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
|
|
MORGAN STANLEY EMERGING MARKETS DOMESTIC
DEBT FUND, INC.
|
(Exact name of registrant as
specified in charter)
|
|
522 FIFTH AVENUE NEW YORK, NY
|
|
10036
|
(Address of principal executive
offices)
|
|
(Zip code)
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RANDY TAKIAN
522 FIFTH AVENUE NEW YORK, NY 10036
|
(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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4/30/09
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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 semi-annual report transmitted to shareholders pursuant to
Rule 30e-1 under the Investment Company Act of 1940 is as follows:
INVESTMENT MANAGEMENT
Morgan Stanley
Emerging Markets Domestic
Debt Fund, Inc. (EDD)
Morgan Stanley
Investment Management Inc.
Investment Adviser
Semi-Annual
Report
April 30, 2009
Morgan
Stanley Emerging Markets Domestic Debt Fund, Inc.
Overview
(unaudited)
Letter to
Stockholders
Performance
For the six months ended April 30,
2009, the Morgan Stanley Emerging Markets Domestic Debt Fund, Inc. (the Fund)
had total returns of 20.64% based on net asset value and 15.01%, based on
market value per share (including reinvestment of distributions), compared to
its benchmark, the J.P. Morgan Government Bond Index Emerging Markets Global
Diversified Index (the Index) which returned 12.79%. On April 30, 2009,
the closing price of the Funds shares on the New York Stock Exchange was
$10.42, representing a 26.7% discount to the Funds net asset value per share.
Past performance is no guarantee of future results.
Factors
Affecting Performance
·
|
The financial crisis
evolved into a full-blown global economic downturn during the fourth quarter
of 2008. After the Lehman Brothers bankruptcy and the associated freezing of
credit markets late in the third quarter, investor confidence plummeted, risk
appetite collapsed, and forced selling of risky assets ensued. Credit in the
global markets dried up, marking a turning point for those countries that had
managed to remain on the sidelines of the crisis. Emerging market (EM)
countries endured a series of shocks including manic deleveraging, an
unprecedented drop in commodity prices, and a sharp contraction in developed
market growth.
|
|
|
·
|
Against this negative
backdrop, EM debt markets sold-off during the last quarter of 2008. However,
the market rebounded in December due to the expectations of a large
fiscal stimulus package in the U.S., a decline in mortgage rates, and a
thawing of credit and money markets which allowed for an improvement in risk
appetite.
|
|
|
·
|
The first quarter of
2009 was characterized by unprecedented government intervention in financial
markets with policy moves ranging from bank nationalization to fiscal and
monetary activism. Numerous governments around the world eased monetary
policy while monetary authorities with limited scope for further interest
rate cuts began quantitative easing.
|
|
|
·
|
The broad-based market
rally that began in March extended into April, as investors appeared to
believe that the end of the recession might be in sight. April was a
very positive month for financial markets, as stronger than expected economic
data and corporate earnings helped improve investor risk appetite.
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|
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·
|
Positive contributors
to the Funds relative returns during the six-month period included
overweight exposures to Indonesia, Colombia, Russia, and Venezuelan U.S.
denominated debt. An underweight exposure to the Polish zloty also aided
relative returns. Conversely, detractors from relative performance were
exposures to the Mexican peso, Brazilian real, and an underweight to the
South African rand. The Funds shorter duration (a measure of interest-rate
sensitivity) in South African debt relative to the Index also hindered
returns.
|
2
Morgan
Stanley Emerging Markets Domestic Debt Fund, Inc.
Overview
(unaudited)
Letter to
Stockholders (contd)
Management
Strategies
·
|
During the six-month
review period the portfolio maintained an average interest rate duration
slightly longer (0.3 years) than that of the Index.
|
|
|
·
|
The portfolio held an
approximate 6% weighting in corporate credits.
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·
|
The largest country and
currency overweights in the portfolio relative to the Index for the period
were Mexico, Brazil and Turkey. The largest underweights for both country
exposure and currency were Poland and South Africa.
|
Sincerely,
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Randy Takian
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President and Principal Executive Officer
|
May 2009
|
3
Morgan Stanley Emerging Markets Domestic Debt Fund, Inc.
April 30, 2009 (unaudited)
Portfolio of Investments
(Showing Percentage of Total Value of Investments)
|
|
Face
Amount
(000)
|
|
Value
(000)
|
|
DEBT INSTRUMENTS (97.2%)
|
|
|
|
|
|
Brazil (14.3%)
|
|
|
|
|
|
Sovereign (14.3%)
|
|
|
|
|
|
Brazil Notas do Tesouro Nacional,
|
|
|
|
|
|
10.00%, 7/1/10
|
|
BRL
|
109,030
|
|
$
|
49,803
|
|
Brazil Notas do Tesouro Nacional, Series F,
|
|
|
|
|
|
10.00%, 1/1/14
|
|
311,727
|
|
130,330
|
|
|
|
|
|
180,133
|
|
Colombia (3.7%)
|
|
|
|
|
|
Sovereign (3.7%)
|
|
|
|
|
|
Jupiter, S.p.V., Colombian Peso Linked Bonds,
|
|
|
|
|
|
13.50%, 9/15/14
|
|
$
|
75,000
|
|
46,723
|
|
|
|
|
|
|
|
Hungary (6.7%)
|
|
|
|
|
|
Sovereign (6.7%)
|
|
|
|
|
|
Republic of Hungary,
|
|
|
|
|
|
6.25%, 8/24/10
|
|
HUF
|
4,515,130
|
|
19,655
|
|
6.75%, 2/24/17
|
|
10,896,620
|
|
40,209
|
|
7.25%, 6/12/12
|
|
5,776,500
|
|
24,213
|
|
|
|
|
|
84,077
|
|
Indonesia (13.1%)
|
|
|
|
|
|
Corporate (0.6%)
|
|
|
|
|
|
Pindo Deli Finance Mauritius,
|
|
|
|
|
|
Tranche A, 3.05%, 4/28/15 (a)(b)
|
|
$
|
115
|
|
64
|
|
Tranche A, 3.05%, 4/28/15 (a)(b)(c)
|
|
1,174
|
|
652
|
|
Tranche B, 3.05%, 4/28/18 (a)(b)(c)
|
|
8,336
|
|
2,126
|
|
Tranche C, Zero Coupon, 4/28/25 (a)
|
|
2,227
|
|
122
|
|
Tjiwi Kimia Finance Mauritius Ltd.,
|
|
|
|
|
|
Tranche A, 3.05%, 4/28/15 (a)(b)
|
|
531
|
|
295
|
|
Tranche A, 3.09%, 4/28/15 (a)(b)(c)
|
|
3,516
|
|
1,951
|
|
Tranche B, 3.09%, 4/28/18 (a)(b)(c)
|
|
9,360
|
|
2,387
|
|
Tranche C, Zero Coupon, 4/28/27 (a)(c)
|
|
998
|
|
55
|
|
|
|
|
|
7,652
|
|
Sovereign (12.5%)
|
|
|
|
|
|
Barclays Bank plc, Indonesian Government Bond
Linked Notes,
|
|
|
|
|
|
10.00%, 7/17/17
|
|
IDR
|
750,000,000
|
|
64,188
|
|
Credit Suisse, Republic of Indonesia Government
Bonds Credit Linked Notes,
|
|
|
|
|
|
10.00%, 7/15/17
|
|
154,683,530
|
|
13,239
|
|
JPMorgan Chase & Co., London, Indonesian
Treasury Bill Linked Notes,
|
|
|
|
|
|
10.00%, 7/15/17
|
|
192,525,000
|
|
16,477
|
|
Republic of Indonesia,
|
|
|
|
|
|
6.88%, 1/17/18
|
|
$
|
5,000
|
|
4,550
|
|
6.88%, 1/17/18 (c)
|
|
7,000
|
|
6,370
|
|
11.63%, 3/4/19 (c)
|
|
33,315
|
|
39,978
|
|
UBS AG, Republic of Indonesia Government Bonds
Credit Linked Notes,
|
|
|
|
|
|
11.50%, 9/15/19
|
|
IDR
|
135,000,000
|
|
12,410
|
|
|
|
|
|
157,212
|
|
|
|
|
|
164,864
|
|
Malaysia (6.2%)
|
|
|
|
|
|
Sovereign (6.2%)
|
|
|
|
|
|
Government of Malaysia,
|
|
|
|
|
|
3.72%, 6/15/12
|
|
MYR
|
85,000
|
|
24,299
|
|
3.83%, 9/28/11
|
|
169,720
|
|
48,925
|
|
5.09%, 4/30/14
|
|
18,200
|
|
5,386
|
|
|
|
|
|
78,610
|
|
Mexico (16.9%)
|
|
|
|
|
|
Sovereign (16.9%)
|
|
|
|
|
|
Mexican Bonos,
|
|
|
|
|
|
7.75%, 12/14/17
|
|
MXN
|
1,365,924
|
|
99,976
|
|
8.00%, 12/17/15
|
|
101,200
|
|
7,572
|
|
9.50%, 12/18/14
|
|
360,000
|
|
28,957
|
|
10.00%, 11/20/36
|
|
620,000
|
|
54,421
|
|
United Mexican States,
|
|
|
|
|
|
5.95%, 3/19/19 (d)
|
|
$
|
22,184
|
|
22,184
|
|
|
|
|
|
213,110
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
The accompanying notes are
an integral part of the financial statements.
|
|
Morgan Stanley Emerging Markets Domestic Debt Fund, Inc.
April 30, 2009 (unaudited)
Portfolio of Investments (contd)
(Showing Percentage of Total Value of Investments)
|
|
Face
Amount
(000)
|
|
Value
(000)
|
|
Multi-Country (1.3%)
|
|
|
|
|
|
Sovereign (1.3%)
|
|
|
|
|
|
Standard Bank plc, African Currency Basket Linked
Bonds,
|
|
|
|
|
|
11.30%, 5/15/09
|
|
$
|
21,400
|
|
$
|
16,022
|
|
|
|
|
|
|
|
|
|
Peru (1.2%)
|
|
|
|
|
|
Sovereign (1.2%)
|
|
|
|
|
|
Peru Government Bond,
|
|
|
|
|
|
7.84%, 8/12/20
|
|
PEN
|
36,000
|
|
14,632
|
|
|
|
|
|
|
|
|
Russia (3.0%)
|
|
|
|
|
|
Sovereign (3.0%)
|
|
|
|
|
|
Russian Federation (Registered),
|
|
|
|
|
|
7.50%, 3/31/30 (e)
|
|
$
|
38,400
|
|
37,440
|
|
|
|
|
|
|
|
|
South Africa (3.8%)
|
|
|
|
|
|
Sovereign (3.8%)
|
|
|
|
|
|
Republic of South Africa,
|
|
|
|
|
|
7.38%, 4/25/12 (d)
|
|
30,000
|
|
32,025
|
|
8.00%, 12/21/18
|
|
ZAR
|
140,000
|
|
16,070
|
|
|
|
|
|
48,095
|
|
South Korea (3.1%)
|
|
|
|
|
|
Sovereign (3.1%)
|
|
|
|
|
|
Export-Import Bank of Korea,
|
|
|
|
|
|
4.50%, 8/12/09
|
|
$
|
20,000
|
|
20,004
|
|
Korea Development Bank,
|
|
|
|
|
|
4.75%, 7/20/09 (d)
|
|
14,500
|
|
14,479
|
|
5.30%, 1/17/13 (d)
|
|
5,000
|
|
4,838
|
|
|
|
|
|
39,321
|
|
Thailand (5.9%)
|
|
|
|
|
|
Sovereign (5.9%)
|
|
|
|
|
|
Kingdom of Thailand,
|
|
|
|
|
|
4.25%, 3/13/13
|
|
THB
|
1,597,940
|
|
49,464
|
|
5.25%, 7/13/13 - 5/12/14
|
|
795,100
|
|
25,647
|
|
|
|
|
|
75,111
|
|
Turkey (14.4%)
|
|
|
|
|
|
Sovereign (14.4%)
|
|
|
|
|
|
Republic of Turkey,
|
|
|
|
|
|
Zero Coupon, 8/5/09 - 6/23/10
|
|
TRY
|
292,424
|
|
165,415
|
|
9.95%, 2/15/12
|
|
16,645
|
|
10,495
|
|
16.00%, 3/7/12
|
|
9,340
|
|
6,198
|
|
|
|
|
|
182,108
|
|
Venezuela (3.6%)
|
|
|
|
|
|
Sovereign (3.6%)
|
|
|
|
|
|
Republic of Venezuela,
|
|
|
|
|
|
9.25%, 5/7/28
|
|
$
|
64,500
|
|
|
37,571
|
|
9.38%, 1/13/34
|
|
7,500
|
|
4,538
|
|
10.75%, 9/19/13
|
|
5,000
|
|
4,025
|
|
|
|
|
|
46,134
|
|
TOTAL DEBT INSTRUMENTS
(Cost
$1,363,153)
|
|
|
|
1,226,380
|
|
|
|
|
|
|
|
LOANS (2.6%)
|
|
|
|
|
|
Colombia (1.0%)
|
|
|
|
|
|
Corporate (1.0%)
|
|
|
|
|
|
MFI WWB Cali,
|
|
|
|
|
|
12.50%, 2/28/11 (f)(g)
|
|
COP
|
15,103,760
|
|
6,597
|
|
MFI WWB Popoyan,
|
|
|
|
|
|
12.50%, 2/28/11 (f)(g)
|
|
13,215,790
|
|
5,772
|
|
|
|
|
|
12,369
|
|
Kazakhstan (0.5%)
|
|
|
|
|
|
Corporate (0.5%)
|
|
|
|
|
|
MFI KMF,
|
|
|
|
|
|
15.50%, 2/28/11 (f)(g)
|
|
KZT
|
905,197
|
|
5,766
|
|
|
|
|
|
|
|
|
Mexico (0.9%)
|
|
|
|
|
|
Corporate (0.9%)
|
|
|
|
|
|
MFI Finsol,
|
|
|
|
|
|
14.00%, 2/28/11 (f)(g)
|
|
MXN
|
161,685
|
|
11,711
|
|
|
|
|
|
|
|
|
Peru (0.2%)
|
|
|
|
|
|
Corporate (0.2%)
|
|
|
|
|
|
MFI Confranz,
|
|
|
|
|
|
10.40%, 2/28/11 (f)(g)
|
|
PEN
|
8,672
|
|
2,908
|
|
TOTAL LOANS
(Cost
$40,569)
|
|
|
|
32,754
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
SHORT-TERM INVESTMENT (0.2%)
|
|
|
|
|
|
United States (0.2%)
|
|
|
|
|
|
Investment Company (0.2%)
|
|
|
|
|
|
Morgan Stanley Institutional Liquidity Funds
Money Market Portfolio Institutional Class (h)
(Cost $2,929)
|
|
2,928,867
|
|
2,929
|
|
TOTAL INVESTMENTS (100.0%)
(Cost
$1,406,651)
|
|
|
|
1,262,063
|
|
LIABILITIES IN EXCESS OF OTHER
ASSETS
|
|
|
|
(232,880
|
)
|
NET ASSETS
|
|
|
|
$
|
1,029,183
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are
an integral part of the financial statements.
|
5
|
Morgan Stanley Emerging Markets Domestic Debt Fund, Inc.
April 30, 2009 (unaudited)
Portfolio of Investments (contd)
(a)
|
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
April 30, 2009.
|
(b)
|
Issuer
is in default.
|
(c)
|
144A
security Certain conditions for public sale may exist. Unless otherwise
noted, these securities are deemed to be liquid.
|
(d)
|
Denotes
all or a portion of securities subject to repurchase under the Reverse
Repurchase Agreements as of April 30, 2009.
|
(e)
|
Step
Bond Coupon rate increases in increments to maturity. Rate disclosed is as
of April 30, 2009. Maturity date disclosed is the ultimate maturity
date.
|
(f)
|
Security
has been deemed illiquid at April 30, 2009.
|
(g)
|
At
April 30, 2009, the Fund held approximately $32,754,000 of fair valued
securities, representing 3.2% of net assets. These securities have been fair
valued as determined in good faith under procedures established by and under
the general supervision of the Funds Directors.
|
(h)
|
See
Note G within the Notes to Financial Statements regarding investment in
Morgan Stanley Institutional Liquidity Funds Money Market Portfolio
Institutional Class.
|
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
|
216,900
|
|
$
|
99,061
|
|
5/5/09
|
|
USD
|
|
92,369
|
|
$
|
92,369
|
|
$
|
(6,692
|
)
|
BRL
|
216,900
|
|
98,272
|
|
6/2/09
|
|
USD
|
|
97,518
|
|
97,518
|
|
(754
|
)
|
SGD
|
21,854
|
|
14,761
|
|
5/6/09
|
|
USD
|
|
14,358
|
|
14,358
|
|
(403
|
)
|
USD
|
98,144
|
|
98,144
|
|
5/5/09
|
|
BRL
|
|
216,900
|
|
99,060
|
|
916
|
|
USD
|
14,749
|
|
14,749
|
|
5/6/09
|
|
SGD
|
|
21,854
|
|
14,761
|
|
12
|
|
|
|
$
|
324,987
|
|
|
|
|
|
|
|
$
|
318,066
|
|
$
|
(6,921
|
)
|
BRL
|
Brazilian
Real
|
COP
|
Colombian
Peso
|
HUF
|
Hungarian
Forint
|
IDR
|
Indonesian
Rupiah
|
KZT
|
Kazakhstan
Tenge
|
MXN
|
Mexican
Peso
|
MYR
|
Malaysian
Ringgit
|
PEN
|
Peruvian
Sol
|
SGD
|
Singapore
Dollar
|
THB
|
Thailand
Baht
|
TRY
|
Turkish
Lira
|
USD
|
United
States Dollar
|
ZAR
|
South
African Rand
|
Futures Contracts:
The Fund had the following futures contract(s) open
at period end:
|
|
Number
of
Contracts
|
|
Value
(000)
|
|
Expiration
Date
|
|
Net
Unrealized
Appreciation
(Depreciation)
(000)
|
|
Short:
|
|
|
|
|
|
|
|
|
|
U.S. Treasury 10 yr. Note
|
|
498
|
|
$
|
60,227
|
|
Jun-09
|
|
$
|
(436
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio
Composition
Classification
|
|
Percentage of
Total Investments
|
|
Sovereign
|
|
96.6
|
%
|
Corporate
|
|
3.2
|
|
Short-Term Investment
|
|
0.2
|
|
Total Investments
|
|
100.0
|
%
|
6
|
The accompanying notes are
an integral part of the financial statements.
|
|
Morgan Stanley Emerging Markets Domestic Debt Fund, Inc.
April 30, 2009
Financial Statements
Statement
of Assets and Liabilities
|
|
April 30, 2009
(unaudited)
(000)
|
|
Assets:
|
|
|
|
Investments in Securities of Unaffiliated Issuers,
at Value (Cost $1,403,722)
|
|
$
|
1,259,134
|
|
Investment in Security of Affiliated Issuer, at
Value (Cost $2,929)
|
|
2,929
|
|
Total Investments in Securities, at Value (Cost
$1,406,651)
|
|
1,262,063
|
|
Interest Receivable
|
|
30,497
|
|
Due from Broker
|
|
9,809
|
|
Receivable for Lehman Brothers Closed Reverse
Repurchase Transactions
|
|
1,976
|
|
Receivable for Investments Sold
|
|
969
|
|
Unrealized Appreciation on Foreign Currency
Exchange Contracts
|
|
928
|
|
Foreign Currency, at Value (Cost $136)
|
|
136
|
|
Dividends Receivable
|
|
1
|
|
Other Assets
|
|
1,013
|
|
Total Assets
|
|
1,307,392
|
|
Liabilities:
|
|
|
|
Payable For:
|
|
|
|
Line of Credit
|
|
216,509
|
|
Reverse Repurchase Agreements
|
|
52,369
|
|
Investment Advisory Fees
|
|
1,004
|
|
Custodian Fees
|
|
153
|
|
Administration Fees
|
|
81
|
|
Bank Overdraft
|
|
60
|
|
Unrealized Depreciation on Foreign Currency
Exchange Contracts
|
|
7,849
|
|
Other Liabilities
|
|
184
|
|
Total Liabilities
|
|
278,209
|
|
Net Assets
|
|
|
|
Applicable to 72,431,536 Issued and Outstanding
$0.01 Par Value Shares (100,000,000 Shares Authorized)
|
|
$
|
1,029,183
|
|
Net Asset Value Per Share
|
|
$
|
14.21
|
|
Net Assets Consist of:
|
|
|
|
Common Stock
|
|
$
|
724
|
|
Paid-in Capital
|
|
1,385,995
|
|
Distributions in Excess of Net Investment Income
|
|
(47,414
|
)
|
Accumulated Net Realized Loss
|
|
(158,897
|
)
|
Unrealized Appreciation (Depreciation) on:
|
|
|
|
Investments
|
|
(144,588
|
)
|
Foreign Currency Exchange Contracts and
Translations
|
|
(6,201
|
)
|
Futures
|
|
(436
|
)
|
Net Assets
|
|
$
|
1,029,183
|
|
|
The accompanying notes are
an integral part of the financial statements.
|
7
|
Morgan Stanley Emerging Markets Domestic Debt Fund, Inc.
April 30, 2009
Financial Statements (contd)
Statement of Operations
|
|
Six Months Ended
April 30, 2009
(unaudited)
(000)
|
|
Investment Income:
|
|
|
|
Interest from Securities of Unaffiliated Issuers
|
|
$
|
46,851
|
|
Dividends from Security of Affiliated Issuer
|
|
104
|
|
Total Investment Income
|
|
46,955
|
|
Expenses:
|
|
|
|
Investment Advisory Fees (Note B)
|
|
6,018
|
|
Administration Fees (Note C)
|
|
481
|
|
Custodian Fees (Note D)
|
|
446
|
|
Commitment Fees (Note H)
|
|
127
|
|
Professional Fees
|
|
96
|
|
Stockholder Reporting Expenses
|
|
36
|
|
Administrative Fees on Line of Credit (Note H)
|
|
40
|
|
Directors Fees and Expenses
|
|
7
|
|
Stockholder Servicing Agent Fees
|
|
3
|
|
Proxy Fees
|
|
2
|
|
Other Expenses
|
|
168
|
|
Expenses Before Non Operating
Expenses
|
|
7,424
|
|
Interest Expense on Line of Credit (Note H)
|
|
2,802
|
|
Interest Expense on Reverse Repurchase Agreements
|
|
69
|
|
Total Expenses
|
|
10,295
|
|
Rebate from Morgan Stanley Affiliates (Note G)
|
|
(13
|
)
|
Expense Offset (Note D)
|
|
|
@
|
Net Expenses
|
|
10,282
|
|
Net Investment Income
|
|
36,673
|
|
Net Realized Gain (Loss) on:
|
|
|
|
Investments
|
|
43,293
|
|
Foreign Currency Transactions
|
|
(40,627
|
)
|
Swap Agreements
|
|
(80,336
|
)
|
Net Realized Loss
|
|
(77,670
|
)
|
Change in Unrealized Appreciation
(Depreciation) on:
|
|
|
|
Investments
|
|
218,491
|
|
Foreign Currency Exchange Contracts and
Translations
|
|
(17,044
|
)
|
Future Contracts
|
|
(436
|
)
|
Swap Agreements
|
|
7,909
|
|
Change in Unrealized Appreciation
(Depreciation)
|
|
208,920
|
|
Net Realized Gain (Loss) and
Change in Unrealized Appreciation (Depreciation)
|
|
131,250
|
|
Net Increase in Net Assets
Resulting from Operations
|
|
$
|
167,923
|
|
@
Amount is less than $500.
8
|
The accompanying notes are
an integral part of the financial statements.
|
|
Morgan Stanley Emerging Markets Domestic Debt Fund, Inc.
April 30, 2009
Financial Statements (contd)
Statements of Changes in Net
Assets
|
|
Six Months Ended
April 30, 2009
(unaudited)
(000)
|
|
Year Ended
October 31,
2008
(000)
|
|
Increase (Decrease) in Net Assets
|
|
|
|
|
|
Operations:
|
|
|
|
|
|
Net Investment Income
|
|
$
|
36,673
|
|
$
|
155,449
|
|
Net Realized Loss
|
|
(77,670
|
)
|
(128,179
|
)
|
Net Change in Unrealized Appreciation
(Depreciation)
|
|
208,920
|
|
(421,716
|
)
|
Net Increase (Decrease) in Net
Assets Resulting from Operations
|
|
167,923
|
|
(394,446
|
)
|
Distributions from and/or in Excess of:
|
|
|
|
|
|
Net Investment Income
|
|
(54,606
|
)
|
(175,774
|
)
|
Net Realized Gain
|
|
|
|
(6,283
|
)
|
Total Distributions
|
|
(54,606
|
)
|
(182,057
|
)
|
Capital Share Transactions:
|
|
|
|
|
|
Additional Expenses Incurred from the 2007 Initial
Offering
|
|
|
|
(16
|
)
|
Repurchase of Shares (853,200 and 33,000 shares)
|
|
(8,096
|
)
|
(582
|
)
|
Net Decrease in Net Assets
Resulting from Capital Share Transactions
|
|
(8,096
|
)
|
(598
|
)
|
Total Increase (Decrease)
|
|
105,221
|
|
(577,101
|
)
|
Net Assets:
|
|
|
|
|
|
Beginning of Period
|
|
923,962
|
|
1,501,063
|
|
End of Period (Including
Distributions in Excess of Net Investment Income of $(47,414) and $(29,481))
|
|
$
|
1,029,183
|
|
$
|
923,962
|
|
|
The accompanying notes are
an integral part of the financial statements.
|
9
|
Morgan Stanley Emerging Markets Domestic Debt Fund, Inc.
April 30, 2009
Financial Statements (contd)
Statement of Cash Flows
|
|
Six Months Ended
April 30, 2009
(unaudited)
(000)
|
|
Cash Flows From Operating
Activities:
|
|
|
|
Proceeds from Sales and Maturities of Long-Term
Investments
|
|
$
|
862,738
|
|
Purchase of Long-Term Investments
|
|
(641,123
|
)
|
Net (Increase) Decrease in Short-Term Investments
|
|
14,852
|
|
Net (Increase) Decrease in Foreign Currency
Holdings
|
|
2,465
|
|
Net Increase (Decrease) in Cash Overdrafts
|
|
60
|
|
Net Realized Gain (Loss) for Foreign Currency
Transactions
|
|
(40,627
|
)
|
Net Realized Gain (Loss) on Swap Agreements
|
|
(80,336
|
)
|
Net Investment Income
|
|
36,673
|
|
Adjustments to Reconcile Net
Investment Income to Net Cash Provided (Used) by Operating Activities:
|
|
|
|
Net (Increase) Decrease in Receivables Related to
Operations
|
|
3,714
|
|
Net (Increase) Decrease in Payables Related to
Operations
|
|
(3,595
|
)
|
Accretion/Amortization of Discounts and Premiums
|
|
(17,232
|
)
|
Net Cash Provided (Used) by Operating Activities
|
|
137,589
|
|
Cash Flows From Financing
Activities:
|
|
|
|
Cash Received for Reverse Repurchase Agreements
|
|
52,300
|
|
Cash Paid for Line of Credit
|
|
(127,500
|
)
|
Payment for Fund Shares Repurchased
|
|
(8,096
|
)
|
Cash Distributions Paid
|
|
(54,606
|
)
|
Net Cash Provided (Used) for Financing Activities
|
|
(137,902
|
)
|
Net Increase (Decrease) in Cash
|
|
(313
|
)
|
Cash at Beginning of Period
|
|
313
|
|
Cash at End of Period
|
|
$
|
|
|
|
|
|
|
Supplemental Disclosure of Cash
Flow Information:
|
|
|
|
Interest Paid on Line of Credit during the Period
|
|
$
|
3,938
|
|
Interest Paid on Reverse Repurchase Agreements
during the Period
|
|
|
|
10
|
The accompanying notes are
an integral part of the financial statements.
|
|
Morgan Stanley Emerging Markets Domestic Debt Fund, Inc.
April 30, 2009
Financial Highlights
Selected Per Share Data and Ratios
|
|
Six Months
Ended April 30,
2009 (unaudited)
|
|
Year Ended
October 31,
2008
|
|
Period from April 24,
2007^ to
October 31, 2007
|
|
Net Asset Value, Beginning of
Period
|
|
$
|
12.61
|
|
$
|
20.47
|
|
$
|
19.10
|
|
Net Investment Income
|
|
0.50
|
|
2.12
|
|
0.90
|
|
Net Realized and Unrealized Gain (Loss) on
Investments
|
|
1.81
|
|
(7.49
|
)
|
1.07
|
|
Total from Investment Operations
|
|
2.31
|
|
(5.37
|
)
|
1.97
|
|
Distributions from and/or in excess of:
|
|
|
|
|
|
|
|
Net Investment Income
|
|
(0.75
|
)
|
(2.40
|
)
|
(0.60
|
)
|
Net Realized Gain
|
|
|
|
(0.09
|
)
|
|
|
Total Distributions
|
|
(0.75
|
)
|
(2.49
|
)
|
(0.60
|
)
|
Anti-Dilutive Effect of Share Repurchase Program
|
|
0.04
|
|
0.00
|
|
|
|
Net Asset Value, End of Period
|
|
$
|
14.21
|
|
$
|
12.61
|
|
$
|
20.47
|
|
Per Share Market Value, End of
Period
|
|
$
|
10.42
|
|
$
|
9.70
|
|
$
|
18.93
|
|
TOTAL INVESTMENT RETURN:
|
|
|
|
|
|
|
|
Market Value
|
|
15.01
|
%
#
|
(39.43
|
)
%
|
(2.46
|
)
%#
|
Net Asset Value(1)
|
|
20.64
|
%
#
|
(27.22
|
)
%
|
10.77
|
%
#
|
RATIOS, SUPPLEMENTAL DATA:
|
|
|
|
|
|
|
|
Net Assets, End of Period
(Thousands)
|
|
$
|
1,029,183
|
|
$
|
923,962
|
|
$
|
1,501,063
|
|
Ratio of Expenses to Average Net Assets
|
|
2.17
|
%
*+
|
2.80
|
%
+
|
3.24
|
%
*+
|
Ratio of Expenses to Average Net Assets Excluding
Non Operating Expenses
|
|
1.57
|
%
*+
|
1.59
|
%
+
|
2.21
|
%
*+
|
Ratio of Net Investment Income to Average Net
Assets
|
|
7.76
|
%
*+
|
11.90
|
%
+
|
8.88
|
%
*+
|
Rebate from Morgan Stanley Affiliates to Average
Net Assets
|
|
0.00
|
%
*§
|
0.00
|
%
§
|
0.01
|
%
*
|
Portfolio Turnover Rate
|
|
43
|
%
#
|
130
|
%
|
58
|
%
#
|
^
|
Commencement
of Operations.
|
(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.
|
|
Per
share amount is based on average shares outstanding.
|
|
Amount
is less than $0.005 per share.
|
#
|
Not
Annualized
|
+
|
The
Ratio of Expenses and Net Investment Income reflect the rebate of certain
Fund expenses in connection with the investments in Morgan Stanley affiliates
during the period. The affect of the rebate on the ratios is disclosed in the
above table as Rebate from Morgan Stanley Affiliates to Average Net Assets.
|
*
|
Annualized
|
§
|
Amount
is less than 0.005%.
|
|
The accompanying notes are
an integral part of the financial statements.
|
11
|
Morgan Stanley Emerging Markets Domestic Debt Fund, Inc.
April 30, 2009 (unaudited)
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. To the
extent the Fund invests in derivative instruments that the Adviser believes
have economic characteristics similar to such securities, such investments will
be counted for purposes of the Funds policy described in the previous
sentence. To the extent the Fund makes such investments, the Fund will be subject
to the risk of such derivative instruments as described herein.
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. Significant 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
12
Morgan Stanley Emerging Markets Domestic Debt Fund, Inc.
April 30, 2009 (unaudited)
Notes to Financial Statements (contd)
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 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 April 30, 2009, the Fund had a reverse
repurchase agreement outstanding with UBS Warburg as follows:
|
|
Maturity in
Less than
365 Days
|
|
Value of Securities Subject to Repurchase
|
|
$
|
62,851
|
|
Liability Under Reverse Repurchase Agreement
|
|
$
|
52,369
|
|
Weighted Average Days to Maturity
|
|
52.00
|
|
The weighted average weekly balance of reverse repurchase agreements
outstanding during the six months ended April 30, 2009 was approximately
$52,300,000 at a weighted average weekly interest rate of 0.90%.
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 rates of exchange on the
valuation date;
·
investment
transactions and investment income at the prevailing rates 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) on
investments in securities are
13
Morgan Stanley Emerging Markets Domestic Debt Fund, Inc.
April 30, 2009 (unaudited)
Notes to Financial Statements (contd)
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, stock indices, as well
as in options, swaps and structured notes. 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
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
14
Morgan Stanley Emerging Markets Domestic Debt Fund, Inc.
April 30, 2009 (unaudited)
Notes to Financial Statements (contd)
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 April 30, 2009, 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.
Futures:
The Fund may purchase and
sell futures contracts. Futures contracts provide for the sale by one party and
purchase by another party of a specified amount of a specified security, index,
instrument or basket of
15
Morgan Stanley Emerging Markets Domestic Debt Fund, Inc.
April 30, 2009 (unaudited)
Notes to Financial Statements (contd)
instruments. Futures contracts (secured by cash, government or other
liquid securities deposited with brokers or custodians as initial margin) are
valued based upon their quoted daily settlement prices; changes in initial
settlement value (represented by cash paid to or received from brokers as
(variation margin) are accounted for as unrealized appreciation
(depreciation). When futures contracts are closed, the difference between the
opening value at the date of purchase and the value at closing is recorded as
realized gains or losses in the Statement of Operations.
The Fund may use futures contracts in order to manage its exposure to
the stock and bond markets, to hedge against unfavorable changes in the value
of securities or to remain fully invested and to reduce transaction costs.
Futures contracts involve market risk in excess of the amounts recognized in
the Statement of Assets and Liabilities. Risks arise from the possible
movements in security values underlying these instruments. The change in value
of futures contracts primarily corresponds with the value of their underlying
instruments, which may not correlate with the change in value of the hedged
investments. In addition, there is the risk that the Fund may not be able to
enter into a closing transaction because of an illiquid secondary market.
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 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 adopted the
provisions of the FASB Staff Position Paper No. FAS 133-1 and FIN 45-4,
Disclosures about Credit Derivatives and Certain
Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation
No. 45
(FSP FAS 133-1 and FIN 45-4), effective
December 31, 2008. FSP FAS 133-1 and FIN 45-4 requires the seller of
credit derivatives to provide additional disclosure about its credit
derivatives. 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. 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 & Liabilities. The following summarizes swaps entered into by
the Fund:
Credit Default Swaps:
The Fund may enter into
credit default swap contracts, a type of credit derivative, for hedging
purposes or to gain exposure to a credit or index of credits in which the Fund
may otherwise invest. A credit default swap is an agreement between two parties
to exchange the credit risk of an issuer or index of issuers. A buyer of a
credit default swap is said to buy protection by pairing periodic fees in
return for a contingent payment from the seller if the issuer has a credit
event such as bankruptcy, a failure to pay outstanding obligations or
deteriorating credit while the swap is outstanding. A seller of a credit
default swap is said to sell protection and thus collects the periodic fees and
profits if the credit of the issuer remains stable or improves while the swap
is outstanding. The seller in a credit default swap contract
16
Morgan Stanley Emerging Markets Domestic Debt Fund, Inc.
April 30, 2009 (unaudited)
Notes to Financial Statements (contd)
would be required to pay an
agreed-upon amount, to the buyer in the event of an adverse credit event of the
issuer. This agreed-upon amount approximates the notional amount of the swap as
disclosed in the table following the Portfolio of Investments and is estimated
to be the maximum potential future payment that the seller could be required to
make under the credit default contract. In the event of an adverse credit
event, the seller generally does not have any contractual remedies against the
issuer or any other third party. However, if a physical settlement is elected,
the seller would receive the defaulted credit and, as a result, become a
creditor of the issuer.
The current credit rating of
each individual issuer is listed in the table following the Portfolio of
Investments and serves as an indicator of the current status of the
payment/performance risk of the credit derivative. Alternatively, for the
credit default swaps on an index of credits, the quoted market prices and
current values serve as an indicator of the current status of the
payment/performance risk of the credit derivative. Generally, lower credit
ratings and increasing market values, in absolute terms, represent a
deterioration of the credit and a greater likelihood of an adverse credit event
of the issuer.
The Fund accrues for the
periodic fees on credit default swaps on a daily basis with the net amount
accrued recorded within unrealized appreciation (depreciation) of swap
contracts. Upon cash settlement of the periodic fees, the net amount is
recorded as realized gain (loss) on swap contracts on the Statement of
Operations. Net unrealized gains are recorded as an asset or net unrealized
losses are reported as a liability on the Statement of Assets and Liabilities.
The change in value of the swap contracts is reported as unrealized gains
(losses) on the Statement of Operations. Payments received or made upon entering
into a credit default swap contract, if any, are recorded as realized gain
(loss) on the Statement of Operations upon termination or maturity of the swap.
Credit default swaps may involve greater risks than if the Fund had invested in
the issuer directly. Credit default swaps are subject to general market risk,
counterparty risk and credit risk. At April 30, 2009, the Fund had no
credit default swap contracts outstanding.
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. At April 30, 2009, the Fund
had no interest rate swap contracts outstanding.
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
17
Morgan Stanley Emerging Markets Domestic Debt Fund, Inc.
April 30, 2009 (unaudited)
Notes to Financial Statements (contd)
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 (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 (losses) in the Statement of
Operations. At April 30, 2009, the Fund had no total return swap contracts
outstanding.
Realized gains (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 & 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 & Liabilities.
5.
New
Accounting Pronouncement:
On April 9, 2009, Financial Accounting
Standards Board (FASB) issued Staff Position No. 157-4,
Determining Fair Value When the Volume and Level of
Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly
(FSP 157-4). FSP
157-4 provides additional guidance for estimating fair value in accordance with
SFAS 157, when the volume and level of activity for the asset or liability have
significantly decreased. FSP 157-4 also requires additional disaggregation of
the current SFAS 157 required disclosures. FSP 157-4 is effective for interim
and annual reporting periods ending after June 15, 2009, and shall be
applied prospectively. At this time, management is evaluating the implications
of FSP 157-4 and the impact it will have on the financial statement
disclosures.
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 does not believe the adoption of SFAS 161 will impact the financial
statement amounts; however, additional footnote disclosures may be required
about the use of derivative instruments and hedging items.
6.
Fair Value
Measurement:
The Fund adopted Financial Accounting Standards
Board Statement of Financial Accounting Standards No. 157, Fair Value
Measurements (SFAS 157), effective November 1, 2008. In accordance with
SFAS 157, fair value is defined as the price that the Fund would receive to
sell an investment or pay to transfer a liability in a timely transaction with
an independent buyer in the principal market, or in the absence of a principal
market the most advantageous market for the investment or liability. SFAS 157
establishes three-tier hierarchy to distinguish between (1) inputs that
reflect the assumptions market participants would use in valuing an asset or
liability developed based on market data obtained from sources independent of
the reporting entity (observable inputs) and (2) inputs that reflect the
reporting entitys own assumptions about the assumptions market participants
would use in valuing an asset or liability developed based on the best
information available in the circumstances (unobservable inputs) and to
establish
18
Morgan Stanley Emerging Markets Domestic Debt Fund, Inc.
April 30, 2009 (unaudited)
Notes to Financial Statements (contd)
classification of fair value
measurements for disclosure purposes. Various inputs are used in determining
the value the Funds investments. The inputs are summarized in the three broad
levels listed below:
·
Level 1 quoted
prices in active markets for identical securities
·
Level 2 other
significant observable inputs (including quoted prices for similar securities,
interest rates, prepayment speeds, credit risk, etc.)
·
Level 3
significant unobservable inputs (including each Portfolios own assumptions in
determining the fair value of investments)
The inputs or methodology
used for valuing securities, are not necessarily an indication of the risk
associated with investing in those securities.
The following is a summary of
the inputs used as of April 30, 2009 in valuing the Funds investments
carried at value:
Assets
|
|
Investments
in Securities
(000)
|
|
Other
Financial
Instruments*
(000)
|
|
Level 1 Quoted Prices
|
|
$
|
2,929
|
|
$
|
|
|
Level 2 Other Significant Observable Inputs
|
|
1,226,380
|
|
928
|
|
Level 3 Significant Unobservable Inputs
|
|
32,754
|
|
|
|
Total
|
|
$
|
1,262,063
|
|
$
|
928
|
|
Liabilities
|
|
Investments
in Securities
(000)
|
|
Other
Financial
Instruments*
(000)
|
|
Level 1 Quoted Prices
|
|
$
|
|
|
$
|
(436
|
)
|
Level 2 Other Significant Observable Inputs
|
|
|
|
(60,149
|
)
|
Level 3 Significant Unobservable Inputs
|
|
|
|
|
|
Total
|
|
$
|
|
|
$
|
(60,585
|
)
|
The following is a
reconciliation of investments in which significant unobservable inputs (Level
3) were used in determining value:
|
|
Investments
in Securities
(000)
|
|
Balance as of 10/31/08
|
|
$
|
34,807
|
|
Accrued discounts/premiums
|
|
|
|
Realized gain (loss)
|
|
|
|
Change in unrealized appreciation (depreciation)
|
|
(2,053
|
)
|
Net purchases (sales)
|
|
|
|
Net transfers in and/or out of Level 3
|
|
|
|
Balance as of 4/30/09
|
|
$
|
32,754
|
|
The amount of total gains (losses) for the period
included in earnings attributable to the change in unrealized gains (losses)
relating to assets and liabilities still held at level 3 at 4/30/09.
|
|
$
|
(2,053
|
)
|
*Other financial instruments
include forwards, futures, and reverse repurchase agreements.
7.
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:
The Adviser 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.
19
Morgan Stanley Emerging Markets Domestic Debt Fund, Inc.
April 30, 2009 (unaudited)
Notes to Financial Statements (contd)
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.
Financial
Accounting Standards Board Interpretation No. 48
Accounting for Uncertainty in Income Taxes (FIN 48)
sets forth a minimum threshold for financial statement recognition of the
benefit of a tax position taken or expected to be taken in a tax return.
Management has concluded there are no significant uncertain tax positions that
would require recognition in the financial statements. If applicable, the
Portfolios recognize interest accrued related to unrecognized tax benefits in Interest
Expense and penalties in Other expenses on the Statement of Operations. The
Portfolios file tax returns with the U.S. Internal Revenue Service, New York
and various states. Generally, each of the tax years in the four year period
ended October 31, 2008, remains subject to examination by taxing
authorities.
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 from net investment income during the fiscal
year ended 2008 and 2007 was as follows.
2008
Distributions
Paid From:
(000)
|
|
2007 Distributions
Paid From:
(000)
|
|
Ordinary
Income
|
|
Long-term
Capital
Gain
|
|
Ordinary
Income
|
|
Long-term
Capital
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
20
Morgan Stanley Emerging Markets Domestic Debt Fund, Inc.
April 30, 2009 (unaudited)
Notes to Financial Statements (contd)
on
certain investment transactions and the timing of the deductibility of certain
expenses.
Permanent
differences, primarily due to gains and losses on 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)
Net Investment
Income (Loss)
(000)
|
|
Accumulated
Net Realized
Gain (Loss)
(000)
|
|
Paid-in
Capital
(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
Income
(000)
|
|
Undistributed
Long-term Capital Gain
(000)
|
|
$
|
17,666
|
|
$
|
|
|
|
|
|
|
|
|
At
April 30, 2009, the U.S. Federal income tax cost basis of investments was
$1,406,651,000 and, accordingly, net unrealized depreciation for U.S. Federal
income tax purposes was $144,588,000 of which $50,656,000 related to
appreciated securities and $195,244,000 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 to offset against
future capital gains which will expire on 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 six months ended April 30,
2009, advisory fees paid were reduced by approximately $13,000 relating to the
Funds investment in the Morgan Stanley Institutional Liquidity Funds Money
Market Portfolio.
A
summary of the Funds transactions in shares of the affiliated issuer during
the six months ended April 30, 2009 is as follows:
Market
Value
October 31,
2008
(000)
|
|
Purchases
at Cost
(000)
|
|
Sales
Proceeds
(000)
|
|
Dividend
Income
(000)
|
|
Market
Value
April 30,
2009
(000)
|
|
$
|
4,746
|
|
$
|
425,102
|
|
$
|
426,919
|
|
$
|
104
|
|
$
|
2,929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During
the six months ended April 30, 2009, the Fund made purchases and sales
totaling approximately $507,016,000 and $603,479,000, 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 six months ended April 30, 2009, the Fund incurred no brokerage
commissions with Morgan Stanley & Co., Incorporated, an affiliated
broker/dealer.
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 had
engaged JPMorgan Securities Inc. to arrange a syndicate of lenders to provide a
revolving line of credit facility in the amount of $375,000,000. Pursuant to
the agreement among the parties, JPMorgan Chase Bank, N.A., as lender (the
21
Morgan Stanley Emerging Markets Domestic Debt Fund, Inc.
April 30, 2009 (unaudited)
Notes to Financial Statements (contd)
Lender)
had agreed to commit up to $75,000,000 of the facility amount. The facility had
the following terms and conditions, among others: The term of the facility was
364 days, which term may be extended under certain conditions. The loans under
the facility did bear interest at a rate per annum, at the rate of LIBOR for
the applicable interest period plus a spread. The loans were secured by a fully
perfected first priority lien on all of the assets of the Fund capable of being
pledged. There was 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.
Effective April 30, 2009 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 the amount of $275,000,000.
Pursuant to the agreement among the parties, JPMorgan Chase Bank, N.A. has
agreed to commit up to $55,000,000. The loans under the facility will bear
interest at a rate per annum, at the rate of LIBOR for the applicable interest
period plus a spread. 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
0.50% of the average daily unused portion of the credit facility. The average
borrowings and interest rate for the six months ended April 30, 2009 were
approximately $248,240,000 and 2.09%, respectively, during a period of 181
days. During the same period, the Fund incurred approximately $2,802,000 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 six months ended April 30, 2009, the Fund repurchased
853,200 of its shares at an average discount of 24.84% from the net asset value
per share. Since the inception of the program, the Fund has repurchased 886,200
of its shares at an average discount of 23.87% 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.
On
March 20, 2009, the Officers of the Fund, pursuant to authority granted by
the Directors, declared a distribution of $0.25 per share, derived from net
investment income, payable on April 15, 2009 to stockholders of record on March 31,
2009.
J. Supplemental Proxy Information:
On June 17,
2009, 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
|
|
Withheld
|
|
Michael Bozic
|
|
5,159,479
|
|
641,199
|
|
Michael F. Klein
|
|
5,164,711
|
|
635,967
|
|
W. Allen Reed
|
|
5,180,980
|
|
619,698
|
|
22
Morgan Stanley Emerging Markets Domestic Debt Fund, Inc.
April 30, 2009 (unaudited)
Notes to Financial Statements (contd)
For More Information About Portfolio Holdings
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/im. 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 toll free
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/im.
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 toll free 1-(800) 231-2608.
Proxy Voting Policy and Procedures and Proxy Voting Record
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 toll free 1-(800) 548-7786 or by visiting our website at
www.morganstanley.com/im. This information is also available on the SECs web
site at www.sec.gov.
23
Morgan Stanley Emerging Markets Domestic Debt Fund, Inc.
April 30, 2009 (unaudited)
Portfolio Management
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
Eric J. Baurmeister, Federico L. Kaune and Abigail L. McKenna, each a Managing
Director of the Adviser. Mr. Baurmeister has been associated with the
Adviser in an investment management capacity since 1997 and began managing the
Fund since inception. Ms. McKenna has been associated with the Adviser in
an investment management capacity since 1996 and began managing the Fund since
inception. Mr. Kaune has been associated with the Adviser in an investment
management capacity since 2002 and began managing the Fund since inception.
24
Morgan Stanley Emerging Markets Domestic Debt Fund, Inc.
April 30, 2009 (unaudited)
Dividend Reinvestment Plan
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.
April 30, 2009 (unaudited)
Morgan Stanley Institutional Closed End Funds
An Important Notice Concerning Our U.S. Privacy Policy
We
are required by federal law to provide you with a copy of our Privacy Policy
annually.
The
following Policy applies to current and former individual investors in Morgan
Stanley 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
26
Morgan Stanley Emerging Markets Domestic Debt Fund, Inc.
April 30, 2009 (unaudited)
Morgan Stanley Institutional Closed End Funds
An Important Notice Concerning Our U.S. Privacy Policy (contd)
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.
A.
Information We Disclose to Our Affiliated Companies.
We do not
disclose personal information that we collect about you to our affiliated
companies except to enable them to provide services on our behalf or as
otherwise required or permitted by law.
B.
Information We Disclose to Third Parties.
We do not disclose personal
information that we collect about you to non-affiliated third parties except to
enable them to provide services on our behalf, to perform joint marketing
agreements with other financial institutions, or as otherwise required or
permitted by law. For example, some instances where we may disclose information
about you to nonaffiliated third parties include: for servicing and processing
transactions, to offer our own products and services, to protect against fraud,
for institutional risk control, to respond to judicial process or to perform
services on our behalf. When we share personal information with these
companies, they are required to limit their use of personal information to the
particular purpose for which it was shared and they are not allowed to share
personal information with others except to fulfill that limited purpose.
3. How
Do We Protect the Security and Confidentiality of Personal Information We
Collect About You?
We
maintain physical, electronic and procedural security measures to help
safeguard the personal information we collect about you. We have internal
policies governing the proper handling of client information. Third parties
that provide support or marketing services on our behalf may also receive
personal information, and we require them to adhere to confidentiality
standards with respect to such information.
27
Morgan Stanley Emerging Markets Domestic Debt Fund, Inc.
Directors
|
|
Michael E. Nugent
|
Kevin Klingert
|
|
Vice President
|
Frank L. Bowman
|
|
|
Stefanie V. Chang Yu
|
Michael Bozic
|
Vice President
|
|
|
Kathleen A. Dennis
|
James W. Garrett
|
|
Treasurer and Chief Financial
Officer
|
James F. Higgins
|
|
|
Carsten Otto
|
Dr. Manuel H. Johnson
|
Chief Compliance Officer
|
|
|
Joseph J. Kearns
|
Mary E. Mullin
|
|
Secretary
|
Michael F. Klein
|
|
|
|
W. Allen Reed
|
|
|
|
Fergus Reid
|
|
|
|
Officers
|
|
Michael E. Nugent
|
|
Chairman of the Board and Director
|
|
|
|
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 toll free 1-(800) 231-2608 or visit our website at
www.morganstanley.com/im. All investments involve risks, including the possible
loss of principal.
©
2009 Morgan Stanley
MSIFEDDSAN
IU09-02529I-Y04/09
Item
2. Code of Ethics.
Not
applicable for semiannual reports.
Item
3. Audit Committee Financial Expert.
Not
applicable for semiannual reports.
Item
4. Principal Accountant Fees and Services
Not
applicable for semiannual reports.
Item
5. Audit Committee of Listed Registrants.
Not
applicable for semiannual reports.
Item
6. Schedule of Investments
Refer
to Item 1.
Item
7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management
Investment Companies.
Not
applicable for semiannual reports.
Item
8. Portfolio Managers of Closed-End Management Investment Companies
Applicable
only to annual reports filed by closed-end funds.
Item
9. Closed-End Fund Repurchases
Morgan Stanley
Emerging Markets Domestic Debt Fund, Inc.*
|
|
|
|
|
|
|
|
MAXIMUM
|
|
|
|
|
|
|
|
|
|
NUMBER
|
|
|
|
|
|
|
|
TOTAL NUMBER
|
|
OF SHARES THAT
|
|
|
|
|
|
|
|
OF SHARES
|
|
MAY YET BE
|
|
|
|
|
|
|
|
PURCHASED AS
|
|
PURCHASED
|
|
|
|
TOTAL NUMBER
|
|
AVERAGE
|
|
PART OF PUBLICLY
|
|
UNDER
|
|
|
|
OF SHARES
|
|
PRICE PAID
|
|
ANNOUNCED PLANS
|
|
THE PLANS
|
|
Period
|
|
PURCHASED
|
|
PER SHARE
|
|
OR PROGRAMS
|
|
OR PROGRAMS
|
|
November
|
|
289,200
|
|
12.11
|
|
289,200
|
|
Unlimited
|
|
December
|
|
|
|
|
|
|
|
Unlimited
|
|
January
|
|
116,800
|
|
13.28
|
|
116,800
|
|
Unlimited
|
|
February
|
|
393,200
|
|
12.74
|
|
393,200
|
|
Unlimited
|
|
March
|
|
54,000
|
|
12.07
|
|
54,000
|
|
Unlimited
|
|
April
|
|
|
|
|
|
|
|
Unlimited
|
|
1
* The Share Repurchase Program commenced on
6/20/2007.
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 Board of Directors.
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 that has
materially affected, or is reasonably likely to materially affect, the
registrants internal control over financial reporting.
Item
12. Exhibits
(a) Code
of Ethics - Not applicable for semiannual reports.
(b) A
separate certification for each principal executive officer and principal
financial officer of the registrant are attached hereto as part of EX-99.CERT.
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
Morgan Stanley Emerging Markets Domestic Debt Fund, Inc.
/s/ Randy Takian
|
|
Randy Takian
|
Principal Executive Officer
|
June 23, 2009
|
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
|
June 23, 2009
|
/s/ James Garrett
|
|
James Garrett
|
Principal Financial Officer
|
June 23, 2009
|
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