-----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, CS0LOMD1jGLf6QWMVG1ZetWfjFmRnZXwom9WxQMnjXOm4H0p7+8I7d+IZPl2GT5v CKhVKIiOjDuuNXGTbXy6JQ== 0000950123-06-010212.txt : 20060809 0000950123-06-010212.hdr.sgml : 20060809 20060809103846 ACCESSION NUMBER: 0000950123-06-010212 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20060531 FILED AS OF DATE: 20060809 DATE AS OF CHANGE: 20060809 EFFECTIVENESS DATE: 20060809 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: 061015587 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 y22094nvcsr.txt N-CSR 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, 2006 Date of reporting period: May 31, 2006 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'S SHARES MAY BE LESS THAN WHAT YOU PAID FOR THEM. ACCORDINGLY, YOU CAN LOSE MONEY INVESTING IN THIS FUND. INCOME EARNED BY CERTAIN SECURITIES IN THE PORTFOLIO MAY BE SUBJECT TO THE FEDERAL ALTERNATIVE MINIMUM TAX (AMT). FUND REPORT For the year ended May 31, 2006 MARKET CONDITIONS Despite record oil prices, the Gulf Coast hurricanes and a slowdown in housing, the pace of U.S. economic growth remained remarkably resilient during the 12 months ended May 31, 2006. More recently, the market has focused on the change in leadership at the Federal Reserve Board and uncertainties created by inflationary pressures and forecasts of slower growth. As the market had anticipated, the Federal Open Market Committee (the "Fed") continued to raise the federal funds target rate in 25-basis point increments at each of its eight meetings, bringing the rate to its current level of 5.00 percent as of the end of the period. Yields on short-term (2-year) municipal bonds generally followed the target rate and rose 95 basis points. In contrast, the yields of long-term bonds (30-year) traded in a relatively narrow range of 4.25 to 4.65 percent during the year. Accordingly, the slope of the municipal yield curve continued to flatten as the difference between short-term and long-term interest rates narrowed. Investors' quest for yield favored lower-quality bonds over high-grade issues and kept credit spreads relatively tight. Credit spreads measure the incremental yield investors require to assume additional credit risk. When credit spreads tighten, lower-rated issues typically outperform high-grade issues. Demand for municipal bonds strengthened among individual and institutional investors. Meanwhile, municipal bond issuance slowed significantly as the year progressed. New issue volume was robust in late 2005, supporting a record of more than $400 billion of underwriting for the calendar year. However, volume in the first five months of 2006 fell by nearly 20 percent. The decline was largely attributable to a slowdown in refundings, as rising interest rates discouraged municipalities from refinancing debt. Improved fiscal conditions among state and local governments also reduced borrowing needs. The market share of underwriting of bonds backed by insurance declined from 60 to 50 percent. Issuers in California, Texas, New York, Florida and Illinois accounted for over 40 percent of 2006 year-to-date underwriting volume. Declining supply and sustained demand helped municipal bonds outperform U.S. Treasuries with comparable maturities. As a result, the relative attractiveness of tax-exempt bonds ebbed and the 30-year municipal-to-Treasury yield ratio steadily declined from 98 to 87 percent. The municipal-to-Treasury yield ratio measures the relative attractiveness of the two sectors. The higher the ratio, the greater the attractiveness of municipal yields relative to Treasury yields. PERFORMANCE ANALYSIS For the 12-month period ended May 31, 2006, the net asset value (NAV) of Morgan Stanley Municipal Premium Income Trust (PIA) decreased from $10.45 to $10.13 per share. Based on this change plus reinvestment of tax-free dividends totaling $0.54 per share and a long-term capital gain distribution of $0.1359 per share, the Fund's total NAV return was 4.32 percent. PIA's value on the New York Stock Exchange (NYSE) moved from $9.10 to $9.12 per share during the same period. Based on this change 2 plus reinvestment of dividends and distributions, the Fund's total market return was 7.85 percent. PIA's NYSE market price was at a 9.97 percent discount to its NAV. During the fiscal period, the Fund purchased and retired 676,300 shares of common stock at a weighted average market discount of 10.48 percent. Past performance is no guarantee of future results. Monthly dividends for the second quarter of 2006, declared in March, were unchanged at $0.045 per share. The dividend reflects the current level of the Fund's net investment income. PIA's level of undistributed net investment income was $0.0940 per share on May 31, 2006, versus $0.113 per share 12 months ago.(1) The Fund made ongoing adjustments to its portfolio to reduce volatility during the year in anticipation of continued Fed tightening and generally higher interest rates. For example, a U.S. Treasury futures hedge was used to reduce the portfolio's duration.* At the end of May, the Fund's option-adjusted duration was 11.4 years. This duration positioning tempered the Fund's total returns when rates declined, but helped total returns when rates rose. The Fund reduced its exposure to high grade bonds rated AA or better from 89 percent of long-term assets at the start of the period to 73 percent at the close of the period. Investment grade bonds rated A and BBB were increased from 8 percent to 20 percent; this had a positive impact on performance as lower-rated issues outperformed. Purchases during the period included bonds with maturities in the 25- to 30-year range and defensive characteristics, such as premium coupons and shorter call features. The Fund also favored bonds with strong in-state investor demand. Reflecting a commitment to diversification, the Fund's net assets of approximately $277 million, including preferred shares, were invested among 14 long-term sectors and 87 credits. 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. The benefits of leveraged investment strategies were less pronounced in the flattening yield curve environment. ARPS leverage contributed approximately $0.10 per share to common-share earnings during the fiscal year. The Fund has five ARPS series totaling $100 million, representing 36 percent of total assets, including preferred shares. On May 31, 2006, weekly ARPS yields ranged from 2.25 to 3.40 percent. 3 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 ARPS outstanding, including their purchase in the open market or in privately negotiated transactions. - ---------------------------------------------------- PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE OF FUTURE RESULTS, AND CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE FIGURES SHOWN. INVESTMENT RETURN, NET ASSET VALUE AND COMMON SHARE MARKET PRICE WILL FLUCTUATE AND FUND SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. There is no guarantee that any sectors mentioned will continue to perform as discussed herein or that securities in such sectors will be held by the Fund in the future. (1) Income earned by certain securities in the portfolio may be subject to the federal alternative minimum tax (AMT). * 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. Duration calculations adjusted for leverage.
TOP 5 SECTORS Water & Sewer 28.1% Transportation Facilities 23.3 Hospital 19.3 IDR/PCR** 17.1 Other Revenue 14.2
LONG-TERM CREDIT ANALYSIS Aaa/AAA 56.0% Aa/AA 17.0 A/A 5.8 Baa/BBB 14.2 Ba/BB or Less 2.1 NR 4.9
** Industrial Development/Pollution Control Revenue Data as of May 31, 2006. Subject to change daily. All percentages for top five sectors are as a percentage of net assets applicable to common shareholders and all percentages for long-term credit analysis are as a percentage of total long-term investments. These data are provided for informational purposes only and should not be deemed 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. 4 FOR MORE INFORMATION ABOUT PORTFOLIO HOLDINGS EACH MORGAN STANLEY FUND PROVIDES A COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS IN ITS SEMIANNUAL AND ANNUAL REPORTS WITHIN 60 DAYS OF THE END OF THE FUND'S SECOND AND FOURTH FISCAL QUARTERS. THE SEMIANNUAL REPORTS AND THE ANNUAL REPORTS ARE FILED ELECTRONICALLY WITH THE SECURITIES AND EXCHANGE COMMISSION (SEC) ON FORM N-CSRS AND FORM N-CSR, RESPECTIVELY. MORGAN STANLEY ALSO DELIVERS THE SEMIANNUAL AND ANNUAL REPORTS TO FUND SHAREHOLDERS AND MAKES THESE REPORTS AVAILABLE ON ITS PUBLIC WEB SITE, WWW.MORGANSTANLEY.COM. EACH MORGAN STANLEY FUND ALSO FILES A COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS WITH THE SEC FOR THE FUND'S FIRST AND THIRD FISCAL QUARTERS ON FORM N-Q. MORGAN STANLEY DOES NOT DELIVER THE REPORTS FOR THE FIRST AND THIRD FISCAL QUARTERS TO SHAREHOLDERS, NOR ARE THE REPORTS POSTED TO THE MORGAN STANLEY PUBLIC WEB SITE. YOU MAY, HOWEVER, OBTAIN THE FORM N-Q FILINGS (AS WELL AS THE FORM N-CSR AND N-CSRS FILINGS) BY ACCESSING THE SEC'S WEB SITE, HTTP://WWW.SEC.GOV. YOU MAY ALSO REVIEW AND COPY THEM AT THE SEC'S PUBLIC REFERENCE ROOM IN WASHINGTON, DC. INFORMATION ON THE OPERATION OF THE SEC'S PUBLIC REFERENCE ROOM MAY BE OBTAINED BY CALLING THE SEC AT (800) SEC-0330. YOU CAN ALSO REQUEST COPIES OF THESE MATERIALS, UPON PAYMENT OF A DUPLICATING FEE, BY ELECTRONIC REQUEST AT THE SEC'S E-MAIL ADDRESS (PUBLICINFO@SEC.GOV) OR BY WRITING THE PUBLIC REFERENCE SECTION OF THE SEC, WASHINGTON, DC 20549-0102. 5 DISTRIBUTION BY MATURITY (% of Long-Term Portfolio) As of May 31, 2006 WEIGHTED AVERAGE MATURITY: 20 YEARS(A) 0-5 4 6-10 7 11-15 14 16-20 29 21-25 25 26-30 13 30+ 8
(a) Where applicable maturities reflect mandatory tender, put and call dates. Portfolio structure is subject to change. Geographic Summary of Investments Based on Market Value as a Percent of Total Investments Alabama................ 2.7% Arizona................ 5.5 Arkansas............... 0.4 California............. 12.3 Colorado............... 2.4 Connecticut............ 0.8 District of Columbia... 1.1 Florida................ 6.5 Georgia................ 4.7 Idaho.................. 0.2 Illinois............... 4.5 Indiana................ 1.9 Iowa................... 1.1 Kansas................. 0.2 Kentucky............... 1.3 Louisiana.............. 1.8 Maryland............... 0.4 Massachusetts.......... 0.4 Michigan............... 2.7 Minnesota.............. 2.3 Missouri............... 1.4 Nevada................. 1.5 New Jersey............. 3.4 New York............... 16.7 Ohio................... 2.2 Oregon................. 0.6 Pennsylvania........... 5.7 Puerto Rico............ 0.8 Rhode Island........... 1.1 South Carolina......... 1.9 Tennessee.............. 1.1 Texas.................. 7.5 Utah................... 1.3 Washington............. 1.6 ----- Total+................. 100.0% =====
- --------------------- + Does not include open short futures contracts with an underlying face amount of $39,017,580 with unrealized appreciation of $110,297. 6 CALL AND COST (BOOK) YIELD STRUCTURE (Based on Long-Term Portfolio) As of May 31, 2006 YEARS BONDS CALLABLE -- WEIGHTED AVERAGE CALL PROTECTION: 7 YEARS 2006(a) 1 2007 7 2008 7 2009 1 2010 5 2011 10 2012 6 2013 15 2014 19 2015 14 2016+ 15
COST (BOOK) YIELD(B) -- WEIGHTED AVERAGE BOOK YIELD: 5.1% 2006(a) 6.0 2007 6.5 2008 5.4 2009 5.8 2010 5.5 2011 5.0 2012 4.7 2013 4.9 2014 4.8 2015 4.8 2016+ 5.4
(a) May include issues initially 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 6.0% on 1% of the long-term portfolio that is callable in 2006. Portfolio structure is subject to change. 7 INVESTMENT ADVISORY AGREEMENT APPROVAL NATURE, EXTENT AND QUALITY OF SERVICES The Board reviewed and considered the nature and extent of the investment advisory services provided by the Investment Adviser under the Advisory Agreement, including portfolio management, investment research and fixed income securities trading. The Board also reviewed and considered the nature and extent of the non-advisory, administrative services provided by the Fund's Administrator under the Administration Agreement, including accounting, clerical, bookkeeping, compliance, business management and planning, and the provision of supplies, office space and utilities at the Investment Adviser's expense. (The Investment Adviser and the Administrator together are referred to as the "Adviser" and the Advisory and Administration Agreements together are referred to as the "Management Agreement.") The Board also compared the nature of the services provided by the Adviser with similar services provided by non-affiliated advisers as reported to the Board by Lipper Inc. ("Lipper"). The Board reviewed and considered the qualifications of the portfolio managers, the senior administrative managers and other key personnel of the Adviser who provide the administrative and investment advisory services to the Fund. The Board determined that the Adviser's portfolio managers and key personnel are well qualified by education and/or training and experience to perform the services in an efficient and professional manner. The Board concluded that the nature and extent of the advisory and administrative services provided were necessary and appropriate for the conduct of the business and investment activities of the Fund. The Board also concluded that the overall quality of the advisory and administrative services was satisfactory. PERFORMANCE RELATIVE TO COMPARABLE FUNDS MANAGED BY OTHER ADVISERS On a regular basis, the Board reviews the performance of all funds in the Morgan Stanley Fund Complex, including the Fund, compared to their peers, paying specific attention to the underperforming funds. In addition, the Board specifically reviewed the Fund's performance for the one-, three- and five-year periods ended November 30, 2005, as shown in a report provided by Lipper (the "Lipper Report"), compared to the performance of comparable funds selected by Lipper (the "performance peer group"). The Board also discussed with the Adviser the performance goals and the actual results achieved in managing the Fund. When a fund underperforms its performance peer group, the Board discusses with the Adviser the causes of the underperformance and, where necessary, specific changes to the fund's investment strategy or investment personnel. The Board concluded that the Fund can reasonably be expected to be competitive with that of its performance peer group based on recent action taken or proposed to be taken by the Adviser with respect to the Fund's investment strategy and/or investment personnel. 8 FEES RELATIVE TO OTHER PROPRIETARY FUNDS MANAGED BY THE ADVISER WITH COMPARABLE INVESTMENT STRATEGIES The Board reviewed the advisory and administrative fee (together, the "management fee") rate paid by the Fund under the Management Agreement. The Board noted that the Adviser did not manage any other proprietary funds with investment strategies comparable to those of the Fund. FEES AND EXPENSES RELATIVE TO COMPARABLE FUNDS MANAGED BY OTHER ADVISERS The Board reviewed the advisory and administrative fee (together, the "management fee") rate and total expense ratio of the Fund as compared to the average management fee rate and average total expense ratio for funds, selected by Lipper (the "expense peer group"), managed by other advisers with investment strategies comparable to those of the Fund, as shown in the Lipper Report. The Board concluded that the Fund's management fee rate and total expense ratio were competitive with those of its expense peer group. BREAKPOINTS AND ECONOMIES OF SCALE The Board reviewed the structure of the Fund's management fee schedule under the Management Agreement and noted that it does not include any breakpoints. The Board considered that the Fund is a closed-end fund and, therefore, that the Fund's assets are not likely to grow with new sales or grow significantly as a result of capital appreciation. The Board concluded that economies of scale for the Fund were not a factor that needed to be considered at the present time. PROFITABILITY OF THE ADVISER AND AFFILIATES The Board considered information concerning the costs incurred and profits realized by the Adviser and affiliates during the last year from their relationship with the Fund and during the last two years from their relationship with the Morgan Stanley Fund Complex and reviewed with the Adviser the cost allocation methodology used to determine the profitability of the Adviser and affiliates. Based on its review of the information it received, the Board concluded that the profits earned by the Adviser and affiliates were not excessive in light of the advisory, administrative and other services provided to the Fund. FALL-OUT BENEFITS The Board considered so-called "fall-out benefits" derived by the Adviser and its affiliates from their relationship with the Fund and the Morgan Stanley Fund Complex, such as commissions on the purchase and sale of Fund shares and "float" benefits derived from handling of checks for purchases and sales of Fund shares, through a broker-dealer affiliate of the Adviser. The Board concluded that the float benefits were relatively small and that the commissions were competitive with those of other broker-dealers. 9 SOFT DOLLAR BENEFITS The Board considered whether the Adviser realizes any benefits from commissions paid to brokers who execute securities transactions for the Fund ("soft dollars"). The Board noted that the Fund invests only in fixed income securities, which do not generate soft dollars. ADVISER FINANCIALLY SOUND AND FINANCIALLY CAPABLE OF MEETING THE FUND'S NEEDS The Board considered whether the Adviser is financially sound and has the resources necessary to perform its obligations under the Management Agreement. The Board noted that the Adviser's operations remain profitable, although increased expenses in recent years have reduced the Adviser's profitability. The Board concluded that the Adviser has the financial resources necessary to fulfill its obligations under the Management Agreement. HISTORICAL RELATIONSHIP BETWEEN THE FUND AND THE ADVISER The Board also reviewed and considered the historical relationship between the Fund and the Adviser, including the organizational structure of the Adviser, the policies and procedures formulated and adopted by the Adviser for managing the Fund's operations and the Board's confidence in the competence and integrity of the senior managers and key personnel of the Adviser. The Board concluded that it is beneficial for the Fund to continue its relationship with the Adviser. OTHER FACTORS AND CURRENT TRENDS The Board considered the controls and procedures adopted and implemented by the Adviser and monitored by the Fund's Chief Compliance Officer and concluded that the conduct of business by the Adviser indicates a good faith effort on its part to adhere to high ethical standards in the conduct of the Fund's business. GENERAL CONCLUSION After considering and weighing all of the above factors, the Board concluded that it would be in the best interest of the Fund and its shareholders to approve renewal of the Management Agreement for another year. 10 Morgan Stanley Municipal Premium Income Trust PORTFOLIO OF INVESTMENTS - MAY 31, 2006
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - -------------------------------------------------------------------------------------------------------------- Tax-Exempt Municipal Bonds (152.1%) General Obligation (11.8%) $ 3,000 California, Various Purpose dtd 12/01/05................. 5.00% 03/01/27 $ 3,092,040 2,000 Los Angeles Unified School District, California, 2003 Ser A (FSA)................................................ 5.25 07/01/20 2,138,940 2,000 Connecticut, 2001 Ser D.................................. 5.00 11/15/20 2,077,640 2,500 Chicago Park District, Illinois, 2004 Ser A (Ambac)...... 5.00 01/01/28 2,571,025 385 Du Page County Community Unit School District #200, Illinois, Ser 2003 B (FSA)............................. 5.25 11/01/21 408,955 New York City, New York, 2,000 2006 Ser F............................................. 5.00 09/01/23 2,064,900 1,000 2005 Ser G............................................. 5.00 12/01/23 1,030,360 Pennsylvania, 1,000 RITES PA - 1112 A (MBIA)............................... 5.685++ 01/01/18 1,096,050 1,000 RITES PA - 1112 B (MBIA)............................... 5.685++ 01/01/19 1,129,570 5,000 Charleston County School District, South Carolina, Ser 2004 A................................................. 5.00 02/01/22 5,208,000 ------------- - -------- 20,817,480 19,885 ------------- - -------- Educational Facilities Revenue (8.6%) 2,500 University of Alabama, Ser 2004 A (MBIA)................. 5.25 07/01/20 2,678,250 2,000 California Educational Facilities Authority, Mills College Ser 2005 A..................................... 5.00 09/01/34 2,004,540 2,000 California Infrastructure & Economic Development Bank, The Scripps Research Institute Ser 2005 A.............. 5.00 07/01/29 2,053,540 2,000 Broward County Educational Facilities Authority, Florida, Nova Southeastern University Ser 2006 (AGC)............ 5.00 04/01/31 2,057,000 1,200 Minnesota Higher Educational Facilities Authority, University of St Thomas, Ser Six - I................... 5.00 04/01/23 1,249,116 5,000 Swarthmore Boro Authority, Pennsylvania, Swarthmore College Ser 2001....................................... 5.00 09/15/31 5,093,800 ------------- - -------- 15,136,246 14,700 ------------- - -------- Electric Revenue (13.4%) 8,000 Salt River Project Agricultural Improvement & Power District, Arizona, Ser 2002 B.......................... 5.00 01/01/26 8,255,360 1,550 Los Angeles Department of Water & Power, California, 2001 Ser A.................................................. 5.00 07/01/24 1,570,910 5,000 Orlando Utilities Commission, Florida, Water & Electric Ser 2001............................................... 5.00 10/01/22 5,192,750 3,000 Long Island Power Authority, New York, Ser 2004 A (Ambac)................................................ 5.00 09/01/34 3,089,280 3,365 Intermountain Power Agency, Utah, Refg 1997 Ser B (MBIA)................................................. 5.75 07/01/19 3,496,100 2,000 Grant County Public Utility District #2, Washington, Wanapum Hydroelectric 2005 Ser A (FGIC)................ 5.00 01/01/34 2,049,700 ------------- - -------- 23,654,100 22,915 ------------- - --------
11 See Notes to Financial Statements Morgan Stanley Municipal Premium Income Trust PORTFOLIO OF INVESTMENTS - MAY 31, 2006 continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - -------------------------------------------------------------------------------------------------------------- Hospital Revenue (19.3%) $ 3,500 Birmingham-Carraway Special Care Facilities Financing Authority, Alabama, Carraway Methodist Ser 1995 A (Connie Lee)........................................... 5.875% 08/15/15 $ 3,574,900 2,000 Glendale Industrial Development Authority, Arizona, John C Lincoln Health Ser 2005 B............................ 5.00 12/01/37 1,992,140 1,000 Washington County, Arkansas, Washington Regional Medical Center Ser 2005 A...................................... 5.00 02/01/35 987,030 1,000 California Statewide Community Development Authority, Huntington Memorial Hospital Ser 2005.................. 5.00 07/01/27 1,015,280 3,000 Indiana Health & Educational Facility Financing Authority, Clarian Health Ser 2006 A................... 5.25 02/15/40 3,080,580 2,000 Indiana Health Facilities Financing Authority, Community Health Ser 2005 A (Ambac).............................. 5.00 05/01/35 2,046,140 Louisiana Public Facilities Authority, 3,000 Baton Rouge General Medical Center-FHA Insured Mtge Ser 2004 (MBIA)............................................ 5.25 07/01/33 3,130,290 2,000 Ochsner Clinic Ser 2002................................ 5.50 05/15/32 2,045,720 1,000 Maryland Health & Higher Education Facilities Authority, Johns Hopkins Hospital Ser 2003........................ 5.00 11/15/28 1,025,300 3,500 Kent Hospital Finance Authority, Michigan, Metropolitan Hospital Ser 2005 A.................................... 6.25 07/01/40 3,813,705 1,100 Glencoe, Minnesota, Glencoe Regional Health Ser 2005..... 5.00 04/01/31 1,096,051 2,000 New York State Dormitory Authority, Montefiore Hospital - FHA Insured Mtge Ser 2004 (FGIC)............ 5.00 08/01/29 2,062,440 5,000 Lehigh County General Purpose Authority, Pennsylvania, St Luke's of Bethlehem Ser A 2003......................... 5.375 08/15/33 5,145,400 3,000 Johnson City Health & Educational Facilities Board, Tennessee, Mountain States Health Alliance Ser 2006 A...................................................... 5.50 07/01/36 3,116,310 ------------- - -------- 34,131,286 33,100 ------------- - -------- Industrial Development/Pollution Control Revenue (17.1%) 4,810 Pima County Industrial Development Authority, Arizona, Tucson Electric Power Co Refg Ser 1988 A (FSA)......... 7.25 07/15/10 4,828,086 3,000 Tobacco Settlement Authority, Iowa, Ser 2005 C........... 5.50 06/01/42 3,026,490 2,000 Nassau County Tobacco Settlement Corporation, New York, Ser 2006 A-3........................................... 5.125 06/01/46 1,946,960 New York City Industrial Development Agency, New York, 5,000 American Airlines Inc Ser 2005 (AMT)................... 7.75 08/01/31 5,616,400 8,000 Brooklyn Navy Yard Cogeneration Partners LP Ser 1997 (AMT).................................................. 5.65 10/01/28 8,036,160 2,000 7 World Trade Center, LLC Ser A........................ 6.25 03/01/15 2,100,600
12 See Notes to Financial Statements Morgan Stanley Municipal Premium Income Trust PORTFOLIO OF INVESTMENTS - MAY 31, 2006 continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - -------------------------------------------------------------------------------------------------------------- $ 3,000 TSASC Inc, New York, Tobacco Settlement Ser 2006-1....... 5.125% 06/01/42 $ 2,918,370 1,500 Brazos River Authority, Texas, Texas Utilities Electric Co Refg Ser 1999 A (AMT)............................... 7.70 04/01/33 1,752,990 ------------- - -------- 30,226,056 29,310 ------------- - -------- Mortgage Revenue - Multi-Family (0.2%) 320 Minnesota Housing Finance Agency, Rental 1995 Ser D (MBIA)................................................. 6.00 02/01/22 322,938 ------------- - -------- Mortgage Revenue - Single Family (0.2%) 130 Colorado Housing & Finance Authority, Ser 1997 A-2 (AMT).................................................. 7.25 05/01/27 133,163 185 Missouri Housing Development Commission, Homeownership 1996 Ser D (AMT)....................................... 7.10 09/01/27 189,834 ------------- - -------- 322,997 315 ------------- - -------- Public Facilities Revenue (8.0%) 1,000 Jefferson County, Alabama, School Ser 2004 A............. 5.50 01/01/22 1,069,570 1,000 Kern County Board of Education, California, Refg Ser 2006 A COPs (MBIA).......................................... 5.00 06/01/31 1,030,560 Fort Collins, Colorado, 2,040 Ser 2004 A COPs (Ambac)................................ 5.375 06/01/21 2,184,983 2,155 Ser 2004 A COPs (Ambac)................................ 5.375 06/01/22 2,308,156 Saint Paul Independent School District #625, Minnesota, 1,700 Ser 1995 C COPs........................................ 5.45 02/01/11 1,702,346 1,800 Ser 1995 C COPs........................................ 5.50 02/01/12 1,802,556 1,500 Oregon Department of Administrative Services, Ser 2005 B COPs (FGIC)............................................ 5.00 11/01/21 1,565,775 2,400 Goat Hill Properties, Washington, Governmental Office Ser 2005 (MBIA)............................................ 5.00 12/01/33 2,454,192 ------------- - -------- 14,118,138 13,595 ------------- - -------- Recreational Facilities Revenue (2.9%) 2,000 Denver Convention Center Hotel Authority, Colorado, Refg Ser 2006 (XLCA)........................................ 5.00 12/01/30 2,059,700 3,000 District of Columbia, Ballpark, Ser 2006 B-1 (FGIC)...... 5.00 02/01/31 3,086,700 ------------- - -------- 5,146,400 5,000 ------------- - -------- Retirement & Life Care Facilities Revenue (0.6%) 1,000 Lubbock Health Facilities Development Corporation, Texas, Carillon Senior Life Care Ser 2005 A................... 6.625 07/01/36 1,013,160 ------------- - -------- Tax Allocation Revenue (1.1%) 2,000 Fenton, Missouri, Gravois Bluffs Refg Ser 2006........... 4.50 04/01/21 2,001,200 -------------
13 See Notes to Financial Statements Morgan Stanley Municipal Premium Income Trust PORTFOLIO OF INVESTMENTS - MAY 31, 2006 continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - -------------------------------------------------------------------------------------------------------------- Transportation Facilities Revenue (23.3%) $ 3,000 Florida, Department of Transportation, Ser 2002 A (MBIA)................................................. 5.00% 07/01/25 $ 3,104,730 Miami-Dade County, Florida, Miami Int'l Airport, 2,500 Ser 2000 B (FGIC)...................................... 5.75 10/01/24 2,691,825 2,000 Ser 2005 A (AMT) (CIFG)................................ 5.00 10/01/38 2,024,420 Georgia State Road & Tollway Authority, 2,000 Ser 2004............................................... 5.00 10/01/22 2,086,640 3,000 Ser 2004............................................... 5.00 10/01/23 3,127,650 Chicago, Illinois, Chicago O'Hare Int'l Airport 5,000 Ser 1996 A (Ambac)..................................... 5.625 01/01/12 5,106,950 4,000 3rd Lien Ser 2005 A (MBIA)............................. 5.25 01/01/26 4,255,320 1,000 Massachusetts Turnpike Authority, Metropolitan Highway ROLS RRII R536 (MBIA).................................. 9.858++ 01/01/37 1,053,380 5,000 New Jersey Turnpike Authority, Ser 2003 A (Ambac)........ 5.00 01/01/30 5,142,349 3,000 Metropolitan Transportation Authority, New York, State Service Contract Refg Ser 2002 B (MBIA)................ 5.50 07/01/20 3,252,540 3,000 Triborough Bridge & Tunnel Authority, New York, Refg Ser 2002 B................................................. 5.25 11/15/19 3,219,570 2,000 Pennsylvania Turnpike Commission, Ser R 2001 (Ambac)..... 5.00 12/01/30 2,061,140 3,000 Rhode Island Economic Development Corporation, Airport 2005 Ser C (MBIA)...................................... 5.00 07/01/28 3,089,280 1,000 Harris County, Texas, Toll Road Sr Lien Ser 2005 A (FSA).................................................. 5.25 08/15/35 1,042,030 ------------- - -------- 41,257,824 39,500 ------------- - -------- Water & Sewer Revenue (28.1%) 2,000 Camarillo Public Finance Authority, California, Wastewater Ser 2005 (Ambac)............................ 5.00 06/01/36 2,067,600 3,000 Los Angeles Department of Water & Power, California, Water 2004 Ser C (MBIA)................................ 5.00 07/01/25 3,116,040 3,000 Oxnard Financing Authority, California, Wastewater 2004 Ser A (FGIC)........................................... 5.00 06/01/29 3,090,690 3,000 San Diego County Water Authority, California, Ser 2004 A COPs (FSA)............................................. 5.00 05/01/29 3,087,960 2,460 JEA, Florida, Water & Sewer, Sub-second Crossover Ser (MBIA)................................................. 5.00 10/01/24 2,559,286 3,000 Atlanta, Georgia, Water & Wastewater Ser 1999 A (FGIC)... 5.50 11/01/22 3,333,600 4,000 Augusta, Georgia, Water & Sewerage Ser 2000 (FSA)........ 5.25 10/01/22 4,221,440 3,215 Louisville & Jefferson County Metropolitan Sewer District, Kentucky, Ser 2001 A (MBIA).................. 5.375 05/15/22 3,450,692 1,755 Detroit, Michigan, Water Supply Sr Lien Ser 2001 A (FGIC)................................................. 5.25 07/01/33 1,842,750 3,000 Las Vegas Water District, Nevada, Impr and Refg Ser 2003 A (FGIC)............................................... 5.25 06/01/22 3,186,330 2,000 Passaic Valley Sewerage Commissioners, New Jersey, Ser F (FGIC)................................................. 5.00 12/01/19 2,101,500 1,675 Cleveland, Ohio, Waterworks Impr & Refg 1998 Ser I (FSA).................................................. 5.00 01/01/23 1,716,909
14 See Notes to Financial Statements Morgan Stanley Municipal Premium Income Trust PORTFOLIO OF INVESTMENTS - MAY 31, 2006 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 $ 5,130,399 10,000 Houston, Texas, Combined Utility Refg 2004 Ser A (FGIC)................................................. 5.25 05/15/23 10,639,699 ------------- - -------- 49,544,895 47,105 ------------- - -------- Other Revenue (14.2%) 5,000 California Economic Recovery, Ser 2004 A++............... 5.00 07/01/16 5,279,550 Golden State Tobacco Securitization Corporation, California, 2,000 Enhanced Asset Backed Ser 2005 A (Ambac)............... 5.00 06/01/29 2,042,060 2,000 Enhanced Asset Backed Ser 2005 A....................... 5.00 06/01/45 2,019,500 2,000 New Jersey Economic Development Authority, Cigarette Tax Ser 2004............................................... 5.75 06/15/29 2,124,760 2,000 New York City Transitional Finance Authority, New York, Refg 2003 Ser A........................................ 5.50++++ 11/01/26 2,153,100 8,000 New York State Local Government Assistance Corporation, Refg Ser 1997 B (MBIA)................................. 5.00 04/01/21 8,238,400 1,000 Philadelphia, Pennsylvania, Gas Works Eighteenth Ser (AGC).................................................. 5.25 08/01/20 1,055,970 2,000 Puerto Rico Government Development Bank, 2006 Ser B...... 5.00 12/01/15 2,072,380 ------------- - -------- 24,985,720 24,000 ------------- - -------- Refunded (3.3%) 1,340 Missouri Health & Educational Facilities Authority, Missouri, Baptist Medical Center Refg Ser 1989 (ETM)... 7.625 07/01/18 1,558,889 4,000 Montgomery County, Ohio, Franciscan Medical Center - Dayton Ser 1997............................... 5.50 01/01/10+ 4,186,880 ------------- - -------- 5,745,769 5,340 ------------- - -------- 258,085 Total Tax-Exempt Municipal Bonds (Cost $260,950,865).......................... 268,424,209 ------------- - -------- Short-Term Tax-Exempt Municipal Obligations (2.7%) 560 Idaho Health Facilities Authority, St Luke's Regional Medical Center Ser 2000 (FSA) (Demand 06/01/06)........ 3.56* 07/01/35 560,000 600 Kansas Development Finance Authority, Sisters of Charity of Leavenworth Ser 2006 D (Demand 06/01/06)............ 3.57* 12/01/31 600,000 1,850 Michigan State University, Ser 2002 A (Demand 06/01/06).............................................. 3.52* 08/15/32 1,850,000 1,030 Reno, Nevada, St Mary's Regional Medical Center Ser 1998 B (MBIA) (Demand 06/01/06)............................. 3.56* 05/15/23 1,030,000
15 See Notes to Financial Statements Morgan Stanley Municipal Premium Income Trust PORTFOLIO OF INVESTMENTS - MAY 31, 2006 continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - -------------------------------------------------------------------------------------------------------------- $ 800 North Central Texas Health Facilities Development Corporation, Presbyterian Medical Center Ser 1985 D (MBIA) (Demand 06/01/06)............................... 3.56*% 12/01/15 $ 800,000 ------------- - -------- 4,840 Total Short-Term Tax-Exempt Municipal Obligations (Cost $4,840,000)........... 4,840,000 ------------- - --------
$262,925 Total Investments (Cost $265,790,865) (a)(b)....................... 154.8% 273,264,209 ======== Other Assets in Excess of Liabilities.............................. 1.9 3,288,628 Preferred Shares of Beneficial Interest............................ (56.7) (100,037,500) ----- ------------- Net Assets Applicable to Common Shareholders....................... 100.0% $ 176,515,337 ===== =============
- --------------------- 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. RITES Residual Interest Tax-Exempt Securities (Illiquid security). ROLS Reset Option Longs (Illiquid security). * Current coupon of variable rate demand obligation. + Prerefunded to call date shown. ++ A portion of this security has been physically segregated in connection with open futures contracts in an amount equal to $162,500. ++ 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 $3,279,000 which represents 1.9% of net assets applicable to common shareholders. ++++ Security is a "step-up" bond where the coupon increases on a predetermined future date. (a) Securities have been designated as collateral in an amount equal to $38,966,408 in connection with open futures contracts. (b) The aggregate cost for federal income tax purposes is $265,743,486. The aggregate gross unrealized appreciation is $7,941,788 and the aggregate gross unrealized depreciation is $421,065, resulting in net unrealized appreciation of $7,520,723. Bond Insurance: - --------------- AGC Assured Guaranty Corporation. Ambac Ambac Assurance Corporation. CIFG CIFG Assurance North America Inc. 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.
16 See Notes to Financial Statements Morgan Stanley Municipal Premium Income Trust PORTFOLIO OF INVESTMENTS - MAY 31, 2006 continued FUTURES CONTRACTS OPEN AT MAY 31, 2006:
NUMBER OF DESCRIPTION, DELIVERY UNDERLYING FACE UNREALIZED CONTRACTS LONG/SHORT MONTH AND YEAR AMOUNT AT VALUE APPRECIATION - ---------------------------------------------------------------------------------------------- 250 Short U.S. Treasury Notes 5 yr $(25,902,345) $ 71,578 September 2006 125 Short U.S. Treasury Notes 10 yr (13,115,235) 38,719 September 2006 -------- Total Unrealized Appreciation....................... $110,297 ========
17 See Notes to Financial Statements Morgan Stanley Municipal Premium Income Trust FINANCIAL STATEMENTS Statement of Assets and Liabilities May 31, 2006 Assets: Investments in securities, at value (cost $265,790,865)................ $273,264,209 Cash................................. 34,824 Receivable for: Interest......................... 4,108,388 Variation margin................. 95,700 Prepaid expenses and other assets.... 55,363 ------------ Total Assets..................... 277,558,484 ------------ Liabilities: Payable for: Investments purchased............ 700,000 Investment advisory fee.......... 100,081 Common shares of beneficial interest repurchased........... 45,947 Administration fee............... 20,016 Transfer agent fee............... 3,565 Accrued expenses and other payables........................... 136,038 ------------ Total Liabilities................ 1,005,647 ------------ Preferred shares of beneficial interest (at liquidation value) (1,000,000 shares authorized of non-participating $.01 par value, 1,000 shares outstanding).......... 100,037,500 ------------ Net Assets Applicable to Common Shareholders................... $176,515,337 ============ Composition of Net Assets Applicable to Common Shareholders: Common shares of beneficial interest (unlimited shares authorized of $.01 par value, 17,432,494 shares outstanding)....................... $165,043,798 Net unrealized appreciation.......... 7,583,641 Accumulated undistributed net investment income.................. 1,638,362 Accumulated undistributed net realized gain...................... 2,249,536 ------------ Net Assets Applicable to Common Shareholders................... $176,515,337 ============ Net Asset Value Per Common Share ($176,515,337 divided by 17,432,494 common shares outstanding)........... $10.13 ============
Statement of Operations For the year ended May 31, 2006 Net Investment Income: Interest Income....................... $13,700,000 ----------- Expenses Investment advisory fee............... 1,132,105 Auction commission fees............... 347,679 Administration fee.................... 226,420 Professional fees..................... 76,170 Shareholder reports and notices....... 45,747 Auction agent fees.................... 41,036 Transfer agent fees and expenses...... 31,718 Registration fees..................... 15,426 Trustees' fees and expenses........... 10,970 Custodian fees........................ 13,687 Other................................. 54,654 ----------- Total Expenses.................... 1,995,612 Less: expense offset.................. (4,835) ----------- Net Expenses...................... 1,990,777 ----------- Net Investment Income............. 11,709,223 ----------- Net Realized and Unrealized Gain (Loss): Net Realized Gain on: Investments........................... 4,938,092 Futures contracts..................... 1,011,012 ----------- Net Realized Gain................. 5,949,104 ----------- Net Change in Unrealized Appreciation/ Depreciation on: Investments........................... (9,863,856) Futures contracts..................... 127,564 ----------- Net Depreciation.................. (9,736,292) ----------- Net Loss.......................... (3,787,188) ----------- Dividends to preferred shareholders from net investment income.......... (2,498,856) ----------- Net Increase.......................... $ 5,423,179 ===========
18 See Notes to Financial Statements Morgan Stanley Municipal Premium Income Trust FINANCIAL STATEMENTS continued Statements of Changes in Net Assets
FOR THE YEAR FOR THE YEAR ENDED ENDED MAY 31, 2006 MAY 31, 2005 ------------ ------------ Increase (Decrease) in Net Assets: Operations: Net investment income....................................... $ 11,709,223 $ 11,908,710 Net realized gain........................................... 5,949,104 1,092,498 Net change in unrealized appreciation/depreciation.......... (9,736,292) 9,061,745 Dividends to preferred shareholders from net investment income.................................................... (2,498,856) (1,652,096) ------------ ------------ Net Increase............................................ 5,423,179 20,410,857 ------------ ------------ Dividends and Distributions to Common Shareholders from: Net investment income....................................... (9,603,623) (10,637,322) Net realized gain........................................... (2,414,263) -- ------------ ------------ Total Dividends and Distributions....................... (12,017,886) (10,637,322) ------------ ------------ Decrease from transactions in common shares of beneficial interest.................................................. (6,210,698) (7,208,063) ------------ ------------ Net Increase (Decrease)................................. (12,805,405) 2,565,472 Net Assets Applicable to Common Shareholders: Beginning of period......................................... 189,320,742 186,755,270 ------------ ------------ End of Period (Including accumulated undistributed net investment income of $1,638,362 and $2,048,654, respectively)................. $176,515,337 $189,320,742 ============ ============
19 See Notes to Financial Statements Morgan Stanley Municipal Premium Income Trust NOTES TO FINANCIAL STATEMENTS - MAY 31, 2006 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. 20 Morgan Stanley Municipal Premium Income Trust NOTES TO FINANCIAL STATEMENTS - MAY 31, 2006 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 Adviser"), the Fund pays an advisory fee, calculated weekly and payable monthly, by applying the annual rate of 0.40% to the Fund's weekly total net assets including preferred shares. Pursuant to an Administration Agreement with Morgan Stanley Services Company Inc. (the "Administrator"), an affiliate of the Investment Adviser, the Fund pays an administration fee, calculated weekly and payable monthly, by applying the annual rate of 0.08% to the Fund's weekly total net assets including preferred shares. 3. Security Transactions and Transactions with Affiliates The cost of purchases and proceeds from sales/maturities of portfolio securities, excluding short-term investments, for the year ended May 31, 2006 aggregated $90,405,306 and $98,112,666, respectively. Included in the aforementioned transactions are purchases of $3,852,450 with other Morgan Stanley funds. Morgan Stanley Trust, an affiliate of the Investment Adviser and Administrator, is the Fund's transfer agent. 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 21 Morgan Stanley Municipal Premium Income Trust NOTES TO FINANCIAL STATEMENTS - MAY 31, 2006 continued of retirement. Benefits under this plan are based on factors which include years of service and compensation. 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. Aggregate pension costs for the year ended May 31, 2006 included in Trustees' fees and expenses in the Statement of Operations amounted to $7,472. At May 31, 2006, the Fund had an accrued pension liability of $63,974 which is included in accrued expenses in the Statement of Assets and Liabilities. The Fund has 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 shares of beneficial interest were as follows:
CAPITAL PAID IN PAR VALUE EXCESS OF SHARES OF SHARES PAR VALUE ---------- --------- ------------ Balance, May 31, 2004....................................... 18,906,449 $189,064 $178,273,541 Treasury shares purchased and retired (weighted average discount 11.32%)*......................................... (797,655) (7,976) (7,200,087) Reclassification due to permanent book/tax differences...... -- -- (46) ---------- -------- ------------ Balance, May 31, 2005....................................... 18,108,794 181,088 171,073,408 Treasury shares purchased and retired (weighted average discount 10.48%)*......................................... (676,300) (6,763) (6,203,935) ---------- -------- ------------ Balance, May 31, 2006....................................... 17,432,494 $174,325 $164,869,473 ========== ======== ============
- --------------------- * 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 22 Morgan Stanley Municipal Premium Income Trust NOTES TO FINANCIAL STATEMENTS - MAY 31, 2006 continued whole or in part, at the original purchase price of $100,000 per share plus accumulated but unpaid dividends, whether or not declared, thereon to the date of redemption. Dividends, which are cumulative, are reset through auction procedures.
AMOUNT NEXT RANGE OF SERIES SHARES* IN THOUSANDS* RATE* RESET DATE DIVIDEND RATES** ------- ------- ------------- ----- ---------- ---------------- A 200 20,000 3.40% 06/07/06 0.80% - 3.72% B 200 20,000 3.40 06/07/06 1.771 - 3.72 C 200 20,000 3.40 06/07/06 1.229 - 3.72 D 200 20,000 3.40 06/07/06 1.51 - 3.72 E 200 20,000 2.25 07/12/06 2.25
- --------------------- * As of May 31, 2006. ** For the year ended May 31, 2006. Subsequent to May 31, 2006 and up through July 7, 2006, the Fund paid dividends to each of the Series A through E at rates ranging from 2.25% to 3.95% in the aggregate amount of $304,478. 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 28, 2006 $0.045 June 9, 2006 June 23, 2006 June 27, 2006 $0.045 July 7, 2006 July 21, 2006 June 27, 2006 $0.045 August 4, 2006 August 18, 2006 June 27, 2006 $0.045 September 8, 2006 September 22, 2006
7. Expense Offset The expense offset represents a reduction of custodian and transfer agent fees and expenses for earnings on cash balances maintained by the Fund. 23 Morgan Stanley Municipal Premium Income Trust NOTES TO FINANCIAL STATEMENTS - MAY 31, 2006 continued 8. 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. 9. 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 distributions paid was as follows:
FOR THE YEAR FOR THE YEAR ENDED ENDED MAY 31, 2006 MAY 31, 2005 ------------ ------------ Tax-exempt income.......................... $12,185,919 $12,232,791 Ordinary income............................ -- 67,003 Long-term capital gains.................... 2,414,263 -- ----------- ----------- Total distributions........................ $14,600,182 $12,299,794 =========== ===========
24 Morgan Stanley Municipal Premium Income Trust NOTES TO FINANCIAL STATEMENTS - MAY 31, 2006 continued As of May 31, 2006, the tax-basis components of accumulated earnings were as follows: Undistributed tax-exempt income............................. $ 1,649,681 Undistributed ordinary income............................... 43,231 Undistributed long-term gains............................... 2,359,860 ----------- Net accumulated earnings.................................... 4,052,772 Temporary differences....................................... (101,956) Net unrealized appreciation................................. 7,520,723 ----------- Total accumulated earnings.................................. $11,471,539 ===========
During the year ended May 31, 2006, the Fund utilized its net capital loss carryforward of $1,319,605. As of May 31, 2006, the Fund had temporary book/tax differences primarily attributable to book amortization of discounts on debt securities, mark-to-market of open futures contracts and dividend payable and permanent book/tax differences attributable to tax adjustments on debt securities sold by the Fund. To reflect reclassifications arising from the permanent differences, accumulated undistributed net investment income was charged and accumulated undistributed net realized gain was credited $17,036. 25 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 ---------------------------------------------------------------- 2006 2005 2004 2003 2002 -------- -------- -------- -------- -------- Selected Per Share Data: Net asset value, beginning of period.............. $ 10.45 $ 9.88 $ 10.56 $ 10.04 $ 9.88 -------- -------- -------- -------- -------- Income (loss) from investment operations: Net investment income*........................ 0.66 0.64 0.66 0.68 0.70 Net realized and unrealized gain (loss)....... (0.20) 0.54 (0.68) 0.53 0.13 Common share equivalent of dividends paid to preferred shareholders*....................... (0.14) (0.09) (0.09) (0.09) (0.12) -------- -------- -------- -------- -------- Total income (loss) from investment operations.... 0.32 1.09 (0.11) 1.12 0.71 -------- -------- -------- -------- -------- Less dividends and distributions from: Net investment income......................... (0.54) (0.57) (0.61) (0.56) (0.54) Net realized gain............................. (0.14) -- -- (0.07) (0.04) -------- -------- -------- -------- -------- Total dividends and distributions................. (0.68) (0.57) (0.61) (0.63) (0.58) -------- -------- -------- -------- -------- Anti-dilutive effect of acquiring treasury shares*.......................................... 0.04 0.05 0.04 0.03 0.03 -------- -------- -------- -------- -------- Net asset value, end of period.................... $ 10.13 $ 10.45 $ 9.88 $ 10.56 $ 10.04 ======== ======== ======== ======== ======== Market value, end of period....................... $ 9.12 $ 9.10 $ 8.93 $ 9.41 $ 9.02 ======== ======== ======== ======== ======== Total Return+..................................... 7.85% 8.54% 1.27% 11.90% 8.30% Ratios to Average Net Assets of Common Shareholders: Total expenses (before expense offset)............ 1.09% 1.29%(1) 1.40%(1) 1.33%(1) 1.24%(1) Net investment income before preferred stock dividends........................................ 6.42% 6.30% 6.36% 6.76% 6.95% Preferred stock dividends......................... 1.37% 0.87% 0.83% 0.86% 1.23% Net investment income available to common shareholders..................................... 5.05% 5.43% 5.53% 5.90% 5.72% Supplemental Data: Net assets applicable to common shareholders, end of period, in thousands.......................... $176,515 $189,321 $186,755 $209,970 $206,679 Asset coverage on preferred shares at end of period........................................... 276% 289% 286% 310% 306% Portfolio turnover rate........................... 33% 20% 23% 18% 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%.
26 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, 2006, 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. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of May 31, 2006, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. 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, 2006, 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 20, 2006 27 Morgan Stanley Municipal Premium Income Trust REVISED INVESTMENT POLICY (UNAUDITED) On August 24, 2005, the Trustees of Morgan Stanley Municipal Premium Income Trust (the "Fund") approved a change to the Fund's investment policy with respect to inverse floating rate municipal obligations whereby the Fund now would be permitted to invest up to 15% of its assets in inverse floating rate municipal obligations. The inverse floating rate municipal obligations in which the Fund will invest are typically created through a division of a fixed rate municipal obligation into two separate instruments, a short-term obligation and a long-term obligation. The interest rate on the short-term obligation is set at periodic auctions. The interest rate on the long-term obligation is the rate the issuer would have paid on the fixed income obligation: (i) plus the difference between such fixed rate and the rate on the short-term obligation, if the short-term rate is lower than the fixed rate; or (ii) minus such difference if the interest rate on the short-term obligation is higher than the fixed rate. The interest rates on these obligations generally move in the reverse direction of market interest rates. If market interest rates fall, the interest rate on the obligation will increase and if market interest rates increase, the interest rate on the obligation will fall. Inverse floating rate municipal obligations offer the potential for higher income than is available from fixed rate obligations of comparable maturity and credit rating. They also carry greater risks. In particular, the prices of inverse floating rate municipal obligations are more volatile, i.e., they increase and decrease in response to changes in interest rates to a greater extent than comparable fixed rate obligations. 28 Morgan Stanley Municipal Premium Income Trust RESULTS OF ANNUAL SHAREHOLDER MEETING (UNAUDITED) On December 13, 2005, an annual meeting of the Fund's shareholders was held for the purpose of voting on the following matters, the results of which were as follows: Election of Trustees by all Shareholders:
FOR WITHHELD ------------------------------ Michael Bozic............................................... 13,655,740 428,219 James F. Higgins............................................ 13,695,329 388,630
Election of Trustee by Preferred Shareholders: Charles A. Fiumefreddo...................................... 972 --
The following Trustees were not standing for reelection at this meeting: Edwin J. Garn, Wayne E. Hedien, Dr. Manuel H. Johnson, Joseph J. Kearns, Michael E. Nugent and Fergus Reid. 29 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 (65) Trustee Since April Private Investor; Chairman of 197 c/o Kramer Levin Naftalis & Frankel LLP 1994 the Insurance Committee (since Counsel to the Independent Trustees July 2006) and Director or 1177 Avenue of the Americas Trustee of the Retail Funds New York, NY 10036 (since April 1994) and the Institutional Funds (since 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 (73) Trustee Since January Consultant; Director or 197 1031 N. Chartwell Court 1993 Trustee of the Retail Funds Salt Lake City, UT 84103 (since January 1993) and the Institutional Funds (since July 2003); member of the Utah Regional Advisory Board of Pacific Corp. (utility company); formerly Managing Director of Summit Ventures LLC (2000-2004) (lobbying and consulting firm); 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). Name, Age and Address of Independent Trustee Other Directorships Held by Trustee - --------------------------------------- ----------------------------------- Michael Bozic (65) Director of various business c/o Kramer Levin Naftalis & Frankel LLP organizations. Counsel to the Independent Trustees 1177 Avenue of the Americas New York, NY 10036 Edwin J. Garn (73) Director of Franklin Covey (time 1031 N. Chartwell Court management systems), BMW Bank of Salt Lake City, UT 84103 North America, Inc. (industrial loan corporation), Escrow Bank USA (industrial loan corporation); United Space 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.
30 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*** - --------------------------------------- ----------- -------------- ------------------------------ ------------- Wayne E. Hedien (72) Trustee Since Retired; Director or Trustee 197 c/o Kramer Levin Naftalis & Frankel LLP September 1997 of the Retail Funds (since Counsel to the Independent Trustees September 1997) and the 1177 Avenue of the Americas Institutional Funds (since New York, NY 10036 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). Dr. Manuel H. Johnson (57) Trustee Since July Senior Partner, Johnson Smick 197 c/o Johnson Smick Group, Inc. 1991 International, Inc., a 888 16th Street, NW consulting firm; Chairman of Suite 740 the Audit Committee and Washington, D.C. 20006 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 (63) Trustee Since July President, Kearns & Associates 198 c/o Kearns & Associates LLC 2003 LLC (investment consulting); PMB754 Deputy Chairman of the Audit 23852 Pacific Coast Highway Committee and Director or Malibu, CA 90265 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. Name, Age and Address of Independent Trustee Other Directorships Held by Trustee - --------------------------------------- ----------------------------------- Wayne E. Hedien (72) 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 1177 Avenue of the Americas Field Museum of Natural History; New York, NY 10036 director of various other business and charitable organizations. Dr. Manuel H. Johnson (57) Director of NVR, Inc. (home c/o Johnson Smick Group, Inc. construction); Director of KFX 888 16th Street, NW Energy; Director of RBS Greenwich Suite 740 Capital Holdings (financial holding Washington, D.C. 20006 company). Joseph J. Kearns (63) Director of Electro Rent c/o Kearns & Associates LLC Corporation (equipment leasing), PMB754 The Ford Family Foundation, and the 23852 Pacific Coast Highway UCLA Foundation. Malibu, CA 90265
31 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*** - --------------------------------------- ----------- -------------- ------------------------------ ------------- Michael E. Nugent (70) Chairman of Chairman of General Partner of Triumph 197 c/o Triumph Capital, L.P. the Board the Board Capital, L.P., a private 445 Park Avenue and Trustee (since July investment partnership; New York, NY 10022 2006) and Chairman of the Board of the Trustee (since Retail Funds and Institutional July 1991) Funds (since July 2006) and Director or Trustee of the Retail Funds (since July 1991) and the Institutional Funds (since July 2001); formerly Chairman of the Insurance Committee (July 1991-July 2006) Vice President, Bankers Trust Company and BT Capital Corporation (1984-1988). Fergus Reid (73) Trustee Since July Chairman of Lumelite Plastics 198 c/o Lumelite Plastics Corporation 2003 Corporation; Chairman of the 85 Charles Colman Blvd. Governance Committee and Pawling, NY 12564 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 - --------------------------------------- ----------------------------------- Michael E. Nugent (70) None. c/o Triumph Capital, L.P. 445 Park Avenue New York, NY 10022 Fergus Reid (73) 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 12564 J.P. Morgan Investment Management Inc.
32 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 (73) Trustee Since July Director or Trustee of the 197 c/o Morgan Stanley Trust 1991 Retail Funds (since July 1991) Harborside Financial Center and the Institutional Funds Plaza Two (since July 2003); formerly Jersey City, NJ 07311 Chairman of the Retail Funds (July 1991-July 2006) and the Institutional Funds (July 2003-July 2006) and Chief Executive Officer of the Retail Funds (until September 2002). James F. Higgins (58) Trustee Since June Director or Trustee of the 197 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 07311 Advisor of Morgan Stanley (since August 2000). Name, Age and Address of Interested Trustee Other Directorships Held by Trustee - ------------------------------------- ----------------------------------- Charles A. Fiumefreddo (73) None. c/o Morgan Stanley Trust Harborside Financial Center Plaza Two Jersey City, NJ 07311 James F. Higgins (58) 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 07311
- --------------------- * This is the earliest date the Trustee began serving the funds advised by Morgan Stanley Investment Advisors Inc. (the "Investment Adviser") (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 Adviser and any funds that have an investment adviser that is an affiliated person of the Investment Adviser (including, but not limited to, Morgan Stanley Investment Management Inc.). 33 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** - ----------------------------- --------------- -------------- ------------------------------------------------------------ Ronald E. Robison (67) President and President President (since September 2005) and Principal Executive 1221 Avenue of the Americas Principal (since Officer (since May 2003) of funds in the Fund Complex; New York, NY 10020 Executive September President (since September 2005) and Principal Executive Officer 2005) and Officer (since May 2003) of the Van Kampen Funds; Managing Principal Director, Director and/or Officer of the Investment Adviser Executive and various entities affiliated with the Investment Adviser; Officer (since Director of Morgan Stanley SICAV (since May 2004). Formerly, May 2003) Executive Vice President (July 2003 to September 2005) of funds in the Fund Complex and the Van Kampen Funds; President and Director of the Institutional Funds (March 2001 to July 2003); Chief Global Operating Officer of Morgan Stanley Investment Management Inc.; Chief Administrative Officer of Morgan Stanley Investment Advisors Inc.; Chief Administrative Officer of Morgan Stanley Services Company Inc. J. David Germany (51) Vice President Since February Managing Director and (since December 2005) Chief Investment Morgan Stanley Investment 2006 Officer -- Global Fixed Income of Morgan Stanley Investment Management Ltd. Management; Managing Director and Director of Morgan Stanley 25 Cabot Square Investment Management Ltd.; Vice President (since February Canary Wharf, London 2006) of the Retail and Institutional Funds. United Kingdom E144QA Dennis F. Shea (53) Vice President Since February Managing Director and (since February 2006) Chief Investment 1221 Avenue of the Americas 2006 Officer -- Global Equity of Morgan Stanley Investment New York, NY 10020 Management; Vice President (since February 2006) of the Retail and Institutional Funds. Formerly, Managing Director and Director of Global Equity Research at Morgan Stanley. Barry Fink (51) Vice President Since February Managing Director and General Counsel of Morgan Stanley 1221 Avenue of the Americas 1997 Investment Management; Managing Director of the Investment New York, NY 10020 Adviser and various entities affiliated with the Investment Adviser; Vice President of the Retail Funds and (since July 2003) the Institutional Funds. Formerly, Secretary, General Counsel and/or Director of the Investment Adviser and various entities affiliated with the Investment Adviser; Secretary and General Counsel of the Retail Funds. Amy R. Doberman (44) Vice President Since July Managing Director and General Counsel, U.S. Investment 1221 Avenue of the Americas 2004 Management of Morgan Stanley Investment Management (since New York, NY 10020 July 2004); Vice President of the Retail Funds and the Institutional Funds (since July 2004); Vice President of the Van Kampen Funds (since August 2004); Secretary (since February 2006) and Managing Director (since July 2004) of the Investment Adviser and various entities affiliated with the Investment Adviser. Formerly, Managing Director and General Counsel -- Americas, UBS Global Asset Management (July 2000 to July 2004). Carsten Otto (42) Chief Since October Managing Director and U.S. Director of Compliance for Morgan 1221 Avenue of the Americas Compliance 2004 Stanley Investment Management (since October 2004); Managing New York, NY 10020 Officer Director and Chief Compliance Officer of Morgan Stanley Investment Management. Formerly, Assistant Secretary and Assistant General Counsel of the Retail Funds. Stefanie V. Chang Yu (39) Vice President Since July Executive Director of the Investment Adviser and various 1221 Avenue of the Americas 2003 entities affiliated with the Investment Adviser; Vice New York, NY 10020 President of the Retail Funds (since July 2002) and the Institutional Funds (since December 1997). Formerly, Secretary of various entities affiliated with the Investment Adviser.
34 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 (40) Treasurer and Treasurer Executive Director of the Investment Adviser and the c/o Morgan Stanley Trust Chief Financial since July Administration (since December 2001); previously, Vice Harborside Financial Center, Officer 2003 and Chief President of the Retail Funds (September 2002-July 2003); Plaza Two, Financial Vice President of the Investment Adviser and the Jersey City, NJ 07311 Officer since Administrator (August 2000- November 2001) and Senior September 2002 Manager at PricewaterhouseCoopers LLP (January 1998- August 2000). Mary E. Mullin (38) 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 10020 Adviser; 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. In accordance with Section 303A.12(a) of the New York Stock Exchange Listed Company Manual, the Fund's Annual CEO Certification certifying as to compliance with NYSE's Corporate Governance Listing Standards was submitted to the Exchange on January 9, 2006. The Fund's Principal Executive Officer and Principal Financial Officer Certifications required by Section 302 of the Sarbanes-Oxley Act of 2002 were filed with the Fund's N-CSR and are available on the Securities and Exchange Commission's Web site at http://www.sec.gov. 2006 FEDERAL TAX NOTICE (UNAUDITED) During the year ended May 31, 2006, the Fund paid the following per share amounts from tax exempt income: $0.54 to common shareholders, $2,713 to Series A preferred shareholders, $2,789 to Series B preferred shareholders, $2,835 to Series C preferred shareholders, $2,324 to Series D preferred shareholders and $2,250 to Series E preferred shareholders. For the year ended May 31, 2006, the Fund paid to common shareholders $0.14 per share from long-term capital gains. 35 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 Michael E. Nugent Chairman of the Board Ronald E. Robison President and Principal Executive Officer J. David Germany Vice President Dennis F. Shea Vice President Barry Fink Vice President Amy R. Doberman Vice President Carsten Otto Chief Compliance Officer Stefanie V. Chang Yu Vice President Francis J. Smith Treasurer and Chief Financial Officer 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 ADVISER 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) 2006 Morgan Stanley [MORGAN STANLEY LOGO] MORGAN STANLEY FUNDS Morgan Stanley Municipal Premium Income Trust Annual Report May 31, 2006 [MORGAN STANLEY LOGO] PIARPT-38563RPT-RA06-00585P-Y05/06 Item 2. Code of Ethics. (a) The Fund has adopted a code of ethics (the "Code of Ethics") that applies to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the Fund or a third party. (b) No information need be disclosed pursuant to this paragraph. (c) Not applicable. (d) Not applicable. (e) Not applicable. (f) (1) The Fund's Code of Ethics is attached hereto as Exhibit 12 A. (2) Not applicable. (3) Not applicable. Item 3. Audit Committee Financial Expert. The Fund's Board of Trustees has determined that it has two "audit committee financial experts" serving on its audit committee, each of whom are "independent" Trustees: Dr. Manuel H. Johnson and Joseph J. Kearns. Under applicable securities laws, a person who is determined to be an audit committee financial expert will not be deemed an "expert" for any purpose, including without limitation for the purposes of Section 11 of the Securities Act of 1933, as a result of being designated or identified as an audit committee financial expert. The designation or identification of a person as an audit committee financial expert does not impose on such person any duties, obligations, or liabilities that are greater than the duties, obligations, and liabilities imposed on such person as a member of the audit committee and Board of Trustees in the absence of such designation or identification. 2 Item 4. Principal Accountant Fees and Services. (a)(b)(c)(d) and (g). Based on fees billed for the periods shown:
2006 REGISTRANT COVERED ENTITIES(1) - ---- ---------- ------------------- AUDIT FEES ................ $ 31,132 N/A NON-AUDIT FEES AUDIT-RELATED FEES ..... $ 6,096(2) $ 5,190,300(2) TAX FEES ............... $ 4,449(3) $ 2,044,491(4) ALL OTHER FEES ......... $ -- $ -- TOTAL NON-AUDIT FEES ...... $ 10,545 $ 7,234,791 TOTAL ..................... $ 41,677 $ 7,234,791
2005 REGISTRANT COVERED ENTITIES(1) - ---- ---------- ------------------- AUDIT FEES ................ $ 30,048 N/A NON-AUDIT FEES AUDIT-RELATED FEES ..... $ 540(2) $ 3,215,745(2) TAX FEES ............... $ 4,585(3) $ 24,000(4) ALL OTHER FEES ......... $ -- $ -- TOTAL NON-AUDIT FEES ...... $ 5,125 $ 3,239,745 TOTAL ..................... $ 35,173 $ 3,329,745
N/A- Not applicable, as not required by Item 4. (1) Covered Entities include the Adviser (excluding sub-advisors) and any entity controlling, controlled by or under common control with the Adviser that provides ongoing services to the Registrant. (2) Audit-Related Fees represent assurance and related services provided that are reasonably related to the performance of the audit of the financial statements of the Covered Entities' and funds advised by the Adviser or its affiliates, specifically data verification and agreed-upon procedures related to asset securitizations and agreed-upon procedures engagements. (3) Tax Fees represent tax compliance, tax planning and tax advice services provided in connection with the preparation and review of the Registrant's tax returns. (4) Tax Fees represent tax compliance, tax planning and tax advice services provided in connection with the review of Covered Entities' tax returns. 3 (e)(1) The audit committee's pre-approval policies and procedures are as follows: APPENDIX A AUDIT COMMITTEE AUDIT AND NON-AUDIT SERVICES PRE-APPROVAL POLICY AND PROCEDURES OF THE MORGAN STANLEY RETAIL AND INSTITUTIONAL FUNDS AS ADOPTED AND AMENDED JULY 23, 2004,(1) 1. STATEMENT OF PRINCIPLES The Audit Committee of the Board is required to review and, in its sole discretion, pre-approve all Covered Services to be provided by the Independent Auditors to the Fund and Covered Entities in order to assure that services performed by the Independent Auditors do not impair the auditor's independence from the Fund. The SEC has issued rules specifying the types of services that an independent auditor may not provide to its audit client, as well as the audit committee's administration of the engagement of the independent auditor. The SEC's rules establish two different approaches to pre-approving services, which the SEC considers to be equally valid. Proposed services either: may be pre-approved without consideration of specific case-by-case services by the Audit Committee ("general pre-approval"); or require the specific pre-approval of the Audit Committee or its delegate ("specific pre-approval"). The Audit Committee believes that the combination of these two approaches in this Policy will result in an effective and efficient procedure to pre-approve services performed by the Independent Auditors. As set forth in this Policy, unless a type of service has received general pre-approval, it will require specific pre-approval by the Audit Committee (or by any member of the Audit Committee to which pre-approval authority has been delegated) if it is to be provided by the Independent Auditors. Any proposed services exceeding pre-approved cost levels or budgeted amounts will also require specific pre-approval by the Audit Committee. The appendices to this Policy describe the Audit, Audit-related, Tax and All Other services that have the general pre-approval of the Audit Committee. The term of any general pre-approval is 12 months from the date of pre-approval, unless the Audit Committee considers and provides a different period and states otherwise. The Audit Committee will annually review and pre-approve the services that may be provided by the Independent Auditors without obtaining specific pre-approval from the Audit Committee. The Audit Committee will add to or subtract from the list of general pre-approved services from time to time, based on subsequent determinations. - ---------- (1) This Audit Committee Audit and Non-Audit Services Pre-Approval Policy and Procedures (the "Policy"), adopted as of the date above, supersedes and replaces all prior versions that may have been adopted from time to time. 4 The purpose of this Policy is to set forth the policy and procedures by which the Audit Committee intends to fulfill its responsibilities. It does not delegate the Audit Committee's responsibilities to pre-approve services performed by the Independent Auditors to management. The Fund's Independent Auditors have reviewed this Policy and believes that implementation of the Policy will not adversely affect the Independent Auditors' independence. 2. DELEGATION As provided in the Act and the SEC's rules, the Audit Committee may delegate either type of pre-approval authority to one or more of its members. The member to whom such authority is delegated must report, for informational purposes only, any pre-approval decisions to the Audit Committee at its next scheduled meeting. 3. AUDIT SERVICES The annual Audit services engagement terms and fees are subject to the specific pre-approval of the Audit Committee. Audit services include the annual financial statement audit and other procedures required to be performed by the Independent Auditors to be able to form an opinion on the Fund's financial statements. These other procedures include information systems and procedural reviews and testing performed in order to understand and place reliance on the systems of internal control, and consultations relating to the audit. The Audit Committee will approve, if necessary, any changes in terms, conditions and fees resulting from changes in audit scope, Fund structure or other items. In addition to the annual Audit services engagement approved by the Audit Committee, the Audit Committee may grant general pre-approval to other Audit services, which are those services that only the Independent Auditors reasonably can provide. Other Audit services may include statutory audits and services associated with SEC registration statements (on Forms N-1A, N-2, N-3, N-4, etc.), periodic reports and other documents filed with the SEC or other documents issued in connection with securities offerings. The Audit Committee has pre-approved the Audit services in Appendix B.1. All other Audit services not listed in Appendix B.1 must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated). 4. AUDIT-RELATED SERVICES Audit-related services are assurance and related services that are reasonably related to the performance of the audit or review of the Fund's financial statements and, to the extent they are Covered Services, the Covered Entities or that are traditionally performed by the Independent Auditors. Because the Audit Committee believes that the provision of Audit-related services does not impair the independence of the auditor and is consistent with the SEC's rules on auditor independence, the Audit Committee may grant general pre-approval to Audit-related services. Audit-related services include, among others, accounting consultations related to accounting, financial reporting or disclosure matters 5 not classified as "Audit services"; assistance with understanding and implementing new accounting and financial reporting guidance from rulemaking authorities; agreed-upon or expanded audit procedures related to accounting and/or billing records required to respond to or comply with financial, accounting or regulatory reporting matters; and assistance with internal control reporting requirements under Forms N-SAR and/or N-CSR. The Audit Committee has pre-approved the Audit-related services in Appendix B.2. All other Audit-related services not listed in Appendix B.2 must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated). 5. TAX SERVICES The Audit Committee believes that the Independent Auditors can provide Tax services to the Fund and, to the extent they are Covered Services, the Covered Entities, such as tax compliance, tax planning and tax advice without impairing the auditor's independence, and the SEC has stated that the Independent Auditors may provide such services. Pursuant to the preceding paragraph, the Audit Committee has pre-approved the Tax Services in Appendix B.3. All Tax services in Appendix B.3 must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated). 6. ALL OTHER SERVICES The Audit Committee believes, based on the SEC's rules prohibiting the Independent Auditors from providing specific non-audit services, that other types of non-audit services are permitted. Accordingly, the Audit Committee believes it may grant general pre-approval to those permissible non-audit services classified as All Other services that it believes are routine and recurring services, would not impair the independence of the auditor and are consistent with the SEC's rules on auditor independence. The Audit Committee has pre-approved the All Other services in Appendix B.4. Permissible All Other services not listed in Appendix B.4 must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated). 7. PRE-APPROVAL FEE LEVELS OR BUDGETED AMOUNTS Pre-approval fee levels or budgeted amounts for all services to be provided by the Independent Auditors will be established annually by the Audit Committee. Any proposed services exceeding these levels or amounts will require specific pre-approval by the Audit Committee. The Audit Committee is mindful of the overall relationship of fees for audit and non-audit services in determining whether to pre-approve any such services. 8. PROCEDURES All requests or applications for services to be provided by the Independent Auditors that do not require specific approval by the Audit Committee will be submitted to the Fund's Chief Financial Officer and must include a detailed description of the services to be 6 rendered. The Fund's Chief Financial Officer will determine whether such services are included within the list of services that have received the general pre-approval of the Audit Committee. The Audit Committee will be informed on a timely basis of any such services rendered by the Independent Auditors. Requests or applications to provide services that require specific approval by the Audit Committee will be submitted to the Audit Committee by both the Independent Auditors and the Fund's Chief Financial Officer, and must include a joint statement as to whether, in their view, the request or application is consistent with the SEC's rules on auditor independence. The Audit Committee has designated the Fund's Chief Financial Officer to monitor the performance of all services provided by the Independent Auditors and to determine whether such services are in compliance with this Policy. The Fund's Chief Financial Officer will report to the Audit Committee on a periodic basis on the results of its monitoring. Both the Fund's Chief Financial Officer and management will immediately report to the chairman of the Audit Committee any breach of this Policy that comes to the attention of the Fund's Chief Financial Officer or any member of management. 9. ADDITIONAL REQUIREMENTS The Audit Committee has determined to take additional measures on an annual basis to meet its responsibility to oversee the work of the Independent Auditors and to assure the auditor's independence from the Fund, such as reviewing a formal written statement from the Independent Auditors delineating all relationships between the Independent Auditors and the Fund, consistent with Independence Standards Board No. 1, and discussing with the Independent Auditors its methods and procedures for ensuring independence. 10. COVERED ENTITIES Covered Entities include the Fund's investment adviser(s) and any entity controlling, controlled by or under common control with the Fund's investment adviser(s) that provides ongoing services to the Fund(s). Beginning with non-audit service contracts entered into on or after May 6, 2003, the Fund's audit committee must pre-approve non-audit services provided not only to the Fund but also to the Covered Entities if the engagements relate directly to the operations and financial reporting of the Fund. This list of Covered Entities would include: Morgan Stanley Retail Funds Morgan Stanley Investment Advisors Inc. Morgan Stanley & Co. Incorporated Morgan Stanley DW Inc. Morgan Stanley Investment Management Inc. Morgan Stanley Investment Management Limited Morgan Stanley Investment Management Private Limited Morgan Stanley Asset & Investment Trust Management Co., Limited Morgan Stanley Investment Management Company Van Kampen Asset Management Morgan Stanley Services Company, Inc. Morgan Stanley Distributors Inc. Morgan Stanley Trust FSB 7 Morgan Stanley Institutional Funds Morgan Stanley Investment Management Inc. Morgan Stanley Investment Advisors Inc. Morgan Stanley Investment Management Limited Morgan Stanley Investment Management Private Limited Morgan Stanley Asset & Investment Trust Management Co., Limited Morgan Stanley Investment Management Company Morgan Stanley & Co. Incorporated Morgan Stanley Distribution, Inc. Morgan Stanley AIP GP LP Morgan Stanley Alternative Investment Partners LP (e)(2) Beginning with non-audit service contracts entered into on or after May 6, 2003, the audit committee also is required to pre-approve services to Covered Entities to the extent that the services are determined to have a direct impact on the operations or financial reporting of the Registrant. 100% of such services were pre-approved by the audit committee pursuant to the Audit Committee's pre-approval policies and procedures (attached hereto). (f) Not applicable. (g) See table above. (h) The audit committee of the Board of Trustees has considered whether the provision of services other than audit services performed by the auditors to the Registrant and Covered Entities is compatible with maintaining the auditors' independence in performing audit services. Item 5. Audit Committee of Listed Registrants. (a) The Fund has a separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Exchange Act whose members are: Michael Bozic, Edwin J. Garn, Wayne E. Hedien, Manual H. Johnson, Joseph J. Kearns, Michael Nugent and Fergus Reid. (b) Not applicable. Item 6. See Item 1. 8 Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. The Fund invests in exclusively non-voting securities and therefore this item is not applicable. Item 8. Portfolio Managers of Closed-End Management Investment Companies FUND MANAGEMENT PORTFOLIO MANAGEMENT. As of the date of this report, the Fund is managed by members of the Municipal Fixed Income team. The team consists of portfolio managers and analysts. Current members of the team jointly and primarily responsible for the day-to-day management of the Fund's portfolio are James F. Willison, a Managing Director of the Investment Adviser, Joseph R. Arcieri, an Executive Director of the Investment Adviser and Robert W. Wimmel and Robert J. Stryker, Vice Presidents of the Investment Adviser. Mr. Willison has been associated with the Investment Adviser in an investment management capacity since January 1980 and began managing the Fund at inception. Mr. Arcieri has been associated with the Investment Adviser in an investment management capacity since January 1986 and began managing the Fund in February 1997. Mr. Wimmel has been associated with the Investment Adviser in an investment management capacity since August 1996 and began managing the Fund in January 2002. Mr. Stryker has been associated with the Investment Adviser in an investment management capacity since February 1994 and began managing the Fund in July 2005. The composition of the team may change without notice from time to time. OTHER ACCOUNTS MANAGED BY THE PORTFOLIO MANAGERS The following information is as of May 31, 2006. As of May 31, 2006, Mr. Willison managed 22 mutual funds with a total of approximately $7.3 billion in assets; no pooled investment vehicles other than mutual funds; and no other accounts. As of May 31, 2006, Mr. Arcieri managed 21 mutual funds with a total of approximately $6.7 billion in assets; no pooled investment vehicles other than mutual funds; and no other accounts. As of May 31, 2006, Mr. Wimmel managed 25 mutual funds with a total of approximately $12.6 billion in assets; no pooled investment vehicles other than mutual funds; and no other accounts. 9 As of May 31, 2006, Mr. Stryker managed 14 mutual funds with a total of approximately $7.1 billion in assets; no pooled investment vehicles other than mutual funds; and no other accounts. Because the portfolio managers may manage assets for other investment companies, pooled investment vehicles, and/or other accounts (including institutional clients, pension plans and certain high net worth individuals), there may be an incentive to favor one client over another resulting in conflicts of interest. For instance, the Investment Adviser may receive fees from certain accounts that are higher than the fee it receives from the Fund, or it may receive a performance-based fee on certain accounts. In those instances, the portfolio manager may have an incentive to favor the higher and/or performance-based fee accounts over the Fund. The Investment Adviser has adopted trade allocation and other policies and procedures that it believes are reasonably designed to address these and other conflicts of interest. PORTFOLIO MANAGER COMPENSATION STRUCTURE Portfolio managers receive a combination of base compensation and discretionary compensation, comprising of a cash bonus and several deferred compensation programs described below. The methodology used to determine portfolio manager compensation is applied across all funds/accounts managed by the portfolio manager. Base salary compensation. Generally, portfolio managers receive base salary compensation based on the level of their position with the Investment Adviser. Discretionary compensation. In addition to base compensation, portfolio managers may receive discretionary compensation. Discretionary compensation can include: - - Cash Bonus. - - Morgan Stanley's Equity Incentive Compensation Program (EICP) awards -- a mandatory program that defers a portion of discretionary year-end compensation into restricted stock units or other awards based on Morgan Stanley common stock that are subject to vesting and other conditions. - - Investment Management Deferred Compensation Plan (IMDCP) awards -- a mandatory program that defers a portion of discretionary year-end compensation and notionally invests it in designated Funds advised by the Investment Adviser or its affiliates. The award is subject to vesting and other conditions. Portfolio managers must notionally invest a minimum of 25% to a maximum of 75% of the IMDCP deferral into a combination of the designated open-end mutual funds they manage that are included in the IMDCP Fund menu, which may or may not include the Fund. 10 - - Voluntary Deferred Compensation Plans -- voluntary programs that permit certain employees to elect to defer a portion of their discretionary year-end compensation and directly or notionally invest the deferred amount: (1) across a range of designated investment Funds, including Funds advised by the Investment Adviser or its affiliates; and/or (2) in Morgan Stanley stock units. Several factors determine discretionary compensation, which can vary by portfolio management team and circumstances. In order of relative importance, these factors include: - - Investment performance. A portfolio manager's compensation is linked to the pre-tax investment performance of the funds/accounts managed by the portfolio manager. Investment performance is calculated for one-, three- and five-year periods measured against a fund's/account's primary benchmark, indices and/or peer groups where applicable. Generally, the greatest weight is placed on the three- and five-year periods. - - Revenues generated by the investment companies, pooled investment vehicles and other accounts managed by the portfolio manager. - - Contribution to the business objectives of the Investment Adviser. - - The dollar amount of assets managed by the portfolio manager. - - Market compensation survey research by independent third parties. - - Other qualitative factors, such as contributions to client objectives. - - Performance of Morgan Stanley and Morgan Stanley Investment Management, and the overall performance of the investment team(s) of which the portfolio manager is a member. SECURITIES OWNERSHIP OF PORTFOLIO MANAGERS (1) As of May 31, 2005, the portfolio managers did not own any shares of the Fund. 11 Item 9. Closed-End Fund Repurchases REGISTRANT PURCHASE OF EQUITY SECURITIES
(a) (d) Maximum Total Number Number (or of Shares Approximate (or Units) Dollar Value) Purchased as of Shares (or (a) Total Part of Units) that Number of (b) Average Publicly May Yet Be Shares Price Paid Announced Purchased Under (or Units) per Share Plans or the Plans or Period Purchased (or Unit) Programs Programs - ------ ---------- ----------- ------------- --------------- June 1, 2005 -- June 30, 2005 73,500 $9.1312 N/A N/A July 1, 2005-- July 31, 2005 77,500 $9.2127 N/A N/A August 1, 2005- August 31, 2005 52,100 $9.2428 N/A N/A September 1, 2005-- September 30, 2005 52,000 $9.2467 N/A N/A October 1, 2005- October 31, 2005 42,700 $9.0006 N/A N/A November 1, 2005 -- November 30, 2005 46,000 $8.9077 N/A N/A December 1, 2005-- December 31, 2005 51,100 $8.9989 N/A N/A January 1, 2006-- January 31, 2006 57,500 $9.2384 N/A N/A February 1, 2006 - February 28, 2006 44,100 $9.2559 N/A N/A March 1, 2006 - March 31, 2006 62,900 $9.3064 N/A N/A April 1, 2006 - April 30, 2006 65,600 $9.2901 N/A N/A May 1, 2006 - May 31, 2006 51,300 $9.2068 N/A N/A ------- ------- --- --- Total 676,300 $9.1698 N/A N/A ======= ======= === ===
12 Item 10. Submission of Matters to a Vote of Security Holders Not applicable. Item 11. Controls and Procedures (a) 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. (b) There were no changes in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. Item 12. Exhibits (a) The Code of Ethics for Principal Executive and Senior Financial Officers is attached hereto. (b) A separate certification for each principal executive officer and principal financial officer of the registrant are attached hereto as part of EX-99.CERT. 13 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 /s/ Ronald E. Robison - ------------------------------------- Ronald E. Robison Principal Executive Officer July 20, 2006 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. /s/ Ronald E. Robison - ------------------------------------- Ronald E. Robison Principal Executive Officer July 20, 2006 /s/ Francis Smith - ------------------------------------- Francis Smith Principal Financial Officer July 20, 2006 14 EX-99.CODE ETH 2 y22094exv99wcodeeth.txt CODE OF ETHICS EXHIBIT 12 A CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS ADOPTED SEPTEMBER 28, 2004, AS AMENDED SEPTEMBER 20, 2005 I. This Code of Ethics (the "Code") for the investment companies within the Morgan Stanley complex identified in Exhibit A (collectively, "Funds" and each, a "Fund") applies to each Fund's Principal Executive Officer, President, Principal Financial Officer and Treasurer (or persons performing similar functions) ("Covered Officers" each of whom are set forth in Exhibit B) for the purpose of promoting: - honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships. - full, fair, accurate, timely and understandable disclosure in reports and documents that a company files with, or submits to, the Securities and Exchange Commission ("SEC") and in other public communications made by the Fund; - compliance with applicable laws and governmental rules and regulations; - prompt internal reporting of violations of the Code to an appropriate person or persons identified in the Code; and - accountability for adherence to the Code. Each Covered Officer should adhere to a high standard of business ethics and should be sensitive to situations that may give rise to actual as well as apparent conflicts of interest. Any question about the application of the Code should be referred to the General Counsel or his/her designee (who is set forth in Exhibit C). II. COVERED OFFICERS SHOULD HANDLE ETHICALLY ACTUAL AND APPARENT CONFLICTS OF INTEREST OVERVIEW. A "conflict of interest" occurs when a Covered Officer's private interest interferes, or appears to interfere, with the interests of, or his service to, the Fund. For example, a conflict of interest would arise if a Covered Officer, or a member of his family, receives improper personal benefits as a result of his position with the Fund. Certain conflicts of interest arise out of the relationships between Covered Officers and the Fund and already are subject to conflict of interest provisions in the 15 Investment Company Act of 1940 ("Investment Company Act") and the Investment Advisers Act of 1940 ("Investment Advisers Act"). For example, Covered Officers may not individually engage in certain transactions (such as the purchase or sale of securities or other property) with the Fund because of their status as "affiliated persons" (as defined in the Investment Company Act) of the Fund. The Fund's and its investment adviser's compliance programs and procedures are designed to prevent, or identify and correct, violations of these provisions. This Code does not, and is not intended to, repeat or replace these programs and procedures, and such conflicts fall outside the parameters of this Code, unless or until the General Counsel determines that any violation of such programs and procedures is also a violation of this Code. Although typically not presenting an opportunity for improper personal benefit, conflicts may arise from, or as a result of, the contractual relationship between the Fund and its investment adviser of which the Covered Officers are also officers or employees. As a result, this Code recognizes that the Covered Officers will, in the normal course of their duties (whether formally for the Fund or for the investment adviser, or for both), be involved in establishing policies and implementing decisions that will have different effects on the Fund and its investment adviser. The participation of the Covered Officers in such activities is inherent in the contractual relationship between the Fund and the investment adviser and is consistent with the performance by the Covered Officers of their duties as officers of the Fund. Thus, if performed in conformity with the provisions of the Investment Company Act and the Investment Advisers Act, such activities will be deemed to have been handled ethically. In addition, it is recognized by the Funds' Boards of Directors/Trustees ("Boards") that the Covered Officers may also be officers or employees of one or more other investment companies covered by this or other codes. Other conflicts of interest are covered by the Code, even if such conflicts of interest are not subject to provisions in the Investment Company Act and the Investment Advisers Act. The following list provides examples of conflicts of interest under the Code, but Covered Officers should keep in mind that these examples are not exhaustive. The overarching principle is that the personal interest of a Covered Officer should not be placed improperly before the interest of the Fund. Each Covered Officer must not: - use his personal influence or personal relationships improperly to influence investment decisions or financial reporting by the Fund whereby the Covered Officer would benefit personally (directly or indirectly); - cause the Fund to take action, or fail to take action, for the individual personal benefit of the Covered Officer rather than the benefit of the Fund; or - use material non-public knowledge of portfolio transactions made or contemplated for, or actions proposed to be taken by, the Fund to trade personally or cause others to trade personally in contemplation of the market effect of such transactions. 16 Each Covered Officer must, at the time of signing this Code, report to the General Counsel all affiliations or significant business relationships outside the Morgan Stanley complex and must update the report annually. Conflict of interest situations should always be approved by the General Counsel and communicated to the relevant Fund or Fund's Board. Any activity or relationship that would present such a conflict for a Covered Officer would likely also present a conflict for the Covered Officer if an immediate member of the Covered Officer's family living in the same household engages in such an activity or has such a relationship. Examples of these include: - service or significant business relationships as a director on the board of any public or private company; - accepting directly or indirectly, anything of value, including gifts and gratuities in excess of $100 per year from any person or entity with which the Fund has current or prospective business dealings, not including occasional meals or tickets for theatre or sporting events or other similar entertainment; provided it is business-related, reasonable in cost, appropriate as to time and place, and not so frequent as to raise any question of impropriety; - any ownership interest in, or any consulting or employment relationship with, any of the Fund's service providers, other than its investment adviser, principal underwriter, or any affiliated person thereof; and - a direct or indirect financial interest in commissions, transaction charges or spreads paid by the Fund for effecting portfolio transactions or for selling or redeeming shares other than an interest arising from the Covered Officer's employment, such as compensation or equity ownership. III. DISCLOSURE AND COMPLIANCE - Each Covered Officer should familiarize himself/herself with the disclosure and compliance requirements generally applicable to the Funds; - each Covered Officer must not knowingly misrepresent, or cause others to misrepresent, facts about the Fund to others, whether within or outside the Fund, including to the Fund's Directors/Trustees and auditors, or to governmental regulators and self-regulatory organizations; - each Covered Officer should, to the extent appropriate within his area of responsibility, consult with other officers and employees of the Funds and their investment advisers with the goal of promoting full, fair, accurate, timely and understandable disclosure in the reports and documents the Funds file with, or submit to, the SEC and in other public communications made by the Funds; and 17 - it is the responsibility of each Covered Officer to promote compliance with the standards and restrictions imposed by applicable laws, rules and regulations. IV. REPORTING AND ACCOUNTABILITY Each Covered Officer must: - upon adoption of the Code (thereafter as applicable, upon becoming a Covered Officer), affirm in writing to the Boards that he has received, read and understands the Code; - annually thereafter affirm to the Boards that he has complied with the requirements of the Code; - not retaliate against any other Covered Officer, other officer or any employee of the Funds or their affiliated persons for reports of potential violations that are made in good faith; and - notify the General Counsel promptly if he/she knows or suspects of any violation of this Code. Failure to do so is itself a violation of this Code. The General Counsel is responsible for applying this Code to specific situations in which questions are presented under it and has the authority to interpret this Code in any particular situation. However, any waivers(2) sought by a Covered Officer must be considered by the Board of the relevant Fund or Funds. The Funds will follow these procedures in investigating and enforcing this Code: - the General Counsel will take all appropriate action to investigate any potential violations reported to him; - if, after such investigation, the General Counsel believes that no violation has occurred, the General Counsel is not required to take any further action; - any matter that the General Counsel believes is a violation will be reported to the relevant Fund's Audit Committee; - if the directors/trustees/managing general partners who are not "interested persons" as defined by the Investment Company Act (the "Independent Directors/Trustees/Managing General Partners") of the relevant Fund concur that a violation has occurred, they will consider appropriate action, - ---------- (2) Item 2 of Form N-CSR defines "waiver" as "the approval by the registrant of a material departure from a provision of the code of ethics." 18 which may include review of, and appropriate modifications to, applicable policies and procedures; notification to appropriate personnel of the investment adviser or its board; or a recommendation to dismiss the Covered Officer or other appropriate disciplinary actions; - the Independent Directors/Trustees/Managing General Partners of the relevant Fund will be responsible for granting waivers of this Code, as appropriate; and - any changes to or waivers of this Code will, to the extent required, be disclosed as provided by SEC rules. V. OTHER POLICIES AND PROCEDURES This Code shall be the sole code of ethics adopted by the Funds for purposes of Section 406 of the Sarbanes-Oxley Act of 2002 and the rules and forms applicable to registered investment companies thereunder. Insofar as other policies or procedures of the Funds, the Funds' investment advisers, principal underwriters, or other service providers govern or purport to govern the behavior or activities of the Covered Officers who are subject to this Code, they are superseded by this Code to the extent that they overlap or conflict with the provisions of this Code unless any provision of this Code conflicts with any applicable federal or state law, in which case the requirements of such law will govern. The Funds' and their investment advisers' and principal underwriters' codes of ethics under Rule 17j-1 under the Investment Company Act and Morgan Stanley's Code of Ethics are separate requirements applying to the Covered Officers and others, and are not part of this Code. VI. AMENDMENTS Any amendments to this Code, other than amendments to Exhibits A, B or C, must be approved or ratified by a majority vote of the Board of each Fund, including a majority of Independent Directors/Trustees/Managing General Partners. VII. CONFIDENTIALITY All reports and records prepared or maintained pursuant to this Code will be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law or this Code, such matters shall not be disclosed to anyone other than the Independent Directors/Trustees/Managing General Partners of the relevant Fund or Funds and their counsel, the relevant Fund or Funds and their counsel and the relevant investment adviser and its counsel. 19 VIII. INTERNAL USE The Code is intended solely for the internal use by the Funds and does not constitute an admission, by or on behalf of any Fund, as to any fact, circumstance, or legal conclusion I have read and understand the terms of the above Code. I recognize the responsibilities and obligations incurred by me as a result of my being subject to the Code. I hereby agree to abide by the above Code. - -------------------------- Date: -------------------- 20 EXHIBIT A FUND LIST AT JUNE 23, 2006 RETAIL FUNDS OPEN-END RETAIL FUNDS TAXABLE MONEY MARKET FUNDS 1. Active Assets Government Securities Trust ("AA Government") 2. Active Assets Institutional Government Securities Trust ("AA Institutional Government") 3. Active Assets Institutional Money Trust ("AA Institutional Money") 4. Active Assets Money Trust ("AA Money") 5. Morgan Stanley Liquid Asset Fund Inc. ("Liquid Asset") 6. Morgan Stanley U.S. Government Money Market Trust ("Government Money") TAX-EXEMPT MONEY MARKET FUNDS 7. Active Assets California Tax-Free Trust ("AA California") 8. Active Assets Tax-Free Trust ("AA Tax-Free") 9. Morgan Stanley California Tax-Free Daily Income Trust ("California Tax-Free Daily") 10. Morgan Stanley New York Municipal Money Market Trust ("New York Money") 11. Morgan Stanley Tax-Free Daily Income Trust ("Tax-Free Daily") EQUITY FUNDS 12. Morgan Stanley Aggressive Equity Fund ("Aggressive Equity")+ 13. Morgan Stanley Allocator Fund ("Allocator Fund")+ 14. Morgan Stanley American Opportunities Fund ("American Opportunities")+ 15. Morgan Stanley Capital Opportunities Trust ("Capital Opportunities")+ 16. Morgan Stanley Developing Growth Securities Trust ("Developing Growth")+ 17. Morgan Stanley Dividend Growth Securities Inc. ("Dividend Growth")+ 18. Morgan Stanley Equally-Weighted S&P 500 Fund ("Equally-Weighted S&P 500")+ 19. Morgan Stanley European Equity Fund Inc. ("European Equity")+ 20. Morgan Stanley Financial Services Trust ("Financial Services")+ 21. Morgan Stanley Fundamental Value Fund ("Fundamental Value")+ 21 22. Morgan Stanley Global Advantage Fund ("Global Advantage")+ 23. Morgan Stanley Global Dividend Growth Securities ("Global Dividend Growth")+ 24. Morgan Stanley Global Utilities Fund ("Global Utilities")+ 25. Morgan Stanley Growth Fund ("Growth Fund")+ 26. Morgan Stanley Health Sciences Trust ("Health Sciences")+ 27. Morgan Stanley Income Builder Fund ("Income Builder")+ 28. Morgan Stanley Information Fund ("Information Fund")+ 29. Morgan Stanley International Fund ("International Fund")+ 30. Morgan Stanley International SmallCap Fund ("International SmallCap")+ 31. Morgan Stanley International Value Equity Fund ("International Value")+ 32. Morgan Stanley Japan Fund ("Japan Fund")+ 33. Morgan Stanley Mid-Cap Value Fund (Mid-Cap Value")+ 34. Morgan Stanley Multi-Asset Class Fund ("Multi-Asset Class")+ 35. Morgan Stanley Nasdaq-100 Index Fund ("Nasdaq-100")+ 36. Morgan Stanley Natural Resource Development Securities Inc. ("Natural Resource")+ 37. Morgan Stanley Pacific Growth Fund Inc. ("Pacific Growth")+ 38. Morgan Stanley Real Estate Fund ("Real Estate")+ 39. Morgan Stanley Small-Mid Special Value Fund (Small-Mid Special Value")+ 40. Morgan Stanley S&P 500 Index Fund ("S&P500 Index")+ 41. Morgan Stanley Special Growth Fund ("Special Growth")+ 42. Morgan Stanley Special Value Fund ("Special Value")+ 43. Morgan Stanley Total Market Index Fund ("Total Market Index")+ 44. Morgan Stanley Total Return Trust ("Total Return")+ 45. Morgan Stanley Utilities Fund ("Utilities Fund")+ 46. Morgan Stanley Value Fund ("Value Fund")+ BALANCED FUNDS 47. Morgan Stanley Balanced Growth Fund ("Balanced Growth")+ 48. Morgan Stanley Balanced Income Fund ("Balanced Income")+ ASSET ALLOCATION FUND 49. Morgan Stanley Strategist Fund ("Strategist Fund")+ TAXABLE FIXED-INCOME FUNDS 50. Morgan Stanley Convertible Securities Trust ("Convertible Securities")+ 51. Morgan Stanley Flexible Income Trust ("Flexible Income")+ 52. Morgan Stanley Income Trust ("Income Trust")+ 53. Morgan Stanley High Yield Securities Inc. ("High Yield Securities")+ 54. Morgan Stanley Limited Duration Fund ("Limited Duration Fund") 55. Morgan Stanley Mortgage Securities Trust ("Mortgage Securities")+ 56. Morgan Stanley Limited Duration U.S. Treasury Trust ("Limited Duration Treasury") 57. Morgan Stanley Total Return Income Securities Fund ("Total Return Income")+ 22 58. Morgan Stanley U.S. Government Securities Trust ("Government Securities")+ TAX-EXEMPT FIXED-INCOME FUNDS 59. Morgan Stanley California Tax-Free Income Fund ("California Tax-Free")+ 60. Morgan Stanley Limited Term Municipal Trust ("Limited Term Municipal") 61. Morgan Stanley New York Tax-Free Income Fund ("New York Tax-Free")+ 62. Morgan Stanley Tax-Exempt Securities Trust ("Tax-Exempt Securities")+ SPECIAL PURPOSE FUNDS 63. Morgan Stanley Select Dimensions Investment Series ("Select Dimensions") - American Opportunities Portfolio - Balanced Growth Portfolio - Capital Opportunities Portfolio - Developing Growth Portfolio - Dividend Growth Portfolio - Equally-Weighted S&P 500 Portfolio - Flexible Income Portfolio - Global Equity Portfolio - Growth Portfolio - Money Market Portfolio - Utilities Portfolio 64. Morgan Stanley Variable Investment Series ("Variable Investment") - Aggressive Equity Portfolio - Dividend Growth Portfolio - Equity Portfolio - European Equity Portfolio - Global Advantage Portfolio - Global Dividend Growth Portfolio - High Yield Portfolio - Income Builder Portfolio - Limited Duration Portfolio - Money Market Portfolio - Income Plus Portfolio - S&P 500 Index Portfolio - Strategist Portfolio - Utilities Portfolio CLOSED-END RETAIL FUNDS TAXABLE FIXED-INCOME CLOSED-END FUNDS 23 65. Morgan Stanley Government Income Trust ("Government Income") 66. Morgan Stanley Income Securities Inc. ("Income Securities") 67. Morgan Stanley Prime Income Trust ("Prime Income") TAX-EXEMPT FIXED-INCOME CLOSED-END FUNDS 68. Morgan Stanley California Insured Municipal Income Trust ("California Insured Municipal") 69. Morgan Stanley California Quality Municipal Securities ("California Quality Municipal") 70. Morgan Stanley Insured California Municipal Securities ("Insured California Securities") 71. Morgan Stanley Insured Municipal Bond Trust ("Insured Municipal Bond") 72. Morgan Stanley Insured Municipal Income Trust ("Insured Municipal Income") 73. Morgan Stanley Insured Municipal Securities ("Insured Municipal Securities") 74. Morgan Stanley Insured Municipal Trust ("Insured Municipal Trust") 75. Morgan Stanley Municipal Income Opportunities Trust ("Municipal Opportunities") 76. Morgan Stanley Municipal Income Opportunities Trust II ("Municipal Opportunities II") 77. Morgan Stanley Municipal Income Opportunities Trust III ("Municipal Opportunities III") 78. Morgan Stanley Municipal Premium Income Trust ("Municipal Premium") 79. Morgan Stanley New York Quality Municipal Securities ("New York Quality Municipal") 80. Morgan Stanley Quality Municipal Income Trust ("Quality Municipal Income") 81. Morgan Stanley Quality Municipal Investment Trust ("Quality Municipal Investment") 82. Morgan Stanley Quality Municipal Securities ("Quality Municipal Securities") +- Denotes Retail Multi-Class Fund INSTITUTIONAL FUNDS OPEN-END INSTITUTIONAL FUNDS 1. Morgan Stanley Institutional Fund, Inc. ("Institutional Fund Inc.") Active Portfolios: - Active International Allocation Portfolio - Emerging Markets Portfolio - Emerging Markets Debt Portfolio - Equity Growth Portfolio - European Real Estate Portfolio - Focus Equity Portfolio - Global Franchise Portfolio 24 - Global Value Equity Portfolio - International Equity Portfolio - International Magnum Portfolio - International Small Cap Portfolio - Money Market Portfolio - Municipal Money Market Portfolio - Small Company Growth Portfolio - U.S. Real Estate Portfolio - Value Equity Portfolio Inactive Portfolios*: - China Growth Portfolio - Gold Portfolio - Large Cap Relative Value Portfolio - MicroCap Portfolio - Mortgage-Backed Securities Portfolio - Municipal Bond Portfolio - U.S. Equity Plus Portfolio 2. Morgan Stanley Institutional Fund Trust ("Institutional Fund Trust") Active Portfolios: - Advisory Foreign Fixed Income II Portfolio - Advisory Foreign Fixed Income Portfolio - Advisory Mortgage Portfolio - Balanced Portfolio - Core Plus Fixed Income Portfolio - Equity Portfolio - High Yield Portfolio - Intermediate Duration Portfolio - International Fixed Income Portfolio - Investment Grade Fixed Income Portfolio - Limited Duration Portfolio - Mid-Cap Growth Portfolio - Municipal Portfolio - U.S. Core Fixed Income Portfolio - U.S. Mid-Cap Value Portfolio - U.S. Small-Cap Value Portfolio - Value Portfolio - ---------- * Have not commenced or have ceased operations 25 Inactive Portfolios*: - Balanced Plus Portfolio - Growth Portfolio - Investment Grade Credit Advisory Portfolio - Mortgage Advisory Portfolio - New York Municipal Portfolio - Targeted Duration Portfolio - Value II Portfolio 3. The Universal Institutional Funds, Inc. ("Universal Funds") Active Portfolios: - Core Plus Fixed Income Portfolio - Emerging Markets Debt Portfolio - Emerging Markets Equity Portfolio - Equity and Income Portfolio - Equity Growth Portfolio - Global Franchise Portfolio - Global Value Equity Portfolio - High Yield Portfolio - International Magnum Portfolio - Mid-Cap Growth Portfolio - Money Market Portfolio - Small Company Growth Portfolio - Technology Portfolio - U.S. Mid-Cap Value Portfolio - U.S. Real Estate Portfolio - Value Portfolio Inactive Portfolios*: - Balanced Portfolio - Capital Preservation Portfolio - Core Equity Portfolio - International Fixed Income Portfolio - Investment Grade Fixed Income Portfolio - Latin American Portfolio - Multi-Asset Class Portfolio - Targeted Duration Portfolio 4. Morgan Stanley Institutional Liquidity Funds ("Liquidity Funds") - ---------- 26 Active Portfolios: - Government Portfolio - Money Market Portfolio - Prime Portfolio - Tax-Exempt Portfolio - Treasury Portfolio Inactive Portfolios*: - Government Securities Portfolio - Treasury Securities Portfolio CLOSED-END INSTITUTIONAL FUNDS 5. Morgan Stanley Asia-Pacific Fund, Inc. ("Asia-Pacific Fund") 6. Morgan Stanley Eastern Europe Fund, Inc. ("Eastern Europe") 7. Morgan Stanley Emerging Markets Debt Fund, Inc. ("Emerging Markets Debt") 8. Morgan Stanley Emerging Markets Fund, Inc. ("Emerging Markets Fund") 9. Morgan Stanley Global Opportunity Bond Fund, Inc. ("Global Opportunity") 10. Morgan Stanley High Yield Fund, Inc. ("High Yield Fund") 11. The Latin American Discovery Fund, Inc. ("Latin American Discovery") 12 The Malaysia Fund, Inc. ("Malaysia Fund") 13. The Thai Fund, Inc. ("Thai Fund") 14. The Turkish Investment Fund, Inc. ("Turkish Investment") CLOSED-END FUND OF HEDGE FUNDS 15. Morgan Stanley Institutional Fund of Hedge Funds ("Fund of Hedge Funds") IN REGISTRATION MORGAN STANLEY RETAIL FUNDS 1. Morgan Stanley American Franchise Fund FUNDS OF HEDGE FUNDS 1. Morgan Stanley Absolute Return Fund 2. Morgan Stanley Institutional Fund of Hedge Funds II - ---------- * Have not commenced or have ceased operations 27 EXHIBIT B INSTITUTIONAL FUNDS COVERED OFFICERS Ronald E. Robison -President and Principal Executive Officer James W. Garrett - Chief Financial Officer and Treasurer RETAIL FUNDS COVERED OFFICERS Ronald E. Robison -President and Principal Executive Officer Francis Smith - Chief Financial Officer and Treasurer MORGAN STANLEY INDIA INVESTMENT FUND, INC. COVERED OFFICERS Ronald E. Robison - President and Principal Executive Officer James W. Garrett - Chief Financial Officer and Treasurer 28 EXHIBIT C GENERAL COUNSEL Barry Fink 29 EX-99.CERT 3 y22094exv99wcert.txt CERTIFICATION EXHIBIT 12 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-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): 30 a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; 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 over financial reporting. Date: July 20, 2006 /s/ Ronald E. Robison ---------------------------------------- Ronald E. Robison Principal Executive Officer 31 EXHIBIT 12 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-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): 32 a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; 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 over financial reporting. Date: July 20, 2006 /s/ Francis Smith ---------------------------------------- Francis Smith Principal Financial Officer 33 EX-99.906CERT 4 y22094exv99w906cert.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, 2006 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 20, 2006 /s/ Ronald E. Robison ---------------------------------------- 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. 34 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, 2006 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 20, 2006 /s/ Francis Smith ---------------------------------------- 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. 35 -----END PRIVACY-ENHANCED MESSAGE-----