STRENGTH IN SALES AND TRADING

Sales & Trading Revenue by Product / Equity Research Companies Under Coverage by Market Cap

Equities. In 2007, we continued to build on our long-standing cash equity platform with further enhancements to our fullservice 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 lending 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 approximately 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 commissions 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 distribution 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 competitive 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 opportunities 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 growth in volume over the past four years, and helped capital market net revenue increase significantly in 2007 (see Investment Banking).

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 accomplishments 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 continued 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 and protected capital, one-third of equity commitments to high yield remain undrawn and we have not applied any leverage.

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.

14 Published in Bloomberg Markets, June 2007. 15 Published in Institutional Investor, November 2007. 16 Published October 2007. 17 Announced May 2007.