-----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, Re/woYIV2SqEgbvTR62A/v3uAicVFQnY4jsBDLRWb2Ja1vdMlfpxK8IgaOSUbRWd 5vQj0tc0wM1qYaBcYZzlyQ== 0000950123-07-001560.txt : 20070208 0000950123-07-001560.hdr.sgml : 20070208 20070208122242 ACCESSION NUMBER: 0000950123-07-001560 CONFORMED SUBMISSION TYPE: N-CSRS PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20061130 FILED AS OF DATE: 20070208 DATE AS OF CHANGE: 20070208 EFFECTIVENESS DATE: 20070208 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-CSRS SEC ACT: 1940 Act SEC FILE NUMBER: 811-05688 FILM NUMBER: 07591259 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-CSRS 1 y27887nvcsrs.txt FORM 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, 2007 Date of reporting period: November 30, 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 semiannual 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 six months ended November 30, 2006 MARKET CONDITIONS The Federal Open Market Committee's (the "Fed") increase in the target federal funds rate in June was the last in a series of 17 consecutive rate increases over a two-year period. Slower economic growth and weaker consumer spending and housing data in the months that followed prompted the Fed to keep its target rate unchanged at 5.25 percent for the remainder of the fiscal period. The change in the Fed's stance led to a rally in the municipal bond market, with long-term tax-exempt yields reaching record lows. Yields on 30-year AAA-rated municipal bonds declined from 4.55 percent at the beginning of the reporting period to 3.90 percent by the end of November 2006. In contrast, shorter-term municipal bond yields continued to reflect earlier Fed rate hikes and, as a result, remained relatively unchanged during the period. Representative yields on two-year AAA municipal bonds declined only 15 basis points during the period, from 3.60 percent to 3.45 percent. Accordingly, the spread between long-term and short-term municipal yields narrowed, causing the slope of the municipal yield curve to dramatically flatten. Many investors continued to favor the higher income of lower-quality bonds and as such, credit spreads remained tight. Credit spreads measure the additional yield investors require to assume more credit risk. When credit spreads tighten, lower-quality issues typically outperform high-grade issues. Continued interest in the municipal market by institutional investors and non-traditional buyers, such as hedge fund and arbitrage accounts, strengthened demand for municipal bonds. Although municipal bond issuance in 2006 has lagged last year's record pace, declining interest rates in the latter half of this year spurred a rebound in issuance. As a result, year-to-date new issue volume is only down 15 percent versus last year. Issuers in California, Texas, Florida, New York and Illinois accounted for about 40 percent of 2006 year-to-date underwriting volume. Strong demand helped municipal bond performance keep pace with that of Treasuries. The municipal-to-Treasury yield ratio measures the relative attractiveness of the two sectors. During the six-month reporting period, the 30-year municipal-to-Treasury yield ratio remained in the 85-to-87 percent range. In comparison, this yield ratio reached a high of 102 percent in 2005. A decline in this ratio indicates that municipals outperformed Treasuries while at the same time becoming richer (less attractive) on a relative basis. 2 PERFORMANCE ANALYSIS For the six-month period ended November 30, 2006, the net asset value (NAV) of Morgan Stanley Municipal Premium Income Fund (PIA) increased from $10.13 to $10.48 per share. The Fund's total NAV return which includes the reinvestment of tax-free dividends totaling $0.26 per share, the Fund's total NAV return was 6.39 percent. PIA's value on the New York Stock Exchange (NYSE) moved from $9.12 to $9.69 per share during the same period. Based on this change plus reinvestment of dividends, the Fund's total market return was 9.16 percent. PIA's NYSE market price was at a 7.63 percent discount to its NAV. During the fiscal period, the Fund purchased and retired 232,400 shares of common stock at a weighted average market discount of 8.11 percent. Past performance is no guarantee of future results. Monthly dividends for the fourth quarter of 2006, declared in September, decreased from $0.045 to $0.040 per share. The dividend reflects the current level of the Fund's net investment income. PIA's level of undistributed net investment income was $0.0675 per share on November 30, 2006 versus $0.0940 per share six months earlier.(1) During the reporting period, the Fund's interest-rate posture continued to reflect the anticipation of higher rates. To implement this strategy of reducing the portfolio's duration, U.S. Treasury futures hedges and a BMA (Bond Market Association) interest-rate swap were used. As a result, at the end of November, the Fund's option-adjusted duration* (a measure of interest-rate sensitivity), including leverage, was positioned at 10.1 years. Although this duration strategy helped enhance the Fund's total returns when interest rates rose, it later tempered returns as rates declined. Purchases during the period favored bonds with maturities of 20 years or longer. The Fund benefited from its emphasis on the long end of the yield curve, as this segment of the market performed strongly. The Fund maintained its high quality bias with nearly 80 percent of the portfolio rated A or better. Exposure to investment grade bonds rated BBB was modestly increased by purchases of tobacco securitization bonds in the industrial development/pollution control sector. This had a positive impact on performance as lower-rated issues generally outperformed higher-quality issues. Another boost to performance came from issues that appreciated when they were prerefunded. Reflecting a commitment to diversification, the Fund's net assets of approximately $280 million, including preferred shares, were invested among 15 long-term sectors and 88 credits. As of the close of the period, the Fund's largest allocations were to the water & sewer, transportation and hospital sectors. As discussed in previous reports, the total income available for distribution to holders of common shares includes incremental income provided by the Fund's outstanding Auction Rate Preferred Shares (ARPS). ARPS dividends reflect prevailing short-term interest rates on maturities ranging from one week to two years. Incremental income to holders of common shares depends on two factors: the amount of ARPS outstanding and the spread between the portfolio's 3 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 Fed's two-year campaign of interest rate increases made the cost of ARPS more expensive, which reduced the benefits of leverage. During the six-month reporting period, ARPS leverage contributed approximately $0.03 per share to common-share earnings. The Fund had five ARPS series totaling $100 million, representing 35 percent of net assets, including preferred shares. Weekly ARPS rates ranged from 3.50 to 3.90 percent during the fiscal period. The Trustees have approved a procedure whereby the Trust may, when appropriate, repurchase its shares in the open market or in privately negotiated transactions at a price not above market value or NAV, whichever is lower at the time of purchase. This may help support the market value of the Trust's shares. 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 are adjusted for leverage. 4
TOP FIVE SECTORS Water & Sewer 27.1% Transportation 26.1 Hospital 20.3 IDR/PCR** 19.7 Electric 13.4
LONG-TERM CREDIT ANALYSIS Aaa/AAA 57.7% Aa/AA 14.0 A/A 7.8 Baa/BBB 14.2 Ba/BB 1.8 N/R 4.5
- --------------------- ** Industrial Development/Pollution Control Revenue Data as of November 30, 2006. Subject to change daily. All percentages for top five sectors are as a percentage of net assets applicable to common shareholders. 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. 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 November 30, 2006 WEIGHTED AVERAGE MATURITY: 20 YEARS(A) 0-5 3 6-10 7 11-15 13 16-20 29 21-25 24 26-30 14 31+ 10
(a) Where applicable maturities reflect mandatory tenders, puts 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% Alaska................. 0.3 Arizona................ 5.6 Arkansas............... 0.4 California............. 12.6 Colorado............... 3.1 District of Columbia... 1.2 Florida................ 6.2 Georgia................ 4.8 Illinois............... 5.0 Indiana................ 1.9 Iowa................... 1.2 Kansas................. 0.5 Kentucky............... 1.3 Louisiana.............. 2.0 Maryland............... 1.3 Massachusetts.......... 0.4 Michigan............... 2.6 Minnesota.............. 0.5 Missouri............... 1.4 Nevada................. 2.2 New Jersey............. 3.5 New York............... 16.7 Ohio................... 2.2 Oregon................. 0.6 Pennsylvania........... 5.5 Rhode Island........... 1.2 South Carolina......... 2.0 Tennessee.............. 1.7 Texas.................. 6.0 Utah................... 1.3 Washington............. 2.1 ----- Total+................. 100.0% =====
- ------------------ + Does not include open short futures contracts with an underlying face amount of $12,906,563, with a unrealized depreciation of $183,143 and an interest rate swap contract with unrealized depreciation of $340,041. 6 CALL AND COST (BOOK) YIELD STRUCTURE (Based on Long-Term Portfolio) As of November 30, 2006 YEARS BONDS CALLABLE -- WEIGHTED AVERAGE CALL PROTECTION: 7 YEARS 2007(a) 7 2008 7 2009 1 2010 5 2011 7 2012 6 2013 15 2014 20 2015 12 2016+ 20
COST (BOOK) YIELD(B) -- WEIGHTED AVERAGE BOOK YIELD: 5.2% 2007(a) 6.5 2008 5.5 2009 5.8 2010 5.5 2011 5.1 2012 4.7 2013 4.9 2014 4.8 2015 4.8 2016+ 5.3
(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 7.0% on 6.5% of the long-term portfolio that is callable in 2007. Portfolio structure is subject to change. 7 Morgan Stanley Municipal Premium Income Trust PORTFOLIO OF INVESTMENTS - NOVEMBER 30, 2006 (UNAUDITED)
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - --------------------------------------------------------------------------------------------------------- Tax-Exempt Municipal Bonds (155.2%) General Obligation (7.0%) $ 3,000 California, Various Purpose Dtd 12/01/05................. 5.00% 03/01/27 $ 3,214,350 2,500 Chicago Park District, Illinois, 2004 Ser A (Ambac)...... 5.00 01/01/28 2,664,625 385 Du Page County Community Unit School District #200, Illinois, Ser 2003 B (FSA)............................. 5.25 11/01/21 418,430 1,000 New York City, New York, 2005 Ser G...................... 5.00 12/01/23 1,078,560 5,000 Charleston County School District, South Carolina, Ser 2004................................................... 5.00 02/01/22 5,358,600 ------------- - -------- 12,734,565 11,885 ------------- - -------- Educational Facilities Revenue (8.0%) 2,500 University of Alabama, Ser 2004 A (MBIA)................. 5.25 07/01/20 2,742,075 2,000 California Educational Facilities Authority, Mills College Ser 2005 A..................................... 5.00 09/01/34 2,092,480 2,000 California Infrastructure & Economic Development Bank, The Scripps Research Institute Ser 2005 A.............. 5.00 07/01/29 2,131,340 2,000 Broward County Educational Facilities Authority, Florida, Nova Southeastern University Ser 2006 (AGC)............ 5.00 04/01/31 2,131,160 5,000 Swarthmore Boro Authority, Pennsylvania, Swarthmore College Ser 2001....................................... 5.00 09/15/31 5,244,650 ------------- - -------- 14,341,705 13,500 ------------- - -------- Electric Revenue (13.4%) 8,000 Salt River Project Agricultural Improvement & Power District, Arizona, Ser 2002 B.......................... 5.00 01/01/26 8,463,519 1,550 Los Angeles Department of Water & Power, California, 2001 Ser A............................................. 5.00 07/01/24 1,587,092 5,000 Orlando Utilities Commission, Florida, Water & Electric Ser 2001............................................... 5.00 10/01/22 5,317,400 3,000 Long Island Power Authority, New York, Ser 2004 A (Ambac)................................................ 5.00 09/01/34 3,203,880 3,365 Intermountain Power Agency, Utah, Refg 1997 Ser B (MBIA)................................................. 5.75 07/01/19 3,471,469 2,000 Grant County Public Utility District #2, Washington, Wanapum Hydroelectric 2005 Ser A (FGIC)................ 5.00 01/01/34 2,130,540 ------------- - -------- 24,173,900 22,915 ------------- - -------- Hospital Revenue (20.3%) 2,000 Glendale Industrial Development Authority, Arizona, John C Lincoln Health Ser 2005 B............................ 5.00 12/01/37 2,070,800 1,000 Washington County, Arkansas, Washington Regional Medical Center Ser 2005 A...................................... 5.00 02/01/35 1,037,890 1,000 California Statewide Community Development Authority, Huntington Memorial Hospital Ser 2005.................. 5.00 07/01/27 1,058,240 3,000 Indiana Health & Educational Facility Financing Authority, Clarian Health Ser 2006 A................... 5.25 02/15/40 3,215,820
8 See Notes to Financial Statements Morgan Stanley Municipal Premium Income Trust PORTFOLIO OF INVESTMENTS - NOVEMBER 30, 2006 (UNAUDITED) continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - --------------------------------------------------------------------------------------------------------- $ 2,000 Indiana Health Facilities Financing Authority, Community Health Ser 2005 A (Ambac).............................. 5.00% 05/01/35 $ 2,123,340 1,500 Lawrence Memorial Hospital, Kansas Ser 2006.............. 5.125 07/01/36 1,592,085 Louisiana Public Facilities Authority, 3,000 Baton Rouge General Medical Center - FHA Insured Mtge Ser 2004 (MBIA)........................................ 5.25 07/01/33 3,234,030 2,000 Ochsner Clinic Ser 2002................................ 5.50 05/15/32 2,142,060 1,000 Maryland Health & Higher Education Facilities Authority, Johns Hopkins Hospital Ser 2003........................ 5.00 11/15/28 1,061,130 3,500 Kent Hospital Finance Authority, Michigan, Metropolitan Hospital Ser 2005 A.................................... 6.25 07/01/40 3,962,700 3,000 Michigan Hospital Finance Authority, Henry Ford Health System Refg Ser 2006 A................................. 5.25 11/15/46 3,217,020 1,100 Glencoe, Minnesota, Glencoe Regional Health Ser 2005..... 5.00 04/01/31 1,143,197 2,000 New York State Dormitory Authority, Montefiore Hospital - FHA Insured Mtge Ser 2004 (FGIC)............ 5.00 08/01/29 2,140,260 5,000 Lehigh County General Purpose Authority, Pennsylvania, St Luke's of Bethlehem Hospital Ser A 2003................ 5.375 08/15/33 5,314,500 3,000 Johnson City Health & Educational Facilities Board, Tennessee, Mountain States Health Alliance Ser 2006 A...................................................... 5.50 07/01/36 3,258,150 ------------- - -------- 36,571,222 37,600 ------------- - -------- Industrial Development/Pollution Control Revenue (19.7%) 1,000 Northern Tobacco Securitization Corporation, Alaska, Ser 2006 A................................................. 5.00 06/01/46 1,017,830 4,810 Pima County Industrial Development Authority, Arizona, Tucson Electric Power Co Refg Ser 1988 A (FSA)......... 7.25 07/15/10 4,827,412 3,000 Tobacco Settlement Authority, Iowa, Ser 2005 C........... 5.50 06/01/42 3,176,340 2,000 Nassau County Tobacco Settlement Corporation, New York, Ser 2006 A-3........................................... 5.125 06/01/46 2,068,420 New York City Industrial Development Agency, New York, 4,000 American Airlines Inc Ser 2005 (AMT)................... 7.75 08/01/31 4,854,520 8,000 Brooklyn Navy Yard Cogeneration Partners LP Ser 1997 (AMT).................................................. 5.65 10/01/28 8,098,480 2,000 7 World Trade Center, LLC Ser A........................ 6.25 03/01/15 2,135,900 3,000 TSASC Inc, New York, Tobacco Settlement Ser 2006-1....... 5.125 06/01/42 3,097,980 4,000 Tennessee Energy Acquisition Corporation, Ser 2006 A++... 5.25 09/01/19 4,501,820 1,500 Brazos River Authority, Texas, TXU Electric Co Refg Ser 1999 A (AMT)........................................... 7.70 04/01/33 1,760,115 ------------- - -------- 35,538,817 33,310 ------------- - -------- Mortgage Revenue - Multi-Family (0.2%) 320 Minnesota Housing Finance Agency, Rental 1995 Ser D - -------- (MBIA)................................................. 6.00 02/01/22 321,229 -------------
9 See Notes to Financial Statements Morgan Stanley Municipal Premium Income Trust PORTFOLIO OF INVESTMENTS - NOVEMBER 30, 2006 (UNAUDITED) continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - --------------------------------------------------------------------------------------------------------- Mortgage Revenue - Single Family (1.5%) $ 115 Colorado Housing & Finance Authority, Ser 1997 A-2 (AMT).................................................. 7.25% 05/01/27 $ 116,427 2,430 Maryland Department of Housing and Community Development Administration, Ser 2006 P (AMT) (WI).................. 4.625 09/01/31 2,449,877 155 Missouri Housing Development Commission, Homeownership 1996 Ser D (AMT)....................................... 7.10 09/01/27 159,218 ------------- - -------- 2,725,522 2,700 ------------- - -------- Public Facilities Revenue (6.1%) 1,000 Jefferson County, Alabama, School Ser 2004 A............. 5.50 01/01/22 1,101,770 1,000 Kern County Board of Education, California, Refg 2006 Ser A COPs (MBIA).......................................... 5.00 06/01/31 1,074,730 Fort Collins, Colorado, 2,040 Ser 2004 A COPs (Ambac)................................ 5.375 06/01/21 2,240,369 2,155 Ser 2004 A COPs (Ambac)................................ 5.375 06/01/22 2,365,177 1,500 Oregon Department of Administrative Services, Ser 2005 B COPs (FGIC)............................................ 5.00 11/01/21 1,621,485 2,400 Goat Hill Properties, Washington, Governmental Office Ser 2005 (MBIA)............................................ 5.00 12/01/33 2,546,952 ------------- - -------- 10,950,483 10,095 ------------- - -------- Recreational Facilities Revenue (4.2%) 2,000 Denver Convention Center Hotel Authority, Colorado, Refg Ser 2006 (XLCA)........................................ 5.00 12/01/30 2,153,040 3,000 District of Columbia Ballpark, Ser 2006 B-1 (FGIC)....... 5.00 02/01/31 3,212,760 2,000 New York City Industrial Development Agency, New York, Yankee Stadium Ser 2006 (FGIC)......................... 5.00 03/01/46 2,150,040 ------------- - -------- 7,515,840 7,000 ------------- - -------- Retirement & Life Care Facilities Revenue (2.0%) 1,400 Colorado Health Facilities Authority, Adventist Health/Sunbelt Ser 2006 D.............................. 5.25 11/15/35 1,507,492 1,000 St Johns County Industrial Development Authority, Florida, Glenmoor Ser 2006 A........................... 5.25 01/01/26 1,020,960 1,000 Lubbock Health Facilities Development Corporation, Texas, Carillon Senior Life Care Ser 2005 A................... 6.625 07/01/36 1,052,310 ------------- - -------- 3,580,762 3,400 ------------- - -------- Tax Allocation Revenue (1.1%) 2,000 Fenton, Missouri, Gravois Bluffs Refg Ser 2006........... 4.50 04/01/21 2,038,200 - -------- -------------
10 See Notes to Financial Statements Morgan Stanley Municipal Premium Income Trust PORTFOLIO OF INVESTMENTS - NOVEMBER 30, 2006 (UNAUDITED) continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - --------------------------------------------------------------------------------------------------------- Transportation Facilities Revenue (26.1%) $ 3,000 Florida, Department of Transportation, Ser 2002 A (MBIA)................................................. 5.00% 07/01/25 $ 3,196,680 2,500 Miami-Dade County, Florida, Miami Int'l Airport, Ser 2000 B (FGIC)............................................... 5.75 10/01/24 2,700,500 Georgia Road & Tollway Authority, 2,000 Ser 2004............................................... 5.00 10/01/22 2,143,200 3,000 Ser 2004............................................... 5.00 10/01/23 3,214,800 Chicago, Illinois, Chicago-O'Hare Int'l Airport 5,000 Ser 1996 A (Ambac)..................................... 5.625 01/01/12 5,102,950 4,000 3rd Lien Ser 2005 A (MBIA)............................. 5.25 01/01/26 4,392,000 4,000 Massachusetts Turnpike Authority, Metropolitan Highway 1997 Ser A (MBIA)++.................................... 5.00 01/01/37 4,083,240 5,000 New Jersey Turnpike Authority, Ser 2003 A (Ambac)........ 5.00 01/01/30 5,319,550 3,000 Metropolitan Transportation Authority, New York, State Service Contract Refg Ser 2002 B (MBIA)................ 5.50 07/01/20 3,291,570 3,000 Triborough Bridge & Tunnel Authority, New York, Refg Ser 2002 B................................................. 5.25 11/15/19 3,265,800 2,000 Pennsylvania Turnpike Commission, Ser R 2001 (Ambac)..... 5.00 12/01/30 2,118,400 3,000 Rhode Island Economic Development Corporation, Airport 2005 Ser C (MBIA)...................................... 5.00 07/01/28 3,210,480 1,000 Harris County, Texas, Toll Road Sr Lien Ser 2005 A (FSA).................................................. 5.25 08/15/35 1,050,010 4,010 Port of Seattle, Washington, Passenger Fac Ser A (MBIA)++............................................... 5.00 12/01/23 4,123,600 ------------- - -------- 47,212,780 44,510 ------------- - -------- Water & Sewer Revenue (27.1%) 2,000 Camarillo Public Finance Authority, California, Wastewater Ser 2005 (Ambac)............................ 5.00 06/01/36 2,146,180 3,000 Los Angeles Department of Water & Power, California, Water 2004 Ser C (MBIA)................................ 5.00 07/01/25 3,209,730 3,000 Oxnard Financing Authority, California, Wastewater 2004 Ser A (FGIC)........................................... 5.00 06/01/29 3,199,800 3,000 San Diego County Water Authority, California, Ser 2004 A COPs (FSA)............................................. 5.00 05/01/29 3,209,250 2,460 JEA, Florida, Water & Sewer, Sub-second Crossover Ser (MBIA)................................................. 5.00 10/01/24 2,635,054 3,000 Atlanta, Georgia, Water & Wastewater Ser 1999 A (FGIC)... 5.50 11/01/22 3,512,430 4,000 Augusta, Georgia, Water & Sewerage Ser 2000 (FSA)........ 5.25 10/01/22 4,248,480 3,215 Louisville & Jefferson County Metropolitan Sewer District, Kentucky, Ser 2001 A (MBIA).................. 5.375 05/15/22 3,480,623 3,000 Las Vegas Water District, Nevada, Impr and Refg Ser 2003 A (FGIC)............................................... 5.25 06/01/22 3,239,880 2,000 Passaic Valley Sewerage Commissioners, New Jersey, Ser F (FGIC)................................................. 5.00 12/01/19 2,159,740 1,675 Cleveland, Ohio, Waterworks Impr & Refg 1998 Ser I (FSA).................................................. 5.00 01/01/23 1,711,666
11 See Notes to Financial Statements Morgan Stanley Municipal Premium Income Trust PORTFOLIO OF INVESTMENTS - NOVEMBER 30, 2006 (UNAUDITED) continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - --------------------------------------------------------------------------------------------------------- $ 5,000 Austin, Texas, Water & Wastewater Refg Ser 2001 A+B (FSA)++................................................ 5.125% 05/15/27 $ 5,203,700 10,000 Houston, Texas, Combined Utility Refg 2004 Ser A (FGIC)................................................. 5.25 05/15/23 10,913,499 ------------- - -------- 48,870,032 45,350 ------------- - -------- Other Revenue (12.9%) 5,000 California Economic Recovery, Ser 2004 A++............... 5.00 07/01/16 5,321,600 Golden State Tobacco Securitization Corporation, California, 2,000 Enhanced Asset Backed Ser 2005 A (Ambac)............... 5.00 06/01/29 2,094,380 2,000 Enhanced Asset Backed Ser 2005 A....................... 5.00 06/01/45 2,093,740 2,000 New Jersey Economic Development Authority, Cigarette Tax Ser 2004............................................... 5.75 06/15/29 2,187,480 2,000 New York City Transitional Finance Authority, New York, Refg 2003 Ser A.........................................550++++++ 11/01/26 2,166,860 8,000 New York State Local Government Assistance Corporation, Refg Ser 1997 B (MBIA)................................. 5.00 04/01/21 8,225,520 1,000 Philadelphia, Pennsylvania, Gas Works Eighteenth Ser (AGC).................................................. 5.25 08/01/20 1,087,650 ------------- - -------- 23,177,230 22,000 ------------- - -------- Refunded (5.6%) 2,000 Los Angeles Unified School District, California, 2003 Ser A (FSA)................................................ 5.25 07/01/13+ 2,211,040 1,340 Missouri Health & Educational Facilities Authority, Missouri, Baptist Medical Center Refg Ser 1989 (ETM)... 7.625 07/01/18 1,591,317 4,000 Montgomery County, Ohio, Franciscan Medical Center - Dayton Ser 1997............................... 5.50 07/01/10+ 4,184,120 2,000 Pennsylvania, First Ser 2003 (MBIA)++.................... 5.00 01/01/13+ 2,159,130 ------------- - -------- 10,145,607 9,340 ------------- - -------- 265,925 Total Tax-Exempt Municipal Bonds (Cost $265,754,919)........................ 279,897,894 ------------- - -------- Short-Term Tax-Exempt Municipal Obligations (2.4%) 1,100 Illinois Health Facilities Authority, Northwestern Memorial Hospital Ser 2004 B Subser 2004 B-2 (Demand 12/01/06).............................................. 3.65* 08/01/26 1,100,000 2,700 Reno, Nevada, St Mary's Regional Medical Center 1998 Ser B (MBIA) (Demand 12/01/06)............................. 3.67* 05/15/23 2,700,000
12 See Notes to Financial Statements Morgan Stanley Municipal Premium Income Trust PORTFOLIO OF INVESTMENTS - NOVEMBER 30, 2006 (UNAUDITED) continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - --------------------------------------------------------------------------------------------------------- $ 300 Bell County Health Facilities Development Corporation, Texas, Scott and White Memorial Hospital Ser 2001-1 (MBIA) (Demand 12/01/06)...................................... 3.65*% 08/15/31 $ 300,000 200 North Central Texas Health Facilities Development Corporation, Presbyterian Medical Center Ser 1985 C (MBIA) (Demand 12/01/06)...................................... 3.61* 12/01/15 200,000 ------------- - -------- 4,300 Total Short-Term Tax-Exempt Municipal Obligations (Cost $4,300,000)......... 4,300,000 ------------- - -------- 270,225 Total Investments (Cost $270,054,919) (a)(b)................................ 284,197,894 ------------- - -------- Floating Rate Note Obligations Related to Securities Held (-7.8%) (14,010) Notes with interest rates ranging from 3.51% to 3.53% at November 30, 2006 and contractual maturities of collateral ranging from 01/01/19 to 01/01/37 (see Note 1D)++++ (Cost ($14,010,000)).................................... (14,010,000) ------------- - -------- $256,215 Total Net Investments (Cost $256,044,919)......................... 149.8% 270,187,894 ======== Other Assets in Excess of Liabilities............................. 5.6 10,138,919 Preferred Shares of Beneficial Interest........................... (55.4) (100,000,000) ----- ------------- Net Assets Applicable to Common Shareholders...................... 100.0% $ 180,326,813 ===== =============
- --------------------- 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. WI Security purchased on a when-issued basis. * 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 $66,000. ++ Underlying security related to inverse floaters entered into by the Fund (See Note 1D). ++++ Floating rate note obligations related to securities held. The interest rates shown reflect the rates in effect at November 30, 2006. ++++++ 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 $15,427,791 in connection with open futures contracts. (b) The aggregate cost for federal income tax purposes approximates the aggregate cost for book purposes. The aggregate gross unrealized appreciation is $14,145,612 and the aggregate gross unrealized depreciation is $2,112, resulting in net unrealized appreciation of $14,143,500. Bond Insurance: - --------------- AGC Assured Guaranty Corporation. Ambac Ambac Assurance Corporation. Connie Lee Connie Lee Insurance Company - A wholly owned subsidiary of Ambac Assurance Corporation. FGIC Financial Guaranty Insurance Company. FSA Financial Security Assurance Inc. MBIA Municipal Bond Investors Assurance Corporation. XLCA XL Capital Assurance Inc.
13 See Notes to Financial Statements Morgan Stanley Municipal Premium Income Trust PORTFOLIO OF INVESTMENTS - NOVEMBER 30, 2006 (UNAUDITED) continued FUTURES CONTRACTS OPEN AT NOVEMBER 30, 2006:
NUMBER OF DESCRIPTION DELIVERY UNDERLYING FACE UNREALIZED CONTRACTS LONG/SHORT MONTH AND YEAR AMOUNT AT VALUE DEPRECIATION - ---------------------------------------------------------------------------------------- 60 Short U.S. Treasury Notes 5 Year $(6,360,000) $ (62,040) December 2006 60 Short U.S. Treasury Notes 10 Year (6,546,563) (121,103) December 2006 --------- Total Unrealized Depreciation................... $(183,143) =========
INTEREST RATE SWAP CONTRACT OPEN AT NOVEMBER 30, 2006:
NOTIONAL PAYMENTS PAYMENTS TERMINATION UNREALIZED COUNTERPARTY AMOUNT (000) MADE BY FUND RECEIVED BY FUND DATE DEPRECIATION - --------------------------------------------------------------------------------------------------------------------- J.P. Morgan Chase Co. Floating Rate BMA $15,000 Fixed Rate 3.85% (Bond Market Association) 12/19/16 $(340,041) =========
14 See Notes to Financial Statements Morgan Stanley Municipal Premium Income Trust FINANCIAL STATEMENTS Statement of Assets and Liabilities November 30, 2006 (unaudited) Assets: Investments in securities, at value (cost $270,054,919)..... $284,197,894 Cash........................................................ 77,713 Receivable for: Investments sold........................................ 9,266,436 Interest................................................ 4,150,776 Prepaid expenses and other assets........................... 17,237 ------------ Total Assets............................................ 297,710,056 ------------ Liabilities: Floating rate note obligations related to securities held... 14,010,000 Unrealized depreciation on open swap contract............... 340,041 Payable for: Investments purchased................................... 2,730,000 Investment advisory fee................................. 104,156 Variation margin........................................ 38,438 Administration fee...................................... 20,831 Transfer agent fee...................................... 6,344 Accrued expenses and other payables......................... 133,433 ------------ Total Liabilities....................................... 17,383,243 ------------ Preferred shares of beneficial interest (at liquidation value) (1,000,000 shares authorized of non-participating $.01 par value, 1,000 shares outstanding)................. 100,000,000 ------------ Net Assets Applicable to Common Shareholders............ $180,326,813 ============ Composition of Net Assets Applicable to Common Shareholders: Common shares of beneficial interest (unlimited shares authorized of $.01 par value, 17,200,094 shares outstanding).............................................. $162,831,575 Net unrealized appreciation................................. 13,619,791 Accumulated undistributed net investment income............. 1,161,406 Accumulated undistributed net realized gain................. 2,714,041 ------------ Net Assets Applicable to Common Shareholders............ $180,326,813 ============ Net Asset Value Per Common Share ($180,358,802 divided by 17,200,094 common shares outstanding)................................................ $10.48 ============
15 See Notes to Financial Statements Morgan Stanley Municipal Premium Income Trust FINANCIAL STATEMENTS continued Statement of Operations For the six months ended November 30, 2006 (unaudited) Net Investment Income: Interest Income............................................. $ 6,921,367 ----------- Expenses Investment advisory fee..................................... 557,052 Interest and residual trust expenses........................ 223,848 Auction commission fees..................................... 139,627 Administration fee.......................................... 111,410 Professional fees........................................... 33,624 Auction agent fees.......................................... 23,022 Shareholder reports and notices............................. 21,044 Transfer agent fees and expenses............................ 18,351 Listing fees................................................ 13,296 Custodian fees.............................................. 6,995 Trustees' fees and expenses................................. 3,627 Other....................................................... 25,263 ----------- Total Expenses.......................................... 1,177,159 Less: expense offset........................................ (3,036) ----------- Net Expenses............................................ 1,174,123 ----------- Net Investment Income................................... 5,747,244 ----------- Net Realized and Unrealized Gain (Loss): Net Realized Gain (Loss) on: Investments................................................. 951,741 Futures contracts........................................... (487,236) ----------- Net Realized Gain....................................... 464,505 ----------- Net Change in Unrealized Appreciation/Depreciation on: Investments................................................. 6,669,630 Futures contracts........................................... (293,439) Swap contract............................................... (340,041) ----------- Net Appreciation........................................ 6,036,150 ----------- Net Gain................................................ 6,471,088 ----------- Dividends to preferred shareholders from net investment income.................................................... (1,715,744) ----------- Net Increase................................................ $10,967,093 ===========
16 See Notes to Financial Statements Morgan Stanley Municipal Premium Income Trust FINANCIAL STATEMENTS continued Statements of Changes in Net Assets
FOR THE SIX FOR THE YEAR MONTHS ENDED ENDED NOVEMBER 30, 2006 MAY 31, 2006 ----------------- ------------ (unaudited) Increase (Decrease) in Net Assets: Operations: Net investment income....................................... $ 5,747,244 $ 11,709,223 Net realized gain........................................... 464,505 5,949,104 Net change in unrealized appreciation/depreciation.......... 6,036,150 (9,736,292) Dividends to preferred shareholders from net investment income.................................................... (1,715,744) (2,498,856) ------------ ------------ Net Increase............................................ 10,532,155 5,423,179 ------------ ------------ Dividends and Distributions to Common Shareholders from: Net investment income....................................... (4,508,456) (9,603,623) Net realized gain........................................... -- (2,414,263) ------------ ------------ Total Dividends and Distributions....................... (4,508,456) (12,017,886) ------------ ------------ Decrease from transactions in common shares of beneficial interest.................................................. (2,212,223) (6,210,698) ------------ ------------ Net Increase (Decrease)................................. 3,811,476 (12,805,405) Net Assets Applicable to Common Shareholders: Beginning of period......................................... 176,515,337 189,320,742 ------------ ------------ End of Period (Including accumulated undistributed net investment income of $1,161,406 and $1,638,362, respectively)................. $180,326,813 $176,515,337 ============ ============
17 See Notes to Financial Statements Morgan Stanley Municipal Premium Income Trust NOTES TO FINANCIAL STATEMENTS - NOVEMBER 30, 2006 (UNAUDITED) 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; (3) interest rate swaps are marked-to-market daily based upon quotations from market makers and the change, if any, is recorded as unrealized appreciation or depreciation in the Statement of Operations; and (4) 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 18 Morgan Stanley Municipal Premium Income Trust NOTES TO FINANCIAL STATEMENTS - NOVEMBER 30, 2006 (UNAUDITED) continued all of its taxable and nontaxable income to its shareholders. Accordingly, no federal income tax provision is required. D. Floating Rate Note Obligations Related to Securities Held -- The Fund enters into transactions in which it transfers to Dealer Trust ("Dealer Trust"), fixed rate bonds in exchange for cash and residual interests in the Dealer Trust's assets and cash flows, which are in the form of inverse floating rate investments. The Dealer Trust funds the purchases of the fixed rate bonds by issuing floating rate notes to third parties and allowing the Fund to retain residual interest in the bonds. The Fund enters into shortfall agreements with the Dealer Trust which commit the Fund to pay the Dealer Trust, in certain circumstances, the difference between the liquidation value of the fixed rate bonds held by the Dealer Trust and the liquidation value of the floating rate notes held by third parties, as well as any shortfalls in interest cash flows. The residual interests held by the Fund (inverse floating rate investments) include the right of the Fund (1) to cause the holders of the floating rate notes to tender their notes at par at the next interest rate reset date, and (2) to transfer the municipal bond from the Dealer Trust to the Fund, thereby collapsing the Dealer Trust. The Fund accounts for the transfer of bonds to the Dealer Trust as secured borrowings, with the securities transferred remaining in the Fund's investment assets, and the related floating rate notes reflected as trust liabilities under the caption "floating rate note obligations" on the "Statement of Assets and Liabilities". The Fund records the interest income from the fixed rate bonds under the caption "Interest Income" and records the expenses related to floating rate note obligations and any administrative expense of the dealer trusts under the caption "Interest and residual trust expenses" in the Fund's "Statement of Operations". The notes issued by the Dealer Trust have interest rates that reset weekly and the floating rate note holders have the option to tender their notes to the Dealer Trust for redemption at par at each reset date. At November 30, 2006, Fund investments with a value of $20,071,490 are held by the Dealer Trust and serve as collateral for the $14,010,000 in floating rate note obligations outstanding at that date. Contractual maturities of the floating rate note obligations and interest rates in effect at November 30, 2006 are presented in the "Portfolio of Investments". E. Dividends and Distributions to Shareholders -- Dividends and distributions to shareholders are recorded on the ex-dividend date. F. 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 19 Morgan Stanley Municipal Premium Income Trust NOTES TO FINANCIAL STATEMENTS - NOVEMBER 30, 2006 (UNAUDITED) continued 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. G. Interest Rate Swaps -- Interest rate swaps involve the exchange of commitments to pay and receive interest based on a notional principal amount. Net periodic interest payments to be received or paid are accrued daily and are recorded as realized gains or losses in the Statement of Operations. H. 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 of portfolio securities, excluding short-term investments, for the six months ended November 30, 2006 aggregated $16,797,452 and $19,689,936, respectively. 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 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 six months ended November 30, 2006 included in Trustees' fees and expenses in the Statement 20 Morgan Stanley Municipal Premium Income Trust NOTES TO FINANCIAL STATEMENTS - NOVEMBER 30, 2006 (UNAUDITED) continued of Operations amounted to $1,550. At November 30, 2006, the Fund had an accrued pension liability of $62,598 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 or she 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, 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 Treasury shares purchased and retired (weighted average discount 6.92%)*.......................................... (232,400) (2,324) (2,209,899) ---------- -------- ------------ Balance, November 30, 2006.................................. 17,200,094 $172,001 $162,659,574 ========== ======== ============
- --------------------- * The Trustees have voted to retire the shares purchased. 5. Preferred Shares of Beneficial Interest The Fund is authorized to issue up to 1,000,000 non-participating preferred shares of beneficial interest having a par value of $.01 per share, in one or more series, with rights as determined by the Trustees, without the approval of the common shareholders. The Fund has issued Series A through E Auction Rate Preferred Shares ("preferred shares") which have a liquidation value of $100,000 per share plus the redemption premium, if any, plus accumulated but unpaid dividends, whether or not declared, thereon to the date of distribution. The Fund may redeem such shares, in whole or in part, at the original purchase price of $100,000 per share plus accumulated but unpaid dividends, whether or not declared, thereon to the date of redemption. 21 Morgan Stanley Municipal Premium Income Trust NOTES TO FINANCIAL STATEMENTS - NOVEMBER 30, 2006 (UNAUDITED) continued 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 3.55% 12/08/06 3.25%- 3.85% B 200 20,000 3.55 12/08/06 3.25- 3.95 C 200 20,000 3.61 12/08/06 3.05- 3.75 D 200 20,000 3.61 12/08/06 3.24- 3.95 E 200 20,000 3.61 12/08/06 2.25- 3.70
- --------------------- * As of November 30, 2006. ** For the six months ended November 30, 2006. Subsequent to November 30, 2006 and up through January 5, 2007, the Fund paid dividends to each of the Series A through E at rates ranging from 3.50% to 3.90% in the aggregate amount of $359,604. 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 - ------------------ --------- ----------------- ------------------ September 26, 2006 $0.040 December 8, 2006 December 22, 2006 December 26, 2006 0.040 January 3, 2007 January 19, 2007 December 26, 2006 0.040 February 7, 2007 February 23, 2007 December 26, 2006 0.040 March 7, 2007 March 23, 2007
7. Expense Offset The expense offset represents a reduction of the fees and expenses for interest earned on cash balances maintained by the Fund with the transfer agent and custodian. 22 Morgan Stanley Municipal Premium Income Trust NOTES TO FINANCIAL STATEMENTS - NOVEMBER 30, 2006 (UNAUDITED) continued 8. Purposes of and Risks Relating to Certain Financial Instruments The Fund may invest a portion of its assets in inverse floating rate instruments, either through outright purchases of inverse floating rate securities or through the transfer of bonds to a dealer trust in exchange for cash and residual interests in the dealer trust. These investments are typically used by the Fund in seeking to enhance the yield of the portfolio. These instruments typically involve greater risks than a fixed rate municipal bond. In particular, these instruments are acquired through leverage or may have leverage embedded in them and therefore involve many of the risks associated with leverage. Leverage is a speculative technique that may expose the Fund to greater risk and increased costs. Leverage may cause the Fund's net asset value to be more volatile than if it had not been leveraged because leverage tends to magnify the effect of any increases or decreases in the value of the Fund's portfolio securities. The use of leverage may also cause the Fund to liquidate portfolio positions when it may not be advantageous to do so in order to satisfy its obligations with respect to inverse floating rate instruments. 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. The Fund may enter into interest rate swaps and may purchase or sell interest rate caps, floors and collars. The Fund expects to enter into these transactions primarily to manage interest rate risk, hedge portfolio positions and preserve a return or spread on a particular investment or portion of its portfolio. The Fund may also enter into these transactions to protect against any increase in the price of securities the Fund anticipates purchasing at a later date. Interest rate swap transactions are subject to market risk, risk of default by the other party to the transaction, risk of imperfect correlation and manager risk. Such risks may exceed the related amounts shown in the Statement of Assets and Liabilities. 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 23 Morgan Stanley Municipal Premium Income Trust NOTES TO FINANCIAL STATEMENTS - NOVEMBER 30, 2006 (UNAUDITED) continued 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. 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 on open futures contracts and dividend payable. 10. New Accounting Pronouncements In July 2006, the Financial Accounting Standards Board (FASB) issued Interpretation 48, Accounting for Uncertainty in Income Taxes -- an interpretation of FASB Statement 109 (FIN 48). FIN 48 clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position must meet before being recognized in the financial statements. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Fund will adopt FIN 48 for the fiscal year ending 2008 and the impact to the Fund's financial statements, if any, is currently being assessed. In addition, in September 2006, Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157), was issued and is effective for fiscal years beginning after November 15, 2007. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management is currently evaluating the impact the adoption of SFAS 157 will have on the Fund's financial statement disclosures. 24 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 SIX FOR THE YEAR ENDED MAY 31, MONTHS ENDED --------------------------------------------------------- NOVEMBER 30, 2006 2006 2005 2004 2003 2002 ----------------- --------- --------- --------- --------- --------- (unaudited) Selected Per Share Data: Net asset value, beginning of period............. $10.13 $10.45 $ 9.88 $10.56 $10.04 $ 9.88 ------ ------ ------ ------ ------ ------ Income (loss) from investment operations: Net investment income*....................... 0.33 0.66 0.64 0.66 0.68 0.70 Net realized and unrealized gain (loss)...... 0.37 (0.20) 0.54 (0.68) 0.53 0.13 Common share equivalent of dividends paid to preferred shareholders*...................... (0.10) (0.14) (0.09) (0.09) (0.09) (0.12) ------ ------ ------ ------ ------ ------ Total income (loss) from investment operations... 0.60 0.32 1.09 (0.11) 1.12 0.71 ------ ------ ------ ------ ------ ------ Less dividends and distributions from: Net investment income........................ (0.26) (0.54) (0.57) (0.61) (0.56) (0.54) Net realized gain............................ -- (0.14) -- -- (0.07) (0.04) ------ ------ ------ ------ ------ ------ Total dividends and distributions................ (0.26) (0.68) (0.57) (0.61) (0.63) (0.58) ------ ------ ------ ------ ------ ------ Anti-dilutive effect of acquiring treasury shares*......................................... 0.01 0.04 0.05 0.04 0.03 0.03 ------ ------ ------ ------ ------ ------ Net asset value, end of period................... $10.48 $10.13 $10.45 $ 9.88 $10.56 $10.04 ====== ====== ====== ====== ====== ====== Market value, end of period...................... $ 9.69 $ 9.12 $ 9.10 $ 8.93 $ 9.41 $ 9.02 ====== ====== ====== ====== ====== ====== Total Return+.................................... 9.16%(1) 7.85% 8.54% 1.27% 11.90% 8.30% Ratios to Average Net Assets of Common Shareholders: Total expenses (before expense offset)........... 1.32%(2) 1.09%(3) 1.29%(3) 1.40%(3) 1.33%(3) 1.24%(3) Total expenses (before expense offset, exclusive of interest and residual trust expenses)........ 1.07%(2) 1.09%(3) 1.29%(3) 1.40%(3) 1.33%(3) 1.24%(3) Net investment income before preferred stock dividends....................................... 6.46%(2) 6.42% 6.30% 6.36% 6.76% 6.95% Preferred stock dividends........................ 1.93%(2) 1.37% 0.87% 0.83% 0.86% 1.23% Net investment income available to common shareholders.................................... 4.53%(2) 5.05% 5.43% 5.53% 5.90% 5.72% Supplemental Data: Net assets applicable to common shareholders, end of period, in thousands......................... $180,327 $176,515 $189,321 $186,755 $209,970 $206,679 Asset coverage on preferred shares at end of period.......................................... 280% 276% 289% 286% 310% 306% Portfolio turnover rate.......................... 8%(1) 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) Not annualized. (2) Annualized. (3) Does not reflect the effect of expense offset of 0.01%.
25 See Notes to Financial Statements Morgan Stanley Municipal Premium Income Trust REVISED INVESTMENT POLICY (UNAUDITED) THE TRUSTEES APPROVED THE FOLLOWING INVESTMENT POLICY: INTEREST RATE TRANSACTIONS. The Fund may enter into interest rate swaps and may purchase or sell interest rate caps, floors and collars. The Fund expects to enter into these transactions primarily to manage interest rate risk, hedge portfolio positions and preserve a return or spread on a particular investment or portion of its portfolio. The Fund may also enter into these transactions to protect against any increase in the price of securities the Fund anticipates purchasing at a later date. The Fund does not intend to use these transactions as speculative investments and will not enter into interest rate swaps or sell interest rate caps or floors where it does not own or have the right to acquire the underlying securities or other instruments providing the income stream the Fund may be obligated to pay. Interest rate swaps involve the exchange by the Fund with another party of their respective commitments to pay or receive interest, e.g., an exchange of floating rate payments for fixed-rate payments. The purchase of an interest rate cap entitles the purchaser, to the extent that a specified index exceeds a predetermined interest rate, to receive payments of interest on a contractually-based principal amount from the party selling the interest rate cap. The purchase of an interest rate floor entitles the purchaser, to the extent that a specified index falls below a predetermined interest rate, to receive payments of interest on a contractually-based principal amount from the party selling the interest rate floor. An interest rate collar combines the elements of purchasing a cap and selling a floor. The collar protects against an interest rate rise above the maximum amount but foregoes the benefit of an interest rate decline below the minimum amount. The Fund may enter into interest rate swaps, caps, floors and collars on either an asset-based or liability-based basis, and will usually enter into interest rate swaps on a net basis, i.e., the two payment streams are netted out, with the Fund receiving or paying, as the case may be, only the net amount of the two payments. The net amount of the excess, if any, of the Fund's obligations over its entitlements with respect to each interest rate swap will be accrued on a daily basis and the Fund segregates an amount of cash and/or liquid securities having an aggregate net asset value at least equal to the accrued excess. If the Fund enters into an interest rate swap on other than a net basis, the Fund would segregate the full amount accrued on a daily basis of the Fund's obligations with respect to the swap. Interest rate transactions do not constitute senior securities under the 1940 Act when the Fund segregates assets to cover the obligations under the transactions. The Fund will enter into interest rate swap, cap or floor transactions only with counterparties approved by the Fund's Board of Trustees. The Adviser will monitor the creditworthiness of counterparties to the Fund's interest rate swap, cap, floor and collar transactions on an ongoing basis. If there is a default by the other party to such a transaction, the Fund will have contractual remedies pursuant to the agreements related to the transaction. To the extent the Fund sells (i.e., writes) caps, floors and collars, it will segregate cash and/or liquid securities having an aggregate net asset value at least 26 Morgan Stanley Municipal Premium Income Trust REVISED INVESTMENT POLICY (UNAUDITED) continued equal to the full amount, accrued on a daily basis, of the Fund's net obligations with respect to the caps, floors or collars. The use of interest rate swaps is a highly specialized activity which involves investment techniques and risks different from those associated with ordinary portfolio securities transactions. If the Adviser is incorrect in its forecasts of the market values, interest rates and other applicable factors, the investment performance of the Fund would diminish compared with what it would have been if these investment techniques were not used. The use of interest rate swaps, caps, collars and floors may also have the effect of shifting the recognition of income between current and future periods. These transactions do not involve the delivery of securities or other underlying assets or principal. Accordingly, the risk of loss with respect to interest rate swaps is limited to the net amount of interest payments that the Fund is contractually obligated to make. If the other party to an interest rate swap defaults, the Fund's risk of loss consists of the net amount of interest payments that the Fund contractually is entitled to receive. 27 TRUSTEES Frank L. Bowman Michael Bozic Kathleen A. Dennis Edwin J. Garn Wayne E. Hedien James F. Higgins Dr. Manuel H. Johnson Joseph J. Kearns Michael F. Klein Michael E. Nugent W. Allen Reed 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 The financial statements included herein have been taken from the records of the Fund without examination by the independent auditors and accordingly they do not express an opinion thereon. (c) 2006 Morgan Stanley [MORGAN STANLEY LOGO] MORGAN STANLEY FUNDS Morgan Stanley Municipal Premium Income Trust Semiannual Report November 30, 2006 [MORGAN STANLEY LOGO] PIASAN-RA07-00011P-Y11/06 Item 2. Code of Ethics. Not applicable for semiannual reports. Item 3. Audit Committee Financial Expert. Not applicable for semiannual reports. Item 4. Principal Accountant Fees and Services Not applicable for semiannual reports. Item 5. Audit Committee of Listed Registrants. Not applicable for semiannual reports. Item 6. Refer to Item 1. Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. Not applicable for semiannual reports. Item 8. Portfolio Managers of Closed-End Management Investment Companies Applicable only to reports covering periods ending on or after December 31, 2005. Item 9. Closed-End Fund Repurchases REGISTRANT PURCHASE OF EQUITY SECURITIES
(c) Total (d) Maximum Number of Number (or Shares (or Approximate Units) Dollar Value) Purchased of Shares (a) Total as Part of (or Units) Number (b) Average Publicly that May Yet Be of Shares Price Paid Announced Purchased (or Units) per Share Plans or Under the Plans Period Purchased (or Unit Programs or Programs - ------ ---------- ----------- ---------- --------------- June 1, 2006 --- June 30, 2006 40,900 9.2274 N/A N/A July 1, 2006 --- July 31,2006 35,500 9.3398 N/A N/A August 1, 2006 --- August 31, 2006 33,000 9.6492 N/A N/A September 1, 2006 --- September 30, 2006 26,100 9.7568 N/A N/A October 1, 2006 --- October 31, 2006 52,500 9.5393 N/A N/A November 1, 2006 --- November 30, 2006 44,400 9.6376 N/A N/A ------- ------ Total 232,400 9.5250 N/A N/A ======= ======
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 provide reasonable assurance 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 ("SEC") 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. The Fund's principal executive officer and principal 2 financial officer have also concluded that the Fund's disclosure controls and procedures designed to ensure that information required to be disclosed by the Fund in this Form N-CSR is accumulated and communicated to the Fund's management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure were effective. Management of the Fund has determined that as of and prior to November 30, 2006, the Fund's fiscal semiannual period, the Fund had a deficiency in its internal control over financial reporting related to the review, analysis and determination of whether certain transfers of municipal securities qualified for sale accounting under the provisions of Statement of Financial Accounting Standards No. 140 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." Since November 30, 2006, and prior to the issuance of the Fund's semiannual report, management has revised its disclosure controls and procedures and its internal control over financial reporting in order to improve the controls' effectiveness to ensure that transactions in transfers of municipal securities are accounted for properly. Management notes that other investment companies investing in similar investments over similar time periods had been accounting for such investments in a similar manner as the Fund. Accordingly, other investment companies are also concluding that there was a material weakness in their internal control over financial reporting of such investments. There was no impact to the net asset value of the Fund's shares or the Fund's total return for any period as a result of the changes in financial reporting of such investments. (b) There were no changes in the Fund's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Fund's internal control over financial reporting. However, as discussed above, subsequent to November 30, 2006, the Fund's internal control over financial reporting was revised. Item 12. Exhibits (a) Code of Ethics - Not applicable for semiannual reports. (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. 3 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 January 18, 2007 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 January 18, 2007 /s/ Francis Smith - ------------------------------------ Francis Smith Principal Financial Officer January 18, 2007 4 EX-99.CERT 2 y27887exv99wcert.txt CERTIFICATIONS 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 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; 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): 5 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: January 18, 2007 /s/ Ronald E. Robison ---------------------------------------- Ronald E. Robison Principal Executive Officer 6 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 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; 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): 7 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: January 18, 2007 /s/ Francis Smith ---------------------------------------- Francis Smith Principal Financial Officer 8 EX-99.906CERT 3 y27887exv99w906cert.txt CERTIFICATIONS 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 November 30, 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: January 18, 2007 /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. 9 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 November 30, 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: January 18, 2007 /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. 10 -----END PRIVACY-ENHANCED MESSAGE-----