N-CSR/A 1 y98137a1nvcsrza.txt N-CSR/A 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, 2004 Date of reporting period: May 31, 2004 Item 1 - Report to Shareholders Welcome, Shareholder: In this report, you'll learn about how your investment in Morgan Stanley Municipal Premium Income Trust performed during the annual period. We will provide an overview of the market conditions, and discuss some of the factors that affected performance during the reporting period. In addition, this report includes the Fund's financial statements and a list of Fund investments. Market forecasts provided in this report may not necessarily come to pass. There is no assurance that the Fund will achieve its investment objective. The Fund is subject to market risk, which is the possibility that market values of securities owned by the Fund will decline and, therefore, the value of the Fund shares may be less than what you paid for them. Accordingly, you can lose money investing in this Fund. FUND REPORT For the year ended May 31, 2004 MARKET CONDITIONS The U.S. economy continued to show improvement during the Fund's fiscal year ended May 31, 2004. On the positive side, retail sales fueled year-over-year gross domestic product growth of 5 percent through the March 2004 calendar quarter. Historically, higher output has led to higher interest rates; however, yields remained relatively low during the review period. A combination of low inflation and weak employment growth caused the Federal Open Market Committee (the "Fed") to maintain its accommodative monetary policy. For most of the fiscal period, fears of a jobless recovery supported a positive outlook for fixed-income investments. Then, surprising job growth in March and escalating oil prices led investors to anticipate that interest rates would rise sooner rather than later. While the Fed did not change its short-term lending rate at its April meeting, it did signal a prospective shift in policy. As a result, bond yields spiked in April and May. The supply of new municipal bonds in calendar 2003 reached record levels as many municipalities took advantage of historically low interest rates to reduce expenditures by refinancing existing debt at lower yields. Some municipalities attempted to meet budget needs by issuing additional debt. Issuance slowed from this record pace in the first months of 2004. Low interest rates in 2003 and early 2004 slowed demand for municipal bonds. Retail investors and mutual funds saw little advantage to selling bonds purchased at higher yields, only to reinvest the proceeds at historically low yields. However, insurance companies and hedge funds purchased municipal bonds based on their attractiveness relative to taxable securities. Additionally, investors stretched for yield by buying lower-rated bonds, and credit spreads tightened. PERFORMANCE ANALYSIS For the 12-month period ended May 31, 2004, Morgan Stanley Municipal Premium Income Trust's (PIA) total NAV return was -0.26 percent. The Fund's total market return was 1.27 percent. On May 31, 2004, PIA's NYSE market price was at a 9.62 percent discount to its NAV. Past performance is no guarantee of future results. Monthly dividends for the second quarter of 2004, declared in March, were unchanged at $0.0525 per share. This dividend reflects the level of the Fund's undistributed net investment income and projected earnings power. The Fund's level of undistributed net investment income was $0.127 per share on May 31, 2004, versus $0.155 per share six months earlier. 2 The Fund's duration* has been targeted to be shorter than its benchmark index. The duration, adjusted for leverage, was 12.0 years. Treasury futures were sold to reduce interest-rate exposure without raising cash in the portfolio. We preferred premium coupon municipals with defensive characteristics in the 20- year maturity range. Revenue bonds in sectors with reliable income streams from essential services such as municipal electric, transportation and water and sewer systems were emphasized. The Fund's net assets, including preferred shares, of $287 million were diversified across 70 credits in 13 long-term sectors. As discussed in previous reports, the total income available for distribution to holders of common shares includes incremental income provided by the Fund's outstanding Auction Rate Preferred Shares (ARPS). ARPS dividends reflect prevailing short-term interest rates on maturities ranging from one week to two years. Incremental income to holders of common shares depends on two factors: the amount of ARPS outstanding and the spread between the portfolio's cost yield and its ARPS auction rate and expenses. The greater the spread and the higher the amount of ARPS outstanding, the greater the amount of incremental income available for distribution to holders of common shares. The level of net investment income available for distribution to holders of common shares varies with the level of short-term interest rates. ARPS leverage also increases the price volatility of common shares and has the effect of extending portfolio duration. During the six-month period under review, ARPS leverage contributed approximately $0.15 per share to common-share earnings. The Fund has five ARPS series totaling $100 million and representing 35 percent of net assets, including ARPS. The series is currently in two-year auction modes with maturities ranging from July 2004 to January 2006. The yields ranged from 1.229 to 2.15 percent. The latest auction of $20 million Series D ARPS in January received a rate of 1.51 percent. The Fund's procedure for reinvesting all dividends and distributions in common shares is through purchases in the open market. This method helps support the market value of the Fund's shares. In addition, we would like to remind you that the Trustees have approved a procedure whereby the Fund may, when appropriate, purchase shares in the open market or in privately negotiated transactions at a price not above market value or net asset value, whichever is lower at the time of purchase. The Fund may also utilize procedures to reduce or eliminate the amount of outstanding ARPS, including purchasing them in the open market or in privately negotiated transactions. ---------------------------------------------------- * A measure of the sensitivity of a bond's price to changes in interest rates, expressed in years. Each year of duration represents an expected 1 percent change in the price of a bond for every 1 percent change in interest rates. The longer a bond's duration, the greater the effect of interest-rate movements on its price. Typically, funds with shorter durations perform better in rising-interest-rate environments, while funds with longer durations perform better when rates decline. 3
TOP FIVE SECTORS Transportation 18.5% General Obligation 17.7% Water & Sewer 17.6% Electric 14.6% Education 7.8%
LONG-TERM CREDIT ANALYSIS Aaa/AAA 67.9% Aa/AA 23.0% A/A 1.6% Baa/BBB 4.7% NR 2.8%
As of May 31, 2004. Subject to change daily. All percentages are as a percentage of long-term investments. Provided for informational purposes only and should not be deemed as a recommendation to buy or sell the securities mentioned. Morgan Stanley is a full-service securities firm engaged in securities trading and brokerage activities, investment banking, research and analysis, financing and financial advisory services. RESULTS OF ANNUAL MEETING ON DECEMBER 16, 2003, AN ANNUAL MEETING OF THE FUND'S SHAREHOLDERS WAS HELD FOR THE PURPOSE OF VOTING ON ONE MATTER WITH THE FOLLOWING RESULTS: 1. ELECTION OF TRUSTEES BY ALL SHAREHOLDERS ------------------------------------------------- WAYNE E. HEDIEN: FOR 15,100,676 WITHHELD 546,264 ------------------------------------------------- JOSEPH J. KEARNS: FOR 15,101,047 WITHHELD 545,893 ------------------------------------------------- FERGUS REID: FOR 15,101,177 WITHHELD 545,763 ------------------------------------------------- 2. ELECTION OF TRUSTEE BY PREFERRED SHAREHOLDERS ------------------------------------------------- MANUEL H. JOHNSON: FOR 894 WITHHELD 0 -------------------------------------------------
THE FOLLOWING TRUSTEES WERE NOT STANDING FOR REELECTION AT THIS MEETING: MICHAEL BOZIC, CHARLES A. FIUMEFREDDO, EDWIN J. GARN, JAMES F. HIGGINS AND MICHAEL E. NUGENT 4 DISTRIBUTION BY MATURITY (% of Long-Term Portfolio) As of May 31, 2004 WEIGHTED AVERAGE MATURITY: 17 YEARS (BAR CHART) 1-5 6.00 5-10 12.00 10-20 47.00 20-30 33.00 30+ 2.00
Portfolio structure is subject to change. Geographic Summary of Investments Based on Market Value as a Percent of Total Investments Alabama................ 1.3% Arizona................ 7.0 California............. 6.7 Colorado............... 1.5 Connecticut............ 0.7 Florida................ 3.4 Georgia................ 5.2 Hawaii................. 1.2 Idaho.................. 0.3 Illinois............... 4.5 Indiana................ 0.7 Kansas................. 3.5% Kentucky............... 1.1 Louisiana.............. 0.7 Maryland............... 0.3 Massachusetts.......... 5.7 Michigan............... 2.6 Minnesota.............. 1.9 Missouri............... 1.3 Nevada................. 1.1 New Jersey............. 4.2 New York............... 14.0 Ohio................... 4.0% Pennsylvania........... 4.7 Puerto Rico............ 0.9 South Carolina......... 4.3 Tennessee.............. 2.3 Texas.................. 13.7 Utah................... 1.9 Virginia............... 0.7 Joint exemptions*...... (1.4) ----- Total.................. 100.0% =====
--------------------- * Joint exemptions have been included in each geographic location. 5 CALL AND COST (BOOK) YIELD STRUCTURE (Based on Long-Term Portfolio) As of May 31, 2004 YEARS BONDS CALLABLE -- WEIGHTED AVERAGE CALL PROTECTION: 6 YEARS (BAR CHART) 2004(a) 10.00 2005 9.00 2006 8.00 2007 2.00 2008 11.00 2009 2.00 2010 7.00 2011 15.00 2012 7.00 2013 17.00 2014+ 12.00
COST (BOOK) YIELD(b) -- WEIGHTED AVERAGE BOOK YIELD: 5.4% (BAR CHART) 2004(a) 6.9 2005 6.1 2006 5.6 2007 6.2 2008 5.4 2009 5.6 2010 5.7 2011 5.1 2012 4.9 2013 4.8 2014+ 4.8
(a) May include issues callable in previous years. (b) Cost or "book" yield is the annual income earned on a portfolio investment based on its original purchase price before the Fund's operating expenses. For example, the Fund is earning a book yield of 6.9% on 10% of the long-term portfolio that is callable in 2004. Portfolio structure is subject to change. 6 Morgan Stanley Municipal Premium Income Trust PORTFOLIO OF INVESTMENTS - MAY 31, 2004
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE --------------------------------------------------------------------------------------------------------- Tax-Exempt Municipal Bonds (147.2%) General Obligation (26.1%) Los Angeles Unified School District, California, $ 2,000 2003 Ser A (FSA)....................................... 5.25 % 07/01/20 $ 2,090,320 5,000 1997 Ser B (FGIC)...................................... 5.00 07/01/23 5,040,250 5,000 San Diego Unified School District, California, 1998 Ser E (FSA).................................................. 5.00 07/01/28 4,954,850 2,000 Connecticut, 2001 Ser D.................................. 5.00 11/15/20 2,047,600 3,000 Chicago Board of Education, Illinois, Ser 2001 C (FSA)... 5.00 12/01/26 2,966,040 2,000 Du Page County Community Unit School District # 200, Illinois, Ser 2003 B (FSA)............................. 5.25 11/01/21 2,079,040 Massachusetts, 3,500 1995 Ser A (Ambac)..................................... 5.00 07/01/12 3,795,155 6,000 Refg Ser D (Ambac)..................................... 5.50 10/01/19 6,613,620 3,000 Barberton City School District, Ohio, Ser 1998 (FGIC).... 5.125 11/01/22 3,062,550 Pennsylvania, 1,000 RITES PA - 1112 A (MBIA)............................... 8.474++ 01/01/18 1,078,470 1,000 RITES PA - 1112 B (MBIA)............................... 8.474++ 01/01/19 1,065,490 5,000 Charleston County School District, South Carolina, Ser 2004 A................................................. 5.00 02/01/22 5,086,000 3,500 Shelby County, Tennessee, Refg 1995 Ser A................ 5.625 04/01/11 3,647,525 5,000 La Joya Independent School District, Texas, Ser 2000 (PSF).................................................. 5.50 02/15/25 5,153,800 ------------- -------- 48,680,710 47,000 ------------- -------- Educational Facilities Revenue (11.4%) 4,000 University of Northern Colorado, Refg Ser 2001 (Ambac)##.............................................. 5.00 06/01/31 3,956,120 5,500 Oakland University, Michigan, Ser 1995 (MBIA)............ 5.75 05/15/26 5,756,025 New York State Dormitory Authority, 4,000 State University Refg Ser 1993 A....................... 5.50 05/15/08 4,364,800 890 State University Refg Ser 1999 B....................... 7.50 05/15/11 1,040,668 1,250 Ohio State University, General Receipts Ser 1999 A....... 5.75 12/01/24 1,340,638 5,000 Swarthmore Boro Authority, Pennsylvania, Swarthmore College Ser 2001....................................... 5.00 09/15/31 4,908,300 ------------- -------- 21,366,551 20,640 ------------- -------- Electric Revenue (21.4%) 8,000 Salt River Project Agricultural Improvement & Power District, Arizona, Ser 2002 B.......................... 5.00 01/01/26 7,983,920 1,550 Los Angeles Department of Water & Power, California, 2001 Ser A.................................................. 5.00 07/01/24 1,553,720 5,000 Orlando Utilities Commission, Florida, Water & Electric Ser 2001............................................... 5.00 10/01/22 5,080,050 7,000 South Carolina Public Service Authority, 1995 Refg Ser A (Ambac)................................................ 6.25 01/01/22 7,542,640 3,000 Memphis, Tennessee, 2003 Ser A (MBIA).................... 5.00 12/01/15 3,173,280
7 See Notes to Financial Statements Morgan Stanley Municipal Premium Income Trust PORTFOLIO OF INVESTMENTS - MAY 31, 2004 continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE --------------------------------------------------------------------------------------------------------- $ 8,500 San Antonio, Texas, Electric & Gas Refg Ser 1994 C....... 8.113%++ 02/01/06 $ 9,246,470 5,000 Intermountain Power Agency, Utah, Refg 1997 Ser B (MBIA)................................................. 5.75 07/01/19 5,431,050 ------------- -------- 40,011,130 38,050 ------------- -------- Hospital Revenue (6.1%) 3,500 Birmingham-Carraway Special Care Facilities Financing Authority, Alabama, Carraway Methodist Health Ser 1995 A (Connie Lee)......................................... 5.875 08/15/15 3,691,065 2,000 Louisiana Public Facilities Authority, Oshner Clinic Ser 2002 B................................................. 5.50 05/15/32 2,000,660 1,000 Maryland Health & Higher Educational Facilities Authority, Johns Hopkins Hospital Ser 2003............. 5.00 11/15/28 980,200 5,000 Lehigh County General Purpose Authority, Pennsylvania, St Luke's of Bethlehem Hospital Ser 2003.................. 5.375 08/15/33 4,692,100 ------------- -------- 11,364,025 11,500 ------------- -------- Industrial Development/Pollution Control Revenue (8.5%) 6,750 Pima County Industrial Development Authority, Arizona, Tucson Electric Power Co Refg Ser 1988 A (FSA)......... 7.25 07/15/10 7,101,000 8,000 New York City Industrial Development Agency, New York, Brooklyn Navy Yard Cogeneration Partners LP Ser 1997 (AMT).................................................. 5.65 10/01/28 7,128,960 1,500 Brazos River Authority, Texas, TXU Electric Co Refg Ser 1999 A (AMT)........................................... 7.70 04/01/33 1,702,740 ------------- -------- 15,932,700 16,250 ------------- -------- Mortgage Revenue - Multi-Family (4.4%) Massachusetts Housing Finance Agency, 1,790 Rental 1994 Ser A (AMT) (Ambac)........................ 6.60 07/01/14 1,824,744 4,340 Rental 1994 Ser A (AMT) (Ambac)........................ 6.65 07/01/19 4,423,328 1,860 Minnesota Housing Finance Agency, Rental 1995 Ser D (MBIA)................................................. 6.00 02/01/22 1,898,651 ------------- -------- 8,146,723 7,990 ------------- -------- Mortgage Revenue - Single Family (0.5%) 445 Colorado Housing & Finance Authority Ser 1997 A-2 (AMT).................................................. 7.25 05/01/27 449,130 40 Kansas City Leavenworth & Lenexa, Kansas, GNMA-Backed Ser 1998 C (AMT)........................................... 8.00 11/01/20 40,069 5 Olathe, Kansas, GNMA Collateralized Ser 1989 A (AMT) (MBIA)................................................. 8.00 11/01/20 5,003 490 Missouri Housing Development Commission, Homeownership 1996 Ser D (AMT)....................................... 7.10 09/01/27 495,517 ------------- -------- 989,719 980 ------------- -------- Public Facilities Revenue (1.9%) Saint Paul Independent School District #625, Minnesota, 1,700 Ser 1995 C COPs........................................ 5.45 02/01/11 1,742,279 1,800 Ser 1995 C COPs........................................ 5.50 02/01/12 1,845,414 ------------- -------- 3,587,693 3,500 ------------- --------
8 See Notes to Financial Statements Morgan Stanley Municipal Premium Income Trust PORTFOLIO OF INVESTMENTS - MAY 31, 2004 continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE --------------------------------------------------------------------------------------------------------- Recreational Facilities Revenue (0.5%) $ 825 Metropolitan Pier & Exposition Authority, Illinois, -------- McCormick Place Refg Ser 1998 A (FGIC)................. 5.50 % 06/15/18 $ 911,551 ------------- Transportation Facilities Revenue (27.2%) 5,000 Arizona Transportation Board, Highway Ser 2001........... 5.25 07/01/19 5,267,500 Miami-Dade County, Florida, 2,050 Miami Int'l Airport Refg Ser 2003 B (AMT) (MBIA)....... 5.25 10/01/17 2,144,587 2,500 Miami Int'l Airport Ser 2000 B (FGIC).................. 5.75 10/01/24 2,654,450 2,500 Georgia State Road & Tollway Authority, DRIVERS Ser 373.................................................... 8.676++ 10/01/11 2,605,250 Chicago, Illinois, 5,000 Chicago-O'Hare Int'l Airport Ser 1996 A (Ambac)........ 5.625 01/01/12 5,331,000 1,805 Midway Airport 1994 Ser A (AMT) (MBIA)................. 6.25 01/01/24 1,846,497 350 New Jersey Transportation Trust Authority, 1998 Ser A (FSA).................................................. 4.50 06/15/19 343,427 5,000 New Jersey Turnpike Authority, Ser 2003 A (Ambac)........ 5.00 01/01/30 4,996,200 3,000 Metropolitan Transportation Authority, New York, State Service Contract Refg Ser 2002 B (MBIA)................ 5.50 07/01/20 3,227,160 4,000 Port Authority of New York & New Jersey, Cons 135 Ser (XLCA)................................................. 5.00 09/15/29 3,957,240 3,000 Triborough Bridge & Tunnel Authority, New York, Refg Ser 2002 B................................................. 5.25 11/15/19 3,149,340 2,000 Pennsylvania Turnpike Commission, Ser R 2001 (Ambac)..... 5.00 12/01/30 1,978,260 2,800 Puerto Rico Highway & Transportation Authority, Ser 1998 A...................................................... 4.75 07/01/38 2,547,916 8,000 Austin, Texas, Airport Prior Lien Ser 1995 A (AMT) (MBIA)................................................. 6.125 11/15/25 8,533,172 2,000 Richmond Metropolitan Authority, Virginia, Expressway & Refg Ser 1998 (FGIC)................................... 5.25 07/15/17 2,160,400 ------------- -------- 50,742,399 49,005 ------------- -------- Water & Sewer Revenue (26.0%) 3,000 Atlanta, Georgia, Water & Wastewater Ser 1999 A (FGIC)... 5.50 11/01/22 3,291,600 4,000 Augusta, Georgia, Water & Sewerage Ser 2000 (FSA)........ 5.25 10/01/22 4,123,720 5,000 Rockdale County Water & Sewage Authority, Georgia, Ser 1999 A (MBIA).......................................... 5.50 07/01/25 5,188,400 Indianapolis Local Public Improvement Bond Bank, Indiana, 1,000 Waterworks Ser 2002 A (MBIA)........................... 5.50 01/01/18 1,081,090 1,000 Waterworks Ser 2002 A (MBIA)........................... 5.50 01/01/19 1,077,480 3,215 Louisville & Jefferson County Metropolitan Sewer District, Kentucky, Ser 2001 A (MBIA).................. 5.375 05/15/22 3,378,129 1,755 Detroit, Michigan, Water Supply Sr Lien 2000 A (FGIC).... 5.25 07/01/33 1,773,006 3,000 Las Vegas Water District, Nevada, Impr and Refg Ser 2003 A (FGIC)............................................... 5.25 06/01/22 3,100,800 2,960 Passaic Valley Sewage Commissioners, New Jersey, Ser F (FGIC)................................................. 5.00 12/01/19 3,067,655 New York City Municipal Water Finance Authority, New York, 2,000 2003 Ser D............................................. 5.25 06/15/15 2,138,580 2,000 2004 Ser A............................................. 5.00 06/15/35 1,944,660 3,000 Cleveland, Ohio, Waterworks Impr & Refg 1998 Ser I (FSA).................................................. 5.00 01/01/23 3,023,130
9 See Notes to Financial Statements Morgan Stanley Municipal Premium Income Trust PORTFOLIO OF INVESTMENTS - MAY 31, 2004 continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE --------------------------------------------------------------------------------------------------------- $ 5,000 Austin, Texas, Water & Wastewater Refg Ser 2001 A (FSA).................................................. 5.125% 05/15/27 $ 5,007,150 10,000 Houston, Texas, Combined Utilities System Refg 2004 Ser A (FGIC) (WI)............................................ 5.25 05/15/23 10,316,900 ------------- -------- 48,512,300 46,930 ------------- -------- Other Revenue (8.3%) 5,000 California, Economic Recovery Ser 2004 A................. 5.00 07/01/16 5,194,750 2,000 New York City Transitional Finance Authority, New York, Refg 2003 Ser A........................................ 5.50 11/01/26 2,204,520 8,000 New York Local Government Assistance Corporation, Refg Ser 1997 B (MBIA)...................................... 5.00 04/01/21 8,129,040 ------------- -------- 15,528,310 15,000 ------------- -------- Refunded (4.9%) 3,000 Hawaii, 1999 Ser CT (FSA)................................ 5.875 09/01/09+ 3,410,940 1,340 Missouri Health & Educational Facilities Authority, Missouri, Baptist Medical Center Refg Ser 1989 (ETM)... 7.625 07/01/18 1,373,982 4,000 Montgomery County, Ohio, Franciscan Medical Center - Dayton Ser 1997............................... 5.50 01/01/10+ 4,355,680 ------------- -------- 9,140,602 8,340 ------------- -------- 266,010 Total Tax-Exempt Municipal Bonds (Cost $266,678,554)........................ 274,914,413 ------------- -------- Short-Term Tax-Exempt Municipal Obligations (9.3%) 750 Sacramento Municipal Utility District, California, Refg 1994 Ser I (MBIA) (called for redemption 07/01/04)..... 6.00 01/01/24 767,340 900 Idaho Health Facilities Authority, St Luke's Regional Medical Center Ser 2000 (FSA) (Demand 06/01/04)........ 1.06* 07/01/30 900,000 10,000 Burlington, Kansas, Kansas Gas & Electric Co Ser 1991 (MBIA) (called for redemption 06/10/04)................ 7.00 06/01/31 10,069,300 2,000 Missouri Health & Educational Facilities Authority, Cox Health Ser 1997 (MBIA) (Demand 06/01/04)............... 1.09* 06/01/15 2,000,000 3,600 New York City Municipal Water Finance Authority, New York, 2000 Ser C (Demand 06/01/04)..................... 1.02* 06/15/33 3,600,000 ------------- -------- 17,250 Total Short-Term Tax-Exempt Municipal Obligations (Cost $17,201,424)........ 17,336,640 ------------- --------
$283,260 Total Investments (Cost $283,879,978) (a) (b)...................... 156.5% 292,251,053 ======== Liabilities in Excess of Other Assets.............................. (2.9) (5,364,467) Preferred Shares of Beneficial Interest............................ (53.6) (100,131,316) ----- ------------- Net Assets Applicable to Common Shareholders....................... 100.0% $ 186,755,270 ===== =============
10 See Notes to Financial Statements Morgan Stanley Municipal Premium Income Trust PORTFOLIO OF INVESTMENTS - MAY 31, 2004 continued --------------------- Note: The categories of investments are shown as a percentage of net assets applicable to common shareholders. AMT Alternative Minimum Tax. COPs Certificates of Participation. DRIVERS Derivative Inverse Tax-Exempt Receipts. ETM Escrowed to maturity. PSF Texas Permanent School Fund Guarantee Program. RITES Residual Interest Tax-Exempt Securities. WI Security purchased on a when-issued basis. * Current coupon of variable rate demand obligation. + Prerefunded to call date shown. ++ Current coupon rate for inverse floating rate municipal obligation. This rate resets periodically as the auction rate on the related security changes. Positions in inverse floating rate municipal obligations have a total value of $13,995,680 which represents 7.5% of net assets applicable to common shareholders. ## A portion of this security has been physically segregated in connection with open futures contracts in an amount equal to $172,500. (a) Securities have been designated as collateral in an amount equal to $25,306,689 in connection with open futures contracts and securities purchased on a when-issued basis. (b) The aggregate cost for federal income tax purposes is $283,773,580. The aggregate gross unrealized appreciation is $11,129,974 and the aggregate gross unrealized depreciation is $2,652,501, resulting in net unrealized appreciation of $8,477,473. 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. XLCA XL Capital Assurance Inc.
Futures Contracts Open at May 31, 2004:
NUMBER OF DESCRIPTION/DELIVERY UNDERLYING FACE UNREALIZED CONTRACTS LONG/SHORT MONTH AND YEAR AMOUNT AT VALUE DEPRECIATION --------- ---------- ---------------------- ------------------------ -------------- 50 Short U.S. Treasury Note 5 $ (5,408,594) $ (23,549) Year September 2004 100 Short U.S. Treasury Note 10 (10,837,500) (89,338) Year September 2004 --------- Total unrealized depreciation................... $(112,887) =========
11 See Notes to Financial Statements Morgan Stanley Municipal Premium Income Trust FINANCIAL STATEMENTS Statement of Assets and Liabilities May 31, 2004 Assets: Investments in securities, at value (cost $283,879,978)....................................... $292,251,053 Cash........................................................ 88,487 Receivable for: Interest................................................ 4,530,313 Variation margin........................................ 72,657 Prepaid expenses and other assets........................... 530,777 ------------ Total Assets............................................ 297,473,287 ------------ Liabilities: Payable for: Investments purchased................................... 10,162,100 Common shares of beneficial interest repurchased........ 141,471 Investment advisory fee................................. 97,555 Administration fee...................................... 60,972 Accrued expenses and other payables......................... 124,603 ------------ Total Liabilities....................................... 10,586,701 ------------ Preferred shares of beneficial interest, (at liquidation value) (1,000,000 shares authorized of non-participating $.01 par value, 1,000 shares outstanding)................. 100,131,316 ------------ Net Assets Applicable to Common Shareholders............ $186,755,270 ============ Composition of Net Assets Applicable to Common Shareholders: Common shares of beneficial interest (unlimited shares authorized of $.01 par value, 18,906,449 shares outstanding).............................................. $178,462,605 Net unrealized appreciation................................. 8,258,188 Accumulated undistributed net investment income............. 2,397,748 Accumulated net realized loss............................... (2,363,271) ------------ Net Assets Applicable to Common Shareholders............ $186,755,270 ============ Net Asset Value Per Common Share, ($186,755,270 divided by 18,906,449 common shares outstanding)................................................ $9.88 ============
12 See Notes to Financial Statements Morgan Stanley Municipal Premium Income Trust FINANCIAL STATEMENTS continued Statement of Operations For the year ended May 31, 2004 Net Investment Income: Interest Income............................................. $ 15,539,611 ------------ Expenses Investment advisory fee..................................... 1,204,381 Administration fee.......................................... 752,738 Auction commission fees..................................... 515,202 Transfer agent fees and expenses............................ 85,482 Professional fees........................................... 72,692 Shareholder reports and notices............................. 53,296 Auction agent fees.......................................... 31,851 Registration fees........................................... 20,294 Custodian fees.............................................. 17,361 Trustees' fees and expenses................................. 12,901 Other....................................................... 42,814 ------------ Total Expenses.......................................... 2,809,012 Less: expense offset.................................... (17,314) ------------ Net Expenses............................................ 2,791,698 ------------ Net Investment Income................................... 12,747,913 ------------ Net Realized and Unrealized Gain (Loss) on: Net realized gain on investments............................ 700,265 ------------ Net Change in Unrealized Appreciation/Depreciation on: Investments................................................. (13,855,829) Futures contracts........................................... (112,887) ------------ Net Depreciation........................................ (13,968,716) ------------ Net Loss................................................ (13,268,451) ------------ Dividends to preferred shareholders from net investment income.................................................... (1,659,614) ------------ Net Decrease................................................ $ (2,180,152) ============
13 See Notes to Financial Statements 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, 2004 MAY 31, 2003 ------------ ------------ Increase (Decrease) in Net Assets: Operations: Net investment income....................................... $ 12,747,913 $ 13,880,252 Net realized gain (loss).................................... 700,265 (2,228,308) Net change in unrealized depreciation....................... (13,968,716) 12,487,663 Dividends to preferred shareholders from net investment income.................................................... (1,659,614) (1,761,524) ------------ ------------ Net Increase (Decrease)................................. (2,180,152) 22,378,083 ------------ ------------ Dividends and Distributions to Common Shareholders from: Net investment income....................................... (11,869,058) (11,403,798) Net realized gain........................................... -- (1,422,242) ------------ ------------ Total Dividends and Distributions....................... (11,869,058) (12,826,040) ------------ ------------ Decrease from transactions in common shares of beneficial interest.................................................. (9,165,654) (6,260,517) ------------ ------------ Net Increase (Decrease)................................. (23,214,864) 3,291,526 Net Assets Applicable to Common Shareholders: Beginning of period......................................... 209,970,134 206,678,608 ------------ ------------ End of Period (Including accumulated undistributed net investment income of $2,397,748 and $3,180,465, respectively)................. $186,755,270 $209,970,134 ============ ============
14 See Notes to Financial Statements Morgan Stanley Municipal Premium Income Trust NOTES TO FINANCIAL STATEMENTS - MAY 31, 2004 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 mean between the last reported bid and asked price. 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. The Trustees believe that timely and reliable market quotations are generally not readily available for purposes of valuing tax-exempt securities and that the valuations supplied by the pricing service are more likely to approximate the fair value of such securities; (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. 15 Morgan Stanley Municipal Premium Income Trust NOTES TO FINANCIAL STATEMENTS - MAY 31, 2004 continued D. Dividends and Distributions to Shareholders -- Dividends and distributions to shareholders are recorded on the ex-dividend date. 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, 2004 aggregated $66,564,630 and $65,509,583, respectively. Included in the aforementioned transactions are purchases and sales of $5,103,300 and $5,156,130, respectively, with other Morgan Stanley funds, including realized gains of $242,805. Morgan Stanley Trust, an affiliate of the Investment Advisor and Administrator, is the Fund's transfer agent. At May 31, 2004, the Fund had transfer agent fees and expenses payable of approximately $8,800. 16 Morgan Stanley Municipal Premium Income Trust NOTES TO FINANCIAL STATEMENTS - MAY 31, 2004 continued The Fund has an unfunded noncontributory defined benefit pension plan covering certain independent Trustees of the Fund who will have served as independent Trustees for at least five years at the time of retirement. Benefits under this plan are based on factors which include years of service and compensation. Aggregate pension costs for the year ended May 31, 2004 included in Trustees' fees and expenses in the Statement of Operations amounted to $7,455. At May 31, 2004, the Fund had an accrued pension liability of $60,738 which is included in accrued expenses in the Statement of Assets and Liabilities. On December 2, 2003, the Trustees voted to close the plan to new participants and eliminate the future benefits growth due to increases to compensation after July 31, 2003. Effective April 1, 2004, the Fund began an unfunded Deferred Compensation Plan (the "Compensation Plan"), which allows each independent Trustee to defer payment of all, or a portion, of the fees he receives for serving on the Board of Trustees. Each eligible Trustee generally may elect to have the deferred amounts credited with a return equal to the total return on one or more of the Morgan Stanley funds that are offered as investment options under the Compensation Plan. Appreciation/depreciation and distributions received from these investments are recorded with an offsetting increase/decrease in the deferred compensation obligation and do not affect the net asset value of the Fund. 4. Common Shares of Beneficial Interest Transactions in common shares of beneficial interest were as follows:
CAPITAL PAID IN PAR VALUE EXCESS OF SHARES OF SHARES PAR VALUE ---------- --------- ------------ 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 Treasury shares purchased and retired (weighted average discount 8.76%)*.......................................... (980,300) (9,803) (9,155,851) Reclassification due to permanent book/tax differences...... -- -- 10,392 ---------- -------- ------------ Balance, May 31, 2004....................................... 18,906,449 $189,064 $178,273,541 ========== ======== ============
--------------------- * 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 17 Morgan Stanley Municipal Premium Income Trust NOTES TO FINANCIAL STATEMENTS - MAY 31, 2004 continued the Trustees, without the approval of the common shareholders. The Fund has issued Series A through E Auction Rate Preferred Shares ("Preferred Shares") which have a liquidation value of $100,000 per share plus the redemption premium, if any, plus accumulated but unpaid dividends, whether or not declared, thereon to the date of distribution. The Fund may redeem such shares, in whole or in part, at the original purchase price of $100,000 per share plus accumulated but unpaid dividends, whether or not declared, thereon to the date of redemption. Dividends, which are cumulative, are reset through auction procedures.
NEXT AMOUNT RESET RANGE OF SERIES SHARES* IN THOUSANDS* RATE* DATE DIVIDEND RATES** ------ ------- ------------- ----- -------- ---------------- A 200 20,000 1.60% 09/07/05 0.59%- 1.60% B 200 20,000 1.39 01/05/05 1.39 C 200 20,000 1.229 07/06/05 0.738- 1.229 D 200 20,000 1.51 01/04/06 1.51- 2.55 E 200 20,000 2.15 07/07/04 2.15
--------------------- * As of May 31, 2004. ** For the year ended May 31, 2004. Subsequent to May 31, 2004 and up through July 2, 2004, the Fund paid dividends to each of the Series A through E at rates ranging from 1.229% to 2.15% in the aggregate amount of $226,798. 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 30, 2004 $0.0525 June 4, 2004 June 18, 2004 June 29, 2004 $0.0525 July 9, 2004 July 23, 2004 June 29, 2004 $0.0525 August 6, 2004 August 20, 2004 June 29, 2004 $0.0525 September 3, 2004 September 17, 2004
18 Morgan Stanley Municipal Premium Income Trust NOTES TO FINANCIAL STATEMENTS - MAY 31, 2004 continued 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 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 distribution paid was as follows:
FOR THE YEAR FOR THE YEAR ENDED ENDED MAY 31, 2004 MAY 31, 2003 ------------ ------------ Tax-exempt income........................................... $13,498,856 $13,132,221 Ordinary income............................................. -- 261,430 Long-term capital gains..................................... -- 1,231,653 ----------- ----------- Total distributions......................................... $13,498,856 $14,625,304 =========== ===========
As of May 31, 2004, the tax-basis components of accumulated earnings were as follows: Undistributed tax-exempt income............................. $ 2,457,230 Undistributed ordinary income............................... 26,174 ----------- Net accumulated earnings.................................... 2,483,404 Capital loss carryforward*.................................. (2,476,158) Temporary differences....................................... (192,054) Net unrealized appreciation................................. 8,477,473 ----------- Total accumulated earnings.................................. $ 8,292,665 ===========
*As of May 31, 2004, the Fund had a net capital loss carryforward of $2,476,158 which will expire on May 31, 2012 to offset future capital gains to the extent provided by regulations. As of May 31, 2004, the Fund had temporary book/tax differences primarily attributable to book amortization of discount on debt securities, capital loss from the mark-to-market of futures contracts and dividend payable and permanent book/tax differences primarily attributable to tax adjustments on debt securities sold and market discount retained by the Fund. To reflect reclassifications arising from the permanent differences, accumulated net realized loss was charged $8,434, accumulated undistributed net investment income was charged $1,958 and paid-in-capital was credited $10,392. 19 Morgan Stanley Municipal Premium Income Trust NOTES TO FINANCIAL STATEMENTS - MAY 31, 2004 continued 8. Expense Offset The expense offset represents a reduction of the custodian fees for earnings on cash balances maintained by the Fund. 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. To hedge against adverse interest rate changes, the Fund may invest in financial futures contracts 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. Risks may also arise upon entering into these contracts from the potential inability of the counterparties to meet the terms of their contracts. 20 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 --------------------------------------------------------------------- 2004 2003 2002 2001 2000 --------- --------- --------- --------- --------- Selected Per Share Data: Net asset value, beginning of period...................... $ 10.56 $ 10.04 $ 9.88 $9.08 $10.03 ------- ------- ------- ----- ------ Income from investment operations: Net investment income*................................ 0.66 0.68 0.70 0.69 0.68 Net realized and unrealized gain (loss)............... (0.68) 0.53 0.13 0.80 (0.96) Common share equivalent of dividends paid to preferred shareholders*......................................... (0.09) (0.09) (0.12) (0.19) (0.16) ------- ------- ------- ----- ------ Total income (loss) from investment operations............ (0.11) 1.12 0.71 1.30 (0.44) ------- ------- ------- ----- ------ Less dividends and distributions from: Net investment income................................. (0.61) (0.56) (0.54) (0.54) (0.53) Net realized gain..................................... -- (0.07) (0.04) -- (0.07) ------- ------- ------- ----- ------ Total dividends and distributions......................... (0.61) (0.63) (0.58) (0.54) (0.60) ------- ------- ------- ----- ------ Anti-dilutive effect of acquiring treasury shares*........ 0.04 0.03 0.03 0.04 0.09 ------- ------- ------- ----- ------ Net asset value, end of period............................ $ 9.88 $ 10.56 $ 10.04 $9.88 $ 9.08 ======= ======= ======= ===== ====== Market value, end of period............................... $ 8.93 $ 9.41 $ 9.02 $8.88 $ 7.75 ======= ======= ======= ===== ====== Total Return+............................................. 1.27% 11.90% 8.30% 21.92% (4.55)% Ratios to Average Net Assets of Common Shareholders: Total expenses (before expense offset).................... 1.40%(1) 1.33%(1) 1.24%(1) 1.26%(1) 1.28%(1) Net investment income before preferred stock dividends.... 6.36% 6.76% 6.95% 7.12% 7.30% Preferred stock dividends................................. 0.83% 0.86% 1.23% 1.91% 1.74% Net investment income available to common shareholders.... 5.53% 5.90% 5.72% 5.21% 5.56% Supplemental Data: Net assets applicable to common shareholders, end of period, in thousands..................................... $186,755 $209,970 $206,679 $210,356 $200,256 Asset coverage on preferred shares at end of period....... 286% 310% 306% 310% 300% Portfolio turnover rate................................... 23% 18% 11% 12% 11%
--------------------- * 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%.
21 See Notes to Financial Statements Morgan Stanley Municipal Premium Income Trust REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 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, 2004, 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 the standards of the Public Company Accounting Oversight Board (United States). 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, 2004, by correspondence with the custodian and brokers. 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, 2004, 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 16, 2004 2004 FEDERAL TAX NOTICE (UNAUDITED) For the year ended May 31, 2004, all of the Fund's dividends from net investment income received by both common and preferred shareholder classes were exempt interest dividends, excludable from gross income for Federal income tax purposes. 22 Morgan Stanley Municipal Premium Income Trust TRUSTEE AND OFFICER INFORMATION Independent Trustees:
Number of Portfolios in Position(s) Term of Office Fund Complex Name, Age and Address of Held with and Length of Principal Occupation(s) During Overseen by Independent Trustee Registrant Time Served* Past 5 Years** Trustee*** --------------------------------------- ----------- -------------- ------------------------------ ------------- Michael Bozic (63) Trustee Since April Private Investor; Director or 208 c/o Kramer Levin Naftalis & Frankel LLP 1994 Trustee of the Retail Funds Counsel to the Independent Trustees (since April 1994) and the 919 Third Avenue Institutional Funds (since New York, NY July 2003); formerly Vice Chairman of Kmart Corporation (December 1998-October 2000), Chairman and Chief Executive Officer of Levitz Furniture Corporation (November 1995-November 1998) and President and Chief Executive Officer of Hills Department Stores (May 1991-July 1995); formerly variously Chairman, Chief Executive Officer, President and Chief Operating Officer (1987-1991) of the Sears Merchandise Group of Sears, Roebuck & Co. Edwin J. Garn (71) Trustee Since January Managing Director of Summit 208 c/o Summit Ventures LLC 1993 Ventures LLC; Director or 1 Utah Center Trustee of the Retail Funds 201 S. Main Street (since January 1993) and the Salt Lake City, UT Institutional Funds (since July 2003); member of the Utah Regional Advisory Board of Pacific Corp.; formerly United States Senator (R-Utah) (1974- 1992) and Chairman, Senate Banking Committee (1980-1986), Mayor of Salt Lake City, Utah (1971-1974), Astronaut, Space Shuttle Discovery (April 12-19, 1985), and Vice Chairman, Huntsman Corporation (chemical company). Wayne E. Hedien (70) Trustee Since Retired; Director or Trustee 208 c/o Kramer Levin Naftalis & Frankel LLP September 1997 of the Retail Funds (since Counsel to the Independent Trustees September 1997) and the 919 Third Avenue Institutional Funds (since New York, NY July 2003); formerly associated with the Allstate Companies (1966-1994), most recently as Chairman of The Allstate Corporation (March 1993-December 1994) and Chairman and Chief Executive Officer of its wholly-owned subsidiary, Allstate Insurance Company (July 1989-December 1994). Name, Age and Address of Independent Trustee Other Directorships Held by Trustee --------------------------------------- ----------------------------------- Michael Bozic (63) Director of Weirton Steel c/o Kramer Levin Naftalis & Frankel LLP Corporation. Counsel to the Independent Trustees 919 Third Avenue New York, NY Edwin J. Garn (71) 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 (70) Director of The PMI Group Inc. c/o Kramer Levin Naftalis & Frankel LLP (private mortgage insurance); Counsel to the Independent Trustees Trustee and Vice Chairman of The 919 Third Avenue Field Museum of Natural History; New York, NY director of various other business and charitable organizations.
23 Morgan Stanley Municipal Premium Income Trust TRUSTEE AND OFFICER INFORMATION continued
Number of Portfolios in Position(s) Term of Office Fund Complex Name, Age and Address of Held with and Length of Principal Occupation(s) During Overseen by Independent Trustee Registrant Time Served* Past 5 Years** Trustee*** --------------------------------------- ----------- -------------- ------------------------------ ------------- Dr. Manuel H. Johnson (55) Trustee Since July Senior Partner, Johnson Smick 208 c/o Johnson Smick International, Inc. 1991 International, Inc., a 2099 Pennsylvania Avenue, N.W. consulting firm; Chairman of Suite 950 the Audit Committee and Washington, D.C. Director or Trustee of the Retail Funds (since July 1991) and the Institutional Funds (since July 2003); 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. Joseph J. Kearns (61) Trustee Since July President, Kearns & Associates 209 PMB754 2003 LLC (investment consulting); 23852 Pacific Coast Highway Deputy Chairman of the Audit Malibu, CA Committee and Director or Trustee of the Retail Funds (since July 2003) and the Institutional Funds (since August 1994); previously Chairman of the Audit Committee of the Institutional Funds (October 2001-July 2003); formerly CFO of the J. Paul Getty Trust. Michael E. Nugent (68) Trustee Since July General Partner of Triumph 208 c/o Triumph Capital, L.P. 1991 Capital, L.P., a private 445 Park Avenue investment partnership; New York, NY Chairman of the Insurance Committee and Director or Trustee of the Retail Funds (since July 1991) and the Institutional Funds (since July 2001); formerly Vice President, Bankers Trust Company and BT Capital Corporation (1984-1988). Fergus Reid (71) Trustee Since July Chairman of Lumelite Plastics 209 c/o Lumelite Plastics Corporation 2003 Corporation; Chairman of the 85 Charles Colman Blvd. Governance Committee and Pawling, NY Director or Trustee of the Retail Funds (since July 2003) and the Institutional Funds (since June 1992). Name, Age and Address of Independent Trustee Other Directorships Held by Trustee --------------------------------------- ----------------------------------- Dr. Manuel H. Johnson (55) 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). Joseph J. Kearns (61) Director of Electro Rent PMB754 Corporation (equipment leasing), 23852 Pacific Coast Highway The Ford Family Foundation, and the Malibu, CA UCLA Foundation. Michael E. Nugent (68) Director of various business c/o Triumph Capital, L.P. organizations. 445 Park Avenue New York, NY Fergus Reid (71) Trustee and Director of certain c/o Lumelite Plastics Corporation investment companies in the 85 Charles Colman Blvd. JPMorgan Funds complex managed by Pawling, NY J.P. Morgan Investment Management Inc.
24 Morgan Stanley Municipal Premium Income Trust TRUSTEE AND OFFICER INFORMATION continued Interested Trustees:
Number of Portfolios in Position(s) Term of Office Fund Complex Name, Age and Address of Held with and Length of Principal Occupation(s) During Overseen by Interested Trustee Registrant Time Served* Past 5 Years** Trustee*** ------------------------------------- ----------- -------------- ------------------------------ ------------- Charles A. Fiumefreddo (71) Chairman of Since July Chairman and Director or 208 c/o Morgan Stanley Trust the Board 1991 Trustee of the Retail Funds Harborside Financial Center, and Trustee (since July 1991) and the Plaza Two, Institutional Funds (since Jersey City, NJ July 2003); formerly Chief Executive Officer of the Retail Funds (until September 2002). James F. Higgins (56) Trustee Since June Director or Trustee of the 208 c/o Morgan Stanley Trust 2000 Retail Funds (since June 2000) Harborside Financial Center, and the Institutional Funds Plaza Two, (since July 2003); Senior Jersey City, NJ Advisor of Morgan Stanley (since August 2000); Director of the Distributor and Dean Witter Realty Inc.; previously President and Chief Operating Officer of the Private Client Group of Morgan Stanley (May 1999-August 2000), and President and Chief Operating Officer of Individual Securities of Morgan Stanley (February 1997-May 1999). Name, Age and Address of Interested Trustee Other Directorships Held by Trustee ------------------------------------- ----------------------------------- Charles A. Fiumefreddo (71) None c/o Morgan Stanley Trust Harborside Financial Center, Plaza Two, Jersey City, NJ James F. Higgins (56) Director of AXA Financial, Inc. and c/o Morgan Stanley Trust The Equitable Life Assurance Harborside Financial Center, Society of the United States Plaza Two, (financial services). Jersey City, NJ
--------------------- * This is the earliest date the Trustee began serving the funds advised by Morgan Stanley Investment Advisors Inc. (the "Investment Manager") (the "Retail Funds"). ** The dates referenced below indicating commencement of services as Director/Trustee for the Retail Funds and the funds advised by Morgan Stanley Investment Management Inc. and Morgan Stanley AIP GP LP (the "Institutional Funds") reflect the earliest date the Director/Trustee began serving the Retail or Institutional Funds as applicable. *** The Fund Complex includes all open-end and closed-end funds (including all of their portfolios) advised by the Investment Manager and any funds that have an investment advisor that is an affiliated person of the Investment Manager (including but not limited to Morgan Stanley Investment Management Inc.). 25 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 (50) President Since May 1999 President and Chief Operating Officer of Morgan Stanley 1221 Avenue of the Americas Investment Management Inc.; President, Director and Chief New York, NY Executive Officer of the Investment Manager and Morgan Stanley Services; Chairman and Director of the Distributor; Chairman and Director of the Transfer Agent; Director of various Morgan Stanley subsidiaries; President of the Institutional Funds (since July 2003) and President of the Retail Funds (since May 1999); Trustee (since July 2003) and President (since December 2002) of the Van Kampen Closed-End Funds; Trustee (since May 1999) and President (since October 2002) of the Van Kampen Open-End Funds. Barry Fink (49) Vice President Since February General Counsel (since May 2000) and Managing Director 1221 Avenue of the Americas 1997 (since December 2000) of Morgan Stanley Investment New York, NY Management; Managing Director (since December 2000), Secretary (since February 1997) and Director (since July 1998) of the Investment Manager and Morgan Stanley Services; Vice President of the Retail Funds; Assistant Secretary of Morgan Stanley DW; Vice President of the Institutional Funds (since July 2003); Managing Director, Secretary and Director of the Distributor; previously Secretary (February 1997-July 2003) and General Counsel (February 1997-April 2004) of the Retail Funds; Vice President and Assistant General Counsel of the Investment Manager and Morgan Stanley Services (February 1997-December 2001). Ronald E. Robison (65) Executive Vice Since April Principal Executive Officer-Office of the Funds (since 1221 Avenue of the Americas President and 2003 November 2003); Managing Director of Morgan Stanley & Co. New York, NY Principal Incorporated, Managing Director of Morgan Stanley; Managing Executive Director, Chief Administrative Officer and Director of the Officer Investment Manager and Morgan Stanley Services; Chief Executive Officer and Director of the Transfer Agent; Managing Director and Director of the Distributor; Executive Vice President and Principal Executive Officer of the Institutional Funds (since July 2003) and the Retail Funds (since April 2003); Director of Morgan Stanley SICAV (since May 2004); previously President and Director of the Institutional Funds (March 2001-July 2003) and Chief Global Operations Officer of Morgan Stanley Investment Management Inc. Joseph J. McAlinden (61) Vice President Since July Managing Director and Chief Investment Officer of the 1221 Avenue of the Americas 1995 Investment Manager and Morgan Stanley Investment Management New York, NY Inc.; Director of the Transfer Agent, Chief Investment Officer of the Van Kampen Funds; Vice President of the Institutional Funds (since July 2003) and the Retail Funds (since July 1995). Stefanie V. Chang (37) Vice President Since July Executive Director of Morgan Stanley & Co. Incorporated, 1221 Avenue of the Americas 2003 Morgan Stanley Investment Management Inc. and the Investment New York, NY Manager; Vice President of the Institutional Funds (since December 1997) and the Retail Funds (since July 2003); formerly practiced law with the New York law firm of Rogers & Wells (now Clifford Chance US LLP).
26 Morgan Stanley Municipal Premium Income Trust TRUSTEE AND OFFICER INFORMATION continued
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** ----------------------------- --------------- -------------- ------------------------------------------------------------ Francis J. Smith (38) Treasurer and Treasurer Executive Director of the Investment Manager and Morgan c/o Morgan Stanley Trust Chief Financial since July Stanley Services (since December 2001); previously Vice Harborside Financial Center, Officer 2003 and Chief President of the Retail Funds (September 2002-July 2003), Plaza Two, Financial and Vice President of the Investment Manager and Morgan Jersey City, NJ Officer since Stanley Services (August 2000-November 2001) and Senior September 2002 Manager at PricewaterhouseCoopers LLP (January 1998-August 2000). Thomas F. Caloia (58) Vice President Since July Executive Director (since December 2002) and Assistant c/o Morgan Stanley Trust 2003 Treasurer of the Investment Manager, the Distributor and Harborside Financial Center, Morgan Stanley Services; previously Treasurer of the Retail Plaza Two, Funds (April 1989-July 2003); formerly First Vice President Jersey City, NJ of the Investment Manager, the Distributor and Morgan Stanley Services. Mary E. Mullin (37) Secretary Since July Executive Director of Morgan Stanley & Co. Incorporated, 1221 Avenue of the Americas 2003 Morgan Stanley Investment Management Inc. and the Investment New York, NY Manager; Secretary of the Institutional Funds (since June 1999) and the Retail Funds (since July 2003); formerly practiced law with the New York law firms of McDermott, Will & Emery and Skadden, Arps, Slate, Meagher & Flom LLP.
--------------------- * This is the earliest date the Officer began serving the Retail Funds. Each Officer serves an indefinite term, until his or her successor is elected. ** The dates referenced below indicating commencement of service as an Officer for the Retail and Institutional Funds reflect the earliest date the Officer began serving the Retail or Institutional Funds as applicable. 27 TRUSTEES Michael Bozic Charles A. Fiumefreddo Edwin J. Garn Wayne E. Hedien James F. Higgins Dr. Manuel H. Johnson Joseph J. Kearns Michael E. Nugent Fergus Reid 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 Joseph J. McAlinden Vice President Stefanie V. Chang Vice President Francis J. Smith Treasurer and Chief Financial Officer Thomas F. Caloia Vice President Mary E. Mullin Secretary TRANSFER AGENT Morgan Stanley Trust Harborside Financial Center, Plaza Two Jersey City, New Jersey 07311 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Deloitte & Touche LLP Two World Financial Center New York, New York 10281 INVESTMENT MANAGER Morgan Stanley Investment Advisors Inc. 1221 Avenue of the Americas New York, New York 10020 Investments and services offered through Morgan Stanley DW Inc., member SIPC. (c) 2004 Morgan Stanley [MORGAN STANLEY LOGO] MORGAN STANLEY FUNDS Morgan Stanley Municipal Premium Income Trust Annual Report May 31, 2004 [MORGAN STANLEY LOGO] 38538RPT-RA04-00346P-Y05/04