Morgan Stanley Tangible Asset Fund L.P.
Monthly Report
February 1998
Dear Limited Partner:
This report summarizes the performance and trading activity
for the Morgan Stanley Tangible Asset Fund during February.
The Net Asset Value per Unit as of February 28, 1998 was
$9.53, down 5.88% 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 Account Executive.
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
<PAGE>
Morgan Stanley Tangible Asset Fund L.P.
Monthly Report of the Trading Manager
February 1998
Commodities markets have been under almost universally
downward pressure in recent months. Early difficulties were
encountered in the fourth quarter of 1997 when the Asian
currency crisis began to expand rapidly and dramatic
reductions in demand were factored into many of the world's
commodities prices. As the pressures from Asia began to
subside in January, energy markets were impacted by reduced
demand resulting from one of the warmest starts to the
winter heating season in recent years. The warm weather has
remained throughout virtually the entire United States, with
the primary consumption areas of the Midwest and Northeast
utilizing significantly less heating oil as temperatures
have averaged six to twelve degrees above normal for the
past three months. In the face of decreased demand, energy
markets have also had to contend with increased OPEC
production. Finally, the United Nations and Iraq have, to
this point, avoided any military confrontation over weapons
inspections and Iraq has been granted United Nations
approval to more than double its sales of oil for
humanitarian purposes. During February the prices of crude
oil, heating oil and unleaded gasoline all fell by over 11%.
Livestock prices were universally lower for the month as
current supply continued to overwhelm current demand and
inventories in cold storage continued to build. During
February the price of both live cattle and feeder cattle
fell by over 4%, while the price of lean hogs fell by over
14% and the price of pork bellies fell by over 24%.
Grain related markets, with the exception of soybean oil,
were also universally lower in price during February.
Southern Hemisphere crops enjoyed generally favorable
growing conditions during the month and export demand for
U.S. inventories came in below expectations. Soybean oil
prices did move higher, however, as prices for substitutes,
such as palm oil, moved higher in the face of significantly
lower production. Soybeans and wheat declined in price by
almost 3%, while corn prices fell by more than 4%.
Precious metals markets made headlines during February as
Warren Buffet disclosed the position he held in the physical
silver market. While silver has advanced strongly in the
months leading up to Warren Buffet's announcement, there was
little sustained follow-through and by the end of February
silver prices were up less than 5% for the month.
Meanwhile, gold prices declined by almost one and a half
percent for the month.
It is unusual to see a month in which so many of the world's
commodities prices are moving in the same direction, either
up or down. Generally, the factors affecting the price of
one commodity are very different from the factors affecting
another commodity and their prices move independently.
During January we were able to position the Fund to benefit
from those commodities moving higher in price, but
unfortunately during February those opportunities were few
and far between. We appreciate your investment in the Fund
and look forward to a return to more ordinary commodity
market conditions.
Morgan Stanley Commodities Management, Inc.
Note: Investors are cautioned that past results are not
necessarily indicative of future results.
<PAGE>
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 and
the annualized return since inception for the Fund. PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
Year Return
1998 (2 months) -4.7%
Inception-to-Date Return: -4.7%
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<TABLE>
Morgan Stanley Tangible Asset Fund
Statements of Operations
For the Month Ended February 28, 1998
(Unaudited)
<CAPTION>
Percent of
Initial
Amount Net Asset Value
$ %
REVENUES
<S> <C> <C>
Trading Profit (Loss):
Realized (275,222) (.86)
Net change in unrealized (1,572,494) (4.93)
Total Trading Results (1,847,716) (5.79)
Interest Income (DWR) 101,759 .32
Total Revenues (1,745,957) (5.47)
EXPENSES
Brokerage fees 97,121 .30
Management fee 66,521 .21
Service fee 26,608 .08
Incentive fee (59,311) (.18)
Total Expenses 130,939 0.41
NET LOSS (1,876,896) (5.88)
Statements of Changes in Net Asset Value
For the Month Ended February 28, 1998
(Unaudited)
Percent of
Initial
Amounts Per Unit Net Asset
Value
$ $ $
<S> <C> <C> <C>
Net Asset Value,
January 31, 1998
(3,152,736.299 Units) 31,930,134 10.13
100.00
Net Loss (1,876,896) (.60)
(5.88)
Subscriptions
(371,094.766 Units) 3,536,533 9.53
11.08
Net Asset Value,
February 28, 1998
(3,523,831.065 Units) 33,589,771 9.53
105.20
The accompanying notes are an integral part of these
financial statements.
</TABLE>
<PAGE>
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" and together with MS &
Co., 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, Discover & Co.( "MSDWD").
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 of the first day of each month(a 3.65% annual
rate). Such fees will cover all costs of executing trades
by the Partnership, including from brokerage fees, exchange
fees, clearinghouse 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 - Additional units of limited partnership
interest 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 for February 2, 1998 and March 2, 1998
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 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 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.
<PAGE>
Morgan Stanley Tangible Asset Fund L.P.
Notes to Financial Statements -
(Concluded)
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.,
MSDWD (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, 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 partnerships 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.
