-----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, Ny8iLHAvSlEnCP9/vexKWa1FNP3vVuXXdyJUnmqwMKxI9lTiEB0Y1B9s8ozwKOr6 YqDlKm8Ag2cZOFur4VQSqQ== 0000950123-02-007292.txt : 20020729 0000950123-02-007292.hdr.sgml : 20020729 20020729123945 ACCESSION NUMBER: 0000950123-02-007292 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020531 FILED AS OF DATE: 20020729 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MORGAN STANLEY MUNICIPAL PREMIUM INCOME TRUST CENTRAL INDEX KEY: 0000842891 IRS NUMBER: 133498050 STATE OF INCORPORATION: NY FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-05688 FILM NUMBER: 02712901 BUSINESS ADDRESS: STREET 1: C/O MORGAN STANLEY TRUST STREET 2: HARBOSIDE FINANCIAL CENTER, PLAZA TWO CITY: JERSEY CITY STATE: NJ ZIP: 07311 BUSINESS PHONE: (212) 869-6397 FORMER COMPANY: FORMER CONFORMED NAME: MUNICIPAL PREMIUM INCOME TRUST/ DATE OF NAME CHANGE: 19930721 FORMER COMPANY: FORMER CONFORMED NAME: MUNICIPAL PREMIUM INCOME TRUST/MA DATE OF NAME CHANGE: 19930721 FORMER COMPANY: FORMER CONFORMED NAME: ALLSTATE MUNICIPAL PREIMIUM INCOME TRUST/MA DATE OF NAME CHANGE: 19930721 FORMER COMPANY: FORMER CONFORMED NAME: MORGAN STANLEY DEAN WITTER MUNICIPAL PREMIUM INCOME TRUST DATE OF NAME CHANGE: 19981221 N-30D 1 y61456nv30d.txt MORGAN STANLEY MUNICIPAL PREMIUM INCOME TRUST Morgan Stanley Municipal Premium Income Trust LETTER TO THE SHAREHOLDERS - MAY 31, 2002 Dear Shareholder: Over the 12 month span ended May 31, 2002, the U.S. economy experienced the impacts of recession and September 11 and recovery from each. Consumer spending and rebuilding of business inventories led to an economic rebound in the first quarter of 2002. A steady accumulation of generally positive economic news shows, in our view, that the recession, which began in March 2001, is widely regarded as having ended and that the recovery has begun. The economic turnaround was fueled by monetary and fiscal policies, which sought to stimulate growth. The Federal Reserve Board's monetary policy aggressively cut the benchmark federal funds rate by 475 basis points in 2001 to its current level of 1.75 percent. Congress provided fiscal stimulus by passing reductions in personal tax rates as well as a number of spending initiatives in the aftermath of the September attacks. The Fed's actions and the Treasury Department's cessation of the 30-year bond auction led to a bond-market rally that dropped long-term interest rates to 40-year lows at the end of October. Within the fixed-income market, yields on short maturities declined the most and the yield curve steepened. In November and December, as the economy improved, the bond market reversed course and yields rose. However, demand for fixed-income investments revived in 2002, because of stock-market volatility and Federal Reserve's go-slow approach to changing monetary policy. Municipal Market Conditions The yield on the 30-year insured municipal bond index, which stood at 5.40 percent in May 2001 reached a low of 5.04 percent in October 2001. The Index yield increased to 5.45 percent in March 2002, but declined to 5.29 percent in May 2002 as the Fed's outlook shifted to neutral. Throughout the period, the slope of the municipal yield curve remained positive. The yield pick up for extending maturities from one to 30 years was 340 basis points, compared to 240 basis points last May. The ratio of municipal yields as a percentage of U.S. Treasury yields is used as a gauge of the relative value of municipals. A declining yield ratio indicates stronger relative performance by municipals. The ratio of 30-year municipal bond yields to 30-year Treasuries jumped from 94 percent in May 2001 to 104 percent in October. By the end of May 2002 the ratio had returned to 94 percent. The ratio of 10-year municipal bonds yields to Treasuries declined from 95 percent in October 2001 to 84 percent in May 2002. Morgan Stanley Municipal Premium Income Trust LETTER TO THE SHAREHOLDERS - MAY 31, 2002 continued New-issue volume increased 43 percent, to $286 billion, during 2001. State and local government infrastructure and cash flow needs have contributed to the surge in underwriting activity. Refunding issues, the most interest-rate-sensitive category of underwriting, represented almost one- quarter of the total. California, Florida, New York and Texas, the four states with the heaviest issuance, accounted for 33 percent of national volume. New-issue volume for the first five months of 2002 reached $121 billion. [30-YEAR BOND PERFORMANCE GRAPH] 30-YEAR BOND YIELDS 1997-2002 Insured U.S. Insured Municipal Municipal Treasury Yields/U.S. Treasury Yields Yields Yields (Ratio) 5.60% 6.63% 84.46% 1997 5.70 6.79 83.95 5.65 6.80 83.09 5.90 7.10 83.10 5.75 6.94 82.85 5.65 6.91 81.77 5.60 6.78 82.60 5.25 6.29 83.47 5.48 6.61 82.90 5.40 6.40 84.38 5.35 6.15 86.99 5.30 6.05 87.60 5.15 5.92 86.99 1998 5.15 5.80 88.79 5.20 5.92 87.84 5.25 5.93 88.53 5.35 5.95 89.92 5.20 5.80 89.66 5.20 5.65 92.04 5.18 5.71 90.72 5.03 5.27 95.45 4.95 5.00 99.00 5.05 5.16 97.87 5.00 5.06 98.81 5.05 5.10 99.02 1999 5.00 5.09 98.23 5.10 5.58 91.40 5.15 5.63 91.47 5.20 5.66 91.87 5.30 5.83 90.91 5.47 5.96 91.78 5.55 6.10 90.98 5.75 6.06 94.88 5.85 6.05 96.69 6.03 6.16 97.89 6.00 6.29 95.39 5.97 6.48 92.13 2000 6.18 6.49 95.22 6.04 6.14 98.37 5.82 5.83 99.83 5.91 5.96 99.16 5.91 6.01 98.34 5.84 5.90 98.98 5.73 5.78 99.13 5.62 5.67 99.12 5.74 5.89 97.45 5.65 5.79 97.58 5.55 5.61 98.93 5.27 5.46 96.52 2001 5.30 5.50 96.36 5.27 5.31 99.25 5.26 5.44 96.69 5.45 5.79 94.13 5.40 5.75 93.91 5.35 5.76 92.88 5.16 5.52 93.48 5.07 5.37 94.41 5.20 5.42 95.94 5.04 4.87 103.49 5.17 5.29 97.73 5.36 5.47 97.99 2002 5.22 5.43 96.13 5.14 5.42 94.83 5.43 5.80 93.62 5.30 5.59 94.81 5.29 5.62 94.13 Source: Municipal Market Data -- A Division of Thomson Financial Municipal Group and Bloomberg L.P. Performance During the 12-month period ended May 31, 2002, the net asset value (NAV) of Morgan Stanley Municipal Premium Income Trust (PIA) increased from $9.88 to $10.04 per share. Based on this change, plus a reinvestment of tax-free dividends totaling $0.54 per share and long-term capital gain distributions of $0.037 per share, the Fund's total NAV return was 8.35 percent. PIA's value on the New York Stock Exchange (NYSE) increased from $8.88 to $9.02 per share during this period. Based on this change plus reinvestment of dividends and distributions, PIA's total market 2 Morgan Stanley Municipal Premium Income Trust LETTER TO THE SHAREHOLDERS - MAY 31, 2002 continued return was 8.30 percent. As of May 31, 2002, PIA's share price was at a 10.16 percent discount to its NAV. Monthly dividends for the third quarter of 2002, declared in June, were unchanged at $0.045 per share. The Fund's level of undistributed net investment income increased to $0.118 per share on May 31, 2002 versus $0.077 per share a year ago. Dividend levels reflect the Fund's current earnings which have benefited from the lower short-term borrowing costs of Auction Rate Preferred Shares (ARPS). Portfolio Structure PIA's total assets including ARPS of $307 million were diversified among 12 long-term sectors and 72 credits. The portfolio's weighted average maturity and call protection were 19 years and 6 years, respectively. Average duration, a measure of sensitivity to interest-rate changes, was 7.3 years. Generally, bonds with longer durations have greater volatility. The accompanying charts provide current information on the portfolio's credit quality, maturity distribution, sector allocations and geographic concentrations. Optional call (redemptions) provisions are also shown by year with their respective cost (book) yields. The Impact of Leveraging As discussed in previous shareholder reports, the income available for distribution to common shareholders includes incremental income provided by the Fund's outstanding 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 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 leverage also increases the price volatility of common shares and has the effect of extending portfolio duration. During the 12-month period, ARPS leverage contributed approximately $0.13 per share to common share earnings. The Fund's five ARPS series totaled $100 million and represented 33 percent of net assets including ARPS. Yields on the Fund's two weekly ARPS series ranged between 1.00 percent and 3.10 percent. The yields on the Fund's two series with annual auctions in July 2002 and September 2002 were 2.85 percent and 2.50 percent, respectively. In January 2002, ARPS series D was auctioned at 2.55 percent for 24 months. 3 Morgan Stanley Municipal Premium Income Trust LETTER TO THE SHAREHOLDERS - MAY 31, 2002 continued Looking Ahead The Federal Reserve Board's cautious approach toward tightening has helped stabilize the fixed-income markets. However, we believe that the economic recovery will eventually lead the Fed to raise short-term interest rates. Despite market uncertainty, we believe that the relationship between high-grade tax-exempt securities and Treasuries continues to favor municipal bonds as an attractive choice for tax-conscious investors. The Fund's procedure for reinvesting all dividends and distributions in common shares is through purchases in the open market. This method helps 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. 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. During the 12-month period ended May 31, 2002, the Fund purchased and retired 704,600 shares of common stock at a weighted average market discount of 10.29 percent. We would like to take this opportunity to notify shareholders that in January 2002, Joseph R. Arcieri and Robert W. Wimmel joined James F. Willison as portfolio managers for the Fund. We appreciate your ongoing support of Morgan Stanley Municipal Premium Income Trust and look forward to continuing to serve your investment needs. Very truly yours, /s/ CHARLES A. FIUMEFREDDO /s/ MITCHELL M. MERIN Charles A. Fiumefreddo Mitchell M. Merin Chairman of the Board President
4 Morgan Stanley Municipal Premium Income Trust LETTER TO THE SHAREHOLDERS - MAY 31, 2002 continued [LARGEST SECTORS BAR GRAPH] LARGEST SECTORS AS OF MAY 31, 2002 (% Of LONG-TERM PORTFOLIO) TRANSPORTATION 15% HOSPITAL 13% IDR/PCR* 13% WATER & SEWER 13% GENERAL OBLIGATION 11% ELECTRIC 10% EDUCATION 9% REFUNDED 5%
* INDUSTRIAL DEVELOPMENT/POLLUTION CONTROL REVENUE PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE. [CREDIT RATINGS PIE CHART] CREDIT RATINGS AS OF MAY 31, 2002 (% OF LONG-TERM PORTFOLIO) Aaa or AAA 69% Aa or AA 19% A or A 1% Baa or BBB 5% Ba or BB 3% NR 3%
AS MEASURED BY MOODY'S INVESTMENT SERVICE, INC. OR STANDARD & POOR'S CORP. PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE. [DISTRIBUTION BY MATURITY BAR GRAPH] DISTRIBUTION BY MATURITY (% OF LONG-TERM PORTFOLIO) WEIGHTED AVERAGE MATURITY: 19 YEARS 1-5 YEARS 4.1% 5-10 YEARS 13.3% 10-15 YEARS 9.3% 15-20 YEARS 22.9% 20-30 YEARS 47.2% 30+ YEARS 3.2%
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE. 5 Morgan Stanley Municipal Premium Income Trust LETTER TO THE SHAREHOLDERS - MAY 31, 2002 continued CALL AND COST (BOOK) YIELD STRUCTURE (BASED ON LONG-TERM PORTFOLIO) MAY 31, 2002 WEIGHTED AVERAGE CALLS PROTECTION: 6 YEARS PERCENT CALLABLE
YEARS BONDS CALLIABLE - ----------- 2002 15.0% 2003 4.0% 2004 5.0% 2005 10.0% 2006 9.0% 2007 3.0% 2008 20.0% 2009 4.0% 2010 7.0% 2011 16.0% 2012 7.0%
WEIGHTED AVERAGE BOOK YIELD: 5.8% COST (BOOK) YIELD* 2002 6.8% 2003 7.0% 2004 6.4% 2005 6.1% 2006 5.5% 2007 6.2% 2008 5.4% 2009 5.7% 2010 5.7% 2011 5.3% 2012 5.3%
* COST OR "BOOK" YIELD IS THE ANNUAL INCOME EARNED ON A PORTFOLIO INVESTMENT BASED ON ITS ORIGINAL PURCHASE PRICE BEFORE FUND OPERATING EXPENSES. FOR EXAMPLE, THE FUND IS EARNING A BOOK YIELD OF 6.8% ON 15% OF THE LONG-TERM PORTFOLIO THAT IS CALLABLE IN 2002. PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE. 6 Morgan Stanley Municipal Premium Income Trust LETTER TO THE SHAREHOLDERS - MAY 31, 2002 continued Geographic Summary of Investments Based on Market Value as a Percent of Total Investments Alabama................ 2.7% Arizona................ 4.6 California............. 3.3 Colorado............... 4.7 Connecticut............ 0.7 Florida................ 2.5 Georgia................ 5.7 Hawaii................. 1.1 Illinois............... 4.1 Indiana................ 0.7 Kansas................. 4.6 Kentucky............... 1.1 Louisiana.............. 0.2 Massachusetts.......... 8.2 Michigan............... 3.9 Minnesota.............. 2.0 Missouri............... 0.9 New Jersey............. 2.4 New York............... 7.0 North Carolina......... 2.8 Ohio................... 4.3 Pennsylvania........... 3.7 Puerto Rico............ 0.8 South Carolina......... 2.8 Tennessee.............. 1.3 Texas.................. 15.3 Utah................... 1.8 Virginia............... 1.9 Washington............. 3.3 Wisconsin.............. 1.6 ----- Total.................. 100.0% =====
7 Morgan Stanley Municipal Premium Income Trust RESULTS OF ANNUAL MEETING * * * On December 18, 2001, an annual meeting of the Fund's shareholders was held for the purpose of voting on one matter, the results of which were as follows: (1) Election of Trustees: Edwin J. Garn For.................................................. 16,922,160 Withheld............................................. 361,806 Michael E. Nugent For.................................................. 16,950,054 Withheld............................................. 333,912 Philip J. Purcell For.................................................. 16,909,190 Withheld............................................. 374,776
The following Trustees were not standing for reelection at this meeting: Michael Bozic, Charles A. Fiumefreddo, Wayne E. Hedien, James F. Higgins, Dr. Manuel H. Johnson and John L. Schroeder. 8 Morgan Stanley Municipal Premium Income Trust PORTFOLIO OF INVESTMENTS - MAY 31, 2002
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ---------------------------------------------------------------------------------------------------------- Tax-Exempt Municipal Bonds (143.0%) General Obligation (16.3%) $ 5,000 Los Angeles Unified School District, California, 1997 Ser B (FGIC)............................................... 5.00 % 07/01/23 $ 4,935,650 2,000 Connecticut, 2001 Ser D.................................. 5.00 11/15/20 2,005,940 3,000 Chicago Board of Education, Illinois, Ser 2001 C (FSA)... 5.00 12/01/26 2,873,370 3,500 Massachusetts, 1995 Ser A (Ambac)........................ 5.00 07/01/12 3,719,240 2,000 Michigan Municipal Bond Authority, School Ser 1998....... 5.25 12/01/13 2,107,960 3,000 Barberton City School District, Ohio, Ser 1998 (FGIC).... 5.125 11/01/22 3,006,990 3,500 Shelby County, Tennessee, Refg 1995 Ser A................ 5.625 04/01/11 3,776,815 5,000 La Joya Independent School District, Texas, Ser 2000 (PSF).................................................. 5.50 02/15/25 5,093,800 5,890 Washington, Ser 1993 A................................... 5.75 10/01/17 6,066,464 - -------- ------------- 32,890 33,586,229 - -------- ------------- Educational Facilities Revenue (12.4%) 8,500 University of Northern Colorado, Refg Ser 2001 (Ambac)... 5.00 06/01/31 8,271,690 5,500 Oakland University, Michigan, Ser 1995 (MBIA)............ 5.75 05/15/26 5,674,075 New York State Dormitory Authority, 4,000 State University Refg Ser 1993 A....................... 5.50 05/15/08 4,377,160 890 State University Refg Ser 1999 B....................... 7.50 05/15/11 1,067,511 1,250 Ohio State University, General Receipts Ser 1999 A....... 5.75 12/01/24 1,319,075 5,000 Swarthmore Boro Authority, Pennsylvania, Swarthmore College Ser 2001....................................... 5.00 09/15/31 4,806,450 - -------- ------------- 25,140 25,515,961 - -------- ------------- Electric Revenue (14.6%) 1,550 Los Angeles Department of Water & Power, California, 2001 Ser A.................................................. 5.00 07/01/24 1,517,466 750 Sacramento Municipal Utility District, California, Refg 1994 Ser I (MBIA)...................................... 6.00 01/01/24 795,090 2,000 Orlando Utilities Commission, Florida, Water & Electric Ser 2001............................................... 5.25 10/01/19 2,057,720 2,950 Kansas City, Kansas, Utility Refg & Impr Ser 1994 (FGIC)................................................. 6.375 09/01/23 3,211,134 7,750 South Carolina Public Service Authority, 1995 Refg Ser A (Ambac)................................................ 6.25 01/01/22 8,371,627 8,500 San Antonio, Texas, Electric and Gas Refg Ser 1994 C..... 7.443++ 02/01/06 8,986,625 5,000 Intermountain Power Agency, Utah, Refg 1997 Ser B (MBIA)................................................. 5.75 07/01/19 5,297,550 - -------- ------------- 28,500 30,237,212 - -------- ------------- Hospital Revenue (18.2%) 5,000 Birmingham-Carraway Special Care Facilities Financing Authority, Alabama, Carraway Methodist Health Ser 1995 A (Connie Lee)......................................... 5.875 08/15/15 5,232,850 2,925 Colbert County - Northwest Health Care Authority, Alabama, Hellen Keller Hospital Refg Ser 1990.......... 8.75 06/01/09 2,959,076 10,000 Boston, Massachusetts, Boston City Hospital - FHA Mtge Refg Ser B............................................. 5.75 02/15/13 10,052,000
See Notes to Financial Statements 9 Morgan Stanley Municipal Premium Income Trust PORTFOLIO OF INVESTMENTS - MAY 31, 2002 continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ---------------------------------------------------------------------------------------------------------- $ 4,500 New Jersey Health Care Facilities Financing Authority, St Barnabas Medical Center Ser 1998 B (MBIA).............. 4.75 % 07/01/28 $ 4,230,810 4,000 North Carolina Medical Care Commission, Duke University Health Ser 1998 A...................................... 4.75 06/01/28 3,604,480 2,985 Lehigh County General Purpose Authority, Pennsylvania, St Lukes Hospital Ser 1992 (Ambac)........................ 6.25 07/01/22 3,053,565 3,950 Washington Health Care Facilities Authority, Swedish Health Ser 1998 (Ambac)................................ 5.125 11/15/22 3,873,884 4,750 Wisconsin Health & Educational Facilities Authority, Wausau Hospital Refg Ser 1998 A (Ambac)................ 5.125 08/15/20 4,696,990 - -------- ------------- 38,110 37,703,655 - -------- ------------- Industrial Development/Pollution Control Revenue (18.3%) 8,210 Pima County Industrial Development Authority, Arizona, Tucson Electric Power Co Refg Ser 1988 A (FSA)......... 7.25 07/15/10 8,613,932 10,000 Burlington, Kansas, Kansas Gas & Electric Co Ser 1991 (MBIA)................................................. 7.00 06/01/31 10,405,000 8,000 New York City Industrial Development Agency, New York, Brooklyn Navy Yard Cogeneration Partners LP Ser 1997 (AMT).................................................. 5.65 10/01/28 7,801,440 10,000 Alliance Airport Authority, Texas, AMR Corp Ser 1990 (AMT).................................................. 7.50 12/01/29 9,265,500 1,750 Brazos River Authority, Texas, TXU Electric Refg Ser 2001 C (AMT)....................................... 5.75 05/01/36 1,756,598 - -------- ------------- 37,960 37,842,470 - -------- ------------- Mortgage Revenue - Multi-Family (4.2%) Massachusetts Housing Finance Agency, 1,790 Rental 1994 Ser A (AMT) (Ambac)........................ 6.60 07/01/14 1,879,357 4,340 Rental 1994 Ser A (AMT) (Ambac)........................ 6.65 07/01/19 4,516,855 2,185 Minnesota Housing Finance Agency, Rental 1995 Ser D (MBIA)................................................. 6.00 02/01/22 2,239,166 - -------- ------------- 8,315 8,635,378 - -------- ------------- Mortgage Revenue - Single Family (1.8%) 1,220 Colorado Housing & Finance Authority, Ser 1997 A-2 (AMT).................................................. 7.25 05/01/27 1,296,567 265 Kansas City Leavenworth & Lenexa, Kansas, GNMA-Backed Ser 1998 C (AMT)........................................... 8.00 11/01/20 271,935 95 Olathe, Kansas, GNMA Collateralized Ser 1989 A (AMT) (MBIA)................................................. 8.00 11/01/20 95,076 625 New Orleans Home Mortgage Authority, Louisiana, GNMA Collateralized 1989 Ser B-1 (AMT)...................... 8.25 12/01/21 625,731 1,300 Missouri Housing Development Commission, Homeownership 1996 Ser D (AMT)....................................... 7.10 09/01/27 1,400,685 - -------- ------------- 3,505 3,689,994 - -------- -------------
See Notes to Financial Statements 10 Morgan Stanley Municipal Premium Income Trust PORTFOLIO OF INVESTMENTS - MAY 31, 2002 continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ---------------------------------------------------------------------------------------------------------- Public Facilities Revenue (4.2%) $ 3,000 Broward County School Board, Florida, Ser 2001 A COPs (FSA).................................................. 5.00 % 07/01/26 $ 2,926,050 2,000 Metropolitan Pier & Exposition Authority, Illinois, McCormick Place Refg Ser 1998 A (FGIC)................. 5.50 06/15/18 2,155,320 Saint Paul Independent School District #625, Minnesota, 1,700 Ser 1995 C COPs........................................ 5.45 02/01/11 1,753,839 1,800 Ser 1995 C COPs........................................ 5.50 02/01/12 1,911,564 - -------- ------------- 8,500 8,746,773 - -------- ------------- Transportation Facilities Revenue (21.5%) 5,000 Arizona Transportation Board, Highway Ser 2001........... 5.25 07/01/19 5,149,000 4,000 Colorado Department of Transportation, Ser 2000 (Ambac)................................................ 6.00 06/15/14 4,483,760 2,500 Miami-Dade County, Florida, Miami International Airport Ser 2000 B (FGIC)...................................... 5.75 10/01/24 2,651,650 1,940 Atlanta, Georgia, Airport Ser 1994 B (AMT) (Ambac)....... 6.00 01/01/21 2,020,064 Chicago, Illinois, 5,000 Chicago-O'Hare International Airport Ser 1996 A (Ambac)................................................ 5.625 01/01/12 5,288,050 1,805 Midway Airport 1994 Ser A (AMT) (MBIA)................. 6.25 01/01/24 1,885,178 3,000 New Jersey Transportation Trust Authority, 1998 Ser A (FSA).................................................. 4.50 06/15/19 2,862,390 3,500 Pennsylvania Turnpike Commission, Ser R 2001 (Ambac)..... 5.00 12/01/30 3,371,375 2,800 Puerto Rico Highway & Transportation Authority, Ser 1998 A...................................................... 4.75 07/01/38 2,528,484 8,000 Austin, Texas, Airport Prior Lien Ser 1995 A (AMT) (MBIA)................................................. 6.125 11/15/25 8,466,800 5,000 Pocahontas Parkway Association, Virginia, Route 895 Connector Ser 1998 A................................... 5.50 08/15/28 3,663,400 2,000 Richmond Metropolitan Authority, Virginia, Expressway & Refg Ser 1998 (FGIC)................................... 5.25 07/15/17 2,129,180 - -------- ------------- 44,545 44,499,331 - -------- ------------- Water & Sewer Revenue (19.2%) 2,500 Coachella, California, Ser 1992 COPs (FSA)............... 6.10 03/01/22 2,557,850 Atlanta, Georgia, Water & Wastewater 3,000 Ser 1999 A (FGIC)...................................... 5.50 11/01/22 3,210,360 3,000 Ser 2001 A (MBIA)...................................... 5.00 11/01/33 2,885,040 4,000 Augusta, Georgia, Water & Sewerage Ser 2000 (FSA)........ 5.25 10/01/22 4,049,760 5,000 Rockdale County Water & Sewage Authority, Georgia, Ser 1999 A (MBIA).......................................... 5.50 07/01/25 5,137,400 Indianapolis Local Public Improvement Bond Bank, Indiana, Waterworks 1,000 Ser 2002 A (MBIA)...................................... 5.50 01/01/18 1,057,030 1,000 Ser 2002 A (MBIA)...................................... 5.50 01/01/19 1,051,310 3,215 Louisville & Jefferson County Metropolitan Sewer District, Kentucky, Ser 2001 A (MBIA).................. 5.375 05/15/22 3,293,703 5,000 Massachusetts Water Resources Authority, 1998 Ser A (FSA).................................................. 4.75 08/01/27 4,615,950 4,000 Detroit, Michigan, Water Supply Sr Lien Ser 2000 A (FGIC)................................................. 5.25 07/01/33 3,975,520
See Notes to Financial Statements 11 Morgan Stanley Municipal Premium Income Trust PORTFOLIO OF INVESTMENTS - MAY 31, 2002 continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - ---------------------------------------------------------------------------------------------------------- $ 3,000 Cleveland, Ohio, Waterworks Impr & Refg 1998 Ser I (FSA).................................................. 5.00 % 01/01/23 $ 2,954,400 5,000 Austin, Texas, Water & Wastewater Refg Ser 2001 A (FSA).................................................. 5.125 05/15/27 4,890,350 - -------- ------------- 39,715 39,678,673 - -------- ------------- Other Revenue (4.5%) 8,000 New York Local Government Assistance Corporation, Refg Ser 1997 B (MBIA)...................................... 5.00 04/01/21 7,941,600 1,350 Cuyahoga County, Ohio, The Medical Center Co Ser 1998 (Ambac)................................................ 5.125 02/15/28 1,320,273 - -------- ------------- 9,350 9,261,873 - -------- ------------- Refunded (7.8%) 3,000 Hawaii, 1999 Ser CT (FSA)................................ 5.875 09/01/09+ 3,415,950 1,340 Missouri Health & Educational Facilities Authority, Missouri, Baptist Medical Center Refg Ser 1989 (ETM)... 7.625 07/01/18 1,373,366 4,000 Montgomery County, Ohio, Franciscan Medical Center - Dayton Ser 1997 (ETM)......................... 5.50 07/01/10+ 4,359,520 4,000 Lower Colorado River Authority, Texas, Jr Lien Seventh Ser (FSA) (ETM)........................................ 4.75 01/01/28 3,784,640 San Antonio, Texas, 3,000 Electric & Gas Refg Ser 1994 C (ETM)................... 4.70 02/01/06 3,170,370 - -------- ------------- 15,340 16,103,846 - -------- ------------- 291,870 Total Tax-Exempt Municipal Bonds (Cost $285,762,154)......................... 295,501,395 - -------- ------------- Short Term Tax-Exempt Municipal Obligations (2.6%) 4,700 University of North Carolina, Hospitals at Chapel Hill Ser 2001 A (Demand 06/03/02)........................... 1.60* 02/15/31 4,700,000 700 Harris County Health Facilities Development Corporation, Texas, Methodist Hospital Ser 1994 (Demand 06/03/02)... 1.55* 12/01/25 700,000 - -------- ------------- 5,400 Total Short-Term Tax-Exempt Municipal Obligations (Cost $5,400,000).......... 5,400,000 - -------- -------------
$297,270 Total Investments (Cost $291,162,154) (a)................... 145.6% 300,901,395 ======== Other Assets in Excess of Liabilities....................... 2.9 5,916,453 Preferred Shares of Beneficial Interest..................... (48.5) (100,139,240) ----- ------------- Net Assets Applicable to Common Shareholders................ 100.0% $ 206,678,608 ===== =============
See Notes to Financial Statements 12 Morgan Stanley Municipal Premium Income Trust PORTFOLIO OF INVESTMENTS - MAY 31, 2002 continued - --------------------- Note: The categories of investments are shown as a percentage of net assets applicable to common shareholders. AMT Alternative Minimum Tax. COPs Certificates of Participation. ETM Escrowed to maturity. PSF Texas Permanent School Fund Guarantee Program. * Current coupon of variable rate demand obligation. + Prerefunded to call date shown. ++ Current coupon rate for residual interest bond. This rate resets periodically as the auction rate on the related short-term security fluctuates. (a) The aggregate cost for federal income tax purposes approximates the aggregate cost for book purposes. The aggregate gross unrealized appreciation is $11,841,616 and the aggregate gross unrealized depreciation is $2,102,375 resulting in net unrealized appreciation of $9,739,241. Bond Insurance: - --------------- Ambac Ambac Assurance Corporation. Connie Lee Connie Lee Insurance Company - A wholly owned subsidiary of Ambac Assurance Corporation. 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 Applicable to Common Shareholders Alabama................ 4.0% Arizona................ 6.7 California............. 4.7 Colorado............... 6.8 Connecticut............ 1.0 Florida................ 3.7 Georgia................ 8.4 Hawaii................. 1.7 Illinois............... 5.9 Indiana................ 1.0 Kansas................. 6.8 Kentucky............... 1.6 Louisiana.............. 0.3 Massachusetts.......... 12.0 Michigan............... 5.7 Minnesota.............. 2.9 Missouri............... 1.3 New Jersey............. 3.4 New York............... 10.2 North Carolina......... 4.0 Ohio................... 6.3 Pennsylvania........... 5.4 Puerto Rico............ 1.2 South Carolina......... 4.0 Tennessee.............. 1.8 Texas.................. 22.3 Utah................... 2.6 Virginia............... 2.8 Washington............. 4.8 Wisconsin.............. 2.3 ----- Total.................. 145.6% =====
See Notes to Financial Statements 13 Morgan Stanley Municipal Premium Income Trust FINANCIAL STATEMENTS Statement of Assets and Liabilities May 31, 2002 Assets: Investments in securities, at value (cost $291,162,154)....................................... $300,901,395 Cash........................................................ 83,312 Receivable for: Interest................................................ 5,367,249 Investments sold........................................ 490,417 Prepaid expenses and other assets........................... 312,282 ------------ Total Assets............................................ 307,154,655 ------------ Liabilities: Payable for: Investment advisory fee................................. 117,475 Administration fee...................................... 73,422 Shares of beneficial interest repurchased............... 30,448 Accrued expenses............................................ 115,462 ------------ Total Liabilities....................................... 336,807 ------------ Preferred shares of beneficial interest, (at liquidation value) (1,000,000 shares authorized of non-participating $.01 par value, 1,000 shares outstanding).............................................. 100,139,240 ------------ Net Assets Applicable to Common Shareholders............ $206,678,608 ============ Composition of Net Assets Applicable to Common Shareholders: Common shares of beneficial interest (unlimited shares authorized of $.01 par value, 20,579,649 shares outstanding)............................ $193,878,828 Net unrealized appreciation................................. 9,739,241 Accumulated undistributed net investment income............. 2,433,201 Accumulated undistributed net realized gain................. 627,338 ------------ Net Assets Applicable to Common Shareholders............ $206,678,608 ============ Net Asset Value Per Common Share, ($206,678,608 divided by 20,579,649 common shares outstanding).............................................. $10.04 ======
See Notes to Financial Statements 14 Morgan Stanley Municipal Premium Income Trust FINANCIAL STATEMENTS continued Statement of Operations For the year ended May 31, 2002 Net Investment Income: Interest Income............................................. $17,238,529 ----------- Expenses Investment advisory fee..................................... 1,244,114 Administration fee.......................................... 777,571 Auction commission fees..................................... 311,016 Professional fees........................................... 72,185 Transfer agent fees and expenses............................ 54,980 Auction agent fees.......................................... 37,659 Shareholder reports and notices............................. 29,232 Registration fees........................................... 25,799 Trustees' fees and expenses................................. 17,676 Custodian fees.............................................. 17,444 Other....................................................... 29,896 ----------- Total Expenses.......................................... 2,617,572 Less: expense offset........................................ (17,423) ----------- Net Expenses............................................ 2,600,149 ----------- Net Investment Income................................... 14,638,380 ----------- Net Realized and Unrealized Gain: Net realized gain........................................... 2,071,243 Net change in unrealized appreciation....................... 634,611 ----------- Net Gain................................................ 2,705,854 ----------- Dividends to preferred shareholders from net investment income.................................................... (2,592,000) ----------- Net Increase................................................ $14,752,234 ===========
See Notes to Financial Statements 15 Morgan Stanley Municipal Premium Income Trust FINANCIAL STATEMENTS continued
Statement of Changes in Net Assets FOR THE YEAR FOR THE YEAR ENDED ENDED MAY 31, 2002 MAY 31, 2001 ------------ ------------ Increase (Decrease) in Net Assets: Operations: Net investment income....................................... $ 14,638,380 $ 15,029,672 Net realized gain........................................... 2,071,243 809,156 Net change in unrealized appreciation....................... 634,611 16,630,705 Dividends to preferred shareholders from net investment income.................................................... (2,592,000) (4,021,786) ------------ ------------ Net Increase............................................ 14,752,234 28,447,747 ------------ ------------ Dividends and Distributions to Common Shareholders from: Net investment income....................................... (11,336,694) (11,710,175) Net realized gain........................................... (780,215) -- ------------ ------------ Total Dividends and Distributions....................... (12,116,909) (11,710,175) ------------ ------------ Decrease from transactions in common shares of beneficial interest.................................................. (6,313,186) (6,636,662) ------------ ------------ Net Increase (Decrease)................................. (3,677,861) 10,100,910 Net Assets Applicable to Common Shareholders: Beginning of period......................................... 210,356,469 200,255,559 ------------ ------------ End of Period (Including accumulated undistributed net investment income of $2,433,201 and $1,628,402, respectively)................. $206,678,608 $210,356,469 ============ ============
See Notes to Financial Statements 16 Morgan Stanley Municipal Premium Income Trust NOTES TO FINANCIAL STATEMENTS - MAY 31, 2002 1. ORGANIZATION AND ACCOUNTING POLICIES Morgan Stanley Municipal Premium Income Trust (the "Fund"), formerly Morgan Stanley Dean Witter Municipal Premium Income Trust, 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 substantially all of its taxable and nontaxable income to its shareholders. Accordingly, no federal income tax provision is required. 17 Morgan Stanley Municipal Premium Income Trust NOTES TO FINANCIAL STATEMENTS - MAY 31, 2002 continued 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/ADMINISTRATION AGREEMENTS Pursuant to an Investment Advisory Agreement with Morgan Stanley Investment Advisors Inc. (the "Investment Manager"), the Fund pays an advisory fee, calculated weekly and payable monthly, by applying the annual rate of 0.40% to the Fund's weekly total net assets. Pursuant to an Administration Agreement with Morgan Stanley Services Company Inc. (the "Administrator"), an affiliate of the Investment Advisor, the Fund pays an administration fee, calculated weekly and payable monthly, by applying the annual rate of 0.25% to the Fund's weekly total net assets. 3. 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, 2002 aggregated $33,059,339 and $52,327,275, respectively. Morgan Stanley Trust, an affiliate of the Investment Advisor and Administrator, is the Fund's transfer agent. At May 31, 2002, the Fund had transfer agent fees and expenses payable of approximately $3,400. 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 18 Morgan Stanley Municipal Premium Income Trust NOTES TO FINANCIAL STATEMENTS - MAY 31, 2002 continued May 31, 2002 included in Trustees' fees and expenses in the Statement of Operations amounted to $8,759. At May 31, 2002, the Fund had an accrued pension liability of $57,497 which is included in accrued expenses in the Statement of Assets and Liabilities. 4. 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, 2000....................................... 22,048,248 $220,482 $206,587,082 Treasury shares purchased and retired (weighted average discount 10.77%)*......................................... (763,999) (7,640) (6,629,022) ---------- -------- ------------ Balance, May 31, 2001....................................... 21,284,249 212,842 199,958,060 Treasury shares purchased and retired (weighted average discount 10.29%)*......................................... (704,600) (7,046) (6,306,140) Reclassification due to permanent book/tax differences...... -- -- 21,112 ---------- -------- ------------ Balance, May 31, 2002....................................... 20,579,649 $205,796 $193,673,032 ========== ======== ============
- --------------------- * The Trustees have voted to retire the shares purchased. 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.
AMOUNT IN NEXT RANGE OF SERIES SHARES* THOUSANDS* RATE* RESET DATE DIVIDEND RATES** - ------ ------- ---------- ----- ---------- ---------------- A 200 20,000 1.49% 06/05/02 1.149% - 3.10% B 200 20,000 1.49 06/05/02 1.003 - 3.10 C 200 20,000 2.50 09/04/02 2.50 - 4.25 D 200 20,000 2.55 01/07/04 2.55 - 3.90 E 200 20,000 2.85 07/03/02 2.72 - 3.05
- --------------------- * As of May 31, 2002. ** For the year ended May 31, 2002. 19 Morgan Stanley Municipal Premium Income Trust NOTES TO FINANCIAL STATEMENTS - MAY 31, 2002 continued Subsequent to May 31, 2002 and up through July 5, 2002, the Fund paid dividends to each of the Series A through E at rates ranging from 1.30% to 2.85% in the aggregate amount of $183,058. 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. DIVIDENDS TO COMMON SHAREHOLDERS The Fund declared the following dividends from net investment income:
DECLARATION AMOUNT RECORD PAYABLE DATE PER SHARE DATE DATE - --------------------- --------- ------------------ ------------------ March 26, 2002 $0.045 June 7, 2002 June 21, 2002 June 25, 2002 $0.045 July 5, 2002 July 19, 2002 June 25, 2002 $0.045 August 9, 2002 August 23, 2002 June 25, 2002 $0.045 September 6, 2002 September 20, 2002
7. FEDERAL INCOME TAX STATUS During the year ended May 31, 2002, the Fund utilized its net capital loss carryover of approximately $648,000. As of May 31, 2002, the Fund had temporary book/tax differences primarily attributable to book amortization of discount on debt securities and dividend payable and permanent book/tax differences primarily attributable to tax adjustments on debt securities sold and market discount retained by the Fund. To reflect reclassifications arising from the permanent differences, accumulated net realized gain was charged $15,380, accumulated undistributed net investment income was charged $5,732 and paid-in-capital was credited $21,112. 8. EXPENSE OFFSET The expense offset represents a reduction of the custodian fees for earnings on cash balances maintained by the Fund. 20 Morgan Stanley Municipal Premium Income Trust NOTES TO FINANCIAL STATEMENTS - MAY 31, 2002 continued 9. RISKS RELATING TO CERTAIN FINANCIAL INSTRUMENTS The Fund may invest a portion of its assets in residual interest bonds, which are inverse floating rate municipal obligations. The prices of these securities are subject to greater market fluctuations during periods of changing prevailing interest rates than are comparable fixed rate obligations. At May 31, 2002, the Fund held positions in residual interest bonds having a total value of $8,986,625, which represents 4.3% of net assets applicable to common shareholders. 10. CHANGE IN ACCOUNTING POLICY Effective June 1, 2001, the Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies, as revised, related to premiums and discounts on debt securities. The cumulative effect of this accounting change had no impact on the net assets of the Fund, but resulted in a $100,845 increase in the cost of securities and a corresponding increase to accumulated undistributed net investment income based on securities held as of May 31, 2001. The effect of this change for the year ended May 31, 2002 was to decrease net investment income by $11,028; decrease unrealized appreciation by $4,352; and increase net realized gains by $15,380. The statement of changes in net assets and the financial highlights for prior periods have not been restated to reflect this change. 11. CHANGE IN FINANCIAL STATEMENT CLASSIFICATION FOR PREFERRED SHARES In accordance with the provisions of EITF D-98, "Classification and Measurement of Redeemable Securities", effective for the current reporting period, the Fund has reclassified its Preferred Shares out of the composition of net assets section on the Statement of Assets and Liabilities. In addition, dividends to preferred shareholders are now classified as a component of operations on the Statement of Operations, the Statement of Changes in Net Assets and the Financial Highlights. Additionally, the categories of investments on the Portfolio of Investments are shown as a percentage of net assets applicable to common shareholders. Prior year amounts have been reclassified to conform to this period's presentation. This change has no impact on the net assets applicable to common shareholders of the Fund. 21 Morgan Stanley 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, --------------------------------------------------------- 2002 2001 2000 1999 1998 --------- --------- --------- --------- --------- Selected Per Share Data: Net asset value, beginning of period....................... $ 9.88 $ 9.08 $10.03 $10.41 $10.08 ------ ------ ------ ------ ------ Income (loss) from investment operations: Net investment income*................................. 0.70 0.69 0.68 0.70 0.75 Net realized and unrealized gain (loss)................ 0.13 0.80 (0.96) (0.18) 0.33 Common share equivalent of dividends paid to preferred shareholders*.......................................... (0.12) (0.19) (0.16) (0.14) (0.15) ------ ------ ------ ------ ------ Total income (loss) from investment operations............. 0.71 1.30 (0.44) 0.38 0.93 ------ ------ ------ ------ ------ Less dividends and distributions from: Net investment income.................................. (0.54) (0.54) (0.53) (0.54) (0.60) Net realized gain...................................... (0.04) -- (0.07) (0.26) -- ------ ------ ------ ------ ------ Total dividends and distributions.......................... (0.58) (0.54) (0.60) (0.80) (0.60) ------ ------ ------ ------ ------ Anti-dilutive effect of acquiring treasury shares*......... 0.03 0.04 0.09 0.04 -- ------ ------ ------ ------ ------ Net asset value, end of period............................. $10.04 $ 9.88 $ 9.08 $10.03 $10.41 ====== ====== ====== ====== ====== Market value, end of period................................ $ 9.02 $ 8.88 $ 7.75 $ 8.75 $9.625 ====== ====== ====== ====== ====== Total Return+.............................................. 8.30% 21.92% (4.55)% (1.21)% 9.08% Ratios to Average Net Assets of Common Shareholders: Expenses (before expense offset)........................... 1.24%(1) 1.26%(1) 1.28%(1) 1.19%(1) 1.18%(1) Net investment income before preferred stock dividends..... 6.95% 7.12% 7.30% 6.73% 7.31% Preferred stock dividends.................................. 1.23% 1.91% 1.74% 1.39% 1.46% Net investment income available to common shareholders..... 5.72% 5.21% 5.56% 5.34% 5.85% Supplemental Data: Net assets applicable to common shareholders, end of period, in thousands............................... $206,679 $210,356 $200,256 $236,496 $254,392 Asset coverage on preferred shares at end of period........ 306% 310% 300% 336% 354% Portfolio turnover rate.................................... 11% 12% 11% 17% 21%
- --------------------- * The per share amounts were computed using an average number of common shares outstanding during the period. + Total 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 return does not reflect brokerage commissions. (1) Does not reflect the effect of expense offset of 0.01%.
See Notes to Financial Statements 22 Morgan Stanley Municipal Premium Income Trust INDEPENDENT AUDITORS' REPORT To the Shareholders and Board of Trustees of Morgan Stanley Municipal Premium Income Trust: We have audited the accompanying statement of assets and liabilities of Morgan Stanley Municipal Premium Income Trust (the "Fund"), formerly Morgan Stanley Dean Witter Municipal Premium Income Trust, including the portfolio of investments, as of May 31, 2002, and the related statements of operations for the year then ended and changes in 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. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of May 31, 2002, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Morgan Stanley Municipal Premium Income Trust as of May 31, 2002, 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 accounting principles generally accepted in the United States of America. Deloitte & Touche LLP New York, New York July 9, 2002 2002 FEDERAL TAX NOTICE (UNAUDITED) During the year ended May 31, 2002, the Fund paid the following per share amounts from tax exempt income: $0.54 to common shareholders, $1,890 to Series A preferred shareholders, $1,850 to Series B preferred shareholders, $2,966 to Series C preferred shareholders, $3,368 to Series D preferred shareholders and $2,886 to Series E preferred shareholders. For the year ended May 31, 2002, the Fund paid to common shareholders $0.04 per share from long-term capital gains. 23 Morgan Stanley Municipal Premium Income Trust TRUSTEE AND OFFICER INFORMATION
Independent Trustees: Number of Portfolios in Fund Position(s) Term of Office Complex Name, Age and Address of Held with and Length of Principal Occupation(s) During Past Overseen by Independent Trustee Registrant Time Served* 5 Years Trustee** - ------------------------------------- ----------- -------------- ----------------------------------- ----------- Michael Bozic (61) Trustee Trustee since Retired; Director or Trustee of the 129 c/o Mayer, Brown, Rowe & Maw April 1994 Morgan Stanley Funds and the TCW/DW Counsel to the Independent Trustees Term Trusts; formerly Vice Chairman 1675 Broadway of Kmart Corporation (December New York, NY 1998- October 2000), Chairman and Chief Executive Officer of Levitz Furniture Corporation (November 1995-November 1998) and President and Chief Executive Officer of Hills Department Stores (May 1991-July 1995); formerly variously Chairman, Chief Executive Officer, President and Chief Operating Officer (1987-1991) of the Sears Merchandise Group of Sears, Roebuck & Co. Edwin J. Garn (69) Trustee Trustee since Director or Trustee of the Morgan 129 c/o Summit Ventures LLC January 1993 Stanley Funds and the TCW/DW Term 1 Utah Center Trusts; formerly United States 201 S. Main Street Senator (R-Utah) (1974-1992) and Salt Lake City, UT Chairman, Senate Banking Committee (1980-1986); formerly Mayor of Salt Lake City, Utah (1971-1974); formerly Astronaut, Space Shuttle Discovery (April 12-19, 1985); Vice Chairman, Huntsman Corporation (chemical company); member of the Utah Regional Advisory Board of Pacific Corp. Wayne E. Hedien (68) Trustee Trustee since Retired; Director or Trustee of the 129 c/o Mayer, Brown, Rowe & Maw September 1997 Morgan Stanley Funds and the TCW/DW Counsel to the Independent Trustees Term Trusts; formerly associated 1675 Broadway with the Allstate Companies New York, NY (1966-1994), most recently as Chairman of The Allstate Corporation (March 1993-December 1994) and Chairman and Chief Executive Officer of its wholly- owned subsidiary, Allstate Insurance Company (July 1989-December 1994). Independent Trustees: Name, Age and Address of Independent Trustee Other Directorships Held by Trustee - ------------------------------------- ----------------------------------- Michael Bozic (61) Director of Weirton Steel c/o Mayer, Brown, Rowe & Maw Corporation. Counsel to the Independent Trustees 1675 Broadway New York, NY Edwin J. Garn (69) Director of Franklin Covey (time c/o Summit Ventures LLC management systems), BMW Bank of 1 Utah Center North America, Inc. (industrial 201 S. Main Street loan corporation), United Space Salt Lake City, UT Alliance (joint venture between Lockheed Martin and the Boeing Company) and Nuskin Asia Pacific (multilevel marketing); member of the board of various civic and charitable organizations. Wayne E. Hedien (68) Director of The PMI Group Inc. c/o Mayer, Brown, Rowe & Maw (private mortgage insurance); Counsel to the Independent Trustees Trustee and Vice Chairman of The 1675 Broadway Field Museum of Natural History; New York, NY director of various other business and charitable organizations.
24 Morgan Stanley Municipal Premium Income Trust TRUSTEE AND OFFICER INFORMATION continued
Number of Portfolios in Fund Position(s) Term of Office Complex Name, Age and Address of Held with and Length of Principal Occupation(s) During Past Overseen by Independent Trustee Registrant Time Served* 5 Years Trustee** - ------------------------------------- ----------- -------------- ----------------------------------- ----------- Dr. Manuel H. Johnson (53) Trustee Trustee since Chairman of the Audit Committee and 129 c/o Johnson Smick International, Inc. July 1991 Director or Trustee of the Morgan 1133 Connecticut Avenue, N.W. Stanley Funds and the TCW/DW Term Washington, D.C. Trusts; Senior Partner, Johnson Smick International, Inc., a consulting firm; Co-Chairman and a founder of the Group of Seven Council (G7C), an international economic commission; formerly Vice Chairman of the Board of Governors of the Federal Reserve System and Assistant Secretary of the U.S. Treasury. Michael E. Nugent (66) Trustee Trustee since Chairman of the Insurance Committee 207 c/o Triumph Capital, L.P. July 1991 and Director or Trustee of the 237 Park Avenue Morgan Stanley Funds and the TCW/DW New York, NY Term Trusts; director/trustee of various investment companies managed by Morgan Stanley Investment Management Inc. and Morgan Stanley Investments LP (since July 2001); General Partner, Triumph Capital, L.P., a private investment partnership; formerly Vice President, Bankers Trust Company and BT Capital Corporation (1984-1988). John L. Schroeder (71) Trustee Trustee since Retired; Chairman of the 129 c/o Mayer, Brown, Rowe & Maw April 1994 Derivatives Committee and Director Counsel to the Independent Trustees or Trustee of the Morgan Stanley 1675 Broadway Funds and the TCW/DW Term Trusts; New York, NY formerly Executive Vice President and Chief Investment Officer of the Home Insurance Company (August 1991-September 1995). Name, Age and Address of Independent Trustee Other Directorships Held by Trustee - ------------------------------------- ----------------------------------- Dr. Manuel H. Johnson (53) Director of NVR, Inc. (home c/o Johnson Smick International, Inc. construction); Chairman and Trustee 1133 Connecticut Avenue, N.W. of the Financial Accounting Washington, D.C. Foundation (oversight organization of the Financial Accounting Standards Board). Michael E. Nugent (66) Director of various business c/o Triumph Capital, L.P. organizations. 237 Park Avenue New York, NY John L. Schroeder (71) Director of Citizens Communications c/o Mayer, Brown, Rowe & Maw Company (telecommunications Counsel to the Independent Trustees company). 1675 Broadway New York, NY
25 Morgan Stanley Municipal Premium Income Trust TRUSTEE AND OFFICER INFORMATION continued
Interested Trustees: Number of Portfolios in Fund Position(s) Term of Office Complex Name, Age and Address of Held with and Length of Overseen by Interested Trustee Registrant Time Served* Principal Occupation(s) During Past 5 Years Trustee** - ------------------------------ --------------------- -------------- ------------------------------------------- ----------- Charles A. Fiumefreddo (69) Chairman, Director or Trustee since Chairman, Director or Trustee and Chief 129 c/o Morgan Stanley Trust Trustee and Chief July 1991 Executive Officer of the Morgan Stanley Harborside Financial Center, Executive Officer Funds and the TCW/DW Term Trusts; formerly Plaza Two, Chairman, Chief Executive Officer and Jersey City, NJ Director of the Investment Manager, the Distributor and Morgan Stanley Services, Executive Vice President and Director of Morgan Stanley DW, Chairman and Director of the Transfer Agent, and Director and/or officer of various Morgan Stanley subsidiaries (until June 1998). James F. Higgins (54) Trustee Trustee since Senior Advisor of Morgan Stanley (since 129 c/o Morgan Stanley Trust June 2000 August 2000); Director of the Distributor Harborside Financial Center, and Dean Witter Realty Inc.; Director or Plaza Two, Trustee of the Morgan Stanley Funds and the Jersey City, NJ TCW/DW Term Trusts (since June 2000); previously President and Chief Operating Officer of the Private Client Group of Morgan Stanley (May 1999-August 2000), President and Chief Operating Officer of Individual Securities of Morgan Stanley (February 1997-May 1999). Philip J. Purcell (58) Trustee Trustee since Director or Trustee of the Morgan Stanley 129 1585 Broadway April 1994 Funds and the TCW/DW Term Trusts; Chairman New York, NY of the Board of Directors and Chief Executive Officer of Morgan Stanley and Morgan Stanley DW; Director of the Distributor; Chairman of the Board of Directors and Chief Executive Officer of Novus Credit Services Inc.; Director and/or officer of various Morgan Stanley subsidiaries. Interested Trustees: Name, Age and Address of Other Directorships Held by Interested Trustee Trustee - ------------------------------ -------------------------------- Charles A. Fiumefreddo (69) None c/o Morgan Stanley Trust Harborside Financial Center, Plaza Two, Jersey City, NJ James F. Higgins (54) None c/o Morgan Stanley Trust Harborside Financial Center, Plaza Two, Jersey City, NJ Philip J. Purcell (58) Director of American Airlines, 1585 Broadway Inc. and its parent company, AMR New York, NY Corporation.
- --------------------- * Each Trustee serves an indefinite term, until his or her successor is elected. ** The Fund Complex includes all open and closed-end funds (including all of their portfolios) advised by Morgan Stanley Investment Advisors Inc. and any funds that have an investment advisor that is an affiliated person of Morgan Stanley Investment Advisors Inc. (including but not limited to, Morgan Stanley Investment Management Inc., Morgan Stanley Investments LP and Van Kampen Asset Management Inc.). 26 Morgan Stanley Municipal Premium Income Trust TRUSTEE AND OFFICER INFORMATION continued
Officers: Term of Position(s) Office and Name, Age and Address of Held with Length of Executive Officer Registrant Time Served* Principal Occupation(s) During Past 5 Years - -------------------------------- --------------- -------------- ------------------------------------------------------------ Mitchell M. Merin (48) President President President and Chief Operating Officer of Morgan Stanley 1221 Avenue of the Americas since May 1999 Investment Management (since December 1998); President, New York, NY Director (since April 1997) and Chief Executive Officer (since June 1998) of the Investment Manager and Morgan Stanley Services; Chairman, Chief Executive Officer and Director of the Distributor (since June 1998); Chairman and Chief Executive Officer (since June 1998) and Director (since January 1998) of the Transfer Agent; Director of various Morgan Stanley subsidiaries; President of the Morgan Stanley Funds and TCW/DW Term Trusts (since May 1999); Trustee of various Van Kampen investment companies (since December 1999); previously Chief Strategic Officer of the Investment Manager and Morgan Stanley Services and Executive Vice President of the Distributor (April 1997-June 1998), Vice President of the Morgan Stanley Funds (May 1997-April 1999), and Executive Vice President of Morgan Stanley. Barry Fink (47) Vice President, Vice General Counsel (since May 2000) and Managing Director 1221 Avenue of the Americas Secretary and President, (since December 2000) of Morgan Stanley Investment New York, NY General Counsel Secretary and Management; Managing Director (since December 2000), and General Secretary and General Counsel (since February 1997) and Counsel since Director (since July 1998) of the Investment Manager and February 1997 Morgan Stanley Services; Assistant Secretary of Morgan Stanley DW; Vice President, Secretary and General Counsel of the Morgan Stanley Funds and TCW/DW Term Trusts (since February 1997); Vice President and Secretary of the Distributor; previously, Senior Vice President, Assistant Secretary and Assistant General Counsel of the Investment Manager and Morgan Stanley Services. Thomas F. Caloia (56) Treasurer Treasurer First Vice President and Assistant Treasurer of the c/o Morgan Stanley Trust since April Investment Manager, the Distributor and Morgan Stanley Harborside Financial Center, 1989 Services; Treasurer of the Morgan Stanley Funds. Plaza Two Jersey City, NJ James F. Willison (58) Vice President Since February Managing Director and Portfolio Manager of the Investment 1221 Avenue of the Americas 1993 Advisor and/or its investment management affiliates for over New York, NY 5 years. Robert W. Wimmel (37) Vice President Since January Vice President and Portfolio Manager of the Investment 1 Parkview Plaza 2002 Advisor and/or its investment management affiliates for over Oakbrook Terrace, IL 5 years. Joseph R. Arcieri (53) Vice President Since January Executive Director and Portfolio Manager of the Investment 1221 Avenue of the Americas 2002 Advisor and/or its investment management affiliates for over New York, NY 5 years.
- --------------------- * Each Officer serves an indefinite term, until his or her successor is elected. 27 TRUSTEES Michael Bozic Charles A. Fiumefreddo Edwin J. Garn Wayne E. Hedien James F. Higgins Dr. Manuel H. Johnson Michael E. Nugent Philip J. Purcell John L. Schroeder OFFICERS Charles A. Fiumefreddo Chairman and Chief Executive Officer Mitchell M. Merin President Barry Fink Vice President, Secretary and General Counsel James F. Willison Vice President Robert Wimmel Vice President Joseph Arcieri Vice President Thomas F. Caloia Treasurer TRANSFER AGENT Morgan Stanley Trust Harborside Financial Center -- Plaza Two Jersey City, New Jersey 07311 INDEPENDENT AUDITORS Deloitte & Touche LLP Two World Financial Center New York, New York 10281 INVESTMENT MANAGER Morgan Stanley Investment Advisors Inc. 1221 Avenue of the Americas New York, New York 10020 MORGAN STANLEY MUNICIPAL PREMIUM INCOME TRUST Annual Report May 31, 2002 -----END PRIVACY-ENHANCED MESSAGE-----