Edgar Filing: PREFERRED INCOME OPPORTUNITY FUND INC

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES

Investment Company Act file number 811-06495
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Flaherty & Crumrine Preferred Income Opportunity Fund Incorporated
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(Exact name of registrant as specified in charter)

301 E. Colorado Boulevard, Suite 720
PASADENA, CA 91101
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(Address of principal executive offices) (Zip code)

Donald F. Crumrine
Flaherty & Crumrine Inc.
301 E. Colorado Boulevard, Suite 720
PASADENA, CA 91101
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(Name and address of agent for service)

Registrant's telephone number, including area code: 626-795-7300
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Date of fiscal year end: NOVEMBER 30, 2003
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Date of reporting period: NOVEMBER 30, 2003
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Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.

A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.

ITEM 1. REPORTS TO STOCKHOLDERS.

FLAHERTY & CRUMRINE PREFERRED INCOME
OPPORTUNITY FUND

Dear Shareholder:

The Flaherty & Crumrine Preferred Income Opportunity Fund ("PFO") wrapped
up a very successful fiscal year on November 30, 2003. The Fund produced
+3.0%(1) total return on net asset value ("NAV") during the fourth fiscal
quarter, and +26.9%(1) for the full year. The market price of Fund shares also
produced very strong returns. For the full fiscal year, the combination of
income and share price appreciation totaled +24.9%. By any practical measure,
those returns were very, very good.

There is also good news on the dividend. Beginning in December, the regular
monthly dividend has increased to $0.0755 per share from $0.073, an increase of
3.4%. In addition, the Fund made a one-time extra distribution of $0.03 per
share, payable December 31 to holders of record on December 24, 2003. We have
more to say about this in the Question and Answer section.

The table below compares the return on your Fund with a broad composite of
fixed-income, closed-end funds. Although the investment strategies used by the
Fund differ significantly from those of the typical bond fund, we believe that
the Flaherty & Crumrine Preferred Income Opportunity Fund provides a better way
of accomplishing a similar objective.

AVERAGE TOTAL RETURN PER YEAR ON NET ASSET VALUE(1)
FOR PERIODS ENDING NOVEMBER 30, 2003

ONE FIVE TEN LIFE OF
YEAR YEARS YEARS FUND(2)
---- ----- ----- -------
Flaherty & Crumrine Preferred
Income Opportunity Fund 26.9% 8.7% 9.6% 10.7%
Lipper Composite of
Investment Grade Bond Funds(3) 9.5% 6.6% 6.8% 7.4%

----------------------
(1) Based on monthly data provided by Lipper Inc. Distributions are assumed to
be reinvested at NAV in accordance with Lipper's practice, which differs
from the procedures used elsewhere in this report.
(2) Since inception on February 13, 1992.
(3) Includes all U.S. Government bond, mortgage bond and term trust and
investment grade bond funds in Lipper's closed-end fund database at each
point in time.

A number of factors contributed to the outstanding performance of the Fund
over the past fiscal year, but three in particular stand out:

o A very favorable market for preferred securities;
o Successful execution of the Fund's hedging strategy; and
o Attractive financing rates on the Fund's Money Market Preferred
("MMP(TRADE MARK)") shares.

The demand for preferred securities increased steadily over the past year.
This was especially true for preferred securities that pay dividends subject to
new, lower tax rates. As we have discussed in the past, preferred securities can
be divided into two broad categories--"hybrid preferreds" which pay INTEREST and
"traditional preferreds" which pay DIVIDENDS. Prior to 2003, the distinction was
most critical for corporations because they received favorable tax treatment on
dividends. Starting in 2003, however, individuals will also be taxed at lower
rates on dividends, and, as a result, have increasingly become buyers of
traditional preferreds.

For several years the Fund has been steadily increasing its holdings of
dividend-paying preferreds and thus has been well positioned to capitalize on
the greater demand. These portfolio moves have been an important key to the
Fund's superior performance. 84.4% of the distributions made by PFO in 2003 to
Common Shareholders is considered qualified dividend income for individual
taxpayers. A more detailed discussion is included in the Q&A section.

The Fund's hedging strategy played a very important role in fiscal 2003.
Long-term U.S. Treasury interest rates ended the year at about the same level as
where they began, slightly above 5%. Over the course of the year, however,
interest rates were anything but stable. The Fund's hedges performed according
to design, and actually benefited from the volatility. The hedging strategy
enabled the Fund to make a lot of money when interest rates declined during the
spring, while protecting much of those gains as rates spiked back up during the
summer.

The Fund also benefited from low short-term interest rates, which kept the
average rate the Fund paid on its shares of MMP(TRADE MARK) below 1 1/4%. Keep
in mind that low short-term rates can be a double-edged sword--while reducing
the cost of leverage, low rates typically make the Fund's hedging strategy more
expensive. In the case of PFO, the cost of the leverage and the cost of the
hedge should move as if they are on opposite ends of a teeter-totter--when one
is going up, the other should be falling (although not necessarily by the same
amount). Over the past year, however, we managed to "bend the board"--leverage
cost was low AND active management of the hedge positions kept the hedge costs
down.

During the past few months it seems as if each passing day has brought new
revelations of misdeeds by open-end mutual funds. The abuses have been almost
entirely the result of certain fund complexes permitting two different types of
trading strategies in funds they manage--after-hour trades and rapid or
excessive trading. NOT ONE OF THESE ALLEGED ABUSES HAS INVOLVED A CLOSED-END
FUND. Shares of closed-end funds, such as PFO, trade at prices determined in the
market place rather than at the net asset value computed at the market's close.
As a result, these abusive trading techniques simply can't work in closed-end
funds. We address this topic in greater detail in the Q&A section, but we want
our shareholders to know that in addition to the structural protection offered
by the Fund, we are committed to following both the letter and spirit of the
law, and to making certain that every investor is treated exactly the same.

Our approach to managing your Fund is straightforward. We intensively study
and monitor the fundamental credit quality of each potential investment, and
carefully evaluate the specific terms of each individual issue. If all this
research produces a suitable level of comfort, we then begin the process of
assessing the appropriate price for the security. Since our investment
philosophy is to own the issues that offer the best OVERALL value within the
universe of eligible securities, it often means that we pass up the temptation
of issues offering higher absolute yields. If we make intelligent investments
and continue to successfully implement the hedging strategy, then the Fund will
have more money to invest and thus be able to generate more income over time.
The process is arduous and ongoing, but rarely do good things come without
substantial effort.

We encourage you to read the Questions and Answers section beginning on the
next page, which contains additional information on the Fund's strategy and
operation.

Sincerely,

/S/ DONALD F. CRUMRINE /S/ ROBERT M. ETTINGER

Donald F. Crumrine Robert M. Ettinger
Chairman of the Board President

January 21, 2004

QUESTIONS & ANSWERS

WHY WAS THE FUND ABLE TO RAISE ITS DIVIDEND RATE?

A number of things contributed to the dividend increase, but the key
factors were the management of the investment portfolio, the success of the
hedging strategy and continued low short-term interest rates.

One proven strategy to increase income from an investment portfolio is to
have a larger portfolio. Over the years, consistent, active management of the
portfolio has been the surest way to make it grow. Sometimes our focus may be on
specific securities and other times on broader sectors of the market, but the
simple goal is to "buy 'em cheap and sell 'em dear".

During the past year, almost anyone who purchased a preferred security
probably made money. Producing returns like PFO, however, required owning the
"right" preferreds. For example, the decision to increase the portfolio's
allocation to traditional preferreds was a major factor in this year's
performance.

We also actively manage the Fund's hedge. This past spring, when yields on
intermediate and long-term U.S. Treasury bonds were falling to historical lows,
the Fund's put option hedges quickly became worthless, but the prices on the
Fund's preferred securities kept going up! When yields reversed course and rose
rapidly in mid-summer, gains on the hedge offset much of the decline in the
value of the securities, and a portion of the hedge gains were used to purchase
additional income producing securities.

Finally, Federal Reserve monetary policy has kept short-term yields very
low. Since the rates paid by the Fund on its shares of Money Market Cumulative
Preferred(TRADE MARK) Stock (MMP(TRADE MARK)) are closely correlated to these
yields, the Fund has more income available for shareholders.

WHAT HAS HAPPENED TO THE FUND'S INCOME OVER TIME?

The following chart provides the clearest answer. The chart may look
familiar--it has appeared several times in the past (it is one of our favorites
because it clearly demonstrates the success of the Fund's investment strategy).
The solid line (measured on the left-hand scale) represents the monthly dollar
income received from an original investment in 1,000 shares of the Fund. It is
based on the assumption that the shareholder spent his or her regular monthly
dividend income from the Fund and reinvested at net asset value only the portion
of each special year-end distribution that was "above and beyond" the monthly
dividends.

FLAHERTY & CRUMRINE PREFERRED INCOME OPPORTUNITY FUND
MONTHLY DIVIDEND INCOME
On a 1,000 Share ($12,500) Initial Investment through 12/31/03

[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

MONTHLY DIVIDEND 30-YEAR
DATE INCOME TREASURY YIELD

Jan-92 7.76%
Feb-92 7.79%
Mar-92 7.96%
Apr-92 8.03%
May-92 $82.50 7.84%
Jun-92 $82.50 7.78%
Jul-92 $82.50 7.46%
Aug-92 $82.50 7.41%
Sep-92 $82.50 7.38%
Oct-92 $82.50 7.62%
Nov-92 $82.50 7.60%
Dec-92 $82.50 7.39%
Jan-93 $83.14 7.19%
Feb-93 $83.14 6.90%
Mar-93 $83.14 6.92%
Apr-93 $83.14 6.93%
May-93 $83.14 6.98%
Jun-93 $83.14 6.67%
Jul-93 $83.14 6.56%
Aug-93 $83.14 6.09%
Sep-93 $83.14 6.02%
Oct-93 $83.14 5.97%
Nov-93 $83.14 6.30%
Dec-93 $83.14 6.35%
Jan-94 $79.87 6.24%
Feb-94 $79.87 6.66%
Mar-94 $79.87 7.09%
Apr-94 $79.87 7.30%
May-94 $85.89 7.43%
Jun-94 $85.89 7.61%
Jul-94 $85.89 7.39%
Aug-94 $85.89 7.48%
Sep-94 $85.89 7.82%
Oct-94 $85.89 7.96%
Nov-94 $89.17 7.94%
Dec-94 $89.17 7.88%
Jan-95 $88.36 7.73%
Feb-95 $88.36 7.55%
Mar-95 $88.36 7.43%
Apr-95 $88.36 7.33%
May-95 $88.36 6.63%
Jun-95 $83.83 6.54%
Jul-95 $83.83 6.90%
Aug-95 $83.83 6.61%
Sep-95 $83.83 6.50%
Oct-95 $83.83 6.36%
Nov-95 $83.83 6.08%
Dec-95 $78.73 5.95%
Jan-96 $78.73 6.05%
Feb-96 $78.73 6.36%
Mar-96 $78.73 6.67%
Apr-96 $78.73 6.83%
May-96 $83.83 7.00%
Jun-96 $83.83 6.95%
Jul-96 $83.83 7.01%
Aug-96 $83.83 7.12%
Sep-96 $83.83 6.90%
Oct-96 $83.83 6.81%
Nov-96 $83.83 6.51%
Dec-96 $83.83 6.60%
Jan-97 $84.06 6.79%
Feb-97 $84.06 6.80%
Mar-97 $84.06 7.09%
Apr-97 $84.06 6.89%
May-97 $84.06 6.98%
Jun-97 $84.06 6.74%
Jul-97 $84.06 6.45%
Aug-97 $84.06 6.61%
Sep-97 $84.06 6.30%
Oct-97 $84.06 6.15%
Nov-97 $84.06 6.04%
Dec-97 $84.06 5.95%
Jan-98 $79.79 5.90%
Feb-98 $79.79 6.02%
Mar-98 $79.79 5.93%
Apr-98 $79.79 5.95%
May-98 $79.79 5.80%
Jun-98 $79.79 5.62%
Jul-98 $79.79 5.72%
Aug-98 $79.79 5.26%
Sep-98 $79.79 4.98%
Oct-98 $79.79 5.15%
Nov-98 $79.79 5.07%
Dec-98 $79.79 5.09%
Jan-99 $81.35 5.09%
Feb-99 $81.35 5.58%
Mar-99 $81.35 5.62%
Apr-99 $81.35 5.66%
May-99 $81.35 5.82%
Jun-99 $88.18 5.97%
Jul-99 $88.18 6.10%
Aug-99 $88.18 6.06%
Sep-99 $88.18 6.05%
Oct-99 $88.18 6.16%
Nov-99 $88.18 6.29%
Dec-99 $88.18 6.48%
Jan-00 $88.45 6.49%
Feb-00 $88.45 6.15%
Mar-00 $88.45 5.84%
Apr-00 $88.45 5.96%
May-00 $88.45 6.02%
Jun-00 $88.45 5.89%
Jul-00 $88.45 5.79%
Aug-00 $88.45 5.67%
Sep-00 $88.45 5.88%
Oct-00 $88.45 5.79%
Nov-00 $88.45 5.59%
Dec-00 $88.45 5.46%
Jan-01 $88.45 5.53%
Feb-01 $88.45 5.34%
Mar-01 $88.45 5.46%
Apr-01 $88.45 5.77%
May-01 $88.45 5.77%
Jun-01 $88.45 5.74%
Jul-01 $88.45 5.50%
Aug-01 $88.45 5.37%
Sep-01 $88.45 5.41%
Oct-01 $88.45 4.88%
Nov-01 $88.45 5.26%
Dec-01 $88.45 5.47%
Jan-02 $88.97 5.43%
Feb-02 $88.97 5.41%
Mar-02 $88.97 5.80%
Apr-02 $88.97 5.59%
May-02 $88.97 5.61%
Jun-02 $95.52 5.52%
Jul-02 $95.52 5.30%
Aug-02 $95.52 4.93%
Sep-02 $95.52 4.66%
Oct-02 $95.52 5.00%
Nov-02 $95.52 5.04%
Dec-02 $95.52 4.96%
Jan-03 $96.47 4.85%
Feb-03 $96.47 4.67%
Mar-03 $96.47 4.83%
Apr-03 $96.47 4.78%
May-03 $96.47 4.36%
Jun-03 $96.47 4.56%
Jul-03 $96.47 5.41%
Aug-03 $96.47 5.22%
Sep-03 $96.47 4.89%
Oct-03 $96.47 5.14%
Nov-03 $96.47 5.13%
Dec-03 $96.47 5.00%
Jan-04 $100.01 5.00%
Feb-04 $100.01 5.10%

The chart's message is that the MONTHLY DIVIDEND INCOME HAS INCREASED SINCE
THE INCEPTION OF THE FUND FOR SHAREHOLDERS THAT REINVESTED THE "EXTRA"
DISTRIBUTIONS. That increase is rather remarkable in view of the substantial
decline in the interest rate on long-term U.S. Treasury bonds (the dashed line
measured on the right-hand scale) over the life of the Fund from roughly 8% to
slightly more than 5%.

ARE DIVIDENDS PAID BY THE FUND ELIGIBLE FOR THIS YEAR'S LOWER TAX RATES?

For individual investors in PFO, 84.39% of the distributions made by the
Fund in CALENDAR YEAR 2003 was QUALIFIED DIVIDEND income. For corporate
investors, 83.98% was eligible for the inter-corporate dividend received
deduction.

WHAT PORTION OF 2004 DISTRIBUTIONS WILL BE QUALIFIED DIVIDEND INCOME?

The short answer is "we don't know". The breakdown between dividends,
interest and capital gains can only be determined once we close the books on the
Fund's fiscal year-end, so the 2004 numbers can't be computed until a year from
now.

As can be seen in the attached portfolio listing, more than two thirds of
the portfolio was invested in traditional preferred stocks at our fiscal year
end. This percentage has increased since then simply because we believed these
securities were undervalued. If the "pendulum of value" swings too far the other
way and taxable (or "hybrid") preferreds look relatively more attractive, the
portfolio composition may move more toward hybrids. In that scenario, the Fund's
qualified dividend percentage would likely decline, but the dividend rate could
possibly increase.

HOW WILL THE FUND NOTIFY SHAREHOLDERS ABOUT HOW MUCH INCOME IS ELIGIBLE FOR
THE LOWER TAX RATE?

If you are an individual investor and have possession of your Fund share
certificate, you will receive Form 1099 from PFPC. If your shares are registered
in the name of your brokerage firm, it will issue Form 1099 directly to you. In
either case, Box 1b of Form 1099 includes "Qualified dividends" eligible for the
lower tax rate.

WHY HAS THE MARKET PRICE INCREASED RELATIVE TO THE NAV?

The following chart plots the relationship of market price to net asset
value over the life of the Fund.

FLAHERTY & CRUMRINE PREFERRED INCOME OPPORTUNITY FUND
PREMIUM/DISCOUNT OF MARKET PRICE TO NAV

[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

DATE PREMIUM/DISCOUNT

2/21/92 0.0726%
2/28/92 0.0805%
3/6/92 0.0874%
3/13/92 0.0980%
3/20/92 0.0819%
3/27/92 0.0556%
4/3/92 0.0538%
4/10/92 0.0705%
4/17/92 0.0547%
4/24/92 0.0590%
5/1/92 0.0546%
5/8/92 0.0536%
5/15/92 0.0306%
5/22/92 0.0248%
5/29/92 0.0307%
6/5/92 0.0181%
6/12/92 0.0400%
6/19/92 0.0357%
6/26/92 0.0442%
7/3/92 0.0475%
7/10/92 0.0626%
7/17/92 0.0800%
7/24/92 0.0592%
7/31/92 0.0647%
8/7/92 0.0613%
8/14/92 0.0628%
8/21/92 0.0514%
8/28/92 0.0539%
9/4/92 0.0409%
9/11/92 0.0684%
9/18/92 0.0572%
9/25/92 0.0539%
10/2/92 0.0620%
10/9/92 0.0675%
10/16/92 0.0490%
10/23/92 0.0188%
10/30/92 0.0474%
11/6/92 0.0180%
11/13/92 0.0188%
11/20/92 0.0408%
11/27/92 0.0844%
12/4/92 0.0630%
12/11/92 0.0515%
12/18/92 0.0691%
12/25/92 0.0638%
1/1/93 0.0621%
1/8/93 0.0679%
1/15/93 0.0595%
1/22/93 0.0434%
1/29/93 0.0475%
2/5/93 0.0483%
2/12/93 0.0284%
2/19/93 0.0202%
2/26/93 0.0310%
3/5/93 0.0473%
3/12/93 0.0651%
3/19/93 0.0303%
3/26/93 0.0360%
4/2/93 0.0514%
4/9/93 0.0675%
4/16/93 0.0570%
4/23/93 0.0853%
4/30/93 0.0651%
5/7/93 0.0513%
5/14/93 0.0610%
5/21/93 0.0570%
5/28/93 0.0441%
6/4/93 0.0497%
6/11/93 0.0561%
6/18/93 0.0497%
6/25/93 0.0417%
7/2/93 0.0472%
7/9/93 0.0425%
7/16/93 0.0362%
7/23/93 0.0068%
7/30/93 0.0306%
8/6/93 0.0212%
8/13/93 0.0181%
8/20/93 0.0008%
8/27/93 0.0370%
9/3/93 0.0331%
9/10/93 0.0401%
9/17/93 0.0338%
9/24/93 0.0244%
10/1/93 0.0214%
10/8/93 0.0261%
10/15/93 0.0263%
10/22/93 0.0246%
10/29/93 0.0090%
11/5/93 0.0000%
11/12/93 -0.0107%
11/19/93 -0.0282%
11/26/93 -0.0179%
12/3/93 -0.0076%
12/10/93 -0.0334%
12/17/93 -0.0338%
12/24/93 -0.0431%
12/31/93 0.0249%
1/7/94 -0.0036%
1/14/94 0.0157%
1/21/94 -0.0230%
1/28/94 -0.0377%
2/4/94 -0.0323%
2/11/94 -0.0361%
2/18/94 -0.0863%
2/25/94 -0.0500%
3/4/94 -0.0392%
3/11/94 -0.0315%
3/18/94 -0.0585%
3/25/94 -0.0562%
4/1/94 -0.0556%
4/8/94 -0.0612%
4/15/94 -0.0771%
4/22/94 -0.1012%
4/29/94 -0.1145%
5/6/94 -0.0775%
5/13/94 -0.0633%
5/20/94 -0.0636%
5/27/94 -0.0312%
6/3/94 -0.0683%
6/10/94 -0.0288%
6/17/94 -0.0457%
6/24/94 -0.0393%
7/1/94 -0.0409%
7/8/94 -0.0450%
7/15/94 -0.0490%
7/22/94 -0.0294%
7/29/94 -0.0327%
8/5/94 -0.0221%
8/12/94 -0.0303%
8/19/94 -0.0269%
8/26/94 -0.0348%
9/2/94 -0.0204%
9/9/94 -0.0318%
9/16/94 -0.0409%
9/23/94 -0.0628%
9/30/94 -0.0620%
10/7/94 -0.1322%
10/14/94 -0.1149%
10/21/94 -0.1410%
10/28/94 -0.1040%
11/4/94 -0.0786%
11/11/94 -0.0976%
11/18/94 -0.0990%
11/25/94 -0.0770%
12/2/94 -0.0402%
12/9/94 -0.0868%
12/16/94 -0.0732%
12/23/94 -0.0604%
12/30/94 -0.0851%
1/6/95 -0.0010%
1/13/95 -0.0141%
1/20/95 -0.0303%
1/27/95 -0.0619%
2/3/95 -0.0119%
2/10/95 -0.0314%
2/17/95 -0.0702%
2/24/95 -0.0376%
3/3/95 -0.0297%
3/10/95 -0.0585%
3/17/95 -0.0523%
3/24/95 -0.0534%
3/31/95 -0.0393%
4/7/95 -0.0341%
4/14/95 -0.0393%
4/21/95 -0.0690%
4/28/95 -0.0341%
5/5/95 -0.0576%
5/12/95 -0.0501%
5/19/95 -0.0933%
5/26/95 -0.0753%
6/2/95 -0.0481%
6/9/95 -0.0729%
6/16/95 -0.0702%
6/23/95 -0.0749%
6/30/95 -0.0686%
7/7/95 -0.0690%
7/14/95 -0.0869%
7/21/95 -0.1087%
7/28/95 -0.0911%
8/4/95 -0.0973%
8/11/95 -0.1018%
8/18/95 -0.1011%
8/25/95 -0.0780%
9/1/95 -0.0706%
9/8/95 -0.0833%
9/15/95 -0.0710%
9/22/95 -0.0749%
9/29/95 -0.0641%
10/6/95 -0.0718%
10/13/95 -0.1006%
10/20/95 -0.0909%
10/27/95 -0.1012%
11/3/95 -0.1232%
11/10/95 -0.0962%
11/17/95 -0.1071%
11/24/95 -0.1093%
12/1/95 -0.1014%
12/8/95 -0.1277%
12/15/95 -0.1233%
12/22/95 -0.1265%
12/29/95 -0.1454%
1/5/96 -0.1197%
1/12/96 -0.1279%
1/19/96 -0.1312%
1/26/96 -0.1146%
2/2/96 -0.1233%
2/9/96 -0.1233%
2/16/96 -0.1279%
2/23/96 -0.1303%
3/1/96 -0.1124%
3/8/96 -0.1465%
3/15/96 -0.1508%
3/22/96 -0.1487%
3/29/96 -0.1515%
4/5/96 -0.1315%
4/12/96 -0.1286%
4/19/96 -0.1279%
4/26/96 -0.1383%
5/3/96 -0.1257%
5/10/96 -0.1130%
5/17/96 -0.1408%
5/24/96 -0.1386%
5/31/96 -0.1386%
6/7/96 -0.1255%
6/14/96 -0.1337%
6/21/96 -0.1301%
6/28/96 -0.0918%
7/5/96 -0.1079%
7/12/96 -0.0911%
7/19/96 -0.1122%
7/26/96 -0.0939%
8/2/96 -0.0876%
8/9/96 -0.0688%
8/16/96 -0.0673%
8/23/96 -0.0881%
8/30/96 -0.0836%
9/6/96 -0.0836%
9/13/96 -0.0661%
9/20/96 -0.0889%
9/27/96 -0.0991%
10/4/96 -0.0876%
10/11/96 -0.0876%
10/18/96 -0.0935%
10/25/96 -0.0834%
11/1/96 -0.0796%
11/8/96 -0.0932%
11/15/96 -0.0726%
11/22/96 -0.0586%
11/29/96 -0.0608%
12/6/96 -0.0792%
12/13/96 -0.0813%
12/20/96 -0.1009%
12/27/96 -0.0837%
1/3/97 -0.0693%
1/10/97 -0.0562%
1/17/97 -0.0693%
1/24/97 -0.0834%
1/31/97 -0.0678%
2/7/97 -0.0623%
2/14/97 -0.0551%
2/21/97 -0.0645%
2/28/97 -0.0605%
3/7/97 -0.0581%
3/14/97 -0.0654%
3/21/97 -0.0715%
3/28/97 -0.0715%
4/4/97 -0.0573%
4/11/97 -0.0973%
4/18/97 -0.0806%
4/25/97 -0.0748%
5/2/97 -0.0672%
5/9/97 -0.0520%
5/16/97 -0.0647%
5/23/97 -0.0573%
5/30/97 -0.0362%
6/6/97 -0.0615%
6/13/97 -0.0385%
6/20/97 -0.0473%
6/27/97 -0.0418%
7/4/97 -0.0498%
7/11/97 -0.0585%
7/18/97 -0.0486%
7/25/97 -0.0630%
8/1/97 -0.0273%
8/8/97 -0.0701%
8/15/97 -0.0715%
8/22/97 -0.0767%
8/29/97 -0.0472%
9/5/97 -0.0580%
9/12/97 -0.0656%
9/19/97 -0.0557%
9/26/97 -0.0492%
10/3/97 -0.0292%
10/10/97 -0.0492%
10/17/97 -0.0506%
10/24/97 -0.0574%
10/31/97 -0.0477%
11/7/97 -0.0442%
11/14/97 -0.0377%
11/21/97 -0.0688%
11/28/97 -0.0484%
12/5/97 -0.0406%
12/12/97 -0.0652%
12/19/97 -0.0648%
12/26/97 -0.0456%
1/2/98 -0.0171%
1/9/98 -0.0197%
1/16/98 -0.0185%
1/23/98 -0.0620%
1/30/98 -0.0477%
2/6/98 -0.0530%
2/13/98 -0.0604%
2/20/98 -0.0456%
2/27/98 -0.0477%
3/6/98 -0.0473%
3/13/98 -0.0568%
3/20/98 -0.0487%
3/27/98 -0.0579%
4/3/98 -0.0682%
4/10/98 -0.0508%
4/17/98 -0.0620%
4/24/98 -0.0768%
5/1/98 -0.0618%
5/8/98 -0.0540%
5/15/98 -0.0717%
5/22/98 -0.0664%
5/29/98 -0.0648%
6/5/98 -0.0643%
6/12/98 -0.0627%
6/19/98 -0.0573%
6/26/98 -0.0600%
7/3/98 -0.0575%
7/10/98 -0.0562%
7/17/98 -0.0563%
7/24/98 -0.0465%
7/31/98 -0.0526%
8/7/98 -0.0472%
8/14/98 -0.0864%
8/21/98 -0.0954%
8/28/98 -0.0540%
9/4/98 -0.0618%
9/11/98 -0.0487%
9/18/98 -0.0392%
9/25/98 -0.0402%
10/2/98 -0.0554%
10/9/98 -0.0744%
10/16/98 -0.0485%
10/23/98 -0.0406%
10/30/98 -0.0616%
11/6/98 -0.0396%
11/13/98 -0.0481%
11/20/98 -0.0641%
11/27/98 -0.0478%
12/4/98 -0.0413%
12/11/98 -0.0363%
12/18/98 -0.0537%
12/25/98 -0.0132%
1/1/99 -0.0196%
1/8/99 -0.0297%
1/15/99 -0.0392%
1/22/99 -0.0627%
1/29/99 -0.0677%
2/5/99 -0.0610%
2/12/99 -0.0887%
2/19/99 -0.0937%
2/26/99 -0.1078%
3/5/99 -0.0846%
3/12/99 -0.0650%
3/19/99 -0.1022%
3/26/99 -0.0888%
4/2/99 -0.0724%
4/9/99 -0.1029%
4/16/99 -0.0781%
4/23/99 -0.0930%
4/30/99 -0.1156%
5/7/99 -0.1015%
5/14/99 -0.1277%
5/21/99 -0.1256%
5/28/99 -0.1093%
6/4/99 -0.1007%
6/11/99 -0.0558%
6/18/99 -0.0835%
6/25/99 -0.0602%
7/2/99 -0.0532%
7/9/99 -0.0532%
7/16/99 -0.0761%
7/23/99 -0.0558%
7/30/99 -0.0829%
8/6/99 -0.0464%
8/13/99 -0.0780%
8/20/99 -0.0864%
8/27/99 -0.0345%
9/3/99 -0.1057%
9/10/99 -0.0938%
9/17/99 -0.0683%
9/24/99 -0.0401%
10/1/99 -0.0770%
10/8/99 -0.0860%
10/15/99 -0.1231%
10/22/99 -0.1254%
10/29/99 -0.1223%
11/5/99 -0.1192%
11/12/99 -0.1252%
11/19/99 -0.0826%
11/26/99 -0.0979%
12/3/99 -0.0970%
12/10/99 -0.0807%
12/17/99 -0.1118%
12/24/99 -0.1212%
12/31/99 -0.0354%
1/7/00 -0.0028%
1/14/00 -0.0385%
1/21/00 -0.0996%
1/28/00 -0.1047%
2/4/00 -0.0923%
2/11/00 -0.0845%
2/18/00 -0.1038%
2/25/00 -0.0962%
3/3/00 -0.1021%
3/10/00 -0.0858%
3/17/00 -0.1055%
3/24/00 -0.1272%
3/31/00 -0.1361%
4/7/00 -0.1047%
4/14/00 -0.0894%
4/21/00 -0.0781%
4/28/00 -0.0640%
5/5/00 -0.0385%
5/12/00 -0.0566%
5/19/00 -0.0734%
5/26/00 -0.0759%
6/2/00 -0.0905%
6/9/00 -0.1037%
6/16/00 -0.0943%
6/23/00 -0.0775%
6/30/00 -0.0841%
7/7/00 -0.0909%
7/14/00 -0.0893%
7/21/00 -0.0970%
7/28/00 -0.0927%
8/4/00 -0.0912%
8/11/00 -0.0879%
8/18/00 -0.1046%
8/25/00 -0.1046%
9/1/00 -0.1105%
9/8/00 -0.1113%
9/15/00 -0.0836%
9/22/00 -0.1189%
9/29/00 -0.1155%
10/6/00 -0.0896%
10/13/00 -0.0921%
10/20/00 -0.0895%
10/27/00 -0.0725%
11/3/00 -0.0739%
11/10/00 -0.0747%
11/17/00 -0.0962%
11/24/00 -0.0937%
12/1/00 -0.0928%
12/8/00 -0.0903%
12/15/00 -0.0913%
12/22/00 -0.0672%
12/29/00 -0.0276%
1/5/01 -0.0411%
1/12/01 -0.0200%
1/19/01 -0.0077%
1/26/01 0.0192%
2/2/01 -0.0528%
2/9/01 -0.0346%
2/16/01 -0.0184%
2/23/01 -0.0257%
3/2/01 -0.0109%
3/9/01 -0.0360%
3/16/01 -0.0393%
3/23/01 -0.0360%
3/30/01 -0.0109%
4/6/01 0.0200%
4/13/01 0.0046%
4/20/01 0.0243%
4/27/01 -0.0278%
5/4/01 -0.0218%
5/11/01 0.0037%
5/18/01 -0.0228%
5/25/01 -0.0111%
6/1/01 -0.0345%
6/8/01 -0.0325%
6/15/01 -0.0654%
6/22/01 -0.0623%
6/29/01 -0.0379%
7/6/01 -0.0307%
7/13/01 -0.0098%
7/20/01 -0.0264%
7/27/01 0.0237%
8/3/01 0.0035%
8/10/01 -0.0567%
8/17/01 -0.0439%
8/24/01 -0.0365%
8/31/01 -0.0603%
9/7/01 -0.0353%
9/14/01 -0.0353%
9/21/01 0.0000%
9/28/01 -0.0414%
10/5/01 -0.0433%
10/12/01 -0.0114%
10/19/01 -0.0191%
10/26/01 -0.0138%
11/2/01 0.0017%
11/9/01 -0.0068%
11/16/01 0.0260%
11/23/01 0.0304%
11/30/01 -0.0284%
12/7/01 -0.0009%
12/14/01 -0.0201%
12/21/01 0.0210%
12/28/01 0.0289%
1/4/02 0.0297%
1/11/02 0.0276%
1/18/02 0.0268%
1/25/02 0.0677%
2/1/02 0.0444%
2/8/02 0.0607%
2/15/02 0.0457%
2/22/02 0.0582%
3/1/02 0.0595%
3/8/02 0.0124%
3/15/02 0.0302%
3/22/02 0.0383%
3/29/02 0.0400%
4/5/02 0.0248%
4/12/02 0.0409%
4/19/02 0.0394%
4/26/02 0.0526%
5/3/02 0.0839%
5/10/02 0.0595%
5/17/02 0.0858%
5/24/02 0.0757%
5/31/02 0.0766%
6/7/02 0.0832%
6/14/02 0.0670%
6/21/02 0.0743%
6/28/02 0.0933%
7/5/02 0.1238%
7/12/02 0.0692%
7/19/02 0.0972%
7/26/02 0.1421%
8/2/02 0.1372%
8/9/02 0.1002%
8/16/02 0.1195%
8/23/02 0.1206%
8/30/02 0.1077%
9/6/02 0.1002%
9/13/02 0.0965%
9/20/02 0.0993%
9/27/02 0.1042%
10/4/02 0.1141%
10/11/02 0.1429%
10/18/02 0.0519%
10/25/02 0.0741%
11/1/02 0.0733%
11/8/02 0.0721%
11/15/02 0.0664%
11/22/02 0.0610%
11/29/02 0.0872%
12/6/02 0.0972%
12/13/02 0.1086%
12/20/02 0.1278%
12/27/02 0.1558%
1/3/03 0.1518%
1/10/03 0.0930%
1/17/03 0.1092%
1/24/03 0.0865%
1/31/03 0.1038%
2/7/03 0.0983%
2/14/03 0.0960%
2/21/03 0.1148%
2/28/03 0.0969%
3/7/03 0.1258%
3/14/03 0.1585%
3/21/03 0.0897%
3/28/03 0.1033%
4/4/03 0.1225%
4/11/03 0.1477%
4/18/03 0.1463%
4/25/03 0.1211%
5/2/03 0.0989%
5/9/03 0.0553%
5/16/03 0.0330%
5/23/03 0.0145%
5/30/03 0.0486%
6/6/03 -0.0024%
6/13/03 -0.0086%
6/20/03 0.0032%
6/27/03 0.0144%
7/4/03 0.0296%
7/11/03 -0.0249%
7/18/03 -0.0105%
7/25/03 -0.0049%
8/1/03 -0.0353%
8/8/03 -0.0217%
8/15/03 -0.0297%
8/22/03 0.0008%
8/29/03 -0.0032%
9/5/03 0.0008%
9/12/03 -0.0112%
9/19/03 -0.0230%
9/26/03 -0.0346%
10/3/03 -0.0214%
10/10/03 -0.0207%
10/17/03 -0.0254%
10/24/03 0.0095%
10/31/03 0.0284%
11/7/03 0.0422%
11/14/03 0.0386%
11/21/03 0.0740%
11/28/03 0.0731%
12/5/03 0.0875%
12/12/03 0.0816%
12/19/03 0.1044%
12/26/03 0.1084%
1/2/04 0.1290%

We can only speculate on what factors are driving the market price, but
increased interest in qualified dividend income appears to be the primary
reason.

IS THE FUND SUSCEPTIBLE TO TRADING ABUSES LIKE THE ONES IN THE NEWS RECENTLY?

In a word, the answer is NO!

A critical difference between closed-end funds such as PFO and open-end
mutual funds, which have been grabbing all the headlines, is the way in which
they are purchased and sold.

Orders to buy or sell shares of PFO on the NYSE can be placed throughout
the trading day, and limit prices can be specified. The investor has control
over the transaction price, and the trade takes place only if there is a willing
seller and buyer. This degree of control is not possible in an open-end mutual
fund because orders placed throughout the day are completed AFTER the close of
business, based upon the closing net asset value.

Transactions in open-end mutual funds take place between the investor and
the mutual fund company. At the close of business (typically 4:00 PM Eastern
Time), the fund company computes the mutual fund's net asset value. This price
is used to redeem shares from sellers or issue new shares to buyers who placed
orders earlier that day. The rules prohibit fund companies from accepting orders
after the close of business, but some fund companies have permitted favored
clients to place orders AFTER the close, but at that day's NAV. All gains from
"late trading" are at the expense of the other investors in the fund.

The other frequently mentioned abuse in open-end mutual funds is fund
companies permitting "frequent trading" practices by favored clients. Although
not illegal, this practice may harm investors because these favored clients'
gains are again at the expense of the other investors in the fund and usually
force the fund to maintain larger cash positions than would otherwise be
appropriate. Managers of closed-end funds don't face this problem either. If a
holder of a closed-end fund wishes to sell shares, the market must facilitate
the trade, not the fund. Therefore a closed-end fund can remain fully invested
without regard to possible redemptions.

--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Opportunity Fund
FINANCIAL DATA
PER SHARE OF COMMON STOCK
-----------------------------------------------------

TOTAL DIVIDEND
DIVIDENDS NET ASSET NYSE REINVESTMENT
PAID VALUE CLOSING PRICE PRICE (1)
--------- --------- ------------ ------------
December 31, 2002 Extra ..... $0.1070 $10.72 $12.21 $11.60
December 31, 2002 ........... 0.0730 10.72 12.21 11.60
January 31, 2003 ............ 0.0730 11.46 12.65 12.02
February 28, 2003 ........... 0.0730 11.46 12.57 11.94
March 31, 2003 .............. 0.0730 11.58 13.00 12.35
April 30, 2003 .............. 0.0730 11.76 12.59 11.96
May 31, 2003 ................ 0.0730 12.34 12.94 12.34
June 30, 2003 ............... 0.0730 12.60 12.60 12.60
July 31, 2003 ............... 0.0730 12.43 12.02 12.13
August 31, 2003 ............. 0.0730 12.44 12.40 12.41
September 30, 2003 .......... 0.0730 12.74 12.34 12.31
October 31, 2003 ............ 0.0730 12.68 13.04 12.68
November 30, 2003 ........... 0.0730 12.59 13.51 12.83
December 31, 2003 Extra ..... 0.0300 12.63 14.36 13.64
December 31, 2003 ........... 0.0755 12.63 14.36 13.64

-----------------------------
(1) Whenever the net asset value per share of the Fund's common stock is less
than or equal to the market price per share on the payment date, new shares
issued will be valued at the higher of net asset value or 95% of the then
current market price. Otherwise, the reinvestment shares of common stock
will be purchased in the open market.

The accompanying notes are an integral part of the financial statements.

--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Opportunity Fund
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 2003
-----------------------------------------------------

VALUE
SHARES/$ PAR (NOTE 2)
------------ --------

PREFERRED SECURITIES -- 92.4%
ADJUSTABLE RATE PREFERRED SECURITIES -- 9.9%
BANKING -- 9.4%
75,000 Cobank,
Adj. Rate Pfd., 144A**** .................. $ 4,188,000*
J.P. Morgan Chase & Co.:
108,625 Series A, Adj. Rate Pfd. .................. 10,455,157*
18,000 Series L, Adj. Rate Pfd. .................. 1,800,000*
146,700 Series N, Adj. Rate Pfd. .................. 3,695,006*
------------
TOTAL BANKING ADJUSTABLE RATE
PREFERRED SECURITIES ....................... 20,138,163
------------
FINANCIAL SERVICES -- 0.2%
10,500 Bear Stearns Companies, Inc.,
Series A, Adj. Rate Pfd. .................. 530,250*
------------
UTILITIES -- 0.3%
12,265 Northern Indiana Public Service Company,
Series A, Adj. Rate Pfd. .................. 621,682*
------------
TOTAL ADJUSTABLE RATE PREFERRED
SECURITIES ................................. 21,290,095
------------
FIXED RATE PREFERRED SECURITIES -- 81.6%
BANKING -- 15.0%
ABN AMRO North America, Inc.:
1,165 6.46% Pfd., 144A**** ...................... 1,218,712*
3,500 6.59% Pfd., 144A**** ...................... 3,660,142*
BancWest Corporation:
$2,250,000 First Hawaiian Capital I,
8.343% 07/01/27 Capital Security,
Series B .................................. 2,570,490
Citigroup, Inc.:
98,435 5.864% Pfd., Series M ..................... 5,142,244*
10,500 6.213% Pfd., Series G ..................... 558,547*
5,500 6.231% Pfd., Series H ..................... 294,938*
6,900 6.365% Pfd., Series F ..................... 366,666*
25,000 Cobank, ABC,
7.00% Pfd., 144A**** ...................... 1,286,375*
Comerica, Inc.:
$ 500,000 Comerica (Imperial) Capital Trust I,
Series B,
9.98% 12/31/26 Pfd. Capital Security ...... 622,728

VALUE
SHARES/$ PAR (NOTE 2)
------------ --------

Deutsche Bank:
$ 660,000 BT Preferred Capital Trust II,
7.875% 02/25/27 Capital Security .......... $ 738,814
$ 150,000 BT Capital Trust B,
7.90% 01/15/2027 Series B1,
Capital Security .......................... 168,317
GreenPoint Financial Corporation:
$6,849,000 GreenPoint Capital Trust I,
9.10% 06/01/27 Capital Security ........... 7,962,031
24,900 HSBC USA, Inc.,
$2.8575 Pfd. .............................. 1,273,511*
$1,350,000 Keycorp Institutional Capital B,
8.25% 12/15/26 Capital Security ........... 1,543,286
Wachovia Corporation:
$ 500,000 First Union Capital II,
7.95% 11/15/29 Capital Security ........... 605,468
$1,719,000 First Union Institutional Capital I,
8.04% 12/01/26 Capital Security ........... 1,978,311
$1,885,000 First Union Institutional Capital II,
7.85% 01/01/27 Capital Security ........... 2,140,097
------------
TOTAL BANKING FIXED RATE PREFERRED
SECURITIES ................................. 32,130,677
------------
FINANCIAL SERVICES -- 12.7%
Bear Stearns Companies, Inc.:
108,000 5.49% Pfd., Series G ...................... 5,388,120*
50,323 5.72% Pfd., Series F ...................... 2,547,350*
Lehman Brothers Holdings, Inc.:
83,150 5.67% Pfd., Series D ...................... 4,235,245*
159,505 5.94% Pfd., Series C ...................... 8,188,987*
20,000 6.50% Pfd., Series F ...................... 529,500*
113,400 SLM Corporation,
6.97% Pfd., Series A ...................... 6,466,068*
------------
TOTAL FINANCIAL SERVICES FIXED RATE
PREFERRED SECURITIES ....................... 27,355,270
------------
INSURANCE -- 9.6%
47,000 ACE, Ltd.,
7.80% Pfd., Series C ...................... 1,253,255**
AON Corporation:
$1,550,000 AON Capital Trust A,
8.205% 01/01/27 Capital Security .......... 1,722,034

The accompanying notes are an integral part of the financial statements.

--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Opportunity Fund
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 2003
-----------------------------------------------------

VALUE
SHARES/$ PAR (NOTE 2)
------------ --------

PREFERRED SECURITIES -- (CONTINUED)
FIXED RATE PREFERRED SECURITIES -- (CONTINUED)
INSURANCE -- (CONTINUED)
1,250 Fortis Funding Trust,
7.68% Pfd., 144A**** ...................... $ 1,423,838*
SAFECO Corporation:
$ 500,000 SAFECO Capital Trust I,
8.072% 07/15/37 Capital Security .......... 561,475
The St. Paul Companies, Inc.:
$4,895,000 MMI Capital Trust I,
7.625% 12/15/27 Capital Security,
Series B .................................. 5,224,458
UnumProvident Corporation:
$5,889,000 Provident Financing Trust I,
7.405% 03/15/38 Capital Security .......... 5,085,593
Zurich RegCaPS Fund Trust I:
4,000 6.01% Pfd., 144A**** ...................... 4,023,120*
1,200 6.58% Pfd., 144A**** ...................... 1,211,874*
------------
TOTAL INSURANCE FIXED RATE
PREFERRED SECURITIES ....................... 20,505,647
------------
UTILITIES -- 37.9%
Alabama Power Company:
4,980 4.60% Pfd. ................................ 438,813*
6,485 4.72% Pfd. ................................ 586,309*
668 4.92% Pfd. ................................ 62,952*
5 4.95% Pfd. ................................ 519,218*
93,400 5.20% Pfd. ................................ 2,293,437*
2,049 Appalachian Power Company,
5.92% Sinking Fund Pfd. ................... 206,191*
23,750 Avista Corporation,
$6.95 Sinking Fund Pfd., Series K ......... 2,303,750*
10,000 Boston Edison Company,
4.78% Pfd. ................................ 874,950*
13,395 Carolina Power & Light Company,
$5.44 Pfd. ................................ 1,303,400*
CenterPoint Energy, Inc.:
45,000 Houston Light & Power, Capital Trust I,
8.125% QUIPS .............................. 1,128,375
$3,750,000 Houston Light & Power, Capital Trust II,
8.257%, 02/01/37 Capital Security,
Series B .................................. 3,760,781

VALUE
SHARES/$ PAR (NOTE 2)
------------ --------

55,982 REI Trust I,
7.20% TOPrS, Series C ..................... $ 1,311,098
1,628 Central Hudson Gas & Electric Corporation,
4.35% Pfd., Series D, Pvt. ................ 123,573*
Central Illinois Light Company:
10,000 4.64% Pfd. ................................ 853,850*
7,000 5.85% Sinking Fund Pfd. ................... 708,400*
3,798 Central Maine Power Company,
4.75% Pfd. ................................ 314,740*
27,798 Central Vermont Public Service Corporation,
8.30% Pvt. Sinking Fund Pfd. .............. 2,895,301*
5,300 Connecticut Light & Power Company,
$3.24 Pfd. ................................ 278,038*
2,000 Consolidated Edison Company of New York,
4.65% Pfd., Series C ...................... 174,220*
Dayton Power & Light Company:
2,000 3.75% Pfd. ................................ 124,710*
4,500 3.90% Pfd., Series C ...................... 291,847*
Duke Energy Corporation:
8,004 4.50% Pfd., Series C, Pvt. ................ 649,965*
13,400 6.75% Pfd., Series X, Sinking Fund Pfd. ... 1,395,208*
30,700 7.85% Pfd., Series S ...................... 3,188,809*
15,030 Duquesne Light Company,
3.75% Pfd. ................................ 441,206*
5,000 Energy East Capital Trust I,
8.25% TOPrS ............................... 134,175
Entergy Arkansas, Inc.:
2,840 4.56% Pfd. ................................ 205,872*
3,050 4.56% Pfd., Series 1965 ................... 221,094*
13,500 7.40% Pfd. ................................ 1,407,645*
150 7.80% Pfd. ................................ 15,722*
23,814 $1.96 Pfd. ................................ 605,114*
1,050 6.08% Pfd. ................................ 98,443*
2,441 Entergy Gulf States, Inc.,
7.56% Pfd. ................................ 248,689*
Entergy Louisiana, Inc.:
299 5.16% Pfd. ................................ 22,479*
705 6.44% Pfd. ................................ 65,216*
3,771 7.36% Pfd. ................................ 392,957*
175,000 8.00% Pfd., Series 92 ..................... 4,420,500*

The accompanying notes are an integral part of the financial statements.

VALUE
SHARES/$ PAR (NOTE 2)
------------ --------

PREFERRED SECURITIES -- (CONTINUED)
FIXED RATE PREFERRED SECURITIES -- (CONTINUED)
UTILITIES -- (CONTINUED)
Entergy Mississippi, Inc.:
3,791 4.36% Pfd. ................................ $ 255,438*
8,500 7.44% Pfd. ................................ 881,917*
Hawaiian Electric Company, Inc.:
1,411 5.00% Pfd., Series D ...................... 24,636*
6,688 5.00% Pfd., Series E ...................... 116,772*
23,600 HECO Capital Trust I,
8.05% QUIPS ............................... 601,092
5,291 Idaho Power Co.,
7.68% Pfd., Series 1 ...................... 547,380*
8,000 Indiana Michigan Power Company,
6.875% Sinking Fund Pfd. .................. 811,400*
30,500 Indianapolis Power & Light Company,
5.65% Pfd. ................................ 2,557,272*
340,000 Interstate Power & Light Company,
8.375% Pfd., Series B ..................... 10,825,600*
4,500 Kentucky Utilities Company,
6.53% Pfd. ................................ 465,773*
Mississippi Power Company:
15,000 6.32% Pfd. ................................ 386,850*
5,087 7.00% Pfd. ................................ 531,998*
2,588 New York State Electric & Gas,
$4.50 Pfd., Series 1949 ................... 204,051*
Ohio Power Company:
3,018 4.20% Pfd. ................................ 224,026*
1,251 4.40% Pfd. ................................ 97,278*
2,500 5.90% Sinking Fund Pfd. ................... 250,238*
PECO Energy Company:
1,100 $4.30 Pfd., Series B ...................... 87,137*
5,000 $4.40 Pfd., Series C ...................... 405,275*
570 PSI Energy, Inc.,
4.32% Pfd. ................................ 10,782*
PacifiCorp:
5,672 $4.56 Pfd. ................................ 442,841*
6,458 $4.72 Pfd. ................................ 521,903*
14,000 $7.48 Sinking Fund Pfd. ................... 1,454,180*
Pacific Enterprises:
13,680 $4.36 Pfd. ................................ 1,080,446*
11,910 $4.50 Pfd. ................................ 970,844*

VALUE
SHARES/$ PAR (NOTE 2)
------------ --------

13,510 $4.75 Pfd., Series 53 ..................... $ 1,162,400*
12,722 Portland General Electric,
7.75%, Sinking Fund Pfd. .................. 1,322,325*
Potomac Electric Power Company:
2,493 $2.44 Pfd., Series 1957 ................... 113,544*
19,209 $3.40 Sinking Fund Pfd. ................... 962,563*
Public Service Enterprise Group, Inc.:
10,900 Enterprise Capital Trust I,
7.44% TOPrS, Series A ..................... 275,825
14,020 Public Service Electric & Gas Company,
5.28% Pfd., Series E ...................... 1,265,726*
Rochester Gas & Electric Corporation:
5,060 4.10% Pfd., Series J ...................... 370,468*
10,000 4.55% Pfd., Series M, Pvt. ................ 812,500*
4,030 4.75% Pfd., Series I ...................... 341,825*
3,404 4.95% Pfd., Series K ...................... 300,897*
20,000 6.60% Sinking Fund Pfd., Series V ......... 2,015,100*
San Diego Gas & Electric Company:
40,000 $1.70 Pfd ................................. 1,045,200*
38,000 $1.7625 Sinking Fund Pfd. ................. 979,070*
South Carolina Electric & Gas Company:
14,226 5.125% Purchase Fund Pfd., Pvt. ........... 698,781*
7,774 6.00% Purchase Fund Pfd., Pvt. ............ 397,562*
60,000 Southern Union Company,
7.55% Pfd. ................................ 1,560,900*
TXU US Holdings Company:
$ 750,000 TXU Electric Capital V,
8.175% 01/30/37 Capital Security .......... 813,476
Virginia Electric & Power Company:
1,665 $4.04 Pfd. ................................ 126,249*
2,270 $4.20 Pfd. ................................ 178,944*
2,878 $6.98 Pfd. ................................ 297,369*
12,500 $7.05 Pfd. ................................ 1,292,063*
1,673 $4.80 Pfd. ................................ 150,712*
2,262 Washington Gas & Light Company,
$4.25 Pfd. ................................ 180,044*
Xcel Energy, Inc.:
15,000 $4.08 Pfd., Series B ...................... 1,029,000*
20,040 $4.10 Pfd., Series C ...................... 1,381,457*
35,510 $4.11 Pfd., Series D ...................... 2,453,919*

The accompanying notes are an integral part of the financial statements.

VALUE
SHARES/$ PAR (NOTE 2)
------------ --------

PREFERRED SECURITIES -- (CONTINUED)
FIXED RATE PREFERRED SECURITIES -- (CONTINUED)
UTILITIES -- (CONTINUED)
17,750 $4.16 Pfd., Series E ...................... $ 1,241,524*
10,000 $4.56 Pfd., Series G ...................... 766,650*
------------
TOTAL UTILITIES FIXED RATE PREFERRED
SECURITIES ................................. 81,358,269
------------
OIL AND GAS -- 3.8%
17,200 Anadarko Petroleum Corporation,
5.46% Pfd. ................................ 1,695,662*
19,300 Apache Corporation,
5.68% Pfd., Series B ...................... 1,936,176*
3,200 EOG Resources, Inc.,
7.195% Pfd., Series B ..................... 3,481,856*
ENI, S.p.A.:
10,000 Lasmo America Limited,
8.15% Pfd., 144A**** ...................... 1,158,450*
------------
TOTAL OIL AND GAS FIXED RATE
PREFERRED SECURITIES ....................... 8,272,144
------------
MISCELLANEOUS INDUSTRIES-- 2.6%
13,600 E.I. Du Pont de Nemours and Company,
$4.50 Pfd., Series B ...................... 1,249,976*
36,200 Farmland Industries, Inc.,
8.00% Pfd., 144A**** ...................... 31,675+*
40,000 Health Care Property Investments,
7.10% Pfd., Series F, REIT ................ 984,800
30,500 Ocean Spray Cranberries, Inc.,
6.25% Pfd., 144A**** ...................... 2,306,715*
26,000 Touch America Holdings,
$6.875 Pfd. ............................... 39,000+*
9,520 Viad Corporation,
$4.75 Sinking Fund Pfd. ................... 896,213*
------------
TOTAL MISCELLANEOUS INDUSTRIES
FIXED RATE PREFERRED SECURITIES ............ 5,508,379
------------
TOTAL FIXED RATE PREFERRED
SECURITIES ................................. 175,130,386
------------

VALUE
SHARES/$ PAR (NOTE 2)
------------ --------

INVERSE FLOATING RATE PREFERRED -- 0.9%
18 Premium Assets, Series A,
Zurich Financial Reg. Capital ............. $ 1,854,596*
------------
TOTAL PREFERRED SECURITIES
(Cost $178,073,384) ........................ 198,275,077
------------
CORPORATE DEBT SECURITIES -- 0.7%
15,000 Northern States Power Company,
8.00% Pfd., PINES ......................... 414,825
$1,000,000 Oneamerica Financial Partners,
7.00% 10/15/33, 144A**** .................. 985,705
------------
TOTAL CORPORATE DEBT SECURITIES
(Cost $1,364,042) .......................... 1,400,530
------------
COMMON STOCKS AND CONVERTIBLE SECURITIES -- 4.3%
5,000 American Electric Power,
9.25% Pfd. Convertible .................... 210,275
102,500 CenterPoint Energy, Inc. .................... 994,250*
1,304 Conseco, Inc. ............................... 25,187*+
5,216 Conseco, Inc., Warrants ..................... 33,382*+
97,500 Duke Energy Corporation ..................... 1,761,825*
65,000 FPL Group, Inc.,
8.50% Pfd. Convertible .................... 3,668,600
80,831 Reliant Resources, Inc. ..................... 531,464+
40,000 TXU Corporation,
8.75% Pfd. Convertible .................... 1,283,600
25,000 UnumProvident Corporation,
8.25% Pfd. Convertible .................... 803,750
------------
TOTAL COMMON STOCKS AND
CONVERTIBLE SECURITIES
(Cost $10,034,807) ......................... 9,312,333
------------
OPTION CONTRACTS-- 1.2% (Cost $2,151,157)
1,290 Put Options on U.S. Treasury,
Bond, March Futures,
Expiring 02/21/04 ......................... 2,523,594+
------------

The accompanying notes are an integral part of the financial statements.

VALUE
SHARES/$ PAR (NOTE 2)
------------ --------

MONEY MARKET FUND -- 0.8% (Cost $1,814,739)
1,814,739 BlackRock Provident Institutional TempFund,
0.95% ..................................... $ 1,814,739
------------
TOTAL INVESTMENTS
(Cost $193,438,129***) ........................ 99.4% 213,326,273
OTHER ASSETS AND LIABILITIES (Net) ............ 0.6% 1,084,406
----- ------------
TOTAL NET ASSETS AVAILABLE TO COMMON
AND PREFERRED STOCK ........................... 100.0%++ $214,410,679
----- ------------
MONEY MARKET CUMULATIVE PREFERREDTM
STOCK (MMP(TRADE MARK)) REDEMPTION VALUE (70,000,000)
ACCUMULATED UNDECLARED DISTRIBUTIONS
TO MMP(TRADE MARK) (107,757)
------------
TOTAL NET ASSETS AVAILABLE TO COMMON STOCK $144,302,922
============

--------------
* Securities eligible for the Dividends Received Deduction and distributing
Qualified Dividend Income.
** Securities distributing Qualified Dividend Income only.
*** Aggregate cost of securities held.
**** Securities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may by resold in transactions exempt from
registration to qualified institutional buyers.
+ Non-income producing.
++ The percentage shown for each investment category is the total value of
that category as a percentage of net assets available to Common and
Preferred Stock.

ABBREVIATIONS (Note 7):
PINES -- Public Income Notes
QUIPS -- Quarterly Income Preferred Securities
REIT -- Real Estate Investment Trust
TOPRS -- Trust Originated Preferred Securities
PFD. -- Preferred Securities
PVT. -- Private Placement Securities

Capital Securities are treated as debt instruments for financial statement
purposes and the amounts shown in the Shares/$ Par column are dollar amounts of
par value.

The accompanying notes are an integral part of the financial statements.

--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Opportunity Fund
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 2003
-----------------------------------------------------

ASSETS:
Investments, at value (Cost $193,438,129)
(See accompanying Portfolio of Investments) ................ $213,326,273
Receivable for Investments sold .............................. 318,917
Dividends and interest receivable ............................ 2,014,518
Prepaid expenses ............................................. 109,388
------------
Total Assets ......................................... 215,769,096
LIABILITIES:
Payable for securities purchased ............................. $1,000,000
Dividends payable to Common Shareholders ..................... 126,953
Investment advisory fee payable .............................. 98,603
Administration, Transfer Agent and Custodian fees
and expenses payable ....................................... 27,580
Professional fees payable .................................... 59,681
Directors' fees payable ...................................... 3,271
Accrued expenses and other payables .......................... 42,329
Accumulated undeclared distributions to Money Market
Cumulative Preferred(TRADE MARK) Stock ..................... 107,757
----------
Total Liabilities .................................... 1,466,174
------------
MONEY MARKET CUMULATIVE PREFERRED(TRADE MARK) STOCK (700 SHARES
OUTSTANDING) REDEMPTION VALUE .............................. 70,000,000
------------
NET ASSETS AVAILABLE TO COMMON STOCK ............................ $144,302,922
============
NET ASSETS AVAILABLE TO COMMON STOCK consist of:
Undistributed net investment income .......................... $ 356,326
Accumulated net realized loss on investments sold ............ (8,384,407)
Unrealized appreciation of investments ....................... 19,888,144
Par value of Common Stock .................................... 114,610
Paid-in capital in excess of par value of Common Stock ....... 132,328,249
------------
Total Net Assets Available to Common Stock ........... $144,302,922
============

NET ASSET VALUE PER SHARE OF COMMON STOCK:
Common Stock (11,461,050 shares outstanding) ................. $ 12.59
============

The accompanying notes are an integral part of the financial statements.

--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Opportunity Fund
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED NOVEMBER 30, 2003
-----------------------------------------------------

INVESTMENT INCOME:
Dividends ............................................................ $11,054,535
Interest ............................................................. 2,744,519
-----------
Total Investment Income ......................................... 13,799,054

EXPENSES:
Investment advisory fee .............................................. $1,160,562
Administrator's fee .................................................. 208,577
Money Market Cumulative Preferred(TRADE MARK) Stock broker commissions
and auction agent fees ............................................ 190,189
Professional fees .................................................... 111,677
Insurance expense .................................................... 149,369
Shareholder servicing agent fees and expenses ........................ 82,026
Directors' fees and expenses ......................................... 72,993
Custodian fees and expenses .......................................... 23,606
Other ................................................................ 117,306
----------
Total Expenses .................................................. 2,116,305
-----------

NET INVESTMENT INCOME ..................................................... 11,682,749
-----------

REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS
Net realized gain on investments sold during the year ................ 2,447,429
Change in unrealized appreciation of investments during the year ..... 18,626,279
-----------

NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS ........................... 21,073,708
-----------

DISTRIBUTIONS TO MONEY MARKET CUMULATIVE PREFERRED(TRADE MARK)
STOCK SHAREHOLDERS:
From net investment income (including changes in
accumulated undeclared distributions) ............................. (920,912)
-----------

NET INCREASE IN NET ASSETS TO COMMON STOCK RESULTING
FROM OPERATIONS ........................................................ $31,835,545
===========

The accompanying notes are an integral part of the financial statements.

--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Opportunity Fund
STATEMENTS OF CHANGES IN NET ASSETS
-----------------------------------------------------

YEAR ENDED YEAR ENDED
NOVEMBER 30, 2003 NOVEMBER 30, 2002
----------------- -----------------

OPERATIONS:
Net investment income ..................................................... $ 11,682,749 $ 12,180,026
------------ ------------
Net realized gain/(loss) on investments sold during the period ............ 2,447,429 (3,508,136)
Change in net unrealized appreciation/(depreciation)
of investments sold during the period .................................. 18,626,279 (6,414,650)
Distributions to Money Market Cumulative Preferred(TRADE MARK) Stock
Shareholders from net investment income, including changes in
accumulated undeclared distributions ................................... (920,912) (1,243,631)
------------ ------------
Net increase in net assets resulting from operations ...................... 31,835,545 1,013,609

DISTRIBUTIONS:
Dividends paid from net investment income to Common Stock
Shareholders ........................................................... (11,222,895) (10,296,991)
Distributions paid from net realized capital gains to Common Stock
Shareholders ........................................................... -- --
------------ ------------

FUND SHARE TRANSACTIONS:
Increase from Common Stock transactions ................................... 1,431,926 1,749,231
------------ ------------

NET INCREASE/(DECREASE)IN NET ASSETS TO
COMMONSTOCKFOR THE YEAR ................................................... 22,044,576 (7,534,151)

NET ASSETS AVAILABLETOCOMMONSTOCK:
Beginning of year ......................................................... 122,258,346 129,792,497
------------ ------------
End of year (including undistributed net investment
income of $356,326 and $756,099, respectively) ......................... $144,302,922 $122,258,346
============ ============

The accompanying notes are an integral part of the financial statements.

--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Opportunity Fund
FINANCIAL HIGHLIGHTS

FOR A COMMON SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
------------------------------------------------------
Contained below is per share operating performance data, total investment
returns, ratios to average net assets and other supplemental data. This
information has been derived from information provided in the financial
statements and market price data for the Fund's shares.

YEAR ENDED NOVEMBER 30,
----------------------------------------------------
2003 2002 2001 2000 1999
-------- -------- -------- -------- --------

OPERATING PERFORMANCE:
Net asset value, beginning of period ............................. $ 10.78 $ 11.60 $ 10.68 $ 11.50 $ 13.50
-------- -------- -------- -------- --------
INVESTMENT OPERATIONS:
Net investment income ............................................ 1.02 1.07 1.10 1.18 1.14
Net realized and unrealized gain/(loss) on investments ........... 1.85 (0.87) 0.89 (0.33) (1.24)
DISTRIBUTIONS TO MMP(TRADE MARK)* SHAREHOLDERS:
From net investment income ....................................... (0.08) (0.11) (0.25) (0.32) (0.25)
From net realized capital gains .................................. -- -- -- (0.02) (0.09)
-------- -------- -------- -------- --------
Total from investment operations. ................................ 2.79 0.09 1.74 0.51 (0.44)
-------- -------- -------- -------- --------
DISTRIBUTIONS TO COMMON SHAREHOLDERS:
From net investment income ....................................... (0.98) (0.91) (0.82) (0.91) (0.96)
From net realized capital gains .................................. -- -- -- (0.42) (0.60)
-------- -------- -------- -------- --------
Total distributions .............................................. (0.98) (0.91) (0.82) (1.33) (1.56)
-------- -------- -------- -------- --------
Net asset value, end of period ................................... $ 12.59 $ 10.78 $ 11.60 $ 10.68 $ 11.50
======== ======== ======== ======== ========
Market value, end of period ...................................... $ 13.51 $ 11.72 $ 11.27 $ 9.563 $ 10.50
======== ======== ======== ======== ========
Total investment return based on net asset value** ............... 26.57% 0.63% 16.97% 5.88% (2.99)%
======== ======== ======== ======== ========
Total investment return based on market value** .................. 24.92% 12.61% 26.95% 3.80% (7.12)%
======== ======== ======== ======== ========
RATIOS TO AVERAGE NET ASSETS AVAILABLE
TO COMMON STOCK SHAREHOLDERS:
Total net assets, end of period (in 000's) .................. $144,303 $122,258 $129,792 $119,069 $128,200
Operating expenses. ......................................... 1.54% 1.56% 1.61% 1.59% 1.53%
Net investment income*** .................................... 7.85% 8.67% 7.63% 7.93% 6.81%

---------------------------------------------------------------
SUPPLEMENTAL DATA:+
Portfolio turnover rate. .................................... 28% 29% 41% 67% 64%
Total net assets available to Common and Preferred Stock,
end of period (in 000's) .................................... $214,411 $192,361 $200,228 $189,666 $199,060
Ratio of operating expenses to total average net assets
available to Common and Preferred Stock ..................... 1.02% 1.00% 1.03% 1.00% 1.01%

* Money Market Cumulative Preferred(TRADE MARK) Stock.
** Assumes reinvestment of distributions at the price obtained by the Fund's
Dividend Reinvestment Plan.
*** The net investment income ratios reflect income net of operating expenses
and payments to MMP(TRADE MARK)* Shareholders.
+ Information presented under heading Supplemental Data includes MMP(TRADE
MARK)*.

The accompanying notes are an integral part of the financial statements.

--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Opportunity Fund
FINANCIAL HIGHLIGHTS (CONTINUED)
-----------------------------------------------------
The table below sets out information with respect to Money Market
Cumulative Preferred(TRADE MARK) Stock currently outstanding.

INVOLUNTARY AVERAGE
ASSET LIQUIDATING MARKET
TOTAL SHARES COVERAGE PREFERENCE VALUE
DATE OUTSTANDING (1) PER SHARE (3) PER SHARE (2) PER SHARE (1) & (2)
-------- --------------- ------------- ------------- -------------------

11/30/03 700 $306,301 $100,000 $100,000
11/30/02 700 274,802 100,000 100,000
11/30/01 700 286,040 100,000 100,000
11/30/00 700 270,952 100,000 100,000
11/30/99 700 284,371 100,000 100,000
11/30/98 700 315,271 100,000 100,000

-----------------------------
(1) See Note 6.
(2) Excludes accumulated undeclared dividends.
(3) Calculated by subtracting the Fund's total liabilities (excluding the
MMP(TRADE MARK)) from the Fund's total assets and dividing that amount by
the number of MMP(TRADE MARK) shares outstanding.

The accompanying notes are an integral part of the financial statements.

--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Opportunity Fund
NOTES TO FINANCIAL STATEMENTS
-----------------------------------------------------

1. ORGANIZATION

Flaherty & Crumrine Preferred Income Opportunity Fund Incorporated (the
"Fund"), (formerly known as Preferred Income Opportunity Fund Incorporated) was
incorporated as a Maryland corporation on December 10, 1991, and commenced
operations on February 13, 1992 as a diversified, closed-end management
investment company under the Investment Company Act of 1940, as amended. The
Fund's investment objective is to provide its common shareholders with high
current income consistent with the preservation of capital.

2. SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements is in conformity with accounting principles
generally accepted in the United States of America and requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities in the financial statements and the reported amounts of increases
and decreases in net assets from operations during the reporting period. Actual
results could differ from those estimates.

PORTFOLIO VALUATION: The net asset value of the Fund's Common Stock is
determined by the Fund's Administrator no less frequently than on the last
business day of each week and month. It is determined by dividing the value of
the Fund's net assets available to common stock by the number of shares of
Common Stock outstanding. The value of the Fund's net assets attributable to
common shares is deemed to equal the value of the Fund's total assets less (i)
the Fund's liabilities, (ii) the aggregate liquidation value of the outstanding
Money Market Cumulative Preferred(TRADE MARK) Stock and (iii) accumulated and
unpaid dividends on the outstanding Money Market Cumulative Preferred(TRADE
MARK) Stock.

Securities listed on a national securities exchange are valued on the basis
of the last sale on such exchange on the day of valuation, except as described
hereafter. In the absence of sales of listed securities and with respect to (a)
securities for which the most recent sale prices are not deemed to represent
fair market value and (b) unlisted securities (other than money market
instruments), securities are valued at the mean between the closing bid and
asked prices when quoted prices for investments are readily available.
Investments in over-the-counter derivative instruments, such as interest rate
swaps and options thereon ("swaptions") are valued at the prices obtained from
the broker/dealer or bank that is the counterparty to such instrument, subject
to comparison of such valuation with a valuation obtained from a broker/dealer
or bank that is not a counterparty to the particular derivative instrument.
Investments for which market quotations are not readily available or for which
management determines that the prices are not reflective of current market
conditions are valued at fair value as determined in good faith by or under the
direction of the Board of Directors of the Fund, including reference to
valuations of other securities which are comparable in quality, maturity and
type. Investments in money market instruments, which mature in 60 days or less,
are valued at amortized cost. Investments in Money Market Funds are valued at
the net asset value of such funds.

--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Opportunity Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------------------

SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded as of the trade date. Realized gains and losses from securities sold
are recorded on the identified cost basis. Dividend income is recorded on
ex-dividend dates. Interest income is recorded on the accrual basis. The Fund
also amortizes premiums and accretes discounts on those fixed income securities,
including capital securities and bonds, which trade and are quoted on an
"accrued income" basis.

The AICPA Audit and Accounting Guide, Audits of Investment Companies,
requires that, for book accounting purposes, the Fund amortize premiums and
accrete discounts on those fixed-income securities, such as capital securities,
which trade and are quoted on an "accrued income" basis. Prior to December 1,
2001, the Fund was not required to amortize premiums and accrete discounts for
these securities. Adopting these accounting principles has not affected the
Fund's net asset value, but changes the classification of certain amounts
between interest income and realized and unrealized gain/loss in the Statement
of Operations. The adoption of this principle was not material to the financial
statements.

The Statements of Changes in Net Assets and Financial Highlights for prior
periods have not been restated to reflect these changes in presentation.

OPTIONS: Upon the purchase of an option by the Fund, the total purchase
price paid is recorded as an investment. The market valuation is determined as
set forth in the preceding portfolio valuation paragraph. When the Fund enters
into a closing sale transaction, the Fund will record a gain or loss depending
on the difference between the purchase and sale price. The risks associated with
purchasing options and the maximum loss the Fund would incur are limited to the
purchase price originally paid.

REPURCHASE AGREEMENTS: The Fund may engage in repurchase agreement
transactions. The Fund's investment adviser reviews and approves the eligibility
of the banks and dealers with which the Fund may enter into repurchase agreement
transactions. The value of the collateral underlying such transactions is at
least equal at all times to the total amount of the repurchase obligations,
including interest. The Fund maintains possession of the collateral through its
custodian and, in the event of counterparty default, the Fund has the right to
use the collateral to offset losses incurred. There is the possibility of loss
to the Fund in the event the Fund is delayed or prevented from exercising its
rights to dispose of the collateral securities.

DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: The Fund expects to declare
dividends on a monthly basis to Shareholders of Common Stock ("Shareholder").
The Shareholders of Money Market Cumulative Preferred(TRADE MARK) Stock are
entitled to receive cumulative cash dividends as declared by the Fund's Board of
Directors. Distributions to Shareholders are recorded on the ex-dividend date.
Any net realized short-term capital gains will be distributed to Shareholders at
least annually. Any net realized long-term capital gains may be distributed to
Shareholders at least annually or may be retained by the Fund as determined by
the Fund's Board of Directors. Capital gains retained by the Fund are subject to
tax at the capital gains corporate tax rate. Subject to the Fund's qualifying as
a regulated investment company, any taxes paid by the Fund on such net realized
long-term gains may be used by the Fund's Shareholders as a credit against their
own tax liabilities.

--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Opportunity Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------------------

FEDERAL INCOME TAXES: The Fund intends to continue to qualify as a
regulated investment company by complying with the requirements under subchapter
M of the Internal Revenue Code of 1986, as amended, applicable to regulated
investment companies and intends to distribute substantially all of its taxable
net investment income to its shareholders. Therefore, no Federal income tax
provision is required.

Income and capital gain distributions are determined and characterized in
accordance with income tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to (1) differing
treatments of income and gains on various investment securities held by the
Fund, including timing differences, (2) the attribution of expenses against
certain components of taxable investment income, and (3) federal regulations
requiring proportionate allocation of income and gains to all classes of
shareholders.

Distributions from net realized gains for book purposes may include
short-term capital gains, which are included as ordinary income for tax
purposes, and may exclude amortization of premium on "accrued income"
securities, which are not reflected in ordinary income for tax purposes. The tax
character of distributions paid, including changes in accumulated undeclared
distributions to MMP(TRADE MARK) shareholders, during 2003 and 2002 was as
follows:

DISTRIBUTIONS PAID IN FISCAL YEAR 2003 DISTRIBUTIONS PAID IN FISCAL YEAR 2002
-------------------------------------- --------------------------------------
ORDINARY INCOME LONG-TERM CAPITAL GAINS ORDINARY INCOME LONG-TERM CAPITAL GAINS
--------------- ----------------------- --------------- -----------------------

Common $11,222,895 -- $10,296,991 --
Preferred $ 920,912 -- $ 1,243,631 --

As of November 30, 2003, the components of distributable earnings (i.e.,
ordinary income and capital gain/(loss)) available to Common and Preferred Stock
Shareholders, on a tax basis were as follows:

UNDISTRIBUTED UNDISTRIBUTED UNREALIZED
CAPITAL (LOSS) CARRYFORWARD ORDINARY INCOME LONG-TERM GAIN APPRECIATION/(DEPRECIATION)
--------------------------- --------------- -------------- ---------------------------

$(7,603,945) $671,767 -- $19,107,682

At November 30, 2003, the composition of the Fund's $7,603,945 accumulated
realized capital losses was $5,163,910, $982,343 and $1,457,692 in 2000, 2001
and 2002, respectively. These losses may be carried forward and offset against
any future capital gains through 2008, 2009 and 2010, respectively.

EXCISE TAX: The Internal Revenue Code of 1986, as amended, imposes a 4%
nondeductible excise tax on the Fund to the extent the Fund does not distribute
by the end of any calendar year at least (1) 98% of the sum of its net
investment income for that year and its capital gains (both long term and short
term) for its fiscal year and (2) certain undistributed amounts from previous
years. The Fund is subject to pay an estimated $20,500 of Federal excise taxes
attributable to calendar year 2003. During the fiscal year ending November 30,
2003, the Fund paid $10,293 of Federal excise taxes attributable to calendar
year 2002.

--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Opportunity Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------------------

3. INVESTMENT ADVISORY FEE, DIRECTORS' FEES, ADMINISTRATION FEE, TRANSFER
AGENT FEE AND CUSTODIAN FEE

Flaherty & Crumrine Incorporated (the "Adviser") serves as the Fund's
investment adviser. The Fund pays the Adviser a monthly fee at an annual rate of
0.625% of the value of the Fund's average monthly total net assets available to
Common and Preferred Stock up to $100 million and 0.50% of the value of the
Fund's average monthly total net assets available to Common and Preferred Stock
in excess of $100 million.

The Fund currently pays each Director who is not a director, officer or
employee of the Adviser a fee of $9,000 per annum, plus $500 for each in-person
meeting of the Board of Directors or any committee and $150 for each telephone
meeting. Effective October 17, 2003, the Audit Committee Chairman will receive
an annual fee of $2,500. In addition, the Fund will reimburse all Directors for
travel and out-of-pocket expenses incurred in connection with such meetings.

PFPC Inc., a member of the PNC Financial Services Group, Inc. ("PNC
Financial Services"), serves as the Fund's Administrator and Transfer Agent. As
Administrator, PFPC Inc. calculates the net asset value of the Fund's shares and
generally assists in all aspects of the Fund's administration and operation. As
compensation for PFPC Inc.'s services as Administrator, the Fund paid PFPC Inc.
a monthly fee at an annual rate of 0.10% of the Fund's average monthly total net
assets available to Common and Preferred Stock through October 31, 2003.
Effective November 1, 2003, the fee structure changed to a monthly fee at an
annual rate of 0.10% on the first $200 million of the Fund's average weekly
total managed assets, 0.04% on the next $300 million of the Fund's average
weekly total managed assets, 0.03% on the next $500 million of the Fund's
average weekly total managed assets and 0.02% on the Fund's average weekly total
managed assets above $1 billion.

PFPC Inc. also serves as the Fund's Common Stock servicing agent (transfer
agent), dividend-paying agent and registrar and, as compensation for PFPC Inc.'s
services as such, the Fund paid PFPC Inc. a fee at an annual rate of 0.02% of
the Fund's average monthly total net assets available to Common and Preferred
Stock plus certain out-of-pocket expenses through October 31, 2003. Effective
November 1, 2003, the fee structure changed to a fee at an annual rate of 0.02%
on the first $150 million of the Fund's average weekly net assets attributable
to common shares, 0.01% on the next $350 million of the Fund's average weekly
net assets attributable to common shares, 0.005% on the next $500 million of the
Fund's average weekly net assets attributable to common shares and 0.0025% on
the Fund's average weekly net assets attributable to common shares above $1
billion, plus certain out of pocket expenses. For the purpose of calculating
such fee, the Fund's average weekly net assets attributable to common shares
will be deemed to be the average weekly value of the Fund's total assets minus
the sum of the Fund's liabilities, and accumulated dividends, if any, on
Preferred Stock. For this calculation, the Fund's liabilities are deemed to
INCLUDE the aggregate liquidation preference of any outstanding Fund preferred
shares.

PFPC Trust Company ("PFPC Trust") serves as the Fund's Custodian. PFPC
Trust is an indirect subsidiary of PNC Financial Services. As compensation for
PFPC Trust's services as custodian, the Fund paid PFPC Trust a monthly fee at
the annual rate of 0.01% of the Fund's average monthly total net

--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Opportunity Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------------------

assets available to Common and Preferred Stock through October 31, 2003.
Effective November 1, 2003, the fee structure changed to a monthly fee at an
annual rate of 0.010% on the first $200 million of the Fund's average weekly
total managed assets, 0.008% on the next $300 million of the Fund's average
weekly total managed assets, 0.006% on the next $500 million of the Fund's
average weekly total managed assets and 0.005% on the Fund's average weekly
total managed assets above $1 billion.

4. PURCHASES AND SALES OF SECURITIES

Cost of purchases and proceeds from sales of securities for the year ended
November 30, 2003, excluding short-term investments, aggregated $61,522,402 and
$56,197,595, respectively.

At November 30, 2003, aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost was $25,777,048
and aggregate gross unrealized depreciation for all securities in which there is
an excess of tax cost over value was $6,669,366.

5. COMMON STOCK

At November 30, 2003, 240,000,000 shares of $0.01 par value Common Stock
were authorized.

Common Stock transactions were as follows:

YEAR ENDED YEAR ENDED
11/30/03 11/30/02
--------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------

Issued as reinvestment of dividends under the
Dividend Reinvestment and Cash Purchase Plan ..... 119,617 $1,431,926 152,365 $1,749,231
------- ---------- ------- ----------

6. MONEY MARKET CUMULATIVE PREFERRED(TRADE MARK) STOCK (MMP(TRADE MARK))

The Fund's Articles of Incorporation authorize the issuance of up to
10,000,000 shares of $0.01 par value preferred stock. The Money Market
Cumulative Preferred(TRADE MARK) Stock is senior to the Common Stock and results
in the financial leveraging of the Common Stock. Such leveraging tends to
magnify both the risks and opportunities to Common Stock Shareholders. Dividends
on shares of MMP(TRADE MARK) Stock are cumulative.

The Fund is required to meet certain asset coverage tests with respect to
the MMP(TRADE MARK) Stock. If the Fund fails to meet these requirements and does
not correct such failure, the Fund may be required to redeem, in part or in
full, MMP(TRADE MARK) Stock at a redemption price of $100,000 per share plus an
amount equal to the accumulated and unpaid dividends on such shares in order to
meet these requirements. Additionally, failure to meet the foregoing asset
requirements could restrict the Fund's ability to pay dividends to Common Stock
Shareholders and could lead to sales of portfolio securities at inopportune
times.

Under Emerging Issues Task Force (EITF) promulgation Topic D-98,
CLASSIFICATION AND MEASUREMENT OF REDEEMABLE SECURITIES, which was issued on
July 19, 2001, preferred securities that are redeemable for cash or other assets
are to be classified outside of permanent equity to the extent

--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Opportunity Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------------------

that the redemption is at a fixed or determinable price and at the option of the
holder or upon the occurrence of an event that is not solely within the control
of the issuer. Subject to the guidance of the EITF, the Fund's MMP(TRADE MARK)
Stock, which was previously classified as a component of total net assets, has
been reclassified outside of permanent equity (net assets available to common
stock) in the accompanying financial statements. Prior year amounts have also
been reclassified to conform with this presentation. The impact of this
reclassification creates no change to the net assets available to Common Stock
Shareholders.

If the Fund allocates any net gains or income ineligible for the Dividends
Received Deduction to shares of the MMP(TRADE MARK) Stock, the Fund is required
to make additional distributions to MMP(TRADE MARK) Stock Shareholders or to pay
a higher dividend rate in amounts needed to provide a return, net of tax, equal
to the return had such originally paid distributions been eligible for the
Dividends Received Deduction. Net assets available to MMP(TRADE MARK) Stock at
November 30, 2003 included an accrued additional distribution of $38,068. The
amount subsequently calculated and then paid to the MMP(TRADE MARK) Stock
Shareholders for the fiscal year ended November 30, 2003 was $36,841 (See Note
11 - "Subsequent Events.")

Estimates of additional distributions payable to MMP(TRADE MARK) Stock are
accrued on a regular basis in advance of declaration. The amount of additional
distributions payable for any year may be highly uncertain and will not be known
until after a fiscal year has been completed.

An auction of the MMP(TRADE MARK) Stock is generally held every 49 days.
Existing shareholders may submit an order to hold, bid or sell such shares at
par value on each auction date. MMP(TRADE MARK) Stock Shareholders may also
trade shares in the secondary market between auction dates.

At November 30, 2003, 700 shares of MMP(TRADE MARK) Stock were outstanding
at the annual rate of 1.12%. The dividend rate, as set by the auction process,
is generally expected to vary with short-term interest rates. These rates may
vary in a manner unrelated to the income received on the Fund's assets, which
could have either a beneficial or detrimental impact on net investment income
and gains available to Common Stock Shareholders. While the Fund expects to
structure its portfolio holdings and hedging transactions to lessen such risks
to Common Stock Shareholders, there can be no assurance that such results will
be attained.

7. PORTFOLIO INVESTMENTS, CONCENTRATION AND INVESTMENT QUALITY

The Fund invests primarily in traditional DRD-eligible preferred securities
(i.e., adjustable and fixed rate preferred and preference stocks) and similar
hybrid, i.e., fully taxable, preferred securities. Under normal market
conditions, at least 80% of the value of the Fund's net assets will be invested
in preferred securities. Also, under normal market conditions, the Fund invests
at least 25% of its assets in securities issued by utilities and a significant
percentage, but no more than 25% of its assets, in securities issued by
companies in the banking industry. Because of the Fund's concentration of
investments in the utility industry and significant holdings in the banking
industry, the ability of the fund to maintain its dividend and the value of the
Fund's investments could be adversely affected by the possible inability of
companies in

--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Opportunity Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------------------

these industries to pay dividends and interest on their securities and the
ability of holders of securities of such companies to realize any value from the
assets of the issuer upon liquidation or bankruptcy.

The Fund may invest up to 25% of its assets at the time of purchase in
securities rated below investment grade. These securities must be rated at least
either "Ba3" by Moody's Investors Service, Inc. or "BB-" by Standard & Poor's or
judged to be comparable in quality, in either case at the time of purchase;
however, these securities must be issued by an issuer having a class of senior
debt rated investment grade outstanding. The percentage limitation was raised
from 15% by the Fund's Board of Directors at its regular board meeting on April
19, 2002.

The Fund may invest up to 15% of its assets in common stocks and, under
normal market conditions, up to 20% of its assets in debt securities. Certain of
its investments in hybrid, i.e., fully taxable, preferred securities, such as
TOPrS, TIPS, QUIPS, MIPS, QUIDS, QUICS, QIB's, STOPS, CorTS, REIT, Capital
Securities, and other similar or related investments, will be subject to the
foregoing 20% limitation to the extent that, in the opinion of the Fund's
Investment Adviser, such investments are deemed to be debt-like in key
characteristics. Typically, a security will not be considered debt-like (a) if
an issuer can defer payment of income for eighteen months or more without
triggering an event of default and (b) if such issue is a junior and fully
subordinated liability of an issuer or its ultimate guarantor.

8. SPECIAL INVESTMENT TECHNIQUES

The Fund may employ certain investment techniques in accordance with its
fundamental investment policies. These may include the use of when-issued and
delayed delivery transactions. Securities purchased or sold on a when-issued or
delayed delivery basis may be settled within 45 days after the date of the
transaction. Such transactions may expose the Fund to credit and market
valuation risk greater than that associated with regular trade settlement
procedures. The Fund may also enter into transactions, in accordance with its
fundamental investment policies, involving any or all of the following: lending
of portfolio securities, short sales of securities, futures contracts, interest
rate swaps, options on futures contracts, options on securities and swaptions.
As in the case of when-issued securities, the use of over-the-counter
derivatives, such as interest rate swaps and swaptions, may expose the Fund to
greater credit, operations, and market value risk than is the case with
regulated, exchange traded futures and options. With the exception of purchasing
securities on a when-issued or delayed delivery basis or lending portfolio
securities, these transactions are used for hedging or other appropriate
risk-management purposes or, under certain other circumstances, to increase
income. As of November 30, 2003, the Fund owned put options on U.S. Treasury
bond futures contracts. No assurance can be given that such transactions will
achieve their desired purposes or will result in an overall reduction of risk to
the Fund.

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Shareholders
Flaherty & Crumrine Preferred Income Opportunity Fund Incorporated:

We have audited the accompanying statement of assets and liabilities of
Flaherty & Crumrine Preferred Income Opportunity Fund Incorporated (formerly,
Preferred Income Opportunity Fund Incorporated), including the fund's portfolio
of investments, as of November 30, 2003, and the related statement of operations
for the year then ended, statement of changes in net assets for each of the
years in the two-year period then ended and financial highlights for each of the
years in the three-year period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform our audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of November 30, 2003 by correspondence with the custodian
and brokers. As to securities purchased or sold but not yet received or
delivered, we performed other appropriate auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Flaherty & Crumrine Preferred Income Opportunity Fund Incorporated as of
November 30, 2003, the results of its operations for the year then ended,
changes in its net assets for each of the years in the two-year period then
ended and financial highlights for each of the years in the three-year period
then ended in conformity with accounting principles generally accepted in the
United States of America.

/S/ KPMG LLP

Boston, Massachusetts
January 16, 2004

--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Opportunity Fund
SUPPLEMENTARY TAX INFORMATION (UNAUDITED)
-----------------------------------------------------

For Fiscal 2003, the distributions attributable both to Common Stock and
MMPTM are characterized as follows for purposes of Federal income taxes: for
individual investors, 84.99% consisted of Qualified Dividend Income ("QDI")
eligible for the maximum 15% personal tax rate while 15.01% consisted of
ordinary income taxable at regular personal tax rates. For corporate investors,
84.59% consisted of income eligible for the inter-corporate Dividends Received
Deduction ("DRD") while 15.41% consisted of ordinary income taxable at regular
corporate rates.

For Calendar 2003, the distributions to Common Stock are characterized as
follows for purposes of Federal income taxes: for individual investors, 84.39%
consisted of Qualified Dividend Income ("QDI") eligible for the maximum 15%
personal tax rate while 15.61% consisted of ordinary income taxable at regular
personal tax rates. For corporate investors, 83.99% consisted of income eligible
for the inter-corporate Dividends Received Deduction ("DRD") while 16.01%
consisted of ordinary income taxable at regular corporate rates.

--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Opportunity Fund
ADDITIONAL INFORMATION (UNAUDITED)
-----------------------------------------------------

DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN

Under the Fund's Dividend Reinvestment and Cash Purchase Plan (the "Plan"),
a shareholder whose Common Stock is registered in his own name will have all
distributions reinvested automatically by PFPC Inc. as agent under the Plan,
unless the shareholder elects to receive cash. Distributions with respect to
shares registered in the name of a broker-dealer or other nominee (that is, in
"street name") may be reinvested by the broker or nominee in additional shares
under the Plan, but only if the service is provided by the broker or nominee,
unless the shareholder elects to receive distributions in cash. A shareholder
who holds Common Stock registered in the name of a broker or other nominee may
not be able to transfer the Common Stock to another broker or nominee and
continue to participate in the Plan. Investors who own Common Stock registered
in street name should consult their broker or nominee for details regarding
reinvestment.

The number of shares of Common Stock distributed to participants in the
Plan in lieu of a cash dividend is determined in the following manner. Whenever
the market price per share of the Fund's Common Stock is equal to or exceeds the
net asset value per share on the valuation date, participants in the Plan will
be issued new shares valued at the higher of net asset value or 95% of the then
current market value. Otherwise, PFPC Inc. will buy shares of the Fund's Common
Stock in the open market, on the New York Stock Exchange or elsewhere, on or
shortly after the payment date of the dividend or distribution and continuing
until the ex-dividend date of the Fund's next distribution to holders of the
Common Stock or until it has expended for such purchases all of the cash that
would otherwise be payable to the participants. The number of purchased shares
that will then be credited to the participants' accounts will be based on the
average per share purchase price of the shares so purchased, including brokerage
commissions. If PFPC Inc. commences purchases in the open market and the then
current market price of the shares (plus any estimated brokerage commissions)
subsequently exceeds their net asset value most recently determined before the
completion of the purchases, PFPC Inc. will attempt to terminate purchases in
the open market and cause the Fund to issue the remaining dividend or
distribution in shares. In this case, the number of shares received by the
participant will be based on the weighted average of prices paid for shares
purchased in the open market and the price at which the Fund issues the
remaining shares. These remaining shares will be issued by the Fund at the
higher of net asset value or 95% of the then current market value.

Plan participants are not subject to any charge for reinvesting dividends
or capital gains distributions. Each Plan participant will, however, bear a
proportionate share of brokerage commissions incurred with respect to PFPC
Inc.'s open market purchases in connection with the reinvestment of dividends or
capital gains distributions. For the period ended November 30, 2003, $926 in
brokerage commissions were incurred.

--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Opportunity Fund
ADDITIONAL INFORMATION (UNAUDITED) (CONTINUED)
-----------------------------------------------------

The automatic reinvestment of dividends and capital gains distributions
will not relieve Plan participants of any income tax that may be payable on the
dividends or capital gains distributions. A participant in the Plan will be
treated for Federal income tax purposes as having received, on the dividend
payment date, a dividend or distribution in an amount equal to the cash that the
participant could have received instead of shares.

In addition to acquiring shares of Common Stock through the reinvestment of
cash dividends and distributions, a shareholder may invest any further amounts
from $100 to $3,000 semi-annually at the then current market price in shares
purchased through the Plan. Such semi-annual investments are subject to any
brokerage commission charges incurred by PFPC Inc. under the Plan.

A shareholder whose Common Stock is registered in his or her own name may
terminate participation in the Plan at any time by notifying PFPC Inc. in
writing, by completing the form on the back of the Plan account statement and
forwarding it to PFPC Inc. or by calling PFPC Inc. directly. A termination will
be effective immediately if notice is received by PFPC Inc. not less than 10
days before any dividend or distribution record date. Otherwise, the termination
will be effective, and only with respect to any subsequent dividends or
distributions, on the first day after the dividend or distribution has been
credited to the participant's account in additional shares of the Fund. Upon
termination and according to a participant's instructions, PFPC Inc. will either
(a) issue certificates for the whole shares credited to the shareholder's Plan
account and a check representing any fractional shares or (b) sell the shares in
the market. Shareholders who hold common stock registered in the name of a
broker or other nominee should consult their broker or nominee to terminate
participation.

The Plan is described in more detail in the Fund's Plan brochure.
Information concerning the Plan may be obtained from PFPC Inc. at
1-800-331-1710.

PROXY VOTING POLICIES

The Fund's proxy voting policies and procedures are available (i) without
charge, upon request, by calling the Fund's transfer agent at 1-800-331-1710,
(ii) on the Fund's website at www.preferredincome.com and (iii) on the
Securities and Exchange Commission's website at www.sec.gov.

PORTFOLIO MANAGEMENT TEAM

In managing the day-to-day operations of the Fund, the Adviser relies on
the expertise of its team of money management professionals, consisting of
Messrs. Crumrine, Ettinger, Stimes, Stone and Chadwick. The professional
backgrounds of each member of the management team are included in the
"Information about Fund Directors and Officers" section of this report beginning
on page 31.

--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Opportunity Fund
ADDITIONAL INFORMATION (UNAUDITED) (CONTINUED)
-----------------------------------------------------

SUBSEQUENT EVENTS

As a result of the income realized by the Fund that did not qualify for the
inter-corporate Dividends Received Deduction ("DRD"), a portion of the
distributions paid to the Fund's Money Market Cumulative Preferred(TRADE MARK)
Stock shareholders from January 1, 2003 through November 30, 2003 has been
designated as being non-DRD income, as required by Internal Revenue Services
Ruling 89-81, with respect to the Internal Revenue Code of 1986, as amended. On
December 22, 2003, the Fund declared an additional distribution of $36,841,
payable December 24, 2003, to Money Market Cumulative Preferred(TRADE MARK)
Stock shareholders as required by the Fund's Articles Supplementary (See Note
6.)

--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Opportunity Fund
ADDITIONAL INFORMATION (UNAUDITED) (CONTINUED)
-----------------------------------------------------

INFORMATION ABOUT FUND DIRECTORS AND OFFICERS
The business and affairs of the Fund are managed under the direction of the
Fund's Board of Directors. Information pertaining to the Directors and officers
of the Fund is set forth below.

PRINCIPAL NUMBER OF FUNDS
TERM OF OFFICE OCCUPATION(S) IN FUND COMPLEX
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST OVERSEEN OTHER DIRECTORSHIPS
AND AGE HELD WITH FUND TIME SERVED* FIVE YEARS BY DIRECTOR HELD BY DIRECTOR
-------------- -------------- -------------- ------------- --------------- -------------------

NON-INTERESTED
DIRECTORS:
--------------

MARTIN BRODY Director Class I Director Retired 4 Director, Jaclyn, Inc.
c/o HMK Associates since 1992 (luggage and
30 Columbia Turnpike accessories). Director
Florham Park, NJ 07932 Emeritus, Smith Barney
Age: 82 Mutual Funds (18 Funds).
Flaherty & Crumrine
Preferred Income Fund,
Flaherty & Crumrine/Claymore
Preferred Securities
Income Fund and Flaherty &
Crumrine/Claymore Total
Return Fund.

DAVID GALE Director Class I Director President & CEO of 4 Director, Golden State
Delta Dividend Group, Inc. since 1997 Delta Dividend Vintners, Inc. (wine
220 Montgomery Street Group, Inc. (investments). pressing). Flaherty &
Suite 426 Crumrine Preferred Income
San Francisco, CA 94104 Fund, Flaherty &Crumrine/
Age: 54 Claymore Preferred
Securities Income Fund
and Flaherty & Crumrine/
Claymore Total Return
Fund.

-----------------------------
* The Fund's Board of Directors is divided into three classes, each class
having a term of three years. Each year the term of office of one class
expires and the successor or successors elected to such class serve for a
three year term. The three year term for each class expires as follows:
CLASS I DIRECTORS - three year term expires at
the Fund's 2006 Annual Meeting of Shareholders;
directors may continue in office until their
successors are duly elected and qualified.
CLASS II DIRECTORS - three year term expires at
the Fund's 2004 Annual Meeting of Shareholders;
directors may continue in office until their
successors are duly elected and qualified.
CLASS III DIRECTORS - three year term expires
at the Fund's 2005 Annual Meeting of
Shareholders; directors may continue in office
until their successors are duly elected and
qualified.

--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Opportunity Fund
ADDITIONAL INFORMATION (UNAUDITED) (CONTINUED)
-----------------------------------------------------

NON-INTERESTED
DIRECTORS:
--------------

MORGAN GUST+ Director Class III Director From March 2002, 4 Flaherty & Crumrine
Giant Industries, Inc. since 1992 President of Giant Preferred Income Fund,
23733 N. Scottsdale Road Industries, Inc. Flaherty & Crumrine/
Scottsdale, AZ 85255 (petroleum refining Claymore Preferred
Age: 56 and marketing); and Securities Income Fund
for more than five and Flaherty &Crumrine/
years prior thereto, Claymore Total Return
Executive Vice Fund.
President, and various
other Vice President
positions at Giant
Industries, Inc.

ROBERT F. WULF Director Class II Director Financial Consultant; 4 Flaherty & Crumrine
3560 Deerfield Drive South since 1992 Trustee, University of Preferred Income Fund,
Salem, OR 97302 Oregon Foundation; Flaherty & Crumrine/
Age: 66 Trustee, San Francisco Claymore Preferred
Theological Seminary. Securities Income Fund
and Flaherty &Crumrine/
Claymore Total Return
Fund.

------------------------------
* The Fund's Board of Directors is divided into three classes, each class
having a term of three years. Each year the term of office of one class
expires and the successor or successors elected to such class serve for a
three year term. The three year term for each class expires as follows:
CLASS I DIRECTORS - three year term expires at
the Fund's 2006 Annual Meeting of Shareholders;
directors may continue in office until their
successors are duly elected and qualified.
CLASS II DIRECTORS - three year term expires at
the Fund's 2004 Annual Meeting of Shareholders;
directors may continue in office until their
successors are duly elected and qualified.
CLASS III DIRECTORS - three year term expires
at the Fund's 2005 Annual Meeting of
Shareholders; directors may continue in office
until their successors are duly elected and
qualified.

+ As a Director, represents holders of shares of the Fund's Money Market
Cumulative Preferred(TRADE MARK) Stock.

--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Opportunity Fund
ADDITIONAL INFORMATION (UNAUDITED) (CONTINUED)
-----------------------------------------------------

INTERESTED
DIRECTORS:
----------

DONALD F. CRUMRINE+, ++ Director, Class II Director Chairman of the Board, 4 Flaherty & Crumrine
301 E. Colorado Boulevard Chairman since 1992 Director of Flaherty & Preferred Income Fund,
Suite 720 of the Board Crumrine. Flaherty & Crumrine/
Pasadena, CA 91101 and Chief Claymore Preferred
Age: 56 Executive Officer Securities Income Fund
and Flaherty &Crumrine/
Claymore Total Return
Fund.

ROBERT M. ETTINGER++ Director, Class III Director President and Director 2 Flaherty & Crumrine
301 E. Colorado Boulevard President since 2002 of Flaherty & Crumrine. Preferred Income Fund.
Suite 720
Pasadena, CA 91101
Age: 45

OFFICERS:
---------

PETER C. STIMES Chief Financial Since 1992 Vice President of -- --
301 E. Colorado Boulevard Officer, Flaherty & Crumrine.
Suite 720 Chief
Pasadena, CA 91101 Accounting
Age: 48 Officer, Vice
President,
Treasurer,
and Assistant
Secretary

---------------------------
* The Fund's Board of Directors is divided into three classes, each class
having a term of three years. Each year the term of office of one class
expires and the successor or successors elected to such class serve for a
three year term. The three year term for each class expires as follows:
CLASS I DIRECTORS - three year term expires at
the Fund's 2006 Annual Meeting of Shareholders;
directors may continue in office until their
successors are duly elected and qualified.
CLASS II DIRECTORS - three year term expires at
the Fund's 2004 Annual Meeting of Shareholders;
directors may continue in office until their
successors are duly elected and qualified.
CLASS III DIRECTORS - three year term expires
at the Fund's 2005 Annual Meeting of
Shareholders; directors may continue in office
until their successors are duly elected and
qualified.

+ As a Director, represents holders of shares of the Fund's Money Market
Cumulative Preferred(TRADE MARK) Stock.

++ "Interested person" of the Fund as defined in the Investment Company Act of
1940. Messrs. Crumrine and Ettinger are each considered an "interested person"
because of their affiliation with Flaherty & Crumrine Incorporated which acts as
the Fund's investment adviser.

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Flaherty & Crumrine Preferred Income Opportunity Fund
ADDITIONAL INFORMATION (UNAUDITED) (CONTINUED)
-----------------------------------------------------

OFFICERS:
---------

BRADFORD S. STONE Vice President Since Since May 2003, Vice -- --
392 Springfield Avenue and Assistant July 2003 President of Flaherty &
Mezzanine Suite Treasurer Crumrine; from June
Summit, NJ 07901 2001 to April 2003,
Age: 44 Director of US Market
Strategy at Barclays
Capital; from February
1987 to June 2001,
Vice President of
Goldman, Sachs &
Company as Director
of US Interest Rate
Strategy and,
previously, Vice
President of Interest
Rate Product Sales.

R. ERIC CHADWICK Vice President, Since Since August 2001, -- --
301 E. Colorado Boulevard Secretary October 2002 Vice President of
Suite 720 and Assistant Flaherty & Crumrine,
Pasadena, CA 91101 Treasurer from January 1997
Age: 28 through November 1998,
portfolio manager of
Koch Industries, Inc.

[This page intentionally left blank]

DIRECTORS
Martin Brody
Donald F. Crumrine, CFA
Robert M. Ettinger, CFA
David Gale
Morgan Gust
Robert F. Wulf, CFA

OFFICERS
Donald F. Crumrine, CFA
Chairman of the Board
and Chief Executive Officer
Robert M. Ettinger, CFA
President
Peter C. Stimes, CFA
Chief Financial Officer,
Chief Accounting Officer,
Vice President, Treasurer,
and Assistant Secretary
Bradford S. Stone
Vice President and
Assistant Treasurer
R. Eric Chadwick, CFA
Vice President, Secretary and
Assistant Treasurer

INVESTMENT ADVISER
Flaherty & Crumrine Incorporated
e-mail: flaherty@fin-mail.com

QUESTIONS CONCERNING YOUR SHARES OF FLAHERTY &
CRUMRINE PREFERRED INCOME OPPORTUNITY FUND?
o If your shares are held in a brokerage
Account, contact your broker.
o If you have physical possession of your shares
in certificate form, contact the Fund's Transfer
Agent & Shareholder Servicing Agent --
PFPC Inc.
P.O. Box 43027
Providence, RI 02940-3027
1-800-331-1710

THIS REPORT IS SENT TO SHAREHOLDERS OF FLAHERTY &CRUMRINE PREFERRED INCOME
OPPORTUNITY FUND FOR THEIR INFORMATION. IT IS NOT A PROSPECTUS, CIRCULAR OR
REPRESENTATION INTENDED FOR USE IN THE PURCHASE OR SALE OF SHARES OF THE FUND OR
OF ANY SECURITIES MENTIONED IN THIS REPORT.

[LOGO OMITTED]
FLAHERTY & CRUMRINE
PREFERRED
INCOME
OPPORTUNITY
FUND

ANNUAL
REPORT

NOVEMBER 30, 2003

web site: www.preferredincome.com

ITEM 2. CODE OF ETHICS.

(a) The registrant, as of the end of the period covered by this report, has
adopted a code of ethics that applies to the registrant's principal
executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the registrant
or a third party.

(b) There have been no amendments, during the period covered by this
report, to a provision of the code of ethics that applies to the
registrant's principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing
similar functions, regardless of whether these individuals are employed
by the registrant or a third party, and that relates to any element of
the code of ethics description.

(c) The registrant has not granted any waivers, including an implicit
waiver, from a provision of the code of ethics that applies to the
registrant's principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing
similar functions, regardless of whether these individuals are employed
by the registrant or a third party, that relates to one or more of the
items set forth in paragraph (b) of this item's instructions.

ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.

As of the end of the period covered by the report, the registrant's board of
directors has determined that David Gale and Robert F. Wulf are each qualified
to serve as an audit committee financial expert serving on its audit committee
and that they both are "independent," as defined by the Securities and Exchange
Commission.

ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

Not applicable.

ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.

Not applicable.

ITEM 6. [RESERVED]

ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.

FLAHERTY & CRUMRINE INCORPORATED (THE "ADVISER")
POLICIES AND PROCEDURES FOR VOTING PROXIES FOR CLIENTS

(The definition of clients includes Flaherty & Crumrine Preferred Income Fund
Incorporated, Flaherty & Crumrine Preferred Income Opportunity Fund
Incorporated, Flaherty & Crumrine/Claymore Preferred Securities Income Fund
Incorporated, and Flaherty & Crumrine/Claymore Total Return Fund Incorporated
- collectively, the "Funds")

PURPOSE
-------
These Policies and Procedures are designed to satisfy the Adviser's duties
of care and loyalty to its clients with respect to monitoring corporate
events and exercising proxy authority in the best interests of such
clients.

In connection with this objective, these Policies and Procedures are
designed to deal with potential complexities which may arise in cases where
the Adviser's interests conflict or appear to conflict with the interests
of its clients.

These Policies and Procedures are also designed to communicate with clients
the methods and rationale whereby the Adviser exercises proxy authority.

This document is available to any client or Fund shareholder upon request
and the Adviser will make available to such clients and Fund shareholders
the record of the Adviser's votes promptly upon request and to the extent
required by Federal law and regulations.1

FUNDAMENTAL STANDARD
--------------------
The Adviser will be guided by the principle that, in those cases where it
has discretion, it is bound to vote proxies and take such other corporate
actions consistent with the interest of its clients with regard to the
objective of wealth maximization.

GENERAL
-------
The Adviser has divided its discussion in this document into two major
categories: voting with respect to common stock and voting with respect to
senior equity, e.g., preferred stock and similar securities. In those
events where the Adviser may have to take action with respect to debt, such
as in the case of amendments of covenants or in the case of default,
bankruptcy, reorganization, etc., the

--------
1 This will include Fund web site reporting of proxy votes on Form N-PX
no later than 8/31/2004 for the twelve month period ended 6/30/2004.

Adviser will apply the same principles as would apply to common or
preferred stock, MUTATIS MUTANDIS.

These Policies and Procedures apply only where the client has granted
discretionary authority with respect to proxy voting of an issuer. Where
the Adviser does not have authority, it will keep appropriate written
records evidencing that such discretionary authority has not been granted.

The Adviser may choose not to keep written copies of proxy materials that
are subject to SEC regulation and maintained in the SEC's EDGAR database.
In other instances, the Adviser will keep appropriate written records in
its files or in reasonably accessible storage.

Similarly, the Adviser will keep in its files, or reasonably accessible
storage, work papers and other materials that were significant to the
Adviser in making a decision how to vote.

For purposes of decision making, the Adviser will assume that each ballot
for which it casts votes is the only security of an issuer held by the
client. Thus, when casting votes where the Adviser may have discretionary
authority with regard to several different securities of the same issuer,
it may vote securities "in favor" for those securities or classes where the
Adviser has determined the matter in question to be beneficial while, at
the same time, voting "against" for those securities or classes where the
Adviser has determined the matter to be adverse. Such cases occasionally
arise, for example, in those instances where a vote is required by both
common and preferred shareholders, voting as separate classes, for a change
in the terms regarding preferred stock issuance.

The Adviser will reach its voting decisions independently, after
appropriate investigation. It does not generally intend to delegate its
decision making or to rely on the recommendations of any third party,
although it may take such recommendations into consideration. The Adviser
may consult with such other experts, such as CPA's, investment bankers,
attorneys, etc., as it regards necessary to help it reach informed
decisions.

Absent good reason to the contrary, the Adviser will generally give
substantial weight to management recommendations regarding voting. This is
based on the view that management is usually in the best position to know
which corporate actions are in the best interests of common shareholders as
a whole.

With regard to those shareholder-originated proposals which are typically
described as "social, environmental, and corporate responsibility" matters,
the Adviser will typically give weight to management's recommendations and
vote against such shareholder proposals, particularly if the adoption of
such proposals would bring about burdens or costs not borne by those of the
issuer's competitors.

In cases where the voting of proxies would not justify the time and costs
involved, the Adviser may refrain from voting. From the individual client's
perspective, this would most typically come about in the case of small
holdings, such as might arise in connection with spin-offs or other
corporate reorganizations. From the perspective of the Adviser's
institutional clients, this envisions cases (1) as more fully described
below where preferred and common shareholders vote together as a class or
(2) other similar or analogous instances.

Ultimately, all voting decisions are made on a case-by-case basis, taking
relevant considerations into account.

VOTING OF COMMON STOCK PROXIES
------------------------------
The Adviser categorizes matters as either routine or non-routine, which
definition may or may not precisely conform to the definitions set forth by
securities exchanges or other bodies categorizing such matters. Routine
matters would include such things as the voting for directors and the
ratification of auditors and most shareholder proposals regarding social,
environmental, and corporate responsibility matters. Absent good reason to
the contrary, the Adviser normally will vote in favor of management's
recommendations on these routine matters.

Non-routine matters might include, without limitation, such things as (1)
amendments to management incentive plans, (2) the authorization of
additional common or preferred stock, (3) initiation or termination of
barriers to takeover or acquisition, (4) mergers or acquisitions, (5)
changes in the state of incorporation, (6) corporate reorganizations, and
(7) "contested" director slates. In non-routine matters, the Adviser, as a
matter of policy, will attempt to be generally familiar with the questions
at issue. This will include, without limitation, studying news in the
popular press, regulatory filings, and competing proxy solicitation
materials, if any. Non-routine matters will be voted on a case-by-case
basis, given the complexity of many of these issues.

VOTING OF PREFERRED STOCK PROXIES
---------------------------------
Preferred stock, which is defined to include any form of equity senior to
common stock, generally has voting rights only in the event that the issuer
has not made timely payments of income and principal to shareholders or in
the event that a corporation desires to effectuate some change in its
articles of incorporation which might modify the rights of preferred
stockholders. These are non-routine in both form and substance.

In the case of non-routine matters having to do with the modification of
the rights or protections accorded preferred stock shareholders, the
Adviser will attempt, wherever possible, to quantify the costs and benefits
of such modifications and will vote in favor of such modifications only if
they are in the bests interests of preferred shareholders or if the issuer
has offered sufficient compensation to preferred stock shareholders to
offset the reasonably foreseeable adverse consequences of such
modifications. A similar type of analysis would be made in the case where
preferred shares, as a class, are entitled to vote on a merger or other
substantial transaction.

In the case of the election of directors when timely payments to preferred
shareholders have not been made ("contingent voting"), the Adviser will
cast its votes on a case-by-case basis after investigation of the
qualifications and independence of the persons standing for election.

Routine matters regarding preferred stock are the exception, rather than
the rule, and typically arise when the preferred and common shareholders
vote together as a class on such matters as election of directors. The
Adviser will vote on a case-by-case basis, reflecting the principles set
forth elsewhere in this document. However, in those instances where the
common shares of an issuer are held by a holding company and where, because
of that, the election outcome is not in doubt, the Adviser does not intend
to vote such proxies since the time and costs would outweigh the benefits.

ACTUAL AND APPARENT CONFLICTS OF INTEREST
-----------------------------------------
Potential conflicts of interest between the Adviser and the Adviser's
clients may arise when the Adviser's relationships with an issuer or with a
related third party conflict or appear to conflict with the best interests
of the Adviser's clients.

The Adviser will indicate in its voting records available to clients
whether or not a material conflict exists or appears to exist. In addition,
the Adviser will communicate with the client (which shall mean the
independent Directors or Director(s) they may so designate in the case of
the Funds) in instances when a material conflict of interest may be
apparent. The Adviser shall describe the conflict to the client and state
the Adviser's voting recommendation and the basis therefore. If the client
considers there to be a reasonable basis for the proposed vote
notwithstanding the conflict or, in the case of the Funds, that the
recommendation was not affected by the conflict (without considering the
merits of the proposal), the Adviser shall vote in accordance with the
recommendation it had made to the client.

In all such instances, the Adviser will keep reasonable documentation
supporting its voting decisions and/or recommendations to clients.

AMENDMENT OF THE POLICIES AND PROCEDURES
----------------------------------------
These Policies and Procedures may be modified at any time by action of the
Board of Directors of the Adviser but will not become effective, in the
case of the Funds, unless they are approved by majority vote of the
non-interested Directors of the Funds. Any such modifications will be made
to the Adviser's clients by mail and/or other electronic means in a timely
manner. These Policies and Procedures, and any amendments thereto, will be
posted on the Funds' webs sites and will be disclosed in reports to
shareholders as required by law.

Dated: 7/24/2003

ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.

Not applicable.

ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

Not applicable.

ITEM 10. CONTROLS AND PROCEDURES.

(a) The registrant's principal executive and principal financial officers,
or persons performing similar functions, have concluded that the
registrant's disclosure controls and procedures (as defined in Rule
30a-3(c) under the Investment Company Act of 1940, as amended (the
"1940 Act") (17 CFR 270.30a-3(c))) are effective, as of a date within
90 days of the filing date of the report that includes the disclosure
required by this paragraph, based on their evaluation of these controls
and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR
270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities
Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or
240.15d-15(b)).

(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17
CFR 270.30a-3(d)) that occurred during the registrant's last fiscal
half-year (the registrant's second fiscal half-year in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting.

ITEM 11. EXHIBITS.

(a)(1) Code of ethics, or any amendment thereto, that is the subject of
disclosure required by Item 2 is attached hereto.

(a)(2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 are attached hereto.

(a)(3) Not applicable.

(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 are attached hereto.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.

(registrant) FLAHERTY & CRUMRINE PREFERRED INCOME OPPORTUNITY FUND INCORPORATED

By (Signature and Title)*/s/DONALD F. CRUMRINE
-------------------------------------------------------
Donald F. Crumrine, Director, Chairman of the Board
and Chief Executive Officer
(principal executive officer)

Date JANUARY 29, 2004
----------------------------------------------------------------------------

Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.

Date January 29, 2004
----------------------------------------------------------------------------

By (Signature and Title)*/s/PETER C. STIMES
-------------------------------------------------------
Peter C. Stimes, Chief Financial and Accounting Officer,
Vice President, Treasurer & Assistant Secretary
(principal financial officer)

Date JANUARY 29, 2004
----------------------------------------------------------------------------

* Print the name and title of each signing officer under his or her signature.