<PAGE>
                  SELECTED CONSOLIDATED FINANCIAL INFORMATION
    (IN THOUSANDS, EXCEPT PER SHARE, OUTSTANDING SHARES AND OPERATING DATA)
 
<TABLE>
<CAPTION>
                                                                      FISCAL YEARS ENDED SEPTEMBER 30,
                                                           -------------------------------------------------------
                                                             1993       1994       1995        1996        1997
                                                           ---------  ---------  ---------  ----------  ----------
<S>                                                        <C>        <C>        <C>        <C>         <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
  Revenues:
    Principal transactions...............................  $  30,045  $  36,411  $  53,425  $  100,628  $  117,808
    Agency commissions...................................     14,221     14,242     24,603      37,682      43,716
    Investment banking...................................     42,960     29,234     70,360     154,272      90,471
    Corporate finance fees...............................      9,993     18,561     20,709      37,962      54,237
    Interest and dividends...............................      2,793      2,952      3,974      14,707      22,629
    Net investment gains.................................      3,524     10,270     33,852      24,434         229
    Other................................................      7,011      7,660     13,916      23,017      17,142
                                                           ---------  ---------  ---------  ----------  ----------
    Total revenues.......................................    110,547    119,330    220,839     392,702     346,232
                                                           ---------  ---------  ---------  ----------  ----------
  Expenses:
    Compensation and benefits............................     54,917     60,175    105,370     198,613     178,873
    Brokerage and clearance..............................      6,892      7,367     10,441      13,629      17,258
    Occupancy and equipment..............................      6,045      6,679      7,803      10,677      17,183
    Communications.......................................      4,377      6,244      7,394       9,614      14,762
    Interest.............................................      1,464        987      2,083       4,314       4,454
    Other................................................     10,608     11,841     15,849      28,788      36,605
                                                           ---------  ---------  ---------  ----------  ----------
    Total expenses.......................................     84,303     93,293    148,940     265,635     269,135
                                                           ---------  ---------  ---------  ----------  ----------
Income before income tax provision.......................     26,244     26,037     71,899     127,067      77,097
Income tax provision.....................................     10,940     10,119     22,461      38,466      33,923
                                                           ---------  ---------  ---------  ----------  ----------
Net income...............................................  $  15,304  $  15,918  $  49,438  $   88,601  $   43,174
                                                           ---------  ---------  ---------  ----------  ----------
                                                           ---------  ---------  ---------  ----------  ----------
Earnings per share.......................................                                               $     1.68
                                                                                                        ----------
                                                                                                        ----------
Weighted average shares outstanding......................                                               25,682,887
                                                                                                        ----------
                                                                                                        ----------
PRO FORMA INFORMATION:
  Net income before income tax adjustment................                                   $   88,601
  Income tax adjustment(1)...............................                                      (17,443)
                                                                                            ----------
  Pro forma net income...................................                                   $   71,158
                                                                                            ----------
                                                                                            ----------
  Pro forma earnings per share(2)........................                                   $     3.27
                                                                                            ----------
                                                                                            ----------
  Pro forma weighted average shares outstanding..........                                   21,734,143
                                                                                            ----------
                                                                                            ----------
CONSOLIDATED BALANCE SHEET DATA:
  Total assets...........................................  $ 131,878  $ 155,160  $ 319,630  $  537,917  $  678,937
  Debt obligations.......................................     16,913     12,684     13,771       8,365       2,700
  Stockholders' equity and partners' capital.............     50,290     63,591    105,462     226,711     297,378
  Book value per common share outstanding(3).............  $    3.94  $    4.43  $    6.31  $     9.99  $    12.51
OPERATING DATA:
  Total employees(4).....................................        350        426        498         685         823
  Return on average stockholders' equity and partners'
    capital..............................................         37%        28%        58%         60%         16%
  Compensation and benefits expense as a percentage of
    total revenues.......................................         50%        50%        48%         51%         52%
  Non-compensation and benefits expense as a percentage
    of total revenues....................................         26%        28%        19%         16%         26%
</TABLE>
 
------------------------------
 
(1) Includes taxes on LP earnings as if LP's earnings were subject to an
    effective tax rate of 44 percent.
 
(2) Pro forma earnings per common share is determined by dividing pro forma net
    income by the weighted average number of common shares, including common
    share equivalents, outstanding during the year. Pro forma earnings per
    common share are not shown prior to 1996 because the amounts would not be
    meaningful.
 
(3) Includes equivalent shares related to LP units outstanding at September 30,
    1994 and 1995. Shown at end of period.
 
(4) Shown at end of period.
 
                                       1
<PAGE>
               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS
 
    THE STATEMENTS IN THIS ANNUAL REPORT THAT RELATE TO FUTURE PLANS, EVENTS, OR
PERFORMANCE ARE FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS INCLUDE, BUT ARE NOT
LIMITED TO, THOSE RELATING TO THE EFFECTS OF FUTURE GROWTH, INTERNATIONAL
EXPANSION PLANS, THE COMPANY'S PRINCIPAL INVESTMENT ACTIVITIES AND ITS CURRENT
EQUITY CAPITAL LEVELS. ACTUAL RESULTS MIGHT DIFFER MATERIALLY DUE TO A VARIETY
OF IMPORTANT FACTORS. THESE FACTORS INVOLVE RISKS AND UNCERTAINTIES RELATING TO,
AMONG OTHER THINGS, GENERAL ECONOMIC AND MARKET CONDITIONS, COMPETITIVE
CONDITIONS WITHIN THE SECURITIES INDUSTRY, CHANGES IN INTEREST RATES, STOCK
MARKET PRICES AND MUTUAL FUND CASH INFLOWS OR OUTFLOWS, CHANGES IN THE
TECHNOLOGY AND HEALTHCARE INDUSTRIES AND OTHER INDUSTRIES IN WHICH THE COMPANY
IS ACTIVE, CHANGES IN DEMAND FOR INVESTMENT BANKING AND SECURITIES BROKERAGE
SERVICES, THE COMPANY'S ABILITY TO RECRUIT AND RETAIN KEY EMPLOYEES, CHANGES IN
SECURITIES AND BANKING LAWS AND REGULATIONS, TRADING AND PRINCIPAL INVESTMENT
ACTIVITIES, LITIGATION AND OTHER FACTORS DISCUSSED BELOW IN "OVERVIEW." THE
COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED SEPTEMBER 30,
1997 FILED WITH THE SECURITIES AND EXCHANGE COMMISSION CONTAINS ADDITIONAL
INFORMATION ABOUT THESE AND OTHER RISKS AND UNCERTAINTIES.
 
OVERVIEW
 
    Hambrecht & Quist Group ("H&Q" or the "Company") is a holding company for
Hambrecht & Quist California ("H&Q California"), whose primary subsidiary,
Hambrecht & Quist L.L.C. ("H&Q LLC"), is an investment banking firm and
securities broker-dealer. H&Q California's other subsidiaries and affiliates are
engaged in investment banking, venture capital fund management, investment
advisory and lease and other asset-based financing activities.
 
    EFFECTS OF MARKET CONDITIONS
 
    The Company's business depends to a substantial extent on the market for
public equity offerings by emerging growth companies, particularly companies in
the technology and healthcare industries. The securities market is affected by
general economic and market conditions, including fluctuations in interest
rates, the volume of securities trading, price levels of securities and the flow
of investor funds into and out of equity mutual funds, and by factors that apply
to particular industries, such as technological advances and changes in the
regulatory environment. Substantial fluctuations can occur and have occurred in
the Company's operating results due to these factors and other factors. In
periods of reduced market activity, profitability has been and is likely to be
adversely affected. Accordingly, net earnings for any period should not be
considered representative of any other period.
 
    For example, the Company's record results of operations for fiscal 1996 were
achieved during consistently favorable economic and market conditions for equity
offerings by companies in the industries and of the size on which the Company
focuses. By contrast, during the Company's second and third fiscal quarters of
1997, the economic and market conditions were not as favorable for such equity
offerings, particularly for equity offerings of emerging growth technology
companies. As a result, during fiscal 1997, the Company managed or co-managed 94
public offerings compared to 134 in fiscal 1996. Investment banking revenue
decreased 41% from $154.3 million in 1996 compared to $90.5 million in 1997, and
decreased as a percentage of revenues from 39% to 26%.
 
    EFFECTS OF COMPETITION
 
    The securities business is intensely competitive. Many of the Company's
competitors have greater capital, financial and other resources than the
Company. 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. In addition, the level of competition for key
personnel has been increasing. The Company has experienced losses of research,
investment banking and sales and trading professionals from time to time and
there can
 
                                       2
<PAGE>
be no assurance that losses of key personnel due to competition or other factors
will not occur in the future.
 
    EFFECTS OF COMPANY FACTORS AND GROWTH STRATEGIES
 
    Over the past several years, and increasingly in the past year, the Company
has experienced significant growth in the scope of its business activities and
the number of its employees. Average employee headcount was 580 in fiscal 1996,
compared to 759 in fiscal 1997.
 
    The scope of the Company's business activities has increased and is expected
to continue to increase to include a significantly higher level of principal
investment activities, as more fully described below in "Effects of Principal
Investment Activities", new business activities and increased emphasis on
building existing operations, such as the Executive Financial Services group and
the Company's international operations. Growth in the Company's international
operations during 1997 included the establishment of a strategic relationship in
Israel and the acquisition from a French financial institution of the 50% of
Hambrecht & Quist Euromarkets, S.A. ("H&Q Euromarkets"), formerly Hambrecht &
Quist Saint Dominique, that the Company did not already own. The Company plans
to expand its European operations through H&Q Euromarkets and H&Q LLC's London
office. There can be no assurance that the Company will be successful in further
increasing the scope of its business activities, including its international
operations, or that any action taken to develop such operations will not have an
adverse effect on the Company's existing operations.
 
    The number of employees has increased significantly from both the increased
scope of business activities and the growth of existing operations. This
employee growth has increased fixed expenses associated with compensation and
benefits costs, occupancy and equipment costs and communications costs. Such
fixed expenses are expected to continue to grow in the future. Any failure to
effectively manage the Company's growth through the investment in management
personnel, financial and management systems and controls, and facilities could
have an adverse affect on the Company's operations.
 
    EFFECTS OF PRINCIPAL INVESTMENT ACTIVITIES
 
    The Company makes principal investments for strategic purposes and financial
returns. As part of the Company's principal investment activities, it purchases
equity and debt securities or makes commitments to purchase such securities from
public and private companies. Such investments may involve substantial amounts
of capital and significant exposure to any one company or business, as well as
to market, credit and liquidity risks. This level of investment activity has
increased compared to prior periods. For example, during 1997, the Company
purchased $87.4 million in principal investments compared to $32.7 million
during 1996. The Company expects to continue its principal investment activities
in subsequent periods through direct investments in public and private
companies, investments in funds managed by the Company or by investment
management entities in which the Company has an interest, investments in other
special situation funds managed by outside fund managers and investments in
joint ventures. However, there can be no assurance that the level and quality of
potential investment opportunities made available to the Company will be
sufficient to support such increased level of principal investing or that any
future or historical investments will achieve a level of financial performance
consistent with the Company's objectives.
 
    The Company accounts for its marketable investments in public companies at
prevailing market prices, less discounts for illiquid or restricted holdings.
The Company accounts for its nonmarketable investments in private companies at
estimated fair value as determined by management of the Company. Such marketable
and nonmarketable investments are presented in the Company's balance sheets as
long-term investments. At September 30, 1996 and September 30, 1997, the
Company's long-term investments totaled $69.9 million and $102.1 million,
respectively. Net investment gains are included in the Company's statements of
operations and include net realized gains and losses and the net change in
unrealized gains
 
                                       3
<PAGE>
and losses for the period. For 1996 and 1997, net investment gains totaled $24.4
million and $228,000, respectively.
 
    Principal investing activities, which have historically been a significant
contributor to the Company's revenues and earnings, are not predictable and do
not necessarily correlate with general market conditions. These results, which
in any reporting period may be influenced by a limited number of investments and
transactions, can vary widely from year to year and quarter to quarter. For
example, in 1997 the Company's quarterly net investment gains or losses varied
significantly as follows: $5.1 million gain in quarter one, $4.8 million loss in
quarter two, $9.7 million gain in quarter three and $9.8 million loss in quarter
four.
 
    MATTERS RELATED TO THE COMPANY'S INFORMATION SYSTEMS
 
    The Company utilizes software and related technologies that will be affected
by the date change in the year 2000. The year 2000 issue exists because many
computer systems and applications currently use two-digit date fields to
designate a year. When the century date change occurs, date-sensitive systems
will recognize the year 2000 as 1900, or not at all. This inability to recognize
or properly treat the year 2000 may cause systems to process critical financial
and operational information incorrectly.
 
    The Company expects to be affected by the date change both directly in its
operating units as well as indirectly through Lewco Securities Corp. ("Lewco"),
the Company's clearing broker. The Company will be required to modify
insignificant portions of the software used directly by its operating units.
However, Lewco is currently addressing the year 2000 date change by making
significant programming modifications to its systems. The Company will incur
expenditures over the next few years and expects to absorb its relative share of
the costs incurred by Lewco as they occur. 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.
 
    RESTRUCTURING(1)
 
    H&Q California succeeded in January 1983 to the business of Hambrecht &
Quist, a partnership formed in 1968. Between January 1983 and November 1993, H&Q
California conducted, either directly or through subsidiaries or affiliates, all
of the Company's activities. Hambrecht & Quist, L.P. ("LP") was formed in
November 1993 for the purpose of owning and managing investments in certain
operating affiliates.
 
    On August 8, 1996, the Company effected a series of restructuring
transactions (the "Restructuring"), pursuant to which, among other things, (i)
LP transferred cash and assets totaling $31.0 million to a liquidating trust for
the benefit of LP's partners, (ii) Hambrecht & Quist Guaranty Finance, LLC
("Guaranty Finance") distributed assets whose book value was approximately $2.5
million to its equity owners other than LP, (iii) LP and H&Q California entered
into separate merger transactions, pursuant to which LP was merged into the
Company and H&Q California became a wholly owned subsidiary of the Company, and
(iv) the equity holders of H&Q California and LP became owners of shares of the
Company's common stock.
 
RESULTS OF OPERATIONS
 
    FISCAL YEARS ENDED SEPTEMBER 30, 1997 AND 1996
 
    REVENUES.  Total revenues decreased 12% from $392.7 million in 1996 to
$346.2 million in 1997.
 
------------------------
 
(1) Refer to Note 1 of Notes to the Consolidated Financial Statements for a
    detailed description of the Company's organizational structure, including
    the effects of the restructuring transactions completed in August 1996.
 
                                       4
<PAGE>
    Principal transactions revenue increased 17% from $100.6 million to $117.8
million. This increase was due to an increase in Nasdaq market activity and the
expansion of the Company's equity sales and trading capabilities.
 
    Agency commissions increased 16% from $37.7 million to $43.7 million. This
increase was primarily due to the expansion of the Company's listed
institutional equity business.
 
    Investment banking revenue decreased 41% from $154.3 million to $90.5
million, and decreased as a percentage of revenues from 39% to 26%. The Company
managed or co-managed 134 public offerings during 1996 compared to 94 during
1997.
 
    Corporate finance fees increased 43% from $38.0 million to $54.2 million.
The increase results primarily from an increased number and size of advisory
assignments.
 
    Interest and dividend revenues increased 54% from $14.7 million to $22.6
million. The increase related primarily to interest earned on higher average
customer margin loans outstanding, higher average notes receivable outstanding
and higher average investments in cash equivalents outstanding during the
period.
 
    Net investment gains decreased 99% from $24.4 million to $228,000. Net
investment gains include realized and unrealized gains on the Company's
investment in The BISYS Group, Inc. ("BISYS") of $15.1 million for 1996 and $1.5
million for 1997. Net investment gains in 1997 include net investment losses of
$18.1 million ($14.0 million of which was recorded during the Company's fourth
fiscal quarter) related to two investee companies in the airline industry. The
Company recorded a realized loss of $9.9 million on its investment in Air South
Airlines, Inc. ("Air South"), a regional airline that filed for bankruptcy in
August 1997. The Company recorded an unrealized loss of $8.2 million on its
investment in another regional airline.
 
    Other revenues decreased 26% from $23.0 million to $17.1 million. The
decrease was due primarily to a decrease in profit participation distributions
from venture funds managed by the Company and the recognition by Guaranty
Finance of a $3.3 million gain on the sale of a building in 1996.
 
    EXPENSES.  Total expenses increased 1% from $265.6 million in 1996 to $269.1
million in 1997.
 
    Compensation and benefits expense decreased 10% from $198.6 million to
$178.9 million. The decrease was due primarily to lower bonus expenses accrued
as a result of lower revenues. Compensation and benefits expense as a percentage
of total revenues was 51% in 1996 and 52% in 1997.
 
    Brokerage and clearance expense increased 27% from $13.6 million to $17.3
million. The percentage increase generally corresponds with increases in
principal transactions revenue and agency commissions.
 
    Occupancy and equipment expense increased 61% from $10.7 million to $17.2
million as a result of increases in depreciation expense related to computer and
telecommunication equipment upgrades and procurements for new employees and
increases in rent expense for additional office space leased.
 
    Communications expense increased 54% from $9.6 million to $14.8 million.
This increase was due to increases in telecommunications expenses and quotes and
information services expenses resulting from the hiring of additional employees.
 
    Interest expense increased 3% from $4.3 million to $4.5 million. This
increase related primarily to higher average customer payables outstanding
during 1997.
 
    Other expenses increased 27% from $28.8 million to $36.6 million. This
increase was due to increases in professional services fees, travel,
entertainment and conference expenses and bad debt expense. In the fourth fiscal
quarter, the Company recorded a $1.8 million loss related to letters of credit
issued to two of Air South's creditors.
 
                                       5
<PAGE>
    INCOME TAX PROVISION.  The Company's effective income tax rate was 30.3% in
1996 and increased to 44% in 1997. The Company's effective income tax rate in
1996 was less than the combined federal and state statutory income tax rates
because LP was not subject to corporate federal or state income tax. The
Company's higher effective tax rate in 1997 resulted from the effects of the
Restructuring. Subsequent to the Restructuring, all Company income became
subject to corporate federal and state income tax. The pro forma income tax
adjustment in 1996 was determined assuming that all of the Company's combined
operations had been subject to corporate federal and state income tax.
 
    FISCAL YEARS ENDED SEPTEMBER 30, 1996 AND 1995
 
    REVENUES.  Total revenues increased 78% from $220.8 million in 1995 to
$392.7 million in 1996.
 
    Principal transactions revenue increased 88% from $53.4 million to $100.6
million. This increase was due to a significant increase in underwriting
activity, resulting in substantial after-market trading; an increase in Nasdaq
market activity overall; and the Company's expansion of its equity sales and
trading capabilities.
 
    Agency commissions increased 53% from $24.6 million to $37.7 million. This
increase was due to the expansion of the Company's institutional listed equity
business and an increase in both the number and average production of retail
brokers in its Executive Financial Services group.
 
    Investment banking revenue increased 119% from $70.4 million to $154.3
million, and increased as a percentage of revenues from 32% to 39%. The Company
managed or co-managed 71 public offerings during 1995 compared to 134 during
1996.
 
    Corporate finance fees increased 83% from $20.7 million to $38.0 million.
This increase was due to the completion of several large advisory assignments
during 1996.
 
    Interest and dividend revenues increased 270% from $4.0 million to $14.7
million. The increase related primarily to interest earned on higher average
customer margin loans outstanding and higher average investments in cash
equivalents outstanding during the period.
 
    Net investment gains for the year decreased 28% from $33.9 million to $24.4
million. The net gains related primarily to the Company's investment in BISYS,
which accounted for $19.9 million of total investment gains in 1995 and $15.1
million in 1996.
 
    Other revenues increased 65% from $13.9 million to $23.0 million. The
increase was due primarily to an increase in asset management fees and profit
participation distributions from venture funds managed by the Company.
 
    EXPENSES.  Total expenses increased 78% from $148.9 million in 1995 to
$265.6 million in 1996.
 
    Compensation and benefits expense increased 88% from $105.4 million to
$198.6 million. The increase was due primarily to increased sales, trading and
incentive compensation. Compensation and benefits expense as a percentage of
total revenues increased from 48% to 51.
 
    Brokerage and clearance expense increased 31% from $10.4 million to $13.6
million. The percentage increase generally corresponds with increases in
principal transaction revenue and agency commissions.
 
    Occupancy and equipment expense increased 37% from $7.8 million to $10.7
million as a result of expenditures to repair office facilities in San Francisco
and New York and an increase in depreciation expense due to upgrades of office
facilities and acquisitions of computer and telecommunications equipment.
 
    Communications expense increased 30% from $7.4 million to $9.6 million. This
increase was due to increases in telecommunications and market data expenses
resulting from the hiring of additional employees in 1996.
 
                                       6
<PAGE>
    Interest expense increased 107% from $2.1 million to $4.3 million. This
increase related primarily to increases in average bank financing levels during
the two periods.
 
    Other expenses increased 82% from $15.9 million to $28.8 million. This
increase was due to higher levels of business activity resulting in increased
professional services fees, travel, entertainment and conference expenses and
miscellaneous expenses.
 
    INCOME TAX PROVISION.  The Company's effective income tax rate was 31.2% in
1995 and decreased slightly to 30.3% in 1996. The Company's effective income tax
rate in each fiscal period was less than the combined federal and state
statutory income tax rates because LP was not subject to corporate federal or
state income tax. The pro forma income tax adjustment in 1996 has been
determined assuming that all of the Company's combined operations had been
subject to corporate federal and state income tax.
 
LIQUIDITY AND CAPITAL RESOURCES
 
    The Company has historically satisfied its funding needs with its own
capital resources, consisting almost entirely of internally generated retained
earnings and capital raised from the sale of its common stock to employee
stockholders and the public through its initial public offering. As of September
30, 1997, H&Q LLC had liquid assets consisting primarily of cash and cash
equivalents of $42.6 million and receivables of $157.6 million from Lewco. The
cash equivalents consisted primarily of United States Treasury bills with
maturities of 90 days or less. As of September 30, 1997, the Company had a bank
line of credit in the amount of $15.0 million, with a balance of $1.1 million
outstanding, and Guaranty Finance and Hambrecht & Quist Transition Capital, LLC
had bank lines of credit of $11.0 million and $10.0 million, respectively with
$700,000 and $900,000 outstanding, respectively. Also, the Company has available
an additional $20.0 million line of credit with a commercial bank expiring April
30, 1998. The Company borrowed $10.0 million against this line of credit for a
four day period in September 1997.
 
    The Company's consolidated balance sheet reflects the Company's relatively
unleveraged financial position. The ratio of assets to equity as of September
30, 1997 was approximately 2.3:1. The Company's principal assets consist of
receivables from customers and Lewco, securities held for trading purposes,
short-term investments and securities held for investment purposes. A
substantial portion of the Company's receivables are secured by customer
securities or security transactions in the process of settlement. Securities
held for trading purposes are actively traded and readily marketable. As of
September 30, 1997, securities held for trading purposes include United States
Treasury securities totaling $20.1 million with maturities ranging from 2 days
to 11 months. Securities held for investment purposes are for the most part
illiquid and are carried at valuations that reflect this lack of liquidity.
 
    H&Q LLC, as a broker-dealer, is registered with the SEC and is a member of
the NASD and the NYSE. As such, H&Q LLC is subject to the capital requirements
of these regulatory entities. H&Q LLC's regulatory net capital has historically
exceeded these minimum requirements. As of September 30, 1997, H&Q LLC was
required to maintain minimum regulatory net capital in accordance with SEC rules
of approximately $4.9 million and had total regulatory net capital of
approximately $67.0 million, or approximately $62.1 million in excess of its
requirement.
 
    Other broker-dealer subsidiaries were in compliance with all applicable
regulatory capital adequacy requirements at September 30, 1997.
 
    The Company believes that its current level of equity capital, combined with
funds anticipated to be generated from operations, will be adequate to fund its
operations for the foreseeable future.
 
                                       7
<PAGE>
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To the Board of Directors and
 
Stockholders of Hambrecht & Quist Group:
 
    We have audited the accompanying consolidated balance sheets of Hambrecht &
Quist Group (a Delaware corporation)and Subsidiaries as of September 30, 1996
and 1997, and the related consolidated statements of operations, changes in
stockholders' equity and partners' capital and cash flows for the years ended
September 30, 1995, 1996 and 1997. These financial statements are the
responsibility of the Companies' management. Our responsibility is to express an
opinion on these financial statements based on our audits.
 
    We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
    In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Hambrecht &
Quist Group and Subsidiaries as of September 30, 1996 and 1997, and the results
of their operations and their cash flows for the years ended September 30, 1995,
1996 and 1997, in conformity with generally accepted accounting principles.
 
    As discussed in Notes 2 and 7 to the consolidated financial statements,
long-term investments include nonmarketable investments amounting to $37,934,994
and $65,514,884 (17 and 22 percent of total stockholders' equity and partners'
capital) as of September 30, 1996 and 1997, respectively, which have been valued
at fair value as determined by management. We have reviewed the procedures
applied by management in valuing such investments and have inspected the
underlying documentation, and in the circumstances we believe the procedures are
reasonable and the documentation appropriate. However, because of the inherent
uncertainty of valuation, management's estimate of fair values may differ
significantly from the values that would have been used had a ready market
existed for the securities and the differences could be material.
 
                                          ARTHUR ANDERSEN LLP
 
San Francisco, California,
November 12, 1997
 
                                       8
<PAGE>
                            HAMBRECHT & QUIST GROUP
                          CONSOLIDATED BALANCE SHEETS
                       AS OF SEPTEMBER 30, 1996 AND 1997
 
<TABLE>
<CAPTION>
                                                                                        1996            1997
                                                                                   --------------  --------------
<S>                                                                                <C>             <C>
                                                     ASSETS
Cash and cash equivalents........................................................  $   50,031,534  $   42,637,732
Receivables:
  Customers (net of allowance of $900,000 and $1,050,000, respectively)..........     168,416,287     183,796,833
  Lewco Securities Corp..........................................................      80,532,188     157,570,375
  Syndicate managers.............................................................      12,742,898      15,494,668
  Related parties................................................................      17,929,657      17,397,164
  Notes..........................................................................      10,500,000      18,489,300
  Lease..........................................................................       4,335,668       3,467,628
  Income taxes...................................................................         806,062         531,955
  Other..........................................................................       1,484,820      11,288,008
Marketable trading securities, at market value...................................      66,738,999      47,705,357
Long-term investments, at estimated fair value...................................      69,931,210     102,111,938
Deferred income taxes............................................................      37,595,489      56,734,654
Furniture, equipment and leasehold improvements, net of accumulated depreciation
  and amortization...............................................................      13,167,152      18,782,846
Leased assets, net of accumulated depreciation...................................       3,049,051       2,272,172
Exchange memberships, at cost (market value--$1,325,000 and $1,925,000,
  respectively)..................................................................         656,000         656,000
                                                                                   --------------  --------------
    Total assets.................................................................  $  537,917,015  $  678,936,630
                                                                                   --------------  --------------
                                                                                   --------------  --------------
 
                                      LIABILITIES AND STOCKHOLDERS' EQUITY
Payables:
  Customers......................................................................  $  142,489,752  $  186,445,656
  Compensation and benefits......................................................     101,941,165     116,673,510
  Syndicate settlements..........................................................      18,530,743      21,355,653
  Income taxes payable...........................................................        --             6,563,552
  Trade accounts payable.........................................................       2,483,361       2,829,377
  Accrued expenses and other.....................................................      21,339,770      33,220,760
Securities sold, not yet purchased, at market value..............................      16,055,953      11,770,127
Debt obligations.................................................................       8,364,822       2,700,000
                                                                                   --------------  --------------
    Total liabilities............................................................     311,205,566     381,558,635
                                                                                   --------------  --------------
Commitments and contingencies
Stockholders' equity:
  Common stock (par value $0.01 and 100,000,000 shares authorized, 22,693,930 and
    23,790,337 issued and outstanding as of September 30, 1996 and 1997,
    respectively)................................................................         226,939         237,903
  Additional paid-in capital.....................................................     116,643,623     136,271,533
  Stock notes receivable from employees..........................................     (13,550,503)     (5,620,260)
  Retained earnings..............................................................     124,056,614     167,230,812
  Net unrealized losses on long-term investments available for sale..............        (665,224)       (303,117)
  Treasury stock, at cost, 21,615 shares.........................................        --              (438,876)
                                                                                   --------------  --------------
    Total stockholders' equity...................................................     226,711,449     297,377,995
                                                                                   --------------  --------------
    Total liabilities and stockholders' equity...................................  $  537,917,015  $  678,936,630
                                                                                   --------------  --------------
                                                                                   --------------  --------------
</TABLE>
 
        The accompanying notes are an integral part of these statements.
 
                                       9
<PAGE>
                            HAMBRECHT & QUIST GROUP
                     CONSOLIDATED STATEMENTS OF OPERATIONS
             FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
 
<TABLE>
<CAPTION>
                                                                       1995            1996            1997
                                                                  --------------  --------------  --------------
<S>                                                               <C>             <C>             <C>
REVENUES:
  Principal transactions........................................  $   53,424,647  $  100,627,733  $  117,807,614
  Agency commissions............................................      24,602,992      37,682,010      43,716,190
  Investment banking............................................      70,359,967     154,271,774      90,470,621
  Corporate finance fees........................................      20,709,345      37,962,437      54,237,209
  Interest and dividends........................................       3,974,440      14,707,327      22,629,092
  Net investment gains..........................................      33,852,073      24,434,401         228,979
  Other.........................................................      13,916,077      23,016,922      17,142,186
                                                                  --------------  --------------  --------------
    Total revenues..............................................     220,839,541     392,702,604     346,231,891
                                                                  --------------  --------------  --------------
EXPENSES:
  Compensation and benefits.....................................     105,370,141     198,613,070     178,872,709
  Brokerage and clearance.......................................      10,441,253      13,628,832      17,258,305
  Occupancy and equipment.......................................       7,802,859      10,677,161      17,183,241
  Communications................................................       7,394,101       9,614,368      14,762,047
  Interest......................................................       2,082,917       4,314,085       4,453,983
  Other.........................................................      15,848,872      28,787,669      36,604,823
                                                                  --------------  --------------  --------------
    Total expenses..............................................     148,940,143     265,635,185     269,135,108
                                                                  --------------  --------------  --------------
    Income before income tax provision..........................      71,899,398     127,067,419      77,096,783
 
INCOME TAX PROVISION............................................      22,461,147      38,466,246      33,922,585
                                                                  --------------  --------------  --------------
    Net income..................................................  $   49,438,251  $   88,601,173  $   43,174,198
                                                                  --------------  --------------  --------------
                                                                  --------------  --------------  --------------
 
EARNINGS PER SHARE..............................................                                  $         1.68
                                                                                                  --------------
                                                                                                  --------------
WEIGHTED AVERAGE SHARES OUTSTANDING.............................                                      25,682,887
                                                                                                  --------------
                                                                                                  --------------
PRO FORMA INFORMATION (UNAUDITED):
  Net income before income tax adjustment.......................                  $   88,601,173
  Income tax adjustment.........................................                     (17,443,418)
                                                                                  --------------
    Pro forma net income........................................                  $   71,157,755
                                                                                  --------------
                                                                                  --------------
  Pro forma earnings per share..................................                  $         3.27
                                                                                  --------------
                                                                                  --------------
  Pro forma weighted average shares outstanding.................                      21,734,143
                                                                                  --------------
                                                                                  --------------
</TABLE>
 
        The accompanying notes are an integral part of these statements.
 
                                       10
<PAGE>
              HAMBRECHT & QUIST GROUP AND HAMBRECHT & QUIST, L.P.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL
             FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
                                                                   HAMBRECHT & QUIST GROUP
                                       -------------------------------------------------------------------------------
                                        NUMBER OF                 ADDITIONAL
                                         COMMON       COMMON       PAID-IN     STOCK NOTES     RETAINED    UNREALIZED
                                         SHARES        STOCK       CAPITAL      RECEIVABLE     EARNINGS    LOSSES, NET
                                       -----------  -----------  ------------  ------------  ------------  -----------
<S>                                    <C>          <C>          <C>           <C>           <C>           <C>
BALANCE, SEPTEMBER 30, 1994..........  12,475,188   $13,078,867  $             $   (966,315) $ 50,929,131   $
  Sales of common stock or partners'
    capital additions................   2,963,892    14,406,194                  (7,935,534)      --
  Reductions of stock notes..........      --           --                        1,242,135       --
  Repurchases of common stock or
    partners' capital withdrawals....    (829,892)   (2,072,476)                    --         (2,396,760)
  Net income.........................      --           --                          --         23,672,741
  Partners' capital distributions
    payable..........................      --           --                          --            --
  Partners' capital distributions....      --           --                          --            --
  Change in net unrealized gains.....      --           --                          --            --
                                       -----------  -----------  ------------  ------------  ------------  -----------
BALANCE, SEPTEMBER 30, 1995..........  14,609,188    25,412,585                  (7,659,714)   72,205,112
  Sales of common stock or partners'
    capital additions................   2,080,348    11,994,895                  (7,831,585)      --
  Reductions of stock and capital
    notes............................      --           --                        8,981,733       --
  Repurchases of common stock or
    partners' capital withdrawals....    (608,368)   (2,201,212)                    --         (1,409,601)
  Distribution of LP interest to
    Group Trust......................      --           --                          --          4,493,971
  Transfer of LP notes receivable to
    H&Q..............................      --           --                       (8,227,753)      --
  Net income through August 7, 1996..      --           --                          --         33,688,550
  Partners' capital distributions
    payable..........................      --           --                          --            --
  Partners' capital distributions....      --                         --            --
  Change in net unrealized gains.....      --           --                          --            --
                                       -----------  -----------  ------------  ------------  ------------  -----------
  Balance, August 7, 1996............  16,081,168    35,206,268                 (14,737,319)  108,978,032
  Distribution of cash and securities
    to LP Trust......................      --           --                          --            --
  Merger between H&Q and LP..........   2,587,762   (35,019,579)   56,366,873       --            --         (557,280)
  Purchase of additional interest in
    Guaranty Finance.................      --           --            --            --            --         (136,410)
                                       -----------  -----------  ------------  ------------  ------------  -----------
  Balance, August 8, 1996............  18,668,930       186,689    56,366,873   (14,737,319)  108,978,032    (693,690)
  Sale of common stock in initial
    public offering plus net
    underwriting revenue of
    $425,000.........................   4,025,000        40,250    60,276,750       --            --           --
  Reductions of stock notes..........      --           --            --          1,186,816       --           --
  Net income from August 8 to
    September 30, 1996...............      --           --            --            --         15,078,582      --
  Change in net unrealized losses....      --           --            --            --            --           28,466
                                       -----------  -----------  ------------  ------------  ------------  -----------
BALANCE, SEPTEMBER 30, 1996..........  22,693,930       226,939   116,643,623   (13,550,503)  124,056,614    (665,224)
  Sales of common stock..............   1,134,244        11,342    20,083,292      (289,035)      --           --
  Forfeitures of common stock........     (37,837)         (378)     (455,382)      --            --           --
  Reductions of stock notes..........      --           --            --          8,209,370       --           --
  Net income.........................      --           --            --            --         43,174,198      --
  Change in net unrealized losses....      --           --            --            --            --          362,107
  Purchase of 21,615 shares of common
    stock............................      --           --            --              9,908       --           --
                                       -----------  -----------  ------------  ------------  ------------  -----------
BALANCE, SEPTEMBER 30, 1997..........  23,790,337   $   237,903  $136,271,533  $ (5,620,260) $167,230,812   $(303,117)
                                       -----------  -----------  ------------  ------------  ------------  -----------
                                       -----------  -----------  ------------  ------------  ------------  -----------
 
<CAPTION>
                                                                                   HAMBRECHT & QUIST, L.P.
                                                                    -----------------------------------------------------
                                         TREASURY                                   CAPITAL
                                         STOCK, AT    SUBTOTAL H&Q   PARTNERS'       NOTES     DISTRIBUTIONS  UNREALIZED
                                           COST          GROUP        CAPITAL     RECEIVABLE      PAYABLE     GAINS, NET
                                       -------------  ------------  ------------  -----------  -------------  -----------
<S>                                    <C>           <C>
BALANCE, SEPTEMBER 30, 1994..........   $             $ 63,041,683  $  3,298,481  $   (69,526)  $(2,679,918)  $   --
  Sales of common stock or partners'
    capital additions................                    6,470,660     2,557,915   (2,162,487)      --            --
  Reductions of stock notes..........                    1,242,135       --           --            --            --
  Repurchases of common stock or
    partners' capital withdrawals....                   (4,469,236)   (1,241,100)     --            --            --
  Net income.........................                   23,672,741    25,765,510      --            --            --
  Partners' capital distributions
    payable..........................                      --            --           --        (11,952,253)      --
  Partners' capital distributions....                      --         (4,186,804)     --          4,186,804       --
  Change in net unrealized gains.....                      --            --           --            --          1,987,478
                                       -------------  ------------  ------------  -----------  -------------  -----------
BALANCE, SEPTEMBER 30, 1995..........                   89,957,983    26,194,002   (2,232,013)  (10,445,367)    1,987,478
  Sales of common stock or partners'
    capital additions................                    4,163,310     7,595,591   (7,333,171)      --            --
  Reductions of stock and capital
    notes............................                    8,981,733       --         1,337,431       --            --
  Repurchases of common stock or
    partners' capital withdrawals....                   (3,610,813)     (420,344)     --            --            --
  Distribution of LP interest to
    Group Trust......................                    4,493,971       --           --            --            --
  Transfer of LP notes receivable to
    H&Q..............................                   (8,227,753)      --         8,227,753       --            --
  Net income through August 7, 1996..                   33,688,550    39,834,040      --            --            --
  Partners' capital distributions
    payable..........................                      --            --           --        (14,034,971)      --
  Partners' capital distributions....       --             --        (24,480,338)     --         24,480,338       --
  Change in net unrealized gains.....                      --            --           --            --          1,101,224
                                       -------------  ------------  ------------  -----------  -------------  -----------
  Balance, August 7, 1996............                  129,446,981    48,722,951      --            --          3,088,702
  Distribution of cash and securities
    to LP Trust......................                      --        (27,375,657)     --            --         (3,645,982)
  Merger between H&Q and LP..........                   20,790,014   (21,347,294)     --            --            557,280
  Purchase of additional interest in
    Guaranty Finance.................                     (136,410)      --           --            --            --
                                       -------------  ------------  ------------  -----------  -------------  -----------
  Balance, August 8, 1996............                  150,100,585       --           --            --            --
  Sale of common stock in initial
    public offering plus net
    underwriting revenue of
    $425,000.........................                   60,317,000
  Reductions of stock notes..........                    1,186,816
  Net income from August 8 to
    September 30, 1996...............                   15,078,582
  Change in net unrealized losses....                       28,466
                                       -------------  ------------  ------------  -----------  -------------  -----------
BALANCE, SEPTEMBER 30, 1996..........                  226,711,449       --           --            --            --
  Sales of common stock..............                   19,805,599
  Forfeitures of common stock........                     (455,760)
  Reductions of stock notes..........                    8,209,370
  Net income.........................    43,174,198
  Change in net unrealized losses....                      362,107
  Purchase of 21,615 shares of common
    stock............................      (438,876)      (428,968)
                                       -------------  ------------  ------------  -----------  -------------  -----------
BALANCE, SEPTEMBER 30, 1997..........   $  (438,876)  $297,377,995  $    --       $   --        $   --        $   --
                                       -------------  ------------  ------------  -----------  -------------  -----------
                                       -------------  ------------  ------------  -----------  -------------  -----------
 
<CAPTION>
 
                                       SUBTOTAL H&Q
                                            LP          TOTAL
                                       ------------  ------------
BALANCE, SEPTEMBER 30, 1994..........  $    549,037  $ 63,590,720
  Sales of common stock or partners'
    capital additions................       395,428     6,866,088
  Reductions of stock notes..........       --          1,242,135
  Repurchases of common stock or
    partners' capital withdrawals....    (1,241,100)   (5,710,336)
  Net income.........................    25,765,510    49,438,251
  Partners' capital distributions
    payable..........................   (11,952,253)  (11,952,253)
  Partners' capital distributions....       --            --
  Change in net unrealized gains.....     1,987,478     1,987,478
                                       ------------  ------------
BALANCE, SEPTEMBER 30, 1995..........    15,504,100   105,462,083
  Sales of common stock or partners'
    capital additions................       262,420     4,425,730
  Reductions of stock and capital
    notes............................     1,337,431    10,319,164
  Repurchases of common stock or
    partners' capital withdrawals....      (420,344)   (4,031,157)
  Distribution of LP interest to
    Group Trust......................       --          4,493,971
  Transfer of LP notes receivable to
    H&Q..............................     8,227,753       --
  Net income through August 7, 1996..    39,834,040    73,522,590
  Partners' capital distributions
    payable..........................   (14,034,971)  (14,034,971)
  Partners' capital distributions....       --            --
  Change in net unrealized gains.....     1,101,224     1,101,224
                                       ------------  ------------
  Balance, August 7, 1996............    51,811,653   181,258,634
  Distribution of cash and securities
    to LP Trust......................   (31,021,639)  (31,021,639)
  Merger between H&Q and LP..........   (20,790,014)      --
  Purchase of additional interest in
    Guaranty Finance.................       --           (136,410)
                                       ------------  ------------
  Balance, August 8, 1996............       --        150,100,585
  Sale of common stock in initial
    public offering plus net
    underwriting revenue of
    $425,000.........................                  60,317,000
  Reductions of stock notes..........                   1,186,816
  Net income from August 8 to
    September 30, 1996...............                  15,078,582
  Change in net unrealized losses....                      28,466
                                       ------------  ------------
BALANCE, SEPTEMBER 30, 1996..........       --        226,711,449
  Sales of common stock..............                  19,805,599
  Forfeitures of common stock........                    (455,760)
  Reductions of stock notes..........                   8,209,370
  Net income.........................                  43,174,198
  Change in net unrealized losses....                     362,107
  Purchase of 21,615 shares of common
    stock............................                    (428,968)
                                       ------------  ------------
BALANCE, SEPTEMBER 30, 1997..........  $    --       $297,377,995
                                       ------------  ------------
                                       ------------  ------------
</TABLE>
 
        The accompanying notes are an integral part of these statements.
 
                                       11
<PAGE>
                            HAMBRECHT & QUIST GROUP
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
             FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
 
<TABLE>
<CAPTION>
                                                                        1995            1996            1997
                                                                   --------------  --------------  --------------
<S>                                                                <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income.....................................................  $   49,438,251  $   88,601,173  $   43,174,198
                                                                   --------------  --------------  --------------
 
  Adjustments to reconcile net income to net cash and cash
    equivalents provided by operating activities--
    Depreciation and amortization................................       5,664,070       6,724,686       9,524,109
    Net investment gains.........................................     (33,852,073)    (24,434,401)       (228,979)
    Net gains on sales of leased assets..........................        (407,436)     (3,394,352)       --
    Deferred tax benefit.........................................      (1,206,194)    (26,967,633)    (19,139,165)
    Minority interest in income of subsidiaries..................         718,651         685,105         388,934
    Changes in operating assets and liabilities--
      Customers, net.............................................     (10,030,060)      2,854,297      28,575,358
      Lewco Securities Corp......................................     (24,750,289)    (38,541,879)    (77,038,187)
      Syndicate managers.........................................      (9,117,244)     (3,203,996)     (2,751,770)
      Income taxes receivable, net...............................       6,144,139      (4,439,132)      8,509,311
      Related parties and other receivables......................      (1,906,869)    (13,520,519)    (12,152,411)
      Marketable trading securities, net.........................       1,262,314     (49,676,915)     11,670,441
      Compensation and benefits payable..........................      27,533,054      63,139,509      34,695,044
      Syndicate settlements......................................      23,674,156      (6,879,034)      2,824,910
      Trade accounts payable.....................................      (1,122,673)      1,538,586         346,016
      Customer lease deposits....................................      (2,191,760)       (478,603)       --
      Accrued expenses and other payables........................       5,625,230      11,689,535      11,440,326
      Other, net.................................................        (150,606)       (765,853)         57,084
                                                                   --------------  --------------  --------------
        Total adjustments........................................     (14,113,590)    (85,670,599)     (3,278,979)
                                                                   --------------  --------------  --------------
        Net cash and cash equivalents provided by operating
          activities.............................................      35,324,661       2,930,574      39,895,219
                                                                   --------------  --------------  --------------
 
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of long-term investments.............................     (10,690,049)    (32,727,770)    (87,351,958)
  Proceeds from sales/distributions of long-term investments.....      15,843,334      36,222,554      61,778,580
  Purchases of furniture, equipment and leasehold improvements...      (3,060,061)    (11,138,680)    (12,904,169)
  Increases in notes receivable..................................        --           (10,500,000)    (13,337,311)
  Payments of notes receivable...................................        --              --             5,348,011
  Increases in lease receivables.................................      (1,505,482)     (2,154,995)       --
  Payments of lease receivables..................................       1,568,911       1,074,964         868,038
  Purchases of leased assets.....................................      (6,504,911)       (809,910)     (1,521,281)
  Proceeds from sales of leased assets...........................         638,002       7,711,456        --
  Purchase of additional 17.5 percent of Guaranty Finance........        --            (1,374,922)       --
                                                                   --------------  --------------  --------------
        Net cash and cash equivalents used in investing
          activities.............................................      (3,710,256)    (13,697,303)    (47,120,090)
                                                                   --------------  --------------  --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from debt obligations.................................      19,738,066      19,732,057      21,459,227
</TABLE>
 
                                       12
<PAGE>
                            HAMBRECHT & QUIST GROUP
 
               CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
 
             FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
 
<TABLE>
<CAPTION>
                                                                        1995            1996            1997
                                                                   --------------  --------------  --------------
<S>                                                                <C>             <C>             <C>
  Repayments of debt obligations.................................     (18,650,861)    (25,137,973)    (27,124,048)
  Proceeds from sales of common stock and partners' capital
    contributions................................................       5,467,763      68,992,106       5,924,858
  Repurchases of common stock and partners' capital
    withdrawals..................................................      (5,710,336)     (4,031,157)       --
  Partners' capital distributions................................      (4,186,804)    (33,836,338)       --
  Distributions to minority member of Guaranty Finance...........        (300,000)       (300,000)       --
  Investment by minority members in Transition Capital...........        --               625,000        --
  Purchases of treasury stock....................................        --              --              (428,968)
                                                                   --------------  --------------  --------------
        Net cash and cash equivalents provided by
          (used in) financing activities.........................      (3,642,172)     26,043,695        (168,931)
                                                                   --------------  --------------  --------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................      27,972,233      15,276,966      (7,393,802)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR...................       6,782,335      34,754,568      50,031,534
                                                                   --------------  --------------  --------------
CASH AND CASH EQUIVALENTS AT END OF YEAR.........................  $   34,754,568  $   50,031,534  $   42,637,732
                                                                   --------------  --------------  --------------
                                                                   --------------  --------------  --------------
SCHEDULE OF SUPPLEMENTAL INFORMATION:
  Taxes paid to taxing authorities...............................  $   14,841,855  $   67,051,664  $   40,009,539
  Interest paid..................................................       4,617,047       4,314,084       4,453,983
 
SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
  H&Q California long-term investments, net, were reclassified
    from H&Q LLC marketable securities...........................       4,286,573        --             3,077,375
  H&Q California received marketable long-term investments as
    repayment for profit participations receivable...............        --              --             2,881,718
  H&Q common stock sales and LP partners' capital contributions
    were made with stock and capital notes receivable from
    employees....................................................      10,098,021      15,164,756         289,035
  H&Q common stock was issued to employees in exchange for
    reductions in compensation and benefits and taxes payable....       3,055,280       7,256,604      22,090,111
  H&Q common stock was forfeited by employees resulting in
    decreases in compensation and benefits expense...............        --              --               455,760
  Reductions to LP's partners' capital were made via accruals of
    distributions payable to partners............................      11,952,253        --              --
  Net unrealized gains (losses) on subsidiaries' long-term
    investments were recorded as increases (decreases) in equity
    and minority interest (included in other payables)...........       2,880,791      (3,641,069)        413,867
</TABLE>
 
                                       13
<PAGE>
                            HAMBRECHT & QUIST GROUP
 
               CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
 
             FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
 
<TABLE>
<CAPTION>
                                                                        1995            1996            1997
                                                                   --------------  --------------  --------------
<S>                                                                <C>             <C>             <C>
  H&Q California's limited partnership interest in LP was
    distributed to certain current and former employees in
    exchange for reductions in compensation and benefits
    payable......................................................        --             4,493,971        --
  The Restructuring resulted in the following non cash reductions
    to long-term investments and stockholders' equity and
    partners' capital:
    Distribution of securities by LP to the LP Trust.............        --            21,665,639        --
    Distribution of securities by Guaranty Finance to minority
      member.....................................................        --             2,485,968        --
</TABLE>
 
        The accompanying notes are an integral part of these statements.
 
                                       14
<PAGE>
                            HAMBRECHT & QUIST GROUP
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
                               SEPTEMBER 30, 1997
 
1.  ORGANIZATION, NATURE OF OPERATIONS AND RESTRUCTURING:
 
ORGANIZATION
 
    The financial statements include the consolidated operations of Hambrecht &
Quist Group, a Delaware corporation (H&Q, Hambrecht & Quist or the Company). H&Q
was formed in fiscal 1996 to be the sole parent of Hambrecht & Quist California,
a California corporation (H&Q California) (formerly known as Hambrecht & Quist
Group) and to succeed to the assets of Hambrecht & Quist, L.P., a California
limited partnership (LP). The historical consolidated financial statements
include the combined operations of H&Q California and LP (see Note 2).
 
    On August 8, 1996, through separate mergers (collectively, the Mergers), a
newly formed subsidiary of H&Q merged with H&Q California, and LP merged with
H&Q. All of the shareholders of H&Q California exchanged each of their common
shares for four shares of H&Q common stock. All of the former partners of LP
exchanged each of their partnership units for 24 shares of H&Q common stock.
Subsequently, the assets and liabilities of LP were contributed by H&Q to H&Q
California. The Mergers were accounted for at the respective stockholders' and
partners' carrying values, which represent the entities' carrying values. The
individuals' carrying values were used because each individual party to the
Mergers was a promoter of H&Q and its initial public offering (under Securities
and Exchange Commission accounting guidelines). No minority interest resulted
from the Mergers. All references to historical number of shares and per-share
amounts have been restated to reflect the effect of the four-for-one exchange of
shares.
 
    Subsequent to the Mergers, on August 9, 1996, H&Q issued 4,025,000 new
shares in an initial public offering (the Offering). The net proceeds of the
Offering were $60,317,000.
 
NATURE OF OPERATIONS
 
    H&Q consolidates its wholly owned subsidiary, H&Q California and its
subsidiaries. Hambrecht & Quist California owns the following wholly owned
subsidiaries. Hambrecht & Quist L.L.C., a Delaware limited liability company
(H&Q LLC), is an investment banking subsidiary and securities broker-dealer that
primarily services companies and investors involved in the technology,
healthcare, services and branded consumer industries. RvR Securities Corp., a
California corporation (RvR Securities), is a registered broker-dealer serving
companies with smaller capitalizations than H&Q LLC's typical underwriting
clients. Hambrecht & Quist Euromarkets (H&Q EM), formerly Hambrecht & Quist
Saint Dominique, is a broker-dealer registered in France providing investment
banking services to European companies. Hambrecht & Quist Capital Management
Incorporated, a California corporation (Capital Management), is a registered
investment adviser. Capital Management is the investment adviser to two publicly
traded closed-end mutual funds, H&Q Healthcare Investors and H&Q Life Sciences
Investors. Hambrecht & Quist Venture Partners, a California limited partnership
(Venture Partners), is a venture capital fund management partnership.
 
    H&Q California also owns 87.5 percent and is the managing member of
Hambrecht & Quist Guaranty Finance, LLC (Guaranty Finance) and Hambrecht & Quist
Transition Capital, LLC (Transition Capital), both California limited liability
companies. The remaining 12.5 percent minority interests are owned by each
respective entities' employees and are included in accrued expenses and other
payables in the consolidated financial statements. Guaranty Finance provides
secured, asset-based financings that include tenant improvement and real estate
leases, equipment leases, accounts receivable and inventory financing, and loan
guarantees for emerging growth technology, biotechnology and healthcare
companies. Transition
 
                                       15
<PAGE>
                            HAMBRECHT & QUIST GROUP
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                               SEPTEMBER 30, 1997
 
1.  ORGANIZATION, NATURE OF OPERATIONS AND RESTRUCTURING: (CONTINUED)
Capital provides bridge loans and mezzanine financings to emerging growth
companies in the same industries as Guaranty Finance's financings.
 
    Other affiliates of the Company are not consolidated and are accounted for
on an equity basis, which approximates fair value. H&Q owns a 15 percent
interest in Hambrecht & Quist Asia Pacific, Ltd., a British Virgin Islands
company (Asia Pacific) (see Note 4) and has profit participation interests of 25
to 35 percent in investment funds managed by Asia Pacific. Asia Pacific provides
financial advisory and fund management services in the Asia Pacific region. H&Q
LLC owns approximately 20 percent of Lewco Securities Corporation, a Delaware
corporation (Lewco) (see Notes 7 and 12). Lewco is a clearing broker and
depository for H&Q LLC and Schroder & Co., which owns approximately 80 percent,
with two other minority owners. All expenses, net of certain revenues, are
reimbursed by both owners based on the volume of transactions processed on their
behalf. These costs are reported as expenses in the consolidated statements of
operations. Other less significant investment and venture capital partnerships
are recorded in long-term investments at their estimated fair value (see Note
2).
 
    Prior to its merger with H&Q, LP operated primarily as a holding partnership
for certain current and prior operating affiliates of H&Q California. Such
ownership of operating affiliates included a 30 percent ownership of H&Q LLC and
a 70 percent ownership of Guaranty Finance. Such ownership interests were
transferred to H&Q as part of the Mergers. H&Q California owned the remaining 70
percent of H&Q LLC. An entity controlled by the CEO of the Company and a third
party owned the remaining 30 percent of Guaranty Finance. H&Q California was the
one percent general partner of LP, and the same employee shareholders of H&Q
California were the limited partners. As of September 30, 1995, H&Q California
also owned a limited partnership interest in LP.
 
RESTRUCTURING
 
    Prior to the Mergers, H&Q California and LP significantly restructured their
operations through a series of transactions and distributions (the
Restructuring) designed to simplify the Company's structure. The following
transactions were completed as part of the Restructuring.
 
    H&Q California distributed its limited partnership interest in LP to a
liquidating trust (the Group Trust) benefiting certain current and former
employees. The result of the distribution was a charge to compensation expense
and an addition to stockholders' equity of $4,493,971, which represented the
value of the limited partnership interest. Previously, such limited partnership
value was eliminated in consolidation due to intercompany ownership.
 
    LP distributed cash and securities totaling $31,021,639 to a liquidating
trust (the LP Trust) benefiting the partners of LP. The cash and securities
distributed totaled $9,356,000 and $21,665,639, respectively. The securities
distributed included securities held by LP and securities distributed to LP by
H&Q LLC and Guaranty Finance. H&Q LLC's securities distribution included its
remaining holdings of The BISYS Group, Inc. (BISYS) (see Note 7). Guaranty
Finance also distributed $2,485,968 of securities to its minority member. All
securities were distributed at their estimated fair value.
 
    H&Q California purchased an additional 17.5 percent interest in Guaranty
Finance for $1,374,922 from the minority member. Such purchase resulted in no
remaining ownership of Guaranty Finance by the Company's CEO. The purchase was
accounted for as a purchase of minority interest and resulted in the recording
of an immaterial amount of goodwill.
 
                                       16
<PAGE>
                            HAMBRECHT & QUIST GROUP
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                               SEPTEMBER 30, 1997
 
2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
 
PRINCIPLES OF CONSOLIDATION AND COMBINATION
 
    All significant intercompany accounts and transactions have been eliminated
in consolidation and combination. The 1995 and 1996 historical financial
statements and footnote disclosures represent the combined financial position
and results of operations and changes in shareholders' equity and partners'
capital and cash flows for H&Q California and LP.
 
USE OF ESTIMATES
 
    The preparation of these financial statements requires the use of certain
estimates by management in determining the entity's assets, liabilities, revenue
and expenses. The most significant estimates with regard to these financial
statements relate to the valuation of long-term investments, as discussed below.
Actual results could differ from those estimates.
 
CASH AND CASH EQUIVALENTS
 
    Cash and cash equivalents include cash on hand, demand deposits with banks,
money market accounts and U.S. Treasury bills. Included in cash and cash
equivalents are U.S. Treasury bills and other U.S. government securities
totaling $36,306,195 and $29,949,090 at September 30, 1996 and 1997,
respectively. Cash equivalents have original maturities of 90 days or less.
 
SECURITIES TRANSACTIONS
 
    Customers' securities transactions are recorded on a settlement-date basis,
with related commission income and expenses recorded on a trade-date basis.
Marketable securities owned and securities sold, not yet purchased are recorded
on a trade-date basis. Final underwriting settlements are recorded when
received.
 
MARKETABLE TRADING SECURITIES
 
    Marketable trading securities and securities sold, not yet purchased are
reported at prevailing market prices. Realized and unrealized gains and losses
on marketable trading securities and securities sold, not yet purchased are
included in principal transactions revenue.
 
LONG-TERM INVESTMENTS
 
    Long-term investments include marketable equity securities and nonmarketable
securities (which include restricted securities of publicly traded companies,
securities of private companies and investment partnership and other venture
capital interests).
 
    H&Q and H&Q LLC own marketable equity securities and nonmarketable
investments. Marketable equity securities are reported at prevailing market
prices. Discounts are applied for holdings which are restricted in their
disposition because they are in excess of average weekly trading volumes.
Nonmarketable investments are not registered for public sale or carry
restrictions on sale and are reported at estimated fair value as determined by
management. Factors considered by management in valuing nonmarketable
investments include the type of investment, purchase cost, marketability,
restrictions on disposition, subsequent purchases of the same or similar
investments by other investors, and current
 
                                       17
<PAGE>
                            HAMBRECHT & QUIST GROUP
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                               SEPTEMBER 30, 1997
 
2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
financial position and operating results of the investee entities. Warrants and
other rights to purchase investments are valued at cost, which approximates
estimated fair value. Realized and unrealized gains and losses on long-term
investments owned by H&Q and H&Q LLC are included in revenues as net investment
gains.
 
    Also included in long-term investments are investments owned by Guaranty
Finance and Transition Capital. Guaranty Finance and Transition Capital
primarily own marketable equity securities. Under Statement of Financial
Accounting Standards No. 115 (SFAS 115), Accounting for Certain Investments in
Debt and Equity Securities, entities such as Guaranty Finance and Transition
Capital must carry their available-for-sale securities at fair value and report
unrealized gains and losses in stockholders' equity. At September 30, 1996 and
1997, the combined unrealized loss for Guaranty Finance and Transition Capital
was $760,279 and $346,419, respectively and H&Q's recorded portion was $665,224
and $303,117, respectively.
 
FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
 
    Furniture, equipment and leasehold improvements are recorded at cost.
Depreciation of furniture and equipment is provided using accelerated and
straight-line methods. These assets are depreciated over periods ranging from
five to seven years based on estimated useful lives. Leasehold improvements are
amortized over the lesser of the useful life of the improvement or the term of
the lease. Expenditures for repairs and maintenance that do not significantly
increase the life of the asset are charged to expense as incurred.
 
LEASE RECEIVABLES AND LEASED ASSETS
 
    Guaranty Finance leases equipment and tenant improvements under operating
leases and direct financing leases. Assets leased under operating leases are
recorded at cost and are included in leased assets. Depreciation of leased
equipment is provided using accelerated methods over five to seven years. Direct
financing leases are included in lease receivables and are carried at the total
of the future minimum lease payments less unearned income.
 
INCOME TAXES AND PRO FORMA INCOME TAX ADJUSTMENT
 
    The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 (SFAS 109), Accounting for Income Taxes.
Under this method, the Company recognizes taxes payable or refundable for the
current year and deferred tax liabilities and assets for future consequences of
events that have been recognized in the Company's financial statements or tax
returns.
 
    No provision has been made in the financial statements for income taxes
related to the income of LP. Pursuant to applicable federal and state income tax
regulations, all income or loss of LP is reportable by each partner directly to
the taxing authority. As part of the Mergers (see Note 1), LP merged into the
Company and ceased existence. For financial reporting purposes, the 1996
consolidated statement of operations includes a pro forma income tax adjustment
of $17,443,418 representing taxes on LP's income as if LP's earnings were
subject to income taxes at an effective tax rate of 44 percent.
 
                                       18
<PAGE>
                            HAMBRECHT & QUIST GROUP
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                               SEPTEMBER 30, 1997
 
2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
COMMON STOCK AND PARTNERS' CAPITAL TRANSACTIONS
 
    Since the Offering in 1996, common stock issuances have been to employees,
directors and the Savings and Employee Stock Ownership Trust (SESOT)(see Note
13). The issuances to the SESOT are more fully described in Note 13. Issuances
to employees and directors include awards to new employees, awards to employees
under the 1996 Bonus and Deferred Compensation Plan (Compensation Plan)(see Note
13) and exercises by employees or directors of stock options. Awards to new
employees and awards under the Compensation Plan are recorded as compensation
and benefits expense.
 
    Prior to the Offering, all of H&Q's common stock transactions were recorded
pursuant to the terms of the Hambrecht & Quist Shareholders' Agreement (the
Agreement) which required all stock issuances and repurchases and all stock
option grants to be recorded using fair market value, as determined by the
Company's Board of Directors (the Board). The Board approved a formula value
approximating fair market value, which resulted in transactions being recorded
at premiums over the Company's net book value, as determined under generally
accepted accounting principles. Under the Agreement, all selling shareholders
were required to first offer their shares to the Company before seeking an
independent buyer. The Company repurchased all selling shareholders' shares
subject to the terms of the Agreement, which was terminated in connection with
the Offering.
 
    All LP partnership unit sales and repurchases were recorded at the
partnership's fair market value, as defined in the Hambrecht & Quist Limited
Partnership Agreement, using a formula value similar to H&Q's.
 
TREASURY STOCK TRANSACTIONS
 
    The Company's treasury stock is comprised of common stock purchased on the
open market and common stock repurchased in connection with unpaid employee
stock notes receivable (see Note 12). Open market purchases of common stock are
recorded at the Company's cost. Stock note repurchases of common stock are
recorded at the carrying value of the unpaid employee stock note.
 
    During 1997, the Company's treasury stock transactions were as follows:
 
<TABLE>
<CAPTION>
                                                                           SHARES       COST
                                                                          ---------  ----------
<S>                                                                       <C>        <C>
Open market purchases...................................................     20,000  $  428,968
Employee stock notes receivable repurchases.............................      1,615       9,908
                                                                          ---------  ----------
                                                                             21,615  $  438,876
                                                                          ---------  ----------
                                                                          ---------  ----------
</TABLE>
 
FAIR VALUE OF FINANCIAL INSTRUMENTS
 
    Substantially all of the Company's financial assets and liabilities are
carried at market or estimated fair value or are carried at amounts that
approximate current fair value because of their short-term nature. Estimates are
made at a specific point in time, based on relevant market information and
information about the financial instruments.
 
                                       19
<PAGE>
                            HAMBRECHT & QUIST GROUP
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                               SEPTEMBER 30, 1997
 
2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
EARNINGS PER SHARE
 
    Earnings per share for 1997 is determined by dividing net income by the
weighted-average number of common shares, including common share equivalents,
outstanding during the year. Common share equivalents consist of stock options
outstanding (see Note 13). 1996 pro forma earnings per share is determined using
pro forma net income (see above). 1995 pro forma earnings per share are not
presented as they would not be meaningful.
 
    In March 1997, Statement of Financial Accounting Standards No. 128, Earnings
per Share (SFAS 128) was issued. The Company will be required to adopt SFAS 128
in its 1998 fiscal year. SFAS 128 replaces primary and fully diluted earnings
per share with basic and diluted earnings per share calculations. Basic earnings
per share is computed by dividing net income by weighted average shares
outstanding. Diluted earnings per share is computed by dividing net income by
weighted average shares outstanding including the dilutive effects of stock
options. Diluted earnings per share calculations result in the same earnings per
share as currently reported by the Company. The Company's pro forma basic and
diluted earnings per share are as follows (the 1996 amounts are calculated using
pro forma net income as discussed above):
 
<TABLE>
<CAPTION>
                                                                                 1996       1997
                                                                               ---------  ---------
<S>                                                                            <C>        <C>
Basic Earnings per Share.....................................................  $    3.60  $    1.83
Diluted Earnings per Share...................................................  $    3.27  $    1.68
</TABLE>
 
STOCK OPTION PLANS
 
    The Company uses the intrinsic value method to account for its stock option
plans (in accordance with the provisions of Accounting Principles Board Opinion
No. 25). Under this method, compensation expense is recognized for awards of
options to purchase shares of common stock to employees under compensatory plans
only if the fair market value of the stock at the option grant date (or other
measurement date, if later) is greater than the amount the employee must pay to
acquire the stock. Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation (SFAS 123) permits companies to continue
using the intrinsic value method or to adopt a fair value based method to
account for stock option plans. The fair value based method results in
recognizing as expense over the vesting period the fair value of all stock-based
awards on the date of grant. The Company has elected to continue to use the
intrinsic value method and the pro forma disclosures required by SFAS 123 are
included in Note 13.
 
RECLASSIFICATIONS
 
    Certain amounts in the 1995 and 1996 financial statements have been
reclassified to conform to the 1997 presentation.
 
3.  RECEIVABLES FROM AND PAYABLES TO CUSTOMERS:
 
    Receivables from and payables to customers include amounts due to or from
customers as a result of cash and margin transactions. Securities owned by
customers are held as collateral for these receivables. Such collateral is not
reflected in the consolidated financial statements.
 
                                       20
<PAGE>
                            HAMBRECHT & QUIST GROUP
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                               SEPTEMBER 30, 1997
 
4.  RECEIVABLES FROM RELATED PARTIES:
 
    At September 30, 1996 and 1997 receivables from related parties consisted of
the following:
 
<TABLE>
<CAPTION>
                                                                     1996           1997
                                                                 -------------  -------------
<S>                                                              <C>            <C>
Notes receivable from affiliates and employees.................  $   3,001,858  $   2,696,455
Asset management fees and profit participations................     10,349,674      5,989,569
Affiliate and other advances...................................      4,578,125      8,711,140
                                                                 -------------  -------------
                                                                 $  17,929,657  $  17,397,164
                                                                 -------------  -------------
                                                                 -------------  -------------
</TABLE>
 
    Notes receivable from related parties as of September 30, 1996 and 1997
include notes receivable from Asia Pacific of $1,792,740 and $1,757,670,
respectively. Interest income recorded in 1995, 1996 and 1997 on all notes
receivable from affiliates and employees was $736,194, $835,261 and $1,034,896,
respectively.
 
    Asset management fees and profit participations receivable of $10,349,674
and $5,989,569 at September 30, 1996 and 1997, respectively, include profit
participations receivable of $9,831,883 and $5,527,057, respectively from
venture and investment partnerships managed by Venture Partners (see Notes 1 and
12). Included in other revenues are management fees and profit participation
distributions from venture capital funds of $7,653,320, $13,685,248 and
$8,735,436 for 1995, 1996 and 1997, respectively. Also included in other
revenues are management fees earned by Capital Management of $2,397,204,
$3,669,463, and $3,617,583 for 1995, 1996 and 1997, respectively.
 
    Affiliate and other advances include temporary advances made to affiliates
for operating expenses and to affiliates, directors and employees for purchases
of investments. Of the amount outstanding at September 30, 1997, $6,098,945
relates to advances to affiliates, directors and employees for purchases of
investments made on their behalf.
 
5.  NOTES RECEIVABLE:
 
    Notes receivable include advances made by Guaranty Finance and Transition
Capital in exchange for notes receivable. The notes bear interest at rates
between 5 to 12 percent and are secured by certain of the borrowers' tangible
and intangible assets. Principal payments are due on the notes receivable as
follows:
 
<TABLE>
<S>                                                              <C>
1998...........................................................  $9,084,559
1999...........................................................   7,114,392
2000...........................................................   2,290,349
                                                                 ----------
                                                                 $18,489,300
                                                                 ----------
                                                                 ----------
</TABLE>
 
                                       21
<PAGE>
                            HAMBRECHT & QUIST GROUP
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                               SEPTEMBER 30, 1997
 
6.  MARKETABLE TRADING SECURITIES AND SECURITIES SOLD, NOT YET PURCHASED:
 
    At September 30, 1996 and 1997, marketable trading securities and securities
sold, not yet purchased, consisted of the following:
 
<TABLE>
<CAPTION>
                                                                     1996           1997
                                                                 -------------  -------------
<S>                                                              <C>            <C>
Marketable trading securities--
  Equity securities............................................  $  20,510,871  $  25,454,997
  Convertible bonds............................................      6,537,960      2,086,750
  Options......................................................        119,042         26,840
  U.S. government securities...................................     39,571,126     20,136,770
                                                                 -------------  -------------
                                                                 $  66,738,999  $  47,705,357
                                                                 -------------  -------------
                                                                 -------------  -------------
 
Securities sold, not yet purchased--
  Equity securities............................................  $  14,313,068  $  11,359,430
  Convertible bonds............................................      1,403,500       --
  Options......................................................        339,385        410,697
                                                                 -------------  -------------
                                                                 $  16,055,953  $  11,770,127
                                                                 -------------  -------------
                                                                 -------------  -------------
</TABLE>
 
7.  LONG-TERM INVESTMENTS:
 
    At September 30, 1996 and 1997, the Company's long-term investments, at
estimated fair value, consisted of the following:
 
<TABLE>
<CAPTION>
                                                                    1996            1997
                                                                -------------  --------------
<S>                                                             <C>            <C>
Marketable equity securities available for sale by Guaranty
  Finance and Transition Capital..............................  $   9,078,811  $   14,023,208
Marketable equity securities--other...........................     15,266,887      21,194,925
The BISYS Group, Inc. common stock--unrestricted..............      7,650,518       1,378,922
                                                                -------------  --------------
  Total marketable investments................................     31,996,216      36,597,055
                                                                -------------  --------------
Nonmarketable securities and investment partnership
  interests...................................................     24,383,763      39,568,602
Venture Partners and affiliated venture capital funds.........      9,527,910      15,756,670
Venture capital funds managed by others.......................      1,913,042       8,079,332
Lewco Securities..............................................      2,110,279       2,110,279
                                                                -------------  --------------
  Total nonmarketable investments.............................     37,934,994      65,514,883
                                                                -------------  --------------
  Total long-term investments.................................  $  69,931,210  $  102,111,938
                                                                -------------  --------------
                                                                -------------  --------------
</TABLE>
 
    The cost of the Company's long-term investments at September 30, 1996 and
1997, was $52,489,136 and $104,324,593, respectively.
 
                                       22
<PAGE>
                            HAMBRECHT & QUIST GROUP
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                               SEPTEMBER 30, 1997
 
7.  LONG-TERM INVESTMENTS: (CONTINUED)
    Following is an analysis of the net investment gains for the years ended
September 30, 1995, 1996 and 1997:
 
<TABLE>
<CAPTION>
                                                     1995           1996            1997
                                                 -------------  -------------  --------------
<S>                                              <C>            <C>            <C>
Realized gains.................................  $   3,346,270  $  24,045,279  $   20,527,924
Change in unrealized gains and losses, net.....     30,505,803        389,122     (20,298,945)
                                                 -------------  -------------  --------------
  Net investment gains from long-term
    investments................................  $  33,852,073  $  24,434,401  $      228,979
                                                 -------------  -------------  --------------
                                                 -------------  -------------  --------------
</TABLE>
 
    Included in net investment gains are realized and unrealized gains on the
Company's investment in BISYS of $19,948,390, $15,093,727 and $1,465,206 for
1995, 1996 and 1997, respectively. As part of the Restructuring in 1996 (see
Note 1), H&Q LLC distributed shares of BISYS valued at $14,267,556 to LP and
recorded realized gains of $6,589,963 on the distribution.
 
    Included in net investment gains in 1997 are net investment losses of
$18,126,682 related to two investee companies in the airline industry. In 1997,
the Company recorded a realized loss of $9,878,854 on its investment in Air
South Airlines, Inc. (Air South) and an unrealized loss of $8,247,828 on its
investment in another regional airline. Air South filed for bankruptcy in August
1997. The Company also recorded a loss, included in other expense, of $1,802,176
related to letters of credit issued to two of Air South's creditors.
 
    The cost and estimated fair values of investments in marketable equity
securities available for sale by Guaranty Finance and Transition Capital at
September 30, 1996 and 1997 are as follows:
 
<TABLE>
<CAPTION>
                                                                      1996           1997
                                                                  -------------  -------------
<S>                                                               <C>            <C>
Cost............................................................  $   9,839,090  $  14,369,649
Gross unrealized gains..........................................        500,588      1,975,968
Gross unrealized losses.........................................     (1,260,867)    (2,322,409)
                                                                  -------------  -------------
  Estimated fair value..........................................  $   9,078,811  $  14,023,208
                                                                  -------------  -------------
                                                                  -------------  -------------
</TABLE>
 
    Gross proceeds, gross realized gains and gross realized losses from sales of
investments in marketable equity securities available for sale by Guaranty
Finance and Transition Capital for the years ended September 30, 1995, 1996 and
1997 are as follows:
 
<TABLE>
<CAPTION>
                                                          1995          1996          1997
                                                      ------------  ------------  ------------
<S>                                                   <C>           <C>           <C>
Gross proceeds......................................  $  2,926,358  $  4,531,113  $  2,882,175
Gross realized gains................................     1,943,374     2,587,095       446,302
Gross realized losses...............................       (73,373)     (301,244)      --
</TABLE>
 
                                       23
<PAGE>
                            HAMBRECHT & QUIST GROUP
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                               SEPTEMBER 30, 1997
 
8.  FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
 
    The following summarizes the Company's furniture, equipment and leasehold
improvements as of September 30, 1996 and 1997:
 
<TABLE>
<CAPTION>
                                                                     1996            1997
                                                                --------------  --------------
<S>                                                             <C>             <C>
Furniture and equipment.......................................  $   22,840,641  $   31,672,647
Leasehold improvements........................................       8,479,586      12,489,222
Less--Accumulated depreciation and amortization...............     (18,153,075)    (25,379,023)
                                                                --------------  --------------
                                                                $   13,167,152  $   18,782,846
                                                                --------------  --------------
                                                                --------------  --------------
</TABLE>
 
    For the years ended September 30, 1995, 1996 and 1997, occupancy and
equipment expense included depreciation and amortization expense on furniture,
equipment and leasehold improvements of $2,358,337, $3,873,463 and $7,342,719,
respectively.
 
9.  LEASING ACTIVITIES:
 
    At September 30, 1996 and 1997, lease receivables consist of direct
financing capital leases with remaining terms ranging from 1 to 5 years of
$4,335,668 and $3,467,628, respectively. At September 30, 1996 and 1997, lease
receivables related to noncancelable operating leases are not material and are
included in other receivables. Future minimum rentals to be received under
direct financing leases and operating leases in effect at September 30, 1997,
are as follows:
 
<TABLE>
<CAPTION>
                                                                      DIRECT
                                                                    FINANCING    NONCANCELABLE
                                                                      LEASE        OPERATING
                                                                   RECEIVABLES      LEASES
                                                                   ------------  -------------
<S>                                                                <C>           <C>
1998.............................................................  $  2,282,714   $ 1,827,404
1999.............................................................       982,652       963,226
2000 and thereafter..............................................       675,635       301,951
                                                                   ------------  -------------
  Total minimum lease payments...................................     3,941,001   $ 3,092,581
                                                                                 -------------
                                                                                 -------------
  Less--Unearned income..........................................      (473,373)
                                                                   ------------
                                                                   $  3,467,628
                                                                   ------------
                                                                   ------------
</TABLE>
 
    At September 30, 1996 and 1997, leased assets subject to noncancelable
operating leases consist of equipment of $9,477,525 and $10,997,813,
respectively, less accumulated depreciation of $6,428,474 and $8,725,641,
respectively.
 
    The Company's depreciation expense on leased assets was $3,305,733,
$2,851,223 and $2,298,160 for the years ended September 30, 1995, 1996 and 1997,
respectively.
 
                                       24
<PAGE>
                            HAMBRECHT & QUIST GROUP
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                               SEPTEMBER 30, 1997
 
10.  DEBT OBLIGATIONS:
 
    Debt obligations consist of the following:
 
<TABLE>
<CAPTION>
                                                                                            1996          1997
                                                                                        ------------  ------------
<S>                                                                                     <C>           <C>
Lines of credit--
  $15,000,000 bank line of credit (H&Q California); interest on individual advances at
    prime plus 0.75 percent (9.25 percent at September 30, 1997) or at LIBOR plus 2.5
    percent (8.25 percent at September 30, 1997) fixed for the term of the advance;
    collateralized in full by marketable securities and certain customer receivables;
    average balance outstanding in 1996 and 1997 was $6,363,493 and $5,115,091,
    respectively; expires March 30, 1998..............................................  $  8,364,822  $  1,100,000
 
$20,000,000 bank line of credit (H&Q California); interest on overnight advances at
  prime (8.5 percent at September 30, 1997); unsecured; no amounts drawn in 1996 and
  $10,000,000 drawn for four days in 1997; expires April 30, 1998.....................       --            --
 
$11,000,000 bank line of credit (Guaranty Finance); interest at prime plus 1.25
  percent (9.75 percent at September 30, 1997); collateralized in full by Guaranty
  Finance's assets, except for cash and marketable securities; average balance
  outstanding in 1996 and 1997 was $1,332,711 and $785,833, respectively; expires
  January 29, 1998....................................................................       --            700,000
 
$10,000,000 bank line of credit (Transition Capital); interest at prime plus 1.75
  percent (10.25 percent at September 30, 1997); collateralized in full by Transition
  Capital's assets, except for cash and marketable securities; average balance
  outstanding in 1997 was $283,333; expires February 10, 1998.........................       --            900,000
                                                                                        ------------  ------------
 
                                                                                        $  8,364,822  $  2,700,000
                                                                                        ------------  ------------
                                                                                        ------------  ------------
</TABLE>
 
    The average prime rate for 1996 and 1997 was 8.39 percent.
 
    Interest expense on debt obligations was $960,353, $1,135,501 and $617,563
during fiscal 1995, 1996 and 1997, respectively.
 
                                       25
<PAGE>
                            HAMBRECHT & QUIST GROUP
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                               SEPTEMBER 30, 1997
 
11.  INCOME TAXES:
 
    The income tax provision consisted of the following components for the years
ended September 30, 1995, 1996 and 1997:
 
<TABLE>
<CAPTION>
                                                                  STATE AND
                                                   FEDERAL          CITY           TOTAL
                                                --------------  -------------  --------------
<S>                                             <C>             <C>            <C>
1995--
  Current.....................................  $   15,702,697   $ 7,964,644   $   23,667,341
  Deferred....................................      (1,152,901)      (53,293)      (1,206,194)
                                                --------------  -------------  --------------
    Total.....................................  $   14,549,796   $ 7,911,351   $   22,461,147
                                                --------------  -------------  --------------
                                                --------------  -------------  --------------
 
1996--
  Current.....................................  $   44,972,093   $20,461,786   $   65,433,879
  Deferred....................................     (23,048,950)   (3,918,683)     (26,967,633)
                                                --------------  -------------  --------------
    Total.....................................  $   21,923,143   $16,543,103   $   38,466,246
                                                --------------  -------------  --------------
                                                --------------  -------------  --------------
 
1997--
  Current.....................................  $   36,907,127   $16,154,623   $   53,061,750
  Deferred....................................     (12,885,782)   (6,253,383)     (19,139,165)
                                                --------------  -------------  --------------
    Total.....................................  $   24,021,345   $ 9,901,240   $   33,922,585
                                                --------------  -------------  --------------
                                                --------------  -------------  --------------
</TABLE>
 
    The net deferred income tax asset as of September 30, 1996 and 1997, is
composed of the following:
 
<TABLE>
<CAPTION>
                                                                     1996           1997
                                                                 -------------  -------------
<S>                                                              <C>            <C>
Deferred income tax assets--
  Compensation and benefits accruals...........................  $  32,950,925  $  36,440,726
  Net unrealized losses on long-term investments...............       --            4,237,582
  Contingent liability accruals................................      3,342,271      6,288,318
  Depreciation and amortization................................      3,627,304      3,255,848
  Other........................................................      2,493,477      6,512,180
                                                                 -------------  -------------
                                                                    42,413,977     56,734,654
Deferred income tax liabilities--
  Net unrealized gains on long-term investments................     (4,818,488)      --
                                                                 -------------  -------------
    Net deferred income tax asset..............................  $  37,595,489  $  56,734,654
                                                                 -------------  -------------
                                                                 -------------  -------------
</TABLE>
 
    There was no valuation allowance against deferred tax assets at September
30, 1996 and 1997.
 
                                       26
<PAGE>
                            HAMBRECHT & QUIST GROUP
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                               SEPTEMBER 30, 1997
 
11.  INCOME TAXES: (CONTINUED)
 
    The following is a reconciliation of the income tax expense to the amount
computed by applying the federal statutory rate to income before income tax
expense:
 
<TABLE>
<CAPTION>
                                                     1995                      1996                       1997
                                           ------------------------  -------------------------  ------------------------
                                              AMOUNT        RATE         AMOUNT        RATE        AMOUNT        RATE
                                           -------------  ---------  --------------  ---------  -------------  ---------
<S>                                        <C>            <C>        <C>             <C>        <C>            <C>
Tax expense computed at statutory rate...  $  25,164,789       35.0% $   44,473,597       35.0% $  26,983,873       35.0%
State and local tax provision, net of
  federal income tax benefit.............      5,244,299        7.3      10,753,017        8.5      6,202,866        8.0
Nondeductible expenses...................        155,164        0.2         765,470        0.6        677,372        0.9
LP income not subject to tax (Note 2)....     (8,103,105)     (11.3)    (17,443,418)     (13.7)      --           --
Other, net...............................       --           --             (82,420)      (0.1)        58,474        0.1
                                           -------------  ---------  --------------  ---------  -------------  ---------
                                           $  22,461,147       31.2% $   38,466,246       30.3% $  33,922,585       44.0%
                                           -------------  ---------  --------------  ---------  -------------  ---------
                                           -------------  ---------  --------------  ---------  -------------  ---------
</TABLE>
 
12.  RELATED-PARTY TRANSACTIONS:
 
INVESTMENT TRANSACTIONS
 
    The Company makes investments in private companies directly, through
investment partnerships and through the venture capital funds it manages.
Venture Partners manages the majority of the Company's venture capital funds
(see Note 1) and earns management fees and profit participation distributions
(see Note 4).
 
    Directors, officers and employees of H&Q or its subsidiaries may have
additional interests in such private companies directly or through various
affiliated venture capital or other investment entities. Such parties may also
serve on the boards of directors of companies in which the Company has invested.
 
    Guaranty Finance provides lease financing to companies in which H&Q, its
subsidiaries and its affiliates have equity investments.
 
OPERATING ADVANCES
 
    H&Q pays operating expenses on behalf of certain affiliates, primarily Asia
Pacific (see Notes 1 and 4), and is reimbursed for those expenses. Operating
expenses that have not yet been reimbursed are included in receivables from
related parties (see Note 4).
 
STOCK NOTES RECEIVABLE
 
    In connection with sales of the Company's common stock, the Company received
stock notes receivable from employees, which, at September 30, 1996 and 1997,
had principal balances of $13,550,503 and $5,620,260, respectively, and are
treated as a reduction of stockholders' equity. These notes bear interest at
rates ranging from 6.0 percent to 7.5 percent and have maturity dates ranging
from 1997 through 2000.
 
                                       27
<PAGE>
                            HAMBRECHT & QUIST GROUP
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                               SEPTEMBER 30, 1997
 
12.  RELATED-PARTY TRANSACTIONS: (CONTINUED)
    During the fiscal year ended September 30, 1997, the Company repurchased
1,615 shares of stock from departed employees. Under the terms of the stock note
agreements, such repurchases of shares are done in exchange for the respective
departing employee's outstanding stock notes receivable balance. The repurchased
shares are held as treasury stock for later reissuance by the Company (see Note
1). Such transactions totaling $9,908 were recorded as reductions to stock notes
receivable and increases to treasury stock.
 
    Capital notes receivable from LP partners represent amounts due from
partners, including H&Q, for their capital contributions to LP. Such amounts are
recorded as a reduction of partners' capital. In 1996, capital notes receivables
from LP partners of $8,227,753 were transferred to H&Q California and are
reflected in the stock notes receivable amounts described above.
 
LEWCO SECURITIES CORP.
 
    H&Q LLC is a co-owner of Lewco (see Note 1), a securities clearing firm that
is a registered broker-dealer and member of each major stock exchange. H&Q LLC
holds a subordinated note for $300,000 issued by Lewco. The interest on this
note is paid quarterly at the prime rate, with the principal balance due
December 31, 1999. The subordinated note receivable and H&Q LLC's investment in
Lewco are carried in long-term investments (see Note 7). H&Q LLC uses Lewco,
which renders its services to its owners on a cost-sharing basis, to process its
securities transactions and all other related clearing services. Lewco also
maintains the Company's customer and broker accounts.
 
    Amounts receivable from Lewco result from customer and H&Q LLC proprietary
transactions. Interest on the interest-bearing amounts receivable from Lewco is
earned at a fluctuating rate (5.38 percent and 4.80 percent at September 30,
1996 and 1997, respectively).
 
13.  EMPLOYEE BENEFIT PLANS:
 
SAVINGS AND EMPLOYEE STOCK OWNERSHIP TRUST
 
    Under the SESOT (see Note 2), the Company established an Employee Stock
Ownership Plan (ESOP) and a profit-sharing plan (PSP) with an employee salary
deferral (or 401(k)) feature. Collectively, the ESOP and PSP are referred to as
the Hambrecht & Quist Group Savings and Employee Stock Ownership Plan (the Plan
or SESOP). Substantially all full-time employees of H&Q and its subsidiaries and
certain affiliates are eligible to participate in the Plan.
 
    Under the Plan, the Company may match employees' 401(k) contributions to the
PSP up to $4,000 per employee per year by making Company common stock
contributions to the ESOP. The Company may also make discretionary cash
contributions to the PSP. For 1995, 1996 and 1997, the Company recorded
compensation expense of $1,246,645, $1,590,000 and $1,943,760, respectively, to
the ESOP under the matching provision. Subsequent to September 30, 1997, the
Company issued 58,498 shares of common stock to the ESOP in satisfaction of its
compensation and benefits payable. No discretionary contributions were made to
the PSP in 1995, 1996 or 1997.
 
    As of September 30, 1997, the ESOP owned approximately 7.63 percent of the
H&Q common stock outstanding.
 
                                       28
<PAGE>
                            HAMBRECHT & QUIST GROUP
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                               SEPTEMBER 30, 1997
 
13.  EMPLOYEE BENEFIT PLANS: (CONTINUED)
BONUS AND DEFERRED SALES COMPENSATION PLAN
 
    The Company may pay semiannual bonuses to its executives and other
professional employees under the Compensation Plan (see Note 2). The
Compensation Committee of the Board (the Committee), in its sole discretion, may
offer such employees the ability to elect to receive a percentage (the
Percentage) of such bonus or commission in H&Q common stock, valued at not less
than 90 percent of the fair market value on the date of grant. Unless otherwise
determined by the Committee, the stock vests ratably over three years following
the date of grant. Determinations with respect to executive officers are made by
the Board instead of the Committee. At the date of the bonus payment, the
employee may choose to decline any offered common stock, and instead receive
cash payments equal to the Percentage over three years following the date of
grant. If their employment terminates within the three year vesting period, the
employee forfeits their unvested common stock or future cash payments. The 1996
Equity Plan (1996 Plan) allows for up to 2,000,000 shares of the Company's
common stock to be issued in connection with the Compensation Plan.
 
    The Company paid semiannual bonuses in October 1997. Under the Compensation
Plan, 184,297 shares valued at $6,703,803 were issued to executives and
professionals effective October 15, 1997. All such amounts were included in
compensation and benefits payable as of September 30, 1997.
 
STOCK OPTION PLANS
 
    The Company has three stock option plans, the 1985 Option Plan (1985 Plan),
1995 Option Plan (1995 Plan) and the 1996 Plan. Additionally, the Company has
granted stock options outside the 1985, 1995 and 1996 plans.
 
    The Company's 1985 Plan, which provided for the granting of options to
purchase 4,000,000 shares of the Company's common stock, expired September 30,
1994, except as to the options then outstanding. As of September 30, 1997,
306,000 options remain outstanding under the 1985 Plan. The Company's 1995 Plan
provided for the granting of incentive options and nonqualified options to
purchase 4,972,000 shares of the Company's common stock to officers, employees
and directors at a price not less than 85 percent of fair market value at the
date the option was granted, subject to certain limitations regarding incentive
stock options. Due to the creation of the 1996 Plan, no further options will be
granted under the 1995 Plan. As of September 30, 1997, 3,877,676 options
remained outstanding under the 1995 Plan. The 1996 Plan provides for the
granting of incentive and nonqualified options to purchase up to 1,000,000
shares of the Company's common stock to Company employees, directors and
consultants. As of September 30, 1997, 291,600 options have been granted under
the 1996 Plan. Outside the 1985, 1995 and 1996 plans, 1,091,880 options have
been granted to certain officers and directors. Such options were granted with
an exercise price equal to fair market value (see Note 2) at the date of grant.
 
    Options become exercisable as determined at the date of grant by the
Committee or the Board, in the case of executive officers. Generally, options
become exercisable over a five year period from the date of grant and expire
seven years after the date of grant.
 
                                       29
<PAGE>
                            HAMBRECHT & QUIST GROUP
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                               SEPTEMBER 30, 1997
 
13.  EMPLOYEE BENEFIT PLANS: (CONTINUED)
    Details of stock options are as follows:
 
<TABLE>
<CAPTION>
                                                                NUMBER OF
                                                                 SHARES      EXERCISE PRICE
                                                               -----------  -----------------
<S>                                                            <C>          <C>
Outstanding at September 30, 1994............................    3,372,276   $ 2.04 - $ 4.53
  Granted....................................................      904,636   $ 4.60 - $ 5.54
  Exercised..................................................   (1,326,484)  $ 2.10 - $ 2.88
  Canceled...................................................      (16,000)      $ 2.10
                                                               -----------
Outstanding at September 30, 1995............................    2,934,428   $ 2.04 - $ 5.54
  Granted....................................................    4,530,320   $ 6.52 - $13.75
  Exercised..................................................   (1,609,628)  $ 2.10 - $ 4.74
  Canceled...................................................     (157,600)  $ 2.62 - $ 5.54
                                                               -----------
Outstanding at September 30, 1996............................    5,697,520   $ 2.04 - $13.75
  Granted....................................................      301,600   $16.13 - $31.06
  Exercised..................................................     (205,038)  $ 2.04 - $11.25
  Canceled...................................................     (226,926)  $ 5.54 - $19.88
                                                               -----------
Outstanding at September 30, 1997............................    5,567,156   $ 2.10 - $31.06
                                                               -----------
                                                               -----------
</TABLE>
 
    Of the outstanding options at September 30, 1997, 1,412,481 had vested.
Subsequent to September 30, 1997, the Company issued 629,500 stock options at a
weighted average exercise price of $32.75 which was equal to fair market value
at the respective dates of grant.
 
    The Company applies the intrinsic value method in accounting for its stock
options plans. In 1996, 625,988 options were granted at an exercise price below
fair market value on the date of grant, and resulted in a $1,165,903 charge to
compensation expense. Other grants of options did not result in compensation
expense in 1996 or 1997. Had the Company used the fair value based method
proscribed by SFAS 123 (see Note 2), the Company's net income and earnings per
share would have been reduced to the pro forma amounts indicated below:
 
<TABLE>
<CAPTION>
                                                                     1996           1997
                                                                 -------------  -------------
<S>                                                              <C>            <C>
Net income
  As reported..................................................  $  71,157,755  $  43,174,198
  Pro forma....................................................     66,070,945     41,354,111
Earnings per share
  As reported..................................................          $3.27          $1.68
  Pro forma....................................................          $3.04          $1.61
</TABLE>
 
    The fair value of each option grant in 1997 is estimated on the date of
grant using the Black-Scholes option-pricing model. The fair value of each
option grant in 1996 is estimated using the minimum value method. The weighted
average assumptions used for options, respectively are as follows: expected
volatility of 58.0 percent in 1997 (not applicable in 1996); risk-free interest
rates of 6.17 and 5.86 percent in 1996 and 1997, respectively; and the expected
life of 5.95 years for all seven year grants and 2.80 years for all three year
grants.
 
                                       30
<PAGE>
                            HAMBRECHT & QUIST GROUP
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                               SEPTEMBER 30, 1997
 
13.  EMPLOYEE BENEFIT PLANS: (CONTINUED)
STOCK APPRECIATION RIGHTS
 
    In fiscal 1995 and 1996 the Company awarded Stock Appreciation Rights (SARs)
to key employees and executives. These SARs have a service period of one year
and result in additional cash compensation to the individuals based on the
increase in the Company's book value during the service period to which the SARs
relate. The SARs vest and are paid over three years, with immediate cancellation
of vesting upon employment termination.
 
    Compensation expense recorded for SARs awards was $4,210,216 and $9,461,954
for 1995 and 1996, respectively.
 
    The following summarizes SARs outstanding as of September 30, 1997:
 
<TABLE>
<CAPTION>
                                                                           SARS AWARDS
                                                                      ----------------------
                                                                         1995        1996
                                                                      ----------  ----------
<S>                                                                   <C>         <C>
Initial grant.......................................................   1,794,000   2,959,520
Canceled............................................................    (417,960)   (469,959)
                                                                      ----------  ----------
  SARs remaining....................................................   1,376,040   2,489,561
                                                                      ----------  ----------
                                                                      ----------  ----------
SARs issuance price.................................................       $4.98       $7.49
</TABLE>
 
    The total SARs liability at September 30, 1997, included in compensation and
benefits payable, will be paid out as follows:
 
<TABLE>
          <S>                                       <C>
          1998....................................  $  3,373,241
          1999....................................     2,219,694
                                                    ------------
                                                    $  5,592,935
                                                    ------------
                                                    ------------
</TABLE>
 
14.  NET CAPITAL REQUIREMENTS:
 
    As a registered broker-dealer, H&Q LLC is subject to the Securities and
Exchange Commission's Uniform Net Capital Rule 15c3-1 (the Rule) and the capital
rules of the New York Stock Exchange, Inc., of which H&Q LLC is a member. H&Q
LLC has elected to compute its net capital requirement under the "alternative"
method, which requires minimum net capital to be the greater of $1,000,000 or
two percent of aggregate debit balances arising from customers' transactions, as
defined. The Rule also provides that equity capital may not be withdrawn or cash
distributions paid if the resulting net capital would be less than the amounts
required under the Rule. Accordingly, the payment of distributions and advances
to H&Q by H&Q LLC is limited to excess net capital under the most restrictive of
these requirements. At September 30, 1996 and 1997, H&Q LLC's regulatory net
capital of $49,975,660 and $67,030,028, respectively, was 22 percent and 27
percent, respectively, of aggregate debit items and its net capital in excess of
the minimum required was $45,489,559 and $62,087,429, respectively.
 
    RvR Securities and H&Q EM are subject to net capital requirements of their
respective regulatory agencies. At September 30, 1996 and 1997 the Company and
its subsidiaries were in compliance with all applicable regulatory capital
adequacy requirements.
 
                                       31
<PAGE>
                            HAMBRECHT & QUIST GROUP
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                               SEPTEMBER 30, 1997
 
15.  COMMITMENTS AND CONTINGENCIES:
 
    Aggregate annual rentals for office space under noncancelable operating
leases are as follows:
 
<TABLE>
          <S>                                       <C>
          1998....................................  $   6,597,097
          1999....................................      3,636,713
          2000....................................      2,091,071
          2001....................................      2,128,775
          2002....................................      2,132,774
          Thereafter..............................      7,749,445
                                                    -------------
                                                    $  24,335,875
                                                    -------------
                                                    -------------
</TABLE>
 
    Certain of these leases have escalation clauses. Rental expense, net of
sublease income, charged to occupancy and equipment expense for the years ended
September 30, 1995, 1996 and 1997, was $4,297,622, $4,716,591 and $6,427,289,
respectively.
 
    Lewco conducts a stock borrow/stock lending business. On behalf of Lewco,
the Company has agreed to guarantee its proportional share of secured loans
resulting from this business. The Company's contingent liability relating to its
net unsecured position under this indemnity agreement was $5,184,326 and
$7,375,203 at September 30, 1996 and 1997, respectively. Also, in connection
with H&Q LLC's option trading activities, the Company has issued a letter of
credit totaling $5,500,000 at September 30, 1997 benefiting the Options Clearing
Corporation.
 
    The Company has other contingent liabilities, including contractual
commitments arising in the normal course of business, the resolution of which,
in management's opinion, will not have an adverse effect on the Company's
financial position.
 
    As is the case with many firms in the securities industry, the Company is a
defendant or co-defendant in a number of actions. These civil actions and
arbitrations have arisen in the normal course of the Company's business and are
incidental to its activities as a broker-dealer in securities, as an
underwriter, as a corporate financial advisor and as an employer. The Company is
also involved, from time to time, in proceedings with, and investigations by,
governmental agencies and self regulatory organizations. Some of the actions
have been brought on behalf of various classes of claimants and seek damages of
material or indeterminate amounts. Most of the Company's current proceedings
relate to public underwritings of securities in which H&Q LLC participated as a
manager, co-manager or member of the underwriting syndicate. These cases involve
claims under federal and state securities laws and seek compensatory and other
monetary damages. It is possible that H&Q and/or H&Q LLC may be called upon as a
member of a class of defendants or under the terms of the underwriting,
indemnification or other agreements to contribute to settlements or judgments
arising out of these cases. The Company is contesting the complaints in all
cases and believes that there are meritorious defenses in each of these
lawsuits. Although the ultimate outcome of the Company's litigation cannot be
ascertained at this time, it is the opinion of the Company's management, based
on discussions with counsel, that the resolution of these actions and others
will not have a material adverse effect on the Company's financial statements
taken as a whole.
 
    H&Q has indemnified certain of its officers, directors and agents, and
certain of its affiliates, as permitted under applicable state law. Under these
provisions, H&Q itself is and will be subject to indemnification assertions by
officers, directors, agents or certain of its affiliates who are or may become
 
                                       32
<PAGE>
                            HAMBRECHT & QUIST GROUP
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                               SEPTEMBER 30, 1997
 
15.  COMMITMENTS AND CONTINGENCIES: (CONTINUED)
defendants in litigation that may result in the normal course of business.
Although the ultimate outcome of indemnification assertions outstanding as of
September 30, 1997, cannot be ascertained at this time, it is the opinion of the
Company's management, based on discussions with counsel, that the resolution of
these assertions will not have a material adverse effect on the Company's
financial statements taken as a whole.
 
16.  FINANCIAL INSTRUMENTS WITH MARKET RISK AND CONCENTRATIONS OF CREDIT RISK:
 
    In the normal course of business, H&Q LLC enters into various financial
transactions with market risk in connection with its proprietary trading
activities. These transactions primarily include purchases and sales of index
and equity options. H&Q LLC records its options at market value. H&Q LLC's
options are primarily executed to minimize its market risk exposure of its
underlying trading positions as well as to benefit from changing market
conditions. All options transacted by H&Q LLC are exchange-traded in organized
markets and have terms of less than one year. H&Q LLC's exposure to market risk
is determined by a number of factors, including the size, composition and
diversification of positions held and market volatility. Management actively
monitors its market risk exposure by reviewing the effectiveness of hedging
strategies and setting market risk limits. H&Q LLC's exposure to market risk is
immaterial.
 
    In the normal course of business, H&Q LLC's customer and correspondent
clearance activities involve the execution, settlement and financing of various
customer securities transactions. These activities may expose H&Q LLC to
off-balance-sheet credit risk in the event that the customer is unable to
fulfill its contracted obligations. H&Q LLC's customer securities activities are
transacted on either a cash or margin basis. In margin transactions, H&Q LLC
extends credit to the customer, subject to various regulatory and internal
margin requirements, collateralized by cash and securities in the customer's
account. H&Q LLC monitors collateral and required margin levels daily and,
pursuant to such guidelines, requests customers to deposit additional collateral
or reduce securities positions when necessary. H&Q LLC is also exposed to credit
risk when its margin accounts or a margin account is collateralized by a
concentration of a particular security and when that security decreases in
value.
 
    In addition, H&Q LLC executes and clears customer short-sale transactions.
Such transactions may expose H&Q LLC to off-balance-sheet risk in the event that
margin requirements are not sufficient to fully cover losses that customers may
incur. In the event that the customer fails to satisfy its obligations, H&Q LLC
may be required to purchase financial instruments at prevailing market prices in
order to fulfill the customer's obligations.
 
    In accordance with industry practice, H&Q LLC records customer transactions
on a settlement-date basis, which is generally three business days after trade
date. H&Q LLC is therefore exposed to risk of loss on these transactions in the
event of the customers' or brokers' inability to meet the terms of their
contracts, in which case H&Q LLC may have to purchase or sell financial
instruments at prevailing market prices. Settlement of these transactions is not
expected to have a material effect on H&Q LLC's balance sheet.
 
    As a securities broker-dealer, H&Q LLC provides services to diverse groups
of corporations and institutional and individual investors. A substantial
portion of H&Q LLC's transactions is executed with and on behalf of
institutional investors, including other broker-dealers, commercial banks,
insurance
 
                                       33
<PAGE>
                            HAMBRECHT & QUIST GROUP
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                               SEPTEMBER 30, 1997
 
16.  FINANCIAL INSTRUMENTS WITH MARKET RISK AND CONCENTRATIONS OF CREDIT RISK:
     (CONTINUED)
companies, pension plans, mutual funds and other financial institutions. H&Q
LLC's exposure to credit risk associated with the nonperformance of these
customers in fulfilling their contractual obligations pursuant to securities
transactions can be directly impacted by volatile trading markets.
 
    As of September 30, 1997, the Company did not have significant
concentrations of credit risk with any single counterparty or with any single
security.
 
17.  INDUSTRY SEGMENT AND GEOGRAPHIC AREA DATA:
 
    The Company is primarily engaged in a single line of business as a
securities firm, which comprises several types of services, such as principal
and agency transactions, underwriting and investment banking and long-term
equity investing. These activities constitute a single business segment.
 
    The assets and revenues related to the Company's foreign operations are not
significant.
 
18.  QUARTERLY DATA (UNAUDITED):
 
    The following table sets forth selected highlights for each of the fiscal
quarters during the years ended September 30, 1996 and 1997 (dollars in
thousands, except per share data):
 
<TABLE>
<CAPTION>
                                                     INCOME            EARNINGS   PRO FORMA   PRO FORMA
                                                     BEFORE              PER         NET      EARNINGS
                                           TOTAL     INCOME     NET     SHARE      INCOME     PER SHARE
                                          REVENUES   TAXES    INCOME     (1)         (2)       (1)(2)
                                          --------  --------  -------  --------   ---------   ---------
<S>                                       <C>       <C>       <C>      <C>        <C>         <C>
1996:
  First quarter.........................  $108,414  $ 40,302  $26,622              $22,569      $1.11
  Second quarter........................    97,528    31,631   20,960               17,713      $0.86
  Third quarter.........................   108,654    34,585   22,444               19,368      $0.94
  Fourth quarter........................    78,106    20,549   18,575               11,508      $0.47
                                          --------  --------  -------             ---------
    Total year..........................  $392,702  $127,067  $88,601              $71,158      $3.27
                                          --------  --------  -------             ---------
                                          --------  --------  -------             ---------
1997:
  First quarter.........................  $ 94,900  $ 28,145  $15,761   $0.62
  Second quarter........................    74,653    13,373    7,489   $0.29
  Third quarter.........................    82,299    18,239   10,214   $0.40
  Fourth quarter........................    94,380    17,340    9,710   $0.37
                                          --------  --------  -------
    Total year..........................  $346,232  $ 77,097  $43,174   $1.68
                                          --------  --------  -------
                                          --------  --------  -------
</TABLE>
 
------------------------
 
(1) The sum of the quarters' pro forma earnings per share and earnings per share
    do not always equal the total year amounts due to the effect of averaging
    the number of shares of common stock and common stock equivalents throughout
    the year.
 
(2) Pro forma net income and pro forma earnings per share include taxes on LP
    earnings as if LP's earnings were subject to taxes at an effective tax rate
    of 44 percent (see Note 2).
 
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