Document:

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                                                                     Exhibit 4.1

                              JEFFERIES GROUP, INC.

                           DEFERRED COMPENSATION PLAN
                  As Amended and Restated as of January 1, 2003

      WHEREAS, in recognition of the success provided to the Company by certain
Employees, the Company desires to establish a deferred compensation plan to
enable those Employees to defer the payment of all or a portion of the
compensation otherwise payable in cash by the Company;

      WHEREAS, the Company adopted the Plan effective January 1, 2001.

      NOW, THEREFORE, the Company hereby adopts this amendment and restatement
of the Plan effective January 1, 2003, as follows:

                                   Article I
                                   DEFINITIONS

      1.1 Definitions: Whenever used in this Plan:

               (a) "Accounts" shall mean the separate bookkeeping accounts
established under the Plan for each Participant.

               (b) "Board" shall mean the Board of Directors of the Company.

               (c) "Change of Control" shall mean the first to occur of any of
the following events after the effective date of the Plan:

                  (i) Any "person," as such term is used in Section 13(d) and
            14(d) of the Exchange Act (other than the Company, any trustee or
            other fiduciary holding securities under an employee benefit plan of
            the Company, or any company owned, directly or indirectly, by the
            shareholders of the Company in substantially the same proportions as
            their ownership of stock of the Company), acquires voting securities
            of the Company and immediately thereafter is a "50% Beneficial
            Owner." For purposes of this provision, a "50% Beneficial Owner"
            shall mean a person who is the "beneficial owner" (as defined in
            Rule 13d-3 under the Exchange Act), directly or indirectly, of
            securities of the Company representing 50% or more of the combined
            voting power of the Company's then-outstanding voting securities;
            provided, however, that the term "50% Beneficial Owner" shall not
            include any person who shall become the beneficial owner of 50% or
            more of the combined voting power of the Company's then-outstanding
            voting securities solely as a result of an acquisition by the
            Company of its voting securities, until such time thereafter as such
            person shall become the beneficial owner (other than by means of a
            stock dividend or stock split) of any additional voting securities
            and becomes a 50% Beneficial Owner in accordance with this
            subsection;

                  (ii) During any period of two consecutive years commencing on
            or after the effective date of this Plan, individuals who at the
            beginning of such period constitute the Board, and any new director
            whose election by the Board or nomination for election by the
            Company's shareholders was approved by a vote of at least two-thirds
            (2/3) of the directors then still in office who either were
            directors at the beginning of the period or whose election or
            nomination for
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            election was previously so approved (the "Continuing Directors"),
            cease for any reason to constitute at least a majority thereof;

                  (iii) The shareholders of the Company have approved a merger,
            consolidation, recapitalization, or reorganization of the Company,
            or a reverse stock split of any class of voting securities of the
            Company, or the consummation of any such transaction if shareholder
            approval is not obtained, other than any such transaction which
            would result in at least 50% of the combined voting power of the
            voting securities of the Company or the surviving entity outstanding
            immediately after such transaction being beneficially owned by
            persons who together beneficially owned at least 80% of the combined
            voting power of the voting securities of the Company outstanding
            immediately prior to such transaction, with the relative voting
            power of each such continuing holder compared to the voting power of
            each other continuing holder not substantially altered as a result
            of the transaction; provided that, for purposes of this subsection,
            such continuity of ownership (and preservation of relative voting
            power) shall be deemed to be satisfied if the failure to meet such
            50% threshold (or to substantially preserve such relative voting
            power) is due solely to the acquisition of voting securities by an
            employee benefit plan of the Company or of such surviving entity or
            a subsidiary thereof; and provided further, that, if consummation of
            the corporate transaction referred to in this subsection is subject,
            at the time of such approval by shareholders, to the consent of any
            government or governmental agency or approval of the shareholders of
            another entity or other material contingency, no Change of Control
            shall occur until such time as such consent and approval has been
            obtained and any other material contingency has been satisfied;

                  (iv) The shareholders of the Company have approved a plan of
            complete liquidation of the Company or an agreement for the sale or
            disposition by the Company of all or substantially all of the
            Company's assets (or any transaction having a similar effect);
            provided that, if consummation of the transaction referred to in
            this subsection is subject, at the time of such approval by
            shareholders, to the consent of any government or governmental
            agency or approval of the shareholders of another entity or other
            material contingency, no Change of Control shall occur until such
            time as such consent and approval has been obtained and any other
            material contingency has been satisfied; and

               (d) (v) any other event which the Board determines shall
constitute a Change of Control for purposes of this Plan. "Code" shall mean the
Internal Revenue Code of 1986, as amended from time to time.

               (e) "Committee" shall mean the Compensation Committee of the
Board.

               (f) "Company" shall mean Jefferies Group, Inc., a corporation
organized under the laws of the State of Delaware, or any successor corporation.

               (g) "Compensation" shall mean all cash remuneration payable to an
Employee by the Company, including salary, bonus awards, commissions, and
sign-on bonus awards, but excluding payments made to any Employee for a period
during which the Employee is determined to have a Disability. The foregoing
notwithstanding, the Committee may determine that specified items or categories
of cash compensation shall not constitute "Compensation" for purposes of the
Plan.
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               (h) "Date of Grant" shall mean the date on which an Option is
credited to a Participant's Equity Subaccount pursuant to Section 3.4.

               (i) "Deferral Period" shall mean, with respect to each Account of
a Participant, the five-year period beginning on the first day of the Plan Year
with respect to which the Account was established; provided, however, that (i)
this period will be subject to any extension in accordance with Section 3.6, and
(ii), for Plan Years after 2002, the Committee may establish a duration for the
Deferral Period of other than five years, but any such change shall be announced
to Employees invited to participate prior to the enrollment deadline for that
Plan Year.

               (j) "Deferred Shares" shall mean Shares or Restricted Shares
during the applicable Deferral Period.

               (k) "Disability" shall mean a physical or mental impairment that
would entitle the Participant to receive benefits under the Company's long term
disability program, as determined by the Committee in its sole discretion. The
Committee may, in its sole discretion, require a medical examination performed
by a physician at the expense of the Company, as a condition to any
determination of Disability.

               (l) "Employee" shall mean any individual employed by the Company,
Jefferies & Company, Inc., or any other subsidiary designated by the Committee.

               (m) "Equity Subaccount" shall mean the portion of a Participant's
Account deemed to comprise Options, Restricted Shares and Deferred Shares.

               (n) "Equity Unit" shall mean three Restricted Shares and an
Option for one Share; provided, however, that, for any Plan Year after 2002, the
Committee may vary the number of Restricted Shares and number of Options which
constitute an Equity Unit, but any such change shall be announced to Employees
invited to participate prior to the enrollment deadline for that Plan Year.

               (o) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended from time to time, and as now or hereafter construed,
interpreted and applied by regulations, rulings and cases.

               (p) "Fair Market Value" shall mean the closing sale price of a
Share on the composite tape of the New York Stock Exchange on the relevant
valuation date or Date of Grant, or if Shares are not traded on such date, on
the last date on which Shares are traded preceding such valuation date or Date
of Grant.

               (q) "Investment Subaccount" shall mean the portion of the
Participant's Account that is not his or her Equity Subaccount.

               (r) "Option" shall mean an option to purchase Shares pursuant to
Article V.

               (s) "Option Discount Percentage" means the percentage of the full
value of an Option, determined under such option valuation methodology as may be
reasonably selected by the Committee, represented by the price of an Option
specified by the Committee for each Plan Year, which is used under Section 3.4
to calculate the number of Equity Units or Options credited to a
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Participant's Account. In no event will the Option Discount Percentage be less
than 50%.

               (t) "Participant" shall mean an Employee who has satisfied the
requirements of Section 2.1.

               (u) "Plan" shall mean the Jefferies Group, Inc. Deferred
Compensation Plan, as amended and restated, as set forth herein and as amended
from time to time.

               (v) "Plan Quarter" shall mean a calendar quarter ending on March
31, June 30, September 30, or December 31.

               (w) "Plan Year" shall mean the calendar year.

               (x) "Restricted Period" shall mean the period ending on the last
day of the third consecutive Plan Year for which a Participant defers
Compensation pursuant to Section 3.1; provided, however, that if a Participant
ceases to defer Compensation by reason of Disability, the Participant shall be
treated as if such deferrals have not ceased for the duration of such Disability
for purposes of determining the end of the Restricted Period. The foregoing
notwithstanding, for any Plan Year after 2002, the Committee may vary the length
of the Restricted Period, but any such change shall be announced to Employees
invited to participate prior to the enrollment deadline for that Plan Year and
shall not operate to extent the Restricted Period applicable to any Account
relating to a Participant's deferrals in a previous Plan Year.

               (y) "Restricted Share" shall mean a contingent right, credited
pursuant to Section 3.4, to receive delivery of a Share at the end of the
Deferral Period. A Participant credited with a Restricted Share has no rights of
a shareholder until delivery of a Share has been effected.

               (z) "Restricted Share Discount Percentage" means the percentage
of the Fair Market Value of a Share specified for the Committee for each Plan
Year, which is used under Section 3.4 to calculate the number of Equity Units or
Restricted Shares credited to a Participant's Account. In no event will the
Restricted Share Discount Percentage be less than 85%.

               (aa) "Retirement Age" shall mean the age at which an Employee's
age plus his years of service equals 65. For this purpose, years of service
shall be credited for each twelve month period beginning on the date of the
Participant's commencement of employment with the Company and on each
anniversary thereof during which the Employee was in active employment with the
Company.

               (bb) "Shares" shall mean the common stock of the Company, $.0001
par value.

                                   Article II
                                  PARTICIPATION

      2.1 Eligibility to Participate. An Employee who has completed not less
than one year of full-time employment with the Company shall become a
Participant upon his designation by the Committee as eligible to participate in
the Plan and his election to defer Compensation in accordance with Article III.
The Committee may, in its discretion, waive the one-year eligibility requirement
for any Employee.
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      2.2 Termination of Participation. Once an Employee becomes a Participant,
the Employee shall remain a Participant until termination of employment with the
Company and thereafter until all benefits to which the Participant or the
Participant's beneficiary is entitled under the Plan have been paid.

                                  Article III

                            DEFERRAL OF COMPENSATION

      3.1 Deferral Election. With respect to each Plan Year, a Participant may
elect to defer the receipt of Compensation otherwise payable to him. A
Participant's deferral election shall designate an annual dollar amount or
percentage for deferral separately with respect to each component of
Compensation (e.g., base salary, bonus, commissions). In the event that a
designated dollar deferral amount for any component of Compensation exceeds the
actual annual amount of such component of Compensation, 100% of such component
of Compensation shall be deferred in lieu of this designated dollar amount. The
Committee may establish a maximum limit on the aggregate amount of deferrals by
any Participant during any Plan Year. Such election must be made before the
beginning of the Plan Year to which the deferral relates, or by such other
deadline as may be specified by the Committee, in the form and manner prescribed
by the Committee. Notwithstanding the foregoing, (1) with respect to the Plan
Year beginning January 1, 2001, deferral elections must be made before February
16, 2001, and such elections will relate only to amounts not yet earned or not
yet payable as of that date, as specified by the Committee, and (2) with respect
to elections to defer base salary or commissions, such elections may be
increased during the Plan Year with respect to base salary or commissions not
yet earned.

      3.2 Establishment of Account. With respect to each Plan Year, an Account
will be established for each Participant and the Compensation that the
Participant elects to defer under the Plan with respect to that Plan Year will
be credited to that Account. Unless otherwise determined by the Committee, each
such credit will be made to the Account as of the last day of the Plan Quarter
during which such Compensation would have otherwise been payable to the
Participant in cash. Prior to the deadline for deferral elections for a given
Plan Year, the Committee will establish the proportions in which amounts
deferred will be allocated to the Participant's Investment Subaccount in
accordance with Section 3.3 and to the Equity Subaccount in accordance with
Section 3.4; provided, however, that Committee may permit the Participant to
elect from among two or more choices as to the allocations of the Participant's
deferrals for the Plan Year to the Subaccounts, and may permit the Participant
to elect among investment alternatives within each Subaccount.

      3.3 Investment Subaccount. Amounts allocated to the Investment Subaccount
portion of a Participant's Account shall be treated as if invested in the
investment vehicles selected by the Participant from among the investment
vehicles made available by the Committee, as follows:

               (a) The Participant shall select, in the form and manner
prescribed by the Committee, the investment vehicles in which the Investment
Subaccount portion of each Account shall be deemed to be invested. If one of the
available investment vehicles is a money market fund, the Participant shall be
permitted to elect at least once during each Plan Year, in the form and manner
prescribed by the Committee, to treat any amounts deemed invested in the money
market fund as if they were thereafter invested in such other available
investment vehicles (if any are made available by the Committee) as the
Participant shall designate.
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               (b) The investment vehicles deemed to be made available to the
Participant, and any limitation on the maximum or minimum percentages of the
Participant's Investment Subaccount that may be invested in any particular
investment vehicle, shall be determined by the Committee from time to time, and
the Committee may add, change, or delete investment vehicles at any time.

               (c) As of the last day of each Plan Quarter, each of a
Participant's Investment Subaccounts shall be credited or debited with earnings
and losses (net of investment management fees and expenses) as if invested for
such Plan Quarter (or portion thereof from the date any deferred amount would
otherwise have been payable to the Participant in cash until the last day of the
Plan Quarter) in the investment vehicles selected by the Participant. The
Committee may cause such crediting or debiting of earnings and losses as of
other dates, in its discretion.

               (d) If a Participant does not furnish complete and clear
investment designation instructions, the undesignated portion of the
Participant's Investment Subaccount shall be deemed to be invested in the money
market fund made available under the Plan, until such time as complete and clear
investment designation instructions are provided by the Participant.

        3.4 Equity Subaccount.

               (a) As of the last day of each Plan Quarter, the Equity
Subaccount portion of a Participant's Account shall be credited with Equity
Units, or separately with Restricted Shares or Options, in accordance with the
terms established by the Committee and any Participant elections, if permitted
by the Committee, under Section 3.2. The number of Equity Units to be so
credited shall equal the greatest number obtained by dividing (i) the amount of
Compensation deferred and allocated to the Participant's Equity Subaccount for
the Plan Quarter, by (ii) the sum of (A) the Restricted Share Discount
Percentage times the Volume Weighted Average Price of one Share as of the last
day of the Plan Quarter times the number of Restricted Shares included in the
Equity Unit, and (B) the price of an Option specified by the Committee for the
Plan Year, which shall be based on the Option Discount Percentage, times the
number of Options included in the Equity Unit. If Restricted Shares or Options
are to be credited to the Equity Subaccount separately from Equity Units, the
number of each shall be calculated in manner consistent with the manner used for
Equity Units. Restricted Shares and Options shall be credited and relate to
whole shares, with any fractional remainder for the Plan Quarter allocated to
the Participant's Investment Subaccount, unless the Committee specifies another
reasonable method of dealing with fractional Equity Units and fractional Shares
or cash amounts that relate thereto. The Committee may cause the crediting of
Equity Units, Restricted Shares and Options at dates other than the last day of
Plan Quarters, in its discretion.

               (b) Restricted Shares and Options, and Equity Units comprising
them, shall be subject to the provisions of Article IV and V, as applicable.

               (c) Shares which will be reserved for Restricted Shares and
Options under the Plan shall be authorized and unissued shares or treasury
shares (including shares reacquired by the Company for purposes of the Plan). If
the proposed 2003 Incentive Compensation Plan is adopted by the Board and
approved by the Company's shareholders, from and after the time of such approval
the shares to be used under the Plan for delivery upon exercise of outstanding
Options and in connection with outstanding Restricted Shares and Deferred
Shares, and for future such awards, shall be drawn from the 2003 Incentive
Compensation Plan, and the shares theretofore reserved under this Plan shall be
released.
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               (d) If any Restricted Shares or Deferred Shares under the Plan
are forfeited, or if any Options terminate or expire unexercised, the Shares
forfeited or subject to the terminated or expired Options shall (unless the Plan
shall have been terminated) again become available for delivery under the Plan.

      3.5 Account Statements. Each Participant will receive a statement of the
balance in the Participant's Accounts as promptly as practicable after the end
of each Plan Quarter.

      3.6 Redeferral of Account. At least thirteen months prior to the end of
the Deferral Period with respect to each Account, a Participant who is an
Employee may elect to defer the amounts credited to that Account for an
additional period of five years (or such other period as may be permitted by the
Committee), beginning on the first day of the Plan Year immediately following
the last day of the Deferral Period. An election to extend the Deferral Period
shall be made in the form and manner prescribed by the Committee. Only one
election to extend the Deferral Period may be made with respect to any Account.
If a Participant is determined to have incurred a Disability, the election to
extend the Deferral Period otherwise permitted under this Section 3.6 shall not
become effective if the Participant remains subject to the Disability at the
time it otherwise would become effective.

                                   Article IV

                                RESTRICTED SHARES

      4.1 Terms of Restricted Shares. If a Participant's employment with the
Company terminates prior to the earliest of (i) the end of the Restricted
Period, (ii) the Participant's retirement after attainment of Retirement Age,
(iii) the Participant's death, (iv) the occurrence of a Change of Control, or
(v) the fifth anniversary of the first day of the Plan Year that includes the
Date of Grant, a portion of the Restricted Shares credited to his or her Equity
Subaccount for each Plan Year shall be forfeited. The number of Restricted
Shares to be forfeited shall be (A) the total number of Restricted Shares
credited for that Plan Year minus (B) that total number of Restricted Shares
times the Restricted Shares Discount Percentage for that Plan Year. Any Deferred
Shares credited under Section 4.2 that are attributable, directly or indirectly,
to such forfeited Restricted Shares will also be forfeited[, and any Deferred
Shares attributable, directly or indirectly, to the discount upon deemed
reinvestment based on the Restricted Shares Discount Percentage shall likewise
be forfeited]. Any fractional shares resulting from this calculation will be
disregarded and not forfeited, unless the Equity Subaccount is then being
maintained in a manner that credits and accounts for fractional shares.

      4.2 Dividend Equivalents. As of the last day of each Plan Quarter, each
Participant's Equity Subaccounts shall be credited with a number of whole and
fractional Deferred Shares equal to (i) the product of (A) the aggregate number
of Restricted Shares and Deferred Shares credited to the Participant's Equity
Subaccounts, multiplied by (B) the cash value or Fair Market Value of any
dividend paid with respect to a Share during such Plan Quarter, determined as of
the payment date for such dividend, divided by (ii) the [Restricted Share
Discount Percentage then in effect times the] Volume Weighted Average Price of a
Share as of the last day of such Plan Quarter; provided, however, that, in the
case of a non-cash dividend, the Committee may determine to make an equitable
adjustment under Article VII in lieu of crediting the Participant's Equity
Subaccounts under this Section 4.2. The foregoing notwithstanding, the Committee
may specify an alternative method for crediting dividend amounts, including by
cash crediting to the Participant's Investment
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Subaccount, for administrative convenience; such alternative methods need not
apply uniformly to all Participants.

                                   Article V

                                     OPTIONS

      5.1 Nonqualified Stock Options. Each Option credited to a Participant
pursuant to Section 3.4 shall be a non-qualified stock option and shall be
evidenced by a Share Option Certificate in such form as the Committee shall
approve. A Certificate evidencing Options not forfeited pursuant to Section
5.3(b) shall be issued following the earliest of (i) the third anniversary of
the first day of the Plan Year that includes the Date of Grant, or (ii) the
Participant's termination of employment for any reason, including death;
provided, however, that the Committee may provide for issuance of such
Certificate at earlier dates than those specified or, if announced to a
Participant prior to the effectiveness of his or her deferral election which
results in acquisition of the Option, at later dates later than those specified.
References in this Plan to distributions of Accounts do not include
distributions of Options, which are governed by the certification procedure and
vesting described in this Article V.

      5.2 Option Price. The option exercise price of each Option granted under
the Plan shall be the Volume Weighted Average Price as of the Date of Grant of
the Shares covered by the Option.

      5.3 Option Term; Vesting.

               (a) An Option may not be exercised prior to the issuance of a
Share Option Certificate with respect to such Option in accordance with Section
5.1, and may not be exercised after the earlier of (i) the last day of the Plan
Year that includes the fifth anniversary of the Date of Grant, or (ii) in the
case of a Participant who ceases to be an Employee other than by reason of the
Participant's death, the sixtieth day following termination of the Participant's
employment. Any Option not exercised within the foregoing Option term shall
automatically terminate at the expiration of such Option term.

               (b) If a Participant's employment with the Company terminates
before the earliest of (i) the end of the Restricted Period, (ii) the
Participant's retirement after attainment of Retirement Age, (iii) the
Participant's death, (iv) the occurrence of a Change of Control, or (v) the
third anniversary of the first day of the Plan Year that includes the Date of
Grant, a portion of the Options credited to his or her Equity Subaccount for
that Plan Year shall terminate and be forfeited, which portion shall be (A) the
total number of Options credited for that Plan Year minus (B) that total number
of Options times the Option Discount Percentage for that Plan Year. Any Option
relating to a fractional share resulting from this calculation will be
disregarded and not terminated and forfeited.

      5.4 Exercise and Payment.

               (a) An exercisable Option may be exercised by notice (in the form
prescribed by the Committee) to the Company specifying the number of Shares to
be purchased. Payment for the number of Shares purchased upon the exercise of an
Option shall be made in full at the price provided for in the applicable Share
Option Agreement. Such purchase price shall be paid by the delivery to the
Company of cash (including check or similar draft) in United States dollars or
whole Shares (subject to any restrictions the Committee may impose), or a
combination thereof. Shares used in payment of the purchase price shall be
valued at their Fair Market Value as of the date the notice of
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exercise is received by the Company. Any Shares delivered to the Company shall
be in such form as is acceptable to the Company.

               (b) The Company may defer making delivery of Shares under the
Plan until satisfactory arrangements have been made for the payment of any tax
attributable to exercise of the Option. The Committee may, in its sole
discretion, permit a Participant to elect, in such form and at such time as the
Committee may prescribe, to pay all or a portion of any taxes arising in
connection with the exercise of an Option by electing to (i) have the Company
withhold whole Shares, or (ii) deliver other whole Shares previously owned by
the Participant, except that the number of shares withheld or surrendered shall
be limited to that number having a Fair Market Value not greater than the
minimum applicable withholding tax rate for federal (including FICA), state and
local tax withholding obligations associated with the transaction if such
restriction is then necessary in order that the Company not recognize additional
accounting expense in connection with the transaction.

               (c) If an Option is exercised, Shares shall be delivered at the
time of exercise, subject to subsection 5.4(b).

      5.5 Nontransferability. Except as otherwise determined by the Committee,
no Option or any rights with respect thereto shall be subject to any debts or
liabilities of a Participant, nor shall they be assignable or transferable
except by will or the laws of descent and distribution.

      5.6 Rights as a Shareholder. A Participant shall have no rights as a
record holder with respect to Shares covered by his or her Option until the
exercise of such Option and payment in full of the purchase price. No adjustment
will be made for cash dividends for which the record date is prior to the date
of such exercise.

                                   Article VI

                      DISTRIBUTION OF DEFERRED COMPENSATION

      6.1 Election of Distribution Form. At the time of each deferral election
described in Section 3.1, the Participant shall elect to receive the balance of
the Account with respect to which such deferral election is made, in the form of
a single sum, periodic distributions over a period of five years, or periodic
distributions over a period of ten years. At the time prescribed in Section 3.6
with respect to each of the Participant's Accounts, the Participant may make a
new election as to the timing of distribution of that Account. Elections made
pursuant to this Section 6.1 shall be made in the form and manner prescribed by
the Committee. If a Participant fails to make an election pursuant to this
Section 6.1 with respect to any Account, that Account will be distributed in a
single sum.

      6.2 Form of Distribution. Distribution shall be made in accordance with
the election made pursuant to Section 6.1, as in effect at the time of
distribution. Notwithstanding the preceding sentence, if the balance of a
Participant's Account at the time distribution is made in accordance with this
Article VI has a value of less than $50,000, the Committee may direct that such
distribution shall be made in a single sum. Distributions from the Investment
Subaccount portion of a Participant's Account shall be made in cash, unless
in-kind distribution of assets that match the Participant's notional investments
is authorized by the Committee. Distributions from the Equity Subaccount portion
of a Participant's Account shall be made in the form of Shares, with any
fractional Shares distributed in cash unless other means of settlement of
fractional shares is authorized by the Committee. If a Participant's Investment
Subaccount is distributed in annual installments, the
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undistributed portion of such Investment Subaccount shall continue to be
credited with earnings and losses in accordance with Section 3.3(c). As of the
last day of each Plan Year, the amount of each remaining installment shall be
redetermined by dividing the undistributed balance of the Investment Subaccount,
as adjusted in accordance with the preceding sentence, by the number of
remaining installments. The Committee may, in its sole discretion, accelerate
distributions to a Participant in the event of the Participant's Disability.

      6.3 Distribution Upon Expiration of Deferral Period. Unless distribution
is made at an earlier time pursuant to this Article VI, the balance of each
Account shall be distributed to the Participant in the manner prescribed under
Section 6.2 in, or beginning in, the January following the end of the Deferral
Period applicable to that Account (including any extension in accordance with
Section 3.6). All installments shall be distributed in January of the applicable
year.

      6.4 Hardship Distribution. Notwithstanding any other provisions of this
Plan, if the Committee determines, after consideration of a Participant's
application, that the Participant has sustained a severe financial hardship
resulting from a sudden and unexpected illness or accident of the Participant or
the Participant's dependent (as defined in Section 152(a) of the Code), loss of
the Participant's property due to casualty, or other similar extraordinary and
unforeseeable circumstances resulting from events beyond the Participant's
control, the Committee may, in its sole discretion, direct that all or a portion
of the balance of the Participant's Accounts be paid to the Participant;
provided, however, that during the Restricted Period applicable to any
Restricted Shares, no such Restricted Shares in excess of the number of such
Restricted Shares that would remain after forfeiture under Section 4.1 shall be
distributed under this Section 6.4. The payment will be made in the manner and
at the time specified by the Committee. No Participant who is also a member of
the Committee may in any way take part in any decision pertaining to a request
for payment made by that Participant under this Section 6.4. In the event of a
withdrawal under this Section 6.4, the Participant's deferral election shall be
cancelled for the Plan Year in which the withdrawal occurs, and no deferral
election will be permitted for the next following Plan Year.

      6.5 Penalty Withdrawals. Except as otherwise provided under Section 6.4,
prior to the end of the Deferral Period applicable to any Account, a Participant
may withdraw all or a portion of the balance of that Account; provided, however,
that if such withdrawal is made before the end of the Restricted Period
applicable to any Restricted Shares, no such Restricted Shares in excess of the
number of such Restricted Shares remaining after forfeiture under Section 4.1
may be withdrawn under this Section 6.5. If any such withdrawal is made, the
Participant shall receive from his Account an amount equal to:

               (a) If the withdrawal is made before a Change of Control or more
than twenty-four months following a Change of Control, 90% of the amount
requested, and the remaining 10% of the amount requested shall be forfeited; or

               (b) If the withdrawal is made within the twenty-four month period
beginning on the date following a Change of Control, 95% of the amount
requested, and the remaining 5% of the amount requested shall be forfeited.

No request to withdraw less than 10% of the balance of any Account shall be
permitted under this Section 6.5. Any request to withdraw 75% or more of the
balance of any Account shall result in the withdrawal or forfeiture of the
entire balance of such Account. In the event of a withdrawal under this
<PAGE>
Section 6.5, the Participant's deferral election shall be cancelled for the Plan
Year in which the withdrawal occurs, and no deferral election will be permitted
for the next following Plan Year.

      6.6 Death Benefit. In the event of a Participant's death before the
balance in the Participant's Account is fully paid out:

               (a) If the Participant's death occurs prior to the commencement
of payments from an Account as otherwise provided under this Article VI, payment
of the balance of the Account will be made to the beneficiary or beneficiaries
designated by the Participant or, if the Participant has made no such
designation or no beneficiary survives, to the Participant's estate. In either
case, such payment will be made in a single sum in January following the date of
the Participant's death.

               (b) If a Participant's death occurs after periodic payments have
begun to be made from an Account but before all payments have been made, the
remaining payments shall be made to the beneficiary or beneficiaries designated
by the Participant or if there is no such designation or no beneficiary
survives, to the Participant's estate. Notwithstanding the foregoing, however,
if the remainder of the payments from an Account are to be paid to the estate of
the Participant, the Committee may, in its sole and absolute discretion and upon
receipt of an application therefor from the duly appointed administrator or
executor of such estate, direct that the sum of the remaining payments be paid
to the estate in a single payment in January following the date of the
Participant's death.

      6.7 Acceleration of Periodic Distributions. If a Participant's Account is
being paid to the Participant or a beneficiary of the Participant in the form of
periodic payments, such Participant or beneficiary may make an election to have
the remainder of the amount distributable to him or her distributed in a single
sum. In the event a Participant or beneficiary makes an election under this
Section 6.7, the remaining of the Participant's Account at the time of such
election shall be subject to the forfeiture provisions of Section 6.5. Elections
pursuant to this Section 6.7 shall be made in the form and manner prescribed by
the Committee.

      6.8 Tax Withholding; FICA. The Company may defer making delivery of cash
or Shares under this Article VI until satisfactory arrangements have been made
for the payment of any withholding taxes attributable to the distribution or
withdrawal. The Committee may require that a Participant pay, or permit a
Participant to elect, in such form and at such time as the Committee may
prescribe, to pay, all or a portion of any taxes arising in connection with the
distribution of Shares in settlement of a Participant's Equity Subaccounts by
electing to (i) have the Company withhold whole Shares, or (ii) deliver other
whole Shares previously owned by the Participant, except that the number of
shares withheld or surrendered shall be limited to that number having a Fair
Market Value not greater than the minimum applicable withholding tax rate for
federal (including FICA), state and local tax withholding obligations associated
with the transaction if such restriction is then necessary in order that the
Company not recognize additional accounting expense in connection with the
transaction. By electing to defer compensation under the Plan, each Participant
will have agreed to pay any FICA/HI or other taxes that may be applicable to the
amounts deferred or upon the vesting of Restricted Shares hereunder.
<PAGE>
                                  Article VII

                            EFFECT OF CERTAIN CHANGES

      In the event of any extraordinary dividend, share dividend,
recapitalization, merger, consolidation, share split, warrant or rights
issuance, or combination or exchange of such shares, or other similar
transactions, the number and type of Shares reserved under Section 3.4(c), the
number and type of outstanding Restricted Shares, Deferred Shares, and Options,
the price of Options for the Plan Year, the exercise price of outstanding
Options, and other affected Plan terms, shall be equitably adjusted by the
Committee to reflect such event and preserve the value of such Restricted
Shares, Deferred Shares, and Options; and the Committee may make such other
adjustments to the terms of outstanding Restricted Shares, Deferred Shares, and
Options as it may deem equitable under the circumstances; provided, however,
that any Options for fractional Shares resulting from such adjustment shall be
eliminated.

                                  Article VIII

                                     GENERAL

      8.1 Unsecured Claims. The right of any Participant, beneficiary or estate
to receive payment of any unpaid balance in the Participant's Account will be an
unsecured claim against the general assets of the Company.

      8.2 Anti-alienation and Assignment. During a Participant's lifetime, any
payment under the Plan will be made only to the Participant. No Account balance,
Restricted Shares, Deferred Shares, sum or other interest under the Plan shall
be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance or charge, and any attempt by a Participant or
any beneficiary under the Plan to do so shall be void. No interest under the
Plan shall in any manner be liable for or subject to the debts, contracts,
liabilities, engagements or torts of a Participant or beneficiary entitled
thereto.

      8.3 No Rights to Continued Employment. Nothing in the Plan shall confer
upon any Participant the right to continue employment with the Company or to be
entitled to any remuneration or benefits not set forth in the Plan.

      8.4 Administration.

               (a) The Plan shall be administered by the Committee, except as
otherwise specifically provided in the Plan. The Committee shall have the full
authority and discretion to make such interpretations and constructions of the
Plan as are necessary to administer the Plan in accordance with, and subject to,
the Plan's provisions. The Committee may delegate, to one or more officers it
may designate, authority to take all ministerial actions the Committee is
authorized to take under the Plan, and any other actions the Committee is
authorized to take with respect to the Plan that do not result in more than an
immaterial cost to the Company. In any case in which such person or persons are
acting on behalf of the Committee pursuant to such delegated authority,
references in the Plan to the Committee shall be deemed to include such person
or persons.

               (b) All decisions, determinations and interpretations of the
Committee shall be final and binding on all persons, including the Company, the
Participant (or any person claiming any rights under the Plan from or through
any Participant) and any shareholder. No member of the Committee shall be liable
for any action taken or determination made in good faith with respect to the
Plan or any grant hereunder.
<PAGE>
               (c) All determinations of the Committee with respect to the terms
and timing of elections by Participants hereunder shall be implemented in a
manner that reasonably assures that a Participant making the election will not
be deemed to be in constructive receipt of the compensation or have the economic
benefit of the compensation such that federal income taxation of such
compensation would be triggered prior to the end of the applicable Deferral
Period.

      8.5 Amendment and Termination of the Plan. The Board at any time and from
time to time may suspend, terminate, modify or amend the Plan; provided,
however, that the Plan may not be suspended, terminated, modified, or amended
for a period of twenty-four months following a Change of Control, unless
approved by Participants whose Accounts represent not less than 50% of the
aggregate value of all Accounts under the Plan. The Committee may act on behalf
of the Board under this Section 8.5 to the extent the Committee is acting within
the scope of its authority under any Committee chartering document or other
delegation of authority by the Board. Except as provided in Article VII hereof,
no suspension, termination, modification or amendment of the Plan may materially
and adversely affect any amount, Restricted Shares, Deferred Shares, or Options
previously credited to a Participant, unless the written consent of the
Participant is obtained.

      8.6 Governing Law. The Plan and the rights of all persons claiming
hereunder shall be construed and determined in accordance with the Delaware
General Corporation Law and, in other respects, the laws of the State of New
York without giving effect to the choice of law principles thereof, except to
the extent that any such law is preempted by federal law.

      8.7 Implementing Plan in Foreign Jurisdictions. The Committee is
authorized to amend or vary the terms of the Plan in implementing deferrals in
foreign jurisdictions in which eligible Employees are employed, in order to
conform with local laws and customs, and to permit participation by such
Employees on terms deemed by the Committee to be reasonably comparable to the
terms of participation of U.S. resident Employees and consistent with the
purposes of the Plan.

      8.8 Terms of Deferrals Prior to 2003. The terms of participation and
deferrals prior to 2003 are governed by the terms of the Plan, and terms set
thereunder by the Committee, in effect prior to the amendment and restatement at
January 1, 2003, except that revised definitions under Article I and the
discretion of the Committee with respect to existing Accounts, as provided in
the amended and restated Plan, shall apply to Account balances and awards
resulting from deferrals prior to 2003.Executed in 6 Parts
                                             Counterpart No. (   )

                              NATIONAL EQUITY TRUST
                           TOP TEN PORTFOLIO SERIES 42
                            REFERENCE TRUST AGREEMENT

     This  Reference  Trust  Agreement  dated  ________,  2003 among  Prudential
Investment Management Services LLC, as Depositor, Prudential Investments LLC, as
Portfolio  Supervisor  and The Bank of New York,  as Trustee sets forth  certain
provisions  in full  and  incorporates  other  provisions  by  reference  to the
document  entitled  "National Equity Trust,  Trust Indenture and Agreement" (the
"Basic  Agreement")  dated February 2, 2000. Such provisions as are set forth in
full herein and such provisions as are  incorporated  by reference  constitute a
single instrument (the "Indenture").

                                WITNESSETH THAT:

     In  consideration  of the  premises  and of the  mutual  agreements  herein
contained, the Depositor and the Trustee agree as follows: Part I.

                     STANDARD TERMS AND CONDITIONS OF TRUST

     Subject to the provisions of Part II hereof,  all the provisions  contained
in the Basic  Agreement are herein  incorporated  by reference in their entirety
and  shall be deemed  to be a part of this  instrument  as fully and to the same
extent as though said provisions had been set forth in full in this instrument.

A.   Article I, entitled "Definitions," shall be amended as follows:

(i)  Section  1.01-Definitions  shall be amended to add the following definition
     at the end thereof:

     "Portfolio  Supervisor" of the Trust shall have the meaning  assigned to it
in Part II of the Reference Trust Agreement.

B.   Article  III,  entitled  "Administration  of  Trust,"  shall be  amended as
     follows:

<PAGE>

                                      -2-

     (i) The third  paragraph of Section  3.05-Distribution  shall be amended by
deleting any reference to Depositor and replacing it with Portfolio Supervisor.

     (ii)  Section  3.14-Deferred  Sales  Charge  shall  be  amended  to add the
following sentences at the end thereof:

"References to Deferred Sales Charge in this Trust Indenture and Agreement shall
include any Creation and  Development  Fee  indicated  in the  prospectus  for a
Trust.  The  Creation  and  Development  Fee  shall be  payable  on each date so
designated  and in an amount  determined  as specified in the  prospectus  for a
Trust."

C.   Article VIII, entitled "Depositor," shall be amended as follows:

     (i) Section 8.07-Compensation shall be amended by deleting any reference to
Depositor and replacing it with Portfolio Supervisor.

D.   Article IX,  entitled  "Additional  Covenants;  Miscellaneous  Provisions,"
     shall be amended as follows:

     (i) The first sentence of Section 9.05 - Written Notice shall be amended by
deleting the language "Prudential Securities  Incorporated at One Seaport Plaza,
New  York,  New  York  10292"  and  replacing  it  with  "Prudential  Investment
Management LLC at 100 Mulberry Street,  Gateway Center Three, Newark, New Jersey
07102".

                                    Part II.

                     SPECIAL TERMS AND CONDITIONS OF TRUST

     The following special terms and conditions are hereby agreed to:

     A. The Trust is denominated National Equity Trust, Top Ten Portfolio Series
42.

     B. The Units of the Trust shall be subject to a deferred sales charge.

     C. The publicly  traded stocks listed in Schedule A hereto are those which,
subject  to the terms of this  Indenture,  have been or are to be  deposited  in
Trust under this Indenture as of the date hereof.

     D.  The  term  "Depositor"  shall  mean  Prudential  Investment  Management
Services LLC.

E.   The term "Portfolio Supervisor" shall mean Prudential Investments LLC.

<PAGE>

                                      -3-

     F. The aggregate  number of Units  referred to in Sections 2.03 and 9.01 of
the Basic Agreement is                     as of the date hereof.

     G. A Unit of the Trust is hereby  declared  initially equal to 1/        th
of the Trust.

     H. The term "First Settlement Date" shall mean             , 2003.

     I. The terms  "Computation  Day" and "Record  Date" shall mean on the tenth
day of          2003,          2004,         2004 and            2004.

     J. The term "Distribution Date" shall mean on the twenty-fifth day of
          2003,          2004,           2004 and           2004.

     K. The term "Termination Date" shall mean                , 2004.

     L. The Trustee's  Annual Fee shall be $.90 (per 1,000 Units) for 49,999,999
and below Units outstanding, $.84 (per 1,000 Units) for 50,000,000 to 99,999,999
Units  outstanding,  $.78 (per 1,000 Units) for 100,000,000 to 199,999,999 Units
outstanding and $.66 (per 1,000 Units) for Units in excess of 200,000,000 Units.
In  calculating  the Trustee's  annual fee, the fee  applicable to the number of
units outstanding shall apply to all units outstanding.

     M. The  Depositor's  Portfolio  supervisory  service  fee shall be $.25 per
1,000 Units.

               [Signatures and acknowledgments on separate pages]

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