UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the period ended March 31, 1998 or
[ ] Transition report pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission File No. 333-33975
MORGAN STANLEY TANGIBLE ASSET FUND L.P.
(Exact name of registrant as specified in its charter)
Delaware 13-3968008
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
No.)
c/o Demeter Management Corporation
Two World Trade Center, 62 Fl. New York, NY 10048
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 392-5454
_________________________________________________________________
_
(Former name, former address, and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
<PAGE>
<TABLE>
MORGAN STANLEY TANGIBLE ASSET FUND L.P.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
March 31, 1998
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Statement of Financial Condition March 31, 1998
(Unaudited).......................................... 2
Statement of Operations for the Quarter Ended
March 31, 1998 (Unaudited)........................... 3
Statement of Changes in Partners' Capital for the
Quarter Ended March 31, 1998 (Unaudited)..............4
Statement of Cash Flows for the Quarter Ended
March 31, 1998 (Unaudited)........................... 5
Notes to Financial Statements (Unaudited)..........6-13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..14-16
Part II. OTHER INFORMATION
Item 1 Legal Proceedings..............................17-18
Item 2. Change in Securities and Use of Proceeds.......18-19
Item 6. Exhibits and Reports on Form 8-K..................20
</TABLE>
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MORGAN STANLEY TANGIBLE ASSET FUND L.P.
STATEMENT OF FINANCIAL CONDITION
<CAPTION>
March 31,
1998
$
(Unaudited)
ASSETS
<S> <C>
Equity in Commodity futures trading accounts:
Cash
31,821,345
Net unrealized gain on open contracts
97,560
Total Trading Equity
31,918,905
Subscriptions receivable
5,385,979
Investment in U.S. Treasury Bills
1,795,989
Interest receivable (MS & Co.)
113,363
Total Assets
39,214,236
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Accrued brokerage fees (MS & Co. and MSIL)
102,169
Accrued management fee payable (MSCM)
69,979
Service fee payable (Demeter)
27,991
Total Liabilities
200,139
Partners' Capital
Limited Partners (4,045,003.483 Units)
38,599,988
General Partner (43,395.648 Units)
414,109
Total Partners' Capital
39,014,097
Total Liabilities and Partners' Capital
39,214,236
NET ASSET VALUE PER UNIT
9.54
<FN>
The accompanying footnotes are an integral part
of these financial statements.
</TABLE>
<PAGE>
<TABLE>
MORGAN STANLEY TANGIBLE ASSET FUND L.P.
STATEMENT OF OPERATIONS
(Unaudited)
<CAPTION>
For the Period from
January 2, 1998
(commencement of
operations) to
March 31, 1998
$
REVENUES
<S>
<C>
Trading profit (loss):
Realized (1,378,000)
Net change in unrealized 97,560
Total Trading Results (1,280,440)
Interest Income (MS & Co.) 313,122
Total Revenues (967,318)
EXPENSES
Brokerage fees (MS & Co. and MSIL) 277,573
Management fee (MSCM) 190,118
Service fee (Demeter) 76,047
Total Expenses 543,738
NET LOSS (1,511,056)
NET LOSS ALLOCATION
Limited Partners (1,475,165)
General Partner (35,891)
NET LOSS PER UNIT
Limited Partners
(.46)
General Partner
(.46)
<FN>
The accompanying footnotes are an integral part
of these financial statements.
</TABLE>
<PAGE>
<TABLE>
MORGAN STANLEY TANGIBLE ASSET FUND L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
For the Quarter Ended March 31, 1998
(Unaudited)
<CAPTION>
Units of
Partnership Limited General
Interest Partners Partner Total
<S> <C> <C> <C> <C>
Partners' Capital
January 2, 1998 200.000 $1,000 $1,000 $2,000
Initial Offering 2,573,486.803 25,475,868 259,000
25,734,868
Offering of Units 1,515,212.328 14,603,350 190,000
14,793,350
Net Loss - (1,475,165) (35,891)
(1,511,056)
Redemptions (500.000) (5,065) -
(5,065)
Partners' Capital
March 31, 1998 4,088,399.131 $38,599,988 $414,109
$39,014,097
<FN>
The accompanying footnotes are an integral part
of these financial statements.
</TABLE>
<PAGE>
<TABLE>
MORGAN STANLEY TANGIBLE ASSET FUND L.P.
STATEMENT OF CASH FLOWS
(Unaudited)
<CAPTION>
For the Period from
January 2, 1998
(commencement of
operations) to
March 31, 1998
$
CASH FLOWS FROM OPERATING ACTIVITIES
<S>
<C>
Net loss
(1,511,056)
Noncash item included in net loss:
Net change in unrealized (97,560)
Increase in operating assets:
Investment in U.S. Treasury Bills (1,795,989)
Interest receivable (MS & Co.)
(113,363)
Increase in operating liabilities:
Accrued brokerage fees (MS & Co. and MSIL)
102,169
Accrued management fee payable (MSCM) 69,979
Service fee payable (Demeter) 27,991
Net cash used for operating activities
(3,317,829)
CASH FLOWS FROM FINANCING ACTIVITIES
Initial offering 25,736,868
Offering of Units 14,793,350
Increase in subscriptions receivable
(5,385,979)
Redemptions of units (5,065)
Net cash provided by financing activities 35,139,174
Net increase in cash
31,821,345
Balance at beginning of period -
Balance at end of period
31,821,345
<FN>
The accompanying footnotes are an integral part
of these financial statements.
</TABLE>
<PAGE>
MORGAN STANLEY TANGIBLE ASSET FUND L.P.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
The financial statements include, in the opinion of management,
all adjustments necessary for a fair presentation of the results
of operations and financial condition of Morgan Stanley Tangible
Asset Fund L.P. (the "Partnership").
1. Summary of Significant Accounting Policies
Organization - Morgan Stanley Tangible Asset Fund L.P. is a
limited partnership organized to engage primarily in speculative
trading of futures contracts in metals, energy and agricultural
markets and commenced operations on January 2, 1998. 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.
<PAGE>
MORGAN STANLEY TANGIBLE ASSET FUND L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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. will credit the Partnership at
each month-end with interest income as if 80% of the
Partnership's average daily Net Assets for the month were
invested at a rate based on U.S. Treasury Bills. For purposes of
such interest payments, Net Assets do 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.
Equity in Commodity Futures Trading Accounts - The Partnership's
asset "Equity in Commodity futures trading accounts" consists of
cash on deposit at MS & Co. and MSIL to be used as margin for
trading and the net asset or liability related to unrealized
gains or losses on open contracts.
Brokerage and Related Transaction Fees and Costs - Brokerage
fees are accrued at a monthly rate of 1/12 of 3.65% of the Net
<PAGE>
MORGAN STANLEY TANGIBLE ASSET FUND L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 will pay 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 each 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.
<PAGE>
MORGAN STANLEY TANGIBLE ASSET FUND L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Offering of Units - Units of limited partnership interest were
offered to the public at a price equal to 100% of the net asset
value as of the close of business on the last day of the month
immediately preceding the four closings held on January 2,
February 2, March 2 and April 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
<PAGE>
MORGAN STANLEY TANGIBLE ASSET FUND L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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
<PAGE>
MORGAN STANLEY TANGIBLE ASSET FUND L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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. Financial Instruments
The Partnership trades futures contracts in metals, energy and
agricultural markets. Futures and forwards represent contracts
for delayed delivery of an instrument at a specified date and
price. Risk arises from changes in the value of these contracts
and the potential inability of counterparties to perform under
the terms of the contracts. There are numerous factors which may
significantly influence the market value of these contracts,
including interest rate volatility. At March 31, 1998, open
contracts were:
Contract or
Notional Amount
March 31, 1998
$
Exchange-Traded Contracts
Commodity Futures:
Commitments to Purchase 34,367,000
Foreign Futures:
Commitments to Purchase 8,338,000
Commitments to Sell 2,185,000
The net unrealized gain on open contracts is reported as a
component of "Equity in Commodity futures trading accounts" on
the
<PAGE>
MORGAN STANLEY TANGIBLE ASSET FUND L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Statement of Financial Condition and totaled $97,560 at March 31,
1998.
Of the $97,560 net unrealized gain on open contracts at March 31,
1998, all was related to exchange-traded futures contracts.
Exchange-traded futures contracts held by the Partnership at
March 31, 1998 mature through December 1998.
The contract amounts in the above table represent the
Partnership's extent of involvement in the particular class of
financial instrument, but not the credit risk associated with
counterparty, nonperformance. The credit risk associated with
these instruments is limited to the amounts reflected in the
Partnership's Statement of Financial Condition.
The Partnership also has credit risk because either MS & Co. or
MSIL acts as the futures commission merchant or the sole
counterparty, with respect to most of the Partnership's assets.
Exchange-traded futures and options contracts are marked to
market on a daily basis, with variations in value settled on a
daily basis. MS & Co. and MSIL, as the futures commission
merchants for all of the Partnership's exchange-traded futures
and options contracts, are required pursuant to regulations of
the Commodity Futures Trading Commission ("CFTC") to segregate
from their own assets and for the sole benefit of their commodity
customers, all
<PAGE>
MORGAN STANLEY TANGIBLE ASSET FUND L.P.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
funds held by them with respect to exchange-traded futures and
options contracts including an amount equal to the net unrealized
gain on all open futures and options contracts, which funds
totaled $31,918,905 at March 31, 1998.
For the quarter ended March 31, 1998, the average fair value of
financial instruments held for trading purposes was as follows:
March 1998
Assets Liabilities
$ $
Exchange-Traded Contracts:
Commodity Futures 29,771,000 -
Foreign Futures 6,488,000 1,142,000
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity. The Partnership's assets are on deposit in separate
commodity interest trading accounts with MS & Co. and MSIL, the
commodity brokers, and are used by the Partnership as margin to
engage in commodity futures, forward contracts and other
commodity interest trading. MS & Co. and MSIL hold such assets
in either designated depositories or in securities approved by
the CFTC for investment of customer funds. The Partnership's
assets held by MS & Co. and MSIL may be used as margin solely for
the Partnership's trading. Since the Partnership's sole purpose
is to trade in commodity futures contracts and other commodity
interests, it is expected that the Partnership will continue to
own such liquid assets for margin purposes.
The Partnership's investment in commodity futures contracts,
forward contracts and other commodity interests may be illiquid.
If the price for a futures contract for a particular commodity
has increased or decreased by an amount equal to the "daily
limit," positions in the commodity can neither be taken nor
liquidated unless traders are willing to effect trades at or
within the limit. Commodity futures prices have occasionally
moved the daily limit for several consecutive days with little or
no trading. Such market conditions could prevent the Partnership
from promptly liquidating its commodity futures positions and
could result in restrictions on redemptions.
<PAGE>
Capital Resources. The Partnership does not have, nor does it
expect to have, any capital assets. Redemptions, exchanges and
sales of additional Units of Limited Partnership interest in the
future will affect the amount of funds available for investments
in subsequent periods. As redemptions are at the discretion of
Limited Partners, it is not possible to estimate the amount and
therefore, the impact of future redemptions.
Results of Operations
For the Quarter Ended March 31, 1998
For the quarter ended March 31, 1998, the Partnership's total
trading losses net of interest income were $967,318. During the
first quarter, the Partnership recorded a loss in Net Asset Value
per Unit. The most significant losses were recorded during
January and February in the energy markets as the Partnership's
long-only trading approach resulted in losses as oil and gas
prices moved lower. Additional losses were recorded for the
Partnership from long positions in corn and wheat futures during
February and March and from long livestock futures positions
during January. In soft commodities, losses were recorded from
long coffee futures positions during February and March as coffee
prices moved lower. A portion of the Partnership's overall losses
was offset by profits experienced from long precious metals
futures positions. The most significant gains were recorded
during February as silver prices moved sharply higher. Smaller
gains were recorded in gold and platinum futures trading during
February and March. Total expenses for the quarter was $543,738
<PAGE>
resulting in a net loss of $1,511,056. The value of an
individual Unit in the Partnership decreased from $10.00 at
January 2, 1998 to $9.54 at March 31, 1998.
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
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 Dean Witter Reynolds ("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 other 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 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,
<PAGE>
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.
Item 2. CHANGE IN SECURITIES AND USE OF PROCEEDS
The Partnership registered 5,000,000 Units of Limited Partnership
Interest ("Units") pursuant to a Registration Statement on Form
S-1, which became effective on November 10, 1997 (the
"Registration Statement") (SEC File Number 333-33975). The
managing underwriter was DWR.
The offering commenced on November 10, 1997 and terminated as of
April 1, 1998, with 4,045,503.483 Units sold. The aggregate
price of the offering amount registered was $50,000,000 (based
<PAGE>
upon the initial offering price of $10.00 per Unit) for the
initial closing on January 2, 1998 (the "Initial Offering").
After the Initial Offering, Units were sold at three closings
held on February 2, March 2 and April 1, 1998, at a price equal
to 100% of the Net Asset Value per Unit at the close of business
on the last day of the month immediately preceeding the closing.
The aggregate price of the Units sold at the four closings of the
offering was $40,100,218 (based upon the Net Asset Value per Unit
of $10.00 at January 2, 1998, $10.13 at February 2, 1998, $9.53
at March 2, 1998 and $9.54 at April 1, 1998 closings,
respectively).
No expenses chargeable against proceeds were incurred, making net
offering proceeds $40,100,218, which were applied to the working
capital of the Partnership for use in accordance with the "Use of
Proceeds" section of the Prospectus included as part of the
Registration Statement.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits - None.
(B) Reports on Form 8-K. - None.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Morgan Stanley Tangible Asset
Fund L.P.(Registrant)
By: Demeter Management Corporation
(General Partner)
May 15, 1998 By: /s/ Patti L. Behnke
Patti L. Behnke
Chief Financial Officer
The General Partner which signed the above is the only party
authorized to act for the Registrant. The Registrant has no
principal executive officer, principal financial officer,
controller, or principal accounting officer and has no Board of
Directors.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from Morgan
Stanley Tangible Asset Fund L.P. and is qualified in its entirety
by reference to such financial instruments.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 31,821,345
<SECURITIES> 0
<RECEIVABLES> 5,499,342<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 39,214,236<F2>
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 39,214,236<F3>
<SALES> 0
<TOTAL-REVENUES> (967,318)<F4>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 543,738
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,511,056)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,511,056)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,511,056)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Receivables include interest receivable of $113,363 and subscriptions
receivable of $5,385,979.
<F2>In addition to cash and receivables, total assets include net unrealized
gain on open contracts of $97,560 and Investment in U.S. Treasury Bills
of $1,795,989.
<F3>Liabilities include accrued brokerage fees of $102,169, accrued management
fee payable of $69,979, and service fee payable of $27,991.
<F4>Total revenue includes realized trading revenue of $(1,378,000), net
change in unrealized of $97,560 and interest income of $313,122.
</FN>
</TABLE>
