Morgan Stanley Tangible Asset Fund L.P.
July 1998
Monthly Report
Morgan Stanley Tangible Asset Fund L.P.
Historical Fund Performance
Presented below is the percentage change in Net Asset Value
per Unit from the start of each calendar year the Fund has
traded. Also provided is the inception-to-date return for
the Fund. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF
FUTURE RESULTS.
Year Return
1998 (7 months) -21.5%
Inception-to-Date Return: -21.5%
<PAGE>
Demeter Management Corporation
Two World Trade Center, 62nd Floor
New York, NY 10048
Telephone (212) 392-8899
Morgan Stanley Tangible Asset Fund L.P.
Monthly Report
July 1998
Dear Limited Partner:
This report summarizes the performance and trading activity
for the Morgan Stanley Tangible Asset Fund L.P. during July.
The Net Asset Value per Unit as of July 31, 1998 was $7.85,
down 6.43% for the month.
Should you have any questions concerning this report, please
feel free to contact Demeter Management Corporation at Two
World Trade Center, 62nd Floor, New York, NY 10048, or your
Dean Witter Financial Advisor.
I hereby affirm, that to the best of my knowledge and
belief, the information contained in this report is accurate
and complete. Past performance is not a guarantee of future
results.
Sincerely,
Mark J. Hawley
President
Demeter Management Corporation
General Partner
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Morgan Stanley Tangible Asset Fund L.P.
Monthly Report of the Trading Manager
July 1998
A majority of the individual commodity markets, as well as
the Commodity Research Bureau Index ("CRB"), moved lower
during the month. The CRB reached an over five-year low,
while the spot Goldman Sachs Index dipped to levels last
seen over twenty years ago in 1977.
Crude oil moved modestly lower as evidence mounted that
previously agreed upon production cuts were not being
completely implemented, particularly in Venezuela. Heating
oil and unleaded gasoline fell sharply, by over 9% in price
as U.S. refineries operated at or near capacity throughout
the month, building on already swollen heating oil
inventories and minimizing the drawdown of gasoline
inventories during the peak season for demand. Headline
grabbing heat in Texas did not spread to the North and
cooler temperatures in the Midwest and Northeast decreased
the demand for air conditioning contributing to an over 26%
decline in natural gas prices.
Grain prices were sharply lower during July, as near perfect
growing conditions combined with disappointing export demand
for the U.S. crop. Corn declined by over 14%, while wheat
lost over 12% and soybeans fell over 7%. The first half of
July is the most susceptible period for the developing corn
crop, which this year enjoyed the desired mix of moisture,
sunshine and lack of intense heat. August is the most
critical month in the development of the soybean crop, which
to this point in time has not faced any stress.
Cattle and hog prices were lower amid ample supply and
reduced export demand. Cattle weights have been running
consistently above normal, much to the surprise of the
market, while livestock exports have remain depressed in the
wake of the Asian currency crisis. During July both live
cattle and feeder cattle declined by over 6%, while hogs
fell by more than twice as much in price.
During August the grain market focus will shift towards
soybeans, while all markets will be mindful of the U.S.
dollar's value versus other world currencies. The recent
strength in the dollar has made commodity prices more
expensive (and, therefore, less affordable) in other
currencies, reducing import demand.
Morgan Stanley Commodities Management Inc.
Note: Investors are cautioned that past results are not
necessarily indicative of futures results
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<TABLE>
Morgan Stanley Tangible Asset Fund L.P.
Statement of Operations
For the Month Ended July 31, 1998
(Unaudited)
<CAPTION>
Percent of June 30,
1998
Amount Net Asset Value
$ %
REVENUES
<S> <C> <C>
Trading Profit (Loss):
Realized (1,268,089) (3.72)
Net change in unrealized (834,910) (2.45)
Total Trading Results (2,102,999) (6.17)
Interest Income (MS & Co.) 113,394 .33
Total Revenues (1,989,605) (5.84)
EXPENSES
Brokerage fee (MS & Co. and MSIL) 103,681 .30
Management fee (MSCM) 71,014 .21
Service fee (Demeter) 28,407 .08
Total Expenses 203,102 .59
NET LOSS (2,192,707) (6.43)
</TABLE>
<PAGE>
<TABLE>
Statement of Changes in Net Asset Value
For the Month Ended July 31, 1998
(Unaudited)
<CAPTION>
Percent of
June 30, 1998
Amount Per Unit
Net Asset Value
$ $
$
<S> <C> <C> <C>
Net Asset Value,
June 30, 1998
(4,062,492.410 Units) 34,086,922 8.39
100.00
Net Loss (2,192,707) (.54)
(6.43)
Subscriptions
(52,593.838 Units) 412,862 7.85
1.21
Redemptions
(22,372.396 Units) (175,623) 7.85
(.52)
Net Asset Value,
July 31, 1998
(4,092,713.852 Units) 32,131,454 7.85
94.26
The accompanying notes are an integral part
of these financial statements.
</TABLE>
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Morgan Stanley Tangible Asset Fund L.P.
Notes to Financial Statements
(Unaudited)
1. Summary of Significant Accounting Policies
Organization - Morgan Stanley Tangible Asset Fund L.P. (the
"Partnership") is a limited partnership organized to engage
primarily in speculative trading of futures contracts in
metals, energy and agricultural markets. The general
partner is Demeter Management Corporation ("Demeter"). The
commodity brokers are Morgan Stanley & Co. Incorporated ("MS
& Co.") and Morgan Stanley & Co. International Limited
("MSIL"), (collectively, the "Commodity Brokers"). The
trading advisor is Morgan Stanley Commodities Management,
Inc. ("MSCM"). MSCM, the Commodity Brokers and Demeter are
wholly-owned subsidiaries of Morgan Stanley Dean Witter &
Co.("MSDW").
Demeter is required to maintain a 1% minimum interest in the
equity of the Partnership and income (losses) are shared by
the General and Limited Partners based upon their
proportional ownership interests.
Basis of Accounting - The preparation of financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and
assumptions that affect the reported amounts in the
financial statements.
Revenue Recognition - MS & Co. credits the Partnership at
each month-end with interest income as if 80% of the
Partnership's average daily "Net Assets", as defined in the
Limited Partnership Agreement, for the month were invested
at a rate based on U.S. Treasury Bills. For purpose of such
interest payments, Net Assets does not include monies due to
the Partnership on or with respect to futures interests but
not actually received.
Net Income (Loss) per Unit - Net income (loss) per Unit is
computed using the weighted average number of units
outstanding during the period.
Brokerage and Related Transaction Fees and Costs -
Brokerage fees are accrued at a monthly rate of 1/12 of
3.65% of the Net Assets, as defined, as of the first day of
each month (a 3.65% annual rate). Such fees are for all
costs of executing trades by the Partnership, including
floor brokerage fees, exchange fees, clearing house fees,
NFA fees, "give-ups" or transfer fees and any costs
associated with taking delivery of commodities.
Service Fee - The Partnership pays Demeter a monthly service
fee equal to 1/12 of 1% per month (a 1% annual rate) of the
Partnership's Net Assets, as defined, as of the first day of
each month.
Operating Expenses - The Partnership incurs monthly
management fees and may incur incentive fees as described in
Note 2. All administrative expenses are borne by Demeter.
Income Taxes - No provision for income taxes has been made
in the accompanying financial statements, as partners are
individually responsible for reporting income or loss based
upon their respective share of the Partnership's revenues
and expenses for income tax purposes.
Distributions - Distributions, other than on redemption of
Units, are made on a pro-rata basis at the sole discretion
of Demeter. No distributions have been made to date.
Offering of Units - The Partnership, Demeter, MSCM and Dean
Witter Reynolds, Inc. ("DWR") have agreed to extend the
Offering Period for those Units already registered with the
SEC but still unsold, until no later than October 16, 1998.
The remaining unsold Units are being offered to the public
at a price equal
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Morgan Stanley Tangible Asset Fund L.P.
Notes to Financial Statements-(Continued)
to 100% of the Net Asset Value as of the close of business
on the last day of each month, immediately preceding the
closings currently scheduled to be held on September 1,
1998.
Redemptions - Limited Partners may redeem some or all of
their Units at 100% of the Net Asset Value Per Unit
effective as of the last day of the sixth month following
the closing at which a person first becomes a Limited
Partner, upon five business days advance notice by
redemption form to Demeter. Thereafter, Units may be
redeemed as of the end of any month upon five business days
advance notice by redemption form to Demeter. However, any
Units redeemed at or prior to the last day of the eleventh
month after such Units were purchased will be subject to a
redemption charge equal to 2% of the Net Asset Value of a
Unit on the date of such redemption. Units redeemed after
the last day of the eleventh month and on or prior to the
last day of the twenty-fourth month after which such Units
were purchased will be subject to a redemption charge equal
to 1% of the Net Asset Value per Unit on the date of such
redemption. Units redeemed after the last day of the twenty-
fourth month after which such Units were purchased will not
be subject to a redemption charge. Limited Partners who
obtained their Units via an exchange from another DWR-
sponsored commodity pool are not subject to the six month
holding period or the redemption charges.
Dissolution of the Partnership - The Partnership will
terminate on December 31, 2027 or at an earlier date if
certain conditions occur as defined in the Partnership's
Limited Partnership Agreement.
2. Related Party Transactions
The Partnership pays brokerage commissions to the Commodity
Brokers and a service fee to Demeter as described in Note 1.
The Partnership's cash is on deposit with MS & Co. and MSIL
in commodity trading accounts to meet margin requirements as
needed. MS & Co. pays interest on these funds as described
in Note 1.
Compensation to the Trading Advisor by the Partnership
consists of a management fee and an incentive fee as
follows:
Management Fee - The management fee is accrued at the rate
of 5/24 of 1% of the Net Assets on the first day of each
month (a 2.5% annual rate).
Incentive Fee - The Partnership will pay an annual incentive
fee equal to 20% of the "Trading Profits" as defined as of
the end of each calendar year. Such incentive fee is
accrued in each month in which "Trading Profits" occur. In
those months in which "Trading Profits" are negative,
previous accruals, if any, during the incentive period will
be reduced. Any accrued incentive fees with respect to Units
redeemed at the end of a month that is not the end of a
calendar year will be deducted and paid to the Trading
Advisor at the time of such redemption.
3. Legal Matters
On September 6, 10, and 20, 1996 and on March 13, 1997,
similar purported class actions were filed in the Superior
Court of the State of California, County of Los Angeles, on
behalf of all purchasers of interests in limited partnership
commodity pools sold by DWR. Named defendants include DWR,
Demeter, Dean Witter Futures & Currency Management Inc.,
MSDW (all such parties referred to hereafter as the "Dean
Witter Parties"), certain limited partnership commodity
pools of which Demeter is the general partner, and certain
trading advisors to those pools. On June 16, 1997, the
plaintiffs in the above actions filed a
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Morgan Stanley Tangible Asset Fund L.P.
Notes to Financial Statements-(Concluded)
consolidated amended complaint, alleging, among other
things, that the defendants committed fraud, deceit,
negligent misrepresentation, various violations of the
California Corporations Code, intentional and negligent
breach of fiduciary duty, fraudulent and unfair business
practices, unjust enrichment, and conversion in the sale and
operation of the various limited partnership commodity
pools. Similar purported class actions were also filed on
September 18 and 20, 1996, in the Supreme Court of the
State of New York, New York County, and on November 14, 1996
in the Superior Court of the State of Delaware, New Castle
County against the Dean Witter Parties and certain trading
advisors on behalf of all purchasers of interests in various
limited partnership commodity pools sold by DWR. A
consolidated and amended complaint in the action pending in
the Supreme Court of the State of New York was filed on
August 13, 1997, alleging that the defendants committed
fraud, breach of fiduciary duty, and negligent
misrepresentation in the sale and operation of the various
limited partnership commodity pools. On December 16, 1997,
upon motion of the plaintiffs, the action pending in the
Superior Court of the State of Delaware was voluntarily
dismissed without prejudice. The complaints seek
unspecified amounts of compensatory and punitive damages and
other relief. It is possible that additional similar
actions may be filed and that, in the course of these
actions, other parties could be added as defendants. The
Dean Witter Parties believe that they have strong defenses
to, and they will vigorously contest, the actions. Although
the ultimate outcome of legal proceedings cannot be
predicted with certainty, it is the opinion of management of
the Dean Witter Parties that the resolution of the actions
will not have a material adverse effect on the financial
condition or the results of operations of any of the Dean
Witter Parties.
