World Monitor Trust Ii Series E 10-Q 2004 Q2 Quarterly report

UNITED STATES

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 June 25, 2004

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: 0-32687

WORLD MONITOR TRUST II—SERIES E

(Exact name of registrant as specified in its charter)

Delaware	13-4058319
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer 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) 778-1000

N/A

Former name, former address and former fiscal year, if changed since last report

Indicate by checkÖ 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  Ö  No     

Indicate by checkÖ whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).  Yes       No  Ö

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

WORLD MONITOR TRUST II—SERIES E

(a Delaware Business Trust)

STATEMENTS OF FINANCIAL CONDITION

(Unaudited)

	June 25, 2004			December 31, 2003
ASSETS
Cash in commodity trading accounts	$	40,022,092		$	46,176,633
Net unrealized gain (loss) on open futures contracts		(563,781	)		3,004,530
Net unrealized gain on open forward contracts		10,864			—
Accrued interest receivable		32,708			—
Total assets	$	39,501,883		$	49,181,163
LIABILITIES AND TRUST CAPITAL
Liabilities
Commissions and other transaction fees payable	$	195,792		$	271,713
Accrued expenses payable		84,971			117,756
Management fees payable		62,138			86,742
Redemptions payable		42,312			—
Incentive fees payable		—			502,216
Unrealized loss on open forward contracts		—			6,394
Total liabilities		385,213			984,821
Commitments
Trust capital
Limited interests (245,371.017 and 270,410.850 interests outstanding)		38,725,434			47,714,287
General interests (2,479 and 2,732 interests outstanding)		391,236			482,055
Total trust capital		39,116,670			48,196,342
Total liabilities and trust capital	$	39,501,883		$	49,181,163
Net asset value per limited and general interest	$	157.82		$	176.45

The accompanying notes are an integral part of these statements.

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WORLD MONITOR TRUST II—SERIES E

(a Delaware Business Trust)

CONDENSED SCHEDULES OF INVESTMENTS

(Unaudited)

	June 25, 2004					December 31, 2003
Futures and Forward Contracts	Net Unrealized Gain (Loss) as a % of Trust Capital		Net Unrealized Gain (Loss)			Net Unrealized Gain (Loss) as a % of Trust Capital		Net Unrealized Gain (Loss)
Futures contracts purchased:
Interest rates			$	—				$	(39,381	)
Stock indices				(1,897	)				1,599,113
Currencies				(249,822	)				725,729
Commodities				315,614					3,376,106
Net unrealized gain on futures contracts purchased	0.16	%		63,895		11.74	%		5,661,567
Futures contracts sold:
Interest rates				(95,266	)				—
Stock indices				(5,232	)				61,440
Currencies				(25,341	)				(360,141	)
Commodities				(501,837	)				(2,358,336	)
Net unrealized loss on futures contracts sold	(1.60	)		(627,676	)	(5.51	)		(2,657,037	)
Net unrealized gain (loss) on futures contracts	(1.44	)%	$	(563,781	)	6.23	%	$	3,004,530
Forward currency contracts purchased:
Net unrealized loss on forward contracts purchased	(0.04	)%	$	(15,364	)	(0.01	)%	$	(6,217	)
Forward currency contracts sold:
Net unrealized gain (loss) on forward contracts sold	0.07			26,228		—			(177	)
Net unrealized gain (loss) on forward contracts	0.03	%	$	10,864		(0.01	)%	$	(6,394	)
Settlement Currency—Futures Contracts
Australian dollar	(0.33	)%	$	(128,152	)	—	%	$	331
British pound	(0.04	)		(14,458	)	0.09			41,957
Canadian dollar	(0.14	)		(54,439	)	(0.21	)		(101,050	)
Euro	(0.29	)		(114,972	)	1.10			529,539
Hong Kong dollar	—			—		0.01			2,878
Japanese yen	0.60			233,654		0.03			15,712
Swiss francs	0.20			79,494		0.08			40,911
U.S. dollar	(1.44	)		(564,908	)	5.13			2,474,252
Total	(1.44	)%	$	(563,781	)	6.23	%	$	3,004,530
Settlement Currency—Forward Contracts
Canadian dollar	0.03	%	$	10,864		(0.01	)%	$	(6,394	)
Total	0.03	%	$	10,864		(0.01	)%	$	(6,394	)

The accompanying notes are an integral part of these statements.

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WORLD MONITOR TRUST II—SERIES E

(a Delaware Business Trust)

STATEMENTS OF OPERATIONS

(Unaudited)

	For the period from January 1, 2004 to June 25, 2004			For the period from January 1, 2003 to June 27, 2003			For the period from March 27, 2004 to June 25, 2004			For the period from March 29, 2003 to June 27, 2003
REVENUES
Net realized gain (loss) on commodity transactions	$	1,969,138		$	8,760,786		$	(4,314,255	)	$	4,093,207
Change in net unrealized gain/loss on open commodity positions		(3,551,053	)		(5,485,768	)		(3,809,422	)		(2,803,943	)
Interest income		218,375			235,202			102,639			134,772
		(1,363,540	)		3,510,220			(8,021,038	)		1,424,036
EXPENSES
Commissions and other transaction fees		1,450,542			1,278,853			685,956			765,294
Management fees		463,719			405,668			218,321			241,451
Incentive fees		1,209,951			258,190			—			54,977
General and administrative		98,863			68,982			61,648			35,866
		3,223,075			2,011,693			965,925			1,097,588
Net income (loss)	$	(4,586,615	)	$	1,498,527		$	(8,986,963	)	$	326,448
ALLOCATION OF NET INCOME (LOSS)
Limited interests	$	(4,540,440	)	$	1,480,758		$	(8,896,692	)	$	319,123
General interests	$	(46,175	)	$	17,769		$	(90,271	)	$	7,325
NET INCOME (LOSS) PER WEIGHTED AVERAGE LIMITED AND GENERAL INTEREST
Net income (loss) per weighted average limited and general interest	$	(17.89	)	$	6.48		$	(34.94	)	$	1.20
Weighted average number of limited and general interests outstanding		256,440			231,236			257,218			272,032

STATEMENT OF CHANGES IN TRUST CAPITAL

(Unaudited)

	INTERESTS		LIMITED INTERESTS			GENERAL INTERESTS			TOTAL
Trust capital—December 31, 2003	273,142.850		$	47,714,287		$	482,055		$	48,196,342
Net loss				(4,540,440	)		(46,175	)		(4,586,615	)
Redemptions	(25,292.833	)		(4,448,413	)		(44,644	)		(4,493,057	)
Trust capital—June 25, 2004	247,850.017		$	38,725,434		$	391,236		$	39,116,670

The accompanying notes are an integral part of these statements.

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WORLD MONITOR TRUST II—SERIES E

(a Delaware Business Trust)

NOTES TO FINANCIAL STATEMENTS

June 25, 2004

(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 E (“Series E”) as of June 25, 2004 and December 31, 2003 and the results of its operations for the periods from January 1, 2004 to June 25, 2004 (“Year-To-Date 2004”), January 1, 2003 to June 27, 2003 (“Year-To-Date 2003”), March 27, 2004 to June 25, 2004 (“Second Quarter 2004”) and March 29, 2003 to June 27, 2003 (“Second Quarter 2003”). 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 E’s annual report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2003.

On July 1, 2003, Prudential Financial, Inc. (“Prudential”) and Wachovia Corp. (“Wachovia”) combined their separate retail securities brokerage and clearing businesses under a new holding company named Wachovia/Prudential Financial Advisors, LLC (“WPFA”), owned 62% by Wachovia and 38% by Prudential. 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. Series E and its managing owner, Prudential Securities Futures Management Inc., entered into a service agreement with Wachovia Securities, effective July 1, 2003. Pursuant to this agreement, Wachovia Securities agrees to provide certain enumerated services to accounts of the limited interest owners carried at Wachovia. Effective July 1, 2003, PSI changed its name to Prudential Equity Group, Inc. Effective February 2, 2004, Prudential Equity Group, Inc. was converted to a limited liability company named Prudential Equity Group, LLC (“PEG”). PEG remains an indirectly wholly-owned subsidiary of Prudential. PEG was a registered broker-dealer and a member of the NASD and all major securities exchanges and conducted the equity research, domestic and international equity sales and trading operations, and commodity brokerage and derivative operations it had previously conducted as PSI until December 31, 2003. As part of the process of reorganizing its business structure, Prudential Securities Group Inc. (“PSG”), the direct parent of PEG and a wholly-owned subsidiary of Prudential, transferred the commodity brokerage, commodity clearing and derivative operations previously performed by PEG to another PSG indirect wholly-owned subsidiary, Prudential Financial Derivatives, LLC (“PFD”) effective January 1, 2004. PFD is registered as a futures commission merchant under the Commodity Exchange Act and is a member of the National Futures Association. On April 1, 2004, PEG transferred the ownership of the Managing Owner and PFDS Holdings, LLC, the direct parent of PFD, to PSG.

B. Related Parties

The Managing Owner of Series E is a wholly-owned subsidiary of PSG. Series E reimburses the Managing Owner or its affiliates for services they perform for Series E, 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, to the extent that general and administrative expenses exceed 1.5% of Series E’s net asset value during the year (with a maximum of 0.5% attributable to other than legal and audit expenses) such amounts will be borne by the Managing Owner and its affiliates. General and administrative expenses during Year-To-Date 2004, Year-To-Date 2003, Second Quarter 2004 and Second Quarter 2003 did not exceed such limitations. Additionally, PEG or its affiliates paid the costs of organizing Series E and all costs of offering its limited interests.

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The expenses incurred by Series E for services performed by the Managing Owner and its affiliates for Series E were:

	Year-To-Date 2004		Year-To-Date 2003		Second Quarter 2004		Second Quarter 2003
Commissions	$	1,377,732	$	1,201,303	$	655,806	$	717,164
General and administrative		28,176		41,598		13,063		20,800
	$	1,405,908	$	1,242,901	$	668,869	$	737,964

Expenses payable to the Managing Owner and its affiliates as of June 25, 2004 and December 31, 2003 were $30,810 and $69,443, respectively.

All of the proceeds of the offering of Series E are received in the name of Series E and are deposited in trading or cash accounts at PFD, Series E’s commodity broker. Series E’s assets are maintained with PFD for margin purposes. Series E receives interest income on 100% of its average daily equity maintained in its accounts with PFD during each month at the 13-week Treasury bill discount rate.

Series E, acting through its trading advisor, may execute over-the-counter, spot, forward and/or option foreign exchange transactions with PFD. PFD 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 PFD and PBGM pursuant to a line of credit. PFD may require that collateral be posted against the marked-to-market positions of Series E.

C. Derivative Instruments and Associated Risks

Series E is exposed to various types of risk 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 E’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 E’s net assets being traded, significantly exceeds Series E’s future cash requirements since Series E intends to close out its open positions prior to settlement. As a result, Series E is generally subject only to the risk of loss arising from the change in the value of the contracts. As such, Series E 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 E’s commitments to purchase commodities is limited to the gross or face amount of the contracts held. However, when Series E 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 in unlimited, entering into commitments to sell commodities exposes Series E 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 E holds and the liquidity and inherent volatility of the markets in which Series E trades.

Credit risk

When entering into futures or forward contracts, Series E 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, clearinghouses are backed by their corporate members who are required to share any financial burden resulting from the nonperformance 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, there is concentration risk on forward transactions entered into by Series E as PFD, Series E’s

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commodity broker, is the sole counterparty. Series E has entered into a master netting agreement with PFD and, as a result, 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 nonperformance on all of Series E’s contracts is the net unrealized gain included in the statements of financial condition; however, counterparty non-performance on only certain of Series E’s contracts may result in greater loss than non-performance on all of Series E’s contracts. There can be no assurance that any counterparty, clearing member or clearinghouse will meet its obligations to Series E.

The Managing Owner attempts to minimize both credit and market risks by requiring Series E 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 E, the Managing Owner and the trading advisor, Series E 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 E will liquidate its positions, and eventually dissolve, if Series E 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 E.

PFD, when acting as Series E’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 E all assets of Series E relating to domestic futures trading and is not allowed to commingle such assets with other assets of PFD. At June 25, 2004 and December 31, 2003, such segregated assets totalled $7,125,646 and $14,747,218, respectively. Part 30.7 of the CFTC regulations also requires PFD to secure assets of Series E related to foreign futures trading which totalled $32,332,665 and $34,433,945 at June 25, 2004 and December 31, 2003, respectively. There are no segregation requirements for assets related to forward trading.

As of June 25, 2004, Series E’s open futures and forward contracts generally mature within one year, although certain interest rate futures contracts have maturities as distant as December 2005.

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D. Financial Highlights

	Year-To-Date 2004			Year-To-Date 2003			Second Quarter 2004			Second Quarter 2003
Performance per Interest
Net asset value, beginning of period	$	176.45		$	158.38		$	192.66		$	167.77
Net realized gain (loss) and change in net unrealized gain/loss on commodity transactions		(7.35	)		19.43			(31.48	)		4.98
Interest income		0.83			1.01			0.40			0.49
Expenses		(12.11	)		(9.67	)		(3.76	)		(4.09	)
Net increase (decrease) for the period		(18.63	)		10.77			(34.84	)		1.38
Net asset value, end of period	$	157.82		$	169.15		$	157.82		$	169.15
Total return (non-annualized):
Total return before incentive fees		(7.99	)%		7.45	%		(18.08	)%		0.94	%
Incentive fees		(2.57	)		(0.65	)		—			(0.12	)
Total return after incentive fees		(10.56	)%		6.80	%		(18.08	)%		0.82	%
Ratio to average net assets:
Net investment loss before incentive fees** (annualized)		(7.62	)%		(7.58	)%		(7.84	)%		(7.69	)%
Incentive fees (non-annualized)		(2.57	)		(0.65	)		—			(0.12	)
Net investment loss after incentive fees		(10.19	)%		(8.23	)%		(7.84	)%		(7.81	)%
Interest income (annualized)		0.93	%		1.18	%		0.93	%		1.14	%
Expenses before incentive fees (annualized)		8.55	%		8.76	%		8.77	%		8.83	%
Incentive fees (non-annualized)		2.57			0.65			—			0.12
Total expenses after incentive fees		11.12	%		9.41	%		8.77	%		8.95	%

** Represents interest income less total expenses (exclusive of incentive fees). The Managing Owner believes that the disclosure of the ratio of net investment loss to average net assets as required under the AICPA Audit Guide For Investment Companies is not a meaningful or appropriate measure for Series E as it is not a portfolio designed to return investment income. The Managing Owner believes that the total return ratio is the appropriate ratio as it also considers Series E’s commodity trading gains/losses.

These financial highlights represent the overall results of Series E during Year-To-Date 2004, Year-To-Date 2003, Second Quarter 2004 and Second Quarter 2003. An individual limited owner’s actual results may differ depending on the timing of contributions and redemptions.

E. Subsequent Event

On June 30, 2004, PSG and Preferred Investment Solutions Corp., formerly Kenmar Advisory Corp. (“Preferred”), entered into a Stock Purchase Agreement, pursuant to which PSG will sell, and Preferred will buy, all of the capital stock of the Managing Owner and another commodity pool operator owned by PSG. In connection with the transaction, the Managing Owner is soliciting proxies seeking approval from the Series E interestholders for (i) the sale of the stock of the Managing Owner to Preferred; (ii) the concomitant approval of Preferred as the new managing owner of the World Monitor Trust II; and (iii) the approval of certain amendments to the Amended and Restated Declaration of Trust and Trust Agreement of World Monitor Trust II, dated March 28, 2002. A Report on Form 8-K describing the transaction was filed with the Securities and Exchange Commission on July 1, 2004 and the definitive proxies were filed with the Securities and Exchange Commission on July 20, 2004.

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WORLD MONITOR TRUST II — SERIES E

(a Delaware Business Trust)

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Critical Accounting Policies

Preparation of the financial statements and related disclosures in compliance with accounting principles generally accepted in the United States of America requires the application of appropriate accounting rules and guidance, as well as the use of estimates. Series E’s application of these policies involves judgements and actual results may differ from the estimates used.

The Managing Owner has evaluated the nature and types of estimates that it makes in preparing Series E’s financial statements and related disclosures and has determined that the valuation of its investments which are not traded on a United States or Internationally recognized Futures exchange involves a critical accounting policy. The values used by Series E for its open forward positions are provided by its commodity broker, PFD, who uses market prices when available, while over-the-counter derivative financial instruments, principally forwards, options and swaps are valued based on the present value of estimated future cash flows that would be received from or paid to a third party in settlement of these derivative contracts prior to their delivery date.

As such, if actual results vary from estimates used, they are anticipated to not have a material impact on the financial statements and related disclosures.

Liquidity and Capital Resources

Series E commenced operations on April 6, 2000 with gross proceeds of $5,157,459 allocated to commodities trading. Additional contributions raised through the continuous offering from the sales of interests for the period from April 6, 2000 (commencement of operations) to December 31, 2003 resulted in additional gross proceeds to Series E of $45,279,587. Series E’s interests were offered until it substantially achieved its subscription maximum of $50,000,000 on the sale of limited interests during June 2003.

Limited interests in Series E 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 2004, Second Quarter 2004 and for the period from April 6, 2000 (commencement of operations) to June 25, 2004 totalled $4,448,413, $2,563,201 and $15,353,610, respectively. Redemptions of general interests for Year-To-Date 2004,Second Quarter 2004 and for the period from April 6, 2000 (commencement of operations) to June 25, 2004 totalled $44,644, $25,574, and $215,976, respectively. 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 limited interests in those series are being offered to the public. Series E and World Monitor Trust II—Series F are no longer offered to the public as those series substantially achieved their subscription maximums during June 2003 and July 2003, respectively. In addition, since July 2003, the offering of interests in World Monitor Trust II—Series D (“Series D”) has been suspended. Accordingly, at this time, interests may not be exchanged. Future redemptions and exchanges will impact the amount of funds available for investment in commodity contracts in subsequent periods.

At June 25, 2004, 100% of Series E’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 E is to trade in commodities, Series E continues to own such liquid assets to be used as margin. PFD credits Series E with interest income on 100% of its average daily equity maintained in its accounts with PFD 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, some 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

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little or no trading. Such market conditions could prevent Series E from promptly liquidating its commodity futures positions.

Since Series E’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 E’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 E’s speculative trading as well as the development of drastic market occurrences could result in monthly losses considerably beyond Series E’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 E 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 the financial statements for a further discussion of the credit and market risks associated with Series E’s futures and forward contracts.

Series E does not have, nor does it expect to have, any capital assets.

Off-Balance Sheet Arrangements and Contractual Obligations

As of June 25, 2004, Series E had not utilized special purpose entities to facilitate off-balance sheet financing arrangements and has no loan guarantee arrangements or off-balance sheet arrangements of any kind other than agreements entered into in the normal course of business, which may include indemnification provisions related to certain risks service providers, such as our accountants, undertake in performing services which are in the best interests of Series E. While Series E’s exposure under such indemnification provisions can not be estimated, these general business indemnifications are not expected to have material impact on Series E’s financial position.

Series E’s contractual obligations are with the trading advisor and its commodity broker. Payments made under Series E’s agreement with the trading advisor are at a fixed rate, calculated as a percentage of the Series E’s “New High Net Trading Profits”. Management fee payments made to the trading advisor and commission payments to the commodity broker are calculated as a fixed percentage of Series E’s net asset values (“NAV’s”). As such, the Managing Owner cannot anticipate the amount of payments that will be required under these agreements for future periods as NAV’s are not known until a future date. These agreements are effective for one-year terms, renewable automatically for additional one year terms unless terminated. Additionally, these agreements may be terminated by either party for various reasons. For a further discussion on these payments, see Notes A & C of Series E’s 2003 Annual Report.

Results of Operations

The net asset value per interest as of June 25, 2004 was $157.82, a decrease of 10.56% from the December 31, 2003 net asset value per interest of $176.45 and a decrease of 18.08% from the March 26, 2004 net asset value per interest of $192.66. Past performance is not necessarily indicative of future results.

Series E’s trading gains (losses) before commissions and related fees were $(1,582,000), $3,275,000, $(8,124,000) and $1,289,000 during Year-To-Date 2004, Year-To-Date 2003, Second Quarter 2004 and Second Quarter 2003, respectively. Due to the nature of Series E’s trading activities, a period to period comparison of its trading results is not meaningful. However, a detailed discussion of Series E’s Second Quarter 2004 trading results is presented below.

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Quarterly Market Overview

U.S. economic activity in the second quarter of 2004 was marked by steady improvement in the first two months followed by a slowdown towards the end of June. The second quarter began with a reported March non-farm payroll increase of over 308,000 when the market consensus expected a change of 120,000. Despite concerns over instability in the Middle East and increased energy prices, manufacturing activity increased throughout the quarter to result in a third straight quarter of growth. In contrast, industrial production fell 0.3% in June, the greatest decline since April 2003, after rising steadily in April and May. Orders for durable goods also diminished throughout the quarter as inventories grew. Businesses added a quarter of a million jobs in May topping off a nine-month hiring spree that abated in June. Unemployment remained stable throughout the quarter at around 5.6%. Despite a stabilization in the number of layoffs, employment growth, pay increases and the number of hours worked shrank in June and resulted in increased pressure on consumers. Consumer spending accelerated throughout April and May resulting in the highest consumer confidence ratings in two years on the back of income growth and an improved job market. The possibility of the U.S. Federal Reserve (the “Fed”) increasing interest rates, led to a jump in home sales as buyers looked to lock in lower interest rates. Retail sales rose a mild 0.6% in April and a record 1.2% in May as buyers loaded up on foreign-made cars, televisions, furniture and clothes. In June, auto sales cooled as May incentives expired and major retailers blamed high fuel prices and unseasonably cool weather for the biggest drop in 16 months.

Global economies around the world continued to benefit from the strengthening U.S. economy. European investors remained concerned about rising U.S. interest rates, issues in Iraq, and high oil prices while benefiting from better corporate earnings. France, the largest euro economy, reported increased spending in May. In April, consumer confidence and manufacturing activity declined in Germany, the second largest euro economy, and its economy remained weak throughout the quarter. The European Union blamed rising oil prices for an increase in inflation in May and consumer confidence dropped slightly as business optimism remained unstable. In order to cool its overheating economy, the Chinese government reduced available domestic credit and money supply creating uncertainty in the markets. Industrial growth and profits in China slowed even as foreign investment continued to surge. The Japanese government cited steady consumption, employment, and core consumer prices as the reasons behind the best economy it has had in over 20 years. As a major commodity exporter to China, Brazil’s economy dampened on the heels of China’s deceleration while Mexico’s economy stayed positive due to its alliance with the U.S. economy.

Indices: All three major U.S. equity indices ended the second quarter with positive returns. The NASDAQ Composite had the highest rate of return of 2.69%, followed by the S&P 500 Index with 1.72%, and the Dow Jones Industrial Average with 0.75%. Investor fears of the sustainability of continued higher growth rates and strong earnings as seen in 2003 resulted in constant price reverses as indices traded within specific ranges. Globally, Asian stocks performed particularly poorly with the benchmark indices in South Korea, Taiwan, and China all falling more than 10%. Japan’s Tokyo Nikkei Stock Index fared better returning 1.2% for the quarter because of Japan’s continued economic recovery. Although the European economies continue to lag behind Asia and the U.S., their stock markets held up better. The Paris CAC 40 Index was up 3%, while the London FTSE 100 Index rose 2%, and the German DAX advanced 5%.

Interest rates: Bonds showed losses for the second quarter of 2004. The main factors that drove these losses were the U.S. economy, job market, and inflation. The second quarter began with a reported March non-farm payroll increase of over 308,000 when the market consensus expected a change of 120,000. This surprisingly large employment number quickly dispelled any notion that traders may have had that the Fed would keep interest rates unchanged. Inflation fears also drove down bond prices late in the quarter as the price of oil and other commodities surpassed previous highs. The quarter ended with the Fed raising interest rates by 25 basis points. In the European Union, the bund market traded within specific ranges and did not have the volatility of the U.S. bond markets because of the steadier monetary policy being employed by the European Central Bank (ECB). On the other hand, the Japanese Government Bond (JGB) market saw significant increase in yields. Being in the middle of a strong and prolonged economic recovery, capital started to move out of the Japanese bond market and into equities.

Currencies: Increased volatility and choppy market conditions dominated this sector in the second quarter. The surprise in the non-farm payroll employment number carried over to the currency market. The

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expectations of a stronger economy helped to strengthen the US dollar against European currencies. This resulted in reversals of established trends and losses in established currency positions. The trading environment during the second quarter was characterized by limited longer-term changes in price coupled with strong reversals that made it very difficult to trade effectively. Although there have been no government interventions since the first quarter, the relatively high level of volatility has continued throughout the second quarter with no long-term trends developing.

Energies: Demand for energy remained strong throughout the second quarter leading to higher prices. Energy markets were characterized by strong trends and not the result of short-term speculation. Strong world demand due to economic growth, especially in China where crude oil imports hit a record 2.8 million barrels per day in June, pushed crude oil to all time highs on the NYMEX. Persistent higher prices were also a product of a significant geopolitical risk premium that existed because of supply shocks from events in the Middle East. Higher demand and higher risk had pushed oil above $40/barrel earlier in the year and this price level continued to the end of the quarter.

Metals: The first quarter saw a significant upswing in base metal prices from strong world demand, especially from China. However, the second quarter began with concerns of an overheating economy in China that resulted in Chinese monetary policy changes aimed at controlling the growth in credit. China’s central bank raised the percentage of capital that banks are required to have in reserve by 50 basis points. Expectation of lower demand from China caused swift reversals in base metals. Nevertheless as the quarter proceeded demand for base metals continued to be strong. In the precious metals markets, silver gave back gains from the first quarter with the change in growth expectations in the U.S. Gold moved higher accompanied by higher volatility that saw short-term swings in prices.

Grains: The grain sector experienced key reversals in the second quarter. Corn and soybean prices rose early in the quarter on higher demand expectations and growing problems in key growing areas. However, strong rainfall during the spring season and a relatively cool and dry early summer season have caused harvest expectations to improve. Thus, expectations of a higher yield for the late summer growing season have pushed prices down.

Softs: After a run up in prices throughout February and March, prices began to decline in the second quarter. Initial worries of flooding gave way to milder weather that helped this year’s crop. The price of cotton declined throughout the second quarter. Additionally, cocoa declined throughout the second quarter. Coffee prices climbed higher after an initial decrease in May. However, there was a sharp reversal in June that erased any gains due to improved weather conditions in Brazil.

Quarterly Performance of Series E

The following is a summary of performance for the major sectors in which Series E traded:

Interest Rates (-): U.S. bond prices fell due to the threat of inflation, an upside surprise in the job market, a recovering economy, and the Fed raising interest rates by 25 basis points. Net long U.S. and European bond positions resulted in net losses.

Currencies (-): Increased volatility and sharp reversals over short time periods created choppy market conditions that were difficult to trade. Losses accumulated in the Japanese Yen/US dollar, New Zealand dollar/US dollar, and South African Rand/US dollar positions.

Indices (-): World stock indices had mixed performance in the second quarter. U.S. and European indices were up while Far East markets were down with the exception of Japan. Short positions in the Japanese Nikkei Dow and TOPIX, along with long positions in the Hong Kong Hang Sang index resulted in net losses.

Grains (-): Concerns of weather conditions early in the second quarter sent corn, soybean, and wheat prices higher. However, as the growing season progressed, weather conditions became more favorable and increased yield expectations sent prices lower. Net long positions in corn and wheat resulted in losses.

Metals (-): Changes in monetary policy in China to prevent its economy from overheating lowered demand expectations for base metals that resulted in falling prices. Net long positions in nickel and aluminum resulted in losses. Although gold prices went higher, short-term price swings and increased volatility resulted in losses in long positions.

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Energies (+): Continued world demand for energy supported higher prices throughout the second quarter. Crude oil prices hit an all time high on the NYMEX as a result of strong demand and geopolitical risk premiums. Long positions in unleaded gas and light crude oil resulted in gains.

Softs (+): Downward reversals in cocoa and cotton prices resulted in net gains in short cotton and cocoa positions.

Series E’s average net asset levels were higher during Year-To-Date 2004 as compared to Year-To-Date 2003, primarily from additional contributions in 2003 and favorable trading performance during 2003, partially offset by redemptions and unfavorable trading performance during 2004. Average net asset levels were lower during Second Quarter 2004 compared to Second Quarter 2003, primarily from redemptions and unfavorable trading performance during Year-To-Date 2004 compared to 2003.

Interest income is earned on the average daily equity maintained with PFD and, therefore, varies weekly according to interest rates, trading performance, contributions and redemptions. Interest income decreased $17,000 and $32,000 during Year-To-Date 2004 and Second Quarter 2004 as compared to Year-To-Date 2003 and Second Quarter 2003, respectively. These decreases were due to lower overall interest rates during Year-To-Date 2004 as compared to 2003 and lower net asset values during Second Quarter 2004, as discussed above, offset, in part, by higher net asset values during Year-To-Date 2004.

Commissions are calculated on Series E’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 and 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 $172,000 during Year-To-Date 2004 as compared to Year-To-Date 2003 and decreased $79,000 during Second Quarter 2004 as compared to Second Quarter 2003, due to fluctuations in average net asset levels as discussed above.

All trading decisions for Series E are made by Graham Capital Management, LP. (the “Trading Advisor”). Management fees are calculated on Series E’s net asset value at the end of each week and, therefore, are affected by weekly trading performance, contributions and redemptions. Management fees increased $58,000 during Year-To-Date 2004 as compared to Year-To-Date 2003 and decreased $23,000 during Second Quarter 2004 as compared to Second Quarter 2003, due to the fluctuation in average 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 Series E, the Managing Owner and the Trading Advisor. Incentive fees incurred during Year-To-Date 2004, Year-To-Date 2003, and Second Quarter 2003 were $1,210,000, $258,000 and $55,000, respectively. There were no incentive fees incurred for Second Quarter 2004.

General and administrative expenses were $99,000, $69,000, $62,000 and $36,000 for Year-To-Date 2004, Year-To-Date 2003, Second Quarter 2004 and Second Quarter 2003, 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 E. Year-To-Date 2004 and Second Quarter 2004 expenses include additional printing and postage costs due to higher actual costs incurred then previously accrued. To the extent that general and administrative expenses exceed 1.5% of Series E’s net asset value during the year (with a maximum of 0.5% attributable to other than legal and audit expenses) such amounts are borne by the Managing Owner and its affiliates. Applicable expenses did not exceed these levels Year-To-Date 2004, Year-To-Date 2003, Second Quarter 2004 and Second Quarter 2003.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Item 305(c) of Regulation S-K requires disclosures during each interim reporting period of material changes in the quantitative and qualitative market risk information provided as of the end of the immediately preceding year. The following information should be read in conjunction with Series E’s Form 10-K as filed with the Securities and Exchange Commission for the year ended December 31, 2003.

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The following table presents the trading value at risk associated with Series E’s open positions by market sector at June 25, 2004 and December 31, 2003. All open position trading risk exposures of Series E have been included in calculating the figure set forth below. At June 25, 2004 and December 31, 2003, Series E had total capitalizations of approximately $39.1 million and $48.2 million, respectively.

	June 25, 2004				December 31, 2003
Market Sector	Value at Risk		% of Total Capitalization		Value at Risk		% of Total Capitalization
Interest rates	$	1,485,216	3.80	%	$	838,271	1.74	%
Currencies		809,232	2.07			1,981,229	4.11
Commodities		1,221,490	3.12			2,083,320	4.32
Stock indices		140,258	0.36			5,620,798	11.66
Total	$	3,656,196	9.35	%	$	10,523,618	21.83	%

The following table presents the average trading value at risk of Series E’s open positions by market sector for Year-To-Date 2004 and Second Quarter 2004, based on Series E’s total average capitalization of approximately $46.3 million and $43.9 million, respectively.

	Year-To-Date 2004				Second Quarter 2004
Market Sector	Value at Risk		% of Average Total Capitalization		Value at Risk		% of Average Total Capitalization
Interest rates	$	1,634,305	3.53	%	$	1,466,605	3.34	%
Currencies		1,036,846	2.24			617,508	1.41
Commodities		1,244,080	2.69			876,795	2.00
Stock indices		1,881,637	4.07			485,389	1.11
Total	$	5,796,868	12.53	%	$	3,446,297	7.86	%

Based on average trading value at risk during Year-To-Date 2004 and Second Quarter 2004, as well as value at risk June 25, 2004, Series E experienced an overall decrease in its value at risk, relative to capitalization levels, as compared with value at risk at December 31, 2003. This decrease was primarily attributable to the stock indices sector where Series E significantly decreased positions in the NASDAQ 100, the S&P 500 and the euro DAX. At June 25, 2004, Series E continues to have its primary interest rate exposure to interest rate fluctuations in the U.S. and other G-7 countries (including countries participating in the Euro). During Second Quarter 2004 and at June 25, 2004, there was a decrease in average trading value at risk and value at risk, respectively, in the currency and commodity sectors as compared to the level at December 31, 2003. The decline in the currencies sector was attributable to a reduction in a variety of positions in the Mexican Peso, Euro and in the local currencies of some G-7 countries. The decline in the commodities sector is primarily attributable to reduced exposure to the energy markets during Year-To-Date 2004.

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 E’s disclosure controls and procedures. Based upon that evaluation, the Managing Owner’s chief executive officer and chief financial officer concluded that Series E’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(e) and 15d-15(e) 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.

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PART II. OTHER INFORMATION

Item 1.	Legal Proceedings—There are no material legal proceedings pending by or against the Registrant or the Managing Owner
Item 2.	Changes in Securities—None
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 Exhibit 3.1 and 4.1 to Post-Effective Amendment No. 4 to Series E’s Registration Statement on Form S-1, File No. 333-83015)
		4.2—	Form of Request for Redemption (incorporated by reference to Exhibit 4.2 to Post-Effective Amendment No. 4 to Series E’s Registration Statement on Form S-1, File No. 333-83015)
		4.3—	Form of Exchange Request (incorporated by reference to Exhibit 4.3 to Post-Effective Amendment No. 4 to Series E’s Registration Statement on Form S-1, File No. 333-83015)
		4.4—	Form of Subscription Agreement (incorporated by reference to Exhibit 4.4 to Post-Effective Amendment No. 4 to Series E’s Registration Statement on Form S-1, File No. 333-83015)
		31.1	Certificate pursuant to Exchange Act Rules 13a-14 and 15d-14 (filed herewith)
		31.2	Certificate pursuant to Exchange Act Rules 13a-14 and 15d-14 (filed herewith)
		32.1	Certificate 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	Certificate 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

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SIGNATURES

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.

WORLD MONITOR TRUST II—SERIES E
By:	Prudential Securities Futures Management Inc. A Delaware corporation, Managing Owner
	By: /s/ Ronald J. Ivans	Date: August 9, 2004
	Ronald J. Ivans Chief Financial Officer

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