SCHEDULE 14A
                                 PROXY STATEMENT
        PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934

Filed by Registrant [X]
Filed by 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 Rule 14a-11c or Rule 14a-12

             FLAHERTY & CRUMRINE PREFERRED INCOME FUND INCORPORATED
            --------------------------------------------------------
                (Name of Registrant as Specified in Its Charter)

                     ---------------------------------------
                   (Name of Person(s) Filing Proxy Statement)

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 transaction 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 identify 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: ___________________________________________________________





       FLAHERTY & CRUMRINE PREFERRED INCOME FUND INCORPORATED (NYSE: PFD)
 FLAHERTY & CRUMRINE PREFERRED INCOME OPPORTUNITY FUND INCORPORATED (NYSE: PFO)
                      301 E. Colorado Boulevard, Suite 720
                           Pasadena, California 91101

                    NOTICE OF ANNUAL MEETINGS OF SHAREHOLDERS
                          To Be Held on April 23, 2004

To the Shareholders:

         Notice is hereby  given that the Annual  Meetings  of  Shareholders  of
Flaherty & Crumrine  Preferred Income Fund  Incorporated and Flaherty & Crumrine
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 LLP, 787 Seventh Avenue, 38th Floor, New York, New York
10019 at 8:30 a.m., on April 23, 2004, for the following purposes:

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

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

         The  proposal set forth in this proxy  statement  is a routine  item. A
routine item is one which occurs  annually and makes no  fundamental or material
changes to a fund's investment objectives,  policies or restrictions,  or to the
investment management contracts.

         Your vote is important!

         The Board of  Directors of each Fund has fixed the close of business on
January 26, 2004 as the record date for the  determination  of  shareholders  of
each Fund entitled to notice of and to vote at the Annual Meetings.

                                            By Order of the Boards of Directors,


                                                                R. ERIC CHADWICK
                                                                SECRETARY

February 12, 2004

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







       FLAHERTY & CRUMRINE PREFERRED INCOME FUND INCORPORATED (NYSE: PFD)
 FLAHERTY & CRUMRINE PREFERRED INCOME OPPORTUNITY FUND INCORPORATED (NYSE: PFO)

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

                         ANNUAL MEETINGS OF SHAREHOLDERS
                                 April 23, 2004

                              JOINT PROXY STATEMENT

         This document is a joint proxy statement  ("Joint Proxy Statement") for
Flaherty & Crumrine Preferred Income Fund Incorporated  ("PREFERRED INCOME FUND"
OR "PFD") and Flaherty & Crumrine 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 23, 2004,  at 8:30 a.m., at the offices of Willkie
Farr & Gallagher LLP, 787 Seventh Avenue,  38th 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 12, 2004,  primarily
by mail,  but proxy  solicitations  may also be made by telephone,  telegraph or
personal  interviews  conducted  by officers  of each Fund,  Flaherty & Crumrine
Incorporated ("Flaherty & Crumrine" or the "Adviser"), the investment adviser of
each Fund, and PFPC Inc., the transfer agent and  administrator of each Fund and
a  member  of The  PNC  Financial  Services  Group,  Inc.  The  costs  of  proxy
solicitation  and expenses  incurred in connection  with the preparation of this
Joint Proxy  Statement and its  enclosures  will be shared equally by the Funds.
Each Fund also will reimburse  brokerage  firms and others for their expenses in
forwarding solicitation material to the beneficial owners of its shares.

         The  proposal set forth in this proxy  statement  is a routine  item. A
routine item is one which occurs  annually and makes no  fundamental or material
changes to a fund's investment objectives,  policies or restrictions,  or to the
investment management contracts.

         Your vote is important!

         THE ANNUAL REPORT OF EACH FUND,  INCLUDING AUDITED FINANCIAL STATEMENTS
FOR THE FISCAL YEAR ENDED NOVEMBER 30, 2003, IS AVAILABLE UPON REQUEST,  WITHOUT
CHARGE, BY WRITING TO PFPC INC., P.O. BOX 43027, PROVIDENCE,  RI 02940-3027,  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. 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,  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" the proposal in favor
of such an  adjournment  and  will  vote  those  proxies  required  to be  voted
"AGAINST" the proposal against any such  adjournment.  A shareholder vote may be
taken on the proposal 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").  Each Share is  entitled  to one vote at the  Meeting,  with pro rata
voting rights for any fractional  Shares. On the record date,  January 26, 2004,
the following number of Shares of each Fund were issued and outstanding:

                                       1




                                                                            COMMON STOCK                MMP(R)
         NAME OF FUND                                                        OUTSTANDING             OUTSTANDING
         ------------                                                        -----------             -----------
                                                                                                  
         Preferred Income Fund (PFD)                                          10,176,419                800

         Preferred Income Opportunity Fund (PFO)                              11,484,707                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"),  is the  beneficial  owner or
owner of record of more than 5% of the relevant Fund's  outstanding shares as of
January 26, 2004*:



         NAME AND ADDRESS OF                                              AMOUNT AND NATURE
         BENEFICIAL/RECORD OWNER                    TITLE OF CLASS          OF OWNERSHIP               PERCENT OF CLASS
         -----------------------                    --------------          ------------               ----------------
                                                                                                     
         Cede & Co.**                                   Common             PFD - 9,632,376                   94.65%
         Depository Trust Company                        Stock             (record)
         55 Water Street, 25th Floor                                       PFO - 10,942,057                  95.27%
         New York, NY                                                      (record)
         10041

                                                         MMP(R)            PFD - 800 (record)                  100%
                                                                           PFO - 700 (record)                  100%

-------------------------------
*   As of January 26,  2004,  the  Directors  and  officers,  as a group,  owned
    less than 1% of each class of Shares.
**  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 THE PROPOSAL PERTAINING TO THAT FUND.

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

                        PROPOSAL 1: ELECTION OF DIRECTORS

         At the Meetings,  shareholders are being asked to consider the election
of Directors of each Fund.  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        CLASS III DIRECTORS
       -----------------    ------------------        -------------------
         Martin Brody       Donald F. Crumrine        Robert M. Ettinger
          David Gale          Robert F. Wulf              Morgan Gust

                                       2



         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  2007 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 2005, 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 2006.  Except for
Mr. Gale (who has served as a Director of each Fund since  January 24, 1997) and
Mr. Ettinger (who has served as a Director of each Fund since October 18, 2002),
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  Investment  Company Act of 1940,  as amended (the "1940  Act"),  holders 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.
However,  subject to the  provisions of the 1940 Act and the Fund's  Articles of
Incorporation, the holders of MMP(R), when dividends are in arrears for two full
years, are able to elect the minimum number of additional  Directors,  that when
combined with the two Directors elected by the holders of MMP(R), would give the
holders of MMP(R) a majority of tHE  Directors.  Donald F.  Crumrine  and Morgan
Gust, as Directors, currently represent holders of MMP(R) of each Fund. A quorum
of the MMP(R)  shareholders  must be present at the Meeting of Preferred  Income
Fund and Preferred  Income  Opportunity  Fund in order for the proposal to elect
Mr. Gust and Mr. Crumrine, respectively, to be considered.

                    FUND (CLASS)                NOMINEE FOR DIRECTOR
                    -----------                 --------------------
            PFD (Common Stock)                        Ettinger

            PFD(MMP(R))                                 Gust

            PFO (Common Stock)                          Wulf

            PFO(MMP(R))                               Crumrine

INFORMATION ABOUT DIRECTORS AND OFFICERS

         Set forth in the table below are the  existing  Directors  and nominees
for  election to the Boards of  Directors  of the Funds,  including  information
relating to their respective positions held with each Fund, a brief statement of
their principal  occupations during the past five years and other directorships,
if any. Each Director serves in the same capacity for each Fund.



                                                                             NUMBER OF
                                                                            PRINCIPAL         FUNDS IN          OTHER
                                                     TERM OF OFFICE       OCCUPATION(S)     FUND COMPLEX    DIRECTORSHIPS
NAME, ADDRESS,                    POSITION(S)         AND LENGTH OF         DURING PAST       OVERSEEN         HELD BY
AND AGE                          HELD WITH FUNDS      TIME SERVED*          FIVE YEARS      BY DIRECTOR**     DIRECTOR
-------                          ---------------       ----------           ----------      ------------      ---------
NON-INTERESTED
DIRECTORS:
---------
                                                                                                
MARTIN BRODY                       Director        Class I Director          Retired             4     Director, Jaclyn, Inc.
c/o HMK Associates                                 PFD - since 1991                                  (luggage and accessories);
30 Columbia Turnpike                               PFO - since 1992                                      Director Emeritus,
Florham Park, NJ 07932                                                                                  Smith Barney Mutual
Age: 82                                                                                                  Funds (18 funds);
                                                                                                        Director, Flaherty &
                                                                                                              Crumrine/
                                                                                                         Claymore Preferred
                                                                                                             Securities
                                                                                                            Income Fund
                                                                                                            Incorporated
                                                                                                           and Flaherty &
                                                                                                          Crumrine/Claymore
                                                                                                         Total Return Fund
                                                                                                            Incorporated


                                       3






                                                                             NUMBER OF
                                                                            PRINCIPAL         FUNDS IN          OTHER
                                                     TERM OF OFFICE       OCCUPATION(S)     FUND COMPLEX    DIRECTORSHIPS
NAME, ADDRESS,                    POSITION(S)         AND LENGTH OF         DURING PAST       OVERSEEN         HELD BY
AND AGE                          HELD WITH FUNDS      TIME SERVED*          FIVE YEARS      BY DIRECTOR**     DIRECTOR
-------                          ---------------       ----------           ----------      ------------      ---------
NON-INTERESTED
DIRECTORS:
---------
                                                                                                
DAVID GALE                         Director        Class I Director       President and CEO         4    Director, Golden State
Delta Dividend Group, Inc.                         PFD - since 1997      of Delta Dividend                Vintners, Inc. (wine
220 Montgomery Street,                             PFO - since 1997         Group, Inc.               pressing); Director, Flaherty
Suite 426                                                                   (investments)                 & Crumrine/Claymore
San Francisco, CA 94104                                                                                   Preferred Securities
Age: 54                                                                                                       Income Fund
                                                                                                            Incorporated and
                                                                                                          Flaherty & Crumrine/
                                                                                                             Claymore Total
                                                                                                              Return Fund
                                                                                                              Incorporated

MORGAN GUST (1)                    Director       Class III Director      Since March 2002,         4     Director, Flaherty &
Giant Industries, Inc.                             PFD - since 1991      President of Giant                 Crumrine/Claymore
23733 N. Scottsdale Road                           PFO - since 1992       Industries, Inc.                Preferred Securities
Scottsdale, AZ 85255                                                     (petroleum refining                  Income Fund
Age: 56                                                             and marketing) and, for more              Incorporated
                                                                   than five years prior thereto,            and Flaherty &
                                                                    Executive Vice President, and           Crumrine/Claymore
                                                                    various other Vice President           Total Return Fund
                                                                         positions at Giant                   Incorporated
                                                                          Industries, Inc.

ROBERT F. WULF                     Director        Class II Director   Financial Consultant;        4     Director, Flaherty &
3560 Deerfield Drive South                         PFD - since 1991    Trustee, University of               Crumrine/Claymore
Salem, OR 97302                                    PFO - since 1992      Oregon Foundation;               Preferred Securities
Age: 66                                                                Trustee, San Francisco                 Income Fund
                                                                        Theological Seminary                  Incorporated
                                                                                                             and Flaherty &
                                                                                                            Crumrine/Claymore
                                                                                                           Total Return Fund
                                                                                                              Incorporated

INTERESTED
DIRECTORS:
---------

DONALD F. CRUMRINE (1)(2)(3)      Director,       Class II Director    Chairman of the Board        4     Director, Flaherty &
301 E. Colorado Boulevard         Chairman of      PFD - since 1991        and Director of                  Crumrine/Claymore
Suite 720                        the Board and     PFO - since 1992     Flaherty & Crumrine               Preferred Securities
Pasadena, CA 91101              Chief Executive                                                               Income Fund
Age: 56                             Officer                                                                   Incorporated
                                                                                                             and Flaherty &
                                                                                                           Crumrine/Claymore
                                                                                                           Total Return Fund
                                                                                                              Incorporated

ROBERT M. ETTINGER (2)(3)        Director and     Class III Director       President and            2              --
301 E. Colorado Boulevard         President        PFD - since 2002    Director of Flaherty &
Suite 720                                          PFO - since 2002           Crumrine
Pasadena, CA 91101
Age: 45


                                       4






                                                                             NUMBER OF
                                                                            PRINCIPAL         FUNDS IN          OTHER
                                                     TERM OF OFFICE       OCCUPATION(S)     FUND COMPLEX    DIRECTORSHIPS
NAME, ADDRESS,                    POSITION(S)         AND LENGTH OF         DURING PAST       OVERSEEN         HELD BY
AND AGE                          HELD WITH FUNDS      TIME SERVED*          FIVE YEARS      BY DIRECTOR**     DIRECTOR
-------                          ---------------       ----------           ----------      ------------      ---------
OFFICERS:
---------
                                                                                                
PETER C. STIMES                  Chief Financial         Officer          Vice President of            N/A             N/A
301 E. Colorado Boulevard        Officer, Chief     PFD - since 1991      Flaherty & Crumrine
Suite 720                          Accounting       PFO - since 1992
Pasadena, CA 91101                Officer, Vice
Age: 48                            President,
                                  Treasurer and
                               Assistant Secretary

BRADFORD S. STONE                Vice President          Officer         Since May 2003, Vice          N/A             N/A
392 Springfield Avenue            and Assistant     PFD - since 2003    President of Flaherty &
Mezzanine Suite                     Treasurer       PFO - since 2003      Crumrine; from June
Summit, NJ 07901                                                          2001 to April 2003,
Age: 44                                                                  Director of US Market
                                                                         Strategy at Barclays
                                                                        Capital; from February
                                                                        1987 to June 2001, Vice
                                                                        President of Goldman,
                                                                          Sachs & Company as
                                                                        Director of USInterest
                                                                          Rate Strategy and,
                                                                      previously, Vice President
                                                                     of Interest Rate Product Sales

R. ERIC CHADWICK                 Vice President,         Officer          Vice President of            N/A             N/A
301 E. Colorado Boulevard         Secretary and     PFD - since 2002      Flaherty & Crumrine
Suite 720                           Assistant       PFO - since 2002      since August 2001,
Pasadena, CA 91101                  Treasurer                            and previously (since
Age: 28                                                                 January 1999) portfolio
                                                                         manager of Flaherty &
                                                                       Crumrine. Prior to that,
                                                                         portfolio manager of
                                                                         Koch Industries, Inc.

-------------
*    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  2007  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 2005 and until their  successors  are duly elected and  qualified.  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 2006 and until their  successors  are duly  elected and
     qualified.
**   The funds in the fund complex are:  Flaherty & Crumrine  Preferred Income Fund  Incorporated,  Flaherty &
     Crumrine  Preferred  Income  Opportunity  Fund  Incorporated,   Flaherty  &  Crumrine/Claymore  Preferred
     Securities  Income Fund  Incorporated,  and Flaherty &  Crumrine/Claymore  Total Return Fund Incorporated
     (together, the "Flaherty & Crumrine Fund Family").
(1)  As a Director, represents holders of shares of the Funds' MMP(R).
(2)  "Interested  person" of the Funds as defined in the 1940 Act.  Messrs.  Crumrine  and  Ettinger  are each
     considered an "interested  person" because of their  affiliation with Flaherty & Crumrine,  which acts as
     each Fund's investment adviser.
(3)  During the year ended  November 30, 2003,  Donald F. Crumrine and Robert M.  Ettinger each  purchased 100
     Shares of common stock of Flaherty &Crumrine for $81,212.20, paid in cash, from Robert T. Flaherty.



                                        5



BENEFICIAL OWNERSHIP OF SHARES IN FUNDS AND FUND COMPLEX FOR EACH DIRECTOR AND
NOMINEE FOR ELECTION AS DIRECTOR

         Set forth in the table below is the dollar  range of equity  securities
in each Fund and the aggregate dollar range of equity securities in the Flaherty
& Crumrine Fund Family beneficially owned by each Director.



                                                                                          AGGREGATE DOLLAR RANGE OF EQUITY
                                                                                       SECURITIES IN ALL REGISTERED INVESTMENT
                                                        DOLLAR RANGE OF EQUITY           COMPANIES OVERSEEN BY DIRECTOR IN
NAME OF DIRECTOR                                    SECURITIES HELD IN FUND* (1)(2)      FAMILY OF INVESTMENT COMPANIES* (3)
----------------                                    -------------------------------      ------------------------------------
                                                                                                
                                                      PFD                     PFO                       TOTAL
                                                      ---                     ---                       -----
NON-INTERESTED DIRECTORS:

Martin Brody                                           C                       C                          E

David Gale                                             C                       C                          E

Morgan Gust                                            C                       C                          E

Robert F. Wulf                                         C                       C                          D

INTERESTED DIRECTORS:

Donald F. Crumrine                                     E(4)                    E(4)                       E(4)

Robert M. Ettinger                                     E(4)                    E(4)                       E(4)

------------
*    Key to Dollar Ranges
A.   None
B.   $1 - $10,000
C.   $10,001 -$50,000
D.   $50,001 - $100,000
E.   over $100,000
     All shares were valued as of December 31, 2003.
(1)  No Director or officer of the Funds owned any shares of MMP(R)on January 26, 2004.
(2)  This  information has been furnished by each Director as of January 29, 2004.  "Beneficial  Ownership" is
     determined in accordance with Rule 16a-1(a)(2) of the 1934 Act.
(3)  As a group, less than 1%.
(4)  Includes shares of PFD and PFO 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 $150 for each telephone meeting.
In addition,  effective October 17, 2003, the Audit Committee  Chairman receives
an annual fee per Fund of $2,500.  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 PFD held seven  meetings (3 of which were
held by telephone  conference call) and the Board of Directors of PFO held seven
meetings (3 of which were held by telephone  conference  call) during the fiscal
year ended November 30, 2003, 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.  In  addition,  one meeting of a special "ad
hoc"  committee of the Board of Directors was held for each Fund.  The aggregate
remuneration paid to the Directors and officers of each Fund for the fiscal year
ended November 30, 2003 is set forth below:

--------------------------------------------------------------------------------
                                      BOARD MEETING               TRAVEL AND
               ANNUAL                      AND                   OUT-OF-POCKET
           DIRECTORS FEES        COMMITTEE MEETING FEES            EXPENSES*
--------------------------------------------------------------------------------
 PFD           $36,301                  $19,400                   $18,985
 PFO           $36,301                  $19,400                   $18,985
--------------------------------------------------------------------------------

--------------
 *   Includes  reimbursement  for travel  and  out-of-pocket  expenses  for both
     "interested" and "non-interested" Directors ("Independent Directors").

                                       6



AUDIT COMMITTEE REPORT

         The role of each  Fund's  Audit  Committee  is to  assist  the Board of
Directors  in its  oversight  of (i)  the  integrity  of each  Fund's  financial
statements and the  independent  audit therof;  (ii) each Fund's  accounting and
financial  reporting  policies  and  practices,  its internal  controls  and, as
appropriate,  the internal  controls of certain  service  providers;  (iii) each
Fund's  compliance  with  legal  and  regulatory  requirements;   and  (iv)  the
independent auditor's qualifications,  independence and performance. Each Fund's
Audit Committee is also required to prepare an audit  committee  report pursuant
to the rules of the Securities and Exchange Commission (the "SEC") for inclusion
in each Fund's annual proxy statement. Each Audit Committee operates pursuant to
a Charter that was most recently reviewed and approved by the Board of Directors
of each Fund on January 21, 2004. The Audit Committee Charter applicable to each
Fund is attached as Annex A to this Joint Proxy  Statement.  As set forth in the
Charter,  management  is  responsible  for  (i)  preparation,  presentation  and
integrity  of  each  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
independent  accountants  are  responsible  for planning and carrying out proper
audits and reviews of each Fund's financial statements and expressing an opinion
as to their  conformity with  accounting  principles  generally  accepted in the
United States of America.

         In performing its oversight function,  at a meeting held on January 21,
2004, the Audit  Committee  reviewed and discussed with  management of each Fund
and the  independent  accountants,  KPMG LLP  ("KPMG"),  the  audited  financial
statements  of each Fund as of and for the fiscal year ended  November 30, 2003,
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,  COMMUNICATIONS
WITH  AUDIT  COMMITTEES,  as  currently  modified  or  supplemented.  The  Audit
Committee also received from the independent accountants the written disclosures
and  statements   required  by  the  SEC's   independence   rules,   delineating
relationships  between the  independent  accountants and each Fund and discussed
the  impact  that any  such  relationships  might  have on the  objectivity  and
independence of the independent accountants.

         As set forth  above,  and as more fully set forth in each Fund's  Audit
Committee Charter,  the Audit Committee has significant duties and powers in its
oversight  role with  respect  to the  Fund's  financial  reporting  procedures,
internal control systems, and the independent audit process.

         The  members  of the  Audit  Committee  are not,  and do not  represent
themselves  to  be,  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  Audit
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 for
the fiscal year ended November 30, 2003.

THIS  REPORT  WAS  SUBMITTED  BY THE AUDIT  COMMITTEE  OF EACH  FUND'S  BOARD OF
DIRECTORS

Martin Brody
David Gale
Morgan Gust
Robert Wulf (Chairman)

January 21, 2004

                                       7




         Each  Audit  Committee  met five times  during  the  fiscal  year ended
November 30,  2003.  Each Audit  Committee is composed  entirely of the relevant
Fund's  independent  (as such term is defined  by the New York  Stock  Exchange,
Inc.'s  listing  standards  (the "NYSE Listing  Standards"))  Directors,  namely
Messrs. Brody, Gale, Gust and Wulf.

NOMINATING COMMITTEE

         Each Board of Directors has a Nominating Committee composed entirely of
each Fund's  independent (as such term is defined by the NYSE Listing Standards)
Directors,  namely Messrs.  Brody, Gale, Gust and Wulf. The Nominating Committee
of each Fund did not meet during the fiscal year ended  November 30,  2003.  The
Nominating  Committee is responsible for identifying  individuals believed to be
qualified to become Board members and for recommending to the Board of Directors
such nominees to stand for election as directors at each Fund's  annual  meeting
of shareholders,  and to fill any vacancies on the Board. Each Fund's Nominating
Committee   has  a  charter   which  is   available   on  the   Funds'   website
(www.preferredincome.com).

         Each  Fund's  Nominating  Committee  believes  that  it is in the  best
interest of the Fund and its shareholders to obtain highly qualified  candidates
to serve as members of the Board of Directors.  The Nominating  Committees  have
not  established a formal  process for  identifying  candidates  where a vacancy
exists on the Board. In nominating  candidates,  the Nominating  Committee shall
take into consideration such factors as it deems appropriate.  These factors may
include judgment,  skill,  diversity,  experience with investment  companies and
other  organizations  of  comparable  purpose,  complexity,  size and subject to
similar legal  restrictions  and  oversight,  the  interplay of the  candidate's
experience  with the experience of other Board members,  and the extent to which
the  candidate  would be a desirable  addition  to the Board and any  committees
thereof.

         Each Fund's  Nominating  Committee  will consider  director  candidates
recommended by shareholders  and submitted in accordance with applicable law and
procedures  as  described in this Joint Proxy  Statement.  (See  "Submission  of
Shareholder Proposals" below.)

OTHER BOARD-RELATED MATTERS

         Shareholders who wish to send  communications  to the Board should send
them to the  address of the Fund and to the  attention  of the  Board.  All such
communications will be directed to the Board's attention.

         The Funds do not have a formal policy regarding Board member attendance
at the Annual  Meeting of  Shareholders.  However,  five of the six Directors of
each Fund attended the April 25, 2003 Annual Meeting of Shareholders.

COMPENSATION

         The  following  table  sets forth  certain  information  regarding  the
compensation  of each Fund's  Directors  for the fiscal year ended  November 30,
2003.  No  executive  officer  or  person  affiliated  with  the  Fund  received
compensation  from the Fund  during the fiscal year ended  November  30, 2003 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
             PERSON AND                  COMPENSATION           THE FUNDS AND FUND
              POSITION                  FROM EACH FUND      COMPLEX PAID TO DIRECTORS*
              --------                  --------------      --------------------------
                                                                
DONALD F. CRUMRINE                            $0                      $0 (4)
Director, Chairman of the Board
and Chief Executive Officer

ROBERT M. ETTINGER                            $0                      $0 (2)
Director and President

MARTIN BRODY                             $13,800 - PFD              $46,725 (4)
Director                                 $13,800 - PFO

DAVID GALE                               $13,800 - PFD              $47,725 (4)
Director                                 $13,800 - PFO


                                       8





               NAME OF                     AGGREGATE          TOTAL COMPENSATION FROM
             PERSON AND                  COMPENSATION           THE FUNDS AND FUND
              POSITION                  FROM EACH FUND      COMPLEX PAID TO DIRECTORS*
              --------                  --------------      --------------------------
                                                                   
MORGAN GUST                              $13,900 - PFD              $48,125 (4)
Director                                 $13,900 - PFO

ROBERT F. WULF                           $14,201 - PFD              $48,628 (4)
Director                                 $14,201 - PFO

----------------
*        Represents the total compensation paid to such persons by the Funds and
         the other funds in the Flaherty & Crumrine Fund Family for, in the case
         of PFD and PFO, the fiscal year ended  November  30, 2003,  and, in the
         case of Flaherty & Crumrine/Claymore  Preferred  Securities Income Fund
         Incorporated  and  Flaherty  &  Crumrine/Claymore   Total  Return  Fund
         Incorporated,  for the fiscal period from each fund's  commencement  of
         operations  through November 30, 2003, 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 as
         of November 30, 2003.



REQUIRED VOTE

         The  election of Mr.  Ettinger 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. 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.
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 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.

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

                       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 2005
must be received by the relevant  Fund for  consideration  for  inclusion in the
relevant  Fund's proxy  statement  relating to the meeting no later than October
15, 2004 and must satisfy the requirements of federal securities laws.

         Each Fund's By-laws require  shareholders wishing to nominate Directors
or make  proposals to be voted on at the Fund's annual meeting to provide timely
notice of the proposal in writing. To be considered timely, any such notice must
be delivered to or mailed and received at the principal executive offices of the
Fund not later than 60 days prior to the date of the meeting;  provided however,
that if less than 70 days notice or prior public  disclosure  of the date of the
meeting is given or made to shareholders, any such notice by a shareholder to be
timely must be so received  not later than the close of business on the 10th day
following the day on which notice of the date of the annual meeting was given or
such public disclosure was made.

         Any such  notice by a  shareholder  shall  set  forth  the  information
required  by the Fund's  By-laws  with  respect to each  matter the  shareholder
proposes to bring before the annual meeting.

                             ADDITIONAL INFORMATION

INDEPENDENT ACCOUNTANTS

         KPMG,  99 High  Street,  Boston,  Massachusetts  02110-2371,  has  been
selected to serve as each Fund's independent  accountants for each Fund's fiscal
year ending  November 30, 2004.  KPMG acted as the  independent  accountants for
each Fund for the fiscal  year ended  November  30,  2003.  The Funds know of no
direct financial or material indirect financial interest of KPMG in the Funds. A
representative of KPMG will not be present at the Meeting, but will be available
by telephone and will have an  opportunity  to make a statement,  if asked,  and
will be available to respond to appropriate questions.

         Set forth in the table below are audit fees and non-audit  related fees
billed to each Fund by KPMG for  professional  services  received during and for
each Fund's fiscal years ended November 30, 2002 and 2003, respectively.

                                       9






                          FISCAL YEAR ENDED                        AUDIT-RELATED
FUND                        NOVEMBER 30         AUDIT FEES             FEES*           TAX FEES**        ALL OTHER FEES
----                        -----------         ----------             ----            ----------        --------------
                                                                                               
PFD                            2002              $32,500               $8,800           $5,500                 --
                               2003              $34,500              $11,200           $6,000                 --

PFO                            2002              $32,500               $8,800           $5,500                 --
                               2003              $34,500              $11,200           $6,000                 --

---------------
*    "Audit-Related  Fees"  are  those  fees  billed  to  each  Fund  by KPMG in
     connection  with  their  agreed-upon  procedures  reports  on  each  Fund's
     Articles  Supplementary.  Such reports are required quarterly by Moody's
     Investor Service, Inc. in connection with maintaining public ratings for
     each Fund's MMP(R).
**   "Tax Fees" are those fees  billed to each Fund by KPMG in  connection  with
     tax  consulting  services,  including  primarily  the review of each Fund's
     income tax returns.



         Each Fund's Audit Committee  Charter  requires that the Audit Committee
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 Funds' investment adviser  ("affiliates")  that
provide  on-going  services to each Fund, if the engagement  relates directly to
the  operations and financial  reporting of each Fund, or to establish  detailed
pre-approval  policies  and  procedures  for such  services in  accordance  with
applicable  laws.  All of the audit,  audit-related  and tax services  described
above for which  KPMGbilled  each Fund fees for the fiscal years ended  November
30, 2002 and November 30, 2003 were pre-approved by the Audit Committee.

         For each  Fund's  fiscal  year ended  November  30,  2003,  KPMGdid not
provide  any  non-audit  services  (or bill any fees for such  services)  to the
Funds' investment adviser or any affiliates thereof that provide services to the
Funds.

INVESTMENT ADVISER AND ADMINISTRATOR

         Flaherty & Crumrine  serves as the investment  adviser to each Fund and
its  business  address  is 301  E.  Colorado  Boulevard,  Suite  720,  Pasadena,
California  91101.  PFPC  Inc.  acts as the  administrator  to each  Fund and is
located at 4400 Computer Drive, Westborough, Massachusetts 01581.

COMPLIANCE WITH THE SECURITIES EXCHANGE ACT OF 1934

         Section 16(a) of the 1934 Act and Section 30(h) of the 1940 Act require
each Fund's 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 each  Fund.  Directors,
officers and  greater-than-10%  shareholders  are required by SEC regulations to
furnish  each Fund with  copies of such 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 2003,  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

         Each Fund does not intend to present any other business at the relevant
Meeting,  nor is either  Fund aware that any  shareholder  intends to do so. If,
however,  any other matters are properly brought before the Meeting, 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.

                                       10




                                     ANNEX A

                              AUDIT COMMITTEE CHARTER

         1. The Audit  Committee  (the  "Committee")  shall  consist of at least
three members and shall be composed  entirely of independent  directors  (within
the meaning of the  applicable  regulatory  requirements),  all of whom shall be
financially  literate and at least one of whom shall have  accounting or related
financial management expertise as determined by the Fund's Board in its business
judgment.  At least one member of the Committee may qualify and be designated an
"audit committee  financial  expert"  ("ACFE"),  within the meaning of the rules
adopted and implemented under Section 407 of the Sarbanes-Oxley Act of 2002.

         2. The purposes of the Committee are:

                  (a) to assist  Board  oversight  of (i) the  integrity  of the
Fund's financial  statements and the independent audit thereof;  (ii) the Fund's
accounting and financial reporting policies and practices, its internal controls
and, as appropriate,  the internal controls of certain service providers;  (iii)
the Fund's  compliance  with  legal and  regulatory  requirements;  and (iv) the
independent   auditor's  (the  "auditors")   qualifications,   independence  and
performance; and

                  (b) to  prepare  the report  required  to be  prepared  by the
Committee  pursuant to the rules of the Securities and Exchange  Commission (the
"SEC") for inclusion in the Fund's annual proxy statement.

         The auditors shall report directly to the Committee.

         The function of the  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 proper  audits and  reviews.  In  fulfilling  their
responsibilities  hereunder,  it is recognized that members of the Committee are
not  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,  notwithstanding  the  possibility  that  one or more  members  may be
designated  an  ACFE.  As  such,  it is not the  duty or  responsibility  of the
Committee  or its members to conduct  "field work" or other types of auditing or
accounting reviews or procedures. Each member of the 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,  including,  for  example,  the  information
contemplated  by paragraph  3(d),  provided to the 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 Committee is not of the same scope as, and does not
involve the extent of detail as, audits performed by the auditors,  nor does the
Committee's  evaluation  substitute  for  the  responsibilities  of  the  Fund's
management  for  preparing,   or  the  auditors  for  auditing,   the  financial
statements. The designation of a person as an ACFE is not intended to impose any
greater  responsibility or liability on that person than the  responsibility and
liability  imposed  on such  person  as a member of the  Committee,  nor does it
decrease the duties and obligations of other Committee members or the Board.

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

                  (a) be directly responsible for the appointment, compensation,
retention and  oversight of the work of the Fund's  auditors or any other public
accounting firm engaged for the purposes of preparing or issuing an audit report
or performing  other audit,  review or attest  services for the Fund  (including
resolution of  disagreements  between  management  and the  independent  auditor
regarding  financial  reporting)  and, in  connection  therewith,  evaluate  the
independence of the auditors;

                  (b) 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, or to establish
detailed  pre-approval  policies and  procedures for such services in accordance
with applicable laws;

                  (c) to consider whether the provision by the Fund's auditor of
non-audit  services to its investment adviser or adviser affiliate that provides
ongoing  services to the Fund, which services were not pre-approved by the Audit
Committee, is compatible with maintaining the auditor's independence;

                                       A-1




                  (d) to  meet  with  the  Fund's  auditors,  including  private
meetings  as  necessary:  (i) to review  the  arrangements  for and scope of the
annual  audit and any  special  audits;  (ii) to review  the scope of  non-audit
services being provided; (iii) 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 audits;  (iv) to consider
the auditor's comments with respect to the Fund's financial policies, procedures
and internal  accounting  controls and management's  responses  thereto;  (v) to
obtain  annually in writing from the auditors their letter as to the adequacy of
such controls;  (vi) to review any difficulties the auditors  encountered in the
course of the audit, including any restrictions on their activities or access to
requested  information and any significant  disagreements  with management,  and
management's  response thereto;  (vii) to review the form of report the auditors
propose to render to the Board and shareholders; and (viii) to ensure receipt of
a formal  written  statement  from the auditors at least  annually  specifically
delineating all relationships  between the auditors and the Fund,  including any
relationships  or  services  that  may  impact  the  auditors'  objectivity  and
independence;

                  (e) at least  annually,  obtain  and  review  a report  by the
Fund's  independent  auditor  describing the auditor's  internal quality control
procedures;  any  material  issues  raised by the most recent  internal  quality
control review, or peer review, of the independent auditor, or by any inquiry or
investigation by governmental or professional authorities,  within the preceding
five  years,  respecting  one or  more  independent  audits  carried  out by the
independent  auditor,  and any steps taken to deal with any such issues; and for
the purpose of assessing the auditor's  independence,  all relationships between
the independent auditor and the Fund;

                  (f) to meet with the  Fund's  management  and,  in the case of
audited financial  statements,  the auditors:  (i) to discuss the annual audited
financial  statements  and  semi-annual  financial  statements and any quarterly
financial statements;  (ii) to discuss generally earnings press releases and any
financial  information  and  earnings  guidance  provided to analysts and rating
agencies,  if any (but the  Committee  need not discuss in advance each earnings
release or each instance in which the Fund may provide earnings guidance); (iii)
to review all critical  accounting policies and practices applied by the Fund in
preparing its financial  statements;  (iv) to review all alternative  treatments
within  generally  accepted  accounting  principles  for policies and  practices
related to material items that have been discussed with  management;  and (v) to
review other material written  communications  between the auditor and the Fund,
including any management letter,  report or recommendation on internal controls,
schedule of unadjusted differences, engagement letter and independence letter;

                  (g) to review  with the  Fund's  principal  executive  officer
and/or  principal  financial  officer in connection with their  certification of
Form N-CSR any  significant  deficiencies in the design or operation of internal
controls which could  adversely  affect the Fund's  ability to record,  process,
summarize  and report  financial  data or  material  weaknesses  therein and any
reported  evidence of fraud  involving  management of other employees who have a
significant role in the Fund's internal controls;

                  (h) to  consider  and  evaluate  the  effect  upon the Fund of
significant changes in accounting principles,  practices, controls or procedures
proposed or contemplated by management or the auditors;

                  (i) to discuss  guidelines and policies  governing the process
by which  management  of the Fund  manages the Fund's  exposure to risk,  and to
discuss the Fund's major  financial risk exposures and the steps  management has
taken to monitor and control such exposures;

                  (j) to establish  procedures  for the receipt,  retention  and
treatment of complaints  regarding  accounting,  internal accounting controls or
auditing matters, including procedures for the confidential anonymous submission
by  employees  of the  investment  adviser or any other  provider of  accounting
related  services,  as well as any employees of the Fund, of concerns  regarding
questionable accounting or auditing matters pertaining to the Fund;

                  (k) to  establish  hiring  policies  for  employees  or former
employees of the auditor consistent with government regulations;

                  (l) to review and evaluate the qualifications, performance and
independence of the lead partner of the auditors;

                  (m) to discuss  with  management  the timing and  process  for
implementing  the rotation of the lead audit partner and the reviewing  partner,
and to consider  whether  there  should be a regular  rotation of the audit firm
itself;

                                       A-2




                  (n)  to  cause  the   preparation   of  any  report  or  other
disclosures  required  by the New York  Stock  Exchange  or the  Securities  and
Exchange Commission; and

                  (o) to report its  activities  to the full Board on a periodic
basis and make such recommendations with respect to the matters within the scope
of its authority  and other  matters,  as the  Committee  may deem  necessary or
appropriate; and

                  (p) to prepare and review with the Board an annual performance
evaluation of the Committee,  which  evaluation shall compare the performance of
the Committee with the requirements of this Charter. The performance  evaluation
by the  Committee  shall be  conducted  in such  manner as the  Committee  deems
appropriate.  The report to the Board may take the form of an oral report by the
chairperson of the Committee or any other member of the Committee  designated by
the Committee to make this report.

         4. The Committee shall meet as frequently as necessary to carry out its
obligations and is empowered to hold special meetings as  circumstances  require
and shall periodically meet separately with management and with the auditors.  A
majority of the total  number of members of the  Committee  shall  constitute  a
quorum of the  Committee.  A majority  of the members of the  Committee  present
shall be  empowered  to act on  behalf of the  Committee.  The  Committee  shall
regularly meet (typically,  on the same day as regular Committee  meetings) with
the  Fund's  management  and with the  personnel  of the  Fund's  administrator.
Members of the Committee may participate in a meeting of the Committee in person
or by means of a conference call or similar communications equipment by means of
which all persons participating in the meeting can hear each other.

         5. The Committee may, in its  discretion,  delegate all or a portion of
its duties and responsibilities to a subcommittee of the Committee,  which shall
be comprised of at least one person.  Any actions of the  subcommittee  shall be
presented to the full Committee at the next meeting of the Committee.

         6. The Committee shall have the resources and authority  appropriate to
discharge its  responsibilities,  including the authority to retain, as it deems
necessary  to carry  out its  duties,  special  counsel  and  other  experts  or
consultants  at the  expense  of the Fund.  The Fund shall  provide  appropriate
funding for the Committee to discharge its  responsibilities,  including for the
payment of compensation to (a) any registered  public accounting firm engaged to
prepare  or issue an audit  report  or  perform  other  audit,  review or attest
services  for the Fund,  (b) any  advisers  employed  by the  Committee  and (c)
ordinary administrative expenses.

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

         8. This Charter may be altered,  amended or repealed,  or a new Charter
may be adopted, by the Board by the affirmative vote of a majority of all of the
members of the Board, including a majority of the "non-interested" Board members
(within the meaning of the Investment Company Act of 1940, as amended).

         9. 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
Charter.

         Amended and Re-Adopted:  January 21, 2004

                                       A-3



             FLAHERTY & CRUMRINE PREFERRED INCOME FUND INCORPORATED
                   PROXY SOLICITED BY THE BOARD OF DIRECTORS

The undersigned holder of shares of Common Stock of Flaherty & Crumrine
Preferred Income Fund Incorporated, a Maryland corporation (the "Fund"), hereby
appoints Donald F. Crumrine, Robert M. Ettinger and Teresa M. R. Hamlin,
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 LLP, 787 Seventh Avenue, 38th Floor, New York, New
York 10019 at 8:30 a.m., on April 23, 2004, 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.

  -------------                                                  -------------
   SEE REVERSE     CONTINUED AND TO BE SIGNED ON REVERSE SIDE     SEE REVERSE
      SIDE                                                           SIDE
  -------------                                                  -------------



FLAHERTY & CRUMRINE
PREFERRED INCOME FUND
C/O PFPC, INC.
P.O. BOX 8586
EDISON, NJ 08818-8586

--- Please mark
|X| votes as in
--- this example.

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.

Please refer to the Proxy Statement for a discussion of the Proposal.

1. ELECTION OF DIRECTOR
   NOMINEE: (01) Robert M. Ettinger

        FOR     WITHHELD
        ---       ---
        | |       | |
        ---       ---

                            THE BOARD OF  DIRECTORS  RECOMMENDS  THAT THE
                            SHAREHOLDERS  VOTE "FOR" THE  ELECTION OF THE
                            NOMINEE AS DIRECTOR.

                                                                           ---
                            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:
          -------------      ----------           -------------      -----------



             FLAHERTY & CRUMRINE PREFERRED INCOME FUND INCORPORATED
                   PROXY SOLICITED BY THE BOARD OF DIRECTORS

The undersigned holder of shares of Money Market Cumulative Preferred(TM) Stock
Stock ("MMP(R)") of Flaherty & Crumrine Preferred Income Fund Incorporated, a
Maryland corporation (the "Fund"), hereby appoints Donald F. Crumrine, Robert M.
Ettinger and Teresa M. R. Hamlin, 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 LLP, 787 Seventh
Avenue, 38th Floor, New York, New York 10019 at 8:30 a.m., on April 23, 2004,
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.

  -------------                                                  -------------
   SEE REVERSE     CONTINUED AND TO BE SIGNED ON REVERSE SIDE     SEE REVERSE
      SIDE                                                           SIDE
  -------------                                                  -------------



FLAHERTY & CRUMRINE
PREFERRED INCOME FUND
C/O PFPC, INC.
P.O. BOX 8586
EDISON, NJ 08818-8586

--- Please mark
|X| votes as in
--- this example.

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.

Please refer to the Proxy Statement for a discussion of the Proposal.

1. ELECTION OF DIRECTOR
   NOMINEE: (01) Morgan Gust

        FOR     WITHHELD
        ---       ---
        | |       | |
        ---       ---

                            THE BOARD OF  DIRECTORS  RECOMMENDS  THAT THE
                            SHAREHOLDERS  VOTE "FOR" THE  ELECTION OF THE
                            NOMINEE AS DIRECTOR.

                                                                           ---
                            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:
          -------------      ----------           -------------      -----------