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, 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
September 30, 2000
<CAPTION>
PART I. FINANCIAL INFORMATION
<S>
<C>
Item 1. Financial Statements
Statements of Financial Condition
September 30, 2000 (Unaudited) and December 31, 1999.......2
Statements of Operations for the Quarters Ended
September 30, 2000 and 1999 (Unaudited)....................3
Statements of Operations for the Nine Months Ended
September 30, 2000 and 1999 (Unaudited)....................4
Statements of Changes in Partners' Capital for the
Nine Months Ended September 30, 2000 and 1999
(Unaudited)................................................5
Statements of Cash Flows for the Nine Months Ended
September 30, 2000 and 1999 (Unaudited)....................6
Notes to Financial Statements (Unaudited)...............7-12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...............13-22
Item 3. Quantitative and Qualitative Disclosures about
Market Risk .................................... 22-32
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...................................33
Item 5. Other Information...................................33
Item 6. Exhibits and Reports on Form 8-K.................33-34
</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
,
2000 1999 $
$
(Unaudited)
ASSETS
<S> <C> <C>
Equity in futures interests trading accounts:
Cash 97,537,592 104,055,664
Net unrealized loss on open contracts (MS & Co.)
(3,195,415) -
Net unrealized gain on open contracts (Carr)
- 281,510
Total net unrealized gain (loss) on open contracts (3,195,415)
281,510
Total Trading Equity 94,342,177 104,337,174
Interest receivable (DWR) 377,170 357,520
Total Assets 94,719,347 104,694,694
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Redemptions payable 888,602 1,225,890
Accrued management fees 314,040 347,338
Accrued administrative expenses 193,220 145,813
Total Liabilities 1,395,862 1,719,041
Partners' Capital
Limited Partners (19,062.087 and
21,718.366 Units, respectively)92,287,954 101,716,331
General Partner (213.889 and
268.889 Units, respectively) 1,035,531 1,259,322
Total Partners' Capital 93,323,485 102,975,653
Total Liabilities and Partners' Capital 94,719,347 104
,694,694
NET ASSET VALUE PER UNIT 4,841.44 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 September 30,
2000 1999
$ $
REVENUES
<S> <C> <C>
Trading profit (loss):
Realized
4,364,820 (4,316,898) Net
change in unrealized (1,751,965) 3,394,305
Total Trading Results 2,612,855 (922,593)
Interest Income (DWR) 1,134,363 991,296
Total Revenues 3,747,218 68,703
EXPENSES
Management fees 943,064 1,048,389
Brokerage commissions (DWR) 689,237 957,701
Administrative expenses 33,246 41,411
Transaction fees and costs
- 35,747
Total Expenses 1,665,547 2,083,248
NET INCOME (LOSS) 2,081,671 (2,014,545)
NET INCOME (LOSS) ALLOCATION
Limited Partners 2,058,934(1,991,865)
General Partner 22,737 (22,680)
NET INCOME (LOSS) PER UNIT
Limited Partners 106.30 (84.34)
General Partner
106.30 (84.34)
<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,
2000 1999
$ $
REVENUES
<S> <C> <C>
Trading profit (loss):
Realized 8,699,266
(5,839,510) Net
change in unrealized (3,476,925) 6,326,625
Total Trading Results 5,222,341 487,115
Interest Income (DWR) 3,326,154 3,006,728
Total Revenues 8,548,495 3,493,843
EXPENSES
Management fees 2,954,857 3,321,416
Brokerage commissions (DWR) 2,160,639 2,443,050
Administrative expenses 107,952 115,319
Transaction fees and costs 50,554 98,783
Incentive fees 603
(210,051)
Total Expenses 5,274,605 5,768,517
NET INCOME (LOSS) 3,273,890 (2,274,674)
NET INCOME (LOSS) ALLOCATION
Limited Partners 3,237,248 (2,249,095)
General Partner 36,642 (25,579)
NET INCOME (LOSS) PER UNIT
Limited Partners 158.02 (95.12)
General Partner 158.02 (95.12)
<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, 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 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$105,62
8,241
Partners' Capital,
December 31, 1999 21,987.255$101,716,331$1,259,322$102,975,
653
Offering of Units6.161 29,469
- 29,469
Net Income
- 3,237,248 36,6423,273,890
Redemptions (2,717.440) (12,695,094)
(260,433) (12,955,527)
Partners' Capital,
September 30, 2000 19,275.976 $92,287,954 $1,035,531$93,323,
485
<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,
2000 1999
$ $
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) 3,273,890(2,274,674)
Noncash item included in net income (loss):
Net change in unrealized 3,476,925(6,326,625)
(Increase) decrease in operating assets:
Interest receivable (DWR) (19,650) 22,954
Increase (decrease) in operating liabilities:
Accrued management fees (33,298) (35,822)
Accrued administrative expenses
47,407 115,319
Incentive fees payable
- (1,154,685)
Net cash provided by (used for) operating activities 6,745,274
(9,653,533)
CASH FLOWS FROM FINANCING ACTIVITIES
Offering of Units
29,469 40,052
Increase (decrease) in redemptions payable(337,288) 20,878
Redemptions of Units (12,955,527) (7,378,236)
Net cash used for financing activities (13,263,346)
(7,317,306)
Net decrease in cash (6,518,072)(16,970,839)
Balance at beginning of period 104,055,664 119,800,551
Balance at end of period 97,537,592 102,829,712
<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 unaudited financial statements contained herein 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. Demeter, DWR, MS & Co. and MSIL
are wholly-
<PAGE>
DEAN WITTER CORNERSTONE FUND IV
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
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,
2000, as amended by SFAS No. 137. The Partnership adopted the
provisions of SFAS No. 133 beginning with the fiscal year ended
December 31, 1998. SFAS No. 133 superceded SFAS Nos. 119 and
105, which required the disclosure of average aggregate fair
values and contract/notional values, respectively, of derivative
financial instruments for an entity that carries its assets at
fair value. SFAS No. 133 was further amended by SFAS No. 138,
which clarifies issues surrounding interest rate risk, foreign
currency denominations, normal purchases and sales and net
hedging. The application of SFAS No. 133, as amended by SFAS No.
137, did not have a significant effect on the Partnership's
financial statements, nor will the application of the provisions
of SFAS No. 138 have a significant effect on the Partnership's
financial statements.
SFAS No. 133 defines a derivative as a financial instrument or
other contract that has all three of the following
characteristics:
<PAGE>
DEAN WITTER CORNERSTONE FUND IV
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
1) One or more underlying notional amounts or payment
provisions;
2) Requires no initial net investment or a smaller initial net
investment than would be required relative to changes in market
factors;
3) Terms require or permit net settlement.
Generally derivatives include futures, forwards, swaps or option
contracts, or other financial instruments with similar
characteristics such as caps, floors and collars.
The net unrealized gains (losses) on open contracts are reported
as a component of "Equity in futures interests trading accounts"
on the statements of financial condition and totaled $(3,195,415)
and $281,510 at September 30, 2000 and December 31, 1999,
respectively.
The $3,195,415 net unrealized loss on open contracts at September
30, 2000, and the $281,510 net unrealized gain on open contracts
at December 31, 1999 related to off-exchange-traded forward
currency contracts.
<PAGE>
DEAN WITTER CORNERSTONE FUND IV
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
Off-exchange-traded forward currency contracts held by the
Partnership at September 30, 2000 and December 31, 1999 mature
through December 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, 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
<PAGE>
DEAN WITTER CORNERSTONE FUND IV
NOTES TO FINANCIAL STATEMENTS - (CONCLUDED)
$97,537,592 and $104,055,664 at September 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 conditions could
<PAGE>
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
quarters and nine months ended September 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 Nine Months Ended September 30, 2000
For the quarter ended September 30, 2000, the Partnership
recorded total trading revenues including interest income of
$3,747,218 and posted an increase in Net Asset Value per Unit.
The most significant gains of approximately 1.6% were recorded
<PAGE>
primarily during July from short British pound positions as the
value of the pound weakened relative to the U.S. dollar after
data showed Britain's manufacturing sector grew at its slowest
rate since June 1999. Additional gains of approximately 1.5%
resulted primarily during July from short positions in the Thai
baht as its value weakened versus the U.S. dollar. Short Thai
baht positions were also profitable during September as its value
fell sharply versus the U.S. dollar on investor concerns over
political developments in Indonesia. Smaller gains of
approximately 1.3% were experienced from short New Zealand dollar
positions as its value dropped during August and September
alongside the euro and after worse-than-expected economic figures
were released. A portion of overall Partnership gains was offset
by losses of approximately 1.6% recorded primarily during August
from short Japanese yen positions as the value of the yen
strengthened versus the U.S. dollar following comments by a
senior Japanese official stating that the Bank of Japan could
raise interest rates further by December. Long Japanese yen
positions incurred additional losses during September as the
yen's value weakened against the U.S. dollar on warnings that the
Japanese economy may shrink in the fourth quarter because of
lethargic consumer spending. Losses of approximately 1.5% were
recorded from long Australian dollar positions as its value
<PAGE>
declined versus the U.S. dollar during August on weakness in the
euro and the fading Australian interest rate expectations.
Smaller losses of approximately 0.7% were recorded primarily
during July from short Mexican peso positions as the value of the
peso strengthened versus relative to the U.S. dollar as investors
were expecting the release of low June inflation data. Post-
election confidence in Mexico was also contributing to the peso's
strength. Total expenses for the three months ended September
30, 2000 were $1,665,547, resulting in net income of $2,081,671.
The value of a Unit increased from $4,735.14 at June 30, 2000 to
$4,841.44 at September 30, 2000.
For the nine months ended September 30, 2000, the Partnership
recorded total trading revenues including interest income of
$8,548,495 and posted an increase in Net Asset Value per Unit.
The most significant gains of approximately 8.6% were recorded
primarily during January from short euro positions as the value
of the euro weakened versus the U.S. dollar on skepticism about
Europe's economic outlook. The euro finished the first quarter
lower versus the U.S. dollar on expectations that the European
Central Bank would hold interest rates steady, resulting in
additional gains for short positions. The euro also contributed
net profits to the Partnership for the second quarter. These
gains were, however, reduced somewhat in September due to market
<PAGE>
intervention. Specifically, on September 22 the world's largest
central banks carried out a coordinated market intervention to
support the falling euro. Not only did this action sharply
reverse the previously established downtrend in the euro against
the U.S. dollar, it also caused similarly sharp upward reversals
in the value of many other foreign currencies, such as the Swiss
franc and British pound, against the greenback. In spite of
these reversals, the magnitude of their movements was not enough
to offset previously recorded gains, thus allowing the currency
complex to provide net gains for the second quarter. Additional
gains of approximately 2.9% were recorded primarily during April
and May from short South African rand positions as its value
receded versus the U.S. dollar amid speculation that Zimbabwe was
on the verge of devaluing its currency. Short Swiss franc
positions resulted in gains of approximately 2.2% primarily
during the first quarter as its value shared many of the same
woes as the euro. A portion of overall Partnership gains was
offset by losses of approximately 5.4% recorded during January
from long Japanese yen positions as the value of the yen 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
<PAGE>
also recorded from transactions involving the yen during the
second and third quarters. Losses of approximately 4.9% were
recorded from long British pound positions as the pound's value
declined on the U.S. dollar's strength versus other major
currencies during February and April and on interest rate
increases by the European Central Bank and U.S. Federal Reserve.
Losses of approximately 4.9% were recorded from long Australian
dollar positions during January 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.
During August, long Australian dollar positions resulted in
losses as its value declined versus the U.S. dollar on weakness
in the euro and the fading Australian interest rate expectations.
Total expenses for the nine months ended September 30, 2000 were
$5,274,605, resulting in net income of $3,273,890. The value of
a Unit increased from $4,683.42 at December 31, 1999 to $4,841.44
at September 30, 2000.
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
<PAGE>
$68,703 and, after expenses, posted a decrease in Net Asset Value
per Unit. The most significant net losses of approximately 4.2%
were recorded primarily from short positions in the euro and the
Swiss franc as the value of these European currencies reversed
their previous downward trend 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 of approximately
1.4% were incurred primarily 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 of approximately
1.2% were experienced primarily during August from long positions
in the Singapore dollar. These losses were partially offset by
gains of approximately 5.9% recorded primarily 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 of approximately 1.2% were recorded primarily from short
positions in the Thai baht as its value fell versus the U.S.
dollar during September due to lower-than-expected Gross Domestic
<PAGE>
Product 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
$3,493,843 and, after expenses, posted a decrease in Net Asset
Value per Unit. The most significant net losses of approximately
4.6% were incurred 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.
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 of approximately 1.9% were experienced primarily from
short Norwegian krone positions during January and March as its
value strengthened versus the U.S. dollar due to a rise in oil
<PAGE>
prices and the possibility that this Scandinavian currency could
be linked to the euro sometime in the future. Smaller losses of
approximately 1.4% were recorded primarily during early January
from short South African rand positions. A portion of these
losses was offset by gains of approximately 5.4% recorded
primarily 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 of
approximately 3.0% were recorded primarily from long positions in
the Japanese yen 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.
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
<PAGE>
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,
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
<PAGE>
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
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.
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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
negative change in portfolio value that, based on observed market
risk factors, would have been exceeded once in 100 trading days.
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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 table indicates the VaR associated with the
Partnership's open positions as a percentage of total Net Assets
by primary market risk category at September 30, 2000 and 1999.
At September 30, 2000 and 1999, the Partnership's total
capitalization was approximately $93 million and $106 million,
respectively.
Primary Market September 30, 2000 September 30, 1999
Risk Category Value at Risk Value at Risk
Currency (3.25)% (2.52)%
The table above represents the VaR of the Partnership's open
positions at September 30, 2000 and 1999 only and is not
necessarily representative of either the historic or future risk
of an investment in the Partnership. Because the Partnership's
<PAGE>
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 October
1, 1999 through September 30, 2000.
Primary Market Risk Category High Low Average
Currency (3.48)% (1.19)% (2.49)%
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
<PAGE>
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, give
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 September 30, 2000
and for the end of the four quarterly reporting periods from
<PAGE>
October 1, 1999 through September 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 September 30, 2000
the Partnership's cash balance at DWR was approximately 105% 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 September 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. At September
30, 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 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 September 30, 2000:
Foreign Currency Balances. The Partnership did not have foreign
currency balances as of September 30, 2000.
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
Please refer to Legal Proceedings previously disclosed in the
Partnership's Form 10-Q(s) for the quarters ended March 31, 2000
and June 30, 2000 and Form 10-K for the year ended December 31,
1999.
Item 5. OTHER INFORMATION
Commencing December 1, 2000, the management fee paid by the
Partnership to each Trading Manager will be reduced from a 4% to
a 3.5% annual rate.
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).
<PAGE>
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).
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 incorporated by reference to exhibit
10.07 of the Partnership's Form 10-Q (File No. 0-15442) for the
quarter ended June 30, 2000.
(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 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.
