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

JEFFERIES GROUP LLC AND SUBSIDIARIES

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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JEFFERIES GROUP LLC AND SUBSIDIARIES

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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JEFFERIES GROUP LLC AND SUBSIDIARIES

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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JEFFERIES GROUP LLC AND SUBSIDIARIES

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 signifi