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, 1999 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. 0-24035
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, 1999
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Statements of Financial Condition March 31, 1999
(Unaudited) and December 31, 1998.................... 2
Statements of Operations for the Quarters Ended
March 31, 1999 and 1998 (Unaudited).................. 3
Statements of Changes in Partners' Capital for the
Quarters Ended March 31, 1999 and 1998 (Unaudited)....4
Statements of Cash Flows for the Quarters Ended
March 31, 1999 and 1998 (Unaudited).................. 5
Notes to Financial Statements (Unaudited).......... 6-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..10-15
Item 3. Quantitative and Qualitative Disclosures about
Market Risk . . .. . . . . . . . . . . . . . . 15-24
Part II. OTHER INFORMATION
Item 1 Legal Proceedings.............................. 25
Item 6. Exhibits and Reports on Form 8-K..................25
</TABLE>
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MORGAN STANLEY TANGIBLE ASSET FUND L.P.
STATEMENTS OF FINANCIAL CONDITION
<CAPTION>
March 31, December 31,
1999 1998
$ $
(Unaudited)
ASSETS
<S> <C> <C>
Equity in futures interests trading accounts:
Cash 23,944,835 26,519,891
Net unrealized gain (loss) on open contracts 160,368
(635,643)
Total Trading Equity 24,105,203 25,884,248
Interest receivable (MS & Co.) 70,417 78,722
Total Assets 24,175,620 25,962,970
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Redemptions payable 386,146 895,547
Accrued brokerage fees (MS & Co. and MSIL)67,294 81,222
Accrued management fee (MSCM) 46,092 55,632
Service fee payable (Demeter) 18,437 22,253
Total Liabilities 517,969 1,054,654
Partners' Capital
Limited Partners (3,454,827.466 and
3,745,069.052 Units, respectively)23,364,17724,622,999
General Partner (43,395.648 Units) 293,474 285,317
Total Partners' Capital 23,657,651 24,908,316
Total Liabilities and Partners' Capital 24,175,620 25,96
2,970
NET ASSET VALUE PER UNIT 6.76 6.57
<FN>
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>
<TABLE>
MORGAN STANLEY TANGIBLE ASSET FUND L.P.
STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
For the Quarters Ended March 31,
1999 1998
$ $
REVENUES
<S> <C> <C>
Trading profit (loss):
Realized 34,855 (1,378,000)
Net change in unrealized 796,011
97,560
Total Trading Results 830,866 (1,280,440)
Interest Income (MS & Co.) 208,595 313,122
Total Revenues 1,039,461 (967,318)
EXPENSES
Brokerage fees (MS & Co. and MSIL)215,094 277,573
Management fee (MSCM) 147,325 190,118
Service fee (Demeter) 58,930 76,047
Total Expenses 421,349 543,738
NET INCOME (LOSS) 618,112 (1,511,056)
NET INCOME (LOSS) ALLOCATION
Limited Partners 609,955 (1,475,165)
General Partner 8,157 (35,891)
NET INCOME (LOSS) PER UNIT
Limited Partners .19 (.46)
General Partner .19 (.46)
<FN>
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>
<TABLE>
MORGAN STANLEY TANGIBLE ASSET FUND L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the Quarters Ended March 31, 1999 and 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
Partners' Capital,
December 31, 1998 3,788,464.700 $24,622,999 $285,317
$24,908,316
Net Income - 609,955 8,157 618,112
Redemptions (290,241.586) (1,868,777) -
(1,868,777)
Partners' Capital,
March 31, 1999 3,498,223.114 $23,364,177 $293,474
$23,657,651
<FN>
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>
<TABLE>
MORGAN STANLEY TANGIBLE ASSET FUND L.P.
STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
For the Quarters Ended March 31,
1999 1998
$ $
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) 618,112 (1,511,056)
Noncash item included in net income (loss):
Net change in unrealized (796,011) (97,560)
(Increase) decrease in operating assets:
Interest receivable (MS & Co.) 8,305 (113,363)
Investment in U.S. Treasury Bills - (1,795,989)
Increase (decrease) in operating liabilities:
Accrued brokerage fees (MS & Co. and MSIL) (13,928)
102,169
Accrued management fee (MSCM) (9,540) 69,979
Service fee payable (Demeter) (3,816)
27,991
Net cash used for operating activities (196,878) (3,317,829)
CASH FLOWS FROM FINANCING ACTIVITIES
Redemptions of units (1,868,777) (5,065)
Decrease in redemptions payable (509,401) -
Initial offering - 25,736,868
Offering of Units - 14,793,350
Increase in subscriptions receivable -
(5,385,979)
Net cash provided by (used for) financing activities (2
,378,178) 35,139,174
Net increase (decrease) in cash (2,575,056)31,821,345
Balance at beginning of period 26,519,891 -
Balance at end of period 23,944,835 31,821,345
<FN>
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)
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"). The financial statements
and condensed notes herein should be read in conjunction with the
Partnership's December 31, 1998 Annual Report on Form 10-K.
1. 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,
(collectively, "futures interests"). The Partnership's 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" or the
"Trading Advisor"). MSCM, the Commodity Brokers and Demeter are
all wholly-owned subsidiaries of Morgan Stanley Dean Witter & Co.
("MSDW").
<PAGE>
MORGAN STANLEY TANGIBLE ASSET FUND L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. Related Party Transactions
The Partnership's cash is on deposit with MS & Co. and MSIL in
futures interests trading accounts to meet margin requirements as
needed. MS & Co. pays interest on these funds based on a
prevailing rate on U.S. Treasury bills. The Partnership pays
brokerage fees to the Commodity Brokers, a management fee and an
incentive fee (if applicable) to MSCM and a service fee to
Demeter.
3. Financial Instruments
The Partnership trades futures and forward 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.
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities"
effective for fiscal years beginning after June 15, 1999. The
Partnership has elected to adopt the provisions of SFAS No. 133
<PAGE>
MORGAN STANLEY TANGIBLE ASSET FUND L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
beginning with the fiscal year ended December 31, 1998. SFAS No.
133 supersedes SFAS No. 119 and No. 105, which required the
disclosure of average aggregate fair values and contract/notional
values, respectively, of derivative financial instruments for an
entity which carries its assets at fair value. The application
of SFAS No. 133 does not have a significant effect on the
Partnership's financial statements.
The net unrealized gain (loss) on open contracts is reported as a
component of "Equity in futures interests trading accounts" on
the Statements of Financial Condition and totaled $160,368 and
$(635,643) at March 31, 1999 and December 31, 1998, respectively.
The entire $160,368 net unrealized gain on open contracts at
March 31, 1999, was related to exchange-traded futures contracts.
The entire $635,643 net unrealized loss on open contracts at
December 31, 1998, was related to exchange-traded futures
contracts.
Exchange-traded futures contracts held by the Partnership at
March 31, 1999 and December 31, 1998 mature through July 1999 and
June
1999, respectively.
<PAGE>
MORGAN STANLEY TANGIBLE ASSET FUND L.P.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
The Partnership is subject to the credit risk associated with
counterparty non-performance. The credit risk associated with
the instruments in which the Partnership is involved is limited
to the amounts reflected in the Partnership's Statements of
Financial Condition. MS & Co. and MSIL act as the futures
commission merchants or the counterparties with respect to most
of the Partnership's assets. Exchange-traded futures contracts
are marked to market on a daily basis, with variations in value
settled on a daily basis. Each of MS & Co. and MSIL, as a futures
commission merchant for all of the Partnership's exchange-traded
futures 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 funds held by them with respect to exchange-traded
futures contracts, including an amount equal to the net
unrealized gain (loss) on all open futures contracts, which
funds, in the aggregate, totaled $24,105,203 and $25,884,248 at
March 31, 1999 and December 31, 1998, respectively.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity - Assets of the Partnership are deposited with MS &
Co. and MSIL, the Commodity Brokers, in separate futures interest
trading accounts. Such assets are held in either non-interest
bearing bank accounts 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 futures interests, it is expected that the
Partnership will continue to own such liquid assets for margin
purposes.
The Partnership's investment in futures interests may, from
time to time, be illiquid. Most United States futures exchanges
limit fluctuations in certain futures interest prices during a
single day by regulations referred to as "daily price
fluctuations limits" or "daily limits". Pursuant to such
regulations, during a single trading day no trades may be
executed at prices beyond the daily limit. If the price for a
particular futures interest has increased or decreased by an
amount equal to the daily limit, positions in such futures
interest can neither be taken nor liquidated unless traders are
willing to effect trades at or within the limit. Futures
interests 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 futures interests and result in restrictions on
redemptions.
<PAGE>
There is no limitation on daily price moves in trading
forward contracts on foreign currency. The markets for some
world currencies have low trading volume and are illiquid, which
may prevent the Partnership from trading in potentially
profitable markets or from promptly liquidating unfavorable
positions, subjecting it to substantial losses. Either of these
market conditions could result in restrictions on redemptions.
Capital Resources. The Partnership does not have, nor does it
expect to have, any capital assets. Future redemptions of Units
of Limited Partnership Interest ("Unit(s)") will affect the
amount of funds available for investment in futures interests in
subsequent periods. Since they 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, 1999
For the quarter ended March 31, 1999, the Partnership recorded
total trading revenues including interest income of $1,039,461
and posted an increase in Net Asset Value per Unit. The
Partnership's long-only trading approach recorded its most
significant gains in the energy markets during March from long
futures positions in crude oil and its refined products, heating
oil and unleaded gasoline, as oil prices moved considerably
higher. The substantial recovery in oil prices during March was
largely
<PAGE>
attributed to the news that both OPEC and non-OPEC countries had
reached an agreement to cut total output by approximately two
million barrels a day beginning April 1st. Additional gains were
recorded in the livestock markets throughout the quarter from
long positions in feeder and live cattle futures as prices moved
higher on plans for government aid programs to help struggling
farmers. A portion of the Partnership's overall gains for the
quarter was offset by losses experienced in soft commodities from
long positions in cocoa, sugar and coffee futures as prices in
these markets declined significantly throughout the quarter amid
fears that economic turmoil in Brazil would lead them to flood
the market with increased exports. Additional losses were
recorded from long positions in orange juice futures during
February as prices plummeted to a 13-month low in response to a
USDA report that unexpectedly raised Florida and U.S. crop
estimates. In the metals markets, losses were recorded from long
copper futures positions during January as prices declined on
reports of a large rise in copper warehouse stocks. Smaller
losses were experienced in the agricultural markets during
January and February from long positions in soybean and soybean
oil futures as prices in these markets moved lower due to
beneficial growing weather in South America and speculation that
Brazil would increase exports to aid its ailing economy. Interest
income decreased by approximately $105,000 as compared to the
same period in 1998 primarily due to the decrease in Net Assets.
Total expenses for the three months ended March 31, 1999 were
$421,349, resulting in net income of $618,112. The value of a
<PAGE>
Unit increased from $6.57 at December 31, 1998 to $6.76 at March
31, 1999.
For the Quarter Ended March 31, 1998
For the quarter ended March 31, 1998, the Partnership recorded
total trading losses net of interest income of $967,318 and
posted a decrease 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 three months ended March 31, 1998 were
$543,738 resulting in a net loss of $1,511,056. The value of a
Unit decreased from $10.00 at January 2, 1998 to $9.54 at March
31, 1998.
Year 2000 Problem. Commodity pools, like financial and business
organizations and individuals around the world, depend on the
smooth functioning of computer systems. Many computer systems in
<PAGE>
use today cannot recognize the computer code for the year 2000,
but revert to 1900 or some other date. This is commonly known as
the "Year 2000 Problem". The Partnership could be adversely
affected if computer systems used by it or any third party with
whom it has a material relationship do not properly process and
calculate date-related information and data concerning dates on
or after January 1, 2000. Such a failure could adversely affect
the handling or determination of futures trades and prices and
other services.
MSDW began its planning for the Year 2000 Problem in 1995,
and currently has several hundred employees working on the
matter. It has developed its own Year 2000 compliance plan to
deal with the problem and had the plan approved by the company's
executive management, Board of Directors and Information
Technology Department. Demeter is coordinating with MSDW to
address the Year 2000 Problem with respect to Demeter's computer
systems that affect the Partnership. This includes hardware and
software upgrades, systems consulting and computer maintenance.
Beyond the challenge facing internal computer systems, the
systems failure of any of the third parties with whom the
Partnership has a material relationship - the futures exchanges
and clearing organizations through which it trades, Commodity
Brokers, or the Trading Advisor - could result in a material
financial risk to the Partnership. All U.S. futures exchanges are
subject to monitoring by the CFTC of their Year 2000 preparedness
and the major foreign futures exchanges are also expected to be
subject to market-wide testing of their Year 2000 compliance
during 1999. Demeter intends to monitor the progress of Commodity
<PAGE>
Brokers and the Trading Advisor throughout 1999 in their Year
2000 compliance and, where applicable, to test its external
interface with the Commodity Brokers and the Trading Advisor.
A worst case scenario would be one in which trading of
contracts on behalf of the Partnership becomes impossible as a
result of the Year 2000 problem encountered by any third parties.
A less catastrophic but more likely scenario would be one in
which trading opportunities diminish as a result of technical
problems resulting in illiquidity and fewer opportunities to make
profitable trades. MSDW has begun developing various "contingency
plans" in the event that the systems of such third parties fail.
Demeter intends to consult closely with MSDW in implementing
those plans. Despite the best efforts of both Demeter and MSDW,
however, it is possible that these steps will not be sufficient
to avoid any adverse impact to the Partnership.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Introduction
The Partnership is a commodity pool engaged primarily in the
speculative trading of futures interests. The market sensitive
instruments held by the Partnership are acquired solely for
speculative trading purposes and, as a result, all or
substantially all of the Partnership's assets are subject to the
risk of trading loss. Unlike an operating company, the risk of
market sensitive instruments is integral, not incidental, to the
Partnership's primary business activities.
<PAGE>
The futures interests traded by the Partnership involve varying
degrees of related market risk. Such market risk is often
dependent upon changes in the level or volatility of interest
rates, exchange rates, and/or market values of financial
instruments and commodities. Fluctuations in related market risk
based upon the aforementioned factors result in frequent changes
in the fair value of the Partnership's open positions, and,
consequently, in its earnings and cash flow.
The Partnership's total market risk is influenced by a wide
variety of factors, including the diversification effects among
the Partnership's existing open positions, the volatility present
within the market(s), and the liquidity of the market(s). At
varying times, each of these factors may act to exacerbate or
mute the market risk associated with the Partnership.
The Partnership's past performance is not necessarily indicative
of its future results. Any attempt at quantifying the Partner-
ship's market risk must be qualified by the inherent uncertainty
of its speculative trading, which may cause future losses and
volatility (i.e. "risk of ruin") far in excess of the
Partnership's experience to date and/or any reasonable
expectation premised upon historical changes in the fair value of
its market sensitive instruments.
Quantifying the Partnership's Trading Value at Risk
The following quantitative disclosures regarding the
Partnership's market risk exposures contain "forward-looking
statements" within
<PAGE>
the meaning of the safe harbor from civil liability provided for
such statements by the Private Securities Litigation Reform Act
of 1995 (set forth in Section 27A of the Securities Act of 1933
and Section 21E of the Securities Exchange Act of 1934). All
quantitative disclosures in this section are deemed to be forward-
looking statements for purposes of the safe harbor, except for
statements of historical fact.
The Partnership accounts for open positions on the basis of mark-
to-market accounting principles. As such, any loss in the fair
value of the Partnership's open positions is directly reflected
in the Partnership's earnings, whether realized or unrealized,
and the Partnership's cash flow, as profits and losses on open
positions of exchange-traded futures interests are settled daily
through variation margin.
The Partnership's risk exposure in the various market sectors
traded by the Trading Advisor is estimated below in terms of
Value at Risk ("VaR"). The VaR model employed by the Partnership
incorporates numerous variables that could impact the fair value
of the Partnership's trading portfolio. The Partnership
estimates VaR using a model based on historical simulation with a
confidence level of 99%. Historical simulation involves
constructing a distribution of hypothetical daily changes in
trading portfolio value. The VaR model generally takes into
account linear exposures to price and interest rate risk. Market
risks that are incorporated in the VaR model include equity and
commodity prices, interest rates, foreign exchange rates, as well
<PAGE>
as correlation that exists among these variables. The
hypothetical changes in portfolio value are based on daily
observed percentage changes in key market indices or other market
factors ("market risk factors") to which the portfolio is
sensitive. In the case of the Partnership's VaR, the historical
observation period is approximately four years. The
Partnership's one-day 99% VaR corresponds to the negative change
in portfolio value that, based on observed market risk factor
moves, would have been exceeded once in 100 trading days.
VaR models such as the Partnership's are continually evolving as
trading portfolios become more diverse and modeling techniques
and systems capabilities improve. It must also be noted that the
VaR model is used to quantify market risk for historic reporting
purposes only and is not utilized by either Demeter or the
Trading Advisor in their daily risk management activities.
The Partnership's Value at Risk in Different Market Sectors
The following table indicates the VaR associated with the
Partnership's open positions as a percentage of total net assets
by market category as of March 31, 1999. As of March 31, 1999,
the Partnership's total capitalization was approximately $24
million.
Primary Market March 31, 1999
Risk Category Value at Risk
Commodity (1.78)%
Aggregate Value at Risk (1.78)%
<PAGE>
The table above represents the VaR of the Partnership's open
positions at March 31, 1999 only and is not necessarily
representative of either the historic or future risk of an
investment in the Partnership. As the Partnership's sole
business is the speculative trading of primarily futures
interests, the composition of its portfolio of open positions can
change significantly over any given time period or even within a
single trading day. Such changes in open positions could
materially impact market risk as measured by VaR either
positively or negatively.
The table below supplements the quarter end VaR by presenting the
Partnership's high, low and average VaR as a percentage of total
net assets for the four quarterly reporting periods from April 1,
1998 through March 31, 1999.
Primary Market Risk Category High Low Average
Commodity (1.89)% (1.63)% (1.79)%
Aggregate Value at Risk (1.89)% (1.63)% (1.79)%
Limitations on Value at Risk as an Assessment of Market Risk
The face value of the market sector instruments held by the
Partnership is typically many times the applicable margin
requirements, as such margin requirements generally range between
2% and 15% of contract face value. Additionally, due to the use
of leverage, the face value of the market sector instruments held
by the Partnership is typically many times the total
capitalization of the Partnership. The financial magnitude of
the Partnership's open positions thus creates a "risk of ruin"
<PAGE>
not typically found in other investment vehicles. Due to the
relative size of the positions held, certain market conditions
may cause the Partnership to incur losses greatly in excess of
VaR within a short period of time. The foregoing VaR tables, as
well as the past performance of the Partnership, gives no
indication of such "risk of ruin". In addition, VaR risk measures
should be interpreted in light of the methodology's limitations,
which include the following: past changes in market risk factors
will not always yield accurate predictions of the distributions
and correlations of future market movements; changes in portfolio
value in response to market movements may differ from the
responses implicit in a VaR model; published VaR results reflect
past trading positions while future risk depends on future
positions; VaR using a one-day time horizon does not fully
capture the market risk of positions that cannot be liquidated or
hedged within one day; and the historical market risk factor data
used for VaR estimation may provide only limited insight into
losses that could be incurred under certain unusual market
movements.
The foregoing VaR tables present the results of the Partnership's
VaR at March 31, 1999 and for the end of the four quarterly
reporting periods from April 1, 1998 through March 31, 1999.
Since VaR is based on historical data, VaR should not be viewed
as predictive of the Partnership's future financial performance
or its ability to manage and monitor risk and there can be no
assurance that the Partnership's actual losses on a particular
<PAGE>
day will not exceed the VaR amounts indicated or that such losses
will not occur more than 1 in 100 trading days.
Non-Trading Risk
The Partnership has non-trading market risk on its foreign cash
balances not needed for margin. However, such balances, as well
as any market risk they may represent, are immaterial. The
Partnership also maintains a substantial portion (approximately
93%) of its available assets in cash at MS & Co. A decline in
short-term interest rates will result in a decline in the
Partnership's cash management income. This cash flow risk is not
considered material.
Materiality, as used throughout this section, is based on an
assessment of reasonably possible market movements and the
potential losses caused by such movements, taking into account
the leverage, optionality and multiplier features of the
Partnership's market sensitive instruments.
Qualitative Disclosures Regarding Primary Trading Risk Exposures
The following qualitative disclosures regarding the Partnership's
market risk exposures - except for (i) those disclosures that are
statements of historical fact and (ii) the descriptions of how
the Partnership manages its primary market risk exposures -
constitute forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the
Securities Exchange Act. The Partnership's primary market risk
exposures as well as the strategies used and to be used by
<PAGE>
Demeter and the Trading Advisor for managing such exposures are
subject to numerous uncertainties, contingencies and risks, any
one of which could cause the actual results of the Partnership's
risk controls to differ materially from the objectives of such
strategies. Government interventions, defaults and expro-
priations, illiquid markets, the emergence of dominant
fundamental factors, political upheavals, changes in historical
price relationships, an influx of new market participants,
increased regulation and many other factors could result in
material losses as well as in material changes to the risk
exposures and the risk management strategies of the Partnership.
Investors must be prepared to lose all or substantially all of
their investment in the Partnership.
The following was the primary trading risk exposure of the
Partnership as of March 31, 1999. It may be anticipated however,
that market exposures will vary materially over time.
Commodity.
Metals. The Partnership's primary metals market exposure
is to fluctuations in the price of gold and silver. Although the
Trading Advisor will from time to time trade base metals such as
nickel, aluminum, copper, and zinc, the principal market
exposures of the Partnership have consistently been in the
precious metals, gold and silver (and, to a much lesser extent,
platinum). The Trading Advisor's gold trading has been
increasingly limited due to the long-lasting and mainly non-
volatile decline in the price of gold over the last 10-15 years.
<PAGE>
However, silver prices have remained volatile over this period,
and the Trading Advisor has, from time to time, taken substantial
positions as they have perceived market opportunities to develop.
Demeter anticipates that gold and silver will remain the primary
metals market exposure for the Partnership.
Soft Commodities and Agriculturals. The Partnership's
primary commodities exposure is to fluctuations in the price of
soft commodities and agriculturals which are often directly
affected by severe or unexpected weather conditions. Soybeans,
corn, wheat, cotton, coffee and cocoa accounted for the
substantial bulk of the Partnership's commodities exposure at
March 31, 1999. The Partnership has market exposure to live and
feeder cattle. However, Demeter anticipates that the Trading
Advisor will maintain an emphasis on soybeans, corn, wheat,
cotton, coffee and cocoa in which the Partnership has
historically taken it's largest positions.
Energy. The Partnership's primary energy market exposure
is to gas and oil price movements, often resulting from political
developments in the Middle East. Although the Trading Advisor
trades natural gas to a limited extent, oil is by far the
dominant energy market exposure of the Partnership. Oil prices
are currently depressed, but they can be volatile and substantial
profits and losses have been and are expected to continue to be
experienced in this market.
Qualitative Disclosures Regarding Means of Managing Risk Exposure
The means by which the Partnership and the Trading Advisor
attempt to manage the risk of the Partnership's open positions
<PAGE>
are essentially the same in all market categories traded.
Demeter attempts to manage the Partnership's market exposure by
(i) diversifying the Partnership's assets among different market
sectors and trading approaches, and (ii), monitoring the
performance of the Trading Advisor on a daily basis. In addition,
the Trading Advisor establishes diversification guidelines, often
set in terms of the maximum margin to be committed to positions
in any one market sector or market sensitive instrument.
Demeter monitors and controls the risk of the Partnership's non-
trading instrument, cash, which is the only Partnership
investment directed by Demeter, rather than the Trading Advisor.
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The following supplements Legal Proceedings previously disclosed
in Item 3 of the Partnership's 1998 Form 10-K:
On April 12, 1999, the defendants filed a motion in the
California action to oppose certification by the court of the
class in the California litigation.
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 13, 1999 By: /s/ Lewis A. Raibley, III
Lewis A. Raibley, III
Director and 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 statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 23,944,835
<SECURITIES> 0
<RECEIVABLES> 70,417<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 24,175,620<F2>
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 24,175,620<F3>
<SALES> 0
<TOTAL-REVENUES> 1,039,461<F4>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 421,349
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 618,112
<INCOME-TAX> 0
<INCOME-CONTINUING> 618,112
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 618,112
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Receivables include interest receivable of $70,417.
<F2>In addition to cash and receivables, total assets include net
unrealized gain on open contracts of $160,368.
<F3>Liabilities include redemptions payable of $386,146, accrued
brokerage fees of $67,294, accrued management fee of $46,092 and
service fee payable of $18,437.
<F4>Total revenues include realized trading revenue of $34,855,
net change in unrealized of $796,011 and interest income of $208,595.
</FN>
</TABLE>
