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, 2000 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, 2000
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <S>
Item 1. Financial Statements
Statements of Financial Condition
June 30, 2000 (Unaudited) and December 31, 1999............2
Statements of Operations for the Quarters Ended
June 30, 2000 and 1999 (Unaudited).........................3
Statements of Operations for the Six Months Ended
June 30, 2000 and 1999 (Unaudited).........................4
Statements of Changes in Partners' Capital for the
Six Months Ended June 30, 2000 and 1999
(Unaudited)................................................5
Statements of Cash Flows for the Six Months Ended
June 30, 2000 and 1999 (Unaudited).........................6
Notes to Financial Statements (Unaudited)...............7-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...............12-21
Item 3. Quantitative and Qualitative Disclosures about
Market Risk .................................... 22-31
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................32-33
Item 5. Other Information...................................34
Item 6. Exhibits and Reports on Form 8-K.................34-35
</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,
2000 1999 $
$
(Unaudited)
ASSETS
<S>
<C> <C>
Equity in futures interests trading accounts:
Cash 96,911,571 104,055,664
Net unrealized gain on open contracts (MS & Co.)
126,466 -
Net unrealized gain (loss) on open contracts (Carr) (1,5
69,916) 281,510
Total net unrealized gain (loss) on open contracts (1,443,450)
281,510
Total Trading Equity 95,468,121 104,337,174
Interest receivable (DWR) 358,044 357,520
Total Assets 95,826,165 104,694,694
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Redemptions payable 1,010,468 1,225,890
Accrued management fees 317,828 347,338
Accrued administrative expenses 159,972 145,813
Total Liabilities 1,488,268 1,719,041
Partners' Capital
Limited Partners (19,709.051 and
21,718.366 Units, respectively) 93,325,103 101,716,331
General Partner (213.889 and
268.889 Units, respectively) 1,012,794 1,259,322
Total Partners' Capital 94,337,897 102,975,653
Total Liabilities and Partners' Capital 95,826,165 104
,694,694
NET ASSET VALUE PER UNIT 4,735.14 4,683.42
<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,
2000 1999
$ $
REVENUES
<S>
<C> <C>
Trading profit (loss):
Realized
4,325,563 1,535,966 Net
change in unrealized (1,891,670) (1,621,625)
Total Trading Results 2,433,893 (85,659)
Interest Income (DWR) 1,091,271 1,000,677
Total Revenues 3,525,164 915,018
EXPENSES
Management fees 997,451 1,133,873
Brokerage commissions (DWR) 549,210 820,626
Administrative expenses 37,620 37,520
Transaction fees and costs 20,450 31,695
Incentive fees 603 (153,615)
Total Expenses 1,605,334 1,870,099
NET INCOME (LOSS) 1,919,830 (955,081)
NET INCOME (LOSS) ALLOCATION
Limited Partners 1,896,449 (944,032)
General Partner 23,381 (11,049)
NET INCOME (LOSS) PER UNIT
Limited Partners 86.95 (41.10)
General Partner 86.95 (41.10)
<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,
2000 1999
$ $
REVENUES
<S>
<C> <C>
Trading profit (loss):
Realized 4,334,446
(1,522,612) Net
change in unrealized (1,724,960) 2,932,320
Total Trading Results 2,609,486 1,409,708
Interest Income (DWR) 2,191,791 2,015,432
Total Revenues 4,801,277 3,425,140
EXPENSES
Management fees 2,011,793 2,273,027
Brokerage commissions (DWR) 1,471,402 1,485,349
Administrative expenses 74,706 73,908
Transaction fees and costs 50,554 63,036
Incentive fees 603
(210,051)
Total Expenses 3,609,058 3,685,269
NET INCOME (LOSS) 1,192,219 (260,129)
NET INCOME (LOSS) ALLOCATION
Limited Partners 1,178,314 (257,230)
General Partner 13,905 (2,899)
NET INCOME (LOSS) PER UNIT
Limited Partners 51.72 (10.78)
General Partner 51.72 (10.78)
<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, 2000 and 1999
(Unaudited)
<CAPTION>
Units of
Partnership Limited General
Interest Partners Partner Total
<S>
<C> <C> <C>
<C>
Partners' Capital,
December 31, 1998 24,328.559 $113,967,408 $1,273,691 $115,
241,099
Offering of Units7.476 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$109,84
2,255
Partners' Capital,
December 31, 1999 21,987.255$101,716,331$1,259,322$102,975,
653
Offering of Units 6.161 29,469
- 29,469
Net Income
- 1,178,314 13,9051,192,219
Redemptions (2,070.476) (9,599,011) (260,433) (9,8
59,444)
Partners' Capital,
June 30, 2000 19,922.940$93,325,103$1,012,794$94,337,897
<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,
2000 1999
$ $
<S>
<C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) 1,192,219 (260,129)
Noncash item included in net income (loss):
Net change in unrealized 1,724,960(2,932,320)
(Increase) decrease in operating assets:
Interest receivable (DWR) (524) 11,277
Increase (decrease) in operating liabilities:
Accrued management fees (29,510) (20,165)
Accrued administrative expenses
14,159 73,908
Incentive fees payable _____-___ (1,154,685)
Net cash provided by (used for) operating activities2,901,304
(4,282,114)
CASH FLOWS FROM FINANCING ACTIVITIES
Offering of Units
29,469 35,401
Increase (decrease) in redemptions payable(215,422) 504,080
Redemptions of Units (9,859,444) (5,174,116)
Net cash used for financing activities(10,045,397) (4
,634,635)
Net decrease in cash (7,144,093) (8,916,749)
Balance at beginning of period 104,055,664 119,800,551
Balance at end of period 96,911,571 110,883,802
<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, 1999 Annual Report on Form 10-K.
1. Organization.
Dean Witter Cornerstone Fund IV is a New York limited partnership
organized to engage in the speculative trading of futures and
forward contracts on foreign currencies (collectively, "futures
interests"). The Partnership is one of the Dean Witter
Cornerstone Funds, comprised of the Dean Witter Cornerstone Fund
II, Dean Witter Cornerstone Fund III and the Partnership.
The general partner is Demeter Management Corporation
("Demeter"). The non-clearing commodity broker is Dean Witter
Reynolds Inc. ("DWR"). Morgan Stanley & Co., Inc. ("MS & Co.")
and Morgan Stanley & Co. International Limited ("MSIL") provide
clearing and execution services. Prior to May 2000, Carr Futures
Inc.
<PAGE>
DEAN WITTER CORNERSTONE FUND IV
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
provided clearing and execution services. Demeter, DWR, MS & Co.
and MSIL are wholly-owned subsidiaries of Morgan Stanley Dean
Witter & Co. The trading managers to the Partnership are John W.
Henry & Company, Inc. and Sunrise Capital Management, Inc.,
(collectively, the "Trading Managers").
2. Related Party Transactions
The Partnership's cash is on deposit with DWR, MS & Co., and MSIL
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.
<PAGE>
DEAN WITTER CORNERSTONE FUND IV
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
In June 1998, the Financial Accounting Standards Board ("FASB")
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. In June 1999, the FASB issued SFAS No. 137, "Accounting
for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of SFAS No. 133," which defers the required
implementation of SFAS No. 133 until fiscal years beginning after
June 15, 2000. However, the Partnership had previously elected to
adopt the provisions of SFAS No. 133 beginning with the fiscal
year ended December 31, 1998. SFAS No. 133 supersedes SFAS No.
119 and No. 105, which required the disclosure of average
aggregate fair values and contract/notional values, respectively,
of derivative financial instruments for an entity which carries
its assets at fair value. The application of SFAS No. 133 does
not have a significant effect on the Partnership's financial
statements.
The net unrealized gain (loss) on open contracts is reported as a
component of "Equity in futures interests trading accounts" on
the statements of financial condition and totaled $(1,443,450)
and $281,510 at June 30, 2000 and December 31, 1999,
respectively.
<PAGE>
DEAN WITTER CORNERSTONE FUND IV
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
The $1,443,450 net unrealized loss on open contracts at June 30,
2000, and the $281,510 net unrealized gain on open contracts at
December 31, 1999 related to off-exchange-traded forward currency
contracts.
Off-exchange-traded forward currency contracts held by the
Partnership at June 30, 2000 and December 31, 1999 mature through
September 2000 and March 2000, respectively.
The Partnership has 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.
The Partnership also has credit risk because DWR, 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. DWR, MS
& Co., and MSIL each as a futures commission merchant for all of
the Partnership's exchange-traded futures contracts, are
required,
<PAGE>
DEAN WITTER CORNERSTONE FUND IV
NOTES TO FINANCIAL STATEMENTS - (CONCLUDED)
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
$96,911,571 and $104,055,664 at June 30, 2000 and December 31,
1999, 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 net unrealized gain (loss) 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 MS & Co., the sole counterparty on all of
such contracts, to perform. The partnership has a netting
agreement with MS & Co. This agreement, which seeks to reduce
both the Partnership's and MS & Co.'s exposure on off-exchange-
traded forward currency contracts, should materially decrease the
Partnership's credit risk in the event of MS & Co.'s bankruptcy
or insolvency.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity - The Partnership deposits its assets with DWR as non-
clearing broker and MS & Co. and MSIL as clearing brokers in
separate futures trading accounts established for each Trading
Manager, which assets are used as margin to engage in trading.
The assets are held in either non-interest-bearing bank accounts
or in securities and instruments permitted by the CFTC for
investment of customer segregated or secured funds. The
Partnership's assets held by the commodity brokers may be used as
margin solely for the Partnership's trading. Since the
Partnership's sole purpose is to trade in futures and forwards,
it is expected that the Partnership will continue to own such
liquid assets for margin purposes.
The Partnership's investment in futures and forwards, may, from
time to time, be illiquid. Most U.S. futures exchanges limit
fluctuations in prices during a single day by regulations
referred to as "daily price fluctuations limits" or "daily
limits". Trades may not be executed at prices beyond the daily
limit. If the price for a particular futures contract has
increased or decreased by an amount equal to the daily limit,
positions in that futures contract can neither be taken nor
liquidated unless traders are willing to effect trades at or
within the limit. Futures prices have occasionally moved the
daily limit for several consecutive days with little or no
trading. These market
<PAGE>
conditions could prevent the Partnership from promptly
liquidating its futures contracts and result in restrictions on
redemptions.
There is no limitation on daily price moves in trading forward
contracts on foreign currencies. 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 prevent the Partnership from promptly liquidating
unfavorable positions in such markets and subjecting it to
substantial losses. Either of these market conditions could
result in restrictions on redemptions.
The Partnership has never had illiquidity affect a material
portion of its assets.
Capital Resources - The Partnership does not have, or expect to
have, any capital assets. Redemptions of additional units of
limited partnership interest ("Unit(s)") in the future will
affect the amount of funds available for investment in futures
interests in subsequent periods. It is not possible to estimate
the amount and therefore, the impact of future redemptions of
Units.
<PAGE>
Results of Operations
General. The Partnership's results depend on its Trading
Managers and the ability of the Trading Managers' trading
programs to take advantage of price movements or other profit
opportunities in the futures and forwards markets. The following
presents a summary of the Partnership's operations for the
quarter and six months ended June 30, 2000 and 1999,
respectively, and a general discussion of its trading activities
during each period. It is important to note, however, that the
Trading Managers trade in various markets at different times and
that prior activity in a particular market does not mean that
such market will be actively traded by the Trading Managers or
will be profitable in the future. Consequently, the results of
operations of the Partnership are difficult to discuss other than
in the context of its Trading Managers' trading activities on
behalf of the Partnership as a whole and how the Partnership has
performed in the past.
For the Quarter and Six Months Ended June 30, 2000
For the quarter ended June 30, 2000, the Partnership recorded
total trading revenues including interest income of $3,525,164
and posted an increase in Net Asset Value per Unit. The most
significant gains of approximately 4.3% were recorded primarily
<PAGE>
from short positions in the euro as the value of the European
common currency dropped to record lows versus the U.S. dollar and
British pound during April due to the European Central Bank's
("ECB") passive stance towards its currency. Strong economic
data out of the U.S. and the potential for aggressive rate hikes
in the U.S. also boosted the dollar and, subsequently, added to
the euro's troubles. Newly established long positions in the
euro resulted in additional gains during the first half of June
as the value of the euro strengthened versus the U.S. dollar on
stronger-than-expected French consumer spending data and the
dollar's overall weakness relative to major currencies.
Additional gains of approximately 2.0% were experienced from
short South African rand positions as its value receded to 20-
month lows versus the U.S. dollar during April amid speculation
that Zimbabwe was on the verge of devaluing its currency. During
May, short South African rand positions resulted in additional
profits as its value continued to be plagued by the economic
crisis in Zimbabwe. Smaller gains of approximately 0.9% were
incurred from short Singapore dollar positions during May and
June as its value weakened versus the U.S. dollar due to the
Indonesian rupiah's sustained slide and fears over a possible
market intervention by the Monetary Authority of Singapore. A
portion of overall Partnership gains was offset by losses of
approximately 3.8% recorded from long British pound positions as
<PAGE>
the value of the pound weakened relative to the U.S. dollar
during April, dragged down by the weakness in the euro. Newly
established short British pound positions incurred additional
losses during the remainder of the quarter as the pound's value
strengthened versus the U.S. dollar on a strengthening euro and
indications that the Bank of England did not rule out further
interest rate hikes. Additional losses of approximately 1.1%
resulted from short Australian dollar positions during June as
the value of the U.S. dollar weakened relative to most other
major currencies on the perception that interest rates in the
U.S. may have topped out. Long Mexican peso positions incurred
losses of approximately 0.9% during May as its value weakened
relative to the U.S. dollar as investors took profits amid
weakness in U.S. stocks. Losses of approximately 0.9% were also
recorded from transactions involving Japanese yen positions
during early April and late June. Total expenses for the three
months ended June 30, 2000 were $1,605,334, resulting in net
income of $1,919,830. The value of a Unit increased from
$4,648.19 at March 31, 2000 to $4,735.14 at June 30, 2000.
For the six months ended June 30, 2000, the Partnership recorded
total trading revenues including interest income of $4,801,277
and posted an increase in Net Asset Value per Unit. The most
significant gains of approximately 7.9% were recorded from short
<PAGE>
euro positions as its value weakened versus the U.S. dollar
during January on skepticism about Europe's economic outlook.
The European common currency finished the first and second
quarter lower versus the U.S. dollar on expectations that the ECB
would hold interest rates steady, resulting in additional gains
for short positions. Gains of approximately 2.3% were
experienced from short South African rand positions as its value
receded to 20-month lows versus the U.S. dollar during April and
May amid speculation that Zimbabwe was on the verge of devaluing
its currency. Short Swiss franc positions resulted in gains of
approximately 1.7% as it shared many of the same woes as the euro
during the first quarter. Smaller gains of approximately 1.3%
were recorded from short Singapore dollar positions during May
and June as its value weakened versus the U.S. dollar due to the
Indonesian rupiah's sustained slide and fears over a possible
market intervention by the Monetary Authority of Singapore. A
portion of overall Partnership gains was offset by losses of
approximately 6.4% recorded during January, February and April
from long British pound positions on the U.S. dollar's strength
versus other major currencies and interest rate increases by the
ECB and U.S. Federal Reserve. Newly established short British
pound positions incurred losses during the remainder of the
second quarter as the pound's value strengthened versus the U.S.
dollar on a strengthening euro and indications that the Bank of
<PAGE>
England did not rule out further interest rate hikes. Additional
losses of approximately 4.0% were recorded from long Japanese yen
positions during January as its value weakened versus the U.S.
dollar following a Bank of Japan intervention. Newly established
short Japanese yen positions resulted in losses as the yen's
value reversed higher relative to the U.S. dollar and major
European currencies on repatriation by institutions ahead of the
Japanese fiscal year-end on March 31. Losses were also recorded
from transactions involving the yen during the second quarter.
Smaller losses of approximately 3.5% were experienced during
January from long Australian dollar positions as its value
plunged sharply lower versus the U.S. dollar due to weakness in
the euro and weaker oil prices. Short Australian dollar
positions also incurred losses during June as the value of the
U.S. dollar weakened relative to most other major currencies on
the perception that interest rates in the U.S. may have topped
out. Total expenses for the six months ended June 30, 2000 were
$3,609,058, resulting in net income of $1,192,219. The value of
a Unit increased from $4,683.42 at December 31, 1999 to $4,735.14
at June 30, 2000.
For the Quarter and Six Months Ended June 30, 1999
For the quarter ended June 30, 1999, the Partnership recorded
<PAGE>
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 of approximately 2.6%
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 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. Additional
losses of approximately 2.6% 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 of approximately 3.2%
and in the Swiss franc of approximately 1.5% 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 ECB could lower interest rates, the military crisis in
Kosovo and on inflationary fears out of the U.S. Additional
<PAGE>
gains of approximately 0.8% 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.
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 of approximately 3.7% were
recorded primarily 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 of approximately 2.6% were incurred primarily during
<PAGE>
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 of approximately 9.4% recorded primarily
from short positions in the European common 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 ECB 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.
<PAGE>
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Introduction
The Partnership is a commodity pool involved in the speculative
trading of futures interests. The market-sensitive instruments
held by the Partnership are acquired for speculative trading
purposes only and, as a result, all or substantially all of the
Partnership's assets are at risk of trading loss. Unlike an
operating company, the risk of market-sensitive instruments is
central, not incidental, to the Partnership's main business
activities.
The futures interests traded by the Partnership involve varying
degrees of market risk. Market risk is often dependent upon
changes in the level or volatility of interest rates, exchange
rates, and prices of financial instruments and commodities.
Fluctuations in market risk based upon these 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 among the
Partnership's open positions, the volatility present within the
markets, and the liquidity of the markets. At different times,
<PAGE>
each of these factors may act to increase or decrease the market
risk associated with the Partnership.
The Partnership's past performance is not necessarily indicative
of its future results. Any attempt to numerically quantify the
Partnership's market risk is limited by the uncertainty of its
speculative trading. The Partnership's speculative trading may
cause future losses and volatility (i.e. "risk of ruin") that far
exceed the Partnership's experiences to date or any reasonable
expectations based upon historical changes in market value.
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 using mark-to-market
accounting principles. Any loss in the market value of the
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Partnership's open positions is directly reflected in the
Partnership's earnings, whether realized or unrealized, and cash
flow. Profits and losses on open positions of exchange-traded
futures interests are settled daily through variation margin.
The Partnership's risk exposure in the market sectors traded by
the Trading Managers is estimated below in terms of Value at Risk
("VaR"). The VaR model used by the Partnership includes many
variables that could change the market value of the Partnership's
trading portfolio. The Partnership estimates VaR using a model
based upon historical simulation with a confidence level of 99%.
Historical simulation involves constructing a distribution of
hypothetical daily changes in the value of a trading portfolio.
The VaR model 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, and correlation among these variables.
The hypothetical changes in portfolio value are based on daily
percentage changes observed in key market indices or other market
factors ("market risk factors") to which the portfolio is
sensitive. The historical observation period of the
Partnership's VaR is approximately four years. The one-day 99%
confidence level of the Partnership's VaR corresponds to the
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negative change in portfolio value that, based on observed market
risk factors, would have been exceeded once in 100 trading days.
VaR models, including the Partnership's, are continuously
evolving as trading portfolios become more diverse and modeling
techniques and systems capabilities improve. Please note that
the VaR model is used to numerically 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 Different Market Sectors
The following tables indicate the VaR associated with the
Partnership's open positions as a percentage of total Net Assets
by primary market risk category at June 30, 2000 and 1999. At
June 30, 2000 and 1999, the Partnership's total capitalization
was approximately $94 million and $110 million, respectively.
Primary Market June 30, 2000 June 30, 1999
Risk Category Value at Risk Value at Risk
Currency (2.04)% (3.48)%
The table above represents the VaR of the Partnership's open
positions at June 30, 2000 and 1999 only and is not necessarily
representative of either the historic or future risk of an
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investment in the Partnership. Because the Partnership's only
business is the speculative trading of futures interests, the
composition of its trading portfolio can change significantly
over any given time period, or even within a single trading day.
Any changes in open positions could positively or negatively
materially impact market risk as measured by VaR.
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,
1999 through June 30, 2000.
Primary Market Risk Category High Low Average
Currency (3.48)% (2.04)% (2.92)%
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. Margin requirements generally range between 2% and
15% of contract face value. Additionally, the use of leverage
causes the face value of the market sector instruments held by
the Partnership to typically be many times the total
capitalization of the Partnership. The value of the
Partnership's open positions thus creates a "risk of ruin" not
typically found in other investments. The relative size of the
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positions held may cause the Partnership to incur losses greatly
in excess of VaR within a short period of time, given the effects
of the leverage employed and market volatility. The VaR tables
above, as well as the past performance of the Partnership, gives
no indication of such "risk of ruin". In addition, VaR risk
measures should be viewed in light of the methodology's
limitations, which include the following:
past changes in market risk factors will not always result
in accurate predictions of the distributions and correlations of
future market movements;
changes in portfolio value in response to market movements
may differ from those of the VaR model;
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 VaR tables above present the results of the Partnership's VaR
for the Partnership's market risk exposures at June 30, 2000 and
for the end of the four quarterly reporting periods from July 1,
<PAGE>
1999 through June 30, 2000. 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 or monitor
risk. There can be no assurance that the Partnership's actual
losses on a particular day will not exceed the VaR amounts
indicated above 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. These balances and any market
risk they may represent are immaterial. At June 30, 2000 the
Partnership's cash balance at DWR was approximately 101% of its
total Net Asset Value. 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 any
associated potential losses, 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 (A) those disclosures that are
statements of historical fact and (B) 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
expropriations, 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, 2000. 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. For the
second quarter of 2000, the Partnership's major exposures were in
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 June 30, 2000:
Foreign Currency Balances. The Partnership did not have
foreign currency balances as of June 30, 2000.
<PAGE>
Qualitative Disclosures Regarding Means of Managing Risk Exposure
The Partnership and the Trading Managers, separately, attempt to
manage the risk of the Partnership's open positions in
essentially the same manner in all market categories traded.
Demeter attempts to manage market exposure by diversifying the
Partnership's assets among different Trading Managers, each of
whose strategies focus on different trading approaches, and
monitoring the performance of the Trading Managers daily. 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.
Demeter monitors and controls the risk of the Partnership's non-
trading instrument, cash. Cash 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 Form 10-Q for the quarter ended March 31,
2000 and Form 10-K for the year ended December 31, 1999:
On October 25, 1996, the Market Surveillance Committee (the
"Committee") of the National Association of Securities Dealers
("NASD") filed a formal complaint against MS & Co. and seven
current and former traders, alleging violations of certain NASD
rules relating to manipulative and deceptive practices, locked
and crossed markets, and failure to supervise. Hearings were
held in June and July 1997. On April 13, 1998 the Committee
ruled that MS & Co. and the seven traders had engaged in
manipulative and deceptive practices and improperly locked or
crossed markets, but not that MS & Co. had failed to supervise
its traders. The Committee levied a fine of $1,000,000 on MS &
Co., a fine of $100,000 and a 90-day suspension on one of its
former traders, and fines of $25,000 and 30-day suspensions on
each of the remaining current and former traders. On January 18,
2000 the National Adjudicatory Council, which heard the appeal,
issued a ruling which upheld the Committee's April 1998 decision,
however, the National Adjudicatory Council reduced the firm's
fine to $495,000,
<PAGE>
reversed all previously imposed suspensions against the traders,
reduced the fine for each of six traders to $2,500 and dismissed
all charges against the seventh trader.
On January 11, 1999, the Securities and Exchange Commission
brought an action against 28 NASDAQ market makers, including MS &
Co., and 51 individuals, including one current and one former
trader employed by MS & Co., for certain conduct during 1994.
The core of the charges against MS & Co. concerns improper or
undisclosed coordination of price quotes with other broker-
dealers and related reporting, recordkeeping and supervisory
deficiencies in violation of Sections 15(b)(4)(E), 15(c)(1) and
(2) and 17(a) of the Securities Exchange Act and Rules 15c1-2,
15c2-7 and 17a-3 promulgated thereunder. Without admitting or
denying the charges, MS & Co. consented to the entry of a cease
and desist order and to the payment of a civil penalty of
$350,000, disgorgement of $4,170 and to submit certain of its
procedures to an independent consultant for review. In addition,
one current and one former trader employed by MS & Co. accepted
suspensions of less than two months each and were fined $25,000
and $30,000 respectively.
<PAGE>
Item 5. OTHER INFORMATION
Effective July 1, 2000, Lewis A. Raibley, III resigned as Chief
Financial Officer and a Director of Demeter and Dean Witter
Futures Currency Management Inc. Effective July 10, 2000,
Raymond E. Koch replaced Lewis A. Raibley, III as Chief Financial
Officer of Demeter.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
3.01 Limited Partnership Agreement of the Partnership, dated as
of December 11, 1986 is incorporated by reference to Exhibit
3.01 to Partnership's Annual Report on Form 10-K for the
fiscal year ended December 31, 1987 (File No. 0-15442).
10.01 Management Agreement among the Partnership, Demeter
and John W. Henry and Co. Inc. dated as of May 1, 1987 is
incorporated by reference to Exhibit 10.01 to the
Partnership's Annual Report on Form 10-K for the fiscal year
ended December 31, 1987 (File No. 0-15442).
10.02 Management Agreement among the Partnership, Demeter
and Sunrise Capital Inc. (formerly Sunrise Commodities
Management Inc.) dated as of May 1, 1987 is incorporated by
reference to Exhibit 10.02 to the Partnership's Annual
Report on Form 10-K for the fiscal year ended December 31, 1987
(File No. 0-15442).
10.03 Dean Witter Cornerstone Funds Exchange Agreement,
dated as of May 31, 1984 is incorporated by reference to
Exhibit 10.04 to the Partnership's Annual Report on Form 10-
K for the fiscal year ended December 31, 1987 (File No. 0-
15442).
10.04 Amended and Restated Customer Agreement, dated as of
December 1, 1997, between the Partnership and Dean Witter
Reynolds Inc. is incorporated by reference to Exhibit 10.05 to
the Partnership's Annual Report on Form 10-K for the fiscal
year ended December 31, 1988 (File No. 0-15442).
<PAGE>
10.05 Customer Agreement, dated as of December 1, 1997,
among the Partnership, Carr Futures, Inc., and Dean Witter
Reynolds Inc. is incorporated by reference to Exhibit 10.06 to
the Partnership's Annual Report on Form 10-K for the fiscal
year ended December 31, 1988 (File No. 0-15442).
10.06 International Foreign Exchange Master Agreement, dated
as of August 1, 1997, between the Partnership and Carr Futures,
Inc. is incorporated by reference to Exhibit 10.07 to the
Partnership's Annual Report on Form 10-K for the fiscal year
ended December 31, 1988 (File No. 0-15442).
10.07 Customer Agreement, dated as of May 1, 2000 between
Morgan Stanley & Co. Incorporated, the Partnership and Dean
Witter Reynolds Inc. is filed herewith.
(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 14, 2000 By: /s/Raymond E. Koch
Raymond E. Koch
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.
