Premium Income : 2022 Semi-Annual Report

Premium Income Corporation

Semi-Annual Report 2022

Premium Income Corporation [PIC.PR.A/PIC.A]

Letter to Shareholders

We are pleased to present the 2022 semi-annual report containing the management report of the fund performance and the unaudited financial statements for Premium Income Corporation (the "Fund").

The six-month period ended April 30, 2022 was marked by geopolitical events and macro headlines that impacted most asset classes. Russia's invasion of the Ukraine sparked a rally across the commodity complex led by surging energy and natural gas prices, base metals, and grains. This surge in commodity prices, along with pandemic induced supply constraints, resulted in surging inflation with the U.S. Consumer Price Index ("CPI") hitting 8.5 percent, the highest reading since 1981. Global central banks scrambled to adjust monetary policy to combat rising prices but remain dangerously behind the curve. Interest rates have skyrocketed so far in 2022 as investors anticipate a series of aggressive hikes from central banks over the course of this year and beyond. North American equity markets traded flat to down during the period with April being one of the worst months since the pandemic's onset. The components of the S&P/TSX Composite Index provided better relative returns for equity investors as large weights in Energy and Materials benefited from a world of rising commodity prices and interest rates. The S&P/TSX Composite Index advanced 0.1 percent during the period with the Energy and Materials stocks rising 28.7 percent and 19.6 percent, respectively. Meanwhile, the S&P 500 index declined by 9.7 percent in the period, led by large drawdowns in the Technology and Communication Services stocks that declined 12.3 percent and 27.7 percent, respectively.

The net asset value of the Fund declined 3.6 percent from $22.54 per Unit at October 31, 2021 to $21.72 per Unit at April 30, 2022. The Fund paid cash distributions of $0.43 per Preferred share and $0.41 per Class A share during the period. The net realized loss on options amounted to $0.09 per Unit for the period compared to a net realized gain of $0.04 per Unit for the same period last year. For a detailed review of the operations of the Fund, please see the Results of Operations and the Portfolio Manager Report sections.

We thank all shareholders for their continued support and encourage shareholders to review the detailed information contained within the semi-annual report.

John P. Mulvihill

Chairman & CEO

Mulvihill Capital Management Inc.

Premium Income Corporation [PIC.PR.A/PIC.A]

The Fund

The Fund is a split share corporation designed to provide Preferred shareholders with cumulative preferential quarterly cash distributions of $0.215625 per share, to provide Class A shareholders with quarterly cash distributions equal to the amount, if any, by which the net realized capital gains, dividends and option premiums (other than option premiums in respect of options outstanding at year-end) earned on the Fund's portfolio in any year, net of expenses and loss carryforwards, exceed the amount of the distributions paid on the Preferred shares, and to return the original issue price to holders of both Preferred shares and Class A shares upon windup of the Fund. A Unit of the Fund consists of one Preferred share and one Class A share. The shares are listed on the Toronto Stock Exchange under the ticker symbols PIC.PR.A for the Preferred shares and PIC.A for the Class A shares.

To accomplish its objectives, the Fund invests at least 75 percent of its net asset value ("NAV") in common shares of the Bank of Montreal, The Bank of Nova Scotia, Canadian Imperial Bank of Commerce, Royal Bank of Canada and The Toronto-Dominion Bank (collectively, the "Banks") and may also invest up to 25 percent of its NAV in common shares of National Bank of Canada. In addition, the Fund may purchase public investment funds including exchange-traded funds and other Mulvihill Funds (provided that no more than 15 percent of the NAV of the Fund may be invested in securities of other Mulvihill Funds) that provide exposure to such common shares.

The Fund employs an active covered call writing strategy to enhance the income generated by the portfolio and to reduce volatility. In addition, the Fund may write cash covered put options in respect of securities in which it is permitted to invest.

The strategy is a quantitative, technical based methodology that identifies appropriate times to write and/or close out option positions compared to writing continuously and rolling options every thirty days. This proprietary process has been developed over many years through various market cycles. The Manager believes the primary benefit to investors is to maximize the total return of the Fund while reducing the level of volatility of the portfolio, thereby increasing the risk-adjusted return.

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Premium Income Corporation [PIC.PR.A/PIC.A]

Management Report of Fund Performance

Management Report of Fund Performance

This semi-annual management report of fund performance contains the financial highlights for the six months ended April 30, 2022 of Premium Income Corporation (the "Fund"). The unaudited semi-annual condensed financial statements of the Fund are attached.

Copies of the Fund's proxy voting policies and procedures, proxy voting disclosure record and quarterly portfolio disclosure may be obtained by calling 1-800-725-7172 toll free, by writing to the Fund at Investor Relations, 121 King Street West, Suite 2600, P.O. Box 113, Toronto, Ontario, M5H 3T9, by email at [e-mail] or by visiting our website at www.mulvihill.com. You can also request semi-annual or annual reports at no cost by using one of the above methods.

Results of Operations

Distributions

For the six months ended April 30, 2022, cash distributions of $0.43 per share were paid to Preferred shareholders, compared to $0.43 in the same period last year and cash distributions of $0.41 per share were paid to Class A shareholders compared to $0.33 per share in the same period last year.

Since the inception of the Fund in October 1996, the Fund has paid total cash distributions of $22.21 per Preferred share and $27.06 per Class A share.

Revenue and Expenses

The Fund's total revenue was $0.46 per Unit for the six months ended April 30, 2022, up $0.04 per Unit compared to the same period last year. Total expenses were $0.15 per Unit, up $0.03 compared to the same period last year. The Fund's realized and unrealized loss was a net loss of $0.30 per Unit for the six months ended April 30, 2022 compared to a net gain of $5.40 per Unit in the same period last year.

Net Asset Value

The net asset value of the Fund per Unit decreased 3.6 percent from $22.54 per Unit at October 31, 2021 to $21.72 per Unit at April 30, 2022. The aggregate net asset value of the Fund decreased $10.5 million, from $297.2 million at October 31, 2021 to $286.7 million at April 30, 2022, reflecting an operating profit of $0.2 million, cash distributions of $11.0 million to Preferred and Class A shareholders and proceeds from issuance of Units, net of issue costs, of $0.4 million.

Recent Developments

There were no recent developments pertaining to the Fund during the semi-annual period ending April 30, 2022.

Related Party Transactions

Mulvihill Capital Management Inc. ("Mulvihill"), as the Investment Manager of the Fund, manages the investment portfolio in a manner consistent with the investment objectives, strategy and criteria of the Fund pursuant to an Investment Management Agreement made between the Fund and Mulvihill dated October 17, 1996 and amended as of October 8, 2010.

Mulvihill is the Manager of the Fund pursuant to a Management Agreement made between the Fund and Mulvihill dated October 17, 1996 and amended as of October 8, 2010. As such, Mulvihill is responsible for providing or arranging for required administrative services to the Fund.

Mulvihill is paid the fees described under the Management Fees section of this report.

During the period, no recommendations or approvals were required to be sought from the Independent Review Committee ("IRC") concerning related party transactions.

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Premium Income Corporation [PIC.PR.A/PIC.A]

Management Report of Fund Performance

Independent Review Committee

National Instrument 81-107 - Independent Review Committee for Investment Funds ("NI 81-107") requires all publicly offered investment funds to establish an IRC to whom the Manager must refer conflict of interest matters for review or approval. NI 81-107 also imposes obligations upon the Manager to establish written policies and procedures for dealing with conflict of interest matters, maintaining records in respect of these matters and providing assistance to the IRC in carrying out its functions. The Chief Compliance Officer, designated by the Manager, is in charge of facilitating the fulfillment of these obligations.

The IRC will prepare, for each financial year, a report to securityholders that describes the IRC and its activities during such financial year and includes, if known, a description of each instance when the Manager acted in a conflict of interest matter for which the IRC did not give a positive recommendation or for which a condition, imposed by the IRC, was not met in its recommendation or approval. Members of the IRC are Michael M. Koerner, Robert G. Bertram and R. Peter Gillin.

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