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 quarterly period ended September 30, 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. 0-17446
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
September 30, 1998
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Statements of Financial Condition September 30, 1998
(Unaudited) and December 31, 1997.....................2
Statements of Operations for the Quarters Ended
September 30, 1998 and 1997 (Unaudited)...............3
Statements of Operations for the Nine Months Ended
September 30, 1998 and 1997 (Unaudited)...............4
Statements of Changes in Partners' Capital for the
Nine Months ended September 30, 1998 and 1997
(Unaudited)...........................................5
Statements of Cash Flows for the Nine Months Ended
September 30, 1998 and 1997 (Unaudited)...............6
Notes to Financial Statements (Unaudited)..........7-11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..12-21
Part II. OTHER INFORMATION
Item 1. Legal Proceedings.................................22
Item 6. Exhibits and Reports on Form 8-K..................22
</TABLE>
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
DEAN WITTER DIVERSIFIED FUTURES FUND II L.P.
STATEMENTS OF FINANCIAL CONDITION
<CAPTION>
September 30, December 31,
1998 1997
$ $
(Unaudited)
ASSETS
<S> <C> <C>
Equity in Commodity futures trading accounts:
Cash 10,332,845 10,015,151
Net unrealized gain on open contracts 1,337,236 1,749,349
Total Trading Equity 11,670,081 11,764,500
Interest receivable (DWR) 34,463 36,672
Total Assets 11,704,544 11,801,172
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Redemptions payable 516,842 283,443
Incentive fees payable (DWFCM) 71,138 -
Accrued management fees (DWFCM) 29,261 29,503
Total Liabilities 617,241 312,946
Partners' Capital
Limited Partners (3,724.949 and
4,175.580 Units, respectively) 10,786,155 11,209,045
General Partner (104 Units) 301,148 279,181
Total Partners' Capital 11,087,303 11,488,226
Total Liabilities and Partners' Capital 11,704,544 11,801,172
NET ASSET VALUE PER UNIT 2,895.65 2,684.43
<FN>
The accompanying notes 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 September 30,
1998 1997
$ $
REVENUES
<S> <C> <C>
Trading profit:
Realized 1,163,134 183,098
Net change in unrealized 306,818 525,415
Total Trading Results 1,469,952 708,513
Interest Income (DWR) 102,973 117,079
Total Revenues 1,572,925 825,592
EXPENSES
Brokerage commissions (DWR) 165,147 194,316
Management fees (DWFCM) 82,403 87,118
Incentive fees (DWFCM) 71,138 -
Transaction fees and costs 12,423 15,593
Total Expenses 331,111 297,027
NET INCOME 1,241,814 528,565
NET INCOME ALLOCATION
Limited Partners
1,209,586 516,603
General Partner
32,228 11,962
NET INCOME PER UNIT
Limited Partners 309.88
115.02
General Partner 309.88
115.02
<FN>
The accompanying notes 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 Nine Months Ended September 30,
1998 1997
$ $
REVENUES
<S> <C> <C>
Trading profit (loss):
Realized 1,771,997 599,472
Net change in unrealized (412,113) 529,297
Total Trading Results 1,359,884 1,128,769
Interest Income (DWR) 316,651 368,287
Total Revenues 1,676,535 1,497,056
EXPENSES
Brokerage commissions (DWR) 504,745 640,232
Management fees (DWFCM) 245,663 276,598
Incentive fees (DWFCM) 71,138 -
Transaction fees and costs 39,267 50,693
Total Expenses 860,813 967,523
NET INCOME 815,722 529,533
NET INCOME ALLOCATION
Limited Partners 793,755 518,260
General Partner 21,967 11,273
NET INCOME PER UNIT
Limited Partners 211.22 108.39
General Partner 211.22 108.39
<FN>
The accompanying notes 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 Nine Months Ended September 30, 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
$12,270,757
Net Income - 518,260 11,273 529,533
Redemptions (701.352) (1,746,175) -
(1,746,175)
Partners' Capital
September 30, 1997 4,385.169 $10,791,952 $262,163
$11,054,115
Partners' Capital
December 31, 1997 4,279.580 $11,209,045 $279,181
$11,488,226
Net Income - 793,755 21,967 815,722
Redemptions (450.631) (1,216,645) -
(1,216,645)
Partners' Capital
September 30, 1998 3,828.949 $10,786,155 $301,148
$11,087,303
<FN>
The accompanying notes 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 Nine Months Ended September 30,
1998 1997
$ $
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income 815,722 529,533
Noncash item included in net income:
Net change in unrealized 412,113 (
529,297)
Decrease in operating assets:
Interest receivable (DWR) 2,209 5,124
Increase (decrease) in operating liabilities:
Incentive fee payable (DWFCM) 71,138 -
Accrued management fee (DWFCM) (242) (2,439)
Accrued brokerage commissions (DWR) - 11,097
Accrued transaction fees and costs -
(263)
Net cash provided by operating activities1,300,940
13,755
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in redemptions payable 233,399 232,321
Redemptions of units (1,216,645) (
1,746,175)
Net cash used for financing activities (983,246) (
1,513,854)
Net increase (decrease) in cash 317,694 (
1,500,099)
Balance at beginning of period 10,015,151 1
2,415,430
Balance at end of period 10,332,845 1
0,915,331
<FN>
The accompanying notes 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 state-
ments 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 contracts and futures related contracts,
including forward contracts on foreign currencies (collectively,
"futures interests"). The general partner is Demeter Management
Corporation ("Demeter"). The non-clearing commodity broker is
Dean Witter Reynolds Inc. ("DWR"), an affiliate of Demeter. The
clearing commodity broker is 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" or the
"Trading Manager"), also an affiliate of Demeter. Demeter, DWR
and DWFCM are 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 futures
<PAGE>
DEAN WITTER DIVERSIFIED FUTURES FUND II L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
interest 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 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 September 30, 1998 and December 31, 1997,
open contracts were:
Contract or Notional Amount
September 30, 1998 December 31, 1997
$ $
Exchange-Traded Contracts
Financial Futures:
Commitments to Purchase 25,236,000 3,419,000
Commitments to Sell 737,000 -
Commodity Futures:
Commitments to Purchase 1,502,000 449,000
Commitments to Sell 1,341,000 7,245,000
Foreign Futures:
Commitments to Purchase 69,342,000 22,719,000
Commitments to Sell 4,678,000 5,110,000
Off-Exchange-Traded
Forward Currency Contracts
Commitments to Purchase 51,064,000 22,401,000
Commitments to Sell 33,565,000 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 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 gains on open contracts are reported as a
component of "Equity in Commodity futures trading accounts" on
the Statements of Financial Condition and totaled $1,337,236 and
$1,749,349 at September 30, 1998 and December 31, 1997,
respectively.
Of the $1,337,236 net unrealized gain on open contracts at
September 30, 1998, $1,476,226, related to exchange-traded
futures contracts and $(138,990), 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
September 30, 1998 and December 31, 1997 mature through March
1999 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 September 30, 1998 and
December 31, 1997 mature through December 1998 and April 1998,
respectively.
The contract amounts in the above table represent the
Partnership's extent of involvement in a particular class of
financial instrument, but not the credit risk associated with
counterparty non-performance. 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 and Carr act as
the futures commission merchants or the counterparties, 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. Each of DWR and
Carr, as a futures commission merchant for 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 on all open futures contracts, which
funds, in the aggregate, totaled $11,809,071 and $10,718,604 at
September 30, 1998 and December 31, 1997, respectively. With
respect to the Partnership's off-exchange-traded forward currency
<PAGE>
DEAN WITTER DIVERSIFIED FUTURES FUND II L.P.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
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 Carr, the sole
counterparty on all such contracts, to perform. Carr's parent,
Credit Agricole Indosuez, has guaranteed to the Partnership
payment of the net liquidating value of the transactions in the
Partnership's account with Carr (including foreign currency
contracts).
For the nine months ended September 30, 1998 and for the year
ended December 31, 1997, the average fair value of financial
instruments held for trading purposes was as follows:
September 30, 1998
Assets Liabilities
$ $
Exchange-Traded Contracts:
Financial Futures 8,810,000 4,580,000
Commodity Futures 758,000 4,051,000
Foreign Futures 26,680,000 10,285,000
Off-Exchange-Traded Forward
Currency Contracts 43,385,000 47,406,000
December 31, 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 - Assets of the Partnership are deposited with DWR as
non-clearing broker and Carr as clearing broker in separate
futures interest trading accounts established for the Trading
Manager and are used by the Partnership as margin to engage in
futures interest trading. Such assets are held in either non-
interest bearing bank accounts 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 futures interests, it is expected that the
Partnership will continue to own such liquid assets for margin
purposes.
The Partnership's investment in futures interests may, from time
to time, be illiquid. Most United States futures exchanges limit
fluctuations in certain futures interest prices during a single
day by regulations referred to as "daily price fluctuations
limits" or "daily limits". Pursuant to such regulations, during
a single trading day no trades may be executed at prices beyond
the daily limit. If the price for a particular futures interest
has increased or decreased by an amount equal to the daily limit,
positions in such futures interest can neither be taken nor
liquidated unless traders are willing to effect trades at or
within the limit. Futures interests prices have occasionally
moved the daily limit for several consecutive days with little or
no trading. Such market conditions could prevent the Partnership
<PAGE>
from promptly liquidating its futures interests and result in
restrictions on redemptions.
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 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. Future redemptions and
exchanges of Units of Limited Partnership Interest will affect
the amount of funds available for investment in futures interests
in subsequent periods. Since they are at the discretion of the
Limited Partners, it is not possible to estimate the amount and
therefore, the impact of future redemptions and exchanges.
Results of Operations
For the Quarter and Nine Months Ended September 30, 1998
For the quarter ended September 30, 1998, the Partnership
recorded total trading revenues including interest income of
$1,572,925 and posted an increase in Net Asset Value per Unit.
The most significant gains were recorded in the financial futures
markets during August and September as investors sought the
safety of fixed income investments in response to anticipated
<PAGE>
interest rate cuts by the U. S. Federal Reserve and significant
volatility in the global financial markets. As a result, gains
were recorded from long global interest rate futures positions,
particularly U.S., Japanese and European bond futures. Smaller
gains were recorded from long positions in Australian interest
rate futures as prices in these markets also trended higher.
Additional gains were recorded during July and August in the
agricultural markets from short positions in corn and wheat
futures as grain prices continued their downward trend as
supplies remained abundant. These gains were partially offset by
losses recorded in the currency markets from long British pound
positions as its value moved lower in response to uncertainty
about economic developments and interest rate policy in that
country. These losses, coupled with additional currency losses
recorded from transactions involving the Australian dollar and
Swedish krona during September, more than offset gains from long
German mark positions. Additional losses were recorded during
July and September in the metals markets from short aluminum and
copper futures positions as base metals prices reversed higher
early in the quarter. Total expenses for the three months ended
September 30, 1998 were $331,111, resulting in net income of
$1,241,814. The value of an individual Unit in the Partnership
increased from $2,585.77 at June 30, 1998 to $2,895.65 at
September 30, 1998.
<PAGE>
For the nine months ended September 30, 1998, the Partnership
recorded total trading revenues including interest income of
$1,676,535 and posted an increase in Net Asset Value per Unit.
The most significant gains were recorded in the financial futures
markets during the first and third quarters from long European
interest rate futures positions. Additional profits were
recorded from long positions in U.S. and Japanese bond futures as
prices in these markets also trended higher during the third
quarter. Smaller gains were recorded in soft commodities from
short sugar futures positions as prices trended lower during
January, February and September. A portion of these gains was
offset by losses in the metals and currency markets. In metals,
losses were recorded during the first quarter from long silver
futures positions as silver prices reversed lower in late
February after rallying higher during January. In September,
additional losses were recorded from short silver futures
positions as precious metals prices moved higher due to
uncertainty in global stock markets and in the wake of reported
difficulties with several major hedge funds. During July,
smaller losses were recorded from short aluminum and copper
futures positions as base metals prices reversed higher. In
currency trading, losses were recorded from transactions
involving the British pound as its value moved without consistent
direction during the first nine months of the year. Additional
currency losses were recorded during the first quarter due
primarily to short-term volatility caused by the economic
<PAGE>
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, thus
resulting in losses for previously established short Japanese yen
positions. Additional currency losses were recorded in February
as the value of the yen moved without consistent direction.
Total expenses for the nine months ended September 30, 1998 were
$860,813, resulting in net income of $815,722. The value of an
individual Unit in the Partnership increased from $2,684.43 at
December 31, 1997 to $2,895.65 at September 30, 1998.
For the Quarter and Nine Months Ended September 30, 1997
For the quarter ended September 30, 1997 the Partnership recorded
total trading revenues including interest income of $825,592 and
posted an increase in Net Asset Value per Unit. The most
significant gains were recorded in financial futures due
primarily to an upward trend in global interest rate futures
prices during July and September. Smaller profits were recorded
in global stock index futures from short Nikkei Index futures
during the quarter. In the currency markets, gains were recorded
during July from short German mark positions as the value of the
U.S. dollar increased versus the German mark. During August, the
value of the German mark increased versus the U.S. dollar,
resulting in losses for the Partnership. This upward price move
resulted in new long German mark positions, which profited during
September. Additional currency gains were recorded from
transactions involving the Malaysian ringgit, Australian dollar
<PAGE>
and Swedish krona. A portion of these currency gains was offset
by losses experienced from transactions involving the British
pound and Japanese yen. In the energy markets, gains were
recorded from long natural gas positions as prices increased
during August and September. In metals, gains were recorded from
long zinc futures during July and long silver futures positions
during September. Gains were also recorded from short copper
futures positions during August and September. Trading losses in
aluminum futures during August offset a portion of these gains.
In soft commodities and agricultural markets, losses were
recorded as a result of short-term volatile price movement in a
majority of the markets traded, particularly, cocoa, cotton and
corn futures. Total expenses for the three months ended
September 30, 1997 were $297,027, resulting in net income of
$528,565. The value of an individual Unit in the Partnership
increased from $2,405.78 at June 30, 1997 to $2,520.80 at
September 30, 1997.
For the nine months ended September 30, 1997, the Partnership
recorded total revenues including interest income of $1,497,056
and 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
relative to most major currencies during the period January
through April. Additional currency gains were recorded during
the third quarter from transactions involving the German mark,
Malaysian ringgit, Swedish krona and Australian dollar. A
portion of these gains was offset by losses from transactions
<PAGE>
involving the British pound and Canadian dollar during February,
March and May. In metals, gains experienced from short gold
futures positions in January, from long zinc futures positions in
July and long silver futures positions in September more than
offset losses recorded from base metals futures during the second
quarter. A portion of the Partnership's overall gains for the
first nine months of the year was offset by losses from trading
energy futures as oil and gas prices moved without consistent
direction for a majority of the year. One exception in the
energy complex was natural gas futures prices, which increased
during the third quarter, thus resulting in gains from long
positions. In soft commodities, losses recorded from trading
cocoa, cotton and sugar futures during the third quarter offset
profits recorded during the first half of the year from long
coffee futures positions. In agricultural markets, losses were
recorded from trading corn futures during the third quarter and
soybean oil during the first half of the year. In financial
futures, trading gains recorded from short Nikkei Index and long
global interest rate futures during the third quarter more than
offset the prior losses experienced in global interest rate
futures as a result of short-term price volatility during the
first four months of the year. Total expenses for the nine
months ended September 30, 1997 were $967,523, resulting in net
income of $529,533. The value of an individual Unit in the
Partnership increased from $2,412.41 at December 31, 1996 to
$2,520.80 at September 30, 1997.
<PAGE>
Year 2000 Problem - Commodity pools, like financial and business
organizations and individuals around the world, depend on the
smooth functioning of computer systems. Many computer systems in
use today cannot recognize the computer code for the year 2000,
but revert to 1900 or some other date. This is commonly known as
the "Year 2000 Problem". The Partnership could be adversely
affected if computer systems used by it or any third party with
whom it has a material relationship do not properly process and
calculate date-related information and data concerning dates on
or after January 1, 2000. Such a failure could have a negative
impact on the handling or determination of futures trades and
prices and the services provided the Partnership.
MSDW began its planning in response to the Year 2000 Problem in
1995 and currently has several hundred employees working on such
response. It has developed its own Year 2000 compliance plan to
deal with the problem and had the plan approved by the company's
executive management, Board of Directors and Information
Technology Department. Demeter is coordinating with MSDW in
taking steps that both believe are reasonably designed to address
the Year 2000 Problem with respect to Demeter's computer systems
that relate to the Partnership. This includes hardware and
software upgrades, systems consulting and computer maintenance.
Beyond the challenge facing internal computer systems, the
systems failure of any of the third parties with whom the
Partnership has a material relationship - the futures exchanges
and clearing organizations through which it trades, Carr, or its
<PAGE>
Trading Manager - could result in a material financial risk to
the Partnership. Regarding the futures exchanges, all U.S.
futures exchanges will be subject to the monitoring of the CFTC
for their Year 2000 preparedness and the major foreign futures
exchanges are also expected to be subject to market-wide testing
of their Year 2000 compliance during 1999. With respect to Carr
and the Trading Manager, Demeter intends to monitor their
progress throughout 1999 in their Year 2000 compliance and, where
applicable, to test its external interface with Carr and the
Trading Manager.
Finally, MSDW has begun developing various "contingency plans" in
the event that the systems of such third parties fail, and
Demeter intends to consult closely with MSDW in implementing
those plans. MSDW has also recently reported that its
development of such contingency plans is proceeding on schedule.
Despite the best efforts of both Demeter and MSDW, however, there
can be no assurance that the above steps will be sufficient to
avoid any adverse impact to the Partnership, whether from
failures in their own computer systems or those of Carr, the
Trading Manager or any other third party.
Risks Associated with the Euro - On January 1, 1999, eleven
countries in the European Union intend to establish fixed
conversion rates on their existing sovereign currencies and
convert to a common single currency (the "euro"). During a three-
year transition period, the existing sovereign currencies will
continue to exist but only as a fixed denomination of the
<PAGE>
euro. Conversion to the euro will prevent the Trading Manager
from trading in certain currencies and thereby limit its ability
to take advantage of potential market opportunities that might
otherwise have existed had separate currencies been available to
trade, and could result in losses with respect to those
positions.
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Previously reported. See Form 10-Q for the quarter ended March
31, 1998.
Item 6. Exhibits and Reports on Form 8-K
Reports on Form 8-K. - No reports have been filed for the quarter
ended September 30, 1998.
<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)
November 13, 1998 By: /s/ Lewis A. Raibley, III
Lewis A. Raibley, III
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 statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 10,332,845
<SECURITIES> 0
<RECEIVABLES> 34,463<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 11,704,544<F2>
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 11,704,544<F3>
<SALES> 0
<TOTAL-REVENUES> 1,676,535<F4>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 860,813
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 815,722
<INCOME-TAX> 0
<INCOME-CONTINUING> 815,722
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 815,722
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Receivables include interest receivable of $34,463.
<F2>In addition to cash and receivables, total assets include net
unrealized gain on open contracts of $1,337,236.
<F3>Liabilities include redemptions payable of $516,842, accrued
management fees of $29,261 and incentive fees payable of $71,138.
<F4>Total revenues include realized trading revenue of $1,771,997,
net change in unrealized of $(412,113), and interest income of
$316,651.
</FN>
</TABLE>
