Jefferies Group, Inc. - Letter to Shareholders

(left) Richard B. Handler
Chairman of the Board of Directors and Chief
Executive Officer

(right) John C. Shaw, Jr.
Director, President and Chief Operating Officer

Management Letter to Shareholders

The year 2003 began with declining equity indices and moderate trading and capital markets activity. As geopolitical concerns lessened and the strength of the recovery became more evident, conditions steadily improved throughout the year, culminating with significant increases in market indices, a pickup in trading volumes, a rebound in M&A activity, and corporate issuance at its highest level since 2000. Having positioned ourselves for future growth during the past few challenging years, Jefferies began to witness the rewards of our strategy, performing well throughout the year and achieving the best results in our history.

We are proud to announce our fourth consecutive year of record earnings. Earnings per share (diluted) were up 25 percent to a record $1.42. Net earnings were up 34 percent to a record $84 million. Earnings before income taxes and minority interest were up 39 percent to a record $145 million. Total revenues were up 23 percent to a record $927 million. Investment banking net revenues were up 64 percent to a record $230 million. In addition, both Moody's and Standard & Poor's upgraded their credit ratings of Jefferies during the year. With these accomplishments, we have outstanding momentum going into 2004.

Improving capital markets and our diversification efforts, combined with hard work and a growing client base, all contributed to our outstanding performance. We have meaningfully diversified our business mix over the past few years to better serve middle-market clients with a more complete offering of products and services. Jefferies has significantly expanded many businesses, added several new ones, and now has more than 1,600 motivated employees, nearly all of whom are shareholders, serving the needs of our clients. Highlights for 2003 included significantly enhancing our asset management business and dramatically expanding our focus on middle-market technology and growth companies with the acquisition of Broadview International, a leading M&A advisor to technology companies.

To be a leading investment bank serving middle-market, growth companies and their investors, we will continue to foster a team-oriented approach and build meaningful relationships. We will also strive to keep our organization flat and flexible as we invest in additional human capital and contain costs at every level. Relationships, teamwork and integrity are the foundation on which we continue to build.

Four consecutive record years are truly a tribute to the loyalty of our clients and the determination of our employee-shareholders. We still see plenty of opportunity. Our team, from the support staff to the front line, is motivated, focused and committed to building on our success to date, and we believe this is only a glimpse of what we can accomplish. As always, we are extremely appreciative of the continued support of our shareholders and clients.

Richard B. Handler
Chairman of the Board of Directors and
Chief Executive Officer

John C. Shaw, Jr.
Director, President and
Chief Operating Officer