-----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, HX/4sFhTElAZ48vW9gq9TZ/4RgQV6iQgQ8fRMt1gidHf3oULj/q0gmndWOPH3QwC JJljb6awF4xmn4mGGb2XXg== 0000950123-03-008799.txt : 20030731 0000950123-03-008799.hdr.sgml : 20030731 20030731143338 ACCESSION NUMBER: 0000950123-03-008799 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20030531 FILED AS OF DATE: 20030731 EFFECTIVENESS DATE: 20030731 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-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-05688 FILM NUMBER: 03814217 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: MORGAN STANLEY DEAN WITTER MUNICIPAL PREMIUM INCOME TRUST DATE OF NAME CHANGE: 19981221 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 N-CSR 1 y87433nvcsr.txt MORGAN STANLEY MUNICIPAL PREMIUM INCOME TRUST UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number: 811-05689 Morgan Stanley Municipal Premium Income Trust (Exact name of registrant as specified in charter) 1221 Avenue of the Americas, New York, New York 10020 (Address of principal executive offices) (Zip code) Ronald E. Robison 1221 Avenue of the Americas, New York, New York 10020 (Name and address of agent for service) Registrant's telephone number, including area code: 212-762-4000 Date of fiscal year end: May 31, 2003 Date of reporting period: May 31, 2003 Item 1. Report to Stockholders Morgan Stanley Municipal Premium Income Trust LETTER TO THE SHAREHOLDERS - MAY 31, 2003 Dear Shareholder: During the 12-month period ended May 31, 2003, U.S. economic growth was positive but below potential. The pattern of the recovery remained uneven with a number of indicators fluctuating between strength and weakness. The relatively brief military conflict in Iraq and the ongoing war against terrorism cast a shadow over the economy and the financial markets. The sluggish economy and uncertain geopolitical outlook favored bonds and led to record low interest rates. Throughout the period, consumer spending was the best-performing economic sector. Mortgage refinancing and low auto loan rates helped keep Americans buying. However, early this year concern about Iraq dominated investor sentiment and consumer confidence waned. Confidence was also shaken when unemployment reached an eight-year high. To guard against further downside risks, in early November the Federal Reserve Board lowered the federal funds rate from 1.75 to 1.25 percent. This move marked the first change by the central bank in almost a year. Resolution of the Iraqi conflict prompted the financial markets to focus on the economy. In an effort to stimulate growth, President Bush signed the $350 billion Jobs and Growth Tax Relief Reconciliation Act of 2003 in May. Tax reductions originally scheduled to be phased in through 2006 were accelerated. In June, the Federal Reserve again lowered the federal funds rate by 25 basis points to 1.00 percent. Municipal Market Conditions The yield on the 30-year insured municipal bond index continued to trend lower over the 12-month period ended May 31, 2003. The yield declined from a high of 5.29 percent in May 2002 to a low of 4.44 percent in May 2003. Throughout the period, the municipal yield curve steepened. The pickup along the yield curve for extending maturities from one to 30 years was 344 basis points on May 31, 2003. The ratio of municipal yields as a percentage of U.S. Treasury yields gauges the relative value of municipals. In August 2002, the ratio of 30-year insured municipal bond yields to 30-year Treasuries moved above 100 percent and remained there for much of this year. This high ratio signaled that municipals were relatively cheap in comparison to Treasuries. Long-term municipal volume increased to a record $357 billion in 2002 as state and local governments took advantage of lower interest rates to meet their cash flow needs and refinance outstanding debt. In the first five months of 2003, new-issue volume was ahead 14 percent to $146 billion. Many analysts expect this pace to continue throughout the year as budgetary pressures force states and municipalities to actively borrow. California's share of national volume Morgan Stanley Municipal Premium Income Trust LETTER TO THE SHAREHOLDERS - MAY 31, 2003 continued was 18 percent of the total. New York, Texas, Florida and Pennsylvania, the next largest states, aggregated an additional 29 percent. Performance The net asset value (NAV) of Morgan Stanley Municipal Premium Income Trust (PIA) increased from $10.04 to $10.56 per share for the 12 months ended May 31, 2003. Based on this change plus the reinvestment of tax-free dividends totaling $0.56 per share, a short-term capital gain distribution of $0.013 per share and a long-term capital gain distribution of $0.061 per share, the Trust's total NAV return was 12.82 percent. PIA's price on the New York Stock Exchange (NYSE) increased from $9.02 to $9.41 per share during the same period. Based on this change plus the reinvestment of dividends and distributions, PIA's total market return was 11.90 percent. On May 31, 2003 PIA's market price was at a 10.9 percent discount to its NAV. Past performance is no guarantee of future results. Monthly dividends for the third quarter of 2003, declared in June, were unchanged at $0.0475 per share. The dividend reflects the Fund's level of undistributed net investment income and projected earnings. The Fund's level of undistributed net investment income was $0.160 per share on May 31, 2003, versus $0.118 per share last year. Portfolio Structure The Fund's net assets of $310 million, including outstanding Auction Rate Preferred Shares (ARPS), were diversified among 13 long-term sectors and 78 credits. Issues in four essential service categories: general obligation, water and sewer, municipal electric and transportation accounted for 55 percent of the long-term portfolio. The five states with the largest holdings -- Texas, New York, Arizona, Massachusetts and Georgia -- represented 42 percent of total investments. Importantly, the Fund has avoided bonds secured by tobacco settlement payments. PIA's duration, a measure of sensitivity to interest-rate changes, was 10.3 years including adjustment for leverage. At the end of May the portfolio's long-term holdings had an average maturity of 18 years. The accompanying charts provide current information on long-term credit ratings, maturity distribution and sector concentrations. Optional redemption provisions by year of call and respective cost (book) yields are also charted. The Impact of Leveraging As discussed in previous reports, the total income available for distribution to common shareholders includes incremental income provided by the Fund's outstanding ARPS. ARPS 2 Morgan Stanley Municipal Premium Income Trust LETTER TO THE SHAREHOLDERS - MAY 31, 2003 continued dividends reflect prevailing short-term interest rates on maturities normally ranging from one week to two years. 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 book yield and ARPS expenses (ARPS auction rate and expenses). The greater the spread and the amount of ARPS outstanding, the greater the amount of incremental income available for distribution to common shareholders. The level of net investment income available for distribution to common shareholders varies with the level of short-term interest rates. ARPS leverage also increases the price volatility of common shares and has the effect of extending portfolio duration. Current earnings continued to benefit from lower short-term borrowing costs of ARPS. During this 12-month period, ARPS leverage contributed approximately $0.17 per share to common share earnings. PIA has five ARPS series totaling $100 million and representing 32 percent of net assets including ARPS. Three series are currently two-year auctions maturing in January 2004, July 2004 and January 2005 and yielding 2.55, 2.15 and 1.39 percent, respectively. The yield on PIA's weekly ARPS series ranged between 0.726 and 2.50 percent. The Fund's procedure for reinvesting all dividends and distributions on 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, which ever 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, 2003 the Fund purchased and retired 692,900 shares of common stock at a weighted average market discount of 10.90 percent. 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
3 Morgan Stanley Municipal Premium Income Trust LETTER TO THE SHAREHOLDERS - MAY 31, 2003 continued [LARGEST SECTORS BAR GRAPH] LARGEST SECTORS AS OF MAY 31, 2003 (% OF LONG-TERM PORTFOLIO) TRANSPORTATION 16% WATER & SEWER 15% ELECTRIC 13% GENERAL OBLIGATION 11% IDR/PCR* 10% REFUNDED 10% EDUCATION 8% HOSPITAL 7%
* INDUSTRIAL DEVELOPMENT/POLLUTION CONTROL REVENUE PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE. [CREDIT RATINGS PIE CHART] CREDIT RATINGS AS OF MAY 31, 2003 (% OF LONG-TERM PORTFOLIO) Aaa or AAA 69% Aa or AA 19% A or A 4% Baa or BBB 5% NR 3%
AS MEASURED BY MOODY'S INVESTORS 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: 18 YEARS 1-5 YEARS 6% 5-10 Years 16% 10-20 Years 38% 20-30 Years 39% 30+ Years 1%
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE. 4 Morgan Stanley Municipal Premium Income Trust LETTER TO THE SHAREHOLDERS - MAY 31, 2003 continued [BAR CHART] CALL AND COST (BOOK) YIELD STRUCTURE (BASED ON LONG-TERM PORTFOLIO) MAY 31, 2003 WEIGHTED AVERAGE CALL PROTECTION: 6 YEARS PERCENT CALLABLE 2003 8.0%* 2004 7.0% 2005 9.0% 2006 9.0% 2007 2.0% 2008 15.0% 2009 3.0% 2010 9.0% 2011 16.0% 2012 9.0% 2013+ 13.0%
* ALL BONDS WERE PREVIOUSLY CALLABLE. WEIGHTED AVERAGE BOOK YIELD: 5.5% COST (BOOK) YIELD** 2003 7.4% 2004 6.4% 2005 6.1% 2006 5.5% 2007 6.2% 2008 5.4% 2009 5.6% 2010 5.7% 2011 5.3% 2012 5.1% 2013+ 4.7%
** 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 7.4% ON 8% OF THE LONG-TERM PORTFOLIO THAT IS CALLABLE IN 2003. PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE. 5 Morgan Stanley Municipal Premium Income Trust LETTER TO THE SHAREHOLDERS - MAY 31, 2003 continued Geographic Summary of Investments Based on Market Value as a Percent of Total Investments Alabama................ 2.1% Arizona................ 7.2 California............. 4.1 Colorado............... 3.2 Connecticut............ 0.7 Florida................ 3.4 Georgia................ 5.1 Hawaii................. 1.2 Idaho.................. 0.9 Illinois............... 5.0 Indiana................ 1.6 Kansas................. 4.6 Kentucky............... 1.2 Louisiana.............. 0.9 Massachusetts.......... 5.1 Michigan............... 4.2 Minnesota.............. 1.9 Missouri............... 0.7 Nevada................. 1.1 New Jersey............. 1.8 New York............... 10.9 North Carolina......... 0.4 Ohio................... 4.1 Pennsylvania........... 4.2 Puerto Rico............ 0.9 South Carolina......... 4.7 Tennessee.............. 1.2 Texas.................. 13.8 Utah................... 1.9 Virginia............... 1.9 ----- Total.................. 100.0% =====
6 Morgan Stanley Municipal Premium Income Trust RESULTS OF ANNUAL MEETING * * * On December 18, 2002, 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: Michael Bozic For.................................................. 16,086,199 Withheld............................................. 393,620 James F. Higgins For.................................................. 16,076,260 Withheld............................................. 403,559
(2) Election of Trustee by preferred shareholders: Charles A. Fiumefreddo For.................................................. 985 Withheld............................................. 0
The following Trustees were not standing for reelection at this meeting: Edwin J. Garn, Wayne E. Hedien, Dr. Manuel H. Johnson, Michael E. Nugent and Philip J. Purcell. 7 Morgan Stanley Municipal Premium Income Trust PORTFOLIO OF INVESTMENTS - MAY 31, 2003
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - --------------------------------------------------------------------------------------------------------- Tax-Exempt Municipal Bonds (141.9%) General Obligation (16.1%) Los Angeles Unified School District, California, $ 2,000 2003 Ser A (FSA)....................................... 5.25 % 07/01/20 $ 2,241,020 5,000 1997 Ser B (FGIC)...................................... 5.00 07/01/23 5,240,500 2,000 Connecticut, 2001 Ser D.................................. 5.00 11/15/20 2,180,940 3,000 Chicago Board of Education, Illinois, Ser 2001 C (FSA)... 5.00 12/01/26 3,133,020 2,000 Du Page County, Community Unit School District No 200, Illinois, Ser 2003 B (FSA)............................. 5.25 11/01/21 2,214,840 3,500 Massachusetts, 1995 Ser A (Ambac)........................ 5.00 07/01/12 4,011,070 3,000 Barberton City School District, Ohio, Ser 1998 (FGIC).... 5.125 11/01/22 3,176,850 Pennsylvania, 1,000 RITES PA - 1112 A (MBIA)............................... 8.332++ 01/01/18 1,209,860 1,000 RITES PA - 1112 B (MBIA)............................... 8.332++ 01/01/19 1,192,940 3,500 Shelby County, Tennessee, Refg 1995 Ser A................ 5.625 04/01/11 3,782,485 5,000 La Joya Independent School District, Texas, Ser 2000 (PSF).................................................. 5.50 02/15/25 5,504,150 ------------- - -------- 33,887,675 31,000 ------------- - -------- Educational Facilities Revenue (10.7%) 4,000 University of Northern Colorado, Refg Ser 2001 (Ambac)... 5.00 06/01/31 4,171,400 5,500 Oakland University, Michigan, Ser 1995 (MBIA)............ 5.75 05/15/26 5,999,895 New York State Dormitory Authority, 4,000 State University Refg Ser 1993 A....................... 5.50 05/15/08 4,593,520 890 State University Refg Ser 1999 B....................... 7.50 05/15/11 1,110,943 1,250 Ohio State University, General Receipts Ser 1999 A....... 5.75 12/01/24 1,431,950 5,000 Swarthmore Boro Authority, Pennsylvania, Swarthmore College Ser 2001....................................... 5.00 09/15/31 5,223,900 ------------- - -------- 22,531,608 20,640 ------------- - -------- Electric Revenue (18.9%) 8,000 Salt River Project Agricultural Improvement & Power District, Arizona, Ser 2002 B.......................... 5.00 01/01/26 8,481,040 1,550 Los Angeles Department of Water & Power, California, 2001 Ser A.................................................. 5.00 07/01/24 1,613,395 750 Sacramento Municipal Utility District, California, Refg 1994 Ser I (MBIA)...................................... 6.00 01/01/24 783,203 2,000 Orlando Utilities Commission, Florida, Water & Electric Ser 2001............................................... 5.25 10/01/19 2,230,680 2,950 Kansas City, Kansas, Utility Refg & Impr Ser 1994 (FGIC)................................................. 6.375 09/01/23 3,183,699 7,000 South Carolina Public Service Authority, 1995 Refg Ser A (Ambac)................................................ 6.25 01/01/22 7,880,880 8,500 San Antonio, Texas, Electric & Gas Refg Ser 1994 C....... 7.975++ 02/01/06 9,939,390 5,000 Intermountain Power Agency, Utah, Refg 1997 Ser B (MBIA)................................................. 5.75 07/01/19 5,690,400 ------------- - -------- 39,802,687 35,750 ------------- - --------
See Notes to Financial Statements 8 Morgan Stanley Municipal Premium Income Trust PORTFOLIO OF INVESTMENTS - MAY 31, 2003 continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - --------------------------------------------------------------------------------------------------------- Hospital Revenue (9.6%) $ 3,500 Birmingham-Carraway Special Care Facilities Financing Authority, Alabama, Carraway Methodist Health Ser 1995 A (Connie Lee)......................................... 5.875% 08/15/15 $ 3,831,940 2,620 Colbert County - Northwest Health Care Authority, Alabama, Helen Keller Hospital Refg Ser 1990........... 8.75 06/01/09 2,625,057 2,000 Louisiana Public Facilities Revenue, Louisiana, Ochsner Clinic Ser 2002........................................ 5.50 05/15/32 2,092,020 1,000 New Jersey Health Care Facilities Financing Authority, St Barnabas Medical Center Ser 1998 B (MBIA).............. 4.75 07/01/28 1,017,900 1,220 North Carolina Medical Care Commission, Duke University Health Ser 1998 A...................................... 4.75 06/01/28 1,218,585 2,985 Lehigh County General Purpose Authority, Pennsylvania, St Lukes Hospital Ser 1992 (Ambac)........................ 6.25 07/01/22 3,055,953 6,000 South Carolina Jobs - Economic Development Authority, Bon Secours Health Ser 2002 A.............................. 5.625 11/15/30 6,279,720 ------------- - -------- 20,121,175 19,325 ------------- - -------- Industrial Development/Pollution Control Revenue (14.5%) 7,485 Pima County Industrial Development Authority, Arizona, Tucson Electric Power Co Refg Ser 1988 A (FSA)......... 7.25 07/15/10 7,916,510 10,000 Burlington, Kansas, Kansas Gas & Electric Co Ser 1991 (MBIA)................................................. 7.00 06/01/31 10,463,500 8,000 New York City Industrial Development Agency, New York, Brooklyn Navy Yard Cogeneration Partners LP Ser 1997 (AMT).................................................. 5.65 10/01/28 7,402,320 3,000 Alliance Airport Authority, Texas, AMR Corp Ser 1990 (AMT).................................................. 7.50 12/01/29 1,170,060 Brazos River Authority, Texas, 1,500 TXU Electric Co. Refg Ser 1999 A (AMT)................. 7.70 04/01/33 1,659,030 1,750 TXU Electric Co. Refg Ser 2001 C (AMT)................. 5.75 05/01/36 1,786,173 ------------- - -------- 30,397,593 31,735 ------------- - -------- Mortgage Revenue - Multi-Family (4.0%) Massachusetts Housing Finance Agency, 1,790 Rental 1994 Ser A (AMT) (Ambac)........................ 6.60 07/01/14 1,862,853 4,340 Rental 1994 Ser A (AMT) (Ambac)........................ 6.65 07/01/19 4,509,954 2,045 Minnesota Housing Finance Agency, Rental 1995 Ser D (MBIA)................................................. 6.00 02/01/22 2,125,900 ------------- - -------- 8,498,707 8,175 ------------- - -------- Mortgage Revenue - Single Family (1.1%) 720 Colorado Housing & Finance Authority, Ser 1997 A-2 (AMT).................................................. 7.25 05/01/27 739,008 120 Kansas City Leavenworth & Lenexa, Kansas, GNMA-Backed Ser 1998 C (AMT)........................................... 8.00 11/01/20 120,275 40 Olathe, Kansas, GNMA Collateralized Ser 1989 A (AMT) (MBIA)................................................. 8.00 11/01/20 40,051
See Notes to Financial Statements 9 Morgan Stanley Municipal Premium Income Trust PORTFOLIO OF INVESTMENTS - MAY 31, 2003 continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - --------------------------------------------------------------------------------------------------------- $ 495 New Orleans Home Mortgage Authority, Louisiana, GNMA Collateralized 1989 Ser B-1 (AMT)...................... 8.25 % 12/01/21 $ 496,188 860 Missouri Housing Development Commission, Homeownership 1996 Ser D (AMT)....................................... 7.10 09/01/27 887,477 ------------- - -------- 2,282,999 2,235 ------------- - -------- Public Facilities Revenue (3.3%) 3,000 Broward County School Board, Florida, Ser 2001 A COPs (FSA).................................................. 5.00 07/01/26 3,168,030 Saint Paul Independent School District #625, Minnesota, 1,700 Ser 1995 C COPs........................................ 5.45 02/01/11 1,804,448 1,800 Ser 1995 C COPs........................................ 5.50 02/01/12 1,912,680 ------------- - -------- 6,885,158 6,500 ------------- - -------- Recreational Facilities Revenue (0.5%) 825 Metropolitan Pier & Exposition Authority, Illinois, - -------- McCormick Place Refg Ser 1998 A (FGIC)................. 5.50 06/15/18 985,603 ------------- Transportation Facilities Revenue (22.5%) 5,000 Arizona Transportation Board, Highway Ser 2001........... 5.25 07/01/19 5,534,950 Miami-Dade County, Florida, 2,050 Miami Int'l Airport Ser 2003 (AMT) (MBIA).............. 5.25 10/01/17 2,245,078 2,500 Miami Int'l Airport Ser 2000 B (FGIC).................. 5.75 10/01/24 2,809,600 1,940 Atlanta, Georgia, Airport Ser 1994 B (AMT) (Ambac)....... 6.00 01/01/21 2,021,073 Chicago, Illinois, 5,000 Chicago-O'Hare Int'l Airport Ser 1996 A (Ambac)........ 5.625 01/01/12 5,538,700 1,805 Midway Airport 1994 Ser A (AMT) (MBIA)................. 6.25 01/01/24 1,882,182 1,000 New Jersey Transportation Trust Authority, 1998 Ser A (FSA).................................................. 4.50 06/15/19 1,029,290 3,000 Metropolitan Transportation Authority, New York, State Service Contract Ser 2002 B (MBIA)..................... 5.50 07/01/20 3,412,800 3,000 Triborough Bridge & Tunnel Authority, New York, Ser 2002 B...................................................... 5.25 11/15/19 3,345,390 2,000 Pennsylvania Turnpike Commission, Ser R 2001 (Ambac)..... 5.00 12/01/30 2,106,900 2,800 Puerto Rico Highway & Transportation Authority, Ser 1998 A...................................................... 4.75 07/01/38 2,739,044 8,000 Austin, Texas, Airport Prior Lien Ser 1995 A (AMT) (MBIA)................................................. 6.125 11/15/25 8,823,520 5,000 Pocahontas Parkway Association, Virginia, Route 895 Connector Ser 1998 A................................... 5.50 08/15/28 3,375,150 2,000 Richmond Metropolitan Authority, Virginia, Expressway & Refg Ser 1998 (FGIC)................................... 5.25 07/15/17 2,367,680 ------------- - -------- 47,231,357 45,095 ------------- - -------- Water & Sewer Revenue (21.9%) 2,500 Coachella, California, Ser 1992 COPs (FSA)............... 6.10 03/01/22 2,534,300 3,000 Atlanta, Georgia, Water & Wastewater Ser 1999 A (FGIC)... 5.50 11/01/22 3,554,040 4,000 Augusta, Georgia, Water & Sewerage Ser 2000 (FSA)........ 5.25 10/01/22 4,346,480 5,000 Rockdale County Water & Sewage Authority, Georgia, Ser 1999 A (MBIA).......................................... 5.50 07/01/25 5,538,450
See Notes to Financial Statements 10 Morgan Stanley Municipal Premium Income Trust PORTFOLIO OF INVESTMENTS - MAY 31, 2003 continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - --------------------------------------------------------------------------------------------------------- Indianapolis Local Public Improvement Bond Bank, Indiana, $ 1,000 Waterworks Ser 2002 A (MBIA)........................... 5.50 % 01/01/18 $ 1,144,430 1,000 Waterworks Ser 2002 A (MBIA)........................... 5.50 01/01/19 1,136,960 3,215 Louisville & Jefferson County Metropolitan Sewer District, Kentucky, Ser 2001 A (MBIA).................. 5.375 05/15/22 3,554,954 5,000 Massachusetts Water Resources Authority, 1998 Ser A (FSA).................................................. 4.75 08/01/27 5,067,150 1,755 Detroit, Michigan, Water Supply Sr Lien 2000 A (FGIC).... 5.25 07/01/33 1,888,766 3,000 Las Vegas Water District, Nevada, Impr & Refg Ser 2003 A (FGIC)................................................. 5.25 06/01/22 3,281,640 2,960 Passaic Valley Sewage Commissioners, New Jersey, Ser F (FGIC)................................................. 5.00 12/01/19 3,278,762 2,000 New York City Municipal Water Finance Authority, New York, 2003 Ser D....................................... 5.25 06/15/15 2,282,560 3,000 Cleveland, Ohio, Waterworks Impr & Refg 1998 Ser I (FSA).................................................. 5.00 01/01/23 3,161,670 5,000 Austin, Texas, Water & Wastewater Refg Ser 2001 A (FSA).................................................. 5.125 05/15/27 5,262,700 ------------- - -------- 46,032,862 42,430 ------------- - -------- Other Revenue (5.2%) 2,000 New York City Transitional Finance Authority, New York, Refg 2003 Ser.......................................... 5.50 11/01/26 2,311,720 8,000 New York Local Government Assistance Corporation, Refg Ser 1997 B (MBIA)...................................... 5.00 04/01/21 8,527,120 ------------- - -------- 10,838,840 10,000 ------------- - -------- Refunded (13.6%) 4,000 Colorado Department of Transportation, Ser 2000 (Ambac)................................................ 6.00 06/15/10+ 4,877,920 3,000 Hawaii, 1999 Ser CT (FSA)................................ 5.875 09/01/09+ 3,634,860 1,175 Metropolitan Pier & Exposition Authority, Illinois, McCormick Place Refg Ser 1998 (FGIC) (ETM)............. 5.50 06/15/18 1,415,769 2,245 Detroit, Michigan, Water Supply Sr Lien Ser 2000 A (FGIC)................................................. 5.25 07/01/11+ 2,631,611 2,000 Michigan Municipal Bond Authority, School Ser 1998....... 5.25 12/01/08+ 2,336,000 1,340 Missouri Health & Educational Facilities Authority, Missouri, Baptist Medical Center Refg Ser 1989 (ETM)... 7.625 07/01/18 1,373,098 4,000 Montgomery County, Ohio, Franciscan Medical Center - Dayton Ser 1997............................... 5.50 07/01/10+ 4,667,200 4,000 Lower Colorado River Authority, Texas, Jr Lien Seventh Ser (FSA) (ETM)........................................ 4.75 01/01/28 4,305,400 3,000 San Antonio, Texas, Electric & Gas Refg Ser 1994 C (ETM).................................................. 4.70 02/01/06 3,259,530 ------------- - -------- 28,501,388 24,760 ------------- - -------- 278,470 Total Tax-Exempt Municipal Bonds (Cost $275,770,748)........................ 297,997,652 ------------- - --------
See Notes to Financial Statements 11 Morgan Stanley Municipal Premium Income Trust PORTFOLIO OF INVESTMENTS - MAY 31, 2003 continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - --------------------------------------------------------------------------------------------------------- Short-Term Tax-Exempt Municipal Obligations (2.5%) $ 2,800 Idaho Health Facilities Authority, St Lukes Regional Medical Center Ser 2000 (FSA) (Demand 06/02/03)........ 1.27*% 07/01/30 $ 2,800,000 2,500 Indiana Health Facility Financing Authority, Clarian Health Ser 2000 B (Demand 06/02/03..................... 1.30* 03/01/30 2,500,000 ------------- - -------- 5,300 Total Short-Term Tax-Exempt Municipal Obligations (Cost $5,300,000)......... 5,300,000 ------------- - -------- $283,770 Total Investments (Cost $281,070,748) (a).......................... 144.4% 303,297,652 ======== Other Assets in Excess of Liabilities.............................. 3.2 6,773,982 Preferred Shares of Beneficial Interest............................ (47.6) (100,101,500) ----- ------------- Net Assets Applicable to Common Shareholders....................... 100.0% $ 209,970,134 ===== =============
- --------------------- 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. RITES Residual Interest Tax-Exempt Securities. * 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 is $280,961,735. The aggregate gross unrealized appreciation is $26,254,839 and the aggregate gross unrealized depreciation is $3,918,922, resulting in net unrealized appreciation of $22,335,917. 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.
See Notes to Financial Statements 12 Morgan Stanley Municipal Premium Income Trust PORTFOLIO OF INVESTMENTS - MAY 31, 2003 continued Geographic Summary of Investments Based on Market Value as a Percent of Net Assets Applicable to Common Shareholders Alabama................ 3.1% Arizona................ 10.4 California............. 5.9 Colorado............... 4.7 Connecticut............ 1.0 Florida................ 5.0 Georgia................ 7.4 Hawaii................. 1.7 Idaho.................. 1.3 Illinois............... 7.2 Indiana................ 2.3 Kansas................. 6.6 Kentucky............... 1.7 Louisiana.............. 1.2 Massachusetts.......... 7.4 Michigan............... 6.1 Minnesota.............. 2.8 Missouri............... 1.1 Nevada................. 1.6 New Jersey............. 2.5 New York............... 15.7 North Carolina......... 0.6 Ohio................... 5.9 Pennsylvania........... 6.1 Puerto Rico............ 1.3 South Carolina......... 6.7 Tennessee.............. 1.8 Texas.................. 19.9 Utah................... 2.7 Virginia............... 2.7 ----- Total.................. 144.4% =====
See Notes to Financial Statements 13 Morgan Stanley Municipal Premium Income Trust FINANCIAL STATEMENTS Statement of Assets and Liabilities May 31, 2003 Assets: Investments in securities, at value (cost $281,070,748)............... $303,297,652 Cash................................ 63,645 Receivable for: Interest........................ 5,043,063 Investments sold................ 1,602,208 Prepaid expenses and other assets... 436,021 ------------ Total Assets.................... 310,442,589 ------------ Liabilities: Payable for: Investment advisory fee......... 121,667 Administration fee.............. 76,042 Shares of beneficial interest repurchased................... 50,872 Accrued expenses and other liabilities....................... 122,374 ------------ Total Liabilities............... 370,955 ------------ Preferred shares of beneficial interest, (at liquidation value) (1,000,000 shares authorized of non-participating $.01 par value, 1,000 shares outstanding)......... 100,101,500 ------------ Net Assets Applicable to Common Shareholders.................. $209,970,134 ============ Composition of Net Assets Applicable to Common Shareholders: Common shares of beneficial interest (unlimited shares authorized of $.01 par value, 19,886,749 shares outstanding)...................... $187,617,867 Net unrealized appreciation......... 22,226,904 Accumulated undistributed net investment income................. 3,180,465 Accumulated net realized loss....... (3,055,102) ------------ Net Assets Applicable to Common Shareholders.................. $209,970,134 ============ Net Asset Value Per Common Share ($209,970,134 divided by 19,886,749 common shares outstanding).......... $10.56 ============
Statement of Operations For the year ended May 31, 2003 Net Investment Income: Interest Income...................... $16,593,508 ----------- Expenses Investment advisory fee.............. 1,222,863 Administration fee................... 764,290 Auction commission fees.............. 398,551 Transfer agent fees and expenses..... 99,232 Professional fees.................... 64,596 Auction agent fees................... 45,196 Shareholder reports and notices...... 35,084 Registration fees.................... 27,689 Trustees' fees and expenses.......... 21,187 Custodian fees....................... 16,936 Other................................ 34,508 ----------- Total Expenses................... 2,730,132 Less: expense offset................. (16,876) ----------- Net Expenses..................... 2,713,256 ----------- Net Investment Income............ 13,880,252 ----------- Net Realized and Unrealized Gain (Loss): Net realized loss.................... (2,228,308) Net change in unrealized appreciation....................... 12,487,663 ----------- Net Gain......................... 10,259,355 ----------- Dividends to preferred shareholders from net investment income......... (1,761,524) ----------- Net Increase......................... $22,378,083 ===========
See Notes to Financial Statements 14 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, 2003 MAY 31, 2002 ------------ ------------ Increase (Decrease) in Net Assets: Operations: Net investment income....................................... $ 13,880,252 $ 14,638,380 Net realized gain (loss).................................... (2,228,308) 2,071,243 Net change in unrealized appreciation....................... 12,487,663 634,611 Dividends to preferred shareholders from net investment income.................................................... (1,761,524) (2,592,000) ------------ ------------ Net Increase............................................ 22,378,083 14,752,234 ------------ ------------ Dividends and Distributions to Common Shareholders from: Net investment income....................................... (11,403,798) (11,336,694) Net realized gain........................................... (1,422,242) (780,215) ------------ ------------ Total Dividends and Distributions....................... (12,826,040) (12,116,909) ------------ ------------ Decrease from transactions in common shares of beneficial interest.................................................. (6,260,517) (6,313,186) ------------ ------------ Net Increase (Decrease)................................. 3,291,526 (3,677,861) Net Assets Applicable to Common Shareholders: Beginning of period......................................... 206,678,608 210,356,469 ------------ ------------ End of Period (Including accumulated undistributed net investment income of $3,180,465 and $2,433,201, respectively)................. $209,970,134 $206,678,608 ============ ============
See Notes to Financial Statements 15 Morgan Stanley Municipal Premium Income Trust NOTES TO FINANCIAL STATEMENTS - MAY 31, 2003 1. Organization and Accounting Policies Morgan Stanley Municipal Premium Income Trust (the "Fund") is registered under the Investment Company Act of 1940, as amended, as a diversified, closed-end management investment company. The Fund's investment objective is to provide a high level of current income exempt from federal income tax. The Fund was organized as a Massachusetts business trust on November 16, 1988 and commenced operations on February 1, 1989. The following is a summary of significant accounting policies: A. Valuation of Investments -- (1) portfolio securities are valued by an outside independent pricing service approved by the Trustees. The pricing service uses both a computerized grid 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; (2) futures are valued at the latest sale price on the commodities exchange on which they trade unless it is determined that such price does not reflect their market value, in which case they will be valued at their fair value as determined in good faith under procedures established by and under the supervision of the Trustees; and (3) 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 Policy -- 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. D. Dividends and Distributions to Shareholders -- Dividends and distributions to shareholders are recorded on the ex-dividend date. 16 Morgan Stanley Municipal Premium Income Trust NOTES TO FINANCIAL STATEMENTS - MAY 31, 2003 continued E. Futures Contracts -- A futures contract is an agreement between two parties to buy and sell financial instruments or contracts based on financial indices at a set price on a future date. Upon entering into such a contract, the Fund is required to pledge to the broker cash, U.S. Government securities or other liquid portfolio securities equal to the minimum initial margin requirements of the applicable futures exchange. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments known as variation margin are recorded by the Fund as unrealized gains and losses. Upon closing of the contract, the Fund realizes a gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. F. Use of Estimates -- 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. 2. Investment Advisory/Administration Agreements Pursuant to an Investment Advisory Agreement with Morgan Stanley Investment Advisors Inc. (the "Investment Advisor"), the Fund pays an advisory fee, calculated weekly and payable monthly, by applying the annual rate of 0.40% to the Fund's weekly net assets including preferred shares. 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 net assets including preferred shares. 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, 2003 aggregated $52,546,574 and $60,319,039, respectively. Morgan Stanley Trust, an affiliate of the Investment Advisor and Administrator, is the Fund's transfer agent. At May 31, 2003, the Fund had transfer agent fees and expenses payable of approximately $9,000. 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 17 Morgan Stanley Municipal Premium Income Trust NOTES TO FINANCIAL STATEMENTS - MAY 31, 2003 continued years at the time of retirement. Benefits under this plan are based on years of service and compensation during the last five years of service. Aggregate pension costs for the year ended May 31, 2003 included in Trustees' fees and expenses in the Statement of Operations amounted to $7,339. At May 31, 2003, the Fund had an accrued pension liability of $59,137 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, 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 Treasury shares purchased and retired (weighted average discount 10.90%)*......................................... (692,900) (6,929) (6,253,588) Reclassification due to permanent book/tax differences...... -- -- (444) ---------- -------- ------------ Balance, May 31, 2003....................................... 19,886,749 $198,867 $187,419,000 ========== ======== ============
- --------------------- * 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 18 Morgan Stanley Municipal Premium Income Trust NOTES TO FINANCIAL STATEMENTS - MAY 31, 2003 continued unpaid dividends, whether or not declared, thereon to the date of redemption. Dividends, which are cumulative, are reset through auction procedures.
NEXT AMOUNT IN RESET RANGE OF SERIES SHARES* THOUSANDS* RATE* DATE DIVIDEND RATES** - ------ ------- ------------- ----- -------- ---------------- A 200 20,000 1.10% 06/04/03 0.761%- 1.60% B 200 20,000 1.39 01/05/05 0.761- 1.59 C 200 20,000 1.05 06/04/03 0.726- 2.50 D 200 20,000 2.55 01/07/04 2.55 E 200 20,000 2.15 07/07/04 2.15- 2.85
- --------------------- * As of May 31, 2003. ** For the year ended May 31, 2003. Subsequent to May 31, 2003 and up through July 3, 2003, the Fund paid dividends to each of the Series A through E at rates ranging from 0.738% to 2.55% in the aggregate amount of $241,506. 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 25, 2003 $0.0475 June 6, 2003 June 20, 2003 June 30, 2003 $0.0475 July 11, 2003 July 25, 2003 June 30, 2003 $0.0475 August 8, 2003 August 22, 2003 June 30, 2003 $0.0475 September 5, 2003 September 19, 2003
7. Federal Income Tax Status 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 19 Morgan Stanley Municipal Premium Income Trust NOTES TO FINANCIAL STATEMENTS - MAY 31, 2003 continued 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 tax purposes, are reported as distributions of paid-in-capital. The tax character of distributions paid was as follows:
FOR THE YEAR FOR THE YEAR ENDED ENDED MAY 31, 2003 MAY 31, 2002 ------------- ------------- Tax-exempt income.................................. $13,132,221 $13,925,288 Ordinary income.................................... 261,430 -- Long-term capital gains............................ 1,231,653 780,215 ----------- ----------- Total distributions................................ $14,625,304 $14,705,503 =========== ===========
As of May 31, 2003, the tax-basis components of accumulated earnings were as follows: Undistributed tax-exempt income............................. $ 3,218,511 Undistributed ordinary income............................... 13,578 ----------- Net accumulated earnings.................................... 3,232,089 Post-October losses......................................... (3,055,102) Temporary differences....................................... (160,637) Net unrealized appreciation................................. 22,335,917 ----------- Total accumulated earnings.................................. $22,352,267 ===========
As of May 31, 2003, the Fund had temporary book/tax differences primarily attributable to post-October losses (capital losses incurred after October 31 within the taxable year which are deemed to arise on the first business day of the Fund's next taxable year) and book amortization of discount on debt securities and permanent book/tax differences primarily attributable to tax adjustments on debt securities sold by the Fund. To reflect reclassifications arising from the permanent differences, paid-in-capital was charged $444, accumulated net realized loss was charged $31,890 and accumulated undistributed net investment income was credited $32,334. 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, 2003 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, 2003, the Fund held positions in residual interest bonds having a total value of $12,342,190, which represents 5.9% of the Fund's net assets applicable to common shareholders. To hedge against adverse interest rate changes, the Fund may invest in financial futures or municipal bond index futures contracts ("futures contracts"). These futures contracts involve elements of market risk in excess of the amount reflected in the Statement of Assets and Liabilities. The Fund bears the risk of an unfavorable change in the value of the underlying securities. At May 31, 2003, the Fund had no outstanding futures contracts. 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 --------------------------------------------------------------------- 2003 2002 2001 2000 1999 --------- --------- --------- --------- --------- Selected Per Share Data: Net asset value, beginning of period...................... $10.04 $ 9.88 $9.08 $10.03 $10.41 ------ ------ ----- ------ ------ Income from investment operations: Net investment income*................................ 0.68 0.70 0.69 0.68 0.70 Net realized and unrealized gain (loss)............... 0.53 0.13 0.80 (0.96) (0.18) Common share equivalent of dividends paid to preferred shareholders*......................................... (0.09) (0.12) (0.19) (0.16) (0.14) ------ ------ ----- ------ ------ Total income (loss) from investment operations............ 1.12 0.71 1.30 (0.44) 0.38 ------ ------ ----- ------ ------ Less dividends and distributions from: Net investment income................................. (0.56) (0.54) (0.54) (0.53) (0.54) Net realized gain..................................... (0.07) (0.04) -- (0.07) (0.26) ------ ------ ----- ------ ------ Total dividends and distributions......................... (0.63) (0.58) (0.54) (0.60) (0.80) ------ ------ ----- ------ ------ Anti-dilutive effect of acquiring treasury shares*........ 0.03 0.03 0.04 0.09 0.04 ------ ------ ----- ------ ------ Net asset value, end of period............................ $10.56 $10.04 $9.88 $ 9.08 $10.03 ====== ====== ===== ====== ====== Market value, end of period............................... $ 9.41 $ 9.02 $8.88 $ 7.75 $ 8.75 ====== ====== ===== ====== ====== Total Return+............................................. 11.90% 8.30% 21.92% (4.55)% (1.21)% Ratios to Average Net Assets of Common Shareholders: Total expenses (before expense offset).................... 1.33%(1) 1.24%(1) 1.26%(1) 1.28%(1) 1.19%(1) Net investment income before preferred stock dividends.... 6.76% 6.95% 7.12% 7.30% 6.73% Preferred stock dividends................................. 0.86% 1.23% 1.91% 1.74% 1.39% Net investment income available to common shareholders.... 5.90% 5.72% 5.21% 5.56% 5.34% Supplemental Data: Net assets applicable to common shareholders, end of period, in thousands............................................. $209,970 $206,679 $210,356 $200,256 $236,496 Asset coverage on preferred shares at end of period....... 310% 306% 310% 300% 336% Portfolio turnover rate................................... 18% 11% 12% 11% 17%
- --------------------- * 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"), including the portfolio of investments, as of May 31, 2003, 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, 2003, 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, 2003, 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 8, 2003 2003 FEDERAL TAX NOTICE (UNAUDITED) During the year ended May 31, 2003, the Fund paid the following per share amounts from tax exempt income: $0.55 to common shareholders, $1,232 to Series A preferred shareholders, $1,255 to Series B preferred shareholders, $1,688 to Series C preferred shareholders, $2,550 to Series D preferred shareholders and $2,272 to Series E preferred shareholders. For the year ended May 31, 2003, the Fund paid to common shareholders $0.06 per share from long-term capital gains. The entire distribution was attributable to pre-May 6 capital gains. 23 Morgan Stanley Municipal Premium Income Trust TRUSTEE AND OFFICER INFORMATION INDEPENDENT TRUSTEES:
NUMBER OF TERM OF PORTFOLIOS IN POSITION(S) OFFICE AND FUND COMPLEX NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF OVERSEEN BY INDEPENDENT TRUSTEE REGISTRANT TIME SERVED* PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS TRUSTEE** - ------------------------------------- ----------- -------------- ------------------------------------------- ------------- Michael Bozic (62) Trustee Since April Retired; Director or Trustee of the Morgan 123 c/o Mayer, Brown, Rowe & Maw 1994 Stanley Funds and TCW/DW Term Trust 2003; Counsel to the Independent Trustees formerly Vice Chairman of Kmart Corporation 1675 Broadway (December 1998-October 2000), Chairman and New York, NY 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 (70) Trustee Since January Director or Trustee of the Morgan Stanley 123 c/o Summit Ventures LLC 1993 Funds and TCW/DW Term Trust 2003; formerly 1 Utah Center United States Senator (R-Utah) (1974-1992) 201 S. Main Street and Chairman, Senate Banking Committee Salt Lake City, UT (1980-1986); formerly Mayor of Salt Lake City, Utah (1971-1974), Astronaut, Space Shuttle Discovery (April 12-19, 1985) and Vice Chairman, Huntsman Corporation (chemical company); member of the Utah Regional Advisory Board of Pacific Corp. Wayne E. Hedien (69) Trustee Since Retired; Director or Trustee of the Morgan 123 c/o Mayer, Brown, Rowe & Maw September 1997 Stanley Funds and TCW/DW Term Trust 2003; Counsel to the Independent Trustees formerly associated with the Allstate 1675 Broadway Companies (1966- 1994), most recently as New York, NY 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). NAME, AGE AND ADDRESS OF INDEPENDENT TRUSTEE OTHER DIRECTORSHIPS HELD BY TRUSTEE - ------------------------------------- ----------------------------------- Michael Bozic (62) Director of Weirton Steel c/o Mayer, Brown, Rowe & Maw Corporation. Counsel to the Independent Trustees 1675 Broadway New York, NY Edwin J. Garn (70) 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 (69) 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 TERM OF PORTFOLIOS IN POSITION(S) OFFICE AND FUND COMPLEX NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF OVERSEEN BY INDEPENDENT TRUSTEE REGISTRANT TIME SERVED* PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS TRUSTEE** - ------------------------------------- ----------- -------------- ------------------------------------------- ------------- Dr. Manuel H. Johnson (54) Trustee Since July Chairman of the Audit Committee and 123 c/o Johnson Smick International, Inc. 1991 Director or Trustee of the Morgan Stanley 2099 Pennsylvania Avenue, N.W. Funds and TCW/DW Term Trust 2003; Senior Suite 950 Partner, Johnson Smick International, Inc., Washington, D.C. 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 (67) Trustee Since July Chairman of the Insurance Committee and 214 c/o Triumph Capital, L.P. 1991 Director or Trustee of the Morgan Stanley 445 Park Avenue Funds and TCW/DW Term Trust 2003; New York, NY 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). NAME, AGE AND ADDRESS OF INDEPENDENT TRUSTEE OTHER DIRECTORSHIPS HELD BY TRUSTEE - ------------------------------------- ----------------------------------- Dr. Manuel H. Johnson (54) Director of NVR, Inc. (home c/o Johnson Smick International, Inc. construction); Chairman and Trustee 2099 Pennsylvania Avenue, N.W. of the Financial Accounting Suite 950 Foundation (oversight organization Washington, D.C. of the Financial Accounting Standards Board); Director of RBS Greenwich Capital Holdings (financial holding company). Michael E. Nugent (67) Director of various business c/o Triumph Capital, L.P. organizations. 445 Park Avenue New York, NY
25 Morgan Stanley Municipal Premium Income Trust TRUSTEE AND OFFICER INFORMATION continued INTERESTED TRUSTEES:
NUMBER OF TERM OF PORTFOLIOS IN POSITION(S) OFFICE AND FUND COMPLEX NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF OVERSEEN BY INTERESTED TRUSTEE REGISTRANT TIME SERVED* PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS TRUSTEE** - ------------------------------------- ----------- -------------- ------------------------------------------- ------------- Charles A. Fiumefreddo (70) Chairman of Since July Chairman and Director or Trustee of the 123 c/o Morgan Stanley Trust the Board 1991 Morgan Stanley Funds and TCW/DW Term Trust Harborside Financial Center, and Trustee 2003; formerly Chairman, Chief Executive Plaza Two, Officer and Director of the Investment Jersey City, NJ 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) and Chief Executive Officer of the Morgan Stanley Funds and the TCW/DW Term Trusts (until September 2002). James F. Higgins (55) Trustee Since June Director or Trustee of the Morgan Stanley 123 c/o Morgan Stanley Trust 2000 Funds and TCW/DW Term Trust 2003 (since Harborside Financial Center, June 2000); Senior Advisor of Morgan Plaza Two, Stanley (since August 2000); Director of Jersey City, NJ the Distributor and Dean Witter Realty Inc.; Director of AXA Financial, Inc. and The Equitable Life Assurance Society of the United States (financial services); 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 (59) Trustee Since April Director or Trustee of the Morgan Stanley 123 1585 Broadway 1994 Funds and TCW/DW Term Trust 2003; 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. NAME, AGE AND ADDRESS OF INTERESTED TRUSTEE OTHER DIRECTORSHIPS HELD BY TRUSTEE - ------------------------------------- ----------------------------------- Charles A. Fiumefreddo (70) None c/o Morgan Stanley Trust Harborside Financial Center, Plaza Two, Jersey City, NJ James F. Higgins (55) None c/o Morgan Stanley Trust Harborside Financial Center, Plaza Two, Jersey City, NJ Philip J. Purcell (59) Director of American Airlines, Inc. 1585 Broadway 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 (49) President Since May 1999 President and Chief Operating Officer of Morgan Stanley 1221 Avenue of the Americas 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 (since June 1998) and Director (since January 1998) of the Transfer Agent; Director of various Morgan Stanley subsidiaries; President (since May 1999) of the Morgan Stanley Funds and TCW/DW Term Trust 2003; Trustee (since December 1999) and President and Chief Executive Officer (since October 2002) of the Van Kampen Open-End Funds and President and Chief Executive Officer (since December 2002) of the Van Kampen Closed-End Funds; previously Chief Strategic Officer of the Investment Manager and Morgan Stanley Services and Executive Vice President of the Distributor (April 1997-June 1998), Chief Executive Officer (September 2002-April 2003) and Vice President (May 1997-April 1999) of the Morgan Stanley Funds and the TCW/DW Term Trusts, and Executive Vice President of Morgan Stanley. Ronald E. Robison (64) Executive Vice Since April Managing Director, Chief Administrative Officer and Director 1221 Avenue of the Americas President and 2003 (since February 1999) of the Investment Manager and Morgan New York, NY Principal Stanley Services, Chief Executive Officer and Director of Executive the Transfer Agent and Executive Vice President and Officer Principal Executive Officer of the Morgan Stanley Funds and TCW/DW Term Trust 2003 (since April 2003); previously Managing Director of the TCW Group Inc. Barry Fink (48) Vice President, Since February General Counsel (since May 2000) and Managing Director 1221 Avenue of the Americas Secretary and 1997 (since December 2000) of Morgan Stanley Investment New York, NY General Counsel Management; Managing Director (since December 2000), and Director (since July 1998) of the Investment Manager and Morgan Stanley Services; Assistant Secretary of Morgan Stanley DW; Vice President, Secretary and General Counsel of the Morgan Stanley Funds and TCW/DW Term Trust 2003 (since February 1997); Managing Director, Director and Secretary of the Distributor; previously, Vice President and Assistant General Counsel of the Investment Manager and Morgan Stanley Services (February 1997-December 2001). Joseph J. McAlinden (60) Vice President Since July Managing Director and Chief Investment Officer of the 1221 Avenue of the Americas 1995 Investment Manager, Morgan Stanley Investment Management New York, NY Inc. and Morgan Stanley Investments LP; Director of the Transfer Agent, Chief Investment Officer of the Van Kampen Funds. Francis Smith (37) Vice President Since Vice President and Chief Financial Officer of the Morgan c/o Morgan Stanley Trust and Chief September 2002 Stanley Funds and TCW/DW Term Trust 2003 (since September Harborside Financial Center, Financial 2002); Executive Director of the Investment Manager and Plaza Two, Officer Morgan Stanley Services (since December 2001); previously Jersey City, NJ Vice President of the Investment Manager and Morgan Stanley Services (August 2000-November 2001) and Senior Manager at PricewaterhouseCoopers LLP (January 1998-August 2000). Thomas F. Caloia (57) Treasurer Since April Executive Director (since December 2002) and Assistant c/o Morgan Stanley Trust 1989 Treasurer of the Investment Manager, the Distributor and Harborside Financial Center, Morgan Stanley Services; previously First Vice President of Plaza Two, the Investment Manager, the Distributor and Morgan Stanley Jersey City, NJ Services; Treasurer of the Morgan Stanley Funds.
- --------------------- * 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 OFFICERS Charles A. Fiumefreddo Chairman of the Board Mitchell M. Merin President Ronald E. Robison Executive Vice President and Principal Executive Officer Barry Fink Vice President, Secretary and General Counsel Joseph J. McAlinden Vice President Francis Smith Vice President and Chief Financial Officer 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 ADVISOR Morgan Stanley Investment Advisors Inc. 1221 Avenue of the Americas New York, New York 10020 Investments and services offered through Morgan Stanley DW Inc., member SPIC. MORGAN STANLEY MUNICIPAL PREMIUM INCOME TRUST Annual Report May 31, 2003 38563 RPT-11549G03-AP-7/03 ITEM 7 Disclosure of Proxy Voting Policies and Procedures for Closed-end Management Investment Companies. The Fund's and its Investment Advisor's Proxy Voting Policies and Procedures are as follows: MORGAN STANLEY INVESTMENT MANAGEMENT PROXY VOTING POLICY AND PROCEDURES I. POLICY STATEMENT Introduction - Morgan Stanley Investment Management's ("MSIM") policies and procedures for voting proxies with respect to securities held in the accounts of clients applies to those MSIM entities that provide discretionary Investment Management services and for which a MSIM entity has the authority to vote their proxies. The policies and procedures and general guidelines in this section will be reviewed and, as necessary, updated periodically to address new or revised proxy voting issues. The MSIM entities covered by these policies and procedures currently include the following: Morgan Stanley Investment Advisors Inc., Morgan Stanley Alternative Investment Partners, L.P., Morgan Stanley AIP GP LP, Morgan Stanley Investment Management Inc., Morgan Stanley Investment Group Inc., Morgan Stanley Investment Management Limited, Morgan Stanley Investment Management Company, Morgan Stanley Asset & Investment Trust Management Co., Limited, Morgan Stanley Investment Management Private Limited, Morgan Stanley Investments LP, Morgan Stanley Hedge Fund Partners GP LP, Morgan Stanley Hedge Fund Partners LP, Van Kampen Investment Advisory Corp., Van Kampen Asset Management Inc., and Van Kampen Advisors Inc. (each a "MSIM Affiliate" and collectively referred to as the "MSIM Affiliates"). Each MSIM Affiliate will vote proxies as part of its authority to manage, acquire and dispose of account assets. With respect to the MSIM registered management investment companies (Van Kampen, Institutional and Advisor Funds)(collectively referred to as the "MSIM Funds"), each MSIM Fund will vote proxies pursuant to authority granted under its applicable investment advisory agreement or, in the absence of such authority, as authorized by its Board of Directors or Trustees. A MSIM Affiliate will not vote proxies if the "named fiduciary" for an ERISA account has reserved the authority for itself, or in the case of an account not governed by ERISA, the Investment Management Agreement does not authorize the MSIM Affiliate to vote proxies. MSIM Affiliates will, in a prudent and diligent manner, vote proxies in the best interests of clients, including beneficiaries of and participants in a client's benefit plan(s) for which we manage assets, consistent with the objective of maximizing long-term investment returns ("Client Proxy Standard"). In certain situations, a client or its fiduciary may provide a MSIM Affiliate with a statement of proxy voting policy. In these situations, the MSIM Affiliate will comply with the client's policy unless to do so would be inconsistent with applicable laws or regulations or the MSIM Affiliate's fiduciary responsibility. Proxy Research Services - To assist the MSIM Affiliates in their responsibility for voting proxies and the overall global proxy voting process, Institutional Shareholder Services ("ISS") and the Investor Responsibility Research Center ("IRRC") have been retained as experts in the proxy voting and corporate governance area. ISS and IRRC are independent advisers that specialize in providing a variety of fiduciary-level proxy-related services to institutional investment managers, plan sponsors, custodians, consultants, and other institutional investors. The services provided to MSIM Affiliates include in-depth research, global issuer analysis, and voting recommendations. In addition to research, ISS provides vote execution, reporting, and recordkeeping. MSIM's Proxy Review Committee (see Section IV.A. below) will carefully monitor and supervise the services provided by the proxy research services. Voting Proxies for certain Non-US Companies - While the proxy voting process is well established in the United States and other developed markets with a number of tools and services available to assist an investment manager, voting proxies of non-US companies located in certain jurisdictions, particularly emerging markets, may involve a number of problems that may restrict or prevent a MSIM Affiliate's ability to vote such proxies. These problems include, but are not limited to: (i) proxy statements and ballots being written in a language other than English; (ii) untimely and/or inadequate notice of shareholder meetings; (iii) restrictions on the ability of holders outside the issuer's jurisdiction of organization to exercise votes; (iv) requirements to vote proxies in person, (v) the imposition of restrictions on the sale of the securities for a period of time in proximity to the shareholder meeting; and (vi) requirements to provide local agents with power of attorney to facilitate the MSIM Affiliate's voting instructions. As a result, clients' non-U.S. proxies will be voted on a best efforts basis only, consistent with the Client Proxy Standard. ISS has been retained to provide assistance to the MSIM Affiliates in connection with voting their clients' non-US proxies. II. GENERAL PROXY VOTING GUIDELINES To ensure consistency in voting proxies on behalf of its clients, MSIM Affiliates will follow (subject to any exception set forth herein) these Proxy Voting Policies and Procedures, including the guidelines set forth below. These guidelines address a broad range of issues, including board size and composition, executive compensation, anti-takeover proposals, capital structure proposals and social responsibility issues and are meant to be general voting parameters on issues that arise most frequently. The MSIM Affiliates, however, may vote in a manner that is contrary to the following general guidelines, pursuant to the procedures set forth in Section IV. below, provided the vote is consistent with the Client Proxy Standard. III. GUIDELINES A. MANAGEMENT PROPOSALS 2 1. When voting on routine ballot items the following proposals are generally voted in support of management, subject to the review and approval of the Proxy Review Committee, as appropriate. - Selection or ratification of auditors. - Approval of financial statements, director and auditor reports. - Election of Directors. - Limiting Directors' liability and broadening indemnification of Directors. - Requirement that a certain percentage (up to 66 2/3%) of its Board's members be comprised of independent and unaffiliated Directors. - Requirement that members of the company's compensation, nominating and audit committees be comprised of independent or unaffiliated Directors. - Recommendations to set retirement ages or require specific levels of stock ownership by Directors. - General updating/corrective amendments to the charter. - Elimination of cumulative voting. - Elimination of preemptive rights. - Provisions for confidential voting and independent tabulation of voting results. - Proposals related to the conduct of the annual meeting except those proposals that relate to the "transaction of such other business which may come before the meeting." 2. The following non-routine proposals, which potentially may have a substantive financial or best interest impact on a shareholder, are generally voted in support of management, subject to the review and approval of the Proxy Review Committee, as appropriate. Capitalization changes - Capitalization changes that eliminate other classes of stock and voting rights. 3 - Proposals to increase the authorization of existing classes of common stock (or securities convertible into common stock) if: (i) a clear and legitimate business purpose is stated; (ii) the number of shares requested is reasonable in relation to the purpose for which authorization is requested; and (iii) the authorization does not exceed 100% of shares currently authorized and at least 30% of the new authorization will be outstanding. - Proposals to create a new class of preferred stock or for issuances of preferred stock up to 50% of issued capital. - Proposals for share repurchase plans. - Proposals to reduce the number of authorized shares of common or preferred stock, or to eliminate classes of preferred stock. - Proposals to effect stock splits. - Proposals to effect reverse stock splits if management proportionately reduces the authorized share amount set forth in the corporate charter. Reverse stock splits that do not adjust proportionately to the authorized share amount will generally be approved if the resulting increase in authorized shares coincides with the proxy guidelines set forth above for common stock increases. Compensation - Director fees, provided the amounts are not excessive relative to other companies in the country or industry. - Employee stock purchase plans that permit discounts up to 15%, but only for grants that are part of a broad based employee plan, including all non-executive employees. - Establishment of Employee Stock Option Plans and other employee ownership plans. Anti-Takeover Matters - Modify or rescind existing supermajority vote requirements to amend the charters or bylaws. - Adoption of anti-greenmail provisions provided that the proposal: (i) defines greenmail; (ii) prohibits buyback offers to large block holders not made to all shareholders or not approved by disinterested 4 shareholders; and (iii) contains no anti-takeover measures or other provisions restricting the rights of shareholders. 3. The following non-routine proposals, which potentially may have a substantive financial or best interest impact on the shareholder, are generally voted against (notwithstanding management support), subject to the review and approval of the Proxy Review Committee, as appropriate. - Capitalization changes that add classes of stock that which substantially dilute the voting interests of existing shareholders. - Proposals to increase the authorized number of shares of existing classes of stock that carry preemptive rights or supervoting rights. - Creation of "blank check" preferred stock. - Changes in capitalization by 100% or more. - Compensation proposals that allow for discounted stock options that have not been offered to employees in general. - Amendments to bylaws that would require a supermajority shareholder vote to pass or repeal certain provisions. - Proposals to indemnify auditors. 4. The following types of non-routine proposals, which potentially may have a potential financial or best interest impact on an issuer, are voted as determined by the Proxy Review Committee. Corporate Transactions - Mergers, acquisitions and other special corporate transactions (i.e., takeovers, spin-offs, sales of assets, reorganizations, restructurings and recapitalizations) will be examined on a case-by-case basis. In all cases, ISS and IRRC research and analysis will be used along with MSIM Affiliates' research and analysis, based on, among other things, MSIM internal company-specific knowledge. - Change-in-control provisions in non-salary compensation plans, employment contracts, and severance agreements that benefit management and would be costly to shareholders if triggered. - Shareholders rights plans that allow appropriate offers to shareholders to be blocked by the board or trigger provisions that prevent legitimate offers from proceeding. 5 - Executive/Director stock option plans. Generally, stock option plans should meet the following criteria: (i) Whether the stock option plan is incentive based; (ii) For mature companies, should be no more than 5% of the issued capital at the time of approval; (iii) For growth companies, should be no more than 10% of the issued capital at the time of approval. Anti-Takeover Provisions - Proposals requiring shareholder ratification of poison pills. - Anti-takeover and related provisions that serve to prevent the majority of shareholders from exercising their rights or effectively deter the appropriate tender offers and other offers. B. SHAREHOLDER PROPOSALS 1. The following shareholder proposals are generally supported, subject to the review and approval of the Proxy Review Committee, as appropriate: - Requiring auditors to attend the annual meeting of shareholders. - Requirement that members of the company's compensation, nominating and audit committees be comprised of independent or unaffiliated Directors. - Requirement that a certain percentage of its Board's members be comprised of independent and unaffiliated Directors. - Confidential voting. - Reduction or elimination of supermajority vote requirements. 2. The following shareholder proposals will be voted as determined by the Proxy Review Committee. - Proposals that limit tenure of directors. - Proposals to limit golden parachutes. 6 - Proposals requiring directors to own large amounts of stock to be eligible for election. - Restoring cumulative voting in the election of directors. - Proposals that request or require disclosure of executive compensation in addition to the disclosure required by the Securities and Exchange Commission ("SEC") regulations. - Proposals that limit retirement benefits or executive compensation. - Requiring shareholder approval for bylaw or charter amendments. - Requiring shareholder approval for shareholder rights plan or poison pill. - Requiring shareholder approval of golden parachutes. - Elimination of certain anti-takeover related provisions. - Prohibit payment of greenmail. 3. The following shareholder proposals are generally not supported, subject to the review and approval of the Committee, as appropriate. - Requirements that the issuer prepare reports that are costly to provide or that would require duplicative efforts or expenditures that are of a non-business nature or would provide no pertinent information from the perspective of institutional shareholders. - Restrictions related to social, political or special interest issues that impact the ability of the company to do business or be competitive and that have a significant financial or best interest impact to the shareholders. - Proposals that require inappropriate endorsements or corporate actions. IV. ADMINISTRATION OF PROXY POLICIES AND PROCEDURES A. PROXY REVIEW COMMITTEE 1. The MSIM Proxy Review Committee ("Committee") is responsible for creating and implementing MSIM's Proxy Voting Policy and Procedures and, in this regard, has expressly adopted them. Following are some of the functions and responsibilities of the Committee. 7 (a) The Committee, which will consist of members designated by MSIM's Chief Investment Officer, is responsible for establishing MSIM's proxy voting policies and guidelines and determining how MSIM will vote proxies on an ongoing basis. (b) The Committee will periodically review and have the authority to amend as necessary MSIM's proxy voting policies and guidelines (as expressed in these Proxy Voting Policy and Procedures) and establish and direct voting positions consistent with the Client Proxy Standard. (c) The Committee will meet at least monthly to (among other matters): (1) address any outstanding issues relating to MSIM's Proxy Voting Policy and Procedures; and (2) generally review proposals at upcoming shareholder meetings of MSIM portfolio companies in accordance with this Policy and Procedures including, as appropriate, the voting results of prior shareholder meetings of the same issuer where a similar proposal was presented to shareholders. The Committee, or its designee, will timely communicate to ISS MSIM's Proxy Voting Policy and Procedures (and any amendments to them and/or any additional guidelines or procedures it may adopt). (d) The Committee will meet on an ad hoc basis to (among other matters): (1) authorize "split voting" (i.e., allowing certain shares of the same issuer that are the subject of the same proxy solicitation and held by one or more MSIM portfolios to be voted differently than other shares) and/or "override voting" (i.e., voting all MSIM portfolio shares in a manner contrary to the Procedures); (2) review and approve upcoming votes, as appropriate, for matters for which specific direction has been provided in Sections I, II, and III above; and (3) determine how to vote matters for which specific direction has not been provided in Sections I, II and III above. Split votes will generally not be approved within a single Global Investor Group team. The Committee may take into account ISS recommendations and the research provided by IRRC as well as any other relevant information they may request or receive. (e) In addition to the procedures discussed above, if the Committee determines that an issue raises a potential material conflict of interest, or gives rise to the appearance of a potential material conflict of interest, the Committee will designate a special committee to review, and recommend a course of action with respect to, the conflict(s) in question ("Special Committee"). The Special Committee may request the assistance of the Law and Compliance Departments and will have sole discretion to cast a 8 vote. In addition to the research provided by ISS and IRRC, the Special Committee may request analysis from MSIM Affiliate investment professionals and outside sources to the extent it deems appropriate. (f) The Committee and the Special Committee, or their designee(s), will document in writing all of their decisions and actions, which documentation will be maintained by the Committee and the Special Committee, or their designee(s) for a period of at least 6 years. To the extent these decisions relate to a security held by a MSIM U.S. registered investment company, the Committee and Special Committee, or their designee(s), will report their decisions to each applicable Board of Trustees/Directors of those investment companies at each Board's next regularly Scheduled Board meeting. The report will contain information concerning decisions made by the Committee and Special Committee during the most recently ended calendar quarter immediately preceding the Board meeting. (g) The Committee and Special Committee, or their designee(s), will timely communicate to applicable PMs, the Compliance Departments and, as necessary to ISS, decisions of the Committee and Special Committee so that, among other things, ISS will vote proxies consistent with their decisions. 9 Item 9 - Controls and Procedures The Fund's principal executive officer and principal financial officer have concluded that the Fund's disclosure controls and procedures are sufficient to ensure that information required to be disclosed by the Fund in this Form N-CSR was recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, based upon such officers' evaluation of these controls and procedures as of a date within 90 days of the filing date of the report. There were no significant changes or corrective actions with regard to significant deficiencies or material weaknesses in the Fund's internal controls or in other factors that could significantly affect the Fund's internal controls subsequent to the date of their evaluation. 10 Item 10b Exhibits A separate certification for each principal executive officer and principal financial officer of the registrant are attached hereto as part of EX-99.CERT. Items 2 - 6 and Items 8 and 10a are not applicable SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Morgan Stanley Municipal Premium Income Trust Ronald E. Robison Principal Executive Officer July 22, 2003 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Ronald E. Robison Principal Executive Officer July 22, 2003 Francis Smith Principal Financial Officer July 22, 2003 11 EX-99.CERT 3 y87433exv99wcert.txt 302 CERTIFICATION EXHIBIT B1 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER CERTIFICATIONS I, Ronald E. Robison, certify that: 1. I have reviewed this report on Form N-CSR of Morgan Stanley Municipal Premium Income Trust; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-2(c) under the Investment Company Act of 1940) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this report (the "Evaluation Date"); and 12 c) presented in this report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize, and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: July 22, 2003 Ronald E. Robison Principal Executive Officer 13 EXHIBIT B2 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER CERTIFICATIONS I, Francis Smith, certify that: 1. I have reviewed this report on Form N-CSR of Morgan Stanley Municipal Premium Income Trust; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-2(c) under the Investment Company Act of 1940) for the registrant and have: (i) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (ii) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this report (the "Evaluation Date"); and (iii) presented in this report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): 14 a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize, and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: July 22, 2003 Francis Smith Principal Financial Officer 15 EX-99.906CERT 4 y87433exv99w906cert.txt 906 CERTIFICATION SECTION 906 CERTIFICATION Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Morgan Stanley Municipal Premium Income Trust In connection with the Report on Form N-CSR (the "Report") of the above-named issuer for the period ended May 31, 2003 that is accompanied by this certification, the undersigned hereby certifies that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Issuer. Date: July 22, 2003 Ronald E. Robison Principal Executive Officer A signed original of this written statement required by Section 906 has been provided to Morgan Stanley Municipal Premium Income Trust and will be retained by Morgan Stanley Municipal Premium Income Trust and furnished to the Securities and Exchange Commission or its staff upon request. 16 SECTION 906 CERTIFICATION Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Morgan Stanley Municipal Premium Income Trust In connection with the Report on Form N-CSR (the "Report") of the above-named issuer for the period ended May 31, 2003 that is accompanied by this certification, the undersigned hereby certifies that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Issuer. Date: July 22, 2003 Francis Smith Principal Financial Officer A signed original of this written statement required by Section 906 has been provided to Morgan Stanley Municipal Premium Income Trust and will be retained by Morgan Stanley Municipal Premium Income Trust and furnished to the Securities and Exchange Commission or its staff upon request. 17 -----END PRIVACY-ENHANCED MESSAGE-----