1999
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World Monitor Trust II Annual
Report
PricewaterhouseCoopers (LOGO)
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Telephone (212) 596 8000
Facsimile (212) 596 8910
Report of Independent Accountants
To the Interest Holders of Series D,
Series E and Series F of World Monitor Trust II
In our opinion, the accompanying statement of financial condition presents
fairly, in all material respects, the financial position of Series D, Series E
and Series F of World Monitor Trust II at December 31, 1999 in conformity with
accounting principles generally accepted in the United States. This financial
statement is the responsibility of the Managing Owner; our responsibility is to
express an opinion on this financial statement based on our audit. We conducted
our audit of this statement in accordance with auditing standards generally
accepted in the United States which require that we plan and perform the audit
to obtain reasonable assurance about whether the statement of financial
condition is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the statement of
financial condition, assessing the accounting principles used and significant
estimates made by the Managing Owner, and evaluating the overall statement of
financial condition presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
January 28, 2000
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WORLD MONITOR TRUST II
(a Delaware Business Trust)
STATEMENT OF FINANCIAL CONDITION
December 31, 1999
ASSETS
Series D Series E Series F
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Cash................................................................ $ 1,000 $ 1,000 $ 1,000
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TRUST CAPITAL
General Interests (10 Interests issued and outstanding for each
Series D, E and F, respectively).................................. $ 1,000 $ 1,000 $ 1,000
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The accompanying notes are an integral part of this statement.
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WORLD MONITOR TRUST II
(a Delaware Business Trust)
NOTES TO STATEMENT OF FINANCIAL CONDITION
December 31, 1999
A. General
The Trust, Trustee, Managing Owner and Affiliates
World Monitor Trust II (the 'Trust') is a business trust organized under the
laws of Delaware on April 22, 1999. As of December 31, 1999 the Trust had not
yet commenced operations. The Trust consists of three separate and distinct
series ('Series'): Series D, E and F. The assets of each Series are segregated
from the other Series, separately valued and independently managed. The Trust
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. The managing owner is Prudential Securities Futures Management Inc.
(the 'Managing Owner'), a wholly owned subsidiary of Prudential Securities
Incorporated ('PSI') which, in turn, is a wholly owned subsidiary of Prudential
Securities Group Inc. PSI is the selling agent for the Trust as well as the
commodity broker ('Commodity Broker') of the Trust.
The Offering
Up to $50,000,000 of beneficial interests in each Series ('Interests') are
being offered (totalling $150,000,000) unless the Managing Owner, in its sole
discretion, exercises its over-subscription option to offer additional Interests
('Subscription Maximum'). Interests are being offered to investors who meet
certain established suitability standards, with a minimum initial subscription
of $5,000 ($2,000 for an individual retirement account ('IRA')) per subscriber,
although the minimum purchase for any single Series is $1,000.
Initially, the Interests for each Series were being offered for a period of
up to 180 days after the date of the Prospectus ('Initial Offering Period'). The
price per Interest during the Initial Offering Period was $100. Each Series
could commence operations at any time if the minimum amount of Interests were
sold before the Initial Offering Period expired ('Subscription Minimum'). The
Subscription Minimum is $5,000,000 for each Series. During March 2000, the
Subscription Minimum for each Series was reached and, as a result, trading began
for Series D and Series F on March 13, 2000 and March 1, 2000, respectively. It
is anticipated that Series E will begin trading shortly (See Note F for further
details). Thereafter, or until the Subscription Maximum for each Series is
reached, each Series' Interests will continue to be offered on a weekly basis at
the then current net asset value per Interest ('Continuous Offering Period').
The Managing Owner is required to maintain at least a one percent interest in
the capital, profits and losses of each Series so long as it is acting as the
Managing Owner, and it will make such contributions (and in return will receive
such general interests) as are necessary to effect this requirement.
The Trading Advisors
Each Series has its own professional commodity trading advisor that makes
that Series' trading decisions. The Managing Owner, on behalf of the Trust,
entered into advisory agreements with Bridgewater Associates, Inc., Graham
Capital Management, L.P. and Campbell & Company, Inc. (each a 'Trading Advisor')
to make the trading decisions for Series D, E and F, respectively. Each advisory
agreement may be terminated at the discretion of the Managing Owner. It is
currently contemplated that each Series' Trading Advisor will be allocated one
hundred percent of the capital raised for that Series during the Initial and
Continuous Offering Periods.
Exchanges, Redemptions and Termination
Interests owned in one Series may be exchanged, without any charge, for
Interests of one or more other Series on a weekly basis for as long as Interests
in those Series are being offered to the public. Exchanges are made at the
applicable Series' then current net asset value per Interest as of the close of
business on the Friday immediately preceding the week in which the exchange
request is effected. An exchange of Interests will be treated as a redemption of
Interests in one Series (with the related tax consequences) and the simultaneous
purchase of Interests in the Series exchanged into.
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Redemptions will be permitted on a weekly basis. Interests redeemed on or
before the end of the first and second successive six-month periods after their
effective dates are subject to a redemption fee of four percent and three
percent, respectively, of the net asset value at which they are redeemed.
Redemption fees are paid to the Managing Owner.
In the event that the estimated net asset value per Interest of a Series at
the end of any business day, after adjustments for distributions, declines by
50% or more since the commencement of trading activities or the first day of a
fiscal year, the Series will automatically terminate.
B. Summary of Significant Accounting Policies
Basis of accounting
The financial statements of each Series are prepared on the accrual basis of
accounting in accordance with generally accepted accounting principles.
Income taxes
Each Series is not required to provide for, or pay, any Federal or state
income taxes. Income tax attributes that arise from their operations will be
passed directly to the individual limited owners including the Managing Owner.
Each Series may be subject to other state and local taxes in jurisdictions in
which they operate.
Profit and loss allocations and distributions
Each Series allocates profits and losses for both financial and tax reporting
purposes to the owners weekly on a pro rata basis based on each owner's
Interests outstanding during the week. Distributions may be made at the sole
discretion of the Managing Owner on a pro rata basis in accordance with the
respective capital balances of the owners; however, the Managing Owner does not
presently intend to make any distributions.
C. Fees
Organizational and offering costs
PSI or its affiliates paid the costs of organizing each Series and will
continue to pay the costs of offering their Interests.
General and administrative costs
Routine legal, audit, postage, and other routine third party administrative
costs are paid by each Series. Additionally, each Series pays the administrative
costs incurred by the Managing Owner or its affiliates for services it performs
for each Series which include, but are not limited to, those costs discussed in
Note D below. However, all of these general and administrative costs incurred by
each Series are limited to 1.5% annually of the net asset value of the Series.
Management and incentive fees
Each Series will pay its Trading Advisor a management fee at an annual rate
of 1.25% for Series D, 2% for Series E and 2% for Series F of such Series' net
asset value allocated to its management. The management fee is determined weekly
and the sum of such weekly amounts is paid monthly. Each Series will also pay
its Trading Advisor a quarterly incentive fee equal to 22% of such Trading
Advisor's 'New High Net Trading Profits' (as defined in each Advisory
Agreement). The incentive fee also accrues weekly.
Commissions
The Managing Owner and the Trust entered into a brokerage agreement with PSI
to act as Commodity Broker for each Series whereby each Series pays a fixed fee
for brokerage services rendered at an annual rate of 6% of each Series' net
asset value. The fee is determined weekly and the sum of such weekly amounts is
paid monthly. Each Series is also obligated to pay all floor brokerage expenses,
give-up charges and NFA, clearing and exchange fees incurred in connection with
each Series' commodity trading activities.
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D. Related Parties
Each Series reimburses the Managing Owner or its affiliates for services it
performs for each Series which include but are not limited to: brokerage
services; accounting and financial management; investor communications, printing
and other administrative services.
All of the proceeds of the continuous offering are received in the name of
each Series and deposited in trading or cash accounts maintained for each Series
at PSI. Each Series' assets are maintained either on deposit with PSI or, for
margin purposes, with the various exchanges on which the Series are permitted to
trade. Each Series receives interest income on 100% of its average daily equity
maintained in cash in the Series' accounts with PSI during each month at the
13-week Treasury bill discount rate. This rate is determined weekly by PSI and
represents the rate awarded to all bidders during each week's auction of 13-week
Treasury bills (e.g., 5.730% for the 13-week Treasury bill auction on March 16,
2000).
Each Series, acting through its Trading Advisor, may execute
over-the-counter, spot, forward and option foreign exchange transactions with
PSI. PSI 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 PSI and each Series pursuant to a line of
credit. PSI may require that collateral be posted against the marked-to-market
position of each Series.
E. Credit and Market Risk
Since each Series' business is to trade futures, forward (including foreign
exchange transactions) and options contracts, their 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).
Futures, forward and options contracts involve varying degrees of off-balance
sheet risk; and changes in the level or volatility of interest rates, foreign
currency exchange rates or the market values of the contracts (or commodities
underlying the contracts) frequently result in changes in the unrealized gain
(loss) on open commodity positions. Each Series' exposure to market risk is
influenced by a number of factors including the relationships among the
contracts held by each Series as well as the liquidity of the markets in which
the contracts are traded.
Futures and options contracts are traded on organized exchanges and are thus
distinguished from forward contracts which are entered into privately by the
parties. The credit risks associated with futures and options contracts are
typically perceived to be less than those associated with forward contracts
because exchanges typically provide clearinghouse arrangements in which the
collective credit (subject to certain limitations) of the members of the
exchanges is pledged to support the financial integrity of the exchange. On the
other hand, each Series must rely solely on the credit of their broker (PSI)
with respect to forward transactions.
The Managing Owner attempts to minimize both credit and market risks by
requiring each Series and its Trading Advisors 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 (currently,
PSI is the sole counterparty or broker); limiting the amount of margin or
premium required for any one commodity or all commodities; 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 each Series, the Managing Owner and each Trading
Advisor, each Series 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 First Amended and Restated Declaration of Trust and Trust
Agreement provides that each Series will liquidate its positions, and eventually
dissolve, if each Series 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 such trading limitations and
policies) upon the trading activities of the Trading Advisors as it, in good
faith, deems to be in the best interests of each Series.
PSI, when acting as each Series' futures commission merchant in accepting
orders for the purchase or sale of domestic futures and options contracts, will
be required by Commodity Futures Trading Commission
5
('CFTC') regulations to separately account for and segregate as belonging to
each Series all assets of each Series relating to domestic futures and options
trading and is not to commingle such assets with other assets of PSI. Part 30.7
of the CFTC regulations also will require PSI to secure assets of each Series
related to foreign futures and options trading. There are no segregation
requirements for assets related to forward trading.
F. Subsequent Event
During March 2000, each Series reached its Subscription Minimum and began or
anticipates beginning trading as follows:
Proceeds from Proceeds from Commencement
Series Limited Owners Managing Owner of Operations
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D $5.2 million $75,000 March 13, 2000
E 5.1 million 75,000 April 2000
F 5.1 million 75,000 March 1, 2000
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I hereby affirm that, to the best of my knowledge and belief, the information
contained herein relating to World Monitor Trust II is accurate and complete.
PRUDENTIAL SECURITIES
FUTURES MANAGEMENT INC.
(Managing Owner)
By: Barbara J. Brooks
Chief Financial Officer
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7
WORLD MONITOR TRUST II
(a Delaware Business Trust)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
As of December 31, 1999 the minimum required capital of $5,000,000 for each
Series through their public offering of Interests had not yet become available.
This caused the Trust to have limited funds on December 31, 1999. During March
2000, Series D and Series F completed their initial offering and started trading
their assets. Series E also completed its initial offering and anticipates
trading will commence shortly. See Notes A and F to the financial statements for
further details. Additional Interests of each Series will continue to be offered
on a weekly basis at the net asset value per Interest until the Subscription
Maximum for each Series is sold.
Interests in each Series may also be redeemed on a weekly basis but are
subject to a redemption fee if transacted within one year of the effective date
of purchase. Additionally, Interests owned in one Series may be exchanged,
without any charge, for Interests of one or more other Series on a weekly basis
for as long as Interests in those Series are being offered to the public. Future
contributions, redemptions and exchanges will impact the amount of funds
available for investment in commodity contracts in subsequent periods.
During March 2000, 100% of Series D's and Series F's net assets were
allocated to commodities trading. Once Series E starts trading its assets, they
also will be allocated 100% to commodities trading. A significant portion of the
net assets is held in cash which is used as margin for trading in commodities.
Inasmuch as the sole business of each Series is to trade in commodities, each
Series will continue to own such liquid assets to be used as margin. PSI will
credit each Series with interest income on 100% of its average daily equity
maintained in cash in the Series' accounts with PSI during each month at the
13-week Treasury bill discount rate. This rate is determined weekly by PSI and
represents the rate awarded to all bidders during each week's auction of 13-week
Treasury bills (e.g., 5.730% for the 13-week Treasury bill auction on March 16,
2000).
The commodities contracts are subject to periods of illiquidity because of
market conditions, regulatory considerations and other reasons. For example,
commodity exchanges limit fluctuations in 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 a Series from promptly liquidating its commodity
futures positions.
Since each Series' business is to trade futures, forward (including foreign
exchange transactions) and options 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). Each
Series' 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 relationship
among the contracts held. The inherent uncertainty of each Series' speculative
trading as well as the development of drastic market occurrences could result in
monthly losses that could ultimately lead to a loss of all or subsequently all
of investors' capital. The Managing Owner attempts to minimize these risks by
requiring the Series' Trading Advisors to abide by various trading limitations
and policies which include limiting margin amounts, trading only in liquid
markets and utilizing stop loss provisions. See Note E to the financial
statements for a further discussion of the credit and market risks associated
with each Series' futures, forward and options contracts.
No Series has, nor do they expect to have, any capital assets.
Results of Operations
Through December 31, 1999, the Trust had not yet commenced operations.
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OTHER INFORMATION
The World Monitor Trust II's Annual Report on Form 10-K as filed with the
Securities and Exchange Commission is available to limited owners without charge
upon written request to:
World Monitor Trust II
P.O. Box 2016
Peck Slip Station
New York, New York 10272-2016
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Peck Slip Station BULK RATE
P.O. Box 2016 U.S. POSTAGE
New York, NY 10272 PAID
Automatic Mail
PFT1/17152