Annual Report (Form 10-K), fiscal year 1994

ITEM 1. BUSINESS.
The Registrant, Dean Witter Realty Income Partnership II, L.P. (the "Partnership"), is a limited partnership formed in September 1984 under the Uniform Limited Partnership Act of the State of Delaware for the purpose of investing primarily in income-producing office, industrial and retail properties.
The Managing General Partner of the Partnership is Dean Witter Realty Income Properties II Inc. (the "Managing General Partner"), a Delaware corporation which is wholly-owned by Dean Witter Realty Inc. The Associate General Partner is Dean Witter Realty Income Associates II, L.P. (the "Associate General Partner"), a Delaware limited partnership, the general partner of which is Dean Witter Realty Income Associates II Inc., a wholly-owned subsidiary of the Managing General Partner. The Managing General Partner manages and controls all aspects of the business of the Partnership. The terms of transactions between the Partnership and its affiliates are set forth in Item 13 below.
The Partnership issued 177,023 units of limited partnership interest (the "Units") with gross proceeds from the offering of $177,023,000. The offering has been terminated and no additional Units will be sold.
The proceeds from the offering were used to make equity investments in six office properties and three retail properties (one of which was sold in fiscal 1993) which were acquired without permanent mortgage debt. The properties are described in Item 2



ITEM 2. PROPERTIES
The Partnership owns directly or through a partnership interest, the following eight property interests. Generally, the leases pertaining to the properties provide for pass-throughs to the tenants of their pro-rata share of certain operating expenses.
An affiliate of the Partnership is the property manager for Century Square, Taxter Corporate Park, Framingham Corporate Center, Wallkill Plaza and the co-property manager for the Glenhardie Corporate Center.
Further information relating to the Partnership's properties is included in Item 7 and footnotes 4, 5 and 6 to the consolidated financial statements included in Item 8 below.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS. Neither the Partnership nor any of its properties are subject to any material pending legal proceedings.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted during the fourth quarter of the fiscal year to a vote of Unit holders.
PART II.
ITEM 5.

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
An established public trading market for the Units does not exist, and it is not anticipated that such a market will develop in the future. Accordingly, information as to the market value of a Unit at any given date is not available. However, the Partnership does allow its limited partners (the "Limited Partners") to transfer their units if a suitable buyer can be located.
As of October 31, 1994, there were 28,015 holders of limited partnership interests.
The Partnership is a limited partnership and, accordingly, does not pay dividends. It does, however, make quarterly distributions of cash to its partners. Pursuant to the partnership agreement, distributable cash, as defined, is paid 90% to the Limited Partners and 10% to the general partners (the "General Partners").
The Partnership paid quarterly cash distributions during the year ended October 31, 1994 aggregating $30.00 per Unit to Limited Partners. The total distribution amounted to $5,900,766, with $5,310,690 distributed to the Limited Partners and $590,076 distributed to the General Partners. Additionally, in fiscal 1994, the Partnership repaid $928,139 of deferred distributions owed to the General Partners.
On November 29, 1994, the Partnership paid a cash distribution of $10.00 per Unit to the Limited Partners. The cash distribution aggregated $1,966,922 with $1,770,230 distributed to the Limited Partners and $196,692 distributed to the General Partners. The Partnership also repaid $928,139 of deferred distributions owed to the General Partners.
The Partnership anticipates making regular distributions to its partners in the future.
Sale or financing proceeds will be distributed, to the extent available, first, to each Limited Partner, until there has been a return of the Limited Partner's capital contribution plus cumulative distributions of distributable cash and sale or refinancing proceeds in an amount sufficient to provide a 9% cumulative annual return on the Limited Partner's adjusted capital contribution. Thereafter, any remaining sale or financing proceeds will be distributed 85% to the Limited Partners and 15% to the General Partners after the Managing General Partner receives a brokerage fee of up to 3% of the selling price of any equity investment.
Taxable income generally is allocated in the same proportions as distributions of distributable cash or sale or financing proceeds. In the event there is no distributable cash or sale or financing proceeds, taxable income is allocated 90% to the Limited Partners and 10% to the General Partners. Any tax loss will be allocated 90% to the Limited Partners and 10% to the General Partners.
The above financial data should be read in conjunction with the consolidated financial statements and the related notes appearing in Item 8.
ITEM 7.


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Liquidity and Capital Resources
The Partnership raised $177,023,000 in a public offering which was terminated in 1985. The Partnership has no plans to raise additional capital.
The Partnership has purchased six properties (one of which was sold in May 1993) and made three investments in partnerships on an all-cash basis. The Partnership's acquisition program has been completed. No additional investments are planned.
Many real estate markets are stabilizing, primarily due to the continued absence of significant construction activity. However, the recovery of office properties will be slow because tenant demand is weak as a result of continued downsizing by many major corporations. Increased consumer spending has helped the retail property market although increased interest rates have slowed spending recently. Most geographic regions of the country are improving, with the exception of Southern California, where the impact of the defense industry reductions has not been offset by growth in other industries.
Real estate markets are generally divided into sub-markets by geographic location and property type. Not all sub-markets have been affected equally by the above factors.
The Partnership's liquidity depends on the cash flow from operations of its properties, expenditures for tenant improvements and leasing commissions in connection with the leasing of vacant space. In 1994, all of the Partnership's properties generated positive cash flow from operations, and it is anticipated that they will continue to do so.
In 1994, the Partnership's cash flow from operations and distributions received from its joint venture investment exceeded distributions to partners, its joint venture investment, and capital expenditures. The high occupancy level and limited turnover of leases at the properties in the portfolio has resulted in an increase in the Partnership's cash reserves through October 31, 1994. Consequently, in 1994 the Partnership increased the Limited Partners' distribution rate from 2% to 4% per Unit. In 1995, the Partnership expects that cash flows from operations and distributions received from its joint venture investment will exceed distributions to partners at the 4% per Unit rate. However, the excess will not be sufficient to fully fund certain capital improvements; these will be funded from Partnership cash reserves. Additionally, through November 1994, the Partnership has repaid $1,856,278 of the deferred distributions owed to the General Partners. The Partnership expects to repay the remaining $1,856,278 of deferred distributions in fiscal 1995.
In 1994, the Partnership incurred approximately $2,367,000 of tenant and building improvements, including approximately $1,091,000 at Glenhardie Corporate Center and approximately $755,000 at United Services Life Building.
Subsequent to year-end, the lease term of Countrywide Credit, the largest tenant at the Century Square office building, was extended from March 2000 to March 2010. The rental rate will remain constant over the next five years rather than increasing, as provided for under the original leases.
In fiscal 1993, the Partnership concluded that there was a decline in the value of the Taxter Corporate Park property, and that the decline was other-than-temporary. Accordingly, the general partners of the partnership which owns the property recorded a loss on impairment of its investment in the property of approximately $27.8 million at October 31, 1993. The Partnership's share of this loss, which was included in equity in earnings (loss) of joint ventures was approximately $4.1 million.
In February 1992, the Partnership established a $5,000,000 line of credit with a bank. Borrowings bore interest payable monthly, at prime plus three quarters percent. In June 1993, the loan balance of $4,250,035 was repaid in full from proceeds from the sale of the Sardis Crossing retail property.
On November 29, 1994, the Partnership paid a cash distribution of $10.00 per Unit to the Limited Partners. The cash distribution aggregated $1,966,922 with $1,770,230 distributed to the Limited Partners and $196,692 distributed to the General Partners.
Operations
Fluctuations in the Partnership's operating results for the year ended October 31, 1994 compared to 1993 and for the year ended October 31, 1993 compared to 1992 are primarily attributable to the following:
The decrease in rental income in 1994 as compared to 1993 is primarily due to the sale of the Sardis Crossing property in May 1993 and lower rents recognized at Glenhardie Corporate Center I and Wallkill Plaza in 1994, offset by higher rental income at the United Services Life Building and the Framingham Corporate Center. The increase in rental income in 1993 as compared to 1992 is primarily due to increased rents recognized at Century Square and Pavilions at East Lake in 1993, partially offset by the loss of rental income from the sale of the Sardis Crossing property.
The increase in equity in earnings (loss) of joint venture in 1994 compared to 1993 and the decrease in equity in earnings (loss) of joint venture in 1993 compared to 1992 are due primarily to the Partnership's share of the writedown for other than temporary impairment in value of Taxter Corporate Park of approximately $4.1 million in the fourth quarter of 1993. The decrease in equity in earnings (loss) of joint venture in 1993 compared to 1992 was partially offset by a real estate tax refund recognized at Taxter Corporate Park in the fourth quarter of 1993.
The increase in interest and other income in 1993 compared to 1992 is primarily due to the receipt of lease cancellation income totaling $289,000 at the Glenhardie Corporate Center and the United Services Life Building in 1993.
The decrease in property operating expenses in 1994 compared to 1993 is primarily attributable to lower utility and repair and maintenance expenses at the Glenhardie office buildings in 1994 and the sale of the Sardis Crossing property in 1993, partially offset by increased legal fees incurred in connection with the lawsuit against a construction contractor at the Century Square office building. The increase in property operating expenses in 1993 compared to 1992 is primarily attributable to increased costs relating to higher average occupancies at United Services Life and Pavilions at East Lake properties in 1993, and legal fees incurred in 1993 at Century Square.
The increase in depreciation in 1994 compared to 1993 corresponds to increased expenditures for tenant improvements in 1994.
The decrease in amortization in 1994 compared to 1993 is due to a substantial portion of leasing commissions becoming fully amortized in 1993 at the United Services Life and Pavilions at East Lake properties, and the sale of the Sardis Crossing property. These decreases are partially offset by amortization on leasing commissions incurred primarily at the United Services Life Building, Glenhardie Corporate Center and Pavilions at East Lake in fiscal 1993 and 1994. The increase in amortization in 1993 compared to 1992 is primarily due to increased expenditures for leasing commissions at Framingham Corporate Center and the United Services Life building in 1992, and the Glenhardie Corporate Center and the United Services Life building in 1993.
The decreases in interest expense in 1994 compared to 1993 and 1993 compared to 1992 is due to the repayment of the bank loan in June 1993. The decrease in interest expense in 1993 compared to 1992 is also due to a decrease in the effective interest rate on the Partnership's debt during 1993.
A summary of the markets in which the Partnership's office properties are located and the performance of each property is as follows:
The Boston suburban office market, the location of the Framingham Corporate Center, is one of the most active markets in the Boston area. The current market vacancy rate is approximately 6%. As of October 31, 1994, the building was 99% leased to 13 tenants. Major tenants include ASB Meditest and Blue Cross/Blue Shield, both of whose leases expire in 1996.
The office market in Westchester County, New York, the location of Taxter Corporate Park, has experienced a significant decline. The current vacancy level in the Westchester office market is approximately 25% as many major tenants in the market are consolidating their operations. It is unlikely that this vacant space will be absorbed in this market for several years. However, as of October 31, 1994, the property was 98% leased to 26 tenants. One of the tenants acquired a long-term leasehold interest in approximately 20% of the space at the property in 1988. This tenant does not pay rent, but is responsible for its share of real estate taxes and certain operating expenses. The lease of Fuji Photo Film, the other major tenant (covering 21% of the property's space) expires in 1996.
Glenhardie Corporate Center I and II are located in the mid-range office building market in Valley Forge, Pennsylvania where the vacancy rate is approximately 14%. As of October 31, 1994, the buildings were 98% leased to 11 tenants. Major tenants include Sun Guard Data Corporation and Users Inc, whose leases expire in 1998 and 1999, respectively.
In Pasadena, California, the location of the Century Square office building, the office market overall vacancy rate is approximately 16%, and it is expected to face some deterioration in the near term as a result of downsizing by two large employers in that market. However, Century Square remained 100% leased during the year. The occupancy of the property's largest tenant, Countrywide Credit, remained at approximately 83%.
The office market at Bellevue, Washington, the location of the United Services Life Building, has experienced minimal space absorption in 1994, primarily as a result of a slowdown in the local economy and the availability of sub-lease space. As of October 31, 1994, the building was 98% leased to 30 tenants. Major tenants include, Asymetrix Corporation and United Service Life. Asymetrix Corporation's leases expire in 1996 and 1998 and United Services Life's lease expires in 1995.
A summary of the markets in which the Partnership's retail properties are located and the leasing status of each property are as follows:
Pavilions at East Lake is located in an area of suburban Atlanta, a market which experienced significant retail development in the 1980's. Retail occupancy in the area eroded during the recession. Additionally, a new shopping center recently opened which directly competes with the property. Increased vacancies and downward pressure on rents are expected to continue in the near term. As of October 31, 1994, the center was 91% leased to 35 tenants. In the third quarter of 1994, A&P, the anchor tenant vacated its space. However, A&P is obligated to continue to pay rent until its lease expires in 2006. A&P is actively seeking a replacement tenant.
Wallkill Plaza, located in Wallkill, New York, has been affected by both the recession and new retail development. A regional mall opened in the area in mid-1992. As a result, rental levels, which have already experienced a decline, may experience further downward pressure. As of October 31, 1994, the center was 86% leased to 18 tenants. Anchor tenants include Bradlees and Shop Rite, both of whose leases expire in 2006.
Inflation
Inflation has been consistently low during the periods presented in the financial statements and, as a result, has not had a significant effect on the operations of the Partnership or its properties.
Independent Auditors' Report
To The Partners of Dean Witter Realty Income Partnership II, L.P.:
We have audited the accompanying consolidated balance sheets of Dean Witter Realty Income Partnership II, L.P. and consolidated partnerships (the "Partnership") as of October 31, 1994 and 1993, and the related consolidated statements of income, partners' capital, and cash flows for each of the three years in the period ended October 31, 1994. Our audits also included the financial statement schedules listed in the index at Item 8.



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None. PART III.
ITEM 10.



ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The Partnership is a limited partnership which has no directors or officers.
The directors and executive officers of the Managing General Partner are as follows:
Position with the Name Managing General Partner
William B. Smith Chairman of the Board of Directors E. Davisson Hardman, Jr. President and Director Lawrence Volpe Controller, Assistant Secretary and Director Ronald T. Carman Secretary and Director
All of the directors have been elected to serve until the next annual meeting of the shareholder of the Managing General Partner or until their successors are elected and qualify. Each of the officers has been elected to serve until his successor is elected and qualifies.
William B. Smith, age 51, is a Managing Director of Dean Witter Realty Inc. and has been with Dean Witter Realty Inc. since April 1982.
E. Davisson Hardman, Jr., age 45, is a Managing Director of Dean Witter Realty Inc. and has been with Dean Witter Realty Inc. since April 1982.
Lawrence Volpe, age 47, is a Director and the Controller of Dean Witter Realty Inc. He is a Senior Vice President and Controller of Dean Witter Reynolds Inc., which he joined in 1983.
Ronald T. Carman, age 43, is a Director and the Secretary of Dean Witter Realty Inc. He is a Senior Vice President and Associate General Counsel of Dean Witter Reynolds Inc., which he joined in 1984.
There is no family relationship among any of the foregoing persons.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION
The General Partners are entitled to receive cash distributions, when and as cash distributions are made to the Limited Partners, and a share of taxable income or tax loss. Descriptions of such distributions and allocations are in Item 5 above. The General Partners deferred receipt of cash distributions of $147,520 and $295,039 during the years ended October 31, 1993 and 1992, respectively. At October 31, 1994 the General Partners have deferred receipt of a total of $2,784,417 of such distributions.
The General Partners and their affiliates were paid certain fees and reimbursed for certain expenses. Information concerning such fees and reimbursements is contained in Note 9 of the Notes to Consolidated Financial Statements in Item 8 above.
The directors and officers of the Partnership's Managing General Partner received no remuneration from the Partnership.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
(a) No person is known to the Partnership to be the beneficial owner of more than five percent of the Units.
(b) The directors of the Managing General Partner and the officers and directors of the Managing General Partner as a group own the following Units as of January 27, 1995:
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
As a result of their being partners of a limited partnership which is the limited partner of the Associate General Partner, certain current and former officers and directors of the Managing General Partner also own indirect partnership interests in the Partnership. The Partnership Agreement of the Partnership provides that cash distributions and allocations of income and loss to the general partners be distributed or allocated 50% to the Managing General Partner and 50% to the Associate General Partner. The General Partners' share of cash distributions and income or loss is described in Item 5 above.
All of the outstanding shares of common stock of the Managing General Partner are owned by Dean Witter Realty Inc. ("Realty"), a Delaware corporation which is a wholly-owned subsidiary of Dean Witter, Discover & Co. The general partner of the Associate General Partner is Dean Witter Realty Income Associates II Inc., which is a wholly-owned subsidiary of the Managing General Partner. The limited partner of the Associate General Partner is LSA 84 II L.P., a Delaware limited partnership. Realty and certain current and former officers and directors of the Managing General Partner are partners of LSA 84 II L.P. Additional information with respect to the directors and executive officers and compensation of the Managing General Partner and affiliates is contained in Items 10 and 11 above.
The General Partners and their affiliates were paid certain fees and reimbursed for certain expenses. Information concerning such fees and reimbursements is contained in Note 9 to the Consolidated Financial Statements in Item 8 above.
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this Annual Report:
1. Financial Statements (see Index to Financial Statements filed as part of Item 8 of this Annual Report).
2. Financial Statement Schedules (see Index to Financial Statements filed as part of Item 8 of this Annual Report).
3. Exhibits (3) Amended and Restated Agreement of Limited Partnership dated as of September 6, 1984 set forth in Exhibit A to the Prospectus included in Registration Statement Number 2-93207 is incorporated herein by reference.
(4) Not applicable.
(9) Not applicable.
(10) Purchase and Sale Agreements for properties purchased were filed as Exhibits to Form 8-K on June 6, 1985, July 15, 1985, November 13, 1985, February 27, 1986, August 29, 1986, September 4, 1986, December 16, 1986 and December 30, 1986 and are incorporated herein by reference.
(11) Not applicable.
(12) Not applicable.
(13) Not applicable.
(18) Not applicable.
(19) Not applicable.
(22) Subsidiaries: Century Square Ventures, a California limited partnership; Framingham Corporate Center LP, a Massachusetts limited partnership.
(23) Not applicable.
(24) Not applicable.
(25) Not applicable.
(28) Not applicable.
(29) Not applicable.
(b) No forms 8-K were filed by the Partnership during the last quarter of the period covered by this report.