N-CSR 1 y42456nvcsr.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) 522 Fifth Avenue, New York, New York 10036 (Address of principal executive offices) (Zip code)
Ronald E. Robison 522 Fifth Avenue, New York, New York 10036 (Name and address of agent for service) Registrant's telephone number, including area code: 212-296-6990 Date of fiscal year end: October 31, 2007 Date of reporting period: October 31, 2007 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. INCOME EARNED BY CERTAIN SECURITIES IN THE PORTFOLIO MAY BE SUBJECT TO THE FEDERAL ALTERNATIVE MINIMUM TAX (AMT). FUND REPORT For the year ended October 31, 2007 MARKET CONDITIONS Fears stemming from a residential housing downturn persisted throughout the 12-month period, hitting a peak late in the second quarter of 2007. Confronted with increasing delinquency rates on subprime loans, high-profile hedge fund collapses, and a series of subprime mortgage related credit downgrades, markets responded severely. The impact was exacerbated by an influx of forced sellers looking to liquidate assets to help meet margin calls and capital withdrawals, and a flight to quality ensued. This brought on greater concern about the impact on the financial markets, the financial system, and the broader economy, especially with regard to the effect on mortgage securities and mortgage lenders. In an effort to help ease the credit and liquidity crunch, the Federal Open Market Committee (the "Fed") elected to cut the target federal funds by 50 basis points in September and another 25 basis points in October, bringing the benchmark overnight rate to 4.50 percent. At each of these meetings the Fed acknowledged that while some upward pressure on inflation remained, the housing correction could potentially intensify and restrain growth. However, at the October meeting, they also noted that the upside risk to inflation roughly balanced the downside risk to growth, setting expectations for no further cuts in the target rate. Throughout the 12-month period, U.S. Treasury yields fluctuated, with the yield curve beginning the period relatively flat and ending the period steep. As the yield curve steepened, shorter dated U.S. Treasury yields experienced the greatest decline, while longer dated yields rose slightly. Overall, municipal bond yields ended the period higher, but most of the yield increases occurred in the intermediate to long maturity portion of the yield curve, while yields on the front end of the curve declined. As a result, the curve steepened and the spread between two-year and 30-year maturities widened to about 100 basis points. For the one-year period, municipal bonds underperformed Treasury securities. So far, 2007 has been shaping up to be record breaking year for new issuance in the municipal market, with the majority of it occurring in the development sector. California and New York continued to lead the nation in new issuance of municipal bonds. PERFORMANCE ANALYSIS For the 12-month period ended October 31, 2007, the net asset value (NAV) of Morgan Stanley Quality Municipal Investment Trust (IQT) decreased from $15.25 to $14.50 per share. Based on this change plus reinvestment of tax-free dividends totaling $0.69 per share and a long-term capital gain distribution of $0.103123 per share, the Trust's total NAV return was 0.74 percent. IQT's value on the New York Stock Exchange (NYSE) moved from $13.87 to $13.00 per share during the same period. Based on this change plus reinvestment of dividends and distributions, the Trust's total market return was -0.70 percent. IQT's NYSE market price was at a 10.34 percent discount to its NAV. During the fiscal period, the Trust purchased and retired 365,357 shares of common stock at a weighted average market discount of 7.64 percent. Past performance is no guarantee of future results. Monthly dividends for the fourth quarter of 2007, declared in September, were unchanged at $0.0575 per share. The dividend reflects the current level of the Trust's net 2 investment income. IQT's level of undistributed net investment income was $0.050 per share on October 31, 2007 versus $0.051 per share 12 months earlier.(1) Throughout the 12-month period, the Trust maintained a lower interest rate sensitivity (as measured by duration*), which was implemented through the use of a U.S. Treasury futures hedge. This defensive positioning benefited performance when rates were rising. However, in the last months of the period, as yields at the long end of the curve declined and the overall spread between short- and long-dated issues narrowed, this positioning detracted from relative performance. With regard to yield-curve positioning, we focused on the long end of the yield curve in an effort to capture more attractive yields. This strategy was also beneficial early in the period, but hindered overall performance as Fed easing in the latter months pushed short-term rates lower, causing the short end of the curve to outperform the long end for the overall period. In terms of the Trust's sector positioning, an overweight to the hospital/life care sector hindered returns. Over the course of the period, the performance of this sector waned as spreads widened. Security selection in the tobacco and health care sectors also hindered performance. Conversely, an overweight to the public utility sector, particularly water and sewer bonds, was additive to performance. The flight to quality that took place during the period helped boost the performance of the more solid infrastructure sectors such as utilities and the Trust's holdings there enhanced returns. The Trust's overall emphasis on higher quality securities was also beneficial, particularly in the latter months of the period when the higher rated segment of the market outperformed lower rated bonds. 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. ---------------------------------------------------- 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 sectors mentioned will continue to perform as discussed herein or that securities in such sectors will be held by the Trust in the future. (1) Income earned by certain securities in the portfolio may be subject to the federal alternative minimum tax (AMT). * 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. Duration calculations are adjusted for leverage. 3
TOP FIVE SECTORS Hospital 13.2% General Obligation 12.2 Water / Sewer 11.8 Transportation 10.2 Other Revenue 9.6
LONG-TERM CREDIT ANALYSIS Aaa/AAA 60.7% Aa/AA 12.5 A/A 13.5 Baa/BBB 11.7 Ba/BB 0.5 N/R 1.1
Data as of October 31, 2007. Subject to change daily. All percentages for top five sectors are as a percentage of total investments. 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. FOR MORE INFORMATION ABOUT PORTFOLIO HOLDINGS EACH MORGAN STANLEY TRUST PROVIDES A COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS IN ITS SEMIANNUAL AND ANNUAL REPORTS WITHIN 60 DAYS OF THE END OF THE TRUST'S SECOND AND FOURTH FISCAL QUARTERS. THE SEMIANNUAL REPORTS AND THE ANNUAL REPORTS ARE FILED ELECTRONICALLY WITH THE SECURITIES AND EXCHANGE COMMISSION (SEC) ON FORM N-CSRS AND FORM N-CSR, RESPECTIVELY. MORGAN STANLEY ALSO DELIVERS THE SEMIANNUAL AND ANNUAL REPORTS TO TRUST SHAREHOLDERS AND MAKES THESE REPORTS AVAILABLE ON ITS PUBLIC WEB SITE, WWW.MORGANSTANLEY.COM. EACH MORGAN STANLEY TRUST ALSO FILES A COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS WITH THE SEC FOR THE TRUST'S FIRST AND THIRD FISCAL QUARTERS ON FORM N-Q. MORGAN STANLEY DOES NOT DELIVER THE REPORTS FOR THE FIRST AND THIRD FISCAL QUARTERS TO SHAREHOLDERS, NOR ARE THE REPORTS POSTED TO THE MORGAN STANLEY PUBLIC WEB SITE. YOU MAY, HOWEVER, OBTAIN THE FORM N-Q FILINGS (AS WELL AS THE FORM N-CSR AND N-CSRS FILINGS) BY ACCESSING THE SEC'S WEB SITE, HTTP://WWW.SEC.GOV. YOU MAY ALSO REVIEW AND COPY THEM AT THE SEC'S PUBLIC REFERENCE ROOM IN WASHINGTON, DC. INFORMATION ON THE OPERATION OF THE SEC'S PUBLIC REFERENCE ROOM MAY BE OBTAINED BY CALLING THE SEC AT (800) SEC-0330. YOU CAN ALSO REQUEST COPIES OF THESE MATERIALS, UPON PAYMENT OF A DUPLICATING FEE, BY ELECTRONIC REQUEST AT THE SEC'S E-MAIL ADDRESS (PUBLICINFO@SEC.GOV) OR BY WRITING THE PUBLIC REFERENCE SECTION OF THE SEC, WASHINGTON, DC 20549-0102. 4 DISTRIBUTION BY MATURITY (% of Long-Term Portfolio) As of October 31, 2007 WEIGHTED AVERAGE MATURITY: 19 YEARS(a) 0-5 7.00 6-10 9.00 11-15 25.00 16-20 19.00 21-25 16.00 26-30 15.00 31+ 9.00
(a) Where applicable maturities reflect mandatory tenders, puts and call dates. Portfolio structure is subject to change. Summary of Investments by State Classification as of October 31, 2007 California............. 21.2% Florida................ 15.9 New York............... 15.2 Texas.................. 14.7 Georgia................ 11.2 New Jersey............. 8.3 Pennsylvania........... 7.2 Maryland............... 7.1 South Carolina......... 6.0 Kentucky............... 5.7 Washington............. 5.6 Tennessee.............. 4.5 Colorado............... 4.2 Hawaii................. 3.7 Michigan............... 3.2% Nevada................. 3.1 Alaska................. 3.1 Indiana................ 3.0 District of Columbia... 2.5 Iowa................... 1.7 Ohio................... 1.6 Utah................... 1.5 North Carolina......... 1.1 Alabama................ 1.1 Illinois............... 1.1 Nebraska............... 1.0 Missouri............... 0.9 Virginia............... 0.8 Massachusetts.......... 0.5% Idaho.................. 0.5 ----- Total Long-Term Investments+........... 157.2 Short-Term Investment............. 2.7 Liability for Floating Rate Note and Dealer Trusts Obligations..... (10.5) Other Assets in Excess of Liabilities......... 2.3 Preferred Shares of Beneficial Interest.... (51.7) ----- Net Assets Applicable to Common Shareholders.... 100.0% =====
----------------------- + Does not include open short/long futures contracts with an underlying face amount of $26,544,187, with a net unrealized depreciation of $83,884. 5 CALL AND COST (BOOK) YIELD STRUCTURE (Based on Long-Term Portfolio) As of October 31, 2007 YEARS BONDS CALLABLE -- WEIGHTED AVERAGE CALL PROTECTION: 6 YEARS 2008(a) 3.00 2009 4.00 2010 0.00(b) 2011 17.00 2012 18.00 2013 12.00 2014 17.00 2015 8.00 2016 11.00 2017+ 10.00
COST (BOOK) YIELD(C) -- WEIGHTED AVERAGE BOOK YIELD: 5.2% 2008(a) 6.90 2009 5.50 2010 5.90 2011 5.20 2012 5.20 2013 4.90 2014 5.10 2015 4.70 2016 4.90 2017+ 5.90
(a) May include issues initially callable in previous years. (b) Less than 1%. (c) 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 6.9% on 3% of the long-term portfolio that is callable in 2008. Portfolio structure is subject to change. 6 Morgan Stanley Quality Municipal Investment Trust PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2007
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE --------------------------------------------------------------------------------------------------------- Tax-Exempt Municipal Bonds (157.2%) Alabama (1.1%) $ 2,000 Jefferson County, Alabama, School Ser 2004 A............. 5.50 % 01/01/22 $ 2,143,760 ------------- Alaska (3.1%) 4,000 North Slope Borough, Alaska, Ser 2000 B (MBIA Insd)...... 0.00 06/30/09 3,766,600 3,000 Northern Tobacco Securitization Corporation, Alaska, Asset Backed Ser 2006 A................................ 5.00 06/01/46 2,552,910 ------------- 6,319,510 ------------- California (21.2%) 5,000 California, Economic Recovery, Ser 2004 A................ 5.00 07/01/16 5,252,250 3,000 California, Various Purpose dtd 05/01/03................. 5.00 02/01/24 3,112,740 3,000 California Health Facilities Financing Authority, Cedars-Sinai Medical Center Ser 2005................... 5.00 11/15/34 3,008,790 2,000 California Infrastructure & Economic Development Bank, The Scripps Research Institute Ser 2005 A.............. 5.00 07/01/29 2,058,240 3,000 California Statewide Communities Development Authority, John Muir Health Ser 2006 A............................ 5.00 08/15/32 3,013,560 3,000 Golden State Tobacco Securitization Corporation, California, Enhanced Asset Backed Ser 2005 A (AMBAC Insd).................................................. 5.00 06/01/29 3,055,800 2,000 Golden State Tobacco Securitization Corporation, California, Enhanced Asset Backed Ser 2005 A (AMBAC Insd).................................................. 5.00 06/01/45 2,006,800 4,000 Golden State Tobacco Securitization Corporation, California, Enhanced Asset Backed Ser 2007 A-1###...... 5.125 06/01/47 3,518,145 4,000 Golden State Tobacco Securitization Corporation, California, Enhanced Asset Backed Ser 2007 A-1......... 5.75 06/01/47 3,840,400 2,000 Los Angeles, California, Ser 2004 A (MBIA Insd).......... 5.00 09/01/24 2,092,980 1,920 Los Angeles Department of Water & Power, California, Water 2004 Ser C (MBIA Insd)........................... 5.00 07/01/23 2,013,754 4,000 Oxnard Financing Authority, California, Redwood Trunk Sewer & Headworks Ser 2004 A (FGIC Insd)............... 5.00 06/01/29 4,134,600 4,000 San Francisco City & County, California, Laguna Honda Hospital Ser 2005 I (FSA Insd)###...................... 5.00 06/15/30 4,137,560 2,000 Tobacco Securitization Authority of Northern California, Sacramento County Tobacco Securitization Corporation Ser 2005 A-1........................................... 5.00 06/01/37 1,768,460 ------------- 43,014,079 ------------- Colorado (4.2%) 1,585 Colorado Educational & Cultural Facilities Authority, Peak to Peak Charter School Refg & Impr Ser 2004 (XLCA Insd).................................................. 5.25 08/15/34 1,652,363 240 Colorado Housing & Finance Authority, 2000 Ser D-2 (AMT).................................................. 6.90 04/01/29 249,490
7 See Notes to Financial Statements Morgan Stanley Quality Municipal Investment Trust PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2007 continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE --------------------------------------------------------------------------------------------------------- $ 5,000 Colorado Springs, Utilities Ser 2001 A................... 5.00 % 11/15/29 $ 5,094,050 1,500 University of Colorado Hospital Authority, Ser 2006 A.... 5.00 11/15/37 1,446,885 ------------- 8,442,788 ------------- District of Columbia (2.5%) 2,000 District of Columbia Ballpark, Ser 2006 B-1 (FGIC Insd).................................................. 5.00 02/01/31 2,050,820 3,000 Metropolitan Washington Airports Authority, District of Columbia & Virginia, Ser 2004 C-1 (AMT) (FSA Insd)#.... 5.00 10/01/20 3,109,860 ------------- 5,160,680 ------------- Florida (15.9%) 6,890 Florida State Board of Education, Capital Outlay Refg Ser 2001 D................................................. 5.375 06/01/18 7,352,732 3,000 Highlands County Health Facilities Authority, Florida, Adventist Health Refg Ser 2005 C....................... 5.00 11/15/31 3,012,750 1,900 Jacksonville, Florida, Sales Tax Ser 2001 (AMBAC Insd)... 5.50 10/01/18 2,024,640 2,000 Martin County, Florida, Utilities Ser 2001 (FGIC Insd)... 5.00 10/01/26 2,050,240 1,000 Miami-Dade County, Florida, Ser 2005 A (MBIA Insd)....... 0.00## 10/01/30 769,620 8,000 South Miami Health Facilities Authority, Florida, Baptist Health Ser 2007###..................................... 5.00 08/15/42 8,027,080 1,000 St Johns, Industrial Development Authority, Florida, Glenmoor Refg 2006 Ser A............................... 5.375 01/01/40 927,340 8,000 Tampa Bay Water, Florida, Ser 2001 B (FGIC Insd)......... 5.00 10/01/31 8,123,200 ------------- 32,287,602 ------------- Georgia (11.2%) 3,000 Atlanta, Georgia, Airport Passenger Facilities Charge Airport Ser 2004 J (FSA Insd).......................... 5.00 01/01/34 3,075,120 10,000 Georgia Road & Tollway Authority, Ser 2001............... 5.375 03/01/17 10,672,700 2,000 Georgia Road & Tollway Authority, Ser 2004............... 5.00 10/01/22 2,105,460 3,000 Georgia Road & Tollway Authority, Ser 2004............... 5.00 10/01/23 3,154,800 2,000 Municipal Electric Authority of Georgia, Combustion Turbine Ser 2002 A (MBIA Insd)......................... 5.25 11/01/21 2,122,520 1,500 Municipal Electric Authority of Georgia, Combustion Turbine Ser 2002 A (MBIA Insd)......................... 5.25 11/01/22 1,591,890 ------------- 22,722,490 ------------- Hawaii (3.7%) 7,000 Hawaii, Airports Second Ser of 1991 (AMT) (ETM).......... 6.90 07/01/12 7,562,870 ------------- Idaho (0.5%) 1,000 Madison County Industrial Development Authority, Idaho, Madison Memorial Hospital Ser 2006 COPs................ 5.25 09/01/37 962,770 -------------
8 See Notes to Financial Statements Morgan Stanley Quality Municipal Investment Trust PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2007 continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE --------------------------------------------------------------------------------------------------------- Illinois (1.1%) $ 2,000 Chicago, Illinois, O'Hare Int'l Airport Third Lien Ser 2003 B-2 (AMT) (FSA Insd).............................. 5.75 % 01/01/23 $ 2,139,840 ------------- Indiana (3.0%) 3,000 Indiana Health & Educational Facility Financing Authority, Clarian Health Ser 2006 A................... 5.25 02/15/40 3,029,880 3,000 Indiana Health Facilities Financing Authority, Community Health Ser 2005 A (AMBAC Insd)......................... 5.00 05/01/35 3,064,890 ------------- 6,094,770 ------------- Iowa (1.7%) 1,275 Coralville, Iowa, Urban Renewal Ser 2007 C............... 5.00 06/01/47 1,180,446 2,200 Coralville, Iowa, Marriot Hotel & Convention Center Ser 2006 D COPs............................................ 5.25 06/01/26 2,261,094 ------------- 3,441,540 ------------- Kentucky (5.7%) 5,000 Louisville & Jefferson County Metropolitan Sewer District, Kentucky, Ser 1999 A (FGIC Insd)............. 5.75 05/15/33 5,227,750 2,925 Louisville & Jefferson County Metropolitan Sewer District, Kentucky, Ser 2001 A (MBIA Insd)............. 5.375 05/15/20 3,125,041 3,075 Louisville & Jefferson County Metropolitan Sewer District, Kentucky, Ser 2001 A (MBIA Insd)............. 5.375 05/15/21 3,273,983 ------------- 11,626,774 ------------- Maryland (7.1%) 1,000 Baltimore County, Maryland, Oak Crest Village Ser 2007 A...................................................... 5.00 01/01/37 962,090 1,500 Maryland Health & Higher Educational Facilities Authority, King Farm Presbyterian Community 2006 Ser B...................................................... 5.00 01/01/17 1,463,835 3,000 Maryland Health & Higher Educational Facilities Authority, Medstar Health Refg Ser 2004................ 5.375 08/15/24 3,088,200 2,500 Maryland Health & Higher Educational Facilities Authority, University of Maryland Medical Ser 2001..... 5.25 07/01/11+ 2,649,650 2,000 Maryland Health & Higher Educational Facilities Authority, University of Maryland Medical Ser 2002..... 5.75 07/01/12+ 2,189,840 1,000 Maryland Health & Higher Educational Facilities Authority, University of Maryland Medical Ser 2006 A... 5.00 07/01/41 985,500 3,000 Northeast Maryland Waste Disposal Authority, Montgomery County Ser 2003 (AMT) (AMBAC Insd)..................... 5.50 04/01/16 3,197,250 ------------- 14,536,365 -------------
9 See Notes to Financial Statements Morgan Stanley Quality Municipal Investment Trust PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2007 continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE --------------------------------------------------------------------------------------------------------- Massachusetts (0.5%) $ 575 Massachusetts Bay Transportation Authority, Assess 2000 Ser A.................................................. 5.25 % 07/01/10+ $ 601,645 415 Massachusetts Bay Transportation Authority, Assess 2000 Ser A.................................................. 5.25 07/01/30 428,612 ------------- 1,030,257 ------------- Michigan (3.2%) 3,000 Michigan State Hospital Finance Authority, Henry Ford Health Refg Ser 2006 A................................. 5.25 11/15/46 3,031,770 3,500 Michigan Strategic Fund, Detroit Edison Co Ser 2001 C.... 5.45 09/01/29 3,577,805 ------------- 6,609,575 ------------- Missouri (0.9%) 915 Fenton, Missouri, Gravois Bluffs Refg Ser 2006........... 4.50 04/01/21 920,389 1,000 Missouri Health & Educational Facilities Authority, Lutheran Senior Services Ser 2005 A.................... 5.375 02/01/35 1,005,270 ------------- 1,925,659 ------------- Nebraska (1.0%) 2,000 Nebraska Public Power District, Ser 2005 C (FGIC Insd)... 5.00 01/01/41 2,050,400 ------------- Nevada (3.1%) 2,000 Clark County, Nevada, Airport Sub Lien Ser 2004 A (AMT) (FGIC Insd)............................................ 5.50 07/01/22 2,112,780 2,925 Las Vegas Water District, Nevada, Impr and Refg Ser 2003 A (FGIC Insd).......................................... 5.25 06/01/22 3,106,789 1,000 Reno, Nevada, Renown Regional Medical Center Ser 2007 A...................................................... 5.25 06/01/37 1,008,570 ------------- 6,228,139 ------------- New Jersey (8.3%) 1,000 New Jersey Economic Development Authority, Cigarette Tax Ser 2004............................................... 5.75 06/15/34 1,051,840 5,000 New Jersey Turnpike Authority, Ser 2003 A (AMBAC Insd)... 5.00 01/01/30 5,140,150 7,000 New Jersey, 2001 Ser H*.................................. 5.25 07/01/19 7,723,030 3,000 Tobacco Settlement Financing Corporation, New Jersey, Ser 2007-1A................................................ 4.625 06/01/26 2,648,550 3,000 Tobacco Settlement Financing Corporation, New Jersey, Ser 2007-1B................................................ 0.00 06/01/41 331,800 ------------- 16,895,370 ------------- New York (15.2%) 2,000 Long Island Power Authority, New York, Ser 2004 A (AMBAC Insd).................................................. 5.00 09/01/34 2,060,280 3,000 Metropolitan Transportation Authority, New York, State Service Contract Refg Ser 2002 B (MBIA Insd)........... 5.50 07/01/20 3,230,010 3,000 Metropolitan Transportation Authority, New York, State Service Contract Ser 2002 A (MBIA Insd)................ 5.50 01/01/19 3,230,010
10 See Notes to Financial Statements Morgan Stanley Quality Municipal Investment Trust PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2007 continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE --------------------------------------------------------------------------------------------------------- $ 3,000 Nassau County Tobacco Settlement Corporation, New York, Asset Backed Ser 2006 A-3.............................. 5.125% 06/01/46 $ 2,852,670 2,000 New York City Industrial Development Agency, Yankee Stadium Ser 2006 (FGIC Insd)........................... 5.00 03/01/46 2,047,920 4,000 New York City Municipal Water Finance Authority, 1998 Ser D (MBIA Insd).......................................... 4.75 06/15/25 4,025,560 5,000 New York City Municipal Water Finance Authority, 2002 Ser G (FSA Insd)........................................... 5.00 06/15/34 5,085,800 3,000 New York City Municipal Water Finance Authority, 2003 Ser A...................................................... 5.375 06/15/18 3,209,580 2,000 New York City Transitional Finance Authority, Refg 2003 Ser A.................................................. 5.50## 11/01/26 2,127,900 2,000 New York State Energy & Research Development Authority, Brooklyn Union Gas Co 1991 Ser B (AMT)................. 8.55++ 07/01/26 2,119,000 1,000 Seneca Nation of Indians, New York, Ser 2007 A**......... 5.00 12/01/23 953,800 ------------- 30,942,530 ------------- North Carolina (1.1%) 1,100 North Carolina Medical Care Commission, Salemtowne Refg Ser 2006............................................... 5.10 10/01/30 1,014,772 1,200 University of North Carolina, Chapel Hill Ser 2003....... 5.00 12/01/24 1,251,804 ------------- 2,266,576 ------------- Ohio (1.6%) 3,000 Lorain County, Ohio, Catholic Healthcare Partners Ser 2001 A................................................. 5.75 10/01/18 3,175,530 ------------- Pennsylvania (7.2%) 2,000 Allegheny County Development Authority, Pennsylvania, West Penn Allegheny Health Ser 2007 A###............... 5.375 11/15/40 1,928,200 5,000 Lehigh County General Purpose Authority, Pennsylvania, St Luke's Hospital of Bethlehem Ser 2003.................. 5.25 08/15/13+ 5,409,700 5,000 Pennsylvania Turnpike Commission, Ser 2004 A (AMBAC Insd).................................................. 5.00 12/01/34 5,150,000 2,000 Pennsylvania, First Ser 2003 (MBIA Insd)###.............. 5.00 01/01/13+ 2,134,240 ------------- 14,622,140 ------------- South Carolina (6.0%) 3,000 Charleston Educational Excellence Financing Corporation, South Carolina, Charleston County School District Ser 2005................................................... 5.25 12/01/29 3,139,560 40 Lexington County, South Carolina, Health Services District Inc., Lexington Medical Center Ser 2007....... 5.00 11/01/16 41,647 205 Richland County Environmental Improvement, South Carolina, 2007 Refg Ser A.............................. 4.60 09/01/12 206,712 55 South Carolina Public Service Authority, Santee Cooper, 1997 Refg Ser A (MBIA Insd)............................ 5.00 01/01/08+ 55,683 1,945 South Carolina Public Service Authority, Santee Cooper, 1997 Refg Ser A (MBIA Insd)............................ 5.00 01/01/29 1,967,231
11 See Notes to Financial Statements Morgan Stanley Quality Municipal Investment Trust PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2007 continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE --------------------------------------------------------------------------------------------------------- $ 1,500 South Carolina Public Service Authority, Santee Cooper, 2002 Refg Ser A (FSA Insd)............................. 5.125% 01/01/20 $ 1,589,490 1,000 South Carolina Public Service Authority, Santee Cooper, 2002 Refg Ser A (FSA Insd)............................. 5.125 01/01/21 1,057,340 4,000 South Carolina Public Service Authority, Santee Cooper, 2003 Refg Ser A (AMBAC Insd)........................... 5.00 01/01/27 4,138,840 ------------- 12,196,503 ------------- Tennessee (4.5%) 5,000 Sullivan County Health Educational & Housing Facilities Board, Tennessee, Wellmont Health Ser 2006 C........... 5.25 09/01/36 4,937,400 4,000 Tennessee Energy Acquisition Corporation, Ser 2006 A###................................................... 5.25 09/01/19 4,140,680 ------------- 9,078,080 ------------- Texas (14.7%) 3,910 Aldine Independent School District, Texas, Bldg & Refg Ser 2001 (PSF)......................................... 5.00 02/15/11+ 4,091,111 1,090 Aldine Independent School District, Texas, Bldg & Refg Ser 2001 (PSF)......................................... 5.00 02/15/26 1,120,509 2,000 Alliance Airport Authority, Texas, Federal Express Corp Refg Ser 2006 (AMT).................................... 4.85 04/01/21 1,974,880 1,000 Austin, Texas, Water & Wastewater ROLS RR II R - 674 (FSA Insd).................................................. 9.614++ 05/15/27 1,092,420 5,000 Dallas-Fort Worth International Airport, Texas, Ser 2003 A (AMT) (FSA Insd)..................................... 5.375 11/01/22 5,211,300 10,000 Houston, Texas, Combined Utility First Lien Refg 2004 Ser A (FGIC Insd).......................................... 5.25 05/15/23 10,635,900 4,500 Houston, Texas, Combined Utility First Lien Refg 2004 Ser A (MBIA Insd).......................................... 5.25 05/15/25 4,765,545 1,000 Tarrant County Cultural Educational Facilities Finance Corp, Texas, Air Force Village II Inc Ser 2007......... 5.125 05/15/37 964,610 ------------- 29,856,275 ------------- Utah (1.5%) 3,000 Salt Lake City, Utah, IHC Hospital Inc Refg Ser 1991 (AMBAC Insd)........................................... 9.312++ 05/15/20 3,015,390 ------------- Virginia (0.8%) 1,750 Fairfax County Economic Development Authority, Virginia, Residential Care Facilities, Goodwin House Inc Ser 2007................................................... 5.125 10/01/37 1,705,498 ------------- Washington (5.6%) 2,000 Grant County Public Utilities District #2, Washington, Wanapum 2005 Ser A (FGIC Insd)......................... 5.00 01/01/29 2,063,660 2,000 Lewis County Public Utility District #1, Washington, Cowlitz Falls Refg Ser 2003 (MBIA Insd)................ 5.00 10/01/22 2,085,540
12 See Notes to Financial Statements Morgan Stanley Quality Municipal Investment Trust PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2007 continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE --------------------------------------------------------------------------------------------------------- $ 4,010 Port of Seattle, Washington, Passenger Facility Ser 1998 A (MBIA Insd)###....................................... 5.00 % 12/01/23 $ 4,074,600 3,000 Port of Seattle, Washington, Sub Lien Ser 1999 A (FGIC Insd).................................................. 5.25 09/01/22 3,168,570 ------------- 11,392,370 ------------- Total Tax-Exempt Municipal Bonds (Cost $312,689,015)........................ 319,446,130 -------------
NUMBER OF SHARES (000) ------------ Short-Term Investment (a) (2.7%) Investment Company 5,539 Morgan Stanley Institutional Liquidity Tax-Exempt Portfolio - Institutional Class (Cost $5,538,986)....................................................... 5,538,986 ------------ Total Investments (Cost $318,228,001)........................................... 324,985,116 ------------ PRINCIPAL AMOUNT IN THOUSANDS ------------ Floating Rate Note and Dealer Trusts Obligations Related to Securities Held (-10.5%) $(21,175) Notes with interest rates ranging from 3.47% to 3.54% at October 31, 2007 and contractual maturities of collateral ranging from 01/01/13 to 06/01/47 (See Note 1D)+++ (Cost $(21,312,560)).............................................. (21,312,560) ------------
Total Net Investments (Cost $296,915,441) (b) (c).................... 149.4% 303,672,556 Other Assets in Excess of Liabilities................................ 2.3 4,614,759 Preferred Shares of Beneficial Interest.............................. (51.7) (105,000,000) ----- ------------- Net Assets Applicable to Common Shareholders......................... 100.0% $ 203,287,315 ===== =============
--------------------- Note: The categories of investments are shown as a percentage of net assets applicable to common shareholders. AMT Alternative Minimum Tax. COPs Certificates of Participation. ETM Escrowed to Maturity. PSF Texas Permanent School Fund Guarantee Program. ROLS Reset Option Longs. + Prerefunded to call date shown. ++ Current coupon rate for inverse floating rate municipal obligations (See Note 8). This rate resets periodically as the auction rate on the related security changes. Position in inverse floating rate municipal obligations have a total value of $6,226,810 which represents 3.1% of net assets applicable to common shareholders. +++ Floating rate note obligations related to securities held. The interest rates shown reflect the rates in effect at October 31, 2007.
13 See Notes to Financial Statements Morgan Stanley Quality Municipal Investment Trust PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2007 continued # Joint exemption in locations shown. ## Security is a "step-up" bond where the coupon increases on a pre-determined future date. ### Underlying security related to inverse floater entered into by the Trust (See Note 1D). * All or a portion of this security has been physically segregated in connection with open futures contracts in the amount of $106,220. ** Resale is restricted to qualified institutional investors. (a) See Note 3 to the financial statements regarding investments in Morgan Stanley Institutional Liquidity Tax-Exempt Portfolio - Institutional Class. (b) Securities have been designated as collateral in an amount equal to $26,390,496 in connection with open futures contracts. (c) The aggregate cost for federal income tax purposes is $296,911,182. The aggregate gross unrealized appreciation is $9,804,920 and the aggregate gross unrealized depreciation is $3,043,546, resulting in net unrealized appreciation of $6,761,374. 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 Assurance Inc.
FUTURES CONTRACTS OPEN AT OCTOBER 31, 2007:
UNREALIZED NUMBER OF DESCRIPTION, DELIVERY UNDERLYING FACE APPRECIATION CONTRACTS LONG/SHORT MONTH AND YEAR AMOUNT AT VALUE (DEPRECIATION) ------------------------------------------------------------------------------------------ 28 Long U.S. Treasury Bonds 20 $ 3,152,625 $(19,808) Year December 2007 5 Long U.S. Treasury Notes 10 550,078 1,845 Year December 2007 3 Short U.S. Treasury Notes 2 (621,328) 1,023 Year December 2007 207 Short U.S. Treasury Notes 5 (22,220,156) (66,944) Year December 2007 -------- Net Unrealized Depreciation..................... $(83,884) ========
14 See Notes to Financial Statements Morgan Stanley Quality Municipal Investment Trust FINANCIAL STATEMENTS Statement of Assets and Liabilities October 31, 2007 Assets: Investments in securities, at value (cost $312,689,015)..... $319,446,130 Investment in affiliate, at value (cost $5,538,986)......... 5,538,986 Receivable for: Interest................................................ 4,802,786 Variation margin........................................ 67,430 Dividends from affiliate................................ 17,457 Prepaid expenses and other assets........................... 17,099 ------------ Total Assets............................................ 329,889,888 ------------ Liabilities: Floating rate note and dealer trusts obligations............ 21,312,560 Payable for: Investment advisory fee................................. 74,422 Common shares of beneficial interest repurchased........ 48,307 Administration fee...................................... 22,385 Transfer agent fee...................................... 1,129 Accrued expenses and other payables......................... 143,770 ------------ Total Liabilities....................................... 21,602,573 ------------ Preferred shares of beneficial interest, (at liquidation value), (1,000,000 shares authorized of non-participating $.01 par value, 2,100 shares outstanding)................. 105,000,000 ------------ Net Assets Applicable to Common Shareholders............ $203,287,315 ============ Composition of Net Assets Applicable to Common Shareholders: Common shares of beneficial interest (unlimited shares authorized of $.01 par value, 14,018,587 shares outstanding).............................................. $196,123,764 Net unrealized appreciation................................. 6,673,231 Accumulated undistributed net investment income............. 701,490 Accumulated net realized loss............................... (211,170) ------------ Net Assets Applicable to Common Shareholders............ $203,287,315 ============ Net Asset Value Per Common Share ($203,287,315 divided by 14,018,587 common shares outstanding)................................................ $14.50 ============
15 See Notes to Financial Statements Morgan Stanley Quality Municipal Investment Trust FINANCIAL STATEMENTS continued Statement of Operations For the year ended October 31, 2007 Net Investment Income: Income Interest.................................................... $16,041,988 Dividends from affiliate.................................... 80,344 ----------- Total Income............................................ 16,122,332 ----------- Expenses Investment advisory fee..................................... 853,323 Interest and residual trust expenses........................ 749,073 Auction commission fees..................................... 262,800 Administration fee.......................................... 252,836 Shareholder reports and notices............................. 69,204 Professional fees........................................... 65,756 Listing fees................................................ 20,879 Auction agent fees.......................................... 18,808 Custodian fees.............................................. 17,051 Trustees' fees and expenses................................. 11,246 Transfer agent fees and expenses............................ 3,665 Other....................................................... 53,676 ----------- Total Expenses.......................................... 2,378,317 Less: amounts waived/reimbursed............................. (2,302) Less: expense offset........................................ (16,612) ----------- Net Expenses............................................ 2,359,403 ----------- Net Investment Income................................... 13,762,929 ----------- Net Realized and Unrealized Loss: Net Realized Loss on: Investments................................................. (195,711) Futures contracts........................................... (93,008) ----------- Net Realized Loss....................................... (288,719) ----------- Net Change in Unrealized Appreciation/Depreciation on: Investments................................................. (9,246,504) Futures contracts........................................... (6,293) ----------- Net Change in Unrealized Appreciation/Depreciation...... (9,252,797) ----------- Net Loss................................................ (9,541,516) ----------- Dividends to preferred shareholders from net investment income.................................................... (3,991,260) ----------- Net Increase................................................ $ 230,153 ===========
16 See Notes to Financial Statements Morgan Stanley Quality Municipal Investment Trust FINANCIAL STATEMENTS continued Statements of Changes in Net Assets
FOR THE YEAR FOR THE YEAR ENDED ENDED OCTOBER 31, 2007 OCTOBER 31, 2006 ---------------- ---------------- Increase (Decrease) in Net Assets: Operations: Net investment income....................................... $ 13,762,929 $ 13,947,601 Net realized gain (loss).................................... (288,719) 1,760,316 Net change in unrealized appreciation/depreciation.......... (9,252,797) 3,239,961 Dividends to preferred shareholders from net investment income.................................................... (3,991,260) (2,992,444) ------------ ------------ Net Increase............................................ 230,153 15,955,434 ------------ ------------ Dividends and Distributions to Common Shareholders from: Net investment income....................................... (9,798,457) (11,664,267) Net realized gain........................................... (1,480,096) (5,899,733) ------------ ------------ Total Dividends and Distributions....................... (11,278,553) (17,564,000) ------------ ------------ Decrease from transactions in common shares of beneficial interest.................................................. (5,007,030) (8,463,549) ------------ ------------ Net Decrease............................................ (16,055,430) (10,072,115) Net Assets Applicable to Common Shareholders: Beginning of period......................................... 219,342,745 229,414,860 ------------ ------------ End of Period (Including accumulated undistributed net investment income of $701,490 and $728,282, respectively)..................... $203,287,315 $219,342,745 ============ ============
17 See Notes to Financial Statements Morgan Stanley Quality Municipal Investment Trust NOTES TO FINANCIAL STATEMENTS - OCTOBER 31, 2007 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; (3) investments in open-end mutual funds, including the Morgan Stanley Institutional Liquidity Funds, are valued at the net asset value as of the close of each business day; and (4) 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 18 Morgan Stanley Quality Municipal Investment Trust NOTES TO FINANCIAL STATEMENTS - OCTOBER 31, 2007 continued 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 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. Floating Rate Note and Dealer Trusts Obligations Related to Securities Held -- The Trust enters into transactions in which it transfers to Dealer Trusts ("Dealer Trusts"), fixed rate bonds in exchange for cash and residual interests in the Dealer Trusts' assets and cash flows, which are in the form of inverse floating rate investments. The Dealer Trusts fund the purchases of the fixed rate bonds by issuing floating rate notes to third parties and allowing the Trust to retain residual interest in the bonds. The Trust enters into shortfall agreements with the Dealer Trusts which commit the Trust to pay the Dealer Trusts, in certain circumstances, the difference between the liquidation value of the fixed rate bonds held by the Dealer Trusts and the liquidation value of the floating rate notes held by third parties, as well as any shortfalls in interest cash flows. The residual interests held by the Trust (inverse floating rate investments) include the right of the Trust (1) to cause the holders of the floating rate notes to tender their notes at par at the next interest rate reset date, and (2) to transfer the municipal bond from the Dealer Trusts to the Trust, thereby collapsing the Dealer Trusts. The Trust accounts for the transfer of bonds to the Dealer Trusts as secured borrowings, with the securities transferred remaining in the Trust's investment assets, and the related floating rate notes reflected as Fund liabilities under the caption "floating rate note and dealer trusts obligations" on the Statement of Assets and Liabilities. The Trust records the interest income from the fixed rate bonds under the caption "Interest Income" and records the expenses related to floating rate note obligations and any administrative expenses of the Dealer Trusts under the caption "Interest and residual trust expenses" in the Trust's Statement of Operations. The notes issued by the Dealer Trusts have interest rates that reset weekly and the floating rate note holders have the option to tender their notes to the Dealer Trusts for redemption at par at each reset date. At October 31, 2007, Trust investments with a value of $27,960,505 are held by the Dealer Trusts and serve as collateral for the $21,312,560 in floating rate note and dealer trusts obligations outstanding at that date. Contractual maturities of the floating rate note obligations and interest rates in effect at October 31, 2007 are presented in the Portfolio of Investments. E. 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 19 Morgan Stanley Quality Municipal Investment Trust NOTES TO FINANCIAL STATEMENTS - OCTOBER 31, 2007 continued taxable and nontaxable income to its shareholders. Accordingly, no federal income tax provision is required. F. Dividends and Distributions to Shareholders -- Dividends and distributions to shareholders are recorded on the ex-dividend date. G. 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 Advisory/Administration Agreements Pursuant to an Investment Advisory Agreement with Morgan Stanley Investment Advisors Inc. (the "Investment Adviser"), the Trust pays an advisory fee, calculated weekly and payable monthly, by applying the annual rate of 0.27% to the Trust's weekly total net assets including preferred shares. Pursuant to an Administration Agreement with Morgan Stanley Services Company Inc. (the "Administrator"), an affiliate of the Investment Adviser, the Trust pays an administration fee, calculated weekly and payable monthly, by applying the annual rate of 0.08% to the Trust's weekly total net assets including preferred shares. Under an agreement between the Administrator and State Street Bank and Trust Company ("State Street"), State Street provides certain administrative services to the Trust. For such services, the Administrator pays State Street a portion of the fee the Administrator receives from the Trust. 3. Security Transactions and Transactions with Affiliates The Trust invests in Morgan Stanley Institutional Liquidity Tax-Exempt Portfolio -- Institutional Class, an open-end management investment company managed by the Investment Adviser. Investment advisory fees paid by the Trust are reduced by an amount equal to the advisory and administrative services fees paid by Morgan Stanley Institutional Liquidity Tax-Exempt Portfolio -- Institutional Class with respect to assets invested by the Trust in Morgan Stanley Institutional Liquidity Tax-Exempt Portfolio -- Institutional Class. For the year ended October 31, 2007, advisory fees paid were reduced by $2,302 relating to the Trust's investment in Morgan Stanley Institutional Liquidity Tax-Exempt Portfolio -- Institutional Class. Income distributions earned by the Trust are recorded as dividends from affiliate in the Statement of Operations and totaled $80,344 for the year ended October 31, 2007. During the year ended October 31, 2007, cost of purchases and sales in investments in Morgan Stanley Institutional Liquidity Tax-Exempt Portfolio -- Institutional Class aggregated $15,564,123 and $10,025,137, respectively. 20 Morgan Stanley Quality Municipal Investment Trust NOTES TO FINANCIAL STATEMENTS - OCTOBER 31, 2007 continued The cost of purchases and proceeds from sales of portfolio securities, excluding short-term investments, for the year ended October 31, 2007 aggregated $35,617,723 and $32,780,044, respectively. Effective September 28, 2007, the transfer agent services previously provided to the Trust by Morgan Stanley Trust was assumed by Computershare Trust Company, N.A. (the "Transfer Agent"). The Trust has an unfunded noncontributory defined benefit pension plan covering certain independent Trustees of the Trust who will have served as independent Trustees for at least five years at the time of retirement. Benefits under this plan are based on factors which include years of service and compensation. 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. Aggregate pension costs for the year ended October 31, 2007 included in Trustees' fees and expenses in the Statement of Operations amounted to $5,303. At October 31, 2007, the Trust had an accrued pension liability of $56,977 which is included in accrued expenses in the Statement of Assets and Liabilities. The Trust has 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 or she 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. 21 Morgan Stanley Quality Municipal Investment Trust NOTES TO FINANCIAL STATEMENTS - OCTOBER 31, 2007 continued 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 3.65% 11/07/07 3.48%- 4.25% B 700 35,000 3.50 11/02/07 3.40- 4.05
--------------------- * As of October 31, 2007. ** For the year ended October 31, 2007. Subsequent to October 31, 2007 and up through December 7, 2007 the Trust paid dividends to Series A and B at rates ranging from 3.50% to 4.50% in the aggregate amount of $411,726. 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, 2005................................... 15,004,944 $150,049 $209,444,294 Treasury shares purchased and retired (weighted average discount 8.88%)*.......................................... (621,000) (6,210) (8,457,339) ---------- -------- ------------ Balance, October 31, 2006................................... 14,383,944 143,839 200,986,955 Treasury shares purchased and retired (weighted average discount 7.64%)*.......................................... (365,357) (3,653) (5,003,377) ---------- -------- ------------ Balance, October 31, 2007................................... 14,018,587 $140,186 $195,983,578 ========== ======== ============
--------------------- * The Trustees have voted to retire the shares purchased. 6. Dividends to Common Shareholders On September 25, 2007, the Trust declared the following dividends from net investment income:
AMOUNT RECORD PAYABLE PER SHARE DATE DATE --------- ---------------- ----------------- $0.0575 November 9, 2007 November 23, 2007 $0.0575 December 7, 2007 December 21, 2007
22 Morgan Stanley Quality Municipal Investment Trust NOTES TO FINANCIAL STATEMENTS - OCTOBER 31, 2007 continued 7. Expense Offset The expense offset represents a reduction of the fees and expenses for interest earned on cash balances maintained by the Trust with the transfer agent and custodian. 8. Purposes of and Risks Relating to Certain Financial Instruments The Trust may invest a portion of its assets in inverse floating rate instruments, either through outright purchases of inverse floating rate securities or through the transfer of bonds to a Dealer Trusts in exchange for cash and residual interests in the Dealer Trusts. (See Note 1D.) These investments are typically used by the Trust in seeking to enhance the yield of the portfolio. These instruments typically involve greater risks than a fixed rate municipal bond. In particular, these instruments are acquired through leverage or may have leverage embedded in them and therefore involve many of the risks associated with leverage. Leverage is a speculative technique that may expose the Trust to greater risk and increased costs. Leverage may cause the Trust's net asset value to be more volatile than if it had not been leveraged because leverage tends to magnify the effect of any increases or decreases in the value of the Trust's portfolio securities. The use of leverage may also cause the Trust to liquidate portfolio positions when it may not be advantageous to do so in order to satisfy its obligations with respect to inverse floating rate instruments. 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. 23 Morgan Stanley Quality Municipal Investment Trust NOTES TO FINANCIAL STATEMENTS - OCTOBER 31, 2007 continued The tax character of distributions paid was as follows:
FOR THE YEAR FOR THE YEAR ENDED ENDED OCTOBER 31, 2007 OCTOBER 31, 2006 ---------------- ---------------- Tax-exempt income........................................... $13,838,049 $14,542,780 Ordinary income............................................. -- 578,517 Long-term capital gains..................................... 1,480,092 5,508,731 ----------- ----------- Total distributions......................................... $15,318,141 $20,630,028 =========== ===========
As of October 31, 2007, the tax-basis components of accumulated earnings were as follows: Undistributed tax-exempt income............................. $ 756,003 Undistributed long-term gains............................... -- ----------- Net accumulated earnings.................................... 756,003 Capital loss carryforward*.................................. (294,956) Temporary differences....................................... (58,870) Net unrealized appreciation................................. 6,761,374 ----------- Total accumulated earnings.................................. $ 7,163,551 ===========
--------------------- * As of October 31, 2007, the Trust had a net capital loss carryforward of $294,956 which will expire on October 31, 2015 to offset future capital gains to the extent provided by regulations. As of October 31, 2007, the Trust had temporary book/tax differences primarily attributable to book amortization of discounts on debt securities and mark-to-market of open futures contracts. 10. Accounting Pronouncements In July 2006, the Financial Accounting Standards Board (FASB) issued Interpretation 48, Accounting for Uncertainty in Income Taxes -- an interpretation of FASB Statement 109 (FIN 48). FIN 48 clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position must meet before being recognized in the financial statements. FIN 48 is effective for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of the effective date. The impact to the Trust's financial statements, if any, is currently being assessed. In addition, in September 2006, Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157), was issued and is effective for fiscal years beginning after November 15, 2007. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management is currently evaluating the impact the adoption of SFAS 157 will have on the Trust's financial statement disclosures. 24 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, --------------------------------------------------------------------- 2007 2006 2005 2004 2003 --------- --------- --------- --------- --------- Selected Per Share Data: Net asset value, beginning of period................. $15.25 $15.29 $15.64 $15.36 $15.23 ------ ------ ------ ------ ------ Income (loss) from investment operations: Net investment income*........................... 0.97 0.93 0.95 0.96 1.01 Net realized and unrealized gain (loss).......... (0.68) 0.36 (0.29) 0.30 0.25 Common share equivalent of dividends paid to preferred shareholders*.......................... (0.28) (0.20) (0.14) (0.12) (0.11) ------ ------ ------ ------ ------ Total income from investment operations.............. 0.01 1.09 0.52 1.14 1.15 ------ ------ ------ ------ ------ Less dividends and distributions from: Net investment income............................ (0.69) (0.79) (0.81) (0.89) (0.96) Net realized gain................................ (0.10) (0.40) (0.13) (0.03) (0.09) ------ ------ ------ ------ ------ Total dividends and distributions.................... (0.79) (1.19) (0.94) (0.92) (1.05) ------ ------ ------ ------ ------ Anti-dilutive effect of acquiring treasury shares*... 0.03 0.06 0.07 0.06 0.03 ------ ------ ------ ------ ------ Net asset value, end of period....................... $14.50 $15.25 $15.29 $15.64 $15.36 ====== ====== ====== ====== ====== Market value, end of period.......................... $13.00 $13.87 $13.62 $13.99 $14.22 ====== ====== ====== ====== ====== Total Return+........................................ (0.70)% 11.12% 4.24% 5.05% 8.66% Ratios to Average Net Assets of Common Shareholders: Total expenses (before expense offset)............... 1.13%(1)(2) 0.93%(1) 0.85%(1) 0.84%(1) 0.79%(1) Total expenses (before expense offset, exclusive of interest and residual trust expenses)............... 0.77%(1)(2) 0.85%(1) 0.85%(1) 0.84%(1) 0.79%(1) Net investment income before preferred stock dividends........................................... 6.55%(2) 6.34% 6.15% 6.23% 6.54% Preferred stock dividends............................ 1.90% 1.36% 0.93% 0.80% 0.71% Net investment income available to common shareholders........................................ 4.65%(2) 4.98% 5.22% 5.43% 5.83% Supplemental Data: Net assets applicable to common shareholders, end of period, in thousands................................ $203,287 $219,343 $229,415 $244,137 $249,852 Asset coverage on preferred shares at end of period.............................................. 294% 309% 318% 332% 338% Portfolio turnover rate.............................. 10% 17% 18% 25% 21%
--------------------- * 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%. (2) Reflects waivers of certain Trust expenses in connection with the investments in Morgan Stanley Institutional Liquidity Tax-Exempt Portfolio -- Institutional Class during the period. As a result of such waivers the expenses as a percentage of its net assets had an effect of less than 0.005%.
25 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, 2007, 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. The Trust is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Trust's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2007, by correspondence with the custodian and brokers. 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, 2007, 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 24, 2007 26 Morgan Stanley Quality Municipal Investment Trust SHAREHOLDER VOTING RESULTS (UNAUDITED) On October 24, 2007, 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 by all Shareholders:
----------------------------------------------- FOR WITHHELD ABSTAIN ----------------------------------------------- Michael F. Klein............................................ 12,962,318 367,962 0 W. Allen Reed............................................... 12,963,641 366,639 0
Election of Trustee by Preferred Shareholders:
----------------------------------------------- FOR WITHHELD ABSTAIN ----------------------------------------------- Michael E. Nugent........................................... 1,957 20 0
27 Morgan Stanley Quality Municipal Investment Trust PORTFOLIO MANAGEMENT/REVISED INVESTMENT POLICY (UNAUDITED) Portfolio Management As of the date of this report, the Trust is managed within the Morgan Stanley Municipals team. The team consists of portfolio managers and analysts. Current members of the team jointly and primarily responsible for the day-to-day management of the Trust's portfolio are Steven K. Kreider and Neil Stone, each a Managing Director of the Investment Adviser. Revised Investment Policy To the extent permitted by applicable law and the Trust's investment objectives, policies, and restrictions, the Trust may invest all or some of its short-term cash investments in any money market fund advised or managed by the Investment Adviser or its affiliates. In connection with any such investments, the Trust, to the extent permitted by the Investment Company Act, will pay its share of all expenses (other than advisory and administrative fees) of a money market fund in which it invests which may result in the Trust bearing some additional expenses. The Board of Trustees Approved a Clarification in the Investment Policies Discussed Below The Trust may invest in put and call options and futures on its portfolio securities. The Trust may use options and futures to protect against a decline in the Trust's securities or an increase in prices of securities that may be purchased or to adjust the Trust's yield curve exposure. If the Trust invests in options and/or futures, its participation in these markets would subject the Trust's portfolio to certain risks. If the Investment Adviser's predictions of movements in the direction of the markets are inaccurate, the adverse consequences to the Trust (e.g., a reduction in the Trust's net asset value or a reduction in the amount of income available for distribution) may leave the Trust in a worse position than if these strategies were not used. Other risks inherent in the use of options and futures include, for example, the possible imperfect correlation between the price of options and futures contracts and movements in the prices of the securities being hedged. With respect to futures contracts, this correlation may be further distorted since the futures contracts that are being used to hedge are not based on municipal obligations. There is also the possibility of an absence of a liquid secondary market for any particular instrument. Certain options may be over- the-counter options which are options negotiated with dealers; there is no secondary market for these investments and therefore may be difficult to value. If the Trust uses an option or futures transaction as an alternative to purchasing or selling an underlying instrument in order to obtain 28 Morgan Stanley Quality Municipal Investment Trust PORTFOLIO MANAGEMENT/REVISED INVESTMENT POLICY (UNAUDITED) continued desired exposure, the Trust will be exposed to the same risks as are incurred in purchasing and selling the underlying instrument directly. 29 Morgan Stanley Quality Municipal Investment Trust DIVIDEND REINVESTMENT PLAN (UNAUDITED) The dividend reinvestment plan (the "Plan") offers you a prompt and simple way to reinvest your dividends and capital gains distributions into additional shares of the Trust. Under the Plan, the money you earn from dividends and capital gains distributions will be reinvested automatically in more shares of the Trust, allowing you to potentially increase your investment over time. All shareholders in the Trust are automatically enrolled in the Plan when shares are purchased. PLAN BENEFITS - ADD TO YOUR ACCOUNT You may increase your shares in the Trust easily and automatically with the Plan. - LOW TRANSACTION COSTS Transaction costs are low because the new shares are bought in blocks and the brokerage commission is shared among all participants. - CONVENIENCE You will receive a detailed account statement from Computershare Trust Company, N.A., which administers the Plan, whenever shares are reinvested for you. The statement shows your total distributions, date of investment, shares acquired, and price per share, as well as the total number of shares in your reinvestment account. You can also access your account via the Internet. To do this, please go to morganstanley.com. - SAFEKEEPING Computershare Trust Company, N.A. will hold the shares it has acquired for you in safekeeping. HOW TO PARTICIPATE IN THE PLAN If you own shares in your own name, you can participate directly in the Plan. If your shares are held in "street name" -- in the name of your brokerage firm, bank, or other financial institution -- you must instruct that entity to participate on your behalf. If they are unable to participate on your behalf, you may request that they reregister your shares in your own name so that you may enroll in the Plan. If you choose to participate in the Plan, whenever the Trust declares a dividend or capital gains distributions, it will be invested in additional shares of your Trust that are purchased in the open market. HOW TO ENROLL To enroll in the Plan, please read the Terms and Conditions in the Plan brochure. You can obtain a copy of the Plan Brochure and enroll in the Plan by visiting morganstanley.com, calling toll-free (888) 421-4015 or notifying us in writing at Morgan Stanley Closed-End Funds, Computershare Trust 30 Morgan Stanley Quality Municipal Investment Trust DIVIDEND REINVESTMENT PLAN (UNAUDITED) continued Company, N.A., P.O. Box 43078, Providence, RI 02940-3078. Please include the Trust name and account number and ensure that all shareholders listed on the account sign these written instructions. Your participation in the Plan will begin with the next dividend or capital gains distribution payable after Computershare Trust Company, N.A. receives your authorization, as long as they receive it before the "record date," which is generally ten business days before the dividend is paid. If your authorization arrives after such record date, your participation in the Plan will begin with the following dividend or distribution. COSTS OF THE PLAN There is no direct charge to you for reinvesting dividends and capital gains distributions because the Plan's fees are paid by the Trust. However, when applicable, you will pay your portion of any brokerage commissions incurred when the new shares are purchased on the open market. These brokerage commissions are typically less than the standard brokerage charges for individual transactions, because shares are purchased for all participants in blocks, resulting in lower commissions for each individual participant. Any brokerage commissions or service fees are averaged into the purchase price. TAX IMPLICATIONS The automatic reinvestment of dividends and capital gains distributions does not relieve you of any income tax that may be due on dividends or distributions. You will receive tax information annually to help you prepare your federal and state income tax returns. Morgan Stanley does not offer tax advice. The tax information contained herein is general and is not exhaustive by nature. It was not intended or written to be used, and it cannot be used by any taxpayer, for avoiding penalties that may be imposed on the taxpayer under U.S. federal tax laws. Federal and state tax laws are complex and constantly changing. Shareholders should always consult a legal or tax advisor for information concerning their individual situation. HOW TO WITHDRAW FROM THE PLAN To withdraw from the Plan please visit morganstanley.com or call (888) 421-4015 or notify us in writing at the address below. Morgan Stanley Closed-End Funds Computershare Trust Company, N.A. P.O. Box 43078 Providence, RI 02940-3078 31 Morgan Stanley Quality Municipal Investment Trust DIVIDEND REINVESTMENT PLAN (UNAUDITED) continued All shareholders listed on the account must sign any written withdrawal instructions. If you withdraw, you have three options with regard to the shares held in your account: 1. If you opt to continue to hold your non-certificated shares, they will be held by Computershare Trust Company, N.A. 2. If you opt to sell your shares through Morgan Stanley, we will sell all full and fractional shares and send the proceeds via check to your address of record after deducting brokerage commissions. 3. You may sell your shares through your financial advisor through the Direct Registration System ("DRS"). DRS is a service within the securities industry that allows Trust shares to be held in your name in electronic format. You retain full ownership of your shares, without having to hold a stock certificate. The Trust and Computershare Trust Company, N.A. may amend or terminate the Plan. Participants will receive written notice at least 30 days before the effective date of any amendment. In the case of termination, Participants will receive written notice at least 30 days before the record date for the payment of any dividend or capital gains distribution by the Trust. In the case of amendment or termination necessary or appropriate to comply with applicable law or the rules and policies of the Securities and Exchange Commission or any other regulatory authority, such written notice will not be required. TO OBTAIN A COMPLETE COPY OF THE DIVIDEND REINVESTMENT PLAN, PLEASE CALL OUR CLIENT RELATIONS DEPARTMENT AT 888-421-4015 OR VISIT MORGANSTANLEY.COM. 32 Morgan Stanley Quality Municipal Investment Trust MORGAN STANLEY ADVISOR CLOSED END FUNDS AN IMPORTANT NOTICE CONCERNING OUR U.S. PRIVACY POLICY We are required by federal law to provide you with a copy of our Privacy Policy annually. The following Policy applies to current and former individual investors in Morgan Stanley Advisor closed end funds. This Policy is not applicable to partnerships, corporations, trusts or other non-individual clients or account holders. Please note that we may amend this Policy at any time, and will inform you of any changes to this Policy as required by law. WE RESPECT YOUR PRIVACY We appreciate that you have provided us with your personal financial information. We strive to maintain the privacy of such information while we help you achieve your financial objectives. This Policy describes what non-public personal information we collect about you, why we collect it, and when we may share it with others. We hope this Policy will help you understand how we collect and share non-public personal information that we gather about you. Throughout this Policy, we refer to the non-public information that personally identifies you or your accounts as "personal information." 1. WHAT PERSONAL INFORMATION DO WE COLLECT ABOUT YOU? To serve you better and manage our business, it is important that we collect and maintain accurate information about you. We may obtain this information from applications and other forms you submit to us, from your dealings with us, from consumer reporting agencies, from our Web sites and from third parties and other sources. FOR EXAMPLE: - We may collect information such as your name, address, e-mail address, telephone/fax numbers, assets, income and investment objectives through applications and other forms you submit to us. - We may obtain information about account balances, your use of account(s) and the types of products and services you prefer to receive from us through your dealings and transactions with us and other sources. - We may obtain information about your creditworthiness and credit history from consumer reporting agencies. - We may collect background information from and through third-party vendors to verify representations you have made and to comply with various regulatory requirements. - If you interact with us through our public and private Web sites, we may collect information that you provide directly through online communications (such as an e-mail address). We may also collect information about your Internet service provider, your domain name, your computer's operating system and Web browser, your use of our Web sites and your product and service 33 Morgan Stanley Quality Municipal Investment Trust MORGAN STANLEY ADVISOR CLOSED END FUNDS AN IMPORTANT NOTICE CONCERNING OUR U.S. PRIVACY POLICY continued preferences, through the use of "cookies." "Cookies" recognize your computer each time you return to one of our sites, and help to improve our sites' content and personalize your experience on our sites by, for example, suggesting offerings that may interest you. Please consult the Terms of Use of these sites for more details on our use of cookies. 2. WHEN DO WE DISCLOSE PERSONAL INFORMATION WE COLLECT ABOUT YOU? To provide you with the products and services you request, to serve you better and to manage our business, we may disclose personal information we collect about you to our affiliated companies and to non-affiliated third parties as required or permitted by law. A. INFORMATION WE DISCLOSE TO OUR AFFILIATED COMPANIES. We do not disclose personal information that we collect about you to our affiliated companies except to enable them to provide services on our behalf or as otherwise required or permitted by law. B. INFORMATION WE DISCLOSE TO THIRD PARTIES. We do not disclose personal information that we collect about you to non-affiliated third parties except to enable them to provide services on our behalf, to perform joint marketing agreements with other financial institutions, or as otherwise required or permitted by law. For example, some instances where we may disclose information about you to nonaffiliated third parties include: for servicing and processing transactions, to offer our own products and services, to protect against fraud, for institutional risk control, to respond to judicial process or to perform services on our behalf. When we share personal information with these companies, they are required to limit their use of personal information to the particular purpose for which it was shared and they are not allowed to share personal information with others except to fulfill that limited purpose. 3. HOW DO WE PROTECT THE SECURITY AND CONFIDENTIALITY OF PERSONAL INFORMATION WE COLLECT ABOUT YOU? We maintain physical, electronic and procedural security measures to help safeguard the personal information we collect about you. We have internal policies governing the proper handling of client information. Third parties that provide support or marketing services on our behalf may also receive personal information, and we require them to adhere to confidentiality standards with respect to such information. 34 Morgan Stanley Quality Municipal Investment Trust TRUSTEE AND OFFICER INFORMATION (UNAUDITED) Independent Trustees:
Number of Portfolios in Fund Complex Position(s) Term of Office Overseen by Name, Age and Address of Held with and Length of Principal Occupation(s) During Independent Independent Trustee Registrant Time Served* Past 5 Years Trustee** --------------------------------------- ----------- -------------- ------------------------------ ------------- Frank L. Bowman (62) Trustee Since August President and Chief Executive 171 c/o Kramer Levin Naftalis & Frankel LLP 2006 Officer, Nuclear Energy Counsel to the Independent Trustees Institute (policy 1177 Avenue of the Americas organization) (since February New York, NY 10036 2005); Director or Trustee of various Retail Funds and Institutional Funds (since August 2006); Chairperson of the Insurance Sub-Committee of the Valuation, Insurance and Compliance Committee (since February 2007); formerly, variously, Admiral in the U.S. Navy, Director of Naval Nuclear Propulsion Program and Deputy Administrator-Naval Reactors in the National Nuclear Security Administration at the U.S. Department of Energy (1996- 2004). Honorary Knight Commander of the Most Excellent Order of the British Empire. Michael Bozic (66) Trustee Since April Private investor; Chairperson 173 c/o Kramer Levin Naftalis & Frankel LLP 1994 of the Valuation, Insurance Counsel to the Independent Trustees and Compliance Committee 1177 Avenue of the Americas (since October 2006); Director New York, NY 10036 or Trustee of the Retail Funds (since April 1994) and the Institutional Funds (since July 2003); formerly, Chairperson of the Insurance Committee (July 2006- September 2006); 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); variously Chairman, Chief Executive Officer, President and Chief Operating Officer (1987-1991) of the Sears Merchandise Group of Sears, Roebuck & Co. Name, Age and Address of Other Directorships Held by Independent Trustee Independent Trustee --------------------------------------- ----------------------------- Frank L. Bowman (62) Director of the National c/o Kramer Levin Naftalis & Frankel LLP Energy Foundation, the U.S. Counsel to the Independent Trustees Energy Association, the 1177 Avenue of the Americas American Council for Capital New York, NY 10036 Formation and the Armed Services YMCA of the USA. Michael Bozic (66) Director of various business c/o Kramer Levin Naftalis & Frankel LLP organizations. Counsel to the Independent Trustees 1177 Avenue of the Americas New York, NY 10036
35 Morgan Stanley Quality Municipal Investment Trust TRUSTEE AND OFFICER INFORMATION (UNAUDITED) continued
Number of Portfolios in Fund Complex Position(s) Term of Office Overseen by Name, Age and Address of Held with and Length of Principal Occupation(s) During Independent Independent Trustee Registrant Time Served* Past 5 Years Trustee** --------------------------------------- ----------- -------------- ------------------------------ ------------- Kathleen A. Dennis (54) Trustee Since August President, Cedarwood 171 c/o Kramer Levin Naftalis & Frankel LLP 2006 Associates (mutual fund Counsel to the Independent Trustees consulting) (since July 2006); 1177 Avenue of the Americas Chairperson of the Money New York, NY 10036 Market and Alternatives Sub- Committee of the Investment Committee (since October 2006) and Director or Trustee of various Retail Funds and Institutional Funds (since August 2006); formerly, Senior Managing Director of Victory Capital Management (1993- 2006). Dr. Manuel H. Johnson (58) Trustee Since July Senior Partner, Johnson Smick 173 c/o Johnson Smick Group, Inc. 1991 International, Inc. 888 16th Street, N.W. (consulting firm); Chairperson Suite 740 of the Investment Committee Washington, D.C. 20006 (since October 2006) and 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) (international economic commission); formerly, Chairperson of the Audit Committee (July 1991- September 2006); Vice Chairman of the Board of Governors of the Federal Reserve System and Assistant Secretary of the U.S. Treasury. Name, Age and Address of Other Directorships Held by Independent Trustee Independent Trustee --------------------------------------- ----------------------------- Kathleen A. Dennis (54) None. c/o Kramer Levin Naftalis & Frankel LLP Counsel to the Independent Trustees 1177 Avenue of the Americas New York, NY 10036 Dr. Manuel H. Johnson (58) Director of NVR, Inc. (home c/o Johnson Smick Group, Inc. construction); Director of 888 16th Street, N.W. Evergreen Energy. Suite 740 Washington, D.C. 20006
36 Morgan Stanley Quality Municipal Investment Trust TRUSTEE AND OFFICER INFORMATION (UNAUDITED) continued
Number of Portfolios in Fund Complex Position(s) Term of Office Overseen by Name, Age and Address of Held with and Length of Principal Occupation(s) During Independent Independent Trustee Registrant Time Served* Past 5 Years Trustee** --------------------------------------- ----------- -------------- ------------------------------ ------------- Joseph J. Kearns (65) Trustee Since August President, Kearns & Associates 174 c/o Kearns & Associates LLC 1994 LLC (investment consulting); PMB754 Chairperson of the Audit 23852 Pacific Coast Highway Committee (since October 2006) Malibu, CA 90265 and Director or Trustee of the Retail Funds (since July 2003) and the Institutional Funds (since August 1994); formerly, Deputy Chairperson of the Audit Committee (July 2003- September 2006) and Chairperson of the Audit Committee of the Institutional Funds (October 2001-July 2003); CFO of the J. Paul Getty Trust. Michael F. Klein (48) Trustee Since August Managing Director, Aetos 171 c/o Kramer Levin Naftalis & Frankel LLP 2006 Capital, LLC (since March Counsel to the Independent Trustees 2000) and Co-President, Aetos 1177 Avenue of the Americas Alternatives Management, LLC New York, NY 10036 (since January 2004); Chairperson of the Fixed-Income Sub-Committee of the Investment Committee (since October 2006) and Director or Trustee of various Retail Funds and Institutional Funds (since August 2006); formerly, Managing Director, Morgan Stanley & Co. Inc. and Morgan Stanley Dean Witter Investment Management, President, Morgan Stanley Institutional Funds (June 1998-March 2000) and Principal, Morgan Stanley & Co. Inc. and Morgan Stanley Dean Witter Investment Management (August 1997-December 1999). Name, Age and Address of Other Directorships Held by Independent Trustee Independent Trustee --------------------------------------- ----------------------------- Joseph J. Kearns (65) Director of Electro Rent c/o Kearns & Associates LLC Corporation (equipment PMB754 leasing), The Ford Family 23852 Pacific Coast Highway Foundation, and the UCLA Malibu, CA 90265 Foundation. Michael F. Klein (48) Director of certain c/o Kramer Levin Naftalis & Frankel LLP investment funds managed or Counsel to the Independent Trustees sponsored by Aetos Capital, 1177 Avenue of the Americas LLC. Director of Sanitized AG New York, NY 10036 and Sanitized Marketing AG (specialty chemicals).
37 Morgan Stanley Quality Municipal Investment Trust TRUSTEE AND OFFICER INFORMATION (UNAUDITED) continued
Number of Portfolios in Fund Complex Position(s) Term of Office Overseen by Name, Age and Address of Held with and Length of Principal Occupation(s) During Independent Independent Trustee Registrant Time Served* Past 5 Years Trustee** --------------------------------------- ----------- -------------- ------------------------------ ------------- Michael E. Nugent (71) Chairperson Chairperson of General Partner, Triumph 173 c/o Triumph Capital, L.P. of the the Boards Capital, L.P. (private 445 Park Avenue Board and since July investment partnership); New York, NY 10022 Trustee 2006 and Chairperson of the Boards of Trustee since the Retail Funds and July 1991 Institutional Funds (since July 2006); Director or Trustee of the Retail Funds (since July 1991) and the Institutional Funds (since July 2001); formerly, Chairperson of the Insurance Committee (until July 2006); Vice President, Bankers Trust Company and BT Capital Corporation (1984-1988). W. Allen Reed (60) Trustee Since August Chairperson of the Equity Sub- 171 c/o Kramer Levin Naftalis & Frankel LLP 2006 Committee of the Investment Counsel to the Independent Trustees Committee (since October 2006) 1177 Avenue of the Americas and Director or Trustee of New York, NY 10036 various Retail Funds and Institutional Funds (since August 2006); formerly, President and CEO of General Motors Asset Management; Chairman and Chief Executive Officer of the GM Trust Bank and Corporate Vice President of General Motors Corporation (August 1994-December 2005). Fergus Reid (75) Trustee Since June Chairman of Lumelite Plastics 174 c/o Lumelite Plastics Corporation 1992 Corporation; Chairperson of 85 Charles Colman Blvd. the Governance Committee and Pawling, NY 12564 Director or Trustee of the Retail Funds (since July 2003) and the Institutional Funds (since June 1992). Name, Age and Address of Other Directorships Held by Independent Trustee Independent Trustee --------------------------------------- ----------------------------- Michael E. Nugent (71) None. c/o Triumph Capital, L.P. 445 Park Avenue New York, NY 10022 W. Allen Reed (60) Director of GMAC (financial c/o Kramer Levin Naftalis & Frankel LLP services) and Temple-Inland Counsel to the Independent Trustees Industries (packaging, 1177 Avenue of the Americas banking and forest products); New York, NY 10036 Director of Legg Mason, Inc. and Director of the Auburn University Foundation. Fergus Reid (75) Trustee and Director of c/o Lumelite Plastics Corporation certain investment companies 85 Charles Colman Blvd. in the JPMorgan Funds complex Pawling, NY 12564 managed by J.P. Morgan Investment Management Inc.
38 Morgan Stanley Quality Municipal Investment Trust TRUSTEE AND OFFICER INFORMATION (UNAUDITED) continued Interested Trustee:
Number of Portfolios in Fund Complex Position(s) Term of Office Overseen by Name, Age and Address of Held with and Length of Principal Occupation(s) During Interested Interested Trustee Registrant Time Served* Past 5 Years Trustee** ------------------------------------- ----------- -------------- ------------------------------ ------------- James F. Higgins (59) Trustee Since June Director or Trustee of the 173 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 07311 Advisor of Morgan Stanley (since August 2000). Name, Age and Address of Other Directorships Held by Interested Trustee Interested Trustee ------------------------------------- ------------------------------ James F. Higgins (59) 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 07311 services).
--------------------- * This is the earliest date the Trustee began serving the funds advised by Morgan Stanley Investment Advisors Inc. (the "Investment Adviser") (the "Retail Funds") or the funds advised by Morgan Stanley Investment Management Inc. and Morgan Stanley AIP GP LP (the "Institutional Funds"). ** The Fund Complex includes all open-end and closed-end funds (including all of their portfolios) advised by the Investment Adviser and any funds that have an investment adviser that is an affiliated person of the Investment Adviser (including, but not limited to, Morgan Stanley Investment Management Inc.). 39 Morgan Stanley Quality Municipal Investment Trust TRUSTEE AND OFFICER INFORMATION (UNAUDITED) continued Executive 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 ----------------------------- --------------- -------------- ------------------------------------------------------------ Ronald E. Robison (68) President and President President (since September 2005) and Principal Executive 522 Fifth Avenue Principal since Officer (since May 2003) of funds in the Fund Complex; New York, NY 10036 Executive September 2005 President (since September 2005) and Principal Executive Officer and Principal Officer (since May 2003) of the Van Kampen Funds; Managing Executive Director, Director and/or Officer of the Investment Adviser Officer since and various entities affiliated with the Investment Adviser; May 2003 Director of Morgan Stanley SICAV (since May 2004). Formerly, Executive Vice President (July 2003-September 2005) of funds in the Fund Complex and the Van Kampen Funds; President and Director of the Institutional Funds (March 2001-July 2003); Chief Administrative Officer of the Investment Adviser; Chief Administrative Officer of Morgan Stanley Services Company Inc. J. David Germany (53) Vice President Since February Managing Director and (since December 2005) Chief Investment Morgan Stanley Investment 2006 Officer -- Global Fixed Income of Morgan Stanley Investment Management Limited Management; Managing Director and Director of Morgan Stanley 20 Bank Street Investment Management Limited; Vice President of the Retail Canary Wharf, Funds and Institutional Funds (since February 2006). London, England E14 4AD Dennis F. Shea (54) Vice President Since February Managing Director and (since February 2006) Chief Investment 522 Fifth Avenue 2006 Officer -- Global Equity of Morgan Stanley Investment New York, NY 10036 Management; Vice President of the Retail Funds and Institutional Funds (since February 2006). Formerly, Managing Director and Director of Global Equity Research at Morgan Stanley. Amy R. Doberman (45) Vice President Since July Managing Director and General Counsel, U.S. Investment 522 Fifth Avenue 2004 Management of Morgan Stanley Investment Management (since New York, NY 10036 July 2004); Vice President of the Retail Funds and Institutional Funds (since July 2004); Vice President of the Van Kampen Funds (since August 2004); Secretary (since February 2006) and Managing Director (since July 2004) of the Investment Adviser and various entities affiliated with the Investment Adviser. Formerly, Managing Director and General Counsel -- Americas, UBS Global Asset Management (July 2000-July 2004). Carsten Otto (43) Chief Since October Managing Director and Global Head of Compliance for Morgan 522 Fifth Avenue Compliance 2004 Stanley Investment Management (since April 2007); and Chief New York, NY 10036 Officer Compliance Officer of Morgan Stanley Retail Funds and Institutional Funds (since October 2004). Formerly, U.S. Director of Compliance (October 2004-April 2007) and Assistant Secretary and Assistant General Counsel of the Retail Funds. Stefanie V. Chang Yu (40) Vice President Since December Executive Director of the Investment Adviser and various 522 Fifth Avenue 1997 entities affiliated with the Investment Adviser; Vice New York, NY 10036 President of the Retail Funds (since July 2002) and the Institutional Funds (since December 1997). Formerly, Secretary of various entities affiliated with the Investment Adviser.
40 Morgan Stanley Quality Municipal Investment Trust TRUSTEE AND OFFICER INFORMATION (UNAUDITED) 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 (42) Treasurer and Treasurer Executive Director of the Investment Adviser and various c/o Morgan Stanley Trust Chief Financial since July entities affiliated with the Investment Adviser; Treasurer Harborside Financial Center Officer 2003 and Chief and Chief Financial Officer of the Retail Funds (since July Plaza Two Financial 2003). Formerly, Vice President of the Retail Funds Jersey City, NJ 07311 Officer since (September 2002 to July 2003). September 2002 Mary E. Mullin (40) Secretary Since June Executive Director of the Investment Adviser and various 522 Fifth Avenue 1999 entities affiliated with the Investment Adviser; Secretary New York, NY 10036 of the Retail Funds (since July 2003) and the Institutional Funds (since June 1999).
--------------------- * This is the earliest date the Officer began serving the Retail Funds or Institutional Funds. In accordance with Section 303A.12(a) of the New York Stock Exchange Listed Company Manual, the Trust's Annual CEO Certification certifying as to compliance with NYSE's Corporate Governance Listing Standards was submitted to the Exchange on November 26, 2007. The Trust's Principal Executive Officer and Principal Financial Officer Certifications required by Section 302 of the Sarbanes-Oxley Act of 2002 were filed with the Trust's N-CSR and are available on the Securities and Exchange Commission's Web site at http://www.sec.gov. 2007 FEDERAL TAX NOTICE (UNAUDITED) For Federal income tax purposes, the following information is furnished with respect to the distributions paid by the Trust during its taxable year ended October 31, 2007. The Trust designated 100% of its income dividends as tax-exempt income dividends. The Trust designated and paid $1,480,092 as a long-term capital gain distribution. In January, the Trust provides tax information to shareholders for the preceding calendar year. 41 (This Page Intentionally Left Blank) (This Page Intentionally Left Blank) TRUSTEES Frank L. Bowman Michael Bozic Kathleen A. Dennis James F. Higgins Dr. Manuel H. Johnson Joseph J. Kearns Michael F. Klein Michael E. Nugent W. Allen Reed Fergus Reid OFFICERS Michael E. Nugent Chairperson of the Board Ronald E. Robison President and Principal Executive Officer J. David Germany Vice President Dennis F. Shea Vice President Amy R. Doberman Vice President Carsten Otto Chief Compliance Officer Stefanie V. Chang Yu Vice President Francis J. Smith Treasurer and Chief Financial Officer Mary E. Mullin Secretary TRANSFER AGENT Computershare Trust Company, N.A. P.O. Box 43078 Providence, RI 02940-3078 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Deloitte & Touche LLP Two World Financial Center New York, New York 10281 LEGAL COUNSEL Clifford Chance US LLP 31 West 52nd Street New York, New York 10019 COUNSEL TO THE INDEPENDENT TRUSTEES Kramer Levin Naftalis & Frankel LLP 1177 Avenue of the Americas New York, New York 10036 INVESTMENT ADVISER Morgan Stanley Investment Advisors Inc. 522 Fifth Avenue New York, New York 10036 (c) 2007 Morgan Stanley [MORGAN STANLEY LOGO] MORGAN STANLEY FUNDS Morgan Stanley Quality Municipal Investment Trust Annual Report October 31, 2007 [MORGAN STANLEY LOGO] IQTANN IU07-05422P-Y12/07 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 12 A. (2) Not applicable. (3) Not applicable. Item 3. Audit Committee Financial Expert. The Trust's Board of Trustees has determined that Joseph J. Kearns, an "independent" Trustee, is an "audit committee financial expert" serving on its audit committee. 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: 2 2007
COVERED REGISTRANT ENTITIES(1) ---------- ------------- AUDIT FEES.................. $28,750 N/A NON-AUDIT FEES AUDIT-RELATED FEES....... $ 5,750(2) $5,041,000(2) TAX FEES................. $ 5,047(3) $ 761,000(4) ALL OTHER FEES........... $______ $_________ TOTAL NON-AUDIT FEES........ $10,797 $_________ TOTAL....................... $39,547 $5,802,000
2006
COVERED REGISTRANT ENTITIES(1) ---------- ------------- AUDIT FEES.................. $28,800 N/A NON-AUDIT FEES AUDIT-RELATED FEES....... $ 6,096(2) $5,217,590(2) TAX FEES................. $ 4,900(3) $1,472,895(4) ALL OTHER FEES........... $______ $_________(5) TOTAL NON-AUDIT FEES........ $10,996 $6,690,485 TOTAL....................... $39,796 $6,690,485
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. 3 (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. 4 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 5 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 6 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 7 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: Joseph Kearns, Michael Nugent and Allen Reed. (b) Not applicable. Item 6. See Item 1. Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. 8 The Trust invests in exclusively non-voting securities and therefore this item is not applicable. Item 8. Portfolio Managers of Closed-End Management Investment Companies Applicable only to reports covering periods ending on or after December 31, 2005. PORTFOLIO MANAGEMENT. As of the date of this report, the Fund is managed within the Morgan Stanley Municipals team. The team consists of portfolio managers and analysts. Current members of the team jointly and primarily responsible for the day-to-day management of the Fund's portfolio are Steven K. Kreider and Neil Stone, each a Managing Director of the Investment Adviser. Mr. Kreider has been associated with the Investment Adviser in an investment management capacity since February 1988 and began managing the Fund in September 2007. Mr. Stone has been associated with the Investment Adviser in an investment management capacity since March 1995 and began managing the Fund in September 2007. The composition of the team may change from time to time. OTHER ACCOUNTS MANAGED BY THE PORTFOLIO MANAGERS The following information is as of October 31, 2007: Steven K. Kreider managed 45 registered investment companies with a total of approximately $35.3 billion in assets; no pooled investment vehicles other than registered investment companies; and 68 other accounts (which include separate accounts managed under certain "wrap fee programs") with a total of approximately $12.9 billion in assets. Of these other accounts, 3 accounts with a total of approximately $1.0 billion in assets had performance-based fees. Neil Stone managed 19 registered investment companies with a total of approximately $7.8 billion in assets; no pooled investment vehicles other than registered investment companies; and 18 other accounts (which include separate accounts managed under certain "wrap fee programs") with a total of approximately $4.5 billion in assets. Because the portfolio managers manage assets for other investment companies, pooled investment vehicles and/or other accounts (including institutional clients, pension plans and certain high net worth individuals), there may be an incentive to favor one client over another resulting in conflicts of interest. For instance, the Investment Adviser may receive fees from certain accounts that are higher than the fee it receives from the Fund, or it may receive a performance-based fee on certain accounts. In those instances, the portfolio managers may have an incentive to favor the higher and/or performance-based fee accounts over the Fund. In addition, a conflict of interest could exist to the extent the Investment Adviser has proprietary investments in certain accounts, where portfolio managers have personal investments in certain accounts or when certain accounts are investment options in the Investment Adviser's employee benefits and/or deferred compensation plans. The portfolio manager may have an incentive to favor these accounts over others. If the Investment Adviser manages accounts that engage in short sales of securities of the type in which the Fund invests, the Investment Adviser could be seen as harming the performance of the Fund for the benefit of the accounts engaging in short sales if the short sales cause the market value of the securities to fall. The Investment Adviser has adopted trade allocation and other policies and procedures that it believes are reasonably designed to address these and other conflicts of interest. PORTFOLIO MANAGER COMPENSATION STRUCTURE Portfolio managers receive a combination of base compensation and discretionary compensation, comprising a cash bonus and several deferred compensation programs described below. The methodology used to determine portfolio manager compensation is applied across all funds/accounts managed by the portfolio managers. BASE SALARY COMPENSATION. Generally, portfolio managers receive base salary compensation based on the level of their position with the Investment Adviser. DISCRETIONARY COMPENSATION. In addition to base compensation, portfolio managers may receive discretionary compensation. Discretionary compensation can include: - Cash Bonus. - Morgan Stanley's Long Term Incentive Compensation awards - a mandatory program that defers a portion of discretionary year-end compensation into restricted stock units or other awards based on Morgan Stanley common stock or other investments that are subject to vesting and other conditions. - Investment Management Alignment Plan (IMAP) awards - a mandatory program that defers a portion of discretionary year-end compensation and notionally invests it in designated funds advised by the Investment Adviser or its affiliates. The award is subject to vesting and other conditions. Portfolio managers must notionally invest a minimum of 25% to a maximum of 100% of the IMAP deferral into a combination of the designated funds they manage that are included in the IMAP fund menu, which may or may not include the Fund. - Voluntary Deferred Compensation Plans - voluntary programs that permit certain employees to elect to defer a portion of their discretionary year-end compensation and directly or notionally invest the deferred amount: (1) across a range of designated investment funds, including funds advised by the Investment Adviser or its affiliates; and/or (2) in Morgan Stanley stock units. Several factors determine discretionary compensation, which can vary by portfolio management team and circumstances. In order of relative importance, these factors include: - Investment performance. A portfolio manager's compensation is linked to the pre-tax investment performance of the funds/accounts managed by the portfolio manager. Investment performance is calculated for one-, three- and five-year periods measured against a fund's/account's primary benchmark (as set forth in the fund's prospectus), indices and/or peer groups where applicable. Generally, the greatest weight is placed on the three- and five-year periods. - Revenues generated by the investment companies, pooled investment vehicles and other accounts managed by the portfolio manager. - Contribution to the business objectives of the Investment Adviser. - The dollar amount of assets managed by the portfolio manager. - Market compensation survey research by independent third parties. - Other qualitative factors, such as contributions to client objectives. - Performance of Morgan Stanley and Morgan Stanley Investment Management, and the overall performance of the investment team(s) of which the portfolio manager is a member. SECURITIES OWNERSHIP OF PORTFOLIO MANAGERS As of October 31, 2007, the portfolio managers did not own any shares of the Fund. 9 Item 9. Closed-End Fund Repurchases REGISTRANT PURCHASE OF EQUITY SECURITIES
(d) Maximum Number (c) Total (or Approximate (a) Total Number of Shares Dollar Value) of Number (b) Average (or Units) Shares (or Units) of Price Purchased as Part that May Yet Be Shares Paid per of Publicly Purchased Under (or Units) Share Announced Plans the Plans or Period Purchased (or Unit) or Programs Programs ------ ----------- ----------- ----------------- ------------------ November 1--- November 30 31,100 13.8674 N/A N/A December 1 December 31 35,500 13.8524 N/A N/A January 1 January 31 49,000 13.8936 N/A N/A February 1 February 28 43,900 13.9497 N/A N/A March 1 March 31 26,757 14.0993 N/A N/A April 1 April 30 23,300 14.0935 N/A N/A May 1 May 31 22,700 14.0724 N/A N/A June 1 June 30 23,000 13.6194 N/A N/A July 1 July 31 20,900 13.4270 N/A N/A August 1 August 31 27,300 13.0872 N/A N/A September 1 September 30 28,700 13.2487 N/A N/A October 1 October 31 33,200 13.0858 N/A N/A Total 365,200 13.6914 N/A N/A
10 Item 10. Submission of Matters to a Vote of Security Holders Not applicable. Item 11. 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 second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. Item 12. 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. 11 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 20, 2007 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 20, 2007 /s/ Francis Smith Francis Smith Principal Financial Officer December 20, 2007 12