N-CSR 1 y91897nvcsr.txt MORGAN STANLEY QUALITY MUNICIPAL INVESTMENT TRUST 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, 2003 Date of reporting period: October 31, 2003 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 annual period. We will provide an overview of the market conditions, and discuss some of the factors that affected performance during the reporting period. In addition, this report includes the 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 shares may be less than what you paid for them. Accordingly you can lose money investing in this Trust. FUND REPORT For the year ended October 31, 2003 MARKET CONDITIONS Over the past 12 months the tone of the U. S. economy shifted from weak to accelerating growth culminating in 8.2 percent GDP growth in the third quarter of 2003. One of the most closely watched economic indicators, employment strength, was in negative territory for much of the period. Repeated comments from government and private sector economists suggesting that the U.S. economy might be entering a deflationary period also weighed heavily on investors during much of the year. At the same time, ongoing budgetary and fiscal difficulties at the state and local levels contributed to ratings downgrades for many municipal bonds. The Federal Reserve Board attempted to allay these fears and keep the economy moving forward by cutting the federal funds target rate twice to a level of 1.0 percent. The uncertain economic climate had an effect on the municipal bond market. While yields on intermediate-and long-term bonds ended the period roughly where they began, the road between those two points was decidedly bumpy. The 12-month period can be divided into two distinct market environments. The first, which lasted from October 2002 to mid-June 2003, saw municipal yields fall by roughly 75 basis points to levels not seen since the late 1960s. Plummeting yields led to a surge in issuance as municipalities moved to lock in new low financing rates and, in the case of older bonds, low refinancing costs. Record levels of supply met with strong demand by investors in search of tax-exempt income to offset low money market rates. Also, the relatively attractive yield of municipal bonds versus Treasuries created demand from institutional taxable investors who "crossed-over" to purchase municipals. The municipal market reversed abruptly in mid-June, when yields began to climb from their lows and investors shifted their attention to the improving equity market. Participation from cross-over investors also evaporated as taxable yields rose faster than those of tax-exempts. Issuance remained strong through July, but declined over the last three months as yields rose. These forces combined to push municipal-bond yields above their historic lows, ending the fiscal year near where they began. PERFORMANCE ANALYSIS The net asset value (NAV) of Morgan Stanley Quality Municipal Investment Trust (IQT) increased from $15.23 to $15.36 per share for the fiscal year ended October 31, 2003. Based on this change plus reinvestment of tax-free dividends totaling $0.96 per share and long-term capital gains of $0.093 per share, the Trust's total NAV return was 8.58 percent. IQT's value on the New York Stock Exchange (NYSE) increased from $14.08 to $14.22 per share during the same period. Based on this change plus reinvestment of tax-free dividends, the Trust's total market return was 8.66 percent. On October 31, 2003, IQT's NYSE market price was at a 7.4 percent discount to its NAV. Past performance is no guarantee of future results. Monthly dividends for fourth quarter of 2003 were declared in September. Beginning with the October payment the monthly payment decreased from $0.08 to $0.075 per share. The new dividend reflects the 2 level of the Trust's undistributed net investment income and projected earnings power. The Trust's level of undistributed net investment income was $0.137 per share on October 31, 2003, versus $0.189 per share as of October 31, 2002. From a strategic point of view, with interest rates at multi-decade lows, we also became increasingly concerned that the next significant shift in interest rates might be upward. As a result, we began to establish a hedge position by selling Treasury futures to reduce the portfolio's duration (a measure of interest rate sensitivity). This allowed us to maintain an average maturity target range of 20 years in order to take advantage of the steepness of the municipal yield curve. Nevertheless, market yields on new investments were lower than the book yields on portfolio holdings called for redemption. The portfolio's duration adjusted for leverage was 11.9 years. We continued to emphasize revenue bonds in sectors tied to reliable income streams from essential services such as municipal electric, transportation and water & sewer. As of October 31, 2003, the Trust's net assets of $355 million, including outstanding preferred shares, were diversified across 64 credits in 13 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 interest rates on maturities normally ranging from one week to two years. Incremental income to holders of common shares depends on two factors. The first is the amount of ARPS outstanding, the second the spread between the portfolio's cost yield and its ARPS expenses (ARPS auction rate and expenses). The greater the spread and 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 varies with the level of short-term interest rates. ARPS leverage also increases the price volatility of common shares and has the effect of extending portfolio duration. During the 12-month period, ARPS leverage contributed approximately $0.20 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. Both series are two-year auctions maturing in September 2004 and September 2005 yielding 1.90 and 1.70 percent, respectively. The Trust's procedure for reinvesting all dividends and distributions in common shares is through purchases in the open market. This method helps support the market value of the Trust's shares. In addition, we would like to remind you that the Trustees have approved a procedure whereby the Trust may, when appropriate, purchase shares in the open market or in privately negotiated transactions at a price not above market value or net asset value, whichever is lower at the time of purchase. The Trust may also utilize procedures to reduce or eliminate the amount of outstanding ARPS, including their purchase in the open market or in privately negotiated transactions. During the 12-month period ended October 31, 2003, the Trust purchased and retired 454,800 shares of common stock at a weighted average market discount of 7.041 percent. 3
LARGEST SECTORS Water & Sewer 21.7% Transportation 18.5% General Obligation 17.0% Electric 8.9% Refunded 9.7%
CREDIT ANALYSIS Aaa/AAA 73% Aa/AA 15% A/A 10% Baa/BBB 2%
Subject to change daily. Largest sector and credit analysis percentages are a percentage of total long-term investments. Provided for informational purposes only and should not be deemed as a recommendation to buy or sell the securities mentioned. Morgan Stanley is a full-service firm engaged in securities trading and brokerage activities, investment banking, research and analysis, financing and financial advisory services. RESULTS OF ANNUAL SHAREHOLDER MEETING ON OCTOBER 29, 2003, AN ANNUAL MEETING OF THE TRUST'S SHAREHOLDERS WAS HELD FOR THE PURPOSE OF VOTING ON THE FOLLOWING MATTERS, THE RESULTS OF WHICH WERE AS FOLLOWS: (1) ELECTION OF TRUSTEES BY ALL SHAREHOLDERS: ------------------------------------------------- WAYNE E. HEDIEN FOR 13,207,181 WITHHELD 287,351 ------------------------------------------------- JOSEPH J. KEARNS FOR 13,207,643 WITHHELD 286,889 ------------------------------------------------- FERGUS REID FOR 13,204,082 WITHHELD 290,450 -------------------------------------------------
(2) ELECTION OF TRUSTEE BY PREFERRED SHAREHOLDERS ------------------------------------------------- DR. MANUEL H. JOHNSON FOR 1,966 WITHHELD 2 -------------------------------------------------
THE FOLLOWING TRUSTEES WERE NOT STANDING FOR REELECTION AT THIS MEETING: MICHAEL BOZIC, CHARLES A. FIUMEFREDDO, EDWIN J. GARN, JAMES F. HIGGINS, MICHAEL E. NUGENT, AND PHILIP J. PURCELL. 4 DISTRIBUTION BY MATURITY (% of Long-Term Portfolio) WEIGHTED AVERAGE MATURITY: 18 YEARS [WEIGHTED AVERAGE MATURITY BAR CHART] 1-5 4 5-10 11 10-20 45 20-30 38 30+ 2
Portfolio structure is subject to change. Geographic Summary of Investments Based on Market Value as a Percent of Total Investments Alabama................ 0.6% Alaska................. 2.2 Arizona................ 1.5 California............. 3.4 Colorado............... 1.6 District of Columbia... 0.3 Connecticut............ 1.8 Florida................ 10.3 Georgia................ 7.4 Hawaii................. 2.4 Idaho.................. 0.7 Illinois............... 7.3 Indiana................ 0.5 Kentucky............... 3.4 Maryland............... 2.3 Massachusetts.......... 5.3 Michigan............... 1.0 Minnesota.............. 1.6 Nevada................. 0.9 New Jersey............. 9.1 New York............... 12.3 North Carolina......... 1.5 Ohio................... 0.9 Oregon................. 2.7 Pennsylvania........... 2.0 South Carolina......... 3.0 Texas.................. 11.0 Utah................... 1.2 Washington............. 1.8 ----- Total.................. 100.0% =====
5 CALL AND COST (BOOK) YIELD STRUCTURE PERCENT OF BONDS CALLABLE -- WEIGHTED AVERAGE CALL PROTECTION: 7 YEARS (Based on Long-Term Portfolio) As of 10/31/03 [PERCENT OF BONDS CALLABLE BAR CHART] 2003(a) 8 2004 2 2005 8 2006 1 2007 3 2008 2 2009 9 2010 16 2011 17 2012 19 2013+ 15
COST (BOOK) YIELD(B) -- WEIGHTED AVERAGE BOOK YIELD: 5.4% (Based on Long-Term Portfolio) As of 10/31/03 [COST (BOOK) YIELD(B) BAR CHART] 2003(a) 7.1 2004 5.9 2005 6.1 2006 6.6 2007 6.1 2008 5.6 2009 5.7 2010 5.5 2011 5.0 2012 5.2 2013+ 4.6
(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 8% of the long-term portfolio that is callable in 2003. Portfolio structure is subject to change. 6 Morgan Stanley Quality Municipal Investment Trust PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2003
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE --------------------------------------------------------------------------------------------------------- Tax-Exempt Municipal Bonds (130.3%) General Obligation (22.2%) $ 5,000 North Slope Borough, Alaska, Ser 2000 B (MBIA)............ 0.00% 06/30/09 $ 4,160,500 3,000 California, Various Purpose Dtd 05/01/03.................. 5.00 02/01/24 2,906,910 3,300 San Diego Unified School District, California, 2003 Ser E (FSA)................................................... 5.00 07/01/28 3,329,997 Florida State Board of Education, Capital Outlay 6,890 Refg Ser 2001 D......................................... 5.375 06/01/18 7,468,140 3,000 Refg 2002 Ser C (MBIA).................................. 5.00 06/01/20 3,115,620 10,000 Chicago School Reform Board, Illinois, Dedicated Tax Ser 1997 (Ambac)............................................ 5.75 12/01/27 10,822,199 7,000 New Jersey, 2001 Ser H.................................... 5.25 07/01/19++ 7,709,870 5,000 North Carolina, Public School Building Ser 1999........... 4.60 04/01/17 5,195,450 925 Oregon, Veterans' Welfare Ser 75.......................... 6.00 04/01/27 954,508 Pennsylvania, 1,000 First Ser 2003 RITES PA - 1112 A (MBIA)................. 8.481++ 01/01/18 1,112,780 1,000 First Ser 2003 RITES PA - 1112 B (MBIA)................. 8.481++ 01/01/19 1,095,760 5,000 Aldine Independent School District, Texas, Bldg & Refg Ser 2001 (PSF).............................................. 5.00 02/15/26 5,014,750 2,500 Mission Consolidated Independent School District, Texas, Bldg Ser 2000 (PSF)..................................... 5.50 02/15/25 2,628,750 ------------ -------- 55,515,234 53,615 ------------ -------- Educational Facilities Revenue (2.8%) 1,480 Indiana University, Student Fee Ser K (MBIA).............. 5.875 08/01/20 1,606,407 5,000 Texas State University, Ser 2000 (FSA).................... 5.50 03/15/20 5,411,250 ------------ -------- 7,017,657 6,480 ------------ -------- Electric Revenue (11.6%) 5,000 California Department of Water Resources, Power Supply Ser 2002 A.................................................. 5.875 05/01/16 5,524,750 Municipal Electric Authority of Georgia, 2,000 Combustion Turbine Ser 2002 A (MBIA).................... 5.25 11/01/21 2,114,560 1,500 Combustion Turbine Ser 2002 A (MBIA).................... 5.25 11/01/22 1,576,845 5,000 Southern Minnesota Municipal Power Agency, Ser 2002 A (Ambac)................................................. 5.25 01/01/16 5,556,350 Long Island Power Authority, New York, 4,000 Ser 2003 B.............................................. 5.25 06/01/13 4,292,480 1,900 Ser 2000 A (FSA)........................................ 0.00 06/01/16 1,105,553 South Carolina Public Service Authority, 1,500 2002 Refg Ser A (FSA)................................... 5.125 01/01/20 1,568,310 1,000 2002 Refg Ser A (FSA)................................... 5.125 01/01/21 1,039,190 2,000 1997 Refg Ser A (MBIA).................................. 5.00 01/01/29 2,007,240 1,000 Intermountain Power Agency, Utah, Refg 1996 Ser D (Secondary FSA)......................................... 5.00 07/01/21 1,016,410
7 See Notes to Financial Statements Morgan Stanley Quality Municipal Investment Trust PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2003 continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE --------------------------------------------------------------------------------------------------------- Lewis County Public Utility District No 1, Washington, $ 2,000 Cowlitz Falls Hydroelectric Refg Ser 2003 (MBIA)........ 5.00% 10/01/22 $ 2,042,280 1,000 Cowlitz Falls Hydroelectric Refg Ser 2003 (MBIA)........ 5.00 10/01/23 1,014,800 ------------ -------- 28,858,768 27,900 ------------ -------- Hospital Revenue (5.9%) Maryland Health & Higher Education Facilities Authority, 2,000 University of Maryland Medical Ser 2002................. 5.75 07/01/17 2,142,060 2,500 University of Maryland Medical Ser 2001................. 5.25 07/01/34 2,490,350 4,000 New Jersey Health Care Facilities Financing Authority, St Barnabas Medical Center Ser 1998 B (MBIA)............ 4.75 07/01/28 3,896,520 3,000 Lorain County, Ohio, Catholic Healthcare Partners Ser 2001 A....................................................... 5.75 10/01/18 3,206,340 3,000 Lehigh County General Purpose Authority, Pennsylvania, St Lukes Hospital of Bethlehem Ser 2003.................... 5.25 08/15/23 2,917,020 ------------ -------- 14,652,290 14,500 ------------ -------- Industrial Development/Pollution Control Revenue (5.4%) 2,000 Chicago, Illinois, Peoples Gas Light & Coke Co Refg 1995 Ser A................................................... 6.10 06/01/25 2,139,900 3,500 Michigan Stategic Fund, Detroit Edison Co. Ser 2001 C..... 5.45 09/01/29 3,558,135 2,000 New York State Energy Research & Development Authority, Brooklyn Union Gas Co 1991 Ser D (Demand 11/03/03) (AMT)................................................... 12.476++ 07/01/26 2,478,080 5,000 Sabine River Authority, Texas, TXU Electric Co Refg Ser 2001 B (AMT) (Mandatory Tender 11/01/11)................ 5.75 05/01/30 5,224,650 ------------ -------- 13,400,765 12,500 ------------ -------- Mortgage Revenue - Multi-Family (4.2%) 10,000 Illinois Housing Development Authority, 1991 Ser A........ 8.25 07/01/16 10,407,500 ------------ -------- Mortgage Revenue - Single Family (3.2%) 710 Colorado Housing & Finance Authority, 2000 Ser D-2 (AMT)................................................... 6.90 04/01/29 724,747 5,995 Connecticut Housing Finance Authority, 2000 Ser B-2 (AMT)................................................... 5.85 05/15/31 6,207,762 1,115 District of Columbia Housing Finance Agency, GNMA Collateralized Ser 1990 B (AMT)......................... 7.10 12/01/24 1,115,892 ------------ -------- 8,048,401 7,820 ------------ -------- Public Facilities Revenue (3.7%) 5,000 Arizona School Facilities Board, School Improvement Ser 2001.................................................... 5.00 07/01/19 5,221,250 1,900 Jacksonville, Florida, Sales Tax Ser 2001 (Ambac)......... 5.50 10/01/18 2,100,374 2,000 Pennsylvania Public School Building Authority, Philadelphia School District Ser 2003 (FSA)............. 5.00 06/01/33 2,012,020 ------------ -------- 9,333,644 8,900 ------------ -------- Resource Recovery Revenue (1.3%) 3,000 Northeast Maryland Waste Disposal Authority, Montgomery -------- County Ser 2003 (AMT) (Ambac)........................... 5.50 04/01/16 3,228,090 ------------
8 See Notes to Financial Statements Morgan Stanley Quality Municipal Investment Trust PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2003 continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE --------------------------------------------------------------------------------------------------------- Transportation Facilities Revenue (24.0%) Alaska Int'l Airports System, $ 1,500 Ser 2002 B (Ambac)...................................... 5.75% 10/01/18 $ 1,672,560 1,500 Ser 2002 B (Ambac)...................................... 5.75 10/01/19 1,667,835 10,000 Hillsborough County Port District, Florida, Tampa Port Authority Special & Refg Ser 1995 (AMT) (FSA)........... 6.00 06/01/20 10,805,700 2,000 Lee County, Florida, Ser 1995 (MBIA)...................... 5.75 10/01/22 2,179,600 Georgia State Road & Toll Authority, 2,500 DRIVERS Ser 373......................................... 7.332++ 10/01/11 2,658,475 10,000 Ser 2001................................................ 5.375 03/01/17 10,928,700 2,000 Chicago, Illinois, O'Hare Int'l Airport, Third Lien Ser 2003 B-2 (AMT) (FSA).................................... 5.75 01/01/23 2,131,400 5,000 Massachusetts Bay Transportation Authority, Assessment 2000 Ser A.............................................. 5.25 07/01/30 5,175,150 5,000 New Jersey Turnpike Authority Ser 2003 A (Ambac).......... 5.00 01/01/30 5,057,000 Metropolitan Transportation Authority, New York, 3,000 State Service Contract Ser 2002 A (MBIA)................ 5.50 01/01/19 3,282,960 3,000 State Service Contract Refg Ser 2002 B (MBIA)........... 5.50 07/01/20 3,271,590 3,000 Triborough Bridge & Tunnel Authority, New York Ser 2001 A....................................................... 5.00 01/01/32 3,011,760 5,000 Dallas-Fort Worth Int'l Airport, Texas, Ser 2003 A (AMT)(FSA).............................................. 5.375 11/01/22 5,137,850 3,000 Port of Seattle, Washington, Sub Lien Ser 1999 A (FGIC)... 5.25 09/01/22 3,131,190 ------------ -------- 60,111,770 56,500 ------------ -------- Water & Sewer Revenue (28.2%) 2,000 Birmingham, Alabama, Water & Sewer Ser 1998 A............. 4.75 01/01/21 2,006,240 5,000 Colorado Springs, Colorado, Utilities Ser 2001 A.......... 5.00 11/15/29 5,032,800 2,000 Martin County, Florida, Utilities Ser 2001 (FGIC)......... 5.00 10/01/26 2,024,320 8,000 Tampa Bay Water, Florida, Ser 2001 B (FGIC)............... 5.00 10/01/31 8,067,280 Louisville & Jefferson County Metropolitan Sewer District, Kentucky, 2,925 Ser 2001 A (MBIA)....................................... 5.375 05/15/20 3,146,686 3,075 Ser 2001 A (MBIA)....................................... 5.375 05/15/21 3,282,962 5,000 Ser 1999 A (FGIC)....................................... 5.75 05/15/33 5,436,600 1,585 Massachusetts Water Resources Authority, 2000 Ser A (FGIC).................................................. 6.00 08/01/13 1,829,597 2,925 Las Vegas Water District, Nevada, Impr and Refg Ser 2003 A (FGIC).................................................. 5.25 06/01/22 3,062,534 New York City Municipal Water Finance Authority, New York, 3,000 2003 Ser A.............................................. 5.375 06/15/18 3,245,880 4,000 1998 Ser D (MBIA)....................................... 4.75 06/15/25 3,951,840 5,000 2002 Ser G (FSA)........................................ 5.00 06/15/34 5,029,000 7,500 Portland, Oregon, Sewer 2000 Ser A (FGIC)................. 5.75 08/01/19 8,431,350
9 See Notes to Financial Statements Morgan Stanley Quality Municipal Investment Trust PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2003 continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE --------------------------------------------------------------------------------------------------------- $ 6,000 Charleston, South Carolina, Refg Cap Impr Ser 1998 (FGIC).................................................. 4.50% 01/01/24 $ 5,746,260 10,000 Houston, Texas, Water & Sewer Jr Lien Refg Ser 2000 B (FGIC).................................................. 5.25 12/01/30 10,233,300 ------------ -------- 70,526,649 68,010 ------------ -------- Other Revenue (5.2%) 2,000 New York City Transitional Finance Authority, New York, Refg 2003 Ser A......................................... 5.50 11/01/26 2,238,520 10,000 New York Local Government Assistance Corporation, Ser 1995 A....................................................... 6.00 04/01/05+ 10,873,200 ------------ -------- 13,111,720 12,000 ------------ -------- Refunded (12.6%) 7,250 Atlanta, Georgia, Airport Ser 2000 A (FGIC)............... 5.50 01/01/10+ 8,336,775 7,000 Hawaii, Airports Second Ser of 1991 (AMT) (ETM)........... 6.90 07/01/12 8,464,470 10,000 Massachusetts, Ser 2000 C................................. 5.75 10/01/10+ 11,613,100 3,000 Salt Lake City, Utah, IHC Hospitals Inc Refg Ser 1991 (Ambac) (ETM)........................................... 12.354++ 05/15/20 3,027,120 ------------ -------- 31,441,465 27,250 ------------ -------- 308,475 Total Tax-Exempt Municipal Bonds (Cost $305,691,599)......................... 325,653,953 ------------ -------- Short-Term Tax-Exempt Municipal Obligations (9.0%) 2,590 Idaho Health Facilities Authority, St Luke's Regional Medical Center Ser 2000 (FSA) (Demand 11/03/03)......... 1.15* 07/01/30 2,590,000 15,000 New Jersey Housing & Mortgage Finance Agency, Presidential Plaza at Newport - FHA Insured Mtg Refg 1991 Ser 1 (Tendered 12/16/03)................................... 7.00 05/01/30 15,101,250 4,535 San Antonio, Texas, Electric & Gas Refg Ser 1994 A........ 5.00 02/01/04+ 4,659,622 ------------ -------- 22,125 Total Short-Term Tax-Exempt Municipal Obligations (Cost $22,026,022)......... 22,350,872 ------------ --------
$330,600 Total Investments (Cost $327,717,621) (a)(b)....................... 139.3% 348,004,825 ======== Other Assets in Excess of Liabilities.............................. 2.8 7,007,169 Preferred Shares of Beneficial Interest............................ (42.1) (105,160,419) ----- ------------- Net Assets Applicable to Common Shareholders....................... 100.0% $ 249,851,575 ===== =============
10 See Notes to Financial Statements Morgan Stanley Quality Municipal Investment Trust PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2003 continued --------------------------------------------------- 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. + Prerefunded to call date shown. ++ This security has been physically segregated in connection with open futures contracts. ++ Current coupon rate for residual interest bonds. This rate resets periodically as the auction rate on the related security changes. * Current coupon of variable rate demand obligation. (a) Securities have been designated as collateral in an amount equal to $18,850,926 in connection with the open futures contracts. (b) The aggregate cost for federal income tax purposes is $327,563,821. The aggregate gross unrealized appreciation is $20,806,617 and the aggregate gross unrealized depreciation is $365,613, resulting in net unrealized appreciation of $20,441,004. Bond Insurance: --------------- Ambac Ambac Assurance Corporation. FGIC Financial Guaranty Insurance Company. FSA Financial Security Assurance Inc. MBIA Municipal Bond Investors Assurance Corporation
Futures Contracts Open at October 31, 2003:
DESCRIPTION, UNDERLYING NUMBER OF DELIVERY MONTH, FACE AMOUNT UNREALIZED CONTRACTS LONG/SHORT AND YEAR AT VALUE DEPRECIATION --------- ---------- ---------------------------- ------------ ------------- 100 Short U.S. Treasury Notes 5 Year December/2003 $(11,181,250) $(256,712) 25 Short U.S. Treasury Notes 10 Year December/2003 (2,807,422) (93,233) --------- Total unrealized depreciation.......................... $(349,945) =========
11 See Notes to Financial Statements Morgan Stanley Quality Municipal Investment Trust FINANCIAL STATEMENTS Statement of Assets and Liabilities October 31, 2003 Assets: Investments in securities, at value (cost $327,717,621)....................................... $348,004,825 Cash........................................................ 17,434 Receivable for: Interest................................................ 5,621,893 Investments sold........................................ 1,055,000 Prepaid expenses............................................ 676,758 ------------ Total Assets............................................ 355,375,910 ------------ Liabilities: Payable for: Investment management fee............................... 119,129 Common shares of beneficial interest repurchased........ 92,547 Variation margin........................................ 25,781 Accrued expenses............................................ 126,459 ------------ Total Liabilities....................................... 363,916 ------------ 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............ $249,851,575 ============ Composition of Net Assets Applicable to Common Shareholders: Common shares of beneficial interest (unlimited shares authorized of $.01 par value, 16,261,813 shares outstanding).............................................. $226,894,556 Net unrealized appreciation................................. 19,937,259 Accumulated undistributed net investment income............. 2,222,140 Accumulated undistributed net realized gain................. 797,620 ------------ Net Assets Applicable to Common Shareholders............ $249,851,575 ============ Net Asset Value Per Common Share ($249,851,575 divided by 16,261,813 common shares outstanding)................................................ $15.36 ============
12 See Notes to Financial Statements Morgan Stanley Quality Municipal Investment Trust FINANCIAL STATEMENTS continued Statement of Operations For the year ended October 31, 2003 Net Investment Income: Interest Income............................................. $18,630,397 ----------- Expenses Investment management fee................................... 1,258,779 Auction commission fees..................................... 440,788 Transfer agent fees and expenses............................ 99,101 Professional fees........................................... 71,678 Shareholder reports and notices............................. 38,325 Auction agent fees.......................................... 20,028 Custodian fees.............................................. 19,589 Trustees' fees and expenses................................. 18,970 Registration fees........................................... 13,307 Other....................................................... 30,737 ----------- Total Expenses.......................................... 2,011,302 Less: expense offset........................................ (19,450) ----------- Net Expenses............................................ 1,991,852 ----------- Net Investment Income................................... 16,638,545 ----------- Net Realized and Unrealized Gain (Loss): Net Realized Gain on: Investments............................................... 748,343 Futures contracts......................................... 48,934 ----------- Net Realized Gain....................................... 797,277 ----------- Net Change in Unrealized Appreciation on: Investments............................................... 3,777,227 Futures contracts......................................... (349,945) ----------- Net Appreciation........................................ 3,427,282 ----------- Net Gain................................................ 4,224,559 ----------- Dividends to preferred shareholders from net investment income...................................................... (1,804,684) ----------- Net Increase................................................ $19,058,420 ===========
13 See Notes to Financial Statements Morgan Stanley Quality Municipal Investment Trust FINANCIAL STATEMENTS continued Statement of Changes in Net Assets
FOR THE YEAR FOR THE YEAR ENDED ENDED OCTOBER 31, 2003 OCTOBER 31, 2002 ---------------- ---------------- Increase (Decrease) in Net Assets: Operations: Net investment income....................................... $ 16,638,545 $ 18,046,032 Net realized gain........................................... 797,277 1,520,550 Net change in unrealized appreciation....................... 3,427,282 (806,164) Dividends to preferred shareholders from net investment income.................................................... (1,804,684) (2,172,919) ------------ ------------ Net Increase............................................ 19,058,420 16,587,499 ------------ ------------ Dividends and Distributions to Common Shareholders from: Net investment income....................................... (15,772,298) (15,680,616) Net realized gain........................................... (1,549,279) (2,327,706) ------------ ------------ Total Dividends and Distributions....................... (17,321,577) (18,008,322) ------------ ------------ Decrease from transactions in common shares of beneficial interest.................................................. (6,484,403) (1,798,675) ------------ ------------ Net Decrease............................................ (4,747,560) (3,219,498) Net Assets Applicable to Common Shareholders: Beginning of period......................................... 254,599,135 257,818,633 ------------ ------------ End of Period (Including accumulated undistributed net investment income of $2,222,140 and $3,160,924, respectively)................. $249,851,575 $254,599,135 ============ ============
14 See Notes to Financial Statements Morgan Stanley Quality Municipal Investment Trust NOTES TO FINANCIAL STATEMENTS - OCTOBER 31, 2003 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 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; (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 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 15 Morgan Stanley Quality Municipal Investment Trust NOTES TO FINANCIAL STATEMENTS - OCTOBER 31, 2003 continued 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 net assets including preferred shares. 3. Security Transactions and Transactions with Affiliates The cost of purchases and proceeds from sales of portfolio securities, excluding short-term investments, for the year ended October 31, 2003 aggregated $72,219,175 and $76,108,974, respectively. Included in the aforementioned transactions are purchases and sales with other Morgan Stanley funds of $5,066,650 and $5,078,200, respectively including an unrealized loss of $184,241. Morgan Stanley Trust, an affiliate of the Investment Manager, is the Trust's transfer agent. At October 31, 2003, the Trust had transfer agent fees and expenses payable of approximately $15,500. The Trust has an unfunded noncontributory defined benefit pension plan covering all independent Trustees of the Trust who will have served as independent Trustees for at least five years at the time of retirement. Benefits under this plan are based on years of service and compensation during the last five years of service. Aggregate pension costs for the year ended October 31, 2003 included in Trustees' fees and expenses in the Statement of Operations amounted to $6,778. At October 31, 16 Morgan Stanley Quality Municipal Investment Trust NOTES TO FINANCIAL STATEMENTS - OCTOBER 31, 2003 continued 2003, the Trust had an accrued pension liability of $53,984 which is included in accrued expenses in the Statement of Assets and Liabilities. 4. Preferred Shares of Beneficial Interest The Trust is authorized to issue up to 1,000,000 non-participating preferred shares of beneficial interest having a par value of $.01 per share, in one or more series, with rights as determined by the Trustees, without approval of the common shareholders. The Trust has issued Series A and Series B Auction Rate Preferred Shares ("Preferred Shares") which have a liquidation value of $50,000 per share plus the redemption premium, if any, plus accumulated but unpaid dividends, whether or not declared, thereon to the date of distribution. The Trust may redeem such shares, in whole or in part, at the original purchase price of $50,000 per share plus accumulated but unpaid dividends, whether or not declared, thereon to the date of redemption. Dividends, which are cumulative, are reset through auction procedures.
AMOUNT RESET RANGE OF SERIES SHARES* IN THOUSANDS* RATE* DATE DIVIDEND RATES** ------ ------- ------------- ----- -------- ---------------- A 1,400 $70,000 1.90% 09/08/04 1.90% B 700 35,000 1.70 09/02/05 0.71 - 1.70
--------------------- * As of October 31, 2003. ** For the year ended October 31, 2003. Subsequent to October 31, 2003 and up through December 5, 2003 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. 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. 17 Morgan Stanley Quality Municipal Investment Trust NOTES TO FINANCIAL STATEMENTS - OCTOBER 31, 2003 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, 2001................................... 16,841,613 $168,416 $235,009,218 Treasury shares purchased and retired (weighted average discount 5.95%)*.......................................... (125,000) (1,250) (1,797,425) ---------- -------- ------------ 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 ========== ======== ============
--------------------- * The Trustees have voted to retire the shares purchased 6. Dividends to Common Shareholders On September 23, 2003, the Trust declared the following dividends from net investment income:
AMOUNT RECORD PAYABLE PER SHARE DATE DATE --------- ----------------- ----------------- $0.075 November 7, 2003 November 21, 2003 $0.075 December 5, 2003 December 19, 2003
7. Expense Offset The expense offset represents a reduction of the custodian fees for earnings on cash balances maintained by the Trust. 8. Risks Relating to Certain Financial Instruments The Trust may invest a portion of its assets in residual interest bonds, which are inverse floating rate municipal obligations. The prices of these securities are subject to greater market fluctuations during periods of changing prevailing interest rates than are comparable fixed rate obligations. At October 31, 2003, the Trust held positions in residual interest bonds having a total value of $10,372,215, which represents 4.2% of the Trust's net assets applicable to common shareholders. To hedge against adverse interest rate changes, the Trust may invest in financial futures contracts or municipal bond index futures contracts ("futures contracts"). 18 Morgan Stanley Quality Municipal Investment Trust NOTES TO FINANCIAL STATEMENTS - OCTOBER 31, 2003 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. At October 31, 2003, the Trust had outstanding futures 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. The tax character of distributions paid was as follows:
FOR THE YEAR FOR THE YEAR ENDED ENDED OCTOBER 31, 2003 OCTOBER 31, 2002 ---------------- ---------------- Tax-exempt income..................................... $17,537,803 $17,757,131 Ordinary income....................................... -- 310,272 Long-term capital gains............................... 1,549,279 2,017,434 ----------- ----------- Total distributions................................... $19,087,082 $20,084,837 =========== ===========
As of October 31, 2003, the tax-basis components of accumulated earnings were as follows: Undistributed tax-exempt income............................. $ 2,282,743 Undistributed long-term gains............................... 447,675 ----------- Net accumulated earnings.................................... 2,730,418 Temporary differences....................................... (214,403) Net unrealized appreciation................................. 20,441,004 ----------- Total accumulated earnings.................................. $22,957,019 ===========
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 dividend payable and permanent book/tax differences attributable to tax adjustments on debt securities sold by the Trust. To reflect reclassifications arising from the permanent differences, accumulated undistributed net investment income was charged and accumulated undistributed net realized gain was credited $347. 19 Morgan Stanley Quality Municipal Investment Trust FINANCIAL HIGHLIGHTS Selected ratios and per share data for a common share of beneficial interest outstanding throughout each period:
FOR THE YEAR ENDED OCTOBER 31 --------------------------------------------------------------------- 2003 2002 2001 2000 1999 --------- --------- --------- --------- --------- Selected Per Share Data: Net asset value, beginning of period...................... $15.23 $15.31 $14.64 $ 14.35 $15.66 ------ ------ ------ ------- ------ Income (loss) from investment operations: Net investment income*................................ 1.01 1.07 1.17 1.18 1.16 Net realized and unrealized gain (loss)............... 0.25 0.04 0.66 0.23 (1.28) Common share equivalent of dividends paid to preferred shareholders*......................................... (0.11) (0.13) (0.22) (0.25) (0.20) ------ ------ ------ ------- ------ Total income (loss) from investment operations............ 1.15 0.98 1.61 1.16 (0.32) ------ ------ ------ ------- ------ Less dividends and distributions from: Net investment income................................. (0.96) (0.93) (0.93) (0.93) (0.90) Net realized gain..................................... (0.09) (0.14) (0.01) -- (0.11) ------ ------ ------ ------- ------ Total dividends and distributions......................... (1.05) (1.07) (0.94) (0.93) (1.01) ------ ------ ------ ------- ------ Anti-dilutive effect of acquiring treasury shares*........ 0.03 0.01 -- 0.06 0.02 ------ ------ ------ ------- ------ Net asset value, end of period............................ $15.36 $15.23 $15.31 $ 14.64 $14.35 ====== ====== ====== ======= ====== Market value, end of period............................... $14.22 $14.08 $15.08 $13.688 $13.00 ====== ====== ====== ======= ====== Total Return+............................................. 8.66% 0.52% 17.52% 12.84% (10.12)% Ratios to Average Net Assets of Common Shareholders: Total expenses (before expense offset).................... 0.79%(1) 0.73%(1) 0.74%(1) 0.75% 0.71% Net investment income before preferred stock dividends.... 6.54% 7.15% 7.83% 8.18% 7.66% Preferred stock dividends................................. 0.71% 0.86% 1.46% 1.74% 1.34% Net investment income available to common shareholders.... 5.83% 6.29% 6.37% 6.44% 6.32% Supplemental Data: Net assets applicable to common shareholders, end of period, in thousands..................................... $249,852 $254,599 $257,819 $247,389 $253,633 Asset coverage on preferred shares at end of period....... 338% 342% 345% 335% 341% Portfolio turnover rate................................... 21% 17% 23% 20% 8%
--------------------- * 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) Does not reflect the effect of expense offset of 0.01%.
20 See Notes to Financial Statements Morgan Stanley Quality Municipal Investment Trust INDEPENDENT AUDITORS' REPORT To the Shareholders and Board of Trustees of Morgan Stanley Quality Municipal Investment Trust: We have audited the accompanying statement of assets and liabilities of Morgan Stanley Quality Municipal Investment Trust (the "Trust"), including the portfolio of investments, as of October 31, 2003, and the related statements of operations for the year then ended and changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 2003, by correspondence with the custodian and broker. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Morgan Stanley Quality Municipal Investment Trust as of October 31, 2003, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. Deloitte & Touche LLP New York, New York December 15, 2003 2003 FEDERAL TAX NOTICE (UNAUDITED) During the year ended October 31, 2003, the Trust paid the following per share amounts from tax-exempt income: $0.97 to common shareholders, $890 to Series A preferred shareholders and $454 to Series B preferred shareholders. For the year ended October 31, 2003, the Trust paid the following per share amounts from long-term capital gains: $0.08 to common shareholders, $105 to Series A preferred shareholders and $78 to Series B preferred shareholders. 21 Morgan Stanley Quality Municipal Investment Trust TRUSTEE AND OFFICER INFORMATION Independent Trustees:
Number of Portfolios in Position(s) Term of Office Fund Complex Name, Age and Address of Held with and Length of Principal Occupation(s) During Overseen by Independent Trustee Registrant Time Served* Past 5 Years** Trustee*** ------------------------------------- ----------- -------------- ------------------------------ ------------- Michael Bozic (62) Trustee Since April Retired; Director or Trustee 211 c/o Mayer, Brown, Rowe & Maw LLP 1994 of the Retail Funds and TCW/DW Counsel to the Independent Directors Term Trust 2003 (since April 1675 Broadway 1994) and the Institutional New York, NY Funds (since July 2003); formerly Vice Chairman of Kmart Corporation (December 1998-October 2000), Chairman and Chief Executive Officer of Levitz Furniture Corporation (November 1995-November 1998) and President and Chief Executive Officer of Hills Department Stores (May 1991- July 1995); formerly variously Chairman, Chief Executive Officer, President and Chief Operating Officer (1987-1991) of the Sears Merchandise Group of Sears, Roebuck & Co. Edwin J. Garn (71) Trustee Since January Director or Trustee of the 211 c/o Summit Ventures LLC 1993 Retail Funds and TCW/DW Term 1 Utah Center Trust 2003 (since January 201 S. Main Street 1993) and the Institutional Salt Lake City, UT Funds (since July 2003); member of the Utah Regional Advisory Board of Pacific Corp.; formerly United States Senator (R-Utah) (1974-1992) and Chairman, Senate Banking Committee (1980-1986), Mayor of Salt Lake City, Utah (1971-1974), Astronaut, Space Shuttle Discovery (April 12-19, 1985), and Vice Chairman, Huntsman Corporation (chemical company). Wayne E. Hedien (69) Trustee Since Retired; Director or Trustee 211 c/o Mayer, Brown, Rowe & Maw LLP September 1997 of the Retail Funds and TCW/DW Counsel to the Independent Directors Term Trust 2003; (Since 1675 Broadway September 1997) and the New York, NY Institutional Funds (since July 2003); formerly associated with the Allstate Companies (1966-1994), most recently as Chairman of The Allstate Corporation (March 1993-December 1994) and Chairman and Chief Executive Officer of its wholly-owned subsidiary, Allstate Insurance Company (July 1989-December 1994). Name, Age and Address of Other Directorships Held by Independent Trustee Trustee ------------------------------------- ------------------------------ Michael Bozic (62) Director of Weirton Steel c/o Mayer, Brown, Rowe & Maw LLP Corporation. Counsel to the Independent Directors 1675 Broadway New York, NY Edwin J. Garn (71) Director of Franklin Covey c/o Summit Ventures LLC (time management systems), BMW 1 Utah Center Bank of North America, Inc. 201 S. Main Street (industrial loan corporation), Salt Lake City, UT United Space Alliance (joint venture between Lockheed Martin and the Boeing Company) and Nuskin Asia Pacific (multilevel marketing); member of the board of various civic and charitable organizations. Wayne E. Hedien (69) Director of The PMI Group Inc. c/o Mayer, Brown, Rowe & Maw LLP (private mortgage insurance); Counsel to the Independent Directors Trustee and Vice Chairman of 1675 Broadway The Field Museum of Natural New York, NY History; director of various other business and charitable organizations.
22 Morgan Stanley Quality Municipal Investment Trust TRUSTEE AND OFFICER INFORMATION continued
Number of Portfolios in Position(s) Term of Office Fund Complex Name, Age and Address of Held with and Length of Principal Occupation(s) During Overseen by Independent Trustee Registrant Time Served* Past 5 Years** Trustee*** ------------------------------------- ----------- -------------- ------------------------------ ------------- Dr. Manuel H. Johnson (54) Trustee Since July Chairman of the Audit 211 c/o Johnson Smick International, Inc. 1991 Committee and Director or 2099 Pennsylvania Avenue, N.W. Trustee of the Retail Funds Suite 950 and TCW/DW Term Trust 2003 Washington, D.C. (since July 1991) and the Institutional Funds (since July 2003); Senior Partner, Johnson Smick International, Inc., a consulting firm; Co-Chairman and a founder of the Group of Seven Council (G7C), an international economic commission; formerly Vice Chairman of the Board of Governors of the Federal Reserve System and Assistant Secretary of the U.S. Treasury. Joseph J. Kearns (61) Trustee Since July Deputy Chairman of the Audit 212 PMB754 2003 Committee and Director or 23852 Pacific Coast Highway Trustee of the Retail Funds Malibu, CA and TCW/DW Term Trust 2003 (since July 2003) and the Institutional Funds (since August 1994); previously Chairman of the Audit Committee of the Institutional Funds (October 2001-July 2003); President, Kearns & Associates LLC (investment consulting); formerly CFO of the J. Paul Getty Trust. Michael E. Nugent (67) Trustee Since July Chairman of the Insurance 211 c/o Triumph Capital, L.P. 1991 Committee and Director or 445 Park Avenue Trustee of the Retail Funds New York, NY and TCW/DW Term Trust 2003 (since July 1991) and the Institutional Funds (since July 2001); General Partner of Triumph Capital, L.P., a private investment partnership; formerly Vice President, Bankers Trust Company and BT Capital Corporation (1984-1988). Fergus Reid (71) Trustee Since July Chairman of the Governance 212 85 Charles Colman Blvd. 2003 Committee and Director or Pawling, NY Trustee of the Retail Funds and TCW/DW Term Trust 2003 (since July 2003) and the Institutional Funds (since June 1992); Chairman of Lumelite Plastics Corporation. Name, Age and Address of Other Directorships Held by Independent Trustee Trustee ------------------------------------- ------------------------------ Dr. Manuel H. Johnson (54) Director of NVR, Inc. (home c/o Johnson Smick International, Inc. construction); Chairman and 2099 Pennsylvania Avenue, N.W. Trustee of the Financial Suite 950 Accounting Foundation Washington, D.C. (oversight organization of the Financial Accounting Standards Board); Director of RBS Greenwich Capital Holdings (financial holding company). Joseph J. Kearns (61) Director of Electro Rent PMB754 Corporation (equipment 23852 Pacific Coast Highway leasing), The Ford Family Malibu, CA Foundation, and the UCLA Foundation. Michael E. Nugent (67) Director of various business c/o Triumph Capital, L.P. organizations. 445 Park Avenue New York, NY Fergus Reid (71) Trustee and Director of 85 Charles Colman Blvd. certain investment companies Pawling, NY in the JPMorgan Funds complex managed by JP Morgan Investment Management Inc.
23 Morgan Stanley Quality Municipal Investment Trust TRUSTEE AND OFFICER INFORMATION Interested Trustees:
Number of Portfolios in Position(s) Term of Office Fund Complex Name, Age and Address of Held with and Length of Principal Occupation(s) During Overseen by Interested Trustee Registrant Time Served* Past 5 Years** Trustee*** ------------------------------------- ----------- -------------- ------------------------------ ------------- Charles A. Fiumefreddo (70) Chairman of Since July Chairman and Director or 211 c/o Morgan Stanley Trust the Board 1991 Trustee of the Retail Funds Harborside Financial Center, and Trustee and TCW/DW Term Trust 2003 Plaza Two, (since July 1991) and the Jersey City, NJ Institutional Funds (since July 2003); formerly Chief Executive Officer of the Retail Funds and the TCW/DW Term Trust 2003 (until September 2002). James F. Higgins (55) Trustee Since June Director or Trustee of the 211 c/o Morgan Stanley Trust 2000 Retail Funds and TCW/DW Term Harborside Financial Center, Trust 2003 (since June 2000) Plaza Two, and the Institutional Funds Jersey City, NJ (since July 2003); Senior Advisor of Morgan Stanley (since August 2000); Director of the Distributor and Dean Witter Realty Inc.; previously President and Chief Operating Officer of the Private Client Group of Morgan Stanley (May 1999-August 2000), and President and Chief Operating Officer of Individual Securities of Morgan Stanley (February 1997-May 1999). Philip J. Purcell (60) Trustee Since April Director or Trustee of the 211 1585 Broadway 1994 Retail Funds and TCW/DW Term New York, NY Trust 2003 (since April 1994) and the Institutional Funds (since July 2003); Chairman of the Board of Directors and Chief Executive Officer of Morgan Stanley and Morgan Stanley DW Inc.; Director of the Distributor; Chairman of the Board of Directors and Chief Executive Officer of Novus Credit Services Inc.; Director and/or officer of various Morgan Stanley subsidiaries. Name, Age and Address of Other Directorships Held by Interested Trustee Trustee ------------------------------------- ------------------------------ Charles A. Fiumefreddo (70) None c/o Morgan Stanley Trust Harborside Financial Center, Plaza Two, Jersey City, NJ James F. Higgins (55) Director of AXA Financial, c/o Morgan Stanley Trust Inc. and The Equitable Life Harborside Financial Center, Assurance Society of the Plaza Two, United States (financial Jersey City, NJ services). Philip J. Purcell (60) Director of American Airlines, 1585 Broadway Inc. and its parent company, New York, NY AMR Corporation.
--------------------- * This is the earliest date the Trustee began serving the funds advised by Morgan Stanley Investment Advisors Inc. (the "Investment Manager") (the "Retail Funds"). ** The dates referenced below indicating commencement of services as Director/Trustee for the Retail Funds and the funds advised by Morgan Stanley Investment Management Inc., Morgan Stanley Investments LP and Morgan Stanley AIP GP LP (the "Institutional Funds") reflect the earliest date the Director/Trustee began serving the Retail or Institutional Funds as applicable. *** The Fund Complex includes all open-end and closed-end funds (including all of their portfolios) advised by the Investment Manager and any funds that have an investment advisor that is an affiliated person of the Investment Manager (including but not limited to Morgan Stanley Investment Management Inc. and Morgan Stanley Investments LP). 24 Morgan Stanley Quality Municipal Investment Trust TRUSTEE AND OFFICER INFORMATION continued Officers:
Term of Position(s) Office and Name, Age and Address of Held with Length of Executive Officer Registrant Time Served* Principal Occupation(s) During Past 5 Years** ----------------------------- --------------- -------------- ------------------------------------------------------------ Mitchell M. Merin (50) President Since May 1999 President and Chief Operating Officer of Morgan Stanley 1221 Avenue of the Americas Investment Management Inc.; President, Director and Chief New York, NY Executive Officer of the Investment Manager and Morgan Stanley Services; Chairman, Chief Executive Officer and Director of the Distributor; Chairman and Director of the Transfer Agent; Director of various Morgan Stanley subsidiaries; President Morgan Stanley Investments LP (since February 2003); President of the Institutional Funds (since July 2003) and President of the Retail Funds and TCW/DW Term Trust 2003 (since May 1999); Trustee (since July 2003) and President (since December 2002) of the Van Kampen Closed-End Funds; Trustee (since May 1999) and President (since October 2002) of the Van Kampen Open-End Funds. Ronald E. Robison (64) Executive Vice Since April Chief Global Operations Officer and Managing Director of 1221 Avenue of the Americas President and 2003 Morgan Stanley Investment Management Inc.; Managing Director New York, NY Principal of Morgan Stanley & Co. Incorporated; Managing Director of Executive Morgan Stanley; Managing Director, Chief Administrative Officer Officer and Director of the Investment Manager and Morgan Stanley Services; Chief Executive Officer and Director of the Transfer Agent; Executive Vice President and Principal Executive Officer of the Institutional Funds (since July 2003); and the TCW/DW Term Trust 2003 (since April 2003); previously President of the Institutional Funds (March 2001-July 2003) and Director of the Institutional Funds (March 2001-July 2003). Barry Fink (48) Vice President Since February General Counsel (since May 2000) and Managing Director 1221 Avenue of the Americas and General 1997 (since December 2000) of Morgan Stanley Investment New York, NY Counsel Management; Managing Director (since December 2000), Secretary (since February 1997) and Director (since July 1998) of the Investment Manager and Morgan Stanley Services; Assistant Secretary of Morgan Stanley DW; Chief Legal Officer of Morgan Stanley Investments LP (since July 2002); Vice President of the Institutional Funds (since July 2003); Vice President and Secretary of the Distributor; previously Secretary of the Retail Funds (February 1997-July 2003); previously Vice President and Assistant General Counsel of the Investment Manager and Morgan Stanley Services (February 1997-December 2001). Joseph J. McAlinden (60) Vice President Since July Managing Director and Chief Investment Officer of the 1221 Avenue of the Americas 1995 Investment Manager, Morgan Stanley Investment Management New York, NY Inc. and Morgan Stanley Investments LP; Director of the Transfer Agent, Chief Investment Officer of the Van Kampen Funds; Vice President of the Institutional Funds (since July 2003) and the Retail Funds (since July 1995). Stefanie V. Chang (36) Vice President Since July Executive Director of Morgan Stanley & Co. and Morgan 1221 Avenue of the Americas 2003 Stanley Investment Management Inc. and Vice President of the New York, NY Institutional Funds (since December 1997) and the Retail Funds (since July 2003); formerly practiced law with the New York law firm of Rogers & Wells (now Clifford Chance LLP).
25 Morgan Stanley Quality Municipal Investment Trust TRUSTEE AND OFFICER INFORMATION continued
Term of Position(s) Office and Name, Age and Address of Held with Length of Executive Officer Registrant Time Served* Principal Occupation(s) During Past 5 Years** ----------------------------- --------------- -------------- ------------------------------------------------------------ Francis J. Smith (38) Treasurer and Treasurer Executive Director of the Investment Manager and Morgan c/o Morgan Stanley Trust Chief Financial since July Stanley Services (since December 2001); previously Vice Harborside Financial Center, Officer 2003 and Chief President of the Retail Funds (September 2002-July 2003); Plaza Two, Financial previously Vice President of the Investment Manager and Jersey City, NJ Officer since Morgan Stanley Services (August 2000-November 2001) and September 2002 Senior Manager at PricewaterhouseCoopers LLP (January 1998-August 2000). Thomas F. Caloia (57) Vice President Since July Executive Director (since December 2002) and Assistant c/o Morgan Stanley Trust 2003 Treasurer of the Investment Manager, the Distributor and Harborside Financial Center, Morgan Stanley Services; previously Treasurer of the Retail Plaza Two, Funds (April 1989-July 2003); formerly First Vice President Jersey City, NJ of the Investment Manager, the Distributor and Morgan Stanley Services. Mary E. Mullin (36) Secretary Since July Vice President of Morgan Stanley & Co. Incorporated and 1221 Avenue of the Americas 2003 Morgan Stanley Investment Management Inc.; Secretary of the New York, NY Institutional Funds (since June 1999) and the Retail Funds (since July 2003); formerly practiced law with the New York law firms of McDermott, Will & Emery and Skadden, Arps, Slate, Meagher & Flom LLP.
--------------------- * This is the earliest date the Officer began serving the Retail Funds. Each Officer serves an indefinite term, until his or her successor is elected. ** The dates referenced below indicating commencement of service as an Officer for the Retail and Institutional Funds reflect the earliest date the Officer began serving the Retail or Institutional Funds as applicable. 26 (This Page Intentionally Left Blank) 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 Philip J. Purcell 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 and General Counsel 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 Investments and services offered through Morgan Stanley DW Inc., member SIPC. (c) 2003 Morgan Stanley [MORGAN STANLEY LOGO] MORGAN STANLEY FUNDS Morgan Stanley Quality Municipal Investment Trust Annual Report October 31, 2003 [MORGAN STANLEY LOGO] 38570RPT-00-13055L03-0P-12/03 Item 2. Code of Ethics. (a) The Trust has adopted a code of ethics (the "Code of Ethics") that applies to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the Trust or a third party. (b) No information need be disclosed pursuant to this paragraph. (c) Not applicable. (d) Not applicable. (e) Not applicable. (f) (1) The Trust's Code of Ethics is attached hereto as Exhibit A. (2) Not applicable. (3) Not applicable. Item 3. Audit Committee Financial Expert. The Trust's Board of Trustees has determined that it has two "audit committee financial experts" serving on its audit committee, each of whom are "independent" Trustees: Dr. Manuel H. Johnson and Joseph J. Kearns. Under applicable securities laws, a person who is determined to be an audit committee financial expert will not be deemed an "expert" for any purpose, including without limitation for the purposes of Section 11 of the Securities Act of 1933, as a result of being designated or identified as an audit committee financial expert. The designation or identification of a person as an audit committee financial expert does not impose on such person any duties, obligations, or liabilities that are greater than the duties, obligations, and liabilities imposed on such person as a member of the audit committee and Board of Trustees in the absence of such designation or identification. Item 4. Principal Accountant Fees and Services Applicable only for reports covering fiscal years ending on or after December 15, 2003. Item 5. Audit Committee of Listed Registrants. Applicable only for reports covering periods ending on or after the earlier of (i) the first annual shareholder meeting after January 15, 2004 or (ii) October 31, 2004. Item 6. [Reserved.] Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. The Trust invests in exclusively non-voting securities and therefore this item is not applicable. 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. 2 Item 10 Exhibits (a) The Code of Ethics for Principal Executive and Senior Financial Officers is attached hereto. (b) A separate certification for each principal executive officer and principal financial officer of the registrant are attached hereto as part of EX-99.CERT. 3 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Morgan Stanley Quality Municipal Investment Trust /s/ Ronald E. Robison Ronald E. Robison Principal Executive Officer December 18, 2003 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 December 18, 2003 /s/ Francis Smith Francis Smith Principal Financial Officer December 18, 2003 4