<PAGE> 1
MUNICIPAL PREMIUM INCOME TRUST Two World Trade Center, New York,
LETTER TO THE SHAREHOLDERS May 31, 1997 New York 10048
DEAR SHAREHOLDER:
We are pleased to present the annual report on the operations of Municipal
Premium Income Trust (PIA) for the fiscal year ended May 31, 1997.
Economic growth moderated during the third quarter of 1996, causing fixed-income
yields to move lower through November. However, an acceleration of economic
activity led by consumer spending developed in the fourth quarter of 1996 and
continued into the first quarter of 1997. This contributed to rising interest
rates between December and April. On March 25, 1997, the Federal Reserve Board
raised the federal-funds rate 25 basis points to 5.50 percent in a preemptive
move against a possible acceleration in the rate of inflation. The fixed-income
markets recognized that additional rate hikes were possible, but rallied when
the Fed left short-term interest rates unchanged at its May meeting.
MUNICIPAL MARKET CONDITIONS
Municipal yields followed the trend of Treasury yields, but were less volatile.
Long-term insured revenue bond yields fell from 6.00 percent in
BOND YIELDS 1994-1997
<TABLE>
<CAPTION>
Muni Yields Treasury Yields
<S> <C>
5.45 6.35
Jan '94 5.29 6.24
5.64 6.66
6.19 7.09
6.24 7.31
6.23 7.43
6.31 7.61
6.15 7.4
6.17 7.45
6.42 7.82
6.66 7.97
6.99 8
6.65 7.88
Jan '95 6.42 7.7
6.12 7.44
6.07 7.43
6.05 7.34
5.84 6.65
6 6.62
5.99 6.85
5.98 6.65
5.97 6.5
5.79 6.33
5.61 6.13
5.49 5.95
Jan '96 5.42 6.03
5.55 6.47
5.89 6.67
5.94 6.91
5.99 6.99
5.86 6.87
5.77 6.97
5.82 7.12
5.71 6.92
5.6 6.64
5.45 6.35
5.56 6.64
Jan '97 5.63 6.79
5.53 6.8
5.83 7.1
5.74 6.96
5.58 6.91
</TABLE>
<TABLE>
<CAPTION>
Ratio
<S> <C>
Dec '93 0.8586
0.8481
0.8468
0.8728
0.854
0.8387
Jun '94 0.8293
0.8314
0.828
0.8212
0.8356
0.8738
Dec '94 0.8438
0.834
0.8222
0.8167
0.8245
0.8784
Jun '95 0.9066
0.875
0.8997
0.9184
0.915
0.9151
Dec '95 0.923
0.8989
0.8577
0.8835
0.8601
0.8571
Jun '96 0.8529
0.8278
0.8176
0.8248
0.8431
0.8583
Dec '96 0.8372
0.8293
0.8129
0.8216
0.8251
0.8081
</TABLE>
<PAGE> 2
MUNICIPAL PREMIUM INCOME TRUST
LETTER TO THE SHAREHOLDERS May 31, 1997, continued
FIVE LARGEST SECTORS AS OF MAY 31, 1997
(% OF NET ASSETS)
<TABLE>
<S> <C>
REFUNDED 16%
ID/PCR* 14%
MORTGAGE 14%
HOSPITAL 14%
ELECTRIC 12%
ALL OTHERS 30%
</TABLE>
* Industrial Development/Pollution Control Revenue
Portfolio structure is subject to change.
CREDIT RATINGS AS OF MAY 31, 1997
(% OF TOTAL LONG-TERM PORTFOLIO)
<TABLE>
<S> <C>
Aaa OR AAA 57%
Aa OR AA 22%
A OR A 5%
Baa OR BBB 13%
NR 3%
</TABLE>
As measured by Moody's Investors Service, Inc. or Standard & Poor's Corp.
Portfolio structure is subject to change.
CALL STRUCTURE AS OF MAY 31, 1997 WEIGHTED AVERAGE
(% OF TOTAL LONG-TERM PORTFOLIO) CALL PROTECTION: 5.4 YEARS
<TABLE>
<CAPTION>
YEARS BONDS CALABLE PERCENT CALLABLE
<S> <C>
1997 1.2%
1998 8.2%
1999 10.2%
2000 13.1%
2001 14.4%
2002 8.9%
2003 1.2%
2004 10.6%
2005 13.7%
2006 11.6%
2007+ 6.9%
</TABLE>
<PAGE> 3
MUNICIPAL PREMIUM INCOME TRUST
LETTER TO THE SHAREHOLDERS May 31, 1997, continued
May 1996 to as low as 5.45 percent in November 1996, before rising to 5.85
percent in April 1997. The Index ended May 1997 at 5.60 percent. Similarly,
yields on one-year municipal notes moved from 3.70 to 3.90 percent over the past
twelve months. The yield curve pick-up by extending maturity from 1 to 30 years
was 170 basis points.
The ratio of 30-year insured revenue bond yields to 30-year U.S. Treasury yields
declined from 86 percent at the end of May 1996 to 81 percent in May 1997. A
declining ratio means that municipals have outperformed Treasuries, but have
become relatively more expensive. The annual range of the ratio has averaged
from 80 to 92 percent over the past three years. New-issue municipal volume was
down 5 percent during the first five months of 1997. However, underwriting
volume for the full year is expected to exceed bond maturities and redemptions.
PERFORMANCE
The Fund's net asset value (NAV) moved from $10.02 to $10.08 per share during
the fiscal year ended May 31, 1997. Based on this NAV change plus reinvestment
of tax-free dividends totaling $0.60 per share and taxable capital gains
distributions of $0.20 per share, the Fund's total NAV return was 9.64 percent.
PIA's market price on the New York Stock Exchange increased from $9.00 to $9.375
per share. Based on this change in market price plus reinvestment of tax-free
dividends and taxable distributions, the Fund's total market return was 13.52
percent. On May 31, 1997, PIA was trading at a 7 percent discount to NAV.
Undistributed net investment income available for dividends increased from
$0.047 to $0.086 per share. Net assets totaled almost $350 million.
PORTFOLIO STRUCTURE
The Fund remained fully invested in long-term municipal bonds during the period.
Investments were diversified among 13 long-term sectors and 71 individual
credits. The portfolio's average maturity was 19 years. The distribution of call
dates in the portfolio produced an average call protection of 5 years. Credit
quality has consistently been maintained, with nearly 80 percent of PIA's
long-term holdings rated double "A" or better.
THE IMPACT OF LEVERAGING
As we have discussed previously, 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 amount of ARPS outstanding, and second, the spread between the
portfolio's cost yield and ARPS expenses
<PAGE> 4
MUNICIPAL PREMIUM INCOME TRUST
LETTER TO THE SHAREHOLDERS May 31, 1997, continued
(ARPS auction rate and operating expenses). The greater the spread and the
amount of ARPS outstanding, the greater the amount of incremental income
available for distribution to common shareholders. The level of net investment
income available for distribution to common shareholders varies with the level
of short-term interest rates.
ARPS yields ranged between 3.00 and 4.55 percent during the twelve months ended
May 31, 1997. Over the same period, ARPS leverage contributed $0.11 per share to
common share earnings. Five ARPS series totaled $100 million and represented 29
percent of net assets.
LOOKING AHEAD
Since the election year collapse of flat-tax proposals, municipal bonds have
improved relative to U.S. Treasury securities. Although tax-free yields are
currently somewhat expensive when compared with their historical relationship
with Treasury yields, the long-term benefits of tax-exempt income remain intact.
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 common 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 twelve-month period ended
May 31, 1997, the Fund purchased and retired 779,500 shares of beneficial
interest at a weighted average market discount of 8.30 percent. Acquiring these
treasury shares had the antidilutive effect of adding $0.03 per share to net
asset value. The Fund may also utilize procedures to reduce or eliminate the
amount of outstanding ARPS, including their purchases in the open market or in
privately negotiated transactions.
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
RESULTS OF ANNUAL AND SPECIAL MEETINGS (unaudited)
* * *
On December 27, 1996, an annual meeting of the Fund's shareholders was held for
the purpose of voting on three separate matters, the results of which were as
follows:
(1) ELECTION OF TRUSTEE BY ALL SHAREHOLDERS:
<TABLE>
<S> <C>
Michael Bozic
For................................................................ 18,657,113
Withheld........................................................... 412,815
</TABLE>
ELECTION OF TRUSTEE BY PREFERRED SHAREHOLDERS:
<TABLE>
<S> <C>
Charles A. Fiumefreddo
For................................................................ 786
Withheld........................................................... 0
</TABLE>
The following Trustees were not standing for reelection at this meeting:
Edwin J. Garn, John R. Haire, Dr. Manuel H. Johnson, Michael E. Nugent, Philip
J. Purcell and John L. Schroeder.
(2) CONTINUANCE OF THE CURRENTLY EFFECTIVE INVESTMENT ADVISORY AGREEMENT WITH
DEAN WITTER INTERCAPITAL INC.:
<TABLE>
<S> <C>
For................................................................ 17,972,309
Against............................................................ 274,389
Abstain............................................................ 823,230
</TABLE>
(3) RATIFICATION OF PRICE WATERHOUSE LLP AS INDEPENDENT ACCOUNTANTS:
<TABLE>
<S> <C>
For................................................................ 18,428,158
Against............................................................ 120,337
Abstain............................................................ 521,433
</TABLE>
On May 20, 1997, a special meeting of the Fund's shareholders was held for the
purpose of voting on two separate matters, the results of which were as follows:
(1) ELECTION OF TRUSTEE:
<TABLE>
<S> <C>
Wayne E. Hedien
For................................................................ 20,102,510
Withheld........................................................... 493,131
</TABLE>
(2) APPROVAL OF A NEW INVESTMENT ADVISORY AGREEMENT BETWEEN THE FUND AND DEAN
WITTER INTERCAPITAL INC. IN CONNECTION WITH THE MERGER OF MORGAN STANLEY
GROUP INC. WITH DEAN WITTER DISCOVER & CO.:
<TABLE>
<S> <C>
For................................................................ 19,291,994
Against............................................................ 330,113
Abstain............................................................ 973,534
</TABLE>
<PAGE> 6
MUNICIPAL PREMIUM INCOME TRUST
PORTFOLIO OF INVESTMENTS May 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS (97.3%)
General Obligation (5.6%)
$ 5,000 Chicago Park District, Illinois, Ser 1995............................... 6.60% 11/15/14 $ 5,449,300
3,500 Massachusetts, 1995 Ser A (AMBAC)....................................... 5.00 07/01/12 3,370,605
4,500 Shelby County, Tennessee, Refg 1995 Ser A............................... 5.625 04/01/11 4,595,400
6,000 Washington, Ser 1993 A.................................................. 5.75 10/01/17 6,031,500
- -------- ------------
19,000 19,446,805
- -------- ------------
Educational Facilities Revenue (3.5%)
5,500 Oakland University, Michigan, Ser 1995 (MBIA)........................... 5.75 05/15/26 5,508,085
New York State Dormitory Authority,
4,000 State University Refg Ser 1993 A....................................... 5.50 05/15/08 4,016,240
1,350 State University Ser 1990 B............................................ 7.50 05/15/11 1,573,168
1,000 Pennsylvania Higher Educational Facilities Authority, Temple University
First Ser (MBIA)....................................................... 6.50 04/01/21 1,071,500
- -------- ------------
11,850 12,168,993
- -------- ------------
Electric Revenue (12.3%)
5,000 Sacramento Municipal Utility District, California, Refg 1994 Ser I
(MBIA)................................................................. 6.00 01/01/24 5,127,700
4,000 Kansas City, Kansas, Utility Refg & Impr Ser 1994 (FGIC)................ 6.375 09/01/23 4,280,680
7,750 South Carolina Public Service Authority, 1995 Refg Ser A (AMBAC)........ 6.25 01/01/22 8,128,820
20,000 San Antonio, Texas, Electric & Gas Refg Ser 1994 C...................... 4.70 02/01/06 19,053,800
Intermountain Power Agency, Utah,
1,270 Refg Ser 1988 B........................................................ 7.50 07/01/21 1,334,630
5,000 Refg Ser 1997 B (MBIA)................................................. 5.75 07/01/19 4,987,300
- -------- ------------
43,020 42,912,930
- -------- ------------
Hospital Revenue (13.6%)
5,000 Alabama Special Care Facilities Financing Authority of Birmingham,
Daughters of Charity National Health/St Vincent's & Providence
Hospitals Ser 1995..................................................... 5.00 11/01/25 4,484,250
5,000 Birmingham-Carraway Special Care Facilities Financing Authority,
Alabama, Carraway Methodist Health Systems Ser 1995 A (Connie Lee)..... 5.875 08/15/15 5,082,000
3,500 Colbert County - Northwest Health Care Authority, Alabama, Helen Keller
Hospital Refg Ser 1990................................................. 8.75 06/01/09 3,850,455
1,000 California Health Facilities Financing Authority, Alexian Brothers/San
Jose Refg Ser 1990 (MBIA).............................................. 7.125 01/01/16 1,068,240
3,000 Hall County and Gainesville Hospital Authority, Georgia, Northeast
Georgia Healthcare Ser 1995 (MBIA)..................................... 6.00 10/01/20 3,064,590
3,750 Evergreen Park, Illinois, Little Company of Mary Hospital Refg Ser 1988
(MBIA)................................................................. 7.25 02/15/11 3,896,925
1,800 Southwestern Illinois Development Authority, Anderson Hospital Ser 1992
A...................................................................... 7.00 08/15/22 1,878,012
3,420 Kentucky Development Finance Authority, Ashland Hospital/King's
Daughters Refg Ser 1987................................................ 9.75 08/01/05 3,587,067
9,500 Boston, Massachusetts, Boston City Hospital - FHA Mtg Refg Ser B........ 5.75 02/15/13 9,460,195
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 7
MUNICIPAL PREMIUM INCOME TRUST
PORTFOLIO OF INVESTMENTS May 31, 1997, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 2,985 Lehigh County General Purpose Authority, Pennsylvania, St Lukes Hospital
Ser 1992 (AMBAC)....................................................... 6.25% 07/01/22 $ 3,111,206
2,375 Montgomery County Higher Educational & Health Authority, Pennsylvania,
Holy Redeemer Hospital 1990 Ser A (AMBAC).............................. 7.625 02/01/20 2,528,140
2,750 Jefferson County Health Facilities Development Corporation, Texas,
Baptist Health Care Ser 1989........................................... 8.30 10/01/14 2,838,192
2,400 Peninsula Ports Authority, Virginia, Mary Immaculate Hospital Ser
1989................................................................... 8.375 08/01/04 2,584,752
- -------- ------------
46,480 47,434,024
- -------- ------------
Industrial Development/Pollution Control Revenue (14.2%)
12,045 Pima County Industrial Development Authority, Arizona, Tucson Electric
Power Co Refg Ser 1988 A (FSA Surety).................................. 7.25 07/15/10 13,316,711
10,000 Burlington, Kansas, Kansas Gas & Electric Co Ser 1991 (MBIA)............ 7.00 06/01/31 10,847,400
1,000 Ohio Water Development Authority, Toledo Edison Co Ser 1990 A (Secondary
FSA)................................................................... 7.75 05/15/19 1,093,450
9,500 Montgomery County Industrial Development Authority, Pennsylvania,
Philadelphia Electric Co Refg 1991 Ser B (MBIA)........................ 6.70 12/01/21 10,288,120
13,000 Alliance Airport Authority, Texas, AMR Corp Ser 1990 (AMT).............. 7.50 12/01/29 13,921,440
- -------- ------------
45,545 49,467,121
- -------- ------------
Mortgage Revenue - Multi-Family (3.0%)
1,250 Lake Charles Non-Profit Housing Development Corporation, Louisiana, Ser
1990 A (FSA)........................................................... 7.875 02/15/25 1,274,375
Massachusetts Housing Finance Agency,
2,000 Rental 1994 Ser A (AMT) (AMBAC)........................................ 6.60 07/01/14 2,073,060
4,000 Rental 1994 Ser A (AMT) (AMBAC)........................................ 6.65 07/01/19 4,145,800
2,880 Minnesota Housing Finance Agency, Rental 1995 Ser D (MBIA).............. 6.00 02/01/22 2,909,174
- -------- ------------
10,130 10,402,409
- -------- ------------
Mortgage Revenue - Single Family (10.9%)
Colorado Housing & Finance Authority,
405 Ser 1990 B-2........................................................... 8.00 02/01/18 424,080
2,500 Ser 1997 A-2 (AMT)..................................................... 7.25 05/01/27 2,739,025
9,710 Pinellas County Housing Finance Authority, Florida, Ser 1983............ 0.00 01/01/15 1,628,464
510 Idaho Housing Agency, 1988 Ser D-2 (AMT)................................ 8.25 01/01/20 537,841
2,050 Illinois Housing Development Authority, 1988 Ser C (AMT)................ 8.10 02/01/22 2,117,076
130 Indiana Housing Finance Authority, GNMA Collateralized Ser 1990 A-2
(AMT).................................................................. 8.10 01/01/22 133,427
1,110 Kansas City Leavenworth & Lenexa, Kansas, GNMA-Backed Ser 1988 C
(AMT).................................................................. 8.00 11/01/20 1,144,477
Olathe, Kansas,
180 GNMA Collateralized Ser 1990 B......................................... 7.50 09/01/10 190,591
550 GNMA Collateralized Ser 1989 A (AMT) (MBIA)............................ 8.00 11/01/20 575,586
1,550 New Orleans Home Mortgage Authority, Louisiana, 1989 Ser B-1 (AMT)...... 8.25 12/01/21 1,616,991
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 8
MUNICIPAL PREMIUM INCOME TRUST
PORTFOLIO OF INVESTMENTS May 31, 1997, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Maine Housing Authority,
$ 3,540 Purchase Ser 1988 D4 (AMT)............................................. 7.55% 11/15/19 $ 3,721,071
1,000 Purchase Ser 1988 D5 (AMT)............................................. 7.55 11/15/19 1,050,140
Massachusetts Housing Finance Agency,
1,660 Residential Ser 1989 A (AMT)........................................... 8.20 08/01/15 1,743,880
4,960 1989 Ser 7 (AMT)....................................................... 8.10 06/01/20 5,120,704
715 Mississippi Housing Finance Corporation, GNMA-Backed Ser 1989 (AMT)
(FGIC)................................................................. 8.25 10/15/18 750,414
3,000 Missouri Housing Development Commission, Homeownership 1996 Ser D
(AMT).................................................................. 7.10 09/01/27 3,230,880
350 Muskogee County Home Finance Authority, Oklahoma, 1990 Ser A (FGIC)..... 7.60 12/01/10 367,689
2,560 Rhode Island Housing & Mortgage Finance Corporation,
Homeownership 1988 Ser 1-D (AMT)....................................... 7.875 10/01/22 2,690,074
South Carolina Housing Finance & Development Authority,
3,000 Homeownership 1988 Ser C-1 (AMT)....................................... 8.125 07/01/21 3,135,030
1,220 Homeownership 1991 Ser A (AMT)......................................... 7.40 07/01/23 1,273,131
2,870 El Paso Housing Finance Corporation, Texas, GNMA Collateralized Ser 1989
(AMT).................................................................. 8.20 03/01/21 3,005,005
Utah Housing Finance Agency,
350 Ser 1991 B-1........................................................... 7.50 07/01/16 366,915
340 Ser 1989 B (AMT)....................................................... 8.25 07/01/21 348,582
- -------- ------------
44,260 37,911,073
- -------- ------------
Nursing & Health Related Facilities Revenue (0.7%)
New York State Medical Care Facilities Finance Agency,
825 Mental Health Ser 1987................................................. 8.875 08/15/07 849,552
1,030 Mental Health Ser 1990 A (Secondary MBIA).............................. 7.75 02/15/20 1,118,549
405 Mental Health Ser 1991 A............................................... 7.50 02/15/21 446,747
- -------- ------------
2,260 2,414,848
- -------- ------------
Public Facilities (1.0%)
Saint Paul Independent School District #625, Minnesota,
1,700 Ser 1995 C COPs........................................................ 5.45 02/01/11 1,711,509
1,800 Ser 1995 C COPs........................................................ 5.50 02/01/12 1,812,150
- -------- ------------
3,500 3,523,659
- -------- ------------
Resource Recovery Revenue (3.3%)
11,500 Cambria County Industrial Development Authority, Pennsylvania, Cambria
- -------- Cogen Co Ser 1989 F-2 (AMT)............................................ 7.75 09/01/19 11,797,390
------------
Transportation Facilities Revenue (8.3%)
3,500 Atlanta, Georgia, Airport Ser 1994 B (AMT) (AMBAC)...................... 6.00 01/01/21 3,541,895
Chicago, Illinois,
5,000 Chicago-O'Hare International Airport Ser 1996 A (AMBAC)................ 5.625 01/01/12 5,029,450
7,000 Midway Airport 1994 Ser A (AMT) (MBIA)................................. 6.25 01/01/24 7,200,690
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 9
MUNICIPAL PREMIUM INCOME TRUST
PORTFOLIO OF INVESTMENTS May 31, 1997, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 5,000 Regional Transportation Authority, Illinois, Ser 1994 A (AMBAC)......... 6.25% 06/01/24 $ 5,209,450
8,000 Austin, Texas, Airport Prior Lien Ser 1995 A (AMT) (MBIA)............... 6.125 11/15/25 8,176,320
- -------- ------------
28,500 29,157,805
- -------- ------------
Water & Sewer Revenue (4.9%)
2,500 Coachella, California, Ser 1992 COPs (FSA).............................. 6.10 03/01/22 2,567,800
4,000 Santa Rosa, California, Wastewater Refg 1996 Ser A (FGIC)............... 4.75 09/01/16 3,558,920
3,500 Chicago, Illinois, Wastewater Ser 1994 (MBIA)........................... 6.375 01/01/24 3,685,640
3,600 Rio Rancho, New Mexico, Water & Wastewater Ser 1995 A (FSA)............. 6.00 05/15/22 3,692,592
3,490 Texas Water Resource Finance Authority, Ser 1989 (AMBAC)................ 7.50 08/15/13 3,706,659
- -------- ------------
17,090 17,211,611
- -------- ------------
Refunded (16.0%)
3,000 Central Coast Water Authority, California, Ser 1992 (AMBAC)............. 6.60 10/01/02++ 3,339,960
5,000 District of Columbia, Ser 1990 A (AMBAC)................................ 7.50 06/01/00++ 5,499,950
3,800 Metropolitan Pier & Exposition Authority, Illinois, Ser 1992 A (FGIC)... 0.00 06/15/03++ 4,115,666
4,000 Indiana Health Facility Financing Authority, Hancock Memorial Hospital
Ser 1990............................................................... 8.30 08/15/00++ 4,502,160
3,965 Massachusetts, 1994 Ser C (FGIC)........................................ 6.75 11/01/04++ 4,473,194
11,000 Western Townships Utilities Authority, Michigan, Sewerage Disposal Ser
1989 (Crossover 01/01/99).............................................. 8.20 01/01/18 11,787,270
1,340 Missouri Health & Educational Facilities Authority, Missouri Baptist
Medical Center Refg Ser 1989 (ETM)..................................... 7.625 07/01/18 1,661,721
4,650 New York Local Government Assistance Corporation, Ser 1991 A............ 7.25 04/01/01++ 5,177,450
New York State Medical Care Facilities Finance Agency,
515 Mental Health Ser 1990 (MBIA).......................................... 7.75 02/15/00++ 567,561
580 Mental Health Ser 1991 A............................................... 7.50 02/15/01++ 648,388
12,550 Washington Public Power Supply System, Nuclear Proj #2 Refg Ser 1990 C.. 7.625 01/01/01++ 14,035,418
- -------- ------------
50,400 55,808,738
- -------- ------------
333,535 TOTAL MUNICIPAL BONDS (Identified Cost $322,233,399)........................................... 339,657,406
- -------- ------------
SHORT-TERM MUNICIPAL OBLIGATIONS (0.6%)
1,000 East Baton Rouge Parish, Louisiana, Exxon Corp Ser 1993................. 4.00* 03/01/22 1,000,000
800 New York State Medical Care Facilities Finance Agency, Mental Health Ser
1987................................................................... 8.875 08/15/97++ 824,224
400 Harris County Industrial Development Corporation, Texas, Exxon Corp Ser
1984................................................................... 4.00* 03/01/24 400,000
- -------- ------------
2,200 TOTAL SHORT-TERM MUNICIPAL OBLIGATIONS (Identified Cost $2,224,224)............................ 2,224,224
- -------- ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 10
MUNICIPAL PREMIUM INCOME TRUST
PORTFOLIO OF INVESTMENTS May 31, 1997, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
$335,735 TOTAL INVESTMENTS (Identified Cost $324,457,623) (a).................................. 97.9%
======== $341,881,630
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES........................................ 2.1 7,412,689
----- ------------
NET ASSETS............................................................................ 100.0% $349,294,319
===== ============
</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 demand obligation.
(a) The aggregate cost for federal income tax purposes approximates identified cost. The aggregate gross
unrealized appreciation is $18,899,025 and the aggregate gross unrealized depreciation is $1,475,018,
resulting in net unrealized appreciation of $17,424,007.
<CAPTION>
Bond Insurance:
- --------------
<S> <C>
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, 1997
<TABLE>
<S> <C>
Alabama.................. 3.8%
Arizona.................. 3.8
California............... 4.5
Colorado................. 0.9
District of Columbia..... 1.6
Florida.................. 0.5
Georgia.................. 1.9
Idaho.................... 0.2
Illinois................. 11.1
Indiana.................. 1.3
Kansas................... 4.9
Kentucky................. 1.0%
Louisiana................ 1.1
Maine.................... 1.4
Massachusetts............ 8.7
Michigan................. 5.0
Minnesota................ 1.8
Mississippi.............. 0.2
Missouri................. 1.4
New Mexico............... 1.1
New York................. 4.4
Ohio..................... 0.3
Oklahoma................. 0.1%
Pennsylvania............. 8.2
Rhode Island............. 0.8
South Carolina........... 3.6
Tennessee................ 1.3
Texas.................... 14.6
Utah..................... 2.0
Virginia................. 0.7
Washington............... 5.7
----
Total.................... 97.9%
====
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 11
<TABLE>
<S> <C>
MUNICIPAL PREMIUM INCOME
TRUSTFINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
May 31, 1997
ASSETS:
Investments in securities, at value
(identified cost $324,457,623).......... $341,881,630
Cash..................................... 163,466
Receivable for:
Interest............................. 6,969,413
Investments sold..................... 650,450
Prepaid expenses and other assets........ 106,833
------------
TOTAL ASSETS......................... 349,771,792
------------
LIABILITIES:
Payable for:
Investment advisory fee.............. 137,507
Dividends to preferred
shareholders........................ 129,664
Administration fee................... 85,942
Accrued expenses and other payables...... 124,360
------------
TOTAL LIABILITIES.................... 477,473
------------
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, 24,721,924 shares outstanding)... 229,843,731
Net unrealized appreciation.............. 17,424,007
Accumulated undistributed net investment
income.................................. 2,119,833
Accumulated net realized loss............ (93,252)
------------
NET ASSETS APPLICABLE TO COMMON
SHAREHOLDERS......................... 249,294,319
------------
TOTAL NET ASSETS..................... $349,294,319
============
NET ASSET VALUE PER COMMON SHARE
($249,294,319 divided by 24,721,924
common shares outstanding).............. $10.08
======
STATEMENT OF OPERATIONS
For the year ended May 31, 1997
NET INVESTMENT INCOME:
INTEREST INCOME.......................... $ 22,458,918
------------
EXPENSES
Investment advisory fee.................. 1,417,354
Administration fee....................... 885,846
Auction commission fees.................. 231,267
Professional fees........................ 103,979
Transfer agent fees and expenses......... 95,800
Shareholder reports and notices.......... 40,452
Auction agent fees....................... 35,796
Registration fees........................ 32,045
Custodian fees........................... 17,883
Trustees' fees and expenses.............. 14,692
Other.................................... 32,992
------------
TOTAL EXPENSES....................... 2,908,106
LESS: EXPENSE OFFSET................. (17,709)
------------
NET EXPENSES......................... 2,890,397
------------
NET INVESTMENT INCOME................ 19,568,521
------------
NET REALIZED AND UNREALIZED GAIN
(LOSS):
Net realized loss........................ (93,251)
Net change in unrealized appreciation.... 5,092,960
------------
NET GAIN............................. 4,999,709
------------
NET INCREASE............................. $ 24,568,230
============
</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, 1997 MAY 31, 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income.................................. $ 19,568,521 $ 20,385,122
Net realized gain (loss)............................... (93,251) 6,527,149
Net change in unrealized appreciation.................. 5,092,960 (12,300,038)
------------ ------------
NET INCREASE....................................... 24,568,230 14,612,233
------------ ------------
Dividends to preferred shareholders from net investment
income................................................ (3,571,216) (3,811,460)
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO COMMON SHAREHOLDERS
FROM:
Net investment income.................................. (15,071,283) (16,766,322)
Net realized gain...................................... (5,000,795) (3,013,608)
------------ ------------
TOTAL.............................................. (20,072,078) (19,779,930)
------------ ------------
Decrease from transactions in common shares of
beneficial interest................................... (7,218,048) (3,658,013)
------------ ------------
NET DECREASE....................................... (6,293,112) (12,637,170)
NET ASSETS:
Beginning of period.................................... 355,587,431 368,224,601
------------ ------------
END OF PERIOD
(Including undistributed net investment income of
$2,119,833 and $1,193,811, respectively)........... $349,294,319 $355,587,431
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 13
MUNICIPAL PREMIUM INCOME TRUST
NOTES TO FINANCIAL STATEMENTS May 31, 1997
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
<PAGE> 14
MUNICIPAL PREMIUM INCOME TRUST
NOTES TO FINANCIAL STATEMENTS May 31, 1997, continued
income and net realized capital gains are determined in accordance with federal
income tax regulations 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 the Investment Adviser an advisory fee,
calculated weekly and payable monthly, by applying the annual rate of 0.40% to
the Fund's 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 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.
<PAGE> 15
MUNICIPAL PREMIUM INCOME TRUST
NOTES TO FINANCIAL STATEMENTS May 31, 1997, continued
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, 1997 aggregated $15,605,950
and $26,178,665, respectively.
Dean Witter Trust Company, an affiliate of the Investment Adviser and
Administrator, is the Fund's transfer agent. At May 31, 1997, the Fund had
transfer agent fees and expenses payable of approximately $7,700.
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, 1997 included in
Trustees' fees and expenses in the Statement of Operations amounted to $1,422.
At May 31, 1997, the Fund had an accrued pension liability of $47,933 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. The Fund has issued Series A through E Auction Rate
Preferred Shares ("Preferred Shares") which 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>
AMOUNT NEXT RANGE OF
SERIES SHARES* IN THOUSANDS* RATE* RESET DATE DIVIDEND RATES**
- ------- -------- ------------- ----- ---------- ----------------
<S> <C> <C> <C> <C> <C>
A 200 $14,768 3.85% 06/04/97 3.00% - 4.20%
B 200 14,768 3.85 06/04/97 3.15 - 4.15
C 200 14,728 3.84 06/04/97 3.00 - 4.55
D 200 61,258 3.55 07/02/97 3.50 - 3.75
E 200 67,506 3.85 07/09/97 3.25 - 3.85
</TABLE>
- ---------------------
* As of May 31, 1997.
** For the year ended May 31, 1997.
<PAGE> 16
MUNICIPAL PREMIUM INCOME TRUST
NOTES TO FINANCIAL STATEMENTS May 31, 1997, continued
Subsequent to May 31, 1997 and up through July 10, 1997, the Fund paid dividends
to each of the Series A through E at rates ranging from 3.55% to 3.85% in the
aggregate amount of $397,174.
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
PAR VALUE EXCESS OF
SHARES OF SHARES PAR VALUE
---------- --------- ------------
<S> <C> <C> <C>
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
Treasury shares purchased and retired (weighted average discount 8.30%)*........ (779,500) (7,795) (7,210,253)
---------- -------- ------------
Balance, May 31, 1997........................................................... 24,721,924 $247,219 $229,596,512
========== ======== ============
</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 27, 1997 $0.05 June 6, 1997 June 20, 1997
July 1, 1997 $0.05 July 11, 1997 July 25, 1997
</TABLE>
8. FEDERAL INCOME TAX STATUS
At May 31, 1997, the Fund had a net capital loss carryover of approximately
$93,000 which will be available through May 31, 2005 to offset future capital
gains to the extent provided by regulations.
<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*
-------------------------------------------------------------
1997 1996++ 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............................ $ 10.02 $ 10.36 $ 10.24 $ 10.67 $ 10.02
-------- -------- -------- -------- --------
Net investment income........................................... 0.78 0.79 0.84 0.90 0.91
Net realized and unrealized gain (loss)......................... 0.19 (0.22) 0.26 (0.45) 0.64
-------- -------- -------- -------- --------
Total from investment operations................................ 0.97 0.57 1.10 0.45 1.55
-------- -------- -------- -------- --------
Less dividends and distributions from:
Net investment income........................................ (0.60) (0.65) (0.72) (0.76) (0.77)
Common share equivalent of dividends paid to preferred
shareholders................................................ (0.14) (0.15) (0.16) (0.12) (0.12)
Net realized gain............................................ (0.20) (0.12) (0.10) -- (0.01)
-------- -------- -------- -------- --------
Total dividends and distributions............................... (0.94) (0.92) (0.98) (0.88) (0.90)
-------- -------- -------- -------- --------
Anti-dilutive effect of acquiring treasury shares............... 0.03 0.01 -- -- --
-------- -------- -------- -------- --------
Net asset value, end of period.................................. $ 10.08 $ 10.02 $ 10.36 $ 10.24 $ 10.67
======== ======== ======== ======== ========
Market value, end of period..................................... $ 9.375 $ 9.00 $ 9.6875 $ 9.75 $ 10.75
======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN+........................................ 13.52% 0.67% 8.15% (2.72)% 11.30%
RATIOS TO AVERAGE NET ASSETS OF COMMON SHAREHOLDERS:
Expenses........................................................ 1.14%(1) 1.16%(1) 1.21% 1.23% 1.38%
Net investment income before preferred stock dividends.......... 7.70% 7.68% 8.37% 8.31% 8.73%
Preferred stock dividends....................................... 1.41% 1.44% 1.55% 1.11% 1.21%
Net investment income available to common shareholders.......... 6.29% 6.24% 6.82% 7.20% 7.52%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands......................... $349,294 $355,587 $368,225 $393,532 $404,979
Asset coverage on preferred shares at end of period............. 349% 355% 368% 314% 324%
Portfolio turnover rate......................................... 5% 14% 16% 23% 7%
</TABLE>
- ---------------------
* The per share amounts were computed using an average number of shares
outstanding during the period.
+ 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.
++ Restated for comparative purposes.
(1) Does not reflect the effect of expense offset of 0.01%.
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, 1997, 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,
1997 by correspondence with the custodian, provided a reasonable basis for the
opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
July 10, 1997
- --------------------------------------------------------------------------------
1997 FEDERAL TAX NOTICE (unaudited)
During the year ended May 31, 1997, the Fund paid the
following per share amounts from tax-exempt income: $0.60 to
common shareholders, $3,439 to Series A preferred
shareholders, $3,494 to Series B preferred shareholders,
$3,480 to Series C preferred shareholders, $3,600 to Series D
preferred shareholders and $3,843 to Series E preferred
shareholders. For the year ended May 31, 1997, the Fund paid
to common shareholders $0.20 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
Barry Fink
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, 1997
