<PAGE>   1
 
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                      ------------------------------------
 
                                   FORM 10-K
 
/X/   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
     SECURITIES EXCHANGE ACT OF 1934.
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
 
                                       OR
 
/ /   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
      EXCHANGE ACT OF 1934.
             FOR THE TRANSITION PERIOD FROM           TO
 
                        COMMISSION FILE NUMBER: 1-11665
 
                             JEFFERIES GROUP, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
<TABLE>
<S>                                           <C>
                   DELAWARE                                     95-2848406
       (STATE OR OTHER JURISDICTION OF                       (I.R.S. EMPLOYER
        INCORPORATION OR ORGANIZATION)                     IDENTIFICATION NO.)

   11100 SANTA MONICA BOULEVARD, 10TH FLOOR                       90025
           LOS ANGELES, CALIFORNIA                              (ZIP CODE)
   (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
 
       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 445-1199
          SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
                                      NONE
          SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
                          COMMON STOCK, $.01 PAR VALUE
                                (TITLE OF CLASS)
 
     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes  / /  No  / /
 
     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K, or any amendment to
this Form 10-K. / /
 
     State the aggregate market value of the voting stock held by nonaffiliates
of the registrant. $292,173,885 as of March 22, 1996.
 
     Indicate the number of shares outstanding of the registrant's class of
common stock, as of the latest practical date. 11,197,048 shares as of the close
of business March 22, 1996.
 
                      DOCUMENTS INCORPORATED BY REFERENCE
                          See list on following page.
 
                           LOCATION OF EXHIBIT INDEX
        The index of exhibits is contained in Part IV herein on page 33.
 
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>   2
 
                             JEFFERIES GROUP, INC.
 
                          1995 FORM 10-K ANNUAL REPORT
 
                               TABLE OF CONTENTS
 
                                     PART I
 
<TABLE>
<CAPTION>
                                                                                                      PAGE
                                                                                                      ----
<S>        <C>                                                                                        <C>
Item 1.    Business.................................................................................    1
Item 2.    Properties...............................................................................    5
Item 3.    Legal Proceedings........................................................................    6
Item 4.    Submission of Matters to a Vote of Security Holders......................................    6
                                           PART II
Item 5.    Market for the Registrant's Common Stock and Related Security Holder Matters.............    7
Item 6.    Selected Financial Data..................................................................    8
Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations....    9
Item 8.    Financial Statements and Supplementary Data..............................................   13
Item 9.    Disagreements on Accounting and Financial Disclosure.....................................   33
                                           PART III
Item 10.   Directors and Executive Officers of the Registrant.......................................   33
Item 11.   Executive Compensation...................................................................   33
Item 12.   Security Ownership of Certain Beneficial Owners and Management...........................   33
Item 13.   Certain Relationships and Related Transactions...........................................   33
                                           PART IV
Item 14.   Exhibits, Financial Statements, Schedules and Reports on Form 8-K........................   33
</TABLE>
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
<TABLE>
<CAPTION>
                              TITLE OF DOCUMENT                                                PART OF FORM 10-K
--------------------------------------------------------------------------------------------   -----------------
<S>                                                                                              <C>
Proxy Statement relating to 1996 Annual Meeting of Shareholders (to be filed).................     Part III
</TABLE>
 
                Exhibit Index located on page 33 of this report.
<PAGE>   3
 
                                     PART I
 
ITEM 1.  BUSINESS.
 
     Jefferies Group, Inc. is a holding company which, through its four primary
subsidiaries, Jefferies & Company, Inc., Investment Technology Group, Inc.,
Jefferies International Limited and Jefferies Pacific Limited, is engaged in
securities brokerage and trading, corporate finance and other financial
services. The term "Company" refers, unless the context requires otherwise, to
Jefferies Group, Inc., its subsidiaries, predecessor entities, and W & D
Securities, Inc. The Company was originally incorporated in 1973 as a holding
company for Jefferies & Company, Inc. and was reincorporated in Delaware on
August 10, 1983. The Company and its various subsidiaries maintain offices in
Los Angeles, New York, Short Hills, Jersey City, Chicago, Dallas, Boston,
Atlanta, New Orleans, Houston, San Francisco, Stamford, London, Hong Kong,
Zurich and Tokyo.
 
     As of December 31, 1995, the Company and its subsidiaries had 799 full-time
employees, including 401 representatives registered with the National
Association of Securities Dealers, Inc. ("NASD"). The Company's executive
offices are located at 11100 Santa Monica Boulevard, Los Angeles, California
90025, and its telephone number is (310) 445-1199.
 
JEFFERIES & COMPANY, INC.
 
     Jefferies & Company, Inc. ("Jefferies") was founded in 1962 and is engaged
in equity, convertible debt and taxable fixed income securities brokerage and
trading and corporate finance. Jefferies is one of the leading national firms
engaged in the distribution and trading of blocks of equity securities and
conducts such activities primarily in the "third market." The term "third
market" refers to transactions in listed equity securities effected away from
national securities exchanges. Jefferies' revenues are derived primarily from
commission revenues and market-making or trading as principal in equity, taxable
fixed income and convertible securities with or on behalf of institutional
investors, with the balance generated by corporate finance and other activities.
 
INVESTMENT TECHNOLOGY GROUP, INC.
 
     Investment Technology Group, Inc. is a holding company which is publicly
traded (Nasdaq: ITGI) and is approximately 80% owned by Jefferies Group, Inc.
Its wholly-owned subsidiary, ITG Inc. ("ITG") is a leading provider of
technology-based equity trading services and transaction research to
institutional investors and brokers. ITG services help clients to access
liquidity, execute trades more efficiently, and make better trading decisions.
ITG's expanding range of services includes: POSIT(R), the world's largest
intra-day electronic equity matching system; QuantEX(R), a fully-integrated
trade routing, analysis, and management system; and ISIS, a set of analytical
tools for systematically lowering the costs of trading.
 
JEFFERIES INTERNATIONAL LIMITED AND JEFFERIES PACIFIC LIMITED
 
     Jefferies International Limited ("JIL"), a broker-dealer subsidiary of the
Company, was incorporated in 1986 in England. JIL is a member of The
International Stock Exchange and The Securities and Futures Authority. JIL
introduces customers trading in U.S. securities to Jefferies and also trades as
a broker-dealer in international equity and convertible securities and American
Depositary Receipts ("ADRs"). In 1995, JIL formed a wholly-owned subsidiary,
Jefferies (Switzerland) Ltd., in Switzerland.
 
     Jefferies Pacific Limited ("JPL"), a broker subsidiary of the Company, was
incorporated in 1992 in Hong Kong. JPL presently introduces foreign customers
trading in U.S. securities to Jefferies. JPL commenced operations in 1993 and
has not yet generated material revenues.
 
W & D SECURITIES, INC.
 
     W & D Securities, Inc. ("W & D") primarily provides execution services on
the New York Stock Exchange ("NYSE") and other exchanges to Jefferies and ITG.
In order to comply with regulatory
 
                                        1
<PAGE>   4
 
requirements of the NYSE that generally prohibit NYSE members and their
affiliates from executing, as principal and, in certain cases, as agent,
transactions in NYSE-listed securities off the NYSE, the Company gave up its
formal legal control of W & D, effective January 1, 1983, by exchanging all of
the W & D common stock owned by it for non-voting preferred stock of W & D. The
common stock of W & D is presently held by an officer of W & D who has agreed
with the Company that, at the option of the Company, he will sell such stock to
the Company for nominal consideration. In the event that the Company were to
regain ownership of such common stock, the Company believes that the NYSE would
assert that W & D would be in violation of the NYSE's rules unless similar
arrangements satisfactory to the NYSE were made with respect to the ownership of
the common stock.
 
     While the NYSE has generally approved the above arrangements, there can be
no assurance that it will not raise objections in the future. In light of these
arrangements and the high proportion of the equity of W & D represented by the
non-voting preferred stock held by the Company, W & D is consolidated as a
subsidiary of the Company for financial statement purposes. The Company believes
that it can make satisfactory alternative arrangements for executing
transactions in listed securities on the NYSE if it were precluded from doing so
through W & D.
 
COMMISSION BUSINESS
 
     A substantial portion of the Company's revenues is derived from customer
commissions on brokerage transactions in equity (primarily listed) and debt
securities for domestic and international investors such as investment advisors,
banks, mutual funds, insurance companies and pension and profit sharing plans.
Such investors normally purchase and sell securities in block transactions, the
execution of which requires special marketing and trading expertise. The Company
is one of the leading national firms in the execution of equity block
transactions, and believes that its institutional customers are attracted by the
quality of the Company's execution (with respect to considerations of quantity,
timing and price) and its competitive commission rates, which are negotiated on
the basis of market conditions, the size of the particular transaction and other
factors. In addition to domestic equity securities, the Company executes
transactions in taxable fixed income securities, domestic and international
convertible securities, international equity securities, ADRs, options,
preferred stocks, financial futures and other similar products.
 
     All of the Company's equity account executives are electronically
interconnected through a system permitting simultaneous verbal and graphic
communication of trading and order information by all participants. The Company
believes that its execution capability is significantly enhanced by this system,
which permits its account executives to respond to each other and to negotiate
order indications directly with customers rather than through a separate trading
department.
 
PRINCIPAL TRANSACTIONS
 
     In the regular course of its business, the Company takes securities
positions as a market-maker to facilitate customer transactions and for
investment purposes. In making markets and when trading for its own account, the
Company exposes its own capital to the risk of fluctuations in market value.
Trading profits (or losses) depend primarily upon the skills of the employees
engaged in market-making and position taking, the amount of capital allocated to
positions in securities and the general trend of prices in the securities
markets.
 
     The Company monitors its risk by maintaining its securities positions at or
below certain pre-established levels. These levels reduce certain opportunities
to realize profits in the event that the value of such securities increases.
However, they also reduce the risk of loss in the event of a decrease in such
value and result in controlled interest costs incurred on funds provided to
maintain such positions.
 
     Equities. The Equities Division makes markets in over 400 over-the-counter
equity and ADR securities, operates a specialist post on the Boston Stock
Exchange, and trades securities for its own account, as well as to accommodate
customer transactions. The International Division engages in hedged trading
involving securities listed or traded in both domestic and foreign markets.
 
                                        2
<PAGE>   5
 
     Taxable Fixed Income. The Taxable Fixed Income Department trades high grade
and non-investment grade public and private debt securities. The Department
specializes in trading and making markets in over 300 unrated or less than
investment grade corporate debt securities and accounts for these positions at
market value. At December 31, 1995, the aggregate long and short market value of
these positions was $30.2 million and $13.5 million, respectively. Risk of loss
upon default by the borrower is significantly greater with respect to unrated or
less than investment grade corporate debt securities than with other corporate
debt securities. These securities are generally unsecured and are often
subordinated to other creditors of the issuer. These issuers usually have high
levels of indebtedness and are more sensitive to adverse economic conditions,
such as recession or increasing interest rates, than are investment grade
issuers. There is a limited market for some of these securities and market
quotes are generally available from a small number of dealers.
 
     Convertible Securities and Warrants. The Company also trades domestic and
international convertible securities and warrants and assists corporate and
institutional clients in identifying attractive investments in these securities
and warrants.
 
     Other Proprietary Trading. The Company invests in merger related arbitrage
activities through relationships with independent management firms pursuant to
which the Company delegates investment decisions to the managers. In 1994, the
Company hired an analytical trading group to engage in statistically-defined
market-neutral strategies in the equities markets to earn above market rates on
invested capital. In 1995, the Company hired a commodities trading group to
engage in a hedged strategy involving exchange listed commodity index futures
and the underlying commodity futures.
 
CORPORATE FINANCE
 
     Jefferies' Corporate Finance Department offers corporations a full range of
advisory as well as debt and equity financing services which include private
placements and public offerings of debt and equity securities, debt
refinancings, recapitalizations, mergers and acquisitions advice, exclusive
sales advice, structured financings and securitizations, consent and waiver
solicitations, and company and bondholder representations in corporate
restructurings.
 
     Investment banking activity involves both economic and regulatory risks. An
underwriter may incur losses if it is unable to sell the securities it is
committed to purchase or if it is forced to liquidate its commitments at less
than the agreed-upon purchase price. In addition, under the Securities Act of
1933 and other laws and court decisions with respect to underwriters' liability
and limitations on indemnification of underwriters by issuers, an underwriter is
subject to substantial potential liability for material misstatements or
omissions in prospectuses and other communications with respect to underwritten
offerings. Further, underwriting commitments constitute a charge against net
capital and the Company's underwriting commitments may be limited by the
requirement that it must, at all times, be in compliance with the Uniform Net
Capital Rule 15c3-1 of the Securities and Exchange Commission (the
"Commission").
 
     The Company intends to continue to pursue opportunities for its corporate
customers which may require it to finance and/or underwrite the issuance of
securities. Under circumstances where the Company is required to act as an
underwriter or to trade on a proprietary basis with its customers, the Company
may assume greater risk than would normally be assumed in certain other
principal transactions.
 
INTEREST
 
     The Company derives a substantial portion of its interest revenues, and
incurs a substantial portion of its interest expenses, in connection with its
securities borrowed/securities loaned activity. The Company also earns interest
on its securities portfolio, on its operating and segregated balances, on its
margin lending activity and on certain of its investments.
 
     Securities Borrowed/Securities Loaned. In connection with both its trading
and brokerage activities, the Company borrows securities to cover short sales
and to complete transactions in which customers have failed to deliver
securities by the required settlement date, and lends securities to other
brokers and dealers for similar purposes. The Company has an active securities
borrowed and lending matched book business
 
                                        3
<PAGE>   6
 
("Matched Book"), in which the Company borrows securities from one party and
lends them to another party. When the Company borrows securities, the Company
provides cash to the lender as collateral, which is reflected in the Company's
financial statements as receivable from brokers and dealers. The Company earns
interest revenues on this cash collateral. Similarly, when the Company lends
securities to another party, that party provides cash to the Company as
collateral, which is reflected in the Company's financial statements as payable
to brokers and dealers. The Company pays interest expense on the cash collateral
received from the party borrowing the securities. A substantial portion of the
Company's interest revenues and interest expense results from the Matched Book
activity.
 
     Margin Lending. Customers' transactions are executed on either a cash or
margin basis. In a margin transaction, the Company extends credit to the
customer, collateralized by securities and cash in the customer's account, for a
portion of the purchase price, and receives income from interest charged on such
extensions of credit.
 
     In permitting a customer to purchase securities on margin, the Company is
subject to the risk that a market decline could reduce the value of its
collateral below the amount of the customer's indebtedness and that the customer
might otherwise be unable to repay the indebtedness.
 
     In addition to monitoring the creditworthiness of its customers, the
Company also considers the trading liquidity and volatility of the securities it
accepts as collateral for its margin loans. Trading liquidity and volatility may
be dependent, in part, upon the market on which the security is traded, the
number of outstanding shares of the issuer, events affecting the issuer and/or
securities markets in general, and whether or not there are any legal
restrictions on the sale of the securities. Certain types of securities have
historical trading patterns which may assist the Company in making its
evaluation. Historical trading patterns, however, may not be good indicators
over relatively short time periods or in markets which are affected by unusual
or unexpected developments. The Company considers all of these factors at the
time it agrees to extend credit to customers and continues to review its
extensions of credit on an ongoing basis.
 
     The majority of the Company's margin loans are made to United States
citizens or to corporations which are domiciled in the United States. The
Company may extend credit to investors or corporations who are citizens of
foreign countries or who may reside outside the United States. The Company
believes that should such foreign investors default upon their loans with the
Company and should the collateral for those loans be insufficient to satisfy the
investors' obligations to the Company, the Company may experience more
difficulty in collecting investors' outstanding indebtedness than would be the
case if investors were citizens or residents of the United States.
 
     Although the Company attempts to minimize the risk associated with the
extension of credit in margin accounts, there is no assurance that the
assumptions on which the Company bases its decisions will be correct or that the
Company is in a position to predict factors or events which will have an adverse
impact on any individual customer or issuer, or the securities markets in
general.
 
COMPETITION
 
     All aspects of the business of the Company are intensely competitive. The
Company competes directly with numerous other brokers and dealers, investment
banking firms and banks. In addition to competition from firms currently in the
securities business, there has been increasing competition from others offering
financial services. These developments and others have resulted, and may
continue to result, in significant additional competition for the Company.
 
     Member firms of the NYSE generally are prohibited from effecting
transactions when acting as principal and, in certain cases, as agents, in
listed equity securities off the NYSE, and therefore, unlike Jefferies, are
precluded from effecting such transactions in the third market. Such firms may
execute certain transactions in listed equity securities in the third market for
customers, although typically they do not do so. Since firms which the Company
regards as its major competitors in the execution of transactions in equity
securities for institutional investors are members of the NYSE, any removal of
these prohibitions could adversely affect the Company's business.
 
                                        4
<PAGE>   7
 
REGULATION
 
     The securities industry in the United States is subject to extensive
regulation under both federal and state laws. The Commission is the federal
agency responsible for the administration of federal securities laws. In
addition, self-regulatory organizations, principally the NASD and the securities
exchanges, are actively involved in the regulation of broker-dealers. These
self-regulatory organizations conduct periodic examinations of member
broker-dealers in accordance with rules they have adopted and amended from time
to time, subject to approval by the Commission. Securities firms are also
subject to regulation by state securities commissions in those states in which
they do business. Jefferies is registered as a broker-dealer in 50 states and
the District of Columbia. ITG Inc. is registered as a broker-dealer in 49 states
and the District of Columbia. W & D is registered as a broker-dealer in 23
states.
 
     Broker-dealers are subject to regulations which cover all aspects of the
securities business, including sales methods, trade practices among
broker-dealers, use and safekeeping of customers' funds and securities, capital
structure of securities firms, record-keeping and the conduct of directors,
officers and employees. Additional legislation, changes in rules promulgated by
the Commission and self-regulatory organizations, or changes in the
interpretation or enforcement of existing laws and rules, may directly affect
the mode of operation and profitability of broker-dealers. The Commission,
self-regulatory organizations and state securities commissions may conduct
administrative proceedings which can result in censure, fine, suspension,
expulsion of a broker-dealer, its officers or employees, or revocation of
broker-dealer licenses. The principal purpose of regulation and discipline of
broker-dealers is the protection of customers and the securities markets, rather
than protection of creditors and stockholders of broker-dealers.
 
     As registered broker-dealers, Jefferies, ITG Inc. and W & D are required by
law to belong to the Securities Investor Protection Corporation ("SIPC"). In the
event of a member's insolvency, the SIPC fund provides protection for customer
accounts up to $500,000 per customer, with a limitation of $100,000 on claims
for cash balances.
 
     Net Capital Requirements.  Every U.S. registered broker-dealer doing
business with the public is subject to the Commission's Uniform Net Capital Rule
(the "Rule"), which specifies minimum net capital requirements. Jefferies Group,
Inc. is not a registered broker-dealer and is therefore not subject to the Rule;
however, its United States broker-dealer subsidiaries are subject thereto.
 
     The Rule provides that a broker-dealer doing business with the public shall
not permit its aggregate indebtedness to exceed 15 times its adjusted net
capital (the "basic method") or, alternatively, that it not permit its adjusted
net capital to be less than 2% of its aggregate debit balances (primarily
receivables from customers and broker-dealers) computed in accordance with such
Rule (the "alternative method"). Jefferies, ITG and W & D use the alternative
method of calculation.
 
     Compliance with applicable net capital rules could limit operations of
Jefferies or ITG, such as underwriting and trading activities, that require use
of significant amounts of capital, and may also restrict loans, advances,
dividends and other payments by Jefferies or ITG to the Company. As of December
31, 1995, Jefferies', ITG's and W & D's net capital was $78.0 million, $24.6
million and $908,000, respectively, which exceeded minimum net capital
requirements by $72.4 million, $24.4 million and $658,000, respectively. See
note 13 of Notes to Consolidated Financial Statements.
 
ITEM 2.  PROPERTIES.
 
     The Company maintains sales offices in Los Angeles, New York, Short Hills,
Chicago, Dallas, Boston, Atlanta, New Orleans, Houston, San Francisco, Stamford,
London, Hong Kong, Zurich and Tokyo. In addition, the Company maintains
operations offices in Los Angeles and Jersey City. The Company leases all of its
office space which management believes is adequate for the Company's business.
For information concerning leasehold improvements and rental expense, see notes
1, 6 and 11 of Notes to Consolidated Financial Statements.
 
                                        5
<PAGE>   8
 
ITEM 3. LEGAL PROCEEDINGS.
 
     In re Nasdaq Market-Makers Antitrust Litigation. Beginning in July 1994,
antitrust class actions were commenced against Jefferies and over thirty other
defendants in various federal courts. Following the filing of those lawsuits,
the Antitrust Division of the United States Department of Justice and the
Securities and Exchange Commission commenced investigations into certain issues
related to the allegations of the lawsuits. As far as Jefferies is aware, those
investigations are continuing.
 
     In October 1994, the lawsuits were consolidated for discovery purposes in
the United States District Court for the Southern District of New York. The
consolidated complaint alleges that the defendants violated the antitrust laws
by conspiring to fix the "spread" paid by plaintiffs and class members to trade
in certain Nasdaq securities, by refusing to quote bids and asks in so-called
"odd-eighths." The cases purport to be brought on behalf of all persons who
purchased or sold certain securities on the Nasdaq National Market during the
period May 1, 1989 to May 27, 1994. The plaintiffs seek damages in an
unspecified amount, injunctive relief, and attorneys' fees and costs. Discovery
of the parties has commenced. Plaintiffs have not yet asked the Court to certify
the case to proceed as a class action. Jefferies denies any wrongdoing and
intends to vigorously defend the lawsuits. At this stage of the litigations and
investigations, it is not possible to evaluate the likelihood of an unfavorable
outcome or to estimate the amount or range of potential damages or fines in the
event of an adverse finding on the merits.
 
     Other.  Many aspects of the Company's business involve substantial risks of
liability. In the normal course of business, the Company and its subsidiaries
have been named as defendants or co-defendants in lawsuits involving primarily
claims for damages. The Company's management believes that pending litigation
will not have a material adverse effect on the Company.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
 
     None.
 
                                        6
<PAGE>   9
 
                                    PART II
 
ITEM 5.  MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
         MATTERS.
 
     The Company's Common Stock began trading on the NYSE on March 15, 1996
under the symbol JEF. Previously, the Common Stock traded in the Nasdaq National
Market System under the symbol JEFG. The following table sets forth for the
periods indicated, the range of high and low representative bid prices per share
for the Common Stock as reported by Nasdaq, which prices do not include retail
mark-ups, mark-downs or commissions and represent prices between dealers and not
necessarily actual transactions. All price range and dividends per share
information has been restated to retroactively reflect the effect of the
two-for-one stock split approved by the Board of Directors on March 2, 1996.
(See note 16 to the consolidated financial statements.)
 
<TABLE>
<CAPTION>
                                                                             HIGH     LOW
                                                                             ----     ----
    <S>                                                                      <C>      <C>
    1995
      First Quarter........................................................  16       14 1/4
      Second Quarter.......................................................  19       15 1/4
      Third Quarter........................................................  20 3/4   18
      Fourth Quarter.......................................................  24 1/4   19 1/4
    1994
      First Quarter........................................................  22 7/8   14 1/4
      Second Quarter.......................................................  22 1/4   18 1/2
      Third Quarter........................................................  19       14 1/2
      Fourth Quarter.......................................................  18 3/8   14 1/4
</TABLE>
 
     There were approximately 301 holders of record of the Company's Common
Stock at December 31, 1995.
 
     In 1988, the Company instituted a policy of paying regular quarterly cash
dividends. There are no restrictions on the Company's present ability to pay
dividends on Common Stock, other than the applicable provisions of the Delaware
General Corporation Law.
 
     Dividends per Common Share (declared and paid):
 
<TABLE>
<CAPTION>
                                                   FIRST      SECOND       THIRD      FOURTH
                                                  QUARTER     QUARTER     QUARTER     QUARTER
                                                  -------     -------     -------     -------
    <S>                                           <C>         <C>         <C>         <C>
    1995........................................   $.025       $.025       $.025       $.025
    1994........................................   $.025       $.025       $.025       $.025
</TABLE>
 
                                        7
<PAGE>   10
 
ITEM 6.  SELECTED FINANCIAL DATA.
 
     The selected data presented below as of and for each of the years in the
five-year period ended December 31, 1995, are derived from the consolidated
financial statements of Jefferies Group, Inc. and its subsidiaries, which
financial statements have been audited by KPMG Peat Marwick LLP, independent
auditors. Such data should be read in connection with the consolidated financial
statements contained on pages 14 through 32. All share and per share information
has been restated to retroactively reflect the effect of the two-for-one stock
split approved by the Board of Directors on March 2, 1996. (See note 16 to the
consolidated financial statements.)
 
<TABLE>
<CAPTION>
                                                                                YEAR ENDED DECEMBER 31,
                                                             --------------------------------------------------------------
                                                                1995         1994         1993         1992         1991
                                                             ----------   ----------   ----------   ----------   ----------
<S>                                                          <C>          <C>          <C>          <C>          <C>
                                                                        (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
EARNINGS STATEMENT DATA
Revenues:
  Commissions..............................................  $  178,248   $  155,295   $  138,133   $  106,756   $   84,339
  Principal transactions...................................      97,954       67,013       83,361       86,364       69,972
  Corporate finance........................................      73,493       40,665       72,442       23,888       16,745
  Interest.................................................      65,792       51,223       21,693       16,801       23,939
  Other....................................................       4,228        1,902        2,512        1,632          955
                                                             ----------   ----------   ----------   ----------   ----------
    Total revenues.........................................     419,715      316,098      318,141      235,441      195,950
Interest expense...........................................      54,365       41,626       17,457       13,250       15,959
                                                             ----------   ----------   ----------   ----------   ----------
Revenues, net of interest expense..........................     365,350      274,472      300,684      222,191      179,991
                                                             ----------   ----------   ----------   ----------   ----------
Non-interest expenses:
  Compensation and benefits................................     195,278      145,372      167,546      118,253       92,294
  Floor brokerage and clearing fees........................      20,273       18,660       15,925       13,830       11,593
  Telecommunications and data processing services..........      24,960       20,997       19,040       17,059       16,034
  Occupancy and equipment rental...........................      15,993       14,271       12,757       12,126       12,767
  Travel and promotional...................................      10,804        8,909        8,587        5,574        3,880
  Software royalties.......................................       5,987        5,028        4,026        2,229        1,444
  Other....................................................      38,817       30,456       25,459       19,451       24,134
                                                             ----------   ----------   ----------   ----------   ----------
    Total non-interest expenses............................     312,112      243,693      253,340      188,522      162,146
                                                             ----------   ----------   ----------   ----------   ----------
Operating income...........................................      53,238       30,779       47,344       33,669       17,845
Other income:
  Gain on initial public offering of Investment
    Technology Group, Inc. ................................          --        8,257           --           --           --
                                                             ----------   ----------   ----------   ----------   ----------
Earnings before income taxes, minority interest and
  cumulative effect of change in accounting principle......      53,238       39,036       47,344       33,669       17,845
Income taxes...............................................      21,911       17,568       19,755       14,937        7,975
                                                             ----------   ----------   ----------   ----------   ----------
Earnings before minority interest and cumulative effect of
  change in accounting principle...........................      31,327       21,468       27,589       18,732        9,870
Minority interest..........................................       2,798        1,244           --           --           --
                                                             ----------   ----------   ----------   ----------   ----------
Earnings before cumulative effect of change in accounting
  principle................................................      28,529       20,224       27,589       18,732        9,870
Cumulative effect on prior years of change in accounting
  principle................................................          --           --        1,358           --           --
                                                             ----------   ----------   ----------   ----------   ----------
    Net earnings...........................................  $   28,529   $   20,224   $   28,947   $   18,732   $    9,870
                                                             ==========   ==========   ==========   ==========   ==========
Earnings per share of Common Stock:
  Primary earnings before cumulative effect of accounting
    change.................................................  $     2.39   $     1.63   $     2.69   $     1.91   $     0.87
  Cumulative effect of accounting change...................          --           --          .13           --           --
                                                             ----------   ----------   ----------   ----------   ----------
  Primary earnings.........................................  $     2.39   $     1.63   $     2.82   $     1.91   $     0.87
                                                             ==========   ==========   ==========   ==========   ==========
  Fully diluted earnings before cumulative effect of
    accounting change......................................  $     2.37   $     1.63   $     2.33   $     1.54   $     0.79
  Cumulative effect of accounting change...................          --           --          .11           --           --
                                                             ----------   ----------   ----------   ----------   ----------
  Fully diluted earnings...................................  $     2.37   $     1.63   $     2.44   $     1.54   $     0.79
                                                             ==========   ==========   ==========   ==========   ==========
Weighted average shares of Common Stock:
  Primary..................................................      11,960       12,378       10,290        9,796       11,372
  Fully diluted............................................      12,034       12,378       12,354       13,388       15,040
SELECTED BALANCE SHEET DATA
Total assets...............................................  $1,536,969   $1,557,348   $1,388,403   $  531,040   $  528,984
Long-term debt.............................................  $   56,322   $   59,570   $    9,968   $   40,978   $   40,428
Total stockholders' equity.................................  $  186,261   $  163,235   $  144,558   $   96,582   $   78,085
Book value per share of Common Stock.......................  $    16.55   $    14.56   $    12.69   $    10.42   $     8.53
Shares outstanding.........................................      11,257       11,210       11,391        9,267        9,158
</TABLE>
 
                                        8
<PAGE>   11
 
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS.
 
     The Company's principal activities, securities brokerage and the trading of
and market-making in securities, are highly competitive and extremely volatile.
 
     The earnings of the Company are subject to wide fluctuations since many
factors over which the Company has little or no control, particularly the
overall volume of trading and the volatility and general level of market prices,
may significantly affect its operations. The following provides a summary of
revenues by source for the past three years.
 
<TABLE>
<CAPTION>
                                                            YEAR ENDED DECEMBER 31,
                                        ---------------------------------------------------------------
                                               1995                  1994                  1993
                                        -------------------   -------------------   -------------------
                                                     % OF                  % OF                  % OF
                                                    TOTAL                 TOTAL                 TOTAL
                                         AMOUNT    REVENUES    AMOUNT    REVENUES    AMOUNT    REVENUES
                                        --------   --------   --------   --------   --------   --------
                                                            (DOLLARS IN THOUSANDS)
<S>                                     <C>        <C>        <C>        <C>        <C>        <C>
Equities Division.....................  $139,865       33%    $123,236       39%    $115,678       36%
Investment Technology Group...........    71,917       17       54,265       17       47,450       15
International Division................    39,617        9       29,441        9       23,767        7
Taxable Fixed Income Department.......    11,007        3        7,945        2       24,928        8
Convertible Division..................     7,155        2        5,154        2        6,995        2
Other Proprietary Trading.............     6,641        2        2,267        1        2,676        1
Corporate Finance.....................    73,493       17       40,665       13       72,442       23
Interest..............................    65,792       16       51,223       16       21,693        7
Other.................................     4,228        1        1,902        1        2,512        1
                                        --------      ---     --------      ---     --------      ---
          Total revenues..............  $419,715      100%    $316,098      100%    $318,141      100%
                                        ========      ===     ========      ===     ========      ===
</TABLE>
 
1995 COMPARED TO 1994
 
     Revenues, net of interest expense, increased $90.9 million, or 33%, in 1995
as compared to 1994. The increase was due to a $32.8 million, or 81%, increase
in corporate finance, a $30.9 million, or 46%, increase in principal
transactions, a $23.0 million, or 15%, increase in commissions, a $2.3 million
increase in other revenues and a $1.8 million, or 19%, increase in net interest
income (interest revenues less interest expense). Commission revenues increased,
led by ITG and the Equities Division. Revenues from principal transactions
increased primarily due to increased trading gains in the Equities Division, the
Taxable Fixed Income Department and the International Division. Corporate
finance revenues benefited from increases in underwriting and advisory fees.
Other revenues increased largely due to higher ITG related investment income.
Net interest income increased as the $14.6 million increase in interest revenues
exceeded the $12.7 million increase in interest expense. Interest revenues
increased due primarily to higher securities borrowed and customer margin
interest income. The related increase in interest on securities loaned only
partially offset the growth in interest revenues.
 
     Total non-interest expenses increased $68.4 million, or 28%, in 1995 as
compared to 1994. Compensation and benefits increased $49.9 million, or 34%
primarily due to a $29.1 million increase in performance-based compensation, a
$13.4 million increase in sales commissions and a $1.8 million increase in
salaries. Salaries increased due largely to expansion in the Corporate Finance
Department and equity research. Other expense increased $8.4 million, or 27%,
largely due to higher technology development expenses. Telecommunications and
data processing services increased $4.0 million, or 19%, primarily due to
increased trade volume and personnel. Travel and promotional expense increased
$1.9 million, or 21%, mostly due to an increase in ITG's advertising and
promotional costs as well as increased travel related to the Corporate Finance
Department. Occupancy and equipment rental increased $1.7 million, or 12%,
mostly due to the relocation and addition of offices. Floor brokerage and
clearing fees increased $1.6 million, or 9%, mostly due to increased volume of
business executed on the various exchanges. Software royalties increased
$959,000, or 19%, due to an increase in POSIT(R) commissions.
 
     As a result of the above, operating income increased $22.5 million, or 73%.
 
                                        9
<PAGE>   12
 
     In 1994, Jefferies Group, Inc. recorded a pre-tax gain of $8.3 million on
the initial public offering of Investment Technology Group, Inc. The minority
stockholders' ownership interest reduced Jefferies Group, Inc.'s ownership of
Investment Technology Group, Inc. to approximately 80%. (See Initial Public
Offering of Investment Technology Group, Inc. in the Notes to Consolidated
Financial Statements.)
 
     Earnings before income taxes and minority interest were up $14.2 million,
or 36%.
 
     Net earnings were up 41% to $28.5 million, as compared to $20.2 million in
1994. Minority interest of $2.8 million in 1995 represents approximately 20% of
Investment Technology Group, Inc.'s net earnings. The effective tax rate was
approximately 41% in 1995 compared to approximately 45% in 1994. The 1995
effective tax rate was lower due to a reduction in the effective state tax rates
and research and development tax credits.
 
     Primary earnings per share were $2.39 in 1995 on 12.0 million shares
compared to $1.63 in 1994 on 12.4 million shares. Fully diluted earnings per
share were $2.37 in 1995 on 12.0 million shares compared to $1.63 in 1994 on
12.4 million shares.
 
1994 COMPARED TO 1993
 
     Revenues, net of interest expense, decreased $26.2 million, or 9%, in 1994
as compared to 1993. The decrease was due primarily to a $31.8 million, or 44%,
decrease in corporate finance, a $16.3 million, or 20%, decrease in principal
transactions and a $610,000 decrease in other revenues. These decreases were
partially offset by a $17.2 million, or 12%, increase in commissions and a $5.4
million increase in net interest income (interest revenues less interest
expense). Commission revenues increased mostly due to higher commission revenues
in ITG, the Equities Division and the International Division. Revenues from
principal transactions declined primarily due to decreased Taxable Fixed Income
Department trading revenues. Corporate finance revenues decreased in 1994
because of a reduction in underwriting and private placement activity.
Additionally, 1993 included one transaction which accounted for $16 million of
revenue. Other revenues decreased due mostly to the absence of 1993's $700,000
gain from the termination of an office lease. Net interest income increased as
the $29.5 million increase in interest revenues exceeded the $24.2 million
increase in interest expense. Interest revenues increased primarily due to
interest on higher securities borrowed and investment balances. The related
increases in interest on securities loaned and customer short balances only
partially offset the higher interest revenues.
 
     Total non-interest expenses decreased $9.6 million, or 4%, in 1994 as
compared to 1993. Compensation and benefits decreased $22.2 million, or 13%. A
$40.6 million decrease in performance-based compensation was partially offset by
a $7.7 million increase in salaries and a $5.8 million increase in sales
commissions. Salaries increased due mostly to the increased number of employees
in the International Division, ITG and the Corporate Finance Department. Sales
commissions were up partly due to a change for certain account executives from
departmental profitability-based to an individual production-based compensation
and partly due to higher commission revenues and higher commission payout rates
on certain types of transactions. Other expense increased $5.0 million, or 20%,
primarily due to higher soft dollar and technology development expenses. Floor
brokerage and clearing fees increased $2.7 million, or 17%, mostly due to
increased futures business and higher trade volume. Telecommunications and data
processing services increased $2.0 million, or 10%, due to higher trade volume
and personnel increases. Occupancy and equipment rental increased $1.5 million,
or 12%, mostly due to the addition of new sales offices. Software royalties
increased $1.0 million, or 25%, due to the increase in POSIT(R) commissions.
Travel and promotional expense remained relatively unchanged as compared to the
prior year's period.
 
     As a result of the above, operating income decreased $16.6 million, or 35%.
 
     In addition, Jefferies Group, Inc. recorded an $8.3 million gain related to
the initial public offering of Investment Technology Group, Inc. The minority
stockholders' ownership interests reduced Jefferies Group, Inc.'s ownership of
Investment Technology Group, Inc. to approximately 80%. (See Initial Public
Offering of Investment Technology Group, Inc. in the Notes to Consolidated
Financial Statements.)
 
     Earnings before income taxes, minority interest and cumulative effect of
change in accounting principle were down $8.3 million, or 18%.
 
                                       10
<PAGE>   13
 
     Earnings before cumulative effect of change in accounting principle were
down 27% to $20.2 million, as compared to $27.6 million in 1993. Minority
interest of $1.2 million in 1994 represents approximately 20% of Investment
Technology Group, Inc.'s net earnings since the initial public offering. The
effective tax rate was approximately 45% in 1994 compared to approximately 42%
in 1993. The 1993 period included a $1.1 million adjustment of prior years'
estimated tax liabilities to actual which resulted in a lower tax rate for 1993.
 
     The cumulative effect of the change in accounting for income taxes required
by Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes", was a $1.4 million benefit in 1993. This increased 1993's net
earnings to $28.9 million.
 
     Primary earnings per share were $1.63 in 1994 on 12.4 million shares
compared to $2.82 in 1993 on 10.3 million shares. Primary shares increased
largely due to the conversion, in late 1993, of $29,731,000 aggregate principal
amount of 8 1/2% Convertible Subordinated Debentures and $1,690,000 aggregate
principal amount of 7% Convertible Subordinated Notes into an aggregate of
2,732,184 shares of the Company's Common Stock. Fully diluted earnings per share
were $1.63 in 1994 on 12.4 million shares compared to $2.44 in 1993 on 12.4
million shares. The cumulative effect of the change in accounting principle
increased 1993's earnings per share by $.13 on primary shares and $.11 on fully
diluted shares.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     A substantial portion of the Company's assets are liquid, consisting of
cash or assets readily convertible into cash. The majority of securities
positions (both long and short) in the Company's trading accounts are readily
marketable and actively traded. Receivables from brokers and dealers are
primarily current open transactions or securities borrowed transactions which
can be settled or closed out within a few days. Receivables from customers,
officers and directors include margin balances and amounts due on uncompleted
transactions. Most of the Company's receivables are secured by marketable
securities.
 
     The Company's assets are funded by equity capital, senior debt,
subordinated debt, customer free credit balances, bank loans and other payables.
Bank loans represent secured and unsecured short-term borrowings (usually
overnight) which are generally payable on demand. Secured bank loans are
collateralized by a combination of customer, noncustomer and firm securities.
The Company has always been able to obtain necessary short-term borrowings in
the past and believes that it will continue to be able to do so in the future.
Additionally, the Company has letters of credit outstanding which are used in
the normal course of business to satisfy various collateral requirements in lieu
of depositing cash or securities.
 
     Jefferies, ITG and W & D are subject to the net capital requirements of the
Commission and other regulators, which are designed to measure the general
financial soundness and liquidity of broker-dealers. Jefferies, ITG and W & D
have consistently operated in excess of the minimum requirements. As of December
31, 1995, Jefferies', ITG's and W & D's net capital was $78.0 million, $24.6
million and $908,000, respectively, which exceeded minimum net capital
requirements by $72.4 million, $24.4 million and $658,000, respectively.
Jefferies, ITG Inc. and W & D use the alternative method of calculating their
regulatory net capital.
 
     In 1995, Jefferies Group, Inc. redeemed $3.6 million face value of its
8.875% Subordinated Notes due 1997 in accordance with sinking fund requirements.
Also in 1995, the Company repurchased 727,738 shares (including 267,936 shares
purchased in connection with the Company's Capital Accumulation Plan) of its
Common Stock at prices ranging from $14.31 to $23.25.
 
     In April 1994, Jefferies Group, Inc. issued $50,000,000 face value of
8.875% Senior Notes due 2004 (the "Notes") in a private placement. Pursuant to a
registration statement filed in July 1994, Jefferies Group, Inc. exchanged all
of the Notes for new 8.875% Series B Senior Notes due 2004. Also in 1994, the
Company repurchased 1,381,546 shares (including 261,920 shares purchased in
connection with the Company's Capital Accumulation Plan) of its Common Stock at
prices ranging from $15.63 to $18.73.
 
     The repurchased shares of Common Stock are presently being held as treasury
shares.
 
                                       11
<PAGE>   14
 
EFFECTS OF CHANGES IN FOREIGN CURRENCY RATES
 
     The Company maintains a foreign securities business in its foreign offices
(London, Hong Kong and Zurich) as well as in some of its domestic offices. Most
of these activities are hedged by related foreign currency liabilities or by
forward exchange contracts. However, the Company is still subject to some
foreign currency risk. A change in the foreign currency rates could create
either a foreign currency transaction gain/loss (recorded in the Company's
Consolidated Statements of Earnings) or a foreign currency translation
adjustment to the Stockholders' equity section of the Company's Consolidated
Statements of Financial Condition.
 
     For an assessment of risk, see Part I, Item 1, Business sections "Principal
Transactions," "Corporate Finance," "Interest," and "Competition."
 
                                       12
<PAGE>   15
 
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
 
                         INDEX TO FINANCIAL STATEMENTS
 
<TABLE>
<CAPTION>
                                                                                        PAGE
                                                                                        ----
<S>                                                                                     <C>
Consolidated Financial Statements of Jefferies Group, Inc. and Subsidiaries
Independent Auditors' Report..........................................................   14
Consolidated Statements of Financial Condition as of December 31, 1995 and 1994.......   15
Consolidated Statements of Earnings for the Three Years Ended December 31, 1995.......   16
Consolidated Statements of Changes in Stockholders' Equity for the Three Years Ended
  December 31, 1995...................................................................   17
Consolidated Statements of Cash Flows for the Three Years Ended December 31, 1995.....   18
Notes to Consolidated Financial Statements............................................   19
</TABLE>
 
                                       13
<PAGE>   16
 
                          INDEPENDENT AUDITORS' REPORT
 
The Board of Directors and Stockholders
  JEFFERIES GROUP, INC.:
 
     We have audited the accompanying consolidated statements of financial
condition of Jefferies Group, Inc. and subsidiaries as of December 31, 1995 and
1994 and the related consolidated statements of earnings, changes in
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
 
     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Jefferies
Group, Inc. and subsidiaries as of December 31, 1995 and 1994 and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1995 in conformity with generally accepted accounting
principles.
 
     As discussed in note 1 to the consolidated financial statements, the
Company changed its accounting for income taxes in 1993 to adopt the provisions
of the Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes."
 
                                          KPMG Peat Marwick LLP
 
Los Angeles, California
January 24, 1996, except as to
  note 16 to the consolidated
  financial statements, which
  is as of March 2, 1996.
 
                                       14
<PAGE>   17
 
                             JEFFERIES GROUP, INC.
                                AND SUBSIDIARIES
 
                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                           DECEMBER 31, 1995 AND 1994
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
<TABLE>
<CAPTION>
                                                                                1995          1994
                                                                              ----------    ----------
<S>                                                                           <C>           <C>
                                           ASSETS
Cash and cash equivalents.................................................... $   68,318    $   71,381
Receivable from brokers and dealers..........................................  1,118,154     1,149,670
Receivable from customers, officers and directors............................    107,158       105,880
Securities owned.............................................................    167,210       144,940
Premises and equipment.......................................................     26,206        21,071
Other assets.................................................................     49,923        64,406
                                                                              ----------    ----------
                                                                              $1,536,969    $1,557,348
                                                                              ==========    ==========
                            LIABILITIES AND STOCKHOLDERS' EQUITY
Bank loans................................................................... $       --    $      866
Payable to brokers and dealers...............................................    864,456       840,833
Repurchase agreements........................................................         --        18,696
Payable to customers.........................................................    214,555       325,396
Securities sold, not yet purchased...........................................     82,932        60,587
Accrued expenses and other liabilities.......................................    124,062        82,029
                                                                              ----------    ----------
                                                                               1,286,005     1,328,407
Long-term debt...............................................................     56,322        59,570
Minority interest............................................................      8,381         6,136
                                                                              ----------    ----------
                                                                               1,350,708     1,394,113
                                                                              ----------    ----------
Stockholders' equity:
  Preferred stock, $.01 par value. Authorized 1,000,000 shares; none issued..         --            --
  Common stock, $.01 par value. Authorized 25,000,000 shares; issued
     18,520,706 shares in 1995 and 18,035,420 shares in 1994.................         93            90
  Additional paid-in capital.................................................     58,117        51,120
  Retained earnings..........................................................    192,234       165,597
  Less:
     Treasury stock, at cost; 7,263,530 shares in 1995 and 6,825,344
      shares in 1994.........................................................    (63,075)      (52,958)
     Currency translation adjustments........................................       (522)         (465)
     Additional minimum pension liability....................................       (586)         (149)
                                                                              ----------    ----------
     Net stockholders' equity................................................    186,261       163,235
                                                                              ----------    ----------
                                                                              $1,536,969    $1,557,348
                                                                              ==========    ==========
</TABLE>
 
          See accompanying notes to consolidated financial statements.
 
                                       15
<PAGE>   18
 
                             JEFFERIES GROUP, INC.
                                AND SUBSIDIARIES
 
                      CONSOLIDATED STATEMENTS OF EARNINGS
                      THREE YEARS ENDED DECEMBER 31, 1995
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
<TABLE>
<CAPTION>
                                                                             1995           1994           1993
                                                                         ----------     ----------     ----------
<S>                                                                       <C>            <C>            <C>
Revenues:
  Commissions..........................................................  $  178,248     $  155,295     $  138,133
  Principal transactions...............................................      97,954         67,013         83,361
  Corporate finance....................................................      73,493         40,665         72,442
  Interest.............................................................      65,792         51,223         21,693
  Other................................................................       4,228          1,902          2,512
                                                                         ----------     ----------     ----------
    Total revenues.....................................................     419,715        316,098        318,141
Interest expense.......................................................      54,365         41,626         17,457
                                                                          ---------     ----------     ----------
Revenues, net of interest expense......................................     365,350        274,472        300,684
                                                                          ---------     ----------     ----------
Non-interest expenses:
  Compensation and benefits............................................     195,278        145,372        167,546
  Floor brokerage and clearing fees....................................      20,273         18,660         15,925
  Telecommunications and data processing services......................      24,960         20,997         19,040
  Occupancy and equipment rental.......................................      15,993         14,271         12,757
  Travel and promotional...............................................      10,804          8,909          8,587
  Software royalties...................................................       5,987          5,028          4,026
  Other................................................................      38,817         30,456         25,459
                                                                          ---------     ----------     ----------
    Total non-interest expenses........................................     312,112        243,693        253,340
                                                                          ---------     ----------     ----------
Operating income.......................................................      53,238         30,779         47,344
Other income -- gain on initial public offering of Investment
  Technology Group, Inc. (note 15).....................................          --          8,257             --
                                                                          ---------     ----------     ----------
Earnings before income taxes, minority interest and cumulative
  effect of change in accounting principle.............................      53,238         39,036         47,344
Income taxes...........................................................      21,911         17,568         19,755
                                                                          ---------     ----------     ----------
Earnings before minority interest and cumulative effect of
  change in accounting principle.......................................      31,327         21,468         27,589
Minority interest in earnings of consolidated subsidiaries, net........       2,798          1,244             --
                                                                          ---------     ----------     ----------
Earnings before cumulative effect of change in accounting principle....      28,529         20,224         27,589
Cumulative effect of change in accounting principle....................          --             --          1,358
                                                                          ---------     ----------     ----------
    Net earnings.......................................................  $   28,529     $   20,224     $   28,947
                                                                         ==========     ==========     ==========
Primary earnings per share:
  Earnings before cumulative effect of change in accounting principle..  $     2.39     $     1.63     $     2.69
  Cumulative effect of change in accounting principle..................          --             --            .13
                                                                         ----------     ----------     ----------
    Net earnings.......................................................  $     2.39     $     1.63     $     2.82
                                                                         ==========     ==========     ==========
Fully diluted earnings per share:
  Earnings before cumulative effect of change in accounting principle..  $     2.37     $     1.63     $     2.33
  Cumulative effect of change in accounting principle..................          --             --            .11
                                                                         ----------     ----------     ----------
    Net earnings.......................................................  $     2.37     $     1.63     $     2.44
                                                                         ==========     ==========     ==========
Weighted average shares of common stock:
  Primary..............................................................  11,960,000     12,378,000     10,290,000
  Fully diluted........................................................  12,034,000     12,378,000     12,354,000
                                                                         ==========     ==========     ==========
</TABLE>
 
          See accompanying notes to consolidated financial statements.
 
                                       16
<PAGE>   19
 
                             JEFFERIES GROUP, INC.
                                AND SUBSIDIARIES
 
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                      THREE YEARS ENDED DECEMBER 31, 1995
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
<TABLE>
<CAPTION>
                                                                                                       ADDITIONAL
                                                      ADDITIONAL                          CURRENCY      MINIMUM          NET
                                             COMMON    PAID-IN     RETAINED   TREASURY   TRANSLATION    PENSION     STOCKHOLDERS'
                                             STOCK     CAPITAL     EARNINGS    STOCK     ADJUSTMENT    LIABILITY       EQUITY
                                             ------   ----------   --------   --------   -----------   ----------   -------------
<S>                                          <C>      <C>          <C>        <C>        <C>           <C>          <C>
Balance, December 31, 1992..................   $ 89     $ 34,015    $118,994   $(55,980)     $(536)      $ --          $  96,582
Exercise of stock options (85,130 shares)...   --            885       --         --         --            --                885
Purchase of 703,674 shares of treasury stock   --         --           --       (11,228)     --            --            (11,228)
Issuance of restricted stock (10,344 shares)   --         --           --            93      --            --                 93
Conversion of convertible debt into common
  shares (2,732,184 shares).................   --             30       --        31,420      --            --             31,450
Additional minimum pension liability........   --         --           --         --         --            (1,063)        (1,063)
Net earnings................................   --         --          28,947      --         --            --             28,947
Dividends paid ($.10 per share).............   --         --            (992)     --         --            --               (992)
Currency translation adjustment.............   --         --           --         --          (116)        --               (116)
                                                ---      -------    --------   --------      -----        -------       --------
Balance, December 31, 1993..................     89       34,930     146,949    (35,695)      (652)        (1,063)       144,558
Exercise of stock options (249,786 shares)..      1        2,936       --           216      --            --              3,153
Purchase of 1,381,546 shares of treasury
  stock.....................................   --         --           --       (24,190)     --            --            (24,190)
Issuance of common stock (876,984 shares)...   --         13,119       --         5,945      --            --             19,064
Issuance of restricted stock (38,636 shares)   --            135       --           213      --            --                348
Capital Accumulation Plan distribution
  (35,362 shares)...........................   --         --           --           553      --            --                553
Reduction in additional minimum pension
  liability.................................   --         --           --         --         --               914            914
Increase in proportionate share of
  subsidiary's equity related to
  subsidiary's purchase of treasury
  stock.....................................   --         --            (407)     --         --            --               (407)
Net earnings................................   --         --          20,224      --         --            --             20,224
Dividends paid ($.10 per share).............   --         --          (1,169)     --         --            --             (1,169)
Currency translation adjustment.............   --         --           --         --           187         --                187
                                                ---      -------    --------   --------      -----        -------       --------
Balance, December 31, 1994..................     90       51,120     165,597    (52,958)      (465)          (149)       163,235
Exercise of stock options (485,286 shares)..      2        5,613       --         --         --            --              5,615
Purchase of 727,738 shares of treasury
  stock.....................................   --         --           --       (12,768)     --            --            (12,768)
Issuance of common stock (159,664 shares)...      1        1,205       --         1,237      --            --              2,443
Issuance of restricted stock (82,606
  shares)...................................   --            179       --           626      --            --                805
Capital Accumulation Plan distribution
  (47,282 shares)...........................   --         --           --           788      --            --                788
Additional minimum pension liability........   --         --           --         --         --              (437)          (437)
Increase in proportionate share of
  subsidiary's equity related to
  subsidiary's purchase of treasury
  stock.....................................   --         --            (766)     --         --            --               (766)
Net earnings................................   --         --          28,529      --         --            --             28,529
Dividends paid ($.10 per share).............   --         --          (1,126)     --         --            --             (1,126)
Currency translation adjustment.............   --         --           --         --           (57)        --                (57)
                                                ---      -------    --------   --------      -----        -------       --------
Balance, December 31, 1995..................   $ 93     $ 58,117    $192,234   $(63,075)     $(522)      $   (586)     $ 186,261
                                                ===      =======    ========   ========      =====        =======       ========
</TABLE>
 
          See accompanying notes to consolidated financial statements.
 
                                       17
<PAGE>   20
 
                             JEFFERIES GROUP, INC.
                                AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                      THREE YEARS ENDED DECEMBER 31, 1995
                             (DOLLARS IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                         1995         1994        1993
                                                                       ---------    --------    ---------
<S>                                                                    <C>          <C>         <C>
Cash flows from operating activities:
  Net earnings......................................................   $  28,529    $ 20,224    $  28,947
                                                                       ---------    --------    ---------
  Adjustments to reconcile net earnings to net cash provided by
    (used in) operating activities:
    Depreciation and amortization...................................       9,720       7,921        6,665
    Deferred income taxes...........................................      (4,110)     15,945       (7,438)
    (Increase) decrease in receivables:
      Brokers and dealers...........................................      31,516     (80,286)    (797,034)
      Customers, officers and directors.............................      (1,278)     11,055      (22,588)
    Increase in securities owned....................................     (22,270)    (30,132)     (11,815)
    (Increase) decrease in other assets.............................      13,024     (39,366)     (13,484)
    Increase (decrease) in payables:
      Brokers and dealers...........................................      23,623     225,617      467,602
      Customers.....................................................    (110,841)    (80,330)     254,641
    Increase (decrease) in securities sold, not yet purchased.......      22,345     (13,648)      26,312
    Increase (decrease) in accrued expenses and other liabilities...      45,708      (9,829)      45,507
                                                                       ---------    --------    ---------
      Net cash provided by (used in) operating activities...........      35,966      27,171      (22,685)
                                                                       ---------    --------    ---------
Cash flows from financing activities:
  Net proceeds from (payments on) bank loans........................        (866)    (45,062)      45,928
  Issuance of long-term debt........................................          --      49,302           --
  Net proceeds (payments) from:
    Repurchase of treasury stock....................................     (12,768)    (24,190)     (11,228)
    Redemption of 8 7/8% Subordinated Notes, due 1997...............      (3,576)         --           --
    Dividends paid..................................................      (1,126)     (1,169)        (992)
  Proceeds from exercise of stock options...........................       5,615       3,153          885
  Increase in minority interest.....................................       2,245       6,136           --
  Increase in proportionate share of subsidiary's equity............        (766)       (407)          --
  Distribution of Capital Accumulation Plan shares..................         788         553           --
  Proceeds (payments) -- repurchase agreements......................     (18,696)     18,696           --
  Issuance of restricted shares.....................................         805         348           93
  Issuance of common shares.........................................       2,443      19,064           --
                                                                       ---------    --------    ---------
      Net cash provided by (used in) financing activities...........     (25,902)     26,424       34,686
                                                                       ---------    --------    ---------
Cash flows from investing activities -- purchase of premises and
  equipment.........................................................     (13,070)     (9,311)     (10,053)
                                                                       ---------    --------    ---------
Effect of currency translation on cash..............................         (57)        187         (116)
                                                                       ---------    --------    ---------
    Net increase (decrease) in cash and cash equivalents............      (3,063)     44,471        1,832
Cash and cash equivalents at beginning of year......................      71,381      26,910       25,078
                                                                       ---------    --------    ---------
Cash and cash equivalents at end of year............................   $  68,318    $ 71,381    $  26,910
                                                                       =========    ========    =========
Supplemental disclosures of cash flow information:
  Cash paid during the year for:
    Interest........................................................   $  54,934    $ 37,435    $  15,970
    Income taxes....................................................      15,168       9,793       20,112
                                                                       =========    ========    =========
</TABLE>
 
Supplemental disclosure of non-cash financing activities:
  In September 1993, the Company called for redemption of all of its then
     outstanding convertible subordinated debentures and notes. Holders of
     $29,731,000 face value of 8-1/2% Convertible Subordinated Debentures and
     $1,690,000 face value of 7% Convertible Subordinated Notes elected to
     convert their debentures and notes into 2,732,184 shares of the Company's
     common stock.
  In 1993, the Company recognized an additional minimum pension liability of
     $1,063,000 related to the Company's pension plan, which resulted in an
     increase to accrued expenses and other liabilities and an offsetting
     decrease in stockholders' equity. In 1994, the additional minimum pension
     liability included in stockholders' equity of $149,000 resulted from a
     decrease of $914,000 to accrued expenses and other liabilities and an
     offsetting increase in stockholders' equity. In 1995, the additional
     minimum pension liability included in stockholders' equity of $586,000
     resulted from an increase of $437,000 to accrued expenses and other
     liabilities and an offsetting decrease in stockholders' equity.
 
          See accompanying notes to consolidated financial statements.
 
                                       18
<PAGE>   21
 
                             JEFFERIES GROUP, INC.
                                AND SUBSIDIARIES
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1995 AND 1994
 
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
PRINCIPLES OF CONSOLIDATION
 
     The accompanying consolidated financial statements include the accounts of
Jefferies Group, Inc. (Company) and all subsidiaries, including Jefferies &
Company, Inc. (Jefferies) and Investment Technology Group, Inc. (ITGI) and its
wholly owned subsidiary, ITG Inc. (ITG). The accounts of W & D Securities, Inc.
(W & D) are also consolidated because of the nature and extent of the Company's
ownership interest in W & D. The Company and its subsidiaries are primarily
engaged in equity and taxable fixed income securities brokerage and trading.
Operations of the Company include agency and principal transactions and other
securities-related financial services.
 
     All significant intercompany accounts and transactions are eliminated in
consolidation.
 
SECURITIES TRANSACTIONS
 
     All transactions in securities, commission revenues and related expenses
are recorded on a trade-date basis.
 
     Securities owned and securities sold, not yet purchased, are valued at
market, and unrealized gains or losses are reflected in revenues from principal
transactions.
 
RECEIVABLE FROM, AND PAYABLE TO, CUSTOMERS, OFFICERS AND DIRECTORS
 
     Receivable from, and payable to, customers includes amounts receivable and
payable on cash and margin transactions. Securities owned by customers and held
as collateral for these receivables are not reflected in the accompanying
consolidated financial statements. Receivable from officers and directors
represents balances arising from their individual security transactions. Such
transactions are subject to the same regulations as customer transactions.
 
FAIR VALUE OF FINANCIAL INSTRUMENTS
 
     Substantially all of the Company's financial instruments are carried at
fair value or amounts approximating fair value. Assets, including cash and cash
equivalents, securities borrowed or purchased under agreements to sell, and
certain receivables are carried at fair value or contracted amounts, which
approximate fair value due to the short period to maturity. Similarly,
liabilities including bank loans, securities loaned or sold under agreements to
repurchase, long-term debt and certain payables are carried at amounts
approximating fair value. Securities owned and securities sold, not yet
purchased are valued at quoted market prices, if available. For securities
without quoted prices, the reported fair value is estimated using various
sources of information, including quoted prices for comparable securities.
 
     The Company has derivative financial instrument positions in option
contracts, foreign exchange forward contracts and index futures contracts which
are measured at fair value with gains and losses recognized in earnings. The
gross contracted or notional amount of these contracts is not reflected in the
consolidated statements of financial condition.
 
PREMISES AND EQUIPMENT
 
     Premises and equipment are depreciated using the straight-line method over
the estimated useful lives of the related assets (generally three to ten years).
Leasehold improvements are amortized using the straight-line method over the
term of related leases or the estimated useful lives of the assets, whichever is
shorter.
 
                                       19
<PAGE>   22
 
                             JEFFERIES GROUP, INC.
                                AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
GOODWILL
 
     Goodwill, which represents the excess of cost over net assets acquired, is
amortized on a straight-line basis over ten years. The Company assesses the
recoverability of this intangible asset by determining whether the amortization
of the goodwill balance over its remaining life can be recovered through future
operating cash flows of the acquired business.
 
CAPITALIZED SOFTWARE
 
     The Company capitalizes software development costs where technological
feasibility of the product has been established. The establishment of
technological feasibility and the ongoing assessment of recoverability of
capitalized software development costs requires considerable judgment by
management with respect to certain external factors, including, but not limited
to, technological feasibility, anticipated future gross revenues, estimated
economic life and changes in software and hardware technologies. The Company is
amortizing capitalized software costs using the straightline method over one to
five years, with an average remaining life of two years. Amortization begins
when the product is available for release to the customers. As of December 31,
1995 and 1994, respectively, the Company had $2.8 million and $1.5 million of
capitalized software costs, net of accumulated amortization included in other
assets. In 1995, 1994 and 1993, the Company amortized software costs of
$894,000, $173,000 and $173,000, respectively.
 
INCOME TAXES
 
     The Company files a consolidated U.S. Federal income tax return which
includes all qualifying subsidiaries. Amounts provided for income taxes are
based on income reported for financial statement purposes and do not necessarily
represent amounts currently payable. Deferred income taxes are provided for
temporary differences in reporting certain items, principally state income
taxes, depreciation, deferred compensation and unrealized gains and losses on
securities owned. Tax credits are recorded as a reduction of income taxes when
realized.
 
     In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes."
Statement 109 requires a change from the deferred method of accounting for
income taxes of APB Opinion 11 to the asset and liability method of accounting
for income taxes. Under the asset and liability method of Statement 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under Statement 109, the
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
 
     Effective January 1, 1993, the Company adopted Statement 109 and has
reported the cumulative effect of that change in the method of accounting for
income taxes in the 1993 consolidated statement of earnings.
 
RESEARCH AND DEVELOPMENT
 
     Research and development costs were $2.8 million, $3.2 million and $3.5
million in 1995, 1994 and 1993, respectively.
 
CASH EQUIVALENTS
 
     The Company generally invests its excess cash in money market funds and
other short-term investments. At December 31, 1995 and 1994, such cash
equivalents amounted to $40,299,000 and $49,174,000,
 
                                       20
<PAGE>   23
 
                             JEFFERIES GROUP, INC.
                                AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
respectively. Cash equivalents are part of the cash management activities of the
Company and generally mature within 90 days.
 
REPURCHASE AGREEMENTS
 
     Repurchase agreements consist of sales of U.S. Treasury notes under
agreements to repurchase. They are treated as collateralized financing
transactions and are recorded at their contracted repurchase amount. At December
31, 1994, the Company had two repurchase agreements outstanding with Eastbridge
Capital, Inc., which had a weighted average maturity of 28 days. The market
value of the securities to be repurchased was $18,734,000.
 
EARNINGS PER COMMON SHARE
 
     Primary earnings per share of common stock are computed by dividing net
earnings by the average number of shares of common stock and dilutive common
stock equivalents outstanding during the period. Fully diluted earnings per
share of common stock have been further adjusted for conversion of convertible
subordinated debt, if dilutive. All shares used in the earnings per share
calculations were restated to retroactively reflect the two-for-one stock split
approved by the Board of Directors on March 2, 1996. (See note 16 to the
consolidated financial statements.)
 
FOREIGN CURRENCY TRANSLATION
 
     In accordance with SFAS 52, "Accounting for Foreign Currency Translation,"
the Company's foreign revenues and expenses are translated at average current
rates during each reporting period. Foreign currency transaction gains and
losses are currently included in the consolidated statement of earnings. Gains
and losses resulting from translation of financial statements are excluded from
the consolidated statement of earnings and are recorded directly to a separate
component of stockholders' equity.
 
RECLASSIFICATIONS
 
     Certain reclassifications have been made to the prior years' amounts to
conform to the current year's presentation.
 
USE OF ESTIMATES
 
     Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
 
(2) GOODWILL
 
     At December 31, 1995 and 1994, excess of purchase price over net assets
acquired remaining was $3,021,000 and $3,701,000, net of accumulated
amortization of $2,261,000 and $1,696,000, respectively, and is included in
other assets.
 
     In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 (SFAS 121), "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be Disposed of."
SFAS 121 requires that long-lived assets and certain identifiable intangibles to
be held and used by the entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. The statement is effective for financial
 
                                       21
<PAGE>   24
 
                             JEFFERIES GROUP, INC.
                                AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
statements for fiscal years beginning after December 15, 1995. The Company
elected to implement the statement during the year ended December 31, 1995. Such
implementation did not have a material financial impact on the Company.
 
(3) RECEIVABLE FROM, AND PAYABLE TO, BROKERS AND DEALERS
 
     The following is a summary of the major categories of receivable from, and
payable to, brokers and dealers as of December 31, 1995 and 1994 (in thousands
of dollars):
 
<TABLE>
<CAPTION>
                                                                         1995           1994
                                                                      ----------     ----------
<S>                                                                   <C>            <C>
Receivable from brokers and dealers:
  Securities borrowed...............................................  $1,092,904     $1,132,930
  Other.............................................................      25,250         16,740
                                                                      ----------     ----------
                                                                      $1,118,154     $1,149,670
                                                                      ==========     ==========
Payable to brokers and dealers:
  Securities loaned.................................................  $  851,254     $  835,069
  Other.............................................................      13,202          5,764
                                                                      ----------     ----------
                                                                      $  864,456     $  840,833
                                                                      ==========     ==========
</TABLE>
 
     The Company has a securities borrowed versus securities loaned business
with other brokers. The Company also borrows securities to cover short sales and
to complete transactions in which customers have failed to deliver securities by
the required settlement date, and lends securities to other brokers and dealers
for similar purposes. From these activities, the Company derives interest
revenue and interest expense.
 
(4) RECEIVABLE FROM, AND PAYABLE TO, CUSTOMERS, OFFICERS AND DIRECTORS
 
     The following is a summary of the major categories of receivables from
customers, officers and directors as of December 31, 1995 and 1994 (in thousands
of dollars):
 
<TABLE>
<CAPTION>
                                                                           1995         1994
                                                                         --------     --------
<S>                                                                      <C>          <C>
Customers (net of allowance for uncollectible accounts of $2,251 in
  1995 and $1,882 in 1994).............................................  $103,953     $103,735
Officers and directors.................................................     3,205        2,145
                                                                         --------     --------
                                                                         $107,158     $105,880
                                                                         ========     ========
</TABLE>
 
     Interest is paid on free credit balances in accounts of customers who have
indicated that the funds will be used for investment at a future date. The rate
of interest paid on such free credit balances varies between the thirteen-week
treasury bill rate and 1% below that rate, depending upon the size of the
customers' free credit balances.
 
     Uncollectible accounts expense amounted to $81,000, $712,000 and $708,000
for the years ended December 31, 1995, 1994 and 1993, respectively, and is
included in other expense.
 
                                       22
<PAGE>   25
 
                             JEFFERIES GROUP, INC.
                                AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
(5) SECURITIES OWNED AND SECURITIES SOLD, NOT YET PURCHASED
 
     The following is a summary of the market value of major categories of
securities owned and securities sold, not yet purchased, as of December 31, 1995
and 1994:
 
<TABLE>
<CAPTION>
                                                             1995                          1994
                                                   -------------------------     -------------------------
                                                                  SECURITIES                    SECURITIES
                                                                    SOLD,                         SOLD,
                                                   SECURITIES      NOT YET       SECURITIES      NOT YET
                                                     OWNED        PURCHASED        OWNED        PURCHASED
                                                   ----------     ----------     ----------     ----------
                                                                   (DOLLARS IN THOUSANDS)
<S>                                                <C>            <C>            <C>            <C>
Corporate equity securities....................     $  79,872      $ 67,617       $  72,652      $ 52,068
High-yield securities..........................        30,180        13,501          21,457         3,058
Corporate debt securities......................        13,728         1,595          18,392         4,927
Certificate of deposit.........................            --            --          10,000            --
U.S. Government and agency obligations.........        34,884            --          22,416            --
Municipal securities...........................         8,509            --              --            --
Options........................................            37           219              23           534
                                                     --------       -------        --------       -------
                                                    $ 167,210      $ 82,932       $ 144,940      $ 60,587
                                                     ========       =======        ========       =======
</TABLE>
 
(6) PREMISES AND EQUIPMENT
 
     The following is a summary of premises and equipment as of December 31,
1995 and 1994 (in thousands of dollars):
 
<TABLE>
<CAPTION>
                                                                            1995        1994
                                                                           -------     -------
<S>                                                                        <C>         <C>
Furniture, fixtures and equipment........................................  $47,549     $38,553
Leasehold improvements...................................................   11,142       7,422
                                                                           -------     -------
     Total...............................................................   58,691      45,975
Less accumulated depreciation and amortization...........................   32,485      24,904
                                                                           -------     -------
                                                                           $26,206     $21,071
                                                                           =======     =======
</TABLE>
 
     Depreciation and amortization expense amounted to $7,934,000, $6,878,000
and $4,350,000 for the years ended December 31, 1995, 1994 and 1993,
respectively.
 
     Included in furniture, fixtures and equipment is leased computer and office
equipment totaling $5,290,000 with related accumulated amortization of
$4,734,000 and $4,031,000 at December 31, 1995 and 1994, respectively.
 
(7) BANK LOANS
 
     Bank loans represent short-term borrowings that are payable on demand and
generally bear interest at the brokers' call loan rate. At December 31, 1995,
there were no bank loans. At December 31, 1994, firm bank loans amounted to
$866,000. The loans were fully collateralized by firm securities having a market
value of $1,361,000.
 
                                       23
<PAGE>   26
 
                             JEFFERIES GROUP, INC.
                                AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
(8) LONG-TERM DEBT
 
     The following summarizes long-term debt outstanding at December 31, 1995
and 1994 (in thousands of dollars):
 
<TABLE>
<CAPTION>
                                                                            1995        1994
                                                                           -------     -------
<S>                                                                        <C>         <C>
8 7/8% Subordinated Notes, due 1997, less unamortized discount of $251
  and $509 in 1995 and 1994, respectively, effective rate of 12%.........  $ 6,903     $10,221
8 7/8% Series B Senior Notes, due 2004, less unamortized discount of $581
  and $651 in 1995 and 1994, respectively, effective rate of 9%..........   49,419      49,349
                                                                           -------     -------
                                                                           $56,322     $59,570
                                                                           =======     =======
</TABLE>
 
     In April 1994, the Company issued $50,000,000 face value of 8 7/8% Senior
Notes due 2004 (the Notes) in a private placement. Pursuant to a registration
statement filed in July 1994, Jefferies Group, Inc. exchanged all of the Notes
for new 8 7/8% Series B Senior Notes due 2004.
 
     In 1992, the Company issued $10,730,000 face value of 8 7/8% Subordinated
Notes in exchange for 7% Convertible Subordinated Notes having the same face
value. Beginning October 1, 1995, the Subordinated Notes have sinking fund
requirements to redeem $3,577,000 annually through October 1, 1997.
 
     In September 1993, the Company called for redemption of all of its then
outstanding convertible subordinated debentures and notes. Holders of
$29,731,000 face value of 8 1/2% Convertible Subordinated Debentures and
$1,690,000 face value of 7% Convertible Subordinated Notes elected to convert
their debentures and notes into 2,732,184 shares of the Company's common stock.
 
(9) INCOME TAXES
 
     Total income taxes for the years ended December 31, 1995, 1994 and 1993
were allocated as follows (in thousands of dollars):
 
<TABLE>
<CAPTION>
                                                                 1995        1994        1993
                                                                -------     -------     -------
<S>                                                             <C>         <C>         <C>
Income from operations........................................  $21,911     $17,568     $19,755
Stockholders' equity, for compensation expense for tax
  purposes in excess of amounts recognized for financial
  reporting purposes..........................................   (2,451)     (1,230)        177
Goodwill, for initial recognition of acquired tax benefits....     (122)      --          --
                                                                -------     -------     -------
                                                                $19,338     $16,338     $19,932
                                                                =======     =======     =======
</TABLE>
 
     Income taxes (benefit) for the years ended December 31, 1995, 1994 and 1993
consists of the following:
 
<TABLE>
<CAPTION>
                                                                 1995        1994        1993
                                                                -------     -------     -------
                                                                    (DOLLARS IN THOUSANDS)
<S>                                                             <C>         <C>         <C>
Current:
  Federal.....................................................  $17,361     $   667     $19,407
  State and city..............................................    8,660         956       7,786
                                                                -------     -------     -------
                                                                 26,021       1,623      27,193
                                                                =======     =======     =======
Deferred:
  Federal.....................................................   (1,692)     12,103      (5,473)
  State and city..............................................   (2,418)      3,842      (1,965)
                                                                -------     -------     -------
                                                                 (4,110)     15,945      (7,438)
                                                                -------     -------     -------
                                                                $21,911     $17,568     $19,755
                                                                =======     =======     =======
</TABLE>
 
                                       24
<PAGE>   27
 
                             JEFFERIES GROUP, INC.
                                AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     Income taxes differed from the amounts computed by applying the Federal
income tax rate of 35% for 1995, 1994 and 1993 as a result of the following:
 
<TABLE>
<CAPTION>
                                                                         1995               1994               1993
                                                                    --------------     --------------     --------------
                                                                    AMOUNT     %       AMOUNT     %       AMOUNT     %
                                                                    -------   ----     -------   ----     -------   ----
                                                                                   (DOLLARS IN THOUSANDS)
<S>                                                                 <C>       <C>      <C>       <C>      <C>       <C>
Computed expected income taxes....................................  $18,633   35.0%    $13,663   35.0%    $16,570   35.0%
Increase (decrease) in income taxes resulting from:
  State and city income taxes, net of Federal income tax benefit..    4,057    7.6       3,119    8.0       3,784    8.0
  Research and development tax credits............................   (1,114)  (2.1)      --       --        --       --
  Limited deductibility of meals and entertainment................      663    1.3         645    1.7         323     .7
  Non-taxable interest income.....................................     (308)  (0.6)      --       --        --       --
  Adjustment of estimated tax liabilities to actual...............    --       --        --       --       (1,094)  (2.3)
  Other, net......................................................      (20)   --          141     .3         172     .3
                                                                    -------   ----     -------   ----     -------   ----
          Total income taxes......................................  $21,911   41.2%    $17,568   45.0%    $19,755   41.7%
                                                                    =======   ====     =======   ====     =======   ====
</TABLE>
 
     The deferred tax benefit of $7,438,000 for the year ended December 31, 1993
included a $101,000 benefit from adjustments to deferred tax assets and
liabilities for enacted changes in tax laws and rates.
 
     The cumulative tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and liabilities at December 31,
1995 and 1994 are presented below (in thousands of dollars):
 
<TABLE>
<CAPTION>
                                                                           1995         1994
                                                                         --------     --------
<S>                                                                      <C>          <C>
Deferred tax assets:
  Long-term compensation...............................................  $ 10,214     $  7,602
  Lease allowances.....................................................       667          603
  Accounts receivable..................................................     2,390        1,612
  State income taxes...................................................     1,051          402
  Net operating loss carryforward......................................        --        2,397
  Royalty income.......................................................        --          220
  Securities inventories...............................................        --          112
  Premises and equipment...............................................        --          117
  Other................................................................       412           --
                                                                         --------     --------
          Total gross deferred tax assets..............................    14,734       13,065
  Valuation allowance..................................................        --           --
                                                                         --------     --------
          Net deferred tax assets......................................    14,734       13,065
                                                                         --------     --------
Deferred tax liabilities:
  Investment in subsidiaries...........................................   (14,342)     (16,512)
  Notes payable........................................................       (94)        (219)
  Premises and equipment...............................................       (78)          --
  Other................................................................        --         (224)
                                                                         --------     --------
          Total gross deferred tax liabilities.........................   (14,514)     (16,955)
                                                                         --------     --------
          Net deferred tax asset (liability)...........................  $    220     $ (3,890)
                                                                         ========     ========
</TABLE>
 
     There was no valuation allowance for deferred tax assets as of December 31,
1995, 1994 and 1993.
 
                                       25
<PAGE>   28
 
                             JEFFERIES GROUP, INC.
                                AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     Management believes it is more likely than not that the Company will
generate sufficient taxable income in the future to realize the deferred tax
asset.
 
(10) BENEFIT PLANS
 
PENSION PLAN
 
     The Company has a defined benefit pension plan which covers substantially
all employees of the Company and its subsidiaries. The plan is subject to the
provisions of the Employee Retirement Income Security Act of 1974. Benefits are
based on years of service and the employee's career average pay. The Company's
funding policy is to contribute to the plan at least the minimum amount that can
be deducted for Federal income tax purposes.
 
     The following tables set forth the plan's funded status and amounts
recognized in the Company's accompanying consolidated statements of financial
condition (in thousands of dollars):
 
<TABLE>
<CAPTION>
                                                                               DECEMBER 31
                                                                           -------------------
                                                                            1995        1994
                                                                           -------     -------
<S>                                                                        <C>         <C>
Actuarial present value of benefit obligations -- accumulated benefit
  obligation, including vested benefits of $11,270 and $8,030 as of
  December 31, 1995 and 1994, respectively...............................  $11,983     $ 8,447
                                                                           =======     =======
Projected benefit obligation for service rendered to date................  $12,809     $ 8,967
Plan assets, at fair market value........................................   10,528       7,754
                                                                           -------     -------
  Excess of the projected benefit obligation over plan assets............    2,281       1,213
Unrecognized prior service cost..........................................      755         820
Unrecognized net transition obligation being recognized over 15 years....     (258)       (300)
Unrecognized net loss....................................................   (2,334)     (1,188)
Adjustment to recognize minimum liability................................    1,011         149
                                                                           -------     -------
  Pension liability included in other liabilities........................  $ 1,455     $   694
                                                                           =======     =======
</TABLE>
 
<TABLE>
<CAPTION>
                                                                    YEAR ENDED DECEMBER 31
                                                                -------------------------------
                                                                 1995        1994        1993
                                                                -------     -------     -------
                                                                    (DOLLARS IN THOUSANDS)
<S>                                                             <C>         <C>         <C>
Net pension cost included the following components:
  Service cost -- benefits earned during the period...........  $   595     $   683     $   693
  Interest cost on projected benefit obligation...............      851         843         765
  Actual loss (return) on plan assets.........................   (2,195)        539        (909)
  Net amortization............................................    1,442      (1,111)        409
                                                                -------     -------     -------
     Net periodic pension cost................................  $   693     $   954     $   958
                                                                =======     =======     =======
</TABLE>
 
     The plan assets consist of approximately 60% equities and 40% fixed income
securities.
 
     The weighted average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation were 7.50% and 5.00%, respectively, in 1995 and
8.75% and 5.00%, respectively, in 1994. The expected long-term rate of return on
assets was 8.40% in 1995 and 1994.
 
                                       26
<PAGE>   29
 
                             JEFFERIES GROUP, INC.
                                AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
STOCK PLANS
 
     The Company has a stock ownership and long-term incentive plan (the Plan)
which allows awards in the form of incentive stock options (within the meaning
of Section 422 of the Internal Revenue Code), nonqualified stock options, stock
appreciation rights, restricted stock, unrestricted stock, performance awards,
dividend equivalents or other stock based awards. The maximum number of shares
of common stock of the Company with respect to which any awards may be made in
any calendar year during the term of the Plan may not exceed 20% of the number
of shares of common stock issued and outstanding as of the first day of the
calendar year in which awards are made, less the number of shares of common
stock reserved for issuance with respect to, or underlying, any award, made
pursuant to the Plan or any predecessor plan, as of such date.
 
     The following is a summary of the stock option transactions under the Plan
and predecessor stock option plans for the year ended December 31, 1995, 1994
and 1993:
 
<TABLE>
<CAPTION>
                                              1995                       1994                      1993
                                    ------------------------   ------------------------   -----------------------
                                    NUMBER OF      OPTION      NUMBER OF      OPTION      NUMBER OF     OPTION
                                     SHARES        PRICE        SHARES        PRICE        SHARES        PRICE
                                    ---------   ------------   ---------   ------------   ---------   -----------
<S>                                 <C>         <C>            <C>         <C>            <C>         <C>
Stock options outstanding,
  beginning of year...............   952,066    $ 5.50-21.50    984,252    $ 5.50-17.00    838,682    $5.50- 8.88
Stock options granted.............   220,000     14.38-19.63    187,600     16.25-21.50    232,000     8.50-17.00
Stock options exercised...........  (485,286)     5.50-16.38   (219,786)     5.50- 8.88    (85,130)    5.50- 8.50
Stock options canceled............    (4,550)     5.50-16.25         --              --     (1,300)          5.50
                                    --------                   --------                    -------
Stock options outstanding, end of
  year............................   682,230    $ 5.50-21.50    952,066    $ 5.50-21.50    984,252    $5.50-17.00
                                    ========    ============   ========    ============    =======    ===========
</TABLE>
 
     At December 31, 1995, of the 682,230 options outstanding, 488,230 options
were exercisable and 681,230 were nonqualified.
 
     At December 31, 1994, of the 952,066 options outstanding, 806,066 options
were exercisable and 944,066 were nonqualified.
 
     Additionally, each director, who is not an employee of the Company, has
nonqualified options to purchase shares of the Company's common stock at
exercise prices ranging from $6.63 through $21.50. In 1995, 10,000 options were
granted to directors at an exercise price of $16.88. In total, the directors
have 36,000 options. At December 31, 1995 and 1994, all of the options were
exercisable.
 
     During 1995 and 1994, there were restricted stock awards of 128,046 shares
and 56,400 shares, respectively, with a corresponding market value of $2,249,000
and $1,019,000, respectively. As of December 31, 1995 and 1994, restricted stock
awards covering 21,494 shares and 130,400 shares, respectively, were outstanding
and 21,494 and 109,500, respectively, were vested.
 
     In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for
Stock-Based Compensation." SFAS 123 defines a fair value based method of
accounting for an employee stock option or similar instrument and encourages all
entities to adopt that method of accounting for all of their employee stock
compensation plans. However, it also allows an entity to continue to measure
compensation cost for those plans using the intrinsic value based method of
accounting prescribed by APB Opinion No. 25, "Accounting for Stock Issued to
Employees." Entities electing to remain with the accounting in APB Opinion No.
25 must make pro forma disclosures of net earnings and earnings per share, as if
the fair value based method of accounting defined in SFAS 123 had been applied.
The statement is effective for fiscal years beginning after December 15, 1995.
The Company elected not to implement the statement during the year ended
December 31, 1995. SFAS 123 is not expected to have a material financial impact
on the Company.
 
                                       27
<PAGE>   30
 
                             JEFFERIES GROUP, INC.
                                AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
OTHER BENEFIT PLANS
 
     The Company incurs expenses related to various benefit plans covering
substantially all employees, including an Employee Stock Purchase Plan (ESPP)
and a profit sharing plan, which includes a salary reduction feature designed to
qualify under Section 401(k) of the Internal Revenue Code.
 
     In 1993, the Company created a Capital Accumulation Plan for certain
officers and key employees of the Company. Participation in the plan is
optional, with those who elect to participate agreeing to defer graduated
percentages of their compensation. The plan allows selected employees to acquire
the Company's common stock at a 15% discount with 50% of the amount deferred.
The remaining 50% of the amount deferred is placed in a Profit-Based Deferred
Compensation Account that earns interest at a rate based on the performance of
the Company. The Company will from time to time repurchase shares of its common
stock in the open market for use in this plan. The Company has acquired 770,396
shares since the inception of the plan and has made distributions of 82,644
shares.
 
     Expenses related to these employee benefit plans amounted to $5,926,000,
$3,300,000 and $3,945,000 in 1995, 1994 and 1993, respectively.
 
PERFORMANCE SHARE PLAN
 
     The Company had a Performance Share Plan, until May 1994, awarding
ownership in ITG in the form of phantom equity interest to key ITG employees, of
which a 12.7% interest was outstanding at December 31, 1993. Expense under this
plan was $8,635,000 in 1993. In connection with the initial public offering of
ITGI (see note 15), the Performance Share Plan was terminated in May 1994. The
Performance Share Plan expense for 1994 was $1,528,000, prior to the termination
of the plan.
 
(11) LEASES
 
     As lessee, the Company leases certain premises and equipment under
noncancelable agreements expiring at various dates through 2006. Assets under
capitalized leases are capitalized using interest rates appropriate at the
inception of the lease. Future minimum lease payments for assets under capital
leases at December 31, 1995 follow:
 
<TABLE>
<CAPTION>
                                                                                 DOLLARS
                                                                               IN THOUSANDS
                                                                               ------------
    <S>                                                                        <C>
    1996.....................................................................      $537
    1997.....................................................................        26
                                                                                   ----
      Total minimum obligations..............................................       563
    Less interest............................................................        34
                                                                                   ----
      Present value of minimum lease obligations.............................      $529
                                                                                   ====
</TABLE>
 
                                       28
<PAGE>   31
 
                             JEFFERIES GROUP, INC.
                                AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     Future minimum lease payments for all noncancelable operating leases at
December 31, 1995 are as follows:
 
<TABLE>
<CAPTION>
                                                                                 DOLLARS
                                                                               IN THOUSANDS
                                                                               ------------
    <S>                                                                        <C>
    1996.....................................................................     $6,882
    1997.....................................................................      6,719
    1998.....................................................................      6,197
    1999.....................................................................      5,361
    2000.....................................................................      4,355
    Thereafter...............................................................      8,259
                                                                                  ======
</TABLE>
 
     Rental expense, net of subleases, for the Company was $5,996,000 in 1995,
$5,507,000 in 1994 and $5,118,000 in 1993.
 
(12) FINANCIAL INSTRUMENTS
 
OFF-BALANCE SHEET RISK
 
     The Company has contractual commitments arising in the ordinary course of
business for securities loaned or purchased under agreements to sell, securities
sold but not yet purchased, repurchase agreements, future purchases and sales of
foreign currencies, securities transactions on a when-issued basis, options
contracts, futures index contracts, commodities futures contracts, and
underwriting. Each of these financial instruments and activities contains
varying degrees of off-balance sheet risk whereby the market values of the
securities underlying the financial instruments may be in excess of, or less
than, the contract amount. The settlement of these transactions is not expected
to have a material effect upon the Company's consolidated financial statements.
 
     In the normal course of business, the Company had letters of credit
outstanding aggregating $22,515,000 at December 31, 1995 to satisfy various
collateral requirements in lieu of depositing cash or securities.
 
     The Company has derivative financial instrument positions in foreign
exchange forward contracts, option contracts, and index futures contracts and
derivative positions in commodities futures contracts, all of which are measured
at fair value with realized and unrealized gains and losses recognized in
earnings. The foreign exchange forward contract positions are generally taken to
lock in the dollar cost or proceeds of foreign currency commitments associated
with unsettled foreign denominated securities purchases or sales. The average
maturity of the forward contracts is generally less than two weeks. The option
positions taken are generally part of a strategy in which offsetting equity
positions are taken. Most of the index futures positions taken are commodity
index futures and are part of a strategy in which offsetting positions in the
underlying individual commodities futures are also taken.
 
     The gross contracted or notional amount of index futures contracts,
commodities futures contracts, options contracts, and foreign exchange forward
contracts, which are not reflected in the consolidated statement of financial
condition, is set forth in the table below and provide only a measure of the
Company's involvement in these contracts at December 31, 1995 and 1994. They do
not represent amounts subject to
 
                                       29
<PAGE>   32
 
                             JEFFERIES GROUP, INC.
                                AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
market risk and, in many cases, serve to reduce the Company's overall exposure
to market and other risks (in thousands of dollars):
 
<TABLE>
<CAPTION>
                                                              NOTIONAL OR CONTRACTED AMOUNT
                                                      ----------------------------------------------
                                                              1995                      1994
                                                      ---------------------     --------------------
                                                      PURCHASE       SALE       PURCHASE       SALE
                                                      ---------     -------     ---------     ------
<S>                                                   <C>           <C>         <C>           <C>
Index futures contracts.............................   $    --      $55,912      $    --      $   --
Commodities futures contracts.......................    53,602           --           --          --
Option contracts....................................     1,300        1,500        1,515       5,874
Foreign exchange forward contracts..................       303          291          524       1,130
                                                        ======      =======       ======      ======
</TABLE>
 
FAIR VALUE OF DERIVATIVE FINANCIAL INSTRUMENTS
 
     The following is an aggregate summary of the average 1995 and 1994 and
December 31, 1995 and 1994 fair values of derivative financial instruments (in
thousands of dollars):
 
<TABLE>
<CAPTION>
                                                                1995                       1994
                                                      ------------------------   ------------------------
                                                      AVERAGE    END OF PERIOD   AVERAGE    END OF PERIOD
                                                      --------   -------------   --------   -------------
<S>                                                   <C>        <C>             <C>        <C>
Index futures contracts:
  In a favorable position...........................   $   41        $ 330        $   --       $    --
  In an unfavorable position........................       34           --            --            --
Option contracts:
  Purchases.........................................       79           37           120            23
  Sales.............................................      174          219           256           534
Foreign exchange forward contracts:
  Purchases.........................................    1,929          303         2,114           524
  Sales.............................................    4,995          291         3,170         1,130
                                                       ======         ====        ======        ======
</TABLE>
 
CREDIT RISK
 
     In the normal course of business, the Company is involved in the execution,
settlement and financing of various customer and principal securities
transactions. Customer activities are transacted on a cash, margin or
delivery-versus-payment basis. Securities transactions are subject to the risk
of counterparty or customer nonperformance. However, transactions are
collateralized by the underlying security, thereby reducing the associated risk
to changes in the market value of the security through settlement date or to the
extent of margin balances.
 
     The Company seeks to control the risk associated with these transactions by
establishing and monitoring credit limits and by monitoring collateral and
transaction levels daily. The Company may require counterparties to deposit
additional collateral or return collateral pledged. In the case of aged
securities failed to receive, the Company may, under industry regulations,
purchase the underlying securities in the market and seek reimbursement for any
losses from the counterparty.
 
CONCENTRATION OF CREDIT RISK
 
     As a major securities firm, the Company's activities are executed primarily
with and on behalf of other financial institutions, including brokers and
dealers, banks and other institutional customers. Concentrations of credit risk
can be affected by changes in economic, industry or geographical factors. The
Company seeks to control its credit risk and the potential risk concentration
through a variety of reporting and control procedures, including those described
in the preceding discussion of credit risk.
 
                                       30
<PAGE>   33
 
                             JEFFERIES GROUP, INC.
                                AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
(13) NET CAPITAL REQUIREMENTS
 
     As registered broker-dealers, Jefferies, ITG and W & D are subject to the
Securities and Exchange Commission Uniform Net Capital Rule (Rule 15c3-1), which
requires the maintenance of minimum net capital. Jefferies, ITG and W & D have
elected to use the alternative method permitted by the Rule, which requires that
they each maintain minimum net capital, as defined, equal to the greater of
$250,000 or 2% of the aggregate debit balances arising from customer
transactions, as defined.
 
     At December 31, 1995, Jefferies had net capital of $78,043,000, which was
28% of aggregate debit balances and $72,437,000 in excess of required net
capital. At December 31, 1995, ITG had net capital of $24,648,000, which was
$24,398,000 in excess of required net capital. At December 31, 1995, W & D had
net capital of $908,000, which was $658,000 in excess of required net capital.
 
(14) CONTINGENCIES
 
     In re Nasdaq Market-Makers Antitrust Litigation. Beginning in July 1994,
antitrust class actions were commenced against Jefferies and over thirty other
defendants in various federal courts. Following the filing of those lawsuits,
the Antitrust Division of the United States Department of Justice and the
Securities and Exchange Commission commenced investigations into certain issues
related to the allegations of the lawsuits. As far as Jefferies is aware, those
investigations are continuing.
 
     In October 1994, the lawsuits were consolidated for discovery purposes in
the United States District Court for the Southern District of New York. The
consolidated complaint alleges that the defendants violated the antitrust laws
by conspiring to fix the "spread" paid by plaintiffs and class members to trade
in certain Nasdaq securities, by refusing to quote bids and asks in so-called
"odd-eighths." The cases purport to be brought on behalf of all persons who
purchased or sold certain securities on the Nasdaq National Market during the
period May 1, 1989 to May 27, 1994. The plaintiffs seek damages in an
unspecified amount, injunctive relief, and attorneys' fees and costs. Discovery
of the parties has commenced. Plaintiffs have not yet asked the Court to certify
the case to proceed as a class action. Jefferies denies any wrongdoing and
intends to vigorously defend the lawsuits. At this stage of the litigations and
investigations, it is not possible to evaluate the likelihood of an unfavorable
outcome or to estimate the amount or range of potential damages or fines in the
event of an adverse finding on the merits.
 
     Other. Many aspects of the Company's business involve substantial risks of
liability. In the normal course of business, the Company and its subsidiaries
have been named as defendants or co-defendants in lawsuits involving primarily
claims for damages. The Company's management believes that pending litigation
will not have a material adverse effect on the Company.
 
(15) INITIAL PUBLIC OFFERING OF INVESTMENT TECHNOLOGY GROUP, INC.
 
     The Company formed a new subsidiary (ITGI) in March 1994 for the purpose of
holding 100% of the stock of ITG. ITGI provides automated securities trade
execution and analysis services to institutional equity investors. In May 1994,
ITGI issued 3,700,000 shares of common stock at $13 per share, in an initial
public offering for net proceeds of $43.6 million ($48.1 million, less
underwriting discounts and commissions of $3.4 million and offering expenses of
$1.1 million). Following the offering, the Company owned over 80% of the
outstanding common stock of ITGI.
 
     In conjunction with the offering, certain management employment agreements,
the ITG Performance Share Plan and noncompensatory ITG stock options were
terminated on May 1, 1994 in exchange for $40.5 million, of which $900,000 was
recorded as expense in 1994 prior to the offering and $9.4 million had been
accrued at December 31, 1993. The remaining liability of $30.2 million was
recorded as a plan
 
                                       31
<PAGE>   34
 
                             JEFFERIES GROUP, INC.
                                AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
termination expense at the time of the offering. A portion of the total plan
termination payments amounting to $19.1 million was used to purchase 876,984
shares of Jefferies Group, Inc. common stock at $21.75 per share. The remaining
$21.4 million of plan termination cost was to be paid in cash of which $20.6
million and $.8 million was paid during 1994 and 1995, respectively.
Additionally, noncompensatory options to purchase 2,726,178 shares of ITGI
common stock were granted to senior management and other employees at an
exercise price equal to the initial public offering price.
 
     The net proceeds from the offering of $43.6 million, less the ownership
interest sold in the offering of $5.1 million and plan termination expenses of
$30.2 million, resulted in a pretax gain of $8.3 million in 1994. The Company
recorded deferred taxes as a result of the gain recognized from the offering.
 
(16) TWO-FOR-ONE STOCK SPLIT, DIVIDEND RATE DOUBLED AND NYSE LISTING APPLICATION
 
     On March 2, 1996, the Company's Board of Directors approved a two-for-one
split of all of the outstanding shares of the Company's common stock, payable
March 29, 1996 to stockholders of record at the close of business on March 15,
1996. The stated par value of each share was not changed from $0.01. All share,
share price and per share information included in the consolidated financial
statements has been restated to retroactively reflect the effect of the
two-for-one stock split.
 
     In addition, the Board of Directors, approved continuation of the quarterly
cash dividend rate at $0.05 on the approximately 12,000,000 common shares to be
outstanding after the split (effectively doubling the dividend rate), as well as
repurchase of up to 1 million of the new common shares, on the open market or
otherwise, from time to time. The Board of Directors also approved the filing of
an application to list the Company's common shares for trading on the New York
Stock Exchange.
 
                                       32
<PAGE>   35
 
ITEM 9.  DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
 
     None
 
                                    PART III
 
ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
 
     Information with respect to this item will be contained in the Proxy
Statement for the 1996 Annual Meeting of Shareholders, which is incorporated
herein by reference.
 
ITEM 11.  EXECUTIVE COMPENSATION.
 
     Information with respect to this item will be contained in the Proxy
Statement for the 1996 Annual Meeting of Shareholders, which is incorporated
herein by reference.
 
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
 
     Information with respect to this item will be contained in the Proxy
Statement for the 1996 Annual Meeting of Shareholders, which is incorporated
herein by reference.
 
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
 
     Information with respect to this item will be contained in the Proxy
Statement for the 1996 Annual Meeting of Shareholders, which is incorporated
herein by reference.
 
                                    PART IV
 
ITEM 14.  EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K.
 
<TABLE>
<CAPTION>
                                                                                        PAGES
                                                                                        -----   
<S>                                                                                     <C>
(a)1. FINANCIAL STATEMENTS
       Included in Part II of this report:
       Independent Auditors' Report.....................................................    14
       Consolidated Statements of Financial Condition...................................    15
       Consolidated Statements of Earnings..............................................    16
       Consolidated Statements of Changes in Stockholders' Equity.......................    17
       Consolidated Statements of Cash Flows............................................    18
       Notes to Consolidated Financial Statements.......................................    19
</TABLE>
 
     All Schedules are omitted because they are not applicable or because the
required information is shown in the financial statements or notes thereto.
 
(a)3.  EXHIBITS
 
<TABLE>
        <C>           <S>
          (3.1)       Amended Certificate of Incorporation is incorporated by reference to
                      Exhibit 3.1 of the Registrant's Form 10-K filed for the fiscal year
                      ended December 31, 1987.
          (3.2)       Amended By-Laws are incorporated by reference to Exhibit 3.2 of the
                      Registrant's Form 10-K filed for the fiscal year ended December 31,
                      1986.
          (4.1)       Specimen stock certificate of the Registrant is incorporated by
                      reference to Exhibit 4.1 to Registrant's Registration Statement on Form
                      S-1 (No. 2-85950) filed on August 18, 1983, including amendments
                      thereto.
</TABLE>
 
                                       33
<PAGE>   36
 
<TABLE>
        <C>           <S>
          (4.2)       Rights Agreement dated as of May 12, 1988, between the Registrant and
                      the First National Bank of Chicago relating to Preferred Share Purchase
                      Rights including Form of Rights Certificate and Form of Summary of
                      Rights is incorporated by reference to Exhibit 1 of Registrant's Form
                      8-K filed on May 17, 1988.
         (10.1)       Incentive Compensation Plan for Frank E. Baxter, Chairman, President and
                      Chief Executive Officer, Jefferies Group, Inc. is incorporated by
                      reference to Exhibit 10.1 of Registrant's Form 10-K filed for the fiscal
                      year ended December 31, 1992.
         (10.2)       Agreement among Raymond L. Killian, Jr., Investment Technology Group,
                      Inc. and Jefferies Group, Inc., dated as of April 1, 1992 is
                      incorporated by reference to Exhibit 10.2 of Registrant's Form 10-K
                      filed for the fiscal year ended December 31, 1992.
         (10.3)       Amendment to Agreement among Raymond L. Killian, Jr., Investment
                      Technology Group, Inc. and Jefferies Group, Inc. dated as of August 18,
                      1993 is incorporated by reference to Exhibit 10.3 of Registrant's Form
                      10-K for the fiscal year ended December 31, 1993.
         (10.3.1)     Form of Employment Agreement between Investment Technology Group, Inc.
                      and Raymond L. Killian, Jr. is incorporated by reference to Exhibit
                      10.3.2 of Investment Technology Group, Inc.'s Registration Statement on
                      Form S-1 (No. 33-76474) filed on March 15, 1994, including amendments
                      thereto.
         (10.4)       Second Modified Compensation Agreement between David A. Sydorick,
                      Jefferies Group, Inc., and Jefferies & Company, Inc. dated as of
                      February 1, 1994, is incorporated by reference to Exhibit 10.5 of
                      Registrant's Form 10-K for the fiscal year ended December 31, 1993.
         (10.5)       Second Modified Compensation Agreement among Jefferies Group, Inc.,
                      Jefferies & Company, Inc. and Richard B. Handler, dated as of February
                      1, 1994 is incorporated by reference to Exhibit 10.5 of Registrant's
                      Form 10-K for the fiscal year ended December 31, 1994.
         (10.6)       Restricted Stock Agreement among Jefferies Group, Inc., Jefferies &
                      Company, Inc. and Richard B. Handler, dated as of April 1, 1994 is
                      incorporated by reference to Exhibit 10.6 of Registrant's Form 10-K for
                      the fiscal year ended December 31, 1994.
         (10.7)*      Employment Agreement between Clarence T. Schmitz and Jefferies &
                      Company, Inc. dated February 6, 1995.
         (10.8)       Jefferies Group, Inc. 1983 Incentive Stock Option Plan filed as part of
                      Registrant's Registration Statement on Form S-8 (No. 2-94727) filed on
                      December 6, 1984.
         (10.9)       1985 Incentive Stock Option Plan of Jefferies Group, Inc. filed as part
                      of Registrant's Registration Statement on Form S-8 (No. 33-17065) filed
                      on September 8, 1987.
         (10.10)      Jefferies Group, Inc. 1985 Nonqualified Stock Option Plan filed as part
                      of Registrant's Registration Statement on Form S-8 (No. 33-17065) filed
                      on September 8, 1987.
         (10.11)*     Description of compensation arrangements for Named Executive Officers.
         (10.12)      Jefferies Group, Inc. 1993 Stock Ownership and Long-Term Incentive Plan
                      filed as part of Registrant's Registration Statement on Form S-8 (No.
                      33-64490) filed on June 15, 1993.
         (10.13)      Jefferies Group, Inc. Capital Accumulation Plan for Key Employees filed
                      as part of Registrant's Registration Statement on Form S-8 (No.
                      33-64490) filed on June 15, 1993.
</TABLE>
 
                                       34
<PAGE>   37
 
<TABLE>
        <C>           <S>
         (10.14)      Jefferies Group, Inc. Non-Employee Directors' Stock Option Plan,
                      incorporated by reference to Appendix C of Registrant's Proxy Statement
                      filed on April 4, 1994.
         (10.15)      Jefferies Group, Inc. Pay-for-Performance Incentive Plan, incorporated
                      by reference to Appendix B of Registrant's Proxy Statement filed on
                      April 4, 1994.
         (10.16)      Material contracts filed as part of Registrant's Registration Statement
                      on Form S-1 (No. 2-85950) filed on August 18, 1983, including amendments
                      thereto.
         (10.17)      Material contracts filed as part of Registrant's Registration Statement
                      on Form S-1 (No. 2-96596) filed on March 22, 1985, including amendments
                      thereto.
         (11)*        Statement of computation of per share earnings is attached hereto as
                      Exhibit 11.
         (20.1)       Form of Letter to Shareholders dated May 24, 1988, announcing the
                      adoption of the Stockholders Rights Plan is incorporated by reference to
                      Exhibit 3 of Registrant's Form 8-K filed on May 17, 1988.
         (20.2)       Form of Letter to Shareholders dated March 15, 1996 announcing the
                      redemption of all outstanding Preferred Share Purchase Rights originally
                      issued pursuant to the Stockholders Rights Plan is incorporated by
                      reference to Exhibit 2 of Registrant's Form 8-K filed on March 26, 1996.
         (21)*        List of Subsidiaries of Registrant.
         (23)*        Consent of KPMG Peat Marwick LLP.
</TABLE>
 
---------------
 
* Filed herewith.
 
ALL OTHER EXHIBITS ARE OMITTED BECAUSE THEY ARE NOT APPLICABLE.
 
     (b) No reports on Form 8-K have been filed by the Registrant.
 
     (c) Index to Exhibits.
 
     See list of exhibits at Item 14(a)3 above and exhibit following.
 
     Exhibits 10.1 to and including 10.15 are management contracts or
compensatory plans or arrangements.
 
                                       35
<PAGE>   38
 
                                   SIGNATURES
 
     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
 
                                          Jefferies Group, Inc.
 
                                          By:           FRANK E. BAXTER
                                            ------------------------------------
                                                      Frank E. Baxter
                                             Chairman of the Board of Directors
 
Dated: March 29, 1996
 
     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the dates indicated.
 
<TABLE>
<CAPTION>
             SIGNATURE                               TITLE                    DATE
-------------------------------------   ------------------------------   ---------------
<C>                                     <S>                              <C>
          FRANK E. BAXTER               Chairman of the Board of          March 29, 1996
-------------------------------------   Directors, President and Chief
          Frank E. Baxter               Executive Officer


         CLARENCE T. SCHMITZ            Executive Vice President          March 29, 1996
-------------------------------------   and Chief Financial Officer
         Clarence T. Schmitz


          RICHARD G. DOOLEY             Director                          March 29, 1996
-------------------------------------
          Richard G. Dooley


          TRACY G. HERRICK              Director                          March 29, 1996
-------------------------------------
          Tracy G. Herrick


          MICHAEL L. KLOWDEN            Director                          March 29, 1996
-------------------------------------
          Michael L. Klowden


         FRANK J. MACCHIAROLA           Director                          March 29, 1996
-------------------------------------
         Frank J. Macchiarola


           BARRY M. TAYLOR              Director                          March 29, 1996
-------------------------------------
           Barry M. Taylor


          MARK A. WOLFSON               Director                          March 29, 1996
-------------------------------------
          Mark A. Wolfson
</TABLE>
 
                                       36
<PAGE>   39
 
                                 EXHIBIT INDEX
 
<TABLE>
<CAPTION>
                                                                                     SEQUENTIALLY
 EXHIBIT                                                                               NUMBERED
 NUMBER                                   DESCRIPTION                                    PAGE
---------   -----------------------------------------------------------------------  -------------
<S>         <C>                                                                      <C>
 (3.1)      Amended Certificate of Incorporation is incorporated by reference to
            Exhibit 3.1 of the Registrant's Form 10-K filed for the fiscal year
            ended December 31, 1987................................................
 (3.2)      Amended By-Laws are incorporated by reference to Exhibit 3.2 of the
            Registrant's Form 10-K filed for the fiscal year ended December 31,
            1986...................................................................
 (4.1)      Specimen stock certificate of the Registrant is incorporated by
            reference to Exhibit 4.1 to Registrant's Registration Statement on Form
            S-1 (No. 2-85950) filed on August 18, 1983, including amendments
            thereto................................................................
 (4.2)      Rights Agreement dated as of May 12, 1988, between the Registrant and
            the First National Bank of Chicago relating to Preferred Share Purchase
            Rights including Form of Rights Certificate and Form of Summary of
            Rights is incorporated by reference to Exhibit 1 of Registrant's Form
            8-K filed on May 17, 1988..............................................
(10.1)      Incentive Compensation Plan for Frank E. Baxter, Chairman, President
            and Chief Executive Officer, Jefferies Group, Inc. is incorporated by
            reference to Exhibit 10.1 of Registrant's Form 10-K filed for the
            fiscal year ended December 31, 1992....................................
(10.2)      Agreement among Raymond L. Killian, Jr., Investment Technology Group,
            Inc. and Jefferies Group, Inc., dated as of April 1, 1992 is
            incorporated by reference to Exhibit 10.2 of Registrant's Form 10-K
            filed for the fiscal year ended December 31, 1992......................
(10.3)      Amendment to Agreement among Raymond L. Killian, Jr., Investment
            Technology Group, Inc. and Jefferies Group, Inc. dated as of August 18,
            1993 is incorporated by reference to Exhibit 10.3 of Registrant's Form
            10-K for the fiscal year ended December 31, 1993.......................
(10.3.1)    Form of Employment Agreement between Investment Technology Group, Inc.
            and Raymond L. Killian, Jr. is incorporated by reference to Exhibit
            10.3.2 of Investment Technology Group, Inc.'s Registration Statement on
            Form S-1 (No. 33-76474) filed on March 15, 1994, including amendments
            thereto................................................................
(10.4)      Second Modified Compensation Agreement between David A. Sydorick,
            Jefferies Group, Inc., and Jefferies & Company, Inc. dated as of
            February 1, 1994, is incorporated by reference to Exhibit 10.5 of
            Registrant's Form 10-K for the fiscal year ended December 31, 1993.....
(10.5)      Second Modified Compensation Agreement among Jefferies Group, Inc.,
            Jefferies & Company, Inc. and Richard B. Handler, dated as of February
            1, 1994 is incorporated by reference to Exhibit 10.5 of Registrant's
            Form 10-K for the fiscal year ended December 31, 1994..................
(10.6)      Restricted Stock Agreement among Jefferies Group, Inc., Jefferies &
            Company, Inc. and Richard B. Handler, dated as of April 1, 1994 is
            incorporated by reference to Exhibit 10.6 of Registrant's Form 10-K for
            the fiscal year ended December 31, 1994................................
(10.7)*     Employment Agreement between Clarence T. Schmitz and Jefferies &
            Company, Inc. dated February 6, 1995...................................
(10.8)      Jefferies Group, Inc. 1983 Incentive Stock Option Plan filed as part of
            Registrant's Registration Statement on Form S-8 (No. 2-94727) filed on
            December 6, 1984.......................................................
(10.9)      1985 Incentive Stock Option Plan of Jefferies Group, Inc. filed as part
            of Registrant's Registration Statement on Form S-8 (No. 33-17065) filed
            on September 8, 1987...................................................
</TABLE>
<PAGE>   40
 
<TABLE>
<CAPTION>
                                                                                     SEQUENTIALLY
 EXHIBIT                                                                               NUMBERED
 NUMBER                                   DESCRIPTION                                    PAGE
---------   -----------------------------------------------------------------------  -------------
<S>         <C>                                                                      <C>
(10.10)     Jefferies Group, Inc. 1985 Nonqualified Stock Option Plan filed as part
            of Registrant's Registration Statement on Form S-8 (No. 33-17065) filed
            on September 8, 1987...................................................
(10.11)*    Description of compensation arrangements for Named Executive
            Officers...............................................................
(10.12)     Jefferies Group, Inc. 1993 Stock Ownership and Long-Term Incentive Plan
            filed as part of Registrant's Registration Statement on Form S-8 (No.
            33-64490) filed on June 15, 1993.......................................
(10.13)     Jefferies Group, Inc. Capital Accumulation Plan for Key Employees filed
            as part of Registrant's Registration Statement on Form S-8 (No.
            33-64490) filed on June 15, 1993.......................................
(10.14)     Jefferies Group, Inc. Non-Employee Directors' Stock Option Plan,
            incorporated by reference to Appendix C of Registrant's Proxy Statement
            filed on April 4, 1994.................................................
(10.15)     Jefferies Group, Inc. Pay-for-Performance Incentive Plan, incorporated
            by reference to Appendix B of Registrant's Proxy Statement filed on
            April 4, 1994..........................................................
(10.16)     Material contracts filed as part of Registrant's Registration Statement
            on Form S-1 (No. 2-85950) filed on August 18, 1983, including
            amendments thereto.....................................................
(10.17)     Material contracts filed as part of Registrant's Registration Statement
            on Form S-1 (No. 2-96596) filed on March 22, 1985, including amendments
            thereto................................................................
(11)*       Statement of computation of per share earnings is attached hereto as
            Exhibit 11.............................................................
(20.1)      Form of Letter to Shareholders dated May 24, 1988, announcing the
            adoption of the Stockholders Rights Plan is incorporated by reference
            to Exhibit 3 of Registrant's Form 8-K filed on May 17, 1988............
(20.2)      Form of Letter to Shareholders dated March 15, 1996 announcing the
            redemption of all outstanding Preferred Share Purchase Rights
            originally issued pursuant to the Stockholders Rights Plan is
            incorporated by reference to Exhibit 2 of Registrant's Form 8-K filed
            on March 26, 1996......................................................
(21)*       List of Subsidiaries of Registrant.....................................
(23)*       Consent of KPMG Peat Marwick LLP.......................................
</TABLE>
 
---------------
 
* Filed herewith.