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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual report pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934 [No Fee Required]
For the fiscal year ended December 31, 1997 or
[ ] Transition report pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934 [No Fee Required]
For the transition period ___________to _________________.
Commission File Number 0-15442
DEAN WITTER CORNERSTONE FUND IV
(Exact name of registrant as specified in its Limited Partnership
Agreement)
NEW YORK 13-
3393597 (State or other jurisdiction of
(I.R.S. Employer
incorporation of organization)
Identification No.)
c/o Demeter Management Corporation
Two World Trade Center, New York, N.Y. - 62nd Flr.
10048 (Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code
(212) 392-5454
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of each exchange
on which
registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
(Title of Class)
(Title of Class)
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
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K (section 229.405 of this
chapter) is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of
this Form 10-K or any amendment of this Form 10-K.[X ]
State the aggregate market value of the Units of Limited
Partnership Interest held by non-affiliates of the registrant.
The aggregate market value shall be computed by reference to the
price at which units were sold, or the average bid and asked
prices of such units, as of a specified date within 60 days prior
to the date of filing: $113,751,525.97 at January 31, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
(See Page 1)
DEAN WITTER CORNERSTONE FUND IV
INDEX TO ANNUAL REPORT ON FORM 10-K
DECEMBER 31, 1997
Page No.
DOCUMENTS INCORPORATED BY REFERENCE. . . . . . . . . . . . .
. . . . 1
Part I .
Item 1. Business. . . . . . . . . . . . . . . . . . . . .
. . 2-5
Item 2. Properties. . . . . . . . . . . . . . . . . . . .
. . 5
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . .
. 5-7
Item 4. Submission of Matters to a Vote of Security
Holders . 7
Part II.
Item 5. Market for the Registrant's Partnership Units and
Related Security Holder Matters . . . . . . . . .
. . 8-10
Item 6. Selected Financial Data . . . . . . . . . . . . .
. . 11
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . .
12-19
Item 8. Financial Statements and Supplementary Data. . . .
. . 19
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure. . . . . . . .
. . 20
Part III.
Item10. Directors, Executive Officers, Promoters and
Control Persons of the Registrant . . . . . . . .
. 21-26
Item11. Executive Compensation . . . . . . . . . . . . . .
. . 26
Item12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . .
. . 26
Item13. Certain Relationships and Related Transactions . .
26-27
Part IV.
Item14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K . . . . . . . . . . . . . . .
. . 28
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by
reference as follows:
Documents Incorporated Part
of Form 10-K
Partnership's Registration Statement
I
on Form S-1, File No. 2-88587, as
amended (including the Partnership's
latest Prospectus dated August 28, 1996
together with the Supplement to the
Prospectus dated May 14,1997.)
Partnership's Annual Report on Form IV
10-K for the fiscal year ended
September 30, 1984, File No. 2-88587
December 31, 1997 Annual Report
II & IV
for the Dean Witter Cornerstone Funds
II, III, and IV
PART I
Item 1. BUSINESS
(a) General Development of Business. Dean Witter
Cornerstone Fund IV (the "Partnership") is a New York
limited partnership formed to engage in the speculative
trading of commodity futures contracts and forward contracts
on foreign currencies. The Partnership's General Partner is
Demeter Management Corporation ("Demeter"). Demeter is a
wholly-owned subsidiary of Morgan Stanley, Dean Witter,
Discover & Co. ("MSDWD").
Through July 31, 1997, the sole commodity broker of the
Partnership's transactions was Dean Witter Reynolds Inc.
("DWR"), also a subsidiary of MSDWD. On July 31, 1997, DWR
closed the sale of its institutional futures business and
foreign currency trading operations to Carr Futures, Inc.
("Carr"), a subsidiary of Credit Agricole Indosuez.
Following the sale, Carr became the clearing commodity
broker for the Partnership's futures and futures options
trades and the counterparty on the Partnership's foreign
currency trades. DWR serves as the non-clearing commodity
broker for the Partnerships with Carr providing all clearing
services for the Partnerships' transactions.
The Partnership's net asset value per unit, as of
December 31, 1997, was $4,435.47, representing an increase
of 38.40 percent from the net asset value of $3,204.66 at
December 31, 1996. For a more detailed description of the
Partnership's business, see subparagraph (c).
(b) Financial Information about Industry Segments. The
Partnership's business comprises only one segment for
financial reporting purposes, speculative trading of
commodity futures contracts and other commodity interests.
The relevant financial information is presented in Items 6
and 8.
(c) Narrative Description of Business. The Partnership
is in the business of speculative trading in futures
interests, pursuant to trading instructions provided by John
W. Henry & Company, Inc. ("JWH") and Sunrise Capital
Management, Inc., its independent trading advisors (the
"Trading Advisor(s)"). For a detailed description of the
different facets of the Partnership's business, see those
portions of the Partnership's Prospectus, dated August 28,
1996 (the "Prospectus"),together with the Supplement to the
Prospectus dated May 14, 1997 (the "Supplement"), filed as
part of a post effective amendment to the Registration
Statement on Form S-1 (see "Documents Incorporated by
Reference" Page 1), set forth on the next page.
Facets of Business
1. Summary 1. "Summary of the
Prospectus" (Pages
1-9 of the
Prospectus and Pages S-12
and S-22 of the
Supplement).
2. Commodity Markets 2. "The Commodities
Markets" (Pages
80-84 of the
Prospectus).
3. Partnership's Commodity 3. Investment
Program, Trading
Arrangements and Use of Proceeds
and
Policies Trading Policies -
"Trading Policies"
(Pages 45-47 of
the
Prospectus) and
"The Trading
Managers" (Pages
51- 74 of the
Prospectus
and Pages S-12 - S-
21
of the
Supplement).
4. Management of the Partner- 4."The
Cornerstone
ship Funds" (Pages 19-24 of
the Prospectus and
Pages S-1 - S-3 of
the Supplement).
"The General
Partner" (Pages 77-
79 of the
Prospectus and
Pages
S-21 - S-22 of
the
Supplement) and
"The Commodity
Broker" (Pages 79-
80 of the
Prospectus) and "The Limited
Partnership
Agreements" (Pages 86-
90 of the
Prospectus).
5. Taxation of the Partnership's 5. "Material
Federal Limited
Partners Income Tax
Considera-
tions" and "State
and
Local Income Tax
Aspects" (Pages 92- 99 of
the
Prospectus).
(d) Financial Information About Foreign and Domestic
Operations and Export Sales.
The Partnership has not engaged in any operations in
foreign countries; however, the Partnership (through the
commodity brokers) enters into forward contract transactions
where foreign banks are the contracting party and trades in
futures interests on foreign exchanges.
Item 2. PROPERTIES
The executive and administrative offices are located
within the offices of DWR. The DWR offices utilized by the
Partnership are located at Two World Trade Center, 62nd
Floor, New York, NY 10048.
Item 3. LEGAL PROCEEDINGS
On September 6, 10, and 20, 1996, and on March 13,
1997, 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 & Currency
Management Inc. ("DWFCM"), MSDWD (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 (including JWH) to those pools. On
June 16, 1997, the plaintiffs in the above actions filed a
consolidated amended complaint, alleging, among other
things, that the defendants committed fraud, deceit,
negligent misrepresentation, various violations of the
California Corporations Code, intentional and negligent
breach of fiduciary duty, fraudulent and unfair business
practices, unjust enrichment, and conversion in the sale and
operation of the various limited partnerships commodity
pools. Similar purported class actions were also filed on
September 18 and 20, 1996, in the Supreme Court of the State
of New York, New York County, and on November 14, 1996 in
the Superior Court of the State of Delaware, New Castle
County, against the Dean Witter Parties and certain trading
advisors (including JWH) on behalf of all purchasers of
interests in various limited partnership commodity pools,
including the Partnership, sold by DWR. A consolidated and
amended complaint in the action pending in the Supreme Court
of the State of New York was filed on August 13, 1997,
alleging that the defendants committed fraud, breach of
fiduciary duty, and negligent misrepresentation in the sale
and operation of the various limited partnership commodity
pools. On December 16, 1997, upon motion of the plaintiffs,
the action pending in the Superior Court of the State of
Delaware was voluntarily dismissed without prejudice. The
complaints seek unspecified amounts 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.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
Item 5. MARKET FOR THE REGISTRANT'S PARTNERSHIP UNITS AND
RELATED
SECURITY HOLDER MATTERS
There is no established public trading market for the
Units of Limited Partnership Interest in the Partnership.
The number of holders of Units at December 31, 1997 was
approximately 8,515. No distributions have been made by the
Partnership since it commenced operations on May 1, 1987.
Demeter has sole discretion to decide what distributions, if
any, shall be made to investors in the Partnership. No
determination has yet been made as to future distributions.
Limited Partnership Units were registered for sale to
the public in certain Canadian provinces.
Dean Witter Cornerstone Fund I ("Cornerstone I"); Dean
Witter Cornerstone Fund II ("Cornerstone II"), and Dean
Witter Cornerstone III ("Cornerstone III") collectively
registered 250,000 Units pursuant to a Registration
Statement on Form S-1, which became effective on May 31,
1984 (the "Registration Statement") (SEC File Numbers 2-
88587; 88587-01; 88587-02). As contemplated in the
Registration Statement, an additional fund, Dean Witter
Cornerstone Fund IV ("Cornerstone IV" and, collectively with
Cornerstone I, Cornerstone II and Cornerstone III, the
("Partnerships") was registered pursuant to Post-Effective
Amendment
No. 5 to the Registration Statement, which became effective
on
February 6, 1987. The managing underwriter for the
Partnerships is DWR.
The offering for Cornerstone I originally commenced on
May 31, 1984, and 18,679.643 Units of Cornerstone I were
sold prior to its dissolution on December 31, 1991. The
offering for Cornerstone II and Cornerstone III also
originally commenced on May 31, 1984 and currently
continues, with 41,701.582 and 74,400.002 Units of
Cornerstone II and Cornerstone III, respectively, sold
through December 31, 1997. The offering for Cornerstone IV
originally commenced on February 6, 1987 and currently
continues, with 100,579.559 Units sold through December 31,
1997. Through December 31, 1997, an aggregate of
235,360.786 Units of the Partnership have been sold, leaving
14,639.214 Units remaining available for sale as of January
1, 1998.
The aggregate offering amount registered was
$262,496,000, based upon the initial offering price of
$1,050 per Unit ($1,000 initial Net Asset Value per Unit,
plus a $50 per Unit sales charge on all but 80 Units sold to
the Partnerships' initial trading managers) during the
initial offering periods of May 31, 1984 through November
30, 1984 with respect to Cornerstone I, Cornerstone II and
Cornerstone III, and February 6, 1987 through May 6, 1987
with respect to Cornerstone IV.
After the respective initial offering periods, Units in
the Partnerships were sold at 107.625% of net asset value
per Unit, including
a charge for offering expenses of 2.5% of net asset value
per Unit, and a sales charge of 5% of the sum of the net
asset value per Unit and the charge for offering expenses,
during the "Continuing Offering".
The aggregate price of Units sold through December 31,
1997 with respect to Cornerstone IV is $167,785,223.
.
Effective September 30, 1994, Cornerstone II,
Cornerstone III and Cornerstone IV were closed to new
investors; Units have been sold since then solely in
"Exchanges" with existing investors, at 100% of net asset
value per Unit. DWR has been paying all expenses in
connection with the offering of Units since September 30,
1994, without reimbursement.
Item 6. SELECTED FINANCIAL DATA (in dollars)
For the Years Ended
December 31,
1997 1996 1995
1994 1993
Total Revenues
(including interest) 43,376,481 19,489,622 31,756,524
(8,045,411) (679,994)
Net Income (Loss) 34,531,802 11,532,721 24,196,319
(18,909,651) (14,283,394)
Net Income (Loss)
Per Unit (Limited
& General Partners) 1,230.81 367.93 529.66
(383.89) (270.10)
Total Assets 121,378,550 97,292,310 105,362,851
112,210,624 127,032,391
Total Limited Partners'
Capital 115,575,973 93,448,822 101,854,654
108,418,306 123,481,403
Net Asset Value Per
Unit of Limited
Partnership Interest 4,435.47 3,204.66
2,836.73 2,307.07 2,690.96
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity. The Partnership's assets are deposited in
separate commodity trading accounts with DWR and Carr, the
commodity brokers, and are used by the Partnership as margin
to engage in trading commodity futures contracts and forward
contracts on foreign currencies. DWR and Carr hold such
assets in either designated depositories or in securities
approved by the Commodity Futures Trading Commission
("CFTC") for investment of customer funds. The
Partnership's assets held by DWR and Carr may be used as
margin solely for the Partnership's trading. Since the
Partnership's sole purpose is to trade in commodity futures
contracts and other commodity interests, it is expected that
the Partnership will continue to own such liquid assets for
margin purposes.
The Partnership's investment in commodity futures
contracts and other commodity interests may be illiquid. If
the price for a futures contract for a particular commodity
has increased or decreased by an amount equal to the "daily
limit", positions in the commodity can neither be taken nor
liquidated unless traders are willing to effect trades at or
within the limit. Commodity futures prices have
occasionally moved the daily limit for several consecutive
days with little or no trading. Such market conditions
could prevent the Partnership from promptly liquidating its
commodity futures positions.
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.
Market Risk. The Partnership trades futures, options
and forward contracts in interest rates, stock indices,
commodities and currencies. In entering into these
contracts there exists a risk to the Partnership (market
risk) that such contracts may be significantly influenced by
market conditions, such as interest rate volatility,
resulting in such contracts being less valuable. If the
markets should move against all of the futures interest
positions held by the Partnership at the same time, and if
the Trading Advisors were unable to offset futures interest
positions of the Partnership, the Partnership could lose all
of its assets and the Limited Partners would realize a 100%
loss. The Partnership has established Trading Policies,
which include standards for liquidity and leverage which
help control market risk. Both the Trading Advisors and
Demeter monitor the Partnership's trading activities on a
daily basis to ensure compliance with the Trading Policies.
Demeter may
(under terms of the Management Agreements) override the
trading instructions of a Trading Advisor to the extent
necessary to comply with the Partnership's Trading Policies.
Credit Risk. In addition to market risk, in entering
into futures, options and forward contracts there is a
credit risk to the Partnership that the counterparty on a
contract will not be able to meet its obligations to the
Partnership. The ultimate counterparty of the Partnership
for futures contracts traded in the United States and most
foreign exchanges on which the Partnership trades is the
clearinghouse associated with such exchange. In general, a
clearinghouse is backed by the membership of the exchange
and will act in the event of non-performance by one of its
members or one of its member's customers, and, as such,
should significantly reduce this credit risk. For example,
a clearinghouse may cover a default by (i) drawing upon a
defaulting member's mandatory contributions and/or non-
defaulting members' contributions to a clearinghouse
guarantee fund, established lines or letters of credit with
banks, and/or the clearinghouse's surplus capital and other
available assets of the exchange and clearinghouse, or (ii)
assessing its members. In cases where the Partnership
trades on a foreign exchange where the clearinghouse is not
funded or guaranteed by the membership or where the exchange
is a "principals' market" in which performance is the
responsibility of the exchange member and not the
exchange or a clearinghouse, or when the Partnership enters
into off-exchange contracts with a counterparty, the sole
recourse of the Partnership will be the clearinghouse, the
exchange member or the off-exchange contract counterparty,
as the case may be.
There can be no assurance that a clearinghouse,
exchange or other exchange member will meet its obligations
to the Partnership, and the Partnerships is not indemnified
against a default by such parties from Demeter or MSDWD or
DWR. Further, the law is unclear as to whether a commodity
broker has any obligation to protect its customers from loss
in the event of an exchange, clearinghouse or other exchange
member default on trades effected for the broker's
customers; any such obligation on the part of the broker
appears even less clear where the default occurs in a non-US
jurisdiction.
Demeter deals with these credit risks of the
partnerships in several ways. First, it monitors each
partnership's credit exposure to each exchange on a daily
basis, calculating not only the amount of margin required
for it but also the amount of its unrealized gains at each
exchange, if any. The Commodity Brokers inform each
partnership, as with all their customers, of its net margin
requirements for all its existing open positions, but do not
break that net figure down, exchange by exchange. Demeter,
however, has installed a system which permits it to monitor
each partnership's potential margin liability, exchange by
exchange. Demeter is then able to monitor the individual
partnership's potential net credit exposure to each exchange
by adding the unrealized trading gains on that exchange, if
any, to the partnership's margin liability thereon.
Second, as discussed earlier, each partnership's
trading policies limit the amount of partnership Net Assets
that can be committed at any given time to futures contracts
and require, in addition, a certain minimum amount of
diversification in the partnership's trading, usually over
several different products. One of the aims of such trading
policies has been to reduce the credit exposure of any
partnership to any single exchange and, historically, such
partnership exposure has typically amounted to only a small
percentage of its total Net Assets. On those relatively few
occasions where a partnership's credit exposure has climbed
above that level, Demeter has dealt with the situations on a
case by case basis, carefully weighing whether the increased
level of credit exposure remained appropriate. Demeter
expects to continue to deal with such situations in a
similar manner in the future.
Third, Demeter has secured, with respect to Carr acting
as the clearing broker for the partnerships, a guarantee by
Credit Agricole Indosuez, Carr's parent, of the payment of
the "net liquidating value" of the transactions (futures,
options and forward contracts) in each
partnership's account. As of December 31, 1997, Credit
Agricole Indosuez' total capital was over $3.25 billion and
it is currently rated AA2 by Moody's.
With respect to forward contract trading, the
partnerships trade with only those counterparties which
Demeter, together with DWR, have determined to be
creditworthy. At the date of this filing, the partnerships
deal only with Carr as their counterparty on forward
contracts. The guarantee by Carr's parent, discussed above,
covers these forward contracts.
See "Financial Instruments" under Notes to Financial
Statements in the Partnership's 1997 Annual Report to
Partners, incorporated by reference in this Form 10-K.
Capital Resources. The Partnership does not have, nor
does it expect to have, any capital assets. Redemptions and
exchanges of additional Units of Limited Partnership
Interest in the future will affect the amount of funds
available for investments in subsequent periods. As
redemptions are at the discretion of Limited Partners, it is
not possible to estimate the amount and therefore the impact
of future redemptions.
Results of Operations. As of December 31, 1997, the
Partnership's total capital was $118,409,744, an increase of
$22,913,500 from the Partnership's total capital of
$95,496,244, at December 31, 1996. For
the year ended December 31, 1997, the Partnership generated
net income of $34,531,802, total subscriptions aggregated
$223,794 and total re-demptions aggregated $11,842,096.
For the year ended December 31, 1997, the Partnership's
total trading revenues, including interest income, were
$43,376,481. The Partnership's total expenses for the year
were $8,844,679, resulting in net income of $34,531,802.
The value of an individual unit in the Partnership increased
from $3,204.66 at December 31, 1996 to $4,435.47 at December
31, 1997.
As of December 31, 1996, the Partnership's total
capital was $95,496,244, a decrease of $8,170,767 from the
Partnership's total capital of $103,667,011 at December 31,
1995. For the year ended December 31, 1996, the Partnership
generated net income of $11,532,721, total subscriptions
aggregated $108,665 and total redemptions aggregated
$19,812,153.
For the year ended December 31, 1996, the Partnership's
total trading revenues, including interest income, were
$19,489,622. The Partnership's total expenses for the year
were $7,956,901, resulting in net income of $11,532,721.
The value of an individual unit in the Partnership increased
from $2,836.73 at December 31, 1995 to $3,204.66 at December
31, 1996.
As of December 31, 1995, the Partnership's total
capital was $103,667,011, a decrease of $6,225,255 from the
Partnership's total capital of $109,892,266 at December 31,
1994. For the year ended December 31, 1995, the Partnership
generated net income of $24,196,319, total subscriptions
aggregated $212,691 and total redemptions aggregated
$30,634,265.
For the year ended December 31, 1995, the Partnership's
total trading revenues including interest income were
$31,756,524. The Partnership's total expenses for the year
were $7,560,205, resulting in net income of $24,196,319.
The value of an individual unit in the Partnership increased
from $2,307.07 at December 31, 1994 to $2,836.73 at December
31, 1995.
The Partnership's overall performance record
represents varied results of trading in different commodity
markets. For a further description of trading results refer
to the letter to the Limited Partners in the accompanying
1997 Annual Report to Partners, incorporated by reference in
this Form 10-K. The Partnership's gains and losses are
allocated among its Limited Partners for income tax
purposes.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item appears in the
attached 1997
Annual Report to Partners and is incorporated by reference
in this Annual Report on Form 10-K.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS OF THE REGISTRANT
General Partner
Demeter, a Delaware corporation, was formed on August
18, 1977 to act as a commodity pool operator and is
registered with the CFTC as a commodity pool operator and
currently is a member of the National Futures Association
("NFA") in such capacity. Demeter is wholly-owned by MSDWD
and is an affiliate of DWR. MSDWD, DWR and Demeter may each
be deemed to be "promoters" and/or a "parent" of the
Partnership within the meaning of the federal securities
laws.
On July 21, 1997, MSDWD, the sole shareholder of
Demeter, appointed a new Board of Directors consisting of
Richard M. DeMartini, Mark J. Hawley, Lawrence Volpe, Joseph
G. Siniscalchi, Edward C. Oelsner III, and Robert E. Murray.
Dean Witter Reynolds, Inc.
DWR is a financial services company which provides to
its individual, corporate and institutional clients services
as a broker in securities and commodity interest contracts,
a dealer in corporate, municipal and government securities,
an investment adviser and an agent in the sale of life
insurance and various other products and services. DWR is a
member firm of the New York Stock Exchange, the American
Stock
Exchange, the Chicago Board Options Exchange, and other
major securities exchanges.
DWR is registered with the CFTC as a futures commission
merchant and is a member of the NFA in such capacity. As of
December 31, 1997, DWR is servicing its clients through a
network of approximately 401 branch offices with
approximately 10,155 account executives servicing individual
and institutional client accounts.
Directors and Officers of the General Partner
The directors and officers of Demeter as of December
31, 1997 are as follows:
Richard M. DeMartini, age 45, is the Chairman of the
Board and a Director of Demeter. Mr. DeMartini is also
Chairman of the Board and a Director of Dean Witter Futures
& Currency Management Inc. ("DWFCM"). Mr. DeMartini is
president and chief operating officer of MSDWD's Individual
Asset Management Group. He was named to this position in
May of 1997 and is responsible for Dean Witter InterCapital,
Van Kampen American Capital, insurance services, managed
futures, unit trust, investment consulting services, Dean
Witter Realty, and NOVUS Financial Corporation. Mr.
DeMartini is a member of the MSDWD management committee, a
director of the InterCapital funds, a trustee of the TCW/DW
funds and a trustee of the Van Kampen American Capital and
Morgan Stanley retail funds. Mr. DeMartini has been with
Dean Witter his
entire career, joining the firm in 1975 as an account
executive. He served as a branch manager, regional director
and national sales director, before being appointed
president and chief operating officer of the Dean Witter
Consumer Markets. In 1988 he was named president and chief
operating officer of Sears' Consumer Banking Division and in
January 1989 he became president and chief operating officer
of Dean Witter Capital. Mr. DeMartini has served as
chairman of the board of the Nasdaq Stock Market, Inc. and
vice chairman of the board of the National Association of
Securities Dealers, Inc. A native of San Francisco, Mr.
DeMartini holds a bachelor's degree in marketing from San
Diego State University.
Mark J. Hawley, age 54, is President and a Director of
Demeter. Mr. Hawley is also President and a Director of
DWFCM. Mr. Hawley joined DWR in February 1989 as Senior
Vice President and is currently the Executive Vice President
and Director of DWR's Managed Futures Department. From 1978
to 1989, Mr. Hawley was a member of the senior management
team at Heinold Asset Management, Inc., a CPO, and was
responsible for a variety of projects in public futures
funds. From 1972 to 1978, Mr. Hawley was a Vice President
in charge of institutional block trading for the Mid-West at
Kuhn Loeb & Company.
Lawrence Volpe, age 50, is a Director of Demeter and
DWFCM. Mr. Volpe joined DWR as a Senior Vice President and
Controller in September
1983, and currently holds those positions. From July 1979
to September 1983, he was associated with E.F. Hutton &
Company Inc. and prior to his departure, held the positions
of First Vice President and Assistant Controller. From 1970
to July 1979, he was associated with Arthur Anderson & Co.
and prior to his departure served as audit manager in the
financial services division.
Joseph G. Siniscalchi, age 52, is a Director of
Demeter. Mr. Siniscalchi joined DWR in July 1984 as a First
Vice President, Director of General Accounting and served as
a Senior Vice President and Controller for DWR's Securities
division through 1997. He is currently Executive Vice
President and Director of the Operations Division of DWR.
From February 1980 to July 1984, Mr. Siniscalchi was
Director of Internal Audit at Lehman Brothers Kuhn Loeb,
Inc.
Edward C. Oelsner, III, age 55, is a Director of
Demeter. Mr. Oelsner is currently an Executive Vice
President and head of the Product Development Group at Dean
Witter InterCapital Inc., an affiliate of DWR. Mr. Oelsner
joined DWR in 1981 as a Managing Director in DWR's
Investment Banking Department specializing in coverage of
regulated industries and, subsequently, served as head of
the DWR Retail Products Group. Prior to joining DWR, Mr.
Oelsner held positions at The First Boston Corporation as a
member of the Research and Investment Banking Departments
from 1967 to 1981. Mr. Oelsner received his M.B.A. in
Finance from the Columbia University Graduate School of
Business in 1966 and an A.B. in Politics from Princeton
University in 1964.
Robert E. Murray, age 37, is a Director of Demeter.
Mr. Murray is also a Director of DWFCM. Mr. Murray is
currently a Senior Vice President of DWR's Managed Futures
Department and is the Senior Administrative Officer of
DWFCM. Mr. Murray began his career at DWR in 1984 and is
currently the Director of Product Development for the
Managed Futures Department. He is responsible for the
development and maintenance of the proprietary Fund
Management System utilized by DWFCM and Demeter in
organizing information and producing reports for monitoring
clients' accounts. Mr. Murray currently serves as a
Director of the Managed Funds Association. Mr. Murray
graduated from Geneseo State University in May 1983 with a
B.A. degree in Finance.
Patti L. Behnke, age 37, is Vice President and Chief
Financial Officer of Demeter. Ms. Behnke joined DWR in
April 1991 as Assistant Vice President of Financial
Reporting and is currently a First Vice President and
Director of Financial Reporting and Managed Futures
Accounting in the Individual Asset Management Group. Prior
to joining DWR, Ms. Behnke held positions of increasing
responsibility at L.F. Rothschild & Co. and Carteret Savings
Bank. Ms. Behnke began her career at Arthur Anderson & Co.,
where she was employed in the audit division
from 1982-1986. She is a member of the AICPA and the New
York State Society of Certified Public Accountants.
Item 11. EXECUTIVE COMPENSATION
The Partnership has no directors and executive
officers. As a limited partnership, the business of the
Partnership is managed by Demeter which is responsible for
the administration of the business affairs of the
Partnership but receives no compensation for such services.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT (a) Security Ownership of Certain
Beneficial Owners - As of December 31, 1997 there were no
persons known to be beneficial owners of more than 5 percent
of the Units of Limited Partnership Interest in the
Partnership.
(b) Security Ownership of Management - At December 31,
1997, Demeter owned 638.889 Units of General Partnership
Interest in the Partnership, representing a 2.39 percent
interest in the Partnership.
(c) Changes in Control - None
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Refer to Note 2 - "Related Party Transactions" of
"Notes to Financial Statements," in the accompanying 1997
Annual Report to Partners, incorporated by reference in this
Form 10-K. In its capacity
as the Partnership's retail commodity broker, DWR received
commodity brokerage commissions (paid and accrued by the
Partnership) of $2,656,715 for the year ended December 31,
1997.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
(a) 1. Listing of Financial Statements
The following financial statements and reports of
independent public accountants, all appearing in the
accompanying 1997 Annual Report to Partners, are
incorporated by reference in this Form 10-K:
- Report of Deloitte & Touche LLP, independent
auditors, for the years ended December 31, 1997,
1996 and 1995.
- Statements of Financial Condition as of
December 31, 1997 and 1996.
- Statements of Operations, Changes in
Partners' Capital, and Cash Flows for the years
ended December 31, 1997, 1996 and 1995.
- Notes to Financial Statements.
With the exception of the aforementioned information
and the information incorporated in Items 7, 8, and 13, the
1997 Annual Report to Partners is not deemed to be filed
with this report.
2. Listing of Financial Statement Schedules
No financial statement schedules are required to be
filed with this report.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed by the
Partnership during the last quarter of the period covered by
this report.
(c) Exhibits
Refer to Exhibit Index on Page E-1.
SIGNATURES
Pursuant to the requirement of Sections 13 or 15(d) 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
March 24, 1998 BY: /s/ Mark J. Hawley
Mark J. Hawley, Director and
President
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated.
Demeter Management Corporation.
BY: /s/ Mark J. Hawley March 24,
1998
Mark J. Hawley, Director and
President
/s/ Richard M. DeMartini March 24,
1998
Richard M. DeMartini, Director
and Chairman of the Board
/s/ Lawrence Volpe March 24,
1998
Lawrence Volpe, Director
/s/ Joseph G. Siniscalchi March 24,
1998
Joseph G. Siniscalchi, Director
/s/ Edward C. Oelsner III March 24,
1998
Edward C. Oelsner III, Director
/s/ Robert E. Murray March 24,
1998
Robert E. Murray, Director
/s/ Patti L. Behnke March 24,
1998
Patti L. Behnke, Chief Financial
Officer and Principal Accounting
Officer
EXHIBIT INDEX
Item
Method of Filing
- -3. Limited Partnership Agreement of
the Partnership, dated as of
December 11, 1986.
(1)
- -10. Management Agreement among the
Partnership, Demeter and John W.
Henry and Co. Inc (former name of John W.
Henry & Company, Inc., dated as
of May 1, 1987.
(2)
- -10. Management Agreement among the
Partnership, Demeter and Sunrise
Commodities Inc. (former name of
Sunrise Capital Management Inc.)
dated as of May 1, 1987
(3)
- -10. Dean Witter Cornerstone Funds
Exchange Agreement, dated as of
May 31, 1984.
(4)
- -10. Amended and Restated Customer Agreement Between
the Partnership and DWR, dated as of September
1, 1996.
(5)
- -13. December 31, 1997 Annual Report to Limited Partners.
(6)
(1)
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).
(2)
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).
(3)
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).
(4)
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).
(5)
Incorporated by reference to Exhibit 10.1(e) to Post Effective
Amendment
No. 23 to the Partnership's Registration Statement on Form S-1
(File No.
2-88587), filed on August 28, 1996.
(6) Filed
herewith.
Cornerstone
Funds
December 31, 1997
Annual Report
LOGO
DEAN WITTER
Two World Trade Center
62nd Floor
New York, NY 10048
Telephone (212) 392-8899
DEAN WITTER CORNERSTONE FUNDS
ANNUAL REPORT
1997
Dear Limited Partner:
This marks the thirteenth annual report for Cornerstone Funds II and III and
the eleventh for Cornerstone Fund IV. The Net Asset Value per Unit for each of
the three Cornerstone Funds on December 31, 1997 was as follows:
% CHANGE
FUNDS N.A.V. FOR YEAR
----- --------- --------
Cornerstone Fund II $3,724.92 18.0%
Cornerstone Fund III $2,993.52 10.2%
Cornerstone Fund IV $4,435.47 38.4%
CORNERSTONE FUND IV, the currency fund, recorded strong gains during January
from a significant rise in the value of the U.S. dollar. As a result, profits
were recorded from short positions in the Japanese yen, Swiss and French
francs, as well as the German mark. During February, a continued strengthening
in the value of the U.S. dollar resulted in significant profits from short
positions in the Singapore dollar, most European currencies and the Japanese
yen. Gains were also recorded during March as the U.S. dollar continued to move
higher versus most Asian currencies. Smaller profits were recorded from short
positions in the Singapore dollar and Japanese yen. Fund IV also benefited from
a strengthening in the value of the Malaysian ringgit.
A continued decline in the value of the Japanese yen relative to the U.S.
dollar resulted in additional profits during April. Smaller gains were recorded
from short Singapore dollar and French franc positions. Losses were recorded
during May due primarily to short positions in the Singapore dollar and
Japanese yen as the value of these currencies reversed higher early in the
month. Smaller losses were recorded from long Japanese yen positions
established mid-month, as the value of the yen decreased during late May. Fund
IV recorded gains during June
from long Japanese yen positions established in late May as the value of the
yen moved higher versus the U.S. dollar.
Significant gains were recorded during July from short positions in the German
mark, New Zealand and Singapore dollars. Smaller profits were recorded from
short positions in the French franc and Malaysian ringgit. Fund IV recorded
gains during August due primarily to the Asian currency crisis, thus resulting
in profits from short positions in the Malaysian ringgit and Singapore dollar.
During September, a continued decline in the value of the Malaysian ringgit and
Singapore dollar resulted in profits. Smaller gains were recorded from long
positions in the Norwegian krone and German mark as the value of these
currencies increased versus the U.S. dollar.
Fund IV recorded gains during October from short positions in the Singapore and
Australian dollars, as the value of the U.S. dollar strengthened versus these
Pacific Rim currencies. Smaller profits were recorded from long British pound
positions as its value moved higher late in the month. Fund IV recorded strong
profits during November from short positions in Pacific Rim currencies as the
value of the Japanese yen, Singapore dollar, Malaysian ringgit and Australian
dollar weakened relative to the U.S. dollar due to economic uncertainty in the
Asian financial markets. As the economic turmoil in the Far East continued
during December, significant profits were recorded from short positions in
Pacific Rim currencies, particularly the Singapore dollar, Malaysian ringgit
and Australian dollar.
CORNERSTONE FUND II, a diversified fund, recorded gains during January from a
strengthening in the value of the U.S. dollar relative to the Japanese yen and
German mark. Additional profits were recorded as gold prices declined to their
lowest levels in over three years. Profits were recorded during February due to
the continued strengthening in the value of the U.S. dollar relative to most
major world currencies. Additional gains were recorded from an upward trend in
coffee prices, as well as a downward move in gas and oil prices. Fund II
recorded gains during March as the value of the U.S. dollar continued to
strengthen versus the
Japanese yen and Singapore dollar. Additional gains were experienced from a
continued upward move in coffee prices.
Losses were experienced during April from short positions in interest rate
futures markets as domestic bond prices rallied late in the month after showing
signs of trending lower previously. Smaller losses were experienced from long
corn futures positions as prices in this market moved lower. In May, losses
were experienced from transactions involving the Japanese yen and Singapore
dollar. Smaller losses were recorded in the energy markets as oil prices moved
in a short-term volatile pattern. These losses were partially offset by gains
recorded from continued strengthening in coffee prices, as well as global stock
index futures prices. Fund II recorded losses during June as coffee prices
reversed sharply lower, thus giving back a portion of previous months' profits.
Additional losses were experienced from trading crude oil futures as oil prices
continued to move without consistent direction.
Significant gains were recorded during July from long U.S., Japanese and
Australian bond futures positions as global interest rate futures prices
trended higher. Additional gains were recorded in currencies from short
positions in the German mark and Swiss franc as the value of these currencies
decreased relative to the U.S. dollar. Small losses were experienced during
August as gains recorded from short positions in the Malaysian ringgit and
Singapore dollar were more than offset by losses experienced from long
positions in U.S. and European interest rate futures as prices in these markets
moved lower after trending higher previously. During September, Fund II
recorded losses from trendless price movement in coffee, sugar and cocoa
futures. Additional losses were experienced in the energy and agricultural
markets as prices in these markets also moved without consistent direction.
Smaller losses were experienced from transactions involving the Swiss franc,
British pound and Japanese yen.
Fund II recorded profits during October from long positions in the British
pound as its value increased relative to the U.S. dollar, and from short
positions in the Singapore and Australian
dollars as the value of the U.S. dollar strengthened versus these Pacific Rim
currencies. Smaller gains were recorded from long positions in corn and soybean
oil futures. Gains were recorded during November from short positions in the
Japanese yen, Australian dollar and Malaysian ringgit as the value of these
currencies declined versus the U.S. dollar due to economic uncertainty in Asia.
Short gold futures positions resulted in smaller profits as gold prices broke
below $300 an ounce for the first time in over twelve years. Fund II recorded
significant gains during December from short positions in most Pacific Rim
currencies, particularly the Japanese yen and Singapore dollar, as the economic
turmoil in the Far East continued. Smaller profits were recorded from short
crude oil futures positions as prices declined on news of increased supplies.
CORNERSTONE FUND III, also a diversified Fund, recorded profits during January
due primarily to an increase in coffee prices during the month. Additional
profits were recorded from a strengthening in the value of the U.S. dollar
versus most major European currencies and the Japanese yen. In February, Fund
III recorded significant gains as increasing price trends in coffee and the
U.S. dollar continued throughout the month. As a result, profits were recorded
from long coffee futures positions, as well as short positions in the Swiss
franc, German mark and Japanese yen. Performance during March resulted in
losses as many of the markets that produced gains during January and February
experienced trend reversals and choppy price movement. The most significant
losses were recorded in the currency markets as the value of most European
currencies reversed higher relative to the U.S. dollar.
Fund III recorded losses during April as trendless price movement that began in
March continued. The most significant losses were recorded from short positions
in U.S. interest rate futures. Smaller losses were recorded in the currency,
metals and agricultural markets. In May, gains were recorded from a continued
upward trend in coffee prices. Additional gains were recorded from an increase
in copper and zinc prices. Fund III recorded gains in June as the value of the
Japanese yen moved higher
versus the U.S. dollar. Additional profits were recorded from long global stock
index futures positions as global equity prices trended higher.
During July, profits were recorded from long positions in global interest rate
futures as Australian, U.S. and European bond futures prices trended higher.
Additional gains were recorded from short European currency positions as the
U.S. dollar again strengthened. A sharp trend reversal in global interest rate
futures prices during August resulted in a give back of a portion of July's
profits. Additional losses were experienced in the currency markets as the
value of most European currencies reversed higher relative to the U.S. dollar.
September was profitable as international bond futures prices moved higher,
thus resulting in gains for long positions. Smaller gains were recorded from a
dramatic increase in natural gas futures prices during the month.
During October, trend reversals in the value of the Mexican peso, as well as in
global interest rate futures prices, resulted in losses for Fund III. Smaller
losses were experienced from long positions in Australian stock index futures
and silver futures. Fund III recorded profits during November from short
Japanese yen positions as its value moved sharply lower amid concerns over
Asian economic stability. Additional currency gains were recorded from long
British pound positions as its value moved higher on news of an interest rate
increase in Great Britain. Gains were also recorded from short gold futures
positions as gold prices broke below $300 an ounce for the first time in over
twelve years. In December, profits were recorded by Fund III from short
positions in crude and heating oil futures as prices declined on reports of
increasing inventories. Smaller gains were recorded from long silver futures
positions as prices moved higher, and from short positions in gold futures as
gold prices continued to drop below $290 an ounce.
Each of the three Cornerstone Funds recorded profits for the year primarily by
taking advantage of price trends in the currency markets during January and
February, as well as in the fourth quarter. Cornerstone Funds II and III also
profited from long global interest rate
futures positions during July as prices in these markets made a strong upward
move. These gains, coupled with smaller gains from trading gold futures as gold
prices declined late in the year, as well as the Trading Advisors' ability to
limit losses from trend reversals and choppy price movement in the middle of
the year, contributed to each of the Fund's success in 1997. Effective March 1,
1997, Abacus Trading Corporation ("Abacus") was removed as a Trading Advisor to
Cornerstone Fund II. All assets formally managed by Abacus were allocated to
Northfield Trading L.P. ("Northfield") during April. We believe Fund II has
benefited from this mix of advisors, and will continue to do so given the
opportunity for trending market conditions.
Since their inception in 1985, Cornerstone Funds II and III have increased by
282.0% (a compound annualized return of 10.8%), and 207.0% (a compound
annualized return of 9.0%) respectively. Since its inception in 1987,
Cornerstone Fund IV has increased by 354.9% (a compound annualized return of
15.1%).
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,
LOGO
Mark J. Hawley
President
Demeter Management Corporation
General Partner
DEAN WITTER CORNERSTONE FUNDS
INDEPENDENT AUDITORS' REPORT
The Limited Partners and the General Partner of
Dean Witter Cornerstone Fund II
Dean Witter Cornerstone Fund III
Dean Witter Cornerstone Fund IV:
We have audited the accompanying statements of financial condition of Dean
Witter Cornerstone Fund II, Dean Witter Cornerstone Fund III and Dean Witter
Cornerstone Fund IV (collectively, the "Partnerships") as of December 31, 1997
and 1996 and the related statements of operations, changes in partners'
capital, and cash flows for each of the three years in the period ended
December 31, 1997. These financial statements are the responsibility of the
Partnerships' management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Dean Witter Cornerstone Fund II, Dean
Witter Cornerstone Fund III and Dean Witter Cornerstone Fund IV as of December
31, 1997 and 1996 and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1997 in conformity
with generally accepted accounting principles.
LOGO
February 17, 1998
New York, New York
DEAN WITTER CORNERSTONE FUND II
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31,
---------------------
1997 1996
---------- ----------
$ $
ASSETS
Equity in Commodity futures trading
accounts:
Cash 29,293,294 28,509,266
Net unrealized gain on open contracts 2,003,679 1,316,434
---------- ----------
Total Trading Equity 31,296,973 29,825,700
Interest receivable (DWR) 106,167 97,815
Due from DWR 27,883 123,327
---------- ----------
Total Assets 31,431,023 30,046,842
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Accrued incentive fees 618,270 316,750
Redemptions payable 199,022 442,706
Accrued management fees 104,350 99,352
Common administrative expenses payable 21,640 52,339
Accrued brokerage commissions (DWR) -- 83,967
Accrued transaction fees and costs -- 5,558
---------- ----------
Total Liabilities 943,282 1,000,672
---------- ----------
PARTNERS' CAPITAL
Limited Partners (7,967.401 and 8,987.942 Units,
respectively) 29,677,943 28,360,195
General Partner (217.400 Units) 809,798 685,975
---------- ----------
Total Partners' Capital 30,487,741 29,046,170
---------- ----------
Total Liabilities and Partners'
Capital 31,431,023 30,046,842
========== ==========
NET ASSET VALUE PER UNIT 3,724.92 3,155.36
========== ==========
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
--------- ---------- ----------
$ $ $
REVENUES
Trading Profit (Loss):
Realized 6,363,803 7,321,679 11,081,716
Net change in unrealized 687,245 (2,051,673) (947,973)
--------- ---------- ----------
Total Trading Results 7,051,048 5,270,006 10,133,743
Interest income (DWR) 1,228,298 1,179,784 1,471,022
--------- ---------- ----------
Total Revenues 8,279,346 6,449,790 11,604,765
--------- ---------- ----------
EXPENSES
Brokerage commissions (DWR) 1,383,112 1,719,932 1,864,093
Management fees 1,159,248 1,167,223 1,307,872
Incentive fees 650,800 329,590 381,720
Transaction fees and costs 128,692 170,971 160,238
Common administrative expenses 41,330 14,612 8,183
--------- ---------- ----------
Total Expenses 3,363,182 3,402,328 3,722,106
--------- ---------- ----------
NET INCOME 4,916,164 3,047,462 7,882,659
========= ========== ==========
NET INCOME ALLOCATION:
Limited Partners 4,792,341 2,976,870 7,753,763
General Partner 123,823 70,592 128,896
NET INCOME PER UNIT:
Limited Partners 569.56 324.71 592.90
General Partner 569.56 324.71 592.90
The accompanying notes are an integral part of these financial statements.
DEAN WITTER CORNERSTONE FUND III
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31,
----------------------
1997 1996
---------- ----------
$ $
ASSETS
Equity in Commodity futures trading
accounts:
Cash 39,762,715 40,587,011
Net unrealized gain on open contracts 1,938,295 2,580,803
Net option premiums (158,765) (291,412)
---------- ----------
Total Trading Equity 41,542,245 42,876,402
Interest receivable (DWR) 145,100 138,367
Due from DWR 94,981 122,701
---------- ----------
Total Assets 41,782,326 43,137,470
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Redemptions payable 429,759 680,730
Accrued management fees 138,480 142,387
Common administrative expenses payable 99,713 137,548
Accrued brokerage commissions (DWR) -- 129,098
Accrued transaction fees and costs -- 12,349
---------- ----------
Total Liabilities 667,952 1,102,112
---------- ----------
PARTNERS' CAPITAL
Limited Partners (13,352.334 and 15,097.603 Units,
respectively) 39,970,539 40,997,752
General Partner (382.103 Units) 1,143,835 1,037,606
---------- ----------
Total Partners' Capital 41,114,374 42,035,358
---------- ----------
Total Liabilities and Partners'
Capital 41,782,326 43,137,470
========== ==========
NET ASSET VALUE PER UNIT 2,993.52 2,715.51
========== ==========
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
--------- ---------- ----------
$ $ $
REVENUES
Trading Profit (Loss):
Realized 7,439,669 8,925,181 14,260,042
Net change in unrealized (642,508) (2,997,491) 561,437
--------- ---------- ----------
Total Trading Results 6,797,161 5,927,690 14,821,479
Interest income (DWR) 1,786,271 1,657,400 2,061,461
--------- ---------- ----------
Total Revenues 8,583,432 7,585,090 16,882,940
--------- ---------- ----------
EXPENSES
Brokerage commissions (DWR) 2,294,914 2,772,496 3,499,743
Management fees 1,728,062 1,629,715 1,828,013
Transaction fees and costs 229,570 379,973 502,332
Common administrative expenses 69,344 24,702 21,158
--------- ---------- ----------
Total Expenses 4,321,890 4,806,886 5,851,246
--------- ---------- ----------
NET INCOME 4,261,542 2,778,204 11,031,694
========= ========== ==========
NET INCOME ALLOCATION:
Limited Partners 4,155,313 2,699,171 10,824,963
General Partner 106,229 79,033 206,731
NET INCOME PER UNIT:
Limited Partners 278.01 206.83 541.04
General Partner 278.01 206.83 541.04
The accompanying notes are an integral part of these financial statements.
DEAN WITTER CORNERSTONE FUND IV
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31,
----------------------
1997 1996
----------- ----------
$ $
ASSETS
Equity in Commodity futures trading
accounts:
Cash 119,181,131 91,656,399
Net unrealized gain on open contracts 1,815,112 5,330,520
----------- ----------
Total Trading Equity 120,996,243 96,986,919
Interest receivable (DWR) 382,307 305,391
----------- ----------
Total Assets 121,378,550 97,292,310
=========== ==========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Incentive fees payable 1,594,371 --
Redemptions payable 899,127 1,269,513
Accrued management fees 403,011 322,552
Common administrative expenses payable 72,297 126,007
Accrued brokerage commissions (DWR) -- 74,340
Accrued transaction fees and costs -- 3,654
----------- ----------
Total Liabilities 2,968,806 1,796,066
----------- ----------
PARTNERS' CAPITAL
Limited Partners (26,057.228 and 29,160.287 Units,
respectively) 115,575,973 93,448,822
General Partner (638.889 Units) 2,833,771 2,047,422
----------- ----------
Total Partners' Capital 118,409,744 95,496,244
----------- ----------
Total Liabilities and Partners'
Capital 121,378,550 97,292,310
=========== ==========
NET ASSET VALUE PER UNIT 4,435.47 3,204.66
=========== ==========
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
---------- ---------- ----------
$ $ $
REVENUES
Trading Profit (Loss):
Realized 42,691,318 10,304,825 27,041,974
Net change in unrealized (3,515,408) 5,260,377 (198,148)
---------- ---------- ----------
Total Trading Results 39,175,910 15,565,202 26,843,826
Interest income (DWR) 4,200,571 3,924,420 4,912,698
---------- ---------- ----------
Total Revenues 43,376,481 19,489,622 31,756,524
---------- ---------- ----------
EXPENSES
Management fees 4,287,974 3,904,737 4,575,372
Brokerage commissions (DWR) 2,656,715 3,781,486 2,776,225
Incentive fees 1,594,371 -- --
Transaction fees and costs 171,578 222,993 168,718
Common administrative expenses 134,041 47,685 39,890
---------- ---------- ----------
Total Expenses 8,844,679 7,956,901 7,560,205
---------- ---------- ----------
NET INCOME 34,531,802 11,532,721 24,196,319
========== ========== ==========
NET INCOME ALLOCATION:
Limited Partners 33,745,453 11,297,656 23,857,922
General Partner 786,349 235,065 338,397
NET INCOME PER UNIT:
Limited Partners 1,230.81 367.93 529.66
General Partner 1,230.81 367.93 529.66
The accompanying notes are an integral part of these financial statements.
DEAN WITTER CORNERSTONE FUNDS
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
UNITS OF
PARTNERSHIP LIMITED GENERAL
INTEREST PARTNERS PARTNER TOTAL
----------- ----------- --------- -----------
$ $ $
DEAN WITTER CORNERSTONE FUND II
Partners' Capital, December
31, 1994 14,019.450 30,885,515 486,487 31,372,002
Offering of Units 70.020 178,837 -- 178,837
Net Income -- 7,753,763 128,896 7,882,659
Redemptions (3,198.372) (8,604,610) -- (8,604,610)
---------- ----------- --------- -----------
Partners' Capital, December
31, 1995 10,891.098 30,213,505 615,383 30,828,888
Offering of Units 56.043 155,468 -- 155,468
Net Income -- 2,976,870 70,592 3,047,462
Redemptions (1,741.799) (4,985,648) -- (4,985,648)
---------- ----------- --------- -----------
Partners' Capital, December
31, 1996 9,205.342 28,360,195 685,975 29,046,170
Offering of Units 94.328 314,932 -- 314,932
Net Income -- 4,792,341 123,823 4,916,164
Redemptions (1,114.869) (3,789,525) -- (3,789,525)
---------- ----------- --------- -----------
Partners' Capital,
December 31, 1997 8,184.801 29,677,943 809,798 30,487,741
========== =========== ========= ===========
DEAN WITTER CORNERSTONE FUND III
Partners' Capital, December
31, 1994 23,887.701 46,250,611 751,842 47,002,453
Offering of Units 25.778 49,000 -- 49,000
Net Income -- 10,824,963 206,731 11,031,694
Redemptions (5,198.558) (11,133,473) -- (11,133,473)
---------- ----------- --------- -----------
Partners' Capital, December
31, 1995 18,714.921 45,991,101 958,573 46,949,674
Offering of Units 3.594 8,388 -- 8,388
Net Income -- 2,699,171 79,033 2,778,204
Redemptions (3,238.809) (7,700,908) -- (7,700,908)
---------- ----------- --------- -----------
Partners' Capital, December
31, 1996 15,479.706 40,997,752 1,037,606 42,035,358
Offering of Units 1.841 5,000 -- 5,000
Net Income -- 4,155,313 106,229 4,261,542
Redemptions (1,747.110) (5,187,526) -- (5,187,526)
---------- ----------- --------- -----------
Partners' Capital,
December 31, 1997 13,734.437 39,970,539 1,143,835 41,114,374
========== =========== ========= ===========
The accompanying notes are an integral part of these financial statements.
DEAN WITTER CORNERSTONE FUNDS
STATEMENT OF CHANGES IN PARTNERS' CAPITAL--(CONCLUDED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
UNITS OF
PARTNERSHIP LIMITED GENERAL
INTEREST PARTNERS PARTNER TOTAL
----------- ----------- --------- -----------
$ $ $
DEAN WITTER CORNERSTONE FUND IV
Partners' Capital, December
31, 1994 47,632.891 108,418,306 1,473,960 109,892,266
Offering of Units 77.319 212,691 -- 212,691
Net Income -- 23,857,922 338,397 24,196,319
Redemptions (11,165.696) (30,634,265) -- (30,634,265)
----------- ----------- --------- -----------
Partners' Capital, December
31, 1995 36,544.514 101,854,654 1,812,357 103,667,011
Offering of Units 37.715 108,665 -- 108,665
Net Income -- 11,297,656 235,065 11,532,721
Redemptions (6,783.053) (19,812,153) -- (19,812,153)
----------- ----------- --------- -----------
Partners' Capital, December
31, 1996 29,799.176 93,448,822 2,047,422 95,496,244
Offering of Units 57.083 223,794 -- 223,794
Net Income -- 33,745,453 786,349 34,531,802
Redemptions (3,160.142) (11,842,096) -- (11,842,096)
----------- ----------- --------- -----------
Partners' Capital,
December 31, 1997 26,696.117 115,575,973 2,833,771 118,409,744
=========== =========== ========= ===========
The accompanying notes are an integral part of these financial statements.
DEAN WITTER CORNERSTONE FUND II
STATEMENTS OF CASH FLOWS
FOR THE YEARS
ENDED
DECEMBER 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
$ $ $
CASH FLOWS FROM OPERATING ACTIVITIES
Net income 4,916,164 3,047,462 7,882,659
Noncash item included in net income:
Net change in unrealized (687,245) 2,051,673 947,973
(Increase) decrease in
operating assets:
Interest receivable (DWR) (8,352) 9,670 17,183
Due from DWR 95,444 (97,802) 24,860
Increase (decrease) in
operating liabilities:
Accrued incentive fees 301,520 9,183 307,567
Accrued management fees 4,998 (4,886) (1,622)
Common administrative expenses payable (30,699) (28,975) (29,854)
Accrued brokerage commissions (DWR) (83,967) (10,486) 13,185
Accrued transaction fees
and costs (5,558) (1,399) 1,237
---------- ---------- ----------
Net cash provided by operating activities 4,502,305 4,974,440 9,163,188
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Offering of units 314,932 155,468 178,837
Increase (decrease) in redemptions payable (243,684) 307,817 (251,210)
Redemptions of units (3,789,525) (4,985,648) (8,604,610)
---------- ---------- ----------
Net cash used for financing activities (3,718,277) (4,522,363) (8,676,983)
---------- ---------- ----------
Net increase in cash 784,028 452,077 486,205
Balance at beginning of period 28,509,266 28,057,189 27,570,984
---------- ---------- ----------
Balance at end of period 29,293,294 28,509,266 28,057,189
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
DEAN WITTER CORNERSTONE FUND III
STATEMENTS OF CASH FLOWS
FOR THE YEARS
ENDED
DECEMBER 31,
-----------------------------------
1997 1996 1995
---------- ---------- -----------
$ $ $
CASH FLOWS FROM OPERATING ACTIVITIES
Net income 4,261,542 2,778,204 11,031,694
Noncash item included in net income:
Net change in unrealized 642,508 2,997,491 (561,437)
(Increase) decrease in
operating assets:
Net option premiums (132,647) 291,412 --
Interest receivable (DWR) (6,733) 21,313 33,368
Due from DWR 27,720 1,755 89,133
Increase (decrease) in
operating liabilities:
Accrued management fees (3,907) (16,243) (265)
Common administrative expenses payable (37,835) (84,488) (44,369)
Accrued brokerage
commissions (DWR) (129,098) (37,030) (34,476)
Accrued transaction fees
and costs (12,349) (8,629) 7,239
---------- ---------- -----------
Net cash provided by operating activities 4,609,201 5,943,785 10,520,887
---------- ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Offering of units 5,000 8,388 49,000
Increase (decrease) in
redemptions payable (250,971) 41,381 (26,829)
Redemptions of units (5,187,526) (7,700,908) (11,133,473)
---------- ---------- -----------
Net cash used for financing activities (5,433,497) (7,651,139) (11,111,302)
---------- ---------- -----------
Net decrease in cash (824,296) (1,707,354) (590,415)
Balance at beginning of period 40,587,011 42,294,365 42,884,780
---------- ---------- -----------
Balance at end of period 39,762,715 40,587,011 42,294,365
========== ========== ===========
The accompanying notes are an integral part of these financial statements.
DEAN WITTER CORNERSTONE FUND IV
STATEMENTS OF CASH FLOWS
FOR THE YEARS
ENDED
DECEMBER 31,
-------------------------------------
1997 1996 1995
----------- ----------- -----------
$ $ $
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income 34,531,802 11,532,721 24,196,319
Noncash item included in net income:
Net change in unrealized 3,515,408 (5,260,377) 198,148
(Increase) decrease in operating
assets:
Interest receivable (DWR) (76,916) 59,356 69,406
Increase (decrease) in operating
liabilities:
Accrued incentive fee 1,594,371 -- --
Accrued management fees 80,459 (26,487) (22,567)
Common administrative expenses payable (53,710) (141,781) (89,342)
Accrued brokerage commissions (DWR) (74,340) 41,760 32,580
Accrued transaction fees
and costs (3,654) 2,025 1,629
----------- ----------- -----------
Net cash provided by operating
activities 39,513,420 6,207,217 24,386,173
----------- ----------- -----------
CASH FLOWS FROM
FINANCING ACTIVITIES
Offering of units 223,794 108,665 212,691
Increase (decrease) in redemptions
payable (370,386) 224,709 (544,818)
Redemptions of units (11,842,096) (19,812,153) (30,634,265)
----------- ----------- -----------
Net cash used for financing activities (11,988,688) (19,478,779) (30,966,392)
----------- ----------- -----------
Net increase (decrease) in cash 27,524,732 (13,271,562) (6,580,219)
Balance at beginning of period 91,656,399 104,927,961 111,508,180
----------- ----------- -----------
Balance at end of period 119,181,131 91,656,399 104,927,961
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
DEAN WITTER CORNERSTONE FUNDS
NOTES TO FINANCIAL STATEMENTS
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"). Demeter is a wholly-owned subsidiary of
Morgan Stanley, Dean Witter, Discover & Co. ("MSDWD").
On May 31, 1997, Morgan Stanley Group Inc. was merged with and into Dean
Witter, Discover & Co. ("DWD"). At the time DWD changed its corporate name to
Morgan Stanley, Dean Witter, Discover & Co. ("MSDWD").
Through July 31, 1997, the sole commodity broker for the Partnership's
transactions was Dean Witter Reynolds Inc. ("DWR"), also a subsidiary of MSDWD.
On July 31, 1997, DWR closed the sale of its institutional futures business and
foreign currency trading operations to Carr Futures Inc. ("Carr"), a subsidiary
of Credit Agricole Indosuez. Following the sale, Carr became the clearing
commodity broker for the Partnerships' futures and futures options trades and
the counterparty on the Partnerships' foreign currency trades. DWR serves as a
non-clearing commodity broker for the Partnerships' with Carr providing all
clearing services for the Partnerships' transactions.
Demeter is required to maintain a 1% minimum interest in the equity of each
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 and forward 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 Net Assets at a rate equal to the average 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
DEAN WITTER CORNERSTONE FUNDS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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.
EQUITY IN COMMODITY FUTURES TRADING ACCOUNTS-- Each Partnerships' assets
"Equity in Commodity futures trading accounts" consists of cash on deposit at
DWR and Carr to be used as margin for trading, the net asset or liability
related to unrealized gains or losses on open contracts and the net option
premiums paid and/or received. The asset or liability related to the unrealized
gains or losses on forward contracts is presented as a net amount in each
period due to master netting agreements with DWR.
BROKERAGE COMMISSIONS AND RELATED TRANSACTION FEES AND COSTS--Brokerage
commissions for each Partnership are accrued at 80% of DWR's published non-
member rates on a half-turn basis. Related transaction fees and costs are
accrued on a half-turn basis.
Through March 31, 1995, brokerage commissions were capped at 1% per month of
the adjusted Net Assets allocated to each trading program employed by a Trading
Advisor. From April 1, 1995 through August 31, 1996, the cap was reduced to 3/4
of 1%.
As of September 1, 1996, brokerage commissions and transaction fees chargeable
to each Partnership have been capped at 13/20 of 1% per month of the
Partnership's month end Net Assets (as defined in the Limited Partnership
Agreement) applied on a per trading system basis, allocated to each such
trading program.
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.
DEAN WITTER CORNERSTONE FUNDS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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.
REDEMPTIONS--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 the General Partner.
EXCHANGES--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 each Limited
Partnership Agreement.
2. RELATED PARTY TRANSACTIONS
Each Partnership pays brokerage commissions to DWR on trades executed on its
behalf 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 as of December 31, 1997 were as follows:
Dean Witter Cornerstone Fund II
Northfield Trading L.P.
John W. Henry & Company, Inc. ("JWH")
Dean Witter Cornerstone Fund III
Abraham Trading Co.
Welton Investment Systems Corporation
Sunrise Capital Management, Inc.
Dean Witter Cornerstone Fund IV
John W. Henry & Company, Inc.
Sunrise Capital Management, Inc.
DEAN WITTER CORNERSTONE FUNDS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Compensation to the trading advisors by the Partnerships consists of a
management fee and an incentive fee as follows:
MANAGEMENT FEE--The management fee is accrued at the rate of 1/3 of 1% per
month of the Net Assets
under management by each trading advisor at each month end.
INCENTIVE FEE--Each Partnership pays an annual 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
pays 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 reduced. In those instances in which a
Limited Partner redeems an investment, the incentive fee (if earned through a
redemption date) is to be paid on those redemptions to the trading advisor in
the month of such redemption.
4. FINANCIAL INSTRUMENTS
The Partnerships trade futures and forward contracts in interest rates, stock
indices, commodities, currencies, petroleum and precious metals. 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. At December 31, 1997 and 1996, open
contracts were:
CORNERSTONE II
---------------------
CONTRACT OR NOTIONAL AMOUNT
-----------------------------
1997 1996
---------- ----------
$ $
EXCHANGE-TRADED CONTRACTS
Financial Futures:
Commitments to Purchase 30,057,000 18,287,000
Commitments to Sell 13,539,000 70,723,000
Commodity Futures:
Commitments to Purchase 6,148,000 6,346,000
Commitments to Sell 15,082,000 14,596,000
Foreign Futures:
Commitments to Purchase 25,543,000 57,075,000
Commitments to Sell 20,799,000 8,798,000
OFF-EXCHANGE-TRADED FORWARD
CURRENCY CONTRACTS
Commitments to Purchase 17,705,000 26,688,000
Commitments to Sell 46,518,000 18,334,000
DEAN WITTER CORNERSTONE FUNDS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
CORNERSTONE III
-----------------------
CONTRACT OR NOTIONAL AMOUNT
-------------------------------
1997 1996
----------- -----------
$ $
EXCHANGE-TRADED CONTRACTS
Financial Futures:
Commitments to Purchase 50,242,000 118,163,000
Commitments to Sell 21,172,000 59,405,000
Options Written -- 18,613,000
Commodity Futures:
Commitments to Purchase 8,055,000 17,683,000
Commitments to Sell 31,622,000 22,811,000
Options Written -- 18,407,000
Foreign Futures:
Commitments to Purchase 50,870,000 62,344,000
Commitments to Sell 42,064,000 22,390,000
OFF-EXCHANGE-TRADED FORWARD CURRENCY CON-
TRACTS
Commitments to Purchase 27,863,000 420,000
Commitments to Sell 41,794,000 1,379,000
CORNERSTONE IV
-----------------------
CONTRACT OR NOTIONAL AMOUNT
-------------------------------
1997 1996
----------- -----------
$ $
EXCHANGE-TRADED CONTRACTS
Financial Futures:
Commitments to Purchase -- 93,583,000
Commitments to Sell -- 118,029,000
OFF-EXCHANGE-TRADED FORWARD CURRENCY CON-
TRACTS
Commitments to Purchase 218,670,000 208,140,000
Commitments to Sell 427,237,000 205,227,000
A portion of the amounts indicated as off-balance-sheet risk in forward
currency contracts is offset by forward commitments to purchase and to sell the
same currency on the same date in the future. These commitments are
economically offsetting, but are not offset in the forward market until the
settlement date.
The unrealized gains on open contracts are reported as a component of "Equity
in Commodity futures trading accounts" on the Statements of Financial Condition
and totaled at December 31, 1997 and 1996, respectively, $2,003,679 and
$1,316,434 for Cornerstone II, $1,938,295 and $2,580,803 for Cornerstone III
and $1,815,112 and $5,330,520 for Cornerstone IV.
For Cornerstone II, of the $2,003,679 net unrealized gain on open contracts at
December 31, 1997, $1,675,343 related to exchange-traded futures contracts and
$328,336 related to off-exchange-traded forward currency contracts. Of the
$1,316,434 net unrealized gain on open contracts at December 31, 1996,
$1,342,050 related to exchange-traded futures contracts and $(25,616) related
to off-exchange-traded forward currency contracts.
DEAN WITTER CORNERSTONE FUNDS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
For Cornerstone III, of the $1,938,295 net unrealized gain on open contracts at
December 31, 1997, $2,168,497 related to exchange-traded futures contracts and
$(230,202) related to off-exchange-traded forward currency contracts. Of the
$2,580,803 net unrealized gain on open contracts at December 31, 1996,
$2,589,289 related to exchange-traded futures contracts and $(8,486) related to
off-exchange-traded forward currency contracts.
For Cornerstone IV, of the $1,815,112 net unrealized gain on open contracts at
December 31, 1997 all related to off-exchange-traded forward currency
contracts. Of the $5,330,520 net unrealized gain on open contracts at December
31, 1996, $5,350,525 related to exchange-traded futures contracts and $(20,005)
related to off-exchange-traded forward currency contracts.
The contract amounts in the above table represent each Partnership's extent of
involvement in the particular class of financial instrument, but not the credit
risk associated with counterparty nonperformance. The credit risk associated
with these instruments is limited to the amounts reflected in each
Partnerships' Statement of Financial Condition.
Exchange-traded contracts and off-exchange-traded forward currency contracts
held by the Partnerships at December 31, 1997 and 1996 mature as follows:
1997 1996
-------------- ------------
CORNERSTONE II
Exchange-Traded Contracts December 1998 June 1998
Off-Exchange-Traded Forward Currency Contracts March 1998 March 1997
CORNERSTONE III
Exchange-Traded Contracts June 1998 June 1997
Off-Exchange-Traded Forward Currency Contracts March 1998 January 1997
CORNERSTONE IV
Exchange-Traded Contracts September 1998 March 1997
Off-Exchange-Traded Forward Currency Contracts April 1998 March 1997
The Partnerships also have credit risk because either DWR or Carr act as the
futures commission merchant or the counterparty with respect to most of the
Partnerships' assets. Exchange-traded futures contracts are marked to market on
a daily basis, with variations in value settled on a daily basis. DWR and Carr,
as the futures commission merchants of all of each Partnership's exchange-
traded futures contracts, are required pursuant to regulations of the Commodity
Futures Trading Commission to segregate from their own assets, and for the sole
benefit of their commodity
DEAN WITTER CORNERSTONE FUNDS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
customers, all funds held by them with respect to exchange-traded futures
contracts including an amount equal to the net unrealized gain on all open
futures contracts, which funds totaled at December 31, 1997 and 1996
respectively, $30,968,637 and $29,851,316 for Cornerstone II, $41,931,212 and
$43,176,300 for Cornerstone III, and $119,181,131 and $97,006,924 for
Cornerstone IV. With respect to each 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 on
open forward contracts be segregated. With respect to those off-exchange-traded
forward currency contracts, the Partnerships are at risk to the ability of
Carr, the counterparty on all of such contracts, to perform. Carr's parent,
Credit Agricole Indosuez, has guaranteed Carr's obligations to the
Partnerships.
For the years ended December 31, 1997 and 1996 the average fair value of
financial instruments held for trading purposes was as follows:
CORNERSTONE II 1997
- -------------- ----------------------
ASSETS LIABILITIES
---------- -----------
$ $
EXCHANGE-TRADED CONTRACTS:
Financial Futures 32,004,000 25,556,000
Commodity Futures 14,417,000 12,696,000
Foreign Futures 26,042,000 10,396,000
OFF-EXCHANGE-TRADED FORWARD CURRENCY CONTRACTS 36,907,000 46,749,000
1996
----------------------
ASSETS LIABILITIES
---------- -----------
$ $
EXCHANGE-TRADED CONTRACTS:
Financial Futures 48,469,000 47,433,000
Commodity Futures 24,459,000 22,228,000
Foreign Futures 43,821,000 14,875,000
OFF-EXCHANGE-TRADED FORWARD CURRENCY CONTRACTS 38,522,000 44,536,000
CORNERSTONE III 1997
- --------------- ----------------------
ASSETS LIABILITIES
---------- -----------
$ $
EXCHANGE-TRADED CONTRACTS:
Financial Futures 82,881,000 46,462,000
Options on Financial Futures 698,000 64,639,000
Commodity Futures 26,095,000 21,377,000
Options on Commodity Futures 1,117,000 4,712,000
Foreign Futures 44,764,000 26,219,000
Options on Foreign Futures 7,229,000 --
OFF-EXCHANGE-TRADED FORWARD CURRENCY CONTRACTS 12,599,000 13,558,000
DEAN WITTER CORNERSTONE FUNDS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1996
-----------------------
ASSETS LIABILITIES
----------- -----------
$ $
EXCHANGE-TRADED CONTRACTS:
Financial Futures 105,128,000 74,480,000
Options on Financial Futures -- 10,138,000
Commodity Futures 44,276,000 18,531,000
Options on Commodity Futures -- 2,763,000
Foreign Futures 80,000,000 27,228,000
Options on Foreign Futures -- 584
OFF-EXCHANGE-TRADED FORWARD CURRENCY CONTRACTS 233,000 354,000
CORNERSTONE IV 1997
- -------------- -----------------------
ASSETS LIABILITIES
----------- -----------
$ $
EXCHANGE-TRADED CONTRACTS:
Financial Futures 34,008,000 57,577,000
OFF-EXCHANGE-TRADED FORWARD CURRENCY CONTRACTS 299,407,000 414,754,000
1996
-----------------------
ASSETS LIABILITIES
----------- -----------
$ $
EXCHANGE-TRADED FINANCIAL FUTURES CONTRACTS 67,114,000 125,331,000
OFF-EXCHANGE-TRADED FORWARD CURRENCY CONTRACTS 334,452,000 334,461,000
5. LEGAL MATTERS
On September 6, 10, and 20, 1996, and on March 13, 1997, 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 & Currency Management Inc., MSDWD (all such parties
referred to hereafter as the "Dean Witter Parties"), the Partnerships, certain
other limited partnership commodity pools of which Demeter is the general
partner, and certain trading advisors (including JWH) to those pools. On June
16, 1997, the plaintiffs in the above actions filed a consolidated amended
complaint alleging, among other things, that the defendants committed fraud,
deceit, negligent misrepresentation, various violations of the California
Corporations Code, intentional and negligent breach of fiduciary duty,
fraudulent and unfair business practices, unjust enrichment, and conversion in
the sale and operation of the various limited partnerships commodity pools.
Similar purported class actions were also filed on September 18, and 20, 1996,
in the Supreme Court of the State of New York, New York County, and on November
14, 1996 in the Superior Court of the State
DEAN WITTER CORNERSTONE FUNDS
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
of Delaware, New Castle County, against the Dean Witter
Parties and certain trading advisors (including JWH) on behalf of all
purchasers of interests in various limited partnership commodity pools,
including the Partnerships, sold by DWR. A consolidated and amended complaint
in the action pending in the Supreme Court of the State of New York was filed
on August 13, 1997, alleging that the defendants committed fraud, breach of
fiduciary duty, and negligent misrepresentation in the sale and operation of
the various limited partnership commodity pools. On December 16, 1997, upon
motion of the plaintiffs, the action pending in the Supreme Court of the State
of Delaware was voluntarily dismissed without prejudice. The complaints seek
unspecified amounts 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 Partnerships 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 Partnerships.
DEAN WITTER REYNOLDS INC.
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62nd Floor
New York, NY 10048
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