Jefferies Group Inc · DEFM14A · On 3/19/99

Filed On 3/19/99   ·   SEC File 1-11665   ·   Accession Number 1047469-99-10564

Definitive Proxy Solicitation Material -- Merger or Acquisition   ·   Schedule 14A
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: DEFM14A     Definitive Proxy Solicitation Material -- Merger     245  1,271K 
                          or Acquisition                                         

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SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(A) OF
THE SECURITIES EXCHANGE ACT OF 1934 

Filed by the Registrant /X/                                             
Filed by a Party other than the Registrant / /                          

Check the appropriate box:                                              
/ /  Preliminary Proxy Statement                                        
/ /  Confidential, for Use of the Commission Only (as permitted by Rule 
14a-6(e)(2))                                                  
/X/  Definitive Proxy Statement                                         
/ /  Definitive Additional Materials                                    
/ /  Soliciting Material Pursuant to Section240.14a-11(c) or            
Section240.14a-12                                             

                     JEFFERIES GROUP, INC.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

                     JEFFERIES GROUP, INC.
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)

Payment of Filing Fee (Check the appropriate box):                              

/ /  No fee required.                                                           
/ /  Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.   
1)  Title of each class of securities to which transaction applies:   
         -----------------------------------------------------------------------
         -----------------------------------------------------------------------
2)  Aggregate number of securities to which transaction applies:      
         -----------------------------------------------------------------------
     3)  Per unit price or other underlying value of transaction computed pursu-
         ant to Exchange Act Rule 0-11 (Set forth the amount on which the filing
fee is calculated and state how it was determined):.          
         -----------------------------------------------------------------------
4)  Proposed maximum aggregate value of transaction:                  
         -----------------------------------------------------------------------
5)  Total fee paid:                                                   
         -----------------------------------------------------------------------

/X/  Fee paid previously with filing of preliminary confidential materials by   
registrant.                                                           

/ /  Check box if any part of the fee is offset as provided by Exchange Act Rule
  0-11(a)(2) and identify the filing for which the offsetting fee was paid
    previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.                   

1)  Amount Previously Paid:                                           
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2)  Form, Schedule or Registration Statement No.:                     
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3)  Filing Party:                                                     
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4)  Date filed:                                                       
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[LOGO]

                                                                  March 18, 1999

Dear Jefferies Group, Inc. Stockholder:                                         

  You are cordially invited to attend a Special Meeting of Stockholders (the
"Special Meeting") of Jefferies Group, Inc. ("Group") to be held at The New York
Helmsley Hotel, 212 East 42nd Street, New York, New York 10017, on April 20,    
1999 at 9:00 a.m., local time. At the Special Meeting, you will be asked to     
approve and adopt the Agreement and Plan of Merger (the "Merger Agreement"),    
between Group and Group's approximately 80.5% owned subsidiary, Investment      
Technology Group, Inc. ("ITGI") and to approve and adopt the issuance of the    
Merger Shares (defined below). The Merger Agreement provides for the merger (the
"Merger") of ITGI with and into Group (with the surviving corporation being "New
ITGI") and for the issuance of shares of common stock of Group (the "Group      
Common Stock") to stockholders of ITGI other than Group pursuant to the Merger  
Agreement (the "Merger Shares").                                                

The Merger will occur only after we distribute to you in a spin-off     
transaction (the "Spin-Off") all of the outstanding common stock of JEF Holding 
Company, Inc. ("New JEF"), a newly created wholly-owned subsidiary of Group.    
Prior to the Spin-Off, Group will transfer to New JEF all of the assets of Group
(including the brokerage and investment banking businesses conducted by Group's 
non-ITGI subsidiaries) except for the capital stock of ITGI, and all of Group's 
liabilities, other than liabilities related to ITGI (the "Transfers"). The      
Spin-Off is subject to numerous conditions, including Group Stockholder approval
of the Merger Agreement. As a result, your vote is important. Group owns, and   
has the right to vote at the ITGI stockholders' meeting, sufficient shares to   
approve the Merger Agreement without the vote of any other ITGI stockholder and 
intends to vote its ITGI shares to approve the Merger Agreement.                

The completion of the Merger and the Spin-Off will result in a complete 
separation of ITGI from the other Group businesses. The Spin-Off and the Merger 
will be tax-free to Group Stockholders. As a result of the Merger, you will own 
a direct interest in the ITGI business through shares of New ITGI, rather than  
an indirect interest in the ITGI business through ownership of Group shares. You
will own the same number of shares of New ITGI that you owned of Group prior to 
the Merger. ITGI has applied for the listing of the New ITGI common stock on the
New York Stock Exchange (the "NYSE") under the symbol "ITG." As a result of the 
Spin-Off, you will continue to own the non-ITGI businesses of Group through     
ownership of New JEF common stock. You will own the same number of shares of New
JEF that you owned of Group as of the record date for the Spin-Off. New JEF     
common stock will be publicly traded on the NYSE under the symbol "JEF."        
Coincident with the Merger, Jefferies Group, Inc., as the surviving corporation 
in the Merger, will change its name to Investment Technology Group, Inc. and JEF
Holding Company, Inc. will change its name to Jefferies Group, Inc.             

At the Special Meeting, you will also be asked to consider and act upon 
proposals to approve two incentive compensation plans of New JEF. These         
proposals are being presented to you because Group Stockholders will become New 
JEF stockholders as a result of the Spin-Off.                                   

Your vote is important. Whether or not you plan to attend the Special   
Meeting in person, I urge you to either complete, date, sign and return the     
accompanying proxy card in the provided prepaid envelope or attend the Special  
Meeting and vote in person.                                                     

Sincerely,                                                                      

[LOGO]                                                            

Frank E. Baxter                                                                 
CHAIRMAN AND CHIEF EXECUTIVE OFFICER                                            

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[LOGO]                                      

JEFFERIES GROUP, INC. 
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS 
TO BE HELD APRIL 20, 1999 

To the Stockholders of Jefferies Group, Inc.:                                   

 NOTICE IS HEREBY GIVEN that Jefferies Group, Inc., a Delaware corporation
("Group"), will hold a special meeting of Stockholders (including any           
postponement or adjournment, the "Special Meeting") at The New York Helmsley    
Hotel, 212 East 42nd Street, New York, New York 10017, on April 20, 1999 at 9:00
a.m., local time, for the following purposes:                                   

 (1) To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger to be dated as of the mailing date of this 
notice (the "Merger Agreement"), between Group and Investment Technology
   Group, Inc., a Delaware corporation ("ITGI"), providing for the merger (the
 "Merger") of ITGI with and into Group and to also approve the issuance of
  Group Common Stock pursuant to the Merger Agreement. The Merger is subject
  to numerous conditions as set forth in the Merger Agreement, including the
condition that the Merger would occur only after Group distributes (the 
"Spin-Off") to you all of the outstanding common stock of JEF Holding   
    Company, Inc. ("New JEF"), a wholly-owned subsidiary of Group, following the
 transfer of all of Group's assets, except for Group's approximately 80.5%
    interest in the capital stock of ITGI, and all of Group's liabilities (other
 than liabilities related to ITGI), to New JEF or its subsidiaries and the
satisfaction of all other terms and conditions related to the Spin-Off; 

      (2) To consider and vote upon a proposal to approve the 1999 Incentive
Compensation Plan of New JEF (the "Incentive Plan");                    

       (3) To consider and vote upon a proposal to approve the 1999 Directors'
Stock Compensation Plan of New JEF (the "Directors' Plan");             

    (4) To consider and vote upon a proposal to grant the Group Board of
    Directors discretionary authority to postpone or adjourn the Special Meeting
in order to solicit additional votes to approve any matter set forth in 
 paragraph (1), (2) or (3) above if the Secretary of Group determines that
there are not sufficient votes to approve any such matter ("Grant of    
Discretionary Authority"); and                                          

    (5) To transact any other business that may properly come before the
Special Meeting or any one or more adjournments thereof.                

   The Board of Directors of Group has fixed the close of business on March 1,
1999 as the record date for determination of Group Stockholders entitled to     
notice of and to vote at the Special Meeting (the "Special Meeting Record       
Date"). A complete list of stockholders entitled to vote will be available for  
inspection at the offices of Group at 11100 Santa Monica Boulevard, 11th Floor, 
Los Angeles, CA 90025 for a period of ten days prior to the Special Meeting.    

By Order of the Board of Directors                                      

[LOGO]                                                      

Jerry M. Gluck                                                                  
SECRETARY                                                                       

Los Angeles, California                                                         
March 18, 1999                                                                  

WHETHER OR NOT YOU PLAN TO ATTEND THIS MEETING, PLEASE FILL IN, SIGN, DATE, AND 
RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE. PLEASE DO  
NOT SEND STOCK CERTIFICATES WITH YOUR PROXY CARD.                               

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TABLE OF CONTENTS 

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SUMMARY....................................................................................................       1
    QUESTIONS AND ANSWERS ABOUT THE SPIN-OFF...............................................................       1
    QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE STOCKHOLDER VOTE........................................       5
    The Transactions.......................................................................................       9
    The Special ITGI Cash Dividend.........................................................................      11
    Effect of Transactions on Stockholder Rights and Stock Ownership.......................................      12
    Structural and Ownership Changes Arising from the Transactions.........................................      13

RISK FACTORS...............................................................................................      15

THE SPECIAL MEETING........................................................................................      19

THE TRANSACTIONS...........................................................................................      20
    The Transfers and Spin-Off.............................................................................      20
    Agreements Between Group and New JEF Relating to the Spin-Off..........................................      24
    Background of and Reasons for the Transactions.........................................................      28
    The Merger.............................................................................................      30
    Opinion of Group's Financial Advisor Concerning the Merger.............................................      34
    The Merger Agreement...................................................................................      35
    The Special Committee of ITGI's Board of Directors.....................................................      42
    Opinion of ITGI's Financial Advisor....................................................................      46
    Special ITGI Cash Dividend.............................................................................      46
    No Dissenters' Rights..................................................................................      46

APPROVAL OF THE 1999 INCENTIVE COMPENSATION PLAN...........................................................      47
    Reasons for Approval by Group Stockholders.............................................................      47
    Description of the Incentive Plan......................................................................      48
    Federal Income Tax Implications of the Incentive Plan..................................................      52
    Vote Required for Approval.............................................................................      54
    Recommendation of the Board of Directors of Group......................................................      54

APPROVAL OF THE 1999 DIRECTORS' STOCK COMPENSATION PLAN....................................................      55
    Reasons for Approval by Group Stockholders.............................................................      55
    Current Director Compensation Under the Existing Plans.................................................      55
    Description of the Directors' Plan.....................................................................      56
    Federal Income Tax Implications of the Directors' Plan.................................................      59
    Vote Required for Approval.............................................................................      60
    Recommendation of the Board of Directors of Group......................................................      60

DESCRIPTION OF NEW JEF CAPITAL STOCK.......................................................................      61
    Introduction...........................................................................................      61
    Authorized and Outstanding Capital Stock...............................................................      61
    New JEF Common Stock; Delaware Antitakeover Provisions.................................................      61
    Preferred Stock........................................................................................      62
    Certain Antitakeover Provisions--New JEF Certificate and Bylaws........................................      62
    Other Delaware Corporate Law Provisions Affecting New JEF Stockholders.................................      63

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MARKET PRICE OF AND DIVIDENDS ON COMMON STOCK AND RELATED STOCKHOLDER MATTERS..............................      66
    Group..................................................................................................      66
    ITGI...................................................................................................      67
SELECTED HISTORICAL FINANCIAL DATA OF GROUP................................................................      68
UNAUDITED SUPPLEMENTAL SELECTED HISTORICAL FINANCIAL DATA                                                          
  OF NEW JEF...............................................................................................      69
MANAGEMENT'S DISCUSSION AND ANALYSIS OF SUPPLEMENTAL FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF NEW          
  JEF......................................................................................................      70
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION OF NEW JEF (EXCLUDING                  
  DISCONTINUED OPERATIONS).................................................................................      80
SELECTED HISTORICAL FINANCIAL DATA OF ITGI.................................................................      82
UNAUDITED PRO FORMA FINANCIAL DATA OF ITGI.................................................................      83
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF ITGI..............      87
COMPARATIVE PER SHARE DATA OF GROUP AND ITGI...............................................................      95
BUSINESS OF NEW JEF........................................................................................      96
    JEFCO..................................................................................................      96
    JIL....................................................................................................      96
    JPL....................................................................................................      96
    W & D Securities, Inc..................................................................................      96
    Corporate Finance......................................................................................      97
    Commission Business....................................................................................      97
    Principal Transactions.................................................................................      98
    Interest...............................................................................................      99
    Risk Management........................................................................................     101
    Properties.............................................................................................     101
    Employees..............................................................................................     101
BUSINESS OF ITGI AND NEW ITGI..............................................................................     102
    POSIT..................................................................................................     102
    QuantEX................................................................................................     104
    SmartServers...........................................................................................     104
    Electronic Trading Desk................................................................................     105
    ITG Platform...........................................................................................     105
    "ISIS" Pre- and Post-trade Analysis....................................................................     106
    ITG/Opt................................................................................................     106
    ITG Research...........................................................................................     107
    ITG Europe.............................................................................................     107
    Australian POSIT.......................................................................................     107
    Canadian QuantEX.......................................................................................     107
    Arizona Stock Exchange.................................................................................     108
    Regulation.............................................................................................     108
    Credit Risk............................................................................................     109
    License and Relationship with BARRA....................................................................     109
    Competition............................................................................................     110
    Research and Product Development.......................................................................     110
    Employees..............................................................................................     112

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MANAGEMENT OF GROUP AND NEW JEF............................................................................     113
    Directors..............................................................................................     113
    Other Executive Officers...............................................................................     114
    Director Compensation..................................................................................     114
    Executive Compensation.................................................................................     116
    Employment Contracts and Termination of Employment and Change-in-Control Arrangements..................     119
    Pension Plan...........................................................................................     119
    Impact of the Spin-Off and Merger on Group's Employee Benefit Plans....................................     120
    Compliance with Section 16(a) of the Exchange Act......................................................     122

MANAGEMENT OF ITGI AND NEW ITGI............................................................................     124
    Directors..............................................................................................     124
    Other Executive Officers...............................................................................     125

BENEFICIAL OWNERSHIP OF GROUP COMMON STOCK BY DIRECTORS, OFFICERS AND PRINCIPAL STOCKHOLDERS OF GROUP......     126

EXPERTS....................................................................................................     129

OTHER MATTERS; STOCKHOLDER PROPOSALS FOR THE 2000 ANNUAL MEETINGS OF NEW JEF AND NEW ITGI..................     129
WHERE YOU CAN FIND MORE INFORMATION........................................................................     129

INDEX TO UNAUDITED PROFORMA FINANCIAL STATEMENTS...........................................................     F-1

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APPENDIX A      MERGER AGREEMENT                                   
APPENDIX B      DISTRIBUTION AGREEMENT                             
APPENDIX C      BENEFITS AGREEMENT                                 
APPENDIX D      TAX SHARING AND INDEMNIFICATION AGREEMENT          
APPENDIX E      OPINION OF J.P. MORGAN SECURITIES INC.             
APPENDIX F      SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW

  QuantEX-Registered Trademark- ("QuantEX") is a registered trademark of ITGI.
POSIT-Registered Trademark- ("POSIT") is a registered service mark of the     
POSIT Joint Venture. SmartServer is a service mark of ITGI.                   

 This Proxy/Information Statement and the accompanying form of proxies are
first being mailed to the Stockholders on or about March 19, 1999.              

   YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN (OR, TO THE EXTENT NOT
SUPERSEDED BY INFORMATION PRESENTED HEREIN, INCORPORATED BY REFERENCE INTO) THIS
PROXY/INFORMATION STATEMENT. WE HAVE NOT AUTHORIZED ANYONE TO GIVE ANY          
INFORMATION DIFFERENT FROM THE INFORMATION CONTAINED IN (OR INCORPORATED BY     
REFERENCE INTO) THIS PROXY/INFORMATION STATEMENT. YOU SHOULD NOT ASSUME THAT THE
INFORMATION CONTAINED IN THIS PROXY/INFORMATION STATEMENT IS ACCURATE AS OF ANY 
LATER DATE, AND THE MAILING OF THIS PROXY/INFORMATION STATEMENT TO STOCKHOLDERS 
SHALL NOT MEAN OTHERWISE.                                                       

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SUMMARY 

   THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT AND MAY NOT
CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. TO UNDERSTAND THE      
TRANSFERS, THE SPIN-OFF AND THE MERGER (COLLECTIVELY, THE "TRANSACTIONS"), AND  
FOR A MORE COMPLETE DESCRIPTION OF THE LEGAL TERMS OF THE MERGER, YOU SHOULD    
READ CAREFULLY THIS ENTIRE DOCUMENT AND THE OTHER DOCUMENTS TO WHICH WE HAVE    
REFERRED YOU. SEE "WHERE YOU CAN FIND ADDITIONAL INFORMATION" ON PAGE 129 OF    
THIS PROXY/INFORMATION STATEMENT. THE ACTUAL TERMS OF THE MERGER ARE CONTAINED  
IN THE MERGER AGREEMENT, WHICH IS INCLUDED IN THIS PROXY/ INFORMATION STATEMENT 
AS APPENDIX A. EXCEPT WHERE THE CONTEXT SUGGESTS OTHERWISE, (1) REFERENCES TO   
"WE," "OUR," "US" OR WORDS OF SIMILAR IMPORT MEAN JEFFERIES GROUP, INC., A      
DELAWARE CORPORATION, BEFORE THE MERGER AND (2) REFERENCES TO "NEW JEF" MEAN JEF
HOLDING COMPANY, INC. AND ITS SUBSIDIARIES, BEFORE ITS NAME CHANGE, WHICH WILL  
OCCUR FOLLOWING THE MERGER, AND JEFFERIES GROUP, INC. (FOLLOWING THE MERGER AND 
THE AFOREMENTIONED NAME CHANGE) AND ITS SUBSIDIARIES.                           

QUESTIONS AND ANSWERS ABOUT THE SPIN-OFF

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WHAT ARE THE PRACTICAL         PRACTICAL EFFECTS OF THE TRANSFERS AND SPIN-OFF. New JEF    
  EFFECTS OF THE               will own the Brokerage and Investment Banking Business      
  TRANSACTIONS?                (defined below) following completion of the Transfers. After
                               the Spin-Off is completed, Group Stockholders will own New  
                               JEF shares and, therefore, a direct interest in the         
                               Brokerage and Investment Banking Business (defined below).  
                               You will own the same number of shares of New JEF that you  
                               owned of Group as of the close of business on April 20, 1999
                               (the "Spin-Off Record Date").                               

                               PRACTICAL EFFECTS OF THE MERGER. You will own shares of New 
                               ITGI, and therefore own a direct interest in the            
                               Technology-Based Trading and Research Business (defined     
                               below), as a result of the Merger. You will own the same    
                               number of shares of New ITGI that you owned of Group prior  
                               to the Merger.                                              

PLEASE PROVIDE SOME            For many years, Group has been engaged, through its         
  BACKGROUND INFORMATION       subsidiaries, in the active conduct of two principal lines  
  REGARDING THE TRANSACTIONS.  of business:                                                

                               - a full-service brokerage and investment banking business  
                               (the "Brokerage and Investment Banking Business") serving   
                                 institutions and small to medium-sized corporations that  
                                 is primarily conducted through Group's subsidiary,        
                                 Jefferies & Company, Inc. ("JEFCO"); and                  

                               - a technology-based equity trading services and transaction
                                 research business (the "Technology-Based Trading and      
                                 Research Business") serving institutional investors and   
                                 brokers that is conducted by ITGI through its subsidiary  
                                 ITG Inc. ("ITG").                                         

                               The Transactions are being pursued in order to separate the 
                               Brokerage and Investment Banking Business from the          
                               Technology-Based Trading and Research Business.             

WHY ARE WE SEPARATING NEW JEF  FOCUSED PERFORMANCE. We believe that, after completing the  
  FROM GROUP THROUGH THE       Spin- Off, New JEF will have an enhanced ability to focus   
  SPIN-OFF?                    more directly on the Brokerage and Investment Banking       
                               Business. New JEF will be in a better position to obtain,   
                               retain and motivate employees through equity-based          
                               incentives (including incentives offered through the        
                               Incentive Plan, and the New JEF employee stock ownership    
                               plan ("ESOP")) that can more directly link the results of   

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                           the Brokerage and Investment Banking Business and New JEF   
                           stock performance. Since employee performance is one of the 
                           most critical determinants affecting New JEF's results and  
                           stock price, enhanced incentive opportunities that are      
                           directly linked to stock performance create powerful new    
                           incentives for improved performance.                        

                           DIRECT INVESTMENT. The Spin-Off will give you a direct      
                           investment in New JEF and New ITGI. We believe that,        
                           following the Spin-Off, the financial markets will be able  
                           to focus on the individual strengths of New JEF and New ITGI
                           and more accurately evaluate the performance of each        
                           distinct business compared to companies in the same or      
                           similar businesses.                                         

WHAT DO I HAVE TO DO TO    NOTHING. No proxy or vote is necessary for the Spin-Off.    
  PARTICIPATE IN THE       However, since Group Stockholder approval of the Merger     
  SPIN-OFF?                Agreement is one of the conditions of the Spin-Off, your    
                           vote is important for the Merger and we urge you to review  
                           this document and complete and return the enclosed proxy    
                           card as soon as possible.                                   

                           If you own Group Common Stock as of the Spin-Off Record     
                           Date, common stock of New JEF (the "New JEF Common Stock")  
                           will be mailed to you or credited to your account without   
                           any further action. You should not mail in Group Common     
                           Stock certificates to receive New JEF Common Stock          
                           certificates, particularly since your certificates of Group 
                           Common Stock will evidence your ownership of New ITGI Common
                           Stock unless and until they are exchanged for New ITGI      
                           Common Stock certificates.                                  

PLEASE EXPLAIN THE         ONE-FOR-ONE. One share of New JEF Common Stock will be      
  DISTRIBUTION RATIO.      distributed in the Spin-Off for every share of Group Common 
                           Stock owned as of the Spin-Off Record Date (the             
                           "Distribution Ratio"). The Distribution Ratio will not alter
                           the number of Shares of Group Common Stock that you own     
                           before the Merger or the number of shares of New ITGI Common
                           Stock that you will own after the Merger. See, however      
                           "--Questions and Answers About the Merger and the           
                           Stockholder Vote -- Will the Merger affect the value of the 
                           ITGI Common Stock".                                         

                           EXAMPLE: If you own 100 shares of Group Common Stock as of  
                           the close of business on the Spin-Off Record Date, you will 
                           receive 100 shares of New JEF Common Stock through the      
                           Spin-Off. Assuming you do not alter your ownership of those 
                           100 shares of Group Common Stock before the Merger, you will
                           own 100 shares of New ITGI Common Stock after the Merger.   

WILL MY DIVIDENDS CHANGE?  NO CHANGE IN DIVIDEND POLICY IS EXPECTED. Before the        
                           Spin-Off, Group paid a $.05 per share quarterly dividend.   
                           After the Spin-Off, New JEF expects to continue the policy  
                           of paying a $.05 per share quarterly dividend subject, as is
                           currently the case with Group, to the continuation of       
                           acceptable earnings levels, as determined by the Board in   
                           its sole judgment.                                          

                           EXAMPLE: If you owned 100 shares of Group Common Stock, your
                           last quarterly dividend would have been $5.00 (or 100 shares
                           X $.05). Assuming you maintain a constant number of shares  
                           of New JEF Common Stock after the Spin-Off and New JEF      
                           experiences acceptable earnings levels, it is expected that 
                           you will continue to                                        

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                               receive the same $5.00 quarterly dividend from New JEF after
                               the Spin-Off.                                               

WILL SHARES TRADE ANY          YES. Because there is no public market for the New JEF      
  DIFFERENTLY AS A RESULT OF   Common Stock, a temporary form of interim trading called    
  THE SPIN-OFF?                "when-issued trading" will occur for New JEF Common Stock on
                               the New York Stock Exchange beginning about one week before 
                               the Spin-Off. When-issued listings can be identified by the 
                               "wi" letters next to New JEF Common Stock on the New York   
                               Stock Exchange. During this time, Group Common Stock will   
                               continue to trade on a regular way basis, and will trade on 
                               a "when-distributed" basis, which is the regular way trading
                               price less an approximate amount per share constituting the 
                               anticipated value of the Spin-Off, based primarily on       
                               when-issued trading prices for New JEF Common Stock. This   
                               process occurs in order to develop an orderly market and    
                               trading price for New JEF Common Stock after the Spin-Off.  

ARE THE TRANSFERS OR THE       NO. We believe, based on the advice of our counsel, Morgan, 
  SPIN-OFF TAXABLE FOR U.S.    Lewis & Bockius LLP, that we have structured the Transfers  
  TAX PURPOSES?                and the Spin-Off to qualify as tax-free transactions for    
                               U.S. federal income tax purposes. We have received tax      
                               rulings from the Internal Revenue Service (the "IRS") with  
                               the concurrence of the IRS concerning the tax-free treatment
                               of the Transfers and the Spin-Off for Group and our         
                               Stockholders, respectively, (the "Tax Ruling").             

DO THE TRANSACTIONS GIVE RISE  YES. Within a reasonable time after the Spin-Off, Group will
  TO TAX BASIS ALLOCATION      send a letter to stockholders that will explain the way to  
  ISSUES FOR MY SHARES?        allocate tax basis between New ITGI Common Stock you will   
                               hold after the Merger and the New JEF Common Stock          
                               distributed in the Spin-Off. The allocation will be based   
                               upon average trading values for New ITGI Common Stock and   
                               New JEF Common Stock coincident with the Spin-Off.          

WILL NEW JEF AND NEW ITGI BE   NO. New JEF and New ITGI will not be under common ownership 
  RELATED IN ANY WAY AFTER     or control following the Spin-Off. Group (and therefore New 
  THE SPIN-OFF?                ITGI as the successor to Group in the Merger) will be party 
                               to agreements with New JEF to define their ongoing          
                               relationship, to cooperate regarding past matters and to    
                               allocate responsibility for past obligations and certain    
                               obligations that might arise in the future.                 

ARE THERE ANY NEW RISKS        YES. New JEF's separation from Group presents certain       
  INVOLVED IN OWNING NEW JEF   additional risks because New JEF's revenues and earnings    
  COMMON STOCK?                will be less, in absolute terms, and less diversified, and  
                               may be less stable, than Group's consolidated revenues and  
                               earnings, including the revenue and earnings of ITGI. In    
                               addition to these new risks, the Brokerage and Investment   
                               Banking Business, whether owned by Group or New JEF, is     
                               subject to risks related to the volatile nature of the      
                               securities business, competition, the extensive federal,    
                               state and foreign regulation of the securities business, its
                               high-yield securities underwriting activities, its          
                               underwriting and trading activities generally, potential    
                               securities law liability, the effect of antitakeover        
                               provisions, its dependence on the availability of capital   
                               and funding, and its dependence on personnel.               

                               For further discussion of the risks related to New JEF      
                               Common Stock see "Risk Factors" beginning at page 15.       

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ARE THERE ANY DIFFERENCES     YES. As a result of the termination of various incentive    
  BETWEEN THE CAPITALIZATION  compensation plans and arrangements in connection with the  
  OF NEW JEF AND GROUP?       completion of the Transactions, it is anticipated that the  
                              total capitalization of New JEF will be greater than the    
                              current total consolidated capitalization of Group,         
                              including ITGI.                                             

                              For further details on the post-Spin-Off capitalization of  
                              New JEF see the pro forma financial information beginning at
                              page 80.                                                    

WHAT ARE THE ACCOUNTING       After the Spin-Off, New JEF will report historical ITGI     
  RAMIFICATIONS OF THE        results as a discontinued operation in its consolidated     
  SPIN-OFF?                   financial statements. The results of the ITGI and New JEF   
                              businesses will no longer be consolidated.                  

PLEASE EXPLAIN THE SEQUENCE   THE TRANSFERS. In order for us to separate the Brokerage and
  OF THE TRANSACTIONS         Investment Banking Business and the Technology-Based Trading
                              and Research Business, we will first transfer to New JEF or 
                              its subsidiaries all of our assets (except for our          
                              approximately 80.5% interest in the capital stock of ITGI)  
                              and liabilities (except for liabilities of or related to    
                              ITGI) including the outstanding publicly traded debt        
                              obligations of Group of approximately $150 million. After   
                              the Transfers have been completed, New JEF will own the     
                              Brokerage and Investment Banking Business.                  

                              THE SPIN-OFF. Next, after all conditions to the Spin-Off    
                              have been satisfied, we will distribute all of the          
                              outstanding New JEF Common Stock to our Stockholders of     
                              record as of the close of business on the Spin-Off Record   
                              Date.                                                       

                              THE MERGER. Finally, ITGI will merge with and into Group,   
                              resulting in the issuance of Merger Shares to the existing  
                              public (i.e., non-Group) ITGI stockholders. The end result  
                              of these actions will be that ownership of each of the      
                              Brokerage and Investment Banking Business and the           
                              Technology-Based Trading and Research Business will be      
                              completely separated (without any common ownership by Group)
                              and you will hold shares of each of New JEF and New ITGI    
                              directly.                                                   

HAS THE BOARD OF DIRECTORS    YES. On March 17, 1999, our Board of Directors unanimously  
  APPROVED THE TRANSFERS AND  approved the Transfers and the Spin-Off.                    
  SPIN-OFF?                                                                               

ARE ANY FURTHER APPROVALS     NO. Delaware law does not require our Stockholders' approval
  NECESSARY UNDER STATE LAW?  to effect the Transfers or consummate the Spin-Off.         

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QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE STOCKHOLDER VOTE 

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WHY IS GROUP PROPOSING THAT   TO ELIMINATE PUBLIC OWNERSHIP REDUNDANCIES THAT WOULD       
  ITGI MERGE WITH GROUP?      OTHERWISE ARISE AFTER THE SPIN-OFF. ITGI and Group will     
                              combine through the Merger in order to:                     
                              - enhance investor understanding and establish one          
                              publicly-traded vehicle concerning the Technology-Based     
                                Trading and Research Business;                            
                              - eliminate the publicly traded middle-tier holding company 
                              that will result from, and become unnecessary as a result   
                                of, the Transfers and the Spin-Off; and                   
                              - minimize investor confusion concerning the                
                              Technology-Based Trading and Research Business.             
                              The Merger will result in the stockholders of Group becoming
                              direct stockholders of New ITGI and Group ceasing to be     
                              ITGI's parent company.                                      
                              As an independent company, ITGI will have greater           
                              flexibility to determine its capital structure and will have
                              the opportunity to use New ITGI Common Stock to raise       
                              capital and make acquisitions.                              
DOES THE BOARD OF DIRECTORS   YES. The Group Board of Directors unanimously recommends    
  RECOMMEND VOTING IN FAVOR   that you approve the Merger Agreement and the issuance of   
  OF THE MERGER AND THE       Group Common Stock pursuant to the Merger Agreement.        
  ISSUANCE OF MERGER SHARES?                                                              
WHAT WILL GROUP AND ITGI      GROUP STOCKHOLDERS. After the Merger, each Group Stockholder
  STOCKHOLDERS OWN AS A       will continue to own the same number of shares of Common    
  RESULT OF THE MERGER?       Stock of New ITGI as the number of shares of Group Common   
                              Stock that such stockholder owned before the Merger.        
                              ITGI STOCKHOLDERS. In the Merger, each issued and           
                              outstanding share of ITGI Common Stock (other than the      
                              shares held by Group) will be converted into the right to   
                              receive such number of shares of New ITGI Common Stock in   
                              accordance with an exchange ratio formula. This exchange    
                              ratio will be equal to the result obtained by dividing the  
                              total number of shares of Group Common Stock outstanding    
                              immediately prior to the Merger by the total number of      
                              shares of ITGI Common Stock held by Group immediately prior 
                              to the Merger (the "Exchange Ratio").                       
WHAT DOES THE EXCHANGE RATIO  The Exchange Ratio formula has been established to provide: 
  ACCOMPLISH?                                                                             
                              - the non-Group ITGI stockholders (the "ITGI Public         
                                Stockholders") with the same proportionate common stock   
                                ownership of New ITGI that they held of ITGI prior to the 
                                Merger; and                                               
                              - the Stockholders of Group, as an entirety, with the same  
                                collective percentage ownership of New ITGI that Group    
                                held of ITGI prior to the Merger.                         

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                               EXCHANGE RATIO CALCULATION. For example, based upon an      
                               anticipated number of outstanding shares of Group Common    
                               Stock before the Merger of approximately 23.9 million and   
                               the number of shares of ITGI Common Stock held by Group     
                               (15.0 million), the Exchange Ratio would have been 1.59     
                               (23.9 million divided by 15.0 million).                     
                               EXCHANGE RATIO ILLUSTRATION. Assuming Group's 15.0 million  
                               shares of ITGI Common Stock will represent, consistent with 
                               the foregoing assumptions, 80.5% of the outstanding ITGI    
                               Common Stock (or 18.6 million shares), the 3.6 million      
                               shares of ITGI Common Stock owned by the ITGI Public        
                               Stockholders would become approximately 5.8 million shares  
                               of New ITGI Common Stock immediately following the Merger   
                               (3.6 million times the 1.59 Exchange Ratio).                
                               EFFECTS OF THE EXCHANGE RATIO. As a result of the foregoing,
                               the ITGI Public Stockholders would collectively own         
                               approximately 19.5% of the New ITGI Common Stock (5.8       
                               million shares divided by 29.7 million shares) and Group    
                               Stockholders would collectively own approximately 80.5% of  
                               New ITGI Common Stock (23.9 million divided by 29.7         
                               million). See "--Structural and Ownership Changes Arising   
                               from the Transactions" and "Transactions--The Merger."      
IS THE EXCHANGE RATIO FAIR?    YES. J.P. Morgan Securities Inc. ("J.P. Morgan") has        
                               rendered an opinion that the Exchange Ratio is fair to Group
                               from a financial point of view.                             
HOW DOES THE MERGER IMPACT     NO ULTIMATE OVERALL CHANGE. The ITGI Public Stockholders and
  OVERALL STOCK OWNERSHIP?     the existing stockholders of Group will directly own all of 
                               the equity interest in New ITGI, with the former ITGI Public
                               Stockholders having the same collective percentage ownership
                               of New ITGI that they held of ITGI prior to the Merger and  
                               the former stockholders of Group having the same collective 
                               percentage ownership of New ITGI that Group held of ITGI    
                               prior to the Merger.                                        
WILL THE MERGER AFFECT THE     PERHAPS. The aggregate value of ITGI Common Stock may or may
  VALUE OF THE ITGI COMMON     not change as a result of the Merger, because we cannot     
  STOCK?                       predict the overall stock market impact of the Merger and   
                               the related transactions on the trading price of ITGI Common
                               Stock. However, New ITGI Common Stock is likely to trade    
                               immediately following the Merger at a per share price lower 
                               than the per share price at which ITGI Common Stock trades  
                               immediately prior to the Merger, because the number of      
                               shares of New ITGI Common Stock outstanding immediately     
                               after the Merger will be greater than the number of shares  
                               of ITGI Common Stock outstanding immediately before the     
                               Merger.                                                     
WILL I OWE ANY U.S. FEDERAL    NO. You should not owe any U.S. Federal income tax as a     
  INCOME TAX AS A RESULT OF    result of the Merger because you will not be receiving any  
  THE MERGER?                  consideration pursuant to the Merger.                       
WHAT ARE THE OTHER MATERIAL    Group has received rulings from the Internal Revenue Service
  TAX CONSEQUENCES ASSOCIATED  that the Merger will qualify as a tax-free transaction for  
  WITH THE MERGER?             ITGI and Group for U.S. Federal income tax purposes.        
                               Further, ITGI and Group have conditioned the Merger on the  
                               receipt of legal opinions stating that the Merger will      
                               qualify as a tax-free transaction for the ITGI Public       
                               Stockholders for U.S. federal income tax purposes (except   
                               with respect to cash received by the ITGI Public            
                               Stockholders in lieu of fractional shares). See "The        
                               Transactions--The Merger; U.S. Federal Income Tax           
                               Consequences of the Merger."                                

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WHAT ARE THE SIGNIFICANT       THE MERGER WILL BE ACCOUNTED FOR AS A MERGER OF "ENTITIES   
  ACCOUNTING CONSEQUENCES OF   UNDER COMMON CONTROL" in accordance with generally accepted 
  THE MERGER?                  accounting principles. Accordingly, the accounting will     
                               reflect the historical cost basis of each party's assets and
                               liabilities.                                                
WHEN DO YOU EXPECT THE MERGER  WE EXPECT THAT THE MERGER WILL OCCUR IN THE SECOND QUARTER  
  TO BE COMPLETED?             OF 1999. Group and ITGI are working towards completing the  
                               Merger as quickly as possible.                              
SHOULD I SEND IN MY STOCK      NO. The number of shares of Group Common Stock that you own 
  CERTIFICATES NOW?            will not be affected by the Merger.                         
HOW MANY VOTES ARE REQUIRED    The Merger Agreement and the issuance of the Merger Shares  
  TO APPROVE THE MERGER        must be approved and adopted by the affirmative vote of the 
  AGREEMENT?                   holders of a majority of the outstanding shares of our      
                               Common Stock. We will not effect the Spin-Off if the Merger 
                               Agreement and the issuance of Merger Shares are not approved
                               and adopted by the requisite stockholder vote.              
                               Holders of record of Group Common Stock as of the Special   
                               Meeting Record Date are entitled to cast one vote for each  
                               share of Group Common Stock held as of such date. At the    
                               Special Meeting Record Date, there were approximately 23.2  
                               million shares of our Common Stock outstanding and entitled 
                               to vote. As of the Special Meeting Record Date, our         
                               directors and executive officers beneficially owned         
                               approximately 15% of our Common Stock entitled to vote at   
                               the Special Meeting.                                        
WHAT OTHER MATTERS WILL BE     IN ADDITION TO THE MERGER, YOU WILL BE ASKED TO APPROVE THE 
  VOTED ON AT THE SPECIAL      INCENTIVE PLAN AND THE DIRECTORS' PLAN FOR NEW JEF. To carry
  MEETING?                     out one of the purposes of the Spin-Off, the creation of    
                               incentive compensation opportunities for directors and      
                               employees of New JEF that are directly linked to            
                               performance, the Boards of Directors of Group and New JEF   
                               have each approved the Incentive Plan and the Directors'    
                               Plan and seek stockholder approval and adoption of these    
                               plans from you, the future holders of New JEF Common Stock. 
                               Our Board and the New JEF Board unanimously recommend that  
                               you approve and adopt the Incentive Plan and the Directors' 
                               Plan. See "The Special Meetings--Special Meeting." Approval 
                               of each of the Incentive Plan and the Directors' Plan       
                               requires the affirmative vote of a majority of the votes    
                               held by holders of our Common Stock present and entitled to 
                               vote at the Special Meeting in person or represented by     
                               proxy. We are also seeking Stockholders' express authority  
                               to postpone or adjourn the Special Meeting in case we need  
                               to solicit additional votes to approve any of the foregoing 
                               matters being presented to Stockholders, as described herein
                               generally and in the Notice to Stockholders, in particular. 
WHAT SHOULD I DO NOW?          JUST MAIL YOUR SIGNED PROXY CARD NO LATER THAN APRIL 12,    
                               1999. The Special Meeting will be held at 9:00 a.m., local  
                               time on April 20, 1999 at The New York Helmsley Hotel, 212  
                               East 42nd Street, New York, New York 10017.                 
CAN I CHANGE MY VOTES AFTER I  YES. You can change your vote at any time before the vote is
  HAVE MAILED IN A SIGNED      taken at the Special Meeting. You can do this in one of     
  PROXY CARD?                  three ways. First, you can send a written notice dated later
                               than your proxy card stating that you would like to revoke  
                               your prior, current proxy. Second, you can complete and     
                               submit a new proxy card dated later than your original proxy
                               card. If you choose either of these two                     

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                               methods, you must submit your notice of revocation or your  
                               new proxy card to Jefferies Group, Inc., 11100 Santa Monica 
                               Boulevard, 11th Floor, Los Angeles, California 90025,       
                               Attention: Secretary. Group must receive the notice or new  
                               proxy card before the vote is taken at the Special Meeting. 
                               Third, you can attend the Special Meeting and vote in       
                               person. Simply attending the Special Meeting, however will  
                               not revoke your proxy. If you have instructed a broker to   
                               vote your shares, follow the directions received from your  
                               broker as to how to change your vote.                       
IF MY SHARES ARE HELD IN       ONLY IF YOU GIVE YOUR BROKER PROMPT INSTRUCTIONS ON HOW TO  
  "STREET NAME" BY MY BROKER,  VOTE. You should instruct your broker to vote your shares.  
  WILL MY BROKER VOTE MY       Without instructions, your shares will not be voted by that 
  SHARES FOR ME?               broker and the failure to vote will have the same effect as 
                               a vote against the approval and adoption of the Merger      
                               Agreement and the issuance of the Merger Shares. A failure  
                               to properly instruct your broker will have no negative      
                               effect on the vote with respect to the Incentive Plan or the
                               Directors' Plan.                                            

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THE TRANSACTIONS

BACKGROUND                                                              

 The success of both the Brokerage and Investment Banking Business and the
Technology-Based Trading and Research Business depends on each having separate  
management teams and highly skilled employees that are focused on their         
respective businesses. The management and employees of the Brokerage and        
Investment Banking Business are primarily focused on investment banking,        
brokerage, capital raising, research, mergers and acquisition activities,       
business restructuring advisory services and a traditional, broker-dealer       
business. The management and employees of the Technology-Based Trading and      
Research Business's are primarily focused on the use of technology for trading  
securities and the development of securities research and analysis products.    

Although Group and ITGI are each publicly-traded and have separate      
management teams, we have concluded that further separation of the two          
organizations is in the best interests of Group and our Stockholders. This      
separation would be achieved through the combined effect of the Transfers and   
the Spin-Off.                                                                   

THE TRANSFERS AND THE SPIN-OFF                                          

 The Transfers will be completed in order for New JEF to own the Brokerage
and Investment Banking Business and in order to transfer Group liabilities that 
are not related to ITGI. After completion of the Transfers and satisfaction of  
all other conditions to the Spin-Off, we will distribute all of the outstanding 
New JEF Common Stock pro rata to our Stockholders of record as of the Spin-Off  
Record Date. The Spin-Off would occur immediately prior to the Merger.          

Our management believes that, after completing the Transfers and the    
Spin-Off, New JEF management will have an enhanced ability to focus more        
directly on the Brokerage and Investment Banking Business. New JEF will have a  
better opportunity to obtain, retain and motivate employees through equity-based
incentives (including incentives offered through the Incentive Plan and a New   
JEF ESOP) that can more directly link the results of the Brokerage and          
Investment Banking Business and New JEF stock performance.                      

   In order for us to ensure that the Transfers and the Spin-Off are tax-free,
it was necessary for us to structure the Transactions as a spin-off of New JEF  
Common Stock, rather than a direct spin-off of ITGI Common Stock, to Group      
Stockholders.                                                                   

THE MERGER                                                              

    Immediately after the Transfers and the Spin-Off, New JEF will be a publicly
traded corporation that will own the Brokerage and Investment Banking Business. 
ITGI will be a publicly traded corporation that will own directly the           
Technology-Based Trading and Research Business, and Group will be a publicly    
traded corporation that will control (through its approximately 80.5% ownership 
interest in ITGI), the Technology-Based Trading and Research Business. The      
Merger will be completed to establish one publicly traded company that owns and 
controls the Technology-Based Trading and Research Business.                    

  After the satisfaction or waiver of all conditions set forth in the Merger
Agreement, including receipt of all required stockholder approvals, the Merger  
will become effective (the "Effective Time") upon the filing of a Certificate of
Merger with the Secretary of State of the State of Delaware. At the Effective   
Time, ITGI will be merged with and into Group and Group will continue as the    
surviving corporation under a new name, Investment Technology Group, Inc.       
Following the Merger, New JEF will change its name to Jefferies Group, Inc.     
Prior to the Spin-Off, the New JEF board of directors and Jefferies Group, Inc.,
in its capacity as sole stockholder of New JEF, approved and authorized the name
change to be filed and become effective as soon as is practicable following the 
Merger. Subject to the terms and conditions of the Merger Agreement, each issued
and outstanding share of ITGI                                                   

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Common Stock (other than any shares held by Group) will be converted into the   
right to receive the number of Merger Shares based on the Exchange Ratio.       

Group and ITGI are each obligated to effect the Merger only if various  
conditions set forth in the Merger Agreement, including the completion of the   
Transfers and the Spin-Off, are waived or satisfied. Either Group or ITGI may   
terminate the Merger Agreement at any time prior to the Effective Time, whether 
before or after approval by the stockholders of Group or ITGI of the matters    
presented in connection with the Merger, upon the occurrence of certain events  
set forth in the Merger Agreement. See "The Transactions--The Merger."          

INTERESTS OF CERTAIN PERSONS IN THE TRANSACTIONS.                       

   Stockholders should be aware that certain directors and executive officers,
including some officers who are also directors, have certain interests in the   
Transactions that are different from, or in addition to, the interests of       
Stockholders generally.                                                         

    The Compensation Committee of the Board of Directors of Group has terminated
and settled on an accelerated basis phantom incentive compensation shares and   
related earnings for the following executive officers of Group in the following 
amounts: Frank Baxter, $2,601,795; Michael Klowden, $336,705; and Clarence      
Schmitz, $224,388. The Compensation Committee also has accelerated the vesting  
of all unvested stock options granted before January 1, 1998 to facilitate the  
exercise of these options before the Spin-Off Record Date and the Merger. As a  
result, the options held by the following executive officers of Group will have 
been accelerated for the following number of shares: Jerry Gluck, 5,000 shares; 
Gary Burnison, 5,000 shares; and Maxine Syrjamaki, 5,000 shares. Optionees      
holding Group options granted after January 1, 1998, and directors holding      
options, regardless of grant date, may exchange such options for options of New 
JEF with such terms that are designed to preserve the inherent value and        
contractual rights of such Group options (the "Replacement Option Exchange"). In
lieu of participating in the Replacement Option Exchange, directors may elect to
exercise Group options in advance of the option's scheduled contractual         
expiration date and receive a make-whole grant of New JEF options with a fair   
market value determined after subtracting gain realized on any exercise effected
in advance of scheduled contractual expiration from the Black-Scholes fair      
market value of the option before exercise ("Make-Whole Grants"). Options       
subject to Make Whole Grants would have an exercise price determined by         
reference to volume weighted average trading prices for New JEF Common Stock    
during the five trading days after the Spin-Off.                                

The following executive officers of Group will be entitled to receive an
accelerated vesting of matching contributions made under the terms of Group's   
Employee Stock Purchase Plan (the "ESPP") with respect to the following number  
of shares of Group Common Stock: Frank Baxter, 258 shares; Michael Klowden, 899 
shares; Jerry Gluck, 258 shares; and Gary Burnison, 87 shares. Aside from such  
provisions, the Compensation Committee of the Board of Directors of Group has   
not altered the economic terms of outstanding compensation awards held by       
executive officers or directors in connection with the Transactions. The        
aggregate value of the foregoing interests, exclusive of values associated with 
the Replacement Option Exchange and the Make-Whole Grants (each of which are    
intended to preserve the intrinsic value of outstanding contractual rights), is 
$3,489,824, taking into account the price per share of Group Common Stock on    
March 15, 1999 ($45.19 per share). See "Management of Group and New JEF--Impact 
of the Spin-Off and Merger on Group's Employee Benefit Plans."                  

THE PARTIES TO THE MERGER                                               

   JEFFERIES GROUP, INC.  We are a publicly-traded holding company that trades
under the New York Stock Exchange symbol "JEF." Group's four current primary    
subsidiaries, JEFCO, ITGI, described separately below, Jefferies International  
Limited ("JIL"), and Jefferies Pacific Limited ("JPL"), provide investment      
banking, securities brokerage and trading, and other financial services.        

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    Group's current principal subsidiary in the investment banking and brokerage
business, JEFCO, was founded in 1962. JEFCO's international investment banking  
operations focus on capital raising, research, mergers and acquisitions and     
advisory and restructuring services for small- to medium-sized companies.       
JEFCO's brokerage operations conduct equity, convertible debt and taxable fixed 
income securities brokerage and trading. JEFCO is one of the leading national   
brokerage firms engaged in the distribution and trading of blocks of equity     
securities and often conducts such activities in the "third market." The term   
"third market" refers to transactions in listed equity securities that occur    
outside of national securities exchanges.                                       

JIL, a broker-dealer subsidiary of Group, 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   
JEFCO 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 1996, JIL formed a     
wholly-owned subsidiary, Jefferies (Japan) Limited, which maintains a branch    
office in Tokyo. JPL, also a broker-dealer subsidiary of Group, was incorporated
in 1992 in Hong Kong. JPL presently introduces foreign customers trading in U.S.
securities to JEFCO.                                                            

Group 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. Group's  
executive offices are located at 11100 Santa Monica Boulevard, Los Angeles,     
California 90025, and its telephone number is (310) 445-1199.                   

  INVESTMENT TECHNOLOGY GROUP, INC.  ITGI is a holding company that conducts
its operations through subsidiaries that provide automated equity trading       
services and transaction research to institutional investors and brokers. Prior 
to the initial public offering of its common stock in 1994, ITGI was a          
wholly-owned subsidiary of Group. ITGI Common Stock has, since such time, been  
publicly traded on the Nasdaq National Market under the symbol "ITGI." As of the
date of this Proxy/ Information Statement, Group owns approximately 80.5% of the
outstanding ITGI common stock. ITG, one of ITGI's principal subsidiaries, is a  
full service execution firm and broker-dealer that utilizes transaction         
processing technology to increase the effectiveness and lower the cost of       
institutional and other trading.                                                

 ITGI's executive offices are located at 380 Madison Avenue, New York, New
York 10017, and its telephone number is (212) 588-4000.                         

THE SPECIAL MEETING.                                                    

   This document is being furnished to you in order for our Board of Directors
to solicit your vote by proxy at the Special Meeting. The Special Meeting will  
be held at 9:00 a.m., local time on April 20, 1999, at The New York Helmsley    
Hotel, 212 East 42nd Street, New York, New York 10017.                          

THE SPECIAL ITGI CASH DIVIDEND

   ITGI has, as of March 16, 1999, declared a cash dividend of $4.00 per share
to all ITGI stockholders, including Group (the "Special ITGI Cash Dividend"). As
a result, $60.0 million of the Special ITGI Cash Dividend will be payable to    
Group. The Special ITGI Cash Dividend will be payable to all of ITGI's          
stockholders of record as of April 20, 1999 (the "Special ITGI Cash Dividend    
Record Date"). Payment of the Special ITGI Cash Dividend is conditioned upon the
satisfaction or waiver of other conditions to the Merger pursuant to the Merger 
Agreement. The Special ITGI Cash Dividend is expected to be paid on April 21,   
1999. We believe, based on the advice of counsel, Morgan, Lewis & Bockius LLP,  
that the Special ITGI Cash Dividend paid to Group will not result in taxable    
income to Group. The Special ITGI Cash Dividend paid to the ITGI Public         
Stockholders will be a taxable dividend.                                        

As part of the Transfers, Group will contribute the $60 million it is   
expected to receive in respect of the Special ITGI Cash Dividend to JEFCO       
immediately prior to the transfer of the capital stock of                       

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JEFCO (and Group's non-ITGI subsidiaries) to New JEF, and New JEF will assume   
Group's existing liabilities that are unrelated to ITGI, including the          
outstanding publicly traded debt obligations of Group of approximately $150     
million. The transfer by Group to JEFCO of amounts received in respect of the   
Special ITGI Cash Dividend will be made to increase the consolidated capital of 
New JEF, to offset in part the leverage arising from the publicly-traded notes  
of Group to be assumed by New JEF in connection with the Transfers, and to      
satisfy working capital demands and requirements associated with the Brokerage  
and Investment Banking Businesses.                                              

EFFECT OF TRANSACTIONS ON STOCKHOLDER RIGHTS AND STOCK OWNERSHIP

You will not have dissenters' rights of appraisal in connection with the
Merger or the Transfers. See "The Transactions--No Dissenters' Rights."         

   Provisions in the New JEF Amended and Restated Certificate of Incorporation
and Bylaws, as compared to the Group Certificate of Incorporation and Bylaws,   
and in the New ITGI Certificate of Incorporation and Bylaws, as compared to the 
ITGI Certificate of Incorporation and Bylaws, may make more difficult or more   
expensive or discourage a tender offer, change in control or takeover attempt   
that is opposed by the Board of Directors of New JEF or New ITGI, respectively. 
As a result, stockholders may have a reduced likelihood of receiving a takeover 
premium, a potential takeover may not occur, and such provisions may adversely  
affect the market price of New JEF Common Stock or New ITGI Common Stock,       
respectively. These anti-takeover provisions include:                           

   - a prohibition on stockholders' calling a special meeting of stockholders;

    - the imposition of procedural requirements concerning stockholder proposals
at stockholder meetings;                                            

- a prohibition on stockholder action by written consent; and           

    - the requirement that any anti-takeover provisions (such as those described
  above) may be repealed or altered only upon the affirmative vote of at
least 66 2/3% of the stockholders.                                  

See "The Transactions--The Spin-Off--Comparison of Rights of Current Group      
Stockholders and New JEF Stockholders Following the Spin-Off" and "The          
Merger--Comparison of Rights of Current Group Stockholders and New ITGI         
Stockholders Following the Merger" and "Description of New JEF Capital          
Stock--New JEF Common Stock; Delaware Antitakeover Provisions," "--Preferred    
Stock," and "-- Certain Antitakeover Provisions--New JEF Certificate and        
Bylaws."                                                                        

The charts on the following pages illustrate the structure of Group, ITGI and   
their principal subsidiaries before the Transactions are effected and the       
structural and ownership changes brought about following the Transfers, the     
Spin-Off and the Merger.                                                        

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STRUCTURAL AND OWNERSHIP CHANGES ARISING FROM THE TRANSACTIONS

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RISK FACTORS

YOU SHOULD CONSIDER THE FOLLOWING RISK FACTORS, AS WELL AS THE OTHER    
INFORMATION SET FORTH IN THE PROXY/ INFORMATION STATEMENT, THAT ARE RELEVANT TO 
THE TRANSACTIONS.                                                               

WE ALSO CAUTION YOU THAT THIS PROXY/INFORMATION STATEMENT INCLUDES      
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES  
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND SECTION 21E OF THE          
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"). ALL STATEMENTS
REGARDING THE REASONS FOR AND INTENDED EFFECTS OF THE TRANSACTIONS AND OUR AND  
NEW JEF'S EXPECTED FUTURE FINANCIAL POSITION, RESULTS OF OPERATIONS, CASH FLOWS,
DIVIDENDS, FINANCING PLANS, BUSINESS STRATEGIES, COMPETITIVE POSITIONS, PLANS   
AND OBJECTIVES OF MANAGEMENT FOR FUTURE OPERATIONS, AND CONCERNING SECURITIES   
MARKETS AND ECONOMIC TRENDS ARE FORWARD-LOOKING STATEMENTS. ALTHOUGH WE AND NEW 
JEF BELIEVE OUR EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE   
BASED ON REASONABLE ASSUMPTIONS, NO ASSURANCE CAN BE GIVEN THAT SUCH            
EXPECTATIONS WILL PROVE TO HAVE BEEN CORRECT. IMPORTANT FACTORS THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE EXPECTATIONS REFLECTED IN THE      
FORWARD-LOOKING STATEMENTS HEREIN INCLUDE, AMONG OTHERS, THOSE SET FORTH BELOW  
AS WELL AS GENERAL ECONOMIC AND BUSINESS CONDITIONS; CHANGES IN SECURITIES,     
CREDIT AND FINANCIAL MARKET CONDITIONS; ADVERSE CHANGES OR VOLATILITY IN        
INTEREST RATES; EFFICACY OF TECHNOLOGY; COSTS OR DIFFICULTIES RELATING TO THE   
ESTABLISHMENT OF NEW JEF AND ITGI AS INDEPENDENT ENTITIES; AND INCREASED        
COMPETITIVE PRESSURES.                                                          

RISK THAT THE TRANSFERS, THE SPIN-OFF AND THE MERGER MAY NOT BE TAX-FREE AND    
THAT THE TRANSACTIONS WILL NOT OCCUR                                        

   We have received rulings from the IRS through the Tax Ruling to the effect,
among other things, that the Transfers, the Spin-Off and the Merger will qualify
as tax-free transactions with respect to New JEF, ITGI, Group and Group         
Stockholders under Sections 332, 351, 355 and 368 of the Internal Revenue Code  
of 1986, as amended (the "Code"). Such rulings, while generally binding upon the
IRS, are subject to certain factual representations and assumptions. If these   
factual representations and assumptions were incorrect in a material respect,   
the rulings would be jeopardized. We are not aware of any facts or circumstances
which would cause such representations and assumptions to be untrue in any      
material respect. In addition, each of New JEF, ITGI and Group (and therefore   
New ITGI following the Merger) has agreed to certain restrictions on its future 
actions to provide further assurances that the Transfers, the Spin-Off and the  
Merger will qualify as tax free. If any of New JEF, ITGI, Group or New ITGI     
fails to abide by such restrictions and, as a result, the Spin-Off and the      
Merger fail to qualify as tax-free transactions, then such breaching party will 
be obligated to indemnify the non-breaching party or parties for any resulting  
tax liability. However, such tax liability could be substantial, and there is no
assurance that such breaching party would be able to satisfy its indemnification
obligation. Further, the Merger is conditioned on our receipt of legal opinions 
stating that the Merger will be tax-free to ITGI Public Stockholders (except    
with respect to cash received by ITGI Public Stockholders in lieu of fractional 
shares). Such legal opinions neither bind nor preclude the IRS from adopting a  
contrary position. If the Tax Ruling is withdrawn or modified by the IRS in any 
material adverse respect, or if we do not receive the legal opinions regarding  
tax consequences to the ITGI Public Stockholders, the Transfers, the Spin-Off   
and the Merger will not occur.                                                  
NEW JEF REVENUES AND EARNINGS WILL BE LESS DIVERSIFIED AND MAY BE LESS STABLE   
AFTER THE SPIN-OFF                                                          

    After the separation of New JEF through the Spin-Off, New JEF's revenues and
earnings will be less diversified, and may be less stable, than our consolidated
revenues and earnings (including ITGI) in the periods prior to the Spin-Off.    
When the Spin-Off is complete, New JEF will derive virtually all of its revenues
and earnings from its Brokerage and Investment Banking Business and, unlike our 
historical results, will not include the revenues and earnings of ITGI, which   
have experienced significant growth in recent years. While New JEF believes that
revenues from its Brokerage and Investment Banking Business will remain         
moderately stable in the future, New JEF, in general, and New JEF's Brokerage   
and Investment Banking Business, in particular, may be vulnerable to revenue    

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and earnings erosion and significant fluctuations resulting from adverse equity,
debt and interest rate market conditions, increased competition or adverse      
competitive developments, economic downturns and New JEF's strategic focus on   
small to mid-sized companies in select industries.                              

NEW ITGI OR NEW JEF MAY BE UNABLE TO SATISFY INDEMNIFICATION OBLIGATIONS        

New JEF and Group have entered into a Distribution Agreement dated as of
March 17, 1999 (the "Distribution Agreement"), which, among other things, will  
allocate responsibility between Group (and therefore New ITGI following the     
Merger) and New JEF for various liabilities and obligations. The Distribution   
Agreement provides, among other things, that New JEF will indemnify Group and   
its successors (and therefore New ITGI after the Merger) for the liabilities    
assumed by New JEF pursuant to the Distribution Agreement, and Group and its    
successors, including New ITGI after the Merger, will indemnify New JEF for     
liabilities related to ITGI. See "The Transactions--Arrangements between Group  
and ITGI Relating to the Spin-Off--Distribution Agreement." However, the        
availability of such indemnities will depend upon the future financial strength 
of New JEF and Group and its successors, such as New ITGI. No assurance can be  
given that the relevant company will be in a position to fund such indemnities. 

THE NEW JEF COMMON STOCK TRADING PRICES CANNOT BE PREDICTED AND MAY FLUCTUATE   
SIGNIFICANTLY UNTIL AN ORDERLY MARKET DEVELOPS                              

For many years, there has been a trading market for Group Common Stock; 
however, this market reflected investor perceptions concerning the results and  
prospects of both the Brokerage and Investment Banking Business and the         
Technology-Based Trading and Research Business. Following the Spin-Off, New JEF 
will only conduct the Brokerage and Investment Banking Business, and the        
Technology-Based Trading and Research Business will not impact investor         
perceptions, or the market price, of New JEF Common Stock. There has been no    
prior trading market for New JEF Common Stock and we cannot predict, estimate or
give assurances about the trading prices for New JEF Common Stock before or     
after the date of the Spin-Off. On the date of the Spin-Off, the New JEF Common 
Stock is likely to trade at a price lower than the price at which the Group     
Common Stock traded regular way prior to the Spin-Off in light of the           
Distribution Ratio and the separation of New JEF from Group and ITGI following  
the completion of the Transfers and the Spin-Off. Until the New JEF Common Stock
is fully distributed and an orderly market develops, the trading prices for New 
JEF Common Stock may fluctuate significantly. Prices for the New JEF Common     
Stock will be determined in the trading markets and may be influenced by many   
factors, including the depth and liquidity of the market for New JEF Common     
Stock, investor perceptions of New JEF and its business, changes in debt and    
equity market conditions, changes in interest rates and results, and general    
economic and market conditions.                                                 

SUBSTANTIAL SALES OF GROUP COMMON STOCK, NEW JEF COMMON STOCK OR NEW ITGI COMMON
STOCK COULD ADVERSELY AFFECT MARKET PRICES                                  

In the approximately three-month period prior to the Spin-Off, it is    
expected that approximately 2.7 million shares of Group Common Stock will be    
issued pursuant to the termination of Group benefit plans, the exercise of      
outstanding Group options and the issuance of restricted stock. See "Management 
of Group and New JEF--Impact of the Spin-Off and Merger on Group's Employee     
Benefit Plans." Recipients of such shares, in the aggregate, will incur         
significant tax liabilities in connection with the receipt, exercise or purchase
of such shares and in most cases the funding of such liabilities will only be   
possible through the sale of Group Common Stock (prior to completion of the     
Transactions) or the sale of New ITGI or New JEF Common Stock after the         
completion of the Transactions. The New JEF Common Stock distributed to Group   
stockholders in the Spin-Off will be freely transferable under the Securities   
Act, except for securities received by persons who may be deemed affiliates of  
New JEF. The sale of a substantial number of shares of Group Common Stock,      

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New JEF Common Stock or New ITGI Common Stock could adversely affect the market 
price of such securities.                                                       

NEW CERTIFICATE AND BYLAW PROVISIONS MAY HAVE THE EFFECT OF IMPEDING A TAKEOVER 

Provisions in the New JEF Certificate of Incorporation and Bylaws, as   
compared to the Group Certificate of Incorporation and Bylaws, and in the New   
ITGI Certificate of Incorporation and Bylaws, as compared to the ITGI           
Certificate of Incorporation and Bylaws, and in the General Corporation Law of  
the State of Delaware may make more difficult or more expensive or discourage a 
tender offer, change in control or takeover attempt that is opposed by the Board
of Directors of New JEF or New ITGI, respectively. As a result, stockholders may
have a reduced likelihood of receiving a takeover premium, a potential takeover 
may not occur, and such provisions may adversely affect the market price of New 
JEF Common Stock or New ITGI Common Stock, respectively. These anti-takeover    
provisions include:                                                             

   - a prohibition on stockholders' calling a special meeting of stockholders;

    - the imposition of procedural requirements concerning stockholder proposals
at stockholder meetings;                                            

- a prohibition on stockholder action by written consent; and           

- the requirement that any anti-takeover provisions may be repealed or  
altered only upon the affirmative vote of at least 66 2/3% of the   
stockholders.                                                       

  See "The Transactions--The Spin-Off--Comparison of Rights of Current Group
Stockholders and New JEF Stockholders Following the Spin-Off," "--The           
Merger--Comparison of Rights of Current Group Stockholders and New ITGI         
Stockholders Following the Merger," "Description of New JEF Capital Stock--New  
JEF Common Stock; Delaware Antitakeover Provisions," "--Preferred Stock," and   
"--Antitakeover Provisions--New JEF Certificate and Bylaws." In addition,       
provisions in the Tax Sharing Agreement (as defined herein) that are intended to
preserve the tax-free status of the Spin-Off for Federal income tax purposes    
could discourage certain takeover proposals or make them more expensive. See    
"The Transactions--Arrangements Between Group and New JEF Relating to the       
Spin-Off--Tax Sharing Agreement."                                               
SHARES ELIGIBLE FOR FUTURE SALE--THERE MAY BE SUBSTANTIAL SALES OF NEW ITGI     
  COMMON STOCK FOLLOWING THE MERGER, WHICH MAY ADVERSELY AFFECT THE PRICE OF THE
NEW ITGI COMMON STOCK.                                                      

    Following the Merger, there will be approximately 29.7 million shares of New
ITGI Common Stock outstanding, of which approximately 28 million shares will be 
tradeable without restriction by persons other than "affiliates" of New ITGI.   
The remaining shares of New ITGI Common Stock may be deemed "restricted"        
securities within the meaning of the Securities Act, and, as such, may be sold  
only pursuant to registration under the Securities Act or an exemption          
therefrom, including the exemptions contained in Rule 144 under the Securities  
Act. No assurance can be given that holders of "restricted" shares of New ITGI  
Common Stock will not decide, based upon the prevailing market and other        
conditions, to dispose of all or a portion of such stock pursuant to the        
provisions of Rule 144 under the Securities Act.                                

 Following the Merger, there will be approximately 5.5 million outstanding
options to purchase shares of New ITGI Common Stock at varying exercise prices. 
New ITGI expects to enter into registration rights agreements with holders of   
certain options, pursuant to which New ITGI will be required to file, within 90 
days following the consummation of the Merger, a registration statement with    
respect to an underwritten public offering of the shares issuable upon exercise 
of such options.                                                                

Following the Merger, the Group ESOP as assumed by New JEF (the "New JEF
ESOP") will own approximately 1.9 million shares of New ITGI Common Stock and   
the ESOP to be created by New ITGI (the "New ITGI ESOP"), will own approximately
117,000 shares of New JEF Common Stock for                                      

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the benefit of New ITGI employees. New JEF and ITGI anticipate that the         
approximately 117,000 shares of the New JEF Common Stock held by the New ITGI   
ESOP will be exchanged for New ITGI Common Stock held by the New JEF ESOP, based
upon fair market values for the respective shares. New JEF has advised ITGI that
any New ITGI Common Stock remaining in the New JEF ESOP after such exchange must
be disposed of by the New JEF ESOP in an orderly fashion over a reasonable      
period of time after consummation of the Merger, and it is expected that such   
shares will be sold in the public market.                                       

 No predictions can be made about the effect, if any, that market sales of
shares of New ITGI Common Stock or the availability of such shares for sale     
would have on the market price prevailing from time to time. Nevertheless, sales
of substantial amounts of New ITGI Common Stock in the public market, or the    
perception that such sale could occur, may have an adverse impact on the market 
price for the shares of New ITGI Common Stock or New ITGI's ability to raise    
capital through a public offering of New ITGI's equity securities. Additionally,
New ITGI may also determine to issue its Common Stock to fund acquisitions,     
which may have such an effect, as well as be financially dilutive to its        
stockholders.                                                                   

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THE SPECIAL MEETING 

THE SPECIAL MEETING                                                             

DATE, TIME AND PLACE OF THE SPECIAL MEETING                             

The Special Meeting will be held at 9:00 a.m., local time, on April 20, 
1999, at The New York Helmsley Hotel, 212 East 42nd Street, New York, New York  
10017.                                                                          

MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING                         

At the Special Meeting, our Stockholders will consider and vote upon    
proposals to approve and adopt the Merger Agreement and the issuance of the     
Merger Shares, the Incentive Plan, the Directors' Plan and the Grant of         
Discretionary Authority. See "The Transactions" and the Appendices attached     
hereto for more information related to the Transactions.                        

VOTING AT THE SPECIAL MEETING; RECORD DATE; QUORUM                      

 On the Special Meeting Record Date, there were 23.2 million shares of our
Common Stock outstanding and entitled to vote at the Special Meeting. These     
shares were held by approximately 294 holders of record. Each Stockholder of    
record on the Special Meeting Record Date is entitled to cast one vote per share
on each proposal. This vote may be cast at the Special Meeting either in person 
or by properly executed proxy. The presence, in person or by proxy, of the      
holders of a majority of our outstanding Common Stock entitled to vote at the   
Special Meeting is necessary to constitute a quorum at the Special Meeting. The 
Merger Agreement and the issuance of the Merger Shares must be approved and     
adopted by the affirmative vote of the holders of a majority of the shares of   
our Common Stock that are outstanding as of the Special Meeting Record Date.    
Approval of each of the Incentive Plan, the Directors' Plan and the Grant of    
Discretionary Authority requires the affirmative vote of a majority of the votes
held by holders of our Common Stock present and entitled to vote at the Special 
Meeting assuming the presence of a proper quorum. As of the Special Meeting     
Record Date, our directors and executive officers beneficially owned            
approximately 15% of our Common Stock entitled to vote at the Special Meeting.  
Our Board unanimously recommends that you approve and adopt the Merger Agreement
and the issuance of the Merger Shares, the Incentive Plan, the Directors' Plan  
and the Grant of Discretionary Authority.                                       

PROXIES                                                                 

 We are furnishing you with this Proxy/Information Statement in connection
with the solicitations of proxies by and on behalf of our Board for use at the  
Special Meeting. Proxies in the form enclosed, which are properly executed and  
returned and not subsequently revoked, will be voted at the Special Meeting.    
These proxies will be voted in accordance with the directions specified thereon,
and otherwise in accordance with the judgment of the persons designated as      
proxies. If no directions are indicated on a properly executed proxy, such proxy
will be voted in favor of the Merger Agreement and the issuance of the Merger   
Shares, and each other proposal. You may revoke a proxy at any time before it is
exercised. This may be accomplished by:                                         

 (1) notifying us in writing at 11100 Santa Monica Boulevard, Los Angeles,
California 90025, Attention: Secretary, Jefferies Group, Inc.;  

(2) executing and delivering a proxy bearing a later date; or           

(3) by attending the Special Meeting and voting by ballot.              

TREATMENT OF BROKER NON-VOTES AND ABSTENTIONS AT THE SPECIAL MEETING            

 All shares of Group Common Stock represented by properly executed proxies
received prior to or at the Special Meeting, as the case may be, and not        
revoked, will be voted in accordance with the                                   

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instructions indicated in such proxies. If no instructions are indicated on a   
properly executed returned proxy, such proxies will be voted FOR the approval of
each of the matters set forth on the proxy card. A properly executed proxy      
marked "ABSTAIN," although counted for purposes of determining whether there is 
a quorum and for purposes of determining the aggregate voting power and number  
of shares represented and entitled to vote at the Special Meeting, will not be  
voted. Accordingly, since an affirmative majority approval is required at the   
Special Meeting for the Merger Agreement and the issuance of Merger Shares, a   
proxy marked "ABSTAIN" will have the effect of a negative vote. Since a majority
of the votes present and entitled to vote at the Special Meeting is required to 
approve the Incentive Plan, the Directors' Plan and the Grant of Discretionary  
Authority, a proxy marked "ABSTAIN" will also have the effect of a vote against 
such proposals.                                                                 

 Shares represented by "broker non-votes" (i.e., shares held by brokers or
nominees which are represented at a meeting but with respect to which the broker
or nominee is not empowered to vote on a particular proposal) will be counted   
for purposes of determining whether there is a quorum at the Special Meeting. In
accordance with New York Stock Exchange rules, brokers and nominees are         
precluded from exercising their voting discretion with respect to the approval  
and adoption of the proposals at the Special Meeting and thus, absent specific  
instructions from the beneficial owner of such shares, are not empowered to vote
such shares with respect to such matters. Therefore, a "broker non-vote" will   
have the effect of a negative vote with respect to the Merger Agreement and the 
issuance of the Merger Shares pursuant to the Merger Agreement. Since a majority
of the votes present and entitled to vote at the Special Meeting is required to 
approve the Incentive Plan and the Directors' Plan, shares represented by a     
broker non-vote will not have any effect on the votes concerning the Incentive  
Plan, the Directors' Plan and the Grant of Discretionary Authority.             

 The cost of solicitation of Group proxies for the Special Meeting will be
shared equally between Group and ITGI will be paid by Group. In addition to     
solicitation by mail, arrangements will be made with brokerage houses and other 
custodians, nominees and fiduciaries to send proxy material to beneficial       
owners; and Group will, upon request, reimburse them for their reasonable       
expense in so doing. Group has retained Georgeson & Company Inc. to aid in the  
solicitation of proxies for the Special Meeting and to verify certain records   
related to the solicitation at a fee of approximately $20,000 plus expenses.    

THE TRANSACTIONS

 The following is a brief summary of material aspects of the Transactions.
This summary does not purport to be complete and is qualified in its entirety by
reference to the Merger Agreement and the Distribution Agreement, which are     
attached to this Proxy/Information Statement as Appendix A and Appendix B,      
respectively, and are incorporated herein by reference. We urge you to read each
agreement carefully.                                                            

THE TRANSFERS AND SPIN-OFF                                                      

POTENTIAL BENEFITS ASSOCIATED WITH THE TRANSFERS AND THE SPIN-OFF       

 Our Board of Directors has determined that the Transfers and the Spin-Off
will be beneficial to our business and our Stockholders. The New JEF and ITGI   
businesses have distinct financial, investment and operating characteristics.   
After the completion of the Transfers and Spin-Off, New JEF's management will   
have greater equity-based incentive performance opportunities and greater       
freedom to adopt strategies and pursue objectives that they believe are more    
appropriate to New JEF than are possible under the present Group ownership      
structure. Management also believes that New JEF will be better able to         
concentrate its attention and financial resources on New JEF's core business    
opportunities and respond to industry conditions and competitive developments.  

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Following the Transfers and the Spin-Off, New JEF will have a better    
opportunity to obtain, retain and motivate its employees through equity-based   
incentives, including the Incentive Plan and a New JEF ESOP, that can more      
directly link New JEF business results and New JEF stock performance. We believe
that Group's current compensation plans provide inadequate incentives for       
employees of the Brokerage and Investment Banking Business because such         
compensation is tied to the performance of Group (including ITGI) rather than   
the performance of New JEF's Brokerage and Investment Banking Business.         
Moreover, Group currently is not able to offer an ESOP funded with equity       
securities related only to the Brokerage and Investment Banking Business and    
therefore cannot provide its Brokerage and Investment Banking Business employees
with a direct link between their performance and the market value of the equity 
interests they receive as compensation under the Group ESOP. The completion of  
the Spin-Off, the continuation of the Group ESOP as the New JEF ESOP, the       
redenomination of New JEF employee balances in the New JEF ESOP to New JEF      
Common Stock only, future allocations of New JEF Common Stock under the New JEF 
ESOP and the grant of awards under the Incentive Plan will provide a beneficial 
direct link between employee performance and stock performance and therefore    
provide enhanced stock-based incentive opportunities that are competitive with  
arrangements offered by other investment banking and brokerage firms.           
Consequently, we are hopeful that the more direct link between incentive        
compensation arrangements for key employees of New JEF and the performance of   
the New JEF Common Stock will prove beneficial for New JEF stockholders.        

  We also believe that, following the Merger and the Spin-Off, the financial
markets will be able to focus on the individual strengths of New JEF's Brokerage
and Investment Banking Business and more accurately evaluate its performance    
compared to competitive and peer companies. The elimination of the consolidation
of ITGI's financial results with the Brokerage and Investment Banking Business  
should provide stockholders with a clearer view of the financial performance and
condition of the Brokerage and Investment Banking Business.                     

MANNER OF EFFECTING THE SPIN-OFF                                        

   The general terms and conditions relating to the Transfers and the Spin-Off
are set forth in the Distribution Agreement between Group and New JEF attached  
hereto as Appendix B. See "--Arrangements Between New JEF and Group Relating to 
the Spin-Off--Distribution Agreement." We will effect the Spin-Off by delivering
all of the outstanding shares of New JEF Common Stock to EquiServe, (the        
"Distribution Agent") for distribution to our Stockholders as of the Spin-Off   
Record Date. It is expected that certificates representing shares of New JEF    
Common Stock will be mailed to Stockholders as soon as practicable after April  
27, 1999.                                                                       

NO ISSUANCE OF NEW JEF FRACTIONAL SHARES THROUGH THE SPIN-OFF           

   No certificates or scrip representing fractional interests in shares of New
JEF Common Stock ("Fractional Shares") will be issued to our Stockholders as    
part of the Spin-Off. The Distribution Agent, acting as agent for the           
Stockholders otherwise entitled to receive in the Spin-Off certificates         
representing Fractional Shares, will aggregate and sell in the open market all  
Fractional Shares at then prevailing prices and distribute the net proceeds to  
our Stockholders who are entitled to payment.                                   

RESULTS OF THE TRANSFERS AND THE SPIN-OFF                               

After the Transfers and the Spin-Off, New JEF will be a separate public 
company and New JEF Common Stock will be traded on the NYSE. The number and     
identity of stockholders of New JEF immediately after the Spin-Off will be the  
same as the number and identity of stockholders of Group on the Spin-Off Record 
Date. Immediately after the Spin-Off, New JEF expects to have approximately 294 
holders of record of New JEF Common Stock and approximately 23.9 million shares 
of New JEF Common Stock outstanding, based on the anticipated number of record  
stockholders and issued and                                                     

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outstanding shares of Group Common Stock as of the close of business on the     
Spin-Off Record Date and the Distribution Ratio of one share of New JEF Common  
Stock for each outstanding share of Group Common Stock.                         

U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE SPIN-OFF                    

 Group has received rulings from the IRS, through the Tax Ruling, that the
Spin-Off will qualify as a tax-free spin-off to Group and its Stockholders under
Sections 355 and 368 of the Code and, therefore, that the material U.S. federal 
income tax consequences to holders of Group Common Stock as a result of the     
Spin-Off will be as follows:                                                    

(1) except as described below with respect to Fractional Shares, the    
        Stockholders will not recognize income, gain or loss upon the receipt of
New JEF Common Stock in the Spin-Off;                           

 (2) the aggregate tax basis of a Stockholder's Group Common Stock and New
     JEF Common Stock (including any Fractional Share interests to which a
       Group stockholder is entitled) held by a Stockholder after the Spin-Off
        will be the same as the tax basis of the Group Common Stock held by such
  Stockholder immediately before the Spin-Off, and will be allocated
    between the shares of New JEF Common Stock and Group Common Stock in
  proportion to their relative fair market values at the time of the
Spin-Off;                                                       

(3) the holding period for tax purposes of the shares of New JEF Common 
     Stock received by a Group Stockholder (including any Fractional Share
    interests to which a Group Stockholder is entitled) will include the
     period during which the Stockholder held Group Common Stock, provided
    that the shares of Group Common Stock are held as a capital asset by
such Stockholder at the time of the Spin-Off; and               

 (4) cash received in lieu of Fractional Share interests in New JEF Common
        Stock will give rise to gain or loss equal to the difference between the
      amount of cash received and the tax basis allocable to such Fractional
      Share interests. Such gain or loss will be capital gain or loss if the
       shares of Group Common Stock are held as a capital asset at the time of
the Spin-Off.                                                   

A condition to the Spin-Off is that the Tax Ruling shall not have been withdrawn
or modified by the IRS in any material adverse respect.                         

  U.S. Treasury regulations require each Group Stockholder that receives New
JEF Common Stock in the Spin-Off to attach to the Stockholder's federal income  
tax return for the year in which such stock is received a detailed statement    
setting forth such data as may be appropriate in order to show the applicability
of Section 355 of the Code to the Spin-Off. Within a reasonable time after the  
Spin-Off, Stockholders of record as of the Spin-Off Record Date will be provided
with the information necessary to comply with that requirement, and will provide
information regarding the allocation of basis described in clause (2) in the    
preceding paragraph.                                                            

The foregoing is only a summary of the material U.S. Federal income tax 
consequences of the Spin-Off under the law in effect as of the date hereof. IT  
DOES NOT PURPORT TO COVER ALL INCOME TAX CONSEQUENCES AND MAY NOT APPLY TO      
STOCKHOLDERS WHO ACQUIRED THEIR GROUP COMMON STOCK IN CONNECTION WITH A GRANT OF
SHARES AS COMPENSATION, WHO ARE NOT CITIZENS OR RESIDENTS OF THE UNITED STATES, 
OR WHO ARE OTHERWISE SUBJECT TO SPECIAL TREATMENT UNDER THE CODE.               

All Stockholders should consult their own tax advisors regarding the    
appropriate income tax treatment of their receipt of New JEF Common Stock       
pursuant to the Spin-Off, including the application of Federal, state, local and
foreign tax laws, and the effect of possible changes in tax law that may affect 
the tax consequences described above.                                           

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LISTING AND TRADING OF NEW JEF COMMON STOCK                             

There is not currently a public market for the New JEF Common Stock. An 
application has been made to list the New JEF Common Stock on the NYSE and      
listing under the symbol "JEF" is anticipated. A "when-issued" trading market   
for New JEF Common Stock is expected to develop approximately one week before   
the Spin-Off Record Date. The term "when-issued" means that shares can be traded
prior to the time certificates are actually available or issued. The prices at  
which the New JEF Common Stock may trade on a "when-issued" basis before the    
Spin-Off, on a regular way basis after the Spin-Off or after such time          
certificates are actually available or issued cannot be predicted. Until the New
JEF Common Stock is fully distributed and an orderly market develops, trading   
prices for New JEF Common Stock may fluctuate significantly. The prices at which
the New JEF Common Stock trades will be determined by the marketplace and may be
influenced by many factors including, among others, the depth and liquidity of  
the market for New JEF Common Stock, investor perception of New JEF and its     
business, market conditions for interest rates and fixed income and equity      
securities, New JEF's results and general economic and market conditions.       

    New JEF and Group understand that the NYSE will require that shares of Group
Common Stock that are sold or purchased from the period beginning on April 16,  
1999, and ending on April 27, 1999, be accompanied by due-bills representing the
New JEF Common Stock distributable with respect to such shares and that during  
such period the Group Common Stock may not be purchased or sold separately from 
the due bills. The Transfer Agent and Registrar for the New JEF Common Stock    
will be First Chicago Trust Company of New York, a division of EquiServe.       

New JEF Common Stock distributed to Stockholders in the Spin-Off will be
freely transferable under the Securities Act, except for securities received by 
persons who may be deemed to be affiliates of New JEF pursuant to Rule 405 under
the Securities Act. Persons who may be deemed to be affiliates of New JEF after 
the Spin-Off generally include individuals or entities that control, are        
controlled by, or are under common control with New JEF, and such persons       
include directors of New JEF. Persons who are affiliates of New JEF will be     
permitted to sell their shares of New JEF Common Stock received in the Spin-Off 
pursuant to Rule 144 under the Securities Act except for the holding period     
requirements of Rule 144 which are not applicable in this instance. As a result,
New JEF Common Stock received by New JEF affiliates pursuant to the Spin-Off may
be sold if certain provisions of Rule 144 under the Securities Act are complied 
with (e.g., the amount sold within a three-month period does not exceed the     
greater of one percent of the outstanding New JEF Common Stock or the average   
weekly trading volume for New JEF Common Stock during the preceding four week   
period and the securities are sold in "brokers' transactions" and in compliance 
with certain notice provisions under Rule 144).                                 

ACCOUNTING TREATMENT OF THE SPIN-OFF                                    

    The Spin-Off will result in New JEF reporting historical results and balance
sheet amounts relating to ITGI prior to the Spin-Off as a discontinued operation
of New JEF.                                                                     

   COMPARISON OF RIGHTS OF CURRENT GROUP STOCKHOLDERS AND NEW JEF STOCKHOLDERS
FOLLOWING THE SPIN-OFF                                                

  Upon the consummation of the Spin-Off, you will become stockholders of New
JEF. Since Group and New JEF are each organized under the laws of the State of  
Delaware, any differences in your rights as a holder of common stock of these   
two corporations will arise solely from differences in certificates of          
incorporation and bylaws of these two corporations. The following are summaries 
of material differences between your rights as stockholders of Group and New    
JEF. The following discussions are not intended to be complete and are qualified
in their entirety by reference to the Delaware General Corporation Law ("DGCL"),
the certificate of incorporation and bylaws of Group                            

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and the New JEF amended and restated certificate of incorporation (the "New JEF 
Certificate") and the New JEF bylaws (the "New JEF Bylaws").                    

  SPECIAL MEETINGS.  The Group Bylaws state that the special meetings of the
stockholders for any purpose may be called by the Board of Directors, President 
or the Secretary. A special meeting of the stockholders of Group shall be called
by the President or the Secretary whenever stockholders owning a majority of the
shares of Group entitled to vote on matters to be submitted to the stockholders 
shall make application therefor in writing. The New JEF Certificate and Bylaws  
provide that special meetings may be called by the Board of Directors or any    
person authorized by the Board of Directors to call a special meeting. The New  
JEF Certificate and Bylaws preclude stockholders from having the ability to call
special meetings of stockholders.                                               

ACTION BY STOCKHOLDERS WITHOUT A MEETING.  The Group Bylaws expressly   
include a provision permitting the Group Stockholders to consent in writing to  
any action without a meeting, provided such consent is signed by stockholders   
having at least the minimum number of votes required to authorize such action at
a meeting of stockholders at which all shares entitled to vote thereon were     
present and voted. The New JEF Certificate and Bylaws do not permit stockholders
to take action by any written consent in lieu of a meeting.                     

STOCKHOLDERS PROPOSALS.  The Group Bylaws do not include a provision    
restricting the manner in which nominations for directors may be made by        
stockholders or the other business which may be brought before a meeting. The   
New JEF Bylaws provide that nominations by stockholders of persons for election 
to the Board of Directors at a stockholder's meeting and for the proposal of    
other business to be considered at a stockholder's meeting generally must be    
received not less than 60 days, nor more than 90 days, prior to the meeting and 
such proposals must supply adequate information concerning the proponent and the
proposal, as specified in the New JEF Bylaws.                                   

    CHARTER AMENDMENTS.  Under the Group Certificate and New JEF Certificate, an
amendment or change to the certificate of incorporation requires the approval of
the Board of Directors, followed by a vote of the owners of a majority of the   
shares entitled to vote thereon. However, the New JEF Certificate also requires 
the approval of the holders of at least 66 2/3% of the voting power of all of   
the shares entitled to vote to alter, amend, repeal or adopt any provision      
inconsistent with or limiting the effect of provisions of certain enumerated    
antitakeover provisions in the New JEF Certificate, whereas the Group           
Certificate contains no comparable provision.                                   

  AMENDMENTS TO BYLAWS.  Each of the Group Bylaws and New JEF Bylaws provide
that the bylaws may be amended or repealed, and new bylaws may be made, by an   
affirmative majority of the votes cast at any annual or special meeting of      
stockholders, or by an affirmative vote of a majority of the directors present  
at a meeting of the Board of Directors. However, the New JEF Bylaws also        
require, in connection with stockholder proposed changes to the New JEF Bylaws, 
the approval of the holders of at least 66 2/3% of the voting power of all of   
the shares entitled to vote to alter, amend, repeal or adopt any bylaw provision
inconsistent with or limiting the effect of provisions of certain enumerated    
antitakeover provisions in the New JEF Bylaws, whereas the Group Bylaws contain 
no comparable provision.                                                        

AGREEMENTS BETWEEN GROUP AND NEW JEF RELATING TO THE SPIN-OFF                   

  To facilitate the orderly transition into two independent companies, Group
and New JEF have entered into certain agreements described in this section.     

DISTRIBUTION AGREEMENT                                                  

 New JEF is party to the Distribution Agreement, which provides for, among
other things, the principal corporate transactions required to effect the       
Spin-Off, the conditions precedent to the                                       

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Spin-Off, the allocation between Group (and therefore New ITGI following the    
Merger) and New JEF of certain assets and liabilities and certain other         
transition arrangements.                                                        

  CONDITIONS TO THE SPIN-OFF.  The Spin-Off will occur only in the event all
of the following conditions, among others, are satisfied or waived by Group:    

 (1) the Registration Statement on Form 10 (the "Exchange Act Registration
      Statement") under the Exchange Act filed by New JEF with the SEC shall
have been declared, or become, effective;                       

(2) ITGI shall have paid the Special ITGI Cash Dividend;                

 (3) the Transfers shall have been consummated, including that Group shall
have transferred the Group obligations under separate indentures
      governing its 8 7/8% Senior Notes due 2004 and 7 1/2% Senior Notes due
  2007 to New JEF (the "Senior Notes") and Group shall have executed
        supplemental indentures pursuant to which New JEF shall assume and Group
   shall be released from the obligations concerning the Senior Notes;

(4) the New JEF Common Stock shall have been approved for listing on the
NYSE;                                                           

  (5) the Tax Ruling shall not have been withdrawn or modified by the IRS in
any material adverse respect;                                   

 (6) the pre-closing conditions under the Merger Agreement shall have been
    satisfied or waived by Group and the pre-closing of the Merger shall
   have been completed (see "--The Merger; the Merger Agreement"); and

   (7) Group being satisfied at all relevant times before the Spin-Off that it
owned at least 80% of the outstanding ITGI capital stock.       

  ALLOCATION OF ASSETS AND LIABILITIES.  The Distribution Agreement provides
generally that all assets of Group (other than Group's ownership of ITGI capital
stock) and all liabilities of Group (other than liabilities of or related to    
ITGI) will be transferred to and assumed by New JEF or JEFCO. New JEF has agreed
to obtain and maintain any necessary letters of credit obtained by Group for New
JEF's benefit prior to the Effective Time. See clause 12 under "--The Merger;   
The Merger Agreement; Group Covenants." If Group cannot transfer any non-ITGI   
liabilities to New JEF, Group (and New JEF following the Spin-Off) will obtain  
letters of credit for certain non transferred liabilities that have not been    
mitigated, as provided for in the Merger Agreement.                             

  CROSS-INDEMNIFICATION.  On and after the date of the Spin-Off, New JEF has
agreed to indemnify, defend and hold harmless Group and its successors          
(including New ITGI following the Merger) and their subsidiaries, and each of   
their respective directors, officers, employees and agents (the "ITGI           
Indemnitees") from and against any and all claims, costs, damages, losses,      
liabilities and expenses (including, without limitation, reasonable expenses of 
investigation and reasonable attorney fees and expenses, but excluding          
consequential damages of the indemnified party, in connection with any and all  
claims, suits, arbitrations, inquiries, proceedings or investigations by or     
before any court, governmental or other regulatory or administrative agency or  
commission or any other tribunal ("Actions") or threatened Actions)             
(collectively, "Indemnifiable Losses") incurred or suffered by any of the ITGI  
Indemnitees and arising out of, or due to or otherwise in connection with any of
the Holding Liabilities (as defined in the Distribution Agreement) or the       
failure of New JEF or any of its subsidiaries to assume, pay, perform or        
otherwise discharge, any of the Holding Liabilities.                            

  On and after the date of the Spin-Off, Group and its successors (including
New ITGI following the Merger, collectively, the "ITGI Group") have agreed to   
indemnify, defend and hold harmless New JEF and its subsidiaries and each of    
their respective directors, officers, employees and agents (the "New JEF        
Indemnitees") from and against any and all Indemnifiable Losses incurred or     
suffered by any of                                                              

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the New JEF Indemnitees and arising out of, or due to or otherwise in connection
with any of the ITGI Liabilities (as defined in the Distribution Agreement) or  
the failure of the ITGI Group to pay, perform or otherwise discharge, any of the
ITGI Liabilities. The Distribution Agreement includes procedures for notice and 
payment of indemnification claims and provides that the indemnifying party may  
assume the defense of the claim or suit brought by a third party.               

BENEFITS AGREEMENT                                                      

  New JEF and Group have entered into the benefits agreement attached hereto
as Appendix C (the "Benefits Agreement"). The Benefits Agreement provides, among
other things, that as of the Effective Time, New JEF shall assume, retain and be
liable for all wages, salaries, welfare, retirement, incentive compensation and 
other employee related liabilities and obligations with respect to employees of 
Group (excluding ITGI and its subsidiaries) and New ITGI shall assume, retain   
and be liable for such liabilities and obligations with respect to employees of 
ITGI and its subsidiaries.                                                      

  Prior to the Effective Time, Group amended the profit sharing and employee
stock ownership plans to provide that all active participants in such plans     
shall be fully vested in their accounts. Generally, New JEF will assume and     
become a successor employer with respect to the profit sharing and employee     
stock ownership plans currently maintained by Group and will continue such plans
for the benefit of eligible employees of Group (excluding ITGI and its          
subsidiaries). New ITGI will establish a profit sharing plan and an employee    
stock ownership plan for the benefit of its eligible employees as soon as       
practicable following the Effective Time. Assets equal to the aggregate account 
balances of employees of ITGI and its subsidiaries in the profit sharing and    
employee stock ownership plans assumed by New JEF shall be transferred to the   
New ITGI plans to be maintained for the benefit of such employees.              

  New JEF will also assume and become the successor employer for the defined
benefit pension plan currently maintained by Group. The accrued benefits of all 
active participants in the pension plan shall be vested as of December 31, 1998.
As soon as is practicable following the Effective Time, and if such action is   
approved by the IRS, participants in the pension plan who will continue to be   
employees of New ITGI and its subsidiaries will be given the opportunity to     
receive actuarially equivalent lump sum distributions of the benefits they have 
accrued under the pension plan. In order to reflect certain modifications to the
pension plan affecting the amount of benefits to be provided to the employees of
New ITGI and its subsidiaries in connection with their termination of           
participation in the plan and in order to reflect New ITGI's share of the       
funding obligations under the plan, New ITGI will pay to the pension plan an    
actuarially computed amount in order to discharge the costs associated with such
benefits and its share of such funding obligations.                             

   Prior to the Effective Time, optionees under the Group stock incentive plan
shall have the opportunity to exercise stock options previously granted under   
the plan. New JEF shall be responsible for all liabilities relating to stock    
options granted by Group prior to the Effective Time. In contemplation of the   
Spin-Off, the Capital Accumulation Plan for Key Employees (the "Group CAP       
Plan"), a nonqualified deferred compensation plan maintained by Group, was      
terminated and all balances of cash and Group common stock held under the plan  
were distributed except with respect to the accounts of five participants in the
plan. The liability associated with the accounts of the four participants who   
will be New JEF employees will be assumed by New JEF and the liability          
associated with the account of the participant who is an ITGI employee has been 
assumed by ITGI. In exchange for ITGI's assumption of such liability, Group has 
paid approximately $1.1 million to ITGI. In addition, prior to the Effective    
Time, Group Common Stock under the Employee Stock Purchase Plan shall be        
distributed to participants.                                                    

New ITGI will assume the ITGI 1994 Stock Option and Long-Term Incentive 
Plan, the ITGI Employee Stock Purchase Plan, the ITGI Pay-For-Performance       
Incentive Plan and the ITGI Non-                                                

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Employee Directors' Stock Option Plan. Awards authorized under those plans may  
be made to employees and directors of New ITGI following the Effective Time.    

TAX SHARING AND INDEMNIFICATION AGREEMENT                               

   New JEF, ITGI and Group have entered into a Tax Sharing and Indemnification
Agreement as attached hereto as Appendix D and an Amended and Restated Tax      
Sharing Agreement as attached thereto as Exhibit A (collectively, the "Tax      
Sharing Agreement"). The Tax Sharing Agreement will allocate pre-Spin-Off tax   
liabilities between New JEF, ITGI and Group and their respective subsidiaries   
for the year of the New JEF Spin-Off and prior tax years. The term "Ancillary   
Agreements" is sometimes referred to in this document as the Distribution       
Agreement, the Benefits Agreement and the Tax Sharing Agreement, collectively.  
Under the Tax Sharing Agreement, for all Group tax years ending before or       
including the Distribution Date, New JEF will bear any excess over ITGI's share 
(computed as if ITGI and its subsidiaries were a separate consolidated or       
combined group) of Group's:                                                     

(1) Federal consolidated income tax liability,                          

(2) any unitary or combined state or local income or franchise tax      
liability, and                                                  

(3) any foreign income tax liability.                                   

   Each of ITGI and New JEF is also responsible for paying all tax liabilities
arising from any tax returns which it files separately. Each of ITGI and New JEF
will be responsible for that portion of the Federal consolidated income tax     
liability of Group attributable to it. In addition, each of ITGI and New JEF    
will pay to the other the amount by which the Federal consolidated income tax   
liability of Group has been reduced as a result of the inclusion of ITGI and New
JEF, and their respective subsidiaries, in Group. If Group's tax liability for  
any tax year ending before or including the date of the Spin-Off is changed or  
adjusted as a result of a tax examination or otherwise, then each of ITGI's and 
New JEF's share of Group's adjusted tax liability or benefit shall be recomputed
and agreed to by the parties. Any payments due between New JEF and ITGI as a    
result of the recomputation will include interest for the periods in question at
the rates charged by the applicable tax authority with respect to underpayments 
of income tax or paid by the applicable tax authority on overpayments of income 
tax.                                                                            

  The Tax Sharing Agreement generally provides that in the event that either
New ITGI or New JEF takes any action inconsistent with, or fails to take any    
action required by, or in accordance with, the qualification of the Spin-Off as 
tax-free, then New ITGI or New JEF, as the case may be, will be liable for and  
indemnify and hold the other party harmless from any tax liability resulting    
from such action or inaction. If either party engages in any transaction        
involving its stock or assets, and as a result, the Spin-Off is treated as a    
taxable event, then the party engaging in such transaction shall hold the other 
party harmless from any tax liabilities that result from the treatment of the   
Spin-Off as a taxable event.                                                    

CLEARING AGREEMENT                                                      

   Pursuant to a Fully Disclosed Clearing Agreement dated as of March 15, 1994
(the "Clearing Agreement"), JEFCO, as clearing broker, provides certain         
execution and clearing services for customer and proprietary accounts of ITG    
(the "Introduced Accounts"). These services include, among others, (1) execution
of orders, (2) mailing of confirmations, notices and monthly statements, (3)    
providing reports to ITGI, (4) settling certain contracts and transactions, (5) 
engaging in all cashiering functions and (6) record keeping. JEFCO is required  
to remit fees to ITG on a weekly basis after deduction of amounts due.          
Introduced Accounts may only be charged such fees or other charges as JEFCO may 
direct. The Clearing Agreement establishes procedures applicable to Introduced  
Accounts and the processing of transactions for such accounts and establishes   
the various responsibilities of the parties. With certain exceptions, JEFCO is  
responsible for all Introduced Accounts and transactions in such accounts. JEFCO
reserves the right to reject any proposed account and to terminate any          
Introduced Account. The Clearing Agreement also requires ITG to indemnify       
against certain liabilities arising                                             

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from, among other things, failed settlements, failure of Introduced Accounts to 
satisfy any applicable margin requirements, ITG's failure to perform its duties 
and obligations and claims between ITG and its customers. In 1998, ITG paid     
approximately $11.9 million to JEFCO for services performed under the clearing  
agreement.                                                                      

  Effective as of January 1, 1999, JEFCO and ITG entered into a new clearing
agreement on substantially similar terms as the Clearing Agreement except that: 
(a) the new agreement has an initial term of January 1, 1999 to June 30, 2000,  
(b) with 180 days' prior notice, either party can cancel the agreement at any   
time for any reason, effective on or after June 30, 2000, (c) neither party can 
terminate the agreement prior to June 30, 2000 except for a material breach by  
the other party and (d) rates for services provided through June 30, 2000 are   
the same as in 1998. JEFCO believes that the terms of this agreement are        
generally as favorable as those that could be negotiated with unaffiliated third
parties.                                                                        

BACKGROUND OF AND REASONS FOR THE TRANSACTIONS                                  

For many years, Group has been engaged, through its subsidiaries, in the
active conduct of two principal lines of business:                              

- the Brokerage and Investment Banking Business, which consists of a    
full-service international investment banking and brokerage business
serving institutions and small- to medium-sized corporations and is 
conducted primarily through its wholly-owned subsidiary, JEFCO; and 

- the Technology-based Trading and Research Business, which serves      
     institutional investors and brokers and is conducted through ITGI and its
subsidiaries.                                                       

Each of the Brokerage and Investment Banking Business and the           
Technology-Based Trading and Research Business has separate management teams and
highly skilled employees on which the success of the business is dependent. The 
Brokerage and Investment Banking Business's management and employees are        
primarily focused on investment banking, brokerage, capital raising, research,  
mergers and acquisition activities, business restructuring advisory services and
a traditional, broker-dealer business. The Technology-Based Trading and Research
Business's management and employees are primarily focused on the use of         
technology to create a seamless infrastructure for trading securities and       
developing high-content, leading-edge securities research and analysis products.

    In April 1996, Group had a meeting with the IRS to explore the tax treatment
which would flow from a possible spin-off by Group of ITGI. At this meeting,    
Group management discussed a proposed spin-off of ITGI, several related         
transactions and the business purposes for those proposed transactions          
including:                                                                      

 - the need to obtain and retain the services of key employees by offering
direct equity interests in ITGI,                                    

- the need to improve the fit and focus of incentive compensation       
      arrangements for each of Group's two principal lines of business (the "fit
and focus" business purpose),                                       

- the ability to enhance ITGI's stock as acquisition currency, and      

 - the formation of a leveraged ESOP to acquire shares of ITGI in the open
market.                                                             

  At a second meeting with the IRS in August 1996, Group discussed whether a
ruling position announced by the IRS was applicable to compensatory employee    
stock options and whether outstanding employee stock options in ITGI's stock    
would be treated by the IRS as outstanding stock for purposes of determining    
whether Group had the requisite control of ITGI prior to the possible ITGI      
spin-off.                                                                       

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   In August 1996, Group deferred its decision to proceed with the spin-off of
ITGI, largely due to the fact that the key employee who sought a direct interest
in ITGI stock before taking the position as successor to the Chief Executive    
Officer of ITGI advised Group that an ITGI spin-off would not be necessary as a 
condition to his acceptance of the position. In addition, from a business       
perspective, the decision to defer further consideration of an ITGI spin-off was
due to concern that, at that time, a spin-off of ITGI could lead to two         
undercapitalized businesses.                                                    

   More than a year later, Group renewed discussion with the IRS regarding the
proposed ITGI spin-off and requested an additional pre-submission conference,   
which was held in December 1997. At this conference, management of Group        
discussed the business purposes for the transactions, including:                

 - the need to obtain and retain the services of key employees by offering
them direct equity interests in ITGI, including through an ESOP,    

- the need to improve the fit and focus of incentive compensation       
 arrangements for each of Group's two principal lines of business, and

- the ability to enhance ITGI's stock as acquisition currency.          

   At this conference, management of Group also discussed the effect of a more
than 5% shareholder on the fit and focus business purpose and the effect of     
outstanding ITGI stock options in analyzing whether Group had the requisite     
control of ITGI prior to the proposed ITGI spin-off.                            

During January and February, 1998, after consideration of the issues    
discussed in the conferences and based on advice from its employee compensation 
advisor and other factors, management of Group and ITGI concluded that a        
separation of the Investment Banking Brokerage Business from the                
Technology-Based Trading and Research Business would benefit both businesses by 
enhancing their ability to obtain, retain and motivate employees through        
equity-based compensation incentives that can more directly be linked to the    
results of their respective businesses. In order to effect the Spin-Off business
purpose, and solely in contemplation of the Spin-Off, New JEF will adopt a      
program of equity-based compensation, including the Incentive Plan, the         
Directors' Plan, the New JEF ESOP, a Section 401(k)/After-Tax Thrift Plan and an
Employee Stock Purchase Plan designed to tie employee compensation specifically 
to the results of New JEF's operations, with incentives appropriate to the      
Brokerage and Investment Banking Business. The management of Group concluded    
that the current intermingling of the two businesses' results seriously dilutes 
the effectiveness of these programs as they currently exist at Group. It is     
expected that, following the Spin-Off, this separation of equity-based          
compensation, including in particular the Incentive Plan and a New JEF ESOP,    
will represent a significant long-term commitment to grant stock to employees   
and significantly improve the ability of New JEF to compete for employees in a  
tight labor market.                                                             

   On March 17, 1999 the Group Board unanimously approved the Transactions and
believes that the terms of the Transactions are fair to, and in the best        
interests of, the stockholders of Group. The Transfers and Spin-Off will result 
in the separation of the Brokerage and Investment Banking Business from the     
Technology-Based Trading and Research Business of ITGI. In addition, the Merger 
will be effected following the Spin-Off in order to combine public trading in   
one stock (i.e., New ITGI related to the Technology-Based Trading and Research  
Business), rather than the two corporate entities (Group and ITGI) following the
separation of New JEF from Group as a result of the Spin-Off.                   

  In the course of its deliberations with respect to considering approval of
the Transactions, the Group Board received the advice of management regarding   
the Brokerage and Investment Banking Business and the Technology-Based Trading  
and Research Business and the advice of management and legal counsel regarding  
the terms and provisions of the Merger Agreement, the Distribution              

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Agreement, the Benefits Agreement and the Tax Sharing Agreement. The Group Board
considered a number of other factors in approving the Transactions, including   
without limitation:                                                             

- that the continuation of the Group ESOP as the New JEF ESOP and the   
     redenomination of Group Common Stock balances from the Group ESOP to only
    New JEF Common Stock balances and the allocation of additional shares of
New JEF in the future will provide a valuable incentive to New JEF's
employees,                                                          

- that the Transactions would improve the fit and focus of incentive    
compensation arrangements for each of Group's two principal lines of
business, and                                                       

- that the Transactions would provide Group Stockholders with a clearer 
picture of the separate financial results of each business.         

    The foregoing discussion of the information and factors considered and given
weight by the Group Board is not intended to be exhaustive. In view of the      
variety of factors considered in connection with its evaluation of the          
Transactions, the Group Board did not find it practicable to, and did not,      
quantify or otherwise assign relative weights to the specific factors considered
in reaching its determination.                                                  

THE MERGER                                                                      

As soon as practicable following the satisfaction or waiver of all      
conditions to the Merger, including the consummation of the Transfers and the   
Spin-Off, the Merger will be consummated upon the filing of a Certificate of    
Merger with the Secretary of State of the State of Delaware. The time that the  
Certificate of Merger is filed is referred to herein as the "Effective Time" and
the date of filing is referred to as the "Effective Date."                      

IMPACT OF MERGER ON GROUP AND ITGI STOCKHOLDERS                         

  The Merger will effectively result in the transfer of Group's ownership of
ITGI to Group Stockholders. As a Stockholder of Group, the Merger will enable   
you to directly own shares of New ITGI. After the Merger, each former Group     
Stockholder will own the same number of shares of Common Stock in New ITGI as   
the number of shares of Group Common Stock that such Group Stockholder owned    
before the Merger.                                                              

   Pursuant to the Merger Agreement, as of the Effective Time, each issued and
outstanding share of ITGI Common Stock (other than any shares held by Group)    
will be converted into the right to receive such number of shares of Group      
Common Stock pursuant to the Exchange Ratio. The Exchange Ratio is equal to the 
result obtained by dividing                                                     

  - the total number of shares of Group Common Stock outstanding immediately
prior to the Effective Time by                                      

   - the total number of shares of ITGI Common Stock held by Group immediately
prior to the Effective Time.                                        

The Exchange Ratio is a formula that has been established to provide            

   - the ITGI Public Stockholders with the same proportionate ownership of New
ITGI that they owned of ITGI prior to the Effective Time and        

   - the Stockholders of Group with collectively the same percentage ownership
of New ITGI that Group owned of ITGI prior to the Merger.           

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  For example, based upon the anticipated outstanding shares of Group Common
Stock as of the Effective Date (23.9 million), the Exchange Ratio would have    
been 1.59 (23.9 million divided by 15.0 million) and the ITGI Public            
Stockholders would have collectively owned 19.5% of the New ITGI Common Stock   
and our Stockholders would have collectively owned 80.5% of New ITGI Common     
Stock. Additionally, pursuant to the Merger Agreement,                          

  - each vested ITGI Option will be converted into a vested New ITGI Option;
and                                                                 

- each unvested ITGI Option will be converted into an unvested New ITGI 
    Option, with vesting established in accordance with the vesting schedule
of the replaced option;                                             

provided, however, such ITGI options will be adjusted so as to preserve the     
inherent value of the options prior to the Special ITGI Cash Dividend and the   
Merger, respectively, and therefore appropriate adjustments (a) will be made to 
reduce the exercise price to take into account the effects of the Special ITGI  
Cash Dividend and (b) may be made to increase the number of shares subject to   
the option and decrease the option exercise price to reflect the Exchange Ratio.

U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER                      

 The following discussion is a summary of the material U.S. federal income
tax consequences of the Merger to ITGI, Group and the ITGI Public Stockholders. 
The discussion which follows is based on the Code, Treasury regulations         
promulgated thereunder, administrative rulings and pronouncements and judicial  
decisions as of the date hereof, all of which are subject to change, possibly   
with retroactive effect.                                                        

  Group has received rulings from the IRS through the Tax Ruling that, among
other things, the Merger will qualify as a tax-free liquidation with respect to 
Group and ITGI under Section 332 of the Code. Consummation of the Merger is     
conditioned upon the Tax Ruling not being withdrawn by the IRS or modified by   
the IRS in any material adverse respect. Further, it is a condition to the      
obligations of ITGI and Group under the Merger Agreement that Group receive an  
opinion from Morgan, Lewis & Bockius LLP regarding certain federal income tax   
consequences of the Merger and ITGI receive an opinion from Cahill Gordon &     
Reindel regarding certain federal income tax consequences of the Merger, each   
dated as of the date of this Proxy/Information Statement, to the effect that:   
(1) with respect to the ITGI Public Stockholders, the Merger will qualify as a  
"reorganization" under Section 368(a) of the Code and (2) ITGI and Group each   
will be a party to that reorganization within the meaning of Section 368(b) (the
"Tax Opinions"). Morgan, Lewis & Bockius LLP and Cahill Gordon & Reindel will   
confirm their respective opinions as of the Effective Time, provided that there 
shall have been no change in law between the date of this Proxy/Information     
Statement and the Effective Time and the Merger is consummated in accordance    
with the provisions of the Merger Agreement.                                    

 TAX OPINIONS.  The Tax Opinions will assume consummation of the Merger in
accordance with the provisions of the Merger Agreement and the absence of       
changes in existing law, and may rely on assumptions and representations of ITGI
and Group relating to the requirements of a reorganization. The Tax Opinions    
neither bind nor preclude the Internal Revenue Service from adopting a contrary 
position. An opinion of counsel sets forth such counsel's legal judgment and has
no binding effect or official status of any kind, and no assurance can be given 
that contrary positions will not be successfully asserted by the Internal       
Revenue Service or adopted by a court if the issues are litigated. We believe,  
based upon the Tax Ruling and the Tax Opinions, that the Merger will have the   
U.S. federal income tax consequences discussed below.                           

TAX IMPLICATIONS TO GROUP AND ITGI.  No income, gain or loss will be    
recognized by Group or ITGI for federal income tax purposes as a result of the  
Merger.                                                                         

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TAX IMPLICATIONS TO ITGI PUBLIC STOCKHOLDERS.  With respect to the ITGI 
Public Stockholders, the Merger will be treated for U.S. federal income tax     
purposes as a reorganization within the meaning of Section 368(a) of the Code,  
and Group and ITGI will each be a party to such reorganization within the       
meaning of Section 368(b) of the Code. Except to the extent that ITGI Public    
Stockholders receive cash in lieu of fractional shares of Group Common Stock,   
ITGI Public Stockholders who exchange ITGI Common Stock in the Merger solely for
Group Common Stock will not recognize gain or loss for federal income tax       
purposes upon the receipt of Group Common Stock in exchange for their ITGI      
Common Stock. An ITGI Public Stockholder's aggregate tax basis for the Group    
Common Stock received pursuant to the Merger will equal such ITGI Public        
Stockholder's aggregate tax basis in the ITGI Common Stock exchanged therefor,  
reduced by the portion of the stockholder's tax basis properly allocated to the 
fractional share interest, if any, for which the stockholder receives cash. An  
ITGI Public Stockholder's holding period for the Group Common Stock received    
pursuant to the Merger will include the holding period of the ITGI Common Stock 
surrendered in exchange therefor, provided that the ITGI Common Stock was held  
as a capital asset on the Effective Date. An ITGI Public Stockholder who        
receives cash in lieu of a fractional share interest in Group Common Stock      
pursuant to the Merger will be treated as having received such cash in exchange 
for such fractional share interest and generally will recognize gain or loss on 
such deemed exchange in an amount equal to the difference between the amount of 
cash received and the basis of the ITGI Common Stock held by such ITGI Public   
Stockholder that is allocable to such fractional share. In general, such gain or
loss will constitute capital gain or loss if the ITGI Common Stock was held as a
capital asset on the Effective Date, and will be long-term capital gain or loss 
if such ITGI Common Stock has been held for more than one year as of the        
Effective Date of the Merger.                                                   

    ITGI Public Stockholders should consult their own tax advisors regarding the
appropriate income tax treatment of their receipt of Group Common Stock,        
including the application of Federal, state, local and foreign tax laws, and the
effect of possible changes in tax law that may affect the tax consequences      
described above.                                                                

The foregoing is only a summary of the material U.S. Federal income tax 
consequences of the Merger under the law in effect as of the date hereof. IT    
DOES NOT PURPORT TO COVER ALL INCOME TAX CONSEQUENCES AND MAY NOT APPLY TO      
STOCKHOLDERS WHO ACQUIRED THEIR ITGI COMMON STOCK IN CONNECTION WITH A GRANT OF 
SHARES AS COMPENSATION, WHO ARE NOT CITIZENS OR RESIDENTS OF THE UNITED STATES, 
OR WHO ARE OTHERWISE SUBJECT TO SPECIAL TREATMENT UNDER THE CODE.               

    COMPARISON OF RIGHTS OF CURRENT GROUP STOCKHOLDERS AND NEW ITGI STOCKHOLDERS
FOLLOWING THE MERGER                                                  

 Although Group will be the surviving corporation in the Merger, the Group
Certificate and Group Bylaws will not be the charter and bylaws of New ITGI. In 
connection with the consummation of the Merger, the certificate of incorporation
of ITGI and the bylaws of ITGI will be amended and restated and become the      
charter and bylaws of New ITGI. Since Group and New ITGI are each organized     
under the laws of the State of Delaware, any differences in your rights as a    
holder of common stock of these two corporations will arise solely from the     
aforementioned charter and bylaw amendments. The following are summaries of     
material differences between your rights as stockholders of Group and New ITGI. 
The following discussions are not intended to be complete and are qualified in  
their entirety by reference to the DGCL, the existing certificate of            
incorporation and bylaws of the Group and the certificate of incorporation and  
bylaws of New ITGI after giving affect to the aforementioned charter and bylaw  
amendments (the "New ITGI Certificate" and the "New ITGI Bylaws," respectively).

  SPECIAL MEETINGS.  The Group Bylaws state that the special meetings of the
stockholders for any purpose may be called by the Board of Directors, President 
or the Secretary. A special meeting of the stockholders of Group shall be called
by the President or the Secretary whenever stockholders owning a                

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majority of the shares of Group entitled to vote on matters to be submitted to  
the stockholders shall make application therefor in writing. The New ITGI       
Certificate and Bylaws provide that special meetings may be called only by the  
Secretary of the Corporation at the request of a majority of the directors or   
any person authorized by the majority vote of the directors. The New ITGI       
Certificate and Bylaws, therefore, preclude stockholders from having the ability
to call special meetings of stockholders.                                       

ACTION BY STOCKHOLDERS WITHOUT A MEETING.  The Group Bylaws expressly   
include a provision permitting the Group Stockholders to consent in writing to  
any action without a meeting, provided such consent is signed by stockholders   
having at least the minimum number of votes required to authorize such action at
a meeting of stockholders at which all shares entitled to vote thereon were     
present and voted. The New ITGI Certificate and Bylaws do not permit            
stockholders to take action by any written consent in lieu of a meeting.        

   STOCKHOLDER'S PROPOSALS.  The Group Certificate and Bylaws do not include a
provision restricting the manner in which nominations for directors may be made 
by stockholders or the manner in which business may be brought before a meeting.
The New ITGI Bylaws provide that nominations by stockholders of persons for     
election to the Board of Directors at the annual meeting and for the proposal of
other business to be considered at an annual meeting generally must be received 
not less than 60 days, nor more than 90 days, prior to the meeting.             

  CHARTER AMENDMENTS.  Under the Group Certificate and New ITGI Certificate,
an amendment to the certificate of incorporation requires the approval of the   
Board of Directors, followed by a vote of the owners of a majority of the shares
entitled to vote thereon. However, the New ITGI Certificate also requires the   
approval of the holders of at least 66 2/3% of the voting power of all the      
shares entitled to vote to alter, amend, repeal or adopt any provision          
inconsistent with or limiting the effect of provisions of certain enumerated    
antitakeover provisions in the New ITGI Certificate, whereas the Group          
Certificate has no comparable provision.                                        

   AMENDMENTS TO BYLAWS.  Each of the Group Bylaws and New ITGI Bylaws provide
that the bylaws may be amended or repealed, and new bylaws may be made, by an   
affirmative majority of the votes cast at any annual or special meeting of      
stockholders, or by an affirmative vote of a majority of the directors present  
at a meeting of the Board of Directors. However, the New ITGI Bylaws also       
require the approval of the holders of at least 66 2/3% of the voting power of  
all of the shares entitled to vote to alter, amend, repeal or adopt any bylaw   
provision inconsistent with or limiting the effect of provisions of certain     
enumerated antitakeover provisions in the New ITGI Bylaws, whereas the Group    
Bylaws contain no comparable provision.                                         

EXCHANGE AGENT                                                          

  First Chicago Trust Company of New York, a division of EquiServe, has been
selected as exchange agent (the "Exchange Agent") under the Merger Agreement. As
soon as practicable after the Effective Time, Group shall deposit with the      
Exchange Agent, for the benefit of the ITGI Public Stockholders, certificates   
representing the Merger Shares The Exchange Agent will deliver the certificates 
representing the Merger Shares upon surrender for exchange of the ITGI Common   
Stock.                                                                          

ACCOUNTING TREATMENT OF THE MERGER                                      

The Merger will be accounted for as a merger of "entities under common  
control" in accordance with generally accepted accounting principles.           
Accordingly, the accounting will reflect the historical cost basis of each      
party's assets and liabilities.                                                 

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RECOMMENDATION OF THE BOARD OF DIRECTORS OF GROUP CONCERNING THE MERGER 

    THE GROUP BOARD BELIEVES THAT THE TERMS OF THE TRANSACTIONS ARE FAIR TO, AND
IN THE BEST INTERESTS OF, GROUP AND ITS STOCKHOLDERS AND HAS UNANIMOUSLY        
APPROVED AND ADOPTED THE TRANSACTIONS CONTEMPLATED HEREIN.                      

    THE GROUP BOARD UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS OF GROUP VOTE "FOR"
THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE ISSUANCE OF THE MERGER
SHARES.                                                                         

OPINION OF GROUP'S FINANCIAL ADVISOR CONCERNING THE MERGER                      

  Beginning in late 1997, Group held discussions with J.P. Morgan concerning
the proposed Merger. On June 18, 1998, Group officially retained J.P. Morgan as 
its financial advisor and to deliver a fairness opinion in connection with the  
proposed Merger.                                                                

At the meeting of Group's Board of Directors on January 27, 1999, J.P.  
Morgan rendered its oral opinion that the Exchange Ratio is fair from a         
financial point of view to Group. No limitations were imposed by Group's Board  
of Directors upon J.P. Morgan with respect to the investigations made or such   
procedures followed by it in rendering its opinion.                             

   J.P. Morgan subsequently confirmed its oral opinion by delivering a written
opinion on March 17, 1999 to the Group Board and the full text of such written  
opinion, which sets forth the assumptions made, matters considered and limits on
the review undertaken, is attached as Appendix E to this Proxy/ Information     
Statement and incorporated herein by reference. Group's stockholders are urged  
to read the opinion in its entirety. J.P. Morgan's written opinion is addressed 
to the Board of Directors of Group, is directed only to the Exchange Ratio in   
the Merger and does not constitute a recommendation to any stockholder of Group 
as to how such stockholder should vote at the Special Meeting. The summary of   
the opinion of J.P. Morgan set forth in this Proxy/Information Statement is     
qualified in its entirety by reference to the full text of such opinion.        

 In arriving at its opinion, J.P. Morgan reviewed, among other things, the
Merger Agreement, drafts of this Proxy/Information Statement, the audited       
financial statements of Group and ITGI for the fiscal year ended December 31,   
1997 and drafts of the audited financial statements at Group and ITGI for the   
fiscal year ended December 31, 1998. J.P. Morgan also held discussions with     
certain members of the management of Group and ITGI with respect to certain     
aspects of the Merger and considered such other information as it deemed        
appropriate for the purposes of its opinion.                                    

  J.P. Morgan relied upon and assumed, without independent verification, the
accuracy and completeness of all information that was publicly available or that
was furnished to it by Group and ITGI or otherwise reviewed by J.P. Morgan, and 
J.P. Morgan has not assumed any responsibility or liability therefor. J.P.      
Morgan has not conducted any valuation or appraisal of any assets or            
liabilities, nor have any valuations or appraisals been provided to J.P. Morgan.
J.P. Morgan has assumed that the Merger will have the tax and accounting        
consequences described in this Proxy/Information Statement, and in discussions  
with, and materials furnished to J.P. Morgan by, representatives of Group, and  
that the other transactions contemplated by the Merger Agreement will be        
consummated as described in the Merger Agreement and Proxy/Information          
Statement.                                                                      

  J.P. Morgan's opinion is based on economic, market and other conditions as
in effect on, and the information made available to J.P. Morgan as of, the date 
of such opinion. Subsequent developments may affect this opinion, and J.P.      
Morgan does not have any obligation to update, revise, or reaffirm such opinion.
J.P. Morgan expressed no opinion as to the price at which Group's Common Stock  
or New ITGI's Common Stock will trade at any future time.                       

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In accordance with customary investment banking practice, J.P. Morgan   
employed generally accepted methods in reaching its opinion. The following is a 
summary of the material financial analysis utilized by J.P. Morgan in connection
with providing its opinion.                                                     

In reviewing the Exchange Ratio, J.P. Morgan based its analysis on the  
premise that Group Stockholders and ITGI Public Stockholders should own New ITGI
in the same proportion as their economic ownership of ITGI prior to the Merger. 
Group's Stockholders' current ownership of ITGI through Group is 15.0 million   
shares, representing an 80.5% economic and voting interest in ITGI. This        
interest is divided among the approximately 23.9 million shares of proforma     
outstanding Group Common Stock as of the Effective Date. In order to maintain   
the current ownership relationship existing as between the two classes of       
stockholders, the shares of ITGI Common Stock held by ITGI Public Stockholders  
would have to be exchanged for Group shares at the same ratio as that in which  
Group's stockholders' ownership of ITGI is expressed, namely 23.9 million       
divided by 15.0 million, or 1.59. The Exchange Ratio of 1.59 multiplied by the  
3.6 million ITGI Public Stockholders' shares of ITGI Common Stock equals 5.7    
million shares of New ITGI to be held by ITGI Public Stockholders. After giving 
effect to the Exchange Ratio under the foregoing assumption, the total          
outstanding shares in New ITGI following the Merger would be 29.7 million. The  
ownership interest of the ITGI Public Stockholders of 5.7 million would         
represent 19.5% of the total shares outstanding of New ITGI, and the ownership  
interest of Group of 23.9 million would represent 80.5% of the total outstanding
shares of New ITGI, consistent with the premise outlined above.                 

    The summary set forth above does not purport to be a complete description of
the analyses or data presented by J.P. Morgan. The preparation of a fairness    
opinion is a complex process and is not necessarily susceptible to partial      
analysis or summary description. J.P. Morgan based its analyses on assumptions  
that it deemed reasonable. The other principal assumptions upon which J.P.      
Morgan based its analyses are set forth above.                                  

    As a part of its investment banking business, J.P. Morgan and its affiliates
are continually engaged in the valuation of businesses and their securities in  
connection with mergers and acquisitions, investments for passive and control   
purposes, negotiated underwritings, secondary distributions of listed and       
unlisted securities, private placements, and valuations for estate, corporate   
and other purposes. J.P. Morgan was selected to advise Group with respect to the
Merger on the basis of such experience and its familiarity with Group.          

   For services rendered in connection with the Spin-off and Merger, Group has
agreed to pay J.P. Morgan a fee of $2 million. In addition, Group has agreed to 
reimburse J.P. Morgan for its expenses incurred in connection with its services,
including the fees and disbursements of counsel, and will indemnify J.P. Morgan 
against certain liabilities.                                                    

J.P. Morgan and its affiliates maintain banking and other business      
relationships with Group and its affiliates, for which it receives customary    
fees. In the ordinary course of their businesses, affiliates of J.P. Morgan may 
actively trade the debt and equity securities of Group or ITGI for their own    
accounts or for the accounts of customers and, accordingly, they may at any time
hold long or short positions in such securities.                                

THE MERGER AGREEMENT                                                            

    The Merger Agreement is the agreement pursuant to which Group and ITGI agree
to merge. The Merger Agreement sets forth the rights, responsibilities and      
obligations of ITGI and Group and establishes the Exchange Ratio. The Exchange  
Ratio establishes the relative stock ownership of Group Stockholders and ITGI   
Stockholders in New ITGI. See "--Impact of the Merger on Group and ITGI         
Stockholders." A summary of material provisions of the Merger Agreement is set  
forth herein. You should review carefully the full text of the Merger Agreement,
which is attached hereto as Appendix A and incorporated herein by reference.    

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REPRESENTATIONS AND WARRANTIES.                                         

ITGI REPRESENTATIONS AND WARRANTIES. The Merger Agreement contains      
representations and warranties by ITGI relating to a number of matters,         
including:                                                                      
(1) the due organization, valid existence and good standing of ITGI;    
(2) the authorization, execution and delivery of the Merger Agreement by
   ITGI, enforceability of the Merger Agreement against ITGI and related
matters;                                                          
 (3) the absence of conflicts under ITGI's charter and bylaws or under any
   governmental order or law and the absence of breaches of any material
agreement binding upon ITGI;                                      
(4) the capital structure of ITGI;                                      
(5) broker and finder fees; and                                         

(6) the supplemental indentures and related documentation concerning New
JEF's assumption of certain of the Senior Notes.                  

GROUP REPRESENTATIONS AND WARRANTIES. The Merger Agreement contains     
representations and warranties by Group relating to a number of matters,        
including:                                                                      
(1) the due organization, valid existence and good standing of Group;   
 (2) the authorization, execution and delivery of the Merger Agreement and
       the Ancillary Agreements by Group, enforceability of the Merger Agreement
and the Ancillary Agreements against Group and related matters;   
  (3) the absence of conflicts under Group's charter and bylaws or under any
   governmental order or law and the absence of breaches of any material
agreement binding upon Group;                                     
(4) the capital structure of Group;                                     
(5) broker and finders fees; and                                        

(6) the supplemental indentures and related documentation concerning New
JEF's assumption of certain of the Senior Notes.                  

CERTAIN COVENANTS AND AGREEMENTS.                                       

  ITGI COVENANTS. Among other covenants and agreements, ITGI has agreed, for
itself and its subsidiaries, that, during the period from the date of the Merger
Agreement to the Closing Date, without the prior written consent of Group, it   
will and will cause each of its subsidiaries to:                                
  (1) conduct its affairs in the ordinary course of business consistent with
past and then current practice;                                   
    (2) not adopt, amend or modify any employment or personnel contract or plan,
      or increase the level of compensation payable to any officer or employee
     other than in accordance with past practice or as otherwise required by
law or the terms of any such contract or plan;                    
(3) (a) not issue any capital stock or security convertible into capital
    stock, except pursuant to certain outstanding stock options and equity
   compensation awards that are not covered by agreements preventing the
       purchase or acquisition of ITGI Common Stock until after the later of the
     Effective Time and April 30, 1999 ("Lock-Up Agreements"); (b) grant any
     option to purchase or acquire ITGI Common Stock outside of the ordinary
       course, inconsistent with past practice or exercisable prior to April 30,
1999; or (c) otherwise alter its capital structure;               

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    (4) not pay any dividend (except as contemplated by the Merger Agreement) or
      make any distribution (including any stock split or stock dividend) with
respect to its securities;                                        
 (5) not enter into any contract or arrangement other than in the ordinary
course of business;                                               
(6) not amend its Certificate of Incorporation or Bylaws;               
(7) promptly advise Group if it has more than 18,750,000 shares of ITGI 
   Common Stock outstanding at any time prior to the closing date or any
       person holding, or exercising rights under, ITGI Common Stock Equivalents
shall have validly tendered any exercise form related thereto and 
       demanded the issuance and delivery of ITGI Common Stock in respect of any
such ITGI Common Stock Equivalent prior to the Effective Time;    
  (8) not amend any Lock-Up Agreement without Group's prior written consent;
 (9) take responsibility for information in the Proxy Statement/Prospectus
    being distributed to ITGI's stockholders, except that ITGI will not be
   responsible for information relating solely to Group and its non-ITGI
    subsidiaries, the Transfers, the Ancillary Agreements, the Spin-Off or
  the Group-provided information concerning the Merger. ITGI agrees to
       consult with Group before filing any amendment or supplement to the Proxy
Statement/Prospectus or submitting any information to the SEC in  
connection therewith;                                             
   (10) be responsible for one half of all Transaction Expenses (as defined in
     the Merger Agreement) of Group and ITGI, subject to certain conditions,
limitations and exclusions set forth therein;                     
    (11) use its reasonable best efforts to obtain all governmental consents and
other consents referenced in the Merger Agreement;                
(12) refrain from purchasing, or entering into options or contracts that
       would allow or obligate ITGI to purchase, Group Common Stock prior to the
Effective Time; use its commercially reasonable efforts to obtain 
agreement from the holders of ITGI common stock equivalents not to
       exercise such options prior to the earlier of the Effective Time or April
30, 1999; and                                                     
    (13) not at any time after the Pre-Closing and prior to the Merger knowingly
       take any action that would result in ITGI's ceasing to be a member of the
      affiliated group (within the meaning of Section 1504 (a) of the Code) of
which Group is the parent.                                        

    GROUP COVENANTS. Among other covenants and agreements, Group has agreed, for
itself and its non-ITGI subsidiaries, that, during the period from the date of  
the Merger Agreement to the Closing Date, without the prior written consent of  
ITGI, it will and will cause each of its non-ITGI subsidiaries to:              
  (1) conduct its affairs in the ordinary course of business consistent with
past and then current practice;                                   
    (2) not adopt, amend or modify any employment or personnel contract or plan,
      or increase the level of compensation payable to any officer or employee
     other than in accordance with past practice or as otherwise required by
law or the terms of any such contract or plan;                    
   (3) not issue any capital stock or security convertible into capital stock,
      except any stock options or equity compensation award that becomes, upon
  consummation of the Merger, an option to purchase JEF Holding Common
 Stock or an amount in equity of JEF Holding, or otherwise alter its
capital structure;                                                
   (4) not pay any dividend (except as contemplated by the Merger Agreement or
    the Ancillary Agreements) or make any distribution with respect to its
securities;                                                       
 (5) not enter into any contract or arrangement other than in the ordinary
course of business;                                               

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(6) not amend its Certificate of Incorporation or Bylaws;               
    (7) take responsibility for information in this Proxy/Information Statement,
       except that Group will not be responsible for information relating solely
to ITGI and its subsidiaries, the Special Cash Dividend or the    
      ITGI-provided information concerning the Merger. Group agrees to consult
with ITGI before filing any amendment or supplement to the        
     Proxy/Information Statement or submitting any information to the SEC in
connection therewith;                                             
  (8) be responsible for one half of all Transaction Expenses (as defined in
     the Merger Agreement) of Group and ITGI, subject to certain conditions,
limitations and exclusions set forth therein;                     
(9) use its reasonable best efforts to obtain all required governmental 
   consents and other consents listed in the disclosure schedules to the
Merger Agreement;                                                 
   (10) not amend, modify or waive any provision of the Distribution Agreement
without ITGI's consent not to be unreasonably withheld;           
   (11) in the event that at any time prior to the Pre-Closing, Group receives
     a third party offer to purchase its entire equity interest in ITGI, use
  its commercially reasonable best efforts to obtain, but shall not be
     obligated to obtain, the same economic terms and benefits of such offer
for the benefit of the ITGI Public Stockholders;                  
  (12) take all necessary action to effect the transfer to New JEF, prior to
  the Effective Time, of all Group liabilities that are not related to
       ITGI; if Group cannot transfer any non-ITGI liabilities to New JEF by the
       time the Merger is effected, and therefore Group has non-ITGI liabilities
     immediately prior to the Merger, Group will take action satisfactory to
     ITGI to mitigate these liabilities, such as in the form of prepayments,
       insurance, reserves and the like, and Group is obligated to obtain one or
   more letters of credit for the benefit of ITGI to the extent any such
unmitigated liabilities exceed the following amounts:             

 - $5.0 million from the Effective Time until its first anniversary;

     - $3.33 million from the first anniversary of the Effective Time to its
second anniversary;                                           

     - $1.67 million from the second anniversary of the Effective Time until
its third anniversary; and                                    

- $0 after the third anniversary of the Effective Time; and       
(13) not, any time from and after Pre-Closing and prior to the Merger,  
   knowingly take any action that would result in ITGI's ceasing to be a
      member of the affiliated group (within the meaning of Section 1504(a) of
the Code) of which Group is the parent.                           

The parties have agreed to proceed to closing the Merger only if certain
conditions are satisfied not later than the day of the meetings of Group and    
ITGI stockholders unless extended in writing by Group and ITGI (the "Pre-Closing
Date").                                                                         

MUTUAL PRE-CLOSING CONDITIONS. The mutual Pre-Closing conditions to the 
obligation of Group or ITGI to complete the Merger include the following:       

    (1) the Merger Agreement (including the Charter Amendments) and the issuance
of the Merger Shares shall have been approved and adopted by the  
    requisite votes of the Group stockholders in accordance with the DGCL,
       New York Stock Exchange requirements and the Certificate of Incorporation
    and Bylaws of Group. The Merger Agreement shall have been approved and
      adopted by the requisite votes of ITGI's stockholders in accordance with
the DGCL and the Certificate of Incorporation and Bylaws of ITGI. 

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(2) no temporary restraining order, preliminary or permanent injunction,
    sanction or other order issued by any court of competent jurisdiction,
       self-regulatory organization or body, or stock exchange or other legal or
  regulatory restraint or prohibition shall have been issued and be in
effect                                                            

(a) restraining or prohibiting the consummation of the Merger, the
           Spin-Off or the transactions contemplated by the Ancillary Agreements
or the Merger Agreement or                                

    (b) prohibiting or limiting the ownership, operation or control by New
          ITGI or Group or any of their respective Subsidiaries of any portion
  of the business or assets of ITGI or any of their respective
      subsidiaries as of the Effective Time, or compelling New ITGI or
          Group or ITGI or any of their respective Subsidiaries to dispose of,
     grant rights in respect of, or hold separate any portion of the
  business or assets of Group, ITGI or any of their respective
           Subsidiaries as of the Effective Time; nor shall any action have been
taken by a governmental regulatory authority, agency or   
           instrumentality, self-regulatory organization or body, stock exchange
           or any federal, state or foreign statute, rule, regulation, executive
   order, decree or injunction shall have been enacted, entered,
       promulgated or enforced by any governmental regulatory authority,
      agency or instrumentality, self-regulatory organization or body,
         stock exchange or arbitrator, which is in effect and has the effect
        of making the Spin-Off or Merger, or the transactions contemplated
       thereby, illegal or otherwise prohibiting the consummation of the
Spin-Off or Merger;                                       

   (3) the registration statement with respect to the ITGI Proxy/Prospectus of
      Group shall have been declared effective under the Securities Act and no
stop orders with respect thereto shall have been issued, and the  
       Proxy/Information Statement shall have been furnished to the stockholders
    of Group, the definitive Proxy/Prospectus shall have been furnished to
   the stockholders of ITGI, and Group shall have received all requisite
   authorizations under all applicable state securities or blue sky laws
necessary to consummate the issuance of the Merger Shares;        

 (4) approval for listing by the NYSE, upon official notice of issuance of
the Merger Shares, shall have been received by Group;             

  (5) the Tax Ruling shall not have been withdrawn or modified by the IRS in
any material adverse respect prior to the Pre-Closing;            

    (6) receipt of the accounting advisory letter from KPMG LLP, dated as of the
Pre-Closing Date;                                                 

   (7) execution and delivery of the Escrow Agreement by and among Group, ITGI
and the Bank of New York (the "Escrow Agent") pursuant to which:  

       (a) ITGI shall deposit into escrow cash in an amount equal to the Special
           ITGI Cash Dividend, to be released without condition or limitation by
          the Escrow Agent on the business day following the completion of the
        Pre-Closing Date to all of ITGI's stockholders of record as of the
  close of business on the date of the stockholders' meetings;
   (b) Documents shall be executed and placed into escrow concerning any
           remaining Transfers following the contribution by Group to New JEF of
         Group's pro rata share of the Special ITGI Cash Dividend which will
           be effected throughout the Escrow Agent in accordance with the Escrow
         Agreement) so that all remaining Transfers can be effected pursuant
        to the Distribution Agreement immediately following payment of the
Special ITGI Cash Dividend;                               

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    (c) Group shall deposit into escrow an agreement between Group and the
        Distribution Agent for the New JEF Common Stock, pursuant to which
       Group shall irrevocably direct the Distribution Agent to, and the
      Distribution Agent shall agree to, distribute all New JEF Common
         Stock to Group's stockholders immediately after being instructed to
         do so by the Escrow Agent, who shall issue such instructions unless
      the Escrow Agent shall have received a certificate from ITGI and
        Group prior to 9:00 am E.T. on the Closing Date to the effect that
       either the 80% condition (in paragraph 8 below) or the Tax Ruling
   condition (in paragraph 5 above) have not been satisfied; and

      (d) ITGI and Group shall deposit into escrow the executed Certificate of
       Merger, to be filed without condition or limitation by the Escrow
       Agent with the Secretary of State of the State of Delaware on the
       fifth business day following the Stockholders' Meetings after the
      issuance of the instructions to the Distribution Agent described
   above and immediately after the Distribution Agent shall have
     confirmed in writing its book-entry distribution of all New JEF
Common Stock to Group's stockholders.                     
    (8) Group and ITGI shall be reasonably satisfied that, at all relevant times
       prior to the Pre-Closing Date, Group owns at least 80% of the outstanding
  ITGI Common Stock and that no capital stock of ITGI (other than ITGI
Common Stock) shall have been issued or outstanding; and          
(9) satisfaction or waiver of the Distribution Agreement conditions.    

 If any of the above Pre-Closing conditions are waived to the detriment of
Group Stockholders in any material respect, Group will resolicit proxies to all 
Group Stockholders prior to the Merger occurring.                               

 PRE-CLOSING CONDITIONS TO GROUP'S OBLIGATION. The obligations of Group to
effect the Merger are subject to the satisfaction or waiver of each of the      
following additional conditions as of the Pre-Closing, any of which may be      
waived, in writing, exclusively by Group:                                       
(1) the representations and warranties of ITGI contained in the Merger  
       Agreement shall be true and correct at the Effective Time in all material
      respects with the same effect as though made at such time, except to the
   extent waived thereunder or affected by the transactions contemplated
therein;                                                          
  (2) ITGI shall have performed in all material respects all obligations and
  complied in all material respects with all agreements, undertakings,
covenants and conditions required by the Merger Agreement and the 
     Ancillary Agreements to be performed or complied with by it at or prior
to the Effective Time;                                            
  (3) ITGI shall have delivered to Group a certificate in form and substance
      satisfactory to Group dated the date of the Effective Time and signed by
  the chief executive officer and the chief financial officer of ITGI;
(4) ITGI shall have delivered to Group an opinion of Cahill Gordon &    
Reindel, counsel to ITGI, dated the Pre-Closing Date and which is 
      satisfactory to counsel for Group, to the effect set forth in the Merger
Agreement;                                                        
(5) Group shall have received an opinion of Morgan, Lewis & Bockius LLP 
      dated the Pre-Closing Date to the effect that the Merger will be treated
       for U.S. federal income tax purposes as a reorganization qualifying under
the provisions of Section 368(a) of the Code with respect to ITGI 
     stockholders other than Group and that each of ITGI and Group will be a
     party to the reorganization within the meaning of Section 368(b) of the
Code; and                                                         

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(6) ITGI shall have obtained all consents to the Merger required in the 
Merger Agreement disclosure schedules.                            
 If any of the above Pre-Closing conditions are waived to the detriment of
Group Stockholders in any material respect, Group will resolicit proxies to all 
Group Stockholders prior to the Merger occurring.                               

PRE-CLOSING CONDITIONS TO ITGI'S OBLIGATION. The obligations of ITGI to 
effect the Merger is subject to the satisfaction of each of the following       
additional conditions as of the Pre-Closing, any of which may be waived, in     
writing, exclusively by ITGI:                                                   
(1) the representations and warranties of Group contained in the Merger 
       Agreement shall be true and correct at the Effective Time in all material
      respects with the same effect as though made at such time, except to the
   extent waived thereunder or affected by the transactions contemplated
therein;                                                          
   (2) Group shall have performed in all material respects all obligations and
  complied in all material respects with all agreements, undertakings,
covenants and conditions required by the Merger Agreement and the 
     Ancillary Agreements to be performed or complied with by it at or prior
to the Effective Time;                                            
  (3) Group shall have delivered to ITGI a certificate in form and substance
     satisfactory to ITGI dated the date of the Effective Time and signed by
   the chief executive officer and the chief financial officer of Group;
    (4) Group shall have delivered to ITGI a copy of duly adopted resolutions of
the Board of Directors of Group accelerating the vesting and      
      exercisability of all options to purchase or acquire Group Common Stock;
    (5) all outstanding Group Common Stock Equivalents shall have been exercised
    or canceled or exchanged (conditioned upon completion of the Spin-Off)
 for options, shares or common stock equivalents of New JEF as of or
  within two business days following the Pre-Closing Date, or reserved
against without New ITGI's responsibility after the Closing Date; 
(6) Supplemental indentures and related documents concerning New JEF's  
    assumption of certain of the Senior Notes shall have been executed and
     delivered and Group shall have taken all necessary action to effect the
       transfer of all Group liabilities and mitigate any excess liabilities not
    transferred as provided for pursuant to the Distribution Agreement and
     delivered any letters of credit required by paragraph (12) under "Group
Covenants";                                                       
(7) Group shall have delivered to ITGI an opinion, dated the Pre-Closing
     Date, satisfactory to counsel for ITGI, of Morgan, Lewis & Bockius LLP,
 counsel for Group, to the effect set forth in the Merger Agreement.
    (8) ITGI shall have received an opinion of Cahill Gordon & Reindel dated the
     Pre-Closing Date to the effect that the Merger will be treated for U.S.
  federal income tax purposes as a reorganization qualifying under the
provisions of Section 368(a) of the Code with respect to ITGI     
     stockholders other than Group and that each of ITGI and Group will be a
     party to the reorganization within the meaning of Section 368(b) of the
Code;                                                             
(9) The Distribution Agreement shall not have been amended without the  
consent of ITGI; and                                              
 (10) Group shall have obtained all consents to the Merger required in the
      Merger Agreement disclosure schedules and all certificates, consents and
opinions, including any provision therein permitting ITGI to rely 
     thereon, delivered in connection with the Supplemental Indentures shall
not have been withdrawn.                                          

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CONDITIONS TO CLOSING.                                                  

 In addition to the Pre-Closing conditions described above, Group and ITGI
have agreed to certain conditions to be satisfied as of the Effective Date, any 
of which may be waived, in writing, by Group or ITGI, as appropriate:           
(1) the Pre-Closing shall have been consummated and the Escrow Agreement
shall have been fully complied with;                              
(2) at all relevant times prior to the Spin-Off and the Effective Time, 
      Group shall have owned at least 80% of the outstanding ITGI Common Stock
       and no other ITGI capital stock (other than Common Stock) shall have been
issued or outstanding; and                                        
(3) The favorable Tax Ruling shall not have been, prior to the Effective
     Time, withdrawn or modified by the IRS in any material adverse respect.
If any of the above conditions are waived to the detriment of Group     
Stockholders in any material respect, Group will resolicit proxies to all Group 
Stockholders prior to the Merger occurring.                                     

TERMINATION.                                                            

   The Merger Agreement may be terminated at any time prior to the Pre-Closing
Date,                                                                           
(1) by mutual written consent of Group and ITGI,                        
(2) by either party upon:                                               
    (a) the failure of the other party to satisfy any material covenant or
  agreement set forth in the Merger Agreement or the Ancillary
Agreements;                                               
      (b) upon the discovery of any representation of the other party which is
    false in any material respect or for which there is a material
        omission to disclose information which makes any representation of
the other party materially misleading; or                 
  (c) the failure to satisfy any mutual condition to the obligation of
      either party to consummate the Pre-Closing or the failure of the
      other party to satisfy a condition to such party's obligation to
consummate the Pre-Closing.                               

The Merger Agreement may be terminated at any time after the Pre-Closing
Date and before the Closing Date,                                               

(1) by mutual written consent of Group and ITGI,                        

(2) by either party upon:                                               
       (a) the failure of the condition that Group shall have owned at least 80%
           of the outstanding ITGI Common Stock and not other ITGI capital stock
      (other than Common Stock) shall have been issued or outstanding,
        unless and to the extent such failure occurred as a result of such
          party's breach of any representation, warranty or covenant set forth
in the Merger Agreement; or                               

  (b) the IRS has withdrawn or modified the Tax Ruling in any material
adverse manner.                                           

BACKGROUND OF AND NEGOTIATIONS INVOLVING THE SPECIAL COMMITTEE OF ITGI'S BOARD  
OF DIRECTORS                                                                

   At a meeting of ITGI's board of directors on March 17, 1998, the ITGI board
determined that the terms of the Transactions should be reviewed and negotiated 
by members of the ITGI board who were independent with respect to Group.        
Accordingly, the ITGI board unanimously approved the appointment of a special   
committee, consisting of William I Jacobs and Robert L. King (the "ITGI         

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Special Committee"), to review the terms of and make recommendations to the ITGI
board concerning the Transactions. Neither Mr. Jacobs nor Mr. King is a         
director, officer or employee of Group nor an officer or employee of ITGI. At a 
meeting on May 12, 1998, the ITGI board authorized the ITGI Special Committee to
retain advisors and take all other actions that it deemed necessary to the      
proper and complete conduct of any such review and recommendation.              

  After its formation, the ITGI Special Committee retained independent legal
advisors. Prior to commencing negotiations with Group regarding the Spin-Off,   
the members of the ITGI Special Committee and ITGI entered into separate        
indemnification agreements that, among other things, specified or clarified the 
directors' entitlement to indemnification and certain procedures and            
presumptions that would apply to claims for indemnification in connection with  
the proposed Spin-Off or any other transaction arising out of the negotiations. 

   The ITGI Special Committee thereafter discussed with its legal advisors the
procedures to be followed in evaluating the proposed Spin-Off, including the    
retention of a financial advisor. In April 1998, the ITGI Special Committee held
discussions with the investment banking firm of Donaldson, Lufkin & Jenrette    
Securities Corporation ("DLJ") regarding DLJ's engagement as its financial      
advisor. At a meeting on April 23, 1998, the ITGI Special Committee discussed   
with DLJ in general terms the evaluation process and analysis that DLJ would    
undertake pursuant to its engagement.                                           

    From April 23, 1998 through May 12, 1998, the ITGI Special Committee and its
advisors reviewed certain public and non-public information with respect to ITGI
and the proposed Transactions. Representatives of the Special Committee's       
advisors met on several occasions among themselves, with members of ITGI's      
management and with ITGI's legal counsel. The focus of the discussions was the  
proposed structure of the Spin-Off and the potential additional complications   
such a structure might engender compared to a spin-off of ITGI effected as a    
special dividend by Group to its stockholders of the shares of ITGI owned by    
Group (the ITGI Special Committee in its deliberations sometimes referred to    
this alternative Spin-Off structure used by it for comparative purposes as a    
"ITGI Stock Dividend Spin-Off"). At a meeting of the ITGI Special Committee on  
May 12, 1998, the ITGI Special Committee received a report from their advisors  
on their activities to date and discussed, among other things, the issues       
associated with the large number of ITGI stock options scheduled to expire early
in 1999, the appropriate size of the special cash dividend proposed to be paid  
by ITGI in connection with the Spin-Off, the allocation of transaction costs    
between ITGI and Group, the terms of the execution, clearing and other          
agreements to be entered into between ITGI and Group, the desirability of       
obtaining noteholder consents to New JEF's assumption of Group's obligations    
under two outstanding issues of publicly-traded notes (the "Notes") and the     
likelihood that Group would be able to fulfill its indemnity and other          
obligations to ITGI following the Transactions. The ITGI Special Committee      
determined that a principal objective of the negotiations with Group would be to
ensure that, as nearly as practicable, ITGI following the Spin-Off would be in  
the same position as if the transaction were structured as the ITGI Stock       
Dividend Spin-Off. In particular, to the greatest extent possible, ITGI         
following its merger with Group should be substantially free from liabilities   
(including contingent liabilities) related to the activities of Group (excluding
ITGI and its subsidiaries) prior to the Spin-Off. The ITGI Special Committee    
instructed its advisors to continue their analyses of the issues discussed at   
the meeting.                                                                    

During the summer and early fall of 1998, the ITGI Special Committee's  
advisors continued their "due diligence" investigation of ITGI and Group and met
with ITGI's legal counsel and commented on preliminary drafts of the Transaction
documents. The ITGI Special Committee held meetings at which it was briefed on  
the status of negotiations, issues that might arise and the probable accounting 
treatment of the Spin-Off. The ITGI Special Committee was advised that, in      
general, the surviving corporation in the Merger should not be required to      
record goodwill as an asset on its balance sheet provided that, at the time of  
the Merger, Group could fairly be viewed as substantially free of liabilities   

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unrelated to ITGI's business. DLJ advised the ITGI Special Committee that, if a 
substantial amount of goodwill were to be recorded because of the Merger, the   
reduction in earnings that would result from the amortization of that goodwill  
potentially could have an adverse effect on the prices at which the surviving   
corporation's common stock would trade after the Merger. To that time, Group had
taken the position that the Merger Agreement should not contain a condition to  
closing based on accounting treatment in light of the Group Contingency Concerns
discussed below. The ITGI Special Committee also was advised that, in order to  
avoid goodwill accounting treatment, the relative levels of equity ownership of 
ITGI's various stockholders could not change--in other words, it would not be   
possible to avoid goodwill accounting and at the same time seek an exchange     
ratio in the Merger that would increase the percentage ownership of the ITGI    
Public Stockholders. In considering the implications of these accounting issues,
the ITGI Special Committee noted that if in fact Group was substantially free   
from liabilities at the time of the Merger, it would be fair to leave the       
relative ownership levels of the ITGI Public Stockholders unchanged. The ITGI   
Special Committee instructed its advisors that the transaction must be          
structured in a way that avoided the need to record goodwill and that it should 
be a condition to the consummation of the transaction that satisfactory         
accounting treatment be available following the Merger.                         

Throughout the course of negotiations between Group and ITGI before     
mid-December of 1998, Group communicated to ITGI's management and counsel that  
it was reluctant to agree to a closing condition based on the absence of        
goodwill recognition in connection with the Merger and to the related covenant  
request to cause Group to be free of all liabilities prior to the Merger due to 
the associated need for third party consents, and other matters, that were      
outside of Group's control and the related risks that the Spin-Off (which by    
necessity must occur before the Merger) could be declared and paid prior to the 
occurrence of subsequent events that could prevent the closing of the Merger and
the realization of the benefits associated with the Merger (the "Group          
Contingency Concerns").                                                         

 On December 10, 1998 the ITGI Special Committee and its advisors met with
representatives of ITGI's management and counsel to receive a report on the     
progress of the transaction and identify the significant issues remaining for   
negotiation with Group. The ITGI Special Committee was advised that Group       
continued to maintain that the accounting consequences of the Merger should not 
affect ITGI's obligation to complete the transaction in light of the Group      
Contingency Concerns. The ITGI Special Committee directed its representatives to
respond that ITGI would not complete the transaction unless it was satisfied    
that no goodwill would be required to be recorded for accounting purposes. The  
ITGI Special Committee then reviewed the status of discussions with Group       
regarding ITGI's payment of a special cash dividend and ITGI's contribution     
toward the expenses of the Spin-Off. The ITGI Special Committee had previously  
determined that, since the dividend would be paid pro rata to all stockholders, 
the principal concern with respect to the dividend was not unfair treatment of  
the ITGI Public Stockholders but rather the prudence of the dividend--whether it
would leave ITGI with sufficient resources and liquidity to operate after the   
Merger without any adverse effect on its business. The ITGI Special Committee   
concluded, after reviewing and discussing operating budgets and cash flow       
forecasts presented by ITGI's management, that a $75 million dividend should not
adversely affect the business. The ITGI Special Committee instructed that the   
response to Group should be to limit the dividend to no more than $75 million.  
The ITGI Special Committee emphasized that this determination was based, among  
other things, on estimates of the amount of transaction costs payable by ITGI in
connection with the Spin-Off. ITGI's management provisionally had agreed with   
Group's management that the transaction costs to be incurred by each company    
should be shared equally by the two companies. The ITGI Special Committee asked 
ITGI's management to prepare a detailed estimate of these expenses and to advise
as to the possibility that the expenses would exceed the estimate. At its       
December 10 meeting, the ITGI Special Committee received a presentation from    
ITGI's management regarding the terms of the clearing and execution agreements  
that had been provisionally agreed with Group. The ITGI Special Committee was   
advised that the economic terms of the proposed agreements were consistent with 
prevailing industry terms and that ITGI would be entitled to terminate the      

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agreements if it so desired within a relatively short time period (after June   
30, 2000, in the case of the Clearing Agreement).                               

 On December 14, 1998 the ITGI Special Committee met with its advisors and
with members of ITGI's management and its counsel. At the meeting, the ITGI     
Special Committee told ITGI's management that, on the basis of information      
furnished at and subsequent to the December 10 meeting, the following positions 
should be taken in seeking to finalize the terms of the Spin-Off: (1) an        
important overall objective should continue to be that the effect and           
consequences of the Spin-Off be as similar as possible to those of a ITGI Stock 
Dividend Spin-Off; (2) it should be a condition to the closing of the Spin-Off  
that ITGI would be satisfied concerning the accounting treatment of the Merger; 
(3) proper actions should be taken prior to the closing of the Merger to ensure 
that when the Merger becomes effective the surviving corporation will be        
substantially free of liabilities not related to ITGI's business; (4) ITGI's    
obligation to share transaction costs should be capped; (5) the Special ITGI    
Cash Dividend should be not greater than $75 million; and (6) the terms of the  
proposed clearing and execution agreements negotiated by ITGI's management were 
satisfactory.                                                                   

In subsequent negotiations, Group, ITGI and representatives of the ITGI 
Special Committee agreed in principle to the execution of a preclosing and      
escrow agreement in order to eliminate substantially all risks associated with  
the Group Contingency Concerns and substantially eliminate the risk that the    
Special ITGI Cash Dividend or the Spin-Off might be paid or distributed,        
respectively, only to have the Merger then fail to occur. Group further agreed  
that satisfactory accounting treatment should be a mutual condition to the      
consummation of the Transactions and also agreed that the ITGI Special Cash     
Dividend would be $4.00 per share, amounting to no more than $75 million in the 
aggregate. Group refused to agree to a cap on ITGI's share of expenses, but it  
proposed to cap the amount of expenses related to the Notes that ITGI would be  
required to pay. Group proposed to use its best efforts to seek all third-party 
consents required for ITGI to be released effective as of the closing from all  
non-ITGI liabilities of Group (such as office leases and guarantees), but       
insisted that if the third party consents could not be obtained on commercially 
acceptable terms, ITGI should be required to close the transaction but with the 
benefit of a full indemnity from New JEF in respect of all such liabilities.    
Group further advised, in response to an inquiry from ITGI's representatives,   
that Group intended to vote its shares in ITGI in favor of the Merger, but that 
it would not contractually commit to such a vote due to fiduciary duty and      
business judgment considerations.                                               

At a meeting of ITGI's board of directors on January 20, 1999, the ITGI 
Special Committee reported to the ITGI Board that it was prepared to recommend  
approval in principle of the terms negotiated to date, as reflected in draft    
documents provided to and reviewed by the ITGI Special Committee, subject       
however to several conditions. First, at the closing, all or substantially all  
of Group's non-ITGI liabilities must be fully and unconditionally released and  
ITGI's obligation to share transaction costs must be capped. Secondly, since    
Group would not be making a contractual commitment to vote its shares of ITGI   
Common Stock in favor of the Merger, Group should commit to allow ITGI's        
minority stockholders to participate in any sale or similar transaction that    
might occur pursuant to a third party proposal (should one emerge) on the same  
terms as Group. Third, final approval of the transaction terms should be given  
only when all documentation was complete and satisfactory to the ITGI Special   
Committee and after the Tax Ruling was received and deemed satisfactory.        
Negotiations involving Group and the ITGI Special Committee were subsequently   
completed after Group agreed to provide protection in the Merger Agreement for  
the ITGI Public Stockholders in the event of a third-party purchase, agreed to  
the requested expense cap and agreed that to the extent that at the closing     
Group had unreleased liabilities in excess of a level agreed by the parties to  
be immaterial, New JEF would secure its indemnity obligation in respect of the  
excess amount with an irrevocable standby letter of credit issued by a financial
institution. The ITGI Special Committee subsequently agreed that for this       
purpose liabilities of up to $5 million could be deemed immaterial, provided the
amount was reduced ratably to zero over no more than three years.               

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SPECIAL ITGI CASH DIVIDEND                                                      

   ITGI has, as of March 16, 1999, declared the Special ITGI Cash Dividend, of
which approximately $60.0 million will be payable to Group. The Special ITGI    
Cash Dividend will be payable to all of ITGI's stockholders of record as of the 
Special ITGI Cash Dividend Record Date. Payment of the Special ITGI Cash        
Dividend is conditioned upon approval of the Merger Agreement by stockholders of
Group and ITGI, the approval of the issuance of the Merger Shares by            
stockholders of Group and the satisfaction of all other conditions to the Merger
pursuant to the Merger Agreement. The Special ITGI Cash Dividend is expected to 
be paid on April 21, 1999. Group believes, based on the advice of counsel,      
Morgan, Lewis & Bockius LLP, that the Special ITGI Cash Dividend paid to Group  
will not result in taxable income to Group. The Special ITGI Cash Dividend paid 
to the ITGI Public Stockholders will be a taxable dividend for ITGI Public      
Stockholders.                                                                   

As part of the Transfers, Group will contribute the $60 million it is   
expected to receive in respect of the Special ITGI Cash Dividend to JEFCO       
immediately prior to the transfer of the capital stock of JEFCO and Group's     
non-ITGI subsidiaries to New JEF, and New JEF will assume Group's existing      
liabilities that are unrelated to ITGI, including the outstanding publicly      
traded debt obligations of Group of approximately $150 million. The transfer by 
Group to JEFCO of amounts received in respect of the Special ITGI Cash Dividend 
will be made to increase the consolidated capital of New JEF, to Offset in part 
the leverage arising from the publicly-traded debt of Group to be assumed by New
JEF in connection with the Transfers, and to satisfy working capital demands and
requirements associated with the Brokerage and Investment Banking Businesses.   

NO DISSENTERS' RIGHTS                                                           

  Under the DGCL, the Group Stockholders will not have dissenters' rights of
appraisal in connection with the Transfers or the Merger.                       

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APPROVAL OF THE 1999 INCENTIVE COMPENSATION PLAN

REASONS FOR APPROVAL BY GROUP STOCKHOLDERS                                      

At the Special Meeting, Group Stockholders will be asked to approve the 
Incentive Plan of New JEF. If approved, the Incentive Plan will serve the       
function for New JEF that Group's 1993 Stock Ownership and Long-Term Incentive  
Plan (the "1993 Plan") and Pay-For-Performance Incentive Plan (the "Performance 
Plan") have served for Group. Group has relied on stock option and              
cash-denominated annual incentive awards under the 1993 Plan and Performance    
Plan as the principal means by which executive officers' compensation is tied to
the performance of Group.                                                       

The Group Board of Directors and Compensation Committee believe that    
attracting and retaining executives and other key employees of high quality has 
been essential to Group's growth and success. A comprehensive compensation      
program which includes different types of incentives for motivating employees   
and rewards for outstanding service likewise will be important to New JEF's     
future success. In particular, stock options and stock-related-awards will      
continue to be an important element of compensation for executives and other    
employees, because such awards enable them to acquire or increase their         
proprietary interest in the firm, thereby promoting a closer identity of        
interests between them and the firm's stockholders. Annual incentive awards and 
other performance-based awards will provide rewards for achieving specific      
performance objectives (such as profitability). Such awards will help New JEF to
remain competitive with firms engaged in diversified financial and brokerage    
services, and will provide an increased incentive for the recipient to expend   
his or her maximum efforts for the success of the firm's business. The Group    
Board and Compensation Committee therefore view the Incentive Plan as a key part
of the New JEF compensation program.                                            

The Group Board and Compensation Committee also intend that New JEF's   
ability to claim tax deductions for compensation paid should be preserved to the
greatest extent practicable. Section 162(m) of the Code limits the deductions a 
publicly held company can claim for compensation in excess of $1 million in a   
given year paid to certain executive officers (generally, the officers who are  
"named executive officers" in the summary compensation table in Group's         
Proxy/Information Statement). "Performance-based" compensation that meets       
certain requirements is not counted against the $1 million deductibility cap.   
Therefore, Group is seeking stockholder approval of the material terms of       
certain awards, including annual incentive awards, to named executives under the
Incentive Plan, in order to meet a key requirement for such awards to qualify as
"performance-based" compensation under Section 162(m) of the Code. If the       
Incentive Plan is approved by stockholders, annual incentive awards granted     
under the Incentive Plan to named executives generally will be payable only upon
achievement of pre-established performance goals relating to the firm as a whole
or specific business units for which the individual executive has principal     
responsibility. The Group Board and Compensation Committee believe that such    
annual incentive awards have and will continue to provide strong motivation to  
executives to achieve performance objectives set by the New JEF Compensation    
Committee, and thereby place strong emphasis on the building of value for all   
stockholders.                                                                   

  For purposes of Section 162(m) of the Code, approval of the Incentive Plan
will be deemed also to include approval of the eligibility of executive officers
and other employees and service providers to participate in the Incentive Plan, 
the annual per-person limitations described below under the caption "SHARES     
AVAILABLE AND AWARD LIMITATIONS," the general business criteria upon which      
performance objectives for performance awards, including annual incentive       
awards, are based, described below under the caption "PERFORMANCE-BASED AWARDS" 
and "ANNUAL INCENTIVE AWARDS," and the stock-price appreciation performance goal
inherent in stock options and stock appreciation rights ("SARs"). Because       
stockholder approval of general business criteria, without specific targeted    
levels of performance, qualifies annual incentive awards for a period of        
approximately five years, stockholder approval of such business criteria will   
meet the requirements under Section 162(m) until 2004.                          

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Stockholder approval of the performance goal inherent in stock options and SARs 
(increases in the market price of stock) is not subject to a time limit under   
Section 162(m).                                                                 

Stockholder approval of the Incentive Plan is also intended to meet     
requirements of the NYSE.                                                       

DESCRIPTION OF THE INCENTIVE PLAN                                               

The following is a brief description of the material features of the    
Incentive Plan.                                                                 

SHARES AVAILABLE AND AWARD LIMITATIONS                                  

    The Incentive Plan imposes a limit on the number of shares of New JEF Common
Stock that may be subject to awards. An award relating to shares may be granted 
if the aggregate number of shares subject to then-outstanding awards plus the   
number of shares subject to the award being granted do not exceed 25% of the    
number of shares issued and outstanding immediately prior to the grant. For this
purpose, an option is "outstanding" until it is exercised and any other award is
"outstanding" in the calendar year in which it is granted and for so long       
thereafter as it remains subject to any vesting condition requiring continued   
employment. Options and other awards granted in substitution for Group options  
and awards will not count against this aggregate share limitation, however. The 
number of shares subject to these substituted New JEF options and the exercise  
price per share will be adjusted, based on the market prices of Group Common    
Stock prior to the Spin-Off and New JEF Common Stock after the Spin-Off, in a   
manner intended to preserve but not enlarge the aggregate in-the-money value of 
the options. Although the terms of this adjustment cannot be determined at this 
time, the adjustment is expected to substantially increase the number of shares 
subject to each option and substantially reduce the per share exercise price.   
New JEF estimates that Group options relating to not more than 370,000 shares   
will be adjusted and reissued as substitute New JEF options. Regardless of this 
aggregate share limitation, the maximum number of shares that may be subject to 
tax-favored incentive stock options will be 1.5 million (subject to adjustment  
for extraordinary corporate events). Shares delivered under the Incentive Plan  
may be either newly issued or treasury shares of New JEF Common Stock.          
Currently, there is no market for New JEF Common Stock. See "Market Price of and
Dividends on Common Stock and Related Stockholder Matters."                     

In addition, the Incentive Plan includes a limitation on the amount of  
awards that may be granted to any one participant in a given calendar year in   
order to qualify awards as "performance-based" compensation not subject to the  
limitation on deductibility under Section 162(m) of the Code. Under this        
per-person limitation, no participant may in any fiscal year be granted (1)     
options and SARs relating to more than 800,000 shares of New JEF Common Stock,  
and (2) stock-based performance awards relating to more than 500,000 shares,    
subject in each case to adjustment for extraordinary corporate events. With     
respect to annual incentive awards, the maximum amount payable to a participant 
in settlement of such awards relating to a given fiscal year will be            

(1) in the case of the Chief Executive Officer or any other executive   
   officer principally having firm-wide responsibilities, 25% of profits
after taxes (but before payment of bonuses), and                  

  (2) in the case of an executive officer or other person principally having
     responsibilities for one or more business units, the greatest of 30% of
  the net income of such business unit(s), 10% of the revenues of such
   business unit(s), or 25% of the economic value added of such business
unit(s).                                                          

With respect to other performance awards (other than annual incentive awards)   
not valued by reference to common stock at the date of grant, the maximum amount
that may be earned by any one participant upon achievement of performance       
objectives shall be $5 million for each full or partial year in the period over 
which performance is measured; for this purpose, the term "earned" refers to    
satisfaction of the performance conditions, regardless of any additional period 
of deferral or risk of                                                          

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forfeiture upon termination of employment or service. These limits apply only to
awards under the Incentive Plan, and do not limit New JEFs' ability to enter    
into compensation arrangements outside of the Incentive Plan.                   

Adjustments to the number and kind of shares subject to the share       
limitations and annual per-person limitations relating to stock-denominated     
awards under the Incentive Plan and to the number and kind of shares subject to 
outstanding awards, as well as adjustments to exercise prices and other terms of
awards (including supplemental payments), are authorized in the event that a    
dividend or other distribution (whether in cash, shares, or other property),    
recapitalization, reclassification, stock split, reorganization, business       
combination, or other similar corporate transaction or event affects the New JEF
Common Stock. The New JEF Compensation Committee is also authorized to adjust   
performance conditions and other terms of awards in response to these kinds of  
events or to changes in applicable laws, regulations, or accounting principles, 
except that any adjustments to awards intended to qualify as "performance-based"
must conform to requirements under Section 162(m).                              

  New JEF will have other plans relating to common stock, possibly including
an employee stock purchase plan, an employee stock ownership plan, and, if      
approved by stockholders, the proposed 1999 Directors' Stock Compensation Plan. 
See "Approval of the 1999 Directors' Stock Compensation Plan."                  

ELIGIBILITY                                                             

Executive officers and other officers and employees of New JEF and its  
subsidiaries, including any such person who may also be a director, and any     
other person who provides substantial personal services (other than solely as a 
director) will be eligible to be granted awards under the Incentive Plan. A     
prospective employee may be granted an award, but no value may be realized      
thereunder if such person does not become an employee. Upon completion of the   
Spin-Off, an estimated 900 persons would be eligible for awards under the       
Incentive Plan. Under the 1993 Plan and Performance Plan, approximately 84      
persons held outstanding awards at December 31, 1998; no determination has been 
made whether awards will be granted more broadly under the Incentive Plan than  
has been Group's practice under the 1993 Plan and Performance Plan.             

ADMINISTRATION                                                          

    The Incentive Plan will be administered by the Compensation Committee of the
Board of Directors of New JEF (the "Committee"), except that the New JEF Board  
may appoint any other committee to administer the Incentive Plan and may itself 
act to administer the Incentive Plan. (References to "Committee" herein include 
the Board in any case in which it exercises authority with respect to an award.)
Subject to the terms and conditions of the Incentive Plan, the Committee is     
authorized to select participants, determine the type and number of awards to be
granted and the number of shares to which awards will relate or the amount of an
annual incentive award, specify times at which awards will be exercisable or    
settled, including performance conditions that may be required as a condition   
thereof, set other terms and conditions of such awards, prescribe forms of award
agreements, interpret and specify rules and regulations relating to the         
Incentive Plan, and make all other determinations which may be necessary or     
advisable for the administration of the Incentive Plan. Nothing in the Incentive
Plan precludes the Committee from authorizing payment of other compensation,    
including bonuses based upon performance, to officers and employees, including  
executive officers. The Incentive Plan provides that Committee members shall not
be personally liable, and shall be fully indemnified, in connection with any    
action, determination, or interpretation taken or made in good faith under the  
Incentive Plan.                                                                 

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STOCK OPTIONS AND SARS                                                  

    The Committee is authorized to grant stock options, including both incentive
stock options ("ISOs"), which can result in potentially favorable tax treatment 
to the participant, and non-qualified stock options, and SARs entitling the     
participant to receive the excess of the fair market value of a share on the    
date of exercise or other specified date over the grant price of the SAR. The   
exercise price of an option and the grant price of an SAR is determined by the  
Committee, but generally may not be less than the fair market value of the stock
on the date of grant (except as described below). The maximum term of each      
option or SAR, the times at which each option or SAR will be exercisable, and   
provisions requiring forfeiture of unexercised options at or following          
termination of employment generally are fixed by the Committee, subject to a    
restriction that no ISO, or SAR in tandem therewith, may have a term exceeding  
ten years. Options may be exercised by payment of the exercise price in cash,   
stock or other property (possibly including notes or obligations to make payment
on a deferred basis, or through broker-assisted cashless exercise procedures) or
by surrender of other outstanding awards having a fair market value equal to the
exercise price. Methods of exercise and settlement and other terms of SARs will 
be determined by the Committee.                                                 

RESTRICTED AND DEFERRED STOCK                                           

   The Committee is authorized to make awards of restricted stock and deferred
stock. Prior to the end of the restricted period, shares received as restricted 
stock may not be sold or disposed of by participants, and may be forfeited in   
the event of termination of employment. The restricted period generally is      
established by the Committee. An award of restricted stock entitles the         
participant to all of the rights of a stockholder of New JEF, including the     
right to vote the shares and the right to receive any dividends thereon, unless 
otherwise determined by the Committee. Deferred stock gives participants the    
right to receive shares at the end of a specified deferral period, subject to   
forfeiture of the award in the event of termination of employment under certain 
circumstances prior to the end of a specified restricted period (which need not 
be the same as the deferral period). Prior to settlement, deferred stock awards 
carry no voting or dividend rights or other rights associated with stock        
ownership, but dividend equivalents may be paid on such deferred stock.         

OTHER STOCK-BASED AWARDS, BONUS STOCK, AND AWARDS IN LIEU OF OTHER      
OBLIGATIONS                                                           

The Incentive Plan authorizes the Committee to grant awards that are    
denominated or payable in, valued in whole or in part by reference to, or       
otherwise based on or related to New JEF Common Stock. The Committee will       
determine the terms and conditions of such awards, including the consideration  
to be paid to exercise awards in the nature of purchase rights, the periods     
during which awards will be outstanding, and any forfeiture conditions and      
restrictions on awards. In addition, the Committee is authorized to grant shares
as a bonus free of restrictions, or to grant shares or other awards in lieu of  
obligations under other plans or compensatory arrangements, subject to such     
terms as the Committee may specify.                                             

PERFORMANCE-BASED AWARDS                                                

    The Committee may require satisfaction of pre-established performance goals,
consisting of one or more business criteria and a targeted performance level    
with respect to such criteria, as a condition of awards being granted or        
becoming exercisable or settleable under the Incentive Plan, or as a condition  
to accelerating the timing of such events. If so determined by the Committee, in
order to avoid the limitations on deductibility under Section 162(m) of the     
Code, the business criteria used by the Committee in establishing performance   
goals applicable to performance awards to the named                             

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executives, applicable to New JEF on a consolidated basis or to specified       
subsidiaries, divisions, or other business units, will be selected from among   
the following:                                                                  

- earnings per share;                                                   

- revenues;                                                             

- cash flow;                                                            

- cash flow return on investment;                                       

 - return on net assets, return on assets, return on investment, return on
capital, return on equity, or profitability;                        

- economic value added ("EVA");                                         

- operating margins or profit margins;                                  

 - earnings before or after taxes; pretax earnings; pretax earnings before
interest, depreciation and amortization; operating earnings; pretax 
    operating earnings, before or after interest expense and before or after
     incentives, service fees, and extraordinary or special items; net income;

- total stockholder return or stock price;                              

- book value per share;                                                 

 - expense management; improvements in capital structure; working capital;
costs; and                                                          

 - any of the above goals as compared to the performance of a published or
special index deemed applicable by the Committee including, but not 
limited to, the Standard & Poor's 500 Stock Index or a group of     
comparative companies.                                              

EVA means the amount by which a business unit's income exceeds the cost of the  
capital used by the business unit during the performance period, as determined  
by the Committee. Earnings of a business unit may be before payment of bonuses, 
capital charges, non-recurring or extraordinary income or expense, and general  
and administrative expenses for the performance period, if so specified by the  
Committee.                                                                      

ANNUAL INCENTIVE AWARDS                                                 

   The Committee is authorized to grant annual incentive awards, settleable in
cash or in stock upon achievement of preestablished performance objectives      
achieved during a specified one-year period. The performance objectives will be 
one or more of the performance objectives available for other performance awards
under the Incentive Plan, as described in the preceding paragraph. As stated    
above, annual incentive awards granted to named executives are intended to      
constitute "performance-based compensation" not subject to the limitation on    
deductibility under Code Section 162(m). The Committee generally must establish 
the performance objectives, the corresponding amounts payable (subject to       
per-person limits), other terms of settlement, and all other terms of such      
awards not later than 90 days after the beginning of the fiscal year.           

OTHER TERMS OF AWARDS                                                   

  Awards may be settled in cash, New JEF Common Stock, other awards or other
property, in the discretion of the Committee. The Committee may require or      
permit participants to defer the settlement of all or part of an award in       
accordance with such terms and conditions as the Committee may establish,       
including payment or crediting of interest or dividend equivalents on any       
deferred amounts. The Committee is authorized to place cash, shares or other    
property in trusts or make other arrangements to provide for payment of         
obligations under the Incentive Plan. The Committee may                         

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condition awards on the payment of taxes such as by withholding a portion of the
stock or other property to be distributed (or previously acquired stock or other
property surrendered by the participant) in order to satisfy tax obligations.   
Awards granted under the Incentive Plan generally may not be pledged or         
otherwise encumbered and are not transferable except by will or by the laws of  
descent and distribution, or to a designated beneficiary upon the participant's 
death, except that the Committee may permit transfers in individual cases,      
including for estate-planning purposes.                                         

   Awards under the Incentive Plan are generally granted without a requirement
that the participant pay consideration in the form of cash or property for the  
grant (as distinguished from the exercise), except to the extent required by    
law. The Committee may, however, grant awards in substitution for other awards  
under the Incentive Plan, awards under other compensatory plans, or other rights
to payment from New JEF, and may grant awards in addition to and in tandem with 
such other awards or rights as well.                                            

VESTING, FORFEITURES, AND ACCELERATION THEREOF                          

The Committee may, in its discretion determine the vesting schedule of  
options and other awards, the circumstances that will result in forfeiture of   
awards, the post-termination exercise periods of options and similar awards, and
the events that will result in acceleration of the ability to exercise and the  
lapse of restrictions, or the expiration of any deferral period, on any award.  

AMENDMENT AND TERMINATION OF THE INCENTIVE PLAN                         

   The New JEF Board will be able to amend, suspend, discontinue, or terminate
the Incentive Plan or the Committee's authority to grant awards thereunder      
without stockholder approval unless required by law, regulation, or stock       
exchange rules, or deemed advisable. Thus, stockholder approval will not        
necessarily be required for amendments which might increase the cost of the     
Incentive Plan or broaden eligibility. Unless earlier terminated, the Incentive 
Plan will terminate at such time that no shares reserved under the Incentive    
Plan remain available and New JEF has no further obligation with respect to any 
outstanding award.                                                              

EFFECT OF STOCKHOLDER APPROVAL ON AWARDS                                

   Awards to be granted under the Incentive Plan will be within the discretion
of the Committee, and cannot be ascertained at this time. The terms of awards to
be granted under the Incentive Plan to replace awards granted under Group plans 
and outstanding at the time of the Spin-Off are described above under the       
caption "Management of Group and New JEF--Impact of the Spin-Off and Merger on  
Group's Employee Benefit Plans; Jefferies Group, Inc. Stock Ownership and       
Long-Term Incentive Plan; New JEF Incentive Plan;" the amount and terms of such 
replacement awards will not be determinable until the spin-off becomes          
effective. Annual incentive awards and stock options granted in the 1996-1998   
period to Group's named executives as of December 31, 1998 are shown in         
"Management of Group and New JEF--Summary Compensation Table," and other        
information relating to such awards is set forth under the caption "Stock       
Options" above. If stockholders decline to approve the Incentive Plan, awards   
will not be granted under the Incentive Plan to the extent necessary to meet the
requirements of Treasury Regulation 1.162-27(e)(4).                             

FEDERAL INCOME TAX IMPLICATIONS OF THE INCENTIVE PLAN                           

   The following is a brief description of the federal income tax consequences
generally arising with respect to awards that may be granted under the Incentive
Plan. The grant of an option or SAR (including a stock-based award in the nature
of a purchase right) will create no federal income tax consequences for the     
participant or New JEF. A participant will not have taxable income upon         
exercising an ISO (except that the alternative minimum tax may apply). Upon     
exercising an option                                                            

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other than an ISO (including a stock-based award in the nature of a purchase    
right), the participant must generally recognize ordinary income equal to the   
difference between the exercise price and the fair market value of the freely   
transferable and nonforfeitable stock acquired on the date of exercise. Upon    
exercising an SAR, the participant must generally recognize ordinary income     
equal to the cash or to the fair market value of the freely transferable and    
nonforfeitable stock received.                                                  

    Upon a disposition of shares acquired upon exercise of an ISO before the end
of the applicable ISO holding periods, the participant must generally recognize 
ordinary income equal to the lesser of                                          

  (1) the fair market value of the shares at the date of exercise of the ISO
minus the exercise price or                                       

(2) the amount realized upon the disposition of the ISO shares minus the
       exercise price. Otherwise, a participant's disposition of shares acquired
       upon the exercise of an option or SAR generally will result in short-term
      or long-term capital gain or loss measured by the difference between the
       sale price and the participant's tax basis in such shares (generally, the
     exercise price plus any amount previously recognized as ordinary income
in connection with the exercise of the option or SAR).            

 New JEF generally will be entitled to a tax deduction equal to the amount
recognized as ordinary income by the participant in connection with options and 
SARs, but will not be entitled to a tax deduction relating to amounts that      
represent a capital gain to a participant. Accordingly, New JEF will not be     
entitled to any tax deduction with respect to an ISO if the participant holds   
the shares for the applicable ISO holding periods prior to disposition of the   
shares.                                                                         

 With respect to other awards granted under the Incentive Plan that may be
settled either in cash or in stock or other property that is either not         
restricted as to transferability or not subject to a substantial risk of        
forfeiture, the participant must generally recognize ordinary income equal to   
the cash or the fair market value of stock or other property actually received. 
Except as discussed below, New JEF generally will be entitled to a deduction for
the same amount. With respect to awards involving stock or other property that  
is restricted as to transferability and subject to a substantial risk of        
forfeiture, the participant must generally recognize ordinary income equal to   
the fair market value of the shares or other property received at the first time
the shares or other property become transferable or not subject to a substantial
risk of forfeiture, whichever occurs earlier. Except as discussed below, New JEF
generally will be entitled to a deduction in an amount equal to the ordinary    
income recognized by the participant. A participant may elect to be taxed at the
time of receipt of shares or other property rather than upon lapse of           
restrictions on transferability or the substantial risk of forfeiture, but if   
the participant subsequently forfeits such shares or property he would not be   
entitled to any tax deduction, including as a capital loss, for the value of the
shares or property on which he previously paid tax.                             

As discussed above, compensation that qualifies as "performance-based"  
compensation is excluded from the $1,000,000 deductibility cap of Code Section  
162(m), and therefore remains fully deductible by the company that pays it.     
Under the Incentive Plan, options and SARs granted with an exercise price or    
grant price at least equal to 100% of fair market value of the underlying stock 
at the date of grant, annual incentive awards to employees the Committee expects
to be named executives at the time compensation is received, and certain other  
awards which are conditioned upon achievement of performance goals are intended 
to qualify as such "performance-based" compensation. A number of requirements   
must be met in order for particular compensation to so qualify, however, so     
there can be no assurance that such compensation under the Incentive Plan will  
be fully deductible under all circumstances. In addition, other awards under the
Incentive Plan generally will not so qualify, so that compensation paid to      
certain executives in connection with such awards may, to the extent it and     
other compensation subject to Section 162(m)'s deductibility cap exceed         
$1,000,000 in a given year, be subject to the limitation of Section 162(m).     

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The foregoing provides only a general description of the application of 
federal income tax laws to certain types of awards under the Incentive Plan.    
This discussion is intended for the information of Group Stockholders           
considering how to vote at the Special Meeting and not as tax guidance to       
participants in the Incentive Plan, as the consequences may vary with the types 
of awards made, the identity of the recipients and the method of payment or     
settlement. Different tax rules may apply, including in the case of variations  
in transactions that are permitted under the Incentive Plan (such as payment of 
the exercise price of an option by surrender of previously acquired shares). The
summary does not address the effects of other federal taxes (including possible 
"golden parachute" excise taxes) or taxes imposed under state, local, or foreign
tax laws.                                                                       

VOTE REQUIRED FOR APPROVAL                                                      

   Approval of the Incentive Plan will require the affirmative vote of holders
of a majority of the shares of Group Common Stock present in person or          
represented by proxy and entitled to vote on the matter.                        

RECOMMENDATION OF THE BOARD OF DIRECTORS OF GROUP                               

   THE GROUP BOARD OF DIRECTORS CONSIDERS APPROVAL OF THE INCENTIVE PLAN TO BE
IN THE BEST INTERESTS OF GROUP AND NEW JEF AND THEIR PRESENT AND FUTURE         
STOCKHOLDERS, AND HAS UNANIMOUSLY APPROVED THE ADOPTION OF THE INCENTIVE PLAN.  

 THE GROUP BOARD UNANIMOUSLY RECOMMENDS THAT GROUP STOCKHOLDERS VOTE "FOR"
APPROVAL AND ADOPTION OF THE INCENTIVE PLAN.                                    

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APPROVAL OF THE 1999 DIRECTORS' STOCK COMPENSATION PLAN 

REASONS FOR APPROVAL BY GROUP STOCKHOLDERS                                      

At the Special Meeting, Group Stockholders will be asked to approve the 
Directors' Plan of New JEF. If approved, the Directors' Plan will serve the     
function for New JEF currently served by two Group plans, the Non-Employee      
Directors' Stock Option Plan originally approved by stockholders in 1994 (the   
"1994 Option Plan") and the Non-Employee Directors' Deferred Compensation Plan  
originally approved by stockholders in 1996 (the "1996 Deferral Plan" and, with 
the 1994 Option Plan, the "Existing Plans"). Stockholder approval of the        
Directors' Plan is being sought in part to meet certain requirements of the     
NYSE.                                                                           

   While initially continuing the compensation policies similar to those under
the Existing Plans, the Directors' Plan will provide the Board with greater     
flexibility to modify the amount and type of awards granted to non-employee     
directors and the terms on which such awards are granted than is permitted under
the Existing Plans. In addition, adoption of the Directors' Plan will reserve a 
total of 500,000 shares as compared to 301,051 remaining available under the    
Existing Plans as of March 15, 1999. Greater flexibility is intended to help    
Group to remain competitive in its compensation package for directors, in order 
to help attract and retain highly qualified persons to serve in that capacity.  
Director plans designed and implemented in 1996 and earlier generally were      
required by Rule 16b-3 under the Exchange Act to contain more rigid and         
inflexible terms. Amendments to Rule 16b-3 adopted in 1996 permit much greater  
flexibility, and a growing number of companies have taken advantage of this     
flexibility. For example, a number of companies have sought to increase the     
portion of director compensation paid in shares rather than in cash, on an      
elective or mandatory basis. While Group, through the 1996 Deferral Plan, has   
participated in this trend, the proposed Directors' Plan will allow New JEF to  
continue to offer innovative forms of stock-based compensation that increase    
directors' proprietary interest in NEW JEF and more closely align their         
interests with those of stockholders.                                           

INITIAL NEW JEF DIRECTOR COMPENSATION POLICY AND CURRENT DIRECTOR COMPENSATION  
UNDER THE EXISTING PLANS                                                    

Initially under the Directors' Plan, New JEF's policies with respect to 
automatic option grants to non-employee directors and grants of options or      
deferred shares in lieu of cash fees at the election of non-employee directors  
will be similar to the current program under the Existing Plans. Under the 1994 
Option Plan, each non-employee Director is automatically granted each year an   
option to purchase 2,000 shares of Group's Common Stock after the annual        
stockholders' meeting at which he is elected a director, and a newly elected    
Director is automatically granted an option to purchase 5,000 shares. Such      
options have an exercise price equal to 100% of the fair market value of a share
at the date of grant, become exercisable three months after the date of grant,  
and expire at the earliest of five years after the date of grant, 12 months     
after the optionee ceases to serve as a Director due to death, disability or    
retirement or 60 days after the optionee ceases to serve as a Director for any  
other reason.                                                                   

  The initial policy under the Directors' Plan will provide for an automatic
grant of an option to purchase 4,000 shares of New JEF Common Stock after each  
annual stockholders' meeting and upon the effectiveness of the Spin-Off, and an 
automatic grant of an option to purchase 5,000 shares upon the initial election 
or appointment of a new Director. Certain additional awards through the         
Replacement Option Exchange or through Make-Whole Grants will be made upon the  
effectiveness of the Spin-Off, as described herein.                             

Under the 1996 Deferral Plan, each non-employee Director may elect to   
receive annual retainer and Chairman's fees in the form of stock options and/or 
to defer receipt of any Director fees in a deferred cash account or as deferred 
shares. If a Director elects to be paid fees in the form of options, the number 
of options granted is that number having an aggregate value, determined under a 
modified "Black-Scholes" option valuation model, equal to the amount of such    
fees. Such options have a term of                                               

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ten years, and an exercise price per share equal to 100% of the fair market     
value of a share at the date of grant. If fees are deferred in cash, interest is
credited at the prime rate. If fees are deferred in the form of deferred shares,
Group credits the Director's deferral account with a number of deferred shares  
equal to the number of shares having an aggregate fair market value at the date 
the fees otherwise would be payable equal to the amount of fees deferred.       
Dividend equivalents are credited on such deferred shares, which amounts are    
deemed to be reinvested in additional deferred shares. Deferrals are settled at 
such time as the Director has elected in a deferral election form, by delivery  
of one share of Common Stock in settlement of each deferred share and delivery  
of cash in settlement of the deferred cash account. The initial policy under the
Directors' Plan will not materially change the terms of deferrals by directors. 
Certain adjustments to deferred shares will be made in connection with the      
Spin-Off, as described below.                                                   

DESCRIPTION OF THE DIRECTORS' PLAN                                              

The following is a brief description of the material features of the    
Directors' Plan.                                                                

SHARES AVAILABLE AND AWARD LIMITATIONS                                  

The Directors' Plan reserves 500,000 shares of New JEF Common Stock for 
future options and awards. This includes the number of shares to be delivered   
under awards replacing awards granted under the Existing Plans and replacing    
other options granted to Group's current and former non-employee directors. If  
an award expires for any reason without having been exercised in full or is     
forfeited or canceled, the shares subject thereto will again be available for   
delivery under the Directors' Plan. There is currently no trading market for    
shares of New JEF Common Stock. See "Market Price of and Dividends on Common    
Stock and Related Stockholder Matters."                                         

    The Directors' Plan also imposes limits on individual awards. Options may be
granted outright-- that is, granted without a corresponding reduction in cash   
fees payable--for up to 10,000 shares to a director in a single year. Deferred  
shares or restricted stock may be granted outright to a Director in a single    
year in a number equal to 50% of the number that could be granted with a        
corresponding reduction in cash fees. Options, deferred shares, and restricted  
stock granted with a corresponding reduction in cash fees are, of course,       
limited by the level of cash fees. As is the case for most publicly held        
corporations, the level of cash fees is established from time to time by the    
Board. These limitations do not apply to awards through the Replacement Option  
Exchange or through Make-Whole Grants.                                          

   Adjustments to the number and kind of shares subject to the aggregate share
limitation, the annual per-person limitation on the amount of options that may  
be granted outright, the number and kind of shares subject to outstanding awards
and to be granted under any Board policy providing automatic grants under the   
Directors' Plan then in effect, as well as adjustments to exercise prices and   
other terms of awards, are authorized in the event that an extraordinary        
dividend or other distribution (whether in cash, shares, or other property),    
recapitalization, reclassification, stock split, reorganization, business       
combination, or other similar corporate transaction or event affects the New JEF
Common Stock.                                                                   

New JEF may adopt other plans and arrangements providing compensation to
non-employee Directors in the form of common stock, although no such additional 
arrangements are currently planned.                                             

ELIGIBILITY                                                             

 Only non-employee Directors of New JEF will be eligible to participate in
the Directors' Plan, except a former director of Group may be granted awards in 
substitution for Group options or                                               

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deferred shares outstanding at the time of the Spin-Off. Upon completion of the 
Spin-Off, an estimated three persons would be eligible for awards under the     
Directors' Plan.                                                                

ADMINISTRATION                                                          

    The Directors' Plan generally will be administered by the Board of Directors
of New JEF. Officers of New JEF and employees of the New JEF businesses will    
perform administrative functions as well, but will not determine the amount or  
timing of discretionary awards. The Board can amend, suspend, or terminate the  
Directors' Plan without further stockholder approval, unless such approval is   
required by law or regulation or under the rules of the NYSE. Thus, stockholder 
approval will not necessarily be required for amendments which might increase   
the cost of the Directors' Plan or broaden eligibility. Stockholder approval    
will not be deemed to be required under laws or regulations that condition      
favorable treatment of participants on such approval, although the Board may, in
its discretion, seek stockholder approval in any circumstance in which it deems 
such approval advisable.                                                        

OUTRIGHT GRANTS OF OPTIONS, DEFERRED SHARES, AND RESTRICTED STOCK       

  As stated above, the Directors' Plan authorizes the Board to determine the
amount and timing of outright grants of stock options, deferred shares, and     
restricted stock to non-employee Directors, as well as the times at which such  
options will become exercisable, the terms under which any such awards will be  
forfeited upon termination of a Director's service, and other terms of awards.  
For purposes of this discussion, an "outright" grant is a grant as to which     
there is no corresponding reduction in cash fees payable to the Director. The   
Board's initial policy with respect to such outright grants of options,         
including vesting and forfeiture terms, is described above; such policy does not
include an authorization of outright grants of deferred shares or restricted    
stock under the initial compensation plan for non-employee directors.           

Options granted outright under the Directors' Plan will have an exercise
price equal to 100% of the fair market value of the underlying common stock at  
the date of grant, and a maximum term of ten years. Directors will not be       
required to pay any cash consideration at the time of grant of such options.    

A deferred share represents a contractual right to receive one share of 
common stock at a specified future date. Deferred shares granted outright may be
subject to a risk of forfeiture and nontransferable for a period determined by  
the Board, but delivery of shares in settlement of the award may be deferred to 
a date after the lapse of the forfeiture/nontransferability restriction.        
Restricted stock is an award of shares, issued in the name of the Director,     
which are subject to a risk of forfeiture and nontransferable for a specified   
vesting period. Such stock may be held in escrow on behalf of the Director until
it becomes vested. Dividend equivalents are credited on outstanding deferred    
shares, and dividends are payable on outstanding restricted stock, with such    
dividend equivalents or dividends in each case deemed reinvested in additional  
like awards (unless otherwise determined by the Board). Directors generally will
pay no cash consideration at the time of grant of deferred shares or restricted 
stock (except as may be required by law). Directors have voting rights with     
respect to outstanding restricted stock, but not with respect to deferred       
shares.                                                                         

  OPTIONS GRANTED IN PAYMENT OF FEES AND DEFERRAL OF FEES IN DEFERRED SHARES
AND DEFERRED CASH                                                     

The Directors' Plan will permit each non-employee director to elect to  
receive annual retainer fees and Chairman's fees in the form of stock options   
and to defer receipt of any Director fees in a deferred cash account or as      
deferred shares. To participate, a non-employee Director must file an election  
to participate prior to the beginning of a plan year, specifying the amount of  
fees and compensation to be received in the form of options or deferred in the  
form of deferred cash or deferred shares. A plan year generally begins at the   
time of the Director's election at an annual meeting of shareholders and        
continues through the next annual meeting (a plan year will begin for a         

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Director initially elected other than at an annual meeting at the time of such  
initial election), except that, upon completion of the Spin-Off, the plan year  
will be deemed to be a continuation of the plan year under the 1996 Deferral    
Plan (with elections under that plan applying equally under the Directors'      
Plan).                                                                          

   If and to the extent elected by a non-employee Director, retainer fees will
be paid in the form of a stock option. Initially, New JEF will authorize payment
to each non-employee Director of annual retainer fees of $20,000 and Chairman's 
fees for service as chairman of a Board committee of $3,000 (the same rates as  
currently in effect for Group). Such options will be valued and have related    
terms, and fees reduced, based on an option valuation methodology adopted by the
Board. Under the 1996 Deferral Plan, the Board has valued options using a       
modified "Black-Scholes" valuation model, reducing fees by the aggregate value  
of the options determined under such model. Under this approach, the exercise   
price per share equals 100% of the fair market value of the underlying shares at
the date of grant. During the 1998 plan year, no directors elected to receive   
options in lieu of their annual retainer fees.                                  

The Directors' Plan will allow the Board to use other valuation         
methodologies. An example of an alternative methodology used by some companies  
is to grant options with a discounted exercise price per share, for example 25% 
of then-current fair market value, with the amount of fees reduced equal to 75% 
of the then-current fair market value of the shares underlying options.         

  Options granted in payment of fees generally will become exercisable as to
25% of the underlying shares on the June 30, September 30, December 31, and     
March 31 following the grant (or at a faster rate if options are granted at     
times other than the customary annual meeting date), except that an option will 
become fully exercisable at the end of the plan year if the Director serves     
through such date. Options will expire ten years after the date of grant, except
that any part of the option not exercisable at the time a Director ceases to    
serve as a Director will expire at that time, regardless of the reason for the  
Director's termination and the part of an unexercisable option attributable to  
fees for service as Chairman or a member of a committee will expire at the time 
committee service terminates.                                                   

  A non-employee Director may elect to defer receipt of annual retainer fees
(other than fees paid in the form of options), fees for service as chairman of a
Board committee, and Board and committee meeting fees by filing an election     
prior to the beginning of a plan year. If such fees are deferred in the form of 
cash, New JEF will credit a cash account established for the Director with the  
amount of fees deferred, at the date such fees otherwise would be payable to the
Director. Interest will be credited to such account for a plan year at a rate   
specified by the Board. Under the Board's initial policy, that rate will be the 
prime interest rate in effect at the date of the preceding annual meeting of    
stockholders. The Directors' Plan will permit deferred cash to be carried       
forward from the 1996 Deferral Plan.                                            

    If Directors' fees are deferred in the form of deferred shares, New JEF will
credit a deferral account established for the Director with a number of deferred
shares equal to the number of shares (including fractional shares) having an    
aggregate fair market value at the date fees otherwise would be payable equal to
the amount of fees deferred in such form. Dividend equivalents equal to         
dividends declared and paid on New JEF Common Stock will be credited on deferred
shares then credited to a Director's account, which amounts will be deemed to be
reinvested in additional deferred shares.                                       

    A Director's deferred cash account and deferred share account generally will
be settled at such times, and in a lump sum or installments, as may have been   
elected by the Director in his or her deferral election form, by distribution of
(1) cash equal to the balance in the deferred cash account and (2) a number of  
shares equal to the number of deferred shares credited to the deferred share    
account. Distributions will be accelerated in certain circumstances, including  
upon the participant's death and certain transactions terminating the corporate 
existence of Group. Rights relating to deferred cash and deferred shares not    
resulting from an outright grant under the Directors' Plan are non-forfeitable. 

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OTHER INFORMATION REGARDING THE DIRECTORS' PLAN                         

 All options granted under the Directors' Plan will be non-qualified stock
options. A Director may pay the exercise price of an option in cash or by       
surrendering previously acquired shares of common stock. Options generally will 
not be transferable other than by will or by the laws of descent and            
distribution or to a designated beneficiary in the event of death, and are      
exercisable during the Director's lifetime only by the Director, except that    
transfers for estate planning purposes may be permitted.                        

  Unless earlier terminated by the Board, the Directors' Plan will terminate
when no shares remain available under the Plan and New JEF has no further rights
and obligations under the Plan, or upon certain transactions terminating the    
corporate existence of New JEF. It is not possible at present to predict the    
number of options that will be granted or the number of shares that will be     
issuable in settlement of deferred shares under the Directors' Plan.            

GRANTS UPON EFFECTIVENESS OF THE SPIN-OFF                               

Options will be granted under the Directors' Plan in connection with the
Spin-Off. If a Group Director who will become a New JEF Director holds an       
outstanding Group option at the time of the Spin-Off, he will have such Group   
option cancelled and receive instead an option to purchase New JEF shares. The  
number of shares subject to the New JEF option and the exercise price will be   
adjusted, based on the market prices of Group Common Stock prior to the Spin-Off
and New JEF Common Stock after the Spin-Off, in a manner intended to preserve   
but not enlarge the aggregate in-the-money value of the option. This adjustment 
is expected to increase the number of shares subject to the option and reduce   
the per share exercise price. If a Group Director who will become a director of 
New JEF elects to exercise his options prior to the Spin-Off, a Make-Whole Grant
of New JEF options will be granted under the Directors' Plan upon the           
effectiveness of the Spin-Off. Deferred shares credited to the director's       
deferral account will be adjusted into a number of New JEF deferred shares      
having an equal aggregate value following the Spin-Off, and will continue to be 
deferred under the Directors' Plan.                                             

In addition, the automatic annual grant of an option to purchase 4,000  
shares of New JEF Common Stock to each non-employee Director will become        
effective at the time of the Spin-Off.                                          

FEDERAL INCOME TAX IMPLICATIONS OF THE DIRECTORS' PLAN                          

The federal income tax consequences of non-qualified stock options and  
outright grants of deferred shares and restricted stock are described above     
under the caption "Approval of the 1999 Incentive Compensation Plan--Federal    
Income Tax Implications of the Incentive Plan." Other deferrals permitted under 
the Directors' Plan generally will have the following federal income tax        
consequences. If a Director defers fees in the form of deferred cash or deferred
shares, he or she will not recognize ordinary income at the date the fees would 
otherwise have been paid or as a result of the crediting of deferred cash or    
deferred shares to his or her account (including interest credited to the cash  
account or upon the deemed reinvestment of dividend equivalents in the deferred 
share account). The Director will, however, at the date of settlement of such   
accounts by payment of cash or issuance of common stock to the Director,        
recognize ordinary income equal to the amount of cash and the fair market value 
of the common stock received at that date.                                      

The foregoing provides only a general description of the application of 
federal income tax laws to the Directors' Plan. This discussion is intended for 
the information of Group Stockholders considering how to vote at the Special    
Meeting and not as tax guidance to participants in the Directors' Plan. The     
summary does not address the effects of other federal taxes or taxes imposed    
under state, local, or foreign tax laws.                                        

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VOTE REQUIRED FOR APPROVAL                                                      

    Approval of the Directors' Plan will require the affirmative vote of holders
of a majority of the shares of Group Common Stock present in person or          
represented by proxy and entitled to vote on the matter.                        

RECOMMENDATION OF THE BOARD OF DIRECTORS OF GROUP                               

    THE GROUP BOARD OF DIRECTORS CONSIDERS APPROVAL OF THE DIRECTORS' PLAN TO BE
IN THE BEST INTERESTS OF GROUP AND NEW JEF AND THEIR PRESENT AND FUTURE         
STOCKHOLDERS, AND HAS UNANIMOUSLY APPROVED THE ADOPTION OF THE DIRECTORS' PLAN  

 THE GROUP BOARD UNANIMOUSLY RECOMMENDS THAT GROUP STOCKHOLDERS VOTE "FOR"
APPROVAL AND ADOPTION OF THE DIRECTORS' PLAN.                                   

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DESCRIPTION OF NEW JEF CAPITAL STOCK

INTRODUCTION                                                                    

We presently expect that New JEF will have the following capital stock  
authorization and terms.                                                        

AUTHORIZED AND OUTSTANDING CAPITAL STOCK                                        

  The authorized capital stock of New JEF will consist of 100 million shares
of New JEF Common Stock, $.0001 par value per share, and 10 million shares of   
Preferred Stock $.001 par value per share (the "Preferred Stock").              

   Following the completion of the Spin-Off, approximately 23.9 million shares
of New JEF Common Stock outstanding will be held of record by approximately 294 
persons, excluding shares of New JEF Common Stock issuable upon the exercise of 
New JEF stock options. See "The Transactions--The Spin-Off and the Transfers;   
Results of the Spin-Off and the Transfers" and "Approval of the 1999 Incentive  
Compensation Plan." No shares of Preferred Stock have been issued by New JEF,   
and there is no present intention to issue any shares of Preferred Stock.       

NEW JEF COMMON STOCK; DELAWARE ANTITAKEOVER PROVISIONS                          

    Holders of shares of New JEF Common Stock are entitled to one vote per share
on all matters to be voted upon by the stockholders and are not entitled to     
cumulate votes for the election of directors. Subject to preferences that may be
applicable to any outstanding Preferred Stock, holders of shares of New JEF     
Common Stock are entitled to receive ratably such dividends, if any, as may be  
declared from time to time by the New JEF Board of Directors out of funds       
legally available therefor. In the event of liquidation, dissolution or winding 
up of New JEF, the holders of shares of New JEF Common Stock are entitled to    
share ratably in all assets remaining after payment of liabilities, subject to  
prior distribution rights of Preferred Stock, if any, then outstanding. Holders 
of New JEF Common Stock have no preemptive, conversion or other subscription    
rights and there are no redemption or sinking fund provisions applicable to the 
New JEF Common Stock.                                                           

SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW                     

   New JEF is subject to the provisions of Section 203 of the Delaware General
Corporation Law ("DGCL"). Subject to certain exceptions, Section 203 of the DGCL
prohibits a publicly-held Delaware corporation from engaging in a "business     
combination" with an "interested stockholder" for a period of three years after 
the date of the transaction in which the person became an interested            
stockholder. Subject to certain exceptions, an "interested stockholder" is a    
person who, together with affiliates and associates, owns, or within three years
did own, 15% or more of the corporation's voting stock. A "business combination"
includes                                                                        

  (1) mergers, consolidations and sales or other dispositions of 10% or more
  of the assets of a corporation to or with an interested stockholder,

(2) certain transactions resulting in the issuance or transfer to an    
interested stockholder of any stock of such corporation or its    
subsidiaries, and                                                 

   (3) other transactions resulting in a disproportionate financial benefit to
an interested stockholder.                                        

  The restrictions of Section 203 of the Delaware General Corporation Law do
not apply where:                                                                

(1) the business combination or the transaction in which the stockholder
    becomes interested is approved by the corporation's Board of Directors
prior to the date the interested stockholder acquired its shares; 

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(2) the interested stockholder acquired at least 85% of the outstanding 
voting stock of the corporation in the transaction in which the   
     stockholder became an interested stockholder excluding, for determining
the number of shares outstanding, shares owned by persons who are 
directors as well as officers and by employee stock plans in which
    participants do not have the right to determine confidentially whether
      shares held subject to the plan will be tendered in a tender or exchange
offer; or                                                         

  (3) the business combination is approved by the Board of Directors and the
      affirmative vote of two-thirds of the outstanding voting stock not owned
by the interested stockholder at an annual or special meeting.    

    The business combinations provisions of Section 203 of the DGCL may have the
effect of deterring merger proposals, tender offers or other attempts to effect 
changes in control of New JEF that are not negotiated with and approved by the  
Board of Directors.                                                             

PREFERRED STOCK                                                                 

The New JEF Certificate provides that New JEF may issue up to 10 million
shares of Preferred Stock. The New JEF Board has the authority to issue         
Preferred Stock in one or more series and to fix the rights, preferences,       
privileges and restrictions, including the dividend, conversion, voting,        
redemption (including sinking fund provisions), and other rights, liquidation   
preferences, and the number of shares constituting any series and the           
designations of such series, without any further vote or action by the          
stockholders of New JEF. Because the terms of the Preferred Stock may be fixed  
by the New JEF Board without stockholder action, the Preferred Stock could be   
issued quickly with terms calculated to defeat a proposed takeover of New JEF to
make the removal of management of New JEF more difficult. Under certain         
circumstances this could have the effect of decreasing the market price of the  
New JEF Common Stock.                                                           

CERTAIN ANTITAKEOVER PROVISIONS--NEW JEF CERTIFICATE AND BYLAWS                 

Certain provisions of the New JEF Certificate and Bylaws may have the   
effect, either alone or in combination with each other, of making more difficult
or discouraging a tender offer, takeover attempt or change in control that is   
opposed by New JEF's Board of Directors but that a stockholder might consider to
be in its best interest. New JEF believes that such provisions are necessary to 
enable New JEF to develop its business in a manner that will foster its         
long-term growth without disruption caused by the threat of a takeover not      
deemed by the Board of Directors to be in the best interests of New JEF and its 
stockholders. These provisions are summarized in the following paragraphs.      

BUSINESS CONDUCTED AT MEETINGS; DIRECTOR NOMINATION                     

The JEF Bylaws provide that in order to bring matters before the annual 
meetings of stockholders, stockholders must give notice to New JEF containing   
certain information within 60 to 90 days prior to the anniversary date of the   
previous year's annual meeting or, if the date of the annual meeting is not     
within 30 days of the anniversary date of the previous year's annual meeting, no
earlier than 90 days prior to such annual meeting and no later than the close of
business on the tenth day following the day on which notice of the date of such 
meeting was mailed or the tenth day following the day on which public disclosure
of the date of the meeting of stockholders was made, whichever first occurs. In 
order to nominate candidates for directors of New JEF, stockholders must give   
notice to New JEF containing certain information within 60 to 90 days prior to  
the anniversary date of the previous year's annual meeting or, if the date of an
annual meeting is not within 30 days of the anniversary of the previous year's  
annual meeting, not later than the close of business on the tenth day following 
the day on which notice of the date of such meeting was mailed or public        
disclosure of the date of the meeting of stockholders was made, whichever first 
occurs.                                                                         

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SPECIAL MEETING OF STOCKHOLDERS                                         

    The DGCL provides that special meetings of stockholders may be called by the
Board of Directors of New JEF or any person authorized by the New JEF           
Certificate or JEF Bylaws to call a special meeting. The New JEF Certificate and
Bylaws provide that special meetings may be called by the Board of Directors or 
any person authorized by the Board of Directors to call a special meeting.      
Nominations of persons for election to the Board of Directors may be made at a  
special meeting by or at the direction of the Board of Directors. In order to   
nominate candidates for directors of New JEF at a special meeting in such       
circumstances, stockholders must give notice to New JEF containing certain      
information not earlier than the close of business on the 90th day prior to such
special meeting and not later than the close of business on the later of the    
60th day prior to such special meeting or the tenth day following the day on    
which public announcement is first made of the date of the special meeting and  
of the nominees proposed by the Board of Directors to be elected at such        
meeting.                                                                        

NO STOCKHOLDER ACTION BY WRITTEN CONSENT; STOCKHOLDER ACTION AT MEETINGS

  The New JEF Certificate and New JEF Bylaws provide that stockholder action
can be taken only at an annual or special meeting of stockholders, and prohibit 
stockholder action by written consent in lieu of a meeting.                     

SUPERMAJORITY VOTING                                                    

The New JEF Certificate and New JEF Bylaws require the approval of the  
holders of at least 66 2/3% of the voting power of all of the shares entitled to
vote to alter, amend, repeal or adopt any provision inconsistent with or        
limiting the effect of provisions of certain enumerated antitakeover provisions 
in the New JEF Certificate and JEF Bylaws, including the anti-takeover          
provisions listed above. The Board of Directors may amend, supplement or repeal 
the JEF Bylaws at any time, except as limited by law.                           

OTHER DELAWARE CORPORATE LAW PROVISIONS AFFECTING NEW JEF STOCKHOLDERS          

DIVIDEND RIGHTS                                                         

Under the DGCL, a corporation may pay dividends either                  

(1) out of "surplus" (as defined below) or,                             

(2) if no such surplus exists, out of net profits for the fiscal year in
     which such dividends are declared and/or for its preceding fiscal year;
 except that no dividends may be paid out of such net profits if the
"capital" (as defined below) of the corporation is diminished by  
     depreciation in the value of its property or by losses, or otherwise to
    an amount less than the aggregate amount of capital represented by the
       issued and outstanding stock having a preference upon the distribution of
assets.                                                           

  "Surplus" is defined in the DGCL as the amount by which net assets
(total assets less total liabilities) exceeds the capital of the  
      corporation. In accordance with the DGCL, "capital" is determined by the
     Board of Directors and will not be less than the aggregate par value of
   the outstanding capital stock of the corporation having par value. In
    addition, the DGCL generally provides that a corporation may redeem or
       repurchase its own shares only if such redemption or repurchase would not
"impair the capital" of the corporation. The ability of a Delaware
  corporation to pay dividends on, or redeem or to make repurchases or
    redemptions of, its shares is dependent on the financial status of the
corporation standing alone and not on a consolidated basis.       

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FIDUCIARY DUTIES OF DIRECTORS                                           

   Under the DGCL, the business and affairs of a corporation are managed by or
under the direction of its boards of directors. In exercising their powers,     
directors are charged with a fiduciary duty to protect the interests of the     
corporation and to act in the best interests of its stockholders. Delaware      
courts have held that the duty of care requires the directors to exercise an    
informed business judgment, known as the "business judgment rule." A party      
challenging the propriety of a decision of a Board of Directors bears the burden
of rebutting the applicability of the presumption of the business judgment rule 
by demonstrating that, in reaching their decision, the directors breached one or
more of their fiduciary duties--good faith, loyalty and due care. If the        
presumption is not rebutted, the business judgment rule attaches to protect the 
directors and their decisions, and their business judgments will not be second  
guessed. Where, however, the presumption is rebutted, the directors bear the    
burden of demonstrating the entire fairness of the relevant transaction.        
Notwithstanding the foregoing, Delaware courts subject directors' conduct to    
enhanced scrutiny in respect of defensive actions taken in response to a threat 
to corporate control and approval of a transaction resulting in a sale of such  
control.                                                                        

LIABILITY OF DIRECTORS                                                  

The DGCL permits a corporation to include in its certificate of         
incorporation a provision limiting or eliminating the liability of its directors
to such corporation or its stockholders for monetary damages arising from a     
breach of fiduciary duty, except for:                                           

   (1) a breach of the duty of loyalty to the corporation or its stockholders,

(2) acts or omissions not in good faith or which involve intentional    
misconduct or a knowing violation of law,                         

 (3) a declaration of a dividend or the authorization of the repurchase or
redemption of stock in violation of the DGCL or                   

(4) any transaction from which the director derived an improper personal
benefit.                                                          

The certificates of incorporation of each of Group and New JEF limits the       
liability of directors to those set forth above.                                

INDEMNIFICATION OF DIRECTORS AND OFFICERS                               

  Under the DGCL, a corporation may indemnify any person involved in a third
party action, suit or proceeding, whether civil, criminal, administrative or    
investigative, by reason of being a director or officer of the corporation,     
against expenses (including attorneys' fees), judgments, fines and settlement   
amounts actually and reasonably incurred in connection with such action, suit or
proceeding (and against expenses incurred in a derivative action on behalf of   
such corporation) or incurred by reason of such person's being or having been a 
representative of such corporation, if such person acted in good faith and      
reasonably believed that his actions were in or not opposed to the best         
interests of such corporation and, with respect to any criminal proceeding, had 
no reasonable cause to believe that his conduct was unlawful. The DGCL also     
provides that a corporation may advance to such director or officer expenses    
incurred by him in defending any action, upon receipt of an undertaking by the  
person to repay the amount advanced if it is ultimately determined that he is   
not entitled to indemnification. A determination as to the amount of the        
indemnification to be made by the corporation shall be made by a majority vote  
of the directors who are not parties to such action, even though less than a    
quorum, or, if such directors so direct, by independent legal counsel. No       
indemnification for expenses in derivative actions is permitted under the DGCL  
where the person is adjudged liable to the corporation, unless a court finds him
entitled to such indemnification. If, however, the person is successful in      
defending a third party or derivative action, indemnification for expenses      
incurred is mandatory. The DGCL provides further that the provisions for        
indemnification contained therein are nonexclusive of                           

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any other rights to which the party may be entitled under any bylaw, agreement  
or vote of stockholders or disinterested directors. The bylaws of each of Group 
and New JEF provide for indemnification of any person to the fullest extent     
permitted by law.                                                               

ANNUAL MEETINGS                                                         

  Under the DGCL, if the annual meeting for the election of directors is not
held on the designated date, the directors are required to cause such a meeting 
to be held as soon thereafter as convenient. If they fail to do so for a period 
of 30 days after the designated date, or if no date has been designated for a   
period of 13 months after the organization of the corporation or after its last 
annual meeting, the Court of Chancery may summarily order a meeting to be held  
upon the application of any stockholder or director.                            

MERGERS AND MAJOR TRANSACTIONS                                          

  Under the DGCL, whenever the approval of the stockholders of a corporation
is required for an agreement of merger or consolidation or for a sale, lease or 
exchange of all or substantially all of its assets, such agreement, sale, lease 
or exchange must be approved by the affirmative vote of the owners of a majority
of outstanding shares entitled to vote thereon. Notwithstanding the foregoing,  
unless required by its certificate of incorporation, no vote of the stockholders
of a constituent corporation surviving a merger is necessary to authorize such  
merger if:                                                                      

   (1) the agreement of merger does not amend the certificate of incorporation
of such constituent corporation,                                  

    (2) each share of stock of such constituent corporation outstanding prior to
    such merger is to be an identical outstanding or treasury share of the
surviving corporation after such merger,                          

(3) either no shares of Common Stock of the surviving corporation and no
      shares, securities or obligations convertible into such Common Stock are
     to be issued under such agreement of merger, or the number of shares of
  Common Stock issued or so issuable does not exceed 20% of the number
thereof outstanding immediately prior to such merger, and         

(4) certain other conditions are satisfied.                             

In addition, the DGCL provides that a parent corporation that is the record     
holder of at least 90% of the outstanding shares of each class of stock of a    
subsidiary may merge such subsidiary into such parent corporation without the   
approval of such subsidiary's stockholders or Board of Directors. Furthermore,  
the DGCL provides that no stockholder vote is required to approve a merger of a 
constituent corporation with a single direct or indirect wholly owned subsidiary
of such corporation, subject to certain qualifications.                         

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MARKET PRICE OF AND DIVIDENDS ON COMMON STOCK 
AND RELATED STOCKHOLDER MATTERS 

GROUP                                                                           

   Group's Common Stock began trading on the NYSE on March 15, 1996, under the
symbol JEF. Previously, Group's Common Stock traded in the Nasdaq National      
Market System under the symbol Group. The following table sets forth for the    
periods indicated, the range of high and low prices per share for the Group     
Common Stock as reported by the NYSE. All price range and dividends per share   
information has been restated to retroactively reflect the effect of the        
two-for-one stock splits declared by the Group Board of Directors on November   
19, 1997 and March 2, 1996.                                                     

                                                        · Enlarge/Download Table

                                                                     HIGH        LOW   
                                                                   ---------  ---------
                                                                                       
1999                                                                                   
-----------------------------------------------------------------                      
First Quarter (through March 15, 1999)...........................  $   55.25  $   36.94

1998                                                                                   
-----------------------------------------------------------------                      
First Quarter....................................................  $   56.88  $   32.50
Second Quarter...................................................      59.50      40.00
Third Quarter....................................................      51.25      24.38
Fourth Quarter...................................................      50.88      16.56

1997                                                                                   
-----------------------------------------------------------------                      
First Quarter....................................................  $   24.13  $   19.38
Second Quarter...................................................      30.38      20.00
Third Quarter....................................................      38.16      26.63
Fourth Quarter...................................................      48.00      31.88

   On March 15, 1999, the closing sales price per share for Group Common Stock
as reported on the NYSE was $45.19. On March 17, 1998, the last full trading day
prior to the public announcement of the Transactions, the last reported sale    
price was $51.31 per share for Group Common Stock. There were approximately 294 
holders of record of Group's Common Stock at March 1, 1999.                     

In 1988, Group instituted a policy of paying regular quarterly cash     
dividends. There are no restrictions on Group's present ability to pay dividends
on Common Stock, other than the applicable provisions of the DGCL.              

Dividends per Group Common Share (declared and paid):                   

                                                        · Enlarge/Download Table

                                                       FIRST       SECOND        THIRD       FOURTH   
                                                      QUARTER      QUARTER      QUARTER      QUARTER  
                                                    -----------  -----------  -----------  -----------
                                                                                                      
1998...............................................  $   .0500    $   .0500    $   .0500    $   .0500 
1997...............................................  $   .0250    $   .0250    $   .0250    $   .0500 

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ITGI                                                                            

    ITGI's Common Stock is quoted on the Nasdaq National Market under the symbol
"ITGI." ITGI has applied for listing of New ITGI Common Stock on the New York   
Stock Exchange under the symbol "ITG."                                          

  The following table sets forth for the periods indicated, the range of the
high and low closing sales prices per share for ITGI's Common Stock as          
reportedis on the Nasdaq National Market.                                       

                                                        · Enlarge/Download Table

                                                                     HIGH        LOW   
                                                                   ---------  ---------
                                                                                       
1999                                                                                   
-----------------------------------------------------------------                      
First Quarter (through March 15, 1999)...........................  $   67.00  $   35.50

1998                                                                                   
-----------------------------------------------------------------                      
First Quarter....................................................  $   37.50  $   24.38
Second Quarter...................................................      35.50      25.50
Third Quarter....................................................      34.00      27.25
Fourth Quarter...................................................      62.06      18.50

1997                                                                                   
-----------------------------------------------------------------                      
First Quarter....................................................  $   23.75  $   18.38
Second Quarter...................................................      26.88      17.88
Third Quarter....................................................      32.00      26.31
Fourth Quarter...................................................      31.25      26.25

  On March 15, 1999, the closing sales price per share for ITGI Common Stock
as reported on the Nasdaq National Market was $46.50. On March 17, 1998, the    
last full trading day prior to the public announcement of the Transactions, the 
last reported sale price was $31.25 per share for ITGI Common Stock. On December
31, 1998, ITGI Common Stock was held by approximately 1,500 holders of record or
through nominees in street name accounts with brokers.                          

   ITGI has not paid a dividend since May 4, 1994. Prior to and subject to the
consummation of the Merger, ITGI will pay the Special ITGI Cash Dividend of     
$4.00 per share to each stockholder of record as of April 20, 1999. See "The    
Transactions--Special ITGI Cash Dividend." ITGI's revolving credit facility     
restricts ITGI's ability to pay dividends. See "Management's Discussion of      
Financial Condition and Result of Operations of ITGI--Liquidity and Capital     
Resources." ITGI's dividend policy following the Merger will be to retain       
earnings to finance the operations and expansion of ITGI's businesses. Other    
than the Special ITGI Cash Dividend, ITGI does not anticipate paying any cash   
dividends on ITGI Common Stock in the foreseeable future.                       

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SELECTED HISTORICAL FINANCIAL DATA OF GROUP 

The following selected historical financial information has been derived from   
the Group's consolidated financial statements and should be read in conjunction 
with such consolidated financial statements and the notes thereto, which are    
incorporated by reference into this Proxy/Information Statement. The selected   
data as of and for each of the years in the five-year period ended December 31, 
1998 have been derived from Group's consolidated financial statements, which    
financial statements have been audited by KPMG LLP, independent auditors.       

All share and per share information has been restated to retroactively  
reflect the effect of the two-for-one stock splits declared by the Board of     
Directors on November 19, 1997 and March 2, 1996. Earnings per share information
has been restated to retroactively reflect the adoption of Statement of         
Financial Accounting Standards No. 128. Certain reclassifications have been made
to the prior period amounts to conform to the current periods presentation.     

                                                        · Enlarge/Download Table

                                                                      YEAR ENDED DECEMBER 31,                
                                                       ----------------------------------------------------- 
                                                                                                             
                                                         1998       1997       1996       1995       1994    
                                                       ---------  ---------  ---------  ---------  --------- 


                                                             (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)        
                                                                                                             
Revenues:                                                                                                    
Commissions........................................... $ 395,211  $ 282,317  $ 222,048  $ 165,610  $ 144,208 
Principal transactions................................   174,240    177,214    143,912     97,954     67,013 
Corporate finance.....................................   126,651    228,640     97,870     72,003     39,818 
Interest..............................................    90,799     70,740     47,803     65,792     51,223 
Other.................................................    11,809      5,593      4,993      4,228      1,902 
                                                       ---------  ---------  ---------  ---------  --------- 
      Total revenues..................................   798,710    764,504    516,626    405,587    304,164 
Interest expense......................................    75,178     61,466     37,852     54,365     41,626 
                                                       ---------  ---------  ---------  ---------  --------- 
Revenues, net of interest expense.....................   723,532    703,038    478,774    351,222    262,538 
Non-interest expenses:                                                                                       
Compensation and benefits.............................   380,737    409,979    264,041    195,278    145,372 
Floor brokerage and clearing fees.....................    42,063     35,028     27,323     20,273     18,660 
Communications........................................    67,851     55,959     35,177     24,960     20,997 
Occupancy and equipment rental........................    19,931     21,238     17,207     15,993     14,271 
Travel and promotional................................    21,662     19,207     13,541     10,296      8,909 
Software royalties....................................    15,252      9,853      8,805      5,987      5,028 
Other.................................................    37,844     35,824     29,493     25,197     18,522 
                                                       ---------  ---------  ---------  ---------  --------- 
      Total non-interest expenses.....................   585,340    587,088    395,587    297,984    231,759 
                                                       ---------  ---------  ---------  ---------  --------- 
Operating income......................................   138,192    115,950     83,187     53,238     30,779 
Other income--Gain on initial public offering of                                                             
  Investment Technology Group, Inc....................        --         --         --         --      8,257 
                                                       ---------  ---------  ---------  ---------  --------- 
Earnings before income taxes and minority interest....   138,192    115,950     83,187     53,238     39,036 
Income taxes..........................................    60,533     47,677     35,438     21,911     17,568 
                                                       ---------  ---------  ---------  ---------  --------- 
Earnings before minority interest.....................    77,659     68,273     47,749     31,327     21,468 
Minority interest.....................................     7,977      4,706      4,189      2,798      1,244 
                                                       ---------  ---------  ---------  ---------  --------- 
Net earnings.......................................... $  69,682  $  63,567  $  43,560  $  28,529  $  20,224 
                                                       ---------  ---------  ---------  ---------  --------- 
                                                       ---------  ---------  ---------  ---------  --------- 
Earnings per share of Common Stock:                                                                          
    Basic earnings per share.......................... $    3.12  $    2.95  $    1.90  $    1.23  $    0.84 
                                                       ---------  ---------  ---------  ---------  --------- 
                                                       ---------  ---------  ---------  ---------  --------- 
    Diluted earnings per share........................ $    2.96  $    2.80  $    1.84  $    1.19  $    0.81 
                                                       ---------  ---------  ---------  ---------  --------- 
                                                       ---------  ---------  ---------  ---------  --------- 
Weighted average shares of Common Stock:                                                                     
    Basic.............................................    22,346     21,552     22,980     23,270     23,956 
    Diluted...........................................    22,954     22,349     23,410     23,922     24,756 
Cash dividends per common share....................... $   0.200  $   0.125  $   0.087  $   0.050  $   0.050 
SELECTED BALANCE SHEET DATA (AT PERIOD END):                                                                 
Total assets.......................................... $2,683,640 $2,099,542 $1,568,087 $1,536,969 $1,557,348
Long-term debt........................................ $ 149,387  $ 149,290  $  52,987  $  56,322  $  59,570 
Total stockholders' equity............................ $ 334,775  $ 242,756  $ 195,445  $ 186,261  $ 163,235 
Book value per share of Common Stock.................. $   15.77  $   11.97  $    9.43  $    8.28  $    7.28 
Shares outstanding....................................    21,230     20,286     20,726     22,514     22,420 

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UNAUDITED SUPPLEMENTAL SELECTED HISTORICAL FINANCIAL DATA OF NEW JEF

The unaudited supplemental selected historical financial data of New JEF        
presented below as of and for each of the years in the five-year period ended   
December 31, 1998, reflects the historical financial statements of New JEF, as  
successor to Group, as reclassified to show the effects on reported results of  
operations and financial position of New JEF assuming the proposed Spin-Off was 
consummated and, as a result, ITGI is reported as a discontinued operation.     

All share and per share information has been restated to retroactively  
reflect the effect of the two-for-one stock splits declared by Group's Board of 
Directors on November 19, 1997 and March 2, 1996. Earnings per share information
has been restated to retroactively reflect the adoption of Statement of         
Financial Accounting Standards No. 128. Such data should be read in connection  
with the consolidated financial statements incorporated by reference herein.    

                                                        · Enlarge/Download Table

                                                                      YEAR ENDED DECEMBER 31,                
                                                       ----------------------------------------------------- 
                                                                                                             
                                                         1998       1997       1996       1995       1994    
                                                       ---------  ---------  ---------  ---------  --------- 


                                                             (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)        
                                                                                                             
SUPPLEMENTAL EARNINGS STATEMENT DATA                                                                         
Revenues:                                                                                                    
Commissions........................................... $ 190,870  $ 148,940  $ 113,512  $  95,892  $  89,459 
Principal transactions................................   177,189    179,081    145,207     98,629     67,412 
Corporate finance.....................................   126,651    228,640     97,870     72,003     39,818 
Interest..............................................    91,024     70,656     47,443     65,784     50,918 
Other.................................................     4,881      3,525      2,991      1,974        948 
                                                       ---------  ---------  ---------  ---------  --------- 
      Total revenues..................................   590,615    630,842    407,023    334,282    248,555 
Interest expense......................................    75,153     61,314     37,840     54,343     41,587 
                                                       ---------  ---------  ---------  ---------  --------- 
Revenues, net of interest expense.....................   515,462    569,528    369,183    279,939    206,968 
                                                       ---------  ---------  ---------  ---------  --------- 
Non-interest expenses:                                                                                       
Compensation and benefits.............................   321,943    373,619    234,446    175,101    127,826 
Floor brokerage and clearing fees.....................    32,425     26,754     21,606     15,874     15,999 
Communications........................................    47,210     40,305     24,474     18,762     16,014 
Occupancy and equipment rental........................    14,036     15,701     13,003     13,047     11,657 
Travel and promotional................................    17,710     15,300     10,703      7,770      7,538 
Other.................................................    22,945     29,159     22,765     21,035     14,927 
                                                       ---------  ---------  ---------  ---------  --------- 
      Total non-interest expenses.....................   456,269    500,838    326,997    251,589    193,961 
                                                       ---------  ---------  ---------  ---------  --------- 
Earnings before income taxes..........................    59,193     68,690     42,186     28,350     13,007 
Income taxes..........................................    22,992     27,334     17,772     11,928      6,375 
                                                       ---------  ---------  ---------  ---------  --------- 
Earnings from continuing operations...................    36,201     41,356     24,414     16,422      6,632 
Discontinued operations of ITGI, net of tax...........    33,481     22,211     19,146     12,107     13,592 
                                                       ---------  ---------  ---------  ---------  --------- 
Net earnings.......................................... $  69,682  $  63,567  $  43,560  $  28,529  $  20,224 
                                                       ---------  ---------  ---------  ---------  --------- 
                                                       ---------  ---------  ---------  ---------  --------- 
Earnings per share of Common Stock:                                                                          
    Basic:                                                                                                   
      Continuing operations........................... $    1.62  $    1.92  $    1.06  $    0.71  $    0.28 
      Discontinued operations of ITGI, net of tax.....      1.50       1.03       0.84       0.52       0.56 
                                                       ---------  ---------  ---------  ---------  --------- 
      Net earnings.................................... $    3.12  $    2.95  $    1.90  $    1.23  $    0.84 
                                                       ---------  ---------  ---------  ---------  --------- 
                                                       ---------  ---------  ---------  ---------  --------- 
    Diluted:                                                                                                 
      Continuing operations........................... $    1.58  $    1.85  $    1.04  $    0.69  $    0.27 
                                                       ---------  ---------  ---------  ---------  --------- 
      Discontinued operations of ITGI, net of tax.....      1.38       0.95       0.80       0.50       0.54 
                                                       ---------  ---------  ---------  ---------  --------- 
      Diluted earnings per share...................... $    2.96  $    2.80  $    1.84  $    1.19  $    0.81 
                                                       ---------  ---------  ---------  ---------  --------- 
                                                       ---------  ---------  ---------  ---------  --------- 
Weighted average shares of Common Stock:                                                                     
    Basic.............................................    22,346     21,552     22,980     23,270     23,956 
    Diluted...........................................    22,954     22,349     23,410     23,922     24,756 
Cash dividends per common share....................... $   0.200  $   0.125  $   0.087  $   0.050  $   0.050 
SELECTED BALANCE SHEET DATA (AT PERIOD END):                                                                 
Total assets.......................................... $2,617,864 $2,058,106 $1,533,906 $1,519,949 $1,538,126
Long-term debt........................................ $ 149,387  $ 149,290  $  52,987  $  56,322  $  59,570 
Total stockholders' equity............................ $ 334,775  $ 242,756  $ 195,445  $ 186,261  $ 163,235 
Book value per share of Common Stock.................. $   15.77  $   11.97  $    9.43  $    8.28  $    7.28 
Shares outstanding....................................    21,230     20,286     20,726     22,514     22,420 

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF SUPPLEMENTAL FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF NEW JEF

    The following Management's Discussion and Analysis of Supplemental Financial
Condition and Results of Operations assumes the proposed Spin-Off is consummated
and reflects the historical financial statements of Group restated to reflect   
ITGI as a discontinued operation.                                               

ANALYSIS OF FINANCIAL CONDITION                                                 

   Total assets increased $559.8 million from $2,058.1 million at December 31,
1997 to $2,617.9 million at December 31, 1998. The increase is mostly due to a  
$748.4 million increase in receivable from brokers and dealers related to       
securities borrowed. The increase in securities borrowed is mostly related to an
increase in payables to brokers and dealers (related to securities loaned)      
payables to brokers and dealers (related to securities loaned). Securities owned
and securities sold, not yet purchased decreased $144.3 million and $149.3      
million, respectively, from December 31, 1997 to December 31, 1998, largely due 
to the discontinuance of statistical arbitrage trading.                         

    Total liabilities increased $467.7 million from $1,815.4 million at December
31, 1997 to $2,283.1 million at December 31, 1998. The increase is largely due  
to the before-mentioned increases in payable to brokers and dealers and         
partially offset by the before-mentioned decrease in securities sold, not yet   
purchased.                                                                      

SUMMARY OF REVENUES BY SOURCE                                                   

   The earnings of New JEF are subject to wide fluctuations since many factors
over which New JEF 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.                                                       

                                                        · Enlarge/Download Table

                                                                          YEAR ENDED DECEMBER 31,                     
                                                      ----------------------------------------------------------------
                                                                                                                      
                                                                1998                       1997                1996   
                                                      -------------------------  -------------------------  ----------


                                                                      % OF                       % OF                 
                                                                      TOTAL                      TOTAL                
                                                        AMOUNT      REVENUES       AMOUNT      REVENUES       AMOUNT  
                                                      ----------  -------------  ----------  -------------  ----------
                                                                           (DOLLARS IN THOUSANDS)                     
                                                                                                                      
Commissions and principal transactions:                                                                               
  Equities Division.................................. $  261,664           44%   $  206,430           33%   $  164,077
  International Division.............................     50,889            9        56,525            9        43,288
  Taxable Fixed Income Division......................     40,071            7        34,714            6        28,839
  Convertible Division...............................     13,011            2         9,336            1         8,132
  Other Proprietary Trading..........................      2,424           --        21,016            3        14,383
                                                      ----------          ---    ----------          ---    ----------
      Total..........................................    368,059           62       328,021           52       258,719
                                                      ----------          ---    ----------          ---    ----------
Corporate Finance....................................    126,651           22       228,640           36        97,870
Interest.............................................     91,024           15        70,656           11        47,443
Other................................................      4,881            1         3,525            1         2,991
                                                      ----------          ---    ----------          ---    ----------
      Total revenues................................. $  590,615          100%   $  630,842          100%   $  407,023
                                                      ----------          ---    ----------          ---    ----------
                                                      ----------          ---    ----------          ---    ----------



                                                                                                                      

                                                          % OF                                                        
                                                          TOTAL                                                       
                                                        REVENUES                                                      
                                                      -------------                                                   

                                                                                                                      
Commissions and principal transactions:                                                                               
  Equities Division..................................          40%                                                    
  International Division.............................          11                                                     
  Taxable Fixed Income Division......................           7                                                     
  Convertible Division...............................           2                                                     
  Other Proprietary Trading..........................           3                                                     
                                                              ---                                                     
      Total..........................................          63                                                     
                                                              ---                                                     
Corporate Finance....................................          24                                                     
Interest.............................................          12                                                     
Other................................................           1                                                     
                                                              ---                                                     
      Total revenues.................................         100%                                                    
                                                              ---                                                     
                                                              ---                                                     

1998 COMPARED TO 1997                                                           

  Revenues, net of interest expense, decreased $54.1 million, or 9%, in 1998
as compared to 1997. The decrease was due to a $102.0 million, or 45%, decrease 
in corporate finance, partially offset by a $41.9 million, or 28%, increase in  
commissions. Commission revenues increased mostly due to the Equities Division. 
Revenues from principal transactions decreased $1.9 million, or 1%, primarily   
due to reduced trading gains in other investments. Corporate finance revenues   
declined due to the difficult                                                   

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environment for underwritings during 1998. Net interest income increased by $6.5
million mostly due to an excess of securities borrowed interest income over     
securities loaned interest expense.                                             

Total non-interest expenses decreased $44.6 million, or 9%, in 1998 as  
compared to 1997. Compensation and benefits decreased $51.7 million, or 14%     
primarily due to a $65.6 million decrease in performance-based compensation,    
partially offset by an $8.1 increase in salaries, a $4.1 increase in payroll    
taxes and employee benefits and a $2.0 million increase in sales commissions.   
Other expense decreased $6.2 million, or 21%, largely due to lower litigation   
expenses and provisions. Communications increased $6.9 million, or 17%,         
primarily due to increased Y2K costs. Floor brokerage and clearing fees         
increased $5.7 million, or 21%, mostly due to increased volume of business      
executed on the various exchanges. Travel and promotional expense increased $2.4
million, or 16%, mostly due to increased business travel. Occupancy and         
equipment rental decreased $1.7 million, or 11%, mostly due to a reduction in   
office move related expenses.                                                   

   As a result of the above, earnings from continuing operations before income
taxes were down $5.2 million, or 12%.                                           

    The discontinued operations of ITGI increased $11.3 million, or 51%, in 1998
as compared to 1997.                                                            

  Net earnings were up 10% to $69.7 million, as compared to $63.6 million in
1997. The effective tax rate on earnings from continuing operations was         
approximately 38.8% in 1998 compared to approximately 39.8% in 1997. The        
reduction in the effective tax rate was due largely to a reduction in the       
effective state tax rate.                                                       

 Basic earnings per share from continuing operations were $3.12 in 1998 on
22.3 million shares compared to $2.95 in 1997 on 21.6 million shares. Diluted   
earnings per share from continuing operations were $2.96 in 1998 on 23.0 million
shares compared to $2.80 in 1997 on 22.3 million shares.                        

1997 COMPARED TO 1996                                                           

    Revenues, net of interest expense, increased $200.3 million, or 54%, in 1997
as compared to 1996. The increase was due to a $130.8 million, or 134%, increase
in corporate finance, a $35.4 million, or 31%, increase in commissions and a    
$33.9 million, or 23%, increase in principal transactions. Commission revenues  
increased mostly due to the Equities Division and the International Division.   
Revenues from principal transactions increased primarily due to increased       
trading gains in the Equities Division, the International Division, and the     
Taxable Fixed Income Division. Corporate finance revenues benefited from        
increased debt financing deals. Net interest income decreased only slightly from
the prior year.                                                                 

Total non-interest expenses increased $173.8 million, or 53%, in 1997 as
compared to 1996. Compensation and benefits increased $139.2 million, or 59%    
primarily due to a $101.8 million increase in performance-based compensation, a 
$24.7 million increase in sales commissions and an $8.8 million increase in     
salaries. Salaries increased due largely to expansion in the Corporate Finance  
Division, the Equity Research Division and the Equities Division. Other expense 
increased $6.4 million, or 28%, largely due to higher litigation expenses and   
provisions. Communications increased $15.8 million, or 65%, primarily due to    
increased trade volume and personnel. Floor brokerage and clearing fees         
increased $5.1 million, or 24%, mostly due to increased volume of business      
executed on the various exchanges. Travel and promotional expense increased $4.6
million, or 43%, mostly due to increased business travel. Occupancy and         
equipment rental increased $2.7 million, or 21%, mostly due to the relocation   
and addition of office space.                                                   

   As a result of the above, earnings from continuing operations before income
taxes were up $26.5 million, or 63%.                                            

   The discontinued operations of ITGI increased $3.1 million, or 16%, in 1997
as compared to 1996.                                                            

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  Net earnings were up 46% to $63.6 million, as compared to $43.6 million in
1996. The effective tax rate on earnings from continuing operations was         
approximately 39.8% in 1997 compared to approximately 42.1% in 1996. The        
reduction in the effective tax rate was due largely to a reversal of taxes      
related to ITGI shares that were repurchased during 1997.                       

 Basic earnings per share from continuing operations were $2.95 in 1997 on
21.6 million shares compared to $1.90 in 1996 on 23.0 million shares. Diluted   
earnings per share from continuing operations were $2.80 in 1997 on 22.3 million
shares compared to $1.84 in 1996 on 23.4 million shares.                        

LIQUIDITY AND CAPITAL RESOURCES                                                 

 In connection with the Transfers and the Spin-Off, it is anticipated that
certain events will take place that will increase New JEF's liquidity and       
capital. For more details as to the nature of the expected infusion and the     
anticipated amounts, refer to the "Unaudited Pro Forma Condensed Consolidated   
Statement of Financial Condition of New JEF (Excluding Discontinued             
Operations)." It is expected that these additional liquidity and capital amounts
will be invested into New JEF's core Brokerage and Investment Banking Business. 
Management believes that the expected levels of liquidity and capital in New JEF
will be adequate to satisfy the short-term and long-term operating requirements 
of New JEF.                                                                     

Also, as part of the Transfers and the Spin-Off, New JEF will assume the
outstanding Senior Notes of Group in the amount of $150 million. Through the    
above described capital and liquidity infusions and future earnings, it is      
expected that the Senior Notes will either be paid off when due or refinanced in
the ordinary course of business.                                                

   A substantial portion of New JEF's assets are liquid, consisting of cash or
assets readily convertible into cash. The majority of securities positions (both
long and short) in New JEF'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 New
JEF's receivables are secured by marketable securities.                         

New JEF's assets are funded by equity capital, senior debt, subordinated
debt, securities loaned, 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. JEFCO 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, JEFCO 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.                                               

JEFCO 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. JEFCO and W & D have       
consistently operated in excess of the minimum requirements. As of December 31, 
1998, JEFCO's and W & D's net capital was $217.4 million and $2.0 million,      
respectively, which exceeded minimum net capital requirements by $213.4 million 
and $1.8 million, respectively. JEFCO and W & D use the alternative method of   
calculating their regulatory net capital.                                       

    In 1998, Jefferies Group, Inc. repurchased 334,234 shares (including 275,400
shares purchased in connection with the Company's Capital Accumulation Plan) of 
its Common Stock at prices ranging from $17.25 to $52.81.                       

  During 1997, JEFCO obtained a NASDR approved $200 million revolving credit
facility to be used in connection with underwriting activities.                 

   The repurchased shares of Common Stock, excluding the shares repurchased in
connection with the Group CAP Plan, were mostly retired.                        

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    On January 25, 1999, in anticipation of the Transactions, the Group CAP Plan
was liquidated. Liquidation of this plan is part of the capital infusion to New 
JEF contemplated as part of the Transactions, and resulted in employees         
receiving approximately 1.5 million shares of Group Common Stock. These shares  
payable under the Group CAP Plan are included in the basic and diluted weighted 
average shares of New JEF.                                                      

MARKET RISK                                                                     

New JEF adopted SEC Release No. 33-7386, issued in 1997, which requires 
qualitative disclosures of market risk exposure and quantitative disclosures of 
the magnitude of market risk.                                                   

  New JEF maintains equity securities inventories in exchange-listed, Nasdaq
and private securities on both a long and short basis. The fair value of these  
securities at December 31, 1998, was $43 million in long positions and $26      
million in short positions. The potential loss in fair value, using a           
hypothetical 10% decline in prices, is estimated to be approximately $2 million 
due to the offset of losses in long positions with gains in short positions. In 
addition, New JEF generally enters into exchange-traded option and index futures
contracts to hedge against potential losses in inventory positions, thus        
reducing this potential loss exposure. This hypothetical 10% decline in prices  
would not be material to New JEF's financial position, results of operations or 
cash flows.                                                                     

  New JEF also invests in money market funds; high-yield, corporate and U.S.
Government agency debt and mutual bond funds. Money market funds do not have    
maturity dates and do not present a material market risk. The fair value of high
yield, corporate and U.S. Government agency debt at December 31, 1998 was $57   
million in long positions and $12 million in short positions. Mutual bond funds 
also do not have maturity dates and total $33 million at December 31, 1998. The 
potential loss in fair value of the high-yield, corporate and U.S. Government   
agency debt and the mutual bond funds, using a hypothetical 5% decline in value,
is estimated to be approximately $4 million due to the offset of losses in long 
positions with gains in short positions. This hypothetical 5% decline in value  
would not be material to New JEF's financial position, results of operations or 
cash flows.                                                                     

    At December 31, 1998, New JEF had $150 million aggregate principal amount of
Senior Notes, with fixed interest rates. New JEF has no cash flow exposure      
regarding these Notes due to the fixed rate of interest.                        

 The table below provides information about New JEF's derivative financial
instruments and other financial instruments that are sensitive to changes in    
interest rates, exchange rates and stock price movements (in thousands of       
dollars.) For debt obligations and reverse repurchase agreements, the table     
presents principal cash flows with expected maturity dates. For foreign exchange
forward contracts,                                                              

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index futures contracts and option contracts the table presents notional amounts
with expected maturity dates.                                                   

                                                        · Enlarge/Download Table

                                                              EXPECTED MATURITY DATE                              
                                                         --------------------------------                         
                                                                                 AFTER                    FAIR    
                                                           1999       2000        2003       TOTAL       VALUE    
                                                         ---------  ---------  ----------  ----------  ---------- 
                                                                                                                  
INTEREST RATE SENSITIVITY                                                                                         
8.875% Senior Notes.....................................                       $   50,000  $   50,000  $   51,625 
7.5% Senior Notes.......................................                       $  100,000  $  100,000  $  100,000 
Reverse repurchase agreements (1), weighted average                                                               
  interest rate of 4.95%................................ $  28,000                         $   28,000  $   28,000 
EXCHANGE RATE SENSITIVITY                                                                                         
Foreign exchange forward contracts--Sale................ $   8,759                         $    8,759  $    8,759 
STOCK PRICE SENSITIVITY                                                                                           
Index futures contracts--Sale........................... $   3,559                         $    3,559  $     (178)
Option contracts........................................                                                          
  Purchase.............................................. $   1,825  $   1,125              $    2,950  $      666 
  Sale.................................................. $   1,577  $   1,350              $    2,927  $      574 

------------------------                                                        

(1) Includes reverse repurchase agreements of $28,000 included in cash and      
 securities segregated and on deposit for regulatory purposes or deposited
with clearing and depository organizations.                             

EFFECTS OF CHANGES IN FOREIGN CURRENCY RATES                                    

New JEF maintains a foreign securities business in its foreign offices  
(London, Hong Kong, Zurich and Tokyo) 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, New JEF 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 New JEF's   
Consolidated Statements of Earnings) or a foreign currency translation          
adjustment to the stockholders' equity section of New JEF's Consolidated        
Statements of Financial Condition.                                              

NEW ACCOUNTING STANDARD ON EARNINGS PER SHARE                                   

 Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share," establishes standards for computing and presenting earnings per share   
("EPS"). SFAS No. 128 replaced the presentation of primary EPS with a           
presentation of basic EPS. SFAS No. 128 also requires dual presentation of basic
and diluted EPS on the face of the statement of earnings for entities with      
complex capital structures and requires a reconciliation of the numerator and   
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation. Basic earnings per share of common stock are computed  
by dividing net earnings by the average number of shares outstanding and certain
other shares committed to, but not yet issued. Diluted earnings per share of    
common stock are computed by dividing net earnings by the average number of     
shares outstanding of common stock and all dilutive common stock equivalents    
outstanding during the period. EPS information has been restated to             
retroactively reflect the adoption of SFAS No. 128.                             

NEW ACCOUNTING STANDARD ON COMPREHENSIVE INCOME                                 

 SFAS No. 130, "Reporting Comprehensive Income," establishes standards for
reporting and display of comprehensive income and its components (revenues,     
expenses, gains, and losses) in a full set of general-purpose financial         
statements. All items that are required to be recognized under accounting       
standards as components of comprehensive income are required to be reported in a
financial statement that is displayed with the same prominence as other         
financial statements. SFAS No. 130 does not                                     

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require a specific format for that financial statement but requires that an     
enterprise display an amount representing total comprehensive income for the    
period in that financial statement.                                             

SFAS No. 130 requires that an enterprise (a) classify items of other    
comprehensive income by their nature in a financial statement and (b) display   
the accumulated balance of other comprehensive income separately from retained  
earnings and additional paid-in capital in the equity section of a statement of 
financial position.                                                             

  New JEF implemented SFAS No. 130 in 1997. The adoption of SFAS No. 130 did
not have any impact on New JEF.                                                 

NEW ACCOUNTING STANDARD ON SEGMENT REPORTING                                    

SFAS No. 131, "Disclosures about Segments of an Enterprise and Related  
Information," establishes standards for the way that public business enterprises
report information about operating segments in annual financial statements and  
requires that those enterprises report selected information about operating     
segments in interim financial reports issued to shareholders. It also           
establishes standards for related disclosures about products and services,      
geographic areas, and major customers.                                          

    SFAS No. 131 requires that a public business enterprise report financial and
descriptive information about its reportable operating segments. Operating      
segments are components of an enterprise about which separate financial         
information is available that is evaluated regularly by the chief operating     
decision maker in deciding how to allocate resources and in assessing           
performance. Generally, financial information is required to be reported on the 
basis that it is used internally for evaluating segment performance and deciding
how to allocate resources to segments.                                          

SFAS No. 131 also requires that a public business enterprise report     
descriptive information about the way that the operating segments were          
determined, the products and services provided by the operating segments,       
differences between the measurements used in reporting segment information and  
those used in the enterprise's general-purpose financial statements, and changes
in the measurement of segment amounts from period to period.                    

  New JEF implemented SFAS No. 131 in 1998. The adoption of SFAS No. 131 did
not have any impact on New JEF.                                                 

NEW ACCOUNTING STANDARD ON EMPLOYERS' DISCLOSURE ABOUT PENSIONS AND OTHER       
POSTRETIREMENT BENEFITS                                                     

SFAS No. 132, "Employers' Disclosure About Pensions and Other           
Post-retirement Benefits," revises employers' disclosures about pension and     
other postretirement benefit plans. It does not change the measurement or       
recognition of those plans. It standardizes the disclosure requirements for     
pensions and other postretirement benefits to the extent practicable, requires  
additional information on changes in the benefit obligations and fair values of 
plan assets that will facilitate financial analysis, and eliminates certain     
disclosures.                                                                    

  New JEF implemented SFAS No. 132 in 1998. The adoption of SFAS No. 132 did
not have any impact on New JEF.                                                 

NEW ACCOUNTING STANDARD ON DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES        

SFAS No. 133, "Accounting for Derivative Instruments and Hedging        
Activities," establishes accounting and reporting standards for derivative      
instruments, including certain derivative instruments embedded in other         
contracts, (collectively referred to as derivatives) and for hedging activities.
It requires that an entity recognize all derivatives as either assets or        
liabilities in the statement of financial position and measure those instruments
at fair value.                                                                  

This Statement is effective for all fiscal quarters of fiscal years     
beginning after June 15, 1999. SFAS No. 133 is not expected to have a material  
impact on New JEF.                                                              

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THE YEAR 2000 PROJECT                                                           

    The Year 2000 ("Y2K") preparedness effort by Group (the "Y2K Project") began
in late 1997 and early 1998 with an initial assessment of Group's systems, its  
risk of exposure, the steps necessary to achieve Y2K compliance, and the        
resources necessary to implement those steps. As a result, Group engaged Keane, 
Inc. as independent Y2K consultants, and Ernst & Young, LLP ("E&Y") to provide  
quarterly reviews of the Y2K Project as an internal audit outsourcer and to     
provide the independent accountant's report required by Release No. 34-40608.   
Together with the advice of these professionals, Group formulated and adopted a 
Y2K Master Plan.                                                                

  The first phase of the Y2K Project, the Inventory, Assessment and Planning
phase, involved a complete assessment of Group's systems, both information      
technology ("IT") related and non-IT related, and a survey of all vendors and   
key clients. Systems were categorized into one of three "Triage" Levels--Mission
Critical, Business Important, or Other, with "Mission Critical" defined as those
systems, the failure of which would result in Group being unable to conduct     
business. Group also created the framework for the Remediation and Testing phase
that would follow, and set schedules for reaching the Operational Sustainability
and Fully Compliant phases. This planning process provided a guide for each of  
Group's divisions in its preparation of more detailed project plans that outline
specific areas of work on each system. The Y2K Project called for the devotion  
of resources primarily to Mission Critical systems during 1998, and Business    
Important and Other systems primarily in the first quarter of 1999.             

CURRENT STATE OF READINESS                                              

Group has now completed the first phase of the Y2K Project (Inventory,  
Assessment and Planning), and is working toward completion of the second phase: 
Remediation and Testing. As of March 1, 1999, phase two was approximately 90%   
complete. The remediation portion of this phase has been completed, and the     
testing portion has been under way since mid-1998. Although we originally       
planned to complete phase two by December 31, 1998, and participate in extended 
point to point testing in early 1999, we received notice during the fourth      
quarter that certification and extended point to point testing would commence in
November. Resources were redirected during the fourth quarter to prepare Group  
for participation in these tests, causing a delay in testing previously         
scheduled for the fourth quarter 1998. In addition, complaint versions of       
certain key applications did not arrive until late December 1998 or early       
January 1999, which prevented their testing until that time.                    

   Group has polled each of its vendors about their Y2K compliance. Of the 668
vendors contacted, 539 (80.1%) have responded and all who responded have        
indicated that they are or intend to become Y2K compliant by mid-1999. Group is 
actively attempting to obtain assurances from the remaining vendors, though none
of the remaining vendors provides Mission Critical services. Notwithstanding    
these representations from our vendors, Group is not relying on vendor          
statements of readiness but is independently testing each system and connection 
as part of the Y2K Project. Group has obtained assurances from all its vendors  
of Mission Critical systems that each vendor will be Y2K compliant and Group has
no reason to believe any of those vendors will be unable to attain compliance.  
However, because Group may be forced to rely on contingency plans which may have
a material adverse effect on Group's business and operations, as discussed      
below, Group is independently testing each system and connection for Y2K        
compliance.                                                                     

    Group representatives have also contacted key clients and have begun testing
with certain of those clients. Due to the nature of Group's business, the       
clients that comprise the vast majority of Group's revenues are institutional   
and are regulated by various governmental and self-regulatory bodies. Group has 
therefore determined to review the filings made by those clients during the     
second quarter of 1999 before conducting a broad based survey of client Y2K     
readiness. Depending on the result of this review, Group may find it necessary  
to survey its clients or to request written certification of their Y2K          
compliance.                                                                     

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Group has completed testing on systems needed to participate in the     
Securities Industry Association's ("SIA") street-wide testing and is now        
participating in the SIA test. As of March 15, 1999, Group had successfully     
completed two testing cycles, which resulted in no external errors and only     
minor internal errors. The remainder of testing to be performed involves testing
each system using either compliant environment regression testing or unit       
regression and forward date testing in the existing environment. All IT systems 
are then subjected to system regression testing, followed by user group testing 
before they are placed into production. Each system, (IT and non-IT) will then  
be subjected to forward date testing in a simulated production environment.     
Group has begun testing with certain key clients and Group has now obtained     
compliant versions of key systems and is in the process of testing those systems
and any connections with third party vendors. Group is working with its         
landlords and lessors to assure the continued functionality of the Mission      
Critical non-IT systems upon which it is dependent, and is in the process of    
preparing contingency plans for non-IT failures as described below. Other than  
its internal audits and periodic reporting requirements to the Commission and   
the NASD, Group has not been reviewed or audited by any state or federal        
regulators.                                                                     

COSTS TO ADDRESS Y2K ISSUES                                             

   Group's consolidated budget for the Y2K Project is $19.8 million with $16.8
million attributable to Group and its subsidiaries, other than ITGI, and $3.0   
million attributable to ITGI. Current spending rates and projected expenses     
indicate that Group will stay within that budget. As of December 1998,          
approximately $12.4 million of costs in the consolidated budget had already been
incurred. This budget includes new software and hardware, consultants to assist 
with project administration, quarterly internal audit outsourcing by E&Y, and a 
large number of the present IT staff devoting a substantial portion of their    
time to the Y2K Project. Until we achieve Operational Sustainability, the vast  
majority of IT resources will continue to be redirected into the Y2K Project and
new development unrelated to Y2K has been limited to only the most essential    
projects. The budget for 1999 is approximately $6.3 million, which will be      
reassessed in the second half of 1999 to account for the possible implementation
of contingency plans if any vendors will not achieve Y2K compliance.            

RISKS                                                                   

   Though Group expects to achieve Operational Sustainability by mid-1999, and
to be fully compliant by the end of the third quarter of 1999, a number of      
material risks remain which could have a materially adverse impact on Group or  
New JEF. These risks generally arise as a result of either: (1) failures of     
internal systems or (2) failures of third party systems.                        

Despite the considerable testing and remediation efforts Group has      
undertaken, latent errors in Group's internal systems that remain undetected    
could cause failures in those systems. Failures in one or more key systems would
almost certainly result in substantial impairment of JEFCO's ability to         
efficiently process orders and trades or to perform its clearing functions.     
Although Group expects that the contingency plans discussed below will allow it 
to continue operations, those contingency plans may not support the volume of   
trading JEFCO is accustomed to and could therefore cause substantial losses in  
revenue while they are relied upon. In the event failures occur, lost data may  
result in failed trades and related violations of NASD and SEC rules and        
regulations. To minimize the time during which it must rely on any contingency  
plan, Group and New JEF after the Spin-Off plan to devote all available         
resources to restoring normal system operations in the event any failures occur.

There is also a substantial risk that failures by third parties could   
compromise the major order-processing systems upon which Group is heavily       
dependent. Vendors such as Automatic Data Processing, Inc. and the Securities   
Industry Automation Corporation have represented to Group that they either are  
or intend to become Y2K compliant and Group stands ready to test with each of   
these parties as soon as they are prepared to do so, but the failure of any one 
of these systems could result in a significant interruption of normal business  
for Group. Due to the interdependence of Group's systems on those third party   
systems, Group does not believe any effective replacement products could        

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be adopted if those systems are not remediated and is therefore focusing its    
attention on assisting with the remediation and testing process and on          
developing contingency plans.                                                   

In addition, there is also a risk that JEFCO's ability to conduct       
transactions will be materially impaired by the failure of any significant      
component of the national clearing and settlement system, of major              
counterparties, exchanges or financial institutions in the marketplace. Failures
by one or more of the New York Stock Exchange, Inc., the Nasdaq Stock Market,   
the Depository Trust Company, the National Securities Clearing Corporation or   
any of the largest banks or brokerage firms could prevent the entire market from
effectively transmitting and receiving data after the Year 2000, despite the Y2K
compliance of Group's systems. Although it is expected that each of these       
parties will conduct extensive testing to ensure that each is Y2K compliant,    
there can be no assurance that an unforeseen problem will not create a market   
disruption that in turn affects Group's Brokerage and Investment Banking        
Business.                                                                       

CONTINGENCY PLANS                                                       

Group is in the final drafting stages of its Y2K Contingency Plan (the  
"Contingency Plan"), a detailed mediation and recovery plan that covers each of 
the six most significant risks that may arise from a Y2K failure:               

1)  loss of data,                                               

2)  software failures,                                          

3)  telecommunications failures,                                

4)  loss of key hardware,                                       

5)  loss of key personnel, and                                  

6)  loss of facilities.                                         

  The Contingency Plan addresses each of these risks with respect to each of
Group's nine key business areas (Equities, International, Taxable Fixed Income, 
Convertibles, Corporate Finance, Operations, Accounting, Facilities and         
Technology), and addresses both internal systems and failures by key third party
information providers and other vendors. The Contingency Plan also sets forth an
approach to maintaining business continuity for each of Group's key business    
areas. The specific workarounds for failures of various systems are set forth in
the Contingency Plan, and range from the use of cellular phones or relocation of
personnel in the event of a communications failure to the installation of backup
software or hardware.                                                           

  The completed portion of the Contingency Plan provides an analysis of each
reasonably possible failure scenario for a given Mission Critical system or     
process. Specifically, the Contingency Plan sets forth (1) the likelihood of    
failure of the system or process, (2) the circumstances under which such a      
failure would occur, (3) the impact the failure would have on the competitive   
environment of Group, and (4) a detailed mitigation strategy for each type of   
failure. Mitigation strategies typically list specific products or vendors that 
can be used to replace failed systems, manual workarounds for ordinarily        
automated processes and alternative sources for data or datastreams that are    
interrupted or become unreliable. Additional mitigation strategies are offered  
where appropriate. The Contingency Plan also includes a specific description of 
start up procedures to reactivate systems that go down, itemizes the staffing   
and equipment requirements that will be associated with repairing or re-starting
a given system and a contact list of key individuals familiar with the system or
process that should be contacted to assist with remediation or business         
restoration procedures. Finally, the Contingency Plan includes a matrix showing 
the way each system or process would be impacted by each of the six primary risk
areas discussed above, and the testing, remediation, business recovery,         
responsible persons and timetable involved in the restoration of each.          

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    As of the date of hereof, the Y2K Contingency Plan was complete with respect
to Mission Critical systems, except for finalization of the business continuity 
section, which should be completed by the second quarter of 1999. Funds to begin
actual implementation of Contingency Plans will be allocated in the second      
quarter of 1999 based upon perceived risk of failure of each system.            

FORWARD LOOKING STATEMENTS                                              

Group's projections in this section are based upon assumptions, which it
believes to be correct, but which are not guaranteed. Any change in those       
assumptions could result in material variations in those projections, including 
the projected costs for remediation and testing, the feasibility of using       
contingency plans, and the impact of third party failures. Any such change could
have a material adverse impact on New JEF and its results of operations.        

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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL 
CONDITION OF NEW JEF (EXCLUDING DISCONTINUED OPERATIONS)

   Assuming the proposed Spin-Off was consummated at the beginning of 1998, we
believe that the pro forma consolidated statement of continuing operations for  
this period would not differ materially from the results of New JEF presented in
"Unaudited Supplemental Selected Historical Financial Data of New JEF" excluding
discontinued operations, except for any earnings realized on the new            
stockholders' equity infused in conjunction with the proposed Spin-Off. For     
specific details of the expected infused stockholders' equity, refer to the     
following Unaudited Pro Forma Condensed Consolidated Statement of Financial     
Condition of New JEF.                                                           

The following unaudited pro forma condensed consolidated Statement of   
Financial Condition of New JEF as of December 31, 1998 has been derived from    
unaudited financial statements prepared by New JEF. These financial statements  
reflect the financial condition of New JEF assuming the Transfers and Spin-Off  
are consummated. The historical data excludes the net assets of ITGI, which,    
upon consummation of the Spin-Off, will be reported as net assets of            
discontinued operations. In the opinion of management, the unaudited pro forma  
statement of financial condition, which gives effect to the Spin-Off as if it   
had occurred on December 31, 1998, includes all significant, normal and         
recurring adjustments necessary for the fair presentation of the financial      
position. The unaudited pro forma information is presented for illustrative     
purposes only and is not necessarily indicative of the financial position that  
will actually occur when the transaction is consummated.                        

   In connection with the Spin-Off, it is anticipated that certain events will
take place that will increase both New JEF's stockholders' equity and the number
of shares outstanding. The following is summary of such events:                 

1.  Prior to the Spin-Off, ITGI will declare and pay the Special ITGI Cash      
  Dividend to all of its shareholders, including Group. For purposes of this
  pro forma statement of financial condition, the Special ITGI Cash Dividend
is assumed to be $4 per share. Group owns 15 million shares of ITGI and 
  would receive approximately $60 million. Prior to the Spin-Off, Group will
contribute its entire share of the Special ITGI Cash Dividend to JEFCO. 

2.  In January 1999, Group liquidated the Group CAP Plan which resulted in the  
issuance of approximately 1.5 million shares of Group Common Stock and a
cash payment of approximately $40 million (the "Group CAP Plan          
Termination"). In connection with the Group CAP Plan Termination, Group 
expects to realize a tax benefit of approximately $23 million. The      
    obligation under the Group CAP Plan, which had been fully accrued on Group's
    statement of financial condition, was eliminated upon the issuance of shares
    and payment of cash pursuant to, and coincident with, the termination of the
Group CAP Plan.                                                         

3.  In the first quarter of 1999, Group accelerated the vesting of all          
 outstanding options issued prior to January 1, 1998 and issued restricted
stock to certain employees. Group will not adjust the terms of the      
outstanding stock options that were issued prior to January 1, 1998 to  
    reflect the economic impact of the Spin-Off. As such, it is anticipated that
 all options issued prior to January 1, 1998, will be exercised before the
 Spin-Off and will result in exercise proceeds of approximately $9 million
   and a related tax benefit of approximately $13 million for purposes of this
   pro forma statement of financial condition (based upon the closing price of
  Group Common Stock on the NYSE on March 15, 1999 of $45.19 per share). The
    exact amount of the tax benefit will be dependent upon the fair market value
of Group Common Stock on or about the date of issuance of the shares.   
 Assuming a Group Common Stock price range of $35 to $55, the expected tax
benefit will range from approximately $11 million to approximately $14  
million. The exercise of options and issuance of restricted shares is   
    expected to result in an increase of Group's Common Stock outstanding of 1.2
million.                                                                

4.  New JEF's share of the transaction costs for 1999 are expected to be        
approximately $6.3 million.                                             

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                                                                             DECEMBER 31, 1998 (UNAUDITED)           
                                                                   --------------------------------------------------
                                                                    HISTORICAL                                       
                                                                    CONTINUING    PRO FORMA                          
                                                                    OPERATIONS   ADJUSTMENTS     REF      PRO FORMA  
                                                                   ------------  -----------     ---     ------------
                                                                                                                     
                                                                        (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)     
ASSETS                                                                                                               
Cash and cash equivalents......................................... $     55,581   $  22,401          (a) $     77,982
Receivables from brokers and dealers..............................    2,018,090                             2,018,090
Other assets......................................................      435,860      35,704          (b)      471,564
                                                                   ------------  -----------             ------------
  Total assets.................................................... $  2,509,531   $  58,105              $  2,567,636
                                                                   ------------  -----------             ------------
                                                                   ------------  -----------             ------------
LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                 
Payable to brokers and dealers.................................... $  1,602,906                          $  1,602,906
Securities sold, not yet purchased, payable to customers, accrued                                                    
  expenses and other liabilities..................................      530,796     (61,789)         (c)      469,007
Long-term debt....................................................      149,387                               149,387
                                                                   ------------  -----------             ------------
  Total liabilities...............................................    2,283,089     (61,789)                2,221,300
Stockholders' equity..............................................      226,442     119,894          (d)      346,336
                                                                   ------------  -----------             ------------
  Total liabilities and stockholders' equity...................... $  2,509,531   $  58,105              $  2,567,636
                                                                   ------------  -----------             ------------
                                                                   ------------  -----------             ------------
Outstanding shares................................................       21,230                                23,900
                                                                   ------------                          ------------
                                                                   ------------                          ------------
Book value per share.............................................. $      10.67                          $      14.49
                                                                   ------------                          ------------
                                                                   ------------                          ------------

------------------------                                                        

FOOTNOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION  

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(a)        Pro Forma Cash Adjustment includes the following:              
           Dividend from ITGI.................................  $  60,000 
           Stock option exercise proceeds.....................      8,752 
           Group CAP Plan cash payment........................    (40,101)
           Transaction costs..................................     (6,250)
                                                                --------- 
           Total..............................................  $  22,401 
                                                                --------- 
                                                                --------- 
(b)        Pro Forma Other Asset Adjustment includes the                  
             following:                                                   
           Stock option exercise tax benefit..................  $  12,565 
           Group CAP Plan distribution tax benefit............     23,139 
                                                                --------- 
           Total..............................................  $  35,704 
                                                                --------- 
                                                                --------- 
(c)        Pro Forma Accrued Expenses adjustment includes the             
             following:                                                   
           Elimination of Group CAP Plan liability............  $ (61,789)
                                                                --------- 
                                                                --------- 
(d)        Pro Forma Stockholders' Equity adjustment includes             
             the following:                                               
           Dividend from ITGI.................................  $  60,000 
           Stock option net exercise proceeds.................      8,752 
           Transaction costs..................................     (6,250)
           Other asset adjustments (see (b) above)............     35,704 
           Stock-based portion of Group CAP Plan                          
             distribution.....................................     21,688 
                                                                --------- 
           Total..............................................  $ 119,894 
                                                                --------- 
                                                                --------- 
(e)        Outstanding share rollforward (in millions):                   
           Shares outstanding at December 31, 1998............       21.2 
           Group CAP Plan termination.........................        1.5 
           Stock option exercises and restricted stock                    
             grants...........................................        1.2 
                                                                --------- 
           Pro forma outstanding shares at December 31,                   
             1998.............................................       23.9 
                                                                --------- 
                                                                --------- 

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SELECTED HISTORICAL FINANCIAL DATA OF ITGI

The following selected historical financial information has been derived
from the ITGI consolidated financial statements and should be read in connection
with the consolidated financial statements in ITGI's Annual Report on Form 10-K 
filed with the SEC and incorporated herein by reference.                        

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                                                                                 YEAR ENDED DECEMBER 31,                
                                                                 -------------------------------------------------------
                                                                                                                        
                                                                   1998       1997       1996       1995       1994(1)  
                                                                 ---------  ---------  ---------  ---------  -----------


                                                                        (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)        
                                                                                                                        
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:                                                                             
Total revenues.................................................. $ 212,205  $ 137,042  $ 111,556  $  72,381   $  56,716 
Total expenses..................................................   131,270     89,782     70,555     47,493      69,106 
                                                                 ---------  ---------  ---------  ---------  -----------
Income (loss) before income taxes...............................    80,935     47,260     41,001     24,888     (12,390)
Income tax expense (benefit)....................................    37,541     20,343     17,666      9,983      (4,529)
                                                                 ---------  ---------  ---------  ---------  -----------
Net income (loss)............................................... $  43,394  $  26,917  $  23,335  $  14,905   $  (7,861)
                                                                 ---------  ---------  ---------  ---------  -----------
                                                                 ---------  ---------  ---------  ---------  -----------
Basic net earnings (loss) per share of common stock............. $    2.36  $    1.48  $    1.28  $    0.81   $   (0.45)
                                                                 ---------  ---------  ---------  ---------  -----------
                                                                 ---------  ---------  ---------  ---------  -----------
Diluted net earnings (loss) per share of common stock........... $    2.25  $    1.42  $    1.26  $    0.81   $   (0.45)
                                                                 ---------  ---------  ---------  ---------  -----------
                                                                 ---------  ---------  ---------  ---------  -----------
Basic weighted average shares outstanding (in millions).........      18.4       18.2       18.3       18.5        17.5 
Diluted weighted average shares and common stock                                                                        
  equivalents (in millions).....................................      19.3       18.9       18.6       18.5        17.5 

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                                                                                      DECEMBER 31,                     
                                                                  -----------------------------------------------------
                                                                    1998       1997       1996       1995       1994   
                                                                  ---------  ---------  ---------  ---------  ---------
                                                                                                                       
                                                                                 (DOLLARS IN THOUSANDS)                
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION DATA:                                                                   
Total assets..................................................... $ 180,512  $ 113,641  $  82,798  $  55,318  $  38,354
Total stockholders' equity....................................... $ 143,709  $  93,763  $  67,093  $  45,479  $  31,893

------------------------------                                                  

(1) In connection with ITGI's initial public offering (the "Offering") in May   
   1994, certain management employment agreements, the performance share plans
   (consisting of a 12.7% phantom equity interest in ITG and an annual profits
 bonus component, the "ITGI Performance Share Plans") and non-compensatory
ITG stock options (on 10% of the outstanding shares of ITG common stock)
  were terminated as of May 1, 1994 in exchange for $31.1 million in cash, a
portion of which was used to purchase Group Common Stock. ITGI, prior to
    December 31, 1993, had expenses and paid to Group an additional $9.4 million
related to ITGI P