N-30D 1 y60872nv30d.txt MORGAN STANLEY QUALITY MUNICIPAL INVESTMENT TRUST Morgan Stanley Quality Municipal Investment Trust LETTER TO THE SHAREHOLDERS - APRIL 30, 2002 Dear Shareholder: During the six-month period ended April 30, 2002, the U.S. economy began to recover from recession and the aftermath of September 11. Consumer spending and rebuilding of business inventories led an economic rebound in the first quarter of 2002. In spite of April's six percent unemployment rate, the relatively mild recession, which began in March 2001, is widely regarded as having ended. The economic turnaround was fueled by monetary and fiscal policies, which sought to stimulate growth. The Federal Reserve Board's aggressive monetary policy cut the benchmark federal funds rate by 475 basis points in 2001 to its current level of 1.75 percent. Congress provided fiscal stimulus by passing reductions in personal tax rates as well as a number of spending initiatives after the September attacks. The Fed's actions and the Treasury Department's cessation of the 30-year bond auction led to a bond-market rally that dropped long-term interest rates to 40-year lows at the end of October. Within the fixed-income market, yields on short maturities declined the most and the yield curve steepened. In November and December, as the economy improved, the bond market reversed course and yields increased. Demand for fixed-income investments revived in 2002, because of stock-market volatility and Federal Reserve Chairman Alan Greenspan's comments that the Fed would take a go-slow approach to tightening monetary policy. Municipal Market Conditions The yield on the 30-year insured municipal bond index, which reached a low of 5.04 percent in October 2001, increased to 5.45 percent in March. As the Fed's outlook shifted to neutral, the index yield declined to 5.30 percent in April. Throughout the period, the slope of the municipal yield curve remained positive. The yield pick up for extending maturities from one to 30 years was 335 basis points versus 240 basis points last April. The ratio of municipal yields as a percentage of U.S. Treasury yields is used as a gauge of the relative value of municipals. A declining yield ratio indicates stronger relative performance by municipals. The ratio of 30-year municipal bond yields to 30-year Treasuries jumped to 104 percent in October 2001. By the end of April the ratio had returned to 94 percent. In the 10-year-maturity range, the ratio declined from 95 percent in October to 85 percent in April. New-issue volume increased 43 percent, to $286 billion, during 2001. State and local government infrastructure and cash flow needs have contributed to the surge in underwriting activity. Morgan Stanley Quality Municipal Investment Trust LETTER TO THE SHAREHOLDERS - APRIL 30, 2002 continued Refunding issues, the most interest-rate-sensitive category of underwriting, represented almost one-quarter of the total. California, Florida, New York and Texas, the four states with the heaviest issuance, accounted for 33 percent of national volume. New-issue volume for the first four months of 2002 reached $87 billion. [30-YEAR BOND PERFORMANCE GRAPH] 30-YEAR BOND YIELDS 1997-2002 Insured U.S. Insured Municipal Municipal Treasury Yields/U.S. Treasury Yields Yields Yields (Ratio) 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 5.25 6.29 83.47 5.48 6.61 82.90 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 5.17 5.29 97.73 5.36 5.47 97.99 2002 5.22 5.43 96.13 5.14 5.42 94.83 5.43 5.80 93.62 5.30 5.59 94.81 Source: Municipal Market Data - A Division of Thomson Financial Municipal Group and Bloomberg L.P. Performance During the six-month period ended April 30, 2002, the net asset value (NAV) of Morgan Stanley Quality Municipal Investment Trust (IQT) decreased from $15.31 to $14.81 per share. Based on this change, plus a reinvestment of tax-free dividends totaling $0.465 per share and the reinvestment of capital gains totaling $0.1383 per share, the Trust's total NAV return was 0.85 percent. IQT's value on the New York Stock Exchange (NYSE) decreased from $15.08 to $14.15 per share during this period. IQT's total market return, which includes the reinvestment of dividends and distributions, was -2.17 percent. As of April 30, 2002, IQT's share price was at a 4.46 percent discount to its NAV. 2 Morgan Stanley Quality Municipal Investment Trust LETTER TO THE SHAREHOLDERS - APRIL 30, 2002 continued Monthly dividends for the second quarter of 2002, declared in March, were unchanged at $0.0775 per share. The Trust's level of undistributed net investment income was $0.180 per share on April 30, 2002, versus $0.174 per share six months earlier. Current earnings continued to benefit from lower short-term borrowing costs of Auction Rate Preferred Shares (ARPS). Portfolio Structure The Trust's total net assets of $353.9 million were diversified among 13 long-term sectors and 62 credits. At the end of April, the portfolio's average maturity was 20 years. Average duration, a measure of sensitivity to interest-rate changes, was 7.4 years. The accompanying charts provide current information on the portfolio's credit quality, maturity distribution, sector and geographic concentrations. Optional redemption provisions by year of the call and respective cost (book) yields are also charted. 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 six-month period, ARPS leverage contributed approximately $0.09 per share to common share earnings. IQT has two ARPS series totaling $105 million and representing 29.7 percent of total net assets. Series A is an annual auction maturing in September 2002 and yielding 2.20 percent. The yield on IQT's weekly ARPS series ranged between 1.03 percent and 2.00 percent. Looking Ahead The Federal Reserve Board's cautious approach toward tightening has helped stabilize the fixed-income markets. However, we believe that the economic recovery will eventually lead the Fed to 3 Morgan Stanley Quality Municipal Investment Trust LETTER TO THE SHAREHOLDERS - APRIL 30, 2002 continued raise short-term interest rates. Despite market uncertainty, we believe that the relationship between high-grade tax-exempt securities and Treasuries continues to favor municipal bonds as an attractive choice for tax-conscious investors. 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 six-month period ended April 30, 2002 the Trust purchased and retired 32,200 shares of common stock at a weighted average market discount of 4.86 percent. We would like to take this opportunity to notify shareholders that in January 2002, Joseph R. Arcieri and Robert W. Wimmel joined James F. Willison as portfolio managers for the Trust. 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 - APRIL 30, 2002 continued [LARGEST SECTORS BAR CHART] LARGEST SECTORS AS OF APRIL 30, 2002 (% OF LONG-TERM PORTFOLIO) WATER & SEWER 20% GENERAL OBLIGATION 18% MORTGAGE 12% TRANSPORTATION 12% IDR/PCR* 10% ELECTRIC 7%
* INDUSTRIAL DEVELOPMENT/POLLUTION CONTROL REVENUE PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE. [CREDIT RATINGS PIE CHART] CREDIT RATINGS AS OF APRIL 30, 2002 (% OF LONG-TERM PORTFOLIO) Aaa OR AAA 63% Aa OR AA 20% A OR A 11% Baa OR BBB 6%
AS MEASURED BY MOODY'S INVESTORS SERVICE, INC. OR STANDARD & POOR'S CORP. PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE. [DISTRIBUTION BY MATURITY BAR CHART] DISTRIBUTION BY MATURITY (% OF LONG-TERM PORTFOLIO) WEIGHTED AVERAGE MATURITY: 20 YEARS 5-10 Years 8.9% 10-15 Years 16.6% 15-20 Years 27.4% 20-30 Years 43.4% 30+ Years 3.7%
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE. 5 MORGAN STANLEY QUALITY MUNICIPAL INVESTMENT TRUST LETTER TO THE SHAREHOLDERS - APRIL 30, 2002 continued [CALL AND COST YIELD STRUCTURE CHARTS] CALL AND COST (BOOK) YIELD STRUCTURE (BASED ON LONG-TERM PORTFOLIO) APRIL 30, 2002 WEIGHTED AVERAGE CALL PROTECTION: 6 YEARS PERCENT CALLIABLE YEARS BONDS CALLABLE ----------- 2002 13% 2003 8% 2004 2% 2005 8% 2006 1% 2007 3% 2008 6% 2009 11% 2010 16% 2011 17% 2012+ 15%
WEIGHTED AVERAGE BOOK YIELD: 5.8% COST (BOOK) YIELD* 2002 7.0% 2003 6.8% 2004 5.8% 2005 6.1% 2006 6.6% 2007 6.1% 2008 5.3% 2009 5.7% 2010 5.5% 2011 5.2% 2012+ 5.4%
* COST OR "BOOK" YIELD IS THE ANNUAL INCOME EARNED ON A PORTFOLIO INVESTMENT BASED ON ITS ORIGINAL PURCHASE PRICE BEFORE THE TRUST'S OPERATING EXPENSES. FOR EXAMPLE, THE TRUST IS EARNING A BOOK YIELD OF 7.0% ON 13% OF THE LONG-TERM PORTFOLIO THAT IS CALLIABLE IN 2002. PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE. 6 Morgan Stanley Quality Municipal Investment Trust LETTER TO THE SHAREHOLDERS - APRIL 30, 2002 continued Geographic Summary of Investments Based on Market Value as a Percent of Total Investments Alabama................ 0.5% Alaska................. 2.0 Arizona................ 1.4 California............. 1.5 Colorado............... 1.9 District of Columbia... 0.4 Connecticut............ 2.9 Florida................ 10.9 Georgia................ 5.1 Hawaii................. 4.8 Illinois............... 6.5 Indiana................ 1.0 Kentucky............... 3.3 Maryland............... 2.8 Massachusetts.......... 6.1 Michigan............... 1.2 New Hampshire.......... 0.5 New Jersey............. 7.8 New York............... 8.5 North Carolina......... 2.9 Ohio................... 1.3 Oregon................. 2.7 Pennsylvania........... 3.1 South Carolina......... 7.1 Texas.................. 11.2 Utah................... 1.2 Virginia............... 0.7 Wyoming................ 0.7 ----- Total.................. 100.0% =====
7 Morgan Stanley Quality Municipal Investment Trust PORTFOLIO OF INVESTMENTS - APRIL 30, 2002 (UNAUDITED)
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE ---------------------------------------------------------------------------------------------------------- Tax-Exempt Municipal Bonds (136.4%) General Obligation (24.2%) $ 5,000 North Slope Borough, Alaska, Ser 2000 B (MBIA)........... 0.00% 06/30/09 $ 3,649,950 Florida Board of Education, Public Education Capital Outlay 6,890 Refg Ser 2001 D........................................ 5.375 06/01/18 7,186,683 4,000 Refg 1998 Ser D........................................ 4.50 06/01/24 3,605,480 10,000 Chicago School Reform Board, Illinois, Dedicated Tax Ser 1997 (Ambac)........................................... 5.75 12/01/27 10,383,200 Massachusetts, 10,000 Ser 2000 C............................................. 5.75 10/01/15 11,255,401 3,000 2002 Ser B (FSA)....................................... 5.50 03/01/17 3,174,960 7,000 New Jersey, 2001 Ser H................................... 5.25 07/01/19 7,314,930 5,000 North Carolina, Public School Building Ser 1999.......... 4.60 04/01/17 4,884,750 1,495 Oregon, Veterans' Welfare Ser 75......................... 6.00 04/01/27 1,569,032 5,000 Aldine Independent School District, Texas, Bldg & Refg Ser 2001 (PSF)......................................... 5.00 02/15/26 4,791,600 2,500 Mission Consolidated Independent School District, Texas, Building Ser 2000 (PSF)................................ 5.50 02/15/25 2,542,525 -------- ------------- 59,885 60,358,511 -------- ------------- Educational Facilities Revenue (3.5%) 1,480 Indiana University, Student Fee Ser K (MBIA)............. 5.875 08/01/20 1,565,973 2,200 University of North Carolina, Pool Ser 1998 B (MBIA)..... 4.50 10/01/18 2,070,640 5,000 Texas State University, Ser 2000......................... 5.50 03/15/20 5,141,100 -------- ------------- 8,680 8,777,713 -------- ------------- Electric Revenue (9.2%) 5,000 Colorado Springs, Colorado, Utilities Rev Ser 2001 A..... 5.00 11/15/29 4,825,950 5,000 Long Island Power Authority, New York, Ser 2000 A (FSA).................................................. 0.00 06/01/16 2,531,750 3,190 North Carolina Municipal Power Agency #1, Catawba Ser 1992................................................... 6.25 01/01/17 3,307,520 South Carolina Public Service Authority, 1,500 2002 Refg Ser A (FSA).................................. 5.125 01/01/20 1,501,785 1,000 2002 Refg Ser A (FSA).................................. 5.125 01/01/21 998,140 4,000 1997 Refg Ser A (MBIA)................................. 5.00 01/01/29 3,823,920 4,965 San Antonio, Texas, Electric & Gas Refg Ser 1994 A....... 5.00 02/01/14 5,020,459 1,000 Intermountain Power Agency, Utah, Refg 1996 Ser D (Secondary FSA)........................................ 5.00 07/01/21 980,600 -------- ------------- 25,655 22,990,124 -------- ------------- Hospital Revenue (5.7%) 2,000 Indiana Health Facilities Authority, Methodist Hospital Ser 2001............................................... 5.50 09/15/31 1,929,340 Maryland Health & Higher Educational Facilities Authority, 2,000 University of Maryland Medical Ser 2002................ 5.75 07/01/17 2,077,860 2,500 University of Maryland Medical Ser 2001................ 5.25 07/01/34 2,348,425
SEE NOTES TO FINANCIAL STATEMENTS 8 Morgan Stanley Quality Municipal Investment Trust PORTFOLIO OF INVESTMENTS - APRIL 30, 2002 (UNAUDITED) continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE ---------------------------------------------------------------------------------------------------------- $ 5,000 New Jersey Health Care Authority, St Barnabas Medical Center Ser 1998 B (MBIA)...................................... 4.75% 07/01/28 $ 4,693,450 3,000 Lorain County, Ohio, Catholic Healthcare Partners Ser 2001 A................................................. 5.75 10/01/18 3,111,810 -------- ------------- 14,500 14,160,885 -------- ------------- Industrial Development/Pollution Control Revenue (13.8%) 9,000 Hawaii Dept Budget & Finance, Citizens Utilities Co 1991 Ser A & B (AMT)........................................ 6.66 11/01/21 8,666,640 2,000 Chicago, Illinois, Peoples Gas Light & Coke Co Refg 1995 Ser A.................................................. 6.10 06/02/25 2,096,440 4,000 Michigan Strategic Fund, Detroit Edison Co. Ser 2001 C... 5.45 09/01/29 3,910,720 2,000 New York State Energy Research & Development Authority, Brooklyn Union Gas Ser 1991 D.......................... 11.896++ 07/01/26 2,400,640 12,000 Richland County, South Carolina, Union Camp Corp Ser 1991 B (AMT)................................................ 7.125 09/01/21 12,254,760 5,000 Sabine River Authority, Texas, TXU Electric Co Refg Ser 2001 B (AMT)........................................... 5.75 05/01/30 5,049,900 -------- ------------- 34,000 34,379,100 -------- ------------- Mortgage Revenue - Multi-Family (10.2%) 10,000 Illinois Housing Development Authority, 1991 Ser A....... 8.25 07/01/16 10,224,100 15,000 New Jersey Housing & Mortgage Finance Agency, Presidential Plaza at Newport - FHA Insured Mtgs Refg 1991 Ser 1............................................. 7.00 05/01/30 15,325,350 -------- ------------- 25,000 25,549,450 -------- ------------- Mortgage Revenue - Single Family (6.2%) 1,550 Colorado Housing & Finance Authority, 2000 Ser D-2 (AMT).................................................. 6.90 04/01/29 1,753,391 9,815 Connecticut Housing Finance Authority, 2000 Ser B-2 (AMT).................................................. 5.85 05/15/31 9,969,979 1,415 District of Columbia Housing Finance Agency, GNMA Collateralized Ser 1990 B (AMT)........................ 7.10 12/01/24 1,441,531 415 Michigan Housing Development Authority, 1991 Ser B....... 6.95 12/01/20 416,515 1,670 New Hampshire Housing Finance Authority, 1991 Ser D (AMT).................................................. 7.25 07/01/15 1,705,404 -------- ------------- 14,865 15,286,820 -------- ------------- Public Facilities Revenue (3.6%) 5,000 Arizona School Facilities Board, School Improvement Ser 2001................................................... 5.00 07/01/19 5,017,900 1,900 Jacksonville, Florida, Sales Tax Ser 2001 (Ambac)........ 5.50 10/01/18 1,998,287 2,000 New York City Cultural Resources Trust, New York, The Museum of Modern Art Ser 2001 A (Ambac)................ 5.125 07/01/31 1,968,600 -------- ------------- 8,900 8,984,787 -------- -------------
SEE NOTES TO FINANCIAL STATEMENTS 9 Morgan Stanley Quality Municipal Investment Trust PORTFOLIO OF INVESTMENTS - APRIL 30, 2002 (UNAUDITED) continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE ---------------------------------------------------------------------------------------------------------- Resource Recovery Revenue (6.2%) $ 5,000 Northeast Maryland Waste Disposal Authority, Montgomery County Ser 1993 A (AMT)................................ 6.30% 07/01/16 $ 5,163,650 10,000 Montgomery County Industrial Development Authority, Pennsylvania, Ser 1989................................. 7.50 01/01/12 10,291,400 -------- ------------- 15,000 15,455,050 -------- ------------- Transportation Facilities Revenue (16.7%) Alaska State International Airports, 1,500 Ser 2002 B (Ambac)..................................... 5.75 10/01/18 1,597,965 1,500 Ser 2002 B (Ambac)..................................... 5.75 10/01/19 1,589,175 10,000 Hillsborough County Port District, Florida, Tampa Port Authority Spl & Refg Ser 1995 (AMT) (FSA).............. 6.00 06/01/20 10,533,400 2,000 Lee County, Florida, Ser 1995 (MBIA)..................... 5.75 10/01/22 2,079,960 7,250 Atlanta, Georgia, Airport Ser 2000 A (FGIC).............. 5.50 01/01/26 7,429,728 10,000 Georgia State Road & Tollway Authority, Ser 2001......... 5.375 03/01/17 10,526,100 5,000 Massachusetts Bay Transportation Authority, Assessment 2000 Ser A............................................. 5.25 07/01/30 4,999,600 3,000 Triborough Bridge & Tunnel Authority, New York, Ser 2001 A...................................................... 5.00 01/01/32 2,857,320 -------- ------------- 40,250 41,613,248 -------- ------------- Water & Sewer Revenue (28.3%) 2,000 Birmingham, Alabama, Water & Sewer Ser 1998 A............ 4.75 01/01/21 1,877,240 5,470 California Department Water Resources, Central Valley Ser U...................................................... 5.00 12/01/29 5,287,083 2,900 Martin County, Florida, Utilities Ser 2001............... 5.00 10/01/26 2,828,022 10,000 Tampa Bay Water, Florida, Ser 2001 B (FGIC).............. 5.00 10/01/31 9,656,100 Louisville & Jefferson County Metropolitan Sewer District, Kentucky, 2,925 Ser 2001 A (MBIA)...................................... 5.375 05/15/20 3,012,458 3,075 Ser 2001 A (MBIA)...................................... 5.375 05/15/21 3,156,118 5,000 Ser 1999 A (FGIC)...................................... 5.75 05/15/33 5,241,850 1,585 Massachusetts Water Resources Authority, 2000 Ser A (FGIC)................................................. 6.00 08/01/13 1,776,880 New York City Municipal Water Finance Authority, New York, 5,000 1998 Ser D (MBIA)...................................... 4.75 06/15/25 4,654,500 5,000 2002 Ser G............................................. 5.00 06/15/34 4,782,000 1,500 Hamilton County, Ohio, Sewer Refg 2001 Ser A (MBIA)...... 4.75 12/01/26 1,393,905 7,500 Portland, Oregon, Sewer 2000 Ser A (FGIC)................ 5.75 08/01/19 7,985,475 7,000 Charleston, South Carolina, Refg Cap Impr Ser 1998 (FGIC)................................................. 4.50 01/01/24 6,283,060 10,000 Houston, Texas, Water & Sewer Jr Lien Refg Ser 2000 B (FGIC)................................................. 5.25 12/01/30 9,810,799 2,750 Loudoun County Sanitation Authority, Virginia, Ser 1998 (MBIA)................................................. 4.75 01/01/30 2,550,350 -------- ------------- 71,705 70,295,840 -------- -------------
SEE NOTES TO FINANCIAL STATEMENTS 10 Morgan Stanley Quality Municipal Investment Trust PORTFOLIO OF INVESTMENTS - APRIL 30, 2002 (UNAUDITED) continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE ---------------------------------------------------------------------------------------------------------- Other Revenue (4.2%) $ 10,000 New York Local Government Assistance Corporation, Ser 1995 A................................................. 6.00% 04/01/24 $ 10,477,400 -------- ------------- Refunded (4.6%) 7,000 Hawaii, Airports Second Ser of 1991 (AMT) (ETM).......... 6.90 07/01/12 8,209,810 3,000 Salt Lake City, Utah, IHC Hospitals Inc Refg Ser 1991 (Ambac) (ETM).......................................... 11.695++ 05/15/20 3,141,420 -------- ------------- 10,000 11,351,230 -------- ------------- 338,440 Total Tax-Exempt Municipal Bonds (Cost $329,675,931)......................... 339,680,158 -------- ------------- Short Term Tax-Exempt Municipal Obligations (3.6%) Harris County Health Facilities Development Corporation, Texas, 6,500 Methodist Hospital Ser 1994 (Demand 05/01/02).......... 1.70* 12/01/25 6,500,000 100 St Luke's Episcopal Hospital Ser 2001 B (Demand 05/01/02).............................................. 1.70* 02/15/31 100,000 2,300 Kemmerer, Wyoming, Pollution Control Exxon Corp Ser 1984 (Demand 05/01/02)...................................... 1.57* 11/01/14 2,300,000 -------- ------------- 8,900 Total Short-Term Tax-Exempt Municipal Obligations (Cost $8,900,000).......... 8,900,000 -------- ------------- $347,340 Total Investments (Cost $338,575,931) (a)................... 140.0% 348,580,158 ======== Other Assets in Excess of Liabilities....................... 2.2 5,360,658 Preferred Shares of Beneficial Interest..................... (42.2) (105,000,000) ----- ------------- Net Assets Applicable to Common Shareholders................ 100.0% $ 248,940,816 ===== =============
--------------------- Note: The categories of investments are shown as a percentage of net assets applicable to common shareholders. AMT Alternative Minimum Tax. ETM Escrowed to maturity. PSF Texas Permanent School Fund Guarantee Program. ++ Current coupon rate for residual interest bonds. This rate resets periodically as the auction rate on the related short-term securities fluctuates. * Current coupon of variable rate demand obligation. (a) The aggregate cost for federal income tax purposes approximates the aggregate cost for book purposes. The aggregate gross unrealized appreciation is $11,850,742 and the aggregate gross unrealized depreciation is $1,846,515, resulting in net unrealized appreciation of $10,004,227. Bond Insurance: --------------- Ambac Ambac Assurance Corporation. FGIC Financial Guaranty Insurance Company. FSA Financial Security Assurance Inc. MBIA Municipal Bond Investors Assurance Corporation.
SEE NOTES TO FINANCIAL STATEMENTS 11 Morgan Stanley Quality Municipal Investment Trust PORTFOLIO OF INVESTMENTS - APRIL 30, 2002 (UNAUDITED) continued Geographic Summary of Investments Based on Market Value as a Percent of Net Assets Applicable to Common Shareholders Alabama................ 0.8% Alaska................. 2.8 Arizona................ 2.0 California............. 2.1 Colorado............... 2.6 District of Columbia... 0.6 Connecticut............ 4.0 Florida................ 15.2 Georgia................ 7.2 Hawaii................. 6.8 Illinois............... 9.1 Indiana................ 1.4 Kentucky............... 4.6 Maryland............... 3.9 Massachusetts.......... 8.5 Michigan............... 1.7 New Hampshire.......... 0.7 New Jersey............. 11.0 New York............... 11.9 North Carolina......... 4.1 Ohio................... 1.8 Oregon................. 3.8 Pennsylvania........... 4.2 South Carolina......... 10.0 Texas.................. 15.6 Utah................... 1.7 Virginia............... 1.0 Wyoming................ 0.9 ----- Total.................. 140.0% =====
SEE NOTES TO FINANCIAL STATEMENTS 12 Morgan Stanley Quality Municipal Investment Trust FINANCIAL STATEMENTS
Statement of Assets and Liabilities April 30, 2002 (unaudited) Assets: Investments in securities, at value (cost $338,575,931)....................................... $348,580,158 Cash........................................................ 86,509 Interest receivable......................................... 5,543,871 Prepaid expenses............................................ 111,260 ------------ Total Assets............................................ 354,321,798 ------------ Liabilities: Payable for: Investment management fee............................... 131,636 Dividends to preferred shareholders..................... 126,574 Accrued expenses............................................ 122,772 ------------ Total Liabilities....................................... 380,982 ------------ Preferred shares of beneficial interest (1,000,000 shares authorized of authorized of non-participating $.01 par value, 2,100 shares outstanding)................. 105,000,000 ------------ Net Assets Applicable to Common Shareholders............ $248,940,816 ============ Composition of Net Assets Applicable to Common Shareholders: Common shares of beneficial interest (unlimited shares authorized of $.01 par value, 16,809,413 shares outstanding).............................................. $234,727,069 Net unrealized appreciation................................. 10,004,227 Accumulated undistributed net investment income............. 3,150,584 Accumulated undistributed net realized gain................. 1,058,936 ------------ Net Assets Applicable to Common Shareholders............ $248,940,816 ============ Net Asset Value Per Common Share ($248,940,816 divided by 16,809,413 common shares outstanding).............................................. $14.81 ============
SEE NOTES TO FINANCIAL STATEMENTS 13 Morgan Stanley Quality Municipal Investment Trust FINANCIAL STATEMENTS continued Statement of Operations For the six months ended April 30, 2002 (unaudited) Net Investment Income: Interest Income............................................. $10,071,033 ----------- Expenses Investment management fee................................... 616,741 Auction commission fees..................................... 152,842 Transfer agent fees and expenses............................ 44,569 Professional fees........................................... 33,065 Registration fees........................................... 22,211 Shareholder reports and notices............................. 14,062 Trustees' fees and expenses................................. 10,288 Auction agent fees.......................................... 8,605 Custodian fees.............................................. 8,362 Other....................................................... 11,218 ----------- Total Expenses.......................................... 921,963 Less: expense offset........................................ (8,339) ----------- Net Expenses............................................ 913,624 ----------- Net Investment Income................................... 9,157,409 ----------- Net Realized and Unrealized Gain (Loss): Net realized gain........................................... 1,058,950 Net change in unrealized appreciation....................... (7,311,916) ----------- Net Loss................................................ (6,252,966) ----------- Dividends to preferred shareholders from net investment income.................................................... (1,177,295) ----------- Net Increase................................................ $ 1,727,148 ===========
SEE NOTES TO FINANCIAL STATEMENTS 14 Morgan Stanley Quality Municipal Investment Trust FINANCIAL STATEMENTS continued
Statement of Changes in Net Assets FOR THE SIX FOR THE YEAR MONTHS ENDED ENDED APRIL 30, OCTOBER 31, 2002 2001 ------------ ------------ (unaudited) Increase (Decrease) in Net Assets: Operations: Net investment income....................................... $ 9,157,409 $ 19,749,450 Net realized gain........................................... 1,058,950 2,327,707 Net change in unrealized appreciation....................... (7,311,916) 8,755,538 Dividends to preferred shareholders from net investment income.................................................... (1,177,295) (3,673,195) ------------ ------------ Net Increase............................................ 1,727,148 27,159,500 ------------ ------------ Dividends and Distributions to Common Shareholders from: Net investment income....................................... (7,826,694) (15,673,883) Net realized gain........................................... (2,327,706) (237,896) ------------ ------------ Total Dividends and Distributions....................... (10,154,400) (15,911,779) ------------ ------------ Decrease from transactions in common shares of beneficial interest.................................................. (450,565) (817,860) ------------ ------------ Net Increase (Decrease)................................. (8,877,817) 10,429,861 Net Assets Applicable to Common Shareholders: Beginning of period......................................... 257,818,633 247,388,772 ------------ ------------ End of Period (Including accumulated undistributed net investment income of $3,150,584 and $2,920,177, respectively)................. $248,940,816 $257,818,633 ============ ============
SEE NOTES TO FINANCIAL STATEMENTS 15 Morgan Stanley Quality Municipal Investment Trust NOTES TO FINANCIAL STATEMENTS - APRIL 30, 2002 (UNAUDITED) 1. Organization and Accounting Policies Morgan Stanley Quality Municipal Investment Trust (the "Trust") 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 - APRIL 30, 2002 (UNAUDITED) 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 financial reporting purposes but not for tax purposes are reported as dividends in excess of net investment income or distributions in excess of net realized capital gains. To the extent they exceed net investment income and net realized capital gains for tax purposes, they 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") 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 total 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 six months ended April 30, 2002 aggregated $33,402,755 and $31,413,410, respectively. Morgan Stanley Trust, an affiliate of the Investment Manager, is the Trust's transfer agent. At April 30, 2002, the Trust had transfer agent fees and expenses payable of approximately $19,200. 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 six months ended April 30, 2002 included in Trustees' fees and expenses in the Statement of Operations amounted to $4,435. At April 30, 2002, the Trust had an accrued pension liability of $51,654 which is included in accrued expenses in the Statement of Assets and Liabilities. 17 Morgan Stanley Quality Municipal Investment Trust NOTES TO FINANCIAL STATEMENTS - APRIL 30, 2002 (UNAUDITED) continued 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 $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 2.20% 09/11/02 1.95% - 2.20% B 700 35,000 1.65 05/03/02 1.03 - 2.00
--------------------- * As of April 30, 2002. ** For the six months ended April 30, 2002. Subsequent to April 30, 2002 and up through June 7, 2002 the Trust paid dividends to Series A and B at rates ranging from 1.40% to 2.20% in the aggregate amount of $201,782. 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. 18 Morgan Stanley Quality Municipal Investment Trust NOTES TO FINANCIAL STATEMENTS - APRIL 30, 2002 (UNAUDITED) continued 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, 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 Treasury shares purchased and retired (weighted average discount 4.86%)*.......................................... (32,200) (322) (450,243) ---------- -------- ------------ Balance, April 30, 2002..................................... 16,809,413 $168,094 $234,558,975 ========== ======== ============
--------------------- * The Trustees have voted to retire the shares purchased. 6. Dividends to Common Shareholders On April 30, 2002, the Trust declared the following dividends from net investment income:
AMOUNT RECORD PAYABLE PER SHARE DATE DATE --------- ------------- ------------- $0.0775 May 3, 2002 May 17, 2002 $0.0775 June 7, 2002 June 21, 2002
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 April 30, 2002, the Trust held positions in residual interest bonds having a total value of $5,542,060, which represents 2.2% of the Trust's net assets applicable to common shareholders. 9. Change in Accounting Policy Effective November 1, 2001, the Trust has adopted 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 this accounting change had no impact on the net assets 19 Morgan Stanley Quality Municipal Investment Trust NOTES TO FINANCIAL STATEMENTS - APRIL 30, 2002 (UNAUDITED) continued of the Trust, but resulted in a $76,987 increase to the cost of securities and a corresponding increase to net investment income based on securities held as of October 31, 2001. The effect of this change for the six months ended April 30, 2002 was to increase net investment income by $42,804; decrease unrealized appreciation by $20,148; and decrease realized gains by $22,656. The statement of changes in net assets and the financial highlights for prior periods have not been resulted to reflect this change. 10. Change in Financial Statement Classification for Preferred Shares In accordance with the provisions of EITF D-98, "Classification and Measurement of Redeemable Securities", effective for the current reporting period, the Trust has reclassified its Preferred Shares out of the composition of net assets section on the Statement of Assets and Liabilities. In addition, dividends to preferred shareholders are now classified as a component of operations on the Statement of Operations, the Statement of Changes in Net Assets and the Financial Highlights. Additionally, the categories of investments on the Portfolio of Investments are shown as a percentage of net assets applicable to common shareholders. Prior year amounts have been reclassified to conform to this period's presentation. This change has no impact on the net assets applicable to common shareholders of the Trust. 20 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 SIX FOR THE YEAR ENDED OCTOBER 31 MONTHS ENDED ---------------------------------------------------- APRIL 30, 2002 2001 2000 1999 1998 1997 -------------- -------- -------- -------- -------- -------- (unaudited) Selected Per Share Data: Net asset value, beginning of period............... $15.31 $14.64 $ 14.35 $15.66 $15.50 $ 15.18 ------ ------ ------- ------ ------ ------- Income (loss) from investment operations: Net investment income*......................... 0.54 1.17 1.18 1.16 1.19 1.20 Net realized and unrealized gain (loss)........ (0.36) 0.66 0.23 (1.28) 0.15 0.34 Common share equivalent of dividends paid to preferred shareholders........................ (0.07) (0.22) (0.25) (0.20) (0.21) (0.22) ------ ------ ------- ------ ------ ------- Total income (loss) from investment operations..... 0.11 1.61 1.16 (0.32) 1.13 1.32 ------ ------ ------- ------ ------ ------- Less dividends and distributions from: Net investment income.......................... (0.47) (0.93) (0.93) (0.90) (0.96) (0.96) Net realized gain.............................. (0.14) (0.01) -- (0.11) (0.01) (0.05) ------ ------ ------- ------ ------ ------- Total dividends and distributions.................. (0.61) (0.94) (0.93) (1.01) (0.97) (1.01) ------ ------ ------- ------ ------ ------- Anti-dilutive effect of acquiring treasury shares*........................................... -- -- 0.06 0.02 -- 0.01 ------ ------ ------- ------ ------ ------- Net asset value, end of period..................... $14.81 $15.31 $ 14.64 $14.35 $15.66 $ 15.50 ====== ====== ======= ====== ====== ======= Market value, end of period........................ $14.15 $15.08 $13.688 $13.00 $15.50 $15.313 ====== ====== ======= ====== ====== ======= Total Return+...................................... (2.17)%(1) 17.52% 12.84% (10.12)% 7.71% 12.16% Ratios to Average Net Assets of Common Shareholders: Expenses (before expense offset)................... 0.75%(2) 0.73% 0.75% 0.71% 0.71%(3) 0.71% Net investment income before preferred stock dividends......................................... 7.38%(2)(4) 7.83% 8.18% 7.66% 7.65% 7.93% Preferred stock dividends.......................... 0.95%(2) 1.46% 1.74% 1.34% 1.37% 1.44% Net investment income available to common shareholders...................................... 6.43%(2)(4) 6.37% 6.44% 6.32% 6.28% 6.49% Supplemental Data: Net assets applicable to common shareholders, end of period, in thousands........................... $248,941 $257,819 $247,389 $253,633 $282,612 $279,773 Asset coverage on preferred shares at end of period............................................ 337% 345% 335% 34% 369% 366% Portfolio turnover rate............................ 9%(1) 23% 20% 8% 9% 5%
--------------------- * The per share amounts were computed using an average number of common shares outstanding during the period. + Total return is based upon the current market value on the last day of each period reported. Dividends and distributions are assumed to be reinvested at the prices obtained under the Trust's dividend reinvestment plan. Total return does not reflect brokerage commissions. (1) Not annualized. (2) Annualized. (3) Does not reflect the effect of expense offset of 0.01%. (4) Effective November 1, 2001, the Trust has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies, as revised, related to premiums and discounts on debt securities. The effect of this change for the six months ended April 30, 2002 was to increase the ratio of net investment income to average net assets by 0.03%. The Financial Highlights data presented in this table for prior periods has not been restated to reflect this change.
SEE NOTES TO FINANCIAL STATEMENTS 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 Joseph R. Arcieri Vice President Robert Wimmel 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, New York 10020 The financial statements included herein have been taken from the records of the Trust without examination by the independent auditors and accordingly they do not express an opinion thereon. 38570 Morgan Stanley Distributors Inc., member NASD. MORGAN STANLEY QUALITY MUNICIPAL INVESTMENT TRUST Semiannual Report April 30, 2002