##### Table of Contents





SECURITIES AND EXCHANGE
    COMMISSION
 Washington, D.C.
    20549
      Form 10-K
      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For The Fiscal Year Ended
    December 31, 2007       VECTOR GROUP LTD.
 (Exact name of registrant as
    specified in its charter)
  Delaware

1-5759

65-0949535(State or other jurisdiction
    of
    incorporation or organization)

Commission File Number

(I.R.S. Employer Identification
    No.)   100 S.E. Second Street, Miami, Florida

33131(Address of principal executive
    offices)

(Zip Code)   (305)
    579-8000
 (Registrants telephone number, including area code)
      Securities registered pursuant to Section 12(b) of the
    Act:
  Title of Each Class

Name of Each Exchange on Which RegisteredCommon Stock, par value $.10 per share

New York Stock Exchange   Securities registered pursuant to Section 12(g) of the
    Act:
 None
  þ o
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. o
   Large
    accelerated
    filer  þ
    Accelerated
    filer  o
    Non-accelerated
    filer  o
    Smaller
    reporting
    company  o    Rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE:




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##### 





VECTOR
    GROUP LTD.FORM 10-KTABLE OF CONTENTS
   
 PagePART IItem 1.

Business


1Item 1A.

Risk Factors


17Item 1B.

Unresolved Staff Comments


29Item 2.

Properties


29Item 3.

Legal Proceedings


29Item 4.

Submission of Matters to a Vote of Security
    Holders; Executive Officers of the Registrant


30PART IIItem 5.

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


31Item 6.

Selected Financial Data


34Item 7.

Managements Discussion and Analysis of
    Financial Condition and Results of Operations


35Item 7A.

Quantitative and Qualitative Disclosures About
    Market Risk


61Item 8.

Financial Statements and Supplementary Data


61Item 9.

Changes In and Disagreements with Accountants on
    Accounting and Financial Disclosure


61Item 9A.

Controls and Procedures


61Item 9B.

Other Information


61PART IIIItem 10.

Directors, Executive Officers and Corporate
    Governance


61Item 11.

Executive Compensation


62Item 12.

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


62Item 13.

Certain Relationships and Related Transactions,
    and Director Independence


62Item 14.

Principal Accounting Fees and Services


62PART IVItem 15.

Exhibits and Financial Statement Schedules


62SIGNATURES


67EX-21 SUBSIDIARIES OF VECTOREX-23 CONSENT OF PUBLIC ACCOUNTING FIRMEX-31.1 SECTION 302 CERTIFICATION OF CEOEX-31.2 SECTION 302 CERTIFICATION OF CFOEX-32.1 SECTION 906 CERTIFICATION OF CEOEX-32.2 SECTION 906 CERTIFICATION OF CFOEX-99.1 MATERIAL LEGAL PROCEEDINGS




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##### Table of Contents



PART I  ITEM 1.
    BUSINESS  Overview
    
    the manufacture and sale of cigarettes in the United States
    through our subsidiary Liggett Group LLC,
    the development and marketing of the low nicotine and
    nicotine-free QUEST cigarette products and the development of
    reduced risk cigarette products through our subsidiary Vector
    Tobacco Inc., and
    the real estate business through our subsidiary, New Valley LLC,
    which is seeking to acquire additional operating companies and
    real estate properties. New Valley owns 50% of Douglas Elliman
    Realty, LLC, which operates the largest residential brokerage
    company in the New York metropolitan area.      Strategy
    Liggett
  
    Capitalize upon Liggetts cost advantage in the
    U.S. cigarette market due to the favorable treatment that
    it receives under the Master Settlement Agreement,
    Focus marketing and selling efforts on the discount segment,
    continue to build volume and margin in core discount brands
    (LIGGETT SELECT, GRAND PRIX and EVE) and utilize core brand
    equity to selectively build distribution,
    Continue product development to provide the best quality
    products relative to other discount products in the marketplace,
    Increase efficiency by developing and adopting an organizational
    structure to maximize profit potential,
    Selectively expand the portfolio of private and control label
    partner brands utilizing a pricing strategy that offers
    long-term list price stability for customers,
    Identify, develop and launch relevant new cigarette brands and
    other tobacco products to the market in the future, and
    Pursue strategic acquisitions of smaller tobacco manufacturers. 1




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##### Table of Contents



Vector
    Tobacco
  
    Take a measured approach to developing low nicotine and
    nicotine-free cigarettes, and
    Continue to conduct appropriate studies relating to the
    development of cigarettes that materially reduce risk to smokers.  New
    Valley
  
    Continue to grow Douglas Elliman Realty operations by utilizing
    its strong brand name recognition and pursuing strategic and
    financial opportunities,
    Continue to leverage our expertise as direct investors by
    actively pursuing real estate investments in the United States
    and abroad which we believe will generate above-market returns,
    Acquire operating companies through mergers, asset purchases,
    stock acquisitions or other means, and
    Invest New Valleys excess funds opportunistically in
    situations that we believe can maximize shareholder value.  Liggett
    Group LLC
  General.
      
    LIGGETT SELECT  the third-largest brand in the deep
    discount category,
    GRAND PRIX  a rapidly growing brand in the deep
    discount segment,
    EVE  a leading brand of 120 millimeter cigarettes in
    the branded discount category,
    PYRAMID  the industrys first deep discount
    product with a brand identity, and
    USA and various Partner Brands and private label brands.   2




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Grand Prix Grand Prix
            Business Strategy.
 3




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Sales, Marketing and
    Distribution.
        Trademarks.
  Manufacturing.
       4




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Competition.
               5




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The Medallion Company, Inc.
    Philip Morris Brand Transaction.
      90-day 90-day
    11-year
  90-day
 6




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##### Table of Contents



Vector
    Tobacco Inc.
    QUEST.
  end-of-phase II
        Manufacturing and Marketing.
  Competition.
 7




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Intellectual Property.
    Risks.
  Legislation
    and Regulation
      The
    Master Settlement Agreement and Other State Settlement
    Agreements
     8




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
    all claims of the Settling States and their respective political
    subdivisions and other recipients of state health care funds,
    relating to: (i) past conduct arising out of the use, sale,
    distribution, manufacture, development, advertising and
    marketing of tobacco products; (ii) the health effects of,
    the exposure to, or research, statements or warnings about,
    tobacco products; and
    all monetary claims of the Settling States and their respective
    subdivisions and other recipients of state health care funds,
    relating to future conduct arising out of the use of or exposure
    to, tobacco products that have been manufactured in the ordinary
    course of business.  12-month
    and/or per-unit
     9




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New
    Valley LLC
        Business
    Strategy
    Douglas
    Elliman Realty, LLC
   10




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Real Estate Brokerage Business. Real Trends
       11




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one-to-four
  Marketing.
  Competition.
     12




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Government Regulation.
    Truth-in-Lending
    Franchises and Trade Names.
      Residential Property Management
    Business.
 13




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##### Table of Contents



New
    Valley Realty Division
  Office Buildings.
  Hawaiian Hotel.
  20-acre
      St.  Regis Hotel,
    Washington, D.C.
 14




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Holiday Isle.
  Former
    Broker-Dealer Operations
     15




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Long-Term
    Investments
   16




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Employees
    Available
    Information
  Form 10-K, Form 10-Q, Form 8-K Form 10-K.
  ITEM 1A.
    RISK
    FACTORS    We and
    our subsidiaries have a substantial amount of
    indebtedness.
    We are a
    holding company and depend on cash payments from our
    subsidiaries, which are subject to contractual and other
    restrictions, in order to service our debt and to pay dividends
    on our common stock.
   17




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Our
    11% senior secured notes contain restrictive covenants that
    limit our operating flexibility.
    
    incur or guarantee additional indebtedness or issue preferred
    stock;
    pay dividends or distributions on, or redeem or repurchase,
    capital stock;
    create liens with respect to our assets;
    make investments, loans or advances;
    prepay subordinated indebtedness;
    enter into transactions with affiliates; and
    merge, consolidate, reorganize or sell our assets.      Liggett
    faces intense competition in the domestic tobacco
    industry.
     18




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Liggetts
    business is highly dependent on the discount cigarette
    segment.
    Liggetts
    market share is susceptible to decline.
    Liggett
    has significant sales to a single customer.
    The
    domestic cigarette industry has experienced declining unit sales
    in recent periods.
   19




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Litigation
    will continue to harm the tobacco industry.
          Schwab v. Philip Morris
 20




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##### Table of Contents



Schwab
  and/or
  Individual
    tobacco-related cases have increased as a result of the Florida
    Supreme Courts ruling in Engle.
  Engle R. J. Reynolds Tobacco
    Co
  Lukacs v. R.J. Reynolds Tobacco Company Lukacs Engle Engle Engle Engle
 21




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Engle
  Engle, Engle Engle Engle Engle
  Regulation
    and legislation may negatively impact sales of tobacco products
    and our financial condition.
      Liggett
    may have additional payment obligations under the Master
    Settlement Agreement and its other settlement agreements with
    the states.
   22




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Liggett
    may be adversely affected by recent legislation to eliminate the
    federal tobacco quota system.
    Excise
    tax increases adversely affect cigarette sales.
   23




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Vector
    Tobacco is subject to risks inherent in new product development
    initiatives.
      Risks of market acceptance of new products.
    Third party allegations that Vector Tobacco products are
    unlawful or bear deceptive or unsubstantiated product
    claims.
 24




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Potential extensive government
    regulation.
  Competition from other cigarette manufacturers with greater
    resources.
  Potential disputes concerning intellectual
    property.
  Intellectual property rights, including Vector Tobaccos
    patents involve complex legal and factual
    issues
     25




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##### Table of Contents



Dependence on key scientific personnel.
  Ability to raise capital and manage growth of
    business.
  Potential delays in obtaining tobacco and other raw materials
    needed to produce products.
  New
    Valley is subject to risks relating to the industries in which
    it operates.
  Risks of real estate ventures.
  New Valley may pursue a variety of real estate development
    projects.
  Risks relating to the residential brokerage
    business.
  
    coordinate with the franchiser on significant matters relating
    to their operations, including the opening and closing of
    offices;
    make substantial royalty payments to the franchiser and
    contribute significant amounts to national advertising funds
    maintained by the franchiser;
    indemnify the franchiser against losses arising out of the
    operations of their business under the franchise
    agreements; and 26




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
    maintain standards and comply with guidelines relating to their
    operations which are applicable to all franchisees of the
    franchisers real estate franchise system.      Douglas Elliman Realty could be negatively impacted by a
    downturn in the residential real estate
    market
  and/or
  
    periods of economic slowdown or recession;
    rising interest rates;
    the general availability of mortgage financing, including:  
    the impact of the recent contraction in the subprime and
    mortgage markets generally; and
    the effect of more stringent lending standards for home
    mortgages;  
    adverse changes in economic and general business conditions in
    the New York metropolitan area;
    a decrease in the affordability of homes;
    declining demand for real estate;
    a negative perception of the market for residential real estate;
    commission pressure from brokers who discount their commissions;
    acts of God, such as hurricanes, earthquakes and other natural
    disasters, or acts or threats of war or terrorism; and/or
    an increase in the cost of homeowners insurance.  All of Douglas Elliman Realtys current operations are
    located in the New York metropolitan area.
  Potential
    new investments we may make are unidentified and may not
    succeed.
   27




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We depend
    on our key personnel.
    We are
    exposed to risks from legislation requiring companies to
    evaluate their internal control over financial
    reporting.
    The price
    of our common stock may fluctuate significantly, and this may
    make it difficult for you to resell the shares of our common
    stock when you want or at prices you find attractive.
      
    actual or anticipated fluctuations in our operating results;
    changes in expectations as to our future financial performance,
    including financial estimates by securities analysts and
    investors;
    the operating and stock performance of our competitors;
    announcements by us or our competitors of new products or
    services or significant contract, acquisitions, strategic
    partnerships, joint ventures or capital commitments;
    the initiation or outcome of litigation;
    changes in interest rates;
    general economic, market and political conditions;
    additions or departures of key personnel; and
    future sales of our equity or convertible securities.     28




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We have
    many potentially dilutive securities outstanding.
    ITEM 1B.
    UNRESOLVED
    STAFF COMMENTS    ITEM 2.
    PROPERTIES        Approximate TotalType

Location


Owned or Leased


Square FootageStorage Facilities


Danville, VA



Owned



578,000Office and ManufacturingComplex


Mebane, NC



Owned



240,000Warehouse


Mebane, NC



Owned



60,000Warehouse


Mebane, NC



Leased



50,000Warehouse


Mebane, NC



Leased



30,000Warehouse


Mebane, NC



Leased



2,000Warehouse


Mebane, NC



Leased



22,000       ITEM 3.
    LEGAL
    PROCEEDINGS   29




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ITEM 4.
    SUBMISSION
    OF MATTERS TO A VOTE OF SECURITY HOLDERS    EXECUTIVE
    OFFICERS OF THE REGISTRANT
    Year Individualbecame anName

Age


Position

Executive OfficerBennett S. LeBow


70


Executive Chairman


1990Howard M. Lorber


59


President and Chief


2001Executive OfficerRichard J. Lampen


54


Executive Vice President


1996J. Bryant Kirkland III


42


Vice President, Chief


2006Financial Officer and TreasurerMarc N. Bell


47


Vice President, General


1998Counsel and SecretaryRonald J. Bernstein


54


President and Chief


2000Executive Officer of Liggett   Bennett S. LeBow
  Howard M. Lorber
  Richard J. Lampen
 30




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J. Bryant Kirkland III
  Marc N. Bell
  Ronald J. Bernstein
 PART II  ITEM 5.
    MARKET
    FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
    AND ISSUER PURCHASES OF EQUITY SECURITIES    Year

High


Low


Cash Dividends2007:Fourth Quarter

$
23.00


$
19.85


$
.40Third Quarter


23.75



19.82



.38Second Quarter


21.82



16.52



.38First Quarter


18.22



16.17



.382006:Fourth Quarter

$
17.58


$
15.05


$
.38Third Quarter


16.73



14.11



.36Second Quarter


17.31



13.78



.36First Quarter


17.49



15.55



.36    31




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32




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Performance
    Graph
    
  12/02



12/03



12/04



12/05



12/06



12/07Vector Group Ltd.



100




164




193




243




275




353S&P 500



100




128




142




149




172




182S&P MidCap



100




135




157




177




195




211AMEX Tobacco



100




133




171




191




266




293   Unregistered
    Sales of Equity Securities and Use of Proceeds
    Issuer
    Purchases of Equity Securities
   33




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ITEM 6.
    SELECTED
    FINANCIAL DATA  Year Ended December 31,2007


2006


2005


2004


2003(Dollars in thousands, except per share amounts)Statement of Operations Data:Revenues(1)

$
555,430


$
506,252


$
478,427


$
498,860


$
529,385Income (loss) from continuing operations


73,803



42,712



42,585



4,462



(16,132
)Income from discontinued operations










3,034



2,689



522Extraordinary item










6,766







Net income (loss)


73,803



42,712



52,385



7,151



(15,610
)Per basic common share(2):Income (loss) from continuing operations

$
1.16


$
0.70


$
0.87


$
0.09


$
(0.34
)Income from discontinued operations









$
0.06


$
0.06


$
0.01Income from extraordinary item









$
0.14







Net income (loss) applicable to common shares

$
1.16


$
0.70


$
1.07


$
0.15


$
(0.33
)Per diluted common share(2):Income (loss) from continuing operations

$
1.13


$
0.68


$
0.82


$
0.09


$
(0.34
)Income from discontinued operations









$
0.06


$
0.05


$
0.01Income from extraordinary items









$
0.13







Net income (loss) applicable to common shares

$
1.13


$
0.68


$
1.01


$
0.14


$
(0.33
)Cash distributions declared per common share(2)

$
1.54


$
1.47


$
1.40


$
1.33


$
1.27Balance Sheet Data:Current assets

$
395,626


$
303,156


$
319,099


$
242,124


$
314,741Total assets


785,289



637,462



603,552



535,927



628,212Current liabilities


109,337



168,786



128,100



119,835



173,086Notes payable, embedded derivatives, long-term debt and other
    obligations, less current portion


378,760



198,777



277,613



279,800



299,977Non-current employee benefits, deferred income taxes, minority
    interests and other long-term liabilities


196,340



174,922



168,773



225,509



201,624Stockholders equity (deficit)


100,852



94,977



29,066



(89,217
)


(46,475
)     (1)
    
    Revenues include federal excise taxes of $176,269, $174,339,
    $161,753, $175,674 and $195,342, respectively.(2)
    
    Per share computations include the impact of 5% stock dividends
    on September 28, 2007, September 29, 2006,
    September 29, 2005, September 29, 2004 and
    September 29, 2003. 34




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ITEM 7.
    MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS  (Dollars
    in Thousands, Except Per Share Amounts)
  Overview
    
    the manufacture and sale of cigarettes in the United States
    through our subsidiary Liggett Group LLC,
    the development and marketing of the low nicotine and
    nicotine-free QUEST cigarette products and the development of
    reduced risk cigarette products through our subsidiary Vector
    Tobacco Inc., and
    the real estate business through our subsidiary, New Valley LLC,
    which is seeking to acquire additional operating companies and
    real estate properties. New Valley owns 50% of Douglas Elliman
    Realty, LLC, which operates the largest residential brokerage
    company in the New York metropolitan area.          
    LIGGETT SELECT  the third largest brand in the deep
    discount category,
    GRAND PRIX  a rapidly growing brand in the deep
    discount segment,
    EVE  a leading brand of 120 millimeter cigarettes in
    the branded discount category,
    PYRAMID  the industrys first deep discount
    product with a brand identity, and
    USA and various Partner Brands and private label brands.     35




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end-of-phase II
      Recent
    Developments
  Issuance of 11% Senior Secured Notes.
  LTS Debt Exchange Agreement.
   36




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NASA Settlement.
  Proposed and enacted excise tax
    increases.
  Tobacco Settlement Agreements.
         37




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Real Estate Activities.
  Potential Sale of St.  Regis
    Hotel.
  Recent
    Developments in Tobacco-Related Litigation
     38




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Schwab v. Philip Morris Schwab
  and/or
  Engle
 39




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Engle Engle Lukacs v. R. J. Reynolds Tobacco Company Engle Engle
    Critical
    Accounting Policies
  General.
  No. 05-8,
  Revenue Recognition.
 40




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No. 06-3,
  Marketing Costs.
  Restructuring and Asset Impairment Charges. EITF 94-3,
  Contingencies. Engle
  Settlement Agreements.
 41




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Derivatives; Beneficial Conversion Feature.
        Inventories. last-in, first-in,
  Stock-Based Compensation. ,
 42




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Employee Benefit Plans. 10-year
      Income Taxes.
 43




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Results
    of Operations
      Year Ended December 31,2007


2006


2005(Dollars in Thousands)Revenues:Liggett

$
551,687


$
499,468


$
468,652Vector Tobacco


3,743



6,784



9,775Total revenues

$
555,430


$
506,252


$
478,427Operating income (loss):Liggett

$
159,347


$
140,508
(1)

$
143,361
(2)Vector Tobacco


(9,896
)


(13,971
)(1)


(14,992
)(2)Total tobacco


149,451



126,537



128,369Corporate and other


(23,947
)


(25,508
)


(39,258
)Total operating income

$
125,504


$
101,029
(1)

$
89,111
(2)     (1)
    
    Includes a gain on sale of assets at Liggett of $2,217 in 2006
    and a loss on sale of assets of $7 at Vector Tobacco,
    restructuring charges of $2,664 at Vector Tobacco and a reversal
    of restructuring charges of $116 at Liggett.(2)
    
    Includes a special federal quota stock liquidation assessment
    under the federal tobacco buyout legislation of $5,219 in 2005
    ($5,150 at Liggett and $69 at Vector Tobacco), gain on sale of
    assets at Liggett of $12,748 in 2005 and a reversal of
    restructuring charges of $114 at Liggett and $13 at Vector
    Tobacco in 2005.  2007
    Compared to 2006
  Revenues.
  Tobacco Revenues.
   44




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Tobacco Gross Profit.
        Expenses.
    Other Income (Expenses).
 45




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Income before income taxes.
  Income tax provision.
    2006
    Compared to 2005
  Revenues.
  Tobacco Revenues.
   46




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Tobacco Gross Profit.
        Expenses.
        Other Income (Expenses).
 47




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th
  Income from Continuing Operations.
  Liquidity
    and Capital Resources
           48




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Liggett. 30-day
 49




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50




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Engle Engle Engle
    V.T. Aviation. 30-day
  VGR Aviation. 30-day
  Vector Tobacco.
  Vector. and/or
 51




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52




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120-day
  3 4
    90-day 90-day 90-day
 53




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Long-Term
    Financial Obligations and Other Commercial Commitments
    Fiscal YearContractual Obligations

2008


2009


2010


2011


2012


Thereafter


TotalLong-term debt(1)

$
20,618


$
18,794


$
3,525


$
113,735


$
9,450


$
264,000


$
430,122Operating leases(2)


4,051



3,466



2,698



2,634



2,521



949



16,319Inventory purchase commitments(3)


12,421























12,421Capital expenditure purchase commitments(4)


3,657























3,657New Valley obligations under limited partnership agreements


372























372Interest payments(5)


51,943



52,074



51,095



52,416



33,737



345,375



586,640Total(6),(7)

$
93,062


$
74,334


$
57,318


$
168,785


$
45,708


$
610,324


$
1,049,531     (1)
    
    Long-term debt is shown before discount. For more information
    concerning our long-term debt, see Liquidity and Capital
    Resources above and Note 7 to our consolidated
    financial statements.(2)
    
    Operating lease obligations represent estimated lease payments
    for facilities and equipment. The amounts presented do not
    include amounts scheduled to be received under non-cancelable
    operating subleases of $1,042 in 2008, $1,024 in 2009, $946 in
    2010, $965 in 2011, $965 in 2012 and $402 thereafter. See
    Note 8 to our consolidated financial statements.(3)
    
    Inventory purchase commitments represent purchase commitments
    under our leaf inventory management program. See Note 4 to
    our consolidated financial statements. 54




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(4)
    
    Capital expenditure purchase commitments represent purchase
    commitments for machinery and equipment at Liggett and Vector
    Tobacco. See Note 5 to our consolidated financial
    statements.(5)
    
    Interest payments are based on current interest rates at
    December 31, 2007 and the assumption our current cash
    dividend policy of $0.40 per quarter and our annual 5% stock
    dividend will continue.(6)
    
    Not included in the above table is approximately $10,605 of
    unrecognized income tax benefits.(7)
    
    Because their future cash outflows are uncertain, the above
    table excludes our pension and postretirement benefit plans,
    contractual guarantees, and deferred taxes.    Off-Balance
    Sheet Arrangements
  and/or
         55




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##### Table of Contents



Market
    Risk
            New
    Accounting Pronouncements
       56




---



##### Table of Contents



No. 02-3,
      Legislation
    and Regulation
     57




---



##### Table of Contents



58




---



##### Table of Contents



59




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##### Table of Contents



SPECIAL
    NOTE REGARDING FORWARD-LOOKING STATEMENTS
    
    economic outlook,
    capital expenditures,
    cost reduction,
    new legislation,
    cash flows,
    operating performance,
    litigation,
    impairment charges and cost savings associated with
    restructurings of our tobacco operations, and
    related industry developments (including trends affecting our
    business, financial condition and results of operations).      
    general economic and market conditions and any changes therein,
    due to acts of war and terrorism or otherwise,
    governmental regulations and policies,
    effects of industry competition,
    impact of business combinations, including acquisitions and
    divestitures, both internally for us and externally in the
    tobacco industry,
    impact of restructurings on our tobacco business and our ability
    to achieve any increases in profitability estimated to occur as
    a result of these restructurings,
    impact of new legislation on our competitors payment
    obligations, results of operations and product costs, i.e. the
    impact of recent federal legislation eliminating the federal
    tobacco quota system,
    uncertainty related to litigation and potential additional
    payment obligations for us under the Master Settlement Agreement
    and other settlement agreements with the states, and
    risks inherent in our new product development initiatives.     60




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##### Table of Contents



ITEM 7A.
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK    ITEM 8.
    FINANCIAL
    STATEMENTS AND SUPPLEMENTARY DATA  page F-1
  ITEM 9.
    CHANGES
    IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
    FINANCIAL DISCLOSURE    ITEM 9A.
    CONTROLS
    AND PROCEDURES  Conclusions
    Regarding the Effectiveness of Disclosure Controls and
    Procedures
    Managements
    Report on Internal Control Over Financial Reporting
  Rule 13a-15(f). Internal Control 
    Integrated Framework Internal
    Control  Integrated Framework
    Material
    Changes in Internal Control
    ITEM 9B.
    OTHER
    INFORMATION   PART III  ITEM 10.
    DIRECTORS,
    EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE   61




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##### Table of Contents



ITEM 11.
    EXECUTIVE
    COMPENSATION    ITEM 12.
    SECURITY
    OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
    RELATED STOCKHOLDER MATTERS    ITEM 13.
    CERTAIN
    RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
    INDEPENDENCE    ITEM 14.
    PRINCIPAL
    ACCOUNTING FEES AND SERVICES   PART IV  ITEM 15.
    EXHIBITS
    AND FINANCIAL STATEMENT SCHEDULES  (a)(1) INDEX
    TO 2007 CONSOLIDATED FINANCIAL STATEMENTS:
  page F-1
  (a)(2) FINANCIAL
    STATEMENT SCHEDULES:
  Schedule II  Valuation and Qualifying Accounts


Page F-69   (a)(3) EXHIBITS
  Form 10-K:
  INDEX
    OF EXHIBITS
  ExhibitNo.

Description* 3
.1

Amended and Restated Certificate of Incorporation of Vector
    Group Ltd. (formerly known as Brooke Group Ltd.)
    (Vector) (incorporated by reference to
    Exhibit 3.1 in Vectors
    Form 10-Q
    for the quarter ended September 30, 1999).* 3
.2

Certificate of Amendment to the Amended and Restated Certificate
    of Incorporation of Vector (incorporated by reference to
    Exhibit 3.1 in Vectors
    Form 8-K
    dated May 24, 2000).* 3
.3

Certificate of Amendment to the Amended and Restated Certificate
    of Incorporation of Vector Group Ltd. (incorporated by reference
    to Exhibit 3.1 in Vectors
    Form 10-Q
    for the quarter ended June 30, 2007).* 3
.4

Amended and restated By-Laws of Vector Group Ltd. (incorporated
    by reference to Exhibit 3.4 in Vectors
    Form 8-K
    dated October 19, 2007).* 4
.1

Amended and Restated Loan and Security Agreement dated as of
    April 14, 2004, by and between Wachovia Bank, N.A., as
    lender, Liggett Group Inc., as borrower, 100 Maple LLC and Epic
    Holdings Inc. (the Wachovia Loan Agreement)
    (incorporated by reference to Exhibit 10.1 in Vectors
    Form 8-K
    dated April 14, 2004).* 4
.2

Amendment, dated as of December 13, 2005, to the Wachovia
    Loan Agreement (incorporated by reference to Exhibit 4.1 in
    Vectors
    Form 8-K
    dated December 13, 2005).* 4
.4

Amendment, dated as of January 31, 2007, to the Wachovia
    Loan Agreement (incorporated by reference to Exhibit 4.1 in
    Vectors
    Form 8-K
    dated February 2, 2007). 62




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##### Table of Contents



ExhibitNo.

Description* 4
.5

Amendment, dated as of August 10, 2007, to the Wachovia
    Loan Agreement (incorporated by reference to Exhibit 4.6 in
    Vectors
    Form 8-K
    dated August 16, 2007).* 4
.6

Amendment, dated as of August 16, 2007, to the Wachovia
    Loan Agreement (incorporated by reference to Exhibit 4.7 in
    Vectors
    Form 8-K
    dated August 16, 2007).* 4
.7

Intercreditor Agreement, dated as of August 16, 2007,
    between Wachovia Bank, N.A., as ABL Lender, U.S. Bank National
    Association, as Collateral Agent, Liggett Group LLC, as
    Borrower, and 100 Maple LLC, as Loan Party (incorporated by
    reference to Exhibit 99.1 in Vectors
    Form 8-K
    dated August 16, 2007).* 4
.8

Indenture, dated as of November 18, 2004, between Vector
    and Wells Fargo Bank, N.A., as Trustee, relating to the 5%
    Variable Interest Senior Convertible Notes due 2011, including
    the form of Note (incorporated by reference to Exhibit 10.1
    in Vectors
    Form 8-K
    dated November 18, 2004).* 4
.9

Indenture, dated as of April 13, 2005, by and between
    Vector and Wells Fargo Bank, N.A., relating to the 5% Variable
    Interest Senior Convertible Notes due 2011 including the form of
    Note (incorporated by reference to Exhibit 4.1 in
    Vectors
    Form 8-K
    dated April 14, 2005).* 4
.10

Registration Rights Agreement, dated as of April 13, 2005,
    by and between Vector and Jefferies & Company, Inc.
    (incorporated by reference to Exhibit 4.2 in Vectors
    Form 8-K
    dated April 14, 2005).* 4
.11

Indenture, dated as of July 12, 2006, by and between Vector
    and Wells Fargo Bank, N.A., relating to the
    37/8%
    Variable Interest Senior Convertible Debentures due 2026 (the
    37/8% Debentures),
    including the form of the
    37/8% Debenture
    (incorporated by reference to Exhibit 4.1 in Vectors
    Form 8-K
    dated July 11, 2006).* 4
.12

Registration Rights Agreement, dated as of July 12, 2006,
    by and between Vector and Jefferies & Company, Inc.
    (incorporated by reference to Exhibit 4.2 in Vectors
    Form 8-K
    dated July 11, 2006).* 4
.13

Indenture, dated as of August 16, 2007, between Vector
    Group Ltd., the subsidiary guarantors named therein and U.S.
    Bank National Association, as Trustee, relating to the
    11% Senior Secured Notes due 2015, including the form of
    Note (incorporated by reference to Exhibit 4.1 in
    Vectors
    Form 8-K
    dated August 16, 2007).* 4
.14

Pledge Agreement, dated as of August 16, 2007, between VGR
    Holding LLC, as Grantor, and U.S. Bank National Association, as
    Collateral Agent (incorporated by reference to Exhibit 4.2
    in Vectors
    Form 8-K
    dated August 16, 2007).* 4
.15

Security Agreement, dated as of August 16, 2007, between
    Vector Tobacco Inc., as Grantor, and U.S. Bank National
    Association, as Collateral Agent (incorporated by reference to
    Exhibit 4.3 in Vectors
    Form 8-K
    dated August 16, 2007).* 4
.16

Security Agreement, dated as of August 16, 2007, between
    Liggett Group LLC and 100 Maple LLC, as Grantors, and U.S. Bank
    National Association, as Collateral Agent (incorporated by
    reference to Exhibit 4.4 in Vectors
    Form 8-K
    dated August 16, 2007).* 4
.17

Registration Rights Agreement, dated as of August 16, 2007,
    between Vector Group Ltd., the subsidiary guarantors named
    therein and Jefferies & Company, Inc. (incorporated by
    reference to Exhibit 4.5 in Vectors
    Form 8-K
    dated August 16, 2007).* 10
.1

Corporate Services Agreement, dated as of June 29, 1990,
    between Vector and Liggett (incorporated by reference to
    Exhibit 10.10 in Liggetts Registration Statement on
    Form S-1,
    No. 33-47482).* 10
.2

Services Agreement, dated as of February 26, 1991, between
    Brooke Management Inc. (BMI) and Liggett (the
    Liggett Services Agreement) (incorporated by
    reference to Exhibit 10.5 in VGR Holdings
    Registration Statement on
    Form S-1,
    No. 33-93576).* 10
.3

First Amendment to Liggett Services Agreement, dated as of
    November 30, 1993, between Liggett and BMI (incorporated by
    reference to Exhibit 10.6 in VGR Holdings
    Registration Statement on
    Form S-1,
    No. 33-93576).* 10
.4

Second Amendment to Liggett Services Agreement, dated as of
    October 1, 1995, between BMI, Vector and Liggett
    (incorporated by reference to Exhibit 10(c) in
    Vectors
    Form 10-Q
    for the quarter ended September 30, 1995). 63




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##### Table of Contents



ExhibitNo.

Description* 10
.5

Third Amendment to Liggett Services Agreement, dated as of
    March 31, 2001, by and between Vector and Liggett
    (incorporated by reference to Exhibit 10.5 in Vectors
    Form 10-K
    for the year ended December 31, 2003).* 10
.6

Corporate Services Agreement, dated January 1, 1992,
    between VGR Holding and Liggett (incorporated by reference to
    Exhibit 10.13 in Liggetts Registration Statement on
    Form S-1,
    No. 33-47482).* 10
.7

Settlement Agreement, dated March 15, 1996, by and among
    the State of West Virginia, State of Florida, State of
    Mississippi, Commonwealth of Massachusetts, and State of
    Louisiana, Brooke Group Holding and Liggett (incorporated by
    reference to Exhibit 15 in the Schedule 13D filed by
    Vector on March 11, 1996, as amended, with respect to the
    common stock of RJR Nabisco Holdings Corp.).* 10
.8

Addendum to Initial States Settlement Agreement (incorporated by
    reference to Exhibit 10.43 in Vectors
    Form 10-Q
    for the quarter ended March 31, 1997).* 10
.9

Settlement Agreement, dated March 12, 1998, by and among
    the States listed in Appendix A thereto, Brooke Group
    Holding and Liggett (incorporated by reference to
    Exhibit 10.35 in Vectors
    Form 10-K
    for the year ended December 31, 1997).* 10
.10

Master Settlement Agreement made by the Settling States and
    Participating Manufacturers signatories thereto (incorporated by
    reference to Exhibit 10.1 in Philip Morris Companies
    Inc.s
    Form 8-K
    dated November 25, 1998, Commission File
    No. 1-8940).* 10
.11

General Liggett Replacement Agreement, dated as of
    November 23, 1998, entered into by each of the Settling
    States under the Master Settlement Agreement, and Brooke Group
    Holding and Liggett (incorporated by reference to
    Exhibit 10.34 in Vectors
    Form 10-K
    for the year ended December 31, 1998).* 10
.12

Stipulation and Agreed Order regarding Stay of Execution Pending
    Review and Related Matters, dated May 7, 2001, entered into
    by Philip Morris Incorporated, Lorillard Tobacco Co., Liggett
    Group Inc. and Brooke Group Holding Inc. and the class counsel
    in Engel, et. al., v. R.J. Reynolds Tobacco Co., et. al.
    (incorporated by reference to Exhibit 99.2 in Philip Morris
    Companies Inc.s
    Form 8-K
    dated May 7, 2001).* 10
.13

Letter Agreement, dated November 20, 1998, by and among
    Philip Morris Incorporated (PM), Brooke Group
    Holding, Liggett & Myers Inc. (L&M)
    and Liggett (incorporated by reference to Exhibit 10.1 in
    Vectors Report on
    Form 8-K
    dated November 25, 1998).* 10
.14

Amended and Restated Formation and Limited Liability Company
    Agreement of Trademarks LLC, dated as of May 24, 1999,
    among Brooke Group Holding, L&M, Eve Holdings Inc.
    (Eve), Liggett and PM, including the form of
    Trademark License Agreement (incorporated by reference to
    Exhibit 10.4 in Vectors
    Form 10-Q
    for the quarter ended June 30, 1999).* 10
.15

Class A Option Agreement, dated as of January 12,
    1999, among Brooke Group Holding, L&M, Eve, Liggett and PM
    (incorporated by reference to Exhibit 10.61 in
    Vectors
    Form 10-K
    for the year ended December 31, 1998).* 10
.16

Class B Option Agreement, dated as of January 12,
    1999, among Brooke Group Holding, L&M, Eve, Liggett and PM
    (incorporated by reference to Exhibit 10.62 in
    Vectors
    Form 10-K
    for the year ended December 31, 1998).* 10
.17

Pledge Agreement, dated as of May 24, 1999, from Eve, as
    grantor, in favor of Citibank, N.A., as agent (incorporated by
    reference to Exhibit 10.5 in Vectors
    Form 10-Q
    for the quarter ended June 30, 1999).* 10
.18

Guaranty, dated as of June 10, 1999, from Eve, as
    guarantor, in favor of Citibank, N.A., as agent (incorporated by
    reference to Exhibit 10.6 in Vectors
    Form 10-Q
    for the quarter ended June 30, 1999).* 10
.19

Vector Group Ltd. 1998 Long-Term Incentive Plan (incorporated by
    reference to the Appendix to Vectors Proxy Statement dated
    September 15, 1998).* 10
.20

Stock Option Agreement, dated July 20, 1998, between Vector
    and Bennett S. LeBow (incorporated by reference to
    Exhibit 6 in the Amendment No. 5 to the
    Schedule 13D filed by Bennett S. LeBow on October 16,
    1998 with respect to the common stock of Vector).* 10
.21

Amended and Restated Employment Agreement (LeBow
    Employment Agreement), dated as of September 27, 2005,
    between Vector and Bennett S. LeBow (incorporated by reference
    to Exhibit 10.1 in Vectors
    Form 8-K
    dated September 27, 2005). 64




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##### Table of Contents



ExhibitNo.

Description* 10
.22

Amendment dated January 27, 2006 to LeBow Employment
    Agreement (incorporated by reference to Exhibit 10.2 in
    Vectors
    Form 8-K
    dated January 27, 2006).* 10
.23

Amended and Restated Employment Agreement dated as of
    January 27, 2006, between Vector and Howard M. Lorber
    (incorporated by reference to Exhibit 10.1 in Vectors
    Form 8-K
    dated January 27, 2006).* 10
.24

Employment Agreement, dated as of January 27, 2006, between
    Vector and Richard J. Lampen (incorporated by reference to
    Exhibit 10.3 in Vectors
    Form 8-K
    dated January 27, 2006).* 10
.25

Amended and Restated Employment Agreement, dated as of
    January 27, 2006, between Vector and Marc N. Bell
    (incorporated by reference to Exhibit 10.4 in Vectors
    Form 8-K
    dated January 27, 2006).* 10
.26

Employment Agreement, dated as of November 11, 2005,
    between Liggett Group Inc. and Ronald J. Bernstein (incorporated
    by reference to Exhibit 10.1 in Vectors
    Form 8-K
    dated November 11, 2005).* 10
.27

Employment Agreement, dated as of January 27, 2006, between
    Vector and J. Bryant Kirkland III (incorporated by
    reference to Exhibit 10.5 in Vectors
    Form 8-K
    dated January 27, 2006).* 10
.28

Vector Group Ltd. Amended and Restated 1999 Long-Term Incentive
    Plan (incorporated by reference to Appendix A in
    Vectors Proxy Statement dated April 21, 2004).* 10
.29

Stock Option Agreement, dated November 4, 1999, between
    Vector and Bennett S. LeBow (incorporated by reference to
    Exhibit 10.59 in Vectors
    Form 10-K
    for the year ended December 31, 1999).* 10
.30

Stock Option Agreement, dated November 4, 1999, between
    Vector and Richard J. Lampen (incorporated by reference to
    Exhibit 10.60 in Vectors
    Form 10-K
    for the year ended December 31, 1999).* 10
.31

Stock Option Agreement, dated November 4, 1999, between
    Vector and Marc N. Bell (incorporated by reference to
    Exhibit 10.61 in Vectors
    Form 10-K
    for the year ended December 31, 1999).* 10
.32

Stock Option Agreement, dated November 4, 1999, between
    Vector and Howard M. Lorber (incorporated by reference to
    Exhibit 10.63 in Vectors
    Form 10-K
    for the year ended December 31, 1999).* 10
.33

Stock Option Agreement, dated November 4, 1999, between
    Vector and J. Bryant Kirkland III (incorporated by
    reference to Exhibit 10.34 in Vectors
    Form 10-K
    for the year ended December 31, 2006).* 10
.34

Stock Option Agreement, dated January 22, 2001, between
    Vector and Bennett S. LeBow (incorporated by reference to
    Exhibit 10.1 in Vectors
    Form 10-Q
    for the quarter ended March 31, 2001).* 10
.35

Stock Option Agreement, dated January 22, 2001, between
    Vector and Howard M. Lorber (incorporated by reference to
    Exhibit 10.2 in Vectors
    Form 10-Q
    for the quarter ended March 31, 2001).* 10
.36

Restricted Share Award Agreement, dated as of September 27,
    2005, between Vector and Howard M. Lorber (incorporated by
    reference to Exhibit 10.2 in Vectors
    Form 8-K
    dated September 27, 2005).* 10
.37

Restricted Share Award Agreement, dated as of November 11,
    2005, between Vector and Ronald J. Bernstein (incorporated by
    reference to Exhibit 10.2 in Vectors
    Form 8-K
    dated November 11, 2005).* 10
.38

Option Letter Agreement, dated as of November 11, 2005
    between Vector and Ronald J. Bernstein (incorporated by
    reference to Exhibit 10.3 in Vectors
    Form 8-K
    dated November 11, 2005).* 10
.39

Restricted Share Award Agreement, dated as of November 16,
    2005, between Vector and Howard M. Lorber (incorporated by
    reference to Exhibit 10.1 in Vectors
    Form 8-K
    dated November 16, 2005).* 10
.40

Vector Senior Executive Annual Bonus Plan (incorporated by
    reference to Exhibit 10.7 in Vectors
    Form 8-K
    dated January 27, 2006).* 10
.41

Vector Supplemental Retirement Plan (as amended and restated
    January 27, 2006) (incorporated by reference to
    Exhibit 10.6 in Vectors
    Form 8-K
    dated January 27, 2006).* 10
.42

Agreement, dated as of June 7, 2006, between the Company
    and Frost Gamma Investments Trust, an entity affiliated with
    Dr. Phillip Frost, relating to the conversion of 6.25%
    convertible subordinated notes due 2008 (incorporated by
    reference to Exhibit 10.1 in Vectors
    Form 8-K
    dated June 7, 2006).* 10
.43

Agreement, dated as of June 7, 2006, between the Company
    and Barberry Corp., an entity affiliated with Carl C. Icahn,
    relating to the conversion of 6.25% convertible subordinated
    notes due 2008 (incorporated by reference to Exhibit 10.2
    in Vectors
    Form 8-K
    dated June 7, 2006). 65




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##### Table of Contents



ExhibitNo.

Description* 10
.44

Purchase Agreement, dated as of June 27, 2006, among Vector
    and Jefferies (incorporated by reference to Exhibit 1.1 in
    Vectors
    Form 8-K
    dated June 27, 2006).* 10
.45

Letter Agreement, dated July 14, 2006, between Vector and
    Howard M. Lorber (incorporated by reference to Exhibit 10.1
    in Vectors
    Form 8-K
    dated July 11, 2006).* 10
.46

Notice of Redemption of 6
    1/4% Convertible
    Subordinated Notes due 2008, dated July 14, 2006
    (incorporated by reference to Exhibit 10.2 in Vectors
    Form 8-K
    dated July 11, 2006).* 10
.47

Closing Agreement on Final Determination Covering Specific
    Matters between Vector and the Commissioner of Internal Revenue
    of the United States of America dated July 20, 2006
    (incorporated by reference to Exhibit 10.3 in Vectors
    Form 10-Q
    for the quarter ended September 30, 2006).* 10
.48

Operating Agreement of Douglas Elliman Realty, LLC (formerly
    known as Montauk Battery Realty LLC) dated
    December 17, 2002 (incorporated by reference to
    Exhibit 10.1 in New Valleys
    Form 8-K
    dated December 13, 2002).* 10
.49

First Amendment to Operating Agreement of Douglas Elliman
    Realty, LLC (formerly known as Montauk Battery Realty LLC),
    dated as of March 14, 2003 (incorporated by reference to
    Exhibit 10.1 in New Valleys
    Form 10-Q
    for the quarter ended March 31, 2003).* 10
.50

Second Amendment to Operating Agreement of Douglas Elliman
    Realty, LLC, dated as of May 19, 2003 (incorporated by
    reference to Exhibit 10.1 in New Valleys
    Form 10-Q
    for the quarter ended June 30, 2003).* 10
.51

Note and Equity Purchase Agreement, dated as of March 14,
    2003 (the Note and Equity Purchase Agreement), by
    and between Douglas Elliman Realty, LLC (formerly known as
    Montauk Battery Realty LLC), New Valley Real Estate Corporation
    and The Prudential Real Estate Financial Services of America,
    Inc., including form of 12% Subordinated Note due
    March 14, 2013 (incorporated by reference to
    Exhibit 10.2 in New Valleys
    Form 10-Q
    for the quarter ended March 31, 2003).* 10
.52

Amendment to the Note and Equity Purchase Agreement, dated as of
    April 14, 2003 (incorporated by reference to
    Exhibit 10.3 in New Valleys
    Form 10-Q
    for the quarter ended March 31, 2003).* 10
.53

Stipulation for Entry of Judgment dated March 14, 2007
    between New Valley Corporation and the United States of America
    (incorporated by reference to Exhibit 10.2 in Vectors
    Form 10-Q
    for the quarter ended March 31, 2007).* 10
.54

Purchase Agreement, dated as of August 8, 2007, between
    Vector Group Ltd., the subsidiary guarantors named therein and
    Jefferies & Company, Inc. (incorporated by reference
    to Exhibit 1.1 in Vectors
    Form 8-K
    dated August 8, 2007).21


Subsidiaries of Vector.23


Consent of PricewaterhouseCoopers LLP31
.1

Certification of Chief Executive Officer, Pursuant to Exchange
    Act
    Rule 13a-14(a),
    as Adopted Pursuant to Section 302 of the Sarbanes-Oxley
    Act of 2002.31
.2

Certification of Chief Financial Officer, Pursuant to Exchange
    Act
    Rule 13a-14(a),
    as Adopted Pursuant to Section 302 of the Sarbanes-Oxley
    Act of 2002.32
.1

Certification of Chief Executive Officer, Pursuant to
    18 U.S.C. Section 1350, as Adopted Pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.32
.2

Certification of Chief Financial Officer, Pursuant to
    18 U.S.C. Section 1350, as Adopted Pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.99
.1

Material Legal Proceedings.     *
    
    Incorporated by reference   66




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##### Table of Contents



SIGNATURES    VECTOR GROUP LTD.
    (Registrant)
  By:
    /s/  J.
    Bryant Kirkland III        POWER OF
    ATTORNEY
  Form 10-K
    Signature

Title/s/  Howard
    M. LorberHoward
    M. Lorber

President and Chief Executive Officer (Principal Executive
    Officer)/s/  J.
    Bryant Kirkland IIIJ.
    Bryant Kirkland III

Vice President, Treasurer and Chief Financial Officer (Principal
    Financial Officer and Principal Accounting Officer)/s/  Henry
    C. BeinsteinHenry
    C. Beinstein

Director/s/  Ronald
    J. BernsteinRonald
    J. Bernstein

Director/s/  Robert
    J. EideRobert
    J. Eide

Director/s/  Bennett
    S. LeBowBennett
    S. LeBow

Director/s/  Jeffrey
    S. PodellJeffrey
    S. Podell

Director/s/  Jean
    E. SharpeJean
    E. Sharpe

Director  67




---



##### 



VECTOR
    GROUP LTD.FORM 10-K
    FOR THE YEAR ENDED DECEMBER 31, 2007
    ITEMS 8, 15(a)(1) AND (2)
  INDEX TO
    FINANCIAL STATEMENTS
    AND FINANCIAL STATEMENT SCHEDULES
     
 PageFINANCIAL STATEMENTS:Vector Group Ltd. Consolidated Financial StatementsReport of Independent Registered Certified Public
    Accounting Firm


F-2Vector Group Ltd. Consolidated Balance Sheets as
    of December 31, 2007 and 2006


F-3Vector Group Ltd. Consolidated Statements of
    Operations for the years ended December 31, 2007, 2006 and
    2005


F-4Vector Group Ltd. Consolidated Statement of
    Stockholders Equity for the years ended December 31,
    2007, 2006 and 2005


F-5Vector Group Ltd. Consolidated Statements of Cash
    Flows for the years ended December 31, 2007, 2006 and
    2005


F-6Notes to Consolidated Financial Statements


F-8FINANCIAL STATEMENT SCHEDULE:Schedule II  Valuation and
    Qualifying Accounts


F-69     F-1




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##### Table of Contents



Report of
    Independent Registered Certified Public Accounting
    Firm     Internal Control  Integrated
    Framework
        
     F-2




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##### Table of Contents



VECTOR
    GROUP LTD. AND SUBSIDIARIES
  CONSOLIDATED
    BALANCE SHEETS
  December 31,


December 31,2007


2006(Dollars in thousands, except per share amounts)ASSETS:Current assets:Cash and cash equivalents

$
238,117


$
146,769Investment securities available for sale


45,875



18,960Accounts receivable  trade


3,113



15,480Inventories


86,825



91,299Deferred income taxes


18,336



27,580Other current assets


3,360



3,068Total current assets


395,626



303,156Property, plant and equipment, net


54,432



59,921Long-term investments accounted for at cost


72,971



32,971Long-term investments accounted under the equity method


10,495



10,230Investments in non-consolidated real estate businesses


35,731



28,416Restricted assets


8,766



8,274Deferred income taxes


26,637



43,973Intangible asset


107,511



107,511Prepaid pension costs


42,084



20,933Other assets


31,036



22,077Total assets

$
785,289


$
637,462LIABILITIES AND STOCKHOLDERS EQUITY:Current liabilities:Current portion of notes payable and long-term debt

$
20,618


$
52,686Accounts payable


6,980



7,203Accrued promotional expenses


9,210



12,527Income taxes payable, net


2,363



12,970Accrued excise and payroll taxes payable, net


5,327



9,934Settlement accruals


10,041



47,408Deferred income taxes


24,019



5,020Accrued interest


9,475



2,586Other current liabilities


21,304



18,452Total current liabilities


109,337



168,786Notes payable, long-term debt and other obligations, less
    current portion


277,178



103,304Fair value of derivatives embedded within convertible debt


101,582



95,473Non-current employee benefits


40,933



36,050Deferred income taxes


141,904



130,533Other liabilities


13,503



8,339Total liabilities


684,437



542,485Commitments and contingenciesStockholders equity:Preferred stock, par value $1.00 per share,
    10,000,000 shares authorized






Common stock, par value $0.10 per share, 150,000,000 and
    100,000,000 shares authorized, 63,307,020 and
    59,843,379 shares issued and 60,361,068 and
    57,031,269 shares outstanding


6,036



5,703Additional paid-in capital


89,494



132,807Retained earnings (accumulated deficit)






(28,192
)Accumulated other comprehensive income (loss)


18,179



(2,587
)Less: 2,945,952 and 2,812,110 shares of common stock in
    treasury, at cost


(12,857
)


(12,754
)Total stockholders equity


100,852



94,977Total liabilities and stockholders equity

$
785,289


$
637,462    F-3




---



##### Table of Contents



VECTOR
    GROUP LTD. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF OPERATIONS
  Year Ended December 31,2007


2006


2005(Dollars in thousands, except per share amounts)Revenues*

$
555,430


$
506,252


$
478,427Expenses:Cost of goods sold


337,079



315,163



285,393Operating, selling, administrative and general expenses


92,967



90,833



114,048Gain on sale of assets






(2,210
)


(12,748
)Provision for loss on uncollectible receivable










2,750Restructuring and impairment charges


(120
)


1,437



(127
)Operating income


125,504



101,029



89,111Other income (expenses):Interest and dividend income


9,897



9,000



5,610Interest expense


(45,762
)


(37,776
)


(29,812
)Changes in fair value of derivatives embedded within convertible
    debt


(6,109
)


112



3,082Loss on extinguishment of debt






(16,166
)


Gain on investments, net






3,019



1,426Provision for loss on investments


(1,216
)






(433
)Gain from conversion of LTS notes


8,121







9,461Equity in loss on operations of LTS










(299
)Equity income from non-consolidated real estate businesses


16,243



9,086



7,543Income from lawsuit settlement


20,000







Other, net


(75
)


176



79Income from continuing operations before provision for income
    taxes and minority interests


126,603



68,480



85,768Income tax expense


(52,800
)


(25,768
)


(41,214
)Minority interests










(1,969
)Income from continuing operations


73,803



42,712



42,585Discontinued operations:Income from discontinued operations, net of minority Interest
    and taxes










82Gain on disposal of discontinued operations, net of Minority
    interest and taxes










2,952Income from discontinued operations










3,034Income before extraordinary item


73,803



42,712



45,619Extraordinary item, unallocated negative goodwill










6,766Net income

$
73,803


$
42,712


$
52,385Per basic common share:Income from continuing operations

$
1.16


$
0.70


$
0.87Income from discontinued operations

$



$



$
0.06Income from extraordinary item

$



$



$
0.14Net income applicable to common shares

$
1.16


$
0.70


$
1.07Per diluted common share:Income from continuing operations

$
1.13


$
0.68


$
0.82Income from discontinued operations

$



$



$
0.06Income from extraordinary item

$



$



$
0.13Net income applicable to common shares

$
1.13


$
0.68


$
1.01Cash distributions declared per share

$
1.54


$
1.47


$
1.40     *
    
    Revenues and cost of goods sold include federal excise taxes of
    $176,269, $174,339 and $161,753 for the years ended
    December 31, 2007, 2006 and 2005, respectively.   F-4




---



##### Table of Contents



VECTOR
    GROUP LTD. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENT OF STOCKHOLDERS EQUITY (DEFICIT)
  AccumulatedAdditional








OtherCommon Stock


Paid-In


Unearned





Comprehensive


TreasuryShares


Amount


Capital


Compensation


Deficit


Income (Loss)


Stock


Total(Dollars in thousands, except per share amounts)Balance, January 1, 2005


41,773,591


$
4,177


$
56,631


$
(656
)

$
(122,808
)

$
(10,409
)

$
(16,152
)

$
(89,217
)Net income


















52,385











52,385Pension related minimum liability adjustments, net of taxes






















322







322Forward contract adjustments, net of taxes






















(599
)






(599
)Unrealized loss on investment securities, net of taxes






















(494
)






(494
)Total other comprehensive loss






























(771
)Total comprehensive income






























51,614Distributions on common stock










(73,238
)


















(73,238
)Effect of stock dividend


2,099,451



210











(210
)










Restricted stock grants


628,570



63



12,295



(12,295
)














63Exercise of options, net of 8,100 shares delivered to pay
    exercise price


303,764



30



3,764















(168
)


3,626Tax benefit of options exercised










578



















578Amortization of deferred compensation














1,270















1,270Effect of New Valley restricted stock transactions, net










(379
)


















(379
)Beneficial conversion feature of convertible debt, net of taxes










6,418



















6,418Acquisition of New Valley minority interest


5,044,359



505



127,256











570







128,331Balance, December 31, 2005


49,849,735



4,985



133,325



(11,681
)


(70,633
)


(10,610
)


(16,320
)


29,066Net income


















42,712











42,712Pension related minimum liability adjustments, net of taxes






















9,461







9,461Forward contract adjustments, net of taxes






















254







254Unrealized gain on long-term investments accounted for under the
    equity method, net of taxes






















173







173Unrealized gain on investment securities, net of taxes






















4,772







4,772Total other comprehensive income






























14,660Total comprehensive income






























57,372Adoption of SFAS No. 158






















(6,637
)






(6,637
)Reclassifications in accordance with SFAS No. 123(R)










(11,681
)


11,681















Distributions on common stock










(92,359
)


















(92,359
)Effect of stock dividend


2,708,295



271











(271
)










Exercise of options, net of 41,566 shares delivered to pay
    exercise price


273,239



27



3,241















(697
)


2,571Amortization of deferred compensation










3,926



















3,926Note conversion


4,200,000



420



79,522















4,263



84,205Beneficial conversion feature of convertible debt, net of taxes










16,833



















16,833Balance, December 31, 2006


57,031,269



5,703



132,807







(28,192
)


(2,587
)


(12,754
)


94,977Net income


















73,803











73,803Change in net loss and prior service cost, net of taxes






















11,545







11,545Forward contract adjustments, net of taxes






















28







28Unrealized gain on long-term investments accounted for under the
    equity method, net of taxes






















226







226Unrealized gain on investment securities, net of taxes






















8,967







8,967Total other comprehensive income






























20,766Total comprehensive income






























94,569Distributions and dividends on common stock










(54,054
)






(45,324
)










(99,378
)Effect of stock dividend


2,870,589



287











(287
)










Restricted stock grants


40,000



4



(4
)


















Tax benefit of options exercised










2,055



















2,055Exercise of options, net of 7,627 shares delivered to pay
    exercise price


419,210



42



5,161















(103
)


5,100Amortization of deferred compensation










3,529



















3,529Balance, December 31, 2007


60,361,068


$
6,036


$
89,494


$



$



$
18,179


$
(12,857
)

$
100,852    F-5




---



##### Table of Contents



VECTOR
    GROUP LTD. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  Year Ended December 31,2007


2006


2005(Dollars in thousands, except per share amounts)Cash flows from operating activities:Net income

$
73,803


$
42,712


$
52,385Income from discontinued operations










(3,034
)Extraordinary item










(6,766
)73,803



42,712



42,585Adjustments to reconcile net income to net cash provided by
    operating activities:Depreciation and amortization


10,202



9,888



11,220Non-cash stock-based expense


3,529



3,926



3,133Non-cash portion of restructuring and impairment charges


(120
)


1,437



(127
)Loss on extinguishment of debt






16,166



Minority interests










1,969Gain on sale of investment securities available for sale






(3,019
)


(1,426
)Gain on sale of assets






(2,210
)


(12,432
)Provision for loss on uncollectible receivable










2,750Deferred income taxes


44,656



(10,379
)


20,904Gain from conversion of LTS notes


(6,388
)






(9,461
)Equity loss on operations of LTS










299Provision for loss on marketable securities


1,216







433Equity income in non-consolidated real estate businesses


(16,243
)


(9,086
)


(7,543
)Distributions from non-consolidated real estate businesses


8,878



7,311



5,935Non-cash interest expense


13,912



5,176



1,068Changes in assets and liabilities (net of effect of acquisitions
    and dispositions):Receivables


12,367



(2,766
)


(10,235
)Inventories


4,474



(20,904
)


8,546Change in book overdraft.


(179
)


759



Accounts payable and accrued liabilities


(46,960
)


(2,881
)


6,172Cash payments on restructuring liabilities


(884
)


(1,284
)


(4,842
)Other assets and liabilities, net


6,935



11,169



8,509Cash flows from discontinued operations










732Net cash provided by operating activities


109,198



46,015



68,189Cash flows from investing activities:Proceeds from sale of businesses and assets


917



1,486



14,118Proceeds from sale or maturity of investment securities






30,407



7,490Purchase of investment securities


(6,571
)


(19,706
)


(4,713
)Proceeds from sale or liquidation of long-term investments


71



326



48Purchase of long-term investments


(40,091
)


(35,345
)


(227
)Purchase of LTS stock










(3,250
)(Increase) decrease in restricted assets


(492
)


(1,527
)


16Investments in non-consolidated real estate businesses


(750
)


(9,850
)


(6,250
)Distributions from non-consolidated real estate businesses


1,000







5,500Issuance of note receivable










(2,750
)Costs associated with New Valley acquisition










(2,422
)Capital expenditures


(5,189
)


(9,558
)


(10,295
)Increase in cash surrender value of life insurance policies


(838
)


(898
)


Cash flows from discontinued operations










66,912Net cash (used in) provided by investing activities


(51,943
)


(44,665
)


64,177    F-6




---



##### Table of Contents



VECTOR
    GROUP LTD. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  Year Ended December 31,2007


2006


2005(Dollars in thousands, except per share amounts)Cash flows from financing activities:Proceeds from issuance of debt


174,576



118,146



50,841Repayments of debt


(41,200
)


(72,925
)


(4,305
)Deferred financing charges


(9,985
)


(5,280
)


(2,068
)Borrowings under revolver


537,746



514,739



457,111Repayments on revolver


(534,950
)


(502,753
)


(457,127
)Distributions on common stock


(99,249
)


(90,138
)


(70,252
)Proceeds from exercise of Vector options and warrants


5,100



2,571



3,626Tax benefit of options exercised


2,055







Other, net










76Cash flows from discontinued operations










(39,213
)Net cash provided by (used in) financing activities


34,093



(35,640
)


(61,311
)Net increase (decrease) in cash and cash equivalents


91,348



(34,290
)


71,055Cash and cash equivalents, beginning of year


146,769



181,059



110,004Cash and cash equivalents, end of year

$
238,117


$
146,769


$
181,059    F-7




---



##### Table of Contents



VECTOR
    GROUP LTD.
 NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (Dollars in Thousands, Except Per Share Amounts)  1.
    SUMMARY
    OF SIGNIFICANT ACCOUNTING POLICIES  (a) Basis
    of Presentation:
          (b) Estimates
    and Assumptions:
    (c) Cash
    and Cash Equivalents:
    (d) Financial
    Instruments:
       F-8




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    and/or
  (e) Investment
    Securities:
      (f) Significant
    Concentrations of Credit Risk:
      (g) Accounts
    Receivable:
      (h) Inventories:
  last-in, first-in,
 F-9




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      (i) Restricted
    Assets:
    (j) Property,
    Plant and Equipment:
      (k) Investment
    in Non-Consolidated Real Estate Businesses:
    th
   F-10




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (l) Intangible
    Assets:
    10-12 years
  (m) Impairment
    of Long-Lived Assets:
      (n) Pension,
    postretirement and postemployment benefits
    plans:
    (o) Stock
    Options:
     F-11




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (p) Income
    Taxes:
      (q) Distributions
    and dividends on common stock:
  paid-in-capital.
  (r) Revenue
    Recognition:
  Sales: 01-9, No. 06-3,
  Shipping and Handling Fees and Costs:
  (s) Advertising
    and Research and Development:
     F-12




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (t) Earnings
    Per Share:
    No. 03-6, Two-Class Method No. 03-6.
  No. 03-6.
  2007


2006


2005Net income

$
73,803


$
42,712


$
52,385Income attributable to participating securities


(4,817
)


(2,958
)


Net income available to common stockholders

$
68,986


$
39,754


$
52,385       2007


2006


2005Weighted-average shares for basic EPS


59,614,000



56,968,694



48,762,326Plus incremental shares related to stock options and warrants


1,665,571



1,498,573



2,385,934Plus incremental shares related to convertible debt










6,436,853Weighted-average shares for diluted EPS


61,279,571



58,467,267



57,585,113  F-13




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year Ended December 31,2007


2006


2005Number of stock options


166,333



522,767



240,653Weighted-average exercise price

$
27.54


$
20.07


$
25.26Weighted-average shares of non- vested restricted stock


N/A



643,947



161,707Weighted-average expense per share


N/A


$
17.84


$
17.79Weighted-average number of sharesissuable upon conversion of debt


12,315,489



12,913,822



12,505,887Weighted-average conversion price

$
18.02


$
18.07


$
19.12     Year Ended December 31,2007


2006


2005Net income

$
73,803


$
42,712


$
52,385Expense attributable to 6.25% convertible subordinated notes due
    2008










5,766Income attributable to participating securities


(4,817
)


(2,958
)


Net income for diluted EPS

$
68,986


$
39,754


$
58,151  F-14




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (u) Comprehensive
    Income:
    Year Ended December 31,2007


2006


2005Net income

$
73,803


$
42,712


$
52,385Net unrealized gains on investment securities available for sale:Change in net unrealized gains, net of income taxes and minority
    interests


8,248



6,556



165Net unrealized losses (gains) reclassified into net income, net
    of income taxes and minority interests


719



(1,784
)


(659
)8,967



4,772



(494
)Net unrealized gains on long-term investments accounted for
    under the equity method


226



173



Net change in forward contracts


28



254



(599
)Net change in pension-related amounts, net of income taxes


11,545



9,461



322Comprehensive income

$
94,569


$
57,372


$
51,614     December 31,


December 31,2007


2006Net unrealized gains on investment securities available for
    sale, net of income taxes of $9,943 and $3,737, respectively

$
14,367


$
5,400Net unrealized gains on long-term investments accounted for
    under the equity method, net of income taxes of $276 and $120,
    respectively


399



173Forward contracts adjustment, net of income taxes of $219 and
    $226, respectively


(317
)


(345
)Pension-related amounts net of income taxes of $2,452 and
    $5,076, respectively


3,730



(7,815
)Accumulated other comprehensive income (loss)

$
18,179


$
(2,587
)   (v) Contingencies:
     F-15




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (w) New
    Accounting Pronouncements:
      No. 02-3,
   F-16




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          2.
    RESTRUCTURINGS  Vector Research 2006 Restructuring.
   F-17




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Employee


Non-Cash


ContractSeverance


Asset


Termination/and Benefits


Impairment


Exit Costs


TotalBalance, January 1, 2006

$



$



$



$
Restructuring charges


484



1,842



338



2,664Utilized






(1,842
)






(1,842
)Balance, December 31, 2006

$
484


$



$
338


$
822Change in estimate


(71
)






8



(63
)Utilized


(343
)






(346
)


(689
)Balance, December 31, 2007

$
70


$



$



$
70   Liggett Vector Brands Restructurings.
     F-18




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Employee


Non-Cash


ContractSeverance


Asset


Termination/and Benefits


Impairment


Exit Costs


TotalBalance, January 1, 2005

$
3,614


$
186


$
3,285


$
7,085Change in estimate


(54
)


(73
)






(127
)Utilized


(2,847
)


(113
)


(1,882
)


(4,842
)Balance, December 31, 2005

$
713


$



$
1,403


$
2,116Change in estimate


(103
)






(25
)


(128
)Utilized


(610
)






(528
)


(1,138
)Balance, December 31, 2006

$



$



$
850


$
850Change in estimate










(57
)


(57
)Utilized










(195
)


(195
)Balance, December 31, 2007

$



$



$
598


$
598   3.
    INVESTMENT
    SECURITIES AVAILABLE FOR SALE      Gross


GrossUnrealized


Unrealized


FairCost


Gain


Loss


Value2007Marketable equity securities

$
21,565


$
24,374


$
(64
)

$
45,8752006Marketable equity securities

$
9,643


$
10,017


$
(700
)

$
18,960    F-19




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  4.
    INVENTORIES    December 31,


December 31,2007


2006Leaf tobacco

$
41,502


$
33,363Other raw materials


4,847



2,725Work-in-process


710



1,348Finished goods


45,331



57,485Inventories at current cost


92,390



94,921LIFO adjustments


(5,565
)


(3,622
)$
86,825


$
91,299           5.
    PROPERTY,
    PLANT AND EQUIPMENT    December 31,


December 31,2007


2006Land and improvements

$
1,418


$
1,418Buildings


13,575



13,366Machinery and equipment


103,416



103,241Leasehold improvements


2,209



2,017Construction-in-progress


1,151



525121,769



120,567Less accumulated depreciation


(67,337
)


(60,646
)$
54,432


$
59,921      F-20




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      15-year
  6.
    LONG-TERM
    INVESTMENTS    December 31,

December 31,2007

2006Carrying

Fair

Carrying

FairValue

Value

Value

ValueInvestment partnerships accounted for at cost

$
72,971


$
89,007


$
32,971


$
47,560Investments accounted for on the equity method

$
10,495


$
10,495


$
10,230


$
10,230       No. D-46,
  No. 03-16,
   F-21




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  7.
    NOTES PAYABLE,
    LONG-TERM DEBT AND OTHER OBLIGATIONS    December 31, 2007


December 31, 2006Vector:11% Senior Secured Notes due 2015

$
165,000


$
3.875% Variable Interest Senior Convertible Debentures due 2026,
    net of unamortized discount of $84,299 and $84,056*


25,701



25,9445% Variable Interest Senior Convertible Notes due 2011, net of
    unamortized net discount of $48,027 and $53,904*


63,837



57,960Liggett:Revolving credit facility


14,782



11,986Term loan under credit facility


7,822



Equipment loans


9,660



12,660Vector Tobacco:Notes payable  Medallion acquisition due 2007






35,000V.T. Aviation:Note payable


6,470



7,448VGR Aviation:Note payable


4,370



4,655Other


154



337Total notes payable, long-term debt and other obligations


297,796



155,990Less:Current maturities


(20,618
)


(52,686
)Amount due after one year

$
277,178


$
103,304     *
    
    The fair value of the derivatives embedded within the 3.875%
    Variable Interest Senior Convertible Debentures ($67,911 and
    $59,807 at December 31, 2007 and December 31, 2006,
    respectively) and the 5% Variable Interest Senior Convertible
    Notes ($33,671 at December 31, 2007 and $35,666 at
    December 31, 2006, respectively) is separately classified
    as a derivative liability in the consolidated balance sheets.  11% Senior
    Secured Notes due 2015 
    Vector:
     F-22




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          Variable
    Interest Senior Convertible Debt 
    Vector:
    3.875%
    Variable Interest Senior Convertible Debentures due
    2026:
       F-23




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    5%
    Variable Interest Senior Convertible Notes Due November
    2011:
  120-day
      Embedded
    Derivatives on the Variable Interest Senior Convertible
    Debt:
   F-24




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Year Ended December 31,2007


2006


20053.875% convertible debentures

$
(28
)

$
414


$
5% convertible notes


3,796



3,056



2,063Interest expense associated with embedded derivatives

$
3,768


$
3,470


$
2,063     Year Ended December 31,2007


2006


20053.875% convertible debentures

$
(8,104
)

$
(3,593
)

$
5% convertible notes


1,995



3,705



3,082Gain (loss) on changes in fair value of derivatives embedded
    within convertible debt

$
(6,109
)

$
112


$
3,082     3.875%


5%Convertible


ConvertibleDebentures


Notes


TotalBalance at January 1, 2005

$



$
25,687


$
25,687Issuance of 5% convertible notes






16,766



16,766Gain from changes in fair value of embedded derivatives






(3,082
)


(3,082
)Balance at December 31, 2005






39,371



39,371Issuance of 3.875% convertible debentures


56,214







56,214Loss (gain) from changes in fair value of embedded derivatives


3,593



(3,705
)


(112
)Balance at December 31, 2006


59,807



35,666



95,473Loss (gain) from changes in fair value of embedded derivatives


8,104



(1,995
)


6,109Balance at December 31, 2007

$
67,911


$
33,671


$
101,582   Beneficial
    Conversion Feature on Variable Interest Senior Convertible
    Debt:
  No. 98-5,
   F-25




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  No. 05-8,
  Year Ended December 31,2007


2006


2005Amortization of beneficial conversion feature:3.875% convertible debentures

$
(215
)

$
125


$
5% convertible notes


2,083



1,693



1,139Interest expense associated with beneficial conversion feature

$
1,868


$
1,818


$
1,139   Unamortized
    Debt Discount:
    3.875%


5%Convertible


ConvertibleDebentures


Notes


TotalBalance at January 1, 2005

$



$
38,739


$
38,739Issuance of 5% convertible debentures-embedded derivative






16,766



16,766Issuance of 5% convertible debentures-premium on debt






(2,100
)


(2,100
)Issuance of 5% convertible debentures-beneficial conversion
    feature






8,452



8,452Amortization of embedded derivative






(2,063
)


(2,063
)Amortization of beneficial conversion Feature






(1,139
)


(1,139
)Balance at December 31, 2005






58,655



58,655Issuance of 3.875% convertible debentures-embedded derivative


56,214







56,214Issuance of 3.875% convertible debentures-beneficial conversion
    feature


28,381







28,381Amortization of embedded derivative


(414
)


(3,056
)


(3,470
)Amortization of beneficial conversion Feature


(125
)


(1,693
)


(1,818
)Balance at December 31, 2006

$
84,056


$
53,906


$
137,962Amortization of embedded derivative


28



(3,796
)


(3,768
)Amortization of beneficial conversion Feature


215



(2,083
)


(1,868
)Balance at December 31, 2007

$
84,299


$
48,027


$
132,326   6.25% Convertible
    Subordinated Notes Due July 15, 2008 
    Vector:
   F-26




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Revolving
    Credit Facility 
    Liggett:
  30-day
        Equipment
    Loans 
    Liggett:
     F-27




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
              Notes
    for Medallion Acquisition  Vector
    Tobacco:
    Note
    Payable 
    V.T.
    Aviation:  30-day
  Note
    Payable 
    VGR
    Aviation:  30-day
 F-28




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Scheduled
    Maturities:
    UnamortizedFace


Discount


NetYear Ending December 31:2008

$
20,618


$



$
20,6182009


18,794



6,002



12,7922010


3,525







3,5252011


113,735



44,572



69,1632012


9,450







9,450Thereafter


264,000



81,752



182,248Total

$
430,122


$
132,326


$
297,796   Weighted-Average
    Interest Rate on Current Maturities of Long-Term
    Debt:
    8.
    COMMITMENTS    Lease


SubleaseYear Ending December 31:

Commitments


Rentals


Net2008

$
4,051


$
1,042


$
3,0092009


3,466



1,024



2,4422010


2,698



946



1,7522011


2,634



965



1,6692012


2,521



965



1,556Thereafter


949



402



547Total

$
16,319


$
5,344


$
10,975       9.
    EMPLOYEE
    BENEFIT PLANS  Defined
    Benefit Plans and Postretirement Plans:
  Defined Benefit Plans.
 F-29




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Postretirement Medical and Life Plans.
  Computation of Defined Benefit and Postretirement Benefit
    Plan Liabilities.
 F-30




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Post AMLandSFAS No.


SFAS158


No. 158Adjustment


AdjustmentsPrepaid pension costs

$
(10,705
)

$
20,933Intangible asset


(1,232
)


Current liabilities


1,142



1,142Pension liabilities


(349
)


26,548Postretirement liabilities


(1,450
)


9,502Accumulated other comprehensive loss


11,280



12,891     Defined

Post-Benefit

RetirementPension Plans

Plans

TotalPrior service cost

$
1,401


$



$
1,401Actuarial loss (gain)


100



(180
)


(80
)     OtherPension Benefits


Postretirement Benefits2007


2006


2007


2006Change in benefit obligation:Benefit obligation at January 1

$
(163,463
)

$
(161,389
)

$
(10,295
)

$
(10,933
)Service cost


(3,896
)


(4,547
)


(18
)


(20
)Interest cost


(9,122
)


(9,012
)


(591
)


(598
)Benefits paid


12,990



13,282



770



975Plan amendment






(5,005
)






Time contractual termination benefits


(632
)










Actuarial gain


4,347



3,208



298



281Benefit obligation at December 31

$
(159,776
)

$
(163,463
)

$
(9,836
)

$
(10,295
)Change in plan assets:Fair value of plan assets at January 1

$
157,499


$
156,012


$



$
Actual return on plan assets


24,598



14,320







Contributions


358



449



770



975Benefits paid


(12,990
)


(13,282
)


(770
)


(975
)Fair value of plan assets at December 31

$
169,465


$
157,499


$



$
Funded status at December 31

$
9,689


$
(5,964
)

$
(9,836
)

$
(10,295
)Amounts recognized in the consolidated balance sheets:Prepaid pension costs

$
42,084


$
20,933


$



$
Other accrued liabilities


(530
)


(349
)


(768
)


(793
)Non-current employee benefit liabilities


(31,865
)


(26,548
)


(9,068
)


(9,502
)Net amounts recognized

$
9,689


$
(5,964
)

$
(9,836
)

$
(10,295
)  F-31




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Pension Benefits


Other Postretirement Benefits2007


2006


2005


2007


2006


2005Actuarial assumptions:Discount rates  benefit obligation


6.25
%


5.85
%


5.68%



6.25
%


5.85
%


5.68
%Discount rates  service cost


5.85
%


5.68
%


4.50% - 5.75%



5.85
%


5.68
%


5.75
%Assumed rates of return on invested assets


8.50
%


8.50
%


8.50%











Salary increase assumptions


N/A



N/A



N/A



3.00
%


3.00
%


3.00
%   Pension Benefits


Other Postretirement Benefits2007


2006


2005


2007


2006


2005Service cost  benefits earned during the period

$
4,246


$
4,897


$
5,009


$
18


$
20


$
27Interest cost on projected benefit obligation


9,122



9,012



8,687



591



598



613Expected return on assets


(12,726
)


(12,590
)


(12,274
)










Prior service cost


1,402



1,051















Time contractual termination benefits


632



















Amortization of net loss (gain)


705



1,689



1,120



(105
)


(12
)


45Net expense

$
3,381


$
4,059


$
2,542


$
504


$
606


$
685     Defined


Post-Benefit


RetirementPension Plans


Plans


TotalPrior year accumulated other comprehensive income (loss)

$
(13,548
)

$
657


$
(12,891
)Amortization of prior service costs


1,402







1,402Amortization of gain (loss)


705



(105
)


600Net gain arising during the year


16,569



502



17,071Current year accumulated other comprehensive income (loss)

$
5,128


$
1,054


$
6,182          F-32




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  year-by-year,
  10-year
         F-33




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Plan Assets atDecember 31,2007


2006Asset category:Equity securities


52
%


52
%Investment grade fixed income securities


18
%


18
%High yield fixed income securities


8
%


7
%Alternative investments


13
%


20
%Short-term investments


9
%


3
%Total


100
%


100
%       1% Increase

1% DecreaseEffect on total of service and interest cost components

$
12


$
(11
)Effect on benefit obligation

$
199


$
(182
)       2008

$
13,1032009


33,1642010


24,7812011


12,1012012


13,4192013  2017


59,658   Profit
    Sharing and Other
    Plans:    10.
    INCOME
    TAXES   F-34




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year Ended December 31,2007


2006


2005Current:U.S. Federal

$
5,035


$
27,982


$
13,941State


3,109



8,165



6,369$
8,144


$
36,147


$
20,310Deferred:U.S. Federal

$
40,575


$
(10,591
)

$
20,748State


4,081



212



15644,656



(10,379
)


20,904Total

$
52,800


$
25,768


$
41,214     December 31, 2007


December 31, 2006Deferred Tax


Deferred Tax


Deferred Tax


Deferred TaxAssets


Liabilities


Assets


LiabilitiesExcess of tax basis over book basis- non-consolidated entities

$
2,907


$



$
4,902


$
Deferral on Philip Morris brand transaction






75,466







75,466Employee benefit accruals


16,543



15,234



14,656



7,094Book/tax differences on fixed and Intangible assets






23,984







24,814Impact of embedded derivatives on convertible debt






12,613







18,678Impact of timing of settlement payments






16,293







Unrestricted U.S. tax loss and contribution carryforwards










25,244



Restricted U.S. tax loss carryforwards


873







873



U.S. tax credit carryforwards  Vector


15,991







15,718



Various U.S. state tax loss carryforwards


15,962







16,858



Other


9,532



22,333



11,033



9,501Valuation allowance


(16,835
)






(17,731
)


$
44,973


$
165,923


$
71,553


$
135,553      F-35




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        90-day 90-day
  90-day 90-day
 F-36




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year Ended December 31,2007


2006


2005Income from continuing operations before income taxes

$
126,603


$
68,480


$
83,799Federal income tax expense at statutory rate


44,311



23,969



29,330Increases (decreases) resulting from:State income taxes, net of federal income tax benefits


4,674



5,445



4,241Non-deductible expenses


2,950



3,188



5,616Non-deductible impact of conversion of debt






5,201



Equity and other adjustments


115



(293
)


1,067Impact of tax audit settlements


(468
)


(11,500
)


Change in other tax contingencies


2,114



1,984



Changes in valuation allowance, net of equity and tax audit
    adjustments


(896
)


(2,226
)


960Income tax expense

$
52,800


$
25,768


$
41,214         Balance at January 1, 2007

$
11,685Additions based on tax positions related to current year


Additions based on tax positions related to prior years


2,242Reductions based on tax positions related to prior years


(95
)Settlements


Expirations of the statute of limitations


(3,227
)Balance at December 31, 2007

$
10,605        F-37




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    11.
    STOCK
    COMPENSATION      Stock Options.
     F-38




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2006


2005Risk-free interest rate


4.9%  5.0%



4.57
%Expected volatility


38.17%  40.52%



25.82
%Dividend yield


9.96%  10.03%



7.82
%Expected holding period


6  6.75 years



10 yearsWeighted average fair value

$
2.14  $2.50


$
2.02       2005Net income

$
52,385Add: stock option employee compensation expense included in
    reported net income, net of related tax effects


8,668Deduct: total stock option employee compensation expense
    determined under the fair value method for all awards, net of
    related tax effects


(3,474
)Pro forma net income

$
57,579Income per share:Basic  as reported

$
1.07Basic  pro forma

$
1.09Diluted  as reported

$
1.01Diluted  pro forma

$
1.03   No. 03-6,
 F-39




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Weighted-AverageRemaining


AggregateNumber of


Weighted Average


Contractual Term


IntrinsicShares


Exercise Price


(Years)


Value(1)Outstanding on January 1, 2005


10,246,298


$
10.35



4.7


$
48,880Granted


60,638


$
18.55Issued in New Valley acquisition


122,244


$
8.22Exercised


(356,602
)

$
10.64Cancelled


(627,269
)

$
23.09Outstanding on December 31, 2005


9,445,309


$
9.55



3.6


$
67,495Granted


297,675


$
15.96Exercised


(338,374
)

$
9.20Cancelled


(27,307
)

$
17.23Outstanding on December 31, 2006


9,377,303


$
9.73



2.8


$
69,246Granted






Exercised


(446,808
)

$
8.73Cancelled


(9,781
)

$
23.81Outstanding on December 31, 2007


8,920,714


$
9.70



1.8


$
95,238December 31, 2005


9,290,323December 31, 2006


9,017,954December 31, 2007


8,723,642     (1)
    
    The aggregate intrinsic value represents the amount by which the
    fair value of the underlying common stock ($20.06, $16.90,
    $16.48 and $14.36 at December 31, 2007, 2006 and 2005 and
    January 1, 2005, respectively) exceeds the option exercise
    price. F-40




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Options Outstanding


Options ExercisableWeighted-AverageOutstanding


Remaining





ExercisableRange of

as of


Contractual Life


Weighted-Average


as of


Weighted-AverageExercise Prices

12/31/2007


(Years)


Exercise Price


12/31/2007


Exercise Price$0.00  6.50



3,878,317



0.5


$
6.29



3,878,317


$
6.29$6.51  12.99



10,051



5.0


$
9.43



10,051


$
9.43$12.99  16.24



3,346,137



1.9


$
10.45



3,346,137


$
10.45$16.25  19.49



1,470,265



4.2


$
14.17



1,310,402


$
13.96$19.50  22.73



49,611



7.9


$
18.55



12,402


$
18.55$22.74  25.98



5,348



4.1


$
20.68



5,348


$
20.68$25.98  29.23



32,354



3.5


$
23.34



32,354


$
23.34$29.24  32.48



50,920



3.7


$
27.60



50,920


$
27.6077,711



3.7


$
29.72



77,711


$
29.728,920,714



1.8


$
9.62



8,723,642


$
9.46         No. 00-15,
     F-41




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    No. 123R-3. employee-by-employee grant-by-grant
            Restricted Stock Awards.
   F-42




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
                12.
    CONTINGENCIES  Tobacco-Related
    Litigation:
  Overview
   F-43




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Individual
    Actions
  and/or Engle
  NumberState

of CasesFlorida


13Maryland


13New York


11Mississippi


10Louisiana


5Missouri


2West Virginia


2District of Columbia


1Ohio


1Pennsylvania


1   Davis v. Liggett Group Inc., and/or Ferlanti v. Liggett Group Inc.,
   F-44




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  and/or
    Engle Progeny Cases. Engle v. R.J.
    Reynolds Tobacco Co. Engle Engle Engle Engle Engle Engle Engle
  Engle Engle
  Class Actions
  Castano v. American Tobacco Co.
  Castano Scott v. American Tobacco Co., Inc. Scott Broin v. Philip Morris Companies Inc., Engle, Castano
 F-45




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Engle Case. Engle class-wide
    Engle
  Lukacs v. R.J. Reynolds Tobacco Company, Lukacs Engle Engle Engle Engle
 F-46




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Other Class Actions. (Blankenship), Smith Romero Schwab Blankenship Smith Romero Smith v. Philip Morris Romero v. Philip Morris
  Schwab v. Philip Morris, Schwab
  Cleary v. Philip Morris, Inc. Cleary
  Brown v. The American Tobacco Co., Inc., Brown
  In Re: Tobacco
    Litigation (Personal Injury Cases) Good v. Altria
    Group Inc.
 F-47




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Governmental
    Actions
    DOJ Case.
     F-48




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  In December 1998, in City of St.
  Third-Party
    Payor Actions
      and/or and/or
    Upcoming
    Trials
  McGee v. Philip Morris Inc. Hausrath v. Philip Morris Inc.
  MSA and
    Other State Settlement Agreements
   F-49




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        
    all claims of the Settling States and their respective political
    subdivisions and other recipients of state health care funds,
    relating to: (i) past conduct arising out of the use, sale,
    distribution, manufacture, development, advertising and
    marketing of tobacco products; (ii) the health effects of,
    the exposure to, or research, statements or warnings about,
    tobacco products; and
    all monetary claims of the Settling States and their respective
    subdivisions and other recipients of state health care funds,
    relating to future conduct arising out of the use of or exposure
    to, tobacco products that have been manufactured in the ordinary
    course of business.  12-month
    and/or per-unit
 F-50




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Certain
    MSA Disputes
      NPM Adjustment.
    Gross v. Net Calculations.
 F-51




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    
    use of net unit amounts is not required by the MSA
    (as reflected by, among other things, the use of
    gross unit amounts through 2005);
    such a change is not authorized without the consent of affected
    parties to the MSA;
    the MSA provides for four-year time limitation periods for
    revisiting calculations and determinations, which precludes
    recalculating Liggetts 1997 Market Share (and thus,
    Liggetts market share exemption); and
    Liggett and others have relied upon the calculations based on
    gross unit amounts since 1998.    Litigation Challenging the MSA.
  Other State Settlements.
   F-52




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Engle Lukacs Engle and/or Engle Engle
     F-53




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Other
    Litigation:
      Other
    Matters:
     F-54




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  13.
    SUPPLEMENTAL
    CASH FLOW INFORMATION  Year Ended December 31,2007


2006


2005I. Cash paid during the period for:Interest

$
30,491


$
35,553


$
25,382Income taxes


18,967



45,475



14,045II. Non-cash investing and financing activities:Issuance of stock dividend


287



271



210Conversion of debt






70,000



Non-cash dividend of LTS shares










2,986Capital leases with purchase of equipment










418Equipment acquired through financing agreements










6,713   14.
    RELATED
    PARTY TRANSACTIONS  30-month
     F-55




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        15.
    FAIR
    VALUE OF FINANCIAL INSTRUMENTS    December 31,


December 31,2007


2006Carrying


Fair


Carrying


FairAmount


Value


Amount


ValueFinancial assets:Cash and cash equivalents

$
238,117


$
238,117


$
146,769


$
146,769Investment securities available for sale


45,875



45,875



18,960



18,960Restricted assets


8,766



8,766



8,274



8,274Long-term investments accounted for at cost


72,971



89,007



32,971



47,560Financial liabilities:Notes payable and long-term debt


297,796



504,662



155,990



340,837Embedded derivatives


101,582



101,582



95,473



95,473   16.
    PHILIP
    MORRIS BRAND TRANSACTION  L&M,
    Chesterfield Lark,
      90-day 90-day
 F-56




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    11-year
  90-day
      17.
    NEW
    VALLEY
    CORPORATION  Office Buildings.
  Investments in non-consolidated real estate
    businesses.
 F-57




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    December 31,


December 31,2007


2006Douglas Elliman Realty LLC

$
31,893


$
20,48116th and
    K Holdings LLC


3,838



7,182Ceebraid Acquisition Corporation






753Koa Investors LLC






Investments in non-consolidated real estate businesses

$
35,731


$
28,416   Residential Brokerage Business.
  December 31,


December 31,2007


2006Cash

$
26,916


$
19,307Other current assets


9,462



6,218Property, plant and equipment, net


18,394



19,538Trademarks


21,663



21,663Goodwill


38,294



38,087Other intangible assets, net


1,928



1,966Other non-current assets


850



1,001Notes payable  current


581



2,880Current portion of notes payable to member 
    Prudential Real Estate Financial Services Of America, Inc.


4,373



1,500Current portion of notes payable to member  New Valley


625



Other current liabilities


26,579



21,506Notes payable  long term


2,402



3,175Notes payable to member  Prudential Real Estate
    Financial Services of America, Inc.


15,115



32,557Notes payable to member  New Valley


8,583



8,875Other long-term liabilities


6,599



5,204Members equity


52,650



32,083   F-58




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Year Ended December 31,2007


2006


2005Revenues

$
405,595


$
347,244


$
330,075Costs and expenses


359,334



315,347



297,543Depreciation expense


6,047



5,138



4,896Amortization expense


448



410



899Interest expense, net


4,308



5,705



5,974Income tax expense


748



1,140



705Net income

$
34,710


$
19,504


$
20,058       Hawaiian Hotel.
    December 31,


December 31,2007


2006Cash

$
1,696


$
1,264Restricted assets


3,791



3,279Other current assets


1,925



2,030Property, plant and equipment, net


63,194



67,889Deferred financing costs, net


590



1,297Accounts payable and other current liabilities


8,371



5,930Notes payable


82,000



82,000Deferred ground rent payable


6,813



5,661Members equity


(25,988
)


(17,832
)  F-59




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Year Ended December 31,2007


2006


2005Revenues

$
30,585


$
29,440


$
24,252Costs and operating expenses


26,525



26,166



24,990Management fees


868



697



605Depreciation and amortization expense


6,225



5,989



7,401Interest expense, net


6,616



6,616



6,687Net loss

$
(9,649
)

$
(10,028
)

$
(15,431
)     St. Regis Hotel, Washington, D.C.
       F-60




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    December 31,


December 31,2007


2006Cash

$
1,405


$
1,041Restricted assets


3,555



771Other current assets


368



524Property, plant and equipment, net


114,268



56,311Deferred financing costs, net


2,294



462Other assets


774



82Current portion of mortgages payable






500Accounts payable and other current liabilities


12,863



4,691Notes payable


97,382



34,500Other liabilities






393Members equity


12,419



19,107   Year


Year


August 4, 2005Ended


Ended


toDecember 31,


December 31,


December 31,2007


2006


2005Revenues

$



$
14,027


$
9,633Costs and operating expenses


3,224



12,829



8,069Management fees


288



167



99Depreciation and amortization expense


424



1,110



663Interest expense, net


752



2,205



1,148Loss on disposition of furniture






2,512



Net loss

$
(4,688
)

$
(4,796
)

$
(346
)   Holiday Isle.
 F-61




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      December 31,


December 31,2007


2006Cash

$
251


$
307Restricted assets


7,369



9,484Other current assets


1,580



1,090Property, plant and equipment, net


98,029



99,855Other assets


231



2,515Deferred financing costs, net






1,511Accounts payable and other current liabilities


5,346



496Notes payable


98,000



98,000Members equity


4,114



16,266   Year


April 21, 2006Ended


toDecember 31,


December 31,2007


2006Revenues

$
12,644


$
9,891Costs and operating expenses


13,189



9,192Management fees


1,307



742Depreciation and amortization expense


1,866



3,780Interest expense, net


11,827



6,511Net loss

$
(15,545
)

$
(10,334
)   Ladenburg Thalmann Financial Services.
       F-62




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          Restricted Share Award.
    18.
    NEW
    VALLEY EXCHANGE OFFER      Purchase Accounting.
 F-63




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
            2005Pro forma total net revenues

$
478,427Pro forma net income from continuing operations

$
42,915Pro forma income before extraordinary item

$
51,436Pro forma net income

$
51,436Pro forma basic weighted average shares outstanding


54,323,731Pro forma income from continuing operations per basic common
    share

$
0.79Pro forma income before extraordinary item per basic common share

$
0.95Pro forma net income per basic common share

$
0.95Pro forma diluted weighted average shares outstanding


56,709,666Pro forma income from continuing operations per diluted common
    share

$
0.76Pro forma income before extraordinary item per diluted common
    share

$
0.91Pro forma net income per diluted common share

$
0.91    F-64




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    As ofDecember 9, 2005Tangible assets acquired:Current assets

$
106,526Long-term investments


14,982Investments in non-consolidated real estate businesses


71,508Deferred income taxes


70,810Other assets


3,972Total tangible assets acquired


267,798Adjustment to reflect Vectors stock ownership of New
    Valley prior to the offer and subsequent merger


(115,210
)Liabilities assumed


(14,123
)Deferred tax liability related to acquired long-term investments
    and non-consolidated real estate businesses


(10,134
)Total assets acquired in excess of liabilities assumed


128,331Reduction of non-current assets


(14,665
)Unallocated goodwill


(6,766
)Total purchase price

$
106,900   19.
    DISCONTINUED
    OPERATIONS  Real Estate Leasing.
    2005Revenues

$
924Expenses


515Income from operations before income taxes and minority interests


409Provision for income taxes


223Minority interests


104Income from discontinued operations

$
82   Gain on Disposal of Discontinued
    Operations.
 F-65




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  20.
    SEGMENT
    INFORMATION      Vector


Real


CorporateLiggett


Tobacco


Estate


and Other


Total2007Revenues

$
551,687


$
3,743


$



$



$
555,430Operating income (loss)


159,347



(9,896
)






(23,947
)


125,504Identifiable assets


314,242



2,459



35,731



432,857



785,289Depreciation and amortization


7,723



134







2,345



10,202Capital expenditures


4,997



192











5,1892006Revenues

$
499,468


$
6,784


$



$



$
506,252Operating income (loss)


140,508
(1)


(13,971
)(1)






(25,508
)


101,029
(1)Identifiable assets


316,165



3,122



28,416



289,759



637,462Depreciation and amortization


7,344



317







2,227



9,888Capital expenditures


9,439



100







19



9,5582005Revenues

$
468,652


$
9,775


$



$



$
478,427Operating income (loss)


143,361
(2)


(14,992
)(2)






(39,258
)


89,111
(2)Identifiable assets


267,661



1,091



17,391



317,409



603,552Depreciation and amortization


8,201



676







2,343



11,220Capital expenditures


9,664



12







619



10,295     (1)
    
    Includes a gain on sale of assets at Liggett of $2,217 and a
    loss on sale of assets of $7 at Vector Tobacco, restructuring
    and inventory impairment charges of $2,664 at Vector Tobacco and
    a reversal of restructuring charges of $116 at Liggett.(2)
    
    Includes a special federal quota stock liquidation assessment
    under the federal tobacco buyout legislation of $5,219 in 2005
    ($5,150 at Liggett and $69 at Vector Tobacco), a gain on sale of
    assets at Liggett of $12,748 and a reversal of restructuring
    charges of $114 at Liggett and $13 at Vector Tobacco in 2005. F-66




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   21.
    QUARTERLY
    FINANCIAL RESULTS (UNAUDITED)    December 31,


September 30,


June 30,


March 31,2007


2007


2007(1)


2007(2)Revenues

$
145,134


$
136,053


$
140,351


$
133,892Operating income


36,894



33,707



29,183



25,720Net income applicable to common shares

$
14,231


$
15,064


$
21,381


$
23,127Per basic common share(3):Income from continuing operations

$
0.22


$
0.24


$
0.34


$
0.36Income from discontinued operations

$



$



$



$
Income from extraordinary item

$



$



$



$
Net income applicable to common shares

$
0.22


$
0.24


$
0.34


$
0.36Per diluted common share(3):Income from continuing operations

$
0.22


$
0.23


$
0.32


$
0.35Income from discontinued operations

$



$



$



$
Income from extraordinary item

$



$



$



$
Net income applicable to common shares

$
0.22


$
0.23


$
0.32


$
0.35     (1)
    
    Second quarter 2007 income from continuing operations included
    an $8,121 pre-tax gain from the exchange of LTS notes.(2)
    
    First quarter of 2007 income from continuing operations included
    a $19,590 pre-tax gain from lawsuit settlement.(3)
    
    Per share computations include the impact of a 5% stock dividend
    paid on September 28, 2007. Quarterly basic and diluted net
    income per common share were computed independently for each
    quarter and do not necessarily total to the year to date basic
    and diluted net income (loss) per common share.  F-67




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  December 31,


September 30,


June 30,


March 31,2006(1)


2006(2)


2006(3)


2006Revenues

$
137,528


$
137,665


$
113,355


$
117,704Operating income


32,641



25,701



22,460



20,227Income (loss) from continuing operations


15,791



19,617



(2,709
)


10,013Income from discontinued operations














Income from extraordinary item














Net income (loss) applicable to common shares

$
15,791


$
19,617


$
(2,709
)

$
10,013Per basic common share(4):Income (loss) from continuing operations

$
0.25


$
0.31


$
(0.05
)

$
0.17Income from discontinued operations

$



$



$



$
Income from extraordinary item

$



$



$



$
Net income applicable to common shares

$
0.25


$
0.31


$
(0.05
)

$
0.17Per diluted common share(4):Income (loss) from continuing operations

$
0.24


$
0.30


$
(0.05
)

$
0.17Income from discontinued operations

$



$



$



$
Income from extraordinary item

$



$



$



$
Net income (loss) applicable to common shares

$
0.24


$
0.30


$
(0.05
)

$
0.17     (1)
    
    Fourth quarter 2006 income from continuing operations included a
    $2,476 gain on the sale of Liggetts excess Durham real
    estate, restructuring and inventory impairment charges of $2,664
    at Vector Tobacco and a $116 gain from the reversal of amounts
    previously accrued as restructuring charges at Liggett.(2)
    
    Third quarter 2006 income from continuing operations included a
    $11,500 decrease in reported income tax expense as a result of
    the settlement with the Internal Revenue Service.(3)
    
    Second quarter 2006 income from continuing operations included a
    $14,860 non-cash charge associated with the issuance in June
    2006 of additional shares of common stock in connection with the
    conversion of $70,000 of the Companys 6.25% convertible
    notes due 2008.(4)
    
    Per share computations include the impact of a 5% stock
    dividends paid on September 28, 2007 and September 29,
    2006. Quarterly basic and diluted net income (loss) per common
    share were computed independently for each quarter and do not
    necessarily total to the year to date basic and diluted net
    income (loss) per common share. F-68




---



##### Table of Contents



VECTOR
    GROUP LTD.
  SCHEDULE II 
    VALUATION AND QUALIFYING ACCOUNTS
  AdditionsBalance at


Charged to





BalanceBeginning


Costs and





at EndDescription

of Period


Expenses


Deductions


of Period(Dollars in thousands)Year Ended December 31, 2007Allowances for:Doubtful accounts

$
55


$



$
4


$
51Cash discounts


556



18,470



18,957



69Deferred tax valuation allowance


17,731







896



16,835Sales returns


3,651



80



31



3,700Total

$
21,993


$
18,550


$
19,888


$
20,655Year Ended December 31, 2006Allowances for:Doubtful accounts

$
105


$



$
50


$
55Cash discounts


369



22,093



21,906



556Deferred tax valuation allowance


19,957







2,226



17,731Sales returns


5,194



398



1,941



3,651Total

$
25,625


$
22,491


$
26,123


$
21,993Year Ended December 31, 2005Allowances for:Doubtful accounts

$
205


$



$
100


$
105Cash discounts


107



20,548



20,286



369Deferred tax valuation allowance


98,805







78,848



19,957Sales returns


6,030



509



1,345



5,194Total

$
105,147


$
21,057


$
100,579


$
25,625  F-69