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
|
811-22011
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MORGAN STANLEY EMERGING MARKETS DOMESTIC
DEBT FUND, INC.
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(Exact name of registrant as
specified in charter)
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522 FIFTH AVENUE NEW YORK, NY
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|
10036
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(Address of principal executive
offices)
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(Zip code)
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RANDY TAKIAN
522 FIFTH AVENUE NEW YORK, NY 10036
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(Name and address of agent for
service)
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Registrants telephone number, including
area code:
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1-800-231-2608
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Date of fiscal year end:
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10/31
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Date of reporting period:
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10/31/08
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Form N-CSR is to be used by management investment companies to file
reports with the Commission not later than 10 days after the transmission to
stockholders of any report that is required to be transmitted to stockholders
under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR
270.30e-1). The Commission may use the
information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form
N-CSR, and the Commission will make this information public. A registrant is
not required to respond to the collection of information contained in Form
N-CSR unless the Form displays a currently valid Office of Management and
Budget ("OMB") control number. Please direct comments concerning the
accuracy of the information collection burden estimate and any suggestions for
reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth
Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of
information under the clearance requirements of 44 U.S.C. Section 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
The Funds annual report transmitted to shareholders pursuant to Rule
30e-1 under the Investment Company Act of 1940 is as follows:
|
2008 Annual Report
|
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|
|
October 31,
2008
|
Morgan Stanley
Emerging Markets
Domestic Debt
Fund, Inc.
(EDD)
Morgan
Stanley
Investment
Management Inc.
Investment
Adviser
|
|
Morgan
Stanley Emerging Markets Domestic Debt Fund, Inc.
|
|
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|
Overview
(unaudited)
|
Letter to Stockholders
Performance
For
the year ended October 31, 2008, the Morgan Stanley Emerging Markets
Domestic Debt Fund, Inc. (the Fund) had total returns of -27.22%, based on
net asset value and -39.43% based on market value per share (including
reinvestment of distributions), compared to its benchmark, the JPMorgan Government
Bond Index - Emerging Markets Global Diversified Index (the Index) which returned
-15.16%. On October 31, 2008, the
closing price of the Funds shares on the New York Stock Exchange was $9.70,
representing a 23.1% discount to the Funds net asset value per share. Past
performance is no guarantee of future results.
Factors Affecting Performance
·
Deleveraging, manic risk aversion and
capitulation (that is, panic selling) drove the turmoil in emerging markets
(EM) debt markets during the latter part of the 12-month review period. While
the economic fundamentals of most EM countries were quite solid coming into the
latter part of the measurement period, the shock emanating from the developed
world proved too big to escape. The credit crunch, with its roots in the U.S.,
took on a more disorderly and global footprint over the last few months, infecting
economies both developed and emerging.
·
Nearly all financial markets sold off in a
chaotic fashion during the month of October with record high levels of
volatility, illiquidity and contagion. The strong balance sheets, favorable
external balances, high liquidity and low leverage in EM economies proved
insufficient to fend off this more aggressive strain of the global financial
crisis. Expectations for global growth collapsed during the month of October,
as did commodity prices and most financial assets. In this environment, EM
local currency debt markets suffered sharp declines.
·
Positive contributors to relative performance
versus the Index included an overweight exposure to Nigeria, Kazakhstan and
Venezuela; security selection in Chile and Peru also aided relative returns.
·
The Nigerian Naira, despite the marked
sell-off in several EM currencies, remained firm versus the U.S. Dollar during
the period. In addition, the Nigerian government lowered its 2009 budget oil
price assumption to $45 per barrel, a prudent move that was lauded by markets
and supportive of asset prices.
·
In mid-October, the Fund accumulated a
position in dollar-denominated Venezuelan bonds yielding more than 24%. We
believe Venezuelan bonds came under pressure due more to forced selling by
leveraged investors at fire sale prices than to fundamental factors. Although
an element of this forced selling occurred throughout EM debt markets, it was
especially acute in Venezuela, where prices have since recovered.
·
Detractors from relative gains included
overweights in Argentina, Egypt, and Indonesia. The Funds below-Index exposure
to Malaysia also detracted from relative returns.
Management Strategies
·
We believe that most emerging economies can
navigate through the current financial crisis and the widely expected global
recession in 2009. Lower global growth would undoubtedly reduce global trade,
impairing both emerging countries export volumes and commodity prices. At the
same time, tighter global financial conditions will likely reduce capital
inflows to emerging countries. We believe EM countries especially those in
need of significant external funding are likely to adjust to more hostile
global conditions through lower domestic growth and weaker real exchange rates
(to reduce imports).
2
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Morgan
Stanley Emerging Markets Domestic Debt Fund, Inc.
|
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|
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Overview
(contd)
|
Letter to Stockholders
(contd)
·
However, the relative stability of the
systemically important EM economies that account for the vast majority of EM
demand should lessen the overall impact on EM growth relative to earlier
crises. In contrast to the situation in 1997-1998, a majority of emerging
economies today enjoy ample reserves and lower external debt, along with
greater policymaking flexibility. A recession in developed countries would
definitely take its toll on EM growth prospects but would not necessarily cause
a collapse, in our opinion.
·
Undoubtedly, a low global growth environment
is negative for emerging economies. In our opinion, the wild gyrations in
developed financial markets and risk aversion have overwhelmed the role that
fundamentals usually play in anchoring asset prices. On purely fundamental
metrics, we find significant pockets of value in the emerging debt markets. We
believe sovereign risk premiums are too high relative to the economies debt
servicing capacity and yields in domestic fixed income markets are too high
relative to the expected inflation and growth dynamics in most of the emerging
economies. However, the picture on the foreign exchange side of the story is
more mixed, as there is greater risk of an overshot relative to fundamental
valuations as these economies adjust.
·
Unfortunately, it is difficult to imagine a
convergence to fair value without financial markets in the developed world
normalizing and the recent bout of extreme risk aversion dissipating.
Furthermore, the longer the financial crisis lingers the higher the risk that
economic fundamentals in emerging markets and hence EM fundamental asset
valuations will likely weaken. However, we believe that the risk of a very
negative outcome has become less likely in our view due to the magnitude of the
policy response in both the developed and emerging world. As markets work
through the deleveraging process they will eventually normalize. Now, most EM
assets are declining in tandem, creating good opportunities to add exposures to
those EM countries that we believe to be best positioned to weather the
financial storm.
Sincerely,
Randy
Takian
President
and Principal Executive Officer
|
|
November 2008
|
3
|
|
Morgan
Stanley Emerging Markets Domestic Debt Fund, Inc.
|
|
|
|
|
|
October
31, 2008
|
Investment Advisory
Agreement Approval (unaudited)
Nature, Extent and Quality of Services
The
Board reviewed and considered the nature and extent of the investment advisory
services provided by the Adviser under the Advisory Agreement, including
portfolio management, investment research and equity and fixed income
securities trading. The Board also reviewed and considered the nature and
extent of the non-advisory, administrative services provided by the Adviser
under the Administration Agreement, including accounting, clerical,
bookkeeping, compliance, business management and planning, and the provision of
supplies, office space and utilities at the Advisers expense. (The Advisory
and Administration Agreements together are referred to as the Management
Agreement.) The Board also compared the nature of the services provided by the
Adviser with similar services provided by non-affiliated advisers as reported
to the Board by Lipper Inc. (Lipper).
The
Board reviewed and considered the qualifications of the portfolio managers, the
senior administrative managers and other key personnel of the Adviser who
provide the advisory and administrative services to the Fund. The Board
determined that the Advisers portfolio managers and key personnel are well
qualified by education and/or training and experience to perform the services
in an efficient and professional manner. The Board concluded that the nature
and extent of the advisory and administrative services provided were necessary and
appropriate for the conduct of the business and investment activities of the
Fund. The Board also concluded that the overall quality of the advisory and
administrative services was satisfactory.
Performance Relative to Comparable Funds Managed by Other
Advisers
On
a regular basis, the Board reviews the performance of all funds in the Morgan
Stanley Fund Complex, including the Fund, compared to their peers, paying
specific attention to the underperforming funds. In addition, the Board
specifically reviewed the Funds performance for the one-year period ended April 30,
2008, as shown in a report provided by Lipper (the Lipper Report), compared
to the performance of comparable funds selected by Lipper (the performance
peer group). The Board also discussed with the Adviser the performance goals
and the actual results achieved in managing the Fund. The Board concluded that
the Funds performance was competitive with that of its performance peer group.
Fees Relative to Other Proprietary Funds Managed by the
Adviser with Comparable Investment Strategies
The
Board noted that the Adviser did not manage any other proprietary funds with
investment strategies comparable to those of the Fund.
Fees and Expenses Relative to Comparable Funds Managed by
Other Advisers
The
Board reviewed the advisory and administrative fee (together, the management
fee) rate and total expense ratio of the Fund as compared to the average
management fee rate and average total expense ratio for funds, selected by
Lipper (the expense peer group), managed by other advisers with investment
strategies comparable to those of the Fund, as shown in the Lipper Report. The
Board concluded that the Funds management fee rate and total expense ratio
were acceptable given the services provided.
4
|
|
Morgan
Stanley Emerging Markets Domestic Debt Fund, Inc.
|
|
|
|
|
|
October
31, 2008
|
Investment Advisory
Agreement Approval (contd)
Breakpoints and Economies of Scale
The
Board reviewed the structure of the Funds management fee schedule under the
Management Agreement and noted that it does not include breakpoints. The Board
considered that the Fund is a closed-end fund and, therefore, that the Funds
assets are not likely to grow with new sales or grow significantly as a result
of capital appreciation. The Board concluded that economies of scale for the
Fund were not a factor that needed to be considered at the present time.
Profitability of the Adviser and Affiliates
The
Board considered information concerning the costs incurred and profits realized
by the Adviser and affiliates during the last year from their relationship with
the Fund and during the last two years from their relationship with the Morgan
Stanley Fund Complex and reviewed with the Adviser the cost allocation
methodology used to determine the profitability of the Adviser and affiliates.
Based on its review of the information it received, the Board concluded that
the profits earned by the Adviser and affiliates were not excessive in light of
the advisory, administrative and other services provided to the Fund.
Fall-Out Benefits
The
Board considered so-called fall-out benefits derived by the Adviser and
affiliates from their relationship with the Fund and the Morgan Stanley Fund
Complex, such as commissions on the purchase and sale of Fund shares and
float benefits derived from handling of checks for purchases and sales of
Fund shares, through a broker-dealer affiliate of the Adviser. The Board also
considered that, from time to time, the Adviser may, directly or indirectly,
effect trades on behalf of certain Morgan Stanley Funds through various
electronic communications networks or other alternative trading systems in
which the Advisers affiliates have ownership interests and/or board seats. The
Board concluded that the sales commissions were competitive with those of other
broker-dealers and the fall-out benefits were relatively small.
Soft Dollar Benefits
The
Board considered whether the Adviser realizes any benefits from commissions
paid to brokers who execute securities transactions for the Fund (soft
dollars). The Board noted that the Fund invests only in fixed income
securities, which do not generate soft dollars.
Adviser Financially Sound and Financially Capable of Meeting
the Funds Needs
The
Board considered whether the Adviser is financially sound and has the resources
necessary to perform its obligations under the Management Agreement. The Board
concluded that the Adviser has the financial resources necessary to fulfill its
obligations under the Management Agreement.
5
|
|
Morgan
Stanley Emerging Markets Domestic Debt Fund, Inc.
|
|
|
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|
|
October
31, 2008
|
Investment Advisory
Agreement Approval (contd)
Historical Relationship Between the Fund and the Adviser
The
Board also reviewed and considered the historical relationship between the Fund
and the Adviser, including the organizational structure of the Adviser, the
policies and procedures formulated and adopted by the Adviser for managing the
Funds operations and the Boards confidence in the competence and integrity of
the senior managers and key personnel of the Adviser. The Board concluded that
it is beneficial for the Fund to continue its relationship with the Adviser.
Other Factors and Current Trends
The
Board considered the controls and procedures adopted and implemented by the
Adviser and monitored by the Funds Chief Compliance Officer and concluded that
the conduct of business by the Adviser indicates a good faith effort on its
part to adhere to high ethical standards in the conduct of the Funds business.
General Conclusion
After
considering and weighing all of the above factors, the Board concluded that it
would be in the best interest of the Fund and its shareholders to approve
renewal of the Management Agreement for another year.
6
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|
Morgan
Stanley Emerging Markets Domestic Debt Fund, Inc.
|
|
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October
31, 2008
|
Portfolio of Investments
(Showing
Percentage of Total Value of Investments)
|
|
Face Amount
|
|
Value
|
|
|
|
(000)
|
|
(000)
|
|
Debt Instruments (95.7%)
|
|
|
|
|
|
Brazil (17.8%)
|
|
|
|
|
|
Sovereign (17.8%)
|
|
|
|
|
|
Brazil Notas do Tesouro Nacional,
|
|
|
|
|
|
10.00%, 7/1/10
|
|
BRL
|
109,030
|
|
$
|
45,782
|
|
Brazil Notas do Tesouro Nacional,
Series F,
|
|
|
|
|
|
10.00%, 1/1/14
|
|
494,989
|
|
172,408
|
|
|
|
|
|
218,190
|
|
Colombia (2.8%)
|
|
|
|
|
|
Sovereign (2.8%)
|
|
|
|
|
|
Jupiter, S.p.V., Colombian Peso Linked
Bonds,
|
|
|
|
|
|
13.50%, 9/15/14
|
|
$
|
75,000
|
|
33,857
|
|
|
|
|
|
|
|
Egypt (3.6%)
|
|
|
|
|
|
Sovereign (3.6%)
|
|
|
|
|
|
Arab Republic of Egypt,
|
|
|
|
|
|
8.75%, 7/18/12
|
|
EGP
|
332,700
|
|
44,819
|
|
|
|
|
|
|
|
Hungary (7.0%)
|
|
|
|
|
|
Sovereign (7.0%)
|
|
|
|
|
|
Republic of Hungary,
|
|
|
|
|
|
6.25%, 8/24/10
|
|
HUF
|
10,750,000
|
|
46,944
|
|
6.75%, 2/24/17
|
|
4,834,840
|
|
18,880
|
|
7.25%, 6/12/12
|
|
4,776,500
|
|
19,915
|
|
|
|
|
|
85,739
|
|
Indonesia (7.7%)
|
|
|
|
|
|
Corporate (0.9%)
|
|
|
|
|
|
Pindo Deli Finance Mauritius,
|
|
|
|
|
|
Tranche A, 5.43%, 4/28/15 - 4/28/18(c)(d)
|
|
$
|
9,727
|
|
3,967
|
|
Tranche B, 5.43%, 4/28/15(c)
|
|
137
|
|
99
|
|
Tranche C, Zero Coupon, 4/28/25
|
|
2,227
|
|
167
|
|
Tjiwi Kimia Finance Mauritius Ltd., Tranche
A, 5.53%, 4/28/15 - 4/28/18(c)(d)
|
|
13,512
|
|
6,469
|
|
Tranche B, 5.43%, 4/28/15(c)
|
|
627
|
|
461
|
|
Tranche C, Zero Coupon, 4/28/27(d)
|
|
998
|
|
80
|
|
|
|
|
|
11,243
|
|
Sovereign (6.8%)
|
|
|
|
|
|
Barclays Bank plc, Indonesian Government
Bond Linked Notes,
|
|
|
|
|
|
10.00%, 7/17/17
|
|
IDR
|
750,000,000
|
|
47,060
|
|
Citigroup, Inc., Indonesian Indexed
Credit Linked Unsecured Notes,
|
|
|
|
|
|
Zero Coupon, 7/19/17
|
|
$
|
28,828
|
|
14,432
|
|
Credit Suisse, Republic of Indonesia
Government Bonds Credit Linked Notes,
|
|
|
|
|
|
10.00%, 7/17/17
|
|
IDR
|
154,683,530
|
|
9,706
|
|
JPMorgan Chase & Co., London,
Indonesian Treasury Bill Linked Notes,
|
|
|
|
|
|
10.00%, 7/15/17
|
|
192,525,000
|
|
11,788
|
|
|
|
|
|
82,986
|
|
|
|
|
|
94,229
|
|
Malaysia (2.4%)
|
|
|
|
|
|
Sovereign (2.4%)
|
|
|
|
|
|
Government of Malaysia, 3.72%, 6/15/12
|
|
MYR
|
105,000
|
|
29,258
|
|
|
|
|
|
|
|
Mexico (16.7%)
|
|
|
|
|
|
Sovereign (16.7%)
|
|
|
|
|
|
Mexican Bonos,
|
|
|
|
|
|
7.75%, 12/14/17
|
|
1,561,924
|
|
114,078
|
|
8.00%, 12/17/15
|
|
101,200
|
|
7,547
|
|
9.50%, 12/18/14
|
|
360,000
|
|
28,982
|
|
10.00%, 11/20/36
|
|
MXN
|
620,000
|
|
54,710
|
|
|
|
|
|
205,317
|
|
Multi-Country (2.1%)
|
|
|
|
|
|
Sovereign (2.1 %)
|
|
|
|
|
|
Standard Bank plc, African Currency Basket
Linked Bonds,
|
|
|
|
|
|
Zero Coupon, 12/15/08
|
|
$
|
30,000
|
|
25,545
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part
of the financial statements.
|
7
|
|
Morgan
Stanley Emerging Markets Domestic Debt Fund, Inc.
|
|
|
|
October 31,
2008
|
Portfolio of
Investments (contd)
(Showing
Percentage of Total Value of Investments)
|
|
|
|
Face Amount
|
|
Value
|
|
|
|
|
|
(000)
|
|
(000)
|
|
Nigeria (2.0%)
|
|
|
|
|
|
|
|
Corporate (2.0%)
|
|
|
|
|
|
|
|
Shell Petroleum Development Co., Credit
Linked Notes,
|
|
|
|
|
|
|
|
Zero Coupon, 11/19/08 - 5/15/09
|
|
|
|
$
|
28,201
|
|
$
|
24,402
|
|
|
|
|
|
|
|
|
|
South Africa (10.2%)
|
|
|
|
|
|
|
|
Sovereign (10.2%)
|
|
|
|
|
|
|
|
Republic of South Africa,
|
|
|
|
|
|
|
|
13.00%, 8/31/10
|
|
ZAR
|
|
1,159,000
|
|
124,947
|
|
|
|
|
|
|
|
|
|
Thailand (9.7%)
|
|
|
|
|
|
|
|
Sovereign (9.7%)
|
|
|
|
|
|
|
|
Kingdom of Thailand,
|
|
|
|
|
|
|
|
4.25%, 3/13/13
|
|
THB
|
|
2,203,720
|
|
64,860
|
|
5.25%, 7/13/13
|
|
|
|
1,766,120
|
|
54,177
|
|
|
|
|
|
|
|
119,037
|
|
Turkey (12.5%)
|
|
|
|
|
|
|
|
Sovereign (12.5%)
|
|
|
|
|
|
|
|
Republic of Turkey,
|
|
|
|
|
|
|
|
Zero Coupon, 8/5/09 - 4/14/10
|
|
TRY
|
|
292,424
|
|
140,435
|
|
16.00%, 3/7/12
|
|
|
|
24,060
|
|
12,828
|
|
|
|
|
|
|
|
153,263
|
|
Venezuela (1.2%)
|
|
|
|
|
|
|
|
Sovereign (1.2%)
|
|
|
|
|
|
|
|
Government of Venezuela,
|
|
|
|
|
|
|
|
9.25%, 5/7/28
|
|
|
|
$
|
32,000
|
|
14,880
|
|
Total Debt Instruments
(Cost $1,530,811)
|
|
|
|
|
|
1,173,483
|
|
Loans (2.8%)
|
|
|
|
|
|
|
|
Colombia (1.0%)
|
|
|
|
|
|
|
|
Corporate (1.0%)
|
|
|
|
|
|
|
|
MFI WWB Cali,
|
|
|
|
|
|
|
|
12.50%, 2/28/11 (a)(b)
|
|
COP
|
|
15,103,760
|
|
6,333
|
|
MFI WWB Popoyan,
|
|
|
|
|
|
|
|
12.50%, 2/28/11 (a)(b)
|
|
|
|
13,215,790
|
|
5,541
|
|
|
|
|
|
|
|
11,874
|
|
Kazakhstan (0.6%)
|
|
|
|
|
|
|
|
Corporate (0.6%)
|
|
|
|
|
|
|
|
MFI KMF,
|
|
|
|
|
|
|
|
15.50%, 2/28/11 (a)(b)
|
|
KZT
|
|
905,197
|
|
$
|
7,548
|
|
|
|
|
|
|
|
|
|
Mexico (1.0 %)
|
|
|
|
|
|
|
|
Corporate (1.0%)
|
|
|
|
|
|
|
|
MFI Finsol,
|
|
|
|
|
|
|
|
14.00%, 2/28/11 (a)(b)
|
|
MXN
|
|
161,685
|
|
12,565
|
|
|
|
|
|
|
|
|
|
Peru (0.2%)
|
|
|
|
|
|
|
|
Corporate (0.2%)
|
|
|
|
|
|
|
|
MFI Confranz, 10.40%, 2/28/11 (a)(b)
|
|
PEN
|
|
8,672
|
|
2,820
|
|
Total Loans
(Cost $40,569)
|
|
|
|
|
|
34,807
|
|
|
|
|
|
Value
|
|
|
|
Shares
|
|
(000)
|
|
Short-Term Investments (1.5%)
|
|
|
|
|
|
United States (1.5%)
|
|
|
|
|
|
Investment Company (0.4%)
|
|
|
|
|
|
Morgan Stanley Institutional Liquidity
Funds Money Market Portfolio Institutional Class (e)
|
|
4,745,897
|
|
4,746
|
|
|
|
Face Amount
|
|
Value
|
|
|
|
(000)
|
|
(000)
|
|
U.S. Treasury Security (1.1%)
|
|
|
|
|
|
U.S. Treasury Bill, 0.35%, 1/15/09 (f)(g)
|
|
$
|
13,055
|
|
13,046
|
|
Total Short-Term Investments
(Cost $17,781)
|
|
|
|
17,792
|
|
Total Investments (100.0%)
(Cost $1,589,161)
|
|
|
|
1,226,082
|
|
Liabilities in Excess of Other Assets
|
|
|
|
(302,120
|
)
|
Net Assets
|
|
|
|
$
|
923,962
|
|
|
|
|
|
|
|
|
|
(a)
|
Security
has been deemed illiquid at October 31, 2008.
|
(b)
|
Securities
were valued at fair value At October 31, 2008, the Fund held
approximately $34,807,000 of fair valued securities, representing 3.8% of net
assets.
|
(c)
|
Variable/Floating
Rate Security Interest rate changes on these instruments are based on
changes in a designated base rate. The rates shown are those in effect on
October 31, 2008.
|
8
|
The accompanying notes are an integral part
of the financial statements.
|
|
|
Morgan
Stanley Emerging Markets Domestic Debt Fund, Inc.
|
|
|
|
October 31,
2008
|
Portfolio of Investments
(contd)
(d)
|
144A
security Certain conditions for public sale may exist. Unless otherwise
noted, these securities are deemed to be liquid.
|
(e)
|
See
Note G within the Notes to Financial Statements regarding investment in
Morgan Stanley Institutional Liquidity Funds Money Market Portfolio
Institutional Class.
|
(f)
|
Rate
shown is the yield to maturity at October 31, 2008.
|
(g)
|
All
or a portion of the security was pledged as collateral for swap agreements.
|
Foreign Currency Exchange Contract Information:
The Fund had the following foreign currency
exchange contract(s) open at period end:
Currency
to
Deliver
(000)
|
|
Value
(000)
|
|
Settlement
Date
|
|
In
Exchange
For
(000)
|
|
Value
(000)
|
|
Net
Unrealized
Appreciation
(Depreciation)
(000)
|
|
BRL
|
169,900
|
|
$
|
78,421
|
|
11/4/08
|
|
USD
|
87,645
|
|
$
|
87,645
|
|
$
|
9,224
|
|
BRL
|
169,900
|
|
77,530
|
|
12/2/08
|
|
USD
|
79,244
|
|
79,244
|
|
1,714
|
|
BRL
|
98,775
|
|
45,592
|
|
11/4/08
|
|
USD
|
50,983
|
|
50,983
|
|
5,391
|
|
BRL
|
30,705
|
|
14,172
|
|
11/4/08
|
|
USD
|
13,909
|
|
13,909
|
|
(263
|
)
|
BRL
|
33,330
|
|
15,385
|
|
11/4/08
|
|
USD
|
14,429
|
|
14,429
|
|
(956
|
)
|
BRL
|
43,465
|
|
20,063
|
|
11/4/08
|
|
USD
|
20,649
|
|
20,649
|
|
586
|
|
BRL
|
55,310
|
|
25,239
|
|
12/2/08
|
|
USD
|
25,973
|
|
25,973
|
|
734
|
|
COP
|
80,000,00
|
0
|
33,543
|
|
11/4/08
|
|
USD
|
36,563
|
|
36,563
|
|
3,020
|
|
COP
|
33,300,00
|
0
|
13,962
|
|
11/4/08
|
|
USD
|
15,219
|
|
15,219
|
|
1,257
|
|
COP
|
33,300,00
|
0
|
13,896
|
|
11/28/08
|
|
USD
|
13,783
|
|
13,783
|
|
(113
|
)
|
COP
|
80,000,00
|
0
|
33,385
|
|
11/28/08
|
|
USD
|
33,466
|
|
33,466
|
|
81
|
|
MXN
|
250,365
|
|
19,376
|
|
11/18/08
|
|
USD
|
18,877
|
|
18,877
|
|
(499
|
)
|
USD
|
80,142
|
|
80,142
|
|
11/4/08
|
|
BRL
|
169,900
|
|
78,422
|
|
(1,720
|
)
|
USD
|
21,099
|
|
21,099
|
|
11/4/08
|
|
BRL
|
43,465
|
|
20,062
|
|
(1,037
|
)
|
USD
|
13,617
|
|
13,617
|
|
11/4/08
|
|
BRL
|
30,705
|
|
14,173
|
|
556
|
|
USD
|
13,549
|
|
13,549
|
|
11/4/08
|
|
BRL
|
33,330
|
|
15,384
|
|
1,835
|
|
USD
|
46,924
|
|
46,924
|
|
11/4/08
|
|
BRL
|
98,775
|
|
45,592
|
|
(1,332
|
)
|
USD
|
33,684
|
|
33,684
|
|
11/4/08
|
|
COP
|
80,000,00
|
0
|
33,543
|
|
(141
|
)
|
USD
|
13,875
|
|
13,875
|
|
11/4/08
|
|
COP
|
33,300,00
|
0
|
13,962
|
|
87
|
|
USD
|
74,643
|
|
74,643
|
|
11/14/08
|
|
EUR
|
54,616
|
|
69,585
|
|
(5,058
|
)
|
USD
|
6,105
|
|
6,105
|
|
11/10/08
|
|
MXN
|
79,565
|
|
6,172
|
|
67
|
|
USD
|
18,433
|
|
18,433
|
|
11/18/08
|
|
MXN
|
250,365
|
|
19,377
|
|
944
|
|
USD
|
20,981
|
|
20,981
|
|
11/28/08
|
|
MXN
|
271,238
|
|
20,927
|
|
(54
|
)
|
|
|
|
$
|
733,616
|
|
|
|
|
|
|
$
|
747,939
|
|
$
|
14,323
|
|
BRL
|
Brazilian Real
|
COP
|
Colombian Peso
|
EGP
|
Egyptian Pound
|
EUR
|
Euro
|
HUF
|
Hungarian Forint
|
IDR
|
Indonesian Rupiah
|
KZT
|
Kazakhstan Tenge
|
MXN
|
Mexican Peso
|
MYR
|
Malaysian Ringgit
|
PEN
|
Peruvian Sol
|
THB
|
Thailand Baht
|
TRY
|
Turkish Lira
|
USD
|
United States Dollar
|
ZAR
|
South African Rand
|
Portfolio Composition
|
|
Percentage
|
|
|
|
of Total
|
|
Classification
|
|
Investments
|
|
Sovereign
|
|
92.8
|
%
|
Corporate
|
|
5.7
|
|
Short-Term Investments
|
|
1.5
|
|
Total Investments
|
|
100.0
|
%
|
|
The accompanying notes are an integral part
of the financial statements.
|
9
|
|
Morgan
Stanley Emerging Markets Domestic Debt Fund, Inc.
|
|
|
|
October 31,
2008
|
Portfolio of Investments
(contd)
Interest Rate Swap Contracts
The
Fund had the following interest rate swap agreement(s) open at period end:
Swap Counterparty
|
|
Floating Rate
Index
|
|
Pay/Receive
Floating Rate
|
|
Fixed Rate
|
|
Termination Date
|
|
Notional
Amount
(000)
|
|
Net Unrealized
Appreciation
(Depreciation)
(000)
|
|
JPMorgan Chase
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 Month
JIBAR
|
|
Pay
|
|
10.93
|
%
|
8/26/10
|
|
$
|
256,600
|
|
$
|
94
|
|
|
|
MXN-TIIE-Banxico
|
|
Pay
|
|
9.41
|
|
7/8/13
|
|
259,500
|
|
231
|
|
|
|
3 Month
JIBAR
|
|
Receive
|
|
9.67
|
|
8/27/18
|
|
71,600
|
|
(285
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JIBAR Johannesburg Interbank Agreed Rate
MXN-TIIE Mexican Inter Bank Equilibrium Interest Rate
Total Return Swap Contract
The
Fund had the following total return swap agreement(s) open at period end:
Swap Counterparty
|
|
Pay
|
|
Receive
|
|
Termination
Date
|
|
Notional
Amount
(000)
|
|
Net Unrealized
Appreciation
(Depreciation)
(000)
|
|
Citigroup
|
|
USD-LIBOR-BBA + 0.20%
|
|
7.34%
|
|
02/13/17
|
|
RUB 982,224
|
|
$
|
(7,949
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BBA
British Bankers Association
LIBOR
London Inter Bank Offer Rate
RUB
Russian Ruble
10
|
The accompanying notes are an integral part
of the financial statements.
|
|
|
Morgan
Stanley Emerging Markets Domestic Debt Fund, Inc.
|
|
|
|
Financial
Statements
|
Statement of Assets and
Liabilities
|
|
October 31, 2008
(000)
|
|
Assets:
|
|
|
|
Investments in Securities of Unaffiliated
Issuers, at Value (Cost $1,584,415)
|
|
$
|
1,221,336
|
|
Investment in Security of Affiliated
Issuer, at Value (Cost $4,746)
|
|
4,746
|
|
Total Investments in Securities, at Value
(Cost $1,589,161)
|
|
1,226,082
|
|
Cash
|
|
313
|
|
Receivable for Investments Sold
|
|
135,473
|
|
Interest Receivable
|
|
34,985
|
|
Unrealized Appreciation on Foreign Currency
Exchange Contracts
|
|
25,496
|
|
Foreign Currency, at Value (Cost $2,601)
|
|
2,675
|
|
Unrealized Appreciation on Swap Agreements
|
|
325
|
|
Dividends Receivable
|
|
181
|
|
Receivable from Affiliate
|
|
8
|
|
Other Assets
|
|
51
|
|
Total Assets
|
|
1,425,589
|
|
Liabilities:
|
|
|
|
Payable For:
|
|
|
|
Line of Credit
|
|
345,149
|
|
Investments Purchased
|
|
134,107
|
|
Investment Advisory Fees
|
|
1,106
|
|
Due to Broker
|
|
994
|
|
Custodian Fees
|
|
310
|
|
Lehman Brothers Closed Reverse Repurchase
Transactions
|
|
266
|
|
Administration Fees
|
|
90
|
|
Unrealized Depreciation on Foreign Currency
Exchange Contracts
|
|
11,173
|
|
Unrealized Depreciation on Swap Agreements
|
|
8,234
|
|
Other Liabilities
|
|
198
|
|
Total Liabilities
|
|
501,627
|
|
Net Assets
|
|
|
|
Applicable to 73,284,736 Issued and
Outstanding $0.01 Par Value Shares (100,000,000 Shares Authorized)
|
|
$
|
923,962
|
|
Net Asset Value Per Share
|
|
$
|
12.61
|
|
Net Assets Consist of:
|
|
|
|
Common Stock
|
|
$
|
733
|
|
Paid-in Capital
|
|
1,394,082
|
|
Undistributed (Distributions in Excess of)
Net Investment Income
|
|
(29,481
|
)
|
Accumulated Net Realized Loss
|
|
(81,227
|
)
|
Unrealized Appreciation (Depreciation) on:
|
|
|
|
Investments
|
|
(363,079
|
)
|
Foreign Currency Exchange Contracts and
Translations
|
|
10,843
|
|
Swap Agreements
|
|
(7,909
|
)
|
Net Assets
|
|
$
|
923,962
|
|
|
The accompanying notes are an integral part
of the financial statements.
|
11
|
|
Morgan
Stanley Emerging Markets Domestic Debt Fund, Inc.
|
|
|
|
Financial
Statements
|
Statement of Operations
|
|
Year Ended
October 31, 2008
(000)
|
|
Investment Income:
|
|
|
|
Interest from Securities of Unaffiliated
Issuers (Net of $1 of Foreign Taxes Withheld)
|
|
$
|
191,126
|
|
Dividends from Securities of Affiliated
Issuer
|
|
947
|
|
Total Investment Income
|
|
192,073
|
|
Expenses:
|
|
|
|
Investment Advisory Fees (Note B)
|
|
17,042
|
|
Administration Fees (Note C)
|
|
1,364
|
|
Custodian Fees (Note D)
|
|
1,127
|
|
Commitment Fee
|
|
169
|
|
Professional Fees
|
|
156
|
|
Stockholder Reporting Expenses
|
|
150
|
|
Maintenance Fees on Line of Credit
|
|
26
|
|
Directors Fees and Expenses
|
|
21
|
|
Stockholder Servicing Agent Fees
|
|
6
|
|
Other Expenses
|
|
745
|
|
Expenses Before Non Operating Expenses
|
|
20,806
|
|
Interest Expense on Line of Credit (Note H)
|
|
10,359
|
|
Interest Expense on Reverse Repurchase
Agreements
|
|
5,401
|
|
Country Tax Expense#
|
|
83
|
|
Bank Overdraft Expense
|
|
9
|
|
Total Expenses
|
|
36,658
|
|
Rebate from Morgan Stanley Affiliated Cash
Sweep (Note G)
|
|
(33
|
)
|
Expense Offset (Note D)
|
|
(1
|
)
|
Net Expenses
|
|
36,624
|
|
Net Investment Income
|
|
155,449
|
|
Net Realized Gain (Loss) on:
|
|
|
|
Investments
|
|
(109,753
|
)
|
Foreign Currency Transactions
|
|
(20,103
|
)
|
Swap Agreements
|
|
1,677
|
|
Net Realized Loss
|
|
(128,179
|
)
|
Change in Unrealized Appreciation
(Depreciation) on:
|
|
|
|
Investments
|
|
(422,168
|
)
|
Foreign Currency Exchange Contracts and
Translations
|
|
10,024
|
|
Swap Agreements
|
|
(9,572
|
)
|
Change in Unrealized Appreciation (Depreciation)
|
|
(421,716
|
)
|
Net Realized Loss and Change in Unrealized
Appreciation (Depreciation)
|
|
(549,895
|
)
|
Net Decrease in Net Assets Resulting from
Operations
|
|
$
|
(394,446
|
)
|
#
CPMF (Provisional Contribution on Financial Transactions) is a Brazilian federal
tax imposed on certain banking transactions and account withdrawals. The tax is
charged based on the value of the transaction.
12
|
The accompanying notes are an integral part
of the financial statements.
|
|
|
Morgan
Stanley Emerging Markets Domestic Debt Fund, Inc.
|
|
|
|
Financial
Statements
|
Statements of Changes
in Net Assets
|
|
Year Ended
October 31,
2008
(000)
|
|
Period Ended
October 31,
2007^
(000)
|
|
Increase (Decrease) in Net Assets
|
|
|
|
|
|
Operations:
|
|
|
|
|
|
Net Investment Income
|
|
$
|
155,449
|
|
$
|
65,321
|
|
Net Realized Gain (Loss)
|
|
(128,179
|
)
|
18,444
|
|
Net Change in Unrealized Appreciation
(Depreciation)
|
|
(421,716
|
)
|
61,571
|
|
Net Increase (Decrease) in Net Assets
Resulting from Operations
|
|
(394,446
|
)
|
145,336
|
|
Distributions from and/or in Excess of:
|
|
|
|
|
|
Net Investment Income
|
|
(175,774
|
)
|
(43,991
|
)
|
Net Realized Gain
|
|
(6,283
|
)
|
|
|
Total Distributions
|
|
(182,057
|
)
|
(43,991
|
)
|
Capital Share Transactions:
|
|
|
|
|
|
Fund Shares Sold (0 and 73,317,736 shares,
Net of Expenses of $651,000 in 2007)
|
|
|
|
1,399,618
|
|
Additional Expenses Incurred from the 2007 Initial
Offering
|
|
(16
|
)
|
|
|
Repurchase of Shares (33,000 and 0 shares,
respectively)
|
|
(582
|
)
|
|
|
Net Increase (Decrease) in Net Assets
Resulting from Capital Share Transactions
|
|
(598
|
)
|
1,399,618
|
|
Total Increase (Decrease)
|
|
(577,101
|
)
|
1,500,963
|
|
Net Assets:
|
|
|
|
|
|
Beginning of Period
|
|
1,501,063
|
|
100
|
|
End of Period (Including Undistributed
(Distributions in Excess of) Net Investment Income of $(29,481) and $36,010,
respectively)
|
|
$
|
923,962
|
|
$
|
1,501,063
|
|
^ For the period April 24, 2007
(commencement of operations) to October 31, 2007.
|
The accompanying notes are an integral part
of the financial statements.
|
13
|
|
Morgan
Stanley Emerging Markets Domestic Debt Fund, Inc.
|
|
|
|
Financial
Statements
|
Statement of Cash Flows
|
|
Year
Ended
October 31, 2008
(000)
|
|
Cash Flows From Operating Activities:
|
|
|
|
Proceeds from Sales and Maturities of Long-Term Investments
|
|
$
|
2,160,110
|
|
Purchase of Long-Term Investments
|
|
(1,999,786
|
)
|
Net (Increase) Decrease in Short-Term
Investments
|
|
5,446
|
|
Net (Increase) Decrease in Foreign Currency
Holdings
|
|
(1,326
|
)
|
Net Realized Gain (Loss) for Foreign
Currency Transactions
|
|
(20,103
|
)
|
Net Realized Gain (Loss) on Swap Agreements
|
|
1,677
|
|
Net Investment Income
|
|
155,449
|
|
Adjustments to Reconcile Net Investment
Income to Net Cash Provided (Used) by Operating Activities:
|
|
|
|
Net (Increase) Decrease in Receivables
Related to Operations
|
|
8,799
|
|
Net (Increase) Decrease in Payables Related
to Operations
|
|
(665
|
)
|
Accretion/Amortization of Discounts and
Premiums
|
|
(28,534
|
)
|
Net Cash Provided (Used) by Operating
Activities
|
|
281,067
|
|
Cash Flows From Financing Activities:
|
|
|
|
Cash Received for Reverse Repurchase
Agreements
|
|
5,395,579
|
|
Cash Paid for Reverse Repurchase Agreements
|
|
(5,624,105
|
)
|
Cash Received for Line of Credit
|
|
128,700
|
|
Payment for Fund Shares Repurchased
|
|
(582
|
)
|
Cash Distribution Paid
|
|
(182,057
|
)
|
Net Cash Provided (Used) for Financing
Activities
|
|
(282,465
|
)
|
Net Increase(Decrease) in Cash
|
|
(1,398
|
)
|
Cash at Beginning of Period
|
|
1,711
|
|
Cash at End of Period
|
|
$
|
313
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow
Information:
|
|
|
|
Interest Paid on Line of Credit during the
Period
|
|
$
|
9,846
|
|
Interest Paid on Reverse Repurchase
Agreements during the Period
|
|
6,574
|
|
14
|
The accompanying notes are an integral part
of the financial statements.
|
|
|
Morgan
Stanley Emerging Markets Domestic Debt Fund, Inc.
|
|
|
|
Financial
Highlights
|
Selected Per Share Data
and Ratios
|
|
Year
Ended
October 31,
2008
|
|
Period from
April 24,
2007^ to
October 31,
2007
|
|
Net Asset Value, Beginning of Period
|
|
$
|
20.47
|
|
$
|
19.10
|
|
Net Investment Income
|
|
2.12
|
|
0.90
|
|
Net Realized and Unrealized Gain (Loss) on
Investments
|
|
(7.49
|
)
|
1.07
|
|
Total from Investment Operations
|
|
(5.37
|
)
|
1.97
|
|
Distributions from and/or in excess of:
|
|
|
|
|
|
Net Investment Income
|
|
(2.40
|
)
|
(0.60
|
)
|
Net Realized Gain
|
|
(0.09
|
)
|
|
|
Total Distributions
|
|
(2.49
|
)
|
(0.60
|
)
|
Anti-Dilutive Effect of Share Repurchase
Program
|
|
0.00
|
@
|
|
|
Net Asset Value, End of Period
|
|
$
|
12.61
|
|
$
|
20.47
|
|
Per Share Market Value, End of Period
|
|
$
|
9.70
|
|
$
|
18.93
|
|
TOTAL INVESTMENT RETURN:
|
|
|
|
|
|
Market Value
|
|
(39.43
|
)%
|
(2.46
|
)%#
|
Net Asset Value (1)
|
|
(27.22
|
)%
|
10.77
|
%#
|
RATIOS, SUPPLEMENTAL DATA:
|
|
|
|
|
|
Net Assets, End of Period (Thousands)
|
|
$
|
923,962
|
|
$
|
1,501,063
|
|
Ratio of Expenses to Average Net Assets
|
|
2.80
|
%+
|
3.24
|
%*+
|
Ratio of Expenses to Average Net Assets
Excluding Non Operating Expenses
|
|
1.59
|
%+
|
2.21
|
%*+
|
Ratio of Net Investment Income to Average
Net Assets
|
|
11.90
|
%+
|
8.88
|
%*+
|
Portfolio Turnover Rate
|
|
130
|
%
|
58
|
%#
|
^
Commencement of Operations
Per share amount is based on average shares outstanding.
@
Amount is less than $0.005 per share.
#
Not Annualized
(1) Total
investment return based on net asset value per share reflects the effects of
changes in net asset value on the performance of the Fund during each period,
and assumes dividends and distributions, if any, were reinvested. This
percentage is not an indication of the performance of a stockholders
investment in the Fund based on market value due to differences between the
market price of the stock and the net asset value per share of the Fund.
+
Reflects rebate of certain Fund expenses in connection with the investments in
Morgan Stanley Institutional Liquidity Funds Money Market Portfolio
Institutional Class during the period. As a result of such rebate, the
expenses as a percentage of its net assets were effected by less than 0.005%
and approximately 0.01% for the years ended October 31, 2008 and 2007,
respectively.
*
Annualized
|
The accompanying notes are an integral part
of the financial statements.
|
15
|
|
Morgan
Stanley Emerging Markets Domestic Debt Fund, Inc.
|
|
|
|
October 31, 2008
|
Notes to Financial
Statements
The
Morgan Stanley Emerging Markets Domestic Debt Fund, Inc. (the Fund) was
incorporated in Maryland on January 25, 2007 and is registered as a
non-diversified, closed-end management investment company under the Investment
Company Act of 1940, as amended (the 1940 Act). The Funds primary investment
objective is to seek a high level of current income, with a secondary investment
objective of long-term capital appreciation. The Fund seeks to achieve its
investment objectives by investing, under normal circumstances, at least 80% of
its managed assets in emerging markets domestic debt.
The
Fund is authorized to issue 100,000,000 shares of $0.01 par value common stock
and 50,000,000 shares of $0.01 par value preferred stock. The Fund had no
operations until April 24, 2007, other than matters relating to its
organization and registration and sale and issuance to Morgan Stanley Investment
Management Inc. (the Adviser or MS Investment Management) of 5,236 shares
of common stock at an aggregate purchase price of $100,000. The Adviser, on
behalf of the Fund, will incur all of the Funds organizational costs,
estimated at $10,000. The Adviser also has agreed to pay the amount by which
the offering costs of the Fund (other than the sales load) exceed $0.04 per
share of the Funds common shares. The aggregate offering expenses (other than
the sales load) were $667,000 (including amounts to be paid by the Adviser). On
April 24, 2007, the Fund sold 63,750,000 common shares in an initial
public offering. Proceeds to the Fund were $1,217,025,000 after deducting
underwriting commissions and $600,000 of offering expenses. On May 7, 15
and 29, 2007 the Fund sold 6,000,000, 2,000,000 and 1,562,500 common shares,
respectively, pursuant to an over allotment agreement with the underwriters for
net proceeds of $182,643,750 after deducting underwriting commissions and
$16,000 of additional expenses incurred in 2008 related to the 2007 offering.
A. Accounting Policies:
The following significant accounting policies
are in conformity with U.S. generally accepted accounting principles. Such
policies are consistently followed by the Fund in the preparation of its
financial statements. U.S. generally accepted accounting principles may require
management to make estimates and assumptions that affect the reported amounts
and disclosures in the financial statements. Actual results may differ from
those estimates.
1.
Security Valuation:
Bonds and other fixed income securities may
be valued according to the broadest and most representative market. In
addition, bonds and other fixed income securities may be valued on the basis of
prices provided by a pricing service. The prices provided by a pricing service
take into account broker dealer market price quotations for institutional size
trading in similar groups of securities, security quality, maturity, coupon and
other security characteristics as well as any developments related to the
specific securities. Securities listed on a foreign exchange are valued at
their closing price. Unlisted securities and listed securities not traded on
the valuation date for which market quotations are readily available are valued
at the mean between the current bid and ask prices obtained from reputable
brokers. Equity securities listed on a U.S. exchange are valued at the latest
quoted sales price on the valuation date. Equity securities listed or traded on
NASDAQ, for which market quotations are available, are valued at the NASDAQ
Official Closing Price. Debt securities purchased with remaining maturities of
60 days or less are valued at amortized cost, if it approximates market value.
All
other securities and investments for which market values are not readily
available, including restricted securities, and those securities for which it
is inappropriate to determine prices in accordance with the aforementioned
procedures, are valued at fair value as determined in good faith under
procedures adopted by the Board of Directors (the Director), although the
actual calculations may be done by others. Factors considered in making this
determination may include, but are not limited to, information obtained by
contacting the issuer, analysts, or the appropriate stock exchange (for
exchange-traded securities), analysis of the issuers financial statements or
other available documents and, if necessary, available information concerning
other securities in similar circumstances.
Most
foreign markets close before the New York Stock Exchange (NYSE). Occasionally,
developments that could affect the closing prices of securities and other assets
may occur between the times at which valuations of such securities are
determined (that is, close of the foreign market on which the securities trade)
and the close of business on the NYSE. If these developments are expected to
materially affect the value of the securities, the valuations may be adjusted
to reflect the estimated fair value as of the close of the NYSE, as determined
in good faith under procedures established by the Directors.
2.
Reverse Repurchase
Agreements:
The Fund may
enter into reverse repurchase agreements with institutions that the Funds
investment adviser has determined are
16
|
Morgan
Stanley Emerging Markets Domestic Debt Fund, Inc.
|
|
|
|
October
31, 2008
|
Notes to Financial
Statements (contd)
creditworthy.
Under a reverse repurchase agreement, the Fund sells securities and agrees to
repurchase them at a mutually agreed upon date and price. Reverse repurchase
agreements involve the risk that the market value of the securities purchased
with the proceeds from the sale of securities received by the Fund may decline
below the price of the securities the Fund is obligated to repurchase. Reverse
repurchase agreements also involve credit risk with the counterparty to the
extent that the value of securities subject to repurchase exceed the Funds
liability under the reverse repurchase agreement. Securities subject to
repurchase under reverse repurchase agreements, if any, are designated as such
in the Portfolio of Investments.
At
October 31, 2008, the Fund did not have any outstanding reverse repurchase
agreements.
3.
Foreign Currency Translation:
The books and records of the Fund are
maintained in U.S. dollars. Foreign currency amounts are translated into U.S.
dollars at the mean of the bid and asked prices of such currencies against U.S.
dollars last quoted by a major bank as follows:
investments,
other assets and liabilities at the prevailing rate of exchange on the
valuation date;
investment
transactions and investment income at the prevailing rate of exchange on the
dates of such transactions.
Although
the net assets of the Fund are presented at the foreign exchange rates and
market values at the close of the period, the Fund does not isolate that
portion of the results of operations arising as a result of changes in the
foreign exchange rates from the fluctuations arising from changes in the market
prices of the securities held at period end. Similarly, the Fund does not
isolate the effect of changes in foreign exchange rates from the fluctuations arising
from changes in the market prices of securities sold during the period. Accordingly,
realized and unrealized foreign currency gains (losses) due to securities
transactions are included in the reported net realized and unrealized gains
(losses) on investment transactions and balances.
Net
realized gains (losses) on foreign currency transactions represent net foreign
exchange gains (losses) from sales and maturities of foreign currency exchange contracts,
disposition of foreign currencies, currency gains or losses realized between
the trade and settlement dates on securities transactions, and the difference
between the amount of investment income and foreign withholding taxes recorded
on the Funds books and the U.S. dollar equivalent amounts actually received or
paid. Net unrealized currency gains (losses) from valuing foreign currency
denominated assets and liabilities at period end exchange rates are reflected
as a component of unrealized appreciation (depreciation) on investments and
foreign currency translations in the Statement of Assets and Liabilities. The
change in net unrealized currency gains (losses) on foreign currency
translations for the period is reflected in the Statement of Operations.
A
significant portion of the Funds managed assets consist of securities of
issuers located in emerging markets or which are denominated in foreign
currencies. Such investments may be concentrated in a limited number of
countries and regions and may vary throughout the year. Changes in currency
exchange rates will affect the value of and investment income from foreign
currency denominated securities. Emerging market securities are often subject
to greater price volatility, limited capitalization and liquidity, and higher
rates of inflation than U.S. securities. In addition, emerging market
securities may be subject to substantial governmental involvement in the
economy and greater social, economic and political uncertainty.
4.
Derivatives:
The Fund may use derivatives to achieve its
investment objectives. The Fund may engage in transactions in futures contracts
on foreign currencies, securities or stock indices, as well as in options,
swaps and structured products. Consistent with the Funds investment objectives
and policies, the Fund may use derivatives for non-hedging as well as hedging
purposes.
Following
is a description of derivative instruments that the Fund has utilized and their
associated risks:
Foreign
Currency Exchange Contracts: The Fund may enter into foreign currency exchange
contracts to attempt to protect securities and related receivables and payables
against changes in future foreign exchange rates and, in certain situations, to
gain exposure to a foreign currency. A foreign currency exchange contract is an
agreement between two parties to buy or sell currency at a set price on a
future date. The market value of the contract will fluctuate with changes in
currency exchange rates. The contract is marked-to-market daily and the change
in market value is recorded by the Fund as unrealized gain or loss. The Fund
records realized gains or losses when
17
|
Morgan
Stanley Emerging Markets Domestic Debt Fund, Inc.
|
|
|
|
October 31,
2008
|
Notes to Financial
Statements (contd)
the
contract is closed 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. Risk may arise
upon entering into these contracts from the potential inability of
counterparties to meet the terms of their contracts and is generally limited to
the amount of unrealized gain on the contracts, if any, at the date of default.
Risks may also arise from unanticipated movements in the value of a foreign
currency relative to the U.S. dollar.
Purchased &
Written Options: The Fund may write covered call and put options on portfolio
securities and other financial instruments. Premiums are received and are
recorded as liabilities. The liabilities are subsequently adjusted to reflect
the current value of the options written. Premiums received from writing
options which expire are treated as realized gains. Premiums received from writing
options which are exercised or are closed are added to or offset against the
proceeds or amount paid on the transaction to determine the net realized gain
or loss. By writing a covered call option, the Fund, in exchange for the
premium, foregoes the opportunity for capital appreciation above the exercise
price should the market price of the underlying security increase. By writing a
put option, the Fund, in exchange for the premium, accepts the risk of having
to purchase a security at an exercise price that is above the current market
price.
The
Fund may purchase call and put options on its securities or other financial
instruments. The Fund may purchase call options to protect against an increase
in the price of the security or financial instrument it anticipates purchasing.
The Fund may purchase put options on securities which it holds or other
financial instruments to protect against a decline in the value of the security
or financial instrument or to close out covered written put positions. Risks
may arise from an imperfect correlation between the change in market value of
the securities purchased or sold by the Fund and from the possible lack of a
liquid secondary market for an option. The maximum exposure to loss for any
purchased option is limited to the premium initially paid for the option.
At
October 31, 2008, the Fund did not have any outstanding options written.
Securities
Sold Short: The Fund may sell securities short. A short sale is a transaction
in which the Fund sells securities it may or may not own, but has borrowed, in
anticipation of a decline in the market price of the securities. The Fund is
obligated to replace the borrowed securities at their market price at the time
of replacement. The Fund may have to pay a premium to borrow the securities as
well as pay any dividends or interest payable on the securities until they are
replaced. The Funds obligation to replace the securities borrowed in connection
with a short sale will generally be secured by collateral deposited with the
broker that consists of cash, U.S. government securities or other liquid, high
grade debt obligations. In addition, the Fund will either place in a segregated
account with its custodian or denote on its custody records an amount of cash,
U.S. government securities or other liquid high grade debt obligations equal to
the difference, if any, between (1) the market value of the securities
sold at the time they were sold short and (2) any cash, U.S. government
securities or other liquid high grade debt obligations deposited as collateral
with the broker in connection with the short sale (not including the proceeds
of the short sale). Short sales by the Fund involve certain risks and special
considerations. Possible losses from short sales differ from losses that could
be incurred from a purchase of a security because losses from short sales may
be unlimited, whereas losses from purchases cannot exceed the total amount
invested.
Structured
Securities: The Fund may invest in interests in entities organized and operated
solely for the purpose of restructuring the investment characteristics of
sovereign debt obligations. This type of restructuring involves the deposit
with or purchase by an entity of specified instruments and the issuance by that
entity of one or more classes of securities (Structured Securities) backed
by, or representing interests in, the underlying instruments. Structured
Securities generally will expose the Fund to credit risks of the underlying
instruments as well as of the issuer of the Structured Security. Structured
Securities are typically sold in private placement transactions with no active
trading market. Investments in Structured Securities may be more volatile than
their underlying instruments, however, any loss is limited to the amount of the
original investment.
Over-the-Counter
Trading: Securities and other derivative instruments that may be purchased or
sold by the Fund may consist of instruments not traded on an exchange. The risk
of nonperformance by the obligor on such an instrument may be greater, and the
ease with which the Fund can dispose of or enter into closing transactions with
respect to such an instrument may be
18
|
Morgan
Stanley Emerging Markets Domestic Debt Fund, Inc.
|
|
|
|
October 31,
2008
|
Notes to Financial
Statements (contd)
less,
than in the case of an exchange-traded instrument. In addition, significant
spreads may exist between bid and ask prices for derivative instruments that
are not traded on an exchange. Derivative instruments not traded on exchanges
are also not subject to the same type of government regulation as exchange
traded instruments, and many of the protections afforded to participants in a
regulated environment may not be available in connection with such
transactions.
Swap
Agreements: The Fund may enter into swap agreements to exchange the interest
rate on, or return generated by, one nominal instrument for the return
generated by another nominal instrument. Securities designated as collateral
for swap agreements, if any, are designated as such in the Portfolio of
Investments. Cash collateral for swap agreements, if applicable, is deposited
with the broker serving as counterparty to the agreement, and is included in Due
from (to) Broker on the Statement of Assets and Liabilities. The following
summarizes swaps entered into by the Fund:
Credit Default Swaps:
Credit default swaps involve commitments to
pay a fixed rate in exchange for payment if a credit event affecting a third
party (the referenced company) occurs. Credit events may include a failure to
pay interest, bankruptcy, or restructuring. The Fund accrues for interim
payments on swap contracts on a daily basis, with the net amount recorded
within unrealized appreciation (depreciation) of swap contracts on the
Statement of Assets and Liabilities. Once interim payments are settled in cash,
the net amount is recorded within realized gain (loss) on swaps in the
Statement of Operations. Credit default swaps are marked-to-market daily based
upon quotations from market makers and the change, if any, is recorded as
unrealized appreciation or depreciation in the Statement of Operations.
Interest Rate Swaps:
Interest rate swaps involve the exchange of
commitments to pay and receive interest based on a notional principal amount.
The Fund accrues for interim payments on swap contracts on a daily basis, with
the net amount recorded within unrealized appreciation (depreciation) of swap
contracts on the Statement of Assets and Liabilities. Once interim payments are
settled in cash, the net amount is recorded within realized gain (loss) on
swaps on the Statement of Operations. In a zero-coupon interest rate swap,
payments only occur at maturity, at which time one counterparty pays the total
compounded fixed rate over the life of the swap and the other pays the total
compounded floating rate that would have been earned had a series of LIBOR
investments been rolled over through the life of the swap. The Fund amortizes
its interest payment obligation over the life of the swap. The amortized
portion of this payment is recorded in the Statement of Operations as an
adjustment to interest income. The unamortized portion of this payment is
included in Due from (to) Broker on the Statement of Assets and Liabilities.
Interest rate swaps are marked-to market daily based upon quotations from
market makers and the change, if any, is recorded as unrealized appreciation or
depreciation in the Statement of Operations.
Total Return Swaps:
Total return swaps involve commitments to pay
interest in exchange for a market-linked return based on a notional amount. To
the extent the total return of the security or index underlying the transaction
exceeds or falls short of the offsetting interest rate obligation, the Fund
will receive a payment from or make a payment to the counterparty,
respectively. Total return swaps are marked-to-market daily based upon
quotations from market makers and the change, if any, is recorded as unrealized
appreciation or depreciation in the Statement of Operations. Periodic payments
received or made at the end of each measurement period, but prior to
termination, are recorded as realized gains or losses in the Statement of
Operations.
Realized
gains or losses on maturity or termination of swaps are presented in the
Statement of Operations. Because there is no organized market for these swap
agreements, the unrealized gain (loss) reported in the Statement of Assets and
Liabilities may differ from that which would be realized in the event the Fund
terminated its position in the agreement. Risks may arise upon entering into
these agreements from the potential inability of the counterparties to meet the
terms of the agreements and are generally limited to the amount of net interest
payments to be received, if any, at the date of default. Risks also arise from
potential losses from adverse market movements and such losses could exceed the
related amounts shown in the Statement of Assets and Liabilities.
5. New Accounting Pronouncements:
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
19
|
Morgan
Stanley Emerging Markets Domestic Debt Fund, Inc.
|
|
|
|
October 31,
2008
|
Notes to Financial
Statements (contd)
15,
2007. SFAS 157 defines fair value, establishes a framework for measuring fair
value and expands disclosures about fair value measurements. As of October 31,
2008, the Adviser does not believe the adoption of SFAS 157 will impact the
amounts reported in the financial statements, however, additional disclosures
will be required about the inputs used to develop the measurements of fair
value and the effect of certain measurements reported in the Statement of
Operations for a fiscal period.
On
March 19, 2008, Financial Accounting Standards Board released Statement of
Financial Accounting Standards No. 161, Disclosures about Derivative Instruments
and Hedging Activities (SFAS 161). SFAS 161 requires qualitative disclosures
about objectives and strategies for using derivatives, quantitative disclosures
about fair value amounts of and gains and losses on derivative instruments, and
disclosures about credit-risk-related contingent features in derivative
agreements. The application of SFAS 161 is required for fiscal years and
interim periods beginning after November 15, 2008. At this time,
management is evaluating the implications of SFAS 161 and its impact on the
financial statements has not yet been determined.
6.
Other:
Security transactions are accounted for on
the date the securities are purchased or sold. Realized gains (losses) on the
sale of investment securities are determined on the specific identified cost
basis. Interest income is recognized on the accrual basis and discounts and
premiums on investments purchased are accreted or amortized in accordance with
the effective yield method over their respective lives, except where collection
is in doubt.
B. Investment Advisory Fees:
MS Investment Management provides investment
advisory services to the Fund under the terms of an Investment Advisory and
Management Agreement (the Agreement). Under the Agreement, the Adviser is
paid a fee computed weekly and payable monthly at an annual rate of 1.00% of
the Funds average weekly managed assets.
C. Administration Fees:
MS Investment Management also serves as
Administrator to the Fund pursuant to an Administration Agreement. Under the
Administration Agreement, the administration fee is 0.08% of the Funds average
weekly managed assets. Under a sub-administration agreement between the
Administrator and JPMorgan Investor Services Co. (JPMIS), a corporate
affiliate of JPMorgan Chase Bank, N.A., JPMIS provides certain administrative
services to the Fund. For such services, the Administrator pays JPMIS a portion
of the fee the Administrator receives from the Fund. Administration costs
(including out-of-pocket expenses) incurred in the ordinary course of providing
services under the Administration Agreement, except pricing services and
extraordinary expenses, are covered under the administration fee.
D. Custodian Fees:
JPMorgan Chase Bank, N.A., (the Custodian)
and its affiliates serve as Custodian for the Fund. The Custodian holds cash,
securities, and other assets of the Fund as required by the 1940 Act. Custody
fees are payable monthly based on assets held in custody, investment purchases
and sales activity and account maintenance fees, plus reimbursement for certain
out-of-pocket expenses.
The
Fund has entered into an arrangement with its Custodian whereby credits
realized on uninvested cash balances were used to offset a portion of the Funds
expenses. These custodian credits are shown as Expense Offset in the
Statement of Operations.
E. Federal Income Taxes:
It is the Funds intention to continue to
qualify as a regulated investment company and distribute all of its taxable
income. Accordingly, no provision for Federal income taxes is required in the
financial statements. Distributions to stockholders are recorded on the
ex-dividend date.
The
Fund may be subject to taxes imposed by countries in which it invests. Such
taxes are generally based on income and/or capital gains earned or repatriated.
Taxes are accrued and applied to net investment income, net realized gains and
net unrealized appreciation as such income and/or gains are earned.
The
Fund adopted the provisions of the FASB Interpretation number 48
Accounting for Uncertainty in Income Taxes (the
Interpretation)
, on April 30, 2008. At October 31, 2008,
the Fund did not have any liabilities for unrecognized tax benefits. The Fund
recognizes interest and penalties, if any, related to unrecognized tax benefits
as income tax expense in the Statement of Operations. During the period, the
Fund did not incur any interest or penalties.
The
tax year ended October 31, 2008 and the tax period ended October 31,
2007 remain subject to examination by the Internal Revenue Service and state
taxing authorities. The
20
|
Morgan
Stanley Emerging Markets Domestic Debt Fund, Inc.
|
|
|
|
October 31,
2008
|
Notes to Financial
Statements (contd)
adoption
of FIN 48 had no impact on the operations of the Fund for the year ended October 31,
2008.
The
tax character of distributions paid may differ from the character of
distributions shown on the Statement of Changes in Net Assets due to short-term
capital gains being treated as ordinary income for tax purposes. The tax
character of distributions paid during fiscal 2008 and 2007 was as follows:
2008 Distributions
|
|
2007 Distributions
|
|
Paid From:
|
|
Paid From:
|
|
(000)
|
|
(000)
|
|
|
|
Long-term
|
|
|
|
Long-term
|
|
Ordinary
|
|
Capital
|
|
Ordinary
|
|
Capital
|
|
Income
|
|
Gain
|
|
Income
|
|
Gain
|
|
$182,057
|
|
$
|
|
$43,991
|
|
$
|
|
The
amount and character of income and capital gain distributions to be paid by the
Fund are determined in accordance with federal income tax regulations, which
may differ from U.S. generally accepted accounting principles. The book/tax
differences are considered either temporary or permanent in nature.
Temporary
differences are attributable to differing book and tax treatments for the
timing of the recognition of gains and losses on certain investment
transactions and the timing of the deductibility of certain expenses.
Permanent
differences, primarily due to differing treatment of gains (losses) related to
foreign currency transactions, foreign options, foreign futures and swap
transactions, resulted in the following reclassifications among the components
of net assets at October 31, 2008:
Increase (Decrease)
|
|
Undistributed
(Distributions in
|
|
|
|
|
|
Excess of)
|
|
Accumulated
|
|
|
|
Net Investment
|
|
Net Realized
|
|
Paid-in
|
|
Income (Loss)
|
|
Gain (Loss)
|
|
Capital
|
|
(000)
|
|
(000)
|
|
(000)
|
|
$(45,166
|
)
|
$49,889
|
|
$(4,723
|
)
|
At
October 31, 2008, the components of distributable earnings on a tax basis
were as follows:
Undistributed Ordinary
|
|
Undistributed
|
|
Income
|
|
Long-term Capital Gain
|
|
(000)
|
|
(000)
|
|
$17,666
|
|
$
|
|
At October 31, 2008, the U.S. Federal income tax cost basis of
investments was $1,645,476,000 and, accordingly, net unrealized depreciation
for U.S. Federal income tax purposes was $419,394,000 of which $5,474,000
related to appreciated securities and $424,868,000 related to depreciated
securities
.
At
October 31, 2008, the Fund had a capital loss carryforward for U.S.
Federal income tax purposes of approximately $65,470,000 available to offset
future capital gains which will expire October 31, 2016.
F. Contractual Obligations:
The Fund enters into contracts that contain a
variety of indemnifications. The Funds maximum exposure under these
arrangements is unknown. However, the Fund has not had prior claims or losses
pursuant to these contracts and expects the risk of loss to be remote.
G. Security Transactions and Transactions with
Affiliates:
The Fund
invests in the Institutional Class of the Morgan Stanley Institutional
Liquidity Funds Money Market Portfolio, an open-ended
management investment company managed by the Adviser. Investment in Advisory
fees paid by the Fund are reduced by an amount equal to its pro- rata share of
advisory and administration fees paid by the Morgan Stanley Institutional
Liquidity Funds Money Market Portfolio. For the year ended October 31,
2008, advisory fees paid were reduced by approximately $33,000 relating to the
Funds investment in the Morgan Stanley Institutional Liquidity Money
Market Portfolio.
A
summary of the Funds transactions in shares of the affiliated issuer during
the year ended October 31, 2008 is as follows:
Market
|
|
|
|
|
|
|
|
Market
|
|
Value
|
|
|
|
|
|
|
|
Value
|
|
October
|
|
Purchases
|
|
Sales
|
|
Dividend
|
|
October
|
|
31, 2007
|
|
at Cost
|
|
Proceeds
|
|
Income
|
|
31, 2008
|
|
(000)
|
|
(000)
|
|
(000)
|
|
(000)
|
|
(000)
|
|
$21,731
|
|
$1,152,889
|
|
$1,169,874
|
|
$947
|
|
$4,746
|
|
21
|
Morgan
Stanley Emerging Markets Domestic Debt Fund, Inc.
|
|
|
|
October 31,
2008
|
Notes to Financial
Statements (contd)
During
the year ended October 31, 2008, the Fund made purchases and sales
totaling approximately $2,132,397,000 and $2,294,018,000, respectively, of
investment securities other than long-term U.S. Government securities and
short-term investments. There were no purchases or sales of long-term U.S.
Government securities.
During
the year ended October 31, 2008, the Fund incurred no brokerage
commissions with Morgan Stanley & Co., Incorporated, an affiliate of
the Adviser.
H. Credit Facility:
The Fund will use the proceeds from the use of leverage to purchase
additional securities consistent with the Funds investment objectives,
policies and strategies. The Fund has engaged JPMorgan Securities Inc. to
arrange a syndicate of lenders to provide a revolving line of credit facility
in the amount of up to $475,000,000. Pursuant to the agreement among the
parties, JPMorgan Chase Bank, N.A., as lender (the Lender) has agreed to
commit up to $75,000,000 of the facility amount. The facility is expected to
have the following terms and conditions, among others: The term of the facility
is 364 days, which term may be extended under certain conditions. The loans
under the facility will bear interest at a rate per annum, at the election of
the Fund, equal to (a) the higher of (i) the Conduit Lenders prime
rate and (ii) the Federal Funds Effective Rate or (b) the rate of
LIBOR for the applicable interest period plus a spread of 0.30%. The loans will
be secured by a fully perfected first priority lien on all of the assets of the
Fund capable of being pledged. There will be a commitment fee on the unused
portion of the facility in the amount of 0.08% of the average daily unused
portion of the credit facility. Effective May 1, 2008 the credit facility
has been amended. The Fund has engaged JPMorgan Securities Inc. to arrange a
syndicate of lenders to provide a revolving line of credit facility in an
amount up to $375,000,000. The loans under the facility will bear interest at a
rate per annum, at the election of the Fund, equal to (a) the higher of (i) the
Conduit Lenders prime rate and (ii) the Federal Funds Effective Rate or (b) the
rate of LIBOR for the applicable interest period plus a spread of 1.00%. The
loans will be secured by a fully perfected first priority lien on all of the
assets of the Fund capable of being pledged. There will be a commitment fee on
the unused portion of the facility in the amount of 0.20% of the average daily
unused portion of the credit facility. The average borrowings and interest rate
for the year ended October 31, 2008 were approximately $259,787,000 and
3.98%, respectively, during a period of 366 days. During the same period, the
Fund incurred approximately $10,359,000 in interest expense associated with the
outstanding balances.
I. Other:
On June 20, 2007, the Fund commenced a share repurchase program
for purposes of enhancing stockholder value and reducing the discount at which
the Funds shares trade from their net asset value. For the year ended October 31,
2008, the Fund repurchased 33,000 of its shares at an average discount of 7.42%
from the net asset value per share. Since the inception of the program, the
Fund has repurchased
33,000 of its shares
at an average discount of 7.42% from net asset value per share. The Fund
expects to continue to repurchase its outstanding shares at such time and in
such amounts as it believes will further the accomplishment of the foregoing
objectives, subject to review by the Directors.
J. Supplemental Proxy Information (unaudited):
On June 19, 2008, an annual meeting of
the Funds stockholders was held for the purpose of voting on the following
matter, the results of which were as follows:
Election
of Directors by all stockholders:
|
|
For
|
|
Withhold
|
|
|
|
|
|
|
|
Frank L. Bowman
|
|
64,653,807
|
|
1,796,938
|
|
Michael Bozic
|
|
64,595,114
|
|
1,855,631
|
|
Kathleen A. Dennis
|
|
64,600,677
|
|
1,850,068
|
|
James F. Higgins
|
|
64,646,952
|
|
1,803,793
|
|
Manuel H. Johnson
|
|
64,655,019
|
|
1,795,726
|
|
Joseph J. Kearns
|
|
64,639,253
|
|
1,811,492
|
|
Michael F. Klein
|
|
64,608,183
|
|
1,842,562
|
|
Michael E. Nugent
|
|
64,611,901
|
|
1,838,844
|
|
W. Allen Reed
|
|
64,658,875
|
|
1,791,870
|
|
Fergus Reid
|
|
64,615,445
|
|
1,835,300
|
|
22
|
Morgan
Stanley Emerging Markets Domestic Debt Fund, Inc.
|
|
|
|
October 31,
2008
|
Notes to Financial
Statements (contd)
For More Information About Portfolio Holdings (unaudited)
The
Fund provides a complete schedule of portfolio holdings in its semi-annual and
annual reports within 60 days of the end of the Funds second and fourth fiscal
quarters. The semi-annual reports and the annual reports are filed
electronically with the SEC on Form N-CSRS and Form N-CSR,
respectively. Morgan Stanley also delivers the semi-annual and annual reports
to Fund stockholders and makes these reports available on its public website,
www.morganstanley.com/msim. Each Morgan Stanley fund also files a complete schedule
of portfolio holdings with the SEC for the Funds first and third fiscal
quarters on Form N-Q. Morgan Stanley does not deliver the reports for the
first and third fiscal quarters to stockholders, nor are the reports posted to
the Morgan Stanley public website. You may, however, obtain the Form N-Q
filings (as well as the Form N-CSR and N-CSRS filings) by accessing the
SECs website, www.sec.gov. You may also review and copy them at the SECs
public reference room in Washington, DC. Information on the operation of the
SECs Public Reference Room may be obtained by calling the SEC at 1(800)
SEC-0330. You can also request copies of these materials, upon payment of a
duplicating fee, by electronic request at the SECs e-mail address
(publicinfo@sec.gov) or by writing the public reference section of the SEC,
Washington, DC 20549-0102.
In
addition to filing a complete schedule of portfolio holdings with the SEC each
fiscal quarter, the Fund makes portfolio holdings information available by
periodically providing the information on its public website,
www.morganstanley.com/msim.
The
Fund provides a complete schedule of portfolio holdings on the public website
on a calendar-quarter basis approximately 31 calendar days after the close of
the calendar quarter. The Fund also provides Top 10 holdings information on the
public website approximately 15 business days following the end of each month.
You may obtain copies of the Funds monthly or calendar-quarter website
postings, by calling 1(800) 231-2608.
Proxy Voting Policy and Procedures and Proxy Voting
Record (unaudited)
A
copy of (1) the Funds policies and procedures with respect to the voting
of proxies relating to the Funds portfolio securities; and (2) how the
Fund voted proxies relating to portfolio securities during the most recent
twelve-month period ended June 30, is available without charge, upon
request, by calling 1 (800) 548-7786 or by visiting our website at
www.morganstanley.com/msim. This information is also available on the SECs web
site at www.sec.gov.
23
|
Morgan
Stanley Emerging Markets Domestic Debt Fund, Inc.
|
|
|
|
October 31,
2008
|
Report of Independent
Registered Public
Accounting Firm
To the Stockholders and Board of Directors of
Morgan Stanley Emerging Markets Domestic Debt Fund, Inc.:
We
have audited the accompanying statement of assets and liabilities of Morgan
Stanley Emerging Markets Domestic Debt Fund, Inc., (the Fund), including
the portfolio of investments, as of October 31, 2008, and the related
statements of operations and cash flows for the year then ended and the
statements of changes in net assets and the financial highlights for each of
the periods indicated therein. These financial statements and financial
highlights are the responsibility of the Funds 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. We were not engaged to perform an audit of the Funds 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 Funds 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 and financial highlights, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. Our procedures included
confirmation of securities owned as of October 31, 2008 by correspondence
with the custodian and brokers or by other appropriate auditing procedures
where replies from brokers were not received. 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 Emerging Markets Domestic Debt Fund, Inc. at October 31,
2008, the results of its operations and cash flows for the year then ended and
the changes in its net assets and the financial highlights for each of the
periods indicated therein, in conformity with U.S. generally accepted
accounting principles.
Boston,
Massachusetts
December 19, 2008
24
|
Morgan
Stanley Emerging Markets Domestic Debt Fund, Inc.
|
|
|
|
October 31,
2008
|
Dividend Reinvestment
Plan (unaudited)
Pursuant
to the Dividend Reinvestment Plan (the Plan), each stockholder will be deemed
to have elected, unless Computershare Trust Company, N.A. (the Plan Agent) is
otherwise instructed by the stockholder in writing, to have all distributions
automatically reinvested in Fund shares.
Dividend
and capital gain distributions will be reinvested on the reinvestment date in
full and fractional shares. If the market price per share equals or exceeds net
asset value per share on the reinvestment date, the Fund will issue shares to
participants at net asset value or, if net asset value is less than 95% of the
market price on the reinvestment date, shares will be issued at 95% of the
market price. If net asset value exceeds the market price on the reinvestment
date, participants will receive shares valued at market price. The Fund may
purchase shares of its Common Stock in the open market in connection with
dividend reinvestment requirements at the discretion of the Board of Directors.
Should the Fund declare a dividend or capital gain distribution payable only in
cash, the Plan Agent will purchase Fund shares for participants in the open
market as agent for the participants.
The
Plan Agents fees for the reinvestment of dividends and distributions will be
paid by the Fund. However, each participants account will be charged a pro
rata share of brokerage commissions incurred on any open market purchases
effected on such participants behalf. Although stockholders in the Plan may
receive no cash distributions, participation in the Plan will not relieve
participants of any income tax which may be payable on such dividends or distributions.
In
the case of stockholders, such as banks, brokers or nominees, that hold shares
for others who are the beneficial owners, the Plan Agent will administer the
Plan on the basis of the number of shares certified from time to time by the
stockholder as representing the total amount registered in the stockholders
name and held for the account of beneficial owners who are participating in the
Plan.
Stockholders
who do not wish to have distributions automatically reinvested should notify
the Plan Agent in writing. There is no penalty for non-participation or
withdrawal from the Plan, and stockholders who have previously withdrawn from
the Plan may rejoin at any time. Requests for additional information or any
correspondence concerning the Plan should be directed to the Plan Agent at:
Morgan
Stanley Emerging Markets Domestic Debt Fund, Inc.
Computershare Trust Company, N.A.
P.O. Box 43078
Providence, Rhode Island 02940-3078
1(800) 231-2608
25
|
Morgan
Stanley Emerging Markets Domestic Debt Fund, Inc.
|
|
|
|
October 31,
2008
|
Morgan Stanley
Institutional Closed End Funds
An Important Notice
Concerning Our
U.S. Privacy Policy
(unaudited)
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 Institutional 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 computers operating system and Web browser,
your use of our Web sites and your product and service 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.
26
|
Morgan
Stanley Emerging Markets Domestic Debt Fund, Inc.
|
|
|
|
October 31,
2008
|
Morgan Stanley
Institutional Closed End Funds
An Important Notice
Concerning Our
U.S. Privacy Policy (contd)
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 nonaffiliated 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.
27
|
Morgan
Stanley Emerging Markets Domestic Debt Fund, Inc.
|
|
|
|
October 31,
2008
|
Director and Officer
Information (unaudited)
Independent
Directors:
Name, Age and Address of
Independent Director
|
|
Position(s)
Held with
Registrant
|
|
Length of Time
Served*
|
|
Principal Occupation(s) During Past 5 Years
|
|
Number of
Portfolios in
Fund Complex
Overseen by
Independent
Director**
|
|
Other Directorships
Held by Directors
|
Frank L. Bowman (64)
c/o Kramer Levin
Naftalis & Frankel LLP
Counsel to the Independent Directors
1177 Avenue of the Americas
New York, NY 10036
|
|
Director
|
|
Since
August
2006
|
|
Formerly, President and
Chief Executive Officer, Nuclear Energy Institute (policy organization)
(February 2005 November 2008); Director or Trustee of various
Retail Funds and Institutional Funds (since August 2006); Chairperson of
the Insurance Sub-Committee of the Insurance, Valuation 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.
|
|
180
|
|
Director of the National
Energy Foundation, the U.S. Energy Association, the American Council for
Capital Formation and the Armed Services YMCA of the USA.
|
|
|
|
|
|
|
|
|
|
|
|
Michael Bozic (67)
c/o Kramer Levin
Naftalis & Frankel LLP
Counsel to the Independent Directors
1177 Avenue of the Americas
New York, NY 10036
|
|
Director
|
|
Since
April
1994
|
|
Private investor;
Chairperson of the Insurance, Valuation and Compliance Committee (since
October 2006); Director or Trustee of the Retail Funds (since April
1994) and 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.
|
|
182
|
|
Director of various
business organizations.
|
|
|
|
|
|
|
|
|
|
|
|
Kathleen A. Dennis (55)
c/o Kramer Levin
Naftalis & Frankel LLP
Counsel to the Independent Directors
1177 Avenue of the Americas
New York, NY 10036
|
|
Director
|
|
Since
August
2006
|
|
President, Cedarwood
Associates (mutual fund and investment management) (since July 2006);
Chairperson of the Money 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).
|
|
180
|
|
Director of various non-
profit organizations.
|
|
|
|
|
|
|
|
|
|
|
|
Dr. Manuel H.
Johnson (59)
c/o Johnson Smick Group, Inc.
888 16th Street, N.W. Suite 740
Washington, D.C. 20006
|
|
Director
|
|
Since
July
1991
|
|
Senior Partner, Johnson
Smick International, Inc. (consulting firm); Chairperson of the
Investment Committee (since October 2006) and Director or Trustee of the
Retail Funds (since July 1991) and 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.
|
|
182
|
|
Director of
NVR, Inc. (home construction); Director of Evergreen Energy.
|
28
|
Morgan
Stanley Emerging Markets Domestic Debt Fund, Inc.
|
|
|
|
October 31,
2008
|
Director and Officer Information (contd)
Independent
Directors (contd):
Name, Age and Address of
Independent Director
|
|
Position(s)
Held with
Registrant
|
|
Length of Time
Served*
|
|
Principal Occupation(s) During Past 5 Years
|
|
Number of
Portfolios in
Fund Complex
Overseen by
Independent
Director**
|
|
Other Directorships
Held by Independent
Director
|
Joseph J. Kearns (66)
c/o Kearns & Associates LLC
PMB754
23852 Pacific Coast Highway
Malibu, CA 90265
|
|
Director
|
|
Since
August
1994
|
|
President,
Kearns & Associates LLC (investment consulting); Chairperson of the
Audit Committee (since October 2006) 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.
|
|
183
|
|
Director of Electro Rent
Corporation (equipment leasing) and The Ford Family Foundation.
|
|
|
|
|
|
|
|
|
|
|
|
Michael F. Klein (50)
c/o Kramer Levin Naftalis &
Frankel LLP
Counsel to the
Independent Directors
1177 Avenue of the Americas
New York, NY 10036
|
|
Director
|
|
Since
August
2006
|
|
Managing Director, Aetos
Capital, LLC (since March 2000) and Co-President, Aetos Alternatives
Management, LLC (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).
|
|
180
|
|
Director of certain
investment funds managed or sponsored by Aetos Capital LLC; Director of
Sanitized AG and Sanitized Marketing AG (specialty chemicals).
|
|
|
|
|
|
|
|
|
|
|
|
Michael E. Nugent (72)
c/o Triumph Capital, L.P.
445 Park Avenue
New York, NY 10022
|
|
Chairperson of the Board and Director
|
|
Chairperson of the
Boards since July 2006 and Director since July 1991
|
|
General Partner of
Triumph Capital, L.P. (private investment partnership); Chairman of the
Boards of the Retail Funds and Institutional Funds (since July 2006);
Director or Trustee of the Retail Funds (since July 1991) and
Institutional Funds (since July 2001); formerly, Chairperson of the
Insurance Committee (until July 2006).
|
|
182
|
|
None.
|
|
|
|
|
|
|
|
|
|
|
|
W. Allen Reed (61)
c/o Kramer Levin Naftalis &
Frankel LLP
Counsel to the
Independent Directors
1177 Avenue of the Americas
New York, NY 10036
|
|
Director
|
|
Since
August
2006
|
|
Chairperson of the
Equity Sub-Committee of the Investment Committee (since October 2006)
and Director or Trustee of various Retail 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
(July 1994-December 2005).
|
|
180
|
|
Director of
Temple-Inland Industries (packaging and forest products); Director of Legg
Mason, Inc. and Director of the Auburn University Foundation.
|
|
|
|
|
|
|
|
|
|
|
|
Fergus Reid (76)
c/o Lumelite Plastics
Corporation
85 Charles Coleman Blvd.
Pawling, NY 12564
|
|
Director
|
|
Since
June
1992
|
|
Chairman of Lumelite
Plastics Corporation; Chairperson of the Governance Committee and Director or
Trustee of the Retail Funds (since July 2003) and Institutional Funds
(since June 1992).
|
|
183
|
|
Trustee and
Director of certain investment companies in the JPMorgan Funds complex
managed by JP Morgan Investment Management Inc.
|
29
|
Morgan
Stanley Emerging Markets Domestic Debt Fund, Inc.
|
|
|
|
October 31,
2008
|
Director and Officer
Information (contd)
Interested
Directors:
Name, Age and Address of
Interested Director
|
|
Position(s) Held
with Registrant
|
|
Term of Office
and Length of
Time Served*
|
|
Principal Occupation(s) During Past 5 Years
|
|
Number of
Portfolios in
Fund Complex
Overseen by
Interested
Director**
|
|
Other Directorships
Held by Interested
Director
|
James F. Higgins (60)
c/o Morgan Stanley Trust
Harborside Financial Center
Plaza Two
Jersey City, NJ 07311
|
|
Director
|
|
Since
June
2000
|
|
Director or Trustee of
the Retail Funds (since June 2000) and Institutional Funds (since
July 2003); Senior Advisor of Morgan Stanley (since August 2000).
|
|
181
|
|
Director of AXA Financial, Inc.
and The Equitable Life Assurance Society of the United States (financial
services).
|
*
|
This
is the earliest date the Directors began serving the Retail Funds or
Institutional Funds. Each Director serves an indefinite term, until his or
her successor is elected.
|
|
|
*
*
|
The
Fund Complex includes all funds advised by Morgan Stanley Investment
Management Inc. (MSIM) that have an investment advisor that is an
affiliated entity of MSIM (including but not limited to, Morgan Stanley
Investment Advisors Inc. (MSIA) and Morgan Stanley AIP GP LP). The Retail
Funds are those funds advised by MSIA. The Institutional Funds are certain
U.S. registered funds advised by MSIM and Morgan Stanley AIP GP LP.
|
30
|
Morgan
Stanley Emerging Markets Domestic Debt Fund, Inc.
|
|
|
|
October 31,
2008
|
Director and Officer
Information (contd)
Officers:
Name, Age and Address of Executive Officer
|
|
Position(s) Held
with
Registrant
|
|
Term of Office
and Length of
Time Served*
|
|
Principal Occupation(s) During Past 5 Years
|
Randy
Takian (34)
Morgan Stanley Investment Management Inc.
522 Fifth Avenue
New York, NY 10036
|
|
President
and
Principal
Executive
Officer
|
|
Since
September
2008
|
|
President
and Principal Executive Officer (since September 2008) of funds in the
Fund Complex; President and Chief Executive Officer of Morgan Stanley
Services Company Inc. (since September 2008). President of Morgan
Stanley Investment Advisors Inc. (since July 2008). Head of the Retail
and Intermediary business within Morgan Stanley Investment Management (since July 2008).
Head of Liquidity and Bank Trust business (since July 2008) and the
Latin American franchise (since July 2008) at Morgan Stanley Investment
Management. Managing Director, Director and/or Officer of the Adviser and
various entities affiliated with the Adviser. Formerly, Head of Strategy and
Product Development for the Alternatives Group and Senior Loan Investment
Management. Formerly with Bank of America (July 1996-March 2006), most
recently as Head of the Strategy, Mergers and Acquisitions team for Global
Wealth and Investment Management.
|
|
|
|
|
|
|
|
Kevin
Klingert (46)
Morgan Stanley Investment Management Inc.
522 Fifth Avenue
New York, NY 10036
|
|
Vice
President
|
|
Since
June
2008
|
|
Chief
Operating Officer of the Global Fixed Income Group of the Adviser and Morgan
Stanley Investment Advisors Inc. (since March 2008). Head of Global
Liquidity Portfolio Management and co-Head of Liquidity Credit Research of
Morgan Stanley Investment Management (since December 2007). Managing
Director of the Adviser and Morgan Stanley Investment Advisors Inc. (since December 2007).
Previously, Managing Director on the Management Committee and head of
Municipal Portfolio Management and Liquidity at BlackRock (October 1991
to January 2007).
|
|
|
|
|
|
|
|
Dennis
F. Shea (55)
Morgan Stanley Investment Management Inc.
522 Fifth Avenue
New York, NY 10036
|
|
Vice
President
|
|
Since
February
2006
|
|
Managing
Director and (since February 2006) Chief Investment OfficerGlobal
Equity of Morgan Stanley Investment 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 (46)
Morgan Stanley Investment Management Inc.
522 Fifth Avenue
New York, NY 10036
|
|
Vice
President
|
|
Since
July
2004
|
|
Managing
Director and General Counsel, U.S. Investment Management of Morgan Stanley
Investment Management (since 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 Adviser and various
entities affiliated with the Adviser. Formerly, Managing Director and General
Counsel Americas, UBS Global Asset Management (July 2000-July 2004).
|
|
|
|
|
|
|
|
Carsten
Otto (45)
Morgan Stanley Investment Management Inc.
522 Fifth Avenue
New York, NY 10036
|
|
Chief
Compliance
Officer
|
|
Since
October
2004
|
|
Managing
Director and Global Head of Compliance for Morgan Stanley Investment
Management (since April 2007) and Chief Compliance Officer of the 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 (42)
Morgan Stanley Investment Management Inc.
522 Fifth Avenue
New York, NY 10036
|
|
Vice
President
|
|
Since
December
1997
|
|
Managing
Director of the Adviser and various entities affiliated with the Adviser;
Vice President of the Retail Funds (since July 2002) and Institutional
Funds (since December 1997). Formerly, Secretary of various entities
affiliated with the Adviser.
|
|
|
|
|
|
|
|
Mary
E. Mullin (41)
Morgan Stanley Investment Management Inc.
522 Fifth Avenue
New York, NY 10036
|
|
Secretary
|
|
Since
June
1999
|
|
Executive
Director of the Adviser and various entities affiliated with the Adviser;
Secretary of the Retail Funds (since July 2003) and Institutional Funds
(since June 1999).
|
31
|
Morgan
Stanley Emerging Markets Domestic Debt Fund, Inc.
|
|
|
|
October 31,
2008
|
Director and Officer
Information (contd)
Officers
(contd):
Name, Age and Address of Executive Officer
|
|
Position(s) Held
with
Registrant
|
|
Term of Office
and Length of
Time Served*
|
|
Principal Occupation(s) During Past 5 Years
|
James
W. Garrett (40)
Morgan Stanley Investment Management Inc.
522 Fifth Avenue
New York, NY 10036
|
|
Treasurer
and
Chief Financial
Officer
|
|
Treasurer
since February 2002 and Chief Financial Officer since July 2003
|
|
Head
of Global Fund Administration; Managing Director of the Adviser and various entities
affiliated with the Adviser; Treasurer and Chief Financial Officer of the Institutional
Funds.
|
*
This is the earliest date the Officer began serving the Retail Funds or
Institutional Funds. Each Officer serves an indefinite term, until his or her
successor is elected
.
In
accordance with Section 303A. 12(a) of the New York Stock Exchange
Listed Company Manual, the Funds Annual CEO Certification certifying as to
compliance with NYSEs Corporate Governance Listing Standards was submitted to
the Exchange on October 3, 2008.
The
Funds Principal Executive Officer and Principal Financial Officer
Certifications required by Section 302 of the Sarbanes-Oxley Act of 2002
were filed with the Funds N-CSR and are available on the Securities and
Exchange Commissions Website at http://www.sec.gov.
32
Morgan
Stanley Emerging Markets Domestic Debt Fund, Inc.
|
|
|
|
|
|
|
|
|
Directors
|
|
|
|
Michael
E. Nugent
|
Kevin
Klingert
|
|
|
Frank
L. Bowman
|
Vice President
|
|
|
Michael
Bozic
|
Dennis
F. Shea
|
|
|
Kathleen
A. Dennis
|
Vice President
|
|
|
James
F. Higgins
|
Amy
R. Doberman
|
|
|
Dr. Manuel
H. Johnson
|
Vice President
|
|
|
Joseph
J. Kearns
|
Stefanie
V. Chang Yu
|
|
|
Michael
F. Klein
|
Vice President
|
|
|
W.
Allen Reed
|
James
W. Garrett
|
|
|
Fergus
Reid
|
Treasurer and Chief
|
|
|
|
Financial Officer
|
|
|
Officers
|
Carsten
Otto
|
|
|
Michael
E. Nugent
|
Chief Compliance Officer
|
|
|
Chairman of the Board and
|
Mary
E. Mullin
|
Director
|
Secretary
|
Randy
Takian
|
|
|
|
President and Principal Executive Officer
|
|
|
|
|
|
Investment Adviser and Administrator
Morgan
Stanley Investment Management Inc.
522
Fifth Avenue
New
York, New York 10036
Custodian
|
|
|
JPMorgan
Chase Bank, N.A.
|
|
|
270
Park Avenue
|
|
|
New
York, New York 10017
|
|
|
|
|
|
Stockholder Servicing Agent
|
|
|
Computershare
Trust Company, N.A.
|
|
|
250
Royall Street
|
|
|
Canton,
Massachusetts 02021
|
|
|
|
|
|
Legal Counsel
|
|
|
Clifford
Chance US LLP
|
|
|
31
West 52nd Street
|
|
|
New
York, New York 10019-6131
|
|
|
|
|
|
Independent Registered Public Accounting Firm
|
|
|
Ernst &
Young LLP
|
|
|
200
Clarendon Street
|
|
|
Boston,
Massachusetts 02116
|
|
|
|
|
|
|
|
|
For
additional Fund information, including the Funds net asset value per share
and information regarding the investments comprising the Funds portfolio,
please call 1(800) 231-2608 or visit our website at
www.morganstanley.com/msim. All investments
involve risks, including the possible loss of principal.
|
|
|
|
|
|
©
2008 Morgan Stanley
|
|
|
|
|
|
MSITFANN IU08-06122I-Y10/08
|
|
|
|
|
|
|
|
|
Item 2. Code of Ethics.
(a) The Fund 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 Fund 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
Funds Code of Ethics is attached hereto as Exhibit 12 A.
(2) Not
applicable.
(3) Not
applicable.
Item 3. Audit Committee Financial Expert.
The Funds 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.
1
Item 4. Principal Accountant Fees and Services.
(a)(b)(c)(d) and (g). Based on fees billed for the periods shown:
2008
|
|
Registrant
|
|
Covered Entities(1)
|
|
Audit Fees
|
|
$
|
86,800
|
|
N/A
|
|
|
|
|
|
|
|
Non-Audit Fees
|
|
|
|
|
|
Audit-Related Fees
|
|
|
|
$
|
742,276
|
(2)
|
Tax Fees
|
|
$
|
3,380
|
(3)
|
$
|
99,522
|
(4)
|
All Other Fees
|
|
|
|
$
|
205,436
|
(5)
|
Total Non-Audit Fees
|
|
$
|
3,380
|
|
$
|
1,047,234
|
|
|
|
|
|
|
|
Total
|
|
$
|
90,180
|
|
$
|
1,047,234
|
|
2007
|
|
Registrant
|
|
Covered Entities(1)
|
|
Audit Fees
|
|
$
|
75,000
|
|
N/A
|
|
|
|
|
|
|
|
Non-Audit Fees
|
|
|
|
|
|
Audit-Related Fees
|
|
|
|
$
|
781,800
|
(2)
|
Tax Fees
|
|
$
|
3,100
|
(3)
|
$
|
59,185
|
(4)
|
All Other Fees
|
|
|
|
$
|
74,100
|
(5)
|
Total Non-Audit Fees
|
|
$
|
3,100
|
|
$
|
915,085
|
|
|
|
|
|
|
|
Total
|
|
$
|
78,100
|
|
$
|
915,085
|
|
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 attestation services provided in connection
with a SAS 70 Report and advisory consulting work.
(3) Tax Fees represent tax advice and compliance services provided
in connection with the review of the Registrants tax returns.
(4) Tax Fees represent tax advice services provided to Covered
Entities, including research and identification of PFIC entities.
2
(5) All Other Fees represent attestation services provided in
connection with performance presentation standards and a compliance review
project performed.
(e)(1) The
audit committees 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 auditors 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 committees
administration of the engagement of the independent auditor. The SECs rules establish
two different approaches to pre-approving services, which the SEC considers to
be equally valid. Proposed services either: may be pre-approved without
consideration of specific case-by-case services by the Audit Committee (
general
pre-approval
); or require the specific pre-approval of the Audit Committee
or its delegate (
specific pre-approval
). The Audit Committee believes
that the combination of these two approaches in this Policy will result in an
effective and efficient procedure to pre-approve services performed by the
Independent Auditors. As set forth in this Policy, unless a type of service has
received general pre-approval, it will require specific pre-approval by the
Audit Committee (or by any member of the Audit Committee to which pre-approval
authority has been delegated) if it is to be provided by the Independent
Auditors. Any proposed services exceeding pre-approved cost levels or budgeted
amounts will also require specific pre-approval by the Audit Committee.
The appendices
to this Policy describe the Audit, Audit-related, Tax and All Other services
that have the general pre-approval of the Audit Committee. The term of any
general pre-approval is 12 months from the date of pre-approval, unless
the Audit Committee considers and provides a different period and states
otherwise. The Audit Committee will annually review and pre-approve the
services that may be provided by the Independent Auditors without obtaining
specific pre-approval from the Audit Committee. The Audit Committee will add to
or subtract from the list of general pre-approved services from time to time,
based on subsequent determinations.
(1)
This
Audit Committee Audit and Non-Audit Services Pre-Approval Policy and Procedures
(the
Policy
), adopted as of the date above, supersedes and replaces
all prior versions that may have been adopted from time to time.
3
The purpose of
this Policy is to set forth the policy and procedures by which the Audit
Committee intends to fulfill its responsibilities. It does not delegate the
Audit Committees responsibilities to pre-approve services performed by the
Independent Auditors to management.
The Funds
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 SECs 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 Funds 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 Funds 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
4
Audit-related
services does not impair the independence of the auditor and is consistent with
the SECs 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 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
auditors 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 SECs 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 SECs 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.
5
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
Funds Chief Financial Officer and must include a detailed description of the
services to be rendered. The Funds 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 Funds Chief Financial
Officer, and must include a joint statement as to whether, in their view, the
request or application is consistent with the SECs rules on auditor
independence.
The Audit
Committee has designated the Funds 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 Funds
Chief Financial Officer will report to the Audit Committee on a periodic basis
on the results of its monitoring. Both the Funds 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 Funds 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 auditors 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 Funds investment adviser(s) and any entity
controlling, controlled by or under common control with the Funds 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
Funds 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
6
Morgan Stanley Services Company, Inc.
Morgan Stanley Distributors Inc.
Morgan Stanley Trust FSB
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 Committees
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 Fund has a separately-designated standing audit committee
established in accordance with Section 3(a)(58)(A) of the Exchange
Act whose members are: Frank Joseph Kearns, Michael Nugent and Allen Reed.
(b) Not applicable.
Item 6. Schedule of Investments
(a) Refer to Item 1.
7
(b) Not used.
Item 7. Disclosure of Proxy Voting Policies and Procedures for
Closed-End Management Investment Companies.
APPROVED FEBRUARY 28, 2008
MORGAN
STANLEY INVESTMENT MANAGEMENT
PROXY VOTING POLICY AND PROCEDURES
I.
POLICY STATEMENT
Introduction
-
Morgan Stanley Investment Managements (MSIM) policy and procedures for
voting proxies (Policy) with respect to securities held in the accounts of
clients applies to those MSIM entities that provide discretionary investment
management services and for which an MSIM entity has authority to vote proxies.
This Policy is reviewed and updated as necessary to address new and evolving
proxy voting issues and standards.
The MSIM entities covered by this Policy currently include the
following: Morgan Stanley Investment Advisors Inc., Morgan Stanley AIP GP LP,
Morgan Stanley Investment Management Inc., Morgan Stanley Investment Management
Limited, Morgan Stanley Investment Management Company, Morgan Stanley Asset &
Investment Trust Management Co., Limited, Morgan Stanley Investment Management
Private Limited, Van Kampen Asset Management, and Van Kampen Advisors Inc.
(each an MSIM Affiliate and collectively referred to as the MSIM Affiliates
or as we below).
Each MSIM Affiliate will use its best efforts to vote proxies as part
of its authority to manage, acquire and dispose of account assets. With respect
to the MSIM registered management investment companies (Van Kampen,
Institutional and Advisor Fundscollectively referred to herein as the MSIM
Funds), each MSIM Affiliate will vote proxies under this Policy pursuant to
authority granted under its applicable investment advisory agreement or, in the
absence of such authority, as authorized by the Board of Directors/Trustees of
the MSIM Funds. An MSIM Affiliate will not vote proxies if the named fiduciary
for an ERISA account has reserved the authority for itself, or in the case of
an account not governed by ERISA, the investment management or investment
advisory agreement does not authorize the MSIM Affiliate to vote proxies. MSIM
Affiliates will vote proxies in a prudent and diligent manner and in the best
interests of clients, including beneficiaries of and participants in a clients
benefit plan(s) for which the MSIM Affiliates manage assets, consistent
with the objective of maximizing long-term investment returns (Client Proxy
Standard). In certain situations, a client or its fiduciary may provide an
MSIM Affiliate with a proxy voting policy. In these situations, the MSIM
Affiliate will comply with the clients policy.
Proxy Research Services
-
RiskMetrics Group ISS Governance Services (ISS) and Glass Lewis (together
with other proxy research providers as we may retain from time to time, the Research
Providers) are independent advisers that specialize in providing a
8
variety of fiduciary-level proxy-related services to institutional
investment managers, plan sponsors, custodians, consultants, and other
institutional investors. The services provided include in-depth research,
global issuer analysis, and voting recommendations. While we may review and
utilize the recommendations of the Research Providers in making proxy voting
decisions, we are in no way obligated to follow such recommendations. In
addition to research, ISS provides vote execution, reporting, and
recordkeeping.
Voting Proxies for Certain Non-U.S. Companies
-
Voting proxies of companies located in some jurisdictions, particularly
emerging markets, may involve several problems that can restrict or prevent the
ability to vote such proxies or entail significant costs. These problems
include, but are not limited to: (i) proxy
statements and ballots being written in a language other than English; (ii) untimely
and/or inadequate notice of shareholder meetings; (iii) restrictions on
the ability of holders outside the issuers jurisdiction of organization to
exercise votes; (iv) requirements to vote proxies in person; (v) the
imposition of restrictions on the sale of the securities for a period of time
in proximity to the shareholder meeting; and (vi) requirements to provide
local agents with power of attorney to facilitate our voting instructions. As a
result, we vote clients non-U.S. proxies on a best efforts basis only, after
weighing the costs and benefits of voting such proxies, consistent with the
Client Proxy Standard. ISS has been retained to provide assistance in
connection with voting non-U.S. proxies.
II.
GENERAL PROXY
VOTING GUIDELINES
To promote
consistency in voting proxies on behalf of its clients, we follow this Policy
(subject to any exception set forth herein), including the guidelines set forth
below. These guidelines address a broad range of issues, and provide general
voting parameters on proposals that arise most frequently. However, details of
specific proposals vary, and those details affect particular voting decisions,
as do factors specific to a given company. Pursuant to the procedures set forth
herein, we may vote in a manner that is not in accordance with the following
general guidelines, provided the vote is approved by the Proxy Review Committee
(see Section III for description) and is consistent with the
9
Client Proxy
Standard. Morgan Stanley AIP GP LP will follow the procedures as described in
Appendix A.
We endeavor to
integrate governance and proxy voting policy with investment goals and to
follow the Client Proxy Standard for each client. At times, this may result in
split votes, for example when different clients have varying economic interests
in the outcome of a particular voting matter (such as a case in which varied
ownership interests in two companies involved in a merger result in different
stakes in the outcome). We also may split votes at times based on differing
views of portfolio managers, but such a split vote must be approved by the
Proxy Review Committee.
We may abstain
on matters for which disclosure is inadequate.
A.
Routine Matters.
We generally support routine management proposals. The following
are examples of routine management proposals:
·
Approval
of financial statements and auditor reports.
·
General
updating/corrective amendments to the charter, articles of association or
bylaws.
·
Most
proposals related to the conduct of the annual meeting, with the following
exceptions. We generally oppose proposals that relate to the transaction of
such other business which may come before the meeting, and open-ended requests for adjournment.
However, where management specifically states the reason for requesting an
adjournment and the requested adjournment would facilitate passage of a
proposal that would otherwise be supported under this Policy (i.e. an
uncontested corporate transaction), the adjournment request will be supported.
We generally support shareholder proposals
advocating confidential voting procedures and independent tabulation of voting
results.
B.
Board of Directors
1.
Election
of directors
: In the absence of a proxy contest, we generally support the
boards nominees for director except as follows:
a.
We consider withholding
support from or voting against interested directors if the companys board does
not meet market standards for director independence, or if otherwise we believe
board independence is insufficient. We refer to prevalent market standards as
promulgated by a stock exchange or other authority within a given market (e.g.,
New York Stock Exchange or Nasdaq rules for most U.S. companies, and The
Combined Code on Corporate Governance in the United Kingdom). Thus, for an NYSE
company with no controlling shareholder, we would expect that at a minimum a
majority of directors should be independent as
10
defined by
NYSE. Where we view market standards as inadequate, we may withhold votes based
on stronger independence standards. Market standards notwithstanding, we
generally do not view long board tenure alone as a basis to classify a director
as non-independent, although lack of board turnover and fresh perspective can
be a negative factor in voting on directors.
i.
At a company with a shareholder
or group that controls the company by virtue of a majority economic interest in
the company, we have a reduced expectation for board independence, although we
believe the presence of independent directors can be helpful, particularly in
staffing the audit committee, and at times we may withhold support from or vote
against a nominee on the view the board or its committees are not sufficiently
independent.
ii.
We consider withholding support
from or voting against a nominee if he or she is affiliated with a major
shareholder that has representation on a board disproportionate to its economic
interest.
b.
Depending on market
standards, we consider withholding support from or voting against a nominee who
is interested and who is standing for election as a member of the companys
compensation, nominating or audit committee.
c.
We consider withholding
support from or voting against a nominee if we believe a direct conflict exists
between the interests of the nominee and the public shareholders, including
failure to meet fiduciary standards of care and/or loyalty. We may oppose
directors where we conclude that actions of directors are unlawful, unethical
or negligent. We consider opposing individual board members or an entire slate
if we believe the board is entrenched and/or dealing inadequately with
performance problems, and/or acting with insufficient independence between the
board and management.
d.
We consider withholding support
from or voting against a nominee standing for election if the board has not
taken action to implement generally accepted governance practices for which
there is a bright line test. For example, in the context of the U.S. market,
failure to eliminate a dead hand or slow hand poison pills would be seen as a
basis for opposing one or more incumbent nominees.
e.
In markets that encourage
designated audit committee financial experts, we consider voting against
members of an audit committee if no members are designated as such.
11
f.
We consider withholding
support from or voting against a nominee who has failed to attend at least 75%
of board meetings within a given year without a reasonable excuse.
g.
We consider withholding
support from or voting against a nominee who serves on the board of directors
of more than six companies (excluding investment companies). We also consider
voting against a director who otherwise appears to have too many commitments to
serve adequately on the board of the company.
2.
Board independence:
We generally support U.S. shareholder
proposals requiring that a certain percentage (up to 66
2
/
3
%) of the companys board members be independent
directors, and promoting all-independent audit, compensation and
nominating/governance committees.
3.
Board diversity:
We consider on a case-by-case basis
shareholder proposals urging diversity of board membership with respect to
social, religious or ethnic group.
4.
Majority voting:
We generally support proposals requesting or
requiring majority voting policies in election of directors, so long as there
is a carve-out for plurality voting in the case of contested elections.
5.
Proxy access:
We consider on a case-by-case basis
shareholder proposals to provide procedures for inclusion of shareholder
nominees in company proxy statements.
6.
Proposals to elect all
directors annually:
We generally
support proposals to elect all directors annually at public companies (to declassify
the Board of Directors) where such action is supported by the board, and
otherwise consider the issue on a case-by-case basis based in part on overall
takeover defenses at a company.
7.
Cumulative voting:
We generally support proposals to eliminate
cumulative voting in the U.S. market context. (Cumulative voting provides that
shareholders may concentrate their votes for one or a handful of candidates, a
system that can enable a minority bloc to place representation on a board).
U.S. proposals to establish cumulative voting in the election of directors
generally will not be supported.
8.
Separation of Chairman and CEO positions:
We vote on shareholder proposals to separate
the Chairman and CEO positions and/or to appoint a non-executive Chairman based
in part on prevailing practice in particular markets, since the context for
such a practice varies. In many non-U.S. markets, we view separation of the
roles as a market standard practice, and support division of the roles in that
context.
12
9.
Director retirement age
and term limits:
Proposals
recommending set director retirement ages or director term limits are voted on
a case-by-case basis.
10.
Proposals to limit
directors liability and/or broaden indemnification of directors.
Generally, we will support such proposals provided that the officers and
directors are eligible for indemnification and liability protection if they
have acted in good faith on company business and were found innocent of any
civil or criminal charges for duties performed on behalf of the company.
C.
Corporate transactions
and proxy fights.
We examine proposals relating to mergers, acquisitions
and other special corporate transactions (i.e., takeovers, spin-offs, sales of
assets, reorganizations, restructurings and recapitalizations) on a
case-by-case basis. However, proposals for mergers or other significant
transactions that are friendly and approved by the Research Providers generally
will be supported and in those instances will not need to be reviewed by the
Proxy Review Committee, where there is no portfolio manager objection and where
there is no material conflict of interest. We also analyze proxy contests on a
case-by-case basis.
D.
Changes in capital
structure.
1.
We generally support the
following:
·
Management
and shareholder proposals aimed at eliminating unequal voting rights, assuming
fair economic treatment of classes of shares we hold.
·
Management proposals to increase the
authorization of existing classes of common stock (or securities convertible
into common stock) if: (i) a clear business purpose is stated that we can
support and the number of shares requested is reasonable in relation to the
purpose for which authorization is requested; and/or (ii) the
authorization does not exceed 100% of shares currently authorized and at least
30% of the total new authorization will be outstanding.
·
Management proposals to create a new class of
preferred stock or for issuances of preferred stock up to 50% of issued
capital, unless we have concerns about use of the authority for anti-takeover
purposes.
·
Management proposals to authorize share repurchase
plans, except in some cases in which we believe there are insufficient
protections against use of an authorization for anti-takeover purposes.
·
Management
proposals to reduce the number of authorized shares of common or preferred
stock, or to eliminate classes of preferred stock.
·
Management
proposals to effect stock splits.
13
·
Management
proposals to effect reverse stock splits if management proportionately reduces
the authorized share amount set forth in the corporate charter. Reverse stock
splits that do not adjust proportionately to the authorized share amount
generally will be approved if the resulting increase in authorized shares
coincides with the proxy guidelines set forth above for common stock increases.
·
Management
proposals for higher dividend payouts.
2.
We generally oppose the
following (notwithstanding management support):
·
Proposals
to add classes of stock that would substantially dilute the voting interests of
existing shareholders.
·
Proposals
to increase the authorized or issued number of shares of existing classes of
stock that are unreasonably dilutive, particularly if there are no preemptive
rights for existing shareholders.
·
Proposals
that authorize share issuance at a discount to market rates, except where
authority for such issuance is de minimis, or if there is a special situation
that we believe justifies such authorization (as may be the case, for example,
at a company under severe stress and risk of bankruptcy).
·
Proposals
relating to changes in capitalization by 100% or more.
We consider on a case-by-case basis shareholder proposals to increase
dividend payout ratios, in light of market practice and perceived market
weaknesses, as well as individual company payout history and current
circumstances. For example, currently we perceive low payouts to shareholders
as a concern at some Japanese companies, but may deem a low payout ratio as
appropriate for a growth company making good use of its cash, notwithstanding
the broader market concern.
E.
Takeover Defenses and
Shareholder Rights
1.
Shareholder rights plans:
We generally support proposals to require
shareholder approval or ratification of shareholder rights plans (poison
pills). In voting on rights plans or similar takeover defenses, we consider on
a case-by-case basis whether the company has demonstrated a need for the
defense in the context of promoting long-term share value; whether provisions
of the defense are in line with generally accepted governance principles; and
the specific context if the proposal is made in the midst of a takeover bid or
contest for control.
2.
Supermajority voting
requirements:
We generally oppose requirements for supermajority votes to
amend the charter or bylaws, unless the provisions protect
14
minority shareholders where there is a large
shareholder. In line with this view, in the absence of a large shareholder we
support reasonable shareholder proposals to limit such supermajority voting
requirements.
3.
Shareholder rights to call
meetings:
We consider proposals to
enhance shareholder rights to call meetings on a case-by-case basis.
4.
Reincorporation:
We
consider management and shareholder proposals to reincorporate to a different
jurisdiction on a case-by-case basis. We oppose such proposals if we believe
the main purpose is to take advantage of laws or judicial precedents that
reduce shareholder rights.
5.
Anti-greenmail provisions:
Proposals relating to the adoption of anti-greenmail provisions will be
supported, provided that the proposal: (i) defines greenmail; (ii) prohibits
buyback offers to large block holders (holders of at least 1% of the
outstanding shares and in certain cases, a greater amount, as determined by the
Proxy Review Committee) not made to all shareholders or not approved by
disinterested shareholders; and (iii) contains no anti-takeover measures
or other provisions restricting the rights of shareholders.
6.
Bundled proposals:
We may consider opposing or abstaining on
proposals if disparate issues are bundled and presented for a single vote.
F.
Auditors.
We
generally support management proposals for selection or ratification of
independent auditors. However, we may consider opposing such proposals with
reference to incumbent audit firms if the company has suffered from serious
accounting irregularities and we believe rotation of the audit firm is
appropriate, or if fees paid to the auditor for non-audit-related services are
excessive. Generally, to determine if non-audit fees are excessive, a 50% test
will be applied (i.e., non-audit-related fees should be less than 50% of the
total fees paid to the auditor). We generally vote against proposals to
indemnify auditors.
G.
Executive and Director
Remuneration.
1.
We generally support the
following proposals:
·
Proposals for employee equity compensation plans
and other employee ownership plans, provided that our research does not
indicate that approval of the plan would be against shareholder interest. Such
approval may be against shareholder interest if it authorizes excessive
dilution and shareholder cost, particularly in the context of high usage (run
rate) of equity compensation in the recent past; or if there are objectionable
plan design and provisions.
15
·
Proposals
relating to fees to outside directors, provided the amounts are not excessive
relative to other companies in the country or industry, and provided that the
structure is appropriate within the market context. While stock-based
compensation to outside directors is positive if moderate and appropriately
structured, we are wary of significant stock option awards or other
performance-based awards for outside directors, as well as provisions that
could result in significant forfeiture of value on a directors decision to
resign from a board (such forfeiture can undercut director independence).
·
Proposals for
employee stock purchase plans that permit discounts up to 15%, but only for
grants that are part of a broad-based employee plan, including all non-executive
employees.
·
Proposals for
the establishment of employee retirement and severance plans, provided that our
research does not indicate that approval of the plan would be against
shareholder interest.
2.
Shareholder proposals requiring shareholder
approval of all severance agreements will not be supported, but proposals that
require shareholder approval for agreements in excess of three times the annual
compensation (salary and bonus) generally will be supported. We generally
oppose shareholder proposals that would establish arbitrary caps on pay. We
consider on a case-by-case basis shareholder proposals that seek to limit
Supplemental Executive Retirement Plans (SERPs), but support such proposals
where we consider SERPs to be excessive.
3.
Shareholder proposals advocating stronger
and/or particular pay-for-performance models will be evaluated on a
case-by-case basis, with consideration of the merits of the individual proposal
within the context of the particular company and its labor markets, and the
companys current and past practices. While we generally support emphasis on
long-term components of senior executive pay and strong linkage of pay to
performance, we consider whether a proposal may be overly prescriptive, and the
impact of the proposal, if implemented as written, on recruitment and
retention.
4.
We consider shareholder proposals for
U.K.-style advisory votes on pay on a case-by-case basis.
5.
We generally support proposals advocating
reasonable senior executive and director stock ownership guidelines and holding
requirements for shares gained in option exercises.
6.
Management proposals effectively to re-price
stock options are considered on a case-by-case basis. Considerations include
the companys reasons and justifications for a re-pricing, the companys
competitive position, whether senior executives and outside directors are
excluded, potential cost to shareholders, whether the re-pricing or share
exchange is on a value-for-value basis, and whether vesting requirements are extended.
H.
Social,
Political and Environmental Issues.
We consider proposals relating to
social, political and environmental issues on a case-by-case basis to determine
whether they will have a financial impact on shareholder value. However, we
generally vote
16
against proposals requesting reports that are duplicative, related to
matters not material to the business, or that would impose unnecessary or
excessive costs. We may abstain from voting on proposals that do not have a
readily determinable financial impact on shareholder value. We generally oppose
proposals requiring adherence to workplace standards that are not required or
customary in market(s) to which the proposals relate.
I.
Fund of
Funds
. Certain Funds advised by an MSIM Affiliate invest only in other MSIM
Funds. If an underlying fund has a shareholder meeting, in order to avoid any
potential conflict of interest, such proposals will be voted in the same
proportion as the votes of the other shareholders of the underlying fund,
unless otherwise determined by the Proxy Review Committee.
III.
ADMINISTRATION
OF POLICY
The MSIM Proxy Review
Committee (the Committee) has overall responsibility for creating and
implementing the Policy, working with an MSIM staff group (the Corporate
Governance Team). The Committee, which is appointed by MSIMs Chief Investment
Officer of Global Equities (CIO), consists of senior investment professionals
who represent the different investment disciplines and geographic locations of
the firm. Because proxy voting is an investment responsibility and impacts
shareholder value, and because of their knowledge of companies and markets,
portfolio managers and other members of investment staff play a key role in proxy
voting, although the Committee has final authority over proxy votes.
The Committee Chairperson is
the head of the Corporate Governance Team, and is responsible for identifying
issues that require Committee deliberation or ratification. The Corporate Governance
Team, working with advice of investment teams and the Committee, is responsible
for voting on routine items and on matters that can be addressed in line with
these Policy guidelines. The Corporate Governance Team has responsibility for
voting case-by-case where guidelines and precedent provide adequate guidance,
and to refer other case-by-case decisions to the Proxy Review Committee.
The Committee will
periodically review and have the authority to amend, as necessary, the Policy
and establish and direct voting positions consistent with the Client Proxy
Standard.
A.
Committee
Procedures
The
Committee will meet at least monthly to (among other matters) address any
outstanding issues relating to the Policy or its implementation. The Corporate
17
Governance
Team will timely communicate to ISS MSIMs Policy (and any amendments and/or
any additional guidelines or procedures the Committee may adopt).
The
Committee will meet on an ad hoc basis to (among other matters): (1) authorize
split voting (i.e., allowing certain shares of the same issuer that are the
subject of the same proxy solicitation and held by one or more MSIM portfolios
to be voted differently than other shares) and/or override voting (i.e.,
voting all MSIM portfolio shares in a manner contrary to the Policy); (2) review
and approve upcoming votes, as appropriate, for matters for which specific
direction has been provided in this Policy; and (3) determine how to vote
matters for which specific direction has not been provided in this Policy.
Members
of the Committee may take into account Research Providers recommendations and
research as well as any other relevant information they may request or receive,
including portfolio manager and/or analyst research, as applicable.
Generally, proxies related to securities held in accounts that are managed
pursuant to quantitative, index or index-like strategies (Index Strategies)
will be voted in the same manner as those held in actively managed accounts,
unless economic interests of the accounts differ. Because accounts
managed using Index Strategies are passively managed accounts, research from
portfolio managers and/or analysts related to securities held in these accounts
may not be available. If the affected securities are held only in
accounts that are managed pursuant to Index Strategies, and the proxy relates
to a matter that is not described in this Policy, the Committee will consider
all available information from the Research Providers, and to the extent that
the holdings are significant, from the portfolio managers and/or analysts.
B.
Material
Conflicts of Interest
In
addition to the procedures discussed above, if the Committee determines that an
issue raises a material conflict of interest, the Committee will request a
special committee to review, and recommend a course of action with respect to,
the conflict(s) in question (Special Committee).
The
Special Committee shall be comprised of the Chairperson of the Proxy Review
Committee, the Chief Compliance Officer or his/her designee, a senior portfolio
manager (if practicable, one who is a member of the Proxy Review Committee)
designated by the Proxy Review Committee, and MSIMs relevant Chief Investment
Officer or his/her designee, and any other persons deemed necessary by the
Chairperson. The Special Committee may request the assistance of MSIMs General
Counsel or his/her designee who will have sole discretion to cast a vote. In
addition to the research provided by Research Providers, the Special Committee
may request analysis from MSIM Affiliate investment professionals and outside
sources to the extent it deems appropriate.
18
C.
Identification
of Material Conflicts of Interest
A potential material
conflict of interest could exist in the following situations, among others:
1.
The issuer
soliciting the vote is a client of MSIM or an affiliate of MSIM and the vote is
on a material matter affecting the issuer.
2.
The proxy
relates to Morgan Stanley common stock or any other security issued by Morgan
Stanley or its affiliates except if echo voting is used, as with MSIM Funds, as
described herein.
3.
Morgan Stanley
has a material pecuniary interest in the matter submitted for a vote (e.g.,
acting as a financial advisor to a party to a merger or acquisition for which
Morgan Stanley will be paid a success fee if completed).
If the Chairperson of the
Committee determines that an issue raises a potential material conflict of
interest, depending on the facts and circumstances, the Chairperson will
address the issue as follows:
1.
If the matter
relates to a topic that is discussed in this Policy, the proposal will be voted
as per the Policy.
2.
If the matter
is not discussed in this Policy or the Policy indicates that the issue is to be
decided case-by-case, the proposal will be voted in a manner consistent with
the Research Providers, provided that all the Research Providers have the same
recommendation, no portfolio manager objects to that vote, and the vote is
consistent with MSIMs Client Proxy Standard.
3.
If the Research
Providers recommendations differ, the Chairperson will refer the matter to the
Committee to vote on the proposal. If the Committee determines that an issue
raises a material conflict of interest, the Committee will request a Special
Committee to review and recommend a course of action, as described above.
Notwithstanding the above, the Chairperson of the Committee may request a
Special Committee to review a matter at any time as he/she deems necessary to
resolve a conflict.
D.
Proxy
Voting Reporting
The
Committee and the Special Committee, or their designee(s), will document in
writing all of their decisions and actions, which documentation will be
maintained by the Committee and the Special Committee, or their designee(s),
for a period of at least 6 years. To the extent these decisions relate to a
security held by an MSIM Fund, the Committee and Special Committee, or their
designee(s), will report their decisions to each applicable Board of
Trustees/Directors of those Funds at each Boards next regularly scheduled
Board meeting. The report will contain information concerning decisions made by
the Committee and Special Committee during the most recently ended calendar quarter
immediately preceding the Board meeting.
19
The
Corporate Governance Team will timely communicate to applicable portfolio
managers and to ISS, decisions of the Committee and Special Committee so that,
among other things, ISS will vote proxies consistent with their decisions.
MSIM will promptly provide a
copy of this Policy to any client requesting it. MSIM will also, upon client
request, promptly provide a report indicating how each proxy was voted with
respect to securities held in that clients account.
MSIMs Legal Department is
responsible for filing an annual Form N-PX on behalf of each MSIM Fund for
which such filing is required, indicating how all proxies were voted with
respect to such Funds holdings.
APPENDIX A
The
following procedures apply to accounts managed by Morgan Stanley AIP GP LP (AIP).
Generally,
AIP will follow the guidelines set forth in Section II of MSIMs Proxy
Voting Policy and Procedures. To the extent that such guidelines do not provide
specific direction, or AIP determines that consistent with the Client Proxy
Standard, the guidelines should not be followed, the Proxy Review Committee has
delegated the voting authority to vote securities held by accounts managed by AIP
to the Liquid Markets investment team and the Private Markets investment team
of AIP. A summary of decisions made by the investment teams will be made
available to the Proxy Review Committee for its information at the next
scheduled meeting of the Proxy Review Committee.
In
certain cases, AIP may determine to abstain from determining (or recommending)
how a proxy should be voted (and therefore abstain from voting such proxy or
recommending how such proxy should be voted), such as where the expected cost of
giving due consideration to the proxy does not justify the potential benefits
to the affected account(s) that might result from adopting or rejecting
(as the case may be) the measure in question.
Waiver of Voting Rights
For
regulatory reasons, AIP may either 1) invest in a class of securities of an
underlying fund (the Fund) that does not provide for voting rights; or 2)
waive 100% of its voting rights with respect to the following:
1.
Any rights with
respect to the removal or replacement of a director, general partner, managing
member or other person acting in a similar capacity for or on behalf of the
Fund (each individually a Designated Person, and collectively, the Designated
Persons), which may include, but are not limited to, voting on the election or
removal of a Designated Person in the event of such Designated
20
Persons death, disability, insolvency, bankruptcy, incapacity, or
other event requiring a vote of interest holders of the Fund to remove or
replace a Designated Person; and
2.
Any rights in
connection with a determination to renew, dissolve, liquidate, or otherwise
terminate or continue the Fund, which may include, but are not limited to,
voting on the renewal, dissolution, liquidation, termination or continuance of
the Fund upon the occurrence of an event described in the Funds organizational
documents;
provided
,
however
, that, if the Funds organizational
documents require the consent of the Funds general partner or manager, as the
case may be, for any such termination or continuation of the Fund to be
effective, then AIP may exercise its voting rights with respect to such
matter.
APPENDIX B
The
following procedures apply to the portion of the Van Kampen Dynamic Credit Opportunities
Fund (VK Fund) sub advised by Avenue Europe International Management, L.P. (Avenue).
(
The portion of the VK Fund
managed solely by Van Kampen Asset Management will continue to be subject to
MSIMs Policy.)
1.
Generally
: With respect to Avenues portion of the VK
Fund, the Board of Trustees of the VK Fund will retain sole authority and
responsibility for proxy voting.
The
Advisers involvement in the voting process of Avenues portion of the VK Fund
is a purely administrative function, and serves to execute and deliver the
proxy voting decisions made by the VK Fund Board in connection with the Avenue
portion of the VK Fund, which may, from time to time, include related
administrative tasks such as receiving proxies, following up on missing proxies,
and collecting data related to proxies. As such, the Adviser shall not be
deemed to have voting power or shared voting power with Avenue with respect to
Avenues portion of the Fund.
2.
Voting Guidelines
: All proxies, with respect to Avenues portion
of the VK Fund, will be considered by the VK Fund Board or such subcommittee as
the VK Fund Board may designate from time to time for determination and voting
approval. The VK Board or its subcommittee will timely communicate to MSIMs
Corporate Governance Group its proxy voting decisions, so that among other
things the votes will be effected consistent with the VK Boards authority.
3.
Administration
: The VK Board or its
subcommittee will meet on an adhoc basis as may be required from time to time
to review proxies that require its review and determination. The VK Board or
its subcommittee will document
21
in
writing all of its decisions and actions which will be maintained by the VK
Fund, or its designee(s), for a period of at least 6 years. If a subcommittee
is designated, a summary of decisions made by such subcommittee will be made
available to the full VK Board for its information at its next scheduled
respective meetings.
Item
8. Portfolio Managers of Closed-End Management Investment Companies
Morgan Stanley Emerging Markets
Domestic Debt Fund, Inc.
FUND MANAGEMENT
PORTFOLIO
MANAGEMENT. As of the date of this report, the Fund is managed by members of
the Emerging Markets Debt 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 Funds portfolio
are Abigail McKenna, Eric J. Baurmeister, Managing Director and Federico
L. Kaune, Executive Director of the Adviser.
Ms. McKenna
has been associated with the Adviser in an investment management capacity since
August 1996 and began managing the Fund at its inception. Mr. Baurmeister
has been associated with the Adviser in an investment management capacity since
October 1997 and began managing the Fund at its inception. Mr. Kaune
has been associated with the Adviser in an investment management capacity since
April 2003 and began managing the Fund at its inception. Ms. McKenna,
Mr. Baurmeister and Mr. Kaune are co-portfolio managers. Certain
other members of the team collaborate to manage the assets of the Fund, but are
not primarily responsible for the day-to-day management of the Fund.
The composition of the team
may change from time to time.
OTHER ACCOUNTS MANAGED BY THE
PORTFOLIO MANAGERS
As of October 31,
2008:
Ms. McKenna managed nine registered investment companies
with a total of approximately $1.6 billion in assets; eight pooled investment
vehicles other than registered investment companies with a total of
approximately $586.0 million in assets; and six other accounts with a total of
approximately $1.7 billion in assets.
Mr. Baurmeister
managed nine registered investment
companies with a total of approximately $1.6 billion in assets; eight pooled
investment vehicles other than registered investment companies with a total of
approximately $586.0 million in assets; and six other accounts with a total of
approximately $1.7 billion in assets.
Mr. Kaune
managed nine registered investment
companies with a total of approximately $1.6 billion in assets; eight pooled
investment vehicles other than registered investment companies with a total of
approximately $586.0 million in assets; and six other accounts with a total of
approximately $1.7 billion in assets.
22
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 Advisers 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 have 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 Stanleys 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 managers compensation is linked to the pre-tax investment performance of the funds/accounts managed by the portfolio manager. Investment
23
performance is calculated for one-, three- and five-year periods measured against a funds/accounts primary benchmark, 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, 2008, the portfolio managers did not own any share of the Fund.
Item
9. Closed-End Fund Repurchases
None
Item
10. Submission of Matters to a Vote of Security Holders
Not
applicable.
Item
11. Controls and Procedures
(a)
The Funds principal executive officer and principal financial officer have
concluded that the Funds disclosure controls and procedures are sufficient to
ensure that information required to be disclosed by the Fund in this Form N-CSR
was recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commissions 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 registrants 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 registrants 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.
24
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 Emerging Markets Domestic Debt Fund, Inc.
/s/ Randy Takian
|
|
Randy Takian
|
Principal Executive Officer
|
December 17, 2008
|
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/ Randy Takian
|
|
Randy Takian
|
Principal Executive Officer
|
December 17, 2008
|
/s/ James Garrett
|
|
James Garrett
|
Principal Financial Officer
|
December 17, 2008
|
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