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

       FLAHERTY & CRUMRINE PREFERRED INCOME OPPORTUNITY FUND INCORPORATED
--------------------------------------------------------------------------------
               (Exact name of registrant as specified in charter)

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

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

        registrant's telephone number, including area code: 626-795-7300
                                                           -------------

                      Date of fiscal year end: NOVEMBER 30
                                              ------------

                     Date of reporting period: MAY 31, 2005
                                              -------------


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.

The Report to Shareholders is attached herewith.




                               [GRAPHIC OMITTED]

                                   LIGHTHOUSE

                              FLAHERTY & CRUMRINE
                              ===================
                              PREFERRED INCOME
                              OPPORTUNITY FUND

                                   SEMI-ANNUAL
                                     REPORT

                                  MAY 31, 2005

                        web site: www.preferredincome.com



FLAHERTY & CRUMRINE PREFERRED INCOME OPPORTUNITY FUND

Dear Shareholder:

      During the first half of fiscal 2005,  the  Flaherty & Crumrine  Preferred
Income  Opportunity Fund performed  admirably under  challenging  conditions for
investing.  For the first two quarters of fiscal 2005, the Fund produced a total
return on net asset value ("NAV") of +8.3%(1).  In the three month period ending
May 31, 2005, the total return on NAV for the Fund was +2.0%(1).  As can be seen
from the table below, over the long run, the Fund has outpaced the return on the
Lipper Domestic Investment Grade Bond Funds by a wide margin.

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

                   TOTAL RETURN PER YEAR ON NET ASSET VALUE(1)
                         FOR PERIODS ENDING MAY 31, 2005



                                                                          ONE        FIVE         TEN      LIFE OF
                                                                         YEAR        YEARS       YEARS     FUND(2)
                                                                         ----        -----       -----     -------
                                                                                                 
      Flaherty & Crumrine Preferred Income
         Opportunity Fund ..........................................     12.4%       13.4%        9.9%       10.5%
      Lipper Domestic Investment Grade Bond Funds(3) ................     8.1%        8.3%        7.2%        7.2%


----------
(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
      February 13, 1992.

(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.

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

      Along  with  Federal  Reserve  Chairman  Alan  Greenspan,  we  share  some
confusion about the "conundrum" of falling LONG-TERM  interest rates in the face
of steady  increases in SHORT-TERM  rates. In the twelve month period ending May
31, 2005, short-term rates have climbed almost 200 basis points. During the same
period,  long-term  rates have FALLEN  over 100 basis  points.  We discuss  some
reasons  for the  flattening  yield  curve in the  Question  and Answer  ("Q&A")
section  that  follows,  but,  suffice it to say,  these yield curve  shifts are
without  precedent  for  this  phase of an  economic  cycle.  (For an even  more
in-depth  analysis,  we invite you to read the 2ND  QUARTER  REVIEW OF  ECONOMIC
CONDITIONS on the Fund's website.)

      The flattening yield curve has impacted the Fund in different ways. As
we've discussed in the past, rising short-term interest rates have the direct
and immediate effect of increasing the rate (cost) the Fund must pay on its
Money Market Cumulative Preferred(TM) Stock ("MMP(R)") leverage. Falling
long-term interest rates contribute to appreciation in the investment portfolio,
but also increase the likelihood that some of the higher-yielding securities in
the portfolio will be redeemed by the issuer, forcing us to replace them with
lower-yielding new issues. These were the main factors behind the dividend
reduction in April.



      Market  conditions will always have a big impact on the dividend rate, and
the dividend rate on the Fund can change from time to time.  What makes the Fund
unusual,  however,  is the use of strategies which are expected to result in the
Fund's income increasing as long-term interest rates rise  significantly,  while
being   relatively   resistant   to  declines  in  long-term   interest   rates.
Nevertheless, it is important to be realistic about the dividend. When long-term
interest  rates are hovering  around 4%, as they  presently  are, the  portfolio
cannot produce the same level of income as when these rates are at 5 or 6%.

      We resolutely avoid predicting  interest rates, but it is difficult for us
to believe that long-term interest rates can remain this low if the U.S. economy
continues to grow at the current pace.  If rates do increase,  the Fund's hedges
should  appreciate  in value and a portion of those gains could be reinvested in
additional  income-producing  securities.  In  addition,  issuers  would be less
inclined  to call  some of  their  higher-yielding  issues,  since  the  cost of
refinancing presumably also would go up.

      Of course, our investment  approach will remain the same regardless of the
direction of long-term  interest rates.  We'll identify companies with stable or
improving  fundamental  credit  quality,  and  invest  in  the  most  attractive
securities we can find at the best prices obtainable (more on this in the Q&A).

      For one of the few  times in  recent  memory,  the  size of the  preferred
market is growing by a meaningful  amount (more on this in the Q&A). We're still
assessing the implications,  but one thing is certain -- over the long run, this
is a very good thing.  In our  experience,  new supply has stimulated  preferred
market  activity and enhanced our ability to add value to the performance of the
Fund.

      It is basic  economic  theory  that prices will fall to absorb new supply,
unless  demand also  increases.  During the past  quarter,  new supply seemed to
outstrip demand by a bit, as, broadly speaking,  preferred prices underperformed
most other fixed-income market segments. The Fund's preferred holdings, however,
bucked the trend and made money during the quarter. Our returns still lagged the
performance of long-term U.S.  Treasury  bonds,  but thanks to the  "safety-net"
hedging  strategy,  the  loss  on our  hedges  was  contained  and  the  overall
performance was very respectable.

      There  are a  number  of  interesting  developments  in the  Fund  and the
preferred market.  We've addressed these in greater detail in the following Q&A.
We   also   encourage   you  to   take   advantage   of  the   Fund's   website,
WWW.PREFERREDINCOME.COM.  It  contains  a wide  range of useful  and  up-to-date
information about the Fund.  Finally, if you'd like to learn more about specific
preferred  issues,  visit  WWW.PREFERREDSTOCKGUIDE.COM,  a site  created  by the
Fund's manager, Flaherty & Crumrine.

     Sincerely,


     /s/ Donald F. Crumrine                      /s/ Robert M. Ettinger

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

     July 12, 2005


                                       2


                               QUESTIONS & ANSWERS

1.    HOW DID THE FUND'S PREFERRED SECURITIES PERFORM DURING THE QUARTER?

      Broadly  speaking,  the Fund's preferred  portfolio  performed quite well,
although to some extent the answer depends on which measure we use for comparing
performance.  The total return (principal change plus income) on this portion of
the Fund was +3.0% during the  quarter(1).  This compares to +5.4% for long-term
U.S. Treasury Bonds(2), +1.2% for intermediate-term corporate bonds(3) and -0.6%
for the S&P 500.

      The Fund's preferred  portfolio also  outperformed the Merrill Lynch Index
of DRD Eligible  Preferred Stock and the Merrill Lynch Index of Hybrid Preferred
Securities.   The  total   returns  on  these  indices  were  -0.3%  and  -1.4%,
respectively.

      As the numbers indicate, it is important to own the right preferreds.  The
three key  components  of our  investment  decision-making  process  are  credit
quality,  issue terms,  and price.  We spend most of our time thinking about all
three, and then fine-tuning the portfolio to reflect our best judgment.

2.    WHAT CAUSED THE OVERALL PREFERRED MARKET TO WEAKEN DURING THE QUARTER?

      The market for preferred  securities  has been  experiencing  some growing
pains recently. In contrast to the past few years when the size of the preferred
market  changed very little,  during the past few months there has been a steady
supply of new issues  brought to market.  For the market to absorb this  supply,
yields on  preferred  securities  have risen in relation  to other  fixed-income
investments,  and,  as a result,  the  broader  market of  preferred  securities
underperformed other segments of the fixed-income market.

3.    WHAT FACTORS ARE DRIVING THE GROWTH IN THE PREFERRED MARKET?

      One obvious  reason is that  issuers  find the current low  interest  rate
environment attractive.  In addition,  Moody's Investors Service ("Moody's") has
made changes which could induce some companies to issue preferred  stock. In the
esoteric  world of credit  rating,  the  treatment of  preferred  stock has been
somewhat inconsistent.  Moody's has attempted to clarify their ratings approach,
and several issuers have already responded.

      One  important  aspect  of the new  approach  at  Moody's  is to  treat an
issuer's  dividend-paying  preferred stock (with certain  characteristics)  less
like debt and more like equity than in the past. As a result, some companies may
find that  substituting  debt with  preferred can improve the "quality" of their
balance sheet and thus lower overall financing costs. Others may issue preferred
stock and use the  proceeds  for a common stock  buyback  program;  substituting
preferred  stock for common stock,  which means the company's  income and market
value are split among fewer common shares.  Preferred stock is also likely to be
used more prominently in merger and acquisition financing packages.

      We expect  the supply of new issues to  continue  at a steady,  manageable
rate over the next few quarters,  and possibly much longer.  Many companies will
now be inclined to issue preferred  securities as a bigger part of their overall
financing strategy.

----------
(1)   The return here differs  from those in the  Shareholder  letter  primarily
      because it excludes the impact of the Fund's hedging instruments.

(2)   Lehman Bros. Long U.S. Treasury Index

(3)   Lehman Bros. Intermediate U.S. Credit Index


                                       3


4.    HOW DID THE FUND'S HEDGE PERFORM DURING THE QUARTER?

      The hedge  produced a drag on  overall  performance  during  the  quarter;
however,  the put option  strategy  helped  contain the extent of the loss.  The
yield on long-term  U.S.  Treasury  bonds  declined 40 basis  points  during the
period,  from  4.72% to 4.32%.  The  Fund's  "safety-net"  hedging  strategy  is
designed to mitigate  the impact from a move of this  magnitude,  and during the
period the strategy worked as expected.

      We are asked from time to time why we continue hedging when interest rates
are falling. In hindsight,  this seems like a reasonable question,  but actually
the future  direction of interest rates is always a mystery.  Consequently,  the
Fund always employs a hedge against substantial  increases in long-term interest
rates. This is a core component of the Fund's overall investment strategy and we
have no intention of changing it.

5.    HOW DOES THE FUND'S MANAGER SELECT THE HOLDINGS IN THE PORTFOLIO?

      Owning  the best  issues  at the best  prices  sounds a lot like  favoring
motherhood  and apple pie.  To us,  however,  it means much more.  We begin with
credit quality.  Our analysts dissect the balance sheet and income statements of
every company we invest in. As investors in the preferred and debt securities of
a company,  we think more as lenders than as owners;  we're more concerned about
stability than growth.

      The next  step for us is to  understand  the  nuances  of each  particular
security we buy. If we drew a continuum  of ways to invest in a company,  common
stock would be at one end and senior  borrowing (e.g.  corporate bonds) would be
at the  other.  The area in the  middle  is  occupied  by the  various  types of
"hybrid"  securities  the Fund may invest in. The terms and  covenants for these
issues  can vary  quite a bit,  and  these  variances  affect  the  value of the
security.

      The final  step is  valuation.  We take  apart all of the pieces and use a
combination of experience and analytic tools to value each part, and then we add
them all up. With this price in hand,  we simply try to be a good neighbor -- if
someone  wants to sell below our price or buy above our price,  we'll make every
effort to accommodate them!

6.    WHAT IS THE OUTLOOK FOR THE FUND'S  DIVIDEND RATE FOR THE REMAINDER OF THE
      FISCAL YEAR?

      When the Fund reduced the monthly  dividend in April, we anticipated  that
the new rate would be sustainable  throughout the fiscal year. While we can make
no guarantees, based on our current projections, the Fund is expected to produce
sufficient income to continue the dividend at the present rate for the remainder
of the fiscal year ending November 30th.

7.    WHAT IS THE BREAKDOWN BETWEEN DIVIDENDS AND INTEREST THIS YEAR?

      Recall  that  dividends  may be taxed at lower  rates than other  types of
income for  individual  and corporate  investors  (approximately  15% and 10.5%,
respectively).  Producing preferentially-taxed dividend income is not a specific
objective of the Fund,  but such dividends have comprised a large portion of the
distributions  for many years  (82% in 2004 for both  individual  and  corporate
investors).

      Since some investors may benefit from lower tax rates on dividend  income,
we realize this is a very important question;  unfortunately, the composition of
distributions  made by the Fund cannot be determined until the end of the fiscal
year on  November  30th.  Once the books are  closed,  we add up  dividends  and
interest earned,  short and long-term  realized gains (or losses),  and subtract
the  expenses  incurred by the Fund.  Only then are we able to compute the exact
breakdown between  qualified  dividend income (eligible for lower tax treatment)
and other income.


                                       4


      A review of the  portfolio  holdings in this  report  shows that as of May
31st, 76% of the portfolio's  value was in issues that pay qualified  dividends.
THIS IS NOT THE PERCENTAGE OF INCOME THAT IS QUALIFIED DIVIDENDS.  The amount of
dividend-paying  securities  held in the  portfolio  correlates  well  with  the
composition  of the  portfolio's  income,  but there are a number of  additional
things (such as realized  gains and losses) that factor into the  breakdown.  Of
course,  the composition of the portfolio's  holdings is sure to change over the
balance of the year.

8.    WHAT IS THE OUTLOOK FOR THE FUND'S DIVIDEND RATE OVER THE LONGER TERM?

      The further we look into the future,  the hazier our crystal ball becomes.
Forecasting  the  dividend  beyond  periods  of six to  twelve  months is tricky
because the projections  must be based on assumptions  that become  increasingly
less reliable.

      An alternative  approach is to remember the primary factors that influence
the dividend:

      o     The income earned on the Fund's investment portfolio;

      o     The rate the Fund must pay on its leverage; and,

      o     The cost of the Fund's hedging strategy.

      The income earned on the Fund's  investment  portfolio  will be determined
primarily  by two things -- the level of  long-term  interest  rates  (typically
measured by the yield on 30 year U.S.  Treasury bonds),  and the relationship of
yields on  preferred  securities  to the yield on 30 year U.S.  Treasury  bonds.
Recently,  the yield on the 30 year U.S.  Treasury bond has been hovering around
historically low levels,  AND yields on preferred  securities also appear low by
historical standards.  If these conditions persist for long, we'll start to feel
the pinch on our investment  income, as issuers accelerate the redemption of our
higher-yielding securities.

      The rate the Fund pays on its  shares of MMP(R)  (the  securities  used to
leverage  the  Fund)  is  closely  correlated  to  short-term  rates.  The  much
publicized  increases in short-term  interest rates  orchestrated by the Federal
Reserve have  materially  increased  the Fund's cost of leverage.  In the months
leading up to the Fed's policy change last year,  the Fund was paying roughly 1%
on its leverage. Recently, the rate has been closer to 3%!

      The  cost  of  the  Fund's  hedging  strategy  is  the  third  major  item
influencing the dividend rate. We like to use the analogy of an insurance policy
-- the fund pays  premiums  to buy  "insurance",  and we  collect  if  long-term
interest  rates rise  significantly.  The cost of the insurance is determined by
many things,  but a key item is the  differential  between  short- and long-term
interest rates. As a general rule, when this  differential is large, the cost of
hedging is high.  Since  short-term  rates have been rising and long-term  rates
have been falling, the cost of the Fund's hedges has been falling.

      Put it all together and we have a three-legged  dividend  stool,  and each
leg can move up or down for different reasons. Trying to forecast changes in one
leg is difficult enough, let alone all three. Having said that, we can make some
general  observations about how the legs of the stool relate to one another.  We
have already noted that falling  long-term  interest rates and rising short-term
interest  rates tend to lower  income.  At the same time, a flatter  yield curve
(i.e. a smaller  difference  between  long and short  rates)  lowers the cost of
hedging, potentially improving returns going forward. Although far from perfect,
over the long run there is some  degree of  balance  among the three legs of the
stool.


                                       5


      As mentioned in the letter, the dividend rate on the Fund does change from
time to time. The increases  have been larger and more  frequent,  but cuts have
been made  occasionally.  Market  conditions  have a big impact on the  dividend
rate,  but over time we believe the Fund's  strategy (and our ability to execute
it) should deliver more income for our investors.

9.    HOW DOES THE FUND SET THE DIVIDEND?

      The  Fund's  Board of  Directors  must  declare  each and  every  dividend
distribution.  The distribution  amounts are based upon projections  provided to
the Board by management,  and are based on  considerations  like those discussed
above.

      Long  ago,  the  Board  adopted  the  procedure  of a  "Standing  Dividend
Resolution", declaring a continuing monthly dividend at a specified rate. Unless
the  Board  acts to  change  the  Standing  Dividend  Resolution,  the Fund will
continue to pay the  dividend at the  prevailing  rate.  If and when  conditions
warrant,  management  will  request a  meeting  of the  Board  and  recommend  a
different rate, and a new Standing Dividend Resolution may be adopted.

10.   WHY HAVE LONG AND SHORT RATES MOVED IN OPPOSITE  DIRECTIONS  AND WILL THIS
      PATTERN PERSIST GOING FORWARD?

      Normally  during periods of Federal  Reserve  tightening,  the yield curve
"flattens" as short rates rise more than long rates.  However, in this period of
Fed  tightening  the yield curve has flattened  dramatically  because long rates
have fallen even as short rates have increased - an unprecedented development.

      There are a number of  reasons  why long  rates have  fallen  during  this
period.  Analysts  have cited foreign  trade  policy,  shifts in global  savings
patterns,  subdued  inflation,  and increased  demand for long- duration assets.
More  recently,  concerns  over slowing  economic  growth  outside the U.S. have
pushed global yields lower,  particularly in Europe. Finally,  technical factors
probably   contributed  to  lower  yields  as  well:  many  investors  correctly
anticipated Fed tightening,  but not the decline in long rates,  causing some to
cover shorts in long-term bonds at higher prices and lower yields.

      The second part of the question,  will this pattern persist going forward,
is more difficult to answer, but we believe the answer is no. Put simply, if the
Fed keeps  tightening and bonds keep rallying,  soon investors would earn higher
yields on less volatile  short-term  instruments than on more volatile long-term
bonds.   Foreign  investors  in  particular  then  might  shift  investments  to
short-term   instruments   as  their   yields   rise  above   those  of  current
longer-duration holdings. In addition,  business investment remains sturdy while
corporate  profit  growth  has  slowed,  suggesting  that  corporate  demand for
borrowing and hence bond issuance may increase in coming quarters.

      There are many, many pieces to the yield-curve  puzzle, but putting it all
together,  we expect that  short-term and long-term rates will move more closely
together - and in the same  direction!  - going  forward,  which should  benefit
either our cost of leverage if rates fall or our hedges if rates increase.


                                       6


--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Opportunity Fund Incorporated
PORTFOLIO OVERVIEW
MAY 31, 2005 (UNAUDITED)
------------------------------------------------------------------

FUND STATISTICS ON 05/31/05
--------------------------------------------------------------------------------
Net Asset Value                                                     $     12.78

Market Price                                                        $     12.92

Premium                                                                    1.10%

Yield on Market Price                                                      6.55%

Common Shares Outstanding                                             11,631,344

INDUSTRY CATEGORIES                                               % OF PORTFOLIO
--------------------------------------------------------------------------------

                               [GRAPHIC OMITTED]

    EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:

Utilities               44%
Banks                   24%
Insurance               10%
Financial Services       9%
Oil and Gas              6%
Other                    5%
REITs                    2%

MOODY'S RATINGS                                                   % OF PORTFOLIO
--------------------------------------------------------------------------------
AAA                                                                         3.0%

AA                                                                          5.4%

A                                                                          19.6%

BBB                                                                        43.1%

BB                                                                         17.3%

Not Rated                                                                  10.1%
--------------------------------------------------------------------------------
Below Investment Grade*                                                    18.6%

*     BELOW INVESTMENT GRADE BY BOTH MOODY'S AND S&P.

                                                                         % OF
TOP 10 HOLDINGS BY ISSUER                                              PORTFOLIO
--------------------------------------------------------------------------------
Interstate Power                                                         5.2%

Lehman Brothers                                                          4.7%

Alabama Power                                                            4.4%

Xcel Energy                                                              3.8%

Citigroup                                                                3.8%

Zurich RegCaPS                                                           3.2%

Cobank                                                                   3.1%

Duke Energy                                                              3.1%

EOG Resources                                                            3.0%

North Fork Bancorporation                                                3.0%



                                                                                                     % OF PORTFOLIO**
---------------------------------------------------------------------------------------------------------------------
                                                                                                        
Holdings Generating Qualified Dividend Income (QDI) for Individuals                                        76%
Holdings Generating Income Eligible for the Corporate Dividends Received Deduction (DRD)                   74%

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


**    THIS DOES NOT REFLECT  YEAR-END  RESULTS OR ACTUAL TAX  CATEGORIZATION  OF
      FUND  DISTRIBUTIONS.  THESE  PERCENTAGES  CAN,  AND  DO,  CHANGE,  PERHAPS
      SIGNIFICANTLY,  DEPENDING ON MARKET  CONDITIONS.  INVESTORS SHOULD CONSULT
      THEIR TAX ADVISOR REGARDING THEIR PERSONAL SITUATION.


                                       7


--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Opportunity Fund Incorporated
PORTFOLIO OF INVESTMENTS
MAY 31, 2005 (UNAUDITED)
------------------------------------------------------------------



SHARES/$ PAR                                                                                            VALUE
------------                                                                                           -------
                                                                                             
PREFERRED SECURITIES -- 93.3%
               BANKING -- 24.0%
---------------------------------------------------------------------------------------------------------------------
               ABN AMRO North America, Inc.:
       1,165     6.46% Pfd., 144A**** ...........................................................  $      1,228,038*
       4,200     6.59% Pfd., 144A**** ...........................................................         4,408,320*
$    150,000   BT Capital Trust B, 7.90% 01/15/27 Capital Security ..............................           162,010(1)
$    660,000   BT Preferred Capital Trust II, 7.875% 02/25/27 Capital Security ..................           716,499(1)
$    250,000   Chase Capital I, 7.67% 12/01/26 Capital Security .................................           268,040
               Citigroup, Inc.:
      72,435     5.864% Pfd., Series M ..........................................................         3,790,524*
       7,700     6.213% Pfd., Series G ..........................................................           409,178*
      46,000     6.231% Pfd., Series H ..........................................................         2,421,670*
      31,850     6.365% Pfd., Series F ..........................................................         1,690,916*
               Cobank, ACB:
      45,000     7.00% Pfd., 144A**** ...........................................................         2,589,750*
      75,000     Adj. Rate Pfd., 144A**** .......................................................         4,226,625*
$    500,000   Comerica (Imperial) Capital Trust I, 9.98% 12/31/26 Capital Security, Series B ...           577,770
$  2,250,000   First Hawaiian Capital I, 8.343% 07/01/27 Capital Security, Series B .............         2,501,257(1)
     200,000   First Republic Bank, 6.25% Pfd. ..................................................         5,228,000*
       1,800   First Tennessee Bank, Adj. Rate Pfd., 144A**** ...................................         1,782,000*
$    719,000   First Union Institutional Capital I, 8.04% 12/01/26 Capital Security .............           781,632
$  1,885,000   First Union Institutional Capital II, 7.85% 01/01/27 Capital Security ............         2,047,468
$  4,349,000   GreenPoint Capital Trust I, 9.10% 06/01/27 Capital Security ......................         4,896,822
$  2,500,000   HBOS Capital Funding LP, 6.85% Pfd. ..............................................         2,556,625(1)
      45,060   HSBC, USA Inc., Adj. Rate Pfd., Series F .........................................         1,111,856*
      36,500   J.P. Morgan Chase & Co., 6.625% Pfd., Series H ...................................         1,881,940*
$  1,350,000   Keycorp Institutional Capital B, 8.25% 12/15/26 Capital Security .................         1,474,889
$  1,500,000   North Fork Capital Trust I, 8.70% 12/15/26 Capital Security ......................         1,652,243
$  1,700,000   RBS Capital Trust B, 6.80% Pfd. ..................................................         1,732,462**(1)
          10   Roslyn Real Estate, 8.95% Pfd., Pvt., Series C, 144A**** .........................         1,116,041
$  1,200,000   Wachovia Capital Trust V, 7.965% 06/01/27 Capital Security, 144A**** .............         1,322,526
-------------------------------------------------------------------------------------------------------------------
                                                                                                         52,575,101
                                                                                                   ----------------


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


                                       8


--------------------------------------------------------------------------------
              Flaherty & Crumrine Preferred Income Opportunity Fund Incorporated
                                            PORTFOLIO OF INVESTMENTS (CONTINUED)
                                                        MAY 31, 2005 (UNAUDITED)
              ------------------------------------------------------------------



SHARES/$ PAR                                                                                            VALUE
------------                                                                                           -------
                                                                                             
PREFERRED SECURITIES -- (CONTINUED)
               FINANCIAL SERVICES -- 9.4%
---------------------------------------------------------------------------------------------------------------------
               Freddie Mac:
       6,975     5.00% Pfd., Series F ...........................................................  $        306,447*
      25,500     5.10% Pfd., Series H ...........................................................         1,142,782*
      42,650     5.30% Pfd. .....................................................................         1,986,210*
               Lehman Brothers Holdings, Inc.:
      20,150     5.67% Pfd., Series D ...........................................................         1,002,765*
     159,505     5.94% Pfd., Series C ...........................................................         8,207,330*
      44,000     6.50% Pfd., Series F ...........................................................         1,152,580*
      20,000   National Rural Utility CFC, 5.95% Pfd. 02/15/45 ..................................           485,600
     110,900   SLM Corporation, 6.97% Pfd., Series A ............................................         6,364,551*
-------------------------------------------------------------------------------------------------------------------
                                                                                                         20,648,265
                                                                                                   ----------------
               INSURANCE -- 9.9%
---------------------------------------------------------------------------------------------------------------------
      20,000   ACE Ltd., 7.80% Pfd., Series C ...................................................           531,100**(1)
      25,000   Aegon NV, 6.375% Pfd. ............................................................           625,750**(1)
$  2,000,000   AON Capital Trust A, 8.205% 01/01/27 Capital Security ............................         2,343,300
      15,850   Everest Re Capital Trust II, 6.20% Pfd. Series B .................................           378,419(1)
$  4,395,000   MMI Capital Trust I, 7.625% 12/15/27 Capital Security, Series B ..................         5,112,066
               Premium Assets, Series A:
          10     Zurich RegCaPS Money Market Pfd., Pvt. .........................................         1,013,750*
          18     Zurich RegCaPS Variable Inverse Pfd., Pvt. .....................................         2,057,326*
$  5,734,000   Provident Financing Trust I, 7.405% 03/15/38 Capital Security ....................         5,474,221
               Zurich RegCaPS Funding Trust:
       1,250     6.01% Pfd., 144A**** ...........................................................         1,261,831*
       2,600     6.58% Pfd., 144A**** ...........................................................         2,743,611*
-------------------------------------------------------------------------------------------------------------------
                                                                                                         21,541,374
                                                                                                   ----------------
               UTILITIES -- 41.5%
---------------------------------------------------------------------------------------------------------------------
               Alabama Power Company:
       4,980     4.60% Pfd. .....................................................................           483,135*
       6,485     4.72% Pfd. .....................................................................           645,549*
         868     4.92% Pfd. .....................................................................            90,068*
      98,400     5.20% Pfd. .....................................................................         2,522,976*
     225,000     5.30% Pfd. .....................................................................         5,824,125*
       6,000   Baltimore Gas & Electric Company, 6.70% Pfd., Series 1993 ........................           626,520*
       1,628   Central Hudson Gas & Electric Corporation, 4.35% Pfd., Series D, Pvt. ............           150,264*


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


                                       9


--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Opportunity Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
MAY 31, 2005 (UNAUDITED)
------------------------------------------------------------------



SHARES/$ PAR                                                                                            VALUE
------------                                                                                           -------
                                                                                             
PREFERRED SECURITIES -- (CONTINUED)
               UTILITIES -- (CONTINUED)
---------------------------------------------------------------------------------------------------------------------
      10,000   Central Illinois Light Company, 4.64% Pfd. .......................................  $      1,011,600*
       8,160   Central Illinois Public Service Corporation, 4.90% Pfd. ..........................           844,152*
       3,798   Central Maine Power Company, 4.75% Pfd. ..........................................           375,280*
      16,679   Central Vermont Public Service Corporation, 8.30% Sinking Fund Pfd. Pvt. .........         1,734,199*
               Connecticut Light & Power Company:
       2,050     4.50% Pfd., Series 1956 ........................................................            87,904*
      25,000     5.28% Pfd., Series 1967 ........................................................         1,206,750*
         883     $2.04 Pfd., Series 1949 ........................................................            34,327*
       2,900     $2.20 Pfd., Series 1949 ........................................................           121,582*
       9,652     $3.24 Pfd. .....................................................................           505,523*
       2,000   Consolidated Edison Company of New York, 4.65% Pfd., Series C ....................           195,470*
       7,500   Dayton Power and Light Company, 3.90% Pfd., Series C .............................           581,962*
               Duke Energy Corporation:
       5,000     4.50% Pfd., Series C, Pvt. .....................................................           478,475*
      34,943     7.85% Pfd., Series S ...........................................................         3,621,318*
               Duquesne Light Company:
      15,030     3.75% Pfd. .....................................................................           539,201*
      25,775     6.50% Pfd. .....................................................................         1,389,272*
       5,000   Energy East Capital Trust I, 8.25% Pfd. ..........................................           130,850
               Entergy Arkansas, Inc.:
       2,840     4.56% Pfd. .....................................................................           254,961*
       3,050     4.56% Pfd., Series 1965 ........................................................           273,814*
       1,150     6.08% Pfd. .....................................................................           119,634*
      13,500     7.40% Pfd. .....................................................................         1,404,337*
       5,880     7.80% Pfd. .....................................................................           614,901*
       2,265     7.88% Pfd. .....................................................................           236,341*
      24,314     $1.96 Pfd. .....................................................................           608,458*
       2,441   Entergy Gulf States, Inc., 7.56% Pfd. ............................................           248,482*
               Entergy Louisiana, Inc.:
         299     5.16% Pfd. .....................................................................            28,595*
         943     6.44% Pfd. .....................................................................            99,024*
       4,174     7.36% Pfd. .....................................................................           434,284*
     175,000     8.00% Pfd., Series 92 ..........................................................         4,413,500*
               Entergy Mississippi, Inc.:
       4,616     4.36% Pfd. .....................................................................           372,996*
       5,000     4.92% Pfd. .....................................................................           455,950*
       8,500     7.44% Pfd. .....................................................................           880,642*


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


                                       10


--------------------------------------------------------------------------------
              Flaherty & Crumrine Preferred Income Opportunity Fund Incorporated
                                            PORTFOLIO OF INVESTMENTS (CONTINUED)
                                                        MAY 31, 2005 (UNAUDITED)
               -----------------------------------------------------------------



SHARES/$ PAR                                                                                            VALUE
------------                                                                                           -------
                                                                                             
PREFERRED SECURITIES -- (CONTINUED)
               UTILITIES -- (CONTINUED)
---------------------------------------------------------------------------------------------------------------------
      10,900   Enterprise Capital Trust I, 7.44% Pfd., Series A .................................  $        277,241
               Florida Power Company:
      10,000     4.58% Pfd. .....................................................................           986,200*
       2,000     4.75% Pfd. .....................................................................           203,460*
               Great Plains Energy, Inc.:
       1,625     4.20% Pfd. .....................................................................           131,983*
       2,000     4.35% Pfd. .....................................................................           168,250*
               Hawaiian Electric Company, Inc.:
       1,611     5.00% Pfd., Series D ...........................................................            32,558*
       7,438     5.00% Pfd., Series E ...........................................................           150,322*
         690     5.00% Pfd., Series I ...........................................................            14,228*
$  3,750,000   Houston Light & Power, Capital Trust II, 8.257% 02/01/37 Capital Security ........         4,105,875
      30,500   Indianapolis Power & Light Company, 5.65% Pfd. ...................................         2,961,703*
     340,000   Interstate Power & Light Company, 8.375% Pfd., Series B ..........................        11,463,100*
       2,588   New York State Electric & Gas, $4.50 Pfd., Series 1949 ...........................           238,652*
      12,265   Northern Indiana Public Service Company, Adj. Rate Pfd., Series A ................           623,982*
               Ohio Power Company:
       3,018     4.20% Pfd. .....................................................................           270,971*
       1,251     4.40% Pfd. .....................................................................           117,669*
               Pacific Enterprises:
      13,680     $4.36 Pfd. .....................................................................         1,231,268*
      24,985     $4.50 Pfd. .....................................................................         2,321,107*
      15,730     $4.75 Pfd., Series 53 ..........................................................         1,542,405*
               Pacific Gas & Electric Co.:
      41,500     5.00% Pfd., Series D ...........................................................           941,428*
      50,000     5.00% Pfd., Series E ...........................................................         1,134,250*
               PacifiCorp:
       5,672     $4.56 Pfd. .....................................................................           526,617*
       6,458     $4.72 Pfd. .....................................................................           620,646*
      12,250     $7.48 Sinking Fund Pfd. ........................................................         1,304,319*
               PECO Energy Company:
       1,250     $4.30 Pfd., Series B ...........................................................           109,756*
       5,000     $4.40 Pfd., Series C ...........................................................           404,600*
      17,537   Portland General Electric, 7.75% Sinking Fund Pfd. ...............................         1,798,069*
      14,020   Public Service Electric & Gas Company, 5.28% Pfd., Series E ......................         1,416,791*
      55,210   San Diego Gas & Electric Company, $1.70 Pfd. .....................................         1,439,325*


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


                                       11


--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Opportunity Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
MAY 31, 2005 (UNAUDITED)
------------------------------------------------------------------



SHARES/$ PAR                                                                                            VALUE
------------                                                                                           -------
                                                                                             
PREFERRED SECURITIES -- (CONTINUED)
               UTILITIES -- (CONTINUED)
---------------------------------------------------------------------------------------------------------------------
       8,900   Savannah Electric & Gas Company, 6.00% Pfd. ......................................  $        246,842*
               South Carolina Electric & Gas Company:
      14,226     5.125% Purchase Fund Pfd., Pvt. ................................................           731,928*
       7,774     6.00% Purchase Fund Pfd., Pvt. .................................................           396,163*
               Southern California Edison:
      57,646     4.08% Pfd. .....................................................................         1,148,597*
       5,000     4.24% Pfd. .....................................................................           103,550*
      21,000     Adj. Rate Pfd. .................................................................         2,139,375*
      60,000   Southern Union Company, 7.55% Pfd. ...............................................         1,668,000*
$    750,000   TXU Electric Capital V, 8.175% 01/30/37 Capital Security .........................           802,241
      10,000   TXU US Holdings Company, $4.00 Pfd., Series TES ..................................           728,200*
       5,700   Union Electric Company, 4.56% Pfd. ...............................................           563,331*
               Virginia Electric & Power Company:
       1,665     $4.04 Pfd. .....................................................................           148,335*
       2,470     $4.20 Pfd. .....................................................................           228,759*
       1,673     $4.80 Pfd. .....................................................................           177,079*
       2,878     $6.98 Pfd. .....................................................................           296,707*
      12,500     $7.05 Pfd. .....................................................................         1,289,188*
       2,262   Washington Gas & Light Company, $4.25 Pfd. .......................................           210,932*
      12,863   Wisconsin Power & Light, 6.20% Pfd. ..............................................         1,319,937*
               Xcel Energy, Inc.:
      15,000     $4.08 Pfd., Series B ...........................................................         1,256,025*
      20,040     $4.10 Pfd., Series C ...........................................................         1,686,266*
      35,510     $4.11 Pfd., Series D ...........................................................         2,995,269*
      17,750     $4.16 Pfd., Series E ...........................................................         1,515,406*
      10,000     $4.56 Pfd., Series G ...........................................................           935,850*
-------------------------------------------------------------------------------------------------------------------
                                                                                                         90,771,176
                                                                                                   ----------------
               OIL AND GAS -- 5.1%
---------------------------------------------------------------------------------------------------------------------
      17,200   Anadarko Petroleum Corporation, 5.46% Pfd. .......................................         1,786,220*
       6,650   Apache Corporation, 5.68% Pfd., Series B .........................................           693,761*
       8,000   Devon Energy Corporation, 6.49% Pfd., Series A ...................................           857,200*
       6,125   EOG Resources, Inc., 7.195% Pfd., Series B .......................................         6,641,797*
      10,000   Lasmo America Limited, 8.15% Pfd., 144A**** ......................................         1,158,550*(1)
-------------------------------------------------------------------------------------------------------------------
                                                                                                         11,137,528
                                                                                                   ----------------


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


                                       12


--------------------------------------------------------------------------------
              Flaherty & Crumrine Preferred Income Opportunity Fund Incorporated
                                            PORTFOLIO OF INVESTMENTS (CONTINUED)
                                                        MAY 31, 2005 (UNAUDITED)
              ------------------------------------------------------------------



SHARES/$ PAR                                                                                            VALUE
------------                                                                                           -------
                                                                                             
PREFERRED SECURITIES -- (CONTINUED)
               REAL ESTATE INVESTMENT TRUST (REIT) -- 1.5%
---------------------------------------------------------------------------------------------------------------------
      18,120   PS Business Parks, Inc., 7.20% Pfd., REIT, Series M ..............................  $        451,097
               Public Storage, Inc.:
       6,000     6.18% Pfd., REIT, Series D .....................................................           142,530
      22,500     6.75% Pfd., REIT, Series E .....................................................           566,438
      40,000   Realty Income Corporation, 7.375% Pfd., REIT, Series D ...........................         1,039,600
      40,000   Regency Centers Corporation, 7.25% Pfd., REIT ....................................         1,019,800
-------------------------------------------------------------------------------------------------------------------
                                                                                                          3,219,465
                                                                                                   ----------------
               MISCELLANEOUS INDUSTRIES -- 1.9%
---------------------------------------------------------------------------------------------------------------------
      13,600   E.I. Du Pont de Nemours and Company, $4.50 Pfd., Series B ........................         1,325,592*
      36,200   Farmland Industries, Inc., 8.00% Pfd., 144A**** ..................................            18,100*+
      30,500   Ocean Spray Cranberries, Inc., 6.25% Pfd., 144A**** ..............................         2,860,137*
      26,000   Touch America Holdings, $6.875 Pfd. ..............................................               --*+
-------------------------------------------------------------------------------------------------------------------
                                                                                                          4,203,829
                                                                                                   ----------------
                 TOTAL PREFERRED SECURITIES
                 (Cost $184,566,176) ............................................................       204,096,738
                                                                                                   ----------------
CORPORATE DEBT SECURITIES  -- 1.7%
               OIL AND GAS -- 1.0%
---------------------------------------------------------------------------------------------------------------------
      85,900   Nexen, Inc., 7.35% Subordinated Notes ............................................         2,284,511(1)
---------------------------------------------------------------------------------------------------------------------
               UTILITIES -- 0.7%
---------------------------------------------------------------------------------------------------------------------
$  1,500,000   Potomac Electric Power Company, 5.40% 06/01/35, 1st Mortgage .....................         1,507,800
---------------------------------------------------------------------------------------------------------------------
                 TOTAL CORPORATE DEBT SECURITIES
                 (Cost $3,740,116) ..............................................................         3,792,311
                                                                                                   ----------------
COMMON STOCKS AND CONVERTIBLE SECURITY -- 2.1%
               BANKING -- 0.4%
---------------------------------------------------------------------------------------------------------------------
      50,000   New York Community Bancorp, Inc. .................................................           913,750*
-------------------------------------------------------------------------------------------------------------------
                                                                                                            913,750
                                                                                                   ----------------
               INSURANCE -- 0.4%
---------------------------------------------------------------------------------------------------------------------
      25,000   UnumProvident Corporation, 8.25% Mandatory Convertible, 05/16/06 .................           901,875
-------------------------------------------------------------------------------------------------------------------
                                                                                                            901,875
                                                                                                   ----------------


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


                                       13


--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Opportunity Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
MAY 31, 2005 (UNAUDITED)
------------------------------------------------------------------



SHARES/$ PAR                                                                                            VALUE
------------                                                                                           -------
                                                                                             
COMMON STOCKS AND CONVERTIBLE SECURITY  -- (CONTINUED)
               UTILITIES -- 1.3%
---------------------------------------------------------------------------------------------------------------------
      97,500   Duke Energy Corporation ..........................................................  $      2,688,563*
-------------------------------------------------------------------------------------------------------------------
                                                                                                          2,688,563
                                                                                                   ----------------
                 TOTAL COMMON STOCKS AND CONVERTIBLE SECURITY
                 (Cost $3,896,253) ..............................................................         4,504,188
                                                                                                   ----------------
OPTION CONTRACTS -- 0.2%
       1,275   September Put Options on September U.S. Treasury Bond Futures,
                 Expiring 08/26/05 ..............................................................           361,359+
-------------------------------------------------------------------------------------------------------------------
                 TOTAL OPTION CONTRACTS
                 (Cost $1,128,981) ..............................................................           361,359
                                                                                                   ----------------
MONEY MARKET FUND -- 3.0%
   6,584,322   BlackRock Provident Institutional, TempFund ......................................         6,584,322
-------------------------------------------------------------------------------------------------------------------
                 TOTAL MONEY MARKET FUND
                 (Cost $6,584,322) ..............................................................         6,584,322
                                                                                                   ----------------

TOTAL INVESTMENTS (Cost $199,915,848***) .......................................       100.3%           219,338,918
                                                                                   ---------       ----------------
OTHER ASSETS AND LIABILITIES (Net) .............................................        (0.3)%             (697,804)
                                                                                   ---------       ----------------
TOTAL NET ASSETS AVAILABLE TO COMMON AND PREFERRED STOCK .......................       100.0%++    $    218,641,114
                                                                                   ---------       ----------------
MONEY MARKET CUMULATIVE PREFERRED(TM) STOCK (MMP(R)) REDEMPTION VALUE ...........................       (70,000,000)
                                                                                                   ----------------
TOTAL NET ASSETS AVAILABLE TO COMMON STOCK ......................................................  $    148,641,114
                                                                                                   ================


----------

   *  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 be resold  in  transactions  exempt  from
      registration to qualified institutional buyers.

 (1)  Foreign Issuer.

   +  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:

REIT -- Real Estate Investment Trust
PFD. -- Preferred Securities
PVT. -- Private Placement Securities

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


                                       14


--------------------------------------------------------------------------------
              Flaherty & Crumrine Preferred Income Opportunity Fund Incorporated
                                             STATEMENT OF ASSETS AND LIABILITIES
                                                        MAY 31, 2005 (UNAUDITED)
              ------------------------------------------------------------------


                                                                                          
ASSETS:
   Investments, at value (Cost $199,915,848)
      (See accompanying Portfolio of Investments) .......................                       $ 219,338,918
   Receivable for Investments sold ......................................                             252,489
   Dividends and interest receivable ....................................                           1,706,835
   Prepaid expenses .....................................................                             181,258
                                                                                                -------------
           Total Assets .................................................                         221,479,500

LIABILITIES:
   Payable for Investments purchased ....................................      $ 2,261,650
   Dividends payable to Common Shareholders .............................          116,251
   Investment advisory fee payable ......................................          103,080
   Administration, Transfer Agent and Custodian fees and
     expenses payable ...................................................           27,455
   Professional fees payable ............................................           36,227
   Directors' fees payable ..............................................            4,007
   Accrued expenses and other payables ..................................           43,829
   Accumulated undeclared distributions to Money Market Cumulative
     Preferred(TM) Stock Shareholders ...................................          245,887
                                                                               -----------
           Total Liabilities ............................................                           2,838,386
                                                                                                -------------
MONEY MARKET CUMULATIVE PREFERRED(TM) STOCK (700 SHARES
   OUTSTANDING) REDEMPTION VALUE ........................................                          70,000,000
                                                                                                -------------

NET ASSETS AVAILABLE TO COMMON STOCK ....................................                       $ 148,641,114
                                                                                                =============

NET ASSETS AVAILABLE TO COMMON STOCK consist of:
   Undistributed net investment income ..................................                       $      11,459
   Accumulated net realized loss on investments sold ....................                          (5,414,345)
   Unrealized appreciation of investments ...............................                          19,423,070
   Par value of Common Stock ............................................                             116,313
   Paid-in capital in excess of par value of Common Stock ...............                         134,504,617
                                                                                                -------------
           Total Net Assets Available to Common Stock ...................                       $ 148,641,114
                                                                                                =============
NET ASSET VALUE PER SHARE OF COMMON STOCK:
     Common Stock (11,631,344 shares outstanding) .......................                       $       12.78
                                                                                                =============


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


                                       15


--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Opportunity Fund Incorporated
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MAY 31, 2005 (UNAUDITED)
------------------------------------------------------------------


                                                                                              
INVESTMENT INCOME:
     Dividends++ ...........................................................                        $  5,384,052
     Interest ..............................................................                           1,346,267
                                                                                                    ------------
          Total Investment Income ..........................................                           6,730,319

EXPENSES:
     Investment advisory fee ...............................................        $604,847
     Administrator's fee ...................................................         105,985
     Money Market Cumulative Preferred(TM) Stock broker commissions
        and auction agent fees .............................................         100,972
     Professional fees .....................................................          65,021
     Insurance expense .....................................................          81,235
     Transfer agent fees and expenses ......................................          38,642
     Directors' fees and expenses ..........................................          39,116
     Custodian fees and expenses ...........................................          12,608
     Chief Compliance Officer fees and expenses ............................          19,694
     Other .................................................................          73,611
                                                                                    --------
          Total Expenses ...................................................                           1,141,731
                                                                                                    ------------

NET INVESTMENT INCOME ......................................................                           5,588,588
                                                                                                    ------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
     Net realized gain on investments sold during the period ...............                           3,892,557
     Change in net unrealized appreciation of investments held during
        the period .........................................................                           2,966,331
                                                                                                    ------------

NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS ............................                           6,858,888
                                                                                                    ------------
DISTRIBUTIONS TO MONEY MARKET CUMULATIVE PREFERRED(TM)
   STOCK SHAREHOLDERS:
     From net investment income (including changes in accumulated
        undeclared distributions) ..........................................                            (860,213)
                                                                                                    ------------
NET INCREASE IN NET ASSETS TO COMMON STOCK RESULTING
   FROM OPERATIONS .........................................................                        $ 11,587,263
                                                                                                    ============


----------
++    For Federal income tax purposes,  a significant portion of this amount may
      not qualify for the  inter-corporate  dividends received deduction ("DRD")
      or as qualified dividend income ("QDI") for individuals.

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


                                       16


--------------------------------------------------------------------------------
              Flaherty & Crumrine Preferred Income Opportunity Fund Incorporated
                STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE TO COMMON STOCK(1)
              ------------------------------------------------------------------



                                                                         SIX MONTHS ENDED
                                                                            MAY 31, 2005            YEAR ENDED
                                                                            (UNAUDITED)          NOVEMBER 30, 2004
                                                                         ----------------        -----------------
                                                                                             
OPERATIONS:
     Net investment income ............................................    $   5,588,588           $  11,304,884
     Net realized gain on investments sold during the period ..........        3,892,557                 149,942
     Change in net unrealized appreciation/(depreciation) of
        investments held during the period ............................        2,966,331              (3,431,405)
     Distributions to Money Market Cumulative Preferred(TM) Stock
        Shareholders from net investment income, including changes in
        accumulated undeclared distributions ..........................         (860,213)             (1,029,065)
                                                                           -------------           -------------
     NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .............       11,587,263               6,994,356

DISTRIBUTIONS:
     Dividends paid from net investment income to Common
        Stock Shareholders(1) .........................................       (5,669,727)            (10,790,181)
                                                                           -------------           -------------
     TOTAL DISTRIBUTIONS TO COMMON STOCK SHAREHOLDERS .................       (5,669,727)            (10,790,181)

FUND SHARE TRANSACTIONS:
     Increase from Common Stock transactions ..........................          578,526               1,637,955
                                                                           -------------           -------------
     NET INCREASE IN NET ASSETS AVAILABLE TO COMMON STOCK RESULTING
        FROM FUND SHARE TRANSACTIONS ..................................          578,526               1,637,955

NET INCREASE/(DECREASE) IN NET ASSETS AVAILABLE TO                         -------------           -------------
    COMMON STOCK FOR THE PERIOD .......................................    $   6,496,062           $  (2,157,870)
                                                                           =============           =============
--------------------------------------------------------------------------------------------------------------------
NET ASSETS AVAILABLE TO COMMON STOCK:
     Beginning of period ..............................................    $ 142,145,052           $ 144,302,922
     Net increase/(decrease) during the period ........................        6,496,062              (2,157,870)
                                                                           -------------           -------------

     End of period (including undistributed net investment
        income of $11,459 and $952,811, respectively) .................    $ 148,641,114           $ 142,145,052
                                                                           =============           =============


----------
(1)   Includes income earned, but not paid out, in prior fiscal year.

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


                                       17


--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Opportunity Fund Incorporated
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.



                                                            SIX MONTHS
                                                               ENDED                       YEAR ENDED NOVEMBER 30,
                                                           MAY 31, 2005      -----------------------------------------------------
                                                            (UNAUDITED)        2004        2003       2002       2001       2000
                                                             --------        --------    --------   --------   --------   --------
                                                                                                        
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .....................   $  12.27        $  12.59    $  10.78   $  11.60   $  10.68   $  11.50
                                                             --------        --------    --------   --------   --------   --------
INVESTMENT OPERATIONS:
Net investment income ....................................       0.48            0.98        1.02       1.07       1.10       1.18
Net realized and unrealized gain/(loss) on investments ...       0.59           (0.27)       1.85      (0.87)      0.89      (0.33)
DISTRIBUTIONS TO MMP(R)* SHAREHOLDERS:
From net investment income ...............................      (0.07)          (0.09)      (0.08)     (0.11)     (0.25)     (0.32)
From net realized capital gains ..........................         --              --          --         --         --      (0.02)
                                                             --------        --------    --------   --------   --------   --------
Total from investment operations .........................       1.00            0.62        2.79       0.09       1.74       0.51
                                                             --------        --------    --------   --------   --------   --------
DISTRIBUTIONS TO COMMON SHAREHOLDERS:
From net investment income ...............................      (0.49)          (0.94)      (0.98)     (0.91)     (0.82)     (0.91)
From net realized capital gains ..........................         --              --          --         --         --      (0.42)
                                                             --------        --------    --------   --------   --------   --------
Total distributions to Common Shareholders ...............      (0.49)          (0.94)      (0.98)     (0.91)     (0.82)     (1.33)
                                                             --------        --------    --------   --------   --------   --------
Net asset value, end of period ...........................   $  12.78        $  12.27    $  12.59   $  10.78   $  11.60   $  10.68
                                                             ========        ========    ========   ========   ========   ========
Market value, end of period ..............................   $  12.92        $  13.53    $  13.51   $  11.72   $  11.27   $   9.56
                                                             ========        ========    ========   ========   ========   ========
Total investment return based on net asset value** .......       8.19%****       4.68%      26.57%      0.63%     16.97%      5.88%
                                                             ========        ========    ========   ========   ========   ========
Total investment return based on market value** ..........      (0.81%)****      7.57%      24.92%     12.61%     26.95%      3.80%
                                                             ========        ========    ========   ========   ========   ========
RATIOS TO AVERAGE NET ASSETS AVAILABLE
  TO COMMON STOCK SHAREHOLDERS:
     Total net assets, end of period (in 000's) ..........   $148,641        $142,145    $144,303   $122,258   $129,792   $119,069
     Operating expenses ..................................       1.55%***        1.52%       1.54%      1.56%      1.61%      1.59%
     Net investment income + .............................       6.41%***        7.11%       7.85%      8.67%      7.63%      7.93%
----------------------------------------------------------
                                                                                                                          
SUPPLEMENTAL DATA:++
     Portfolio turnover rate .............................         20%****         28%         28%        29%        41%        67%
     Total net assets available to Common and Preferred
       Stock, end of period (in 000's) ...................   $218,641        $212,145    $214,411   $192,361   $200,228   $189,666
     Ratio of operating expenses to total average net
       assets available to Common and Preferred Stock ....       1.05%***        1.03%       1.02%      1.00%      1.03%      1.00%


----------
   *  Money Market Cumulative Preferred(TM) Stock.

  **  Assumes  reinvestment of distributions at the price obtained by the Fund's
      Dividend Reinvestment and Cash Purchase Plan.

 ***  Annualized.

****  Not Annualized.

   +  The net investment income ratios reflect income net of operating  expenses
      and payments to MMP(R) Shareholders.

  ++  Information presented under heading Supplemental Data includes MMP(R).

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


                                       18


--------------------------------------------------------------------------------
              Flaherty & Crumrine Preferred Income Opportunity Fund Incorporated
                                                FINANCIAL HIGHLIGHTS (CONTINUED)
                                           PER SHARE OF COMMON STOCK (UNAUDITED)
              ------------------------------------------------------------------



                                                          TOTAL                                       DIVIDEND
                                                        DIVIDENDS       NET ASSET        NYSE       REINVESTMENT
                                                           PAID           VALUE      CLOSING PRICE    PRICE (1)
                                                           ----           -----      -------------    ---------
                                                                                              
December 31, 2004 - EXTRA ......................         $0.0450         $12.58         $13.50         $12.83
December 31, 2004 ..............................          0.0755          12.58          13.50          12.83
January 31, 2005 ...............................          0.0755          12.78          13.59          12.91
February 28, 2005 ..............................          0.0755          12.74          13.85          13.16
March 31, 2005 .................................          0.0755          12.65          11.91          12.39
April 30, 2005 .................................          0.0705          12.75          12.50          12.67
May 31, 2005 ...................................          0.0705          12.78          12.92          12.78


----------
(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.


                                       19


--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Opportunity Fund Incorporated
FINANCIAL HIGHLIGHTS (CONTINUED)
------------------------------------------------------------------

      The  table  below  sets out  information  with  respect  to  Money  Market
Cumulative Preferred(TM) Stock currently outstanding.



                                                              INVOLUNTARY            AVERAGE
                                              ASSET           LIQUIDATING            MARKET
                      TOTAL SHARES          COVERAGE          PREFERENCE              VALUE
        DATE         OUTSTANDING (1)      PER SHARE (2)      PER SHARE (3)     PER SHARE (1) & (3)
      ---------      ---------------      -------------      -------------     -------------------
                                                                        
      05/31/05*           700               $312,696           $100,000             $100,000
      11/30/04            700                303,137            100,000              100,000
      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)   Calculated by  subtracting  the Fund's total  liabilities  (excluding  the
      MMP(R))  from the Fund's  total  assets and  dividinG  that  amount by the
      number of MMP(R) shares outstanding.

(3)   Excludes accumulated undeclared dividends.

*     Unaudited.

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


                                       20


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

1.    ORGANIZATION

      Flaherty & Crumrine  Preferred Income  Opportunity Fund  Incorporated (the
"Fund") 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 "1940  Act").  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  Stock is deemed to equal the value of the Fund's  total  assets less (i)
the  Fund's  liabilities  and  (ii)  the  aggregate  liquidation  value  of  the
outstanding Money Market Cumulative Preferred(TM) Stock ("MMP(R)").

      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.

      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


                                       21


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

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.

      OPTIONS:  Purchases of options are recorded as an investment, the value of
which is  marked-to-market  at each valuation  date. 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.

      When the Fund writes an option, an amount equal to the premium received by
the Fund is recorded as a liability,  the value of which is  marked-to-market at
each valuation  date.  When a written option  expires,  the Fund realizes a gain
equal to the amount of the  premium  originally  received.  When the Fund enters
into a closing  purchase  transaction,  the Fund realizes a gain (or loss if the
cost of the closing purchase  transaction  exceeds the premium received when the
option  was  written)  without  regard  to any  unrealized  gain  or loss on the
underlying  security,  and the liability  related to such option is  eliminated.
When a call option is exercised,  the Fund realizes a gain or loss from the sale
of the underlying  security and the proceeds from such sale are increased by the
amount of the premium originally received.  When a put option is exercised,  the
amount of the premium  originally  received will reduce the cost of the security
which the Fund purchased upon exercise.

      The  risk in  writing  a call  option  is that the  Fund  may  forego  the
opportunity for profit if the market price of the underlying  security increases
and the option is  exercised.  The risk in writing a put option is that the Fund
may incur a loss if the market price of the  underlying  security  decreases and
the option is exercised.

      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  ("Shareholders").
The Shareholders of MMP(R) 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.


                                       22


--------------------------------------------------------------------------------
              Flaherty & Crumrine Preferred Income Opportunity Fund Incorporated
                           NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (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(R) Shareholders, during 2005 and 2004 was as follows:



                      DISTRIBUTIONS PAID IN FISCAL YEAR 2005        DISTRIBUTIONS PAID IN FISCAL YEAR 2004
                      --------------------------------------        --------------------------------------
                   ORDINARY INCOME    LONG-TERM CAPITAL GAINS     ORDINARY INCOME    LONG-TERM CAPITAL GAINS
                   ---------------    -----------------------     ---------------    -----------------------
                                                                                  
Common                    N/A                    N/A                 $10,790,181              $0
Preferred                 N/A                    N/A                  $1,029,065              $0


      As of November 30, 2004, 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              NET UNREALIZED
  CAPITAL (LOSS) CARRYFORWARD       ORDINARY INCOME             LONG-TERM GAIN        APPRECIATION/(DEPRECIATION)
  ---------------------------       ---------------             --------------        ---------------------------
                                                                                 
          $(8,298,231)                  $1,196,825                    $0                     $15,448,067


      At November 30, 2004, the composition of the Fund's $8,298,231 accumulated
realized  capital losses was  $5,163,910,  $982,343,  $1,457,692 and $694,286 in
2000, 2001, 2002 and 2004, respectively. These losses may be carried forward and
offset  against any future  capital  gains through  2008,  2009,  2010 and 2012,
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 paid $43,594 of Federal excise taxes  attributable  to calendar
year 2004 in March 2005.


                                       23


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

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

      PFPC  Inc.,  a member of the PNC  Financial  Services  Group,  Inc.  ("PNC
Financial Services"), serves as the Fund's Administrator. As Administrator, PFPC
Inc.  calculates the net asset value of the Fund's shares attributable to Common
and  Preferred  Stock  and  generally  assists  in all  aspects  of  the  Fund's
administration  and  operation.  As  compensation  for PFPC  Inc.'s  services as
Administrator,  the Fund pays PFPC Inc. a monthly fee at an annual rate of 0.10%
of the first $200 million of the Fund's  average  weekly total  managed  assets,
0.04% of the next $300  million  of the  Fund's  average  weekly  total  managed
assets,  0.03% of 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 dividend-paying agent and
registrar  (Transfer Agent). As compensation for PFPC Inc.'s services,  the Fund
pays PFPC Inc. a fee at an annual rate of 0.02% of the first $150 million of the
Fund's average weekly net assets attributable to Common Stock, 0.01% of the next
$350  million of the Fund's  average  weekly net assets  attributable  to Common
Stock,  0.005% of the next $500 million of the Fund's  average weekly net assets
attributable to Common Stock and 0.0025% of the Fund's average weekly net assets
attributable  to Common  Stock  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  Stock 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 pays PFPC Trust a monthly fee at
the annual rate of 0.010% of the first $200 million of the Fund's average weekly
total  managed  assets,  0.008% of the next $300  million of the Fund's  average
weekly  total  managed  assets,  0.006% of the next $500  million  of the Fund's
average  weekly total  managed  assets and 0.005% of the Fund's  average  weekly
total managed assets above $1 billion.

      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.  The Audit  Committee  Chairman  receives an  additional  annual fee of
$2,500.  The Fund also  reimburses  all Directors  for travel and  out-of-pocket
expenses incurred in connection with such meetings.


                                       24


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

      On July 23,  2004,  the Board of Directors  designated  Peter C. Stimes as
Chief  Compliance  Officer  ("CCO")  of the Fund.  The Fund  currently  pays Mr.
Stimes,   in  his  capacity  as  CCO,  $37,500  per  annum  and  reimburses  his
out-of-pocket expenses incurred in connection with his role as CCO.

4.    PURCHASES AND SALES OF SECURITIES

      For the six months ended May 31, 2005,  the cost of purchases and proceeds
from  sales  of  securities   excluding   short-term   investments,   aggregated
$42,343,327 and $48,668,350, respectively.

      At May 31, 2005,  the aggregate  cost of securities for federal income tax
purposes was $198,907,177,  the aggregate gross unrealized  appreciation for all
securities  in which  there is an excess of value over tax cost was  $26,070,970
and the aggregate  gross  unrealized  depreciation  for all  securities in which
there is an excess of tax cost over value was $5,639,229.

5.    COMMON STOCK

      At May 31, 2005,  240,000,000  shares of $0.01 par value Common Stock were
authorized.

      Common Stock transactions were as follows:



                                                                         SIX MONTHS ENDED                  YEAR ENDED
                                                                              5/31/05                       11/30/04
                                                                       --------------------           --------------------
                                                                       SHARES        AMOUNT           SHARES        AMOUNT
                                                                       ------        ------           ------        ------
                                                                                                      
Issued as reinvestment of dividends under the
  Dividend Reinvestment and Cash Purchase Plan ............ .          44,771      $578,526          125,523      $1,637,955
                                                                       ------      --------          -------      ----------


6.    MONEY MARKET CUMULATIVE PREFERRED(TM) STOCK (MMP(R))

      The Fund's  Articles  of  Incorporation  authorize  the  issuance of up to
10,000,000  shares of $0.01 par value preferred  stock.  The MMP(R) 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(R) are cumulative.

      The Fund is required to meet certain asset  coverage tests with respect to
the MMP(R).  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(R) 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.

      If the Fund allocates any net gains or income ineligible for the Dividends
Received  Deduction  to  shares  of the  MMP(R),  the FunD is  required  to make
additional distributions to MMP(R) 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.


                                       25


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

      An  auction  of the  MMP(R)  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(R) Shareholders may also trade shares in the secondary
market between auction dates.

      At May 31, 2005,  700 shares of MMP(R) were  outstanding at the annualized
rate of 2.78%.  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 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 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 will be
subject to the  foregoing  20%  limitation to the extent that, in the opinion of
the 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.

      In addition to foreign money market securities,  the Fund may invest up to
30% of its total assets in the securities of companies organized or having their
principal place of business  outside the United States.  All foreign  securities
held by the Fund will be denominated in U.S. dollars.


                                       26


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              Flaherty & Crumrine Preferred Income Opportunity Fund Incorporated
                           NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
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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
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,  swaptions  and  certain
credit derivative transactions  including,  but not limited to, the purchase and
sale of credit protection. As in the case of when-issued securities,  the use of
over-the-counter derivatives, such as interest rate swaps, swaptions, and credit
default swaps may expose the Fund to greater credit, operations,  liquidity, and
valuation  risk than is the case with  regulated,  exchange  traded  futures and
options.   These   transactions  are  used  for  hedging  or  other  appropriate
risk-management  purposes,  or, under certain other  circumstances,  to increase
return.  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.


                                       27


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Flaherty & Crumrine Preferred Income Opportunity Fund Incorporated
ADDITIONAL INFORMATION (UNAUDITED)
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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 six months ended May 31,  2005,  $579 in
brokerage commissions were incurred.

      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


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              Flaherty & Crumrine Preferred Income Opportunity Fund Incorporated
                                  ADDITIONAL INFORMATION (UNAUDITED) (CONTINUED)
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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 AND PROXY VOTING RECORD ON FORM N-PX

      The Fund files Form N-PX with its complete  proxy voting record for the 12
months ended June 30th,  no later than August 31st of each year.  The Fund filed
its initial Form N-PX with the  Securities  and Exchange  Commission  ("SEC") on
August 18, 2004.  This filing as well as 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 SEC's website at WWW.SEC.GOV.

PORTFOLIO SCHEDULE ON FORM N-Q

      The Fund files a complete schedule of portfolio  holdings with the SEC for
the first and third  fiscal  quarters on Form N-Q, the latest of which was filed
for the quarter ended February 28, 2005. The Fund's Form N-Q is available on the
SEC's website at WWW.SEC.GOV or may be viewed and obtained from the SEC's Public
Reference  Room in Washington  D.C.  Information  on the operation of the Public
Reference Section may be obtained by calling 1-800-SEC-0330.


                                       29


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Flaherty & Crumrine Preferred Income Opportunity Fund Incorporated
ADDITIONAL INFORMATION (UNAUDITED) (CONTINUED)
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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 32.

CERTIFICATIONS

      Donald F. Crumrine,  as the Fund's Chief Executive Officer,  has certified
to the New York Stock Exchange that, as of May 18, 2005, he was not aware of any
violation by the Fund of applicable NYSE corporate governance listing standards.
The Fund's reports to the SEC on Forms N-CSR and N-Q contain  certifications  by
the Fund's  principal  executive  officer and principal  financial  officer that
relate to the Fund's  disclosure  in such  reports and that are required by rule
30a-2(a) under the 1940 Act.

MEETING OF SHAREHOLDERS

      On April 21, 2005, the Fund held its Annual Meeting of  Shareholders  (the
"Meeting")  for the  following  purposes:  election  of  directors  of the  Fund
("Proposal 1"),  approval of an amendment to the Fund's  Articles  Supplementary
Creating and Fixing the Rights of Money Market Cummulative  Preferred(TM)  Stock
("Articles  Supplementary")  relating to the term of office of certain DirectoRS
("Proposal 2") and approval of an amendment to the Fund's Articles Supplementary
adding a Force Majeure  Provision to regulate the auction  process  following an
extraordinary  event ("Proposal 3"). All proposals were approved by shareholders
and the results of the proposals are as follows:

PROPOSAL 1: ELECTION OF DIRECTORS.

NAME                                                   FOR           WITHHELD
----                                                   ---           --------
COMMON STOCK
   Morgan Gust ..................................   9,371,755        115,055

                                                       FOR           WITHHELD
                                                       ---           --------

PREFERRED STOCK
   Karen H. Hogan ...............................         360             --

      Donald F.  Crumrine,  David Gale,  and Robert F. Wulf continue to serve in
their capacities as Directors of the Fund.


                                       30


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              Flaherty & Crumrine Preferred Income Opportunity Fund Incorporated
                                  ADDITIONAL INFORMATION (UNAUDITED) (CONTINUED)
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PROPOSAL 2: AMENDMENT TO THE ARTICLES SUPPLEMENTARY RELATING TO THE TERM OF
     OFFICE OF CERTAIN DIRECTORS.

                                          FOR           AGAINST        WITHHELD
                                          ---           -------        --------

COMMON STOCK ......................    9,153,085        173,092         160,633
PREFERRED STOCK ...................          360             --              --


PROPOSAL 3: AMENDMENT TO THE ARTICLES SUPPLEMENTARY ADDING A FORCE MAJEURE
     PROVISION TO REGULATE THE AUCTION PROCESS FOLLOWING AN EXTRAORDINARY EVENT.

                                          FOR           AGAINST        WITHHELD
                                          ---           -------        --------

COMMON STOCK ......................    9,152,348       174,617          159,845
PREFERRED STOCK ...................          360            --               --


                                       31


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

DAVID GALE                  Director    Class I Director   President & CEO of               4        Director, Metromedia
Delta Dividend Group, Inc.                 since 1997      Delta Dividend                            International Group, Inc.
220 Montgomery Street                                      Group, Inc. (investments).                (telecommunications).
Suite 426                                                                                            Director, Flaherty &
San Francisco, CA 94104                                                                              Crumrine Preferred
Age: 56                                                                                              Income Fund,
                                                                                                     Flaherty & Crumrine/
                                                                                                     Claymore Preferred
                                                                                                     Securities Income Fund
                                                                                                     and Flaherty & Crumrine/
                                                                                                     Claymore Total Return
                                                                                                     Fund.

MORGAN GUST                 Director   Class III Director  Since March 2002,                4        Director, Flaherty &
Giant Industries, Inc.                     since 1992      President of Giant                        Crumrine
23733 N. Scottsdale Road                                   Industries, Inc. (petroleum               Preferred Income Fund,
Scottsdale, AZ 85255                                       refining and marketing)                   Flaherty & Crumrine/
Age: 58                                                    and for more than five                    Claymore Preferred
                                                           years prior thereto,                      Securities Income Fund
                                                           Executive Vice President,                 and Flaherty &
                                                           and various other Vice                    Crumrine/
                                                           President positions at                    Claymore Total Return
                                                           Giant Industries, Inc.                    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  2008  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 2007 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 2006 Annual  Meeting of  Shareholders;
                                 directors may continue in office until their successors are duly elected and qualified.



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

KAREN H. HOGAN+             Director     Class III Director    Retired; Community               2        Director, Flaherty &
905 North Bedford Drive                   since April 2005     Volunteer; from September                 Crumrine
Beverly Hills, CA 90210                                        1985 to January 1997,                     Preferred Income
Age: 44                                                        Senior Vice President of                  Fund.
                                                               Preferred Stock Origination
                                                               at Lehman Brothers and
                                                               previously, Vice President of
                                                               New Product Development.

ROBERT F. WULF              Director     Class II Director     Financial Consultant;            4        Director, Flaherty &
3560 Deerfield Drive South                   since 1992        Trustee, University of                    Crumrine
Salem, OR 97302                                                Oregon Foundation;                        Preferred Income Fund,
Age: 68                                                        Trustee, San Francisco                    Flaherty & Crumrine/
                                                               Theological Seminary.                     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  2008  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 2007 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 2006 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(TM) Stock.



                                       33


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Flaherty & Crumrine Preferred Income Opportunity Fund Incorporated
ADDITIONAL INFORMATION (UNAUDITED) (CONTINUED)
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                                                                     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
-------                    --------------       ------------         ----------              -----------         ----------------
                                                                                              
INTERESTED
DIRECTOR:

DONALD F. CRUMRINE+, ++      Director,       Class II Director   Chairman of the Board            4          Director, Flaherty &
301 E. Colorado Boulevard     Chairman           since 1992      and Director of Flaherty &                  Crumrine
Suite 720                   of the Board                         Crumrine Incorporated.                      Preferred Income Fund,
Pasadena, CA 91101           and Chief                                                                       Flaherty & Crumrine/
Age: 57                   Executive Officer                                                                  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  2008  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 2007 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 2006 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(TM) Stock.

++    "Interested  person" of the Fund as defined in the Investment  Company Act of 1940. Mr.  Crumrine is considered an "interested
      person" because of his affiliation with Flaherty & Crumrine Incorporated which acts as the Fund's investment adviser.



                                       34


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              Flaherty & Crumrine Preferred Income Opportunity Fund Incorporated
                                  ADDITIONAL INFORMATION (UNAUDITED) (CONTINUED)
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                                                                             PRINCIPAL
                                                   TERM OF OFFICE          OCCUPATION(S)
NAME, ADDRESS,                 POSITION(S)          AND LENGTH OF           DURING PAST
AND AGE                      HELD WITH FUND          TIME SERVED            FIVE YEARS
-------                      --------------          -----------            ----------
                                                                                     
OFFICERS:

ROBERT M. ETTINGER              President            Since 2002         President and Director of
301 E. Colorado Boulevard                                               Flaherty & Crumrine
Suite 720                                                               Incorporated.
Pasadena, CA 91101
Age: 46

R. ERIC CHADWICK            Chief Financial            Since            Vice President of
301 E. Colorado Boulevard     Officer, Vice         October 2002        Flaherty & Crumrine
Suite 720                      President,                               Incorporated since
Pasadena, CA 91101            Treasurer and                             August 2001, and
Age: 30                         Secretary                               portfolio manager of
                                                                        Flaherty & Crumrine
                                                                        Incorporated.

PETER C. STIMES             Chief Compliance         Since 1992         Vice President of
301 E. Colorado Boulevard      Officer and                              Flaherty & Crumrine
Suite 720                    Vice President                             Incorporated.
Pasadena, CA 91101
Age: 49

BRADFORD S. STONE            Vice President             Since           Since May 2003, Vice
392 Springfield Avenue        and Assistant           July 2003         President of Flaherty &
Mezzanine Suite                 Treasurer                               Crumrine Incorporated;
Summit, NJ 07901                                                        from June 2001 to
Age: 45                                                                 April 2003, Director of
                                                                        U.S. Market Strategy at
                                                                        Barclays Capital; from
                                                                        February 1987 to June 2001
                                                                        Vice President of Goldman,
                                                                        Sachs & Company as
                                                                        Director of U.S. Interest
                                                                        Rate Strategy and,
                                                                        previously, Vice President
                                                                        of Interest Rate Product
                                                                        Sales.

CHRISTOPHER D. RYAN          Vice President          Since April        Since February 2004, Vice
301 E. Colorado Boulevard                               2005            President of Flaherty &
Suite 720                                                               Crumrine Incorporated;
Pasadena, CA 91101                                                      October 2002 to February
Age: 37                                                                 2004, Product Analyst of
                                                                        Flaherty & Crumrine
                                                                        Incorporated.

LAURIE C. LODOLO                Assistant              Since            Since August 2004,
301 E. Colorado Boulevard      Compliance             July 2004         Assistant Compliance
Suite 720                  Officer, Assistant                           Officer of Flaherty &
Pasadena, CA 91101           Treasurer and                              Crumrine Incorporated;
Age: 41                    Assistant Secretary                          since February 2004,
                                                                        Secretary of Flaherty &
                                                                        Crumrine Incorporated;
                                                                        Account Administrator of
                                                                        Flaherty & Crumrine
                                                                        Incorporated.



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Flaherty & Crumrine Preferred Income Opportunity Fund Incorporated
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BOARD CONSIDERATION AND APPROVAL OF CONTINUANCE OF INVESTMENT
ADVISORY AGREEMENT

      During the six month period ended May 31, 2005,  the Board of Directors of
the Fund approved the continuation of the investment advisory agreement with the
Adviser (the  "Agreement").  The  following  paragraphs  summarize  the material
information  and factors  considered  by the Board,  including  the  Independent
Directors, as well as their conclusions relative to such factors.

NATURE, EXTENT AND QUALITY OF SERVICES

      The Board members reviewed in detail the nature and extent of the services
provided by the Adviser and the quality of those services over the past year and
since inception.  The Board members noted that these services  included managing
the Fund's investment program, as well as providing  significant  administrative
services  beyond what the Agreement  required.  The Board members noted that the
Adviser also provided,  generally at its expense:  office  facilities for use by
the  Fund;   personnel   responsible   for   supervising   the   performance  of
administrative,  accounting  and related  services;  and  investment  compliance
monitoring.  The Board also considered the Adviser's  sound financial  condition
and the  Adviser's  commitment  to its  business as  evidenced  by its hiring of
additional  personnel as the business has grown. The Board members evaluated the
Adviser's provision of services based on their direct experience over many years
as Fund  Directors and focused on (i) the  Adviser's  knowledge of the preferred
stock market generally and the sophisticated hedging strategies the Fund employs
and (ii) its culture of  compliance.  The Board  members  reviewed the personnel
responsible  for  providing  services to the Fund and  observed,  based on their
experience and interaction  with the Adviser,  that (1) the Adviser's  personnel
exhibited a high level of  diligence  and  attention  to detail in carrying  out
their  responsibilities  under the Agreement,  (2) the Adviser was responsive to
requests of the Board and its personnel were available between Board meetings to
answer Board member  questions,  and (3) the Adviser had kept the Board apprised
of  developments  relating to the Fund.  The Board  members  concluded  that the
nature and extent of the services  provided were  reasonable and  appropriate in
relation  to the Fund's  investment  goals and  strategies,  the  corporate  and
regulatory  environment  in  which  the Fund  operates,  the  level of  services
provided by the Adviser, and the quality of service, which continued to be high.

INVESTMENT PERFORMANCE

      The Board members  considered  the Fund's  performance  from inception and
more recently to determine  whether the Fund had met its  investment  objective.
The Board  determined that the Fund had done so. In so doing,  the Board members
reviewed performance compared to relevant indices and funds thought generally to
be  comparable  to the Fund,  considered  the costs and  benefits  of the Fund's
hedging strategy and examined the differences between the Fund and certain funds
in the  comparison  group,  including  the  significant  positions  a number  of
preferred stock funds had in common equities. The Board members noted the Fund's
long-term   performance  and   specifically   recognized  that  recent  relative
underperformance   was  attributable   largely  to  the  Fund's  stated  hedging
strategies,  which over time are  expected to benefit  the Fund,  and the Fund's
adherence to its respective investment mandate.


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PROFITABILITY

      The Board members considered the Adviser's methodology for determining its
profitability  with respect to the Fund and the  Adviser's  profit  margin on an
after-tax basis  attributable to managing the Fund. The Board concluded that the
profitability  to the  Adviser  was  not  excessive  based  on the  considerable
services it provides to the Fund, the Fund's relative performance over time, its
success in meeting the Fund's investment objective and the Fund's relatively low
expense ratio. The Board members also considered the Adviser's  provision,  at a
lower cost,  of services to separate  account  clients and  determined  that the
difference  was  justified  in  light  of  the  additional  services  and  costs
associated with managing registered investment companies,  such as the Fund. The
Board accepted the Adviser's statement that it did not realize material indirect
benefits  from its  relationship  with the Fund and did not obtain  soft  dollar
credits from securities trading.

ECONOMIES OF SCALE

      The Board members noted that the Fund, as a closed-end investment company,
was not expected to increase  materially  in size;  thus,  the Adviser would not
benefit from economies of scale. The Board members  considered whether economies
of scale could be realized because the Adviser advises other similar funds, and,
based on their experience,  accepted the Adviser's  explanation that significant
economies of scale would not be realized  because of the nature of the preferred
securities  market in which the Fund  invests.  Nonetheless,  the Board  members
noted that the Fund's advisory fee schedule declines as assets increase beyond a
certain level (commonly known as a "breakpoint")  and that  breakpoints  provide
for a sharing with  shareholders of benefits derived as a result of economies of
scale arising from increased assets. Accordingly,  the Board determined that the
existing advisory fee levels reflect possible economies of scale.

      Based on their  discussions and  considerations  as described  above,  the
Board made the following conclusions and determinations as to the Fund:

      o     The Board  concluded  that the  nature,  extent  and  quality of the
            services provided by the Adviser are adequate and appropriate.

      o     The Board was satisfied with the Fund's overall performance.

      o     The Board  concluded that the fee paid to the Adviser was reasonable
            in light of  comparative  performance  and expense and  advisory fee
            information,  costs  of the  services  provided  and  profits  to be
            realized and  benefits  derived or to be derived by the Adviser from
            the relationship with the Fund.

      o     The Board  determined  that there were not at this time  significant
            economies  of scale to be realized  by the  Adviser in managing  the
            Fund's  assets  and that the fee was  structured  to  provide  for a
            sharing of the benefits of economies of scale.

      o     The  Board  members   considered  these  factors,   conclusions  and
            determinations   in  their  totality  and,  without  any  one  being
            dispositive, the Board determined that approval of the Agreement was
            in the best interests of the Fund and its shareholders.


                                       37


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

AMENDMENTS TO CHARTER AND BYLAWS

      In  addition to the changes to the Fund's  Charter  that were  approved by
Shareholders at the April 21, 2005 Annual Meeting of Shareholders,  the Board of
Directors approved Articles  Supplementary to the Fund's Charter and Amended and
Restated  Bylaws  ("Bylaws")  at its April 21, 2005  meeting.  Among the changes
reflected  in the  Fund's  Bylaws are a bylaw  amendment  and  related  Articles
Supplementary  reflecting  the  Board's  determination  to  opt  in  to  certain
provisions of the Maryland  Unsolicited  Takeover Act. Such action provides that
(1) the  number of  directors  can be fixed only by the Board and (2) a director
elected by the Board to fill a Board  vacancy  holds office until the end of the
term of the class to which the director has been elected  (rather than until the
next annual meeting).

      At its April 21, 2005 Board meeting,  the Board also approved an amendment
to the Bylaws to reserve  exclusively  to the  directors  the power to amend the
by-laws,  which  previously  could be  amended by either  the  directors  or the
holders  of a  majority  of the  outstanding  shares  of the Fund.  This  change
enhances the Board's ability to control Fund operations, including the manner in
which  shareholder  meetings are  conducted  and the  procedure  for setting the
agenda for those meetings,  as well as the Board nomination process and the vote
required  to remove a director.  At the same  meeting,  the Board also  approved
amendments to the Bylaws to clarify  certain aspects of the calling of a Special
Meeting of shareholders.  Specifically, such bylaw amendment clarifies that if a
shareholder  or group  of  Shareholders  has  requested  and paid for a  special
meeting of Shareholders,  another  Shareholder cannot add an additional proposal
to the proxy statement for that meeting.

      The Board  determined that the changes to the Bylaws and related  Articles
Supplementary  provide the Fund with certain additional  protections in the case
of a hostile  takeover bid to gain control of the Fund and change the  objective
to the detriment of long-term  shareholders.  However,  the Board is aware of no
such hostile takeover bid at the present time.


                                       38


                      [This page intentionally left blank]



DIRECTORS

   Donald F. Crumrine, CFA
   David Gale
   Morgan Gust
   Karen H. Hogan
   Robert F. Wulf, CFA

OFFICERS

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

INVESTMENT ADVISER

   Flaherty & Crumrine Incorporated
   e-mail: flaherty@pfdincome.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  INCORPORATED 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.



ITEM 2. CODE OF ETHICS.

Not applicable.



ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.

Not applicable.



ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

Not applicable.



ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.

Not applicable.



ITEM 6. SCHEDULE OF INVESTMENTS.

Schedule of Investments in securities of unaffiliated issuers as of the close of
the  reporting  period is included as part of the report to  shareholders  filed
under Item 1 of this form.



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

Not applicable.



ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.

Not yet applicable.




ITEM 9. PURCHASES  OF  EQUITY  SECURITIES  BY  CLOSED-END  MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.

Not applicable.



ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

There have been no material  changes to the procedures by which the shareholders
may  recommend  nominees to the  registrant's  board of  directors,  where those
changes were  implemented  after the  registrant  last  provided  disclosure  in
response to the  requirements  of Item  7(d)(2)(ii)(G)  of Schedule  14A (17 CFR
240.14a-101), or this Item.


ITEM 11. 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  second fiscal
         quarter  of the  period  covered  by this  report  that has  materially
         affected,   or  is  reasonably   likely  to  materially   affect,   the
         registrant's internal control over financial reporting.


ITEM 12. EXHIBITS.

     (a)(1)   Not applicable.

      (a)(2)  Certifications  pursuant to Rule  30a-2(a)  under the 1940 Act and
              Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto.

     (a)(3)   Not applicable.

     (b)      Certifications  pursuant  to Rule  30a-2(b) under the 1940 Act and
              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              JULY 18, 2005
    ----------------------------------------------------------------------------


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.


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

Date              JULY 18, 2005
    ----------------------------------------------------------------------------


By (Signature and Title)*  /S/ R. ERIC CHADWICK
                         -------------------------------------------------------
                           R. Eric Chadwick, Chief Financial Officer, Treasurer,
                           Vice President and Secretary
                           (principal financial officer)

Date              JULY 18, 2005
    ----------------------------------------------------------------------------



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