-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Fj2GAsnEsTREHVPdSyhbbFis3d8UIZuoTBk/NPOe/v18RAjBlZYvEkSFgfeMk0HA 41jlWSc5yKHHVipVb4aOqg== 0000950123-98-006893.txt : 19980729 0000950123-98-006893.hdr.sgml : 19980729 ACCESSION NUMBER: 0000950123-98-006893 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980531 FILED AS OF DATE: 19980727 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MUNICIPAL PREMIUM INCOME TRUST/MA CENTRAL INDEX KEY: 0000842891 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 133498050 STATE OF INCORPORATION: NY FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-05688 FILM NUMBER: 98671509 BUSINESS ADDRESS: STREET 1: TWO WORLD TRADE CENTER CITY: NEW YORK STATE: NY ZIP: 10048 BUSINESS PHONE: 2123922550 FORMER COMPANY: FORMER CONFORMED NAME: ALLSTATE MUNICIPAL PREIMIUM INCOME TRUST/MA DATE OF NAME CHANGE: 19930721 FORMER COMPANY: FORMER CONFORMED NAME: MUNICIPAL PREMIUM INCOME TRUST/ DATE OF NAME CHANGE: 19930721 N-30D 1 MUNICIPAL PREMIUM INCOME TRUST 1 MUNICIPAL PREMIUM INCOME TRUST Two World Trade Center, New York, New York 10048 LETTER TO THE SHAREHOLDERS May 31, 1998 DEAR SHAREHOLDER: We are pleased to present the annual report of Municipal Premium Income Trust (PIA) for the fiscal year ended May 31, 1998. The deflationary impact of the Asian financial crisis has begun to temper U.S. economic growth. Although employment conditions in the United States strengthened and unemployment declined to its lowest level since 1970, inflation remained subdued. This was primarily the result of improved productivity, lower oil costs and cheaper imports. Foreign currency turmoil strengthened the value of the U.S. dollar and spurred demand for U.S. Treasury securities. Municipal bonds followed the trend of Treasuries with yields declining to a range not seen in over 20 years. The bond market rally was also aided by prospects of the first federal budget surplus in more than two decades. MUNICIPAL MARKET CONDITIONS Long-term insured municipal yields declined 45 basis points, from 5.65 percent to 5.20 percent between May 1997 and May 1998. Over the
BOND YIELDS 1994-1998 Insured Municipal 30-Year 30-Year Revenue Yields Insured Municipal U.S. Treasury as Percentage of Yields Yields U.S. Treasury Yields Dec '93 5.4% 6.34% 85.17% 5.4 6.24 86.54% 5.8 6.66 87.09% 6.4 7.09 90.27% 6.35 7.32 86.75% 6.25 7.43 84.12% Jun '94 6.5 7.61 85.41% 6.25 7.39 84.57% 6.3 7.45 84.56% 6.55 7.81 83.87% 6.75 7.96 84.80% 7 8 87.50% Dec '94 6.75 7.88 85.66% 6.4 7.7 83.12% 6.15 7.44 82.66% 6.15 7.43 82.77% 6.2 7.34 84.47% 5.8 6.66 87.09% Jun '95 6.1 6.62 92.15% 6.1 6.86 88.92% 6 6.66 90.08% 5.95 6.48 91.82% 5.75 6.33 90.84% 5.5 6.14 89.56% Dec '95 5.35 5.94 90.07% 5.4 6.03 89.55% 5.8 6.46 86.69% 5.85 6.66 87.84% 5.95 6.89 86.36% 6.05 6.99 86.55% Jun '96 5.9 6.89 85.63% 5.85 6.97 83.93% 5.9 7.11 82.98% 5.7 6.93 82.25% 5.65 6.64 85.09% 5.5 6.35 86.61% Dec '96 5.6 6.63 84.46% 5.7 6.79 83.95% 5.65 6.8 83.08% 5.9 7.1 83.10% 5.75 6.94 82.85% 5.65 6.91 81.77% Jun '97 5.6 6.78 82.60% 5.3 6.3 84.00% 5.5 6.61 83.00% 5.4 6.4 84.40% 5.35 6.15 86.90% 5.3 6.05 87.60% Dec '97 5.15 5.92 86.90% Jan '98 5.15 5.8 88.80% Feb '98 5.2 5.92 87.80% Mar '98 5.25 5.93 88.50% Apr '98 5.35 5.95 89.90%
Source: Municipal Market Data 2 MUNICIPAL PREMIUM INCOME TRUST LETTER TO THE SHAREHOLDERS May 31, 1998, continued same time period the yield on one-year notes fell only 15 basis points, from 3.90 percent to 3.75 percent. Thus, the yield pickup or spread for extending maturities from 1 to 30 years narrowed to 145 basis points. The overall decline in interest rates led to an increase in new-issue municipal volume. In contrast, U. S. Treasury borrowing needs have declined with the reduction in the budget deficit. Under these conditions the municipal rally lagged the rally in Treasuries. The ratio of municipal yields to Treasury yields improved during this period, from 82 percent of Treasuries in May 1997 to almost 90 percent a year later. A rising ratio means that municipals have underperformed Treasuries and have become more attractive on a relative basis. Total municipal volume increased 20 percent in 1997 and totaled $220 billion last year. Half the underwritings were enhanced with bond insurance. Refundings represented one-quarter of total new issues. For the year-to-date, underwriting is up 60 percent with refunding issues comprising nearly one-third of total issuance. PERFORMANCE During the fiscal year ended May 31, 1998, the Fund's net asset value (NAV) improved from $10.08 to $10.41 per share. Based on this NAV change plus reinvestment of tax-free dividends totaling $0.60 per share, the Fund's total NAV return was 9.72 percent. PIA's price on the New York Stock Exchange (NYSE) moved from $9.375 to $9.625 per share. Based on this change in market price plus reinvestment of dividends, the Fund's total market return was 9.08 percent. On May 31, 1998, PIA's market price was trading at a 7.5 percent discount (lower than) to NAV. Monthly dividends for the second quarter of 1998 were declared in March and remained unchanged at $0.05 per share. The level of undistributed net investment income increased from $0.086 per share to $0.09 per share. 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 may, when appropriate, 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, 1998, the Fund purchased and retired 288,700 shares of common stock at a weighted average market discount of 5.35 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. 2 3 MUNICIPAL PREMIUM INCOME TRUST LETTER TO THE SHAREHOLDERS May 31, 1998, continued
LARGEST SECTORS AS OF MAY 31, 1998 CREDIT RATINGS AS OF MAY 31, 1998 (% OF NET ASSETS) (% OF TOTAL LONG-TERM PORTFOLLO) HOSPITAL 18% AAA OR AAA 60% IDR/PCR* 16% AA OR AA 22% ELECTRIC 14% A OR A 7% MORTGAGE 12% BAA OR BBB 9% TRANSPORTATION 10% N/R 2% GENERAL OBLIGATION 7% WATER & SEWER 6% EDUCATION 5% ALL OTHERS 12% * INDUSTRIAL DEVELOPMENT/POLLUTION CONTROL REVENUE AS MEASURED BY MOODY'S INVESTORS SERVICE, INC. OR STANDARD & POOR'S CORP. PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE. PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
CALL STRUCTURE AS OF MAY 31, 1998 WEIGHTED AVERAGE (% OF TOTAL LONG-TERM PORTFOLIO) CALL PROTECTION: 6 YEARS PERCENT CALLABLE YEARS BONDS CALLABLE 1998 7% 1999 5% 2000 9% 2001 8% 2002 9% 2003 0% 2004 10% 2005 13% 2006 12% 2007 5% 2008 19% 2009+ 3% PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
3 4 MUNICIPAL PREMIUM INCOME TRUST LETTER TO THE SHAREHOLDERS May 31, 1998, continued PORTFOLIO STRUCTURE On May 31, 1998, PIA's investments were diversified among 13 long-term sectors and 75 credits. As illustrated in the accompanying chart, the distribution of call dates in the portfolio produced 6 years of weighted average call protection. The Fund's weighted average maturity was 19 years. Throughout the period, high credit quality was maintained with over 80 percent of its long-term holdings rated double or triple "A." 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 shareholders depends on two factors. The first factor is the amount of ARPS outstanding, while the second is the spread between the portfolio's cost yield and ARPS expenses (ARPS auction rate and 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. During the fiscal year, ARPS leverage contributed approximately $0.09 per share to common share earnings. Weekly ARPS yields ranged between 3.30 and 5.00 percent. PIA's five ARPS series totaling $100 million represented 28 percent of net assets. LOOKING AHEAD The economic fundamentals remain in place for another year of solid economic growth in the United States. Events in Asia have strengthened the U.S. dollar and contributed to lower interest rates. Furthermore, the Asian crisis seems likely to continue to moderate inflationary pressures and provide a favorable outlook for municipal bonds. However, if labor costs accelerate, it is still possible that the Federal Reserve Board may tighten monetary policy. 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 4 5 MUNICIPAL PREMIUM INCOME TRUST RESULTS OF ANNUAL MEETING (unaudited) * * * On December 18, 1997, an annual 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 TRUSTEES: Wayne E. Hedien For......................................................... 19,849,938 Withheld.................................................... 451,848 Dr. Manuel H. Johnson For......................................................... 19,863,297 Withheld.................................................... 438,489 John L. Schroeder For......................................................... 19,862,727 Withheld.................................................... 439,059
The following Trustees were not standing for reelection at this meeting: Michael Bozic, Charles A. Fiumefreddo, Edwin J. Garn, John R. Haire, Michael E. Nugent and Philip J. Purcell. (2) RATIFICATION OF THE SELECTION OF PRICEWATERHOUSECOOPERS LLP (THE SUCCESSOR FIRM TO PRICE WATERHOUSE LLP) AS INDEPENDENT ACCOUNTANTS: For......................................................... 19,644,866 Against..................................................... 89,060 Abstain..................................................... 567,860
5 6 MUNICIPAL PREMIUM INCOME TRUST PORTFOLIO OF INVESTMENTS May 31, 1998
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ----------------------------------------------------------------------------------------------------------- TAX-EXEMPT MUNICIPAL BONDS (97.3%) General Obligation (6.5%) $ 5,000 Chicago Park District, Illinois, Ser A 1995................. 6.60 % 11/15/14 $ 5,624,350 3,500 Massachusetts, 1995 Ser A (AMBAC)........................... 5.00 07/01/12 3,599,855 3,000 Puerto Rico, Public Improvement Ser A 1998 (MBIA)........... 4.875 07/01/23 2,909,040 4,500 Shelby County, Tennessee, Refg 1995 Ser A................... 5.625 04/01/11 4,776,075 6,000 Washington, Ser 1993 A...................................... 5.75 10/01/17 6,274,560 - -------- ------------ 22,000 23,183,880 - -------- ------------ Educational Facilities Revenue (5.0%) 2,310 St Joseph County Educational Facilities Authority, Indiana, University of Notre Dame Dulac Ser 1997.................... 5.00 03/01/27 2,295,863 3,000 Massachusetts Industrial Finance Agency, Tufts University Ser H (MBIA)............................................... 4.75 02/15/28 2,818,200 5,500 Oakland University, Michigan, Ser 1995 (MBIA)............... 5.75 05/15/26 5,786,770 New York State Dormitory Authority, 4,000 State University Refg Ser 1993 A........................... 5.50 05/15/08 4,271,839 1,350 State University Ser 1990 B................................ 7.50 05/15/11 1,651,604 1,000 Pennsylvania Higher Educational Facilities Authority, Temple University First Ser (MBIA)................................ 6.50 04/01/21 1,075,300 - -------- ------------ 17,160 17,899,576 - -------- ------------ Electric Revenue (13.9%) 5,000 Sacramento Municipal Utility District, California, Refg 1994 Ser I (MBIA)............................................... 6.00 01/01/24 5,408,550 4,000 Kansas City, Kansas, Utility Refg & Impr Ser 1994 (FGIC).... 6.375 09/01/23 4,472,160 7,750 South Carolina Public Service Authority, 1995 Refg Ser A (AMBAC).................................................... 6.25 01/01/22 8,660,160 4,000 Lower Colorado River Authority, Texas, Jr Lien Seventh Ser (FSA)...................................................... 4.75 01/01/28 3,752,400 20,000 San Antonio, Texas, Electric & Gas Refg Ser 1994 C.......... 4.70 02/01/06 20,307,400 Intermountain Power Agency, Utah, 5,000 Refg Ser 1997 B (MBIA)..................................... 5.75 07/01/19 5,298,500 1,270 Refg Ser 1988 B............................................ 7.50 07/01/21 1,299,121 - -------- ------------ 47,020 49,198,291 - -------- ------------ Hospital Revenue (17.8%) 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 4,784,200 5,000 Birmingham-Carraway Special Care Facilities Financing Authority, Alabama, Carraway Methodist Health Ser 1995 A (Connie Lee)............................................... 5.875 08/15/15 5,330,750 3,500 Colbert County - Northwest Health Care Authority, Alabama, Hellen Keller Hospital Refg Ser 1990....................... 8.75 06/01/09 3,811,185 1,000 California Health Facilities Financing Authority, Alexian Brothers/San Jose Refg Ser 1990 (MBIA)..................... 7.125 01/01/16 1,061,420 10,000 Fulco Hospital Authority, Georgia, Catholic Health East Ser 1998 A (MBIA).............................................. 5.00 11/15/28 9,666,000 3,000 Hall County and Gainesville Hospital Authority, Georgia, Northeast Georgia Healthcare Ser 1995 (MBIA)............... 6.00 10/01/20 3,239,340
SEE NOTES TO FINANCIAL STATEMENTS 6 7 MUNICIPAL PREMIUM INCOME TRUST PORTFOLIO OF INVESTMENTS May 31, 1998, continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ----------------------------------------------------------------------------------------------------------- $ 1,800 Southwestern Illinois Development Authority, Anderson Hospital Ser 1992 A........................................ 7.00 % 08/15/22 $ 1,952,082 3,275 Kentucky Development Finance Authority, Ashland Hospital/King's Daughters Refg Ser 1987.................... 9.75 08/01/05 3,369,320 9,500 Boston, Massachussetts, Boston City Hospital - FHA Mtg Refg Ser B...................................................... 5.75 02/15/13 9,828,700 4,000 Montgomery County, Ohio, Franciscan Medical Center - Dayton Campus Ser 1997............................................ 5.50 07/01/18 3,999,800 2,985 Lehigh County General Purpose Authority, Pennsylvania, St Lukes Hospital Ser 1992 (AMBAC)............................ 6.25 07/01/22 3,231,233 2,750 Jefferson County Health Facilities Development Corporation, Texas, Baptist Health Care Ser 1989........................ 8.30 10/01/14 2,896,355 5,000 Washington Health Care Facilities Authority, Swedish Health Services Ser 1998 (AMBAC).................................. 5.125 11/15/22 4,874,000 5,000 Wisconsin Health & Educational Facilities Authority, Wausau Hospital Refg Ser 1998 A (AMBAC)........................... 5.125 08/15/20 4,892,550 - -------- ------------ 61,810 62,936,935 - -------- ------------ Industrial Development/Pollution Control Revenue (16.4%) 11,230 Pima County Industrial Development Authority, Arizona, Tucson Electric Power Co Refg Ser 1988 A (FSA Surety)...... 7.25 07/15/10 12,528,862 10,000 Burlington, Kansas, Kansas Gas & Electric Co Ser 1991 (MBIA)..................................................... 7.00 06/01/31 10,894,100 9,300 New York City Industrial Development Agency, New York, Brooklyn Navy Yard Cogeneration Partners LP Project Ser 1997 (AMT)................................................. 5.65 10/01/28 9,366,588 1,000 Ohio Water Development Authority, Toledo Edison Co Ser 1990 A (Secondary FSA).......................................... 7.75 05/15/19 1,082,200 9,500 Montgomery County Industrial Development Authority, Pennsylvania, Philadelphia Electric Co Refg 1991 Ser B (MBIA)..................................................... 6.70 12/01/21 10,343,030 13,000 Alliance Airport Authority, Texas, AMR Corp Ser 1990 (AMT)...................................................... 7.50 12/01/29 14,027,780 - -------- ------------ 54,030 58,242,560 - -------- ------------ Mortgage Revenue - Multi-Family (2.9%) 1,250 Lake Charles Non-Profit Housing Development Corporation, Louisiana, Ser 1990 A (FSA)................................ 7.875 02/15/25 1,259,688 Massachusetts Housing Finance Agency, 1,925 Rental 1994 Ser A (AMT) (AMBAC)............................ 6.60 07/01/14 2,073,321 3,785 Rental 1994 Ser A (AMT) (AMBAC)............................ 6.65 07/01/19 4,086,324 2,650 Minnesota Housing Finance Agency, Rental 1995 Ser D (MBIA)..................................................... 6.00 02/01/22 2,775,531 - -------- ------------ 9,610 10,194,864 - -------- ------------ Mortgage Revenue - Single Family (9.1%) Colorado Housing & Finance Authority, 330 Ser 1990 B-2............................................... 8.00 02/01/18 344,434 2,500 Ser 1997 A-2 (AMT)......................................... 7.25 05/01/27 2,822,550 445 Idaho Housing Agency, 1988 Ser D-2 (AMT).................... 8.25 01/01/20 480,573 245 Illinois Housing Development Authority, 1988 Ser C (AMT).... 8.10 02/01/22 250,483
SEE NOTES TO FINANCIAL STATEMENTS 7 8 MUNICIPAL PREMIUM INCOME TRUST PORTFOLIO OF INVESTMENTS May 31, 1998, continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ----------------------------------------------------------------------------------------------------------- $ 960 Kansas City Leavenworth & Lenexa, Kansas, GNMA-Backed Ser 1988 C (AMT)............................................... 8.00 % 11/01/20 $ 989,155 Olathe, Kansas, 145 GNMA Collateralized Ser 1990 B............................. 7.50 09/01/10 153,340 410 GNMA Collateralized Ser 1989 A (AMT) (MBIA)................ 8.00 11/01/20 426,781 1,410 New Orleans Home Mortgage Authority, Louisiana, GNMA Collateralized 1989 Ser B-1 (AMT).......................... 8.25 12/01/21 1,455,853 Maine Housing Authority, 3,540 Purchase Ser 1988 D4 (AMT)................................. 7.55 11/15/19 3,743,196 1,000 Purchase Ser 1988 D5 (AMT)................................. 7.55 11/15/19 1,057,400 4,960 Massachusetts Housing Finance Agency, 1989 Ser 7 (AMT)...... 8.10 06/01/20 5,065,499 615 Mississippi Housing Finance Corporation, GNMA-Backed Ser 1989 (AMT) (FGIC).......................................... 8.25 10/15/18 646,648 2,645 Missouri Housing Development Commission, Homeownership 1996 Ser D (AMT)................................................ 7.10 09/01/27 2,889,874 240 Muskogee County Home Finance Authority, Oklahoma, 1990 Ser A (FGIC)..................................................... 7.60 12/01/10 251,242 2,560 Rhode Island Housing & Mortgage Finance Corporation, Homeownership 1988 Ser 1-D (AMT)........................... 7.875 10/01/22 2,672,563 South Carolina Housing Finance & Development Authority, 1,955 Homeownership 1998 Ser C-1 (AMT)........................... 8.125 07/01/21 2,023,679 1,220 Homeownership 1991 Ser A (AMT)............................. 7.40 07/01/23 1,285,978 2,785 El Paso Housing Finance Corporation, Texas, GNMA Collateralized Ser 1989 (AMT).............................. 8.20 03/01/21 2,896,456 Utah Housing Finance Agency, 250 Ser 1991 B-1............................................... 7.50 07/01/16 263,448 290 Ser 1989 B (AMT)........................................... 8.25 07/01/21 298,126 2,000 Virginia Housing Development Authority, 1992 Ser A.......... 7.10 01/01/25 2,098,280 - -------- ------------ 30,505 32,115,558 - -------- ------------ Nursing & Health Related Facilities Revenue (0.5%) New York State Medical Care Facilities Finance Agency, 825 Mental Health Ser 1987..................................... 8.875 08/15/07 844,610 565 Mental Health Ser 1990 A (Secondary MBIA).................. 7.75 02/15/20 607,081 405 Mental Health Ser 1991 A................................... 7.50 02/15/21 443,916 - -------- ------------ 1,795 1,895,607 - -------- ------------ Public Facilities Revenue (1.4%) 1,500 Manatee County School Board, Florida, COPs (MBIA)........... 4.875 07/01/18 1,461,495 Saint Paul Independent School District #625, Minnesota, 1,700 Ser 1995 COPs.............................................. 5.45 02/01/11 1,768,816 1,800 Ser 1995 COPs.............................................. 5.50 02/01/12 1,868,994 - -------- ------------ 5,000 5,099,305 - -------- ------------
SEE NOTES TO FINANCIAL STATEMENTS 8 9 MUNICIPAL PREMIUM INCOME TRUST PORTFOLIO OF INVESTMENTS May 31, 1998, continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ----------------------------------------------------------------------------------------------------------- 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 $ 11,585,560 ------------ Transportation Facilities Revenue (10.2%) 3,500 Atlanta, Georgia, Airport Ser 1994 B (AMT) (AMBAC).......... 6.00 01/01/21 3,709,545 Chicago, Illinois, 5,000 Chicago-O'Hare International Airport Ser 1996 A (AMBAC).... 5.625 01/01/12 5,298,050 7,000 Midway Airport 1994 Ser A (AMT) (MBIA)..................... 6.25 01/01/24 7,531,510 5,000 Regional Transportation Authority, Illinois, Ser 1994 A (AMBAC).................................................... 6.25 06/01/24 5,499,200 3,000 Massachusetts Turnpike Authority, Metropolitan Highway 1997 Ser A (MBIA)............................................... 5.00 01/01/37 2,890,740 8,000 Austin, Texas, Airport Prior Lien Ser 1995 A (AMT) (MBIA)... 6.125 11/15/25 8,621,680 2,625 Richmond Metropolitan Authority, Virginia, Expressway & Refg Ser 1998 (FGIC)............................................ 5.25 07/15/17 2,714,906 - -------- ------------ 34,125 36,265,631 - -------- ------------ Water & Sewer Revenue (6.1%) 2,500 Coachella, California, Ser 1992 COPs (FSA).................. 6.10 03/01/22 2,682,500 4,000 Santa Rosa, California, Wastewater Refg 1996 Ser A (FGIC)... 4.75 09/01/16 3,853,080 5,000 Massachusetts Water Resources Authority, 1998 Ser A (FSA)... 4.75 08/01/27 4,663,750 3,000 Detroit, Michigan, Water Supply 1997 Ser A (MBIA)........... 5.00 07/01/21 2,931,570 3,600 Rio Rancho, New Mexico, Water & Wastewater Ser 1995 A (FSA)...................................................... 6.00 05/15/22 3,833,964 3,490 Texas Water Resource Finance Authority, Ser 1989 (AMBAC).... 7.50 08/15/13 3,631,345 - -------- ------------ 21,590 21,596,209 - -------- ------------ Other Revenue (2.8%) 10,000 New York Local Government Assistance Corporation, Refg Ser - -------- 1997 (MBIA)................................................ 5.00 04/01/21 9,786,100 ------------ Refunded (1.4%) 3,000 Central Coast Water Authority, California, Ser 1992 (AMBAC).................................................... 6.60 10/01/02+ 3,355,650 1,340 Missouri Health & Educational Facilities Authority, Missouri Baptist Medical Center Refg Ser 1989 (ETM)................. 7.625 07/01/18 1,460,024 - -------- ------------ 4,340 4,815,674 - -------- ------------ 330,485 TOTAL TAX-EXEMPT MUNICIPAL BONDS (Identified Cost $325,347,631)................. 344,815,750 - -------- ------------ SHORT-TERM TAX EXEMPT MUNICIPAL OBLIGATIONS (1.0%) 2,500 Harris County Health Facilities Development Corporation, Texas, Methodist Hospital Ser 1994 (Demand 06/01/98)....... 4.00* 12/01/25 2,500,000 1,000 North Central Texas Health Facilities Development Corporation, Presbyterian Medical Center Ser 1985 C (MBIA) (Demand 06/01/98).......................................... 4.00* 12/01/15 1,000,000 - -------- ------------ 3,500 TOTAL SHORT-TERM TAX-EXEMPT MUNICIPAL OBLIGATIONS (Identified Cost $3,500,000).................................................................... 3,500,000 - -------- ------------
SEE NOTES TO FINANCIAL STATEMENTS 9 10 MUNICIPAL PREMIUM INCOME TRUST PORTFOLIO OF INVESTMENTS May 31, 1998, continued
PRINCIPAL AMOUNT IN THOUSANDS VALUE - ----------------------------------------------------------------------------------------------------------- $333,985 TOTAL INVESTMENTS (Identified Cost $328,847,631) (a)................... 98.3% $348,315,750 ======== CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES........................... 1.7 6,076,605 ----- ------------ NET ASSETS.............................................................. 100.0% $354,392,355 ===== ============
- --------------------- 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 $19,664,881 and the aggregate gross unrealized depreciation is $196,762, resulting in net unrealized appreciation of $19,468,119. 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.
GEOGRAPHIC SUMMARY OF INVESTMENTS Based on Market Value as a Percent of Net Assets May 31, 1998 Alabama.................. 3.9% Arizona.................. 3.5 California............... 3.1 Colorado................. 0.9 District of Columbia..... 1.5 Florida.................. 0.4 Georgia.................. 4.7 Idaho.................... 0.1 Illinois................. 7.4 Indiana.................. 0.6 Kansas................... 5.2 Kentucky................. 1.0 Louisiana................ 0.4 Maine.................... 1.4 Massachusetts............ 9.9 Michigan................. 2.5 Minnesota................ 1.8 Mississippi.............. 0.2 Missouri................. 1.2 New Mexico............... 1.1 New York................. 7.6 Ohio..................... 1.4 Oklahoma................. 0.1 Pennsylvania............. 7.4 Puerto Rico.............. 0.8 Rhode Island............. 0.8 South Carolina........... 3.4 Tennessee................ 1.3 Texas.................... 16.8 Utah..................... 2.0 Virginia................. 1.4 Washington............... 3.1 Wisconsin................ 1.4 ------ Total.................... 98.3% ======
SEE NOTES TO FINANCIAL STATEMENTS 10 11 MUNICIPAL PREMIUM INCOME TRUST FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES May 31, 1998 ASSETS: Investments in securities, at value (identified cost $328,847,631).......... $348,315,750 Cash..................................... 186,621 Receivable for: Interest.............................. 6,227,081 Investments redeemed.................. 120,000 Prepaid expenses and other assets........ 176,973 ------------ TOTAL ASSETS.......................... 355,026,425 ------------ LIABILITIES: Payable for: Dividends to preferred shareholders... 191,758 Investment advisory fee............... 143,137 Shares of beneficial interest repurchased.......................... 96,550 Administration fee.................... 89,460 Accrued expenses and other payables...... 113,165 ------------ TOTAL LIABILITIES..................... 634,070 ------------ NET ASSETS............................ $354,392,355 ============ COMPOSITION OF 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, 24,433,224 shares outstanding)... 227,033,713 Net unrealized appreciation.............. 19,468,119 Accumulated undistributed net investment income.................................. 2,202,979 Accumulated undistributed net realized gain.................................... 5,687,544 ------------ NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS.......................... 254,392,355 ------------ TOTAL NET ASSETS...................... $354,392,355 ============ NET ASSET VALUE PER COMMON SHARE ($254,392,355 divided by 24,433,224 common shares outstanding).............. $10.41 ============
STATEMENT OF OPERATIONS For the year ended May 31, 1998 NET INVESTMENT INCOME: INTEREST INCOME........................... $21,502,429 ----------- EXPENSES Investment advisory fee................... 1,417,273 Administration fee........................ 885,795 Auction commission fees................... 281,597 Professional fees......................... 100,398 Transfer agent fees and expenses.......... 96,946 Shareholder reports and notices........... 69,821 Auction agent fees........................ 50,113 Registration fees......................... 32,339 Trustees' fees and expenses............... 18,769 Custodian fees............................ 16,547 Other..................................... 27,994 ----------- TOTAL EXPENSES......................... 2,997,592 Less: expense offset...................... (16,414) ----------- NET EXPENSES........................... 2,981,178 ----------- NET INVESTMENT INCOME.................. 18,521,251 ----------- NET REALIZED AND UNREALIZED GAIN: Net realized gain......................... 5,780,796 Net change in unrealized appreciation..... 2,044,112 ----------- NET GAIN............................... 7,824,908 ----------- NET INCREASE.............................. $26,346,159 ===========
SEE NOTES TO FINANCIAL STATEMENTS 11 12 MUNICIPAL PREMIUM INCOME TRUST FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS FOR THE YEAR FOR THE YEAR ENDED ENDED MAY 31, 1998 MAY 31, 1997 - ------------------------------------------------------------------------------------ INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income.................................. $ 18,521,251 $ 19,568,521 Net realized gain (loss)............................... 5,780,796 (93,251) Net change in unrealized appreciation.................. 2,044,112 5,092,960 ------------ ------------ NET INCREASE....................................... 26,346,159 24,568,230 ------------ ------------ Dividends to preferred shareholders from net investment income................................................ (3,705,932) (3,571,216) ------------ ------------ DIVIDENDS AND DISTRIBUTIONS TO COMMON SHAREHOLDERS FROM: Net investment income.................................. (14,732,173) (15,071,283) Net realized gain...................................... -- (5,000,795) ------------ ------------ TOTAL.............................................. (14,732,173) (20,072,078) ------------ ------------ Decrease from transactions in common shares of beneficial interest................................... (2,810,018) (7,218,048) ------------ ------------ NET INCREASE (DECREASE)............................ 5,098,036 (6,293,112) NET ASSETS: Beginning of period.................................... 349,294,319 355,587,431 ------------ ------------ END OF PERIOD (Including undistributed net investment income of $2,202,979 and $2,119,833, respectively)........... $354,392,355 $349,294,319 ============ ============
SEE NOTES TO FINANCIAL STATEMENTS 12 13 MUNICIPAL PREMIUM INCOME TRUST NOTES TO FINANCIAL STATEMENTS May 31, 1998 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. Effective June 22, 1998, the following entities have changed their name:
OLD NAME NEW NAME - --------------------------------- ------------------------------------------------ Dean Witter InterCapital Inc. Morgan Stanley Dean Witter Advisors Inc. Dean Witter Services Company Inc. Morgan Stanley Dean Witter Services Company Inc.
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. 13 14 MUNICIPAL PREMIUM INCOME TRUST NOTES TO FINANCIAL STATEMENTS May 31, 1998, continued 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 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 Morgan Stanley Dean Witter Advisors Inc. (the "Investment Advisor"), an affiliate of Morgan Stanley Dean Witter Services Company Inc. (the "Administrator"), the Fund pays the Investment Advisor 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 Advisor pays the salaries of all personnel, including officers of the Fund, who are employees of the Investment Advisor. 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, 14 15 MUNICIPAL PREMIUM INCOME TRUST NOTES TO FINANCIAL STATEMENTS May 31, 1998, continued 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, 1998 aggregated $70,772,755 and $74,302,588, respectively. Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Advisor and Administrator, is the Fund's transfer agent. At May 31, 1998, the Fund had transfer agent fees and expenses payable of approximately $5,300. 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, 1998 included in Trustees' fees and expenses in the Statement of Operations amounted to $3,772. At May 31, 1998, the Fund had an accrued pension liability of $48,605 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. 15 16 MUNICIPAL PREMIUM INCOME TRUST NOTES TO FINANCIAL STATEMENTS May 31, 1998, continued Dividends, which are cumulative, are reset through auction procedures.
AMOUNT NEXT RANGE OF SERIES SHARES* IN THOUSANDS* RATE* RESET DATE DIVIDEND RATES** - ------ ------- ------------- ----- ---------- ---------------- A 200 $20,000 3.65% 06/02/98 3.30% - 5.00% B 200 20,000 3.75 06/02/98 3.30 - 5.00 C 200 20,000 3.75 09/01/98 3.62 - 3.87 D 200 20,000 3.69 05/01/99 3.55 - 3.69 E 200 20,000 3.85 07/07/98 3.85
- --------------------- * As of May 31, 1998. ** For the year ended May 31, 1998. Subsequent to May 31, 1998 and up through July 10, 1998, the Fund paid dividends to each of the Series A through E at rates ranging from 3.28% to 3.85% in the aggregate amount of $367,216. 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:
CAPITAL PAID IN PAR VALUE EXCESS OF SHARES OF SHARES PAR VALUE ---------- --------- ------------ 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 Treasury shares purchased and retired (weighted average discount 5.35%)*........................................... (288,700) (2,887) (2,807,131) ---------- -------- ------------ Balance, May 31, 1998....................................... 24,433,224 $244,332 $226,789,381 ========== ======== ============
- --------------------- * The Trustees have voted to retire the shares purchased. 16 17 MUNICIPAL PREMIUM INCOME TRUST NOTES TO FINANCIAL STATEMENTS May 31, 1998, continued 7. DIVIDENDS TO COMMON SHAREHOLDERS The Fund declared the following dividends from net investment income:
DECLARATION AMOUNT RECORD PAYABLE DATE PER SHARE DATE DATE - --------------------- --------- ----------------- ------------------ March 24, 1998 $0.05 June 5, 1998 June 19, 1998 June 30, 1998 $0.05 July 10, 1998 July 24, 1998 June 30, 1998 $0.05 August 7, 1998 August 21, 1998 June 30, 1998 $0.05 September 4, 1998 September 18, 1998
8. FEDERAL INCOME TAX STATUS During the year ended May 31, 1998, the Fund utilized its net capital loss carryover of approximately $93,000. 17 18 MUNICIPAL PREMIUM INCOME TRUST FINANCIAL HIGHLIGHTS Selected ratios and per share data for a common share of beneficial interest outstanding throughout each period:
FOR THE YEAR ENDED MAY 31* ------------------------------------------------------ 1998 1997 1996 1995 1994 - -------------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period........................ $ 10.08 $ 10.02 $ 10.36 $ 10.24 $ 10.67 -------- -------- -------- ---------- -------- Net investment income....................................... 0.75 0.78 0.79 0.84 0.90 Net realized and unrealized gain (loss)..................... 0.33 0.19 (0.22) 0.26 (0.45) -------- -------- -------- ---------- -------- Total from investment operations............................ 1.08 0.97 0.57 1.10 0.45 -------- -------- -------- ---------- -------- Less dividends and distributions from: Net investment income...................................... (0.60) (0.60) (0.65) (0.72) (0.76) Common share equivalent of dividends paid to preferred shareholders............................................. (0.15) (0.14) (0.15) (0.16) (0.12) Net realized gain.......................................... -- (0.20) (0.12) (0.10) -- -------- -------- -------- ---------- -------- Total dividends and distributions........................... (0.75) (0.94) (0.92) (0.98) (0.88) -------- -------- -------- ---------- -------- Anti-dilutive effect of acquiring treasury shares........... -- 0.03 0.01 -- -- -------- -------- -------- ---------- -------- Net asset value, end of period.............................. $ 10.41 $ 10.08 $ 10.02 $ 10.36 $ 10.24 ======== ======== ======== ========== ======== Market value, end of period................................. $ 9.625 $ 9.375 $ 9.00 $ 9.688 $ 9.75 ======== ======== ======== ========== ======== TOTAL INVESTMENT RETURN+.................................... 9.08% 13.52% 0.67% 8.15% (2.72)% RATIOS TO AVERAGE NET ASSETS OF COMMON SHAREHOLDERS: Expenses.................................................... 1.18%(1) 1.14%(1) 1.16%(1) 1.21% 1.23% Net investment income before preferred stock dividends...... 7.31% 7.70% 7.68% 8.37% 8.31% Preferred stock dividends................................... 1.46% 1.41% 1.44% 1.55% 1.11% Net investment income available to common shareholders...... 5.85% 6.29% 6.24% 6.82% 7.20% SUPPLEMENTAL DATA: Net assets, end of period, in thousands..................... $354,392 $349,294 $355,587 $368,225 $393,532 Asset coverage on preferred shares at end of period......... 354% 349% 355% 368% 314% Portfolio turnover rate..................................... 21% 5% 14% 16% 23%
- --------------------- * 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. (1) Does not reflect the effect of expense offset of 0.01%. SEE NOTES TO FINANCIAL STATEMENTS 18 19 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, 1998, 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, 1998 by correspondence with the custodian, provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP 1177 Avenue of the Americas New York, New York 10036 July 10, 1998 1998 FEDERAL TAX NOTICE (unaudited) For the year ended May 31, 1998, all of the Fund's dividends from net investment income were exempt interest dividends, excludable from gross income for Federal income tax purposes. 19 20 TRUSTEES - ------------------------------------------------------------- Michael Bozic Charles A. Fiumefreddo Edwin J. Garn John R. Haire Wayne E. Hedien 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 - ------------------------------------------------------------- Morgan Stanley Dean Witter Trust FSB Harborside Financial Center - Plaza Two Jersey City, New Jersey 07311 INDEPENDENT ACCOUNTANTS - ------------------------------------------------------------- PricewaterhouseCoopers LLP 1177 Avenue of the Americas New York, New York 10036 INVESTMENT ADVISOR - ------------------------------------------------------------- Morgan Stanley Dean Witter Advisors Inc. Two World Trade Center New York, New York 10048 MUNICIPAL PREMIUM INCOME TRUST ANNUAL REPORT MAY 31, 1998 -----END PRIVACY-ENHANCED MESSAGE-----