Premium Income : Annual Information Form Premium Income Corporation

ANNUAL INFORMATION FORM

PREMIUM INCOME CORPORATION

Preferred Shares and Class A Shares

January 14, 2022

TABLE OF CONTENTS
	Page
FORWARD-LOOKING STATEMENTS ...........................................................................................................	1
THE FUND ..........................................................................................................................................................	2
INVESTMENT OBJECTIVES AND STRATEGY ............................................................................................	3
STATUS OF THE FUND....................................................................................................................................	4
DESCRIPTION OF SHARE CAPITAL..............................................................................................................	4
Preferred Shares ......................................................................................................................................	4
Class A Shares ........................................................................................................................................	7
Suspension of Retractions or Redemptions ............................................................................................	9
Class B Shares ........................................................................................................................................	9
BOOK-ENTRY ONLY SYSTEM.......................................................................................................................	9
SHAREHOLDER MATTERS...........................................................................................................................	10
Meetings of Shareholders .....................................................................................................................	10
Acts Requiring Shareholder Approval ..................................................................................................	10
Reporting to Shareholders.....................................................................................................................	11
INVESTMENT RESTRICTIONS .....................................................................................................................	11
Use of Other Derivative Instruments ....................................................................................................	12
CALCULATION OF NET ASSET VALUE AND NET ASSET VALUE PER UNIT....................................	12
RESPONSIBILITY FOR OPERATIONS .........................................................................................................	14
The Manager .........................................................................................................................................	14
Directors and Officers of the Manager .................................................................................................	15
The Investment Manager ......................................................................................................................	15
Investment Management Agreement ....................................................................................................	16
CONFLICTS OF INTEREST............................................................................................................................	17
Principal Holders of Securities .............................................................................................................	17
FUND GOVERNANCE ....................................................................................................................................	17
Independent Review Committee...........................................................................................................	17
Directors and Officers of the Fund .......................................................................................................	17
Proxy Voting Policy..............................................................................................................................	18
BROKERAGE ARRANGEMENTS .................................................................................................................	20
CUSTODIAN ....................................................................................................................................................	20
REGISTRAR AND TRANSFER AGENT ........................................................................................................	20
AUDITORS .......................................................................................................................................................	21
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TABLE OF CONTENTS
(continued)
	Page
FEES AND EXPENSES....................................................................................................................................	21
Management and Investment Management Fees ..................................................................................	21
Operating Expenses ..............................................................................................................................	21
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS ......................................................................	21
Tax Treatment of the Fund ...................................................................................................................	22
Tax Treatment of Shareholders.............................................................................................................	23
Eligibility for Investment ......................................................................................................................	24
Exchange of Tax Information ...............................................................................................................	24
RISK FACTORS ...............................................................................................................................................	25
Concentration Risk................................................................................................................................	25
Risks Associated with an Investment in Bank Shares ..........................................................................	25
Performance of the Fund's Portfolio.....................................................................................................	25
No Assurances of Achieving Investment Objectives............................................................................	25
Changes in Legislation and Regulatory Risk ........................................................................................	26
Greater Volatility of the Class A Shares ...............................................................................................	26
Interest Rate Fluctuations .....................................................................................................................	26
Trading at a Discount............................................................................................................................	26
Use of Options and Other Derivative Instruments................................................................................	26
Reliance on the Manager ......................................................................................................................	26
Significant Retractions..........................................................................................................................	26
Conflicts of Interest...............................................................................................................................	27
Tax Changes .........................................................................................................................................	27
Tax Treatment of Proceeds of Disposition and Option Premiums .......................................................	27
Recent and Future Market Conditions ..................................................................................................	27
Accrued Gains.......................................................................................................................................	27
Cyber Security Risk ..............................................................................................................................	28
MATERIAL CONTRACTS ..............................................................................................................................	28
ADDITIONAL INFORMATION......................................................................................................................	28

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FORWARD-LOOKING STATEMENTS

Certain statements in this annual information form are forward-looking statements, including those identified by the expressions "anticipate", "believe", "plan", "estimate", "intend" and similar expressions to the extent they relate to the Fund (as defined below) or Mulvihill (as defined below). Forward-looking statements are not historical facts but reflect the current expectations of the Fund and Mulvihill regarding future results or events. Such forward- looking statements reflect the Fund's and Mulvihill's current beliefs and are based on information currently available to them. Forward-looking statements involve significant risks and uncertainties. A number of factors could cause actual results or events to differ materially from current expectations. Some of these risks, uncertainties and other factors are described in this annual information form under the heading "Risk Factors". Although the forward-looking statements contained in this annual information form are based upon assumptions that the Fund and Mulvihill believe to be reasonable, neither the Fund nor Mulvihill can assure investors that actual results will be consistent with these forward- looking statements. The forward-looking statements contained herein were prepared for the purpose of providing investors with information about the Fund and may not be appropriate for other purposes. Neither the Fund nor Mulvihill assumes any obligation to update or revise them to reflect new events or circumstances except as required by law.

THE FUND

Premium Income Corporation (the "Fund") is a mutual fund corporation incorporated under the laws of the Province of Ontario on August 27, 1996. The outstanding preferred shares ("Preferred Shares") and class A shares ("Class A Shares") of the Fund are listed on the Toronto Stock Exchange (the "TSX") under the symbols PIC.PR.A and PIC.A, respectively.

On October 18, 1996, the articles of incorporation of the Fund were amended to create the Preferred Shares and the Class A Shares. The Fund's articles were amended on July 30, 1999 to permit the Fund to write cash-covered put options and on May 16, 2003 to extend the mandatory redemption date of the Preferred Shares and the Class A Shares to November 1, 2010. On September 29, 2010, the articles of incorporation of the Fund were amended to further extend the redemption date of the Preferred Shares and the Class A Shares to November 1, 2017 and, thereafter, to allow for the automatic extension of the Fund for an additional seven years, as well as to provide a special retraction right, to allow shareholders who do not wish to continue their investment upon any such automatic extension to redeem their shares, to change the monthly retraction prices so that such prices are calculated by reference to market price in addition to NAV, to permit the issuance of additional classes of shares of the Fund issuable in series, and to permit the Fund to make return of capital distributions on the Preferred Shares and the Class A Shares. On September 1, 2017, the Fund announced that its term was being automatically extended for an additional seven year period beyond November 1, 2017 to November 1, 2024 as provided for in its articles of incorporation.

The manager and investment manager of the Fund is Mulvihill Capital Management Inc. (formerly Strathbridge Asset Management Inc.) ("Mulvihill", "Manager" or "Investment Manager"). Strathbridge Asset Management Inc. became the manager of the Fund on September 1, 2010 as successor by amalgamation with Mulvihill Fund Services Inc. Subsequently, on January 1, 2022, Strathbridge Asset Management Inc. changed its name to Mulvihill.

The principal offices of the Fund and of Mulvihill are located at 121 King Street West, Suite 2600, Toronto, Ontario, M5H 3T9. The phone numbers, website address and e-mail address of Mulvihill are [phone](toll-free at 1- 800-725-7172),www.mulvihill.comand [e-mail], respectively.

Share Offerings

On October 30, 1996, the Fund completed its initial public offering of 4,000,000 Preferred Shares at a price of $15.00 per Preferred Share and 4,000,000 Class A Shares at a price of $10.00 per Class A Share. On September 29, 2003, the Fund completed a follow-on offering of 8,500,000 Preferred Shares at a price of $15.65 per Preferred Share and 8,500,000 Class A Shares at a price of $11.00 per Class A Share. On October 7, 2003, the over-allotment option in respect of that offering closed, resulting in the issuance of 160,000 Preferred Shares and 160,000 Class A Shares on the same terms. On September 30, 2004, the Fund completed an additional follow-on offering of 6,487,846 Preferred Shares at a price of $15.65 per Preferred Share and 6,487,846 Class A Shares at a price of $11.23 per Class A Share. In connection with the special redemption right approved by shareholders at a special meeting on September 29, 2010, the Class A Shares were consolidated on November 1, 2010 on the basis of 0.738208641 new shares for each old share resulting in a higher Class A net asset value per share. This was done in order to maintain an equal number of Preferred Shares and Class A Shares outstanding subsequent to the special redemption.

On May 6, 2011, the Fund completed an offering (the "Warrant Offering") of warrants (the "Warrants") to holders of its Class A Shares (the "Class A Shareholders"). The Fund issued 9,523,493 Warrants to subscribe for and purchase an aggregate of approximately 4,761,746 Units (as defined below). Each Class A Shareholder received one transferable Warrant for each Class A Share held. The warrants expired on December 15, 2011 and no warrants were exercised.

On November 5, 2012, the Fund filed a short form prospectus relating to an offering of rights ("Rights") to holders ("Shareholders") of its Class A Shares and Preferred Shares. Each Shareholder of record on November 13, 2012 received one Right for each Class A Share or Preferred Share. Two Rights entitled the holder to acquire one Class A Share and one Preferred Share upon payment of the subscription price of $20.88. The Rights expired on December 11, 2012 and 463,724 Rights were exercised.

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