SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934 (Amendment No.)

Filed by Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:

[ ] Preliminary Proxy Statement

[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ X ] Definitive Proxy Statement
[ ] Definitive Additional Materials

[ ] Soliciting Material Pursuant to Sec. 240.14a-12

PREFERRED INCOME FUND INCORPORATED
PREFERRED INCOME OPPORTUNITY FUND INCORPORATED

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[ X ] No fee required.

[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

1) Title of each class of securities to which transactions applies:

2) Aggregate number of securities to which transaction applies:

3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):

4) Proposed maximum aggregate value of transaction:

5) Total fee paid:

[ ] Fee paid previously with preliminary materials.

[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identity the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.

1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:

PREFERRED INCOME FUND INCORPORATED
PREFERRED INCOME OPPORTUNITY FUND INCORPORATED
301 E. Colorado Boulevard, Suite 720
Pasadena, California 91101

NOTICE OF ANNUAL MEETINGS OF SHAREHOLDERS
To Be Held on April 27, 2001

To the Shareholders:

Notice is hereby given that the Annual Meetings of Shareholders of
Preferred Income Fund Incorporated and Preferred Income Opportunity Fund
Incorporated (each a "Fund" and collectively, the "Funds"), each a Maryland
corporation, will be held at the offices of Willkie Farr & Gallagher, 787
Seventh Avenue, 42nd Floor, New York, New York 10019 at 8:30 a.m., on April 27,
2001, for the following purposes:

1. To elect Directors of each Fund (PROPOSAL 1).

2. To ratify the selection of PricewaterhouseCoopers LLP as independent
accountants for each Fund for the fiscal year ending November 30, 2001
(PROPOSAL 2).

3. To transact such other business as may properly come before the
Meetings or any adjournments thereof.

The Board of Directors of each Fund has fixed the close of business on
January 29, 2001 as the record date for the determination of shareholders of the
Funds entitled to notice of and to vote at the Annual Meetings.

By Order of the Board of Directors,

Donald F. Crumrine
SECRETARY

February 16, 2001

- --------------------------------------------------------------------------------
SEPARATE PROXY CARDS ARE ENCLOSED FOR EACH FUND IN WHICH YOU OWN
SHARES. SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND THE ANNUAL MEETINGS ARE
REQUESTED TO COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD(S.) THE PROXY
CARD(S) SHOULD BE RETURNED IN THE ENCLOSED ENVELOPE, WHICH NEEDS NO POSTAGE IF
MAILED IN THE CONTINENTAL UNITED STATES. INSTRUCTIONS FOR THE PROPER EXECUTION
OF PROXIES ARE SET FORTH ON THE INSIDE COVER.
- --------------------------------------------------------------------------------

INSTRUCTIONS FOR SIGNING PROXY CARDS

The following general rules for signing proxy cards may be of
assistance to you and may avoid the time and expense to the Fund(s) involved in
validating your vote if you fail to sign your proxy card(s) properly.

1. Individual Accounts: Sign your name exactly as it appears in the
registration on the proxy card(s).

2. Joint Accounts: Either party may sign, but the name of the party
signing should conform exactly to a name shown in the registration.

3. All Other Accounts: The capacity of the individual signing the proxy
card should be indicated unless it is reflected in the form of
registration. For example:

REGISTRATION VALID SIGNATURE
------------ ---------------
CORPORATE ACCOUNTS

(1) ABC Corp. ABC Corp.
(2) ABC Corp. John Doe, Treasurer
(3) ABC Corp. c/o John Doe, Treasurer John Doe
(4) ABC Corp. Profit Sharing Plan John Doe, Trustee

TRUST ACCOUNTS

(1) ABC Trust Jane B. Doe, Trustee
(2) Jane B. Doe, Trustee Jane B. Doe
u/t/d 12/28/78

CUSTODIAN OR ESTATE ACCOUNTS

(1) John B. Smith, Cust., John B. Smith
f/b/o John B. Smith, Jr. UGMA
(2) John B. Smith, Executor, John B. Smith, Jr., Executor
estate of Jane Smith

PREFERRED INCOME FUND INCORPORATED
PREFERRED INCOME OPPORTUNITY FUND INCORPORATED

301 E. Colorado Boulevard, Suite 720
Pasadena, California 91101

ANNUAL MEETINGS OF SHAREHOLDERS
April 27, 2001

JOINT PROXY STATEMENT

This document is a joint proxy statement ("Joint Proxy Statement") for
Preferred Income Fund Incorporated ("Preferred Income Fund" or "PFD") and
Preferred Income Opportunity Fund Incorporated ("Preferred Income Opportunity
Fund" or "PFO") (each a "Fund" and collectively, the "Funds"). This Joint Proxy
Statement is furnished in connection with the solicitation of proxies by each
Fund's Board of Directors (each a "Board" and collectively, the "Boards") for
use at the Annual Meeting of Shareholders of each Fund to be held on April 27,
2001, at 8:30 a.m., at the offices of Willkie Farr & Gallagher, 787 Seventh
Avenue, 42nd Floor, New York, New York 10019 and at any adjournments thereof
(each a "Meeting" and collectively, the "Meetings"). A Notice of Annual Meetings
of Shareholders and proxy card for each Fund of which you are a shareholder
accompany this Joint Proxy Statement. Proxy solicitations will be made,
beginning on or about February 16, 2001, primarily by mail, but proxy
solicitations may also be made by telephone, telegraph or personal interviews
conducted by officers of the Funds, Flaherty & Crumrine Incorporated ("Flaherty
& Crumrine"), the investment adviser of each Fund, and PFPC Inc., the transfer
agent and administrator of each Fund and a majority-owned subsidiary of PNC Bank
Corp. The costs of proxy solicitation and expenses incurred in connection with
the preparation of this Joint Proxy Statement and its enclosures will be paid by
the Funds in proportion to each Fund's net assets. Each Fund also will reimburse
brokerage firms and others for their expenses in forwarding solicitation
material to the beneficial owners of its shares.

THE ANNUAL REPORT OF EACH FUND, INCLUDING AUDITED FINANCIAL STATEMENTS FOR
THE FISCAL YEAR ENDED NOVEMBER 30, 2000, IS AVAILABLE UPON REQUEST, WITHOUT
CHARGE, BY WRITING PFPC INC., P.O. BOX 1376, BOSTON, MASSACHUSETTS 02104, OR
CALLING 1-800-331-1710.

If the enclosed proxy card is properly executed and returned in time to be
voted at the relevant Meeting, the Shares (as defined below) represented thereby
will be voted in accordance with the instructions marked thereon. Unless
instructions to the contrary are marked thereon, a proxy will be voted "FOR" the
election of the nominees for Director and "FOR" the other matters listed in the
accompanying Notice of Annual Meetings of Shareholders. Any shareholder who has
given a proxy has the right to revoke it at any time prior to its exercise
either by attending the relevant Meeting and voting his or her Shares in person
or by submitting a letter of revocation or a later-dated proxy to the
appropriate Fund at the above address prior to the date of the Meeting.

In the event that a quorum is not present at a Meeting or in the event that
a quorum is present but sufficient votes to approve any of the proposals are not
received, the persons named as proxies may propose one or more adjournments of
the Meeting to permit further solicitation of proxies. Any such adjournment will
require the affirmative vote of a majority of those shares represented at the
Meeting in person or by proxy. If a quorum is present, the persons named as
proxies will vote those proxies which they are entitled to vote "FOR" any
proposal in favor of such an adjournment and will vote those proxies required to
be voted "AGAINST" any proposal against any such adjournment. A shareholder vote
may be taken on one or more of the proposals in the Joint Proxy Statement prior
to any such adjournment if sufficient votes have been received for approval.
Under the By-Laws of each Fund, a quorum is constituted by the presence in
person or by proxy of the holders of a majority of the outstanding shares of the
Fund entitled to vote at the Meeting. If a proposal is to be voted upon by only
one class of a Fund's shares, a quorum of that class of shares must be present
at the Meeting in order for the proposal to be considered.

Each Fund has two classes of capital stock: common stock, par value $0.01
per share (the "Common Stock"); and Money Market Cumulative Preferred(TM) Stock,
par value $0.01 per share ("MMP(R)"; together with the Common Stock, the
"Shares"). On the record date, January 29, 2001, the following number of Shares
of each Fund were issued and outstanding:

COMMON STOCK MMP(R)
NAME OF FUND OUTSTANDING OUTSTANDING
------------ ------------ -----------
Preferred Income Fund 9,838,571 575
Preferred Income Opportunity Fund 11,151,288 700

To the knowledge of each Fund and its Board, the following shareholder(s)
or "group", as that term is defined in Section 13(d) of the Securities Exchange
Act of 1934 (the "1934 Act"), beneficially owned more than 5% of the relevant
Fund's outstanding shares as of January 29, 2001:

NAME AND ADDRESS OF BENEFICIAL/ AMOUNT AND NATURE
RECORD OWNER TITLE OF CLASS OF OWNERSHIP PERCENT OF CLASS
- ------------ -------------- ------------ ----------------

The Commerce Group, Inc. Common PFD - 2,961,700 (beneficial) 30.1%*
211 Main Street Shares PFO - 3,995,143 (beneficial) 35.8%*
Webster, MA

01570

Cede & Co.** Common PFD - 9,271,541 (record) 94.2%
55 Water Street, 25th Floor Shares PFO - 10,459,851 (record) 93.8%
New York, NY

10041 MMP(R) PFD - 575 (record) 100 %
Shares PFO - 700 (record) 100 %

- ------------------

* Considered to be a control person of the Fund, as such term is defined in
Section 2(a)(9) of the Investment Company Act of 1940, as amended (the
"1940 Act"). Information as to beneficial ownership of The Commerce Group,
Inc. is based on reports filed with the Securities and Exchange Commission
(the "SEC") by such holder of PFD and PFO on December 1, 2000 and January
16, 2001, respectively.

** A nominee partnership of The Depository Trust Company.

This Joint Proxy Statement is being used in order to reduce the
preparation, printing, handling and postage expenses that would result from the
use of a separate proxy statement for each Fund. Shareholders of each Fund will
vote as a single class except as described below under Proposal 1 and will vote
separately on each proposal on which shareholders of that Fund are entitled to
vote. Separate proxy cards are enclosed for each Fund in which a shareholder is
a record owner of Shares. Thus, if a proposal is approved by shareholders of one
Fund and disapproved by shareholders of the other Fund, the proposal will be
implemented for the Fund that approved the proposal and will not be implemented
for the Fund that did not approve the proposal. It is therefore essential that
shareholders complete, date and sign EACH enclosed proxy card. SHAREHOLDERS OF
EACH FUND ARE ENTITLED TO VOTE ON ALL PROPOSALS PERTAINING TO THAT FUND.

In order that your Shares may be represented at the Meetings, you are
requested to vote on the following matters:

PROPOSAL 1: ELECTION OF DIRECTORS

The first proposal to be considered at the Meetings is the election of
Directors of the Funds.

Each nominee named below has consented to serve as a Director if elected at
the relevant Meeting. If a designated nominee declines or otherwise becomes
unavailable for election, however, the proxy confers discretionary power on the
persons named therein to vote in favor of a substitute nominee or nominees.

NOMINEES FOR THE BOARD OF DIRECTORS

The Board of each Fund 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
classes of Directors are the same for each Fund and are indicated below:

CLASS I DIRECTORS CLASS II DIRECTORS
----------------- ------------------
Martin Brody Donald F. Crumrine
David Gale Robert F. Wulf
CLASS III DIRECTORS
-------------------
Robert T. Flaherty
Morgan Gust

The Class III Directors of Preferred Income Fund and Class II Directors of
Preferred Income Opportunity Fund all have been nominated for a three-year term
to expire at each Fund's 2004 Annual Meeting of Shareholders and until their
successors are duly elected and qualified. Class I Directors of Preferred Income
Fund and Class III Directors of Preferred Income Opportunity Fund serve until
each Fund's Annual Meeting of Shareholders in 2002, and Class II Directors of
Preferred Income Fund and Class I Directors of Preferred Income Opportunity Fund
serve until each Fund's Annual Meeting of Shareholders in 2003. Except for Mr.
Gale (who has served as a Director of each Fund since January 24, 1997), each
Director has served in such capacity since each Fund's commencement of
operations.

Under each Fund's Articles of Incorporation, Articles Supplementary and the
1940 Act, holders of Shares of MMP(R), voting as a single class, will be
entitled to elect two Directors, and holders of the Common Stock will be
entitled to elect the remaining Directors, subject to the provisions of the 1940
Act and the Fund's Articles of Incorporation, which permit the holders of Shares
of MMP(R), when dividends are in arrears for two full years, to elect the
minimum number of additional Directors that when combined with the two Directors
elected by the holders of Shares of MMP(R) would give the holders of Shares of
MMP(R) a majority of the Directors. Donald F. Crumrine and Morgan Gust currently
represent holders of Shares of MMP(R) of each Fund. A quorum of the MMP(R)
shareholders must be present at the Meeting of Preferred Income Fund in order
for the proposal to elect Mr. Gust to be considered and at the Meeting of
Preferred Income Opportunity Fund in order for the proposal to elect Mr.
Crumrine to be considered.

INFORMATION ABOUT DIRECTORS AND OFFICERS

Set forth in the following table are the existing Directors and nominees
for election to the Board of Directors of the Funds, together with certain other
information. Each Director serves in the same capacity for each Fund. No
Director or officer owned any shares of MMP(R) on January 29, 2001.

BUSINESS EXPERIENCE COMMON STOCK
DURING THE BENEFICIALLY OWNED ON
NAME, ADDRESS AND AGE PAST FIVE YEARS JANUARY 29, 2001** PERCENT
- --------------------- --------------- ---------------- -------

CLASS I DIRECTORS
- -----------------

MARTIN BRODY Director of the Funds; Director 1,613 Shares of PFD ***
c/o HMK Associates of Jaclyn, Inc., Director of 1,258 Shares of PFO ***
30 Columbia Turnpike several other investment
Florham Park, NJ 07932 companies.
Age: 79

DAVID GALE Director of the Funds; President 1,500 Shares of PFD ***
Delta Dividend Group, Inc. & CEO of Delta Dividend Group, 2,000 Shares of PFO ***
301 Pine Street Inc. (Investments); Director of
San Francisco, CA 94104 Stone Container Corporation,
Age: 51 Director of Free Real Time.com.

CLASS II DIRECTORS
- ------------------
DONALD F. CRUMRINE* Director, Chief Financial 11,617 Shares of PFD+ ***
301 E. Colorado Boulevard Officer, Chief Accounting 14,121 Shares of PFO+ ***
Suite 720 Officer, Vice President and
Pasadena, CA 91101 Secretary of the Funds; Chairman
Age: 53 of the Board, since December
1996, and previously held other
officerships of Flaherty & Crumrine;
Director of Flaherty & Crumrine.

ROBERT F. WULF Director of the Funds; 1,224 Shares of PFD ***
3560 Deerfield Drive South since March 1984, 1,000 Shares of PFO ***
Salem, OR 97302 Financial Consultant.
Age: 63

- ------------------

* "Interested person" of the Fund as defined in the 1940 Act. Messrs.
Crumrine and Flaherty are each considered an "interested person" because of
their affiliation with Flaherty & Crumrine which acts as the Fund's
investment adviser.

** This information has been furnished by each Director. "Beneficial
Ownership" is defined under Section 13(d) of the 1934 Act.

*** Less than 1%.

+ 7,169 Shares of PFD and 8,603 Shares of PFO are held by Flaherty & Crumrine
of which the reporting person is a shareholder and director.

BUSINESS EXPERIENCE COMMON STOCK
DURING THE BENEFICIALLY OWNED ON
NAME, ADDRESS AND AGE PAST FIVE YEARS JANUARY 29, 2001** PERCENT
- --------------------- --------------- ---------------- -------

CLASS III DIRECTORS
- -------------------

ROBERT T. FLAHERTY* Director, Chairman of the Board, 35,597 Shares of PFD+ ***
301 E. Colorado Boulevard President and Chief Executive 31,264 Shares of PFO+ ***
Suite 720 Officer of the Funds; prior to
Pasadena, CA 91101 December 1996, President of
Age: 63 Flaherty & Crumrine; Director of
Flaherty & Crumrine.

MORGAN GUST Director of the Funds; from 2,031 Shares of PFD ***
Giant Industries, Inc. January 1, 1999, Executive Vice 2,219 Shares of PFO ***
23733 N. Scottsdale Road President, Giant Industries,
Scottsdale, AZ 85255 Inc.; and, for more than five
Age: 53 years prior thereto, Vice
President, General Counsel and
Vice President-Administration,
Giant Industries, Inc.

DIRECTORS AND OFFICERS 58,082 Shares of PFD ***
AS A GROUP 61,140 Shares of PFO ***

- -------------------

** This information has been furnished by each Director. "Beneficial
Ownership" is defined under Section 13(d) of the 1934 Act.

*** Less than 1%.

+ 7,169 Shares of PFD and 8,603 Shares of PFO are held by Flaherty & Crumrine
of which the reporting person is a shareholder and director.

Each Director of each Fund who is not a director, officer or employee of
Flaherty & Crumrine or any of their affiliates receives a fee of $9,000 per
annum plus $500 for each in-person meeting, and $100 for each telephone meeting.
Each Director of each Fund is reimbursed for travel and out-of-pocket expenses
associated with attending Board and committee meetings. The Board of Directors
of each Fund held seven meetings (three of which were held by telephone
conference call) during the fiscal year ended November 30, 2000, and all of the
Directors of each Fund then serving in such capacity attended at least 75% of
the meetings of Directors and any Committee of which he is a member. The
aggregate remuneration paid to the Directors of each Fund for the fiscal year
ended November 30, 2000 amounted to $48,900 and $48,900 for PFD and PFO,
respectively (including reimbursement for travel and out-of-pocket expenses for
both "interested" and independent Directors).

AUDIT COMMITTEE REPORT

The role of each Fund's Audit Committee is to assist the Board of Directors
in its oversight of each Fund's financial reporting process. The Board of
Directors of each Fund has adopted a Charter for the Audit Committee, a form of
which is attached as Annex A to this Joint Proxy Statement. Management, however,
is responsible for the preparation, presentation and integrity of each Fund's
financial statements, and the independent accountants are responsible for
planning and carrying out proper audits and reviews.

In connection with the audited financial statements as of and for the year
ended November 30, 2000 included in each Fund's Annual Report for the year ended
November 30, 2000 (the "Annual Report"), at a meeting held on January 19, 2001,
the Audit Committee considered and discussed the audited financial statements
with management and the independent accountants, and discussed the audit of such
financial statements with the independent accountants.

In addition, the Audit Committee discussed with the independent accountants
the accounting principles applied by each Fund and such other matters brought to
the attention of the Audit Committee by the independent accountants required by
Statement of Auditing Standards No. 61, as currently modified or supplemented.
The Audit Committee also received from the independent accountants the written
disclosures and statement required by Independence Standards Board Standard No.
1 delineating relationships between the independent accountants and each Fund
and discussed the impact that any such relationships may have on the objectivity
and independence of the independent accountants.

The members of the Audit Committee are not professionally engaged in the
practice of auditing or accounting and are not employed by each Fund for
accounting, financial management or internal control. Moreover, the Audit
Committee relies on and makes no independent verification of the facts presented
to it or representations made by management or independent verification of the
facts presented to it or representations made by management or the independent
accountants. Accordingly, the Audit Committee's oversight does not provide an
independent basis to determine that management has maintained appropriate
accounting and financial reporting principles and policies, or internal controls
and procedures, designed to assure compliance with accounting standards and
applicable laws and regulations. Furthermore, the Audit Committee's
considerations and discussions referred to above do not provide assurance that
the audit of each Fund's financial statements has been carried out in accordance
with generally accepted accounting standards or that the financial statements
are presented in accordance with generally accepted accounting principles.

Based on its consideration of the audited financial statements and the
discussions referred to above with management and the independent accountants
and subject to the limitations on the responsibilities and role of the Audit
Committee set forth in the Charter and those discussed above, the Committee of
each Fund recommended to the Board of Directors of each Fund that the audited
financial statements be included in each Fund's Annual Report.

Set forth below are audit fees and non-audit related fees billed to each
Fund for professional services received from PricewaterhouseCoopers LLP ("PWC")
for each Fund's fiscal year ended November 30, 2000. No fees were billed by PWC
to the Fund's adviser or its affiliates.

FINANCIAL INFORMATION SYSTEMS
FUND AUDIT FEES DESIGN AND IMPLEMENTATION FEES ALL OTHER FEES
- ---- ---------- ------------------------------ --------------
PFD $34,300 $0 $13,600

PFO $34,300 $0 $13,600

The Audit Committee has considered and concluded that the provision of
non-audit services is compatible with maintaining the auditors independence.

Each Audit Committee met twice during the fiscal year ended November 30,
2000. Each Board of Directors has an Audit Committee composed entirely of each
Fund's independent Directors, including Messrs. Brody, Gale, Gust and Wulf.

Each Board of Directors has a Nominating Committee composed entirely of
each Fund's independent Directors, including Messrs. Brody, Gale, Gust and Wulf.
The Nominating Committee is responsible for considering candidates for election
to the Board of Directors of each Fund in the event a position is vacated or
created. The Nominating Committee will consider recommendations by shareholders
if a vacancy were to exist. Such recommendations should be forwarded to the
Secretary of the Fund. There were no meetings of each Fund's Nominating
Committee during the fiscal year ended November 30, 2000.

The names of the officers of each Fund (other than Messrs. Flaherty and
Crumrine who are described above) are listed in the table below. Each officer
was first elected to office at the organization of each Fund. This table also
shows certain additional information. Each officer will hold such office until a
successor has been elected by the Board of Directors of each Fund.

POSITIONS HELD WITH PRINCIPAL OCCUPATIONS AND OTHER AFFILIATIONS
NAME AND AGE EACH FUND DURING THE PAST FIVE YEARS
- ------------ --------- --------------------------

Robert M. Ettinger Vice President and Assistant President, since December 1996, and previously
Age: 42 Treasurer of the Funds. held other officerships with Flaherty & Crumrine.

Peter C. Stimes Vice President, Treasurer and Vice President, Flaherty & Crumrine.
Age: 45 Assistant Secretary of the
Funds.

The following table sets forth certain information regarding the
compensation of each Fund's Directors for the fiscal year ended November 30,
2000. No executive officer or person affiliated with the Fund received
compensation from the Fund during the fiscal year ended November 30, 2000 in
excess of $60,000. Directors and executive officers of the Funds do not receive
pension or retirement benefits from the Funds.

COMPENSATION TABLE
------------------
NAME OF AGGREGATE TOTAL COMPENSATION FROM THE FUNDS
PERSON AND COMPENSATION AND FUND COMPLEX
POSITION FROM EACH FUND PAID TO DIRECTORS*
-------- -------------- -----------------

ROBERT T. FLAHERTY $0 $0 (2)
Director, Chairman of the Board,
President and Chief Executive
Officer

DONALD F. CRUMRINE $0 $0 (2)
Director, Chief Financial Officer,
Chief Accounting Officer, Vice
President and Secretary

MARTIN BRODY $12,200 - PFD $24,400 (2)
Director $12,200 - PFO

DAVID GALE $12,200 - PFD $24,400 (2)
Director $12,200 - PFO

MORGAN GUST $12,200 - PFD $24,400 (2)
Director $12,200 - PFO

ROBERT F. WULF $12,300 - PFD $24,600 (2)
Director $12,300 - PFO

- -----------------

* Represents the total compensation paid to such persons by the Funds for the
fiscal year ended November 30, 2000, which are considered part of the same
"fund complex" because they have a common adviser. The parenthetical number
represents the total number of investment company directorships held by the
director or nominee in such fund complex.

REQUIRED VOTE

The election of Mr. Gust as a Director of Preferred Income Fund will
require the affirmative vote of a plurality of the votes cast by holders of the
shares of MMP(R) of such Fund at the Meeting in person or by proxy. The election
of Mr. Flaherty as a Director of Preferred Income Fund will require the
affirmative vote of a plurality of the votes cast by holders of the shares of
Common Stock of such Fund at the Meeting in person or by proxy. The election of
Mr. Crumrine as a Director of Preferred Income Opportunity Fund will require the
affirmative vote of a plurality of the votes cast by holders of the shares of
MMP(R) of such Fund at the Meeting in person or by proxy. The election of Mr.
Wulf as a Director of Preferred Income Opportunity Fund will require the
affirmative vote of a plurality of the votes cast by holders of the shares of
Common Stock of such Fund at the Meeting in person or by proxy.

THE BOARD OF DIRECTORS, INCLUDING ALL OF THE INDEPENDENT DIRECTORS, UNANIMOUSLY
RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" EACH NOMINEE AS DIRECTOR.

PROPOSAL 2: RATIFICATION OF THE SELECTION
OF INDEPENDENT ACCOUNTANTS

The firm of PWC, 160 Federal Street, Boston, Massachusetts 02110, has
served as independent accountants for each Fund since the Fund's commencement of
operations, and has been selected to serve in such capacity for the Fund's
fiscal year ending November 30, 2001 by the Directors of the Fund, including
those Directors who are not "interested persons" (as defined in the 1940 Act) of
the Fund or Flaherty & Crumrine. PWC has informed the Funds that it has no
direct or indirect financial interest in the Funds. A representative of PWC will
not be present at the Meetings, but will be available by telephone and will have
an opportunity to make a statement if the representative so desires, and will be
available to respond to appropriate questions.

REQUIRED VOTE

Ratification of the selection of PWC as independent accountants for a Fund
requires the affirmative vote of the holders of a majority of the shares of
Common Stock and MMP(R), voting as a single class, cast at the Meeting in person
or by proxy.

THE BOARD OF DIRECTORS, INCLUDING ALL OF THE INDEPENDENT DIRECTORS, UNANIMOUSLY
RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" PROPOSAL NO. 2.

SUBMISSION OF SHAREHOLDER PROPOSALS

All proposals by shareholders of each Fund that are intended to be
presented at each Fund's next Annual Meeting of Shareholders to be held in 2002
must be received by the Fund for consideration for inclusion in the Fund's proxy
statement relating to the meeting no later than October 19, 2001.

ADDITIONAL INFORMATION

INVESTMENT ADVISER AND ADMINISTRATOR

Flaherty & Crumrine serves as the Investment Adviser to the Funds and its
business address is 301 E. Colorado Boulevard, Suite 720, Pasadena, California
91101. PFPC Inc. acts as the administrator to the Funds and is located at 101
Federal Street, 6th Floor, Boston, Massachusetts 02110.

COMPLIANCE WITH THE SECURITIES EXCHANGE ACT OF 1934

Section 16(a) of the 1934 Act requires the Funds' directors and officers,
certain persons affiliated with Flaherty & Crumrine and persons who beneficially
own more than 10% of a registered class of each Fund's securities, to file
reports of ownership and changes of ownership with the SEC, the New York Stock
Exchange, Inc. and the Fund. Directors, officers and greater-than-10%
shareholders are required by SEC regulations to furnish the Fund with copies of
all Section 16(a) forms they file.

Based solely upon its review of the copies of such forms received by it and
written representations from certain of such persons, each Fund believes that
during 2000, all such filing requirements applicable to such persons were met.

BROKER NON-VOTES AND ABSTENTIONS

A proxy which is properly executed and returned accompanied by instructions
to withhold authority to vote represents a broker "non-vote" (i.e., shares held
by brokers or nominees as to which (i) instructions have not been received from
the beneficial owners or the persons entitled to vote and (ii) the broker or
nominee does not have discretionary voting power on a particular matter).
Proxies that reflect abstentions or broker non-votes (collectively
"abstentions") will be counted as shares that are present and entitled to vote
on the matter for purposes of determining the presence of a quorum. Under
Maryland law, abstentions do not constitute a vote "for" or "against" a matter
and will be disregarded in determining the "votes cast" on an issue.

OTHER MATTERS TO COME BEFORE THE MEETING

The Funds do not intend to present any other business at the Meetings, nor
are they aware that any shareholder intends to do so. If, however, any other
matters are properly brought before the Meetings, the persons named in the
accompanying form of proxy will vote thereon in accordance with their judgment.

- --------------------------------------------------------------------------------
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. SHAREHOLDERS WHO DO
NOT EXPECT TO ATTEND THE MEETINGS ARE THEREFORE URGED TO COMPLETE, SIGN, DATE
AND RETURN ALL PROXY CARDS AS SOON AS POSSIBLE IN THE ENCLOSED POSTAGE-PAID
ENVELOPE.
- --------------------------------------------------------------------------------

ANNEX A

AUDIT COMMITTEE CHARTER

1. The Audit Committee shall consist of at least three members and shall be
composed entirely of independent directors, all of whom shall be
financially literate as determined by the Fund's Board in its business
judgment, with at least one member having accounting or related financial
management expertise as determined by the Fund's Board in its business
judgment.

2. The purposes of the Audit Committee are:

(a) to oversee the Fund's accounting and financial reporting policies and
practices, its internal controls and, as appropriate, the internal
controls of certain service providers;

(b) to oversee the quality and objectivity of the Fund's financial
statements and the independent audit thereof; and

The function of the Audit Committee is oversight. The Fund's management is
responsible for (i) the preparation, presentation and integrity of the
Fund's financial statements, (ii) the maintenance of appropriate accounting
and financial reporting principles and policies and (iii) the maintenance
of internal controls and procedures designed to assure compliance with
accounting standards and applicable laws and regulations. The auditors are
responsible for planning and carrying out a proper audit and reviews. In
fulfilling their responsibilities hereunder, it is recognized that members
of the Audit Committee are not full-time employees of the Fund and are not,
and do not represent themselves to be, accountants or auditors by
profession or experts in the fields of accounting or auditing. As such, it
is not the duty or responsibility of the Audit Committee or its members to
conduct "field work" or other types of auditing or accounting reviews or
procedures. Each member of the Audit Committee shall be entitled to rely on
(i) the integrity of those persons and organizations within and outside the
Fund from which it receives information and (ii) the accuracy of the
financial and other information provided to the Audit Committee by such
persons and organizations absent actual knowledge to the contrary (which
shall be promptly reported to the Fund's Board). In addition, the
evaluation of the Fund's financial statements by the Audit Committee is not
of the same scope as, and does not involve the extent of detail as, audits
performed by the independent accountants, nor does the Audit Committee's
evaluation substitute for the responsibilities of the Fund's management for
preparing, or the independent accountants for auditing, the financial
statements.

3. To carry out its purposes, the Audit Committee shall have the following
duties and powers:

(a) to recommend the selection, retention or termination of auditors and,
in connection therewith, to evaluate the independence of the auditors,
including whether the auditors provide any consulting services to the
Fund's investment adviser (it being understood that the auditors are
ultimately accountable to the Audit Committee and the Fund's Board and
that the Audit Committee and the Fund's Board shall have the ultimate
authority and responsibility to select, evaluate, retain and terminate
auditors, subject to any required stockholder vote);

(b) to ensure receipt of a formal written statement from the auditors on a
periodic basis specifically delineating all relationships between the
auditors and the Fund; to discuss with the auditors any disclosed
relationships or services that may impact the auditors' objectivity
and independence; and to recommend that the Fund's Board take
appropriate action in response to the auditors' report to satisfy
itself of the auditors' independence;

(c) to meet with the Fund's independent auditors, including private
meetings, as necessary (i) to review the arrangements for and scope of
the annual audit and any special audits; (ii) to discuss any matters
of concern relating to the Fund's financial statements, including any
adjustments to such statements recommended by the auditors, or other
results of said audit(s); and (iii) to consider the auditors' comments
with respect to the Fund's financial policies, procedures and internal
accounting controls and management's responses thereto;

(d) to consider the effect upon the Fund of any changes in accounting
principles or practices proposed by management or the auditors;

(e) to review the fees charged by the auditors for audit and non-audit
services;

(f) to investigate improprieties or suspected improprieties in Fund
operations; and

(g) to report its activities to the full Board on a periodic basis and to
make such recommendations with respect to the above and other matters
as the Committee may deem necessary or appropriate.

4. The Committee shall meet on a regular basis (typically, twice annually) and
is empowered to hold special meetings as circumstances require.

5. The Committee shall regularly meet (typically, concurrently with the
regular Committee meetings) with the Fund's management and with the
financial personnel of the Fund's administrator.

6. The Committee shall have the resources and authority appropriate to
discharge its responsibilities, including the authority to retain special
counsel and other experts or consultants at the expense of the Fund.

7. The Committee shall review the adequacy of this Charter at least annually
and recommend any changes to the full Board. The Board shall also review
and approve this Charter at least annually.

8. With respect to any subsequent changes to the composition of the Committee,
and otherwise approximately once each year, the Fund shall provide the New
York Stock Exchange written confirmation regarding:

(a) any determination that the Fund's Board has made regarding the
independence of directors pursuant to the New York Stock Exchange's
governance standards or applicable law;

(b) the financial literacy of the Committee members;

(c) the determination that at least one of the Committee members has
accounting or related financial management expertise; and

(d) the annual review and reassessment of the adequacy of the Committee
charter.

Adopted: Effective April 21, 2000

PREFERRED INCOME FUND INCORPORATED
PROXY SOLICITED BY THE BOARD OF DIRECTORS

The undersigned holder of shares of Money Market Cumulative Preferred(TM)
Stock ("MMP(R)") of Preferred Income Fund Incorporated, a Maryland corporation
(the "Fund"), hereby appoints Robert T. Flaherty, Donald F. Crumrine, Teresa
M.R. Hamlin and Christopher Howe, attorneys and proxies for the undersigned,
with full powers of substitution and revocation, to represent the undersigned
and to vote on behalf of the undersigned all shares of MMP(R), which the
undersigned is entitled to vote at the Annual Meeting of Shareholders of the
Fund to be held at the offices of Willkie Farr & Gallagher, 787 Seventh Avenue,
42nd Floor, New York, New York 10019 at 8:30 a.m., on April 27, 2001, and any
adjournments thereof. The undersigned hereby acknowledges receipt of the Notice
of Annual Meeting and Proxy Statement and hereby instructs said attorneys and
proxies to vote said shares as indicated hereon. In their discretion, the
proxies are authorized to vote upon such other business as may properly come
before the Meeting. A majority of the proxies present and acting at the Meeting
in person or by substitute (or, if only one shall be so present, then that one)
shall have and may exercise all of the power and authority of said proxies
hereunder. The undersigned hereby revokes any proxy previously given.

CONTINUED AND TO BE SIGNED ON REVERSE SIDE

Please indicate your vote by an "X" in the appropriate box below.

THIS PROXY, IF PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED BY THE
UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR
THE ELECTION OF THE NOMINEE AS DIRECTOR AND FOR PROPOSAL 2.

PLEASE REFER TO THE PROXY STATEMENT FOR A DISCUSSION OF THE PROPOSALS.

1. ELECTION OF DIRECTOR

FOR
-----
AGAINST
-----
ABSTAIN
-----

NOMINEE: Morgan Gust

2. TO RATIFY THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT
ACCOUNTS FOR THE FUND

FOR
-----
AGAINST
-----
ABSTAIN
-----

The Board of Directors recommends that the shareholders vote "FOR" the election
of the nominee and "FOR" the ratification of the selection of
PricewaterhouseCoopers LLP as independent accountants for the Fund.

MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT
-----

PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE

NOTE: Please sign exactly as your name appears on this Proxy. If joint owners,
EITHER may sign this Proxy. When signing as attorney, executor, administrator,
trustee, guardian or corporate officer, please give your full title.

Signature:
----------------------
Date:
----------------------
Signature:
----------------------
Date:
----------------------

PREFERRED INCOME OPPORTUNITY FUND INCORPORATED
PROXY SOLICITED BY THE BOARD OF DIRECTORS

The undersigned holder of shares of Money Market Cumulative Preferred(TM)
Stock ("MMP(R)") of Preferred Income Opportunity Fund Incorporated, a Maryland
corporation (the "Fund"), hereby appoints Robert T. Flaherty, Donald F.
Crumrine, Teresa M.R. Hamlin and Christopher Howe, attorneys and proxies for the
undersigned, with full powers of substitution and revocation, to represent the
undersigned and to vote on behalf of the undersigned all shares of MMP(R), which
the undersigned is entitled to vote at the Annual Meeting of Shareholders of the
Fund to be held at the offices of Willkie Farr & Gallagher, 787 Seventh Avenue,
42nd Floor, New York, New York 10019 at 8:30 a.m., on April 27, 2001, and any
adjournments thereof. The undersigned hereby acknowledges receipt of the Notice
of Annual Meeting and Proxy Statement and hereby instructs said attorneys and
proxies to vote said shares as indicated hereon. In their discretion, the
proxies are authorized to vote upon such other business as may properly come
before the Meeting. A majority of the proxies present and acting at the Meeting
in person or by substitute (or, if only one shall be so present, then that one)
shall have and may exercise all of the power and authority of said proxies
hereunder. The undersigned hereby revokes any proxy previously given.

CONTINUED AND TO BE SIGNED ON REVERSE SIDE

Please indicate your vote by an "X" in the appropriate box below.

PLEASE REFER TO THE PROXY STATEMENT FOR A DISCUSSION OF THE PROPOSALS.

1. ELECTION OF DIRECTOR

FOR
-----
AGAINST
-----
ABSTAIN
-----

NOMINEE: Donald F. Crumrine

2. TO RATIFY THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT
ACCOUNTS FOR THE FUND

FOR
-----
AGAINST
-----
ABSTAIN
-----

MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT
-----

PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE

Signature:
----------------------
Date:
----------------------
Signature:
----------------------
Date:
----------------------

PREFERRED INCOME FUND INCORPORATED
PROXY SOLICITED BY THE BOARD OF DIRECTORS

The undersigned holder of shares of Common Stock of Preferred Income Fund
Incorporated, a Maryland corporation (the "Fund"), hereby appoints Robert T.
Flaherty, Donald F. Crumrine, Teresa M.R. Hamlin and Christopher Howe, attorneys
and proxies for the undersigned, with full powers of substitution and
revocation, to represent the undersigned and to vote on behalf of the
undersigned all shares of Common Stock, which the undersigned is entitled to
vote at the Annual Meeting of Shareholders of the Fund to be held at the offices
of Willkie Farr & Gallagher, 787 Seventh Avenue, 42nd Floor, New York, New York
10019 at 8:30 a.m., on April 27, 2001, and any adjournments thereof. The
undersigned hereby acknowledges receipt of the Notice of Annual Meeting and
Proxy Statement and hereby instructs said attorneys and proxies to vote said
shares as indicated hereon. In their discretion, the proxies are authorized to
vote upon such other business as may properly come before the Meeting. A
majority of the proxies present and acting at the Meeting in person or by
substitute (or, if only one shall be so present, then that one) shall have and
may exercise all of the power and authority of said proxies hereunder. The
undersigned hereby revokes any proxy previously given.

CONTINUED AND TO BE SIGNED ON REVERSE SIDE

Please indicate your vote by an "X" in the appropriate box below.

PLEASE REFER TO THE PROXY STATEMENT FOR A DISCUSSION OF THE PROPOSALS.

1. ELECTION OF DIRECTOR

FOR
-----
AGAINST
-----
ABSTAIN
-----

NOMINEE: Robert T. Flaherty

2. TO RATIFY THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT
ACCOUNTS FOR THE FUND

FOR
-----
AGAINST
-----
ABSTAIN
-----

THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE ELECTION
OF THE NOMINEE AND "FOR" THE RATIFICATION OF THE SELECTION OF
PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT ACCOUNTANTS FOR THE FUND.

MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT
-----

PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE

Signature:
----------------------
Date:
----------------------
Signature:
----------------------
Date:
----------------------

PREFERRED INCOME OPPORTUNITY FUND INCORPORATED
PROXY SOLICITED BY THE BOARD OF DIRECTORS

The undersigned holder of shares of Common Stock of Preferred Income
Opportunity Fund Incorporated, a Maryland corporation (the "Fund"), hereby
appoints Robert T. Flaherty, Donald F. Crumrine, Teresa M.R. Hamlin and
Christopher Howe, attorneys and proxies for the undersigned, with full powers of
substitution and revocation, to represent the undersigned and to vote on behalf
of the undersigned all shares of Common Stock, which the undersigned is entitled
to vote at the Annual Meeting of Shareholders of the Fund to be held at the
offices of Willkie Farr & Gallagher, 787 Seventh Avenue, 42nd Floor, New York,
New York 10019 at 8:30 a.m., on April 27, 2001, and any adjournments thereof.
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting and
Proxy Statement and hereby instructs said attorneys and proxies to vote said
shares as indicated hereon. In their discretion, the proxies are authorized to
vote upon such other business as may properly come before the Meeting. A
majority of the proxies present and acting at the Meeting in person or by
substitute (or, if only one shall be so present, then that one) shall have and
may exercise all of the power and authority of said proxies hereunder. The
undersigned hereby revokes any proxy previously given.

CONTINUED AND TO BE SIGNED ON REVERSE SIDE

Please indicate your vote by an "X" in the appropriate box below.

PLEASE REFER TO THE PROXY STATEMENT FOR A DISCUSSION OF THE PROPOSALS.

1. ELECTION OF DIRECTOR

FOR
-----
AGAINST
-----
ABSTAIN
-----
NOMINEE: Robert F. Wulf

2. TO RATIFY THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT
ACCOUNTS FOR THE FUND

FOR
-----
AGAINST
-----
ABSTAIN
-----

MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT
-----

PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE

Signature:
----------------------
Date:
----------------------
Signature:
----------------------
Date:
----------------------