-----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, CYSiTnpUDh2rALYhbA3If/vv2/ufq8Rim9MprKBbZDK6CbL2Cxw68fBzsLefliWx JVM35o3ntvvgVZ4Ki9iXqg== 0000950123-08-009288.txt : 20080811 0000950123-08-009288.hdr.sgml : 20080811 20080811155256 ACCESSION NUMBER: 0000950123-08-009288 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20080531 FILED AS OF DATE: 20080811 DATE AS OF CHANGE: 20080811 EFFECTIVENESS DATE: 20080811 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: 081006155 BUSINESS ADDRESS: STREET 1: 522 FIFTH AVENUE CITY: NEW YORK STATE: NY ZIP: 10036 BUSINESS PHONE: 800-869-6397 MAIL ADDRESS: STREET 1: 522 FIFTH AVENUE CITY: NEW YORK STATE: NY ZIP: 10036 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 y60275nvcsr.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) 522 Fifth Avenue, New York, New York 10036 (Address of principal executive offices) (Zip code) Ronald E. Robison 522 Fifth Avenue, New York, New York 10036 (Name and address of agent for service) Registrant's telephone number, including area code: 212-296-6990 Date of fiscal year end: May 31, 2008 Date of reporting period: May 31, 2008 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, 2008 MARKET CONDITIONS The 12-month period under review was marked by disrupted credit markets, recession fears, deterioration of the housing market, and markdowns in the mortgage market as a result of forced selling. Although the fixed income market saw some improvements in the last months of the period, many of the same concerns and problems remained. The Federal Reserve (the "Fed") stepped in several times during the period to minimize the liquidity crisis. Not only did the Federal Open Market Committee reduce the target federal funds rate several times, from 5.25 percent to 2.00 percent, but in an unprecedented move, the Fed granted primary brokerage firms access to its discount window and loosened its collateral requirements, extending loans of Treasury securities in exchange for lower quality, less liquid securities. Finally, in what was decidedly the biggest headline event, the Fed arranged and supported JPMorgan Chase's purchase of Bear Stearns, which was viewed by many as necessary to avoid serious market repercussions had the firm failed. The bulk of the period was defined by a flight to quality which resulted in U.S. Treasuries outperforming all other sectors of the fixed income market. This came to an end in March, however, when renewed investor risk appetite boosted the performance of riskier, non-Treasury securities for the remainder of the review period and led to the worst three-month return for Treasuries since 2003. Overall, yields across the Treasury curve declined with the short end experiencing the greatest declines, causing the curve to end the period steeper. The municipal yield curve also steepened over the course of the period as yields on intermediate- and long-maturity bonds rose while yields on short-maturity issues declined. Overall, investment-grade municipal bonds outperformed their taxable counterparts for the period. However, performance was bifurcated in that investment-grade municipal issues underperformed investment-grade taxable securities in the first nine months of the period but outperformed in the last three months of the period. In fact, for the latter period, investment-grade municipals posted their best three-month return since 1980, which more than offset their earlier poor performance. PERFORMANCE ANALYSIS For the 12-month period ended May 31, 2008, the net asset value (NAV) of Morgan Stanley Municipal Premium Income Trust (PIA) decreased from $10.05 to $9.26 per share. Based on this change plus reinvestment of tax-free dividends totaling $0.46 per share and a long-term capital gain distribution of $0.039397 per share, the Fund's total NAV return was -2.34 percent. PIA's value on the New York Stock Exchange (NYSE) moved from $9.49 to $8.34 per share during the same period. Based on this change plus reinvestment of dividends and distributions, the Fund's total market return was -6.86 percent. PIA's NYSE market price was at a 9.94 percent discount to its NAV. During the fiscal period, the Fund purchased and retired 346,015 shares of common stock at a weighted average market discount of 9.82 percent. Past performance is no guarantee of future results. Monthly dividends for the second quarter of 2008, declared in April, were unchanged at $0.0375 per share. The dividend reflects the current level of the 2 Fund's net investment income. PIA's level of undistributed net investment income was $0.061 per share on May 31, 2008 versus $0.052 per share 12 months earlier.(1) During most of the reporting year, we continued to position the portfolio with a lower sensitivity to interest rate changes (as measured by duration*). Overall, this positioning was beneficial as it helped buoy the Fund's performance when municipal rates rose and prices declined. To help maintain the lower duration, we used a U.S. Treasury futures hedge, which proved to be an effective hedging strategy but dampened returns slightly as the flight to quality drove Treasury prices up and rates lower. In terms of the Fund's sector positioning, an overweight in the hospital/life care sector detracted from returns as the sector's performance waned during the period. Additionally, security selection in certain sectors and segments of the yield curve also hindered performance. The Fund continued to focus on high-quality issues and maintained an overall conservative positioning, which was additive to performance as the higher-rated, less risky segment of the market generally outperformed lower-quality, higher- risk securities during the period. 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 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 3 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 AS OF 05/31/08 Hospital 15.1% IDR/PCR 10.3 Public Power 7.7 Other Utility 7.2 Tobacco 6.6
LONG-TERM CREDIT ANALYSIS AS OF 05/31/08 Aaa/AAA 17.8% Aa/AA 43.6 A/A 11.7 Baa/BBB 15.0 Ba/BB or Less 5.6 N/R 6.3
SUMMARY OF INVESTMENTS BY STATE CLASSIFICATION AS OF 05/31/08 California 25.4% New York 19.7 Texas 14.8 Florida 13.7 Pennsylvania 12.0 Arizona 8.4 New Jersey 7.7 Washington 5.9 Georgia 5.4 Colorado 5.0 Michigan 4.8 Tennessee 4.4 Illinois 4.3 South Carolina 3.5 Louisiana 3.4 Maryland 3.3 Indiana 3.2 Nevada 2.7
SUMMARY OF INVESTMENTS BY STATE CLASSIFICATION AS OF 05/31/08 (CONTINUED) Ohio 2.7% Alabama 2.4 Kentucky 2.2 Missouri 2.2 Rhode Island 2.0 District of Columbia 1.9 Iowa 1.6 Alaska 1.0 Kansas 1.0 Idaho 0.9 Minnesota 0.8 Arkansas 0.6 Virginia 0.6 ------ Total Long-Term Investments+ 167.5 Short-Term Investment 10.7 Liability for Floating Rate Note Obligations (13.6) Other Assets in Excess of Liabilities 0.2 Preferred Shares of Beneficial Interest (64.8) ------ Net Assets Applicable to Common Shareholders 100.0% ======
+ Does not include open long/short futures contracts with an underlying face amount of $29,243,328 with total unrealized appreciation of $427,461 and open swap contracts with unrealized appreciation of $55,277. Subject to change daily. Provided for informational purposes only and should not be deemed a recommendation to buy or sell the securities mentioned or securities in the sectors shown above. Top five sectors are as a percentage of total investments and long-term credit analysis are as a percentage of total long-term investments. Summary of investments by state classification are as a percentage of net assets applicable to common shareholders. Securities are classified by sectors that represent broad groupings of related industries. 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. Rating allocation based upon ratings as issued by Standard and Poor's and Moody's, respectively. 5 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. 6 Morgan Stanley Municipal Premium Income Trust PORTFOLIO OF INVESTMENTS - MAY 31, 2008
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - -------------------------------------------------------------------------------------------- Tax-Exempt Municipal Bonds (166.8%) Alabama (2.4%) $ 1,000 Jefferson County, Alabama, School Ser 2004 A....................................... 5.50 % 01/01/22 $ 949,660 2,500 University of Alabama, Ser 2004 A (MBIA Insd)................................... 5.25 07/01/20 2,696,775 ------------- 3,646,435 ------------- Alaska (1.0%) 2,000 Northern Tobacco Securitization Corporation, Alaska, Asset Backed Ser 2006 A.................................. 5.00 06/01/46 1,540,620 ------------- Arizona (8.4%) 2,000 Glendale Industrial Development Authority, Arizona, John C Lincoln Health Ser 2005 B....................................... 5.00 12/01/37 1,770,080 2,870 Pima County Industrial Development Authority, Arizona, Tucson Electric Power Co Refg Ser 1988 A (FSA Insd)..... 7.25 07/15/10 2,964,423 8,000 Salt River Project Agricultural Improvement & Power District, Arizona, Ser 2002 B.............................. 5.00 01/01/26 8,210,480 ------------- 12,944,983 ------------- Arkansas (0.6%) 1,000 Washington County, Arkansas, Washington Regional Medical Center Ser 2005 A...... 5.00 02/01/35 912,190 ------------- California (25.4%) 5,000 California Economic Recovery, Ser 2004 A(c).................................... 5.00 07/01/16 5,239,099 2,000 California Educational Facilities Authority, Mills College Ser 2005 A..... 5.00 09/01/34 1,956,920 2,000 California Infrastructure & Economic Development Bank, The Scripps Research Institute Ser 2005 A.................... 5.00 07/01/29 2,055,140 4,000 California, Various Purpose Dtd 11/01/06 (b)..................................... 4.50 10/01/36 3,704,220 1,000 California Statewide Community Development Authority, Huntington Memorial Hospital Ser 2005................................ 5.00 07/01/27 1,002,910 3,000 California, Various Purpose Dtd 12/01/05.. 5.00 03/01/27 3,047,940 2,000 Camarillo Public Finance Authority, California, Wastewater Ser 2005 (AMBAC Insd)................................... 5.00 06/01/36 2,014,420 4,005 Golden State Tobacco Securitization Corporation, California, Asset Backed Ser 2007 A-1 (b)........................ 5.125 06/01/47 3,135,594 4,000 Golden State Tobacco Securitization Corp, Enhanced Asset Backed Ser 2007 A-1...... 5.75 06/01/47 3,490,960 2,000 Golden State Tobacco Securitization Corporation, California, Enhanced Asset Backed Ser 2005 A....................... 5.00 06/01/45 1,860,440 1,000 Kern County Board of Education, Refg 2006 Ser A COPs (MBIA Insd).................. 5.00 06/01/31 1,013,160 1,550 Los Angeles Department of Water & Power, California, 2001 Ser A.................. 5.00 07/01/24 1,561,176
See Notes to Financial Statements 7 Morgan Stanley Municipal Premium Income Trust PORTFOLIO OF INVESTMENTS - MAY 31, 2008 continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - -------------------------------------------------------------------------------------------- $ 3,000 Los Angeles Department of Water & Power, California, Water 2004 Ser C (MBIA Insd)................................... 5.00 % 07/01/25 $ 3,127,620 3,000 Oxnard Financing Authority, California, Wastewater 2004 Ser A (FGIC Insd)....... 5.00 06/01/29 3,013,890 3,000 San Diego County Water Authority, California, Ser 2004 A COPs (FSA Insd).. 5.00 05/01/29 3,066,750 ------------- 39,290,239 ------------- Colorado (5.0%) 1,400 Colorado Health Facilities Authority, Adventist/Sunbelt Ser 2006 D............ 5.25 11/15/35 1,379,938 45 Colorado Housing & Finance Authority, Ser 1997 A-2 (AMT).......................... 7.25 05/01/27 45,723 2,000 Denver Convention Center Hotel Authority, Colorado, Refg Ser 2006 (XLCA Insd)..... 5.00 12/01/30 1,866,920 2,040 Fort Collins, Colorado, Ser 2004 A COPs (AMBAC Insd)............................ 5.38 06/01/21 2,131,678 2,155 Fort Collins, Colorado, Ser 2004 A COPs (AMBAC Insd)............................ 5.38 06/01/22 2,244,023 ------------- 7,668,282 ------------- District of Columbia (1.9%) 3,000 District of Columbia Ballpark, Ser 2006 B- 1 (FGIC Insd)........................... 5.00 02/01/31 2,832,720 ------------- Florida (13.7%) 2,000 Broward County Educational Facilities Authority, Florida, Nova Southeastern University Ser 2006 (AGC Insd).......... 5.00 04/01/31 2,040,140 2,460 JEA, Florida, Water & Sewer Sub-Second Crossover Ser (MBIA).................... 5.00 10/01/24 2,521,549 2,500 Miami-Dade County, Florida, Miami Int'l Airport, Ser 2000 B (FGIC Insd)......... 5.75 10/01/24 2,624,425 5,000 Orlando Utilities Commission, Florida, Water & Electric Ser 2001............... 5.00 10/01/22 5,217,600 8,000 South Miami Health Facilities Authority, Florida, Baptist Health South Florida Ser 2007 (b)............................ 5.00 08/15/42 7,842,960 1,000 St Johns County Industrial Development Authority, Florida, Glenmoor Ser 2006 A ........................................ 5.25 01/01/26 871,960 ------------- 21,118,634 ------------- Georgia (5.4%) 3,000 Atlanta, Georgia, Water & Wastewater Ser 1999 A (FGIC Insd)...................... 5.50 11/01/22 3,185,400 2,000 Georgia Road & Tollway Authority, Ser 2004.................................... 5.00 10/01/22 2,097,100 3,000 Georgia Road & Tollway Authority, Ser 2004.................................... 5.00 10/01/23 3,145,650 ------------- 8,428,150 ------------- Idaho (0.9%) 1,240 Idaho Housing & Finance Association, Federal Highway Trust, Ser 2008 A (AGC Insd)................................... 5.25 07/15/24 1,330,545 -------------
See Notes to Financial Statements 8 Morgan Stanley Municipal Premium Income Trust PORTFOLIO OF INVESTMENTS - MAY 31, 2008 continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - -------------------------------------------------------------------------------------------- Illinois (4.3%) $ 2,500 Chicago Park District, Illinois, 2004 Ser A (AMBAC Insd).......................... 5.00 % 01/01/28 $ 2,560,450 4,000 Chicago, Illinois, O'Hare Int'l Airport 3rd Lien Ser 2005 A (MBIA Insd)......... 5.25 01/01/26 4,092,720 ------------- 6,653,170 ------------- Indiana (3.2%) 3,000 Indiana Health & Educational Facility Financing Authority, Clarian Health Ser 2006 A.................................. 5.25 02/15/40 2,947,440 2,000 Indiana Health Facilities Financing Authority, Community Health Ser 2005 A (AMBAC Insd)............................ 5.00 05/01/35 2,001,080 ------------- 4,948,520 ------------- Iowa (1.6%) 3,000 Tobacco Settlement Authority, Iowa, Ser 2005 C.................................. 5.50 06/01/42 2,512,890 ------------- Kansas (1.0%) 1,500 Lawrence Memorial Hospital, Kansas Ser 2006.................................... 5.13 07/01/36 1,471,470 ------------- Kentucky (2.2%) 3,215 Louisville & Jefferson County Metropolitan Sewer District, Kentucky, Ser 2001 A (MBIA Insd)............................. 5.38 05/15/22 3,400,474 ------------- Louisiana (3.4%) 3,000 Louisiana Public Facilities Authority, Baton Rouge General Medical Center-FHA Insured Mtge Ser 2004 (MBIA Insd)....... 5.25 07/01/33 3,046,650 2,000 Louisiana Public Facilities Authority, Ochsner Clinic Ser 2002................. 5.50 05/15/32(a) 2,275,140 ------------- 5,321,790 ------------- Maryland (3.3%) 1,000 Baltimore County, Maryland, Oak Crest Village Ser 2007 A...................... 5.00 01/01/37 924,260 2,430 Maryland Department of Housing and Community Development Administration, Ser 2006 P (AMT)........................ 4.63 09/01/31 2,185,056 1,000 Maryland Health & Higher Education Facilities Authority, Johns Hopkins Hospital Ser 2003....................... 5.00 11/15/28(a) 1,084,270 1,000 Maryland Health & Higher Educational Facilities Authority, King Farm Presbyterian Community 2006 Ser B....... 5.00 01/01/17 971,750 ------------- 5,165,336 ------------- Michigan (4.8%) 3,500 Kent Hospital Finance Authority, Michigan, Metropolitan Hospital Ser 2005 A........ 6.25 07/01/40 3,565,835 3,000 Michigan Hospital Finance Authority, Henry Ford Health Refg Ser 2006 A............. 5.25 11/15/46 2,928,750 870 Wayne State University, Michigan, Univ Revs.................................... 5.00 11/15/25 916,345 ------------- 7,410,930 -------------
See Notes to Financial Statements 9 Morgan Stanley Municipal Premium Income Trust PORTFOLIO OF INVESTMENTS - MAY 31, 2008 continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - -------------------------------------------------------------------------------------------- Minnesota (0.8%) $ 1,100 Glencoe, Minnesota, Glencoe Regional Health Ser 2005......................... 5.00 % 04/01/31 $ 990,594 320 Minnesota Housing Finance Agency, Rental 1995 Ser D (MBIA Insd).................. 6.00 02/01/22 323,968 ------------- 1,314,562 ------------- Missouri (2.2%) 1,760 Fenton, Missouri, Gravois Bluffs Refg Ser 2006.................................... 4.50 04/01/21 1,755,653 1,340 Missouri Health & Educational Facilities Authority, Missouri, Baptist Medical Center Refg Ser 1989 (ETM).............. 7.63 07/01/18 1,577,059 100 Missouri Housing Development Commission, Homeownership 1996 Ser D (AMT).......... 7.10 09/01/27 103,357 ------------- 3,436,069 ------------- Nevada (2.7%) 3,000 Las Vegas Water District, Nevada, Impr and Refg Ser 2003 A (FGIC Insd)............. 5.25 06/01/22 3,158,190 1,000 Reno, Nevada, Renown Regional Medical Center Ser 2007 A....................... 5.25 06/01/37 950,090 ------------- 4,108,280 ------------- New Jersey (7.7%) 2,000 New Jersey Economic Development Authority, Cigarette Tax Ser 2004.................. 5.75 06/15/29 1,968,780 5,000 New Jersey Turnpike Authority, Ser 2003 A (Ambac)................................. 5.00 01/01/30 5,035,450 2,000 Passaic Valley Sewerage Commissioners, New Jersey, Ser F (FGIC Insd)............... 5.00 12/01/19 2,037,920 3,000 Tobacco Settlement Financing Corporation, New Jersey, Ser 2007-1A................. 4.63 06/01/26 2,529,210 3,000 Tobacco Settlement Financing Corporation, New Jersey, Ser 2007-1B................. 0.00 06/01/41 254,250 ------------- 11,825,610 ------------- New York (19.7%) 3,000 Long Island Power Authority, New York, Ser 2004 A (AMBAC Insd)..................... 5.00 09/01/34 3,033,480 3,000 Metropolitan Transportation Authority, New York, State Service Contract Refg Ser 2002 B (MBIA Insd)...................... 5.50 07/01/20 3,196,500 2,000 Nassau County Tobacco Settlement Corporation, New York, Ser 2006 A-3..... 5.13 06/01/46 1,762,020 2,000 New York City Industrial Development Agency, New York, 7 World Trade Center, LLC Ser A............................... 6.25 03/01/15 2,024,040 4,000 New York City Industrial Development Agency, New York, American Airlines Inc Ser 2005 (AMT).......................... 7.75 08/01/31 3,800,040 8,000 New York City Industrial Development Agency, New York, Brooklyn Navy Yard Cogeneration Partners LP Ser 1997 (AMT)................................... 5.65 10/01/28 7,403,280
See Notes to Financial Statements 10 Morgan Stanley Municipal Premium Income Trust PORTFOLIO OF INVESTMENTS - MAY 31, 2008 continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - -------------------------------------------------------------------------------------------- $ 2,000 New York City Industrial Development Agency, New York, Yankee Stadium Ser 2006 (FGIC Insd)........................ 5.00 % 03/01/46 $ 1,911,440 2,000 New York City Transitional Finance Authority, New York, Refg 2003 Ser A (d)..................................... 5.50 11/01/26 2,128,060 1,995 New York State Dormitory Authority, Montefiore Hospital - FHA Insured Mtge Ser 2004 (FGIC Insd).................... 5.00 08/01/29 2,002,721 3,000 Triborough Bridge & Tunnel Authority, New York, Refg Ser 2002 B................... 5.25 11/15/19 3,185,010 ------------- 30,446,591 ------------- Ohio (2.7%) 3,950 Montgomery County, Ohio, Franciscan Medical Center - Dayton Ser 1997 (a).... 5.50 07/01/18 4,119,179 ------------- Pennsylvania (11.3%) 2,000 Allegheny Cnty PA Hosp Dev Priv Plc (b)... 12.66 11/15/33 1,706,276 5,000 Lehigh County General Purpose Authority, Pennsylvania, St Luke's of Bethlehem Hospital Ser A 2003 (a)................. 5.38 08/15/33 5,515,150 2,000 Pennsylvania Turnpike Commission, Ser R 2001 (AMBAC Insd)....................... 5.00 12/01/30 2,038,500 2,000 Pennsylvania, First Ser 2003 (MBIA)(b).... 7.85 01/01/19 2,165,240 1,000 Philadelphia, Pennsylvania, Gas Works Eighteenth Ser (AGC Insd)............... 5.25 08/01/20 1,057,270 5,000 Swarthmore Boro Authority, Pennsylvania, Swarthmore College Ser 2001............. 5.00 09/15/31 5,061,650 ------------- 17,544,086 ------------- Rhode Island (2.0%) 3,000 Rhode Island Economic Development Corporation, Airport 2005 Ser C (MBIA Insd)................................... 5.00 07/01/28 3,037,350 ------------- South Carolina (3.5%) 5,000 Charleston County School District, South Carolina, Ser 2004 A.................... 5.00 02/01/22 5,234,600 35 Lexington County, South Carolina, Health Services District, Lexmed Inc, Ser 2007 A....................................... 5.00 11/01/16 36,777 165 Richland County Environmental Improvement Revenue, South Carolina, International Paper Company Ser 2007 A ............... 4.60 09/01/12 163,078 ------------- 5,434,455 ------------- Tennessee (4.4%) 3,000 Johnson City Health & Educational Facilities Board, Tennessee, Mountain States Health Alliance Ser 2006 A....... 5.50 07/01/36 2,855,880 4,000 Tennessee Energy Acquisition Corporation, Ser 2006 A (b).......................... 12.59 09/01/19 3,988,580 ------------- 6,844,460 -------------
See Notes to Financial Statements 11 Morgan Stanley Municipal Premium Income Trust PORTFOLIO OF INVESTMENTS - MAY 31, 2008 continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - -------------------------------------------------------------------------------------------- Texas (14.8%) $ 4,000 Austin, Texas, Water & Wastewater Refg Ser 2001 A & B (FSA Insd) (b).......................... 15.25 % 05/15/27 $ 4,073,100 555 Bexar County Health Facilities Development Corp, Texas, Health Facilities Development Corp........................ 5.00 07/01/27 523,054 735 Bexar County, Texas, Health Facilities Development Corp. ...................... 5.00 07/01/33 661,316 580 Bexar County, Texas, Health Facilities Development Corp. ...................... 5.00 07/01/37 515,139 1,500 Brazos River Authority, Texas, TXU Electric Co Refg Ser 1999 A (AMT)....... 7.70 04/01/33 1,496,625 1,125 Houston Tex Indpt Sch Dist 2008........... 5.00 02/15/26 1,170,844 10,000 Houston, Texas, Combined Utility First Lien Refg 2004 Ser A (FGIC Insd)........ 5.25 05/15/23 10,272,299 775 Humble Tex Indpt Sch Dist................. 5.00 02/15/26 807,573 1,000 Lubbock Health Facilities Development Corporation, Texas, Carillon Senior Life Care Ser 2005 A......................... 6.63 07/01/36 991,740 4,100 North Texas Tollway Authority, First Tier Capital Appreciation Refg Ser 2008D (AGC Insd)................................... 0.00 01/01/28 1,485,840 1,000 Tarrant County Cultural Educational Facilities Finance Corp, Texas, Air Force Village II Inc Ser 2007 .......... 5.13 05/15/37 905,820 ------------- 22,903,350 ------------- Virginia (0.6%) 1,000 Fairfax County Economic Development Authority, Virginia, Goodwin House Inc Ser 2007 ............................... 5.13 10/01/42 895,800 ------------- Washington (5.9%) 2,400 Goat Hill Properties, Washington, Governmental Office Ser 2005 (MBIA Insd)................................... 5.00 12/01/33 2,453,424 1,930 Grant County Public Utility District #2, Washington, Wanapum Hydroelectric 2005 Ser A (FGIC Insd)....................... 5.00 01/01/34 1,916,143 4,010 Port Seattle Wash Passenger Fac Cha....... 5.00 12/01/23 4,052,225 2,120 Washington, Motor Vehicle Fuel Tax, Ser 2004 F (AMBAC Insd)..................... 0.00 12/01/29 705,918 ------------- 9,127,710 ------------- Total Tax-Exempt Municipal Bonds (Cost $259,859,488).......... 257,634,880 ------------- NUMBER OF SHARES (000) - ------------ SHORT-TERM INVESTMENT (e) (10.7%) Investment Company 16,548 Morgan Stanley Institutional Liquidity Tax-Exempt Portfolio - Institutional Class (Cost $16,547,649).......... 16,547,649 ------------- Total Investments (Cost $276,407,137)......................... 274,182,529 -------------
See Notes to Financial Statements 12 Morgan Stanley Municipal Premium Income Trust PORTFOLIO OF INVESTMENTS - MAY 31, 2008 continued
PRINCIPAL AMOUNT IN THOUSANDS VALUE - -------------------------------------------------------------------------------------------- Floating Rate Note and Dealer Trust Obligations Related to Securities Held (-12.9%) $(20,005) Notes with interest rates ranging from 1.61% to 1.68% at May 31, 2008 and contractual Maturities of collateral ranging from 01/01/11 to 6/01/47 (See Note 1D) (f) (Cost $(20,005,000)......................................... $ (20,005,000) Total Net Investments (Cost $256,402,137) (g) (h).. 164.6% 254,177,529 Other Assets in Excess of Liabilities.............. 0.2 252,299 Preferred Shares of Beneficial Interest............ (64.8) (100,000,000) ------- ------------- Net Assets Applicable to Common Shareholders....... 100.0% $ 154,429,828 ===== =============
- ----------
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. (a) Prerefunded to call date shown. (b) Underlying security related to inverse floaters entered into by the Trust. (c) A portion of this security has been physically segregated in connection with open futures and swaps contracts in the amount of $692,235. (d) Security is a "Step-up" bond where the coupon increases on a predetermined future date. (e) See Note 3 to the financial statements regarding investments in Morgan Stanley Institutional Liquidity Tax-Exempt Portfolio -- Institutional Class. (f) Floating rate note obligation related to securities held. The interest rates shown reflect the rates in effect at May 31, 2008. (g) Securities have been designated as collateral in the amount equal to $72,457,364 in connection with open futures and swap contracts. (h) The aggregate cost for federal income tax purposes is $256,401,043. The aggregate gross unrealized appreciation is $4,666,085 and the aggregate gross unrealized depreciation is $6,889,599 resulting in net unrealized depreciation of $2,223,514. Bond Insurance: - --------------- AGC Assured Guaranty Corporation. AMBAC AMBAC Assurance Corporation. FGIC Financial Guaranty Insurance Company. FSA Financial Security Assurance Inc. MBIA Municipal Bond Investors Assurance Corporation XLCA XL Capital Assurance Inc.
See Notes to Financial Statements 13 Morgan Stanley Municipal Premium Income Trust PORTFOLIO OF INVESTMENTS - MAY 31, 2008 continued FUTURES CONTRACTS OPEN AT MAY 31, 2008:
UNREALIZED NUMBER OF DESCRIPTION, DELIVERY UNDERLYING FACE APPRECIATION CONTRACTS LONG/SHORT MONTH AND YEAR AMOUNT AT VALUE (DEPRECIATION) - ------------------------------------------------------------------------------------------- 271 Long U.S. Treasury Notes 10 Year June 2008 $ 30,881,298 $(510,418) 128 Long Swap Futures 5 Year June 2008 13,810,001 (124,143) 11 Long U.S. Treasury Notes 10 Year September 2008 1,236,469 6,163 2 Long Swap Futures 5 Year September 2008 214,719 355 382 Short Swap Futures 10 Year June 2008 (42,109,533) 755,848 131 Short U.S. Treasury Notes 5 Year September 2008 (14,401,813) 126,755 131 Short U.S. Treasury Bond 20 Year September 2008 (14,868,500) 158,480 18 Short U.S. Treasury Notes 2 Year September 2008 (3,791,250) 14,421 --------- Net Unrealized Appreciation................... $ 427,461 =========
INTEREST RATE SWAP CONTRACTS OPEN AT MAY 31, 2008:
NOTIONAL PAYMENTS PAYMENTS UNREALIZED AMOUNT RECEIVED MADE TERMINATION APPRECIATION COUNTERPARTY (000) BY FUND BY FUND DATE (DEPRECIATION) - -------------------------------------------------------------------------------------------------------------------------- Bank of America N.A. $ 9,845 Fixed Rate 5.58% Floating Rate 0.00%@ February 28, 2018 $ 110,855 JPMorgan Chase Bank N.A. 10,440 Fixed Rate 5.385 Floating Rate 0.00@ February 14, 2018 46,249 Bank of America N.A. 2,925 Fixed Rate 5.070 Floating Rate 0.00@ April 14, 2018 (21,645) Bank of America N.A. 2,710 Fixed Rate 4.982 Floating Rate 0.00@ April 15, 2018 (28,455) Merrill Lynch & Co. 3,615 Fixed Rate 5.00 Floating Rate 0.00@ April 15, 2018 (35,716) Merrill Lynch & Co. 4,635 Floating Rate 0.00@ Fixed Rate 5.395 April 15, 2023 30,173 Bank of America N.A. 3,305 Floating Rate 0.00@ Fixed Rate 5.38 April 15, 2023 22,871 Bank of America N.A. 3,740 Floating Rate 0.00@ Fixed Rate 5.47 April 14, 2023 16,755 JPMorgan Chase Bank N.A. 13,300 Floating Rate 0.00@ Fixed Rate 5.831 February 14, 2023 (73,283) Bank of America N.A. 12,585 Floating Rate 0.00@ Fixed Rate 5.99 February 28, 2023 (123,081) --------- Net Unrealized Appreciation................................... $ (55,277) =========
- ---------- @ Floating rate represents USD-3 month LIBOR.
See Notes to Financial Statements 14 Morgan Stanley Municipal Premium Income Trust FINANCIAL STATEMENTS Statement of Assets and Liabilities May 31, 2008 Assets: Investments in securities, at value (cost $259,859,488).............................. $257,634,880 Investment in affiliate, at value (cost $16,547,649)............................... 16,547,649 Unrealized appreciation on open swap contracts.................................. 226,903 Receivable for: Interest.................................. 4,036,774 Investments sold.......................... 1,041,644 Dividends from affiliate.................. 24,187 Prepaid expenses and other assets............ 50,649 ------------ Total Assets.............................. 279,562,686 ------------ Liabilities: Floating rate note and dealer trust obligations................................ 20,005,000 Unrealized depreciation on open swap contracts.................................. 282,180 Payable for: Investments purchased..................... 4,051,780 Investment advisory fee................... 98,605 Administration fee........................ 19,997 Transfer agent fee........................ 3,657 Variation Margin.......................... 103,721 Payable to bank.............................. 415,799 Accrued expenses and other payables.......... 152,119 ------------ Total Liabilities......................... 25,132,858 ------------ 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:.............................. $154,429,828 ============ Composition of Net Assets Applicable to Common Shareholders: Common shares of beneficial interest (unlimited shares authorized of $.01 par value, 16,675,879 shares outstanding)...... 158,108,384 Net unrealized depreciation.................. (1,852,424) Accumulated undistributed net investment income..................................... 1,020,771 Accumulated net realized loss................ (2,846,903) ------------ Net Assets Applicable to Common Shareholders............................... 154,429,828 ============ Net Asset Value Per Common Share ($154,429,828 divided by 16,675,879 common shares outstanding).......................... $9.26 =====
Statement of Operations For the year ended May 31, 2008 Net Investment Income: Income Interest..................................... $ 13,628,165 Dividends from affiliate..................... 218,583 ------------ Total Income.............................. 13,846,748 ------------ Expenses Investment advisory fee...................... 1,045,763 Interest and residual trust expenses......... 739,169 Auction commission fees...................... 250,453 Administration fee........................... 209,153 Professional fees............................ 66,301 Shareholder reports and notices.............. 55,024 Auction agent fees........................... 40,308 Custodian fees............................... 33,654 Registration fees............................ 20,169 Transfer agent fees and expenses............. 17,692 Trustees' fees and expenses.................. 10,288 Interest expense............................. 2,694 Other........................................ 52,915 ------------ Total Expenses............................ 2,543,583 Less: expense offset......................... (2,004) Less: rebate from Morgan Stanley affiliated cash sweep (Note 3)........................ (6,749) ------------ Net Expenses.............................. 2,534,830 ------------ Net Investment Income..................... 11,311,918 ------------ Realized and Unrealized Gain (Loss): Realized Gain (Loss) on: Investments.................................. (951,329) Futures contracts............................ (1,844,983) Swap contracts............................... 71,341 ------------ Net Realized Loss......................... (2,724,971) ------------ Change in Unrealized Appreciation/Depreciation on: Investments.................................. (10,697,990) Futures contracts............................ 305,024 Swap contracts............................... (97,655) ------------ Net Change Unrealized Appreciation/Depreciation.................. (10,490,621) ------------ Net Loss.................................. (13,215,592) ------------ Dividends to preferred shareholders from net investment income.......................... (3,387,020) ------------ Net Decrease................................. $ (5,290,694) ============
See Notes to Financial Statements 15 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, 2008 MAY 31, 2007 ------------ ------------ Increase (Decrease) in Net Assets: Operations: Net investment income................................. $ 11,311,918 $ 11,430,642 Net realized gain (loss).............................. (2,724,971) 666,424 Net change in unrealized appreciation/depreciation.... (10,490,621) 1,054,556 Dividends to preferred shareholders from net investment income................................... (3,387,020) (3,520,760) ------------ ------------ Net Increase (Decrease)............................ (5,290,694) 9,630,862 ------------ ------------ Dividends and Distributions to Common Shareholders From: Net investment income................................. (7,742,699) (8,659,007) Net realized gain..................................... (662,474) (2,426,083) ------------ ------------ Total Dividends and Distributions to Common Shareholders........................................ (8,405,173) (11,085,090) ------------ ------------ Net decrease from transactions in common shares of beneficial interest................................. (3,012,393) (3,923,021) ------------ ------------ Net Decrease....................................... (16,708,260) (5,377,249) Net Assets Applicable to Common Shareholders: Beginning of period................................... 171,138,088 176,515,337 ------------ ------------ End of Period (Including accumulated undistributed net investment income of $1,020,771 and $839,147, respectively)...... $154,429,828 $171,138,088 ============ ============
See Notes to Financial Statements 16 Morgan Stanley Municipal Premium Income Trust FINANCIAL STATEMENTS continued Statement of Cash Flows For the fiscal year end May 31, 2008 Increase (Decrease) in cash: Cash Flows Provided by Operating Activities: Net decrease in net assets from operations (including Preferred Share Distributions).......................................... $ (5,290,694) Adjustments to Reconcile net decrease in net assets from operations to net cash provided by operating activities: Net realized loss on investments.............................. 951,329 Net change in unrealized depreciation on investments.......... 10,795,645 Amortization of premium....................................... 567,466 Accretion of discount......................................... (88,355) Cost of purchases of investments.............................. (7,931,655) Proceeds from sales of investments............................ 37,134,842 Net purchases of short-term investments....................... (14,847,649) Decrease in interest receivables and other assets............. 190,830 Increase in accrued expenses and other payables............... 431,232 ------------ Total Adjustments............................................ 27,203,185 ------------ Net Cash Provided by Operating Activities.................... 21,912,491 ------------ Cash Flows from Financing Activities: Repurchased shares.............................................. (3,061,728) Dividends and distributions paid to common shareholder.......... (8,405,173) Net repayments of and proceeds from floating rate note obligations................................................... (10,505,000) ------------ Net Cash Used for Financing Activities....................... (21,971,901) ------------ Net Increase in Cash............................................ (59,410) Cash at the Beginning of the Period............................. 59,410 ------------ Cash at the End of the Period................................... $ -- ============ Supplemental Disclosure of Cash Flow Information Cash paid during the year for interest....................... $ 739,169 ============
See Notes to Financial Statements 17 Morgan Stanley Municipal Premium Income Trust NOTES TO FINANCIAL STATEMENTS - MAY 31, 2008 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) investments in open-end mutual funds, including the Morgan Stanley Institutional Liquidity Funds, are valued at the net asset value as of the close of each business day; (4) interest rate swaps are marked-to-market daily based upon quotations from market markers; and (5) 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 and are included in interest income. Interest income is accrued daily. C. Federal Income Tax Policy -- It is the Fund's policy to comply with the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies and to distribute 18 Morgan Stanley Municipal Premium Income Trust NOTES TO FINANCIAL STATEMENTS - MAY 31, 2008 continued substantially all of its taxable income to its shareholders. Therefore, no federal income tax provision is required. The Fund files tax returns with the U.S. Internal Revenue Service, New York State and New York City. The Fund adopted the provisions of the Financial Accounting Standards Board ("FASB") Interpretation No. 48 ("FIN 48") Accounting for Uncertainty in Income Taxes on November 29, 2007. FIN 48 sets forth a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. The implementation of FIN 48 did not result in any unrecognized tax benefits in the accompanying financial statements. If applicable, the Fund recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in other expenses in the Statement of Operations. Each of the tax years in the four year period ended May 31, 2008, remains subject to examination by taxing authorities. D. Floating Rate Note and Dealer Trust Obligations Related to Securities Held -- The Fund enters into transactions in which it transfers to Dealer Trusts ("Dealer Trusts"), fixed rate bonds in exchange for cash and residual interests in the Dealer Trusts' assets and cash flows, which are in the form of inverse floating rate investments. The Dealer Trusts fund 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 Trusts which commit the Fund to pay the Dealer Trusts, in certain circumstances, the difference between the liquidation value of the fixed rate bonds held by the Dealer Trusts 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 Trusts to the Fund, thereby collapsing the Dealer Trusts. The Fund accounts for the transfer of bonds to the Dealer Trusts as secured borrowings, with the securities transferred remaining in the Fund's investment assets, and the related floating rate notes reflected as Fund liabilities under the caption "Floating rate note and dealer trust 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 expenses 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 Trusts have interest rates that reset weekly and the floating rate note holders have the option to tender their notes to the Dealer Trusts for redemption at par at each reset date. At May 31, 2008, Fund investments with a value of $26,615,971 are held by the Dealer Trusts and serve as collateral for the $20,005,000 in floating rate note and dealer trust obligations outstanding at that date. Contractual maturities of the floating rate note and dealer trust obligations and interest rates in effect at May 31, 2008 are presented in the Portfolio of Investments. 19 Morgan Stanley Municipal Premium Income Trust NOTES TO FINANCIAL STATEMENTS - MAY 31, 2008 continued 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 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. Under an agreement between the Administrator and State Street Bank and Trust Company ("State Street"), State Street provides certain administrative services to the Fund. For such services, the Administrator pays State Street a portion of the fee the Administrator receives from the Fund. 20 Morgan Stanley Municipal Premium Income Trust NOTES TO FINANCIAL STATEMENTS - MAY 31, 2008 continued 3. Security Transactions and Transactions with Affiliates The Fund invests in Morgan Stanley Institutional Liquidity Tax-Exempt Portfolio -- Institutional Class, an open-end management investment company managed by the Investment Adviser. Investment advisory fees paid by the Fund are reduced by an amount equal to the advisory and administrative service fees paid by Morgan Stanley Institutional Liquidity Tax-Exempt Portfolio -- Institutional Class with respect to assets invested by the Fund in Morgan Stanley Institutional Liquidity Tax-Exempt Portfolio -- Institutional Class. For the year ended May 31, 2008, advisory fees paid were reduced by $6,749 relating to Fund's investment in Morgan Stanley Institutional Liquidity Tax-Exempt Portfolio -- Institutional Class. Income distributions earned by the Fund are recorded as dividends from affiliate in the Statement of Operations and totaled $218,583 for the year ended May 31, 2008. During the year ended May 31, 2008, cost of purchases and sales of investments in Morgan Stanley Institutional Liquidity Tax-Exempt Portfolio -- Institutional Class aggregated $49,057,489 and $32,509,840, respectively. The cost of purchases and proceeds from sales of portfolio securities, excluding short-term investments, for the year ended May 31, 2008 aggregated $14,033,744 and $36,119,888, respectively. Effective September 28, 2007, the transfer agent services previously provided to the Fund by Morgan Stanley Trust was assumed by Computershare Trust Company, N.A. (the "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 year ended May 31, 2008 included in Trustees' fees and expenses in the Statement of Operations amounted to $10,288. At May 31, 2008 the Fund had an accrued pension liability of $60,986 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. 21 Morgan Stanley Municipal Premium Income Trust NOTES TO FINANCIAL STATEMENTS - MAY 31, 2008 continued 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, 2006........................... 17,432,494 $174,325 $164,869,473 Treasury shares purchased and retired (weighted average discount 6.43% )+..................... (410,600) (4,106) (3,918,915) ---------- -------- ------------ Balance, May 31, 2007........................... 17,021,894 170,219 160,950,558 Treasury shares purchased and retired (weighted average discount 9.82% )+..................... (346,015) (3,460) (3,008,933) ---------- -------- ------------ Balance, May 31, 2008........................... 16,675,879 $166,759 $157,941,625 ========== ======== ============
- ---------- + The Trustees have voted to retire the shares purchased. 5. Preferred Shares of Beneficial Interest The Fund is authorized to issue up to 1,000,000 non-participating preferred shares of beneficial interest having a par value of $.01 per share, in one or more series, with rights as determined by the Trustees, without the approval of the common shareholders. The Fund has issued Series A through E Auction Rate Preferred Shares ("preferred shares") which have a liquidation value of $100,000 per share plus the redemption premium, if any, plus accumulated but unpaid dividends, whether or not declared, thereon to the date of distribution. The Fund may redeem such shares, in whole or in part, at the original purchase price of $100,000 per share plus accumulated but unpaid dividends, whether or not declared, thereon to the date of redemption. Dividends, which are cumulative, are reset through auction procedures. Beginning on February 19, 2008, and continuing through May 31, 2008, all series of preferred shares of the Fund were not successfully remarketed. As a result, the dividend rates of these preferred shares were reset to the maximum applicable rate on preferred shares.
AMOUNT IN NEXT RANGE OF SERIES SHARES++ THOUSANDS++ RATE++ RESET DATE DIVIDEND RATES+++ - ------ -------- ----------- ------ ---------- ----------------- A 200 20,000 2.19% 06/04/08 2.146% -- 4.50% B 200 20,000 2.19 06/04/08 2.146 -- 4.50 C 200 20,000 2.19 06/04/08 2.146 -- 4.50 D 200 20,000 2.19 06/04/08 2.146 -- 4.55 E 200 20,000 2.19 06/04/08 2.146 -- 4.55
- ---------- ++ As of May 31, 2008. +++ For the year ended May 31, 2008. 22 Morgan Stanley Municipal Premium Income Trust NOTES TO FINANCIAL STATEMENTS - MAY 31, 2008 continued Subsequent to May 31, 2008 and up through July 3, 2008, the Fund paid dividends to each of the Series A through E at rates ranging from 2.168% to 2.41% in the aggregate amount of $289,390. 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 - ------------- --------- ------------------ ------------------ April 8, 2008 $0.0375 June 20, 2008 June 27, 2008 July 8, 2008 0.0375 July 18, 2008 July 25, 2008 July 8, 2008 0.0375 August 22, 2008 August 29, 2008 July 8, 2008 0.0375 September 19, 2008 September 26, 2008
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. 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 Dealer Trusts in exchange for cash and residual interest in the Dealer Trusts. 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 23 Morgan Stanley Municipal Premium Income Trust NOTES TO FINANCIAL STATEMENTS - MAY 31, 2008 continued 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 Trust 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 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, 2008 MAY 31, 2007 ------------ ------------ Tax-exempt income...................................... $11,129,655 $12,174,036 Ordinary income........................................ 64 43,231 Long-term capital gains................................ 662,474 2,426,083 ----------- ----------- Total distributions.................................... $11,792,193 $14,643,350 =========== ===========
24 Morgan Stanley Municipal Premium Income Trust NOTES TO FINANCIAL STATEMENTS - MAY 31, 2008 continued As of May 31, 2008, the tax-basis components of accumulated losses were as follows: Undistributed tax-exempt income................................. $ 1,082,749 Undistributed long-term gains................................... -- ----------- Net accumulated earnings........................................ 1,082,749 Capital loss carryforward*...................................... (841,832) Post-October losses............................................. (1,577,410) Temporary differences........................................... (63,272) Net unrealized depreciation..................................... (2,278,791) ----------- Total accumulated losses........................................ $(3,678,556) ===========
- ------- * As of May 31, 2008, the Fund had a net capital loss carryforward of $841,832 which will expire on May 31, 2016 to offset future capital gains to the extent provided by regulations. As of May 31, 2008, the Fund had temporary book/tax differences primarily attributable to post-October losses (capital losses incurred after October 31 within the taxable year which are deemed to arise on the first business day of the Fund's next taxable year), book amortization of discounts on debt securities and mark-to-market of open futures contracts. Permanent differences, due to tax adjustments on debt securities sold by the Fund, resulted in the following reclassifications among the Fund's components of net assets at May 31, 2008:
ACCUMULATED ACCUMULATED UNDISTRIBUTED NET NET REALIZED INVESTMENT INCOME LOSS PAID-IN-CAPITAL ----------------- ------------ --------------- $(575) $575 -- ====== ==== ==
10. Accounting Pronouncements On March 19, 2008, FASB released Statement of Financial Accounting Standards No. 161, "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS 161"). SFAS 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts and gains and losses on derivative instruments, and disclosures about credit-risk- related contingent features in derivative agreements. The application of SFAS 161 is required for fiscal years beginning after November 15, 2008 and interim periods within those fiscal years. At this time, management is evaluating the implications of SFAS 161 and its impact on the financial statements has not yet been determined. 25 Morgan Stanley Municipal Premium Income Trust NOTES TO FINANCIAL STATEMENTS - MAY 31, 2008 continued 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. 11. Subsequent Event On July 11, 2008, the Fund announced plans for the partial redemption of its preferred shares. The Fund intends to redeem 17% of each of its Series per the table below. The Board of Trustees previously approved the use of tender option bonds as a replacement source of funding. The Depository Trust Company, the securities' holder of record, will determine how the partial series redemptions will be allocated among each participant broker-dealer account.
SERIES DATE - ------ ------------- A July 30, 2008 B July 30, 2008 C July 30, 2008 D July 30, 2008 E July 30, 2008
26 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, --------------------------------------------------------------------------- 2008 2007 2006 2005 2004 ------------ --------------- ------------ ------------ ------------ Selected Per Share Data: Net asset value, beginning of period......... $10.05 $10.13 $10.45 $ 9.88 $10.56 ------ ------ ------ ------ ------ Income (loss) from investment operations: Net investment income(1).................. 0.67 0.66 0.66 0.64 0.66 Net realized and unrealized gain (loss)... (0.78) 0.08 (0.20) 0.54 (0.68) Common share equivalent of dividends paid to preferred shareholders(1)............... (0.20) (0.20) (0.14) (0.09) (0.09) ------ ------ ------ ------ ------ Total income (loss) from investment operations.................................. (0.31) 0.54 0.32 1.09 (0.11) ------ ----- ----- ----- ------ Less dividends and distributions from: Net investment income..................... (0.46) (0.50) (0.54) (0.57) (0.61) Net realized gain......................... (0.04) (0.14) (0.14) -- -- ------ ------ ------ --------- --------- Total dividends and distributions............ (0.50) (0.64) (0.68) (0.57) (0.61) ------ ------ ------ ------ ------ Anti-dilutive effect of acquiring treasury shares(1)................................... 0.02 0.02 0.04 0.05 0.04 ----- ----- ----- ----- ----- Net asset value, end of period............... $ 9.26 $10.05 $10.13 $10.45 $ 9.88 ====== ====== ====== ====== ====== Market value, end of period.................. $ 8.34 $ 9.49 $ 9.12 $ 9.10 $ 8.93 ====== ====== ====== ====== ====== Total Return(2).............................. (6.86)% 11.22 % 7.85 % 8.54 % 1.27 % Ratios to Average Net Assets of Common Shareholders: Total expenses (before expense offset)....... 1.58 %(3)(4) 1.41 %(3) 1.09 % 1.29 %(3) 1.40 %(3) Total expenses (before expense offset, exclusive of interest and residual trust expenses)................................... 1.12 %(3)(4) 1.07 %(3) 1.09 % 1.29 %(3) 1.40 %(3) Net investment income before preferred stock dividends................................... 7.05 % 6.50 % 6.42 % 6.30 % 6.36 % Preferred stock dividends.................... 2.11 % 2.00 % 1.37 % 0.87 % 0.83 % Net investment income available to common shareholders................................ 4.94 % 4.50 % 5.05 % 5.43 % 5.53 % Supplemental Data: Net assets applicable to common shareholders, end of period, in thousands................. $154,430 $171,138 $176,515 $189,321 $186,755 Asset coverage on preferred shares at end of period...................................... 254 % 271 % 276 % 289 % 286 % Portfolio turnover rate...................... 5 % 13 % 33 % 20 % 23 %
- ---------- (1) The per share amounts were computed using an average number of common shares outstanding during the period. (2) 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. (3) Does not reflect the effect of expense offset of 0.01%. (4) Reflects rebate of certain Fund expenses in connection with the investments in Morgan Stanley Institutional Tax-Exempt Portfolio -- Institutional Class during the period. As a result of such rebates, the expenses as a percentage of its net assets had an effect of less than 0.005%.
See Notes to Financial Statements 27 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, 2008, 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, 2008, 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, 2008, 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 29, 2008 28 Morgan Stanley Municipal Premium Income Trust SHAREHOLDER VOTING RESULTS (UNAUDITED) On December 12, 2007, 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 Preferred Shareholders:
FOR WITHHELD ABSTAIN ------------------------------------ Michael E. Nugent............................ 834 0 0
Election of Trustees:
FOR WITHHELD ABSTAIN --------------------------------------- Michael F. Klein............................. 15,449,220 566,567 0 W. Allen Reed................................ 15,439,641 576,146 0
29 Morgan Stanley Municipal Premium Income Trust PORTFOLIO MANAGEMENT/REVISED INVESTMENT POLICY (UNAUDITED) Portfolio Management As of the date of this report, the Fund is managed within the Morgan Stanley Municipals 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 Steven K. Kreider and Neil Stone, each a Managing Director of the Investment Adviser. Revised Investment Policy To the extent permitted by applicable law and the Fund's investment objectives, policies, and restrictions, the Fund may invest all or some of its short-term cash investments in any money market fund advised or managed by the Investment Adviser or its affiliates. In connection with any such investments, the Fund, to the extent permitted by the Investment Company Act, will pay its share of all expenses (other than advisory and administrative fees) of a money market fund in which it invests which may result in the Fund bearing some additional expenses. The Board of Trustees Approved a Clarification in the Investment Policies Discussed Below The Fund may invest in put and call options and futures on its portfolio securities. The Fund may use options and futures to protect against a decline in the Fund's securities or an increase in prices of securities that may be purchased or to adjust the Fund's yield curve exposure. If the Fund invests in options and/or futures, its participation in these markets would subject the Fund's portfolio to certain risks. If the Investment Adviser's predictions of movements in the direction of the markets are inaccurate, the adverse consequences to the Fund (e.g., a reduction in the Fund's net asset value or a reduction in the amount of income available for distribution) may leave the Fund in a worse position than if these strategies were not used. Other risks inherent in the use of options and futures include, for example, the possible imperfect correlation between the price of options and futures contracts and movements in the prices of the securities being hedged. With respect to futures contracts, this correlation may be further distorted since the futures contracts that are being used to hedge are not based on municipal obligations. There is also the possibility of an absence of a liquid secondary market for any particular instrument. Certain options may be over-the- counter options which are options negotiated with dealers; there is no secondary market for these investments and therefore may be difficult to value. If the Fund uses an option or futures transaction as an alternative to purchasing or selling an underlying instrument in order to obtain desired exposure, the Fund will be exposed to the same risks as are incurred in purchasing and selling the underlying instrument directly. 30 Morgan Stanley Municipal Premium Income Trust PORTFOLIO MANAGEMENT/REVISED INVESTMENT POLICY (UNAUDITED) continued The Board of Trustees Approved the Investment Policy Change Discussed Below The Fund will invest at least 80% of its net assets in (A) municipal bonds which are rated at the time of purchase within the four highest grades by Moody's Investors Services Inc. ("Moody's") (Aaa, Aa, A, Baa), Standard and Poor's Corporation ("S&P") (AAA, AA, A, BBB), Fitch (AAA, AA, A, BBB) or another nationally recognized statistical rating organization ("NRSRO"), or, if not rated, are determined by the Investment Adviser to be of comparable quality; (B) municipal notes which at the time of purchase are rated in the two highest grades by Moody's (MIG1, MIG2), or the three highest grades by S&P (SP-1, SP-2, SP-3), Fitch (F1, F2, F3) or another NRSRO, or, if not rated, whose issuers have outstanding one or more issues of municipal bonds rated as set forth in clause (A) of this paragraph; and (C) municipal commercial paper which at the time of purchase is rated P-1 or higher by Moody's, A-1 or higher by S&P, F2 or higher by Fitch, or rated an equivalent grade by another NRSRO. 31 Morgan Stanley Municipal Premium Income Trust DIVIDEND REINVESTMENT PLAN (UNAUDITED) The dividend reinvestment plan (the "Plan") offers you a prompt and simple way to reinvest your dividends and capital gains distributions into additional shares of the Fund. Under the Plan, the money you earn from dividends and capital gains distributions will be reinvested automatically in more shares of the Fund, allowing you to potentially increase your investment over time. All shareholders in the Fund are automatically enrolled in the Plan when shares are purchased. PLAN BENEFITS - - ADD TO YOUR ACCOUNT You may increase your shares in the Fund easily and automatically with the Plan. - - LOW TRANSACTION COSTS Transaction costs are low because the new shares are bought in blocks and the brokerage commission is shared among all participants. - - CONVENIENCE You will receive a detailed account statement from Computershare Trust Company, N.A., which administers the Plan, whenever shares are reinvested for you. The statement shows your total distributions, date of investment, shares acquired, and price per share, as well as the total number of shares in your reinvestment account. You can also access your account via the Internet. To do this, please go to morganstanley.com. - - SAFEKEEPING Computershare Trust Company, N.A. will hold the shares it has acquired for you in safekeeping. HOW TO PARTICIPATE IN THE PLAN If you own shares in your own name, you can participate directly in the Plan. If your shares are held in "street name" -- in the name of your brokerage firm, bank, or other financial institution -- you must instruct that entity to participate on your behalf. If they are unable to participate on your behalf, you may request that they reregister your shares in your own name so that you may enroll in the Plan. If you choose to participate in the Plan, whenever the Fund declares a dividend or capital gains distributions, it will be invested in additional shares of your Fund that are purchased in the open market. HOW TO ENROLL To enroll in the Plan, please read the Terms and Conditions in the Plan brochure. You can obtain a copy of the Plan Brochure and enroll in the Plan by visiting morganstanley.com, calling toll-free (888) 421-4015 or notifying us in writing at Morgan Stanley Closed-End Funds, Computershare Trust Company, N.A., P.O. Box 43078, Providence, RI 02940-3078. Please include the Fund name and 32 Morgan Stanley Municipal Premium Income Trust DIVIDEND REINVESTMENT PLAN (UNAUDITED) continued account number and ensure that all shareholders listed on the account sign these written instructions. Your participation in the Plan will begin with the next dividend or capital gains distribution payable after Computershare Trust Company, N.A. receives your authorization, as long as they receive it before the "record date," which is generally ten business days before the dividend is paid. If your authorization arrives after such record date, your participation in the Plan will begin with the following dividend or distribution. COSTS OF THE PLAN There is no direct charge to you for reinvesting dividends and capital gains distributions because the Plan's fees are paid by the Fund. However, when applicable, you will pay your portion of any brokerage commissions incurred when the new shares are purchased on the open market. These brokerage commissions are typically less than the standard brokerage charges for individual transactions, because shares are purchased for all participants in blocks, resulting in lower commissions for each individual participant. Any brokerage commissions or service fees are averaged into the purchase price. TAX IMPLICATIONS The automatic reinvestment of dividends and capital gains distributions does not relieve you of any income tax that may be due on dividends or distributions. You will receive tax information annually to help you prepare your federal and state income tax returns. Morgan Stanley does not offer tax advice. The tax information contained herein is general and is not exhaustive by nature. It was not intended or written to be used, and it cannot be used by any taxpayer, for avoiding penalties that may be imposed on the taxpayer under U.S. federal tax laws. Federal and state tax laws are complex and constantly changing. Shareholders should always consult a legal or tax advisor for information concerning their individual situation. HOW TO WITHDRAW FROM THE PLAN To withdraw from the Plan please visit morganstanley.com or call (888) 421-4015 or notify us in writing at the address below. Morgan Stanley Closed-End Funds Computershare Trust Company, N.A. P.O. Box 43078 Providence, RI 02940-3078 33 Morgan Stanley Municipal Premium Income Trust DIVIDEND REINVESTMENT PLAN (UNAUDITED) continued All shareholders listed on the account must sign any written withdrawal instructions. If you withdraw, you have three options with regard to the shares held in your account: 1. If you opt to continue to hold your non-certificated shares, they will be held by Computershare Trust Company, N.A. 2. If you opt to sell your shares through Morgan Stanley, we will sell all full and fractional shares and send the proceeds via check to your address of record after deducting brokerage commissions. 3. You may sell your shares through your financial advisor through the Direct Registration System ("DRS"). DRS is a service within the securities industry that allows Fund shares to be held in your name in electronic format. You retain full ownership of your shares, without having to hold a stock certificate. The Fund and Computershare Trust Company, N.A. may amend or terminate the Plan. Participants will receive written notice at least 30 days before the effective date of any amendment. In the case of termination, Participants will receive written notice at least 30 days before the record date for the payment of any dividend or capital gains distribution by the Fund. In the case of amendment or termination necessary or appropriate to comply with applicable law or the rules and policies of the Securities and Exchange Commission or any other regulatory authority, such written notice will not be required. TO OBTAIN A COMPLETE COPY OF THE DIVIDEND REINVESTMENT PLAN, PLEASE CALL OUR CLIENT RELATIONS DEPARTMENT AT 888-421-4015 OR VISIT MORGANSTANLEY.COM. 34 Morgan Stanley Municipal Premium Income Trust MORGAN STANLEY ADVISOR CLOSED END FUNDS AN IMPORTANT NOTICE CONCERNING OUR U.S. PRIVACY POLICY (UNAUDITED) We are required by federal law to provide you with a copy of our Privacy Policy annually. The following Policy applies to current and former individual investors in Morgan Stanley Advisor closed end funds. This Policy is not applicable to partnerships, corporations, trusts or other non-individual clients or account holders. Please note that we may amend this Policy at any time, and will inform you of any changes to this Policy as required by law. WE RESPECT YOUR PRIVACY We appreciate that you have provided us with your personal financial information. We strive to maintain the privacy of such information while we help you achieve your financial objectives. This Policy describes what non-public personal information we collect about you, why we collect it, and when we may share it with others. We hope this Policy will help you understand how we collect and share non-public personal information that we gather about you. Throughout this Policy, we refer to the non-public information that personally identifies you or your accounts as "personal information." 1. WHAT PERSONAL INFORMATION DO WE COLLECT ABOUT YOU? To serve you better and manage our business, it is important that we collect and maintain accurate information about you. We may obtain this information from applications and other forms you submit to us, from your dealings with us, from consumer reporting agencies, from our Web sites and from third parties and other sources. FOR EXAMPLE: - - We may collect information such as your name, address, e-mail address, telephone/fax numbers, assets, income and investment objectives through applications and other forms you submit to us. - - We may obtain information about account balances, your use of account(s) and the types of products and services you prefer to receive from us through your dealings and transactions with us and other sources. - - We may obtain information about your creditworthiness and credit history from consumer reporting agencies. - - We may collect background information from and through third-party vendors to verify representations you have made and to comply with various regulatory requirements. - - If you interact with us through our public and private Web sites, we may collect information that you provide directly through online communications (such as an e-mail address). We may also collect information about your Internet service provider, your domain name, your computer's operating system and Web browser, your use of our Web sites and your product and service preferences, 35 through the use of "cookies." "Cookies" recognize your computer each time you return to one of our sites, and help to improve our sites' content and personalize your experience on our sites by, for example, suggesting offerings that may interest you. Please consult the Terms of Use of these sites for more details on our use of cookies. 2. WHEN DO WE DISCLOSE PERSONAL INFORMATION WE COLLECT ABOUT YOU? To provide you with the products and services you request, to serve you better and to manage our business, we may disclose personal information we collect about you to our affiliated companies and to non-affiliated third parties as required or permitted by law. A. INFORMATION WE DISCLOSE TO OUR AFFILIATED COMPANIES. We do not disclose personal information that we collect about you to our affiliated companies except to enable them to provide services on our behalf or as otherwise required or permitted by law. B. INFORMATION WE DISCLOSE TO THIRD PARTIES. We do not disclose personal information that we collect about you to non-affiliated third parties except to enable them to provide services on our behalf, to perform joint marketing agreements with other financial institutions, or as otherwise required or permitted by law. For example, some instances where we may disclose information about you to nonaffiliated third parties include: for servicing and processing transactions, to offer our own products and services, to protect against fraud, for institutional risk control, to respond to judicial process or to perform services on our behalf. When we share personal information with these companies, they are required to limit their use of personal information to the particular purpose for which it was shared and they are not allowed to share personal information with others except to fulfill that limited purpose. 3. HOW DO WE PROTECT THE SECURITY AND CONFIDENTIALITY OF PERSONAL INFORMATION WE COLLECT ABOUT YOU? We maintain physical, electronic and procedural security measures to help safeguard the personal information we collect about you. We have internal policies governing the proper handling of client information. Third parties that provide support or marketing services on our behalf may also receive personal information, and we require them to adhere to confidentiality standards with respect to such information. 36 Morgan Stanley Municipal Premium Income Trust TRUSTEE AND OFFICER INFORMATION (UNAUDITED) Independent Trustees:
Number of Portfolios in Fund Complex Name, Age and Position(s) Term of Office Principal Occupation(s) Overseen by Other Directorships Address of Held with and Length of During Independent Held by Independent Trustee Registrant Time Served* Past 5 Years Trustee** Independent Trustee - -------------------- ----------- ---------------- ------------------------- --------------- -------------------- Frank L. Bowman (63) Trustee Since August President and Chief 180 Director of the c/o Kramer Levin 2006 Executive Officer of the National Energy Naftalis & Frankel Nuclear Energy Institute Foundation, the U.S. LLP (policy organization) Energy Association, Counsel to the (since February 2005); the American Council Independent Trustees Director or Trustee of for Capital 1177 Avenue of the various Retail Funds and Formation and the Americas Institutional Funds Armed Services YMCA New York, NY 10036 (since August 2006); of the USA. Chairperson of the Insurance Sub-Committee of the Insurance, Valuation and Compliance Committee (since February 2007); formerly variously, Admiral in the U.S. Navy, Director of Naval Nuclear Propulsion Program and Deputy Administrator-Naval Reactors in the National Nuclear Security Administration at the U.S. Department of Energy (1996-2004). Honorary Knight Commander of the Most Excellent Order of the British Empire. Michael Bozic (67) Trustee Since April 1994 Private investor; 182 Director of various c/o Kramer Levin Chairperson of the business Naftalis & Frankel Insurance, Valuation and organizations. LLP Compliance Committee Counsel to the (since October 2006); Independent Trustees Director or Trustee of 1177 Avenue of the the Retail Funds (since Americas April 1994) and the New York, NY 10036 Institutional Funds (since July 2003); formerly Chairperson of the Insurance Committee (July 2006-September 2006); 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); variously Chairman, Chief Executive Officer, President and Chief Operating Officer (1987- 1991) of the Sears Merchandise Group of Sears, Roebuck & Co.
37 Morgan Stanley Municipal Premium Income Trust TRUSTEE AND OFFICER INFORMATION (UNAUDITED) continued
Number of Portfolios in Fund Complex Name, Age and Position(s) Term of Office Principal Occupation(s) Overseen by Other Directorships Address of Held with and Length of During Independent Held by Independent Trustee Registrant Time Served* Past 5 Years Trustee** Independent Trustee - -------------------- ----------- ---------------- ------------------------- --------------- -------------------- Kathleen A. Dennis Trustee Since August President, Cedarwood 180 Director of various (54) 2006 Associates (mutual fund non-profit c/o Kramer Levin and investment organizations. Naftalis & Frankel management) (since July LLP 2006); Chairperson of the Counsel to the Money Market and Independent Trustees Alternatives Sub- 1177 Avenue of the Committee of the Americas Investment Committee New York, NY 10036 (since October 2006) and Director or Trustee of various Retail Funds and Institutional Funds (since August 2006); formerly, Senior Managing Director of Victory Capital Management (1993- 2006). Dr. Manuel H. Trustee Since July 1991 Senior Partner, Johnson 182 Director of NVR, Johnson (59) Smick International, Inc. (home c/o Johnson Smick Inc., (consulting firm); construction); Group, Inc. Chairperson of the Director of 888 16th Street, Investment Committee Evergreen Energy. N.W. (since October 2006) and Suite 740 Director or Trustee of Washington, D.C. the Retail Funds (since 20006 July 1991) and the Institutional Funds (since July 2003); Co- Chairman and a founder of the Group of Seven Council (G7C), (international economic commission); formerly Chairperson of the Audit Committee (July 1991- September 2006); Vice Chairman of the Board of Governors of the Federal Reserve System and Assistant Secretary of the U.S. Treasury.
38 Morgan Stanley Municipal Premium Income Trust TRUSTEE AND OFFICER INFORMATION (UNAUDITED) continued
Number of Portfolios in Fund Complex Name, Age and Position(s) Term of Office Principal Occupation(s) Overseen by Other Directorships Address of Held with and Length of During Independent Held by Independent Trustee Registrant Time Served* Past 5 Years Trustee** Independent Trustee - -------------------- ----------- ---------------- ------------------------- --------------- -------------------- Joseph J. Kearns Trustee Since August President, Kearns & 183 Director of Electro (65) 1994 Associates LLC Rent Corporation c/o Kearns & (investment consulting); (equipment leasing) Associates LLC Chairperson of the Audit and The Ford Family PMB754 Committee (since October Foundation. 23852 Pacific Coast 2006) and Director or Highway Trustee of the Retail Malibu, CA 90265 Funds (since July 2003) and the Institutional Funds (since August 1994); formerly, Deputy Chairperson of the Audit Committee (July 2003- September 2006) and Chairperson of the Audit Committee of the Institutional Funds (October 2001-July 2003); formerly CFO of the J. Paul Getty Trust. Michael F. Klein Trustee Since August Managing Director, Aetos 180 Director of certain (49) 2006 Capital, LLC (since March investment funds c/o Kramer Levin 2000) and Co-President, managed or sponsored Naftalis & Frankel Aetos Alternatives by Aetos Capital, LLP Management, LLC (since LLC. Director of Counsel to the January 2004); Sanitized AG and Independent Trustees Chairperson of the Fixed- Sanitized Marketing 1177 Avenue of the Income Sub-Committee of AG (specialty Americas the Investment Committee chemicals). New York, NY 10036 (since October 2006) and Director or Trustee of various Retail Funds and Institutional Funds (since August 2006); formerly Managing Director, Morgan Stanley & Co. Inc. and Morgan Stanley Dean Witter Investment Management, President, Morgan Stanley Institutional Funds (June 1998-March 2000) and Principal, Morgan Stanley & Co. Inc. and Morgan Stanley Dean Witter Investment Management (August 1997-December 1999).
39 Morgan Stanley Municipal Premium Income Trust TRUSTEE AND OFFICER INFORMATION (UNAUDITED) continued
Number of Portfolios in Fund Complex Name, Age and Position(s) Term of Office Principal Occupation(s) Overseen by Other Directorships Address of Held with and Length of During Independent Held by Independent Trustee Registrant Time Served* Past 5 Years Trustee** Independent Trustee - -------------------- ----------- ---------------- ------------------------- --------------- -------------------- Michael E. Nugent Chairperson Chairperson of General Partner of 182 None. (72) of the the Boards since Triumph Capital, L.P. c/o Triumph Capital, Board and July 2006 and (private investment L.P. Trustee Trustee since partnership); Chairperson 445 Park Avenue July 1991 of the Boards of the New York, NY 10022 Retail Funds and Institutional Funds (since July 2006) and Director or Trustee of the Retail Funds (since July 1991) and the Institutional Funds (since July 2001); formerly Chairperson of the Insurance Committee (until July 2006). W. Allen Reed (61) Trustee Since August Chairperson of the Equity 180 Director of Temple- c/o Kramer Levin 2006 Sub-Committee of the Inland Industries Naftalis & Frankel Investment Committee (packaging, and LLP (since October 2006) and forest products); Counsel to the Director or Trustee of Director of Legg Independent Trustees various Retail Funds and Mason, Inc. and 1177 Avenue of the Institutional Funds Director of the Americas (since August 2006); Auburn University New York, NY 10036 President and CEO of Foundation. General Motors Asset Management; formerly, Chairman and Chief Executive Officer of the GM Trust Bank and Corporate Vice President of General Motors Corporation (August 1994- December 2005). Fergus Reid (75) Trustee Since June 1992 Chairman of Lumelite 183 Trustee and Director c/o Lumelite Plastics Corporation; of certain Plastics Corporation Chairperson of the investment companies 85 Charles Colman Governance Committee and in the JPMorgan Blvd. Director or Trustee of Funds complex Pawling, NY 12564 the Retail Funds (since managed by J.P. July 2003) and the Morgan Investment Institutional Funds Management Inc. (since June 1992).
40 Morgan Stanley Municipal Premium Income Trust TRUSTEE AND OFFICER INFORMATION (UNAUDITED) continued Interested Trustee:
Number of Portfolios in Fund Complex Position(s) Term of Office Principal Occupation(s) Overseen by Name, Age and Address of Held with and Length of During Interested Other Directorships Held by Interested Trustee Registrant Time Served* Past 5 Years Trustee** Interested Trustee - --------------------------- ----------- --------------- --------------------------- ------------- --------------------------- James F. Higgins (60) Trustee Since June 2000 Director or Trustee of the 181 Director of AXA Financial, c/o Morgan Stanley Trust Retail Funds (since June Inc. and The Equitable Life Harborside Financial Center 2000) and the Institutional Assurance Society of the Plaza Two Funds (since July 2003); United States (financial Jersey City, NJ 07311 Senior Advisor of Morgan services). Stanley (since August 2000).
- ---------- * This is the earliest date the Trustee began serving the funds advised by Morgan Stanley Investment Advisors Inc. (the "Investment Adviser") (the "Retail Funds") or the funds advised by Morgan Stanley Investment Management Inc. and Morgan Stanley AIP GP LP (the "Institutional Funds"). ** 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.). 41 Morgan Stanley Municipal Premium Income Trust TRUSTEE AND OFFICER INFORMATION (UNAUDITED) continued Executive 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 (69) President and President President (since September 2005) and Principal 1221 Avenue of the Americas Principal since Executive Officer (since May 2003) of funds in New York, NY 10020 Executive September 2005 the Fund Complex; President (since September Officer and Principal 2005) and Principal Executive Officer (since Executive May 2003) of the Van Kampen Funds; Managing Officer since Director, Director and/or Officer of the May 2003 Investment Adviser and various entities affiliated with the Investment Adviser; Director of Morgan Stanley SICAV (since May 2004). Formerly, 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 Administrative Officer of the Investment Adviser; Chief Administrative Officer of Morgan Stanley Services Company Inc. Kevin Klingert (45) Vice President Since June Chief Operating Officer of the Global Fixed 522 Fifth Avenue 2008 Income Group of Morgan Stanley Investment New York, NY 10036 Management Inc. and Morgan Stanley Investment Advisors Inc. (since March 2008). Head of Global Liquidity Portfolio Management and co- Head of Liquidity Credit Research of Morgan Stanley Investment Management (since December 2007). Managing Director of Morgan Stanley Investment Management Inc. and Morgan Stanley Investment Advisors Inc. (since December 2007). Previously, Managing Director on the Management Committee and head of Municipal Portfolio Management and Liquidity at BlackRock (October 1991 to January 2007). Dennis F. Shea (55) Vice President Since February Managing Director and (since February 2006) 1221 Avenue of the Americas 2006 Chief Investment Officer -- Global Equity of New York, NY 10020 Morgan Stanley Investment Management; Vice President of the Retail and Institutional Funds (since February 2006). Formerly, Managing Director and Director of Global Equity Research at Morgan Stanley. Amy R. Doberman (46) Vice President Since July Managing Director and General Counsel, U.S. 1221 Avenue of the Americas 2004 Investment Management of Morgan Stanley New York, NY 10020 Investment Management (since 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 (44) Chief Since October Managing Director and U.S. Director of 1221 Avenue of the Americas Compliance 2004 Compliance for Morgan Stanley Investment New York, NY 10020 Officer Management (since October 2004); Managing 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 (41) Vice President Since December Managing Director of the Investment Adviser and 1221 Avenue of the Americas 1997 various entities affiliated with the Investment New York, NY 10020 Adviser; Vice 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.
42 Morgan Stanley Municipal Premium Income Trust TRUSTEE AND OFFICER INFORMATION (UNAUDITED) 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 (42) Treasurer and Treasurer Executive Director of the Investment Adviser and c/o Morgan Stanley Trust Chief Financial since July various entities affiliated with the Investment Harborside Financial Center Officer 2003 and Chief Adviser; Treasurer and Chief Financial Officer Plaza Two Financial of the Retail Funds (since July 2003). Formerly, Jersey City, NJ 07311 Officer since Vice President of the Retail Funds (September September 2002 2002 to July 2003). Mary E. Mullin (41) Secretary Since June Executive Director of the Investment Adviser and 1221 Avenue of the Americas 1999 various entities affiliated with the Investment New York, NY 10020 Adviser; Secretary of the Retail Funds (since July 2003) and the Institutional Funds (since June 1999).
- ---------- * This is the earliest date the Officer began serving the Retail Funds or the Institutional Funds. 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 1, 2008. 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. 2008 FEDERAL TAX NOTICE (UNAUDITED) For Federal income tax purposes, the following information is furnished with respect to the distributions paid by the Fund during its taxable year ended May 31, 2008. The Fund designated 100% of its income dividends as tax-exempt income dividends. The Fund designated and paid $662,474 as a long-term capital gain distribution. In January, the Fund provides tax information to shareholders for the preceding calendar year. 43 TRUSTEES Frank L. Bowman Michael Bozic Kathleen A. Dennis 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 Chairperson of the Board Ronald E. Robison President and Principal Executive Officer Kevin Klingert Vice President Dennis F. Shea 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 Computershare Trust Company, N.A. P.O. Box 43078 Providence, RI 02940-3078 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Deloitte & Touche LLP Two World Financial Center New York, New York 10281 LEGAL COUNSEL Clifford Chance US LLP 31 West 52nd Street New York, New York 10019 COUNSEL TO THE INDEPENDENT TRUSTEES Kramer Levin Naftalis & Frankel LLP 1177 Avenue of the Americas New York, New York 10036 INVESTMENT ADVISER Morgan Stanley Investment Advisors Inc. 522 Fifth Avenue New York, New York 10036 (c) 2008 Morgan Stanley [MORGAN STANLEY LOGO] MORGAN STANLEY FUNDS Morgan Stanley Municipal Premium Income Trust NYSE: PIA Annual Report May 31, 2008 PIAANN Iu08-03868P-y05/08 Item 2. Code of Ethics. (a) The Trust/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 Trust/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 Trust/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 Joseph J. Kearns, an "independent" Trustee, is an "audit committee financial expert" serving on its audit committee. 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. Item 4. Principal Accountant Fees and Services. (a)(b)(c)(d) and (g). Based on fees billed for the periods shown: 2 2008
REGISTRANT COVERED ENTITIES(1) ---------- ------------------- AUDIT FEES............ $32,375 N/A NON-AUDIT FEES........ AUDIT-RELATED FEES.. $ 5,750(2) $4,336,000(2) TAX FEES............ $ 4,738(3) $ 762,000(4) ALL OTHER FEES...... $ $ TOTAL NON-AUDIT FEES.. $10,488 $5,098,000 TOTAL................. $42,863 $5,098,000
2007
REGISTRANT COVERED ENTITIES(1) ---------- ------------------- AUDIT FEES............ $32,000 N/A NON-AUDIT FEES AUDIT-RELATED FEES.. $6,096(2) $4,836,000(2) TAX FEES............ $4,600(3) $ 621,000(4) ALL OTHER FEES...... $ $___(5) TOTAL NON-AUDIT FEES.. $10,696 $5,457,000 TOTAL................. $42,696 $5,457,000
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. (5) All other fees represent project management for future business applications and improving business and operational processes. 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: Joseph Kearns, Michael Nugent and Allen Reed. (b) Not applicable. Item 6. See Item 1. Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. 8 The Fund/Trust invests in exclusively non-voting securities and therefore this item is not applicable. Item 8. Portfolio Managers of Closed-End Management Investment Companies Applicable only to reports covering periods ending on or after December 31, 2005. MORGAN STANLEY MUNICIPAL PREMIUM INCOME TRUST 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 Steven Kreider and Neil Stone, each a Managing Director of the Investment Adviser. Mr. Kreider has been associated with the Investment Adviser in an investment management capacity since February 1988 and began managing the Fund in September 2007. Mr. Stone has been associated with the Investment Adviser in an investment management capacity since March 1995 and began managing the Fund in September 2007. 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, 2008. Mr. Kreider managed 40 mutual funds with a total of approximately $30.7 billion in assets; no pooled investment vehicles other than mutual funds; and 42 other accounts (including accounts managed under certain "wrap-fee" programs) with a total of approximately $6.5 billion in assets. Mr. Stone managed 20 mutual funds with a total of approximately $7.8 billion in assets; no pooled investment vehicles other than mutual funds; and 39 other accounts (including accounts managed under certain "wrap-fee" programs) with a total of approximately $8.1 billion in assets. 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 managers may have an incentive to favor the higher and/or performance-based fee accounts over the Fund. In addition, a conflict of interest could exist to the extent the Investment Adviser has proprietary investments in certain accounts, where portfolio managers have personal investments in certain accounts or when certain accounts are investment options in the Investment Adviser's employee benefits and/or deferred compensation plans. The portfolio manager may have an incentive to favor these accounts over others. If the Investment Adviser manages accounts that engage in short sales of securities of the type in which the Fund invests, the Investment Adviser could be seen as harming the performance of the Fund for the benefit of the accounts engaging in short sales if the short sales cause the market value of the securities to fall. 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 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 managers. BASE SALARY COMPENSATION. Generally, portfolio managers receive base salary compensation based on the level of their position with the Investment Adviser. 9 DISCRETIONARY COMPENSATION. In addition to base compensation, portfolio managers may receive discretionary compensation. Discretionary compensation can include: - Cash Bonus. - Morgan Stanley's Long Term Incentive Compensation 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 or other investments that are subject to vesting and other conditions. - Investment Management Alignment Plan (IMAP) 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 100% of the IMAP deferral into a combination of the designated funds they manage that are included in the IMAP fund menu, which may or may not include the Fund. - 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 (as set forth in the fund's prospectus), 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 As of May 31, 2008, the portfolio managers did not own any share of the Fund. 10 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) of (a) Total Purchased as Shares (or Units) Number of Part of Publicly that May Yet Be Shares (or (b) Average Announced Purchased Under Units) Price Paid per Plans or the Plans Period Purchased Share (or Unit) Programs or Programs - -------------- ---------- --------------- ---------------- ----------------- June 2007 28,900 9.224 N/A N/A July 2007 27,000 9.0762 N/A N/A August 2007 29,000 8.7789 N/A N/A September 2007 30,500 8.8682 N/A N/A October 2007 50,400 8.7121 N/A N/A November 2007 39,900 8.3673 N/A N/A December 2007 62,402 8.3809 N/A N/A January 2008 52,905 8.8104 N/A N/A February 2008 25,008 8.5606 N/A N/A ------- ------ Total 346,015 8.7532 N/A N/A
11 Item 10. Submission of Matters to a Vote of Security Holders Not applicable. Item 11. Controls and Procedures (a) The Trust's/Fund's principal executive officer and principal financial officer have concluded that the Trust's/Fund's disclosure controls and procedures are sufficient to ensure that information required to be disclosed by the Trust/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. 12 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 17, 2008 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 17, 2008 /s/ Francis Smith - ----------------------------------- Francis Smith Principal Financial Officer July 17, 2008 13 EX-99.CODE ETH 2 y60275exv99wcodeeth.txt EX-99.CODE ETH: 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 14 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. 15 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 16 - 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." 17 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. 18 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: -------------------------------- 19 EXHIBIT A FUND LIST AT FEBRUARY 29, 2008 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 Allocator Fund ("Allocator Fund")+ 13. Morgan Stanley Capital Opportunities Trust ("Capital Opportunities")+ 14. Morgan Stanley Diversified International Equity Fund ("Diversified International Equity")+ 15. Morgan Stanley Diversified Large Cap Equity Fund ("Diversified Large Cap Equity 16. Morgan Stanley Dividend Growth Securities Inc. ("Dividend Growth")+ 17. Morgan Stanley Equally-Weighted S&P 500 Fund ("Equally-Weighted S&P 500")+ 18. Morgan Stanley European Equity Fund Inc. ("European Equity")+ 19. Morgan Stanley Financial Services Trust ("Financial Services")+ 20 20. Morgan Stanley Focus Growth Fund ("Focus Growth")+ 21. Morgan Stanley Fundamental Value Fund ("Fundamental Value")+ 22. Morgan Stanley FX Series - FX Alpha Plus Strategy Portfolio ("Alpha Plus")+ 23. Morgan Stanley FX Series - FX Alpha Strategy Portfolio ("Alpha")+ 24. Morgan Stanley Global Advantage Fund ("Global Advantage")+ 25. Morgan Stanley Global Dividend Growth Securities ("Global Dividend Growth")+ 26. Morgan Stanley Health Sciences Trust ("Health Sciences")+ 27. Morgan Stanley Institutional Strategies Fund ("Institutional Strategies")+ 28. Morgan Stanley International Fund ("International Fund")+ 29. Morgan Stanley International SmallCap Fund ("International SmallCap")+ 30. Morgan Stanley International Value Equity Fund ("International Value")+ 31. Morgan Stanley Japan Fund ("Japan Fund")+ 32. Morgan Stanley Mid Cap Growth Fund ("Mid Cap Growth")+ 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 Technology Fund ("Technology")+ 44. Morgan Stanley Total Market Index Fund ("Total Market Index")+ 45. Morgan Stanley Utilities Fund ("Utilities Fund")+ 46. Morgan Stanley Value Fund ("Value Fund")+ BALANCED FUNDS 47. Morgan Stanley Balanced Fund ("Balanced")+ ASSET ALLOCATION FUND 48. Morgan Stanley Strategist Fund ("Strategist Fund")+ TAXABLE FIXED-INCOME FUNDS 49. Morgan Stanley Convertible Securities Trust ("Convertible Securities")+ 50. Morgan Stanley Flexible Income Trust ("Flexible Income")+ 51. Morgan Stanley Income Trust ("Income Trust")+ 52. Morgan Stanley High Yield Securities Inc. ("High Yield Securities")+ 53. Morgan Stanley Limited Duration Fund ("Limited Duration Fund") 54. Morgan Stanley Limited Duration U.S. Treasury Trust ("Limited Duration Treasury") 21 55. Morgan Stanley Mortgage Securities Trust ("Mortgage Securities")+ 56. Morgan Stanley U.S. Government Securities Trust ("Government Securities")+ TAX-EXEMPT FIXED-INCOME FUNDS 57. Morgan Stanley California Tax-Free Income Fund ("California Tax-Free")+ 58. Morgan Stanley Limited Term Municipal Trust ("Limited Term Municipal") 59. Morgan Stanley New York Tax-Free Income Fund ("New York Tax-Free")+ 60. Morgan Stanley Tax-Exempt Securities Trust ("Tax-Exempt Securities")+ SPECIAL PURPOSE FUNDS 61. Morgan Stanley Select Dimensions Investment Series ("Select Dimensions") - Balanced Portfolio - Capital Opportunities Portfolio - Developing Growth Portfolio - Dividend Growth Portfolio - Equally-Weighted S&P 500 Portfolio - Flexible Income Portfolio - Focus Growth Portfolio - Global Equity Portfolio - Growth Portfolio - Money Market Portfolio - Utilities Portfolio 62. Morgan Stanley Variable Investment Series ("Variable Investment") - Aggressive Equity Portfolio - Dividend Growth Portfolio - Equity Portfolio - European Growth 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 22 CLOSED-END RETAIL FUNDS TAXABLE FIXED-INCOME CLOSED-END FUNDS 63. Morgan Stanley Income Securities Inc. ("Income Securities") 64. Morgan Stanley Prime Income Trust ("Prime Income") TAX-EXEMPT FIXED-INCOME CLOSED-END FUNDS 65. Morgan Stanley California Insured Municipal Income Trust ("California Insured Municipal") 66. Morgan Stanley California Quality Municipal Securities ("California Quality Municipal") 67. Morgan Stanley Insured California Municipal Securities ("Insured California Securities") 68. Morgan Stanley Insured Municipal Bond Trust ("Insured Municipal Bond") 69. Morgan Stanley Insured Municipal Income Trust ("Insured Municipal Income") 70. Morgan Stanley Insured Municipal Securities ("Insured Municipal Securities") 71. Morgan Stanley Insured Municipal Trust ("Insured Municipal Trust") 72. Morgan Stanley Municipal Income Opportunities Trust ("Municipal Opportunities") 73. Morgan Stanley Municipal Income Opportunities Trust II ("Municipal Opportunities II") 74. Morgan Stanley Municipal Income Opportunities Trust III ("Municipal Opportunities III") 75. Morgan Stanley Municipal Premium Income Trust ("Municipal Premium") 76. Morgan Stanley New York Quality Municipal Securities ("New York Quality Municipal") 77. Morgan Stanley Quality Municipal Income Trust ("Quality Municipal Income") 78. Morgan Stanley Quality Municipal Investment Trust ("Quality Municipal Investment") 79. 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 23 - Emerging Markets Debt Portfolio - Focus Equity Portfolio - Global Franchise Portfolio - Global Real Estate Portfolio - Global Value Equity Portfolio - International Equity Portfolio - International Growth Equity Portfolio - International Magnum Portfolio - International Real Estate Portfolio - International Small Cap Portfolio - Large Cap Relative Value Portfolio - Money Market Portfolio - Municipal Money Market Portfolio - Small Company Growth Portfolio - Systematic Active Large Cap Core Portfolio - Systematic Active Small Cap Core Portfolio - Systematic Active Small Cap Growth Portfolio - Systematic Active Small Cap Value Portfolio - U.S. Large Cap Growth Portfolio - U.S. Real Estate 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 Portfolio - Advisory Foreign Fixed Income II Portfolio - Advisory Foreign Fixed Income Portfolio - Balanced Portfolio - Core Fixed Income Portfolio - Core Plus Fixed Income Portfolio - ---------- * Have not commenced or have ceased operations 24 - Equity Portfolio - Equity Plus Portfolio - High Yield Portfolio - Intermediate Duration Portfolio - International Fixed Income Portfolio - Investment Grade Fixed Income Portfolio - Limited Duration Portfolio - Long Duration Fixed Income Portfolio - Mid-Cap Growth Portfolio - Municipal Portfolio - U.S. Mid-Cap Value Portfolio - U.S. Small-Cap Value Portfolio - Value Portfolio 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 Real Estate Portfolio - Global Value Equity Portfolio - High Yield Portfolio - International Growth Equity Portfolio - International Magnum Portfolio - Mid-Cap Growth Portfolio - Small Company Growth Portfolio - U.S. Mid-Cap Value Portfolio - U.S. Real Estate Portfolio 25 - 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") 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") 15. India Investment Fund ("India Investment") CLOSED-END FUND OF HEDGE FUNDS - ---------- * Have not commenced or have ceased operations 26 16. 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 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 Arthur Lev 29 EX-99.CERT 3 y60275exv99wcert.txt EX-99.CERT: 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 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): 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 17, 2008 /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 second fiscal quarter of the period covered by this period 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 17, 2008 /s/ Francis Smith ----------------------------- Francis Smith Principal Financial Officer 33 EX-99.906CERT 4 y60275exv99w906cert.txt EX-99.906CERT: 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, 2008 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 31, 2008 /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 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, 2008 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 17, 2008 /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-----