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, 1998 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 Corporation
Two World Trade Center, 62 Fl. New York, NY 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
March 31, 1998
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Statements of Financial Condition March 31, 1998
(Unaudited) and December 31, 1997.....................2
Statements of Operations for the Quarters Ended
March 31, 1998 and 1997 (Unaudited)...................3
Statements of Changes in Partners' Capital for the
Quarters Ended March 31, 1998 and 1997
(Unaudited)...........................................4
Statements of Cash Flows for the Quarters Ended
March 31, 1998 and 1997 (Unaudited)...................5
Notes to Financial Statements (Unaudited)..........6-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..11-14
Part II. OTHER INFORMATION
Item 1. Legal Proceedings..............................15-16
Item 6. Exhibits and Reports on Form 8-K................. 17
</TABLE>
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DEAN WITTER DIVERSIFIED FUTURES FUND II L.P.
STATEMENTS OF FINANCIAL CONDITION
<CAPTION>
March 31, December 31,
1998 1997
$ $
(Unaudited)
ASSETS
<S> <C> <C>
Equity in Commodity futures trading accounts:
Cash 11,077,699 10,015,151
Net unrealized gain (loss) on open contracts (207,547) 1,749,349
Total Trading Equity 10,870,152 11,764,500
Interest receivable (DWR) 38,095 36,672
Due from DWR 11,523 -
Total Assets 10,919,770 11,801,172
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Redemptions payable 244,341 283,443
Accrued management fee (DWFCM) 27,299 29,503
Total Liabilities 271,640 312,946
Partners' Capital
Limited Partners (4,079.580 and
4,175.580 Units, respectively) 10,383,427 11,209,045
General Partner (104 Units) 264,703 279,181
Total Partners' Capital 10,648,130 11,488,226
Total Liabilities and Partners' Capital 10,919,770 11,80
1,172
NET ASSET VALUE PER UNIT 2,545.22 2,684.43
<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 March 31,
1998 1997
$ $
REVENUES
<S> <C> <C>
Trading profit (loss):
Realized 1,517,668 827,347
Net change in unrealized (1,956,896) 224,763
Total Trading Results (439,228) 1,052,110
Interest Income (DWR) 109,883 128,476
Total Revenues (329,345) 1,180,586
EXPENSES
Brokerage commissions (DWR) 168,240
230,557
Management fees (DWFCM) 83,606 100,157
Transaction fees and costs 14,564 18,218
Total Expenses 266,410 348,932
NET INCOME (LOSS) (595,755) 831,654
NET INCOME (LOSS) ALLOCATION
Limited Partners (581,277) 814,650
General Partner
(14,478) 17,004
NET INCOME (LOSS) PER UNIT
Limited Partners
(139.21) 163.50
General Partner
(139.21) 163.50
<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 Quarters Ended March 31, 1998 and 1997
(Unaudited)
<CAPTION>
Units of
Partnership Limited General
Interest Partners Partner Total
<S> <C> <C> <C>
<C>
Partners' Capital,
December 31, 1996 5,086.521$12,019,867$250,890 $12,27
0,757
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
Partners' Capital,
December 31, 1997 4,279.580 $11,209,045$279,181$11,488,226
Net Loss - (581,277) (14,478) (
595,755)
Redemptions (96.000) (244,341) -
(244,341)
Partners' Capital,
March 31, 1998 4,183.580 $10,383,427$264,703$10,648,
130
<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 Quarters Ended March 31,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) (595,755) 831,654
Noncash item included in net income (loss):
Net change in unrealized 1,956,896 (
224,763)
Increase in operating assets:
Interest receivable (DWR) (1,423) (4,576)
Due from DWR (11,523) (17,141)
Increase (decrease) in operating liabilities:
Accrued management fee (DWFCM) (2,204) 1,387
Accrued brokerage commissions (DWR) -
19,339
Accrued transaction fees and costs -
220
Net cash provided by operating activities 1,345,991
606,120
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in redemptions payable(39,102) 227,187
Redemptions of units (244,341)
(525,091)
Net cash used for financing activities (283,443)
(297,904)
Net increase in cash 1,062,548 308,216
Balance at beginning of period 10,015,151 1
2,415,430
Balance at end of period 11,077,699 1
2,723,646
<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 of Dean Witter Diversified
Futures Fund II L.P. (the "Partnership"). The financial
statements and condensed notes herein should be read in
conjunction with the Partnership's December 31, 1997 Annual
Report on Form 10-K.
1. Organization
Dean Witter Diversified Futures Fund II L.P. 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 ("Demeter").
The non-clearing commodity broker is Dean Witter Reynolds Inc.
("DWR"), with an unaffiliated broker, Carr Futures, Inc.
("Carr"), providing clearing and execution services. The trading
manager who makes all trading decisions for the Partnership is
Dean Witter Futures & Currency Management, Inc. ("DWFCM").
Demeter, DWR, and DWFCM are all wholly-owned subsidiaries of
Morgan Stanley Dean Witter & Co. ("MSDW").
2. Related Party Transactions
The Partnership's cash is on deposit with DWR and Carr in
commodity trading accounts to meet margin requirements as needed.
<PAGE>
DEAN WITTER DIVERSIFIED FUTURES FUND II L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 (if
any) incurred by the Partnership are paid to DWFCM.
3. Financial Instruments
The Partnership trades futures and forward contracts in interest
rates, stock indices, commodities and currencies. 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, 1998 and December 31, 1997, open
contracts were:
Contract or Notional Amount
March 31, 1998 December 31, 1997
$ $
Exchange-Traded Contracts
Financial Futures:
Commitments to Purchase 1,388,000 3,419,000
Commitments to Sell 10,362,000 -
Commodity Futures:
Commitments to Purchase 3,354,000 449,000
Commitments to Sell 3,399,000 7,245,000
Foreign Futures:
Commitments to Purchase 14,374,000 22,719,000
Commitments to Sell 11,438,000 5,110,000
Off-Exchange-Traded
Forward Currency Contracts
Commitments to Purchase 38,225,000 22,401,000
Commitments to Sell 45,148,000 43,183,000
<PAGE>
DEAN WITTER DIVERSIFIED FUTURES FUND II L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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.
The net unrealized gain (loss) on open contracts is reported as a
component of "Equity in Commodity futures trading accounts" on
the Statements of Financial Condition and totaled $(207,547) and
$1,749,349 at March 31, 1998 and December 31, 1997, respectively.
Of the $(207,547) net unrealized loss on open contracts at March
31, 1998, $178,329 related to exchange-traded futures contracts
and $(385,876) related to off-exchange-traded forward currency
contracts.
Of the $1,749,349 net unrealized gain on open contracts at
December 31, 1997, $703,453 related to exchange-traded futures
contracts and $1,045,896 related to off-exchange-traded forward
currency contracts.
Exchange-traded futures contracts held by the Partnership at
March 31, 1998 and December 31, 1997 mature through December 1998
and June 1998, respectively. Off-exchange-traded forward currency
<PAGE>
DEAN WITTER DIVERSIFIED FUTURES FUND II L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
contracts held by the Partnership at March 31, 1998 and December
31, 1997 mature through July 1998 and April 1998, 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.
The Partnership also has credit risk because either DWR or Carr
acts as the futures commission merchant or the 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 and Carr, as the futures commission merchants
for all of the Partnership's exchange-traded futures contracts,
are required pursuant to regulations of the Commodity Futures
Trading Commission ("CFTC") to segregate from their own assets
and for the sole benefit of their commodity customers, all funds
held by them with respect to exchange-traded futures contracts
including an amount equal to the net unrealized gain (loss) on
all open futures contracts, which funds totaled $11,256,028 and
$10,718,604 at March 31, 1998 and December 31, 1997,
respectively. With respect to the Partnership's off-exchange-
traded forward
<PAGE>
DEAN WITTER DIVERSIFIED FUTURES FUND II L.P.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
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 (loss) 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 sole counterparty on all of such contracts, to
perform. Carr's parent, Credit Agricole Indosuez, has guaranteed
Carr's obligations to the Partnership.
For the quarter ended March 31, 1998 and for the year ended
December 31, 1997 the average fair value of financial instruments
held for trading purposes was as follows:
March 1998
Assets Liabilities
$ $
Exchange-Traded Contracts:
Financial Futures 5,369,000 2,591,000
Commodity Futures 951,000 4,898,000
Foreign Futures 20,711,000 7,317,000
Off-Exchange-Traded Forward
Currency Contracts 33,844,000 45,103,000
December 1997
Assets Liabilities
$ $
Exchange-Traded Contracts:
Financial Futures 3,335,000 11,531,000
Commodity Futures 4,614,000 5,619,000
Foreign Futures 13,703,000 7,965,000
Off-Exchange-Traded Forward
Currency Contracts 25,073,000 33,538,000
<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 Carr, the
commodity brokers, and are used by the Partnership as margin to
engage in commodity futures, forward contracts and other
commodity interest trading. DWR and Carr hold such assets in
either designated depositories or in securities approved by the
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, 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 contracts,
forward 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 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 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
For the Quarter Ended March 31, 1998
For the quarter ended March 31, 1998, the Partnership's total
trading losses net of interest income were $329,345. During the
first quarter, the Partnership posted a loss in Net Asset Value
per Unit. The most significant losses were recorded in currency
markets due primarily to short-term volatility caused by the
economic instability in the Far East. During January, the upward
trend in the value of the U.S. dollar reversed lower in response
to the Japanese government's proposed economic stimulus package.
This reversal resulted in losses for previously established short
<PAGE>
Japanese yen positions. Additional currency losses were recorded
in February as the value of the yen moved without consistent
direction. Smaller losses were recorded from transactions
involving the German mark, Australian dollar and British pound.
A small portion of these losses was offset by gains in March from
transactions involving the German mark, Swiss franc and Japanese
yen. In metals, losses were recorded from long silver futures
positions as silver prices reversed lower in February after
rallying higher during January. Smaller losses were recorded
from trading base metals futures during March. Additionally,
trendless movement in soybean futures prices during January and
March resulted in losses for the Partnership. A portion of the
Partnership's overall losses for the quarter was offset by gains
in financial futures trading. The most significant of these
gains were recorded from long European bond futures positions, as
well as from long S&P 500 Index futures positions, as prices in
these markets trended higher throughout a majority of the
quarter. In the soft commodities and energy markets, gains were
recorded from short sugar and crude oil futures positions as
prices trended lower during January and February before reversing
higher during March. Total expenses for the quarter were
$266,410, resulting in a net loss of $595,755. The value of an
individual Unit in the Partnership decreased from $2,684.43 at
December 31, 1997 to $2,545.22 at March 31, 1998.
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.
<PAGE>
During the first quarter, the Partnership posted an increase in
Net Asset Value per Unit. The most significant trading gains were
recorded in the currency markets as a result of a strengthening
in the value of the U.S. dollar versus the Japanese yen and most
major European currencies during January and February. A portion
of these gains was offset by losses from transactions involving
the British pound, as well as the Canadian and Australian
dollars, during February and March. Gains were also recorded in
soft commodities from long coffee futures positions as prices in
this market trended steadily higher during January and February,
before reversing lower during March. Additional trading gains
were recorded in the metals markets from short gold futures
positions as gold prices, which began trending lower during late
1996, continued to trend lower in January. Gains were also
recorded from long base metals futures positions as copper and
zinc futures prices increased from late January to early March.
Smaller gains were recorded in the agricultural markets from long
corn, soybean meal and soybean futures positions. A portion of
the Partnership's overall gains was offset by short-term volatile
price movement in global interest rate futures. Smaller losses
were recorded in the energy markets during January and March.
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.
<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 interest in limited partnership
commodity pools sold by DWR. Named defendants include DWR,
Demeter, DWFCM, MSDW (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. 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 partnership 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 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
<PAGE>
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.
<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 11, 1998 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 reference to such financial instruments.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 11,077,699
<SECURITIES> 0
<RECEIVABLES> 49,618<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 10,919,770<F2>
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 10,919,770<F3>
<SALES> 0
<TOTAL-REVENUES> (329,345)<F4>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 266,410
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (595,755)
<INCOME-TAX> 0
<INCOME-CONTINUING> (595,755)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (595,755)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Receivables include interest receivable for DWR of $38,095 and due
from DWR of $11,523.
<F2>In addition to cash and receivables, total assets include net unrealized
loss on open contracts of $(207,547).
<F3>Liabilities include redemptions payable of $244,341 and accrued management
fee of $27,299.
<F4>Total revenue includes realized trading revenue of $1,517,668, net
change in unrealized of $(1,956,896), and interest income of $109,883.
</FN>
</TABLE>
