You don't get the chance for a 12% dividend yield very often.

But that's what's on offer right now at

(EDD) - Get Morgan Stanley Emerging Markets Domestic Debt Fund Inc Report

Morgan Stanley's Emerging Market Domestic Debt fund (EDD).

Yep, 12%.

Anyone who buys into this fund is getting an awesome double whammy. Emerging-market government bonds have sold off in an irrational panic sparked by the subprime mortgage meltdown, so you're getting a great deal. (Bonds are like seesaws: When the price falls, the yield rises.)

And then you're getting a second boost because shares in this fund, a closed-end that trades on the stock exchange, have themselves been dumped in the panic.

Morgan Stanley

(MS) - Get Morgan Stanley (MS) Report

launched this fund last spring, raising about $1.5 billion. As usual, those who invested in the fund in the IPO got the fuzzy end of the lollipop. They paid $1.05 for each $1 in assets, the difference going to financial middlemen.

Today? Shares in the fund have crashed to just $16.60. That is a thumping 9% below the already-depressed net asset value per share.

The fund has been punished especially hard because it is so new. Few investors know much, if anything, about it. While it pays dividends quarterly, they don't start until next month.

Bottom line? During the IPO, Morgan Stanley predicted the fund would offer a yield of 10% to 10.5%. On a $20 share price, that meant dividends of $2 or more per share.

Fund manager Abby McKenna recently told brokers during a conference call that nothing that has happened since the IPO has caused her to change her dividend expectations.

Yet today you have to pay only $16.60 a share to get those $2 dividends. Yield: Just over 12%. And if anything, you're as likely to do better as you are to do worse. The bonds in the fund's portfolio have an average yield to maturity of 13%.

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I hate to repeat myself, but there is nothing boring about a profit: Closed-end funds offer the best values in the current selloff. These funds are like mutual funds, except they issue only a fixed number of units when they are launched. Anyone who wants to invest simply goes out and buys those units on the stock exchange, like a share in a regular operating company. As I wrote

here Monday, many of those shares have collapsed, falling well below the underlying per-share value of the funds.

There's no such thing as a free lunch, but this is close. A free snack, maybe.

All investments have risks, and of course this fund is no exception. They include the risk of foreign exchange volatility, as the fund invests in bonds that pay interest in foreign currencies. There is also political risk in some emerging-market countries. The fund's biggest positions are bonds issued by the governments of Brazil, Turkey, Mexico, Hungary and South Africa. It invests with borrowed money equal to 30% of assets.

Nonetheless, you are investing in a diversified fund that is professionally managed by Morgan Stanley.

As for the bonds, there is something quaintly old-fashioned about investors dumping "emerging market" government debt in a financial panic and seeking the "safe haven" of U.S. dollar-denominated debt instead.

The "emerging markets" have come a long way since the meltdown of 1997-98. These days, most of them are running huge current account surpluses. They're exporting like crazy and racking up billions of dollars in reserves in their central bank vaults. Government debt in most countries is falling quickly, and they have now become net creditor nations.

The ones running the big deficits? The ones living beyond their means and borrowing from the rest of the world to keep going?

Um, that would be us.

Few things are as infuriating as the foolish way the investment business talks about "risk." The reality is that risk is a function of the price you pay.

U.S. government bonds are "safe" in the sense that they will, technically, pay you back. But right now, 30-year Treasuries are yielding less than 5%. Buyers had better pray inflation remains at bay over the next few decades, or the checks they get back won't be worth much.

Decades.

If you think you know where the consumer price index will be in 2020, good luck.

On the other hand, a 12% yield seems to offer a more compelling margin of safety. McKinnon argued recently, "Over the medium term we're still very confident in our view that the yields available in this marketplace are overcompensating you for the risk."

She's probably right.

In keeping with TSC's editorial policy, Brett Arends doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. Arends takes a critical look inside mutual funds and the personal finance industry in a twice-weekly column that ranges from investment advice for the general reader to the industry's latest scoop. Prior to joining TheStreet.com in 2006, he worked for more than two years at the Boston Herald, where he revived the paper's well-known 'On State Street' finance column and was part of a team that won two SABEW awards in 2005. He had previously written for the Daily Telegraph and Daily Mail newspapers in London, the magazine Private Eye, and for Global Agenda, the official magazine of the World Economic Summit in Davos, Switzerland. Arends has also written a book on sports 'futures' betting.