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

                                    FORM N-Q

             QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED
                          MANAGEMENT INVESTMENT COMPANY

                  Investment Company Act file number 811-06179

             Flaherty & Crumrine Preferred Income Fund Incorporated
               (Exact name of registrant as specified in charter)

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

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

        Registrant's telephone number, including area code: 626-795-7300

                      Date of fiscal year end: November 30

                   Date of reporting period: February 28, 2011

Form N-Q is to be used by management investment companies, other than small
business investment companies registered on Form N-5 (Sections 239.24 and 274.5
of this chapter), to file reports with the Commission, not later than 60 days
after the close of the first and third fiscal quarters, pursuant to rule 30b1-5
under the Investment Company Act of 1940 (17 CFR 270.30b1-5). The Commission may
use the information provided on Form N-Q in its regulatory, disclosure review,
inspection, and policymaking roles.

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



ITEM 1. SCHEDULE OF INVESTMENTS.

The Schedule(s) of Investments is attached herewith.

FLAHERTY & CRUMRINE PREFERRED INCOME FUND

To the Shareholders of Flaherty & Crumrine Preferred Income Fund:

     During the first fiscal quarter of 2011, the total return on net asset
value(1) of the Fund was +5.1%. Since the depth of the financial crisis, the
Fund has delivered eight consecutive quarters of positive returns. We never tire
of reporting positive returns, but our focus remains on providing high current
income to shareholders.

     Present conditions for the Fund's dividend are about as good as we can
recall. Low short-term interest rates have continued to amplify the Fund's
leverage strategy - we are able to borrow funds at historically attractive
levels. At the same time, the investment portfolio is generating relatively high
levels of income. We don't see anything on the immediate horizon to change these
conditions, but one or both sides of the equation is likely to come under
pressure sometime down the road.

     As of this writing, the world is still dealing with the devastating events
in Japan. Our thoughts go out to the people of Japan in these difficult times.
Global financial markets were weaker in the immediate aftermath of the disaster,
as investors assessed the impact. The Fund has very little direct exposure to
the Japanese economy, and we do not anticipate any material decline in the
credit quality of our holdings as a result of these events. Rest assured we are
monitoring the impact very closely.

     The situation at the Fukushima Dai-Ichi nuclear plant has raised fresh
questions about nuclear power safety around the world. Since the Fund must have
at least 25% of the portfolio invested in the utility industry, the topic is
very relevant. We do not believe the incident in Japan will negatively impact
utility positions owned by the Fund in any material way. In the U.S., most
regulated utility companies have reduced their exposure to nuclear energy, and
very few have "bet the farm" on this form of power generation.

     The European sovereign debt situation continues to simmer. It may boil over
in Portugal and require a bailout similar to those in Greece and Ireland. This
may create some turbulence in the preferred market, but the overall impact on
the Fund should be modest. The Fund has no direct investments in Portuguese
banks or sovereign debt. Although it does own securities issued by companies
with exposure to Portugal, we believe those exposures are manageable given the
strength and diversification of those companies' activities.

     Preferred securities issued by banks comprise the largest portion of the
Fund's portfolio and, thus, play a critical role in the Fund's strategy. Bank
regulators here and abroad have analyzed bank securities in light of the
financial crisis, and some conclusions have begun to trickle out. The Basel
Committee on Bank Supervision, the body charged with setting global capital
standards, has finalized its recommendations for bank capital, although it will
be up to regulators in individual countries to adopt these standards. Bank
regulators in the U.S. have until July of this year to propose new capital
rules, and we expect final rules will be issued before year-end. Over time, we
expect the current crop of preferred securities issued by banks to be replaced
with new securities designed to conform to the new standards. As details of the
new securities become known, we will study them carefully and determine their
appropriateness for the Fund. Based on the information currently available, we
are optimistic about the transition.

----------
1    Following the methodology required by the SEC, total return includes
     income, principal change and the impact of the Fund's leverage.



     We encourage you to visit the Fund's website www.preferredincome.com for a
more in-depth discussion of conditions in the preferred markets, as well as the
broader economy.

Sincerely,


/s/ Donald F. Crumrine                  /s/ Robert M. Ettinger
-------------------------------------   ----------------------------------------
Donald F. Crumrine                      Robert M. Ettinger
Chairman                                President

April 5, 2011


                                        2



                          Flaherty & Crumrine Preferred Income Fund Incorporated
                                                              PORTFOLIO OVERVIEW
                                                   FEBRUARY 28, 2011 (UNAUDITED)



FUND STATISTICS
---------------
                               
Net Asset Value                   $     12.16
Market Price                      $     12.13
Discount                                 0.25%
Yield on Market Price                    8.90%
Common Stock Shares Outstanding    10,767,784




                                      % OF
MOODY'S RATINGS                   NET ASSETS+
---------------                   -----------
                               
A                                     6.0%
BBB                                  73.8%
BB                                   17.6%
Below "BB"                            0.8%
Not Rated*                            0.4%
Below Investment Grade**             14.7%


*    Does not include net other assets and liabilities of 1.4%.

**   Below investment grade by both Moody's and S&P.

                                  (PIE CHART)



                                      % OF
INDUSTRY CATEGORIES               NET ASSETS+
-------------------               -----------
                               
Financial Services                     2%
Other                                  4%
Banking                               40%
Utilities                             25%
Insurance                             22%
Energy                                 7%


                                      % OF


TOP 10 HOLDINGS BY ISSUER         NET ASSETS+
-------------------------         -----------
                               
Banco Santander                       5.2%
Capital One Financial                 4.2%
PNC Financial Services                3.9%
Metlife                               3.9%
Liberty Mutual Group                  3.9%
Wells Fargo                           3.9%
HSBC Plc                              2.9%
Enbridge Energy Partners              2.7%
Interstate Power & Light              2.7%
Southern California Edison            2.5%




                                  % OF NET
                                  ASSETS***+
                                  ----------
                               
Holdings Generating Qualified
   Dividend Income (QDI) for
   Individuals                        40%
Holdings Generating Income
   Eligible for the Corporate
   Dividends Received Deduction
   (DRD)                              26%


***  This does not reflect year-end results or actual tax categorization of Fund
     distributions. These percentages can, and do, change, perhaps
     significantly, depending on market conditions. Investors should consult
     their tax advisor regarding their personal situation.

+    Net Assets includes assets attributable to the use of leverage.


                                        3



Flaherty & Crumrine Preferred Income Fund Incorporated
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 2011 (UNAUDITED)



SHARES/$ PAR                                                                                               VALUE
------------                                                                                           ------------
                                                                                                 
PREFERRED SECURITIES -- 94.8%
               BANKING -- 39.9%
   2,750,000   Astoria Capital Trust I, 9.75% 11/01/29, Series B ...................................   $  2,866,498(1)
     355,000   Banco Santander, 10.50% Pfd., Series 10 .............................................     10,150,338**(1)(2)
               Bank of America Corporation:
      38,015      8.625% Pfd .......................................................................        992,192*
      32,085      6.70% Pfd ........................................................................        766,190*(1)
$    500,000   BankAmerica Institutional, Series A, 8.07% 12/31/26, 144A**** .......................        510,000
               Barclays Bank PLC:
$  3,250,000      6.278% ...........................................................................      2,811,250**(1)(2)
       1,200      7.75% Pfd., Series 4 .............................................................         30,468**(2)
      75,000      8.125% Pfd., Series 5 ............................................................      1,933,500**(1)(2)
      58,500   BB&T Capital Trust VI, 9.60% Pfd. 08/01/64 ..........................................      1,661,400(1)
$  1,500,000   BBVA International Preferred, 5.919% ................................................      1,218,480**(1)(2)
$    750,000   BNP Paribas, 7.195%, 144A**** .......................................................        718,125**(2)
$  4,750,000   Capital One Capital III, 7.686% 08/15/36 ............................................      4,934,062(1)
$    500,000   Capital One Capital V, 10.25% 08/15/39 ..............................................        546,250
$  2,500,000   Capital One Capital VI, 8.875% 05/15/40 .............................................      2,671,875(1)
      62,300   Citigroup Capital XIII, 7.875% Pfd. 10/30/40 ........................................      1,694,030(1)
$  5,210,000   Colonial BancGroup, 7.114%, 144A**** ................................................        260,500++
       9,000   FBOP Corporation, Adj. Rate Pfd., 144A**** ..........................................         93,420*(3)+
$    750,000   Fifth Third Capital Trust IV, 6.50% 04/15/37 ........................................        736,875
      15,000   Fifth Third Capital Trust V, 7.25% Pfd. 08/15/67 ....................................        375,000
     130,000   Fifth Third Capital Trust VI, 7.25% Pfd. 11/15/67 ...................................      3,258,125(1)
      14,500   Fifth Third Capital Trust VII, 8.875% Pfd. 05/15/68 .................................        380,951
       1,250   First Republic Preferred Capital Corporation, 10.50% Pfd., 144A**** .................      1,291,250(1)
      22,500   First Republic Preferred Capital Corporation II, 8.75% Pfd., Series B, 144A**** .....        573,750(1)
       3,750   First Tennessee Bank, Adj. Rate Pfd., 144A**** ......................................      2,459,766*(1)
$    500,000   First Tennessee Capital II, 6.30% 04/15/34, Series B ................................        472,500
$  1,500,000   First Union Capital II, 7.95% 11/15/29 ..............................................      1,642,954(1)
$  1,000,000   First Union Institutional Capital I, 8.04% 12/01/26 .................................      1,025,021(1)
$    500,000   Fleet Capital Trust II, 7.92% 12/11/26 ..............................................        511,250
               Goldman Sachs:
$    785,000      Capital I, 6.345% 02/15/34 .......................................................        771,016(1)
$  1,058,000      Capital II, 5.793% ...............................................................        915,170(1)
       2,800      STRIPES Custodial Receipts, Pvt ..................................................      1,932,000*(3)
     132,900   HSBC Holdings PLC, 8.00% Pfd., Series 2 .............................................      3,599,264**(1)(2)
$    500,000   HSBC USA Capital Trust II, 8.38% 05/15/27, 144A**** .................................        503,249



                                        4



                          Flaherty & Crumrine Preferred Income Fund Incorporated
                                            PORTFOLIO OF INVESTMENTS (CONTINUED)
                                                   FEBRUARY 28, 2011 (UNAUDITED)



SHARES/$ PAR                                                                                               VALUE
------------                                                                                           ------------
                                                                                                 
PREFERRED SECURITIES -- (CONTINUED)
               BANKING -- (CONTINUED)
               HSBC USA, Inc.:
      42,000      6.50% Pfd., Series H .............................................................   $  1,025,065*(1)
       1,000      $2.8575 Pfd. .....................................................................         48,375*
$  1,725,000   JPMorgan Chase Capital XVIII, 6.95% 08/17/36, Series R ..............................      1,815,316(1)
      21,360   Keycorp Capital VIII, 7.00% Pfd. 06/15/66 ...........................................        535,335(1)
      65,640   Keycorp Capital IX, 6.75% Pfd. 12/15/66 .............................................      1,616,385
      27,600   Keycorp Capital X, 8.00% Pfd. 03/15/68 ..............................................        717,048(1)
$    550,000   Lloyds Banking Group PLC, 6.657%, 144A**** ..........................................        422,125**(2)+
      20,000   Morgan Stanley Capital Trust VI, 6.60% Pfd. 02/01/46 ................................        486,450
       3,000   National City Capital Trust II, 6.625% Pfd. 11/15/36 ................................         74,885
$    860,000   NB Capital Trust IV, 8.25% 04/15/27 .................................................        885,800(1)
     200,000   PNC Financial Services, 9.875% Pfd., Series L .......................................      5,750,000*(1)
$  1,750,000   PNC Preferred Funding Trust III, 8.70%, 144A**** ....................................      1,885,084(1)
       1,750   Sovereign REIT, 12.00% Pfd., Series A, 144A**** .....................................      1,998,938
$  2,400,000   Wachovia Capital Trust III, 5.80% ...................................................      2,193,000(1)
$  1,200,000   Wachovia Capital Trust V, 7.965% 06/01/27, 144A**** .................................      1,260,353(1)
$  1,000,000   Washington Mutual, 9.75%, 144A**** ..................................................         25,000++
$  1,600,000   Webster Capital Trust IV, 7.65% 06/15/37 ............................................      1,603,968(1)
      15,000   Wells Fargo & Company, 8.00% Pfd., Series J .........................................        413,700*
$  1,000,000   Wells Fargo Capital XV, 9.75% .......................................................      1,102,500(1)
                                                                                                       ------------
                                                                                                         78,166,046
                                                                                                       ------------
               FINANCIAL SERVICES -- 2.2%
               Heller Financial, Inc.:
      33,000      6.687% Pfd., Series C ............................................................      3,225,750*(1)
       5,760      6.95% Pfd., Series D .............................................................        585,180*
      17,904   HSBC Finance Corporation, 6.36% Pfd .................................................        422,919*
               Lehman Brothers Holdings, Inc.:
      15,000      5.67% Pfd., Series D .............................................................          4,125*++
      19,500      5.94% Pfd., Series C .............................................................          5,070*++
      25,000      6.50% Pfd., Series F .............................................................          1,588*++
      27,500      7.95% Pfd ........................................................................            206*++
                                                                                                       ------------
                                                                                                          4,244,838
                                                                                                       ------------
               INSURANCE -- 19.9%
$    975,000   Ace Capital Trust II, 9.70% 04/01/30 ................................................      1,218,750(1)(2)
$    250,000   AON Corporation, 8.205% 01/01/27 ....................................................        280,938



                                        5



Flaherty & Crumrine Preferred Income Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
FEBRUARY 28, 2011 (UNAUDITED)



SHARES/$ PAR                                                                                               VALUE
------------                                                                                           ------------
                                                                                                 
PREFERRED SECURITIES -- (CONTINUED)
               INSURANCE -- (CONTINUED)
      14,300   Arch Capital Group Ltd., 8.00% Pfd., Series A .......................................   $    361,523**(1)(2)
               AXA SA:
$  1,750,000      6.379%, 144A**** .................................................................      1,603,437**(1)(2)
$  1,750,000      6.463%, 144A**** .................................................................      1,564,062**(1)(2)
      35,900   Axis Capital Holdings, 7.50% Pfd., Series B .........................................      3,547,369(1)(2)
      90,600   Delphi Financial Group, 7.376% Pfd. 05/15/37 ........................................      2,197,050(1)
$  4,000,000   Everest Re Holdings, 6.60% 05/15/37 .................................................      3,930,000(1)
$  4,100,000   Liberty Mutual Group, 10.75% 06/15/58, 144A**** .....................................      5,381,250(1)
$    900,000   MetLife Capital Trust IV, 7.875% 12/15/37, 144A**** .................................        974,250(1)
$  2,775,000   MetLife Capital Trust X, 9.25% 04/08/38, 144A**** ...................................      3,371,625(1)
$  2,400,000   MetLife, Inc., 10.75% 08/01/39 ......................................................      3,326,652(1)
               Principal Financial Group:
      16,000      5.563% Pfd., Series A ............................................................      1,549,000*(1)
      87,500      6.518% Pfd., Series B ............................................................      2,140,381*(1)
      60,000   Renaissancere Holdings Ltd., 6.08% Pfd., Series C ...................................      1,404,000**(1)(2)
     119,500   Scottish Re Group Ltd., 7.25% Pfd. ..................................................      1,101,647**(2)+
$  1,300,000   Stancorp Financial Group, 6.90% 06/01/67 ............................................      1,249,550(1)
$    750,000   USF&G Capital, 8.312% 07/01/46, 144A**** ............................................        842,974(1)
$  2,000,000   XL Capital Ltd., 6.50%, Series E ....................................................      1,870,000(1)(2)
$  1,000,000   ZFS Finance USA Trust V, 6.50% 05/09/37, 144A**** ...................................      1,002,500(1)
                                                                                                       ------------
                                                                                                         38,916,958
                                                                                                       ------------
               UTILITIES -- 24.2%
      60,000   Alabama Power Company, 6.45% Pfd ....................................................      1,590,000*
      10,000   Baltimore Gas & Electric Company, 6.70% Pfd., Series 1993 ...........................      1,008,750*(1)
      20,600   Calenergy Capital Trust III, 6.50% Pfd. 09/01/27 ....................................      1,019,700
$  3,458,000   COMED Financing III, 6.35% 03/15/33 .................................................      2,894,626(1)
$    250,000   Dominion Resources Capital Trust I, 7.83% 12/01/27 ..................................        253,572
               Dominion Resources, Inc.:
$  3,500,000      7.50% 06/30/66 ...................................................................      3,643,976(1)
      22,500      8.375% Pfd. 06/15/64, Series A ...................................................        649,125(1)
      40,000   Entergy Arkansas, Inc., 6.45% Pfd. ..................................................        967,500*(1)
      20,000   Entergy Louisiana, Inc., 6.95% Pfd. .................................................      1,947,500*
$  2,715,000   FPL Group Capital, Inc., 6.65% 06/15/67 .............................................      2,704,849(1)
               Georgia Power Company:
       4,248      6.125% Pfd .......................................................................        109,784*
      25,000      6.50% Pfd., Series 2007A .........................................................      2,607,813*(1)
       3,000   Gulf Power Company, 6.45% Pfd., Series 2007A ........................................        303,042*(1)



                                        6



                          Flaherty & Crumrine Preferred Income Fund Incorporated
                                            PORTFOLIO OF INVESTMENTS (CONTINUED)
                                                   FEBRUARY 28, 2011 (UNAUDITED)



SHARES/$ PAR                                                                                               VALUE
------------                                                                                           ------------
                                                                                                 
PREFERRED SECURITIES -- (CONTINUED)
               UTILITIES -- (CONTINUED)
      32,650   Indianapolis Power & Light Company, 5.65% Pfd .......................................   $  3,045,634*
     185,596   Interstate Power & Light Company, 8.375% Pfd., Series B .............................      5,301,086*(1)
       7,146   MDU Resources Group, 4.50% Pfd. 07/08/10 ............................................        583,292*
$    500,000   PECO Energy Capital Trust III, 7.38% 04/06/28, Series D .............................        500,190(1)
$    600,000   PPL Capital Funding, 6.70% 03/30/67, Series A .......................................        590,224
      39,000   PPL Electric Utilities Corporation, 6.25% Pfd .......................................        977,438*
$  3,800,000   Puget Sound Energy, Inc., 6.974% 06/01/67 ...........................................      3,775,859(1)
      55,500   Scana Corporation, 7.70% Pfd. 01/30/65 ..............................................      1,551,225(1)
               Southern California Edison:
      32,100      6.00% Pfd., Series C .............................................................      3,085,613*(1)
      17,500      6.125% Pfd .......................................................................      1,731,954*(1)
$    550,000   Southern Union Company, 7.20% 11/01/66 ..............................................        519,750(1)
$    750,000   TXU Electric Capital V, 8.175% 01/30/37 .............................................        213,750(3)
       3,000   Virginia Electric & Power Company, $6.98 Pfd. .......................................        307,031*
$  1,900,000   Wisconsin Energy Corporation, 6.25% 05/15/67 ........................................      1,900,036(1)
       3,700   Wisconsin Public Service Corporation, 6.88% Pfd. ....................................        390,003*
$  3,250,000   WPS Resources Corporation, 6.11% 12/01/66 ...........................................      3,164,388(1)
                                                                                                       ------------
                                                                                                         47,337,710
                                                                                                       ------------
               ENERGY -- 6.8%
$  5,000,000   Enbridge Energy Partners LP, 8.05% 10/01/37 .........................................      5,333,450(1)
$  4,000,000   Enterprise Products Partners, 8.375% 08/01/66, Series A .............................      4,319,704(1)
       3,500   Kinder Morgan GP, Inc., 8.33% Pfd., 144A**** ........................................      3,651,156*
                                                                                                       ------------
                                                                                                         13,304,310
                                                                                                       ------------
               REAL ESTATE INVESTMENT TRUST (REIT) -- 0.2%
      12,500   PS Business Parks, Inc., 6.70% Pfd., Series P .......................................        302,156
                                                                                                       ------------
                                                                                                            302,156
                                                                                                       ------------
               MISCELLANEOUS INDUSTRIES -- 1.6%
      40,000   Ocean Spray Cranberries, Inc., 6.25% Pfd., 144A**** .................................      3,230,000*(1)
                                                                                                       ------------
                                                                                                          3,230,000
                                                                                                       ------------
               TOTAL PREFERRED SECURITIES
                  (Cost $178,590,442) ..............................................................    185,502,018
                                                                                                       ------------



                                        7



Flaherty & Crumrine Preferred Income Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
FEBRUARY 28, 2011 (UNAUDITED)



SHARES/$ PAR                                                                                               VALUE
------------                                                                                           ------------
                                                                                                 
CORPORATE DEBT SECURITIES -- 3.7%
               BANKING -- 0.2%
$    415,000   Goldman Sachs Group, 6.75% 10/01/37, Sub Notes ............................             $    426,683
                                                                                                       ------------
                                                                                                            426,683
                                                                                                       ------------
               INSURANCE -- 2.2%
 $ 2,500,000   Liberty Mutual Insurance, 7.697% 10/15/97, 144A**** .......................                2,267,640(1)
 $ 2,000,000   UnumProvident Corporation, 7.25% 03/15/28 .................................                2,095,080(1)
                                                                                                       ------------
                                                                                                          4,362,720
                                                                                                       ------------
               UTILITIES -- 1.3%
 $ 2,175,000   Southern Union Company, 8.25% 11/15/29, Senior Notes ......................                2,474,276(1)
                                                                                                       ------------
                                                                                                          2,474,276
                                                                                                       ------------
               TOTAL CORPORATE DEBT SECURITIES
                  (Cost $6,237,204) ......................................................                7,263,679
                                                                                                       ------------
COMMON STOCK -- 0.1%
               BANKING -- 0.1%
       3,620   CIT Group, Inc. ...........................................................                  156,818*+
                                                                                                       ------------
               TOTAL COMMON STOCK
                  (Cost $330,325) ........................................................                  156,818
                                                                                                       ------------
MONEY MARKET FUND -- 0.7%
   1,350,318   BlackRock Liquidity Funds, T-Fund .........................................                1,350,318
                                                                                                       ------------
               TOTAL MONEY MARKET FUND
                  (Cost $1,350,318) ......................................................                1,350,318
                                                                                                       ------------
TOTAL INVESTMENTS (Cost $186,508,289***) .................................................    99.3%     194,272,833
OTHER ASSETS AND LIABILITIES (Net) .......................................................     0.7%       1,424,630
                                                                                             -----     ------------
TOTAL MANAGED ASSETS .....................................................................   100.0%+++ $195,697,463
                                                                                             -----     ------------
LOAN PRINCIPAL BALANCE ...................................................................              (64,800,000)
                                                                                                       ------------
TOTAL NET ASSETS AVAILABLE TO COMMON STOCK ...............................................             $130,897,463
                                                                                                       ============



                                        8



                          Flaherty & Crumrine Preferred Income Fund Incorporated
                                            PORTFOLIO OF INVESTMENTS (CONTINUED)
                                                   FEBRUARY 28, 2011 (UNAUDITED)

----------
*    Securities eligible for the Dividends Received Deduction and distributing
     Qualified Dividend Income.

**   Securities distributing Qualified Dividend Income only.

***  Aggregate cost of securities held.

**** Securities exempt from registration under Rule 144A of the Securities Act
     of 1933. These securities may be resold in transactions exempt from
     registration to qualified institutional buyers. At February 28, 2011, these
     securities amounted to $35,890,454 or 18.3% of total managed assets.

(1)  All or a portion of this security has been pledged as collateral for the
     Fund's loan. The total value of such securities was $142,695,281 at
     February 28, 2011.

(2)  Foreign Issuer.

(3)  Illiquid.

+    Non-income producing.

++   The issuer has filed for bankruptcy protection. As a result, the Fund may
     not be able to recover the principal invested and also does not expect to
     receive income on this security going forward.

+++  The percentage shown for each investment category is the total value of
     that category as a percentage of total managed assets.

ABBREVIATIONS:

PFD.    -- Preferred Securities
PVT.    -- Private Placement Securities
REIT    -- Real Estate Investment Trust
STRIPES -- Structured Residual Interest Preferred Enhanced Securities


                                        9



Flaherty & Crumrine Preferred Income Fund Incorporated
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE TO COMMON STOCK(1)
FOR THE PERIOD FROM DECEMBER 1, 2010 THROUGH FEBRUARY 28, 2011 (UNAUDITED)



                                                                                       VALUE
                                                                                   ------------
                                                                                
OPERATIONS:
   Net investment income .......................................................   $  2,999,210
   Net realized gain/(loss) on investments sold during the period ..............      1,574,559
   Change in net unrealized appreciation/depreciation of investments ...........      1,891,930
                                                                                   ------------
   NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ........................      6,465,699
DISTRIBUTIONS:
   Dividends paid from net investment income to Common Stock Shareholders(2) ...     (3,230,335)
                                                                                   ------------
   TOTAL DISTRIBUTIONS TO COMMON STOCK SHAREHOLDERS ............................     (3,230,335)
FUND SHARE TRANSACTIONS:
   Increase from shares issued under the Dividend Reinvestment and Cash Purchase
      Plan .....................................................................        100,976
                                                                                   ------------
   NET INCREASE IN NET ASSETS AVAILABLE TO COMMON STOCK RESULTING FROM
      FUND SHARE TRANSACTIONS ..................................................        100,976
                                                                                   ------------
NET INCREASE IN NET ASSETS AVAILABLE TO COMMON STOCK FOR THE PERIOD ............   $  3,336,340
                                                                                   ============
NET ASSETS AVAILABLE TO COMMON STOCK:
   Beginning of period .........................................................   $127,561,123
   Net increase in net assets during the period ................................      3,336,340
                                                                                   ------------
   End of period ...............................................................   $130,897,463
                                                                                   ============


----------
(1)  These tables summarize the three months ended February 28, 2011 and should
     be read in conjunction with the Fund's audited financial statements,
     including footnotes, in its Annual Report dated November 30, 2010.

(2)  May include income earned, but not paid out, in prior fiscal year.


                                       10



                          Flaherty & Crumrine Preferred Income Fund Incorporated
                                                         FINANCIAL HIGHLIGHTS(1)
      FOR THE PERIOD FROM DECEMBER 1, 2010 THROUGH FEBRUARY 28, 2011 (UNAUDITED)
                     FOR A COMMON STOCK SHARE OUTSTANDING THROUGHOUT THE PERIOD.


                                                                                
PER SHARE OPERATING PERFORMANCE:
   Net asset value, beginning of period ........................................   $      11.86
                                                                                   ------------
INVESTMENT OPERATIONS:
   Net investment income .......................................................           0.28
   Net realized and unrealized gain/(loss) on investments ......................           0.32
                                                                                   ------------
   Total from investment operations ............................................           0.60
                                                                                   ------------
DISTRIBUTIONS TO COMMON STOCK SHAREHOLDERS:
   From net investment income ..................................................          (0.30)
                                                                                   ------------
   Total distributions to Common Stock Shareholders ............................          (0.30)
                                                                                   ------------
   Net asset value, end of period ..............................................   $      12.16
                                                                                   ============
   Market value, end of period .................................................   $      12.13
                                                                                   ============
   Common Stock shares outstanding, end of period ..............................     10,767,784
                                                                                   ============
RATIOS TO AVERAGE NET ASSETS AVAILABLE TO COMMON STOCK SHAREHOLDERS:
   Net investment income+ ......................................................           9.50%*
   Operating expenses including interest expense ...............................           2.15%*
   Operating expenses excluding interest expense ...............................           1.50%*
SUPPLEMENTAL DATA:++
   Portfolio turnover rate .....................................................              6%**
   Total managed assets, end of period (in 000's) ..............................   $    195,697
   Ratio of operating expenses including interest expense to total managed
      assets ...................................................................           1.44%*
   Ratio of operating expenses excluding interest expense to total managed
      assets ...................................................................           1.00%*


(1)  These tables summarize the three months ended February 28, 2011 and should
     be read in conjunction with the Fund's audited financial statements,
     including footnotes, in its Annual Report dated November 30, 2010.

*    Annualized.

**   Not Annualized.

+    The net investment income ratios reflect income net of operating expenses,
     including interest expense.

++   Information presented under heading Supplemental Data includes loan
     principal balance.


                                       11



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



                                 TOTAL                                   DIVIDEND
                               DIVIDENDS   NET ASSET        NYSE       REINVESTMENT
                                  PAID       VALUE     CLOSING PRICE     PRICE(1)
                               ---------   ---------   -------------   ------------
                                                           
December 31, 2010 - Extra ..    $0.0300      $11.82        $11.62         $11.66
December 31, 2010 ..........     0.0900       11.82         11.62          11.66
January 31, 2011 ...........     0.0900       11.92         11.80          11.90
February 28, 2011 ..........     0.0900       12.16         12.13          12.16


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


                                       12



                          Flaherty & Crumrine Preferred Income Fund Incorporated
                                       NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

1. AGGREGATE INFORMATION FOR FEDERAL INCOME TAX PURPOSES

     At February 28, 2011, the aggregate cost of securities for federal income
tax purposes was $186,308,944, the aggregate gross unrealized appreciation for
all securities in which there is an excess of value over tax cost was
$27,784,796 and the aggregate gross unrealized depreciation for all securities
in which there is an excess of tax cost over value was $19,820,907.

2. ADDITIONAL ACCOUNTING STANDARDS

     Fair Value Measurement: The inputs and valuation techniques used to measure
fair value of the Fund's investments are summarized into three levels as
described in the hierarchy below:

     -    Level 1 - quoted prices in active markets for identical securities

     -    Level 2 - other significant observable inputs (including quoted prices
          for similar securities, interest rates, prepayment speeds, credit
          risk, etc.)

     -    Level 3 - significant unobservable inputs (including the Fund's own
          assumptions in determining the fair value of investments)

     The inputs or methodology used for valuing securities are not necessarily
an indication of the risk associated with investing in those securities.
Transfers in and out of levels are recognized at market value at the end of the
period. A summary of the inputs used to value the Fund's investments as of
February 28, 2011 is as follows:



                                                                              LEVEL 2        LEVEL 3
                                               TOTAL           LEVEL 1      SIGNIFICANT    SIGNIFICANT
                                              VALUE AT          QUOTED      OBSERVABLE    UNOBSERVABLE
                                         FEBRUARY 28, 2011      PRICE         INPUTS         INPUTS
                                         -----------------   -----------   ------------   ------------
                                                                              
Preferred Securities
   Banking                                  $ 78,166,046     $52,812,015   $ 25,260,611      $93,420
   Financial Services                          4,244,838         422,919      3,821,919           --
   Insurance                                  38,916,958      20,258,378     18,658,580           --
   Utilities                                  47,337,710      11,255,196     36,082,514           --
   Energy                                     13,304,310              --     13,304,310           --
   Real Estate Investment Trust (REIT)           302,156         302,156             --           --
   Miscellaneous Industries                    3,230,000              --      3,230,000           --
Corporate Debt Securities                      7,263,679       2,900,959      4,362,720           --
Common Stock
   Banking                                       156,818         156,818             --           --
Money Market Fund                              1,350,318       1,350,318             --           --
                                            ------------     -----------   ------------      -------
Total Investments                           $194,272,833     $89,458,759   $104,720,654      $93,420
                                            ============     ===========   ============      =======


     The Fund did not have any significant transfers in and out of Level 1 and
Level 2 during the period.


                                       13



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

     The Fund's investments in Level 2 and Level 3 are based primarily on market
information, where available. This includes, but is not limited to, prices
provided by third-party providers, observable trading activity (including the
recency, depth, and consistency of such information with quoted levels), and the
depth and consistency of broker-quoted prices. In the event market information
is not directly available, comparable information may be observed for securities
that are similar in many respects to those being valued. The Fund may employ an
income approach for certain securities that also takes into account credit risk,
interest rate risk, and potential recovery prospects.

     The following is a reconciliation of Level 3 investments for which
significant unobservable inputs were used to determine fair value:



                                                                      PREFERRED
                                                                     SECURITIES
                                                          TOTAL      -----------
                                                       INVESTMENTS     BANKING
                                                       -----------   -----------
                                                               
BALANCE AS OF 11/30/10 .............................     $39,816       $39,816
Accrued discounts/premiums .........................          --            --
Realized gain/(loss) ...............................          --            --
Change in unrealized appreciation/(depreciation) ...      53,604        53,604
Net purchases/(sales) ..............................          --            --
Transfers in and/or out of Level 3 .................          --            --
                                                         -------       -------
BALANCE AS OF 2/28/11 ..............................     $93,420       $93,420
                                                         =======       =======


     For the period ended February 28, 2011, total change in unrealized
gain/(loss) on Level 3 securities still held at period-end and included in the
change in net assets was $53,604.


                                       14



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DIRECTORS

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

OFFICERS

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

INVESTMENT ADVISER

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

QUESTIONS CONCERNING YOUR SHARES OF FLAHERTY & CRUMRINE PREFERRED INCOME FUND?

     -    If your shares are held in a Brokerage Account, contact your Broker.

     -    If you have physical possession of your shares in certificate form,
          contact the Fund's Transfer Agent & Shareholder Servicing Agent --

          BNY Mellon Shareowner Services
          P.O. Box 358035
          Pittsburgh, PA 15252-8035
          1-866-351-7446

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

                           (FLAHERTY & CRUMRINE LOGO)
                              PREFERRED INCOME FUND

                                Quarterly Report

                                February 28, 2011

                             www.preferredincome.com


ITEM 2. CONTROLS AND PROCEDURES.

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

     (b)  There were no changes in the registrant's internal control over
          financial reporting (as defined in Rule 30a-3(d) under the 1940 Act
          (17 CFR 270.30a-3(d)) that occurred during the registrant's last
          fiscal quarter that have materially affected, or are reasonably likely
          to materially affect, the registrant's internal control over financial
          reporting.

ITEM 3. EXHIBITS.

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



                                   SIGNATURES

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

(Registrant) Flaherty & Crumrine Preferred Income Fund Incorporated


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

Date 4/21/11

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


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

Date 4/21/11


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

Date 4/21/11

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