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Proc-Type: 2001,MIC-CLEAR
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<SEC-DOCUMENT>0000935069-01-000057.txt : 20010205
<SEC-HEADER>0000935069-01-000057.hdr.sgml : 20010205
ACCESSION NUMBER:		0000935069-01-000057
CONFORMED SUBMISSION TYPE:	N-30D
PUBLIC DOCUMENT COUNT:		1
CONFORMED PERIOD OF REPORT:	20001130
FILED AS OF DATE:		20010202

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			PREFERRED INCOME OPPORTUNITY FUND INC
		CENTRAL INDEX KEY:			0000882071
		STANDARD INDUSTRIAL CLASSIFICATION:	 []
		IRS NUMBER:				954355600
		STATE OF INCORPORATION:			MD
		FISCAL YEAR END:			1130

	FILING VALUES:
		FORM TYPE:		N-30D
		SEC ACT:		
		SEC FILE NUMBER:	811-06495
		FILM NUMBER:		1523853

	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>0001.txt
<DESCRIPTION>PREFERRED INCOME OPPORTUNITY FUND ANNUAL
<TEXT>


PREFERRED INCOME OPPORTUNITY FUND
INCORPORATED

Dear Shareholder:

     Fiscal  2000 was sort of a "betwixt  and  between"  year for the  Preferred
Income  Opportunity  Fund.  The results were better than we would  normally have
expected given market  conditions  during the year, but they were not as good as
we would like. The total returns earned on net asset value and market value were
5.9% and 3.8%, respectively.

     The behavior of the domestic  taxable  fixed income  markets in fiscal 2000
was, in a word,  bizarre.  Long term U.S.  Treasury bonds far  outdistanced  the
field with total  percentage  returns in the low to mid-teens.  High yield bonds
(junk bonds,  if you prefer)  brought up the rear with  returns that  frequently
dipped into the negative  teens.  Most other  categories of  investment  quality
fixed income securities ended up in between with single digit positive returns.

     At the risk of  oversimplifying,  these diverse  market trends  reflect the
"push-pull" effect of two main forces. First, the likelihood that federal budget
surpluses  would shrink the supply of U.S.  Treasury bonds caused bond investors
to bid up their  prices (and push down their  yields),  especially  in the first
half of the fiscal year. Second, signs of a slowdown in economic growth surfaced
later in the year, suggesting an increase in credit risks. This caused investors
to demand still larger margins of additional yield from fixed income  securities
other than Treasury bonds.  The following graph  illustrates the impact of these
trends over the fiscal year on the yields of preferreds and Treasury bonds,  the
two market sectors that impact the Fund the most.

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

  CUMULATIVE CHANGES IN YIELDS OF PREFERREDS AND TREASURY BONDS SINCE 11/30/99

                Hybrid      Traditional       30 Year
              Preferreds     Preferreds    Treasury Bonds
11/30/1999       0              0               0
12/03/1999      -0.019          0               0.03
12/10/1999      -0.121         -0.05           -0.07
12/17/1999       0.112          0.2             0.15
12/24/1999       0.179          0.3             0.25
12/31/1999       0.175          0.3             0.25
 1/07/2000       0.202          0.3             0.32
 1/14/2000       0.281          0.4             0.46
 1/21/2000       0.271          0.4             0.48
 1/28/2000       0.098          0.35            0.21
 2/04/2000       0.104          0.3             0.02
 2/11/2000       0.311          0.5             0.05
 2/18/2000       0.167          0.35           -0.08
 2/25/2000       0.169          0.4            -0.08
 3/03/2000       0.15           0.4            -0.1
 3/10/2000       0.367          0.3            -0.06
 3/17/2000       0.252          0.25           -0.23
 3/24/2000       0.25           0.2            -0.23
 3/31/2000       0.187          0.1            -0.39
 4/07/2000       0.159          0.1            -0.53
 4/14/2000       0.348          0.3            -0.44
 4/20/2000       0.384          0.35           -0.41
 4/28/2000       0.533          0.55           -0.27
 5/05/2000       0.903          0.85           -0.04
 5/12/2000       0.969          0.85           -0.03
 5/19/2000       1.04           0.85           -0.02
 5/26/2000       0.86           0.75           -0.17
 6/02/2000       0.715          0.65           -0.29
 6/09/2000       0.625          0.6            -0.33
 6/16/2000       0.583          0.45           -0.36
 6/23/2000       0.747          0.6            -0.19
 6/30/2000       0.625          0.4            -0.33
 7/07/2000       0.594          0.35           -0.36
 7/14/2000       0.595          0.35           -0.35
 7/21/2000       0.475          0.25           -0.44
 7/28/2000       0.458          0.25           -0.45
 8/04/2000       0.389          0.2            -0.52
 8/11/2000       0.396          0.2            -0.52
 8/18/2000       0.365          0.2            -0.54
 8/25/2000       0.319          0.2            -0.56
 9/01/2000       0.296          0.15           -0.57
 9/08/2000       0.318          0.15           -0.53
 9/15/2000       0.467          0.25           -0.33
 9/22/2000       0.439          0.25           -0.32
 9/29/2000       0.371          0.2            -0.35
10/06/2000       0.411          0.2            -0.38
10/13/2000       0.482          0.2            -0.42
10/20/2000       0.482          0.15           -0.5
10/27/2000       0.489          0.15           -0.49
11/03/2000       0.609          0.25           -0.37
11/10/2000       0.583          0.3            -0.36
11/17/2000       0.566          0.25           -0.45
11/24/2000       0.506          0.25           -0.56
12/01/2000       0.477          0.25           -0.59

<PAGE>


     The Fund's portfolio of preferreds actually performed very well despite the
rise in  preferred  yields to  historically  very wide levels  over  Treasuries.
However,  the superior  performance  of our holdings of preferreds was offset by
the drag of losses on the Fund's hedges.  Our hedges presume that preferreds and
Treasuries  will move more or less "in sync",  but the  foregoing  chart clearly
indicates  that they did not.  (See the Q&A Section for a further  discussion of
hedging.)  When all was said and  done,  the  returns  on the  Fund's  portfolio
INCLUDING THE HEDGES pretty much mirrored the generally uninspiring  performance
of the preferred market.

     The table below shows the "bottom  line" for the Fund in terms of its total
return on net asset value for various time periods  ending on November 30, 2000.
As in past years,  we have  compared  those results to the returns from a Lipper
composite of investment  grade  closed-end  bond funds.  Although the investment
strategies that we use in the Fund typically differ  significantly from those of
the bond funds,  we believe that Preferred  Income  Opportunity  Fund provides a
superior way of accomplishing a similar investment objective.

- --------------------------------------------------------------------------------
                   TOTAL RETURN PER YEAR ON NET ASSET VALUE(1)
                           FOR PERIODS ENDED 11/30/00
                                                        ONE     FIVE    LIFE OF
                                                       YEAR     YEARS   FUND(2)
                                                       ----     -----   -------
  Preferred Income Opportunity Fund ................   5.1%     7.0%     9.5%
  Lipper Composite of Investment Grade Bond Funds(3)   7.6%     6.2%     7.0%

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

     Over the long  pull,  the Fund  has  been a better  alternative  to  higher
quality  closed-end  bond  funds.  However,  the  bond  funds  have  been  tough
competition  more  recently.  To some extent,  this reflects the strength of the
government  bond market since  two-thirds of the bond funds are  concentrated in
securities issued or guaranteed by the U.S. Treasury or federal agencies.

                                       2

<PAGE>

     Income is what Preferred  Income  Opportunity  Fund is all about. The graph
below shows that the Fund's income (represented by the solid line) has performed
remarkably well over the years.  Income has generally  managed to hold up pretty
well when the interest  rate on long term  Treasury  bonds (the dotted line) has
gone down. In contrast, when the Treasury interest rate has increased,  the Fund
has typically shared in the increase.  The Fund's stated mission calls for us to
seek this kind of result. We have succeeded!

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

           PREFERRED INCOME OPPORTUNITY FUND MONTHLY DIVIDEND INCOME
                 ON A 1,000 SHARE ($12,500) INITIAL INVESTMENT

       MONTHLY DIVIDEND      30 YEAR
            INCOME        TREASURY YIELD

Jan-92                        7.76
Feb-92                        7.79
Mar-92                        7.96
Apr-92                        8.03
May-92       82.5             7.84
Jun-92       82.5             7.78
Jul-92       82.5             7.46
Aug-92       82.5             7.41
Sep-92       82.5             7.38
Oct-92       82.5             7.62
Nov-92       82.5             7.6
Dec-92       82.5             7.39
Jan-93       83.14            7.19
Feb-93       83.14            6.9
Mar-93       83.14            6.92
Apr-93       83.14            6.93
May-93       83.14            6.98
Jun-93       83.14            6.67
Jul-93       83.14            6.56
Aug-93       83.14            6.09
Sep-93       83.14            6.02
Oct-93       83.14            5.97
Nov-93       83.14            6.3
Dec-93       83.14            6.35
Jan-94       79.87            6.24
Feb-94       79.87            6.66
Mar-94       79.87            7.09
Apr-94       79.87            7.3
May-94       85.89            7.43
Jun-94       85.89            7.61
Jul-94       85.89            7.39
Aug-94       85.89            7.48
Sep-94       85.89            7.82
Oct-94       85.89            7.96
Nov-94       89.17            7.94
Dec-94       89.17            7.88
Jan-95       88.36            7.73
Feb-95       88.36            7.55
Mar-95       88.36            7.43
Apr-95       88.36            7.33
May-95       88.36            6.63
Jun-95       83.83            6.54
Jul-95       83.83            6.9
Aug-95       83.83            6.61
Sep-95       83.83            6.5
Oct-95       83.83            6.36
Nov-95       83.83            6.08
Dec-95       78.73            5.95
Jan-96       78.73            6.05
Feb-96       78.73            6.36
Mar-96       78.73            6.67
Apr-96       78.73            6.83
May-96       83.83            7
Jun-96       83.83            6.95
Jul-96       83.83            7.01
Aug-96       83.83            7.12
Sep-96       83.83            6.9
Oct-96       83.83            6.81
Nov-96       83.83            6.51
Dec-96       83.83            6.6
Jan-97       84.06            6.79
Feb-97       84.06            6.8
Mar-97       84.06            7.09
Apr-97       84.06            6.89
May-97       84.06            6.98
Jun-97       84.06            6.74
Jul-97       84.06            6.45
Aug-97       84.06            6.61
Sep-97       84.06            6.3
Oct-97       84.06            6.15
Nov-97       84.06            6.04
Dec-97       84.06            5.95
Jan-98       79.79            5.9
Feb-98       79.79            6.02
Mar-98       79.79            5.93
Apr-98       79.79            5.95
May-98       79.79            5.8
Jun-98       79.79            5.62
Jul-98       79.79            5.72
Aug-98       79.79            5.26
Sep-98       79.79            4.98
Oct-98       79.79            5.15
Nov-98       79.79            5.07
Dec-98       79.79            5.09
Jan-99       81.35            5.09
Feb-99       81.35            5.58
Mar-99       81.35            5.62
Apr-99       81.35            5.66
May-99       81.35            5.82
Jun-99       88.18            5.97
Jul-99       88.18            6.1
Aug-99       88.18            6.06
Sep-99       88.18            6.05
Oct-99       88.18            6.16
Nov-99       88.18            6.29
Dec-99       88.18            6.48
Jan-2000     88.45            6.49
Feb-2000     88.45            6.15
Mar-2000     88.45            5.84
Apr-2000     88.45            5.96
May-2000     88.45            6.02
Jun-2000     88.45            5.89
Jul-2000     88.45            5.79
Aug-2000     88.45            5.67
Sep-2000     88.45            5.88
Oct-2000     88.45            5.79
Nov-2000     88.45            5.59

     The  allocation  of  the  Fund's  portfolio  among  major  market  sectors,
illustrated by the pie chart on the following page, did not change significantly
over the year.  Just below that radar screen,  however,  some  meaningful  moves
between  institutional  and retail oriented hybrid  preferreds took place within
the hybrid preferreds  sector. In addition,  the Fund was able to take advantage
of numerous  mispricings  and  out-of-line  values at the "nitty  gritty" level,
which were part of the  fallout  from the  generally  sloppy  conditions  in the
preferred  market.  All of this  contributed to the superior  performance of our
preferred portfolio (before hedging) mentioned previously.

                                       3

<PAGE>

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

                      PORTFOLIO ALLOCATION AS OF 11/30/00

Adjustable Rates                 10.9
Traditional Fixed Rates          42.6
Common Stock                      0.3
Hybrid Preferreds                43.8
Cash & Other                      2.4

     We will be spending  some time in the next few months  working with Moody's
Investors  Services on revising  the Fund's  corporate  Articles  regarding  the
shares of Money Market Cumulative  Preferred(TRADE  MARK) stock ("MMP") that the
Fund has issued for  leverage.  Moody's  recently  announced  its  intention  to
restructure the scale on which it rates preferred  stocks in order to make those
ratings more consistent with its ratings on bonds.  Moody's has also stated that
the  planned  changes  are not meant to  indicate  any change in its view of the
investment quality of preferreds. Nonetheless, the revisions of the rating scale
could adversely affect the Fund and its MMP unless certain  changes,  which must
be approved by Moody's,  are made to the Fund's Articles.  Moody's analysts have
acknowledged  that this  potential  impact on the Fund was not intended and have
indicated a willingness to work with us to solve the problem.

     Have you visited our web site at WWW.PREFERREDINCOME.COM?  Our shareholders
that have say the web site is a great source for  up-to-date  information on the
Fund. We would really like to hear what you think.

     We urge you to read the  following  Questions  and Answers  section,  which
contains additional important information on the Fund.

                                                                      Sincerely,

                                      /S/ SIGNATURE OMITTED - ROBERT T. FLAHERTY

                                                              Robert T. Flaherty
                                                           CHAIRMAN OF THE BOARD

December 28, 2000

                                        4

<PAGE>

                               QUESTIONS & ANSWERS

HAS THE FUND'S HEDGING STRATEGY CHANGED?

     If you will forgive us, the most accurate answer is "Yes and no!".  Through
the end of fiscal  2000,  our hedges  consisted  exclusively  of  purchased  put
options on Treasury  bond  futures  contracts,  just as they always  have.  Last
summer,  the Fund's Board of Directors  also approved the purchase of options on
interest rate swaps (called  "swaptions") as an additional hedging tool. So far,
however, we have not bought any swaptions.

     We should  never expect a hedge to be any better than the price at which we
enter into it. The  disappointing  performance of Treasury based hedges early in
the year caused a mad scramble among hedgers to find  alternative  hedges,  with
interest rate swaps being a primary object of their  attention.  Naturally,  the
perception  that "the  grass  was  greener  on the  other  side of the hill" was
promptly  reflected  in market  prices.  As things  turned out,  one of our best
decisions of the year was to avoid that bandwagon and to stick with our Treasury
hedges, which functioned relatively efficiently in the second half of the year.

     We expect to purchase  swaptions  at times in the future,  but only when it
appears that "the price is right".

WHAT DO SWAPTIONS ADD TO THE FUND'S HEDGING STRATEGY?

     Two  alternatives  are almost always  better than one.  Subject to numerous
conditions,  interest  rate  swaps  (and,  therefore,  swaptions)  should  track
reasonably  closely the value of corporate  bonds as interest rates change.  Our
traditional  Treasury  based hedges are naturally more likely to follow the path
of Treasury bonds.  Being able to choose between the two  alternatives  gives us
another way to attempt to manage tracking  discrepancies  between our hedges and
the preferred portfolio.

     Further  discussions of the valuation and risks of hedge instruments appear
in  Footnotes  1 and 7 to the  financial  statements  on pages 18 and 22 of this
report.

WHY WAS THERE NO SPECIAL YEAR-END DISTRIBUTION THIS YEAR?

     In fiscal 2000, the Fund did not realize net long-term capital gains, which
are the  primary  source of special  year-end  distributions.  Accordingly,  the
regular  monthly  dividend of 6.8 cents per share was paid in  December  and has
been continued for January,  2001. As detailed more fully in the Tax Information
section of this  report,  the Fund has a long-term  capital  loss  carryforward,
which may result in tax savings to the shareholders in future years.

                                       5

<PAGE>


WHAT IS THE DISCOUNT FROM NET ASSET VALUE ON THE FUND'S SHARES?

     The graph below tells the story.  The range for the discount has  typically
been in the upper single digits recently.

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

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


Premium/Discount

2/21/92             7.2642
2/28/92             8.0508
3/6/92              8.7416
3/13/92             9.7973
3/20/92             8.1933
3/27/92             5.5602
4/3/92              5.384
4/10/92             7.0529
4/17/92             5.472
4/24/92             5.897
5/1/92              5.4591
5/8/92              5.3601
5/15/92             3.0612
5/22/92             2.4756
5/29/92             3.0719
6/5/92              1.8145
6/12/92             3.9984
6/19/92             3.5743
6/26/92             4.4201
7/3/92              4.7542
7/10/92             6.255
7/17/92             8
7/24/92             5.9153
7/31/92             6.4669
8/7/92              6.1321
8/14/92             6.2793
8/21/92             5.1402
8/28/92             5.3864
9/4/92              4.0856
9/11/92             6.8376
9/18/92             5.7165
9/25/92             5.3864
10/2/92             6.1964
10/9/92             6.7547
10/16/92            4.8951
10/23/92            1.8809
10/30/92            4.7377
11/6/92             1.8011
11/13/92            1.8809
11/20/92            4.0848
11/27/92            8.4385
12/4/92             6.2992
12/11/92            5.1494
12/18/92            6.9079
12/25/92            6.383
1/1/93              6.2092
1/8/93              6.7941
1/15/93             5.9495
1/22/93             4.3355
1/29/93             4.7542
2/5/93              4.8323
2/12/93             2.8355
2/19/93             2.0206
2/26/93             3.1029
3/5/93              4.7324
3/12/93             6.5066
3/19/93             3.0327
3/26/93             3.5966
4/2/93              5.1402
4/9/93              6.7547
4/16/93             5.7021
4/23/93             8.5271
4/30/93             6.5066
5/7/93              5.1312
5/14/93             6.0957
5/21/93             5.7021
5/28/93             4.4084
6/4/93              4.9692
6/11/93             5.6068
6/18/93             4.9692
6/25/93             4.1667
7/2/93              4.722
7/9/93              4.2456
7/16/93             3.6172
7/23/93             0.6839
7/30/93             3.0635
8/6/93              2.118
8/13/93             1.81
8/20/93             0.0755
8/27/93             3.6953
9/3/93              3.3058
9/10/93             4.0105
9/17/93             3.3835
9/24/93             2.4436
10/1/93             2.1364
10/8/93             2.6119
10/15/93            2.6257
10/22/93            2.459
10/29/93            0.8969
11/5/93             0
11/12/93           -1.0654
11/19/93           -2.8201
11/26/93           -1.7925
12/3/93            -0.7634
12/10/93           -3.3359
12/17/93           -3.3816
12/24/93           -4.311
12/31/93            2.492
1/7/94             -0.3623
1/14/94             1.5688
1/21/94            -2.2965
1/28/94            -3.769
2/4/94             -3.2322
2/11/94            -3.6145
2/18/94            -8.6345
2/25/94            -5
3/4/94             -3.9231
3/11/94            -3.155
3/18/94            -5.8494
3/25/94            -5.6225
4/1/94             -5.5646
4/8/94             -6.1224
4/15/94            -7.7112
4/22/94           -10.124
4/29/94           -11.4498
5/6/94             -7.7529
5/13/94            -6.3281
5/20/94            -6.3552
5/27/94            -3.1171
6/3/94             -6.8258
6/10/94            -2.8822
6/17/94            -4.5721
6/24/94            -3.9274
7/1/94             -4.0894
7/8/94             -4.4992
7/15/94            -4.9028
7/22/94            -2.9437
7/29/94            -3.2738
8/5/94             -2.2109
8/12/94            -3.0264
8/19/94            -2.6946
8/26/94            -3.477
9/2/94             -2.0443
9/9/94             -3.1842
9/16/94            -4.0948
9/23/94            -6.2772
9/30/94            -6.1955
10/7/94           -13.225
10/14/94          -11.4948
10/21/94          -14.0969
10/28/94          -10.3982
11/4/94            -7.8597
11/11/94           -9.7594
11/18/94           -9.8996
11/25/94           -7.7028
12/2/94            -4.0219
12/9/94            -8.6758
12/16/94           -7.3194
12/23/94           -6.0419
12/30/94           -8.5076
1/6/95             -0.0951
1/13/95            -1.4085
1/20/95            -3.0274
1/27/95            -6.1914
2/3/95             -1.1949
2/10/95            -3.1365
2/17/95            -7.0248
2/24/95            -3.758
3/3/95             -2.968
3/10/95            -5.853
3/17/95            -5.2347
3/24/95            -5.3376
3/31/95            -3.9341
4/7/95             -3.4091
4/14/95            -3.9331
4/21/95            -6.9028
4/28/95            -3.4142
5/5/95             -5.7626
5/12/95            -5.0086
5/19/95            -9.3264
5/26/95            -7.5255
6/2/95             -4.8117
6/9/95             -7.289
6/16/95            -7.0161
6/23/95            -7.4853
6/30/95            -6.8586
7/7/95             -6.9038
7/14/95            -8.6902
7/21/95           -10.8677
7/28/95            -9.1104
8/4/95             -9.7281
8/11/95           -10.1796
8/18/95           -10.11
8/25/95            -7.7955
9/1/95             -7.0593
9/8/95             -8.3333
9/15/95            -7.1016
9/22/95            -7.4853
9/29/95            -6.406
10/6/95            -7.1782
10/13/95          -10.0572
10/20/95           -9.0909
10/27/95          -10.124
11/3/95           -12.3165
11/10/95           -9.6201
11/17/95          -10.7143
11/24/95          -10.9337
12/1/95           -10.1373
12/8/95           -12.7668
12/15/95          -12.335
12/22/95          -12.6456
12/29/95          -14.5387
1/5/96            -11.9718
1/12/96           -12.7907
1/19/96           -13.1235
1/26/96           -11.4583
2/2/96            -12.335
2/9/96            -12.335
2/16/96           -12.7907
2/23/96           -13.0344
3/1/96            -11.2364
3/8/96            -14.6545
3/15/96           -15.0787
3/22/96           -14.8671
3/29/96           -15.149
4/5/96            -13.1514
4/12/96           -12.8631
4/19/96           -12.7907
4/26/96           -13.8289
5/3/96            -12.5729
5/10/96           -11.3036
5/17/96           -14.0753
5/24/96           -13.8638
5/31/96           -13.8638
6/7/96            -12.5514
6/14/96           -13.3663
6/21/96           -13.0075
6/28/96            -9.1837
7/5/96            -10.7884
7/12/96            -9.1095
7/19/96           -11.2245
7/26/96            -9.3904
8/2/96             -8.7591
8/9/96             -6.8826
8/16/96            -6.7315
8/23/96            -8.8115
8/30/96            -8.3608
9/6/96             -8.3608
9/13/96            -6.6092
9/20/96            -8.8862
9/27/96            -9.9099
10/4/96            -8.7591
10/11/96           -8.7591
10/18/96           -9.3473
10/25/96           -8.34
11/1/96            -7.9572
11/8/96            -9.3214
11/15/96           -7.2643
11/22/96           -5.8618
11/29/96           -6.0806
12/6/96            -7.9154
12/13/96           -8.1314
12/20/96          -10.086
12/27/96           -8.3665
1/3/97             -6.9255
1/10/97            -5.6225
1/17/97            -6.9255
1/24/97            -8.34
1/31/97            -6.7763
2/7/97             -6.2251
2/14/97            -5.5118
2/21/97            -6.449
2/28/97            -6.0522
3/7/97             -5.8085
3/14/97            -6.5421
3/21/97            -7.154
3/28/97            -7.154
4/4/97             -5.7345
4/11/97            -9.7331
4/18/97            -8.0595
4/25/97            -7.4803
5/2/97             -6.7164
5/9/97             -5.1994
5/16/97            -6.4692
5/23/97            -5.7345
5/30/97            -3.6215
6/6/97             -6.1533
6/13/97            -3.8462
6/20/97            -4.7344
6/27/97            -4.1795
7/4/97             -4.9847
7/11/97            -5.8478
7/18/97            -4.8606
7/25/97            -6.2969
8/1/97             -2.7256
8/8/97             -7.0053
8/15/97            -7.1456
8/22/97            -7.6705
8/29/97            -4.717
9/5/97             -5.8026
9/12/97            -6.5552
9/19/97            -5.5722
9/26/97            -4.9217
10/3/97            -2.9216
10/10/97           -4.9217
10/17/97           -5.0633
10/24/97           -5.7392
10/31/97           -4.7707
11/7/97            -4.4172
11/14/97           -3.775
11/21/97           -6.8755
11/28/97           -4.8411
12/5/97            -4.059
12/12/97           -6.5249
12/19/97           -6.4781
12/26/97           -4.5589
1/2/98             -1.7062
1/9/98             -1.9698
1/16/98            -1.8519
1/23/98            -6.2036
1/30/98            -4.7707
2/6/98             -5.303
2/13/98            -6.0427
2/20/98            -4.5589
2/27/98            -4.7707
3/6/98             -4.7312
3/13/98            -5.6777
3/20/98            -4.8713
3/27/98            -5.7904
4/3/98             -6.8182
4/10/98            -5.0807
4/17/98            -6.2042
4/24/98            -7.6809
5/1/98             -6.181
5/8/98             -5.4004
5/15/98            -7.1691
5/22/98            -6.6409
5/29/98            -6.4781
6/5/98             -6.4317
6/12/98            -6.2725
6/19/98            -5.7288
6/26/98            -6.0014
7/3/98             -5.754
7/10/98            -5.6178
7/17/98            -5.6346
7/24/98            -4.6533
7/31/98            -5.2612
8/7/98             -4.7228
8/14/98            -8.6364
8/21/98            -9.5395
8/28/98            -5.4004
9/4/98             -6.181
9/11/98            -4.8713
9/18/98            -3.9172
9/25/98            -4.0245
10/2/98            -5.5393
10/9/98            -7.442
10/16/98           -4.8507
10/23/98           -4.0632
10/30/98           -6.1562
11/6/98            -3.9553
11/13/98           -4.8105
11/20/98           -6.4146
11/27/98           -4.7797
12/4/98            -4.1298
12/11/98           -3.6323
12/18/98           -5.373
12/25/98           -1.3158
1/1/99             -1.9608
1/8/99             -2.9748
1/15/99            -3.9216
1/22/99            -6.2747
1/29/99            -6.768
2/5/99             -6.101
2/12/99            -8.8748
2/19/99            -9.37
2/26/99           -10.7847
3/5/99             -8.4646
3/12/99            -6.4961
3/19/99           -10.2237
3/26/99            -8.8849
4/2/99             -7.2421
4/9/99            -10.2918
4/16/99            -7.8113
4/23/99            -9.2982
4/30/99           -11.5613
5/7/99            -10.1469
5/14/99           -12.7676
5/21/99           -12.5596
5/28/99           -10.9275
6/4/99            -10.0719
6/11/99            -5.5755
6/18/99            -8.3534
6/25/99            -6.0226
7/2/99             -5.3183
7/9/99             -5.3183
7/16/99            -7.6131
7/23/99            -5.5829
7/30/99            -8.2852
8/6/99             -4.6434
8/13/99            -7.7955
8/20/99            -8.6379
8/27/99            -3.4468
9/3/99            -10.5657
9/10/99            -9.375
9/17/99            -6.8258
9/24/99            -4.0084
10/1/99            -7.7004
10/8/99            -8.601
10/15/99          -12.3087
10/22/99          -12.5427
10/29/99          -12.234
11/5/99           -11.9198
11/12/99          -12.5211
11/19/99           -8.2618
11/26/99           -9.7882
12/3/99            -9.7041
12/10/99           -8.0722
12/17/99          -11.1842
12/24/99          -12.1184
12/31/99           -3.5351
1/7/00             -0.2783
1/14/00            -3.8462
1/21/00            -9.9626
1/28/00           -10.4651
2/4/00             -9.2276
2/11/00            -8.4507
2/18/00           -10.3774
2/25/00            -9.6172
3/3/00            -10.2079
3/10/00            -8.5803
3/17/00           -10.5461
3/24/00           -12.7226
3/31/00           -13.6132
4/7/00            -10.4651
4/14/00            -8.9404
4/21/00            -7.8065
4/28/00            -6.401
5/5/00             -3.8462
5/12/00            -5.6604
5/19/00            -7.3383
5/26/00            -7.5924
6/2/00             -9.0462
6/9/00            -10.3682
6/16/00            -9.429
6/23/00            -7.7468
6/30/00            -8.4052
7/7/00             -9.0909
7/14/00            -8.9286
7/21/00            -9.6958
7/28/00            -9.2742
8/4/00             -9.1229
8/11/00            -8.7933
8/18/00           -10.4635
8/25/00           -10.4635
9/1/00            -11.0465
9/8/00            -11.1292
9/15/00            -8.3647
9/22/00           -11.8891
9/29/00           -11.5456
10/6/00            -8.9636
10/13/00           -9.2081
10/20/00           -8.9521
10/27/00           -7.2543
11/3/00            -7.3853
11/10/00           -7.4737
11/17/00           -9.6172
11/24/00           -9.3691
12/1/00            -9.2837
12/8/00            -9.0265
12/15/00           -9.1333
12/22/00           -6.7164
12/29/00           -2.7648

     Our  web  site  at  WWW.PREFERREDINCOME.COM  offers  a  wide  selection  of
up-to-date  data on the Fund  including  the market value and net asset value of
the shares and the discount.


                                        6

<PAGE>

- --------------------------------------------------------------------------------
                                  Preferred Income Opportunity Fund Incorporated
                                                                  FINANCIAL DATA
                                                       PER SHARE OF COMMON STOCK
                                  ----------------------------------------------

                                                                      DIVIDEND
                               DIVIDEND   NET ASSET      NYSE       REINVESTMENT
                                 PAID       VALUE    CLOSING PRICE    PRICE (1)
                               --------   ---------  -------------  ------------
December 31, 1999 ..........   $0.5800     $10.82      $10.4375        $10.55
January 31, 2000 ...........    0.0680      10.76        9.6250          9.73
February 29, 2000 ..........    0.0680      10.61        9.5000          9.54
March 31, 2000 .............    0.0680      10.78        9.3125          9.59
April 30, 2000 .............    0.0680      10.35        9.6875          9.65
May 31, 2000 ...............    0.0680      10.08        9.1875          9.24
June 30, 2000 ..............    0.0680      10.44        9.5625          9.60
July 31, 2000 ..............    0.0680      10.57        9.5625          9.66
August 31, 2000 ............    0.0680      10.77        9.5625          9.62
September 30, 2000 .........    0.0680      10.74        9.5000          9.69
October 31, 2000 ...........    0.0680      10.55        9.7500          9.76
November 30, 2000 ..........    0.0680      10.68        9.5625          9.62
December 31, 2000 ..........    0.0680      10.67       10.3750         10.34

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

                       See Notes to Financial Statements.

                                        7

<PAGE>

- --------------------------------------------------------------------------------
Preferred Income Opportunity Fund Incorporated
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 2000
- ----------------------------------------------

                                                  VALUE
SHARES/$ PAR                                     (NOTE 1)
- ------------                                     --------

PREFERRED STOCKS AND SECURITIES -- 97.3%
   ADJUSTABLE RATE PREFERRED STOCKS -- 10.9%
          BANKING -- 5.5%
             Bank One Corporation:
    28,486     Series B, Adj. Rate Pfd. ....  $  2,449,796*
     3,200     Series C, Adj. Rate Pfd. ....       292,800*
     7,000   Chase Manhattan Corporation,
               Series L,
               Adj. Rate Pfd. ..............       605,500*
    85,776   Citigroup Inc.,
               Series Q, Adj. Rate Pfd. ....     1,844,184*
     8,600   J.P. Morgan & Company, Inc.,
               Series A,
               Adj. Rate Pfd. ..............       653,600*
   104,500   Wells Fargo & Company, Series B,
               Adj. Rate Pfd. ..............     4,545,750*
                                              ------------
             TOTAL BANKING ADJUSTABLE RATE
              PREFERRED STOCKS .............    10,391,630
                                              ------------
          UTILITIES-- 5.4%
    30,000   Delmarva Power & Light,
               Adj. Rate Pfd. ..............     2,640,000*
             Niagara Mohawk Power Corporation:
    95,275     Series A, Adj. Rate Pfd. ....     2,238,962*
   179,125     Series B, Adj. Rate Pfd. ....     4,410,953*
    25,000     Series C, Adj. Rate Pfd. ....       615,625*
     6,800   Northern Indiana
               Public Service Company,
               Series A, Adj. Rate Pfd. ....       289,850*
                                              ------------
             TOTAL UTILITIES ADJUSTABLE RATE
              PREFERRED STOCKS .............    10,195,390
                                              ------------
             TOTAL ADJUSTABLE RATE
              PREFERRED STOCKS .............    20,587,020
                                              ------------
   FIXED RATE PREFERRED STOCKS AND SECURITIES -- 86.4%
          BANKING -- 18.7%
             ABN AMRO North America:
        50     LaSalle National Corporation,
               6.46% Pfd. 144A*** ..........        47,729*
             BancWest Corporation:
$6,500,000     First Hawaiian Capital I,
               8.343% 7/1/27 Capital Security,
               Series B ....................     5,829,785

                                                  VALUE
SHARES/$ PAR                                     (NOTE 1)
- ------------                                     --------

    48,925   Chase Manhattan Corporation,
               10.84% Pfd., Series C .......  $  1,319,507*
             Citigroup Inc.:
    84,970     5.864% Pfd., Series M .......     3,695,770*
    81,150     6.213% Pfd., Series G .......     3,689,890*
             Deutsche Bank AG:
$1,400,000     BT Capital Trust B,
               7.90% 1/15/27 Capital Security    1,258,187
     1,000   Firstar Realty LLC,
               8.875% Pfd. REIT, 144A*** ...       946,675
             First Union Corporation:
$1,500,000     First Union Capital II,
               7.95% 11/15/29 Capital Security   1,338,037
$1,885,000     First Union Institutional
               Capital II,
               7.85% 1/1/27 Capital Security     1,650,676
$3,075,000     First Union Institutional
               Capital I,
               8.04% 12/1/26 Capital Security    2,737,334
             GreenPoint Financial Corporation:
$2,500,000     GreenPoint Capital Trust I,
               9.10% 6/1/27 Capital Security     2,178,150
             HSBC USA, Inc.:
    52,400     $2.8575 Pfd. ................     2,265,776*
$3,385,000     Republic New York Capital II,
               7.53% 12/4/26 STOPS .........     2,932,104
$2,750,000   Keycorp Institutional Capital B,
               8.25% 12/15/26 Capital Security   2,517,377
             Summit Bancorp:
$1,000,000     Summit Capital Trust I,
               8.40% 3/15/27 Capital Security      958,680
$2,500,000   Wells Fargo & Company, Capital I,
               7.96% 12/15/26 Capital Security   2,370,787
                                              ------------
             TOTAL BANKING FIXED RATE
              PREFERRED STOCKS
              AND SECURITIES ...............    35,736,464
                                              ------------
          FINANCIAL SERVICES-- 15.8%
             Bear Stearns Companies, Inc.:
   176,820     5.49% Pfd., Series G ........     6,965,824*
    47,710     5.72% Pfd., Series F ........     1,944,660*

                       See Notes to Financial Statements.

                                        8

<PAGE>

- --------------------------------------------------------------------------------
                                  Preferred Income Opportunity Fund Incorporated
                                            PORTFOLIO OF INVESTMENTS (CONTINUED)
                                                               NOVEMBER 30, 2000
                                  ----------------------------------------------

                                                  VALUE
SHARES/$ PAR                                     (NOTE 1)
- ------------                                     --------

PREFERRED STOCKS AND SECURITIES (CONTINUED)
   FIXED RATE PREFERRED STOCKS AND SECURITIES (CONTINUED)
          FINANCIAL SERVICES (CONTINUED)
$6,000,000   Countrywide Credit Capital I,
               8.00% 12/15/26
               Capital Security ............  $  5,263,950
             Household International, Inc.:
    10,000     $4.30 Pfd. ..................       616,450*
    58,000     Household Capital Trust IV,
               7.25% .......................     1,269,330
             Lehman Brothers Holdings, Inc.:
    49,650     5.67%, Series D .............     2,016,286*
   131,030     5.94% Pfd., Series C ........     5,574,671*
   125,850   USA Education, Inc., 6.97% Pfd.,
               Series A ....................     6,226,429*
                                              ------------
             TOTAL FINANCIAL SERVICES
              FIXED RATE PREFERRED STOCKS
              AND SECURITIES ...............    29,877,600
                                              ------------
          INSURANCE -- 8.9%
             Allstate Corporation:
$2,020,000     Allstate Financing II,
               7.83% 12/1/45 Capital Security    1,853,007
             Conseco, Inc.:
    32,250     Conseco Financing Trust I,
               9.16% 11/30/26 ..............       417,476
    25,000     Conseco Financing Trust VI,
               9.00% 12/31/28 ..............       323,250
    24,750     Conseco Financing Trust V,
               8.70% 9/30/28 ...............       317,914
        15   Prudential Human Resources
               Management Company, Inc.,
               6.30% Private Placement, Sinking
               Fund Pfd., Series A .........     1,516,565*
             SAFECO Corporation:
$2,300,000     SAFECO Capital Trust I,
               8.072% 7/15/37 Capital Security   1,867,933

                                                  VALUE
SHARES/$ PAR                                     (NOTE 1)
- ------------                                     --------

             The St. Paul Companies, Inc.:
$6,700,000     MMI Capital Trust I, 7.625%
               12/15/27 Capital Security,
               Series B ....................  $  6,064,203
             UnumProvident Corporation:
$5,889,000     Provident Financing Trust I,
               7.405% 3/15/38
               Capital Security ............     4,464,804
                                              ------------
             TOTAL INSURANCE FIXED RATE
              PREFERRED STOCKS
              AND SECURITIES ...............    16,825,152
                                              ------------
          OIL AND GAS-- 8.7%
    11,400   Anadarko Petroleum Corporation,
               5.46% Pfd. ..................       966,720*
    45,100   Apache Corporation,
               5.68% Pfd., Series B ........     3,958,427*
             Coastal Corporation, The:
    53,500     Coastal Finance I,
               8.375% TOPrS ................     1,296,305
     3,200   EOG Resources, Inc.,
               7.195% Pfd., Series B, 144A***    3,388,768*
             Kinder Morgan, Inc.:
$3,750,000     KN Capital Trust III,
               7.63% 4/15/28 Capital Security    3,262,387
    30,000   LASMO America Ltd.,
               8.15% Pfd. 144A*** ..........     3,251,850*
    19,100   Ultramar Diamond
               Shamrock Corporation,
               UDS Capital I, 8.32% TOPrS ..       427,172
                                              ------------
             TOTAL OIL AND GAS FIXED RATE
              PREFERRED STOCKS
              AND SECURITIES ...............    16,551,629
                                              ------------
          MISCELLANEOUS INDUSTRIES -- 2.9%
        32   BHP Operations,
               6.76% Pfd. 144A*** ..........     3,218,349*
     3,000   E.I. Du Pont de Nemours
               and Company,
               $4.50 Pfd., Series B ........       206,505*

                       See Notes to Financial Statements.

                                       9

<PAGE>

- --------------------------------------------------------------------------------
Preferred Income Opportunity Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 2000
- ----------------------------------------------

                                                  VALUE
SHARES/$ PAR                                     (NOTE 1)
- ------------                                     --------

PREFERRED STOCKS AND SECURITIES (CONTINUED)
  FIXED RATE PREFERRED STOCKS AND SECURITIES (CONTINUED)
        MISCELLANEOUS INDUSTRIES (CONTINUED)
    57,600   Farmland Industries, Inc.,
               8.00% Pfd. 144A*** ..........  $  1,552,896*
     9,520   Viad Corporation,
               $4.75 Sinking Fund Pfd. .....       496,040*
                                              ------------
             TOTAL MISCELLANEOUS INDUSTRIES
              FIXED RATE PREFERRED STOCKS
              AND SECURITIES ...............     5,473,790
                                              ------------
          UTILITIES -- 31.4%
             Alabama Power Company:
     4,474     4.60% Pfd. ..................       333,492*
     1,852     4.72% Pfd. ..................       141,650*
       100     4.92% Pfd. ..................         7,973*
    95,200     5.20% Pfd. ..................     1,989,680*
    64,375   Appalachian Power Company,
               8.00% QUIDS, Series B .......     1,582,338
    10,000   Boston Edison Company,
               4.78% Pfd. ..................       784,100*
     1,428   Central Hudson Gas &
               Electric Corporation,
               4.35% Pfd., Series D, Pvt. ..        98,432*
             Central Power and Light Company:
   157,200     CPL Capital I,
               8.00% QUIPS, Series A .......     3,786,948
    12,450   Columbus Southern Power Company,
               7.92%, Jr. Sub. Debt., Series B     301,850
             Duke Energy Corporation:
     7,019     4.50% Pfd., Series C ........       499,156*
    10,003     7.85% Pfd., Series S ........     1,042,863*
             Entergy Arkansas, Inc.:
     1,000     $6.08 Pfd. ..................        86,295*
     3,050     4.56% Pfd., Series 1965 .....       197,381*
     2,840     4.56% Pfd. ..................       183,791*
    13,500     7.40% Pfd. ..................     1,379,903*
       150     7.80% Pfd. ..................        15,842*
     2,441   Entergy Gulf States, Inc.,
               $7.56 Pfd. ..................       249,665*

                                                  VALUE
SHARES/$ PAR                                     (NOTE 1)
- ------------                                     --------

             Entergy Louisiana, Inc.:
       299     5.16% Pfd. ..................  $     21,474*
     3,771     7.36% Pfd. ..................       381,135*
   175,000     8.00% Pfd., Series 92 .......     4,474,750*
     8,500   Entergy Mississippi, Inc.,
               7.44% Pfd. ..................       856,885*
             Florida Power & Light Company:
     4,654     4.35% Pfd., Series E, Pvt. ..       312,470*
     4,000     4.50% Pfd. ..................       282,140*
             Florida Progress Corporation:
    37,250     FPC Capital I,
               7.10% QUIPS, Series A .......       804,600
             Hawaiian Electric Company, Inc.:
    23,600     HECO Capital Trust I,
               8.05% QUIPS .................       550,824
    67,300   Indiana Michigan Power Company,
               7.60% Pfd., Series B ........     1,547,564
    12,000   Indianapolis Power &
               Light Company,
               5.65% Pfd. ..................     1,049,040*
     6,577   Jersey Central Power &
               Light Company,
               7.52% Sinking Fund Pfd.,
               Series K ....................       686,902*
    15,000   Mississippi Power Company,
               6.32% Pfd. ..................       375,150*
    20,000   Monongahela Power Company,
               $7.73 Pfd., Series L ........     2,080,900*
             Nevada Power Company:
    51,280     NVP Capital I,
               8.20% QUIPS, Series A .......     1,179,696
    32,700     NVP Capital III,
               7.75% TIPS ..................       739,020
     6,250   Niagara Mohawk Power Corporation,
               4.10% Pfd. ..................       369,844*
    76,200   Ohio Power Company,
               7.92% QUIDS, Series B .......     1,854,327
     6,000   PacifiCorp,
               $4.72 Pfd. ..................       445,530*
             PECO Energy Company:
     1,100     $4.30 Pfd., Series B ........        73,557*
     5,000     $4.40 Pfd., Series C ........       313,550*
$1,000,000     Capital Trust III,
               $7.38 4/6/28 Capital Security,
               Series D ....................       862,550

                       See Notes to Financial Statements.

                                       10

<PAGE>

- --------------------------------------------------------------------------------
                                  Preferred Income Opportunity Fund Incorporated
                                            PORTFOLIO OF INVESTMENTS (CONTINUED)
                                                               NOVEMBER 30, 2000
                                  ----------------------------------------------

                                                  VALUE
SHARES/$ PAR                                     (NOTE 1)
- ------------                                     --------

 PREFERRED STOCKS AND SECURITIES (CONTINUED)
   FIXED RATE PREFERRED STOCKS AND SECURITIES (CONTINUED)
         UTILITIES (CONTINUED)
     2,493   Potomac Electric Power Company,
               $2.44 Pfd., Series 1957 .....  $     98,523*
       570   PSI Energy, Inc.,
               4.32% Pfd. ..................         9,502*
             Public Service Enterprise Group,
               Inc.:
    53,500     Enterprise Capital Trust I,
               7.44% TOPrS, Series A .......     1,153,995
    14,020     Public Service Electric &
               Gas Company,
               5.28% Pfd., Series E ........     1,113,328*
             Puget Sound Energy, Inc.:
   125,300     7.45% Pfd., Series II .......     3,277,848*
    21,754     7.75% Sinking Fund Pfd. .....     2,275,577*
             Reliant Energy, Inc.:
    45,000     HL&P Capital Trust I,
               8.125% QUIPS ................     1,090,800
    55,982     REI Trust I,
               7.20% TOPrS, Series C .......     1,216,769
 $3,750,000    Houston Light & Power,
               Capital Trust II,
               8.257%, 2/1/37
               Capital Security,
               Series B ....................     3,526,613
             Rochester Gas &
               Electric Corporation:
     5,060     4.10% Pfd., Series J ........       320,728*
     4,030     4.75% Pfd., Series I ........       295,923*
             Sempra Energy:
     3,090     Pacific Enterprises,
               $4.50 Pfd. ..................       213,349*
             South Carolina Electric &
               Gas Company:
    14,753     5.125% Purchase Fund Pfd. ...       622,355*
     7,541     6.00% Purchase Fund Pfd. ....       369,283*
             Southern Union Company:
    64,900     Southern Union Financing I,
               9.48% TOPrS .................     1,615,361

                                                  VALUE
SHARES/$ PAR                                     (NOTE 1)
- ------------                                     --------

     6,050   TransCanada PipeLines Ltd.,
               8.25% .......................  $    145,714
        10   TXU Corporation,
               7.24% Pfd., Series B ........     1,051,294*
             Union Electric Power Company:
     3,000     $7.64 Pfd. ..................       314,040*
$4,700,000     7.69% 12/15/36 Capital Security,
               Series A ....................     4,296,693
             Virginia Electric & Power Company:
     1,665     $4.04 Pfd. ..................       104,404*
     2,270     $4.20 Pfd. ..................       147,970*
     1,573     $4.80 Pfd. ..................       117,181*
             XCEL Energy, Inc.:
     2,480     $4.10 Pfd., Series C ........       160,555*
    12,510     $4.11 Pfd., Series D ........       811,899*
     2,660     $4.16 Pfd., Series E ........       174,735*
    91,500     PSCO Capital Trust I,
               7.60% TOPrS .................     2,162,603
    35,000     Southwestern Public Service
               Capital I,
               7.85%, Series A .............       835,625
                                              ------------
             TOTAL UTILITIES FIXED RATE
              PREFERRED STOCKS
              AND SECURITIES ...............    59,465,934
                                              ------------
             TOTAL FIXED RATE
              PREFERRED STOCKS
              AND SECURITIES ...............   163,930,569
                                              ------------
             TOTAL PREFERRED STOCKS
              AND SECURITIES
              (Cost $187,222,439) ..........   184,517,589
                                              ------------
COMMON STOCKS-- 0.3% (Cost $561,856)
  UTILITIES -- 0.3%
    27,500   Wisconsin Energy Corporation ..       587,813*
                                              ------------
COMMERCIAL PAPER-- 0.7% (Cost $1,311,000)
$1,311,000   General Electric
               Capital Corporation,
               6.54%, due 12/01/00 .........     1,311,000
                                              ------------

                       See Notes to Financial Statements.

                                       11

<PAGE>

- --------------------------------------------------------------------------------
Preferred Income Opportunity Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 2000
- ----------------------------------------------

                                                  VALUE
SHARES/$ PAR                                     (NOTE 1)
- ------------                                     --------

OPTIONS CONTRACTS-- 0.3% (Cost $1,873,275)
     1,220   Put Options on U.S. Treasury
               Bond March Futures,
               expiring 2/17/01(DAGGER) ....  $    633,829
                                              ------------
TOTAL INVESTMENTS (Cost $190,968,570**) 98.6%  187,050,231
OTHER ASSETS AND LIABILITIES (Net) ...   1.4     2,616,047
                                       -----  ------------
NET ASSETS ........................... 100.0% $189,666,278
                                       =====  ============

- ----------------------
       * Securities eligible for the Dividends Received Deduction.
      ** Aggregate cost for federal tax purposes is $190,147,704.
     *** 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.
(DAGGER) Non-income producing.

ABBREVIATIONS (Note 6):
QUIDS   --  Quarterly Income Debt Securities
QUIPS   --  Quarterly Income Preferred Securities
REIT    --  Real Estate Investment Trust
STOPS   --  Semi-Annual Trust Originated  Pass Through Securities
TIPS    --  Trust Issued Preferred Securities
TOPrS   --  Trust Originated Preferred Securities

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

                       See Notes to Financial Statements.

                                       12

<PAGE>

- --------------------------------------------------------------------------------
                                  Preferred Income Opportunity Fund Incorporated
                                             STATEMENT OF ASSETS AND LIABILITIES
                                                               NOVEMBER 30, 2000
                                  ----------------------------------------------

<TABLE>
<CAPTION>

<S>                                                                <C>           <C>
ASSETS:
   Investments, at value (Cost $190,968,570) (Note 1)
     See accompanying schedule .................................                 $187,050,231
   Receivable for investments sold .............................                    2,129,670
   Dividends and interest receivable ...........................                    2,269,643
   Prepaid expenses ............................................                       30,768
                                                                                 ------------
           Total Assets ........................................                  191,480,312
LIABILITIES:
   Payable for securities purchased ............................   $ 1,474,820
   Dividends payable to Common Shareholders ....................       148,460
   Investment advisory fee payable (Note 2) ....................        87,552
   Professional fees payable ...................................        45,062
   Accrued expenses and other payables .........................        58,140
                                                                   -----------
           Total Liabilities ...................................                    1,814,034
                                                                                 ------------
NET ASSETS .....................................................                 $189,666,278
                                                                                 ============
NET ASSETS consist of:
   Undistributed net investment income (Note 1) ................                   $  530,706
   Accumulated net realized loss on investments sold (Note 1) ..                   (5,820,851)
   Unrealized depreciation of investments (Note 3) .............                   (3,918,339)
   Par value of Common Stock ...................................                      111,513
   Paid-in capital in excess of par value of Common Stock ......                  128,763,249
   Money Market Cumulative Preferred(TRADE MARK) Stock (Note 5)                    70,000,000
                                                                                 ------------
           Total Net Assets                                                      $189,666,278
                                                                                 ============
                                                                   PER SHARE
                                                                   ---------
NET ASSETS AVAILABLE TO:
   Money Market Cumulative Preferred(TRADE MARK) Stock (700 shares
     outstanding) redemption value .............................   $100,000.00   $ 70,000,000
   Accumulated undeclared dividends on Money Market
     Cumulative Preferred(TRADE MARK) Stock (Note 9) ...........        852.91        597,036
                                                                   -----------   ------------
                                                                   $100,852.91     70,597,036
                                                                   ===========
   Common Stock (11,151,287 shares outstanding) ................        $10.68    119,069,242
                                                                        ======   ------------
TOTAL NET ASSETS ...............................................                 $189,666,278
                                                                                 ============

</TABLE>

                       See Notes to Financial Statements.

                                       13

<PAGE>

- --------------------------------------------------------------------------------
Preferred Income Opportunity Fund Incorporated
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED NOVEMBER 30, 2000
- ----------------------------------------------
<TABLE>
<CAPTION>

<S>                                                                      <C>          <C>
INVESTMENT INCOME:
     Dividends .......................................................                $10,317,415
     Interest ........................................................                  4,716,378
                                                                                      -----------
          Total Investment Income ....................................                 15,033,793

EXPENSES:
     Investment advisory fee (Note 2) ................................   $1,068,757
     Administration fee (Note 2) .....................................      226,495
     Money Market Cumulative Preferred(TRADE MARK) broker commissions and
        Auction Agent fees ...........................................      177,917
     Insurance expense ...............................................       99,322
     Legal and audit fees ............................................       76,300
     Shareholder servicing agent fees and expenses (Note 2) ..........       66,237
     Directors' fees and expenses (Note 2) ...........................       57,777
     Custodian fees and expenses (Note 2) ............................       28,970
     Other ...........................................................       83,193
                                                                         ----------
          Total Expenses .............................................                  1,884,968
                                                                                      -----------

NET INVESTMENT INCOME ................................................                 13,148,825
                                                                                      -----------

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
   (Notes 1 and 3):
     Net realized loss on investments sold during the year                             (4,827,466)
     Change in net unrealized depreciation of investments
        during the year ..............................................                  1,120,006
                                                                                      -----------

NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS ......................                 (3,707,460)
                                                                                      -----------

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .................                $ 9,441,365
                                                                                      ===========

</TABLE>

                       See Notes to Financial Statements.

                                       14

<PAGE>

- --------------------------------------------------------------------------------
                                  Preferred Income Opportunity Fund Incorporated
                                              STATEMENT OF CHANGES IN NET ASSETS
                                  ----------------------------------------------

<TABLE>
<CAPTION>

                                                                                YEAR ENDED          YEAR ENDED
                                                                             NOVEMBER 30, 2000   NOVEMBER 30, 1999
                                                                             -----------------   -----------------

<S>                                                                            <C>                  <C>
INCREASE / (DECREASE)IN NET ASSETS
OPERATIONS:
     Net investment income .................................................   $ 13,148,825         $ 12,759,428
     Net realized gain (loss) on investments sold during the year ..........     (4,827,466)           3,462,885
     Change in net unrealized depreciation of investments during the
        year ...............................................................      1,120,006          (17,230,783)
                                                                               ------------         ------------
     Net increase (decrease) in net assets resulting from operations .......      9,441,365           (1,008,470)

DISTRIBUTIONS:
     Dividends paid from net investment income to Money Market
        Cumulative Preferred(TRADE MARK) Stock Shareholders (Note 5) .......     (3,834,261)          (2,149,987)
     Distributions paid from net realized capital gains to Money
        Market Cumulative Preferred(TRADE MARK) Stock Shareholders (Note 5)        (191,425)          (1,036,504)
     Dividends paid from net investment income to Common Stock
        Shareholders .......................................................    (10,096,152)         (10,745,348)
     Distributions paid from net realized capital gains to Common Stock
        Shareholders .......................................................     (4,712,758)          (6,689,804)
                                                                               ------------         ------------
     Total Distributions ...................................................    (18,834,596)         (20,621,643)
                                                                               ------------         ------------

NET DECREASE IN NET ASSETS FOR THE YEAR ....................................     (9,393,231)         (21,630,113)

NET ASSETS:
     Beginning of year .....................................................    199,059,509          220,689,622
                                                                               ------------         ------------
     End of year (including undistributed net investment income of
        $530,706 and $1,266,544, respectively) .............................   $189,666,278         $199,059,509
                                                                               ============         ============

</TABLE>

                       See Notes to Financial Statements.

                                       15

<PAGE>

- --------------------------------------------------------------------------------
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.

<TABLE>
<CAPTION>

                                                                                       YEAR ENDED NOVEMBER 30,
                                                                -----------------------------------------------------------------
                                                                  2000              1999              1998       1997      1996
                                                                --------          --------          --------   --------  --------
<S>                                                             <C>               <C>               <C>        <C>       <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year ..........................   $  11.50          $  13.50          $  13.53   $  12.91  $  12.35
                                                                --------          --------          --------   --------  --------
INVESTMENT OPERATIONS:
Net investment income. ......................................       1.18              1.14              1.14       1.10      1.16
Net realized and unrealized gain / (loss) on investments ....      (0.33)            (1.24)             0.17       0.87      0.53
                                                                --------          --------          --------   --------  --------
Total from investment operations. ...........................       0.85             (0.10)             1.31       1.97      1.69
                                                                --------          --------          --------   --------  --------
DISTRIBUTIONS:
Dividends paid from net investment income
  to MMP* Shareholders ......................................      (0.34)            (0.19)            (0.18)     (0.21)    (0.21)
Distributions paid from net realized capital gains
  to MMP* Shareholders. .....................................      (0.02)            (0.09)            (0.11)     (0.04)    (0.03)
Dividends paid from net investment income
  to Common Stock Shareholders. .............................      (0.91)            (0.96)            (0.89)     (0.92)    (0.87)
Distributions paid from net realized capital gains
  to Common Stock Shareholders. .............................      (0.42)            (0.60)            (0.18)     (0.16)       --
Change in accumulated undeclared dividends on MMP*. .........       0.02 (DAGGER)    (0.06)(DAGGER)     0.02      (0.02)    (0.02)
                                                                --------          --------          --------   --------  --------
Total distributions .........................................      (1.67)            (1.90)            (1.34)     (1.35)    (1.13)
                                                                --------          --------          --------   --------  --------
Net asset value, end of year. ...............................   $  10.68 (DAGGER) $  11.50 (DAGGER) $  13.50   $  13.53  $  12.91
                                                                ========          ========          ========   ========  ========
Market value, end of year ...................................   $ 9.5625          $ 10.500          $ 12.875   $ 12.875  $ 12.000
                                                                ========          ========          ========   ========  ========
Total investment return based on net asset value** ..........      5.88%           (2.99)%             8.29%     14.44%    13.11%
                                                                ========          ========          ========   ========  ========
Total investment return based on market value** .............      3.80%           (7.12)%             8.53%     17.16%    15.42%
                                                                ========          ========          ========   ========  ========
RATIOS TO AVERAGE NET ASSETS AVAILABLE
  TO COMMON STOCK SHAREHOLDERS:
     Operating expenses. ....................................       1.59%             1.53%             1.45%      1.48%     1.71%
     Net investment income*** ...............................       7.93%             6.81%             6.37%      6.44%     7.36%

- ----------------------------------
SUPPLEMENTAL DATA:(DAGGER)(DAGGER)
     Portfolio turnover rate. ...............................         67%               64%               87%        74%       87%
     Net assets, end of period (in 000's) . .................   $189,666          $199,060          $220,690   $221,230  $214,195
     Ratio of operating expenses to Total Average Net Assets        1.00%             1.01%             0.99%      1.00%     1.13%

</TABLE>

               *  Money Market Cumulative Preferred(TRADE MARK) Stock.
              **  Assumes reinvestment of distributions at the price obtained by
                  the Fund's Dividend Reinvestment Plan.
             ***  The  net  investment  income  ratios  reflect  income  net  of
                  operating expenses and payments to MMP* Shareholders.
        (DAGGER)  Includes effect of additional  distribution  available to MMP*
                  Shareholders  ($0.04  per  Common  Share in 2000 and $0.05 per
                  Common  Share  in  1999).   (See  Note  5  to  the   Financial
                  Statements.)
(DAGGER)(DAGGER)  Information presented under heading Supplemental Data includes
                  MMP*.

                       See Notes to Financial Statements.

                                       16

<PAGE>

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

                                          INVOLUNTARY           AVERAGE
                               ASSET      LIQUIDATING           MARKET
              TOTAL SHARES   COVERAGE     PREFERENCE             VALUE
               OUTSTANDING   PER SHARE   PER SHARE (1)    PER SHARE (1) & (2)
              ------------   ---------   -------------    -------------------
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
11/30/97           700         316,044       100,000            100,000
11/30/96           700         305,992       100,000            100,000


- -------------
(1) Excludes accumulated undeclared dividends.
(2) See Note 5.

                       See Notes to Financial Statements.

                                       17

<PAGE>

- --------------------------------------------------------------------------------
Preferred Income Opportunity Fund Incorporated
NOTES TO FINANCIAL STATEMENTS
- ----------------------------------------------

1.  SIGNIFICANT ACCOUNTING POLICIES

     Preferred  Income   Opportunity  Fund   Incorporated   (the  "Fund")  is  a
diversified,  closed-end  management  investment company organized as a Maryland
corporation  and is  registered  with the  Securities  and  Exchange  Commission
("SEC")  under the  Investment  Company Act of 1940,  as amended.  The  policies
described below are followed  consistently by the Fund in the preparation of its
financial   statements  in  conformity   with  generally   accepted   accounting
principles.

     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  attributable  to common shares by the number of shares of
Common Stock  outstanding.  The value of the Fund's net assets  attributable  to
common  shares is deemed to equal the value of the Fund's  total assets less (i)
the Fund's liabilities,  (ii) the aggregate liquidation value of the outstanding
Money Market  Cumulative  Preferred(TRADE  MARK) Stock and (iii) accumulated and
unpaid  dividends on the  outstanding  Money Market  Cumulative  Preferred(TRADE
MARK) Stock.  Securities listed on a national  securities exchange are valued on
the  basis of the last sale on such  exchange  on the day of  valuation.  In the
absence of sales of listed  securities  and with respect to securities for which
the most recent sale prices are not deemed to  represent  fair market  value and
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 (i.e., "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.

     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.

     In November  2000, a revised AICPA Audit and  Accounting  Guide,  AUDITS OF
INVESTMENT  COMPANIES,  was issued,  and is effective for fiscal years beginning
after  December  15, 2000.  The revised  Guide will require the Fund to amortize
premium and discount on bonds and notes. Upon initial adoption, the Fund will be
required to adjust the cost of its bonds and notes by the  cumulative  amount of
amortization  that would have been  recognized had  amortization  been in effect
from the purchase date of each holding.  Adopting this accounting principle will
not affect the Fund's net asset  value,  but will change the  classification  of
certain amounts between interest income and realized and unrealized gain/loss in
the

                                       18

<PAGE>

- --------------------------------------------------------------------------------
                                  Preferred Income Opportunity Fund Incorporated
                                       NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                  ----------------------------------------------

Statement of  Operations.  The Fund has not at this time  undertaken to quantify
the  impact,  if any,  resulting  from the  adoption  of this  principle  on the
financial statements.

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

     REPURCHASE  AGREEMENTS:   The  Fund  may  engage  in  repurchase  agreement
transactions. The Fund's Investment Adviser reviews and approves the eligibility
of the banks and dealers  with which the Fund enters 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.  The  shareholders
of Money Market Cumulative  Preferred(TRADE  MARK) Stock are entitled to receive
cumulative  cash  dividends  as  declared  by the  Fund's  Board  of  Directors.
Distributions  to  shareholders  are recorded on the  ex-dividend  date. Any net
realized  short-term  capital gains will be distributed to shareholders at least
annually.  Any net  realized  long-term  capital  gains  may be  distributed  to
shareholders  at least  annually or may be retained by the Fund as determined by
the Fund's Board of Directors. Capital gains retained by the Fund are subject to
tax at the  corporate  tax rate.  Subject to the Fund  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.

     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  proportional  allocation  of  income  and  gains  to all  classes  of
Shareholders.

                                       19

<PAGE>

- --------------------------------------------------------------------------------
Preferred Income Opportunity Fund Incorporated
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- ----------------------------------------------

     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.

     OTHER: The preparation of financial statements in accordance with generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that affect the reported  amounts and  disclosures in the financial
statements. Actual results could differ from those estimates.

2.   INVESTMENT  ADVISORY FEE, DIRECTORS' FEES,  ADMINISTRATION FEE AND TRANSFER
     AGENT 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 net assets up to $100 million
and 0.50% of the value of the  Fund's  average  monthly  net assets in excess of
$100 million.

     The Fund  currently  pays each  Director who is not a director,  officer or
employee of the Adviser a fee of $9,000 per annum,  plus $500 for each in-person
meeting of the Board of Directors or any committee  and $100 for each  telephone
meeting.  In addition,  the Fund will  reimburse  all  Directors  for travel and
out-of-pocket expenses incurred in connection with such meetings.

     PFPC Inc.  (formerly known as First Data Investor Services Group,  Inc.), a
member of the PNC Financial  Services Group  (formerly known as PNC Bank Corp.),
serves as the Fund's  Administrator and Transfer Agent. As  Administrator,  PFPC
Inc.  calculates the net asset value of the Fund's shares and generally  assists
in all aspects of the Fund's  administration and operation.  As compensation for
PFPC Inc.'s services as Administrator,  the Fund pays PFPC Inc. a monthly fee at
an annual rate of 0.12% of the Fund's  average  monthly net assets.  Boston Safe
Deposit and Trust Company ("Boston  Safe"), a wholly-owned  subsidiary of Mellon
Bank  Corporation,  serves as the Fund's  Custodian.  As compensation for Boston
Safe's  services  as  Custodian,  the Fund pays  Boston Safe a monthly fee at an
annual rate of 0.01% of the Fund's  average  monthly net assets.  PFPC Inc. also
serves  as  the  Fund's  Common  Stock   servicing   agent   (transfer   agent),
dividend-paying  agent  and  registrar,  and as  compensation  for  PFPC  Inc.'s
services  as such,  the Fund pays PFPC Inc. a fee at an annual  rate of 0.02% of
the Fund's average monthly net assets plus certain out-of-pocket expenses.

     Bankers Trust  Corporate  &Agency  Services,  a wholly-owned  subsidiary of
Deutsche  Bank,  AG  ("Auction  Agent"),  serves  as  the  Fund's  Money  Market
Cumulative  Preferred(TRADE  MARK) Stock  transfer  agent,  registrar,  dividend
disbursing agent and redemption agent.

3.   PURCHASES AND SALES OF SECURITIES

     Cost of purchases and proceeds from sales of securities  for the year ended
November 30, 2000, excluding short-term investments, aggregated $121,401,842 and
$124,012,249, respectively.

                                       20

<PAGE>

- --------------------------------------------------------------------------------
                                  Preferred Income Opportunity Fund Incorporated
                                       NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                  ----------------------------------------------

     At November  30,  2000  aggregate  gross  unrealized  appreciation  for all
securities  in which  there is an excess of value over cost was  $6,490,490  and
aggregate gross unrealized  depreciation for all securities in which there is an
excess of cost over value was $10,408,829.

4.   COMMON STOCK

     At November  30, 2000,  240,000,000  shares of $0.01 par value Common Stock
were  authorized.  There were no Common Stock  transactions  for the years ended
November 30, 2000 and 1999.

5.   MONEY MARKET CUMULATIVE PREFERRED(TRADE MARK) STOCK

     The  Fund's  Articles  of  Incorporation   authorize  the  issuance  of  up
to10,000,000  shares of $0.01  par  value  preferred  stock.  The  Money  Market
Cumulative Preferred(TRADE MARK) Stock is senior to the Common Stock and results
in the  financial  leveraging  of the Common  Stock.  Such  leveraging  tends to
magnify both the risks and opportunities to Common Stock Shareholders. Dividends
on shares of Money Market Cumulative Preferred(TRADE MARK) Stock are cumulative.

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

     If the Fund allocates any net gains or income  ineligible for the Dividends
Received  Deduction  to shares of the Money  Market  Cumulative  Preferred(TRADE
MARK)  Stock,  the Fund is required to make  additional  distributions  to Money
Market Cumulative  Preferred(TRADE  MARK) Stock  Shareholders or to pay a higher
dividend rate in amounts  needed to provide a return,  net of tax,  equal to the
return had such  originally paid  distributions  been eligible for the Dividends
Received   Deduction.   Net  assets   available  to  Money   Market   Cumulative
Preferred(TRADE  MARK) Stock at November 30, 2000 include an accrued  additional
distribution of $451,494. The amount subsequently declared and paid to the Money
Market  Cumulative  Preferred(TRADE  MARK)  Shareholders  for  Fiscal  2000  was
$457,345. (See Note 9 - "Subsequent Events".)

     Prior to November 30, 1999,  additional  distributions were not reported as
available to Money Market Cumulative  Preferred(TRADE MARK) Stock until declared
by the Board of Directors.  The amount of additional  distributions  payable for
any year may be highly uncertain and will not be known until after a fiscal year
has been completed.

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

                                       21

<PAGE>

- --------------------------------------------------------------------------------
Preferred Income Opportunity Fund Incorporated
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- ----------------------------------------------

     At November 30, 2000, 700 shares of Money Market Cumulative Preferred(TRADE
MARK) Stock were  outstanding at the annual rate of 4.99%. 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.

6.   PORTFOLIO INVESTMENTS, CONCENTRATION AND INVESTMENT QUALITY

     The Fund invests  primarily in adjustable and fixed rate  preferred  stocks
and similar hybrid,  i.e.,  fully taxable,  preferred  securities.  Under normal
market  conditions,  the Fund  invests at least 25% of its assets in  securities
issued by utilities and may invest a significant portion of its assets, but less
than 25% of its  assets,  in  companies  in the  banking  industry.  The  Fund's
portfolio may therefore be subject to greater risk and market fluctuation than a
portfolio of securities representing a broader range of investment alternatives.
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 15% of its assets at
the time of purchase in securities rated below investment  grade,  provided that
no such  investment may be rated below both "Ba" by Moody's  Investors  Service,
Inc. and "BB" by Standard & Poor's or judged to be  comparable in quality at the
time of  purchase;  however,  any such  securities  must be  issued by an issuer
having an outstanding  class of senior debt rated investment grade. The Fund may
invest up to 15% of its assets in common  stock.  Under normal  conditions,  the
Fund may  invest up to 35% of its  assets  in debt  securities.  Certain  of its
investments  in hybrid,  i.e.,  fully  taxable,  preferred  securities,  such as
TOPrS,TIPS,  QUIPS, MIPS, QUIDS, QUICS, QIB's,  STOPS,  Capital Securities,  and
other  similar or related  investments,  will be  subject to the  foregoing  35%
limitation  to the extent  that,  in the  opinion of the  Fund's  Adviser,  such
investments are deemed to be debt-like in key characteristics.

7.   SPECIAL INVESTMENT TECHNIQUES

     The Fund may employ certain  investment  techniques in accordance  with its
fundamental  investment  policies.  These may include the use of when-issued and
delayed delivery transactions.  Securities purchased or sold on a when-issued or
delayed  delivery  basis may be  settled  within  45 days  after the date of the
transaction.  Such  transactions  may  expose  the  Fund to  credit  and  market
valuation  risk  greater than that  associated  with  regular  trade  settlement
procedures.  The Fund may also enter into  transactions,  in accordance with its
fundamental investment policies,  involving any or all of the following: lending
of portfolio securities, short sales of securities,  futures contracts, interest
rate swaps, options on futures contracts, options on

                                       22

<PAGE>

- --------------------------------------------------------------------------------
                                  Preferred Income Opportunity Fund Incorporated
                                       NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                  ----------------------------------------------

securities and options on interest rate swaps, i.e.,  swaptions.  As in the case
of when-issued  securities,  the use of  over-the-counter  derivatives,  such as
interest  rate swaps and  swaptions,  may  expose  the Fund to  greater  credit,
operations,  and  market  value risk than is the case with  regulated,  exchange
traded  futures and options.  With the exception of  purchasing  securities on a
when-issued or delayed  delivery basis or lending  portfolio  securities,  these
transactions are used for hedging or other appropriate  risk-management purposes
or, under certain other  circumstances,  to increase income.  As of November 30,
2000,  the Fund owned put options on  U.S.Treasury  bond futures  contracts.  No
assurance  can be given  that  such  transactions  will  achieve  their  desired
purposes or will result in an overall reduction of risk to the Fund.

8.   SIGNIFICANT SHAREHOLDERS

     At November 30, 2000, the Commerce Group, Inc. owned approximately 34.5% of
the Fund's  outstanding  Common Stock,  according to a Schedule 13D filing dated
December 1, 2000.

9.   SUBSEQUENT EVENTS

     As a result of the income realized by the Fund that did not qualify for the
Corporate  Dividends  Received Deduction ("DRD"), a portion of the distributions
paid  to  the  Fund's  Money  Market  Cumulative   Preferred(TRADE  MARK)  Stock
Shareholders  from  January  1,  2000,  through  November  30,  2000,  has  been
designated as being from non-DRD income, as required by Internal Revenue Service
Ruling 89-81, with respect to the Internal Revenue Code of 1986, as amended.  On
December 18, 2000,  the Fund  declared an additional  distribution  of $457,345,
payable  December 21, 2000,  to Money Market  Cumulative  Preferred(TRADE  MARK)
Stock Shareholders as required by the Fund's Articles  Supplementary.  (See Note
5.)

                                       23

<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders and Board of Directors of
   Preferred Income Opportunity Fund Incorporated:

     In our  opinion,  the  accompanying  statement  of assets and  liabilities,
including the portfolio of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material  respects,  the financial position of Preferred Income Opportunity Fund
Incorporated  (the "Fund") at November 30, 2000,  the results of its  operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended and the financial highlights for each of the five years
in the period then ended,  in conformity with  accounting  principles  generally
accepted  in the  United  States of  America.  These  financial  statements  and
financial highlights  (hereafter referred to as "financial  statements") are the
responsibility  of the Fund's  management;  our  responsibility is to express an
opinion on the financial statements based on our audits. We conducted our audits
of these financial  statements in accordance with auditing  standards  generally
accepted in the United States of America, which require that we plan and perform
the audit to obtain reasonable  assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence  supporting the amounts and  disclosures  in the financial  statements,
assessing the  accounting  principles  used and  significant  estimates  made by
management,  and evaluating the overall  financial  statement  presentation.  We
believe that our audits,  which included  confirmation of securities at November
30, 2000 by correspondence with the custodian and brokers,  provide a reasonable
basis for our opinion.


PricewaterhouseCoopers LLP
Boston, Massachusetts
January 12, 2001

                                       24

<PAGE>

- --------------------------------------------------------------------------------
                                  Preferred Income Opportunity Fund Incorporated
                                                     TAX INFORMATION (UNAUDITED)
                                  ----------------------------------------------


     Of the total  distributions  attributable to the fiscal year ended November
30, 2000,  including  the  Additional  Distribution  to Money Market  Cumulative
Preferred(TRADE  MARK) Stock  Shareholders,  57.69%  qualified for the Dividends
Received Deduction for eligible corporate investors. (See Note 9.)

     For the calendar year ended December 31, 2000,  57.40% of all distributions
paid to Common Stock Shareholders qualified for the Dividends Received Deduction
for  eligible  corporate  investors.  Shareholders  should  refer  to Form  1099
accompanying  additional  information and the information  contained herein when
preparing their tax returns to determine the appropriate tax characterization of
the distributions they received from the Fund in calendar year 2000.

     At November 30, 2000, the Fund had accumulated  realized  capital losses of
$6,221,654.  These losses may be carried  forward and offset  against any future
capital gains through the year 2008.

                                       25

<PAGE>

- --------------------------------------------------------------------------------
Preferred Income Opportunity Fund Incorporated
ADDITIONAL INFORMATION (UNAUDITED)
- ----------------------------------------------

DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN

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

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

     Plan  participants are not subject to any charge for reinvesting  dividends
or capital gains  distributions.  Each Plan participant  will,  however,  bear a
proportionate  share of  brokerage  commissions  incurred  with  respect to PFPC
Inc.'s open market purchases in connection with the reinvestment of dividends or
capital gains  distributions.  For the year ended  November 30, 2000,  $9,480 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

                                       26

<PAGE>

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

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.

     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.

                                       27

<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 OPPORTUNITY FUND?
   (BULLET) If your shares are held in a Brokerage Account, contact your Broker.
   (BULLET) 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  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.

             [GRAPHIC OMITTED - PREFERRED INCOME OPPORTUNITY FUND]

                                     Annual
                                     Report

                                November 30, 2000

                        web site: www.preferredincome.com

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