UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-06346
Morgan Stanley Quality Municipal Investment Trust
(Exact name of registrant as specified in charter)
1221 Avenue of the Americas, New York, New York 10020
(Address of principal executive offices) (Zip code)
Ronald E. Robison
1221 Avenue of the Americas, New York, New York 10020
(Name and address of agent for service)
Registrant's telephone number, including area code: 212-762-4000
Date of fiscal year end: October 31, 2004
Date of reporting period: April 30, 2004
Item 1 - Report to Shareholders
Welcome, Shareholder:
In this report, you'll learn about how your investment in Morgan Stanley Quality
Municipal Investment Trust performed during the semiannual period. We will
provide an overview of the market conditions, and discuss some of the factors
that affected performance during the reporting period. In addition, this report
includes the Trust's financial statements and a list of Trust investments.
Market forecasts provided in this report may not necessarily come to pass. There
is no assurance that the Trust will achieve its investment objective. The Trust
is subject to market risk, which is the possibility that market values of
securities owned by the Trust will decline and, therefore, the value of the
Trust's shares may be less than what you paid for them. Accordingly, you can
lose money investing in this Trust.
FUND REPORT
For the six-month period ended April 30, 2004
MARKET CONDITIONS
The U.S. economy continued to show improvement over the six-month period under
review. On the positive side, gross domestic product growth topped 4 percent in
both quarters. While strength in output has historically led to higher interest
rates, yields remained stubbornly low across the curve. These yields reflected
low levels of observed inflation in the economy and gradual improvement in
employment. The Federal Open Market Committee maintained its accommodative
monetary policy.
Surprising job growth in March, combined with escalating oil prices, led
investors to anticipate that the Fed would raise interest rates sooner rather
than later. Yet at its April meeting the Federal Reserve did not change its
short-term lending rate but did signal a prospective shift in policy. As a
result, bond yields spiked across sectors and maturities.
The supply of new municipal bonds in calendar 2003 reached record levels as
municipalities took advantage of historically low interest rates. Many cities
and states reduced expenditures by refinancing existing debt at lower yields. In
other cases, municipalities attempted to meet budget needs by issuing additional
debt. Then in the first months of 2004 bond sales began to slow.
Low interest rates also had an impact on the demand for municipal bonds. Retail
and mutual fund activity slowed as holders of municipal bonds saw little reason
to sell bonds purchased at higher yields and reinvest at historically low
yields. However, insurance companies and hedge funds purchased municipal bonds
based on their attractiveness relative to taxable securities. Additionally,
investors stretched for yield by buying lower-rated bonds, causing credit
spreads to tighten.
PERFORMANCE ANALYSIS
The net asset value (NAV) of Morgan Stanley Quality Municipal Investment Trust
(IQT) decreased from $15.36 to $15.05 per share for the six-month period ended
April 30, 2004. Based on this change plus reinvestment of tax-free dividends
totaling $0.45 per share and long-term capital gains of $0.027 per share, the
Trust's total NAV return was 1.21 percent. The Trust's value on the New York
Stock Exchange (NYSE) decreased from $14.22 to $13.28 per share during the same
period. Based on this change plus reinvestment of distributions, the Trust's
total market return was -3.47 percent. On April 30, 2004, IQT's NYSE market
price was at an 11.76 percent discount to its NAV. Past performance is no
guarantee of future results.
Monthly dividends for the second quarter of 2004, declared in March, were
unchanged at $0.075 per share. The dividend reflects the level of the Trust's
undistributed net investment income and projected earnings power. The Trust's
level of undistributed net investment income was $0.113 per share on April 30,
2004, versus $0.137 per share six months earlier.
2
The Trust's duration(1) was targeted to be shorter than its benchmark index. The
duration, adjusted for leverage, was 12.3 years. Treasury futures were sold to
reduce interest-rate exposure without raising cash in the portfolio. We
maintained an average tax-exempt bond maturity objective of 20 years to take
advantage of the steepness of the municipal yield curve. Revenue bonds in
sectors with reliable income streams from essential services such as municipal
electric, transportation and water and sewer systems were emphasized. The
Trust's net assets, including preferred shares of $345 million, were diversified
across 13 credits in 69 long-term sectors.
As discussed in previous reports, the total income available for distribution to
holders of common shares includes incremental income provided by the Trust's
outstanding Auction Rate Preferred Shares (ARPS). ARPS dividends reflect
prevailing short-term interest rates on maturities ranging from one week to two
years. Incremental income to holders of common shares depends on two factors:
the amount of ARPS outstanding, and the spread between the portfolio's cost
yield and its ARPS auction rate and expenses. The greater the spread and the
higher the amount of ARPS outstanding, the greater the amount of incremental
income available for distribution to holders of common shares. The level of net
investment income available for distribution to holders of common shares varies
with the level of short-term interest rates. ARPS leverage also increases the
price volatility of common shares and has the effect of extending portfolio
duration.
During the six-month period under review, ARPS leverage contributed
approximately $0.09 per share to common-share earnings. The Trust has two ARPS
series totaling $105 million and representing 30 percent of net assets including
preferred shares. The series is currently in two-year auction modes with
maturities ranging from September 2004 to September 2005. The yields ranged from
1.70 to 1.90 percent.
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.
- ----------------------------------------------------
1 A measure of the sensitivity of a bond's price to changes in interest rates,
expressed in years. Each year of duration represents an expected 1 percent
change in the price of a bond for every 1 percent change in interest rates.
The longer a bond's duration, the greater the effect of interest-rate
movements on its price. Typically, Funds with shorter durations perform better
in rising-rate environments, while Funds with longer durations perform better
when rates decline.
3
<Table>
<Caption>
LARGEST SECTORS
Water & Sewer 21.2%
Transportation 19.5%
General Obligation 18.3%
Electric 11.9%
Refunded 9.3%
</Table>
<Table>
<Caption>
LONG-TERM CREDIT ANALYSIS
Aaa/AAA 73.7%
Aa/AA 13.6%
A/A 8.4%
Baa/BBB 4.3%
</Table>
Data as of April 30, 2004. Subject to change daily. All percentages are as a
percentage of long-term investments. Provided for informational purposes only
and should not be deemed a recommendation to buy or sell the securities
mentioned. Morgan Stanley is a full-service securities firm engaged in
securities trading and brokerage activities, investment banking, research and
analysis, financing and financial advisory services.
4
DISTRIBUTION BY MATURITY
(% of Long-Term Portfolio) As of April 30, 2004
WEIGHTED AVERAGE MATURITY: 17 YEARS
(BAR CHART)
Portfolio structure is subject to change.
Geographic Summary of Investments
Based on Market Value as a Percent of Total Investments
<Table>
Alabama................ 0.6%
Alaska................. 2.2
Arizona................ 1.5
California............. 3.4
Colorado............... 2.1
District of Columbia... 1.1
Florida................ 9.7
Georgia................ 7.4
Hawaii................. 2.4
Idaho.................. 0.2
Illinois............... 6.7%
Indiana................ 1.3
Kentucky............... 3.4
Maryland............... 3.1
Massachusetts.......... 5.3
Michigan............... 1.0
Minnesota.............. 1.6
Nevada................. 0.9
New Jersey............. 4.8
New York............... 10.8
North Carolina......... 1.8%
Ohio................... 0.9
Oregon................. 2.6
Pennsylvania........... 2.1
South Carolina......... 4.5
Tennessee.............. 3.1
Texas.................. 9.8
Utah................... 1.2
Washington............. 1.8
Wyoming................ 2.7
-----
Total.................. 100.0%
=====
</Table>
5
CALL AND COST (BOOK) YIELD STRUCTURE
(Based on Long-Term Portfolio) As of April 30, 2004
PERCENT OF BONDS CALLABLE -- WEIGHTED AVERAGE CALL PROTECTION: 7 YEARS
(BAR CHART)
<Table>
2004(a) 3
2005 5
2006 1
2007 4
2008 2
2009 7
2010 16
2011 17
2012 20
2013 14
2014+ 11
</Table>
COST (BOOK) YIELD(B) -- WEIGHTED AVERAGE BOOK YIELD: 5.3%
(BAR CHART)
<Table>
2004(a) 7.1
2005 6.1
2006 6.6
2007 6.1
2008 5.6
2009 5.7
2010 5.5
2011 5.2
2012 5.2
2013 4.6
2014+ 4.6
</Table>
(a) May include issues callable in previous years.
(b) Cost or "book" yield is the annual income earned on a portfolio investment
based on its original purchase price before the Trust's operating expenses.
For example, the Trust is earning a book yield of 7.1% on 3% of the
long-term portfolio that is callable in 2004.
Portfolio structure is subject to change.
6
Morgan Stanley Quality Municipal Investment Trust
PORTFOLIO OF INVESTMENTS - APRIL 30, 2004 (UNAUDITED)
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------
Tax-Exempt Municipal Bonds (137.5%)
General Obligation (25.1%)
$ 5,000 North Slope Borough, Alaska, Ser 2000 B (MBIA)........... 0.00% 06/30/09 $ 4,173,250
3,000 California, Various Purpose Dtd 05/01/03................. 5.00 02/01/24 2,892,150
3,300 San Diego Unified School District, California, 2003 Ser E
(FSA).................................................. 5.00 07/01/28 3,305,775
Florida State Board of Education,
6,890 Capital Outlay Refg Ser 2001 D......................... 5.375 06/01/18 7,398,413
3,000 Capital Outlay Refg 2002 Ser C (MBIA).................. 5.00 06/01/20 3,102,810
10,000 Chicago School Reform Board, Illinois, Dedicated Tax Ser
1997 (Ambac)........................................... 5.75 12/01/27 11,166,400
7,000 New Jersey, 2001 Ser H................................... 5.25 07/01/19 7,624,610
5,000 North Carolina, Public School Building Ser 1999.......... 4.60 04/01/17 5,129,850
655 Oregon, Veterans' Welfare Ser 75......................... 6.00 04/01/27 673,353
Pennsylvania,
1,000 First Ser 2003 RITES PA - 1112 A (MBIA)................ 8.662++ 01/01/18 1,087,800
1,000 First Ser 2003 RITES PA - 1112 B (MBIA)................ 8.662++ 01/01/19 1,077,560
5,000 Charleston County School District, South Carolina, Ser
2004 A................................................. 5.00 02/01/22 5,121,800
5,000 Aldine Independent School District, Texas, Bldg & Refg
Ser 2001 (PSF)......................................... 5.00 02/15/26 5,001,050
2,500 Mission Consolidated Independent School District, Texas,
Bldg Ser 2000 (PSF).................................... 5.50 02/15/25 2,609,975
-------------
- --------
60,364,796
58,345
-------------
- --------
Educational Facilities Revenue (3.4%)
1,480 Indiana University, Student Fee Ser K (MBIA)............. 5.875 08/01/20 1,573,536
1,200 University of North Carolina, Chapel Hill Ser 2003....... 5.00 12/01/24 1,215,000
5,000 Texas State University, Ser 2000 (FSA)................... 5.50 03/15/20 5,420,000
-------------
- --------
8,208,536
7,680
-------------
- --------
Electric Revenue (16.3%)
5,000 California Department of Water Resources, Power Supply
Ser 2002 A............................................. 5.875 05/01/16 5,489,250
Municipal Electric Authority of Georgia,
2,000 Combustion Turbine Ser 2002 A (MBIA)................... 5.25 11/01/21 2,095,640
1,500 Combustion Turbine Ser 2002 A (MBIA)................... 5.25 11/01/22 1,562,085
5,000 Southern Minnesota Municipal Power Agency, Ser 2002 A
(Ambac)................................................ 5.25 01/01/16 5,482,550
Long Island Power Authority, New York,
4,000 Ser 2003 B............................................. 5.25 06/01/13 4,263,960
1,900 Ser 2000 A (FSA)....................................... 0.00 06/01/16 1,105,021
</Table>
7
See Notes to Financial Statements
Morgan Stanley Quality Municipal Investment Trust
PORTFOLIO OF INVESTMENTS - APRIL 30, 2004 (UNAUDITED) continued
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------
South Carolina Public Service Authority,
$ 1,500 2002 Refg Ser A (FSA).................................. 5.125% 01/01/20 $ 1,565,925
1,000 2002 Refg Ser A (FSA).................................. 5.125 01/01/21 1,039,380
2,000 1997 Refg Ser A (MBIA)................................. 5.00 01/01/29 2,004,260
10,000 Memphis, Tennessee, Jr Lien Refg 2002 (MBIA)............. 5.00 12/01/16 10,524,700
1,000 Intermountain Power Agency, Utah, Refg 1996 Ser D
(Secondary FSA)........................................ 5.00 07/01/21 1,015,710
Lewis County Public Utility District No 1, Washington,
2,000 Cowlitz Falls Hydroelectric Refg Ser 2003 (MBIA)....... 5.00 10/01/22 2,032,220
1,000 Cowlitz Falls Hydroelectric Refg Ser 2003 (MBIA)....... 5.00 10/01/23 1,011,570
-------------
- --------
39,192,271
37,900
-------------
- --------
Hospital Revenue (8.0%)
Maryland Health & Higher Educational Facilities
Authority,
3,000 Medstar Health Refg Ser 2004........................... 5.375 08/15/24 2,920,260
2,000 University of Maryland Medical Ser 2002................ 5.75 07/01/17 2,133,280
2,500 University of Maryland Medical Ser 2001................ 5.25 07/01/34 2,448,275
4,000 New Jersey Health Care Facilities Financing Authority, St
Barnabas Medical Center Ser 1998 B (MBIA).............. 4.75 07/01/28 3,872,360
1,500 New York State Dormitory Authority Revenue, Mental Health
Ser 2003 B............................................. 5.25 02/15/17 1,593,690
3,000 Lorain County, Ohio, Catholic Healthcare Partners Ser
2001 A................................................. 5.75 10/01/18 3,186,480
3,000 Lehigh County General Purpose Authority, Pennsylvania, St
Lukes Hospital of Bethlehem Ser 2003................... 5.25 08/15/23 2,933,910
-------------
- --------
19,088,255
19,000
-------------
- --------
Industrial Development/Pollution Control Revenue (5.6%)
2,000 Chicago, Illinois, Peoples Gas Light & Coke Co Refg 1995
Ser A.................................................. 6.10 06/02/25 2,105,740
3,500 Michigan Strategic Fund, Detroit Edison Co Ser 2001 C.... 5.45 09/01/29 3,568,145
2,000 New York State Energy Research & Development Authority,
Brooklyn Union Gas Co 1991 Ser D (AMT)................. 12.456++ 07/01/26 2,374,580
5,000 Sabine River Authority, Texas, TXU Electric Co Refg Ser
2001 B (AMT) (Mandatory Tender 11/01/11)............... 5.75 05/01/30 5,292,750
-------------
- --------
13,341,215
12,500
-------------
- --------
Mortgage Revenue - Multi-Family (3.1%)
7,140 Illinois Housing Development Authority, 1991 Ser A....... 8.25 07/01/16 7,425,600
-------------
- --------
Mortgage Revenue - Single Family (0.6%)
555 Colorado Housing & Finance Authority, 2000 Ser D-2
(AMT).................................................. 6.90 04/01/29 565,706
870 District of Columbia Housing Finance Agency, GNMA
Collateralized Ser 1990 B (AMT)........................ 7.10 12/01/24 870,583
-------------
- --------
1,436,289
1,425
-------------
- --------
</Table>
8
See Notes to Financial Statements
Morgan Stanley Quality Municipal Investment Trust
PORTFOLIO OF INVESTMENTS - APRIL 30, 2004 (UNAUDITED) continued
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------
Public Facilities Revenue (4.5%)
$ 5,000 Arizona School Facilities Board, School Impr Ser 2001.... 5.00% 07/01/19 $ 5,161,650
1,585 Colorado Educational & Cultural Facilities Authority,
Peak to Peak Charter School Refg & Impr Ser 2004
(XLCA)................................................. 5.25 08/15/34 1,608,680
1,900 Jacksonville, Florida, Sales Tax Ser 2001 (Ambac)........ 5.50 10/01/18 2,064,445
2,000 Pennsylvania Public School Building Authority,
Philadelphia School District Ser 2003 (FSA)............ 5.00 06/01/33 1,992,320
-------------
- --------
10,827,095
10,485
-------------
- --------
Resource Recovery Revenue (1.3%)
3,000 Northeast Maryland Waste Disposal Authority, Montgomery
- -------- County Ser 2003 (AMT) (Ambac).......................... 5.50 04/01/16 3,203,520
-------------
Transportation Facilities Revenue (26.8%)
Alaska International Airports System,
1,500 Ser 2002 B (Ambac)..................................... 5.75 10/01/18 1,657,470
1,500 Ser 2002 B (Ambac)..................................... 5.75 10/01/19 1,654,455
3,000 Metropolitan Washington DC Airport Authority, Ser 2004 C
(FSA) (AMT) (WI)....................................... 5.00 10/01/20 2,960,760
10,000 Hillsborough County Port District, Florida, Tampa Port
Authority Special & Refg Ser 1995 (AMT) (FSA).......... 6.00 06/01/20 10,547,000
Georgia State Road & Toll Authority,
2,500 DRIVERS Ser 373........................................ 8.645++ 10/01/11 2,648,250
10,000 Ser 2001............................................... 5.375 03/01/17 10,849,400
2,000 Chicago, Illinois, O' Hare Int'l Airport Third Lien Ser
2003 B-2 (AMT) (FSA)................................... 5.75 01/01/23 2,136,680
5,000 Massachusetts Bay Transportation Authority, Assess 2000
Ser A.................................................. 5.25 07/01/30 5,065,300
5,000 New Jersey Turnpike Authority, Ser 2003 A (Ambac)........ 5.00 01/01/30 5,030,750
4,000 Port Authority of New York & New Jersey, Cons 135th Ser
(XLCA)................................................. 5.00 09/15/29 4,008,640
Metropolitan Transportation Authority, New York,
3,000 State Service Contract Ser 2002 A (MBIA)............... 5.50 01/01/19 3,243,240
3,000 State Service Contract Refg Ser 2002 B (MBIA).......... 5.50 07/01/20 3,231,240
3,000 Triborough Bridge & Tunnel Authority, New York, Ser 2001
A...................................................... 5.00 01/01/32 2,970,930
5,000 Dallas-Fort Worth International Airport, Texas, Ser 2003
A (AMT) (FSA).......................................... 5.375 11/01/22 5,157,250
3,000 Port of Seattle, Washington, Sub Lien Ser 1999 A
(FGIC)................................................. 5.25 09/01/22 3,107,280
-------------
- --------
64,268,645
61,500
-------------
- --------
Water & Sewer Revenue (29.1%)
2,000 Birmingham, Alabama, Water & Sewer Ser 1998 A............ 4.75 01/01/21 1,987,360
5,000 Colorado Springs, Colorado, Utilities Ser 2001 A......... 5.00 11/15/29 5,013,900
2,000 Martin County, Florida, Utilities Ser 2001 (FGIC)........ 5.00 10/01/26 2,010,160
8,000 Tampa Bay Water, Florida, Ser 2001 B (FGIC).............. 5.00 10/01/31 8,002,160
</Table>
9
See Notes to Financial Statements
Morgan Stanley Quality Municipal Investment Trust
PORTFOLIO OF INVESTMENTS - APRIL 30, 2004 (UNAUDITED) continued
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------
Louisville & Jefferson County Metropolitan Sewer
District, Kentucky,
$ 2,925 Ser 2001 A (MBIA)...................................... 5.375% 05/15/20 $ 3,118,810
3,075 Ser 2001 A (MBIA)...................................... 5.375 05/15/21 3,262,514
5,000 Ser 1999 A (FGIC)...................................... 5.75 05/15/33 5,359,800
1,585 Massachusetts Water Resources Authority, 2000 Ser A
(FGIC)................................................. 6.00 08/01/13 1,802,478
2,925 Las Vegas Water District, Nevada, Impr and Refg Ser 2003
A (FGIC)............................................... 5.25 06/01/22 3,042,702
New York City Municipal Water Finance Authority, New
York,
3,000 2003 Ser A............................................. 5.375 06/15/18 3,213,720
4,000 1998 Ser D (MBIA)...................................... 4.75 06/15/25 3,903,360
5,000 2002 Ser G (FSA)....................................... 5.00 06/15/34 4,992,750
7,500 Portland, Oregon, Sewer 2000 Ser A (FGIC)................ 5.75 08/01/19 8,324,250
6,000 Charleston, South Carolina, Refg Cap Impr Ser 1998
(FGIC)................................................. 4.50 01/01/24 5,666,280
10,000 Houston, Texas, Water & Sewer Jr Lien Refg Ser 2000 B
(FGIC)................................................. 5.25 12/01/30 10,138,400
-------------
- --------
69,838,644
68,010
-------------
- --------
Other Revenue (0.9%)
2,000 New York City Transitional Finance Authority, New York,
- -------- Refg 2003 Ser A........................................ 5.50 11/01/26 2,210,480
-------------
Refunded (12.8%)
7,250 Atlanta, Georgia, Airport Ser 2000 A (FGIC).............. 5.50 01/01/10+ 8,170,532
7,000 Hawaii, Airports Second Ser of 1991 (AMT) (ETM).......... 6.90 07/01/12 8,267,980
10,000 Massachusetts, Ser 2000 C................................ 5.75 10/01/10+ 11,335,500
3,000 Salt Lake City, Utah, IHC Hospitals Inc Refg Ser 1991
(Ambac) (ETM).......................................... 12.202++ 05/15/20 3,025,530
-------------
- --------
30,799,542
27,250
-------------
- --------
316,235 Total Tax-Exempt Municipal Bonds (Cost $315,171,878)........................ 330,204,888
-------------
- --------
</Table>
10
See Notes to Financial Statements
Morgan Stanley Quality Municipal Investment Trust
PORTFOLIO OF INVESTMENTS - APRIL 30, 2004 (UNAUDITED) continued
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------
Short-Term Tax-Exempt Municipal Obligations (5.4%)
$ 780 Idaho Health Facilities Authority, St Luke's Regional
Medical Center Ser 2000 (FSA) (Demand 05/03/04)........ 1.10*% 07/01/30 $ 780,000
2,820 Indiana Health Facility Financing Authority, Clarian
Health
Ser 2000 B (Demand 05/03/04)........................... 1.10* 03/01/30 2,820,000
9,300 Kemmerer, Wyoming, Exxon Corp Ser 1984 (Demand
05/03/04).............................................. 1.03* 11/01/14 9,300,000
-------------
- --------
12,900 Total Short-Term Tax-Exempt Municipal Obligations (Cost $12,900,000)........ 12,900,000
-------------
- --------
</Table>
<Table>
$329,135 Total Investments (Cost $328,071,878) (a).......................... 142.9% 343,104,888
========
Other Assets in Excess of Liabilities.............................. 0.9 2,242,647
Preferred Shares of Beneficial Interest............................ (43.8) (105,160,419)
----- -------------
Net Assets Applicable to Common Shareholders....................... 100.0% $ 240,187,116
===== =============
</Table>
- ---------------------
<Table>
Note: The categories of investments are shown as a percentage of net
assets applicable to common shareholders.
AMT Alternative Minimum Tax.
DRIVERS Derivative Inverse Tax-Exempt Receipts.
ETM Escrowed to maturity.
PSF Texas Permanent School Fund Guarantee Program.
RITES Residual Interest Tax-Exempt Securities.
WI Security purchased on a when-issued basis.
+ Prerefunded to call date shown.
++ Current coupon rate for inverse floating rate municipal
obligations. This rate resets periodically as the auction
rate on the related security changes. Positions in inverse
floating rate municipal obligations have a total value of
$10,213,720 which represents 4.3% of net assets applicable
to common shareholders.
* Current coupon of variable rate demand obligation.
(a) The aggregate cost for federal income tax purposes is
$327,896,344. The aggregate gross unrealized appreciation is
$16,443,430 and the aggregate gross unrealized depreciation
is $1,234,886, resulting in net unrealized appreciation of
$15,208,544.
Bond Insurance:
- ---------------
Ambac Ambac Assurance Corporation.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
XLCA XL Capital Corporation.
</Table>
11
See Notes to Financial Statements
Morgan Stanley Quality Municipal Investment Trust
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
April 30, 2004 (unaudited)
<Table>
Assets:
Investments in securities, at value
(cost $328,071,878)............... $343,104,888
Cash................................ 68,780
Interest receivable................. 5,148,530
Prepaid expenses and other assets... 416,411
------------
Total Assets.................... 348,738,609
------------
Liabilities:
Payable for:
Investments purchased........... 3,018,870
Common shares of beneficial
interest repurchased.......... 140,047
Investment management fee....... 118,465
Accrued expenses and other
payables.......................... 113,692
------------
Total Liabilities............... 3,391,074
------------
Preferred shares of beneficial
interest, (at liquidation value),
(1,000,000 shares authorized of
non-participating $.01 par value,
2,100 shares outstanding)......... 105,160,419
------------
Net Assets Applicable to Common
Shareholders.................. $240,187,116
============
Composition of Net Assets Applicable
to Common Shareholders:
Common shares of beneficial interest
(unlimited shares authorized of
$.01 par value, 15,964,013 shares
outstanding)...................... $222,599,921
Net unrealized appreciation......... 15,033,010
Accumulated undistributed net
investment income................. 1,798,487
Accumulated undistributed net
realized gain..................... 755,698
------------
Net Assets Applicable to Common
Shareholders.................. $240,187,116
============
Net Asset Value Per Common Share
($240,187,116 divided by 15,964,013
common shares outstanding).......... $15.05
============
</Table>
Statement of Operations
For the six months ended April 30, 2004 (unaudited)
<Table>
Net Investment Income:
Interest Income...................... $ 8,852,174
-----------
Expenses
Investment management fee............ 625,675
Auction commission fees.............. 273,307
Transfer agent fees and expenses..... 49,817
Professional fees.................... 30,865
Shareholder reports and notices...... 19,991
Custodian fees....................... 9,850
Auction agent fees................... 7,221
Trustees' fees and expenses.......... 4,864
Other................................ 18,216
-----------
Total Expenses................... 1,039,806
Less: expense offset................. (9,738)
-----------
Net Expenses..................... 1,030,068
-----------
Net Investment Income............ 7,822,106
-----------
Net Realized and Unrealized Gain
(Loss):
Investments.......................... 1,455,209
Futures contracts.................... (1,049,443)
-----------
Net Realized Gain................ 405,766
Net change in unrealized
appreciation....................... (4,904,249)
-----------
Net Loss......................... (4,498,483)
-----------
Dividends to preferred shareholders
from net investment income......... (981,580)
-----------
Net Increase......................... $ 2,342,043
===========
</Table>
12
See Notes to Financial Statements
Morgan Stanley Quality Municipal Investment Trust
FINANCIAL STATEMENTS continued
Statement of Changes in Net Assets
<Table>
<Caption>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
APRIL 30, 2004 OCTOBER 31, 2003
-------------- ----------------
(unaudited)
Increase (Decrease) in Net Assets:
Operations:
Net investment income....................................... $ 7,822,106 $ 16,638,545
Net realized gain........................................... 405,766 797,277
Net change in unrealized appreciation....................... (4,904,249) 3,427,282
Dividends to preferred shareholders from net investment
income.................................................... (981,580) (1,804,684)
------------ ------------
Net Increase............................................ 2,342,043 19,058,420
------------ ------------
Dividends and Distributions to Common Shareholders from:
Net investment income....................................... (7,264,179) (15,772,298)
Net realized gain........................................... (447,688) (1,549,279)
------------ ------------
Total Dividends and Distributions....................... (7,711,867) (17,321,577)
------------ ------------
Decrease from transactions in common shares of beneficial
interest.................................................. (4,294,635) (6,484,403)
------------ ------------
Net Decrease............................................ (9,664,459) (4,747,560)
Net Assets Applicable to Common Shareholders:
Beginning of period......................................... 249,851,575 254,599,135
------------ ------------
End of Period
(Including accumulated undistributed net investment income
of $1,798,487 and $2,222,140, respectively)................. $240,187,116 $249,851,575
============ ============
</Table>
13
See Notes to Financial Statements
Morgan Stanley Quality Municipal Investment Trust
NOTES TO FINANCIAL STATEMENTS - APRIL 30, 2004 (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 following is a summary of significant accounting policies:
A. Valuation of Investments -- (1) portfolio securities are valued by an outside
independent pricing service approved by the Trustees. The pricing service uses
both a computerized grid matrix of tax-exempt securities and evaluations by its
staff, in each case based on information concerning market transactions and
quotations from dealers which reflect the mean between the last reported bid and
asked price. The portfolio securities are thus valued by reference to a
combination of transactions and quotations for the same or other securities
believed to be comparable in quality, coupon, maturity, type of issue, call
provisions, trading characteristics and other features deemed to be relevant.
The Trustees believe that timely and reliable market quotations are generally
not readily available for purposes of valuing tax-exempt securities and that the
valuations supplied by the pricing service are more likely to approximate the
fair value of such securities; (2) futures are valued at the latest sale price
on the commodities exchange on which they trade unless it is determined that
such price does not reflect their market value, in which case they will be
valued at their fair value as determined in good faith under procedures
established by and under the supervision of the Trustees; and (3) short-term
debt securities having a maturity date of more than sixty days at time of
purchase are valued on a mark-to-market basis until sixty days prior to maturity
and thereafter at amortized cost based on their value on the 61st day.
Short-term debt securities having a maturity date of sixty days or less at the
time of purchase are valued at amortized cost.
B. Accounting for Investments -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Discounts are accreted and premiums are amortized over the life of the
respective securities. Interest income is accrued daily.
C. Futures Contracts -- A futures contract is an agreement between two parties
to buy and sell financial instruments or contracts based on financial indices at
a set price on a future date. Upon entering into such a contract, the Trust is
required to pledge to the broker cash, U.S. Government securities or other
liquid portfolio securities equal to the minimum initial margin requirements of
the applicable futures exchange. Pursuant to the contract, the Trust agrees to
receive from or pay to the
14
Morgan Stanley Quality Municipal Investment Trust
NOTES TO FINANCIAL STATEMENTS - APRIL 30, 2004 (UNAUDITED) continued
broker an amount of cash equal to the daily fluctuation in the value of the
contract. Such receipts or payments known as variation margin are recorded by
the Trust as unrealized gains and losses. Upon closing of the contract, the
Trust realizes a gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was closed.
D. Federal Income Tax Policy -- 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.
E. Dividends and Distributions to Shareholders -- Dividends and distributions to
shareholders are recorded on the ex-dividend date.
F. Use of Estimates -- The preparation of financial statements in accordance
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures.
Actual results could differ from those estimates.
2. Investment 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, 2004 aggregated
$30,788,115 and $42,138,740, respectively.
Morgan Stanley Trust, an affiliate of the Investment Manager, is the Trust's
transfer agent. At April 30, 2004, the Trust had transfer agent fees and
expenses payable of approximately $12,000.
The Trust has an unfunded noncontributory defined benefit pension plan covering
certain 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 factors which include years of service and compensation.
Aggregate pension costs for the year ended April 30, 2004 included in Trustees'
fees and expenses in the Statement of Operations amounted to $3,404. At April
30, 2004, the Trust had an accrued pension liability of $54,944 which is
included in accrued expenses in the Statement of Assets and Liabilities. On
December 2, 2003, the Trustees voted to close the plan to new
15
Morgan Stanley Quality Municipal Investment Trust
NOTES TO FINANCIAL STATEMENTS - APRIL 30, 2004 (UNAUDITED) continued
participants and eliminate the future benefits growth due to increases to
compensation after July 31, 2003.
Effective April 1, 2004, the Trust began an unfunded Deferred Compensation Plan
(the "Compensation Plan"), which allows each independent Trustee to defer
payment of all, or a portion, of the fees he receives for serving on the Board
of Trustees. Each eligible Trustee generally may elect to have the deferred
amounts credited with a return equal to the total return on one or more of the
Morgan Stanley funds that are offered as investment options under the
Compensation Plan. Appreciation/depreciation and distributions received from
these investments are recorded with an offsetting increase/decrease in the
deferred compensation obligation and do not affect the net asset value of the
Trust.
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.
<Table>
<Caption>
AMOUNT RESET RANGE OF
SERIES SHARES* IN THOUSANDS* RATE* DATE DIVIDEND RATES**
- ------ ------- ------------- ----- -------- ----------------
A 1,400 $70,000 1.90% 09/08/04 1.90%
B 700 35,000 1.70 09/02/05 1.70
</Table>
- ---------------------
* As of April 30, 2004.
** For the six months ended April 30, 2004.
Subsequent to April 30, 2004 and up through June 4, 2004 the Trust paid
dividends to Series A and B at rates ranging from 1.70% to 1.90% in the
aggregate amount of $160,419.
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.
16
Morgan Stanley Quality Municipal Investment Trust
NOTES TO FINANCIAL STATEMENTS - APRIL 30, 2004 (UNAUDITED) continued
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:
<Table>
<Caption>
CAPITAL
PAID IN
PAR EXCESS OF
SHARES VALUE PAR VALUE
---------- --------- ------------
Balance, October 31, 2002................................... 16,716,613 $167,166 $233,211,793
Treasury shares purchased and retired (weighted average
discount 7.04%)*.......................................... (454,800) (4,548) (6,479,855)
---------- -------- ------------
Balance, October 31, 2003................................... 16,261,813 162,618 226,731,938
Treasury shares purchased and retired (weighted average
discount 7.83%)*.......................................... (297,800) (2,978) (4,291,657)
---------- -------- ------------
Balance, April 30, 2004..................................... 15,964,013 $159,640 $222,440,281
========== ======== ============
</Table>
- ---------------------
* The Trustees have voted to retire the shares purchased.
6. Dividends to Common Shareholders
On March 30, 2004, the Trust declared the following dividends from net
investment income:
<Table>
<Caption>
AMOUNT RECORD PAYABLE
PER SHARE DATE DATE
- --------- ------------- -------------
$0.075.. May 7, 2004 May 21, 2004
$0.075.. June 4, 2004 June 18, 2004
</Table>
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.
To hedge against adverse interest rate changes, the Trust may invest in
financial futures contracts or municipal bond index futures contracts ("futures
contracts").
17
Morgan Stanley Quality Municipal Investment Trust
NOTES TO FINANCIAL STATEMENTS - APRIL 30, 2004 (UNAUDITED) continued
These futures contracts involve elements of market risk in excess of the amount
reflected in the Statement of Assets and Liabilities. The Trust bears the risk
of an unfavorable change in the value of the underlying securities. Risks may
also arise upon entering into these contracts from the potential inability of
the counterparties to meet the terms of their contracts.
9. Federal Income Tax Status
The amount of dividends and distributions from net investment income and net
realized capital gains are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the capital accounts based on their federal tax-basis
treatment; temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for tax purposes are reported as distributions of paid-in-capital.
As of October 31, 2003, the Trust had temporary book/tax differences primarily
attributable to book amortization of discounts on debt securities,
mark-to-market of open futures contracts and dividends payable.
18
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:
<Table>
<Caption>
FOR THE SIX FOR THE YEAR ENDED OCTOBER 31,
MONTHS ENDED ---------------------------------------------------------
APRIL 30, 2004 2003 2002 2001 2000 1999
-------------- --------- --------- --------- --------- ---------
(unaudited)
Selected Per Share Data:
Net asset value, beginning of period................ $ 15.36 $ 15.23 $ 15.31 $ 14.64 $ 14.35 $ 15.66
-------- -------- -------- -------- -------- --------
Income (loss) from investment operations:
Net investment income*.......................... 0.48 1.01 1.07 1.17 1.18 1.16
Net realized and unrealized gain (loss)......... (0.27) 0.25 0.04 0.66 0.23 (1.28)
Common share equivalent of dividends paid to
preferred shareholders*......................... (0.06) (0.11) (0.13) (0.22) (0.25) (0.20)
-------- -------- -------- -------- -------- --------
Total income (loss) from investment operations...... 0.15 1.15 0.98 1.61 1.16 (0.32)
-------- -------- -------- -------- -------- --------
Less dividends and distributions from:
Net investment income........................... (0.45) (0.96) (0.93) (0.93) (0.93) (0.90)
Net realized gain............................... (0.03) (0.09) (0.14) (0.01) -- (0.11)
-------- -------- -------- -------- -------- --------
Total dividends and distributions................... (0.48) (1.05) (1.07) (0.94) (0.93) (1.01)
-------- -------- -------- -------- -------- --------
Anti-dilutive effect of acquiring treasury
shares*............................................ 0.02 0.03 0.01 -- 0.06 0.02
-------- -------- -------- -------- -------- --------
Net asset value, end of period...................... $ 15.05 $ 15.36 $ 15.23 $ 15.31 $ 14.64 $ 14.35
======== ======== ======== ======== ======== ========
Market value, end of period......................... $ 13.28 $ 14.22 $ 14.08 $ 15.08 $ 13.69 $ 13.00
======== ======== ======== ======== ======== ========
Total Return+....................................... (3.47)%(1) 8.66% 0.52% 17.52% 12.84% (10.12)%
Ratios to Average Net Assets of Common Shareholders:
Total expenses (before expense offset).............. 0.82%(2)(3) 0.79%(3) 0.73%(3) 0.74%(3) 0.75% 0.71%
Net investment income before preferred stock
dividends.......................................... 6.20%(2) 6.54% 7.15% 7.83% 8.18% 7.66%
Preferred stock dividends........................... 0.78%(2) 0.71% 0.86% 1.46% 1.74% 1.34%
Net investment income available to common
shareholders....................................... 5.42%(2) 5.83% 6.29% 6.37% 6.44% 6.32%
Supplemental Data:
Net assets applicable to common shareholders, end of
period, in thousands............................... $240,187 $249,852 $254,599 $257,819 $247,389 $253,633
Asset coverage on preferred shares at end of
period............................................. 328% 338% 342% 345% 335% 341%
Portfolio turnover rate............................. 9%(1) 21% 17% 23% 20% 8%
</Table>
- ---------------------
<Table>
* 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%.
</Table>
19
See Notes to Financial Statements
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
James F. Higgins
Dr. Manuel H. Johnson
Joseph J. Kearns
Michael E. Nugent
Fergus Reid
OFFICERS
Charles A. Fiumefreddo
Chairman of the Board
Mitchell M. Merin
President
Ronald E. Robison
Executive Vice President and Principal Executive Officer
Barry Fink
Vice President
Joseph J. McAlinden
Vice President
Stefanie V. Chang
Vice President
Francis J. Smith
Treasurer and Chief Financial Officer
Thomas F. Caloia
Vice President
Mary E. Mullin
Secretary
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.
Investments and services offered through Morgan Stanley DW Inc., member SIPC.
(c) 2004 Morgan Stanley
[MORGAN STANLEY LOGO]
MORGAN STANLEY FUNDS
Morgan Stanley
Quality Municipal
Investment Trust
Semiannual Report
April 30, 2004
[MORGAN STANLEY LOGO]
38570RPT-RA04-00260P-Y04/04
Item 2. Code of Ethics.
Not applicable for semiannual reports.
Item 3. Audit Committee Financial Expert.
Not applicable for semiannual reports.
Item 4. Principal Accountant Fees and Services
Not applicable for semiannual reports.
Item 5. Audit Committee of Listed Registrants.
Not applicable for semiannual reports.
Item 6. [Reserved.]
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable for semiannual reports.
Item 8. [Reserved.]
Item 9 - Controls and Procedures
(a) The Trust's principal executive officer and principal financial officer have
concluded that the Trust's disclosure controls and procedures are sufficient to
ensure that information required to be disclosed by the Trust in this Form N-CSR
was recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms, based
upon such officers' evaluation of these controls and procedures as of a date
within 90 days of the filing date of the report.
There were no significant changes or corrective actions with regard to
significant deficiencies or material weaknesses in the Trust's internal controls
or in other factors that could significantly affect the Trust's internal
controls subsequent to the date of their evaluation.
(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the registrant's most recent fiscal half-year
(the registrant's second fiscal half-year in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 10 Exhibits
(a) Code of Ethics - Not applicable for semiannual reports.
(b) A separate certification for each principal executive officer and principal
financial officer of the registrant are attached hereto as part of EX-99.CERT.
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Morgan Stanley Quality Municipal Investment Trust
/s/ Ronald E. Robison
- ---------------------
Ronald E. Robison
Principal Executive Officer
June 22, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
/s/ Ronald E. Robison
- ---------------------
Ronald E. Robison
Principal Executive Officer
June 22, 2004
/s/ Francis Smith
- -----------------
Francis Smith
Principal Financial Officer
June 22, 2004
3