Morgan Stanley Tangible Asset Fund L.P.
June 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 (6 months) -16.1%
Inception-to-Date Return: -16.1%
<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
June 1998
Dear Limited Partner:
This report summarizes the performance and trading activity
for the Morgan Stanley Tangible Asset Fund L.P. during June.
The Net Asset Value per Unit as of June 30, 1998 was $8.39,
down 3.23% 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 Advisors.
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
June 1998
The abundant U.S. (and global) crude oil and product
inventories continued to pressure the energy markets in
June, despite announcements during the month of additional
production cuts to be made under the combined effort of both
OPEC members and certain non-OPEC producers. While these
pledges aim to restore the global supply and demand balance,
the market has remained skeptical as it awaits further signs
that such cuts will be honored and will be sufficient to
absorb the current over-supply. These production cutbacks,
scheduled to have begun on July 1, combined with the robust
seasonal demand for gasoline, could provide an improving
fundamental situation for energy in the second half of the
year.
While the underlying market structure that drives the price
of petroleum tends to be more complex than many other
traditional commodity markets, the most recent actions by
the world's key producers highlights the power of supply and
demand dynamics in response to the economic implications of
its pricing mechanism. Low prices have begun to
significantly impair the economic health of many oil-
exporting countries, particularly in the Middle East.
Kuwait, which prior to the Gulf War was regarded by many as
one of the richest nations in the world, has recently
projected a budget deficit of $6.6 billion in the 1998/1999
fiscal year as a result of lower oil prices; Kuwait's
expectation at the start of the year was for a budget
surplus. Iran is experiencing food shortages and political
unrest as a result of the oil price collapse. According to
Morgan Stanley Dean Witter's Equity Research Global Energy
Group,
OPEC's collective current account will be in
deficit by an estimated $50 billion, before any
spending cuts, which compares with a $10 billion
surplus in 1997. This compares with a $60 billion
deficit during the Gulf War in 1991, which created
significant social, economic, and political
concerns throughout the cartel. These conditions
are typically only remedied by the decisive action
of the leaders of government to execute the needed
production cuts.
Non-OPEC oil producing nations such as Argentina, Mexico,
Norway and Russia are experiencing severe revenue cuts which
threaten their economic health. The market has created
clear incentives for producers to take the necessary steps
to increase the price of crude oil.
Other markets were mixed for the month of June. Grain
prices generally moved higher over weather concerns that
challenged the USDA's optimistic projections for 1998 U.S.
production, while base metals continued to move lower as
Asia's problems refused to dissipate.
We appreciate your continued investment in the Morgan
Stanley Tangible Asset Fund L.P., particularly through this
period of difficult performance. While these difficult
conditions may continue over the short-term, we firmly
believe that commodities will continue to provide the long-
term risk/return profile and portfolio diversification
benefits that they have historically 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 June 30, 1998
(Unaudited)
<CAPTION>
Percent of May 31, 1998
Amount Net Asset Value
$ %
REVENUES
<S> <C> <C>
Trading Profit (Loss):
Realized (1,472,136) (4.16)
Net change in unrealized 422,840 1.19
Total Trading Results (1,049,296) (2.97)
Interest Income (MS & Co.) 115,741 .33
Total Revenues (933,555) (2.64)
EXPENSES
Brokerage fee (MS & Co. and MSIL) 107,741 .30
Management fee (MSCM) 73,795 .21
Service fee (Demeter) 29,518 .08
Total Expenses 211,054 .59
NET LOSS (1,144,609) (3.23)
</TABLE>
<PAGE>
<TABLE>
Statement of Changes in Net Asset Value
For the Month Ended June 30, 1998
(Unaudited)
<CAPTION>
Percent of
May 31, 1998
Amount Per Unit
Net Asset Value
$ $
$
<S> <C> <C> <C>
Net Asset Value,
May 31, 1998
(4,085,156.284 Units) 35,421,681 8.67
100.00
Net Loss (1,144,609) (.28)
(3.23)
Redemptions
(22,663.874 Units) (190,150) 8.39
(.54)
Net Asset Value,
June 30, 1998
(4,062,492.410 Units) 34,086,922 8.39
96.23
The accompanying notes are an integral part
of these financial statements.
</TABLE>
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 for the Partnership 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. 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 purpose
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.
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
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.
Offering of Units - The Partnership, Demeter, MSCM and Dean
Witter Reynolds, Inc. ("DWR") have now agreed to extend the
Offering Period for those Units already registered with the
SEC but still unsold, until no later than October 16, 1998.
Subject to approval, the Units remaining unsold are being
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 closings currently
scheduled to be held on August 3, 1998 and September 1,
1998.
<PAGE>
Morgan Stanley Tangible Asset Fund L.P.
Notes to Financial Statements-(Continued)
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 consolidated amended
complaint. 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
<PAGE>
Morgan Stanley Tangible Asset Fund L.P.
Notes to Financial Statements-(Concluded)
trading advisors on behalf of all purchasers of interests in
various limited partnership commodity pools sold by DWR.
Generally, these complaints allege, among other things, that
the defendants committed fraud, deceit, misrepresentation,
breach of fiduciary duty, fraudulent and unfair business
practices, unjust enrichment, and conversion in connection
with the sale and operation of the various limited
partnership commodity pools. 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.
