In 2007, Jefferies helped clients J e f f e r i e s G r o u p , I n c . 2 0 0 7 A n n u a l R e p o r t NAVIGATE VOLATILE MARKETS ACCESS LIQUIDITY ASSESS STRATEGIC ALTERNATIVES EXPLORE OPPORTUNITIES DIVERSIFY THEIR PORTFOLIOS EXPAND GLOBALLY DEFINE THEIR GOALS STRENGTHEN THEIR BALANCE SHEETS MAXIMIZE LEVERAGE TRANSFORM THEIR COMPANIES ACHIEVE THEIR OBJECTIVES INVEST KNOWLEDGEABLY MANAGE RISK ACCESS CAPITAL EMBRACE CHALLENGES STAY INFORMED MINIMIZE DILUTION GROW BY ACQUISITION DEPLOY CAPITAL MAXIMIZE VALUE JEFFERIES GROUP, INC. 2007 ANNUAL REPORT Jefferies Group, Inc. 520 Madison Avenue, New York, New York 10022 www.jefferies.com Jefferies has retained the sort of character that many other firms sacrificed in the race for size. In the wave of consolidation that swept through the industry at the end of the 1990s and early 2000s, many of its competitors were swallowed by commercial or investment banks.... – The Banker, “Success Without a Name” August 2007 Jefferies is one of the few firms that can advise on either side of a deal, arrange debt and, years later when a portfolio company matures, underwrite the IPO. – Buyouts, “Moving Swiftly Up the League Tables” April 2007 Jefferies plays multiple roles, everything from adviser to buyers or sellers and managing leveraged finance deals to co-managing IPOs and advising M&A transactions. Such a wide array of roles means that Jefferies can arrange financings for a young business, then take the company public, forging a long-term relationship.... – Investment Dealers’ Digest, “Here Comes Jefferies” September 2007 , . Nuestros Principios Our Principles OUR CLIENTS ARE OUR LIFEBLOOD Without exception, their interests come first. Our mandate is to provide them with the very best, from thought to finish. And for one simple reason: if we get it right for our clients, we get it right for everyone connected to the Firm. WE BUILD RELATIONSHIPS Whether it's a brokerage client or an investment banking client, our goal is to help them develop and grow their business. For years, our Firm has fostered long-term, deep-seated relationships based on trust, integrity and mutual respect. GROWTH IS OUR MISSION Growing and mid-sized companies and their investors comprise the most dynamic, thriving sector of the economy. And their businesses and opportunities are as unique as their needs. Often overlooked and underserved, they find in us a Firm dedicated to their success, with every resource and capability to match. OUR PRODUCT IS OUR PEOPLE We have the financial expertise that enables our clients to succeed. As such, our people are our greatest asset. We prize intellect, passion, dedication, creativity, integrity and teamwork, seeking and retaining the brightest minds on Wall Street. We give those bright minds the opportunities to match, and pool our talent to create the best solutions for our clients. WE APPROACH EVERY SITUATION WITH INTEGRITY We are honest, fair and direct—with our clients, with one another and with our competition. We let the situation dictate the most appropriate solution, product or service that is in the best interests of our clients. OPPORTUNITY IS OUR MANDATE We see opportunity in everything we do. Difficult market conditions, shifting industry trends or geographic boundaries are no obstacle to us. We are inspired when others claim a trade or transaction is not possible. We will not give up until we have exhausted every avenue and explored every option to find an ethical and optimal way to achieve our clients' goals. WE ARE A FIRM OF SHAREHOLDERS We are vested deeply in the success of our Firm and the success of our clients. This alignment makes us unique. We think like owners, because we are owners. And we are always looking out for the best interests of the Firm. WE NEVER REST ON OUR LAURELS We do not take success for granted, nor do we rely on existing solutions. The global markets are constantly evolving, creating new opportunities for our clients and different ways of doing business. Complacency equals mediocrity. Innovation is king. . c n I , x i h p a r g o h t i L : y h p a r g o h t i L ) 2 1 , 9 s g p ( i n w r o C f f e J , ) 7 3 - 1 2 , 3 1 s g p ( n o s l i W y d n A : y h p a r g o t o h p 3 6 4 n w o r B : n g i s e d Jefferies is a global, full-service investment bank and institutional securities firm. in 2007, we maintained a solid financial position in a period of increasing volatility and illiquidity and continued strengthening our businesses. we are one firm, executing on our strategy, fully committed to creating opportunity and delivering value to our clients—now more than ever. Today, we are SERVING OUR CLIENTS NAVIGATING MARKET CONDITIONS DELIVERING VALUE ATTRACTING TOP TALENT MAINTAINING OUR STRATEGIC FOCUS DEEPENING OUR EXPERTISE COMMITTED TO OUR CORE MARKETS ENHANCING OUR BRAND POSITIONED FOR THE LONG TERM OPTIMISTIC AND DETERMINED EXECUTING ON OUR STRATEGY CREATING NEW OPPORTUNITIES BUILDING RELATIONSHIPS A DYNAMIC, FULL-SERVICE FIRM CRAFTING INNOVATIVE SOLUTIONS FOSTERING GROWTH ANTICIPATING CLIENT NEEDS MAKING INFORMED DECISIONS MONITORING RISK PROTECTING OUR PLATFORM POSITIONED TO PERFORM FOCUSED ON 2008 , . 3 Finanzielle Höhepunkte FINANCIAL HIGHLIGHTS (In Millions, Except Per Share Amounts) Net Revenue Operating Income Net Earnings Earnings Per Share Book Value Per Share Stockholders’ Equity Closing Stock Price At or for the year ended December 31, 2007 1,568 246 145 0.97 14.15 1,762 23.05 $ $ $ $ $ $ $ 2006 1,458 349 206 1.42 13.23 1,581 26.82 $ $ $ $ $ $ $ change + 7.5% – 29.5% – 29.6% – 31.7% + 7.0% + 11.4% – 14.1% B A L A N C E D N E T R E V E N U E 2 0 0 7 / $ 1 , 5 6 8 M I L L I O N 2 0 0 0 / $ 6 1 7 M I L L I O N Investment Banking 48 % 49 % Sales & Trading 78 % Sales & Trading Investment Banking 15 % Interest / Other 2% Asset Management 1% Interest / Other 5% Asset Management 2% Fellow Shareholders: The year 2007 was challenging in the markets and for the financial services sector in particular. For Jefferies, the first six months of 2007 were inspiring, with our Firm firing on almost every cylinder, our new businesses and integration efforts working in our favor, and our delivering on our mission to be the premier global investment bank and securities firm serving growing companies and their investors. The second half of 2007 saw a marked change in the environment, with many of our competitors suffering massive write-downs, and the debt markets experiencing rapidly declining liquidity and increasing volatility. We do not recall a more challenging period for financial services companies. This ultimately disrupted the balance of business growth and financial performance that we’ve been able to achieve for the prior seven and one-half years of this decade. Though our second-half results were not as strong as we had expected, 2007 saw many very positive developments for our Firm, and we are pleased to have announced our eighth consecutive year of record net revenues, totaling $1.57 billion, up 8 percent, and our third best net earnings ever, $144.7 million. Investment banking revenues were up nearly 40 percent to $750 million, and our revenues in equities increased more than 10 percent to nearly $600 million. Net earnings per share (diluted) were $0.97, and we ended the year with stockholders’ equity of $1.76 billion and $3.7 billion of total long-term capital (equity, long-term debt and mandatorily redeemable preferred stock). Our core businesses weathered the markets well, our financial position is strong and highly liquid, and our focus is clear. ALIGNED TO CONTINUE TO EXECUTE ON OUR STRATEGY We often use the year 2000 as a benchmark, or starting point, because for us it marked the beginning of the Firm’s transition from a substantially brokerage-driven business to a full-service, multi-sector, integrated securities and investment banking firm. During that time, we have achieved progressively higher net revenues, from $617 million in 2000 to $1.57 billion in 2007, with diversification as a Firm overall and within virtually all operating segments. We have continued to attract top talent and forge new part- nerships. Our employees are heavily staked through significant equity ownership in our Firm and, as such, we are well aligned with our external shareholders. Our motivated employee- shareholders, who collectively own nearly 40 percent of our Firm, have now completed transactions in more than 35 countries and we are connected to virtually every global exchange. In the past five years, we have merged six investment banking boutiques into Jefferies and added a large number of talented bankers to our core team. With our partners at MassMutual, we created and funded Jefferies Finance to add direct lending capabilities to our corporate product offering. We also undertook a complete overhaul of our research effort, and continue to invest in this important and valuable component of our plat- form. In 2003 and 2004, we started commodity derivatives and US asset management as core businesses, and we continue to support the growth of these areas. In 2006 and 2007, we focused on driving the development of our trading platforms, F I R M W I D E N E T R E V E N U E / in millions $ 1 , 5 6 8 $ 1 , 4 5 8 S T O C K H O L D E R S ’ E Q U I T Y / in millions $ 1 , 7 6 2 $ 1 , 5 8 1 $ 1 , 2 0 5 $ 1 , 0 5 8 $ 8 3 0 $ 1 , 2 8 7 $ 1 , 0 3 9 $ 8 3 8 0 3 0 4 0 5 0 6 0 7 0 3 0 4 0 5 0 6 0 7 , . Annual Report 07 5 with an influx of hires and substantial changes to our business model in equities in order to deliver full-service, more integrated capabilities to our clients. We built a formidable and aligned sector trading capability, added prime brokerage and equity derivatives, and strengthened our securities finance effort. We also expanded and improved our research sales team and our infrastructure and technology, enhanced our electronic trading capabilities—consistent with the direction of our customer base—and established a quantitative trading platform that has been a solid contributor, among other initiatives. We formed a new trading platform in high yield, and aligned day-to-day operations of our convertible and high yield trading desks. Internationally, we have enlisted new leadership and committed to meaningful expansion around the world. We have supported our growth with increased and enhanced efforts in legal, compliance, risk, finance, accounting, operations and technology. Seasoned leaders have been installed in all of these areas, and our ability to support and control our busi- nesses is strong. We have maintained a secure balance sheet, and a strong and liquid capital position, with a conservative risk profile and ample access to additional capital. Our balance sheet contains assets that we understand clearly, and that are marked properly and almost entirely against transparent market valuations. BALANCING RISK AND GROWTH IN CYCLICAL MARKETS We have constantly balanced investing for the future with realizing results today. We have invested heavily in our Firm for the past eight years, and there is always a lag time between new hires and new businesses, and corresponding production and revenues. We consider this an important and necessary investment for the long term. Our financial performance was adversely affected in 2007 by lower revenues in the second half of the year, in part due to several business units that generated negative revenue. Prospects for 2008 are, at best, uncertain. The liquidity crisis that began in the sub-prime space in mid-2007 has now spread to other segments of the structured and leveraged products arena. While Jefferies has essentially no direct balance sheet exposure to the securities that have been directly affected by the sea change in sentiment and valuation, we cannot avoid the reality of increased volatility, economic challenges and overall negative financial trends. In response to all this and our own weaker second-half 2007 results, we reduced our principal trading activities, shifted certain management, modified selected compensation formulae and focused on tightening costs in order to regain our equilibrium as quickly as possible. The challenge in a period of potential contraction is the mirror image of that which we have experienced in managing growth over these recent years. We must now align costs to our expected revenue levels, without losing the benefit and value I N V E S T M E N T B A N K I N G R E V E N U E / in millions $ 7 5 0 $ 5 4 1 E Q U I T I E S R E V E N U E / in millions, includes commissions and principal transaction revenues $ 5 9 7 $ 5 3 9 $ 4 9 5 $ 3 5 3 $ 2 3 0 $ 5 0 4 $ 4 4 1 $ 4 3 8 0 3 0 4 0 5 0 6 0 7 0 3 0 4 0 5 0 6 0 7 Letter to Shareholders (continued) of the incredibly capable firm we have developed. As we write this letter, we are deeply focused on this challenge, aiming to mitigate risk and control our costs as best as possible, while maintaining Jefferies’ long-term value and potential. of our capabilities in a single assignment. As we face shifting markets, the range of our capabilities, coupled with our focus and dedication, should allow us to continue to increase our market share. THE JEFFERIES INVESTMENT BANK We are extremely proud of what our Firm was able to achieve for our clients in 2007, working on more than 470 advisory and capital markets transactions. We made several key additions to our investment banking platform: LongAcre Partners, a leading UK-based, European media and Internet M&A advi- sory firm; the Putnam Lovell global investment banking group, a leading advisor to the financial services sector; a dedicated consumer-focused team in the US; and a Frankfurt-based investment banking team serving German-speaking markets. Collectively, these new teams added a total of more than 80 new professionals, primarily around the middle of 2007, and significantly enhanced our product and industry expertise, as well as our regional presence. These new teams, whether acquired or directly hired, are consistent with the other high- quality specialist efforts that we have added to our Firm over the past six years. Given their cultural fit, we expect these new teams to thrive on and leverage our full-service platform. With experience, our process of integrating these new partners has become much more streamlined, and should help reduce the lag time between integration and contribution. Over the past seven years, the revenue mix from our investment banking division has diversified significantly, transitioning from a primarily leveraged finance business to a well-balanced mix of advisory and capital markets, while increasing the overall revenue pool dramatically. In our view, the broad spectrum of our product capabilities is key to our ability to comprehen- sively serve our clients. We are adept at structuring and executing transactions of all sizes and scope, regularly integrating several A ROBUST AND DIVERSIFIED SALES & TRADING PLATFORM Our sales and trading platform has experienced a fair amount of change over the past two years, and we are optimistic that these changes will continue to have a positive impact on our revenues going forward, as this business remains the backbone of our platform. Overall sales and trading revenues were relatively flat in 2007 at $770 million. We continue to add new products and capabilities to innovate and expand to meet our clients’ needs and adapt to new ways of doing business. Over the past several years, we diversified our equity business from being concentrated in cash equities to one that includes prime broker- age, electronic trading, derivatives, structured products, private client services and corporate services. We have also broadened our fixed income efforts and added commodities as an active component of our platform. We now have a more robust set of revenue streams, spanning a suite of investment methods and vehicles. An important component of this business is also our securities research effort, which we continue to grow and improve. CONTINUED GLOBAL EXPANSION Jefferies has continued to accelerate the development of our business outside the US, with the expansion of sector teams, capital markets capabilities and senior leadership across Europe and Asia. In 2007, we completed more than 50 invest- ment banking transactions for our clients outside the US, with a total value of nearly $12.5 billion. We enhanced our capabilities with the additions of LongAcre Partners and Putnam Lovell, and our new Frankfurt-based team. We appointed a new president of Jefferies International Limited, with more than 25 years of financial services experience, who is also global co-head t i m e l i n e 2 0 0 2 - 2 0 0 7 december 2002 Acquisition of Quarterdeck Partners, LLC (Aerospace & Defense) november 2003 Established dedicated CleanTech Investment Banking Practice december 2003 Acquisition of Broadview International (Technology) 2 0 0 2 2 0 0 3 2 0 0 4 september 2003 Established dedicated Industrial Investment Banking Team , . Rapporto Annuale 07 7 of our investment banking practice. Since January 1, 2006, our headcount outside the US has increased 50 percent from just over 300 to 460 employees, and we have opened new offices in Frankfurt, Dubai, Singapore, New Delhi and Shanghai. our global platform based on our historic strength in sales, trading and capital markets; our expanded research presence; our multi-sector, full-service investment bank; and high-quality asset management. We continue to seek new opportunities to serve our clients and extend the strength of our knowledge-based franchise to companies and investors around the globe. PROTECTING OUR PLATFORM Jefferies’ balance sheet remains very strong, with more than $3.7 billion in capital from equity, long-term debt and manda- torily redeemable convertible preferred stock. We seek to deploy this capital intelligently and prudently. We risk capital only where we feel it is well-leveraged operationally, and it makes the most sense for our clients and our Firm. Our professionals are highly disciplined and we are selective in our commitments, as evidenced by the lack of “hung bridges” from Jefferies and Jefferies Finance. We take measured risk throughout the organization, with checks and balances to monitor those risks. Our corporate governance, compliance and legal efforts, which serve to protect the enhancement and sustainment of shareholder value, are as important as the operational achievements of the company. To that end, in late 2007 we welcomed a new chief financial officer, Peregrine Broadbent, with 16 years of experience, and our first global head of risk management. ONE FIRM FOCUSED ON SERVING CLIENTS Our goal is to be One Firm in name, culture, strategy and execution. Our business is to add value for investors and com- panies by delivering the best ideas and execution from a firm working seamlessly around the world. We will continue to build We can’t control the markets, but we can control how we prepare for and react to them. The year 2007 demonstrated that our businesses are strong and durable, as is our ability to serve our clients. It is important that we make well-considered and prudent decisions. Not every decision we make will be the right one, but each decision is made collectively among Jefferies’ most experienced and trusted leaders and board members, with a deep understanding of the risk and opportunity, with recognition of our strategy and brand, and the best intentions of growing the value of our Firm for the long term. Not every year will be a record year, and while our core strategy remains intact, we are absolute realists regarding the environ- ment, and will navigate aggressively and appropriately. We are optimistic for what the long term holds for our Firm and are incredibly proud of our platform and the people who together are Jefferies. We are honored to be entrusted with the leadership of this unique Firm and are grateful to all of our constituents. Rich Handler Brian Friedman Chairman of the Board, Chairman Chief Executive Officer Executive Committee october 2004 Established Jefferies Finance (Senior Lending) february 2005 Acquisition of Randall & Dewey (Energy) 2 0 0 5 2 0 0 6 2 0 0 7 june 2007 Acquisition of Putnam Lovell Investment Banking Business (Financial Institutions) october 2007 Established dedicated Consumer Investment Banking Team may 2005 Acquisition of UK-based Helix Associates (Private Equity Fund Placement) may 2007 Acquisition of UK-based LongAcre Partners (Media) *Officially opened September 2007 july 2007* Established Investment Banking Team in Frankfurt THE U.S. INDUSTRIAL EQUITIES LONDON TECHNOLOGY, MEDIA & TELECOMMUNICATIONS MERGERS & ACQUISITIONS ZURICH CONSUMER HIGH YIELD FRANKFURT Right now, we are in AREAS OF GROWTH AND OPPORTUNITY ENERGY PARIS RESTRUCTURING SINGAPORE TOKYO FINANCIAL SERVICES DUBAI HEALTHCARE SHANGHAI FINANCIAL SPONSORS & PRIVATE CAPITAL NEW DELHI , . 9 Soins de Santé healthcare LATE STAGE CAPITAL AND AN IPO FOR POWER MEDICAL INTERVENTIONS (NASDAQ: PMII) Power Medical Interventions, Inc. (PMI), a pioneer of Intelligent Surgical InstrumentsTM primarily for bariatric, cardiothoracic and colorectal applications, planned to go public. Based in the US, with operations in Germany, France and Japan, PMI was well positioned with a strong management team, a deep intellectual property portfolio, progressive technology and a growing market opportunity. However, like many emerging companies, PMI was challenged to balance near-term performance with growth, and wanted an interim solution that would enable them to access capital to fund their business plan, complete their primary manufacturing facility, strengthen their balance sheet before the IPO and afford them some flexibility with regard to the timing of the IPO. Jefferies structured a highly tailored pre-IPO convertible offering that took into consideration a number of variables, including IPO valuation and the expected time lapse between the transaction and the IPO closing. Jefferies served as sole placement agent on this $25 million transaction, garnered excess demand among investors and secured favorable terms in a very competitive environment. When it came time for PMI’s initial public offering later in the year, Jefferies was a logical choice to serve as joint bookrunner. Despite an extremely volatile market, Jefferies again generated significant investor demand and the $48.7 million IPO was oversubscribed. PMI is now a public company (NASDAQ: PMII), ready to launch its next generation of products. These two transactions serve to demonstrate Jefferies’ expertise in capital raising and the Firm’s value as a financial partner for healthcare companies. 10 , . Maritiem maritime A TIMELY DEBT FINANCING AND A NEW HOME FOR UNITED MARITIME Greenstreet Equity Partners, a Florida-based private equity firm, was in discussions to acquire TECO Transport (now United Maritime Group), a world-class marine transportation and terminal services business and a subsidiary of Florida-based, NYSE-listed TECO Energy. The two companies signed a definitive agreement in October 2007, hoping to finalize the transaction before the end of the year, Greenstreet chose Jefferies to provide the debt financing because of the Firm’s leading market position in maritime investment banking, expertise in lending and ability to execute transactions in an accelerated time frame. Despite market uncertainty, Jefferies Finance provided Greenstreet with a firmly committed first and second lien senior secured loan commitment to support the transaction, and acted as the sole lead arranger and administrative agent for the $340 million financing. The transaction successfully closed within 36 days of commitment, and the speed of execution was a key determinant in acquiring the company at an attractive valuation. The debt financing cleared at the original pricing, without any structure or price flex, despite rapidly deteriorating market conditions. As a result of the transaction, United Maritime, with its new owners and capital structure, is well positioned for growth as a leading domestic provider of marine transportation and terminal services for dry bulk commodities. , . Énergie 11 energy STRATEGIC DIVESTITURES FOR NEWFIELD EXPLORATION COMPANY As part of its strategy to create a longer-lived reserve base by divesting short-life assets, Newfield Exploration Company, a leading independent oil and gas company, embarked on a strategic exit of its fields in the shallow waters of the Gulf of Mexico (GoM) and all its assets offshore in the UK. Having worked with Jefferies’ Energy investment banking group in the past and given Jefferies’ leadership as an advisor in energy M&A, Newfield chose the Firm to assist in the sale of its shallow-water GoM assets. Jefferies leveraged its technical knowledge of those partic- ular hydrocarbon basins, market insights, relationships and global presence to negotiate a mutually beneficial agreement with McMoRan Oil & Gas LLC for the GoM assets. McMoRan acquired the GoM properties for $1.1 billion, gaining strong cash flow from the producing properties plus experienced people who transitioned from Newfield to McMoRan. Newfield also appointed Jefferies to sell its UK subsidiary. Jefferies managed a process aimed at demonstrating to potential purchasers the strong future market prices for uncontracted gas in the UK and the Netherlands and secured a sale to Centrica for more than $486 million. These two transactions represented important milestones in Newfield’s strategy to optimize the company’s portfolio within an accel- erated time frame and provided the buyers with properties that were an excellent strategic fit for them. 12 , . Espace et Défense aerospace & defense A ‘BIG IMPACT DEAL’ AND A NEW FINANCIAL PARTNER FOR SCITOR CORPORATION With 1,200 employees and a strong presence in the space and classified information services sector, Scitor, a leading provider of systems engineering, financial and management consulting, information services and other services for national priority government programs, was an attractive acquisition candidate. For Los Angeles-based Leonard Green & Partners (LGP), one of the nation’s preeminent private equity firms, Scitor represented what would be the first government services company in its portfolio. In September 2007, Jefferies’ Aerospace & Defense investment banking group acted as the exclusive financial advisor to Scitor in its sale to LGP for an undisclosed amount. Jefferies also served as the co-lead arranger and joint bookrunner on a $187.5 million committed secured credit facility, which supported LGP’s acquisition of Scitor. The proper positioning of Scitor to buyers and financing sources was crucial to the success of these transactions as Jefferies balanced the diligence needs of potential buyers, lenders and ratings agencies, while keeping in mind Scitor’s confidentiality requirements. Additionally, the Scitor financing was one of the first “regular way” syndicated loan transactions following a trend of market turbulence over the summer. Despite the market slowdown, Jefferies’ pricing strategies were well received by the market and the deal offered new opportunities for Scitor to expand the range of its solutions and build on its platform. The transaction was hailed by Washington Technology as the #1 Big Impact Deal of 2007. , . Serviços Financeiros 13 financial services BROADER RESOURCES FOR VALUEACT CAPITAL ValueAct Capital (VAC), a governance-oriented investment manager with $6 billion in assets under management, is well known for taking large stakes in undervalued companies and working productively with their management and boards to boost performance. After seven years in business, VAC had generated a superior investment track record and had built a loyal clientele consisting of high net worth investors and blue-chip institutions. Management saw an opportunity to replace its passive seed investor with a more strategic and active partner to drive future growth. Jefferies’ global financial institutions group was awarded the sell-side advisory mandate owing to its in-depth specialist knowledge of the asset management sector and its long- standing dialogue with VAC. Jefferies screened a limited number of potential partners, focusing on firms that would retain VAC’s unique and innovative culture, and sourced multiple attractive transaction alternatives for its client. Ultimately, VAC partnered with Affiliated Managers Group (AMG), a publicly traded multi-affiliate asset manager with a reputation for its unique investment structure and expertise in aligning the incentives of generations of equity holders. The trans- action provided partial liquidity to VAC’s founding partners to reinvest in its funds, and enabled them to maintain investment decision-making autonomy and preserve VAC’s distinctive operating culture. AMG ben- efited by adding another best-in-class alternative asset manager to its roster of affiliates, bolstering its exposure to high-growth product lines. The transaction further distinguishes Jefferies as a leading M&A advisor to the alternative investment community. 14 , . Technologie technology A NEW BEGINNING FOR KRONOS After 15 years as a public company, NASDAQ-listed Kronos Incorporated, a leading provider of human capital management solutions with a customer base spanning more than 60 countries, decided after numerous take-private offers that it was ready to transition from being a public company to partnering with a financial sponsor. As a result of its leadership in Technology M&A, its presence in the private equity community and a decade-long relationship with Kronos, Jefferies was the obvious choice as advisor for what would turn out to be the largest take-private transaction in its sector in two years. Jefferies ran a focused process with select strategic acquirers and technology- focused financial sponsors, managed an aggressive timetable, and within two months of initial meetings with potential buyers, the company signed a definitive agreement with two US-based private equity firms: lead investor Hellman & Friedman LLC and JMI Equity. Jefferies was able to maximize the sale price by articulating the company’s value and maintaining a competitive dynamic throughout the process, securing a significant premium for its shareholders. The $1.8 billion sale proved beneficial for both shareholders and the company as a whole. Kronos gained two valuable financial partners, and the new ownership structure empowered management to focus on the long-term growth of their business. Jefferies leveraged its industry expertise, and demonstrated its ability to effectively manage and execute trans- actions regardless of complexity, size and scope. Since the acquisition, Kronos has made a significant acquisition of a Belgium-based company and opened several new offices in Asia. , . Medias 15 media HIGHLY SUCCESSFUL SALE OF DATAMONITOR TO INFORMA Listed on the London Stock Exchange, Datamonitor plc, a leading global provider of market intelligence and online data for a range of vertical markets, was approached with an acquisition proposal by Informa plc, a leading global provider of specialist information and services for the academic and scientific, professional and business communities. The two businesses were highly complementary, with scalable technology platforms and significant crossover revenue opportunities and potential cost synergies. Jefferies’ Media investment banking team was retained as exclusive financial advisor to the Board of Directors of Datamonitor to evaluate the terms of the offer, review strategic alternatives and define the shareholder communications strategy. The Board of Datamonitor selected Jefferies as its advisor on the basis of our Media team’s strong transaction track record and extensive knowledge of the online data and business-to-business publishing markets. Jefferies advised on all relevant aspects of the transaction, including matters in relation to the UK’s Takeover Code, relevant documentation, presentations and announcements. The £502 million transaction set an important valuation benchmark for UK, European and US-listed companies within the B2B publishing sector. 16 , . Industriell industrial A COMMITTED FINANCING FOR MASTERCRAFT Now in its 40th year of operations, MasterCraft is one of the world’s leading builders of water ski, wakeboard and luxury performance inboard sports boats. With its premium brand positioning and more than 170 dealer locations in over 30 countries, MasterCraft caught the eye of private equity firms Charlesbank Capital Partners and Transportation Resource Partners, who had approached the Company, preempting an auction process, and signed a purchase agreement in August 2007. In order for MasterCraft’s existing financial sponsor, US Equity Partners, to consider the preemptive bid, the two sponsors needed to demonstrate committed financing. However, the late summer credit drought made financing extremely difficult, with potential lenders shying away as the markets worsened and ultimately all but closed. Jefferies offered a high yield alternative with a commit- ment for a “bought deal.” Jefferies served as sole bookrunner for the $105 million senior secured floating rate notes offering and sole lead arranger for the $20 million senior secured revolving credit facility. The deal closed within two weeks of launch in mid-September, demonstrating Jefferies’ unique ability to provide creative financing solutions, generate investor interest and execute successfully in even the most challenging market conditions. MasterCraft gained two valuable financial partners to help support its continued dominance in its space, while its two new partners strengthened their portfolios with a world- renowned brand. , . Säubern Sie Tech 17 cleantech ‘EQUITY DEAL OF THE YEAR’ FOR EPV SOLAR Energy Photovoltaics, Inc. (now EPV Solar), an emerging clean technol- ogy company and manufacturer of thin-film solar modules, needed growth capital to expand the company’s manufacturing capacity to meet growing demand for its products. The company was planning an initial public offering, but wanted some interim capital to strengthen its positioning. EPV selected Jefferies as sole placement agent to pursue a pre-IPO financing round. Jefferies was chosen as a result of our full-service capabilities to offer a diverse spectrum of products, the strength of our CleanTech franchise, our extensive transaction experience and knowledge of the CleanTech sectors, and our ability to develop unique transaction structures that are appropriate for growth companies. Jefferies put together a creative, customized pre-IPO convertible structure that effectively addressed the company’s specific financing needs, and negotiated terms with more than a dozen investors, upsizing the transaction through extensive one-on-one meetings with institutional investors and hedge funds. The $77.5 million pre-IPO convertible senior secured notes offering that constituted securities convertible into common stock of EPV upon an IPO or sale of the business was significantly oversubscribed. The transaction was recognized by Euromoney and Ernst & Young for the unique structure of the deal, and the investor demand it generated, resulting in its being named Equity Deal of the Year in the technology sector at the 2007 Annual Global Renewable Energy Awards. The funding represented an important milestone for EPV and demonstrated investor appetite for alternative energy technologies, and, as a result of the transaction, EPV was able to raise the capital needed to significantly expand its operations. 18 , . Télécommunication telecom AN ALL-STOCK MERGER FOR MCLEODUSA With a 17,000-mile fiber-optic network—and deep expertise in emerging IP-based communications for businesses—McLeodUSA Communications was well positioned to go public in 2007. The company selected Jefferies as joint bookrunner in the IPO process due to the Firm’s telecommunications expertise and ongoing relationship with the company, following Jefferies’ role as sole bookrunner on a $120 million financing in 2006. McLeodUSA’s success in serving business customers also made the company an attractive acquisition candidate. While awaiting SEC approval for the IPO, McLeodUSA received an all-stock merger offer valued at $557 million from PAETEC Holding Corp. Jefferies was retained as a financial advisor on the merger, providing McLeodUSA with a seamless banking team from the first financing in 2006 to the transaction’s close in February 2008. The merger created a new national leader in com- petitive communications. The combined PAETEC and McLeodUSA entity serves the equivalent of 3.54 million access lines, has a presence in 82 of the top 100 US metropolitan areas and has combined revenue of more than $1.6 billion. By these measures, the new PAETEC is the largest US competitive communications carrier focused on business customers. For McLeodUSA, the merger allowed the company to achieve its market expansion objectives and to go public. For PAETEC, the acquisition solidified its status as a rising player in the industry with a sound financial position, national reach and an enhanced product portfolio that solves the real-world communications problems that businesses face each day. , . Consument/Kleinhandels 19 consumer / retail A SUCCESSFUL RECAPITALIZATION FOR BALLY TOTAL FITNESS Jefferies represented Chicago-based Bally Total Fitness in the success- ful recapitalization of the company during the fourth quarter of 2007. Bally is the largest fitness and health club operator with more than 375 facilities located in the US as well as internationally. Jefferies was initially engaged to assist Bally given the Firm’s reputation for creative financing solutions and execution skills. Harbinger Capital Partners Master Fund I, along with affiliates, completed the acquisition of Bally by injecting approximately $230 million of new capital to pay down existing debt and provide growth capital for the company. As a result, Bally gained a strong financial partner and is positioned to be an effective brand leader in the full-service fitness center industry. The transaction demon- strated the breadth of Jefferies’ capabilities and ability to work with companies in all phases of growth and transition, as well as its strength in guiding and supporting companies through complex restructurings. In 2007, we PARTNERED WITH OUR CLIENTS INVESTED IN OUR PLATFORM ACQUIRED AN INTERNET & MEDIA M&A BOUTIQUE RANKED AS A TOP M&A ADVISOR ATTRACTED NEW CLIENTS EXECUTED DYNAMIC, CREATIVE TRANSACTIONS ACQUIRED A FINANCIAL INSTITUTIONS GROUP DIVERSIFIED OUR OFFERINGS INCREASED OUR MARKET SHARE ACHIEVED RECORD NET REVENUES WORKED AS ONE FIRM INCREASED INVESTMENT BANKING REVENUES 39% RANKED AS A TOP BROKER INCUBATED NEW BUSINESSES OPENED AN OFFICE IN FRANKFURT ADDED AN EXPERIENCED CONSUMER TEAM CONNECTED OVER 4,000 INSTITUTIONAL INVESTORS CONSOLIDATED OUR EUROPEAN HEADQUARTERS EARNED 22 RESEARCH HONORS TRADED MORE THAN 43 BILLION SHARES GLOBALLY HOSTED 12 INDUSTRY CONFERENCES RANKED AS A TOP UNDERWRITER , . Business Review 21 Last year, we continued investing in our global platform. EXPANDING OUR REACH LongAcre Partners. In May 2007, we deepened our expertise in the media sector with the acquisition of LongAcre Partners, Ltd., a leading European media and Internet M&A advisory firm, complementing the Firm’s established US media and new media investment banking professionals. This eight-year-old boutique firm had advised on more than 80 transactions worth a total of approximately $12 billion since its founding. This new team brings more than 20 valuable professionals to Jefferies and broadens our global coverage of the advertising and marketing services, publishing, broadcast media, intellectual property, Internet/e-commerce and music/leisure industries. In 2007, the Jefferies Global Media group completed more digital media deals under $1 billion than any other investment bank in our mar- kets, and ranked second among media M&A advisors in Western Europe1. In 2007, our global technology, media and telecom- munications (TMT) groups completed nearly 130 transactions valued at almost $30 billion, including 20 TMT IPOs in the US, ranking among the top three Wall Street investment banks2. Putnam Lovell. In June, we welcomed to Jefferies the global financial services investment banking group of Putnam Lovell, for 20 years a leading advisor to the financial services sector. This team added approximately 25 investment banking professionals in New York, Boston, London and San Francisco, who are focused on the asset management, broker-dealer, financial technology and related industries. These additions complement the Firm’s existing financial services practice, which primarily focused on specialty finance, transaction processing and other outsourced business services. Over the course of the year, this global team announced transactions with aggregate valuations in excess of $2.5 billion. Frankfurt. In July, we began operating in Frankfurt, Germany, a key global financial center, with a team of nearly 20 invest- ment banking professionals to cover all major industry sectors in German-speaking Europe; manage corporate rela- tionships regionally; initiate and execute transactions; and cover private equity, venture capital and other financial sponsors in the region. These professionals also enhance our global Industrial investment banking practice. The office officially opened in September. Consumer Team. During the course of 2007, we assembled a team of industry-leading consumer-focused investment banking professionals, charged with building out a dedicated effort in this sector. The team has broad transaction capabilities, and has grown to more than 20 professionals as of year-end, with industry coverage including consumer products, retail, apparel, food, food service, food retail and beverages. We are optimistic this team will follow a similar growth model to that of our Industrial practice, which began as a small team in 2003 that has grown to 30, executing 65 transactions valued at $18.4 billion in 2007. In October, we officially opened our India and Singapore. doors in New Delhi, India, with the establishment of Jefferies India Private Limited. Outside India, our investment banking professionals have to date raised close to $2 billion for Indian issuers, including more than $850 million in 2007 for clients in a range of sectors including media, industrials, technology, healthcare and textiles. We also participated in our first Global Depository Listing (GDR) of an Indian company. Separately, Jefferies initiated equity research coverage of several Indian companies during the year. In addition, our Singapore office officially became licensed in March 2007. London. In November, we consolidated and relocated our Jefferies International headquarters office to Vintners Place in London. The move consolidated the Firm’s five London locations (the results of various acquisitions), and brought together our nearly 350 investment banking, sales, trading, research and asset management professionals into one tailored location. CONTINUOUS IMPROVEMENT IN INVESTMENT BANKING Capital Markets Participation. In one of the worst credit crunches in recent history, Jefferies helped clients raise more than $43 billion through more than 250 capital raising transactions. The number of equity and equity-linked trans- actions we managed or co-managed was up significantly over the previous year, to more than 170, with a considerable jump in lead-managed transactions. Our participation in debt transactions was also up significantly, to more than 80. Jefferies ranked as the top underwriter of 2007 high yield US new issues valued at $300 million and under3, and we contin- ued our now seven-year run as the top underwriter of US high yield new issues valued at $150 million and under4. In addition, Leverage World named Jefferies High Yield Underwriter of the Year for 2007 based on the strong after- market performance of new issues5. Our leveraged loan platform, Jefferies Finance, is now among the top 20 lead arrangers of institutional loans in the United States6. Despite the credit environment, Jefferies Finance continued to underwrite loans in the second half of the year and was profitable in every quarter of 2007. Our equity-linked financing efforts continued to gain traction and provide creative options for our clients, as evidenced by one of our pre-IPO convertible offerings in the clean technology sector, which captured Equity Deal of the Year at the Euromoney and Ernst & Young 2007 Annual Global Renewable Energy Awards7. Advisory Assignments. Over the course of the year, we worked on nearly 180 M&A transactions valued at $55.6 billion, and more than 30 completed and pending restructuring assignments. Jefferies ranked among the top 3 advisors of 2007 for deals under $500 million8, with top rankings in technology, aerospace and defense, and energy. Our presence among the private equity community continued to grow, with more than 90 transactions— nearly 20 percent—of our total transactions involving a finan- cial sponsor. The Firm’s global fund placement group, Helix Associates, acquired in 2005, represents clients that invest capital in North America, Europe and Asia. In 2007, Helix added a presence in San Francisco to its New York and London- I N V E S T M E N T B A N K I N G R E V E N U E / by product I N V E S T M E N T B A N K I N G R E V E N U E / by industry Debt 32 % Industrial 25 % 48 % 20 % Energy 26 % Technology / Media / Telecommunications 24 % 10 % Equity & Equity-Linked M&A / Advisory / Restructuring / Fund Placement 9 % 6 % Financial Institutions Healthcare Consumer , . Revue d’Affaires 23 based teams. Helix has successfully extended its franchise and now raises private equity funds for diverse strategies such as US and European buyouts, emerging markets, turn- arounds and infrastructure investments. Aggregate capital raised in 2007 for our funds was 23 percent more than in 2006. Sector Focus. We continue to gain traction in our markets, with all our groups performing well. In addition to the LongAcre Partners and Putnam Lovell acquisitions and new consumer and German teams, we also enhanced our energy, energy lend- ing and UK healthcare teams, and appointed new heads of our maritime shipping and telecommunications groups, replacing retiring bankers in each case. In terms of revenues, energy (including maritime and oil services) accounted for 26 percent; industrial (including aerospace and defense and clean technol- ogy), 25 percent; technology, media and telecommunications, 24 percent; and financial services, consumer (including gaming) and healthcare combined, the remaining 25 percent. Our technology practice completed nearly 120 transactions, valued at more than $20 billion, and ranked as the #1 technol- ogy M&A advisor for the third year in a row8. Our aerospace and defense practice completed more than 38 transactions, valued at $6.7 billion, including the #1 and #2 M&A Big Impact Deals of 2007, as ranked by Washington Technology9. The team was also the #1 aerospace and defense M&A advisor for three years running8. Our energy practice (including maritime and oil services) completed almost 80 transactions, valued at more than $30 billion, and ranked as the #1 M&A energy advisor for the second consecutive year8. In addition, the Firm captured three Deal of the Year awards from The Banker magazine for energy-related transactions involving companies in Norway, Greece and Madagascar10. Europe and Asia. Our non-US activities are bearing fruit, currently accounting for about 15 percent of the Firm’s invest- ment banking revenues. In London, in addition to appointing a co-head of global investment banking, we added an experi- enced head of international equity capital markets to lead and grow our equity, equity-linked and structured products efforts. We participated in 17 equity and equity-linked trans- actions, valued at more than $1.9 billion. We served as Nomad or broker to 14 AIM-listed companies across the shipping, energy, clean technology, technology, industrial and biotech- nology sectors. We also served as bookrunner for the 2007 International IPO of the Year, as determined by the Quoted Company Awards11. In the Middle East and Asia, we have a growing practice in India, we helped raise more than $850 million for China-based companies during 2007, and our Dubai office has been active on a number of business fronts in further developing our international clientele and assisting in key transactions, most notably the sale of Aston Martin to an international consortium of investors. Our Brand continues to gain recognition in the marketplace and to reflect the quality of our capabilities. In April, Thomson Financial’s Buyouts magazine recognized Jefferies for our work with growing and mid-sized companies, naming our Firm Mid-Market Investment Bank of the Year for 2006. It’s worth noting that Jefferies earned a similar honor for 2005 from Investment Dealers’ Digest12. In addition, Jefferies was named #1 investment bank in the boutique category on the AO Top Dealmakers List by AlwaysOn magazine and KPMG13. S A L E S & T R A D I N G R E V E N U E / by product E Q U I T Y R E S E A R C H C O M P A N I E S U N D E R C O V E R A G E / by market cap Equities 77.5 % $2–5 billion 16 % 24 % 60 % $0–2 billion 18.1 % $5+ billion Fixed Income and Commodities High Yield 4.4% STRENGTH IN SALES AND TRADING Equities. In 2007, we continued to build on our long-standing cash equity platform with further enhancements to our full- service capabilities. We added experienced business heads and improved alignment across our platform to drive revenue growth more than 10 percent from the prior year. The Firm traded an estimated 43.7 billion shares globally, including more than 10.7 billion outside of the US, in more than 65 markets, utilizing an execution platform that includes sector trading, floor brokerage, electronic connectivity and direct access. Among institutional brokerages, Jefferies ranked among the top 5 and top 10, according to Ancerno Ltd.14 and Elkins/McSherry15, respectively. Hedge funds ranked Jefferies among the top 10 in both Traditional Expertise & Market Knowledge and Traditional Execution in a survey by Institutional Investor’s Alpha magazine16. Our prime brokerage business, which officially launched in late 2006, has been very well received by the hedge fund community and ended the first full year of operations with more than 130 clients and significant momentum entering 2008. We expanded our securities finance team, appointing an experienced professional with 23 years of securities lend- ing and prime brokerage experience as co-head, and added specialists focused on hedge fund coverage and Asia. We also implemented a new Fully Paid for Lending Program to benefit clients with long security inventory, while adding 15 new counterparties to our client list. Our experienced equity derivatives team grew its presence in listed equity derivatives strategy and structured products, while adding talented members to the derivatives trading effort. With a team of more than 20 members, Jefferies is poised to continue its derivatives’ revenue growth and further Jefferies as a mainstay on the equity derivatives landscape. Jefferies enhanced its trading effort with the appointment of talented sector heads who continue to drive the cash trading effort with capital commitment capabilities, enabling Jefferies to service larger accounts. Our Firm has one of the largest institutional sales forces on Wall Street, with approximately 200 institutional sales professionals across the US, Europe and Asia, connecting a network of more than 4,000 clients with businesses in 25 countries and three continents. In 2007, we increased our NASDAQ market making capabilities approx- imately 20 percent, now making markets in approximately 6,000 stocks. Cash equities maintains a strong customer base and broad distribution, with approximately 80 percent of com- missions sourced from more than 500 accounts, which we believe to be a significantly larger number of accounts as compared to our competitors. Jefferies’ research sales effort, a team of nearly 50 in offices across the US, added a number of senior salespeople in 2007 to enhance the distribu- tion and accessibility of our award-winning research product (see Research). Revenue from electronic trading continued to grow by attracting new clients across the globe with compet- itive direct market access solutions and algorithmic trading products. The combined efforts of our experienced program trading and knowledge-driven quantitative strategy teams helped our institutional investors achieve best execution. The Jefferies Electronic Trading Solutions (JETS) front-end trading tool captured the Best Real-Time Market Data Initiative Award from Inside Market Data Awards17. Our equity capital markets team continued to identify oppor- tunities and build on strong relationships with growth and value-oriented investors while acting as the primary conduit between investment banking and our sales and trading platforms. Excellent execution helped by our full-service platform has driven consistent repeat business and has pushed 440 percent t i m e l i n e 2 0 0 7 3rd annual inter net conference Hosted nearly 430 attendees with more than 30 presenting companies oil services summit Hosted nearly 130 attendees with nearly 20 presenting companies financial services conference Hosted more than 180 attendees with over 25 presenting companies acquisitions & divestitures summit Hosted 350 E&P executives 3rd global clean technolog y conference Hosted 660 attendees with 45 presenting companies and three tracks healthcare conference Hosted more than 1,150 attendees with over 160 presenting companies over three days , . Bedrijfs Overzicht 25 growth in volume over the past four years, and helped capi- tal market net revenue increase significantly in 2007 (see Investment Banking). and protected capital, one-third of equity commitments to high yield remain undrawn and we have not applied any leverage. Investment Grade Fixed Income revenues grew considerably in the second half of 2007 and we are well positioned to add value in an increasingly illiquid marketplace. This team of more than 100 professionals serves more than 3,000 institutional clients and trades in more than 3,000 individual issues—up 30 percent since 2006. We captured market share in corporate bonds in our electronic platform and over the counter, and grew our emerging markets business, as well as our mortgage securities-related trading activities, among other accomplish- ments in 2007. High Yield. We restructured our US high yield secondary trading business by consolidating our managed high yield funds and business into a single broker-dealer and substantially expanded its capital base with third-party commitments. With $1.5 billion in equity commitments and the flexibility to modestly lever the platform on a one-to-one basis, we believe we are well positioned to grow over the coming years. We con- tinued to expand our European presence as we welcomed a new head of European institutional high yield and distressed securities sales and trading, and added a new senior trader and senior salesman. Global high yield trading volumes expanded to $43.5 billion with primary placement of high yield instruments being quite strong in the first half of the year (see Investment Banking). The second half of 2007 experienced the worst high yield markets in the 18-year history of the division. As such, revenues declined during this period and the division recorded a modest loss. This is a significant accomplishment given the overall environment and performance of peers. Through this period we have defended our position Convertibles. Our convertible sales and trading businesses based in the US and London performed well in 2007. Globally, we traded a universe of more than 800 issues and served more than 600 clients in 2007. Our UK-based convertible securities business experienced a growth in revenues as a result of its increased activity in Asia in both primary and secondary markets, particularly in India. Europe was a more difficult market, but results were solid. The Firm’s country fund business was also a major contributor to the overall success of the group. Commodities. Our four-year-old commodity business, Jefferies Financial Products, LLC, delivered solid full-year performance, continuing to provide our clients with exposure to the robust performance of the commodity markets through innovative products. CONNECTING IDEAS AND CAPITAL Equity Research. In 2007, our equity research team ranked among the top 5 firms in The Wall Street Journal’s Best on the Street analyst awards, for the second time in the past three years, with seven analyst honors18. The team also received 14 analyst honors in StarMine’s Annual Analyst Survey19, across several industries and countries, reflecting a growing global presence. Our equity research practice is comprised of 140 equity research professionals covering nearly 900 growing and dynamic companies. Our focus remains on small and mid-cap companies, with 60 percent of companies under coverage having a market capitalization of less than $2 billion. Coverage includes companies in the US, the UK, Europe, Japan, India and the emerging Asia markets. 3rd annual industrial ceo summit Hosted more than 130 attendees with nearly 30 presenting companies technolog y conference Hosted nearly 880 attendees with more than 110 presenting companies over two days 3rd annual automotive conference Hosted 225 attendees with 20 expert panelists 5th annual communications conference Hosted more than 500 attendees with nearly 45 presenting companies over two days 4th annual shipping, logistics & offshore services conference Hosted more than 570 attendees with nearly 50 presenting companies over two days 4th global clean technology conference (london) Hosted more than 310 attendees with nearly 40 presenting companies and three tracks We enhanced many of our core areas: consumer, energy, financial services, healthcare, industrial/aerospace and defense, and technology, media and telecommunications. endocrinologist discussing emerging diabetic treatments. During the year, analysts hosted nearly 370 non-deal corporate road shows and 32 field trips, and logged the equivalent of nearly 950 days marketing to institutional buy-side clients. Industry Conferences. Jefferies hosts a series of annual, sectoral-based conferences that have gained significant traction by providing a forum for public and private, growing and mid- sized companies to interact directly with institutional investors. We believe the company presentations, panel discussions, guest speakers and one-on-one meetings that we facilitate at our conferences are of tremendous value to our clients, and there is great satisfaction in bringing our two core audiences together. During the year, Jefferies’ research hosted an aggregate of more than 5,100 attendees at 11 targeted industry confer- ences, with more than 550 presenting companies and nearly 6,000 one-on-one meetings. High Yield Research. In addition, our high yield research team, with 14 professionals covering approximately 400 companies, has always been an important component of our high yield sales and trading efforts. This team has developed a targeted quarterly road show for analysts to share their outlook and perspective with investors, which has proven very efficient and successful. With its extensive experience covering high yield securities and unique focus on special or developing situations, our team is among the most respected on Wall Street. Analysts have earned a number of honors over the years, including a spot on Institutional Investor’s 2007 All-America Fixed Income Team20. As another investor touch point, Jefferies hosted some 30 thematic conference calls with companies and/or industry experts and specialists discussing timely topics and cutting-edge issues. Investor attendance has averaged more than 80 clients and speakers have ranged from a leading authority on fracture systems discussing Appalachian shale to a leading clinical STRATEGIC ASSET AND WEALTH MANAGEMENT While the majority of the funds within our US asset management business had positive returns for 2007, a few of our funds were negatively impacted by the second-half downturn, resulting in an overall decline in annual revenues from US-based Jefferies Asset Management. However, our , . Revisión de Negocio 27 global convertible bond asset management business, based in London and Zurich, achieved solid performance in 2007, with both global and European funds comfortably ahead of their respective benchmarks, and assets under management up 16 percent over the course of the year. This team now man- ages approximately $2.9 billion in assets. We remain committed to our successful funds and supporting our asset management business going forward. Jefferies Private Client Services (PCS) expanded its geograph- ical coverage in 2007, adding wealth management teams in Atlanta, Dallas, Los Angeles and San Francisco, increasing the number of account executives by 40 percent. Revenues from this business increased more than 30 percent year-over-year, while assets under management increased 42 percent. Assets in our third-party managed account programs more than tripled in 2007, and the number of asset managers in our network grew to more than 300, covering a broad range of investment styles and asset classes. PCS continued to broaden its platform of products and services in order to better serve its high net worth clientele, enhancing its alternative investment platform and private equity capabilities to enable our experienced advisors to offer greater portfolio diversification and customized investment solutions for clients. maintained the rare Wall Street culture of a creative, proactive, client-focused, relationship-driven firm. Our professionals possess a high level of integrity and are mandated to always do what is in the best interest of our clients and our Firm. Employee Ownership continues to be an important part of the Firm’s culture and strategy. Internal ownership is nearly 40 percent of the outstanding equity of the Firm. Through various stock ownership programs, all Jefferies’ employee-partners are encouraged to take part in the firm that we are building and the value we are creating together. We believe that ownership alignment is the best motivator for long-term success. Philanthropy. Together with the help of clients and vendors, our Firm and our employees have contributed more than $42 million in donations toward a broad range of important causes including relief efforts for natural disasters and terrorist attacks, cancer research and youth programs. The Firm and its employ- ees also support a wide range of important causes through its charitable matching gift program. In addition, the Firm’s scholarship program supports the education of the children of Jefferies’ employees, and has granted more than 760 high school and college scholarships over the past 27 years. AN EVOLVING CULTURE Given the growth of our Firm over the past five years and our expansion into new markets and regions, our culture continues to evolve, with employee-shareholders now in nearly 30 offices in 10 countries spanning three continents. While we continue to adapt and change, we believe, at our core, that Jefferies has Diversity. Promoting a diverse workforce is important to us, and we seek to enrich our Firm and our culture by recruiting individ- uals from diverse cultures and backgrounds with wide-ranging experience and academic achievement from all over the world. Each employee brings his or her unique perspective and outlook to the exceptional platform that collectively is Jefferies. 1 Thomson Financial/SDC, 2007. M&A Digital Media transactions in North America and Western Europe announced 1/1/07–12/31/07, under $1 billion. Includes mergers, acquisitions and minority investments with disclosed and undisclosed values. Excludes tender offers, exchange offers, self-tenders, repurchases, remaining interests, privatizations. M&A transactions in Western Europe completed 1/1/07–12/31/07, under $1 billion, in Advertising & Marketing, Broadcasting, Motion Pictures/Audio Visual, Publishing, Internet Software & Services and E-commerce/B2B. 2 Dealogic, 2007. Includes all completed US technology, media and telecommunications initial public offerings over $25 million. 3 Thomson Financial/SDC, 2007. All high yield US new issues $300 million and under. Excludes mortgage and asset-backed securities. Full credit to lead manager, equal if joint. 4 Thomson Financial/SDC, 2001-2007. All high yield US new issues under $150 million. Excludes mortgage and asset-backed securities. Full credit to lead manager, equal if joint. 5 Published 1/25/08, based on data provided by FridsonVision, LLC. 6 LoanConnector, 2007. Based on volume. Data provided by Reuters LPC. 7 Announced September 2007. 8 Thomson Financial/SDC, 2007. US transactions announced or closed 1/1/07-12/31/07. Technology M&A transactions in North America and Western Europe announced 1/1/05-12/31/07, under $1 billion. Defense-related M&A transactions in North America and Western Europe announced or closed 1/1/05-12/31/07, all values. US Energy M&A transactions announced 1/1/06-12/31/07. Includes mergers, acquisitions and minority investments with disclosed and undisclosed values. Excludes tender offers, exchange offers, self-tenders, repurchases, remaining interests, privatizations. 9 Announced February 2008. 10 Announced May 2007. 11 Announced January 2008. 12 Published January 16, 2006. 13 Announced December 2007. 14 Published in Bloomberg Markets, June 2007. 15 Published in Institutional Investor, November 2007. 16 Published October 2007. 17 Announced May 2007. 18 Published May 21, 2007 and May 16, 2005. 19 Announced May and October 2007. 20 Published October 2007. CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS The financial information presented in this Annual Report should be read in conjunction with our complete Consolidated Financial Statements (including the notes) contained in our Form 10-K for the year ended December 31, 2007. Our Form 10-K for the year ended December 31, 2007 was filed with the SEC on February 29, 2008 and is also available on our website at www.jefferies.com. (In Thousands, Except Per Share Amounts) Revenues: Commissions Principal transactions Investment banking Asset management fees and investment income from managed funds Interest Other Total revenues Interest expense Revenues, net of interest expense Non-interest expenses: Compensation and benefits Floor brokerage and clearing fees Technology and communications Occupancy and equipment rental Business development Other Total non-interest expenses Earnings before income taxes, minority interest and cumulative effect of change in accounting principle Income taxes Earnings before minority interest and cumulative effect of change in accounting principle Minority interest in earnings of consolidated subsidiaries, net Earnings before cumulative effect of change in accounting principle, net Cumulative effect of change in accounting principle, net Net earnings Earnings per share: Basic: Earnings before cumulative effect of change in accounting principle, net Cumulative effect of change in accounting principle, net Net earnings Diluted: Earnings before cumulative effect of change in accounting principle, net Cumulative effect of change in accounting principle, net Net earnings Weighted average shares of Common Stock: Basic Diluted Year ended December 31, 2007 2006 2005 $ 355,601 $ 280,681 $ 246,943 390,374 750,192 468,002 540,596 349,489 495,014 23,534 1,174,883 24,311 2,718,895 1,150,805 1,568,090 946,309 71,851 103,763 76,765 56,594 67,074 109,550 528,882 35,497 1,963,208 505,606 1,457,602 791,255 62,564 80,840 59,792 48,634 65,863 82,052 304,053 20,322 1,497,873 293,173 1,204,700 669,957 46,644 67,666 47,040 42,512 62,474 1,322,356 1,108,948 936,293 245,734 93,178 152,556 7,891 348,654 137,541 211,113 6,969 268,407 104,089 164,318 6,875 $ 144,665 $ 204,144 $ 157,443 — 1,606 — $ 144,665 $ 205,750 $ 157,443 $ $ $ $ 1.02 — 1.02 .97 — .97 $ $ $ $ 1.53 0.01 1.54 1.41 0.01 1.42 $ $ $ $ 1.27 — 1.27 1.16 — 1.16 1 41 , 5 1 5 153,807 133,898 147,531 123,646 135,569 CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION , . 29 (In Thousands) Assets Cash and cash equivalents Cash and securities segregated and on deposit December 31, 2007 2006 $ 897,872 $ 513,041 for regulatory purposes or deposited with clearing and depository organizations 659,219 508,303 Financial instruments owned, including securities pledged to creditors of $1,087,906 and $1,481,098 in 2007 and 2006, respectively: Corporate equity securities Corporate debt securities U.S. Government and agency obligations Mortgage-backed securities Asset-backed securities Derivatives Investments at fair value Other Total financial instruments owned Investments in managed funds Other investments Securities borrowed Securities purchased under agreements to resell Receivable from brokers, dealers and clearing organizations Receivable from customers Premises and equipment Goodwill Other assets Total Assets Liabilities and Stockholders’ Equity Bank loans and current portion of long-term debt Financial instruments sold, not yet purchased: Corporate equity securities Corporate debt securities U.S. Government and agency obligations Derivatives Other Total financial instruments sold, not yet purchased Securities loaned Securities sold under agreements to repurchase Payable to brokers, dealers and clearing organizations Payable to customers Accrued expenses and other liabilities Long-term debt Mandatorily redeemable convertible preferred stock Minority interest Total Liabilities Stockholders’ equity: Common stock Additional paid-in capital Retained earnings Less: Treasury stock Accumulated other comprehensive gain: Currency translation adjustments Additional minimum pension liability Total accumulated other comprehensive gain Total stockholders’ equity Total Liabilities and Stockholders’ Equity 2,266,679 2,162,893 730,921 26,895 — 501,502 104,199 2,889 1,737,174 1,918,829 592,374 85,040 28,009 234,646 97,289 10,151 5,795,978 4,703,512 293,523 78,715 16,422,130 3,372,294 508,926 764,833 141,472 344,063 514,792 372,869 28,244 9,711,894 226,176 254,580 663,552 91,375 257,321 494,590 $ 29,793,817 $ 17,825,457 $ 280,378 $ 99,981 1,389,099 1,407,387 206,090 331,788 314 3,334,678 7,681,464 11,325,562 874,028 1,415,803 627,597 1,835,046 1,185,400 339,891 240,231 301 3,600,869 6,794,554 2,092,838 669,196 1,010,486 650,974 25,539,510 14,918,898 1,764,067 125,000 603,696 1,168,562 125,000 31,910 28,032,273 16,244,370 16 1 ,1 1 5 ,0 1 1 1,031,764 14 876,393 952,263 (394,406) (254,437) 10,986 (1,827) 9,159 9,764 (2,910) 6,854 1,761,544 1,581,087 $ 29,793,817 $ 17,825,457 CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) Cash flows from operating activities: Net earnings Adjustments to reconcile net earnings to net cash (used in) provided by operating activities: Cumulative effect of accounting change, net Depreciation and amortization Accruals related to various benefit plans, stock issuances, net of forfeitures Deferred income taxes Minority interest (Increase) decrease in cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations (Increase) decrease in receivables: Securities borrowed Brokers, dealers and clearing organizations Customers Increase in financial instruments owned Increase in other investments Decrease (increase) in investments in managed funds Increase in securities purchased under agreements to resell Increase in other assets Increase (decrease) in payables: Securities loaned Brokers, dealers and clearing organizations Customers (Decrease) increase in financial instruments sold, not yet purchased Increase in securities sold under agreements to repurchase (Decrease) increase in accrued expenses and other liabilities Net cash (used in) provided by operating activities Cash flows from investing activities: Decrease (increase) in short-term bond funds Purchase of premises and equipment Business acquisitions, net of cash received Cash paid for contingent consideration Net cash flows used in investing activities Cash flows from financing activities: Tax benefits from the issuance of stock-based awards Proceeds from reorganization of high yield secondary market trading Redemptions and distributions related to our reorganization of high yield secondary market trading Repayment of long-term debt Net proceeds from (payments on): Bank loans Issuance of senior notes Termination of interest rate swaps Issuance of mandatorily redeemable convertible preferred stock Minority interest holders of consolidated subsidiaries related to asset management activities Repurchase of treasury stock Dividends Exercise of stock options, not including tax benefits Net cash provided by (used in) financing activities Effect of foreign currency translation on cash and cash equivalents Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Year ended December 31, 2007 2006 2005 $ 144,665 $ 205,750 $ 157,443 — 27,863 174,652 (6,269) 7,891 (1,606) 19,891 109,505 (37,982) 6,969 — 15,556 118,276 (23,475) 6,875 (150,883) 120,862 (75,640) (6,710,158) (1,568,414) 2,089,418 (296,599) (101,261) 149,026 (186,651) (92,263) (105,113) (788,715) (2,777,970) (579,779) (35,955) 20,653 (3,146,118) (21,559) 920,290 282,117 405,368 (16,084) (94,753) (226,176) (65,031) (12,160) (82,134) — (34,020) (934,990) (1,601,436) 347,797 183,265 (58,856) 127,959 (336,498) 9,232,724 (51,785) 2,300,552 2,092,838 103,636 (429,577) (269,566) — (76,893) (33,437) (25,720) (136,050) 41,710 361,735 (31,858) (100,000) 280,386 593,176 8,452 — 3,849 (147,809) (64,754) 5,233 950,120 338 384,831 513,041 7,037 (39,342) — (19,944) (52,249) 32,906 — — — — 492,155 — 125,000 (11,553) (23,972) (56,749) 17,543 575,330 3,593 257,108 255,933 180,144 — 182,275 213,070 (176) (27,186) (53,030) (8,925) (89,317) — — — — (70,000) — — — (5,467) (76,291) (31,645) 33,661 (149,742) (2,189) (28,178) 284,111 $ 897,872 $ 513,041 $ 255,933 CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) , . 31 (In Thousands) Supplemental disclosures of cash flow information: Cash paid during the year for: Interest Income taxes Acquisitions: Year ended December 31, 2007 2006 2005 $ 1,133,861 $ 492,179 $ 283,318 69,973 198,294 87,013 Fair value of assets acquired, including goodwill $ 61,999 $ 95,118 Liabilities assumed Stock issued Cash paid for acquisition Cash acquired in acquisition Net cash paid for acquisition (6,150) (22,412) 33,437 — (13,854) (26,998) 54,266 1,435 $ 33,437 $ 52,831 Supplemental disclosure of non-cash financing activities: Non-cash proceeds from reorganization of high yield secondary market trading $ 230,169 $ — $ — In 2005, the additional minimum pension liability included in stockholders’ equity of $6,125 resulted from a decrease of $743 to accrued expenses and other liabilities and an offsetting increase in stockholders’ equity. In 2006, the additional minimum pension liability included in stockholders’ equity of $2,910 resulted from a decrease of $3,215 to accrued expenses and other liabilities and an offsetting increase in stockholders’ equity. In 2007, the additional minimum pension liability included in stockholders’ equity of $1,827 resulted from a decrease of $1,083 to accrued expenses and other liabilities and an offsetting increase in stockholders’ equity. See accompanying notes to consolidated financial statements. SELECTED QUARTERLY DATA (UNAUDITED) (In Thousands, Except Per Share and Percentage Data) March June September December Year 2007 Earnings Statement Data Revenues Interest expense Revenues, net of interest expense Non-interest expenses Earnings before income taxes and minority interest Income taxes Minority interest Net earnings Earnings per share: Basic Diluted Weighted average shares of Common Stock: Basic Diluted Other Selected Data Total assets Long-term debt $ 623,284 $ 766,345 $ 666,964 $ 662,302 $ 2,718,895 204,475 418,809 315,316 103,493 40,658 576 62,259 0.44 0.42 $ $ $ 300,885 465,460 337,069 128,391 45,046 15,510 67,835 0.48 0.45 $ $ $ 332,540 334,424 279,103 55,321 21,608 (5,060) 38,773 0.27 0.26 312,905 349,397 390,868 (41,471) (14,134) (3,135) (24,202) (0.17) (0.17) $ $ $ 1,150,805 1,568,090 1,322,356 245,734 93,178 7,891 144,665 1.02 0.97 $ $ $ $ $ $ 140,897 152,058 142,092 154,301 142,822 155,480 140,726 140,726 141,515 153,807 $ 25,695,487 $ 32,513,075 $ 31,602,366 $ 29,793,817 $ 29,793,817 $ 1,169,278 $ 1,759,284 $ 1,764,560 $ 1,764,067 $ 1,764,067 Mandatorily redeemable convertible preferred stock $ 125,000 $ 125,000 $ 125,000 $ 125,000 $ 125,000 Total stockholders’ equity Book value per share of Common Stock $ $ 1,689,159 $ 1,788,644 $ 1,830,752 $ 1,761,544 $ 1,761,544 13.60 $ 14.22 $ 14.57 $ 14.15 $ 14.15 Common stock shares outstanding 124,238 125,740 125,657 124,453 124,453 Annualized return on equity 15.3% 15.6% 8.7% (5.4%) 8.4% 2006 Earnings Statement Data Revenues Interest expense Revenues, net of interest expense Non-interest expenses Earnings before income taxes, minority interest and cumulative effect of change in accounting principle, net Income taxes Minority interest Cumulative effect of change in accounting principle, net Net earnings Earnings per share: Basic: Earnings before cumulative effect of change in accounting principle, net Cumulative effect of change in accounting principle, net Net earnings Diluted: Earnings before cumulative effect of change in accounting principle, net Cumulative effect of change in accounting principle, net Net earnings Weighted average shares of Common Stock: Basic Diluted Other Selected Data Total assets Long-term debt $ 524,077 $ 457,119 $ 468,664 $ 513,348 $ 1,963,208 108,663 415,414 318,007 97,407 38,432 2,134 1,606 129,776 327,343 246,628 80,715 31,357 3,778 — 128,054 340,610 264,273 76,337 29,734 663 — 139,113 374,235 280,040 94,195 38,018 394 — 505,606 1,457,602 1,108,948 348,654 137,541 6,969 1,606 $ 58,447 $ 45,580 $ 45,940 $ 55,783 $ 205,750 $ $ $ $ 0.44 $ 0.34 $ 0.34 $ 0.41 $ 1.53 0.01 0.45 — — — $ 0.34 $ 0.34 $ 0.41 $ 0.01 1.54 0.40 $ 0.32 $ 0.32 $ 0.38 $ 1.41 0.01 0.41 — — — $ 0.32 $ 0.32 $ 0.38 $ 0.01 1.42 130,358 142,942 133,621 147,605 135,140 148,908 136,438 150,599 133,898 147,531 $ 15,944,897 $15,303,436 $ 15,484,724 $ 17,825,457 $ 17,825,457 $ 1,266,304 $ 1,263,476 $ 1,268,582 $ 1,168,562 $ 1,168,562 Mandatorily redeemable convertible preferred stock $ 125,000 $ 125,000 $ 125,000 $ 125,000 $ 125,000 Total stockholders’ equity Book value per share of Common Stock $ $ 1,374,168 $ 1,434,050 $ 1,493,413 $ 1,581,087 $ 1,581,087 11.59 $ 12.10 $ 12.56 $ 13.23 $ Common stock shares outstanding 118,502 118,540 118,876 119,547 Annualized return on equity 17.6% 13.1 % 12.6% 14.6% 14.5% 13.23 119,547 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM , . 33 The Board of Directors and Stockholders JEFFERIES GROUP, INC.: We have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statements of financial condition of Jefferies Group, Inc. and subsidiaries as of December 31, 2007 and 2006, and the related consolidated statements of earnings, changes in stockholders’ equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2007 (not presented herein); and in our report dated February 28, 2008, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated financial statements on pages 28–31 is fairly stated, in all material respects, in relation to the consolidated financial statements from which it has been derived. Our report with respect to the consolidated financial statements refers to a change in 2006 in accounting for share-based payments. KPMG LLP New York, New York March 17, 2008 Board of Directors Officers RICHARD B. HANDLER (46) 18 years with Jefferies Chairman of the Board, CEO (JG)(JC) BRIAN P. FRIEDMAN (52) 7 years with Jefferies Chairman of the Executive Committee (JG)(JC) W. PATRICK CAMPBELL (62)* 8 years on Board Independent Consultant RICHARD G. DOOLEY (78)* 14 years on Board Retired Chief Investment Officer, Massachusetts Mutual Life Insurance Company LLOYD H. FELLER (65) 5 years with Jefferies General Counsel, Secretary, Executive Vice President (JG)(JC) PEREGRINE C. BROADBENT (44) Joined Jefferies in November 2007 Chief Financial Officer, Executive Vice President (JG)(JC) CHARLES J. HENDRICKSON (57) 2 years with Jefferies Treasurer (JG)(JC) (JG) – Jefferies Group, Inc. (JC) – Jefferies & Company, Inc. * Member of the Audit Committee, ROBERT E. JOYAL (63)* 2 years on Board Retired President of Babson Capital Management LLC Member of the Compensation Committee, Member of the Corporate Governance and Nominating Committee FRANK J. MACCHIAROLA (66)* 16 years on Board President, St. Francis College MICHAEL T. O’KANE (62)* 2 years on Board Retired Senior Managing Director, TIAA-CREF , . 35 Informação do Accionista Shareholder Information Memberships CORPORATE COUNSEL Morgan Lewis & Bockius TRANSFER AGENT American Stock Transfer & Trust Company INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM KPMG LLP FORM 10-K Additional supporting detail to the financial statements is provided annually to the Securities and Exchange Commission on Form 10-K. Copies may be obtained without charge, upon request. SHAREHOLDER INQUIRIES 203.708.5975 COMMON STOCK Exchange: NYSE Symbol: JEF WEBSITE www.jefferies.com JEFFERIES & COMPANY, INC. Member FINRA, NYSE Arca, NASDAQ, CME, BSE, ISE, SIPC, BOX, MSRB, NSCC JEFFERIES EXECUTION SERVICES, INC. Member FINRA, NYSE, AMEX, NASDAQ, BSE, CSE, NYSE Arca, PHLX, ISE, BeX, NASD, TSX, SIPC JEFFERIES INTERNATIONAL LTD. Authorized and regulated by The Financial Services Authority, has Nominated Adviser (Nomad) status on the Alternative Investment Market (AIM) of the London Stock Exchange. Member of London Stock Exchange, Deutsche Börse (Xetra), Euronext, Oslo Bors and Dubai International Financial Exchange (DIFX) JEFFERIES (JAPAN) LTD., TOKYO BRANCH Member TSE and JASDAQ CLIENT PROFILES Client profiles may not be representative of other clients or indicative of future performance or success. FORWARD-LOOKING STATEMENTS This summary annual report contains statements that may constitute “forward-looking statements” within the meaning of the safe harbor provisions of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements may contain expectations regarding revenues, earnings, operations and other financial projections, and may include statements of future performance, position- ing, plans and objectives. These forward-looking statements usually include the words “become,” “continue,” “intend,” “may,” “plan,” “will” and other similar expressions. These forward-looking statements represent only our belief regarding future events, many of which, by their nature, are inher- ently uncertain. Actual results could differ materially from those projected in these forward-looking statements. Please refer to our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission and other filings we make with the Securities and Exchange Commission for a discussion of important factors that could cause actual results to differ materially from those projected in these forward-looking statements. We do not assume any obligation to update any forward-looking statement we make. CORPORATE DIRECTORY North America NEW YORK Jefferies Group, Inc. (Headquarters) 520 Madison Avenue New York, New York 10022 212.284.2300 30 Broad Street New York, New York 10004 646.805.5400 One Station Place Stamford, Connecticut 06902 203.708.5980 51 JFK Parkway Short Hills, New Jersey 07078 973.912.2900 ATLANTA 3414 Peachtree Road NE Atlanta, Georgia 30326 404.264.5000 DALLAS 13355 Noel Road Dallas, Texas 75240 972.701.3000 NEW ORLEANS 111 Park Place Boulevard Covington, Louisiana 70433 985.845.6020 BOSTON One Post Office Square Boston, Massachusetts 02109 617.342.7800 HOUSTON 333 Clay Street Houston, Texas 77002 281.774.2000 SAN FRANCISCO 650 California Street San Francisco, California 94108 415.229.1400 1050 Winter Street Waltham, Massachusetts 02451 781.522.8400 909 Fannin Street Houston, Texas 77010 800.533.0072 CHARLOTTE* 6000 Fairview Road Charlotte, North Carolina 28210 704.552.4025 LOS ANGELES 11100 Santa Monica Boulevard Los Angeles, California 90025 310.445.1199 SILICON VALLEY 950 Tower Lane Foster City, California 94404 650.573.4800 WASHINGTON, DC 1399 New York Avenue NW Washington, DC 20005 202.639.3980 34 Exchange Place (Operations) Jersey City, New Jersey 07311 212.336.7000 CHICAGO 55 West Monroe Chicago, Illinois 60603 312.750.4700 NASHVILLE 2525 West End Avenue Nashville, Tennessee 37203 615.963.8300 Europe / Middle East Asia UNITED KINGDOM Vintners Place (European Headquarters) 68 Upper Thames Street London EC4V 3BJ +44 20 7029 8000 St. James House 23 King Street London SW1Y 6QY UK +44 20 7968 8000 FRANCE 8 rue Halevy 75009 Paris France +33 1 53 43 67 00 SWITZERLAND Uraniastrasse 12 8021 Zurich Switzerland +41 44 227 1600 CHINA** 1909-1910A, CITIC Square 1168 Nan Jing Road (W) Shanghai 200041, China +86 21 5111 8700 SINGAPORE 80 Raffles Place #15-20 UOB Plaza 2 Singapore 048624 +65 6551 3950 INDIA*** Eros Corporate Tower Nehru Place New Delhi, India 110019 +91 11 4059 9500 * Temporary address ** A Representative office of Jefferies & Company, Inc. *** License pending GERMANY Niederlassung Frankfurt Bockenheimer Landstrasse 24 60323 Frankfurt am Main Deutschland +49 69 719 187 0 UNITED EMIRATES PO Box 31303 Emirates Office Tower, Level 41 Sheikh Zayed Road Dubai, United Arab Emirates +971 4 319 76 48 JAPAN 1-5-1, Yuraku-cho Chiyoda-ku Tokyo 100-0006 Japan +81 3 5251 6100 38 , . Produits et Services PRODUCTS & SERVICES Investment Banking Sales & Trading Research EQUITY & EQUITY-LINKED IPOs Follow-on Offerings Direct Placements PIPEs Private Equity Convertible Securities Bought Deals & Block Trades LEVERAGED FINANCE High Yield Bonds First & Second Lien Term Loans Revolving Credit Facilities Bridge Loans Mezzanine Debt MERGERS & ACQUISITIONS ADVISORY Exclusive Sale & Divestiture Acquisitions Merger Advisory Tender Offers Joint Ventures/Strategic Alliances Takeover Defense Fairness Opinions Private Equity Fund Raising Going Privates RESTRUCTURING & RECAPITALIZATION Restructuring Advice Exchange Offers Consent Solicitations Distressed Capital Raising Recapitalization Distressed M&A EQUITIES Cash Equities Listed Block Trading NASDAQ Market Making Distressed Equity Trading Event-Driven Trading NYSE Floor Brokerage Special Situations Post-reorganization Equities Electronic Trading Solutions Portfolio Trading Algorithmic Trading Direct Market Access Correspondent Services Equity Financial Products Derivatives (Options, ETFs) Structured Products Prime Brokerage Securities Finance CONVERTIBLES Traditional and Mandatory Capital Markets/Origination US/International Proprietary Trading Closed-End Funds Jefferies Active Convertible Index HIGH YIELD Sales/Trading of High Yield Bonds Distressed and Special Situations Bank Debt Trading FIXED INCOME Corporate Bonds Government Agency Bonds Treasury Notes and Bonds Mortgage-Backed Securities Municipal Bonds Emerging Markets JEFFERIES FINANCIAL PRODUCTS Commodities Indexes Commodities-Linked Financial Products Commodity Derivatives US & International Equity US & International High Yield US & International Convertible Industry Conferences Company Management Meetings Site Tours Proprietary Channel Checks Asset Management Long/Short Equity Collateralized Debt Obligations Long/Short Convertible Bonds Long-Only Strategies Event-Driven High Yield Distressed Merger Arbitrage Private Client Services Wealth Management Managed Assets Program Corporate Services Venture Services Corporate Cash Management Industries / Areas of Focus Aerospace & Defense Clean Technology Communications Consumer & Retail Energy Financial Services Financial Sponsors & Private Capital Gaming & Leisure Healthcare Industrial Maritime & Oil Service Media Technology Jefferies has retained the sort of character that many other firms sacrificed in the race for size. In the wave of consolidation that swept through the industry at the end of the 1990s and early 2000s, many of its competitors were swallowed by commercial or investment banks.... – The Banker, “Success Without a Name” August 2007 Jefferies is one of the few firms that can advise on either side of a deal, arrange debt and, years later when a portfolio company matures, underwrite the IPO. – Buyouts, “Moving Swiftly Up the League Tables” April 2007 Jefferies plays multiple roles, everything from adviser to buyers or sellers and managing leveraged finance deals to co-managing IPOs and advising M&A transactions. Such a wide array of roles means that Jefferies can arrange financings for a young business, then take the company public, forging a long-term relationship.... – Investment Dealers’ Digest, “Here Comes Jefferies” September 2007 , . Nuestros Principios Our Principles OUR CLIENTS ARE OUR LIFEBLOOD Without exception, their interests come first. Our mandate is to provide them with the very best, from thought to finish. And for one simple reason: if we get it right for our clients, we get it right for everyone connected to the Firm. WE BUILD RELATIONSHIPS Whether it's a brokerage client or an investment banking client, our goal is to help them develop and grow their business. For years, our Firm has fostered long-term, deep-seated relationships based on trust, integrity and mutual respect. GROWTH IS OUR MISSION Growing and mid-sized companies and their investors comprise the most dynamic, thriving sector of the economy. And their businesses and opportunities are as unique as their needs. Often overlooked and underserved, they find in us a Firm dedicated to their success, with every resource and capability to match. OUR PRODUCT IS OUR PEOPLE We have the financial expertise that enables our clients to succeed. As such, our people are our greatest asset. We prize intellect, passion, dedication, creativity, integrity and teamwork, seeking and retaining the brightest minds on Wall Street. We give those bright minds the opportunities to match, and pool our talent to create the best solutions for our clients. WE APPROACH EVERY SITUATION WITH INTEGRITY We are honest, fair and direct—with our clients, with one another and with our competition. We let the situation dictate the most appropriate solution, product or service that is in the best interests of our clients. OPPORTUNITY IS OUR MANDATE We see opportunity in everything we do. Difficult market conditions, shifting industry trends or geographic boundaries are no obstacle to us. We are inspired when others claim a trade or transaction is not possible. We will not give up until we have exhausted every avenue and explored every option to find an ethical and optimal way to achieve our clients' goals. WE ARE A FIRM OF SHAREHOLDERS We are vested deeply in the success of our Firm and the success of our clients. This alignment makes us unique. We think like owners, because we are owners. And we are always looking out for the best interests of the Firm. WE NEVER REST ON OUR LAURELS We do not take success for granted, nor do we rely on existing solutions. The global markets are constantly evolving, creating new opportunities for our clients and different ways of doing business. Complacency equals mediocrity. Innovation is king. . c n I , x i h p a r g o h t i L : y h p a r g o h t i L ) 2 1 , 9 s g p ( i n w r o C f f e J , ) 7 3 - 1 2 , 3 1 s g p ( n o s l i W y d n A : y h p a r g o t o h p 3 6 4 n w o r B : n g i s e d In 2007, Jefferies helped clients J e f f e r i e s G r o u p , I n c . 2 0 0 7 A n n u a l R e p o r t NAVIGATE VOLATILE MARKETS ACCESS LIQUIDITY ASSESS STRATEGIC ALTERNATIVES EXPLORE OPPORTUNITIES DIVERSIFY THEIR PORTFOLIOS EXPAND GLOBALLY DEFINE THEIR GOALS STRENGTHEN THEIR BALANCE SHEETS MAXIMIZE LEVERAGE TRANSFORM THEIR COMPANIES ACHIEVE THEIR OBJECTIVES INVEST KNOWLEDGEABLY MANAGE RISK ACCESS CAPITAL EMBRACE CHALLENGES STAY INFORMED MINIMIZE DILUTION GROW BY ACQUISITION DEPLOY CAPITAL MAXIMIZE VALUE JEFFERIES GROUP, INC. 2007 ANNUAL REPORT Jefferies Group, Inc. 520 Madison Avenue, New York, New York 10022 www.jefferies.com