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 quarterly period ended September 30, 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
September 30, 1999
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Statements of Financial Condition September 30, 1999
(Unaudited) and December 31, 1998.................... 2
Statements of Operations for the Quarters Ended
September 30, 1999 and 1998 (Unaudited)...............3
Statements of Operations for the Nine Months Ended
September 30, 1999 and 1998 (Unaudited)...............4
Statements of Changes in Partners' Capital for the
Nine Months Ended September 30, 1999 and 1998
(Unaudited)...........................................5
Statements of Cash Flows for the Nine Months Ended
September 30, 1999 and 1998 (Unaudited)...............6
Notes to Financial Statements (Unaudited)..........7-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..11-18
Item 3. Quantitative and Qualitative Disclosures about
Market Risk ...................................19-27
Part II. OTHER INFORMATION
Item 1. Legal Proceedings................................ 28
Item 6. Exhibits and Reports on Form 8-K..................28
</TABLE>
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MORGAN STANLEY TANGIBLE ASSET FUND L.P.
STATEMENTS OF FINANCIAL CONDITION
<CAPTION>
September 30, December 31,
1999 1998
$ $
(Unaudited)
ASSETS
<S> <C> <C>
Equity in futures interests trading accounts:
Cash 24,365,212 26,519,891
Net unrealized gain (loss) on open contracts 348,578
(635,643)
Total Trading Equity 24,713,790 25,884,248
Interest receivable (MS & Co.) 76,463 78,722
Total Assets 24,790,253 25,962,970
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Redemptions payable 190,111 895,547
Accrued brokerage fees (MS & Co. and MSIL)71,682 81,222
Accrued management fees (MSCM) 49,098 55,632
Service fees payable (Demeter) 19,639 22,253
Total Liabilities 330,530 1,054,654
Partners' Capital
Limited Partners (3,182,296.716 and
3,745,069.052 Units, respectively)24,130,663 24,622,999
General Partner (43,395.648 Units) 329,060 285,317
Total Partners' Capital 24,459,723 24,908,316
Total Liabilities and Partners' Capital 24,790,253 25,96
2,970
NET ASSET VALUE PER UNIT 7.58 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 September 30,
1999 1998
$ $
REVENUES
<S> <C> <C>
Trading profit (loss):
Realized 2,955,995 (3,078,390)
Net change in unrealized (214,540) 676,382
Total Trading Results 2,741,455 (2,402,008)
Interest Income (MS & Co.) 221,516 322,281
Total Revenues 2,962,971 (2,079,727)
EXPENSES
Brokerage fees (MS & Co. and MSIL)209,073 289,642
Management fees (MSCM) 143,201 198,385
Service fees (Demeter) 57,280 79,354
Total Expenses 409,554 567,381
NET INCOME (LOSS) 2,553,417 (2,647,108)
NET INCOME (LOSS) ALLOCATION
Limited Partners 2,519,551 (2,619,316)
General Partner 33,866 (27,792)
NET INCOME (LOSS) PER UNIT
Limited Partners .78 (.64)
General Partner .78 (.64)
<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 Nine Months Ended September 30,
1999 1998
$ $
REVENUES
<S> <C> <C>
Trading profit (loss):
Realized 2,926,692 (7,201,840)
Net change in unrealized 984,221 (892,798)
Total Trading Results 3,910,913 (8,094,638)
Interest Income (MS & Co.) 635,611 1,009,087
Total Revenues 4,546,524 (7,085,551)
EXPENSES
Brokerage fees (MS & Co. and MSIL) 635,674 909,449
Management fees (MSCM) 435,393 622,910
Service fees (Demeter) 174,157 249,164
Total Expenses 1,245,224 1,781,523
NET INCOME (LOSS) 3,301,300 (8,867,074)
NET INCOME (LOSS) ALLOCATION
Limited Partners 3,257,557 (8,773,399)
General Partner 43,743 (93,675)
NET INCOME (LOSS) PER UNIT
Limited Partners 1.01 (2.25)
General Partner 1.01 (2.25)
<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 Nine Months Ended September 30, 1999 and 1998
(Unaudited)
<CAPTION>
Units of
Partnership Limited General
Interest Partners Partner Total
<S> <C> <C> <C>
<C>
Partners' Capital,
January 2, 1998
(commencement of operations)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 1,665,202.477 15,758,355 170,000
15,928,355
Net Loss - (8,773,399) (93,675)
(8,867,074)
Redemptions (215,926.813) (1,619,412) -
(1,619,412)
Partners' Capital,
September 30, 1998 4,022,962.467 $30,842,412 $336,325 $31,178,737
Partners' Capital,
December 31, 1998 3,788,464.700 $24,622,999 $285,317 $24,9
08,316
Net Income - 3,257,557 43,743 3,301,300
Redemptions (562,772.336) (3,749,893) -
(3,749,893)
Partners' Capital,
September 30, 1999 3,225,692.364 $24,130,663 $329,060 $24,
459,723
<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 Nine Months Ended September 30,
1999 1998
$ $
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) 3,301,300 (8,867,074)
Noncash item included in net income (loss):
Net change in unrealized (984,221) 892,798
(Increase) decrease in operating assets:
Interest receivable (DWR) 2,259 (101,935)
Increase (decrease) in operating liabilities:
Accrued brokerage fees (MS & Co. and MSIL) (9,540)
88,228
Accrued management fees (MSCM) (6,534) 60,430
Service fees payable (Demeter) (2,614) 24,172
Net cash provided by (used for) operating activities 2,300,650
(7,903,381)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in redemptions payable(705,436)178,553
Redemptions of units (3,749,893) (1,619,412)
Increase in subscriptions receivable- (267,800)
Initial offering - 25,736,868
Offering of units - 15,928,355
Net cash provided by (used for) financing activities (4,455,329)
39,956,564
Net increase (decrease) in cash (2,154,679)32,053,183
Balance at beginning of period 26,519,891 -
Balance at end of period 24,365,212 32,053,183
<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 the Commodity Brokers
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, management fees and
incentive fees (if applicable) to MSCM and service fees 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 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 that 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 $348,578 and
$(635,643) at September 30, 1999 and December 31, 1998,
respectively.
The $348,578 net unrealized gain on open contracts at September
30, 1999 and the $635,643 net unrealized loss on open contracts
at December 31, 1998 were related to exchange-traded futures
contracts.
Exchange-traded futures contracts held by the Partnership at
September 30, 1999 and December 31, 1998 mature through December
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 $24,713,790 and $25,884,248 at
September 30, 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 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>
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 and Nine Months Ended September 30, 1999
For the quarter ended September 30, 1999, the Partnership
recorded total trading revenues including interest income of
$2,962,971 and posted an increase in Net Asset Value per Unit.
The Partnership's long-only trading approach recorded its most
significant gains in the metals markets from long positions in
zinc futures as zinc prices pushed higher during August on
speculation that consumers were under-hedged and looking to lock
in prices at current levels. Additional gains were recorded
throughout a majority of the quarter from long copper futures
positions as copper prices increased amid improved demand from
Asia and a decline in LME warehouse stocks. In the energy
markets, gains were recorded from long futures positions in crude
oil and its refined products, unleaded gas and heating oil, as
oil prices climbed higher during August and September due to a
perceived tightness in the gasoline market and an announcement by
OPEC ministers stating that they would continue to adhere to
agreed upon output cuts through the first quarter of 2000. In
the livestock markets, gains were
<PAGE>
recorded from long positions in feeder cattle futures as prices
increased early in July on a decline in corn prices. During
September, additional gains were recorded from long positions in
feeder and live cattle futures as cattle prices moved higher due
to an increase in cash prices and beef demand. These gains were
partially offset by losses recorded in the agricultural markets
from long positions in corn futures as prices dropped in early
July on reports of favorable crop weather in the U.S. corn belt
and during September amid signs that the crop suffered less
damage than expected from a dry spell just before the harvest
began in most states. In soft commodities, losses were
experienced during July and September from long coffee futures
positions as prices slid lower due to increased supplies,
diminishing fears of impending frost damage to Brazilian
plantations and on predictions of record harvests in Brazil next
year. Total expenses for the three months ended September 30,
1999 were $409,554, resulting in net income of $2,553,417. The
value of a Unit increased from $6.80 at June 30, 1999 to $7.58 at
September 30, 1999.
For the nine months ended September 30, 1999, the Partnership
recorded total trading revenues including interest income of
$4,546,524 and posted an increase in Net Asset Value per Unit.
The most significant gains were recorded in the energy markets
from long futures positions in crude oil and its refined
products, unleaded gas and heating oil, as prices climbed higher
during March following an agreement reached by both OPEC and non-
OPEC countries to cut total output beginning April 1st. Oil
prices continued to move higher throughout the third quarter due
<PAGE>
to declining supplies, increasing demand and adherence to the
agreed-upon output cuts. In the metals markets, gains were
recorded during April, June, August and September from long
positions in nickel, copper and aluminum futures as base metal
prices increased due to strong producer demand, tightening supply
levels and reports that several major copper producers would be
reducing production. In the livestock markets, gains were
recorded from long positions in feeder cattle futures as prices
increased early in July on a decline in corn prices. During
September, additional gains were recorded from long positions in
feeder and live cattle futures as cattle prices moved higher due
to an increase in cash prices and beef demand. These gains were
partially offset by losses recorded in the soft commodities
markets from long positions in cocoa and coffee futures as prices
in these markets declined during the first half of the year amid
fears that economic turmoil in Brazil would lead them to flood
the market with increased exports and on forecasts for favorable
growing weather in that region. During the third quarter, losses
were experienced from long coffee futures positions as prices
slid lower due to increased supplies, diminishing fears of
impending frost damage to Brazilian plantations and on
predictions of record harvests in Brazil next year. In the
agricultural markets, losses were recorded from long positions in
corn, wheat and soybean futures as grain prices moved lower on
concerns regarding Brazil's economic status, higher-than-expected
supply levels and on reports of favorable crop weather. Total
expenses for the nine months ended September 30, 1999 were
<PAGE>
$1,245,224, resulting in net income of $3,301,300. The value of
a Unit increased from $6.57 at December 31, 1998 to $7.58 at
September 30, 1999.
For the Quarter and Nine Months Ended September 30, 1998
For the quarter ended September 30, 1998, the Partnership
recorded total trading losses net of interest income of
$2,079,727 and posted a decrease in Net Asset Value per Unit. The
Partnership's long-only trading approach recorded its most
significant losses in the agricultural markets during July and
August from long positions in corn and wheat futures as grain
prices moved lower on near perfect growing conditions and
disappointing export demand. Smaller losses were recorded from
long positions in livestock futures as prices in these markets
also moved lower due to ample supply and decreasing demand during
July and August. In soft commodities, losses were experienced
during July from long cotton futures positions and during August
and September from long sugar futures positions. Additional
losses were recorded in the metals markets from long nickel,
copper and aluminum futures as base metals prices declined during
August and September. Smaller losses were recorded in the energy
markets from long natural gas futures positions as prices
declined during July and August as a result of cooler
temperatures in the U.S. Midwest and Northeast, thus decreasing
the demand for air conditioning. A portion of the losses
experienced in this market complex was offset by gains recorded
during September from long positions in crude oil futures as
prices moved higher due to increased hurricane activity in the
<PAGE>
Gulf of Mexico that caused safety-related shutdowns of a number
of production sites. Total expenses for the three months ended
September 30, 1998 were $567,381, resulting in a net loss of
$2,647,108. The value of a Unit decreased from $8.39 at June 30,
1998 to $7.75 at September 30, 1998.
For the nine months ended September 30, 1998, the Partnership
recorded total trading losses net of interest income of
$7,085,551 and posted a decrease in Net Asset Value per Unit.
The most significant losses were recorded in the agricultural
markets from long positions in corn and wheat futures as grain
prices moved lower during a majority of the year, with the
exception of brief spikes higher in June and September. Smaller
losses were recorded from long positions in livestock futures
during the first eight months of the year. In the energy
markets, losses were experienced throughout a majority of the
first three quarters of the year from long positions in oil and
gas futures despite brief spikes higher during the months of
March and September. Additional Partnership losses recorded in
the metals markets during the second and third quarters from long
positions in precious and base metals futures more than offset
profits recorded during the first quarter from long silver, gold
and platinum futures. In soft commodities, losses were recorded
during much of the first six months from long positions in coffee
futures as prices moved lower. A portion of these losses was
offset by gains recorded during the second quarter from long
positions in orange juice futures. Total expenses for the nine
months ended September 30, 1998 were $1,781,523, resulting in a
<PAGE>
net loss of $8,867,074. The value of a Unit decreased from
$10.00 at inception of trading on January 2, 1998 to $7.75 at
September 30, 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
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.
<PAGE>
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
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.
<PAGE>
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.
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.
<PAGE>
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 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.
<PAGE>
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
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 Partner-
ship'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.
<PAGE>
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 September 30, 1999. As of September 30,
1999, the Partnership's total capitalization was approximately
$24 million.
Primary Market September 30, 1999
Risk Category Value at Risk
Commodity (2.04)%
Aggregate Value at Risk (2.04)%
The table above represents the VaR of the Partnership's open
positions at September 30, 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 October
1, 1998 through September 30, 1999.
Primary Market Risk Category High Low Average
Commodity (2.04)% (1.78)% (1.89)%
Aggregate Value at Risk (2.04)% (1.78)% (1.89)%
<PAGE>
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"
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
<PAGE>
losses that could be incurred under certain unusual market
movements.
The foregoing VaR tables present the results of the Partnership's
VaR at September 30, 1999 and for the end of the four quarterly
reporting periods from October 1, 1998 through September 30,
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 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
91%) 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.
<PAGE>
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
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 were the primary trading risk exposures of the
Partnership as of September 30, 1999, by market sector. It may
be anticipated however, that these market exposures will vary
materially over time.
<PAGE>
Commodity.
Metals. The Partnership's primary metals market exposure is
to fluctuations in the price of gold and silver. While the
Partnership will, from time to time, trade base metals such as
copper, nickel, aluminum and zinc, the principal market exposures
of the Partnership have consistently been in precious metals,
gold and silver (and, to a much lesser extent, platinum). A
significant amount of exposure was evident in the gold market as
the price of gold increased dramatically following bullish
comments by the European Central Bank. Silver prices have also
been volatile over this period, and the Trading Advisor has, from
time to time, taken substantial positions when perceived market
opportunities developed. Demeter anticipates that gold and
silver will remain the primary metals market exposure for the
Partnership.
Energy. On September 30, 1999, the Partnership's energy
exposure was shared by futures contracts in the oil and natural
gas markets. Price movements in these markets result from
political developments in the Middle East, weather patterns, and
other economic fundamentals. As oil prices have increased about
100% this year, and, given that the agreement by OPEC to cut
production is approaching expiration in March 2000, it is
possible that volatility will remain on the high end.
Significant profits and losses have been and are expected to
continue to be experienced in this market. Natural gas, also a
primary energy market exposure, has exhibited more volatility
than
<PAGE>
the oil markets on an intra-day and daily basis and is
expected to continue in this choppy pattern.
Soft Commodities and Agriculturals. On September 30, 1999,
the Partnership had a reasonable amount of exposure in the
markets that comprise these sectors. Most of the exposure,
however, was in the coffee, corn and sugar markets. Supply and
demand inequalities, severe weather disruption and market
expectations affect price movements in these markets.
Qualitative Disclosures Regarding Means of Managing Risk Exposure
The means by which the Partnership and the Trading Advisor,
severally, attempt to manage the risk of the Partnership's open
positions 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 the Partnership's 1998 Form 10-K:
In the New York action, the motion to dismiss the amended
complaint with prejudice has been fully briefed and argued and
the Dean Witter Parties are awaiting the New York Supreme Court's
decision.
In the California action, on September 24, 1999, the Superior
Court in the State of California entered an order dismissing the
consolidated amended complaint without prejudice on consent.
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)
November 12, 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 24,365,212
<SECURITIES> 0
<RECEIVABLES> 76,463<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 24,790,253<F2>
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 24,790,253<F3>
<SALES> 0
<TOTAL-REVENUES> 4,546,524<F4>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,245,224
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,301,300
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,301,300
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,301,300
<EPS-BASIC> 0
<EPS-DILUTED> 0
<FN>
<F1>Receivables include interest receivable of $76,463.
<F2>In addition to cash and receivables, total assets include net
unrealized gain on open contracts of $348,578.
<F3>Liabilities include redemptions payable of $190,111, accrued
brokerage fees of $71,682, accrued management fees of $49,098 and
service fees payable of $19,639.
<F4>Total revenues include realized trading revenue of $2,926,692,
net change in unrealized of $984,221 and interest income of $635,611.
</FN>
</TABLE>
