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 June 30, 1999 or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period _________________to______________.
Commission File Number 0-15442
DEAN WITTER CORNERSTONE FUND IV
(Exact name of registrant as specified in its charter)
New York 13-3393597
(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>
DEAN WITTER CORNERSTONE FUND IV
INDEX TO QUARTERLY REPORT ON FORM 10-Q
June 30, 1999
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Statements of Financial Condition
June 30, 1999 (Unaudited) and December 31, 1998............2
Statements of Operations for the Quarters Ended
June 30, 1999 and 1998 (Unaudited).........................3
Statements of Operations for the Six Months Ended
June 30, 1999 and 1998 (Unaudited).........................4
Statements of Changes in Partners' Capital for the
Six Months Ended June 30, 1999 and 1998
(Unaudited)................................................5
Statements of Cash Flows for the Six Months Ended
June 30, 1999 and 1998 (Unaudited).........................6
Notes to Financial Statements (Unaudited)...............7-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...............12-20
Item 3. Quantitative and Qualitative Disclosures about
Market Risk .................................... 20-29
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...................................30
Item 2. Changes in Securities and Use of Proceeds........30-31
Item 6. Exhibits and Reports on Form 8-K....................31
</TABLE>
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
DEAN WITTER CORNERSTONE FUND IV
STATEMENTS OF FINANCIAL CONDITION
<CAPTION>
June 30, December 31,
1999 1998
$ $
(Unaudited)
ASSETS
<S> <C> <C>
Equity in futures interests trading accounts:
Cash 110,883,802 119,800,551
Net unrealized gain (loss) on open contracts 105,068
(2,827,252)
Total Trading Equity 110,988,870 116,973,299
Interest receivable (DWR) 339,135 350,412
Total Assets 111,328,005 117,323,711
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Redemptions payable 963,783 459,703
Accrued management fees 369,353 389,518
Accrued administrative expenses 152,614 78,706
Accrued incentive fees - 1,154,685
Total Liabilities 1,485,750 2,082,612
Partners' Capital
Limited Partners (22,972.817 and
24,059.670 Units, respectively)108,571,463 113,967,408
General Partner (268.889 Units) 1,270,792 1,273,691
Total Partners' Capital 109,842,255 115,241,099
Total Liabilities and Partners' Capital 111,328,005 11
7,323,711
NET ASSET VALUE PER UNIT 4,726.08 4,736.86
<FN>
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>
<TABLE>
DEAN WITTER CORNERSTONE FUND IV
STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
For the Quarters Ended June 30,
1999 1998
$ $
REVENUES
<S> <C> <C>
Trading profit (loss):
Realized 1,535,966 8,133,849
Net change in unrealized (1,621,625) 8,968,573
Total Trading Results (85,659) 17,102,422
Interest Income (DWR) 1,000,677 1,127,721
Total Revenues 915,018 18,230,143
EXPENSES
Management fees 1,133,873 1,177,862
Brokerage commissions (DWR) 820,626 735,477
Administrative expenses 37,520 36,212
Transaction fees and costs 31,695 36,848
Incentive fees (153,615) 2,028,248
Total Expenses 1,870,099 4,014,647
NET INCOME (LOSS) (955,081) 14,215,496
NET INCOME (LOSS) ALLOCATION
Limited Partners (944,032) 13,862,708
General Partner (11,049) 352,788
NET INCOME (LOSS) PER UNIT
Limited Partners (41.10) 552.19
General Partner (41.10) 552.19
<FN>
The accompanying notes are an integral part
of these financial statements.
</TABLE>
,page>
<TABLE>
DEAN WITTER CORNERSTONE FUND IV
STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
For the Six Months Ended June 30,
1999 1998
$ $
REVENUES
<S> <C> <C>
Trading profit (loss):
Realized (1,522,612) 4,527,313
Net change in unrealized 2,932,320 9,923,628
Total Trading Results 1,409,708 14,450,941
Interest Income (DWR) 2,015,432 2,302,693
Total Revenues 3,425,140 16,753,634
EXPENSES
Management fees 2,273,027 2,333,334
Brokerage commissions (DWR) 1,485,349 1,202,871
Administrative expenses 73,908 62,565
Transaction fees and costs 63,036 60,647
Incentive fees (210,051) 1,618,729
Total Expenses 3,685,269 5,278,146
NET INCOME (LOSS) (260,129) 11,475,488
NET INCOME (LOSS) ALLOCATION
Limited Partners (257,230) 11,187,956
General Partner (2,899) 287,532
NET INCOME (LOSS) PER UNIT
Limited Partners (10.78) 450.05
General Partner (10.78) 450.05
<FN>
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>
<TABLE>
DEAN WITTER CORNERSTONE FUND IV
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the Six Months Ended June 30, 1999 and 1998
(Unaudited)
<CAPTION>
Units of
Partnership Limited General
Interest Partners Partner Total
<S> <C> <C>
<C> <C>
Partners' Capital,
December 31, 1997 26,696.117 $115,575,973
$2,833,771 $118,409,744
Offering of Units 41.522 178,410
- - 178,410
Net Income - 11,187,956
287,532 11,475,488
Redemptions (1,153.809) (5,073,424)
- - (5,073,424)
Partners' Capital,
June 30, 1998 25,583.830 $121,868,915
$3,121,303 $124,990,218
Partners' Capital,
December 31, 1998 24,328.559 $113,967,408
$1,273,691 $115,241,099
Offering of Units 7.476 35,401 -
35,401
Net Loss - (257,230) (2,899)
(260,129)
Redemptions (1,094.329) (5,174,116)
- - (5,174,116)
Partners' Capital,
June 30, 1999 23,241.706 $108,571,463
$1,270,792 $109,842,255
<FN>
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>
<TABLE>
DEAN WITTER CORNERSTONE FUND IV
STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
For the Six Months Ended June 30,
1999 1998
$ $
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) (260,129) 1
1,475,488
Noncash item included in net income (loss):
Net change in unrealized (2,932,320)
(9,923,628)
Decrease in operating assets:
Interest receivable (DWR) 11,277
3,231
Increase (decrease) in operating liabilities:
Accrued management fees (20,165) 24,327
Accrued administrative expenses 73,908
51,377
Accrued incentive fees (1,154,685)
598,181
Net cash provided by (used for) operating activities (4
,282,114) 2,228,976
CASH FLOWS FROM FINANCING ACTIVITIES
Offering of units 35,401 178,410
Increase in redemptions payable 504,080 119,475
Redemptions of units (5,174,116)
(5,073,424)
Net cash used for financing activities (4,634,635)
(4,775,539)
Net decrease in cash (8,916,749) (
2,546,563)
Balance at beginning of period 119,800,551 1
19,181,131
Balance at end of period 110,883,802
116,634,568
<FN>
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>
DEAN WITTER CORNERSTONE FUND IV
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 Dean Witter Cornerstone
Fund IV (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.
Dean Witter Cornerstone Fund IV is a limited partnership
organized to engage in the speculative trading of futures
contracts and forward contracts on foreign currencies
(collectively, "futures interests"). The Partnership is one of
the Dean Witter Cornerstone Funds, comprised of Dean Witter
Cornerstone Fund II, Dean Witter Cornerstone Fund III, and the
Partnership. The Partnership's general partner is Demeter
Management Corporation ("Demeter"). The non-clearing commodity
broker is Dean Witter Reynolds Inc. ("DWR") and an unaffiliated
clearing commodity broker, Carr Futures Inc. ("Carr"), provides
clearing and execution services. Both Demeter and DWR are wholly-
owned subsidiaries of Morgan Stanley Dean Witter & Co. ("MSDW").
The trading managers to the Partnership are John W. Henry &
Company, Inc. and Sunrise Capital Management, Inc. (collectively,
the "Trading Managers").
<PAGE>
DEAN WITTER CORNERSTONE FUND IV
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
2. Related Party Transactions
The Partnership's cash is on deposit with DWR and Carr in futures
interests trading accounts to meet margin requirements as needed.
DWR pays interest on these funds based on current 13-week U.S.
Treasury bill rates. The Partnership pays brokerage commissions
to DWR.
3. Financial Instruments
The Partnership trades futures and forward contracts on foreign
currencies. 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
beginning with the fiscal year that ended December 31, 1998.
SFAS No. 133 supersedes SFAS No. 119 and No. 105, which required
the
<PAGE>
DEAN WITTER CORNERSTONE FUND IV
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
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 $105,068 and
$(2,827,252) at June 30, 1999 and December 31, 1998,
respectively.
The $105,068 net unrealized gain on open contracts at June 30,
1999, and the $2,827,252 net unrealized loss on open contracts at
December 31, 1998 related to off-exchange-traded forward currency
contracts.
Off-exchange-traded forward currency contracts held by the
Partnership at June 30, 1999 and December 31, 1998 mature through
September 1999 and March 1999, respectively.
<PAGE>
DEAN WITTER CORNERSTONE FUND IV
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
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. DWR and Carr 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 DWR and Carr, 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 on all open futures contracts, which funds, in
the aggregate, totaled $110,883,802 and $119,800,551 at June 30,
1999 and December 31, 1998, respectively.
With respect to the Partnership's off-exchange-traded forward
currency contracts, there are no daily settlements of variations
in value nor is there any requirement that an amount equal to the
<PAGE>
DEAN WITTER CORNERSTONE FUND IV
NOTES TO FINANCIAL STATEMENTS - (CONCLUDED)
net unrealized gain on open forward contracts be segregated.
With respect to those off-exchange-traded forward currency
contracts, the Partnership is at risk to the ability of Carr, the
sole counterparty on all of such contracts, to perform. Carr's
parent, Credit Agricole Indosuez, has guaranteed to the
Partnership payment of the net liquidating value of the
transactions in the Partnership's account with Carr (including
foreign currency contracts).
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity - Assets of the Partnership are deposited with DWR as
non-clearing broker and Carr as clearing broker 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 DWR and Carr 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 and
exchanges 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 and
exchanges.
Results of Operations
For the Quarter and Six Months Ended June 30, 1999
For the quarter ended June 30, 1999, the Partnership recorded
total trading revenues including interest income of $915,018 and,
after expenses, posted a decrease in Net Asset Value per Unit.
The most significant net trading losses were recorded from
transactions involving the British pound throughout the quarter.
During April, losses were recorded from short British pound
positions as its value strengthened versus the U.S. dollar after
<PAGE>
an interest rate cut in Great Britain sparked optimism regarding
British economic growth prospects. Additional losses were
recorded from long British pound positions during May and June as
the value of the pound weakened versus the U.S. dollar amid the
possibility of another interest rate cut by the Bank of England,
the possibility of Britain's entry into the European Monetary
Union and low inflation in the U.K. Smaller losses were recorded
during April and June from short positions in the Singapore
dollar as the value of this Pacific Rim currency rallied versus
the U.S. dollar on strength in the Japanese yen and increased
optimism of economic recovery in that region. These losses were
mitigated by gains from short positions in the European common
currency, the euro, and the Swiss franc as the value of these
currencies continued to weaken versus the U.S. dollar due to
concerns regarding economic growth in Europe, on speculation that
the European Central Bank could lower interest rates, the
military crisis in Kosovo and on inflationary fears out of the
U.S. Additional gains were recorded from long positions in the
Australian dollar as its value appreciated versus the U.S. dollar
during April and June due to strength in commodities,
particularly base metals late in the quarter. Total expenses for
the three months ended June 30, 1999 were $1,870,099, resulting
in a net loss of $955,081. The value of a Unit decreased from
$4,767.18 at March 31, 1999 to $4,726.08 at June 30, 1999.
<PAGE>
For the six months ended June 30, 1999, the Partnership recorded
total trading revenues including interest income of $3,425,140
and, after expenses, posted a decrease in Net Asset Value per
Unit. The most significant losses were recorded from transactions
involving the British pound during January and throughout the
second quarter. During January and April, losses were incurred
from short British pound positions as its value strengthened
versus the U.S. dollar on optimism regarding economic growth
prospects in that country. Additional losses were experienced
from long British pound positions during May and June as the
value of the pound weakened versus the U.S. dollar amid the
possibility of another interest rate cut by the Bank of England,
the possibility of Britain's entry into the European Monetary
Union and low inflation in the U.K. Losses were also incurred
during January from long Japanese yen positions as the value of
the yen reversed lower versus the U.S. dollar after the Bank of
Japan intervened to help ease concerns about the impact of a
strong yen on Japanese exports. The yen experienced additional
downward pressure later in January following a devaluation of the
Brazilian real, reports that China may devalue its currency and
strong U.S. economic data. Losses recorded from long yen
positions were also experienced during February as the value of
the yen fell to a 2 1/2 month low versus the U.S. dollar after
several key Tokyo officials suggested that Japanese policy makers
were satisfied with a weaker yen. A majority of these losses
were offset by gains from short positions in the European common
<PAGE>
currency, the euro, and the Swiss franc as the value of these
currencies weakened versus the U.S. dollar since January due to
an economic slowdown in Europe, fears that the European Central
Bank would cut interest rates, the crisis in Yugoslavia and
concerns of inflation and a possible interest rate hike in the
U.S. Total expenses for the six months ended June 30, 1999 were
$3,685,269, resulting in a net loss of $260,129. The value of a
Unit decreased from $4,736.86 at December 31, 1998 to $4,726.08
at June 30, 1999.
For the Quarter and Six Months Ended June 30, 1998
For the quarter ended June 30, 1998, the Partnership recorded
total trading revenues including interest income of $18,230,143
and posted a gain in Net Asset Value per Unit. The most
significant gains were recorded from short South African rand
positions as its value trended sharply lower relative to the U.S.
dollar during May and June despite an effort by the South African
government to prevent its currency from dropping further.
Additional currency gains were recorded from short Japanese yen
positions as the value of the yen also declined significantly
relative to other currencies during May and June amid concerns
regarding the Japanese economy. Smaller profits were recorded
from short Australian and New Zealand dollar positions during May
and June as the value of these currencies also moved lower versus
the U.S. dollar. A portion of the Partnership's profits for the
quarter was offset by losses incurred during April and May from
<PAGE>
short German mark positions as its value moved higher relative to
the U.S. dollar following a downward move in previous months.
Smaller currency losses were experienced from short positions in
the French and Swiss francs as the value of these currencies also
moved higher versus the U.S. dollar during April. Total expenses
for the three months ended June 30, 1998 were $4,014,647,
resulting in net income of $14,215,496. The value of a Unit
increased from $4,333.33 at March 31, 1998 to $4,885.52 at June
30, 1998.
For the six months ended June 30, 1998, the Partnership recorded
total trading revenues including interest income of $16,753,634
and posted a gain in Net Asset Value per Unit. The most
significant profits were recorded during May and June from short
South African rand positions as the value of this currency fell
significantly lower relative to the U.S. dollar. Additional
gains were recorded from short New Zealand dollar positions as
its value also decreased versus the U.S. dollar during March, May
and June. Short Japanese yen positions also proved profitable as
the value of the yen weakened versus other major currencies in
reaction to the economic and political turmoil plaguing Japan.
These gains were partially offset by losses recorded during April
and May from short German mark positions as the value of the mark
reversed higher after moving lower in March. Smaller losses were
experienced from transactions involving the British pound as its
value moved without consistent direction for a majority of the
<PAGE>
first half of the year. Total expenses for the six months ended
June 30, 1998 were $5,278,146 resulting in net income of
$11,475,488. The value of a Unit increased from $4,435.47 at
December 31, 1997 to $4,885.52 at June 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
<PAGE>
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, Carr, or the
Trading Managers - 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 Carr and the Trading
Managers throughout 1999 in their Year 2000 compliance and, where
applicable, to test its external interface with Carr and the
Trading Managers.
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,
<PAGE>
however, it is possible that these steps will not be sufficient
to avoid any adverse impact to the Partnership.
Risks Associated With the Euro. On January 1, 1999, eleven
countries in the European Union established fixed conversion
rates on their existing sovereign currencies and converted to a
common single currency (the "euro"). During a three-year
transition period, the sovereign currencies will continue to
exist but only as a fixed denomination of the euro. Conversion
to the euro prevents the Trading Managers from trading in certain
currencies and thereby limits their ability to take advantage of
potential market opportunities that might otherwise have existed
had separate currencies been available to trade. This could
adversely affect the performance results of 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
Partnership'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.
<PAGE>
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.
The Partnership's risk exposure in the various market sectors
traded by the Trading Managers 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
<PAGE>
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
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 Managers in their daily risk management activities.
The Partnership's Value at Risk in its Market Sector
The following table indicates the VaR associated with the
Partnership's open positions as a percentage of total Net Assets
<PAGE>
by market category as of June 30, 1999. As of June 30, 1999, the
Partnership's total capitalization was approximately $110
million.
Primary Market June 30, 1999
Risk Category Value at Risk
Currency (3.48)%
Aggregate Value at Risk (3.48)%
The table above represents the VaR of the Partnership's open
positions at June 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 July 1,
1998 through June 30, 1999.
Primary Market Risk Category High Low Average
Currency (3.48)% (0.79)% (2.17)%
Aggregate Value at Risk (3.48)% (0.79)% (2.17)%
<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
<PAGE>
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 June 30, 1999 and for the end of the four quarterly
reporting periods from July 1, 1998 through June 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
92%) of its available assets in cash at DWR. 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
<PAGE>
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
Demeter and the Trading Managers 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.
<PAGE>
The following was the primary trading risk exposure of the
Partnership as of June 30, 1999. It may be anticipated however,
that market exposures will vary materially over time.
Currency. The Partnership's currency exposure is to exchange
rate fluctuations, primarily fluctuations which disrupt the
historical pricing relationships between different currencies and
currency pairs. Interest rate changes as well as political and
general economic conditions influence these fluctuations. The
Partnership trades in a large number of currencies, including
cross-rates - i.e., positions between two currencies other than
the U.S. dollar. For the second quarter of 1999, the
Partnership's major exposures were in the euro currency crosses
and outright U.S. dollar positions. (Outright positions consist
of the U.S. dollar vs. other currencies. These other currencies
include the major and minor currencies). Demeter does not
anticipate that the risk profile of the Partnership's currency
sector will change significantly in the future. The currency
trading VaR figure includes foreign margin amounts converted into
U.S. dollars with an incremental adjustment to reflect the
exchange rate risk inherent to the dollar-based Partnership in
expressing VaR in a functional currency other than dollars.
<PAGE>
Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following was the only non-trading risk exposure of the
Partnership as of June 30, 1999:
Foreign Currency Balances. The Partnership's primary foreign
currency balances are in euros, South African rands, Swiss
francs, Japanese yen and Australian dollars. The Partnership
controls the non-trading risk of these balances by regularly
converting these balances back into dollars upon liquidation of
the respective position.
Qualitative Disclosures Regarding Means of Managing Risk Exposure
The means by which the Partnership and the Trading Managers,
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 Trading Managers, each of whose strategies focus on
different trading approaches, and (ii), monitoring the
performance of the Trading Managers on a daily basis. In
addition, the Trading Managers establish diversification
guidelines, often set in terms of the maximum margin to be
committed to positions in any one market sensitive instrument.
One should be aware that certain Trading Managers treat their
risk control policies as strict rules, whereas others treat such
policies as general guidelines.
<PAGE>
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 Managers.
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The following supplements Legal Proceedings previously disclosed
in the Partnership's 1998 Form 10-K:
With respect to the plaintiff's consolidated action in
California, on July 1, 1999, the Superior Court of the State of
California, ruling from the bench, denied the plaintiffs' motion
to have their lawsuit certified as a class action, stating, among
other things, that plaintiffs' lawsuit did not present common
questions of fact.
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Dean Witter Cornerstone Fund I ("Cornerstone I"), Dean Witter
Cornerstone Fund II ("Cornerstone II"), and Dean Witter
Cornerstone III ("Cornerstone III") collectively registered
250,000 Units pursuant to a Registration Statement on Form S-1,
which became effective on May 31, 1984 (the "Registration
Statement") (SEC File Numbers 2-88587; 88587-01; 88587-02). As
contemplated in the Registration Statement, an additional fund,
the Partnership, (collectively with Cornerstone I, Cornerstone II
and Cornerstone III, the "Cornerstone Funds") was registered
pursuant to Post-Effective Amendment No. 5 to the Registration
Statement, which became effective on February 6, 1987. The
managing underwriter for the Cornerstone Funds is DWR.
<PAGE>
The offering for Cornerstone IV originally commenced on February
6, 1987 and currently continues with 100,639.845 Units sold
through July 1, 1999. The aggregate price of Units sold through
July 1, 1999 was $168,090,005.
For the Cornerstone Funds in aggregate, 235,430.680 Units have
been sold through July 1, 1999, leaving 14,569.320 Units
remaining available for sale as of July 1, 1999.
Effective September 30, 1984, Cornerstone II, Cornerstone III and
the Partnership were closed to new investors; Units have been
sold since then solely in "Exchanges" with existing investors, at
100% of Net Asset Value per Unit. DWR has been paying all
expenses in connection with the offering of Units since September
30, 1994, without reimbursement.
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.
Dean Witter Cornerstone Fund IV
(Registrant)
By: Demeter Management Corporation
(General Partner)
August 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 Dean
Witter Cornerstone Fund IV and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 110,883,802
<SECURITIES> 0
<RECEIVABLES> 339,135<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 111,328,005<F2>
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 111,328,005<F3>
<SALES> 0
<TOTAL-REVENUES> 3,425,140<F4>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,685,269
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (260,129)
<INCOME-TAX> 0
<INCOME-CONTINUING> (260,129)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (260,129)
<EPS-BASIC> 0
<EPS-DILUTED> 0
<FN>
<F1>Receivables include interest receivable DWR $339,135.
<F2>In addition to cash and receivables, total assets include net
unrealized gain on open contracts of $105,068.
<F3>Liabilities include redemptions payable of $963,783, accrued
management fees of $369,353, accrued administrative expenses payable
of $152,614 and accrued incentive fees of $-0-.
<F4>Total revenue includes realized trading revenue of $(1,522,612), net
change in unrealized of $2,932,320 and interest income of $2,015,432.
</FN>
</TABLE>
