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: August 31, 2007

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 the Flaherty & Crumrine Preferred Income Fund ("PFD"):

      Beginning  with issues  arising in the subprime  mortgage  loan market,  a
well-publicized  series of events has  roiled  financial  markets  over the past
several  months.  The  preferred  stock  market and  closed-end  funds have been
particularly impacted,  and,  consequently,  for the Fund's third fiscal quarter
ended  August 31,  2007,  the Fund had a total  return of -4.9% on the net asset
value (NAV) of its Common Stock.

      As we've  discussed in prior  letters,  problems in the subprime  mortgage
loan market first bubbled up in January of this year.  Throughout this year, the
Fund has had no direct exposure to subprime loans,  and we avoided  investing in
companies that had meaningful  risks  associated with the product.  Our research
team  closely  monitors  the loan  quality and  underwriting  standards  of each
financial  company in the  portfolio,  and we invest only in companies that meet
our  quality  thresholds.  We're not  perfect,  but we  believe  that the Fund's
portfolio is comprised of holdings in fundamentally sound companies.

      In  isolation,  the impact of this  weakness in the  subprime  loan market
should have been limited to direct  participants in this market;  unfortunately,
given the  complexity of the financial  system,  few things happen in isolation.
When the  subprime  problems  became more  pronounced  several  months ago,  the
fallout from this subprime weakness has been widespread and severe.

      Fueled by low interest rates and  relatively  relaxed  financing  terms, a
great deal more  leverage  had become built into the system than even just a few
years ago. As investments  directly  associated with subprime mortgages declined
significantly   in  value  during  the  quarter,   they  became  very  illiquid.
Highly-leveraged  investors  then were forced to sell other more liquid types of
assets like  investment-grade  preferred and debt securities to meet redemptions
or margin calls.  Risk and liquidity  premiums surged,  indiscriminately  taking
yields on all credit  instruments  with them. In short,  excess leverage created
the financial powder keg and subprime loan problems provided the spark.

      With yields on preferred securities rising more than yields on more senior
debt  securities,  the prices of the  securities  in our  portfolio  fell as the
supply of preferred  securities  exceeded demand. The rearview mirror is still a
bit foggy,  but it appears  that much of the  selling  pressure  came from hedge
funds.  Hedge  funds had become  the  800-pound  gorilla  in the credit  markets
recently,  and although  they've been forced to slim down, they can still have a
big impact.

      Hedge  funds were not the only  investors  selling,  but since they aren't
required to  disclose  their  preferred  securities  holdings,  no one knows how
extensive  their  selling  pressure  was. As a result,  prospective  buyers were
extremely  cautious because they feared additional selling would further depress
prices.  Wall  Street  brokers  and  dealers  normally  stand  ready to  provide
liquidity to sellers,  but they appeared reluctant to buy.  Long-term  investors
like the Fund, as well as individual investors,  insurance companies and pension
funds, also stayed on the sidelines for the most part.  During the quarter,  and
since it ended,  we have added some positions at attractive  levels,  but we are
continuing to take a go-slow approach.

      Subprime   fallout  also  extended  to  the  market  for  short-term,   or
money-market,  securities such as commercial paper and auction-rate  securities.
This  market  was in a state  of  disarray  throughout  August  and  into  early
September.  Investors in  money-market  securities  don't like risk, and, at the
slightest  hint of trouble,  they pull their money out and invest in  short-term
government securities.  While the perception of risk is real for a small segment
of borrowers, the reaction seems to be disproportionate.

      These  disruptions  in the  short-term  market  impacted  the  Fund in two
meaningful ways. First, they contributed to price weakness in many of the Fund's
investments,  particularly in financial companies.



While banks can fulfill their short-term  financing needs with customer deposits
and through the Federal Reserve,  finance companies like  broker-dealers need to
rely on the short-term  securities  market to run their  day-to-day  operations.
This market is like oxygen to most financial  companies,  and restricting  their
borrowing  makes it more  expensive for them to operate.  We continue to believe
that none of the financial  companies in our portfolio face significant risks of
default as a result of this  increased  cost of  borrowing,  but it has  clearly
impacted their earnings outlooks and the prices of their preferred securities.

      Second, the rates paid by the Fund on its own auction-rate Preferred Stock
have  risen  significantly  as a direct  result  of  liquidity  problems  in the
financial markets.  The frustrating irony is that the Fund's own Preferred Stock
is of very high quality  with a rating of AA and logic would  dictate that rates
should fall as investors seek out higher quality investments.  This high quality
is a function of the  Investment  Company  Act (which  governs the Fund) and the
guidelines  imposed by the rating  agencies.  As Kevin Conery,  Merrill  Lynch's
Preferred Stock Strategist,  recently observed about the Investment Company Act,
"while some have  criticized  it for being too  conservative  for its 200% asset
coverage test, at times like these in the market,  we respect this  discipline."
While we are  beginning  to see some  improvement  in the  auction  rates of our
Preferred  Stock, and the recent interest rate cut by the Federal Reserve should
help over the coming months, we haven't yet returned to more normalized  auction
rates.

      The higher cost of our auction-rate  Preferred Stock comes directly out of
money available for  distribution  as the monthly Common Stock dividend.  On the
plus  side,  higher  yields on  preferred  stock  mean that we have been able to
increase the income earned on the  portfolio.  It will take some time to see how
these two offsetting  factors  affect  income;  in the meantime we are doing our
best to manage both. We are comfortable with the current dividend, but we strive
to pay out a rate that is  sustainable  and will make  adjustments as conditions
warrant.

      We have been through periods of fear and volatility  before, and we remain
optimistic  about  long-term   prospects  for  the  Fund.  Such  periods  create
opportunities to buy securities of sound companies at discounted prices, as many
shorter-term investors exit the market by selling both good and bad investments.
We expect both more rational pricing and reduced risk of early redemption of our
portfolio  securities  as markets  settle  down - both of which  should  benefit
future returns for long-term investors. In addition, our Preferred Stock auction
rates are likely to  normalize  in due  course,  as the market  begins to better
recognize the credit  quality of our Preferred  Stock.  While we cannot say with
certainty  when,  or if, these things will happen,  as managers we are doing our
best to position  the Fund to ride out the current  storm and prepare for better
days ahead.

      In volatile  market  conditions  like these,  we may provide more frequent
updates about the preferred  securities market and the Fund's portfolio.  We did
so this past  quarter by adding  special  Questions  and Answers  regarding  the
market   price   of   the   Fund's    shares   to   the   Fund's    website   at
WWW.PREFERREDINCOME.COM.  We encourage you to stay informed as  shareholders  by
periodically visiting the website for additional information about your Fund.

                Sincerely,

                /s/ Donald F. Crumrine          /s/ Robert M. Ettinger

                Donald F. Crumrine              Robert M. Ettinger
                Chairman of the Board           President

October 17, 2007



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

                          Flaherty & Crumrine Preferred Income Fund Incorporated
                                                              PORTFOLIO OVERVIEW
                                                     AUGUST 31, 2007 (UNAUDITED)
                          ------------------------------------------------------

FUND STATISTICS ON 08/31/07
--------------------------------------------------------------------------------
Net Asset Value                                                     $     14.19
Market Price                                                        $     14.13
Discount                                                                   0.42%
Yield on Market Price                                                      7.30%
Common Stock Shares Outstanding                                      10,530,560

MOODY'S RATINGS                                                   % OF PORTFOLIO
--------------------------------------------------------------------------------
AA                                                                          6.5%
A                                                                          15.8%
BBB                                                                        51.9%
BB                                                                         13.2%
Not Rated                                                                  10.5%
--------------------------------------------------------------------------------
Below Investment Grade*                                                    16.1%

*     BELOW INVESTMENT GRADE BY BOTH MOODY'S AND S&P.

  [THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]

INDUSTRY CATEGORIES                                               % OF PORTFOLIO
--------------------------------------------------------------------------------
Utilities                                                                    32%
Banking                                                                      30%
Insurance                                                                    15%
Financial Services                                                           12%
Energy                                                                        7%
REITs                                                                         2%
Other                                                                         2%

TOP 10 HOLDINGS BY ISSUER                                         % OF PORTFOLIO
--------------------------------------------------------------------------------
Interstate Power & Light                                                    5.1%
FBOP Corp                                                                   4.0%
Banco Santander                                                             3.8%
Liberty Mutual Group                                                        3.7%
First Republic Bank                                                         3.6%
Xcel Energy                                                                 3.1%
SLM Corp                                                                    3.1%
CoBank ACB                                                                  2.9%
EOG Resources                                                               2.8%
Goldman Sachs                                                               2.3%

                                                                % OF PORTFOLIO**
--------------------------------------------------------------------------------
Holdings Generating Qualified Dividend Income
  (QDI) for Individuals                                                      61%
Holdings Generating Income Eligible for the Corporate
  Dividend Received Deduction (DRD)                                          53%
--------------------------------------------------------------------------------

**    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.

                                        3



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

Flaherty & Crumrine Preferred Income Fund Incorporated
PORTFOLIO OF INVESTMENTS
AUGUST 31, 2007 (UNAUDITED)
-------------------------------------------------------



SHARES/$ PAR                                                                                                         VALUE
------------                                                                                                    ---------------
                                                                                                          
PREFERRED SECURITIES -- 94.4%
               BANKING -- 29.8%
------------------------------------------------------------------------------------------------------------------------------------
$  3,000,000   Astoria Capital Trust I, 9.75% 11/01/29, Series B ...........................................    $     3,392,376
      34,860   BAC Capital Trust I, 7.00% Pfd. 12/15/31 ....................................................            873,679
       7,700   BAC Capital Trust II, 7.00% Pfd. 02/01/32 ...................................................            190,816
               Banco Santander:
      25,000      Adj. Rate Pfd., 144A**** .................................................................            572,000**(1)
     301,200      6.50% Pfd., 144A**** .....................................................................          6,758,928**(1)
      63,200      6.80% Pfd., 144A**** .....................................................................          1,471,928**(1)
$  2,000,000   Capital One Capital III, 7.686% 08/15/36 ....................................................          1,856,850
$  3,500,000   CBG Florida REIT Corporation, 7.114%, 144A**** ..............................................          3,409,038
      19,648   Citizens Funding Trust I, 7.50% Pfd. 09/15/66 ...............................................            484,447
               Cobank, ACB:
      50,000      7.00% Pfd., 144A**** .....................................................................          2,568,000*
      75,000      7.814% Pfd., 144A**** ....................................................................          4,018,500*
$  2,575,000   Comerica Capital Trust II, 6.576% 02/20/37 ..................................................          2,285,555
       9,000   FBOP Corporation, Adj. Rate Pfd., 144A**** ..................................................          9,213,750*
$  2,250,000   First Hawaiian Capital I, 8.343% 07/01/27, Series B .........................................          2,348,077(1)
               First Republic Bank:
     200,000      6.25% Pfd. ...............................................................................          4,962,500*
      53,700      6.70% Pfd. ...............................................................................          1,329,075*
       1,250   First Republic Preferred Capital Corporation, 10.50% Pfd., 144A**** .........................          1,399,775
      22,500   First Republic Preferred Capital Corporation II, 8.75% Pfd., Series B, 144A**** .............            577,350
$  1,500,000   First Union Capital II, 7.95% 11/15/29 ......................................................          1,684,009
       5,000   Fleet Capital Trust VIII, 7.20% Pfd. 03/15/32 ...............................................            126,094
       5,000   HSBC Series II, Variable Inverse Pfd., Pvt. .................................................          5,055,000*
       2,500   HSBC USA, Inc., $2.8575 Pfd. ................................................................            122,735*
      10,000   ING Groep NV., 7.05% Pfd. ...................................................................            247,925**(1)
     120,000   Keycorp Capital IX, 6.75% Pfd. 12/15/66 .....................................................          2,812,500
$    674,000   NB Capital Trust II, 7.83% 12/15/26 .........................................................            701,439
      31,500   PFGI Capital Corporation, 7.75% Pfd. ........................................................            806,400
$    425,000   Regions Financing Trust II, 6.625% 05/15/47 .................................................            392,568
          10   Roslyn Real Estate, 8.95% Pfd., Series C, 144A**** ..........................................          1,068,658
      77,600   Sovereign Bancorp, 7.30% Pfd., Series C .....................................................          2,072,890*
      30,600   Sovereign Capital Trust V, 7.75% Pfd. 05/22/36 ..............................................            779,345
$  1,000,000   Sovereign Capital Trust VI, 7.908% 06/13/36 .................................................          1,077,099
               U.S. Bancorp, Auction Pass-Through Trust, Cl. B:
          11      Series 2006-5, Variable Rate Pfd., 144A**** ..............................................            247,500*
          11      Series 2006-6, Variable Rate Pfd., 144A**** ..............................................            247,500*
      46,700   USB Capital VIII, 6.35% Pfd. 12/29/65 .......................................................          1,078,480
       5,550   Wachovia Capital Trust IX, 6.375% Pfd. ......................................................            129,384


                                        4



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

                          Flaherty & Crumrine Preferred Income Fund Incorporated
                                            PORTFOLIO OF INVESTMENTS (CONTINUED)
                                                     AUGUST 31, 2007 (UNAUDITED)
                          ------------------------------------------------------



SHARES/$ PAR                                                                                                         VALUE
------------                                                                                                    ---------------
                                                                                                          
PREFERRED SECURITIES -- (CONTINUED)
               BANKING -- (CONTINUED)
------------------------------------------------------------------------------------------------------------------------------------
$  1,100,000   Webster Capital Trust IV, 7.65% 06/15/37 ....................................................    $     1,087,332
      40,000   Zions Capital Trust B, 8.00% Pfd. 09/01/32 ..................................................          1,005,000
-------------------------------------------------------------------------------------------------------------------------------
                                                                                                                     68,454,502
                                                                                                                ---------------

               FINANCIAL SERVICES -- 11.1%
------------------------------------------------------------------------------------------------------------------------------------
               CIT Group, Inc.:
$  2,600,000      6.10% ....................................................................................          1,917,893
     110,000      6.35% Pfd., Series A .....................................................................          2,404,875*
      25,000   Countrywide Capital IV, 6.75% Pfd. ..........................................................            465,313(2)
      50,300   Countrywide Capital V, 7.00% Pfd. 11/01/36 ..................................................            931,179
     108,300   Deutsche Bank Contingent Capital Trust II, 6.55% Pfd. .......................................          2,575,515**(1)
               Goldman Sachs:
      20,000      Adj. Rate Pfd., Series A .................................................................            480,000*
      35,000      Cabco Trust Capital I, Adj. Rate Pfd. 02/15/34 ...........................................            787,937
          25      Pass-Through Certificates, Class B, 144A**** .............................................          2,005,000*
       2,500      STRIPES Custodial Receipts, Pvt. .........................................................          2,027,500*
               Merrill Lynch:
      87,000      Adj. Rate Pfd., Series 5 .................................................................          1,949,348*
      21,000      Adj. Rate Pfd., Series H .................................................................            483,000*
       3,000      Series II STRIPES Custodial Receipts, Pvt. ...............................................          2,298,000*
               SLM Corporation:
     136,855      6.97% Pfd., Series A .....................................................................          6,347,335*
       9,000      Adj. Rate Pfd., Series B .................................................................            693,000*
-------------------------------------------------------------------------------------------------------------------------------
                                                                                                                     25,365,895
                                                                                                                ---------------
               INSURANCE -- 12.3%
------------------------------------------------------------------------------------------------------------------------------------
      19,100   ACE Ltd., 7.80% Pfd., Series C ..............................................................            484,042**(1)
$  3,750,000   AON Capital Trust A, 8.205% 01/01/27 ........................................................          3,971,704
               Arch Capital Group Ltd.:
      10,000      7.875% Pfd., Series B ....................................................................            245,000**(1)
      40,000      8.00% Pfd., Series A .....................................................................            996,252**(1)
$  2,500,000   AXA SA, 6.463%, 144A**** ....................................................................          2,266,300**(1)
      30,900   Axis Capital Holdings, 7.50% Pfd., Series B .................................................          3,093,090(1)
      27,000   Berkley W.R. Capital Trust II, 6.75% Pfd. 07/26/45 ..........................................            634,837
      75,000   Delphi Financial Group, 7.376% Pfd. 05/15/37 ................................................          1,802,250
       6,250   Everest Re Capital Trust II, 6.20% Pfd., Series B ...........................................            140,078(2)
$  1,040,000   Everest Re Holdings, 6.60% 05/15/37 .........................................................            970,267
$  4,500,000   Liberty Mutual Group, 7.80% 03/15/37, 144A**** ..............................................          4,022,919
      40,000   MetLife, Inc., Adj. Rate Pfd., Series A .....................................................            990,500*


                                        5



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

Flaherty & Crumrine Preferred Income Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
AUGUST 31, 2007 (UNAUDITED)
-------------------------------------------------------



SHARES/$ PAR                                                                                                         VALUE
------------                                                                                                    ---------------
                                                                                                          
PREFERRED SECURITIES -- (CONTINUED)
               INSURANCE -- (CONTINUED)
------------------------------------------------------------------------------------------------------------------------------------
$  1,650,000   Progressive Corporation, Variable Rate, 06/15/37 ............................................    $     1,601,774
$    357,000   Provident Financing Trust I, 7.405% 03/15/38 ................................................            346,138
               Renaissancere Holdings Ltd.:
      27,950      6.08% Pfd., Series C .....................................................................            586,391**(1)
      79,100      6.60% Pfd., Series D .....................................................................          1,748,110**(1)
     119,500   Scottish Re Group Ltd., 7.25% Pfd. ..........................................................          2,083,781**(1)
$    750,000   USF&G Capital, 8.312% 07/01/46, 144A**** ....................................................            894,300
$  1,600,000   XL Capital Ltd., 6.50%, Series E ............................................................          1,414,818(1)
-------------------------------------------------------------------------------------------------------------------------------
                                                                                                                     28,292,551
                                                                                                                ---------------
               UTILITIES -- 30.7%
------------------------------------------------------------------------------------------------------------------------------------
               Alabama Power Company:
         300      4.52% Pfd. ...............................................................................             24,582*
       5,734      4.72% Pfd. ...............................................................................            490,601*
      10,000   Baltimore Gas & Electric Company, 6.70% Pfd., Series 1993 ...................................          1,037,188*
     103,200   Calenergy Capital Trust III, 6.50% Pfd. 09/01/27 ............................................          4,939,152
               Central Hudson Gas & Electric Corporation:
       5,000      4.35% Pfd., Series D, Pvt. ...............................................................            399,950*
         900      4.96% Pfd., Series E, Pvt. ...............................................................             79,245*
       8,340   Central Vermont Public Service Corporation, 8.30% Sinking Fund Pfd., Pvt. ...................            867,193*
               Connecticut Light & Power Company:
      12,124      4.50% Pfd., Series 1963, Pvt. ............................................................            481,808*
      34,300      5.28% Pfd., Series 1967 ..................................................................          1,614,844*
       1,905      6.56% Pfd., Series 1968 ..................................................................             98,641*
      15,778      $3.24 Pfd. ...............................................................................            827,083*
       2,100   Consolidated Edison Company of New York, 4.65% Pfd., Series C ...............................            181,146*
       2,886   Dayton Power and Light Company, 3.90% Pfd., Series C ........................................            193,477*
               Duquesne Light Company:
       7,675      4.10% Pfd. ...............................................................................            275,686*
       9,190      4.15% Pfd. ...............................................................................            334,240*
         910      4.20% Pfd. ...............................................................................             33,488*
       5,490      $2.10 Pfd., Series A .....................................................................            202,032*
     100,000   Entergy Arkansas, Inc., 6.45% Pfd. ..........................................................          2,581,000*
       4,555   Entergy Gulf States, Inc., 7.56% Pfd. .......................................................            449,260*
      36,000   Entergy Louisiana, Inc., 6.95% Pfd. .........................................................          3,769,920*
       5,000   Entergy Mississippi, Inc., 4.92% Pfd. .......................................................            404,900*
      18,535   Florida Power Company, 4.75% Pfd. ...........................................................          1,627,744*
      48,300   FPC Capital I, 7.10% Pfd., Series A .........................................................          1,193,918
      40,000   FPL Group Capital, Inc., 6.60% Pfd. 10/01/66, Series A ......................................            982,500


                                        6



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

                          Flaherty & Crumrine Preferred Income Fund Incorporated
                                            PORTFOLIO OF INVESTMENTS (CONTINUED)
                                                     AUGUST 31, 2007 (UNAUDITED)
                          ------------------------------------------------------



SHARES/$ PAR                                                                                                         VALUE
------------                                                                                                    ---------------
                                                                                                          
PREFERRED SECURITIES -- (CONTINUED)
               UTILITIES -- (CONTINUED)
------------------------------------------------------------------------------------------------------------------------------------
      13,100   Georgia Power Capital Trust, 6.125% Pfd. ....................................................    $       338,242*
       2,010   Great Plains Energy, Inc., 4.50% Pfd. .......................................................            164,016*
      50,000   Hawaiian Electric Company, Inc., 5.25% Pfd., Series H, Pvt. .................................            926,565*
      32,650   Indianapolis Power & Light Company, 5.65% Pfd. ..............................................          3,069,100*
     384,000   Interstate Power & Light Company, 8.375% Pfd., Series B .....................................         11,612,160*
               Pacific Enterprises:
      27,430      $4.50 Pfd. ...............................................................................          2,279,982*
      10,000      $4.75 Pfd., Series 53 ....................................................................            877,400*
               Pacific Gas & Electric Co.:
       7,600      4.50% Pfd., Series H .....................................................................            156,712*
      41,500      5.00% Pfd., Series D .....................................................................            951,180*
      79,086      5.00% Pfd., Series E .....................................................................          1,828,468*
               PacifiCorp:
       1,095      5.40% Pfd. ...............................................................................            110,978*
       1,225      $4.56 Pfd. ...............................................................................            101,626*
      14,542      $4.72 Pfd. ...............................................................................          1,248,722*
$    500,000   PECO Energy Capital Trust III, 7.38% 04/06/28, Series D .....................................            514,550
       5,000   PPL Electric Utilities Corporation, 6.75% Pfd. ..............................................            525,469*
      10,000   Public Service Company of New Mexico, 4.58% Pfd., Series 1965 ...............................            773,700*
               San Diego Gas & Electric Company:
       1,200      4.40% Pfd. ...............................................................................             19,596*
         700      4.50% Pfd. ...............................................................................             11,690*
      77,000      $1.70 Pfd. ...............................................................................          2,018,848*
               South Carolina Electric & Gas Company:
      24,924      5.125% Purchase Fund Pfd., Pvt. ..........................................................          1,281,841*
       6,703      6.00% Purchase Fund Pfd., Pvt. ...........................................................            341,518*
      10,600   Southern California Edison, 6.00% Pfd. ......................................................          1,047,492*
               Southern Union Company:
$    200,000      7.20% 11/01/66 ...........................................................................            202,330
      64,800      7.55% Pfd. ...............................................................................          1,654,992*
$    750,000   TXU Electric Capital V, 8.175% 01/30/37 .....................................................            730,125
               Union Electric Company:
      14,150      4.56% Pfd. ...............................................................................          1,143,037*
      18,800      $7.64 Pfd. ...............................................................................          1,930,760*
      12,500   Virginia Electric & Power Company, $7.05 Pfd. ...............................................          1,264,844*
      47,400   Virginia Power Capital Trust, 7.375% Pfd. 07/30/42 ..........................................          1,192,703
$  1,900,000   Wisconsin Energy Corporation, 6.25% 05/15/67 ................................................          1,843,737
               Wisconsin Power & Light Company:
       1,220      4.50% Pfd. ...............................................................................            102,980*
         546      4.80% Pfd. ...............................................................................             49,162*


                                        7



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

Flaherty & Crumrine Preferred Income Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
AUGUST 31, 2007 (UNAUDITED)
-------------------------------------------------------



SHARES/$ PAR                                                                                                         VALUE
------------                                                                                                    ---------------
                                                                                                          
PREFERRED SECURITIES -- (CONTINUED)
               UTILITIES -- (CONTINUED)
------------------------------------------------------------------------------------------------------------------------------------
               Xcel Energy, Inc.:
      16,030      $4.08 Pfd., Series B .....................................................................    $     1,210,265*
      26,200      $4.10 Pfd., Series C .....................................................................          1,987,794*
      22,000      $4.11 Pfd., Series D .....................................................................          1,673,320*
      17,750      $4.16 Pfd., Series E .....................................................................          1,366,395*
      10,000      $4.56 Pfd., Series G .....................................................................            843,800*
-------------------------------------------------------------------------------------------------------------------------------
                                                                                                                     70,485,697
                                                                                                                ---------------
               ENERGY -- 5.8%
------------------------------------------------------------------------------------------------------------------------------------
       8,000   Devon Energy Corporation, 6.49% Pfd., Series A ..............................................            818,750*
               Enterprise Products Partners:
$  2,600,000      7.034% 01/15/68 ..........................................................................          2,345,808
$  1,500,000      8.375% 08/01/66 ..........................................................................          1,538,212
       5,985   EOG Resources, Inc., 7.195% Pfd., Series B ..................................................          6,372,289*
$  1,225,000   KN Capital Trust III, 7.63% 04/15/28 ........................................................          1,091,352
      10,000   Lasmo America Limited, 8.15% Pfd., 144A**** .................................................          1,043,800*(1)
-------------------------------------------------------------------------------------------------------------------------------
                                                                                                                     13,210,211
                                                                                                                ---------------
               REAL ESTATE INVESTMENT TRUST (REIT) -- 2.4%
------------------------------------------------------------------------------------------------------------------------------------
       1,000   Equity Residential Properties, 8.29% Pfd., Series K .........................................             57,600
      30,000   PS Business Parks, Inc., 7.375% Pfd., Series O ..............................................            710,625
               Public Storage, Inc.:
     146,370      6.45% Pfd., Series F .....................................................................          3,275,029
      63,200      6.625% Pfd., Series M ....................................................................          1,433,850
-------------------------------------------------------------------------------------------------------------------------------
                                                                                                                      5,477,104
                                                                                                                ---------------

               MISCELLANEOUS INDUSTRIES -- 2.1%
------------------------------------------------------------------------------------------------------------------------------------
      13,600   E.I. Du Pont de Nemours and Company, $4.50 Pfd., Series B ...................................          1,076,848*
      40,000   Ocean Spray Cranberries, Inc., 6.25% Pfd., 144A**** .........................................          3,632,000*
-------------------------------------------------------------------------------------------------------------------------------
                                                                                                                      4,708,848
                                                                                                                ---------------
               U.S. GOVERNMENT SECURITIES -- 0.2%
------------------------------------------------------------------------------------------------------------------------------------
      20,000   Freddie Mac, 5.66% Series W .................................................................            472,800*
-------------------------------------------------------------------------------------------------------------------------------
                                                                                                                        472,800
                                                                                                                ---------------
               TOTAL PREFERRED SECURITIES
                  (Cost $215,823,816) ......................................................................        216,467,608
                                                                                                                ---------------


                                        8



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

                          Flaherty & Crumrine Preferred Income Fund Incorporated
                                            PORTFOLIO OF INVESTMENTS (CONTINUED)
                                                     AUGUST 31, 2007 (UNAUDITED)
                          ------------------------------------------------------



SHARES/$ PAR                                                                                                         VALUE
------------                                                                                                    ---------------
                                                                                                          
CORPORATE DEBT SECURITIES -- 4.9%
               FINANCIAL SERVICES -- 0.7%
------------------------------------------------------------------------------------------------------------------------------------
$  1,800,000   Lehman Brothers Holdings, 6.875% 07/17/37, Sub. Note ........................................    $     1,696,165
-------------------------------------------------------------------------------------------------------------------------------
                                                                                                                      1,696,165
                                                                                                                ---------------
               INSURANCE -- 2.4%
------------------------------------------------------------------------------------------------------------------------------------
$    900,000   Farmers Exchange Capital, 7.20% 07/15/48, 144A**** ..........................................            875,880
$  4,729,000   Liberty Mutual Insurance, 7.697% 10/15/97, 144A**** .........................................          4,530,855
-------------------------------------------------------------------------------------------------------------------------------
                                                                                                                      5,406,735
                                                                                                                ---------------
               UTILITIES -- 0.8%
------------------------------------------------------------------------------------------------------------------------------------
$  1,000,000   Duke Capital Corporation, 8.00% 10/01/19, Senior Notes ......................................          1,123,007
       5,000   Entergy Louisiana LLC, 7.60% 04/01/32 .......................................................            125,625
      20,100   PPL Capital Funding, Inc., 6.85% 07/01/47 ...................................................            481,395
-------------------------------------------------------------------------------------------------------------------------------
                                                                                                                      1,730,027
                                                                                                                ---------------
               ENERGY -- 1.0%
------------------------------------------------------------------------------------------------------------------------------------
$  2,450,000   KN Energy, Inc., 7.45% 03/01/98 .............................................................          2,123,449
      11,300   Nexen, Inc., 7.35% Subordinated Notes .......................................................            282,500(1)
-------------------------------------------------------------------------------------------------------------------------------
                                                                                                                      2,405,949
                                                                                                                ---------------
               TOTAL CORPORATE DEBT SECURITIES
                  (Cost $11,443,348) .......................................................................         11,238,876
                                                                                                                ---------------
OPTION CONTRACTS -- 0.0%
         515   December Put Options on December U.S. Treasury Bond Futures, Expiring 11/20/07 ..............             32,188+
       1,025   October Put Options on December U.S. Treasury Bond Futures, Expiring 09/21/07 ...............             20,703+
-------------------------------------------------------------------------------------------------------------------------------
               TOTAL OPTION CONTRACTS
                  (Cost $191,691) ..........................................................................             52,891
                                                                                                                ---------------


                                        9



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

Flaherty & Crumrine Preferred Income Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
AUGUST 31, 2007 (UNAUDITED)
-------------------------------------------------------



SHARES/$ PAR                                                                                                         VALUE
------------                                                                                                    ---------------
                                                                                                       
MONEY MARKET FUND -- 0.1%
     276,354      BlackRock Provident Institutional, TempFund ..............................................    $       276,354
-------------------------------------------------------------------------------------------------------------------------------
                  TOTAL MONEY MARKET FUND
                     (Cost $276,354) .......................................................................            276,354
                                                                                                                ---------------
SECURITIES LENDING COLLATERAL -- 0.3%
     573,900      Institutional Money Market Trust .........................................................            573,900
-------------------------------------------------------------------------------------------------------------------------------
                  TOTAL SECURITIES LENDING COLLATERAL
                     (Cost $573,900) .......................................................................            573,900
                                                                                                                ---------------

TOTAL INVESTMENTS (Cost $228,309,109***) ........................................................    99.7%          228,609,629
OTHER ASSETS AND LIABILITIES (Net) ..............................................................     0.3%              775,938
                                                                                                                ---------------
TOTAL NET ASSETS AVAILABLE TO COMMON AND PREFERRED STOCK ........................................   100.0%++    $   229,385,567
                                                                                                                ---------------
MONEY MARKET CUMULATIVE PREFERRED(TM) STOCK (MMP(R)) REDEMPTION VALUE ......................................        (80,000,000)
                                                                                                                ---------------
TOTAL NET ASSETS AVAILABLE TO COMMON STOCK .................................................................    $   149,385,567
                                                                                                                ===============


----------

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

         ABBREVIATIONS:
PFD.  -- Preferred Securities
PVT.  -- Private Placement Securities

                                       10



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

                          Flaherty & Crumrine Preferred Income Fund Incorporated
                 STATEMENT OF CHANGES IN NET ASSETS AVAILABLE TO COMMON STOCK(1)
        FOR THE PERIOD FROM DECEMBER 1, 2006 THROUGH AUGUST 31, 2007 (UNAUDITED)
      --------------------------------------------------------------------------



                                                                                                                       VALUE
                                                                                                                   -------------
                                                                                                                
OPERATIONS:
   Net investment income .......................................................................................   $  10,732,267
   Net realized gain/(loss) on investments sold during the period ..............................................      (1,210,477)
   Change in net unrealized appreciation/depreciation of investments held during the period ....................     (15,608,257)
   Distributions to MMP(R)* Shareholders from net investment income, including changes in accumulated
     undeclared distributions ..................................................................................      (2,767,223)
                                                                                                                   -------------
   NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ........................................................      (8,853,690)

DISTRIBUTIONS:
   Dividends paid from net investment income to Common Stock Shareholders(2) ...................................      (8,128,704)
                                                                                                                   -------------
   TOTAL DISTRIBUTIONS TO COMMON STOCK SHAREHOLDERS ............................................................      (8,128,704)

FUND SHARE TRANSACTIONS:
   Increase from shares issued under the Dividend Reinvestment and Cash Purchase Plan ..........................         892,876
                                                                                                                   -------------
   NET INCREASE IN NET ASSETS AVAILABLE TO COMMON STOCK RESULTING FROM FUND SHARE TRANSACTIONS .................         892,876

                                                                                                                   -------------
NET DECREASE IN NET ASSETS AVAILABLE TO COMMON STOCK FOR THE PERIOD ............................................   $ (16,089,518)
                                                                                                                   =============

---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS AVAILABLE TO COMMON STOCK:
   Beginning of period .........................................................................................   $ 165,475,085
   Net decrease in net assets during the period ................................................................     (16,089,518)
                                                                                                                   -------------
   End of period ...............................................................................................   $ 149,385,567
                                                                                                                   =============


----------

*     Money Market Cumulative Preferred(TM) Stock.
(1)   These tables summarize the nine months ended August 31, 2007 and should be
      read in conjunction with the Fund's audited financial statements,
      including footnotes, in its Annual Report dated November 30, 2006.
(2)   May include income earned, but not paid out, in prior fiscal year.

                                       11



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

Flaherty & Crumrine Preferred Income Fund Incorporated
FINANCIAL HIGHLIGHTS(1)
FOR THE PERIOD FROM DECEMBER 1, 2006 THROUGH AUGUST 31, 2007 (UNAUDITED)
FOR A COMMON STOCK SHARE OUTSTANDING THROUGHOUT THE PERIOD.
------------------------------------------------------------


                                                                                                                
PER SHARE OPERATING PERFORMANCE:
   Net asset value, beginning of period ........................................................................   $       15.80
                                                                                                                   -------------
INVESTMENT OPERATIONS:
   Net investment income .......................................................................................            1.02
   Net realized and unrealized gain/(loss) on investments ......................................................           (1.60)
DISTRIBUTIONS TO MMP(R)* SHAREHOLDERS:
   From net investment income ..................................................................................           (0.26)
   From net realized capital gains .............................................................................              --
                                                                                                                   -------------
   Total from investment operations ............................................................................           (0.84)
                                                                                                                   -------------
DISTRIBUTIONS TO COMMON STOCK SHAREHOLDERS:
   From net investment income ..................................................................................           (0.77)
   From net realized capital gains .............................................................................              --
                                                                                                                   -------------
   Total distributions to Common Stock Shareholders ............................................................           (0.77)
                                                                                                                   -------------
   Net asset value, end of period ..............................................................................   $       14.19
                                                                                                                   =============
   Market value, end of period .................................................................................   $       14.13
                                                                                                                   =============
   Common Stock shares outstanding, end of period ..............................................................      10,530,560
                                                                                                                   =============
RATIOS TO AVERAGE NET ASSETS AVAILABLE TO COMMON STOCK SHAREHOLDERS:
   Net investment income+ ......................................................................................            6.63%**
   Operating expenses ..........................................................................................            1.49%**

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

SUPPLEMENTAL DATA:++
   Portfolio turnover rate. ....................................................................................              48%***
   Total net assets available to Common and Preferred Stock, end of period (in 000's) ..........................   $     229,386
   Ratio of operating expenses to total average net assets available to Common and Preferred Stock .............            0.99%**


(1)   These tables summarize the nine months ended August 31, 2007 and should be
      read in conjunction with the Fund's audited financial statements,
      including footnotes, in its Annual Report dated November 30, 2006.
*     Money Market Cumulative Preferred(TM) Stock.
**    Annualized.
***   Not Annualized.
+     The net investment income ratios reflect income net of operating expenses
      and payments to MMP(R)* Shareholders.
++    Information presented under heading Supplemental Data includes MMP(R)*.

                                       12



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

                          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, 2006 .......    $0.0860     $15.56        $16.86          $16.02
January 31, 2007 ........     0.0860      15.61         17.20           16.34
February 28, 2007 .......     0.0860      15.80         17.25           16.39
March 31, 2007 ..........     0.0860      15.45         17.09           16.24
April 30, 2007 ..........     0.0860      15.44         16.64           15.81
May 31, 2007 ............     0.0860      15.18         16.00           15.20
June 30, 2007 ...........     0.0860      14.99         16.13           15.32
July 31, 2007 ...........     0.0860      14.51         15.94           15.14
August 31, 2007 .........     0.0860      14.19         14.13           14.19

----------

(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.

                                       13



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

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

1. AGGREGATE INFORMATION FOR FEDERAL INCOME TAX PURPOSES

      At August 31, 2007,  the aggregate  cost of securities  for federal income
tax purposes was $228,556,458,  the aggregate gross unrealized  appreciation for
all  securities  in  which  there  is an  excess  of  value  over  tax  cost was
$9,502,204,  and the aggregate gross unrealized  depreciation for all securities
in which there is an excess of tax cost over value was $9,449,033.

                                       14



                      [This page intentionally left blank]



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

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

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

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

   o  If you have physical possession of your shares in certificate form,
      contact the Fund's Transfer Agent & Shareholder Servicing Agent --
                 PFPC Inc.
                 P.O. Box 43027
                 Providence, RI 02940-3027
                 1-800-331-1710

THIS REPORT IS SENT TO SHAREHOLDERS OF FLAHERTY & CRUMRINE PREFERRED INCOME 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

                                 August 31, 2007

                             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                       October 16, 2007

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

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

Date                       October 16, 2007

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

Date                       October 16, 2007

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