10-Q 1 sf16223q.txt WORLD MONITOR TRUST -- SERIES D -- FORM 10Q 9/26/2003 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 26, 2003 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 number: 0-32685 WORLD MONITOR TRUST II--SERIES D -------------------------------------------------------------------------------- (Exact name of Registrant as specified in its charter) Delaware 13-4058318 -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) One New York Plaza, 13th Floor, New York, New York 10292 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (212) 778-7866 N/A -------------------------------------------------------------------------------- Former name, former address and former fiscal year, if changed since last report Indicate by check CK 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 _CK_ No __ Indicate by check CK whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes __ No _CK_ PART I. FINANCIAL INFORMATION ITEM I. FINANCIAL STATEMENTS WORLD MONITOR TRUST II--SERIES D (a Delaware Business Trust) STATEMENTS OF FINANCIAL CONDITION (Unaudited)
September 26, December 31, 2003 2002 ---------------------------------------------------------------------------------------------------- ASSETS Cash in commodity trading accounts $21,392,737 $7,491,183 Net unrealized gain on open futures contracts 972,654 131,946 Accrued interest receivable 17,556 -- ------------- ------------ Total assets $22,382,947 $7,623,129 ------------- ------------ ------------- ------------ LIABILITIES AND TRUST CAPITAL Liabilities Incentive fees payable $ 296,740 $ -- Commissions and other transaction fees payable 104,323 41,392 Accrued expenses 80,280 60,329 Management fees payable 20,895 8,135 ------------- ------------ Total liabilities 502,238 109,856 ------------- ------------ Commitments Trust capital Limited interests (196,232.907 and 79,736.725 interests outstanding) 21,657,184 7,429,420 General interests (2,025.373 and 900 interests outstanding) 223,525 83,853 ------------- ------------ Total trust capital 21,880,709 7,513,273 ------------- ------------ Total liabilities and trust capital $22,382,947 $7,623,129 ------------- ------------ ------------- ------------ Net asset value per limited and general interest $ 110.36 $ 93.17 ------------- ------------ ------------- ------------ ---------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these statements.
2 WORLD MONITOR TRUST II--SERIES D (a Delaware Business Trust) Condensed Schedules of Investments (Unaudited)
September 26, 2003 December 31, 2002 -------------------------------- -------------------------------- Net Unrealized Net Unrealized Gain (Loss) Gain (Loss) as a % of Net Unrealized as a % of Net Unrealized Futures and Forward Contracts Trust Capital Gain (Loss) Trust Capital Gain (Loss) ------------------------------------------------------------------------------------------------------------- Futures contracts purchased: Stock indices $ (24,565) $ (30,745) Interest rates 962,640 293,123 Currencies 843,465 134,410 Commodities 235,628 (12,350) -------------- -------------- Net unrealized gain on futures contracts purchased 9.22% 2,017,168 5.12% 384,438 -------------- -------------- Futures contracts sold: Stock indices 8,129 1,984 Interest rates (1,045,283) (209,367) Currencies (7,360) (45,109) -------------- -------------- Net unrealized loss on futures contracts sold (4.77) (1,044,514) (3.36) (252,492) ------ -------------- ------ -------------- Net unrealized gain on futures contracts 4.45% $ 972,654 1.76% $ 131,946 ------ -------------- ------ -------------- ------ -------------- ------ -------------- Forward currency contracts purchased 0.02% $ 5,148 (0.04)% $ (3,158) Forward currency contracts sold (0.02) (5,148) 0.04 3,158 ------ -------------- ------ -------------- Net unrealized gain (loss) on forward contracts 0.00% $ 0 0.00% $ 0 ------ -------------- ------ -------------- ------ -------------- ------ -------------- Settlement Currency--Futures Contracts British pound (0.62)% $ (134,693) (1.44)% $ (107,988) Canadian dollar 1.04 227,239 (0.56) (42,128) Euro 3.14 687,933 2.30 172,455 Japanese yen (0.48) (105,479) (0.10) (7,306) Australian dollar (0.38) (82,116) 0.05 3,790 Swiss franc 0.11 23,066 0.28 20,752 Swedish krona 0.05 11,074 0.00 (9) U.S. dollar 1.58 345,630 1.23 92,380 ------ -------------- ------ -------------- Total 4.45% $ 972,654 1.76% $ 131,946 ------ -------------- ------ -------------- ------ -------------- ------ -------------- ------------------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these statements.
3 WORLD MONITOR TRUST II--SERIES D (a Delaware Business Trust) STATEMENTS OF OPERATIONS (Unaudited)
For the period from For the period from For the period from For the period from January 1, 2003 to January 1, 2002 to June 28, 2003 to June 29, 2002 to September 26, 2003 September 27, 2002 September 26, 2003 September 27, 2002 ------------------------------------------------------------------------------------------------------------------- REVENUES Net realized gain on commodity transactions $ 3,178,467 $ 806,614 $ 661,868 $ 209,349 Change in net unrealized gain/loss on open commodity positions 840,708 (100,569) 1,112,840 (663,951) Interest income 120,972 69,034 48,608 28,480 ------------------- ------------------- ------------------- ------------------- 4,140,147 775,079 1,823,316 (426,122) ------------------- ------------------- ------------------- ------------------- EXPENSES Commissions and other transaction fees 711,852 261,446 328,380 104,527 General and administrative 99,851 104,470 34,164 42,633 Management fees 142,201 51,514 65,785 20,707 Incentive fees 626,802 5,791 296,740 -- ------------------- ------------------- ------------------- ------------------- 1,580,706 423,221 725,069 167,867 General and administrative expenses borne by the Managing Owner and its affiliates (3,115) (41,857) (1,992) (17,685) ------------------- ------------------- ------------------- ------------------- Net expenses 1,577,591 381,364 723,077 150,182 ------------------- ------------------- ------------------- ------------------- Net income $ 2,562,556 $ 393,715 $ 1,100,239 $(576,304) ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ALLOCATION OF NET INCOME Limited interests $ 2,532,665 $ 389,379 $ 1,088,671 $(570,265) ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- General interests $ 29,891 $ 4,336 $ 11,568 $ (6,039) ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- NET INCOME PER WEIGHTED AVERAGE LIMITED AND GENERAL INTEREST Net income per weighted average limited and general interest $ 17.61 $ 6.20 $ 5.66 $ (7.96) ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- Weighted average number of limited and general interests outstanding 145,480 63,541 194,353 72,361 ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- -------------------------------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN TRUST CAPITAL (Unaudited)
LIMITED GENERAL INTERESTS INTERESTS INTERESTS TOTAL ----------------------------------------------------------------------------------------------------- Trust capital--December 31, 2002 80,636.725 $ 7,429,420 $ 83,853 $ 7,513,273 Contributions 127,970.107 12,771,600 109,781 12,881,381 Net income 2,532,665 29,891 2,562,556 Redemptions (10,348.552) (1,076,501) -- (1,076,501) ------------ ----------- --------- ----------- Trust capital--September 26, 2003 198,258.280 $21,657,184 $223,525 $21,880,709 ------------ ----------- --------- ----------- ------------ ----------- --------- ----------- ----------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these statements.
4 WORLD MONITOR TRUST II--SERIES D (a Delaware Business Trust) NOTES TO FINANCIAL STATEMENTS SEPTEMBER 26, 2003 (Unaudited) A. General These financial statements have been prepared without audit. In the opinion of Prudential Securities Futures Management Inc. (the 'Managing Owner'), the financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to state fairly the financial position of World Monitor Trust II--Series D ('Series D') as of September 26, 2003 and December 31, 2002 and the results of its operations for the periods from January 1, 2003 to September 26, 2003 ('Year-To-Date 2003'), January 1, 2002 to September 27, 2002 ('Year-To-Date 2002'), June 28, 2003 to September 26, 2003 ('Third Quarter 2003') and June 29, 2002 to September 27, 2002 ('Third Quarter 2002'). However, the operating results for these interim periods may not be indicative of the results expected for a full year. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted. It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto included in Series D's annual report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2002. In February 2003, Prudential Financial, Inc. ('Prudential') and Wachovia Corp. ('Wachovia') announced an agreement to combine their separate retail securities brokerage and clearing businesses under a new holding company named Wachovia/Prudential Financial Advisors, LLC ('WPFA'), to be owned 62% by Wachovia and 38% by Prudential. The transaction closed July 1, 2003. As a result, the retail brokerage operations of Prudential Securities Incorporated ('PSI') were contributed to Wachovia Securities, LLC ('Wachovia Securities'). Wachovia Securities is wholly-owned by WPFA and is a registered broker-dealer and a member of the National Association of Securities Dealers, Inc. ('NASD') and all major securities exchanges. Effective July 1, 2003, PSI changed its name to Prudential Equity Group, Inc. ('PEG'). PEG remains an indirectly wholly-owned subsidiary of Prudential and is a registered broker-dealer and a member of the NASD and all major securities exchanges. PEG continues to conduct the equity research, domestic and international equity sales and trading operations, and commodity brokerage and derivative operations it previously conducted as PSI. The Managing Owner also remains an indirectly wholly-owned subsidiary of Prudential. B. Related Parties The Managing Owner of Series D is a wholly-owned subsidiary of PEG, which, in turn, is an indirect wholly-owned subsidiary of Prudential. Series D pays the Managing Owner or its affiliates for services they perform for Series D, which include, but are not limited to: brokerage services; accounting and financial management; registrar, transfer and assignment functions; investor communications; printing and other administrative services. However, the amount of general and administrative expenses incurred by Series D is limited to 1.5% of its net asset value during the year (with a maximum of 1.25% attributable to other than legal and audit expenses). Because general and administrative expenses exceeded such limitations, a portion of the expenses related to services the Managing Owner performed for Series D, other than brokerage services, during Year-To-Date 2003, Year-To-Date 2002, Third Quarter 2003 and Third Quarter 2002 have been borne by the Managing Owner and its affiliates. Additionally, PEG or its affiliates paid the costs of organizing Series D and continue to pay the costs of offering its limited interests. 5 The expenses incurred by Series D for services performed by the Managing Owner and its affiliates for Series D were:
Year-To-Date Year-To-Date Third Quarter Third Quarter 2003 2002 2003 2002 ------------ ------------ ------------- ------------- Commissions $678,281 $247,632 $ 314,582 $ 99,541 General and administrative 59,049 56,235 22,462 22,372 ------------ ------------ ------------- ------------- 737,330 303,867 337,044 121,913 General and administrative expenses borne by the Managing Owner and its affiliates (3,115) (41,857) (1,992) (17,685) ------------ ------------ ------------- ------------- $734,215 $262,010 $ 335,052 $ 104,228 ------------ ------------ ------------- ------------- ------------ ------------ ------------- -------------
Expenses payable to the Managing Owner and its affiliates (which are included in accrued expenses) as of September 26, 2003 and December 31, 2002 were $37,848 and $4,880, respectively. All of the proceeds of the offering of Series D are received in the name of Series D and are deposited in trading or cash accounts at PEG, Series D's commodity broker. Series D's assets are maintained with PEG or, for margin purposes, with the various exchanges on which Series D is permitted to trade. Series D receives interest income on 100% of its average daily equity maintained in cash in its accounts with PEG during each month at the 13-week Treasury bill discount rate. Series D, acting through its trading advisor, executes over-the-counter, spot, forward and/or option foreign exchange transactions with PEG. PEG then engages in back-to-back trading with an affiliate, Prudential-Bache Global Markets Inc. ('PBGM'). PBGM attempts to earn a profit on such transactions. PBGM keeps its prices on foreign currency competitive with other interbank currency trading desks. All over-the-counter currency transactions are conducted between PEG and Series D pursuant to a line of credit. PEG may require that collateral be posted against the marked-to-market positions of Series D. C. Derivative Instruments and Associated Risks Series D is exposed to various types of risks associated with the derivative instruments and related markets in which it invests. These risks include, but are not limited to, risk of loss from fluctuations in the value of derivative instruments held (market risk) and the inability of counterparties to perform under the terms of Series D's investment activities (credit risk). Market risk Trading in futures and forward contracts (including foreign exchange) involves entering into contractual commitments to purchase or sell a particular commodity at a specified date and price. The gross or face amount of the contracts, which is typically many times that of Series D's net assets being traded, significantly exceeds Series D's future cash requirements since Series D intends to close out its open positions prior to settlement. As a result, Series D is generally subject only to the risk of loss arising from the change in the value of the contracts. As such, Series D considers the 'fair value' of its derivative instruments to be the net unrealized gain or loss on the contracts. The market risk associated with Series D's commitments to purchase commodities is limited to the gross or face amount of the contracts held. However, when Series D enters into a contractual commitment to sell commodities, it must make delivery of the underlying commodity at the contract price and then repurchase the contract at prevailing market prices or settle in cash. Since the repurchase price to which a commodity can rise is unlimited, entering into commitments to sell commodities exposes Series D to unlimited risk. Market risk is influenced by a wide variety of factors including government programs and policies, political and economic events, the level and volatility of interest rates, foreign currency exchange rates, the diversification effects among the derivative instruments Series D holds and the liquidity and inherent volatility of the markets in which Series D trades. Credit risk When entering into futures or forward contracts, Series D is exposed to credit risk that the counterparty to the contract will not meet its obligations. The counterparty for futures contracts traded on United States and most foreign futures exchanges is the clearinghouse associated with the particular exchange. In general, 6 clearinghouses are backed by their corporate members who are required to share any financial burden resulting from the non-performance by one of their members and, as such, should significantly reduce this credit risk. In cases where the clearinghouse is not backed by the clearing members (i.e., some foreign exchanges), it is normally backed by a consortium of banks or other financial institutions. On the other hand, if Series D enters into forward transactions, the sole counterparty is PEG, Series D's commodity broker. Series D has entered into a master netting agreement with PEG and, as a result, when applicable, presents unrealized gains and losses on open forward positions as a net amount in the statements of financial condition. The amount at risk associated with counterparty non-performance of all of Series D's contracts is the net unrealized gain included in the statements of financial condition; however, counterparty non-performance on only certain of Series D's contracts may result in greater loss than non-performance on all of Series D's contracts. There can be no assurance that any counterparty, clearing member or clearinghouse will meet its obligations to Series D. The Managing Owner attempts to minimize both credit and market risks by requiring Series D and its trading advisor to abide by various trading limitations and policies. The Managing Owner monitors compliance with these trading limitations and policies which include, but are not limited to, executing and clearing all trades with creditworthy counterparties; limiting the amount of margin or premium required for any one commodity or all commodities combined; and generally limiting transactions to contracts which are traded in sufficient volume to permit the taking and liquidating of positions. Additionally, pursuant to the advisory agreement among Series D, the Managing Owner and the trading advisor, Series D shall automatically terminate the trading advisor if the net asset value allocated to the trading advisor declines by 40% from the value at the beginning of any year or since the commencement of trading activities. Furthermore, the Second Amended and Restated Declaration of Trust and Trust Agreement of World Monitor Trust II provides that Series D will liquidate its positions, and eventually dissolve, if Series D experiences a decline in the net asset value of 50% from the value at the beginning of any year or since the commencement of trading activities. In each case, the decline in net asset value is after giving effect for distributions, contributions and redemptions. The Managing Owner may impose additional restrictions (through modifications of trading limitations and policies) upon the trading activities of the trading advisor as it, in good faith, deems to be in the best interest of Series D. PEG, when acting as Series D's futures commission merchant in accepting orders for the purchase or sale of domestic futures contracts, is required by Commodity Futures Trading Commission ('CFTC') regulations to separately account for and segregate as belonging to Series D all assets of Series D relating to domestic futures trading and is not allowed to commingle such assets with other assets of PEG. At September 26, 2003, such segregated assets totalled $6,122,782. Part 30.7 of the CFTC regulations also requires PEG to secure assets of Series D related to foreign futures trading, which totalled $16,242,609 at September 26, 2003. There are no segregation requirements for assets related to forward trading. As of September 26, 2003, all of Series D's open futures contracts mature within one year. 7 D. Financial Highlights
Year-To-Date Year-To-Date Third Quarter Third Quarter 2003 2002 2003 2002 ------------ ------------ ------------- ------------- Performance per Interest Net asset value, beginning of period $ 93.17 $81.84 $104.65 $ 96.30 ------------ ------------ ------------- ------------- Net realized gain (loss) and change in unrealized gain/loss on commodity transactions 26.78 11.25 9.18 (6.37) Interest income 0.83 1.07 0.25 0.39 Net expenses (10.42) (5.91) (3.72) (2.07) ------------ ------------ ------------- ------------- Net increase for the period 17.19 6.41 5.71 (8.05) ------------ ------------ ------------- ------------- Net asset value, end of period $ 110.36 $88.25 $110.36 $ 88.25 ------------ ------------ ------------- ------------- ------------ ------------ ------------- ------------- Total return 18.45% 7.83% 5.46% (8.36)% Ratio to average net assets (annualized) Interest income 1.08% 1.67% 0.94% 1.71% Net expenses, including incentive fees of 5.58%, 0.10% and 5.73 during Year-To-Date 2003, Year-To-Date 2002 and Third Quarter 2003 13.99% 9.20% 13.97% 9.02%
These financial highlights represent the overall results of Series D during Year-To-Date 2003, Year-To-Date 2002, Third Quarter 2003 and Third Quarter 2002. An individual limited Owner's actual results may differ depending on the timing of contributions and redemptions. 8 WORLD MONITOR TRUST II--SERIES D (a Delaware Business Trust) ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources Series D commenced operations on March 13, 2000 with gross proceeds of $5,279,158 allocated to commodities trading. Additional contributions raised through the continuous offering Year-To-Date 2003, Third Quarter 2003 and for the period from March 13, 2000 (commencement of operations) to September 26, 2003 resulted in additional gross proceeds to Series D of $12,881,381, $3,660,900 and $20,652,193, respectively. Additional limited interests of Series D will continue to be offered on a weekly basis at the net asset value per Interest until the subscription maximum of $50,000,000 is sold. Limited interests in Series D may be redeemed on a weekly basis but are subject to a redemption fee if transacted within one year of the effective date of purchase. Redemptions of limited interests for Year-To-Date 2003, Third Quarter 2003 and for the period from March 13, 2000 (commencement of operations) to September 26, 2003 were $1,076,501, $185,256 and $6,024,908, respectively. Redemptions of general interests for the period from March 13, 2000 (commencement of operations) to September 26, 2003 were $54,024. There were no redemptions of general interests for Year-To-Date 2003. Limited interests and general interests are sometimes collectively referred to as 'Interests'. Additionally, Interests owned in any series of World Monitor Trust II (Series D, E or F) may be exchanged, without any charge, for Interests of one or more other series of World Monitor Trust II on a weekly basis for as long as Interests in those series are being offered to the public. World Monitor Trust--Series E and Series F are no longer offered to the public as those series substantially achieved their subscription maximums during June 2003 and July 2003, respectively. As such, Series D may no longer be exchanged for the other series. In addition, since July 2003, the offering of interests in Series D has been temporarily suspended, pending certain regulatory approvals that the Managing Owner expects to obtain in the near future. Accordingly, at this time, Interests may not be exchanged. Exchanges from Series E and Series F into Series D may resume once the requirements discussed above are complied with. Future contributions, redemptions and exchanges will impact the amount of funds available for investment in commodity contracts in subsequent periods. At September 26, 2003, 100% of Series D's net assets were allocated to commodities trading. A significant portion of the net assets was held in cash, which was used as margin for trading in commodities. Inasmuch as the sole business of Series D is to trade in commodities, Series D continues to own such liquid assets to be used as margin. PEG credits Series D with interest income on 100% of its average daily equity maintained in cash in its accounts with PEG during each month at the 13-week Treasury bill discount rate. The commodities contracts are subject to periods of illiquidity because of market conditions, regulatory considerations and other reasons. For example, commodity exchanges limit fluctuations in certain commodity futures contract prices during a single day by regulations referred to as 'daily limits.' During a single day, no trades may be executed at prices beyond the daily limit. Once the price of 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 Series D from promptly liquidating its commodity futures positions. Since Series D's business is to trade futures and forward contracts, its capital is at risk due to changes in the value of these contracts (market risk) or the inability of counterparties to perform under the terms of the contracts (credit risk). Series D's exposure to market risk is influenced by a number of factors including the volatility of interest rates and foreign currency exchange rates, the liquidity of the markets in which the contracts are traded and the relationships among the contracts held. The inherent uncertainty of Series D's speculative trading, as well as the development of drastic market occurrences, could result in monthly losses considerably beyond Series D's experience to date and could ultimately lead to a loss of all or substantially all of investors' capital. The Managing Owner attempts to minimize these risks by requiring Series D and its trading advisor to abide by various trading limitations and policies which include limiting margin amounts, trading only in liquid markets and permitting the use of stop loss provisions. See Note C to 9 the financial statements for a further discussion on the credit and market risks associated with Series D's futures and forward contracts. Series D does not have, nor does it expect to have, any capital assets. Results of Operations The net asset value per Interest as of September 26, 2003 was $110.36, an increase of 18.45% from the December 31, 2002 net asset value per Interest of $93.17 and an increase of 5.46% from the June 27, 2003 net asset value per Interest of $104.65. Past performance is not necessarily indicative of future results. Series D's trading gains (losses) before commissions and related fees were $4,019,000 and $1,775,000 during Year-To-Date 2003 and Third Quarter 2003, respectively, compared to $706,000 and $(455,000) for the corresponding periods in the prior year. Due to the nature of Series D's trading activities, a period to period comparison of its trading results is not meaningful. However, a detailed discussion of Series D's Third Quarter 2003 trading results is presented below. Quarterly Market Overview In the U.S., the third quarter of 2003 was marked by an economic growth rate of 7.2 percent--the fastest rate since 1984--which was boosted by strong consumer and business spending. Leading indicators rose throughout July and August, but fell 0.2 percent in September, the first decline in four months. Manufacturing and industrial production grew throughout the quarter, although at a slower pace, as new orders and production gradually strengthened. Child tax credit checks arrived in July and August in time for the crucial back-to-school retail sales period boosting disposable income to its biggest gain in a year. Consumer spending, which makes up two-thirds of the economy, rose throughout most of the quarter as retail sales increased 1.4 percent in July--the largest increase in four months--and 0.6 percent in August, but cooled in September. Housing, automobile and durable goods markets aided by incentives and low-interest rates continued at a high clip. However, consumer confidence was mixed in July and declined in September to the lowest level since the war in Iraq as a result of higher gas prices and continued job losses. Despite a slowdown in layoffs, hiring has not picked up as companies continued to focus on becoming more efficient. The U.S. economy lost 49,000 jobs in July and a record 93,000 jobs in August. The majority of job losses occurred in the manufacturing sector, which experienced its 38th consecutive monthly drop in employment in September. Non-farm payrolls, mostly in the private sector, rose for the first time in eight months in September. Watching over the weak labor market, the U.S. Federal Reserve maintained the target for the federal funds rate at one percent, a 45-year low, at both its August and September meetings. The global economy experienced mixed growth in the third quarter. Widening deficits, rising unemployment, declining business and consumer confidence and sluggish economic growth continued to affect the 12-nation euro zone. The European Central Bank left rates untouched at the end of September. The outlook was rosier in Japan as capital spending spurred a recovery from its third recession in a decade. Unemployment reached its lowest level since mid-2001, and although Japanese consumer spending remained flat, business investments have gradually grown. Indices: The three major U.S. market gauges (Dow Jones Industrial Average, S&P 500 and NASDAQ) boasted a second quarter of gains after three years of declines, even though they finished lower in September. Stronger corporate earnings, growth in capital and consumer spending and a third consecutive month of manufacturing growth boosted stock prices. Toward the end of September, the Dow Jones Industrial Average, S&P 500 and NASDAQ declined based on weak economic data and a rush by investors to lock in third quarter gains. Japanese stocks experienced their biggest sell-off in two years as a result of the pullback in U.S. equities and the U.S. dollar's 33-month low against the yen. Investors were concerned about poor consumer confidence figures, weak third-quarter earnings results, high stock valuations, sketchy corporate governance, persistent job market weakness, escalating conflict in the Middle East, and a production cut by OPEC. Nonetheless, the Japanese Nikkei reached a 15-month high in mid-September with an overall gain of 12.5 percent. Most Asian markets reported robust returns with European markets edging upwards throughout the quarter resulting in two consecutive quarters of gains for global stock markets. Interest Rates: Volatility marked the performance of U.S. Treasuries, as prices fell 1.9 percent with yields rising to 3.9 percent in the third quarter. The majority of damage occurred in July as U.S. Treasuries posted their worst monthly return in more than two decades when investors shifted their allocations from bonds to stocks on the basis of stronger economic data. Prices rebounded in August, but dipped again in 10 mid-September as a result of profit taking ahead of economic data reports. U.S. Treasury prices jumped at the end of September on the back of soft consumer confidence figures, depressed job market reports, slower manufacturing activity reports, and a weaker dollar. As a result of improved world growth, global bond yields began low at the beginning of the quarter and rose in every major developed bond market with Japanese bonds experiencing the greatest rise in yields. Currencies: In the foreign exchange markets, the U.S. dollar remained weak and fell at the end of September when the Group of 7 and the U.S. Treasury Secretary John Snow called for more exchange rate flexibility and further supported a weak dollar policy. The dollar declined to a 33-month low against the Japanese yen reversing only after intervention by the Bank of Japan. News of the intervention forced European currencies lower. However, the Euro ended the quarter at its highest level against the dollar since mid-June. Energies: To hedge against inflation, investors began buying oil in August. Unexpected growth in U.S. inventories drove oil prices to four-month lows. Oil prices spiked in September as OPEC announced an output reduction of 3.5 percent ahead of peak winter demand to stem the decline in prices. Prices stabilized slightly when investors realized supplies appeared to be sufficient but ended the quarter at the highest level in three weeks. Quarterly Performance of Series D The following is a summary of performance for the major sectors in which the Series D traded: Currencies (+): The Group of 7's support of a weak U.S. dollar led to the strengthening of major global currencies and net gains in long British pound positions. The rise of the Japanese yen due to the growing economy led to net gains for long positions. Interest Rates (+): As a result of improved world growth, bond prices declined in every major developed bond market. Short Japanese and Canadian bond positions resulted in net gains. Metals (+): Investors looking to hedge against inflation drove the price of gold to a seven-year high. Long gold positions resulted in net gains. Indices (-): Short S&P 500, Japanese TOPIX and German DAX index positions resulted in net losses as U.S. and major global stock markets rose for the second consecutive quarter. Series D's average net asset levels during Year-To-Date 2003 and Third Quarter 2003 increased significantly compared to Year-To-Date 2002 and Third Quarter 2002. The increase was primarily due to contributions and favorable trading performance during 2003 offset, in part, by redemptions. Commissions, management fees and general and administrative expenses, which are largely based on net asset levels, increased in proportion during Year-To-Date 2003 and Third Quarter 2003 as compared to Year-To-Date 2002 and Third Quarter 2002. Interest income is earned on the average daily equity maintained with PEG at the 13-week Treasury bill discount rate and, therefore, varies monthly according to interest rates, trading performance, contributions and redemptions. Interest income increased $52,000 and $20,000 during Year-To-Date 2003 and Third Quarter 2003 as compared to Year-To-Date 2002 and Third Quarter 2002, respectively, primarily due to the increase in net asset levels, as discussed above, offset by lower interest rates during Year-To-Date 2003 as compared to Year-To-Date 2002. Commissions are calculated on Series D's net asset value at the end of each week and, therefore, vary according to weekly trading performance, contributions and redemptions. Other transaction fees consist of National Futures Association, exchange, clearing fees, as well as floor brokerage costs and give-up charges, which are based on the number of trades the trading advisor executes, as well as which exchange, clearing firm or bank on, or through, which the contract is traded. Commissions and other transaction fees increased $450,000 and $224,000 during Year-To-Date 2003 and Third Quarter 2003 as compared to Year-To-Date 2002 and Third Quarter 2002, respectively, primarily due to the increase in net asset levels, as discussed above. All trading decisions for Series D are made by Bridgewater Associates, Inc. (the 'Trading Advisor'). Management fees are calculated on Series D's net asset value at the end of each week and, therefore, are affected by weekly trading performance, contributions and redemptions. Management fees increased 11 $91,000 and $45,000 during Year-To-Date 2003 and Third Quarter 2003 as compared to Year-To-Date 2002 and Third Quarter 2002, respectively, due to the increase in net asset levels, as discussed above. Incentive fees are based on the 'New High Net Trading Profits' generated by the Trading Advisor, as defined in the advisory agreement among the Trust, the Managing Owner and the Trading Advisor. Incentive fees were $627,000, $6,000 and $297,000 during Year-To-Date 2003, Year-To-Date 2002 and Third Quarter 2003, respectively. No incentive fees were incurred during Third Quarter 2002. General and administrative expenses were $108,000, $104,000, $42,000 and $43,000 for Year-To-Date 2003, Year-To-Date 2002, Third Quarter 2003 and Third Quarter 2002, respectively. These expenses include accounting, audit, tax and legal fees, as well as printing and postage costs related to reports sent to limited owners and are before reimbursement of costs incurred by the Managing Owner on behalf of Series D. To the extent that general and administrative expenses exceed 1.5% of Series D's net asset value during the year (with a maximum of 1.25% attributable to other than legal and audit expenses) such amounts are borne by the Managing Owner and its affiliates. Because applicable expenses exceeded the limits, a portion of these expenses has been borne by the Managing Owner and its affiliates, resulting in a net cost to Series D of $48,000, $63,000, $13,000 and $25,000 during Year-To-Date 2003, Year-To-Date 2002, Third Quarter 2003 and Third Quarter 2002, respectively. Item 3. Quantitative and Qualitative Disclosures about Market Risk Information regarding quantitative and qualitative disclosures about market risk is not required pursuant to Item 305(e) of Regulation S-K. Item 4. Controls and Procedures As of the end of the period covered by this report, the Managing Owner carried out an evaluation, under the supervision and with the participation of the officers of the Managing Owner, including the Managing Owner's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of Series D's disclosure controls and procedures. Based upon that evaluation, the Managing Owner's Chief Executive Officer and Chief Financial Officer concluded that Series D's disclosure controls and procedures are effective. There have not been any changes in our internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. 12 PART II. OTHER INFORMATION Item 1. Legal Proceedings--There are no material legal proceedings pending by or against Series D or the Managing Owner. Item 2. Changes in Securities--The following table presents sales of unregistered interests (i.e., general interests) exempt from registration under section 4(2) of the Securities Act of 1933 during the period from January 1, 2003 to September 26, 2003.
Amount of --------------------------------- Date of Sale Interests sold Cash received -------------------------------- -------------- ------------- March 10, 2003 350.000 $ 34,997 April 14, 2003 775.373 74,784 -------------- ------------- Total 1,125.373 $ 109,781 -------------- ------------- -------------- -------------
Item 3. Defaults Upon Senior Securities--None Item 4. Submission of Matters to a Vote of Security Holders--None Item 5. Other Information-- None. Item 6. Exhibits and Reports on Form 8-K: (a) Exhibits 3.1 and 4.1--Second Amended and Restated Declaration of Trust and Trust Agreement of World Monitor Trust II dated as of March 28, 2002 (incorporated by reference to Exhibits 3.1 and 4.1 to Post-Effective Amendment No. 4 to Series D's Registration Statement on Form S-1, File No. 333-83011) 4.2--Form of Request for Redemption (incorporated by reference to Exhibit 4.2 to Post-Effective Amendment No. 4 to Series D's Registration Statement on Form S-1, File No. 333-83011) 4.3--Form of Exchange Request (incorporated by reference to Exhibit 4.3 to Post-Effective Amendment No. 4 to Series D's Registration Statement on Form S-1, File No. 333-83011) 4.4--Form of Subscription Agreement (incorporated by reference to Exhibit 4.4 to Post-Effective Amendment No. 4 to Series D's Registration Statement on Form S-1, File No. 333-83011) 31.1--Certification pursuant to Exchange Act Rules 13a-14 and 15d-14 (filed herewith) 31.2--Certification pursuant to Exchange Act Rules 13a-14 and 15d-14 (filed herewith) 32.1--Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the SARBANES-OXLEY Act of 2002 (furnished herewith) 32.2--Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the SARBANES-OXLEY Act of 2002 (furnished herewith) (b) Reports on Form 8-K--None 13 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, Series D has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. WORLD MONITOR TRUST II--SERIES D By: Prudential Securities Futures Management Inc. A Delaware corporation, Managing Owner By: /s/ Ronald J. Ivans Date: November 10, 2003 ---------------------------------------- Ronald J. Ivans Chief Financial Officer 14