Morgan Stanley Tangible Asset Fund L.P.
August 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 (8 months) -27.7%
Inception-to-Date Return: -27.7%
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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
August 1998
Dear Limited Partner:
This report summarizes the performance and trading activity
for the Morgan Stanley Tangible Asset Fund L.P. during
August. The Net Asset Value per Unit as of August 31, 1998
was $7.23, down 7.90% 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
August 1998
Commodities markets continued to move broadly lower during
the month, with the Commodity Research Bureau Index ("CRB")
falling to over a twenty year low and the spot Goldman Sachs
Company Index ("GSCI") establishing an over twenty-five year
low. This extended broad-based decline in commodities
prices has continued to prove to be a difficult environment
for the Morgan Stanley Tangible Asset Fund L.P. ("MSTAF").
Each of the six commodity sectors saw individual components
decline significantly during August, as concern over the
economic situation in Russia translated into wide-spread
pessimism in global markets. The energy sector experienced
a broad-based decline, with both crude oil and natural gas
futures falling in price by 8%. Grain markets also moved
lower across the board, led by a decline in corn prices of
over 13%. Silver futures paced the broad-based precious
metal selling, falling in price by over 15%. In livestock,
lean hog futures fell by over 12%, while in base metals,
copper and zinc prices fell by over 6%. In the soft
commodity sector, cocoa, cotton and orange juice futures all
advanced modestly, but their gains were far outweighed by
the 13% decline in the price of sugar futures.
While the commodity indices have established over twenty and
twenty-five year lows, individual commodity markets have
not, for the most part, established such a long-term low.
Individual commodity markets have, however, traded down to
levels not frequently seen over the past decade and a half.
Interestingly, many of these commodities have repeatedly
fallen to price levels near their recent lows and rebounded
strongly from that point. We believe this illustrates the
economics of commodities production, where at low prices
producers, mindful of their marginal cost of production,
take the necessary steps to curtail output, putting upward
pressure on prices.
We believe the current economic situation in the commodities
markets is likely to provide a limited downside to prices.
From a historical perspective, we believe these price levels
offer the opportunity for a meaningful rebound in price and
that commodities will continue to provide the long-term
risk/return profile and portfolio diversification benefits
that they historically have provided.
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 August 31, 1998
(Unaudited)
<CAPTION>
Percent of July 31,
1998
Amount Net Asset Value
$ %
REVENUES
<S> <C> <C>
Trading Profit (Loss):
Realized (2,478,325) (7.71)
Net change in unrealized 25,366 .08
Total Trading Results (2,452,959) (7.63)
Interest Income (MS & Co.) 106,951 .33
Total Revenues (2,346,008) (7.30)
EXPENSES
Brokerage fee (MS & Co. and MSIL) 97,733 .30
Management fee (MSCM) 66,941 .21
Service fee (Demeter) 26,776 .09
Total Expenses 191,450 .60
NET LOSS (2,537,458) (7.90)
</TABLE>
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<TABLE>
Statement of Changes in Net Asset Value
For the Month Ended August 31, 1998
(Unaudited)
<CAPTION>
Percent of
July 31, 1998
Amount Per Unit
Net Asset Value
$ $
$
<S> <C> <C> <C>
Net Asset Value,
July 31, 1998
(4,092,713.852 Units) 32,131,454 7.85
100.00
Net Loss (2,537,458) (.62)
(7.90)
Subscriptions
(62,841.469 Units) 454,344 7.23
1.41
Redemptions
(144,108.580 Units) (1,041,905) 7.23
(3.24)
Net Asset Value,
August 31, 1998
(4,011,446.741 Units) 29,006,435 7.23
90.27
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 market, (collectively,
"futures interests"). 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 the 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 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
<PAGE>
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 the month, immediately preceding the
closing currently scheduled to be held on September 1, 1998
and October 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.
