<SEC-DOCUMENT>0000935069-01-500602.txt : 20011029
<SEC-HEADER>0000935069-01-500602.hdr.sgml : 20011029
ACCESSION NUMBER:		0000935069-01-500602
CONFORMED SUBMISSION TYPE:	N-30D
PUBLIC DOCUMENT COUNT:		1
CONFORMED PERIOD OF REPORT:	20010831
FILED AS OF DATE:		20011023

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			PREFERRED INCOME FUND INC
		CENTRAL INDEX KEY:			0000868578
		STANDARD INDUSTRIAL CLASSIFICATION:	 []
		IRS NUMBER:				954305694
		STATE OF INCORPORATION:			MD
		FISCAL YEAR END:			1130

	FILING VALUES:
		FORM TYPE:		N-30D
		SEC ACT:		1940 Act
		SEC FILE NUMBER:	811-06179
		FILM NUMBER:		1764135

	BUSINESS ADDRESS:	
		STREET 1:		301 E COLORADO BLVD STE 720
		STREET 2:		C/O FLAHERTY & CRUMRINE INC
		CITY:			PASADENA
		STATE:			CA
		ZIP:			91101
		BUSINESS PHONE:		8187957300

	MAIL ADDRESS:	
		STREET 1:		301 COLORADO BLVD
		STREET 2:		STE 720
		CITY:			PASADENA
		STATE:			CA
		ZIP:			91101
</SEC-HEADER>
<DOCUMENT>
<TYPE>N-30D
<SEQUENCE>1
<FILENAME>prefinc.txt
<DESCRIPTION>PREFERRED INCOME QUARTERLY
<TEXT>
PREFERRED INCOME FUND INCORPORATED

Dear Shareholder:

     This is being  written  as America is just  beginning  to recover  from the
tragedies at the World Trade Center and the Pentagon.  The Federal  Reserve Bank
has clearly  indicated its  willingness to pump enough money into the economy to
prevent  potential  cash  crunches.  In addition,  the  securities  markets have
resumed  orderly  operations.  Once  again,  the  country  seems  determined  to
demonstrate its  extraordinary  resiliency in the face of events that may change
the course of history.

     The  performance  of the Preferred  Income Fund through August 31, 2001 has
been a positive note in a generally difficult year for investors.  Total returns
on net asset value  ("NAV") were 7.0% for the most recent  quarter and 14.4% for
the first nine months of fiscal 2001. We are very pleased with these results.

     Hybrid  preferreds  have  been  star  performers  so  far in  fiscal  2001.
Traditional  preferreds  (those which provide  special tax benefits to corporate
investors)  lagged behind hybrids earlier,  but turned in good results in recent
months.  That was the  equivalent of the portfolio  "hitting on all  cylinders",
which produced the very strong returns in the latest quarter.

     We have taken  advantage of attractive  opportunities  to move from hybrids
into  traditional  preferreds  when these two primary  sectors of the  preferred
market have been "out of sync". As a result,  traditional  preferreds  accounted
for   approximately  67%  of  the  Fund's  portfolio  on  August  31,  2001,  up
approximately  9 percentage  points since the  beginning of fiscal 2001.  We are
always searching for the cheapest preferreds available.

     Falling  short-term  interest rates have helped by reducing the cost of the
Money  Market  Cumulative(TM)  preferred  ("MMP")  shares  issued by the Fund to
create  leverage.  The current  cost of the Fund's  leverage is 2.75%,  which is
adjusted to market levels every 49 days through an auction process.  We have not
yet had an auction  following the events of September 11, but  short-term  rates
have declined further since then.

     We can now write a happy ending to a matter  previously  discussed in these
reports.  Moody's  has  completed  the  restructuring  of its rating  system for
preferred  stocks as expected.  The steps taken by the Fund in  anticipation  of
this,  including  amending  its  corporate  articles,  successfully  avoided the
problems that were potentially posed for the Fund's MMP. "A stitch in time saves
nine!"

     The market price of the Fund's  shares has stayed fairly close to net asset
value recently.  This may reflect a general  increase in investors'  interest in
income oriented  investments caused by the decline in short-term  interest rates
and the  problems  with common  stocks.  In response,  we are  enclosing a brief
description  of the Fund's  dividend  reinvestment  plan,  which provides a very
convenient and cost efficient way to acquire additional shares of the Fund.

                                                        Sincerely,

                                                        /S/ ROBERT T. FLAHERTY

                                                        Robert T. Flaherty
                                                        CHAIRMAN OF THE BOARD

September 20, 2001

<PAGE>

--------------------------------------------------------------------------------
Preferred Income Fund Incorporated
SUMMARY OF INVESTMENTS
AUGUST 31, 2001 (UNAUDITED)
------------------------------------------------------
                                                                        PERCENT
                                                          VALUE        OF TOTAL
                                                         (000'S)      NET ASSETS
                                                         -------      ----------
ADJUSTABLE RATE PREFERRED STOCKS
     Utilities ......................................   $  6,619          3.3%
     Banking ........................................     34,573         17.2
     Financial Services .............................      1,044          0.5
                                                        --------        -----
         Total Adjustable Rate ......................     42,236         21.0
                                                        --------        -----

FIXED RATE PREFERRED STOCKS AND SECURITIES
     Utilities ......................................     59,130         29.3
     Banking ........................................     35,722         17.7
     Financial Services .............................     31,418         15.6
     Insurance ......................................     17,335          8.6
     Oil and Gas ....................................      6,858          3.4
     Miscellaneous Industries .......................      4,595          2.3
                                                        --------        -----
         Total Fixed Rate ...........................    155,058         76.9
                                                        --------        -----

TOTAL PREFERRED STOCKS AND SECURITIES ...............    197,294         97.9
SHORT TERM INVESTMENT FUND ..........................        868          0.4
PURCHASED PUT OPTIONS ...............................        656          0.4
                                                        --------        -----
TOTAL INVESTMENTS ...................................    198,818         98.7
OTHER ASSETS AND LIABILITIES (NET) ..................      2,679          1.3
                                                        --------        -----
     TOTAL NET ASSETS ...............................   $201,497        100.0%
                                                        ========        =====

FINANCIAL DATA
PER SHARE OF COMMON STOCK (UNAUDITED)
-------------------------------------

<TABLE>
<CAPTION>
                                                                                                        DIVIDEND
                                                      DISTRIBUTION      NET ASSET        NYSE         REINVESTMENT
                                                          PAID            VALUE      CLOSING PRICE      PRICE (1)
                                                      ------------      ---------    -------------    ------------
<S>                                                     <C>              <C>            <C>              <C>
December 31, 2000 ................................      $0.0820          $13.42         $12.13           $12.78
January 31, 2001 .................................       0.0820           13.68          13.00            13.29
February 28, 2001 ................................       0.0820           13.87          13.50            13.66
March 31, 2001 ...................................       0.0820           13.78          13.50            13.57
April 30, 2001 ...................................       0.0820           13.69          13.65            13.69
May 31, 2001 .....................................       0.0820           13.83          13.88            13.83
June 30, 2001 ....................................       0.0820           13.96          13.60            13.93
July 31, 2001 ....................................       0.0820           14.37          14.45            14.37
August 31, 2001 ..................................       0.0820           14.54          13.85            14.21
</TABLE>

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

                                        2

<PAGE>

--------------------------------------------------------------------------------
                                              Preferred Income Fund Incorporated
                                           STATEMENT OF CHANGES IN NET ASSETS(1)
                                   NINE MONTHS ENDED AUGUST 31, 2001 (UNAUDITED)
                                   ---------------------------------------------

<TABLE>
<CAPTION>

<S>                                                                                                     <C>
OPERATIONS:
     Net investment income ........................................................................     $  9,262,890
     Net realized loss on investments sold ........................................................       (2,440,046)
     Net unrealized appreciation of investments during the period .................................       13,530,035
                                                                                                        ------------
         Net increase in net assets from operations ...............................................       20,352,879
DISTRIBUTIONS:
     Dividends paid from net investment income to MMP* Shareholders ...............................       (2,188,657)
     Distributions  paid from net realized capital gains to MMP* Shareholders .....................               --
     Dividends paid from net investment income to Common Stock  Shareholders (2) ..................       (7,270,549)
     Distributions  paid from net realized  capital gains to Common Stock Shareholders ............               --
                                                                                                        ------------
         Total Distributions ......................................................................       (9,459,206)
                                                                                                        ------------
FUND SHARE TRANSACTIONS:
     Increase from Common Stock transactions ......................................................          621,024

NET INCREASE IN NET ASSETS: .......................................................................       11,514,697

NET ASSETS:
     Beginning of period ..........................................................................      189,982,533
                                                                                                        ------------
     End of period ................................................................................     $201,497,230
                                                                                                        ============
</TABLE>


                                                         FINANCIAL HIGHLIGHTS(1)
                                   NINE MONTHS ENDED AUGUST 31, 2001 (UNAUDITED)
                           FOR A COMMON SHARE OUTSTANDING THROUGHOUT THE PERIOD.
                           -----------------------------------------------------

<TABLE>
<CAPTION>

<S>                                                                                           <C>
OPERATING PERFORMANCE:
     Net asset value, beginning of period ...............................................     $    13.41
                                                                                              ----------
     Net investment income ..............................................................           0.94
     Net realized loss and unrealized appreciation on investments .......................           1.12
                                                                                              ----------
     Net increase in net asset value resulting from investment operations ...............           2.06
DISTRIBUTIONS:
     Dividends paid from net investment  income to MMP*  Shareholders (2) ...............          (0.22)
     Distributions  paid from net realized capital gains to MMP* Shareholders ...........             --
     Dividends paid from net investment income to Common Stock  Shareholders (2) ........          (0.74)
     Distributions  paid from net realized capital gains to Common Stock Shareholders ...             --
     Change in accumulated undeclared dividends on MMP* .................................           0.03
                                                                                              ----------
     Total distributions ................................................................          (0.93)
                                                                                              ----------
     Net asset value, end of period .....................................................     $    14.54
                                                                                              ==========
     Market value, end of period ........................................................     $    13.85
                                                                                              ==========
     Common shares outstanding, end of period ...........................................      9,883,108
                                                                                              ==========
RATIOS TO AVERAGE NET ASSETS AVAILABLE TO COMMON STOCK SHAREHOLDERS:
     Net investment income ..............................................................           7.20%**
     Operating expenses .................................................................           1.42%**

--------------------------------------------------------
SUPPLEMENTAL DATA:++
     Portfolio turnover rate fiscal year to date ........................................             30%
     Net assets, end of period (in 000's) ...............................................     $  201,497
     Ratio of operating expenses to total average net assets including MMP* .............           1.00%**
</TABLE>

(1) These tables  summarize  the nine months ended August 31, 2001 and should be
    read in conjunction with the Fund's audited financial statements,  including
    footnotes, in its Annual Report dated November 30, 2000.
(2) Includes dividends earned, but not paid out, in prior fiscal year.
*   Money Market Cumulative Preferred(TM)Stock.
**  Annualized.
++  Information presented under Supplemental Data includes MMP*.

                                        3

<PAGE>

DIRECTORS
   Martin Brody
   Donald F. Crumrine, CFA
   Robert T. Flaherty, CFA
   David Gale
   Morgan Gust
   Robert F. Wulf, CFA

OFFICERS
   Robert T. Flaherty, CFA
     Chairman of the Board
     and President
   Donald F. Crumrine, CFA
     Vice President
     and Secretary
   Robert M. Ettinger, CFA
     Vice President
   Peter C. Stimes, CFA
     Vice President
     and Treasurer

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

QUESTIONS CONCERNING YOUR SHARES OF PREFERRED
   INCOME 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 1376
               Boston, MA  02104
               1-800-331-1710
THIS REPORT IS SENT TO SHAREHOLDERS OF PREFERRED  INCOME 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.

                     [LOGO OMITTED - PREFERRED INCOME FUND]

                                    Quarterly
                                     Report

                                 August 31, 2001

                        web site: www.preferredincome.com


</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
