Cornerstone Funds
November 1996
Monthly Report
This Monthly Report supplements the Cornerstone Funds' Prospectus
dated August 28, 1996.
December 31, 1996
Dean Witter
Two World Trade Center
62nd Floor
New York, NY 10048
Telephone (212) 392-8899
Cornerstone Funds
Monthly Report
November 1996
Dear Limited Partner:
The Net Asset Value per Unit for each of the three
Cornerstone Funds as of November 30, 1996, was as follows:
% Change for
Fund N.A.V. the Month
Fund II $3,216.59 5.53%
Fund III $2,688.40 5.14%
Fund IV $3,149.35 4.25%
Cornerstone Fund IV, the currency Fund, recorded profits during
the month due primarily to a continued increase in the value of
the British pound relative to the U.S. dollar and other major
currencies. As a result of this upward move, gains were recorded
from previously established long British pound positions, as its
value finished the month higher relative to the U.S. dollar and
other world currencies. These gains were partially offset by
losses recorded from short Japanese yen positions as the value of
the yen increased versus the U.S. dollar during the month.
Smaller losses were experienced from transactions involving the
Singapore dollar.
Cornerstone Fund II, a diversified fund, profited during November
primarily as a result of trading gains recorded in the financial
futures and currency markets. In the financial futures markets,
a continued trend in global interest rate futures prices resulted
in gains from long positions in European, U.S. and Japanese bond
futures. In currencies, gains were recorded from long British
pound positions as its value moved dramatically higher relative
to the U.S. dollar and other major currencies, and from short
positions in the Swiss franc as its value moved lower versus the
U.S. dollar. A portion of these gains was offset by losses
recorded from transactions involving the German mark. In metals
trading, gains were recorded from long copper futures positions
as prices moved higher during the month. Additional gains were
experienced from short gold and silver futures positions as
precious metals prices finished the month lower. Smaller gains
were recorded in the energy markets from long natural gas futures
positions as gas prices increased during the month. These gains
were partially offset by losses recorded in soft commodities from
<PAGE>
trading sugar, coffee and cotton futures, as prices in these
markets moved in a trendless pattern. Smaller losses were
recorded in the agricultural markets from previously established
short soybean, wheat and corn futures positions as prices moved
higher.
<PAGE>
Cornerstone Fund III, a diversified fund, recorded gains during
the month due primarily to trading in the financial futures and
currency markets. In financial futures trading, long positions
in European and U.S. bond futures profited from a continued
upward trend in global interest rate futures prices. Additional
gains were recorded from long global stock index futures
positions as prices in these markets also moved higher. In
currencies, gains were recorded from long British pound positions
as its value continued to move higher relative to the U.S. dollar
and other world currencies. Additional currency gains were
recorded from short positions in the Swiss franc as its value
decreased versus the U.S. dollar. A portion of these gains was
offset by losses from transactions involving the Japanese yen and
German mark. In the energy markets, an increase in gas prices
resulted in gains from the Fund's long natural gas futures
positions. In metals, gains were experienced from long copper
futures positions as prices moved higher. A portion of the
Fund's gains for the month was offset by losses recorded in the
agricultural markets due to short positions in soybean futures as
prices moved higher during the month. Smaller agricultural
losses were experienced from wheat and live cattle futures
trading.
Should you have any questions concerning this report, please feel
free to contact Demeter Management Corporation at Two World Trade
Center, 62nd floor, New York, NY 10048 or your Dean Witter
Account Executive.
I hereby affirm, that to the best of my knowledge and belief, the
information contained in this report is accurate and complete.
Past performance is not a guarantee of future results.
Sincerely,
Mark J. Hawley
President
Demeter Management Corporation
General Partner
<PAGE>
<TABLE>
Statements of Operations
For the Month Ended November 30, 1996
(Unaudited)
Cornerstone Fund II
<CAPTION>
Percent of
November 1, 1996
Beginning
Amount Net Asset Value
$ %
REVENUES
<S> <C> <C>
Trading Profit (Loss):
Realized 2,189,098 7.55
Net change in unrealized (176,208) (.61)
Total Trading Results 2,012,890 6.94
Interest Income (DWR) 100,931 .35
Total Revenues 2,113,821 7.29
EXPENSES
Incentive fees 264,967 .91
Brokerage commissions (DWR) 126,995 .44
Management fees 103,486 .36
Transaction fees and costs 15,965 .05
Total Expenses 511,413 1.76
NET INCOME 1,602,408 5.53
Statements of Changes in Net Asset Value
For the Month Ended November 30, 1996
(Unaudited)
Cornerstone Fund II
Units Amount Per Unit
$ $
Net Asset Value,
November 1, 1996 9,514,076 29,000,467 3,048.16
Net Income - 1,602,408 168.43
Redemptions (169,410) (544,921) 3,216.59
Net Asset Value,
November 30, 1996 9,344,666 30,057,954 3,216.59
Exchanges,
December 1, 1996 .979 3,149 3,216.59
Net Asset Value,
December 1, 1996 9,345.645 30,061,103 3,216.59
</TABLE>
<TABLE>
<CAPTION>
Dean Witter Cornerstone Funds
Cornerstone Fund III Cornerstone Fund IV
Percent of Percent of
November 1, 1996 November 1, 1996
Beginning Beginning
Amount Net Asset Value Amount Net Asset Value
$ % $ %
<S> <C> <C>
3,401,959 8.26 915,724 .99
(1,061,695) (2.57) 3,244,804 3.51
2,340,264 5.69 4,160,528 4.50
142,843 .35 315,289 .34
2,483,107 6.04 4,475,817 4.84
0 .00 0 .00
188,358 .47 208,057 .23
144,350 .35 321,432 .35
32,167 .08 12,269 .01
364,875 .90 541,758 .59
2,118,232 5.41 3,934,059 4.25
<CAPTION>
Cornerstone Fund III Cornerstone Fund IV
Units Amount Per Unit Units Amount Per Unit
$ $ $ $
<S> <C> <C> <C> <C> <C>
16,108.115 41,186,810 2,556.90 30,618.848 92,495,457 3,020.87
- 2,118,232 131.50 - 3,934,059 128.48
(378.898) (1,018,627) 2,688.40 (421.527) (1,327,532) 3,149.35
15,729.217 42,286,415 2,688.40 30,197.321 95,101,984 3,149.35
1.171 3,149 2,688.40 (2.000) (6,299) 3,149.35
15,730.388 42,289,564 2,688.40 30,195.321 95,095,685 3,149.35
</TABLE>
<PAGE>
Dean Witter Cornerstone Funds
Notes to Financial Statements
(Unaudited)
1. Summary of Significant Accounting policies
Organization - Dean Witter Cornerstone Fund II, Dean Witter Cornerstone
Fund III and Dean Witter Cornerstone Fund IV (individually, a
"Partnership", or collectively, the "Partnerships") are limited
partnerships organized to engage in the speculative trading of commodity
futures contracts and forward contracts on foreign currencies. The general
partner for each Partnership is Demeter Management Corporation ("Demeter").
The commodity broker is Dean Witter Reynolds Inc. ("DWR"). Both DWR and
Demeter are wholly-owned subsidiaries of Dean Witter, Discover & Co.
("DWD").
Demeter is required to maintain a 1% minimum interest in the equity of the
Partnership and income (losses) are shared by the General and Limited
Partners based upon their proportional ownership interests.
Basis of Accounting - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts in the financial
statements.
Revenue Recognition - Commodity futures contracts on foreign currencies are
open commitments until settlement date. They are valued at market and the
resulting unrealized gains and losses are reflected in income. Monthly, DWR
pays each Partnership interest income based upon 80% of its average daily
yield on 13-Week U.S. Treasury Bills issued during such month. For
purposes of such interest payments in Dean Witter Cornerstone Fund IV, Net
Assets do not include monies due the Partnership on forward contracts and
other commodity interests, but not actually received.
Net Income (Loss) per Unit - Net income (loss) per Unit is computed using
the weighted average number of units outstanding during the period.
Brokerage Commissions and Related Transaction Fees and Costs - Brokerage
Commissions for each Partnership are capped at .65% per month of adjusted
Net Assets as defined in the Limited Partnership Agreement.
Operating Expenses - Each Partnership has entered into an exchange
agreement pursuant to which certain common administrative expenses (i.e.,
legal, auditing, accounting, filing fees and other related expenses) are
shared by each of the Partnerships based upon the number of Units of each
Partnership outstanding during the month in which such expenses are
incurred. In addition, the Partnerships incur monthly management fees and
may incur incentive fees. Demeter bears all other operating expenses.
Income Taxes - No provision for income taxes has been made in the
accompanying financial statements, as partners are individually responsible
for reporting income or loss based upon their respective share of each
Partnership's revenues and expenses for income tax purposes.
Distributions - Distributions, other than on redemptions of Units, are made
on a pro-rata basis at the sole discretion of Demeter. No distributions
have been made to date.
<PAGE>
Redemptions - After an initial 180-day period, Limited Partners may redeem
some or all of their Units at 100% of the Net Asset Value per Unit as of
the last day of any month upon fifteen days advance notice by redemption
form to Demeter.
Exchanges - On the last day of the first month, which occurs more than 180
days after a person first becomes a Limited Partner in any of the
Partnerships, and the end of each month thereafter, Limited Partners may
transfer their investment among the Partnerships (subject to certain
restrictions outlined in the limited Partnership Agreement) without paying
additional charges.
Dissolution of the Partnership - Each Partnership will terminate on
September 30, 2025 regardless of its financial condition at such time, upon
a decline in Net Assets to less than $250,000, a decline in the Net Asset
Value per Unit to less than $250, or under certain other circumstances
defined in the Limited Partnership Agreement.
2. Related Party Transactions
Each Partnership pays brokerage commissions to DWR as described in Note 1.
Each Partnership's cash is on deposit with DWR in commodity trading
accounts to meet margin requirements as needed. DWR pays interest on these
funds as described in Note 1.
3. Trading Advisors
Demeter, on behalf of each Partnership, retains certain commodity trading
advisors to make all trading decisions for the Partnerships. The trading
advisors for each Partnership are as follows:
Dean Witter Cornerstone Fund II
Abacus Trading Corporation
John W. Henry & Co., Inc.
Dean Witter Cornerstone Fund III
Welton Investment Corporation
Abraham Trading Company
Sunrise Capital Management
Dean Witter Cornerstone Fund IV
John W. Henry & Co., Inc.
Sunrise Capital Management
Each trading manager owns at least ten Units in its respective Partnership.
Compensation to the trading advisors by the Partnerships consist of a
management fee and an incentive fee as follows:
Management Fee - The management fee is accrued at the rate of o of 1% per
month of the Net Assets under management by each trading manager at each
month end.
Incentive Fee - Each Partnership will pay an incentive fee equal to 15% of
the "New Appreciation" in Net Assets as of the end of each annual incentive
period ending December 31, except for Dean Witter Cornerstone Fund IV,
which will pay incentive fees at the end of each annual incentive period
ending May 31. Such incentive fee is accrued in each month in which "New
Appreciation" occurs. In those months in which "New Appreciation" is
negative, previous accruals, if any, during the incentive period will be
<PAGE>
reduced. In those instances in which a Limited Partner redeems an
investment, the incentive fee (if earned through redemption date) is to be
paid on those redemptions to the trading manager in the month of such
redemption.
4. Legal Matters
On September 6, 10, and 20, 1996, similar purported class actions were
filed in the Superior Court of the State of California, County of Los
Angeles, on behalf of all purchasers of interests in limited partnership
commodity pools sold by DWR. Named defendants include DWR, Demeter, Dean
Witter Futures and Currency Management Inc., DWD (all such parties referred
to hereafter as the "Dean Witter Parties"), the Partnership, certain other
limited partnership commodity pools of which Demeter is the general
partner, and certain trading advisors to those pools. Also, on September
18 and 20, 1996 similar purported class actions were filed in the Supreme
Court of the State of New York, New York County, against the Dean Witter
Parties and certain trading advisors on behalf of all purchasers of
interests in various limited partnership commodity pools sold by DWR.
Generally, these complaints allege, among other things, that the defendants
committed fraud, deceit, misrepresentation, breach of fiduciary duty,
fraudulent and unfair business practices, unjust enrichment, and conversion
in connection with the sale and operation of the various limited
partnership commodity pools. The complaints seek unspecified amount of
compensatory and punitive damages and other relief. It is possible that
additional similar actions may be filed and that, in the course of these
actions, other parties could be added as defendants. The Dean Witter
Parties believe that they and the Partnership have strong defenses to, and
they will vigorously contest, the actions. Although the ultimate outcome
of legal proceedings cannot be predicted with certainty, it is the opinion
of management of the Dean Witter Parties that the resolution of the actions
will not have a material adverse effect on the financial condition or the
results of operations of any of the Dean Witter Parties or the Partnership.
