of its interest as
General  Partner to Alliance  Corporate and (iii) Alliance  Corporate  succeeded
Equitable  Capital  as the  investment  adviser to the Funds  pursuant  to a new
investment advisory agreement.  Alliance Corporate (the "Investment Adviser") is
a registered investment adviser under the Investment Advisers Act of 1940.

    Prior to July 22, 1993,  Equitable  Capital was responsible,  subject to the
supervision of the independent  general partners of the Funds (the  "Independent
General Partners"), for the management of the Fund's investments. As of July 22,
1993,  Alliance  Corporate  assumed  such  responsibilities  in its  capacity as
Managing General Partner and Investment Adviser of the Funds.

    The Funds have elected to operate as business  development  companies  under
the  Investment  Company Act of 1940, as amended.  The Funds seek current income
and capital appreciation potential through investments in  privately-structured,
friendly leveraged acquisitions and other leveraged transactions. The Funds have
pursued this objective by investing  primarily in subordinated  debt and related
equity securities  ("Enhanced Yield Investments") issued in conjunction with the
"mezzanine   financing"  of  friendly   leveraged   acquisitions  and  leveraged
recapitalizations.

     As stated in the Partnership Agreement,  the Fund reached the end of its 10
year term on October 13,  1998.  The Fund is in the process of  liquidating  the
last remaining  portfolio  company and expects to make a final  distribution  in
December 1998.

2.  Significant Accounting Policies

    Basis of Accounting

     For financial reporting  purposes,  the Fund's records are maintained using
the accrual method of accounting.

    Valuation of Investments

     Securities  are valued at market or fair  value.  Market  value is used for
securities  for which market  quotations are readily  available.  For securities
without a readily  ascertainable  market value,  fair value is determined,  on a
quarterly  basis,  in  good  faith  by the  General  Partners  of the  Fund.  In
connection with such determination, the Managing General Partner has established
a  valuation  committee  comprised  of senior  executives  to assess  the Fund's
portfolio and make  recommendations  regarding the value of the Fund's portfolio
securities.  This  valuation  committee uses available  market  information  and
appropriate valuation  methodologies.  In addition, the Managing General Partner
has  retained  Arthur D.  Little,  Inc.,  a  nationally  recognized  independent
valuation consultant, to review such valuations.

<PAGE>

     For privately issued securities in which the Fund typically  invested,  the
fair value of an investment is its initial cost,  adjusted for  amortization  of
discount or premium and as  subsequently  adjusted to reflect the  occurrence of
significant developments.  "Significant developments" are business,  economic or
market events that may affect a company in which an investment  has been made or
the securities comprising such investment. For example, significant developments
that could result in a writedown in value include, among other things, events of
default with respect to payment  obligations  or other  developments  indicating
that a portfolio  company's  performance may fall short of acceptable  levels. A
writeup in value of an investment could take place when a significant  favorable
development  occurs,  such as a transaction  representing the partial sale of an
investment that would result in a capital gain, or company performance exceeding
expected levels on a sustained  basis.  Although the General  Partners use their
best  judgment in  determining  the fair value of these  investments,  there are
inherent limitations in any valuation technique involving securities of the type
in which the Fund invests.  Therefore,  the fair values presented herein are not
necessarily  indicative  of the amount which the Fund could realize in a current
transaction.

    Temporary  Investments  with  maturities  of 60 days or less are  valued  at
amortized cost, which  approximates  market value.  Temporary  Investments which
mature in more than 60 days, for which market quotations are readily  available,
are valued at the most recent bid price or the equivalent  quoted yield obtained
from one or more of the market makers.

    Interest Receivable on Investments

    Investments will generally be placed on non-accrual status in the event of a
default  (after  applicable  grace period  expires) or if the  Managing  General
Partner  determines  that  there  is no  reasonable  expectation  of  collecting
interest.

    Payment-In-Kind Securities

    All  payment-in-kind  securities  received in lieu of cash interest payments
from the Fund's  portfolio  companies  are  recorded at face  value,  unless the
Managing General Partner  determines that there is no reasonable  expectation of
collecting the full principal, amounts of such securities.

    Income Taxes

     As discusssed in Note 13, no provision for income taxes has been made since
all income and losses are  allocated  to the Fund's  partners  ("Partners")  for
inclusion in their respective tax returns.

    Investment Transactions

    Enhanced Yield  Investments - The Fund records  transactions  on the date on
which it  obtains  an  enforceable  right to demand  the  securities  or payment
thereof.

    Temporary Investments - The Fund records transactions on the trade date.

    Realized  gains and losses on  investments  are  determined  on the basis of
specific identification for accounting and tax purposes.

    Sales, Marketing and Offering Expenses and Sales Commissions

    Sales  commissions and selling discounts have been allocated to the specific
Partners' accounts to which they are applicable.  Sales,  marketing and offering
expenses are  allocated  between the Funds in  proportion to the number of units
issued  by  each  Fund  and to the  Partners  in  proportion  to  their  capital
contributions.

3.  Note Receivable

     On July 22, 1993,  pursuant to the terms of the Fund's Amended and Restated
Agreement of Limited Partnership,  Alliance Corporate, as the successor Managing
General Partner of the Fund, has contributed a non-interest  bearing  promissory
note  (the  "Note")  to the Fund in an  aggregate  amount  equal to 1.01% of the
aggregate Net Capital  Contributions of all Limited Partners (less distributions
representing  returns of capital).  Net Capital  Contributions  are comprised of
gross  offering  proceeds,  after giving effect to volume  discounts  (and after
netting of sales  commissions,  organization,  offering and sales and  marketing
expenses),  less  returns  of  capital  distributed  to  Limited  Partners.  The
principal amount of the Note is reduced  proportionally  by the Managing General
Partners 1% allocation of return of capital. Such allocation for the nine months
ended September 30, 1998 resulted in a $29,294 reduction of the principal amount
of the Note.
<PAGE>
4.  Capital Contributions

    On October 13,  1988,  the Fund closed the  initial  public  offering of its
units of Limited Partner  interests  ("Units").  Equitable  Capital,  the Fund's
Managing General Partner at that time, accepted  subscriptions for 284,611 Units
and admitted 18,288 Limited Partners.

    The Limited Partners' total capital  contributions were $283,873,400,  after
giving  effect to volume  discounts  allowed of  $737,600.  Equitable  Capital's
aggregate  capital  contribution  was in the  form of a  promissory  note in the
principal amount of $2,641,469.  On July 22, 1993,  Equitable Capital's note was
cancelled and Alliance Corporate,  as successor Managing General Partner, made a
capital contribution in the form of a promissory note on such date, as described
in Note 3. Sales,  marketing and offering expenses and selling  commissions have
been charged against  proceeds  resulting in net capital  contributed by Limited
Partners of $261,531,542.

    Allocation of income,  loss and distributions of cash are made in accordance
with the Partnership Agreement as further discussed in Note 11.

5.  Sales, Marketing and Offering Expenses and Sales Commissions

    The Fund  expended a total of $535,631  for the  reimbursement  of sales and
marketing expenses.  Aggregate sales and marketing expenses of the Funds may not
exceed  $2,528,415  or 0.5% of the  aggregate  capital  contributions  and  were
allocated  proportionately to the number of Units issued by each Fund. Aggregate
sales and marketing expenses for the Funds totalled $951,683.

    The Fund also paid $2,098,311 for the  reimbursement  of offering  expenses.
These expenses,  along with the offering expenses of the Retirement Fund and the
organizational  expenses  of the  Funds,  may not exceed  $6,000,000.  Aggregate
offering and organizational expenses for the Funds totalled $4,711,806.

     For their  services as selling  agent,  the Fund paid sales  commissions to
Merrill Lynch, Pierce, Fenner & Smith Incorporated in the amount of $19,185,170,
of which Equico Securities  Corporation,  an affiliate of Equitable  Capital,  a
related party, received $317,150 as a selected dealer.

6.  Investment Advisory Fee

     As of July 22,  1993,  Alliance  Corporate  has been  receiving a quarterly
Investment  Advisory  Fee,  at the annual  rate of 1.0% of the Fund's  Available
Capital, with a minimum annual payment of $2,000,000 collectively for the Funds,
less 80% of commitment,  transaction, investment banking and "break-up" or other
fees related to the Fund's investments ("Deductible Fees"). Available Capital is
defined as the sum of the  aggregate Net Capital  Contributions  of the Partners
less the  cumulative  amount of returns of capital  distributed  to Partners and
realized losses from investments.

     As stated in the Partnership  Agreement,  the Fund's allocable share of the
Minimum Amount is $1,125,650 or $281,413 per quarter.  

     The  Investment  Advisory Fee is calculated  and paid quarterly in advance.
The  Investment  Advisory  Fees  paid by the  Fund  for the  nine  months  ended
September 30, 1998 and 1997 were $844,239 and $932,442, respectively.

7.  Fund Administration Fee and Expenses

     The Fund  Administration  Fees paid by the Fund for the nine  months  ended
September 30, 1998 and 1997 were $225,000 and $225,000, respectively.

     Beginning October 13, 1996, MLFAI is entitled to receive  reimbursement for
all direct-out-of-pocket expenses incurred in connection with the administration
of the Fund,  commencing  October 13, 1992. For the nine months ended  September
30, 1998 and 1997,  the Fund  incurred  administrative  expenses of $234,603 and
$328,687  respectively,  which  consisted  primarily of printing,  audit and tax
return preparation and custodian fees paid for by MLFAI on behalf of the Fund.

8.  Independent General Partners' Fees and Expenses

    As compensation  for their  services,  each  Independent  General Partner is
entitled to a $30,000 annual fee (payable  quarterly)  from the Fund in addition
to $500  for each  meeting  attended  and  reimbursement  for any  out-of-pocket
expenses. In accordance with the Fund's Partnership Agreement, the amount of the
annual fee is reviewed annually by the Independent General Partners.

     For the nine months ended  September  30, 1998 and 1997,  the Fund incurred
$120,272 and $109,609,  respectively, of Independent General Partners' Fees and
Expenses.
<PAGE>
9. Related Party Transactions

     For the nine  months  ended  September  30,  1998 and  1997,  the Fund paid
expenses of $6,549 and $15,384,  respectively, as reimbursement for amounts paid
for legal  services  provided by Equitable  Life in  connection  with the Fund's
Enhanced Yield Investments.  The Fund is paying Alliance Corporate an Investment
Advisory Fee for its services as  described  in Note 6.  Additionally,  the Fund
paid sales  commissions to Equico  Securities,  a related party, as described in
Note 5.

10.  Investment  Transactions

     The Fund invested  primarily in Enhanced Yield  Investments,  also known in
the securities industry as "high yield securities".  The securities in which the
Fund has invested were issued in  conjunction  with the  mezzanine  financing of
privately  structured,  friendly leveraged  acquisitions,  recapitalizations and
other   leveraged   financings,   and  are  generally   linked  with  an  equity
participation.   Enhanced  Yield  Investments  are  debt  and  preferred  equity
securities that are unrated or are rated by Standard & Poor's  Corporation as BB
or lower and by Moody's  Investor  Services,  Inc. as Ba or lower.  Risk of loss
upon  default  by the  issuer  is  significantly  greater  with  Enhanced  Yield
Investments  than  with  investment  grade  securities  because  Enhanced  Yield
Investments  are  generally  unsecured  and  are  often  subordinated  to  other
creditors  of the  issuer.  Also,  these  issuers  usually  have high  levels of
indebtedness  and are more sensitive to adverse economic  conditions,  such as a
recession or increasing  interest rates, than investment grade issuers.  Most of
these  securities are subject to resale  restrictions  and generally there is no
quoted market for such securities.

     Although the Fund cannot eliminate its risks associated with  participation
in Enhanced Yield Investments,  it has established risk management policies. The
Fund subjected each prospective  investment to rigorous analysis,  and made only
those investments that were recommended by the Managing General Partner and that
met the Fund's  investment  guidelines  or that were  otherwise  approved by the
Independent  General  Partners.  Fund investments are measured against specified
Fund investment and performance guidelines.  To limit the exposure of the Fund's
capital in any single issuer, the Fund limited the amount of its investment in a
particular  issuer. The Fund also continually  monitors  portfolio  companies in
order to minimize the risks  associated  with  participation  in Enhanced  Yield
Investments.

     On  January  2, 1998,  April 1, 1998 and July 1,  1998,  the Fund  received
$68,353,  $68,922 and $68,190 from Pergament  Home Centers,  Inc. as a principal
paydown of the Floating  Demand Note held by the Fund.  No gain,  loss or income
has been recorded on this transaction.

     On March 12, 1998, the Fund sold its MTI Holdings,  Inc. 12% Senior Secured
Note,  common  stock and  warrants  for  $456,682.  No gain,  loss or income was
recorded at the time of sale.  During the three  months  ended June 30, 1998 the
Fund realized a gain of $724,569 on the sale.

    During the first quarter ended March 31, 1998,  the Fund sold the remaining
92,636  shares of Lexmark  International  Group,  Inc.  Class B Common Stock for
$3,724,832 resulting in a gain of $3,107,256 to the Fund.

     On April 23, 1998 , the Fund  received  additional  proceeds of $3,561 from
Polaris Pool Systems,  Inc. The money  represents  proceeds from the sale of the
investments  from  prior  years  that  have  been  held  in  escrow  for  future
adjustments and expenses not paid on the sale dates.

     On June 17, 1998, the Fund sold $540,393 par value of R&S/Strauss, Inc. 15%
Senior Subordinated Note for $70,794 resulting in a loss of $469,599.

     On July 24, 1998, the Fund sold its Pergament,  Home Centers, Inc. Floating
Rate Demand Note , Class B common  stock and Class C common  stock for  $571,200
resulting in a loss of $10,696,204 to the Fund.

     On September 15, 1998,  the Fund sold its Western  Pioneer,  Inc 10% Senior
Subordinated Note and common stock purchase warrants for $550,000 resulting in a
loss of $669,460 to the Fund.

     All of the  proceeds  received  during  the third  quarter  of 1998 will be
distributed  to Limited  Partners of record as of September 30, 1998 on November
16, 1998.
                    
     As of September 30, 1998,  the Fund had remaining  investments in 2 Managed
Companies  (a Managed  Company is one to which the Fund,  the  Managing  General
Partner  or  other  persons  in  the  Fund's  investor  group  make  significant
managerial  assistance  available)  and 1 Non-Managed  Companies (a  Non-Managed
Company is one to which such  assistance is not provided)  totaling  $16,391,339
consisting of $3,584,607 in senior notes and subordinated  notes and $12,806,732
in common stock and purchase warrants.
<PAGE>
11. Allocation of Profits and Losses

    Pursuant to the terms of the Partnership  Agreement,  net investment  income
and gains and losses on investments are generally allocated between the Managing
General  Partner  and the  Limited  Partners  based upon cash  distributions  as
follows:

    first,  99% to the Limited  Partners and 1% to the Managing  General Partner
    until the Limited Partners have received a cumulative priority return of 10%
    non-compounded  on an annual basis on their  investments  in Enhanced  Yield
    Investments;

    second,  70% to the Limited Partners and 30% to the Managing General Partner
    until the Managing General Partner has received 20% of all current and prior
    distributions on such investments;

    and thereafter, 80% to the Limited Partners and 20% to the Managing
    General Partner.

     For the nine months ended  September 30, 1998,  earnings were allocated 99%
to the Limited Partners, as a class, and 1% to the Managing General Partner.

12. Unrealized Appreciation/Depreciation and Non-Accrual of Investments

     For the nine  months  ended  September  30,  1998,  the Fund  recorded  net
unrealized  depreciation on Enhanced Yield  Investments of $838,324  compared to
$20,943,490 for the nine months ended September 30, 1997. Such  depreciation was
the  result  of  adjustments  in  value  made  with  respect  to  the  following
investments during the nine months ended September 30, 1998:

     The amount  includes the reversal of $2,902,592 of unrealized  appreciation
of Lexmark  International  Group,  Inc.  Class B common stock due to the sale of
92,636 shares.

     On March 31, 1998,  Quantegy  Acquisition  Corp.,  common stock was written
down  from  100% to 15% of the cost  resulting  in  unrealized  depreciation  of
$2,945,022 to the Fund.
    
     On March 31,  1998,  R&S/Strauss, Inc.  15%  Senior  Subordinated  Note was
written down from 100% to 25% of par,  resulting in unrealized  depreciation  of
$3,093,750 to the Fund.

     On June 30, 1998, Quantegy Acquisition Corp., common stock was written down
from 15% of cost to 6.5% of the cost  resulting in  unrealized  depreciation  of
$292,501 to the Fund.

     On June 30,  1998,  R&S/Strauss,  Inc.  15%  Senior  Subordinated  Note was
written down form 25% to 13% of par,  resulting in  unrealized  depreciation  of
$430,153 to the Fund.

     The  reversal  of $405,295 of  unrealized  depreciation  due to the sale of
$540,393 par value of R&S/Strauss, Inc., 15% Senior Subordinated Note.

     The reversal of $10,732,147 of unrealized  depreciation  due to the sale of
its  Pergament,  Home Centers,  Inc.  Floating Rate Demand Note , Class B common
stock and Class C common stock.

     The reversal of $1,618,540 of  unrealized  appreciation  due to the sale of
its Western Pioneer,  Inc 10% Senior Subordinated Note and common stock purchase
warrants.

     On September 30, 1998, Quantegy Acquisition Corp., common stock was written
down from 6.5% of cost to zero resulting in unrealized  depreciation of $227,209
to the Fund.

     On  September  30,  1998,  the  remaining  R&S/Strauss,   Inc.  15%  Senior
Suborinated  Note  was  written  down  from  13%  of par to  zero  resulting  in
unrealized depreciation of $465,999 to the Fund.

     The following investment has been on non-accrual status as of the following
date:

     R&S/Strauss, Inc.   15% Senior Subordinated Note    November 30, 1997

    Alliance Corporate  continues to monitor the Fund's portfolio closely.  As a
matter  of  standard  procedure,   Alliance  Corporate  reviews  each  portfolio
company's financial statements at least quarterly, and often monthly. Investment
managers  routinely review and discuss  financial and operating results with the
companies'  management  and  equity  sponsors,  and  attend  periodic  board  of
directors meetings, as appropriate.  In some cases, Alliance Corporate officers,
acting on behalf of the Fund,  serve as  directors  on the  boards of  portfolio
companies. When problems arise, communication with management and sponsors often
occurs on a daily basis.
<PAGE>

13. Income Taxes

    No provision  for income taxes has been made since all income and losses are
allocated to the Fund's partners for inclusion in their respective tax returns.

    Pursuant to Statement of Financial Accounting Standards No. 109 - Accounting
for Income Taxes,  the Fund is required to disclose any  difference  between the
tax bases of the Fund's assets and  liabilities  versus the amounts  reported in
the  Financial  Statements.  Generally,  the  tax  bases  of the  Fund's  assets
approximate  the amortized  cost amounts  reported in the Financial  Statements.
This amount is computed  annually and as of December 31, 1997,  the tax basis of
the  Fund's  assets was  greater  than the  amounts  reported  in the  Financial
Statements  by  $37,057,962.   This  difference  is  primarily  attributable  to
unrealized  depreciation  on investments  which has not been  recognized for tax
purposes. Additionally,  certain realized gains and losses due to restructurings
were treated differently for tax purposes than for financial reporting purposes.

14. Subsequent Distributions

     On October 28, 1998, the Independent General Partners approved an aggregate
cash  distribution  of $2,555,807 for the nine months ended  September 30, 1998,
which will be paid on November 16, 1998 to the Limited Partners. The amount that
will be  distributed  to Limited  Partners  on record as of  September  30, 1998
includes  $2,555,807 of return of capital. On a per Unit basis, the distribution
of $8.98  represents  return of capital.  The  Managing  General  Partner's  one
percent  allocation of $25,816 is being held as a Deferred  Distribution  Amount
resulting in no distribution to the Managing General Partner.

15. Subsequent Events

     On October 7, 1998, the Fund sold its Leather U.S.,  Inc.  Common Stock for
$159,000 and realized a loss of $9,183,000 to the Fund.

     On November 5, 1998,  the Fund sold its remaining  portion of  R&S/Strauss,
Inc. for $36,026 and realized a loss of $3,548,581 on the sale.
<PAGE>
Item 2. Management's Discussion and Analysis
        of Financial Condition and Results of Operations

Liquidity and Capital Resources

Net Proceeds of Offering

    On October 13,  1988,  the Fund  completed  the initial  public  offering of
Units,  admitting 18,288 Limited  Partners who purchased  284,611 Units. The net
proceeds  available  for  investment  by  the  Fund  after  such  offering  were
$261,499,657  after volume  discounts,  sales  commissions  and  organizational,
offering, sales and marketing expenses.

Investments

     As of  September  30,  1998,  the  Fund  had a total  of 3  Enhanced  Yield
Investments at a net cost of $16,391,339.

Proceeds from Investments

     During the nine months ended September 30, 1998, the Fund received proceeds
from the following investments:

     On  January  2, 1998,  April 1, 1998 and July 1,  1998,  the Fund  received
$68,353,  $68,922 and $68,190 from Pergament  Home Centers,  Inc. as a principal
paydown of the Floating  Demand Note held by the Fund.  No gain,  loss or income
has been recorded on this transaction.

     During the first quarter ended March 31, 1998,  the Fund sold the remaining
92,636  shares of Lexmark  International  Group,  Inc.  Class B Common Stock for
$3,724,832 resulting in a gain of $3,107,256 to the Fund.

     On March 12, 1998, the Fund sold its MTI Holdings,  Inc. 12% Senior Secured
Note,  common  stock and  warrants  for  $456,682.  No gain,  loss or income was
recorded at the time of sale.  During the three  months  ended June 30, 1998 the
Fund realized a gain of $724,569 on the sale.

     On April 23, 1998,  the Fund  received  additional  proceeds of $3,561 from
Polaris Pool Systems,  Inc. The money  represents  proceeds from the sale of the
investments  from  prior  years  that  have  been  held  in  escrow  for  future
adjustments and expenses not paid on the sale dates.

     On June 17, 1998, the Fund sold $540,393 par value of R&S/Strauss, Inc. 15%
Senior Subordinated Note for $70,794 resulting in a loss of $469,599.

     On July 24, 1998, the Fund sold its Pergament,  Home Centers, Inc. Floating
Rate Demand Note , Class B common  stock and Class C common  stock for  $571,200
resulting in a loss of $10,696,204 to the Fund.

     On September 15, 1998,  the Fund sold its Western  Pioneer,  Inc 10% Senior
Subordinated Note and common stock purchase warrants for $550,000 resulting in a
loss of $669,460 to the Fund.

     All of the proceeds  received during the third quarter of 1998 are expected
to be  distributed  to Limited  Partners on record as of September  30, 1998, on
November 16, 1998.

     For additional information,  refer to the Supplemental Schedule of Realized
Gains and Losses and Note 10 to the Financial Statements.

    The  Fund's  Enhanced  Yield  Investments  are  typically  issued in private
placement  transactions and are subject to certain restrictions on transfer, and
are thus relatively illiquid. The balance of the Fund's assets at the end of the
period covered by this report was invested in Temporary  Investments,  comprised
of commercial paper with maturities of less than sixty days.

    All cash dividends, interest and other income received by the Fund in excess
of expenses of operation and reserves for expenses and certain  investments  and
liabilities are distributed to the Limited  Partners of the Fund and to Alliance
Corporate, as the Managing General Partner, within 45 days after the end of each
calendar quarter. Before each quarterly cash distribution, the Fund will analyze
the then current cash  projections  and determine  the amount of any  additional
reserves it deems necessary.
<PAGE>
Participation in Enhanced Yield Investments

    The Fund is invested primarily in Enhanced Yield Investments,  also known in
the securities industry as "high yield securities".  The securities in which the
Fund has invested were issued in  conjunction  with the  mezzanine  financing of
privately  structured,  friendly leveraged  acquisitions,  recapitalizations and
other   leveraged   financings,   and  are  generally   linked  with  an  equity
participation.   Enhanced  Yield  Investments  are  debt  and  preferred  equity
securities that are unrated or are rated by Standard & Poor's  Corporation as BB
or lower and by Moody's  Investor  Services,  Inc. as Ba or lower.  Risk of loss
upon  default  by the  issuer  is  significantly  greater  with  Enhanced  Yield
Investments  than  with  investment  grade  securities  because  Enhanced  Yield
Investments  are  generally  unsecured  and  are  often  subordinated  to  other
creditors  of the  issuer.  Also,  these  issuers  usually  have high  levels of
indebtedness  and are more sensitive to adverse economic  conditions,  such as a
recession or increasing  interest rates, than investment grade issuers.  Most of
these  securities are subject to resale  restrictions  and generally there is no
quoted market for such securities.

    Although the Fund cannot eliminate its risks  associated with  participation
in Enhanced Yield Investments,  it has established risk management policies. The
Fund subjects each prospective  investment to rigorous analysis,  and makes only
those investments that have been recommended by the Managing General Partner and
that meet the Fund's investment  guidelines or that have otherwise been approved
by the Independent General Partners.

    Fund  investments  are  measured  against   specified  Fund  investment  and
performance  guidelines.  To limit the  exposure  of the  Fund's  capital in any
single  issuer,  the Fund limits the amount of its  investment  in a  particular
issuer.  The Fund also  continually  monitors  portfolio  companies  in order to
minimize the risks associated with participation in Enhanced Yield Investments.

Results of Operations

     For the three and nine months  ended  September  30, 1998,  net  investment
income  decreased by $199,882 and  $1,864,271  respectively,  as compared to the
same periods in 1997.  Net investment  income is comprised of investment  income
(primarily interest and dividend income) offset by expenses. The decrease in the
1998 net investment income versus the comparative  period in 1997,  reflects the
decrease in interest and  dividend  income  partially  offset by the decrease in
Fund Administration Fees and Expenses and Investment Advisory Fees.

     For the  three and nine  months  ended  September  30,  1998,  the Fund had
investment income of $71,920 and $235,083 respectively,  as compared to $350,243
and  $2,324,295  for the same periods in 1997.  The decrease in 1998  investment
income of 90% was primarily due to an decrease in interest and dividend income.

     The Fund  incurred  expenses of $449,114 and  $1,444,864  for the three and
nine months ended September 30, 1998, as compared to $527,555 and $1,669,805 for
the same  period in 1997.  The  decrease in the 1998  expenses  of $224,941  was
primarily due to a decrease in Professional Fees, Fund  Administration  Fees and
Expenses and Independent  General  Partner's Fees and Expenses paid by the Fund.
The Fund's  major  expenses  consist of the  Investment  Advisory  Fee, the Fund
Administration  Fees and Expenses and  Independent  General  Partners'  Fees and
Expenses.

     The Fund experienced a decrease in net assets resulting from operations for
the nine  months  ended  September  30,  1998 in the  amount of  $10,047,982  as
compared to an decrease of $3,742,352  for the  comparative  period in 1997. The
decrease in net assets for the nine months ended September 30, 1998 is comprised
of net investment loss of $1,209,791,  net realized loss of $7,999,877 offset by
a net change in unrealized  depreciation of $838,324.  For the comparable period
in 1997,  the decrease in net assets was comprised of net  investment  income of
$654,490, net realized gains of $16,546,648 offset by a net change in unrealized
depreciation  of  $20,943,490  (see  Statements  of  Operations in the Financial
Statements).

     For the three months ended  September 30, 1998 and 1997,  the Fund incurred
Investment  Advisory Fees of $281,413 and $281,413,  respectively.  For the nine
months ended September 30, 1998 and 1997 the Fund incurred  Investment  Advisory
Fees of $884,239  and  $932,442,  respectively.  (as  described in Note 6 to the
Financial Statements).
<PAGE>
     The Fund  Administration  Fees and Expenses (as  described in Note 7 to the
Financial  Statements)  for the three months ended  September  30, 1998 and 1997
were $126,933 and $173,086  respectively and for the nine months ended September
30, 1998 and 1997 were  $459,603 and $553,687  respectively.  The decrease  from
1998 to 1997 of $94,084 is primarily due to the Fund Administration Fee changing
to an annual  fee of  $300,000  plus 100% of all direct  out-of-pocket  expenses
incurred by the Fund Administrator on behalf of the Fund.

     Independent  General Partners' Fees and Expenses incurred for the three and
nine  months  ended  September  30,  1998 and 1997  were  $40,768  and  $39,556,
respectively and $120,272 and $109,609 respectively.

     The Fund incurred no Professional Fees for the three months ended September
30,  1998.  For the nine  months  ended  September  30,  1998 the Fund  incurred
Professional Fees of $12,988. Professional Fees incurred for the same periods in
1997 were $31,000 and $62,050, respectively. For the nine months ended September
30, 1998,  the Fund incurred  $6,549 of related party legal fees which  included
reimbursed  legal fees to Equitable Life for legal services.  (See Note 9 to the
Financial Statements.)

Unrealized  Appreciation/Depreciation and Non-Accrual of Investments

     The General Partners of the Fund determine,  on a quarterly basis, the fair
value  of  the  Fund's   portfolio   securities  that  do  not  have  a  readily
ascertainable   market  value.   They  are  assisted  in  connection  with  such
determination by the Managing General Partner, which has established a valuation
committee comprised of senior executives to assess the Fund's portfolio and make
recommendations regarding the value of its portfolio securities.  This valuation
committee  uses  available   market   information  and   appropriate   valuation
methodologies.  In addition, the Managing General Partner has retained Arthur D.
Little,  Inc., a nationally  recognized  independent  valuation  consultant,  to
review such valuations.

     For privately issued  securities in which the Fund typically  invests,  the
fair value of an investment is its initial cost,  adjusted for  amortization  of
discount or premium and as  subsequently  adjusted to reflect the  occurrence of
significant developments.  "Significant developments" are business,  economic or
market events that may affect a company in which an investment  has been made or
the securities comprising such investment. For example, significant developments
that could result in a writedown in value include, among other things, events of
default with respect to payment  obligations  or other  developments  indicating
that a portfolio  company's  performance may fall short of acceptable  levels. A
writeup in value of an investment could take place when a significant  favorable
development  occurs,  such as a transaction  representing the partial sale of an
investment that would result in a capital gain or company performance  exceeding
expected levels on a sustained basis.

     Although the General  Partners use their best judgment in  determining  the
fair value of these investments, there are inherent limitations in any valuation
technique involving securities of the type in which the Fund invests. Therefore,
the fair values  presented  herein are not necessarily  indicative of the amount
which the Fund could realize in a current transaction.

     For the nine  months  ended  September  30,  1998,  the Fund  recorded  net
unrealized depreciation on Enhanced Yield Investments of $145,116 as compared to
$20,943,490  for the nine  months  ended  September  30,  1997.  The  change  in
unrealized  depreciation  for the  nine  months  ended  September  30,  1998 was
primarily the result of unrealized  depreciation in Quantegy  Acquisition Corp.,
R&S/Strauss,  Inc.,  and  Pergament  Home  Centers,  Inc.  and the  reversal  of
unrealized  appreciation  in  Lexmark  International  Group,  Inc.  and  Western
Pioneer, Inc.
 
     The following investment has been on non-accrual status as of the following
date:

    R&S/Strauss,  Inc. 
      15% Senior Subordinated Note           November 30, 1997

    Alliance Corporate  continues to monitor the Fund's portfolio closely.  As a
matter  of  standard  procedure,   Alliance  Corporate  reviews  each  portfolio
company's financial statements at least quarterly, and often monthly. Investment
managers  routinely review and discuss  financial and operating results with the
companies'  management  and  equity  sponsors,  and  attend  periodic  board  of
directors meetings, as appropriate.  In some cases, Alliance Corporate officers,
acting on behalf of the Funds,  serve as  directors  on the boards of  portfolio
companies. When problems arise, communication with management and sponsors often
occurs on a daily basis.

Realized Gains and Losses on Investments

     During  the  three and nine  months  ended  September  30,  1998,  the Fund
recorded a net realized loss of  $11,365,664  and  $7,999,877  respectively,  on
transactions  involving  seven  Enhanced Yield  Investment.  For the nine months
ended September 30, 1997, the Fund recorded net realized gains on investments of
$16,546,648 on transactions  involving two Enhanced Yield  Investments (see Note
10 to the Financial  Statements and the Supplemental  Schedule of Realized Gains
and Losses).

<PAGE>


                           PART II - OTHER INFORMATION

    Items 1 through 4 are  herewith  omitted as the  response to items is either
none or not applicable for the September 30, 1998, Form 10-Q.

Item 6.  Exhibits and Reports on Form 8-K

     (a) Exhibits:  Exhibit 27 - Financial  Data Schedule for the quarter ending
September 30, 1998.

 3.1     Amended and Restated Certificate of Limited Partnership, dated as
         of April 12, 1989*

 4.1     Amended and Restated Agreement of Limited Partnership, dated as
         of October 13, 1988**

10.1     Investment Advisory Agreement, dated July 22, 1993, between
         Registrant and Alliance Corporate Finance Group Incorporated****

10.2     Administrative Services Agreement, dated October 13, 1988, among
         the Registrant, Equitable Capital Management Corporation and ML
         Fund Administrators, Inc.**

10.3     Credit Agreement dated as of June 27, 1989, between Equitable
         Capital Partners, L.P. and Wells Fargo Bank, N.A.***

*        Incorporated  by reference to the Fund's Annual Report on Form 10-K for
         the fiscal year ended December 31, 1989,  filed with the Securities and
         Exchange Commission on March 29, 1990.

**       Incorporated  by reference to the Fund's Annual Report on Form 10-K for
         the fiscal year ended December 31, 1988,  filed with the Securities and
         Exchange Commission on March 29, 1989.

***      Incorporated by reference to the Fund's  Quarterly  Report on Form 10-Q
         for the quarter  ended June 30,  1989,  filed with the  Securities  and
         Exchange Commission on August 14, 1989.

****     Incorporated  by reference to the Fund's Annual Report on Form 10-K for
         the fiscal year ended December 31, 1993,  filed with the Securities and
         Exchange Commission on March 28, 1994.

(b)  Reports on Form 8-K - None.


<PAGE>


                                   SIGNATURES


     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf  by  the  undersigned,  thereunto  duly  authorized  on the  13th  day of
November, 1998.

                              EQUITABLE CAPITAL PARTNERS, L.P.

                         By:  Alliance Corporate Finance Group Incorporated,
                              as Managing General Partner,


Dated:  November 13, 1998     /s/  James R. Wilson
                              -----------------------------
                              James R. Wilson
                              Title:  President


Dated:  November 13, 1998     /s/  Andy Pitsillos
                              ---------------------------
                              Andy Pitsillos
                              Title:  Vice President and Chief
                                      Accounting Officer


<PAGE>


                                   SIGNATURES


     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf  by  the  undersigned,  thereunto  duly  authorized  on the  13th  day of
November, 1998.

                              EQUITABLE CAPITAL PARTNERS, L.P.

                         By:  Alliance Corporate Finance Group Incorporated,
                              as Managing General Partner,


Dated: November 13, 1998
                              James R. Wilson
                              Title:  President


Dated: November 13, 1998
                              Andy Pitsillos
                              Title:  Vice President and Chief
                                      Accounting Officer