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 _________________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
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)...............7-11
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 ......................................21-30
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................ 31
Item 2. Changes in Securities and Use of Proceeds........31-32
Item 6. Exhibits and Reports on Form 8-K....................32
</TABLE>
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
DEAN WITTER CORNERSTONE FUND IV
STATEMENTS OF FINANCIAL CONDITION
<CAPTION>
September 30, December 31,
1999 1998
$ $
(Unaudited)
ASSETS
<S> <C> <C>
Equity in futures interests trading accounts:
Cash 102,829,712 119,800,551
Net unrealized gain (loss) on open contracts 3,499,373
(2,827,252)
Total Trading Equity 106,329,085 116,973,299
Interest receivable (DWR) 327,458 350,412
Total Assets 106,656,543 117,323,711
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Redemptions payable 480,581 459,703
Accrued management fees 353,696 389,518
Accrued administrative expenses 194,025 78,706
Accrued incentive fees - 1,154,685
Total Liabilities 1,028,302 2,082,612
Partners' Capital
Limited Partners (22,487.293 and
24,059.670 Units, respectively)104,380,129 113,967,408
General Partner (268.889 Units) 1,248,112 1,273,691
Total Partners' Capital 105,628,241 115,241,099
Total Liabilities and Partners' Capital 106,656,543 117
,323,711
NET ASSET VALUE PER UNIT 4,641.74 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 September 30,
1999 1998
$ $
REVENUES
<S>
<C> <C>
Trading profit (loss):
Realized (4,316,898) 7,119,335
Net change in unrealized 3,394,305 (9,397,134)
Total Trading Results (922,593) (2,277,799)
Interest Income (DWR) 991,296 1,131,920
Total Revenues 68,703 (1,145,879)
EXPENSES
Management fees 1,048,389 1,259,836
Brokerage commissions (DWR) 957,701 585,467
Administrative expenses 41,411 39,532
Transaction fees and costs 35,747 33,562
Incentive fees - (629,430)
Total Expenses 2,083,248 1,288,967
NET LOSS (2,014,545) (2,434,846)
NET LOSS ALLOCATION
Limited Partners (1,991,865) (2,372,789)
General Partner (22,680) (62,057)
NET LOSS PER UNIT
Limited Partners (84.34) (97.14)
General Partner (84.34) (97.14)
<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 Nine Months Ended September 30,
1999 1998
$ $
REVENUES
<S>
<C> <C>
Trading profit (loss):
Realized (5,839,510) 11,646,648
Net change in unrealized 6,326,625 526,494
Total Trading Results 487,115 12,173,142
Interest Income (DWR) 3,006,728 3,434,613
Total Revenues 3,493,843 15,607,755
EXPENSES
Management fees 3,321,416 3,593,170
Brokerage commissions (DWR) 2,443,050 1,788,338
Administrative expenses 115,319 102,097
Transaction fees and costs 98,783 94,209
Incentive fees (210,051) 989,299
Total Expenses 5,768,517 6,567,113
NET INCOME (LOSS) (2,274,674) 9,040,642
NET INCOME (LOSS) ALLOCATION
Limited Partners (2,249,095) 8,815,167
General Partner (25,579) 225,475
NET INCOME (LOSS) PER UNIT
Limited Partners (95.12) 352.91
General Partner (95.12) 352.91
<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 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,
December 31, 1997 26,696.117 $115,575,973
$2,833,771 $118,409,744
Offering of Units 55.230 245,529
- - 245,529
Net Income - 8,815,167
225,475 9,040,642
Redemptions (1,697.322) (7,727,618)
- - (7,727,618)
Partners' Capital,
September 30, 1998 25,054.025 $116,909,051
$3,059,246 $119,968,297
Partners' Capital,
December 31, 1998 24,328.559 $113,967,408
$1,273,691 $115,241,099
Offering of Units 8.460 40,052 -
40,052
Net Loss - (2,249,095)
(25,579) (2,274,674)
Redemptions (1,580.837) (7,378,236)
- - (7,378,236)
Partners' Capital,
September 30, 1999 22,756.182 $104,380,129
$1,248,112 $105,628,241
<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 Nine Months Ended September 30,
1999 1998
$ $
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) (2,274,674) 9
,040,642
Noncash item included in net income (loss):
Net change in unrealized (6,326,625)
(526,494)
Decrease in operating assets:
Interest receivable (DWR) 22,954
11,730
Increase (decrease) in operating liabilities:
Accrued management fees (35,822) 4,697
Accrued administrative expenses 115,319
90,909
Accrued incentive fees (1,154,685)
(31,248)
Net cash provided by (used for) operating activities (9
,653,533) 8,590,236
CASH FLOWS FROM FINANCING ACTIVITIES
Offering of units 40,052 245,529
Increase (decrease) in redemptions payable20,878
(118,189) Redemptions of
units (7,378,236) (7,727,618)
Net cash used for financing activities (7,317,306)
(7,600,278)
Net increase (decrease) in cash (16,970,839) 989,958
Balance at beginning of period 119,800,551 1
19,181,131
Balance at end of period 102,829,712
120,171,089
<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 $3,499,373 and
$(2,827,252) at September 30, 1999 and December 31, 1998,
respectively.
The $3,499,373 net unrealized gain on open contracts at September
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 September 30, 1999 and December 31, 1998 mature
through December 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 $102,829,712 and $119,800,551 at September
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 Nine Months Ended September 30, 1999
For the quarter ended September 30, 1999, the Partnership
recorded total trading revenues including interest income of
$68,703 and, after expenses, posted a decrease in Net Asset Value
per Unit. The most significant net losses were recorded from
short positions in the euro and the Swiss franc as the value of
these European currencies reversed their previous downward trend
<PAGE>
versus the U.S. dollar due to bullish economic data out of Europe
and inflationary fears in the U.S. Losses were also recorded
from transactions involving the euro and the Swiss franc during
August and September as the values of these currencies moved in
short-term volatile patterns relative to the U.S. dollar.
Additional losses were incurred during July from long positions
in the Australian dollar, amid depressed gold prices and emerging
market concerns, and during September from short positions in
this Pacific Rim currency, as its value strengthened with the
sudden spike in gold prices. Smaller losses were experienced
during August from long positions in the Singapore dollar. These
losses were partially offset by gains recorded from long
positions in the Japanese yen as the value of the yen
strengthened versus the U.S. dollar throughout a majority of the
quarter amid optimism regarding the Japanese economy. Additional
profits were recorded from short positions in the Thai baht as
its value fell versus the U.S. dollar during September due to
lower-than-expected GDP data out of Thailand, the earthquakes in
Taiwan and comments regarding the Thai economy by various Thai
cabinet members. Total expenses for the three months ended
September 30, 1999 were $2,083,248, resulting in a net loss of
$2,014,545. The value of a Unit decreased from $4,726.08 at June
30, 1999 to $4,641.74 at September 30, 1999.
For the nine months ended September 30, 1999, the Partnership
recorded total trading revenues including interest income of
<PAGE>
$3,493,843 and, after expenses, posted a decrease in Net Asset
Value per Unit. The most significant net losses were incurred
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. During May and June,
losses were experienced from long British pound positions 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. Additional losses were
experienced from short Norwegian krone positions during January
and March as its value strengthened versus the U.S. dollar due to
a rise in oil prices and the possibility that this Scandinavian
currency could be linked to the euro sometime in the future.
Smaller losses were recorded during early January from short
South African rand positions. A portion of these losses was
offset by gains recorded from short positions in the euro and the
Swiss franc as the value of these currencies weakened versus the
U.S. dollar during the first two quarters due to an economic slow
down in Europe, fears that the European Central Bank would cut
interest rates, the crisis in Yugoslavia and concerns of
inflation and an interest rate hike in the U.S. Additional
profits were recorded from long positions in the Japanese yen
<PAGE>
during the third quarter as the value of the yen strengthened
versus the U.S. dollar as a result of optimism regarding the
Japanese economy. Total expenses for the nine months ended
September 30, 1999 were $5,768,517, resulting in a net loss of
$2,274,674. The value of a Unit decreased from $4,736.86 at
December 31, 1998 to $4,641.74 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
$1,145,879 and posted a decrease in Net Asset Value per Unit. The
most significant losses were recorded during July from long
British pound positions as the value of the pound moved lower
relative to the U.S. dollar after showing signs of trending
higher earlier in the month. Smaller losses were recorded from
transactions involving the British pound during the remainder of
the quarter as its value failed to move with consistent direction
relative to the U.S. dollar. The value of the Australian dollar
also moved in a trendless pattern versus the U.S. dollar during
July and September resulting in additional losses recorded by the
Partnership. Smaller losses were incurred during September from
short Japanese yen positions as the value of the yen strengthened
versus the U.S. dollar. This increase in the yen was spurred by
several remarks from top finance officials in Tokyo stating that
Japan was close to intervening in order to support the yen. As a
result of this
<PAGE>
increase in the yen, new long positions were established during
mid-September, only to result in additional losses as the value
of the yen reversed lower due to the failure of the Japanese
government to present any new initiatives toward economic reform
in that country. These losses were partially offset by profits
recorded during September from long German mark positions as the
U.S. dollar weakened relative to most European currencies due to
fears over the White House scandal, continued concerns about
emerging markets and anticipation of an interest rate cut by the
Federal Reserve. Additional currency gains were recorded from
long positions in the French franc as its value also strengthened
versus the U.S. dollar during September. Total expenses for the
three months ended September 30, 1998 were $1,288,967, resulting
in a net loss of $2,434,846. The value of a Unit decreased from
$4,885.52 at June 30, 1998 to $4,788.38 at September 30, 1998.
For the nine months ended September 30, 1998, the Partnership
recorded total trading revenues including interest income of
$15,607,755 and posted an increase 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
despite an effort by the South African government to support its
ailing currency. 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. Smaller gains were
<PAGE>
recorded from long French franc positions during September as the
value of the U.S. dollar weakened relative to most major
currencies due to fears over the White House scandal, continued
concerns about emerging markets and anticipation of an interest
rate cut by the Federal Reserve. These gains were partially
offset by losses experienced from transactions involving the
British pound as its value moved without consistent direction
during the first nine months of the year. Smaller losses were
recorded during July and September from transactions involving
the Australian dollar as its value also moved in a trendless
pattern relative to the U.S. dollar. Total expenses for the nine
months ended September 30, 1998 were $6,567,113, resulting in net
income of $9,040,642. The value of a Unit increased from
$4,435.47 at December 31, 1997 to $4,788.38 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
<PAGE>
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, 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
<PAGE>
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,
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.
<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
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.
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
<PAGE>
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
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.
<PAGE>
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
by market category as of September 30, 1999. As of September 30,
1999, the Partnership's total capitalization was approximately
$105 million.
Primary Market September 30, 1999
Risk Category Value at Risk
Currency (2.52)%
Aggregate Value at Risk (2.52)%
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
<PAGE>
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
Currency (3.48)% (0.79)% (2.37)%
Aggregate Value at Risk (3.48)% (0.79)% (2.37)%
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
<PAGE>
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 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.
<PAGE>
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 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
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 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.
The following was the primary trading risk exposure of the
Partnership as of September 30, 1999. It may be anticipated
however, that market exposure 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 third quarter of 1999, the
Partnership's major exposures were in the euro currency crosses
<PAGE>
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.
Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following was the only non-trading risk exposure of the
Partnership as of September 30, 1999:
Foreign Currency Balances. The Partnership's primary foreign
currency balances are in British pounds, Japanese yen, Singapore
dollars, euros, and South African rands. 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
<PAGE>
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.
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:
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 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 Fund 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
<PAGE>
managing underwriter for the Cornerstone Funds is DWR.
The offering for Cornerstone IV originally commenced on February
6, 1987 and currently continues with 100,639.845 Units sold
through October 1, 1999. The aggregate price of Units sold
through October 1, 1999 was $168,090,005.
For the Cornerstone Funds in aggregate, 235,430.680 Units have
been sold through October 1, 1999, leaving 14,569.320 Units
remaining available for sale as of October 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)
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 Dean
Witter Cornerstone Fund IV 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> 102,829,712
<SECURITIES> 0
<RECEIVABLES> 327,458<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 106,656,543<F2>
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 106,656,543<F3>
<SALES> 0
<TOTAL-REVENUES> 3,493,843<F4>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,768,517
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,274,674)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,274,674)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,274,674)
<EPS-BASIC> 0
<EPS-DILUTED> 0
<FN>
<F1>Receivables consists of interest receivable (DWR) $327,458.
<F2>In addition to cash and receivables, total assets include net
unrealized gain on open contracts of $3,499,373.
<F3>Liabilities include redemptions payable of $480,581, accrued
management fees of $353,696, accrued administrative expenses
of $194,025 and accrued incentive fees of $-0-.
<F4>Total revenue includes realized trading revenue of $(5,839,510), net
change in unrealized of $6,326,625 and interest income of $3,006,728.
</FN>
</TABLE>
