UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the period ended March 31, 1996 or
[ ] Transition report pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the transition period from ________________to_____________.
Commission file number 0-13298
DEAN WITTER CORNERSTONE FUND II
(Exact name of registrant as specified in its charter)
New York 13-3212871
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
c/o Demeter Management Corp.
Two World Trade Center, New York, NY 62 Fl. 10048
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 392-5454
(Former name, former address, and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
<PAGE>
<TABLE>
DEAN WITTER CORNERSTONE FUND II
INDEX TO QUARTERLY REPORT ON FORM 10-Q
March 31, 1996
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Statements of Financial Condition
March 31, 1996 (Unaudited) and December 31, 1995............2
Statements of Operations for the Quarters Ended
March 31, 1996 and 1995 (Unaudited).........................3
Statements of Changes in Partners' Capital for the
Quarters Ended March 31, 1996 and 1995
(Unaudited).................................................4
Statements of Cash Flows for the Quarters Ended
March 31, 1996 and 1995 (Unaudited).........................5
Notes to Financial Statements (Unaudited).................6-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............... 10-13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K..................... 14
</TABLE>
<PAGE>
<TABLE>
DEAN WITTER CORNERSTONE FUND II
STATEMENTS OF FINANCIAL CONDITION
<CAPTION>
March 31, December 31,
1996 1995
$ $
(Unaudited)
ASSETS
<S> <C> <C>
Equity in Commodity futures trading accounts:
Cash 27,286,378 28,057,189
Net unrealized gain on open contracts 1,792,687 3,368,107
Total Trading Equity 29,079,065 31,425,296
Interest receivable (DWR) 95,760 107,485
Receivable from DWR 64,232 25,525
Total Assets 29,239,057 31,558,306
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Redemptions payable 302,009 134,889
Accrued management fees 96,036 104,238
Accrued brokerage commissions (DWR) 71,984 94,453
Common administrative expenses payable 51,946 81,314
Accrued transaction fees and costs 5,536 6,957
Accrued incentive fees - 307,567
Total Liabilities 527,511 729,418
Partners' Capital
Limited Partners (10,371.045 and
10,673.698 Units, respectively) 28,122,046 30,213,505
General Partner (217.400 Units) 589,500 615,383
Total Partners' Capital 28,711,546 30,828,888
Total Liabilities and Partners' Capital 29,239,057 31,558,306
NET ASSET VALUE PER UNIT 2,711.59 2,830.65
<FN>
The accompanying footnotes are an integral part
of these financial statements.
</TABLE>
<PAGE>
<TABLE>
DEAN WITTER CORNERSTONE FUND II
STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
For the Quarters Ended March 31,
1996 1995
$ $
<S> <C> <C>
REVENUES
Trading profit (loss):
Realized 787,501 5,776,949
Net change in unrealized (1,575,420) 2,065,542
Total Trading Results (787,919) 7,842,491
Interest Income (DWR) 299,603 383,297
Total Revenues (488,316) 8,225,788
EXPENSES
Brokerage commissions (DWR) 453,307 555,336
Management fees 299,467 338,676
Transaction fees and costs 39,439 42,624
Administrative expenses 2,655 8,184
Incentive fees - 397,367
Total Expenses 794,868 1,342,187
NET INCOME (LOSS) (1,283,182) 6,883,601
NET INCOME (LOSS) ALLOCATION
Limited Partners (1,257,299) 6,774,086
General Partner (25,883) 109,515
NET INCOME (LOSS) PER UNIT
Limited Partners (119.06) 503.75
General Partner (119.06) 503.75
<FN>
The accompanying footnotes are an integral part
of these financial statements.
<PAGE>
</TABLE>
<TABLE>
DEAN WITTER CORNERSTONE FUND II
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the Quarters Ended March 31, 1996 and 1995
(Unaudited)
<CAPTION>
Units of
Partnership Limited General
Interest Partners Partner Total
<S> <C> <C> <C> <C>
Partners' Capital
December 31, 1994 14,019.450 $30,885,515 $486,487 $31,372,002
Offering of Units 31.822 72,748 - 72,748
Net Income - 6,774,086 109,515 6,883,601
Redemptions (1,730.648) (4,551,350) - (4,551,350)
Partners' Capital
March 31, 1995 12,320.624 $33,180,999 $596,002 $33,777,001
Partners' Capital
December 31, 1995 10,891.098 $30,213,505 $615,383 $30,828,888
Offering of Units 21.937 60,182 - 60,182
Net Loss - (1,257,299) (25,883) (1,283,182)
Redemptions (324.590) (894,342) - (894,342)
Partners' Capital
March 31, 1996 10,588.445 $28,122,046 $589,500 $28,711,546
<FN>
The accompanying footnotes are an integral part
of these financial statements.
</TABLE>
<PAGE>
<TABLE>
DEAN WITTER CORNERSTONE FUND II
STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
For the Quarters Ended March 31,
1996 1995
$ $
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) (1,283,182) 6,883,601
Noncash item included in net income (loss):
Net change in unrealized 1,575,420 (2,065,542)
(Increase) decrease in operating assets:
Interest receivable (DWR) 11,725 (17,074)
Receivable from DWR (38,707) 44,382
Increase (decrease) in operating liabilities:
Accrued management fees (8,202) 19,545
Accrued brokerage commissions (DWR) (22,469) 19,188
Common administrative expenses payable (29,368) 8,184
Accrued transaction fees and costs (1,421) 2,056
Accrued incentive fees (307,567) 397,367
Net cash used for operating activities (103,771) 5,291,707
CASH FLOWS FROM FINANCING ACTIVITIES
Offering of units 60,232 72,748
Increase in redemptions payable 167,120 3,061,215
Redemptions of units (894,392) (4,551,350)
Net cash used for financing activities (667,040) (1,417,387)
Net increase (decrease) in cash (770,811) 3,874,320
Balance at beginning of period 28,057,189 27,570,984
Balance at end of period 27,286,378 31,445,304
<FN>
The accompanying footnotes are an integral part
of these financial statements.
</TABLE>
<PAGE>
DEAN WITTER CORNERSTONE FUND II
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
The financial statements include, in the opinion of management, all
adjustments necessary for a fair presentation of the results of
operations and financial condition. The financial statements and
condensed notes herein should be read in conjunction with the
Partnership's December 31, 1995 Annual Report on Form 10-K.
1. Organization
Dean Witter Cornerstone Fund II (the "Partnership") is a limited
partnership organized to engage in the speculative trading of
commodity futures contracts and forward contracts on foreign
currencies. The Partnership is one of the Dean Witter Cornerstone
Funds, comprised of Dean Witter Cornerstone Fund II, Dean Witter
Cornerstone Fund III, and Dean Witter Cornerstone Fund IV. The
General Partner for the Partnership is Demeter Management
Corporation (the "General Partner"). The commodity broker is Dean
Witter Reynolds Inc. ("DWR"). The trading advisors who make all
trading decisions for the Partnership are Abacus Asset Management
Corporation and John W. Henry & Co., Inc. Both the General Partner
and DWR are wholly owned subsidiaries of Dean Witter, Discover &
Co.
<PAGE>
DEAN WITTER CORNERSTONE FUND II
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. Related Party Transactions
The Partnership's cash is on deposit with DWR in commodity trading
accounts to meet margin requirements as needed. DWR pays interest
on these funds based on current 13-week U.S. Treasury Bill rates.
Brokerage expenses incurred by the Partnership are paid to DWR.
3. Financial Instruments
The Partnership trades futures and forward contracts in interest
rates, stock indices, commodities, currencies, petroleum and
precious metals. Futures and forwards represent contracts for
delayed delivery of an instrument at a specific date and price.
Risk arises from changes in the value of these contracts and the
potential inability of counterparties to perform under the terms of
the contracts. There are numerous factors which may significantly
influence the market value of these contracts, including interest
rate volatility. At March 31, 1996, open contracts were:
Contract or
Notional Amount
$
Exchange Traded Contracts
Financial Futures:
Commitments to Sell 87,695,000
Commodity Futures:
Commitments to Purchase 42,001,000
Commitments to Sell 2,497,000
Foreign Futures:
Commitments to Purchase 1,218,000
Commitments to Sell 29,201,000
Off Exchange Traded Forward
Currency Contracts
Commitments to Purchase 30,660,000
Commitments to Sell 21,266,000
<PAGE>
DEAN WITTER CORNERSTONE FUND II
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
A portion of the amounts indicated as off-balance-sheet risk in
forward currency contracts is due to offsetting 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 gain on open contracts is reported as a component of
"Equity in Commodity futures trading accounts" on the Statement of
Financial Condition and totaled $1,792,687 at March 31, 1996. Of
this amount, $1,774,628 related to exchange-traded futures
contracts and $18,059 related to off-exchange-traded forward
currency contracts.
Exchange-traded-futures contracts held by the Partnership at March
31, 1996 mature through June 1997. Off-exchange-traded forward
currency Contracts held by the Partnership at March 31, 1996 mature
through June 1996. The contract amounts in the above table
represent the 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 the
Partnership's Statements of Financial Condition.
<PAGE>
DEAN WITTER CORNERSTONE FUND II
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
The Partnership also has credit risk because the sole counterparty,
with respect to most of the Partnership's assets, is DWR. Exchange
traded futures contracts are marked to market on a daily basis,
with variations in value settled on a daily basis. DWR, as the
futures commission merchant for all of the Partnership's exchange-
traded futures contracts, is required pursuant to regulations of
the Commodity Futures Trading Commission to segregate from its own
assets and for the sole benefit of its commodity customers all
funds held by DWR with respect to exchange traded futures contracts
including an amount equal to the net unrealized gain on all open
futures contracts, which funds totaled $29,061,006 at March 31,
1996. With respect to the Partnership's off-exchange-traded
forward currency forward 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 Partnership is at risk to the ability of
DWR, the counterparty on all of such contracts, to perform.
For the quarter ended March 31, 1996, the average fair value of
financial instruments held for trading purposes was as follows:
Assets Liabilities
$ $
Exchange-Traded Contracts:
Financial Futures 48,896,000 51,713,000
Commodity Futures 43,478,000 7,954,000
Foreign Futures 29,454,000 15,501,000
Off-Exchange-Traded Foreign
Currency Contracts 28,139,000 35,702,000
<PAGE>
Item 2. 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 are used by the
Partnership as margin to engage in trading commodity futures
contracts and forward contracts on foreign currency. DWR holds
such assets in either designated depositories or in securities
approved by the Commodity Futures Trading Commission for investment
of customer funds. The Partnership's assets held by DWR 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 forward contracts on foreign currency, 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.
<PAGE>
There is no limitation on daily price moves in trading forward
contracts on foreign currency. The markets for some world
currencies have low trading volume and are illiquid, which may
prevent the Partnership from trading in 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.
Capital Resources. The Partnership does not have, nor does it
expect to have, any capital assets. Redemptions, exchanges and
sales of additional Units in the future will impact the amount of
funds available for investments in commodity futures contracts and
other commodity interests. 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
For the Quarter Ended March 31, 1996
For the quarter ended March 31, 1996 the Partnership's total
trading losses net of interest income were $488,316. During the
first quarter, the Partnership posted a loss in Net Asset Value per
Unit. The most significant trading losses were recorded in the
currency markets during February as previously established short
Japanese yen and German mark positions experienced losses due to a
sharp reversal upward in the value of these currencies relative to
the U.S. dollar. However, the losses recorded during February were
partially offset by gains recorded during January from short
positions in the Japanese yen, German mark and Swiss franc as the
<PAGE>
value of these currencies moved lower relative to the U.S. dollar.
Losses were also recorded during February in energy futures trading
and throughout the quarter in soft commodities as prices remained
trendless. During January, the Partnership recorded smaller losses
from energy futures trading as a result of a sharp and sudden
reversal in crude oil prices. During March, long positions in
crude oil futures profited as energy prices moved upward. These
gains, coupled with smaller gains from transactions involving the
Australian dollar and Japanese yen, helped to offset a portion of
the losses recorded during February. The total expenses for the
period were $794,868, resulting in a net loss of $1,283,182. The
value of an individual Unit in the Partnership decreased from
$2,830.65 at December 31, 1995 to $2,711.59 at March 31, 1996.
For the Quarter Ended March 31, 1995
For the quarter ended March 31, 1995, the Partnership's total
trading revenues including interest income were $8,225,788. During
the first quarter, the Partnership posted a gain in Net Asset Value
per Unit. The most significant gains were recorded during February
and March as a result of trading in the currency markets as the
value of the U.S. dollar decreased versus most world currencies,
specifically, the Japanese yen and German mark. Additional gains
were recorded in the financial futures markets as a result of
trading U.S. and European interest rate, Japanese bond and Nikkei
stock index futures during the quarter. Smaller trading profits
were experienced from trading cotton and crude oil as prices moved
higher during February. Smaller losses in the agricultural markets
<PAGE>
from trading soybean products, in international markets from
trading sugar and coffee, and in the metals markets from trading
copper, silver and aluminum offset a portion of overall Fund gains
for the Partnership during the first quarter. The total expenses
for the period were $1,342,187, generating net income of
$6,883,601. The value of an individual Unit in the Partnership
increased from $2,237.75 at December 31, 1994 to $2,741.50 at March
31, 1995.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
A) Exhibits.
None.
B) Reports on Form 8-K. - None.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dean Witter Cornerstone Fund II
(Registrant)
By: Demeter Management Corporation
(General Partner)
May 8, 1996
By:/s/ Patti L. Behnke
Patti L. Behnke
Chief Financial Officer
The General Partner which signed the above is the only party
authorized to act for the Registrant. The Registrant has no
principal executive officer, principal financial officer,
controller, or principal accounting officer and has no Board of
Directors.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from Dean
Witter Cornerstone Fund II and is qualified in its entirety by references
to such financial instruments.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 27,286,378
<SECURITIES> 0
<RECEIVABLES> 159,992<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 29,239,057<F2>
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 29,239,057<F3>
<SALES> 0
<TOTAL-REVENUES> (488,316)<F4>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 794,868
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,283,182)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,283,182)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,283,182)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Receivables include interest receivable of $95,760 and receivable from
DWR of $64,232.
<F2>In addition to cash and receivables, total assets include net unrealized
gain on open contracts of $1,792,687.
<F3>Liabilities include redemptions payable of $302,009, accrued brokerage
commissions of $71,984, accrued management fees of $96,036, common
administrative expenses payable of $51,946 and accrued transaction fees
and costs of $5,536.
<F4>Total revenues includes realized trading revenue of $787,501 net change
in unrealized of $1,575,420 and interest income of $299,603.
</FN>
</TABLE>
