<DOCUMENT>
<TYPE>N-30D
<SEQUENCE>1
<FILENAME>prefopp.txt
<DESCRIPTION>PREFERRED INCOME OPPORTUNITY QUARTERLY REPORT
<TEXT>
PREFERRED INCOME OPPORTUNITY FUND INCORPORATED


Dear Shareholder:

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

     The performance of the Preferred Income Opportunity Fund through August 31,
2001 has been a positive note in a generally difficult year for investors. Total
returns on net asset value  ("NAV")  were 7.8% for the most  recent  quarter and
14.9% for the first nine months of fiscal  2001.  We are very pleased with these
results.

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

     We have taken  advantage of attractive  opportunities  to move from hybrids
into  traditional  preferreds  when these two primary  sectors of the  preferred
market have been "out of sync". As a result,  traditional  preferreds  accounted
for   approximately  65%  of  the  Fund's  portfolio  on  August  31,  2001,  up
approximately  10  percentage  points since the beginning of fiscal 2001. We are
always searching for the cheapest preferreds available.

     Falling  short-term  interest rates have helped by reducing the cost of the
Money  Market  Cumulative(TM)  preferred  ("MMP")  shares  issued by the Fund to
create  leverage.  The current  cost of the Fund's  leverage is 2.65%,  which is
adjusted to market levels every 49 days through an auction process.  We have not
yet had an auction  following the events of September 11, but  short-term  rates
have declined further since then.

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

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

                                                        Sincerely,

                                                        /S/ ROBERT T. FLAHERTY

                                                        Robert T. Flaherty
                                                        CHAIRMAN OF THE BOARD

September 20, 2001

<PAGE>

--------------------------------------------------------------------------------
Preferred Income Opportunity Fund Incorporated
SUMMARY OF INVESTMENTS
AUGUST 31, 2001 (UNAUDITED)
----------------------------------------------

                                                                     PERCENT
                                                       VALUE         OF TOTAL
                                                      (000'S)       NET ASSETS
                                                      -------       ----------
ADJUSTABLE RATE PREFERRED STOCKS
     Utilities ...................................     $  7,901            3.9%
     Banking .....................................       21,086           10.5
     Financial Services ..........................        1,044            0.5
                                                       --------          -----
         Total Adjustable Rate ...................       30,031           14.9
                                                       --------          -----
FIXED RATE PREFERRED STOCKS AND SECURITIES
     Utilities ...................................       69,014           34.5
     Banking .....................................       27,979           14.0
     Financial Services ..........................       32,737           16.4
     Insurance ...................................       18,113            9.0
     Oil and Gas .................................       12,123            6.1
     Miscellaneous Industries ....................        5,461            2.7
                                                       --------          -----
         Total Fixed Rate ........................      165,427           82.7
                                                       --------          -----

TOTAL PREFERRED STOCKS AND SECURITIES ............      195,458           97.6
SHORT TERM INVESTMENT FUND .......................        1,865            0.9

PURCHASED PUT OPTIONS ............................          656            0.4
                                                       --------          -----
TOTAL INVESTMENTS ................................      197,979           98.9

OTHER ASSETS AND LIABILITIES (NET) ...............        2,244            1.1
                                                       --------          -----
     TOTAL NET ASSETS ............................     $200,223          100.0%
                                                       ========          =====

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

<TABLE>
<CAPTION>
                                                                                                        DIVIDEND
                                                      DISTRIBUTION      NET ASSET        NYSE         REINVESTMENT
                                                          PAID            VALUE      CLOSING PRICE      PRICE (1)
                                                      ------------      ---------    -------------    ------------
<S>                                                     <C>              <C>           <C>               <C>
December 31, 2000 ...............................       $0.0680          $10.67        $10.38            $10.34
January 31, 2001 ................................        0.0680           10.93         10.65             10.58
February 28, 2001 ...............................        0.0680           11.06         10.50             10.92
March 31, 2001 ..................................        0.0680           10.96         10.84             10.94
April 30, 2001 ..................................        0.0680           10.84         10.65             10.77
May 31, 2001 ....................................        0.0680           10.96         10.60             10.70
June 30, 2001 ...................................        0.0680           11.09         10.67             10.86
July 31, 2001 ...................................        0.0680           11.47         11.29             11.38
August 31, 2001 .................................        0.0680           11.60         10.90             11.20
</TABLE>

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

                                        2

<PAGE>

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

<TABLE>
<CAPTION>

<S>                                                                                                     <C>
OPERATIONS:
     Net investment income .........................................................................    $  9,292,913
     Net realized loss on investments sold .........................................................      (2,093,470)
     Net unrealized appreciation of investments during the period ..................................      12,307,972
                                                                                                        ------------
         Net increase in net assets from operations ................................................      19,507,415
DISTRIBUTIONS:
     Dividends paid from net investment income to MMP* Shareholders ................................      (2,433,207)
     Distributions paid from net realized capital gains to MMP* Shareholders .......................              --
     Dividends paid from net investment income to Common Stock Shareholders (2) ....................      (6,832,683)
     Distributions paid from net realized capital gains to Common Stock Shareholders ...............              --
                                                                                                        ------------
     Total Distributions ...........................................................................      (9,265,890)
                                                                                                        ------------
FUND SHARE TRANSACTIONS:
     Increase from Common Stock transactions .......................................................         315,241

NET INCREASE IN NET ASSETS: ........................................................................      10,556,766

NET ASSETS:
     Beginning of period ...........................................................................     189,666,278
                                                                                                        ------------
     End of period .................................................................................    $200,223,044
                                                                                                        ============
</TABLE>

                                                         FINANCIAL HIGHLIGHTS(1)

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

<TABLE>
<CAPTION>

<S>                                                                                                     <C>
OPERATING PERFORMANCE:
     Net asset value, beginning of period .........................................................     $     10.68
                                                                                                        -----------
     Net investment income ........................................................................            0.83
     Net realized loss and unrealized appreciation on investments .................................            0.91
                                                                                                        -----------
     Net increase in net asset value resulting from investment operations .........................            1.74
DISTRIBUTIONS:
     Dividends paid from net investment  income to MMP*  Shareholders (2) .........................           (0.22)
     Distributions  paid from net realized capital gains to MMP* Shareholders .....................              --
     Dividends paid from net investment income to Common Stock  Shareholders (2) ..................           (0.61)
     Distributions  paid from net realized capital gains to Common Stock Shareholders .............              --
     Change in accumulated undeclared dividends on MMP* ...........................................            0.01
                                                                                                        -----------
     Total distributions ..........................................................................           (0.82)
                                                                                                        -----------
     Net asset value, end of period ...............................................................     $     11.60
                                                                                                        ===========
     Market value, end of period ..................................................................     $     10.90
                                                                                                        ===========
     Common shares outstanding, end of period .....................................................      11,179,743
                                                                                                        ===========
RATIOS TO AVERAGE NET ASSETS AVAILABLE TO COMMON STOCK SHAREHOLDERS:
     Net investment income ........................................................................            7.52%**
     Operating expenses ...........................................................................            1.60%**
--------------------------------------------------------

SUPPLEMENTAL DATA:++
     Portfolio turnover rate fiscal year to date ..................................................              31%
     Net assets, end of period (in 000's) .........................................................     $   200,223
     Ratio of operating expenses to total average net assets including MMP* .......................            1.02%**
</TABLE>

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

                                        3

<PAGE>

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

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

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

QUESTIONS CONCERNING YOUR SHARES OF PREFERRED
   INCOME OPPORTUNITY FUND?
   o If your shares are held in a Brokerage
     Account, contact your broker.
   o If you have physical possession of your shares
     in certificate form, contact the Fund's Transfer
     Agent & Shareholder Servicing Agent --
               PFPC Inc.
               P.O. Box 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.

               [LOGO OMITTED - PREFERRED INCOME OPPORTUNITY FUND]

                                    Quarterly
                                     Report


                                 August 31, 2001
                        web site: www.preferredincome.com


</TEXT>
</DOCUMENT>
