Edgar Filing: Flaherty & Crumrine PREFERRED INCOME OPPORTUNITY FUND INC

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

FORM N-Q

QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED
MANAGEMENT INVESTMENT COMPANY

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

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

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

Registrant's telephone number, including area code: 626-795-7300
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Date of fiscal year end: November 30
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Date of reporting period: February 29, 2008
-----------------

Form N-Q is to be used by management investment companies, other than small
business investment companies registered on Form N-5 (ss.ss. 239.24 and 274.5 of
this chapter), to file reports with the Commission, not later than 60 days after
the close of the first and third fiscal quarters, pursuant to rule 30b1-5 under
the Investment Company Act of 1940 (17 CFR 270.30b1-5). The Commission may use
the information provided on Form N-Q in its regulatory, disclosure review,
inspection, and policymaking roles.

A registrant is required to disclose the information specified by Form N-Q, and
the Commission will make this information public. A registrant is not required
to respond to the collection of information contained in Form N-Q 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 the
Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC
20549. The OMB has reviewed this collection of information under the clearance
requirements of 44 U.S.C. ss. 3507.

ITEM 1. SCHEDULE OF INVESTMENTS.
The Schedule(s) of Investments is attached herewith.

FLAHERTY & CRUMRINE PREFERRED INCOME OPPORTUNITY FUND

To the Shareholders of the Preferred Income Opportunity Fund:

The Fund's performance during the first fiscal quarter of 2008, which
ended on February 29th, is summarized below:

Total Return on Net Asset Value 1: + 0.1%
Total Return on Market Value 2: - 0.3%

While these returns were not impressive on an absolute basis, they
actually were quite good given the turbulent securities markets we saw during
the quarter. We believe the Fund's portfolio of investments remains sound and
will continue to provide common stock shareholders with high current income.

Conditions in the financial markets remain difficult as many of the
adverse trends that surfaced in the second half of 2007 have persisted during
the first few months of 2008. The dramatic downturn in the housing market is
clearly at the root of our current economic problems. The housing bubble, fueled
by lenders willing to fund anyone who could fog a mirror, is correcting itself
at a jarring pace. In addition, the impact has been magnified because the
alchemists of Wall Street, with an assist from the rating agencies, took these
leaden mortgages and turned them not into gold, but rather into an alphabet soup
of mortgage-backed securities, some of which turned out to be toxic waste.

The Fund never invested in these structured mortgage products, but we did
underestimate the impact they would have on many of the companies we own. Since
the beginning of the credit crisis last year, financial companies have written
off more than $200 billion of bad loans and investments, and they have lost
about 27.4% 3 of their equity market value. While common equity holders will
ultimately bear the brunt of these losses, the preferred securities of many
financial companies have fallen sharply in market price. Financial companies
comprise more than 75% of the preferred security universe, and, given the
mandate of the Fund, the portfolio will always own a lot of these financial
issues.

As of February 29th, 54.3% of the portfolio was invested in preferred
securities of the financial sector. Commercial banks comprised 24% of the total
portfolio, along with 16% in finance companies (including investment banks and
brokers), 14% in insurance companies and 0.3% in the housing agencies Freddie
Mac and Fannie Mae. The remainder of the portfolio is mostly utilities, other
energy companies, and cash.

Another topic in the news recently is the collapse of the auction rate
preferred market. A wide range of entities have issued this type of security,
and for years it was an effective way to borrow money. Last fall, the auction
process began to break down. In February the auction market suddenly collapsed
and the long-term viability of the product became in doubt.

Many closed-end funds have issued auction rate preferred as a means to
enhance income for the common shareholders. Historically, rates PAID by the Fund
(on the preferred stock) have been well below what the Fund EARNS on its
investments.

----------
1 Based on monthly data provided by Lipper Inc. in each calendar month
during the quarter. Distributions are assumed to be reinvested at NAV in
accordance with Lipper's practice, which may differ from other methodology
used elsewhere in this report.
2 Based on Bloomberg data; distributions are assumed to be reinvested at
market price.
3 The return on the Standard and Poor's 500 Financial index for the period
6/30/07 through 2/29/08, price change only.

As you know, PFO employs leverage and therefore has two classes of
shareholders--common stock and auction preferred stock. Both share in the income
generated by the investment portfolio, but in a different way. The amount paid
to holders of the preferred stock is determined periodically via a Dutch auction
process. These auctions are designed to determine a rate that will "clear" the
market, i.e., attract enough buyers to absorb any shares being sold. There is,
however, a maximum rate at each auction based on a formula. If the maximum rate
is not sufficient to attract enough buyers, the auction is said to "fail" and
holders wishing to sell cannot. The terminology is unfortunate: a "failed"
auction means sellers can't sell, but it has nothing to do with the Fund's
ability to distribute income.

The dividend paid to common stock shareholders is simply the income left
over after paying preferred stock dividends and other expenses of the Fund.
Thus, the higher the rates paid by the Fund on its preferred stock, the less
income available for common shareholders. Under current market conditions, even
with preferred stock dividends being at the current maximum rate, THE YIELD
EARNED ON THE PORTFOLIO REMAINS WELL ABOVE THE COST OF LEVERAGE.

The breakdown of the auction market is a symptom of a larger malady
affecting financial markets--illiquidity. Just as banks and other traditional
lenders have dramatically cut back on making certain types of loans, investors
have become much less willing to part with cash. Since July 2007, additions to
money market funds (a substitute for cash) have increased by nearly one trillion
dollars.

And while many are hoarding cash, others are scrambling to raise it. It is
clear that as a nation we had purchased too many things with borrowed money.
This was obviously the case in the housing market, and now many homeowners are
being forced to sell. In the securities markets, it has become apparent that
many hedge funds and other investment firms were operating without sufficient
capital and are also being forced to sell assets. There is ample evidence that
in aggregate, hedge funds have been shrinking their investment portfolios, and
we have observed several of our trading partners at brokerage firms aggressively
trying to reduce their trading positions.

Another source of selling pressure has come from a steady supply of new
issues, as companies have sought to shore up their balance sheets after taking
big write downs. It wasn't long ago that the decision to issue new equity,
whether common or preferred, was based on strategic or opportunistic factors.
Now, many companies are being forced to issue to rebuild capital for defensive
reasons, and they are paying rates that are historically high (in relation to
risk-free U.S. Treasury securities).

Every financial bubble eventually bursts and asset prices fall to
sustainable levels. Tulips and dot-com companies are one thing, but the U.S.
housing market is a whole different ballgame in terms of its economic impact. In
order for the U.S. economy to avoid a deep and lasting recession, the housing
sector will need to stabilize. For this to happen, the glut of homes for sale
must shrink. This in turn will likely require some relief for over-extended
borrowers and a return to more normal mortgage markets. For that to happen, home
prices will need to fall to a "clearing" level that certainly is lower than
today's prices. However, lower home prices, while necessary, may amplify current
economic weakness. Needless to say, the path to economic recovery will be bumpy
and hard to navigate.

We are cautiously optimistic that the extraordinary steps taken by the
Federal Reserve Bank will be effective in avoiding a severe economic downturn.
The Fed's objective is to make certain that capital markets in general, and the
banking system in particular, are functioning properly and providing adequate
liquidity to businesses and individuals. The financial system is far more
complex today than just a few years ago, making the Fed's job much more
difficult. We encourage you to read our Quarterly Economic Update on the Fund's
website for a more detailed discussion of current conditions in the housing
sector and our thoughts on the economy in general.

Our job remains the same--research each and every credit in the portfolio,
and try to construct the best portfolio of securities that will enable the Fund
to meet its objectives. While market sentiment is certainly depressed at the
moment, we see tremendous long-term value in preferred securities at today's
prices.

During periods of unusual market volatility, these letters provide a
welcome opportunity to step back and discuss a wide variety of items affecting
your Fund. Some of these deserve more attention than space here allows and are
covered in greater depth on the Fund's website. Other situations, like the
status of our auction preferred stock, are rapidly changing, and we'll post to
the website as much up-to-date information as possible.

We may never know the origins of the old curse "may you live in interesting
times," but whoever coined it certainly got his wish.

Sincerely,

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

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

April 9, 2008

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Flaherty & Crumrine Preferred Income Opportunity Fund Incorporated
PORTFOLIO OVERVIEW
FEBRUARY 29, 2008 (UNAUDITED)
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FUND STATISTICS ON 02/29/08
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Net Asset Value $ 9.94
Market Price $ 10.06
Premium 1.21%
Yield on Market Price 8.11%
Common Stock Shares Outstanding 11,773,899

MOODY'S RATINGS % OF PORTFOLIO
--------------------------------------------------------------------------------
AA 4.1%
A 16.9%
BBB 49.2%
BB 19.4%
Below "BB" 1.2%
Not Rated 6.5%
--------------------------------------------------------------------------------
Below Investment Grade* 18.3%

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

INDUSTRY CATEGORIES % OF PORTFOLIO
--------------------------------------------------------------------------------
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]

Utilities 29%
Banking 24%
Financial Services 16%
Insurance 14%
Energy 8%
REITs 4%
Other 5%

TOP 10 HOLDINGS BY ISSUER % OF PORTFOLIO
--------------------------------------------------------------------------------
Interstate Power & Light 5.4%
Merrill Lynch 4.5%
Liberty Mutual Group 4.2%
CoBank ACB 3.4%
Goldman Sachs 3.3%
CIT Group 3.2%
Banco Santander 3.2%
Kinder Morgan 3.1%
Public Storage 2.9%
Entergy Louisiana 2.5%

% OF PORTFOLIO**
--------------------------------------------------------------------------------
Holdings Generating Qualified Dividend Income (QDI) for
Individuals 55%
Holdings Generating Income Eligible for the Corporate
Dividend Received Deduction (DRD) 50%
--------------------------------------------------------------------------------

** 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.

--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Opportunity Fund Incorporated
PORTFOLIO OF INVESTMENTS
FEBRUARY 29, 2008 (UNAUDITED)
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SHARES/$ PAR VALUE
------------ -------------

PREFERRED SECURITIES -- 92.9%
BANKING -- 24.0%
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$ 3,000,000 Astoria Capital Trust I, 9.75% 11/01/29, Series B ............................................. $ 3,199,200
Banco Santander:
17,000 Adj. Rate Pfd. ............................................................................. 306,000**(1)
195,600 6.50% Pfd. ................................................................................. 4,321,547**(1)
56,800 6.80% Pfd. ................................................................................. 1,308,178**(1)
25,000 Bank of America Corp., 6.204% Pfd., Series D .................................................. 575,782*
$ 2,400,000 Capital One Capital III, 7.686% 08/15/36 ...................................................... 1,833,840
$ 3,000,000 CBG Florida REIT Corporation, 7.114%, 144A**** ................................................ 2,253,000
19,648 Citizens Funding Trust I, 7.50% Pfd. 09/15/66 ................................................. 427,959
Cobank, ACB:
45,000 7.00% Pfd., 144A**** ....................................................................... 2,250,900*
75,000 7.814% Pfd., 144A**** ...................................................................... 4,173,750*
$ 3,250,000 Comerica Capital Trust II, 6.576% 02/20/37 .................................................... 2,310,425
4,500 FBOP Corporation, Adj. Rate Pfd., 144A**** .................................................... 4,207,500*
$ 2,250,000 First Hawaiian Capital I, 8.343% 07/01/27, Series B ........................................... 2,348,798(1)
$ 450,000 HBOS PLC, 6.657%, 144A**** .................................................................... 358,380**(1)
5,000 HSBC Series II, Variable Inverse Pfd., Pvt. ................................................... 3,055,000*
2,500 HSBC USA, Inc., $2.8575 Pfd. .................................................................. 109,453*
12,000 Keycorp Capital VIII, 7.00% Pfd. 06/15/66 ..................................................... 285,000
60,000 Keycorp Capital IX, 6.75% Pfd. 12/15/66 ....................................................... 1,338,750(2)
12,000 National City Corporation, 9.875% Pfd. ........................................................ 323,280*
$ 1,650,000 National City Preferred Capital Trust I, 12.00% ............................................... 1,704,615
28,000 PFGI Capital Corporation, 7.75% Pfd. .......................................................... 613,200
$ 250,000 Regions Financing Trust II, 6.625% 05/15/47 ................................................... 195,488
10 Roslyn Real Estate, 8.95% Pfd., Series C, 144A**** ............................................ 1,041,361
80,500 Sovereign Bancorp, 7.30% Pfd., Series C ....................................................... 1,856,531*
20,375 Sovereign Capital Trust V, 7.75% Pfd. 05/22/36 ................................................ 471,121(2)
$ 600,000 Sovereign Capital Trust VI, 7.908% 06/13/36 ................................................... 495,300
U.S. Bancorp, Auction Pass-Through Trust, Cl. B:
9 Series 2006-5, Variable Rate Pfd., 144A**** ................................................ 4,500*+
9 Series 2006-6, Variable Rate Pfd., 144A**** ................................................ 4,500*+
60,000 Wachovia Corporation, 8.00% Pfd., Series J .................................................... 1,538,400*
$ 900,000 Washington Mutual Preferred Funding IV, 9.75%, 144A**** ....................................... 775,150
$ 1,400,000 Webster Capital Trust IV, 7.65% 06/15/37 ...................................................... 1,089,760
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44,776,668
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Flaherty & Crumrine Preferred Income Opportunity Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
FEBRUARY 29, 2008 (UNAUDITED)
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SHARES/$ PAR VALUE
------------ -------------

PREFERRED SECURITIES -- (CONTINUED)
FINANCIAL SERVICES -- 16.4%
-----------------------------------------------------------------------------------------------------------------------------------
CIT Group, Inc.:
10,000 5.189% Pfd., Series B ...................................................................... $ 686,250*
261,200 6.35% Pfd., Series A ....................................................................... 5,346,451*
160,000 Countrywide Capital IV, 6.75% Pfd. ............................................................ 2,800,000
12,000 Countrywide Capital V, 7.00% Pfd., 11/01/36 ................................................... 207,390(2)
890 First Republic Preferred Capital Corporation, 10.50% Pfd., 144A**** ........................... 964,413
22,500 First Republic Preferred Capital Corporation II, 8.75% Pfd., Series B, 144A**** ............... 572,400
Goldman Sachs:
168,000 Adj. Rate Pfd., Series D ................................................................... 3,370,500*
24,680 Cabco Trust Capital I, Adj. Rate Pfd. 02/15/34 ............................................. 466,607
11 Pass-Through Certificates, Class B, 144A**** ............................................... 525,800*+
3,500 STRIPES Custodial Receipts, Pvt. ........................................................... 1,767,500*
96,500 Lehman Brothers Holdings, Inc., 7.95% Pfd. .................................................... 2,405,745*
Merrill Lynch:
89,900 Adj. Rate Pfd., Series 5 ................................................................... 1,525,495*
22,100 Adj. Rate Pfd., Series 2 ................................................................... 370,451*
3,000 Series II STRIPES Custodial Receipts, Pvt. ................................................. 255,000*+
200,000 6.25% Pfd. ................................................................................. 4,660,000*
5,000 6.70% Pfd. ................................................................................. 125,100*
SLM Corporation:
4,000 Adj. Rate Pfd., Series B ................................................................... 235,000*
94,150 6.97% Pfd., Series A ....................................................................... 4,463,652*
------------------------------------------------------------------------------------------------------------------------------
30,747,754
-------------

INSURANCE -- 11.2%
-----------------------------------------------------------------------------------------------------------------------------------
$ 1,000,000 AMBAC Financial Group, Inc., 6.15% 02/15/37 ................................................... 591,700
$ 3,250,000 AON Capital Trust A, 8.205% 01/01/27 .......................................................... 3,350,217
Arch Capital Group Ltd.:
10,000 7.875% Pfd., Series B ...................................................................... 251,875**(1)
24,400 8.00% Pfd., Series A ....................................................................... 629,064**(1)
Axis Capital Holdings:
12,100 7.25% Pfd., Series A ....................................................................... 294,786**(1)
24,700 7.50% Pfd., Series B ....................................................................... 2,398,864(1)
90,000 Delphi Financial Group, 7.376% Pfd. 05/15/37 .................................................. 2,005,200
$ 2,180,000 Everest Re Holdings, 6.60% 05/15/37 ........................................................... 1,855,834
$ 4,500,000 Liberty Mutual Group, 7.80% 03/15/37, 144A**** ................................................ 3,747,600(2)
43,400 MetLife, Inc., 6.50% Pfd., Series B ........................................................... 1,056,521*
$ 200,000 PartnerRe Finance II, 6.44% 12/01/66 .......................................................... 169,380(1)

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Flaherty & Crumrine Preferred Income Opportunity Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
FEBRUARY 29, 2008 (UNAUDITED)
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SHARES/$ PAR VALUE
------------ -------------

PREFERRED SECURITIES -- (CONTINUED)
INSURANCE -- (CONTINUED)
-----------------------------------------------------------------------------------------------------------------------------------
Renaissancere Holdings Ltd.:
27,950 6.08% Pfd., Series C ....................................................................... $ 564,590**(1)
81,000 6.60% Pfd., Series D ....................................................................... 1,782,000**(1)
115,500 Scottish Re Group Ltd., 7.25% Pfd. ............................................................ 1,155,000**(1)
$ 1,060,000 USF&G Capital, 8.312% 07/01/46, 144A**** ...................................................... 1,170,982
------------------------------------------------------------------------------------------------------------------------------
21,023,613
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UTILITIES -- 29.2%
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Alabama Power Company:
4,980 4.60% Pfd. ................................................................................. 391,378*
6,485 4.72% Pfd. ................................................................................. 522,886*
868 4.92% Pfd. ................................................................................. 72,955*
1,579 Baltimore Gas & Electric Company, 6.70% Pfd., Series 1993 ..................................... 154,616*
74,270 Calenergy Capital Trust III, 6.50% Pfd. 09/01/27 .............................................. 3,598,382
3,798 Central Maine Power Company, 4.75% Pfd. ....................................................... 321,994*
5,560 Central Vermont Public Service Corporation, 8.30% Sinking Fund Pfd., Pvt. ..................... 573,014*
Connecticut Light & Power Company:
2,050 4.50% Pfd., Series 1956 .................................................................... 74,128*
25,000 5.28% Pfd., Series 1967 .................................................................... 1,083,500*
883 $2.04 Pfd., Series 1949 .................................................................... 28,945*
2,000 Consolidated Edison Company of New York, 4.65% Pfd., Series C ................................. 168,080*
$ 1,750,000 Dominion Resources, Inc., 7.50% ............................................................... 1,680,875
15,030 Duquesne Light Company, 3.75% Pfd. ............................................................ 492,383*
Entergy Arkansas, Inc.:
1,435 6.08% Pfd. ................................................................................. 138,693*
90,000 6.45% Pfd. ................................................................................. 2,254,500*
46,000 Entergy Louisiana, Inc., 6.95% Pfd. ........................................................... 4,577,000*
5,000 Entergy Mississippi, Inc., 4.92% Pfd. ......................................................... 421,400*
4,400 Florida Power Company, 4.75% Pfd. ............................................................. 369,776*
Georgia Power Company:
8,900 6.125% Pfd. ................................................................................ 219,118*
7,500 6.50% Pfd., Series 07-A .................................................................... 746,250*
2,000 Great Plains Energy, Inc., 4.35% Pfd. ......................................................... 159,360*
Hawaiian Electric Company, Inc.:
2,471 5.00% Pfd., Series D ....................................................................... 43,088*
7,438 5.00% Pfd., Series E ....................................................................... 129,700*
1,383 5.00% Pfd., Series I ....................................................................... 24,116*

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Flaherty & Crumrine Preferred Income Opportunity Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
FEBRUARY 29, 2008 (UNAUDITED)
------------------------------------------------------------------

SHARES/$ PAR VALUE
------------ -------------

PREFERRED SECURITIES -- (CONTINUED)
UTILITIES -- (CONTINUED)
-----------------------------------------------------------------------------------------------------------------------------------
30,500 Indianapolis Power & Light Company, 5.65% Pfd. ................................................ $ 2,653,500*
340,000 Interstate Power & Light Company, 8.375% Pfd., Series B ....................................... 10,111,600*
Pacific Enterprises:
13,680 $4.36 Pfd. ................................................................................. 1,064,441*
24,985 $4.50 Pfd. ................................................................................. 2,006,545*
6,708 PacifiCorp, $4.72 Pfd. ........................................................................ 551,800*
$ 1,500,000 PECO Energy Capital Trust III, 7.38% 04/06/28, Series D ....................................... 1,443,300
14,020 Public Service Electric & Gas Company, 5.28% Pfd., Series E ................................... 1,276,661*
$ 5,200,000 Puget Sound Energy, Inc., 6.974% 06/01/67 ..................................................... 4,626,440
70,210 San Diego Gas & Electric Company, $1.70 Pfd. .................................................. 1,843,013*
South Carolina Electric & Gas Company:
13,974 5.125% Purchase Fund Pfd., Pvt. ............................................................ 719,661*
7,774 6.00% Purchase Fund Pfd., Pvt. ............................................................. 396,629*
10,000 Southern California Edison, 6.125% Pfd. ....................................................... 960,200*
Southern Union Company:
$ 700,000 7.20% 11/01/66 ............................................................................. 631,190
51,750 7.55% Pfd. ................................................................................. 1,310,310*
$ 750,000 TXU Electric Capital V, 8.175% 01/30/37 ....................................................... 647,400
Union Electric Company:
5,700 4.56% Pfd. ................................................................................. 468,996*
10,156 $7.64 Pfd. ................................................................................. 1,022,709*
Virginia Electric & Power Company:
1,673 $4.80 Pfd. ................................................................................. 146,638*
3,878 $6.98 Pfd. ................................................................................. 394,858*
12,500 $7.05 Pfd. ................................................................................. 1,266,798*
43,300 Virginia Power Capital Trust, 7.375% Pfd. 07/30/42 ............................................ 1,093,325(3)
2,262 Washington Gas & Light Company, $4.25 Pfd. .................................................... 177,680*
$ 1,700,000 Wisconsin Energy Corporation, 6.25% 05/15/67 .................................................. 1,549,363
------------------------------------------------------------------------------------------------------------------------------
54,609,194
-------------
ENERGY -- 5.7%
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$ 4,000,000 Enbridge Energy Partners LP, 8.05% 10/01/37 ................................................... 3,806,920
$ 2,500,000 Enterprise Products Partners, 7.034% 01/15/68 ................................................. 2,168,760
2,500 Kinder Morgan GP, Inc., 8.33% Pfd., 144A**** .................................................. 2,511,000*
$ 1,200,000 KN Capital Trust III, 7.63% 04/15/28 .......................................................... 1,110,000
10,000 Lasmo America Limited, 8.15% Pfd., 144A**** ................................................... 1,044,400*(1)
------------------------------------------------------------------------------------------------------------------------------
10,641,080
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Flaherty & Crumrine Preferred Income Opportunity Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
FEBRUARY 29, 2008 (UNAUDITED)
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SHARES/$ PAR VALUE
------------ -------------

PREFERRED SECURITIES -- (CONTINUED)
REAL ESTATE INVESTMENT TRUST (REIT) -- 3.7%
-----------------------------------------------------------------------------------------------------------------------------------
12,600 BRE Properties, Inc., 6.75% Pfd., Series D .................................................... $ 278,382
40,000 Duke Realty Corporation, 8.375% Pfd., Series O ................................................ 998,400
10,000 PS Business Parks, Inc., 6.70% Pfd., Series P ................................................. 209,688
Public Storage, Inc.:
96,975 6.45% Pfd., Series F ....................................................................... 2,145,572
3,200 6.45% Pfd., Series X ....................................................................... 70,000
122,400 6.625% Pfd., Series M ...................................................................... 2,765,481
10,500 6.75% Pfd., Series E ....................................................................... 240,188
5,500 6.75% Pfd., Series L ....................................................................... 127,703
------------------------------------------------------------------------------------------------------------------------------
6,835,414
-------------
MISCELLANEOUS INDUSTRIES -- 2.4%
-----------------------------------------------------------------------------------------------------------------------------------
13,600 E.I. Du Pont de Nemours and Company, $4.50 Pfd., Series B ..................................... 1,125,944*
35,000 Ocean Spray Cranberries, Inc., 6.25% Pfd., 144A**** ........................................... 3,322,900*
------------------------------------------------------------------------------------------------------------------------------
4,448,844
-------------

U.S. GOVERNMENT SECURITIES -- 0.3%
-----------------------------------------------------------------------------------------------------------------------------------
24,000 Fannie Mae, 8.25% Pfd. ........................................................................ 616,560*
------------------------------------------------------------------------------------------------------------------------------
616,560
-------------

TOTAL PREFERRED SECURITIES
(Cost $189,011,118) ........................................................................ 173,699,127
-------------
CORPORATE DEBT SECURITIES -- 4.4%
INSURANCE -- 2.2%
-----------------------------------------------------------------------------------------------------------------------------------
$ 4,417,000 Liberty Mutual Insurance, 7.697% 10/15/97, 144A**** ........................................... 4,133,066
------------------------------------------------------------------------------------------------------------------------------
4,133,066
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UTILITIES -- 0.1%
-----------------------------------------------------------------------------------------------------------------------------------
5,500 Entergy Louisiana LLC, 7.60% 04/01/32, 1st Mortgage ........................................... 140,078
------------------------------------------------------------------------------------------------------------------------------
140,078
-------------
ENERGY -- 2.1%
-----------------------------------------------------------------------------------------------------------------------------------
$ 2,450,000 KN Energy, Inc., 7.45% 03/01/98 ............................................................... 2,241,750
71,900 Nexen, Inc., 7.35% Subordinated Notes ......................................................... 1,730,094(1)
------------------------------------------------------------------------------------------------------------------------------
3,971,844
-------------
TOTAL CORPORATE DEBT SECURITIES
(Cost $8,480,587) .......................................................................... 8,244,988
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Flaherty & Crumrine Preferred Income Opportunity Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
FEBRUARY 29, 2008 (UNAUDITED)
------------------------------------------------------------------

SHARES/$ PAR VALUE
------------ -------------

OPTION CONTRACTS -- 0.2%
-----------------------------------------------------------------------------------------------------------------------------------
65 April Call Options on June U.S. Treasury Bond Futures, Expiring 03/20/08 ...................... $ 12,188+
125 June Call Options on June U.S. Treasury Bond Futures, Expiring 05/23/08 ....................... 216,797+
330 June Put Options on June U.S. Treasury Bond Futures, Expiring 05/23/08 ........................ 72,187+
------------------------------------------------------------------------------------------------------------------------------
TOTAL OPTION CONTRACTS
(Cost $239,503) ............................................................................ 301,172
-------------
MONEY MARKET FUND -- 2.0%
-----------------------------------------------------------------------------------------------------------------------------------
3,833,637 BlackRock Provident Institutional, TempFund ................................................... 3,833,637
------------------------------------------------------------------------------------------------------------------------------
TOTAL MONEY MARKET FUND
(Cost $3,833,637) .......................................................................... 3,833,637
-------------
SECURITIES LENDING COLLATERAL -- 1.3%
-----------------------------------------------------------------------------------------------------------------------------------
2,464,400 BlackRock Institutional Money Market Trust .................................................... 2,464,400
------------------------------------------------------------------------------------------------------------------------------
TOTAL SECURITIES LENDING COLLATERAL
(Cost $2,464,400) .......................................................................... 2,464,400
-------------

TOTAL INVESTMENTS (Cost $204,029,245***) ....................................................... 100.8% 188,543,324
OTHER ASSETS AND LIABILITIES (Net) ............................................................. (0.8)% (1,545,022)
------- -------------
TOTAL NET ASSETS AVAILABLE TO COMMON AND PREFERRED STOCK ....................................... 100.0%++ $ 186,998,302
------- -------------
AUCTION PREFERRED STOCK (APS) REDEMPTION VALUE ............................................................... (70,000,000)
-------------
TOTAL NET ASSETS AVAILABLE TO COMMON STOCK ................................................................... $ 116,998,302
=============

----------
* 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. These securities have been
determined to be liquid under the guidelines established by the Board of
Directors.
(1) Foreign Issuer.
(2) All or a portion of this security is on loan.
(3) A portion of this security has been pledged as collateral for written
option positions.
+ 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:
PFD. -- Preferred Securities
PVT. -- Private Placement Securities

--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Opportunity Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
FEBRUARY 29, 2008 (UNAUDITED)
------------------------------------------------------------------

OPEN OPTION CONTRACTS WRITTEN

CONTRACTS CONTRACT DESCRIPTION VALUE
------------ ----------------------------------------------------------------------------------------------- -------------

65 April Call Options on June U.S. Treasury Bond Futures,
Expiring 03/20/08, Strike Price 120 ........................................................ $ (67,031)+
125 June Call Options on June U.S. Treasury Bond Futures,
Expiring 05/23/08, Strike Price 118 ........................................................ (427,735)+
------------------------------------------------------------------------------------------------------------------------------
TOTAL OPEN OPTION CONTRACTS WRITTEN (premiums received: $339,176) ............................. (494,766)

--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Opportunity Fund Incorporated
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE TO COMMON STOCK(1)
FOR THE PERIOD FROM DECEMBER 1, 2007 THROUGH FEBRUARY 29, 2008 (UNAUDITED)
--------------------------------------------------------------------------

VALUE
-------------

OPERATIONS:
Net investment income ..................................................................................... $ 3,084,124
Net realized gain/(loss) on investments sold during the period ............................................ 1,015,196
Change in net unrealized appreciation/depreciation of investments ......................................... (2,962,654)
Distributions to APS* Shareholders from net investment income,
including changes in accumulated undeclared distributions .............................................. (1,121,832)
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ...................................................... 14,834

DISTRIBUTIONS:
Dividends paid from net investment income to Common Stock Shareholders(2) ................................. (2,399,863)
-------------
TOTAL DISTRIBUTIONS TO COMMON STOCK SHAREHOLDERS .......................................................... (2,399,863)

FUND SHARE TRANSACTIONS:
Increase from shares issued under the Dividend Reinvestment and Cash Purchase Plan ........................ 296,898
-------------
NET INCREASE IN NET ASSETS AVAILABLE TO COMMON STOCK RESULTING FROM FUND SHARE TRANSACTIONS ............... 296,898

-------------
NET DECREASE IN NET ASSETS AVAILABLE TO COMMON STOCK FOR THE PERIOD ......................................... $ (2,088,131)
=============

-------------------------------------------------------------------------------------------------------------------------------
NET ASSETS AVAILABLE TO COMMON STOCK:
Beginning of period ....................................................................................... $ 119,086,433
Net decrease in net assets during the period .............................................................. (2,088,131)
-------------
End of period ............................................................................................. $ 116,998,302
=============

----------
* Auction Preferred Stock (formerly known as Money Market Cumulative
Preferred(TM) Stock).
(1) These tables summarize the three months ended February 29, 2008 and should
be read in conjunction with the Fund's audited financial statements,
including footnotes, in its Annual Report dated November 30, 2007.
(2) May include income earned, but not paid out, in prior fiscal year.

--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Opportunity Fund Incorporated
FINANCIAL HIGHLIGHTS(1)
FOR THE PERIOD FROM DECEMBER 1, 2007 THROUGH FEBRUARY 29, 2008 (UNAUDITED)
FOR A COMMON STOCK SHARE OUTSTANDING THROUGHOUT THE PERIOD.
--------------------------------------------------------------------------

PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ...................................................................... $ 10.14
-------------
INVESTMENT OPERATIONS:
Net investment income ..................................................................................... 0.26
Net realized and unrealized gain/(loss) on investments .................................................... (0.16)

DISTRIBUTIONS TO APS* SHAREHOLDERS:
From net investment income ................................................................................ (0.10)
-------------
Total from investment operations .......................................................................... 0.00
-------------
DISTRIBUTIONS TO COMMON STOCK SHAREHOLDERS:
From net investment income ................................................................................ (0.20)
-------------
Total distributions to Common Stock Shareholders .......................................................... (0.20)
-------------
Net asset value, end of period ............................................................................ $ 9.94
=============
Market value, end of period ............................................................................... $ 10.06
=============
Common Stock shares outstanding, end of period ............................................................ 11,773,899
=============
RATIOS TO AVERAGE NET ASSETS AVAILABLE TO COMMON STCOK SHAREHOLDERS:
Net investment income+ .................................................................................... 6.71%**
Operating expenses ........................................................................................ 1.79%**

----------------------------------------------------
SUPPLEMENTAL DATA:++
Portfolio turnover rate ................................................................................... 23%***
Total net assets available to Common and Preferred Stock, end of period (in 000's) ........................ $ 186,998
Ratio of operating expenses to total average net assets available to Common
and Preferred Stock .................................................................................... 1.12%**

(1) These tables summarize the three months ended February 29, 2008 and should
be read in conjunction with the Fund's audited financial statements,
including footnotes, in its Annual Report dated November 30, 2007.
* Auction Preferred Stock (formerly known as Money Market Cumulative
Preferred(TM) Stock).
** Annualized.
*** Not Annualized.
+ The net investment income ratios reflect income net of operating expenses
and payments to APS* Shareholders.
++ Information presented under heading Supplemental Data includes APS*.

--------------------------------------------------------------------------------
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, 2007 ....... $0.0680 $ 9.64 $ 9.46 $ 9.64
January 31, 2008 ........ 0.0680 10.23 10.25 10.23
February 29, 2008 ....... 0.0680 9.94 10.06 9.94

----------
(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 reinvestment 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.

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

1. AGGREGATE INFORMATION FOR FEDERAL INCOME TAX PURPOSES

At February 29, 2008 the aggregate cost of securities for federal income
tax purposes was $203,916,556, the aggregate gross unrealized appreciation for
all securities in which there is an excess of value over tax cost was $5,366,272
and the aggregate gross unrealized depreciation for all securities in which
there is an excess of tax cost over value was $20,739,504.

2. ADDITIONAL ACCOUNTING STANDARDS

ADOPTION OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 157 "FAIR
VALUE MEASUREMENTS" ("FAS 157")

In September 2006, the Financial Accounting Standards Board issued FAS 157
effective for fiscal years beginning after November 15, 2007. This standard
clarifies the definition of fair value for financial reporting, establishes a
framework for measuring fair value and requires additional disclosures about the
use of fair value measurements. The Fund has adopted FAS 157 as of December 1,
2007. The three levels of the fair value hierarchy under FAS 157 are described
below:

o Level 1 - quoted prices in active markets for identical securities
o Level 2 - other significant observable inputs (including quoted
prices for similar securities, interest rates,
prepayment speeds, credit risk, etc.)
o Level 3 - significant unobservable inputs (including the Fund's own
assumptions in determining the fair value of investments)

The inputs or methodology used for valuing securities are not necessarily
an indication of the risk associated with investing in those securities. A
summary of the inputs used to value the Funds' net assets as of February 29,
2008 is as follows:

OTHER FINANCIAL
INSTRUMENTS
INVESTMENTS (UNREALIZED
IN SECURITIES APPRECIATION/
VALUATION INPUTS (MARKET VALUE) DEPRECIATION)*
-------------------------------------------------------------------------------------

Level 1 - Quoted Prices - Investments ........... $ 51,373,384 $ --
Level 1 - Quoted Prices - Written Options ....... (494,766) --
Level 2 - Other Significant Observable Inputs ... 134,705,540 --
Level 3 - Significant Unobservable Inputs ....... -- --
-------------------------------------------------------------------------------------
TOTAL ........................................... $ 185,584,158 $ --

* Other financial instruments are derivative instruments not reflected in
the Schedule of Investments, such as futures, forwards and swaps which are
valued at the unrealized appreciation/depreciation on the investment. As of
February 29, 2008 the Fund does not have any other financial instruments.

DIRECTORS
Donald F. Crumrine, CFA
Chairman of the Board
David Gale
Morgan Gust
Karen H. Hogan
Robert F. Wulf, CFA

OFFICERS
Donald F. Crumrine, CFA
Chief Executive Officer
Robert M. Ettinger, CFA
President
R. Eric Chadwick, CFA
Chief Financial Officer,
Vice President and Treasurer
Chad C. Conwell
Chief Compliance Officer,
Vice President and Secretary
Bradford S. Stone
Vice President and
Assistant Treasurer
Laurie C. 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.

Flaherty & Crumrine
[LOGO] ===================
PREFERRED INCOME
OPPORTUNITY FUND

Quarterly
Report

February 29, 2008

www.preferredincome.com

ITEM 2. CONTROLS AND PROCEDURES.

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

(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940 Act
(17 CFR 270.30a-3(d)) that occurred during the registrant's last
fiscal quarter that have materially affected, or are reasonably likely
to materially affect, the registrant's internal control over financial
reporting.

ITEM 3. EXHIBITS.

Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 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 April 18, 2008
----------------------------------------------------------------------------

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

Date April 18, 2008
----------------------------------------------------------------------------

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

Date April 18, 2008
----------------------------------------------------------------------------

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