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, 1997 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
<TABLE>
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DEAN WITTER CORNERSTONE FUND II
INDEX TO QUARTERLY REPORT ON FORM 10-Q
March 31, 1997
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Statements of Financial Condition
March 31, 1997 (Unaudited) and December 31, 1996...........2
Statements of Operations for the Quarters Ended
March 31, 1997 and 1996 (Unaudited)........................3
Statements of Changes in Partners' Capital for the
Quarters Ended March 31, 1997 and 1996
(Unaudited)................................................4
Statements of Cash Flows for the Quarters Ended
March 31, 1997 and 1996 (Unaudited)........................5
Notes to Financial Statements (Unaudited)...............6-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 12-16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................17-18
Item 6. Exhibits and Reports on Form 8-K...............19
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<TABLE>
DEAN WITTER CORNERSTONE FUND II
STATEMENTS OF FINANCIAL CONDITION
<CAPTION>
March 31, December 31,
1997 1996
$ $
(Unaudited)
ASSETS
<S> <C> <C>
Equity in Commodity futures trading accounts:
Cash 30,183,303 28,509,266
Net unrealized gain on open contracts 1,347,136 1,316,434
Total Trading Equity 31,530,439 29,825,700
Interest receivable (DWR) 113,622 97,815
Due from DWR 3,996 123,327
Total Assets 31,644,061 30,046,842
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Redemptions payable 614,807 442,706
Accrued incentive fees 345,653 316,750
Accrued management fees 80,540 99,352
Common administrative expenses payable 63,866 52,339
Accrued brokerage commissions (DWR) 35,912 83,967
Accrued transaction fees and costs 2,686 5,558
Total Liabilities 1,143,464 1,000,672
Partners' Capital
Limited Partners (8,736.729 and
8,987.942 Units, respectively) 29,760,064 28,360,195
General Partner (217.400 Units) 740,533 685,975
Total Partners' Capital 30,500,597 29,046,170
Total Liabilities and Partners' Capital 31,644,061 30,046,842
NET ASSET VALUE PER UNIT 3,406.32 3,155.36
The accompanying footnotes are an integral part
of these financial statements.
<PAGE>
<PAGE>
</TABLE>
<TABLE>
DEAN WITTER CORNERSTONE FUND II
STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
For the Quarters Ended March 31,
1997 1996
$ $
REVENUES
<S> <C> <C>
Trading profit (loss):
Realized 2,913,866 787,501
Net change in unrealized 30,702 (1,575,420)
Total Trading Results 2,944,568 (787,919)
Interest Income (DWR) 319,898 299,604
Total Revenues 3,264,466 (488,315)
EXPENSES
Incentive fees 349,649 -
Brokerage commissions (DWR) 288,302 453,306
Management fees 284,584 299,467
Transaction fees and costs 29,161 39,439
Administrative expenses 11,527 2,655
Total Expenses 963,223 794,867
NET INCOME (LOSS) 2,301,243 (1,283,182)
NET INCOME (LOSS) ALLOCATION
Limited Partners 2,246,685 (1,257,299)
General Partner 54,558 (25,883)
NET INCOME (LOSS) PER UNIT
Limited Partners 250.96 (119.06)
General Partner 250.96 (119.06)
The accompanying footnotes are an integral part
of these financial statements.
</TABLE>
<PAGE>
<TABLE>
DEAN WITTER CORNERSTONE FUND II
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the Quarters Ended March 31, 1997 and 1996
(Unaudited)
<CAPTION>
Units of
Partnership Limited General
Interest Partners Partner Total
<S> <C> <C> <C> <C>
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
Partners' Capital
December 31, 1996 9,205.342 $28,360,195 $685,975 $29,046,170
Offering of Units 91.201 304,200 - 304,200
Net Income - 2,246,685 54,558 2,301,243
Redemptions (342.414) (1,151,016) - (1,151,016)
Partners' Capital
March 31, 1997 8,954.129 $29,760,064 $740,533 $30,500,597
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,
1997 1996
$ $
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) 2,301,243 (1,283,182)
Noncash item included in net income (loss):
Net change in unrealized (30,702) 1,575,420
(Increase) decrease in operating assets:
Interest receivable (DWR) (15,807) 11,725
Receivable from DWR 123,327 (38,707)
Increase (decrease) in operating liabilities:
Accrued incentive fees 28,903 (307,567)
Accrued management fees (18,812) (8,202)
Common administrative expenses payable 11,527 (29,368)
Accrued brokerage commissions (DWR) (48,055) (22,469)
Accrued transaction fees and costs (2,872) (1,421)
Net cash provided by (used for) operating activities 2,348,752 (103,771)
CASH FLOWS FROM FINANCING ACTIVITIES
Offering of units 304,200 60,182
Increase in redemptions payable 172,101 167,120
Redemptions of units (1,151,016) (894,342)
Net cash used for financing activities (674,715) (667,040)
Net increase (decrease) in cash 1,674,037 (770,811)
Balance at beginning of period 28,509,266 28,057,189
Balance at end of period 30,183,303 27,286,378
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, 1996 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 ("Demeter"). The commodity broker is Dean
Witter Reynolds Inc. ("DWR"). Both Demeter and DWR are wholly
owned subsidiaries of Dean Witter Discover & Co. ("DWD"). The
trading advisors who make all trading decisions for the
Partnership are Abacus Asset Management Corporation ("ABACUS")
and John W. Henry &
<PAGE>
DEAN WITTER CORNERSTONE FUND II
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Company., Inc. ("JWH"). Effective March 1, 1997, ABACUS was
removed as a trading advisor to the Partnership. Effective April
16, 1997 the assets previously managed by ABACUS were reallocated
to Northfield Trading L.P.
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,
<PAGE>
DEAN WITTER CORNERSTONE FUND II
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
including interest rate volatility. At March 31, 1997 and
December 31, 1996, open contracts were:
Contract or Notional Amount
March 31, 1997 December 31, 1996
$ $
Exchange-Traded Contracts
Financial Futures:
Commitments to Purchase - 18,287,000
Commitments to Sell 34,597,000 70,723,000
Commodity Futures:
Commitments to Purchase 14,621,000 6,346,000
Commitments to Sell 5,312,000 14,596,000
Foreign Futures:
Commitments to Purchase 865,000 57,075,000
Commitments to Sell 12,485,000 8,798,000
Off-Exchange-Traded
Forward Currency Contracts
Commitments to Purchase 25,394,000 26,688,000
Commitments to Sell 31,341,000 18,334,000
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
<PAGE>
DEAN WITTER CORNERSTONE FUND II
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
of Financial Condition and totaled $1,347,136 and $1,316,434 at
March 31, 1997 and December 31, 1996, respectively. Of the
$1,347,136 net unrealized gain on open contracts at March 31,
1997, $1,303,269 related to exchange-traded futures contracts and
$43,867 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.
Exchange-traded-futures contracts held by the Partnership at
March 31, 1997 and December 31, 1996 mature through March 1998
and June 1998, respectively. Off-exchange-traded forward
currency Contracts held by the Partnership at March 31, 1997 and
December 31, 1996 mature through June 1997 and March 1997,
respectively. 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 (CONTINUED)
The Partnership also has credit risk because DWR acts as the
futures commission merchant or the sole counterparty, with
respect to most of the Partnership's assets. Exchange traded
futures contracts are marked to market on a daily basis, with
variations in value settled on a daily basis. DWR, 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 $31,486,572 and
$29,851,316 at March 31, 1997 and December 31, 1996,
respectively. 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,
<PAGE>
DEAN WITTER CORNERSTONE FUND II
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
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, 1997 and the year ended December
31, 1996, the average fair value of financial instruments held
for trading purposes was as follows:
March 31, 1997
Assets Liabilities
$ $
Exchange-Traded Contracts:
Financial Futures 4,572,000 44,911,000
Commodity Futures 14,389,000 10,423,000
Foreign Futures 31,114,000 5,975,000
Off-Exchange-Traded Forward
Currency Contracts 34,336,000 39,199,000
December 31, 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
<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
<PAGE>
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 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.
<PAGE>
Results of Operations
For the Quarter Ended March 31, 1997
For the quarter ended March 31, 1997, the Partnership's total
trading revenues including interest income were $3,264,466.
During the first quarter, the Partnership posted an increase in
Net Asset Value per Unit. The most significant gains were
recorded in currency trading as the value of the U.S. dollar
increased relative to most other world currencies during January
and February. This upward move in value resulted in gains from
short positions in the Japanese yen, most major European
currencies, as well as the Singapore dollar. Smaller currency
gains were recorded during March from short positions in the
Japanese yen and Singapore dollar, as the value of the U.S.
dollar continued to strengthen relative to these currencies.
Gains were also recorded in the soft commodities markets from
long coffee futures positions as prices moved higher during
January and February. In metals, a decline in gold prices to
their lowest levels in over three years, resulted in additional
profits being recorded during January. A portion of the gains in
the first quarter was offset by losses recorded in the energy
markets during January and March as oil and gas prices moved in a
short-term volatile pattern.
<PAGE>
Losses were recorded in the financial futures markets during
February and March as global interest rate futures prices moved
in a choppy pattern. Smaller losses were recorded in the
agricultural futures markets. Total expenses for the period were
$963,223, generating net income of $2,301,243. The value of an
individual Unit in the Partnership increased from $3,155.36 at
December 31, 1996 to $3,406.32 at March 31, 1997.
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 decrease 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 value of these currencies
moved lower relative to the
<PAGE>
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 $794,867,
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.
<PAGE>
PART II. OTHER INFORMATION
Item 1. 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., DWD (all such parties
referred to hereafter as the "Dean Witter Parties"), the
Partnership, certain other limited partnership commodity pools of
which Demeter is the general partner, and certain trading
advisors (including JWH) to those 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. Generally, these
complaints allege, among other things, that the defendants
committed fraud, deceit, misrepresentation, breach of fiduciary
duty, fraudulent and unfair business practices, unjust
enrichment, and conversion in
<PAGE>
connection with the sale and operation of the various limited
partnership commodity pools. 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.
<PAGE>
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 14, 1997 By:
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.
<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-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 30,183,303
<SECURITIES> 0
<RECEIVABLES> 113,622
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 31,644,061<F1>
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 31,644,061<F2>
<SALES> 0
<TOTAL-REVENUES> 3,264,466<F3>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 963,223
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,301,243
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,301,243
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,301,243
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>In addition to cash and receivables, total assets include net unrealized
gain on open contracts of $1,347,136.
<F2>Liabilities include redemptions payable of $614,807, accrued brokerage
commissions of $35,912, accrued management fees of $80,540, accrued
incentive fees of $345,653, common administrative expenses payable
of $63,866 and accrued transaction fees and costs of $2,686.
<F3>Total revenues include realized trading revenue of $2,913,866 net
change in unrealized of $30,702 and interest income of $319,898.
</FN>
</TABLE>
