Exhibit (a)(4)

ARTICLES OF AMENDMENT

PREFERRED INCOME FUND INCORPORATED, a Maryland corporation having its principal place of business in Baltimore, Maryland (hereinafter called the "Corporation"), hereby certifies to the State Department of Assessments and Taxation of Maryland that:

FIRST: The Articles of Amendment and Restatement of the Corporation are hereby amended by adding the following paragraph to Article II ("Purposes and Powers"), with the existing paragraph (4) consecutively renumbered.

(4) To pursue the investment objective of high current income for holders of its common stock consistent with preservation of capital.

SECOND: Article II ("Purposes and Powers") is hereby further amended to add at the end of the last paragraph thereof the following proviso

; provided, that the Corporation may not (i) purchase securities (other than securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities ("Government Securities")) of any issuer if as a result of the purchase more than 5% of the value of the Corporation's total assets would be invested in the securities of the issuer, except that up to 25% of the value of the Corporation's total assets may be invested without regard to this 5% limitation, (ii) purchase more than 10% of the voting securities of any one issuer, or more than 10% of the securities of any class of any one issuer, except that (X) this limitation is not applicable to the Corporation's investment in Government Securities and (Y) up to 25% of the value of the Corporation's total assets may be invested without regard to this 10% limitation, and (iii) make any investments for the purpose of exercising control or management of any company.

THIRD: Paragraphs (ii), (iii), and (vii) of Section 2 of Article VI ("Certain Transactions") are hereby amended and restated in their entirety as follows:

(ii) "Continuing Director" means any member of the Board of Directors of the Corporation who (A) is not an Interested Party or an Affiliate or an Associate (as these terms are defined below) of an Interested Party and has been a member of the Board of Directors for a period of at least 12 months, or (B) is a successor of a Continuing Director who is not an Interested Party or an Affiliate or Associate of an Interested Party and is recommended to succeed a Continuing Director by a majority of the Continuing Directors then on the Board of Directors or (C) is elected to the Board to be a Continuing Director by a majority of the Continuing Directors then on the Board of Directors and who is not an Interested Party or an Affiliate or Associate of an Interested Party.

(iii) "Interested Party" shall mean any person, other than an investment company advised by the Corporation's initial investment manager or any of its Affiliates which enters, or proposes to enter, into a Business Combination with the Corporation or which individually or together with any other persons beneficially owns or is deemed to own, directly or indirectly, more than 5 percent of any class of the Corporation's securities (within the meaning of
Section 13(d) of the Securities Exchange Act of 1934 and the rules and regulations thereunder (the "Exchange Act")).

(vii) "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the Exchange Act, provided that the term "Affiliate" shall also include any person who, at or prior to the time of election to the Board of Directors, had expressed support in writing of any proposals of an Interested Party for which shareholder approval would be required (for purposes of consideration of those proposals only).

FOURTH: Article VIII ("Amendments") is hereby amended to add the following paragraph (3).

(3) Notwithstanding any other provision of these Articles of Incorporation, no amendment to these Articles of Incorporation of the Corporation shall amend, alter, change or repeal paragraph (4) of Article II or the proviso at the end of the last paragraph of Article II unless the amendment effecting such amendment, alteration, change or repeal shall receive the affirmative vote of at least eighty percent (80%) of the votes of the Corporation's Common Stock and Preferred Stock entitled to be cast by stockholders, voting as a single class, and of at least eighty (80%) of the votes of the Corporation's Preferred Stock entitled to be cast by stockholders, voting as a separate class, unless such action previously has been approved, adopted or authorized by the affirmative vote of eighty percent (80%) of the total number of Continuing Directors, in which case the affirmative vote of a majority of the votes entitled to be cast by the holders of the Corporation's Common Stock and Preferred Stock to be voted on the matter, voting as a single class, unless otherwise provided in the charter or unless otherwise required by law, shall be required to approve, adopt, or authorize such an amendment.

FIFTH: That the foregoing amendments to the Articles of Amendment and Restatement were duly advised by the Board of Directors of the Corporation (including at least 80% if the total number of Continuing Directors as defined in the charter) at a meeting held on February 20, 1998 and approved by an affirmative vote of a majority of the vote entitled to be cast by the holders of the Corporation's Common Stock to be voted on the matter and a majority of the holders of the Corporation's Money Market Cumulative Preferred Stock(TM) to be voted on the matter, each voting as a separate class, at the reconvened Annual Meeting of the Corporation held on May 15, 1998.

The President acknowledges these Articles of Amendment to be the corporate act of the Corporation and states that to the best of his knowledge, information and belief the matters and facts set forth in these Articles with respect to the authorization and approval of the amendment of the Corporation's Articles of Amendment and Restatement are true in all material respects, and that this statement is made under the penalties of perjury.

IN WITNESS WHEREOF, PREFERRED INCOME FUND INCORPORATED has causes this instrument to be executed in its name and on its behalf by its President, Robert T. Flaherty, and attested by its Secretary, Donald F. Crumrine, on the 17th of June, 1998.

PREFERRED INCOME FUND INCORPORATED

                                               By: /s/ Robert T. Flaherty
                                                   ----------------------
                                                   Robert T. Flaherty, President
ATTEST:

/s/ Donald P. Crumrine
----------------------
Donald P. Crumrine, Secretary

Exhibit (a)(5)

PREFERRED INCOME FUND INCORPORATED, a Maryland corporation (hereinafter called the "Corporation"), hereby certifies to the State Department of Assessments and Taxation of Maryland that:

FIRST: The Articles of Amendment and Restatement, as amended, (the "Articles of Incorporation") of the Corporation are hereby further amended to replace paragraphs (2) and (3) to Article VIII ("Amendments") with the following:

(2) Notwithstanding Paragraph (1) of this Article or any other provision of these Articles of Incorporation, no amendment to these Articles of Incorporation of the Corporation shall amend, alter, change or repeal any of the provisions of Articles V, VI or VIII unless the amendment effecting such amendment, alteration, change or repeal shall receive the affirmative vote of at least eighty percent (80%) of the votes of the Corporation's Common Stock and Preferred Stock entitled to be cast by stockholders, each voting as a separate class unless, in the case of Articles V, VI or paragraphs (1) and (2) (but not paragraph (3)) of Article VIII, such action previously has been approved, adopted or authorized by the affirmative vote of eighty percent (80%) of the total number of Continuing Directors, in which case the affirmative vote of a majority of the holders of the Corporation's Common Stock and Preferred Stock to be voted on the matter, each voting as a separate class, shall be required to approve, adopt or authorize such an amendment. Notwithstanding the previous sentence, any proposal to amend, alter, change or repeal Article VIII in a manner that would permit paragraph (4) of Article II or the proviso at the end of the last paragraph of Article II to be amended, altered, changed or repealed by an affirmative vote of less than at least eighty percent (80%) of the votes of the Corporation's Common Stock and Preferred Stock entitled to be cast by stockholders, voting as a single class, and of at least eighty percent (80%) of the votes of the Corporation's Preferred Stock entitled to be cast by stockholders, voting as a separate class, shall require the affirmative vote of at least eighty percent (80%) of the votes of the Corporation's Common Stock and Preferred

Stock entitled to be cast by stockholders, voting as a single class, and of at least eighty percent (80%) of the votes of the Corporation's Preferred Stock entitled to be cast by stockholders, voting as a separate class, and of at least eighty (80%) of the entire Board of Directors.

(3) Notwithstanding any other provision of these Articles of Incorporation, no amendment to these Articles of Incorporation of the Corporation shall amend, alter, change or repeal paragraph (4) of Article II or the proviso at the end of the last paragraph of Article II unless the amendment effecting such amendment, alteration, change or repeal shall receive the affirmative vote of at least eighty percent (80%) of the votes of the Corporation's Common Stock and Preferred Stock entitled to be cast by stockholders, voting as a single class, and of at least eighty percent (80%) of the votes of the Corporation's Preferred Stock entitled to be cast by stockholders, voting as a separate class, and of at least 80% of the entire Board of Directors.

SECOND: That the foregoing amendments to the Articles of Incorporation were duly advised by the Board of Directors of the Corporation (including at least 80% of the total number of Continuing Directors as defined in the charter) at a meeting held on January 22, 1999 and approved by an affirmative vote of a majority of the votes entitled to be cast by the holders of the Corporation's Common Stock to be voted on the matter and a majority of the holders of the Corporation's Money Market Cumulative Preferred Stock(TM) to be voted on the matter, each voting as a separate class, at the Annual Meeting of Shareholders held on April 30, 1999.

The President acknowledges these Articles of Amendment to be the corporate act of the Corporation and states that to the best of his knowledge, information and belief the matters and facts set forth in these Articles of Amendment with respect to the authorization and approval of the amendment of the Corporation's Articles of Incorporation are true and in all material respects, and that this statement is made under the penalties of perjury.

IN WITNESS WHEREOF, PREFERRED INCOME FUND INCORPORATED has caused this instrument to be executed in its name and on its behalf by its President, Robert T. Flaherty, and attested by its Secretary, Donald F. Crumrine, on the 27th of May, 1999.

PREFERRED INCOME FUND INCORPORATED

By:  /s/ Robert T. Flaherty
     ----------------------
     Robert T. Flaherty, President


ATTEST:


By:  /s/ Donald F. Crumrine
     ----------------------
     Donald F. Crumrine, Secretary

Exhibit (a)(6)

PREFERRED INCOME FUND INCORPORATED
ARTICLES SUPPLEMENTARY CREATING AND FIXING THE RIGHTS OF
MONEY MARKET CUMULATIVE PREFERRED STOCK ("MMP(R)")

Preferred Income Fund Incorporated, a Maryland corporation (the "Corporation"), certifies to the State Department of Assessments and Taxation of Maryland that:

FIRST: Pursuant to the authority expressly vested in the Board of Directors of the Corporation by Article IV of the Corporation's Articles of Incorporation, the Board of Directors has, by resolution, authorized the issuance of [200] additional shares of MMP (the "Additional MMP"), $.01 par value, liquidation preference $100,000 per share plus an amount equal to dividends on each share (whether or not earned or declared) accumulated and unpaid thereon and Additional Distribution Rights with respect to such accumulated dividends. The Corporation's Articles Supplementary Creating and Fixing the Rights of Money Market Cumulative Preferred Stock ("MMP(R)") filed with the State Department of Assessments and Taxation on April 12, 1991, as amended by the Articles of Amendment thereto filed with the State Department of Assessments and Taxation on July 25, 1994 are referred to together herein as the "Initial Articles Supplementary". The Board of Directors by resolution originally authorized the classification of 2,000 shares of the Corporation's preferred stock as 2,000 shares of MMP on March 20, 1991, as set forth in the Initial Articles Supplementary, and the duly authorized Pricing Committee of the Board of Directors authorized the issuance of 575 shares of MMP on April 12, 1991. Pursuant to the authority given to it in the Initial Articles Supplementary, the Board of Directors has previously modified certain definitions in the Initial Articles Supplementary, upon the written advisement of Moody's Investors Service, Inc. ("Moody's"), a rating agency rating the MMP, that such modifications would not adversely affect Moody's rating of the MMP and that such modifications were in accordance with guidelines established by Moody's.

SECOND: The preferences, rights, voting powers, restrictions, limitations as to dividends, qualifications and terms and conditions of redemption of the shares of Additional MMP are as set forth below:

1. The shares of Additional MMP shall be subject in all respects to the preferences, rights, voting powers, restrictions, limitations as to dividends, qualifications and terms and conditions of redemption applicable to the shares of MMP issued pursuant to the Initial Articles Supplementary, except as specifically set forth in this Article SECOND.

2. DATE OF ORIGINAL ISSUE. The Date of Original Issue for the shares of Additional MMP shall be June 4, 2002.

3. INITIAL RATE PERIOD. The Initial Rate Period for the shares of Additional MMP shall be the period from and including June 4, 2002 to but excluding the initial Dividend Payment Date for such shares. The Initial Rate Period for the shares of Additional MMP shall be 2 days.

4. INITIAL DIVIDEND PAYMENT DATE. The initial Dividend Payment Date for the shares of Additional MMP shall be June 6, 2002.

5. INITIAL APPLICABLE RATE. The Applicable Rate on shares of Additional MMP for the Initial Rate Period shall be the then-current Applicable Rate for the shares of MMP issued pursuant to the Initial Articles Supplementary.

6. DIVIDEND PAYMENT DATE. Dividends shall be payable, subject to paragraphs (b)(ii)(A) and (b)(ii)(C) of Section 2 of Part I of the Initial Articles Supplementary, on the initial Dividend Payment Date set forth above, and, thereafter, in accord with the provisions of the Initial Articles Supplementary.

THIRD: The Additional MMP have been classified by the Board of Directors pursuant to authority contained in the Charter of the Corporation. These Articles Supplementary do not increase the total authorized capital stock of the Corporation or the aggregate par value thereof.

IN WITNESS WHEREOF, PREFERRED INCOME FUND INCORPORATED has caused these presents to be signed as of May ___, 2002 in its name and on its behalf by a Vice President and witnessed by its Treasurer and Assistant Secretary, and the said officers of the Corporation acknowledge said instrument to be the corporate act of the Corporation and state under penalties of perjury that to the best of their knowledge, information and belief the matters and facts therein set forth with respect to approval are true in all material respects.

PREFERRED INCOME FUND INCORPORATED

By: /S/ Donald F. Crumrine
   -----------------------------------------------
     Donald F. Crumrine
     Vice President, Chief Financial Officer,
     Chief Accounting Officer, and Secretary

WITNESS:

 /S/ Peter C. Stimes
-------------------------------
Peter C. Stimes
Vice President, Treasurer, and
Asst. Secretary

PREFERRED INCOME FUND INCORPORATED

ARTICLES OF AMENDMENT

PREFERRED INCOME FUND INCORPORATED, a Maryland corporation having its principal Maryland office in the City of Baltimore (the "Corporation"), certifies to the State Department of Assessments and Taxation of Maryland that:

FIRST: The Articles Supplementary Creating and Fixing the Rights of Money Market Cumulative Preferred Stock ("MMP(R)") of the Corporation are hereby amended by deleting Article SECOND in its entirety and inserting in lieu thereof the following:

SECOND: The preferences, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions of redemption, of the shares of such series of preferred stock are as follows:

PART I

1. Number of Shares; Ranking. (a) The number of authorized shares constituting the MMP is 2,000. No fractional shares of MMP shall be issued. (b) Any shares of MMP which at any time have been redeemed, purchased or otherwise acquired by the Corporation shall, after such redemption, purchase or acquisition, have the status of authorized but unissued shares of MMP. The Corporation may not repurchase shares of MMP if, as a result of such purchases, the number of shares of MMP outstanding would be fewer than 200.

(c) The shares of MMP shall rank on a parity with shares of any other series of Preferred Stock as to the payment of dividends, including any Additional Distribution Rights,

and the distribution of assets upon dissolution, liquidation or winding up of the affairs of the Corporation.

(d) The Corporation shall not reissue any shares of MMP acquired by it unless (i) on the Business Day on which such shares are reissued the Eligible Asset Coverage is met giving effect to such reissuance and (ii) the Board of Directors receives written confirmation from Moody's that such reissuance would not impair the rating then assigned by Moody's to the shares of MMP.

2. Dividends. (a) The Holders of shares of MMP shall be entitled to receive, when, as and if declared by the Board of Directors, out of funds legally available therefor, cumulative cash dividends at the Applicable Rate per annum thereof, determined as set forth in paragraph (c) of this Section 2, and no more (except to the extent set forth in subparagraph (c)(i) and paragraph (d) of this Section 2), payable on the respective dates (each a "Dividend Payment Date") determined as set forth in paragraph (b) of this Section 2. Dividends on shares of MMP shall accumulate at the Applicable Rate per annum from the Date of Original Issue thereof.

(b) (i) Dividends shall be payable, subject to subparagraphs (b)(ii)(A) and
(b)(ii)(C) of this Section 2, on shares of MMP, on Thursday, June 6, 1991, and on each succeeding seventh Thursday following such date, provided that if the Corporation, subject to the conditions set forth in Section 4 of this Part I, designates any Subsequent Rate Period as a Special Rate Period that consists of:

(A) 91 Rate Period Days, dividends shall be payable, subject to subparagraphs (b) (ii) (A) and (b) (ii) (C) of this Section 2, on shares of MMP on the thirteenth Thursday after the first day of such Special Rate Period;

(B) 182 Rate Period Days, dividends shall be payable, subject to subparagraphs (b) (ii) (A) and (b) (ii) (C) of this Section 2, on shares of MMP on each of the thirteenth and twenty-sixth Thursdays after the first day of such Special Rate Period;

(C) four or more Dividend Periods, dividends shall be payable, subject to subparagraphs (b)(ii)(B) and (b)(ii)(C) of this Section 2, on shares of MMP, on the first day of the fourth month after the first day of such Special Rate Period and on the first day of each succeeding third month thereafter; provided, however, that if dividends for the last Dividend Period in any Special Rate Period would be payable as determined in this subparagraph
(b)(i)(C) on a day that is not a Thursday, then dividends for such last Dividend Period shall be payable instead on the first Thursday preceding such day.

After any Special Rate Period, dividends on such shares of MMP shall be payable, subject to subparagraphs (b)(ii)(A) and (b)(ii)(C) of this Section 2, on each succeeding seventh Thursday, subject in each case to the option of the Corporation to further designate from time to time any Subsequent Rate Period thereof as a Special Rate Period.

(ii) (A) In the case of dividends that would be payable on a Thursday, as determined by subparagraph (b)(i) of this Section 2, including clause (A) or (B) of the proviso thereto, if:

(1) (x) the Securities Depository shall make available to its participants and members, in next-day funds in The City of New York, New York, on Dividend Payment Dates, the amount then due as dividends or shall make available to its participants and members, in funds immediately available in The City of New York, New York, on Dividend Payment Dates, such amount but shall not have so advised the Auction Agent of such availability, and (y) (I) such Thursday is not a Business Day or (II) the day

following such Thursday is not a Business Day, then dividends shall be payable on the first Business Day that falls prior to such Thursday and is immediately followed by a Business Day; or

(2) (x) the Securities Depository shall make available to its participants and members, in funds immediately available in The City of New York, New York, on Dividend Payment Dates, the amount due as dividends on such Dividend Payment Dates and shall have advised the Auction Agent of such availability, and (y) such Thursday is not a Business Day, then dividends shall be payable on the first Business Day that falls after such Thursday.

(B) In the case of dividends that would be payable on the first day of a month, as determined by clause (C) of the proviso to subparagraph (b)(i) of this Section 2, if: (1) (x) the Securities Depository shall make available to its participants and members, in next-day funds in The City of New York, New York, on Dividend Payment Dates, the amount then due as dividends or shall make available to its participants and members, in funds immediately available in The City of New York, New York, on Dividend Payment Dates, such amount but shall not have so advised the Auction Agent of such availability, and (y) (I) such first day of the month is not a Business Day or (II) the day following such first day is not a Business Day, then dividends shall be payable on the first Business Day that falls after such first day of the month and is immediately followed by a Business Day; or

(2) (x) the Securities Depository shall make available to its participants and members, in funds immediately available in The City of New York, New York, on Dividend Payment Dates,

the amount due as dividends on such Dividend Payment Dates and shall have advised the Auction Agent of such availability, and (y) such first day of the month is not a Business Day, then dividends shall be payable on the first Business Day after such first day of the month.

(C) If any date on which dividends would be payable for any shares of MMP as determined above is a day that would result in the number of days between the second Auction Date preceding such date and the date that would have been the Auction Date next succeeding such second Auction Date (determined by including such second preceding Auction Date and excluding the date that would have been such next succeeding Auction Date) not being at least equal to the Minimum Holding Period, then dividends on shares of MMP shall be payable, if clause (1) of either subparagraph (b)(ii)(A) or (B) of this Section 2 is applicable to the shares of MMP, on the first Business Day following such date on which dividends would be so payable that is next succeeded by a Business Day or, if clause (2) of either subparagraph (b)(ii)(A) or (B) of this Section 2 is applicable to the shares of MMP, on the first Business Day following such date on which dividends would be so payable, that in either case results in the number of days between successive Auction Dates (determined as above) being at least equal to the Minimum Holding Period; provided, however, that the Board of Directors, in the event of any change in law changing the Minimum Holding Period, shall adjust the period of time between Auction Dates for shares of MMP so as, subject to subparagraphs (b) (ii) (A) and (b) (ii) (B) of this Section 2, and this subparagraph (b)(ii)(C), to adjust uniformly the number of Rate Period Days in Minimum Rate Periods commencing after the date of such change in law to equal or exceed the Minimum Holding Period, provided that after such adjustment:

(1) the rating on the shares of MMP is not adversely modified as a result of such adjustment;

(2) such number of Rate Period Days does not exceed the length of the then-current Minimum Holding Period by more than nine days and is not less than seven or more than 182 days; and

(3) dividends continue to be payable for Minimum Rate Periods, subject to such subparagraphs (b)(ii)(A) and (b)(ii)(B) and this subparagraph
(b)(ii)(C), on the successive Thursdays designated by the Board of Directors, in which event dividends shall be payable on shares of MMP, in lieu of the Thursdays specified in subparagraph (b)(i) of this Section 2, on the successive Thursdays so designated by the Board of Directors and, if there are more than 90 Rate Period Days in any such Subsequent Rate Period, on the Thursday that is the 91st day thereof (with respect to the Dividend Period ending on such 90th day), subject to such subparagraphs (b)(ii)(A) and
(b)(ii)(B) and this subparagraph (b)(ii)(C). The Corporation shall notify Moody's at the earliest possible date of any proposed change in law known to the Corporation that would alter the Minimum Holding Period, in order that Moody's may analyze the Eligible Asset Coverage Amount and Dividend Coverage Amount in light of the altered number of Rate Period Days with a view toward maintaining its then-current rating of the shares of MMP (and the Corporation shall have been advised in writing by Moody's that its then-current rating on the shares of MMP will be maintained) in the event such proposed change in law is enacted, and the Corporation will use reasonable efforts to maintain the then-current rating of the shares of MMP not withstanding the enactment of the change in law. Upon any such change in the number of Rate Period Days as a result of a change in law, the Corporation shall mail or cause to be mailed notice of such change by first class mail, postage prepaid, to the Auction Agent, the MMP Paying Agent, each Broker-Dealer, each

Holder at such Holder's address as the same appears on the stock books of the Corporation and to Moody's.

(iii) The Corporation shall pay or cause to be paid to the MMP Paying Agent not later than 12:00 Noon, New York City time, on the Business Day next preceding each such Dividend Payment Date for shares of MMP, an aggregate amount of funds available on the next Business Day in The City of New York, New York, equal to the dividends to be paid to all Holders on such Dividend Payment Date. The Corporation may direct the MMP Paying Agent to invest any such funds in Short-Term Money Market Instruments, provided that the proceeds of any such investment will be available in The City of New York, New York at the opening of business on such Dividend Payment Date.

(iv) All moneys paid to the MMP Paying Agent for the payment of dividends (or for the payment of any late charges pursuant to subparagraph (c)(i) of this
Section 2 or Additional Distributions) and any income or proceeds therefrom shall be held in trust for the payment of such dividends (and any such late charges or Additional Distributions) by the MMP Paying Agent for the benefit of the Holders specified in subparagraph (b)(v) of this Section 2. Any moneys paid to the MMP Paying Agent in accordance with the foregoing (and any income or proceeds therefrom) but not applied by the MMP Paying Agent to the payment of dividends (and any late charges or Additional Distributions) will, to the extent permitted by law, be repaid to the Corporation no later than the end of 12 months from the date on which such moneys, income or proceeds were so to have been applied.

(v) Each dividend on shares of MMP shall be paid on the Dividend Payment Date therefor to the Holders as their names appear on the stock books of the Corporation on the Business Day next preceding such Dividend Payment Date. Subject to paragraph (e) of this

Section 2, dividends in arrears for any past Dividend Period may be declared and paid at any time, without reference to any regular Dividend Payment Date, to the Holders as their names appear on the stock books of the Corporation on such date, not exceeding 15 days preceding the payment date thereof, as may be fixed by the Board of Directors.

(c) (i) The dividend rate on shares of MMP issued on April 17, 1991, during the period from and after such Date of Original Issue to and including the last day of the Initial Rate Period shall be equal to 4.90% per annum. For each Subsequent Rate Period, the dividend rate on shares of MMP shall be equal to the rate per annum that results from an Auction for such shares on the Auction Date next preceding such Subsequent Rate Period; provided, however, that if an Auction for any Subsequent Rate Period is not held for any reason or the shares of MMP are no longer held in the form of a single global certificate by a Securities Depository or if a Failure to Deposit has occurred that has not been cured (in which cases an Auction shall not be held), then, subject to the next succeeding proviso, the dividend rate on such shares for such Subsequent Rate Period shall be the Maximum Rate on the Auction Date for such Subsequent Rate Period; provided, further, however, that if:

(A) any Failure to Deposit shall have occurred with respect to shares of MMP during any Rate Period thereof (other than any Special Rate Period consisting of four or more Dividend Periods or any Rate Period succeeding any Special Rate Period consisting of four or more Dividend Periods during which a Failure to Deposit occurred that has not been cured), and, prior to 12:00 Noon, New York City time, on the third Business Day next succeeding the date on which such Failure to Deposit occurred, such Failure to Deposit shall not have been cured in accordance with the next succeeding sentence or the

Corporation shall not have paid to the MMP Paying Agent a late charge equal to the sum of:

(1) if such Failure to Deposit consisted of the failure timely to pay to the MMP Paying Agent pursuant to subparagraph (c)(ii) of this Section 2 the full amount of dividends with respect to any Dividend Period on such shares, an amount computed by multiplying (x) 225% of the "AA" Composite Commercial Paper Rate for the Rate Period during which such Failure to Deposit occurs on the Dividend Payment Date for such Dividend Period by (y) a fraction, the numerator of which shall be the number of days for which such Failure to Deposit has not been cured in accordance with the next succeeding sentence (including the day such Failure to Deposit occurs and excluding the day such Failure of Deposit is cured) and the denominator of which shall be 360, and applying the rate obtained against the product of $100,000 and the number of outstanding shares of MMP; and

(2) if such Failure to Deposit consisted of the failure timely to pay to the MMP Paying Agent pursuant to paragraph (e) of Section 3 of this Part I the cash redemption price of the shares of MMP of such series, if any, for which Notice of Redemption has been given by the Corporation pursuant to paragraph (b) of Section 3 of this Part I, an amount computed by multiplying (x) 225% of the "AA" Composite Commercial Paper Rate for the Rate Period during which such Failure to Deposit occurs on the redemption date by (y) a fraction, the numerator of which shall be the number of days for which such Failure to Deposit is not cured in accordance with the next succeeding sentence (including the day

such Failure to Deposit occurs and excluding the day such Failure to Deposit is cured) and the denominator of which shall be 360, and applying the rate obtained against the aggregate cash redemption price of the shares of MMP to be redeemed; or

(B) any Failure to Deposit shall have occurred with respect to shares of MMP during a Special Rate Period thereof consisting of four or more Dividend Periods, or during any Rate Period thereof succeeding any Special Rate Period consisting of four or more Dividend Periods during which a Failure to Deposit occurred that has not been cured, and such Failure to Deposit shall not have been cured in accordance with the next succeeding sentence during such Special Rate Period or such Rate Period, or the Corporation shall not have paid to the MMP Paying Agent a Late Charge calculated as set forth in subparagraph (c)(i)(A) of Section 2 above (except that for this purpose, the "AA" Composite Commercial Paper Rate shall be the "AA" Composite Commercial Paper Rate applicable to a Rate Period (x) consisting of 148 or more Rate Period Days but fewer than 182 Rate Period Days and (y) commencing on the date on which the Rate Period during which the Failure to Deposit occurred commenced),

then the dividend rate for shares of MMP for each Subsequent Rate Period thereof commencing after such failure to and including the later of (i) the Subsequent Rate Period, if any, during which the applicable Late Charge is paid by the Corporation to the MMP Paying Agent (provided that such Late Charge shall have been paid no later than 12:00 Noon, New York City time, on the fourth Business Day prior to the end of such Rate Period) and (ii) the Subsequent Rate Period, if any, during which such Failure to Deposit is so cured shall be a rate per annum equal to the Maximum Rate on the Auction Date for such Subsequent Rate Period (but with the

prevailing rating of such shares, for purposes of determining such Maximum Rate, being deemed to be "Below `baa3'") (the rate per annum at which dividends are payable on shares of MMP for any Rate Period for such shares being herein referred to as the "Applicable Rate" for such shares). A Failure to Deposit with respect to shares of MMP shall have been cured (if such Failure to Deposit is not solely due to the willful failure of the Corporation to make required payments to the MMP Paying Agent) with respect to any Rate Period if, not later than 12:00 Noon, New York City time, on the fourth Business Day preceding any Auction Date for the Rate Period subsequent to such Rate Period the Corporation shall have paid to the MMP Paying Agent (A) all accumulated and unpaid dividends on the shares of MMP and (B) without duplication, the redemption price due and unpaid for the shares of MMP, if any, for which Notice of Redemption has been given by the Corporation pursuant to paragraph (b) of Section 3 of this Part I.

(ii) The amount of dividends per share payable on shares of MMP on any date on which dividends shall be payable on such shares shall be computed by multiplying the respective Applicable Rate in effect for such Dividend Period or Dividend Periods or part thereof for which dividends have not been paid by a fraction, the numerator of which shall be the number of days in such Dividend Period or Dividend Periods or part thereof and the denominator of which shall be 360, and applying the rate obtained against $100,000. Any dividend payment made on shares of MMP shall be credited against the earliest accumulated but unpaid dividends due with respect to such shares of MMP.

(d) Each Holder who is entitled to receive any dividend declared by the Board of Directors on MMP shall also be entitled to receive an Additional Distribution Right. The Additional Distribution Right will be issued on the payment date for the related dividend to the person entitled to receive the dividend as the holder of record of the MMP on the record date for

the dividend and the Additional Distribution will be paid in the same manner as provided in these Articles Supplementary with respect to cash dividends.

(e) (i) Except as set forth in the next sentence, no dividends shall be declared or paid or set apart for payment on the shares of any class or series of stock ranking, as to the payment of dividends, on a parity with shares of MMP for any period unless full cumulative dividends have been or contemporaneously are declared and paid on the shares of MMP and any other parity stock through the most recent respective Dividend Payment Date with respect thereto. When dividends are not paid in full as aforesaid, upon the shares of MMP or any other class or series of stock ranking on a parity as to the payment of dividends with shares of MMP, all dividends declared upon shares of MMP and any other such class or series of stock ranking on a parity as to the payment of dividends with shares of MMP shall be declared pro rata so that the amount of dividends declared per share on shares of MMP and such other class or series of stock shall in all cases bear to each other the same ratio that accumulated dividends per share on the shares of MMP and such other class or series of stock bear to each other (for purposes of this sentence, the amount of dividends declared per share shall be based on the Applicable Rate for such shares for the Dividend Periods during which dividends were not paid in full). Holders of shares of MMP shall not be entitled to any dividend, whether payable in cash, property or stock, in excess of full cumulative dividends and Additional Distributions, as herein provided, on shares of MMP. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on shares of MMP which may be in arrears, and, except to the extent set forth in subparagraph (c)(i) of this Section 2, no additional sum of money shall be payable in respect of any such arrearage.

(ii) For so long as any shares of MMP are outstanding, the Corporation shall not declare, pay or set apart for payment any dividend or other distribution in respect of the Common Stock or any other stock of the Corporation ranking junior to the MMP as to dividends or upon liquidation (except a dividend payable in shares of Common Stock or such shares ranking junior to the MMP), or call for redemption, redeem, purchase or otherwise acquire for consideration any Common Stock or any other shares of the Corporation ranking junior to the MMP as to dividends or upon liquidation, unless:

(A) immediately thereafter, the 1940 Act Asset Coverage is met, the Eligible Asset Coverage is met and the Dividend Coverage is met;

(B) full cumulative dividends on all shares of MMP for all past Rate Periods and any Additional Distributions then due have been paid or declared and a sum sufficient for the payment of such dividends and Additional Distributions set apart for payment; and

(C) the Corporation has redeemed the full number of shares of MMP required to be redeemed by any provision for mandatory redemption contained in these Articles Supplementary (the number of shares subject to mandatory redemption to be determined without regard to the requirement that redemptions be made out of legally available funds).

The Certificate of 1940 Act Asset Coverage, the Certificate of Eligible Asset Coverage and the Certificate of Dividend Coverage dated as of the applicable evaluation date shall reflect any such transaction. An officer's certificate shall be filed with the records of the Corporation maintained at its principal executive office evidencing that (B) has been satisfied.

(iii) No dividend shall be declared, paid or set apart for payment on any class of stock of the Corporation (except dividends payable in stock of the Corporation), and no shares of any class of stock of the Corporation shall be called for redemption, redeemed, repurchased or otherwise acquired for consideration by the Corporation, unless the Corporation has paid or set apart for payment all Additional Distributions then due pursuant to Additional Distribution Rights issued by the Corporation in connection with payment of dividends or redemption of shares of MMP. If the Corporation does not pay all Additional Distributions then due, the amount paid shall be payable to each holder of Additional Distribution Rights to which Additional Distributions are due (regardless of the scheduled payment date) in the proportion that the Additional Distributions then due to such holder bear to the aggregate Additional Distributions due to all such holders.

3. Redemption. (a)(i) Subject to the next succeeding sentence, the shares of MMP may be redeemed, at the option of the Corporation, as a whole or from time to time in part, on the second Business Day next preceding any Dividend Payment Date therefor, at a redemption price per share equal to the sum of:

(A) $100,000;

(B) an amount equal to all dividends (whether or not earned or declared) accumulated thereon up to but not including the date fixed for redemption and unpaid, and an Additional Distribution Right with respect to such accumulated and unpaid dividends; and

(C) if redeemed during any Rate Period consisting of four or more Dividend Periods, the applicable redemption premium, if any, specified in the next succeeding sentence; provided that shares of MMP may not be redeemed in part if after such partial

redemption fewer than 200 shares remain outstanding. The applicable redemption premium per share of MMP during any Rate Period consisting of four or more Dividend Periods that is redeemed pursuant to this subparagraph (a)(i) shall be equal to:

(A) $1,000 if such share is redeemed on the second Business Day next preceding the second or third Dividend Payment Date in a Rate Period consisting of four Dividend Periods;

(B) $3,000 if such share is redeemed on the second Business Day next preceding the second or third Dividend Payment Date in a Rate Period consisting of 12 Dividend Periods, $2,000 if such share is redeemed on the second Business Day next preceding the fourth, fifth, sixth and seventh Dividend Payment Date in a Rate Period consisting of 12 Dividend Periods or $1,000 if such share is redeemed on the second Business Day next preceding the eighth, ninth, tenth or eleventh Dividend Payment Date in any such Rate Period; or

(C) $3,000 if such share is redeemed on the second Business Day next preceding any Dividend Payment Date during the first seven Dividend Periods in a Rate Period consisting of 20 Dividends Periods, $2,000 if such share is redeemed on the second Business Day next preceding the eighth, ninth, tenth or eleventh Dividend Payment Date in any such Rate Period, $1,000 if such share is redeemed on the second Business Day next preceding the twelfth, thirteenth, fourteenth or fifteenth Dividend Payment Date in any such Rate Period or $0 if such share is redeemed on the second Business Day next preceding the sixteenth, seventeenth, eighteenth or nineteenth Dividend Payment Date in any such Rate Period.

(ii) The shares of MMP may be redeemed, at the option of the Corporation, as a whole but not in part, on the first day following any Dividend Period thereof included in a Rate Period consisting of four or more Dividend Periods if, on the date of determination of the Applicable Rate for such Rate Period, such Applicable Rate equaled or exceeded on such date of determination the Treasury Rate for such Rate Period, at a redemption price per share equal to the sum of $100,000 plus an amount equal to all dividends (whether or not earned or declared) accumulated thereon up to but not including the date fixed for redemption and unpaid, and an Additional Distribution Right with respect to such accumulated and unpaid dividends.

(iii) (A) If the 1940 Act Asset Coverage is not met as of the 1940 Act Asset Coverage Cure Date as shown in a Certificate of 1940 Act Asset Coverage and the related Accountants' Certificate delivered by the Corporation to the Common Stock Paying Agent by the close of business on such 1940 Act Asset Coverage Cure Date, then the Corporation shall, by the close of business on such 1940 Act Asset Coverage Cure Date, (1) notify the MMP Paying Agent of its intention to redeem on the earliest practicable date following such 1940 Act Asset Coverage Cure Date the number of shares of MMP set forth below and (2) give a Notice of Redemption (which shall specify a mandatory redemption date that is not fewer than 30 days nor more than 33 days after the date of such notice) with respect to the redemption of MMP on such mandatory redemption date. On such mandatory redemption date, the Corporation shall redeem, out of funds legally available therefor, the number of shares of MMP equal to the minimum number of shares the redemption of which, if such redemption had occurred immediately prior to the opening of business on such 1940 Act Asset Coverage Cure Date, would have resulted in the 1940 Act Asset Coverage having been met on such 1940 Act Asset Coverage Cure Date or, if the 1940 Act Asset Coverage cannot be so restored, all of the shares of MMP, at a redemption price

equal to $100,000 per share plus an amount equal to all dividends (whether or not earned or declared) accumulated thereon up to but not including such mandatory redemption date and unpaid, and an Additional Distribution Right with respect to such accumulated and unpaid dividends.

(B) If the Eligible Asset Coverage is not met as of any Eligible Asset Cure Date as shown in a Certificate of Eligible Asset Coverage and the related Accountants' Certificate delivered by the Corporation to the MMP Paying Agent by the close of business on the second Business Day following such Eligible Asset Cure Date, then the Corporation shall, by the close of business on the second Business Day following such Eligible Asset Cure Date, (1) notify the MMP Paying Agent of its intention to redeem on the earliest practicable date following such Eligible Asset Cure Date the number of shares of MMP determined as provided below and (2) give a Notice of Redemption (which shall specify a mandatory redemption date that is not fewer than 30 days nor more than 33 days after the date of such notice) with respect to the redemption of shares of MMP on such mandatory redemption date. The Corporation shall redeem, out of funds legally available therefor, the number of shares of MMP equal to the minimum number of shares the redemption of which, if such redemption had occurred immediately prior to the opening of business on such Eligible Asset Cure Date, would have resulted in the Eligible Asset Coverage having been met on such Eligible Asset Cure Date or, if the Eligible Asset Coverage cannot be restored, all of the shares of MMP, at a redemption price equal to $100,000 per share plus an amount equal to all dividends (whether or not earned or declared) accumulated thereon up to but not including such mandatory redemption date and unpaid, and an Additional Distribution Right with respect to such accumulated and unpaid dividends.

(C) In the event of a redemption in part of the shares of MMP pursuant to this subparagraph (a)(iii), such redemption shall not be effected on either of the two Business Days immediately preceding an Auction Date.

(b) If the Corporation shall determine or be required to redeem shares of MMP pursuant to paragraph (a) of this Section 3, it shall mail a Notice of Redemption with respect to such redemption by first class mail, postage prepaid, to each Holder of the shares to be redeemed, at such Holder's address as the same appears on the stock books of the Corporation on the record date established by the Board of Directors. Such Notice of Redemption shall be so mailed no less than 30 nor more than 33 days prior to the date fixed for redemption. Each such Notice of Redemption shall state: (i) the redemption date;
(ii) the number of shares of MMP to be redeemed; (iii) the CUSIP number of such shares; (iv) the redemption price; (v) the place or places where the certificate(s) for such shares (properly endorsed or assigned for transfer, if the Board of Directors shall so require and the Notice of Redemption shall so state) are to be surrendered for payment of the redemption price; (vi) that dividends on the shares to be redeemed will cease to accrue on such redemption date; (vii) the provisions of paragraph (a) of this Section 3 under which such redemption is made; and (viii) if applicable, that the Holders of the shares of MMP being called for redemption will not be entitled to participate, with respect to such shares, in an Auction held subsequent to the date of such Notice of Redemption. If fewer than all shares of MMP held by any Holder are to be redeemed, the Notice of Redemption mailed to such Holder shall also specify the number of shares to be redeemed from such Holder.

(c) Notwithstanding the other provisions of this Section 3, the Corporation shall not redeem, purchase or otherwise acquire for consideration shares of MMP unless:

(i) all Additional Distributions due on or before the date of such redemption shall have been or are contemporaneously paid or a sum sufficient to pay such Additional Distributions set apart for payment;

(ii) all accumulated and unpaid dividends on all outstanding shares of MMP for all applicable past Rate Periods shall have been or are contemporaneously paid or declared and a sum sufficient for the payment of such dividends set apart for payment; and

(iii) other than in the case of mandatory redemptions pursuant to paragraph (a)(iii) of this Section 3 only, the 1940 Act Asset Coverage, the Eligible Asset Coverage and the Dividend Coverage would be met on the date of such redemption, purchase or other acquisition after giving effect thereto and, on or prior to such date, the Corporation provides to the Common Stock Paying Agent a Certificate of 1940 Act Asset Coverage and to the MMP Paying Agent a Certificate of Eligible Asset Coverage and a Certificate of Dividend Coverage, each together with a confirming Accountants' Certificate, showing compliance with this clause (iii) of this paragraph (c);

provided, however, that the Corporation may, without regard to the limitation contained in clause (ii) of this paragraph (c), but subject to the requirements of the 1940 Act, redeem, purchase or otherwise acquire shares of MMP (A) as a whole, pursuant to a mandatory redemption, or (B) pursuant to a purchase or exchange offer made on an equal basis for all of the outstanding shares of MMP as permitted under the 1940 Act. In the event that shares of MMP are acquired pursuant to an exchange offer, the securities exchanged for the MMP must have a rating from Moody's equivalent to the then-current rating on the MMP. In the event that fewer than all of the outstanding shares of MMP are to be redeemed pursuant to either an optional redemption or a

mandatory redemption, the shares to be redeemed shall otherwise be selected by lot, or such other method as the Board of Directors shall deem fair and equitable. An officer's certificate shall be filed with the records of the Corporation maintained at its principal executive offices evidencing that (ii) has been satisfied.

(d) On or after the redemption date, each Holder of shares of MMP that were called for redemption shall surrender the certificate evidencing such shares to the Corporation at the place designated in the Notice of Redemption and shall then be entitled to receive the cash redemption price, without interest, and the Additional Distribution Right; provided, however, that if and so long as all shares of MMP are held of record by a single person, such person shall not be required to surrender the certificate representing such shares in connection with a partial redemption of shares of MMP. If less than all of the shares represented by the share certificate are to be redeemed and the share certificate has been surrendered, the Corporation shall issue a new share certificate for the shares not redeemed.

(e) Not later than 12:00 Noon, New York City time, on the Business Day immediately preceding the redemption date, the Corporation shall irrevocably deposit with (or, in the case of a wire transfer, shall irrevocably instruct its bank to transfer to) the MMP Paying Agent sufficient funds to pay the cash redemption price of the shares of MMP to be redeemed and shall give the MMP Paying Agent irrevocable instructions to apply such funds and, if applicable, the income and proceeds therefrom, to the payment of the cash redemption price for such shares upon surrender of the certificate therefor. The Corporation may direct the MMP Paying Agent to invest any such available funds in Short-Term Money Market Instruments, provided that the proceeds of any such investment will be available in The City of New York, New York, at the opening of business on such redemption date. All such funds (to the extent

necessary to pay the full amount of the redemption price) shall be held in trust for the benefit of the Holders.

(f) If the Corporation shall have given or caused to be given a Notice of Redemption as aforesaid, shall have irrevocably deposited with the MMP Paying Agent a sum sufficient to pay the cash redemption price for the shares of MMP as to which such Notice of Redemption was given and shall have given the MMP Paying Agent irrevocable instructions and authority to pay the cash redemption price to the Holders of such shares, then on the date of such deposit (or, if no such deposit shall have been made, then on the date fixed for redemption, unless the Corporation shall have defaulted in making payment of the redemption price), all rights of the Holders of such shares by reason of their ownership of such shares, except their right to receive the redemption price thereof (but without interest) and any amount distributed pursuant to the Additional Distribution Right distributed upon redemption or otherwise to the Holder, shall terminate, and such shares shall no longer be deemed outstanding for any purpose, including, without limitation, calculation of the Eligible Asset Coverage and the Dividend Coverage and the right of the Holders of such shares to vote on any matter or to participate in any subsequent Auction. The Corporation shall be entitled to receive, from time to time, from the MMP Paying Agent the income, if any, derived from the investment of moneys and/or other assets deposited with it (to the extent that such income is not required to pay the cash redemption price of the shares to be redeemed), and the Holders of shares to be redeemed shall have no claim to any such income. In case the Holder of any shares called for redemption shall not claim the redemption price for his shares within two years after the redemption date, the MMP Paying Agent shall, upon demand, pay over to the Corporation such amount remaining on deposit and the MMP Paying Agent shall thereupon be relieved of all responsibility to the Holder with

respect to such shares, and such Holder shall thereafter look only to the Corporation for payment of the redemption price of such shares.

(g) Except as set forth in this Section 3 with respect to redemptions and subject to the provisions of paragraph (e) of Section 2 and paragraph (b) of
Section 1 of this Part I and paragraph (c) of this Section 3 and the 1940 Act, nothing contained herein shall limit any legal right of the Corporation to purchase or otherwise acquire any shares of MMP outside of an Auction at any price, whether higher or lower than the redemption price, in privately negotiated transactions or in the over-the-counter market or otherwise.

(h) Solely for the purpose of determining the number of shares of MMP to be stated in a Notice of Redemption as subject to a mandatory or optional redemption, the amount of funds legally available for such redemption shall be determined as of the date of such Notice of Redemption. The Corporation shall not give a Notice of Redemption with respect to an optional redemption unless at the time of giving such notice the Corporation shall have sufficient legally available funds in the form of cash or U.S. Treasury Securities and Short-Term Money Market Instruments maturing in 30 days or less to effect the redemption of all of the shares of MMP to be redeemed pursuant to such notice. To the extent that any redemption of which Notice of Redemption has been given is not made by reason of the absence of legally available funds therefor, such redemption shall be made as soon as practicable to the extent such funds become available. Failure to redeem shares of MMP shall be deemed to exist at any time after the date specified for redemption in the Notice of Redemption when the Corporation shall have failed, for any reason whatsoever, to deposit in trust funds with the MMP Paying Agent with respect to any shares for which such Notice of Redemption has been given. Notwithstanding the fact that the Corporation may not have redeemed shares of MMP for which a Notice of

Redemption has been given, dividends may be declared and paid on shares of MMP and shall include those shares of MMP for which a Notice of Redemption has been given, subject to paragraph (f) above.

(i) In the event that the Corporation shall have given a Notice of Redemption with respect to any of the shares of MMP and the sale of any Eligible Asset with a Discount Factor of greater than 1.000 shall be necessary to provide sufficient moneys to redeem all such shares on the redemption date, the Corporation shall sell or otherwise liquidate such asset as soon as reasonably practicable following the date on which such Notice of Redemption is given and shall take all reasonable steps to ensure that all such sales or other liquidations are effected no later than 30 days after such date.

(j) In effecting any redemption pursuant to this Section 3, the Corporation shall use its best efforts to comply with all applicable procedural conditions precedent to effecting such redemption under the 1940 Act and Maryland law, but shall effect no redemption except in accordance with the 1940 Act and Maryland law.

(k) In the case of any redemption pursuant to this Section 3, only whole shares of MMP shall be redeemed.

4. Designation of Special Rate Periods. (a) The Corporation, at its option, may designate any succeeding Subsequent Rate Period as a Special Rate Period; provided, however, that such designation shall be effective only if:

(i) notice thereof shall have been given in accordance with paragraph (b) and subparagraph (c)(i) of this Section 4;

(ii) any Failure to Deposit that shall have occurred with respect to shares of MMP during any Rate Period shall have been cured in accordance with the provisions of the third sentence of subparagraph (c)(i) of Section 2 of this

Part I;

(iii) Sufficient Clearing Bids (as defined in Section 1 of Part II hereof) shall have existed in the Auction held on the Auction Date immediately preceding the first day of such proposed Special Rate Period;

(iv) if any Notice of Redemption shall have been mailed by the Corporation pursuant to paragraph (b) of Section 3 of this Part I with respect to any shares of MMP, the Redemption Price with respect to any such shares of MMP shall have been paid to the Holders of such shares or set apart for payment;

(v) the length of such proposed Special Rate Period shall exceed the Minimum Holding Period; and

(vi) Moody's shall have confirmed in writing to the Corporation that such designation shall not adversely affect its then-current rating of the MMP.

(b) If the Corporation proposes to designate any succeeding Subsequent Rate Period as a Special Rate Period pursuant to paragraph (a) of this Section 4, not less than 20 nor more than 30 days prior to the date the Corporation proposes to designate as the first day of such Special Rate Period (which shall be such day that would otherwise be the first day of a Minimum Rate Period), notice shall be:

(i) published or caused to be published by the Corporation in a newspaper of general circulation to the financial community in The City of New York, New York, which carries financial news; and

(ii) mailed by the Corporation by first-class mail, postage prepaid, to the Holders of shares of MMP. Each such notice shall state (A) that the Corporation may exercise its option to designate a succeeding Subsequent Rate Period as a Special Rate Period, specifying the first day thereof and (B) that the Corporation will by 11:00 A.M., New York City time, on the second Business Day next preceding such date notify the Auction Agent of either (1) its determination, subject to certain conditions, to exercise such option, in which case the Corporation shall specify the Special Rate Period designated, or (2) its determination not to exercise such option.

(c) Not later than 11:00 A.M., New York City time, on the second Business Day next preceding the first day of any proposed Special Rate Period as to which notice has been given as set forth in paragraph (b) of this Section 4, the Corporation shall deliver to the Auction Agent either:

(i) a notice stating (A) that the Corporation has determined to designate the next succeeding Rate Period as a Special Rate Period, specifying the same and the first day thereof, (B) the Auction Date immediately prior to the first day of such Special Rate Period, (C) that such Special Rate Period shall not commence if (1) on such Auction Date Sufficient Clearing Bids shall not exist unless all shares of MMP are subject to Hold Orders or (2) a Failure to Deposit shall have occurred prior to the first day of such Special Rate Period with respect to shares of MMP and (D) the scheduled Dividend Payment Dates during such Special Rate Period; such notice to be accompanied by a Certificate of Eligible Asset Coverage showing that, as of the third Business Day next preceding such proposed Special Rate Period, Eligible Assets were at least equal to Eligible Asset Coverage as of such Business Day (assuming for purposes of the foregoing

calculation that the Maximum Rate is the Maximum Rate on such Business Day as if such Business Day were the Auction Date for the proposed Special Rate Period) and written confirmation from Moody's that the designation of such Special Rate Period will not adversely affect Moody's then-current rating of the MMP; or

(ii) a notice stating that the Corporation has determined not to exercise its option to designate a Special Rate Period of MMP and that the next succeeding Rate Period shall be a Minimum Rate Period.

If the Corporation fails to deliver either such notice (and, in the case of the notice described in clause (i) above, a Certificate of Eligible Asset Coverage and confirmation from Moody's to the effect set forth in clause (i)) with respect to any designation of any proposed Special Rate Period to the Auction Agent by 11:00 A.M., New York City time, on the second Business Day next preceding the first day of such proposed Special Rate Period, the Corporation shall be deemed to have delivered a notice to the Auction Agent with respect to such Special Rate Period to the effect set forth in clause (ii) of the preceding sentence.

5. Voting Rights. (a) Except as otherwise provided in the Articles or as otherwise required by law, each Holder of shares of MMP shall be entitled to one vote for each share of MMP held on each matter submitted to a vote of shareholders of the Corporation, and the holders of outstanding shares of MMP and shares of Common Stock shall vote together as a single class.

(b) At any meeting of the shareholders of the Corporation held for the election of directors, the holders of Preferred Stock, including MMP, shall be entitled, voting as a single class to the exclusion of the holders of all other securities and classes of capital stock of the Corporation, to elect two directors of the Corporation. Subject to paragraph (c) of this Section 5,

the holders of Common Stock of the Corporation, voting as a separate class, shall elect the balance of the directors.

(c) During any period in which any one or more of the conditions described below shall exist (such period being referred to herein as a "Voting Period"), the number of directors constituting the Board of Directors shall be automatically increased by the smallest number that, when added to the two directors elected exclusively by the holders of shares of Preferred Stock, including shares of MMP, would constitute a majority of the Board of Directors as so increased by such smallest number; and the holders of shares of Preferred Stock, including MMP, shall be entitled, voting as a single class to the exclusion of the holders of all other securities and classes of capital stock of the Corporation, to elect such smallest number of additional directors, together with the two directors that such holders are in any event entitled to elect. A Voting Period shall commence:

(i) if at any time dividends (whether or not earned or declared, and whether or not funds are then legally available in an amount sufficient therefor) on the outstanding shares of MMP equal to at least two full years' dividends shall be due and unpaid and sufficient cash or specified securities shall not have been deposited with the MMP Paying Agent for the payment of such dividends; or

(ii) if at any time holders of any other shares of Preferred Stock are entitled to elect a majority of the directors of the Corporation.

Upon the termination of a Voting Period, the voting rights described in paragraph (c) of this Section 5 shall cease, subject always, however, to the revesting of such voting rights in the holders of Preferred Stock, including MMP, upon the further occurrence of either of the events described in paragraph
(c) of this Section 5.

(d) (i) As soon as practicable after the accrual of any right of the holders of shares of Preferred Stock, including MMP, to elect additional directors as described in paragraph (c) of this Section 5, the Corporation shall notify the MMP Paying Agent and the MMP Paying Agent shall call a special meeting of such holders, by mailing a notice of such special meeting to such holders, such meeting to be held not less than 10 or more than 30 days after the date of mailing of such notice. If the Corporation fails to send such notice to the MMP Paying Agent or if the MMP Paying Agent does not call such a special meeting, it may be called by any such holder on like notice. The record date for determining the holders entitled to notice of and to vote at such special meeting shall be the close of business on the fifth Business Day preceding the day on which such notice is mailed. At any such special meeting and at each meeting held during a Voting Period, such holders, voting together as a single class to the exclusion of the holders of all other securities and classes of capital stock of the Corporation, shall be entitled to elect the number of additional directors prescribed in paragraph (c) of this Section 5. At any such meeting or adjournment thereof in the absence of a quorum, the holders present in person or by proxy shall have the power to adjourn the meeting without notice, other than by an announcement at the meeting, to a date not more than 120 days after the original record date.

(ii) For purposes of determining any rights of the Holders to vote on any matter, whether such right is created by these Articles Supplementary, by the other provisions of the Articles, by statute or otherwise, no Holder shall be entitled to vote and no share of MMP shall be deemed to be "outstanding" for the purpose of voting or determining the number of shares required to constitute a quorum if, prior to or concurrently with the time of determination of shares entitled to vote or shares deemed outstanding for quorum purposes, as the case may be, the redemption price for the redemption of such shares has been deposited in trust with the MMP

Paying Agent for that purpose and the requisite Notice of Redemption with respect to such shares has been given as provided in Section 3 of this Part I. No share of MMP held by the Corporation or any Affiliate shall have any voting rights or be deemed to be outstanding for voting or other purposes except that shares held by any Affiliates shall be deemed to be outstanding for the purpose of calculating the Eligible Asset Coverage Amount.

(iii) Except as provided in the next succeeding sentence, the terms of office of all persons who are directors of the Corporation at the time of a special meeting of holders of Preferred Stock, including MMP, to elect directors shall continue, notwithstanding the election at such meeting by such holders of the number of directors that they are entitled to elect, and the persons so elected by such holders, together with the two incumbent directors elected by such holders and the remaining incumbent directors elected by the holders of the Common Stock shall constitute the duly elected directors of the Corporation. If the election of additional directors by the holders of Preferred Stock, including MMP, would cause the number of directors to exceed 12, then the terms of office of a number of directors elected by the holders of Common Stock shall terminate at the time of the special meeting to elect such additional directors such that the sum of the number of remaining directors and the number of additional directors does not exceed 12 and the number of additional directors and the two directors elected by the holders of Preferred Stock, including MMP, constitute a majority of the entire Board of Directors.

(iv) Simultaneously with the termination of a Voting Period, the terms of office of the additional directors elected by the holders of Preferred Stock, including MMP, pursuant to paragraph (c) of this Section 5 shall terminate, the remaining directors shall constitute the directors of the Corporation and the voting rights of such holders to elect

additional directors pursuant to paragraph (c) of this Section 5 shall cease, subject to the provisions of the last sentence of paragraph (c) of this Section 5.

(v) If the right of the holders of Preferred Stock, including MMP, to elect additional directors as described in paragraph (c) of this Section 5 accrues during the period commencing one month prior to the Corporation's fiscal year and ending at the end of the fourth month after the Corporation's fiscal year end, the Corporation shall not be required to hold a separate meeting pursuant to subparagraph (d)(i) of this Section 5 and may, instead, call an annual meeting for such purpose if such meeting has not been held following such fiscal year end. At any such annual meeting, such holders, voting as a single class, shall be entitled to elect two directors pursuant to paragraph (b) of this
Section 5 and additional directors pursuant to paragraph (c) of this Section 5. Upon expiration of the Voting Period, the term of office of the additional directors elected pursuant to paragraph (c) of this Section 5 shall expire.

(e) (i) In addition to all rights of holders of Preferred Stock set forth in the Articles, so long as any shares of MMP are outstanding, the Corporation shall not, without the affirmative vote of at least 80% of the votes entitled to be cast by Holders of MMP:

(A) authorize, create or issue any class or series of stock ranking prior to or on a parity with the MMP with respect to the payment of dividends or the distribution of assets upon dissolution, liquidation or winding up of the affairs of the Corporation (other than previously authorized and unissued shares of MMP, including any shares of MMP purchased or redeemed by the Corporation), or increase the authorized amount of MMP or any other Preferred Stock; or

(B) amend, alter or repeal the provisions of the Articles, including these Articles Supplementary, whether by merger, consolidation or otherwise, so as to

adversely affect in any material respect any of the contract rights expressly set forth in the Articles, including these Articles Supplementary, of such shares of MMP or the Holders thereof.

The affirmative vote of a majority of the votes entitled to be cast by holders of MMP, voting as a separate class with holders of other Preferred Stock entitled to vote on the matter, shall be required to approve any matter which, under Article VI of the Articles of Incorporation, requires the approval of a majority of the votes entitled to be cast by stockholders if also approved by 80% of the Continuing Directors (as therein defined) or certain other requirements therein specified are met.

The class votes of the shares of MMP described in these Articles will in each case be in addition to any required separate vote of the requisite percentage of shares of Common Stock and MMP, voting together as a single class, necessary to authorize the action in question.

(ii) The Board of Directors, without the vote or consent of the Holders, may from time to time amend, alter or repeal any or all of the definitions of the terms listed below, and any such amendment, alteration or repeal will not be deemed to affect the contract rights of shares of MMP or the Holders thereof, provided the Board of Directors receives written confirmation from Moody's that any such amendment, alteration or repeal would not impair the ratings then assigned by Moody's to the shares of MMP:

Coverage Value

Discount Factor

Dividend Coverage Amount

Dividend Coverage Assets

Dividend Coverage Cure Date Dividend Coverage Evaluation Date

Dividend Coverage is met Eligible Asset Coverage Amount

Eligible Asset Coverage is met Eligible Asset Cure Date

Eligible Asset Evaluation Date Eligible Assets Market Value

Net Coverage Value 1940 Act Asset Coverage 1940 Act Asset

Coverage Cure Date 1940 Act Asset Coverage Evaluation Date

1940 Act Asset Coverage is met Projected Dividend Amount

(iii) To the extent permitted by applicable law, from time to time without the vote or consent of the Holders, the Board of Directors may interpret or adjust the provisions of these Articles Supplementary to resolve any inconsistency or ambiguity or to remedy any formal defect.

(f) Unless otherwise required by law, the Holders shall not have any relative rights or preferences or other rights other than those specifically set forth herein. The Holders shall have no preemptive rights or rights to cumulative voting. In the event that the Corporation fails to pay any dividends on the shares of MMP, the exclusive remedy of the Holders shall be the right to vote for directors pursuant to the provisions of this Section 5.

(g) Unless a higher percentage is provided for in the Articles, the affirmative vote of the Holders of a majority of the outstanding shares of MMP, voting as a separate class, shall be required to approve any plan of reorganization (as such term is used in the 1940 Act) adversely affecting such shares or any action requiring a vote of security holders of the Corporation under Section 13(a) of the 1940 Act, including a change in the Corporation's subclassification from that of a closed-end investment company to that of an open-end investment company. In the event a vote of Holders is required pursuant to the provisions of Section 13(a) of the 1940 Act, the Corporation shall, not later than ten Business Days prior to the date on which such vote is to be taken, notify Moody's that such vote is to be taken and the nature of the action with respect to which such vote is to be taken. The Corporation shall, in a timely fashion after such vote is taken, notify Moody's of the result of such vote.

6. LIQUIDATION RIGHTS. (a) Upon the dissolution, liquidation or winding up of the affairs of the Corporation, whether voluntary or involuntary, the Holders shall be entitled to receive and to be paid out of the assets of the Corporation available for distribution to its shareholders after satisfying claims of creditors but before any payment or distribution shall be made on the Common Stock or on any other class of stock of the Corporation ranking junior to the MMP upon dissolution, liquidation or winding up, liquidating distributions per share of $100,000 plus an amount equal to all dividends (whether or not earned or declared) accumulated thereon up to but not including the date of such distribution and unpaid, and an Additional Distribution Right with regard to such accumulated and unpaid dividends.

(b) Neither the sale, lease or exchange (for cash, stock, securities or other consideration) of all or substantially all the property or business of the Corporation, nor the merger or consolidation of the Corporation into or with any other entity, nor the merger or

consolidation of any other entity into or with the Corporation, nor any share exchange between the Corporation and any other entity shall be deemed to be a dissolution, liquidation or winding up, whether voluntary or involuntary, for the purpose of this Section 6.

(c) After the payment to the Holders of the full preferential amounts provided in this Section 6, the Holders as such shall have no right or claim to any of the remaining assets of the Corporation, except pursuant to the Additional Distribution Right distributed pursuant to paragraph (a) of this
Section 6 or otherwise to the Holder.

(d) In the event the assets of the Corporation available for distribution to the Holders upon any dissolution, liquidation or winding up of the affairs of the Corporation, whether voluntary or involuntary, shall be insufficient to pay in full all amounts to which such Holders are entitled pursuant to paragraph (a) of this Section 6, no such distribution shall be made on account of any shares of any other class or series of Preferred Stock ranking on a parity with the shares of MMP with respect to the distribution of assets upon such dissolution, liquidation or winding up unless proportionate distributive amounts shall be paid on account of the shares of MMP, ratably, in proportion to the full distributable amounts to which such Holders and the holders of all such parity shares are respectively entitled upon such dissolution, liquidation or winding up.

(e) Subject to the rights of holders of shares of any series or class or classes of stock ranking on a parity with the shares of MMP with respect to the distribution of assets upon dissolution, liquidation or winding up of the affairs of the Corporation, after payment shall have been made in full to the Holders as provided in paragraph (a) of this Section 6, but not prior thereto, any other series or class or classes of stock ranking junior to the shares of MMP with respect to the distribution of assets upon dissolution, liquidation or winding up of the affairs of

the Corporation shall, subject to the respective terms and provisions (if any) applying thereto, be entitled to receive any and all assets remaining to be paid or distributed, and the Holders shall not be entitled to share therein.

7. 1940 ACT ASSET COVERAGE, ELIGIBLE ASSET COVERAGE AND DIVIDEND COVERAGE.
(a) (i) The Corporation shall determine whether the 1940 Act Asset Coverage is met as of each 1940 Act Asset Coverage Evaluation Date. The calculation of the asset coverage for the MMP on that date in accordance with the 1940 Act and whether the 1940 Act Asset Coverage is met shall be set forth in a certificate (a "Certificate of 1940 Act Asset Coverage") dated as of such 1940 Act Asset Coverage Evaluation Date. In addition, as of each Eligible Asset Evaluation Date, the Corporation shall determine:

(A) the Coverage Value of each Eligible Asset owned by the Corporation on that date;

(B) the Net Coverage Value of all such Eligible Assets;

(C) the Eligible Asset Coverage Amount with respect to such Eligible Asset Evaluation Date; and

(D) whether the Eligible Asset Coverage is met as of such date. The calculation of the Coverage Value of each Eligible Asset, the Net Coverage Value of all such Eligible Assets, the Eligible Asset Coverage Amount and whether the Eligible Asset Coverage is met shall be set forth in a certificate (a "Certificate of Eligible Asset Coverage") dated as of such Eligible Asset Evaluation Date. As of each Dividend Coverage Evaluation Date, the Corporation shall determine:

(A) the aggregate Coverage Value of the Dividend Coverage Assets owned by the Corporation on that date for the shares of MMP;

(B) the Dividend Coverage Amount on that date; and

(C) whether the Dividend Coverage is met as of such date.

The calculations of the aggregate Coverage Value of the Dividend Coverage Assets, the Dividend Coverage Amount and whether the Dividend Coverage is met shall be set forth in a certificate (a "Certificate of Dividend Coverage") dated as of such Dividend Coverage Evaluation Date. The Corporation shall cause the Certificate of 1940 Act Asset Coverage to be delivered to the Common Stock Paying Agent not later than the close of business on the third Business Day after the related 1940 Act Asset Coverage Evaluation Date. The Corporation shall cause the Certificate of Eligible Asset Coverage and the Certificate of Dividend Coverage to be delivered to the MMP Paying Agent not later than the close of business on the third Business Day after the related evaluation date. In addition, the Corporation shall cause the Certificate of Eligible Asset Coverage to be delivered to Moody's quarterly, and not later than the close of business on the third Business Day after (i) any Eligible Asset Evaluation Date immediately preceding any approval by the Corporation's Board of Directors of redemption of shares of the Corporation's Common Stock and (ii) any Eligible Asset Evaluation Date on which the Net Coverage Value of Eligible Assets is less than 25% greater than the Eligible Asset Coverage Amount. In the event that the Eligible Asset Coverage is not met or is not met and is subsequently cured, the Corporation shall cause the Certificate of Eligible Asset Coverage to be delivered to Moody's not later than the close of business on the third Business Day following such date of failure and/or on the second Business Day following such date of cure.

(ii) In the event that a Certificate of 1940 Act Asset Coverage, a Certificate of Eligible Asset Coverage or a Certificate of Dividend Coverage is not delivered to the Common Stock Paying Agent or the MMP Paying Agent, as the case may be, when required, the 1940 Act

Asset Coverage, the Eligible Asset Coverage or the Dividend Coverage, as the case may be, will be deemed not to have been met as of the related evaluation date.

(b) With respect to (i) the Certificate of 1940 Act Asset Coverage relating to any 1940 Act Asset Coverage Cure Date, (ii) the Certificate of Eligible Asset Coverage (A) as of April 12, 1991, (B) relating to the last Eligible Asset Evaluation Date in each fiscal quarter and relating to one other Eligible Asset Evaluation Date during such fiscal quarter as selected by the Independent Accountants, and (C) relating to any Eligible Asset Cure Date and (iii) the Certificate of Dividend Coverage relating to any Dividend Coverage Cure Date, the Corporation shall obtain from the Independent Accountants a written communication confirming that:

(1) with respect to the 1940 Act Asset Coverage, (a) the calculations set forth in the related Certificate of 1940 Act Asset Coverage are mathematically accurate and (b) the Independent Accountants have traced the prices used by the Corporation in valuing the Corporation's portfolio investments to the prices provided to the Corporation by the Corporation's administrator or other appropriate service provider for such purpose and verified that such information agrees; and

(2) with respect to the Eligible Asset Coverage or the Dividend Coverage, (a) the calculations set forth in the related Certificate of Eligible Asset Coverage or Certificate of Dividend Coverage, as the case may be, are mathematically accurate, (b) the method used by the Corporation in determining whether the Eligible Asset Coverage or the Dividend Coverage, as the case may be, is met, is in accordance with the applicable requirements of these Articles Supplementary, (c) the Independent Accountants have traced the prices used by the Corporation in the determination of Market Values of the Eligible Assets or the Dividend Coverage Assets, as the case may

be, to the prices provided to the Corporation by the Corporation's administrator or other appropriate service provider for purposes of such determination and verified that such information agrees, (d) the Independent Accountants have calculated the liabilities and related assumed assets arising in connection with Section 8(b) of Part I, (e) the Corporation's positions in futures and options at such Eligible Asset Evaluation Date were in accordance with the provisions of Section 8(b) of Part I and (f) the assets listed as Eligible Assets or Dividend Coverage Assets, as the case may be, in the related certificate conform to the descriptions of Eligible Assets or Dividend Coverage Assets set forth in these Articles (such a written communication being referred to herein as an "Accountants' Certificate").

The Corporation shall cause each Accountants' Certificate relating to any 1940 Act Asset Coverage Cure Date to be delivered, together with the related Certificate of 1940 Act Asset Coverage, to the Common Stock Paying Agent by the close of business on such 1940 Act Asset Coverage Cure Date. The Corporation shall cause each Accountants' Certificate relating to the last Eligible Asset Evaluation Date of each fiscal quarter and such other one Eligible Asset Evaluation Date per quarter as selected by the Independent Accountants to be delivered to the MMP Paying Agent not later than the close of business on the seventh Business Day following the last day of the related fiscal quarter (such seventh Business Day being referred to herein as a "Confirmation Date") and shall cause each Accountants' Certificate relating to any Eligible Asset Cure Date to be delivered to the MMP Paying Agent by the close of business on the second Business Day following such Eligible Asset Cure Date. The Corporation shall cause each Accountants' Certificate relating to any Dividend Coverage Cure Date to be delivered to the MMP Paying Agent by the close of business on the second Business Day following such

Dividend Coverage Cure Date. The Corporation shall cause each Accountants' Certificate delivered to the Common Stock Paying Agent or the MMP Paying Agent, as the case may be, to be contemporaneously delivered to Moody's. In the event of any difference between the Corporation's calculations as shown on a Certificate of 1940 Act Asset Coverage, a Certificate of Eligible Asset Coverage or a Certificate of Dividend Coverage and the Independent Accountants' calculations as shown on an Accountants' Certificate, such calculations of the Independent Accountants shall control. If the number of Rate Period Days in the Minimum Rate Period is altered as provided for in the proviso to subparagraph
(b)(ii)(C) of Section 2 of this Part I, or the Corporation shall designate a Special Rate Period pursuant to Section 4 of this Part I, the Corporation shall provide for an Accountants' Certificate relating to a Certificate of Eligible Asset Coverage to be furnished to the MMP Paying Agent at such additional times as may be necessary to provide for such confirmations to be furnished at least as frequently as provided prior to such alteration and as may be necessary to maintain the then-current rating by Moody's of the shares of MMP.

(c) If the 1940 Act Asset Coverage is not met as of any 1940 Act Asset Coverage Evaluation Date as shown in a Certificate of 1940 Act Asset Coverage delivered to the Common Stock Paying Agent by the close of business on the third Business Day after such 1940 Act Asset Coverage Evaluation Date, then the Corporation shall (if and to the extent necessary to enable it to meet the requirements of paragraph (d) of this Section 7):

(i) by the close of business on the 1940 Act Asset Coverage Cure Date relating to such 1940 Act Asset Coverage Evaluation Date, if the Corporation shall have funds legally available for the purchase of shares of MMP, purchase such shares outside

of an Auction in order that the 1940 Act Asset Coverage is met as of such 1940 Act Asset Coverage Cure Date; and/or

(ii) by the close of business on the applicable 1940 Act Asset Coverage Cure Date, notify the MMP Paying Agent of its intention to redeem, and give a Notice of Redemption as described in these Articles Supplementary with respect to the redemption of, shares of MMP.

(d) If the 1940 Act Asset Coverage is not met as of any 1940 Act Asset Coverage Evaluation Date as shown in a Certificate of 1940 Act Asset Coverage, then the Corporation shall, by the close of business on the applicable 1940 Act Asset Coverage Cure Date, deliver to the Common Stock Paying Agent a Certificate of 1940 Act Asset Coverage together with an Accountants' Certificate showing that the 1940 Act Asset Coverage is met (or, if clause (ii) of paragraph (c) of this Section 7 is applicable, would have been met) as of such 1940 Act Asset Coverage Cure Date after giving effect to (A) any purchase of the shares of MMP outside of an Auction pursuant to clause (i) of paragraph (c) of this Section 7 and/or (B) any redemption of the shares of MMP pursuant to the Notice of Redemption contemplated by such clause (ii) (as if such redemption had occurred immediately prior to the opening of business on such 1940 Act Asset Coverage Cure Date).

(e) If (i) the Eligible Asset Coverage is not met as of any Eligible Asset Evaluation Date as shown in a Certificate of Eligible Asset Coverage delivered to the MMP Paying Agent by the close of business on the third Business Day after such Eligible Asset Evaluation Date or (ii) the Corporation is required to deliver to the MMP Paying Agent by the close of business on a Confirmation Date an Accountants' Certificate confirming the Certificate of Eligible Asset Coverage with respect to such Eligible Asset Evaluation Date, and the

Corporation fails timely to deliver such Accountants' Certificate, then the Corporation shall (if and to the extent necessary to enable it to meet the requirements of paragraph (f) of this Section 7):

(A) by the close of business on the Eligible Asset Cure Date relating to such Eligible Asset Evaluation Date or Confirmation Date, as the case may be, purchase or otherwise acquire additional Eligible Assets or, if the Corporation shall have funds legally available for the purchase of shares of MMP, purchase such shares outside of an Auction, or both, in order that the Eligible Asset Coverage is met as of such Eligible Asset Cure Date; and/or

(B) by the close of business on the second Business Day after the applicable Eligible Asset Cure Date, notify the MMP Paying Agent of its intention to redeem, and give a Notice of Redemption with respect to the redemption of, shares of MMP as described herein.

(f) If the Eligible Asset Coverage is not met as of any Eligible Asset Evaluation Date as shown in a Certificate of Eligible Asset Coverage or if an Accountants' Certificate confirming a Certificate of Eligible Asset Coverage is not timely delivered as contemplated by subclause (i) or subclause (ii) of paragraph (e) of this Section 7, then the Corporation shall, by the close of business on the second Business Day following the applicable Eligible Asset Cure Date, deliver to the MMP Paying Agent a Certificate of Eligible Asset Coverage together with an Accountants' Certificate showing that the Eligible Asset Coverage is met (or, if subclause (B) of such paragraph (e) is applicable, would have been met) as of such Eligible Asset Cure Date after giving effect to:

(i) any purchase or other acquisition of Eligible Assets or any purchase of the shares of MMP outside of an Auction pursuant to clause (A) of paragraph (e) of this Section 7; and/or

(ii) any redemption of the shares of MMP pursuant to the Notice of Redemption contemplated by clause (B) of such paragraph (e) (as if such redemption had occurred immediately prior to the opening of business on such Eligible Asset Cure Date).

(g) If the Dividend Coverage is not met as of any Dividend Coverage Evaluation Date as shown in a Certificate of Dividend Coverage delivered to the MMP Paying Agent by the close of business on the third Business Day after such Dividend Coverage Evaluation Date, then the Corporation shall, by the close of business on the Dividend Coverage Cure Date relating to such Dividend Coverage Evaluation Date, to the extent necessary so that the Dividend Coverage is met on such Dividend Coverage Cure Date, purchase or otherwise acquire Dividend Coverage Assets (with the proceeds from the liquidation of Eligible Assets or otherwise). The Corporation shall, by the third Business Day following the applicable Dividend Coverage Cure Date, deliver to the MMP Paying Agent a Certificate of Dividend Coverage together with an Accountants' Certificate showing that the Dividend Coverage is met as of such Dividend Coverage Cure Date after giving effect to any purchase or other acquisition of Dividend Coverage Assets.

(h) For purposes of determining whether the 1940 Act Asset Coverage is met, the Eligible Asset Coverage is met or the Dividend Coverage is met, no share of the MMP shall be deemed to be "outstanding" for purposes of any computation if, prior to or concurrently with such determination, (i) the requisite funds for the redemption of such share shall have been deposited in trust with the MMP Paying Agent for that purpose and the requisite Notice of

Redemption shall have been given or (ii) such share shall have been redeemed, purchased or otherwise acquired by the Corporation. In the case of clause (i) of this paragraph (h), the funds deposited with the MMP Paying Agent (to the extent necessary to pay the full redemption price for such shares) shall not be included in determining whether the 1940 Act Asset Coverage, the Dividend Coverage or the Eligible Asset Coverage are met.

8. Certain Other Restrictions. (a) For so long as any shares of MMP are outstanding and Moody's is rating such shares, the Corporation will not, unless it has received written confirmation from Moody's that any such action would not impair the rating then assigned by Moody's to shares of MMP:

(i) enter into reverse repurchase agreements;

(ii) enter into options and futures transactions except as set forth in paragraph

(b) of this Section 8;

(iii) make short sales of securities other than short sales "against the box";

(iv) overdraw any bank account (except as may be necessary for the clearance of security transactions); or

(v) borrow money or issue senior securities (as defined in the 1940 Act) other than the shares of MMP.

(b) For so long as the shares of MMP are rated by Moody's, the Corporation
(i) may buy call or put option contracts on securities, (ii) may write only covered call options on securities, (iii) may write put options on securities,
(iv) will only sell securities for future delivery which it owns, (v) will only engage in futures transactions on an exchange where the exchange takes the opposite side of the transaction, (vi) may buy call or put options on futures contracts, (vii) may write put options on

futures contracts and will only write call options on futures contracts if it owns the futures contract subject to the option, (viii) to the extent an asset is used to cover a particular option, futures contract or option on a futures contract, will not be able to use such asset to cover any additional option, futures contract or option on a futures contract, and (ix) will only engage in index-based futures or options transactions if Moody's advises the Corporation in writing that such transaction will not adversely affect its then-current rating on the MMP.

For so long as the shares of MMP are rated by Moody's, unless, in each case, Moody's advises the Corporation in writing that such action or actions will not adversely affect its then-current rating on the MMP, in determining the Net Coverage Value of the Corporation's Eligible Assets, the Corporation shall include as a liability (i) 10% of the exercise price of a written exchange traded call option on a security, (ii) 25% of the exercise price of a written call option on a security involving a cross-hedge, (iii) the exercise price of any written put option on a security, (iv) 10% of the settlement price of assets sold for future delivery, (v) the settlement price of purchased futures contracts, (vi) the settlement price of the underlying futures contract if the Corporation writes a put option on a futures contract, and (vii) 105% of the market value of the underlying futures contract for written call options futures where the Corporation does not own the underlying contract.

Also, for so long as the shares of MMP are rated by Moody's, unless, in each case, Moody's advises the Corporation in writing that such action or actions will not adversely affect its then-current rating on the MMP, the Corporation (i) will only engage in futures transactions and options thereon relating to U.S. Treasury Securities, (ii) will not engage in options and futures transactions for leveraging or speculative purposes, (iii) will not enter into an options or futures transaction unless after giving effect to such transaction the Eligible Asset

Coverage is met, (iv) shall not include in Eligible Assets any assets in margin accounts in connection with futures transactions, (v) for purposes of determining the Coverage Value, where delivery may be made with any of a class of securities, delivery of the security resulting in the lowest Coverage Value shall be assumed, (vi) will not engage in forward contracts which settle more than 56 days from the date of determination, and (vii) will engage only in exchange traded futures contracts and options thereon on exchanges approved by Moody's in writing.

Also, for so long as the shares of MMP are rated by Moody's, unless, in each case, Moody's advises the Corporation in writing that such action or actions will not adversely affect its then-current rating on the MMP, the Corporation shall provide Moody's with a quarterly report from an Independent Accountant that the Corporation has been in compliance with the guidelines set forth above for options and futures transactions in the previous quarter.

(c) By resolution of the Board of Directors and without amending the Articles or otherwise submitting such resolution for shareholder approval, the restrictions and procedures set forth in this Section 8 may be adjusted, modified, altered or changed and any such adjustment, modification, alteration or change will not be deemed to affect the contract rights of shares of MMP or the Holders thereof if Moody's has advised the Corporation in writing that such adjustment, modification, alteration or change will not adversely affect its then-current rating of the MMP and that any such action will be in accordance with guidelines established by Moody's.

9. Auction Agent and MMP Paying Agent. For so long as any shares of MMP are outstanding, the Auction Agent (which shall act as agent of the Corporation in connection with the implementation of the Auction Procedures) and the MMP Paying Agent (which shall act as transfer agent, registrar, dividend disbursing agent and redemption agent on behalf of the

Corporation with respect to MMP), shall receive Certificates of Eligible Asset Coverage, Certificates of Dividend Coverage, and related Accountants' Certificates, shall each be a commercial bank, trust company or other financial institution unaffiliated with the Corporation or any affiliate of the Corporation (which, however, may engage or have engaged in business transactions with the Corporation or any affiliate of the Corporation), and at no time shall the Corporation or any affiliate of the Corporation act as the Auction Agent or the MMP Paying Agent. If the Auction Agent or the MMP Paying Agent resigns or for any reason either of their appointments are terminated during any period that any of the shares of MMP are outstanding, the Board of Directors shall promptly thereafter use its best efforts to appoint another qualified commercial bank, trust company or financial institution to act as the Auction Agent or the MMP Paying Agent, as the case may be, upon commercially reasonable terms. A single qualified commercial bank, trust company or financial institution may act as the Auction Agent and the MMP Paying Agent. The MMP Paying Agent shall maintain an office or agency in The City of New York for purposes of making payments on the shares of MMP.

10. NOTICE. All notices or communications, unless otherwise specified in the By-laws of the Corporation or these Articles Supplementary, shall be sufficiently given if in writing and delivered in person, transmitted by telecopy or mailed by first-class mail, postage prepaid. In the event notice is delivered in person or transmitted by telecopy, notice shall be deemed given on the date received. In the event notice is mailed, it shall be deemed given on the earlier of the date received or the date seven days after which such notice is mailed.

11. DEFINITIONS. As used in Part I and II hereof, the following terms shall have the following meanings (with terms defined in the singular having comparable meanings when used in the plural and vice versa), unless the context otherwise requires. Certain letter ratings may be

modified by the addition of a plus or a minus sign or other modifier, which is used to show relative standing within the rating category. References to a particular letter rating by S&P are to the rating without regard to any modifier.

(a) "`AA' Composite Commercial Paper Rate," on any date for any Rate Period, shall mean (i)(A) in the case f any Rate Period with Rate Period Days of less than 46 days, the interest equivalent of the 30-day rate, (B) in the case of any Rate Period with Rate Period Days of 46 or more days but less than 70 days, the interest equivalent of the 60-day rate, (C) in the case of any Rate Period with Rate Period Days of 70 days or more but less than 85 days, the arithmetic average of the interest equivalent of the 60-day and 90-day rates, (D) in the case of any Rate Period with Rate Period Days of 85 days or more but less than 120 days, the interest equivalent of the 90-day rate, (E) in the case of any Rate Period with Rate Period Days of 120 days or more but less than 148 days, the arithmetic average of the interest equivalent of the 90-day and 180-day rates and (F) in the case of any Rate Period with Rate Period Days of 148 days or more but 182 days or less, the interest equivalent of the 180-day rate, on commercial paper placed on behalf of issuers whose corporate bonds are rated "AA" by S&P or the equivalent of such rating by S&P or another rating agency, as made available on a discount basis or otherwise by the Federal Reserve Bank of New York for the Business Day immediately preceding such date; or (ii) in the event that the Federal Reserve Bank of New York does not make available any such rate, then the arithmetic average of such rates, as quoted on a discount basis or otherwise, by the Commercial Paper Dealers to the Auction Agent for the close of business on the Business Day next preceding such date. If any Commercial Paper Dealer does not quote a rate required to determine the "AA" Composite Commercial

Paper Rate, the "AA" Composite Commercial Paper Rate shall be determined on the basis of the quotation or quotations furnished by the remaining Commercial Paper Dealer or Commercial Paper Dealers and any Substitute Commercial Paper Dealer or Substitute Commercial Paper Dealers selected by the Corporation to provide such rate or rates not being supplied by any Commercial Paper Dealer or Commercial Paper Dealers, as the case may be, or, if the Corporation does not select any such Substitute Commercial Paper Dealer or Substitute Commercial Paper Dealers, by the remaining Commercial Paper Dealer or Commercial Paper Dealers. For purposes of this definition, the "interest equivalent" of a rate stated on a discount basis (a "discount rate") for commercial paper of a given days' maturity shall be equal to the quotient (rounded upwards to the next higher one-thousandth (.001) of 1%) of (A) the discount rate divided by (B) the difference between (x) 1.00 and
(y) a fraction the numerator of which shall be the product of the discount rate times the number of days in which such commercial paper matures and the denominator of which shall be 360.

(b) "ACCOUNTANTS' CERTIFICATE" shall have the meaning set forth in paragraph (b) of Section 7 of this Part I.

(c) "ADDITIONAL DISTRIBUTION" shall mean payment to a Holder or prior Holder, as the case may be, of an amount which, when taken together with the Retroactive Taxable Allocation made to such Holder or prior Holder with respect to the taxable year in question, would cause the net return to such Holder or prior Holder (after Federal income tax consequences)

from the aggregate of both such Retroactive Taxable Allocation and the Additional Distribution to be equal to the net return that would have been realized by such Holder or prior Holder (after Federal income tax consequences) from such Retroactive Taxable Allocation if such amount had been eligible for the Dividends Received Deduction and the Additional Distribution had not been paid. Such Additional Distribution shall be calculated (i) without consideration being given to the time value of money; (ii) assuming that no Federal alternative minimum tax or similar tax is imposed with respect to dividends received from the Corporation; (iii) assuming that the Holder or prior Holder is taxable at all times at the Federal Income Tax Rate (as defined below) on the Retroactive Taxable Allocation and the Additional Distribution (to the extent that the Corporation does not designate the Additional Distribution as qualifying for the Dividends Received Deduction) and that the Holder or prior Holder is able to take full advantage of the Dividends Received Deduction with respect to dividends (including the Additional Distribution if designated as qualifying for the Dividends Received Deduction) received from the Corporation; (iv) assuming that the Holder or prior Holder disposed of such shares in a taxable transaction immediately after a distribution on a Dividend Payment Date with respect to which a Retroactive Taxable Allocation was made; and (v) assuming that the Holder or prior Holder sold such shares for $100,000 per share and had an adjusted tax basis in such shares equal to $100,000 less any amount distributed as a return of capital (as calculated for Federal income tax purposes) per share for the distribution with respect to which the Retroactive Taxable Allocation was made. "Federal Income Tax Rate" is the maximum marginal regular Federal income tax rate generally applicable to corporations (currently 34%) in effect on (a), in the case of a Retroactive Tax Allocation, the Auction Date related to a distribution on the shares of MMP for which a Retroactive Taxable Allocation has been made, and (b), in the case of an Additional Distribution, the date the Corporation notifies holders of

Additional Distribution Rights of the amount of any Retroactive Taxable Allocation with respect to which such an Additional Distribution shall be paid. With respect to assumption (iii) above, the Corporation will not designate the Additional Distribution as qualifying for the Dividends Received Deduction unless the Corporation receives an opinion of counsel to the effect that such designation would be given effect for Federal income tax purposes.

The Corporation shall notify each holder of an Additional Distribution Right of the amount of each Retroactive Taxable Allocation allocated to such holder within 120 days after the end of the taxable year for which the Retroactive Taxable Allocation is made, and shall make any required Additional Distribution to such holder within 30 days after the date of such notice.

(d) "ADDITIONAL DISTRIBUTION RIGHT" shall mean a right issued by the Corporation to a Holder at the time of payment of a dividend on, or redemption of, or liquidating distribution on shares of MMP entitling such Holder to receive an Additional Distribution if a Retroactive Taxable Allocation is made. An Additional Distribution shall be paid only if and to the extent that payment of a distribution to stockholders in such amount could then be made in accordance with Section 2-312 of the Maryland General Corporation Law. An Additional Distribution Right shall not be transferable except by operation of law.

(e) "APPLICABLE RATE" shall have the meaning specified in subparagraph
(c)(i) of Section 2 of this Part I.

(f) "AUCTION" shall mean each periodic implementation of the Auction Procedures.

(g) "AUCTION AGENCY AGREEMENT" shall mean the agreement between the Corporation and the Auction Agent which provides, among other things, that the Auction Agent will follow the Auction Procedures for purposes of determining the Applicable Rate for the shares of MMP so long as the Applicable Rate is to be based on the results of an Auction.

(h) "AUCTION AGENT" shall mean Manufacturers Hanover Trust Company, unless and until another bank or trust company has been appointed as Auction Agent by a resolution of the Board of Directors pursuant to Section 9 of this Part I and thereafter such substitute bank or trust company.

(i) "AUCTION DATE," with respect to any Rate Period, shall mean the Business Day next preceding the first day of such Rate Period.

(j) "AUCTION PROCEDURES" shall mean the procedures for conducting Auctions set forth in Part II hereof.

(k) "BOARD OF DIRECTORS" shall mean the Board of Directors of the Corporation or any duly authorized committee thereof.

(l) "BUSINESS DAY" shall mean a day on which the New York Stock Exchange is open for trading and which is neither a Saturday, Sunday nor any other day on which banks in The City of New York, New York, are authorized by law to close.

(m) "CERTIFICATE OF DIVIDEND COVERAGE" shall have the meaning set forth in subparagraph (a)(i) of Section 7 of this Part I.

(n) "CERTIFICATE OF ELIGIBLE ASSET COVERAGE" shall have the meaning set forth in subparagraph (a)(i) of Section 7 of this Part I.

(o) "CERTIFICATE OF 1940 ACT ASSET COVERAGE" shall have the meaning set forth in subparagraph (a)(i) of Section 7 of this Part I.

(p) "CODE" shall mean the Internal Revenue Code of 1986, as amended.

(q) "COMMERCIAL PAPER DEALERS" shall mean Lehman Commercial Paper Incorporated, Goldman, Sachs & Co. and Merrill Lynch, Pierce, Fenner & Smith Incorporated or, in lieu of any thereof, their respective affiliates or successors, if such entity is a commercial paper dealer.

(r) "COMMON STOCK" shall mean the Common Stock, par value one cent ($.01) per share, of the Corporation.

(s) "COMMON STOCK PAYING AGENT" shall mean The Shareholder Services Group, Inc., unless and until another bank or trust company has been appointed a Common Stock Paying Agent by a resolution of the Board of Directors, and thereafter such substitute bank or trust company.

(t) "CONFIRMATION DATE" shall have the meaning set forth in paragraph
(b) of Section 7 of this Part I.

(u) "CORPORATION" shall mean Preferred Income Fund Incorporated, a Maryland corporation which is the issuer of the shares of MMP.

(v) "Coverage Value" of each Eligible Asset, and each Dividend Coverage Asset is computed as follows:

(i) cash shall be valued (X) for Eligible Asset purposes at the amount obtained by dividing 100% of the face value thereof by the applicable Discount Factor and (Y) for Dividend Coverage Asset purposes at 100% of the face value thereof;

(ii) each demand and each repurchase obligation maturing in no more than one Business Day from the Eligible Asset Evaluation Date shall be valued (X) for Eligible Asset purposes at the amount obtained by dividing 100% of the face value thereof by the applicable Discount Factor plus accrued interest thereon, if any, to the date of determination and (Y) for Dividend Coverage Asset purposes at 100% of the face value thereof plus accrued interest thereon, if any, to the date of determination;

(iii) each Short-Term Money Market Instrument (other than a demand deposit or repurchase obligation referred to in subclause (ii) above) shall be valued at the amount obtained by dividing the Market Value thereof by the applicable Discount Factor;

(iv) commercial paper (other than commercial paper which is a Short-Term Money Market Instrument) having a rating of P-1 or P-2 from Moody's shall be valued at the amount obtained by dividing the Market Value thereof by the applicable Discount Factor;

(v) each common stock shall be valued at the amount obtained by dividing the Market Value thereof by the applicable Discount Factor;

(vi) each preferred stock shall be valued at the amount obtained by dividing the Market Value thereof by the applicable Discount Factor;

(vii) each U.S. Treasury Security shall be valued at the amount obtained by dividing the Market Value thereof by the applicable Discount Factor; and

(viii) each corporate bond (including of bank and utility issuers) shall be valued at the amount obtained by dividing the Market Value thereof by the applicable Discount Factor; provided, however, that the Coverage Value of an Eligible Asset may not exceed its stated principal amount, if any.

Eligible Assets and Dividend Coverage Assets against which the Corporation has written an option, or which serve as variation margin with respect to futures contracts purchased or sold by the Corporation, will be given no value for this purpose except as permitted (and confirmed in writing) by Moody's from time to time consistent with maintaining the Corporation's then-current rating of the MMP; provided, however, that Eligible Assets against which the Corporation has written a futures contract will be valued at the lower of the settlement price (treated as cash) of such futures contract or the Market Value of such asset divided by the applicable Discount Factor, unless such futures contract matures 56 or fewer days from the date Coverage Value is being determined, in which case the Coverage Value of such asset will be the settlement price (treated as cash) of such futures contract, and provided, further, however, if such option written expires on a date 93 or fewer days after the date of determination in the case of exchange traded options or on a date 56 or fewer days after the date of determination in the case of other options, such Eligible Assets and Dividend Coverage Assets will have a Coverage Value equal to the lesser of:

(i) the Coverage Value thereof determined as if no such option had been outstanding; and

(ii) the exerise price of the option.

The calculation of Coverage Value may be made on bases other than those set forth above if Moody's has advised the Corporation in writing that the revised calculation of Coverage Value would not adversely affect its then-current rating of the shares of MMP. If other assets become includible as Eligible Assets, the Coverage Values of such assets shall be determined in accordance with procedures established in consultation with Moody's with a view to maintaining its then-current rating of the shares of MMP.

(w) "CURE DATE" shall mean the Eligible Asset Cure Date, the 1940 Act Asset Coverage Cure Date, or the Dividend Coverage Cure Date, as the case may be.

(x) "DATE OF ORIGINAL ISSUE" with respect to any share of MMP, shall mean the date on which the Corporation initially issued such share of MMP.

(y) "DISCOUNT FACTOR" means, with respect to an Eligible Asset specified below, the following applicable number:

                                                                                DISCOUNT
                  TYPE OF ELIGIBLE ASSET:                                        FACTOR:
                  -----------------------                                      ---------
Receivables for securities sold to a party whose senior
        debt securities are rated at least Baa3 by Moody's or a party
        approved by Moody's and payable within five Business Days and
        dividends receivable within
        56 days on Eligible Assets..........................................       1.13

Short-Term Money Market Instruments (other than U.S. Treasury
        Securities set forth below) and other commercial paper:

Demand or time deposits, certificates of deposit and
        bankers' acceptances includible in Short-Term
        Money Market Instruments............................................       1.13

Commercial paper rated P-1 by Moody's maturing in 30 days
        or less.............................................................       1.13

Commercial paper rated P-1 by Moody's maturing in more
        than 30 days but in 270 days or less................................       1.15

                                   55

Commercial paper rated A-1+ by Standard & Poor's maturing
        in 270 days or less.................................................       1.25

Commercial paper rated P-2 by Moody's maturing in 270 days
        or less.............................................................       1.30

Repurchase obligations includible in Short-Term Money
        Market Instruments..................................................       1.15

Preferred stocks:
Auction rate preferred stocks which are not credit enhanced                        3.00
Auction rate preferred stocks which are credit enhanced.....................       3.50
Other preferred stocks issued by issuers in the banking
        and industrial industries...........................................       2.14
Other preferred stocks issued by issuers in the utilities
        industry............................................................       1.53

U.S. Treasury Securities:

      U.S. Treasury Securities with remaining terms to maturity of:
         1 year or less.....................................................       1.13
         2 years or less....................................................       1.20
         3 years or less....................................................       1.25
         4 years or less....................................................       1.31
         5 years or less....................................................       1.37
         7 years or less....................................................       1.46
         10 years or less...................................................       1.54
         15 years or less...................................................       1.60
         20 years or less...................................................       1.67
         30 years or less...................................................       1.68

      U.S. Treasury Strips with remaining terms to maturity of:

         1 year or less.....................................................       1.13
         2 years or less....................................................       1.20
         3 years or less....................................................       1.25
         4 years or less....................................................       1.31
         5 years or less....................................................       1.37
         7 years or less....................................................       1.46
         10 years or less...................................................       1.58
         15 years or less...................................................       1.83
         20 years or less...................................................       2.07
         30 years or less...................................................       2.31

Corporate bonds:
      Corporate and utility bonds rated Aaa with remaining terms to maturity of:

         1 year or less.....................................................       1.12
         2 years or less....................................................       1.18
         3 years or less....................................................       1.23
         4 years or less....................................................       1.28
         5 years or less....................................................       1.33
         7 years or less....................................................       1.41
         10 years or less...................................................       1.48
         15 years or less...................................................       1.53
         20 years or less...................................................       1.59
         30 years or less...................................................       1.60

      Corporate and utility bonds rated Aa with remaining terms to maturity of:

         1 year or less.....................................................       1.18
         2 years or less....................................................       1.24
         3 years or less....................................................       1.29
         4 years or less....................................................       1.34
         5 years or less....................................................       1.40
         7 years or less....................................................       1.48
         10 years or less...................................................       1.55
         15 years or less...................................................       1.60
         20 years or less...................................................       1.67
         30 years or less...................................................       1.67

      Corporate and utility bonds rated A with remaining terms to maturity of:

         1 year or less.....................................................       1.23
         2 years or less....................................................       1.30
         3 years or less....................................................       1.35
         4 years or less....................................................       1.41
         5 years or less....................................................       1.46
         7 years or less....................................................       1.55
         10 years or less...................................................       1.62
         15 years or less...................................................       1.67
         20 years or less...................................................       1.74
         30 years or less...................................................       1.75

      Corporate and utility bonds rated Baa with remaining terms to maturity of:

         1 year or less.....................................................       1.28
         2 years or less....................................................       1.35
         3 years or less....................................................       1.40
         4 years or less....................................................       1.47
         5 years or less....................................................       1.52
         7 years or less....................................................       1.61
         10 years or less...................................................       1.69
         15 years or less...................................................       1.75
         20 years or less...................................................       1.82
         30 years or less...................................................       1.83

Common stocks:

     Issued by utilities....................................................       1.65
     Issued by industrial companies.........................................       2.43
     Issued by financial companies..........................................       2.33
     Issued by transportation companies.....................................       3.07

By resolution of the Board of Directors and without amending the Articles or otherwise submitting such resolution for stockholder approval, (i) Discount Factors may be changed from those set forth above and (ii) additional Discount Factors may be established for other Eligible Assets if, in each case, Moody's has advised the Corporation in writing that such change or addition would not adversely affect its then-current rating of the shares of MMP.

(z) "DIVIDEND COVERAGE AMOUNT" for the shares of MMP as of any date of determination, means the sum of, for each share of MMP for which the next following Dividend Payment Date occurs within 30 days, that number which is the product of:

(i) $100,000;

(ii) the Applicable Rate in effect on such share; and

(iii) a fraction, the numerator of which is the number of days in the Dividend Period ending on the next following Dividend Payment Date for such

share (determined by including the first day thereof but excluding the Dividend Payment Date) and the denominator of which is 360.

(aa) "DIVIDEND COVERAGE ASSETS," for the shares of MMP as of any date of determination, means (i) cash (including, for this purpose, receivables for securities sold and dividends receivable on Eligible Assets, in each case not later than 12:00 Noon, New York City time, on the Business Day immediately preceding the next Dividend Payment Date), and (ii) Short-Term Money Market Instruments with maturity dates not later than 12:00 Noon, New York City time, on the Business Day immediately preceding the applicable Dividend Payment Date.

(bb) "DIVIDEND COVERAGE CURE DATE" means the third Business Day following a Dividend Coverage Evaluation Date with respect to which the Dividend Coverage is not met.

(cc) "DIVIDEND COVERAGE EVALUATION DATE" means (i) April 12, 1991 and (ii) each thirtieth day preceding a Dividend Payment Date for the shares of MMP (or, if such day is not a Business Day, the first Business Day preceding such thirtieth day).

(dd) "DIVIDEND COVERAGE IS MET" means, as of any date of determination, that the aggregate Coverage Value of the Dividend Coverage Assets owned by the Corporation as of such date of determination equals or exceeds the sum of (A) the Dividend Coverage Amount for the MMP and (B) the amount of all liabilities (including, without limitation, declared and unpaid dividends (and Additional Distributions then due, if any), interest expense and operating expenses payable and amounts payable to the Auction Agent, the MMP Paying Agent and the Common Stock Paying Agent) that would appear on the date of determination on the face of the Corporation's statement of

assets and liabilities and are payable on or prior to any Dividend Payment Date for the MMP occurring within 30 days.

(ee) "DIVIDEND PAYMENT DATE" with respect to the shares of MMP, shall mean any date on which dividends are payable pursuant to the provisions of paragraph (b) of Section 2 of this Part I.

(ff) "DIVIDEND PERIOD" with respect to the shares of MMP, shall mean the period from and including the Date of Original Issue to but excluding the initial Dividend Payment Date for such shares and any period thereafter from and including a Dividend Payment Date for such shares to but excluding the next succeeding Dividend Payment Date for such shares.

(gg) "DIVIDENDS RECEIVED DEDUCTION" shall mean the dividends received deduction generally allowed to nonaffiliated corporate holders of certain stock under Section 243(a)(1) of the Code, or any successor thereto, with respect to dividends received on such stock.

(hh) "ELIGIBLE ASSET COVERAGE AMOUNT," as of any date of determination, means the sum of:

(i) an amount equal to the product of (A) $100,000 times (B) the number of shares of MMP then outstanding;

(ii) accumulated and unpaid dividends on the shares of MMP to the date of determination (excluding any declared and unpaid dividends reflected in the determination of Net Coverage Value);

(iii) the Projected Dividend Amount; and

(iv) an amount equal to the amount of any Additional Distribution (the "Current Additional Distribution Amount") that would be payable to the MMP holders assuming that the amount of any distributions ineligible for the Dividends Received Deduction as to which the notification provided in Section 6 of Part II of these Articles Supplementary has not been given to the Auction Agent (the "Non-DRD Qualifying Amount") would be the then-current amounts.

For purposes of clause (iv) above, the Current Additional Distribution Amount shall be calculated as the product of:

(A) 0.27;

(B) the Non-DRD Qualifying Amount; and

(C) the quotient of (1) the amount of the distributions paid to the MMP Holders as dividends during (and that are attributable to) the current fiscal year to date ("Current MMP Dividends") and
(2) the sum of (x) Current MMP Dividends and (y) the amount of the distributions paid to the holders of the Common Stock as dividends during the current fiscal year to date; PROVIDED, HOWEVER, that if either the percentage of dividends excluded from taxation pursuant to the Dividends Received Deduction or the maximum marginal Federal tax rate generally applicable to corporations changes, the method of calculating the amount of the Current Additional Distribution Amount shall be revised to reflect the effect of such changes on the amount that the Corporation would be obligated to pay as Additional Distributions; PROVIDED, FURTHER, that, in the event the amount of liabilities used in the calculation of the Net Coverage Value includes any redemption price payable with respect to the shares of MMP called for

redemption, the number of shares of MMP outstanding, for purposes of subclause (i)(B) above, shall not include the number of such shares called for redemption; and PROVIDED, FURTHER, that, in the case of a calculation in connection with a reissuance of shares of MMP, such computation shall give effect to such reissuance.

(ii) "ELIGIBLE ASSET CURE DATE" means (i) the sixth Business Day following an Eligible Asset Evaluation Date as to which an Accountants' Certificate is not required to be delivered or (ii) the third Business Day following a Confirmation Date with respect to which the Corporation has not delivered to the MMP Paying Agent an Accountants' Certificate confirming the Certificate of Eligible Asset Coverage relating to the immediately preceding Eligible Asset Evaluation Date.

(jj) "ELIGIBLE ASSET EVALUATION DATE" means (i) April 12, 1991,
(ii) each succeeding Friday following the Date of Original Issue (or, if such date is not a Business Day, the first Business Day preceding or following such Friday, as the Corporation shall determine) and
(iii) the Business Day preceding the day on which any notice is sent to Holders or prior Holders as to the payment of any Additional Distribution.

(kk) "ELIGIBLE ASSET COVERAGE IS MET" means, as of any date of determination, that the aggregate Net Coverage Value of Eligible Assets owned by the Corporation as of the date of determination equals or exceeds the Eligible Asset Coverage Amount.

(ll) "ELIGIBLE ASSETS" shall mean:

(i) cash (including, for this purpose, receivables for securities sold to a party whose senior debt securities are rated at least Baa3 by Moody's or a party

approved by Moody's and payable within five Business Days and dividends receivable within 56 days on Eligible Assets);

(ii) Short-Term Money Market Instruments (provided, however, that for purposes of this definition, commercial paper must mature within 56 days of the Eligible Asset Evaluation Date);

(iii) commercial paper that is not includible as a Short-Term Money Market Instrument having on the Eligible Asset Evaluation Date a rating from Moody's of P-1 or P-2 or a rating from S&P of A-1 and maturing within 270 days, provided that commercial paper must meet the diversification requirements set forth below relating to corporate bonds in clause (vii);

(iv) preferred stocks

(A) which either (1) are issued by issuers whose senior debt securities are rated at least Baa1 by Moody's or (2) are rated at least "baa" by Moody's (or in the event an issuer's senior debt securities or preferred stock is not rated by Moody's which either (1) are issued by an issuer whose senior debt securities are rated at least A by S&P or
(2) are rated at least A by S&P and which for this purpose have been assigned a Moody's equivalent rating of at least "baa");

(B) which are listed on the New York Stock Exchange or the American Stock Exchange or are preferred stocks of issuers which have (or, in the case of issuers which are special purpose corporations, whose parent companies have) common stock listed on the New York Stock Exchange or the American Stock Exchange;

(C) which have a minimum issue size (when taken together with other of the issuer's issues of similar tenor) of $50,000,000;

(D) which have paid cash dividends consistently during the preceding three-year period (or, in the case of new issues without a dividend history, are rated at least "a1" by Moody's or, if not rated by Moody's, are rated at least AA by S&P, or are issued by an issuer who has paid cash dividends consistently during the preceding three-year period on its common stock or its issues of preferred stock);

(E) which pay cumulative cash dividends in U.S.

dollars;

(F) which are not convertible into any other class of
stock and do not have warrants attached;

(G) which are not issued by issuers in the
transportation industry; and

(H) in the case of auction rate preferred stocks, which are rated at least "aa" by Moody's, or if not ratedby Moody's, AAA by S&P or are otherwise approved in writing by Moody's, and which have dividend periods of less than or equal to 49 days (or, in the case of a new issue of auction rate preferred stock, 64 days for the initial dividend period) and have never had a failed auction;

PROVIDED, HOWEVER, that for this purpose the aggregate Market Value of the Corporation's holdings of (1) any issue of preferred stock which is not an auction rate preferred stock shall not be less than $300,000 nor more than $5,000,000 and (2) any issue of auction rate preferred stock shall not be more than $5,000,000;

(v) common stocks

(A) which are issued by issuers whose senior debt securities are rated at least Baa by Moody's (or, in the event an issuer's senior debt securities are not rated by Moody's, which are issued by an issuer whose senior debt securities are rated at least A by S&P and which for this purpose have been assigned a Moody's equivalent rating of at least Baa);

(B) which are traded on the New York Stock Exchange or the American Stock Exchange;

(C) which have a market capitalization greater than $500,000,000;

(D) which are currently paying cash dividends and have paid cash dividends consistently during the preceding three-year period; and

(E) which pay dividends in U.S. dollars; PROVIDED, HOWEVER, that (1) the aggregate Market Value of the Corporation's holdings of the common stock of any eligible issuer (x) shall be less than 5% of the number of outstanding shares times the Market Value of such common stock and (y) shall not exceed 5% of the number of outstanding shares (less the number of shares held by insiders, as determined in accordance with standards established by Moody's) multiplied by the Market Value of such common stock and (2) the number of shares of common stock of any eligible issuer held by the Corporation shall not exceed the average weekly trading volume of such common stock during the preceding month;

(vi) U.S. Treasury Securities;

(vii) bonds

(A) which are not privately placed, rated at least Baa by Moody's (or, in the event the bond is not rated by Moody's, the bond is rated at least A by S&P and which for this purpose is assigned a Moody's equivalent rating of at least Baa with such rating confirmed on each Eligible Asset Evaluation Date);

(B) which have a minimum issue size (when taken together with other of the issuer's issues of similar tenor) of at least $100,000,000;

(C) which are U.S. dollar denominated and pay interest in cash in U.S. dollars;

(D) which are not convertible or exchangeable into equity of the issuing corporation and have a maturity of not more than 30 years; and

(E) for which the aggregate Market Value of the Corporation's holdings do not exceed 10% of the aggregate Market Value of any individual issue of corporate bonds calculated at the time of original issuance;

PROVIDED, HOWEVER, that the Corporation's investments in preferred stocks described in clause (iv) above rated "baa" by Moody's or A by S&P shall be included in Eligible Assets only to the extent that the aggregate Market Value of all such preferred stocks of any single issuer does not exceed (x) 6% of the aggregate Market Value in the case of issuers in industries other than the utilities industry (utilizing Moody's industry categories), and (y) 4% of the aggregate Market Value in the case of issuers in the utilities industry (utilizing Moody's

industry and sub-industry categories) of all of the Corporation's investments meeting the criteria set forth in clauses (i) through
(vii) above; and provided, however, that the Corporation's investments in preferred stocks, common stocks and bonds described in clauses (iv), (v) and (vii) above of any single issuer whose senior debt securities are rated Baa by Moody's or A by S&P shall be included in Eligible Assets only to the extent that all such stocks and bonds of such issuer do not exceed (x) 6% of the aggregate Market Value in the case of issuers in industries other than the utilities industry (utilizing Moody's industry categories), and (y) 4% of the aggregate Market Value in the case of issuers in the utilities industry (utilizing Moody's industry and sub-industry categories) of all the Corporation's investments meeting the criteria set forth in clauses (i) through
(vii) above less the aggregate Market Value of those investments excluded from Eligible Assets pursuant to the immediately preceding proviso; and provided, however, that the Corporation's investments in preferred stocks, common stocks and bonds described in clauses (iv), (v) and (vii) above of any single issuer whose senior debt securities are rated A by Moody's or AA by S&P or whose preferred stock is rated "a" by Moody's or AA by S&P shall be included in Eligible Assets only to the extent that all such stocks and bonds of such issuer do not exceed (x) 10% of the aggregate Market Value in the case of issuers in industries other than the utilities industry (utilizing Moody's industry categories), and (y) 8% of the aggregate Market Value in the case of issuers in the utilities industry (utilizing Moody's industry and sub-industry categories) of all the Corporation's investments meeting the criteria set forth in clauses (i) through (vii) above less the

aggregate Market Value of those investments excluded from Eligible Assets pursuant to the two immediately preceding provisos; and, provided, however, that the Corporation's investment in preferred stocks, common stocks and bonds described in clauses (iv), (v) and (vii) above of any single issuer whose senior debt securities are rated AA or higher by Moody's or AAA or higher by S&P or whose preferred stock is rated "aa" or higher by Moody's or AAA or higher by S&P shall be included in Eligible Assets only to the extent that all such stocks and bonds of such issuer do not exceed (x) 20% of the aggregate Market Value in the case of issuers in industries other than the utilities industry (utilizing Moody's industry categories), and (y) 10% of the aggregate Market Value in the case of issuers in the utilities industry (utilizing Moody's industry and sub-industry categories) of all the Corporation's investments meeting the criteria set forth in clauses (i) through (vii) above less the aggregate Market Value of those investments excluded from Eligible Assets pursuant to the three immediately preceding provisos; and provided, however, that the Corporation's investment in common stocks described in clause (v) above of any single issuer shall be included in Eligible Assets only to the extent that all such common stock of such issuer does not exceed (x) 6% of the aggregate Market Value in the case of issuers in industries other than the utilities industry (utilizing Moody's industry categories), and (y) 4% of the aggregate Market Value in the case of issuers in the utilities industry (utilizing Moody's industry and sub-industry categories) of all of the Corporation's investments meeting the criteria set forth in clauses (i) through
(vii) above less the aggregate Market Value of those investments excluded from

Eligible Assets pursuant to the four immediately preceding provisos; and, provided, further, that the Corporation's investment in preferred stocks, common stocks and bonds described in clauses (iv), (v) and (vii) above issued by issuers in any one industry (other than each of the utilities and banking industries and utilizing Moody's industry categories) shall be included in Eligible Assets only to the extent that the aggregate Market Value of such stocks and bonds does not exceed 20% of the aggregate Market Value of all the Corporation's investments meeting the criteria set forth in clauses (i) through (vii) above less the aggregate Market Value of those investments excluded from Eligible Assets pursuant to the five immediately preceding provisos; and provided, further, that the Corporation's investment in common stocks described in clause (v) above issued by issuers in the utilities industry (utilizing Moody's industry and sub-industry categories) and the banking industry (utilizing Moody's industry categories) shall be included in Eligible Assets only to the extent that (I), in the case of issuers in the utilities industry, (x) the aggregate Market Value of such common stocks does not exceed 50%, and (y) the aggregate Market Value of such common stocks issued by issuers regulated by any one state does not exceed 7% (15% in the case of California and New York) and (II), in the case of issuers in the banking industry, the aggregate Market Value of such common stocks does not exceed 20%, of the aggregate Market Value of all the Corporation's investments meeting the criteria set forth in clauses (i) through
(vii) above less the aggregate Market Value of those investments excluded from Eligible Assets pursuant to the six immediately preceding provisos; and provided, further, that the Corporation's investments in

preferred stocks, common stocks and bonds described in clauses
(iv), (v) and (vii) above issued by issuers in the utilities industry (utilizing Moody's industry and sub-industry categories) shall be included in Eligible Assets only to the extent that the aggregate Market Value of such stocks and bonds does not exceed the percentages set forth below of the aggregate Market Value of all of the Corporation's investments meeting the criteria set forth in clauses (i) through (vii) above less the aggregate Market Value of those investments excluded from Eligible Assets pursuant to the seven immediately preceding provisos:

Moody's Rating or Equivalent Rating on           Maximum Utilities                       Maximum Issued
          Preferred Stock (1)             Sub-Industry Concentration (2)    By Issuers Regulated By Any One State (2)
--------------------------------------    ------------------------------    ----------------------------------------
                 "aaa"                                 100%                                   100%
                 "aa"                                  100%                                    20%
                  "a"                                   60%                                  10%(3)
                 "baa"                                  50%                                   7%(3)

(1) The equivalent Moody's rating must be lowered one full rating category for preferred stocks rated by S&P but not Moody's.

(2) The referenced percentages represent maximum cumulative totals only for the related Moody's category and each lower Moody's rating category as well as limitations set forth in the immediately preceding proviso.

(3) Such percentage shall be 15% in the case of utilities regulated by California or New York. ; and provided, further, that the Corporation's investments in preferred stocks, common stocks and bonds described in clauses (iv), (v) and (vii) above issued by issuers in the banking industry (utilizing Moody's industry categories) shall be included in Eligible Assets only to the extent that the aggregate Market Value of such stocks and bonds does not exceed the percentages set forth below of the aggregate Market Value of all of the Corporation's investments meeting the criteria set forth in clauses (i) through (vii) above less the aggregate Market Value

of those investments excluded from Eligible Assets pursuant to the eight immediately preceding provisos:

         Moody's Rating or
       Equivalent Rating on                  Maximum Banking
        Preferred Stock (1)             Industry Concentration (2)
      -----------------------           --------------------------
              "aaa"                                 100%
              "aa"                                   60%
              "a"                                    40%
              "baa"                                  20%
---------------

(1) The equivalent Moody's rating must be lowered one full rating category for preferred stocks rated by S&P but not Moody's.

(2) The referenced percentages represent maximum cumulative totals only for the related Moody's category and each lower Moody's rating category as well as limitations set forth in the immediately preceding proviso. ; and provided, further, that the Corporation's investments in bonds described in clause (vii) above issued by issuers in the utility industry (utilizing Moody's industry categories) shall be included in Eligible Assets only to the extent that the aggregate Market Value of such bonds does not exceed the percentages set forth below of the aggregate Market Value of all of the Corporation's investments meeting the criteria set forth in clauses (i) through (vii) above less the aggregate Market Value of those investments excluded from Eligible Assets pursuant to the nine immediately preceding provisos:

           Moody's Rating or                       Maximum
           Equivalent Rating                       Utility
             on Bonds (1)                     Concentration (2)
        ----------------------                -----------------
               Aaa                                     100%
               Aa                                       60%
               A                                        40%
               Baa                                      20%

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

(1) Refers to senior debt rating of collateral bonds. The equivalent Moody's rating must be lowered one full rating category for bonds rated by S&P but not Moody's.

(2) The referenced percentages represent maximum cumulative totals only for the related Moody's category and each lower Moody's rating category as well as limitations set forth in the immediately preceding proviso.

; and provided, further, that the Corporation's investments in auction rate preferred stocks described in clause (iv) above shall be included in the Eligible Assets only to the extent that the aggregate Market Value of such stocks does not exceed 10% of the aggregate Market Value of all of the Corporation's investments meeting the criteria set forth in clauses (i) through
(vii) above less the aggregate Market Value of those investments excluded from the Eligible Assets pursuant to the ten immediately preceding provisos;

(viii) No assets which are subject to any lien may be includible in Eligible Assets, unless such lien is included as a liability in determining Net Coverage Value.

By resolution of the Board of Directors and without amending the Articles or otherwise submitting such resolution for stockholder approval, other assets (including investments which either do not meet the criteria set forth in clauses (i) through (vii) above or meet such criteria but are excluded from Eligible Assets by the foregoing provisos) may be included in Eligible Assets and the descriptions of Eligible Assets set

forth in this definition may be adjusted, modified, altered or changed and any such adjustment, modification, alteration or change will not be deemed to affect the contract rights of shares of MMP or the Holders thereof if Moody's has advised the Corporation in writing that the inclusion of such assets in Eligible Assets or the adjustment, modification or change in such description of Eligible Assets would not adversely affect its then-current rating of the MMP.

(mm) "FAILURE TO DEPOSIT," with respect to any shares of MMP, shall mean a failure by the Corporation to pay to the Auction Agent, not later than 12:00 Noon, New York City time, (A) on the Business Day next preceding any Dividend Payment Date for such shares, in funds available on such Dividend Payment Date in The City of New York, New York, the full amount of any dividend (whether or not earned or declared) to be paid on such Dividend Payment Date on any such shares or (B) on the Business Day next preceding any redemption date in funds available on such redemption date for such shares in The City of New York, New York, the cash redemption price to be paid on such redemption date for any shares after Notice of Redemption is given pursuant to paragraph (b) of Section 3 of this Part I.

(nn) "HOLDER," with respect to any share of MMP, shall mean the registered holder of shares of MMP as the same appears on the stock books of the Corporation.

(oo) "INDEPENDENT ACCOUNTANTS" shall mean a nationally recognized firm of accountants, that is with respect to the Corporation a firm of independent public accountants under the Securities Act of 1933, as amended from time to time.

(pp) "INITIAL RATE PERIOD," with respect to the initial issuance of MMP, shall mean the period from and including the Date of Original Issue thereof to but excluding the initial Dividend Payment Date therefor.

(qq) "MARKET VALUE" of any asset of the Corporation shall mean:

(i) with respect to an investment which is listed on an exchange or traded over-the-counter and quoted on the NASDAQ System, the last sale price on the day of valuation (using prices as of the close of trading) or, if there has been no sale that day, the last bid price reported on the day of valuation; and

(ii) with respect to an investment which is not listed on an exchange or quoted on the NASDAQ System, the lower of the bid prices, as of the close of business on the Business Day immediately preceding the date of determination, quoted (at least one of such quotes being in writing) to the Corporation by two or more nationally recognized securities dealers making a market in such investment at the time. If there is no sale or bid price for an investment as provided in the preceding sentence, an investment shall be deemed to have a Market Value of zero. By resolution of the Board of Directors and without amending the Articles, the calculation of Market Value may be made on bases other than those set forth above if Moody's has advised the Corporation in writing that the revised method of calculation of Market Values would not adversely affect its then-current rating of the shares of MMP, provided that the Corporation shall cause to be made available a written statement setting forth such revised method for inspection by the Holders at the principal executive office of the Corporation.

(rr) "MASTER PURCHASER'S LETTER" has the meaning specified in Section 1 of Part II hereof.

(ss) "MINIMUM HOLDING PERIOD" shall mean the then-current minimum holding period (contained, as of the Date of Original Issuance, in Section 246(c) of the Code) required for corporate taxpayers generally to be entitled to the Dividends Received Deduction.

(tt) "MINIMUM RATE PERIOD" shall mean any Rate Period consisting of 49 Rate Period Days or such greater or lesser number of Rate Period Days as shall be established as the Minimum Rate Period by resolution of the Board of Directors of the Corporation pursuant to subparagraph (b)(ii)(C) of Section 2 of this Part I.

(uu) "MMP(R)" means Money Market Cumulative Preferred(TM)Stock, par value $.01 per share.

(vv) "MMP Paying Agent" shall mean Manufacturers Hanover Trust Company, unless and until another bank or trust company has been appointed as MMP Paying Agent by a resolution of the Board of Directors pursuant to Section 9 of this Part I and thereafter such substitute bank or trust company.

(ww) "MOODY'S" shall mean Moody's Investors Service, Inc., a Delaware corporation, and its successors, and if Moody's no longer rates the shares of MMP, any nationally recognized statistical rating organization designated by the Corporation, subject to the approval of Shearson Lehman Brothers Inc.

(xx) "NASDAQ SYSTEM" means the electronic inter-dealer quotation system operated by NASDAQ, Inc., a subsidiary of the National Association of Securities Dealers, Inc.

(yy) "NET COVERAGE VALUE" of the Corporation's Eligible Assets means the difference of (A) the aggregate Coverage Value, as determined pursuant to the definition thereof, of Eligible Assets minus (B) the amount of all liabilities (including, without limitation, declared and unpaid dividends (and any Additional Distributions), late charges, interest expense, operating expenses expected to accrue during the next three months, amounts payable to the Auction Agent, the MMP Paying Agent and the Common Stock Paying Agent, any liabilities in connection with repurchase agreements entered into by the Corporation and any liabilities resulting from the requirements set forth in paragraph (b) of Section 8 of this Part I) that would appear on the Eligible Asset Evaluation Date on the face of the Corporation's statement of assets and liabilities, provided that for purposes of this subclause (B), such operating expenses shall not be less than $200,000 and such liabilities shall also include the redemption price payable with respect to the shares of MMP, if any, that are covered by a Notice of Redemption sent prior to, or being set on the date of such determination.

(zz) "1940 ACT" means the Investment Company Act of 1940, as amended.

(aaa)"1940 ACT ASSET COVERAGE" and "1940 Act Asset Coverage is met" shall mean, as of any date of determination, that the ratio of the value of the Corporation's total assets, less all liabilities and indebtedness not representing senior securities (as defined in the 1940 Act), to the aggregate amount of senior securities representing indebtedness of the Corporation plus the aggregate of the liquidation preference of the shares of MMP, is at least 200% (or such other asset coverage as may in the future be specified in or under the 1940 Act as the minimum asset coverage for senior securities which are stock of a

closed-end investment company as a condition of declaring dividends on its common stock).

(bbb) "1940 ACT ASSET COVERAGE CURE DATE" shall mean the 1940 Act Asset Coverage Evaluation Date next following a 1940 Act Asset Coverage Evaluation Date with respect to which the 1940 Act Asset Coverage is not met.

(ccc) "1940 ACT ASSET COVERAGE EVALUATION DATE" shall mean (i) the Business Day immediately preceding each dividend declaration date for the Common Stock and (ii) unless 1940 Act Asset Coverage has been determined in connection with a dividend declaration during such month, the last Business Day of each calendar month.

(ddd) "NOTICE OF REDEMPTION" shall mean any notice with respect to the redemption of shares of MMP pursuant to Section 3 of this Part I.

(eee) "PREFERRED STOCK" shall mean the preferred stock, par value $.01 per share of the Corporation, and includes the MMP.

(fff) "Projected Dividend Amount," for the MMP as of any Eligible Asset Evaluation Date, means the amount of cash dividends, based on the number of shares of MMP outstanding on such Eligible Asset Evaluation Date, projected to accumulate on such shares from such Eligible Asset Evaluation Date until the 56th day, as specified below, after such Eligible Asset Evaluation Date, at the following rates:

(i) for the period beginning on the Eligible Asset Evaluation Date and ending on the first following Dividend Payment Date for the MMP, the Applicable Rate in effect on such Eligible Asset Evaluation Date; and

(ii) for the period beginning on such first following Dividend Payment Date and ending on the 56th day following such Eligible Asset Evaluation Date,

the product of the Maximum Rate on the last occurring Auction Date (but with the prevailing rating of such shares, for purposes of determining such Maximum Rate, being deemed "Below `baa 3'" in the case of a Failure to Deposit that has not been cured) (or, if prior to the first Auction Date, 150% of the 60-day "AA" Composite Commercial Paper Rate on April 11, 1991) and 2.31.

The number of days in each of the periods referred to above shall be determined by including the first day and excluding the last day of each such period. If the date of determination is not an Eligible Asset Evaluation Date, then the Projected Dividend Amount for the MMP as of such date of determination shall equal the Projected Dividend Amount on the immediately preceding Eligible Asset Evaluation Date, adjusted to reflect any decrease in the number of shares of MMP outstanding. The calculation of the Projected Dividend Amount may be made on bases other than those set forth above if Moody's has advised the Corporation in writing that the revised calculation of the Projected Dividend Amount would not adversely affect its then-current rating of the MMP. If the Board of Directors increases the length of Minimum Rate Periods pursuant to subparagraph (b)(ii)(C) of Section 2 of this Part I, or designates a Special Rate Period pursuant to Section 4 of this Part I, the Projected Dividend Amount shall be determined in accordance with procedures approved by Moody's.

(ggg) "RATE PERIOD" shall mean the Initial Rate Period thereof and any Subsequent Rate Period, including any Special Rate Period, for the MMP.

(hhh) "RATE PERIOD DAYS" for any Rate Period consisting of less than four Dividend Periods, shall mean the number of days (without giving effect to subparagraphs

(b)(ii)(A) and (b)(ii)(C) (excluding the provisos of such subparagraph (b)(ii)(C)) of Section 2 of this Part I) in such Rate Period.

(iii) "RETROACTIVE TAXABLE ALLOCATION" shall mean, for any taxable year, the amount of dividends ineligible for the Dividends Received Deduction, or portion thereof, for which notice thereof had not been given to the Auction Agent as provided in Section 6 of Part II of these Articles Supplementary.

(jjj) "S&P" shall mean Standard & Poor's Corporation, a New York corporation and its successors.

(kkk) "SHORT-TERM MONEY MARKET INSTRUMENTS" shall mean the following types of instruments if, on the date of purchase or other acquisition thereof by the Corporation (or, in the case of an instrument specified by clauses (i) and (ii) below, on the Eligible Asset Evaluation Date), the remaining terms of maturity thereof are not in excess of 90 days.

(i) U.S. Treasury Securities;

(ii) commercial paper that is rated at the time of purchase or acquisition and the Eligible Asset Evaluation Date at least P-1 by Moody's and is issued by an issuer (or guaranteed or supported by a person or entity other than the issuer) whose long-term unsecured debt obligations are rated at least Aa by Moody's;

(iii) demand or time deposits in, certificates of deposit of, or banker's acceptance issued by (A) a depository institution or trust company incorporated under the laws of the United States of America or any state thereof or the District of Columbia or (B) a United States branch office or agency of a foreign

depository institution (provided that such branch office or agency is subject to banking regulation under the laws of the United States, any state thereof or the District of Columbia) if, in each case, the commercial paper, if any, and the long-term unsecured debt obligations (other than such obligations the ratings of which are based on the credit of a person or entity other than such depository institution or trust company) of such depository institution or trust company at the time of purchase or acquisition and the Eligible Asset Evaluation Date, have (1) credit ratings from Moody's of at least P-1, in the case of commercial paper, and (2) credit ratings from Moody's of at least Aa, in the case of long-term unsecured debt obligations; provided, however, that in the case of any such investment thatmatures in no more than one Business Day from the date of purchase or other acquisition by the Corporation, all of the foregoing requirements shall be applicable except that the required long-term unsecured debt credit rating of such depository institution or trust company from Moody's shall be at least A; and provided, further, however, that the foregoing credit rating requirements shall be deemed to be met with respect to a depository institution or trust company if (1) such depository institution or trust company is the principal depository institution in a holding company system, (2) the commercial paper, if any, of such depository institution or trust company is not rated below P-1 by Moody's and (3) the holding company shall meet all of the foregoing credit rating requirements (including the preceding proviso in the case of investments that mature in no more than one Business Day from the date of purchase or other acquisition by the Corporation);

(iv) repurchase obligations with respect to any U.S. Treasury Security entered into with a depository institution, trust company or securities dealer (acting as principal) which meets the credit rating requirements for commercial paper and long-term unsecured debt obligations specified in clause (iii) above; and

(v) Eurodollar demand or time deposits in, or certificates of deposit of, the head office or the London or Tokyo branch office of a depository institution or trust company meeting the credit rating requirements of commercial paper and long-term unsecured debt obligation specified in clause (iii) above, provided that the interest receivable by the Corporation shall be in U.S. dollars and shall not be subject to any withholding or similar taxes.

(lll) "SPECIAL RATE PERIOD," with respect to the MMP, shall mean any Subsequent Rate Period commencing on the date designated by the Corporation in accordance with Section 4 of this Part I and ending on the last day of the last Dividend Period thereof which period consists of that number of consecutive Dividend Periods for such period set forth below:

                                           Number of
    Special Rate Period                Dividend Periods
    -------------------                ----------------
91 Rate Period Days                              1
182 Rate Period Days                             2
1 Year                                           4
3 Years                                         12
5 Years                                         20

(mmm) "SUBSEQUENT RATE PERIOD" shall mean the period from and including the first day following the Initial Rate Period to but excluding the next Dividend Payment Date and any period thereafter from and including one Dividend

Payment Date to but excluding the next succeeding Dividend Payment Date; provided, however, that if any Subsequent Rate Period is also a Special Rate Period such term shall mean the period commencing on the first day of such Special Rate Period and ending on the last day of the last Dividend Period thereof.

(nnn) "SUBSTITUTE COMMERCIAL PAPER DEALER" shall mean The First Boston Company or Morgan Stanley & Co. Incorporated or their respective affiliates or successors, if such entity is a commercial paper dealer; provided that none of such entities shall be a Commercial Paper Dealer.

(ooo) "SUBSTITUTE U.S. GOVERNMENT SECURITIES DEALER" shall mean
The First Boston Company and Merrill Lynch, Pierce, Fenner & Smith Incorporated or their respective affiliates or successors if such entity is a U.S. Government securities dealer; provided that none of such entities shall be a U.S. Government Securities Dealer.

(ppp) "TREASURY RATE", on any date for any Rate Period shall mean
(i) the yield on the most recently auctioned non-callable direct obligations of the U.S. Government (excluding "flower" bonds) with a remaining maturity closest to the duration of such Rate Period, as quoted in THE WALL STREET JOURNAL on such date for the Business Day next preceding such date or (ii) in the event that any such rate is not published by THE WALL STREET JOURNAL, then the arithmetic average of the yields (expressed as an interest equivalent in the case of a Rate Period consisting of four Dividend Periods and expressed as a bond equivalent in the case of any longer Rate Period) on the most recently auctioned non-callable direct obligations of the U.S. Government (excluding "flower" bonds) with a remaining maturity closest to the duration of such Rate Period as quoted on a discount basis or otherwise by the U.S. Government Securities Dealers to the

Auction Agent for the close of business on the Business Day immediately preceding such date. If any U.S. Government Securities Dealer does not quote a rate required to determine the Treasury Rate, the Treasury Rate shall be determined on the basis of the quotation or quotations furnished by the remaining U.S. Government Securities Dealer or U.S. Government Securities Dealers and any Substitute U.S. Government Securities Dealer selected by the Corporation to provide such rate or rates being supplied by any U.S. Government Securities Dealer or U.S. Government Securities Dealers as the case may be, or, if the Corporation does not select any such Substitute U.S. Government Securities Dealer or Substitute U.S. Government Securities Dealers, by the remaining U.S. Government Securities Dealer or U.S. Government Securities Dealers.

(qqq) "U.S. GOVERNMENT SECURITIES DEALER" shall mean Shearson Lehman Government Securities Incorporated, Goldman Sachs & Co., Salomon Brothers Inc, and Morgan Guaranty Trust Company of New York or their respective affiliates or successors if such entity is a U.S. Government Securities Dealer.

(rrr) "U.S. TREASURY SECURITIES" shall mean obligations issued by, and backed by the full faith and credit of, the United States of America which, other than Treasury bills, are not zero coupon securities.

(sss) "VOTING PERIOD" shall have the meaning set forth in paragraph (b) of Section 5 of this Part I.

PART II

1. CERTAIN DEFINITIONS. Capitalized terms not defined in Section 1 of this Part II shall have the respective meanings specified in Part I hereof. As used in this Part II, the following terms shall have the followings meanings, unless the context otherwise requires:

(a) "AFFILIATE" shall mean any Person known to the Auction Agent to be controlled by, in control of or under common control with the Corporation; provided that no Broker-Dealer controlled by, in control of or under common control with the Corporation shall be an Affiliate nor shall any corporation or any Person controlled by, in control of or under common control with such corporation one of the directors or executive officers of which is also a director of the Corporation be an Affiliate solely because such director or executive officer is also a director of the Corporation.

(b) "AGENT MEMBER" shall mean a member of or participant in the Securities Depository that will act on behalf of a Bidder and is identified as such in such Bidder's Master Purchaser's Letter.

(c) "AVAILABLE MMP" shall have the meaning specified in paragraph (a) of Section 4 of this Part II.

(d) "BID" AND "BIDS" shall have the respective meanings specified in paragraph (a) of Section 2 of this Part II.

(e) "BIDDER" AND "BIDDERS" shall have the respective meanings specified in paragraph (a) of Section 2 of this Part II.

(f) "BROKER-DEALER" shall mean any broker-dealer, commercial bank or other entity permitted by law to perform the functions required of a Broker-Dealer in this Part II that is a member of, or a participant in, the Securities Depository or is an affiliate of such member or participant, has been selected by the Corporation, and has entered into a Broker-Dealer Agreement that remains effective.

(g) "BROKER-DEALER AGREEMENT" shall mean an agreement among the Corporation, the Auction Agent and a Broker-Dealer pursuant to which such Broker-Dealer agrees to follow the procedures specified in this Part II.

(h) "EXISTING HOLDER," when used with respect to shares of MMP, shall mean a Person who has signed a Master Purchaser's Letter and is listed as the beneficial owner of such shares of MMP in the records of the Auction Agent.

(i) "HOLD ORDER" AND "HOLD ORDERS" shall have the respective meanings specified in paragraph (a) of Section 2 of this Part II.

(j) "MASTER PURCHASER'S LETTER" shall mean a letter, addressed to the Corporation, the Auction Agent, a Broker-Dealer and an Agent Member in which a Person agrees, among other things, to offer to purchase, to offer to sell and/or to sell shares of MMP as set forth in this Part II.

(k) "MAXIMUM RATE," for shares of MMP on any Auction Date, shall mean:

(i) in the case of any Auction Date which is not the Auction Date immediately prior to the first day of any proposed Special Rate Period designated by the Corporation pursuant to Section 4 of Part I of these Articles Supplementary, the product of (A) the "AA" Composite Commercial Paper Rate on such Auction Date for the next Rate Period of such shares and (B) the Rate Multiple on such Auction Date, unless such shares have or had a Special Rate Period and an Auction at which Sufficient Clearing Bids existed has not yet occurred for a Minimum Rate Period of such shares after such Special Rate Period, in which case the higher of:

(A) the dividend rate on such shares for the then-ending Rate Period, and

(B) the product of (1) the higher of (x) the "AA" Composite Commercial Paper Rate on such Auction Date for the then-ending Rate Period of such shares if such Rate Period consists of less than four Dividend Periods, or the Treasury Rate on such Auction Date for such Rate Period if such Rate Period consists of four or more Dividend Periods, and (y) the "AA" Composite Commercial Paper Rate on such Auction Date for such Special Rate Period of such shares if such Special Rate Period consists of less than four Dividend Periods, or the Treasury Rate on such Auction Date for such Special Rate Period if such Special Rate Period consists of four or more Dividend Periods and, (2) the Rate Multiple on such Auction Date; or

(ii) in the case of any Auction Date which is the Auction Date immediately prior to the first day of any proposed Special Rate Period designated by the corporation pursuant to Section 4 of Part I of these Articles Supplementary, the product of (A) the highest of (1) the "AA" Composite Commercial Paper Rate on such Auction Date for the then-ending Rate Period of such shares if such Rate Period consists of less than four Dividend Periods, or the

Treasury Rate on such Auction Date for such Rate Period if such Rate Period consists of four or more Dividends Periods, (2) the "AA" Composite Commercial Paper Rate on such Auction Date for the Special Rate Period for which the Auction is being held if such Special Rate Period consists of less than four Dividend Periods, or the Treasury Rate on such Auction Date for the Special Rate Period for which the Auction is being held if such Special Rate Period consists of four or more Dividend Periods and (3) the "AA" Composite Commercial Paper Rate on such Auction Date for Minimum Rate Periods and (B) the Rate Multiple on such Auction Date.

(l) "ORDER" and "ORDERS" shall have the respective meanings specified in paragraph (a) of Section 2 of this Part II.

(m) "OUTSTANDING" shall mean, as of any Auction Date with respect to shares of MMP, the number of such shares theretofore issued by the Corporation except, without duplication, (i) any shares of MMP theretofore cancelled or delivered to the Auction Agent for cancellation or purchased or redeemed by the Corporation or as to which a notice of redemption shall have been given by the Corporation and funds shall have been deposited to pay the cash redemption price as provided herein, (ii) any shares of MMP as to which the Corporation or any Affiliate thereof shall be an Existing Holder and (iii) any shares of MMP represented by any certificate in lieu of which a new certificate has been executed and delivered by the Corporation.

(n) "PERSON" shall mean and include an individual, a partnership, a corporation, a trust, an unincorporated association, a joint venture or other entity or a government or any agency or political subdivision thereof.

(o) "POTENTIAL HOLDER", when used with respect to shares of MMP, shall mean any Person, including any Existing Holder of shares of MMP,
(i) who shall have executed a Master Purchaser's Letter and (ii) who may be interested in acquiring shares of MMP (or, in the case of an Existing Holder of shares of MMP, additional shares of MMP).

(p) "RATE MULTIPLE," for shares of MMP on any Auction Date, shall mean the percentage, determined as set forth below, based on the prevailing rating of such shares in effect at the close of business on the Business Day next preceding such Auction Date:

                Prevailing Rating                                  Percentage
--------------------------------------------------            ------------------
"aa3" or higher...................................                    150%
"a3"..............................................                    175%
"baa3"............................................                    200%
Below "baa3"......................................                    225%

provided, however, that if the Fund has notified the Auction Agent that it expects that any portion of the dividend to be paid on the shares of MMP will be ineligible for the Dividends Received Deduction in such Rate Period, or any portion of the dividend to be paid in such Rate Period on such shares will be characterized as constituting a return of capital, prior to the Auction establishing the Applicable Rate for such shares, the applicable percentage in the foregoing table with respect to such portion of the dividend shall be multiplied by (x) one minus the product of (i) one minus the Dividends Received Deduction rate and
(ii) the maximum marginal regular Federal income tax rate generally applicable to corporations (currently 34%) and (y) divided by the quantity one minus the maximum marginal regular Federal income tax rate generally applicable to corporations.

For purposes of this definition, the "prevailing rating" of shares of MMP shall be (i) "aa3" or higher if such shares have a rating of "aa3" or better by Moody's or the equivalent of such rating by Moody's or a substitute rating agency selected as provided below, (ii) if not "aa3" or higher, then "a3" if such shares have a rating of "a3" or better by Moody's or the equivalent of such rating by Moody's or a substitute rating agency selected as provided below, (iii) if not "aa3" or higher or "a3", then "baa3" if such shares have a rating of "baa3" or better by Moody's or the equivalent of such rating by Moody's

or a substitute rating agency selected as provided below, and (iv) if not "aa3" or higher, "a3" or "baa3", then "Below `baa3'". The Corporation shall take all reasonable action necessary to enable Moody's to provide a rating for shares of MMP. If Moody's shall not make such a rating available, the Corporation, subject to the approval of Shearson Lehman Brothers Inc., shall select a nationally recognized statistical rating organization (as that term is used in the rules and regulations of the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended from time to time) to act as a substitute rating agency in respect of the MMP and the Corporation shall take all reasonable action to enable such rating agency to provide a rating for shares of MMP.

(q) "SECURITIES DEPOSITORY" shall mean The Depository Trust Company and its successors and assigns or any other securities depository selected by the Corporation which agrees to follow the procedures required to be followed by such securities depository in connection with shares of MMP.

(r) "SELL ORDER" and "SELL ORDERS" shall have the respective meanings specified in paragraph (a) of Section 2 of this Part II.

(s) "SUBMISSION DEADLINE" shall mean 1:00 P.M., New York City time, on any Auction Date or such other time on any Auction Date by which Broker-Dealers are required to submit Orders to the Auction Agent as specified by the Auction Agent from time to time.

(t) "SUBMITTED BID" and "Submitted Bids" shall have the respective meanings specified in paragraph (a) of Section 4 of this

Part II.

(u) "SUBMITTED HOLD ORDER" and "Submitted Hold Orders" shall have the respective meanings specified in paragraph (a) of Section 4 of this Part II.

(v) "SUBMITTED ORDER" and "SUBMITTED ORDERS" shall have the respective meanings specified in paragraph (a) of Section 4 of this

Part II.

(w) "SUBMITTED SELL ORDER" and "Submitted Sell Orders" shall have the respective meanings specified in paragraph (a) of Section 4 of this Part I.

(x) "SUFFICIENT CLEARING BIDS" shall have the meaning specified in paragraph

(a) of Section 4 of this Part II.

(y) "WINNING BID RATE" shall have the meaning specified in paragraph (a) of Section 4 of this Part II.

2. ORDERS BY EXISTING HOLDERS AND POTENTIAL HOLDERS. (a) Prior to the Submission

Deadline on each Auction Date:

(i) each Existing Holder of shares of MMP may submit to a Broker-Dealer by telephone or otherwise information as to:

(A) the number of Outstanding shares, if any, of MMP held by such Existing Holder which such Existing Holder desires to continue to hold without regard to the Applicable Rate for such shares for the next succeeding Rate Period;

(B) the number of Outstanding shares, if any, of MMP held by such Existing Holder which such Existing Holder offers to sell if the Applicable Rate for such shares for the next succeeding Rate Period shall be less than the rate per annum specified by such Existing Holder; and/or

(C) the number of Outstanding shares, if any, of MMP held by such Existing Holder which such Existing Holder offers to sell without regard to the Applicable Rate for such shares for the next succeeding Rate Period; and

(ii) one or more Broker-Dealers, using lists of Potential Holders, shall in good faith for the purpose of conducting a competitive Auction in a commercially reasonable manner, contact Potential Holders (by telephone or otherwise), including Persons that are not Existing Holders, on such lists to determine the number of Outstanding shares, if any, of MMP which each such Potential Holder offers to purchase if the Applicable Rate for such shares for the next succeeding Rate Period shall not be less than the rate per annum specified by such Potential Holder.

For the purposes hereof, the communication to a Broker-Dealer of information referred to in clause (i) (A) , (i) (B) , (i) (C) or (ii) of this paragraph (a) is hereinafter referred to as an "Order" and collectively as "Orders" and each Existing Holder and each Potential Holder placing an Order is hereinafter referred to as a "Bidder" and collectively as "Bidders"; an Order containing the information referred to in clause (i)(A) of this paragraph (a) is hereinafter referred to as a "Hold Order" and collectively as "Hold Orders"; an order containing the information referred to in clause (i)(B) or (ii) of this paragraph (a) is hereinafter referred to as a "Bid" and collectively as "Bids"; and an Order containing the information referred to in clause (i)(C) of this paragraph (a) is hereinafter referred to as a "Sell Order" and collectively as "Sell Orders".

(b) (i) A Bid by an Existing Holder of shares of MMP on an Auction Date shall constitute an irrevocable offer to sell:

(A) the number of Outstanding shares of MMP specified in such Bid if the Applicable Rate for such shares of MMP determined on such Auction Date shall be less than the rate specified therein;

(B) such number or a lesser number of Outstanding shares of MMP to be determined as set forth in clause (iv) of paragraph (a) of Section 5 of this Part

II if the Applicable Rate for shares of MMP determined on such Auction Date shall be equal to the rate specified therein; or

(C) such number or a lesser number of Outstanding shares of MMP to be determined as set forth in clause (iii) of paragraph
(b) of Section 5 of this Part II if the rate specified therein shall be higher than the Maximum Rate for shares of MMP and Sufficient Clearing Bids do not exist.

(ii) A Sell Order by an Existing Holder of shares of MMP on an Auction Date shall constitute an irrevocable offer to sell:

(A) the number of Outstanding shares of MMP specified in such Sell Order; or

(B) such number or a lesser number of Outstanding shares of MMP as set forth in clause (iii) of paragraph (b) of Section 5 of this Part II if Sufficient Clearing Bids do not exist.

(iii) A Bid by a Potential Holder of shares of MMP on an Auction Date shall constitute an irrevocable offer to purchase:

(A) the number of Outstanding shares of MMP specified in such Bid if the Applicable Rate for shares of MMP determined on such Auction Date shall be higher than the rate specified therein; or

(B) such number or a lesser number of Outstanding shares of MMP as set forth in clause (v) of paragraph (a) of Section 5 of this Part II if the Applicable Rate for shares of MMP determined on such Auction Date shall be equal to the rate specified therein.

(C) No Order for any number of shares of MMP other than whole shares shall be valid.

3. SUBMISSION OF ORDERS BY BROKER-DEALERS TO AUCTION AGENT. (a) Each Broker-Dealer shall submit in writing to the Auction Agent prior to the Submission Deadline on each Auction Date all Orders for shares of MMP obtained by such Broker-Dealer and shall specify with respect to each Order for such shares:

(i) the name of the bidder placing such Order;

(ii) the aggregate number of Outstanding shares of MMP that are the subject of such Order;

(iii) to the extent that such Bidder is an Existing Holder of shares of MMP:

(A) the number of Outstanding shares, if any, of MMP subject to any Hold Order placed by such Existing Holder;

(B) the number of Outstanding shares, if any, of MMP subject to any Bid placed by such Existing Holder and the rate specified in such Bid; and

(C) the number of Outstanding shares, if any, of MMP subject to any Sell Order placed by such Existing Holder; and

(iv) to the extent such Bidder is a Potential Holder of shares of MMP, the rate and number of shares of MMP specified in such Potential Holder's Bid.

(b) If any rate specified in any Bid contains more than three figures to the right of the decimal point, the Auction Agent shall round such rate up to the next highest one-thousandth (.001) of 1%.

(c) If an Order or orders covering all of the Outstanding shares of MMP held by any Existing Holder is not submitted to the Auction Agent prior to the Submission Deadline,

the Auction Agent shall deem a Hold Order to have been submitted on behalf of such Existing Holder covering the number of Outstanding shares of MMP held by such Existing Holder and not subject to orders submitted to the Auction Agent.

(d) If any Existing Holder submits through a Broker-Dealer to the Auction Agent one or more Orders covering in the aggregate more than the number of Outstanding shares of MMP held by such Existing Holder, such orders shall be considered valid in the following order of priority:

(i) all Hold Orders for shares of MMP submitted on behalf of such Existing Holder shall be considered valid, but only up to and including in the aggregate the number of Outstanding shares of MMP held by such Existing Holder, and if the number of shares of MMP subject to such Hold Orders exceeds the number of Outstanding shares of MMP held by such Existing Holder, the number of shares subject to each such Hold Order shall be reduced pro rata to cover the number of Outstanding shares of MMP held by such Existing Holder;

(ii) (A) any Bid for shares of MMP shall be considered valid up to and including the excess of the number of Outstanding shares of MMP held by such Existing Holder over the number of shares of MMP subject to any Hold Orders referred to in clause (i) above;

(B) subject to subclause (A), if more than one Bid for shares of MMP with the same rate is submitted on behalf of such Existing Holder and the number of Outstanding shares of MMP subject to such Bids is greater than such excess, such Bids shall be considered valid up to and including the amount of such excess, and the number of shares of MMP subject to each Bid with the same rate

shall be reduced pro rata to cover the number of shares of MMP equal to such excess;

(C) subject to subclauses (A) and (B), if more than one Bid for shares of MMP with different rates is submitted on behalf of such Existing Holder, such Bids shall be considered valid in the ascending order of their respective rates up to and including the amount of such excess; and

(D) in any such event, the number, if any, of Outstanding shares of MMP subject to any portion of Bids considered not valid in whole or in part under this clause (ii) shall be treated as the subject of a Bid for shares of MMP by a Potential Holder at the rate therein specified; and

(iii) all Sell Orders for shares of MMP shall be considered valid up to and including the excess of the number of Outstanding shares of MMP held by such Existing Holder over the sum of shares of MMP subject to valid Hold Orders referred to in clause (i) above and valid Bids by such Existing Holder referred to in clause (ii) above.

(e) If more than one Bid for one or more shares of MMP is submitted on behalf of any Potential Holder, each such Bid submitted shall be a separate Bid with the rate and number of shares therein specified.

(f) Any Order submitted by a Broker-Dealer to the Auction Agent prior to the Submission Deadline on any Auction Date shall be irrevocable.

4. DETERMINATION OF SUFFICIENT CLEARING BIDS WINNING BID RATE AND APPLICABLE RATE.(a) Not earlier than the Submission Deadline on each Auction Date, the Auction Agent shall assemble all valid orders submitted or deemed submitted to it by the Broker-Dealers (each such Order as submitted or deemed submitted by a Broker-Dealer being hereinafter referred to

individually as a "Submitted Hold Order," a "Submitted Bid" or a "Submitted Sell Order," as the case may be, or as a "Submitted Order" and collectively as "Submitted Hold Orders," "Submitted Bids" or "Submitted Sell Orders," as the case may be, or as "Submitted Orders") and shall, after the Submission Deadline on each Auction Date, determine:

(i) the excess of the number of Outstanding shares of MMP over the number of Outstanding shares of MMP subject to Submitted Hold Orders (such excess being hereinafter referred to as the "Available MMP");

(ii) from the Submitted orders whether:

(A) the number of Outstanding shares of MMP subject to Submitted Bids by Potential Holders specifying one or more rates equal to or lower than the Maximum Rate for such shares;

exceeds or is equal to the sum of:

(B) the number of Outstanding shares of MMP subject to Submitted Bids by Existing Holders specifying one or more rates higher than the Maximum Rate for such shares; and

(C) the number of Outstanding shares of MMP subject to Submitted Sell Orders

(in the event such excess or such equality exists (other than because the number of shares of MMP in subclauses (B) and (C) above is each zero because all of the Outstanding shares of MMP are subject to Submitted Hold Orders), such Submitted Bids in subclause (A) above being hereinafter referred to collectively, as "Sufficient Clearing Bids"); and

(iii) if Sufficient Clearing Bids exist, the lowest rate specified in such Submitted Bids (the "Winning Bid Rate") which if:

(A) (I) each such Submitted Bid from Existing Holders specifying such lowest rate and (II) all other such Submitted Bids from Existing Holders specifying lower rates were rejected, thus entitling such Existing Holders to continue to hold the shares of MMP that are subject to such Submitted Bids; and

(B) (I) each such Submitted Bid from Potential Holders specifying such lowest rate and (II) all other such Submitted Bids from Potential Holders specifying lower rates were accepted, thus requiring such Potential Holders to purchase the shares of MMP that are the subject of such Submitted Bids;

would result in such Existing Holders described in subclause (A) above continuing to hold an aggregate number of Outstanding shares of MMP which, when added to the number of Outstanding shares of MMP to be purchased by such Potential Holders described in subclause (B) above, would equal not less than the Available MMP.

(b) Promptly after the Auction Agent has made the determination pursuant to paragraph (a) of this Section 4, the Auction Agent shall advise the Corporation of the Maximum Rate for shares of MMP for which an Auction is being held on the Auction Date and, based on such determination, the Applicable Rate for such shares for the next succeeding Rate Period thereof as follows:

(i) if Sufficient Clearing Bids for such shares exist, that the Applicable Rate for such shares for the next succeeding Rate Period thereof shall be equal to the Winning Bid Rate for such shares so determined;

(ii) if Sufficient Clearing Bids for such shares do not exist (other than because all of the Outstanding shares of MMP are subject to Submitted Hold Orders), that the

Applicable Rate for such shares for the next succeeding Rate Period thereof shall be equal to the Maximum Rate for such shares; or

(iii) if all of the Outstanding shares of MMP are subject to Submitted Hold Orders, that the Applicable Rate for such shares for the next succeeding Rate Period thereof shall be equal to (A) the product of (1) either (a) the "AA" Composite Commercial Paper Rate on such Auction Date for such Rate Period, if such Rate Period consists of less than four Dividend Periods, or (b) the Treasury Rate on such Auction Date for such Rate Period, if such Rate Period consists of four or more Dividend Periods, and (2) one minus the maximum marginal regular Federal income tax rate generally applicable to corporations (currently 34%), divided by (B) one minus the product of (1) one minus the Dividends Received Deduction rate and (2) the maximum marginal regular Federal income tax rate generally applicable to corporations (rounded up to the next highest one thousandth
(.001) of 1%); provided, however, that if the Corporation has notified the Auction Agent that any portion of the dividend to be paid on the shares of MMP is expected to be ineligible for the Dividends Received Deduction in such Rate Period, or characterizes any portion of the dividend to be paid in such Rate Period on such shares as constituting a return of capital, the Applicable Rate in respect of that portion of the dividend on shares of MMP for such Rate Period that represents such ineligible amount shall be the rate described in the preceding clause (A)(1)(a) or (A)(1)(b) as applicable.

5. ACCEPTANCE AND RESECTION OF SUBMITTED BIDS AND SUBMITTED SELL ORDERS AND ALLOCATION OF SHARES. Existing Holders shall continue to hold the shares of MMP that are subject to Submitted Hold Orders, and, based on the determinations made pursuant to paragraph (a) of

Section 4 of this Part II, the Submitted Bids and Submitted Sell Orders shall be accepted or rejected and the Auction Agent shall take such other action as set forth below: (a) If Sufficient Clearing Bids for shares of MMP have been made, all Submitted Sell Orders shall be accepted and, subject to the provisions of paragraphs (d) and (e) of this Section 5, Submitted Bids shall be accepted or rejected as follows in the following order of priority and all other Submitted Bids for such shares shall be rejected:

(i) Existing Holders' Submitted Bids for shares of MMP specifying any rate that is higher than the Winning Bid Rate for such shares shall be accepted, thus requiring each such Existing Holder to sell the Outstanding shares of MMP subject to such Submitted Bids;

(ii) Existing Holders' Submitted Bids for shares of MMP specifying any rate that is lower than the Winning Bid Rate for such shares shall be rejected, thus entitling each such Existing Holder to continue to hold the Outstanding shares of MMP subject to such Submitted Bids;

(iii) Potential Holders' Submitted Bids for shares of MMP specifying any rate that is lower than the Winning Bid Rate shall be accepted, thus requiring each such Potential Holder to purchase the Outstanding shares of MMP that are the subject of such Submitted Bids;

(iv) Each Existing Holder's Submitted Bid for shares of MMP specifying a rate that is equal to the Winning Bid Rate shall be rejected, thus entitling such Existing Holder to continue to hold the Outstanding shares of MMP subject to such Submitted Bid, unless the number of Outstanding shares of MMP subject to all such Submitted Bids shall be greater than the number of shares of MMP ("remaining shares") in the excess of

the Available MMP over the number of shares of MMP subject to Submitted Bids described in clauses (ii) and (iii) of this paragraph
(a), in which event such Submitted Bid of such Existing Holder shall be rejected in part, and such Existing Holder shall be entitled to continue to hold Outstanding shares of MMP subject to such Submitted Bid, but only in an amount equal to the number of Outstanding shares of MMP obtained by multiplying the number of remaining shares by a fraction, the numerator of which shall be the number of Outstanding shares of MMP held by such Existing Holder subject to such Submitted Bid and the denominator of which shall be the aggregate number of Outstanding shares of MMP subject to such Submitted Bids made by all such Existing Holders that specified a rate equal to the Winning Bid Rate; and

(v) Each Potential Holder's Submitted Bid for shares of MMP specifying a rate that is equal to the Winning Bid Rate shall be accepted but only in an amount equal to the number of shares of MMP obtained by multiplying the number of Outstanding shares in the excess of the Available MMP over the number of shares of MMP subject to Submitted Bids described in clauses (ii) through (iv) of this paragraph (a) by a fraction, the numerator of which shall be the number of Outstanding shares of MMP subject to such Submitted Bid and the denominator of which shall be the aggregate number of Outstanding shares of MMP subject to such Submitted Bids made by all such Potential Holders that specified a rate equal to the Winning Bid Rate for such shares; and

(b) If Sufficient Clearing Bids for shares of MMP have not been made (other than because all of the Outstanding shares of MMP are subject to Submitted Hold orders), subject to the provisions of paragraph (d) of this
Section 5, Submitted Orders for such shares

shall be accepted or rejected as follows in the following order of priority and all other Submitted Bids for such shares shall be rejected:

(i) Existing Holders' Submitted Bids for shares of MMP specifying any rate that is equal to or lower than the Maximum Rate for such shares shall be rejected, thus entitling such Existing Holders to continue to hold the shares of MMP subject to such Submitted Bids;

(ii) Potential Holders' Submitted Bids for shares of MMP specifying any rate that is equal to or lower than the Maximum Rate for such shares shall be accepted, thus requiring the Potential Holder to purchase shares of MMP that are the subject of such Submitted Bids;

(iii) Each Existing Holder's Submitted Bid for shares of MMP specifying any rate that is higher than the Maximum Rate of such shares and the Submitted Sell Orders for shares of MMP of each Existing Holder shall be accepted, thus requiring each Existing Holder that submitted any such Submitted Bid or Submitted Sell Order to sell the shares of MMP subject to such Submitted Bid or Submitted Sell Order, but in both cases only in an amount equal to the number of Outstanding shares of MMP obtained by multiplying the number of shares of MMP subject to Submitted Bids described in clause (ii) of this paragraph (b) by a fraction, the numerator of which shall be the number of Outstanding shares of MMP held by such Existing Holder subject to such Submitted Bid or Submitted Sell Order and the denominator of which shall be the aggregate number of Outstanding shares of MMP subject to all such Submitted Bids and Submitted Sell Orders.

(c) If all of the Outstanding shares of MMP are subject to Submitted Hold Orders, all Submitted Bids for such shares shall be rejected.

(d) If, as a result of the procedures described in clause (iv) or
(v) of paragraph (a) or clause (iii) of paragraph (b) of this Section 5, any Existing Holder would be entitled or required to sell, or any Potential Holder would be entitled or required to purchase, a fraction of a share of MMP on any Auction Date, the Auction Agent shall, in such manner as it shall determine in its sole discretion, round up or down the number of shares of MMP to be purchased or sold by any Existing Holder or Potential Holder on such Auction Date as a result of such procedures so that the number of shares so purchased or sold by each Existing Holder or Potential Holder on such Auction Date shall be whole shares of MMP.

(e) If, as a result of the procedures described in clause (v) of paragraph (a) of this Section 5, any Potential Holder would be entitled or required to purchase less than a whole share of MMP on any Auction Date, the Auction Agent shall, in such manner as it shall determine in its sole discretion, allocate shares of MMP for purchase among Potential Holders so that only whole shares of MMP are purchased on such Auction Date as a result of such procedures by any Potential Holder, even if such allocation results in one or more Potential Holders not purchasing shares of MMP on such Auction Date.

(f) Based on the results of each Auction for shares of MMP, the Auction Agent shall determine the aggregate number of shares of MMP to be purchased and the aggregate number of shares of MMP to be sold by Potential Holders and Existing Holders on whose behalf each Broker-Dealer submitted Bids or Sell Orders and, with respect to each Broker-Dealer, to the extent that such aggregate number of shares to be purchased and such aggregate number of shares to be sold differ, determine to which other Broker-Dealer or Broker-Dealers

acting for one or more purchasers of shares of MMP such Broker-Dealer shall deliver, or from which other Broker-Dealer or Broker-Dealers acting for one or more sellers of shares of MMP such Broker-Dealer shall receive, as the case may be, shares of MMP.

6. NOTIFICATION OF ALLOCATIONS. Whenever the Corporation expects to allocate any net capital gains or other income ineligible for the Dividends Received Deduction to any dividend on shares of MMP, or to characterize any portion of the dividend to be paid on such shares as constituting a return of capital, the Corporation may, but shall not be required to, notify the Auction Agent of the amount estimated to be so allocated at least six Business Days preceding the Auction Date on which the Applicable Rate for such dividend is to be established. Whenever the Auction Agent receives such notice from the Corporation, it will in turn notify each Broker-Dealer, who, on or prior to such Auction Date, in accordance with its Broker-Dealer Agreement, will notify its Existing Holders and Potential Holders believed to be interested in submitting an Order in the Auction to be held on such Auction Date.

7. MISCELLANEOUS. To the extent permitted by applicable law, the Board of Directors may interpret or adjust the provisions of these Articles Supplementary to resolve any inconsistency or ambiguity or to remedy any formal defect.

SECOND: The foregoing amendment of the Articles Supplementary of the Corporation as herein set forth has been duly advised by the Board of Directors and approved by the stockholders of the Corporation in the manner required by law and the charter of the Corporation.

THIRD: These Articles of Amendment shall become effective at the time of filing on July 25, 1994

IN WITNESS WHEREOF, PREFERRED INCOME FUND INCORPORATED has caused these presents to be signed in its name and on its behalf by its President or a Vice President, and its corporate seal to be hereunto affixed and attested by its Secretary or Assistant Secretary, and the said officers of the Corporation acknowledge said instrument to be the corporate act of the Corporation, and state under penalties of perjury that to the best of their knowledge, information and belief the matters and facts therein set forth with respect to authorization and approval are true in all material respects, all on July 22, 1994.

PREFERRED INCOME FUND
INCORPORATED

                                       By       /s/ Robert T. Flaherty
                                       -------------------------------
                                                Robert T. Flaherty
                                                President

ATTEST:

/s/ Donald F. Crumrine
------------------------------------
                  Donald F. Crumrine
                       Secretary

Exhibit (b)(2)

Article 1.1. Name. The name of the Company is Preferred Income Fund Incorporated.

Article 1.2. Principal Offices. The principal office of the Company in the State of Maryland shall be located in Baltimore, Maryland. The Company may, in addition, establish and maintain such other offices and places of business within or outside the State of Maryland as the Board of Directors may from time to time determine.

Article 1.3. Seal. The corporate seal of the Company shall be circular in form and shall bear the name of the Company, the year of its incorporation and the words "Corporate Seal, Maryland." The form of the seal shall be subject to alteration by the Board of Directors and the seal may be used by causing it or a facsimile to be impressed or affixed or printed or otherwise reproduced. Any Officer or Director of the Company shall have authority to affix the corporate seal of the Company to any document requiring the same.

Article 2.1. Place of Meetings. All meetings of the Stockholders shall be held at such place within the United States, whether within or outside the State of Maryland, as the Board of Directors shall determine, which shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof.

Article 2.2. Annual Meeting. Commencing in 1992, the annual meeting of the Stockholders of the Company shall be held at such place as the Board of Directors shall select on

Exhibit (b)(2)

such date, during the 31-day period ending six months after the end of the Company's fiscal year, as may be fixed by the Board of Directors each year, at which time the Stockholders shall elect Directors by plurality vote, and transact such other business as may properly come before the meeting. Any business of the Company may be transacted at the annual meeting without being specially designated in the notice except as otherwise provided by statute, by the Articles of Incorporation or by these Bylaws.

Article 2.3. Special Meetings. Special meetings of the Stockholders for any purpose or purposes, unless otherwise prescribed by statute or by the Articles of Incorporation, may by called by resolution of the Board of Directors or by the President, and shall be called by the Secretary at the request, in writing, of a majority of the Board of Directors or at the request, in writing, of Stockholders owning at least 25% of the votes entitled to be cast at the meeting upon payment by such Stockholders to the Company of the reasonably estimated cost of preparing and mailing a notice of the meeting (which estimated cost shall be provided to such Stockholders by the Secretary of the Company). Notwithstanding the foregoing, unless requested by Stockholders entitled to cast a majority of the votes entitled to be cast at the meeting, a special meeting of the Stockholders need not be called at the request of Stockholders to consider any matter that is substantially the same as a matter voted on at any special meeting of the Stockholders held during the preceding 12 months. A written request shall state the purpose or purposes of the proposed meeting.

Article 2.4. Notice. Written notice of every meeting of Stockholders, stating the purpose or purposes for which the meeting is called, the time when and the place where it is to be held, shall be served, either personally or by mail, not less than ten nor more than ninety days before the meeting, upon each Stockholder as of the record date fixed for the meeting who is

Exhibit (b)(2)

entitled to notice of or to vote at such meeting. If mailed (i) such notice shall be directed to a Stockholder at his address as it shall appear on the books of the Company (unless he shall have filed with the Transfer Agent of the Company a written request that notices intended for him be mailed to some other address, in which case it shall be mailed to the address designated in such request) and (ii) such notice shall be deemed to have been given as of the date when it is deposited in the United States mail with first-class postage thereon prepaid.

Article 2.5. Notice of Stockholder Business. At any annual or special meeting of the Stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual or special meeting, the business must be (i) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (ii) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (iii) otherwise properly brought before the meeting by a Stockholder.

For business to be properly brought before an annual or special meeting by a Stockholder, the Stockholder must have given timely notice thereof in writing to the Secretary of the Company. To be timely, any such notice must be delivered to or mailed and received at the principal executive offices of the Company not later than 60 days prior to the date of the meeting; provided, however, that if less than 70 days' notice or prior public disclosure of the date of the meeting is given or made to Stockholders, any such notice by a Stockholder to be timely must be so received not later than the close of business on the 10th day following the day on which notice of the date of the annual or special meeting was given or such public disclosure was made.

Exhibit (b)(2)

Any such notice by a Stockholder shall set forth as to each matter the Stockholder proposes to bring before the annual or special meeting (i) a brief description of the business desired to be brought before the annual or special meeting and the reasons for conducting such business at the annual or special meeting, (ii) the name and address, as they appear on the Company's books, of the Stockholder proposing such business, (iii) the class and number of shares of the capital stock of the Company which are beneficially owned by the Stockholder, and (iv) and material interest of the Stockholder in such business.

Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at any annual or special meeting except in accordance with the procedures set forth in this Article 2.5. The chairman of the annual or special meeting shall, if the facts warrant, determine and declare to the meeting that business was not proper brought before the meeting in accordance with the provisions of this Articles 2.5, and, if he should so determine, he shall so declare to the meeting that any such business not properly brought before the meeting shall not be considered or transacted.

Article 2.6. Quorum. The holders of a majority of the stock issued and outstanding and entitled to vote, present in person or represented by proxy, shall be requisite and shall constitute a quorum at all meetings of the Stockholders for the transaction of business except as otherwise provided by statute, by the Articles of Incorporation or by these Bylaws. If a quorum shall not be present or represented, the Stockholders entitled to vote thereat, present in person or represented by proxy, shall have the power to adjourn the meeting from time to time, without notice other than announcement at the meeting, to a date not more than 120 days after the original record date, until a quorum shall be present or represented. At such adjourned meeting,

Exhibit (b)(2)

at which a quorum shall be present or represented, any business which might have been transacted at the original meeting may be transacted.

Article 2.7. Vote of the Meeting. When a quorum is present or represented at any meeting, a majority of the votes cast thereat shall decide any question brought before such meeting (except for the election of directors, which shall be by plurality vote), unless the question is one upon which, by express provisions of applicable statutes, of the Articles of Incorporation or of these Bylaws, a different vote is required, in which case such express provisions shall govern and control the decision of such question.

Article 2.8. Voting Right of Stockholders. Each Stockholder of record having the right to vote shall be entitled at every meeting of the Stockholders of the Company to one vote for each share of stock having voting power standing in the name of such stockholder on the books of the Company on the record date fixed in accordance with Article 6.5 of these Bylaws, with pro rata voting rights for any fractional shares, and such votes may be cast either in person or by written proxy.

Article 2.9. Organization. At every meeting of the Stockholders, the Chairman of the Board, or in his absence or inability to act, the Vice Chairman of the Board, if any, or in his absence or inability to act, a chairman chosen by the Stockholders, shall act as chairman of the meeting. The Secretary, or in his absence or inability to act, a person appointed by the chairman of the meeting, shall act as secretary of the meeting and keep the minutes of the meeting.

Article 2.10. Proxies. Every proxy must be in writing and signed by the Stockholder or by his duly authorized attorney-in-fact. No proxy shall be valid after the expiration of eleven months from the date of its execution unless it provides otherwise. Every proxy shall be revocable at the pleasure of the person executing it or of his personal representatives or assigns.

Exhibit (b)(2)

Proxies shall be delivered prior to the meeting to the secretary of the Company or to the person acting as Secretary of the meeting before being voted. A proxy with respect to stock held in the name of two or more persons shall be valid if executed by one of them unless, at or prior to exercise of such proxy, the Company receives a specific written notice to the contrary from anyone of them. A proxy purporting to be executed by or on behalf of a Stockholder shall be deemed valid unless challenged at or prior to its exercise.

Article 2.11. Stock Ledger and List of Stockholders. It shall be the duty of the Secretary or Assistant Secretary of the Company to cause an original or duplicate stock ledger to be maintained at the office of the Company's Transfer Agent.

Article 2.12. Action without Meeting. Any action to be taken by Stockholders may be taken without a meeting if (i) all Stockholders entitled to vote on the matter consent to the action in writing, (ii) all Stockholders entitled to notice of the meeting but not entitled to vote at it sign a written waiver of any right to dissent, and (iii) such consents and waivers are filed with the records of the meetings of Stockholders. A consent shall be treated for all purposes as a vote at a meeting.

Article 3.1. General Powers. Except as otherwise provided in the Articles of Incorporation, the business and affairs of the Corporation shall be managed under the direction of the Board of Directors. All powers of the Company may be exercised by or under authority of the Board of Directors except as conferred on or reserved to the Stockholders by law, by the Articles of Incorporation or by these Bylaws.

Article 3.2. Board of Three to Twelve Directors. The Board of Directors shall consist of not less than three (3) nor more than twelve (12) Directors; provided that if there are less than

Exhibit (b)(2)

three Stockholders, the number of Directors may be the same number as the number of Stockholders but not less than one. Directors need not be Stockholders. Subject to the first sentence of the Article 3.2, a majority of the entire Board of Directors shall have power from time to time, and at any time when the Stockholders as such are not assembled in a meeting, regular or special, to increase or decrease the number of Directors. If the number of Directors is increased, the additional Directors may be elected by a majority of the Directors in office at the time of the increase. If such additional Directors are not so elected by the Directors in office at the time they increase the number of places on the Board, or if the additional Directors are elected by the existing Directors prior to the first meeting of the Stockholders of the Company, then in either of such events the additional Directors shall be elected or re-elected by the Stockholders at their next annual meeting or at an earlier special meeting called for that purpose.

Beginning with the first annual meeting of Stockholders held after the initial public offering of the shares of the Company (the "initial annual meeting"), the Board of Directors shall be divided into three classes: Class I, Class II and Class III. The terms of office of the classes of Directors elected at the initial annual meeting shall expire at the times of the annual meetings of the Stockholders as follows: Class I on the next annual meeting, Class II on the second next annual meeting and Class III on the third next annual meeting, or thereafter in each case when their respective successors are elected and qualified. At each subsequent annual election, the Directors chosen to succeed those whose terms are expiring shall be identified as being of the same class as the Directors whom they succeed, and shall be elected for a term expiring at the time of the third succeeding annual meeting of Stockholders, or thereafter in each case when their respective successors are elected and qualified. The number of directorships shall be apportioned among the classes so as to maintain the classes as nearly equal in number as

Exhibit (b)(2)

possible. If the Corporation issues Preferred Stock entitling the holders to elect additional Directors in special circumstances and those special circumstances arise, then the number of Directors that the holders of the Common Stock are entitled to elect shall be reduced to a number such that, when the requisite number of Directors has been elected by Preferred Stockholders, the total number of Directors shall not exceed 12 in number.

(a) Only persons who are nominated in accordance with the procedures set forth in this Article 3.3 shall be eligible for election or re-election as Directors. Nominations of persons for election or re-election to the Board of Directors of the Company may be made at a meeting of Stockholders by or at the direction of the Board of Directors or by any Stockholder of the Company who is entitled to vote for the election of such nominee at the meeting and who complies with the notice procedures set forth in this Article 3.3.

(b) Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice delivered in writing to the Secretary of the Company. To be timely, any such notice by a Stockholder must be delivered to or mailed and received at the principal executive offices of the Company not later than 60 days prior to the meeting; provided, however, that if less than 70 days' notice or prior public disclosure of the date of the meeting is given or made to Stockholders, any such notice by a Stockholder to be timely must be so received not later than the close of business on the 10th day following the day on which notice of the date of the meeting was given or such public disclosure was made.

(c) Any such notice by a Stockholder shall set forth (i) as to each person whom the Stockholder proposes to nominate for election or re-election as a Director, (A) the name, age, business address and residence address of such person, (B) the principal occupation or

Exhibit (b)(2)

employment of such person, (C) the class and number of shares, if any, of the capital stock of the Company which are beneficially owned by such person, and (D) any other information relating to such person that is required to be disclosed in solicitations of proxies for the election of Directors pursuant to
Section 20(a) of the Investment Company Act of 1940, as amended, and the rules and regulations thereunder, or Regulation 14A under the Securities Exchange Act of 1934 or any successor regulation thereto (including without limitation such person's written consent to being named in the proxy statement as a nominee and to serving as a Director if elected and whether any person intends to seek reimbursement from the Company of the expenses of any solicitation of proxies should such person be elected a Director of the Company); and (ii) as to the Stockholder giving the notice, (A) the name and address, as they appear on the Company's books, of such Stockholder and (B) the class and number of shares of the capital stock of the Company which are beneficially owned by such Stockholder. At the request of the Board of Directors, any person nominated by the Board of Directors for election as a Director shall furnish to the Secretary of the Company the information required to be set forth in a Stockholder's notice of nomination which pertains to the nominee.

(d) If a notice by a Stockholder is required to be given pursuant to this Article 3.3, no person shall be entitled to receive reimbursement from the Company of the expenses of a solicitation of proxies for the election as a Director of a person named in such notice unless such notice states that such reimbursement will be sought from the Company. The Chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by the Bylaws, and, if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded for all purposes.

Exhibit (b)(2)

Article 3.4. Vacancies. Subject to the provisions of the Investment Company Act of 1940, as amended, if the office of any Director or Directors becomes vacant for any reason (other than an increase in the number of Directors), the Directors in office, although less than a quorum, shall continue to act and may choose a successor or successors, who shall hold office until the next election of Directors, or any vacancy may be filled by the Stockholders at any meeting thereof.

Article 3.5. Removal. At any meeting of Stockholders duly called and at which a quorum is present, the Stockholders may, by the affirmative vote of the holders of at least 80% of the votes entitled to be cast thereon, remove any Director or Directors from office, with or without cause, and may by a plurality vote elect a successor or successors to fill any resulting vacancies for the unexpired term of the removed Director.

Article 3.6. Resignation. A Director may resign at any time by giving written notice of his resignation to the Board of Directors or the Chairman or the Vice Chairman, if any, of the Board or the Secretary of the Company. Any resignation shall take effect at the time specified in it or, should the time when it is to become effective not be specified in it, immediately upon its receipt. Acceptance of a resignation shall not be necessary to make it effective unless the resignation states otherwise.

Article 3.7. Place of Meetings. The Directors may hold their meetings at the principal office of the Company or at such other places, either within or outside the State of Maryland, as they may from time to time determine.

Article 3.8. Regular Meetings. Regular meetings of the Board may be held at such date and time as shall from time to time be determined by resolution of the Board.

Exhibit (b)(2)

Article 3.9. Special Meetings. Special meetings of the Board may be called by order of the Chairman or Vice Chairman, if any, of the Board on one day's notice given to each Director either in person or by mail, telephone, telegram, cable or wireless to each Director at his residence or regular place of business. Special meetings will be called by the Chairman or Vice Chairman if any, of the Board or Secretary in a like manner on the written request of a majority of the Directors.

Article 3.10. Quorum. At all meetings of the Board, the presence of a majority of the entire Board of Directors shall be necessary to constitute a quorum and sufficient for the transaction of business, and any act of a majority present at a meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute, by the Articles of Incorporation or by these Bylaws. If a quorum shall not be present at any meeting of Directors, the Directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present.

Article 3.11. Organization. The Board of Directors shall designate one of its members to serve as Chairman of the Board. The Chairman of the Board shall preside at each meeting of the Board. In the absence or inability of the Chairman of the Board to act, another Director chosen by a majority of the Directors present, shall act as chairman of the meeting and preside at the meeting. The Secretary (or, in his absence or inability to act, any person appointed by the chairman) shall act as secretary of the meeting and keep the minutes of the meeting.

Article 3.12. Informal Action by Directors and Committees. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may, except as otherwise required by statute, be taken without a meeting if a written consent to such action is signed by all members of the Board, or of such committee, as the case may be, and filed

Exhibit (b)(2)

with the minutes of the proceedings of the Board or committee. Subject to the Investment Company Act of 1940, as amended, members of the Board of Directors or a committee thereof may participate in a meeting by means of a conference telephone or similar communications equipment if all persons participating in the meeting can hear each other at the same time.

Article 3.13. Executive Committee. There may be an Executive Committee of two or more Directors appointed by the Board who may meet at stated times or on notice to all by any of their own number. The Executive Committee shall consult with and advise the Officers of the Company in the management of its business and exercise such powers of the Board of Directors as may be lawfully delegated by the Board of Directors. Vacancies shall be filled by the Board of Directors at any regular or special meeting. The Executive Committee shall keep regular minutes of its proceedings and report the same to the Board when required.

Article 3.14. Audit Committee. There shall be an Audit Committee of two or more Directors who are not "interested persons" of the Company (as defined in the Investment Company Act of 1940, as amended) appointed by the Board who may meet at stated times or on notice to all by any of their own number. The Committee's duties shall include reviewing both the audit and other work of the Company's independent accountants, recommending to the Board of Directors the independent accountants to be retained, and reviewing generally the maintenance and safekeeping of the Company's records and documents.

Article 3.15. Other Committees. The Board of Directors may appoint other committees which shall in each case consist of such number of members (but not less than two) and shall have and may exercise, to the extent permitted by law, such powers as the Board may determine in the resolution appointing them. A majority of all members of any such committee may determine its action, and fix the time and place of its meetings, unless the Board of Directors

Exhibit (b)(2)

shall otherwise provide. The Board of Directors shall have power at any time to change the members and, to the extent permitted by law, to change the powers of any such committee, to fill vacancies and to discharge any such committee.

Article 3.16. Compensation of Directors. The Board may, by resolution, determine what compensation and reimbursement of expenses of attendance at meetings, if any, shall be paid to Directors in connection with their service on the Board or on various committees of the Board. Nothing herein contained shall be construed to preclude any Director from serving the Company in any other capacity or from receiving compensation therefor.

Article 4.1. Officers. The Officers of the Company shall be fixed by the Board of Directors and shall include a President, Secretary and Treasurer. Any two offices may be held by the same person except the offices of President and Vice President. A person who holds more than one office in the Company may not act in more than one capacity to execute, acknowledge or verify an instrument required by law to be executed, acknowledged or verified by more than one officer.

Article 4.2. Appointment of Officers. The Directors shall appoint the Officers, who need not be members of the Board.

Article 4.3. Additional Officers. The Board may appoint such other Officers and agents as it shall deem necessary who shall exercise such powers and perform such duties as shall be determined from time to time by the Board.

Article 4.4. Salaries of Officers. The salaries of all Officers of the Company shall be fixed by the Board of Directors.

Exhibit (b)(2)

Article 4.5. Term, Removal, Vacancies. The Officers of the Company shall serve at the pleasure of the Board of Directors and hold office for one year and until their successors are chosen and qualify in their stead. Any Officer elected or appointed by the Board of Directors may be removed at any time by the affirmative vote of a majority of the entire Board of Directors. If the office of any Officer becomes vacant for any reason, the vacancy shall be filled by the Board of Directors.

Article 4.6. President. The President shall be the chief executive officer of the Company. The President shall, subject to the supervision of the Board of Directors, have general responsibility for the management of the business of the Company. The President shall see that all orders and resolutions of the Board are carried into effect.

Article 4.7. Vice President. Any Vice President shall, in the absence or disability of the President, perform the duties and exercise the powers of the President and shall perform such other duties as the Board of Directors shall prescribe.

Article 4.8. Treasurer. The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Company and shall deposit all moneys and other valuable effects in the name and to the credit of the Company in such depositories as may be designated by the Board of Directors. The Treasurer shall disburse the funds of the Company as may be ordered by the Board, taking proper vouchers for such disbursements, and shall render to the Chairman of the Board and Directors at the regular meetings of the Board, or whenever they may require it, an account of the financial condition of the Company.

Exhibit (b)(2)

Any Assistant Treasurer may perform such duties of the Treasurer as the Treasurer or the Board of Directors may assign, and, in the absence of the Treasurer, may perform all the duties of the Treasurer.

Article 4.9. Secretary. The Secretary shall attend meetings of the Board and meetings of the Stockholders and record all votes and the minutes of all proceedings in a book to be kept for those purposes, and shall perform like duties for the Executive Committee, or other committees, of the Board when required. He shall give or cause to be given notice of all meetings of Stockholders and special meetings of the Board of Directors and shall perform such other duties as may be prescribed by the Board of Directors. He shall keep in safe custody the seal of the Company and affix it to any instrument when authorized by the Board of Directors.

Any Assistant Secretary may perform such duties of the Secretary as the Secretary or the Board of Directors may assign, and, in the absence of the Secretary, may perform all the duties of the Secretary.

Article 4.10. Subordinate Officers. The Board of Directors from time to time may appoint such other officers or agents as it may deem advisable, each of whom shall serve at the pleasure of the Board of Directors and have such title, hold office for such period, have such authority and perform such duties as the Board of Directors may determine. The Board of Directors from time to time may delegate to one or more officers or agents the power to appoint any such subordinate officers or agents and to prescribe their respective rights, terms of office, authorities and duties.

Article 4.11. Surety Bonds. The Board of Directors may require any officer or agent of the Company to execute a bond (including, without limitation, any bond required by the Investment Company Act of 1940, as amended, and the rules and regulations of the Securities

Exhibit (b)(2)

and Exchange Commission) to the Company in such sum and with such surety or sureties as the Board of Directors may determine, conditioned upon the faithful performance of his duties to the Company, including responsibility for negligence and for the accounting of any of the Company's property, funds or securities that may come into his hands.

Article 5.1. Waiver of Notice. Whenever the Stockholders or the Board of Directors are authorized by statute, the provisions of the Articles of Incorporation or these Bylaws to take any action at any meeting after notice, such notice may be waived, in writing, before or after the holding of the meeting, by the person or persons entitled to such notice, or, in the case of a Stockholder, by his duly authorized attorney-in-fact.

Article 5.2. Indemnity.

(a) The Company shall indemnify its Directors to the fullest extent that indemnification of Directors is permitted by the Maryland General Corporation Law. The Company shall indemnify its Officers to the same extent as its Directors and to such further extent as is consistent with law. The Company shall indemnify its Directors and Officers who, while serving as Directors or Officers, also serve at the request of the Company as a director, officer, partner, trustee, employee, agent or fiduciary of another corporation, partnership, joint venture, trust, other enterprise or employee benefit plan to the fullest extent consistent with law. The indemnification and other rights provided by this Article shall continue as to a person who has ceased to be a Director or Officer and shall inure to the benefit of the heirs, executors and administrators of such a person. This Article shall not protect any such person against any liability to the Company or any Stockholder thereof to which such person would otherwise be

Exhibit (b)(2)

subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office ("disabling conduct").

(b) Any current or former Director or Officer of the Company seeking indemnification within the scope of this Article shall be entitled to advances from the Company for payment of the reasonable expenses incurred by him in connection with the matter as to which he is seeking indemnification in the manner and to the fullest extent permissible under the Maryland General Corporation Law without a preliminary determination of entitlement to indemnification (except as provided below). The person seeking indemnification shall provide to the Company a written affirmation of his good faith belief that the standard of conduct necessary for indemnification by the Company has been met and a written undertaking to repay any such advance if it should ultimately be determined that the standard of conduct has not been met. In addition, at least one of the following additional conditions shall be met: (i) the person seeking indemnification shall provide security in form and amount acceptable to the Company for his undertaking; (ii) the Company is insured against losses arising by reason of the advance; or (iii) a majority of a quorum of Directors of the Company who are neither "interested persons" as defined in Section 2(a)(19) of the Investment Company Act of 1940, as amended, nor parties to the proceeding ("disinterested non-party directors"), or independent legal counsel, in a written opinion, shall have determined, based on a review of facts readily available to the Company at the time the advance is proposed to be made, that there is reason to believe that the person seeking indemnification will ultimately be found to be entitled to indemnification.

(c) At the request of any person claiming indemnification under this Article, the Board of Directors shall determine, or cause to be determined, in a manner consistent with the Maryland General Corporation Law, whether the standards required by this Article have been

Exhibit (b)(2)

met. Indemnification shall be made only following: (i) a final decision on the merits by a court or other body before whom the proceeding was brought that the person to be indemnified was not liable by reason of disabling conduct or (ii) in the absence of such a decision, a reasonable determination, based upon a review of the facts, that the person to be indemnified was not liable by reason of disabling conduct by (A) the vote of a majority of a quorum of disinterested non-party directors or (B) an independent legal counsel in a written opinion.

(d) Employees and agents who are not Officers or Directors of the Company may be indemnified, and reasonable expenses may be advanced to such employees or agents, as may be provided by action of the Board of Directors or by contract, subject to any limitations imposed by the Investment Company Act of 1940, as amended.

(e) The Board of Directors may make further provision consistent with law for indemnification and advance of expenses to Directors, Officers, employees and agents by resolution, agreement or otherwise. The indemnification provided by this Article shall not be deemed exclusive of any other right, with respect to indemnification or otherwise, to which those seeking indemnification may be entitled under any insurance or other agreement or resolution of stockholders or disinterested directors or otherwise .

(f) References in the Article are to the Maryland General Corporation Law and to the Investment Company Act of 1940, as amended. No amendment of these Bylaws shall affect any right of any person under this Article based on any event, omission or proceeding prior to the amendment.

Article 5.3. Insurance. The Company may purchase and maintain insurance on behalf of any person who is or was a Director, Officer, employee or agent of the Company or who, while a Director, Officer, employee or agent of the Company, is or was serving at the request of

Exhibit (b)(2)

the Company as a Director, Officer, partner, trustee, employee or agent of another foreign or domestic corporation, partnership, joint venture, trust, other enterprise or employee benefit plan, against any liability asserted against and incurred by such person in any such capacity or arising out of such person's position; provided that no insurance may be purchased by the Company on behalf of any person against any liability to the Company or to its Stockholders to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office.

Article 5.4. Checks. All checks or demands for money and notes of the Company shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate.

Article 5.5. Fiscal Year. The fiscal year of the Company shall be determined by resolution of the Board of Directors.

Article 6.1. Certificates of Stock. The interest, except fractional interests, of each Stockholder of the Company shall be evidenced by certificates for shares of stock in such form as the Board of Directors may from time to time prescribe. The certificates shall be numbered and entered in the books of the Company as they are issued. They shall exhibit the holder's name and the number of whole shares and no certificate shall be valid unless it has been signed by the Chairman of the Board, the President or a Vice President and by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer of the Corporation and sealed with its seal, or bears the facsimile signatures of such Officers and a facsimile of such seal. In case any of the Officers of the Company whose manual or facsimile signature appears on any stock certificate delivered to a Transfer Agent of the Company shall cease to be such Officer prior to

Exhibit (b)(2)

the issuance of such certificate, the Transfer Agent may nevertheless countersign and deliver such certificate as though the person signing the same or whose facsimile signature appears thereon had not eased to be such Officer, unless written instructions of the Company to the contrary are delivered to the Transfer Agent.

Article 6.2. Lost, Stolen or Destroyed Certificates. The Board of Directors, or the President together with the Treasurer or Secretary, may direct a new certificate to be issued in place of any certificate therefore issued by the Company, alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed, or by his legal representative. When authorizing such issue of a new certificate, the Board of Directors, or the President and Treasurer or Secretary, may, in its or their discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate, or his legal representative, to advertise the same in such manner as it or they shall require and/or give the Company a bond in such sum and with such surety or sureties as it or they may direct as indemnity against any claim that may be made against the Company with respect to the certificate alleged to have been lost, stolen or destroyed for such newly issued certificate.

Article 6.3. Transfer of Stock. Shares of the Company shall be transferable on the books of the Company by the holder thereof in person or by his duly authorized attorney or legal representative upon surrender and cancellation of a certificate or certificates for the same number of shares of the same class, duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, with such proof of the authenticity of the transferor's signature as the Company or its agents may reasonably require. The shares of stock of the Company may be freely transferred, and the Board of Directors may, from time to time, adopt

Exhibit (b)(2)

rules and regulations with reference to the method of transfer of the shares of stock of the Company.

Article 6.4. Registered Holder. The Company shall be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person whether or not it shall have express or other notice thereof, except as expressly provided by statute.

Article 6.5. Record Date. The Board of Directors may fix a time not less than 10 nor more than 90 days prior to the date of any meeting of Stockholders the time as of which Stockholders are entitled to notice of, and to vote at, such a meeting; and all such persons who were holders of record of voting stock at such time, and no other, shall be entitled to notice of, and to vote at, such meeting or to express their consent or dissent, as the case may be. If no record date has been fixed, the record date for the determination of Stockholders entitled to notice of, or to vote at, a meeting of Stockholders shall be the later of the close of business on the day on which notice of the meeting is mailed or the thirtieth day before the meeting, or, if notice is waived by all Stockholders, at the close of business on the tenth day immediately preceding the day on which the meeting is held. The Board of Directors may also fix a time not exceeding 90 days preceding the date fixed for the payment of any dividend or the making of any distribution, or for the delivery of evidences of rights, or evidences of interests arising out of any change, conversion or exchange of capital stock, as a record time for the determination of the Stockholder entitled to receive any such dividend, distribution, rights or interests.

Article 6.6. Stock Ledgers. The stock ledgers of the Company, containing the names and addresses of the Stockholders and the number of shares held by then respectively, shall be

Exhibit (b)(2)

kept at the principal offices of the Company or at such other location as may be authorized by the Board of directors from time to time, except that an original or duplicate stock ledger shall be maintained at the office of the Company's Transfer Agent.

Article 6.7. Transfer Agents and Registrars. The Board of Directors may from time to time appoint or remove Transfer Agents and/or Registrars of transfers (if any) of shares of stock of the Company, and it may appoint the same person as both Transfer Agent and Registrar. Upon any such appointment being made, all certificates representing shares of capital stock thereafter issued shall be countersigned by one of such Transfer Agents or by one of such Registrars of transfers (if any) or by both and shall not be valid unless so countersigned. If the same person shall be both Transfer Agent and Registrar, only one countersignature by such person shall be required.

Article 7.1. Actions Relating to Discount in Price of the Company's Shares. In the event that at any time after the third year following the initial public offering of shares of the Company's Common Stock such shares publicly trade for a substantial period of time at a significant discount from the Company's then current net asset value per share, the Board of Directors shall consider, at its next regularly scheduled meeting, taking various actions designed to eliminate the discount. The actions considered by the Board of Directors may include periodic repurchases by the Company of its shares of Common Stock or an amendment to the Company's Articles of Incorporation to make the Company's Common Stock a "redeemable security" (as such term is defined in the Investment Company Act of 1940), subject in all events to compliance with all applicable provisions of the Company's Articles of Incorporation, these Bylaws, the Maryland General Corporation Law and the Investment Company Act of 1940.

Exhibit (b)(2)

Article 8.1. General. Except as provided in the next succeeding sentence and in the Articles of Incorporation, all Bylaws of the Company, whether adopted by the Board of Directors or the Stockholders, shall be subject to amendment, alteration or repeal, and new Bylaws may be made, by the affirmative vote of a majority of either: (a) the holders of record of the outstanding shares of stock of the Company entitled to vote, at any annual or special meeting, the notice or waiver of notice of which shall have specified or summarized the proposed amendment, alteration, repeal or new Bylaw; or (b) the Directors, at any regular or special meeting, the notice or waiver of notice of which shall have specified or summarized the proposed amendment, alteration, repeal or new Bylaw. The provisions of Articles 2.5, 3.2, 3.3, 3.5, 7.1 and 8.1 of these Bylaws shall be subject to amendment, alteration or repeal by (i) the affirmative vote of the holders of record of eighty percent (80%) of the outstanding shares of stock of the Company entitled to vote, at any annual or special meeting, the notice or waiver of notice of which shall have specified or summarized the proposed amendment, alteration or repeal or (ii) the Board of Directors including the affirmative vote of eighty percent (80%) of the Continuing Directors (as such term is defined in Article VI of the Company's Articles of Incorporation ), at any regular or special meeting, the notice or waiver of notice of which shall have specified or summarized the proposed amendment, alteration or repeal.

Dated: January 22, 1993

Exhibit (b)(3)

Article 2.2 of the By-Laws is hereby deleted and the following is substituted in its place:

Article 2.2. Annual Meeting. The annual meeting of Stockholders of the Company shall be held at such place as the Board of Directors shall select on such date, during the 31-day period ending eight months after the end of the Company's fiscal year, as may be fixed by the Board of Directors each year, at which time the Stockholders shall elect Directors by plurality vote, and transact such other business as may properly come before the meeting. Any business of the Company may be transacted at the annual meeting without being specially designated in the notice except at otherwise provided by statute, by the Articles of Incorporation or by these By-Laws.

April 29, 1994

Exhibit (b)(4)

AMENDMENT TO BY-LAWS

Article 2.3 of the By-Laws is hereby deleted and the following is substituted in its place:

Article 2.3. Special Meetings. Special meetings of the Stockholders for any purpose or purposes, unless otherwise prescribed by statute or by the Articles of Incorporation, may by called by resolution of the Board of Directors or by the President, and shall be called by the Secretary at the request, in writing, of a majority of the Board of Directors or at the request, in writing, of Stockholders owning a majority of the votes entitled to be cast at the meeting upon payment by such Stockholders to the Company of the reasonably estimated cost of preparing and mailing a notice of the meeting (which estimated cost shall be provided to such Stockholders by the Secretary of the Company). Notwithstanding the foregoing, unless requested by Stockholders entitled to cast a majority of the votes entitled to be cast at the meeting, a special meeting of the Stockholders need not be called at the request of Stockholders to consider any matter that is substantially the same as a matter voted on at any special meeting of the Stockholders held during the preceding 12 months. A written request shall state the purpose or purposes of the proposed meeting.

October 18, 1996

Exhibit (b)(5)

PREFERRED INCOME FUND INCORPORATED

AMENDMENT TO BY-LAWS

Article 2.2 of the By-Laws is hereby deleted and the following is substituted in its place:

Article 2.2. Annual Meeting. The annual meeting of Stockholders of the Company shall be held at such place as the Board of Directors shall select on such date, during the 30-day period ending five months after the end of the Company's fiscal year, as may be fixed by the Board of Directors each year, at which time the Stockholders shall elect Directors by plurality vote, and transact such other business as may properly come before the meeting. Any business of the Company may be transacted at the annual meeting without being specially designated in the notice except as otherwise provided by statute, by the Articles of Incorporation or by these By-Laws.

December 15, 1997

225 Shares

PREFERRED INCOME FUND INCORPORATED

Money Market Cumulative Preferred(TM) Stock
(Liquidation Preference $100,000 Per Share)

___________, 2002

LEHMAN BROTHERS INC.
745 Seventh Avenue
New York, New York 10019

Dear Ladies and Gentlemen:

Preferred Income Fund Incorporated, a Maryland corporation (the "Company"), proposes, subject to the terms and conditions stated herein, to issue and sell 225 shares (the "Stock" or "MMP(R)") of its Money Market Cumulative Preferred(TM) Stock, par value $.01 per share, with a liquidation preference of $100,000 per share (the "Preferred Stock"). The Stock will be authorized by, and subject to the terms and conditions of, the Articles Supplementary Creating and Fixing the Rights of Money Market Cumulative Preferred(TM) Stock (the "Initial Articles Supplementary") and the Articles Supplementary for the Stock (the "Subsequent Articles Supplementary"; together with the Initial Articles Supplementary as amended or supplemented to the date hereof, the "Articles Supplementary"), such Supplemental Articles Supplementary in the form filed as an exhibit to the Registration Statement defined in Section 1(a) of this Agreement. Flaherty & Crumrine Incorporated, a California corporation (the "Adviser"), is the Company's investment adviser. This is to confirm the agreement concerning the purchase of the Stock from the Company by you.

1. REPRESENTATIONS AND WARRANTIES. (a) The Company represents, warrants and agrees that:

(i) A registration statement on Form N-2 with respect to the Stock (A) has been prepared by the Company in conformity with the requirements of the Securities Act of 1933, as amended (the "Securities Act"), and the rules and regulations (the "Rules and Regulations") of the Securities and Exchange Commission (the "Commission") thereunder, the Investment Company Act of 1940, as amended (the "Investment Company Act", and together with the Securities Act, the "Acts"), and the rules and regulations of the Commission thereunder, (B) has been filed with the Commission under the Acts and (C) has become effective under the Acts. If any post-effective amendment to such

registration statement has been filed prior to the execution and delivery of this Agreement, the most recent such amendment has been declared effective by the Commission. Copies of such registration statement as amended to date have been delivered by the Company to you. A notification of registration on Form N-8A (the "Notification") has been filed by the Company with the Commission under the Investment Company Act. As used in this Agreement, "Effective Time" means the date and time as of which such registration statement or the most recent post-effective amendment thereto, if any, was declared effective by the Commission; "Effective Date" means the date of the "Effective Time"; "Preliminary Prospectus" means each prospectus included in such registration statement, or amendments thereto, before it became effective under the Acts and any prospectus filed with the Commission by the Company with your consent pursuant to Rule 497(a) of the Rules and Regulations; "Registration Statement" means such registration statement, as amended at the Effective Time, including all information deemed to be a part thereof as of the Effective Time pursuant to paragraph (b) of Rule 430A of the Rules and Regulations; and "Prospectus" means the prospectus relating to the Stock, as filed pursuant to Rule 497(h) of the Rules and Regulations ("Rule 497(h)"). If the Company has filed an abbreviated registration statement to register additional shares of its Preferred Stock pursuant to Rule 462(b) under the Securities Act (the "Rule 462 Registration Statement") then any reference herein to the term "Registration Statement" shall be deemed to include such Rule 462 Registration Statement. The Commission has not issued any order preventing or suspending the use of the Registration Statement, any Preliminary Prospectus or the Prospectus and the Company has not received any notice from the Commission pursuant to Section 8(e) of the Investment Company Act with respect to the Notification or the Registration Statement.

(ii) The Registration Statement contains, and any post-effective amendment to the Registration Statement filed with the Commission after the Effective Time, the Prospectus and the Prospectus as amended or supplemented will contain, all statements which are required by the Acts and the rules and regulations thereunder; on the Effective Date, the Registration Statement did not, and any post-effective amendment to the Registration Statement filed with the Commission after the Effective Time, the Prospectus and the Prospectus as amended and supplemented will not, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; and the Notification complied in all material respects with the requirements of the Investment Company Act and the rules and regulations of the Commission thereunder and does not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that the Company makes no representations, warranties or agreements as to the information contained in or omitted from the Registration

Statement or the Prospectus or any such amendment or supplement in reliance upon and in conformity with written information furnished to the Company by you specifically for inclusion therein.

(iii) The Company is not in violation of its corporate charter, including the Articles Supplementary, or by-laws or in default under any agreement, indenture or instrument or in breach or violation of any judgment, decree, order, rule or regulation of any court or governmental or self-regulatory agency or body, the effect of which violation or default or breach would be material to the Company.

(iv) This Agreement, the Investment Advisory Agreement (the "Advisory Agreement") between the Company and the Adviser, the Administration Agreement (the "Administration Agreement") between the Company and PFPC Inc., the Custody Agreement (the "Custody Agreement") between the Company and PFPC Trust Company and the Auction Agency Agreement, including the form of Broker-Dealer Agreement (the "Auction Agency Agreement") between the Company and Bankers Trust Company (the "Auction Agent") have each been duly authorized, executed and delivered by the Company; and this Agreement, the Advisory Agreement, the Administration Agreement, the Custody Agreement and the Auction Agency Agreement each constitutes the valid and binding obligation of the Company, enforceable in accordance with its terms, except to the extent that enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting creditors' rights and by general equity principles (regardless of whether such enforceability is considered in a proceeding in equity or at law), and enforceability of the indemnity provisions of this Agreement may be limited by considerations of public policy. No consent, approval, authorization or order of any court or governmental agency or body is required for the execution, delivery and performance of this Agreement, the Advisory Agreement, the Administration Agreement, the Custody Agreement or the Auction Agency Agreement by the Company or the consummation by the Company of the transactions contemplated hereby or thereby, except such as have been obtained and such as may be required under the Acts, the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or applicable state securities laws in connection with the purchase and distribution of the Stock by you. The execution, delivery and performance of this Agreement, the Advisory Agreement, the Administration Agreement, the Custody Agreement and the Auction Agency Agreement by the Company and the consummation by the Company of the transactions contemplated hereby and thereby will not conflict with, result in the creation or imposition of any lien, charge or encumbrance upon the assets of the Company pursuant to the terms of, result in a breach or violation by the Company of any of the terms or provisions of, or constitute a default by the Company under, any indenture, mortgage, deed of trust, loan agreement, lease

or other agreement or instrument to which the Company is a party or to which it or its property is subject, the corporate charter (including the Articles Supplementary) or by-laws of the Company, any statute (including the Acts), or any judgment, decree, order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any of its property.

(v) Except as described in or contemplated by the Registration Statement and the Prospectus, (A) there has not been any material adverse change in, or any adverse development which materially affects, the business, properties, financial condition, results of operations or prospects of the Company from the dates as of which information is given in the Registration Statement and the Prospectus, (B) there have been no transactions entered into by the Company which are material to the Company other than those in the ordinary course of business and (C) the Company has not incurred any material liabilities or obligations, direct or contingent, other than those incurred in the ordinary course of business.

(vi) The Company owns or possesses or has obtained all governmental licenses, permits, consents, orders, approvals and other authorizations necessary to own its properties and to carry on its business as contemplated in the Prospectus.

(vii) KPMG LLP, whose report appears in the Prospectus, are independent public accountants as required by the Acts and the rules and regulations thereunder.

(viii) The authorized, issued and outstanding capital stock of the Company is as set forth in the Prospectus. All the authorized shares of capital stock of the Company, including the Stock, have been duly authorized, and all the issued and outstanding shares of common stock, par value $.01 per share, and the Preferred Stock of the Company are, and all the shares of the Stock, when issued, delivered and paid for on the Delivery Date (as hereinafter defined) will be, validly issued and outstanding, fully paid and nonassessable with no personal liability attaching to the ownership thereof. None of the shares of the Stock when delivered will be subject to any lien, claim, encumbrance, preemptive rights or any other claim of any third party and the Stock will conform in all material respects to the description thereof contained in the Registration Statement and the Prospectus.

(ix) The Company has been duly incorporated and is validly existing and in good standing as a corporation under the laws of the State of Maryland, is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction in which its ownership of property or the conduct of its business requires such qualification, and has all power and authority necessary to own or hold its properties and to conduct its business as described in the Prospectus.

(x) Except as described in the Registration Statement and the Prospectus, there is no litigation or proceeding pending or, to the knowledge of the Company, threatened against the Company which might result in any adverse change in the financial condition, results of operations, business or prospects of the Company or which is required to be disclosed in the Registration Statement and the Prospectus.

(xi) The financial statements, and the related notes thereto, filed as part of the Registration Statement or included in any Preliminary Prospectus or the Prospectus present fairly the financial condition and results of operations of the Company, at the dates indicated, and have been prepared in conformity with generally accepted accounting principles applied on a consistent basis.

(xii) There are no contracts or other documents which are required to be described in the Prospectus or filed as exhibits to the Registration Statement by the Acts or by the rules and regulations thereunder which have not been described in the Prospectus or filed as exhibits to the Registration Statement or incorporated therein by reference as permitted by the rules and regulations.

(xiii) The Company is registered with the Commission under the Investment Company Act as a closed-end, diversified management investment company. The Company is, and at all times through the completion of the transactions contemplated hereby will be, in compliance in all material respects with the terms and provisions of the Acts. No person is serving or acting as an officer, director or investment adviser of the Company except in accordance with the provisions of the Investment Company Act and the Investment Advisers Act of 1940, as amended (the "Advisers Act"), and the rules and regulations of the Commission under such acts.

(xiv) At all times since its inception, as required by Subchapter M of the Internal Revenue Code of 1986, as amended, the Company has complied with the requirements to qualify as a regulated investment company under the Code.

(xv) The Company has filed all tax returns required to be filed and the Company is not in material default in the payment of any taxes which were shown as payable on said returns or any assessments with respect thereto.

(xvi) There are no contracts, agreements or understandings between the Company and any person granting such person the right to require the Company to file a registration statement under the Securities Act with respect to any securities of the Company owned or to be owned, directly or indirectly, by such person.

(b) The Adviser makes the same representations and warranties as the Company set forth under Sections 1(a)(i) and (ii) above, and further represents to, warrants to and agrees with you that:

(i) The Adviser has been duly incorporated and is validly existing and in good standing as a corporation under the laws of the State of California, is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction in which its ownership of property or the conduct of its business requires such qualification (except where the failure to so qualify would not have a material adverse effect on the Adviser), and has all corporate power and authority necessary to own or hold its properties and to conduct its business as described in the Prospectus.

(ii) The Adviser is duly registered and in good standing with the Commission under the Advisers Act as an investment adviser, and there does not exist any proceeding or any facts or circumstances the existence of which could lead to any proceeding which could adversely affect the registration or good standing of the Adviser with the Commission. The Adviser is not prohibited by the Advisers Act or the Investment Company Act, or the rules and regulations under such acts, from acting for the Company under the Advisory Agreement as contemplated by the Prospectus.

(iii) The description of the Adviser in the Prospectus is true and correct in all material respects and does not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading.

(iv) This Agreement and the Advisory Agreement have each been duly authorized, executed and delivered by the Adviser, and each constitutes the valid and binding obligation of the Adviser enforceable in accordance with its terms, except to the extent that enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting creditors' rights and by general equity principles (regardless of whether such enforceability is considered in a proceeding in equity or at law), and enforceability of the indemnity and contribution provisions of this Agreement may be limited by considerations of public policy. No consent, approval, authorization or order of any court or governmental agency or body is required for the execution, delivery and performance of this Agreement or the Advisory Agreement by the Adviser or the consummation by the Adviser of the transactions contemplated hereby or thereby, except such as have been obtained and such as may be required under the Acts, the Exchange Act, the Advisers Act or applicable state securities laws in connection with the purchase and distribution of the Stock by you. The execution, delivery and performance of this Agreement and the Advisory Agreement by the Adviser and the consummation by the Adviser of the

transactions contemplated hereby and thereby will not conflict with, result in the creation or imposition of any lien, charge or encumbrance upon the assets of the Adviser pursuant to the terms of, result in a breach or violation by the Adviser of any of the terms or provisions of, or constitute a default by the Adviser under, any material indenture, mortgage, deed of trust, loan agreement, lease or other agreement or instrument to which the Adviser is a party or to which it or its property is subject, the corporate charter or by-laws of the Adviser, any statute (including the Acts), or any judgment, decree, order, rule or regulation of any court or governmental agency or body having jurisdiction over the Adviser or any of its property.

(v) Except as described in the Registration Statement and the Prospectus, there is no litigation or proceeding pending or, to the knowledge of the Adviser, threatened against the Adviser which might result in any material adverse change in the financial condition, results of operations, business or prospects of the Adviser or which is required to be disclosed in the Registration Statement and the Prospectus.

(vi) The Adviser has the financial resources available to it necessary for the performance of its services and obligations as contemplated in the Prospectus.

(vii) The Adviser is not in violation of its corporate charter or by-laws or in default under any material agreement, indenture or instrument.

2. PURCHASE OF THE SHARES. On the basis of the representations and warranties contained in, and subject to the terms and conditions of, this Agreement, the Company agrees to issue and sell 225 shares of the Stock to you, and you agree to purchase from the Company 225 shares of the Stock. The price of the Stock shall be $_________ per share. The Company shall not be obligated to deliver any of the Stock to be delivered on the Delivery Date (as hereinafter defined), except upon payment for all the Stock to be purchased on such Delivery Date as provided herein.

3. OFFERING OF STOCK. You propose to offer the Stock for sale upon the terms and conditions set forth in the Prospectus.

4. DELIVERY OF AND PAYMENT FOR SHARES. Delivery of and payment for the Stock shall be made at the office of Simpson Thacher & Bartlett, 425 Lexington Avenue, New York, New York 10017, at 10:00 A.M., New York City time, on the first full business day following the date of this Agreement or at such later date as shall be determined by agreement between you and the Company. This date and time are referred to herein as the "Delivery Date." On the Delivery Date the Company shall deliver or cause to be delivered the certificate representing the Stock to you against payment to or upon the order of the Company of the purchase price by wire transfer in immediately available funds. Time shall be of the essence, and delivery at the time and place specified pursuant to this Agreement is a further condition of your obligation

hereunder. Upon delivery, the Stock shall be registered in such names and in such denominations as you shall request in writing not less than two full business days prior to the Delivery Date. For purposes of expediting the checking and packaging of the certificates for the Stock, the Company shall make the certificates representing the Stock available for inspection by you at the office of Simpson Thacher & Bartlett, 425 Lexington Avenue, New York, New York 10017, not later than 2:00 P.M., New York City time, on the business day prior to the Delivery Date.

5. FURTHER AGREEMENTS OF THE COMPANY. The Company agrees:

(a) To prepare the Prospectus in a form approved by you and to file such Prospectus pursuant to Rule 497(h) not later than Commission's close of business on the second business day following the execution and delivery of this Agreement; to make no further amendment or any supplement to the Registration Statement or to the Prospectus except as permitted herein; to advise you, promptly after it receives notice thereof, of the time when any amendment to the Registration Statement has been filed or becomes effective or any supplement to the Prospectus or any amended Prospectus has been filed and to furnish you copies thereof; to advise you, promptly after it receives notice thereof, of the issuance by the Commission of any stop order or of any order preventing or suspending the use of any Preliminary Prospectus or the Prospectus, of the issuance by the Commission of any order pursuant to Section 8(e) of the Investment Company Act, of the suspension of the qualification of the Stock for offering or sale in any jurisdiction, of the initiation or threatening of any proceeding for any such purpose, or of any request by the Commission for the amending or supplementing of the Registration Statement or the Prospectus or for additional information; and, in the event of the issuance of any stop order or of any order preventing or suspending the use of any Preliminary Prospectus or the Prospectus or of an order pursuant to Section 8(e) of the Investment Company Act or suspending any such qualification, to use promptly its best efforts to obtain its withdrawal;

(b) To furnish promptly to you and your counsel a signed copy of the Registration Statement as originally filed with the Commission, and each amendment thereto and any amendment to the Notification filed with the Commission, including all consents and exhibits filed therewith;

(c) To deliver promptly to you such number of the following documents as you shall reasonably request: (i) conformed copies of the Registration Statement as originally filed with the Commission and each amendment thereto (excluding exhibits other than this Agreement and the Subsequent Articles Supplementary, and the form of letter of representation to The Depository Trust Company filed as Exhibit (K)(10) to the Registration Statement) and (ii) each Preliminary Prospectus, the Prospectus and any amended or supplemented Prospectus; and, if the delivery of a prospectus is required at any time after the Effective Time in connection with the offering or sale of the Stock or any other securities relating thereto and if at such time any events shall have occurred as a result of which the Prospectus as then amended or supplemented would include an untrue

statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made when such Prospectus is delivered, not misleading, or, if for any other reason it shall be necessary to amend or supplement the Prospectus in order to comply with the Acts, to notify you and, upon your request, to prepare and furnish without charge to you and to any dealer in securities as many copies as you may from time to time reasonably request of an amended or supplemented Prospectus which will correct such statement or omission or effect such compliance;

(d) To file promptly with the Commission any amendment to the Registration Statement or the Prospectus or any supplement to the Prospectus that may, in the judgment of the Company or you, be required by the Acts or requested by the Commission;

(e) Prior to filing with the Commission any amendment to the Registration Statement or supplement to the Prospectus or any Prospectus pursuant to Rule 497 of the Rules and Regulations ("Rule 497"), to furnish a copy thereof to you and your counsel and obtain your consent to the filing, which consent shall not be unreasonably withheld or delayed;

(f) As soon as practicable after the Effective Date, to make generally available to the Company's security holders and to deliver to you an earnings statement of the Company (which need not be audited), complying with Section 11(a) of the Securities Act (and, at the option of the Company, Rule 158 of the Rules and Regulations);

(g) For a period of two years from the Effective Date, to furnish to you copies of all materials furnished by the Company to its shareholders and all public reports and all reports and financial statements furnished by the Company to the New York Stock Exchange, Inc., pursuant to requirements of or agreements with such exchange or to the Commission pursuant to the Exchange Act, the Investment Company Act or any rule or regulation of the Commission thereunder; provided, however, that the Company shall not be required to provide to you any such reports or similar forms that have been filed with the Commission by electronic transmission pursuant to EDGAR;

(h) Promptly from time to time, to take such action as you may reasonably request to qualify the Stock for offering and sale under the securities laws of such jurisdiction as you may request and to comply with such laws so as to permit the continuance of sales and dealings therein in such jurisdictions for as long as may be necessary to complete the distribution of the Stock provided that, in connection therewith, the Company shall not be required to qualify as a foreign corporation or to file a general consent to service of process in any jurisdiction;

(i) To apply the net proceeds from the issuance of the Stock as set forth under "Use of Proceeds" in the Prospectus;

(j) For a period of 180 days from the date hereof, not to, directly or indirectly, announce an offering of, or file a registration statement with the Commission relating to senior securities (as defined in the Investment Company Act) of the Company (other than the offering contemplated by this Agreement) or offer for sale, sell, pledge or otherwise dispose of any senior securities or sell or grant options, warrants or rights with respect to any senior securities without your prior written consent; and

(k) The Company will use its reasonable best efforts to cause the Stock, prior to the Delivery Date, to be assigned a rating of "Aa1" by Moody's Investors Service, Inc. and "AA+" by Fitch, Inc. as of the Delivery Date.

6. EXPENSES. The Company agrees to pay the following expenses, whether or not the transactions contemplated by this Agreement are consummated or this Agreement is terminated:

(a) the cost incident to the authorization, issuance, sale and delivery of the Stock and any taxes payable in that connection;

(b) the costs incident to the preparation, printing and filing under the Acts of the Registration Statement, the Prospectus and any amendments or supplements thereto;

(c) the costs of distributing the Registration Statement as originally filed and each amendment thereto and any post-effective amendments thereof (including, exhibits), any Preliminary Prospectus, the Prospectus and any amendments or supplements to the Prospectus, all as provided in this Agreement;;

(d) the fees and expenses of qualifying the Stock under the securities laws of the several jurisdictions as provided in Section 5(h) and of preparing, printing and distributing a blue sky memorandum (including related fees and expenses of your counsel);

(e) the printing and delivery of this Agreement, any dealer agreements or any other documents printed and delivered in connection with the offering of the Stock;

(f) the fees paid to rating agencies in connection with the rating of the Stock;

(g) the fees and expenses of the Auction Agent as set forth in the Auction Agency Agreement;

(h) the fees and expenses of the Company's accountants and the fees and expenses of counsel for the Company and of the transfer agent; and

(i) all other costs and expenses incident to the performance of the obligations of the Company under this Agreement

provided that, except as provided in this Section 6 and in Section 10, you shall pay your own costs and expenses, including the costs and expenses of your counsel.

7. INDEMNIFICATION AND CONTRIBUTION. (a) The Company and the Adviser, jointly and severally, shall indemnify and hold harmless you, your directors, officers, employees and each person, if any, who controls you within the meaning of the Securities Act from and against any loss, claim, damage or liability, joint or several, or any action in respect thereof (including, but not limited to, any loss, claim, damage, liability or action relating to purchases and sales of the Stock), to which you, your directors, officers, employees or controlling persons may become subject, under the Securities Act or otherwise, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, (i) any untrue statement or alleged untrue statement of a material fact contained in (A) the Notification, (B) any Preliminary Prospectus, the Registration Statement or any amendment or supplement thereto or (C) any blue sky application or other document prepared or executed by the Company (or based upon any written information furnished by the Company specifically for use in such materials) filed in any jurisdiction specifically for the purpose of qualifying any or all the Stock under the securities laws of any state or other jurisdiction (such application, document or information being hereinafter called a "Blue Sky Application") or (ii) the omission or alleged omission to state in any Preliminary Prospectus, the Registration Statement, the Prospectus, or in any amendment or supplement thereto, or in any Blue Sky Application any material fact required to be stated therein or necessary to make the statements therein not misleading, and shall reimburse you, your directors, officers, employees or controlling persons for any legal or other expenses reasonably incurred by you, your directors, officers, employees or controlling persons in connection with investigating or defending or preparing to defend against any such loss, claim, damage, liability or action as such expenses are incurred; provided, however, that the Company and the Adviser shall not be liable in any such case to the extent that any such loss, claim, damage, liability or action arises out of, or is based upon, any untrue statement or alleged untrue statement or omission or alleged omission made in any Preliminary Prospectus, the Registration Statement or the Prospectus or in any such amendment or supplement, in reliance upon and in conformity with written information furnished to the Company by you or on your behalf specifically for inclusion therein which information consists solely of the information specified in Section 7(e); and provided further that the Adviser shall be liable to such indemnified party in any such case only to the extent that the Company fails to indemnify and hold harmless such indemnified party pursuant to this Section 7(a); and provided further that to the extent the Adviser has indemnified any such party, the Company shall contribute to the Adviser a portion of the amount paid by the Adviser to any such indemnified party as shall be appropriate to reflect the relative benefits received by the Company and the Adviser in the offering of the Stock and the relative fault of the Company and the Adviser in causing the omission or misstatement which resulted in such payment. The foregoing indemnity agreement is in addition to any liability which the Company or the Adviser may otherwise have to you or to any of your directors, officers, employees or controlling persons.

(b) You shall indemnify and hold harmless the Company, the Adviser, each of their respective directors, officers and employees, and each person, if any, who controls the Company or the Adviser within the meaning of the Securities Act from and against any loss, claim, damage or liability, joint or several, or any action in respect thereof, to which the Company, the Adviser or any such director, officer, employee or controlling person may become subject, under the Securities Act or otherwise, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, (i) any untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus, the Registration Statement or the Prospectus or in any amendment or supplement thereto, or in any Blue Sky Application or (ii) the omission or alleged omission to state in any Preliminary Prospectus, the Registration Statement or the Prospectus, or in any amendment or supplement thereto or in any Blue Sky Application, any material fact required to be stated therein or necessary to make the statements therein not misleading, but only to the extent that the untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company or the Adviser by you or on your behalf specifically for inclusion therein and, with respect to the Preliminary Prospectus, the Registration Statement or the Prospectus or in any amendment or supplement thereto, set forth in Section 7(e), and shall reimburse the Company, the Adviser or any such director, officer, employee or controlling person for any legal or other expenses reasonably incurred by the Company, the Adviser or any such director, officer, employee or controlling person in connection with investigating or defending or preparing to defend against any such loss, claim, damage, liability or action as such expenses are incurred. The foregoing indemnity agreement is in addition to any liability which you may otherwise have to the Company, the Adviser or any such director, officer, employee or controlling person.

(c) Promptly after receipt by an indemnified party under this
Section 7 of notice of any claim or the commencement of any action, the indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under this Section 7, notify the indemnifying party in writing of the claim or the commencement of that action, provided, however, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have under this Section 7 except to the extent it has been materially prejudiced by such failure and, provided further, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have to an indemnified party otherwise than under this Section 7. If any such claim or action shall be brought against an indemnified party, and it shall notify the indemnifying party thereof, the indemnifying party shall be entitled to participate therein, and, to the extent that it wishes, jointly with any other similarly notified indemnifying party, to assume the defense thereof with counsel satisfactory to the indemnified party. After notice from the indemnifying party to the indemnified party of its election to assume the defense of such claim or action, the indemnifying party shall not be liable to the indemnified party under this Section 7 for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof other than reasonable costs of investigation; provided, however, that the indemnified party shall have the right to employ separate counsel to represent the indemnified party, its officers, directors, employees and controlling persons who may be subject to liability

arising out of any claim in respect of which indemnity may be sought by the indemnified party against the indemnifying party under this Section 7 if, in the reasonable judgment of the indemnified party, it is advisable for the indemnified party, its officers, directors, employees and controlling persons to be jointly represented by separate counsel, and in that event the fees and reasonable expenses of such separate counsel shall be paid by the indemnifying party. No indemnifying party shall (i), without the prior written consent of the indemnified parties (which consent shall not be unreasonably withheld), settle or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified parties are actual or potential parties to such claim or action) unless such settlement, compromise or consent includes an unconditional release of each indemnified party from all liability arising out of such claim, action, suit or proceeding or (ii) be liable for any settlement of any such action effected without its written consent (which consent shall not be unreasonably withheld), but if settled with its written consent or if there be a final judgment in favor of the plaintiff in any such action, the indemnifying party agrees to indemnify and hold harmless any indemnified party from and against any loss or liability by reason of such settlement or judgment to the extent the indemnifying party is otherwise entitled to indemnification under this Section 7.

(d) If the indemnification provided for in this Section 7 shall for any reason be unavailable or insufficient to hold harmless an indemnified party under Sections 7(a) or 7(b) in respect of any loss, claim, damage or liability, or any action in respect thereof, referred to therein, then each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability, or action in respect thereof, (i) in such proportion as shall be appropriate to reflect the relative benefits received by the Company and the Adviser on the one hand and you on the other from the offering of the Stock or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company and the Adviser on the one hand and you on the other with respect to the statements or omissions which resulted in such loss, claim, damage or liability, or action in respect thereof, as well as any other relevant equitable considerations. The relative benefits received by the Company and the Adviser on the one hand and you on the other with respect to such offering shall be deemed to be in the same proportion as the total net proceeds from the offering of the Stock purchased under this Agreement (before deducting expenses) received by the Company on the one hand, and the total underwriting discounts and commissions received by you with respect to the Stock purchased under this Agreement, on the other hand, bear to the total gross proceeds from the offering of the Stock under this Agreement, as set forth in the table on the cover page of the Prospectus. The relative fault shall be determined by reference to whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company or the Adviser on the one hand or you on the other, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company, the Adviser and you agree that it would not be just and equitable if contributions pursuant to this
Section 7(d) were to be determined by pro rata

allocation or by any other method of allocation which does not take into account the equitable considerations referred to herein. The amount paid or payable by an indemnified party as a result of the loss, claim, damage or liability, or action in respect thereof, referred to above in this Section 7(d) shall be deemed to include, for purposes of this Section 7(d), any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 7(d), you shall not be required to contribute any amount in excess of the amount by which the total price at which the Stock underwritten by you and distributed to the public was offered to the public exceeds the amount of any damages which you have otherwise paid or become liable to pay by reason of any untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.

(e) You confirm that the statements in paragraph numbers ___ and ___ on the cover page of the Prospectus, and in paragraph numbers ___ and ___ under the caption "Underwriting" in the Prospectus are correct and you further confirm, and the Company and the Adviser acknowledge, that such statements constitute the only information you furnished in writing to the Company by you or on your behalf specifically for inclusion in the Registration Statement and the Prospectus.

8. CONDITIONS OF YOUR OBLIGATIONS. Your obligations hereunder are subject to the accuracy, when made and on the Delivery Date, of the representations and warranties of the Company and the Adviser contained herein, to performance by the Company and the Adviser of their respective obligations hereunder, and to each of the following additional terms and conditions:

(a) The Prospectus shall have been timely filed with the Commission in accordance with Section 5(a); no stop-order suspending the effectiveness of the Registration Statement or order pursuant to Section 8(e) of the Investment Company Act shall have been issued, and no stop-order proceeding or proceeding for an order pursuant to Section 8(e) of the Investment Company Act shall have been initiated or threatened by the Commission; and any request of the Commission for inclusion of additional information in the Registration Statement or the Prospectus or otherwise shall have been complied with.

(b) You shall not have discovered and disclosed to the Company on or prior to the Delivery Date that the Registration Statement, the Prospectus or any amendment or supplement thereto, in the opinion of Simpson Thacher & Bartlett, your counsel, contains any untrue statement of any fact which is material or omits to state a fact which is material and is required to be stated therein or is necessary to make the statements therein not misleading.

(c) All corporate proceedings and other legal matters incident to the authorization, form and validity of this Agreement, the Stock, the Registration Statement, the Prospectus and all other legal matters relating to the offering, issuance and sale of the Stock and the transactions contemplated hereby and thereby shall be satisfactory in all respects to your counsel, Simpson Thacher & Bartlett; and the Company shall have furnished to such counsel all documents and information that they may reasonably request to enable them to pass upon such matters.

(d) Willkie Farr & Gallagher, counsel to the Company, shall have furnished to you its written opinion, as counsel to the Company, addressed to you and dated the Delivery Date, in the form and substance reasonably satisfactory to you, to the effect that:

(i) The Company has been duly incorporated and is validly existing and in good standing as a corporation under the laws of the State of Maryland and has the full corporate power and authority necessary to own its properties and conduct the business in which it is engaged as described in the Prospectus and to issue and sell the Stock as contemplated in this Agreement. The Company is duly qualified to do business and in good standing as a foreign corporation in all jurisdictions in which its ownership of property or the conduct of its business requires such qualification (except where the failure to so qualify would not have a material adverse effect upon the Company);

(ii) All of the authorized shares of capital stock of the Company, including the Stock, have been duly authorized. All of the issued and outstanding shares of common stock, par value $.01 per shares, and of the Preferred Stock, par value $.01 per share, of the Company are, and all of the Stock, when issued, delivered and paid for on the Delivery Date will be, validly issued and outstanding, fully paid and nonassessable, with no personal liability attaching to the ownership thereof; and the form of certificate used to evidence the Stock is in due and proper form and complies with Maryland law.

(iii) There are no preemptive or other rights to subscribe for or to purchase, nor any restriction upon the voting or transfer of, any shares of the Stock pursuant to the Company's corporate charter (including the Articles Supplementary) or bylaws or any other agreement or other outstanding instrument known to such counsel, except for the restrictions on transfer of the shares of Stock contained in the Auction Agency Agreement and the form of master purchaser's letter (attached as Exhibit C to the Auction Agency Agreement) and except for related transfer restrictions as set forth in the Articles Supplementary;

(iv) The shares of Stock conform in all material respects to the statements concerning them contained in the Prospectus, and the authorized shares of capital stock of the Company are as set forth in the Prospectus;

(v) The statements made in the Prospectus under the caption "Description of Common Stock" insofar as they purport to constitute summaries of the terms of the Company's common stock, constitute accurate summaries of the terms of the Company's common stock;

(vi) The Registration Statement is effective under the Acts; any required filing of the Prospectus pursuant to Rule 497 has been made within the time period required by Rule 497; no stop-order suspending the effectiveness of the Registration Statement or order pursuant to Section 8(e) of the Investment Company Act has been issued, and, to the knowledge of such counsel, no proceeding for any such purpose is pending or threatened by the Commission;

(vii) The Notification, the Registration Statement and the Prospectus (except that no opinion need be expressed as to the financial statements or other financial and statistical data contained therein) comply as to form in all material respects with the requirements of the Acts and the rules and regulations thereunder;

(viii) The statements made in the Prospectus under the captions "The Auction," "Description of MMP," "Repurchase of Common Stock: Conversion to Open-End Fund" and "Certain Provisions of the Articles of Incorporation," insofar as they purport to summarize the provisions of documents or agreements specifically referred to therein, fairly present the information called for with respect thereto by Form N-2;

(ix) The statements made in the Prospectus under the captions "Description of Common Stock," "Description of MMP" and "The Auction," insofar as they purport to constitute summaries of the Maryland General Corporation Law, constitute accurate summaries of the Maryland General Corporation Law in all material respects.

(x) Such counsel does not know of any litigation or any proceeding pending or threatened against the Company which could affect the subject matter of this Agreement, or is required to be disclosed in the Prospectus which is not disclosed and correctly summarized therein;

(xi) Such counsel does not know of any contracts or other documents which are required to be filed as exhibits to the Registration Statement by the Acts or by the rules and regulations thereunder which have not been filed as exhibits to

the Registration Statement or incorporated therein by reference as permitted by the rules and regulations;

(xii) To the best of such counsel's knowledge, the Company is not in default under any material agreement, indenture or instrument to which it is a party or by which its property may be bound or, without regard to the provisions of Maryland law, in violation of its corporate charter (including the Articles Supplementary) or by-laws;

(xiii) Each of this Agreement, the Advisory Agreement, the Administration Agreement, the Custody Agreement and the Auction Agency Agreement has been duly authorized, executed and delivered by the Company; and assuming due authorization, execution and delivery of each of such agreements by the other parties thereto,
(a) each of such agreements complies with all applicable provisions of the Investment Company Act and the Advisers Act, as applicable and (b) the Advisory Agreement and the Auction Agency Agreement each constitutes the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except to the extent that enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting creditors' rights and by general equity principles (regardless of whether such enforceability is considered in a proceeding in equity or at law); the execution, delivery and performance of this Agreement, the Advisory Agreement, the Administration Agreement, the Custody Agreement and the Auction Agency Agreement by the Company will not conflict with, or result in the creation or imposition of any lien, charge or encumbrance upon any of the assets of the Company pursuant to the terms of, or constitute a default under, any agreement, indenture or instrument known to such counsel, to which the Company is a party or by which its property may be bound, or result in a violation of the corporate charter (including the Articles Supplementary) or by-laws of the Company or the Acts, the Exchange Act or the Advisers Act, any order, rule or regulation of any court or governmental agency having jurisdiction over the Company or its property; and no consent, authorization or order of, or filing or registration with, any court or governmental agency is required for the execution, delivery and performance of this Agreement, the Advisory Agreement, the Administration Agreement, the Custody Agreement or the Auction Agency Agreement by the Company, except such as has been obtained under the Acts or the Exchange Act or as may be required by state securities laws;

(xiv) The Company is registered with the Commission under the Investment Company Act as a closed-end, diversified management investment company; all required action has been taken by the Company under the Acts and the Exchange Act to make the public offering and consummate the sale of the Stock pursuant to this Agreement; the provisions of the corporate charter

(including the Articles Supplementary) and by-laws of the Company comply as to form in all material respects with the requirements of the Investment Company Act; the provisions of the corporate charter (including the Articles Supplementary) and by-laws of the Company and the investment policies and restrictions described in the Prospectus under the captions "Investment Objective and Policies" and "Investment Restrictions" comply in all material respects with the requirements of the Investment Company Act; and

(xv) The information contained in the Prospectus under the caption "Tax Matters", to the extent that it constitutes matters of law or legal conclusions, has been reviewed by them and is correct in all material respects.

Such opinion shall also contain a statement that in the course of the preparation by the Company of the Registration Statement and the Prospectus, such counsel participated in conferences with certain officers and employees of the Company and the Adviser, and that such counsel's investigations made in connection with the preparation of the Registration Statement and the Prospectus and such counsel's participation in the conferences referred to above did not disclose to such counsel any information which caused such counsel to believe that the Registration Statement, as of the Effective Date, contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading or that the Prospectus on the Delivery Date contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. Such opinion shall also contain a statement that such counsel has no reason to believe that the Notification contains any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading.

In giving such opinion, Willkie Farr & Gallagher may rely on the opinion of Venable, Baetjer and Howard as to matters of Maryland law, provided that Willkie Farr & Gallagher furnish a copy thereof to you and state that such opinion is satisfactory in form and scope and that you and your counsel are entitled to rely thereon.

(e) Shearman & Sterling, counsel to the Adviser, shall have furnished to you its written opinion, as counsel to the Adviser, addressed to you and dated the Delivery Date, in form and substance reasonably satisfactory to you, to the effect that:

(i) The Adviser has been duly incorporated and is validly existing and in good standing as a corporation under the laws of the State of California, is duly qualified to do business and in good standing as a foreign corporation in all jurisdictions in which its ownership of property or the conduct of its business requires such qualification (except where the failure to do so would not have a material adverse effect on the Adviser) and has all power and authority necessary

to own its properties and conduct the business in which it is engaged as described in the Prospectus;

(ii) This Agreement and the Advisory Agreement have been duly authorized, executed and delivered by the Adviser; assuming due execution by the other parties thereto, the Advisory Agreement constitutes the valid and binding obligation of the Adviser enforceable in accordance with its terms, except to the extent that enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting creditors' rights and by general equity principles (regardless of whether such enforceability is considered in a proceeding in equity or at law); the execution, delivery and performance of this Agreement and the Advisory Agreement by the Adviser will not conflict with, or result in the creation or imposition of any lien, charge or encumbrance upon any of the assets of the Adviser pursuant to the terms of, or constitute a default under, any material agreement, indenture or instrument known to such counsel, or result in a violation of the corporate charter or by-laws of the Adviser or any statute (including the Acts), any rule or regulation of, or to the knowledge of such counsel any order of, any court or governmental agency having jurisdiction over the Adviser or its property; and no consent, authorization or order of, or filing or registration with, any court or governmental agency is required for the execution, delivery and performance of this Agreement or the Advisory Agreement by the Adviser, except such as has been obtained under the Acts, the Advisers Act or the Exchange Act or as may be required by state securities laws;

(iii) The Adviser is duly registered with the Commission under the Advisers Act as an investment adviser and is not prohibited by the Advisers Act or the Investment Company Act, or the rules and regulations under such acts, from acting under the Advisory Agreement;

(iv) Such counsel does not know of any litigation or any proceeding pending or threatened against the Adviser which could affect the subject matter of this Agreement or the Advisory Agreement or the registration or good standing of the Adviser with the Commission, or is required to be disclosed in the Prospectus which is not disclosed and correctly summarized therein; and

(v) To the best of such counsel's knowledge the Adviser is not in violation of its corporate charter or by-laws, or in default under any material agreement, indenture or instrument.

Such opinion shall also contain a statement that in the course of their representation of the Adviser in connection with the offering by the Company of its Stock, such counsel participated in telephone conversations with certain directors and officers of the Adviser, and that although they are not passing upon, and do not assume

any responsibility for the accuracy, completeness or fairness of the statements contained in the Registration Statement or Prospectus, and while such counsel has not made any independent check or verification thereof, on the basis of the foregoing, no facts came to their attention that led them to believe that the Section of the Prospectus captioned "Management of the Fund -- Investment Adviser" insofar as it relates to or describes the Adviser, at the Delivery Date, contains an untrue statement of a material fact or omits to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading..

(f) Simpson Thacher & Bartlett, counsel to you, shall have furnished to you its written opinion, as counsel to you, addressed to you and dated the Delivery Date, in form and substance reasonably satisfactory to you.

(g) The Company shall have furnished to you on the Delivery Date a certificate, dated the Delivery Date, of its Chairman of the Board, its President or a Vice President and its Treasurer or an Assistant Treasurer stating that:

(i) The representations, warranties and agreements of the Company in Section 1 are true and correct as of the date hereof and as of the Delivery Date; the Company has complied with all its agreements contained herein prior to or on the Delivery Date; and the conditions set forth in Section 8(a) have been fulfilled;

(ii) Since the respective dates as of which information is given in the Prospectus, other than as set forth in or contemplated by the Prospectus (exclusive of any amendments or supplements thereto subsequent to the date of this Agreement), (A) there has not occurred any change or any development that might have a material adverse effect on the business, prospects, financial condition or results of operations of the Company, (B) there has not been any change in the capital stock, short-term debt, or long-term debt of the Company that might have a material adverse effect on the business, prospects, financial condition or results of operations of the Company, (C) the Company has not incurred any material liability or obligation, direct or contingent, (D) there has not occurred a material loss or interference with the Company's business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree and (E) the Company has not declared or paid any dividend on its capital stock, except for dividends declared in the ordinary course of business and consistent with past practice, and, except as set forth in or contemplated by the Prospectus, the Company has not entered into any transaction (other than purchases and sales of portfolio transactions) or agreement (other than investment-related agreements) (whether or not in the ordinary course of business) material to the Company; and

(iii) They have carefully examined the Registration Statement and the Prospectus and, in their opinion, (A) as of the Effective Date, the Registration

Statement did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, (B) as of its date and the Delivery Date, the Prospectus did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (C) since the Effective Date, no event has occurred which should have been set forth in a supplement to, or amendment of, the Prospectus which has not been set forth in such a supplement or amendment.

(h) The Adviser shall have furnished to you on the Delivery Date a certificate, dated the Delivery Date, of its Chairman of the Board, its President or a Vice President and its Treasurer or an Assistant Treasurer stating that:

(i) The representations, warranties and agreements of the Adviser in Section 1 are true and correct as of the date hereof and as of the Delivery Date, and the Adviser has complied with all its agreements contained herein; and

(ii) They have carefully examined the Registration Statement and the Prospectus and, in their opinion, (A) as of the Effective Date, the Registration Statement did not contain any untrue statement of a material fact and did not omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, (B) as of its date and the Delivery Date, the Prospectus did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (C) since the Effective Date of the Registration Statement, no event has occurred which should have been set forth in a supplement to, or amendment of, the Prospectus which has not been set forth in such a supplement or amendment.

(i) At the time of execution of this Agreement, you shall have received from KPMG LLP a letter or letters in form and substance reasonably satisfactory to you, addressed to you and dated the date hereof (i) confirming that they are independent public accountants within the meaning of the Securities Act and are in compliance with the applicable requirements relating to the qualification of accountants under Rule 2-01 of Regulation S-X of the Commission and (ii) stating, as of the date hereof (or, with respect to matters involving changes or developments since the respective dates as of which specified financial information is given in the Prospectus, as of a date not more than five days prior to the date hereof), the conclusions and findings of such firm with respect to the financial information and other matters ordinarily covered by accountants' "comfort letters" to you in connection with registered public offerings.

(j) If the Delivery Date is not the first full business day following the date of this Agreement, then with respect to the letter from KPMG LLP referred to in the preceding paragraph and delivered to you concurrently with the execution of this Agreement (the

"initial comfort letter"), the Company shall have furnished to you a letter (the "bring-down comfort letter") of such accountants addressed to you and dated such Delivery Date (i) confirming that they are independent public accountants within the meaning of the Securities Act and are in compliance with the applicable requirements relating to the qualification of accountants under Rule 2-01 of Regulation S-X of the Commission, (ii) stating, as of the date of the bring-down letter (or, with respect to matters involving changes or developments since the respective dates as of which specified financial information is given in the Prospectus as of a date not more than five days prior to the date of the bring-down letter), the conclusions and findings of such firm with respect to the financial information and other matters covered by the initial letters and (iii) confirming in all material respects the conclusions and findings set forth in the initial letters.

(k) The Company shall not have sustained since the date of the latest audited financial statements included in the Prospectus (A) any material loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court of governmental action, order or decree, otherwise than as described or contemplated in the Prospectus or (B) since such date there shall not have been any change in the capital stock, short-term debt or long-term debt of the Company or any change, or any development involving a prospective change, in or affecting the general affairs, management, financial position, prospects, stockholders' equity or results of operations of the Company, otherwise than as described or contemplated in the Prospectus, the effect of which, in any such case described in clause (A) or (B), is, in your judgment, so material and adverse as to make it impracticable or inadvisable to proceed with the public offering or the delivery of the Stock being delivered on the Delivery Date on the terms and in the manner contemplated in the Prospectus and in this Agreement.

(l) The Company shall have furnished to you a report showing compliance with the asset coverage requirements of the Investment Company Act and the Eligible Asset Coverage (as defined in the Articles Supplementary), each dated the Delivery Date and in form and substance satisfactory to you. Each such report shall assume the receipt of the net proceeds from the sale of the Stock and may use portfolio holdings and valuations as of the close of business of any day not more than six business days preceding the Delivery Date, provided, however, that the Company represents in such report that its total net assets as of the Delivery Date have not declined by 5% or more from such valuation date.

(m) The Company shall have delivered and you shall have received evidence satisfactory to you that the shares of Stock are rated at least "Aa1" by Moody's Investors Service, Inc. and "AA+" by Fitch, Inc. as of the Delivery Date, and subsequent to the execution and delivery of this Agreement, (i) no downgrading shall have occurred in the rating accorded the Company's Preferred Stock by any "nationally recognized

statistical rating organization" as that term is defined by the Commission for purposes of Rule 436(g)(2) of the Rules and Regulations and (ii) no such organization shall have publicly announced that it has under surveillance or review, with possible negative implications, its rating of any of the Company's Preferred Stock.

(n) Subsequent to the execution and delivery of this Agreement there shall not have occurred any of the following: (i) trading in securities generally on the New York Stock Exchange, Inc. or the American Stock Exchange or the Nasdaq National Market or in the over-the-counter market, or trading in any securities of the Company on any exchange or in the over-the-counter market, shall have been suspended or the settlement of such trading generally shall have been materially disrupted or minimum prices shall have been established on any such exchange or such market by the Commission, by such exchange or by any other regulatory body or governmental authority having jurisdiction, (ii) a banking moratorium shall have been declared by Federal or state authorities of the United States, (iii) the United States shall have become engaged in hostilities, there shall have been a significant escalation in hostilities involving the United States or there shall have been a declaration of a national emergency or war by the United States or (iv) there shall have occurred such a material adverse change in general domestic or international economic, political or financial conditions, including without limitation as a result of terrorist activities, or the effect of international conditions on the financial markets in the United States shall be such, as to make it, in your judgment, impracticable or inadvisable to proceed with the public offering or delivery of the Stock being delivered on the Delivery Date on the terms and in the manner contemplated in the Prospectus.

The Company shall have furnished to you such further information, certificates and documents as you may reasonably request to evidence compliance with conditions set forth in this Section 8. All opinions, letters, evidence and certificates mentioned above or elsewhere in this Agreement shall be deemed to be in compliance with the provisions hereof only if they are in form and substance reasonably satisfactory to your counsel, Simpson Thacher & Bartlett.

9. TERMINATION. Your obligations hereunder may be terminated by you by notice given to and received by the Company prior to delivery of and payment for the Stock if, prior to that time, any of the events described in Sections
8(k), 8(m) and 8(n) shall have occurred or if you shall decline to purchase the Stock for any reason permitted under this Agreement.

10. REIMBURSEMENT OF YOUR EXPENSE. If (a) the Company fails to tender the Stock for delivery to you by reason of any failure, refusal or inability on the part of the Company or the Adviser to perform any agreement on its part to be performed, or because any other condition of your obligations hereunder required to be fulfilled by the Company is not fulfilled or (b) you decline to purchase the Stock because of a failure by the Company or the Adviser to perform their respective obligations under this Agreement, the Company shall reimburse you for all reasonable out-of-pocket expenses (including fees and disbursements of counsel) incurred by you in connection with this Agreement and the proposed purchase of the Stock, and upon demand the Company will pay the full amount thereof to you.

11. NOTICES. All Statements, requests, notices and agreements hereunder shall be in writing, and:

(a) if to you, shall be delivered or sent by mail, telex or facsimile transmission to Lehman Brothers Inc., 745 Seventh Avenue, New York, New York 10019, Attention: Syndicate Department (Fax:
646-758-3942), with a copy, in the case of any notice pursuant to Section 7(c), to the Director of Litigation, Office of the General Counsel, Lehman Brothers, Inc., 745 Seventh Avenue, New York, New York 10019; and

with a copy to Simpson Thacher & Bartlett, 425 Lexington Avenue, New York, New York, 10017, Attention: Sarah Cogan, Esq. (Fax: 212-455-2502, Telephone: (212) 455-2000);

(b) if to the Company, shall be delivered or sent by mail, telex or facsimile transmission to the Company at 301 E. Colorado Boulevard, Suite 720, Pasadena, California 91101, Attention: _________ (Fax: ___-___-___, Telephone: ___-___-___);

Any statements, requests, notices or agreements shall take effect at the time of receipt thereof. The Company shall be entitled to act and rely upon any request, consent, notice or agreement given or made by you.

12. SUBSTITUTE RATING AGENCIES. The Company agrees with you that it shall select, subject to your approval, a nationally recognized statistical rating organization (as that term is used in the rules and regulations of the Commission under the Exchange Act) to act as substitute rating agency in accordance with the definition of "Rate Multiple" in Section 1 of Part II of the Articles Supplementary. The provisions of this Section 12 shall survive the delivery of the Stock and shall remain in full force and effect.

13. PERSONS ENTITLED TO BENEFIT OF THIS AGREEMENT. This Agreement shall inure to the benefit of and be binding upon you, the Company, the Adviser, and their respective successors. This Agreement and the terms and provisions hereof are for the sole benefit of only those persons, except that (a) the representations, warranties, indemnities and agreements of the Company and the Adviser contained in this Agreement shall also be deemed to be for the benefit of your directors, officers and employees and the person or persons, if any, who control you within the meaning of Section 15 of the Securities Act and (b) your indemnity agreement contained in Section 7(b) of this Agreement will be deemed to be for the benefit of directors, officers and employees of the Company and the Adviser and any person controlling the Company or the Adviser within the meaning of Section 15 of the Securities Act. Nothing in this Agreement is intended or shall be construed to give any person other than the persons referred to in this Section 13 any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision contained herein.

14. SURVIVAL. The respective indemnities, representations, warranties and agreements of the Company, the Adviser and you contained in this Agreement or made by or on

behalf of them, respectively, pursuant to this Agreement, will survive the delivery of any payment for the Stock and will remain in full force and effect, regardless of any termination or cancellation of this Agreement or any investigation made by or on behalf of any of them or any person controlling any of them.

15. DEFINITION OF "BUSINESS DAY." For purposes of this Agreement, "business day" means any day on which the New York Stock Exchange, Inc. is open for trading.

16. TRADEMARKS. Lehman Brothers Inc. hereby licenses the Company, on a non-exclusive basis, to use its trademarks "Money Market Cumulative Preferred" and "MMP" in connection with the Stock. The Company agrees that, other than in connection with and in reference to the Stock, it will make no use of such trademarks without the prior written consent of Lehman Brothers Inc. The provisions of this Section 16 shall survive the delivery of the Stock and shall remain in full force and effect.

17. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of New York.

18. COUNTERPARTS. This Agreement may be executed in one or more counterparts, and, if executed in more than one counterpart, the executed counterparts shall each be deemed to be an original but all such counterparts shall together constitute one and the same instrument.

19. HEADINGS. The headings herein are inserted for convenience of reference only and are not intended to be a part of, or to affect the meaning or interpretation of, this Agreement.

If the foregoing correctly sets forth the agreement among the Company, the Adviser and you, please indicate your acceptance in the space provided for that purpose below.

Very truly yours,

PREFERRED INCOME FUND
INCORPORATED

Title:

FLAHERTY & CRUMRINE INCORPORATED

Title:

Accepted:

LEHMAN BROTHERS INC.

CUSTODIAN SERVICES AGREEMENT

THIS AGREEMENT is made as of April 9, 2001 by and between PFPC TRUST COMPANY, a limited purpose trust company incorporated under the laws of Delaware ("PFPC Trust"), and PREFERRED INCOME FUND INCORPORATED, a Maryland corporation (the "Fund"). WITNESSETH:

WHEREAS, the Fund is registered as a closed-end management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"); and

WHEREAS, the Fund wishes to retain PFPC Trust to provide custodian services, and PFPC Trust wishes to furnish custodian services, either directly or through an affiliate or affiliates, as more fully described herein.

NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, and intending to be legally bound hereby, the parties hereto agree as follows:

1. DEFINITIONS. AS USED IN THIS AGREEMENT:

(a) "1933 ACT" means the Securities Act of 1933, as amended.

(b) "1934 ACT" means the Securities Exchange Act of 1934, as amended.

(c) "AUTHORIZED PERSON" means any officer of the Fund and any other person authorized by the Fund to give Oral or Written Instructions on behalf of the Fund. An Authorized Person's scope of authority may be limited by setting forth such limitation in a written document signed by both parties hereto.

(d) "BOOK-ENTRY SYSTEM" means Federal Reserve Treasury book-entry system for United States and federal agency securities, its successor or successors, and its nominee or nominees and any book-entry system maintained by an exchange registered with the SEC under the 1934 Act.

(e) "CEA" means the Commodities Exchange Act, as amended.

(f) "ORAL INSTRUCTIONS" mean oral instructions received by PFPC Trust from an Authorized Person or from a person reasonably believed by PFPC Trust to be an Authorized Person. PFPC Trust may, in its sole discretion in each separate instance, consider and rely upon instructions it receives from an Authorized Person via electronic mail as Oral Instructions.

(g) "PFPC TRUST" means PFPC Trust Company.

(h) "SEC" means the Securities and Exchange Commission.

(i) "SECURITIES LAWS" mean the 1933 Act, the 1934 Act, the 1940 Act and the CEA.

(j) "SHARES" mean the shares of beneficial interest of any series or class of the Fund.

(k) "PROPERTY" means:

(i) any and all securities and other investment items which the Fund may from time to time deposit, or cause to be deposited, with PFPC Trust or which PFPC Trust may from time to time hold for the Fund;

(ii) all income in respect of any of such securities or other investment items;

(iii) all proceeds of the sale of any of such securities or investment items; and (iv) all proceeds of the sale of securities issued by the Fund, which are received by PFPC Trust from time to time, from or on behalf of the Fund.

(l) "WRITTEN INSTRUCTIONS" mean (i) written instructions signed by two Authorized Persons and received by PFPC Trust or (ii) trade instructions transmitted by means of an electronic transaction reporting system which requires the use of a

password or other authorized identifier in order to gain access. The instructions may be delivered electronically or by hand, mail, tested telegram, cable, telex or facsimile sending device.

2. APPOINTMENT. The Fund hereby appoints PFPC Trust to provide custodian services to the Fund and PFPC Trust accepts such appointment and agrees to furnish such services.

3. DELIVERY OF DOCUMENTS. The Fund has provided or, where applicable, will provide PFPC Trust with the following:

(a) at PFPC Trust's request, certified or authenticated copies of the resolutions of the Fund's Board of Directors, approving the appointment of PFPC Trust to provide services;

(b) a copy of the Fund's most recent effective registration statement;

(c) a copy of the Fund's advisory agreement;

(d) a copy of the Fund's administration agreement;

(e) certified or authenticated copies of any and all amendments or supplements to the foregoing.

4. COMPLIANCE WITH LAWS.

PFPC Trust undertakes to comply with material applicable requirements of the Securities Laws and material laws, rules and regulations of governmental authorities having jurisdiction with respect to the duties to be performed by PFPC Trust hereunder. Except as specifically set forth herein, PFPC Trust assumes no responsibility for such compliance by the Fund or any other entity.

5. INSTRUCTIONS.

(a) Unless otherwise provided in this Agreement, PFPC Trust shall act only upon Oral Instructions or Written Instructions.

(b) PFPC Trust shall be entitled to rely upon any Oral Instruction or Written Instruction it receives from an Authorized Person (or from a person reasonably believed by PFPC Trust to be an Authorized Person) pursuant to this Agreement. PFPC Trust may assume that any Oral Instructions or Written Instructions received hereunder are not in any way inconsistent with the provisions of organizational documents of the Fund or of any vote, resolution or proceeding of the Fund's Board of Directors or of the Fund's shareholders, unless and until PFPC Trust receives Written Instructions to the contrary.

(c) The Fund agrees to forward to PFPC Trust Written Instructions confirming Oral Instructions (except where such Oral Instructions are given by PFPC Trust or its affiliates) so that PFPC Trust receives the Written Instructions by the close of business on the same day that such Oral Instructions are received. The fact that such confirming Written Instructions are not received by PFPC Trust or differ from the Oral Instructions shall in no way invalidate the transactions or enforceability of the transactions authorized by the Oral Instructions or PFPC Trust's ability to rely upon such Oral Instructions. Where Oral Instructions or Written Instructions reasonably appear to have been received from an Authorized Person, PFPC Trust shall incur no liability to the Fund in acting upon such Oral Instructions or Written Instructions provided that PFPC Trust's actions comply with the other provisions of this Agreement.

6. RIGHT TO RECEIVE ADVICE.

(a) ADVICE OF THE FUND. If PFPC Trust is in doubt as to any action it should or should not take, PFPC Trust may request directions or advice, including Oral Instructions or Written Instructions, from the Fund.

(b) ADVICE OF COUNSEL. If PFPC Trust shall be in doubt as to any question of law pertaining to any action it should or should not take, PFPC Trust may request advice from counsel of its own choosing (who may be counsel for the Fund, the Fund's investment adviser or PFPC Trust, at the option of PFPC Trust).

(c) CONFLICTING ADVICE. In the event of a conflict between directions or advice or Oral Instructions or Written Instructions PFPC Trust receives from the Fund, and the advice it receives from counsel, PFPC Trust shall be entitled to rely upon and follow the advice of counsel.

(d) PROTECTION OF PFPC TRUST. PFPC Trust shall be protected in any action it takes or does not take in reliance upon directions or advice or Oral Instructions or Written Instructions it receives from the Fund or from counsel and which PFPC Trust believes, in good faith, to be consistent with those directions or advice or Oral Instructions or Written Instructions. The preceding sentence shall not excuse PFPC Trust when an action performed by PFPC Trust following receipt of directors or advice or Oral or written Instructions is performed by PFPC Trust in bad faith or in a manner that is negligent, reckless or willfully misfeasant. Nothing in this section shall be construed so as to impose an obligation upon PFPC Trust (i) to seek such directions or advice or Oral Instructions or Written Instructions, or (ii) to act in accordance with such directions or advice or Oral Instructions or Written Instructions unless, under the terms of other provisions of this Agreement, the same is a condition of PFPC Trust's properly taking or not taking such action.

7. RECORDS; VISITS. The books and records pertaining to the Fund, which are in the possession or under the control of PFPC Trust, shall be the property of the Fund.

Such books and records shall be prepared and maintained as required by the 1940 Act and other applicable securities laws, rules and regulations. The Fund and Authorized Persons shall have access to such books and records at all times during PFPC Trust's normal business hours. Upon the reasonable request of the Fund, copies of any such books and records shall be provided by PFPC Trust to the Fund or to an authorized representative of the Fund, at the Fund's expense.

8. CONFIDENTIALITY. Each party shall keep confidential any information relating to the other party's business ("Confidential Information"). Confidential Information shall include (a) any data or information that is competitively sensitive material, and not generally known to the public, including, but not limited to, information about product plans, marketing strategies, finances, operations, customer relationships, customer profiles, customer lists, sales estimates, business plans, and internal performance results relating to the past, present or future business activities of the Fund or PFPC Trust, their respective subsidiaries and affiliated companies and the customers, clients and suppliers of any of them; (b) any scientific or technical information, design, process, procedure, formula, or improvement that is

commercially valuable and secret in the sense that its confidentiality affords the Fund or PFPC Trust a competitive advantage over its competitors; (c) all confidential or proprietary concepts, documentation, reports, data, specifications, computer software, source code, object code, flow charts, databases, inventions, know-how, and trade secrets, whether or not patentable or copyrightable; and (d) anything designated as confidential. Notwithstanding the foregoing, information shall not be subject to such confidentiality obligations if it: (a) is already known to the receiving party at the time it is obtained; (b) is or becomes publicly known or available through no wrongful act of the receiving party; (c) is rightfully received from a third party who, to the best of the receiving party's knowledge, is not under a duty of confidentiality; (d) is released by the protected party to a third party without restriction; (e) is required to be disclosed by the receiving party pursuant to a requirement of a court order, subpoena, governmental or regulatory agency or law (provided the receiving party will provide the other party written notice of such requirement, to the extent such notice is permitted); (f) is relevant to the defense of any claim or cause of action asserted against the receiving party; or (g) has been or is independently developed or obtained by the receiving party.

9. COOPERATION WITH ACCOUNTANTS. PFPC Trust shall cooperate with the Fund's independent public accountants and shall take all reasonable action to make any requested information available to such accountants as reasonably requested by the Fund.

10. PFPC SYSTEM. PFPC Trust shall retain title to and ownership of any and all data bases, computer programs, screen formats, report formats, interactive design techniques, derivative works, inventions, discoveries, patentable or copyrightable matters, concepts, expertise, patents, copyrights, trade secrets, and other related legal rights utilized by PFPC Trust in connection with the services provided by PFPC Trust to the Fund.

11. DISASTER RECOVERY. PFPC Trust shall enter into and shall maintain in effect with appropriate parties one or more agreements making reasonable provisions for emergency use of electronic data processing equipment to the extent appropriate equipment is available. In the event of equipment failures, PFPC Trust shall, at no additional expense to the Fund, take reasonable steps to minimize service interruptions. PFPC Trust shall have no liability with respect to the loss of data or service interruptions caused by equipment failure provided such loss or interruption is not caused by PFPC Trust's own

willful misfeasance, bad faith, negligence or reckless disregard of its duties or obligations under this Agreement.

12. COMPENSATION. As compensation for custody services rendered by PFPC Trust during the term of this Agreement, the Fund will pay to PFPC Trust a fee or fees as may be agreed to in writing from time to time by the Fund and PFPC Trust. The Fund acknowledges that PFPC Trust may receive float benefits in connection with maintaining certain accounts required to provide services under this Agreement.

13. INDEMNIFICATION. The Fund agrees to indemnify and hold harmless PFPC Trust and its affiliates from all taxes, charges, expenses, assessments, claims and liabilities (including, without limitation, attorneys' fees and disbursements and liabilities arising under the Securities Laws and any state and foreign securities and blue sky laws) arising directly or indirectly from any action or omission to act which PFPC Trust takes in connection with the provision of services to the Fund. Neither PFPC Trust, nor any of its affiliates, shall be indemnified against any liability (or any expenses incident to such liability) caused by PFPC Trust's or its affiliates' own willful misfeasance, bad faith, negligence or reckless disregard of its duties and obligations under this Agreement. Notwithstanding anything in this Agreement to the contrary, the Fund shall not be required to indemnity or hold harmless either PFPC Trust or its affiliates for any consequential, special or indirect losses or damages, whether or not the likelihood of such losses or damages was known by the Fund.

14. RESPONSIBILITY OF PFPC TRUST.

(a) PFPC Trust shall be under no duty to take any action hereunder on behalf of the Fund except as specifically set forth herein or as may be specifically agreed to by PFPC Trust and the Fund in a written amendment hereto. PFPC Trust shall be obligated to exercise care and diligence in the performance of its duties hereunder and to act in good faith in performing services provided for under this Agreement.

PFPC Trust shall be liable only for any damages arising out of PFPC Trust's failure to perform its duties under this Agreement to the extent such damages arise out of PFPC Trust's willful misfeasance, bad faith, negligence or reckless disregard of its duties under this Agreement.

(b) Without limiting the generality of the foregoing or of any other provision of this Agreement, (i) PFPC Trust shall not be liable for losses beyond its control, including without limitation (subject to Section 11), delays or errors or loss of data occurring by reason of circumstances beyond PFPC Trust's control, provided that PFPC Trust has acted in accordance with the standard set forth in Section 14(a) above; and (ii) PFPC Trust shall not be under any duty or obligation to inquire into and shall not be liable for the validity or invalidity or authority or lack thereof of any Oral Instruction or Written Instruction, notice or other instrument which PFPC Trust reasonably believes to be genuine.

(c) Notwithstanding anything in this Agreement to the contrary, neither PFPC Trust nor its affiliates shall be liable for any consequential, special or indirect losses or damages, whether or not the likelihood of such losses or damages was known by PFPC Trust or its affiliates.

(d) No party may assert a cause of action against PFPC Trust or any of its affiliates more than 12 months after the date facts are known (or should have been known) to the Fund that should have alerted it that a basis for such cause of action might exist.

(e) Each party shall have a duty to mitigate damages for which the other party may become responsible.

15. DESCRIPTION OF SERVICES.

(a) DELIVERY OF THE PROPERTY. The Fund will deliver or arrange for delivery to PFPC Trust, all the Property owned by the Fund, including cash received as a result of the distribution of Shares, during the term of this Agreement. PFPC Trust will not be responsible for such property until actual receipt.

(b) RECEIPT AND DISBURSEMENT OF MONEY. PFPC Trust shall open and maintain a separate custodial account for the Fund (the "Account"). PFPC Trust shall make cash payments from or for the Account only for:

(i) purchases of securities in the name the Fund, PFPC Trust, PFPC Trust's nominee or a sub-custodian or nominee thereof as provided in sub-section (j) and for which PFPC Trust has received a copy of the broker's or dealer's confirmation or payee's invoice, as appropriate;

(ii) purchase of Shares of the Fund delivered to PFPC Trust;

(iii) payment of, subject to Written Instructions, interest, taxes, administration, accounting, distribution, advisory, management fees or similar expenses which are to be borne by the Fund;

(iv) payment to, subject to receipt of Written Instructions, the Fund's transfer agent, as agent for the shareholders, of an amount equal to the amount of dividends and distributions stated in the Written Instructions to be distributed in cash by the transfer agent to shareholders, or, in lieu of paying the Fund's transfer agent, PFPC Trust may arrange for the direct payment of cash dividends and distributions to shareholders in accordance with procedures mutually agreed upon from time to time by and among the Fund, PFPC Trust and the Fund's transfer agent;

(v) payments, upon receipt of Written Instructions, in connection with the conversion, exchange or surrender of securities owned or subscribed to by the Fund and held by or delivered to PFPC Trust;

(vi) payments of the amounts of dividends received with respect to securities sold short;

(vii) payments made to a sub-custodian pursuant to provisions in sub-section (c) of this Section; and

(viii) other payments, upon Written Instructions.

PFPC Trust is hereby authorized to endorse and collect all checks, drafts or other orders for the payment of money received as custodian for the Account.

(c) RECEIPT OF SECURITIES; SUBCUSTODIANS.

PFPC Trust shall hold all securities and other investment items received by it for the Account in a separate account that physically segregates such securities and other investment items from those of any other persons, firms or corporations, except for securities held in a Book-Entry System. All such securities and other investment items shall be held or disposed of only upon Written Instructions of the Fund pursuant to the terms of this Agreement. PFPC Trust shall have no power or authority to assign, hypothecate, pledge or otherwise dispose of any such securities or investments, except upon the express terms of this Agreement or upon Written Instructions authorizing the transaction. In no case may any member of the Fund's Board of Directors, or any officer, employee or agent of the Fund withdraw any securities.

At PFPC Trust's own expense and for its own convenience, PFPC Trust may enter into sub-custodian agreements with other banks or trust companies to perform duties described in this sub-section (c) with respect to domestic assets. Such bank or trust company shall have an aggregate capital, surplus and undivided profits, according to its last published report, of at least one million dollars ($1,000,000), if it is a subsidiary or affiliate of PFPC Trust, or at least twenty million dollars ($20,000,000) if such bank or trust company is not a subsidiary or affiliate of PFPC Trust. In addition, such bank or trust company must be qualified to act as custodian and agree to comply with the relevant provisions of applicable rules and regulations. Any such arrangement will not be entered into without prior written notice to the Fund and as otherwise provided in the 1940 Act.

In addition, PFPC Trust may enter into arrangements with sub-custodians with respect to services regarding foreign assets. Any such arrangement will not be entered into without prior written notice to the Fund and as otherwise provided in the 1940 Act.

PFPC Trust shall remain responsible for the performance of all of its duties as described in this Agreement and shall hold the Fund harmless from its own acts or omissions, under the standards of care provided for herein, or the acts and omissions of any sub-custodian chosen by PFPC Trust under the terms of this sub-section (c).

(d) TRANSACTIONS REQUIRING INSTRUCTIONS. Upon receipt of Oral Instructions or Written Instructions and not otherwise, PFPC Trust, directly or through the use of the Book-Entry System, shall:

(i) deliver any securities held for the Fund against the receipt of payment for the sale of such securities;

(ii) execute and deliver to such persons as may be designated in such Oral Instructions or Written Instructions, proxies, consents, authorizations, and any other instruments whereby the authority of the Fund as owner of any securities may be exercised;

(iii) deliver any securities to the issuer thereof, or its agent, when such securities are called, redeemed, retired or otherwise become payable at the option of the holder; provided that, in any such case, the cash or other consideration is to be delivered to PFPC Trust;

(iv) deliver any securities held for the Fund against receipt of other securities or cash issued or paid in connection with the liquidation, reorganization, refinancing, tender offer, merger, consolidation or recapitalization of any corporation, or the exercise of any conversion privilege;

(v) deliver any securities held for the Fund to any protective committee, reorganization committee or other person in connection with the reorganization, refinancing, merger, consolidation, recapitalization or sale of assets of any corporation, and receive and hold under the terms of this Agreement such certificates of deposit, interim receipts or other instruments or documents as may be issued to it to evidence such delivery;

(vi) make such transfer or exchanges of the assets of the Fund and take such other steps as shall be stated in said Oral Instructions or Written Instructions to be for the purpose of effectuating a duly authorized plan of liquidation, reorganization, merger, consolidation or recapitalization of the Fund;

(vii) release securities belonging to the Fund to any bank or trust company for the purpose of a pledge or hypothecation to secure any loan incurred by the Fund; provided, however, that securities shall be released only upon payment to PFPC Trust of the monies borrowed, except that in cases where additional collateral is required to secure a borrowing already made subject to proper prior authorization, further securities may be released for

that purpose; and repay such loan upon redelivery to it of the securities pledged or hypothecated therefor and upon surrender of the note or notes evidencing the loan;

(viii) release and deliver securities owned by the Fund in connection with any repurchase agreement entered into on behalf of the Fund, but only on receipt of payment therefor; and pay out moneys of the Fund in connection with such repurchase agreements, but only upon the delivery of the securities;

(ix) release and deliver or exchange securities owned by the Fund in connection with any conversion of such securities, pursuant to their terms, into other securities;

(x) release and deliver securities to a broker in connection with the broker's custody of margin collateral relating to futures and options transactions;

(xi) release and deliver securities owned by the Fund for the purpose of redeeming in kind shares of the Fund upon delivery thereof to PFPC Trust; and

(xii) release and deliver or exchange securities owned by the Fund for other purposes.

PFPC Trust must also receive a certified resolution describing the nature of the corporate purpose and the name and address of the person(s) to whom delivery shall be made when such action is pursuant to sub-paragraph d(xii).

(e) USE OF BOOK-ENTRY SYSTEM. PFPC Trust is authorized and instructed, on a continuous basis, to deposit in the Book-Entry System all securities belonging to the Fund eligible for deposit therein and to utilize the Book-Entry System to the extent possible in connection with settlements of purchases and sales of securities by the Fund, and deliveries and returns of securities loaned, subject to repurchase agreements or used as collateral in connection with borrowings. PFPC Trust shall continue to perform such duties until it receives Written Instructions or Oral Instructions authorizing contrary actions.

PFPC Trust shall administer the Book-Entry System as follows:

(i) With respect to securities of the Fund which are maintained in the Book-Entry System, the records of PFPC Trust shall identify by Book-Entry or otherwise those securities belonging to the Fund.

(ii) Assets of the Fund deposited in the Book-Entry System will at all times be segregated from any assets and cash controlled by PFPC Trust in other than a fiduciary or custodian capacity but may be commingled with other assets held in such capacities.

PFPC Trust will provide the Fund with such reports on its own system of internal control as the Fund may reasonably request from time to time.

(f) REGISTRATION OF SECURITIES. All Securities held for the Fund which are issued or issuable only in bearer form, except such securities held in the Book-Entry System, shall be held by PFPC Trust in bearer form; all other securities held for the Fund may be registered in the name of the Fund, PFPC Trust, the Book-Entry System, a sub-custodian, or any duly appointed nominee of the Fund, PFPC Trust, Book-Entry System or sub-custodian. The Fund reserves the right to instruct PFPC Trust as to the method of registration and safekeeping of the securities of the Fund. The Fund agrees to furnish to PFPC Trust appropriate instruments to enable PFPC Trust to hold or deliver in proper form for transfer, or to register in the name of its nominee or in the name of the Book-Entry System or in the name of another appropriate entity, any securities which it may hold for the Account and which may from time to time be registered in the name of the Fund.

(g) VOTING AND OTHER ACTION. Neither PFPC Trust nor its nominee shall vote any of the securities held pursuant to this Agreement by or for the account of the Fund, except in accordance with Written Instructions. PFPC Trust, directly or

through the use of the Book-Entry System, shall execute in blank and promptly deliver all notices, proxies and proxy soliciting materials received by PFPC Trust as custodian of the Property to the registered holder of such securities. If the registered holder is not the Fund, then Written Instructions or Oral Instructions must designate the person who owns such securities.

(h) TRANSACTIONS NOT REQUIRING INSTRUCTIONS. In the absence of contrary Written Instructions, PFPC Trust is authorized to take the following actions:

(i) COLLECTION OF INCOME AND OTHER PAYMENTS.

(A) collect and receive for the account of the Fund, all income, dividends, distributions, coupons, option premiums, other payments and similar items, included or to be included in the Property, and, in addition, promptly advise the Fund of such receipt and credit such income, as collected, to the Fund's custodian account;

(B) endorse and deposit for collection, in the name of the Fund, checks, drafts, or other orders for the payment of money;

(C) receive and hold for the account of the Fund all securities received as a distribution on the Fund's securities as a result of a stock dividend, share split-up or reorganization, recapitalization, readjustment or other rearrangement or distribution of rights or similar securities issued with respect to any securities belonging to the Fund and held by PFPC Trust hereunder;

(D) present for payment and collect the amount payable upon all securities which may mature or be, on a mandatory basis, called, redeemed, or retired, or otherwise become payable on the date such securities become payable; and

(E) take any action which may be necessary and proper in connection with the collection and receipt of such income and other payments and the endorsement for collection of checks, drafts, and other negotiable instruments.

(ii) MISCELLANEOUS TRANSACTIONS.

(A) PFPC Trust is authorized to deliver or cause to be delivered Property against payment or other consideration or written receipt therefor in the following cases:

(1) for examination by a broker or dealer selling for the account of the Fund in accordance with street delivery custom;

(2) for the exchange of interim receipts or temporary securities for definitive securities; and

(3) for transfer of securities into the name of the Fund or PFPC Trust or a sub-custodian or a nominee of one of the foregoing, or for exchange of securities for a different number of bonds, certificates, or other evidence, representing the same aggregate face amount or number of units bearing the same interest rate, maturity date and call provisions, if any; provided that, in any such case, the new securities are to be delivered to PFPC Trust.

(B) unless and until PFPC Trust receives Oral Instructions or Written Instructions to the contrary, PFPC Trust shall:

(1) pay all income items held by it which call for payment upon presentation and hold the cash received by it upon such payment for the account of the Fund;

(2) collect interest and cash dividends received, with notice to the Fund, to the account of the Fund;

(3) hold for the account of the Fund all stock dividends, rights and similar securities issued with respect to any securities held by PFPC Trust; and

(4) execute as agent on behalf of the Fund all necessary ownership certificates required by the Internal Revenue Code or the Income Tax Regulations of the United States Treasury Department or under the laws of any state now or hereafter in effect, inserting the Fund's name on such certificate as the owner of the securities covered thereby, to the extent it may lawfully do so.

(i) SEGREGATED ACCOUNTS.

(i) PFPC Trust shall upon receipt of Written Instructions or Oral Instructions

establish and maintain segregated accounts on its records for and on behalf of the Fund. Such accounts may be used to transfer cash and securities, including securities in the Book-Entry System:

(A) for the purposes of compliance by the Fund with the procedures required by a securities, option or futures exchange, providing such procedures comply with the 1940 Act and any releases of the SEC relating to the maintenance of segregated accounts by registered investment companies; and

(B) upon receipt of Written Instructions, for other purposes.

(ii) PFPC Trust shall arrange for the establishment of IRA custodian accounts for such shareholders holding Shares through IRA accounts, in accordance with the Fund's prospectus, the Internal Revenue Code of 1986, as amended (including regulations promulgated thereunder), and with such other procedures as are mutually agreed upon from time to time by and among the Fund, PFPC Trust and the Fund's transfer agent.

(j) PURCHASES OF SECURITIES. PFPC Trust shall settle purchased securities upon receipt of Oral Instructions or Written Instructions that specify:

(i) the name of the issuer and the title of the securities, including CUSIP number if applicable;

(ii) the number of shares or the principal amount purchased and accrued interest, if any;

(iii) the date of purchase and settlement;

(iv) the purchase price per unit;

(v) the total amount payable upon such purchase; and

(vi) the name of the person from whom or the broker through whom the purchase was made. PFPC Trust shall upon receipt of securities purchased by or for the Fund pay out of the moneys held for the account of the Fund the total amount payable to the person from whom or the broker through whom the purchase was made, provided that the same conforms to the total amount payable as set forth in such Oral Instructions or Written Instructions.

(k) SALES OF SECURITIES. PFPC Trust shall settle sold securities upon receipt of Oral Instructions or Written Instructions that specify:

(i) the name of the issuer and the title of the security, including CUSIP number if applicable;

(ii) the number of shares or principal amount sold, and accrued interest, if any;

(iii) the date of trade and settlement;

(iv) the sale price per unit;

(v) the total amount payable to the Fund upon such sale;

(vi) the name of the broker through whom or the person to whom the sale was made; and

(vii) the location to which the security must be delivered and delivery deadline, if any.

PFPC Trust shall deliver the securities upon receipt of the total amount payable to the Fund upon such sale, provided that the total amount payable is the same as was set forth in the Oral Instructions or Written Instructions. Notwithstanding the other provisions thereof, PFPC Trust may accept payment in such form as shall be satisfactory to it, and may deliver securities and arrange for payment in accordance with the customs prevailing among dealers in securities.

(l) REPORTS; PROXY MATERIALS.

(i) PFPC Trust shall furnish to the Fund the following reports:

(A) such periodic and special reports as the Fund may reasonably request;

(B) a monthly statement summarizing all transactions and entries for the account of the Fund, listing each portfolio security belonging to the Fund with the adjusted average cost of each issue and the market value at the end of such month and stating the cash account of the Fund including disbursements;

(C) the reports required to be furnished to the Fund pursuant to Rule 17f-4 of the 1940 Act; and

(D) such other information as may be agreed upon from time to time between the Fund and PFPC Trust.

(ii) PFPC Trust shall transmit promptly to the Fund any proxy statement, proxy material, notice of a call or conversion or similar communication received by it as custodian of the Property. PFPC Trust shall be under no other obligation to inform the Fund as to such actions or events.

(m) CREDITING OF ACCOUNTS. If PFPC Trust in its sole discretion credits an Account with respect to (a) income, dividends, distributions, coupons, option premiums, other payments or similar items on a contractual payment date or otherwise in advance of PFPC Trust's actual receipt of the amount due, (b) the proceeds of any sale or other disposition of assets on the contractual settlement date or otherwise in advance of PFPC Trust's actual receipt of the amount due or (c) provisional crediting of any amounts due, and (i) PFPC Trust is subsequently unable to collect full and final payment for the amounts so credited within a reasonable time period using reasonable efforts or (ii) pursuant to standard industry practice, law or regulation PFPC Trust is required to repay to a third party such amounts so credited, or if any Property has been incorrectly credited, PFPC Trust shall have the absolute right in its sole discretion without demand to reverse any such credit or payment, to debit or deduct the amount of such credit or payment from the Account, and to otherwise pursue recovery of any such amounts so credited from the Fund. Nothing herein or otherwise shall require PFPC Trust to make any advances or to credit any amounts until PFPC Trust's actual receipt thereof. The Fund hereby grants a first priority contractual possessory security interest in and a

right of setoff against the assets maintained in an Account hereunder in the amount necessary to secure the return and payment to PFPC Trust of any advance or credit made by PFPC Trust (including charges related thereto) to such Account.

(n) COLLECTIONS. All collections of monies or other property in respect, or which are to become part, of the Property (but not the safekeeping thereof upon receipt by PFPC Trust) shall be at the sole risk of the Fund. If payment is not received by PFPC Trust within a reasonable time after proper demands have been made, PFPC Trust shall notify the Fund in writing, including copies of all demand letters, any written responses and memoranda of all oral responses and shall await instructions from the Fund. PFPC Trust shall not be obliged to take legal action for collection unless and until reasonably indemnified to its satisfaction. PFPC Trust shall also notify the Fund as soon as reasonably practicable whenever income due on securities is not collected in due course and shall provide the Fund with periodic status reports of such income collected after a reasonable time.

16. DURATION AND TERMINATION. This Agreement shall continue until terminated by the Fund or PFPC Trust on sixty (60) days' prior written notice to the other party. In the event this Agreement is terminated (pending appointment by the Fund of a successor to PFPC Trust or vote of the shareholders of the Fund to dissolve or to function without a custodian of its cash, securities or other property), PFPC Trust shall not deliver cash, securities or other property to the Fund, although it may deliver them to a bank or trust company of PFPC Trust's choice, having an aggregate capital, surplus and undivided profits, as shown by its last published report, of not less than twenty million dollars ($20,000,000), as a custodian for the Fund to be held under terms similar to those of this Agreement. PFPC Trust shall not be required to

make any delivery or payment of assets upon termination until full payment shall have been made to PFPC Trust of all of its fees, compensation, costs and expenses (such expenses include, without limitation, expenses associated with movement (or duplication) of records and materials and conversion thereof to a successor service provider, or to a bank or trust company pending appointment of such successor, and all trailing expenses incurred by PFPC Trust). PFPC Trust shall have a security interest in and shall have a right of setoff against the Property as security for the payment of such fees, compensation, costs and expenses.

17. NOTICES. Notices shall be addressed (a) if to PFPC Trust at 8800 Tinicum Boulevard, 3rd Floor, Suite 200, Philadelphia, Pennsylvania 19153, Attention: Sam Sparhawk; (b) if to the Fund, at 301 E. Colorado Blvd., Pasadena, CA 91101, Attention: Donald F. Crumrine; or (c) if to neither of the foregoing, at such other address as shall have been given by like notice to the sender of any such notice or other communication by the other party. If notice is sent by confirming telegram, cable, telex or facsimile sending device, it shall be deemed to have been given immediately. If notice is sent by first-class mail, it shall be deemed to have been given five days after it has been mailed. If notice is sent by messenger, it shall be deemed to have been given on the day it is delivered.

18. AMENDMENTS. This Agreement, or any term hereof, may be changed or waived only by a written amendment, signed by the party against whom enforcement of such change or waiver is sought.

19. ASSIGNMENT. PFPC Trust may assign this Agreement to any affiliate of PFPC Trust or of The PNC Financial Services Group, Inc., provided that PFPC Trust gives the Fund 60 days' prior written notice of such assignment and the assignee agrees to be bound by the same terms of this Agreement that previously applied to PFPC Trust.

20. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

21. FURTHER ACTIONS. Each party agrees to perform such further acts and execute such further documents as are necessary to effectuate the purposes hereof.

22. MISCELLANEOUS.

(a) ENTIRE AGREEMENT. This Agreement embodies the entire agreement and understanding between the parties and supersedes all prior agreements and understandings relating to the subject matter hereof, provided that the parties may embody in one or more separate documents their agreement, if any, with respect to delegated duties.

(b) NO REPRESENTATIONS OR WARRANTIES. Except as expressly provided in this Agreement, PFPC Trust hereby disclaims all representations and warranties, express or implied, made to the Fund or any other person, including, without limitation, any warranties regarding quality, suitability, merchantability, fitness for a particular purpose or otherwise (irrespective of any course of dealing, custom or usage of trade), of any services or any goods provided incidental to services provided under this Agreement. PFPC Trust disclaims any warranty of title or non-infringement except as otherwise set forth in this Agreement.

(c) CAPTIONS. The captions in this Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect.

(d) GOVERNING LAW. This Agreement shall be deemed to be a contract

made in Delaware and governed by Delaware law, without regard to principles of conflicts of law.

(e) PARTIAL INVALIDITY. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby.

(f) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns.

(g) FACSIMILE SIGNATURES. The facsimile signature of any party to this Agreement shall constitute the valid and binding execution hereof by such party.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first above written.

PFPC TRUST COMPANY

By: /S/ Joseph T. Gramlich
   -----------------------------------------


Title:  Chairman
      --------------------------------------

PREFERRED INCOME FUND INCORPORATED

By:  /s/ Donald F. Crumrine
   ---------------------------------------

Title:  Vice President and Secretary
      --------------------------------------

AMENDED AND RESTATED
TRANSFER AGENCY AND REGISTRAR AGREEMENT

The Transfer Agency and Registrar Agreement of PREFERRED INCOME FUND INCORPORATED, (the "Fund"), a corporation organized under the laws of Maryland and having its principal place of business at 301 E. Colorado Blvd., Pasadena, California 91101, made and agreed to by and between the Fund and FIRST DATA INVESTOR SERVICES GROUP, INC. (the "Transfer Agent"), (then known as The Shareholder Services Group, Inc.) a Massachusetts corporation with principal offices at One Exchange Place, 53 State Street, Boston, Massachusetts 02109 on January 24, 1991, as amended on October 22, 1992, and further amended on February 11, 1993, is hereby amended and restated as of December 1, 1996, to read in its entirety as follows:

WITNESSETH

That for and in consideration of the mutual covenants and promises hereinafter set forth, the Fund and the Transfer Agent agree as follows:

1. DEFINITIONS. Whenever used in this Agreement, the following words and phrases, unless the context otherwise requires, shall have the following meanings:

(a) "Articles of Incorporation" shall mean the Articles of Incorporation, Declaration of Trust, Partnership Agreement, or similar organizational document as the case may be, of the Fund as the same may be amended from time to time.

(b) "Authorized Person" shall be deemed to include any person, whether or not such person is an officer or employee of the Fund, duly authorized to give Oral Instructions or Written Instructions on behalf of the Fund as indicated in a certificate furnished to the Transfer Agent pursuant to
Section 4(c) hereof as may be received by the Transfer Agent from time to time.

(c) "Board of Directors" shall mean the Board of Directors, Board of Trustees or, if the Fund is a limited partnership, the General Partner(s) of the Fund, as the case may be.

(d) "Commission" shall mean the Securities and Exchange Commission.

(e) "Custodian" refers to any custodian or subcustodian of securities and other property which the Fund may from time to time deposit, or cause to be deposited or held under the name or account of such a custodian pursuant to a Custodian Agreement.

(f) "Fund" shall mean the entity executing this Agreement, and if it is a series fund, as such term is used in the 1940 Act, such term shall mean each series of the Fund hereafter created, except that appropriate documentation with respect to each series must be presented to the Transfer Agent before this Agreement shall become effective with respect to each such series.

(g) "1940 Act" shall mean the Investment Company Act of 1940.

(h) "Oral Instructions" shall mean instructions, other than Written Instructions, actually received by the Transfer Agent from a person reasonably believed by the Transfer Agent to be an Authorized Person.

(i) "Prospectus" shall mean the most recently dated Fund Prospectus, including any supplements thereto if any, which has become effective under the Securities Act of 1933 and the 1940 Act.

(j) "Shares" refers collectively to such shares of capital stock, beneficial interest or limited partnership interests, as the case may be, of the Fund as may be issued from time to time and, if the Fund is a closed-end or a series fund, as such terms are used in the 1940 Act any other classes or series of stock, shares of beneficial interest or limited partnership interests that may be issued from time to time.

(k) "Shareholder" shall mean a holder of shares of capital stock, beneficial interest or any other class or series, and also refers to partners of limited partnerships.

(1) "Written Instructions" shall mean a written communication signed by a person reasonably believed by the Transfer Agent to be an Authorized Person and actually received by the Transfer Agent. Written Instructions shall include manually executed originals and authorized electronic transmissions, including telefacsimile of a manually executed original or other process.

2. APPOINTMENT OF THE TRANSFER AGENT. The Fund hereby appoints and constitutes the Transfer Agent as transfer agent, registrar and dividend disbursing agent for Shares of the Fund, as shareholder servicing agent for the Fund, and as plan agent under the Fund's Dividend Reinvestment and Cash Purchase Plan. The Transfer Agent accepts such appointments and agrees to perform the duties hereinafter set forth.

3. COMPENSATION.

(a) The Fund will compensate or cause the Transfer Agent to be compensated for the performance of its obligations hereunder in accordance with the fees set forth in the written schedule of fees annexed hereto as Schedule A and incorporated herein. The Transfer Agent will transmit an invoice to the Fund as soon as practicable after the end of each calendar month which will be detailed in accordance with Schedule A, and the Fund will pay to the Transfer Agent the amount of such invoice within fifteen (15) days after the Fund's receipt of the invoice.

In addition, the Fund agrees to pay, and will be billed separately for, out-of-pocket expenses incurred by the Transfer Agent in the performance of its duties hereunder. Out-of-pocket expenses shall include, but shall not be limited

to, the items specified in the written schedule of out-of-pocket charges annexed hereto as Schedule B and incorporated herein. Schedule B may be modified by the Transfer Agent upon not less than 30 days' prior written notice to the Fund. Unspecified out-of-pocket expenses shall be limited to those out-of-pocket expenses reasonably incurred by the Transfer Agent in the performance of its obligations hereunder. Reimbursement by the Fund for expenses incurred by the Transfer Agent in any month shall be made as soon as practicable but no later than 15 days after the receipt of an itemized bill from the Transfer Agent.

(b) Any compensation agreed to hereunder may be adjusted from time to time by attaching to Schedule A, a revised fee schedule executed and dated by the parties hereto.

4. DOCUMENTS. In connection with the appointment of the Transfer Agent the Fund shall deliver or caused to be delivered to the Transfer Agent the following documents on or before the date this Agreement goes into effect, but in any case within a reasonable period of time for the Transfer Agent to prepare to perform its duties hereunder:

(a) If applicable, specimens of the certificates for Shares of the Fund;

(b) All account application forms and other documents relating to Shareholder accounts or to any plan, program or service offered by the Fund;

(c) A signature card bearing the signatures of any officer of the Fund or other Authorized Person who will sign Written Instructions or is authorized to give Oral Instructions;

(d) A certified copy of the Articles of Incorporation, as amended;

(e) A certified copy of the By-laws of the Fund, as amended;

(f) A copy of the resolution of the Board of Directors authorizing the execution and delivery of this Agreement;

(g) A certified list of Shareholders of the Fund with the name, address and taxpayer identification number of each Shareholder, and the number of Shares of the Fund held by each, certificate numbers and denominations (if any certificates have been issued), lists of any accounts against which stop transfer orders have been placed, together with the reasons therefore, and the number of Shares redeemed by the Fund; and

(h) An opinion of counsel for the Fund with respect to the validity of the Shares and the status of such Shares under the Securities Act of 1933, as amended.

5. FURTHER DOCUMENTATION. The Fund will also furnish the Transfer Agent with copies of the following documents promptly after the same shall become available:

(a) each resolution of the Board of Directors authorizing the issuance of Shares;

(b) any registration statements filed on behalf of the Fund and all pre-effective and post-effective amendments thereto filed with the Commission;

(c) a certified copy of each amendment to the Articles of Incorporation or the By-laws of the Fund;

(d) certified copies of each resolution of the Board of Directors or other authorization designating Authorized Persons; and

(e) such other certificates, documents or opinions as the Transfer Agent may reasonably request in connection with the performance of its duties hereunder.

6. REPRESENTATIONS OF THE FUND. The Fund represents to the Transfer Agent that all outstanding Shares are validly issued, fully paid and non-assessable. When Shares are hereafter issued in accordance with the terms of the Fund's Articles of Incorporation and its Prospectus, such Shares shall be validly issued, fully paid and non-assessable.

7. DISTRIBUTIONS PAYABLE IN SHARES. In the event that the Board of Directors of the Fund shall declare a distribution payable in Shares, the Fund shall deliver or cause to be delivered to the Transfer Agent written notice of such declaration signed on behalf of the Fund by an officer thereof, upon which the Transfer Agent shall be entitled to rely for all purposes, certifying (i) the identity of the Shares involved, (ii) the number of Shares involved, and
(iii) that all appropriate action has been taken.

8. DUTIES OF THE TRANSFER AGENT. The Transfer Agent shall be responsible for administering and/or performing those functions typically performed by a transfer agent; for acting as service agent in connection with dividend and distribution functions; and for performing shareholder account and administrative agent functions in connection with the issuance, transfer and redemption or repurchase (including coordination with the Custodian) of Shares in accordance with the terms of the Prospectus and applicable law. The operating standards and procedures to be followed shall be determined from time to time by agreement between the Fund and the Transfer Agent and shall initially be as described in Schedule C attached hereto. In addition, the Fund shall deliver to the Transfer Agent all notices issued by the Fund with respect to the Shares in accordance with and pursuant to the Articles of Incorporation or By-laws of the Fund or as required by law and shall perform such other specific duties as are set forth in the Articles of Incorporation including the giving of notice of any special or annual meetings of shareholders and any other notices required thereby.

9. RECORD KEEPING AND OTHER INFORMATION. The Transfer Agent shall create and maintain all records required of it pursuant to its duties hereunder and as set forth in Schedule C in accordance with all applicable laws, rules and regulations, including records required by Section 31(a) of the 1940 Act. All records shall be available during regular business hours for inspection and use by the Fund. Where applicable, such records shall be maintained by the Transfer Agent for the periods and in the places required by Rule 31a-2 under the 1940 Act.

Upon reasonable notice by the Fund, the Transfer Agent shall make available during regular business hours such of its facilities and premises employed in connection with the performance of its duties under this Agreement for reasonable visitation by the Fund, or any person retained by the Fund as may be necessary for the Fund to evaluate the quality of the services performed by the Transfer Agent pursuant hereto.

10. OTHER DUTIES. In addition to the duties set forth in Schedule C, the Transfer Agent shall perform such other duties and functions, and shall be paid such amounts therefor, as may from time to time be agreed upon in writing between the Fund and the Transfer Agent. The compensation for such other duties and functions shall be reflected in a written amendment to Schedule A or B and the duties and functions shall be reflected in an amendment to Schedule C, both dated and signed by authorized persons of the parties hereto.

11. RELIANCE BY TRANSFER AGENT; INSTRUCTIONS

(a) The Transfer Agent will have no liability when acting upon Written or Oral Instructions believed to have been executed or orally communicated by an Authorized Person and will not be held to have any notice of any change of authority of any person until receipt of a Written Instruction thereof from the Fund pursuant to Section 4(c). The Transfer Agent will also have no liability when processing Share certificates which it reasonably believes to bear the proper manual or facsimile signatures of the officers of the Fund and the proper countersignature of the Transfer Agent.

(b) At any time, the Transfer Agent may apply to any Authorized Person of the Fund for Written Instructions and may seek advice from legal counsel for the Fund, or its own legal counsel, with respect to any matter arising in connection with this Agreement, and it shall not be liable for any action taken or not taken or suffered by it in good faith in accordance with such Written Instructions or in accordance with the opinion of counsel for the Fund or for the Transfer Agent. Written Instructions requested by the Transfer Agent will be provided by the Fund within a reasonable period of time. In addition, the Transfer Agent, its officers, agents or employees, shall accept Oral Instructions or Written Instructions given to them by any person representing or acting on behalf of the Fund only if said representative is an Authorized Person. The Fund agrees that all Oral Instructions shall be followed within one business day by confirming Written Instructions, and that the Fund's failure to so confirm shall not impair in any respect the Transfer Agent's right to rely on Oral Instructions. The Transfer Agent shall have no duty or obligation to inquire into, nor shall the Transfer Agent be responsible for, the legality of any act done by it upon the request or direction of a person reasonably believed by the Transfer Agent to be an Authorized Person.

(c) Notwithstanding any of the foregoing provisions of this Agreement, the Transfer Agent shall be under no duty or obligation to inquire into, and shall not be liable for: (i) the legality of the issuance or sale of any Shares or the sufficiency of the amount to be received therefor; (ii) the legality of the redemption of any Shares, or the propriety of the amount to be paid therefor; (iii) the legality of the declaration of any dividend by the Board of Directors, or the

legality of the issuance of any Shares in payment of any dividend; or (iv) the legality of any recapitalization or readjustment of the Shares.

12. ACTS OF GOD, ETC. The Transfer Agent will not be liable or responsible for delays or errors by acts of God or by reason of circumstances beyond its control, including acts of civil or military authority, national emergencies, labor difficulties, mechanical breakdown, insurrection, war, riots, or failure or unavailability of transportation, communication or power supply, fire, flood or other catastrophe.

13. DUTY OF CARE AND INDEMNIFICATION. The Fund will indemnify the Transfer Agent against and hold it harmless from any and all losses, claims, damages, liabilities or expenses of any sort or kind (including reasonable counsel fees and expenses) resulting from any claim, demand, action or suit or other proceeding (a "Claim") unless such Claim has been judicially determined to have resulted from a negligent failure to act or omission to act or bad faith of the Transfer Agent in the performance of its duties hereunder. In addition, the Fund will indemnify the Transfer Agent against and hold it harmless from any Claim, damages, liabilities or expenses (including reasonable counsel fees) that is a result of: (i) any action taken in accordance with Written or Oral Instructions, or any other instructions, or share certificates reasonably believed by the Transfer Agent to be genuine and to be signed, countersigned or executed, or orally communicated by an Authorized Person; (ii) any action taken in accordance with written or oral advice reasonably believed by the Transfer Agent to have been given by counsel for the Fund or its own counsel; or (iii) any action taken as a result of any error or omission in any record (including but not limited to magnetic tapes, computer printouts, hard copies and microfilm copies) delivered, or caused to be delivered by the Fund to the Transfer Agent in connection with this Agreement.

In any case in which the Fund may be asked to indemnify or hold the Transfer Agent harmless, the Fund shall be advised of all pertinent facts concerning the situation in question. The Transfer Agent will notify the Fund promptly after identifying any situation which it believes presents or appears likely to present a claim for indemnification against the Fund although the failure to do so shall not prevent recovery by the Transfer Agent. The Fund shall have the option to defend the Transfer Agent against any Claim which may be the subject of this indemnification, and, in the event that the Fund so elects, such defense shall be conducted by counsel chosen by the Fund and satisfactory to the Transfer Agent, and thereupon the Fund shall take over complete defense of the Claim and the Transfer Agent shall sustain no further legal or other expenses in respect of such Claim. The Transfer Agent will not confess any Claim or make any compromise in any case in which the Fund will be asked to provide indemnification, except with the Fund's prior written consent. The obligations of the parties hereto under this Section shall survive the termination of this Agreement.

14. CONSEQUENTIAL DAMAGES. In no event and under no circumstances shall either party under this Agreement be liable to the other party for consequential or indirect loss of profits, reputation or business or any other special damages under any provision of this Agreement or for any act or failure to act hereunder.

15. TERM AND TERMINATION.

(a) This Agreement shall be effective on the date first written above and shall continue in effect from year to year so long as such continuance is specifically approved at least annually by the Board of Directors of the Fund, provided that it may be terminated by either party upon 90 days written notice.

(b) In the event a termination notice is given by the Fund, it shall be accompanied by a resolution of the Board of Directors, certified by the Secretary of the Fund, designating a successor transfer agent or transfer agents. Upon such termination and at the expense of the Fund, the Transfer Agent will deliver to such successor a certified list of shareholders of the Fund (with names and addresses), and all other relevant books, records, correspondence and other Fund records or data in the possession of the Transfer Agent, and the Transfer Agent will cooperate with the Fund and any successor transfer agent or agents in the substitution process.

16. CONFIDENTIALITY. Both parties hereto agree that any non public information obtained hereunder concerning the other party is confidential and may not be disclosed to any other person without the consent of the other party, except as may be required by applicable law or at the request of the Commission or other governmental agency. The parties further agree that a breach of this provision would irreparably damage the other party and accordingly agree that each of them is entitled, without bond or other security, to an injunction or injunctions to prevent breaches of this provision.

17. AMENDMENT. This Agreement may only be amended or modified by a written instrument executed by both parties.

18. SUBCONTRACTING. The Fund agrees that the Transfer Agent may, in its discretion, subcontract for certain of the services described under this Agreement or the Schedules hereto; provided that the appointment of any such Transfer Agent shall not relieve the Transfer Agent of its responsibilities hereunder.

19. MISCELLANEOUS.

(a) NOTICES. Any notice or other instrument authorized or required by this Agreement to be given in writing to the Fund or the Transfer Agent, shall be sufficiently given if addressed to that party and received by it at its office set forth below or at such other place as it may from time to time designate in writing.

To the Fund:

Preferred Income Fund Incorporated
301 E. Colorado Blvd., Suite 720
Pasadena, California 91101

Attention: Robert T. Flaherty

To the Transfer Agent:

First Data Investor Services Group, Inc. 4400 Computer Drive, 2AW45 Westborough, Massachusetts 01581 Attention: Steven Sunnerberg, Esquire

(b) SUCCESSORS. This Agreement shall extend to and shall be binding upon the parties hereto, and their respective successors and assigns, provided, however, that this Agreement shall not be assigned to any person other than a person controlling, controlled by or under common control with the assignor without the written consent of the other party, which consent shall not be unreasonably withheld.

(c) GOVERNING LAW. This Agreement shall be governed exclusively by the laws of the State of New York without reference to the choice of law provisions thereof. Each party hereto hereby agrees that (i) the Supreme Court of New York sitting in New York County shall have exclusive jurisdiction over any and all disputes arising hereunder; (ii) hereby consents to the personal jurisdiction of such court over the parties hereto, hereby waiving any defense of lack of personal jurisdiction; and (iii) appoints the person to whom notices hereunder are to be sent as agent for service of process.

(d) COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original; but such counterparts shall, together, constitute only one instrument.

(e) CAPTIONS. The captions of this Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect.

(f) USE OF TRANSFER AGENT'S NAME. The Fund shall not use the name of the Transfer Agent in any Prospectus, Statement of Additional Information, shareholders' report, sales literature or other material relating to the Fund in a manner not approved prior thereto in writing; provided, that the Transfer Agent need only receive notice of all reasonable uses of its name which merely refer in accurate terms to its appointment hereunder or which are required by any government agency or applicable law or rule. Notwithstanding the foregoing, any reference to the Transfer Agent shall include a statement to the effect that it is a wholly owned subsidiary of American Express Information Services Corporation.

(g) USE OF FUND'S NAME. The Transfer Agent shall not use the name of the Fund or material relating to the Fund on any documents or forms for other than internal use in a manner not approved prior thereto in writing; provided, that the Fund need only receive notice of all reasonable uses of its name which merely refer in accurate terms to the appointment of the Transfer Agent or which are required by any government agency or applicable law or rule.

(h) INDEPENDENT CONTRACTORS. The parties agree that they are independent contractors and not partners or co-venturers.

(i) ENTIRE AGREEMENT; SEVERABILITY. This Agreement and the Schedules attached hereto constitute the entire agreement of the parties hereto relating to the matters covered hereby and supersede any previous agreements. If any provision is held to be illegal, unenforceable or invalid for any reason, the remaining provisions shall not be affected or impaired thereby.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized officers, as of the day and year first above written.

PREFERRED INCOME FUND INCORPORATED

By:  /S/ ROBERT T. FLAHERTY
     ---------------------------------------
         Name: Robert T. Flaherty
         Title:  President

FIRST DATA INVESTOR SERVICES
GROUP, INC.

By:      /S/ JERRY KOKOS
     ------------------------------
         Name: Jerry Kokos
         Title:  Executive Vice President

SCHEDULE A

FEE SCHEDULE

In consideration of the services which the Transfer Agent shall perform for the Fund pursuant to the Fund's Transfer Agency and Registrar Agreement, the Fund hereby agrees to pay an aggregate monthly fee to the Transfer Agent under the Agreement as follows: an annual fee equal to .02% (two basis points) of the value of the Fund's average monthly net assets which for the purposes of calculating such fee, will be deemed to be the average monthly value of the Fund's total assets minus the sum of the Fund's liabilities (excluding aggregate liquidation preference on the outstanding shares of the Fund's auction rate preferred stock and accumulated dividends, if any, thereon).

Schedule B

OUT-OF-POCKET EXPENSES

The Fund shall reimburse the Transfer Agent monthly for applicable out-of-pocket expenses, including, but not limited to the following items:

- Microfiche/microfilm production
- Magnetic media tapes and freight
- Printing costs, including certificates, envelopes, checks and stationery
- Postage (bulk, pre-sort, ZIP+4, barcoding, first class) direct pass through to the Fund
- Due diligence mailings
- Telephone and telecommunication costs, including all lease, maintenance and line costs
- Ad hoc reports
- Proxy solicitations, mailings and tabulations
- Daily & Distribution advice mailings
- Shipping, Certified and Overnight mail and insurance
- Year-end form production and mailings
- Terminals, communication lines, printers and other equipment
- Duplicating services
- Courier services
- Incoming and outgoing wire charges
- Overtime, as approved by the Fund
- Temporary staff, as approved by the Fund
- Travel and entertainment, as approved by the Fund
- Federal Reserve charges for check clearance
- Record retention, retrieval and destruction costs
- Third party audit reviews
- All conversion costs: including System start up costs
- All Systems enhancements after the conversion at the rate of $95.00 per hour
- Insurance
- Such other miscellaneous expenses reasonably incurred by the Transfer Agent in performing its duties and responsibilities under this Agreement.
- Dropsite Fees

The Fund agrees that postage and mailing expenses will be paid on the day of or prior to mailing as agreed with the Transfer Agent. In addition, the Fund will promptly reimburse the Transfer Agent for any other unscheduled expenses incurred by the Transfer Agent whenever the Fund and the Transfer Agent mutually agree that such expenses are not otherwise properly borne by the Transfer Agent as part of its duties and obligations under the Agreement.

Schedule C

DUTIES OF THE TRANSFER AGENT

1. SHAREHOLDER INFORMATION. The Transfer Agent or its agent shall maintain a record of the number of Shares held by each holder of record which shall include name, address, taxpayer identification and which shall indicate whether such Shares are held in certificates or uncertificated form.

2. SHAREHOLDER SERVICES. The Transfer Agent or its agent will investigate all inquiries from shareholders of the Fund relating to Shareholder accounts and will respond to all communications from Shareholders and others relating to its duties hereunder and such other correspondence as may from time to time be mutually agreed upon between the Transfer Agent and the Fund.

3. SHARE CERTIFICATES.

(a) At the expense of the Fund, it shall supply the Transfer Agent or its agent with an adequate supply of blank share certificates to meet the Transfer Agent or its agent's requirements therefor. Such Share certificates shall be properly signed by facsimile. The Fund agrees that, notwithstanding the death, resignation, or removal of any officer of the Fund whose signature appears on such certificates, the Transfer Agent or its agent may continue to countersign certificates which bear such signatures until otherwise directed by Written Instructions.

(b) The Transfer Agent or its agent shall issue replacement Share certificates in lieu of certificates which have been lost, stolen or destroyed, upon receipt by the Transfer Agent or its agent of properly executed affidavits and lost certificate bonds, in form satisfactory to the Transfer Agent or its agent, with the Fund and the Transfer Agent or its agent as obligees under the bond.

(c) The Transfer Agent or its agent shall also maintain a record of each certificate issued, the number of Shares represented thereby and the holder of record. With respect to Shares held in open accounts or uncertificated form, i.e., no certificate being issued with respect thereto, the Transfer Agent or its agent shall maintain comparable records of the record holders thereof, including their names, addresses and taxpayer identification. The Transfer Agent or its agent shall further maintain a stop transfer record on lost and/or replaced certificates.

4. MAILING COMMUNICATIONS TO SHAREHOLDERS; PROXY MATERIALS. The Transfer Agent or its agent will address and mail to Shareholders of the Fund, all reports to Shareholders, dividend and distribution notices and proxy material for the Fund's meetings of Shareholders. In connection with meetings of Shareholders, the Transfer Agent or its Agent will prepare Shareholder lists, mail and certify as to the mailing of proxy materials, process and tabulate returned proxy cards, report on proxies voted prior to meetings, act as inspector of election at meetings and certify Shares voted at meetings.

5. SALES OF SHARES.

(a) SUSPENSION OF SALE OF SHARES. The Transfer Agent or its agent shall not be required to issue any Shares of the Fund where it has received a Written Instruction from the Fund or official notice from any appropriate authority that the sale of the Shares of the Fund has been suspended or discontinued. The existence of such Written Instructions or such official notice shall be conclusive evidence of the right of the Transfer Agent or its agent to rely on such Written Instructions or official notice.

(b) RETURNED CHECKS. In the event that any check or other order for the payment of money is returned unpaid for any reason, the Transfer Agent or its agent will: (i) give prompt notice of such return to the Fund or its designee; (ii) place a stop transfer order against all Shares issued as a result of such check or order; and (iii) take such actions as the Transfer Agent may from time to time deem appropriate.

6. TRANSFER.

(a) REQUIREMENTS FOR TRANSFER OF SHARES. The Transfer Agent or its agent shall process all requests to transfer Shares in accordance with oral or written instructions or otherwise pursuant to the transfer procedures set forth in the Fund's Prospectus.

The Transfer Agent or its agent will transfer Shares upon receipt of Oral or Written Instructions or otherwise pursuant to the Prospectus and Share certificates, if any, properly endorsed for transfer, accompanied by such documents as the Transfer Agent or its agent reasonably may deem necessary.

The Transfer Agent or its agent reserves the right to refuse to transfer Shares until it is satisfied that the endorsement on the instructions is valid and genuine. The Transfer Agent or its agent also reserves the right to refuse to transfer Shares until it is satisfied that the requested transfer is legally authorized, and it shall incur no liability for the refusal, in good faith, to make transfers which the Transfer Agent or its agent, in its good judgment, deems improper or unauthorized, or until it is reasonably satisfied that there is no basis to any claims adverse to such transfer.

7. DIVIDENDS.

(a) NOTICE TO AGENT AND CUSTODIAN. Upon the declaration of each dividend and each capital gains distribution by the Board of Directors of the Fund with respect to Shares of the Fund, the Fund shall furnish or cause to be furnished to the Transfer Agent or its agent a copy of a resolution of the Fund's Board of Directors certified by the Secretary of the Fund setting forth the date of the declaration of such dividend or distribution, the ex-dividend date, the date of payment thereof, the record date as of which shareholders entitled to payment shall be determined, the amount payable per Share to the shareholders of record as of that date, the total amount payable to the Transfer Agent or its agent on the payment date and whether such dividend or distribution is to be paid in Shares of such class at net asset value.

On or before the payment date specified in such resolution of the Board of Directors, the Custodian of the Fund will pay to the Transfer Agent sufficient cash to make payment to the shareholders of record as of such payment date that are not participating in the Fund's Dividend Reinvestment and Cash Purchase Plan.

(b) INSUFFICIENT FUNDS FOR PAYMENTS. If the Transfer Agent or its agent does not receive sufficient cash from the Custodian to make total dividend and/or distribution payments to all shareholders of the Fund as of the record date, the Transfer Agent or its agent will, upon notifying the Fund, withhold payment to all Shareholders of record as of the record date until sufficient cash is provided to the Transfer Agent or its agent.

Exhibit 1
to
Schedule C

Summary of Services

The services to be performed by the Transfer Agent or its agent shall be as follows:

A. DAILY RECORDS

Maintain daily the following information with respect to each Shareholder account as received:

o Name and Address (Zip Code)
o Class of Shares
o Taxpayer Identification Number
o Balance of Shares held by Agent
o Beneficial owner code: i.e., male, female, joint tenant, etc.
o Dividend code (reinvestment)
o Number of Shares held in certificate form

B. OTHER DAILY ACTIVITY

o Answer written inquiries relating to Shareholder accounts (matters relating to portfolio management, distribution of Shares and other management policy questions will be referred to the Fund).

o Process additional payments into established Shareholder accounts in accordance with Written Instruction from the Agent.

o Upon receipt of proper instructions and all required documentation, process requests for repurchase of Shares.

o Identify redemption requests made with respect to accounts in which Shares have been purchased within an agreed-upon period of time for determining whether good funds have been collected with respect to such purchase and process as agreed by the Agent in accordance with written instruments set forth by the Fund.

o Examine and process all transfers of Shares, ensuring that all transfer requirements and legal documents have been supplied.

o Issue and mail replacement checks.

o Open new accounts and maintain records of exchanges between accounts.

C. DIVIDEND ACTIVITY

o Calculate and process Share dividends and distributions as instructed by the Fund.

o Compute, prepare and mail all necessary reports to Shareholders or various authorities as requested by the Fund. Report to the Fund reinvestment plan share purchases and determination of the reinvestment price.

D. MEETINGS OF SHAREHOLDERS

o Cause to be mailed proxy and related material for all meetings of Shareholders. Tabulate returned proxies (proxies must be adaptable to mechanical equipment of the Agent or its agents) and supply daily reports when sufficient proxies have been received.

o Prepare and submit to the Fund an Affidavit of Mailing.

o At the time of the meeting, furnish a certified list of Shareholders, hard copy, microfilm or microfiche and, if requested by the Fund, Inspection of Election.

E. PERIODIC ACTIVITIES

o Cause to be mailed reports, Prospectuses, and any other enclosures requested by the Fund (material must be adaptable to mechanical equipment of Agent or its agents).

o Receive all notices issued by the Fund with respect to the Preferred Shares in accordance with and pursuant to the Articles of Incorporation and the Indenture and perform such other specific duties as are set forth in the Articles of Incorporation including a giving of notice of a special meeting and notice of redemption in the circumstances and otherwise in accordance with all relevant provisions of the Articles of Incorporation.

AMENDED AND RESTATED
ADMINISTRATION AGREEMENT

The Administration Agreement of Preferred Income Fund Incorporated, a Maryland corporation (the "Fund") made and agreed to by and between the Fund and THE BOSTON COMPANY ADVISORS, INC., a Massachusetts corporation ("Boston Advisors"), on January 24, 1991, as amended and restated on March 1, 1993 and as assigned by Boston Advisors to FIRST DATA INVESTOR SERVICES GROUP, INC., a Massachusetts corporation ("FDISG"), (then known as The Shareholder Services Group, Inc.) on April 29, 1994, is hereby further amended and restated as of December 1, 1996 to read in its entirety as follows:

WHEREAS, the Fund is registered as a diversified, closed-end management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"); and

WHEREAS, the Fund desires to retain FDISG to render certain administrative services to the Fund and FDISG is willing to render such services;

WITNESSETH:

NOW, THEREFORE, in consideration of the premises and mutual convenants herein contained, it is agreed between the parties hereto as follows:

1. APPOINTMENT. The Fund hereby appoints FDISG to act as Administrator of the Fund on the terms set forth in this Agreement. FDISG accepts such appointment and agrees to render the services herein set forth for the compensation herein provided.

2. DELIVERY OF DOCUMENTS. The Fund has furnished FDISG with copies properly certified or authenticated of each of the following:

(a) Resolutions of the Fund's Board of Directors authorizing the appointment of FDISG to provide certain administrative services to the Fund and approving this Agreement;

(b) The Fund's Articles of Incorporation filed with the Maryland Department of Assessments and Taxation on September 28, 1990 and all amendments thereto (the "Articles");

(c) The Fund's By-Laws and all amendments thereto (the "By-Laws");

(d) The Investment Advisory Agreement between Flaherty & Crumrine Incorporated (the "Adviser") and the Fund dated as of January 24, 1991 as amended and restated from time to time (the "Advisory Agreement");

(e) The Custody Agreement between Boston Safe Deposit and Trust Company (the "Custodian") and the Fund dated as of January 24, 1991 as amended and restated from time to time (the "Custody Agreement");

(f) The Transfer Agency and Registrar Agreement between The Shareholder Services Group, Inc. (the "Transfer Agent") and the Fund dated as of January 24, 1991 as amended and restated from time to time;

(g) The Fund's most recent Registration Statement on Form N-2 (the "Registration Statement") under the Securities Act of 1933 and under the 1940 Act (File Nos. 33-37104 and 811-6179), as filed with the Securities and Exchange Commission ("SEC") on January 24, 1991 relating to shares of the Fund's Common Stock, $.01 par value per share, and all amendments thereto; and

(h) The Fund's most recent prospectus (the "Prospectus").

The Fund will furnish FDISG from time to time with copies, properly certified or authenticated, of all amendments of or supplements to the foregoing. Furthermore, the Fund will provide FDISG with any other documents that FDISG may reasonably request and will notify FDISG as soon as possible of any matter materially affecting the performance of FDISG of its services under this agreement.

3. DUTIES AS ADMINISTRATOR. Subject to the supervision and direction of the Board of directors of the Fund, FDISG, as Administrator, will assist in supervising various aspects of the Fund's administrative operations and undertakes to perform the following specific services:

(a) Maintaining office facilities (which may be in the offices of FDISG or a corporate affiliate);

(b) Furnishing statistical and research data, data processing services, clerical services, and internal legal, executive the administrative services and stationery and office supplies in connection with the foregoing;

(c) Furnishing corporate secretarial services including preparation and distribution of materials for Board of Directors meetings;

(d) Accounting and bookkeeping services (including the maintenance of such accounts, books and records of the Fund as may be required by section 31(a) of the 1940 Act and the rules thereunder);

(e) Internal auditing;

(f) Valuing the Fund's assets and calculating the net asset value of the shares of the Fund at the close of trading on the New York Stock Exchange (the "NYSE") on the last

day on which the NYSE is open for trading of each week and month and at such other times as the Board of Directors may reasonably request;

(g) Accumulating information for and, subject to approval by the Fund's Treasurer, preparing reports to the Fund's shareholders of record and the SEC including, but not necessarily limited to, Annual Reports and Semi-Annual Reports on Form N-SAR;

(h) Preparing and filing various reports or other documents required by federal, state and other applicable laws and regulations and by stock exchanges on which the shares of the Fund are listed, other than those filed or required to be filed by the Adviser or Transfer Agent;

(i) Preparing and filing the Fund's tax returns;

(j) Assisting the Adviser, at the Adviser's request, in monitoring and developing compliance procedures for the Fund which will include, among other matter, procedures to assist the Adviser in monitoring compliance with the Fund's investment objective, policies, restrictions, tax matters and applicable laws and regulations; and

(k) Preparing and furnishing the Fund (at the Fund's request) with the performance information (including yield and total return information) calculated in accordance with applicable U.S. securities laws and reporting to external databases such information as may reasonably be requested.

In performing all services under this Agreement, FDISG shall act in conformity with the Fund's Articles and By-Laws; the 1940 Act and the Investment Advisers Act of 1940, as the same may be amended from time to time; and the investment objective, investment policies and other practices and policies set forth in the Fund's Registration Statement as such Registration Statement and practices and policies may be amended from time to time.

4. ALLOCATION OF EXPENSES. FDISG shall bear all expenses in connection with the performance of its services under this Agreement.

(a) FDISG will from time to time employ or associate with itself such person or persons as FDISG may believe to be particularly suited to assist it in performing services under this Agreement. Such person or persons may be officers and employees who are employed by both FDISG and the Fund. The compensation of such person or persons shall be paid by FDISG and no obligation shall be incurred on behalf of the Fund in such respect.

(b) FDISG shall not be required to pay any of the following expenses incurred by the Fund: membership dues in the Investment Company Institute or any similar organization; investment advisory expenses; costs of printing and mailing stock certificates, prospectuses, reports and notices; interest on borrowed money; brokerage commissions; taxes and fees payable to Federal, state and other governmental agencies; fees of Directors of the Fund who are not

affiliated with FDISG; outside auditing expenses; outside legal expenses; or other expenses not specified in this Section 4 which may be properly payable by the Fund.

(c) For the services to be rendered, the facilities to be furnished and the payments to be made by FDISG, as provided for in this Agreement, the Fund will pay FDISG the fees in accordance with the Amended and Restated Fee Agreement among the Fund, Boston Safe Deposit and Trust Company and FDISG dated March 1, 1993 and attached hereto as Schedule A.

(d) The Fund will compensate FDISG for its services rendered pursuant to this Agreement in accordance with the fees set forth above. Such fees do not include out-of-pocket disbursements of FDISG for which FDISG shall be entitled to bill separately. Out-of-pocket disbursements shall include, but shall not be limited to, the items specified in Schedule B, annexed hereto and incorporated herein, which schedule may be modified by FDISG upon not less than thirty days' prior written notice to the Fund.

(e) FDISG will bill the Fund as soon as practicable after the end of each calendar month, and said billings will be detailed in accordance with the out-of-pocket schedule. The Fund will promptly pay to FDISG the amount of such billing.

5. LIMITATION OF LIABILITY. FDISG shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Fund in connection with the performance of its obligations and duties under this Agreement, except a loss resulting from FDISG' willful misfeasance, bad faith or gross negligence in the performance of such obligations and duties, or by reason of its reckless disregard thereof. The Fund will indemnify FDISG against and hold it harmless from any and all losses, claims, damages, liabilities of expenses (including reasonable counsel fees and expenses) resulting from any claim, demand, action or suit not resulting from the willful misfeasance, bad faith or gross negligence of FDISG in the performance of such obligations and duties or by reason of its reckless disregard thereof.

6. TERMINATION OF AGREEMENT.

(a) This Agreement shall become effective on the date hereof and shall remain in force from year to year so long as such continuance is specifically approved at least annually by the Board of Directors of the Fund or unless terminated pursuant to the provisions of subsection (b) of this Section 6.

(b) This Agreement may be terminated at any time without payment of any penalty, upon 60 days' written notice, by vote of the holders of a majority of the outstanding voting securities of the Fund, or by vote of a majority of the Board of Directors of the Fund, or by the FDISG.

7. AMENDMENT TO THIS AGREEMENT. No provisions of this Agreement may be changed, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, discharge or termination is sought.

8. MISCELLANEOUS.

(a) Any notice or other instrument authorized or required by this Agreement to be given in writing to the Fund or FDISG shall be sufficiently given if addressed to that party and received by it at its office set forth below or at such other place as it may from time to time designate in writing.

To the Fund:

Preferred Income Fund Incorporated
c/o Flaherty & Crumrine Incorporated
301 E. Colorado Blvd-Suite 720
Pasadena, CA 91101
Attention: Robert T. Flaherty

To FDISG:

First Data Investor Services Group, Inc.
4400 Computer Drive, 2AW45
Westborough, Massachusetts 01581
Attention: Christine P. Ritch, Esquire

(b) This Agreement shall extend to and shall be binding upon the parties hereto and their respective successors and assigns; provided, however, that this Agreement shall not be assignable without the written consent of the other party.

(c) This Agreement shall be construed in accordance with the laws of the Commonwealth of Massachusetts.

(d) This Agreement may be executed in any number of counterparts each of which shall be deemed to be an original and which collectively shall be deemed to constitute shall be deemed to constitute only one instrument.

(e) The captions of this Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect.

9. CONFIDENTIALITY. All books, records, information and data pertaining to the business of the Fund that are exchanged or received pursuant to the performance of FDISG' duties under this Agreement shall remain confidential and shall not be voluntarily disclosed to any other person, except as specifically authorized by the Fund or as may be required by law.

IN WITNESS WHEREOF, the parties hereto have caused this instrument to be duly executed and delivered by their duly authorized officers as of the date, first written above.

FIRST DATA INVESTOR SERVICES GROUP, INC.

By: /S/ RICHARD SILVER
Name: Richard Silver
Title: Executive Vice President

PREFERRED INCOME FUND
INCORPORATED

By:   /S/ ROBERT  T. FLAHERTY
Name: Robert T. Flaherty
Title: President

SCHEDULE A

FEE SCHEDULE

In consideration of the services which FDISG shall perform for the Fund pursuant to this Agreement, the Fund hereby agrees to pay FDISG an aggregate monthly fee at the annual rate of: 0.12 of 1.00% of the value of the Fund's average monthly net assets which, for the purposes of calculating such fee, will be deemed to be the average monthly value of the Fund's total assets minus the sum of the Fund's liabilities (excluding aggregate liquidation preference on the outstanding shares of the Fund's auction rate preferred stock and accumulated dividends, if any, thereon).

The fee for the period from the date the Registration Statement is declared effective by the Securities and Exchange Commission to the end on the month during which the Registration Statement is declared effective shall be prorated according to the proportion that such period bears to the full monthly period. Upon any termination of this Agreement before the end of any month, the fee for such part of a month shall be prorated according to the proportion which such period bears to the full monthly period and shall be payable upon the date of termination of this Agreement.

SCHEDULE B

PREFERRED INCOME FUND INCORPORATED
Out-Of-Pocket Expenses
Administration Agreement

Out-of Pocket expenses include, but are not limited to, the following:

o Postage
o Telephone and telecommunications charges
o Pricing services
o Travel to/from Board meetings

AMENDMENT TO THE AMENDED AND
RESTATED ADMINISTRATION AGREEMENT

This Amendment dated as of October 7, 1998, is entered into by PREFERRED INCOME FUND INCORPORATED (the "Fund") and FIRST DATA INVESTOR SERVICES
GROUP, INC. ("FDISG").

WHEREAS, the Fund and The Boston Company Advisors, Inc. ("Boston Advisors") entered into an Administration Agreement dated as of January 24, 1991, which Agreement was amended and restated by the parties on March 3, 1993, assigned by Boston Advisors to FDISG (then known as The Shareholder Services Group, Inc.) on April 24, 1994, and further amended and restated by the parties on December 1, 1996 (the "Agreement");

WHEREAS, the Fund and FDISG wish to further amend the Agreement;

NOW, THEREFORE, the parties hereto, intending to be legally bound hereby, agree as follows:

I. Section 4(d) of the Agreement is deleted in its entirety and replaced with the following:

(d) The Fund will compensate FDISG for its services rendered pursuant to this Agreement in accordance with the fees set forth above. Such fees do not include out-of-pocket disbursements of FDISG. FDISG shall be entitled to bill the Fund for such out-of-pocket expenses only upon the prior written approval of the Fund.

II. Schedule B to the Agreement is deleted in its entirety.

III. Except to the extent amended hereby, the Agreement shall remain unchanged and in full force and effect and is hereby ratified and confirmed in all respects as amended.

IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the date and year first written above.

PREFERRED INCOME FUND INCORPORATED

BY: /S/ ROBERT T. FLAHERTY

FIRST DATA INVESTOR SERVICES
GROUP, INC.


BY: /S/ _JACK KUTNER

[GRAPHIC OMMITTED]

BOOK-ENTRY-ONLY AUCTION-RATE/MONEY MARKET PREFERRED/
AND REMARKETED PREFERRED SECURITIES

LETTER OF REPRESENTATIONS

[To be Completed by Issuer and Trust Company]

[Name of Issuer]

Attention: General Counsel's Office
THE DEPOSITORY TRUST COMPANY
55 Water Street 49th Floor
New York, NY 10041-0099

Ladies and Gentlemen:

This letter sets forth our understanding with respect to certain matters relating to the Securities. Trust Company shall act as transfer agent, registrar, dividend disbursing agent, redemption agent or other such agent with respect to the Securities. The Securities have been issued pursuant to a prospectus, private placement memorandum, or other such document authorizing the issuance of the Securities dated _______________________________________ (the "Document").Lehman Brothers, Inc. is distributing the Securities
["Underwriter/Placement Agent"] through the Depository Trust

Company ("DTC").

To induce DTC to accept the Securities as eligible for deposit at DTC, and to act in accordance with its Rules with respect to the Securities, Issuer and Trust Company make the following representations to DTC:

1. Prior to closing on the Securities on June 4, 2002 there shall be deposited with DTC one or more Security certificates registered in the name of DTC's nominee, Cede & Co., which represents 100% of the offering value of the Securities. Said certificate(s) shall remain in DTC's custody as provided in the Document. If, however, the aggregate principal amount of the Securities exceeds $400 million, one certificate shall be issued with respect to each $400 million of principal amount and an additional certificate shall be issued with respect to any remaining principal amount. Each Security certificate shall bear the following legend:

Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC"), to Issuer or its agent for registration of transfer, exchange, or payment, and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein.

2. Issuer: (a) understands that DTC has no obligation to, and will not, communicate to its participants ("Participants") or to any person having an interest in the Securities any information contained in the Security certificate(s); and (b) acknowledges that neither DTC's Participants nor any person having an interest in the Securities shall be deemed to have notice of the provisions of the Security certificate(s) by virtue of submission of such certificate(s) to DTC.

3. In the event of any solicitation of consents from or voting by holders of the Securities, Issuer shall establish a record date for such purposes (with no provision for revocation of consents or votes by subsequent holders) and shall send notice of such record date to DTC no fewer than 15 calendar days in advance of such record date. Notices to DTC pursuant to this Paragraph by telecopy shall be directed to DTC's Reorganization Department, Proxy Unit at
(212) 855-5181 or (212) 855- 5182. If the party sending the notice does not receive a telecopy receipt from DTC confirming that the notice has been received, such party shall telephone (212) 855-5202. Notices to DTC pursuant to this Paragraph, by mail or by any other means, shall be sent to:

Supervisor, Proxy Unit Reorganization Department The Depository Trust Company 55 Water Street 50th Floor New York, NY 10041-0099

4. In the event of a full or partial redemption of the Securities, Issuer or Trust Company shall send a notice to DTC specifying: (a) the number of Securities to be redeemed; and (b) the date such notice is to be distributed to Security holders (the "Publication Date"). Such notice shall be sent to DTC by a secure means (e.g., legible telecopy, registered or certified mail, overnight delivery) in a timely manner designed to assure that such notice is in DTC's possession no later than the close of business on the business day before or, if possible, two business days before the Publication Date. Issuer or Trust Company shall forward such notice either in a separate secure transmission for each CUSIP number or in a secure transmission for multiple CUSIP numbers (if applicable) which includes a manifest or list of each CUSIP number submitted in that transmission. (The party sending such notice shall have a method to verify subsequently the use of such means and the timeliness of such notice.) The Publication Date shall be no fewer than 30 days nor more than 60 days prior to the redemption date. Notices to DTC pursuant to this Paragraph by telecopy shall be directed to DTC's Call Notification Department at (516) 227-4164 or (516) 227-4190. If the party sending the notice does not receive a telecopy receipt from DTC confirming that the notice has been received, such party shall telephone (516) 227-4070. Notices to DTC pursuant to this Paragraph, by mail or by any other means, shall be sent to:

Manager, Call Notification Department The Depository Trust Company 711 Stewart Avenue Garden City, NY 11530-4719

5. In the event of an invitation to tender the Securities (including mandatory tenders, exchanges, and capital changes), notice by Issuer or Trust Company to Security holders specifying the terms of the tender and the Publication Date of such notice shall be sent to DTC by a secure means in the manner set forth in the preceding Paragraph. Notices to DTC pursuant to this Paragraph and notices of other corporate actions by telecopy shall be directed to DTC's Reorganization Department at (212) 855-5488. If the party sending the notice does not receive a telecopy receipt from DTC confirming that the notice has been received, such party shall telephone (212) 855-5290. Notices to DTC pursuant to this Paragraph, by mail or by any other means, shall be sent to:

Manager, Reorganization Department Reorganization Window The Depository Trust Company 55 Water Street 50th Floor New York, NY 10041-0099

6. All notices and payment advices sent to DTC shall contain the CUSIP number of the Securities.

7. The Document indicates that the dividend rate for the Securities may vary from time to time. Absent other existing arrangements with DTC, Issuer or Trust Company shall give DTC notice of each such change in the dividend rate, on the same day that the new rate is determined, by telephoning DTC's Dividend Announcement Section at (212) 855-4550, or by telecopy sent to (212) 855-4555. Such verbal or telecopy notice shall be followed by prompt written confirmation sent by

a secure means (e.g., legible telecopy, registered or certified mail, overnight delivery) in a timely manner designed to assure that such notice is in DTC's possession no later than the close of business on the business day before or, if possible, two business days before the Publication Date. Issuer or Agent shall forward such notice either in a separate secure transmission for each CUSIP number or in a secure transmission for multiple CUSIP numbers (if applicable) which includes a manifest or list of each CUSIP number submitted in that transmission. (The party sending such notice shall have a method to verify subsequently the use and timeliness of such notice.) Notices to DTC pursuant to this Paragraph, by mail or by any other means, shall be sent to:

Manager, Announcements Dividend Department The Depository Trust Company 55 Water Street 25th Floor New York, NY 10041-0099

8. The Document indicates that each purchaser of Securities must sign a purchaser's letter which contains provisions restricting transfer of the Securities purchased. Issuer and Trust Company acknowledge that as long as Cede & Co. is the sole record owner of the Securities, Cede & Co. shall be entitled to all voting rights applicable to the Securities and to receive the full amount of all dividends, liquidation proceeds, and redemption proceeds payable with respect to the Securities, even if the credits of Securities to the DTC accounts of any DTC Participant result from transfers or failures to transfer in violation of the provisions of the purchaser's letter. Issuer and Trust Company acknowledge that DTC shall treat any Participant having Securities credited to its DTC accounts as entitled to the full benefits of ownership of such Securities. Without limiting the generality of the preceding sentence, Issuer and Trust Company acknowledge that DTC shall treat any Participant having Securities credited to its DTC accounts as entitled to receive dividends, distributions, and voting rights, if any, in respect of Securities and, subject to Paragraphs 12 and 13, to receive certificates evidencing Securities if such certificates are to be issued in accordance with Issuer's certificate of incorporation. (The treatment by DTC of the effects of the crediting by it of Securities to the accounts of Participants described in the preceding two sentences shall not affect the rights of Issuer, participants in auctions relating to the Securities, purchasers, sellers, or holders of Securities against any Participant.) DTC shall not have any responsibility to ascertain whether any transfer of Securities is made in accordance with the provisions of the purchaser's letter.

9. Issuer or Trust Company shall provide a written notice of dividend payment and distribution information to DTC as soon as the information is available. Issuer or Trust Company shall provide this information to DTC electronically, as previously arranged by Issuer or Trust Company and DTC, as soon as the information is available. If electronic transmission has not been arranged, absent any other arrangements between Issuer or Trust Company and DTC, such information shall be sent by telecopy to DTC's Dividend Department at (212) 855-4555 or (212) 855-4556, and receipt of such notices shall be confirmed by telephoning (212) 855-4550. Notices to DTC pursuant to this Paragraph, by mail or by any other means, shall be addressed as indicated in Paragraph 7.

10. Dividend payments and distributions shall be received by Cede & Co., as nominee of DTC, or its registered assigns, in same-day funds no later than 2:30
p.m. (Eastern Time) on the payment date. Issuer shall remit by 1:00 p.m. (Eastern Time) on the payment date, dividend and distribution payments due Trust Company, or at such earlier time as may be required by Trust Company to guarantee that DTC shall receive payment in same-day funds no later than 2:30
p.m. (Eastern Time) on the payment date. Absent any other arrangements between Issuer or Trust Company and DTC, such funds shall be wired to the Dividend Deposit Account number that will be stamped on the signature page hereof at the time DTC executes this Letter of Representations.

11. Issuer or Trust Company shall provide DTC, no later than 12:00 noon (Eastern Time) on each payment date, automated notification of CUSIP-level detail. If the circumstances prevent the funds paid to DTC from equaling the dollar amount associated with the detail payments by 12:00 noon (Eastern Time), Issuer or Trust Company must provide CUSIP-level reconciliation to DTC no later than 2:30 p.m. (Eastern Time). Reconciliation must be provided by either automated means or written format. Such reconciliation notice, if sent by telecopy, shall be directed to DTC's Dividend Department at (212) 855-4633, and receipt of such reconciliation notice shall be confirmed by telephoning (212) 855-4430.

12. Redemption payments shall be received by Cede & Co., as nominee of DTC, or its registered assigns, in same-day funds no later than 2:30 p.m. (Eastern Time) on the payment date. Issuer shall remit by 1:00 p.m. (Eastern Time) on the payment date all such redemption payments due Trust Company, or at such earlier time as required by Trust Company to guarantee that DTC shall receive payment in same-day funds no later than 2:30 p.m. (Eastern Time) on the payment date. Absent any other arrangements between Issuer or Trust Company and DTC, such funds shall be wired to the Redemption Deposit Account number that will be stamped on the signature page hereof at the time DTC executes this Letter of Representations.

13. Reorganization payments and CUSIP-level detail resulting from corporate actions (such as tender offers, remarketings, or mergers) shall be received by Cede & Co., as nominee of DTC, or its registered assigns, in same-day funds no later than 2:30 p.m. (Eastern Time) on the payment date. Issuer shall remit by 1:00 p.m. (Eastern Time) on the payment date all such reorganization payments due Trust Company, or at such earlier time as required by Trust Company to guarantee that DTC shall receive payment in same-day funds no later than 2:30
p.m. (Eastern Time) on the payment date. Absent any other arrangements between Issuer or Trust Company and DTC, such funds shall be wired to the Reorganization Deposit Account number that will be stamped on the signature page hereof at the time DTC executes this Letter of Representations.

14. DTC may direct Issuer or Trust Company to use any other number or address as the number or address to which notices or payments may be sent.

15. In the event of a redemption acceleration, or any similar transaction (e.g., tender made and accepted in response to Issuer's or Trust Company's invitation) necessitating a reduction in the number of Securities outstanding, or an advance refunding of part of the Securities outstanding DTC, in its discretion: (a) may request Issuer or Trust Company to issue and authenticate a new Security certificate; or (b) may make an appropriate notation on the Security certificate indicating the date and amount of such reduction in the number of Securities outstanding, except in the case of final

redemption, in which case the certificate will be presented to Issuer or Trust Company prior to payment, if required.

16. In the event that Issuer determines that beneficial owners of Securities shall be able to obtain certificated Securities, Issuer or Trust Company shall notify DTC of the availability of certificates. In such event, Issuer or Trust Company shall issue, transfer, and exchange certificates in appropriate amounts, as required by DTC and others.

17. DTC may discontinue providing its services as securities depository with respect to the Securities at any time by giving reasonable notice to Issuer or Trust Company (at which time DTC will confirm with Issuer or Trust Company the aggregate principal amount of Securities outstanding). Under such circumstances, at DTC's request, Issuer and Trust Company shall cooperate fully with DTC by taking appropriate action to make available one or more separate certificates evidencing Securities to any DTC Participant having Securities credited to its DTC accounts.

18. Issuer hereby authorizes DTC to provide to Trust Company listings of Participants' holdings, known as Security Position Listings ("SPLs") with respect to the Securities from time to time at the request of Trust Company. Issuer also authorizes DTC, in the event of a partial redemption of Securities, to provide Trust Company, upon request, with the names of those Participants whose positions in Securities have been selected for redemption by DTC. DTC will use its best efforts to notify Trust Company of those Participants whose positions in Securities have been selected for redemption by DTC. Issuer authorizes and instructs Trust Company to provide DTC with such signatures, examples of signatures, and authorizations to act as may be deemed necessary or appropriate by DTC to permit DTC to discharge its obligations to its Participants and appropriate regulatory authorities. DTC charges a customary fee for such SPLs. This authorization, unless revoked by Issuer, shall continue with respect to the Securities while any Securities are on deposit at DTC, until and unless Trust Company shall no longer be acting. In such event, Issuer shall provide DTC with similar evidence, satisfactory to DTC, of the authorization of any successor thereto so to act. Requests for SPLs shall be directed to the Proxy Unit of DTC's Reorganization Department at (212) 855-5181 or (212) 855-5182. Receipt of such requests shall be confirmed by telephoning (212) 855-5202. Delivery by mail or by any other means, with respect to such SPL request, shall be directed to the address indicated in Paragraph 3.

19. Nothing herein shall be deemed to require Trust Company to advance funds on behalf of Issuer.

20. This Letter of Representations may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original, but all such counterparts together shall constitute but one and the same instrument.

21. This Letter of Representations shall be governed by, and construed in accordance with, the laws of the State of New York, without giving effect to principles of conflicts of law.

22. The sender of each notice delivered to DTC pursuant to this Letter of Representations is responsible for confirming that such notice was properly received by DTC.

23. Issuer recognizes that DTC does not in any way undertake to, and shall not have any responsibility to, monitor or ascertain the compliance of any transactions in the Securities with the following, as amended from time to time:
(a) any exemptions from registration under the Securities Act of 1933; (b) the Investment Company Act of 1940; (c) the Employee Retirement Income Security Act of 1974; (d) the Internal Revenue Code of 1986; (e) any rules of any self-regulatory organizations (as defined under the Securities Exchange Act of 1934); or (f) any other local, state, or federal laws or regulations thereunder.

24. Issuer and Trust Company shall comply with the applicable requirements stated in DTC's Operational Arrangements, as they may be amended from time to time. DTC's Operational Arrangements are posted on DTC's website at www.DTC.org.

25. The following rider(s), attached hereto, are hereby incorporated into this Letter of Representations:

NOTES:

A. IF THERE IS A TRUST COMPANY (AS
DEFINED IN THIS LETTER OF
REPRESENTATIONS), TRUST COMPANY, AS
WELL AS ISSUER, MUST SIGN THIS LETTER.
IF THERE IS NO TRUST COMPANY, IN
SIGNING THIS LETTER ISSUER ITSELF
UNDERTAKES TO PERFORM ALL OF THE
OBLIGATIONS SET FORTH HEREIN.

B. SCHEDULE B CONTAINS STATEMENTS THAT
DTC BELIEVES ACCURATELY DESCRIBE DTC,
THE METHOD OF EFFECTING BOOK-ENTRY
TRANSFERS OF SECURITIES DISTRIBUTED
THROUGH DTC, AND CERTAIN RELATED
MATTERS.

Very truly yours,

By:______________________________________
[Authorized Officer's Signature]

Received and Accepted:
THE DEPOSITORY TRUST COMPANY

cc: Underwriter
Underwriter's Counsel

    CUSIP Number             Share Total                        Value ($Amount)
    74037G205             225 (additional share                  $22,500,000.00
                       issuance as of the date herof)

                                      -9-

                                                                     SCHEDULE B

                       SAMPLE OFFERING DOCUMENT LANGUAGE
                      DESCRIBING BOOK-ENTRY-ONLY ISSUANCE
                      -----------------------------------
(Prepared by DTC--bracketed material may be applicable only to certain issues)

1. The Depository Trust Company ("DTC"), New York, NY, will act as securities depository for the securities (the "Securities"). The Securities will be issued as fully-registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Security certificate will be issued for [each issue of] the Securities, [each] in the aggregate principal amount of such issue, and will be deposited with DTC. [If, however, the aggregate principal amount of [any] issue exceeds $400 million, one certificate will be issued with respect to each $400 million of principal amount and an additional certificate will be issued with respect to any remaining principal amount of such issue.]

2. DTC is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds securities that its participants ("Direct Participants") deposit with DTC. DTC also facilitates the settlement among Direct Participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book-entry changes in Direct Participants' accounts, thereby eliminating the need for physical movement of securities certificates. Direct Participants include securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is owned by a number of its Direct Participants and by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as securities brokers and dealers, banks, and trust companies that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). The Rules applicable to DTC and its Direct and Indirect Participants are on file with the Securities and Exchange Commission.

3. Purchases of Securities under the DTC system must be made by or through Direct Participants, which will receive a credit for the Securities on DTC's records. The ownership interest of each actual purchaser of each Security ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase, but Beneficial Owners are expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Securities are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Securities, except in the event that use of the book-entry system for the Securities is discontinued.

4. To facilitate subsequent transfers, all Securities deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co. or such other name as may be requested by an authorized representative of DTC. The deposit of Securities with DTC and their registration in the name of Cede & Co. or such other nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Securities; DTC's records reflect only the identity of the Direct Participants to whose accounts such Securities are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.

5. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. [Beneficial Owners of Securities may wish to take certain steps to augment transmission to them of notices of significant events with respect to the Securities, such as redemptions, tenders, defaults, and proposed amendments to the security documents. Beneficial Owners of Securities may wish to ascertain that the nominee holding the Securities for their benefit has agreed to obtain and transmit notices to Beneficial Owners, or in the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of the notices be provided directly to them.]

[6. Redemption notices shall be sent to DTC. If less than all of the Securities within an issue are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed.]

7. Neither DTC nor Cede & Co. (nor such other DTC nominee) will consent or vote with respect to the Securities. Under its usual procedures, DTC mails an Omnibus Proxy to Issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the Securities are credited on the record date (identified in a listing attached to the Omnibus Proxy).

8. Redemption proceeds, distributions, and dividend payments on the Securities will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts, upon DTC's receipt of funds and corresponding detail information from Issuer or Agent on payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC, Agent, or Issuer, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividends to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of Issuer or Agent, disbursement of such payments to Direct Participants shall be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners shall be the responsibility of Direct and Indirect Participants.

[9. A Beneficial Owner shall give notice to elect to have its Securities purchased or tendered, through its Participant, to [Tender/Remarketing] Agent, and shall effect delivery of such Securities by causing the Direct Participant to transfer the Participant's interest in the Securities, on DTC's records, to
[Tender/Remarketing] Agent. The requirement for physical delivery of Securities in connection with an optional tender or a mandatory purchase will be deemed satisfied when the ownership rights in the Securities are transferred by Direct Participants on DTC's records and followed by a book-entry credit of tendered Securities to [Tender/Remarketing] Agent's DTC account.]

10. DTC may discontinue providing its services as securities depository with respect to the Securities at any time by giving reasonable notice to Issuer or Agent. Under such circumstances, in the event that a successor securities depository is not obtained, Security certificates are required to be printed and delivered.

11. Issuer may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, Security certificates will be printed and delivered.

12. The information in this section concerning DTC and DTC's book-entry system has been obtained from sources that Issuer believes to be reliable, but Issuer takes no responsibility for the accuracy thereof.

[Willkie Farr & Gallagher letterhead]

May 31, 2002

Preferred Income Fund Incorporated
301 East Colorado Boulevard
Pasadena, California 91101

Ladies and Gentlemen:

We have acted as counsel to Preferred Income Fund Incorporated, a corporation organized under the laws of the State of Maryland (the "Fund"), in connection with the preparation of a registration statement on Form N-2 (the "Registration Statement") and the prospectus forming part of the Registration Statement (the "Prospectus"), relating to the offer and sale of up to 225 additional shares of the Fund's Money Market Cumulative Preferred(TM) Stock, par value $.01 per share, liquidation preference $100,000 per share (the "MMP(R)").

We have examined copies of the Fund's charter, as amended from time to time (the "Charter"), and by-laws, the Registration Statement, resolutions adopted by the Fund's Board of Directors (the "Board") on April 19, 2002, the form of the Fund's Articles Supplementary relating to the 225 additional shares of MMP (the "Articles Supplementary") and any other records, documents, papers, statutes and authorities as we have deemed necessary to form a basis for the opinions expressed below. In our examination, we have assumed the genuineness of all signatures and the conformity to original documents of all copies submitted to us. As to various questions of fact material to our opinions, we have relied on certificates and statements of officers and representatives of the Fund and others.

Based on and subject to the foregoing, we are of the opinion that when the Pricing Committee of the Board has established the final terms of the 225 additional shares of MMP, pursuant to authority delegated to it by the Board, and the Articles Supplementary as approved by the Pricing Committee of the Board have been filed with the Maryland State Department of Assessments and Taxation, the 225 additional shares of MMP to be offered for sale pursuant to the Registration Statement will have been duly authorized and, when thereafter sold, issued and paid for as contemplated by the Prospectus, will have been validly and legally issued and will be fully paid and non-assessable.

We are admitted to the Bar of the State of New York only and do not opine as to the laws of any jurisdiction other than the laws of the State of New York and the laws of the United States, and the opinion set forth above is accordingly limited to the laws of those jurisdictions. As to matters governed by the laws of the State of Maryland, we have relied on the opinion of Messrs. Venable,

Preferred Income Fund Incorporated
May 31, 2002

Baetjer and Howard, LLP appended to this letter. We assume no obligation to revise or supplement this opinion should the present laws of such jurisdictions be changed by legislative action, judicial decision or otherwise. This opinion is rendered as of the date hereof, and we express no opinion as to, and disclaim any undertaking or obligation to update this opinion in respect of changes of circumstances or events which occur subsequent to this date.

We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to us in the prospectus included as part of the Registration Statement under "Legal Matters." We are furnishing this opinion solely for your benefit and this opinion may not be relied upon by any other person, except Lehman Brothers Inc., without our prior written consent.

Very truly yours,

/s/ Willkie Farr & Gallagher

May 31, 2002

Willkie Farr & Gallagher
787 Seventh Avenue
New York, NY 10019-6099

Ladies and Gentlemen:

We have acted as special Maryland counsel for Preferred Income Fund Incorporated, a Maryland corporation (the "Fund"), in connection with its offering of 225 additional shares of preferred stock designated "Money Market Rate Cumulative Preferred Stock", each with a par value of $.01 and a liquidation preference of $100,000 (the "Shares").

As special Maryland counsel for the Fund, we are familiar with its Charter and Bylaws. We have examined the prospectus (the "Prospectus") included in its Registration Statement on Form N-2 with respect to the Shares (Securities Act Registration File No. 333-86680, Investment Company Act File No. 811-06179) (the "Registration Statement"), substantially in the form in which it is to become effective. We are also familiar with the form of Articles Supplementary relating to the Shares (the "Subsequent Articles Supplementary") that have been filed as an exhibit to the Registration Statement, as well as with Articles Supplementary filed with the State Department of Assessments and Taxation ("SDAT") on April 12, 1991, as amended by Articles of Amendment filed with SDAT on July 25, 1994, which are incorporated in the Subsequent Articles Supplementary. We have further examined and relied on a certificate of the Maryland State Department of Assessments and Taxation ("SDAT") to the effect that the Fund is duly incorporated and existing under the laws of the State of Maryland and is in good standing and duly authorized to transact business in the State of Maryland.

We have also examined and relied on such other corporate records of the Fund and documents and certificates with respect to factual matters as we have deemed necessary to render the opinion expressed herein. We have assumed, without independent verification, the genuineness of all signatures on documents submitted to us, the authenticity of all documents submitted to us as originals, and the conformity with originals of all documents submitted to us as copies.

Willkie Farr & Gallagher
May 31, 2002

Based on such examination, we are of the opinion that when the Pricing Committee of the Board of Directors has determined certain of the terms of the Shares pursuant to authority delegated to it by the Board of Directors, and the Subsequent Articles Supplementary have been filed with SDAT, the Shares to be offered for sale pursuant to the Prospectus will have been duly authorized and, when thereafter, sold, issued and paid for in accordance with the Prospectus, will have been validly and legally issued and will be fully paid and nonassessable.

This letter expresses our opinion with respect to the Maryland General Corporation Law governing matters such as due organization and the authorization and issuance of stock. It does not extend to the securities or "Blue Sky" laws of Maryland, to federal securities laws or to other laws. We assume no obligation to update the opinion set forth herein.

You may rely on this opinion in rendering your opinion to the Fund that is to be filed as an exhibit to the Registration Statement. We consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to our firm under the heading "Legal Matters" in the Prospectus. We do not thereby admit that we are "experts" within the meaning of the Securities Act of 1933 and the rules and regulations thereunder. This opinion may not be relied on for any other purpose or by any other person without our prior written consent.

Very truly yours,

Venable, Baetjer and Howard, LLP

INDEPENDENT AUDITORS' CONSENT

Board of Directors and Shareholders
Preferred Income Fund Incorporated:

We consent to the use of our report dated January 7, 2002, incorporated by reference herein and to the references to our firm under the headings "FINANCIAL HIGHLIGHTS" and "EXPERTS" in the prospectus.

/S/ KPMG LLP
Boston, Massachusetts
May 30, 2002

PREFERRED INCOME FUND INCORPORATED
AMENDED AND RESTATED

CODE OF ETHICS

I. INTRODUCTION

A. GENERAL PRINCIPLES

This Code of Ethics ("Code") establishes rules of conduct for "Covered Persons" (as defined herein) of the Preferred Income Fund Incorporated (the "Fund") and is designed to govern the personal securities activities of Covered Persons. In general, in connection with personal securities transactions, Covered Persons should (1) always place the interests of the Fund's shareholders first; (2) ensure that all personal securities transactions are conducted consistent with this Code and in such a manner as to avoid any actual or potential conflict of interest or any abuse of a Covered Person's position of trust and responsibility; and (3) not take inappropriate advantage of their positions.

B. APPLICABILITY

For purposes of this Code, "Covered Person" shall mean:

1. Any officer or employee of the Fund

2. Any director, officer, general partner, or employee of any company in a control relationship to the Fund who, in connection with his or her regular functions or duties, makes, participates in or obtains information regarding the purchase or sale of securities by the Fund or whose functions relate to the making of any recommendation to the Fund regarding the purchase or sale of securities or any natural person in a control relationship to the Fund who obtains information concerning recommendations made to the Fund with regard to the purchase or sale of a security (collectively, an "Advisory Person"), including the person or persons with the direct responsibility and authority to make investment decisions affecting the Fund (the "Portfolio Manager");

3. Any natural person in a control relationship to the Fund who obtains information concerning recommendations made to the Fund with regard to the purchase or sale of a security; and

4. Any Director of the Fund.

II. RESTRICTIONS ON ACTIVITIES

A. BLACKOUT PERIODS

1. No Covered Person shall purchase or sell, directly or indirectly, any "security" in which he or she has, or by reason of such transaction acquires, any direct or indirect beneficial ownership (as defined in Attachment A to this Code) on a day during which the Fund has a pending "buy" or "sell" order in that same security until that order is executed or withdrawn.

2. No Portfolio Manager shall purchase or sell, directly or indirectly, any security in which he or she has, or by reason of such transaction acquires, any direct or indirect beneficial ownership (as defined in Attachment A to this Code) within seven (7) calendar days before or after the Fund trades in that security.

B. INTERESTED TRANSACTIONS

No Covered Person shall recommend any securities transactions by the Fund without having disclosed his or her interest, if any, in such securities or the issuer thereof, including without limitation:

1. Any direct or indirect beneficial ownership (as defined in Attachment A to this Code) of any securities of such issuer;

2. Any contemplated transaction by such person in such securities;

3. Any position with such issuer or its affiliates; and

4. Any present or proposed business relationship between such issuer or its affiliates and such person or any parties in which such person has a significant interest.

C. INITIAL PUBLIC OFFERINGS

No Advisory Person shall acquire, directly or indirectly, beneficial ownership of any securities in an initial public offering without the prior approval of the Designated Supervisory Person (as hereinafter defined) who has been provided by such Advisory Person with full details of the proposed transaction. In granting this prior approval, the Designated Supervisory Person shall take into consideration, among other factors, whether the investment opportunity should be reserved for the Fund and its shareholders and whether the opportunity is being offered to the Advisory Person by virtue of his or her position with the Fund. Purchases

of initial public offerings of volatile securities which are difficult to obtain, such as certain common stocks, will ordinarily not be approved. In contrast, purchases of generally available initial public offerings of less volatile securities such as municipal bonds in which the Fund does not customarily invest would usually be approved.

D. PRIVATE PLACEMENTS

No Advisory Person shall acquire, directly or indirectly, beneficial ownership of any securities in a private placement without the prior approval of the Designated Supervisory Person who has been provided by such Advisory Person with full details of the proposed transaction. In granting this prior approval, the Designated Supervisory Person shall take into consideration, among other factors, whether the investment opportunity should be reserved for the Fund and its shareholders and whether the opportunity is being offered to the Advisory Person by virtue of his or her position with the Fund. Advisory Persons who have been authorized to acquire securities in a private placement are required to disclose that investment when they play a part in the Fund's subsequent consideration of an investment in the issuer. In such circumstances, the Fund's decision to purchase securities of the issuer will be subject to an independent review by Advisory Persons with no personal interest in the issuer.

E. GIFTS

No Advisory Person shall receive any gift or other things of more than DE MINIMIS value from any person or entity that does business with or on behalf of the Fund.

F. SERVICE AS A DIRECTOR

No Advisory Person shall serve on the board of directors of any publicly traded company without prior authorization from a committee comprised of the Designated Supervisory Person and two others (the "Compliance Committee") based upon a determination that such board service would be consistent with the interests of the Fund and its shareholders. If such service is authorized, the Advisory Person will be isolated from making investment decisions relating to such service through the implementation of appropriate "Chinese Wall" procedures established by the Compliance Committee.

III. EXEMPT TRANSACTIONS

A. For purposes of this Code, the term "security" shall not include the following:

1. Securities issued or guaranteed as to principal or interest by the Government of the United States or its instrumentalities;

2. Bankers' acceptances;

3. Bank certificates of deposit;

4. Commercial paper;

5. High quality short-term debt instruments, including repurchase agreements1; and

6. Shares of registered open-end investment companies.

"Security" shall include options, futures contracts as well as "related securities," such as convertible securities and warrants.

B. The prohibitions described in paragraph (A) of Article II shall not apply to:

1. Purchases or sales effected in any account over which the Covered Person has no direct or indirect influence or control;

2. Purchases or sales that are non-volitional on the part of the Covered Person;

3. Purchases that are part of an automatic dividend reinvestment plan;

4. Purchases effected upon the exercise of rights issued by an issuer PRO RATA to all holders of a class of its securities, to the extent such rights were acquired from the issuer, and sales of such rights so acquired; or

5. Subject to the advance approval by a Designated Supervisory Person (as defined below) purchases or sales which are only remotely potentially harmful to the Fund because such purchases or sales would be unlikely to affect a highly institutional market, or because such purchases or sales are clearly not related economically to the securities held, purchased or sold by the Fund.

IV. COMPLIANCE PROCEDURES

A. PRECLEARANCE

A Covered Person, excluding those officers of the Fund who are also employees of the Fund's administrator, may directly or indirectly, acquire or dispose of beneficial ownership of a security, including shares of the Fund, only if (1) such purchase or sale has been approved by a supervisory person designated by the Fund or, in the case of a person employed by the Fund's investment adviser, by such investment adviser (the "Designated Supervisory Person"), (2) the approved transaction is completed on the same day approval is received and (3) the Designated Supervisory Person has not rescinded such approval prior to execution of the transaction.

B. REPORTING - QUARTERLY TRANSACTION REPORTS

Every Covered Person must report certain information about EACH non-exempt transaction by which the Covered Person acquires ANY direct or indirect beneficial ownership (as defined in Attachment A to this Code) of a security, PROVIDED, HOWEVER, that a Covered Person shall not be required to make a report with respect to any transaction effected for any account over which such person does not have any direct or indirect influence or control or which would duplicate information recorded pursuant to Rules 204-2(a)(12) or 204-2(a)(13) under the Investment Advisers Act of 1940, as amended.

A Covered Person must submit the report required by this Article IV to the Designated Supervisory Person no later than 10 days after the end of the calendar quarter in which the transaction to which the report relates was effected. A report must contain the following information:

1. The date of the transaction, the title, the interest rate and maturity date (if applicable), the number of shares and the principal amount of each security involved:

2. The nature of the transaction (i.e., purchase, sale or other acquisition or disposition);

3. The price of the security at which the transaction was effected;

4. The name of the broker, dealer or bank with or through whom the transaction was effected; and

5. The date that the report is submitted by the Covered Person.

Any report submitted to comply with the requirements of this Article IV may contain a statement that the report shall not be construed as an admission by the person making such report that such person has any direct or indirect beneficial ownership (as defined in Attachment A to this Code) in the securities to which the report relates.

The broker or futures commission merchant through which the transaction was effected shall be directed by the Covered Person to supply to the Designated Supervisory Person, on a timely basis, duplicate confirmations and monthly brokerage statements for all securities accounts. A Covered Person employed by the Fund's investment adviser will be deemed to have complied with the requirements of this Article IV by satisfying the preclearance and reporting requirements established by the Code of Ethics of such investment adviser if as strict as or stricter than this Code.

C. DISCLOSURE OF PERSONAL HOLDINGS -INITIAL AND ANNUAL HOLDINGS REPORTS

INITIAL HOLDINGS REPORT. No later than 10 days after a person becomes a Covered Person, the following information shall be submitted to the Designated Supervisory Person:

1. The title, number of shares and principal amount of all Covered Securities owned directly or indirectly by the Covered Person when the Covered Person became a Covered Person;

2. The name of any broker, dealer or bank with whom the Covered Person maintained an account in which any Covered Securities were held for the benefit of the Covered Person as of the date the person became a Covered Person; and

3. The date that the report is submitted by the Covered Person.

ANNUAL HOLDINGS REPORT. Each Covered Person shall submit to the Designated Supervisory Person the information listed in C(i), (ii) and (iii) above on an annual basis, which information shall not be more than 30 days old.

D. NON-INTERESTED DIRECTORS

Any person who is a Covered Person with respect to the Fund by virtue of being a Director of the Fund, but who is not an "interested person" (as defined in the Investment Company Act of 1940, as amended) of the Fund, shall be required to comply with paragraphs (A), (B) and (C) above with respect to a transaction only if such person, at the time of that transaction, knew, or in the ordinary course of fulfilling his or her official duties as a Director of the Fund should have known, that during the 15-day period immediately preceding the date of the transaction by such person, the security such person purchased or sold is or was purchased or sold by the Fund or was being considered for purchase or sale by the Fund or its investment adviser.

E. CERTIFICATION OF COMPLIANCE

Each Covered Person is required to certify annually that he or she has read and understood the Fund's Code and recognizes that he or she is subject to such Code. Further, each Covered Person is required to certify annually that he or she has complied with all the requirements of the Code and that he or she has disclosed or reported all personal securities transactions required to be disclosed or reported pursuant to the requirements of the Code.

F. REVIEW BY THE BOARD OF DIRECTORS

At least annually, the Fund and its investment adviser shall provide a written report to the Board of Directors which lists the following information:

1. All existing procedures concerning Covered Persons' personal trading activities and any procedural changes made during the past year;

2. Any recommended changes to the Fund's Code or procedures; and

3. A summary of any violations with respect to the Fund's Code or the investment adviser's Code of Ethics which occurred during the past year with respect to which remedial action was taken.

V. SANCTIONS/ANNUAL REPORT OF COMPLIANCE COMMITTEE

Upon discovering that a Covered Person has not complied with the requirements of this Code, the Designated Supervisory Person shall submit findings to the Compliance Committee. The Compliance Committee may impose on that

Covered Person whatever sanctions the Compliance Committee deems appropriate, including, among other things, disgorgement of profits, censure, suspension or termination of employment. Any significant sanction imposed shall be reported to the Board of Directors in accordance with Section IV(F)(3) above.

VI. CERTIFICATION OF ADEQUACY

The Fund and its investment adviser shall each provide to the Board of Directors of the Fund, no less frequently than annually, a written certification that each, respectively, have adopted procedures reasonably necessary to prevent Covered Persons from violating their respective Code of Ethics.

VII. CONFIDENTIALITY

All information obtained from any Covered Person hereunder shall be kept in strict confidence, except that reports of securities transactions hereunder may be made available to the Securities and Exchange Commission or any other regulatory or self-regulatory organization, and may otherwise be disclosed to the extent required by law or regulation.

VIII. OTHER LAWS, RULE AND STATEMENTS OF POLICY

Nothing contained in this Code shall be interpreted as relieving any Covered Person from acting in accordance with the provision of any applicable law, rule, or regulation or any other statement of policy or procedures governing the conduct of such person adopted by the Fund.

IX. AMENDMENTS

Any material change to this Code of Ethics must be approved by the Board of Directors of the Fund (including a majority of the non-interested Directors) within six months of such change.

X. FURTHER INFORMATION

If any person has any questions with regard to the applicability of the provisions of this Code generally or with regard to any securities transaction or transactions such person should consult the Designated Supervisory Person.

Dated: January 19, 2001

Attachment A

The term "beneficial ownership" as used in the attached Code of Ethics (the "Code") is to be interpreted by reference to Rule 16a-1(a)(2) under the Securities Exchange Act of 1934 (the "Rule"), except that the determination of direct or indirect beneficial ownership for purposes of the Code must be made with respect to all securities that a Covered Person has or acquires. Under the Rule, a person is generally deemed to have beneficial ownership of securities if the person, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares a direct or indirect pecuniary interest in the securities.

The term "pecuniary interest" in particular securities is generally defined in the Rule to mean the opportunity, directly or indirectly, to profit or share in any profit derived from a transaction in the securities. A person is refutably deemed to have an "indirect pecuniary interest" within the meaning of the Rule in any securities held by members of the person's immediate family sharing the same household, the term "immediate family" including any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, sister-in-law, as well as adoptive relationships. Under the Rule, an indirect pecuniary interest also includes, among other things: a general partner's proportionate interest in the portfolio securities held by a general or limited partnership; a performance-related fee, other than an asset-based fee, received by any broker, dealer, bank, insurance company, investment company, investment adviser, investment manager, trustee or person or entity performing a similar function; a person's right to dividends that is separated or separable from the underlying securities; a person's interest in securities held by certain trusts; and a person's right to acquire equity securities through the exercise or conversion of any derivative security, whether or not presently exercisable, the term "derivative security" being generally defined as any option, warrant, convertible security, stock appreciation right, or similar right with an exercise or conversion privilege at a price related to an equity security, or similar securities with, or value derived from, the value of an equity security. For purposes of the Rule, a person who is a shareholder of a corporation or similar entity is NOT deemed to have a pecuniary interest in portfolio securities held by the corporation or entity, so long as the shareholder is not a controlling shareholder of the corporation or the entity and does not have or share investment control over the corporation's or the entity portfolio.

FLAHERTY & CRUMRINE INCORPORATED
CODE OF ETHICS/STATEMENT OF POLICY AND PROCEDURES
REGARDING PERSONAL SECURITIES TRANSACTIONS

I. POLICY STATEMENT ON PERSONAL SECURITIES TRANSACTIONS

Flaherty & Crumrine Incorporated ("F&C") forbids any officer, director or employee of F&C ("Covered Persons") from taking any action in conflict with or potentially in conflict with F&C's investment advisory clients (the "Clients") including registered investment companies (the "Funds") and private accounts. Personal securities (as hereinafter defined) transactions are permitted by such Covered Persons if no reasonable basis exists for believing that a transaction would disadvantage Clients. This Code of Ethics/Statement of Policies and Procedures Regarding Personal Securities Transactions (the "Code") establishes rules of conduct for Covered Persons regarding securities transactions in their personal accounts and those accounts in which they have a direct or indirect beneficial ownership (as defined in Attachment A to this Code) consistent with F&C Policy.

II. RESTRICTIONS ON ACTIVITIES

A. BLACKOUT PERIODS

1. No Covered Person shall purchase or sell, directly or indirectly, any security (as hereinafter defined) in which he or she has, or by reason of such transaction acquires, any direct or indirect beneficial ownership (as defined in Attachment A to this Code) on a day during which Clients have pending "buy" or "sell" orders in the same security until such orders are executed or withdrawn.

2. No Covered Person shall purchase or sell, directly or indirectly, any security in which he or she has, or by reason of such transaction acquires, any direct or indirect beneficial ownership (as defined in Attachment A to this Code) within seven (7) calendar days before or after the Funds trade in that security.

B. INTERESTED TRANSACTIONS

No Covered Person shall recommend or complete any securities transactions by the Clients without having disclosed to F&C his or her interest, if any, in such securities or the issuer thereof, including without limitation:

1. Any direct or indirect beneficial ownership (as defined in Attachment A to this Code) of any securities of such issuer;

2. Any contemplated transaction by such person in such securities;

3. Any position with such issuer or its affiliates; and

4. Any present or proposed business relationship between such issuer or its affiliates and such person or any parties in which such person has a significant interest.

C. INITIAL PUBLIC OFFERINGS

No Covered person shall acquire, directly or indirectly, beneficial ownership of any securities in an initial public offering without the prior approval of the Designated Supervisory Person (as hereinafter defined) who has been provided by such Covered Person with full details of the proposed transaction. In granting this prior approval, the Designated Supervisory person shall take into consideration, among other factors, whether the investment opportunity should be reserved for the Clients and whether the opportunity is being offered to the Covered Person by virtue of his or her position with F&C and the Funds. Purchases of initial public offerings of volatile securities which are difficult to obtain, such as certain common stocks, will ordinarily not be approved. In contrast, purchases of generally available initial public offerings of less volatile securities such as municipal bonds would usually be approved.

D. PRIVATE PLACEMENTS

No Covered Person shall acquire, directly or indirectly, beneficial ownership of any securities in a private placement without the prior approval of the Designated Supervisory Person who has been provided by such Covered Person with full details of the proposed transaction. In granting this prior approval, the Designated Supervisory Person shall take into consideration, among other factors, whether the investment opportunity should be reserved for the Clients and whether the opportunity is being offered to the Covered Person by virtue of his or her position with F&C and the Funds. Covered Persons who have been authorized to acquire securities in a private placement are required to disclose that investment when they play a part in the subsequent consideration of an investment in the issuer by the Clients. In such circumstances, the decision to purchase securities of the issuer will be subject to an independent review by persons with no personal interest in the issuer.

E. BROKERAGE OR INVESTMENT BANKING SECURITIES

No transaction may be effected in the publicly owned securities of any company, the primary business of which is stock brokerage or investment banking.

F. GIFTS

No Covered Person shall receive any gift or other things of more than DE MINIMUS value from any person or entity that does business with or on behalf of F&C or the Funds.

G. SERVICE AS A DIRECTOR

No Covered Person shall serve on the board of directors of any publicly traded company without prior authorization from a committee comprised of a Designated Supervisory Person and two others (the "Compliance Committee") based upon a determination that such board service would be consistent with the interests of the Clients'. If such service is authorized, the Covered Person will be isolated from making investment decisions relating to such service through the implementation of appropriate "Chinese Wall" procedures established by the Compliance Committee.

III. EXEMPT TRANSACTIONS

A. For purposes of this Code, the term "security" shall not include the following:

1. Securities issued or guaranteed as to principal or interest by the Government of the United States or its instrumentalities;
2. Bankers' acceptances;
3. Bank certificates of deposit;
4. Commercial paper;
5. High quality short-term debt instruments, including repurchase agreements1; and
6. Shares of registered open-end investment companies.

"Security" or "securities" shall include options, futures contracts and other derivative securities as well as related securities, such as convertible securities and warrants.

B. The prohibitions described in Paragraph A. of Article II and the compliance procedures described in Article IV. shall not apply to:

1. Purchases or sales effected in any account over which the Covered Person has no direct or indirect influence or control;

2. Purchases or sales of securities that are non-volitional on the part of the Covered Person;

3. Purchases that are part of an automatic dividend reinvestment plan;

4. Purchases effected upon the exercise of rights issued by an issuer PRO RATA to all holders of a class of its securities, to the extent such rights were acquired from the issuer, and sales of such rights so acquired; or

5. Subject to the advance approval by a Designated Supervisory Person, purchases or sales which are only remotely potentially harmful to the Clients because such purchases or sales would be unlikely to affect a highly institutional market, or because such purchases or sales are clearly not related economically to the securities held, purchased or sold by the Clients.

6. Gifts of securities to recognized charities, charitable gift funds or those entities in which the Covered Person has neither a direct or indirect beneficial ownership.

IV. COMPLIANCE PROCEDURES

A. PRECLEARANCE

A Covered Person may directly or indirectly, acquire or dispose of beneficial ownership of a security, including shares of the Funds, only if (1) such purchase or sale has been approved by a supervisory person designated by F&C (the "Designated Supervisory Person" or "DSP"), (2) the approved transaction is completed on the same day approval is received and (3) the Designated Supervisory Person has not rescinded such approval prior to execution of the transaction. On the effective date of this Code, Robert M. Ettinger and Donald F. Crumrine are such Designated Supervisory Persons. Mr. Ettinger shall act as a DSP for Mr. Crumrine, Mr. Crumrine for Mr. Ettinger, and, if either Mr. Ettinger or Mr. Crumrine is not available, Robert T. Flaherty shall, in these instances, act as a DSP for Mr. Crumrine or Mr. Ettinger.

B. REPORTING

Every Covered Person must report certain information about EACH non-exempt transaction by which the Covered Person acquires ANY direct or indirect beneficial ownership (as defined in Attachment A to this Code) of a security, PROVIDED, HOWEVER, that a Covered Person shall not be required to make a report with respect to any transaction effected for any account over which such person does not have any direct or indirect influence or control or which would duplicate information recorded pursuant to Rules 204-2(a)(12) or 204-2(a)(13) under the Investment Advisors Act of 1940, as amended.

After verbal prior approval for each non-exempt securities transaction required this Article IV. is granted, the Covered Person must ensure that written approval of the DSP is filed in the Covered Person's confidential Personal Securities Transaction File (the "Transaction File") except as provided for below. The broker or futures commission merchant through which the transaction was effected shall be directed by the Covered Person to supply to the Designated Supervisory Person, on a timely basis, duplicate confirmations of each transaction. Such confirmations will then be matched with the written prior approval in the Covered Person's Transaction File.

By the seventh day of each month, all Covered Persons must file with F&C a confidential Personal Securities Transaction Report (the "Transaction Report") for the immediately preceding month including all non-exempt transactions. A Transaction Report must be filed whether or not there were any reportable transactions. Participation in dividend reinvestment plans of publicly held companies need be indicated only on the line provided under "Purchases" on the monthly Transaction report. The Transaction Report must contain the following information:

1. The date of the transaction, the title including interest rate and maturity date (if applicable), and the number of shares, contracts, or the principal amount of each security involved;

2. The nature of the transaction (i.e., purchase , sale or other acquisition or disposition);

3. The price of the security at which the transaction was effected;

4. The name of the broker, dealer or bank with or through whom the transaction was effected; and

5. The date that the report is submitted by the Covered Person.

Any report submitted to comply with the requirements of this Article IV. may contain a statement that the report shall not be construed as an admission by the person making such report that such person has any direct or indirect beneficial ownership (as defined in Attachment A to this Code) in the securities to which the report relates.

A Covered Person will be deemed to be in full compliance with the reporting requirements of this Article IV. Paragraph B. by causing duplicate confirmations AND monthly brokerage statements on which all transactions required to be reported hereunder are described to be sent to the Designated Supervisory Person. The maintenance of records for the Covered Person's beneficial ownership of securities and commodities holdings on F&C's standard client account record keeping system will be deemed to be full compliance with the approval, reporting and disclosure requirements of this Code.

C. DISCLOSURE OF PERSONAL HOLDINGS - INITIAL AND ANNUAL HOLDINGS REPORTS

1. Initial Holdings Report. No later than 10 days after a person becomes a Covered Person, the following information shall be submitted to the Designated Supervisory Person:

A. The title, number of shares, contracts or the principal amount of all Covered Securities owned directly or indirectly by the Covered Person when the Covered Person became a Covered Person;

B. The name of any broker, dealer or bank with whom the Covered Person maintained an account in which any Covered Securities were held for the benefit of the Covered Person as of the date the person became a Covered Person; and

C. The date that the report is submitted by the Covered Person.

2. Annual Holdings Report. Each Covered Person shall submit to the Designated Supervisory Person the information listed in C. 1.a., b. and c. above on an annual basis, which information shall not be more than 30 days old.

D. CERTIFICATION OF COMPLIANCE

Each Covered Person is required to certify annually that he or she has read and understood the Code and recognizes that he or she is subject to such Code. Further, each Covered Person is required to certify annually that he or she has complied with all the requirements of the Code and that he or she has disclosed or reported all personal securities transactions required to be disclosed or reported pursuant to the requirements of the Code.

V. SANCTIONS

Upon discovering that a Covered Person has not complied with the requirements of this Code, F&C may impose on that Covered Person whatever sanctions it deems appropriate, including, among other things, disgorgement of profits, censure, suspension or termination of employment.

VI. CONFIDENTIALLY

All information obtained from any Covered Person hereunder shall be kept in strict confidence, except that reports of securities transactions hereunder may be made available to the Securities and Exchange Commission or any other regulatory or self-regulatory organization, and may otherwise be disclosed to the extent required by law or regulation.

VII. AMENDMENTS

Any material change to this Code must be approved by F&C's Board of Directors within six months of such change.

VIII. FURTHER INFORMATION

If any person has any questions with regard to the applicability of the provisions of this Code generally or with regard to any securities transaction or transactions, such person should consult the Designated Supervisory Person.

DATED: FEBRUARY 21, 2002

IX. ACKNOWLEDGMENT

I have read and understand the foregoing Code and will comply in all respects with it.

ATTACHMENT A

The term "beneficial ownership" as used in the attached Code of Ethics (the "Code") is to be interpreted by reference to Rule 16a-1(a)(2) under the Securities Exchange Act of 1934 (the "Rule"), except that the determination of direct or indirect beneficial ownership for purposes of the Code must be made with respect to all securities that a Covered Person has or acquires. Under the Rule, a person is generally deemed to have beneficial ownership of securities if the person, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares a direct or indirect pecuniary interest in the securities.

The term "pecuniary interest" in particular securities is generally defined in the Rule to mean the opportunity, directly or indirectly, to profit or share in any profit derived from a transaction in the securities. A person is refutably deemed to have an "indirect pecuniary interest" within the meaning of the Rule in any securities held by members of the person's immediate family sharing the same household, the term "immediate family" including any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, sister-in-law, as well as adoptive relationships. Under the Rule, an indirect pecuniary interest also includes, among other things: a general partner's proportionate interest in the portfolio securities held by a general or limited partnership; a performance-related fee, other than an asset-based fee, received by any broker, dealer, bank, insurance company, investment company, investment adviser, investment manager, trustee or person or entity performing a similar function; a person's right to dividends that is separated or separable from the underlying securities; a person's interest in securities held by certain trusts; and a person's right to acquire equity securities through the exercise or conversion of any derivative security, whether or not presently exercisable, the term "derivative security being generally defined as any option, warrant, convertible security, stock appreciation right, or similar right with an exercise or conversion privilege at a price related to an equity security, or similar securities with, or value derived from, the value of an equity security. For purposes of the Rule, a person who is a shareholder of a corporation or similar entity is NOT deemed to have a pecuniary interest in portfolio securities held by the corporation or the entity and does not have or share investment control over the corporation's or the entity's portfolio.