Edgar Filing: Flaherty & Crumrine PREFERRED INCOME OPPORTUNITY FUND INC

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

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES

Investment Company Act file number 811-06495
----------------------------

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

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

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

registrant's telephone number, including area code: 626-795-7300
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Date of fiscal year end: NOVEMBER 30
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Date of reporting period: NOVEMBER 30, 2006
------------------

Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.

A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 100 F Street, NE,
Washington, DC 20549. The OMB has reviewed this collection of information under
the clearance requirements of 44 U.S.C. ss. 3507.

ITEM 1. REPORTS TO STOCKHOLDERS.

The Report to Shareholders is attached herewith.

FLAHERTY & CRUMRINE PREFERRED INCOME
OPPORTUNITY FUND

To the Shareholders of the Flaherty & Crumrine Preferred Income Opportunity Fund
("PFO"):

The Fund completed a successful fiscal year on November 30, 2006, returning
+5.3%(1) total return on net asset value ("NAV") during the fourth fiscal
quarter and +10.8%(1) for the full year. The total return based on the market
price of the Fund's common shares for the year was even better, with the
combination of income and share price appreciation totaling +15.2%, and the
Fund's discount from NAV narrowed significantly.

The table below compares the return on the Fund since its inception with a
broad group of fixed-income, closed-end funds. Although the investment
strategies used by the Fund differ significantly from the strategies used by
these other fixed-income funds, we believe that the Fund addresses similar
investment goals with better results. As the numbers indicate, the Fund has
performed very well, benefiting from strength in the overall market for
preferred securities as well as some strategic shifts in the portfolio.

-----------------------------------------------------------------------------------------------------------------
TOTAL RETURN PER YEAR ON NET ASSET VALUE(1)
FOR PERIODS ENDED NOVEMBER 30, 2006
ONE THREE FIVE TEN LIFE OF
YEAR YEARS YEARS YEARS FUND(2)
-------- -------- -------- -------- --------

Flaherty & Crumrine Preferred Income
Opportunity Fund ................................. 10.8% 7.4% 9.6% 8.7% 10.0%
Lipper Domestic Investment Grade Funds(3) ........... 7.3% 5.7% 6.3% 6.6% 7.0%

----------------
(1) Based on monthly data provided by Lipper Inc. in each calendar month during
the relevant period. Distributions are assumed to be reinvested at NAV in
accordance with Lipper's practice, which differs from the methodology used
elsewhere in this report.
(2) Since inception on February 13, 1992.
(3) Includes all funds in Lipper's U.S. Government, U.S. Mortgage and Corporate
Debt BBB Rated categories in each month during the period.
-----------------------------------------------------------------------------------------------------------------

The steady stream of new preferred issues continued during the past
quarter. In the twelve months ended November 30, 2006, roughly $75 billion of
preferred securities were issued - over $23 billion in the last quarter alone.
The recently-devised enhanced preferred security structure has been very popular
with issuers and investors, and these issues comprised a large portion of the
new supply. However, issuers have also brought to market traditional hybrid
preferred securities and traditional DRD and QDI eligible issues, with both
adjustable and fixed coupons. For us old-timers, it has been interesting to
observe that billion dollar deals are commonplace and that investors usually
can't get enough to satisfy their interest.

The Fund has benefited from the vibrant new issue market - not only have we
been able to pick and choose from a variety of issues and issuers, but the new
supply has improved liquidity in older issues as well. You can see the results
of this new supply and additional liquidity in the turnover of the Fund's
portfolio when compared to recent years.

Although the investor base for preferred securities appears to have grown
materially, the current pace of new-issue supply has us wondering if demand
can keep up. The trend is healthy, but only time will tell if these new
investors are in it for the long haul.

In a number of instances, proceeds from new issues were used to redeem
older, more expensive (from the issuer's perspective) issues. This is a trend we
have anticipated and discussed often in the past, but it is worth reviewing once
again. Just like a homeowner may refinance a mortgage when there are savings to
be had, issuers of preferred securities will replace older issues with newer
ones when there are benefits in doing so. The benefit may be simply to lower the
"payments," or the issuer may find additional benefits from adding some features
that weren't available previously.

We work hard to anticipate redemptions. This is important because if the
issuer can save money by "refinancing," the investor is probably going to earn
less. While this trend may reduce the amount of income available for
distribution to Common Stock Shareholders of the Fund, there are ways to
mitigate the impact. The best way to avoid redemptions is to own securities that
issuers either can't or don't want to redeem. We can also lessen the impact of
redemptions by selling the security prior to the date it can be redeemed. This
provides us with greater flexibility in replacing the position.

Forecasting redemptions is a critical step in determining the dividend rate
the Fund can pay its Common Stock Shareholders. Some redemptions of securities
held by the Fund are inevitable, and better understanding the income the Fund
will receive guides us in making recommendations to the Board of Directors about
dividend policy.

Since dividends are effectively driven by the NET income of the Fund's
portfolio, forecasting the Fund's expenses is also crucial in setting the
dividend rate. A primary variable in the Fund's expenses is the cost of its use
of leverage, which has been fairly unpredictable over the past several years.
The Fund's leverage cost is directly impacted by the short-term interest rates
set by the Federal Reserve. As the Federal Reserve raised interest rates (an
unprecedented 17 consecutive times between June 2004 and June 2006), the cost of
leverage increased by approximately 190%, from $1.0 million for the year ended
November 30, 2004 to $2.9 million for the year ended November 30, 2006. During a
two-year period in which the income earned on the portfolio increased only
moderately, this additional cost had a negative impact on the amount of income
available to be distributed to the holders of the Fund's 11.6 million
outstanding shares of Common Stock.

Even in today's interest-rate environment, however, the use of leverage
continues to be a beneficial strategy to the Fund's Common Stock Shareholders.
In other words, the preferred securities in the portfolio continue to have a
higher return than the short-term rates the Fund pays for its leverage, and that
difference in return is passed on to the Fund's Common Stock Shareholders.

In August 2006, the Federal Reserve finally gave markets a reprieve from
its relentless increasing of short-term interest rates, and now the market is
unsure if the Federal Reserve will lower, increase or keep rates the same during
coming months. These decisions will impact the Fund's available distributable
income. If the Federal Reserve maintains its current pause on short-term rates,
and long-term rates do not decrease materially, the Fund's leverage should
continue to produce similar amounts of additional distributable income to what
it does now. Of course, if the Federal Reserve lowers short-term interest rates,
the Fund should see a greater benefit from its use of leverage and consequently
have additional distributable income for its Common Stock Shareholders.

We hope investors will take advantage of the Fund's website at
WWW.PREFERREDINCOME.COM. It contains a wide range of useful and up-to-date
information about the Fund, and the "Frequently Asked Questions" section has
enhanced discussions about many of the topics discussed in this Annual Report.

Sincerely,

/S/ DONALD F. CRUMRINE /S/ROBERT M. ETTINGER
Donald F. Crumrine Robert M. Ettinger
Chairman of the Board President

January 23, 2007

QUESTIONS & ANSWERS

HOW DOES THE MARKET PRICE OF THE FUND'S SHARES RELATE TO NET ASSET VALUE?

While our focus is primarily on managing the Fund, we realize that an
investor's actual return is comprised of monthly dividend payments plus changes
in the market price of the Fund. We're pleased that for the year ended November
30, 2006 the market has responded favorably to the Fund's total return on NET
ASSET VALUE of 10.8% -- the total return on MARKET VALUE for the Fund's common
shares was 15.2%. During the fourth quarter alone, the total return on MARKET
VALUE was 5.7%.

We've often said that in a perfect world the market price would closely
track net asset value; however, as seen in the chart below, in the real world
deviations can be large. Over the past year, shareholders saw some significant
improvement in the discount between net asset value and market price.

FLAHERTY & CRUMRINE PREFERRED INCOME OPPORTUNITY FUND (PFO)
PREMIUM/DISCOUNT OF MARKET PRICE TO NAV THROUGH 12/31/06
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:

Date Prem/Disc
12/28/90
1/4/91
1/11/91
1/18/91
1/25/91
2/1/91
2/8/91
2/15/91
2/22/91
3/1/91
3/8/91
3/15/91
3/22/91
3/29/91
4/5/91
4/12/91
4/19/91
4/26/91
5/3/91
5/10/91
5/17/91
5/24/91
5/31/91
6/7/91
6/14/91
6/21/91
6/28/91
7/5/91
7/12/91
7/19/91
7/26/91
8/2/91
8/9/91
8/16/91
8/23/91
8/30/91
9/6/91
9/13/91
9/20/91
9/27/91
10/4/91
10/11/91
10/18/91
10/25/91
11/1/91
11/8/91
11/15/91
11/22/91
11/29/91
12/6/91
12/13/91
12/20/91
12/27/91
1/3/92
1/10/92
1/17/92
1/24/92
1/31/92
2/7/92
2/14/92
2/21/92 0.0726
2/28/92 0.0805
3/6/92 0.0874
3/13/92 0.098
3/20/92 0.0819
3/27/92 0.0556
4/3/92 0.0538
4/10/92 0.0705
4/17/92 0.0547
4/24/92 0.059
5/1/92 0.0546
5/8/92 0.0536
5/15/92 0.0306
5/22/92 0.0248
5/29/92 0.0307
6/5/92 0.0181
6/12/92 0.04
6/19/92 0.0357
6/26/92 0.0442
7/3/92 0.0475
7/10/92 0.0626
7/17/92 0.08
7/24/92 0.0592
7/31/92 0.0647
8/7/92 0.0613
8/14/92 0.0628
8/21/92 0.0514
8/28/92 0.0539
9/4/92 0.0409
9/11/92 0.0684
9/18/92 0.0572
9/25/92 0.0539
10/2/92 0.062
10/9/92 0.0675
10/16/92 0.049
10/23/92 0.0188
10/30/92 0.0474
11/6/92 0.018
11/13/92 0.0188
11/20/92 0.0408
11/27/92 0.0844
12/4/92 0.063
12/11/92 0.0515
12/18/92 0.0691
12/25/92 0.0638
1/1/93 0.0621
1/8/93 0.0679
1/15/93 0.0595
1/22/93 0.0434
1/29/93 0.0475
2/5/93 0.0483
2/12/93 0.0284
2/19/93 0.0202
2/26/93 0.031
3/5/93 0.0473
3/12/93 0.0651
3/19/93 0.0303
3/26/93 0.036
4/2/93 0.0514
4/9/93 0.0675
4/16/93 0.057
4/23/93 0.0853
4/30/93 0.0651
5/7/93 0.0513
5/14/93 0.061
5/21/93 0.057
5/28/93 0.0441
6/4/93 0.0497
6/11/93 0.0561
6/18/93 0.0497
6/25/93 0.0417
7/2/93 0.0472
7/9/93 0.0425
7/16/93 0.0362
7/23/93 0.0068
7/30/93 0.0306
8/6/93 0.0212
8/13/93 0.0181
8/20/93 0.0008
8/27/93 0.037
9/3/93 0.0331
9/10/93 0.0401
9/17/93 0.0338
9/24/93 0.0244
10/1/93 0.0214
10/8/93 0.0261
10/15/93 0.0263
10/22/93 0.0246
10/29/93 0.009
11/5/93 0
11/12/93 -0.0107
11/19/93 -0.0282
11/26/93 -0.0179
12/3/93 -0.0076
12/10/93 -0.0334
12/17/93 -0.0338
12/24/93 -0.0431
12/31/93 0.0249
1/7/94 -0.0036
1/14/94 0.0157
1/21/94 -0.023
1/28/94 -0.0377
2/4/94 -0.0323
2/11/94 -0.0361
2/18/94 -0.0863
2/25/94 -0.05
3/4/94 -0.0392
3/11/94 -0.0315
3/18/94 -0.0585
3/25/94 -0.0562
4/1/94 -0.0556
4/8/94 -0.0612
4/15/94 -0.0771
4/22/94 -0.1012
4/29/94 -0.1145
5/6/94 -0.0775
5/13/94 -0.0633
5/20/94 -0.0636
5/27/94 -0.0312
6/3/94 -0.0683
6/10/94 -0.0288
6/17/94 -0.0457
6/24/94 -0.0393
7/1/94 -0.0409
7/8/94 -0.045
7/15/94 -0.049
7/22/94 -0.0294
7/29/94 -0.0327
8/5/94 -0.0221
8/12/94 -0.0303
8/19/94 -0.0269
8/26/94 -0.0348
9/2/94 -0.0204
9/9/94 -0.0318
9/16/94 -0.0409
9/23/94 -0.0628
9/30/94 -0.062
10/7/94 -0.1322
10/14/94 -0.1149
10/21/94 -0.141
10/28/94 -0.104
11/4/94 -0.0786
11/11/94 -0.0976
11/18/94 -0.099
11/25/94 -0.077
12/2/94 -0.0402
12/9/94 -0.0868
12/16/94 -0.0732
12/23/94 -0.0604
12/30/94 -0.0851
1/6/95 -0.001
1/13/95 -0.0141
1/20/95 -0.0303
1/27/95 -0.0619
2/3/95 -0.0119
2/10/95 -0.0314
2/17/95 -0.0702
2/24/95 -0.0376
3/3/95 -0.0297
3/10/95 -0.0585
3/17/95 -0.0523
3/24/95 -0.0534
3/31/95 -0.0393
4/7/95 -0.0341
4/14/95 -0.0393
4/21/95 -0.069
4/28/95 -0.0341
5/5/95 -0.0576
5/12/95 -0.0501
5/19/95 -0.0933
5/26/95 -0.0753
6/2/95 -0.0481
6/9/95 -0.0729
6/16/95 -0.0702
6/23/95 -0.0749
6/30/95 -0.0686
7/7/95 -0.069
7/14/95 -0.0869
7/21/95 -0.1087
7/28/95 -0.0911
8/4/95 -0.0973
8/11/95 -0.1018
8/18/95 -0.1011
8/25/95 -0.078
9/1/95 -0.0706
9/8/95 -0.0833
9/15/95 -0.071
9/22/95 -0.0749
9/29/95 -0.0641
10/6/95 -0.0718
10/13/95 -0.1006
10/20/95 -0.0909
10/27/95 -0.1012
11/3/95 -0.1232
11/10/95 -0.0962
11/17/95 -0.1071
11/24/95 -0.1093
12/1/95 -0.1014
12/8/95 -0.1277
12/15/95 -0.1233
12/22/95 -0.1265
12/29/95 -0.1454
1/5/96 -0.1197
1/12/96 -0.1279
1/19/96 -0.1312
1/26/96 -0.1146
2/2/96 -0.1233
2/9/96 -0.1233
2/16/96 -0.1279
2/23/96 -0.1303
3/1/96 -0.1124
3/8/96 -0.1465
3/15/96 -0.1508
3/22/96 -0.1487
3/29/96 -0.1515
4/5/96 -0.1315
4/12/96 -0.1286
4/19/96 -0.1279
4/26/96 -0.1383
5/3/96 -0.1257
5/10/96 -0.113
5/17/96 -0.1408
5/24/96 -0.1386
5/31/96 -0.1386
6/7/96 -0.1255
6/14/96 -0.1337
6/21/96 -0.1301
6/28/96 -0.0918
7/5/96 -0.1079
7/12/96 -0.0911
7/19/96 -0.1122
7/26/96 -0.0939
8/2/96 -0.0876
8/9/96 -0.0688
8/16/96 -0.0673
8/23/96 -0.0881
8/30/96 -0.0836
9/6/96 -0.0836
9/13/96 -0.0661
9/20/96 -0.0889
9/27/96 -0.0991
10/4/96 -0.0876
10/11/96 -0.0876
10/18/96 -0.0935
10/25/96 -0.0834
11/1/96 -0.0796
11/8/96 -0.0932
11/15/96 -0.0726
11/22/96 -0.0586
11/29/96 -0.0608
12/6/96 -0.0792
12/13/96 -0.0813
12/20/96 -0.1009
12/27/96 -0.0837
1/3/97 -0.0693
1/10/97 -0.0562
1/17/97 -0.0693
1/24/97 -0.0834
1/31/97 -0.0678
2/7/97 -0.0623
2/14/97 -0.0551
2/21/97 -0.0645
2/28/97 -0.0605
3/7/97 -0.0581
3/14/97 -0.0654
3/21/97 -0.0715
3/28/97 -0.0715
4/4/97 -0.0573
4/11/97 -0.0973
4/18/97 -0.0806
4/25/97 -0.0748
5/2/97 -0.0672
5/9/97 -0.052
5/16/97 -0.0647
5/23/97 -0.0573
5/30/97 -0.0362
6/6/97 -0.0615
6/13/97 -0.0385
6/20/97 -0.0473
6/27/97 -0.0418
7/4/97 -0.0498
7/11/97 -0.0585
7/18/97 -0.0486
7/25/97 -0.063
8/1/97 -0.0273
8/8/97 -0.0701
8/15/97 -0.0715
8/22/97 -0.0767
8/29/97 -0.0472
9/5/97 -0.058
9/12/97 -0.0656
9/19/97 -0.0557
9/26/97 -0.0492
10/3/97 -0.0292
10/10/97 -0.0492
10/17/97 -0.0506
10/24/97 -0.0574
10/31/97 -0.0477
11/7/97 -0.0442
11/14/97 -0.0377
11/21/97 -0.0688
11/28/97 -0.0484
12/5/97 -0.0406
12/12/97 -0.0652
12/19/97 -0.0648
12/26/97 -0.0456
1/2/98 -0.0171
1/9/98 -0.0197
1/16/98 -0.0185
1/23/98 -0.062
1/30/98 -0.0477
2/6/98 -0.053
2/13/98 -0.0604
2/20/98 -0.0456
2/27/98 -0.0477
3/6/98 -0.0473
3/13/98 -0.0568
3/20/98 -0.0487
3/27/98 -0.0579
4/3/98 -0.0682
4/10/98 -0.0508
4/17/98 -0.062
4/24/98 -0.0768
5/1/98 -0.0618
5/8/98 -0.054
5/15/98 -0.0717
5/22/98 -0.0664
5/29/98 -0.0648
6/5/98 -0.0643
6/12/98 -0.0627
6/19/98 -0.0573
6/26/98 -0.06
7/3/98 -0.0575
7/10/98 -0.0562
7/17/98 -0.0563
7/24/98 -0.0465
7/31/98 -0.0526
8/7/98 -0.0472
8/14/98 -0.0864
8/21/98 -0.0954
8/28/98 -0.054
9/4/98 -0.0618
9/11/98 -0.0487
9/18/98 -0.0392
9/25/98 -0.0402
10/2/98 -0.0554
10/9/98 -0.0744
10/16/98 -0.0485
10/23/98 -0.0406
10/30/98 -0.0616
11/6/98 -0.0396
11/13/98 -0.0481
11/20/98 -0.0641
11/27/98 -0.0478
12/4/98 -0.0413
12/11/98 -0.0363
12/18/98 -0.0537
12/25/98 -0.0132
1/1/99 -0.0196
1/8/99 -0.0297
1/15/99 -0.0392
1/22/99 -0.0627
1/29/99 -0.0677
2/5/99 -0.061
2/12/99 -0.0887
2/19/99 -0.0937
2/26/99 -0.1078
3/5/99 -0.0846
3/12/99 -0.065
3/19/99 -0.1022
3/26/99 -0.0888
4/2/99 -0.0724
4/9/99 -0.1029
4/16/99 -0.0781
4/23/99 -0.093
4/30/99 -0.1156
5/7/99 -0.1015
5/14/99 -0.1277
5/21/99 -0.1256
5/28/99 -0.1093
6/4/99 -0.1007
6/11/99 -0.0558
6/18/99 -0.0835
6/25/99 -0.0602
7/2/99 -0.0532
7/9/99 -0.0532
7/16/99 -0.0761
7/23/99 -0.0558
7/30/99 -0.0829
8/6/99 -0.0464
8/13/99 -0.078
8/20/99 -0.0864
8/27/99 -0.0345
9/3/99 -0.1057
9/10/99 -0.0938
9/17/99 -0.0683
9/24/99 -0.0401
10/1/99 -0.077
10/8/99 -0.086
10/15/99 -0.1231
10/22/99 -0.1254
10/29/99 -0.1223
11/5/99 -0.1192
11/12/99 -0.1252
11/19/99 -0.0826
11/26/99 -0.0979
12/3/99 -0.097
12/10/99 -0.0807
12/17/99 -0.1118
12/24/99 -0.1212
12/31/99 -0.0354
1/7/00 -0.0028
1/14/00 -0.0385
1/21/00 -0.0996
1/28/00 -0.1047
2/4/00 -0.0923
2/11/00 -0.0845
2/18/00 -0.1038
2/25/00 -0.0962
3/3/00 -0.1021
3/10/00 -0.0858
3/17/00 -0.1055
3/24/00 -0.1272
3/31/00 -0.1361
4/7/00 -0.1047
4/14/00 -0.0894
4/21/00 -0.0781
4/28/00 -0.064
5/5/00 -0.0385
5/12/00 -0.0566
5/19/00 -0.0734
5/26/00 -0.0759
6/2/00 -0.0905
6/9/00 -0.1037
6/16/00 -0.0943
6/23/00 -0.0775
6/30/00 -0.0841
7/7/00 -0.0909
7/14/00 -0.0893
7/21/00 -0.097
7/28/00 -0.0927
8/4/00 -0.0912
8/11/00 -0.0879
8/18/00 -0.1046
8/25/00 -0.1046
9/1/00 -0.1105
9/8/00 -0.1113
9/15/00 -0.0836
9/22/00 -0.1189
9/29/00 -0.1155
10/6/00 -0.0896
10/13/00 -0.0921
10/20/00 -0.0895
10/27/00 -0.0725
11/3/00 -0.0739
11/10/00 -0.0747
11/17/00 -0.0962
11/24/00 -0.0937
12/1/00 -0.0928
12/8/00 -0.0903
12/15/00 -0.0913
12/22/00 -0.0672
12/29/00 -0.0276
1/5/01 -0.0411
1/12/01 -0.02
1/19/01 -0.0077
1/26/01 0.0192
2/2/01 -0.0528
2/9/01 -0.0346
2/16/01 -0.0184
2/23/01 -0.0257
3/2/01 -0.0109
3/9/01 -0.036
3/16/01 -0.0393
3/23/01 -0.036
3/30/01 -0.0109
4/6/01 0.02
4/13/01 0.0046
4/20/01 0.0243
4/27/01 -0.0278
5/4/01 -0.0218
5/11/01 0.0037
5/18/01 -0.0228
5/25/01 -0.0111
6/1/01 -0.0345
6/8/01 -0.0325
6/15/01 -0.0654
6/22/01 -0.0623
6/29/01 -0.0379
7/6/01 -0.0307
7/13/01 -0.0098
7/20/01 -0.0264
7/27/01 0.0237
8/3/01 0.0035
8/10/01 -0.0567
8/17/01 -0.0439
8/24/01 -0.0365
8/31/01 -0.0603
9/7/01 -0.0353
9/14/01 -0.0353
9/21/01 0
9/28/01 -0.0414
10/5/01 -0.0433
10/12/01 -0.0114
10/19/01 -0.0191
10/26/01 -0.0138
11/2/01 0.0017
11/9/01 -0.0068
11/16/01 0.026
11/23/01 0.0304
11/30/01 -0.0284
12/7/01 -0.0009
12/14/01 -0.0201
12/21/01 0.021
12/28/01 0.0289
1/4/02 0.0297
1/11/02 0.0276
1/18/02 0.0268
1/25/02 0.0677
2/1/02 0.0444
2/8/02 0.0607
2/15/02 0.0457
2/22/02 0.0582
3/1/02 0.0595
3/8/02 0.0124
3/15/02 0.0302
3/22/02 0.0383
3/29/02 0.04
4/5/02 0.0248
4/12/02 0.0409
4/19/02 0.0394
4/26/02 0.0526
5/3/02 0.0839
5/10/02 0.0595
5/17/02 0.0858
5/24/02 0.0757
5/31/02 0.0766
6/7/02 0.0832
6/14/02 0.067
6/21/02 0.0743
6/28/02 0.0933
7/5/02 0.1238
7/12/02 0.0692
7/19/02 0.0972
7/26/02 0.1421
8/2/02 0.1372
8/9/02 0.1002
8/16/02 0.1195
8/23/02 0.1206
8/30/02 0.1077
9/6/02 0.1002
9/13/02 0.0965
9/20/02 0.0993
9/27/02 0.1042
10/4/02 0.1141
10/11/02 0.1429
10/18/02 0.0519
10/25/02 0.0741
11/1/02 0.0733
11/8/02 0.0721
11/15/02 0.0664
11/22/02 0.061
11/29/02 0.0872
12/6/02 0.0972
12/13/02 0.1086
12/20/02 0.1278
12/27/02 0.1558
1/3/03 0.1518
1/10/03 0.093
1/17/03 0.1092
1/24/03 0.0865
1/31/03 0.1038
2/7/03 0.0983
2/14/03 0.096
2/21/03 0.1148
2/28/03 0.0969
3/7/03 0.1258
3/14/03 0.1585
3/21/03 0.0897
3/28/03 0.1033
4/4/03 0.1225
4/11/03 0.1477
4/18/03 0.1463
4/25/03 0.1211
5/2/03 0.0989
5/9/03 0.0553
5/16/03 0.033
5/23/03 0.0145
5/30/03 0.0486
6/6/03 -0.0024
6/13/03 -0.0086
6/20/03 0.0032
6/27/03 0.0144
7/4/03 0.0296
7/11/03 -0.0249
7/18/03 -0.0105
7/25/03 -0.0049
8/1/03 -0.0353
8/8/03 -0.0217
8/15/03 -0.0297
8/22/03 0.0008
8/29/03 -0.0032
9/5/03 0.0008
9/12/03 -0.0112
9/19/03 -0.023
9/26/03 -0.0346
10/3/03 -0.0214
10/10/03 -0.0207
10/17/03 -0.0254
10/24/03 0.0095
10/31/03 0.0284
11/7/03 0.0422
11/14/03 0.0386
11/21/03 0.074
11/28/03 0.0731
12/5/03 0.0875
12/12/03 0.0816
12/19/03 0.1044
12/26/03 0.1084
1/2/04 0.129
1/9/04 0.1265
1/16/04 0.1176
1/23/04 0.1305
1/30/04 0.1482
2/6/04 0.1425
2/13/04 0.1404
2/20/04 0.1598
2/27/04 0.1199
3/5/04 0.125
3/12/04 0.1358
3/19/04 0.1518
3/26/04 0.1631
4/2/04 0.1128
4/9/04 0.0576
4/16/04 0.0812
4/23/04 0.0174
4/30/04 0.0229
5/7/04 0.0056
5/14/04 0.0535
5/21/04 0.0802
5/28/04 0.0808
6/4/04 0.0662
6/11/04 0.0541
6/18/04 0.0466
6/25/04 0.0503
7/2/04 0.0502
7/9/04 0.0535
7/16/04 0.0572
7/23/04 0.0604
7/30/04 0.0471
8/6/04 0.0884
8/13/04 0.0798
8/20/04 0.0958
8/27/04 0.1202
9/3/04 0.1234
9/10/04 0.1265
9/17/04 0.1212
9/24/04 0.0843
10/1/04 0.0966
10/8/04 0.0858
10/15/04 0.0957
10/22/04 0.0944
10/29/04 0.0865
11/5/04 0.1136
11/12/04 0.1112
11/19/04 0.113
11/26/04 0.1065
12/3/04 0.057
12/10/04 0.0445
12/17/04 0.0643
12/24/04 0.0955
12/31/04 0.0731
1/7/05 0.0837
1/14/05 0.0708
1/21/05 0.0705
1/28/05 0.0682
2/4/05 0.0635
2/11/05 0.0689
2/18/05 0.0876
2/25/05 0.0751
3/4/05 0.0467
3/11/05 0
3/18/05 -0.0252
3/25/05 -0.0463
4/1/05 -0.0268
4/8/05 -0.0182
4/15/05 -0.0361
4/22/05 -0.0471
4/29/05 -0.0196
5/6/05 0.0016
5/13/05 -0.0047
5/20/05 0.0213
5/27/05 0.0205
6/3/05 0.0242
6/10/05 0.0259
6/17/05 -0.0316
6/24/05 0.0024
7/1/05 0.0207
7/8/05 0.0345
7/15/05 0.0619
7/22/05 0.0492
7/29/05 0.0668
8/5/05 0.0743
8/12/05 0.0343
8/19/05 0.0621
8/26/05 0.0686
9/2/05 0.0745
9/9/05 0.0994
9/16/05 0.0914
9/23/05 0.0543
9/30/05 0.0546
10/7/05 0.0204
10/14/05 -0.0057
10/21/05 -0.0164
10/28/05 -0.0372
11/4/05 -0.0431
11/11/05 -0.0361
11/18/05 -0.0221
11/25/05 -0.0305
12/2/05 -0.0231
12/9/05 -0.0561
12/16/05 -0.0796
12/23/05 -0.0735
12/30/05 -0.094
1/6/06 -0.0457
1/13/06 0.0178
1/20/06 0.0334
1/27/06 0.027
2/3/06 0.03
2/10/06 0.0137
2/17/06 0.0146
2/24/06 0.0146
3/3/06 0.0195
3/10/06 -0.0624
3/17/06 -0.0453
3/24/06 -0.0593
3/31/06 -0.0645
4/7/06 -0.0606
4/14/06 -0.0842
4/21/06 -0.0798
4/28/06 -0.0735
5/5/06 -0.0842
5/12/06 -0.096
5/19/06 -0.1087
5/26/06 -0.0865
6/2/06 -0.0796
6/9/06 -0.0954
6/16/06 -0.0938
6/23/06 -0.0785
6/30/06 -0.0641
7/7/06 -0.0782
7/14/06 -0.0584
7/21/06 -0.0477
7/28/06 -0.0444
8/4/06 -0.0025
8/11/06 0.0252
8/18/06 -0.0248
8/25/06 -0.0249
9/1/06 -0.0099
9/8/06 -0.0206
9/15/06 -0.0173
9/22/06 -0.0252
9/29/06 -0.0358
10/6/06 -0.009
10/13/06 -0.0164
10/20/06 -0.0254
10/27/06 -0.0307
11/3/06 -0.0243
11/10/06 -0.0401
11/17/06 -0.004
11/24/06 -0.0064
12/1/06 -0.0166
12/8/06 0.0008
12/15/06 0.004
12/22/06 -0.0202
12/29/06 -0.0024

For additional information about premiums and discounts, please see the
"Frequently Asked Questions" section of the Fund's website at
WWW.PREFERREDINCOME.COM.

ARE THERE ANY FEDERAL TAX ADVANTAGES TO THE DISTRIBUTIONS MADE BY THE FUND IN
2006?

Yes. In 2006, the Fund passed on a portion of its income to individuals in
the form of qualified dividend income or QDI. QDI is taxed at a maximum 15% rate
instead of an individual's ordinary income tax rate. In calendar year 2006,
78.2% of the distributions made by the Fund was eligible for QDI treatment. For
an individual in the 28% tax bracket, this means that the Fund's total
distributions will only be taxed at a blended 17.8% rate versus the 28% rate
which would apply to distributions by a fund comprised of traditional corporate
bonds.

This tax advantage means that, all other things being equal, an individual
in the 28% tax bracket who held 100 shares of Common Stock of the Fund for the
calendar year would have had to receive approximately $90 in distributions from
a traditional corporate bond fund to net the same after-tax amount as the $79 in
distributions paid by the Fund.

For detailed information about the tax treatment of the particular
distributions you received from the Fund, please see the Form 1099 you receive
from either the Fund or your broker.

Corporate shareholders also receive a federal tax benefit from the 71.8% of
the distributions that were eligible for the inter-corporate dividends received
deduction or DRD.

It is important to remember that portfolio composition and income
distributions can change from one year to the next and that the QDI or DRD
portions of next year's distributions may not be the same (or even similar) to
this year's.

WHAT WERE THE COMPONENTS OF THE FUND'S TOTAL RETURN ON NET ASSET VALUE FOR THE
YEAR?

One technique to better understand the Fund's net asset value (NAV)
performance is to begin with the Fund's total return on its investment
portfolio, and then adjust for the impact of hedging, expenses and leverage to
arrive at total return based on NAV (which factors in all of these items).

During fiscal 2006, the Fund's unhedged portfolio before the impact of
leverage and expenses returned 10.1%. Over the first half of the Fund's fiscal
year, intermediate and long-term U.S. Treasury yields increased significantly,
and the Fund's interest rate hedging strategies contributed positively to its
results. However, in the past six months longer-term Treasury yields reversed
direction, ending the fiscal year almost unchanged. Consequently, the hedged
portfolio's annual return before the impact of expenses and leverage declined
slightly to 9.9%.

Converting these returns on the portfolio to the returns on the Fund's
Common Stock requires the consideration of two additional factors: the favorable
impact of leverage and the expenses incurred in operating the Fund. As discussed
in greater detail below, the Fund's use of leverage served to boost the Fund's
return on its portfolio by 2.4%. After accounting for the Fund's 1.5% expense
ratio on the Common Stock, this resulted in the Fund's overall total return on
NAV of 10.8%.

HOW DOES THE FUND RECEIVE A BENEFIT FROM ITS USE OF LEVERAGE WHEN THE U.S.
TREASURY YIELD CURVE IS FLAT OR INVERTED?

As long as short-term U.S. Treasury interest rates are not dramatically
above long-term rates, the Fund continues to benefit from the use of leverage in
a flat or inverted yield curve. As discussed above, during fiscal 2006 the
leverage utilized by the Fund both completely offset the expenses of the Fund
and boosted the Fund's overall total return on net asset value.

Fundamentally, leverage is the use of borrowed funds to improve one's rate
of return from an investment, although with an increase in risk. The Fund
acquires its additional funds through the issuance of Money Market Cumulative
PreferredTM Stock (MMP(R)). Generally, the rate paid on the MMP(R) is well below
the rate the Fund can earn on its total investment portfolio, and the rate the
Fund pays on the MMP(R) is relatively low compared with other means of
financing. This is particularly true because of the tax advantages to
corporations and U.S. individual taxpayers of investing in MMP(R). The
additional cash flow generated by leverage produces additional income available
for distribution to Common Stock Shareholders.

The incremental income is greatest when the "spread" between the income
generated by the portfolio and the rate paid on the MMP(R) is wide. However, the
converse is also true; as the U.S Treasury yield curve "flattens" (short-term
rates and long-term rates approach equality), the amount of additional income
generated by the leverage will decrease. The Fund still benefits from additional
income generated by the leverage, just not as much as when the Treasury yield
curve is steeper. Of course, nothing is that simple. The

Fund's income is determined by several factors, the cost of leverage being only
one.

In the case of a slightly inverted U.S. Treasury yield curve (short-term
rates higher than long-term rates), the Fund should continue to benefit from the
use of leverage. Preferred and debt securities generally trade at yields higher
than the Treasury yields, commonly referred to as the "credit spread." So,
although the Treasury curve may be inverted, the securities in the portfolio
ordinarily will continue to have a higher return than the short-term rates the
Fund pays for its leverage.

If the Federal Reserve maintains its current pause on short-term rates and
long-term rates do not decrease materially, the Fund's leverage should continue
to produce similar amounts of additional distributable income to what it does
now. If the Federal Reserve resumes raising short-term rates, the Fund's
leverage could produce lesser amounts of additional distributable income. Of
course, if the Fed lowers short-term interest rates, the Fund should see a
greater benefit from its use of leverage and consequently have more additional
distributable income for its Common Stock Shareholders.

WHAT ARE ENHANCED PREFERRED SECURITIES?

Over the past eighteen months, the preferred securities market has seen
significant innovation in the form of "enhanced" preferred securities, with over
$46 billion of U.S dollar issuance since August 2005. As discussed below, this
new breed of securities offers issuers higher equity credit treatment by their
rating agencies. Essentially, higher equity treatment of an issuer's preferred
securities can result in a higher senior debt rating for the issuer - or help it
to avoid a downgrade. These enhanced preferred securities offer this better
equity credit treatment at a lower cost than issuing common shares, and without
the dilution of earnings per share that would come with it. In addition, many of
these securities have accomplished this feat while maintaining the
tax-deductibility of interest payments. The combination of equity credit and tax
deductibility makes for an attractive financing vehicle, so it's no surprise
that issuance has been brisk.

The change that prompted the emergence of enhanced preferred securities was
the adoption in February 2005 by Moody's Investors Service of a revised
methodology for preferred and hybrid preferred securities which granted an
issuer varying degrees of equity credit, ranging from 0% to 100%, depending upon
the terms of the issue. Just prior to that time, Moody's generally gave no
equity credit for hybrid preferred securities, no matter what features they
contained, and limited equity credit for traditional perpetual preferred
securities. Because other rating agencies already gave issuers some equity
credit for preferred securities, Moody's action relieved a critical constraint
upon the financing decisions of issuers, and thus on the preferred securities
market in general.

It has taken Wall Street bankers time to obtain tax opinions, master the
accounting and line up issuers, and structures have continued to evolve - each
seeking the right combination of terms for the market, the rating agencies and
the regulators. While structures have begun to converge into more standardized
forms, there has been a good deal of experimentation, and the past year has
produced a number of unique structures. We view this as good news for the Fund's
shareholders and we have actively traded in these new structures. The
heterogeneity of preferred securities is why we invest in them. Enhanced
preferred securities, in all their various permutations, simply add to the
complexity and allow managers who specialize in this market to excel.

For additional information regarding enhanced preferred securities,
including a description of how Moody's analysis works, please visit the
"Frequently Asked Questions" section of the Fund's website at
WWW.PREFERREDINCOME.COM.

--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Opportunity Fund Incorporated
PORTFOLIO OVERVIEW
NOVEMBER 30, 2006 (UNAUDITED)
------------------------------------------------------------------

FUND STATISTICS ON 11/30/06
---------------------------------------------
Net Asset Value $ 12.60

Market Price $ 12.42

Discount 1.43%

Yield on Market Price 6.28%

Common Stock Shares
Outstanding 11,695,372

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

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

Utilities 35%
Banking 25%
Insurance 15%
Financial Services 11%
Oil and Gas 7%
Other 4%
REITs 3%

% OF
TOP 10 HOLDINGS BY ISSUER PORTFOLIO
-------------------------------------------------------
Interstate Power & Light 5.0%

Goldman Sachs 4.6%

Xcel Energy 3.7%

EOG Resources 3.0%

First Republic Bank 3.0%

Cobank 2.9%

North Fork Bancorporation 2.8%

HSBC 2.7%

RenaissanceRe Holdings 2.4%

Public Storage 2.4%

MOODY'S RATINGS % OF PORTFOLIO
--------------------------------------------
AAA 0.7%

AA 1.8%

A 17.9%

BBB 55.6%

BB 13.9%

Not Rated 8.7%
--------------------------------------------
Below Investment Grade* 17.2%
* BELOW INVESTMENT GRADE BY BOTH MOODY'S AND
S&P.

% OF PORTFOLIO**
------------------------------------------------------------------------------------------------------------------------------------

Holdings Generating Qualified Dividend Income (QDI) for Individuals 66%
Holdings Generating Income Eligible for the Corporate Dividends Received Deduction (DRD) 59%

------------------------------------------------------------------------------------------------------------------------------------
** THIS DOES NOT REFLECT YEAR-END RESULTS OR ACTUAL TAX CATEGORIZATION OF FUND DISTRIBUTIONS. THESE PERCENTAGES CAN, AND DO,
CHANGE, PERHAPS SIGNIFICANTLY, DEPENDING ON MARKET CONDITIONS. INVESTORS SHOULD CONSULT THEIR TAX ADVISOR REGARDING THEIR
PERSONAL SITUATION. SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS FOR THE TAX CHARACTERIZATION OF 2006 DISTRIBUTIONS.

--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Opportunity Fund Incorporated
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 2006
------------------------------------------------------------------

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

PREFERRED SECURITIES -- 92.5%
BANKING -- 24.7%
---------------------------------------------------------------------------------------------------------------------

$ 3,000,000 Astoria Capital Trust I, 9.75% 11/01/29 Capital Security, Series B ............. $ 3,505,908
Auction Pass-Through Trust, Cl. B:
9 Series 2006-5, Variable Rate Pfd., 144A**** .................................. 272,250*
9 Series 2006-6, Variable Rate Pfd., 144A**** .................................. 272,250*
90,000 Banco Santander, 6.80% Pfd., 144A**** .......................................... 2,310,300**(1)
$ 1,000,000 Barclays Bank PLC, Adj. Rate Pfd. .............................................. 1,004,600**(1)
$ 1,750,000 Capital One Capital III, 7.686% Pfd. ........................................... 2,037,875
19,648 Citizens Funding Trust I, 7.50% Pfd. 09/15/66 .................................. 509,007
Cobank, ACB:
45,000 7.00% Pfd., 144A**** ......................................................... 2,318,850*
75,000 Adj. Rate Pfd., 144A**** ..................................................... 4,077,900*
$ 500,000 Comerica (Imperial) Capital Trust I, 9.98% 12/31/26 Capital Security, Series B . 536,006
4,500 FBOP Corporation, Adj. Rate Pfd., 144A**** ..................................... 4,592,531*
$ 2,250,000 First Hawaiian Capital I, 8.343% 07/01/27 Capital Security, Series B ........... 2,368,726(1)
First Republic Bank:
200,000 6.25% Pfd. ................................................................... 5,143,760*
5,000 6.70% Pfd. ................................................................... 127,657*
640 First Republic Preferred Capital Corporation, 10.50% Pfd., 144A**** ............ 723,750
22,500 First Republic Preferred Capital Corporation II, 8.75% Pfd., Series B, 144A**** 589,500
5,000 Fleet Capital Trust VIII, 7.20% Pfd. 03/15/32 .................................. 127,969
$ 4,349,000 GreenPoint Capital Trust I, 9.10% 06/01/27 Capital Security .................... 4,601,668
$ 3,500,000 HBOS Capital Funding LP, 6.85% Pfd. ............................................ 3,547,600(1)
5,000 HSBC Series II, Variable Inverse Pfd., Pvt. .................................... 5,640,000*
3,250 HSBC USA, Inc., $2.8575 Pfd. ................................................... 164,970*
12,000 Keycorp Capital VIII, 7.00% Pfd. 06/15/66 ...................................... 316,126
25,000 Keycorp Capital IX, 6.75% Pfd. 12/15/66 ........................................ 630,000
$ 1,000,000 Lloyds TSB Group PLC, Variable Rate, Capital Security, 144A**** ................ 1,015,657**(1)
5,000 National City Capital Trust II, 6.625% Pfd. 11/15/36 ........................... 125,950
$ 1,500,000 North Fork Capital Trust I, 8.70% 12/15/26 Capital Security .................... 1,564,756
16,000 PFGI Capital Corporation, 7.75% Pfd. ........................................... 412,160
$ 650,000 RBS Capital Trust B, 6.80% Pfd. ................................................ 659,815**(1)
10 Roslyn Real Estate, 8.95% Pfd., Series C, 144A**** ............................. 1,119,312
70,500 Sovereign Bancorp, 7.30% Pfd., Series C ........................................ 1,949,769*
20,375 Sovereign Capital Trust V, 7.75% Pfd. 05/22/36 ................................. 545,031
6,000 USB Capital XI, 6.60% Pfd. 09/15/66 ............................................ 153,840
25,000 Wells Fargo Capital Trust IV, 7.00% Pfd. 09/01/31 .............................. 627,345
-------------------------------------------------------------------------------------------------------------------
53,592,838
----------------

The accompanying notes are an integral part of the financial statements.
8

--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Opportunity Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 2006
------------------------------------------------------------------

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

PREFERRED SECURITIES -- (CONTINUED)
FINANCIAL SERVICES -- 10.7%
---------------------------------------------------------------------------------------------------------------------

9,000 Cabco Trust For Goldman Sachs Capital I, Adj. Rate Pfd. 02/15/34, Series GS .... $ 208,407
Goldman Sachs Group, Inc.:
75,000 Adj. Rate Pfd., Series D ..................................................... 1,966,500*
25 Pass-Through Certificates, Class B, 144A**** ................................. 2,862,500*
3,500 STRIPES Custodial Receipts, Pvt. ............................................. 3,981,250*
94,505 Lehman Brothers Holdings, Inc., 5.94% Pfd., Series C ........................... 4,774,393*
3,000 Merrill Lynch Series II STRIPES Custodial Receipts, Pvt. ....................... 3,184,500*
47,000 Morgan Stanley Capital Trust VI, 6.60% Pfd. .................................... 1,208,784
94,150 SLM Corporation, 6.97% Pfd., Series A .......................................... 5,131,175*
-------------------------------------------------------------------------------------------------------------------
23,317,509
----------------
INSURANCE -- 12.8%
---------------------------------------------------------------------------------------------------------------------
20,000 ACE Ltd., 7.80% Pfd., Series C ................................................. 517,500**(1)
Arch Capital Group Ltd.:
10,000 7.875% Pfd., Series B ........................................................ 261,875**(1)
4,400 8.00% Pfd. ................................................................... 115,060**(1)
Axis Capital Holdings:
73,950 7.25% Pfd., Series A ......................................................... 1,938,880**(1)
17,750 Variable Rate Pfd., Series B ................................................. 1,883,985(1)
22,300 Berkley W.R. Capital Trust II, 6.75% Pfd. 07/26/45 ............................. 556,804
12,400 Corporate-Backed Trust Certificates, 8.125% Pfd. 12/15/45, Series BER .......... 129,332
64,600 Endurance Specialty Holdings, 7.75% Pfd. ....................................... 1,667,326**(1)
13,750 Everest Re Capital Trust II, 6.20% Pfd., Series B .............................. 335,156(1)
140,000 MetLife Inc., 6.50% Pfd., Series B ............................................. 3,666,250*
$ 1,925,000 Oil Insurance Ltd., Variable Rate Pfd., 144A**** ............................... 2,018,002(1)
4,900 PartnerRe Capital Trust I, 7.90% Pfd. 12/31/31 ................................. 124,950**(1)
175,000 Principal Financial Group, 6.518% Pfd. ......................................... 4,875,500*
$ 511,000 Provident Financing Trust I, 7.405% 03/15/38 Capital Security .................. 534,637(2)
$ 4,000,000 Renaissancere Capital Trust, 8.54% 03/01/27 Capital Security, Series B ......... 4,171,028(1)
Renaissancere Holdings Ltd.:
25,000 6.08% Pfd., Series C ......................................................... 598,500**(1)
22,000 8.10% Pfd., Series A ......................................................... 551,320**(1)
115,500 Scottish Re Group Ltd., 7.25% Pfd. ............................................. 2,661,120**(1)
$ 560,000 USF&G Capital, 8.312% 07/01/46 Capital Security, 144A**** ...................... 706,944
22,850 XL Capital Ltd., 8.00% Pfd., Series A .......................................... 591,244**(1)
-------------------------------------------------------------------------------------------------------------------
27,905,413
----------------

The accompanying notes are an integral part of the financial statements.
9

--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Opportunity Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 2006
------------------------------------------------------------------

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

PREFERRED SECURITIES -- (CONTINUED)
UTILITIES -- 34.2%
---------------------------------------------------------------------------------------------------------------------

Alabama Power Company:
4,980 4.60% Pfd. ................................................................... $ 444,017*
6,485 4.72% Pfd. ................................................................... 589,122*
868 4.92% Pfd. ................................................................... 82,772*
6,579 Baltimore Gas & Electric Company, 6.70% Pfd., Series 1993 ...................... 690,179*
10,000 Calenergy Capital Trust III, 6.50% Pfd. 09/01/27 ............................... 483,800
1,628 Central Hudson Gas & Electric Corporation, 4.35% Pfd., Series D, Pvt. .......... 136,719*
3,798 Central Maine Power Company, 4.75% Pfd. ........................................ 335,971*
11,119 Central Vermont Public Service Corporation, 8.30% Sinking Fund Pfd., Pvt. ...... 1,154,597*
Connecticut Light & Power Company:
2,050 4.50% Pfd., Series 1956 ...................................................... 85,075*
10,000 4.50% Pfd., Series 1963, Pvt. ................................................ 402,500*
25,000 5.28% Pfd., Series 1967 ...................................................... 1,222,500*
883 $2.04 Pfd., Series 1949 ...................................................... 33,218*
2,900 $2.20 Pfd., Series 1949 ...................................................... 117,682*
9,652 $3.24 Pfd. ................................................................... 503,714*
2,000 Consolidated Edison Company of New York, 4.65% Pfd., Series C .................. 176,300*
7,500 Dayton Power and Light Company, 3.90% Pfd., Series C ........................... 477,656*
$ 1,500,000 Dominion Resources Capital Trust III, 8.40% 01/15/31 Capital Security .......... 1,868,979
15,030 Duquesne Light Company, 3.75% Pfd. ............................................. 499,898*
Entergy Arkansas, Inc.:
2,840 4.56% Pfd. ................................................................... 237,452*
3,050 4.56% Pfd., Series 1965 ...................................................... 255,010*
1,435 6.08% Pfd. ................................................................... 150,531*
90,000 6.45% Pfd. ................................................................... 2,349,000*
2,441 Entergy Gulf States, Inc., 7.56% Pfd. .......................................... 246,150*
36,000 Entergy Louisiana, Inc., 6.95% Pfd., 144A**** .................................. 3,699,360*
Entergy Mississippi, Inc.:
4,616 4.36% Pfd. ................................................................... 346,062*
5,000 4.92% Pfd. ................................................................... 417,188*
4,400 Florida Power Company, 4.75% Pfd. .............................................. 402,336*
18,500 FPC Capital I, 7.10% Pfd., Series A ............................................ 463,656
101,000 FPL Group Capital, Inc., 6.60% Pfd. 10/01/66, Series A ......................... 2,610,224
8,900 Georgia Power, 6.125% Pfd. ..................................................... 231,679*
Great Plains Energy, Inc.:
1,625 4.20% Pfd. ................................................................... 132,535*
2,000 4.35% Pfd. ................................................................... 164,500*

The accompanying notes are an integral part of the financial statements.
10

--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Opportunity Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 2006
------------------------------------------------------------------

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

PREFERRED SECURITIES -- (CONTINUED)
UTILITIES -- (CONTINUED)
---------------------------------------------------------------------------------------------------------------------

Hawaiian Electric Company, Inc.:
2,471 5.00% Pfd., Series D ......................................................... $ 45,170*
7,438 5.00% Pfd., Series E ......................................................... 135,967*
1,383 5.00% Pfd., Series I ......................................................... 25,281*
$ 3,750,000 Houston Light & Power Capital Trust II, 8.257% 02/01/37 Capital Security ....... 3,919,125
30,500 Indianapolis Power & Light Company, 5.65% Pfd. ................................. 2,973,750*
340,000 Interstate Power & Light Company, 8.375% Pfd., Series B ........................ 10,801,800*
2,588 New York State Electric & Gas, $4.50 Pfd., Series 1949 ......................... 230,461*
Ohio Power Company:
3,018 4.20% Pfd. ................................................................... 250,977*
1,251 4.40% Pfd. ................................................................... 108,987*
Pacific Enterprises:
13,680 $4.36 Pfd. ................................................................... 1,132,294*
24,985 $4.50 Pfd. ................................................................... 2,134,219*
15,730 $4.75 Pfd., Series 53 ........................................................ 1,433,396*
Pacific Gas & Electric Co.:
7,600 4.50% Pfd., Series H ......................................................... 157,168*
41,500 5.00% Pfd., Series D ......................................................... 920,470*
83,000 5.00% Pfd., Series E ......................................................... 1,907,340*
PacifiCorp:
5,672 $4.56 Pfd. ................................................................... 480,475*
6,708 $4.72 Pfd. ................................................................... 588,157*
8,750 $7.48 Sinking Fund Pfd. ...................................................... 890,859*
1,250 PECO Energy Company, $4.30 Pfd., Series B ...................................... 103,963*
$ 1,500,000 PECO Energy Capital Trust III, 7.38% 04/06/28 Capital Security, Series D ....... 1,666,500
12,748 Portland General Electric, 7.75% Sinking Fund Pfd. ............................. 1,294,432*
14,020 Public Service Electric & Gas Company, 5.28% Pfd., Series E .................... 1,409,431*
70,210 San Diego Gas & Electric Company, $1.70 Pfd. ................................... 1,832,046*
South Carolina Electric & Gas Company:
13,974 5.125% Purchase Fund Pfd., Pvt. .............................................. 717,844*
7,774 6.00% Purchase Fund Pfd., Pvt. ............................................... 395,619*
Southern California Edison:
5,000 4.24% Pfd. ................................................................... 103,000*
11,300 6.00% Pfd. ................................................................... 1,155,779*
Southern Union Company:
$ 700,000 Variable Rate Pfd. 11/01/66, Capital Security ................................ 708,271
60,000 7.55% Pfd. ................................................................... 1,564,200*

The accompanying notes are an integral part of the financial statements.
11

--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Opportunity Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 2006
------------------------------------------------------------------

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

PREFERRED SECURITIES -- (CONTINUED)
UTILITIES -- (CONTINUED)
---------------------------------------------------------------------------------------------------------------------

$ 750,000 TXU Electric Capital V, 8.175% 01/30/37 Capital Security ....................... $ 782,028
Union Electric Company:
5,700 4.56% Pfd. ................................................................... 487,350*
10,156 $7.64 Pfd. ................................................................... 1,048,302*
Virginia Electric & Power Company:
1,665 $4.04 Pfd. ................................................................... 130,186*
2,470 $4.20 Pfd. ................................................................... 200,811*
1,673 $4.80 Pfd. ................................................................... 155,422*
2,878 $6.98 Pfd. ................................................................... 296,974*
12,500 $7.05 Pfd. ................................................................... 1,293,750*
11,200 Virginia Power Capital Trust, 7.375% Pfd. 07/30/42 ............................. 286,651
2,262 Washington Gas & Light Company, $4.25 Pfd. ..................................... 195,007*
12,863 Wisconsin Power & Light Company, 6.20% Pfd. .................................... 1,320,468*
Xcel Energy, Inc.:
15,000 $4.08 Pfd., Series B ......................................................... 1,201,200*
20,040 $4.10 Pfd., Series C ......................................................... 1,612,619*
35,510 $4.11 Pfd., Series D ......................................................... 2,864,237*
17,750 $4.16 Pfd., Series E ......................................................... 1,449,288*
10,000 $4.56 Pfd., Series G ......................................................... 895,000*
-------------------------------------------------------------------------------------------------------------------
74,316,656
----------------
OIL AND GAS -- 4.8%
---------------------------------------------------------------------------------------------------------------------
8,000 Devon Energy Corporation, 6.49% Pfd., Series A ................................. 819,750*
$ 272,000 Enterprise Products Partners, Variable Rate Pfd. ............................... 295,602
6,125 EOG Resources, Inc., 7.195% Pfd., Series B ..................................... 6,601,464*
$ 1,650,000 KN Capital Trust III, 7.63% 04/15/28 Capital Security .......................... 1,603,147
10,000 Lasmo America Limited, 8.15% Pfd., 144A**** .................................... 1,063,600*(1)
-------------------------------------------------------------------------------------------------------------------
10,383,563
----------------
REAL ESTATE INVESTMENT TRUST (REIT) -- 3.2%
---------------------------------------------------------------------------------------------------------------------
BRE Properties, Inc.:
12,600 6.75% Pfd., Series D ......................................................... 320,119
18,900 8.08% Pfd., Series B ......................................................... 486,085
10,000 Equity Office Property Trust, 7.75% Pfd., Series G ............................. 251,250
1,000 Equity Residential Properties, 8.29% Pfd., Series K ............................ 58,020

The accompanying notes are an integral part of the financial statements.
12

--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Opportunity Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 2006
------------------------------------------------------------------

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

PREFERRED SECURITIES -- (CONTINUED)
REAL ESTATE INVESTMENT TRUST (REIT) -- (CONTINUED)
---------------------------------------------------------------------------------------------------------------------

Public Storage, Inc.:
13,600 6.18% Pfd., Series D ......................................................... $ 330,226
109,075 6.45% Pfd., Series F ......................................................... 2,713,241
2,900 6.75% Pfd., Series E ......................................................... 74,494
79,900 7.25% Pfd., Series K ......................................................... 2,102,369
3,700 7.625% Pfd., Series U ........................................................ 94,466
20,000 Realty Income Corp., 6.75% Pfd., Series E ...................................... 503,200
-------------------------------------------------------------------------------------------------------------------
6,933,470
----------------
MISCELLANEOUS INDUSTRIES -- 2.0%
---------------------------------------------------------------------------------------------------------------------
13,600 E.I. Du Pont de Nemours and Company, $4.50 Pfd., Series B ...................... 1,180,650*
35,000 Ocean Spray Cranberries, Inc., 6.25% Pfd., 144A****(1) ......................... 3,127,250*
26,000 Touch America Holdings, $6.875 Pfd. ............................................ --*+
-------------------------------------------------------------------------------------------------------------------
4,307,900
----------------
U.S. GOVERNMENT SECURITIES -- 0.1%
---------------------------------------------------------------------------------------------------------------------
5,600 Federal Home Loan Mortgage, Adj. Rate Pfd., Series B ........................... 232,400*
-------------------------------------------------------------------------------------------------------------------
232,400
----------------
TOTAL PREFERRED SECURITIES
(Cost $187,239,789) ......................................................... 200,989,749
----------------
CORPORATE DEBT SECURITIES -- 6.6%
FINANCIAL SERVICES -- 0.4%
---------------------------------------------------------------------------------------------------------------------
36,300 Saturns-GS, 6.00% 02/15/33, Series Goldman Sachs ............................... 907,954
-------------------------------------------------------------------------------------------------------------------
907,954
----------------
INSURANCE -- 2.6%
---------------------------------------------------------------------------------------------------------------------
$ 900,000 Farmers Exchange Capital, 7.20% 07/15/48, 144A**** ............................. 960,390
$ 4,417,000 Liberty Mutual Insurance, 7.697% 10/15/97, 144A**** ............................ 4,730,638
-------------------------------------------------------------------------------------------------------------------
5,691,028
----------------
UTILITIES -- 1.2%
---------------------------------------------------------------------------------------------------------------------
$ 1,000,000 Duquesne Light Holdings, 6.25% 08/15/35 ........................................ 924,259
10,000 Entergy Louisiana LLC, 7.60% 04/01/32 .......................................... 255,625

The accompanying notes are an integral part of the financial statements.
13

--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Opportunity Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 2006
------------------------------------------------------------------

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

CORPORATE DEBT SECURITIES -- (CONTINUED)
UTILITIES -- (CONTINUED)
---------------------------------------------------------------------------------------------------------------------

Southern Union Company:
$ 750,000 7.60% 02/01/24, Senior Notes ................................................. $ 815,226
$ 500,000 8.25% 11/15/29, Senior Notes ................................................. 584,505
-------------------------------------------------------------------------------------------------------------------
2,579,615
----------------
OIL AND GAS -- 2.0%
---------------------------------------------------------------------------------------------------------------------
$ 2,000,000 KN Energy, Inc., 7.45% 03/01/98 ................................................ 1,925,780
97,900 Nexen, Inc., 7.35% Subordinated Notes .......................................... 2,523,989(1)
-------------------------------------------------------------------------------------------------------------------
4,449,769
----------------
MISCELLANEOUS INDUSTRIES -- 0.4%
---------------------------------------------------------------------------------------------------------------------
$ 750,000 Reliance Steel & Aluminum, 6.85% 11/15/36, 144A**** ............................ 761,023
-------------------------------------------------------------------------------------------------------------------
761,023
----------------
TOTAL CORPORATE DEBT SECURITIES
(Cost $13,635,851) .......................................................... 14,389,389
----------------
OPTION CONTRACTS -- 0.0%
1,400 March Put Options on March U.S. Treasury Bond Futures, Expiring 02/23/07 ....... 97,125+
-------------------------------------------------------------------------------------------------------------------
TOTAL OPTION CONTRACTS
(Cost $347,532) ............................................................. 97,125
----------------

The accompanying notes are an integral part of the financial statements.
14

--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Opportunity Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 2006
------------------------------------------------------------------

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

MONEY MARKET FUND -- 0.7%
1,588,765 BlackRock Provident Institutional, TempFund .................................... $ 1,588,765
-------------------------------------------------------------------------------------------------------------------
TOTAL MONEY MARKET FUND
(Cost $1,588,765) ........................................................... 1,588,765
----------------
SECURITIES LENDING COLLATERAL -- 0.3%
551,880 Institutional Money Market Trust ............................................... 551,880
-------------------------------------------------------------------------------------------------------------------
TOTAL SECURITIES LENDING COLLATERAL
(Cost $551,880) ............................................................. 551,880
----------------

TOTAL INVESTMENTS (Cost $203,363,817***) .......................................... 100.1% 217,616,908
OTHER ASSETS AND LIABILITIES (Net) ................................................ (0.1%) (259,582)
--------- ----------------
TOTAL NET ASSETS AVAILABLE TO COMMON AND PREFERRED STOCK .......................... 100.0%++ $ 217,357,326
--------- ----------------
MONEY MARKET CUMULATIVE PREFERRED(TM) STOCK (MMP(R)) REDEMPTION VALUE ........................ (70,000,000)
----------------
TOTAL NET ASSETS AVAILABLE TO COMMON STOCK ................................................... $ 147,357,326
================

-----------------------------
* Securities eligible for the Dividends Received Deduction and distributing
Qualified Dividend Income.
** Securities distributing Qualified Dividend Income only.
*** Aggregate cost of securities held.
**** Securities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration to qualified institutional buyers. These securities have
been determined to be liquid under the guidelines established by the
Board of Directors.
(1) Foreign Issuer.
(2) A portion of this security is on loan.
+ Non-income producing.
++ The percentage shown for each investment category is the total value of
that category as a percentage of net assets available to Common and
Preferred Stock.

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

The accompanying notes are an integral part of the financial statements.
15

--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Opportunity Fund Incorporated
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 2006
------------------------------------------------------------------

ASSETS:
Investments, at value (Cost $203,363,817) ..................................... $ 217,616,908
Receivable for Investments sold ............................................... 255,305
Dividends and interest receivable ............................................. 1,609,045
Prepaid expenses .............................................................. 75,055
---------------
Total Assets .......................................................... 219,556,313

LIABILITIES:
Payable for securities lending collateral ..................................... $ 551,880
Payable for Investments purchased ............................................. 1,128,750
Dividends payable to Common Stock Shareholders ................................ 92,671
Investment advisory fee payable ............................................... 98,817
Administration, Transfer Agent and Custodian fees payable ..................... 29,466
Professional fees payable ..................................................... 64,759
Directors' fees payable ....................................................... 641
Accrued expenses and other payables ........................................... 16,182
Accumulated undeclared distributions to Money Market Cumulative
Preferred(TM) Stock Shareholders ............................................ 215,821
-----------
Total Liabilities ..................................................... 2,198,987
---------------
MONEY MARKET CUMULATIVE PREFERRED(TM) STOCK (700 SHARES
OUTSTANDING) REDEMPTION VALUE .................................................. 70,000,000
---------------
NET ASSETS AVAILABLE TO COMMON STOCK ............................................. $ 147,357,326
===============

NET ASSETS AVAILABLE TO COMMON STOCK consist of:
Distributions in excess of net investment income .............................. $ (233,907)
Accumulated net realized loss on investments sold ............................. (2,053,131)
Unrealized appreciation of investments ........................................ 14,253,091
Par value of Common Stock ..................................................... 116,954
Paid-in capital in excess of par value of Common Stock ........................ 135,274,319
---------------
Total Net Assets Available to Common Stock ............................ $ 147,357,326
===============

NET ASSET VALUE PER SHARE OF COMMON STOCK:
Common Stock (11,695,372 shares outstanding) ................................ $ 12.60
===============

The accompanying notes are an integral part of the financial statements.
16

--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Opportunity Fund Incorporated
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED NOVEMBER 30, 2006
------------------------------------------------------------------

INVESTMENT INCOME:
Dividends+ .................................................................. $ 11,083,005
Interest .................................................................... 2,993,467
--------------
Total Investment Income ................................................ 14,076,472

EXPENSES:
Investment advisory fee ..................................................... $ 1,188,172
Administrator's fee ......................................................... 207,632
Money Market Cumulative Preferred(TM) Stock broker commissions
and auction agent fees ................................................... 189,930
Professional fees ........................................................... 121,709
Insurance expense ........................................................... 148,661
Transfer agent fees ......................................................... 58,970
Directors' fees ............................................................. 70,475
Custodian fees .............................................................. 26,628
Compliance fees ............................................................. 38,299
Other ....................................................................... 116,197
-----------
Total Expenses ......................................................... 2,166,673
--------------
NET INVESTMENT INCOME ............................................................ 11,909,799
--------------

REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS
Net realized gain/(loss) on investments sold during the year ................ 3,470,490
Change in net unrealized appreciation/depreciation of investments
held during the year ..................................................... 2,218,263
--------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS .................................. 5,688,753
--------------

DISTRIBUTIONS TO MONEY MARKET CUMULATIVE PREFERRED(TM) STOCK SHAREHOLDERS:
From net investment income (including changes in accumulated
undeclared distributions) ................................................ (2,877,427)
--------------
NET INCREASE IN NET ASSETS TO COMMON STOCK RESULTING
FROM OPERATIONS .......................................................... $ 14,721,125
==============

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

The accompanying notes are an integral part of the financial statements.
17

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

YEAR ENDED YEAR ENDED
NOVEMBER 30, 2006 NOVEMBER 30, 2005
----------------- -----------------

OPERATIONS:
Net investment income ..................................................... $ 11,909,799 $ 11,145,051
Net realized gain/(loss) on investments sold during the year .............. 3,470,490 4,238,243
Change in net unrealized appreciation/depreciation of investments
held during the year ................................................... 2,218,263 (4,421,911)
Distributions to MMP(R)* Shareholders from net investment
income, including changes in accumulated undeclared distributions ...... (2,877,427) (1,937,548)
--------------- ---------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ........................... 14,721,125 9,023,835

DISTRIBUTIONS:
Dividends paid from net investment income to Common Stock
Shareholders(1) ........................................................ (9,312,018) (10,602,545)
--------------- ---------------
TOTAL DISTRIBUTIONS TO COMMON STOCK SHAREHOLDERS ............................... (9,312,018) (10,602,545)

FUND SHARE TRANSACTIONS:
Increase from shares issued under the Dividend Reinvestment
and Cash Purchase Plan ................................................. 231,696 1,150,181
--------------- ---------------
NET INCREASE IN NET ASSETS AVAILABLE TO COMMON STOCK
RESULTING FROM FUND SHARE TRANSACTIONS ................................. 231,696 1,150,181

NET INCREASE/(DECREASE) IN NET ASSETS AVAILABLE TO --------------- ---------------
COMMON STOCK FOR THE YEAR .................................................. $ 5,640,803 $ (428,529)
=============== ===============

------------------------------------------------------------------------------------------------------------------------
NET ASSETS AVAILABLE TO COMMON STOCK:
Beginning of year ......................................................... $ 141,716,523 $142,145,052
Net increase/(decrease) in net assets during the year ..................... 5,640,803 (428,529)
--------------- ---------------
End of year (including distributions in excess of net investment
income of ($233,907) and ($209,391), respectively) ..................... $ 147,357,326 $ 141,716,523
=============== ===============

-------
* Money Market Cumulative Preferred(TM) Stock.
(1) May include income earned, but not paid out, in prior fiscal year.

The accompanying notes are an integral part of the financial statements.
18

--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Opportunity Fund Incorporated
FINANCIAL HIGHLIGHTS
FOR A COMMON STOCK SHARE OUTSTANDING THROUGHOUT EACH YEAR.
------------------------------------------------------------------

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.

YEAR ENDED NOVEMBER 30,
-------------------------------------------------------------
2006 2005 2004 2003 2002
--------- ------- ------- --------- ---------

PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year ................................. $ 12.14 $ 12.27 $ 12.59 $ 10.78 $ 11.60
--------- ------- --------- --------- ---------
INVESTMENT OPERATIONS:
Net investment income .............................................. 1.02 0.96 0.98 1.02 1.07
Net realized and unrealized gain/(loss) on investments ............. 0.49 (0.01) (0.27) 1.85 (0.87)
DISTRIBUTIONS TO MMP(R)* SHAREHOLDERS:
From net investment income ......................................... (0.25) (0.17) (0.09) (0.08) (0.11)
--------- ------- --------- --------- ---------
Total from investment operations ................................... 1.26 0.78 0.62 2.79 0.09
--------- ------- --------- --------- ---------
DISTRIBUTIONS TO COMMON STOCK SHAREHOLDERS:
From net investment income ......................................... (0.80) (0.91) (0.94) (0.98) (0.91)
--------- ------- --------- --------- ---------
Total distributions to Common Stock Shareholders ................... (0.80) (0.91) (0.94) (0.98) (0.91)
--------- ------- --------- --------- ---------
Net asset value, end of year ....................................... $ 12.60 $ 12.14 $ 12.27 $ 12.59 $ 10.78
========= ======= ========= ========= =========
Market value, end of year .......................................... $ 12.42 $ 11.53 $ 13.53 $ 13.51 $ 11.72
========= ======= ========= ========= =========
Total investment return based on net asset value** ................. 11.02% 6.36% 4.68% 26.57% 0.63%
========= ======= ========= ========= =========
Total investment return based on market value** .................... 15.22% (8.40%) 7.57% 24.92% 12.61%
========= ======= ========= ========= =========
RATIOS TO AVERAGE NET ASSETS AVAILABLE
TO COMMON STOCK SHAREHOLDERS:
Total net assets, end of year (in 000's) ...................... $ 147,357 $141,717 $ 142,145 $ 144,303 $ 122,258
Operating expenses ............................................ 1.52% 1.53% 1.52% 1.54% 1.56%
Net investment income + ....................................... 6.34% 6.30% 7.11% 7.85% 8.67%

-----------------------------------------------------------------
SUPPLEMENTAL DATA:++
Portfolio turnover rate ....................................... 68% 57% 28% 28% 29%
Total net assets available to Common and Preferred Stock,
end of year (in 000's) ..................................... $ 217,357 $211,717 $ 212,145 $ 214,41 $ 192,361
Ratio of operating expenses to total average net assets
available to Common and Preferred Stock .................... 1.02% 1.03% 1.03% 1.02% 1.00%

* Money Market Cumulative Preferred(TM) Stock.
** Assumes reinvestment of distributions at the price obtained by the Fund's
Dividend Reinvestment and Cash Purchase Plan.
+ The net investment income ratios reflect income net of operating
expenses and payments to MMP(R)* Shareholders.
++ Information presented under heading Supplemental Data includes MMP(R)*.

The accompanying notes are an integral part of the financial statements.
19

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

TOTAL DIVIDEND
DIVIDENDS NET ASSET NYSE REINVESTMENT
PAID VALUE CLOSING PRICE PRICE (1)
--------- --------- -------------- -------------

December 31, 2005 ............................................... $0.0705 $12.24 $11.09 $11.43
January 31, 2006 ................................................ 0.0705 12.28 12.63 12.28
February 28, 2006 ............................................... 0.0705 12.38 12.39 12.38
March 31, 2006 .................................................. 0.0650 12.25 11.46 11.54
April 30, 2006 .................................................. 0.0650 12.11 11.22 11.27
May 31, 2006 .................................................... 0.0650 12.00 11.05 11.20
June 30, 2006 ................................................... 0.0650 11.86 11.10 11.21
July 31, 2006 ................................................... 0.0650 11.83 11.53 11.79
August 31, 2006 ................................................. 0.0650 12.16 11.94 12.02
September 30, 2006 .............................................. 0.0650 12.29 11.85 12.05
October 31, 2006 ................................................ 0.0650 12.41 11.95 12.08
November 30, 2006 ............................................... 0.0650 12.60 12.42 12.46

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

The accompanying notes are an integral part of the financial statements.
20

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

INVOLUNTARY AVERAGE
ASSET LIQUIDATING MARKET
TOTAL SHARES COVERAGE PREFERENCE VALUE
DATE OUTSTANDING (1) PER SHARE (2) PER SHARE (3) PER SHARE (1)(3)
-------------- --------------- ------------- ------------- ----------------

11/30/06 700 $310,819 $100,000 $100,000
11/30/05 700 302,788 100,000 100,000
11/30/04 700 303,137 100,000 100,000
11/30/03 700 306,301 100,000 100,000
11/30/02 700 274,802 100,000 100,000

------------
(1) See note 6.
(2) Calculated by subtracting the Fund's total liabilities (excluding the MMP(R)
and accumulated undeclared distributions to MMP(R)) from the Fund's total
assets and dividing that amount by the number of MMP(R) shares outstanding.
(3) Excludes accumulated undeclared dividends.

The accompanying notes are an integral part of the financial statements.
21

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Flaherty & Crumrine Preferred Income Opportunity Fund Incorporated
NOTES TO FINANCIAL STATEMENTS
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1. ORGANIZATION

Flaherty & Crumrine Preferred Income Opportunity Fund Incorporated (the
"Fund") was incorporated as a Maryland corporation on December 10, 1991, and
commenced operations on February 13, 1992 as a diversified, closed-end
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"). The Fund's investment objective is to provide its
common shareholders with high current income consistent with the preservation of
capital.

2. SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of the financial statements is in conformity with the U.S. generally
accepted accounting principles ("US GAAP") and requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities in the financial statements and the reported amounts of increases
and decreases in net assets from operations during the reporting period. Actual
results could differ from those estimates.

PORTFOLIO VALUATION: The net asset value of the Fund's Common Stock is
determined by the Fund's Administrator no less frequently than on the last
business day of each week and month. It is determined by dividing the value of
the Fund's net assets available to Common Stock by the number of shares of
Common Stock outstanding. The value of the Fund's net assets attributable to
Common Stock is deemed to equal the value of the Fund's total assets less (i)
the Fund's liabilities and (ii) the aggregate liquidation value of the
outstanding Money Market Cumulative Preferred(TM) Stock ("MMP(R)").

The Fund's preferred and debt securities are valued on the basis of current
market quotations provided by independent pricing services or dealers approved
by the Board of Directors of the Fund. Each quotation is based on the mean of
the bid and asked prices of a security. In determining the value of a particular
preferred or debt security, a pricing service or dealer may use information with
respect to transactions in such investments, quotations, market transactions in
comparable investments, various relationships observed in the market between
investments, and/or calculated yield measures based on valuation technology
commonly employed in the market for such investments. Common stocks that are
traded on stock exchanges are valued at the last sale price or official close
price on the exchange, as of the close of business on the day the securities are
being valued or, lacking any sales, at the last available mean price. Futures
contracts and option contracts on futures contracts are valued on the basis of
the settlement price for such contracts on the primary exchange on which they
trade. Investments in over-the-counter derivative instruments, such as interest
rate swaps and options thereon ("swaptions"), are valued using prices supplied
by a pricing service, or if such prices are unavailable, prices provided by a
single broker or dealer that is not the counterparty or, if no such prices are
available, at a price at which the counterparty to the contract would repurchase
the instrument or terminate the contract. 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 and all debt and preferred securities which mature in 60 days or
less are valued at amortized cost. Investments in money market funds are valued
at the net asset value of such funds.

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

SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded as of the trade date. Realized gains and losses from securities sold
are recorded on the identified cost basis. Dividend income is recorded on
ex-dividend dates. Interest income is recorded on the accrual basis. The Fund
also amortizes premiums and accretes discounts on fixed income securities.

OPTIONS: Purchases of options are recorded as an investment, the value of
which is marked-to-market at each valuation date. When the Fund enters into a
closing sale transaction, the Fund will record a gain or loss depending on the
difference between the purchase and sale price. The risks associated with
purchasing options and the maximum loss the Fund would incur are limited to the
purchase price originally paid.

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

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

REPURCHASE AGREEMENTS: The Fund may engage in repurchase agreement
transactions. The Fund's investment adviser reviews and approves the eligibility
of the banks and dealers with which the Fund may enter into repurchase agreement
transactions. The value of the collateral underlying such transactions is at
least equal at all times to the total amount of the repurchase obligations,
including interest. The Fund maintains possession of the collateral through its
custodian and, in the event of counterparty default, the Fund has the right to
use the collateral to offset losses incurred. There is the possibility of loss
to the Fund in the event the Fund is delayed or prevented from exercising its
rights to dispose of the collateral securities.

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.

DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: The Fund expects to declare
dividends on a monthly basis to shareholders of Common Stock ("Shareholders").
Distributions to Shareholders are recorded on the ex-dividend date. Any net
realized short-term capital gains will be distributed to Shareholders at least
annually. Any net realized long-term capital gains may be distributed to
Shareholders at least annually or may be retained by the Fund as determined by
the Fund's Board of Directors. Capital gains retained by the Fund are subject to
tax at the capital gains corporate tax rate. Subject to the Fund

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

qualifying as a regulated investment company, any taxes paid by the Fund on
such net realized long-term capital gains may be used by the Fund's Shareholders
as a credit against their own tax liabilities.

Income and capital gain distributions are determined and characterized in
accordance with income tax regulations which may differ from US GAAP. These
differences are primarily due to (1) differing treatments of income and gains on
various investment securities held by the Fund, including timing differences,
(2) the attribution of expenses against certain components of taxable investment
income, and (3) federal regulations requiring proportionate allocation of income
and gains to all classes of shareholders.

Distributions from net realized gains for book purposes may include
short-term capital gains, which are included as ordinary income for tax
purposes, and may exclude amortization of premium on certain fixed income
securities, which are not reflected in ordinary income for tax purposes. The tax
character of distributions paid, including changes in accumulated undeclared
distributions to MMP(R) Shareholders, during 2006 and 2005 was as follows:

DISTRIBUTIONS PAID IN FISCAL YEAR 2006 DISTRIBUTIONS PAID IN FISCAL YEAR 2005
-------------------------------------- --------------------------------------
ORDINARY INCOME LONG-TERM CAPITAL GAINS ORDINARY INCOME LONG-TERM CAPITAL GAINS
--------------- ----------------------- --------------- -----------------------

Common $9,312,018 $0 $10,602,545 $0
Preferred $2,877,427 $0 $1,937,548 $0

As of November 30, 2006, the components of distributable earnings (i.e.,
ordinary income and capital gain/loss) available to Common and Preferred Stock
Shareholders, on a tax basis, were as follows:

UNDISTRIBUTED UNDISTRIBUTED NET UNREALIZED
------------- ------------- --------------
CAPITAL (LOSS) CARRYFORWARD ORDINARY INCOME LONG-TERM GAIN APPRECIATION/(DEPRECIATION)
--------------------------- --------------- -------------- --------------------------

($1,918,273) $321,816 $0 $14,118,233

At November 30, 2006, the composition of the Fund's $1,918,273 accumulated
realized capital losses was $1,223,987 and $694,286 in 2002 and 2004,
respectively. These losses may be carried forward and offset against any future
capital gains through 2010 and 2012, respectively.

RECLASSIFICATION OF ACCOUNTS: During the year ended November 30, 2006,
reclassifications were made in the Fund's capital accounts to report these
balances on a tax basis, excluding temporary differences, as of November 30,
2006. Additional adjustments may be required in subsequent reporting periods.
These reclassifications have no impact on the net asset value of the Fund. The
calculation of net investment income per share in the financial highlights
excludes these adjustments. Below are the reclassifications:

UNDISTRIBUTED ACCUMULATED NET REALIZED
PAID-IN CAPITAL NET INVESTMENT INCOME LOSS ON INVESTMENTS
--------------- --------------------- -------------------
$11,066 $255,130 ($266,196)

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

EXCISE TAX: The Internal Revenue Code of 1986, as amended, imposes a 4%
nondeductible excise tax on the Fund to the extent the Fund does not distribute
by the end of any calendar year at least (1) 98% of the sum of its net
investment income for that year and its capital gains (both long-term and short-
term) for its fiscal year and (2) certain undistributed amounts from previous
years. The Fund is subject to a payment of an estimated $31,000 of Federal
excise taxes attributable to calendar year 2006. The Fund paid $16,000 of
Federal excise taxes attributable to calendar year 2005 in March 2006.

ADDITIONAL ACCOUNTING STANDARDS: In June 2006, the Financial Accounting
Standards Board ("FASB") issued FASB Interpretation 48 ("FIN 48"), "Accounting
for Uncertainty in Income Taxes." This standard defines the threshold for
recognizing the benefits of tax-return positions in the financial statements as
"more-likely-than-not" to be sustained by the taxing authority and requires
measurement of a tax position meeting the more-likely-than-not criterion, based
on the largest benefit that is more than 50 percent likely to be realized. FIN
48 is effective as of the beginning of the first fiscal year beginning after
December 15, 2006, with early application permitted if no interim financial
statements have been issued. At adoption, companies must adjust their financial
statements to reflect only those tax positions that are more likely- than-not to
be sustained as of the adoption date.

In addition, in September 2006, Statement of Financial Accounting Standards
No. 157 FAIR VALUE MEASUREMENTS ("SFAS 157") was issued and is effective for
fiscal years beginning after November 15, 2007. SFAS 157 defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements.

Management is currently evaluating the impact the adoption of FIN48 and
SFAS 157 will have on the Fund's financial statements.

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

Flaherty & Crumrine Incorporated (the "Adviser") serves as the Fund's
investment adviser. The Fund pays the Adviser a monthly fee at an annual rate of
0.625% of the value of the Fund's average monthly total net assets available to
Common and Preferred Stock up to $100 million and 0.50% of the value of the
Fund's average monthly total net assets available to Common and Preferred Stock
in excess of $100 million.

For purposes of calculating the fees payable to the Adviser, Administrator
and Custodian, the Fund's average weekly total managed assets means the total
assets of the Fund minus the sum of accrued liabilities. For purposes of
determining total managed assets, the liquidation preference of any preferred
shares issued by the Fund is not treated as a liability.

PFPC Inc., a member of the PNC Financial Services Group, Inc. ("PNC
Financial Services"), serves as the Fund's Administrator. As Administrator, PFPC
Inc. calculates the net asset value of the Fund's shares attributable to Common
Stock and generally assists in all aspects of the Fund's administration and
operation. As compensation for PFPC Inc.'s services as Administrator, the Fund
pays PFPC Inc. a monthly fee at an annual rate of 0.10% of the first $200
million of the Fund's average weekly total managed assets, 0.04% of the next
$300 million of the Fund's average weekly total managed assets, 0.03% of the
next $500 million of the Fund's average weekly total managed assets and 0.02% on
the Fund's average weekly total managed assets above $1 billion.

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

PFPC Inc. also serves as the Fund's Common Stock dividend-paying agent and
registrar (Transfer Agent). As compensation for PFPC Inc.'s services, the Fund
pays PFPC Inc. a fee at an annual rate of 0.02% of the first $150 million of the
Fund's average weekly net assets attributable to Common Stock, 0.0075% of the
next $350 million of the Fund's average weekly net assets attributable to Common
Stock, and 0.0025% of the Fund's average weekly net assets attributable to
Common Stock above $500 million, plus certain out of pocket expenses. For the
purpose of calculating such fee, the Fund's average weekly net assets
attributable to Common Stock are deemed to be the average weekly value of the
Fund's total assets minus the sum of the Fund's liabilities. For this
calculation, the Fund's liabilities are deemed to include the aggregate
liquidation preference of any outstanding Fund preferred shares.

PFPC Trust Company ("PFPC Trust") serves as the Fund's custodian. PFPC
Trust is an indirect subsidiary of PNC Financial Services. As compensation for
PFPC Trust's services as custodian, the Fund pays PFPC Trust a monthly fee at
the annual rate of 0.010% of the first $200 million of the Fund's average weekly
total managed assets, 0.008% of the next $300 million of the Fund's average
weekly total managed assets, 0.006% of the next $500 million of the Fund's
average weekly total managed assets and 0.005% of the Fund's average weekly
total managed assets above $1 billion.

The Fund currently pays each Director who is not a director, officer or
employee of the Adviser a fee of $9,000 per annum, plus $500 for each in-person
meeting of the Board of Directors or any committee and $150 for each telephone
meeting. The Audit Committee Chairman receives an additional annual fee of
$2,500. The Fund also reimburses all Directors for travel and out-of-pocket
expenses incurred in connection with such meetings.

The Fund currently pays the Adviser a fee of $37,500 per annum for Chief
Compliance Officer services and reimburses out-of-pocket expenses incurred in
connection with providing services in this role.

4. PURCHASES AND SALES OF SECURITIES

For the year ended November 30, 2006, the cost of purchases and proceeds
from sales of securities excluding short-term investments, aggregated
$145,678,496 and $142,073,165, respectively.

At November 30, 2006, the aggregate cost of securities for federal income
tax purposes was $203,498,675, the aggregate gross unrealized appreciation for
all securities in which there is an excess of value over tax cost was
$17,844,594 and the aggregate gross unrealized depreciation for all securities
in which there is an excess of tax cost over value was $3,726,361.

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

5. COMMON STOCK

At May 31, 2006, 240,000,000 shares of $0.01 par value Common Stock were
authorized.

Common Stock transactions were as follows:

YEAR ENDED YEAR ENDED
11/30/06 11/30/05
-------------------- --------------------
SHARES AMOUNT SHARES AMOUNT
------- ------ ------- ------

Shares issued under the Dividend Reinvestment and
Cash Purchase Plan ................................. 18,787 $ 231,696 90,012 $ 1,150,181
------- --------- ------- -----------

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

The Fund's Articles of Incorporation authorize the issuance of up to
10,000,000 shares of $0.01 par value preferred stock. The MMP(R) is senior to
the Common Stock and results in the financial leveraging of the Common Stock.
Such leveraging tends to magnifY both the risks and opportunities to Common
Stock Shareholders. Dividends on shares of MMP(R) are cumulative.

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

If the Fund allocates any net gains or income ineligible for the Dividends
Received Deduction to shares of the MMP(R), the Fund iS required to make
additional distributions to MMP(R) Shareholders or to pay a higher dividend rate
in amounts needed to provide A return, net of tax, equal to the return had such
originally paid distributions been eligible for the Dividends Received
Deduction.

An auction of the MMP(R) is generally held every 49 days. Existing MMP(R)
Shareholders may submit an order to hold, bid or sELl such shares at par value
on each auction date. MMP(R) Shareholders may also trade shares in the secondary
market, if any, betweeN auction dates.

At November 30, 2006, 700 shares of MMP(R) were outstanding at the
annualized rate of 3.94%. The dividend rate, as set by thE auction process, is
generally expected to vary with short-term interest rates. These rates may vary
in a manner unrelated to the income received on the Fund's assets, which could
have either a beneficial or detrimental impact on net investment income and
gains available to Common Stock Shareholders. While the Fund expects to
structure its portfolio holdings and hedging transactions to lessen such risks
to Common Stock Shareholders, there can be no assurance that such results will
be attained.

7. PORTFOLIO INVESTMENTS, CONCENTRATION AND INVESTMENT QUALITY

The Fund invests primarily in a diversified portfolio of preferred
securities. This includes traditional preferred stocks eligible for the
inter-corporate dividends received deduction ("DRD") and fully taxable (hybrid)
preferred securities. Under normal market conditions, at least 80% of the value
of the Fund's net

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

assets will be invested in preferred securities. Also, under normal market
conditions, the Fund invests at least 25% of its assets in securities issued by
companies in the utility industry and a significant percentage, but no more than
25% of its assets, in securities issued by 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.

The Fund may invest up to 25% of its assets at the time of purchase in
securities rated below investment grade. These securities must be rated at least
either "Ba3" by Moody's Investors Service, Inc. or "BB-" by Standard & Poor's
or, if unrated, judged to be comparable in quality by the Adviser, in any case,
at the time of purchase. However, these securities must be issued by an issuer
having a class of senior debt rated investment grade outstanding.

The Fund may invest up to 15% of its assets in common stocks and, under
normal market conditions, up to 20% of its assets in debt securities. Certain of
its investments in hybrid, i.e., fully taxable, preferred securities will be
subject to the foregoing 20% limitation to the extent that, in the opinion of
the Adviser, such investments are deemed to be debt-like in key characteristics.
Typically, a security will not be considered debt-like (a) if an issuer can
defer payment of income for eighteen months or more without triggering an event
of default and (b) if such issue is a junior and fully subordinated liability of
an issuer or its ultimate guarantor.

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

8. SPECIAL INVESTMENT TECHNIQUES

The Fund may employ certain investment techniques in accordance with its
fundamental investment policies. These may include the use of when-issued and
delayed delivery transactions. Securities purchased or sold on a when-issued or
delayed delivery basis may be settled within 45 days after the date of the
transaction. Such transactions may expose the Fund to credit and market
valuation risk greater than that associated with regular trade settlement
procedures. The Fund may also enter into transactions, in accordance with its
investment policies, involving any or all of the following: short sales of
securities, futures contracts, interest rate swaps, swap futures, options on
futures contracts, options on securities, swaptions and certain credit
derivative transactions, including, but not limited to, the purchase and sale of
credit protection. As in the case of when-issued securities, the use of
over-the-counter derivatives, such as interest rate swaps, swaptions, and credit
default swaps may expose the Fund to greater credit, operations, liquidity, and
valuation risk than is the case with regulated, exchange traded futures and
options. These transactions are used for hedging or other appropriate
risk-management purposes, or, under certain other circumstances, to increase
return. No assurance can be given that such transactions will achieve their
desired purposes or will result in an overall reduction of risk to the Fund.

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

9. SECURITIES LENDING

The Fund may lend up to 15% of its total assets (including the value of the
loan collateral) to certain qualified brokers in order to earn additional
income. The Fund receives compensation in the form of fees or interest earned on
the investment of any cash collateral received. The Fund also continues to
receive interest and dividends on the securities loaned. The Fund receives
collateral in the form of cash or securities with a market value at least equal
to the market value of the securities on loan, including accrued interest. In
the event of default or bankruptcy by the borrower, the Fund could experience
delays and costs in recovering the loaned securities or in gaining access to the
collateral. The Fund has the right under the lending agreement to recover the
securities from the borrower on demand. As of November 30, 2006, the market
value of securities loaned by the Fund was $534,637. The loans were secured with
collateral of $551,880. Income from securities lending for fiscal year 2006 was
$563.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders
Flaherty & Crumrine Preferred Income Opportunity Fund Incorporated

We have audited the accompanying statement of assets and liabilities of the
Flaherty & Crumrine Preferred Income Opportunity Fund Incorporated, including
the portfolio of investments, as of November 30, 2006, and the related statement
of operations for the year then ended, the statements of changes in net assets
for each of the years in the two-year period then ended, and the financial
highlights for each of the years in the five-year period then ended. These
financial statements and financial highlights are the responsibility of
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.

We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of November 30, 2006 by correspondence with
the custodian and brokers, or by other appropriate auditing procedures. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
Flaherty & Crumrine Preferred Income Opportunity Fund Incorporated, as of
November 30, 2006, and the results of its operations for the year then ended,
the changes in its net assets for each of the years in the two-year period then
ended, and the financial highlights for each of the years in the five-year
period then ended, in conformity with U.S. generally accepted accounting
principles.

/S/ KPMG LLP

Boston, Massachusetts
January 17, 2007

--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Opportunity Fund Incorporated
SUPPLEMENTARY TAX INFORMATION (UNAUDITED)
------------------------------------------------------------------

Distributions to Common Stock and MMP(R) Shareholders are characterized as
follows for purposes of Federal income taxes:

FISCAL YEAR 2006

INDIVIDUAL SHAREHOLDER CORPORATE SHAREHOLDER
ORDINARY ORDINARY
QDI INCOME DRD INCOME

MMP(R) and Common Stock 78.93% 21.07% 72.84% 27.16%

CALENDAR YEAR 2006

INDIVIDUAL SHAREHOLDER CORPORATE SHAREHOLDER
ORDINARY ORDINARY
QDI INCOME DRD INCOME

MMP(R) 78.09% 21.91% 71.56% 28.44%
Common Stock 78.22% 21.78% 71.76% 28.24%

Qualified Dividend Income ("QDI") distributions are taxable at a maximum
15% personal tax rate.

--------------------------------------------------------------------------------
Flaherty & Crumrine 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 their 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, 2006, $2,519 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 dividend
payment date, a dividend or distribution in an amount equal to the cash that the
participant could have received instead of shares.

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In addition to acquiring shares of Common Stock through the reinvestment of
cash dividends and distributions, a shareholder may invest any further amounts
from $100 to $3,000 semi-annually at the then current market price in shares
purchased through the Plan. Such semi-annual investments are subject to any
brokerage commission charges incurred by PFPC Inc. under the Plan.

A shareholder whose Common Stock is registered in his or her own name may
terminate participation in the Plan at any time by notifying PFPC Inc. in
writing, by completing the form on the back of the Plan account statement and
forwarding it to PFPC Inc., or by calling PFPC Inc. directly. A termination will
be effective immediately if notice is received by PFPC Inc. not less than 10
days before any dividend or distribution record date. Otherwise, the termination
will be effective, and only with respect to any subsequent dividends or
distributions, on the first day after the dividend or distribution has been
credited to the participant's account in additional shares of the Fund. Upon
termination and according to a participant's instructions, PFPC Inc. will either
(a) issue certificates for the whole shares credited to the shareholder's Plan
account and a check representing any fractional shares or (b) sell the shares in
the market. Shareholders who hold Common Stock registered in the name of a
broker or other nominee should consult their broker or nominee to terminate
participation.

The Plan is described in more detail in the Fund's Plan brochure.
Information concerning the Plan may be obtained from PFPC Inc. at
1-800-331-1710.

PROXY VOTING POLICIES AND PROXY VOTING RECORD ON FORM N-PX

The Fund files Form N-PX with its complete proxy voting record for the 12
months ended June 30th no later than August 31st of each year. The Fund filed
its latest Form N-PX with the Securities and Exchange Commission ("SEC") on
August 16, 2006. This filing, as well as the Fund's proxy voting policies and
procedures, are available (i) without charge, upon request, by calling the
Fund's transfer agent at 1-800-331-1710 and (ii) on the SEC's website at
WWW.SEC.GOV. In addition, the Fund's proxy voting policies and procedures are
available on the Fund's website at WWW.PREFERREDINCOME.COM.

PORTFOLIO SCHEDULE ON FORM N-Q

The Fund files a complete schedule of portfolio holdings with the SEC
for the first and third fiscal quarters on Form N-Q, the latest of which was
filed for the quarter ended August 31, 2006. The Fund's Form N-Q is available on
the SEC's website at WWW.SEC.GOV or may be viewed and obtained from the SEC's
Public Reference Room in Washington D.C. Information on the operation of the
Public Reference Section may be obtained by calling 1-800-SEC-0330.

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PORTFOLIO MANAGEMENT TEAM

In managing the day-to-day operations of the Fund, the Adviser relies on
the expertise of its team of money management professionals, consisting of
Messrs. Crumrine, Ettinger, Stone and Chadwick. The professional backgrounds of
each member of the management team are included in the "Information about Fund
Directors and Officers" section of this report.

CERTIFICATIONS

Included in the Annual Written Affirmation submitted to the New York Stock
Exchange, Donald F. Crumrine, as the Fund's Chief Executive Officer, has
certified that, as of May 22, 2006, he was not aware of any violation by the
Fund of applicable NYSE corporate governance listing standards. The Fund's
reports to the SEC on Forms N-CSR and N-Q contain certifications by the Fund's
principal executive officer and principal financial officer that relate to the
Fund's disclosure in such reports and that are required by Rule 30a-2(a) under
the 1940 Act.

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INFORMATION ABOUT FUND DIRECTORS AND OFFICERS
The business and affairs of the Fund are managed under the direction of
the Fund's Board of Directors. Information pertaining to the Directors and
officers of the Fund is set forth below.

PRINCIPAL NUMBER OF FUNDS
TERM OF OFFICE OCCUPATION(S) IN FUND COMPLEX
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST OVERSEEN OTHER DIRECTORSHIPS
AND AGE HELD WITH FUND TIME SERVED* FIVE YEARS BY DIRECTOR HELD BY DIRECTOR
-------------------------- -------------- ------------------- --------------------------- --------------- ------------------------

NON-INTERESTED
DIRECTORS:

DAVID GALE Director Class I Director President & CEO of 4 Metromedia International
Delta Dividend Group, Inc. since January 1997 Delta Dividend Group, Inc.
220 Montgomery Street Group, Inc. (investments). (telecommunications).
Suite 426 Flaherty & Crumrine
San Francisco, CA 94104 Preferred Income Fund,
Age: 57 Flaherty & Crumrine/
Claymore Preferred
Securities Income Fund
and Flaherty & Crumrine/
Claymore Total Return
Fund.

MORGAN GUST Director Class III Director President of Giant 4 CoBiz, Inc. (financial
301 E. Colorado Boulevard since February 1992 Industries, Inc. (petroleum services); Flaherty &
Suite 720 refining and marketing) since Crumrine Preferred Income
Pasadena, CA 91101 March 2002, and for more Fund, Flaherty & Crumrine/
Age: 59 than five years prior thereto, Claymore Preferred
Executive Vice President, Securities Income Fund
and various other Vice and Flaherty & Crumrine/
President positions at Claymore Total Return
Giant Industries, Inc. Fund.

-----------------------------
* The Fund's Board of Directors is divided into three classes, each class having
a term of three years. Each year the term of office of one class expires and the
successor or successors elected to such class serve for a three year term. The
three year term for each class expires as follows:
CLASS I DIRECTOR - three year term expires at
the Fund's 2009 Annual Meeting of Shareholders;
director may continue in office until his
successor is duly elected and qualified.
CLASS II DIRECTORS - three year term expires at
the Fund's 2007 Annual Meeting of Shareholders;
directors may continue in office until their
successors are duly elected and qualified.
CLASS III DIRECTORS - three year term expires
at the Fund's 2008 Annual Meeting of
Shareholders; directors may continue in office
until their successors are duly elected and
qualified.

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Flaherty & Crumrine Preferred Income Opportunity Fund Incorporated
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NON-INTERESTED DIRECTORS:

KAREN H. HOGAN+ Director Class III Director Retired; Community 4 Flaherty & Crumrine
301 E. Colorado Boulevard since April 2005 Volunteer; from September Preferred Income Fund,
Suite 720 1985 to January 1997, Flaherty & Crumrine/
Pasadena, CA 91101 Senior Vice President of Claymore Preferred
Age: 45 Preferred Stock Origination Securities Income Fund
at Lehman Brothers and and Flaherty & Crumrine/
previously, Vice President of Claymore Total Return
New Product Development. Fund.

ROBERT F. WULF Director Class II Director Financial Consultant; 4 Flaherty & Crumrine
P.O. Box 753 since February 1992 Trustee, University of Preferred Income Fund,
Neskowin, Oregon 97149 Oregon Foundation; Flaherty & Crumrine/
Age: 69 Trustee, San Francisco Claymore Preferred
Theological Seminary. Securities Income Fund
and Flaherty & Crumrine/
Claymore Total Return
Fund.

--------------------------------
* The Fund's Board of Directors is divided into three classes, each class having
a term of three years. Each year the term of office of one class expires and the
successor or successors elected to such class serve for a three year term. The
three year term for each class expires as follows:
CLASS I DIRECTOR - three year term expires at
the Fund's 2009 Annual Meeting of Shareholders;
director may continue in office until his
successor is duly elected and qualified.
CLASS II DIRECTORS - three year term expires at
the Fund's 2007 Annual Meeting of Shareholders;
directors may continue in office until their
successors are duly elected and qualified.
CLASS III DIRECTORS - three year term expires
at the Fund's 2008 Annual Meeting of
Shareholders; directors may continue in office
until their successors are duly elected and
qualified.

+ As a Director, represents holders of shares of the Fund's Money Market
Cumulative Preferred(TM) Stock.

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Flaherty & Crumrine Preferred Income Opportunity Fund Incorporated
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INTERESTED
DIRECTOR:

DONALD F. CRUMRINE+, ++ Director, Class II Director Chairman of the Board 4 Flaherty & Crumrine
301 E. Colorado Boulevard Chairman since February 1992 and Director of Flaherty & Preferred Income Fund,
Suite 720 of the Board Crumrine Incorporated. Flaherty & Crumrine/
Pasadena, CA 91101 and Chief Claymore Preferred
Age: 59 Executive Officer Securities Income Fund
and Flaherty & Crumrine/
Claymore Total Return
Fund.

+ As a Director, represents holders of shares of the Fund's Money Market
Cumulative Preferred(TM) Stock.
++ "Interested person" of the Fund as defined in the Investment Company Act of
1940. Mr. Crumrine is considered an "interested person" because of his
affiliation with Flaherty & Crumrine Incorporated which acts as the Fund's
investment adviser.

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

OFFICERS:
---------
ROBERT M. ETTINGER President Since President and Director of
301 E. Colorado Boulevard October 2002 Flaherty & Crumrine
Suite 720 Incorporated.
Pasadena, CA 91101
Age: 48

R. ERIC CHADWICK Chief Financial Since Director of Flaherty & Crumrine
301 E. Colorado Boulevard Officer, Vice October 2002 Incorporated since June 2006; Vice
Suite 720 President and President of Flaherty & Crumrine
Pasadena, CA 91101 Treasurer Incorporated since August 2001;
Age: 31 and previously (since January 1999)
portfolio manager of Flaherty
& Crumrine Incorporated.

CHAD C. CONWELL Chief Compliance Since Chief Compliance Officer of
301 E. Colorado Boulevard Officer, Vice July 2005 Flaherty & Crumrine Incorporated
Suite 720 President and since September 2005, and since
Pasadena, CA 91101 Secretary July 2005, Vice President of
Age: 34 Flaherty &Crumrine Incorporated;
from September 1998 through
June 2005, Attorney with Paul,
Hastings, Janofsky & Walker LLP.

BRADFORD S. STONE Vice President Since Director of Flaherty & Crumrine
392 Springfield Avenue and Assistant July 2003 Incorporated since June 2006; Vice
Mezzanine Suite Treasurer President of Flaherty & Crumrine
Summit, NJ 07901 Incorporated since May 2003;
Age: 47 from June 2001 to April 2003,
Director of U.S. Market Strategy at
Barclays Capital.

CHRISTOPHER D. RYAN Vice President Since Vice President of Flaherty &
301 E. Colorado Boulevard April 2005 Crumrine Incorporated since
Suite 720 February 2004; October 2002 to
Pasadena, CA 91101 February 2004, Product Analyst
Age: 39 of Flaherty & Crumrine Incorporated.
From 1999 to 2002, graduate student.

LAURIE C. LODOLO Assistant Since
301 E. Colorado Boulevard Compliance July 2004 Assistant Compliance Officer of
Suite 720 Officer, Assistant Flaherty & Crumrine Incorporated
Pasadena, CA 91101 Treasurer and since August 2004; since February
Age: 43 Assistant Secretary 2004, Secretary of Flaherty & Crumrine
Incorporated; since January 1987,
Account Administrator of Flaherty &
Crumrine Incorporated.

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

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

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

QUESTIONS CONCERNING YOUR SHARES OF FLAHERTY &
CRUMRINE PREFERRED INCOME OPPORTUNITY FUND?
o If your shares are held in a Brokerage
Account, contact your Broker.
o If you have physical possession of your shares
in certificate form, contact the Fund's Transfer
Agent & Shareholder Servicing Agent --
PFPC Inc.
P.O. Box 43027
Providence, RI 02940-3027
1-800-331-1710

THIS REPORT IS SENT TO SHAREHOLDERS OF FLAHERTY &CRUMRINE PREFERRED INCOME
OPPORTUNITY FUND INCORPORATED FOR THEIR INFORMATION. IT IS NOT A PROSPECTUS,
CIRCULAR OR REPRESENTATION INTENDED FOR USE IN THE PURCHASE OR SALE OF SHARES OF
THE FUND OR OF ANY SECURITIES MENTIONED IN THIS REPORT.

[GRAPHIC OMITTED]
LIGHTHOUSE GRAPHIC

FLAHERTY & CRUMRINE
PREFERRED INCOME
OPPORTUNITY FUND

ANNUAL
REPORT

NOVEMBER 30, 2006

www.preferredincome.com

ITEM 2. CODE OF ETHICS.

(a) The registrant, as of the end of the period covered by this report, has
adopted a code of ethics that applies to the registrant's principal
executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the registrant
or a third party.

(c) There have been no amendments, during the period covered by this
report, to a provision of the code of ethics that applies to the
registrant's principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing
similar functions, regardless of whether these individuals are employed
by the registrant or a third party, and that relates to any element of
the code of ethics description.

(d) The registrant has not granted any waivers, including an implicit
waiver, from a provision of the code of ethics that applies to the
registrant's principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing
similar functions, regardless of whether these individuals are employed
by the registrant or a third party, that relates to one or more of the
items set forth in paragraph (b) of this item's instructions.

ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.

As of the end of the period covered by the report, the registrant's board of
directors has determined that David Gale, Karen H. Hogan and Robert F. Wulf are
each qualified to serve as an audit committee financial expert serving on its
audit committee and that they all are "independent," as defined by the
Securities and Exchange Commission.

ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

AUDIT FEES

(a) The aggregate fees billed for each of the last two fiscal years for
professional services rendered by the principal accountant for the
audit of the registrant's annual financial statements or services that
are normally provided by the accountant in connection with statutory
and regulatory filings or engagements for those fiscal years are
$38,700 for 2006 and $36,500 for 2005.

AUDIT-RELATED FEES

(b) The aggregate fees billed in each of the last two fiscal years for
assurance and related services by the principal accountant that are
reasonably related to the performance of the audit of the registrant's
financial statements and are not reported under paragraph (a) of this
Item are $0 for 2006 and $0 for 2005.

TAX FEES

(c) The aggregate fees billed in each of the last two fiscal years for
professional services rendered by the principal accountant for tax
compliance, tax advice, and tax planning are $6,800 for 2006 and $6,400
for 2005.

ALL OTHER FEES

(d) The aggregate fees billed in each of the last two fiscal years for
products and services provided by the principal accountant, other than
the services reported in paragraphs (a) through (c) of this Item are
$13,300 for 2006 and $12,100 for 2005. These services consist of the
principal accountant providing a "Quarterly Agreed-Upon-Procedures
Report on Articles Supplementary". These Agreed-Upon-Procedures ("AUP")
are requirements arising from the Articles Supplementary creating the
Fund's preferred stock. Specifically, the credit rating agencies
require such AUP be undertaken in order to maintain the preferred
stock's rating.

(e)(1) The Fund's Audit Committee Charter states that the Audit Committee
shall have the duty and power to pre-approve all audit and non-audit
services to be provided by the auditors to the Fund, and all non-audit
services to be provided by the auditors to the Fund's investment
adviser and any service providers controlling, controlled by or under
common control with the Fund's investment adviser that provide ongoing
services to the Fund, if the engagement relates directly to the
operations and financial reporting of the Fund.

(e)(2) The percentage of services described in each of paragraphs (b) through
(d) of this Item that were approved by the audit committee pursuant to
paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X are as follows:

(b) 0%

(d) 0%

(f) The percentage of hours expended on the principal accountant's
engagement to audit the registrant's financial statements for the most
recent fiscal year that were attributed to work performed by persons
other than the principal accountant's full-time, permanent employees
was 0%.

(g) The aggregate non-audit fees billed by the registrant's accountant for
services rendered to the registrant, and rendered to the registrant's
investment adviser (not including any sub-adviser whose role is
primarily portfolio management and is subcontracted with or overseen by
another investment adviser), and any entity controlling, controlled by,
or under common control with the adviser that provides ongoing services
to the registrant for each of the last two fiscal years of the
registrant was $0 for 2006 and $0 for 2005.

(h) Not applicable.

ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.

The registrant has a separately designated audit committee consisting of all
the independent directors of the registrant. The members of the audit committee
are: David Gale, Morgan Gust, Karen H. Hogan, and Robert F. Wulf.

ITEM 6. SCHEDULE OF INVESTMENTS.

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

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

The Proxy Voting Policies are attached herewith.

ADVISER PROXY VOTING POLICIES AND PROCEDURES

Flaherty & Crumrine Incorporated ("F&C") acts as discretionary investment
adviser for various clients, including the following six pooled investment
vehicles (the "Funds"):

As adviser to the "U.S. Funds" Flaherty & Crumrine Preferred Income Fund
Flaherty & Crumrine Preferred Income Opportunity
Fund
Flaherty & Crumrine/Claymore Preferred
Securities Income Fund
Flaherty & Crumrine/Claymore Total Return Fund

As sub-adviser
to the "Canadian Funds" Flaherty & Crumrine Investment Grade Fixed
Income Fund
Flaherty & Crumrine Investment Grade Preferred
Fund

F&C's authority to vote proxies for its clients is established through the
delegation of discretionary authority under its investment advisory contracts
and the U.S. Funds have adopted these policies and procedures for themselves

PURPOSE

These policies and procedures are designed to satisfy F&C's duties of care and
loyalty to its clients with respect to monitoring corporate events and
exercising proxy authority in the best interests of such clients.

In connection with this objective, these policies and procedures are designed to
deal with potential complexities which may arise in cases where F&C's interests
conflict or appear to conflict with the interests of its clients.

These policies and procedures are also designed to communicate with clients the
methods and rationale whereby F&C exercises proxy voting authority.

This document is available to any client or Fund shareholder upon request and
F&C will make available to such clients and Fund shareholders the record of
F&C's votes promptly upon request and to the extent required by Federal law and
regulations.

FUNDAMENTAL STANDARD

F&C will be guided by the principle that, in those cases where it has proxy
voting authority, it will vote proxies, and take such other corporate actions,
consistent with the interest of its clients in a manner free of conflicts of
interest with the objective of client wealth maximization.

GENERAL

F&C has divided its discussion in this document into two major categories:
voting with respect to common stock and voting with respect to senior equity,
e.g., preferred stock and similar securities. In those events where F&C may have
to take action with respect to debt, such as in the case of amendments of
covenants or in the case of default, bankruptcy, reorganization, etc., F&C will
apply the same principles as would apply to common or preferred stock, MUTATIS
MUTANDIS.

These policies and procedures apply only where the client has granted
discretionary authority with respect to proxy voting. Where F&C does not have
authority, it will keep appropriate written records evidencing that such
discretionary authority has not been granted.

F&C may choose not to keep written copies of proxy materials that are subject to
SEC regulation and maintained in the SEC's EDGAR database. In other instances,
F&C will keep appropriate written records in its files or in reasonably
accessible storage.

Similarly, F&C will keep in its files, or reasonably accessible storage, work
papers and other materials that were significant to F&C in making a decision how
to vote.

For purposes of decision making, F&C will assume that each ballot for which it
casts votes is the only security of an issuer held by the client. Thus, when
casting votes where F&C may have discretionary authority with regard to several
different securities of the same issuer, it may vote securities "in favor" for
those securities or classes where F&C has determined the matter in question to
be beneficial while, at the same time, voting "against" for those securities or
classes where F&C has determined the matter to be adverse. Such cases
occasionally arise, for example, in those instances where a vote is required by
both common and preferred shareholders, voting as separate classes, for a change
in the terms regarding preferred stock issuance.

F&C will reach its voting decisions independently, after appropriate
investigation. It does not generally intend to delegate its decision making or
to rely on the recommendations of any third party, although it may take such
recommendations into consideration. F&C may consult with such other experts,
such as CPA's, investment bankers, attorneys, etc., as it regards necessary to
help it reach informed decisions.

Absent good reason to the contrary, F&C will generally give substantial weight
to management recommendations regarding voting. This is based on the view that
management is usually in the best position to know which corporate actions are
in the best interests of common shareholders as a whole.

With regard to those shareholder-originated proposals which are typically
described as "social, environmental, and corporate responsibility" matters, F&C
will typically give weight to management's recommendations and vote against such
shareholder proposals, particularly if the adoption of such proposals would
bring about burdens or costs not borne by those of the issuer's competitors.

In cases where the voting of proxies would not justify the time and costs
involved, F&C may refrain from voting. From the individual client's perspective,
this would most typically come about in the case of small holdings, such as
might arise in connection with spin-offs or other corporate reorganizations.
From the perspective of F&C's institutional clients, this envisions cases (1) as
more fully described below where preferred and common shareholders vote together
as a class or (2) other similar or analogous instances.

Ultimately, all voting decisions are made on a case-by-case basis, taking
relevant considerations into account.

VOTING OF COMMON STOCK PROXIES

F&C categorizes matters as either routine or non-routine, which definition may
or may not precisely conform to the definitions set forth by securities
exchanges or other bodies categorizing such matters. Routine matters would
include such things as the voting for directors and the ratification of auditors
and most shareholder proposals regarding social, environmental, and corporate
responsibility matters. Absent good reason to the contrary, F&C normally will
vote in favor of management's recommendations on these routine matters.

Non-routine matters might include, without limitation, such things as (1)
amendments to management incentive plans, (2) the authorization of additional
common or preferred stock, (3) initiation or termination of barriers to takeover
or acquisition, (4) mergers or acquisitions, (5) changes in the state of
incorporation, (6) corporate reorganizations, and (7) "contested" director
slates. In non-routine matters, F&C, as a matter of policy, will attempt to be
generally familiar with the questions at issue. This will include, without
limitation, studying news in the popular press, regulatory filings, and
competing proxy solicitation materials, if any. Non-routine matters will be
voted on a case-by-case basis, given the complexity of many of these issues.

VOTING OF PREFERRED STOCK PROXIES

Preferred stock, which is defined to include any form of equity senior to common
stock, generally has voting rights only in the event that the issuer has not
made timely payments of income and principal to shareholders or in the event
that a corporation desires to effectuate some change in its articles of
incorporation which might modify the rights of preferred stockholders. These are
non-routine in both form and substance.

In the case of non-routine matters having to do with the modification of the
rights or protections accorded preferred stock shareholders, F&C will attempt,
wherever possible, to assess the costs and benefits of such modifications and
will vote in favor of such modifications only if they are in the bests interests
of preferred shareholders or if the issuer has offered sufficient compensation
to preferred stock shareholders to offset the reasonably foreseeable adverse
consequences of such modifications. A similar type of analysis would be made in
the case where preferred shares, as a class, are entitled to vote on a merger or
other substantial transaction.

In the case of the election of directors when timely payments to preferred
shareholders have not been made ("contingent voting"), F&C will cast its votes
on a case-by-case basis after investigation of the qualifications and
independence of the persons standing for election.

Routine matters regarding preferred stock are the exception, rather than the
rule, and typically arise when the preferred and common shareholders vote
together as a class on such matters as election of directors. F&C will vote on a
case-by-case basis, reflecting the principles set forth elsewhere in this
document. However, in those instances (1) where the common shares of an issuer
are held by a parent company and (2) where, because of that, the election
outcome is not in doubt, F&C does not intend to vote such proxies since the time
and costs would outweigh the benefits.

ACTUAL AND APPARENT CONFLICTS OF INTEREST

Potential conflicts of interest between F&C and F&C's clients may arise when
F&C's relationships with an issuer or with a related third party conflict or
appear to conflict with the best interests of F&C's clients.

F&C will indicate in its voting records available to clients whether or not a
material conflict exists or appears to exist. In addition, F&C will communicate
with the client (which means the independent Directors or Director(s) they may
so designate in the case of the U.S. Funds and the investment adviser in the
case of the Canadian Funds) in instances when a material conflict of interest
may be apparent. F&C must describe the conflict to the client and state F&C's
voting recommendation and the basis therefor. If the client considers there to
be a reasonable basis for the proposed vote notwithstanding the conflict or, in
the case of the Funds, that the recommendation was not affected by the conflict
(without considering the merits of the proposal), F&C will vote in accordance
with the recommendation it had made to the client.

In all such instances, F&C will keep reasonable documentation supporting its
voting decisions and/or recommendations to clients.

AMENDMENT OF THE POLICIES AND PROCEDURES

These policies and procedures may be modified at any time by action of the Board
of Directors of F&C but will not become effective, in the case of the U.S.
Funds, unless they are approved by majority vote of the non-interested directors
of the U.S. Funds. Any such modifications will be sent to F&C's clients by mail
and/or other electronic means in a timely manner. These policies and procedures,
and any amendments hereto, will be posted on the U.S. Funds' websites and will
be disclosed in reports to shareholders as required by law.

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

The following paragraphs provide certain information with respect to the
portfolio managers of the Fund and the material conflicts of interest that may
arise in connection with their management of the investments of the Fund, on the
one hand, and the investments of other client accounts for which they have
responsibility, on the other hand. Certain other potential conflicts of interest
with respect to personal trading and proxy voting are discussed above under
"Item 2 - Codes of Ethics" and "Item 7 - Proxy Voting Policies."

(A)(1)
PORTFOLIO MANAGERS

R. Eric Chadwick, Donald F. Crumrine, Robert M. Ettinger and Bradford S. Stone
jointly serve as the Portfolio Managers of the Fund. Additional biographical
information about the portfolio managers is available in the Annual Report
included in Response to Item 1 above.

(A)(2)
OTHER ACCOUNTS MANAGED BY PORTFOLIO MANAGERS

The tables below illustrate other accounts where each of the above-mentioned
four portfolio managers has significant day-to-day management responsibilities
as of November 30, 2006:

# of Accounts
Total Managed for which
Name of Portfolio Manager or # of Accounts Total Assets Advisory Fee is
TEAM MEMBER TYPE OF ACCOUNTS MANAGED (MM) Based on PERFORMANCE

1. Donald F. Crumrine Other Registered Investment
Companies: 3 $2,143 0
Other Pooled Investment Vehicles: 2 $542 0
Other Accounts: 27 $1,230 0

2. Robert M. Ettinger Other Registered Investment
Companies: 3 $2,143 0
Other Pooled Investment Vehicles: 2 $542 0
Other Accounts: 27 $1,230 0

3. R. Eric Chadwick Other Registered Investment
Companies: 3 $2,143 0
Other Pooled Investment Vehicles: 2 $542 0
Other Accounts: 27 $1,230 0

4. Bradford S. Stone Other Registered Investment
Companies: 3 $2,143 0
Other Pooled Investment Vehicles: 2 $542 0
Other Accounts: 27 $1,230 0

POTENTIAL CONFLICTS OF INTEREST

In addition to the Fund, the Portfolio Managers jointly manage accounts for
three other closed-end funds, two Canadian funds and other institutional
clients. As a result, potential conflicts of interest may arise as follows:

o ALLOCATION OF LIMITED TIME AND ATTENTION. The Portfolio Managers may
devote unequal time and attention to the management of all accounts. As
a result, the Portfolio Managers may not be able to formulate as
complete a strategy or identify equally attractive investment
opportunities for each of those accounts as might be the case if they
were to devote substantially more attention to the management of one
account.

o ALLOCATION OF LIMITED INVESTMENT OPPORTUNITIES. If the Portfolio
Managers identify an investment opportunity that may be suitable for
multiple accounts, the Fund may not be able to take full advantage of
that opportunity because the opportunity may need to be allocated among
other accounts.

o PURSUIT OF DIFFERING STRATEGIES. At times, the Portfolio Managers may
determine that an investment opportunity may be appropriate for only
some accounts or may decide that certain of these accounts should take
differing positions (i.e., may buy or sell the particular security at
different times or the same time or in differing amounts) with respect
to a particular security. In these cases, the Portfolio Manager may
place separate transactions for one or more accounts which may affect
the market price of the security or the execution of the transaction,
or both, to the detriment of one or more other accounts.

o VARIATION IN COMPENSATION. A conflict of interest may arise where the
financial or other benefits available to the Portfolio Manager differ
among accounts. While the Adviser only charges fees based on assets
under management and does not receive a performance fee from any of its
accounts, and while it strives to maintain uniform fee schedules, it
does have different fee schedules based on the differing advisory
services required by some accounts. Consequently, though the
differences in such fee rates are slight, the Portfolio Managers may be
motivated to favor certain accounts over others. In addition, the
desire to maintain assets under management or to derive other rewards,
financial or otherwise, could influence the Portfolio Managers in
affording preferential treatment to those accounts that could most
significantly benefit the Adviser.

The Adviser and the Fund have adopted compliance policies and procedures that
are designed to address the various conflicts of interest that may arise for the
Adviser and its staff members. However, there is no guarantee that such policies
and procedures will be able to detect and prevent every situation in which an
actual or potential conflict may arise.

(A)(3)
PORTFOLIO MANAGER COMPENSATION

Compensation is paid solely by the Adviser. Each Portfolio Manager receives the
same fixed salary. In addition, each Portfolio Manager receives a bonus based on
peer reviews of his performance and the total net investment advisory fees
received by Flaherty & Crumrine (which are in turn based on the value of its
assets under management). The Portfolio Managers do not receive deferred
compensation, but participate in a profit-sharing plan available to all
employees of the Adviser; amounts are determined as a percentage of the
employee's eligible compensation for a calendar year based on IRS limitations.
Each Portfolio Manager is also a shareholder of Flaherty & Crumrine and receives
quarterly dividends based on his equity interest in the company.

(A)(4)
DISCLOSURE OF SECURITIES OWNERSHIP

The following indicates the dollar range of beneficial ownership of shares by
each Portfolio Manager as of December 31, 2006:

Dollar Range of Fund Shares
Name Beneficially Owned*
----------------------------------------------------------------------
Donald F. Crumrine $100,001 to $500,000
----------------------------------------------------------------------
Robert M. Ettinger $100,001 to $500,000
----------------------------------------------------------------------
R. Eric Chadwick $100,001 to $500,000
----------------------------------------------------------------------
Bradford S. Stone $100,001 to $500,000
----------------------------------------------------------------------

*INCLUDES 8,603 SHARES HELD BY FLAHERTY & CRUMRINE INCORPORATED OF WHICH EACH
PORTFOLIO MANAGER HAS BENEFICIAL OWNERSHIP.

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

Not applicable.

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

There have been no material changes to the procedures by which the shareholders
may recommend nominees to the registrant's board of directors, where those
changes were implemented after the registrant last provided disclosure in
response to the requirements of Item 407(c)(2)(iv) of Regulation S-K (17 CFR
229.407) (as required by Item 22(b)(15) of Schedule 14A (17 CFR 240.14a-101)),
or this Item.

ITEM 11. CONTROLS AND PROCEDURES.

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

(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17
CFR 270.30a-3(d)) that occurred during the registrant's second fiscal
quarter of the period covered by this report that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.

ITEM 12. EXHIBITS.

(a)(1) Code of ethics, or any amendment thereto, that is the subject of
disclosure required by Item 2 is attached hereto.

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

(a)(3) Not applicable.

(b) Certifications pursuant to Rule 30a-2(b) under the 1940 Act and
Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.

(registrant) FLAHERTY & CRUMRINE PREFERRED INCOME OPPORTUNITY FUND INCORPORATED

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

Date JANUARY 29, 2007

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

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

Date JANUARY 29, 2007

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

Date JANUARY 29, 2007

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