SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

[X]                                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                     For the fiscal year ended June 30, 1998

                                       OR

             [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE  SECURITIES  EXCHANGE ACT OF 1934 For the transition
                period from _______ to _______

                         Commission File Number 0-22618
                         VENTURE LENDING & LEASING, INC.
             (Exact name of registrant as specified in its charter)

                    Maryland                                    13-3775187
(State or other jurisdiction of incorporation or            (I.R.S. Employer
         or organization)                                   Identification No.)

             2010   North First Street,  Suite 310, San Jose, CA 95131  (Address
                    of principal executive offices)
                                   (Zip Code)

       Registrant's telephone number, including area code: (408) 436-8577

Securities Registered Pursuant to Section 12(b) of the Act:   None
Securities Registered Pursuant to Section 12(g) of the Act:   Common Stock,
                                                                $0.001 par value

         Indicate by check mark whether the registrant has (i) filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  and Exchange Act
of 1934  during the  preceding  12 months (or for such  shorter  period that the
registrant was required to file such reports), and (ii) 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 definitive proxy or information  statements
incorporated  be reference in Part II of this Form 10-K or any amendment to this
Form 10-K: ___

As the registrant's shares are not  publicly-traded,  the aggregate market value
of the  voting  stock  held  by  non-affiliates  of  the  registrant  cannot  be
determined.

The  number of shares  outstanding  of each of the  issuer's  classes  of common
stock, as of September 15, 1998 was 48,318.58.

                       Documents Incorporated by Reference
Document   Description                                                10-K  Part
Specifically   Identified  Portions  of  the
Registrant's  Proxy  Statement for the Annual Meeting of                   III
Shareholders to be held November 11, 1998



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<PAGE>


PART I

ITEM 1.  BUSINESS.

Introduction.

         Venture  Lending  &  Leasing,   Inc.   ("Fund")  is  a  non-diversified
closed-end   management  investment  company  electing  status  as  a  "business
development  company"  ("BDC") under the  Investment  Company Act of 1940 ("1940
Act") whose  investment  objective is to achieve a high total  return.  The Fund
provides  asset-based  financing to carefully  selected  venture  capital-backed
companies,  in the  form  of  secured  loans,  installment  sales  contracts  or
equipment  leases.  The Fund  generally  receives  warrants  to  acquire  equity
securities  in  connection  with  its  portfolio  investments.  There  can be no
assurance that the Fund will attain its investment objective. Westech Investment
Advisors, Inc. ("Westech Advisors") is the Fund's Investment Manager and Siguler
Guff  Advisers,  L.L.C.  ("Siguler  Guff  Advisers")  is its Fund  Manager.  The
Investment  Manager and the Fund  Manager are  referred to  collectively  as the
"Managers."  The Fund was  incorporated  in Maryland on  September  29, 1993 and
commenced business on July 5, 1994.

         The Fund's shares of Common Stock, $.001 par value (`Shares") were sold
to  subscribers  pursuant to capital  calls made through  August 8, 1997.  Total
committed capital of $46.6 million has been fully funded as of June 30, 1998.

Investment Program.

         General.  As a BDC,  the Fund  will  invest  at least  70% of its total
assets  ("qualifying  assets")  in  securities  of  companies  that  qualify  as
"eligible  portfolio  companies." An eligible  portfolio  company generally is a
United States  company that is not an  investment  company and that (i) does not
have a class of securities  registered on an exchange or included in the Federal
Reserve Board's  over-the-counter  margin list; (ii) is actively controlled by a
BDC and has an affiliate of a BDC on its board of directors; or (iii) meets such
other criteria as may be established by the SEC. See  "Regulation." The Fund may
invest  up to  30% of its  total  assets  in  non-qualifying  assets,  including
companies that are not eligible  portfolio  companies (for example,  because the
company's  securities  are  listed on the  National  Association  of  Securities
Dealers'  Automated  Quotation  System) and eligible  portfolio  companies as to
which  the  Fund  does  not  offer  to  make  available  significant  managerial
assistance.  The foregoing percentages are determined, in the case of financings
in which the Fund commits to provide  financing prior to funding the commitment,
by the amount of the Fund's total assets represented by the value of the maximum
amount of securities to be issued by the borrower or lessee to the Fund pursuant
to such commitment.

         Venture  Loans  and  Leases.  Venture  loans  generally  consist  of  a
promissory  note secured by the equipment or other assets to be purchased by the
borrower.  The Fund generally obtains a security interest in the assets financed
and receives periodic payments of interest and principal, and generally receives
a final payment constituting additional interest at the end of the transaction's
term.  Venture  leases  consist  of a lease  from the Fund to the  lessee of the
assets to be financed, with periodic payments of rent and, in most cases, with a
put option to sell the assets to the borrower at the end of the lease term for a
predetermined  or formula  price.  The interest rate and  amortization  terms of
venture  loans,  the  rental  rate and put  provisions  of leases  and all other
transaction terms are individually negotiated between the Fund and each borrower
or lessee. Because the Fund seeks to qualify as a "regulated investment company"
("RIC")  under the Internal  Revenue  Code of 1986  ("Internal  Revenue  Code"),
provisions of the Internal Revenue Code restrict the terms upon which


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the Fund may enter into venture  leases and the extent to which  venture  leases
may  be  used,  and  the  Fund  anticipates  structuring  the  majority  of  its
transactions as venture loans.

         Typically, loans or leases are structured as commitments by the Fund to
finance asset  acquisitions by the borrower or lessee over a specified period of
time.  The  commitment  of the Fund to  finance  future  asset  acquisitions  is
typically  subject  to the  absence of any  default  under the loan or lease and
compliance  by the borrower with  requirements  relating to, among other things,
the type of assets to be  acquired.  Although the Fund's  commitments  generally
provide  that the Fund is not  required  to continue  to fund  additional  asset
purchases if there is a material  adverse  change in the  borrower's or lessee's
financial  condition,  it is possible  that a borrower's  or lessee's  financial
condition  will  not be as  strong  at the  time  the  Fund  finances  an  asset
acquisition as it was at the time the commitment was entered into.

         Warrants and Equity Securities. The Fund generally acquires warrants to
purchase  equity  securities of the borrower or lessee in connection  with asset
financings.  The terms of the warrants,  including the expiration date, exercise
price and terms of the equity  security for which the warrant may be  exercised,
are negotiated individually with each borrower or lessee.  Substantially all the
warrants and underlying  equity  securities are restricted  securities under the
1933 Act at the time of issuance;  the Fund  generally  negotiates  registration
rights with the borrower or lessee that may provide (i) "piggyback" registration
rights, which permit the Fund under certain circumstances to include some or all
of the securities owned by it in a registration  statement filed by the borrower
or  lessee  or (ii)  under  rare  circumstances,  "demand"  registration  rights
permitting  the Fund under  certain  circumstances  to require  the  borrower or
lessee to  register  the  securities  under  the 1933 Act (in some  cases at the
Fund's expense).

Investment Policies.

         For  purposes  of  these  investment   policies  and  unless  otherwise
specified, references to the percentage of the Fund's total assets "invested" in
securities  of a company will be deemed to refer,  in the case of  financings in
which the Fund commits to provide financing prior to funding the commitment,  to
the amount of the Fund's  total assets  represented  by the value of the maximum
amount of securities to be issued by the borrower or lessee to the Fund pursuant
to such  commitment;  the Fund will not be required to divest  securities in its
portfolio  or decline to fund an  existing  commitment  because of a  subsequent
change in the value of securities the Fund has previously  acquired or committed
to purchase.

         Diversification    Standards.    The   Fund   is    classified   as   a
"non-diversified"  closed-end investment company under the 1940 Act. However the
Fund  seeks  to  qualify  as a RIC,  and  therefore  must  meet  diversification
standards under the Internal Revenue Code.

         To  qualify  as a RIC,  the Fund must meet the  issuer  diversification
standards  under the Internal  Revenue Code that require  that,  at the close of
each  quarter of the Fund's  taxable  year,  (i) not more than 25% of the market
value of its total assets is invested in the  securities  of a single issuer and
(ii) at least 50% of the  market  value of its total  assets is  represented  by
cash,  cash items,  government  securities,  securities  of other RICs and other
securities  (with each investment in such other  securities  limited so that not
more than 5% of the market  value of the Fund's  total assets is invested in the
securities  of a single  issuer  and the Fund  does not own more than 10% of the
outstanding  voting  securities  of  a  single  issuer).  For  purposes  of  the
diversification  requirements under the Internal Revenue Code, the percentage of
the Fund's total assets  "invested" in securities of a company will be deemed to
refer, in the case of financings in which the Fund commits to


                                       3
<PAGE>


provide  financing prior to funding the commitment,  to the amount of the Fund's
total assets  represented by the value of the securities  issued by the borrower
or lessee to the Fund at the time each portion of the commitment is funded.

         The Fund will invest no more than 25% of its total assets in securities
of companies in any single industry.  The broad industry categories in which the
Fund  anticipates  that most of its  investments  will fall (and  within each of
which  there  may  be  several   "industries"   for  purposes  of  the  industry
diversification    policy)   include    computer   and    semiconductor-related,
medical/biotechnology and communications.

         Investment   Guidelines.   In  selecting  investments  for  the  Fund's
portfolio,  the Managers endeavor to meet the investment guidelines  established
by the Fund's Board of Directors.  The Fund may, however,  make investments that
do not conform to one or more of these guidelines when deemed appropriate by the
Managers.  Such investments might be made if the Managers believe that a failure
to  conform  in one area is offset by  exceptional  strength  in  another  or is
compensated  for  by  a  higher  yield,  favorable  warrant  issuance  or  other
attractive transaction terms or features.

         Leverage.  The Fund is  permitted  to borrow  money from and issue debt
securities to banks,  insurance companies and other lenders to obtain additional
funds to originate  venture  loans and leases.  Under the 1940 Act, the Fund may
not incur borrowings unless,  immediately after the borrowing is incurred,  such
borrowings would have "asset coverage" of at least 200 percent. "Asset coverage"
means the ratio which the value of the Fund's total assets, less all liabilities
not represented by the borrowings and any other liabilities constituting "senior
securities" under the 1940 Act, bears to the aggregate amount of such borrowings
and senior  securities.  The practical effect of this limitation is to limit the
Fund's  borrowings  and other senior  securities to 50% of its total assets less
its liabilities other than the borrowings and other senior securities.

         The use of  leverage  increases  investment  risk.  The Fund's  lenders
require that the Fund pledge  portfolio  assets as collateral for loans.  If the
Fund is unable to  service  the  borrowings,  the Fund may risk the loss of such
pledged  assets.  Lenders  also  require  that the Fund agree to loan  covenants
limiting the Fund's ability to incur  additional debt or otherwise  limiting the
Fund's  flexibility,  and loan  agreements may provide for  acceleration  of the
maturity of the indebtedness if certain financial tests are not met.

         Temporary   Investments.   Pending   investment   in  asset   financing
transactions  and pending  distributions,  the Fund  invests  excess cash in (i)
securities  issued  or  guaranteed  by the  U.S.  government,  its  agencies  or
instrumentalities,  (ii)  repurchase  agreements  fully  collateralized  by U.S.
government securities or (iii) short-term  high-quality debt instruments of U.S.
corporations.  All such  investments  will mature in one year or less.  The U.S.
government  securities  in which the Fund may  invest  include  U.S.  government
securities  backed by the full faith and credit of the U.S.  government (such as
Treasury bills, notes and bonds) as well as securities backed only by the credit
of the issuing agency. Corporate securities in which the Fund may invest include
commercial paper,  bankers'  acceptances and certificates of deposit of domestic
or foreign issuers.

         The Fund  also may  enter  into  repurchase  agreements  that are fully
collateralized by U.S. government securities with banks or recognized securities
dealers,  in which  the  Fund  purchases  a U.S.  government  security  from the
institution  and  simultaneously  agrees  to  resell  it  to  the  seller  at an
agreed-upon  date and price.  The repurchase  price is related to an agreed-upon
market rate of interest rather than the coupon of the debt security and, in that
sense,  these  agreements  are  analogous to secured  loans from the Fund to the
seller. Repurchase agreements carry certain risks


                                       4
<PAGE>


not  associated  with  direct  investments  in  securities,  including  possible
declines in the market value of the  underlying  securities and delays and costs
to the Fund if the other party to the transaction defaults.

         Other  Investment  Policies.  The Fund will not sell securities  short,
purchase  securities  on margin  (except  to the  extent  the  Fund's  permitted
borrowings  are deemed to  constitute  margin  purchases),  write puts or calls,
purchase or sell  commodities  or  commodity  contracts or purchase or sell real
estate.  The Fund will not underwrite the securities of other companies,  except
to the  extent the Fund may be deemed an  underwriter  upon the  disposition  of
restricted securities acquired in the ordinary course of the Fund's business.

         The Fund's  investment  objective,  investment  policies and investment
guidelines (other than its status as a BDC) are not fundamental policies and may
be changed by the Fund's  Board of  Directors  at any time  without  shareholder
approval.

Regulation.
         Generally, to be eligible to elect BDC status, a company must engage in
the  business  of  furnishing  capital  and  offering   significant   managerial
assistance  to  "eligible   portfolio   companies,"  as  defined   below.   More
specifically,  in order to qualify  as a BDC,  a company  must (i) be a domestic
company;  (ii) have  registered  as a class of its  securities  or have  filed a
registration  statement  with the SEC  pursuant to Section 12 of the  Securities
Exchange  Act of  1934;  (iii)  operate  for the  purpose  of  investing  in the
securities  of certain  types of  eligible  portfolio  companies;  (iv) offer to
extend significant  managerial  assistance to such eligible portfolio companies;
(v) have a majority of disinterested  directors; and (vi) file (or under certain
circumstances, intend to file) a proper notice of election with the SEC.

         "Making available significant  managerial  assistance" is defined under
the 1940 Act, in  relevant  part,  as (i) an  arrangement  whereby the  business
development  company,  through its  officers,  directors,  employees  or general
partners, offers to provide and, if accepted, does provide, significant guidance
and counsel  concerning the management,  operations or business  objectives of a
portfolio company;  or (ii) the exercise by a business  development company of a
controlling influence over the management or polices of the portfolio company by
the  business  development  company  acting  individually  or as part of a group
acting together which controls the portfolio  company.  The officers of the Fund
intend to offer to provide managerial assistance,  including advice on equipment
acquisition and financing,  cash flow and expense management,  general financing
opportunities,  acquisition opportunities and opportunities to access the public
securities markets, to the great majority of companies to whom the Fund provides
venture loans or leases. In some instances,  officers of the Fund might serve on
the board of directors of borrowers or lessees.

         An "eligible  portfolio  company"  generally is a United States company
that is not an  investment  company  and  that  (i)  does  not  have a class  of
securities  registered on an exchange or included in the Federal Reserve Board's
over-the-counter  margin list;  (ii) is actively  controlled by a BDC and has an
affiliate of a BDC on its board of directors; or (iii) meets such other criteria
as may be  established  by the SEC.  Control  under the 1940 Act is  presumed to
exist where a BDC owns more than 25% of the outstanding voting securities of the
eligible portfolio company.

         The 1940 Act prohibits or restricts  companies  subject to the 1940 Act
from investing in certain types of companies, such as brokerage firms, insurance
companies,  investment banking firms, and investment  companies.  Moreover,  the
1940 Act limits the type of assets that BDCs may  acquire to certain  prescribed
qualifying assets and certain assets necessary for its operations (such as


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office  furniture,  equipment,  and  facilities) if, at the time of acquisition,
less  than 70% of the  value of  BDC's  assets  consist  of  qualifying  assets.
Qualifying assets include:  (i) privately acquired  securities of companies that
were  eligible  portfolio   companies  at  the  time  such  BDC  acquired  their
securities; (ii) securities of bankrupt or insolvent companies; (iii) securities
of eligible portfolio companies controlled by a BDC; (iv) securities received in
exchange for or distributed in or with respect to any of the foregoing;  and (v)
cash items, government securities and high-quality short-term debt. The 1940 Act
also places restrictions on the nature of transactions in which, and the persons
from  whom,  securities  can be  purchased  in order  for the  securities  to be
considered  qualifying assets.  Such restrictions  include limiting purchases to
transactions not involving a public offering and the requirement that securities
be  acquired  directly  from  either  the  portfolio  company  or its  officers,
directors or affiliates.

         The Fund,  as a BDC, may sell its  securities  at a price that is below
its  net  asset  value  per  share,  provided  that a  majority  of  the  Fund's
disinterested  directors  has  determined  that such  sale  would be in the best
interests of the Fund and its  shareholders and upon the approval by the holders
of a majority of its outstanding voting securities,  including a majority of the
voting  securities held by  non-affiliated  persons,  of such policy or practice
within one year of such sale.  A majority of the  disinterested  directors  also
must  determine in good faith,  in  consultation  with the  underwriters  of the
offering if the offering is underwritten, that the price of the securities being
sold is not less than a price which  closely  approximates  market  value of the
securities,  less any distribution  discounts or commissions.  As defined in the
1940 Act, the term "majority of the outstanding  voting  securities" of the Fund
means the vote of (i) 67% or more of the Fund's Shares present at a meeting,  if
the  holders  of  more  than  50% of  the  outstanding  Shares  are  present  or
represented by proxy,  or (ii) more than 50% of the Fund's  outstanding  Shares,
whichever is less.

         Many of the  transactions  involving a company and its  affiliates  (as
well as affiliates of those affiliates) which were prohibited  without the prior
approval  of the SEC  under  the 1940 Act  prior  to its  amendment  by the 1980
Provisions are permissible for BDCs, including the Fund, upon the prior approval
of a  majority  of the Fund's  disinterested  directors  and a  majority  of the
directors having no financial  interest in the  transactions.  However,  certain
transactions  involving  certain  persons  related  to the Fund,  including  its
directors,  officers,  and the Managers, may still require the prior approval of
the SEC. In general, (i) any person who owns, controls,  or holds power to vote,
more than 5% of the  Fund's  outstanding  Shares  (ii) any  director,  executive
officer, or general partner of that person; and (iii) any person who directly or
indirectly  controls,  is controlled by, or is under common  control with,  that
person, must obtain the prior approval of a majority of the Fund's disinterested
directors,  and,  in some  situations,  the prior  approval  of the SEC,  before
engaging in certain transactions  involving the person or any company controlled
by the Fund. The 1940 Act generally does not restrict  transactions  between the
Fund and its eligible portfolio companies.  While a BDC may change the nature of
its business so as to cease being a BDC (and in  connection  therewith  withdraw
its election to be treated as a BDC) only if  authorized  to do so by a majority
vote  (as  defined  by the  1940  Act)  of its  outstanding  voting  securities,
shareholder  approval of changes in other fundamental  investment  policies of a
BDC is not  required (in  contrast to the general  1940 Act  requirement,  which
requires  shareholder  approval  for a  change  in  any  fundamental  investment
policy).

Dividends and Distributions.

         The Fund intends to distribute to shareholders substantially all of its
net investment  income and net realized capital gains, if any, as determined for
income tax purposes.  Applicable law, including  provisions of the 1940 Act, may
limit the amount of dividends and other distributions


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payable by the Fund.  Income  dividends  will  generally  be paid  quarterly  to
shareholders of record on the last day of each preceding  calendar  quarter end.
Substantially  all of the Fund's net capital  gain (the excess of net  long-term
capital gain over net short-term  capital loss) and net short-term capital gain,
if any, will be distributed  annually with the Fund's final  quarterly  dividend
distribution for the year.

         Until July 5, 1998,  the Managers  reinvested  the proceeds of matured,
repaid or resold  investments,  net of required  distributions  to shareholders,
principal  payments on borrowings and expenses or other obligations of the Fund,
in new loans or leases. Following that date, the Fund has begun to distribute to
investors  all  proceeds   received  from   principal   payments  and  sales  of
investments,  net of reserves and expenses,  principal  repayments on the Fund's
borrowings,  amounts required to fund financing  commitments entered into before
such date, and any amounts paid on exercise of warrants.  Distributions  of such
amounts are likely to cause  annual  distributions  to exceed the  earnings  and
profits of the Fund available for  distribution,  in which case such excess will
be considered a tax free return of capital to a shareholder to the extent of the
shareholder's  adjusted  basis in his shares and then as capital gain.  The Fund
may borrow money to fund  shareholder  distributions,  to the extent  consistent
with the 1940 Act and a prudent capital structure.

Competition.

         Other entities and individuals compete for investments similar to those
proposed to be made by the Fund,  some of whom may have greater  resources  than
the Fund. Furthermore, the Fund's need to comply with provisions of the 1940 Act
pertaining  to BDCs and  provisions of the Internal  Revenue Code  pertaining to
RICs might restrict the Fund's flexibility as compared with its competitors. The
need to compete for investment  opportunities may make it necessary for the Fund
to offer borrowers or lessees more attractive  transaction  terms than otherwise
might be the case.


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<PAGE>


Employees.

         The  Fund  has no  employees;  all of its  officers  are  officers  and
employees of the  Managers,  and all of its required  services are  performed by
officers and employees of the Managers.

ITEM 2.  PROPERTIES.

         All of the Fund's office space is provided by the Managers.

ITEM 3.  LEGAL PROCEEDINGS.

         The Fund is not a party to any material legal proceedings.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

         No matters  were  submitted  to a vote of the Fund's  security  holders
during the last quarter of the fiscal year ended June 30, 1998.

EXECUTIVE OFFICERS OF THE FUND

         The  following  are the  executive  officers of the Fund.  All officers
serve at the pleasure of the Board.


Name and Position With Fund      Age  Occupation During Past Five Years


Ronald W. Swenson, Director,     53   President and Director, Westech Investment
Chairman and Chief Executive          Advisors since 1994, and President and
Officer                               Director, Western Technology Investments
                                      since 1980.


Salvador O. Gutierrez, Director, 55   Senior Vice  President  and  Director,
President and Chief Financial         Westech  Investment  Advisors since 1994,
Officer                               and Senior Vice President,  Western
                                      Technology Investment since 1987.


George W. Siguler,               51   Managing  Director, Siguler Guff Advisers
Executive Vice                        & affiliates since 1995;Managing Director
President and Advisory Director       of  Mitchell Hutchins  Institutional
                                      Investors from 1991 to 1995.  Director and
                                      President,  Associated  Capital  Advisers,
                                      Inc.  (investment  management  firm)  from
                                      1990 to 1991,Vice  Chairman and a director
                                      of Monarch Capital Corporation  (financial
                                      services  holding  company)  from  1984 to
                                      1991.



Patricia A. Breshears, Vice      62   Vice President,Westech Investment Advisors
President and Secretary               since   1994; Administrator and Corporate
                                      Secretary,  Western Technology  Investment
                                      (venture leasing firm) since 1984.

Donald P. Spencer, Vice    43        Managing  Director,  Siguler Guff Advisers
President and Assistant              and affiliates since 1995;    Senior  Vice
Secretary                            President (and other  positions),  Mitchell
                                     Hutchins   Institutional    Investors   and
                                     affiliates from 1989 to 1995.


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<PAGE>



PART II.

ITEM 5.  MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.

         The Fund's Common Stock is not listed on any securities  exchange,  and
all holders of the Fund's Common Stock are subject to  agreements  significantly
restricting the transferability of their shares.

         The approximate  number of holders of record of the Fund's Common Stock
at September 15, 1998 was 52.

         The Fund has established a policy of declaring dividends on a quarterly
basis,  with the most recent  dividend being paid on July 30, 1998 to holders of
record on June 30, 1998, in the amount of $109.75 per share.  See "Dividends and
Distributions" under Item 1 for a description of the Fund's dividend policies.

ITEM 6.  SELECTED FINANCIAL DATA.

         The following  table  summarizes  certain  financial data and should be
read in conjunction with the "Management's  Discussion and Analysis of Financial
Condition  and Results of  Operations"  and the financial  statements  and notes
thereto  included  elsewhere in this Form 10-K. The selected  financial data set
forth below has been derived from the audited financial statements.


                                                  For the Year   For the Year
                                                       Ended         Ended
                                                  June 30, 1997   June 30, 1998

                                                ----------------   -------------
  Statement of Operations Data:
  Investment Income:
           Interest on Loans and Leases ..........   $  7,314,618   $ 12,793,441
           Interest on Short - Term investments ..        268,329        381,161
                                                       -----------  ------------
                Total Investment Income ..........      7,582,947     13,174,602
                                                       -----------  ------------
  Expenses:

           Management Fee to Managers ............      1,438,118      2,307,014
           Interest Expense ......................      1,701,039      2,928,409
           Other Expenses ........................        341,791        564,975
                  Total Expenses .................      3,480,948      5,800,398
                                                       -----------  ------------
  Net Investment Income ..........................      4,101,999      7,374,204
                                                       -----------  ------------
  Net Unrealized Gain From Investment Transactions        865,498       (41,374)
  Net Realized Gain From Investment Transactions .      1,463,670      4,993,372
  Net Income .....................................      6,431,167     12,326,202
                                                       ==========   ============


  Net Income Per Share: ..........................   $        212   $        260
                                                       ==========   ============


  Average Shares Outstanding .....................         30,304         47,354
                                                       ==========   ============



Balance Sheet Data:                   As of June 30, 1997   As of June 30, 1998
                                        ---------           -------------------


Total Assets                          $71,848,759                   $88,489,083
Bank Loans                            $30,000,000                   $36,114,059



                                       9
<PAGE>



ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.


Results of Operations --   Years Ended June 30, 1998 and 1997

         Total investment  income for the years ended June 30, 1998 and 1997 was
$13.2  million and $7.6 million,  respectively,  of which $12.8 million and $7.3
million,  respectively,  consisted  of  interest on venture  loans  outstanding.
Remaining  income  consisted of interest on the  temporary  investment  of cash,
pending investment in venture loans and leases, distributions to shareholders or
application to the Fund's expenses.  The increase in investment  income reflects
the increase in capital called from investors from  approximately  $37.5 million
as of June 30, 1997 to approximately  $46.6 million as of June 30, 1998, and the
investment of that capital  (together with amounts derived from bank borrowings)
in venture loans and leases.

         Expenses  for the years ended June 30, 1998 and 1997 were $5.8  million
and $3.5  million,  respectively,  resulting in net income of $12.3  million and
$6.4 million respectively.  Net income for the year ended June 30, 1998 includes
a decrease  in  unrealized  gain of $0.04  million  and a realized  gain of $5.0
million.  The net decrease in unrealized  gain for the period  consists of $1.46
million of  appreciation  of the Fund's publicly traded stocks and warrants that
were  received  in  connection  with loan and lease  transactions,  less a $1.50
million  write-down of the loan portfolio.  Warrants with readily  ascertainable
market values are assigned a fair value based on the difference, if any, between
the  exercise  price of the warrant and the fair value of the equity  securities
for which the warrant may be exercised, adjusted for illiquidity. On a per share
basis,  for the years  ended June 30, 1998 and 1997 net income was $260 and $212
respectively.

         There were  several  factors  that  contributed  to the increase in net
income  for the year  ended June 30,  1998 over the prior  year.  As of June 30,
1998,  total assets  invested in venture  loans  increased  as a  percentage  of
committed  capital  to 190%  from  154%  as of June  30,  1997,  reflecting  the
investment of capital called and additional borrowed funds, and cash balances as
a  percentage  of total  assets were  significantly  reduced  compared  with the
corresponding  year. The most  significant  factor  effecting net income for the
year ended June 30, 1998 was the realized gain from  investment  transactions of
$5.0  million.  Also  impacting  net income was  interest  expense on the Fund's
borrowings during the year ended June 30, 1998, at $2.9 million.

         The Fund's policy is to place a loan on  nonaccrual  status when either
principal  or interest  has become past due for 90 days or more.  When a loan is
placed on nonaccrual status,  all interest  previously accrued but not collected
is  reversed.  As of June  30,  1998  and  1997,  the  Fund  had  loan  balances
outstanding of $2.6 million and $3.6 million to borrowers that were carried on a
nonaccrual  basis.  Foregone  interest income on nonaccrual  loans for the years
ended June 30, 1998 and 1997, was $280,000 and $298,000 respectively. Management
fee and interest expense  declined as a percentage of investment  income for the
year ended June 30, 1998 from the year ended June 30, 1997.

Liquidity and Capital Resources --  June 30, 1998 and June 30, 1997

         Total  capital   committed  to  the  purchase  of  Shares  pursuant  to
subscription  agreements  was  approximately  $46.6 million at June 30, 1998 and
1997.  As of June  30,  1998 and  1997,  100%  and  80%,  respectively,  of this
committed capital was called to fund investments in venture loans and leases and
to meet the Fund's expenses.


                                       10
<PAGE>


         The  Fund has in  place a $45  million  securitized  debt  facility  to
finance the acquisition of asset-based  loans and leases.  The principal balance
is a 39-month term loan.  Additional amounts can be drawn on the credit facility
by a minimum of $5 million and in $1 million increments in excess thereof. As of
June 30, 1998, $34.1 million was outstanding under this facility,  compared with
$30.0  million as of June 30,  1997.  Additionally,  the Fund has a $15  million
warehouse  line of credit with $1.7 million  outstanding  on June 30, 1998.  The
Fund enters into interest rate swap  transactions  to hedge its interest rate on
the  debt  facility.  At  June  30,  1998,  the  Fund  had  interest  rate  swap
transactions  outstanding  with a  total  notional  principal  amount  of  $44.7
million.  The effect of these swap transactions is to convert the variable LIBOR
rate into a fixed rate on the contract notional value. The amortization schedule
for  each  borrowing  under  the  facility  is  expected  to  correspond  to the
amortization  of the  loans  or  leases  acquired  with  the  proceeds  of  each
borrowing.

         As of June 30, 1998, 3% of the Fund's assets consisted of cash and cash
equivalents,  compared with 5% as of June 30, 1997. The Fund continued to invest
its assets in venture loans and leases during the year.  Amounts disbursed under
the Fund's loan commitments  increased by approximately $43.8 million during the
year ended June 30, 1998, and net loan amounts  outstanding  after  amortization
increased  approximately  $16.9  million.   Unfunded  commitments  decreased  by
approximately $19.7 million.

================================================================================
Year Ending  Amount Disbursed   Principal          Balance            Unfunded
                                                   Amortization     Commitments
                                                                     Outstanding
================================================================================
June 30, 1998  $133.9 million   $52.5 million    $81.4 million   $49.0 million
================================================================================
June 30, 1997  $90.1 million    $25.6 million    $64.5 million   $68.7 million
================================================================================
         Because venture loans and leases are privately negotiated transactions,
investments in these assets are relatively illiquid.

         The Fund  seeks to meet the  requirements  to qualify  for the  special
pass-through status available to "regulated investment companies" ("RICs") under
the Internal Revenue Code, and thus to be relieved of federal income tax on that
part of its net investment income and realized capital gains that it distributes
to  shareholders.  To  qualify  as a  RIC,  the  Fund  must  distribute  to  its
shareholders  for each  taxable  year at  least  90% of its  investment  company
taxable income (consisting generally of net investment income and net short-term
capital gain) ("Distribution Requirement").  To the extent that the terms of the
Fund's venture loans provide for the receipt by the Fund of additional  interest
at the end of the loan  term or the  terms of  venture  leases  provide  for the
receipt  by the Fund of a  purchase  price for the asset at the end of the lease
term  ("residual  income"),  the Fund would be required to accrue such  residual
income over the life of the loan or lease, and to include such accrued income in
its gross  income for each  taxable  year even if it receives no portion of such
residual  income  in  that  year.  Thus,  in  order  to  meet  the  Distribution
Requirement and avoid payment of income taxes or an excise tax on  undistributed
income,  the  Fund may be  required  in a  particular  year to  distribute  as a
dividend an amount in excess of the total amount of income it actually receives.
Those  distributions  will be made from the Fund's  cash  assets,  from  amounts
received through amortization of loans or leases or from borrowed funds.


                                       11
<PAGE>

Year 2000 Issue

         The Fund utilizes  software and related  information  technologies that
will be affected by the date change in the year 2000. The year 2000 issue exists
because many computer  systems and  applications  currently  use two-digit  date
fields to  designate  a year.  When the  century  date  change  occurs,  certain
date-sensitive  systems may recognize the year 2000 as 1900, or not at all. This
inability to  recognize or properly  treat the year 2000 may result in a systems
failure  or  cause  systems  to  process  critical   financial  and  operational
information incorrectly.  Additionally, many of the Fund's customers and service
providers use software and information technology that could also be affected by
the date change.

         Based on ongoing assessments and testing,  the Fund believes that there
is no material risk of business  interruption  as a result of computer errors or
inefficiencies.  The Fund is also  working  with its  vendors and  customers  to
obtain reasonable  assurances that they are taking comparable steps with respect
to their year 2000 exposures.  However, the steps the Fund is taking and intends
to take do not guarantee  complete success or eliminate the possibility that the
Fund will not be adversely affected by the matters related to the year 2000.


                                       12
<PAGE>



         This information has been derived from unaudited  financial  statements
that, in the opinion of  management,  include all normal  recurring  adjustments
necessary for a fair presentation of such information. The operating results for
any quarter are not necessarily indicative of results for any future period.

Quarterly Results - June 30, 1998 (Unaudited)

                                              Three Months Ended
                                  Sep 30,      Dec 31,     Mar 31,      June 30,
                                   1997         1997       1998          1998
                                   ---------- ----------- -----------  ---------
  Investment Income:
   Interest on Loans and Leases $ 2,746,914 $ 3,227,374 $ 3,395,265  $ 3,423,889
   Interest on Short
    -Term Investments                74,993     129,705      97,869       78,594
                                   ---------- ----------- -----------  ---------
         Total Investment Income  2,821,907   3,357,079   3,493,134    3,502,483
                                   ---------- ----------- -----------  ---------
  Expenses:
   Management Fee to the Managers   562,442     605,146     578,605      558,821
   Interest Expense ................768,158     832,015     694,774      633,462
   Other Expense ..................  87,353      88,728     204,753      186,140
                                   ---------- ----------- -----------  ---------
        Total Expenses .........  1,417,953   1,525,889   1,478,132    1,378,423
                                   ---------- ----------- -----------  ---------
  Net Investment Income ....... $ 1,403,954 $ 1,831,190 $ 2,015,002  $ 2,124,060
  Net Unrealized Gain From Investment
  Transactions ..................   463,438  (1,331,406)    908,301     (81,707)
  Net Realized Gain From Investment
  Transactions .................. 1,237,920   1,147,559   1,822,117      785,776
                                   ---------- ----------- -----------  ---------

  Net Income ...................$ 3,105,312 $ 1,647,343 $ 4,745,420  $ 2,828,129
                                =========== =========== ===========  ===========
  Net Income  Per Share .......        $ 70        $ 34        $ 98        $  59
                                =========== =========== ===========  ===========
  Average Shares Outstanding ..      44,492      48,319      48,319       48,319
                                ========== =========== ===========  ============

Quarterly Results - June 30, 1997 (Unaudited)


                                              Three Months Ended
                                  Sep 30,      Dec 31,     Mar 31,      June 30,
                                   1996         1996       1997          1997
                                   ---------- ----------- -----------  ---------
  Investment Income:
   Interest on Loans and Leases $ 1,335,293 $ 1,950,430 $ 1,831,754  $ 2,197,141
   Interest on Short .........       69,105      68,777      37,039       93,408
   -Term Investments              ---------- ----------- -----------  ---------
  Total Investment Income ......  1,404,398   2,019,207   1,868,793    2,290,549
                                  ---------- ----------- -----------  ---------
  Expenses:
     Management Fee to the Managers 285,815     306,164     400,582      445,557
     Interest Expense ............. 316,890     326,540     410,738      645,829
     Other Expense ................ 149,011      86,145      87,540      120,134
                                   ---------- ----------- -----------  ---------
        Total Expenses ............ 751,716     718,849     898,860    1,211,520
                                    --------- ----------- -----------  ---------
  Net Investment Income ........$   652,682 $ 1,300,358 $   969,933  $ 1,079,029
  Net Unrealized Gain From Investment
  Transactions ...............    1,677,476     186,380    (638,175)   (260,183)
  Net Realized Gain From Investment
  Transactions .............         --           --        958,497     505,171
                                   ---------- ----------- -----------  ---------
  Net Income .................  $ 2,330,158 $ 1,486,738 $ 1,290,255  $ 1,324,017
                                ===========  ===========   ===========   =======
  Net Income  Per Share ....... $        94  $        50  $        43   $     36
                                ===========  ===========   ===========   =======
  Average Shares Outstanding .       24,707      29,823      29,823       36,721
                                ===========  ===========   ===========   =======



                                       13
<PAGE>





                         VENTURE LENDING & LEASING, INC.

                           ANNUAL REPORT ON FORM 10-K

                   FOR THE YEARS ENDED JUNE 30, 1998 AND 1997


                                     ITEM 8

                              FINANCIAL STATEMENTS



                                       14
<PAGE>



INDEX TO FINANCIAL STATEMENTS

Financial Statements Included in Item 8:

         See Item 14(a)



                                       15
<PAGE>












                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To the Shareholders of
Venture Lending & Leasing, Inc.:

We have audited the  accompanying  statements  of financial  position of Venture
Lending & Leasing,  Inc. (a Maryland  corporation) as of June 30, 1998 and 1997,
and the related  statements of operations,  changes in shareholders'  equity and
cash  flows  for the  years  then  ended.  These  financial  statements  are the
responsibility  of the Fund's  management.  Our  responsibility is to express an
opinion on these financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  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.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of Venture Lending & Leasing, Inc.
as of June 30,  1998 and 1997,  and the results of its  operations  and its cash
flows for the years then ended in conformity with generally accepted  accounting
principles.




Arthur Andersen LLP

San Francisco, California,
   August 13, 1998



                                       16
<PAGE>



                         VENTURE LENDING & LEASING, INC.

                        STATEMENTS OF FINANCIAL POSITION
                          AS OF JUNE 30, 1998 AND 1997



                                                        1998              1997
                                                  --------------     -----------

                          ASSETS

  Loans and leases, at estimated fair value
   (cost of $81,421,224 and $64,465,197,
   respectively) ............................. ....  $ 79,821,224   $ 64,365,197
  Investments in warrants, at estimated
   fair value (cost of $1,208,550 and
   $1,077,257, respectively) ......................     1,289,713      2,282,242
  Investments in stocks, at estimated
   fair value (cost of $650,263 and $103,429,
   respectively)     ...............................    4,276,393      1,171,957
  Cash and cash equivalents .......................     2,301,753      3,946,955
  Past-due loan receivables .......................       584,577          3,174
  Other assets ....................................       215,423         79,234
                                                     ============   ============

                  Total assets ....................  $ 88,489,083   $ 71,848,759
                                                     ============   ============

                          LIABILITIES AND SHAREHOLDERS' EQUITY

  Liabilities:
   Bank loans .....................................  $ 36,114,059   $ 30,000,000
   Management fees payable ........................       560,821        445,557
   Accounts payable and other
   accrued liabilities  ...........................       750,953        947,650
                                                     ------------   ------------

                  Total liabilities .................  37,425,833     31,393,207
                                                      -----------   ------------

  Shareholders' equity:
   Common stock, $.001 par value:
    Authorized--100,000,000 shares
    Issued and outstanding--
    48,318.58 shares and 39,054.38 shares
    as of June 30, 1998 and 1997, respectively .......         49             40
   Capital in excess of par value .................... 46,641,051     37,317,282
   Distributions ....................................(16,871,073)    (5,828,791)
   Accumulated earnings .............................  21,293,223      8,967,021
                                                     ------------   ------------

                  Total shareholders' equity ........  51,063,250     40,455,552
                                                     ------------   ------------

                  Total liabilities and
                    shareholders' equity .........   $ 88,489,083   $ 71,848,759
                                                     ============   ============


The accompanying notes are an integral part of these statements.




                                       17
<PAGE>



                         VENTURE LENDING & LEASING, INC.

                            STATEMENTS OF OPERATIONS
                   FOR THE YEARS ENDED JUNE 30, 1998 AND 1997



                                                          1998            1997
                                                 ---------------- --------------

  INVESTMENT INCOME:
     Interest on loans and leases .................  $ 12,793,441   $  7,314,618
     Interest on short-term investments ...........       381,161        268,329
                                                     ------------   ------------

                  Total investment income .........    13,174,602      7,582,947
                                                     ------------   ------------

  EXPENSES:
     Management fees to the Managers ..............     2,307,014      1,438,118
     Interest expense .............................     2,928,409      1,701,039
     Professional fees ............................       189,559        139,903
     Bank loan facility fee .......................       239,967         68,535
     Other operating expenses .....................       134,649        133,353
                                                     ------------   ------------

                  Total expenses ..................     5,799,598      3,480,948
                                                     ------------   ------------

                  Net investment income ...........     7,375,004      4,101,999

  NET CHANGE IN UNREALIZED GAIN
  FROM INVESTMENT TRANSACTIONS                            (41,374)       865,498

  NET REALIZED GAIN FROM
  INVESTMENT TRANSACTIONS .........................     4,993,372      1,463,670
                                                     ------------   ------------

                  Net income before provision
                    for income taxes                   12,327,002      6,431,167

  PROVISION FOR INCOME TAXES .......................          800              0
                                                     ------------   ------------

                  Net income ....................... $ 12,326,202   $  6,431,167
                                                     ============   ============

  BASIC EARNINGS PER SHARE ......................... $     260.30   $     212.22
                                                     ============   ============

  WEIGHTED AVERAGE SHARES OUTSTANDING ..............       47,354         30,304
                                                     ============   ============



The accompanying notes are an integral part of these statements.




                                       18
<PAGE>



                         VENTURE LENDING & LEASING, INC.

                  STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                   FOR THE YEARS ENDED JUNE 30, 1998 AND 1997


                                   Capital in              Retained
                   Common Stock    Excess of               Earnings
               Shares      Amount  Par Value Distributions (Deficit)      Total
             -------------------------------------------------------------------

  BALANCE,
  JUNE 30, 1996     20,594.7  $20 $18,669,745$(1,262,256)$2,535,854  $19,943,363

   Shares sold .    18,459.6   20  18,647,537          0         0    18,647,557
   Distributions         0      0           0 (4,566,535)        0   (4,566,535)
   Net income ..         0      0           0          0  6,431,167    6,431,167
                    -------- ---- ----------- ----------- ---------- -----------

  BALANCE,
  JUNE 30, 1997     39,054.3   40  37,317,282 (5,828,791) 8,967,021   40,455,552

   Shares sold .     9,264.2    9   9,323,769          0         0     9,323,778
   Distributions         0      0           0 (11,042,282)       0  (11,042,282)
   Net income ..         0      0           0          0 12,326,202   12,326,202
                    ======== ==== =========== =========== ========== ===========

  BALANCE,
  JUNE 30, 1998   48,318.5    $49 $46,641,051$(16,871,073)$21,293,223$51,063,250
                    ======== ==== =========== =========== ========== ===========


The accompanying notes are an integral part of these statements.



                                       19
<PAGE>



                         VENTURE LENDING & LEASING, INC.

                            STATEMENTS OF CASH FLOWS
                   FOR THE YEARS ENDED JUNE 30, 1998 AND 1997


                                                         1998              1997
                                                       -------          --------

  CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income .....................................  $ 12,326,202   $  6,431,167
   Adjustments to reconcile net income
    to net cash provided by
    operating activities:
     Amortization of organizational expenses ..........    29,910         30,001
     Amortization of bank loan expenses ...............    49,922          8,716
     Gain on sale of securities .......................4,993,372)    (1,463,670)
     Increase in unrealized loss (gain)
     from investment transactions.......................  41,374       (865,498)
   Decrease (increase) in past-due
    loan receivables ................................    (581,404)        13,371
   Increase in other assets .........................    (15,805)        (2,147)
   Increase in management fees payable ..............     115,264        154,981
   Increase (decrease) in accounts payable
    and other accrued liabilities......................  (196,697)       714,702
                                                       ------------   ----------

          Net cash provided by operating activities     6,775,394      5,021,623
                                                       ----------   ------------
  CASH FLOWS FROM INVESTING ACTIVITIES:
     Acquisition of loans and leases ................(43,843,579)   (53,222,857)
     Principal payments on loans and leases ......... 24,756,145     13,284,392
     Proceeds from prepayment of loan ...............  2,131,408      4,089,895
     Acquisition of warrants ........................   (460,008)      (716,000)
     Proceeds from sale of securities ...............  4,799,884      1,463,670
                                                     -----------   ------------
         Net cash used in investing activities ...   (12,616,150)   (35,100,900)
                                                     ------------   ------------
  CASH FLOWS FROM FINANCING ACTIVITIES:
     Sales of common stock, net ..................     9,323,778     18,647,557
     Distributions to shareholders ...............   (11,042,283)    (4,566,535)
     Loan from bank ..............................    15,000,000     17,791,402
     Repayment of bank loan and expenses .........    (8,885,941)    (2,529,863)
     Payment for bank loan expenses ..............      (200,000)             0
                                                    ------------   ------------
         Net cash provided by financing activities     4,195,554     29,342,561
                                                    ------------   ------------
         Net decrease in cash and cash equivalents    (1,645,202)      (736,716)

  CASH AND CASH EQUIVALENTS:
     Beginning of year ...........................     3,946,955      4,683,671
                                                    ------------   ------------
     End of year .................................  $  2,301,753   $  3,946,955
                                                    ============   ============

  CASH PAID DURING THE YEAR FOR:
     Taxes .......................................  $        800   $          0
     Interest ....................................     3,205,161      1,305,058


The accompanying notes are an integral part of these statements.


                                       20
<PAGE>





                         VENTURE LENDING & LEASING, INC.

                          NOTES TO FINANCIAL STATEMENTS
                                  JUNE 30, 1998



1.  ORGANIZATION AND OPERATIONS OF THE COMPANY:

Venture  Lending & Leasing,  Inc.  (the Fund) was  incorporated  in  Maryland on
September  29,  1993,  as a  nondiversified,  closed-end  management  investment
company electing status as a business  development  company under the Investment
Company Act of 1940. The purpose of the Fund is to provide asset-based financing
to  venture-capital-backed  companies in the form of secured loans,  installment
sales contracts or equipment leases.  Prior to commencing its operations on July
5, 1994,  the Fund had no  operations  other than the sale to Mitchell  Hutchins
Institutional Investors,  Inc. (Mitchell Hutchins),  which is an indirect wholly
owned  subsidiary of PaineWebber  Group Inc., of 1 share of common stock,  $.001
par value,  for $1,000.  As of June 30, 1998,  the Fund meets the  requirements,
including  diversification  requirements,  to qualify as a regulated  investment
company (RIC) under the Internal Revenue Code of 1986.

Costs  incurred  in  connection  with the  organization  of the Fund  were  paid
initially by Mitchell Hutchins and Westech  Investment  Advisors,  Inc. (Westech
Advisors)  (collectively,  the  Managers);  however,  the  Fund  reimbursed  the
Managers  $150,000 of such costs.  This  amount has been  deferred  and is being
amortized  using the  straight-line  method  over a period of 60 months from the
date the Fund commenced operations.  During fiscal 1996, the management contract
of the Fund was assigned from Mitchell Hutchins to Siguler Guff Advisers, L.L.C.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Basis of Accounting

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect  the  reported  amounts  of assets  and  liabilities  and  disclosure  of
contingent  assets and  liabilities at the date of the financial  statements and
the reported amounts and revenues and expenses during the reporting period.
Actual results could differ from those estimates.

Valuation of Investments

The Fund anticipates that substantially all of its portfolio  investments (other
than  short-term  investments)  will consist of  securities  that at the time of
acquisition  are subject to  restrictions  on sale and for which no ready market
will exist. Venture loans and leases are privately negotiated transactions,  and
there is no  established  trading  market in which  such  loans or leases can be
sold. Substantially all of the Fund's investments are restricted securities that
cannot be sold publicly  without prior agreement with the issuer to register the
securities  under the 1933 Act, or by selling the  securities  under Rule 144 or
other rules under the 1933 Act, which permit only limited sales under  specified
conditions.


                                       21
<PAGE>


Investments in loans and leases are valued at their original purchase price less
amortization  of principal  unless,  pursuant to procedures  established  by the
Fund's Board of Directors,  the Fund's  Managers  determine  that amortized cost
does not represent fair value.  Short-term debt instruments with 60 days or less
remaining to maturity are valued by the amortized cost method. The Fund does not
hold any short-term debt instruments that have a period of maturity exceeding 60
days.

Warrants  that are  received  in  connection  with loan and  lease  transactions
generally  will be assigned a minimal  value at the time of  acquisition,  which
occurs at the first drawdown  under the  commitment.  Thereafter,  warrants with
readily  ascertainable  market values will be assigned a fair value based on the
difference, if any, between the exercise price of the warrant and the fair value
of the equity  securities  for which the warrant may be exercised,  adjusted for
illiquidity.

Cash and Cash Equivalents

Cash and cash equivalents  consist of cash on hand, demand deposits in banks and
repurchase agreements with original maturities of 90 days or less.

Loans and Leases

Unearned income and commitment fees on loans and leases are recognized using the
effective  interest  method over the term of the loan or lease.  Commitment fees
represent  fees received for  commitments  upon which no drawdowns have yet been
made.  When the first draw is made,  the fee is included in unearned  income and
recognized as described above.

The Fund's policy is to place a loan on nonaccrual  status when either principal
or interest  has become  past due for 90 days or more.  When a loan is placed on
nonaccrual  status,  all  interest  previously  accrued  but  not  collected  is
reversed.

Loans  classified  as  nonaccrual  amounted  to  approximately   $2,593,552  and
$3,602,098 at June 30, 1998 and 1997,  respectively.  If interest on these loans
had been  accrued,  such  income  would  have been  approximately  $280,436  and
$298,141 in 1998 and 1997, respectively.

Interest Rate Swaps

The Fund enters into interest  rate swap  transactions  to manage  interest rate
exposures  on  its  debt.  Net  interest  receivable  or  payable  on  the  swap
transactions is included in interest  expense.  Gains or losses that result from
the early  termination  of swap  agreements  are deferred and amortized over the
remaining term of the associated debt as additional  interest expense.  Interest
rate swaps that do not qualify as hedges are marked-to-market.

Tax Status

As long as the Fund  qualifies  as a RIC,  it will not pay any  federal or state
corporate income tax on income that is distributed to shareholders (pass-through
status).  Should the Fund lose its  qualification as a RIC, it could be taxed as
an ordinary corporation on its taxable income for that year (even if that income
is distributed to its  shareholders),  and all distributions out of its earnings
and profits will be taxable to shareholders as ordinary income.


                                       22
<PAGE>


3.  SUMMARY OF INVESTMENTS:

Loans and leases generally are made to borrowers pursuant to commitments whereby
the Fund commits to finance assets up to a specified  amount for the term of the
commitments,  upon the terms and  subject to the  conditions  specified  by such
commitment.  The Fund's  investments in loans and leases are entirely within the
United States and are diversified among the following industries. The percentage
of net assets that each  industry  group  represents  is shown with the industry
totals:

                                                           Outstanding
                        Borrower                             6/30/98
---------------------------------------------------------- -------------

Biotechnology:
   Biosys, Inc.                                             $1,411,463
   Desmos, Inc.                                                148,190
   Advanced Therapies, Inc.                                    384,033
   Gene Logic, Inc.                                            843,866
   Idec Pharmaceuticals Corporation                          1,166,235
   Regen Biologics, Inc.                                       968,762
   Telek, Inc.                                                 944,835
                                                           -------------
            Total biotechnology (11.5%)                      5,867,384
                                                           -------------
Communications:
   Brocade Communications, Inc.                              1,549,444
   Cabletron Systems, Inc.                                     282,835
   Digital Generation Systems, Inc.                          4,425,920
   Exodus Communications, Inc.                               3,668,677
   Fabrik Communications, Inc.                               2,319,513
   Fiberlane Communications, Inc.                            4,559,687
   Jetstream Communications, Inc.                            1,031,864
   Juniper Networks, Inc.                                    2,203,586
   Optimal Networks Corporation                                377,341
   Optivision, Inc.                                          1,634,357
   Silicon Wireless, Inc.                                    1,557,972
   Socket Communications, Inc.                                  74,690
   Aunet Corporation                                           478,702
                                                           -------------
            Total communications (47.3%)                    24,164,588
                                                           -------------
Computers and peripherals:
   Das Devices, Inc.                                         4,284,193
   Headway Technologies, Inc.                                5,545,724
   Aptix Corporation                                           729,478
   Neomagic Corporation                                        475,299
   Netpower, Inc.                                              355,785
   SVision, Inc.                                               740,062
                                                           -------------
            Total computers and peripherals (23.8%)         12,130,541
                                                           -------------
Internet:
   Active Software, Inc.                                       257,984
   Adforce, Inc.                                             1,715,576
   Infoseek Corporation                                        508,281
   Intermedia Communications                                   537,127
   Inverse Network Technology                                  305,603
   Keynote Systems Incorporated                                376,683
   Netratings, Inc.                                             79,260
   Big Book, Inc.                                              703,428
   Wallop Software, Inc.                                     1,304,163
                                                           -------------
            Total Internet (11.3%)                           5,788,105
                                                           -------------


                                       23
<PAGE>


Medical devices:
   Ciphergen Biosystems                                     $  359,013
   Emed                                                        173,531
   Encelle, Inc.                                               320,116
   Heartstent Corporation                                      103,578
   Integ Incorporated                                        4,185,690
   Aerogen, Inc.                                               350,903
   Intratherapeutics, Inc.                                     818,637
   Myelotec, Inc.                                              202,361
   Oratec Interventions, Inc.                                  289,364
   Spinal Concepts, Inc.                                        41,234
   Survivalink Corporation                                     538,640
   Vidamed, Inc.                                               147,745
                                                           -------------
            Total medical devices (14.7%)                    7,530,812
                                                           -------------
Other:
   Larex, Inc.                                               1,549,010
   Topometrix Corporation                                    1,704,084
   Uniax Corporation                                         1,204,811
                                                           -------------
            Total other (8.7%)                               4,457,905
                                                           -------------
Semiconductors and equipment:
   Abpac, Inc.                                                 633,096
   Apache, Inc.                                                108,677
   Dynachip Corporation                                      1,256,469
   Equator Technologies, Inc.                                2,286,757
   Icompression, Inc.                                           99,135
   I-Cube, Inc.                                                966,331
   Lightwave Microsystems Corporation                          690,103
   Poseidon Technology, Inc.                                   293,336
   Quantum3D, Inc.                                             125,768
   Sirf Technology                                             523,092
   Telecruz Technology, Inc.                                   511,728
   Tessera, Inc.                                               216,177
   Transmeta Corporation                                     2,702,780
   O-In Design Automation                                      311,150
   ZSP Corporation                                           1,116,382
                                                           -------------
            Total semiconductors and equipment (23.2%)      11,840,981
                                                           -------------
Software:
   APT Productions, Inc.                                       442,271
   Calico Technology, Inc.                                     579,599
   Commerce One, Inc.                                          332,683
   Comps Infosystems, Inc.                                   1,459,068
   Datamind Corporation                                        549,091
   Ipsilon Network, Inc.                                       429,730
   Persistence Software, Inc.                                  273,040
   Perspecta, Inc.                                             281,949
   Release Software Corporation                                406,601
   Relevance Technologies, Inc.                                285,762
   Solopoint, Inc.                                             109,381
   Starlight Networks, Inc.                                  3,257,642
   Sunburst Communications                                     258,192
   Wink Communications, Inc.                                   938,113
   Xatrix Entertainment, Inc.                                   37,786
                                                           -------------
            Total software (18.9%)                           9,640,908
                                                           -------------
            Total                                           $81,421,224
                                                           =============


                                       24
<PAGE>


The Fund  provides  asset-based  financing  primarily  to start-up  and emerging
growth  venture-capital-backed  companies.  As a result,  the Fund is subject to
general credit risk associated  with such companies.  At June 30, 1998, the Fund
has unfunded commitments to borrowers of $49,028,904.

The Fund's investments in warrants are entirely within the United States and are
diversified  among the following  industry groups.  The percentage of net assets
that each industry group represents is shown with the industry totals:

                 Industry                                        Percentage of
                                               Warrant Value       Net Assets
-------------------------------------------- ------------------ ----------------

Biotechnology                                   $    158,163         0.3%
Communications                                       311,500         0.6
Computer and peripherals                             141,000         0.3
Internet                                              76,950         0.2
Medical devices                                      150,300         0.3
Semiconductor                                        222,600         0.4
Software                                             164,200         0.3
Other                                                 65,000         0.1
                                             ================== ================

                Total warrants                  $1,289,713           2.5%
                                             ================== ================

The Fund's  investments  in stock are entirely  within the United States and are
diversified  among the following  industries.  The percentage of net assets that
each industry group represents is shown with the industry totals:

  Industry                                                         Percentage of
                                                  Shares   Value      Net Assets
-------------------------------------------------------- ----------- -----------

  Communications:
     Cabletron Systems, Inc. ................      77,671  $  835,119
     Exodus Communications ..................     106,084   3,164,855
                                                 ----------  ---------

              Total communications ..........     183,755   3,999,974    7.8%
                                                  ----------  ---------
  Computers and peripherals:
     Das Devices, Inc. ......................     347,223      72,327
     JTS Corporation ........................     346,432      45,000
     Neomagic Corporation ...................      12,830     159,092
                                                  ----------  ---------

              Total computers and peripherals     706,485     276,419    0.5%
                                                 ----------  ---------

              Total common stock ............     890,240  $4,276,393
                                                 ==========  =========


                                       25
<PAGE>

4.  WARRANTS AND STOCK:

At June 30, 1998, the Fund held 5,939,256  warrants to purchase shares of common
and preferred stock in 76 companies,  of which 7 companies are publicly  traded.
The  following  is a summary of the  activity  for  investments  in warrants and
investments in stocks for the year ended June 30, 1998:

Investments in warrants:
   Balance, June 30, 1997                                   $   2,282,242
     Acquisition of warrants                                      220,865
     Conversion of warrants to stock                              (89,572)
     Net change in unrealized gain                             (1,123,822)
                                                           ----------------
                                                           ================
   Balance, June 30, 1998                                   $   1,289,713
                                                           ================
                                                           ================

Investments in stocks:
   Balance, June 30, 1997                                   $   1,171,957
     Conversion of warrants to stock                            1,028,736
     Stock shares granted                                          72,327
     Stock sold                                                  (554,231)
     Net change in unrealized gain                              2,557,604
                                                           ----------------
   Balance, June 30, 1998                                   $   4,276,393
                                                           ================

Restricted  equity  securities  for which a public market exists are valued with
reference to the market price for  unrestricted  equity  securities  of the same
issuers, taking into consideration various factors as applicable,  including the
nature of the  market in which the  securities  are  traded,  the  amount of the
public float, the existence and terms of any registration rights, the proportion
of the issuer's  securities  held by the Fund, the price at which the securities
in  question  were  acquired  relative  to the  market  price  for  unrestricted
securities at the time of issuance, changes in the issuer's financial conditions
or  prospects,  and other  factors that may affect their fair value.  Restricted
securities for which an established  market exists are valued at a discount from
their value determined by the foregoing methods, with the amount of the discount
decreasing as the restriction period decreases.

The remainder of the warrants issued by private companies did not have a readily
ascertainable  market  value and were  assigned  a minimal  value at the time of
acquisition. These warrants had a value of $1,034,550 at June 30, 1998.

At June 30,  1998,  the Fund held 543,017  shares of common stock of  companies,
which were received when the Fund exercised its warrants in the companies, which
had a cost basis of $577,936. The quoted market value of the stock, adjusted for
illiquidity,  was $4,159,067.  In addition, the Fund also held 347,223 shares of
stock in a private company, which had a value of $72,327 at June 30, 1998.

During the year,  the Fund  realized a gain of $4,227,112 on the sale of 195,710
shares of common stock, which had a cost basis of $572,771.


                                       26
<PAGE>

5.  LONG-TERM DEBT FACILITY:

The Fund has in place a $45 million  securitization debt facility to finance the
acquisition of asset-based loans and leases. The principal balance is a 39-month
term loan.  Additional  amounts can be drawn on the credit facility by a minimum
of $5 million and in $1 million increments in excess thereof.  At June 30, 1998,
there was $34.4 million  outstanding  under this facility.  The interest rate on
the  facility  is LIBOR plus .50  percent,  which at June 30,  1998,  was 6.1563
percent.

Borrowings under the facility are  collateralized  by the equipment  financed by
the Fund under loans and leases with  assignment to the  financial  institution,
plus other assets of the Fund.  The  amortization  schedule  for each  borrowing
under the facility is expected to  correspond to the  amortization  of the loans
and  leases  acquired  with the  proceeds  of each  borrowing.  The Fund  pays a
commitment  fee of 0.25  percent  annually  based on the  average  daily  unused
portion of the commitment with respect to this facility.

Expenses of $200,000 were incurred in  connection  with  procuring the facility.
These expenses have been  capitalized and are being amortized over the period of
the term loan.

Additionally,  the Fund has a $15  million  warehouse  line of credit  with $1.7
million outstanding on June 30, 1998. The interest rate on the warehouse line is
LIBOR plus 1.15 percent, which at June 30, 1998, was 6.8063 percent.

The  required  aggregate  debt  principal  payments  for the next five years and
thereafter are as follows:

  Year                  Principal Payments
------------------  -----------------------
  1999                    $   15,981,904
------------------  -----------------------
  2000                        13,128,604
------------------  -----------------------
  2001                         7,003,551
------------------  =======================
                          $   36,114,059
                    =======================

6.  INTEREST RATE SWAPS:

The Fund enters into interest rate swap  transactions to hedge its interest rate
on the debt facility.  The net interest  received or paid on the transactions is
included in interest expense.

At June 30, 1998,  the Fund had interest swap  transactions  outstanding  with a
total  notional  principal  amount of $44.7  million  to convert  floating  rate
liabilities to fixed rates as follows:

             Notional  amount  of $31.5  million  whereby  the Fund pays a fixed
            interest rate of 6.20 percent,  while the financial institution pays
            the  floating  90-day  LIBOR  rate.  Payments  are made  monthly and
            terminate on February 25, 2001.

             Notional  amount  of $3.2  million  whereby  the Fund  pays a fixed
            interest rate of 6.20 percent,  while the financial institution pays
            the  floating  90-day  LIBOR  rate.  Payments  are made  monthly and
            terminate on February 25, 2001.


                                       27
<PAGE>


             Notional  amount  of $10  million  whereby  the  Fund  pays a fixed
            interest rate of 7.025 percent, while the financial institution pays
            the floating  90-day LIBOR rate.  Payments  are made  quarterly  and
            terminate on December 31, 2001.

At June 30, 1998, the fair market value of these swap  transactions in excess of
that which  qualifies  as a hedge  resulted in an  unrealized  loss  position of
$383,000,  based upon market  quotes.  The fair value of  interest  swaps is the
estimated  amount that the Company would pay to terminate the swap  transactions
at June 30, 1998, taking into account interest rates at that date.

The  Fund is  exposed  to  credit  loss in the  event of  nonperformance  by the
counterparties to the interest swap transactions;  however, these counterparties
are  creditworthy  financial  institutions,  and the Fund  does  not  anticipate
nonperformance.  The amount of such credit loss is generally limited to the fair
market value on the swap agreements, if any.

7.  CAPITAL STOCK:

There are 100,000,000  shares of $.001 par value common stock authorized.  As of
June 30, 1998, 43,318.58 shares are issued and outstanding.

The Fund has subscription agreements in effect with its shareholders under which
shareholders  will  purchase  shares of the  Fund,  up to their  full  committed
capital amount,  upon capital calls delivered at least 15 days before payment is
due. As of June 30, 1998, all capital commitments have been received.

8.   EARNINGS PER SHARE:

The Fund adopted  Statement of Financial  Accounting  Standards  (SFAS) No. 128,
"Earnings per Share," effective December 31, 1997. SFAS No. 128 replaces primary
and fully diluted  earnings per share with basic and diluted  earnings per share
calculations. Basic earnings per share are computed by dividing net income, less
dividends on preferred stock, by the weighted average common shares outstanding.
Diluted  earnings per share are computed by dividing net income,  less dividends
on preferred stock, by the weighted average common shares outstanding, including
the dilutive effects of potential common shares (e.g., stock options).  The Fund
has no preferred  stock or  instruments  that would be potential  common shares;
thus, reported basic and diluted earnings are the same.

9.  MANAGEMENT:

Westech  Advisors  serves as the Fund's  investment  manager,  and Siguler  Guff
Advisers,  L.L.C. serves as its fund manager. As compensation for their services
to the Fund, the Managers  receive a management fee computed and paid at the end
of each  quarter at an annual  rate of 2.5  percent of the Fund's  total  assets
(including  amounts  derived  from  borrowed  funds)  as of the last day of each
fiscal quarter thereafter. Fees of $2,307,014 and $1,438,118 were recognized for
the years ended June 30, 1998 and 1997, respectively.

The Managers  will also receive an aggregate  annual  incentive  fee equal to 20
percent of all amounts  available for  distribution to investors after investors
have  received cash  distributions  equal to 100 percent of all amounts paid for
the  purchase of shares  plus a  preferred  return  calculated  at a  cumulative
noncompounded  annual rate of 8 percent.  To date,  the Managers  have earned no
incentive fee.


                                       28
<PAGE>

Certain  officers and directors of the Fund also serve as officers and directors
of Westech Advisors and Siguler Guff Advisers, LLC.

10.  FUTURE FINANCIAL ACCOUNTING STANDARDS:

In June 1998, the Financial  Accounting  Standards  Board (FASB) issued SFAS No.
133,  "Accounting for Derivative  Instruments and Hedging  Activities." SFAS No.
133  establishes   accounting  and  reporting  standards  requiring  that  every
derivative  instrument  (including  certain derivative  instruments  embedded in
other  contracts)  be  recorded  in the  balance  sheet  as  either  an asset or
liability  measured at its fair value. SFAS No. 133 requires that changes in the
derivative's  fair value be  recognized  currently in earnings  unless  specific
hedge  accounting  criteria are met.  Special  accounting for qualifying  hedges
allows a derivative's  gains and losses to offset related  results on the hedged
item in the income  statement  and requires  that a company  formally  document,
designate,  and assess the  effectiveness  of  transactions  that receive  hedge
accounting.

SFAS No. 133 is effective for fiscal years  beginning  after June 15, 1999,  and
the Fund plans to adopt its  provisions  effective  July 1,  1999.  From time to
time,  the Fund  enters into  interest  rate swaps to hedge its  interest  rate.
Additionally,  certain of its  investments  and  long-term  borrowings  may have
embedded  options  due to call or put  features  that  would be  required  to be
accounted for differently  under SFAS No. 133 as compared to current  accounting
principles.  The Fund has not yet quantified the impact of adopting SFAS No. 133
on its financial statements; however, SFAS No. 133 could increase the volatility
of future earnings.


                                       29
<PAGE>


ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

         Not applicable.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The  information  required by this item is  contained in part under the
caption "Executive  Officers of the Fund" in Part I hereof, and the remainder is
contained in the Fund's Proxy  Statement for the Annual Meeting of  Shareholders
to be held  November  11,  1998  ("1998  Proxy  Statement")  under  the  caption
"Proposal 2 -- To Elect Eight Directors of the Fund" and is incorporated  herein
by reference.

ITEM 11. EXECUTIVE COMPENSATION

         The  information  required by this item is contained in the Fund's 1998
Proxy Statement under the caption "Proposal 2 -- To Elect Eight Directors of the
Fund" and is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The  information  required by this item is contained in the Fund's 1998
Proxy  Statement  under the caption  "Annex A --  Beneficial  Ownership  of Fund
Shares" and is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The  information  required by this item is contained in the Fund's 1998
Proxy  Statement  under the captions:  "Other  Information -- Management" and is
incorporated herein by reference.



                                       30
<PAGE>



PART IV.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)            Index to Financials Statements and Financial Statement Schedules

                                                                               
  Report of Independent Public Accountants .........................  16

  Statement of Financial Position as of June 30, 1998 and 1997 .....  17

  Statement of Operations for the Years Ended June 30, 1998 and 1997  18

  Statement of Changes in Shareholders' Equity for
  the Years Ended June 30, 1998 and 1997 ...........................  19

  Statement of Cash Flows for the Years Ended June 30, 1998 and 1997  20

  Notes to Financial Statements ....................................  21


Financial  Statement  Schedules  for the  Years  Ended  June  30,  1998 and 1997
included in Item 14(d):

No schedules are required because the required information is not present or not
present in amounts sufficient to require submission of the schedule,  or because
the required  information is included in the financial  statements and the notes
thereto.

Listing of Exhibits

3.1  Articles  of  Incorporation  --  incorporated  by  reference  to the Fund's
Registration  Statement  on Form 10  filed  with  the  Securities  and  Exchange
Commission ("Commission") on October 13, 1984.

3.2      By-Laws, as amended to date - incorporated by reference to the Fund's
         1997 Form 10K.

3.3      Bank Loan Agreement - incorporated  by reference to the Fund's December
         31, 1997 Form 10Q

10.1 Management  Agreement,  dated as of December 22, 1995,  between the Fund on
the one hand, and Westech Advisors and Siguler Guff Advisers,  on the other hand
- incorporated by reference to the Fund's 1997 Form 10K.

Reports on Form 8-K

         The Fund filed no reports  on Form 8-K with the  Commission  during the
fiscal quarter ended June 30, 1998.


                                       31
<PAGE>


Signatures

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

VENTURE LENDING & LEASING, INC.
(Registrant)


By: ________________________               By: _________________________________
    Ronald W. Swenson                                Salvador O. Gutierrez
    Chairman and Chief Executive Officer      President, Chief Financial Officer
                                                  and Chief Accounting Officer

Date: September __, 1998                             Date: September __, 1998

         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.

          NAME                  TITLE                   DATE
  -----------------------  ----------------------  ------------------
  _______________________  Director                September 28, 1998
  John J. Cogan
  _______________________  Director                September 28, 1998
  J. Michael Egan
  _______________________  President and Director  September 28, 1998
  Salvador O. Gutierrez
  _______________________  Director                September 28, 1998
  Scott C. Malpass
  _______________________  Director                September 28, 1998
  Roger V. Smith
  _______________________  Director                September 28, 1998
  Arthur Spinner
  _______________________  Chairman and Director   September 28, 1998
  Ronald W. Swenson
  _______________________  Director                September 28, 1998
  George Von Gehr


                                       32
<PAGE>