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JEF 2013 10-K

Jefferies Group LLC (JEF) SEC Annual Report (10-K) for 2014

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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the fiscal year ended November 30, 2014

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from to

Commission File Number: 1-14947

JEFFERIES GROUP LLC

(Exact name of registrant as specified in its charter)

Delaware 95-4719745

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

520 Madison Avenue,

New York, New York

10022
(Address of principal executive offices) (Zip Code )

Registrant's telephone number, including area code:

(212) 284-2550

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:

Name of each exchange on which registered:

5.125% Senior Notes Due 2023 New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: Limited Liability Company Interests

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes   x     No   ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes   ¨     No   x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   x     No   ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   x     No   ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 232.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨ Accelerated filer ¨
Non-accelerated filer x Smaller Reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes   ¨     No   x

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant's most recently completed second fiscal quarter. $0 as of May 31, 2014.

The Registrant is a wholly-owned subsidiary of Leucadia National Corporation and meets the conditions set forth in General Instructions I(1)(a) and (b) of Form 10-K and is therefore filing this Form 10-K with a reduced disclosure format as permitted by Instruction I(2).

Table of Contents

JEFFERIES GROUP LLC

2014 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS

PART I

Item 1.

Business 2

Item 1A.

Risk Factors 7

Item 1B.

Unresolved Staff Comments 12

Item 2.

Properties 12

Item 3.

Legal Proceedings 12

Item 4.

Mine Safety Disclosures 13
PART II

Item 5.

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 14

Item 6.

Selected Financial Data 14

Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations 14

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk 57

Item 8.

Financial Statements and Supplementary Data 58

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 145

Item 9A.

Controls and Procedures 145

Item 9B.

Other Information 145
PART III

Item 10.

Directors, Executive Officers and Corporate Governance 146

Item 11.

Executive Compensation 146

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 146

Item 13.

Certain Relationships and Related Transactions, and Director Independence 146

Item 14.

Principal Accountant Fees and Services 146
PART IV

Item 15.

Exhibits and Financial Statement Schedules 148

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JEFFERIES GROUP LLC AND SUBSIDIARIES

PART I

Item 1. Business.

Introduction

Jefferies Group LLC and its subsidiaries operate as a global full service, integrated securities and investment banking firm. Our principal operating subsidiary, Jefferies LLC ("Jefferies"), was founded in the U.S. in 1962 and our first international operating subsidiary, Jefferies International Limited ("Jefferies Europe"), was established in the U.K. in 1986. On March 1, 2013, Jefferies Group, Inc. converted into a limited liability company (renamed Jefferies Group LLC) and became an indirect wholly owned subsidiary of Leucadia National Corporation ("Leucadia") (referred to herein as the "Leucadia Transaction"). Richard Handler, our Chief Executive Officer and Chairman, was also appointed the Chief Executive Officer of Leucadia, as well as a Director of Leucadia. Brian P. Friedman, our Chairman of the Executive Committee, was also appointed Leucadia's President and a Director of Leucadia. Following the Leucadia Transaction, Jefferies Group LLC retains a credit rating separate from Leucadia and remains an SEC reporting company, filing annual, quarterly and periodic financial reports.

Since 2000, we have grown considerably and become increasingly diversified, increasing our market share and the breadth and depth of our business. Our growth has been achieved through the addition of talented personnel in targeted areas, as well as the acquisition of complementary businesses. At November 30, 2014, we had 3,915 employees in the Americas, Europe, Asia and the Middle East. Our global headquarters and executive offices are located at 520 Madison Avenue, New York, New York 10022. We also have regional headquarters in London and Hong Kong. Our primary telephone number is (212) 284-2550 and our Internet address is jefferies.com.

The following documents and reports are available on our public website:

Annual and interim reports on Form 10-K;

Quarterly reports on Form 10-Q;

Current reports on Form 8-K;

Code of Ethics

Reportable waivers, if any, from our Code of Ethics by our executive officers;

Board of Directors Corporate Governance Guidelines;

Charter of the Corporate Governance and Nominating Committee of the Board of Directors;

Charter of the Compensation Committee of the Board of Directors;

Charter of the Audit Committee of the Board of Directors;

Any amendments to the above-mentioned documents and reports.

Interested persons may also obtain a printed copy of any of these documents or reports by sending a request to Investor Relations, Jefferies Group LLC, 520 Madison Avenue, New York, NY 10022, by calling 203-708-5975 or by sending an email to [email protected]

Business Segments

We currently operate in two business segments, Capital Markets and Asset Management. Our Capital Markets reportable segment, which principally represents our entire business, consists of our securities and commodities trading activities and our investment banking activities. The Capital Markets reportable segment provides the sales, trading and/or origination and execution effort for various equity, fixed income, commodities, futures, foreign exchange and advisory products and services. The Asset Management segment includes asset management activities and related services.

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Financial information regarding our reportable business segments at November 30, 2014, November 30, 2013 and November 30, 2012 is set forth in Note 24, Segment Reporting, in this Annual Report on Form 10-K.

Our Businesses

Capital Markets

Our Capital Markets segment focuses on Equities, Fixed Income (including futures, foreign exchange and commodities activities) and Investment Banking. We primarily serve institutional investors, corporations and government entities.

Equities

Equities Research, Sales and Trading

We provide our clients full-service equities research, sales and trading capabilities across global securities markets. We earn commissions or spread revenue by executing, settling and clearing transactions for clients across these markets in equity and equity-related products, including common stock, American depository receipts, global depository receipts, exchange-traded funds, exchange-traded and over-the-counter ("OTC") equity derivatives, convertible and other equity-linked products and closed-end funds. We act as agent or principal (including as a market-maker) when executing client transactions via traditional "high-touch" and electronic "low-touch" channels. In order to facilitate client transactions, we may act as principal to provide liquidity, which requires the commitment of our capital and certain maintenance of dealer inventory.

Our equity research, sales and trading efforts are organized across three geographical regions: the Americas; Europe, the Middle East, and Africa ("EMEA"); and Asia Pacific. Our main product lines within the regions are cash equities, electronic trading, derivatives and convertibles. Our clients are primarily institutional market participants such as mutual funds, hedge funds, investment advisors, pension and profit sharing plans, and insurance companies. Through our global research team and sales force, we maintain relationships with our clients, distribute investment research and strategy, trading ideas, market information and analyses across a range of industries and receive and execute client orders. Our equity research covers over 1,800 companies around the world and a further approximate 600 companies are covered by eight leading local firms in Asia Pacific with whom we maintain alliances.

Equity Finance

Our Equity Finance business provides financing, securities lending and other prime brokerage services.

We offer prime brokerage services in the U.S. that provide hedge funds, money managers and registered investment advisors with execution, financing, clearing, reporting and administrative services. We finance our clients' securities positions through margin loans that are collateralized by securities, cash or other acceptable liquid collateral. We earn an interest spread equal to the difference between the amount we pay for funds and the amount we receive from our clients. We also operate a matched book in equity and corporate bond securities, whereby we borrow and lend securities versus cash or liquid collateral and earn a net interest spread.

Customer assets (securities and funds) held by us are segregated in accordance with regulatorily mandated customer protection rules. We offer selected prime brokerage clients with the option of custodying their assets at an unaffiliated U.S. broker-dealer that is a subsidiary of a bank holding company. Under this arrangement, we provide our clients directly with all customary prime brokerage services.

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Wealth Management

We provide tailored wealth management services designed to meet the needs of high net worth individuals, their families and their businesses, private equity and venture funds and small institutions. Our advisors provide access to all of our institutional execution capabilities and deliver other financial services. Our open architecture platform affords clients access to products and services from both our firm and from a variety of other major financial services institutions.

Fixed Income

Fixed Income Sales and Trading

We provide our clients with sales and trading of investment grade and high yield corporate bonds, U.S. and European government and agency securities, municipal bonds, mortgage- and asset-backed securities, whole loans, leveraged loans, distressed securities, emerging markets debt and derivative products. Jefferies is designated as a Primary Dealer by the Federal Reserve Bank of New York and Jefferies International Limited is designated in similar capacities for several countries in Europe and trades a broad spectrum of other European government bonds. Additionally, through the use of repurchase agreements, we act as an intermediary between borrowers and lenders of short-term funds and obtain funding for various of our inventory positions. We trade and make markets globally in cleared and uncleared swaps and forwards referencing, among other things, interest rates, investment grade and non-investment grade corporate credits, credit indexes and asset-backed security indexes. We are registered as a swap dealer with the CFTC.

Our strategists and economists provide ongoing commentary and analysis of the global fixed income markets. In addition, our fixed income research professionals, including research and desk analysts, provide investment ideas and analysis across a variety of fixed income products.

Futures, Foreign Exchange and Commodities

We provide our clients 24-hour global coverage, with direct access to major commodity and financial futures exchanges including the CME, CBOT, NYMEX, ICE, NYSE Euronext, LME and Eurex and provide 24-hour global coverage, execution, clearing and market making in futures, options and derivatives on industrial metals including aluminum, copper, nickel, zinc, tin and lead. Products provided to clients include LME and CME futures and over-the-counter metals swaps and options.

We operate a full-service trading desk in all precious metals, cash, futures and exchange-for-physicals markets, and are a market maker providing execution and clearing services as well as market analysis. We also provide prime brokerage services and are an authorized coin distributor of the U.S. Mint.

In addition, we are a market-maker in foreign exchange spot, forward, swap and option contracts across major currencies and emerging markets globally and conduct these activities through our futures commission merchant and our swap dealer each registered with the CFTC.

In late 2014, we began to pursue various strategic alternatives for our futures, foreign exchange and commodities business. These alternatives may include a sale to or combination with another similar business that improves the combined businesses' competitive standing and margin and we anticipate that a decision in this regard will be forthcoming in the first half of fiscal 2015.

Investment Banking

We provide our clients around the world with a full range of equity capital markets, debt capital markets and financial advisory services. Our services are enhanced by our industry sector expertise, our global distribution capabilities and our senior level commitment to our clients.

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Over 800 investment banking professionals operate in the Americas, Europe and Asia, and are organized into industry, product and geographic coverage groups. Our sector coverage groups include Consumer & Retailing; Financial Institutions; Industrials; Healthcare; Energy; Real Estate, Gaming & Lodging; Media & Telecommunications; Technology; Financial Sponsors and State & Local Governments. Our product coverage groups include equity capital markets; debt capital markets; financial advisory, which includes both mergers and acquisitions and restructuring and recapitalization and U.K. corporate broking. Our geographic coverage groups include coverage teams based in major cities in the United States, Canada, Brazil, the United Kingdom, Germany, Sweden, Russia, India, China and Singapore.

Equity Capital Markets

We provide a broad range of equity financing capabilities to companies and financial sponsors. These capabilities include private equity placements, initial public offerings, follow-on offerings, block trades and equity-linked convertible securities.

Debt Capital Markets

We provide a wide range of debt financing capabilities for companies, financial sponsors and government entities. We focus on structuring, underwriting and distributing public and private debt, including investment grade and non-investment grade corporate debt, leveraged loans, mortgage and other asset-backed securities, and liability management solutions.

Advisory Services

We provide mergers and acquisition and restructuring and recapitalization services to companies, financial sponsors and government entities. In the mergers and acquisition area, we advise sellers and buyers on corporate sales and divestitures, acquisitions, mergers, tender offers, spinoffs, joint ventures, strategic alliances and takeover and proxy fight defense. We also provide a broad range of acquisition financing capabilities to assist our clients. In the restructuring and recapitalization area, we provide to companies, bondholders and lenders a full range of restructuring advisory capabilities as well as expertise in the structuring, valuation and placement of securities issued in recapitalizations.

Asset Management

We provide investment management services to pension funds, insurance companies and other institutional investors. Our primary asset management programs are strategic investment, special situation and convertible bond strategies. We partner with Leucadia's asset management business in providing asset management services.

Our strategic investment programs, including our Structured Alpha Program, are provided through the Strategic Investments Division of Jefferies Investment Advisers, LLC, which is registered as an investment adviser with the SEC. These programs are systematic, multi-strategy, multi-asset class programs with the objective of generating a steady stream of absolute returns irrespective of the direction of major market indices or phase of the economic cycle. These strategies are provided through both long-short equity private funds and separately managed accounts.

Our special situation programs, are also provided by Jefferies Investment Advisers, LLC, as investment manager, and consist of managed account and hedge fund offerings that employ event driven strategies evaluating corporate events, including mergers and restructuring for investment opportunities. Leucadia has made significant investments in the funds managed by these programs and, accordingly, a significant portion of the net results are allocated to Leucadia.

We offer convertible bond strategies through Jefferies (Switzerland) Limited, which is licensed by the Swiss Financial Market Supervisory Authority. These strategies are long only investment solutions in global convertible bonds offered to pension funds, insurance companies and private banking clients. As a result of an analysis of this activity, we have decided to wind-down our convertible bond offerings and expect that, pending regulatory approvals, these actions will be completed within the next twelve months.

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Competition

All aspects of our business are intensely competitive. We compete primarily with large global bank holding companies that engage in capital markets activities, but also with firms listed in the AMEX Securities Broker/Dealer Index, other brokers and dealers, and boutique investment banking firms. The large global bank holding companies have substantially greater capital and resources than we do. We believe that the principal factors affecting our competitive standing include the quality, experience and skills of our professionals, the depth of our relationships, the breadth of our service offerings, our ability to deliver consistently our integrated capabilities, and our tenacity and commitment to serve our clients.

Regulation

Regulation in the United States. The financial services industry in which we operate is subject to extensive regulation. In the U.S., the Securities and Exchange Commission ("SEC") is the federal agency responsible for the administration of federal securities laws, and the Commodity Futures Trading Commission ("CFTC") is the federal agency responsible for the administration of laws relating to commodity interests (including futures and swaps). In addition, self-regulatory organizations, principally Financial Industry Regulatory Authority ("FINRA") and the National Futures Association ("NFA"), are actively involved in the regulation of financial service businesses. The SEC, CFTC and self-regulatory organizations conduct periodic examinations of broker-dealers investment advisers, futures commission merchants ("FCMs") and swap dealers. The applicable self-regulatory authority for Jefferies' activities as a broker-dealer is FINRA, and the applicable self-regulatory authority for Jefferies' FCM activities is the Chicago Board of Trade (which is owned by the CME Group). Financial service businesses are also subject to regulation by state securities commissions and attorneys general in those states in which they do business.

Broker-dealers are subject to SEC and FINRA regulations that cover all aspects of the securities business, including sales and trading methods, trade practices among broker-dealers, use and safekeeping of customers' funds and securities, capital structure of securities firms, anti-money laundering efforts, recordkeeping and the conduct of directors, officers and employees. Registered advisors are subject to, among other requirements, SEC regulations concerning marketing, transactions with affiliates, disclosure to clients, and recordkeeping; and advisors that are also registered as commodity trading advisors or commodity pool operators are also subject to regulation by the CFTC and the NFA. FCMs, introducing brokers and swap dealers that engage in commodities, futures or swap transactions are subject to regulation by the CFTC and the NFA. Additional legislation, changes in rules promulgated by the SEC, CFTC and self-regulatory organizations, or changes in the interpretation or enforcement of existing laws and rules may directly affect the operations and profitability of broker-dealers, investment advisers, FCMs and swap dealers. The SEC, the CFTC and self-regulatory organizations, state securities commissions and state attorneys general may conduct administrative proceedings or initiate civil litigation that can result in censure, fine, suspension, expulsion of a firm, its officers or employees, or revocation of a firm's licenses.

On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act") was enacted in the United States. The Dodd-Frank Act is being implemented through extensive rulemaking by the SEC, the CFTC and other governmental agencies. The Dodd-Frank Act also mandates the preparation of studies on a wide range of issues. These studies could lead to additional regulatory changes. For additional information see Item 1A. Risk Factors – "Recent legislation and new and pending regulation may significantly affect our business."

Net Capital Requirements. U.S. registered broker-dealers are subject to the SEC's Uniform Net Capital Rule (the "Net Capital Rule"), which specifies minimum net capital requirements. Jefferies Group LLC is not a registered broker-dealer and is therefore not subject to the Net Capital Rule; however, its U.S. broker-dealer subsidiaries, Jefferies and Jefferies Execution Services, Inc. ("Jefferies Execution"), are registered broker-dealers and are subject to the Net Capital Rule. Jefferies and Jefferies Execution have elected to compute their minimum net capital requirement in accordance with the "Alternative Net Capital Requirement" as permitted by the Net Capital Rule, which provides that a broker-dealer shall not permit its net capital, as defined, to be less than the greater of 2% of its aggregate debit balances (primarily customer-related receivables) or $250,000 ($1.5 million for prime brokers). Compliance with the Net Capital Rule could limit operations of our broker-dealers, such as underwriting and trading activities, that require the use of significant amounts of capital, and may also restrict their ability to make loans, advances, dividends and other payments.

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U.S. registered FCMs are subject to the CFTC's minimum financial requirements for futures commission merchants and introducing brokers. Jefferies Group LLC is not a registered FCM or a registered Introducing Broker, and is therefore not subject to the CFTC's minimum financial requirements; however, Jefferies is registered as a FCM following its merger with Jefferies Bache, LLC in September 2014 and is therefore subject to the minimum financial requirements. Under the minimum financial requirements, an FCM must maintain adjusted net capital equal to or in excess of the greater of (A) $1,000,000 or (B) the FCM's risk-based capital requirements totaling (1) eight percent of the total risk margin requirement for positions carried by the FCM in customer accounts, plus (2) eight percent of the total risk margin requirement for positions carried by the FCM in noncustomer accounts. An FCM's ability to make capital and certain other distributions is subject to the rules and regulations of various exchanges, clearing organizations and other regulatory agencies which may have capital requirements that are greater than the CFTC's. Jefferies, as a dually registered broker-dealer and FCM, is required to maintain net capital in excess of the greater of the SEC or CFTC minimum financial requirements.

Our subsidiaries that are registered swap dealers will become subject to capital requirements under the Dodd-Frank Act once they become final. For additional information see Item 1A. Risk Factors – "Recent legislation and new and pending regulation may significantly affect our business."

See Net Capital within Item 7. Management's Discussion and Analysis and Note 23, Net Capital Requirements in this Annual Report on Form 10-K for additional discussion of net capital calculations.

Regulation outside the United States. We are an active participant in the international capital markets, engaging in commodity futures brokerage and providing investment banking services internationally, but primarily in Europe and Asia. As is true in the U.S., our subsidiaries are subject to extensive regulations promulgated and enforced by, among other regulatory bodies, the U.K. Financial Conduct Authority, the Hong Kong Securities and Futures Commission, the Japan Financial Services Agency and the Monetary Authority of Singapore. Every country in which we do business imposes upon us laws, rules and regulations similar to those in the U.S., including with respect to some form of capital adequacy rules, customer protection rules, anti-money laundering and anti-bribery rules, compliance with other applicable trading and investment banking regulations and similar regulatory reform. For additional information see Item 1A. Risk Factors – "Extensive international regulation of our business limits our activities, and, if we violate these regulations, we may be subject to significant penalties."

Item 1A. Risk Factors.

Factors Affecting Our Business

The following factors describe some of the assumptions, risks, uncertainties and other factors that could adversely affect our business or that could otherwise result in changes that differ materially from our expectations. In addition to the specific factors mentioned in this report, we may also be affected by other factors that affect businesses generally such as global or regional changes in economic or business conditions, acts of war, terrorism and natural disasters.

Recent legislation and new and pending regulation may significantly affect our business.

In recent years, there has been significant legislation and increased regulation affecting the financial services industry. These legislative and regulatory initiatives affect not only us, but also our competitors and certain of our clients. These changes could have an effect on our revenue and profitability, limit our ability to pursue certain business opportunities, impact the value of assets that we hold, require us to change certain business practices, impose additional costs on us and otherwise adversely affect our business. Accordingly, we cannot provide assurance that legislation and regulation will not eventually have an adverse effect on our business, results of operations, cash flows and financial condition.

Title VII of the Dodd-Frank Act and the rules and regulations adopted and to be adopted by the SEC and CFTC introduce a comprehensive regulatory regime for swaps and security-based swaps and parties that deal in such swaps and security-based swaps. We have registered three of our subsidiaries as swap dealers with the CFTC and the NFA and may register one or more subsidiaries as security-based swap dealers with the SEC. The new laws and

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regulations subject certain swaps and security-based swaps to clearing and exchange trading requirements and subject swap dealers and security-based swap dealers to significant new burdens, including (i) capital and margin requirements, (ii) reporting, recordkeeping and internal business conduct requirements, (iii) external business conduct requirements in dealings with swap counterparties (which are particularly onerous when the counterparty is a special entity such as a federal, state, or municipal entity, an ERISA plan, a government employee benefit plan or an endowment), and (iv) large trader position reporting and certain position limit requirements. The final rules under Title VII, including those rules that have already been adopted, for both cleared and uncleared swap transactions will impose increased capital and margin requirements on our registered entities and require additional operational and compliance costs and resources that will likely affect our business.

Section 619 of the Dodd-Frank Act (Volcker Rule) limits certain proprietary trading by banking entities such as banks, bank holding companies and similar institutions. Although we are not a banking entity and are not otherwise subject to these rules, some of our clients and many of our counterparties are banks or entities affiliated with banks and are subject to these restrictions. These sections of the Dodd-Frank Act and the regulations that are adopted to implement them could negatively affect the swaps and securities markets by reducing their depth and liquidity and thereby affect pricing in these markets. Other negative effects could result from an expansive extraterritorial application of the Dodd-Frank Act in general or the Volcker Rule in particular and/or insufficient international coordination with respect to adoption of rules for derivatives and other financial reforms in other jurisdictions. We will not know the exact impact that these changes in the markets will have on our business until after the final rules are implemented.

The Dodd-Frank Act, in addressing systemic risks to the financial system, charges the Federal Reserve with drafting enhanced regulatory requirements for systemically important bank holding companies and certain other nonbank financial companies designated as systemically important by the Financial Stability Oversight Council. The enhanced requirements proposed by the Federal Reserve include capital requirements, liquidity requirements, limits on credit exposure concentrations and risk management requirements. We do not believe that we will be deemed to be a systemically important nonbank financial company under the new legislation and therefore will not be directly impacted. However, there will be an indirect impact to us to the extent that the new regulations apply to our competitors, counterparties and certain of our clients.

Extensive international regulation of our business limits our activities, and, if we violate these regulations, we may be subject to significant penalties.

The financial services industry is subject to extensive laws, rules and regulations in every country in which we operate. Firms that engage in securities and derivatives trading, commodity futures brokerage, wealth and asset management and investment banking must comply with the laws, rules and regulations imposed by national and state governments and regulatory and self-regulatory bodies with jurisdiction over such activities. Such laws, rules and regulations cover all aspects of the financial services business, including, but not limited to, sales and trading methods, trade practices, use and safekeeping of customers' funds and securities, capital structure, anti-money laundering and anti-bribery and corruption efforts, recordkeeping and the conduct of directors, officers and employees.

Each of our regulators supervises our business activities to monitor compliance with such laws, rules and regulations in the relevant jurisdiction. In addition, if there are instances in which our regulators question our compliance with laws, rules, and regulations, they may investigate the facts and circumstances to determine whether we have complied. At any moment in time, we may be subject to one or more such investigation or similar reviews. At this time, all such investigations and similar reviews are insignificant in scope and immaterial to us. However, there can be no assurance that, in the future, the operations of our businesses will not violate such laws, rules, or regulations and that related investigations and similar reviews could result in adverse regulatory requirements, regulatory enforcement actions and/or fines.

The European Market Infrastructure Regulation ("EMIR") was enacted in August 2012 and, in common with the Dodd-Frank Act in the U.S., is intended, among other things, to reduce counterparty risk by requiring standardized over-the-counter derivatives be cleared through a central counterparty and reported to registered trade repositories. EMIR is being introduced in phases in the U.K., with implementation of additional requirements

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expected through 2019. Likewise, the amendments to the Markets in Financial Instruments Directive and the Market Abuse Regulation and new Market Abuse Directive ("MAD 2") both in response to recommendations from the European Commission following the financial crisis are likely to impact our business when they come into force during 2016. The European Commission's changes to the Capital Requirements Directive ("CRD") comprising CRD IV and the Capital Requirements Regulation ("CRR") became effective January 1, 2014.

Additional legislation, changes in rules, changes in the interpretation or enforcement of existing laws and rules, or the entering into businesses that subject us to new rules and regulations may directly affect our business, results of operations and financial condition. We continue to monitor the impact of new European regulation on our businesses.

Changing conditions in financial markets and the economy could result in decreased revenues, losses or other adverse consequences.

As a global securities and investment banking firm, global or regional changes in the financial markets or economic conditions could adversely affect our business in many ways, including the following:

A market downturn could lead to a decline in the volume of transactions executed for customers and, therefore, to a decline in the revenues we receive from commissions and spreads.

Unfavorable financial or economic conditions could reduce the number and size of transactions in which we provide underwriting, financial advisory and other services. Our investment banking revenues, in the form of financial advisory and sales and trading or placement fees, are directly related to the number and size of the transactions in which we participate and could therefore be adversely affected by unfavorable financial or economic conditions.

Adverse changes in the market could lead to losses from principal transactions on our inventory positions.

Adverse changes in the market could also lead to a reduction in revenues from asset management fees and investment income from managed funds and losses on our own capital invested in managed funds. Even in the absence of a market downturn, below-market investment performance by our funds and portfolio managers could reduce asset management revenues and assets under management and result in reputational damage that might make it more difficult to attract new investors.

Limitations on the availability of credit, such as occurred during 2008, can affect our ability to borrow on a secured or unsecured basis, which may adversely affect our liquidity and results of operations.

New or increased taxes on compensation payments such as bonuses or on balance sheet items may adversely affect our profits.

Should one of our customers or competitors fail, our business prospects and revenue could be negatively impacted due to negative market sentiment causing customers to cease doing business with us and our lenders to cease loaning us money, which could adversely affect our business, funding and liquidity.

Unfounded allegations about us could result in extreme price volatility and price declines in our securities and loss of revenue, clients, and employees.

Our reputation and business activity can be affected by statements and actions of third parties, even false or misleading statements by them. While we have been able to dispel such rumors in the past, our debt-securities prices suffered not only extreme volatility but also record high yields. In addition, our operations in the past have been impacted as some clients either ceased doing business or temporarily slowed down the level of business they do, thereby decreasing our revenue stream. Although we were able to reverse the negative impact of such unfounded allegations and false rumors, there is no assurance that we will be able to do so successfully in the future and our potential failure to do so could have a material adverse effect on our business, financial condition and liquidity.

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A credit-rating agency downgrade could significantly impact our business.

Maintaining an investment grade credit rating is important to our business and financial condition. We intend to access the capital markets and issue debt securities from time to time; and a decrease in our credit rating would not only increase our borrowing costs, but could also decrease demand for our debt securities and make a successful financing more difficult. In addition, in connection with certain over-the-counter derivative contract arrangements and certain other trading arrangements, we may be required to provide additional collateral to counterparties, exchanges and clearing organizations in the event of a credit rating downgrade. Such a downgrade could also negatively impact our debt-securities prices. There can be no assurance that our credit ratings will not be downgraded.

Our principal trading and investments expose us to risk of loss.

A considerable portion of our revenues is derived from trading in which we act as principal. We may incur trading losses relating to the purchase, sale or short sale of fixed income, high yield, international, convertible, and equity securities and futures and commodities for our own account. In any period, we may experience losses on our inventory positions as a result of price fluctuations, lack of trading volume, and illiquidity. From time to time, we may engage in a large block trade in a single security or maintain large position concentrations in a single security, securities of a single issuer, securities of issuers engaged in a specific industry, or securities from issuers located in a particular country or region. In general, because our inventory is marked to market on a daily basis, any adverse price movement in these securities could result in a reduction of our revenues and profits. In addition, we may engage in hedging transactions that if not successful, could result in losses.

Increased competition may adversely affect our revenues, profitability and staffing.

All aspects of our business are intensely competitive. We compete directly with a number of bank holding companies and commercial banks, other brokers and dealers, investment banking firms and other financial institutions. In addition to competition from firms currently in the securities business, there has been increasing competition from others offering financial services, including automated trading and other services based on technological innovations. We believe that the principal factors affecting competition involve market focus, reputation, the abilities of professional personnel, the ability to execute the transaction, relative price of the service and products being offered, bundling of products and services and the quality of service. Increased competition or an adverse change in our competitive position could lead to a reduction of business and therefore a reduction of revenues and profits.

Competition also extends to the hiring and retention of highly skilled employees. A competitor may be successful in hiring away employees, which may result in our losing business formerly serviced by such employees. Competition can also raise our costs of hiring and retaining the employees we need to effectively operate our business.

Operational risks may disrupt our business, result in regulatory action against us or limit our growth.

Our businesses are highly dependent on our ability to process, on a daily basis, a large number of transactions across numerous and diverse markets in many currencies, and the transactions we process have become increasingly complex. If any of our financial, accounting or other data processing systems do not operate properly or are disabled or if there are other shortcomings or failures in our internal processes, people or systems, we could suffer an impairment to our liquidity, financial loss, a disruption of our businesses, liability to clients, regulatory intervention or reputational damage. These systems may fail to operate properly or become disabled as a result of events that are wholly or partially beyond our control, including a disruption of electrical or communications services or our inability to occupy one or more of our buildings. The inability of our systems to accommodate an increasing volume of transactions could also constrain our ability to expand our businesses.

We also face the risk of operational failure or termination of any of the clearing agents, exchanges, clearing houses or other financial intermediaries we use to facilitate our securities transactions. Any such failure or termination could adversely affect our ability to effect transactions and manage our exposure to risk.

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In addition, despite the contingency plans we have in place, our ability to conduct business may be adversely impacted by a disruption in the infrastructure that supports our businesses and the communities in which they are located. This may include a disruption involving electrical, communications, transportation or other services used by us or third parties with which we conduct business.

Our operations rely on the secure processing, storage and transmission of confidential and other information in our computer systems and networks. Although we take protective measures and endeavor to modify them as circumstances warrant, our computer systems, software and networks may be vulnerable to unauthorized access, computer viruses or other malicious code, and other events that could have a security impact. Additionally, if a client's computer system, network or other technology is compromised by unauthorized access, we may face losses or other adverse consequences by unknowingly entering into unauthorized transactions. If one or more of such events occur, this potentially could jeopardize our or our clients' or counterparties' confidential and other information processed and stored in, and transmitted through, our computer systems and networks. Furthermore, such events may cause interruptions or malfunctions in our, our clients', our counterparties' or third parties' operations, including the transmission and execution of unauthorized transactions. We may be required to expend significant additional resources to modify our protective measures or to investigate and remediate vulnerabilities or other exposures, and we may be subject to litigation and financial losses that are either not insured against or not fully covered through any insurance maintained by us.

We face numerous risks and uncertainties as we expand our business.

We expect the growth of our business to come primarily from internal expansion and through acquisitions and strategic partnering. As we expand our business, there can be no assurance that our financial controls, the level and knowledge of our personnel, our operational abilities, our legal and compliance controls and our other corporate support systems will be adequate to manage our business and our growth. The ineffectiveness of any of these controls or systems could adversely affect our business and prospects. In addition, as we acquire new businesses and introduce new products, we face numerous risks and uncertainties integrating their controls and systems into ours, including financial controls, accounting and data processing systems, management controls and other operations. A failure to integrate these systems and controls, and even an inefficient integration of these systems and controls, could adversely affect our business and prospects.

Certain business intiatives, including expansions of exsiting businesses, may bring us into contact directly or indirectly, with individuals and entities that are not within our traditional client and counterparty base and may expose us to new asset classes and new markets. These business activities expose us to new and enhanced risks, greater regulatory scrutiny of these activities, increased credit-related, sovereign and operational risks, and reputational concerns regarding the manner in which these assets are being operated or held.

Our international operations subject us to numerous risks which could adversely impact our business in many ways.

Our business and operations are expanding internationally. Wherever we operate, we are subject to legal, regulatory, political, economic and other inherent risks. The laws and regulations applicable to the securities and investment banking industries differ in each country. Our inability to remain in compliance with applicable laws and regulations in a particular country could have a significant and negative effect on our business and prospects in that country as well as in other countries. A political, economic or financial disruption in a country or region could adversely impact our business and increase volatility in financial markets generally.

Legal liability may harm our business.

Many aspects of our business involve substantial risks of liability, and in the normal course of business, we have been named as a defendant or codefendant in lawsuits involving primarily claims for damages. The risks associated with potential legal liabilities often may be difficult to assess or quantify and their existence and magnitude often remain unknown for substantial periods of time. The expansion of our business, including increases in the number and size of investment banking transactions and our expansion into new areas impose greater risks of liability. In addition, unauthorized or illegal acts of our employees could result in substantial liability to us. Substantial legal liability could have a material adverse financial effect or cause us significant reputational harm, which in turn could seriously harm our business and our prospects.

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Our business is subject to significant credit risk.

In the normal course of our businesses, we are involved in the execution, settlement and financing of various customer and principal securities and derivative transactions. These activities are transacted on a cash, margin or delivery-versus-payment basis and are subject to the risk of counterparty or customer nonperformance. Although transactions are generally collateralized by the underlying security or other securities, we still face the risks associated with changes in the market value of the collateral through settlement date or during the time when margin is extended and the risk of counterparty nonperformance to the extent collateral has not been secured or the counterparty defaults before collateral or margin can be adjusted. We may also incur credit risk in our derivative transactions to the extent such transactions result in uncollateralized credit exposure to our counterparties.

We seek to control the risk associated with these transactions by establishing and monitoring credit limits and by monitoring collateral and transaction levels daily. We may require counterparties to deposit additional collateral or return collateral pledged. In the case of aged securities failed to receive, we may, under industry regulations, purchase the underlying securities in the market and seek reimbursement for any losses from the counterparty. However, there can be no assurances that our risk controls will be successful.

Derivative transactions may expose us to unexpected risk and potential losses.

We are party to a number of derivative transactions that require us to deliver to the counterparty the underlying security, loan or other obligation in order to receive payment. In a number of cases, we do not hold the underlying security, loan or other obligation and may have difficulty obtaining, or be unable to obtain, the underlying security, loan or other obligation through the physical settlement of other transactions. As a result, we are subject to the risk that we may not be able to obtain the security, loan or other obligation within the required contractual time frame for delivery. This could cause us to forfeit the payments due to us under these contracts or result in settlement delays with the attendant credit and operational risk as well as increased costs to the firm.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

We maintain offices in over 30 cities throughout the world including, in the United States, Charlotte, Chicago, Boston, Houston, Los Angeles, San Francisco, Stamford, and Jersey City, and internationally, London, Frankfurt, Milan, Paris, Zurich, Dubai, Hong Kong, Singapore, Tokyo and Mumbai. In addition, we maintain backup data center facilities with redundant technologies for each of our three main data center hubs in Jersey City, London and Hong Kong. We lease all of our office space, or contract via service arrangement, which management believes is adequate for our business.

Item 3. Legal Proceedings.

Many aspects of our business involve substantial risks of legal and regulatory liability. In the normal course of business, we have been named as defendants or co-defendants in lawsuits involving primarily claims for damages. We are also involved in a number of judicial and regulatory matters, including exams, investigations and similar reviews, arising out of the conduct of our business. Based on currently available information, we do not believe that any matter will have a material adverse effect on our financial condition.

Seven class-action lawsuits had been filed in New York and Delaware on behalf of a class consisting of Jefferies Group's stockholders concerning the transaction through which Jefferies Group LLC became a wholly owned subsidiary of Leucadia National Corporation. The class actions named as defendants Leucadia, Jefferies Group, Inc., certain members of our board of directors, certain members of Leucadia's board of directors and, in certain of the

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actions, certain transaction-related subsidiaries. On October 31, 2014, the remaining defendants in the Delaware litigation entered into a settlement agreement with the plaintiffs in the Delaware litigation. The terms of that agreement, which are subject to court approval, provide for an aggregate payment of $70.0 million by Leucadia, who will bear the costs of the settlement, to certain former equity holders of Jefferies Group, Inc., other than the defendants and certain of their affiliates, along with attorneys' fees to be determined and approved by the court. The agreement further provides that the settlement will be paid, at Leucadia's option, in either cash or Leucadia common shares. If approved by the court, the settlement will resolve all of the class-action claims in Delaware, and release the claims brought in New York.

During the first quarter of 2014, we reached a non-prosecution agreement ("NPA") with the United States Attorney for the District of Connecticut and a settlement agreement with the SEC relating to an investigation of purchases and sales of mortgage-backed securities. That NPA expires on January 29, 2015. That investigation arose from a matter that came to light in late 2011, at which time we terminated a mortgage-backed-securities trader who was then indicted by the United States Attorney for the District of Connecticut in January 2013 and separately charged in a civil complaint by the SEC. Those agreements include an aggregate $25.0 million in payments, of which approximately $11.0 million are payments to trading counterparties impacted by those activities, approximately $10.0 million of which is a fine payable to the U.S. Attorney's Office, and approximately $4.0 million of which is a fine payable to the SEC. All such amounts were recognized in our year-end 2013 financial statements. At November 30, 2014, the outstanding reserve with respect to remaining payments to be made under the agreements is approximately $1.9 million. Additionally, pursuant to an undertaking required by the SEC settlement, Jefferies has retained an Independent Compliance Consultant ("ICC"). We anticipate that the ICC's work will be completed in early 2015.

Item 4. Mine Safety Disclosures.

Not applicable.

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PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Prior to the Leucadia Transaction, our common stock was traded on the NYSE under the symbol JEF. On March 1, 2013, all of our outstanding common shares were exchanged for shares of Leucadia, our common stock was delisted and there is no longer a public trading market for our common stock. Our ability to pay distributions to Leucadia is subject to the restrictions set forth in certain financial covenants associated with our $750.0 million Credit Facility described in Note 14, Long-Term Debt in our consolidated financial statements included within this Annual Report on Form 10-K and the governing provisions of the Delaware Limited Liability Company Act. We do not currently anticipate making distributions.

Dividends per Common Share (declared) were as follows:

1 st  Quarter 2 nd  Quarter 3 rd  Quarter 4 th  Quarter

2014

N/a N/a N/a N/a

2013

$ 0.075 N/a N/a N/a

2012

$ 0.075 $ 0.075 $ 0.075 $ 0.075

Item 6 . Selected Financial Data.

Omitted pursuant to general instruction I(2)(a) to Form 10-K.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

This report contains or incorporates by reference "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. Forward looking statements include statements about our future and statements that are not historical facts. These forward looking statements are usually preceded by the words "believe," "intend," "may," "will," or similar expressions. Forward looking statements may contain expectations regarding revenues, earnings, operations and other results, and may include statements of future performance, plans and objectives. Forward looking statements also include statements pertaining to our strategies for future development of our business and products. Forward looking statements represent only our belief regarding future events, many of which by their nature are inherently uncertain. It is possible that the actual results may differ, possibly materially, from the anticipated results indicated in these forward-looking statements. Information regarding important factors that could cause actual results to differ, perhaps materially, from those in our forward looking statements is contained in this report and other documents we file. You should read and interpret any forward looking statement together with these documents, including the following:

the description of our business contained in this report under the caption "Business";

the risk factors contained in this report under the caption "Risk Factors";

the discussion of our analysis of financial condition and results of operations contained in this report under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" herein;

the discussion of our risk management policies, procedures and methodologies contained in this report under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations-Risk Management" herein;

the notes to the consolidated financial statements contained in this report; and

cautionary statements we make in our public documents, reports and announcements.

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Any forward looking statement speaks only as of the date on which that statement is made. We will not update any forward looking statement to reflect events or circumstances that occur after the date on which the statement is made, except as required by applicable law.

Consolidated Results of Operations

On March 1, 2013, Jefferies Group, Inc. converted into a limited liability company (renamed Jefferies Group LLC) and became an indirect wholly owned subsidiary of Leucadia National Corporation ("Leucadia") pursuant to an agreement with Leucadia (the "Leucadia Transaction"). Each outstanding share of Jefferies Group LLC was converted into 0.81 of a common share of Leucadia (the "Exchange Ratio"). Jefferies Group LLC continues to operate as a full-service investment banking firm and as the holding company to its various regulated and unregulated operating subsidiaries, retain a credit rating separate from Leucadia and remain an SEC reporting company, filing annual, quarterly and periodic financial reports. Richard Handler, our Chief Executive Officer and Chairman, is also the Chief Executive Officer of Leucadia, as well as a Director of Leucadia. Brian P. Friedman, our Chairman of the Executive Committee, is Leucadia's President and a Director of Leucadia. (See Note 1, Organization and Basis of Presentation in our consolidated financial statements for further information.)

In Management's Discussion and Analysis of Financial Condition and Results of Operations, we have presented the historical financial results in the tables that follow for the periods before and after the Leucadia Transaction. Periods prior to March 1, 2013 are referred to as Predecessor periods, while periods after March 1, 2013 are referred to as Successor periods to reflect the fact that under U.S. generally accepted accounting principles ("U.S. GAAP") Leucadia's cost of acquiring Jefferies Group LLC has been pushed down to create a new accounting basis for Jefferies Group LLC. The Predecessor and Successor periods have been separated by a vertical line to highlight the fact that the financial information for such periods has been prepared under two different cost bases of accounting. Our financial results of operations are discussed separately for the following periods (i) the year ended November 30, 2014 and the nine months ended November 30, 2013 (the "Successor periods") and (ii) the three months ended February 28, 2013 and the year ended November 30, 2012 (the "Predecessor period"). The following table provides an overview of our consolidated results of operations (in thousands):

Successor Predecessor
Year Ended
November 30, 2014 (1)
Nine Months Ended
November 30, 2013
Three Months Ended
February 28, 2013
Year Ended
November 30, 2012

Net revenues, less mandatorily redeemable preferred interests

$ 2,990,138 $ 2,137,313 $ 807,583 $ 3,018,769

Non-interest expenses

2,687,117 1,873,018 668,096 2,526,974

Earnings before income taxes

303,021 264,295 139,487 491,795

Income tax expense

142,061 94,686 48,645 168,646

Net earnings

160,960 169,609 90,842 323,149

Net earnings to noncontrolling interests

3,400 8,418 10,704 40,740

Net earnings attributable to Jefferies Group LLC / common stockholders

157,560 161,191 80,138 282,409

Effective tax rate

46.9 35.8 34.9 34.3

(1) Our results of operations for the year ended November 30, 2014 as reported in this Annual Report on Form 10-K differ from the results of operations as presented in our Current Report on Form 8-K, dated December 16, 2014 to reflect post-closing adjustments for inventory valuations, year-end compensation accruals and accruals for estimated other expenses. The net impact of these adjustments was to reduce Net earnings attributable to Jefferies Group LLC for the reported period from that previously disclosed by $7.4 million. As a result of these adjustments, Total Net revenues decreased by $12.8 million to $2,990.1 million and Total Non-interest expenses decreased by $0.2 million to $2,687.1 million. The tax effect of these adjustments was to reduce Income tax expense by $5.1 million to $142.1 million.

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Executive Summary

Year Ended November 30, 2014

Net revenues, less mandatorily redeemable preferred interests, for the year ended November 30, 2014 were $2,990.1 million, reflecting record revenues in investment banking, partially offset by lower revenues in fixed income due to challenging market conditions during portions of the year. The results reflected the continued tapering of the U.S. Federal reserve monetary stimulus and global economic pressures, as well as the challenging credit markets, specifically the high yield bond and distressed markets in the fourth quarter of 2014. In addition, our Jefferies Bache business has experienced various challenges with respect to its profitability and consequently we have decided to pursue alternatives for this business, which may include disposal. The results for the year ended November 30, 2014 reflect within Net revenues positive income of $100.6 million from the amortization of premiums arising from recognizing our long-term debt at fair value as part of the pushdown accounting for the Leucadia Transaction and a loss of $14.7 million from our investment in KCG Holdings, Inc. ("Knight") and a gain of $19.9 from our investment in Harbinger Group Inc. ("Harbinger"), the latter of which we sold to Leucadia in March 2014.

Non-interest expenses were $2,687.1 million for the year ended November 30, 2014 and include Compensation and benefits expense of $1,698.5 million recognized commensurate with the level of net revenues for the year. Compensation and benefits expenses as a percentage of Net revenues was 56.8% for the year ended November 30, 2014. Non-interest expenses include goodwill impairment losses of $54.0 million and impairment losses of $7.8 million on certain intangible assets related to our Jefferies Bache (also referred to as Futures) and International Asset Management businesses. In addition, Non-interest expenses include $7.7 million in additional lease expense related to recognizing existing leases at their current market value, incremental amortization expense of $14.2 million associated with intangible assets and internally developed software recognized at the Leucadia Transaction date, and $14.4 million of additional amortization expense related to the write-up of the cost of outstanding share-based awards which had future service requirements and was recognized in connection with the Leucadia Transaction.

At November 30, 2014, we had 3,915 employees globally, an increase of 118 employees from our headcount of 3,797 at November 30, 2013.

Nine Months Ended November 30, 2013

Net revenues, less mandatorily redeemable preferred interests, for the nine months ended November 30, 2013 were $2,137.3 million reflecting a challenging environment for our fixed income businesses during portions of the period, partially offset by strong results in equities and investment banking. The results for the nine month period reflect within Net revenues positive income of $73.8 million, representing the amortization of premiums arising from recognizing our long-term debt at fair value as part of the pushdown accounting for the Leucadia Transaction and gains of $89.3 million in aggregate from our investments in Knight Capital, Inc. ("Knight Capital") and Harbinger.

Non-interest expenses were $1,873.0 million for the nine months ended November 30, 2013 and include Compensation and benefits expense of $1,213.9 million recognized commensurate with the level of net revenues for the nine month period. Compensation and benefits expenses as a percentage of Net revenues was 56.7% for the nine months ended November 30, 2013. Non-interest expense also includes approximately $50.0 million in merger related costs associated with the closing of the Leucadia Transaction. These costs are comprised of $11.6 million in transaction-related investment banking, legal and filing fees, $6.3 million in additional lease expense related to recognizing existing leases at their current market value, incremental amortization expense of $21.1 million associated with intangible assets and internally developed software recognized at the Leucadia Transaction date, and $11.0 million of additional amortization expense related to the write-up of the cost of outstanding share-based awards, which had future service requirements at the merger date. In addition, occupancy and equipment includes an $8.7 million charge associated with our relocating certain staff and abandoning certain London office space recognized during the nine month period.

At November 30, 2013, we had 3,797 employees globally, slightly below our headcount at November 30, 2012.

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Three Months Ended February 28, 2013

Net revenues, less mandatorily redeemable preferred interests, for the three months ended February 28, 2013 were $807.6 million, which include strong investment banking revenues, particularly in debt and equity capital markets, and a gain of $26.5 million on our then share ownership in Knight Capital. Non-interest expenses of $668.1 million for the three months ended February 28, 2013 reflect compensation expense consistent with the level of net revenues and professional service costs associated with the Leucadia Transaction. Compensation costs as a percentage of Net revenues for the three months ended February 28, 2013 were 57.9%.

Year Ended November 30, 2012

Net revenues, less mandatorily redeemable preferred interests, for the year ended November 30, 2012 were a record $3,018.8 million, primarily due to strong results in our fixed income businesses. During 2012, we structured and invested in a convertible preferred stock offering of Knight Capital. Net revenues for the year ended November 30, 2012 include a mark-to-market gain of $151.9 million on our share ownership in Knight Capital and an advisory fee of $20.0 million for services in respect of the transaction. Net revenues for the year ended November 30, 2012 also include within Other revenues a bargain purchase gain of $3.4 million on the acquisition of the corporate broking business of Hoare Govett from The Royal Bank of Scotland plc, a gain on debt extinguishment of $9.9 million and a gain of $23.8 million on the sale of certain mortgage servicing right assets by our Fixed Income business.

Non-interest expenses totaled $2,527.0 million for the year ended November 30, 2012 and included compensation expense of $1,770.8 million, consistent with higher net revenues. Compensation expense as a percentage of Net revenues was 57.8%. Within non-interest expenses, Technology and communications costs include the expansion of our personnel and business platforms, which has increased the demand for market data, technology connections and applications. Occupancy costs were a result of strengthening our presence in Europe and Asia and Business development expenses are commensurate with furthering the expansion of our market share. Increased professional service costs are primarily associated with the announced Leucadia Transaction and efforts associated with Dodd-Frank compliance. Floor brokerage and clearing fees for the 2012 year are reflective of lower equity trading volumes. Non-interest expenses include within Other expenses donations to Hurricane Sandy relief of $4.1 million. Our effective tax rate was 34.3% for the year ended November 30, 2012.

At November 30, 2012, we had 3,804 employees globally. We added an additional 51 employees with the acquisition of Hoare Govett in February 2012 and expanded our headcount during 2012 in our metal and energy futures business. These increases were offset by headcount reductions since the start of 2012 aimed at better resource allocation and improved productivity.

Revenues by Source

The Capital Markets reportable segment includes our securities and commodities trading activities, and our investment banking activities. The Capital Markets reportable segment provides the sales, trading and origination and advisory effort for various equity, fixed income, commodities, futures, foreign exchange and advisory products and services. The Capital Markets segment comprises many business units, with many interactions and much integration among them. In addition, we separately discuss our Asset Management business.

For presentation purposes, the remainder of "Results of Operations" is presented on a detailed product and expense basis, rather than on a business segment basis. Net revenues presented for our equity and fixed income businesses include allocations of interest income and interest expense as we assess the profitability of these businesses inclusive of the net interest revenue or expense associated with the respective activities, which is a function of the mix of each business' associated assets and liabilities and the related funding costs.

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The composition of our net revenues has varied over time as financial markets and the scope of our operations have changed. The composition of net revenues can also vary from period to period due to fluctuations in economic and market conditions, and our own performance. The following provides a summary of "Revenues by Source" for the Successor periods for the year ended November 30, 2014 and the nine months ended November 30, 2013 and the Predecessor periods for the three months ended February 28, 2013 and the year ended November 30, 2012 (amounts in thousands):

Successor Predecessor
Year Ended
November 30, 2014
Nine Months Ended
November 30, 2013
Three Months Ended
February 28, 2013
Year Ended
November 30, 2012
Amount (1) (2) Amount (2) Amount (2) Amount (2)

Equities

$ 696,221 23 $ 582,355 27 $ 167,354 21 $ 642,360 21

Fixed income

747,596 25 504,092 24 352,029 43 1,253,268 41

Total sales and trading

1,443,817 48 1,086,447 51 519,383 64 1,895,628 62

Other

-   -   4,624 -   -   -   13,175 -  

Equity

339,683 11 228,394 11 61,380 7 193,797 6

Debt

627,536 21 415,932 19 140,672 17 455,790 15

Capital markets

967,219 32 644,326 30 202,052 24 649,587 21

Advisory

562,055 19 369,191 17 86,226 11 476,296 16

Total investment banking

1,529,274 51 1,013,517 47 288,278 35 1,125,883 37

Asset management fees and investment income (loss) from managed funds:

Asset management fees

26,682 1 26,473 2 11,083 1 38,130 1

Investment income (loss) from managed funds

(9,635 -   9,620 -   (200 -   (11,164 -  

Total

17,047 1 36,093 2 10,883 1 26,966 1

Net revenues

2,990,138 100 2,140,681 100 818,544 100 3,061,652 100

Interest on mandatorily redeemable preferred interests of consolidated subsidiaries

-   3,368 10,961 42,883

Net revenues, less mandatorily redeemable preferred interests

$ 2,990,138 $ 2,137,313 $ 807,583 $ 3,018,769

(1) Fixed income revenues for the year ended November 30, 2014 as reported in this Annual Report on Form 10-K differ from the results of operations as presented in our Current Report on Form 8-K, dated December 16, 2014 to reflect post-closing adjustments for inventory valuations. The net impact of these adjustments was to reduce both Fixed income revenues and Total net revenues by $12.8 million.
(2) Amounts represent Revenues by Source as a percentage of Net revenues.

Net Revenues

Net revenues for the year ended November 30, 2014 were $2,990.1 million, reflecting record investment banking revenues, partially offset by lower revenues due to challenging trading environments in our fixed income business, particularly in the fourth quarter of 2014. Our core equities business performed relatively well during the year ended November 30, 2014. The 2014 results include a loss of $14.7 million from our investment in Knight Capital and a gain of $19.9 from our investment in Harbinger, the latter of which we sold to Leucadia in March 2014. Asset management fee results were offset by write-downs on certain of our investments in unconsolidated funds and the exclusion of fees from our ownership interest in CoreCommodity Management, LLC ("CoreCommodity"), which we restructured on September 11, 2013.

Net revenues for the nine months ended November 30, 2013 of $2,140.7 million reflect a solid performance in our equity sales and trading business and continued strength in our investment banking platform. Our fixed income businesses experienced difficult trading conditions for a portion of the period as a result of a change in expectations for interest rates surrounding the Federal Reserve's plans for tapering its asset purchase program. The nine months results include gains of $89.3 million in aggregate within Equities Principal transaction revenues from our investments in Knight Capital and Harbinger.

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Net revenues for the three months ended February 28, 2013 were $818.5 million as a result of improved overall market activity, with all of our business lines demonstrating strong results. Within Equities revenues, Net revenues include Principal transaction revenues of $26.5 million from unrealized gains related to our investment in Knight Capital during the quarter.

Net revenues for the year ended November 30, 2012 were a record $3,061.7 million. Our 2012 results include Principal transaction revenues of $151.9 million from our investment in Knight Capital. Fixed income revenues were supported by investor demand for higher-yielding assets translating into reasonably robust trading volumes while muted secondary trading volume affected equities revenues (excluding revenues from our ownership of Knight Capital). Investment banking revenue of $1,125.9 million reflects the building strength of our franchise. Asset management fee results were offset by write-downs on certain of our investments in unconsolidated funds. In addition, Net revenues for the year included within Other revenues a bargain purchase gain of $3.4 million recognized in connection with our acquisition of Hoare Govett in February 2012 and a gain on extinguishment of debt of $9.9 million related to transactions in our own debt by our broker-dealer's market-making desk in December 2011.

Interest on mandatorily redeemable preferred interests of consolidated subsidiaries represents primarily the allocation of earnings and losses from our high yield business to third party noncontrolling interest holders that were invested in that business through mandatorily redeemable preferred securities. These interests were redeemed in April 2013 and all of the results in our high yield business are now wholly allocated to us.

Equities Revenue

Equities revenue is comprised of equity commissions, principal transactions and net interest revenue relating to cash equities, electronic trading, equity derivatives, convertible securities, prime brokerage, securities finance and alternative investment strategies. Equities revenue is heavily dependent on the overall level of trading activity of our clients. Equities revenue also includes our share of the net earnings from our joint venture investments in Jefferies Finance, LLC ("Jefferies Finance") and Jefferies LoanCore, LLC ("LoanCore"), which are accounted for under the equity method, as well changes in the value of our investments in Knight Capital and Harbinger. In March 2014, we sold our investment in Harbinger to Leucadia at fair market value. Equities revenue is heavily dependent on the overall trading activity of our clients.

Year Ended November 30, 2014

Total equities revenue was $696.2 million for the year ended November 30, 2014. Equities revenue includes losses of $14.7 million from our investment in Knight Capital and a gain of $19.9 from our investment in Harbinger, as compared to gains of $116.8 million recognized primarily in the fourth quarter of fiscal 2013. Revenues also include an unrealized gain of $8.9 million from marking to market the option on Leucadia shares embedded in our 3.875% Senior Convertible Debentures. Additionally, during the first quarter of 2014, we recognized a gain of $12.2 million in connection with our investment in CoreCommodity, which was transferred to Leucadia on February 28, 2014. Also included within interest expense allocated to our equities business is positive income of $45.1 million related to the amortization of premiums arising from the adjustment of our long-term debt to fair value as part of accounting for the Leucadia Transaction.

For the year ended November 30, 2014, U.S. stock prices continue an overall upward trend with company earnings and economic data largely meeting expectations and the outlook for monetary policy remaining favorable. While the markets in the fourth quarter were relatively unsettled, the S&P 500 Index was up 14.5% for the fiscal year and exchange trading volumes increased generally, which contributed to increased commission revenue. Similarly, European exchange volumes grew significantly throughout the 2014 year. Additionally, the performance from our electronic trading platform and our prime brokerage business has continued to increase.

Equities revenue from our Jefferies Finance joint venture decreased during the year ended November 30, 2014 as compared to the nine months ended November 30, 2013 and the three months ended February 28, 2013, due to a reduction in loan closings and syndications by the venture, particularly in the fourth quarter of 2014. Equities revenue from our LoanCore joint venture decreased during the year ended November 30, 2014 as compared to the

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nine months ended November 30, 2013 and the three months ended February 28, 2013, due to fewer securitizations by the venture over the period. These declines were offset by results from certain block trading opportunities and the benefits of the general stock market rise and other positioning on certain security positions. In addition, during the first quarter of 2014, we deconsolidated certain of our strategic investment entities as additional third party investments were received during the period. Accordingly, the results from this business reflected in equities revenues for the year ended November 30, 2014 represent trading revenues solely from managed accounts that are solely owned by us. Results from our strategic investments business in prior periods represented 100% of strategic investment trading revenues, a portion of which was attributed to noncontrolling interests.

Nine Months Ended November 30, 2013

Total equities revenue was $582.4 million for the nine months ended November 30, 2013. Equities revenue includes within Principal transaction revenues a gain of $19.5 million on our investment in Knight Capital, a gain of $69.8 million from our investment in Harbinger and an unrealized gain of $6.9 million from marking to market the option on Leucadia shares embedded in our 3.875% Senior Convertible Debentures. In addition, included within Interest expense is positive income of $33.7 million from the allocation to our equities business of a portion of the amortization of premiums arising from the adjustment of our long-term debt to fair value as part of accounting for the Leucadia Transaction.

U.S. equity market conditions during the period were characterized by continually increasing stock prices as the U.S. government maintained its monetary stimulus program. In the equity markets, the NASDAQ Composite Index, the S&P 500 Index and the Dow Jones Industrial Average increased by 28%, 19% and 14%, respectively, over the nine month period ended November 30, 2013, with the S&P Index registering a series of record closing highs. However, during the nine months ended November 30, 2013, economic data in the U.S. continued to indicate a slow recovery and geopolitical concerns regarding the Middle East and a U.S. federal government shutdown added volatility in the U.S. and international markets. Despite the rally in the equity markets in 2013, overall market volumes were subdued moderating customer flow in our U.S. cash equity business, although we benefited from certain block trading opportunities during the period.

In Europe, liquidity returned to the market as the European Central Bank convinced investors that it would not allow the Eurozone to breakup aiding results to both our cash and option desks, although the results are still impacted by relatively low trading volumes given the region's fragile economy. Additionally, Asian equity commissions are stronger, particularly in Japan with new monetary policies increasing trading volumes on the Nikkei Exchange.

Our Securities Finance desk also contributed solidly to Equities revenue for the period and the performance of certain strategic investment strategies were strong. Revenue from our sales and trading of convertible securities for the nine months are reflective of increased market share as we have expanded our team in this business. Net earnings from our Jefferies Finance and LoanCore joint ventures reflect a solid level of securitization deals and loan closings during the 2013 nine month period.

Three Months Ended February 28, 2013

Total equities revenue was $167.4 million for the three months ended February 28, 2013 and includes within Principal transaction revenues an unrealized gain of $26.5 million recognized on our investment in Knight Capital. While U.S. equity markets posted gains during our first quarter, with the S&P index up 7%, investors remained cautious as evidenced by declining volumes. Although market volumes declined, our equity trading desks experienced ample client trading volumes. For the three months ended February 28, 2013, performance from certain strategic investments benefited from the increase in the overall stock markets and other positioning.

Year Ended November 30, 2012

For the year ended November 30, 2012, total equities revenue was $642.4 million, including a gain of $151.9 million earned on our investment in Knight Capital and recognized within Principal transaction revenues. While U.S. equity markets posted gains during the year with the S&P index up over 13%, investor caution, due to less favorable economic data in the U.S. and concerns of a slowdown in the global economy, was evidenced through declining volumes which contributed to reduced commissions. Similarly, European equity revenues were affected by

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lower overall volumes across the broader markets, compounded by fears over Eurozone uncertainty. Partially offsetting these lower revenues was an increase in our Asian equity commissions as our client base increased. Trading revenue from our equity derivatives business improved on a change in our strategy regarding client activity. LoanCore closed its first securitization in May 2012, which contributed to alternative equity investment revenues.

Fixed Income Revenue

Fixed income revenue includes commissions, principal transactions and net interest revenue from investment grade corporate bonds, mortgage- and asset-backed securities, government and agency securities, municipal bonds, emerging markets debt, high yield and distressed securities, bank loans, foreign exchange and commodities trading activities.

Year Ended November 30, 2014

Fixed income revenue was $747.6 million for the year ended November 30, 2014. Included within Interest expense for the period is positive income of $55.5 million from the allocation to our fixed income business of a portion of the amortization of premiums arising from adjusting our long-term debt to fair value as part of accounting for the Leucadia Transaction.

The fixed income markets during the year ended November 30, 2014 were impacted at various points by uncertainty with respect to U.S. economic data and concerns about the global economy, as well as reactions to legal matters regarding Freddie Mac and Fannie Mae and anticipated monetary policy, which created market uncertainty. Client trading demand was lower across most of the fixed income platform with the exception of increased customer flow in our international rates business, which benefited from tightening yields in Europe. Credit spreads continued to tighten as the U.S. Federal Reserve continued to taper its bond buyback program at a measured pace. In the fourth quarter of 2014, the volatility in the equity markets and the lowering of oil prices, put downward pressure on high yield bonds, especially those in the energy and transport sectors, as well as on the distressed trading markets. We experienced a decline in the results of our efforts in distressed trading for the year, which was primarily due to mark to market inventory losses as a result of the broad sell-off in distressed and post-reorganization securities, although investor interest in high yield asset classes was strong during the year as investors continued to migrate to certain asset classes in search of higher yields. Futures sales and trading revenues for the year ended November 30, 2014 were negatively impacted by challenging market conditions for foreign currency trading and U.S. futures trading given political and economic instability in various global environments.

During the fourth quarter, as a result of the growth and margin challenges recently faced in our Jefferies Bache business, which conducts our futures and foreign exchange trading activities, we decided to pursue strategic alternatives for the business. We are currently evaluating various options, which may include a sale to or combination with another similar business that improves the combined businesses' competitive standing and margin. Global net revenues from this business activity for the year ended November 30, 2014, which are included within our Fixed income results, were $175.3 million. This is comprised of commissions, principal transaction revenues and net interest revenues.

Nine Months Ended November 30, 2013

Fixed income revenue was $504.1 million for the nine months ended November 30, 2013. Included within Interest expense for the period is positive income of $40.1 million from the allocation to our fixed income business of a portion of the amortization of premiums arising from adjusting our long-term debt to fair value as part of acquisition accounting.

The second quarter of fiscal 2013 was characterized by improving U.S. macroeconomic conditions, and, through the first half of May 2013, the U.S. Federal Reserve's policies resulted in historically low yields for fixed income securities motivating investors to take on more risk in search for yield. In May 2013, however, the Treasury market experienced a steep sell-off and credit spreads widened across the U.S. fixed income markets in reaction to an anticipated decrease in Federal Reserve treasury issuances and mortgage debt security purchases in future periods. These market conditions negatively impacted our U.S. rates, corporates and U.S. mortgages revenues through

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August as the volatility made it difficult to realize net revenue from our customer flow. In the latter part of the 2013 year, the fixed income markets stabilized with lower volatility and tightening spreads increasing overall customer flows across the various fixed income product classes.

While revenues rebounded towards the end of the fiscal year for our mortgage-backed securities business, the mid-year sell-off in U.S. Treasuries and the widening of credit spreads for mortgage products negatively impacted the overall results for the nine months ended November 30, 2013 by reducing trading volumes and increasing market volatility. Corporate bond revenues were also negatively impacted by the widening of credit spreads in the third quarter though there was significant improvement during the fourth quarter of 2013 with more robust trading volumes and narrowing credit spreads. Municipal securities underperformed as an asset class for a large part of the period as investors discounted greater risk than they had previously although investors began to return to the municipal market at the end of the period increasing our trading volumes. Components of our futures business experienced varying degrees of fluctuations in customer trading volume, but trading volume was relatively constant when considered overall and across the full nine month period ended November 30, 2013.

While our U.S. rates, corporates and U.S. mortgages desks underpeformed, our leveraged credit business produced solid results as investors sought investment yields in this fixed income class and issuers of bank debt were active with the supply level creating a positive effect on liquidity in the secondary market. Further, the low interest rate environment in the U.S. caused investors to seek higher yields in emerging market debt. In addition, suppressed long-term interest rates in the U.S. encouraged investment in international mortgage-backed securities resulting in increased trading volumes, improved market liquidity and ultimately increased revenues on our international mortgage desk, despite experiencing reduced market liquidity and consequently lower levels of secondary market activity during the summer months of 2013.

During the second quarter of 2013, we redeemed the third party interests in our high yield joint venture, Jefferies High Yield Holdings, LLC. As a result of this redemption, effective April 1, 2013, results of this business are allocated to us in full.

Three Months Ended February 28, 2013

For the three months ended February 28, 2013, fixed income revenue was $352.0 million. Credit spreads narrowed through the first quarter of 2013. In January 2013, global macroeconomic conditions appeared to be improving, with the U.S. economy expanding and the U.S. Federal reserve continuing quantitative easing. U.S. rates revenues were robust, with strong treasury issuance and strong demand and yields at historic lows. Revenues from our leveraged finance and emerging markets sales and trading businesses were sound as investor confidence returned in 2013 and investors were attracted to the relatively higher yield on these products. Revenue in our emerging markets business is reflective of our efforts to strengthen our position in this business and revenues for the period include significant gains generated by certain high yield positions. Revenues from our international mortgage desk were positively impacted by the demand for European mortgage bonds and foreign exchange revenues demonstrated a successful navigation of volatile currency markets. Revenues also benefited from new client activity associated with our expansion of our global metals desk in the latter part of 2012. However, international rates sales and trading revenues were negatively impacted by investor concerns over the European markets resulting in restrained trading volumes and a high level of market volatility.

Of the net earnings recognized in Jefferies High Yield Holdings, LLC (our high yield and distressed securities and bank loan trading and investment business) for the three months ended February 28, 2013, approximately 65% is allocated to minority investors and are presented within interest on mandatorily redeemable preferred interests and net earnings to noncontrolling interests in our Consolidated Statements of Earnings.

Year Ended November 30, 2012

Fixed income revenue was $1,253.3 million for the year ended November 30, 2012. In 2012, despite occasional investor concerns surrounding the European sovereign debt crisis and global economic growth, a Greek default was avoided, and coordinated austerity measures taken by European governments and the European Central Bank proved successful in allaying fears of a Eurozone breakup and disbanding of the Euro currency. In the U.S., Treasuries benefited from their perception of safety and a third round of quantitative easing by the U.S. Federal Reserve.

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Investors continued to seek higher yields in a low interest rate environment. Narrowing credit spreads and improved credit and emerging market conditions contributed to strong performances and customer flow across a broad number of fixed income products.

Revenues from our leveraged finance sales and trading business for the year ended November 30, 2012 reflected investor confidence and tightened credit spreads. Additionally, certain of our high yield positions generated significant gains. Similarly, mortgage revenues benefited from a market rally on tighter interest and mortgage index spreads. Municipal trading activities also benefited from spreads tightening over the period as well as investors seeking higher yields in a low interest rate environment. Additionally, revenues from our investment grade corporates business profited on improved credit market conditions, tightening spreads and stronger trading volumes.

In 2012, we recognized gains on our investment in shares of the London Metal Exchange and benefited from new client activity with the global metals desk introduced in the latter part of 2012. Fixed income revenues for the year ended November 30, 2012 also include a gain of $23.8 million on the sale of mortgage servicing rights for military housing assets.

Other Revenue

Other revenue for the nine months ended November 30, 2013 includes a gain of $4.6 million related to the restructuring of our ownership interest in our commodity asset management business. For the year ended November 30, 2012, Other revenue of $13.2 million is primarily comprised of gains on debt extinguishment of $9.9 million in connection with the accounting treatment for certain purchases of our long-term debt by our secondary market making corporates desk and a bargain purchase gain of $3.4 million arising in the accounting for the acquisition of Hoare Govett on February 1, 2012. (See Note 5, Acquisitions and Note 14, Long-term Debt, respectively, in our consolidated financial statements for additional information.)

Investment Banking Revenue

We provide a full range of capital markets and financial advisory services across most industry sectors to our clients in the Americas, Europe and Asia. Capital markets revenue includes underwriting and placement revenue related to corporate debt, municipal bonds, mortgage- and asset-backed securities and equity and equity-linked securities. Advisory revenue consists primarily of advisory and transaction fees generated in connection with merger, acquisition and restructuring transactions. The following table sets forth our investment banking revenue (in thousands):

Successor Predecessor
Year Ended
November 30, 2014
Nine Months Ended
November 30, 2013
Three Months
February 28, 2013
Year Ended
November 30, 2012

Equity

$ 339,683 $ 228,394 $ 61,380 $ 193,797

Debt

627,536 415,932 140,672 455,790

Capital markets

967,219 644,326 202,052 649,587

Advisory

562,055 369,191 86,226 476,296

Total

$ 1,529,274 $ 1,013,517 $ 288,278 $ 1,125,883

Year Ended November 30, 2014

Low borrowing costs and generally strong capital market conditions throughout most of our fiscal year were important factors in driving the growth in our debt and equity capital markets businesses. These factors, together with generally strong corporate balance sheets and record equity valuations, were important in driving the growth in our merger and acquisition advisory business.

Investment banking revenues were a record $1,529.3 million for the year ended November 30, 2014. From equity and debt capital raising activities, we generated $339.7 million and $627.5 million in revenues, respectively. During the year ended November 30, 2014, we completed 1,109 public and private debt financings that raised $250 billion and we completed 184 public equity financings and nine convertible offerings that raised $66 billion (159 of which we

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acted as sole or joint bookrunner). Financial advisory revenues totaled $562.1 million, including revenues from 132 merger and acquisition transactions and 12 restructuring and recapitalization transactions with an aggregate transaction value of $176 billion.

Nine Months Ended November 30, 2013

During the nine month period, despite uneven U.S. economic growth and uncertainty surrounding the U.S. Federal Reserve's decision on quantitative easing, capital market conditions continued to improve due to the availability of low-priced credit and a general rise in the stock market. Mergers and acquisition activity gained momentum through the later part of the 2013 nine month period.

Investment banking revenue was $1,013.5 million for the nine months ended November 30, 2013. From equity and debt capital raising activities, we generated $228.4 million and $415.9 million in revenues, respectively. During the nine months ended November 30, 2013, we completed 412 public and private debt financings that raised $162.3 billion in aggregate, as companies took advantage of low borrowing costs and we completed 130 public equity financings that raised $32.9 billion (111 of which we acted as sole or joint bookrunner). During the nine month period, our financial advisory revenues totaled $369.2 million, including revenues from 108 merger and acquisition transactions where we served as financial advisor.

Three Months Ended February 28, 2013

For the three months ended February 28, 2013, investment banking revenue was $288.3 million, including advisory revenues of $86.2 million and $202.1 million in revenues from capital market activities. Debt capital markets revenue were $140.7 million, driven by a high number of debt capital market transactions as companies took advantage of lower borrowing costs and more favorable economic and market conditions. During the three months ended February 28, 2013, we completed 121 public and private debt financings that raised a total of $42 billion. Equity capital markets revenue totaled $61.4 million, completing 30 public equity financings that raised $10.0 billion (25 of which we acted as sole or joint bookrunner). Reflective of a subdued mergers and acquisition deal environment, despite improving fundamentals, for the three months ended February 28, 2013, advisory revenue totaled $86.2 million. During the three months ended February 28, 2013, we served as financial advisor on 31 merger and acquisition transactions and two restructuring transactions with an aggregate transaction value of approximately $21 billion.

Year Ended November 30, 2012

Investment banking revenue was $1,125.9 million for the year ended November 30, 2012, with higher debt capital market revenues offset by lower advisory revenues. Revenue was driven by a higher number of debt capital market transactions as companies took advantage of lower borrowing costs and more favorable economic and market conditions. During 2012, we completed 482 public and private debt financings raising a total of $175 billion. Equity capital markets revenue totaled $193.8 million for the year ended November 30, 2012 and we completed 111 public equity financings raising $21 billion in capital (96 of which we acted as sole or joint bookrunner). For 2012, advisory revenue totaled $476 million, as we served as financial advisor on 111 merger and acquisition and 10 restructuring transactions having an aggregate transaction value of approximately $104 billion.

Asset Management Fees and Investment Income (Loss) from Managed Funds

Asset management revenue includes management and performance fees from funds and accounts managed by us, management and performance fees from related party managed funds and accounts and investment income (loss) from our investments in these funds, accounts and related party managed funds. The key components of asset management revenue are the level of assets under management and the performance return, whether on an absolute basis or relative to a benchmark or hurdle. These components can be affected by financial markets, profits and losses in the applicable investment portfolios and client capital activity. Further, asset management fees vary with the nature of investment management services. The terms under which clients may terminate our investment management authority, and the requisite notice period for such termination, varies depending on the nature of the investment vehicle and the liquidity of the portfolio assets.

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On September 11, 2013, we restructured our ownership interest in CoreCommodity, our commodity asset management business. Pursuant to the terms of that restructuring, we acquired Class B Units in what is now called CoreCommodity Capital, LLC. As a consequence, subsequent to September 11, 2013, we no longer report asset management revenues, assets under management and managed accounts attributed to the commodities asset class. On February 28, 2014, we sold our Class B Units to Leucadia at fair market value.

During the fourth quarter of 2014, as part of a strategic review of our business, we decided to liquidate our International Asset Management business, which provides long only investment solutions in global convertible bonds to institutional investors. Asset management fees and assets under management from this business comprise our convertibles asset strategy in the tables below. We currently anticipate liquidation to occur within the next 12 months; pending regulatory approvals.

The following summarizes the results of our Asset Management businesses for the year ended November 30, 2014, the nine months ended November 30, 2013, the three months ended February 28, 2013 and the year ended November 30, 2012 (in thousands):

Successor Predecessor
Year Ended
November 30, 2014
Nine Months Ended
November 30, 2013
Three Months Ended
February 28, 2013
Year Ended
November 30, 2012

Asset management fees:

Fixed income

$ 6,087 $ 3,932 $ 1,154 $ 4,094

Equities

18,075 7,626 2,295 4,573

Convertibles

2,520 2,890 1,376 10,387

Commodities

-   12,025 6,258 19,076

Total asset management fees

26,682 26,473 11,083 38,130

Investment income (loss) from managed funds

(9,635 9,620 (200 (11,164

Total

$ 17,047 $ 36,093 $ 10,883 $ 26,966

As a result of deconsolidation of certain strategic investment entities during the first quarter of 2014, results above attributed to Equities now include asset management fees from these entities. Fixed income asset management fees represent ongoing consideration we receive from the sale of contracts to manage certain collateralized loan obligations ("CLOs") to Babson Capital Management, LLC in January 2010. As sale consideration, we are entitled to a portion of the asset management fees earned under the contracts for their remaining lives. Investment income (loss) from managed funds comprise net unrealized markups (markdowns) in private equity funds managed by related parties.

Assets under Management

Period end assets under management by predominant asset strategy were as follows (in millions):

November 30, 2014 November 30, 2013

Assets under management (1):

Equities

$ 483 $ 14

Convertibles

225 492

Total

$ 708 $ 506

(1) Assets under management include assets actively managed by us, including hedge funds and certain managed accounts. Assets under management do not include the assets of funds that are consolidated due to the level or nature of our investment in such funds.

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Non-interest Expenses

Non-interest expenses for the year ended November 30, 2014, the nine months ended November 30, 2013, the three months ended February 28, 2013 and the year ended November 30, 2012 were as follows (in thousands):

Successor Predecessor
Year Ended
November 30, 2014
Nine Months Ended
November 30, 2013
Three Months Ended
February 28, 2013
Year Ended
November 30, 2012

Compensation and benefits

$ 1,698,530 $ 1,213,908 $ 474,217 $ 1,770,798

Non-compensation expenses:

Floor brokerage and clearing fees

215,329 150,774 46,155 183,013

Technology and communications

268,212 193,683 59,878 244,511

Occupancy and equipment rental

107,767 86,701 24,309 97,397

Business development

106,984 63,115 24,927 95,330

Professional services

109,601 72,802 24,135 73,427

Bad debt provision

55,355 179 1,945 1,152

Goodwill impairment

54,000 -   -   -  

Other

71,339 91,856 12,530 61,346

Total non-compensation expenses

988,587 659,110 193,879 756,176

Total non-interest expenses

$ 2,687,117 $ 1,873,018 $ 668,096 $ 2,526,974

Compensation and Benefits

Compensation and benefits expense consists of salaries, benefits, cash bonuses, commissions, annual cash compensation awards, historical annual share-based compensation awards and the amortization of certain nonannual share-based and cash compensation awards to employees. Cash- and historical share-based awards granted to employees as part of year end compensation generally contain provisions such that employees who terminate their employment or are terminated without cause may continue to vest in their awards, so long as those awards are not forfeited as a result of other forfeiture provisions (primarily non-compete clauses) of those awards. Accordingly, the compensation expense for a substantial portion of awards granted at year end as part of annual compensation is fully recorded in the year of the award.

Included within Compensation and benefits expense are share-based amortization expense for senior executive awards granted in January 2010 and September 2012, non-annual share-based and cash-based awards to other employees and certain year end awards that contain future service requirements for vesting. Such awards are being amortized over their respective future service periods.

Year Ended November 30, 2014

Compensation and benefits expense for the year ended November 30, 2014 was $1,698.5 million, which is 56.8% as a percentage of Net revenues. Amortization expense of $284.3 million related to share- and cash-based awards is included within 2014 compensation cost, as well as additional amortization expense of $14.4 million related to the write-up of the cost of outstanding share-based awards, which had remaining future service requirements at the date of the Leucadia Transaction. Employee headcount was 3,915 at November 30, 2014. We expanded our headcount modestly during 2014, primarily in our investment banking and equities businesses. These increases were partially offset by headcount reductions due to corporate services outsourcing.

Nine Months Ended November 30, 2013 and Three Months Ended February 28, 2013

Compensation and benefits expense was $1,213.9 million for the nine months ended November 30, 2013 and was $474.2 million for the three months ended February 28, 2013, which is 56.7% and 57.9% as a percentage of Net revenues for the nine months ended November 30, 2013 and the three months ended February 28, 2013, respectively. Amortization expense of $232.0 million and $73.1 million related to share- and cash-based awards is included within compensation cost for the nine months ended November 30, 2013 and the three months ended February 28, 2013, respectively. Compensation cost in the nine months ended November 30, 2013 also included additional amortization expense of $11.0 million related to the write-up of the cost of outstanding share-based awards, which had remaining future service requirements at the date of the Leucadia Transaction. Employee headcount was 3,797 at November 30, 2013.

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Year Ended November 30, 2012

Compensation and benefits expense for the year ended November 30, 2012 was of $1,770.8 million, equivalent to 57.8% of Net revenues, and includes a full year of compensation costs related to Jefferies Bache. Compensation and benefits expense for the period includes amortization expense of $283.9 million related to share- and cash-based awards. In addition, compensation expense includes $22.9 million relating to the acquisition of Jefferies Bache on July 1, 2011 and Hoare Govett on February 1, 2012, comprised of the amortization of retention and stock replacement awards granted to Jefferies Bache employees as replacement awards for previous Prudential stock awards that were forfeited at acquisition and amortization of retention awards granted to Hoare Govett employees and bonus costs for employees as a result of the completion of the acquisition of Hoare Govett. When excluding these costs, together with the gain on debt extinguishment of $9.9 million relating to trading activities in our own debt, amortization of discounts recognized on our long-term debt purchased and re-issued in December 2011 and January 2012 and recognized in Interest expense of $4.8 million and the bargain purchase gain of $3.4 million on our Hoare Govett acquisition, our ratio of Compensation and benefits expense to Net revenues for the year ended November 30, 2012 was 57.2%. Compensation and benefits expense for the year ended November 30, 2012 also includes severance costs of approximately $30.6 million. Employee headcount was 3,804 at November 30, 2012.

Non-Compensation Expenses

Year Ended November 30, 2014

Non-compensation expenses were $988.6 million for the year ended November 30, 2014, equating to 33.1% of Net revenues. Non-compensation expenses include a goodwill impairment loss of $51.9 million related to our Jefferies Bache business, which constitutes our global futures sales and trading operations. In addition, a goodwill impairment loss of $2.1 million was recognized for the period related to our International Asset Management business. (See the "Critical Accounting Policies-Goodwill" section herein.) Additionally, approximately $7.6 million in impairment losses were recognized related to customer relationship intangible assets within our Jefferies Bache and International Asset Management businesses, which is presented within Other expenses.

Floor brokerage and clearing expenses for the period are reflective of the trading volumes in our equities trading businesses. Technology and communications expense includes costs associated with development of the various trading systems and projects associated with corporate support infrastructure, including communication enhancements to our global headquarters at 520 Madison Avenue and incremental amortization expense associated with fair value adjustments to capitalized software recognized as part of accounting for the Leucadia Transaction. Occupancy and equipment rental expense reflects incremental office re-configuration expenditures at 520 Madison Avenue. Business development costs reflect our continued efforts to continue to build market share, including our loan origination business conducted through our Jefferies Finance joint venture. We continue to incur legal and consulting fees as part of implementing various regulatory requirements, which is recognized in Professional services expense. During the fourth quarter of 2014, we recognized a bad debt provision, which primarily relates to a receivable of $52.3 million from a client to which we provided futures clearing and execution services, which declared bankruptcy.

Nine Months Ended November 30, 2013

Non-compensation expenses were $659.1 million for the nine months ended November 30, 2013, equating to 30.8% of Net revenues. Non-compensation expenses include approximately $21.1 million in incremental amortization expense associated with fair value adjustments to identifiable tangible and intangible assets recognized as part of acquisition accounting reported within Technology and communications expense and Other expense, $6.3 million in additional lease expense related to recognizing existing leases at their current market value in Occupancy and equipment rental expense and $11.6 million in merger-related investment banking filing fees recognized in Professional services expense. Additionally, during the nine month period an $8.7 million charge was recognized in Occupancy and equipment rental expense due to vacating certain office space in London. Other expenses for the nine months ended November 30, 2013 include $38.4 million in litigation expenses, which includes litigation costs related to the final judgment on our last outstanding auction rate securities legal matter and to agreements reached in principle with the relevant authorities pertaining to an investigation of purchases and sales of mortgage-backed securities. Excluding these expenses, our Non-compensation expenses as a percentage of Net revenues, after excluding from revenues $76.9 million of net interest income due to the amortization of premiums arising from the one-time fair value adjustment of our long term debt to fair value as of the date of the Leucadia Transaction and the concurrent assumption of our mandatorily redeemable convertible preferred stock by Leucadia, was 27.8%.

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Floor brokerage and clearing expenses for the period are reflective of the trading volumes in our fixed income and equities trading businesses, including a meaningful volume of trading by our foreign exchange business. Technology and communications expense includes costs associated with development of the various trading systems and various projects associated with corporate support infrastructure, including technology initiatives to support Dodd-Frank reporting requirements. We continued to incur legal and consulting fees as part of implementing various regulatory requirements, which is recognized in Professional services expense.

Three Months Ended February 28, 2013

Non-compensation expenses were $193.9 million for the three months ended February 28, 2013, or 23.7% of Net revenues. Floor brokerage and clearing expense for the 2013 first quarter is commensurate with equity, fixed income and futures trading volumes for the quarter. Occupancy and equipment expense for the period includes costs associated with taking on additional space at our global head office in New York offset by a reduction in integration costs for technology and communications as significant system migrations for Jefferies Bache have been completed. Professional services expense includes legal and consulting fees of $2.1 million related to the Leucadia Transaction and business and development expense contains costs incurred in connection with our efforts to build out our market share.

Year Ended November 30, 2012

Non-compensation expenses were $756.2 million for the year ended November 30, 2012, equating to 24.7% of Net revenues, and includes a full year of operating costs of Jefferies Bache. Floor brokerage and clearing expense of $183.0 million was commensurate with lower equity trading volumes, though includes a full twelve months of Jefferies Bache futures activity in 2012. Technology and communications expense was $244.5 million with increased costs associated with the continued build out of our Asian businesses offset by lower corporate support infrastructure project costs. Occupancy and equipment expense was $97.4 million for 2012, reflecting the cost for our office growth in Asia and Europe and additional space at our global head office in New York. Legal and consulting fees related to the announced Leucadia Transaction and efforts associated with Dodd-Frank compliance contributed to Professional services expense of $73.4 million for the year ended November 30, 2012. Business development expense of $95.3 million is primarily driven by our continued efforts to build market share, specifically our futures business. Other expenses of $62.5 million for the 2012 year include a $2.9 million impairment charge recognized in the second quarter of 2012 on certain indefinite-lived intangible assets, donations to Hurricane Sandy relief of $4.1 million and fees associated with the announced Leucadia Transaction.

Income Taxes

For the year ended November 30, 2014, the provision for income taxes was $142.1 million, equating to an effective tax rate of 46.9%. For the nine months ended November 30, 2013, the three months ended February 28, 2013 and the year ended November 30, 2012, the provision for income taxes was $94.7 million, $48.6 million and $168.6 million, respectively, equating to an effective tax rate of 35.8%, 34.9% and 34.3%, respectively. At November 30, 2014, the effective tax rate differed from the U.S. federal statutory rate of 35.0%, primarily due to state income taxes, the impact of the goodwill impairment charge that is not tax-deductible and a valuation allowance provided on deferred tax assets within our London Jefferies Bache business, partially offset by tax-exempt income and international earnings taxed at rates that are generally lower than the U.S. federal statutory rate.

Earnings per Common Share

Diluted net earnings per common share was $0.35 for the three months ended February 28, 2013 on 217,844,000 shares. Diluted net earnings per common share was $1.22 for the year ended November 30, 2012 on 220,110,000 shares. Earnings per share data is not provided for periods subsequent to February 28, 2013, coinciding with the date we became a limited liability company and wholly-owned subsidiary of Leucadia. (See Note 20, Earnings per Share, in our consolidated financial statements for further information regarding the calculation of earnings per common share.)

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Accounting Developments

For a discussion of recently issued accounting developments and their impact on our consolidated financial statements. (See Note 3, Accounting Developments, in our consolidated financial statements.)

Critical Accounting Policies

The consolidated financial statements are prepared in conformity with U.S. GAAP, which require management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and related notes. Actual results can and may differ from estimates. These differences could be material to the financial statements.

We believe our application of U.S. GAAP and the associated estimates are reasonable. Our accounting policies and estimates are constantly reevaluated, and adjustments are made when facts and circumstances dictate a change. Historically, we have found our application of accounting policies to be appropriate, and actual results have not differed materially from those determined using necessary estimates.

We believe our critical accounting policies (policies that are both material to the financial condition and results of operations and require our most subjective or complex judgments) are our valuation of financial instruments, assessment of goodwill and our use of estimates related to compensation and benefits during the year.

Valuation of Financial Instruments

Financial instruments owned and Financial instruments sold, not yet purchased are recorded at fair value. The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price). Unrealized gains or losses are generally recognized in Principal transaction revenues in our Consolidated Statements of Earnings.

The following is a summary of the fair value of major categories of financial instruments owned and financial instruments sold, not yet purchased, at November 30, 2014 and November 30, 2013 (in thousands):

November 30, 2014 November 30, 2013
Financial
Instruments
Owned
Financial
Instruments
Sold,
Not Yet
Purchased
Financial
Instruments
Owned
Financial
Instruments
Sold,
Not Yet
Purchased

Corporate equity securities

$ 2,426,242 1,985,864 $ 2,098,597 $ 1,823,299

Corporate debt securities

3,398,194 1,612,217 2,982,768 1,346,078

Government, federal agency and other sovereign obligations

6,125,901 4,044,140 5,346,152 3,155,683

Mortgage- and asset-backed securities

4,493,214 4,557 4,473,135 34,691

Loans and other receivables

1,556,018 870,975 1,349,128 695,300

Derivatives

406,268 363,515 261,093 180,079

Investments

168,541 -   101,282 -  

Physical commodities

62,234 -   37,888 36,483

$ 18,636,612 $ 8,881,268 $ 16,650,043 $ 7,271,613

Fair Value Hierarchy - In determining fair value, we maximize the use of observable inputs and minimize the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from independent sources. Unobservable inputs reflect our assumptions that market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. We apply a hierarchy to categorize

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our fair value measurements broken down into three levels based on the transparency of inputs, where Level 1 uses observable prices in active markets and Level 3 uses valuation techniques that incorporate significant unobservable inputs and broker quotes that are considered less observable. Greater use of management judgment is required in determining fair value when inputs are less observable or unobservable in the marketplace, such as when the volume or level of trading activity for a financial instrument has decreased and when certain factors suggest that observed transactions may not be reflective of orderly market transactions. Judgment must be applied in determining the appropriateness of available prices, particularly in assessing whether available data reflects current prices and/or reflects the results of recent market transactions. Prices or quotes are weighed when estimating fair value with greater reliability placed on information from transactions that are considered to be representative of orderly market transactions.

Fair value is a market based measure; therefore, when market observable inputs are not available, our judgment is applied to reflect those judgments that a market participant would use in valuing the same asset or liability. The availability of observable inputs can vary for different products. We use prices and inputs that are current as of the measurement date even in periods of market disruption or illiquidity. The valuation of financial instruments classified in Level 3 of the fair value hierarchy involves the greatest amount of management judgment. (See Note 2, Summary of Significant Accounting Policies and Note 6, Fair Value Disclosures, in our consolidated financial statements for further information on the fair value definition, Level 1, Level 2, Level 3 and related valuation techniques.)

Level 3 Assets and Liabilities – The following table reflects the composition of our Level 3 assets and Level 3 liabilities by asset class at November 30, 2014 and November 30, 2013 (in thousands):

Financial Instruments Owned Financial Instruments Sold,
Not Yet Purchased
November 30, 2014 November 30, 2013 November 30, 2014 November 30, 2013

Loans and other receivables

$ 97,258 $ 145,890 $ 14,450 $ 22,462

Investments at fair value

95,389 101,242 -   -  

Residential mortgage-backed securities

82,557 105,492 -   -  

Derivatives

54,190 1,493 49,552 8,398

Collateralized debt obligations

91,498 37,216 -   -  

Commercial mortgage-backed securities

26,655 17,568 -   -  

Corporate debt securities

55,918 25,666 223 -  

Corporate equity securities

20,964 9,884 38 38

Other asset-backed securities

2,294 12,611 -   -  

Total Level 3 financial instruments

526,723 457,062 $ 64,263 $ 30,898

Investments in managed funds

54,982 57,285

Total Level 3 assets

$ 581,705 $ 514,347

Total Level 3 financial instruments as a percentage of total financial instruments

2.8 2.7 0.7 0.4

While our Financial instruments sold, not yet purchased, which are included within liabilities on our Consolidated Statements of Financial Condition, are accounted for at fair value, we do not account for any of our other liabilities at fair value, except for certain secured financings that arise in connection with our securitization activities included with Other secured financings of approximately $30.8 million and $39.7 million at November 30, 2014 and November 30, 2013, respectively, and the conversion option to Leucadia shares embedded in our 3.875% Convertible Senior debenture of approximately $0.7 million and $9.6 million reported within Long-term debt at November 30, 2014 and November 30, 2013, respectively.

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The following table reflects activity with respect to our Level 3 assets and liabilities (in millions):

Successor Predecessor
Year Ended
November 30, 2014
Nine Months Ended
November 30, 2013
Three Months
February 28, 2013
Year Ended
November 30, 2012

Assets:

Transfers from Level 3 to Level 2

$ 58.2 $ 55.9 $ 112.7 $ 81.8

Transfers from Level 2 to Level 3

145.0 82.4 100.5 180.6

Net gains (losses)

(39.4 9.4 14.5 28.8

Liabilities:

Transfers from Level 3 to Level 2

$ 4.3 $ 0.1 $ 0.7 $ 2.2

Transfers from Level 2 to Level 3

-   -   -   -  

Net gains (losses)

(6.0 (1.1 (2.7 (2.5

For additional discussion on transfers of assets and liabilities among the fair value hierarchy levels, see Note 6, Fair Value Disclosures, in our consolidated financial statements.

Controls Over the Valuation Process for Financial Instruments - Our Independent Price Verification Group, independent of the trading function, plays an important role in determining that our financial instruments are appropriately valued and that fair value measurements are reliable. This is particularly important where prices or valuations that require inputs are less observable. In the event that observable inputs are not available, the control processes are designed to assure that the valuation approach utilized is appropriate and consistently applied and that the assumptions are reasonable. Where a pricing model is used to determine fair value, these control processes include reviews of the pricing model's theoretical soundness and appropriateness by risk management personnel with relevant expertise who are independent from the trading desks. In addition, recently executed comparable transactions and other observable market data are considered for purposes of validating assumptions underlying the model.

Goodwill

At November 30, 2014, goodwill recorded on our Consolidated Statement of Financial Condition is $1,662.6 million (3.7% of total assets). The nature and accounting for goodwill is discussed in Note 2, Summary of Significant Accounting Policies and Note 12, Goodwill and Other Intangible Assets, in our consolidated financial statements. Goodwill must be allocated to reporting units and tested for impairment at least annually, or when circumstances or events make it more likely than not that an impairment occurred. Goodwill is tested by comparing the estimated fair value of each reporting unit with its carrying value. Our annual goodwill impairment testing date is August 1. We engaged an independent valuation specialist to assist us in our valuation process at August 1, 2014. The results of our annual impairment test did not indicate any goodwill impairment in any of our reporting units.

We use allocated tangible equity plus allocated goodwill and intangible assets as a proxy for the carrying amount of each reporting unit. The amount of equity allocated to a reporting unit is based on our cash capital model deployed in managing our businesses, which seeks to approximate the capital a business would require if it were operating independently. For further information on our Cash Capital Policy, refer to the Liquidity, Financial Condition and Capital Resources section herein. Intangible assets are allocated to a reporting unit based on either specifically identifying a particular intangible asset as pertaining to a reporting unit or, if shared among reporting units, based on an assessment of the reporting unit's benefit from the intangible asset in order to generate results.

Estimating the fair value of a reporting unit requires management judgment and often involves the use of estimates and assumptions that could have a significant effect on whether or not an impairment charge is recorded and the magnitude of such a charge. Estimated fair values for our reporting units utilize market valuation methods that incorporate price-to-earnings and price-to-book multiples of comparable public companies, as well as discounted

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cash flow valuation methodologies that incorporate risk-adjusted discount rates. In addition, for certain reporting units, we utilize a net asset value method. Under the market approach, the key assumptions are the selected multiples and our internally developed forecasts of future profitability, growth and return on equity for each reporting unit. The weight assigned to the multiples requires judgment in qualitatively and quantitatively evaluating the size, profitability and the nature of the business activities of the reporting units as compared to the comparable publicly-traded companies. In addition, as the fair values determined under the market approach represent a noncontrolling interest, we apply a control premium to arrive at the estimate fair value of each reporting unit on a controlling basis.

Futures Reporting Unit – Our Jefferies Bache business has experienced various challenges with respect to its profitability. Consequently, during the fourth quarter of 2014, management decided to pursue alternative strategies for the Futures reporting unit, including a possible divestiture. Given this circumstance, we performed an updated impairment test for the goodwill allocated to the Futures reporting unit at November 30, 2014. Given the uncertainty surrounding the prospects for the reporting unit, we utilized dual valuation methods to estimate the reporting unit's fair value. We employed a discounted cash flow methodology, which, given the increasing uncertainty as to the profitability forecasts for the Futures business, caused us to incorporate a higher risk-adjusted discount rate than used in our annual impairment test, which impacted the fair value estimate. Additionally, we employed a market valuation approach. The key assumption under the market approach is the selection of an appropriate price multiple and the consideration of the operating performance of the Futures reporting unit as compared to selected publicly traded guideline companies. Based on the most recent performance of the business and its margin challenges, the level and expected growth in return on tangible equity was benchmarked against the guideline companies in selecting an appropriate multiple. Giving proper weighting to the outputs from both valuation approaches, we determined that the fair value of the Futures reporting unit did not exceed its carrying value.

As a result of the decline in the estimated fair value of the Futures reporting unit since our annual impairment testing date of August 1, 2014, we recognized an impairment loss of the allocated goodwill of $51.9 million for the quarter ended November 30, 2014. The effect of the impairment loss is to reduce the balance of goodwill attributed to the Futures business to $-0- at November 30, 2014. In addition, considering the most recent operating margin for the business, we estimated that the fair value of recognized customer relationship intangible assets using a discounted cash flow methodology was $-0- at November 30, 2014. Accordingly, we recognized an impairment loss of $7.5 million during the fourth quarter of 2014 related to this intangible asset.

International Asset Management – As part of strategic evaluations of our businesses, during the fourth quarter of 2014, management decided to liquidate our International Asset Management business, which consists of long only, convertible bond strategies offered to institutional investors. We used a net asset value approach at August 1, 2014 to perform our annual goodwill impairment testing of this reporting unit and, accordingly, the fair value of the International Asset Reporting Unit was equal to its book value. Considering management's decision to cease this business activity, we do not reasonably anticipate any future cash flows associated with this reporting unit beyond one year to support the carrying value of the International Asset Management reporting unit. During the fourth quarter of 2014, we recognized an impairment loss of the allocated goodwill of $2.1 million, which reduced the balance of goodwill attributed to this reporting unit to $-0- at November 30, 2014.

As of November 30, 2014, substantially all of our goodwill is allocated to our Investment Banking, Equities and Fixed Income reporting units, which is $1,659.6 million of total goodwill of $1,662.6 million at November 30, 2014.

Refer to Note 12, Goodwill and Other Intangible Assets for further details on goodwill and intangible assets.

Compensation and Benefits

A portion of our compensation and benefits represents discretionary bonuses, which are finalized at year end. In addition to the level of net revenues, our overall compensation expense in any given year is influenced by prevailing labor markets, revenue mix, profitability, individual and business performance metrics, and our use of share-based compensation programs. We believe the most appropriate way to allocate estimated annual total compensation among interim periods is in proportion to projected net revenues earned. Consequently, during the year we accrue compensation and benefits based on annual targeted compensation ratios, taking into account the mix of our revenues and the timing of expense recognition.

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For further discussion of these and other significant accounting policies, see Note 2, Summary of Significant Accounting Policies, in our consolidated financial statements.

Liquidity, Financial Condition and Capital Resources

Our Chief Financial Officer and Global Treasurer are responsible for developing and implementing our liquidity, funding and capital management strategies. These policies are determined by the nature and needs of our day to day business operations, business opportunities, regulatory obligations, and liquidity requirements.

Our actual levels of capital, total assets and financial leverage are a function of a number of factors, including asset composition, business initiatives and opportunities, regulatory requirements and cost and availability of both long term and short term funding. We have historically maintained a balance sheet consisting of a large portion of our total assets in cash and liquid marketable securities, arising principally from traditional securities brokerage and trading activity. The liquid nature of these assets provides us with flexibility in financing and managing our business.

Analysis of Financial Condition

A business unit level balance sheet and cash capital analysis is prepared and reviewed with senior management on a weekly basis. As a part of this balance sheet review process, capital is allocated to all assets and gross and adjusted balance sheet limits are established. This process ensures that the allocation of capital and costs of capital are incorporated into business decisions. The goals of this process are to protect the firm's platform, enable our businesses to remain competitive, maintain the ability to manage capital proactively and hold businesses accountable for both balance sheet and capital usage.

We actively monitor and evaluate our financial condition and the composition of our assets and liabilities. Substantially all of our Financial instruments owned and Financial instruments sold, not yet purchased are valued on a daily basis and we monitor and employ balance sheet limits for our various businesses. In connection with our government and agency fixed income business and our role as a primary dealer in these markets, a sizable portion of our securities inventory is comprised of U.S. government and agency securities and other G-7 government securities.

The following table provides detail on key balance sheet asset and liability line items (in millions):

November 30,
2014
November 30,
2013
% Change

Total assets

$ 44,517.6 $ 40,177.0 10.8

Cash and cash equivalents

4,080.0 3,561.1 14.6

Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations

3,444.7 3,616.6 -4.8

Financial instruments owned

18,636.6 16,650.0 11.9

Financial instruments sold, not yet purchased

8,881.3 7,271.6 22.1

Total Level 3 assets

581.7 514.3 13.1

Securities borrowed

$ 6,853.1 $ 5,359.8 27.9

Securities purchased under agreements to resell

3,926.9 3,746.9 4.8

Total securities borrowed and securities purchased under agreements to resell

$ 10,780.0 $ 9,106.7 18.4

Securities loaned

$ 2,598.5 $ 2,506.1 3.7

Securities sold under agreements to repurchase

10,672.2 10,779.8 -1.0

Total securities loaned and securities sold under agreements to repurchase

$ 13,270.7 $ 13,285.9 -0.1

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Total assets at November 30, 2014 and November 30, 2013 were $44.5 billion and $40.2 billion, respectively. During the year ended November 30, 2014, average total assets were approximately 13% higher than total assets at November 30, 2014.

Jefferies LLC (our U.S. futures commission merchant) and Jefferies Bache Limited (our U.K. commodities and financial futures broker-dealer), receive cash or securities as margin to secure customer futures trades. Jefferies LLC ("Jefferies") (a U.S. broker-dealer), under SEC Rule 15c3-3 and under CFTC Regulation 1.25, is required to maintain customer cash or qualified securities in a segregated reserve account for the exclusive benefit of our clients. We are required to conduct customer segregation calculations to ensure the appropriate amounts of funds are segregated and that no customer funds are used to finance firm activity. Similar requirements exist under the U.K. Financial Conduct Authority's Client Money Rules with respect to our European-based activities conducted through Jefferies Bache Limited and Jefferies International Limited (a U.K. broker-dealer). Customer funds received are required to be separately segregated and held by us as statutory trustee for our customers. If we rehypothecate customer securities, that activity is conducted only to finance customer activity. Additionally, we do not lend customer cash to counterparties to conduct securities financing activity ( i.e. , we do not lend customer cash to reverse in securities). Further, we have no customer loan activity in Jefferies International Limited and we do not have any European prime brokerage operations. In Jefferies Bache Limited, any funds received from a customer are placed on deposit and not used as part of our operations. We do not transfer U.S. customer assets to our U.K. entities.

Our total Financial instruments owned inventory at November 30, 2014 was $18.6 billion, an increase of 12.0% from inventory of $16.7 billion at November 30, 2013, driven by increases in inventory positions across most asset classes. Higher trading volumes and increased client activity during most periods of the year and increases in equity and corporate debt offerings contributed to overall inventory levels. Financial instruments sold, not yet purchased inventory was $8.9 billion and $7.3 billion at November 30, 2014 and November 30, 2013, respectively, with the increase primarily driven by increased trading by our U.S. and international rates businesses. Derivative activity and outstanding balances, including both over-the-counter and listed contracts, increased across multiple inventory classes from that of the prior year. Our overall net inventory position was $9.8 billion and $9.4 billion at November 30, 2014 and November 30, 2013, respectively. The change in our net inventory balance is primarily attributed to an increase in our net inventory of corporate equity and debt securities, partially offset by a reduction in our net inventory of U.S. government and agency securities and sovereign obligations.

We continually monitor our overall securities inventory, including the inventory turnover rate, which confirms the liquidity of our overall assets. As a Primary Dealer in the U.S. and with our similar role in several European jurisdictions, we carry inventory and make an active market for our clients in securities issued by the various governments. These inventory positions are substantially comprised of the most liquid securities in the asset class, with a significant portion in holdings of securities of G-7 countries. For further detail on our outstanding sovereign exposure to Greece, Ireland, Italy, Portugal and Spain at November 30, 2014, refer to the Risk Management section herein.

Of our total Financial instruments owned, approximately 74% are readily and consistently financeable at haircuts of 10% or less. In addition, as a matter of our policy, a portion of these assets has internal capital assessed, which is in addition to the funding haircuts provided in the securities finance markets. Additionally, our Financial instruments owned primarily consisting of bank loans, investments and non-agency mortgage-backed securities are predominantly funded by long term capital. Under our cash capital policy, we model capital allocation levels that are more stringent than the haircuts used in the market for secured funding; and we maintain surplus capital at these maximum levels.

At November 30, 2014 and November 30, 2013, our Level 3 financial instruments owned was 3% of our financial instruments owned.

Securities financing assets and liabilities include both financing for our financial instruments trading activity and matched book transactions. Matched book transactions accommodate customers, as well as obtain securities for the settlement and financing of inventory positions. The aggregate outstanding balance of our securities borrowed and securities purchased under agreements to resell increased by 18% from November 30, 2013 to November 30, 2014, primarily due to an increase in firm financing of our short inventory and an increase in our matched book activity.

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The outstanding balance of our securities loaned and securities sold under agreements to repurchase was relatively unchanged from November 30, 2013 to November 30, 2014 due to a decrease in our matched book activity, offset by an increase in firm financing of our inventory, less netting for our collateralized financing transactions. By executing repurchase agreements with central clearing corporations to finance liquid inventory, rather than bi-lateral arrangements, we reduce the credit risk associated with these arrangements and decrease net outstanding balances. Our average month end balances of total reverse repos and stock borrows and total repos and stock loans during the year ended November 30, 2014 were 19% and 22% higher, respectively, than the November 30, 2014 balances.

The following table presents our period end balance, average balance and maximum balance at any month end within the periods presented for Securities purchased under agreements to resell and Securities sold under agreements to repurchase (in millions):

Successor Predecessor
Year Ended
November 30, 2014
Nine Months
Ended
November 30, 2013
Three Months
Ended
February 28, 2013

Securities Purchased Under Agreements to Resell:

Period end

$ 3,927 $ 3,747 $ 3,578

Month end average

5,788 4,936 5,132

Maximum month end

8,081 6,007 6,288

Securities Sold Under Agreements to Repurchase:

Period end

$ 10,672 $ 10,780 $ 7,976

Month end average

13,291 13,308 11,895

Maximum month end

16,586 16,502 15,168

Fluctuations in the balance of our repurchase agreements from period to period and intraperiod are dependent on business activity in those periods. Additionally, the fluctuations in the balances of our securities purchased under agreements to resell over the periods presented are influenced in any given period by our clients' balances and our clients' desires to execute collateralized financing arrangements via the repurchase market or via other financing products. Average balances and period end balances will fluctuate based on market and liquidity conditions and we consider the fluctuations intraperiod to be typical for the repurchase market.

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Leverage Ratios

The following table presents total assets, adjusted assets, total equity, total member's equity, tangible equity and tangible member's equity with the resulting leverage ratios at November 30, 2014 and November 30, 2013 (in thousands):

November 30, November 30,
2014 2013

Total assets

$ 44,517,648 $ 40,176,996

Deduct:

Securities borrowed

(6,853,103 (5,359,846
Securities purchased under agreements to resell (3,926,858 (3,746,920

Add:

Financial instruments sold, not yet purchased

8,881,268 7,271,613
Less derivative liabilities (363,515 (180,079

Subtotal

8,517,753 7,091,534

Deduct:

Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations

(3,444,674 (3,616,602
Goodwill and intangible assets (1,904,417 (1,986,436

Adjusted assets

$ 36,906,349 $ 32,558,726

Total equity

$ 5,463,431 $ 5,421,674

Deduct:

Goodwill and intangible assets

(1,904,417 (1,986,436

Tangible equity

$ 3,559,014 $ 3,435,238

Total member's equity

$ 5,424,583 $ 5,304,520

Deduct:

Goodwill and intangible assets

(1,904,417 (1,986,436

Tangible member's equity

$ 3,520,166 $ 3,318,084

Leverage ratio (1)

8.1 7.4

Tangible gross leverage ratio (2)

12.1 11.5

Leverage ratio - excluding impacts of the Leucadia Transaction (3)

10.3 9.3

Adjusted leverage ratio (4)

10.4 9.5

(1) Leverage ratio equals total assets divided by total equity.
(2) Tangible gross leverage ratio (a non-GAAP financial measure) equals total assets less goodwill and identifiable intangible assets divided by tangible member's equity. The tangible gross leverage ratio is used by Rating Agencies in assessing our leverage ratio.
(3) Leverage ratio - excluding impacts of the Leucadia Transaction (a non-GAAP financial measure) equals total assets less the increase in goodwill and asset fair values in accounting for the Leucadia Transaction of $1,957 million less amortization and impairments of goodwill and certain intangible assets of $108 million and $27 million during the year ended November 30, 2014 and the period since the Leucadia Transaction to November 30, 2013, respectively, on assets recognized at fair value in accounting for the Leucadia Transaction divided by the sum of total equity less $1,310 million and $1,326 million at November 30, 2014 and November 30, 2013, respectively, being the increase in equity arising from consideration of $1,426 million excluding the $125 million attributable to the assumption of our preferred stock by Leucadia, and less the impact on equity due to amortization of $9 million and $25 million at November 30, 2014 and November 30, 2013, respectively, on assets and liabilities recognized at fair value in accounting for the Leucadia Transaction.
(4) Adjusted leverage ratio (a non-GAAP financial measure) equals adjusted assets divided by tangible total equity.

Adjusted assets is a non-GAAP financial measure and excludes certain assets that are considered of lower risk as they are generally self-financed by customer liabilities through our securities lending activities. We view the resulting measure of adjusted leverage, also a non-GAAP financial measure, as a more relevant measure of financial risk when comparing financial services companies.

Liquidity Management

The key objectives of the liquidity management framework are to support the successful execution of our business strategies while ensuring sufficient liquidity through the business cycle and during periods of financial distress. Our liquidity management policies are designed to mitigate the potential risk that we may be unable to access adequate financing to service our financial obligations without material franchise or business impact.

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The principal elements of our liquidity management framework are our Contingency Funding Plan, our Cash Capital Policy and our assessment of Maximum Liquidity Outflow.

Contingency Funding Plan . Our Contingency Funding Plan is based on a model of a potential liquidity contraction over a one year time period. This incorporates potential cash outflows during a liquidity stress event, including, but not limited to, the following: (a) repayment of all unsecured debt maturing within one year and no incremental unsecured debt issuance; (b) maturity rolloff of outstanding letters of credit with no further issuance and replacement with cash collateral; (c) higher margin requirements than currently exist on assets on securities financing activity, including repurchase agreements; (d) liquidity outflows related to possible credit downgrade; (e) lower availability of secured funding; (f) client cash withdrawals; (g) the anticipated funding of outstanding investment and loan commitments; and (h) certain accrued expenses and other liabilities and fixed costs.

Cash Capital Policy . We maintain a cash capital model that measures long-term funding sources against requirements. Sources of cash capital include our equity and the noncurrent portion of long-term borrowings. Uses of cash capital include the following: (a) illiquid assets such as equipment, goodwill, net intangible assets, exchange memberships, deferred tax assets and certain investments; (b) a portion of securities inventory that is not expected to be financed on a secured basis in a credit stressed environment ( i.e. , margin requirements) and (c) drawdowns of unfunded commitments. To ensure that we do not need to liquidate inventory in the event of a funding crisis, we seek to maintain surplus cash capital, which is reflected in the leverage ratios we maintain. Our total capital of $11.3 billion at November 30, 2014 exceeded our cash capital requirements.

Maximum Liquidity Outflow . Our businesses are diverse, and our liquidity needs are determined by many factors, including market movements, collateral requirements and client commitments, all of which can change dramatically in a difficult funding environment. During a liquidity crisis, credit-sensitive funding, including unsecured debt and some types of secured financing agreements, may be unavailable, and the terms ( e.g. , interest rates, collateral provisions and tenor) or availability of other types of secured financing may change. As a result of our policy to ensure we have sufficient funds to cover what we estimate may be needed in a liquidity crisis, we hold more cash and unencumbered securities and have greater long-term debt balances than our businesses would otherwise require. As part of this estimation process, we calculate a Maximum Liquidity Outflow that could be experienced in a liquidity crisis. Maximum Liquidity Outflow is based on a scenario that includes both a market-wide stress and firm-specific stress, characterized by some or all of the following elements:

Global recession, default by a medium-sized sovereign, low consumer and corporate confidence, and general financial instability.

Severely challenged market environment with material declines in equity markets and widening of credit spreads.

Damaging follow-on impacts to financial institutions leading to the failure of a large bank.

A firm-specific crisis potentially triggered by material losses, reputational damage, litigation, executive departure, and/or a ratings downgrade.

The following are the critical modeling parameters of the Maximum Liquidity Outflow:

Liquidity needs over a 30-day scenario.

A two-notch downgrade of our long-term senior unsecured credit ratings.

No support from government funding facilities.

A combination of contractual outflows, such as upcoming maturities of unsecured debt, and contingent outflows ( e.g. , actions though not contractually required, we may deem necessary in a crisis). We assume that most contingent outflows will occur within the initial days and weeks of a crisis.

No diversification benefit across liquidity risks. We assume that liquidity risks are additive.

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The calculation of our Maximum Liquidity Outflow under the above stresses and modeling parameters considers the following potential contractual and contingent cash and collateral outflows:

All upcoming maturities of unsecured long-term debt, commercial paper, promissory notes and other unsecured funding products assuming we will be unable to issue new unsecured debt or rollover any maturing debt.

Repurchases of our outstanding long-term debt in the ordinary course of business as a market maker.

A portion of upcoming contractual maturities of secured funding trades due to either the inability to refinance or the ability to refinance only at wider haircuts ( i.e. , on terms which require us to post additional collateral). Our assumptions reflect, among other factors, the quality of the underlying collateral and counterparty concentration.

Collateral postings to counterparties due to adverse changes in the value of our over-the-counter ("OTC") derivatives and other outflows due to trade terminations, collateral substitutions, collateral disputes, collateral calls or termination payments required by a two-notch downgrade in our credit ratings.

Variation margin postings required due to adverse changes in the value of our outstanding exchange-traded derivatives and any increase in initial margin and guarantee fund requirements by derivative clearing houses.

Liquidity outflows associated with our prime brokerage business, including withdrawals of customer credit balances, and a reduction in customer short positions.

Liquidity outflows to clearing banks to ensure timely settlements of cash and securities transactions.

Draws on our unfunded commitments considering, among other things, the type of commitment and counterparty.

Other upcoming large cash outflows, such as tax payments.

Based on the sources and uses of liquidity calculated under the Maximum Liquidity Outflow scenarios we determine, based on a calculated surplus or deficit, additional long-term funding that may be needed versus funding through the repurchase financing market and consider any adjustments that may be necessary to our inventory balances and cash holdings. At November 30, 2014, we have sufficient excess liquidity to meet all contingent cash outflows detailed in the Maximum Liquidity Outflow. We regularly refine our model to reflect changes in market or economic conditions and the firm's business mix.

Sources of Liquidity

The following are financial instruments that are cash and cash equivalents or are deemed by management to be generally readily convertible into cash, marginable or accessible for liquidity purposes within a relatively short period of time (in thousands):

November 30,
2014
Average balance
Quarter ended
November 30, 2014 (1)
November 30,
2013

Cash and cash equivalents:

Cash in banks

$ 1,083,605 $ 603,459 $ 830,438

Certificate of deposit

75,000 59,524 50,005

Money market investments

2,921,363 2,333,772 2,680,676

Total cash and cash equivalents

4,079,968 2,996,755 3,561,119

Other sources of liquidity:

Debt securities owned and securities purchased under agreements to resell (2)

1,056,766 1,125,420 1,316,867

Other (3)

363,713 572,024 403,738

Total other sources

1,420,479 1,697,444 1,720,605

Total cash and cash equivalents and other liquidity sources

$ 5,500,447 $ 4,694,199 $ 5,281,724

Total cash and cash equivalents and other liquidity sources as % of Total Assets

12.4 13.1

Total cash and cash equivalents and other liquidity sources as % of Total Assets less Goodwill and Intangible Assets

12.9 13.8

(1) Average balances are calculated based on weekly balances.

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(2) Consists of high quality sovereign government securities and reverse repurchase agreements collateralized by U.S. government securities and other high quality sovereign government securities; deposits with a central bank within the European Economic Area, Canada, Australia, Japan, Switzerland or the USA; and securities issued by a designated multilateral development bank and reverse repurchase agreements with underlying collateral comprised of these securities.
(3) Other includes unencumbered inventory representing an estimate of the amount of additional secured financing that could be reasonably expected to be obtained from our financial instruments owned that are currently not pledged after considering reasonable financing haircuts and additional funds available under the committed senior secured revolving credit facility available for working capital needs of Jefferies Bache, LLC. On September 1, 2014, Jefferies Bache, LLC merged with and into Jefferies, with Jefferies as the surviving entity.

In addition to the cash balances and liquidity pool presented above, the majority of financial instruments (both long and short) in our trading accounts are actively traded and readily marketable. At November 30, 2014, we have the ability to readily obtain repurchase financing for 74% of our inventory at haircuts of 10% or less, which reflects the liquidity of our inventory. We continually assess the liquidity of our inventory based on the level at which we could obtain financing in the market place for a given asset. Assets are considered to be liquid if financing can be obtained in the repurchase market or the securities lending market at collateral haircut levels of 10% or less. The following summarizes our financial instruments by asset class that we consider to be of a liquid nature and the amount of such assets that have not been pledged as collateral at November 30, 2014 and November 30, 2013 (in thousands):

November 30, 2014 November 30, 2013
Liquid Financial
Instruments
Unencumbered
Liquid Financial
Instruments (2)
Liquid Financial
Instruments
Unencumbered
Liquid Financial
Instruments (2)

Corporate equity securities

$ 2,191,288 $ 297,628 $ 1,982,877 $ 137,721

Corporate debt securities

2,583,779 11,389 2,250,512 26,983

U.S. Government, agency and municipal securities

3,124,780 250,278 2,513,388 400,821

Other sovereign obligations

2,671,807 877,366 2,346,485 991,774

Agency mortgage-backed securities (1)

3,395,771 -   2,976,133 -  

Physical commodities

62,234 -   37,888 -  

$ 14,029,659 $ 1,436,661 $ 12,107,283 $ 1,557,299

(1) Consists solely of agency mortgage-backed securities issued by Freddie Mac, Fannie Mae and Ginnie Mae. These securities include pass-through securities, securities backed by adjustable rate mortgages ("ARMs"), collateralized mortgage obligations, commercial mortgage-backed securities and interest- and principal-only securities.
(2) Unencumbered liquid balances represent assets that can be sold or used as collateral for a loan, but have not been.

Average liquid financial instruments for both the three and twelve months ended November 30, 2014 was $17.2 billion and for the three and twelve months ended November 30, 2013 were $15.7 billion and $16.1 billion, respectively.

In addition to being able to be readily financed at modest haircut levels, we estimate that each of the individual securities within each asset class above could be sold into the market and converted into cash within three business days under normal market conditions, assuming that the entire portfolio of a given asset class was not simultaneously liquidated. There are no restrictions on the unencumbered liquid securities, nor have they been pledged as collateral.

Sources of Funding and Capital Resources

Our assets are funded by equity capital, senior debt, convertible debt, securities loaned, securities sold under agreements to repurchase, customer free credit balances, bank loans and other payables.

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Secured Financing

We rely principally on readily available secured funding to finance our inventory of financial instruments. Our ability to support increases in total assets is largely a function of our ability to obtain short and intermediate-term secured funding, primarily through securities financing transactions. We finance a portion of our long inventory and cover some of our short inventory by pledging and borrowing securities in the form of repurchase or reverse repurchase agreements (collectively "repos"), respectively. Approximately 80% of our repurchase financing activities use collateral that is considered eligible collateral by central clearing corporations. Central clearing corporations are situated between participating members who borrow cash and lend securities (or vice versa); accordingly repo participants contract with the central clearing corporation and not one another individually. Therefore, counterparty credit risk is borne by the central clearing corporation which mitigates the risk through initial margin demands and variation margin calls from repo participants. The comparatively large proportion of our total repo activity that is eligible for central clearing reflects the high quality and liquid composition of the inventory we carry in our trading books. The tenor of our repurchase and reverse repurchase agreements generally exceeds the expected holding period of the assets we are financing. A significant portion of our financing of European Sovereign inventory is executed using central clearinghouse financing arrangements rather than via bi-lateral repo agreements. For those asset classes not eligible for central clearinghouse financing, we seek to execute our bi-lateral financings on an extended term basis.

In addition to the above financing arrangements, in November 2012, we initiated a program whereby we issue notes backed by eligible collateral under a master repurchase agreement, which provides an additional financing source for our inventory (our "repurchase agreement financing program"). At November 30, 2014, the outstanding amount of the notes issued under the program was $575.0 million in aggregate, which is presented within Other secured financings on the Consolidated Statement of Financial Condition. Of the $575.0 million aggregate notes, $60.0 million matures in February 2015, $85.0 million matures in March 2015, $200.0 million in July 2016 and $80.0 million in August 2016, all bearing interest at a spread over one month LIBOR. The remaining $150.0 million matures in February 2016 and bears interest at a spread over three month LIBOR. For additional discussion on the program, refer to Note 10, Variable Interest Entities, in our consolidated financial statements.

Weighted average maturity of repurchase agreements for non-clearing corporation eligible funded inventory is approximately three months at November 30, 2014. Our ability to finance our inventory via central clearinghouses and bi-lateral arrangements is augmented by our ability to draw bank loans on an uncommitted basis under our various banking arrangements. At November 30, 2014, short-term borrowings, which include bank loans, as well as borrowings under revolving credit facilities which must be repaid within one year or less, totaled $12.0 million. Interest under the bank lines is generally at a spread over the federal funds rate. Letters of credit are used in the normal course of business mostly to satisfy various collateral requirements in favor of exchanges in lieu of depositing cash or securities. Average daily short-term borrowings for the year ended November 30, 2014, the nine months ended November 30, 2013 and the three months ended February 28, 2013 were $81.7 million, $43.3 million and $110.0 million, respectively.

Total Capital

At November 30, 2014 and November 30, 2013, we have total long-term capital of $11.3 billion and $11.2 billion resulting in a long-term debt to equity capital ratio of 1.06:1 and 1.07:1, respectively. Our total capital base at November 30, 2014 and November 30, 2013 was as follows (in thousands):

November 30,
2014
November 30,
2013

Long-Term Debt (1)

$ 5,805,673 $ 5,777,130

Total Equity

5,463,431 5,421,674

Total Capital

$ 11,269,104 $ 11,198,804

(1) Long-term debt for purposes of evaluating long-term capital at November 30, 2014 and November 30, 2013 excludes $170.0 million and $200.0 million, respectively, of our outstanding borrowings under our long-term revolving Credit Facility and excludes $507.9 million of our 3.875% Senior Notes at November 30, 2014 and $255.7 million of our 5.875% Senior Notes at November 30, 2013, as these notes mature in less than one year from the period end.

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Long-Term Debt

On August 26, 2011, we entered into a committed senior secured revolving credit facility ("Credit Facility") with a group of commercial banks in Dollars, Euros and Sterling, for an aggregate committed amount of $950.0 million with availability subject to one or more borrowing bases and of which $250.0 million can be borrowed by Jefferies Bache Limited without a borrowing base requirement. On June 26, 2014, we amended and restated the Credit Facility to extend the term of the Credit Facility for three years and reduced the committed amount to $750.0 million. The borrowers under the Credit Facility are Jefferies Bache Financial Services, Inc., Jefferies Bache, LLC and Jefferies Bache Limited, with a guarantee from Jefferies Group LLC. On September 1, 2014, Jefferies Bache, LLC merged with and into Jefferies. Jefferies is the surviving entity, and therefore, a borrower under the Credit Facility. At November 30, 2014 and November 30, 2013, we had borrowings outstanding under the Credit Facility amounting to $170.0 million and $200.0 million, respectively.

Interest is based on the Federal funds rate or, in the case of Euro and Sterling borrowings, the Euro Interbank Offered Rate and the London Interbank Offered Rate, respectively. The Credit Facility is guaranteed by Jefferies Group LLC and contains financial covenants that, among other things, imposes restrictions on future indebtedness of our subsidiaries, requires Jefferies Group LLC to maintain specified levels of tangible net worth and liquidity amounts, and requires certain of our subsidiaries to maintain specified levels of regulated capital. On a monthly basis we provide a certificate to the Administrative Agent of the Credit Facility as to the maintenance of various financial covenant ratios at all times during the preceding month. At November 30, 2014 and November 30, 2013, the minimum tangible net worth requirement was $2,603.1 million and $2,564.0 million, respectively, and the minimum liquidity requirement was $541.7 million and $532.8 million, respectively, for which we were in compliance. Throughout the period, no instances of noncompliance with the Credit Facility occurred and we expect to remain in compliance given our current liquidity and anticipated additional funding requirements given our business plan and profitability expectations. While our subsidiaries are restricted under the Credit Facility from incurring additional indebtedness beyond trade payables and derivative liabilities in the normal course of business, we do not believe that these restrictions will have a negative impact on our liquidity.

On May 20, 2014, under our $2.0 billion Euro Medium Term Note Program, we issued senior unsecured notes with a principal amount of €500.0 million, due 2020, which bear interest at 2.375% per annum. Proceeds amounted to €498.7 million.

At November 30, 2014, our long-term debt, excluding the Credit Facility, has a weighted average maturity of 8 years. Our 5.875% Senior Notes with a principal amount of $250.0 million matured in June 2014.

Our long-term debt ratings at December 31, 2014 are as follows:

Rating Outlook

Moody's Investors Service (1)

Baa3 Negative

Standard and Poor's (2)

BBB- Stable

Fitch Ratings

BBB- Stable

(1) On December 19, 2014, Moody's affirmed our long-term debt rating of Baa3 and assigned a negative outlook to our rating.
(2) On December 11, 2014, Standard and Poor's ("S&P") announced its review of the ratings on 13 U.S. securities firms by applying its new ratings criteria for the sector. As part of this review, S&P downgraded our long-term debt rating one notch from "BBB" to "BBB-" and left the rating outlook unchanged at "stable".

We rely upon our cash holdings and external sources to finance a significant portion of our day to day operations. Access to these external sources, as well as the cost of that financing, is dependent upon various factors, including our debt ratings. Our current debt ratings are dependent upon many factors, including industry dynamics, operating and economic environment, operating results, operating margins, earnings trend and volatility, balance sheet composition, liquidity and liquidity management, our capital structure, our overall risk management, business diversification and our market share and competitive position in the markets in which we operate. Deteriorations in any of these factors could impact our credit ratings. While certain aspects of a credit rating downgrade are quantifiable pursuant to contractual provisions, the impact on our business and trading results in future periods is inherently uncertain and depends on a number of factors, including the magnitude of the downgrade, the behavior of individual clients and future mitigating action taken by us.

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In connection with certain over-the-counter derivative contract arrangements and certain other trading arrangements, we may be required to provide additional collateral to counterparties, exchanges and clearing organizations in the event of a credit rating downgrade. At November 30, 2014, the amount of additional collateral that could be called by counterparties, exchanges and clearing organizations under the terms of such agreements in the event of a downgrade of our long-term credit rating below investment grade was $93.3 million. For certain foreign clearing organizations credit rating is only one of several factors employed in determining collateral that could be called. The above represents management's best estimate for additional collateral to be called in the event of credit rating downgrade. The impact of additional collateral requirements is considered in our Contingency Funding Plan and calculation of Maximum Liquidity Outflow, as described above.

Contractual Obligations and Commitments

The tables below provide information about our commitments related to debt obligations, purchase obligations, investments and derivative contracts at November 30, 2014. The table presents principal cash flows with expected maturity dates (in millions):

Expected Maturity Date
2015 2016 2017
and
2018
2019
and
2020
2021
and
Later
Total

Contractual obligations:

Unsecured long-term debt (contractual principal payments net of unamortized discounts and premiums)

$ 507.9 $ 363.2 $ 842.4 $ 1,453.5 $ 3,146.6 $ 6,313.6

Senior secured revolving credit facilty

-   -   170.0 -   -   170.0

Interest payment obligations on senior notes

328.4 296.5 541.5 382.2 1,280.8 2,829.4

Purchase obligations (1)

56.7 54.6 88.1 52.4 35.5 287.3

$ 893.0 $ 714.3 $ 1,642.0 $ 1,888.1 $ 4,462.9 $ 9,600.3

Commitments and guarantees:

Equity commitments

$ -   $ 9.3 $ 0.8 $ -   $ 216.3 $ 226.4

Loan commitments

50.7 440.2 283.1 20.7 0.2 794.9

Mortgage-related and other purchase commitments

1,058.5 1,165.8 117.6 -   -   2,341.9

Forward starting repos

5,127.2 -   -   -   -   5,127.2

Other unfunded commitments

6.3 -   -   -   23.0 29.3

Derivative Contracts (2):

Derivative contracts-non credit related

59,875.6 229.6 252.1 721.8 487.7 61,566.8

Derivative contracts - credit related

-   -   -   485.0 -   485.0

$ 66,118.3 $ 1,844.9 $ 653.6 $ 1,227.5 $ 727.2 $ 70,571.5

(1) Purchase obligations for goods and services primarily include payments for outsourcing and computer and telecommunications maintenance agreements. Purchase obligations at November 30, 2014 reflect the minimum contractual obligations under legally enforceable contracts.
(2) Certain of our derivative contracts meet the definition of a guarantee and are therefore included in the above table. (See Note 22, Commitments, Contingencies and Guarantees, in our consolidated financial statements for additional information on commitments.)

As lessee, we lease certain premises and equipment under noncancelable agreements expiring at various dates through 2029 which are operating leases. At November 30, 2014, future minimum aggregate annual lease payments under such leases (net of subleases) for fiscal years ended November 30, 2015 through 2019 and the aggregate amount thereafter, are as follows (in thousands):

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Fiscal Year Operating Leases

2015

$ 42,697

2016

53,056

2017

56,089

2018

56,038

2019

54,785

Thereafter

443,361

Total

$ 706,026

During 2012, we entered into a master sale and leaseback agreement under which we sold and have leased back existing and additional new equipment supplied by the lessor with partial expirations through 2019. The transaction resulted in a gain of $2.0 million, which is being amortized into earnings in proportion to and is reflected net against the leased equipment. The lease may be terminated on September 30, 2017 for a termination cost of the present value of the remaining lease payments plus a residual value. At November 30, 2014, minimum future lease payments are as follows (in thousands):

Fiscal Year

2015

$ 3,887

2016

3,887

2017

3,887

2018

1,583

2019

167

Net minimum lease payments

13,411

Less amount representing interest

927

Present value of net minimum lease payments

$ 12,484

In the normal course of business we engage in other off balance sheet arrangements, including derivative contracts. Neither derivatives' notional amounts nor underlying instrument values are reflected as assets or liabilities in our Consolidated Statements of Financial Condition. Rather, the fair value of derivative contracts are reported in the Consolidated Statements of Financial Condition as Financial instruments owned-derivative contracts or Financial instruments sold, not yet purchased-derivative contracts as applicable. Derivative contracts are reflected net of cash paid or received pursuant to credit support agreements and are reported on a net by counterparty basis when a legal right of offset exists under an enforceable master netting agreement. (See Note 2, Summary of Significant Accounting Policies, Note 6, Fair Value Disclosures, and Note 7, Derivative Financial Instruments, in our consolidated financial statements for additional information about our accounting policies and our derivative activities.)

We are routinely involved with variable interest entities ("VIEs") in connection with our mortgage- and other asset- backed securities and collateralized loan obligation securitization activities. VIEs are entities in which equity investors lack the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. VIEs are consolidated by the primary beneficiary. The primary beneficiary is the party who has the power to direct the activities of a variable interest entity ("VIE") that most significantly impact the entity's economic performance and who has an obligation to absorb losses of the entity or a right to receive benefits from the entity that could potentially be significant to the entity. Where we are the primary beneficiary of a VIE, we consolidate the VIE. We do not generally consolidate the various VIEs related to our securitization activities because we are not the primary beneficiary.

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At November 30, 2014, we did not have any commitments to purchase assets from our securitization vehicles. (See Note 9, Securitization Activities and Note 10, Variable Interest Entities, in our consolidated financial statements for additional information regarding our involvement with VIEs.)

We expect to make cash payments of $617.4 million on January 31, 2015 related to compensation awards for fiscal 2014.

Due to the uncertainty regarding the timing and amounts that will ultimately be paid, our liability for unrecognized tax benefits has been excluded from the above contractual obligations table. (See Note 21, Income Taxes, in our consolidated financial statements for further information.)

Equity Capital

On March 1, 2013, all of the outstanding common shares of Jefferies Group LLC were exchanged for shares of Leucadia and Jefferies Group LLC became wholly-owned by Leucadia with Leucadia as the sole equity owner of Jefferies Group LLC. The aggregate purchase price was approximately $4.8 billion and therefore, as a result of the Leucadia Transaction, our member's equity capital approximated $4.8 billion upon consummation. We do not anticipate making capital distributions in the future.

As compared to November 30, 2013, the increase to total member's equity at November 30, 2014 is primarily attributed to net earnings, partially offset by foreign currency translation adjustments during the year ended November 30, 2014.

Net Capital

As broker-dealers registered with the SEC and member firms of the Financial Industry Regulatory Authority ("FINRA"), Jefferies (a U.S. broker-dealer) and Jefferies Execution are subject to the Securities and Exchange Commission Uniform Net Capital Rule ("Rule 15c3-1"), which requires the maintenance of minimum net capital, and have elected to calculate minimum capital requirements under the alternative method permitted by Rule 15c3-1 in calculating net capital. On September 1, 2014, Jefferies Bache, LLC (a Futures Commission Merchant ("FCM")) merged with and into Jefferies. Jefferies, as the surviving entity, registered as an FCM and is subject to Rule 1.17 of the Commodities Futures Trading Commission ("CFTC"), which sets forth minimum financial requirements. The minimum net capital requirement in determining excess net capital for a dually-registered U.S. broker-dealer and FCM is equal to the greater of the requirement under Rule 15c3-1 or CFTC Rule 1.17.

At November 30, 2014, Jefferies and Jefferies Execution's net capital and excess net capital were as follows (in thousands):

Net Capital Excess Net Capital

Jefferies

$ 1,025,113 $ 913,465

Jefferies Execution

6,150 5,900

FINRA is the designated self-regulatory organization ("DSRO") for our U.S. broker-dealers and the Chicago Mercantile Exchange is the DSRO for Jefferies as an FCM.

Certain other U.S. and non-U.S. subsidiaries are subject to capital adequacy requirements as prescribed by the regulatory authorities in their respective jurisdictions, including Jefferies International Limited and Jefferies Bache Limited, which are authorized and regulated by the Financial Conduct Authority in the U.K. The Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") was signed into law on July 21, 2010. The Dodd-Frank Act contains provisions that require the registration of all swap dealers, major swap participants, security-based swap dealers, and/or major security-based swap participants. While entities that register under these provisions will be subject to regulatory capital requirements, these regulatory capital requirements have not yet been finalized. We expect that these provisions will result in modifications to the regulatory capital requirements of some of our entities, and will result in some of our other entities becoming subject to regulatory capital requirements for the first time, including Jefferies Derivative Products, LLC and Jefferies Bache Financial Services, Inc., which registered as swap dealers with the CFTC during January 2013 and Jefferies Financial Products, LLC, which registered during August 2014.

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The regulatory capital requirements referred to above may restrict our ability to withdraw capital from our regulated subsidiaries.

Risk Management

Overview

Risk is an inherent part of our business and activities. The extent to which we properly and effectively identify, assess, monitor and manage each of the various types of risk involved in our activities is critical to our financial soundness, viability and profitability. Accordingly, we have a comprehensive risk management approach, with a formal governance structure and processes to identify, assess, monitor and manage risk. Principal risks involved in our business activities include market, credit, liquidity and capital, operational, legal and compliance, new business, and reputational risk.

Risk management is a multifaceted process that requires communication, judgment and knowledge of financial products and markets. Accordingly, our risk management process encompasses the active involvement of executive and senior management, and also many departments independent of the revenue-producing business units, including the Risk Management, Operations, Compliance, Legal and Finance Departments. Our risk management policies, procedures and methodologies are fluid in nature and are subject to ongoing review and modification.

For discussion of liquidity and capital risk management, refer to the "Liquidity, Financial Condition and Capital Resources" section herein.

Governance and Risk Management Structure

Our Board of Directors. Our Board of Directors and its Audit Committee play an important role in reviewing our risk management process and risk tolerance. Our Board of Directors and Audit Committee are provided with data relating to risk at each of its regularly scheduled meetings. Our Chief Risk Officer and Global Treasurer meet with the Board of Directors on not less than a quarterly basis to present our risk profile and liquidity profile and to respond to questions.

Risk Committees. We make extensive use of internal committees to govern risk taking and ensure that business activities are properly identified, assessed, monitored and managed. Our Risk Management Committee meets weekly to discuss our risk, capital, and liquidity profile in detail. In addition, business or market trends and their potential impact on the risk profile are discussed. Membership is comprised of our Chief Executive Officer and Chairman, Chairman of the Executive Committee, Chief Financial Officer, Chief Risk Officer and Global Treasurer. The Committee approves limits for us as a whole, and across risk categories and business lines. It also reviews all limit breaches. Limits are reviewed on at least an annual basis. Other risk related committees include Market Risk Management, Credit Risk Management, New Business, Underwriting Acceptance, Margin Oversight, Executive Management and Operating Committees. These Committees govern risk taking and ensure that business activities are properly managed for their area of oversight.

Risk Related Policies. We make use of various policies in the risk management process:

Market Risk Policy- This policy sets out roles, responsibilities, processes and escalation procedures regarding market risk management.

Independent Price Verification Policy - This policy sets out roles, responsibilities, processes and escalation procedures regarding independent price verification for securities and other financial instruments.

Operational Risk Policy - This policy sets out roles, responsibilities, processes and escalation procedures regarding operational risk management.

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Credit Risk Policy- This policy provides standards and controls for credit risk-taking throughout our global business activities. This policy also governs credit limit methodology and counterparty review.

Model Validation Policy- This policy sets out roles, processes and escalation procedures regarding model validation and model risk management.

Risk Management Key Metrics

We apply a comprehensive framework of limits on a variety of key metrics to constrain the risk profile of our business activities. The size of the limit reflects our risk tolerance for a certain activity under normal business conditions. Key metrics included in our framework include inventory position and exposure limits on a gross and net basis, scenario analysis and stress tests, Value-at-Risk, sensitivities (greeks), exposure concentrations, aged inventory, amount of Level 3 assets, counterparty exposure, leverage, cash capital, and performance analysis metrics.

Market Risk

The potential for changes in the value of financial instruments is referred to as market risk. Our market risk generally represents the risk of loss that may result from a change in the value of a financial instrument as a result of fluctuations in interest rates, credit spreads, equity prices, commodity prices and foreign exchange rates, along with the level of volatility. Interest rate risks result primarily from exposure to changes in the yield curve, the volatility of interest rates, and credit spreads. Equity price risks result from exposure to changes in prices and volatilities of individual equities, equity baskets and equity indices. Commodity price risks result from exposure to the changes in prices and volatilities of individual commodities, commodity baskets and commodity indices. Market risk arises from market making, proprietary trading, underwriting, specialist and investing activities. We seek to manage our exposure to market risk by diversifying exposures, controlling position sizes, and establishing economic hedges in related securities or derivatives. Due to imperfections in correlations, gains and losses can occur even for positions that are hedged. Position limits in trading and inventory accounts are established and monitored on an ongoing basis. Each day, consolidated position and exposure reports are prepared and distributed to various levels of management, which enable management to monitor inventory levels and results of the trading groups.

Value-at-Risk

We estimate Value-at-Risk ("VaR") using a model that simulates revenue and loss distributions on substantially all financial instruments by applying historical market changes to the current portfolio. Using the results of this simulation, VaR measures the potential loss in value of our financial instruments over a specified time horizon at a given confidence level. We calculate a one-day VaR using a one year look-back period measured at a 95% confidence level.

As with all measures of VaR, our estimate has inherent limitations due to the assumption that historical changes in market conditions are representative of the future. Furthermore, the VaR model measures the risk of a current static position over a one-day horizon and might not capture the market risk of positions that cannot be liquidated or offset with hedges in a one-day period. Published VaR results reflect past trading positions while future risk depends on future positions.

While we believe the assumptions and inputs in our risk model are reasonable, we could incur losses greater than the reported VaR because the historical market prices and rates changes may not be an accurate measure of future market events and conditions. Consequently, this VaR estimate is only one of a number of tools we use in our daily risk management activities. When comparing our VaR numbers to those of other firms, it is important to remember that different methodologies and assumptions could produce significantly different results.

Our average daily VaR increased to $14.35 million for the year ended November 30, 2014 from $10.43 million for the year ended November 30, 2013. The increase was primarily driven by higher equity price risk as a result of an increase in various equity block positions compared to the prior year along with our investments in Knight Capital and Harbinger. The increase was partially offset by an increase in the diversification benefit across asset classes.

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Market risk from interest rate volatility, currency rates and commodity prices risk did not change significantly from the comparable 2013 period. We have also calculated our average VaR excluding both our investments in Knight Capital and Harbinger for the years ended November 30, 2014 and 2013 to be $8.55 million and $6.59 million, respectively. On March 18, 2014, we sold our investment in Harbinger to Leucadia at the closing price on that date.

The following table illustrates each separate component of VaR for each component of market risk by interest rate, equity, currency and commodity products, as well as for our overall trading positions using the past 365 days of historical data (in millions).

Risk Categories

VaR at
November 30, 2014
Daily VaR (1)
Value-at-Risk In Trading Portfolios
Daily VaR for the
Year Ended
November 30, 2014
VaR at
November 30, 2013
Daily VaR for the
Year Ended
November 30, 2013
Average High Low Average High Low

Interest Rates

$ 5.56 $ 5.77 $ 8.69 $ 3.16 $ 7.33 $ 5.38 $ 9.46 $ 3.68

Equity Prices

10.53 11.08 14.68 7.85 12.22 6.57 12.37 3.85

Currency Rates

0.87 1.33 6.59 0.15 0.56 0.83 2.07 0.11

Commodity Prices

0.19 0.70 2.14 0.07 0.74 0.94 1.70 0.37

Diversification Effect (2)

(3.87 (4.53 -   -   (4.60 (3.29 N/A N/A

Firmwide

$ 13.28 $ 14.35 $ 19.68 $ 10.31 $ 16.25 $ 10.43 $ 16.25 $ 6.00

(1) VaR is the potential loss in value of our trading positions due to adverse market movements over a defined time horizon with a specific confidence level. For the VaR numbers reported above, a one-day time horizon, with a one year look-back period, and a 95% confidence level were used.
(2) The diversification effect is not applicable for the maximum and minimum VaR values as the firmwide VaR and the VaR values for the four risk categories might have occurred on different days during the period.

The aggregated VaR presented here is less than the sum of the individual components ( i.e. , interest rate risk, foreign exchange rate risk, equity risk and commodity price risk) due to the benefit of diversification among the four risk categories. Diversification benefit equals the difference between aggregated VaR and the sum of VaRs for the four risk categories and arises because the market risk categories are not perfectly correlated.

On April 1, 2013, we redeemed the third party noncontrolling interests in our high yield business. The presentation of VaR therefore reflects the full economic interests of this business since the redemption date. This modification to include a full allocation of the high yield trading business in our calculation had no material effect on VaR calculated for the year ended and as of November 30, 2013.

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The chart below reflects our daily VaR over the last four quarters:

Certain positions within financial instruments are not included in the VaR model because VaR is not the most appropriate measure of risk. Accordingly, Risk Management has additional procedures in place to assure that the level of potential loss that would arise from market movements are within acceptable levels. Such procedures include performing stress tests, monitoring concentration risk and tracking price target/stop loss levels. The table below presents the potential reduction in net income associated with a 10% stress of the fair value of the positions that are not included in the VaR model at November 30, 2014 (in thousands):

10% Sensitivity

Private investments

$ 39,019

Corporate debt securities in default

12,971

Trade claims

2,330

The primary method used to test the efficacy of the VaR model is to compare our actual daily net revenue for those positions included in our VaR calculation with the daily VaR estimate. This evaluation is performed at various levels of the trading portfolio, from the holding company level down to specific business lines. For the VaR model, trading related revenue is defined as principal transaction revenue, trading related commissions, revenue from securitization activities and net interest income. For a 95% confidence one day VaR model ( i.e., no intra-day trading), assuming current changes in market value are consistent with the historical changes used in the calculation, net trading losses would not be expected to exceed the VaR estimates more than twelve times on an annual basis ( i.e., once in every 20 days). During the year ended November 30, 2014, results of the evaluation at the aggregate level demonstrated three days when the net trading loss exceeded the 95% one day VaR.

Daily Net Trading Revenue

There were 44 days with trading losses out of a total of 251 days in the year ended November 30, 2014, including 17 in the three months ended November 30, 2014. Excluding trading losses associated with the daily marking to market of our position in Knight Capital in the year ended November 30, 2014, there were 26 days with trading losses, of which 16 occurred in the fourth quarter of 2014. The histogram below presents the distribution of our actual daily net trading revenue for substantially all of our trading activities for the year ended November 30, 2014 (in millions).

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Scenario Analysis and Stress Tests

While VaR measures potential losses due to adverse changes in historical market prices and rates, we use stress testing to analyze the potential impact of specific events or moderate or extreme market moves on our current portfolio both firm wide and within business segments. Stress scenarios comprise both historical market price and rate changes and hypothetical market environments, and generally involve simultaneous changes of many risk factors. Indicative market changes in our scenarios include, but are not limited to, a large widening of credit spreads, a substantial decline in equities markets, significant moves in selected emerging markets, large moves in interest rates, changes in the shape of the yield curve and large moves in European markets. In addition, we also perform ad hoc stress tests and add new scenarios as market conditions dictate. Because our stress scenarios are meant to reflect market moves that occur over a period of time, our estimates of potential loss assume some level of position reduction for liquid positions. Unlike our VaR, which measures potential losses within a given confidence interval, stress scenarios do not have an associated implied probability; rather, stress testing is used to estimate the potential loss from market moves that tend to be larger than those embedded in the VaR calculation.

Stress testing is performed and reported regularly as part of the risk management process. Stress testing is used to assess our aggregate risk position as well as for limit setting and risk/reward analysis.

Counterparty Credit Risk and Issuer Country Exposure

Counterparty Credit Risk

Credit risk is the risk of loss due to adverse changes in a counterparty's credit worthiness or its ability or willingness to meet its financial obligations in accordance with the terms and conditions of a financial contract. We are exposed to credit risk as trading counterparty to other broker-dealers and customers, as a direct lender and through extending loan commitments, as a holder of securities and as a member of exchanges and clearing organizations.

It is critical to our financial soundness and profitability that we properly and effectively identify, assess, monitor, and manage the various credit and counterparty risks inherent in our businesses. Credit is extended to counterparties in a controlled manner in order to generate acceptable returns, whether such credit is granted directly or is incidental to a transaction. All extensions of credit are monitored and managed on an enterprise level in order to limit exposure to loss related to credit risk.

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Our Credit Risk Framework is responsible for identifying credit risks throughout the operating businesses, establishing counterparty limits and managing and monitoring those credit limits. Our framework includes:

defining credit limit guidelines and credit limit approval processes;

providing a consistent and integrated credit risk framework across the enterprise;

approving counterparties and counterparty limits with parameters set by the Risk Management Committee;

negotiating, approving and monitoring credit terms in legal and master documentation;

delivering credit limits to all relevant sales and trading desks;

maintaining credit reviews for all active and new counterparties;

operating a control function for exposure analytics and exception management and reporting;

determining the analytical standards and risk parameters for on-going management and monitoring of global credit risk books;

actively managing daily exposure, exceptions, and breaches;

monitoring daily margin call activity and counterparty performance (in concert with the Margin Department); and

setting the minimum global requirements for systems, reports, and technology.

Credit Exposures

Credit exposure exists across a wide-range of products including cash and cash equivalents, loans, securities finance transactions and over-the-counter derivative contracts.

Loans and lending arise in connection with our capital markets activities and represents the notional value of loans that have been drawn by the borrower and lending commitments that were outstanding at November 30, 2014. In addition, credit exposures on forward settling traded loans are included within our loans and lending exposures for consistency with the balance sheet categorization of these items.

Securities and margin finance includes credit exposure arising on securities financing transactions (reverse repurchase agreements, repurchase agreements and securities lending agreements) to the extent the fair value of the underlying collateral differs from the contractual agreement amount and from margin provided to customers.

Derivatives represent OTC derivatives, which are reported net by counterparty when a legal right of setoff exists under an enforceable master netting agreement. Derivatives are accounted for at fair value net of cash collateral received or posted under credit support agreements. In addition, credit exposures on forward settling trades are included within our derivative credit exposures.

Cash and cash equivalents include both interest-bearing and non-interest bearing deposits at banks.

Current counterparty credit exposures at November 30, 2014 and November 30, 2013 are summarized in the tables below and provided by credit quality, region and industry (in millions). Credit exposures presented take netting and collateral into consideration by counterparty and master agreement. Collateral taken into consideration includes both collateral received as cash as well as collateral received in the form of securities or other arrangements. Current exposure is the loss that would be incurred on a particular set of positions in the event of default by the counterparty, assuming no recovery. Current exposure equals the fair value of the positions less collateral. Issuer risk is the credit risk arising from inventory positions (for example, corporate debt securities and secondary bank loans). Issuer risk is included in our country risk exposure tables below. Of our counterparty credit exposure at November 30, 2014, excluding cash and cash equivalents, 70% are investment grade counterparties, compared to 66% at November 30, 2013, and are mainly concentrated in North America. When comparing our credit exposure at November 30, 2014 with credit exposure at November 30, 2013, excluding cash and cash equivalents, current exposure has increased 66% to approximately $1.7 billion from $1.0 billion, primarily due to exposure to investment grade banks and broker-dealers and, to a lesser extent, other financial services sectors .

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Counterparty Credit Exposure by Credit Rating

Loans and Lending Securities and
Margin Finance
OTC Derivatives Total Cash and Cash
Equivalents
Total with Cash and
Cash Equivalents
At At At At At At
November
30,

2014
November
30,

2013
November
30,

2014
November
30,

2013
November
30,

2014
November
30,
2013
November
30,

2014
November
30,

2013
November
30,

2014
November
30,

2013
November
30,

2014
November
30,

2013

AAA Range

$ -   $ -   $ 1.9 $ 0.2 $ -   $ -   $ 1.9 $ 0.2 $ 2,921.4 $ 2,680.6 $ 2,923.3 $ 2,680.8

AA Range

2.7 -   134.6 104.8 7.1 14.7 144.4 119.5 412.9 144.1 557.3 263.6

A Range

7.6 -   586.9 374.4 218.1 56.7 812.6 431.1 731.3 734.7 1,543.9 1,165.8

BBB Range

132.3 71.0 73.6 39.9 34.8 16.2 240.7 127.1 2.8 1.7 243.5 128.8

BB or Lower

189.9 120.3 127.9 115.4 45.2 9.5 363.0 245.2 -   -   363.0 245.2

Unrated

139.6 86.6 -   -   -   18.6 139.6 105.2 11.5 -   151.1 105.2

Total

$ 472.1 $ 277.9 $ 924.9 $ 634.7 $ 305.2 $ 115.7 $ 1,702.2 $ 1,028.3 $ 4,079.9 $ 3,561.1 $ 5,782.1 $ 4,589.4

Counterparty Credit Exposure by Region

Loans and Lending Securities and
Margin Finance
OTC Derivatives Total Cash and Cash
Equivalents
Total with Cash and
Cash Equivalents
At At At At At At
November
30,

2014
November
30,

2013
November
30,

2014
November
30,

2013
November
30,

2014
November
30,
2013
November
30,

2014
November
30,

2013
November
30,

2014
November
30,

2013
November
30,

2014
November
30,

2013

Asia/Latin America/Other

$ 48.8 $ -   $ 55.7 $ 30.9 $ 24.6 $ 11.6 $ 129.1 $ 42.5 $ 221.0 $ 183.3 $ 350.1 $ 225.8

Europe

8.5 -   218.2 180.3 76.1 47.6 302.8 227.9 617.5 269.3 920.3 497.2

North America

414.8 277.9 651.0 423.5 204.5 56.5 1,270.3 757.9 3,241.4 3,108.5 4,511.7 3,866.4

Total

$ 472.1 $ 277.9 $ 924.9 $ 634.7 $ 305.2 $ 115.7 $ 1,702.2 $ 1,028.3 $ 4,079.9 $ 3,561.1 $ 5,782.1 $ 4,589.4

Counterparty Credit Exposure by Industry

Loans and Lending Securities and
Margin Finance
OTC Derivatives Total Cash and Cash
Equivalents
Total with Cash and
Cash Equivalents
At At At At At At
November
30,
November
30,
November
30,
November
30,
November
30,

November

30,

November
30,
November
30,
November
30,
November
30,
November
30,
November
30,
2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013

Asset Managers

$ -   $ -   $ 91.8 $ 7.1 $ -   $ 0.5 $ 91.8 $ 7.6 $ 2,921.4 $ 2,680.7 $ 3,013.2 $ 2,688.3

Banks, Broker-dealers

10.7 -   482.2 354.9 251.4 73.8 744.3 428.7 1,158.5 880.4 1,902.8 1,309.1

Commodities

-   -   59.9 35.6 24.8 9.4 84.7 45.0 -   -   84.7 45.0

Other

461.4 277.9 291.0 237.1 29.0 32.0 781.4 547.0 -   -   781.4 547.0

Total

$ 472.1 $ 277.9 $ 924.9 $ 634.7 $ 305.2 $ 115.7 $ 1,702.2 $ 1,028.3 $ 4,079.9 $ 3,561.1 $ 5,782.1 $ 4,589.4

For additional information regarding credit exposure to OTC derivative contracts, refer to Note 7, Derivative Financial Instruments, in our consolidated financial statements included within this Annual Report on Form 10-K.

Country Risk Exposure

Country risk is the risk that events or developments that occur in the general environment of a country or countries due to economic, political, social, regulatory, legal or other factors, will affect the ability of obligors of the country to honor their obligations. We define country risk as the country of jurisdiction or domicile of the obligor. The following tables reflect our top exposure at November 30, 2014 and November 30, 2013 to the sovereign governments, corporations and financial institutions in those non-U.S. countries in which we have a net long issuer and counterparty exposure (in millions):

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November 30, 2014
Issuer Risk Counterparty Risk Issuer and Counterparty Risk
Fair Value of
Long Debt
Securities
Fair Value of
Short Debt
Securities
Net Derivative
Notional
Exposure
Loans
and
Lending
Securities
and Margin
Finance
OTC
Derivatives
Cash and
Cash
Equivalents
Excluding
Cash and Cash
Equivalents
Including
Cash and
Cash
Equivalents

Germany

$ 357.6 $ (153.7 $ 196.1 $ -   $ 97.8 $ 16.8 $ 59.5 $ 514.6 $ 574.1

Spain

587.2 (171.0 -   0.2 1.2 -   -   417.6 417.6

Great Britain

441.0 (252.5 (25.4 6.5 29.8 25.2 138.9 224.6 363.5

Belgium

137.6 (65.9 (8.4 -   2.5 -   278.7 65.8 344.5

Canada

123.1 (28.8 (27.3 -   120.2 79.6 5.3 266.8 272.1

Netherlands

341.4 (121.0 (13.5 -   5.4 -   -   212.3 212.3

Italy

1,467.9 (880.1 (427.7 -   -   0.3 -   160.4 160.4

Hong Kong

18.4 (8.5 -   -   0.6 -   145.1 10.5 155.6

Luxembourg

5.6 (6.9 2.9 -   0.4 -   127.2 2.0 129.2

Puerto Rico

108.2 -   -   -   -   0.8 -   109.0 109.0

Total

$ 3,588.0 $ (1,688.4 $ (303.3 $ 6.7 $ 257.9 $ 122.7 $ 754.7 $ 1,983.6 $ 2,738.3

November 30, 2013
Issuer Risk Counterparty Risk Issuer and Counterparty Risk
Fair Value of
Long Debt
Securities
Fair Value of
Short Debt
Securities
Net Derivative
Notional
Exposure
Loans
and
Lending
Securities
and Margin
Finance
OTC
Derivatives
Cash and
Cash
Equivalents
Excluding
Cash and Cash
Equivalents
Including
Cash and
Cash
Equivalents

Great Britain

$ 418.8 $ (181.5 $ (27.2 $ -   $ 42.5 $ 20.7 $ 113.1 $ 273.3 $ 386.4

Germany

462.0 (226.1 (70.5 -   93.2 10.9 3.3 269.5 272.8

Netherlands

445.7 (198.8 (2.3 -   5.2 1.5 0.3 251.3 251.6

Italy

1,181.4 (1,017.6 74.2 -   1.8 0.1 -   239.9 239.9

Canada

140.6 (59.0 18.8 -   99.5 0.2 2.2 200.1 202.3

Spain

352.3 (159.8 0.3 -   3.0 0.2 0.1 196.0 196.1

Puerto Rico

130.1 -   -   -   -   -   -   130.1 130.1

Luxembourg

75.0 (15.1 -   -   0.1 -   68.0 60.0 128.0

Hong Kong

33.9 (18.3 (0.9 -   0.3 -   104.3 15.0 119.3

Austria

130.2 (32.8 -   -   5.0 -   0.1 102.4 102.5

Total

$ 3,370.0 $ (1,909.0 $ (7.6 $ -   $ 250.6 $ 33.6 $ 291.4 $ 1,737.6 $ 2,029.0

Exposure to the Sovereign Debt, Corporate and Financial Securities of Greece, Ireland, Italy, Portugal and Spain

The table below reflects our exposure to the sovereign debt and economic derivative positions in Greece, Ireland, Italy, Portugal, and Spain at November 30, 2014, and our exposure to the securities of corporations, financial institutions and mortgage-backed securities collateralized by assets domiciled in these countries. This table is presented in a manner consistent with how management views and monitors these exposures as part of our risk management framework. Our issuer exposure to these European countries arises primarily in the context of our market making activities and our role as a major dealer in the debt securities of these countries. While the economic derivative positions are presented on a notional basis, we believe this best reflects the underlying market risk due to interest rates or the issuer's credit as a result of our positions. Long and short financial instruments are offset against each other for determining net exposure although they do not represent identical offsetting positions of the same debt security. Components of risk embedded in the securities will generally offset, however, basis risk due to duration and the specific issuer may still exist. Economic hedges as represented by the notional amounts of the derivative contracts may not be perfect offsets for the risk represented by the net fair value of the debt securities.

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November 30, 2014
Fair Value Notional Amount
Long Debt
Securities (1) (2)
Short Debt
Securities (2) (3)
Net Cash
Inventory
Long
Derivatives
Short
Derivatives
Net
Derivatives
Total Net
Exposure

Greece:

Sovereigns

$ 1.0 $ 0.3 $ 0.7 $ -   $ -   $ -   $ 0.7

Corporations (4)

7.9 1.3 6.6 -   0.2 (0.2 6.4

Financial Institutions

3.3 -   3.3 -   -   -   3.3

Structured Products

1.4 -   1.4 -   -   -   1.4

Total Greece

13.6 1.6 12.0 -   0.2 (0.2 11.8

Ireland:

Sovereigns

2.4 0.4 2.0 -   -   -   2.0

Corporations

1.7 1.1 0.6 -   -   -   0.6

Financial Institutions

17.1 12.5 4.6 -   -   -   4.6

Structured Products

2.0 -   2.0 -   -   -   2.0

Total Ireland

23.2 14.0 9.2 -   -   -   9.2

Italy:

Sovereigns (5)

1,283.9 858.0 425.9 51.8 479.5 (427.7 (1.8

Corporations

61.3 10.6 50.7 -   -   -   50.7

Financial Institutions

60.2 11.5 48.7 -   -   -   48.7

Structured Products

62.5 -   62.5 -   -   -   62.5

Total Italy

1,467.9 880.1 587.8 51.8 479.5 (427.7 160.1

Portugal:

Sovereigns

72.0 45.3 26.7 -   -   -   26.7

Corporations

-   1.7 (1.7 -   -   -   (1.7

Financial Institutions

2.2 -   2.2 -   -   -   2.2

Structured Products

28.3 -   28.3 -   -   -   28.3

Total Portugal

102.5 47.0 55.5 -   -   -   55.5

Spain:

Sovereigns

270.0 154.9 115.1 -   -   -   115.1

Corporations

18.9 13.0 5.9 -   -   -   5.9

Financial Institutions

111.9 3.1 108.8 -   -   -   108.8

Structured Products

186.4 -   186.4 -   -   -   186.4

Total Spain

587.2 171.0 416.2 -   -   -   416.2

Total

$ 2,194.4 $ 1,113.7 $ 1,080.7 $ 51.8 $ 479.7 $ (427.9 $ 652.8

Total Sovereign

$ 1,629.3 $ 1,058.9 $ 570.4 $ 51.8 $ 479.5 $ (427.7 $ 142.7

Total Non-sovereign

$ 565.1 $ 54.8 $ 510.3 $ -   $ 0.2 $ (0.2 $ 510.1

(1) Long securities represent the fair value of debt securities and are presented within Financial instruments owned-corporate debt securities and government, federal agency and other sovereign obligations and mortgage- and asset-backed securities on the face of the Consolidated Statements of Financial Condition and are accounted for at fair value with changes in fair value recognized in Principal transactions revenues.
(2) Classification of securities by country and by issuer type is presented based on the view of our Risk Management Department. Risk Management takes into account whether a particular security or issuer of a security is guaranteed or otherwise backed by a sovereign government and also takes into account whether a corporate or financial institution that issues a particular security is owned by a sovereign government when determining domicile and whether a particular security should be classified for risk purposes as a sovereign obligation. The classification of debt securities within the table above will differ from the financial statement presentation in the Consolidated Statements of Financial Condition because the classification used for financial statement presentation in the Consolidated Statements of Financial Condition classifies a debt security solely by the direct issuer and the domicile of the direct issuer.
(3) Short securities represent the fair value of debt securities sold short and are presented within Financial instruments sold, not yet purchased - corporate debt securities and government, federal agency and other sovereign obligations on the face of the Consolidated Statements of Financial Condition and are accounted for at fair value with changes in fair value recognized in Principal transactions revenues.
(4) These derivative contract positions are comprised of listed equity options.
(5) These derivative contract positions are comprised of bond futures that are executed on exchanges outside Italy.

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For the quarter ended November 30, 2014, our exposure to the sovereign debt of Greece, Ireland, Italy, Portugal and Spain calculated on an average daily basis was as follows (in millions):

Remaining Maturity
Less Than One Year
Remaining Maturity
Greater Than or Equal
to One Year
Total Average Balance

Financial instruments owned - Debt securities

Greece

$ -   $ 4.1 $ 4.1

Ireland

1.3 6.5 7.8

Italy

675.6 1,841.9 2,517.5

Portugal

6.7 106.2 112.9

Spain

125.9 304.6 430.5

Total average fair value of long debt securities (1)

809.5 2,263.3 3,072.8

Financial instruments sold - Debt securities

Greece

-   2.8 2.8

Ireland

0.5 3.8 4.3

Italy

537.0 1,113.1 1,650.1

Portugal

3.0 80.5 83.5

Spain

3.1 301.7 304.8

Total average fair value of short debt securities

543.6 1,501.9 2,045.5

Total average net fair value of debt securities

265.9 761.4 1,027.3

Derivative contracts - long notional exposure Italy

-   103.6  (2)  103.6

Total average notional amount - long

-   103.6 103.6

Derivative contracts - short notional exposure Italy

-   297.9  (2)  297.9

Total average notional amount - short

-   297.9 297.9

Total average net derivative notional exposure

-   (194.3 (194.3

Total average net exposure to select European countries

$ 265.9 $ 567.1 $ 833.0

(1) Classification of securities by country and by issuer type is presented based on the view of our Risk Management Department. Risk Management takes into account whether a particular security or issuer of a security is guaranteed or otherwise backed by a sovereign government and also takes into account whether a corporate or financial institution that issues a particular security is owned by a sovereign government when determining domicile and whether a particular security should be classified for risk purposes as a sovereign obligation. The classification of debt securities within the table above will differ from the financial statement presentation in the Consolidated Statements of Financial Condition because the classification used for financial statement presentation in the Consolidated Statements of Financial Condition classifies a debt security solely by the direct issuer and the domicile of the direct issuer.
(2) These positions are comprised of bond futures executed on exchanges outside Italy.

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In addition, our non-U.S. sovereign obligations recorded in Financial Instruments owned and financial instruments sold, not yet purchased are routinely financed through reverse repurchase agreements and repurchase agreements, of which a significant portion are executed with central clearing organizations. Accordingly, we utilize foreign sovereign obligations as underlying collateral for our repurchase financing arrangements. At November 30, 2014, repurchase financing arrangements that are used to finance the debt securities presented above had underlying collateral of issuers domiciled in Greece, Ireland, Italy, Portugal and Spain as follows (in millions):

November 30, 2014
Reverse Repurchase
Agreements (1)
Repurchase
Agreements (1)
Net

Greece

$ -   $ -   $ -  

Ireland

5.2 81.0 (75.8

Italy

1,081.3 1,533.2 (451.9

Portugal

35.5 57.3 (21.8

Spain

159.1 513.4 (354.3

Total

$ 1,281.1 $ 2,184.9 $ (903.8

(1) Amounts represent the contract amount of the repurchase financing arrangements.

Our collateral management of the risk due to exposure from these sovereign obligations is subject to our overall collateral and cash management risk framework. For further discussion regarding our cash and liquidity management framework and processes, see the "Liquidity, Financial Condition and Capital Resources" section herein.

Operational Risk

Operational risk refers to the risk of loss resulting from our operations, including, but not limited to, improper or unauthorized execution and processing of transactions, deficiencies in our operating systems, business disruptions and inadequacies or breaches in our internal control processes. Our businesses are highly dependent on our ability to process, on a daily basis, a large number of transactions across numerous and diverse markets in many currencies. In addition, the transactions we process have become increasingly complex. If our financial, accounting or other data processing systems do not operate properly or are disabled or if there are other shortcomings or failures in our internal processes, people or systems, we could suffer an impairment to our liquidity, financial loss, a disruption of our businesses, liability to clients, regulatory intervention or reputational damage.

These systems may fail to operate properly or become disabled as a result of events that are wholly or partially beyond our control, including a disruption of electrical or communications services or our inability to occupy one or more of our buildings. The inability of our systems to accommodate an increasing volume of transactions could also constrain our ability to expand our businesses. We also face the risk of operational failure or termination of any of the clearing agents, exchanges, clearing houses or other financial intermediaries we use to facilitate our securities transactions. Any such failure or termination could adversely affect our ability to effect transactions and manage our exposure to risk. In addition, despite the contingency plans we have in place, our ability to conduct business may be adversely impacted by a disruption in the infrastructure that supports our businesses and the communities in which they are located. This may include a disruption involving electrical, communications, transportation or other services used by us or third parties with which we conduct business.

Our operations rely on the secure processing, storage and transmission of confidential and other information in our computer systems and networks. Although we take protective measures and endeavor to modify them as circumstances warrant, our computer systems, software and networks may be vulnerable to unauthorized access, computer viruses or other malicious code, and other events that could have a security impact. If one or more of such events occur, this potentially could jeopardize our or our clients' or counterparties' confidential and other information processed and stored in, and transmitted through, our computer systems and networks, or otherwise cause interruptions or malfunctions in our, our clients', our counterparties' or third parties' operations. We may be required to expend significant additional resources to modify our protective measures or to investigate and remediate vulnerabilities or other exposures, and we may be subject to litigation and financial losses that are either not insured against or not fully covered through any insurance maintained by us.

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Our Operational Risk framework includes governance, collection of operational risk incidents, proactive operational risk management, and periodic review and analysis of business metrics to identify and recommend controls and process-related enhancements.

Each revenue producing and support department is responsible for the management and reporting of operational risks and the implementation of the Operational Risk policy and processes within the department. Operational Risk policy, framework, infrastructure, methodology, processes, guidance and oversight of the operational risk processes are centralized and consistent firm wide and also subject to regional operational risk governance.

Legal and Compliance Risk

Legal and compliance risk includes the risk of noncompliance with applicable legal and regulatory requirements. We are subject to extensive regulation in the different jurisdictions in which we conduct our business. We have various procedures addressing issues such as regulatory capital requirements, sales and trading practices, use of and safekeeping of customer funds, credit granting, collection activities, anti-money laundering and record keeping. These risks also reflect the potential impact that changes in local and international laws and tax statutes have on the economics and viability of current or future transactions. In an effort to mitigate these risks, we continuously review new and pending regulations and legislation and participate in various industry interest groups. We also maintain an anonymous hotline for employees or others to report suspected inappropriate actions by us or by our employees or agents.

New Business Risk

New business risk refers to the risks of entering into a new line of business or offering a new product. By entering a new line of business or offering a new product, we may face risks that we are unaccustomed to dealing with and may increase the magnitude of the risks we currently face. The New Business Committee reviews proposals for new businesses and new products to determine if we are prepared to handle the additional or increased risks associated with entering into such activities.

Reputational Risk

We recognize that maintaining our reputation among clients, investors, regulators and the general public is an important aspect of minimizing legal and operational risks. Maintaining our reputation depends on a large number of factors, including the selection of our clients and the conduct of our business activities. We seek to maintain our reputation by screening potential clients and by conducting our business activities in accordance with high ethical standards. Our reputation and business activity can be affected by statements and actions of third parties, even false or misleading statements by them. We actively monitor public comment concerning us and are vigilant in seeking to assure accurate information and perception prevails.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Quantitative and qualitative disclosures about market risk are set forth under "Management's Discussion and Analysis of Financial Condition and Results of Operations -Risk Management" in Part II, Item 7 of this Form 10-K.

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Item 8. Financial Statements and Supplementary Data.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Management's Report on Internal Control over Financial Reporting

59

Report of Independent Registered Public Accounting Firm

60

Report of Independent Registered Public Accounting Firm

61

Report of Independent Registered Public Accounting Firm

62

Consolidated Statements of Financial Condition at November 30, 2014 and 2013

63

Consolidated Statements of Earnings for the Year Ended November 30, 2014, Nine Months Ended November  30, 2013, Three Months Ended February 28, 2013 and for the Year Ended November 30, 2012

64

Consolidated Statements of Comprehensive Income for the Year ended November  30, 2014, Nine Months Ended November 30, 2013, Three Months Ended February 28, 2013 and for the Year Ended November 30, 2012

65

Consolidated Statements of Changes in Equity for the Year Ended November  30, 2014, Nine Months Ended November 30, 2013, Three Months Ended February 28, 2013 and for the Year Ended November 30, 2012

66

Consolidated Statements of Cash Flows for the Year Ended November  30, 2014, Nine Months Ended November 30, 2013, Three Months Ended February 28, 2013 and for the Year Ended November 30, 2012

67

Notes to Consolidated Financial Statements

69

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Management's Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management evaluated our internal control over financial reporting as of November 30, 2014. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework (2013) . As a result of this assessment and based on the criteria in this framework, management has concluded that, as of November 30, 2014, our internal control over financial reporting was effective.

PricewaterhouseCoopers LLP, our independent registered public accounting firm, has audited and issued a report on our internal control over financial reporting, which appears on page 60.

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Member of Jefferies Group LLC

In our opinion, the accompanying consolidated statement of financial condition as of November 30, 2014 and 2013 and the related consolidated statements of earnings, of comprehensive income, of changes in equity, and of cash flows for the year ended November 30, 2014 and the nine months ended November 30, 2013 present fairly, in all material respects, the financial position of Jefferies Group LLC and its subsidiaries (Successor company) at November 30, 2014 and 2013 and the results of their operations and their cash flows for the year ended November 30, 2014 and the nine months ended November 30, 2013 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of November 30, 2014, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on these financial statements and on the Company's internal control over financial reporting based on our integrated audits). We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

New York, New York

January 28, 2015

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Report of Independent Registered Public Accounting Firm

To Board of Directors and Shareholders of Jefferies Group, Inc.

In our opinion, the consolidated statements of earnings, of comprehensive income, of changes in equity and of cash flows of Jefferies Group, Inc. and its subsidiaries (Predecessor company) for the three months ended February 28, 2013 present fairly, in all material respects, the results of operations and cash flows of Jefferies Group, Inc. and its subsidiaries for the three months ended February 28, 2013, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

New York, New York

January 28,2015

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Member of Jefferies Group LLC:

We have audited the consolidated statement of earnings, comprehensive income, stockholders' equity, and cash flow of Jefferies Group LLC (formerly Jefferies Group, Inc.) and subsidiaries (the "Company") for the year ended November 30, 2012. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the results of Jefferies Group LLC operations and cash flows for the years ended November 30, 2012, in conformity with accounting principles generally accepted in the United States of America.

/s/ DELOITTE & TOUCHE LLP

New York, New York

January 28, 2013 (January 28, 2014 as to the effects discussed in Note 1-Immaterial Prior Year Adjustments included in the Annual Report on Form 10-K of Jefferies Group LLC and its subsidiaries for the year ended November 30, 2013)

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CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(In thousands)

November 30, November 30,
2014 2013

ASSETS

Cash and cash equivalents ($178 and $176 at November 30, 2014 and November 30, 2013, respectively, related to consolidated VIEs)

$ 4,079,968 $ 3,561,119

Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations

3,444,674 3,616,602

Financial instruments owned, at fair value, (including securities pledged of $14,794,488 and $13,253,537 at November 30, 2014 and November 30, 2013, respectively; and $62,990 and $97,912 at November 30, 2014 and November 30, 2013, respectively, related to consolidated VIEs)

18,636,612 16,650,043

Investments in managed funds

74,365 57,285

Loans to and investments in related parties

773,141 701,873

Securities borrowed

6,853,103 5,359,846

Securities purchased under agreements to resell

3,926,858 3,746,920

Securities received as collateral

5,418 11,063

Receivables:

Brokers, dealers and clearing organizations

2,164,006 2,207,978

Customers

1,250,520 958,246

Fees, interest and other ($363 and $0 at November 30, 2014 and November 30, 2013, respectively, related to consolidated VIEs)

262,437 251,072

Premises and equipment

251,957 202,467

Goodwill

1,662,636 1,722,346

Other assets ($0 and $2,275 at November 30, 2014 and November 30, 2013, respectively, related to consolidated VIEs)

1,131,953 1,130,136

Total assets

$ 44,517,648 $ 40,176,996

LIABILITIES AND EQUITY

Short-term borrowings

$ 12,000 $ 12,000

Financial instruments sold, not yet purchased, at fair value

8,881,268 7,271,613

Collateralized financings:

Securities loaned

2,598,487 2,506,122

Securities sold under agreements to repurchase

10,672,157 10,779,845

Other secured financings ($597,999 and $226,000 at November 30, 2014 and November 30, 2013, respectively, related to consolidated VIEs)

605,824 234,711

Obligation to return securities received as collateral

5,418 11,063

Payables:

Brokers, dealers and clearing organizations

2,280,103 1,320,700

Customers

6,241,965 5,169,321

Accrued expenses and other liabilities ($589 and $706 at November 30, 2014 and November 30, 2013, respectively, related to consolidated VIEs)

1,273,378 1,217,141

Long-term debt

6,483,617 6,232,806

Total liabilities

39,054,217 34,755,322

EQUITY

Member's paid-in capital

5,439,256 5,280,420

Accumulated other comprehensive income:

Currency translation adjustments

(9,654 21,341

Additional minimum pension liability

(5,019 2,759

Total accumulated other comprehensive income

(14,673 24,100

Total member's equity

5,424,583 5,304,520

Noncontrolling interests

38,848 117,154

Total equity

5,463,431 5,421,674

Total liabilities and equity

$ 44,517,648 $ 40,176,996

See accompanying notes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands, except per share amounts)

Successor Predecessor
Year Ended Nine Months Ended Three Months Ended Year Ended
November 30, 2014 November 30, 2013 February 28, 2013 November 30, 2012

Revenues:

Commissions

$ 668,801 $ 472,596 $ 146,240 $ 548,437

Principal transactions

532,292 399,091 300,278 1,035,974

Investment banking

1,529,274 1,003,517 288,278 1,125,883

Asset management fees and investment income from managed funds

17,047 36,093 10,883 26,966

Interest

1,019,970 714,248 249,277 1,031,839

Other

78,881 94,195 27,004 164,974

Total revenues

3,846,265 2,719,740 1,021,960 3,934,073

Interest expense

856,127 579,059 203,416 872,421

Net revenues

2,990,138 2,140,681 818,544 3,061,652

Interest on mandatorily redeemable preferred interests of consolidated subsidiaries

-   3,368 10,961 42,883

Net revenues, less interest on mandatorily redeemable preferred interests of consolidated subsidiaries

2,990,138 2,137,313 807,583 3,018,769

Non-interest expenses:

Compensation and benefits

1,698,530 1,213,908 474,217 1,770,798

Non-compensation expenses:

Floor brokerage and clearing fees

215,329 150,774 46,155 183,013

Technology and communications

268,212 193,683 59,878 244,511

Occupancy and equipment rental

107,767 86,701 24,309 97,397

Business development

106,984 63,115 24,927 95,330

Professional services

109,601 72,802 24,135 73,427

Bad debt provision

55,355 179 1,945 1,152

Goodwill impairment

54,000 -   -   -  

Other

71,339 91,856 12,530 61,346

Total non-compensation expenses

988,587 659,110 193,879 756,176

Total non-interest expenses

2,687,117 1,873,018 668,096 2,526,974

Earnings before income taxes

303,021 264,295 139,487 491,795

Income tax expense

142,061 94,686 48,645 168,646

Net earnings

160,960 169,609 90,842 323,149

Net earnings attributable to noncontrolling interests

3,400 8,418 10,704 40,740

Net earnings attributable to Jefferies Group LLC/common stockholders

$ 157,560 $ 161,191 $ 80,138 $ 282,409

Earnings per common share:

Basic

N/A N/A $ 0.35 $ 1.23

Diluted

N/A N/A $ 0.35 $ 1.22

Dividends declared per common share

N/A N/A $ 0.075 $ 0.300

Weighted average common shares:

Basic

N/A N/A 213,732 215,989

Diluted

N/A N/A 217,844 220,101

See accompanying notes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

Successor Predecessor
Year Ended Nine Months Ended Three Months Ended Year Ended
November 30, 2014 November 30, 2013 February 28, 2013 November 30, 2012

Net earnings

$ 160,960 $ 169,609 $ 90,842 $ 323,149

Other comprehensive income (loss), net of tax:

Currency translation adjustments

(30,995 21,341 (10,018 1,511

Minimum pension liability adjustments, net of tax (1)

(7,778 2,759 -   (4,158

Total other comprehensive income (loss), net of tax (2)

(38,773 24,100 (10,018 (2,647

Comprehensive income:

122,187 193,709 80,824 320,502

Net earnings attributable to noncontrolling interests

3,400 8,418 10,704 40,740

Comprehensive income attributable to Jefferies Group LLC/common stockholders

$ 118,787 $ 185,291 $ 70,120 $ 279,762

(1) Includes income tax benefit of $0.5 million, $2.5 million, $-0- and $0.2 million for the year ended November 30, 2014, nine months ended November 30, 2013, three months ended February 28, 2013, and for the year ended November 30, 2012.
(2) None of the components of other comprehensive income (loss) are attributable to noncontrolling interests.

See accompanying notes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(In thousands, except per share amount)

Successor Predecessor
Year Ended Nine Months Ended Three Months Ended Year Ended
November 30, 2014 November 30, 2013 February 28, 2013 November 30, 2012

Common stock, par value $0.0001 per share

Balance, beginning of period

$ -   $ -   $ 20 $ 20

Issued

-   -   1 1

Retired

-   -   -   (1

Balance, end of period

$ -   $ -   $ 21 $ 20

Member's paid-in capital

Balance, beginning of period

$ 5,280,420 $ 4,754,101 $ -   $ -  

Contributions

-   362,255 -   -  

Net earnings to Jefferies Group LLC

157,560 161,191 -   -  

Tax benefit for issuance of share-based awards

1,276 2,873 -   -  

Balance, end of period

$ 5,439,256 $  5,280,420 $ -   $ -  

Additional paid-in capital

Balance, beginning of period

$ -   $ -   $ 2,219,959 $ 2,207,410

Benefit plan share activity (1)

-   -   3,138 12,076

Share-based expense, net of forfeitures and clawbacks

-   -   22,288 83,769

Proceeds from exercise of stock options

-   -   57 104

Acquisitions and contingent consideration

-   -   2,535 -  

Tax (deficiency) benefit for issuance of share-based awards

-   -   (17,965 19,789

Equity component of convertible debt, net of tax

-   -   -   (427

Dividend equivalents on share-based plans

-   -   1,418 6,531

Retirement of treasury stock

-   -   -   (109,293

Balance, end of period

$ -   $ -   $ 2,231,430 $ 2,219,959

Retained earnings

Balance, beginning of period

$ -   $ -   $ 1,281,855 $ 1,067,858

Net earnings to common shareholders

-   -   80,138 282,409

Dividends

-   -   (17,217 (68,412

Balance, end of period

$ -   $ -   $ 1,344,776 $ 1,281,855

Accumulated other comprehensive income (loss) (2) (3)

Balance, beginning of period

$ 24,100 $ -   $ (53,137 $ (50,490

Currency adjustment

(30,995 21,341 (10,018 1,511

Pension adjustment, net of tax

(7,778 2,759 -   (4,158

Balance, end of period

$ (14,673 $ 24,100 $ (63,155 $ (53,137

Treasury stock, at cost

Balance, beginning of period

$ -   $ -   $ (12,682 $ (486

Purchases

-   -   (166,541 (113,562

Returns / forfeitures

-   -   (1,922 (7,928

Retirement of treasury stock

-   -   -   109,294

Balance, end of period

$ -   $ -   $ (181,145 $ (12,682

Total member's / common stockholders' equity

$ 5,424,583 $  5,304,520 $ 3,331,927 $ 3,436,015

Noncontrolling interests

Balance, beginning of period

$ 117,154 $ 356,180 $ 346,738 $ 312,663

Net earnings attributable to noncontrolling interests

3,400 8,418 10,704 40,740

Contributions

39,075 100,210 -   -  

Distributions

-   (25 (1,262 (13,570

Redemptions

-   (347,629 -   -  

(Deconsolidation) Consolidation of asset management entity

(120,781 -   -   6,905

Balance, end of period

$ 38,848 $ 117,154 $ 356,180 $ 346,738

Total equity

$ 5,463,431 $ 5,421,674 $ 3,688,107 $ 3,782,753

(1) Includes grants related to the Incentive Plan, Deferred Compensation Plan and Directors' Plan.
(2) The components of other comprehensive income (loss) are attributable to Jefferies Group LLC (formerly Jefferies Group, Inc.). None of the components of other comprehensive income (loss) are attributable to noncontrolling interests.
(3) There were no reclassifications out of Accumulated other comprehensive income during the year ended November 30, 2014 and nine months ended November 30, 2013.

See accompanying notes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Successor Predecessor
Year Ended Nine Months Ended Three Months Ended Year Ended
November 30, 2014 November 30, 2013 February 28, 2013 November 30, 2012

Cash flows from operating activities:

Net earnings

$ 160,960 $ 169,609 $ 90,842 $ 323,149

Adjustments to reconcile net earnings to net cash (used in) provided by operating activities:

Depreciation and amortization

691 (2,509 17,393 72,692

Goodwill impairment

54,000 -   -   -  

Gain on repurchase of long-term debt

-   -   -   (9,898

Gain on sale of mortgage servicing rights

-   -   -   (23,826

Interest on mandatorily redeemable preferred interests of consolidated subsidiaries

-   3,368 10,961 42,883

Accruals related to various benefit plans and stock issuances, net of forfeitures

-   -   23,505 87,918

Deferred income taxes

122,195 31,284 30,835 84,643

Income on loans to and investments in related parties

(90,243 (92,181 -   -  

Distributions received on investments in related parties

53,985 37,742 -   -  

Other adjustments

(78,064 (14,740 (1,154 (7,462

Net change in assets and liabilities:

Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations

166,108 113,754 352,891 (738,117

Receivables:

Brokers, dealers and clearing organizations

11,872 506,774 (1,225,840 (101,903

Customers

(294,412 (170,286 67,626 200,679

Fees, interest and other

(12,062 (29,388 (29,149 (33,694

Securities borrowed

(1,497,438 (41,678 (224,557 75,379

Financial instruments owned

(2,243,053 (200,974 229,394 52,737

Loans to and investments in related parties

-   -   (197,166 7,302

Investments in managed funds

13,473 2,674 (2,213 12,977

Securities purchased under agreements to resell

(200,568 (156,197 (224,418 (463,829

Other assets

(146,114 47,296 (5,346 (22,178

Payables:

Brokers, dealers and clearing organizations

968,615 (532,255 (1,018,241 (82,031

Customers

1,089,423 (224,772 (124,233 804,539

Securities loaned

95,607 600,539 (28,138 227,737

Financial instruments sold, not yet purchased

1,832,930 (2,511,777 2,327,667 801,971

Securities sold under agreements to repurchase

(84,303 2,794,412 (197,493 (1,439,130

Accrued expenses and other liabilities

69,459 414,515 (267,336 316,367

Net cash (used in) provided by operating activities

(6,939 745,210 (394,170 188,905

Cash flows from investing activities:

Contributions to loans to and investments in related parties

(2,786,394 (2,241,232 -   -  

Distributions from loans to and investments in related parties

2,751,384 2,360,691 -   -  

Net payments on premises and equipment

(110,536 (48,534 (10,706 (63,236

Cash received in connection with acquisition during the period, net of cash acquired

-   -   -   2,257

Cach disposed in connection with disposal of reporting units, net of cash received

-   (4,939 -   -  

Cash received from sales of mortgage servicing rights

-   -   -   30,851

(Deconsolidation) consolidation of asset management entity

(137,856 -   -   9,711

Cash received from contingent consideration

6,253 3,796 1,203 4,104

Cash paid from contingent consideration

-   -   -   (1,172

Net cash (used in) provided by investing activities

(277,149 69,782 (9,503 (17,485

Continued on next page.

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JEFFERIES GROUP LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS – CONTINUED

(In thousands)

Successor Predecessor
Year Ended Nine Months Ended Three Months Ended Year Ended
November 30, 2014 November 30, 2013 February 28, 2013 November 30, 2012

Cash flows from financing activities:

Excess tax benefits from the issuance of share-based awards

$ 1,921 $ 3,054 $ 5,682 $ 31,413

Proceeds from short-term borrowings

18,965,163 13,623,650 6,744,000 12,912,063

Payments on short-term borrowings

(18,965,163 (13,711,650 (6,794,000 (12,819,557

Proceeds from secured credit facility

2,819,000 920,000 900,000 1,325,000

Payments on secured credit facility

(2,849,000 (980,000 (990,007 (1,075,000

Repayment of long-term debt

(250,000 -   -   (253,232

Net proceeds from other secured financings

371,113 114,711 60,000 -  

Payments on repurchase of long-term debt

-   -   -   (1,435

Payments on mandatorily redeemable preferred interest of consolidated subsidiaries

-   (64 (61 (5,366

Payments on repurchase of common stock

-   -   (166,541 (113,562

Payments on dividends

-   -   (15,799 (61,881

Proceeds from exercise of stock options, not including tax benefits

-   -   57 104

Net proceeds from issuance of senior notes, net of issuance costs

681,222 -   991,469 201,010

Proceeds from contributions of noncontrolling interests

39,075 100,210 -   -  

Payments on distributions to noncontrolling interests

-   (347,654 (1,262 (13,570

Net cash provided by (used in) financing activities

813,331 (277,743 733,538 125,987

Effect of exchange rate changes on cash and cash equivalents

(10,394 5,912 (4,502 1,391

Net increase in cash and cash equivalents

518,849 543,161 325,363 298,798

Cash and cash equivalents at beginning of period

3,561,119 3,017,958 2,692,595 2,393,797

Cash and cash equivalents at end of period

$ 4,079,968 $ 3,561,119 $ 3,017,958 $ 2,692,595

Supplemental disclosures of cash flow information:

Cash paid (received) during the period for:

Interest

$ 922,194 $ 638,657 $ 178,836 $ 869,354

Income taxes paid (refunds), net

120,703 55,251 (34,054 43,113

Noncash financing activities:

In connection with the transaction with Leucadia National Corporation, Jefferies Group LLC recorded accounting adjustments for the Leucadia Transaction, which resulted in changes to equity. Refer to Note 4, Leucadia and Related Transactions, for further details.

On March 31, 2013, Leucadia contributed its mandatorily redeemable preferred interests in JHYH to Jefferies Group, LLC. The contribution was recorded as a capital contribution and increased member's equity by $362.3 million. Refer to Note 4, Leucadia and Related Transactions, for further details.

See accompanying notes to consolidated financial statements.

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JEFFERIES GROUP LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Index

Note Page

Note 1. Organization and Basis of Presentation

70

Note 2. Summary of Significant Accounting Policies

71

Note 3. Accounting Developments

79

Note 4. Leucadia and Related Transactions

81

Note 5. Acquisition

83

Note 6. Fair Value Disclosures

83

Note 7. Derivative Financial Instruments

101

Note 8. Collateralized Transactions

106

Note 9. Securitization Activities

109

Note 10. Variable Interest Entities

110

Note 11. Investments

114

Note 12. Goodwill and Other Intangible Assets

117

Note 13. Short-Term Borrowings

120

Note 14. Long-Term Debt

120

Note 15. Mandatorily Redeemable Convertible Preferred Stock

122

Note 16. Noncontrolling Interests and Mandatorily Redeemable Preferred Interests of Consolidated Subsidiaries

123

Note 17. Benefit Plans

124

Note 18. Compensation Plans

129

Note 19. Non-Interest Expenses

131

Note 20. Earnings per Share

131

Note 21. Income Taxes

132

Note 22. Commitments, Contingencies and Guarantees

136

Note 23. Net Capital Requirements

139

Note 24. Segment Reporting

140

Note 25. Related Party Transactions

142

Note 26. Selected Quarterly Financial Data (Unaudited)

144

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Note 1. Organization and Basis of Presentation

Organization

Jefferies Group LLC and its subsidiaries operate as a global full service, integrated securities and investment banking firm. Jefferies Group LLC was previously known as Jefferies Group, Inc., which on March 1, 2013 was converted into a limited liability company and renamed Jefferies Group LLC. In addition, certain subsidiaries of Jefferies Group, Inc. also converted into limited liability companies. The accompanying Consolidated Financial Statements therefore refer to Jefferies Group LLC and represent the accounts of Jefferies Group, Inc., as it was formerly known, and all our subsidiaries (together "we" or "us"). The subsidiaries of Jefferies Group LLC include Jefferies LLC ("Jefferies"), Jefferies Execution Services, Inc. ("Jefferies Execution"), Jefferies International Limited, Jefferies Bache Limited, Jefferies Hong Kong Limited, Jefferies Bache Financial Services, Inc., Jefferies Mortgage Funding, LLC and Jefferies Leveraged Credit Products, LLC and all other entities in which we have a controlling financial interest or are the primary beneficiary.

On March 1, 2013, Jefferies Group LLC, through a series of transactions, became an indirect wholly owned subsidiary of Leucadia National Corporation ("Leucadia") (referred to herein as the "Leucadia Transaction"). Each outstanding share of Jefferies Group LLC was converted into 0.81 of a share of Leucadia common stock (the "Exchange Ratio"). Leucadia did not assume nor guarantee any of our outstanding debt securities. Our 3.875% Convertible Senior Debentures due 2029 are now convertible into Leucadia common shares at a price that reflects the Exchange Ratio and the 3.25% Series A Convertible Cumulative Preferred Stock of Jefferies Group, Inc. was exchanged for a comparable series of convertible preferred shares of Leucadia. Jefferies Group LLC continues to operate as a full-service investment banking firm and as the holding company of its various regulated and unregulated operating subsidiaries, retain a credit rating separate from Leucadia and remain a Securities and Exchange Commission ("SEC") reporting company, filing annual, quarterly and periodic financial reports. Richard Handler, our Chief Executive Officer and Chairman, is also the Chief Executive Officer of Leucadia, as well as a Director of Leucadia. Brian P. Friedman, our Chairman of the Executive Committee, is also Leucadia's President and a Director of Leucadia.

We operate in two business segments, Capital Markets and Asset Management. Capital Markets, which represents substantially our entire business, includes our securities, commodities, futures and foreign exchange trading and investment banking activities, which provides the research, sales, trading, origination and advisory effort for various equity, fixed income and advisory products and services. Asset Management provides investment management services to various private investment funds and separate accounts.

On September 1, 2014, Jefferies Bache, LLC merged with and into Jefferies (a broker-dealer in the United States of America ("U.S.")), with Jefferies as the surviving entity. In addition, on April 1, 2013, we merged Jefferies High Yield Trading, LLC (our high yield trading broker-dealer) with Jefferies and our high yield activities are now conducted by Jefferies. In addition, during the three months ended May 31, 2013, we redeemed the third party interests in our high yield joint venture.

Basis of Presentation

The accompanying Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") for financial information.

As more fully described in Note 4, Leucadia and Related Transactions, the Leucadia Transaction is accounted for using the acquisition method of accounting, which requires that the assets, including identifiable intangible assets, and liabilities of Jefferies Group LLC be recorded at their fair values. The application of the acquisition method of accounting has been pushed down and reflected in the financial statements of Jefferies Group LLC as a wholly-owned subsidiary of Leucadia. The application of push down accounting represents the termination of the prior reporting entity and the creation of a new reporting entity, which do not have the same bases of accounting. As a result, our consolidated financial statements are presented for periods subsequent to March 1, 2013 for the new reporting entity (the "Successor"), and before March 1, 2013 for the prior reporting entity (the "Predecessor.") The Predecessor and Successor periods are separated by a vertical line to highlight the fact that the financial information for such periods has been prepared under two different cost bases of accounting.

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We have made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with U.S. GAAP. The most important of these estimates and assumptions relate to fair value measurements, compensation and benefits, goodwill and intangible assets, the ability to realize deferred tax assets and the recognition and measurement of uncertain tax positions. Although these and other estimates and assumptions are based on the best available information, actual results could be materially different from these estimates.

Cash Flow Statement Presentation

Amounts relating to loans and investments in related parties are classified as components of investing activities on the Consolidated Statements of Cash Flows to conform to the presentation of our Parent company in connection with the establishment of a new accounting entity through the application of push down accounting. These amounts are classified by the Predecessor entity as operating activities for reporting periods prior to the Leucadia Transaction.

Consolidation

Our policy is to consolidate all entities in which we control by ownership a majority of the outstanding voting stock. In addition, we consolidate entities which meet the definition of a variable interest entity ("VIE") for which we are the primary beneficiary. The primary beneficiary is the party who has the power to direct the activities of a VIE that most significantly impact the entity's economic performance and who has an obligation to absorb losses of the entity or a right to receive benefits from the entity that could potentially be significant to the entity. For consolidated entities that are less than wholly owned, the third-party's holding of equity interest is presented as Noncontrolling interests in the Consolidated Statements of Financial Condition and Consolidated Statements of Changes in Equity. The portion of net earnings attributable to the noncontrolling interests is presented as Net earnings to noncontrolling interests in the Consolidated Statements of Earnings.

In situations where we have significant influence, but not control, of an entity that does not qualify as a variable interest entity, we apply either the equity method of accounting or fair value accounting pursuant to the fair value option election under U.S. GAAP, with our portion of net earnings or gains and losses recorded within Other revenues or Principal transaction revenues, respectively. We also have formed nonconsolidated investment vehicles with third-party investors that are typically organized as partnerships or limited liability companies and are carried at fair value. We act as general partner or managing member for these investment vehicles and have generally provided the third-party investors with termination or "kick-out" rights.

Intercompany accounts and transactions are eliminated in consolidation.

Immaterial Adjustments

We have made correcting adjustments (referred to as "adjustments") to our financial statements at November 30, 2013. The first adjustment relates to a decrease of $88.7 million to Receivables from customers and a corresponding increase to Receivables from brokers, dealers and clearing organizations. The second adjustment relates to a decrease of $39.4 million to Payables from customers and a corresponding increase to Payables from brokers, dealers and clearing organizations. There was no change to Total assets or Total liabilities at November 30, 2013 as a result of these adjustments. The adjustments had the impact of increasing the Net change in Receivables: Brokers, dealers and clearing organizations by $170.5 million, decreasing the Net change in Receivables: Customers by $170.5 million, decreasing the Net change in Payables: Brokers, dealers and clearing organizations by $24.5 million, and increasing the Net change in Payables: Customers by $24.5 million on the Consolidated Statements of Cash Flows for the nine months ended November 30, 2013. The adjustments had the impact of decreasing the Net change in Receivables: Brokers, dealers and clearing organizations by $198.2 million, increasing the Net change in Receivables: Customers by $198.2 million, increasing the Net change in Payables: Brokers, dealers and clearing organizations by $13.1 million, and decreasing the Net change in Payables: Customers by $13.1 million on the Consolidated Statements of Cash Flows for the three months ended February, 2013. There was no impact on Net cash (used in) provided by operating activities on the Consolidated Statements of Cash Flows for the nine months ended November 30, 2013 and the three months ended February 28, 2013. These adjustments were made in order to classify amounts arising from unsettled securities transactions with other broker dealers. We do not believe these adjustments are material to our financial statements for any previously reported period.

Note 2. Summary of Significant Accounting Policies

Revenue Recognition Policies

Commissions. All customer securities transactions are reported on the Consolidated Statements of Financial Condition on a settlement date basis with related income reported on a trade-date basis. We permit institutional customers to allocate a portion of their gross commissions to pay for research products and other services provided

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by third parties. The amounts allocated for those purposes are commonly referred to as soft dollar arrangements. These arrangements are accounted for on an accrual basis and, as we are not the primary obligor for these arrangements, netted against commission revenues in the Consolidated Statements of Earnings. The commissions and related expenses on client transactions executed by Jefferies, a futures commission merchant ("FCM"), are recorded on a half-turn basis.

Principal Transactions. Financial instruments owned and Financial instruments sold, but not yet purchased (all of which are recorded on a trade-date basis) are carried at fair value with gains and losses reflected in Principal transaction revenues in the Consolidated Statements of Earnings on a trade-date basis. Fees received on loans carried at fair value are also recorded within Principal transaction revenues.

Investment Banking. Underwriting revenues and fees from mergers and acquisitions, restructuring and other investment banking advisory assignments or engagements are recorded when the services related to the underlying transactions are completed under the terms of the assignment or engagement. Expenses associated with such assignments are deferred until reimbursed by the client, the related revenue is recognized or the engagement is otherwise concluded. Expenses are recorded net of client reimbursements and netted against revenues. Unreimbursed expenses with no related revenues are included in Business development and Professional services expenses in the Consolidated Statements of Earnings.

Asset Management Fees and Investment Income From Managed Funds. Asset management fees and investment income from managed funds include revenues we earn from management, administrative and performance fees from funds and accounts managed by us, revenues from management and performance fees we earn from related-party managed funds and investment income from our investments in these funds. We earn fees in connection with management and investment advisory services performed for various funds and managed accounts. These fees are based on assets under management or an agreed upon notional amount and may include performance fees based upon the performance of the funds. Management and administrative fees are generally recognized over the period that the related service is provided. Generally, performance fees are earned when the return on assets under management exceeds certain benchmark returns, "high-water marks" or other performance targets. Performance fees are accrued (or reversed) on a monthly basis based on measuring performance to date versus any relevant benchmark return hurdles stated in the investment management agreement. Performance fees are not subject to adjustment once the measurement period ends (generally annual periods) and the performance fees have been realized.

Interest Revenue and Expense.  We recognize contractual interest on Financial instruments owned and Financial instruments sold, but not yet purchased, on an accrual basis as a component of interest revenue and expense. Interest flows on derivative trading transactions and dividends are included as part of the fair valuation of these contracts and recognized in Principal transaction revenues in the Consolidated Statements of Earnings rather than as a component of interest revenue or expense. We account for our short- and long-term borrowings on an accrual basis with related interest recorded as Interest expense. Discounts/premiums arising on our long-term debt are accreted/amortized to Interest expense using the effective yield method over the remaining lives of the underlying debt obligations. In addition, we recognize interest revenue related to our securities borrowed and securities purchased under agreements to resell activities and interest expense related to our securities loaned and securities sold under agreements to repurchase activities on an accrual basis.

Cash Equivalents

Cash equivalents include highly liquid investments, including certificates of deposit and money market funds, not held for resale with original maturities of three months or less.

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Cash and Securities Segregated and on Deposit for Regulatory Purposes or Deposited With Clearing and Depository Organizations

In accordance with Rule 15c3-3 of the Securities Exchange Act of 1934, Jefferies as a broker-dealer carrying client accounts, is subject to requirements related to maintaining cash or qualified securities in a segregated reserve account for the exclusive benefit of its clients. In addition, certain financial instruments used for initial and variation margin purposes with clearing and depository organizations are recorded in this caption. Jefferies as a futures commission merchant, is obligated by rules mandated by the Commodities Futures Trading Commission under the Commodities Exchange Act, to segregate or set aside cash or qualified securities to satisfy such regulations, which regulations have been promulgated to protect customer assets. Certain other entities are also obligated by rules mandated by their primary regulators to segregate or set aside cash or equivalent securities to satisfy regulations, promulgated to protect customer assets.

Financial Instruments and Fair Value

Financial instruments owned and Financial instruments sold, not yet purchased are recorded at fair value, either as required by accounting pronouncements or through the fair value option election. These instruments primarily represent our trading activities and include both cash and derivative products. Gains and losses are recognized in Principal transaction revenues in our Consolidated Statements of Earnings. The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price).

Fair Value Hierarchy

In determining fair value, we maximize the use of observable inputs and minimize the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from independent sources. Unobservable inputs reflect our assumptions that market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. We apply a hierarchy to categorize our fair value measurements broken down into three levels based on the transparency of inputs as follows:

Level 1: Quoted prices are available in active markets for identical assets or liabilities at the reported date.

Level 2: Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these financial instruments include cash instruments for which quoted prices are available but traded less frequently, derivative instruments whose fair value have been derived using a model where inputs to the model are directly observable in the market, or can be derived principally from or corroborated by observable market data, and instruments that are fair valued using other financial instruments, the parameters of which can be directly observed.

Level 3: Instruments that have little to no pricing observability at the reported date. These financial instruments are measured using management's best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.

Financial instruments are valued at quoted market prices, if available. Certain financial instruments have bid and ask prices that can be observed in the marketplace. For financial instruments whose inputs are based on bid-ask prices, the financial instrument is valued at the point within the bid-ask range that meets our best estimate of fair value. We use prices and inputs that are current at the measurement date. For financial instruments that do not have readily determinable fair values using quoted market prices, the determination of fair value is based upon consideration of available information, including types of financial instruments, current financial information, restrictions on dispositions, fair values of underlying financial instruments and quotations for similar instruments.

The valuation of financial instruments may include the use of valuation models and other techniques. Adjustments to valuations derived from valuation models may be made when, in management's judgment, features of the financial instrument such as its complexity, the market in which the financial instrument is traded and risk uncertainties about market conditions require that an adjustment be made to the value derived from the models. Adjustments from the price derived from a valuation model reflect management's judgment that other participants in the market for the financial instrument being measured at fair value would also consider in valuing that same financial instrument. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment.

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The availability of observable inputs can vary and is affected by a wide variety of factors, including, for example, the type of financial instrument and market conditions. As the observability of prices and inputs may change for a financial instrument from period to period, this condition may cause a transfer of an instrument among the fair value hierarchy levels. Transfers among the levels are recognized at the beginning of each period. The degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3.

Valuation Process for Financial Instruments

Our Independent Price Verification ("IPV") Group, which is part of our Finance department, in partnership with Risk Management, is responsible for establishing our valuation policies and procedures. The IPV Group and Risk Management, which are independent of our business functions, play an important role and serve as a control function in determining that our financial instruments are appropriately valued and that fair value measurements are reliable. This is particularly important where prices or valuations that require inputs are less observable. In the event that observable inputs are not available, the control processes are designed to assure that the valuation approach utilized is appropriate and consistently applied and that the assumptions are reasonable. The IPV Group reports to the Global Controller and is subject to the oversight of the IPV Committee, which is comprised of our Chief Financial Officer, Global Controller, Chief Risk Officer and Principal Accounting Officer, among other personnel. Our independent price verification policies and procedures are reviewed, at a minimum, annually and changes to the policies require the approval of the IPV Committee.

Price Testing Process. The business units are responsible for determining the fair value of our financial instruments using approved valuation models and methodologies. In order to ensure that the business unit valuations represent a fair value exit price, the IPV Group tests and validates the fair value of our financial instruments inventory. In the testing process, the IPV Group obtains prices and valuation inputs from independent sources, consistently adheres to established procedures set forth in our valuation policies for sourcing prices and valuation inputs and utilizing valuation methodologies. Sources used to validate fair value prices and inputs include, but are not limited to, exchange data, recently executed transactions, pricing data obtained from third party vendors, pricing and valuation services, broker quotes and observed comparable transactions.

To the extent discrepancies between the business unit valuations and the pricing or valuations resulting from the price testing process are identified, such discrepancies are investigated by the IPV Group and fair values are adjusted, as appropriate. The IPV Group maintains documentation of its testing, results, rationale and recommendations and prepares a monthly summary of its valuation results. This process also forms the basis for our classification of fair values within the fair value hierarchy ( i.e., Level 1, Level 2 or Level 3). The IPV Group utilizes the additional expertise of Risk Management personnel in valuing more complex financial instruments and financial instruments with less or limited pricing observability. The results of the valuation testing are reported to the IPV Committee on a monthly basis, which discusses the results and is charged with the final conclusions as to the financial instrument fair values in the consolidated financial statements. This process specifically assists the Chief Financial Officer in asserting as to the fair presentation of our financial condition and results of operations as included within our Quarterly Reports on Form 10-Q and Annual Report on Form 10-K. At each quarter end, the overall valuation results, as concluded upon by the IPV Committee, are presented to the Audit Committee.

Judgment exercised in determining Level 3 fair value measurements is supplemented by daily analysis of profit and loss performed by the Product Control functions. Gains and losses, which result from changes in fair value, are evaluated and corroborated daily based on an understanding of each of the trading desks' overall risk positions and developments in a particular market on the given day. Valuation techniques generally rely on recent transactions of suitably comparable financial instruments and use the observable inputs from those comparable transactions as a validation basis for Level 3 inputs. Level 3 fair value measurements are further validated through subsequent sales testing and market comparable sales, if such information is available. Level 3 fair value measurements require documentation of the valuation rationale applied, which is reviewed for consistency in application from period to period; and the documentation includes benchmarking the assumptions underlying the valuation rationale against relevant analytic data.

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Third Party Pricing Information. Pricing information obtained from external data providers (including independent pricing services and brokers) may incorporate a range of market quotes from dealers, recent market transactions and benchmarking model derived prices to quoted market prices and trade data for comparable securities. External pricing data is subject to evaluation for reasonableness by the IPV Group using a variety of means including comparisons of prices to those of similar product types, quality and maturities, consideration of the narrowness or wideness of the range of prices obtained, knowledge of recent market transactions and an assessment of the similarity in prices to comparable dealer offerings in a recent time period. We have a process whereby we challenge the appropriateness of pricing information obtained from external data providers (including independent pricing services and brokers) in order to validate the data for consistency with the definition of a fair value exit price. Our process includes understanding and evaluating the external data providers' valuation methodologies. For corporate, U.S. government and agency and municipal debt securities, and loans, to the extent independent pricing services or broker quotes are utilized in our valuation process, the vendor service providers are collecting and aggregating observable market information as to recent trade activity and active bid-ask submissions. The composite pricing information received from the independent pricing service is thus not based on unobservable inputs or proprietary models. For mortgage- and other asset-backed securities and collateralized debt obligations, our independent pricing service uses a matrix evaluation approach incorporating both observable yield curves and market yields on comparable securities as well as implied inputs from observed trades for comparable securities in order to determine prepayment speeds, cumulative default rates and loss severity. Further, we consider pricing data from multiple service providers as available as well as compare pricing data to prices we have observed for recent transactions, if any, in order to corroborate our valuation inputs.

Model Review Process. Where a pricing model is to be used to determine fair value, the pricing model is reviewed for theoretical soundness and appropriateness by Risk Management, independent from the trading desks, and then approved by Risk Management to be used in the valuation process. Review and approval of a model for use may include benchmarking the model against relevant third party valuations, testing sample trades in the model, backtesting the results of the model against actual trades and stress-testing the sensitivity of the pricing model using varying inputs and assumptions. In addition, recently executed comparable transactions and other observable market data are considered for purposes of validating assumptions underlying the model. Models are independently reviewed and validated by Risk Management annually or more frequently if market conditions or use of the valuation model changes.

Investments in Managed Funds

Investments in managed funds include our investments in funds managed by us and our investments in related-party managed funds in which we are entitled to a portion of the management and/or performance fees. Investments in nonconsolidated managed funds are accounted for at fair value with gains or losses included in Asset management fees and investment income from managed funds in the Consolidated Statements of Earnings.

Loans to and Investments in Related Parties

Loans to and investments in related parties include investments in private equity and other operating entities made in connection with our capital markets activities in which we exercise significant influence over operating and capital decisions and loans issued in connection with such activities. Loans to and investments in related parties are accounted for using the equity method or at cost, as appropriate. Revenues on Loans to and investments in related parties are included in Other revenues in the Consolidated Statements of Earnings. (See Note 11, Investments, and Note 25, Related Party Transactions, for additional information regarding certain of these investments.)

Securities Borrowed and Securities Loaned

Securities borrowed and securities loaned are carried at the amounts of cash collateral advanced and received in connection with the transactions and accounted for as collateralized financing transactions. In connection with both trading and brokerage activities, we borrow securities to cover short sales and to complete transactions in which customers have failed to deliver securities by the required settlement date, and lend securities to other brokers and dealers for similar purposes. We have an active securities borrowed and lending matched book business in which we borrow securities from one party and lend them to another party. When we borrow securities, we generally provide cash to the lender as collateral, which is reflected in our Consolidated Statements of Financial Condition as Securities borrowed. We earn interest revenues on this cash collateral. Similarly, when we lend securities to another

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party, that party provides cash to us as collateral, which is reflected in our Consolidated Statements of Financial Condition as Securities loaned. We pay interest expense on the cash collateral received from the party borrowing the securities. The initial collateral advanced or received approximates or is greater than the fair value of the securities borrowed or loaned. We monitor the fair value of the securities borrowed and loaned on a daily basis and request additional collateral or return excess collateral, as appropriate.

Securities Purchased Under Agreements to Resell and Securities Sold Under Agreements to Repurchase

Securities purchased under agreements to resell and Securities sold under agreements to repurchase (collectively "repos") are accounted for as collateralized financing transactions and are recorded at their contracted resale or repurchase amount plus accrued interest. We earn and incur interest over the term of the repo, which is reflected in Interest income and Interest expense on our Consolidated Statements of Earnings on an accrual basis. Repos are presented in the Consolidated Statements of Financial Condition on a net-basis by counterparty, where permitted by generally accepted accounting principles. We monitor the fair value of the underlying securities daily versus the related receivable or payable balances. Should the fair value of the underlying securities decline or increase, additional collateral is requested or excess collateral is returned, as appropriate.

Premises and Equipment

Premises and equipment are depreciated using the straight-line method over the estimated useful lives of the related assets (generally three to ten years). Leasehold improvements are amortized using the straight-line method over the term of the related leases or the estimated useful lives of the assets, whichever is shorter. Premises and equipment includes internally developed software, which was increased to its fair market value in the allocation of the purchase price on March 1, 2013. The revised carrying values of internally developed software ready for its intended use are depreciated over the remaining useful life. (See Note 4, Leucadia and Related Transactions for more information regarding the allocation of the purchase price.)

At November 30, 2014 and November 30, 2013, furniture, fixtures and equipment, including amounts under capital leases, amounted to $351.1 million and $278.5 million, respectively, and leasehold improvements amounted to $156.9 million and $134.1 million, respectively. Accumulated depreciation and amortization was $256.0 million and $210.1 million at November 30, 2014 and November 30, 2013, respectively.

Depreciation and amortization expense amounted to $58.0 million for the year ended November 30, 2014, $38.8 million for the nine months ended November 30, 2013, $12.9 million for the three months ended February 28, 2013, and $50.5 million for the year ended November 30, 2012, respectively.

Goodwill and Intangible Assets

Goodwill . Goodwill represents the excess acquisition cost over the fair value of net tangible and intangible assets acquired. Goodwill is not amortized and is subject to annual impairment testing on August 1 or between annual tests if an event or change in circumstance occurs that would more likely than not reduce the fair value of a reporting unit below its carrying value. In testing for goodwill impairment, we have the option to first assess qualitative factors to determine whether the existence of events or circumstances lead to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events and circumstances, we conclude that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is not required. If we conclude otherwise, we are required to perform the two-step impairment test. The goodwill impairment test is performed at the reporting unit level by comparing the estimated fair value of a reporting unit with its respective carrying value. If the estimated fair value exceeds the carrying value, goodwill at the reporting unit level is not impaired. If the estimated fair value is less than carrying value, further analysis is necessary to determine the amount of impairment, if any, by comparing the implied fair value of the reporting unit's goodwill to the carrying value of the reporting units goodwill.

The fair value of reporting units are based on widely accepted valuation techniques that we believe market participants would use, although the valuation process requires significant judgment and often involves the use of significant estimates and assumptions. The methodologies we utilize in estimating the fair value of reporting units include market valuation methods that incorporate price-to-earnings and price-to-book multiples of comparable

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exchange traded companies and multiples of merger and acquisitions of similar businesses and discounted cash flow methodologies that incorporate an appropriate risk-adjusted discount rate. The estimates and assumptions used in determining fair value could have a significant effect on whether or not an impairment charge is recorded and the magnitude of such a charge. Adverse market or economic events could result in impairment charges in future periods.

Intangible Assets . Intangible assets deemed to have finite lives are amortized on a straight line basis over their estimated useful lives, where the useful life is the period over which the asset is expected to contribute directly, or indirectly, to our future cash flows. Intangible assets are reviewed for impairment on an interim basis when certain events or circumstances exist. For amortizable intangible assets, impairment exists when the carrying amount of the intangible asset exceeds its fair value. At least annually, the remaining useful life is evaluated.

An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived asset is impaired. Impairment exists when the carrying amount exceeds its fair value. In testing for impairment, we have the option to first perform a qualitative assessment to determine whether it is more likely than not that an impairment exists. If it is determined that it is not more likely than not that an impairment exists, a quantitative impairment test is not necessary. If we conclude otherwise, we are required to perform a quantitative impairment test. Our annual indefinite-lived intangible asset impairment testing date is August 1.

To the extent an impairment loss is recognized, the loss establishes the new cost basis of the asset that is amortized over the remaining useful life of that asset, if any. Subsequent reversal of impairment losses is not permitted.

Refer to Note 12, Goodwill and Other Intangible Assets, for further information.

Income Taxes

Prior to the Leucadia Transaction, we filed a consolidated U.S. federal income tax return, which included all of our qualifying subsidiaries. Subsequently, our results of operations are included in the consolidated federal and applicable state income tax returns filed by Leucadia. In states that neither accept nor require combined or unitary tax returns, certain subsidiaries file separate state income tax returns. We also are subject to income tax in various foreign jurisdictions in which we operate. We account for our provision for income taxes using a "separate return" method. Amounts provided for income taxes are based on income reported for financial statement purposes and do not necessarily represent amounts currently payable. Pursuant to a tax sharing agreement entered into between us and Leucadia, payments are between us and Leucadia settle current tax assets and liabilities.

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and for tax loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. Under acquisition accounting, the recognition of certain assets and liabilities at fair value created a change in the financial reporting basis for our assets and liabilities, while the tax basis of our assets and liabilities remained the same. As a result, deferred tax assets and liabilities were recognized for the change in the basis differences. Jefferies provides deferred taxes on its temporary differences and on any carryforwards that it could claim on its hypothetical tax return. The realization of deferred tax assets is assessed and a valuation allowance is recorded to the extent that it is more likely than not that any portion of the deferred tax asset will not be realized on the basis of its projected separate return results. The tax benefit related to Leucadia dividends and dividend equivalents paid on nonvested share-based payment awards are recognized as an increase to Additional paid-in capital. These amounts are included in tax benefits for issuance of share-based awards on the Consolidated Statements of Changes in Equity.

We record uncertain tax positions using a two-step process: (i) we determine whether it is more likely than not that each tax position will be sustained on the basis of the technical merits of the position; and (ii) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

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Legal Reserves

In the normal course of business, we have been named, from time to time, as a defendant in legal and regulatory proceedings. We are also involved, from time to time, in other exams, investigations and similar reviews (both formal and informal) by governmental and self-regulatory agencies regarding our businesses, certain of which may result in judgments, settlements, fines, penalties or other injunctions.

We recognize a liability for a contingency in Accrued expenses and other liabilities when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. If the reasonable estimate of a probable loss is a range, we accrue the most likely amount of such loss, and if such amount is not determinable, then we accrue the minimum in the range as the loss accrual. The determination of the outcome and loss estimates requires significant judgment on the part of management. At November 30, 2014, we have reserved approximately $1.9 million for remaining payments under a non-prosecution agreement with the United States Attorney for the District of Connecticut and a settlement agreement with the SEC, both with respect to an investigation of certain purchases and sales of mortgage-backed securities. We believe that any other matters for which we have determined a loss to be probable and reasonably estimable are not material to the consolidated financial statements.

In many instances, it is not possible to determine whether any loss is probable or even possible or to estimate the amount of any loss or the size of any range of loss. We believe that, in the aggregate, the pending legal actions or regulatory proceedings and any other exams, investigations or similar reviews (both formal and informal) should not have a material adverse effect on our consolidated results of operations, cash flows or financial condition. In addition, we believe that any amount that could be reasonably estimated of potential loss or range of potential loss in excess of what has been provided in the consolidated financial statements is not material.

Share-based Compensation

Share-based awards are measured based on the grant-date fair value of the award and recognized over the period from the service inception date through the date the employee is no longer required to provide service to earn the award. Expected forfeitures are included in determining share-based compensation expense.

Foreign Currency Translation

Assets and liabilities of foreign subsidiaries having non-U.S. dollar functional currencies are translated at exchange rates at the end of a period. Revenues and expenses are translated at average exchange rates during the period. The gains or losses resulting from translating foreign currency financial statements into U.S. dollars, net of hedging gains or losses and taxes, if any, are included in Other comprehensive income. Gains or losses resulting from foreign currency transactions are included in Principal transaction revenues in the Consolidated Statements of Earnings.

Securitization Activities

We engage in securitization activities related to corporate loans, commercial mortgage loans and mortgage-backed and other asset-backed securities. Such transfers of financial assets are accounted for as sales when we have relinquished control over the transferred assets. The gain or loss on sale of such financial assets depends, in part, on the previous carrying amount of the assets involved in the transfer allocated between the assets sold and the retained interests, if any, based upon their respective fair values at the date of sale. We may retain interests in the securitized financial assets as one or more tranches of the securitization. These retained interests are included within Financial instruments owned in the Consolidated Statements of Financial Condition at fair value. Any changes in the fair value of such retained interests are recognized within Principal transactions revenues in the Consolidated Statements of Earnings.

When a transfer of assets does not meet the criteria of a sale, we account for the transfer as a secured borrowing and continue to recognize the assets of a secured borrowing in Financial instruments owned and recognize the associated financing in Other secured financings in the Consolidated Statements of Financial Condition.

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Earnings per Common Share

As a single member limited liability company, earnings per share is not calculated for Jefferies Group LLC (the Successor company).

Prior to the Leucadia Transaction, Jefferies Group, Inc. (the Predecessor company) had common shares and other common share equivalents outstanding. For the Predecessor periods, basic earnings per share ("EPS") was computed by dividing net earnings available to common shareholders by the weighted average number of common shares outstanding and certain other shares committed to be, but not yet issued. Net earnings available to common shareholders represent net earnings to common shareholders reduced by the allocation of earnings to participating securities. Losses are not allocated to participating securities. For Predecessor periods, diluted EPS was computed by dividing net earnings available to common shareholders plus dividends on dilutive mandatorily redeemable convertible preferred stock by the weighted average number of common shares outstanding and certain other shares committed to be, but not yet issued, plus all dilutive common stock equivalents outstanding during the period. Unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and, therefore, are included in the earnings allocation in computing earnings per share under the two-class method of earning per share. Restricted stock and Restricted stock units ("RSUs") granted as part of our share-based compensation contain nonforfeitable rights to dividends and dividend equivalents, respectively, and therefore, prior to the requisite service being rendered for the right to retain the award, restricted stock and RSUs meet the definition of a participating security. As such, Basic and Diluted earnings per share were calculated under the two-class method.

Note 3. Accounting Developments

Accounting Standards to be Adopted in Future Periods

Repurchase Agreements. In June 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-11, Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures. The accounting guidance changes the accounting for repurchase-to-maturity transactions and linked repurchase financings to secured borrowing accounting, which is consistent with the accounting for other repurchase agreements. The guidance also requires new disclosures about transfers that are accounted for as sales in transactions that are economically similar to repurchase agreements and increased transparency about the types of collateral pledged in repurchase agreements and similar transactions accounted for as secured borrowings. The guidance is effective prospectively in the second quarter of fiscal 2015. We do not expect this guidance to significantly affect our results of operations, financial condition or cash flows and we will provide the additional disclosures in our consolidated financial statements.

Revenue Recognition . In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. The accounting guidance defines how companies report revenues from contracts with customers, and also requires enhanced disclosures. The guidance is effective beginning in the first quarter of fiscal 2017. We are currently evaluating the impact of the new guidance on our consolidated financial statements.

Discontinued Operations . In April 2014, the FASB issued ASU No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The guidance changes the criteria for disposals to qualify as discontinued operations and requires new disclosures about disposals of both discontinued operations and certain other disposals that do not meet the new definition. The guidance is effective beginning in the first quarter of 2015. We do not expect the guidance to have a significant impact on our consolidated financial position or results of operations upon adoption.

Income Taxes. In July 2013, the FASB issued ASU No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. The guidance requires an entity to net their unrecognized tax benefit, or a portion of an unrecognized tax benefit, in the financial statements against a deferred tax asset for a net operating loss carryforward, a similar tax loss or tax credit carryforward, unless such tax loss or credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes resulting from the disallowance of a tax position. In the event that the tax position is disallowed or the tax law of the applicable jurisdiction does not require the entity to

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use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit shall be presented in the financial statements as a liability and shall not be combined with deferred tax assets. The guidance is effective for fiscal years and interim periods within those years, beginning after December 15, 2013, and is to be applied prospectively to all unrecognized tax benefits that exist at the effective date. We do not expect that the adoption of this update will have a material effect on our consolidated financial statements.

Adopted Accounting Standards

Balance Sheet Offsetting Disclosures . In December 2011, the FASB issued ASU No. 2011-11, Disclosures about Offsetting Assets and Liabilities and in January 2013 the FASB issued ASU 2013-01, Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities. The updates require new disclosures regarding balance sheet offsetting and related arrangements. For derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions, the updates require disclosure of gross asset and liability amounts, amounts offset on the balance sheet, and amounts subject to the offsetting requirements but not offset on the balance sheet. We adopted the guidance effective December 1, 2013, presenting the additional disclosures in our notes to consolidated financial statements. This guidance did not amend the existing guidance on when it is appropriate to offset; as a result, the adoption of this guidance did not affect our financial condition, results of operations or cash flows.

Accumulated Other Comprehensive Income. In February 2013, the FASB issued ASU No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. The guidance requires an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under U.S. GAAP to be reclassified in its entirety to net income. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety from accumulated other comprehensive income to net income in the same reporting period, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts. We adopted the guidance effective March 1, 2013, presenting the additional disclosures within our Consolidated Statements of Changes in Equity. Adoption did not affect our results of operations, financial condition or cash flows.

Indefinite-Lived Intangible Asset Impairment. In July 2012, the FASB issued ASU No. 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment. The guidance permits an entity to first assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset, other than goodwill, is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test. The update does not revise the requirement to test indefinite-lived intangible assets annually for impairment, or more frequently if deemed appropriate. The adoption of this guidance on December 1, 2012 did not affect our financial condition, results of operations or cash flows as it did not affect how impairment is calculated.

Goodwill Testing. In September 2011, the FASB issued ASU No. 2011-08, Testing Goodwill for Impairment. The update outlines amendments to the two step goodwill impairment test permitting an entity to first assess qualitative factors in determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step quantitative goodwill impairment test. We adopted this guidance on December 1, 2012, which did not change how goodwill impairment is calculated nor assigned to reporting units and therefore had no effect on our financial condition, results of operations or cash flows.

Comprehensive Income . In June 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income. The update requires entities to report comprehensive income either (1) in a single continuous statement of comprehensive income or (2) in two separate but consecutive statements. We adopted the guidance on March 1, 2012, and elected the two separate but consecutive statements approach. Accordingly, we now present our Consolidated Statements of Comprehensive Income immediately following our Consolidated Statements of Earnings within our consolidated financial statements.

Fair Value Measurements and Disclosures. In May 2011, the FASB issued ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS. The amendments prohibit the use of blockage factors at all levels of the fair value hierarchy and provide guidance on measuring financial instruments that are managed on a net portfolio basis. Additional disclosure requirements include transfers between Levels 1 and 2; and for Level 3 fair value measurements, a description of our valuation processes and additional information about unobservable inputs impacting Level 3 measurements. We adopted this guidance on March 1, 2012 and have reflected the new disclosures in our consolidated financial statements. The adoption of this guidance did not have an impact on our financial condition, results of operations or cash flows.

Reconsideration of Effective Control for Repurchase Agreements. In April 2011, the FASB issued ASU No. 2011-03, Reconsideration of Effective Control for Repurchase Agreements. In assessing whether to account for repurchase and other agreements that both entitle and obligate the transferor to repurchase or redeem financial assets before their maturity as sales or as secured financing, this guidance removes from the assessment of effective control 1) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms and 2) the collateral maintenance implementation guidance related to that criterion.

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The adoption of this guidance for transactions beginning on or after January 1, 2012 did not have an impact on our financial condition, results of operations or cash flows.

Note 4. Leucadia and Related Transactions

Leucadia Transaction

On March 1, 2013, Jefferies Group LLC completed a business combination with Leucadia and became a wholly-owned subsidiary of Leucadia as described in Note 1, Organization and Basis of Presentation. Each share of Jefferies Group Inc.'s common stock outstanding was converted into common shares of Leucadia at an Exchange Ratio of 0.81 of a Leucadia common share for each share of Jefferies Group, Inc. (the "Exchange Ratio"). Leucadia exchanged Jefferies Group, Inc.'s $125.0 million 3.25% Series A-1 Convertible Cumulative Preferred Stock for a new series of Leucadia $125.0 million 3.25% Cumulative Convertible Preferred Shares. In addition, each restricted share and restricted stock unit of Jefferies Group, Inc. common stock was converted at the Exchange Ratio, into an equivalent award of shares of Leucadia, with all such awards for Leucadia shares subject to the same terms and conditions, including, without limitation, vesting and, in the case of performance-based restricted stock units, performance being measured at existing targets.

Leucadia did not assume or guarantee any of our outstanding debt securities, but our 3.875% Convertible senior Debentures due 2029 with an aggregate principal amount of $345.0 million became convertible into common shares of Leucadia. Other than the conversion into Leucadia common shares, the terms of the debenture remain the same.

The Leucadia Transaction resulted in a change in our ownership and was recorded under the acquisition method of accounting by Leucadia and pushed-down to us by allocating the total purchase consideration of $4.8 billion to the cost of the assets acquired, including intangible assets, and liabilities assumed based on their estimated fair values. The excess of the total purchase price over the fair value of assets acquired and the liabilities assumed is recorded as goodwill. The goodwill arising from the Leucadia Transaction consists largely of our commercial potential and the value of our assembled workforce.

In connection with the Leucadia Transaction, we recognized $11.5 million, $2.1 million and $4.7 million in transaction costs during the nine months ended November 30, 2013, three months ended February 28, 2013, and the year ended November 30, 2012, respectively.

The summary computation of the purchase price and the fair values assigned to the assets and liabilities are presented as follows (in thousands except share amounts):

Purchase Price

Jefferies common stock outstanding

205,368,031

Less: Jefferies common stock owned by Leucadia

(58,006,024

Jefferies common stock acquired by Leucadia

147,362,007

Exchange ratio

0.81

Leucadia's shares issued (excluding for Jefferies shares held by Leucadia)

119,363,226

Less: restricted shares issued for share-based payment awards (1)

(6,894,856

Leucadia's shares issued, excluding share-based payment awards

112,468,370

Closing price of Leucadia's common stock (2)

$ 26.90

Fair value of common shares acquired by Leucadia

3,025,399

Fair value of 3.25% cumulative convertible preferred shares (3)

125,000

Fair value of shares-based payment awards (4)

343,811

Fair value of Jefferies shares owned by Leucadia (5)

1,259,891

Total purchase price

$ 4,754,101

(1) Represents shares of restricted stock included in Jefferies common stock outstanding that contained a future service requirement at March 1, 2013.
(2) The value of the shares of common stock exchanged with Jefferies shareholders was based upon the closing price of Leucadia's common stock at February 28, 2013, the last trading day prior to the date of acquisition.
(3) Represents Leucadia's 3.25% Cumulative Convertible Preferred Shares issued in exchange for Jefferies Group, Inc.'s 3.25% Series A-1 Convertible Cumulative Preferred Stock.

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(4) The fair value of share-based payment awards is calculated in accordance with ASC 718, Compensation – Stock Compensation. Share-based payment awards attributable to pre-combination service are included as part of the total purchase price. Share-based payment awards attributable to pre-combination service is estimated based on the ratio of the pre-combination service performed to the original service period of the award.
(5) The fair value of Jefferies shares owned by Leucadia was based upon a price of $21.72, the closing price of Jefferies common stock at February 28, 2013.

Assets acquired:

Cash and cash equivalents

$ 3,017,958

Cash and securities segregated

3,728,742

Financial instruments owned, at fair value

16,413,535

Investments in managed funds

59,976

Loans to and investments in related parties

766,893

Securities borrowed

5,315,488

Securities purchased under agreements to resell

3,578,366

Securities received as collateral

25,338

Receivables:

Brokers, dealers and clearing organizations

2,444,085

Customers

1,045,251

Fees, interest and other

225,555

Premises and equipment

192,603

Indefinite-lived intangible exchange memberships and licenses (1)

15,551

Finite-lived intangible customer relationships (1)

136,002

Finite-lived trade name (1)

131,299

Other assets

939,600

Total assets

$ 38,036,242

Liabilities assumed:

Short-term borrowings

$ 100,000

Financial instruments sold, not yet purchased, at fair value

9,766,876

Securities loaned

1,902,687

Securities sold under agreements to repurchase

7,976,492

Other secured financings

122,294

Obligation to return securities received as collateral

25,338

Payables:

Brokers, dealers and clearing organizations

1,787,055

Customers

5,450,781

Accrued expenses and other liabilities

793,843

Long-term debt

6,362,024

Mandatorily redeemable preferred interests

358,951

Total liabilities

$ 34,646,341

Noncontrolling interests

356,180

Fair value of net assets acquired, excluding goodwill

$ 3,033,721

Goodwill

$ 1,720,380

(1) Intangible assets are recorded within Other assets on the Consolidated Statements of Financial Condition.

The goodwill of $1.7 billion is not deductible for tax purposes.

Reorganization of Jefferies High Yield Holdings, LLC

On March 1, 2013, we commenced a reorganization of our high yield joint venture with Leucadia, conducted through Jefferies High Yield Holdings, LLC ("JHYH") (the parent of Jefferies High Yield Trading, LLC (our high yield trading broker-dealer)). On March 1, 2013, we redeemed the outstanding third party noncontrolling interests in JHYH of $347.6 million. On March 31, 2013, Leucadia contributed its mandatorily redeemable preferred interests in JHYH of $362.3 million to Jefferies Group LLC as member's equity. On April 1, 2013, we redeemed the mandatorily redeemable preferred interests in JHYH received from Leucadia. In addition, on April 1, 2013, our high yield trading broker-dealer was merged into Jefferies LLC (our U.S. securities broker-dealer).

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Note 5. Acquisition

Hoare Govett

On February 1, 2012, we acquired the corporate broking business of Hoare Govett from RBS. Total cash consideration paid by us to RBS for the acquisition was £1. In addition, under the terms of the purchase agreement RBS agreed to pay us approximately £1.9 million towards retention payments made to certain employees, which constituted a reduction of the final purchase price. The business acquired represents the corporate broking business carried on under the name RBS Hoare Govett in the United Kingdom and comprised corporate broking advice and services, as well as certain equity sales and trading activities. The acquisition included the Hoare Govett trade name, domain name, client agreements and the exclusive right to carry on the business in succession to RBS.

We accounted for the acquisition under the acquisition method of accounting . Accordingly, the assets acquired, including identifiable intangible assets, and liabilities assumed were recorded at their respective fair values as of the date of acquisition. The fair values of the net assets acquired, including identifiable intangible assets, specifically the Hoare Govett trademark/trade name, was approximately $0.3 million, which exceeded the negative purchase price of $3.1 million (cash consideration paid of £1 less remittance from RBS of £1.9 million), resulting in a bargain purchase gain of approximately $3.4 million. The bargain purchase gain is included within Other revenues in the Consolidated Statement of Earnings for the year ended November 30, 2012 and is reported within the Capital Markets business segment. Approximately $0.4 million was recognized at the date of acquisition as the fair value of the Hoare Govett trade name. (See Note 12, Goodwill and Other Intangible Assets for further details.) Additionally, on February 1, 2012, we recognized a deferred tax liability of approximately $0.1 million, recorded within Accrued expenses and other liabilities on the Consolidated Statement of Financial Condition.

Our results of operations for the year ended November 30, 2012 include the results of operations of Hoare Govett for ten months for the period from February 1, 2012 to November 30, 2012. The acquisition closed on February 29, 2012.

Note 6. Fair Value Disclosures

The following is a summary of our financial assets and liabilities that are accounted for at fair value on a recurring basis at November 30, 2014 and November 30, 2013 by level within the fair value hierarchy (in thousands):

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November 30, 2014
Level 1(1) Level 2(1) Level 3 Counterparty and
Cash Collateral
Netting (2)
Total

Assets:

Financial instruments owned:

Corporate equity securities

$ 2,178,837 $ 226,441 $ 20,964 $ -   $ 2,426,242

Corporate debt securities

-   3,342,276 55,918 -   3,398,194

Collateralized debt obligations

-   306,218 91,498 -   397,716

U.S. government and federal agency securities

2,694,268 81,273 -   -   2,775,541

Municipal securities

-   590,849 -   -   590,849

Sovereign obligations

1,968,747 790,764 -   -   2,759,511

Residential mortgage-backed securities

-   2,879,954 82,557 -   2,962,511

Commercial mortgage-backed securities

-   966,651 26,655 -   993,306

Other asset-backed securities

-   137,387 2,294 -   139,681

Loans and other receivables

-   1,458,760 97,258 -   1,556,018

Derivatives

65,145 5,046,278 54,190 (4,759,345 406,268

Investments at fair value

-   73,152 95,389 -   168,541

Physical commodities

-   62,234 -   -   62,234

Total financial instruments owned

$ 6,906,997 $ 15,962,237 $ 526,723 $ (4,759,345 $ 18,636,612

Cash and cash equivalents

$ 4,079,968 $ -   $ -   $ -   $ 4,079,968

Investments in managed funds

$ -   $ 19,383 $ 54,982 $ -   $ 74,365

Cash and securities segregated and on deposit for regulatory purposes (3)

$ 3,444,674 $ -   $ -   $ -   $ 3,444,674

Securities received as collateral

$ 5,418 $ -   $ -   $ -   $ 5,418

Total Level 3 assets

$ 581,705

Liabilities:

Financial instruments sold, not yet purchased:

Corporate equity securities

$ 1,911,145 $ 74,681 $ 38 $ -   $ 1,985,864

Corporate debt securities

-   1,611,994 223 -   1,612,217

Collateralized debt obligations

-   4,557 -   -   4,557

U.S. government and federal agency securities

2,253,055 -   -   -   2,253,055

Sovereign obligations

1,217,075 574,010 -   -   1,791,085

Loans

-   856,525 14,450 -   870,975

Derivatives

52,778 5,117,803 49,552 (4,856,618 363,515

Total financial instruments sold, not yet purchased

$ 5,434,053 $ 8,239,570 $ 64,263 $ (4,856,618 $ 8,881,268

Obligation to return securities received as collateral

$ 5,418 $ -   $ -   $ -   $ 5,418

Other secured financings

$ -   $ -   $ 30,825 $ -   $ 30,825

Embedded conversion option

$ -   $ -   $ 693 $ -   $ 693

(1) As of December 1, 2013, equity options presented within Financial instruments owned and Financial instruments sold, not yet purchased of $6.1 million and $6.6 million, respectively, were transferred from Level 1 to Level 2 as adjustments were incorporated into the valuation approach for such contracts to estimate the point within the bid-ask range that meets the best estimate of fair value.
(2) Represents counterparty and cash collateral netting across the levels of the fair value hierarchy for positions with the same counterparty.
(3) Cash and securities segregated and on deposit for regulatory purposes include U.S. government securities with a fair value of $453.7 million and Commodities Futures Trading Commission ("CFTC") approved money market funds with a fair value of $545.0 million.

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November 30, 2013
Level 1 (1) Level 2 (1) Level 3 Counterparty and
Cash Collateral
Netting (2)
Total

Assets:

Financial instruments owned:

Corporate equity securities

$ 1,913,220 $ 175,493 $ 9,884 $ -   $ 2,098,597

Corporate debt securities

-   2,957,102 25,666 -   2,982,768

Collateralized debt obligations

-   182,095 37,216 -   219,311

U.S. government and federal agency securities

2,293,221 40,389 -   -   2,333,610

Municipal securities

-   664,054 -   -   664,054

Sovereign obligations

1,458,803 889,685 -   -   2,348,488

Residential mortgage-backed securities

-   2,932,268 105,492 -   3,037,760

Commercial mortgage-backed securities

-   1,130,410 17,568 -   1,147,978

Other asset-backed securities

-   55,475 12,611 -   68,086

Loans and other receivables

-   1,203,238 145,890 -   1,349,128

Derivatives

40,952 2,472,237 1,493 (2,253,589 261,093

Investments at fair value

-   40 101,242 -   101,282

Physical commodities

-   37,888 -   -   37,888

Total financial instruments owned

$ 5,706,196 $ 12,740,374 $ 457,062 $ (2,253,589 $ 16,650,043

Cash and cash equivalents

$ 3,561,119 $ -   $ -   $ -   $ 3,561,119

Investments in managed funds

$ -   $ -   $ 57,285 $ -   $ 57,285

Cash and securities segregated and on deposit for regulatory purposes (3)

$ 3,616,602 $ -   $ -   $ -   $ 3,616,602

Securities received as collateral

$ 11,063 $ -   $ -   $ -   $ 11,063

Total Level 3 assets

$ 514,347

Liabilities:

Financial instruments sold, not yet purchased:

Corporate equity securities

$ 1,782,903 $ 40,358 $ 38 $ -   $ 1,823,299

Corporate debt securities

-   1,346,078 -   -   1,346,078

U.S. government and federal agency securities

1,324,326 -   -   -   1,324,326

Sovereign obligations

1,360,269 471,088 -   -   1,831,357

Residential mortgage-backed securities

-   34,691 -   -   34,691

Loans

-   672,838 22,462 -   695,300

Derivatives

43,829 2,480,463 8,398 (2,352,611 180,079

Physical commodities

-   36,483 -   -   36,483

Total financial instruments sold, not yet purchased

$ 4,511,327 $ 5,081,999 $ 30,898 $ (2,352,611 $ 7,271,613

Obligation to return securities received as collateral

$ 11,063 $ -   $ -   $ -   $ 11,063

Other secured financings

$ -   $ 31,000 $ 8,711 $ -   $ 39,711

Embedded conversion option

$ -   $ -   $ 9,574 $ -   $ 9,574

(1) During the nine months ended November 30, 2013, we transferred listed equity options with a fair value of $403.0 million within Financial instruments owned and $423.0 million within Financial instruments sold, not yet purchased from Level 1 to Level 2 as adjustments to the exchange closing price are necessary to best reflect the fair value of the population at its exit price.
(2) Represents counterparty and cash collateral netting across the levels of the fair value hierarchy for positions with the same counterparty.
(3) Cash and securities segregated and on deposit for regulatory purposes include U.S. government securities with a fair value of $304.2 million.

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The following is a description of the valuation basis, including valuation techniques and inputs, used in measuring our financial assets and liabilities that are accounted for at fair value on a recurring basis:

Corporate Equity Securities

Exchange Traded Equity Securities: Exchange-traded equity securities are measured based on quoted closing exchange prices, which are generally obtained from external pricing services, and are categorized within Level 1 of the fair value hierarchy, otherwise they are categorized within Level 2 or Level 3 of the fair value hierarchy.

Non-exchange Traded Equity Securities : Non-exchange traded equity securities are measured primarily using broker quotations, pricing data from external pricing services and prices observed for recently executed market transactions and are categorized within Level 2 of the fair value hierarchy. Where such information is not available, non-exchange traded equity securities are categorized within Level 3 of the fair value hierarchy and measured using valuation techniques involving quoted prices of or market data for comparable companies, similar company ratios and multiples ( e.g. , price/EBITDA, price/book value), discounted cash flow analyses and transaction prices observed for subsequent financing or capital issuance by the company. When using pricing data of comparable companies, judgment must be applied to adjust the pricing data to account for differences between the measured security and the comparable security ( e.g. , issuer market capitalization, yield, dividend rate, geographical concentration).

Equity warrants: Non-exchange traded equity warrants are generally categorized within Level 3 of the fair value hierarchy and are measured using the Black-Scholes model with key inputs impacting the valuation including the underlying security price, implied volatility, dividend yield, interest rate curve, strike price and maturity date.

Corporate Debt Securities

Corporate Bonds: Corporate bonds are measured primarily using pricing data from external pricing services and broker quotations, where available, prices observed for recently executed market transactions and bond spreads or credit default swap spreads of the issuer adjusted for basis differences between the swap curve and the bond curve. Corporate bonds measured using these valuation methods are categorized within Level 2 of the fair value hierarchy. If broker quotes, pricing data or spread data is not available, alternative valuation techniques are used including cash flow models incorporating interest rate curves, single name or index credit default swap curves for comparable issuers and recovery rate assumptions. Corporate bonds measured using alternative valuation techniques are categorized within Level 3 of the fair value hierarchy and comprise a limited portion of our corporate bonds.

High Yield Corporate and Convertible Bonds: A significant portion of our high yield corporate and convertible bonds are categorized within Level 2 of the fair value hierarchy and are measured primarily using broker quotations and pricing data from external pricing services, where available, and prices observed for recently executed market transactions of comparable size. Where pricing data is less observable, valuations are categorized within Level 3 and are based on pending transactions involving the issuer or comparable issuers, prices implied from an issuer's subsequent financings or recapitalizations, models incorporating financial ratios and projected cash flows of the issuer and market prices for comparable issuers.

Collateralized Debt Obligations

Collateralized debt obligations are measured based on prices observed for recently executed market transactions of the same or similar security or based on valuations received from third party brokers or data providers and are categorized within Level 2 or Level 3 of the fair value hierarchy depending on the observability and significance of the pricing inputs. Valuation that is based on recently executed market transitions of similar securities incorporates additional review and analysis of pricing inputs and comparability criteria including but not limited to collateral type, tranche type, rating, origination year, prepayment rates, default rates, and severities.

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U.S. Government and Federal Agency Securities

U.S. Treasury Securities: U.S. Treasury securities are measured based on quoted market prices and categorized within Level 1 of the fair value hierarchy.

U.S. Agency Issued Debt Securities: Callable and non-callable U.S. agency issued debt securities are measured primarily based on quoted market prices obtained from external pricing services and are generally categorized within Level 1 or Level 2 of the fair value hierarchy.

Municipal Securities

Municipal securities are measured based on quoted prices obtained from external pricing services and are generally categorized within Level 2 of the fair value hierarchy.

Sovereign Obligations

Foreign sovereign government obligations are measured based on quoted market prices obtained from external pricing services, where available, or recently executed independent transactions of comparable size. To the extent external price quotations are not available or recent transactions have not been observed, valuation techniques incorporating interest rate yield curves and country spreads for bonds of similar issuers, seniority and maturity are used to determine fair value of sovereign bonds or obligations. Foreign sovereign government obligations are classified in Level 1, 2 or Level 3 of the fair value hierarchy, primarily based on the country of issuance.

Residential Mortgage-Backed Securities

Agency Residential Mortgage-Backed Securities: Agency residential mortgage-backed securities include mortgage pass-through securities (fixed and adjustable rate), collateralized mortgage obligations and interest-only and principal-only securities and are generally measured using market price quotations from external pricing services and categorized within Level 2 of the fair value hierarchy.

Agency Residential Interest-Only and Inverse Interest-Only Securities ("Agency Inverse IOs"): The fair value of agency inverse IOs is estimated using expected future cash flow techniques that incorporate prepayment models and other prepayment assumptions to amortize the underlying mortgage loan collateral. We use prices observed for recently executed transactions to develop market-clearing spread and yield curve assumptions. Valuation inputs with regard to the underlying collateral incorporate weighted average coupon, loan-to-value, credit scores, geographic location, maximum and average loan size, originator, servicer, and weighted average loan age. Agency inverse IOs are categorized within Level 2 or Level 3 of the fair value hierarchy. We also use vendor data in developing our assumptions, as appropriate.

Non-Agency Residential Mortgage-Backed Securities: Fair values are determined primarily using discounted cash flow methodologies and securities are categorized within Level 2 or Level 3 of the fair value hierarchy based on the observability and significance of the pricing inputs used. Performance attributes of the underlying mortgage loans are evaluated to estimate pricing inputs, such as prepayment rates, default rates and the severity of credit losses. Attributes of the underlying mortgage loans that affect the pricing inputs include, but are not limited to, weighted average coupon; average and maximum loan size; loan-to-value; credit scores; documentation type; geographic location; weighted average loan age; originator; servicer; historical prepayment, default and loss severity experience of the mortgage loan pool; and delinquency rate. Yield curves used in the discounted cash flow models are based on observed market prices for comparable securities and published interest rate data to estimate market yields.

Commercial Mortgage-Backed Securities

Agency Commercial Mortgage-Backed Securities: Government National Mortgage Association ("GNMA") project loans are measured based on inputs corroborated from and benchmarked to observed prices of recent securitization transactions of similar securities with adjustments incorporating an evaluation for various factors, including prepayment speeds, default rates, and cash flow structures as well as the likelihood of pricing levels in the current market environment. Federal National Mortgage Association ("FNMA") Delegated Underwriting and Servicing ("DUS") mortgage-backed securities are generally measured by using prices observed for recently executed market transactions to estimate market-clearing spread levels for purposes of estimating fair value. GNMA project loan bonds and FNMA DUS mortgage-backed securities are categorized within Level 2 of the fair value hierarchy.

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Non-Agency Commercial Mortgage-Backed Securities: Non-agency commercial mortgage-backed securities are measured using pricing data obtained from external pricing services and prices observed for recently executed market transactions and are categorized within Level 2 and Level 3 of the fair value hierarchy.

Other Asset-Backed Securities

Other asset-backed securities include, but are not limited to, securities backed by auto loans, credit card receivables and student loans and are categorized within Level 2 and Level 3 of the fair value hierarchy. Valuations are determined using pricing data obtained from external pricing services and prices observed for recently executed market transactions.

Loans and Other Receivables

Corporate Loans: Corporate loans categorized within Level 2 of the fair value hierarchy are measured based on market price quotations where market price quotations from external pricing services are supported by market transaction data. Corporate loans categorized within Level 3 of the fair value hierarchy are measured based on market price quotations that are considered to be less transparent, market prices for debt securities of the same creditor, and estimates of future cash flow incorporating assumptions regarding creditor default and recovery rates and consideration of the issuer's capital structure.

Participation Certificates in Agency Residential Loans: Valuations of participation certificates in agency residential loans are based on observed market prices of recently executed purchases and sales of similar loans. The loan participation certificates are categorized within Level 2 of the fair value hierarchy given the observability and volume of recently executed transactions and availability of data provider pricing.

Project Loans and Participation Certificates in GNMA Project and Construction Loans:  Valuations of participation certificates in GNMA project and construction loans are based on inputs corroborated from and benchmarked to observed prices of recent securitizations of assets with similar underlying loan collateral to derive an implied spread. Securitization prices are adjusted to estimate the fair value of the loans incorporating an evaluation for various factors, including prepayment speeds, default rates, and cash flow structures as well as the likelihood of pricing levels in the current market environment. The measurements are categorized within Level 2 of the fair value hierarchy given the observability and volume of recently executed transactions.

Consumer Loans and Funding Facilities:  Consumer and small business whole loans and related funding facilities are valued based on observed market transactions incorporating additional valuation inputs including, but not limited to, delinquency and default rates, prepayment rates, borrower characteristics, loan risk grades and loan age. These assets are categorized within Level 2 or Level 3 of the fair value hierarchy.

Escrow and Trade Claim Receivables: Escrow and trade claim receivables are categorized within Level 3 of the fair value hierarchy where fair value is estimated based on reference to market prices and implied yields of debt securities of the same or similar issuers. Escrow and trade claim receivables are categorized within Level 2 of the fair value hierarchy where fair value is based on recent trade activity in the same security.

Derivatives

Listed Derivative Contracts: Listed derivative contracts that are actively traded are measured based on quoted exchange prices, which are generally obtained from external pricing services, and are categorized within Level 1 of the fair value hierarchy. Listed derivatives for which there is limited trading activity are measured based on incorporating the closing auction price of the underlying equity security, use similar valuation approaches as those applied to over-the-counter derivative contracts and are categorized within Level 2 of the fair value hierarchy.

OTC Derivative Contracts: Over-the-counter ("OTC") derivative contracts are generally valued using models, whose inputs reflect assumptions that we believe market participants would use in valuing the derivative in a current period transaction. Inputs to valuation models are appropriately calibrated to market data. For many OTC derivative contracts, the valuation models do not involve material subjectivity as the methodologies do not entail significant judgment and the inputs to valuation models do not involve a high degree of subjectivity as the valuation model inputs are readily observable or can be derived from actively quoted markets. OTC derivative contracts are primarily categorized within Level 2 of the fair value hierarchy given the observability and significance of the inputs to the valuation models. Where significant inputs to the valuation are unobservable, derivative instruments are categorized within Level 3 of the fair value hierarchy.

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OTC options include OTC equity, foreign exchange and commodity options measured using various valuation models, such as the Black-Scholes, with key inputs impacting the valuation including the underlying security, foreign exchange spot rate or commodity price, implied volatility, dividend yield, interest rate curve, strike price and maturity date. Discounted cash flow models are utilized to measure certain OTC derivative contracts including the valuations of our interest rate swaps, which incorporate observable inputs related to interest rate curves, valuations of our foreign exchange forwards and swaps, which incorporate observable inputs related to foreign currency spot rates and forward curves and valuations of our commodity swaps and forwards, which incorporate observable inputs related to commodity spot prices and forward curves. Credit default swaps include both index and single-name credit default swaps. External prices are available as inputs in measuring index credit default swaps and single-name credit default swaps. For commodity and equity total return swaps, market prices are observable for the underlying asset and used as the basis for measuring the fair value of the derivative contracts. Total return swaps executed on other underlyings are measured based on valuations received from external pricing services.

Physical Commodities

Physical commodities include base and precious metals and are measured using observable inputs including spot prices and published indices. Physical commodities are categorized within Level 2 of the fair value hierarchy. To facilitate the trading in precious metals we undertake leasing of such precious metals. The fees earned or paid for such leases are recorded as Principal transaction revenues on the Consolidated Statements of Earnings.

Investments at Fair Value and Investments in Managed Funds

Investments at fair value and Investments in managed funds include investments in hedge funds, fund of funds, private equity funds, convertible bond funds and commodity funds, which are measured at fair value based on the net asset value of the funds provided by the fund managers and are categorized within Level 2 or Level 3 of the fair value hierarchy. Investments at fair value also include direct equity investments in private companies, which are measured at fair value using valuation techniques involving quoted prices of or market data for comparable companies, similar company ratios and multiples ( e.g. , price/EBITDA, price/book value), discounted cash flow analyses and transaction prices observed for subsequent financing or capital issuance by the company. Direct equity investments in private companies are categorized within Level 2 or Level 3 of the fair value hierarchy. Additionally, investments at fair value include investments in insurance contracts relating to our defined benefit plan in Germany. Fair value for the insurance contracts is determined using a third party and is categorized within Level 3 of the fair value hierarchy.

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The following tables present information about our investments in entities that have the characteristics of an investment company at November 30, 2014 and November 30, 2013 (in thousands):

November 30, 2014
Fair Value (1) Unfunded
Commitments
Redemption Frequency
(if currently eligible)

Equity Long/Short Hedge Funds (2)

$ 44,983 $ -   Monthly, Quarterly

High Yield Hedge Funds (3)

204 -   -

Fund of Funds (4)

323 94 -

Equity Funds (5)

65,216 26,023 -

Convertible Bond Funds (6)

3,355 -   At Will

Total (7)

$ 114,081 $ 26,117

November 30, 2013
Fair Value (1) Unfunded
Commitments
Redemption Frequency
(if currently eligible)

Equity Long/Short Hedge Funds (2)

$ 20,927 $ -   Monthly, Quarterly

High Yield Hedge Funds (3)

244 -   -

Fund of Funds (4)

494 94 -

Equity Funds (5)

66,495 40,816 -

Convertible Bond Funds (6)

3,473 -   At Will

Total (7)

$ 91,633 $ 40,910

(1) Where fair value is calculated based on net asset value, fair value has been derived from each of the funds' capital statements.
(2) This category includes investments in hedge funds that invest, long and short, in equity securities in domestic and international markets in both the public and private sectors. At November 30, 2014 and November 30, 2013, investments representing approximately 99% and 98%, respectively, of the fair value of investments in this category are redeemable with 30-90 days prior written notice.
(3) Includes investments in funds that invest in domestic and international public high yield debt, private high yield investments, senior bank loans, public leveraged equities, distressed debt, and private equity investments. There are no redemption provisions. The underlying assets of the funds are being liquidated and we are unable to estimate when the underlying assets will be fully liquidated.
(4) Includes investments in fund of funds that invest in various private equity funds. At November 30, 2014 and November 30, 2013, approximately 95% and 98%, respectively, of the fair value of investments in this category are managed by us and have no redemption provisions, instead distributions are received through the liquidation of the underlying assets of the fund of funds, which are estimated to be liquidated in approximately two years. For the remaining investments we have requested redemption; however, we are unable to estimate when these funds will be received.
(5) At November 30, 2014 and November 30, 2013, investments representing approximately 99% and 99%, respectively, of the fair value of investments in this category include investments in equity funds that invest in the equity of various U.S. and foreign private companies in the energy, technology, internet service and telecommunication service industries. These investments cannot be redeemed, instead distributions are received through the liquidation of the underlying assets of the funds which are expected to liquidate in one to eight years. The remaining investments are in liquidation and we are unable to estimate when the underlying assets will be fully liquidated.
(6) This category represents an investment in the Jefferies Umbrella Fund, an open-ended investment company managed by us that invests primarily in convertible bonds. The investment is redeemable with five days prior written notice.
(7) Investments at fair value in the Consolidated Statements of Financial Condition at November 30, 2014 and November 30, 2013 include $128.8 million and $66.9 million, respectively, of direct investments which do not have the characteristics of investment companies and therefore not included within this table.

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Other Secured Financings

Other secured financings that are accounted for at fair value include notes issued by consolidated VIEs, which are classified as Level 2 or Level 3 within the fair value hierarchy. Fair value is based on recent transaction prices for similar assets. In addition, at November 30, 2014 and November 30, 2013, Other secured financings includes $7.8 million and $8.7 million, respectively, related to transfers of loans accounted for as secured financings rather than as sales and classified as Level 3 within the fair value hierarchy.

Embedded Conversion Option

The embedded conversion option presented within long-term debt represents the fair value of the conversion option on Leucadia shares within our 3.875% Convertible Senior Debentures, due November 1, 2029 and categorized as Level 3 within the fair value hierarchy. The conversion option was valued using a convertible bond model using as inputs the price of Leucadia's common stock, the conversion strike price, 252-day historical volatility, a maturity date of November 1, 2017 (the first put date), dividend yield and the risk-free interest rate curve.

Pricing Information

At November 30, 2014 and November 30, 2013, our Financial instruments owned and Financial instruments sold, not yet purchased are measured using different valuation bases as follows:

November 30, 2014 November 30, 2013
Financial
Instruments
Owned
Financial
Instruments Sold,
Not Yet
Purchased
Financial
Instruments
Owned
Financial
Instruments Sold,
Not Yet
Purchased

Exchange closing prices

12 20 12 25

Recently observed transaction prices

4 2 5 4

External pricing services

71 69 68 66

Broker quotes

4 3 3 3

Valuation techniques

9 6 12 2

100 100 100 100

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The following is a summary of changes in fair value of our financial assets and liabilities that have been categorized within Level 3 of the fair value hierarchy for the year ended November 30, 2014 (in thousands):

Successor
Year Ended November 30, 2014
Balance at
November 30,
2013
Total gains/
losses (realized
and unrealized)
(1)
Purchases Sales Settlements Issuances Net transfers
into/(out of)
Level 3
Balance at
November
30, 2014
Change in unrealized
gains/(losses) relating to
instruments still held at
November 30, 2014 (1)

Assets:

Financial instruments owned:

Corporate equity securities

$ 9,884 $ 957 $ 18,138 $ (12,826 $ -   $ -   $ 4,811 $ 20,964 $ 2,324

Corporate debt securities

25,666 2,456 62,933 (51,094 -   -   15,867 55,918 16,000

Collateralized debt obligations

37,216 (2,303 179,720 (170,991 (1,297 -   49,153 91,498 8,159

U.S government and federal agency securities

-   13 2,505 (2,518 -   -   -   -   -  

Residential mortgage-backed securities

105,492 (9,870 42,632 (61,689 (1,847 -   7,839 82,557 (4,679

Commercial mortgage-backed securities

17,568 (4,237 49,159 (51,360 (782 -   16,307 26,655 (2,384

Other asset-backed securities

12,611 1,784 4,987 (18,002 -   -   914 2,294 1,484

Loans and other receivables

145,890 (31,311 130,169 (92,140 (60,390 -   5,040 97,258 (26,864

Investments, at fair value

101,242 16,522 34,993 (46,315 (1,243 -   (9,810 95,389 865

Investments in managed funds

57,285 (13,541 14,876 (315 -   -   (3,323 54,982 (13,541

Liabilities:

Financial instruments sold, not yet purchased:

Corporate equity securities

$ 38 $ -   $ -   $ -   $ -   $ -   $ -   $ 38 $ -  

Corporate debt securities

-   (149 (565 960 -   -   (23 223 (8

Net derivatives (2)

6,905 15,055 (24,682 1,094 322 -   (3,332 (4,638 (15,615

Loans

22,462 -   (18,332 11,338 -   -   (1,018 14,450 -  

Other secured financings

8,711 -   -   -   (17,525 39,639 -   30,825 -  

Embedded conversion option

9,574 (8,881 -   -   -   -   -   693 8,881

(1) Realized and unrealized gains/losses are reported in Principal transaction revenues in the Consolidated Statements of Earnings.
(2) Net derivatives represent Financial instruments owned-Derivatives and Financial instruments sold, not yet purchased-Derivatives.

Analysis of Level 3 Assets and Liabilities for the Year Ended November 30, 2014

During the year ended November 30, 2014, transfers of assets of $145.0 million from Level 2 to Level 3 of the fair value hierarchy are primarily attributed to:

Non-agency residential mortgage-backed securities of $30.3 million and commercial mortgage-backed securities of $16.6 million for which no recent trade activity was observed for purposes of determining observable inputs;

Loans and other receivables of $8.5 million due to a lower number of contributors comprising vendor quotes to support classification within Level 2;

Collateralized debt obligations of $49.6 million which have little to no transparency related to trade activity;

Corporate debt securities of $23.4 million, corporate equity securities of $9.7 million and investments at fair value of $5.8 million due to a lack of observable market transactions.

During the year ended November 30, 2014, transfers of assets of $58.2 million from Level 3 to Level 2 are primarily attributed to:

Non-agency residential mortgage-backed securities of $22.4 million for which market trades were observed in the period for either identical or similar securities;

Loans and other receivables of $3.5 million and investments at fair value of $15.6 million due to a greater number of contributors for certain vendor quotes supporting classification into Level 2;

Corporate equity securities of $4.9 million, corporate debt securities of $7.5 million and investments in managed funds $3.5 million due to an increase in observable market transactions.

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There were $1.0 million transfers of loan liabilities from Level 3 to Level 2 and $3.3 million transfers of net derivative liabilities from Level 3 to Level 2 due to an increase in observable inputs in the valuation and an increase in observable inputs used in the valuing of derivative contracts, respectively.

Net losses on Level 3 assets were $39.4 million and net losses on Level 3 liabilities were $6.0 million for the year ended November 30, 2014. Net losses on Level 3 assets were primarily due to a decrease in valuation of certain loans and other receivables, residential and commercial mortgage-backed securities and investments in managed funds, partially offset by increased valuations of certain investments at fair value and corporate debt securities. Net losses on Level 3 liabilities were primarily due to increased valuations of certain derivatives, partially offset by decreased valuations of the embedded conversion option.

The following is a summary of changes in fair value of our financial assets and liabilities that have been categorized within Level 3 of the fair value hierarchy for the nine months ended November 30, 2013 (in thousands):

Successor
Nine Months Ended November 30, 2013
Balance,
February 28,
2013
Total gains/losses
(realized and
unrealized) (1)
Purchases Sales Settlements Issuances Net
transfers
into/(out
of)
Level 3
Balance,
November
30, 2013
Change in
unrealized gains/
(losses) relating to
instruments still
held at November
30, 2013 (1)

Assets:

Financial instruments owned:

Corporate equity securities

$ 13,234 $ 1,551 $ 3,583 $ (7,141 $ -   $ -   $ (1,343 $ 9,884 $ (419

Corporate debt securities

31,820 (2,454 31,014 (34,125 -   -   (589 25,666 (2,749

Collateralized debt obligations

24,736 (2,309 45,437 (32,874 -   -   2,226 37,216 (8,384

Residential mortgage-backed securities

169,426 (4,897 89,792 (150,807 (11,007 -   12,985 105,492 (6,932

Commercial mortgage-backed securities

17,794 (4,469 20,130 (13,538 (100 -   (2,249 17,568 (3,794

Other asset-backed securities

1,292 (4,535 105,291 (104,711 -   -   15,274 12,611 (3,497

Loans and other receivables

170,986 15,008 287,757 (115,231 (211,805 -   (825 145,890 13,402

Investments, at fair value

75,067 1,678 28,594 (102 (5,012 -   1,017 101,242 1,705

Investments in managed funds

59,976 9,863 15,651 (17 (28,188 -   -   57,285 9,863

Liabilities:

Financial instruments sold, not yet purchased:

Corporate equity securities

$ 38 $ -   $ -   $ -   $ -   $ -   $ -   $ 38 $ -  

Residential mortgage-backed securities

1,542 (1,542 -   -   -   -   -   -   -  

Net derivatives (2)

11,185 4,408 -   (300 (8,515 -   127 6,905 1,609

Loans

7,398 2,959 (16,027 28,065 67 -   -   22,462 (2,970

Other secured financings

-   -   -   -   -   8,711 -   8,711 -  

Embedded conversion option (3)

16,488 (6,914 -   -   -   -   -   9,574 6,914

(1) Realized and unrealized gains/losses are reported in Principal transaction revenues in the Consolidated Statements of Earnings.
(2) Net derivatives represent Financial instruments owned – Derivatives and Financial instruments sold, not yet purchased – Derivatives.
(3) The embedded conversion option of $16.5 million is at March 1, 2013, upon completion of the Leucadia Transaction (See Note 14.)

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Analysis of Level 3 Assets and Liabilities for the Nine Months Ended November 30, 2013

During the nine months ended November 30, 2013, transfers of assets of $82.4 million from Level 2 to Level 3 of the fair value hierarchy are attributed to:

Non-agency residential mortgage-backed securities of $58.8 million and other asset-backed securities of $16.4 million for which no recent trade activity was observed for purposes of determining observable inputs;

Loans and other receivables of $0.8 million due to a lower number of contributors comprising vendor quotes to support classification within Level 2.

Corporate equity securities of $2.3 million, corporate debt securities of $0.2 million and investments at fair value of $1.0 million due to lack of observable market transactions;

Collateralized debt obligations of $2.8 million which have little to no transparency in trade activity;

During the nine months ended November 30, 2013, transfers of assets of $55.9 million from Level 3 to Level 2 are attributed to:

Non-agency residential mortgage-backed securities of $45.9 million, commercial mortgage-backed securities of $2.2 million and other asset-backed securities of $1.1 million for which market trades were observed in the period for either identical or similar securities;

Collateralized debt obligations of $0.6 million and loans and other receivables of $1.7 million due to a greater number of contributors for certain vendor quotes supporting classification into Level 2;

Corporate equity securities of $3.6 million and corporate debt securities of $0.8 million due to an increase in observable market transactions.

During the nine months ended November 30, 2013, there were no transfers of liabilities from Level 2 to Level 3 and there were $0.1 million transfers of net derivative liabilities from Level 3 to Level 2 due to an increase in observable inputs used in the valuing of derivative contracts.

Net gains on Level 3 assets were $9.4 million and net losses on Level 3 liabilities were $1.1 million for the nine months ended November 30, 2013, respectively. Net gains on Level 3 assets were primarily due to increased valuations of certain corporate equity securities, loans and other receivables, investments at fair value and investments in managed funds, partially offset by a decrease in valuation of certain corporate debt securities, collateralized debt obligations, residential and commercial mortgage-backed securities and other asset-backed securities. Net losses on Level 3 liabilities were primarily due to increased valuations of certain derivative instruments and loan positions.

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The following is a summary of changes in fair value of our financial assets and liabilities that have been categorized within Level 3 of the fair value hierarchy for the three months ended February 28, 2013 (in thousands):

Predecessor
Three Months Ended February 28, 2013 (1)
Balance at
November
30, 2012
Total gains/
losses (realized
and unrealized)
(2)
Purchases Sales Settlements Net transfers
into/(out of)
Level 3
Balance at
February 28,
2013
Change in unrealized
gains/(losses) relating
to instruments still held
at February 28, 2013
(2)

Assets:

Financial instruments owned:

Corporate equity securities

$ 16,815 $ 200 $ 707 $ 109 $ -   $ (4,597 $ 13,234 $ 172

Corporate debt securities

3,631 7,836 11,510 (1,918 -   10,761 31,820 7,833

Collateralized debt obligations

31,255 3,584 4,406 (17,374 -   2,865 24,736 (1,165

Residential mortgage-backed securities

156,069 11,906 132,773 (130,143 (6,057 4,878 169,426 4,511

Commercial mortgage-backed securities

30,202 (995 2,280 (2,866 (1,188 (9,639 17,794 (2,059

Other asset-backed securities

1,114 90 1,627 (1,342 (19 (178 1,292 39

Loans and other receivables

180,393 (8,682 105,650 (29,828 (61,407 (15,140 170,986 (12,374

Investments, at fair value

83,897 961 5,952 (4,923 (9,721 (1,099 75,067 1,171

Investments in managed funds

57,763 (363 11,068 -   (8,492 -   59,976 (363

Liabilities:

Financial instruments sold, not yet purchased:

Corporate equity securities

$ 38 $ -   $ -   $ -   $ -   $ -   $ 38 $ -  

Residential mortgage-backed securities

-   25 (73,846 75,363 -   -   1,542 (19

Net derivatives (3)

9,188 2,648 -   -   -   (651 11,185 (2,648

Loans

1,711 -   (1,711 7,398 -   -   7,398 -  

(1) There were no issuances during the three months ended February 28, 2013.
(2) Realized and unrealized gains/losses are reported in Principal transaction revenues in the Consolidated Statements of Earnings.
(3) Net derivatives represent Financial instruments owned-Derivatives and Financial instruments sold, not yet purchased-Derivatives.

Analysis of Level 3 Assets and Liabilities for the Three Months Ended February 28, 2013

During the three months ended February 28, 2013, transfers of assets of $100.5 million from Level 2 to Level 3 of the fair value hierarchy are attributed to:

Non-agency residential mortgage-backed securities of $78.4 million and commercial mortgage-backed securities of $1.3 million for which no recent trade activity was observed for purposes of determining observable inputs;

Corporate debt securities of $10.8 million and corporate equity securities of $0.1 million due to lack of observable market transactions;

Collateralized debt obligations of $5.3 million which have little to no transparency in trade activity;

Loans and other receivables of $4.8 million due to a lower number of contributors comprising vendor quotes to support classification within Level 2.

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During the three months ended February 28, 2013, transfers of assets of $112.7 million from Level 3 to Level 2 are attributed to:

Non-agency residential mortgage-backed securities of $73.5 million, commercial mortgage-backed securities of $10.9 million and $0.2 million of other asset-backed securities for which market trades were observed in the period for either identical or similar securities;

Loans and other receivables of $19.9 million and collateralized debt obligations of $2.4 million due to a greater number of contributors for certain vendor quotes supporting classification into Level 2;

Corporate equity securities of $4.7 million due to an increase in observable market transactions.

During the three months ended February 28, 2013, there were no transfers of liabilities from Level 2 to Level 3 and there were $0.7 million transfers of net derivative liabilities from Level 3 to Level 2 due to an increase in observable significant inputs used in valuing the derivative contracts.

Net gains on Level 3 assets were $14.5 million and net losses on Level 3 liabilities were $2.7 million for the three months ended February 28, 2013. Net gains on Level 3 assets were primarily due to increased valuations of certain residential mortgage-backed securities, corporate debt securities, collateralized debt obligations and investments at fair value, partially offset by a decrease in valuation of certain loans and other receivables, commercial mortgage-backed securities and investments in managed funds. Net losses on Level 3 liabilities were primarily due to increased valuations of certain derivative instruments.

Quantitative Information about Significant Unobservable Inputs used in Level 3 Fair Value Measurements at November 30, 2014 and November 30, 2013

The tables below present information on the valuation techniques, significant unobservable inputs and their ranges for our financial assets and liabilities, subject to threshold levels related to the market value of the positions held, measured at fair value on a recurring basis with a significant Level 3 balance. The range of unobservable inputs could differ significantly across different firms given the range of products across different firms in the financial services sector. The inputs are not representative of the inputs that could have been used in the valuation of any one financial instrument ( i.e., the input used for valuing one financial instrument within a particular class of financial instruments may not be appropriate for valuing other financial instruments within that given class). Additionally, the ranges of inputs presented below should not be construed to represent uncertainty regarding the fair values of our financial instruments; rather the range of inputs is reflective of the differences in the underlying characteristics of the financial instruments in each category.

For certain categories, we have provided a weighted average of the inputs allocated based on the fair values of the financial instruments comprising the category. We do not believe that the range or weighted average of the inputs is indicative of the reasonableness of uncertainty of our Level 3 fair values. The range and weighted average are driven by the individual financial instruments within each category and their relative distribution in the population. The disclosed inputs when compared with the inputs as disclosed in other periods should not be expected to necessarily be indicative of changes in our estimates of unobservable inputs for a particular financial instrument as the population of financial instruments comprising the category will vary from period to period based on purchases and sales of financial instruments during the period as well as transfers into and out of Level 3 each period.

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November 30, 2014

Financial Instruments Owned

Fair Value
(in thousands)

Valuation Technique

Significant Unobservable Input(s)

Input / Range Weighted
Average

Corporate equity securities

$ 19,814

Non-exchange traded securities

Market approach EBITDA (a) multiple 3.4 to 4.7 3.6
Scenario analysis Estimated recovery percentage 24% -  

Corporate debt securities

$ 22,766 Convertible bond model Discount rate/yield 32% -  

Collateralized debt obligations

$ 41,784 Discounted cash flows Constant prepayment rate 0% to 20% 13
Constant default rate 0% to 2% 2
Loss severity 0% to 70% 39
Yield 2% to 51% 16

Residential mortgage-backed securities

$ 82,557 Discounted cash flows Constant prepayment rate 1% to 50% 13
Constant default rate 1% to 100% 14
Loss severity 20% to 80% 50
Yield 3% to 13% 7

Commercial mortgage-backed securities

$ 26,655 Discounted cash flows Yield 8% to 12% 11
Cumulative loss rate 4% to 72% 15
Scenario analysis Estimated recovery percentage 90% -  

Other asset-backed securities

$ 2,294 Discounted cash flows Constant prepayment rate 8% -  
Constant default rate 3% -  
Loss severity 70% -  
Yield 7% -  

Loans and other receivables

$ 88,154 Comparable pricing Comparable loan price $100 to $101 $ 100.3
Market approach Yield 3% to 5% 4
EBITDA (a) multiple 3.4 to 8.2 7.6
Scenario analysis Estimated recovery percentage 10% to 41% 36

Derivatives

$ 54,190

Foreign exchange options

Option model Volatility 13% to 23% 17

Commodity forwards

Discounted cash flows Discount rate 17% -  

Loan commitments

Comparable pricing Comparable loan price $100 -  

Investments at fair value

$ 8,500

Private equity securities

Market approach Transaction Level $50 -  

Liabilities

Fair Value
(in thousands)

Valuation Technique

Significant Unobservable Input(s)

Input / Range Weighted
Average

Financial Instruments Sold, Not Yet Purchased:

Derivatives

$ 49,552

FX options

Option model Volatility 13% to 23% 17

Unfunded commitment

Comparable pricing Comparable loan price $89 to $100 $ 92.0
Credit spread 45bps -  
Market approach Yield 5% -  

Loans and other receivables

$ 14,450 Comparable pricing Comparable loan price $100 -  

Other secured financings

$ 30,825 Comparable pricing Comparable loan price $81-$100 $ 98.7

Embedded conversion option

$ 693 Option valuation model Historical volatility 18.9% -  

(a) Earnings before interest, taxes, depreciation and amortization ("EBITDA").

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November 30, 2013

Financial Instruments Owned

Fair Value
(in thousands)

Valuation Technique

Significant Unobservable Input(s)

Input / Range Weighted
Average

Corporate equity securities

$ 8,034

Non-exchange traded securities

Market approach EBITDA multiple 4.0 to 5.5 4.53

Warrants

Option model Volatility 36% -  

Corporate debt securities

$ 17,699 Scenario analysis Estimated recovery percentage 24% -  
Comparable pricing Comparable bond or loan price $69.10 to $70.50 $ 69.91
Market approach Yield 13% -  

Collateralized debt obligations

$ 34,316 Discounted cash flows Constant prepayment rate 0% to 20% 13
Constant default rate 2% to 3% 2
Loss severity 30% to 85% 38
Yield 3% to 91% 28

Residential mortgage-backed securities

$ 105,492 Discounted cash flows Constant prepayment rate 2% to 50% 11
Constant default rate 1% to 100% 17
Loss severity 30% to 90% 48
Yield 0% to 20% 7

Commercial mortgage-backed securities

$ 17,568 Discounted cash flows Yield 12% to 20% 14
Cumulative loss rate 5% to 28.2% 11

Other asset-backed securities

$ 12,611 Discounted cash flows Constant prepayment rate 4% to 30% 17
Constant default rate 2% to 11% 7
Loss severity 40% to 92% 64
Yield 3% to 29% 18

Loans and other receivables

$ 101,931 Comparable pricing Comparable bond or loan price $91 to $101 $ 98.90
Market approach Yield 8.75% to 13.5% 10
EBITDA (a) multiple 6.9 -  
Scenario analysis Estimated recovery percentage 16.9% to 92% 74

Derivatives

Loan commitments

$ 1,493 Comparable pricing Comparable bond or loan price $100.875 -  

Investments at fair value

Private equity securities

$ 30,203 Comparable pricing Comparable share price $414 -  
Market approach Discount rate 15% to 30% 23

Liabilities

Fair Value
(in thousands)

Valuation Technique

Significant Unobservable Input(s)

Input / Range Weighted
Average

Financial Instruments Sold, Not Yet Purchased:

Derivatives

Equity options

$ 8,398 Option model Volatility 36.25% to 41% 39

Loans

$ 8,106 Comparable pricing Comparable bond or loan price $101.88 -  

Other secured financings

$ 8,711 Comparable pricing Comparable loan price $99-$103 $ 101.7

Embedded conversion option

$ 9,574 Option valuation model Historical volatility 22.55% -  

The fair values of certain Level 3 assets and liabilities that were determined based on third-party pricing information, unadjusted past transaction prices, reported net asset value or a percentage of the reported enterprise fair value are excluded from the above tables. At November 30, 2014 and November 30, 2013, asset exclusions consisted of $180.0 million and $127.7 million, respectively, primarily comprised of investments in non-exchange traded securities, private equity securities, investments in reinsurance contracts, derivatives and certain corporate loans. At November 30, 2014, liability exclusions consisted of $0.3 million comprised of corporate equity and debt securities. At November 30, 2013, liability exclusions consisted of $14.4 million of corporate loan commitments.

Sensitivity of Fair Values to Changes in Significant Unobservable Inputs

For recurring fair value measurements categorized within Level 3 of the fair value hierarchy, the sensitivity of the fair value measurement to changes in significant unobservable inputs and interrelationships between those unobservable inputs (if any) are described below:

Private equity securities, corporate debt securities, other asset-backed securities, loans and other receivables and loan commitments using comparable pricing valuation techniques. A significant increase (decrease) in the comparable share, bond or loan price in isolation would result in a significant higher (lower) fair value measurement.

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Non-exchange traded securities and loans and other receivables using a market approach valuation technique. A significant increase (decrease) in the EBITDA or other multiples in isolation would result in a significantly higher (lower) fair value measurement. A significant increase (decrease) in the yield of a corporate debt security, loan and other receivable would result in a significantly lower (higher) fair value measurement. A significant increase (decrease) in the discount rate of a private equity security would result in a significantly lower (higher) fair value measurement.

Corporate debt securities and loans and other receivables using scenario analysis. A significant increase (decrease) in the possible recovery rates of the cash flow outcomes underlying the investment would result in a significantly higher (lower) fair value measurement for the financial instrument.

Collateralized debt obligations, residential and commercial mortgage-backed securities and other asset-backed securities using a discounted cash flow valuation technique. A significant increase (decrease) in isolation in the constant default rate, and loss severities or cumulative loss rate would result in a significantly lower (higher) fair value measurement. The impact of changes in the constant prepayment rate would have differing impacts depending on the capital structure of the security. A significant increase (decrease) in the loan or bond yield would result in a significant lower (higher) fair value measurement.

Derivative equity options and equity warrants using an option model. A significant increase (decrease) in volatility would result in a significant higher (lower) fair value measurement.

Private equity securities using a net asset value technique. A significant increase (decrease) in the discount applied to net asset value would result in a significant (lower) higher fair value measurement.

Fair Value Option Election

We have elected the fair value option for all loans and loan commitments made by our capital markets businesses. These loans and loan commitments include loans entered into by our investment banking division in connection with client bridge financing and loan syndications, loans purchased by our leveraged credit trading desk as part of its bank loan trading activities and mortgage loan commitments and fundings in connection with mortgage- and other asset-backed securitization activities. Loans and loan commitments originated or purchased by our leveraged credit and mortgage-backed businesses are managed on a fair value basis. Loans are included in Financial instruments owned and loan commitments are included in Financial instruments owned-Derivatives and Financial instruments sold, not yet purchased-Derivatives on the Consolidated Statements of Financial Condition. The fair value option election is not applied to loans made to affiliate entities as such loans are entered into as part of ongoing, strategic business ventures. Loans to affiliate entities are included within Loans to and investments in related parties on the Consolidated Statements of Financial Condition and are accounted for on an amortized cost basis. We have elected the fair value option for our investment in Knight Capital, which is included in Financial Instruments owned – Corporate equity securities on the Consolidated Statement of Financial Condition. (See Note 11, Investments for further details regarding our investment in Knight Capital.) We have also elected the fair value option for certain financial instruments held by subsidiaries as the investments are risk managed by us on a fair value basis. The fair value option has also been elected for certain secured financings that arise in connection with our securitization activities and other structured financings. Other secured financings, Receivables-Brokers, dealers and clearing organizations, Receivables-Customers, Receivables-Fees, interest and other, Payables-Brokers, dealers and clearing organizations and Payables-Customers are accounted for at cost plus accrued interest rather than at fair value; however, the recorded amounts approximate fair value due to their liquid or short-term nature.

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The following is a summary of gains (losses) due to changes in instrument specific credit risk on loans and other receivables and loan commitments measured at fair value under the fair value option (in thousands):

Successor Predecessor
Year Ended Nine Months Ended Three Months Ended Year Ended
November 30, 2014 November 30, 2013 February 28, 2013 November 30, 2012

Financial Instruments Owned:

Loans and other receivables

$ (24,785 $ 15,327 $ 3,924 $ 24,547

Financial Instruments Sold:

Loans

$ (585 $ (32 $ -   $ (55

Loan commitments

(15,459 (1,007 (2,746 (7,155

The following is a summary of the amount by which contractual principal exceeds fair value for loans and other receivables measured at fair value under the fair value option (in thousands):

November 30, 2014 November 30, 2013

Financial Instruments Owned:

Loans and other receivables (1)

$ 403,119 $ 264,896

Loans and other receivables greater than 90 days past due (1)

5,594 -  

Loans and other receivables on nonaccrual status (1)(2)

(22,360 -  

(1) Interest income is recognized separately from other changes in fair value and is included within Interest revenues on the Consolidated Statements of Earnings.
(2) Amount includes all loans and other receivables greater than 90 or more days past due.

The aggregate fair value of loans and other receivables that were 90 or more days past due was $-0- million and $-0- at November 30, 2014 and November 30, 2013, respectively.

The aggregate fair value of l