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 quarter ended June 24, 2005
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.) | |
| 51 Weaver Street, Building 1 South, 2nd Floor, Greenwich, Connecticut | 06831 | |
| (Address of principal executive offices) | (Zip Code) | |
Registrant’s telephone number, including area code: (203) 861-1000
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes ¨ No x
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WORLD MONITOR TRUST II – SERIES E
FINANCIAL STATEMENTS
June 24, 2005
WORLD MONITOR TRUST II – SERIES E
STATEMENTS OF FINANCIAL CONDITION
June 24, 2005 (Unaudited) and December 31, 2004 (Audited)
June 24, 2005 | December 31, 2004 | |||||
ASSETS | ||||||
Cash in commodity trading accounts | $ | 32,866,287 | $ | 42,150,059 | ||
Net unrealized gain on open futures contracts | 1,031,790 | 1,180,948 | ||||
Net unrealized gain on open forward contracts | 516,692 | 0 | ||||
Interest receivable | 63,486 | 0 | ||||
Total assets | $ | 34,478,255 | $ | 43,331,007 | ||
LIABILITIES | ||||||
Commissions and other transaction fees payable | $ | 152,115 | $ | 243,578 | ||
Accrued expenses payable | 228,804 | 175,602 | ||||
Management fees payable | 50,647 | 80,393 | ||||
Net unrealized loss on open forward contracts | 0 | 435,174 | ||||
Redemptions payable | 11,886 | 86,410 | ||||
Total liabilities | 443,452 | 1,021,157 | ||||
Commitments | ||||||
TRUST CAPITAL | ||||||
Limited interests (212,759.825 and 226,409.355 interests outstanding) at June 24, 2005 and December 31, 2004 | 33,659,699 | 41,871,365 | ||||
Managing Owner interests (2,371 interests outstanding) at June 24, 2005 and December 31, 2004 | 375,104 | 438,485 | ||||
Total trust capital | 34,034,803 | 42,309,850 | ||||
Total liabilities and trust capital | $ | 34,478,255 | $ | 43,331,007 | ||
See accompanying notes.
-2-
WORLD MONITOR TRUST II – SERIES E
CONDENSED SCHEDULES OF INVESTMENTS
June 24, 2005 (Unaudited) and December 31, 2004 (Audited)
| June 24, 2005 | December 31, 2004 | |||||||||||||
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: | ||||||||||||||
Commodities | (0.37 | )% | $ | (126,659 | ) | 0.37 | % | $ | 156,485 | |||||
Interest rates | 3.75 | % | 1,277,174 | 0.41 | % | 172,957 | ||||||||
Stock indices | (0.32 | )% | (109,908 | ) | 2.07 | % | 879,361 | |||||||
Net unrealized gain (loss) on futures contracts purchased | 3.06 | % | 1,040,607 | 2.85 | % | 1,208,803 | ||||||||
Futures contracts sold: | ||||||||||||||
Commodities | (0.03 | )% | (8,817 | ) | (0.25 | )% | (105,505 | ) | ||||||
Interest rates | 0.00 | % | 0 | 0.20 | % | 82,750 | ||||||||
Stock indices | 0.00 | % | 0 | (0.01 | )% | (5,100 | ) | |||||||
Net unrealized gain (loss) on futures contracts sold | (0.03 | )% | (8,817 | ) | (0.06 | )% | (27,855 | ) | ||||||
Net unrealized gain on futures contracts | 3.03 | % | $ | 1,031,790 | 2.79 | % | $ | 1,180,948 | ||||||
Forward currency contracts purchased: | ||||||||||||||
Net unrealized gain (loss) on forward contracts purchased | 0.27 | % | $ | 92,946 | 0.49 | % | $ | 206,385 | ||||||
Forward currency contracts sold: | ||||||||||||||
Net unrealized gain (loss) on forward contracts sold | 1.25 | % | 423,746 | (1.52 | )% | (641,559 | ) | |||||||
Net unrealized gain (loss) on forward contracts | 1.52 | % | $ | 516,692 | (1.03 | )% | $ | (435,174 | ) | |||||
See accompanying notes.
-3-
WORLD MONITOR TRUST II – SERIES E
STATEMENTS OF OPERATIONS
For the Periods March 26, 2005 to June 24, 2005 and March 27, 2004 to June 25, 2004 and
For the Periods January 1, 2005 to June 24, 2005 and January 1, 2004 to June 25, 2004
(Unaudited)
| For the Period March 26, 2005 to June 24, 2005 | For the Period March 27, 2004 to June 25, 2004 | For the Period January 1, 2005 to June 24, 2005 | For the Period January 1, 2004 to June 25, 2004 | |||||||||||||
REVENUES | ||||||||||||||||
Realized | $ | (2,145,457 | ) | $ | (4,314,255 | ) | $ | (5,735,276 | ) | $ | 1,969,138 | |||||
Change in unrealized | 1,464,066 | (3,809,422 | ) | 802,708 | (3,551,053 | ) | ||||||||||
Interest income | 239,469 | 102,639 | 438,525 | 218,375 | ||||||||||||
Total revenues | (441,922 | ) | (8,021,038 | ) | (4,494,043 | ) | (1,363,540 | ) | ||||||||
EXPENSES | ||||||||||||||||
Brokerage commissions and other transaction fees | 551,748 | 685,956 | 1,136,328 | 1,450,542 | ||||||||||||
Management fees | 167,483 | 218,321 | 342,259 | 463,719 | ||||||||||||
Incentive fees | 0 | 0 | 0 | 1,209,951 | ||||||||||||
General and administrative | 0 | 61,648 | 111,104 | 98,863 | ||||||||||||
Total expenses | 719,231 | 965,925 | 1,589,691 | 3,223,075 | ||||||||||||
NET (LOSS) | $ | (1,161,153 | ) | $ | (8,986,963 | ) | $ | (6,083,734 | ) | $ | (4,586,615 | ) | ||||
NET (LOSS) PER WEIGHTED AVERAGE LIMITED AND MANAGING OWNER INTEREST | ||||||||||||||||
Net (loss) per weighted average limited and Managing Owner interest | $ | (5.32 | ) | $ | (34.94 | ) | $ | (27.36 | ) | $ | (17.89 | ) | ||||
Weighted average number of limited and Managing Owner interests outstanding | 218,205 | 257,218 | 222,350 | 256,440 | ||||||||||||
See accompanying notes.
-4-
WORLD MONITOR TRUST II – SERIES E
STATEMENTS OF CHANGES IN TRUST CAPITAL
For the Period January 1, 2005 to June 24, 2005 and
For the Period January 1, 2004 to June 25, 2004
(Unaudited)
| Interests | Limited Interests | Managing Owner Interests | Total | ||||||||||||
For the period January 1, 2005 to June 24, 2005 | |||||||||||||||
Trust capital at December 31, 2004 | 228,780.355 | $ | 41,871,365 | $ | 438,485 | $ | 42,309,850 | ||||||||
Net (loss) for the period January 1, 2005 to June 24, 2005 | (6,020,353 | ) | (63,381 | ) | (6,083,734 | ) | |||||||||
Redemptions | (13,649.530 | ) | (2,191,313 | ) | 0 | (2,191,313 | ) | ||||||||
Trust capital at June 24, 2005 | 215,130.825 | $ | 33,659,699 | $ | 375,104 | $ | 34,034,803 | ||||||||
For the period January 1, 2004 to June 25, 2004 | |||||||||||||||
Trust capital at December 31, 2003 | 273,142.850 | $ | 47,714,287 | $ | 482,055 | $ | 48,196,342 | ||||||||
Net (loss) for the period January 1, 2004 to June 25, 2004 | (4,540,440 | ) | (46,175 | ) | (4,586,615 | ) | |||||||||
Redemptions | (25,292.833 | ) | (4,448,413 | ) | (44,644 | ) | (4,493,057 | ) | |||||||
Trust capital at June 25, 2004 | 247,850.017 | $ | 38,725,434 | $ | 391,236 | $ | 39,116,670 | ||||||||
| Net Asset Value per Limited and Managing Owner Interest | ||||||||||
June 24, 2005 | December 31, 2004 | June 25, 2004 | December 31, 2003 | |||||||
| $ | 158.21 | $ | 184.94 | $ | 157.82 | $ | 176.45 | |||
See accompanying notes.
-5-
WORLD MONITOR TRUST II – SERIES E
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 1.ORGANIZATION
| A. | General Description of the Trust |
The statement of financial condition, including the condensed schedule of investments, as of June 24, 2005, the statements of operations for the periods March 26, 2005 to June 24, 2005 (“Second Quarter 2005”), March 27, 2004 to June 25, 2004 (“Second Quarter 2004”), January 1, 2005 to June 24, 2005 (“Year-To-Date 2005”) and January 1, 2004 to June 25, 2004 (“Year-To-Date 2004”), and the statements of changes in trust capital for the periods January 1, 2005 to June 24, 2005 and January 1, 2004 to June 25, 2004, are unaudited. In the opinion of 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 24, 2005 and the results of its operations for the Second Quarter 2005, Second Quarter 2004, Year-To-Date 2005 and Year-To-Date 2004. 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, 2004.
World Monitor Trust II (the “Trust”) is a business trust organized under the laws of Delaware on April 22, 1999. The Trust consists of three separate and distinct series (“Series”): Series D, E and F. Series D, E and F commenced trading operations on March 13, 2000, April 6, 2000 and March 1, 2000, respectively, and each Series will continue to exist until terminated pursuant to the provisions of Article XIII of the Third Amended and Restated Declaration of Trust and Trust Agreement (the “Trust Agreement”). The assets of each Series are segregated from those of the other Series, separately valued and independently managed. Each Series was formed to engage in the speculative trading of a diversified portfolio of futures, forward and options contracts, and may, from time to time, engage in cash and spot transactions. The trustee of the Trust is Wilmington Trust Company.
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., a wholly owned subsidiary of PSI, 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.
-6-
WORLD MONITOR TRUST II – SERIES E
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
Note 1.ORGANIZATION (CONTINUED)
| A. | General Description of the Trust (Continued) |
Effective July 1, 2003, PSI changed its name to Prudential Equity Group, Inc. (“PEG”). PEG remained 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. Like PEG, 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 PFD Holdings, LLC, the direct parent of PFD, to PSG.
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 would sell, and Preferred would buy, all of the capital stock of Prudential Securities Futures Management Inc. (the then current Managing Owner of Series E) and another commodity pool operator owned by PSG. In connection with the transaction, Prudential Securities Futures Management Inc. solicited proxies seeking approval from the Series E interestholders for (i) the sale of the stock of Prudential Securities Futures Management Inc. to Preferred; (ii) the concomitant approval of Preferred as the new Managing Owner of Series E; and (iii) the approval of certain amendments to the Declaration of Trust and Trust Agreement of the Trust. 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.
As of October 1, 2004, Preferred acquired from PSG all of the outstanding stock of Prudential Securities Futures Management Inc. Immediately after such acquisition, Prudential Securities Futures Management Inc. was merged with and into Preferred. Accordingly, as of October 1, 2004 all of the board of directors and officers of Prudential Securities Futures Management Inc. resigned. Following Preferred’s acquisition of Prudential Securities Futures Management Inc. and its merger with and into Preferred, Preferred became the successor Managing Owner of Series E.
The term Managing Owner, as used herein, refers either to Prudential Securities Futures Management Inc. or Preferred, depending upon the applicable period discussed.
-7-
WORLD MONITOR TRUST II – SERIES E
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
Note 2.RELATED PARTIES
Prior to October 1, 2004, Series E reimbursed the Managing Owner or its affiliates for services they performed for Series E, which included, but were 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 exceeded 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 were borne by the Managing Owner and its affiliates. General and administrative expenses did not exceed such limitations during the Second Quarter 2005, Second Quarter 2004, Year-To-Date 2005 and Year-To-Date 2004. Additionally, PEG or its affiliates paid the costs of organizing Series E and all costs of organizing and offering Series E Interests.
The expenses incurred by Series E for services performed by the Managing Owner and its affiliates for Series E were:
| Second Quarter 2005 | Second Quarter 2004 | Year-To-Date 2005 | Year-To-Date 2004 | |||||||||
Commissions | $ | 503,026 | $ | 655,806 | $ | 1,028,086 | $ | 1,377,732 | ||||
General and administrative | 0 | 13,063 | 0 | 28,176 | ||||||||
| $ | 503,026 | $ | 668,869 | $ | 1,028,086 | $ | 1,405,908 | |||||
Expenses payable to the Managing Owner and its affiliates (which are included in accrued expenses) as of June 24, 2005 and December 31, 2004 were $152,115 and $241,500, respectively.
All of the proceeds of the offering of Series E were received in the name of Series E and were deposited in trading or cash accounts at PEG. Effective January 1, 2004, Series E’s assets are maintained with PFD and PFD credits Series E monthly with 100% of the interest it earns on the average net assets in Series E’s account.
Series E, acting through its Trading Advisor may execute over-the-counter, spot, forward and/or option foreign exchange transactions with its broker. The broker 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 Series E and its broker pursuant to a line of credit. The broker may require that collateral be posted against the marked-to-market positions of Series E.
-8-
WORLD MONITOR TRUST II – SERIES E
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
Note 3.DERIVATIVE INSTRUMENTS AND ASSOCIATED RISKS
Series E 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 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 is 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 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, there is concentration risk on forward transactions entered into by Series E as Series E’s commodity broker, is the sole counterparty. Series E has entered into a master netting agreement with its broker 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 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.
-9-
WORLD MONITOR TRUST II – SERIES E
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
Note 3.DERIVATIVE INSTRUMENTS AND ASSOCIATED RISKS (CONTINUED)
Credit Risk (Continued)
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 Third Amended and Restated Declaration of Trust and Trust Agreement 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.
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 its other assets. At June 24, 2005 and December 31, 2004, such segregated assets totaled $5,693,143 and $12,704,051, respectively. Part 30.7 of the CFTC regulations also requires Series E’s futures commission merchant to secure assets of Series E related to foreign futures trading which totaled $28,204,934 and $30,626,956 at June 24, 2005 and December 31, 2004, respectively. There are no segregation requirements for assets related to forward trading.
As of June 24, 2005, Series E’s open futures and forward contracts mature within 18 months.
-10-
WORLD MONITOR TRUST II – SERIES E
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
Note 4.FINANCIAL HIGHLIGHTS
The following information presents per interest operating performance data and other supplemental financial data for the Second Quarter 2005, Second Quarter 2004, Year-To-Date 2005 and Year-To-Date 2004. This information has been derived from information presented in the financial statements.
| Second Quarter | Year-To-Date | |||||||||||||||
| 2005 (Unaudited) | 2004 (Unaudited) | 2005 (Unaudited) | 2004 (Unaudited) | |||||||||||||
Per Interest Performance (for an interest outstanding throughout the entire period) | ||||||||||||||||
Net asset value per interest at beginning of period | $ | 163.30 | $ | 192.66 | $ | 184.94 | $ | 176.45 | ||||||||
Net realized gain (loss) and change in net unrealized gain (loss) on commodity transactions(1) | (2.89 | ) | (31.48 | ) | (21.55 | ) | (7.35 | ) | ||||||||
Interest income(1) | 1.10 | 0.40 | 1.97 | 0.83 | ||||||||||||
Expenses(1) | (3.30 | ) | (3.76 | ) | (7.15 | ) | (12.11 | ) | ||||||||
Net (decrease) for the period | (5.09 | ) | (34.84 | ) | (26.73 | ) | (18.63 | ) | ||||||||
Net asset value per interest at end of period | $ | 158.21 | $ | 157.82 | $ | 158.21 | $ | 157.82 | ||||||||
Total Return(3) | ||||||||||||||||
Total return before incentive fees | (3.12 | )% | (18.08 | )% | (14.45 | )% | (7.99 | )% | ||||||||
Incentive fees | 0.00 | % | 0.00 | % | 0.00 | % | (2.57 | )% | ||||||||
Total return after incentive fees | (3.12 | )% | (18.08 | )% | (14.45 | )% | (10.56 | )% | ||||||||
Supplemental Data | ||||||||||||||||
| Ratios to average net asset value | ||||||||||||||||
Net investment (loss) before incentive fees(2), (4) | (5.70 | )% | (7.84 | )% | (6.66 | )% | (7.62 | )% | ||||||||
Incentive fees(3) | 0.00 | % | 0.00 | % | 0.00 | % | (2.57 | )% | ||||||||
Net investment (loss) after incentive fees | (5.70 | )% | (7.84 | )% | (6.66 | )% | (10.19 | )% | ||||||||
Interest income(4) | 2.85 | % | 0.93 | % | 2.54 | % | 0.93 | % | ||||||||
Incentive fees(3) | 0.00 | % | 0.00 | % | 0.00 | % | 2.57 | % | ||||||||
Other expenses(4) | 8.55 | % | 8.77 | % | 9.20 | % | 8.55 | % | ||||||||
Total expenses | 8.55 | % | 8.77 | % | 9.20 | % | 11.12 | % | ||||||||
Total returns are calculated based on the change in value of an interest during the period. An individual interestholder’s total returns and ratios may vary from the above total returns and ratios based on the timing of redemptions.
| (1) | Interest income per interest and expenses per interest are calculated by dividing interest income and expenses by the weighted average number of interests outstanding during the period. Net realized gain (loss) and change in net unrealized gain (loss) on commodity transactions is a balancing amount necessary to reconcile the change in net asset value per interest with the other per interest information. |
| (2) | Represents interest income less total expenses (exclusive of incentive fees). |
| (3) | Not annualized. |
| (4) | Annualized. |
-11-
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 judgments 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 market values of futures (exchange traded) contracts is verified by the administrator who obtains valuation data from third party data providers such as Bloomberg and Reuters and compares those prices with Series E’s broker. The market value of currency swap and forward (non-exchange traded) contracts is extrapolated on a forward basis from the spot prices quoted as of 3 PM on the last business day of the reporting period. All values assigned by the administrator and confirmed by the Managing Owner are final and conclusive as to all Interest holders.
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 Second Quarter 2005, Year-To-Date 2005, and for the period from April 6, 2000 (commencement of operations) to June 24, 2005 were $1,133,066, $2,191,313 and $20,579,397, respectively. Redemptions of general interests for Second Quarter 2005, Year-To-Date 2005, and for the period from April 6, 2000 (commencement of operations) to June 24, 2005 were $0, $0 and $232,300, 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 24, 2005, 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. In as much 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. The broker credits Series E with interest income on 100% of its average daily equity maintained in its accounts with them 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 little or no trading. Such market conditions could prevent Series E from promptly liquidating its commodity futures positions.
1
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 3 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 24, 2005, 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 Managing Owner, 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”. In addition, management fee payments made to the Trading Advisor and fees paid to the Managing Owner are calculated as a fixed percentage of Series E’s Net Asset Values. As such, the Managing Owner cannot anticipate the amount of payments that will be required under these agreements for future periods as Net Asset Values are not known until a future date. Commission payments to the commodity broker are based on a cost per executed trade and, as such, the Managing Owner cannot anticipate the amount of payments that will be required under the brokerage agreement for future periods as the level of executed trades 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 1 and 3 of Series E’s 2004 Annual Report.
Results of Operations
The net asset value per interest as of June 24, 2005 was $158.21, a decrease of 14.45% from the December 31, 2004 net assets value per interest of $184.94 and a decrease of 3.12% from the March 25, 2005 net asset value per interest of $163.30. Past performance is not necessarily indicative of future results.
Series E’s trading losses before commissions and related fees were $681,000 and $4,933,000 during Second Quarter 2005 and Year-To-Date 2005, compared to $8,124,000 and $1,582,000 during Second Quarter 2004 and Year-To-Date 2004, 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 2005 trading results is presented below.
Quarterly Market Review:
The US economy continued to outperform both Europe and Asia in the second quarter of 2005, although growth showed some evidence of a modest slowdown. The Federal Reserve continued its policy of measured 25 point rate increases and the statement from the June 30th Federal Open Market Committee meeting indicated that it will maintain this policy in the third quarter of 2005, and possibly beyond. The Federal Reserve has now raised interest rates at nine consecutive meetings, to the current 3.25%. This has helped strengthen both the US dollar and US treasuries, as the US has a distinct rate advantage over Europe and Japan.
Gains in the US economy were not shared by Europe and Japan, with Europe in particular showing economic malaise. Germany and France showed low growth and weak employment, and Italy is essentially in a recession. Even the UK, which had previously outperformed the rest of Europe, began to show weakness. The result has been a slide in the British pound and growing speculation that the Bank of England may cut interest rates as soon as early July.
The economic outlook in Japan is somewhat better than in Europe. The Bank of Japan’s recently released quarterly Tankan Survey of Corporate Sentiment showed widespread improvement in June, with both large and small manufacturers as well as non-manufacturers more optimistic about business conditions. This came in spite of high oil prices and a sharp decline in export growth.
2
Currencies:Following a weak performance in April, the euro experienced a further decline for much of May and hit a 10-month low in June before firming a bit at the end of the month. A major factor was the pattern of global interest rates, which put the euro at a distinct disadvantage. The British pound hit an 8-month low on June 30th. Part of the euro’s recovery toward the end of June was related to the belief that the European Central Bank will wait until later in the year to move rates, given its long history of being slow to act. Additionally, surging crude oil prices raised inflation concerns. The euro continued to suffer from the rejection of the European Union constitution by French and Dutch voters. During the quarter, the Swiss franc also hit a 10-month low prior to a modest recovery. Despite recent strength against many currencies, the US dollar continues to suffer weakness within the long term trend. The latest data on the US Current Account Deficit was released on June 17th showing a 3.6% increase to a record $195.1 billion in the first quarter of 2005. The deficit amounted to a record 6.4% of the US Gross Domestic Product and was larger than predicted. The Japanese yen fell to a 10-month low against the US dollar amid concerns surrounding high oil prices. Moreover, a declining trade surplus and a growing dependence on the domestic economy served to pressure the yen with Japan’s Gross Domestic Product running at about 1.5%. While Japan’s economy is not in nearly as bad shape as Europe’s, it continues to suffer and the Bank of Japan continues in an accommodative stance. Among other currencies, the Australian dollar entered June with a year-to-date loss of about 2.5% versus the US dollar but rising metals and energy prices helped the currency recover most of that and it is now essentially flat for the year. The Canadian dollar also had a positive June, gaining about 2.5% and lowering its year-to-date loss versus the US dollar to approximately 2.0%. The South African rand, which declined approximately 9% in May versus the US dollar, continued to decline in June.
Energies:Crude oil prices continued to rise in June, and for most of the second quarter. The driving factors to the price increase included a growing concern that refinery facilities will be unable to produce gasoline and heating oil to satisfy the seemingly inelastic demand for these products. Consumer demand for these products persists at a rapid pace with record demand seen as the July 4th holiday approached. Additionally, geopolitical factors played a part in the rally, including a brief Nigerian strike and growing tensions between the Nigerian government and local oil workers. The Iranian elections also helped to increase prices in the market, as Tehran’s Mayor, Mahmoud Ahmadinejad, considered an extreme conservative, was elected President of Iran. Natural gas was not nearly as buoyant during the quarter although prices rallied in June. The weather was supportive, with extreme heat noted in key consuming regions for much of June. However, the US Department of Energy’s inventory reports noted that inventories were sufficient.
Grains:For the agronomic commodity sector, with the exception of cotton, prices in the second quarter exhibited a rally. Major contributors of this rally included a “late” spring with cool, to cold, springtime temperatures in the Northern hemisphere, relative lack of post planting precipitation in the same areas, the monsoon rains arriving two to three weeks later than average in India and unabated growth in raw material demand by the largest consuming country in the world, China. In the US, a noticeable shift was seen out of soybean acreage, and into other competing crops, notably because of the discovery of Asian Soybean Rust (ASR) in the Gulf Coast States. This is the first time ASR has ever been seen in the US, which resulted in farmers becoming concerned about yield reduction, additional cultural control costs, and a general fear of crop deterioration.
Indices:The second quarter was truly mixed for US equities, with April a down month, May a positive one, and June showing little change. For the quarter, the Dow fell 1.7%, the S&P 500 rose 1.2% and the Nasdaq rose 1.3%. During the second quarter, the US equity markets were directionless. There was plenty of mergers and acquisition activity and earnings were respectable. However, there were concerns, including the well-documented problems at General Motors and Ford. Economic data was decent but not inspiring. Crude oil prices running near $60 per barrel put pressure on the markets and a stronger US dollar raised some profit concerns. In the June 30th statement following its ninth consecutive 25 point rate hike, the Federal Reserve indicated that it is not done raising rates, resulting in stocks ending the month with a weak final session, including a triple digit loss for the Dow. European equities had a positive month and a positive quarter despite lackluster economic data, the failure of the European Union to reach a budget agreement and the “no” votes on the European Union constitution. The UK, which had previously avoided much of Europe’s economic decline, showed evidence of weakness in the second quarter. Regardless, the FTSE gained 149 points in June to 5,113 and is up 6.2% year-to-date. The Nikkei, which declined 660 points in April and recovered 265 points in May, was weak early in June, but rebounded to end the month up 300 points. Japanese economic data was mixed, showing some improvement domestically, but displaying weakness on the export front.
Interest Rates:The US treasury market for most of the second quarter was characterized by lower yields and a flatter yield curve. After closing out May at 3.98% and falling to 3.82% in early June, the yield on the benchmark 10-year note briefly spiked to 4.15% but fell to 3.96% by the end of June. The spread between the 2-year and 10-year notes, which stood at 55 points in April and 40 points at the end of May, further narrowed to 34 points at the end of June, with increasing talk of a potential inverted yield curve. The flight to safety buying of Treasuries which occurred in April and May, persisted in June, albeit at a lessened pace. The Federal Reserve raised interest rates another 25 basis points on June 30th and the statement from the Federal Open Market Committee indicated that it will continue to raise rates at a measured pace. The European Central Bank and Bank of England did not change rates. However, at the end of June there was growing speculation that both may cut rates soon, led in part by a surprisingly aggressive 50 basis point reduction by Sweden’s Riksbank to 1.5%. The Bank of Canada and Reserve Bank of Australia left rates unchanged.
3
Metals:After falling nearly 5% in May, gold prices rose sharply in June to their highest levels since mid-March. As June ended, gold appeared headed for still higher levels. Uncertainty surrounding global equity markets and relatively low global interest rates helped the rally in gold. Silver did not keep pace with gold’s rally, although it remained higher for the year. Among the base metals, copper gained approximately 8% during June and was up 12% year-to-date, although prices eased from 16-year highs of over $1.60 per pound in the final half of June. Strong demand from China continued to drive prices higher, as it did in the first quarter of 2005. Aluminum declined approximately 4.5% in June and is down approximately 9.8% year-to-date. Nickel, which rose approximately 7% in May, experienced particular weakness as prices tumbled approximately 12.5% in June due to a heavy sell-off toward the end of June, leaving prices down approximately 1.5% year-to-date.
Softs:Coffee prices tumbled throughout the second quarter of 2005 on news that the Brazilian harvest is doing well. In June, coffee was the weakest of the 19 components of the Dow Jones AIG Index. Solid physical demand for sugar globally, but in particular from China where May imports were reported at 170,875 tonnes, well ahead of last year’s 157,683 tonnes, helped sugar surge in May and June. White sugar demand remains brisk and the European Union has withdrawn as a seller for the time being. After declining steadily for most of the second quarter of 2005, cocoa prices became volatile in June on reports of building tensions in the Ivory Coast ahead of the scheduled start of disarmament on June 27. With the market on edge, prices surged temporarily. Subsequently, the disarmament was delayed. Violence in the region continues, but tensions eased somewhat towards the end of June as the United Nations increased its commitment to the Peace Keeping Force.
Quarterly Partnership Performance
The following is a summary of performance for the major sectors in which the Fund traded:
Sector P/L
Currencies (+): The major currencies experienced a significant sell off versus the US Dollar over the last two months of the second quarter. Gains were derived from short positions on the euro, the Swiss franc, and the Japanese yen.
Energies (-): The sector was choppy this quarter with prices rebounding after a mid-quarter sell-off to finish at levels close to where they began the quarter. Losses were experienced throughout the energy complex.
Grains (-): Most components of the sector ended the quarter where they began, albeit with multiple changes of direction within the 3-month period. The net result for the quarter was negative, with long positions in cotton and wheat contributing the most to the sector’s loss.
Indices (-): Global markets, excluding Japan, overcame losses during the first half of the second quarter to finish with modest gains for the quarter. Losses were generated from both long and short positions in the Tokyo Stock Index, Nikkei and DAX.
Interest Rates (+): The prices of US, European and Japanese bonds all strengthened during the second quarter. Long positions in the German Bund, British Gilt and US Treasury Bond contributed towards the gain.
Metals (-): Most of the industrial and precious metals were trendless for the quarter, making them difficult to trade. Losses were generated from long positions in copper, as well as long and short positions in aluminum and zinc.
Softs (-): The largest losses for the sector came from long positions in coffee, which sold off for most of the quarter and short positions in sugar, which rallied for most of the quarter.
Series E’s net asset levels were lower Year-To-Date 2005 as compared to Year-To-Date 2004 due to trading losses and redemptions.
Interest income is earned on the average daily equity maintained with PFD at the 13-week Treasury bill discount rate and, therefore, varies weekly according to interest rates, trading performance, contributions and redemptions. Interest income increased $137,000 and $220,000 during Second Quarter 2005 and Year-To-Date 2005 as compared to Second Quarter 2004 and Year-To-Date 2004 due to the higher interest rates offset in part by lower asset levels as discussed above.
4
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 decreased $134,000 and $314,000 during Second Quarter 2005 and Year-To-Date 2005, as compared to Second Quarter 2004 and Year-To-Date 2004, due to the decrease in average net asset levels as discussed above.
All trading decisions for Series E are made by Graham Capital Management, L.P. (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 decreased $51,000 and $121,000 during Second Quarter 2005 and Year-To-Date 2005, as compared to Second Quarter 2004 and Year-To-Date 2004, due to the decrease 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. There were no incentive fees for the Second Quarter 2005, Year-To-Date 2005 and Second Quarter 2004. Incentive fees for Year-To-Date 2004 were $1,210,000.
General and administrative expenses were $0, $111,000, $62,000 and $99,000 for Second Quarter 2005, Year-To-Date 2005, Second Quarter 2004 and Year-To-Date 2004, 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. 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 limits in the Second Quarter 2005, Year-To-Date 2005, Second Quarter 2004 and Year-To-Date 2004.
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, 2004.
The following table presents the trading value at risk associated with Series E’s open positions by market sector at June 24, 2005 and December 31, 2004. All open position trading risk exposures of Series E have been included in calculating the figure set forth below. At June 24, 2005 and December 31, 2004, Series E had total capitalizations of approximately $34.0 million and $42.3 million, respectively.
| June 24, 2005 | December 31, 2004 | |||||||||||
Market Sector | Value at Risk | % of Total Capitalization | Value at Risk | % of Total Capitalization | ||||||||
Interest rates | $ | 1,927,173 | 5.66 | % | $ | 1,473,847 | 3.48 | % | ||||
Currencies | 1,223,100 | 3.59 | % | 1,165,113 | 2.75 | % | ||||||
Commodities | 280,337 | 0.82 | % | 1,204,975 | 2.85 | % | ||||||
Stock indices | 2,306,227 | 6.78 | % | 3,288,678 | 7.77 | % | ||||||
Total | $ | 5,736,837 | 16.85 | % | $ | 7,132,613 | 16.85 | % | ||||
The following table presents the average trading value at risk of Series E’s open positions by market sector for the Second Quarter 2005 and Year-To-Date 2005, based on Series E’s total average capitalization of approximately $33.9 million and $36.1 million, respectively.
| Second Quarter 2005 | Year-To-Date 2005 | |||||||||||
Market Sector | Value at Risk | % of Total Capitalization | Value at Risk | % of Total Capitalization | ||||||||
Interest rates | $ | 970,208 | 2.86 | % | $ | 1,105,610 | 3.06 | % | ||||
Currencies | 733,645 | 2.16 | % | 700,904 | 1.94 | % | ||||||
Commodities | 721,364 | 2.13 | % | 869,527 | 2.41 | % | ||||||
Stock indices | 1,202,832 | 3.55 | % | 1,668,988 | 4.62 | % | ||||||
Total | $ | 3,628,049 | 10.70 | % | $ | 4,345,029 | 12.03 | % | ||||
5
Based on average trading value risk for Second Quarter 2005 and Year-To-Date 2005, Series E experienced an overall decrease in its value at risk, relative to capitalization levels, as compared with value at risk at December 31, 2004. Value at risk in all sectors declined, but the largest contributor to this decline was the stock index sector where Series E significantly decreased positions in global indexes, including the DJIA, NASDAQ, S&P and DAX. The decline in value at risk in the interest rate sector is attributable to reduced positions in the eurodollar. For the year-to-date period, positions in euribor and gilts were also lightened, while in the second quarter time frame, positions in short-term British rates and Japanese government bonds were lightened. The decline in value at risk in the currency sector is attributable to the Mexican peso. For the year-to-date period, positions in the euro were also lightened, while in the second quarter time frame, positions in the South African rand were lightened. The decline in value at risk in the commodity sector is mainly attributable to a reduction in metals exposure. By contrast, at June 24, 2005, the total value at risk for Series E was the same as the December 31, 2004 level, but the composition was different. While the value at risk in commodities and stock indices had declined, interest rates and currencies has increased. The decline in commodities was a result of reduced exposure to coffee, copper, aluminum and crude oil, while the decline in indexes were a results of reduced exposure in the S&P and NASDAQ. The increase in currencies was attributable to positions in the euro and British pound, while the increase in interest rates was attributable to positions in longer-term US rates, as well as short-and long-term rates in Germany.
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.
In designing and evaluating Series E’s disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the Exchange Act), the Managing Owner recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurances of achieving the desired control objectives, as ours are designed to do, and the Managing Owner necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. We believe that our disclosure controls and procedures provide such reasonable assurance.
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.
6
PART II. OTHER INFORMATION
| Item 1. | Legal Proceedings – There are no material legal proceedings pending by or against the Registrant or the Managing Owner, or to which the Registrant or Managing Owner was a party during the period covered by this report. | |||
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds – 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: | |||
| 3.1 | ||||
| and | ||||
| 4.1 | Third Amended and Restated Declaration of Trust and Trust Agreements of World Monitor Trust II dated as of October 1, 2004 (incorporated by reference to Exhibit 4.1 to the Registrant’s Annual Report on form 10K for the year ended December 31, 2004.) | |||
| 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) | |||
7
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: | Preferred Investment Solutions Corp. | |||||
| Managing Owner | ||||||
| By: | /s/ Kenneth A. Shewer | Date: August 8, 2005 | ||||
| Kenneth A. Shewer | ||||||
| Chairman and Director | ||||||
| By: | /s/ Maureen D. Howley | Date: August 8, 2005 | ||||
| Maureen D. Howley | ||||||
| Senior Vice President and Chief Financial Officer | ||||||
8