N-CSR 1 y69084nvcsr.txt N-CSR UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number: 811-06346 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: October 31, 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 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's 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, 2004 MARKET CONDITIONS The U.S. economy continued to expand during the Trust's fiscal year ended October 31, 2004. However, through the spring and summer the economy hit what Federal Reserve Board Chairman Alan Greenspan described as a "soft patch." Oil prices almost doubled, reaching record highs, and employment growth weakened. As a result, real gross domestic product growth that had averaged 4.3 percent in the first half of the fiscal period slowed to 3.5 percent in the second. Throughout most of the year, the Federal Reserve Open Market Committee (the "Fed") maintained its short-term borrowing rate (the federal funds rate) at a historic low. By April the market had begun to anticipate that the Fed would begin to increase short-term interest rates in response to higher commodity prices and reduced concern about the risk of deflation. In a series of three measured moves between June and the end of October, the Fed did increase the federal funds rate, from 1.00 to 1.75 percent. Rising inflation fears led to rising bond yields from April to June. The market reversed course in July, however, with yields falling from July through October as investors became concerned with slower growth. Rising and falling yields tended to offset each other over the entire period, and long-term municipal bond yields at the end of October had changed little from where they had begun the fiscal year. Higher short-term interest rates reduced the yield pickup for extending to longer maturities, and the yield curve flattened. The supply of new-issue municipal bonds declined by 8 percent in the first 10 months of 2004. California remained the largest issuer, accounting for 16 percent of total underwriting volume. New York was second, and accounted for 9 percent of total underwriting volume. The ratio of municipal yields to Treasury yields, which serves as a gauge of relative performance, indicated that municipals generally remained attractive relative to Treasuries during the period. As a result, taxable investors such as insurance companies and hedge funds that normally focus on other sectors of the bond market supported municipal bond prices by "crossing over" to purchase municipal bonds. PERFORMANCE ANALYSIS The net asset value (NAV) of Morgan Stanley Quality Municipal Investment Trust (IQT) moved from $15.36 to $15.64 per share. Based on this increase plus the reinvestment of tax-free dividends totaling $0.893 per share and long-term capital gain distributions of $0.028 per share, the Trust's total NAV return was 8.65 percent. IQT's value on the New York Stock Exchange (NYSE) decreased from $14.22 to $13.99 per share during the same period. Based on this change plus the reinvestment of distributions, IQT's total market return was 5.05 percent. IQT's share price was trading at a 10.55 percent discount to its NAV on October 31, 2004. Past performance is no guarantee of future results. Monthly dividends for the fourth quarter of 2004 declared in September were decreased from $0.075 to $0.0675 per share to reflect the Trust's current and projected earnings level. The Trust's level of undistributed net investment income was $0.083 per share on October 31, 2004, versus $0.137 per share 12 months earlier. 2 One of our key strategies in managing the Trust was to keep its overall interest-rate sensitivity lower than that of its benchmark index. This defensive strategy helped performance early in the period when rates rose but had the net effect of hampering total returns over the whole period by limiting the Trust's participation in the rally later in the period. The Trust's duration,* adjusted for leverage, was 10.6 years. The Trust's net assets, including preferred shares, of approximately $349 million were diversified across 74 credits in 14 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 this 12-month period, ARPS leverage contributed approximately $0.18 per share to common-share earnings. The Trust has two ARPS series totaling $105 million, representing 30 percent of net assets, including preferred shares. Both series are currently in two-year auction modes with maturities ranging from September 2005 to September 2006. The yields ranged from 1.70 to 2.09 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 ARPS outstanding, including their purchase in the open market or in privately negotiated transactions. During the 12-month period ended October 31, 2004, the Trust purchased and retired 655,300 shares of common stock at a weighted average market discount of 9.41 percent. ---------------------------------------------------- PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE OF FUTURE RESULTS, AND CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE FIGURES SHOWN. Investment return, net asset value and common share market price will fluctuate and Trust shares, when sold, may be worth more or less than their original cost. There is no guarantee that any securities mentioned will continue to perform well or be held by the Trust in the future. * 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, trusts with shorter durations perform better in rising-interest-rate environments, while trusts with longer durations perform better when rates decline. 3
LARGEST SECTORS Transportation Facilities Revenue 29.5% Water & Sewer Revenue 28.8% General Obligation 21.9% Electric Revenue 17.1% Refunded 12.1%
LONG-TERM CREDIT ANALYSIS Aaa/AAA 72% Aa/AA 15% A/A 9% Baa/BBB 4%
Data as of October 31, 2004. Subject to change daily. All percentages for largest sectors are as a percentage of net assets applicable to common shareholders. All percentages for long-term credit analysis are as a percentage of total long-term investments. These data are 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. RESULTS OF ANNUAL SHAREHOLDER MEETING ON OCTOBER 26, 2004, AN ANNUAL MEETING OF THE TRUST'S SHAREHOLDERS WAS HELD FOR THE PURPOSE OF VOTING ON THE FOLLOWING MATTER, THE RESULTS OF WHICH WERE AS FOLLOWS: ELECTION OF TRUSTEES: ------------------------------------------------- EDWIN J. GARN FOR: 12,590,243 WITHHELD: 383,702 ------------------------------------------------- MICHAEL E. NUGENT FOR: 12,591,207 WITHHELD: 382,738 -------------------------------------------------
THE FOLLOWING TRUSTEES WERE NOT STANDING FOR REELECTION AT THIS MEETING: MICHAEL BOZIC, CHARLES A. FIUMEFREDDO, WAYNE E. HEDIEN, JAMES F. HIGGINS, MANUEL H. JOHNSON, JOSEPH J. KEARNS AND FERGUS REID. 4 DISTRIBUTION BY MATURITY (% of Long-Term Portfolio) As of October 31, 2004 WEIGHTED AVERAGE MATURITY: 17 YEARS 1-5 4 5-10 8 10-20 58 20-30 30 30+ 0
Portfolio structure is subject to change. Geographic Summary of Investments Based on Market Value as a Percent of Total Investments Alaska................. 2.0% Arizona................ 1.9 California............. 7.5 Colorado............... 2.1 District of Columbia... 1.1 Florida................ 9.8 Georgia................ 8.3 Hawaii................. 2.4 Idaho.................. 0.2 Illinois............... 6.3 Indiana................ 2.1% Kentucky............... 3.5 Maryland............... 3.2 Massachusetts.......... 2.1 Michigan............... 1.1 Minnesota.............. 1.7 Nevada................. 1.5 New Jersey............. 4.4 New York............... 10.2 North Carolina......... 1.9 Ohio................... 1.0% Oregon................. 2.6 Pennsylvania........... 4.4 South Carolina......... 4.1 Texas.................. 11.5 Utah................... 1.2 Virginia............... 0.9 Washington............. 1.9 Joint exemption*....... (0.9) ----- Total+................. 100.0% =====
------------------ + Does not include open short futures contracts with an underlying face amount of $30,956,250 with unrealized depreciation of $403,826. * Joint exemptions have been included in each geographic location. 5 CALL AND COST (BOOK) YIELD STRUCTURE (Based on Long-Term Portfolio) As of October 31, 2004 YEARS BONDS CALLABLE -- WEIGHTED AVERAGE CALL PROTECTION: 7 YEARS 2004(a) 2 2005 5 2006 1 2007 3 2008 2 2009 5 2010 10 2011 18 2012 20 2013 14 2014+ 20
COST (BOOK) YIELD(B) -- WEIGHTED AVERAGE BOOK YIELD: 5.3% 2004(a) 6.5 2005 6.2 2006 6.6 2007 6.4 2008 5.8 2009 5.7 2010 5.5 2011 5.1 2012 5.2 2013 4.8 2014+ 4.8
(a) May include issues initially 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 6.5% on 2% 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 - OCTOBER 31, 2004
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE --------------------------------------------------------------------------------------------------------- Tax-Exempt Municipal Bonds (139.3%) General Obligation (21.9%) $ 4,000 North Slope Borough, Alaska, Ser 2000 B (MBIA)........... 0.00% 06/30/09 $ 3,469,560 3,000 California, Various Purpose Dtd 05/01/03................. 5.00 02/01/24 3,119,700 2,000 Los Angeles, California, Ser 2004 A (MBIA)............... 5.00 09/01/24 2,115,360 3,300 San Diego Unified School District, California, 2003 Ser E (FSA).................................................. 5.00 07/01/28 3,413,586 Florida State Board of Education, 6,890 Capital Outlay Refg Ser 2001 D......................... 5.375 06/01/18 7,731,062 3,000 Capital Outlay Refg 2002 Ser C (MBIA).................. 5.00 06/01/20 3,213,900 1,120 Chicago School Reform Board, Illinois, Dedicated Tax Ser 1997 (Ambac)........................................... 5.75 12/01/27 1,233,355 7,000 New Jersey, 2001 Ser H++................................. 5.25 07/01/19 8,026,690 5,000 North Carolina, Public School Building Ser 1999.......... 4.60 04/01/17 5,259,550 480 Oregon, Veterans' Welfare Ser 75......................... 6.00 04/01/27 494,525 Pennsylvania, 1,000 First Ser 2003 RITES PA - 1112 A (MBIA)................ 7.67++ 01/01/18 1,166,410 1,000 First Ser 2003 RITES PA - 1112 B (MBIA)................ 7.67++ 01/01/19 1,156,220 5,000 Charleston County School District, South Carolina, Ser 2004 A................................................. 5.00 02/01/22 5,333,450 5,000 Aldine Independent School District, Texas, Bldg & Refg Ser 2001 (PSF)......................................... 5.00 02/15/26 5,123,000 2,500 Mission Consolidated Independent School District, Texas, Bldg Ser 2000 (PSF).................................... 5.50 02/15/25 2,718,175 ------------- -------- 53,574,543 50,290 ------------- -------- Educational Facilities Revenue (3.4%) 1,480 Indiana University, Student Fee Ser K (MBIA)............. 5.875 08/01/20 1,552,017 1,200 University of North Carolina, Chapel Hill Ser 2003....... 5.00 12/01/24 1,265,832 5,000 Texas State University, Ser 2000 (FSA)................... 5.50 03/15/20 5,530,000 ------------- -------- 8,347,849 7,680 ------------- -------- Electric Revenue 17.1% 5,000 California Department of Water Resources, Power Supply Ser 2002 A............................................. 5.875 05/01/16 5,734,350 5,000 Colorado Springs, Colorado, Utilities Ser 2001 A......... 5.00 11/15/29 5,114,550 Municipal Electric Authority of Georgia, 2,000 Combustion Turbine Ser 2002 A (MBIA)................... 5.25 11/01/21 2,167,680 1,500 Combustion Turbine Ser 2002 A (MBIA)................... 5.25 11/01/22 1,618,305 1,700 Indiana Municipal Power Agency, Power Supply 2004 Ser A (FGIC) (WI)............................................ 5.00 01/01/32 1,730,889 5,000 Southern Minnesota Municipal Power Agency, Ser 2002 A (Ambac)................................................ 5.25 01/01/16 5,740,700 Long Island Power Authority, New York, 4,000 Ser 2003 B............................................. 5.25 06/01/13 4,446,280 2,000 Ser 2004 A (Ambac)..................................... 5.00 09/01/34 2,061,660
See Notes to Financial Statements 7 Morgan Stanley Quality Municipal Investment Trust PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2004 continued
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 $ 1,623,180 1,000 2002 Refg Ser A (FSA).................................. 5.125 01/01/21 1,076,620 4,000 2003 Refg A (Ambac).................................... 5.00 01/01/27 4,146,400 2,000 1997 Refg Ser A (MBIA)................................. 5.00 01/01/29 2,060,800 1,000 Intermountain Power Agency, Utah, Refg 1996 Ser D (Secondary FSA)........................................ 5.00 07/01/21 1,052,550 Lewis County Public Utility District No 1, Washington, 2,000 Cowlitz Falls Hydroelectric Refg Ser 2003 (MBIA)....... 5.00 10/01/22 2,115,680 1,000 Cowlitz Falls Hydroelectric Refg Ser 2003 (MBIA)....... 5.00 10/01/23 1,051,010 ------------- -------- 41,740,654 38,700 ------------- -------- Hospital Revenue (6.2%) Maryland Health & Higher Education Facilities Authority, 3,000 Medstar Health Refg Ser 2004........................... 5.375 08/15/24 3,071,790 2,000 University of Maryland Medical Ser 2002................ 5.75 07/01/17 2,206,220 2,500 University of Maryland Medical Ser 2001................ 5.25 07/01/34 2,553,250 3,000 Lorain County, Ohio, Catholic Healthcare Partners Ser 2001 A................................................. 5.75 10/01/18 3,298,260 4,000 Lehigh County General Purpose Authority, Pennsylvania, St Luke's Hospital of Bethlehem Ser 2003.................. 5.25 08/15/23 4,058,480 ------------- -------- 15,188,000 14,500 ------------- -------- Industrial Development/Pollution Control Revenue (5.5%) 2,000 Chicago, Illinois, Peoples Gas Light & Coke Co Refg 1995 Ser A.................................................. 6.10 06/01/25 2,079,080 3,500 Michigan Strategic Fund, Detroit Edison Co Ser 2001 C.... 5.45 09/01/29 3,627,120 2,000 New York State Energy Research & Development Authority, Brooklyn Union Gas Co 1991 Ser D (AMT)................. 11.795++ 07/01/26 2,321,200 5,000 Sabine River Authority, Texas, TXU Electric Co Refg Ser 2001 B (AMT) (Mandatory Tender 11/01/11)............... 5.75 05/01/30 5,425,100 ------------- -------- 13,452,500 12,500 ------------- -------- Mortgage Revenue - Multi-Family (2.5%) 6,050 Illinois Housing Development Authority, 1991 Ser A....... 8.25 07/01/16 6,146,377 ------------- -------- Mortgage Revenue - Single Family (1.2%) 480 Colorado Housing & Finance Authority, 2000 Ser D-2 (AMT).................................................. 6.90 04/01/29 496,118 805 District of Columbia Housing Finance Agency, GNMA Collateralized Ser 1990 B (AMT)........................ 7.10 12/01/24 805,652 1,500 Pennsylvania Housing Finance Agency, Ser 2000-70 A (AMT).................................................. 5.90 04/01/31 1,559,055 ------------- -------- 2,860,825 2,785 ------------- -------- Nursing & Health Related Facilities Revenue (0.7%) 1,500 New York State Dormitory Authority, Mental Health Ser 2003 B................................................. 5.25 02/15/17 1,649,760 ------------- --------
See Notes to Financial Statements 8 Morgan Stanley Quality Municipal Investment Trust PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2004 continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE --------------------------------------------------------------------------------------------------------- Public Facilities Revenue (5.1%) $ 5,000 Arizona School Facilities Board, School Impr Ser 2001.... 5.00% 07/01/19 $ 5,417,850 1,000 Phoenix Civic Improvement Corporation, Arizona, Phoenix Municipal Courthouse Sr Lien Excise Tax Ser 1999 A..... 5.25 07/01/24 1,073,610 1,585 Colorado Educational & Cultural Facilities Authority, Peak to Peak Charter School Refg & Impr Ser 2004 (XLCA)................................................. 5.25 08/15/34 1,660,430 1,900 Jacksonville, Florida, Sales Tax Ser 2001 (Ambac)........ 5.50 10/01/18 2,140,464 2,000 Pennsylvania Public School Building Authority, Philadelphia School District Ser 2003 (FSA)............ 5.00 06/01/33 2,052,580 ------------- -------- 12,344,934 11,485 ------------- -------- Resource Recovery Revenue (1.7%) 3,000 Northeast Maryland Waste Disposal Authority, Montgomery County Ser 2003 (AMT) (Ambac).......................... 5.50 04/01/16 3,302,070 900 Warren County Pollution Control Financing Authority, New Jersey, Warren Energy Resource Co Ltd Partnership Ser 1984 (MBIA)............................................ 6.60 12/01/07 903,663 ------------- -------- 4,205,733 3,900 ------------- -------- Transportation Facilities Revenue (29.5%) Alaska International Airports, 1,500 Ser 2002 B (Ambac)..................................... 5.75 10/01/18 1,728,345 1,500 Ser 2002 B (Ambac)..................................... 5.75 10/01/19 1,728,345 3,000 Metropolitan Washington Airports Authority, District of Columbia & Virginia Ser 2004 C (FSA) (AMT)#............ 5.00 10/01/20 3,144,600 10,000 Hillsborough County Port District, Florida, Tampa Port Authority Special & Refg Ser 1995 (AMT) (FSA).......... 6.00 06/01/20 10,402,300 Georgia State Road & Toll Authority, 10,000 Ser 2001............................................... 5.375 03/01/17 11,293,500 2,000 Ser 2004............................................... 5.00 10/01/22 2,143,340 3,000 Ser 2004............................................... 5.00 10/01/23 3,194,190 2,000 Chicago, Illinois, O'Hare Int'l Airport Third Lien Ser 2003 B-2 (AMT) (FSA)................................... 5.75 01/01/23 2,197,880 5,000 Massachusetts Bay Transportation Authority, Assess 2000 Ser A.................................................. 5.25 07/01/30 5,273,850 2,000 Clark County, Nevada, Airport Sub Lien Ser 2004 A (AMT) (FGIC)................................................. 5.50 07/01/22 2,172,480 5,000 New Jersey Turnpike Authority, Ser 2003 A (Ambac)........ 5.00 01/01/30 5,172,100 Metropolitan Transportation Authority, New York, 3,000 State Service Contract Ser 2002 A (MBIA)............... 5.50 01/01/19 3,396,840 3,000 State Service Contract Refg Ser 2002 B (MBIA).......... 5.50 07/01/20 3,393,180 3,000 Triborough Bridge & Tunnel Authority, New York, Ser 2001 A...................................................... 5.00 01/01/32 3,067,830 5,000 Pennsylvania Turnpike Commission, 2004 Ser A (Ambac)..... 5.00 12/01/34 5,161,400
See Notes to Financial Statements 9 Morgan Stanley Quality Municipal Investment Trust PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2004 continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE --------------------------------------------------------------------------------------------------------- $ 5,000 Dallas-Fort Worth International Airport, Texas, Ser 2003 A (AMT) (FSA).......................................... 5.375% 11/01/22 $ 5,337,800 3,000 Port of Seattle, Washington, Sub Lien Ser 1999 A (FGIC)................................................. 5.25 09/01/22 3,228,090 ------------- -------- 72,036,070 67,000 ------------- -------- Water & Sewer Revenue (28.8%) 1,920 Los Angeles Department of Water & Power, California, Water 2004 Ser C (MBIA)................................ 5.00 07/01/23 2,040,960 4,000 Oxnard Financing Authority, California, Redwood Trunk Sewer & Headworks Ser 2004 A (FGIC).................... 5.00 06/01/29 4,133,760 2,000 Martin County, Florida, Utilities Ser 2001 (FGIC)........ 5.00 10/01/26 2,067,980 8,000 Tampa Bay Water, Florida, Ser 2001 B (FGIC).............. 5.00 10/01/31 8,175,680 Louisville & Jefferson County Metropolitan Sewer District, Kentucky, 2,925 Ser 2001 A (MBIA)...................................... 5.375 05/15/20 3,250,845 3,075 Ser 2001 A (MBIA)...................................... 5.375 05/15/21 3,398,213 5,000 Ser 1999 A (FGIC)...................................... 5.75 05/15/33 5,591,450 1,585 Massachusetts Water Resources Authority, 2000 Ser A (FGIC)................................................. 6.00 08/01/13 1,840,597 2,925 Las Vegas Water District, Nevada, Impr and Refg Ser 2003 A (FGIC)............................................... 5.25 06/01/22 3,151,337 New York City Municipal Water Finance Authority, New York, 3,000 2003 Ser A............................................. 5.375 06/15/18 3,309,150 4,000 1998 Ser D (MBIA)...................................... 4.75 06/15/25 4,050,320 5,000 2002 Ser G (FSA)....................................... 5.00 06/15/34 5,117,750 7,500 Portland, Oregon, Sewer 2000 Ser A (FGIC)................ 5.75 08/01/19 8,525,100 Houston, Texas, 10,000 Combined Utility First Lien Refg 2004 Ser A (FGIC)..... 5.25 05/15/23 10,814,400 4,500 Combined Utility First Lien Refg 2004 Ser A (MBIA)..... 5.25 05/15/25 4,829,850 ------------- -------- 70,297,392 65,430 ------------- -------- Other Revenue (3.6%) 5,000 California Economic Recovery, Ser 2004 A................. 5.00 07/01/16 5,388,600 1,000 New Jersey Economic Development Authority, Cigarette Tax Ser 2004............................................... 5.75 06/15/34 1,027,600 2,000 New York City Transitional Finance Authority, New York, Refg 2003 Ser A**...................................... 5.50 11/01/26 2,264,040 ------------- -------- 8,680,240 8,000 ------------- --------
See Notes to Financial Statements 10 Morgan Stanley Quality Municipal Investment Trust PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2004 continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE --------------------------------------------------------------------------------------------------------- Refunded (12.1%) $ 8,880 Chicago School Reform Board, Illinois, Dedicated Tax Ser 1997 (Ambac)........................................... 5.75% 12/01/07+ $ 9,996,749 7,250 Atlanta, Georgia, Airport Ser 2000 A (FGIC).............. 5.50 01/01/10+ 8,254,632 7,000 Hawaii, Airports Second Ser of 1991 (AMT) (ETM).......... 6.90 07/01/12 8,298,290 3,000 Salt Lake City, Utah, IHC Hospitals Inc Refg Ser 1991 (Ambac) (ETM).......................................... 11.725++ 05/15/20 3,023,970 ------------- -------- 29,573,641 26,130 ------------- -------- 315,950 Total Tax-Exempt Municipal Bonds (Cost $317,231,264)........................ 340,098,518 ------------- -------- Short-Term Tax-Exempt Municipal Obligations (1.8%) 600 Idaho Health Facilities Authority, St Luke's Regional Medical Center Ser 2000 (FSA) (Demand 11/01/04)................ 1.69* 07/01/30 600,000 3,840 Indiana Health Facility Financing Authority, Clarian Health Ser 2000 B (Demand 11/01/04)........................... 1.74* 03/01/30 3,840,000 ------------- -------- 4,440 Total Short-Term Tax-Exempt Municipal Obligations (Cost $4,440,00).......... 4,440,000 ------------- --------
$320,390 Total Investments (Cost $321,671,264) (a)(b)....................... 141.1% 344,538,518 ======== Other Assets in Excess of Liabilities.............................. 2.0 4,769,946 Preferred Shares of Beneficial Interest............................ (43.1) (105,171,493) ----- ------------- Net Assets Applicable to Common Shareholders....................... 100.0% $ 244,136,971 ===== =============
See Notes to Financial Statements 11 Morgan Stanley Quality Municipal Investment Trust PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2004 continued --------------------- Note: The categories of investments are shown as a percentage of net assets applicable to common shareholders. AMT Alternative Minimum Tax. ETM Escrowed to maturity. PSF Texas Permanent School Fund Guarantee Program. RITES Residual Interest Tax-Exempt Securities (Illiquid Securities). WI Security purchased on a when-issued basis. # Joint exemption in locations shown. + Prerefunded to call date shown. ++ A portion of this security has been physically segregated in connection with open futures contracts in the amount of $210,000. ++ 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 $7,667,800, which represents 3.1% of net assets applicable to common shareholders. * Current coupon of variable rate demand obligation. ** Currently a 5.50% coupon security; will convert to 14.00% on November 1, 2011. (a) Securities have been designated as collateral in an amount equal to $36,273,607 in connection with the open futures contracts and securities purchased on a when-issued basis. (b) The aggregate cost for federal income tax purposes is $321,535,308. The aggregate gross unrealized appreciation is $23,026,379 and the aggregate gross unrealized depreciation is $23,169, resulting in net unrealized appreciation of $23,003,210. 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.
Futures Contracts Open at October 31, 2004:
DESCRIPTION, UNDERLYING NUMBER OF DELIVERY MONTH FACE AMOUNT UNREALIZED CONTRACTS LONG/SHORT AND YEAR AT VALUE DEPRECIATION --------- ---------- ---------------------- ------------------------ -------------- 125 Short U.S. Treasury Notes 5 $(13,921,875) $(124,116) Year, December/2004 150 Short U.S. Treasury Notes 10 (17,034,375) (279,710) Year, December/2004 --------- Total unrealized depreciation................... $(403,826) =========
See Notes to Financial Statements 12 Morgan Stanley Quality Municipal Investment Trust FINANCIAL STATEMENTS Statement of Assets and Liabilities October 31, 2004 Assets: Investments in securities, at value (cost $321,671,264)................ $344,538,518 Cash................................. 37,106 Receivable for: Interest......................... 5,257,373 Investments sold................. 5,038,557 Prepaid expenses..................... 834,378 ------------ Total Assets..................... 355,705,932 ------------ Liabilities: Payable for: Investments purchased............ 5,930,427 Common shares of beneficial interest repurchased........... 135,843 Investment management fee........ 124,046 Variation margin................. 83,594 Accrued expenses..................... 123,558 ------------ Total Liabilities................ 6,397,468 ------------ Preferred shares of beneficial interest, (at liquidation value), (1,000,000 shares authorized of non-participating $.01 par value, 2,100 shares outstanding).......... 105,171,493 ------------ Net Assets Applicable to Common Shareholders................... $244,136,971 ============ Composition of Net Assets Applicable to Common Shareholders: Common shares of beneficial interest (unlimited shares authorized of $.01 par value, 15,606,513 shares outstanding)....................... $217,874,812 Net unrealized appreciation.......... 22,463,428 Accumulated undistributed net investment income.................. 1,300,057 Accumulated undistributed net realized gain...................... 2,498,674 ------------ Net Assets Applicable to Common Shareholders................... $244,136,971 ============ Net Asset Value Per Common Share, ($244,136,971 divided by 15,606,513 common shares outstanding)........... $15.64 ============
Statement of Operations For the year ended October 31, 2004 Net Investment Income: Interest Income....................... $17,385,011 ----------- Expenses Investment management fee............. 1,235,639 Auction commission fees............... 549,691 Transfer agent fees and expenses...... 91,802 Professional fees..................... 49,356 Shareholder reports and notices....... 45,486 Custodian fees........................ 19,895 Auction agent fees.................... 15,802 Registration fees..................... 13,340 Trustees' fees and expenses........... 10,717 Other................................. 36,762 ----------- Total Expenses.................... 2,068,490 Less: expense offset.................. (19,707) ----------- Net Expenses...................... 2,048,783 ----------- Net Investment Income............. 15,336,228 ----------- Net Realized and Unrealized Gain (Loss): Net Realized Gain (Loss) on: Investments........................... 4,521,636 Futures contracts..................... (2,302,023) ----------- Net Realized Gain................. 2,219,613 ----------- Net Change in Unrealized Appreciation/ (Depreciation) on: Investments........................... 2,580,050 Futures contracts..................... (53,881) ----------- Net Appreciation.................. 2,526,169 ----------- Net Gain.......................... 4,745,782 ----------- Dividends to preferred shareholders from net investment income.......... (1,963,652) ----------- Net Increase.......................... $18,118,358 ===========
See Notes to Financial Statements 13 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, 2004 OCTOBER 31, 2003 ---------------- ---------------- Increase (Decrease) in Net Assets: Operations: Net investment income....................................... $ 15,336,228 $ 16,638,545 Net realized gain........................................... 2,219,613 797,277 Net change in unrealized appreciation....................... 2,526,169 3,427,282 Dividends to preferred shareholders from net investment income.................................................... (1,963,652) (1,804,684) ------------ ------------ Net Increase............................................ 18,118,358 19,058,420 ------------ ------------ Dividends and Distributions to Common Shareholders from: Net investment income....................................... (14,253,908) (15,772,298) Net realized gain........................................... (447,688) (1,549,279) ------------ ------------ Total Dividends and Distributions....................... (14,701,596) (17,321,577) ------------ ------------ Decrease from transactions in common shares of beneficial interest.................................................. (9,131,366) (6,484,403) ------------ ------------ Net Decrease............................................ (5,714,604) (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 $1,300,057 and $2,222,140, respectively).................... $244,136,971 $249,851,575 ============ ============
See Notes to Financial Statements 14 Morgan Stanley Quality Municipal Investment Trust NOTES TO FINANCIAL STATEMENTS - OCTOBER 31, 2004 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 15 Morgan Stanley Quality Municipal Investment Trust NOTES TO FINANCIAL STATEMENTS - OCTOBER 31, 2004 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. 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 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, 2004 aggregated $83,959,104 and $96,199,536, respectively. Included in the aforementioned transactions are purchases and sales with other Morgan Stanley funds of $8,583,732 and $4,141,960, respectively, including a realized loss of $101,584. At October 31, 2004, the Fund's receivable for investments sold and payable for investments purchased included unsettled trades with another Morgan Stanley Fund of $4,168,627 and $4,199,538, respectively. Morgan Stanley Trust, an affiliate of the Investment Manager, is the Trust's transfer agent. At October 31, 2004, the Trust had transfer agent fees and expenses payable of approximately $11,800. 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 16 Morgan Stanley Quality Municipal Investment Trust NOTES TO FINANCIAL STATEMENTS - OCTOBER 31, 2004 continued of retirement. Benefits under this plan are based on factors which include years of service and compensation. Aggregate pension costs for the year ended October 31, 2004 included in Trustees' fees and expenses in the Statement of Operations amounted to $6,984. At October 31, 2004, the Trust had an accrued pension liability of $56,080 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 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.
AMOUNT RESET RANGE OF SERIES SHARES* IN THOUSANDS* RATE* DATE DIVIDEND RATES** ------ ------- ------------- ----- -------- ---------------- A 1,400 $70,000 2.09% 09/06/06 1.90% - 2.09% B 700 35,000 1.70 09/02/05 1.70
--------------------- * As of October 31, 2004. ** For the year ended October 31, 2004. Subsequent to October 31, 2004 and up through December 3, 2004 the Trust paid dividends to Series A and B at rates ranging from 1.70% to 2.09% in the aggregate amount of $342,986. 17 Morgan Stanley Quality Municipal Investment Trust NOTES TO FINANCIAL STATEMENTS - OCTOBER 31, 2004 continued The Trust is subject to certain restrictions relating to the preferred shares. Failure to comply with these restrictions could preclude the Trust from declaring any distributions to common shareholders or purchasing common shares and/or could trigger the mandatory redemption of preferred shares at liquidation value. The preferred shares, which are entitled to one vote per share, generally vote with the common shares but vote separately as a class to elect two Trustees and on any matters affecting the rights of the preferred shares. 5. Common Shares of Beneficial Interest Transactions in common shares of beneficial interest were as follows:
CAPITAL PAID IN EXCESS OF SHARES PAR VALUE PAR VALUE ---------- --------- ------------ Balance, October 31, 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 9.41%)*.......................................... (655,300) (6,553) (9,124,813) Reclassification due to permanent book/tax differences...... -- -- 111,622 ---------- -------- ------------ Balance, October 31, 2004................................... 15,606,513 $156,065 $217,718,747 ========== ======== ============
--------------------- * The Trustees have voted to retire the shares purchased. 6. Dividends to Common Shareholders On September 28, 2004, the Trust declared the following dividends from net investment income:
AMOUNT RECORD PAYABLE PER SHARE DATE DATE --------- ----------------- ----------------- $0.0675 November 5, 2004 November 19, 2004 $0.0675 December 10, 2004 December 23, 2004
7. Expense Offset The expense offset represents a reduction of the custodian fees for earnings on cash balances maintained by the Trust. 18 Morgan Stanley Quality Municipal Investment Trust NOTES TO FINANCIAL STATEMENTS - OCTOBER 31, 2004 continued 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"). 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. The tax character of distributions paid was as follows:
FOR THE YEAR FOR THE YEAR ENDED ENDED OCTOBER 31, 2004 OCTOBER 31, 2003 ---------------- ---------------- Tax-exempt income........................................... $16,206,486 $17,537,803 Long-term capital gains..................................... 447,688 1,549,279 ----------- ----------- Total distributions......................................... $16,654,174 $19,087,082 =========== ===========
As of October 31, 2004, the tax-basis components of accumulated earnings were as follows: Undistributed tax-exempt income............................. $ 1,391,828 Undistributed long-term gains............................... 2,094,847 ----------- Net accumulated earnings.................................... 3,486,675 Temporary differences....................................... (227,726) Net unrealized appreciation................................. 23,003,210 ----------- Total accumulated earnings.................................. $26,262,159 ===========
19 Morgan Stanley Quality Municipal Investment Trust NOTES TO FINANCIAL STATEMENTS - OCTOBER 31, 2004 continued As of October 31, 2004, 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 and market discount retained by the Trust. To reflect reclassifications arising from the permanent differences, accumulated undistributed net investment income was charged $40,751, accumulated undistributed net realized gain was charged $70,871 and paid-in-capital was credited $111,622. 20 Morgan Stanley Quality Municipal Investment Trust FINANCIAL HIGHLIGHTS Selected ratios and per share data for a common share of beneficial interest outstanding throughout each period:
FOR THE YEAR ENDED OCTOBER 31, --------------------------------------------------------------------- 2004 2003 2002 2001 2000 --------- --------- --------- --------- --------- Selected Per Share Data: Net asset value, beginning of period...................... $15.36 $15.23 $15.31 $14.64 $ 14.35 ------ ------ ------ ------ ------- Income from investment operations: Net investment income*................................ 0.96 1.01 1.07 1.17 1.18 Net realized and unrealized gain...................... 0.30 0.25 0.04 0.66 0.23 Common share equivalent of dividends paid to preferred shareholders*......................................... (0.12) (0.11) (0.13) (0.22) (0.25) ------ ------ ------ ------ ------- Total income from investment operations................... 1.14 1.15 0.98 1.61 1.16 ------ ------ ------ ------ ------- Less dividends and distributions from: Net investment income................................. (0.89) (0.96) (0.93) (0.93) (0.93) Net realized gain..................................... (0.03) (0.09) (0.14) (0.01) -- ------ ------ ------ ------ ------- Total dividends and distributions......................... (0.92) (1.05) (1.07) (0.94) (0.93) ------ ------ ------ ------ ------- Anti-dilutive effect of acquiring treasury shares*........ 0.06 0.03 0.01 -- 0.06 ------ ------ ------ ------ ------- Net asset value, end of period............................ $15.64 $15.36 $15.23 $15.31 $ 14.64 ====== ====== ====== ====== ======= Market value, end of period............................... $13.99 $14.22 $14.08 $15.08 $13.688 ====== ====== ====== ====== ======= Total Return+............................................. 5.05% 8.66% 0.52% 17.52% 12.84% Ratios to Average Net Assets of Common Shareholders: Total Expenses (before expense offset).................... 0.84%(1) 0.79%(1) 0.73%(1) 0.74%(1) 0.75% Net investment income before preferred stock dividends.... 6.23% 6.54% 7.15% 7.83% 8.18% Preferred stock dividends................................. 0.80% 0.71% 0.86% 1.46% 1.74% Net investment income available to common shareholders.... 5.43% 5.83% 6.29% 6.37% 6.44% Supplemental Data: Net assets applicable to common shareholders, end of period, in thousands..................................... $244,137 $249,852 $254,599 $257,819 $247,389 Asset coverage on preferred shares at end of period....... 332% 338% 342% 345% 335% Portfolio turnover rate................................... 25% 21% 17% 23% 20%
--------------------- * 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%.
21 See Notes to Financial Statements Morgan Stanley Quality Municipal Investment Trust REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 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, 2004, 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. 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, 2004, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. 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, 2004, 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 14, 2004 2004 FEDERAL TAX NOTICE (UNAUDITED) During the year ended October 31, 2004, the Trust paid the following per share amounts from tax-exempt income: $0.893 to common shareholders, $940 to Series A preferred shareholders and $840 to Series B preferred shareholders. For the year ended October 31, 2004, the Trust paid the following per share amounts from long-term capital gains: $0.025 to common shareholders, $27 to Series A preferred shareholders and $16 to Series B preferred shareholders. 22 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 (63) Trustee Since April Private Investor; Director or 208 c/o Kramer Levin Naftalis & Frankel LLP 1994 Trustee of the Retail Funds Counsel to the Independent Trustees (since April 1994) and the 919 Third Avenue Institutional Funds (since New York, NY 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 (72) Trustee Since January Managing Director of Summit 208 c/o Summit Ventures LLC 1993 Ventures LLC; Director or 1 Utah Center Trustee of the Retail Funds 201 S. Main Street (since January 1993) and the Salt Lake City, UT Institutional 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 (70) Trustee Since Retired; Director or Trustee 208 c/o Kramer Levin Naftalis & Frankel LLP September 1997 of the Retail Funds (since Counsel to the Independent Trustees September 1997) and the 919 Third Avenue Institutional Funds (since New York, NY 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 Independent Trustee Other Directorships Held by Trustee --------------------------------------- ----------------------------------- Michael Bozic (63) Director of Weirton Steel c/o Kramer Levin Naftalis & Frankel LLP Corporation. Counsel to the Independent Trustees 919 Third Avenue New York, NY Edwin J. Garn (72) Director of Franklin Covey (time c/o Summit Ventures LLC management systems), BMW Bank of 1 Utah Center North America, Inc. (industrial 201 S. Main Street loan corporation), United Space Salt Lake City, UT 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 (70) Director of The PMI Group Inc. c/o Kramer Levin Naftalis & Frankel LLP (private mortgage insurance); Counsel to the Independent Trustees Trustee and Vice Chairman of The 919 Third Avenue Field Museum of Natural History; New York, NY director of various other business and charitable organizations.
23 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 (55) Trustee Since July Senior Partner, Johnson Smick 208 c/o Johnson Smick International, Inc. 1991 International, Inc., a 2099 Pennsylvania Avenue, N.W. consulting firm; Chairman of Suite 950 the Audit Committee and Washington, D.C. Director or Trustee of the Retail Funds (since July 1991) and the Institutional Funds (since July 2003); 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 (62) Trustee Since July President, Kearns & Associates 209 PMB754 2003 LLC (investment consulting); 23852 Pacific Coast Highway Deputy Chairman of the Audit Malibu, CA Committee and Director or Trustee of the Retail Funds (since July 2003) and the Institutional Funds (since August 1994); previously Chairman of the Audit Committee of the Institutional Funds (October 2001-July 2003); formerly CFO of the J. Paul Getty Trust. Michael E. Nugent (68) Trustee Since July General Partner of Triumph 208 c/o Triumph Capital, L.P. 1991 Capital, L.P., a private 445 Park Avenue investment partnership; New York, NY Chairman of the Insurance Committee and Director or Trustee of the Retail Funds (since July 1991) and the Institutional Funds (since July 2001); formerly Vice President, Bankers Trust Company and BT Capital Corporation (1984-1988). Fergus Reid (72) Trustee Since July Chairman of Lumelite Plastics 209 c/o Lumelite Plastics Corporation 2003 Corporation; Chairman of the 85 Charles Colman Blvd. Governance Committee and Pawling, NY Director or Trustee of the Retail Funds (since July 2003) and the Institutional Funds (since June 1992). Name, Age and Address of Independent Trustee Other Directorships Held by Trustee --------------------------------------- ----------------------------------- Dr. Manuel H. Johnson (55) Director of NVR, Inc. (home c/o Johnson Smick International, Inc. construction); Chairman and Trustee 2099 Pennsylvania Avenue, N.W. of the Financial Accounting Suite 950 Foundation (oversight organization Washington, D.C. of the Financial Accounting Standards Board); Director of RBS Greenwich Capital Holdings (financial holding company). Joseph J. Kearns (62) Director of Electro Rent PMB754 Corporation (equipment leasing), 23852 Pacific Coast Highway The Ford Family Foundation, and the Malibu, CA UCLA Foundation. Michael E. Nugent (68) Director of various business c/o Triumph Capital, L.P. organizations. 445 Park Avenue New York, NY Fergus Reid (72) Trustee and Director of certain c/o Lumelite Plastics Corporation investment companies in the 85 Charles Colman Blvd. JPMorgan Funds complex managed by Pawling, NY J.P. Morgan Investment Management Inc.
24 Morgan Stanley Quality Municipal Investment Trust TRUSTEE AND OFFICER INFORMATION continued 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 (71) Chairman of Since July Chairman and Director or 208 c/o Morgan Stanley Trust the Board 1991 Trustee of the Retail Funds Harborside Financial Center, and Trustee (since July 1991) and the Plaza Two, Institutional Funds (since Jersey City, NJ July 2003); formerly Chief Executive Officer of the Retail Funds (until September 2002). James F. Higgins (56) Trustee Since June Director or Trustee of the 208 c/o Morgan Stanley Trust 2000 Retail Funds (since June 2000) Harborside Financial Center, and the Institutional Funds Plaza Two, (since July 2003); Senior Jersey City, NJ 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). Name, Age and Address of Interested Trustee Other Directorships Held by Trustee ------------------------------------- ----------------------------------- Charles A. Fiumefreddo (71) None c/o Morgan Stanley Trust Harborside Financial Center, Plaza Two, Jersey City, NJ James F. Higgins (56) Director of AXA Financial, Inc. and c/o Morgan Stanley Trust The Equitable Life Assurance Harborside Financial Center, Society of the United States Plaza Two, (financial services). Jersey City, NJ
--------------------- * 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. 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.). 25 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 (51) 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 and Director of the Distributor; Chairman and Director of the Transfer Agent; Director of various Morgan Stanley subsidiaries; President of the Institutional Funds (since July 2003) and President of the Retail Funds (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 (65) Executive Vice Since April Principal Executive Officer-Office of the Funds (since 1221 Avenue of the Americas President and 2003 November 2003); Managing Director of Morgan Stanley & Co. New York, NY Principal Incorporated, Managing Director of Morgan Stanley; Managing Executive Director, Chief Administrative Officer and Director of the Officer Investment Manager and Morgan Stanley Services; Chief Executive Officer and Director of the Transfer Agent; Managing Director and Director of the Distributor; Executive Vice President and Principal Executive Officer of the Institutional Funds (since July 2003) and the Retail Funds (since April 2003); Director of Morgan Stanley SICAV (since May 2004); previously President and Director of the Retail Funds (March 2001-July 2003) and Chief Global Operations Officer and Managing Director of Morgan Stanley Investment Management Inc. Joseph J. McAlinden (61) Vice President Since July Managing Director and Chief Investment Officer of the 1221 Avenue of the Americas 1995 Investment Manager and Morgan Stanley Investment Management New York, NY Inc.; 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). Barry Fink (49) Vice President Since February General Counsel (since May 2000) and Managing Director 1221 Avenue of the Americas 1997 (since December 2000) of Morgan Stanley Investment New York, NY Management; Managing Director (since December 2000), Secretary (since February 1997) and Director (since July 1998) of the Investment Manager and Morgan Stanley Services; Vice President of the Retail Funds; Assistant Secretary of Morgan Stanley DW; Vice President of the Institutional Funds (since July 2003); Managing Director, Secretary and Director of the Distributor; previously Secretary (February 1997-July 2003) and General Counsel (February 1997-April 2004) of the Retail Funds; Vice President and Assistant General Counsel of the Investment Manager and Morgan Stanley Services (February 1997-December 2001). Amy R. Doberman (42) Vice President Since July Managing Director and General Counsel, U.S. Investment 1221 Avenue of the Americas 2004 Management; Managing Director of Morgan Stanley Investment New York, NY Management Inc. and the Investment Manager, Vice President of the Institutional and Retail Funds (since July 2004); previously, Managing Director and General Counsel -- Americas, UBS Global Asset Management (July 2000-July 2004) and General Counsel, Aeltus Investment Management, Inc. (January 1997-July 2000). Carsten Otto (41) Chief Since October Executive Director and U.S. Director of Compliance for 1221 Avenue of the Americas Compliance 2004 Morgan Stanley Investment Management (since October 2004); New York, NY Officer Executive Director of the Investment Adviser and Morgan Stanley Investment Management Inc.; formerly Assistant Secretary and Assistant General Counsel of the Morgan Stanley Retail Funds.
26 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** ----------------------------- --------------- -------------- ------------------------------------------------------------ Stefanie V. Chang (37) Vice President Since July Executive Director of Morgan Stanley & Co. Incorporated, 1221 Avenue of the Americas 2003 Morgan Stanley Investment Management Inc. and the Investment New York, NY Manager; Vice President of the 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 US LLP). Francis J. Smith (39) 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 Vice President of the Investment Manager and Morgan Stanley Jersey City, NJ Officer since Services (August 2000-November 2001) and Senior Manager at September 2002 PricewaterhouseCoopers LLP (January 1998-August 2000). Thomas F. Caloia (58) 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 (37) Secretary Since July Executive Director of Morgan Stanley & Co. Incorporated, 1221 Avenue of the Americas 2003 Morgan Stanley Investment Management Inc. and the Investment New York, NY Manager; Secretary of the 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. 27 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 Joseph J. McAlinden Vice President Barry Fink Vice President Amy R. Doberman Vice President Carsten Otto Chief Compliance Officer 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 REGISTERED PUBLIC ACCOUNTING FIRM 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) 2004 Morgan Stanley [MORGAN STANLEY LOGO] MORGAN STANLEY FUNDS Morgan Stanley Quality Municipal Investment Trust Annual Report October 31, 2004 [MORGAN STANLEY LOGO] 38570RPT-RA04-00899P-Y10/04 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) The Trust has amended its Code of Ethics during the period covered by the shareholder report presented in Item 1 hereto to delete from the end of the following paragraph on page 2 of the Code the phrase "to the detriment of the Fund.": "Each Covered Officer must not use his personal influence or personal relationship improperly to influence investment decisions or financial reporting by the Fund whereby the Covered Officer would benefit personally (directly or indirectly)." (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. (a)(b)(c)(d) and (g). Based on fees billed for the periods shown:
REGISTRANT COVERED ENTITIES(1) 2004 AUDIT FEES........................ $ 26,761 N/A NON-AUDIT FEES AUDIT-RELATED FEES...... $ 5,752(2) $ 5,067,400(2) TAX FEES................ $ 4,455(3) $ 545,053(4) ALL OTHER FEES.......... $ - $ - TOTAL NON-AUDIT FEES.............. $ 10,207 $ 5,612,453 TOTAL............................. $ 36,968 $ 5,612,453
REGISTRANT COVERED ENTITIES(1) 2003 AUDIT FEES........................ $ 25,259 N/A NON-AUDIT FEES AUDIT-RELATED FEES...... $ 21,284(2) $ 1,086,576(2) TAX FEES................ $ 4,346(3) $ 252,500(4) ALL OTHER FEES.......... $ - $ -(5) TOTAL NON-AUDIT FEES.............. $ 25,630 $ 1,339,076 TOTAL............................. $ 50,889 $ 1,339,076
N/A- Not applicable, as not required by Item 4. (1) Covered Entities include the Adviser (excluding sub-advisors) and any entity controlling, controlled by or under common control with the Adviser that provides ongoing services to the Registrant. (2) Audit-Related Fees represent assurance and related services provided that are reasonably related to the performance of the audit of the financial statements of the Covered Entities' and funds advised by the Adviser or its affiliates, specifically data verification and agreed-upon procedures related to asset securitizations and agreed-upon procedures engagements. (3) Tax Fees represent tax compliance, tax planning and tax advice services provided in connection with the preparation and review of the Registrant's tax returns. (4) Tax Fees represent tax compliance, tax planning and tax advice services provided in connection with the review of Covered Entities' tax returns. (5) All other fees represent project management for future business applications and improving business and operational processes. 2 (e)(1) The audit committee's pre-approval policies and procedures are as follows: APPENDIX A AUDIT COMMITTEE AUDIT AND NON-AUDIT SERVICES PRE-APPROVAL POLICY AND PROCEDURES OF THE MORGAN STANLEY RETAIL AND INSTITUTIONAL FUNDS AS ADOPTED AND AMENDED JULY 23, 2004,(1) 1. STATEMENT OF PRINCIPLES The Audit Committee of the Board is required to review and, in its sole discretion, pre-approve all Covered Services to be provided by the Independent Auditors to the Fund and Covered Entities in order to assure that services performed by the Independent Auditors do not impair the auditor's independence from the Fund. The SEC has issued rules specifying the types of services that an independent auditor may not provide to its audit client, as well as the audit committee's administration of the engagement of the independent auditor. The SEC's rules establish two different approaches to pre-approving services, which the SEC considers to be equally valid. Proposed services either: may be pre-approved without consideration of specific case-by-case services by the Audit Committee ("general pre-approval"); or require the specific pre-approval of the Audit Committee or its delegate ("specific pre-approval"). The Audit Committee believes that the combination of these two approaches in this Policy will result in an effective and efficient procedure to pre-approve services performed by the Independent Auditors. As set forth in this Policy, unless a type of service has received general pre-approval, it will require specific pre-approval by the Audit Committee (or by any member of the Audit Committee to which pre-approval authority has been delegated) if it is to be provided by the Independent Auditors. Any proposed services exceeding pre-approved cost levels or budgeted amounts will also require specific pre-approval by the Audit Committee. The appendices to this Policy describe the Audit, Audit-related, Tax and All Other services that have the general pre-approval of the Audit Committee. The term of any general pre-approval is 12 months from the date of pre-approval, unless the Audit Committee considers and provides a different period and states otherwise. The Audit Committee will annually review and pre-approve the services that may be provided by the Independent Auditors without obtaining specific pre-approval from the Audit Committee. The Audit Committee will add to or subtract from the list of general pre-approved services from time to time, based on subsequent determinations. ----------- (1) This Audit Committee Audit and Non-Audit Services Pre-Approval Policy and Procedures (the "Policy"), adopted as of the date above, supersedes and replaces all prior versions that may have been adopted from time to time. 3 The purpose of this Policy is to set forth the policy and procedures by which the Audit Committee intends to fulfill its responsibilities. It does not delegate the Audit Committee's responsibilities to pre-approve services performed by the Independent Auditors to management. The Fund's Independent Auditors have reviewed this Policy and believes that implementation of the Policy will not adversely affect the Independent Auditors' independence. 2. DELEGATION As provided in the Act and the SEC's rules, the Audit Committee may delegate either type of pre-approval authority to one or more of its members. The member to whom such authority is delegated must report, for informational purposes only, any pre-approval decisions to the Audit Committee at its next scheduled meeting. 3. AUDIT SERVICES The annual Audit services engagement terms and fees are subject to the specific pre-approval of the Audit Committee. Audit services include the annual financial statement audit and other procedures required to be performed by the Independent Auditors to be able to form an opinion on the Fund's financial statements. These other procedures include information systems and procedural reviews and testing performed in order to understand and place reliance on the systems of internal control, and consultations relating to the audit. The Audit Committee will approve, if necessary, any changes in terms, conditions and fees resulting from changes in audit scope, Fund structure or other items. In addition to the annual Audit services engagement approved by the Audit Committee, the Audit Committee may grant general pre-approval to other Audit services, which are those services that only the Independent Auditors reasonably can provide. Other Audit services may include statutory audits and services associated with SEC registration statements (on Forms N-1A, N-2, N-3, N-4, etc.), periodic reports and other documents filed with the SEC or other documents issued in connection with securities offerings. The Audit Committee has pre-approved the Audit services in Appendix B.1. All other Audit services not listed in Appendix B.1 must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated). 4. AUDIT-RELATED SERVICES Audit-related services are assurance and related services that are reasonably related to the performance of the audit or review of the Fund's financial statements and, to the extent they are Covered Services, the Covered Entities or that are traditionally performed by the Independent Auditors. Because the Audit Committee believes that the provision of Audit-related services does not impair the independence of the auditor and is consistent with the SEC's rules on auditor independence, the Audit Committee may grant general pre-approval to Audit-related services. Audit-related services include, among others, accounting consultations related to accounting, financial reporting or disclosure matters 4 not classified as "Audit services"; assistance with understanding and implementing new accounting and financial reporting guidance from rulemaking authorities; agreed-upon or expanded audit procedures related to accounting and/or billing records required to respond to or comply with financial, accounting or regulatory reporting matters; and assistance with internal control reporting requirements under Forms N-SAR and/or N-CSR. The Audit Committee has pre-approved the Audit-related services in Appendix B.2. All other Audit-related services not listed in Appendix B.2 must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated). 5. TAX SERVICES The Audit Committee believes that the Independent Auditors can provide Tax services to the Fund and, to the extent they are Covered Services, the Covered Entities, such as tax compliance, tax planning and tax advice without impairing the auditor's independence, and the SEC has stated that the Independent Auditors may provide such services. Pursuant to the preceding paragraph, the Audit Committee has pre-approved the Tax Services in Appendix B.3. All Tax services in Appendix B.3 must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated). 6. ALL OTHER SERVICES The Audit Committee believes, based on the SEC's rules prohibiting the Independent Auditors from providing specific non-audit services, that other types of non-audit services are permitted. Accordingly, the Audit Committee believes it may grant general pre-approval to those permissible non-audit services classified as All Other services that it believes are routine and recurring services, would not impair the independence of the auditor and are consistent with the SEC's rules on auditor independence. The Audit Committee has pre-approved the All Other services in Appendix B.4. Permissible All Other services not listed in Appendix B.4 must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated). 7. PRE-APPROVAL FEE LEVELS OR BUDGETED AMOUNTS Pre-approval fee levels or budgeted amounts for all services to be provided by the Independent Auditors will be established annually by the Audit Committee. Any proposed services exceeding these levels or amounts will require specific pre-approval by the Audit Committee. The Audit Committee is mindful of the overall relationship of fees for audit and non-audit services in determining whether to pre-approve any such services. 8. PROCEDURES All requests or applications for services to be provided by the Independent Auditors that do not require specific approval by the Audit Committee will be submitted to the Fund's Chief Financial Officer and must include a detailed description of the services to be 5 rendered. The Fund's Chief Financial Officer will determine whether such services are included within the list of services that have received the general pre-approval of the Audit Committee. The Audit Committee will be informed on a timely basis of any such services rendered by the Independent Auditors. Requests or applications to provide services that require specific approval by the Audit Committee will be submitted to the Audit Committee by both the Independent Auditors and the Fund's Chief Financial Officer, and must include a joint statement as to whether, in their view, the request or application is consistent with the SEC's rules on auditor independence. The Audit Committee has designated the Fund's Chief Financial Officer to monitor the performance of all services provided by the Independent Auditors and to determine whether such services are in compliance with this Policy. The Fund's Chief Financial Officer will report to the Audit Committee on a periodic basis on the results of its monitoring. Both the Fund's Chief Financial Officer and management will immediately report to the chairman of the Audit Committee any breach of this Policy that comes to the attention of the Fund's Chief Financial Officer or any member of management. 9. ADDITIONAL REQUIREMENTS The Audit Committee has determined to take additional measures on an annual basis to meet its responsibility to oversee the work of the Independent Auditors and to assure the auditor's independence from the Fund, such as reviewing a formal written statement from the Independent Auditors delineating all relationships between the Independent Auditors and the Fund, consistent with Independence Standards Board No. 1, and discussing with the Independent Auditors its methods and procedures for ensuring independence. 10. COVERED ENTITIES Covered Entities include the Fund's investment adviser(s) and any entity controlling, controlled by or under common control with the Fund's investment adviser(s) that provides ongoing services to the Fund(s). Beginning with non-audit service contracts entered into on or after May 6, 2003, the Fund's audit committee must pre-approve non-audit services provided not only to the Fund but also to the Covered Entities if the engagements relate directly to the operations and financial reporting of the Fund. This list of Covered Entities would include: Morgan Stanley Retail Funds Morgan Stanley Investment Advisors Inc. Morgan Stanley & Co. Incorporated Morgan Stanley DW Inc. Morgan Stanley Investment Management Inc. Morgan Stanley Investment Management Limited Morgan Stanley Investment Management Private Limited Morgan Stanley Asset & Investment Trust Management Co., Limited Morgan Stanley Investment Management Company Van Kampen Asset Management Morgan Stanley Services Company, Inc. Morgan Stanley Distributors Inc. Morgan Stanley Trust FSB 6 Morgan Stanley Institutional Funds Morgan Stanley Investment Management Inc. Morgan Stanley Investment Advisors Inc. Morgan Stanley Investment Management Limited Morgan Stanley Investment Management Private Limited Morgan Stanley Asset & Investment Trust Management Co., Limited Morgan Stanley Investment Management Company Morgan Stanley & Co. Incorporated Morgan Stanley Distribution, Inc. Morgan Stanley AIP GP LP Morgan Stanley Alternative Investment Partners LP (e)(2) Beginning with non-audit service contracts entered into on or after May 6, 2003, the audit committee also is required to pre-approve services to Covered Entities to the extent that the services are determined to have a direct impact on the operations or financial reporting of the Registrant. 100% of such services were pre-approved by the audit committee pursuant to the Audit Committee's pre-approval policies and procedures (attached hereto). (f) Not applicable. (g) See table above. (h) The audit committee of the Board of Trustees has considered whether the provision of services other than audit services performed by the auditors to the Registrant and Covered Entities is compatible with maintaining the auditors' independence in performing audit services. Item 5. Audit Committee of Listed Registrants. (a) The Trust has a separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Exchange Act whose members are: Michael Bozic, Edwin J. Garn, Wayne E. Hedien, Manual H. Johnson, Joseph J. Kearns, Michael Nugent and Fergus Reid. (b) Not applicable Item 6. See Item 1. 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. 7 Item 8. Closed-End Fund Repurchases REGISTRANT PURCHASE OF EQUITY SECURITIES
(d) Maximum (c) Total Number (or Number of Approximate Shares (or Dollar Value) Units) of Shares (or (a) Total Purchased as Units) that May Number of Part of Publicly Yet Be Shares (or (b) Average Announced Purchased Units) Price Paid per Plans or Under the Plans Period Purchased Share (or Unit) Programs or Programs -------------------- ---------- --------------- ---------------- --------------- November 1, 2003 --- November 30, 2003 38,900 14.1637 N/A N/A December 1, 2003 --- December 31, 2003 39,500 14.1591 N/A N/A January 1, 2004 --- January 31, 2004 56,800 14.5703 N/A N/A February 1, 2004 --- February 29, 2004 43,200 14.8332 N/A N/A March 1, 2004 --- March 31, 2004 57,700 14.8856 N/A N/A April 1, 2004 --- April 30, 2004 61,400 13.9302 N/A N/A May 1, 2004 --- May 31, 2004 92,400 13.1098 N/A N/A June 1, 2004 --- June 30, 2004 61,400 13.1680 N/A N/A July 1, 2004 --- July 31, 2004 43,100 13.4786 N/A N/A August 1, 2004 --- August 31, 2004 50,700 13.8116 N/A N/A September 1, 2004 --- September 30, 2004 50,800 13.9581 N/A N/A October 1, 2004 --- October 31, 2004 59,400 13.9396 N/A N/A ------- ------- --- --- Total 655,300 14.0006 N/A N/A ------- ------- --- ---
8 Item 9. Submission of Matters to a Vote of Security Holders Not applicable. Item 10 - 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. (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 11 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. 9 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 14, 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 December 14, 2004 /s/ Francis Smith Francis Smith Principal Financial Officer December 14, 2004 10