<PAGE> 1
MUNICIPAL PREMIUM INCOME TRUST Two World Trade Center,
LETTER TO THE SHAREHOLDERS May 31, 1996 New York, New York 10048
DEAR SHAREHOLDER:
Between June 1995 and January 1996 -- the first eight months of Municipal
Premium Income Trust's (PIA) fiscal year -- interest rates declined. Beginning
in February 1996, interest rates reversed direction and moved higher over the
remainder of PIA's fiscal year. Last year's favorable bond market environment
was created by proposals to achieve a balanced federal budget within five to
seven years and by continued easing of Federal Reserve Board monetary policy.
However, budget negotiations reached a political impasse early in 1996 and
federal offices were partially closed. This had an adverse impact on bonds.
Concerns also developed about an increase in the pace of the economic recovery,
which was marked by strong job growth in March and rising commodity prices. The
bond market reacted to these developments by pushing yields sharply higher.
MUNICIPAL MARKET CONDITIONS
Long-term municipal revenue bond yields as tracked by The Bond Buyer Revenue
Bond Index* moved from 6.00 percent in May 1995 to a low of 5.63 percent in
January 1996. Interest rates subsequently began to rise in mid-February on signs
of stronger economic growth and renewed inflationary fears. The Index yield
reached 6.17 percent in May. Yields on one-year municipal notes declined from
3.87 percent to 3.73 percent over the past year. The yield curve pickup by
extending maturities from 1 to 30 years was 244 basis points at the end of May.
The risk of flat-tax legislation caused the ratio of Revenue Bond Index yields
to 30-year U.S. Treasury bond yields to rise from 85 to 94 percent between March
and September 1995. However, as the prospects of a flat tax faded, the ratio
improved to 89 percent by the end of May 1996. A declining ratio means that
municipal bond prices have
- ---------------------
*The Bond Buyer Revenue Bond Index is an arithmetic average of the yields of 25
selected municipal revenue bonds with 30-year maturities. Credit ratings of
these bonds range from Aa1 to Baa1 by Moody's Investors Service, Inc., and AA+
to A- by Standard & Poor's Corp.
<PAGE> 2
MUNICIPAL PREMIUM INCOME TRUST
LETTER TO THE SHAREHOLDERS May 31, 1996, continued
outperformed U.S. Treasury prices. It is interesting to note that long-term
municipal yields had also averaged 89 percent of U.S. Treasury yields over the
previous eight-year period prior to the flat-tax debate.
Municipal underwriting activity was fueled by the trend of lower interest rates
in 1995. During the first five months of 1996, new issue volume increased 39
percent versus the same period a year ago. Despite a resurgence in underwriting,
dealers have continued to announce their withdrawal from the municipal business.
PERFORMANCE
The net asset value (NAV) of Municipal Premium Income Trust declined from $10.36
to $10.02 per share during the fiscal year ended May 31, 1996. Based on this NAV
change plus reinvestment of tax-free dividends totaling $0.65 per share and a
long-term capital gains distribution totaling $0.12 per share, the Fund's total
return was 4.81 percent. Over the same period, the Fund's market price on the
New York Stock Exchange declined from $9.6875 to $9.00 per share. Based on this
market price change and reinvestment of tax-free dividends and distributions,
the Fund's total return was 0.67 percent. The Fund began the fiscal year trading
at 6.5 percent discount to NAV and closed at a 10 percent discount.
Undistributed net investment income was $0.047 per share on May 31, 1996, versus
$0.054 per share a year earlier.
PORTFOLIO STRUCTURE
On May 31, 1996, the Fund had $356 million in net assets which were diversified
among 13 long-
FIVE LARGEST SECTORS AS OF MAY 31, 1996
(% OF NET ASSETS)
<TABLE>
<S> <C>
IDR/PCR* 17%
HOSPITAL 15%
MORTGAGE 13%
ELECTRIC 12%
REFUNDED 11%
OTHER 32%
</TABLE>
*INDUSTRIAL DEVELOPMENT/POLLUTION CONTROL
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE
CREDIT RATINGS AS OF MAY 31, 1996
(% OF TOTAL LONG-TERM PORTFOLIO)
<TABLE>
<S> <C>
Aaa or AAA 56%
Aa or AA 23%
Baa or BBB 16%
A or A 5%
</TABLE>
AS MEASURED BY STANDARD & POOR'S CORP. OR MOODY'S INVESTORS
SERVICE, INC.
<PAGE> 3
MUNICIPAL PREMIUM INCOME TRUST
LETTER TO THE SHAREHOLDERS May 31, 1996, continued
term municipal sectors and 73 credits. The five largest sectors represented 68
percent of the Fund's net assets.
The portfolio has consistently maintained investment grade quality with 84
percent of its long-term holdings rated "A" or better. The average maturity and
call protection of the Fund's long-term holdings were 21 and 7 years,
respectively.
THE IMPACT OF LEVERAGING
As discussed in previous reports, the total income available for distribution to
common shareholders includes incremental income provided by the Fund's
outstanding Auction Rate Preferred Shares (ARPS). ARPS dividends reflect
prevailing short-term interest rates on maturities normally ranging from one
week to one year. Incremental income to common shares depends on two factors:
first, the spread between interest earned on the long-term bonds in the
established portfolio of investments and the ARPS auction rate plus ARPS
expenses; second, the amount of ARPS outstanding. The greater the amount of ARPS
outstanding, the greater the amount of incremental income available for
distribution to common shareholders.
ARPS yields ranged between 3.20 and 5.00 percent during the 12 months ended May
31, 1996. ARPS leverage of $100 million represented 28 percent of net assets and
contributed $0.07 per share to common share earnings.
LOOKING AHEAD
Tax-reduction proposals may receive additional publicity. However, the balance
between the supply of new issues and demand created by maturities and calls for
redemption is positive for the municipal market. Long-term municipal securities
currently yield 89 percent of the yield on U.S. Treasury securities and may be
expected to move in tandem with the Treasury market.
The Fund's procedure for reinvestment of all dividends and distributions on
common shares is through purchases in the open market. This method helps to
support the market value of the Fund's shares. In addition, we would like to
remind you that the Trustees have approved a procedure whereby the Fund, when
appropriate, may purchase shares in the open market or in privately negotiated
transactions at a price not above market value or net asset value, whichever is
lower at the time of purchase. During the fiscal year ended May 31, 1996, the
Fund purchased and retired 392,900 shares of common stock at a weighted average
market discount of 9.79 percent. The Fund may also utilize procedures to reduce
or eliminate the amount of outstanding ARPS, including their purchase in the
open market or in privately negotiated transactions.
<PAGE> 4
MUNICIPAL PREMIUM INCOME TRUST
LETTER TO THE SHAREHOLDERS May 31, 1996, continued
We appreciate your ongoing support of Municipal Premium Income Trust and look
forward to continuing to serve your investment needs.
Very truly yours,
/s/ CHARLES A. FIUMEFREDDO
CHARLES A. FIUMEFREDDO
Chairman of the Board
<PAGE> 5
MUNICIPAL PREMIUM INCOME TRUST
PORTFOLIO OF INVESTMENTS May 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS (97.3%)
General Obligation (6.5%)
$ 5,000 Chicago Park District, Illinois, Ser 1995............................. 6.60 % 11/15/14 $ 5,242,250
Massachusetts,
3,500 1995 Ser A (AMBAC)................................................... 5.00 07/01/12 3,223,290
3,965 1994 Ser C (FGIC).................................................... 6.75 11/01/12 4,273,001
4,500 Shelby County, Tennessee, Refg 1995 Ser A............................. 5.625 04/01/11 4,488,390
6,000 Washington, Ser 1993 A................................................ 5.75 10/01/17 5,813,280
- -------- ------------
22,965 23,040,211
- -------- ------------
Educational Facilities Revenue (3.3%)
5,500 Oakland University, Michigan, Ser 1995 (MBIA)......................... 5.75 05/15/26 5,317,070
New York State Dormitory Authority,
4,000 State University Refg Ser 1993 A..................................... 5.50 05/15/08 3,824,360
1,350 State University Ser 1990 B.......................................... 7.50 05/15/11 1,533,640
1,000 Pennsylvania Higher Educational Facilities Authority, Temple
University
First Ser (MBIA)..................................................... 6.50 04/01/21 1,036,080
- -------- ------------
11,850 11,711,150
- -------- ------------
Electric Revenue (12.3%)
5,000 Sacramento Municipal Utility District, California, Refg 1994 Ser I
(MBIA)............................................................... 6.00 01/01/24 4,933,350
4,000 Kansas City, Kansas, Utility Refg & Impr Ser 1994 (FGIC).............. 6.375 09/01/23 4,144,120
7,750 South Carolina Public Service Authority, 1995 Refg Ser A (AMBAC)...... 6.25 01/01/22 7,923,212
20,000 San Antonio, Texas, Electric & Gas Refg Ser 1994 C.................... 4.70 02/01/06 18,684,200
Intermountain Power Agency, Utah,
1,270 Refg Ser 1988 B...................................................... 7.50 07/01/21 1,352,055
6,300 Refg Ser 1987 D...................................................... 8.625 07/01/21 6,656,202
- -------- ------------
44,320 43,693,139
- -------- ------------
Hospital Revenue (15.2%)
5,000 Alabama Special Care Facilities Financing Authority of Birmingham,
Daughter's of Charity National Health/St Vincent's & Providence
Hospitals Ser 1995................................................... 5.00 11/01/25 4,204,350
5,000 Birmingham-Carraway Special Care Facilities Financing Authority,
Alabama, Carraway Methodist Health Systems Ser 1995 A (Connie Lee)... 5.875 08/15/15 4,873,200
3,500 Colbert County - Northwest Health Care Authority, Alabama, Helen
Keller Hospital Refg Ser 1990........................................ 8.75 06/01/09 3,875,760
1,000 California Health Facilities Financing Authority, Alexian Brothers/San
Jose Refg Ser 1990 (MBIA)............................................ 7.125 01/01/16 1,073,000
1,000 Jacksonville Health Facilities Authority, Florida, Riverside Hospital
Ser 1989............................................................. 7.625 10/01/13 1,052,790
Hall County and Gainesville Hospital Authority, Georgia,
2,000 Northeast Georgia Healthcare Ser 1995 (MBIA)......................... 5.75 10/01/17 1,949,480
3,000 Northeast Georgia Healthcare Ser 1995 (MBIA)......................... 6.00 10/01/20 2,965,650
3,750 Evergreen Park, Illinois, Little Company of Mary Hospital Refg Ser
1988 (MBIA).......................................................... 7.25 02/15/11 3,965,625
1,800 Southwestern Illinois Development Authority, Anderson Hospital Ser
1992 A............................................................... 7.00 08/15/22 1,811,988
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 6
MUNICIPAL PREMIUM INCOME TRUST
PORTFOLIO OF INVESTMENTS May 31, 1996, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 4,000 Indiana Health Facility Financing Authority, Hancock Memorial Hospital
Ser 1990............................................................. 8.30 % 08/15/20 $ 4,268,440
3,420 Kentucky Development Finance Authority, Ashland Hospital/King's
Daughters Refg Ser 1987.............................................. 9.75 08/01/05 3,704,749
9,500 Boston, Massachusetts, Boston City Hospital - FHA Mtge Refg Ser B..... 5.75 02/15/13 9,231,150
2,985 Lehigh County General Purpose Authority, Pennsylvania, St Lukes
Hospital Ser 1992 (AMBAC)............................................ 6.25 07/01/22 3,032,044
2,375 Montgomery County Higher Educational & Health Authority, Pennsylvania,
Holy Redeemer Hospital 1990 Ser A (AMBAC)............................ 7.625 02/01/20 2,561,485
2,750 Jefferson County Health Facilities Development Corporation, Texas,
Baptist Health Care Ser 1989......................................... 8.30 10/01/14 2,711,362
2,400 Peninsula Ports Authority, Virginia, Mary Immaculate Hospital Ser
1989................................................................. 8.375 08/01/04 2,614,008
- -------- ------------
53,480 53,895,081
- -------- ------------
Industrial Development/Pollution Control Revenue (17.1%)
14,500 Pima County Industrial Development Authority, Arizona, Tucson Electric
Power Co Refg Ser 1988 A (FSA Surety)................................ 7.25 07/15/10 15,810,510
10,000 Burlington, Kansas, Kansas Gas & Electric Co Refg Ser 1991 (MBIA)..... 7.00 06/01/31 10,860,000
5,000 New Jersey Economic Development Authority, Elizabethtown Water Co
1995 Ser (AMT) (MBIA)................................................ 5.60 12/01/25 4,655,300
5,000 New York State Energy Research & Development Authority, Brooklyn Union
Gas Co 1996 Ser (MBIA)............................................... 5.50 01/01/21 4,686,550
1,000 Ohio Water Development Authority, Toledo Edison Co Ser 1990 A
(Secondary FSA)...................................................... 7.75 05/15/19 1,109,820
9,500 Montgomery County Industrial Development Authority, Pennsylvania,
Philadelphia Electric Co Refg 1991 Ser B (MBIA)...................... 6.70 12/01/21 10,108,950
13,000 Alliance Airport Authority, Texas, AMR Corp Ser 1990 (AMT)............ 7.50 12/01/29 13,712,010
- -------- ------------
58,000 60,943,140
- -------- ------------
Mortgage Revenue - Multi-Family (2.6%)
Massachusetts Housing Finance Agency,
2,000 Rental 1994 Ser A (AMT) (AMBAC)...................................... 6.60 07/01/14 2,054,660
4,000 Rental 1994 Ser A (AMT) (AMBAC)...................................... 6.65 07/01/19 4,106,040
3,000 Minnesota Housing Finance Agency, Rental 1995 Ser D (MBIA)............ 6.00 02/01/22 2,953,380
- -------- ------------
9,000 9,114,080
- -------- ------------
Mortgage Revenue - Single Family (10.2%)
505 Colorado Housing & Finance Authority, Ser 1990 B-2.................... 8.00 02/01/18 528,326
14,860 Pinellas County Housing Finance Authority, Florida, Ser 1983.......... 0.00 01/01/15 2,179,813
620 Idaho Housing Agency, 1988 Ser D-2 (AMT).............................. 8.25 01/01/20 642,711
2,330 Illinois Housing Development Authority, 1988 Ser C (AMT).............. 8.10 02/01/22 2,421,918
990 Indiana Housing Finance Authority, Ser 1990 A-2 (AMT)................. 8.10 01/01/22 1,007,365
1,260 Kansas City Leavenworth & Lenexa, Kansas, GNMA-Backed Ser 1988 C
(AMT)................................................................ 8.00 11/01/20 1,312,303
Olathe, Kansas,
180 GNMA Collateralized Ser 1990 B....................................... 7.50 09/01/10 190,750
665 GNMA Collateralized Ser 1989 A (AMT) (MBIA).......................... 8.00 11/01/20 696,182
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 7
MUNICIPAL PREMIUM INCOME TRUST
PORTFOLIO OF INVESTMENTS May 31, 1996, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 1,250 Lake Charles Non-Profit Housing Development Corporation, Louisiana,
Ser 1990 A (FSA)..................................................... 7.875% 02/15/25 $ 1,253,587
1,795 New Orleans Home Mortgage Authority, Louisiana, 1989 Ser B-1 (AMT).... 8.25 12/01/21 1,887,012
Maine Housing Authority,
3,540 Purchase Ser 1988 D4 (AMT)........................................... 7.55 11/15/19 3,701,955
1,000 Purchase Ser 1988 D5 (AMT)........................................... 7.55 11/15/19 1,043,390
Massachusetts Housing Finance Agency,
1,660 Residential Ser 1989 A (AMT)......................................... 8.20 08/01/15 1,756,695
4,960 1989 Ser 7 (AMT)..................................................... 8.10 06/01/20 5,175,016
805 Mississippi Housing Finance Corporation, GNMA-Backed Ser 1989 (AMT)... 8.25 10/15/18 844,630
435 Muskogee County Home Finance Authority, Oklahoma, 1990 Ser A (FGIC)... 7.60 12/01/10 456,158
2,560 Rhode Island Housing & Mortgage Finance Corporation, Homeownership
1988 Ser 1-D (AMT)................................................... 7.875 10/01/22 2,684,954
South Carolina Housing Finance & Development Authority,
3,000 Homeownership 1988 Ser C-1 (AMT)..................................... 8.125 07/01/21 3,156,720
1,220 Homeownership 1991 Ser A (AMT)....................................... 7.40 07/01/23 1,263,969
2,870 El Paso Housing Finance Corporation, Texas, Ser 1989 (AMT)............ 8.20 03/01/21 3,010,974
Utah Housing Finance Agency,
490 Ser 1991 B-1......................................................... 7.50 07/01/16 517,126
575 Ser 1989 B (AMT)..................................................... 8.25 07/01/21 589,800
- -------- ------------
47,570 36,321,354
- -------- ------------
Nursing & Health Related Facilities Revenue (1.3%)
New York State Medical Care Facilities Finance Agency,
1,625 Mental Health Ser 1987............................................... 8.875 08/15/07 1,735,939
1,555 Mental Health Ser 1990 (MBIA)........................................ 7.75 02/15/20 1,709,303
990 Mental Health Ser 1991 A............................................. 7.50 02/15/21 1,087,198
- -------- ------------
4,170 4,532,440
- -------- ------------
Public Facilities Revenue (2.1%)
4,000 Metropolitan Pier & Exposition Authority, Illinois, Ser 1992 A
(FGIC)............................................................... 0.00 06/15/07 3,924,640
Saint Paul Independent School District #625, Minnesota,
1,700 Ser 1995 C COPs...................................................... 5.45 02/01/11 1,668,244
1,800 Ser 1995 C COPs...................................................... 5.50 02/01/12 1,766,520
- -------- ------------
7,500 7,359,404
- -------- ------------
Resource Recovery Revenue (3.4%)
11,500 Cambria County Industrial Development Authority, Pennsylvania, Cambria
- -------- Cogen Co Ser 1989 F-2 (AMT).......................................... 7.75 09/01/19 12,053,495
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 8
MUNICIPAL PREMIUM INCOME TRUST
PORTFOLIO OF INVESTMENTS May 31, 1996, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Transportation Facilities Revenue (6.6%)
$ 3,500 Atlanta, Georgia, Airport Ser 1994 B (AMT) (AMBAC).................... 6.00 % 01/01/21 $ 3,438,015
7,000 Chicago, Illinois, Midway Airport 1994 Ser A (AMT) (MBIA)............. 6.25 01/01/24 7,014,490
5,000 Regional Transportation Authority, Illinois, Ser 1994 A (AMBAC)....... 6.25 06/01/24 5,059,250
8,000 Austin, Texas, Airport Prior Lien Ser 1995 A (AMT) (MBIA)............. 6.125 11/15/25 8,002,960
- -------- ------------
23,500 23,514,715
- -------- ------------
Water & Sewer Revenue (5.8%)
3,000 Central Coast Water Authority, California, Ser 1992 (AMBAC)........... 6.60 10/01/22 3,182,970
2,500 Coachella, California, Ser 1992 COPs (FSA)............................ 6.10 03/01/22 2,474,100
5,000 Santa Rosa, California, Wastewater Refg 1996 Ser A (FGIC)............. 4.75 09/01/16 4,251,700
3,500 Chicago, Illinois, Wastewater Ser 1994 (MBIA)......................... 6.375 01/01/24 3,582,250
3,600 Rio Rancho, New Mexico, Water & Wastewater Ser 1995 A (FSA)........... 6.00 05/15/22 3,590,460
3,500 Texas Water Resource Finance Authority, Ser 1989 (AMBAC).............. 7.50 08/15/13 3,722,810
- -------- ------------
21,100 20,804,290
- -------- ------------
Refunded (10.9%)
5,000 District of Columbia, Ser 1990 A (AMBAC).............................. 7.50 06/01/00++ 5,592,050
11,000 Western Townships Utilities Authority, Michigan, Sewerage Disposal Ser
1989 (Crossover)..................................................... 8.20 01/01/18 12,103,740
1,340 Missouri Health & Educational Facilities Authority, Missouri Baptist
Medical Center Refg Ser 1989 (ETM)................................... 7.625 07/01/18 1,619,417
4,650 New York Local Government Assistance Corporation, Ser 1991 A.......... 7.25 04/01/01++ 5,226,926
12,550 Washington Public Power Supply System, Nuclear Proj #2 Refg Ser 1990
C.................................................................... 7.625 01/01/01++ 14,233,332
- -------- ------------
34,540 38,775,465
- -------- ------------
349,495 TOTAL MUNICIPAL BONDS (Identified Cost $333,426,917)........................................... 345,757,964
- -------- ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 9
MUNICIPAL PREMIUM INCOME TRUST
PORTFOLIO OF INVESTMENTS May 31, 1996, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
SHORT-TERM MUNICIPAL OBLIGATION (0.7%)
$ 2,600 East Baton Rouge Parish, Louisiana, Exxon Corp Ser 1993 (Demand
- -------- 06/03/96) (Identified Cost $2,600,000)............................... 3.60*% 03/01/22 $ 2,600,000
------------
$352,095 TOTAL INVESTMENTS (Identified Cost $336,026,917) (a)................................... 98.0% 348,357,964
========
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES........................................... 2.0 7,229,467
------ ------------
NET ASSETS............................................................................. 100.0% $355,587,431
====== ============
</TABLE>
- ---------------------
<TABLE>
<C> <S>
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
ETM Escrowed to Maturity.
++ Prerefunded to call date shown.
* Current coupon of variable rate security.
(a) The aggregate cost for federal income tax purposes approximates identified cost. The aggregate gross
unrealized appreciation was $16,046,806 and the aggregate gross unrealized depreciation was $3,715,759,
resulting in net unrealized appreciation of $12,331,047.
Bond Insurance:
- ---------------
AMBAC AMBAC Indemnity Corporation.
Connie Lee Connie Lee Insurance Company.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
</TABLE>
- --------------------------------------------------------------------------------
GEOGRAPHIC SUMMARY OF INVESTMENTS
Based on Market Value as a Percent of Net Assets
May 31, 1996
<TABLE>
<S> <C>
Alabama.................. 3.6%
Arizona.................. 4.5
California............... 4.5
Colorado................. 0.1
District of Columbia..... 1.6
Florida.................. 1.0
Georgia.................. 2.3
Idaho.................... 0.2
Illinois................. 9.3
Indiana.................. 1.5
Kansas................... 4.8
Kentucky................. 1.0
Louisiana................ 1.6%
Maine.................... 1.3
Massachusetts............ 8.4
Michigan................. 4.9
Minnesota................ 1.8
Mississippi.............. 0.2
Missouri................. 0.5
New Jersey............... 1.3
New Mexico............... 1.0
New York................. 5.6
Ohio..................... 0.3
Oklahoma................. 0.1
Pennsylvania............. 8.1%
Rhode Island............. 0.8
South Carolina........... 3.5
Tennessee................ 1.3
Texas.................... 14.0
Utah..................... 2.6
Virginia................. 0.7
Washington............... 5.6
----
Total.................... 98.0%
====
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 10
MUNICIPAL PREMIUM INCOME TRUST
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
May 31, 1996
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $336,026,917)....................................... $348,357,964
Cash.................................................................. 66,546
Receivable for:
Interest.......................................................... 7,366,428
Investments sold.................................................. 100,000
Prepaid expenses and other assets..................................... 41,562
------------
TOTAL ASSETS...................................................... 355,932,500
------------
LIABILITIES:
Payable for:
Investment advisory fee........................................... 137,110
Administration fee................................................ 85,693
Accrued expenses and other payables................................... 122,266
------------
TOTAL LIABILITIES................................................. 345,069
------------
NET ASSETS:
Preferred shares of beneficial interest (1,000,000 shares authorized
of non-participating $.01 par value, 1,000 shares outstanding)....... 100,000,000
------------
Common shares of beneficial interest (unlimited shares authorized of
$.01 par value, 25,501,424 shares outstanding)....................... 237,061,779
Net unrealized appreciation........................................... 12,331,047
Accumulated undistributed net investment income....................... 1,193,811
Accumulated undistributed net realized gain........................... 5,000,794
------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS...................... 255,587,431
------------
TOTAL NET ASSETS.................................................. $355,587,431
============
NET ASSET VALUE PER COMMON SHARE
($255,587,431 divided by 25,501,424 common shares outstanding)....... $10.02
======
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 11
MUNICIPAL PREMIUM INCOME TRUST
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
For the year ended May 31, 1996
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME....................................................... $ 23,439,549
------------
EXPENSES
Investment advisory fee............................................... 1,470,252
Administration fee.................................................... 918,907
Auction commission fees............................................... 250,177
Professional fees..................................................... 127,970
Transfer agent fees and expenses...................................... 112,168
Auction agent fees.................................................... 46,809
Shareholder reports and notices....................................... 39,004
Registration fees..................................................... 32,976
Trustees' fees and expenses........................................... 21,668
Custodian fees........................................................ 16,779
Servicing fees........................................................ 13,030
Other................................................................. 21,329
------------
TOTAL EXPENSES BEFORE EXPENSE OFFSET.............................. 3,071,069
LESS: EXPENSE OFFSET.............................................. (16,642)
------------
TOTAL EXPENSES AFTER EXPENSE OFFSET............................... 3,054,427
------------
NET INVESTMENT INCOME............................................. 20,385,122
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain..................................................... 6,527,149
Net change in unrealized appreciation................................. (12,300,038)
------------
NET LOSS.......................................................... (5,772,889)
------------
NET INCREASE.......................................................... $ 14,612,233
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 12
MUNICIPAL PREMIUM INCOME TRUST
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR FOR THE YEAR
ENDED ENDED
MAY 31, 1996 MAY 31, 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income.................................. $ 20,385,122 $ 21,712,893
Net realized gain...................................... 6,527,149 1,494,255
Net change in unrealized appreciation.................. (12,300,038) 4,565,857
------------ ------------
NET INCREASE....................................... 14,612,233 27,773,005
------------ ------------
DIVIDENDS TO PREFERRED SHAREHOLDERS FROM NET INVESTMENT
INCOME............................................... (3,811,460) (4,023,613)
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO COMMON SHAREHOLDERS
FROM:
Net investment income.................................. (16,766,322) (18,749,585)
Net realized gain...................................... (3,013,608) (2,498,582)
------------ ------------
TOTAL.............................................. (19,779,930) (21,248,167)
------------ ------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST:
Preferred.............................................. -- (25,000,000)
Common................................................. (3,658,013) (2,808,603)
------------ ------------
TOTAL.............................................. (3,658,013) (27,808,603)
------------ ------------
TOTAL DECREASE..................................... (12,637,170) (25,307,378)
NET ASSETS:
Beginning of period.................................... 368,224,601 393,531,979
------------ ------------
END OF PERIOD
(Including undistributed net investment income of
$1,193,811 and $1,386,471, respectively)........... $355,587,431 $368,224,601
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 13
MUNICIPAL PREMIUM INCOME TRUST
NOTES TO FINANCIAL STATEMENTS May 31, 1996
1. ORGANIZATION AND ACCOUNTING POLICIES
Municipal Premium Income Trust (the "Fund") is registered under the Investment
Company Act of 1940, as amended, as a diversified, closed-end management
investment company. The Fund's investment objective is to provide a high level
of current income exempt from federal income tax. The Fund was organized as a
Massachusetts business trust on November 16, 1988 and commenced operations on
February 1, 1989.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates. The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- Portfolio securities are valued by an outside
independent pricing service approved by the Trustees. The pricing service has
informed the Fund that in valuing the portfolio securities, it uses both a
computerized matrix of tax-exempt securities and evaluations by its staff, in
each case based on information concerning market transactions and quotations
from dealers which reflect the bid side of the market each day. The portfolio
securities are thus valued by reference to a combination of transactions and
quotations for the same or other securities believed to be comparable in
quality, coupon, maturity, type of issue, call provisions, trading
characteristics and other features deemed to be relevant. Short-term debt
securities having a maturity date of more than sixty days at time of purchase
are valued on a mark-to-market basis until sixty days prior to maturity and
thereafter at amortized cost based on their value on the 61st day. Short-term
debt securities having a maturity date of sixty days or less at the time of
purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Discounts are accreted and premiums are amortized over the life of the
respective securities. Interest income is accrued daily.
C. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable and nontaxable income to its
shareholders. Accordingly, no federal income tax provision is required.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends and
distributions to its shareholders on the ex-dividend date. The amount of
dividends and distributions from net investment income and net realized capital
gains are determined in accordance with federal income tax regulations
<PAGE> 14
MUNICIPAL PREMIUM INCOME TRUST
NOTES TO FINANCIAL STATEMENTS May 31, 1996, continued
which may differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their federal tax-basis treatment;
temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized capital gains. To the extent they exceed net investment income and net
realized capital gains for tax purposes, they are reported as distributions of
paid-in-capital.
2. INVESTMENT ADVISORY AGREEMENT
Pursuant to an Investment Advisory Agreement with Dean Witter InterCapital Inc.
(the "Investment Adviser"), an affiliate of Dean Witter Services Company Inc.
(the "Administrator"), the Fund pays an advisory fee, calculated weekly and
payable monthly, by applying the annual rate of 0.40% to the Fund's average
weekly net assets.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Adviser pays the salaries of all personnel,
including officers of the Fund, who are employees of the Investment Adviser.
3. ADMINISTRATION AGREEMENT
Pursuant to an Administration Agreement with the Administrator, the Fund pays an
administration fee, calculated weekly and payable monthly, by applying the
annual rate of 0.25% to the Fund's average weekly net assets.
Under the terms of the Administration Agreement, the Administrator maintains
certain of the Fund's books and records and furnishes, at its own expense,
office space, facilities, equipment, clerical, bookkeeping and certain legal
services and pays the salaries of all personnel, including officers of the Fund
who are employees of the Administrator. The Administrator also bears the cost of
telephone services, heat, light, power and other utilities provided to the Fund.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the year ended May 31, 1996 aggregated $50,859,730
and $57,308,169, respectively.
<PAGE> 15
MUNICIPAL PREMIUM INCOME TRUST
NOTES TO FINANCIAL STATEMENTS May 31, 1996, continued
Dean Witter Trust Company, an affiliate of the Investment Adviser and
Administrator, is the Fund's transfer agent. At May 31, 1996, the Fund had
transfer agent fees and expenses payable of approximately $12,000.
The Fund has an unfunded noncontributory defined benefit pension plan covering
all independent Trustees of the Fund who will have served as independent
Trustees for at least five years at the time of retirement. Benefits under this
plan are based on years of service and compensation during the last five years
of service. Aggregate pension costs for the year ended May 31, 1996 included in
Trustees' fees and expenses in the Statement of Operations amounted to $1,808.
At May 31, 1996, the Fund had an accrued pension liability of $49,612 which is
included in accrued expenses in the Statement of Assets and Liabilities.
5. PREFERRED SHARES OF BENEFICIAL INTEREST
The Fund is authorized to issue up to 1,000,000 non-participating preferred
shares of beneficial interest having a par value of $.01 per share, in one or
more series, with rights as determined by the Trustees, without the approval of
the common shareholders. On March 21, 1990, the Fund issued 1,250 shares of
Auction Rate Preferred Shares ("Preferred Shares") consisting of 250 shares each
of Series A through E for gross total proceeds of $125,000,000 of which 50
shares of each Series have subsequently been retired. The preferred shares have
a liquidation value of $100,000 per share plus the redemption premium, if any,
plus accumulated but unpaid dividends, whether or not declared, thereon to the
date of distribution. The Fund may redeem such shares, in whole or in part, at
the original purchase price of $100,000 per share plus accumulated but unpaid
dividends, whether or not declared, thereon to the date of redemption.
Dividends, which are cumulative, are reset through auction procedures.
<TABLE>
<CAPTION>
NEXT RANGE OF
SHARES* SERIES RATE* RESET DATE DIVIDEND RATES**
- ------- ------ ----- ---------- ----------------
<S> <C> <C> <C> <C>
200 A 3.49% 06/04/96 3.30%- 5.00%
200 B 3.55 06/04/96 3.36- 5.00
200 C 3.54 06/04/96 3.20- 5.00
200 D 3.60 06/04/96 3.35- 4.26
200 E 3.60 06/04/96 3.35- 5.00
</TABLE>
- ---------------------
* As of May 31, 1996.
** For the year ended May 31, 1996.
Subsequent to May 31, 1996 and up through July 10, 1996, the Fund paid dividends
to each of the Series A through E at rates ranging from 3.201% to 3.755% in the
aggregate amount of $404,340.
<PAGE> 16
MUNICIPAL PREMIUM INCOME TRUST
NOTES TO FINANCIAL STATEMENTS May 31, 1996, continued
The Fund is subject to certain restrictions relating to the preferred shares.
Failure to comply with these restrictions could preclude the Fund from declaring
any distributions to common shareholders or purchasing common shares and/or
could trigger the mandatory redemption of preferred shares at liquidation value.
The preferred shares, which are entitled to one vote per share, generally vote
with the common shares but vote separately as a class to elect two Trustees and
on any matters affecting the rights of the preferred shares.
6. COMMON SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
CAPITAL PAID
IN EXCESS OF
SHARES PAR VALUE PAR VALUE
---------- --------- ------------
<S> <C> <C> <C>
Balance, May 31, 1994........................................................... 26,211,624 $262,116 $243,266,279
Treasury shares purchased and retired (weighted average discount 8.49%)*........ (317,300) (3,173) (2,805,430)
---------- -------- ------------
Balance, May 31, 1995........................................................... 25,894,324 258,943 240,460,849
Treasury shares purchased and retired (weighted average discount 9.79%)*........ (392,900) (3,929) (3,654,084)
---------- -------- ------------
Balance, May 31, 1996........................................................... 25,501,424 $255,014 $236,806,765
========== ======== ============
</TABLE>
- ---------------------
* The Trustees have voted to retire the shares purchased.
7. DIVIDENDS TO COMMON SHAREHOLDERS
The Fund declared the following dividends from net investment income:
<TABLE>
<CAPTION>
DECLARATION AMOUNT RECORD PAYABLE
DATE PER SHARE DATE DATE
- ------------- --------- ------------ -------------
<S> <C> <C> <C>
May 28, 1996 $0.05 June 7, 1996 June 21, 1996
June 25, 1996 $0.05 July 5, 1996 July 19, 1996
</TABLE>
<PAGE> 17
MUNICIPAL PREMIUM INCOME TRUST
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a common share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31*
--------------------------------------------------------------
1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................... $ 10.36 $ 10.24 $ 10.67 $ 10.02 $ 9.61
-------- -------- -------- -------- --------
Net investment income.......................................... 0.79 0.84 0.90 0.91 0.95
Net realized and unrealized gain (loss)........................ (0.21) 0.26 (0.45) 0.64 0.42
-------- -------- -------- -------- --------
Total from investment operations............................... 0.58 1.10 0.45 1.55 1.37
-------- -------- -------- -------- --------
Less dividends and distributions from:
Net investment income....................................... (0.65) (0.72) (0.76) (0.77) (0.72)
Common share equivalent of dividends paid to preferred
shareholders............................................... (0.15) (0.16) (0.12) (0.12) (0.19)
Net realized gain........................................... (0.12) (0.10) -- (0.01) (0.05)
-------- -------- -------- -------- --------
Total dividends and distributions.............................. (0.92) (0.98) (0.88) (0.90) (0.96)
-------- -------- -------- -------- --------
Net asset value, end of period................................. $ 10.02 $ 10.36 $ 10.24 $ 10.67 $ 10.02
======== ======== ======== ======== ========
Market value, end of period.................................... $ 9.00 $ 9.6875 $ 9.75 $ 10.75 $ 10.375
======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN+....................................... 0.67% 8.15% (2.72)% 11.30% 16.44%
RATIOS TO AVERAGE NET ASSETS OF COMMON SHAREHOLDERS:
Total expenses before expense offset........................... 1.16%(1) 1.21% 1.23% 1.38% 1.44%
Net investment income before preferred stock dividends......... 7.68% 8.37% 8.31% 8.73% 9.67%
Preferred stock dividends...................................... 1.44% 1.55% 1.11% 1.21% 1.90%
Net investment income available to common shareholders......... 6.24% 6.82% 7.20% 7.52% 7.77%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands........................ $355,587 $368,225 $393,532 $404,979 $388,022
Asset coverage on preferred shares at end of period............ 355% 368% 314% 324% 310%
Portfolio turnover rate........................................ 14% 16% 23% 7% 16%
</TABLE>
- ---------------------
+ Total investment return is based upon the current market value on the last
day of each period reported. Dividends and distributions are assumed to be
reinvested at the prices obtained under the Fund's dividend reinvestment
plan. Total investment return does not reflect brokerage commissions.
* The per share amounts were computed using an average number of shares
outstanding during the period.
(1) The above expense ratio was 1.15% after expense offset, which reflects
0.01% effect for custody cash credits.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 18
MUNICIPAL PREMIUM INCOME TRUST
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF MUNICIPAL PREMIUM INCOME TRUST
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Municipal Premium Income Trust (the
"Fund") at May 31, 1996, the results of its operations for the year then ended,
the changes in its net assets for each of the two years in the period then ended
and the financial highlights for each of the five years in the period then
ended, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at May 31,
1996 by correspondence with the custodian, provide a reasonable basis for the
opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
July 10, 1996
--------------------------------------------------------------------
1996 FEDERAL TAX NOTICE (unaudited)
During the year ended May 31, 1996, the Fund paid $0.65 per
share to common shareholders from net investment income. All
of the Fund's dividends from net investment income to common
shareholders were exempt interest dividends, excludable from
gross income for Federal income tax purposes. For the year
ended May 31, 1996, the Fund paid to common shareholders $0.12
per share from long-term capital gains.
<PAGE> 19
(This page has been left blank intentionally.)
<PAGE> 20
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Sheldon Curtis
Vice President, Secretary and General Counsel
James F. Willison
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
Dean Witter Trust Company
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT ADVISER
Dean Witter InterCapital Inc.
Two World Trade Center
New York, New York 10048
MUNICIPAL
PREMIUM
INCOME
TRUST
ANNUAL REPORT
MAY 31, 1996
