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 June 30, 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 No. 33-24662
DEAN WITTER DIVERSIFIED FUTURES FUND II L.P.
(Exact name of registrant as specified in its charter)
Delaware 13-3490286
(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 DIVERSIFIED FUTURES FUND II L.P.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
June 30, 1996
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Statements of Financial Condition June 30, 1996
(Unaudited) and December 31, 1995.....................2
Statements of Operations for the Quarters Ended
June 30, 1996 and 1995 (Unaudited)....................3
Statements of Operations for the Six Months Ended
June 30, 1996 and 1995 (Unaudited)....................4
Statements of Changes in Partners' Capital for the
Six Months ended June 30, 1996 and 1995
(Unaudited)...........................................5
Statements of Cash Flows for the Six Months Ended
June 30, 1996 and 1995 (Unaudited)....................6
Notes to Financial Statements (Unaudited)................ 7-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..11-16
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.................17
</TABLE>
<PAGE>
<TABLE>
DEAN WITTER DIVERSIFIED FUTURES FUND II L.P.
STATEMENTS OF FINANCIAL CONDITION
<CAPTION>
June 30, December 31,
1996 1995
$ $
(Unaudited)
ASSETS
<S> <C> <C>
Equity in commodity futures trading accounts:
Cash 11,941,254 14,643,529
Net unrealized gain on open contracts 200,165 852,419
Total Trading Equity 12,141,419 15,495,948
Interest receivable (DWR) 41,821 54,267
Total Assets 12,183,240 15,550,215
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Redemptions payable 573,646 781,248
Accrued brokerage commissions (DWR) 91,344 116,587
Accrued management fee (DWFCM) 30,448 38,862
Accrued transaction fees and costs 4,020 5,241
Accrued incentive fee (DWFCM) - 3,299
Total Liabilities 699,458 945,237
Partners' Capital
Limited Partners (5,255.870 and
5,657.751 Units, respectively) 11,260,957 14,341,357
General Partner (104 Units) 222,825 263,621
Total Partners' Capital 11,483,782 14,604,978
Total Liabilities and Partners' Capital 12,183,240 15,550,215
NET ASSET VALUE PER UNIT 2,142.55 2,534.82
<FN>
The accompanying footnotes are an integral part
of these financial statements.
</TABLE>
<PAGE>
<TABLE>
DEAN WITTER DIVERSIFIED FUTURES FUND II L.P.
STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
For the Quarters Ended June 30,
1996 1995
$ $
REVENUES
<S> <C> <C>
Trading profit (loss):
Realized 494,900 2,907,471
Net change in unrealized (618,638) (2,605,532)
Total Trading Results (123,738) 301,939
Interest Income (DWR) 128,405 202,791
Total Revenues 4,667 504,730
EXPENSES
Brokerage fees (DWR) 282,808 418,114
Management fees (DWFCM) 94,269 139,372
Transaction fees and costs 21,676 32,176
Incentive fees (DWFCM) - (43,159)
Total Expenses 398,753 546,503
NET LOSS (394,086) (41,773)
NET LOSS ALLOCATION
Limited Partners (386,804) (41,086)
General Partner (7,282) (687)
NET LOSS PER UNIT
Limited Partners (70.03) (6.61)
General Partner (70.03) (6.61)
<FN>
The accompanying footnotes are an integral part
of these financial statements.
</TABLE>
<PAGE>
<TABLE>
DEAN WITTER DIVERSIFIED FUTURES FUND II L.P.
STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
For the Six Months Ended June 30,
1996 1995
$ $
REVENUES
<S> <C> <C>
Trading profit (loss):
Realized (1,028,811) 3,426,690
Net change in unrealized (652,254) (1,232,773)
Total Trading Results (1,681,065) 2,193,917
Interest Income (DWR) 261,863 389,439
Total Revenues (1,419,202) 2,583,356
EXPENSES
Brokerage fees (DWR) 586,617 802,037
Management fees (DWFCM) 195,539 267,346
Transaction fees and costs 51,985 70,057
Incentive fees (DWFCM) (2,590) 164,727
Total Expenses 831,551 1,304,167
NET INCOME (LOSS) (2,250,753) 1,279,189
NET INCOME (LOSS) ALLOCATION
Limited Partners (2,209,957) 1,258,715
General Partner (40,796) 20,474
NET INCOME (LOSS) PER UNIT
Limited Partners (392.27) 196.86
General Partner (392.27) 196.86
<FN>
The accompanying footnotes are an integral part
of these financial statements.
</TABLE>
<PAGE>
<TABLE>
DEAN WITTER DIVERSIFIED FUTURES FUND II L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the Six Months Ended June 30, 1996 and 1995
(Unaudited)
<CAPTION>
Units of
Partnership Limited General
Interest Partners Partner Total
<S> <C> <C> <C> <C>
Partners' Capital
December 31, 1994 6,492.295 $16,676,005 $271,481 $16,947,486
Net Income - 1,258,715 20,474 1,279,189
Redemptions (287.482) (808,135) - (808,135)
Partners' Capital
June 30, 1995 6,204.813 $17,126,585 $291,955 $17,418,540
Partners' Capital
December 31, 1995 5,761.751 $14,341,357 $263,621 $14,604,978
Net Loss - (2,209,957) (40,796) (2,250,753)
Redemptions (401.881) (870,443) - (870,443)
Partners' Capital
June 30, 1996 5,359.870 $11,260,957 $222,825 $11,483,782
<FN>
The accompanying footnotes are an integral part
of these financial statements.
</TABLE>
<PAGE>
<TABLE>
DEAN WITTER DIVERSIFIED FUTURES FUND II L.P.
STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
For the Six Months Ended June 30,
1996 1995
$ $
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) (2,250,753) 1,279,189
Noncash item included in net income (loss):
Net change in unrealized 652,254 1,232,773
(Increase) decrease in operating assets:
Interest receivable (DWR) 12,446 (388)
Increase (decrease) in operating liabilities:
Accrued brokerage commissions (DWR) (25,243) 4,490
Accrued management fee (DWFCM) (8,414) 1,496
Accrued transaction fees and costs (1,221) 1,515
Accrued incentive fee (DWFCM) (3,299) 149,477
Net cash provided by (used for) operating activities (1,624,230) 2,668,552
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in redemptions payable (207,602) (27,951)
Redemptions of units (870,443) (808,135)
Net cash used for financing activities (1,078,045) (836,086)
Net increase (decrease) in cash (2,702,275) 1,832,466
Balance at beginning of period 14,643,529 15,466,376
Balance at end of period 11,941,254 17,298,842
<FN>
The accompanying footnotes are an integral part
of these financial statements.
</TABLE>
<PAGE>
DEAN WITTER DIVERSIFIED FUTURES FUND II L.P.
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 Diversified Futures Fund II L.P. (the "Partnership")
was organized to engage in the speculative trading of commodity
futures and futures-related contracts, including forward contracts
on foreign currencies. The General Partner for the Partnership is
Demeter Management Corporation (the "General Partner"). The
commodity broker is Dean Witter Reynolds Inc. ("DWR"). The trading
manager who makes all trading decisions for the Partnership is Dean
Witter Futures and Currency Management, Inc. (DWFCM"), an affiliate
of DWR. The General Partner, DWR and DWFCM are all wholly owned
subsidiaries of Dean Witter, Discover & Co.
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.
Management and incentive fees incurred by the Partnership are paid
to DWFCM.
<PAGE>
DEAN WITTER DIVERSIFIED FUTURES FUND II L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 specified date and price.
Risk arises from changes in the value of these contracts and the
potential inability of counterparties to perform under the terms of
the contracts. There are numerous factors which may significantly
influence the market value of these contracts, including interest
rate volatility. At June 30, 1996, open contracts were:
Contract or
Notional Amount
$
Exchange-Traded Contracts
Financial Futures:
Commitments to Purchase 246,000
Commitments to Sell 4,465,000
Commodity Futures:
Commitments to Purchase 1,871,000
Commitments to Sell 4,074,000
Foreign Futures:
Commitments to Purchase 11,798,000
Commitments to Sell 18,025,000
Off-Exchange-Traded Forward
Currency Contracts
Commitments to Purchase 39,525,000
Commitments to Sell 41,091,000
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.
<PAGE>
DEAN WITTER DIVERSIFIED FUTURES FUND II L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 $200,165 at June 30, 1996. Of this
amount, $365,842 related to exchange-traded futures contracts and
($165,677) related to off-exchange-traded forward currency
contracts.
Exchange-traded futures contracts held by the Partnership at June
30, 1996 mature through March 1997. Off-exchange-traded forward
currency contracts held by the Partnership at June 30, 1996 mature
through August 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.
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 credited or charged to the Fund's account on a daily basis.
DWR, as the futures commission merchant for all of the
Partnership's exchange-traded futures contracts, is required
<PAGE>
DEAN WITTER DIVERSIFIED FUTURES FUND II L.P.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
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
$12,307,096 at June 30, 1996. With respect to the Partnership's
off-exchange-traded forward currency contracts, there are no daily
settlements of variations in value nor is there any requirement
that an amount equal to the net unrealized gain 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 such contracts, to perform.
For the quarter ended June 30, 1996, the average fair value of
financial instruments held for trading purposes was as follows:
Assets Liabilities
$ $
Exchange-Traded Contracts:
Financial Futures 21,144,000 16,847,000
Commodity Futures 11,963,000 3,225,000
Foreign Futures 20,073,000 9,479,000
Off-Exchange-Traded Forward
Currency Contracts 37,877,000 47,397,000
4. Subsequent Event
Effective September 1, 1996, brokerage commissions will be accrued
at 80% of DWR's published non-member rates on a half-turn basis
with maximum total brokerage commissions and transaction fees
chargeable to the Partnership capped at .65% per month of adjusted
Net Assets as defined in the Limited Partnership Agreement.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity - The Partnership's assets are on deposit in separate
commodity interest trading accounts with DWR, and are used by the
Partnership as margin to engage in commodity futures, forward
contracts, and other commodity interest trading. 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, forward contracts on foreign currencies 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, forward
contracts and other commodity interests may be illiquid. If the
price for the 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 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.
Capital Resources - The Partnership does not have, nor does it
expect to have, any capital assets. Redemptions of additional
Units in the future will impact the amount of funds available for
investments in commodity futures, forward contracts on foreign
currencies and other commodity interests. As redemptions are at
the discretion of the Limited Partners, it is not possible to
estimate the amount and therefore, the impact of future
redemptions.
Results of Operations
For the Quarter and Six Months Ended June 30, 1996
For the quarter ended June 30, 1996, the Partnership's total
trading revenues including interest income were $4,667. During the
second quarter, the Partnership posted a decrease in Net Asset
Value per Unit. The most significant trading losses during the
quarter were recorded in the financial futures markets as trendless
price movement was experienced in non-U.S. interest rate futures,
particularly in Australian, Japanese and European interest rate
<PAGE>
futures. Trading gains recorded during April and May from short
U.S. interest rate futures positions, as prices in these markets
moved lower, offset a portion of these losses. Additional losses
for the Partnership were recorded in global stock index futures as
prices moved without consistent direction throughout the quarter.
In soft commodities, losses experienced from short-term volatile
movement in sugar and coffee futures prices during April and May,
as well as from losses in coffee and cocoa futures during June,
more than offset gains recorded in June from short cotton positions
as prices moved lower and from long sugar positions as prices moved
higher. In currency trading, gains were recorded during April from
short German mark and Swiss franc positions as the value of the
German mark and Swiss franc moved lower relative to the U.S. dollar
and other world currencies. Smaller trading gains were recorded by
the Partnership during May from long Australian dollar positions as
the value of the Australian dollar moved higher relative to other
world currencies. Additional gains were recorded in metals trading
from short copper, gold and silver futures positions as prices
moved lower during June. In the agricultural markets, gains
recorded from long corn and wheat futures positions as prices moved
higher during April, offset losses in corn and soybean products in
June. Smaller gains were recorded in the energy markets as gains
in natural gas futures more than offset losses in other gas and oil
products. Total expenses for the quarter were $398,753, resulting
in a net loss of $394,086. The value of an individual Unit in the
Partnership increased from $2,212.58 at March 31, 1996 to $2,142.55
at June 30, 1996.
<PAGE>
For the six months ended June 30, 1996, the Partnership's total
trading losses net of interest income were $1,419,202. During the
first half of the year, the Partnership posted a decrease in Net
Asset Value per Unit primarily as a result of a sudden and sharp
trend reversal during February in the downward move in the value of
the Japanese yen and most major European currencies, which had
resulted in gains during January. Trading gains recorded during
March from transactions involving the Australian dollar and
Japanese yen offset a portion of the overall losses experienced in
the currency markets during February. Additionally, trendless
price movement in global interest rate futures trading during the
second quarter, resulted in losses for the Partnership. In energy
trading, gains in natural gas futures during June, as well as from
gains in natural gas futures during June, as well as from gains in
crude oil futures during March, offset a portion of overall losses
for the first half of the year. In agricultural trading, long
positions in corn and wheat futures profited from increasing prices
early in the second quarter. These gains helped to mitigate losses
experienced from trading soybean futures during the first quarter.
Short-term volatile price movement in soft commodities futures
resulted in losses for the Partnership during a majority of the
first half of the year. Total expenses for the period were
$831,551, resulting in a net loss of $2,250,753. The value of an
individual Unit in the Partnership decreased from $2,534.82 at
December 31, 1995 to $2,142.55 at June 30, 1996.
<PAGE>
For the Quarter and Six Months Ended June 30, 1995
For the quarter ended June 30, 1995 the Partnership's total
revenues including interest income were $504,730. During the
second quarter, the Partnership posted a decrease in Net Asset
Value per Unit. The most significant trading losses during the
quarter were recorded from transactions involving most European
currencies versus the U.S. dollar during May and June. Additional
losses were recorded in the agricultural markets as a result of
losses in soybean products and livestock futures. Trading losses
were also experienced in the metals markets as base metals prices
moved in a trendless pattern throughout the quarter. In soft
commodities trading losses in cotton, cocoa and orange juice more
than offset smaller gains in coffee trading. Trading losses
experienced in the energy markets were the result of losses in
heating oil, natural gas and gas oil during April and June.
Trading gains in the financial futures markets during April and May
offset a portion of overall losses recorded by the Partnership
during the second quarter. The majority of these gains were
recorded from trading both global interest rate and stock index
futures. Total expenses for the period were $546,503, resulting in
a net loss of $41,773. The value of an individual Unit in the
Partnership decreased from $2,813.87 at March 31, 1995 to $2,807.26
at June 30, 1995.
For the six months ended June 30, 1995 the Partnership's total
revenues including interest income were $2,583,356. During the
first six months, the Partnership posted an increase in Net Asset
Value per Unit. The most significant trading gains were recorded
<PAGE>
during February and March in the currency markets as a result of a
decrease in value of the U.S. dollar versus the Japanese yen and
major European currencies such as the Swiss franc, German mark and
French franc. Additional gains were recorded in the financial
futures markets as a result of trading Japanese and U.S. interest
rate futures and global stock index futures during the first half
of the year. A portion of the Partnership's gains recorded during
the first half of the year were offset due to losses recorded in
the agricultural markets from trading soybean products and in soft
commodities as a result of trading losses in sugar, cotton, coffee
and cocoa. Additional losses were recorded in the energy and
metals markets during the first half of 1995. Total expenses for
the period were $1,304,167, resulting in net income of $1,279,189.
The value of an individual Unit in the Partnership increased from
$2,610.40 at December 31, 1994 to $2,807.26 at June 30, 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 Diversified Futures
Fund II L.P. (Registrant)
By: Demeter Management Corporation
(General Partner)
August 9, 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 Diversified Futures Fund II L.P. and is qualified in its entirety
by references to such financial instruments.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 11,941,254
<SECURITIES> 0
<RECEIVABLES> 41,821
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 12,183,240<F1>
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 12,183,240<F2>
<SALES> 0
<TOTAL-REVENUES> (1,419,202)<F3>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 831,551
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,250,753)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,250,753)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,250,753)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>In addition to cash and receivables, total assets include net unrealized
gain on open contracts of $200,165.
<F2>Liabilities include redemptions payable of $573,646, accrued brokerage
commissions of $91,344, accrued management fees of $30,448 and accrued
transaction fees and costs of $4,020.
<F3>Total revenues includes realized trading revenue of $(1,028,811), net
change in unrealized of $(652,254), and interest income of $261,863.
</FN>
</TABLE>
