<PAGE>
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                  -----------

                                   FORM 10-K

(Mark One)

  [X]               ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                  For the fiscal year ended September 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 1-11855
                                   ----------------

                             HAMBRECHT & QUIST GROUP
             (Exact name of Registrant as specified in its charter)

        DELAWARE                                     94-3246636
(State or other jurisdiction            (I.R.S. Employer Identification Number)
of incorporation or organization)                           

                                 One Bush Street
                             San Francisco, CA 94104
          (Address of principal executive offices, including zip code)

                                 (415) 439-3000
               (Registrant's telephone number, including area code)

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

                                                     NAME OF EACH EXCHANGE ON
  TITLE OF EACH CLASS                                    WHICH REGISTERED

Common Stock, par value $0.01 per share              New York Stock Exchange
                                                        Pacific Exchange
                                   ----------------

     Indicate  by check mark  whether the  Registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
Registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.

         Yes [X]     No [  ]

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

     The  aggregate  market value of voting stock held by  nonaffiliates  of the
Registrant was  approximately  $443,502,139 as of December 21, 1998,  based upon
the last sale price as reported on the New York Stock Exchange on such date.

     Number of shares of common stock issued and  outstanding as of December 21,
1998: 24,051,939.

                       DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the definitive  Proxy Statement to be filed with the Securities
and Exchange  Commission  no later than 120 days after the  Registrant's  fiscal
year ended  September 30, 1998 and to be delivered to stockholders in connection
with the Annual  Meeting of  Stockholders  to be held  February 24, 1999 and the
1998 Annual Report to Stockholders  are  incorporated by reference into Parts II
and III of this Form 10-K.

<PAGE>

ITEM 1. BUSINESS

GENERAL

     Hambrecht & Quist Group, a Delaware corporation, was formed in June 1996 as
a holding company for all of the operations of Hambrecht & Quist. The Company is
the sole parent of Hambrecht & Quist Group, a California corporation established
in  1983  and  renamed  Hambrecht  &  Quist  California  in  August  1996  ("H&Q
California"),  and is the  successor  to the  business  conducted by Hambrecht &
Quist,  L.P., a California  limited  partnership  established in 1993 ("LP"). In
1983,  H&Q  California  succeeded  to the  business  of  Hambrecht  &  Quist,  a
California  partnership  formed in 1968. Unless the context otherwise  requires,
"Hambrecht & Quist," "H&Q" and the "Company" refer to Hambrecht & Quist Group, a
Delaware  corporation,  and  its  predecessors,   affiliates  and  subsidiaries.
Hambrecht & Quist and H&Q are registered trademarks of the Company.

     The Company operates primarily as a holding company and indirectly owns all
of the subsidiaries and equity interests in affiliated  entities that previously
were owned by either H&Q California or LP. Hambrecht & Quist L.L.C. ("H&Q LLC"),
the Company's 100%  beneficially  owned subsidiary,  is the Company's  principal
investment banking subsidiary and securities broker-dealer.

     The  Company's  other  principal   operating   subsidiaries  or  affiliated
entities, which are directly or indirectly wholly owned except as indicated, are
as  follows:   Hambrecht  &  Quist  Capital  Management  Incorporated  ("Capital
Management"),  a registered investment adviser to two publicly traded closed-end
mutual  funds;   Hambrecht  &  Quist  Venture  Partners,  a  California  limited
partnership ("Venture Partners"),  a venture capital fund management partnership
in which  the  Company  has a  controlling  general  partnership  interest;  and
Hambrecht & Quist Guaranty  Finance,  LLC ("Guaranty  Finance"),  an 87.5%-owned
subsidiary  of the Company  engaged in  asset-based,  bridge loan and  mezzanine
financing.   In  January  1998,   Hambrecht  &  Quist  Transition  Capital,  LLC
("Transition  Capital"),  formerly an 87.5% owned subsidiary of the Company, was
merged into Guaranty Finance.

     In addition, the Company's international activities are carried out in part
through Hambrecht & Quist  Euromarkets,  S.A.,  formerly Hambrecht & Quist Saint
Dominique, a broker-dealer registered in France that provides investment banking
services to European companies.

     The Company also  maintains  minority,  non-controlling  investments in H&Q
Asia Pacific, Ltd. ("Asia Pacific"),  which provides financial advisory and fund
management services in the Asia Pacific region, Beeson Gregory Holdings Limited,
a  London-based  brokerage  firm and financial  adviser  specializing  in growth
companies, and Tamir Fishman & Co. Ltd., an investment bank, venture capital and
financial  consulting  company focused on Israeli growth companies.  The Company
also has a 20% interest in Lewco  Securities  Corp.  ("Lewco"),  which acts as a
clearing broker and depository for Schroder & Co. and the Company.

     In July 1998,  the Company  established a strategic  relationship  with H&Q
Venture  Associates,  L.L.C.  which manages or administers many of the Company's
early stage venture capital investments.

HAMBRECHT & QUIST

     Hambrecht & Quist is a major  bracket  investment  bank focused on emerging
growth companies and growth-oriented  investors. The Company's core strength has
been the early identification and sponsorship of leading growth companies in its
chosen areas of focus through  analysis of industry and technology  trends.  The
Company  leverages  its industry  expertise by providing  growth  companies  and
growth investors with a full range of investment banking and brokerage services,
and by investing its own capital in emerging growth and later-stage companies.

     Hambrecht  & Quist was  formed  in 1968 to focus on the  needs of  emerging
growth companies and their investors. It has grown its business by expanding the
range of services it provides to growth  companies and  investors,  by servicing
the  needs  of  larger  size  companies,  and  by  developing  expertise  in new
industries and markets.  H&Q, from its inception,  combined equity  underwriting
and  brokerage  services  for emerging  growth  companies  with venture  capital
investing.  From  its  early  concentration  on the  technology  and  healthcare
industries,  Hambrecht & Quist has  broadened its focus to encompass the branded
consumer sector and companies  providing business  information,  outsourcing and
healthcare services.

     H&Q was founded  with and  maintains a commitment  to working  closely with
entrepreneurial  companies  and  investors  interested  in such  companies.  H&Q
believes  that it has  developed a strong  internal  culture  that  emphasizes a
long-term  investment  outlook.  H&Q believes that its focus on rapidly  growing
entrepreneurial  companies  and  growth-oriented  investors and its tradition of
principal  investing,  along  with its  broad  internal  distribution  of equity
ownership, have combined to sustain this culture.

     H&Q  organizes  its  research and  investment  banking  professionals  into
industry  teams.  Each team,  often  working  with  Hambrecht & Quist's  venture
capital and private equity  professionals,  endeavors to develop and maintain an
in-depth   understanding  of  the  secular  and  cyclical  trends  driving  that
particular  industry sector. In addition,  each team of professionals  maintains
close relationships not only with private and public growth companies,  but also
with  venture  capital  and  key  institutional  investors,  technical  experts,
professional  services  providers and other key industry  participants.  Through
these  relationships,  H&Q gains the opportunity to participate  actively in the
growth of promising entrepreneurial companies.

     Hambrecht  &  Quist   believes  that  its  industry   focus  and  long-term
orientation,  together with the depth of its  resources  committed to the growth
company  sector,  have made H&Q a leading  underwriter  of public  offerings  of
securities for emerging growth companies in its areas of focus.

     For  information  regarding  certain  risks that face the  Company  and its
business,  see "Factors Affecting the Company's Business,  Operating Results and
Financial Condition."

RESEARCH FOCUS

         H&Q believes  that  industry  specialization  is crucial to meeting the
demands of its clients for sophisticated  and informed  investment and strategic
advice.  The  Company's  approach  is to serve its  clients  through an in-depth
understanding of sharply defined industry segments and the leading  participants
in those  segments.  H&Q's  research  universe  is  presently  divided  into the
industry groups and industry  segments set forth below.  Rather than dedicating,
for example,  just one senior analyst to cover all aspects of a broadly  defined
industry, the Company dedicates focused research support to many segments within
each of the industries it serves.  In certain  instances an H&Q analyst provides
coverage for more than one industry segment.


<PAGE>
<TABLE>
<CAPTION>

                                            HAMBRECHT & QUIST RESEARCH

                                                    TECHNOLOGY


            INTERNET                    COMMUNICATIONS             DISTRIBUTED SYSTEMS            ENTERPRISE SOFTWARE
<S>                           <C>                             <C>                           <C>
oBusiness-to-Business           oInternet Access               oPCs                          oDBMS & Tools
   E-Commerce                   oInternetworking/              oDistribution                 oSystems Management
oBusiness-to-Consumer              LAN                         oPC Peripherals               oEnterprise
   E-Commerce                   oMobile                        oElectronic Manufacturing        Applications
oBusiness-to-Consumer Media     oTelecommunications              Services                    oProductivity Applications
oInternet Software and Services    Equipment/WAN                                             oDesktop Software
                                oWireless


                                         SEMICONDUCTOR/                    APPLIED
      TECHNICAL SYSTEMS                 CAPITAL EQUIPMENT                TECHNOLOGIES
<S>                                 <C>                             <C>                           
o Design Automation                  oAnalog                          oImaging
o Embedded Control                   oDigital                         oServices
o Technical Software                 oMixed Signal
                                     oFabless
                                     oEquipment
                                     oCommunications IC
                                     oSemiconductor Intellectual
                                       Property


<CAPTION>
                                                    HEALTHCARE
  
                                    EMERGING
                                PHARMACEUTICALS/                 MEDICAL                      HEALTHCARE
      BIOTECHNOLOGY              DRUG DELIVERY                   DEVICES                       SERVICES
<S>                             <C>                  <C>                           <C>
                                                      oCardiovascular                oContract Research
                                                      oOrthopedics                      Organizations
                                                      oUrology                       oHealth Maintenance
                                                      oOpthamology                      Organizations
                                                      oDiabetes Management           oPhysician Network
                                                                                        Management
                                                                                     oSubacute
<CAPTION>

                                                     SERVICES

                                 
FINANCIAL SERVICES-               HEALTHCARE INFORMATION                  BUSINESS
TRANSACTION PROCESSORS                SERVICES                            SERVICES             IT SERVICES
<S>                              <C>                                 <C>                     <C>
                                                                                               oConsulting
                                                                                               oSystems Integration
                                                                                               oOutsourcing
                                                                                      


<CAPTION>
                                                 BRANDED CONSUMER


       BRANDED             FOOD & BEVERAGE           SPECIALTY           SPORTS & LEISURE           SERVICES
       RETAILERS                                       APPAREL
<S>                       <C>                        <C>                 <C>                       <C>

</TABLE>


     In order to achieve this depth and  specialization,  the Company  typically
recruits or trains analysts with significant  industry and technical  expertise,
in addition to financial  analytical  expertise.  H&Q believes this  specialized
approach enables it to generate analytical research that enhances the quality of
investment  decisions in the  fast-changing  and  technologically  sophisticated
industries it covers.

     H&Q's research  analysts cover  individual  publicly  traded  companies and
periodically  publish  comprehensive  studies  of  an  industry  or a  long-term
investment theme. In addition to written  publications,  the Company's  analysts
play a  prominent  role at the  Company's  investor  conferences  by  presenting
summaries of key industry trends.

     The Company's  research  analysts work closely with its investment  banking
and venture  capital  and private  equity  professionals  to identify  promising
privately  held  companies.  H&Q  believes  that  early  contacts  with  private
companies  are  important  not only to develop its  underwriting  and  principal
transactions  activities,  but also to achieve and maintain an  understanding of
the  rapidly  evolving  growth  industries  on which the  Company  focuses.  The
research analysts also, from time to time, assist in screening and/or evaluating
proposed  principal  investments  for the Company's  venture capital and private
equity  and  investment  banking  professionals.  In  addition,  H&Q's  research
analysts work closely with sales and trading professionals to enhance the access
of the Company's institutional investor clients to up-to-date industry analysis.

     H&Q has been recognized for its success in bringing together leading growth
companies  and growth  investors at the annual  conferences  it  sponsors.  Each
conference  focuses on a different  growth  industry or  geographic  region.  In
fiscal 1998, H&Q sponsored the following investment conferences:
<TABLE>
<CAPTION>

                   HAMBRECHT & QUIST CONFERENCE                       DATE                LOCATION
<S>                                                              <C>                   <C>
Asia Pacific Private Equity CFO Conference                         November 1997        Hong Kong
Healthcare Conference                                              January 1998         San Francisco
U.K./ European Private Equity CFO Conference                       February 1998        London
Communications Symposium                                           February 1998        Dana Point, CA
plaNET.wall.street Snowbird Conference                             March 1998           Snowbird, UT
Technology Conference                                              April 1998           San Francisco
H&Q-Rothschild/Biotechnology Investments Ltd. Life Sciences        May 1998             London
   Conference
Annual Private Equity CFO Conference                               June 1998            San Francisco
Branded Consumer Conference                                        June 1998            Napa, CA
H&Q-Tamir Fishman Communication and Internet Conference            September 1998       Tel Aviv

</TABLE>

     More than 850 public and private companies made presentations to investment
professionals,  venture capitalists and other participants in the securities and
emerging growth company  industries at the most recent sessions of the Company's
annual conferences.  The Hambrecht & Quist Technology Conference, which held its
26th annual session in 1998, was the first annual investment conference focusing
exclusively on emerging growth companies in the technology sector. For 16 years,
the Company's annual Healthcare Conference has provided a forum for companies in
the healthcare  industry to give presentations to growth investors,  and was the
first  conference  of its kind.  Since 1993,  Hambrecht & Quist has sponsored an
annual  conference  focused on emerging branded consumer  companies.  In October
1995, H&Q sponsored the first major  investment  conference  dedicated solely to
Internet-related  companies,  and held follow-up  conferences in each year since
then.

     To facilitate the analysis of long-term  trends,  the Company has developed
the H&Q Growth Index, the H&Q Technology  Index, the H&Q Internet Index, the H&Q
Healthcare  Index and the H&Q Branded  Consumer  Index . Within  these  industry
indices are thirteen  additional  sector indices.  These indices serve as a tool
for comparing certain industry groups with one another,  with the marketplace as
a whole, and with the overall economy. Many growth companies use the H&Q Indices
to compare their stock price performance with other companies,  for example,  in
annual proxy statements.

INVESTMENT BANKING

     Hambrecht & Quist  provides  its  corporate  clients  with a broad range of
services,  principally involving public offerings of equity and convertible debt
securities,  private  placements  of equity  securities,  and  advice in merger,
acquisition  and  strategic  partnering  transactions,  as well as  after-market
services and support.

     H&Q's  investment  banking  professionals  focus their activities along the
same industry lines as the Company's  research  analysts.  The Company  believes
that by developing an in-depth understanding of the industries they serve, these
investment  banking  professionals  enhance their ability to advise issuers with
respect to strategic and financing options.

     DOMESTIC UNDERWRITING

     H&Q is a leading  underwriter of public offerings of equity  securities for
emerging  growth  companies in its industry areas of focus.  During fiscal 1998,
the Company lead managed 26 offerings and  co-managed 62 offerings of equity and
convertible  debt  securities  by 82 companies  that raised an aggregate of over
$7.3 billion.

     H&Q concentrates its domestic  underwriting efforts in high-growth industry
sectors where the Company believes it has a relative  competitive  advantage due
to  its  investment  banking   relationships  and  its  research,   trading  and
distribution   capabilities.   Within  its  selected  industries,   the  Company
concentrates on emerging companies that it believes have the potential to become
industry  leaders.  H&Q  believes  that  it  has  established  a  strong  record
underwriting  software,   communications,   biotechnology,   computer  hardware,
semiconductor,  Internet,  business  information  and  outsourcing  services and
healthcare services  companies.  The Company is also seeking to develop a strong
position as a managing  underwriter of securities  offerings by branded consumer
growth companies.

     H&Q's strategy is to maintain  long-term  relationships  with its corporate
clients by serving  their  capital  raising  needs beyond their  initial  public
offerings of  securities.  H&Q also seeks to increase its base of publicly  held
clients by  serving  as a manager  or  co-manager  in  follow-on  offerings  for
companies that H&Q believes have attractive investment characteristics,  whether
or not H&Q  participated  as a  manager  or  co-manager  in the  initial  public
offering of securities for such companies.

     The following table sets forth the distribution  among industries of public
equity  offerings  completed  during  fiscal 1998 in which the Company  acted as
manager or co-manager and the number of transactions in which the Company served
as lead manager:

<TABLE>
<CAPTION>
                      Number of Transactions    Number of Lead Managed
Industry                     Completed                Transactions
-------                     ----------                -----------
<S>                              <C>                      <C>

Technology                        53                        13
Healthcare                        20                         7
Services                           6                         2
Branded Consumer                   9                         4

Total:                            88                        26
                                  ==                        ==
</TABLE>

     During  fiscal  1998,  Hambrecht & Quist  completed  six  convertible  debt
transactions involving an aggregate of $645 million in securities. During fiscal
1998,  underwriting  revenues  from  convertible  debt  securities  transactions
comprised  less  than  1%  of  the  Company's  total  revenues.   The  Company's
convertible   debt   underwriting   activities  are  small  both  in  number  of
transactions and dollars raised compared to major bracket firms overall, many of
which serve more mature industries.

     Hambrecht & Quist provides after-market support to its underwriting clients
through the supply of information  concerning  institutional holdings within the
issuer's  shareholder base, as well as data concerning the market performance of
the  corporate  client's  stock and other stocks in the issuer's  industry.  The
Company's  Corporate  Services group identifies and accesses relevant  research,
company news, market trends,  institutional ownership data, trading activity and
performance reporting, and arranges meetings with institutional  shareholders to
assist newly public companies in developing their investor relations efforts.

     The Company participates in public offerings of securities either by acting
as manager or co-manager of an underwriting  syndicate, or by acting as a member
of an underwriting  syndicate  managed by other investment banks. In both cases,
the Company  risks its capital  through its  participation  in a  commitment  to
purchase  securities  from an  issuer  and to  resell  them to the  public.  The
Company's syndicate  activities include managing the marketing and book-building
process of underwritten  transactions the Company is managing,  participating in
discussions  leading to the offering price of securities and the  supervision of
initial  market-making for lead-managed deals. The Syndicate  department is also
responsible  for developing  and  maintaining  relationships  with the syndicate
departments  of other  investment  banks.  At September 30, 1998,  the Syndicate
department was comprised of ten employees.

     INTERNATIONAL ACTIVITIES

     H&Q's international investment banking business includes assisting non-U.S.
companies in raising capital in the United States and improving  access to local
capital for growth  companies in other countries.  During fiscal 1998,  revenues
from  international   activities  comprised  less  than  11%  of  the  Company's
underwriting revenues and less than 3% of the Company's total revenues.

     During fiscal 1998, the Company  managed or co-managed  three offerings for
companies  with  primary  operations  outside  the  U.S.,  raising  a  total  of
approximately  $520 million.  This level of  underwriting  activity for non-U.S.
companies  represents a decrease from the 11 equity offerings raising a total of
$919  million,  in which the Company  served as a manager or  co-manager  during
fiscal 1997.

     Hambrecht & Quist Euromarkets, S.A. ("H&Q Euromarkets"),  formerly known as
Hambrecht & Quist Saint  Dominique,  is a wholly owned subsidiary of Hambrecht &
Quist.  H&Q  Euromarkets  is  a  broker-dealer   registered  in  France  and  an
underwriter  and  market-maker  on the EASDAQ market,  as well as for le Nouveau
Marche,  a  Paris-based  stock market for  emerging  growth  companies  that was
launched in February 1996.

     In the United  Kingdom,  H&Q holds a  minority  equity  position  in Beeson
Gregory Holdings  Limited,  a London-based  brokerage firm and financial advisor
specializing in growth companies.  In addition,  the Company has a London office
with institutional sales and corporate finance functions.

     In Israel,  H&Q holds a minority  interest  position in Tamir Fishman & Co.
Ltd., a Tel Aviv-based investment bank, venture capital and financial consulting
company focused on Israeli growth companies.

     The  Company's  strategy in Asian  markets has been to focus  initially  on
venture  capital   investments  in  promising  growth  companies  through  H&Q's
minority,  non-controlling  investment in Asia  Pacific.  H&Q believes that this
strategy  will  enable the Company to develop and  maintain  relationships  with
growth companies in the region.  H&Q also has a Tokyo office with  institutional
sales functions.

     PRIVATE PLACEMENTS AND STRUCTURED FINANCE

     H&Q formalized its private placement capabilities in 1991 with the creation
of a group  which  focuses on acting as  placement  agent in private  securities
transactions.  H&Q assists in the placement of these  securities  for a fee, but
without underwriting the offered securities. Acting as placement agent generally
entails  advising the issuer  regarding  the  structure and other aspects of the
financing,  assisting in the preparation of appropriate disclosure documents and
soliciting  prospective  qualified investors.  The private  placement/structured
finance  group places  equity and fixed  income  securities  with  institutional
investors,   private   capital   funds,   strategic   corporate   investors  and
sophisticated,  high net  worth  individuals.  During  fiscal  1998,  the  group
completed  20 private  placement  transactions,  raising  over $300  million for
growth  companies.  This group  often  serves  corporate  clients in their early
stages and, as these  entrepreneurial  companies  grow, H&Q seeks to sustain the
relationship and provide other services.  The group also assists publicly traded
corporate clients that undertake  convertible debt financings or conduct private
offerings of registered and unregistered securities.

     MERGER AND ACQUISITION ADVISORY SERVICES

     Hambrecht & Quist  offers a broad range of merger and  acquisition  ("M&A")
advisory  services to growth  companies.  The Company  markets its M&A  advisory
services both to H&Q's existing base of corporate clients and to other companies
that can benefit from the Company's  expertise.  The Company's advisory services
include:  mergers,  acquisitions,   corporate  sales,  divestitures,   strategic
alliances,  cross-border  partnerships,  hostile  takeover  defense  strategies,
fairness  opinions  and  valuations.  Since H&Q  expanded  its  specialized  M&A
practice in 1995, it has announced or completed more than 184 transactions  with
an aggregate  value of $20.1  billion.  During fiscal 1998, H&Q handled a record
volume  of M&A  transactions  providing  M&A  services  in over  70  assignments
representing nearly $8.4 billion of completed transactions.

     The Company's M&A expertise has been  developed over the years and has been
supported by the close involvement of professionals  from the industry groups in
both  investment   banking  and  research.   The  Company  believes  that  early
identification of emerging industry and technical trends,  together with focused
industry research coverage, enhances the effectiveness of its M&A professionals'
strategic  and  valuation  advice.  H&Q's  M&A  professionals  provide  industry
understanding and strategic advice as well as traditional execution skills.

SALES AND TRADING

     H&Q provides a broad range of sales and trading  services to investors  and
seeks to serve as one of the top  market-makers  for the  equity  securities  of
emerging growth  companies for which H&Q has served as a managing or co-managing
underwriter.  The Company  leverages  its  research  capability  by  identifying
companies  that it  believes  have the  potential  to  become  leaders  in their
respective  industries  and attempting to become a leading  market-maker  in the
shares of those companies,  often taking large positions to satisfy the needs of
institutional clients for a liquid market in this group of companies.

     INSTITUTIONAL SALES AND TRADING

     At  September  30,  1998,  H&Q  had 38  institutional  sales  professionals
covering  growth-oriented  investors  in  many  countries,  primarily  in  North
America,  Western Europe and Japan. H&Q's focus on growth industries enables its
sales and trading  organization  to develop an in-depth  understanding  of these
sectors and  companies and to better serve its investor  clients.  The Company's
institutional  sales activities are conducted from its offices in San Francisco,
New York, Boston, San Diego and London.

     At September 30, 1998, H&Q had 39 trading professionals  involved in market
making in both  Nasdaq  and  exchange-listed  securities.  The most  significant
portion of the Company's  institutional  revenues  arises from trading in Nasdaq
securities.  At  September  30,  1998,  H&Q made a market in nearly  400  Nasdaq
stocks.  Additionally,  at  September  30,  1998,  H&Q had 27 coverage  traders,
servicing the trading desks of major institutions worldwide. Orders are executed
daily as principal or agent in both the listed and Nasdaq  markets for equities,
convertible and non-convertible  debt,  including  municipal bonds,  options and
other derivative securities. The Company's trading activities are conducted from
its offices in San Francisco,  New York and Boston. Hambrecht & Quist clears its
trading transactions through Lewco.

     EXECUTIVE FINANCIAL SERVICES

     Since its founding in 1968, H&Q has provided retail  brokerage  services to
individual  investors  and small  institutions  interested  in  emerging  growth
company securities.  In 1994, this business unit was renamed Executive Financial
Services  ("EFS") and its  strategies  were  realigned  in an effort to grow the
business.  This strategic realignment entailed: (i) increasing the focus of this
business on broadening the range and depth of services provided to executives of
growth companies;  (ii) providing  appropriate services to all employees of this
client base, rather than only the top executives;  (iii) attracting new high net
worth investors to H&Q by providing differentiated investment ideas and services
and (iv) recruiting and retaining additional  experienced and productive brokers
to serve high net worth individuals.

     The EFS group operates out of the Company's San Francisco, New York, Boston
and Newport Beach offices.  In addition to handling  Nasdaq and  exchange-listed
brokerage transactions,  EFS brokers provide other services,  including sales of
restricted  securities,  fixed income  investments  and  consulting for options,
hedging,  the  selection  of  outside  money  managers,  mutual  funds  and cash
management.  At September  30, 1998,  the  Executive  Financial  Services  group
included 78 EFS brokers functioning in 65 partner teams.

     VENTURE SERVICES

     H&Q provides  specialized  services to the general and limited  partners of
venture capital and buyout funds,  corporate  development functions within large
corporations and certain high net worth individuals who participate  actively in
venture  capital  investments.  These  services  include the sale of  restricted
securities,  management of in-kind stock  distributions by venture capital funds
to their investors, sales of shelf-registered securities, private placements and
acquisition or sale of large equity positions. The Company also provides venture
capitalists  with timely  information  concerning  the  publicly  traded  shares
included in venture capital investment portfolios. This group was established in
1994 as a separate  department  within H&Q in  recognition of the strategic role
played by venture capital  investors in H&Q's areas of focus and in establishing
and  developing a close  relationship  between the Company and the  companies in
which venture  capitalists  hold equity  positions.  At September 30, 1998,  the
Venture Services group was comprised of five employees.

VENTURE CAPITAL, PRIVATE EQUITY AND PRINCIPAL INVESTMENT ACTIVITIES

     From  the  Company's  inception,  venture  capital  investing  has  been an
important  component  of  H&Q's  strategy  of  identifying  and  building  early
relationships with promising emerging growth companies. H&Q currently conducts a
broad  range  of  venture  capital,  private  equity  and  principal  investment
activities.  As of September  30, 1998,  assets under  management by the Company
amounted to over $280 million.

     Effective  July 1, 1998, the Company  established a strategic  relationship
with H&Q Venture  Associates,  L.L.C., a California  limited  liability  company
("Venture  Associates").  Venture  Associates is an independent  venture capital
organization  owned and managed by former  employees  of  Hambrecht & Quist that
provides fund management services to the Company and to outside parties. H&Q has
profit  participation  interests of varying  percentages in the investment funds
and  partnerships  managed  by  Venture  Associates  and in those  managed by WR
Hambrecht  &  Co.,  L.L.C.,  a  California  limited  liability  company,   which
investment funds and partnerships are administered by Venture Associates.

     SOLE PURPOSE INVESTMENT PARTNERSHIPS AND DIRECT STRATEGIC INVESTMENTS

     Since 1992, the Company has made venture capital and mezzanine  investments
by means of limited  partnerships  that are each formed for the sole  purpose of
enabling the Company,  its senior  employees  and others to invest in a specific
private  company.  Effective  July 1, 1998,  the  Company  commenced  making its
portion of such investments side-by-side the individual investment partnerships.
The Company receives no management fees in connection with such investments, but
it  receives  an  up-front  load  and   participates   in  any  profits  of  the
partnerships.  Certain  of the  Company's  professionals  share  in  the  profit
participation  of each  partnership  based on  their  specific  contribution  in
identifying,  structuring and monitoring the partnership's investment. In fiscal
1998,  approximately  $59.2 million was invested in such partnerships  formed by
the Company,  of which $12.2 million was invested by the Company.  Following the
formation  of Venture  Associates,  $4.0  million  was  invested  by the Company
side-by-side  with sole  purpose  investment  partnerships  and $2.1 million was
invested  by the  Company in  partnerships  established  and  managed by Venture
Associates.

     Since  the  mid-1980s,  and in  addition  to the  sole  purpose  investment
partnerships,  the Company has, from time to time,  invested  solely for its own
account in private  companies that offer a strategic and financial  opportunity.
The Company in recent years has also  invested  capital and  obtained  minority,
non-controlling   interests  in  a  number  of  complementary   asset-management
organizations.

     STRATEGIC AND SPECIALTY FUNDS

     The following  listing  summarizes the Company's active and specialty funds
as of September 30, 1998:

     HAMBRECHT & QUIST CAPITAL MANAGEMENT. In 1987, the Company formed Hambrecht
& Quist  Capital  Management  Incorporated  ("Capital  Management")  to make and
manage  investments in publicly traded and privately held companies  principally
engaged in the  development,  production or distribution of products or services
generally  related  to  scientific  advances  in  healthcare,   agriculture  and
environmental  management.   Capital  Management  manages  two  publicly  traded
closed-end  mutual  funds:  H&Q  Healthcare  Investors  (NYSE:HQH)  and H&Q Life
Sciences Investors  (NYSE:HQL).  At September 30, 1998, these funds had combined
net assets of  approximately  $258  million,  of which  approximately  22.3% was
comprised  of  venture   capital  and  other   investments   subject  to  resale
restrictions.   Capital  Management  is  compensated  solely  on  the  basis  of
management fees as a percentage of assets under management.  Capital  Management
is wholly owned by H&Q.

     H&Q SERV*IS PARTNERS,  L.P. In February,  1997,  Hambrecht & Quist formed a
limited  partnership  with Johnson & Johnson  ("J&J") that invests in healthcare
service and  healthcare  information  technology  companies  strategic  to J&J's
interests.  J&J has committed $15 million in capital with an option to commit an
additional  $15 million and the Company has  committed  $2.5  million in capital
with an option to commit an  additional  $2.5 million.  The Company  receives an
annual  management  fee based on a capital  commitment of $30 million by J&J and
participates in any profits of the partnership. Certain of the Company's venture
capital and private equity professionals share in the profit participation.

     EUCALYPTUS  VENTURES  L.P.  In April 1998,  Hambrecht  & Quist  served as a
sponsor for  Eucalyptus  Ventures  L.P., an  approximately  $55 million  venture
capital fund formed to invest in Israeli and  Israeli-related  growth companies.
The  Company  and one of its  affiliates  holds  5% of the  limited  partnership
interests of Eucalyptus Ventures L.P. and is a member of its general partner.

     ASIA PACIFIC.  Asia Pacific was  established  in 1985 to provide  financial
advisory and fund management services to investors and entrepreneurs  throughout
the Asia  Pacific  region.  Hambrecht & Quist holds a minority,  non-controlling
interest  in Asia  Pacific's  management  entities  and is  entitled  to certain
participations in the profits of existing and future Asia Pacific funds.

     In addition,  the Company holds an economic  interest in four funds managed
by Venture  Associates:  Adobe  Ventures,  L.P.,  Adobe  Ventures II,  L.P.,  TI
Ventures L.P. and TI Ventures II L.P.

     ASSET-BASED FINANCING AND MEZZANINE INVESTMENTS

     HAMBRECHT & QUIST GUARANTY  FINANCE.  In 1983, the Company  established the
entity that became  Guaranty  Finance to provide  equipment  leasing to emerging
technology companies.  In January 1998, Transition Capital, a provider of bridge
loans and  mezzanine  financing to emerging  growth  companies,  was merged into
Guaranty Finance.  Today,  Guaranty Finance provides  financings for private and
public emerging technology,  biotechnology and healthcare companies, in the form
of secured loans, working capital lines of credit secured by accounts receivable
and  inventory,  equipment  and  tenant  improvements  leases,  and  in  limited
instances  invests  in  preferred  stock of client  companies.  In  addition  to
receiving  payments on loans and leases,  Guaranty  Finance may receive  fees or
purchase  warrants  from  its  client  companies  at the  time  it  enters  into
transactions.  Guaranty  Finance  seeks  to  obtain  financial  returns  through
interest  and lease  income,  fees and the  receipt  of  warrants,  or rights to
convert loans into equity.  Guaranty  Finance's  current portfolio of financings
aggregated  approximately $44.4 million at September 30, 1998. H&Q California is
a member of Guaranty Finance with an 87.5% interest,  and individuals  active in
the management of Guaranty Finance are members with an aggregate 12.5% interest.

ACCOUNTING, ADMINISTRATION AND OPERATIONS

     H&Q's accounting,  administration and operations  personnel are responsible
for financial controls,  internal and external financial  reporting,  compliance
with  regulatory  and legal  requirements,  office and personnel  services,  the
Company's  information  technology  and  telecommunications   systems,  and  the
processing of the Company's  securities  transactions.  The Company's  employees
perform most of these functions. With the exception of payroll processing, which
is performed by an outside  service bureau,  all data  processing  functions are
performed  by the  Company's  information  technology  department.  The  Company
believes  that future  growth will  require  implementation  of new and enhanced
communications and information systems, the training of its personnel to operate
such systems and addressing potential adverse effects to such systems related to
the date change in the year 2000.  Any  difficulty or  significant  delay in the
implementation  or  operation  of new systems,  the  training of  personnel,  or
adequately  addressing the year 2000 issue could adversely  affect the Company's
ability  to manage  growth.  See  "Factors  Affecting  the  Company's  Business,
Operating  Results and Financial  Condition Risks  Associated with Management of
Growth and - Risks of Systems Failures."

     Lewco acts as a clearing  broker and depository for the Company.  A portion
of Lewco's  expenses,  net of certain  revenues,  are  reimbursed by the Company
based on the level of transactions processed on behalf of the Company.

COMPETITION

     The  securities  business is intensely  competitive.  Many of the Company's
competitors  have  greater  capital,  financial  and  other  resources  than the
Company.  The  Company  competes  worldwide  for  growth-oriented  institutional
investor  clients and for United  States  underwritings  of equity  offerings by
emerging  growth  companies  in H&Q's areas of focus.  The Company  competes for
venture capital and private equity and other principal investment  opportunities
in the United  States  through  wholly owned  subsidiaries  and  internationally
through entities in which it holds minority interests.

     In addition to competition from domestic and foreign firms currently in the
securities business,  domestic commercial banks and investment banking boutiques
have recently entered the business.  In recent years, large  international banks
have entered the markets served by United States investment banks, including the
markets in which the  Company  competes.  These large  international  banks have
hired investment banking,  research and sales and trading professionals from the
Company and its  competitors in the past, and the Company expects that these and
other  competitors will continue to try to recruit  professionals  away from the
Company.  The loss of any key professional could materially and adversely affect
the Company's  operating results.  The Company expects competition from domestic
and  international  banks to  increase  as a result  of recent  and  anticipated
legislative and regulatory initiatives in the United States to remove or relieve
certain  restrictions  on commercial  banks.  The  securities  business has also
recently been experiencing  consolidation,  including the acquisition of several
of the Company's competitors by large commercial banks, providing competitors of
the Company with increased financial and other resources. The Company's focus on
growth  companies  also  subjects  it to  direct  competition  from a  group  of
specialty  securities  firms  and  smaller  investment  banking  boutiques  that
specialize in providing  services to the emerging  growth company  sector.  Such
competition could adversely affect the Company's  operating results,  as well as
its ability to attract and retain  highly  skilled  individuals.  As a result of
increasing competition,  revenues from individual underwriting transactions have
been increasingly allocated among a greater number of co-managers, a trend which
has resulted in reduced revenues for certain transactions.

     The Company  also faces  competition  from  companies  offering  electronic
brokerage  services,  a rapidly developing and intensely  competitive  industry.
These competitors may undertake promotional  activities focused on the Company's
brokerage  customers,  may have lower costs or provide fewer  services and offer
their customers more attractive  pricing or other terms than the Company offers.
The Company also anticipates competition from underwriters who attempt to effect
public   offerings  for  emerging   growth   companies   through  new  means  of
distribution,  including  using  electronic  media  such  as  the  Internet.  In
addition,  disintermediation  may  result  as  issuers  attempt  to  sell  their
securities  directly to purchasers,  including sales using electronic media such
as the  Internet.  To the extent  that  issuers  and  purchasers  of  securities
transact business without the assistance of financial intermediaries such as the
Company, the Company's operating results could be adversely affected.

     The principal  competitive  factors  influencing the Company's business are
its professional staff, industry expertise,  client relationships and its mix of
market and product capabilities.

EMPLOYEES

     At September 30, 1998, the Company had a total of 827 employees, of whom 88
were engaged in research,  184 in investment banking,  340 in sales and trading,
39 in venture capital, private equity, principal investment and money management
activities and 176 in accounting,  administration  and  operations.  None of the
Company's  employees  are  subject to a  collective  bargaining  agreement.  The
Company believes that its relations with its employees are good.

REGULATION

     H&Q's  business  and the  securities  industry  in general  are  subject to
extensive  regulation  in the United States at both the federal and state level,
as well as by industry self-regulatory organizations ("SROs"). Its business also
is subject to regulation by various foreign governments and regulatory bodies.

     In the United States, a number of federal  regulatory  agencies are charged
with  safeguarding  the integrity of the securities and other financial  markets
and with protecting the interests of customers  participating  in those markets.
The Securities and Exchange Commission (the "SEC") is the federal agency that is
primarily  responsible  for the  regulation  of  broker-dealers  and  investment
advisers doing business in the United States,  and the Board of Governors of the
Federal Reserve System promulgates  regulations  applicable to securities credit
transactions   involving   broker-dealers   and  certain   other  United  States
institutions. Broker-dealers and investment advisers are subject to registration
and  regulation  by state  securities  regulators  in those states in which they
conduct business. Industry SROs, each of which has authority over the firms that
are its members,  include the National  Association of Securities Dealers,  Inc.
("NASD"), the New York Stock Exchange ("NYSE") and other securities exchanges.

     H&Q LLC is registered as a broker-dealer  with the SEC and in all of the 50
states,  Puerto  Rico and the  District  of  Columbia,  and is a member  of, and
subject to regulation by, a number of securities  industry SRO's,  including the
NASD, the NYSE,  the American,  Chicago and Pacific  Exchanges,  and the Options
Clearing  Corporation.  H&Q LLC  also  has a 20%  interest  in  Lewco,  which is
registered as a broker-dealer with the SEC and is a member of the NASD, the NYSE
and other securities exchanges.

     As a result of federal and state registration and SRO memberships,  H&Q LLC
and Lewco are  subject to  overlapping  schemes of  regulation  which  cover all
aspects of their securities  business.  Such regulations cover matters including
capital   requirements,   the  use  and  safekeeping  of  customers'  funds  and
securities,   record  keeping  and  reporting   requirements,   supervisory  and
organizational procedures intended to assure compliance with securities laws and
to  prevent   the   improper   trading  on   material   nonpublic   information,
employee-related  matters,  including qualification and licensing of supervisory
and  sales  personnel,   limitations  on  extensions  of  credit  in  securities
transactions,   clearance  and  settlement  procedures,   requirements  for  the
registration, underwriting, sale and distribution of securities and rules of the
SROs  designed  to  promote  high  standards  of  commercial  honor and just and
equitable principles of trade. A particular focus of the applicable  regulations
concerns the  relationship  between  broker-dealers  and their  customers.  As a
result, many aspects of the broker-dealer  customer  relationship are subject to
regulation  including  in  some  instances  "suitability"  determinations  as to
certain customer transactions, limitations in the amounts that may be charged to
customers,  timing of proprietary  trading in relation to customers'  trades and
disclosures to customers.

     Much of the Company's  underwriting  and  market-making  business  involves
securities  traded on  Nasdaq.  Nasdaq's  operations  have been the  subject  of
extensive scrutiny, in the media and by government regulators,  including by the
Antitrust Division of the United States Department of Justice. This scrutiny has
included allegations of collusion among Nasdaq market-makers.  In July 1996, H&Q
LLC and 23 other Nasdaq market-makers  entered into a Stipulation and Order with
the  Department  of Justice in which they agreed not to engage in any  collusive
activities relating to prices, quotes or spreads in Nasdaq-traded securities.

     In 1996,  the SEC filed and  simultaneously  settled  a  disciplinary  case
against the NASD and filed a report  setting  out the SEC's  findings in detail.
The SEC's case  concerned the NASD's  enforcement  oversight of Nasdaq,  and the
settlement  calls for a number of changes to Nasdaq's  operations.  In addition,
the SEC  adopted  new  order-execution  rules,  including  rules  applicable  to
dealers'  handling of customer limit orders on Nasdaq.  The application of these
rules was phased in during 1997.  Further changes  relating to the operations of
Nasdaq  have been  proposed  and filed  with the SEC.  The  Company is unable to
predict the outcome of any of the changes or proposed changes to Nasdaq, certain
of which could adversely affect the Company's  operating  results.  Although the
SEC's investigation of Nasdaq trading practices has been settled with respect to
the NASD,  it remains open for  enforcement  action  against  others,  including
Nasdaq market-makers such as the Company, and their employees.

     H&Q LLC, Capital Management and two other subsidiaries, Atlantic Investment
Advisers, Inc. and H&Q Venture Management,  L.L.C., are registered as investment
advisers with the SEC and have notice filings in several  states.  As investment
advisers  registered  with the SEC, each is subject to the  requirements  of the
Investment  Advisers Act of 1940, as amended (the "Advisers Act"), and the SEC's
regulations thereunder,  as well as state securities laws and regulations.  Such
requirements  relate to,  among  other  things,  limitations  on the  ability of
investment  advisers  to  charge  performance-based  or  non-refundable  fees to
clients,  record-keeping and reporting  requirements,  disclosure  requirements,
limitations on principal  transactions  between an adviser or its affiliates and
advisory  clients,  as well as general  anti-fraud  prohibitions.  In  addition,
Capital  Management  and  the  mutual  funds  it  manages  are  subject  to  the
requirements  of the  Investment  Company Act of 1940 and the SEC's  regulations
thereunder.

     H&Q LLC and Lewco also are subject to "Risk  Assessment  Rules"  imposed by
the SEC. These rules require,  among other things,  that certain  broker-dealers
maintain and preserve certain information, describe risk management policies and
procedures  and report on the financial  condition of certain  affiliates  whose
financial and securities  activities  are  reasonably  likely to have a material
impact on the financial and operational condition of the broker-dealers. Certain
"Materially Associated Persons" (as defined in the Risk Assessment Rules) of the
broker-dealers  and  the  activities  conducted  by such  Materially  Associated
Persons may not be subject to regulation by the SEC.  However,  the  possibility
exists that, on the basis of the information it obtains from the Risk Assessment
Rules, the SEC could seek  legislative or regulatory  changes in order to expand
its authority over the Company's  unregulated  subsidiaries  either  directly or
through its existing authority over the Company's regulated subsidiaries.

     Violations of federal or state laws or  regulations  or rules of SROs could
subject the Company,  its  subsidiaries  and/or its  employees  to  disciplinary
proceedings or civil or criminal  liability,  including  revocation of licenses,
censures,  fines or temporary  suspension  or permanent  bar from the conduct of
their business.  Any such proceeding  could have a material  adverse effect upon
the Company's business.

     In addition to being regulated in the United States, the Company's business
is subject to regulation by various foreign  governments and regulatory  bodies.
H&Q LLC is registered  with and subject to regulation by the Ontario  Securities
Commission,  the Securities and Futures Authority of the United Kingdom pursuant
to the United  Kingdom  Financial  Services  Act of 1986,  and the  Ministry  of
Finance,  Tokyo, Japan. Foreign regulation governs all aspects of the investment
business,  including  regulatory capital,  sales and trading practices,  use and
safekeeping of customer funds and securities,  record-keeping,  margin practices
and procedures,  registration standards for individuals,  periodic reporting and
settlement procedures.  In addition,  Hambrecht & Quist Asset Management Ltd., a
subsidiary  of the Company,  is a member of and is subject to  regulation by the
Investment  Management  Regulatory  Organization  Limited in the United Kingdom,
which  regulates  all  aspects  of  its  investment   advisory   business.   H&Q
Euromarkets,  a subsidiary  of the Company,  is a  broker-dealer  registered  in
France  and is also  subject to  regulation  by the  Societe du Nouveau  Marche,
Societe de Bourse Francaise,  Banque de France and La Commission  d'Operation de
Bourse, and is an approved person of the NYSE.

     In  connection  with the  Company's  venture  capital  and  private  equity
activities,  H&Q, its affiliates and the investment  funds which they manage are
relying on exemptions from  registration  under the Advisers Act, the Investment
Company Act of 1940, as amended,  state  securities laws and the laws of various
foreign countries. Failure to meet the requirements of any such exemptions could
have a  material  adverse  effect  on the  manner  in  which  the  Company,  its
affiliates and the investment funds carry out their investment activities and on
the compensation  received by the Company and its affiliates from the investment
funds.

     Additional  legislation  and  regulations,  including those relating to the
activities  of  broker-dealers  and  investment   advisers,   changes  in  rules
promulgated by the SEC or other United States or foreign governmental regulatory
authorities and SROs or changes in the interpretation or enforcement of existing
laws and rules may adversely affect the manner of operation and profitability of
the Company. H&Q's businesses may be materially affected not only by regulations
applicable to it as a financial market intermediary,  but also by regulations of
general application.  For example, the volume of H&Q's underwriting,  merger and
acquisition,  or venture capital and private equity activities in any year could
be affected by,  among other  things,  existing  and  proposed tax  legislation,
antitrust policy and other governmental  regulations and policies (including the
interest   rate  policies  of  the  Federal   Reserve   Board)  and  changes  in
interpretation  or  enforcement  of  existing  laws and rules  that  affect  the
business and financial communities.

NET CAPITAL REQUIREMENTS

     As  broker-dealers  registered  with the SEC and  member  firms of the NYSE
and/or the NASD, H&Q LLC and Lewco are each subject to the capital  requirements
of the SEC, the NYSE and/or the NASD. These capital requirements specify minimum
levels of capital,  computed in accordance  with regulatory  requirements  ("net
capital"),  that each firm is required to maintain  and also limit the amount of
leverage that each firm is able to obtain in its respective business.

     H&Q LLC has  elected  to  compute  its net  capital  requirement  under the
"alternative  method"  permitted  by the  SEC.  Under  this  method,  H&Q LLC is
required to maintain  regulatory  net capital,  computed in accordance  with the
SEC's regulations as supplemented by NYSE Rule 325, equal to the greater of $1.0
million or 2% of the amount of its  securities  "customer-related  receivables,"
calculated in accordance with SEC's regulations.

     The  customer-related  receivables  referred to in the preceding  paragraph
(also  referred to as  "aggregate  debit  items")  represent the money owed to a
broker-dealer by its customers and certain other  customer-related  assets. "Net
capital" is  essentially  defined as net worth  (assets  minus  liabilities,  as
determined  under generally  accepted  accounting  principles),  plus qualifying
subordinated borrowings,  less the value of all of a broker-dealer's assets that
are not readily  convertible  into cash (such as  goodwill,  furniture,  prepaid
expenses,  exchange  seats and unsecured  receivables),  and further  reduced by
certain  percentages  (commonly  called  "haircuts")  of the  market  value of a
broker-dealer's positions in securities and other financial instruments.

     A failure of a broker-dealer to maintain its minimum required capital would
require  it to cease  executing  customer  transactions  until it came back into
capital compliance, and could cause it to lose its membership on an exchange, or
in an SRO, its registration  with the SEC, or require its liquidation.  Further,
the  decline in a  broker-dealer's  net capital  below  certain  "early  warning
levels," even though above minimum  capital  requirements,  could cause material
adverse  consequences  to the  broker-dealer.  For  example,  the SEC's  capital
regulations  prohibit  payment  of  dividends,   redemption  of  stock  and  the
prepayment  of  subordinated  indebtedness  if  a  broker-dealer's  net  capital
thereafter  would be less than 5% of aggregate  debit items.  These  regulations
also prohibit  principal  payments in respect of subordinated  indebtedness if a
broker-dealer's  net capital thereafter would be less than 5% of aggregate debit
items.  Under NYSE Rule 326, a member firm is required to reduce its business if
its net capital  (after  giving effect to scheduled  maturities of  subordinated
indebtedness  or other  planned  withdrawals  of regulatory  capital  during the
following six months) is less than 125% of its net capital minimum dollar amount
or 4% of  aggregate  debit  items for 15  consecutive  days.  NYSE Rule 326 also
prohibits the expansion of a member's  business if its net capital (after giving
effect to scheduled  maturities of  subordinated  indebtedness  or other planned
withdrawals of regulatory  capital during the following six months) is less than
150% of its net capital  minimum dollar amount or 5% of aggregate debt items for
15 consecutive days.

     The SEC's capital rules also (i) require that broker-dealers  notify it and
the NYSE,  in writing,  two business days prior to making  withdrawals  or other
distributions of equity capital or lending money to certain related persons,  if
those withdrawals would exceed, in any 30-day period, 30% of the broker-dealer's
excess net capital and that they  provide such notice  within two business  days
after any such withdrawal or loan that would exceed,  in any 30-day period,  20%
of the  broker-dealer's  excess net capital,  (ii) prohibit a broker-dealer from
withdrawing  or otherwise  distributing  equity  capital or making related party
loans if after such  distribution or loan, the  broker-dealer has net capital of
less than 120% of its net capital minimum dollar amount or 5% of aggregate debit
items and certain  other  circumstances,  and (iii) provide that the SEC may, by
order,  prohibit  withdrawals of capital from a broker-dealer for a period of up
to 20 business days, if the withdrawals would exceed, in any 30-day period,  30%
of the broker-dealer's  excess net capital and the SEC believes such withdrawals
would be  detrimental  to the  financial  integrity  of the firm or would unduly
jeopardize  the  broker-dealer's  ability  to pay its  customer  claims or other
liabilities.

     Compliance  with  regulatory   capital   requirements   could  limit  those
operations of H&Q LLC and Lewco that require the intensive use of capital,  such
as  underwriting  and trading  activities,  and  financing  of customer  account
balances, and also could restrict the Company's ability to withdraw capital from
its  affiliated  broker-dealers,  which in turn could  limit its  ability to pay
dividends,  repay debt and redeem or purchase shares of its outstanding  capital
stock.

     The  Company  believes  that at all times  H&Q LLC and  Lewco  have been in
compliance in all material respects with the applicable minimum capital rules of
the SEC, the NYSE,  and the NASD. As of September 30, 1998, H&Q LLC was required
to maintain minimum net capital,  in accordance with SEC rules, of approximately
$4.0  million  and had total net  capital of  approximately  $50.5  million,  or
approximately  $46.5  million  in  excess of the  amount  required.  Lewco  also
computes its minimum net capital requirement under the alternative method. As of
September  30,  1998,  Lewco was  required  to  maintain  minimum net capital of
$250,000.  Lewco's  total  net  capital  on that  date was  approximately  $16.6
million.  H&Q Euromarkets is also subject to the net capital requirements of its
applicable  regulatory  agency and as of September  30, 1998,  was in compliance
with all applicable regulatory capital adequacy requirements.

FACTORS AFFECTING THE COMPANY'S  BUSINESS,  OPERATING RESULTS AND FINANCIAL
CONDITION

     The  statements  in this Form 10-K that relate to future  plans,  events or
performance are forward-looking statements that involve risks and uncertainties.
Actual results might differ  materially  due to a variety of important  factors,
including  those factors  discussed  below.  In addition,  the Company  cautions
readers that the following important factors,  among others, have affected,  and
in the future could materially affect, the Company's business, operating results
and financial condition.

     For information  concerning risks  associated with significant  competition
and  with  potential  losses  from  litigation  and  potential  liability  under
securities laws see "- Competition" and "Item 3 - Legal Proceedings."

     RISK OF REDUCED REVENUES DURING PERIODS OF DECLINING PRICES OR REDUCED
     ACTIVITY IN MARKET FOR EMERGING GROWTH COMPANY SECURITIES

     The Company's  revenues are likely to be lower during  periods of declining
prices or  inactivity  in the market for growth  company  securities  due to the
Company's focus on serving growth companies and their  investors.  The Company's
business  is  particularly  dependent  on the  market for  equity  offerings  by
companies in the technology,  healthcare, business information,  outsourcing and
healthcare  services  and  branded  consumer  industries.   These  markets  have
historically  experienced significant volatility not only in the number and size
of equity offerings,  but also in the after-market  trading volume and prices of
newly issued securities. In addition, the number of major investors and the size
of managed funds in the market for growth company  securities is smaller than in
many other industrial sectors. This concentration  produces higher volatility in
the number and size of corporate  financing  transactions  conducted by emerging
growth  companies  as  compared to  companies  in other  industries,  and higher
volatility in the volume of after-market trading of growth company securities.

     The  Company's  revenues in large part are dependent on the number and size
of underwritten  transactions by companies in the Company's targeted industries,
and the  after-market  trading  for  such  companies.  During  certain  periods,
relatively  few public  offerings  for companies in these  industries  have been
completed,  which materially adversely affected the Company's operating results.
Underwriting activities in H&Q's targeted industries can decline for a number of
reasons.  Any  historical  or future  market  decline has and may result in many
pending securities offerings being delayed or canceled. During periods of market
decline,  offerings are typically effected at lower valuations and smaller total
dollar  sizes.  Any future  market  decline  will have an adverse  effect on the
Company's  operating  results.  Underwriting and brokerage  activity can also be
materially  adversely  affected  for a growth  company  or  industry  segment by
disappointments in quarterly performance relative to analysts' expectations,  or
by changes in long-term prospects.

     RISK OF REDUCED REVENUES DUE TO ECONOMIC, POLITICAL AND MARKET CONDITIONS

     Reductions in public offering and merger and acquisition  activities due to
changing  economic,  political or market  conditions  could cause the  Company's
revenues to decline materially. The amount and profitability of these activities
are affected by many national and  international  factors,  including  economic,
political and market  conditions;  the level and  volatility of interest  rates;
legislative  and  regulatory  changes;   currency  values;  inflation;  and  the
availability of short-term and long-term funding and capital. Any one or more of
these  factors may  contribute  to reduced  levels of  securities  offerings and
merger and acquisition activities, which would result in lower revenues from the
Company's investment banking, trading and sales activities.

     RISK OF REDUCED REVENUES DUE TO DECLINING MARKET VOLUME, PRICE OR LIQUIDITY

     The  Company's  revenues  may  decrease in the event of a decline in market
volume,  prices or liquidity.  The securities business is subject to declines in
the volume of securities  transactions and in market liquidity,  which generally
result in lower revenues from trading  activities and  commissions.  Lower price
levels  of  securities   may  result  in  a  reduced   volume  of   underwriting
transactions,  which would cause a reduction in revenue from  corporate  finance
fees, as well as the  recognition of losses from declines in the market value of
securities held in trading,  investment and underwriting positions. Sudden sharp
declines in market values of securities  can result in illiquid  markets and the
failure of issuers and counterparties to perform their  obligations,  as well as
increases in customer claims.  In such markets,  the Company may incur losses in
its principal trading and market-making activities.

     RISK OF LOSSES DUE TO FRAUD OR MISTAKES OF CUSTOMERS OR EMPLOYEES

     The  Company is exposed  to the risk of  significant  losses as a result of
customer fraud,  employee errors,  misconduct and fraud (including  unauthorized
transactions  by traders)  and failures in  connection  with the  processing  of
securities  transactions.  There can be no  assurance  that the  Company's  risk
management  procedures  and  internal  controls  will  prevent  such losses from
occurring.

     DEPENDENCE ON CASH INFLOWS TO MUTUAL FUNDS

     A slow-down or reversal of cash inflows to mutual funds could lead to lower
underwriting and brokerage revenues for the Company, since mutual funds purchase
a significant portion of the securities offered to the public by emerging growth
companies. Any decline in the stock market could result in a significant decline
in net asset  values of mutual  funds  focused on  technology  and other  growth
industries.  Declines  in the market  generally  or  declines in mutual fund net
asset values in particular  could result in withdrawals of cash from such mutual
funds.  To the extent that the decline in cash inflows into mutual funds and the
decline in net asset  values of these funds reduce  demand by fund  managers for
new equity offerings by emerging growth  companies,  the Company's  business and
results of operations could be materially adversely affected.

     RISK OF REDUCED REVENUES DUE TO FOCUS ON RELATIVELY FEW INDUSTRIES

     Because the Company focuses on relatively few industries, a general decline
in the market for securities of companies within any such industry, particularly
technology or  healthcare,  could lead to  substantially  lower revenues for the
Company.  The market for securities offerings in each of the industries on which
the Company focuses may also be subject to industry-specific risks. For example,
the prospects for growth in the personal  computer market affect  companies in a
number  of  other  industries,  such  as  semiconductor-related   companies  and
companies  in the  software  and  networking  equipment  industries.  Similarly,
changes in policies by the United  States  Food and Drug  Administration  or the
United States Health Care Financing  Administration  can produce sharp swings in
the  market  for  the  securities  of  biotechnology  and  healthcare   services
companies.  Technology and healthcare underwriting transactions continue to play
a large role in the Company's investment banking and research  activities.  This
industry  concentration  exposes the Company to the risk of substantial declines
in  revenue  in the  event of  downturns  in  underwriting  activities  in these
industries.

     RISKS OF LOSSES DUE TO REGIONAL CONCENTRATION OF EMERGING GROWTH COMPANIES

     As a result of the high proportion of venture capital  invested in emerging
growth  companies in California,  H&Q's  underwriting  clients have to date been
concentrated in California.  A natural disaster or significant economic downturn
in any state in which companies within the industries  served by the Company are
concentrated could substantially  reduce the Company's  revenues.  Approximately
46% of the  companies  for which H&Q served as manager or co-manager of a public
offering  during fiscal 1998 had principal  offices  located in California.  Any
adverse effect on emerging growth industries concentrated in California,  or, to
a lesser extent, in other states in which emerging growth technology, healthcare
or service  companies  are also  concentrated  could also  reduce the  Company's
underwriting and brokerage business.

     RISK OF REDUCED  REVENUES  DUE TO  DECLINE  IN  TRADING  OF GROWTH  COMPANY
     SECURITIES

     The  Company's   revenues  from   brokerage   transactions   are  generally
substantially  lower when trading  activities of  securities of emerging  growth
companies  declines or when the stock market declines  generally.  H&Q derives a
significant portion of its revenues from brokerage  transactions  related to the
securities  of growth  companies.  In the  past,  revenues  from such  brokerage
transactions  have  declined  when the  volume  of  trading  on  Nasdaq  or NYSE
declined,  or industry  sectors or individual  companies  reported results below
investors' expectations. See "-Investment Banking" and " -Sales and Trading."

     SIGNIFICANT  FLUCTUATIONS  IN QUARTERLY  OPERATING  RESULTS DUE TO LEVEL OF
     BUSINESS ACTIVITY AND TIMING OF TRANSACTIONS

     The Company's  revenues and operating results may fluctuate from quarter to
quarter and from year to year due to a  combination  of factors.  These  factors
include  the number of  underwriting  and merger  and  acquisition  transactions
completed by the Company's  clients,  access to public  markets for companies in
which the  Company has  invested as a  principal,  valuations  of the  Company's
principal   investments,   the  level  of  institutional  and  retail  brokerage
transactions, variations in expenditures for personnel, litigation expenses, and
the expenses of establishing new business units. The Company's  revenues from an
underwriting  transaction  are recorded  only when the  underwritten  securities
commence  trading,  and revenues from a merger or  acquisition  transaction  are
recorded  only  when  retainer  fees are  received  or the  transaction  closes.
Accordingly,  the  timing  of  the  Company's  recognition  of  revenue  from  a
significant  transaction can materially affect the Company's quarterly operating
results.  Despite the variability of professional  incentive  compensation,  the
Company could experience  losses if the Company's  revenues decline more quickly
than the  Company's  ability  to  change  its cost  structure.  There  can be no
assurance that the Company will be able to sustain  profitability on a quarterly
or annual basis.

     DEPENDENCE ON ABILITY TO RETAIN AND RECRUIT PERSONNEL

     The Company's business is dependent on the highly skilled, and often highly
specialized,  individuals it employs. Retention of research, investment banking,
sales and trading,  venture  capital and private  equity,  money  management and
administrative   professionals  is  particularly   important  to  the  Company's
prospects.  Hambrecht & Quist's strategy is to establish  relationships with its
prospective corporate clients in advance of any transaction and to maintain such
relationships  over the long term by  providing  advisory  services to corporate
clients in equity,  convertible  debt and merger and  acquisition  transactions.
Research  professionals  contribute  significantly  to the Company's  ability to
secure a role in managing public offerings.

     COMPETITION  FOR  PROFESSIONAL  EMPLOYEES.  From time to time,  Hambrecht &
Quist has  experienced  losses of  research,  investment  banking  and sales and
trading professionals.  The level of competition for key personnel has increased
recently,  particularly due to the market entry efforts of certain international
and domestic commercial banks and other investment banks targeting or increasing
their  efforts in some of the same  industries  that H&Q  serves,  most  notably
technology  and  healthcare.  There  can  be no  assurance  that  losses  of key
personnel due to such competition or otherwise will not occur in the future. The
loss of an  investment  banking,  research  or sales and  trading  professional,
particularly  a  senior  professional  with a  broad  range  of  contacts  in an
industry, could materially and adversely affect the Company's operating results.

     LIMITATIONS OF EMPLOYEE RETENTION  MECHANISMS.  The Company depends on many
key employees, including its managing directors, and in particular on its senior
executive officers.  The loss of any key employee could materially and adversely
affect the Company.  While  Hambrecht & Quist generally does not have employment
agreements  with its  employees,  it  attempts  to  retain  its  employees  with
incentives  such as  long-term  deferred  compensation  plans,  the  issuance of
Company  stock subject to continued  employment  and the grant of options to buy
Company stock that vest over a number of years of employment.  These incentives,
however,  may be  insufficient  in  light  of  the  increasing  competition  for
experienced  professionals  in  the  securities  industry,  particularly  if the
Company's  stock price  declines  or fails to  appreciate  sufficiently  to be a
competitive   source   of  a   portion   of   professional   compensation.   See
"-Competition."

     INABILITY  TO RECRUIT  QUALIFIED  PERSONNEL.  The Company  expects  further
growth in the  number  of its  personnel.  Competition  for  employees  with the
qualifications  desired by the Company is intense,  especially  with  respect to
research and investment  banking  professionals  with expertise in industries in
which  underwriting  or  advisory  activity  is  robust.   Competition  for  the
recruiting  and  retention of employees  has recently  increased  the  Company's
compensation  costs,  and the Company expects that continuing  competition  will
cause its compensation costs to continue to increase.  There can be no assurance
that the Company  will be able to recruit a sufficient  number of new  employees
with the desired  qualifications in a timely manner.  The failure to recruit new
employees could materially and adversely affect the Company's operating results.

     RISKS ASSOCIATED WITH FEDERAL, STATE AND FOREIGN REGULATION

     The  securities  industry  and the  business  of the Company are subject to
extensive  regulation  in  the  United  States  by  the  SEC,  state  securities
regulators and other governmental  regulatory  authorities.  The business of the
Company also is regulated in the United States by industry  SROs,  including the
NASD, the NYSE and other exchanges.  In addition, the business of the Company is
subject to regulation by governmental authorities and SROs in other countries or
territories  in which  the  Company  and  entities  in  which it is an  investor
operate,  including France, Hong Kong, Israel, Japan, Malaysia, the Philippines,
Singapore,  Taiwan, Thailand and the United Kingdom. The Company's international
operations  also  require  compliance  with the United  States  Foreign  Corrupt
Practices Act.  See "Legal Proceedings" and "-Regulation."

     POTENTIAL  LIMITS  ON  OPERATIONS  DUE TO NET  CAPITAL  REQUIREMENTS.  As a
registered  broker-dealer  and member of the NYSE, H&Q LLC is subject to the net
capital rules of the SEC, NYSE and NASD. These rules,  which specify minimum net
capital  requirements for registered  broker-dealers  and NYSE and NASD members,
are designed to assure that broker-dealers  maintain adequate regulatory capital
in relation to their liabilities and the size of their customer business.  These
requirements have the effect of requiring that at least a substantial portion of
a  broker-dealer's  assets  be  kept  in  cash  or  highly  liquid  investments.
Compliance with the net capital  requirements  could limit those operations that
require  the  intensive  use  of  capital,  such  as  underwriting  and  trading
activities.  These rules also could  restrict the Company's  ability to withdraw
capital  from  H&Q LLC even in  circumstances  where  H&Q LLC has more  than the
minimum amount of required capital. See "-Net Capital Requirements."

     COMPLIANCE  WITH  VENTURE  CAPITAL  AND  PRIVATE  EQUITY  REGULATIONS.   In
connection with the Company's venture capital and private equity activities, H&Q
and its  affiliates,  as well as the  investment  funds  that they  manage,  are
relying on exemptions from  registration  under the Advisers Act, the Investment
Company  Act of 1940,  as  amended,  state  securities  laws and laws of various
foreign countries. Failure to meet the requirements of any such exemptions could
have a  material  adverse  effect  on the  manner  in  which  the  Company,  its
affiliates  and the  investment  funds they  manage  carry out their  investment
activities  and on the  compensation  received by the Company and its affiliates
from the investment funds.

     RISK  OF  PENALTIES  DUE TO  NONCOMPLIANCE.  Compliance  with  many  of the
regulations  applicable to the Company involves a number of risks,  particularly
in areas where applicable regulations may be subject to varying  interpretation.
In the  event  of  non-compliance  by H&Q  LLC  with an  applicable  regulation,
governmental  regulators  and  SROs may  institute  administrative  or  judicial
proceedings that may result in censure,  fine, civil penalties (including treble
damages  in  the  case  of  insider   trading   violations),   the  issuance  of
cease-and-desist  orders,  the deregistration or suspension of the non-compliant
broker-dealer or investment  adviser,  the suspension or disqualification of the
broker-dealer's officers or employees or other adverse consequences. The Company
has been subject to  proceedings  and sanctions by such entities in the past and
expects to be subject to such  proceedings in the future.  The imposition of any
future  penalties or orders on H&Q LLC could have a material  adverse  effect on
the Company's operating results and financial condition. See "-Regulation."

     RISKS  ASSOCIATED  WITH CHANGING  REGULATORY  ENVIRONMENT.  The  regulatory
environment in which the Company operates is subject to change.  The Company may
be adversely  affected as a result of new or revised  legislation or regulations
imposed  by the SEC,  other  United  States or foreign  governmental  regulatory
authorities  or SROs.  The Company also may be adversely  affected by changes in
the   interpretation  or  enforcement  of  existing  laws  and  rules  by  these
governmental authorities and SROs.

     NASDAQ  ANTITRUST  LITIGATION.  Much  of  the  Company's  underwriting  and
market-making business involves securities traded on Nasdaq. Nasdaq's operations
have been the  subject  of  extensive  scrutiny  in the media and by  government
regulators,  including by the Antitrust Division of the United States Department
of Justice.  This scrutiny has included  allegations  of collusion  among Nasdaq
market-makers.  In July 1996, H&Q LLC and 23 other Nasdaq market-makers  entered
into a Stipulation and Order with the Department of Justice in which they agreed
not to engage in any collusive activities relating to prices,  quotes or spreads
in  Nasdaq-traded   securities.   See  "Legal   Proceedings   -Nasdaq  Antitrust
Litigation."

     POTENTIAL ADVERSE EFFECTS OF CHANGES IN NASDAQ OPERATIONS. In 1996, the SEC
filed and simultaneously  settled a disciplinary case against the NASD and filed
a report setting out the SEC's findings in detail.  The SEC's case concerned the
NASD's enforcement oversight of Nasdaq, and the settlement calls for a number of
changes to Nasdaq's operations. In addition, the SEC adopted new order-execution
rules,  including rules applicable to dealers' handling of customer limit orders
on Nasdaq.  The  application  of these rules was phased in during 1997.  Further
changes  relating to the  operations of Nasdaq have been proposed and filed with
the SEC.  The  Company is unable to predict the outcome of any of the changes or
proposed  changes  to  Nasdaq,  certain  of which  could  adversely  affect  the
Company's operating results.  Although the SEC's investigation of Nasdaq trading
practices  has been  settled  with  respect  to the NASD,  it  remains  open for
enforcement  action against others,  including Nasdaq  market-makers such as the
Company, and their employees.

     RISK OF CHANGES IN OTHER BUSINESS REGULATIONS. The Company's businesses may
be materially  affected not only by regulations  applicable to it as a financial
market  intermediary,  but  also by  regulations  of  general  application.  For
example,  the volume of the Company's  underwriting,  merger and acquisition and
principal  investment  businesses  in a given time period  could be affected by,
among other things, existing and proposed tax legislation,  antitrust policy and
other  governmental  regulations  and  policies  (including  the  interest  rate
policies  of the  Federal  Reserve  Board)  and  changes  in  interpretation  or
enforcement  of existing  laws and rules that affect the business and  financial
communities.  The  level  of  business  and  financing  activity  in each of the
industries  on  which  the  Company  focuses  can be  affected  not only by such
legislation   or   regulations   of   general   applicability,   but   also   by
industry-specific legislation or regulations.

     RISKS ASSOCIATED WITH PRINCIPAL INVESTMENT ACTIVITIES

     The  Company  uses a portion of its own  capital in a variety of  principal
investment  activities,  each of which  involves risks of  illiquidity,  loss of
principal  and  revaluation  of assets.  At September  30, 1998,  the  Company's
principal  investments  represented  $75.8  million  invested in  non-marketable
securities,  venture capital funds and investment partnerships and $53.9 million
invested in marketable securities.  The Company purchases equity securities and,
to a lesser  extent,  debt  securities,  in venture  capital and other high risk
financings  of  early-stage,  pre-public  or  "mezzanine  stage" and  turnaround
companies.  The Company also provides asset-based financing and purchases equity
securities as part of bridge or mezzanine financing transactions.  The Company's
nonmarketable  investments  at September 30, 1998 were valued at $75.8  million,
and the report of the Company's  independent public accountants on the Company's
consolidated  financial  statements  includes a statement regarding the inherent
uncertainty  of  valuation  of  the  Company's  nonmarketable  investments.  The
Company's  investments,  like its other activities,  are concentrated in a small
number of industries and  companies,  and the companies in which the Company has
invested as principal face rapidly changing and highly competitive environments,
increasing  the risks of illiquidity  and loss of principal,  and creating risks
associated with asset revaluation as market conditions change. In addition,  the
management of principal  investments often requires  substantial  attention from
the Company's professionals, particularly if the entity in which the Company has
invested experiences financial difficulties, a restructuring or a sale.

     RISK OF LOSSES DUE TO ILLIQUIDITY OF  INVESTMENTS.  The absence of a public
market for securities  received in principal  investments means that the Company
will not receive a return on its capital invested for an indeterminate period of
time,  if at all.  A public  market for these  securities  may not  develop  for
several years, if ever. The timing of access to liquidity depends on the general
market for initial public offerings of securities or mergers and acquisitions as
well as the  particular  company's  results  and  prospects  and  trends  in the
relevant  industry.  Delayed  access to  liquidity  could  adversely  affect the
Company's returns on its principal investments, which would adversely affect the
Company's operating results.

     RISK OF LOSS OF CAPITAL  INVESTED IN  PRINCIPAL  TRANSACTIONS.  The Company
also risks the loss of capital it has invested as a principal.  The companies in
which H&Q invests often rely on new or developing technologies or novel business
models,  or  concentrate  on markets  which have not yet developed and may never
develop  sufficiently to support successful  operations.  Companies supported by
venture capital and private equity have a high incidence of operating losses and
business failure, which typically results in loss of capital invested. Companies
to which H&Q provides  mezzanine  financing  often require  substantial  cash to
support  their  operations,  risking  loss of H&Q's  principal if the company in
which H&Q has invested is unable to raise additional  capital through an initial
public offering of its securities.  If a business that has received  asset-based
financing from H&Q fails,  H&Q will be required to repossess  collateral,  which
may not be salable at a price equal to H&Q's initial investment. The entities in
which  H&Q  invests  as a  principal  often are  unable  to obtain  conventional
financing.  The equity  securities  that H&Q receives will be subordinate to the
issuer's  debt, may also be subordinate to other classes of equity and typically
will not provide  dividend  income.  Debt  securities  purchased by H&Q may rank
subordinate to other debt of the issuer. There can be no assurance that H&Q will
not  experience  significant  losses  as a result  of its  principal  investment
activities.  A material loss of capital would  adversely  affect H&Q's operating
results and financial condition.

     VOLATILITY OF PRINCIPAL INVESTMENTS; ADJUSTMENTS TO CARRYING VALUE. H&Q may
be required to mark up or mark down the value of its principal  investments as a
result of industry- or  company-specific  factors over which H&Q has no control.
Publicly traded securities held as principal investments, which at September 30,
1998 aggregated $53.9 million, are subject to significant volatility, increasing
the risk of a mark-down as a result of a decline in market  prices  generally or
the price of the particular security.  If a significant  mark-down of a material
asset were to occur in the future, the Company's operating results and financial
condition  would  be  materially  and  adversely  affected.   See  "Management's
Discussion  and  Analysis  of  Financial  Condition  and  Results of  Operations
-Overview"  and  Notes 2 and 7 of Notes  to  Consolidated  Financial  Statements
-September 30, 1998.

     RISK OF LOSSES FROM UNDERWRITING AND TRADING

     The Company's underwriting, securities trading and market-making activities
are conducted by the Company as principal  and subject the Company's  capital to
significant risks, including market,  credit,  counterparty and liquidity risks.
These activities often involve the purchase, sale or short sale of securities as
principal in markets that may be characterized  by relative  illiquidity or that
may be particularly  susceptible to rapid fluctuations in liquidity. The Company
from  time to time has  large  position  concentrations  in  securities  of,  or
commitments  to, a single  issuer,  or issuers  engaged in a specific  industry,
particularly as a result of the Company's underwriting  activities.  The Company
tends to concentrate its trading positions and underwriting activities in a more
limited  number of industry  sectors  and  portfolio  companies  than many other
investment  banks,  which might result in higher trading losses than would occur
if the Company's  positions and activities were less concentrated.  In addition,
the trend in all major  capital  markets,  for  competitive  and other  reasons,
toward larger commitments on the part of lead underwriters means that, from time
to time, an underwriter (including a co-manager) may retain significant position
concentrations in individual securities.

     RISKS ASSOCIATED WITH MANAGEMENT OF GROWTH

     Over the past several years, the Company has experienced significant growth
in its  business  activities  and the number of its  employees.  This growth has
required  and will  continue  to  require  increased  investment  in  management
personnel, financial and management systems and controls, and facilities, which,
in the absence of continued revenue growth,  would cause the Company's operating
margins  to  decline  from  current  levels.  In  addition,  as is common in the
securities industry,  the Company is and will continue to be highly dependent on
the  effective  and reliable  operation of its  communications  and  information
systems.  The Company  believes  that it will be required to  implement  new and
enhanced  communications  and  information  systems and train its  personnel  to
operate such systems.  Any difficulty or significant delay in the implementation
or  operation  of  existing or new systems or the  training of  personnel  could
adversely  affect the  Company's  ability to manage  growth.  See  "-Accounting,
Administration  and  Operations"  and  "Management's  Discussion and Analysis of
Financial Condition and Results of Operations."

     RISK OF SYSTEMS FAILURE

     The  Company's   business  is  highly  dependent  on   communications   and
information systems. Any failure or interruption of the Company's systems, or of
the  systems  of the  Company's  clearing  broker,  could  cause  delays  in the
Company's  securities  trading  activities,  which could have a material adverse
effect on the Company's  operating  results.  There can be no assurance that the
Company or its  clearing  broker  will not suffer  any such  systems  failure or
interruption,  whether caused by an earthquake,  fire,  other natural  disaster,
power or  telecommunications  failure,  act of God, act of war or otherwise,  or
that the Company's back-up  procedures and capabilities in the event of any such
failure or interruption will be adequate.

     In  addition,  the  Company  and Lewco both  utilize  software  and related
technology  that  will be  affected  by the date  change in the year  2000.  Any
failure by the Company or Lewco to adequately address the date change could have
a material adverse effect on the Company's  financial  condition and operations.
The  failure  to  correct  a  material  year  2000  issue  could  result  in the
interruption  in,  or a  failure  of,  certain  normal  business  activities  or
operations of the Company or expose it to third party  liability.  Such failures
could  materially  and  adversely  affect the Company's  results of  operations,
liquidity and financial  condition.  Due to the general uncertainty  inherent in
the year 2000 issue,  resulting  in part from the  uncertainty  of the year 2000
readiness of third party  suppliers  and customers  and the  interconnection  of
businesses, the Company cannot ensure its ability to timely and cost effectively
resolve  problems  associated  with the year  2000  issue  that may  affect  its
operations  or  business  and is unable to  determine  at this time  whether the
consequences  of year 2000 failures will have a material impact on the Company's
results of  operations,  liquidity and financial  condition.  The Company's year
2000 plan is expected to significantly reduce the Company's level of uncertainty
about the year 2000 issue,  and in particular about the year 2000 compliance and
readiness of its material third  parties.  The Company  believes that,  with the
completion  of  the  plan  as  scheduled,   the   possibility   of   significant
interruptions  of  normal  operations  should  be  reduced.   See  "Management's
Discussion    and   Analysis   of   Financial    Condition    and   Results   of
Operations-Overview-Matters Related to the Year 2000."

     DEPENDENCE ON AVAILABILITY OF CAPITAL AND FUNDING

     A  substantial  portion of the  Company's  total assets  consists of highly
liquid marketable securities and short-term  receivables arising from securities
transactions.  The funding needs of the Company to date have been satisfied from
internally generated funds and paid-in capital. In addition, the Company borrows
limited amounts on a collateralized  basis from a bank to support the activities
of its  Executive  Financial  Services  group.  There can be no  assurance  that
adequate financing to support the Company's  businesses will be available in the
future on attractive terms, or at all. See "Management's Discussion and Analysis
of Financial Condition and Results of  Operations-Overview"  and "-Liquidity and
Capital Resources."

     RISK OF POTENTIAL CONFLICTS OF INTEREST

     Executive  officers,  directors  and  employees of the Company from time to
time invest,  or receive a profit interest,  in investments in private or public
companies  or  investment  funds in which the  Company,  or an  affiliate of the
Company,  is an investor or for which the Company carries out investment banking
assignments,  publishes  research or acts as a  market-maker.  In addition,  the
Company has in the past  organized  and may in the future  organize  businesses,
such as Guaranty Finance,  in which employees of H&Q acquire minority interests.
There is a risk that,  as a result of such  investment  or profits  interest,  a
director,  officer or employee may take actions  which would  conflict  with the
best interests of Hambrecht & Quist. See "-Venture  Capital,  Private Equity and
Principal  Investment   Activities"  and  "Certain   Relationships  and  Related
Transactions" incorporated by reference to Item 13 of this report on Form 10-K.

     CONTROL OF THE COMPANY; ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER PROVISIONS

     As of December 21,  1998,  the  Company's  current  executive  officers and
directors  beneficially  owned  approximately  21.3% of the  outstanding  common
stock. Accordingly,  these stockholders,  if they were to act as a group, may be
able to influence the election of all of the Company's  directors,  increase the
authorized  capital and  otherwise  control the  policies  of the  Company.  The
Company's  Board of Directors has the authority to issue up to 5,000,000  shares
of  Preferred  Stock  and  to  determine  the  price,  rights,  preferences  and
privileges  of  those  shares   without  any  further  vote  or  action  by  the
stockholders.  The rights of the holders of common stock will be subject to, and
may be adversely  affected by, the rights of the holders of any Preferred  Stock
that may be issued in the future.  The  issuance of shares of  Preferred  Stock,
while potentially  providing  desirable  flexibility in connection with possible
acquisitions  and other corporate  purposes,  could have the effect of making it
more difficult for a third party to acquire a majority of the outstanding voting
stock of the Company.  In addition,  the Company is subject to the provisions of
Section 203 of the Delaware  General  Corporation  Law,  which will prohibit the
Company  from  engaging  in  a  "business   combination"   with  an  "interested
stockholder"  for a period of three years after the date of the  transaction  in
which  the  person  became  an  interested  stockholder,   unless  the  business
combination is approved in a prescribed  manner.  The application of Section 203
also could have the effect of delaying or  preventing a change of control of the
Company.  Certain  provisions of the Company's  Certificate of Incorporation and
Bylaws,  including  provisions  that  provide for the Board of  Directors  to be
divided into three classes to serve for staggered three-year terms, may have the
effect of delaying or preventing a change of control of the Company, which could
adversely affect the market price of the Company's common stock.

ITEM 2. PROPERTIES

     The Company's  principal  executive  offices in San  Francisco,  California
occupy  approximately  175,000 square feet under leases which terminate December
31, 2005, subject to a 5-year extension option for the majority of the space. In
addition,  the Company  occupies  approximately  23,000  square feet in a second
facility in San Francisco under a sublease which terminates on June 30, 2000 and
a successor  lease which  expires on December 31, 2003.  The Company also leases
approximately  49,000 square feet in New York, New York,  under a lease expiring
in 2007;  approximately  26,000  square feet in Boston,  Massachusetts,  under a
lease  expiring  in  2008,   approximately  1,800  square  feet  in  San  Diego,
California,  under a lease expiring in 1999;  approximately 8,800 square feet in
Newport Beach, California,  under a sublease expiring in 2000, and approximately
2,500 square feet in London,  England, under a lease expiring on March 30, 1999.
The Company  believes  that its present  facilities,  together  with its current
options to extend lease terms and occupy  additional space, are adequate for its
current and projected needs.

ITEM 3. LEGAL PROCEEDINGS

     OVERVIEW

     Many  aspects  of the  Company's  business  involve  substantial  risks  of
liability.  An underwriter is exposed to substantial liability under federal and
state  securities  laws,  other  federal  and state laws,  and court  decisions,
including  decisions with respect to underwriters'  liability and limitations on
indemnification of underwriters by issuers.  For example, a firm that acts as an
underwriter may be held liable for material  misstatements  or omissions of fact
in a prospectus  used in  connection  with the  securities  being offered or for
statements made by its securities analysts or other personnel.

     In recent  years,  there has been an  increasing  incidence  of  litigation
involving the securities industry, including class actions that seek substantial
damages.  The  Company  has been active in the  underwriting  of initial  public
offerings  (IPOs) and  follow-on  offerings  of the  securities  of emerging and
mid-size growth companies, which often involve a higher degree of risk and often
are  more  volatile  than  the  securities  of more  established  companies.  In
comparison with more  established  companies,  such emerging and mid-size growth
companies are also more likely to be the subject of securities class actions, to
carry directors and officers liability insurance policies with lower limits than
more  established  companies,  and to become  insolvent.  Each of these  factors
increases the likelihood  that an underwriter of an emerging or mid-size  growth
company's  securities  will  be  required  to  contribute  to  any  judgment  or
settlement of a securities lawsuit.

     The plaintiffs'  attorneys in securities  class action lawsuits  frequently
name as defendants in lawsuits the managing  underwriters of a public  offering.
H&Q LLC is named a defendant  in a number of class action  lawsuits  relating to
public offerings in which it served as a managing underwriter.  In addition, H&Q
LLC is currently  directly or indirectly  subject to over 13  shareholder  class
action lawsuits relating to public offerings in which H&Q LLC served as a member
of the  underwriting  syndicate but not as a managing  underwriter.  Plaintiffs'
attorneys  also name as  defendants  investment  banks  which  provide  advisory
services in merger and acquisition  transactions.  The Company  anticipates that
additional  securities  class action lawsuits naming H&Q LLC as a defendant will
be filed from time to time in the future, particularly in light of the increased
number of public  offerings H&Q LLC has underwritten and the increased number of
merger and acquisition  transactions in which H&Q LLC provided advisory services
in recent years and the fact that the securities  sold in certain of such public
offerings have experienced or may in the future experience  significant declines
in market value.  In such lawsuits,  all members of the  underwriting  syndicate
typically  are  included as members of a defendant  class and/or are required by
law, or pursuant to the terms of the underwriting  agreement,  to bear a portion
of  any  expenses  or  losses  (including  amounts  paid  in  settlement  of the
litigation)  incurred  by the  underwriters  as a group in  connection  with the
litigation,  to the extent not covered by the indemnification  obligation of the
issuer of the securities  underwritten.  H&Q LLC has on occasion participated in
settlements  of these  types of lawsuits  by making  payments  to the  plaintiff
class.  There can be no  assurance  that the Company or H&Q LLC will not find it
necessary to make substantial settlement payments in the future. The Company has
agreed to  indemnify  H&Q LLC against any expense or  liability  it may incur in
connection with any such lawsuits.

     If the  plaintiffs  in any suits  against the Company were to  successfully
prosecute  their  claims,  or if the Company were to settle such suits by making
significant  payments to the  plaintiffs,  the Company's  operating  results and
financial condition could be materially and adversely affected. In addition, the
Company's charter  documents allow  indemnification  of the Company's  officers,
directors and agents to the maximum  extent  permitted  under  Delaware law. The
Company  has  entered  into  indemnification  agreements  with  certain of these
persons.  The  Company  has  been  and in the  future  may  be  the  subject  of
indemnification  assertions  under these  charter  documents  or  agreements  by
officers, directors or agents of the Company who are or may become defendants in
litigation.

     In addition to these financial  costs and risks,  the defense of litigation
has, to a certain extent, diverted, and is expected to divert in the future, the
efforts and attention of the Company's  management and staff. The amount of time
which  management and other  employees are required to devote in connection with
the defense of litigation could be substantial and might materially divert their
attention  from other  responsibilities  within the  Company.  Securities  class
action  litigation  in  particular  is  highly  complex,  and can  extend  for a
protracted period of time, thereby consuming  substantial time and effort of the
Company's  management and substantially  increasing the cost of such litigation.
Further,  the laws  relating to securities  class  actions and other  litigation
against  securities  firms are currently in a state of flux. The eventual impact
of the  Private  Securities  Litigation  Reform  Act of 1995 and the  Securities
Litigation  Uniform  Standards Act of 1998 on securities class action litigation
is not known.

     The Company also has been subject to litigation in state and federal courts
relating to companies in which the Company has invested as a principal. The risk
of such  litigation  is magnified  where H&Q has a  substantial  or  controlling
interest in the Company,  or where one or more of H&Q's employees  serves on the
Company's Board of Directors.  On occasion, such litigation has produced results
materially  adverse to H&Q. In  particular,  during  1992,  the Company  settled
litigation relating to MiniScribe at an aggregate cost,  including expenses,  of
approximately  $59.8 million.  All of such payments  relating to such MiniScribe
settlements  were made prior to May 31, 1996.  The  Company,  as a result of its
investments  as a  principal,  or the  service  of the  Company's  employees  as
directors of other entities or otherwise, is currently subject to litigation and
may be subject to additional litigation or settlement payments in the future.

     In the  normal  course of  business,  the  Company is also a  defendant  in
various  civil  actions  and  arbitrations  arising out of its  activities  as a
broker-dealer in securities,  as an underwriter,  as an investor, as an employer
and as a  result  of  other  business  activities.  H&Q  has in  the  past  made
substantial  payments in connection with the resolution of disputed claims,  and
there can be no  assurance  that  substantial  payments in  connection  with the
resolution of disputed claims will not occur in the future.

     An adverse  resolution of any pending or future lawsuits against H&Q LLC or
the  Company  could  materially  affect  the  Company's  operating  results  and
financial condition.

     Set forth below are  summaries  of certain  pending  litigation  matters to
which H&Q LLC is a party.  The  Company  believes  that the  resolution  of such
matters and the other pending litigation matters to which the Company is a party
will not have a material  adverse effect on the Company's  operating  results or
financial condition.

     ASPEC TECHNOLOGY, INC. SECURITIES LITIGATION

     Beginning in June 1998,  several  shareholder  class action  lawsuits  were
filed against Aspec  Technology,  Inc. and others in Santa Clara County Superior
Court in California. At least three such actions name H&Q as a defendant. NEUMAN
V. ASPEC TECHNOLOGY, INC. ET AL., No. CV775089, JONAS V. ASPEC TECHNOLOGY, INC.,
ET AL.,  No.  CV775037  and  RESSLER,  ET AL. V.  ASPEC  TECHNOLOGY,  INC.,  No.
CV776083.  The complaints allege that the defendants  violated  California state
laws by making false and  misleading  statements  in course of Aspec's April 27,
1998 IPO, of which H&Q was the lead manager, and thereafter. The defendants have
not yet responded to the complaints.

     CYBERMEDIA, INC. SECURITIES LITIGATION

     On March 19, 1998, a purported  class action  complaint  was filed  against
H&Q, one of its research  analysts and others in  California  state court in Los
Angeles on behalf of persons who purchased the common stock of CyberMedia,  Inc.
between March 31, 1997 and March 12, 1998. BROWN V. CYBERMEDIA, INC. ET AL., Los
Angeles  Superior Court, No.  BC187898.  The complaint  alleges that CyberMedia,
certain of its  officers and  directors  and others  engaged in a conspiracy  to
inflate the price of  CyberMedia  stock during the class  period.  The complaint
alleges that the defendants each violated California  Corporations Code Sections
25400/25500; California Civil Code Sections 1709-1710; and California Business &
Professions Code Section 17200.

     The court  granted  plaintiffs'  motions for  consolidation  of the pending
federal court  actions on June 15, 1998. A  Consolidated  Amended  Complaint was
filed on September 11, 1998. IN RE: CYBERMEDIA LITIGATION. CV98-1811CBM (Ex). It
is expected that the state court actions will be consolidated as well.

     DAOU SYSTEMS, INC. SECURITIES LITIGATION

     In August 1998,  two purported  shareholder  class action  complaints  were
filed  in the  United  States  District  Court  for  the  Southern  District  of
California against Daou Systems, Inc., certain of its officers and directors and
others,  including  H&Q.  BRODY  V.  DAOU  SYSTEMS,  INC.,  ET  AL.,  Civil  No.
98cv1537-E(CGA)   and  KATSMAN  V.  DAOU  SYSTEMS,   INC.,  ET  AL.,  Civil  No.
98cv1575S(LAB).   The  complaints  allege  that  the  defendants   violated  the
anti-fraud  provisions  of the  Securities  Exchange Act of 1934 (the  "Exchange
Act") during the class period of February 13, 1997 to August 14, 1998. H&Q was a
co-manager  of the  company's  initial  public  offering  in  February  1997 and
lead-manager of its follow-on offering in August 1997.

     A case similar to the federal court lawsuits was filed in California  State
Court on October 15, 1998.  WOLFE V. DAOU  SYSTEMS,  ET AL., San Diego  Superior
Court, Case No. 724965.  The defendants have not yet responded to the either the
federal or state complaints.

     EVOLVING SYSTEMS, INC. SECURITIES LITIGATION

     Beginning in June 1998,  several  shareholder  class action  lawsuits  were
filed against Evolving Systems, Inc. and others in the federal district court in
Denver, Colorado. The complaints allege that the defendants violated the federal
securities  laws by, among other things,  misrepresenting  material facts in the
course of the company's May 11, 1998 initial public offering and thereafter. H&Q
was a co-manager  of the IPO. H&Q is aware of two such  lawsuits in which it has
been named as a  defendant.  PAN  AMERICAN  EXPORT  TRADING,  INC.  V.  EVOLVING
SYSTEMS,  INC.,  ET AL.,  Civil  Action  No.  98-WY-1343  and SMITH V.  EVOLVING
SYSTEMS, INC., ET AL., Civil Action No. 98-WY-1376.

     A  Consolidated  Class Action  Complaint  was filed on September  18, 1998,
alleging  violations  of the  Securities  Act and the Exchange  Act.  Motions to
dismiss have been filed and argued.

     GILLET V. GOLDMAN,  SACHS & CO. ET AL.; PRAGER V. GOLDMAN,  SACHS & CO., ET
AL.; HOLZMAN V. GOLDMAN, SACHS & CO., ET AL.

     In November and December 1998,  three  purported class action lawsuits were
filed against twenty-seven securities firms, including H&Q, in the United States
District Court for the Southern District of New York. GILLET V. GOLDMAN, SACHS &
CO. ET AL., Case No. 98CIV.  7890; PRAGER V. GOLDMAN,  SACHS & CO., ET AL., Case
No.  98CIV.  8310 and HOLZMAN V.  GOLDMAN,  SACHS & CO., ET AL., Case No. 98CIV.
8525.  In each case,  the  plaintiff  alleges that the  defendants  conspired to
artificially inflate fees charged in connection with the underwriting of initial
public  offerings of securities in violation of the Sherman  Antitrust Act. None
of the defendants have responded to any of the complaints.

     INDIVIDUAL, INC. SECURITIES LITIGATION.

     On November 13, 1996,  a securities  class action  lawsuit was filed in the
United States District Court for the District of  Massachusetts  against H&Q LLC
and others by purchasers of the common stock of Individual,  Inc., a provider of
personalized information services. Individual, Inc. Securities Litigation, U. S.
D. C., District of Massachusetts,  Master File No.  96-12272-DPW.  The complaint
alleged,  among other things,  that the prospectus for the company's  March 1996
initial  public  offering  contained  misstatements,  or failed to make required
statements,  relating to the  company's  relationship  with its founder and then
chief executive officer,  whose employment with the company terminated in August
1996.  H&Q LLC was a co-manager  of the  offering.  The  defendants  include the
company,  certain of its  current and former  directors  and  officers,  and the
underwriters. On February 28, 1997, the plaintiffs filed an Amended Consolidated
Complaint. On April 15, 1997, the defendants moved to dismiss the complaint.

     On May 27,  1998,  the  defendants'  motions to dismiss were  granted.  The
district court's decision is on appeal before the United States Court of Appeals
for the First Circuit, No. 98-1730.

     LUMISYS, INC. SECURITIES LITIGATION

     On July 9,  1997,  a  purported  class  action  complaint  was filed in the
California  Superior Court in Santa Clara County against H&Q and others relating
to an initial  public  offering  by  Lumisys,  Inc.  in  November  1995 that was
lead-managed  by H&Q.  WENGER,  ET AL.,  V.  LUMISYS,  INC.,  ET AL.,  Case  No.
CV767369.  The complaint alleges violations of California state law on the basis
of false  statements  allegedly made by the defendants  during the alleged class
period of November 15, 1995  through July 11, 1996.  On July 10, 1997, a similar
complaint  was  filed  in  the  federal  district  court  in San  Jose  alleging
violations of the Exchange  Act.  WENGER,  ET AL. V. LUMISYS,  INC., ET AL., No.
C-97 20609 EAI. The defendants demurred to the complaint in the state court case
and on December 16, 1997, the court  sustained the  demurrers,  in most respects
with leave to amend. In the federal court case, the defendants  moved to dismiss
the complaint.

     On March 30, 1998, the  defendants'  motion to dismiss the complaint in the
federal court was granted with leave to amend.  On May 27, 1998,  the plaintiffs
filed a First Amended Complaint in the federal court. WENGER, ET AL. V. LUMISYS,
INC.,  ET AL., No. C-97 20609 EAI. The  defendants  filed a motion to dismiss on
July 6, 1998.

     In the state court,  an amended  complaint was filed,  and on May 26, 1998,
the court again  sustained the  defendants'  demurrers,  with leave to amend. On
July 8, 1998, the plaintiffs filed a Second Amended Complaint. WENGER, ET AL. V.
LUMISYS, INC., ET AL., Santa Clara County Superior Court, Case No. CV767369. The
defendants'  demurred to the Second  Amended  Complaint on August 11,  1998.  On
December 2, 1998, the underwriters' demurrer was overruled.

     NASDAQ MARKET-MAKERS ANTITRUST LITIGATION.

     In December 1994, a consolidated  amended complaint was filed in the United
States  District  Court  for  the  Southern  District  of New  York  against  33
broker-dealer  defendants,  including  H&Q LLC (94 Civ. 3996 (RWS),  M.D.L.  No.
1023) (the "Consolidated  Action"). The complaint alleged that H&Q LLC and other
participants  and  market-makers  on Nasdaq  engaged in a conspiracy  to fix the
"spread"  between  bid and  asked  prices  for  securities  traded  on Nasdaq in
violation of Section 1 of the Sherman Act.  The  plaintiff  class was alleged to
include persons throughout the United States who are customers of the defendants
or their  affiliates  and who purchased or sold  securities on Nasdaq during the
period from May 1, 1989 through May 27, 1994.

     On December 29, 1997,  the class period was extended  through July 17, 1996
and the litigation was settled.  H&Q has paid all amounts it was required to pay
pursuant to the settlement.

     In addition,  allegations of collusion among the  market-makers  became the
subject of investigations by the NASD, the SEC and the Antitrust Division of the
Department  of Justice  ("DOJ").  On July 16, 1996,  H&Q LLC and 23 other Nasdaq
market makers entered into a Stipulation  and Order  resolving a civil complaint
filed by the DOJ,  alleging that they  violated  Section 1 of the Sherman Act in
connection  with certain  market making  practices  (UNITED STATES OF AMERICA V.
ALEX. BROWN & SONS, ET AL., Civ. No. 96-CV-5313). The complaint alleged that the
defendants and other market makers engaged in activities  that had the effect of
artificially  inflating the quoted "inside spread"-i.e.,  the difference between
the best buying price and the best selling  price-of  certain Nasdaq stocks.  In
entering into the Stipulation and Order,  the parties agreed that the defendants
would not agree with other  market-makers  to set  prices,  quotes or spreads in
Nasdaq  securities,  or  harass,  intimidate  or  refuse  to  trade  with  other
market-makers  for reducing their spread in any Nasdaq  security or by reason of
the quantity of a Nasdaq security they are willing to trade at its quoted price.
In addition, the defendants each agreed, pursuant to the order, to (i) designate
an antitrust  compliance  officer to instruct traders and others  concerning the
requirements of the proposed order, (ii) create and listen to audio tapes of the
portion of a firm's trading  activity on Nasdaq and (iii) allow  representatives
of the DOJ,  without  pre-arrangement,  to appear at a  defendant's  offices  to
listen in on trader conversations the firm is taping as they are occurring.  The
agreement  also  requires  the  defendants  to pass on  complaints  of  possible
violations of the proposed order or taped conversations to the DOJ, and to allow
the DOJ to bring civil or criminal  contempt  charges for willful  violations of
the order.

     On April 23, 1997,  the Court  approved the DOJ  settlement by granting the
DOJ's motion for entry of the  Stipulation  and Order and the termination of the
action. That approval was appealed to the United States Court of Appeals for the
Second  Circuit  by  the  plaintiffs  in  the  Consolidated  Action,  acting  as
intervenors.

     On August 6,  1998,  the  Second  Circuit  Court of  Appeals  affirmed  the
district court's approval of the DOJ settlement,  and the settlement  thereafter
became final.

     OAK TECHNOLOGY SECURITIES LITIGATION.

     The  Company is a  defendant  in  litigation  pending in state and  federal
courts relating to Oak Technology,  Inc., a manufacturer of semiconductor chips.
Several  proposed  shareholder  class action  lawsuits were  consolidated  in an
amended  complaint filed on August 14, 1996 in the state Superior Court in Santa
Clara  County,  California  (IN RE OAK  TECHNOLOGY  SECURITIES  LITIGATION,  No.
CV758510).  The consolidated complaint alleges, in general, that the Company and
others  violated the  California  securities law by issuing false and misleading
statements  relating to Oak Technology's  financial  situation during the period
from July 27, 1995 through May 22, 1996. H&Q LLC was the lead underwriter of the
initial public offering and a follow-on offering of Oak Technology securities in
1995,  and made a  market  and  issued  research  reports  with  respect  to Oak
Technology's securities. The other defendants include Oak Technology, certain of
its officers and directors and others.  On September  13, 1996,  the  defendants
demurred to the consolidated complaint in its entirety. On December 6, 1996, the
demurrers were sustained with leave to amend.  Plaintiffs filed a second amended
complaint on September 22, 1997,  which names H&Q, among others,  as a defendant
and asserts  causes of action for  violations  of California  Corporations  Code
Sections  25400,  25400,  Civil  Code  Sections  1709 and 1710,  and  aiding and
abetting  breaches  of  fiduciary  duty and abuses of  control by certain  other
defendants.  H&Q and other defendants demurred to this complaint. On December 3,
1997,  the demurrers  were sustained as to all causes of action except the claim
under California Corporations Code Section 25400.

     In federal court, several cases based on the same general facts were filed,
and have been  consolidated  into one action.  IN RE OAK  TECHNOLOGY  SECURITIES
LITIGATION,  No.  C-96-20552-SW  (Northern  District of California).  Defendants
moved to dismiss the action, and the motion was granted by order dated August 1,
1997.  A second  amended  complaint  was  filed  on  September  4,  1997 and the
defendants  moved to dismiss it. A hearing has been held and the matter is under
submission.

     On January  28,  1998,  H&Q filed an answer  denying the  allegations  that
remain  against  it in the state  court  case (IN RE OAK  TECHNOLOGY  SECURITIES
LITIGATION, No. CV758510).

     OMEGA RESEARCH, INC. SECURITIES LITIGATION

     On January 28, 1998, a purported  class action  complaint was filed against
H&Q and others in the federal court for the Southern District of Florida. RHODES
V. CRUZ, ET AL., Civ. No. 98-0174.  The  allegations  concern the initial public
offering  of Omega  Research,  Inc.,  for which H&Q acted as a  co-manager.  The
complaint  alleges  that  during the period  from  October 4, 1997 to January 6,
1998, the defendants engaged in violations of the Securities Act.

     On June 1, 1998,  the  plaintiffs  filed an amended  complaint.  On July 1,
1998, the defendants filed a motion to dismiss. RHODES V. CRUZ, ET AL., Civ. No.
98-0174.

     SCHADE V. HAMBRECHT & QUIST GROUP

     On December 2, 1997,  separate but similar  lawsuits were filed against H&Q
and two other  investment  banks in California  Superior Court in Orange County,
alleging that these investment banks had engaged in unlawful business  practices
in violation of California  Business & Professions  Code Sections  17200 et seq.
and  purported  to sue on  behalf  of the  general  public.  In  each  case  the
plaintiffs sought injunctive relief and substantial but unspecified damages. The
case  against  H&Q was  entitled  EDWARD A. SCHADE V.  HAMBRECHT & QUIST  GROUP,
Orange  County  Superior  Court,  Case No.  787495.  The cases  alleged that the
allocation  of shares of initial  public  offerings  to the  personal  brokerage
accounts  of  corporate   executives   improperly   influenced   such  corporate
executives'  decisions  with  regard to the  selection  of  investment  banks to
provide investment banking services to their companies.

     On May 4, 1998,  H&Q filed a demurrer to the  complaint.  On September  29,
1998, the state court sustained the demurrers to the Schade  complaints  without
leave to amend. On December 3, 1998, the plaintiffs filed a notice of appeal.

     SS&C TECHNOLOGIES, INC. SECURITIES LITIGATION

     Beginning in March 1997, several purported class action lawsuits were filed
against  SS&C  Technologies,  Inc.  and others  including  H&Q  relating  to the
company's  initial public  offering on May 31, 1996 which was co-managed by H&Q.
The litigation has been  consolidated in an amended class action complaint filed
on July 8,  1997 in the  federal  court in  Connecticut.  FEINER  ET AL. V. SS&C
TECHNOLOGIES,  INC., ET AL., Civil Action No.  397CV00656  (SBA).  The complaint
purports to assert claims under Sections 11, 12(2) and 15 of the Securities Act.
It alleges, among other things, that the initial offering price was unreasonable
and unfair, and was based solely,  primarily,  or significantly upon the ability
of the  underwriters to sell the stock,  rather on than the  fundamentals of the
issuer or market  conditions or the demand for similar  securities of comparable
companies.

     On May 20, 1998, the  defendants  answered the  Consolidated  Amended Class
Action  Complaint.  On May  29,  1998,  the  lead  plaintiffs  moved  for  class
certification  and on September 29, 1998, the  underwriter  defendants  filed an
opposition to the plaintiffs' motion for class certification.

     STB SYSTEMS, INC. SECURITIES LITIGATION

     On  October 9, 1998,  a  shareholder  class  action was filed  against  STB
Systems,  Inc.  and others,  including  H&Q, in the County Court at Law No. 1 of
Dallas  County,  Texas.  BRODY  V.  STB  SYSTEMS,  INC.,  ET AL.  (Citation  No.
CC-98-09895-A).  The  complaint  alleges  that the  defendants  are  liable  for
violations  of the  Securities  Act of 1933  and  the  Texas  Securities  Act in
connection with a follow-on  offering on March 20, 1998, which was co-managed by
H&Q.
     The defendants have not responded to the complaint.

     STORM TECHNOLOGY, INC. SECURITIES LITIGATION

     On  March  14,  1997,  a  purported  class  action  suit  was  filed in the
California Superior Court in Santa Clara County against Storm Technology,  Inc.,
two of its  officers  or  directors,  a  shareholder,  and  H&Q  related  to the
company's  initial public offering on September 30, 1996 which was co-managed by
H&Q. Goldberg v. Storm Technology, Inc., et al., Santa Clara Superior Court, No.
CV764797.  The suit alleges,  among other things,  that the prospectus and H&Q's
research  reports were false and misleading,  and purports to state claims under
Sections  25400,  2550, 1507 and 25401 of the California  Corporations  Code and
California  Business and  Professions  Code Sections  17200, et seq., as well as
Sections  11 and 12 of the  Securities  Act.  The  defendants  demurred  and the
demurrers were sustained, with leave to amend. An amended complaint was filed on
October 16, 1997.

     On December 12,  1997,  two class  action  complaints  similar to the state
court  complaint were filed in the United States District Court for the Northern
District  of  California  (Goldberg  v.  Storm  Technology,  Inc.,  et al.,  No.
C97-21101,  alleging  violations  of the  Securities  Act, and Goldberg v. Storm
Technology,  Inc. et al., No.  C97-04516,  alleging  violations  of the Exchange
Act).

     On February 13, 1998, the court consolidated the two federal court actions.
Goldberg v. Storm  Technology,  Inc. et al., Nos.  C97-21101 and  C98-20186.  On
March 13, 1998, the underwriters moved to dismiss the consolidated complaints.

     On March 24,  1998,  the state court  sustained  the  defendants'  demurrer
without  leave to amend  except as to one issue,  as to which the  demurrer  was
sustained with leave to amend. An amended complaint was subsequently  filed that
did not name H&Q as a  defendant.  Goldberg  v. Storm  Technology,  Inc. et al.,
Santa Clara Superior Court, No. CV764797.

     In October 1998,  Storm Technology filed for bankruptcy under Chapter 11 of
the United States  Bankruptcy Code; it later  voluntarily  converted the case to
Chapter 7. On  November  3, 1998,  the federal  court  granted  the  defendants'
motions to  dismiss,  and  dismissed  the  complaints  with  leave to amend.  On
December 7, 1998, an Amended  Class Action  complaint was filed against the same
defendants, except for Storm.

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

NONE.

EXECUTIVE OFFICERS OF THE REGISTRANT

     The  executive  officers of the  Company and their ages as of December  14,
1998, are as follows:

<TABLE>
<CAPTION>

       NAME              AGE                              POSITION
<S>                      <C>    <C>    
Daniel H. Case III        41    Chairman and Chief Executive Officer of the Company and H&Q LLC; Director

Patrick J. Allen          36    Chief Financial  Officer of the Company and H&Q LLC;  Managing  Director of
                                H&Q LLC

Todd D. Bakar             34    Managing Director and Director of Research, H&Q LLC

David G. Golden           40    Managing Director and Co-Director of Investment Banking, H&Q LLC

Paul L. Hallingby         52    Vice Chairman, H&Q LLC

John P. Hullar            42    Managing Director and Director of Worldwide Sales, H&Q LLC

Steven N. Machtinger      49    General  Counsel  and  Secretary  of the  Company  and  H&Q  LLC;  Managing
                                Director of H&Q LLC

David M. McAuliffe        49    Chief Operating Officer of the Company and H&Q LLC

Cristina M. Morgan        46    Managing Director and Co-Director of Investment Banking, H&Q LLC

William R. Timken         63    Vice Chairman of the Company and H&Q LLC; Director

</TABLE>

     Daniel H.  Case III  joined  the  Company  in 1981,  and was  initially  an
associate  and then a principal in the  Corporate  Finance  Department.  He also
served as Vice President and then a partner in the Venture  Capital  Department,
both in San Francisco and in London.  In 1983, he co-founded  the business which
became Hambrecht & Quist Guaranty Finance.  Mr. Case rejoined  Corporate Finance
in 1986 as co-director of mergers and acquisitions, and became Managing Director
and head of Investment Banking in December 1987. In October 1989, he was elected
Executive  Vice  President  and in October  1991, he was elected to the Board of
Directors of the Company.  In April 1992, he was elected  President and Co-Chief
Executive  Officer.  He became  Chief  Executive  Officer  in  October  1994 and
Chairman of the Board of  Directors in January  1998.  Mr. Case also serves as a
director of Rational Software Corporation,  a maker of object-oriented  software
development  tools,  Electronic  Arts Inc., a global  interactive  entertainment
software company, AMB Property Corporation,  a real estate company, the National
Science and Technology Medal Foundation and the Bay Area Council.  He has a B.A.
in Economics and Public Policy from Princeton  University and studied management
at the University of Oxford as a Rhodes Scholar.

     Patrick J. Allen  joined  Hambrecht & Quist in May 1995 as Vice  President,
Finance.  Since  October 1, 1996,  Mr. Allen has served as the  Company's  Chief
Financial  Officer.  In October 1996, Mr. Allen was named a Managing Director of
H&Q LLC. From November 1993 to April 1995, Mr. Allen was Chief Operating Officer
of Cruttenden  Roth, an investment  bank. Mr. Allen was previously a Senior Vice
President with Kemper Securities, an investment bank, and held various positions
from 1988 to 1993,  including Chief Financial Officer of a predecessor firm. Mr.
Allen had been an auditor with Price  Waterhouse,  a public  accounting firm, in
Newport  Beach,  California  from  1984 to  1988.  He holds a B.S.  in  Business
Administration from California Polytechnic University in San Luis Obispo.

     Todd D. Bakar joined Hambrecht & Quist in 1987 as a Research Associate.  In
1989, Mr. Bakar was promoted to Research Analyst in the Technology  sector.  Mr.
Bakar was named a Managing Director in 1994 and was named Director of Technology
Research in 1997. In November 1998, Mr. Bakar was named Director of Research. He
holds a B.A. from the University of California, Berkeley.

     David G.  Golden  joined  Hambrecht & Quist in 1988.  Mr.  Golden was named
Co-Director  of  Mergers  and  Acquisitions  in 1992 and was named  Director  of
Mergers and  Acquisitions in 1995. In 1998, Mr. Golden was named  Co-Director of
Investment  Banking.  From 1984  through  1987,  Mr.  Golden was  employed as an
Associate at the law firm of Davis Polk & Wardwell in New York and London, where
he practiced  corporate finance and securities law. Mr. Golden received his A.B.
degree from Harvard  University  (magna cum laude,  Phi Beta Kappa),  and a J.D.
degree  from  Harvard  Law  School,  where he was an editor of the  Harvard  Law
Review. Mr. Golden is a member of the Rockefeller University Council.

     Paul L. "Barney"  Hallingby  joined the Company in 1983 as an institutional
salesman. He was named Managing Director of the Research Department in June 1988
and was elected  Executive  Vice  President in October  1990.  In July 1992,  he
became  Managing  Director of Sales and Trading,  and in October 1994, he became
Managing  Director of  Institutional  Equity.  In March 1998, Mr.  Hallingby was
named Vice Chairman of Hambrecht and Quist, principally responsible for trading,
convertibles,  and the growth of the firm's European operation.  He holds a B.A.
in Political  Science  from the  University  of  Pennsylvania  and an M.B.A.  in
Finance from Columbia University.

     John P. Hullar joined Hambrecht & Quist in 1996, with more than 16 years in
the financial  services  business.  Before joining Hambrecht & Quist, Mr. Hullar
worked at Morgan Stanley for 11 years, in Institutional Sales in New York and in
management positions in Research and Sales in Tokyo and London. Upon joining H&Q
in San  Francisco,  he assumed his current  position  as Managing  Director  and
Director  of  Worldwide  Sales  where  he  oversees  all  aspects  of  U.S.  and
International Institutional Sales and Accounts, Executive Financial Services and
Venture  Services  Sales.  Mr.  Hullar  holds a B.A.  from Yale  University  and
attended N.Y.U's Stern Business School.

     Steven N.  Machtinger  has  served as the  Company's  General  Counsel  and
Secretary since 1988. He was named a Managing  Director in 1990. Mr.  Machtinger
was an attorney with the SEC from 1974 to 1983 and was General  Counsel of Birr,
Wilson & Co., Inc., an investment bank, from 1983 to 1988. Mr.  Machtinger holds
a B.A. in  Government  from Harvard  College and a J.D.  from the  University of
California, Davis.

     David M. McAuliffe joined the Company in July 1995 as Managing Director and
Co-Director of Investment  Banking.  In September 1996, Mr.  McAuliffe was named
Chief  Administrative  Officer of the Company. In March 1998, he was named Chief
Operating Officer with day-to-day  responsibility  for the firm's  broker-dealer
activities,  including research,  syndicate,  investment banking, sales, trading
and  administration.  Prior to joining  the  Company,  Mr.  McAuliffe  served in
various  capacities in the Investment  Banking and Merchant Banking divisions of
Kidder Peabody & Co., an investment  bank, from 1974 to 1995. From April 1992 to
May 1995, he served as Kidder  Peabody & Co.'s Co-Head of the Global  Investment
Banking  Division.  Mr. McAuliffe holds a B.A. in Accounting from Boston College
and an M.B.A. from Harvard Business School.

     Cristina M. Morgan joined the Company in 1982 as a research analyst, became
a principal in Corporate Finance in 1984 and has been a Senior Vice President of
H&Q LLC and its  predecessor  entity since March 1990.  In 1990,  Ms. Morgan was
elected Managing  Director,  Technology  Equities in Corporate  Finance,  and in
1992, was named Director of Investment Banking.  Since July 1995, Ms. Morgan has
been Co-Director of Investment  Banking.  Ms. Morgan holds a B.S. in Finance and
an M.B.A. in Finance from Arizona State University.

     William R. Timken joined Hambrecht & Quist in 1969 and has been employed by
the Company in senior  capacities  since then.  Mr.  Timken was  appointed  Vice
Chairman of the Company in 1992.  He is  responsible  for the  activities of the
Company's  Syndicate  Department.  Mr.  Timken is a past  member of the Board of
Governors  of the  Pacific  Stock  Exchange  and the Board of  Governors  of the
National Association of Securities Dealers,  Inc. Mr. Timken holds a B.A. degree
in Economics from Colby College.


                                     PART II

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

     Information  required  by item 5 is  incorporated  by  reference  from  the
information  set forth under the heading  "Corporate  Information - Market Price
and Dividend  Information"  contained  in the  Company's  1998 Annual  Report to
Stockholders (the "Annual Report") filed as Exhibit 13.01 to this Form 10-K.

ITEM 6. SELECTED FINANCIAL DATA

     Information  required  by item 6 is  incorporated  by  reference  from  the
information set forth under the heading "Selected  Financial Data" in the Annual
Report filed as Exhibit 13.01 to this Form 10-K.

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

     Information  required  by item 7 is  incorporated  by  reference  from  the
information set forth under the heading "Management's Discussion and Analysis of
Financial  Condition  and Results of  Operations"  in the Annual Report filed as
Exhibit 13.01 to this Form 10-K.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

     Information  required  by item 7A is  incorporated  by  reference  from the
information set forth under the heading "Management's Discussion and Analysis of
Financial  Condition  and Results of  Operations"  in the Annual Report filed as
Exhibit 13.01 to this Form 10-K.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The information required by Item 8 is set forth in Item 14 of this report.

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

         None.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information  regarding directors required by Item 10 is incorporated by
reference  from the  information  set forth  under the  headings  "Proposal  No.
1-Election of  Directors"  and "Section  16(a)  Beneficial  Ownership  Reporting
Compliance" in the Company's  definitive  proxy statement for its annual meeting
of stockholders to be held on February 24, 1999. Information regarding executive
officers found under the caption "Executive  Officers of the Registrant" in Part
I hereof is also incorporated by reference into this Item 10.

ITEM 11. EXECUTIVE COMPENSATION

     The  information  required by Item 11 is incorporated by reference from the
information  set  forth  under  the  heading  "Executive  Compensation"  in  the
Company's  definitive  proxy statement for its annual meeting of stockholders to
be held on February 24, 1999.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The  information  required by Item 12 is incorporated by reference from the
information  set  forth  under  the  heading  "Security   Ownership  of  Certain
Beneficial  Owners and Management" in the Company's  definitive  proxy statement
for its annual meeting of stockholders to be held on February 24, 1999.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The  information  required by Item 13 is incorporated by reference from the
information  set forth  under the  heading  "Certain  Relationships  and Related
Transactions" in the Company's definitive proxy statement for its annual meeting
of stockholders to be held on February 24, 1999.



                                     PART IV

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

     (a)  The  following  documents  are  incorporated  by  reference  from  the
financial  statements  contained in the Annual  Report filed as Exhibit 13.01 to
this Form 10-K:

         1.       Financial Statements
                  Consolidated Financial Statements as of September 30,
                  1997, and 1998 and for the years ended  September 30,
                  1996, 1997 and 1998 
                  Notes to  Consolidated  Financial Statements
                  Report of Independent Public Accountants

         2.       Financial Statement Schedules

                  All  schedules  are  omitted  because  they  are  not
                  required or the information is shown in the financial
                  statements or notes thereto.

         3.       Exhibits
<PAGE>
<TABLE>
<CAPTION>
   EXHIBIT
   NUMBER                                                         EXHIBIT TITLE
<S>                 <C>

  3.01(1)      Registrant's Amended and Restated Certificate of Incorporation (Exhibit 3.01).
  3.02(5)      Registrant's Bylaws, as amended (Exhibit 3.02).
  4.01(1)      Form of Specimen Certificate for Registrant's common stock (Exhibit 4.01).
 10.01(7)      Registrant's 1996 Equity Plan, as amended and restated on December 18, 1997* (Exhibit 10.01).
 10.02(1)      Registrant's 1995 Restricted Stock Plan, 1995 Stock Option Plan, and Hambrecht & Quist, L.P. 1995 Limited
               Partnership Unit Plan* (Exhibit 10.02).
 10.03(1)      Form of Registrant's 1995 Stock Option Plan Nonstatutory Stock Option Agreement* (Exhibit 10.03).
 10.04(1)      Registrant's Savings and Employee Stock Ownership Plan, effective as of October 1, 1994* (Exhibit 10.04).
 10.05(1)      Lease between The Equitable Life Assurance Society of the United States and Hambrecht & Quist L.L.C. (formerly
               Hambrecht & Quist  Incorporated)  dated  January 27, 1988,  as amended (Exhibit 10.05).
 10.06(1)      Assignment of Lease from Apple Computer, Inc. to Hambrecht & Quist L.L.C. dated March 27, 1996 (Exhibit 10.06).
 10.07(1)      Lease between Hambrecht & Quist L.L.C. (formerly Hambrecht & Quist Incorporated) and Rowes Wharf Associates
               dated June 22, 1987, as amended (Exhibit 10.07).
 10.08(1)      Lease,  Riders, and Addenda between 230 Park Avenue Associates and  Hambrecht  & Quist  L.L.C.  (formerly  Hambrecht
               & Quist Incorporated) dated December 1, 1995 (Exhibit 10.08).
 10.09(1)      Employment  Agreement  between  Registrant and Daniel H. Case III, dated June 17, 1996* (Exhibit 10.13).  
 10.10(1)      Hambrecht & Quist L.L.C.'s  Operating  Agreement, dated March 6, 1995 (Exhibit  10.14).
 10.11(3)      Registrant's 1996 Bonus and Deferred Sales Compensation Plan, as amended and restated on March 24, 1997* 
               (Exhibit 10.15).
 10.12(1)      Master Agreement  between  Hambrecht & Quist L.L.C. (formerly Hambrecht  &  Quist  Incorporated),  Wertheim  
               Schroder  & Co. Incorporated,  WSCI Limited  Partnership and Lewco  Securities Corp.,  dated  December 23,  1991,
               as amended on December 13, 1993 by Amendment  No. 1 and July 5, 1995 by  Amendment  No. 2 (Exhibit (10.16).
 10.13(1)      Clearing  and Other  Services  Agreement  between  Hambrecht & Quist  L.L.C.(formerly  Hambrecht  &  Quist  
               Incorporated), Wertheim Schroder & Co. Incorporated, WSCI Limited Partnership and Lewco  Securities  Corp.,  dated
               December  23,  1991, as amended (Exhibit 10.17).
 10.14(1)      Letter Agreement between Registrant and H&Q Asia Pacific, Ltd., dated April 1, 1996 (Exhibit 10.18).
 10.15(1)      Form of Registrant's Indemnification Agreement (Exhibit 10.19).
 10.16(1)      Lease between The Equitable Life Assurance Society of the United States and Hambrecht & Quist L.L.C.(formerly
               Hambrecht & Quist  Incorporated)  dated  November 9, 1988,  as amended (Exhibit 10.20).
 10.17(2)      Amendment No. 3 to Master Agreement between Hambrecht & Quist L.L.C. (formerly Hambrecht & Quist Incorporated),
               Wertheim Schroder & Co. Incorporated, WSCI Limited Partnership and Lewco Securities Corp., effective
               September 30, 1996 (Exhibit 10.21).
 10.18(3)      Consulting Agreement between Hambrecht & Quist L.L.C. and William J. Perry, dated April 1, 1997 (Exhibit 10.22).
 10.19(4)      Sublease between Chevron Real Estate Management Company and Hambrecht & Quist California, dated May 21, 1997
               (Exhibit 10.23).
 10.20(4)      Lease between Pacific Resources Development Inc. and Hambrecht & Quist California, dated June 5, 1997 (Exhibit
               10.24).
 10.21(4)      Amendment  Nos. 6, 7 and 8 to Lease between  Hambrecht & Quist L.L.C. (formerly  Hambrecht & Quist  Incorporated)
               and Rowes Wharf  Associates  dated June 22,  1987,  as amended  (Exhibit 10.25).
 10.22(6)      Credit  Agreement  between  Hambrecht & Quist  California  and Swiss Bank Corporation, dated March 4, 1998 
               (Exhibit 10.26).
 10.23         Fourth  Amendment  to  Hambrecht  & Quist  Lease  dated  as of January  27,  1988 and Sixth  Amendment  to  
               Hambrecht & Quist Lease dated as of November 9, 1988 between The Equitable  Life Assurance  Society of the United
               States and Hambrecht & Quist L.L.C., dated as of November 27, 1997.
 13.01         Certain   information  from  Registrant's   Annual  Report  to Stockholders  for the year ended  September  30, 
               1998 which is incorporated by reference in this Form 10-K.
 21.01(2)      List of Subsidiaries of the Registrant.
 23.01         Consent of Independent Public Accountants.
 27.01         Financial Data Schedule

</TABLE>
------------------
*        Indicates management contract or compensatory plan or arrangement.

(1)  Incorporated by reference to the corresponding  exhibit to the Registrant's
     S-1  Registration  Statement  in the form  declared  effective on August 8,
     1996, File No. 333-6431.

(2)  Incorporated  by reference to  Registrant's  Form 10-K filed for the fiscal
     year ended September 30, 1996.

(3)  Incorporated  by reference to  Registrant's  Form 10-Q filed for the fiscal
     quarter ended March 31, 1997.

(4)  Incorporated  by reference to  Registrant's  Form 10-K filed for the fiscal
     year ended September 30, 1997.

(5)  Incorporated  by reference to  Registrant's  Form 10-Q filed for the fiscal
     quarter ended December 31, 1997.

(6)  Incorporated  by reference to  Registrant's  Form 10-Q filed for the fiscal
     quarter ended March 31, 1998.

(7)  Incorporated by reference to the corresponding  exhibit to the Registrant's
     S-8 Registration Statement filed on June 16, 1998, File No. 333-56957.

(b)      Reports on Form 8-K

         None.

<PAGE>
                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15 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  on the  21st  day of
December, 1998.

                                    HAMBRECHT & QUIST GROUP


                                    By:   /s/ Daniel H. Case III
                                          ------------------------------
                                          Daniel H. Case III
                                          CHAIRMAN OF THE BOARD AND
                                          CHIEF EXECUTIVE OFFICER

     Pursuant to the requirements of the Securities Exchange Act of 1934, report
has been  signed by the  following  persons  in the  capacities  and on the date
indicated.
<TABLE>
<CAPTION>

       SIGNATURE                              TITLE                                   DATE
<S>                               <C>                                           <C>
                                  Chairman of the Board and Chief Executive     December 21, 1998
/s/ Daniel H. Case III            Officer and Director (Principal Executive
----------------------------      Officer)
   (Daniel H. Case III)

 /s/ William R. Timken            Vice Chairman of the Board of Directors       December 21, 1998
----------------------------
    (William R. Timken)
                                  Chief Financial Officer                       December 21, 1998
  /s/ Patrick J. Allen            (Principal Financial and Accounting
----------------------------      Officer)
     (Patrick J. Allen)

  /s/ Howard B. Hillman           Director                                      December 21, 1998
----------------------------
      (Howard B. Hillman)

  /s/ William E. Mayer            Director                                      December 21, 1998
----------------------------
      (William E. Mayer)

  /s/ William J. Perry            Director                                      December 15, 1998
----------------------------
     (William J. Perry)

 /s/ Edmund H. Shea, Jr.          Director                                      December 21, 1998
----------------------------
    (Edmund H. Shea, Jr.)

</TABLE>
<PAGE>
                             HAMBRECHT & QUIST GROUP
                                  EXHIBIT INDEX


EXHIBIT 
  NO.                         EXHIBIT TITLE

10.23     Fourth  Amendment  to  Hambrecht & Quist Lease dated as of 
          January 27, 1988 and Sixth  Amendment  to  Hambrecht  & Quist  Lease
          dated as of November 9, 1988 between The Equitable Life Assurance
          Society of the United States and Hambrecht & Quist L.L.C.,  
          dated as of November 27, 1997.  

13.01     Certain  information from Registrant's Annual Report to Stockholders 
          for the year ended September 30, 1998 which is incorporated by 
          reference in this Form 10-K.

23.01     Consent of Independent Public Accountants.

27.01     Financial Data Schedule.