[ANDERSEN LOGO]

                          Independent Auditor's Report

To the Board of Directors of
Equus II Incorporated

We have examined management's assertion, included in the accompanying Management
Statement Regarding Compliance with certain provisions of the Investment Company
Act of 1940, that Equus II Incorporated (the Company) complied with the
requirements of subsections (b) and (c) of rule 17f-2 under the Investment
Company Act of 1940 (the Act) as of March 7, 2002. Management is responsible for
the Company's compliance with those requirements. Our responsibility is to
express an opinion on management's assertion about the Company's compliance
based on our examination.

Our examination was conducted in accordance with attestation standards
established by the American Institute of Certified Public Accountants and,
accordingly, included examining, on a test basis, evidence about the Company's
compliance with those requirements and performing such other procedures as we
considered necessary in the circumstances. Included among our procedures were
the following tests performed as of March 7, 2002:

     o    Count and inspection of all securities located in the vault of Bank of
          America in Houston, Texas, without prior notice to management

     o    Confirmation of all securities hypothecated, pledged, placed in
          escrow, or out for transfer with brokers, pledgees, or transfer agents

     o    Reconciliation of all such securities to the books and records of the
          Company and the Custodian

We believe that our examination provides a reasonable basis for our opinion. Our
examination does not provide a legal determination on the Company's compliance
with specified requirements.

In our opinion, management's assertion that Equus II Incorporated complied with
the requirements of subsections (b) and (c) of rule 17f-2 of the Investment
Company Act of 1940 as of March 7, 2002, with respect to securities reflected in
the investment account of the Company is fairly stated, in all material
respects.

This report is intended solely for the information and use of management and the
Board of Directors of Equus II Incorporated and the Securities and Exchange
Commission and is not intended to be and should not be used by anyone other than
these specified parties.


/s/ Arthur Andersen LLP
- ---------------------------

Houston, Texas
March 7, 2002


[EQUUS LOGO]

MANAGEMENT STATEMENT REGARDING COMPLIANCE WITH CERTAIN PROVISIONS OF THE
INVESTMENT COMPANY ACT OF 1940

We, as members of management of Equus II Incorporated (the "Company"), are
responsible for complying with the requirements of subsections (b) and (c) of
Rule 17f-2, "Custody of Investments by Registered Management Investment
Companies," of the Investment Company Act of 1940. We are also responsible for
establishing and maintaining effective internal controls over compliance with
those requirements. We have performed an evaluation of the Company's compliance
with the requirements of subsections (b) and (c) of Rule 17f-2 as of March 7,
2002 and from December 31, 2001 through March 7, 2002.

Based on this evaluation, we assert that the Company was in compliance with the
requirements of subsections (b) and (c) of Rule 17f-2 of the Investment Company
Act of 1940 as of March 7, 2002 and from December 31, 2001 through March 7,
2002, with respect to securities reflected in the investment account of the
Company.

Equus II Incorporated

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