-----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, TjKy78TRFyAuZVO6Cb7d3H4yk/Lxv78aBdhsaAm2hVjGQv5Xvm9SExG7bvSJLX+S byRUhy55qkeG5HoegKYGfA== 0000950123-01-509624.txt : 20020413 0000950123-01-509624.hdr.sgml : 20020413 ACCESSION NUMBER: 0000950123-01-509624 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20011031 FILED AS OF DATE: 20011228 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MORGAN STANLEY QUALITY MUNICIPAL INVESTMENT TRUS CENTRAL INDEX KEY: 0000876982 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: MA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-06346 FILM NUMBER: 1824771 BUSINESS ADDRESS: STREET 1: TWO WORLD TRADE CENTER CITY: NEW YORK STATE: NY ZIP: 10048 BUSINESS PHONE: 2123922550 FORMER COMPANY: FORMER CONFORMED NAME: INTERCAPITAL QUALITY MUNICIPAL INVESTMENT TRUST DATE OF NAME CHANGE: 19920929 FORMER COMPANY: FORMER CONFORMED NAME: MORGAN STANLEY DEAN WITTER QUALITY MUNICIPAL INVESTMENT TRUS DATE OF NAME CHANGE: 19981221 FORMER COMPANY: FORMER CONFORMED NAME: MORGAN STANLEY QUALITY MUNICIPAL INVESTMENT TRUST DATE OF NAME CHANGE: 20011220 N-30D 1 y55313n-30d.txt MORGAN STANLEY QUALITY MUNICIPAL INVESTMENT TRUST Morgan Stanley Quality Municipal Investment Trust LETTER TO THE SHAREHOLDERS - OCTOBER 31, 2001 Dear Shareholder: During the fiscal year ended October 31, 2001, the U.S. economy slowed and the fixed-income markets rallied. The terrorist attacks on September 11 aggravated the decline in business and consumer activity. Almost immediately after the attacks many companies announced major layoffs. The unemployment rate jumped from 4.9 percent to 5.4 percent and October reported the largest job loss in 20 years. The Federal Reserve Board responded to the attacks by lowering short-term interest rates by 50 basis points in both September and October. Subsequently, the Fed cut rates another 50 basis points in November. The November action, the tenth in 2001, reduced the federal funds rate to 2.00 percent, the lowest level since 1961. Additionally, both the House and Senate have been formulating plans to stimulate the economy. These monetary and fiscal actions appear to be laying the groundwork for an economic recovery. Within the fixed-income markets, events of the past fiscal year had the greatest impact on U.S. Treasuries which appreciated throughout the year and rallied further in a flight to quality following September 11. Yields of short maturities declined the most steepening the yield curve. On October 31, the U.S. Treasury stunned the securities markets by announcing the cessation of the 30-year bond auction. Municipal Market Conditions Over the past 12 months, tax-free interest rates have also moved lower. The 30-year insured municipal bond index, which was 5.65 percent last October, declined to 5.04 percent by the end of October 2001. The ratio of municipal yields as a percentage of U.S. Treasury yields is routinely used as a guide to track the relationship between the two markets. A declining yield ratio indicates stronger relative performance by municipals. The ratio of 30-year insured municipal bond yields to U.S. Treasuries fell from 98 percent last October to 94 percent at the end of August. However, following September 11 and the Treasury's auction announcement, the ratio jumped to 104 percent. Long-term insured municipal yields above Treasuries is an anomaly that has occurred only during periods of significant market uncertainty. In the 10-year maturity range, the ratio also soared, from 83 percent to 95 percent between August and October. Morgan Stanley Quality Municipal Investment Trust LETTER TO THE SHAREHOLDERS - OCTOBER 31, 2001 continued The change in the slope of the yield curve has been a major story in the fixed-income markets this year. Since the Fed started lowering short-term rates aggressively in January, the municipal yield curve between one- and 30-year maturities steepened, from 125 to 300 basis points. Lower interest rates also led to a rebound in new-issue volume. During the first 10 months of 2001, underwriting surged 36 percent, to $224 billion. Refunding issues, the most interest-rate-sensitive category, represented almost one-quarter of the total. The states with the greatest issuance: California, Florida, New York and Texas, represented 35 percent of national volume. 30-YEAR BOND YIELDS 1997-2001 [BOND YIELDS LINE GRAPH]
INSURED INSURED MUNICIPAL YIELDS/ MUNICIPAL YIELDS U.S. TREASURY YIELDS U.S. TREASURY YIELDS (RATIO) ---------------- -------------------- ---------------------------- 1996 5.60% 6.63% 84.46% 1997 5.70% 6.79% 83.95% 5.65% 6.80% 83.09% 5.90% 7.10% 83.10% 5.75% 6.94% 82.85% 5.65% 6.91% 81.77% 5.60% 6.78% 82.60% 5.30% 6.30% 84.13% 5.50% 6.61% 83.21% 5.40% 6.40% 84.38% 5.35% 6.15% 86.99% 5.30% 6.05% 87.60% 5.15% 5.92% 86.99% 1998 5.15% 5.80% 88.79% 5.20% 5.92% 87.84% 5.25% 5.93% 88.53% 5.35% 5.95% 89.92% 5.20% 5.80% 89.66% 5.20% 5.65% 92.04% 5.18% 5.71% 90.72% 5.03% 5.27% 95.45% 4.95% 5.00% 99.00% 5.05% 5.16% 97.87% 5.00% 5.06% 98.81% 5.05% 5.10% 99.02% 1999 5.00% 5.09% 98.23% 5.10% 5.58% 91.40% 5.15% 5.63% 91.47% 5.20% 5.66% 91.87% 5.30% 5.83% 90.91% 5.47% 5.96% 91.78% 5.55% 6.10% 90.98% 5.75% 6.06% 94.88% 5.85% 6.05% 96.69% 6.03% 6.16% 97.89% 6.00% 6.29% 95.39% 5.97% 6.48% 92.13% 2000 6.18% 6.49% 95.22% 6.04% 6.14% 98.37% 5.82% 5.83% 99.83% 5.91% 5.96% 99.16% 5.91% 6.01% 98.34% 5.84% 5.90% 98.98% 5.73% 5.78% 99.13% 5.62% 5.67% 99.12% 5.74% 5.89% 97.45% 5.65% 5.79% 97.58% 5.55% 5.61% 98.93% 5.27% 5.46% 96.52% 2001 5.30% 5.50% 96.36% 5.27% 5.31% 99.25% 5.26% 5.44% 96.69% 5.45% 5.79% 94.13% 5.40% 5.75% 93.91% 5.35% 5.76% 92.88% 5.16% 5.52% 93.48% 5.07% 5.37% 94.41% 5.20% 5.42% 95.94% 5.04% 4.87% 103.49%
Source: Municipal Market Data - A Division of Thomson Financial Municipal Group and Bloomberg L.P. Performance During the 12-month period ended October 31, 2001, the net asset value (NAV) of Morgan Stanley Quality Municipal Investment Trust (IQT) increased from $14.64 to $15.31 per share. Based on this change, plus a reinvestment of tax-free dividends totaling $0.93 per share and the reinvestment of capital gains totaling $0.01 per share, the Trust's total NAV return was 11.55 percent. IQT's value on the New York Stock Exchange (NYSE) increased from $13.6875 to 2 Morgan Stanley Quality Municipal Investment Trust LETTER TO THE SHAREHOLDERS - OCTOBER 31, 2001 continued $15.08 per share during this period. IQT's total market return, which includes the reinvestment of tax-free dividends, was 17.52 percent. As of October 31, 2001, IQT's share price was at a 1.50 percent discount to its NAV. Monthly dividends for November and December 2001, were declared in October and were unchanged at $0.0775 per share. The Trust's level of undistributed net investment income was $0.173 per share on October 31, 2001 versus $0.141 per share at the beginning of the calendar year. Dividend levels reflect the Trust's current earnings which have benefited from the lower short-term borrowing costs of Auction Rate Preferred Shares (ARPS). Portfolio Structure The Trust's net assets of $363 million were diversified among 13 long-term sectors and 64 credits. At the end of October, the portfolio's average maturity was 21 years. Average duration, a measure of sensitivity to interest-rate changes, was 6.5 years. The accompanying charts and table provide current information on the portfolio's credit enhancement, maturity distribution and sector concentration. Optional call provisions by year and their respective cost (book) yields are also shown. The Impact of Leveraging As discussed in previous shareholder reports, the total income available for distribution to common shareholders includes incremental income provided by the Trust's outstanding Auction Rate Preferred Shares. ARPS dividends reflect prevailing short-term interest rates on maturities normally ranging from one week to one year. Incremental income to common shareholders depends on two factors. The first factor is the amount of ARPS outstanding, while the second is the spread between the portfolio's cost yield and ARPS expenses (ARPS auction rate and expenses). The greater the spread and amount of ARPS outstanding, the greater the amount of incremental income available for distribution to common shareholders. The level of net investment income available for distribution to common shareholders varies with the level of short-term interest rates. ARPS leverage also increases the price volatility of common shares and has the effect of extending portfolio duration. During the 12-month period, ARPS leverage contributed approximately $0.12 per share to common share earnings. The Trust's two ARPS series totaled $105 million and represented 29 percent of net assets. Weekly ARPS rates ranged between 1.85 and 5.05 percent during the fiscal period. On November 6, 2001, IQT's 12-month ARPS auction, which was postponed from 3 Morgan Stanley Quality Municipal Investment Trust LETTER TO THE SHAREHOLDERS - OCTOBER 31, 2001 continued September 11, was auctioned at 2.20 percent compared to 4.32 percent over the previous 12-month period. Looking Ahead Economists calculate the negative impact of the September 11 attacks to be a full percentage point of gross domestic product. Consensus estimates for the second half of 2001 have accordingly been revised from modestly positive to negative. A decline in economic output for two successive quarters would meet the customary definition of a recession, which would be the first in a record 10 years. While there is no doubt that the terrorist attacks are having a negative impact on the economy, high-grade fixed-income securities have historically fared well during periods of stress. The Trust'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 Trust's shares. In addition, we would like to remind you that the Trustees have approved a procedure whereby the Trust 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 Trust may also utilize procedures to reduce or eliminate the amount of outstanding ARPS, including their purchase in the open market or in privately negotiated transactions. During the 12-month period ended October 31, 2001, the Trust purchased and retired 58,300 shares of common stock at a weighted average market discount of 6.22 percent. We appreciate your ongoing support of Morgan Stanley Quality Municipal Investment Trust and look forward to continuing to serve your investment needs. Very truly yours, /s/ CHARLES A. FIUMEFREDDO /s/ MITCHELL M. MERIN Charles A. Fiumefreddo Mitchell M. Merin Chairman of the Board President
4 Morgan Stanley Quality Municipal Investment Trust LETTER TO THE SHAREHOLDERS - OCTOBER 31, 2001 continued [LONG TERM SECTORS BAR GRAPH]
GENERAL WATER & SEWER OBLIGATION MORTGAGE TRANSPORTATION IDR/PCR* ELECTRIC ------------- ---------- -------- -------------- -------- -------- 21% 16% 15% 11% 8% 5%
* Industrial Development/Pollution Control Revenue As measured by Moody's Investors Service , Inc. or Standard & Poor's Corp. Portfolio structure is subject to change. Portfolio structure is subject to change.
[CREDIT RATINGS PIE CHART]
A OR AAA A OR AA A OR A B OR BBB - ---------- -------- ------- -------- 55 28% 12% 5%
* Industrial Development/Pollution Control Revenue As measured by Moody;s Investors Service, Inc. or Standard & Poor's Corp. Portfolio structure is subject to change. Portfolio structure is subject to change.
[DISTRIBUTION BY MATURITY] WEIGHTED AVERAGE MATURITY: 21 YEARS 1-5 Years 0.9% 5-10 Years 1.0% 10-15 Years 19.1% 15-20 Years 27.8% 20-30 Years 47.1% 30+ Years 4.1%
Portfolio structure is subject to change. 5 Morgan Stanley Quality Municipal Investment Trust LETTER TO THE SHAREHOLDERS - OCTOBER 31, 2001 continued [Call and Cost (Book) Yield Structure Graph] WEIGHTED AVERAGE CALL PROTECTION: 6 YEARS WEIGHTED AVERAGE BOOK YIELD: 6.0%
YEARS BONDS PERCENT COST (BOOK) CALLABLE CALLABLE YIELD - -------- -------- ----------- 2001 19% 7.0% 2002 6% 6.9% 2003 6% 6.8% 2004 2% 5.3% 2005 8% 6.1% 2006 1% 6.6% 2007 3% 6.1% 2008 6% 5.3% 2009 11% 5.7% 2010 15% 5.5% 2011+ 23% 5.4%
* Cost or "book" yield is the annual income earned on a portfolio investment based on its original purchase price before Trust operating expenses. For example, the Trust is earning a book yield of 6.8% on 6% of the long-term portfolio that is callable in 2003. Portfolio structure is subject to change. 6 Morgan Stanley Quality Municipal Investment Trust RESULTS OF ANNUAL MEETING * * * On October 23, 2001, an annual meeting of the Trust's shareholders was held for the purpose of voting on one matter, the results of which were as follows: (1) Election of Trustees: Edwin J. Garn For.................................................. 12,889,871 Withheld............................................. 218,934 Michael E. Nugent For.................................................. 12,891,152 Withheld............................................. 217,653 Philip J. Purcell For.................................................. 12,886,814 Withheld............................................. 221,991
The following Trustees were not standing for reelection at this meeting: Michael Bozic, Charles A. Fiumefreddo, Wayne E. Hedien, Dr. Manuel H. Johnson, James F. Higgins and John L. Schroeder. 7 Morgan Stanley Quality Municipal Investment Trust PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2001
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - -------------------------------------------------------------------------------------------------------- Tax-Exempt Municipal Bonds (97.5%) General Obligation (16.0%) $ 5,000 North Slope Borough, Alaska, Ser 2000 B (MBIA)............ 0.00% 06/30/09 $ 3,643,800 Florida Board Education, 6,890 Public Education Refg Ser 2001 D (WI)................... 5.375 06/01/18 7,235,258 4,000 Capital Outlay Refg 1998 Ser D.......................... 4.50 06/01/24 3,710,520 10,000 Chicago School Reform Board, Illinois, Dedicated Tax Ser 1997 (Ambac)............................................ 5.75 12/01/27 10,623,000 10,000 Massachusetts, Ser 2000 C................................. 5.75 10/01/15 11,087,599 7,000 New Jersey, 2001 Ser H.................................... 5.25 07/01/19 7,501,760 5,000 North Carolina, Public School Building Ser 1999........... 4.60 04/01/17 4,967,100 1,600 Oregon, Veterans' Welfare Ser 75.......................... 6.00 04/01/27 1,703,120 5,000 Aldine Independent School District, Texas, Bldg & Refg Ser 2001 (PSF).............................................. 5.00 02/15/26 4,944,150 2,500 Mission Consolidated Independent School District, Texas, Building Ser 2000 (PSF)................................. 5.50 02/15/25 2,587,200 - -------- ------------ 56,990 58,003,507 - -------- ------------ Educational Facilities Revenue (2.4%) 1,480 Indiana University, Student Fee Ser K (MBIA).............. 5.875 08/01/20 1,605,489 2,200 University of North Carolina, Pool Ser 1998 B (MBIA)...... 4.50 10/01/18 2,111,736 5,000 Texas State University, Ser 2000.......................... 5.50 03/15/20 5,221,150 - -------- ------------ 8,680 8,938,375 - -------- ------------ Electric Revenue (5.1%) 5,000 Long Island Power Authority, New York, Ser 2000 A (FSA)... 0.00 06/01/16 2,492,850 3,190 North Carolina Municipal Power Agency #1, Catawba Ser 1992.................................................... 6.25 01/01/17 3,327,999 South Carolina Public Service Authority, 1,500 2002 Refg Ser A (FSA) (WI).............................. 5.125 01/01/20 1,503,495 1,000 2002 Refg Ser A (FSA) (WI).............................. 5.125 01/01/21 996,160 4,000 1997 Refg Ser A (MBIA).................................. 5.00 01/01/29 3,947,040 4,965 San Antonio, Texas, Electric & Gas Refg Ser 1994 A........ 5.00 02/01/14 5,063,556 1,000 Intermountain Power Agency, Utah, Refg 1996 Ser D (Secondary FSA)......................................... 5.00 07/01/21 993,740 - -------- ------------ 20,655 18,324,840 - -------- ------------ Hospital Revenue (4.3%) 2,000 Indiana Health Facilities Authority Methodist Hospital Ser 2001.................................................... 5.50 09/15/31 1,987,080 3,200 Massachusetts Health & Education Facilities Authority, St. Elizabeth's Hospital of Boston Ser D (FSA).......... 11.12++ 08/15/21 3,316,000 5,000 New Jersey Health Care Authority, St Barnabas Medical Center Ser 1998 B (MBIA)................................ 4.75 07/01/28 4,820,250
See Notes to Financial Statements 8 Morgan Stanley Quality Municipal Investment Trust PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2001 continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - -------------------------------------------------------------------------------------------------------- $ 2,180 Charlotte-Mecklenburg Hospital Authority, North Carolina, Ser 1992................................................ 6.25% 01/01/20 $ 2,227,960 3,000 Lorain County, Ohio, Catholic Healthcare Partners Ser 2001 A....................................................... 5.75 10/01/18 3,144,480 - -------- ------------ 15,380 15,495,770 - -------- ------------ Industrial Development/Pollution Control Revenue (7.6%) 9,000 Hawaii Dept Budget & Finance, Citizens Utilities Co 1991 Ser A & B (AMT)......................................... 6.66 11/01/21 8,940,060 4,000 Michigan Strategic Fund, Detroit Edison Co. Ser 2001 C.... 5.45 09/01/29 4,045,200 2,000 New York State Energy Research & Development Authority, Brooklyn Union Gas Ser 1991 D........................... 11.409++ 07/01/26 2,450,000 12,000 Richland County, South Carolina, Union Camp Corp Ser 1991 B (AMT)................................................. 7.125 09/01/21 12,258,120 - -------- ------------ 27,000 27,693,380 - -------- ------------ Mortgage Revenue - Multi-Family (7.0%) 10,000 Illinois Housing Development Authority, 1991 Ser A........ 8.25 07/01/16 10,226,300 15,000 New Jersey Housing & Mortgage Finance Agency, Presidential Plaza at Newport - FHA Insured Mtg. 1991 Ser 1.......... 7.00 05/01/30 15,328,650 - -------- ------------ 25,000 25,554,950 - -------- ------------ Mortgage Revenue - Single Family (7.7%) 1,550 Colorado Housing and Finance Authority, 2000 Ser D-2 (AMT)................................................... 6.90 04/01/29 1,785,895 9,955 Connecticut Housing Finance Authority, Housing Mortgage 2000 Ser B-2 (AMT)...................................... 5.85 05/15/31 10,264,701 1,420 District of Columbia Housing Finance Agency, GNMA Collateralized Ser 1990 B (AMT)......................... 7.10 12/01/24 1,449,848 4,635 Maine Housing Authority, Purchase 1988 Ser D-6 (AMT)...... 7.25 11/15/19 4,736,738 810 Michigan Housing Development Authority, 1991 Ser B........ 6.95 12/01/20 827,269 2,300 Nebraska Investment Finance Authority, GNMA-Backed 1990 Ser A & B (AMT)......................................... 11.454++ 10/17/23 2,383,375 2,235 New Hampshire Housing Finance Authority, Residential 1991 Ser D (AMT)............................................. 7.25 07/01/15 2,292,037 3,820 Virginia Housing Development Authority, 1992 Ser A........ 7.15 01/01/33 3,905,033 275 Wyoming Community Development Authority, Federally Insured/Gtd Loans 1988 Ser G (AMT)...................... 7.25 06/01/21 283,484 - -------- ------------ 27,000 27,928,380 - -------- ------------ Public Facilities Revenue (2.0%) 5,000 Arizona School Facilities Board, School Improvement Ser 2001.................................................... 5.00 07/01/19 5,076,300 1,900 Jacksonville, Florida, Sales Tax Ser 2001 (Ambac)......... 5.50 10/01/18 2,025,514 - -------- ------------ 6,900 7,101,814 - -------- ------------
See Notes to Financial Statements 9 Morgan Stanley Quality Municipal Investment Trust PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2001 continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - -------------------------------------------------------------------------------------------------------- Resource Recovery Revenue (4.3%) $ 5,000 Northeast Maryland Waste Disposal Authority, Montgomery County Ser 1993 A (AMT)................................. 6.30% 07/01/16 $ 5,213,550 10,000 Montgomery County Industrial Development Authority, Pennsylvania, Ser 1989.................................. 7.50 01/01/12 10,471,500 - -------- ------------ 15,000 15,685,050 - -------- ------------ Student Loan Revenue (2.2%) 6,500 Pennsylvania Higher Education Assistance Agency, 1991 Ser - -------- A & B (AMT) (Ambac)..................................... 11.142++ 09/01/26 8,133,125 ------------ Transportation Facilities Revenue (10.8%) 10,000 Hillsborough County Port District, Florida, Tampa Port Authority Ser 1995 (AMT) (FSA)**........................ 6.00 06/01/20 10,824,200 2,000 Lee County, Florida, Transportation Ser 1995 (MBIA)....... 5.75 10/01/22 2,110,540 7,250 Atlanta, Georgia, Airport Ser 2000 A (FGIC)............... 5.50 01/01/26 7,578,208 7,000 Hawaii, Airports Second Ser of 1991 (AMT)................. 6.90 07/01/12 8,325,730 5,000 Massachusetts Bay Transportation Authority, Assessment 2000 Ser A.............................................. 5.25 07/01/30 5,083,150 5,000 Houston, Texas, Airport Sub Lien Ser 1991 A (AMT) (FGIC)**................................................ 6.75 07/01/21 5,112,500 - -------- ------------ 36,250 39,034,328 - -------- ------------ Water & Sewer Revenue (20.9%) 2,000 Birmingham, Alabama, Water & Sewer Ser 1998 A............. 4.75 01/01/21 1,931,500 5,470 California Department Water Resources, Central Valley Ser U....................................................... 5.00 12/01/29 5,505,938 5,000 Colorado Springs, Colorado, Utilities Rev Ser 2001 A...... 5.00 11/15/29 4,970,050 2,900 Martin County, Florida Utilities System Revenue........... 5.00 10/01/26 2,904,727 10,000 Tampa Bay Water, Florida, Ser 2001 B (FGIC) (WI).......... 5.00 10/01/31 9,999,600 Louisville & Jefferson County Metropolitan Sewer District, Kentucky, 2,925 Ser 2001 A (MBIA) (WI).................................. 5.375 05/15/20 3,063,733 3,075 Ser 2001 A (MBIA) (WI).................................. 5.375 05/15/21 3,209,439 5,000 Ser 1999 A (FGIC)....................................... 5.75 05/15/33 5,351,200 1,585 Massachusetts Water Resources Authority, 2000 Ser A (FGIC).................................................. 6.00 08/01/13 1,832,006 New York City Municipal Water Finance Authority, New York, 5,000 1998 Ser D (MBIA)....................................... 4.75 06/15/25 4,787,500 5,000 2002 Ser G.............................................. 5.00 06/15/34 4,933,950 7,500 Portland, Oregon, Sewer 2000 Ser A (FGIC)................. 5.75 08/01/19 8,075,775 7,000 Charleston, South Carolina, Refg Cap Impr Ser 1998 (Secondary FGIC)........................................ 4.50 01/01/24 6,454,490 10,000 Houston, Texas, Water & Sewer Jr Lien Refg Ser 2000 B (FGIC)**................................................ 5.25 12/01/30 10,129,299 2,750 Loudoun County Sanitation Authority, Virginia, Ser 1998 (MBIA).................................................. 4.75 01/01/30 2,631,723 - -------- ------------ 75,205 75,780,930 - -------- ------------
See Notes to Financial Statements 10 Morgan Stanley Quality Municipal Investment Trust PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2001 continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - -------------------------------------------------------------------------------------------------------- Other Revenue (3.5%) $ 2,000 Chicago, Illinois, Peoples Gas Light & Coke Co Refg 1995 Ser A................................................... 6.10% 06/01/25 $ 2,160,280 10,000 New York Local Government Assistance Corporation, Ser 1995 A....................................................... 6.00 04/01/24 10,595,700 - -------- ------------ 12,000 12,755,980 - -------- ------------ Refunded (3.7%) 1,205 Wichita, Kansas, CSJ Health Ser 1991 (ETM)................ 7.00 11/15/18 1,233,956 9,000 Lorain County, Ohio, Humility of Mary Health Care Corp Ser 1991 B (ETM)............................................ 7.20 12/15/11 9,235,440 3,000 Salt Lake City, Utah, IHC Hospitals Inc Refg Ser 1991 (Ambac) (ETM)........................................... 11.249++ 05/15/20 3,011,250 - -------- ------------ 13,205 13,480,646 - -------- ------------ 345,765 Total Tax-Exempt Municipal Bonds (Cost $336,517,946)......................... 353,911,075 - -------- ------------ Short-Term Tax-Exempt Municipal Obligations (3.9%) 4,900 Idaho Health Facilities Authority Ser 2001 (Demand 11/01/01)............................................... 2.04* 07/01/30 4,900,000 3,100 Missouri Health & Educational Facilities Authority, Cox Health Ser 1997 (MBIA) (Demand 11/01/01)................ 2.00* 06/01/15 3,100,000 6,100 Harris County Health Facilities Development Corporation, Texas, Methodist Hospital Ser 1994 (Demand 11/01/01).... 1.95* 12/01/25 6,100,000 - -------- ------------ 14,100 Total Short-Term Tax-Exempt Municipal Obligations (Cost $14,100,000)......... 14,100,000 - -------- ------------ $359,865 Total Investments (Cost $350,617,946) (a)................... 101.4% 368,011,075 ======== Liabilities in Excess of Other Assets....................... (1.4) (5,192,442) ----- ------------ Net Assets.................................................. 100.0% $362,818,633 ===== ============
See Notes to Financial Statements 11 Morgan Stanley Quality Municipal Investment Trust PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2001 continued - --------------------- AMT Alternative Minimum Tax. ETM Escrowed to maturity. WI Security purchased on a "when-issued" basis. ++ Current coupon rate for residual interest bonds. This rate resets periodically as the auction rate on the related short-term securities changes. * Current coupon of variable rate demand obligation. ** This security is segregated in connection with the purchase of a "when-issued" security. (a) The aggregate cost for federal income tax purposes approximates identified cost. The aggregate gross unrealized appreciation is $17,579,447 and the aggregate gross unrealized depreciation is $186,318, resulting in net unrealized appreciation of $17,393,129. Bond Insurance: - --------------- Ambac Ambac Assurance Corporation. FGIC Financial Guaranty Insurance Company. FSA Financial Security Assurance Inc. MBIA Municipal Bond Investors Assurance Corporation. PSF Texas Permanent School Fund Guarantee Program.
Geographic Summary of Investments Based on Market Value as a Percent of Net Assets Alabama................ 0.5% Alaska................. 1.0 Arizona................ 1.4 California............. 1.5 Colorado............... 1.9 District of Columbia... 0.4 Connecticut............ 2.8 Florida................ 10.7 Georgia................ 2.1 Hawaii................. 4.8 Idaho.................. 1.4 Illinois............... 6.3 Indiana................ 1.0 Kansas................. 0.3 Kentucky............... 3.2 Maine.................. 1.3 Maryland............... 1.4 Massachusetts.......... 5.9 Michigan............... 1.3 Missouri............... 0.9 Nebraska............... 0.7 New Hampshire.......... 0.6 New Jersey............. 7.6 New York............... 7.0 North Carolina......... 3.5 Ohio................... 3.4 Oregon................. 2.7 Pennsylvania........... 5.1 South Carolina......... 6.9 Texas.................. 10.8 Utah................... 1.1 Virginia............... 1.8 Wyoming................ 0.1 ----- Total.................. 101.4% =====
See Notes to Financial Statements 12 Morgan Stanley Quality Municipal Investment Trust FINANCIAL STATEMENTS Statement of Assets and Liabilities October 31, 2001 Assets: Investments in securities, at value (cost $350,617,946)..... $368,011,075 Cash........................................................ 358,660 Receivable for: Investments sold........................................ 14,439,179 Interest................................................ 5,975,944 Prepaid expenses and other assets........................... 26 ------------ Total Assets............................................ 388,784,884 ------------ Liabilities: Payable for: Investments purchased................................... 25,703,240 Investment management fee............................... 114,490 Dividends to preferred shareholders..................... 24,836 Accrued expenses and other payables......................... 123,685 ------------ Total Liabilities....................................... 25,966,251 ------------ Net Assets.............................................. $362,818,633 ============ Composition of Net Assets: Preferred shares of beneficial interest (1,000,000 shares authorized of non-participating $.01 par value, 2,100 shares outstanding)....................................... $105,000,000 ------------ Common shares of beneficial interest (unlimited shares authorized of $.01 par value, 16,841,613 shares outstanding).............................................. 235,177,634 Net unrealized appreciation................................. 17,393,129 Accumulated undistributed net investment income............. 2,920,177 Accumulated undistributed net realized gain................. 2,327,693 ------------ Net Assets Applicable to Common Shareholders............ 257,818,633 ------------ Total Net Assets........................................ $362,818,633 ============ Net Asset Value Per Common Share ($257,818,633 divided by 16,841,613 common shares outstanding).............................................. $15.31 ============
See Notes to Financial Statements 13 Morgan Stanley Quality Municipal Investment Trust FINANCIAL STATEMENTS continued Statement of Operations For the year ended October 31, 2001 Net Investment Income: Interest Income............................................. $21,591,704 ----------- Expenses Investment management fee................................... 1,253,900 Auction commission fees..................................... 308,217 Transfer agent fees and expenses............................ 89,655 Professional fees........................................... 72,546 Registration fees........................................... 35,487 Trustees' fees and expenses................................. 22,279 Shareholder reports and notices............................. 19,511 Auction agent fees.......................................... 17,547 Custodian fees.............................................. 14,872 Other....................................................... 23,096 ----------- Total Expenses.......................................... 1,857,110 Less: expense offset........................................ (14,856) ----------- Net Expenses............................................ 1,842,254 ----------- Net Investment Income................................... 19,749,450 ----------- Net Realized and Unrealized Gain: Net realized gain........................................... 2,327,707 Net change in unrealized appreciation....................... 8,755,538 ----------- Net Gain................................................ 11,083,245 ----------- Net Increase................................................ $30,832,695 ===========
See Notes to Financial Statements 14 Morgan Stanley Quality Municipal Investment Trust FINANCIAL STATEMENTS continued
Statement of Changes in Net Assets FOR THE YEAR FOR THE YEAR ENDED ENDED OCTOBER 31, 2001 OCTOBER 31, 2000 ------------ ------------ Increase (Decrease) in Net Assets: Operations: Net investment income....................................... $ 19,749,450 $ 20,208,777 Net realized gain........................................... 2,327,707 730,570 Net change in unrealized appreciation....................... 8,755,538 3,145,492 ------------ ------------ Net Increase............................................ 30,832,695 24,084,839 ------------ ------------ Dividends to preferred shareholders from net investment income.................................................... (3,673,195) (4,289,019) ------------ ------------ Dividends and Distributions to Common Shareholders from: Net investment income....................................... (15,673,883) (15,929,765) Net realized gain........................................... (237,896) -- ------------ ------------ Total Dividends and Distributions....................... (15,911,779) (15,929,765) ------------ ------------ Decrease from transactions in shares of beneficial interest.................................................. (817,860) (10,110,685) ------------ ------------ Net Increase (Decrease)................................. 10,429,861 (6,244,630) Net Assets: Beginning of period......................................... 352,388,772 358,633,402 ------------ ------------ End of Period (Including accumulated undistributed net investment income of $2,920,177 and $2,517,805, respectively)................. $362,818,633 $352,388,772 ============ ============
See Notes to Financial Statements 15 Morgan Stanley Quality Municipal Investment Trust NOTES TO FINANCIAL STATEMENTS - OCTOBER 31, 2001 1. Organization and Accounting Policies Morgan Stanley Quality Municipal Investment Trust (the "Trust"), formerly Morgan Stanley Dean Witter Quality Municipal Investment Trust (the Trust's name changed effective December 20, 2001), is registered under the Investment Company Act of 1940, as amended, as a diversified, closed-end management investment company. The Trust's investment objective is to provide current income which is exempt from federal income tax. The Trust was organized as a Massachusetts business trust on July 2, 1991 and commenced operations on September 27, 1991. 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. The following is a summary of significant accounting policies: A. Valuation of Investments -- Portfolio securities are valued by an outside independent pricing service approved by the Trustees. The pricing service has informed the Trust that in valuing the portfolio securities, it uses both a computerized matrix of tax-exempt securities and evaluations by its staff, in each case based on information concerning market transactions and quotations from dealers which reflect the bid side of the market each day. The portfolio securities are thus valued by reference to a combination of transactions and quotations for the same or other securities believed to be comparable in quality, coupon, maturity, type of issue, call provisions, trading characteristics and other features deemed to be relevant. 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. The Trust amortizes premiums and accretes discounts over the life of the respective securities. Interest income is accrued daily. C. Federal Income Tax Status -- It is the Trust's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable and nontaxable income to its shareholders. Accordingly, no federal income tax provision is required. 16 Morgan Stanley Quality Municipal Investment Trust NOTES TO FINANCIAL STATEMENTS - OCTOBER 31, 2001 continued D. Dividends and Distributions to Shareholders -- The Trust records dividends and distributions to its shareholders on the ex-dividend date. 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. 2. Investment Management Agreement Pursuant to an Investment Management Agreement with Morgan Stanley Investment Advisors Inc. ("the Investment Manager"), formerly Morgan Stanley Dean Witter Advisors Inc., the Trust pays the Investment Manager a management fee, calculated weekly and payable monthly, by applying the annual rate of 0.35% to the Trust's weekly net assets. 3. Security Transactions and Transactions with Affiliates The cost of purchases and proceeds from sales of portfolio securities, excluding short-term investments, for the year ended October 31, 2001 aggregated $79,248,377 and $79,380,978, respectively. Morgan Stanley Trust, an affiliate of the Investment Manager, is the Trust's transfer agent. The Trust has an unfunded noncontributory defined benefit pension plan covering all independent Trustees of the Trust who will have served as independent Trustees for at least five years at the time of retirement. Benefits under this plan are based on years of service and compensation during the last five years of service. Aggregate pension costs for the year ended October 31, 2001 included in Trustees' fees and expenses in the Statement of Operations amounted to $9,845. At October 31, 2001, the Trust had an accrued pension liability of $49,200 which is included in accrued expenses in the Statement of Assets and Liabilities. 4. Preferred Shares of Beneficial Interest The Trust 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 approval of the common shareholders. The Trust has issued Series A and Series B Auction Rate Preferred Shares ("Preferred Shares") which have a liquidation value of 17 Morgan Stanley Quality Municipal Investment Trust NOTES TO FINANCIAL STATEMENTS - OCTOBER 31, 2001 continued $50,000 per share plus the redemption premium, if any, plus accumulated but unpaid dividends, whether or not declared, thereon to the date of distribution. The Trust may redeem such shares, in whole or in part, at the original purchase price of $50,000 per share plus accumulated but unpaid dividends, whether or not declared, thereon to the date of redemption. Dividends, which are cumulative, are reset through auction procedures.
AMOUNT RESET RANGE OF SERIES SHARES* IN THOUSANDS* RATE* DATE DIVIDEND RATES** - ------ ------- ------------- ----- -------- ---------------- A 1,400 $70,000 1.95% 11/07/01 1.85% - 5.05% B 700 35,000 1.85 11/02/01 1.85 - 4.32
- --------------------- * As of October 31, 2001. ** For the year ended October 31, 2001. Subsequent to October 31, 2001 and up through December 5, 2001 the Trust paid dividends to Series A and B at rates ranging from 1.30% to 2.20% in the aggregate amount of $194,950. The Trust is subject to certain restrictions relating to the preferred shares. Failure to comply with these restrictions could preclude the Trust 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. 5. Common Shares of Beneficial Interest Transactions in common shares of beneficial interest were as follows:
CAPITAL PAID IN EXCESS OF SHARES PAR VALUE PAR VALUE ---------- --------- ------------ Balance, October 31, 1999................................... 17,676,713 $176,767 $245,929,412 Treasury shares purchased and retired (weighted average discount 8.95%)*.......................................... (776,800) (7,768) (10,102,917) ---------- -------- ------------ Balance, October 31, 2000................................... 16,899,913 168,999 235,826,495 Treasury shares purchased and retired (weighted average discount 6.22%)*.......................................... (58,300) (583) (817,277) ---------- -------- ------------ Balance, October 31, 2001................................... 16,841,613 $168,416 $235,009,218 ========== ======== ============
- --------------------- * The Trustees have voted to retire the shares purchased. 18 Morgan Stanley Quality Municipal Investment Trust NOTES TO FINANCIAL STATEMENTS - OCTOBER 31, 2001 continued 6. Dividends to Common Shareholders On October 30, 2001, the Trust declared the following dividends from net investment income:
AMOUNT RECORD PAYABLE PER SHARE DATE DATE - --------- ----------------- ----------------- $0.0775 November 09, 2001 November 23, 2001 $0.0775 December 7, 2001 December 21, 2001
7. Expense Offset The expense offset represents a reduction of the custodian fees for earnings on cash balances maintained by the Trust. 8. Risks Relating to Certain Financial Instruments The Trust may invest a portion of its assets in residual interest bonds, which are inverse floating rate municipal obligations. The prices of these securities are subject to greater market fluctuations during periods of changing prevailing interest rates than are comparable fixed rate obligations. At October 31, 2001, the Trust held positions in residual interest bonds having a total value of $19,293,750, which represents 5.32% of the Trust's net assets. 9. Change in Accounting Policy Effective November 1, 2001, the Trust will adopt the provisions of the AICPA Audit and Accounting Guide for Investment Companies, as revised, related to premiums and discounts on debt securities. The cumulative effect of his accounting change will have no impact on the net assets of the Trust, but will result in an adjustment to the cost of securities and a corresponding adjustment to undistributed net investment income based on securities held as of October 31, 2001. 19 Morgan Stanley Quality Municipal Investment Trust FINANCIAL HIGHLIGHTS Selected ratios and per share data for a common share of beneficial interest outstanding throughout each period:
FOR THE YEAR ENDED OCTOBER 31* --------------------------------------------------------- 2001 2000 1999 1998 1997 --------- --------- --------- --------- --------- Selected Per Share Data: Net asset value, beginning of period....................... $14.64 $ 14.35 $15.66 $15.50 $ 15.18 ------ ------- ------ ------ ------- Income (loss) from investment operations: Net investment income.................................. 1.17 1.18 1.16 1.19 1.20 Net realized and unrealized gain (loss)................ 0.66 0.23 (1.28) 0.15 0.34 ------ ------- ------ ------ ------- Total income (loss) from investment operations............. 1.83 1.41 (0.12) 1.34 1.54 ------ ------- ------ ------ ------- Less dividends and distributions from: Net investment income.................................. (0.93) (0.93) (0.90) (0.96) (0.96) Common share equivalent of dividends paid to preferred shareholders........................................... (0.22) (0.25) (0.20) (0.21) (0.22) Net realized gain...................................... (0.01) -- (0.11) (0.01) (0.05) ------ ------- ------ ------ ------- Total dividends and distributions.......................... (1.16) (1.18) (1.21) (1.18) (1.23) ------ ------- ------ ------ ------- Anti-dilutive effect of acquiring treasury shares.......... 0.00 0.06 0.02 0.00 0.01 ------ ------- ------ ------ ------- Net asset value, end of period............................. $15.31 $ 14.64 $14.35 $15.66 $ 15.50 ====== ======= ====== ====== ======= Market value, end of period................................ $15.08 $13.688 $13.00 $15.50 $15.313 ====== ======= ====== ====== ======= Total Return+.............................................. 17.52% 12.84% (10.12)% 7.71% 12.16% Ratios to Average Net Assets of Common Shareholders: Expenses (before expense offset)........................... 0.74%(1) 0.75% 0.71% 0.71%(1) 0.71% Net investment income before preferred stock dividends..... 7.83% 8.18% 7.66% 7.65% 7.93% Preferred stock dividends.................................. 1.46% 1.74% 1.34% 1.37% 1.44% Net investment income available to common shareholders..... 6.37% 6.44% 6.32% 6.28% 6.49% Supplemental Data: Net assets, end of period, in thousands.................... $362,819 $352,389 $358,633 $387,612 $384,773 Asset coverage on preferred shares at end of period........ 345% 335% 341% 369% 366% Portfolio turnover rate.................................... 23% 20% 8% 9% 5%
- --------------------- * The per share amounts were computed using an average number of shares outstanding during the period. + Total return is based upon the current market value on the last day of each period reported. Dividends and distributions are assumed to be reinvested at the prices obtained under the Trust's dividend reinvestment plan. Total return does not reflect brokerage commissions. (1) Does not reflect the effect of expense offset of 0.01%. See Notes to Financial Statements 20 Morgan Stanley Quality Municipal Investment Trust INDEPENDENT AUDITORS' REPORT To the Board of Trustees and Shareholders of Morgan Stanley Quality Municipal Investment Trust: We have audited the accompanying statement of assets and liabilities of Morgan Stanley Quality Municipal Investment Trust (the "Trust"), formerly Morgan Stanley Dean Witter Quality Municipal Investment Trust, including the portfolio of investments, as of October 31, 2001, and the related statement of operations for the year then ended, the statements of 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 Trust's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 2001, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Morgan Stanley Quality Municipal Investment Trust as of October 31, 2001, 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 December 20, 2001 -------------------------------------------------------------------- 2001 FEDERAL TAX NOTICE (UNAUDITED) During the year ended October 31, 2001, the Trust paid the following per share amounts from tax-exempt income: $0.93 to common shareholders, $1,654 to Series A preferred shareholders and $2,160 to Series B preferred shareholders. For the year ended October 31, 2001, the Trust paid the following per share amounts from long-term capital gains: $0.01 to common shareholders, $25 to Series A preferred shareholders and $23 to Series B preferred shareholders. -------------------------------------------------------------------- 21 (This Page Intentionally Left Blank) (This Page Intentionally Left Blank) TRUSTEES - ---------------------------------- Michael Bozic Charles A. Fiumefreddo Edwin J. Garn Wayne E. Hedien James F. Higgins Dr. Manuel H. Johnson Michael E. Nugent Philip J. Purcell John L. Schroeder OFFICERS - ---------------------------------- Charles A. Fiumefreddo Chairman and Chief Executive Officer Mitchell M. Merin President Barry Fink Vice President, Secretary and General Counsel James F. Willison Vice President Thomas F. Caloia Treasurer TRANSFER AGENT - ---------------------------------- Morgan Stanley Trust Harborside Financial Center -- Plaza Two Jersey City, New Jersey 07311 INDEPENDENT AUDITORS - ---------------------------------- Deloitte & Touche LLP Two World Financial Center New York, New York 10281 INVESTMENT MANAGER - ---------------------------------- Morgan Stanley Investment Advisors Inc. 1221 Avenue of the Americas New York, NY 10020 MORGAN STANLEY QUALITY MUNICIPAL INVESTMENT TRUST Annual Report October 31, 2001 -----END PRIVACY-ENHANCED MESSAGE-----