Edgar Filing: Morgan Stanley Emerging Markets Domestic Debt Fund, Inc.

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-Q

QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED
MANAGEMENT INVESTMENT COMPANY

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, New York 10036 (Address of principal executive offices)		(Zip code)

Sara Furber
522 Fifth Avenue, New York, New York 10036

(Name and address of agent for service)

Registrant’s telephone number, including area code: 212-296-6963

Date of fiscal year end: October 31, 2011

Date of reporting period: January 31, 2011

Item 1. Schedule of Investments.

The Fund’s schedule of investments as of the close of the reporting period prepared pursuant to Rule 12-12 of Regulation S-X is as follows:

2011 First Quarter Report

January 31, 2011 (unaudited)

Portfolio of Investments

Morgan Stanley Emerging Markets Domestic Debt Fund, Inc.
(Showing Percentage of Total Value of Investments)


	Face
	Amount		Value
	(000)		(000)

Fixed Income Securities (97.4%)


Brazil (17.5%)

Sovereign (17.5%)
Brazil Notas do Tesouro Nacional, Series F, 10.00%, 1/1/14 — 1/1/17	BRL	477,658	$	263,293


Colombia (3.4%)

Sovereign (3.4%)
Republic of Colombia,
9.85%, 6/28/27	COP	46,000,000		29,576
12.00%, 10/22/15		33,000,000		22,202

				51,778


Egypt (1.9%)

Sovereign (1.9%)

UBS AG Jersey Branch,
12.60%, 2/22/17	EGP	175,300		29,629


Hungary (11.4%)

Sovereign (11.4%)
Republic of Hungary,
5.50%, 2/12/16	HUF	5,000,000		23,409
6.75%, 2/24/17		18,796,620		92,792
7.25%, 6/12/12		776,500		3,924
7.50%, 11/12/20		10,500,000		53,196

				173,321


Indonesia (11.7%)

Corporate Bonds (0.3%)
Pindo Deli Finance Mauritius,
Tranche A
Zero Coupon, 4/28/15 (a)(b)(c)	$	137		33
Zero Coupon, 4/28/15 (a)(b)(c)(d)		1,391		341
Tranche B
Zero Coupon, 4/28/18 (a)(b)(c)(d)		8,336		917
Tranche C
Zero Coupon, 4/28/27 (a)(b)(c)(d)		2,227		50
Tjiwi Kimia Finance Mauritius Ltd.,
Tranche A
Zero Coupon, 4/28/15 (a)(b)(c)		627		157
Zero Coupon, 4/28/15 (a)(b)(c)(d)		4,152		1,038
Tranche B
Zero Coupon, 4/28/18 (a)(b)(c)(d)		9,360		1,825
Tranche C
Zero Coupon, 4/28/27 (a)(b)(c)(d)		998		35

				4,396


Sovereign (11.4%)
Barclays Bank PLC, Indonesia Government Bonds, Credit Linked Notes,
10.00%, 7/17/17	IDR	600,000,000		71,779
Credit Suisse, Indonesia Government Bonds, Credit Linked Notes,
10.00%, 7/17/17		154,683,530		18,505

2011 First Quarter Report

January 31, 2011 (unaudited)

Portfolio of Investments (cont’d)

Morgan Stanley Emerging Markets Domestic Debt Fund, Inc.
(Showing Percentage of Total Value of Investments)


	Face
	Amount		Value
	(000)		(000)

Deutsche Bank AG, Republic of Indonesia Government Bond, Credit Linked Notes,
11.00%, 12/15/20	IDR	60,000,000	$	7,593
11.50%, 9/23/19 (d)		235,000,000		30,362
12.80%, 6/22/21		150,000,000		20,962
JPMorgan Chase Bank, London, Indonesia Government Bonds, Credit Linked Notes, 10.00%, 7/19/17 (a)		192,525,000		23,032

				172,233

				176,629


Malaysia (4.6%)

Sovereign (4.6%)
Government of Malaysia,
3.83%, 9/28/11	MYR	55,030		18,120
3.84%, 8/12/15		110,000		36,463
5.09%, 4/30/14		42,152		14,520

				69,103


Mexico (16.5%)

Sovereign (16.5%)
Mexican Bonos,
8.00%, 12/17/15 — 6/11/20	MXN	627,200		54,834
9.50%, 12/18/14		360,000		33,107
10.00%, 12/5/24 — 11/20/36		1,628,375		161,765

				249,706


Peru (1.0%)

Sovereign (1.0%)
Peru Government Bond,
7.84%, 8/12/20	PEN	37,745		15,556


South Africa (9.1%)

Sovereign (9.1%)
Republic of South Africa,
7.25%, 1/15/20	ZAR	938,200		119,369
8.00%, 12/21/18		140,000		18,952

				138,321


Thailand (4.4%)

Sovereign (4.4%)
Kingdom of Thailand,
4.25%, 3/13/13	THB	1,597,940		53,052
5.25%, 7/13/13		395,100		13,426

				66,478

2011 First Quarter Report

January 31, 2011 (unaudited)

Portfolio of Investments (cont’d)

Morgan Stanley Emerging Markets Domestic Debt Fund, Inc.
(Showing Percentage of Total Value of Investments)


	Face
	Amount		Value
	(000)		(000)

Turkey (15.9%)

Sovereign (15.9%)
Republic of Turkey,
Zero Coupon, 5/11/11 — 1/25/12	TRY	367,998	$	221,795
10.00%, 2/15/12		18,932		12,850
16.00%, 3/7/12		9,340		6,293

				240,938

Total Fixed Income Securities (Cost $1,469,656)				1,474,752

Loans (2.2%)

Colombia (1.0%)
Corporate (1.0%)
MFI WWB Cali,
12.50%, 2/28/11 (a)(b)(e)	COP	15,103,760		8,089
MFI WWB Popoyan,
12.50%, 2/28/11 (a)(b)(e)		13,215,790		7,077

				15,166


Kazakhstan (0.1%)

Corporate (0.1%)
MFI KMF,
15.50%, 2/28/11 (a)(b)(e)	KZT	167,687		1,118


Mexico (0.9%)

Corporate (0.9%)
MFI Finsol,
14.00%, 2/28/11 (a)(b)(e)	MXN	161,685		13,328


Peru (0.2%)

Corporate (0.2%)
MFI Confianza,
10.40%, 2/28/11 (a)(b)(e)	PEN	8,671		3,131

Total Loans (Cost $34,458)				32,743

		Shares

Short-Term Investment (0.4%)


Investment Company (0.4%)
Morgan Stanley Institutional Liquidity Funds — Money Market Portfolio — Institutional Class (f) (Cost $6,452)		6,451,809		6,452

Total Investments (100.0%) (Cost $1,510,566) +				1,513,947

Liabilities in Excess of Other Assets				(255,074	)

Net Assets			$	1,258,873

2011 First Quarter Report

January 31, 2011 (unaudited)

Portfolio of Investments (cont’d)

Morgan Stanley Emerging Markets Domestic Debt Fund, Inc.
(Showing Percentage of Total Value of Investments)


(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 January 31, 2011.

(b)		Security has been deemed illiquid at January 31, 2011.

(c)		Issuer is in default.

(d)		144A security — Certain conditions for public sale may exist. Unless otherwise noted, these securities are deemed to be liquid.

(e)		At January 31, 2011, the Fund held approximately $32,743,000 of fair valued securities, representing 2.6% 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 Fund’s Directors.

(f)		The Fund invests in the Morgan Stanley Institutional Liquidity Funds — Money Market Portfolio — Institutional Class, (the “Liquidity Fund”), an open-end management investment company managed by the Investment Adviser. Investment advisory fees paid by the Fund are reduced by an amount equal to the advisory and administrative service fees paid by the Liquidity Fund with respect to assets invested by the Fund in the Liquidity Fund.

+		At January 31, 2011, the U.S. Federal income tax cost basis of investments was approximately $1,510,566,000 and, accordingly, net unrealized appreciation for U.S. Federal income tax purposes was $3,381,000 of which $62,028,000 related to appreciated securities and $58,647,000 related to depreciated securities.

2011 First Quarter Report

January 31, 2011 (unaudited)

Portfolio of Investments (cont’d)

Morgan Stanley Emerging Markets Domestic Debt Fund, Inc.
(Showing Percentage of Total Value of Investments)

Foreign Currency Exchange Contracts Information:

The Fund had the following foreign currency exchange contract(s) open at period end:


		Currency						In				Unrealized
		to						Exchange				Appreciation
		Deliver		Value		Settlement		For		Value		(Depreciation)
Counterparty		(000)		(000)		Date		(000)		(000)		(000)

JPMorgan Chase	RUB		200,000	$	6,706	2/14/11	USD		6,640	$	6,640	$	(66	)
JPMorgan Chase	USD		78,747		78,747	2/14/11	RUB		2,380,920		79,826		1,079
JPMorgan Chase	USD		59,723		59,723	2/18/11	MYR		182,210		59,456		(267	)
JPMorgan Chase	USD		59,474		59,474	2/22/11	THB		1,808,000		58,521		(953	)
JPMorgan Chase	USD		40,733		40,733	5/16/11	CNY		266,720		40,400		(333	)

				$	245,383					$	244,843	$	(540	)


BRL	—	Brazilian Real
CNY	—	Chinese Yuan Renminbi
COP	—	Colombian Peso
EGP	—	Egyptian Pound
HUF	—	Hungarian Forint
IDR	—	Indonesian Rupiah
KZT	—	Kazakhstan Tenge
MXN	—	Mexican New Peso
MYR	—	Malaysian Ringgit
PEN	—	Peruvian Nuevo Sol
RUB	—	Russian Ruble
THB	—	Thai Baht
TRY	—	Turkish Lira
USD	—	United States Dollar
ZAR	—	South African Rand

2011 First Quarter Report

January 31, 2011 (unaudited)

Portfolio of Investments

MS Emerging Markets Domestic Debt Fund, Inc.
(Showing Percentage of Total Value of Investments)

Fair Value Measurement Information:

The following is a summary of the inputs used to value the Fund’s net assets as of January 31, 2011. (See Notes to the Portfolio of Investments for further information regarding fair value measurement.)


			Level 2
			Other			Level 3
	Level 1		significant			Significant
	Quoted		observable			unobservable
	prices		inputs			inputs		Total
Investment Type	(000)		(000)			(000)		(000)

Assets:
Fixed Income Securities
Corporate Bonds	$	—	$	4,396		$	—	$	4,396
Sovereign		—		1,470,356			—		1,470,356

Total Fixed Income Securities		—		1,474,752			—		1,474,752

Loans		—		—			32,743		32,743
Short-Term Investment — Investment Company		6,452		—			—		6,452
Foreign Currency Exchange Contracts		—		1,079			—		1,079

Total Assets		6,452		1,475,831			32,743		1,515,026

Liabilites:
Foreign Currency Exchange Contracts		—		(1,619	)		—		(1,619	)

Total	$	6,452	$	1,474,212		$	32,743	$	1,513,407

Transfers between investment levels may occur as the markets fluctuate and/or the availability of data used in an investment’s valuation changes. The Fund recognizes transfers between the Levels as of the end of the period. As of January 31, 2011 the Fund did not have any significant investments transfer between valuation levels.

Following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value.


	Loans
	(000)
Balance as of 10/31/10	$	33,683
Accrued discounts/premiums		—
Realized gain (loss)		(223	)
Change in unrealized appreciation (depreciation)		283
Net purchases (sales)		(1,000	)
Transfers in for Level 3		—
Transfers out of Level 3		—

Balance as of 1/31/11	$	32,743

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 1/31/11.	$	283

MS Emerging Markets Domestic Debt Fund, Inc.

Notes to the Portfolio of Investments • January 31, 2011 (unaudited)

Fair Value Measurement: Financial Accounting Standards Board Accounting Standards Codification 820 Fair Value Measurements and Disclosure (“ASC 820”), defines fair value 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. ASC 820 establishes a 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 entity’s 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 classification of fair value measurements for disclosure purposes. Various inputs are used in determining the value of 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 investments, interest rates, prepayment speeds, credit risk, etc.)

•		Level 3 — significant unobservable inputs including the Fund’s own assumptions in determining the fair value of investments. 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 issuer’s financial statements or other available documents and, if necessary, available information concerning other securities in similar circumstances.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities and the determination of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to each security.

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 except as noted below. 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. 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. Short-term debt securities purchased with remaining maturities of 60 days or less are valued at amortized cost, unless the Board of Directors (the “Directors”) determines such valuation does not reflect the securities’ market value, in which case these securities will be valued at their fair value as determined in good faith under procedures adopted by the Directors.

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 Directors, 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 issuer’s 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.


Item 2.		Controls and Procedures.

(a) The Fund’s principal executive officer and principal financial officer have concluded that the Fund’s disclosure controls and procedures are sufficient to ensure that information required to be disclosed by the Fund in this Form N-Q was recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, based upon such officers’ evaluation of these controls and procedures as of a date within 90 days of the filing date of the report.

(b) There were no changes in the Fund’s internal control over financial reporting that occurred during the registrant’s fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Fund’s internal control over financial reporting.


Item 3.		Exhibits.

(a) A separate certification for each principal executive officer and principal financial officer of the registrant are attached hereto.

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/ Sara Furber

Sara Furber
Principal Executive Officer
March 22, 2011

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment CompanyAct 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/ Sara Furber

Sara Furber
Principal Executive Officer
March 22, 2011

/s/ Francis Smith

Francis Smith
Principal Financial Officer
March 22, 2011