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 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
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<TABLE>
DEAN WITTER DIVERSIFIED FUTURES FUND II L.P.
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..........12-15
Part II. OTHER INFORMATION
Item 1. Legal Proceedings..............................16-17
Item 6. Exhibits and Reports on Form 8-K................. 18
</TABLE>
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<TABLE>
DEAN WITTER DIVERSIFIED FUTURES FUND II L.P.
STATEMENTS OF FINANCIAL CONDITION
<CAPTION>
March 31, December 31,
1997 1996
$ $
(Unaudited)
ASSETS
<S> <C> <C>
Equity in Commodity futures trading accounts:
Cash 12,723,646 12,415,430
Net unrealized gain on open contracts 384,956 160,193
Total Trading Equity 13,108,602 12,575,623
Interest receivable (DWR) 46,619 42,043
Due from DWR 17,141 -
Total Assets 13,172,362 12,617,666
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Redemptions payable 525,091 297,904
Accrued brokerage commissions (DWR) 34,476 15,137
Accrued management fee (DWFCM) 32,925 31,538
Accrued transaction fees and costs 2,550 2,330
Total Liabilities 595,042 346,909
Partners' Capital
Limited Partners (4,778.675 and
4,982.521 Units, respectively) 12,309,426 12,019,867
General Partner (104 Units) 267,894 250,890
Total Partners' Capital 12,577,320 12,270,757
Total Liabilities and Partners' Capital 13,172,362 12,617,666
NET ASSET VALUE PER UNIT 2,575.91 2,412.41
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 March 31,
1997 1996
$ $
REVENUES
<S> <C> <C>
Trading profit (loss):
Realized 827,347 (1,523,712)
Net change in unrealized 224,763 (33,617)
Total Trading Results 1,052,110 (1,557,329)
Interest Income (DWR) 128,476 133,457
Total Revenues 1,180,586 (1,423,872)
EXPENSES
Brokerage fees (DWR) 230,557 303,808
Management fees (DWFCM) 100,157 101,269
Transaction fees and costs 18,218 30,307
Incentive fees (DWFCM) - (2,590)
Total Expenses 348,932 432,794
NET INCOME (LOSS) 831,654 (1,856,666)
NET INCOME (LOSS) ALLOCATION
Limited Partners 814,650 (1,823,153)
General Partner 17,004 (33,513)
NET INCOME (LOSS) PER UNIT
Limited Partners 163.50 (322.24)
General Partner 163.50 (322.24)
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 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 5,761.751 $14,341,357 $263,621 $14,604,978
Net Loss - (1,823,153) (33,513) (1,856,666)
Redemptions (134.141) (296,797) - (296,797)
Partners' Capital,
March 31, 1996 5,627.610 $12,221,407 $230,108 $12,451,515
Partners' Capital,
December 31, 1996 5,086.521 $12,019,867 $250,890 $12,270,757
Net Income - 814,650 17,004 831,654
Redemptions (203.846) (525,091) $ - (525,091)
Partners' Capital,
March 31, 1997 4,882.675 $12,309,426 $267,894 $12,577,320
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 Quarters Ended March 31,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) 831,654 (1,856,666)
Noncash item included in net income (loss):
Net change in unrealized (224,763) 33,617
(Increase) decrease in operating assets:
Interest receivable (DWR) (4,576) 12,086
Due from DWR (17,141)
Increase (decrease) in operating liabilities:
Accrued brokerage commissions (DWR) 19,339 (20,009)
Accrued management fee (DWFCM) 1,387 (6,669)
Accrued transaction fees and costs 220 (3,577)
Accrued incentive fee (DWFCM) - (3,299)
Net cash provided by (used for) operating activities 606,120 (1,844,517)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in redemptions payable 227,187 (484,451)
Redemptions of units (525,091) (296,797)
Net cash used for financing activities (297,904) (781,248)
Net increase (decrease) in cash 308,216 (2,625,765)
Balance at beginning of period 12,415,430 14,643,529
Balance at end of period 12,723,646 12,017,764
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, 1996 Annual Report on Form 10-K.
1. Organization
Dean Witter Diversified Futures Fund II L.P. (the "Partnership")
is a limited partnership 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 "Demeter"). The commodity broker is Dean Witter Reynolds
Inc. ("DWR"). The trading manager who makes all trading
decisions for the Partnership is Dean Witter Futures & Currency
Management, Inc. ("DWFCM"), an affiliate of DWR. Demeter, DWR,
and DWFCM are all wholly owned subsidiaries of Dean Witter,
Discover & Co. ("DWD").
<PAGE>
DEAN WITTER DIVERSIFIED FUTURES FUND II L.P.
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. Management and incentive fees incurred by the
Partnership are paid to DWFCM.
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 March 31, 1997 and
December 31, 1996, open contracts were:
<PAGE>
DEAN WITTER DIVERSIFIED FUTURES FUND II L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Contract or Notional Amount
March 31, 1997 December 31, 1996
$ $
Exchange-Traded Contracts
Financial Futures:
Commitments to Sell 55,000,000 -
Commodity Futures:
Commitments to Purchase 8,586,000 2,026,000
Commitments to Sell 3,489,000 6,083,000
Foreign Futures:
Commitments to Purchase 3,466,000 6,629,000
Commitments to Sell 26,271,000 11,748,000
Off-Exchange-Traded
Forward Currency Contracts
Commitments to Purchase 17,847,000 33,150,000
Commitments to Sell 30,483,000 42,844,000
A portion of the amounts indicated as off-balance sheet risk in
forward foreign 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 net 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 $384,956 and
$160,193 at March 31, 1997 and December 31, 1996, respectively.
Of the $384,956 net unrealized gain on open contracts at March
31, 1997 $686,490 related to exchange traded futures contracts
and $(301,534) related to off-exchange-traded forward currency
contracts. Of the $160,193 unrealized gain on open contracts at
December 31, 1996, $423,229 related to exchange-traded futures
contracts and $(263,036) 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 December 1997
and June 1997, respectively. Off-exchange-traded forward currency
contracts held by the Partnership at March 31, 1997 and December
31, 1996 mature through May 1997 and February 1997, respectively.
The contract amounts in the above table represent the
Partnership's extent of involvement in the particular class of
<PAGE>
DEAN WITTER DIVERSIFIED FUTURES FUND II L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 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 $13,410,136 and $12,838,659 at March 31, 1997
and December 31, 1996, respectively. With respect to the
Partnership's off-exchange-traded forward currency contracts,
there are no daily settlements of variations in value nor is
there
<PAGE>
DEAN WITTER DIVERSIFIED FUTURES FUND II L.P.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
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 DWR, the counterparty on all of
such contracts, to perform.
For the quarter ended March 31, 1997 and for the year ended
December 31, 1996 the average fair value of financial instruments
held for trading purposes was as follows:
March 1997
Assets Liabilities
$ $
Exchange-Traded Contracts:
Financial Futures 695,000 23,903,000
Commodity Futures 5,217,000 4,146,000
Foreign Futures 15,589,000 10,014,000
Off-Exchange-Traded Forward
Currency Contracts 19,997,000 32,648,000
December 1996
Assets Liabilities
$ $
Exchange-Traded Contracts:
Financial Futures 15,923,000 8,572,000
Commodity Futures 7,188,000 5,152,000
Foreign Futures 22,067,000 8,118,000
Off-Exchange-Traded Forward
Currency Contracts 37,689,000 41,562,000
<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 and 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
<PAGE>
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.
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 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 $1,180,586.
During the first quarter, the Partnership posted an increase in
Net Asset Value per Unit. Total expenses for the period were
$348,932, generating net income of $831,654. The value of an
individual Unit in the Partnership increased from $2,412.41 at
December 31, 1996 to $2,575.91 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 $1,423,872. During
the first quarter, the Partnership posted a loss in Net Asset
Value per Unit. The most significant trading losses during the
quarter were recorded in the currency and energy markets during
February. In the currency markets, a sudden and sharp trend
reversal in the downward move in the value of the Japanese yen
and most major European currencies, which had posted gains during
January, resulted in losses from short positions in the Japanese
yen, German mark, Swiss franc and British pound. Trading gains
recorded during March from transactions involving the Australian
<PAGE>
dollar and Japanese yen offset a portion of the overall losses
experienced in the currency markets during February. Additional
losses were experienced in the energy markets due primarily to
short-term volatile movement in gas and oil prices during
February. A portion of these losses was offset by gains in crude
oil during March. In the financial futures markets, losses were
recorded in most global interest rate and stock index futures as
these prices moved in a short-term volatile pattern during the
quarter. Trading gains in British long gilt, French bond and
U.S. Treasury note futures offset a portion of these losses.
Smaller losses were recorded in the agricultural markets from
trading soybean futures and in the soft commodities markets from
trading cotton and coffee futures. Total expenses for the period
were $432,794, resulting in a net loss of $1,856,666. The value
of an individual Unit in the Partnership decreased from $2,534.82
at December 31, 1995 to $2,212.58 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, DWFCM, DWD
(all such parties referred to hereafter as the "Dean Witter
Parties"), the Partnership, certain other limited partnership
commodity pools of which Demeter is the general partner, and
certain trading advisors to those pools. 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 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
connection with the sale and operation of the various limited
<PAGE>
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 Diversified Futures
Fund II L.P. (Registrant)
By: Demeter Management Corporation
(General Partner)
May 13, 1997 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.
<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> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 12,723,646
<SECURITIES> 0
<RECEIVABLES> 63,760<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 13,172,362<F2>
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 13,172,362<F3>
<SALES> 0
<TOTAL-REVENUES> 1,180,586<F4>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 348,932
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 831,654
<INCOME-TAX> 0
<INCOME-CONTINUING> 831,654
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 831,654
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Receivables include interest receivable for DWR of $46,619 and due
from DWR of $17,141.
<F2>In addition to cash and receivables, total assets include net unrealized
gain on open contracts of $384,956.
<F3>Liabilities include redemptions payable of $525,091, accrued brokerage
commissions of $34,476, accrued management fees of $32,925 and accrued
transaction fees and costs of $2,550.
<F4>Total revenues include realized trading revenue of $827,347, net
change in unrealized of $224,763, and interest income of $128,476.
</FN>
</TABLE>
