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 March 31, 2000
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: 333-83011
WORLD MONITOR TRUST II--SERIES D
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(Exact name of Registrant as specified in its charter)
Delaware 13-4058318
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One New York Plaza, 13th Floor, New York, New York 10292
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 778-7866
N/A
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Former name, former address and former fiscal year, if changed since last report
Indicate by check CK whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _CK_ No __
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
WORLD MONITOR TRUST II--SERIES D
(a Delaware Business Trust)
STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
March 31, December 31,
2000 1999
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ASSETS
Cash $5,335,277 $ 1,000
Net unrealized loss on open futures contracts (125,968) --
Accrued interest receivable 713 --
---------- ------------
Total assets $5,210,022 $ 1,000
---------- ------------
---------- ------------
LIABILITIES AND TRUST CAPITAL
Liabilities
Unrealized loss on open forward contracts $ 4,172 $ --
Commissions payable 19,072 --
Accrued expenses 4,582 --
Management fees payable 3,440 --
Redemptions payable 5,180 --
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Total liabilities 36,446 --
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Commitments
Trust capital
Limited interests (52,080.198 and 0 interests outstanding) 5,100,129 --
General interests (750 and 10 interests outstanding) 73,447 1,000
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Total trust capital 5,173,576 1,000
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Total liabilities and trust capital $5,210,022 $ 1,000
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Net asset value per limited and general interest ('Interests') $ 97.93 $ 100.00
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The accompanying notes are an integral part of these statements.
2
WORLD MONITOR TRUST II--SERIES D
(a Delaware Business Trust)
STATEMENT OF OPERATIONS
(Unaudited)
For the period from
March 13, 2000
(commencement
of operations)
to
March 31, 2000
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REVENUES
Net realized gain on commodity transactions $ 29,649
Net unrealized loss on open commodity positions (130,140)
Interest income 18,198
-------------------
(82,293)
-------------------
EXPENSES
Commissions 16,509
Management fees 3,440
Other transaction fees 2,854
General and administrative expenses 4,581
-------------------
27,384
-------------------
Net loss $(109,677)
-------------------
-------------------
ALLOCATION OF NET LOSS
Limited interests $(108,124)
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-------------------
General interests $ (1,553)
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-------------------
NET LOSS PER WEIGHTED AVERAGE LIMITED AND GENERAL INTEREST
Net loss per weighted average limited and general interest $ (2.08)
-------------------
-------------------
Weighted average number of limited and general interests outstanding 52,821
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STATEMENT OF CHANGES IN TRUST CAPITAL
(Unaudited)
LIMITED GENERAL
INTERESTS INTERESTS INTERESTS TOTAL
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Trust capital--December 31, 1999 10.000 $ -- $ 1,000 $ 1,000
Contributions 53,028.023 5,229,158 74,000 5,303,158
Net loss -- (108,124) (1,553) (109,677)
Redemptions (207.825) (20,905) -- (20,905)
----------- ---------- --------- ----------
Trust capital--March 31, 2000 52,830.198 $5,100,129 $73,447 $5,173,576
----------- ---------- --------- ----------
----------- ---------- --------- ----------
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The accompanying notes are an integral part of these statements.
3
WORLD MONITOR TRUST II--SERIES D
(a Delaware Business Trust)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
(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 present fairly the financial position of
World Monitor Trust II--Series D ('Series D') as of March 31, 2000 and the
results of its operations for the period from March 13, 2000 (commencement of
operations) through March 31, 2000. However, the operating results for the
interim period 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 generally accepted accounting
principles have been omitted. It is suggested that these financial statements be
read in conjunction with the financial statements and notes thereto included in
Series D's Annual Report on Form 10-K filed with the Securities and Exchange
Commission for the year ended December 31, 1999.
On March 13, 2000, a sufficient number of subscriptions for Series D had been
received and accepted by the Managing Owner to permit Series D to commence
trading.
B. Related Parties
The Managing Owner of Series D is a wholly owned subsidiary of Prudential
Securities Incorporated ('PSI') which, in turn, is a wholly owned subsidiary of
Prudential Securities Group Inc. Series D reimburses the Managing Owner or its
affiliates for services it performs for Series D which include but are not
limited to: brokerage services; accounting and financial management; registrar,
transfer and assignment functions; investor communications; printing and other
administrative services. However, the amount of general and administrative
expenses incurred by Series D is limited to 1.5% of its net asset value during
the year. As a result, a portion of the expenses for the period from March 13,
2000 (commencement of operations) through March 31, 2000 have been borne by the
Managing Owner and its affiliates. Additionally, PSI or its affiliates pay the
costs of organizing Series D and offering its Interests.
The costs incurred for services performed by the Managing Owner and its
affiliates for Series D for the period from March 13, 2000 (commencement of
operations) to March 31, 2000 were:
Commissions $16,509
General and administrative 203
-------
$16,712
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-------
Expenses payable to the Managing Owner and its affiliates (which are included
in accrued expenses) as of March 31, 2000 were $203.
All of the proceeds of the offering are received in the name of Series D and
are deposited in trading or cash accounts maintained at PSI, Series D's
commodity broker. Each Series' assets are maintained either with PSI or, for
margin purposes, with the various exchanges on which Series D is permitted to
trade. Series D receives interest income on 100% of its average daily equity
maintained in cash in its accounts with 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.
Series D, 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 Series D pursuant to a line of credit. PSI may require that collateral
be posted against the marked-to-market positions of Series D.
As of March 31, 2000, a non-U.S. affiliate of the Managing Owner owns 102.191
limited interests of Series D.
4
C. Derivative Instruments and Associated Risks
Series D 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 D's investment activities (credit risk).
Market risk
Trading in futures and forward (including foreign exchange transactions)
contracts involves entering into contractual commitments to purchase or sell a
particular commodity at a specified date and price. The gross or face amount of
the contracts, which is typically many times that of Series D's net assets being
traded, significantly exceeds Series D's future cash requirements since Series D
intends to close out its open positions prior to settlement. As a result, Series
D is generally subject only to the risk of loss arising from the change in the
value of the contracts. As such, Series D considers the 'fair value' of its
derivative instruments to be the net unrealized gain or loss on the contracts.
The market risk associated with Series D's commitments to purchase commodities
is limited to the gross or face amount of the contracts held. However, when
Series D enters into a contractual commitment to sell commodities, it must make
delivery of the underlying commodity at the contract price and then repurchase
the contract at prevailing market prices. Since the repurchase price to which a
commodity can rise is unlimited, entering into commitments to sell commodities
exposes Series D to unlimited risk.
Market risk is influenced by a wide variety of factors including government
programs and policies, political and economic events, the level and volatility
of interest rates, foreign currency exchange rates, the diversification effects
among the derivative instruments Series D holds and the liquidity and inherent
volatility of the markets in which Series D trades.
Credit risk
When entering into futures or forward contracts, Series D is exposed to
credit risk that the counterparty to the contract will not meet its obligations.
The counterparty for futures contracts traded in the United States and on most
foreign futures exchanges is the clearinghouse associated with such exchanges.
In general, clearinghouses are backed by the corporate members of the
clearinghouse who are required to share any financial burden resulting from the
non-performance by one of its 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, the sole counterparty
to Series D's forward transactions is PSI, Series D's commodity broker. Series D
has entered into a master netting agreement with PSI 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 non-performance of all of Series D's contracts is the net
unrealized gain included in the statements of financial condition. There can be
no assurance that any counterparty, clearing member or clearinghouse will meet
its obligations to Series D.
The Managing Owner attempts to minimize both credit and market risks by
requiring Series D and its trading advisor to abide by various trading
limitations and policies. The Managing Owner monitors compliance with these
trading limitations and policies which include, but are not limited to,
executing and clearing all trades with creditworthy counterparties (currently,
PSI is the sole counterparty or broker); limiting the amount of margin or
premium required for any one commodity or all commodities combined; and
generally limiting transactions to contracts which are traded in sufficient
volume to permit the taking and liquidating of positions. Additionally, pursuant
to the Advisory Agreement among Series D, the Managing Owner and the trading
advisor, Series D shall automatically terminate the trading advisor if the net
asset value allocated to the trading advisor declines by 40% from the value at
the beginning of any year or since the commencement of trading activities.
Furthermore, the First Amended and Restated Declaration of Trust and Trust
Agreement provides that Series D will liquidate its positions, and eventually
dissolve, if Series D experiences a decline in the net asset value of 50% from
the value at the beginning of any year or since the commencement of trading
activities. In each case, the decline in net asset value is after giving effect
for distributions, contributions and redemptions. The Managing Owner may impose
additional restrictions (through modifications of such trading limitations and
policies) upon the trading activities of the trading advisor as it, in good
faith, deems to be in the best interests of Series D.
PSI, when acting as Series D's futures commission merchant in accepting
orders for the purchase or sale of domestic futures contracts, is required by
Commodity Futures Trading Commission ('CFTC') regulations
5
to separately account for and segregate as belonging to Series D all assets of
Series D relating to domestic futures trading and is not to commingle such
assets with other assets of PSI. At March 31, 2000, such segregated assets
totalled $4,804,892. Part 30.7 of the CFTC regulations also requires PSI to
secure assets of Series D related to foreign futures trading which totalled
$404,417 at March 31, 2000. There are no segregation requirements for assets
related to forward trading.
As of March 31, 2000, Series D's open futures and forward contracts mature
within nine months.
The following table presents the fair value of futures and forward contracts
at March 31, 2000:
Assets Liabilities
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Futures Contracts:
Domestic exchanges
Interest rates $ 5,262 $ 56,134
Stock indices -- 52,575
Currencies 35,275 123,238
Commodities 3,950 --
Foreign exchanges
Interest rates 82,455 21,528
Stock indices 8,726 8,161
Forward Contracts:
Currencies -- 4,172
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$135,668 $ 265,808
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6
WORLD MONITOR TRUST II--SERIES D
(a Delaware Business Trust)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
Series D commenced operations on March 13, 2000 with gross proceeds of
$5,279,158 allocated to commodities trading. Additional contributions raised
through the continuous offering for the period from March 13, 2000 (commencement
of operations) to March 31, 2000 resulted in additional proceeds to Series D of
$25,000. Additional Interests of Series D will continue to be offered on a
weekly basis at the net asset value per Interest until the subscription maximum
is sold.
Interests in Series D may be redeemed on a weekly basis, but are subject to a
redemption fee if transacted within one year of the effective date of purchase.
Redemptions of limited interests from March 13, 2000 (commencement of
operations) to March 31, 2000 were $20,905. 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.
At March 31, 2000, 100% of Series D's net assets were allocated to
commodities trading. A significant portion of the net assets was held in cash
which is used as margin for Series D's trading in commodities. Inasmuch as the
sole business of Series D is to trade in commodities, Series D continues to own
such liquid assets to be used as margin. PSI credits Series D with interest
income on 100% of its average daily equity maintained in cash in its 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.
The commodities contracts are subject to periods of illiquidity because of
market conditions, regulatory considerations and other reasons. For example,
commodity exchanges limit fluctuations in certain commodity futures contract
prices during a single day by regulations referred to as 'daily limits.' During
a single day, no trades may be executed at prices beyond the daily limit. Once
the price of a futures contract for a particular commodity has increased or
decreased by an amount equal to the daily limit, positions in the commodity can
neither be taken nor liquidated unless traders are willing to effect trades at
or within the limit. Commodity futures prices have occasionally moved the daily
limit for several consecutive days with little or no trading. Such market
conditions could prevent Series D from promptly liquidating its commodity
futures positions.
Since Series D's business is to trade futures and forward contracts, its
capital is at risk due to changes in the value of these contracts (market risk)
or the inability of counterparties to perform under the terms of the contracts
(credit risk). Series D's exposure to market risk is influenced by a number of
factors including the volatility of interest rates and foreign currency exchange
rates, the liquidity of the markets in which the contracts are traded and the
relationships among the contracts held. The inherent uncertainty of Series D's
speculative trading as well as the development of drastic market occurrences
could result in monthly losses considerably beyond Series D's experience to date
and could ultimately lead to a loss of all or substantially all of investors'
capital. The Managing Owner attempts to minimize these risks by requiring Series
D and its Trading Advisor to abide by various trading limitations and policies
which include limiting margin amounts, trading only in liquid markets and
utilizing stop loss provisions. See Note C to the financial statements for a
further discussion on the credit and market risks associated with Series D's
futures and forward contracts.
Series D does not have, nor does it expect to have, any capital assets.
Results of Operations
Series D commenced trading operations on March 13, 2000, and as such no
comparative information is available for 1999.
The net asset value per Interest as of March 31, 2000 was $97.93, a decrease
of 2.07% from the March 13, 2000 initial net asset value per Interest of
$100.00.
7
Series D's gross trading losses were $100,491 during the period from March
13, 2000 (commencement of operations) to March 31, 2000. A detailed discussion
of Series D's current period trading results is presented below.
Quarterly Market Overview
While the Y2K scare passed without incident, the new year brought renewed
volatility to the world's financial markets. As stock indexes reached new highs,
stock valuations appeared driven more by investor interest than each company's
fundamental earnings. March marked a reversal of the differences between 'old'
economy and 'new' economy stocks as the technology laden indexes slumped and
many traditional indexes recovered lost ground.
The U.S. Federal Reserve, European Central Bank, Bank of England, Reserve
Bank of Australia, and Bank of Canada increased interest rates in early
February. The rate increases shared motivation of strong economic growth and
concerns about inflation. Despite rate hikes and news of robust worldwide
economic growth, global bond markets continued to rally partially due to
investors seeking refuge from volatile equity markets.
In the currency markets, the U.S. dollar advanced sharply in early 2000. The
dollar's advance had been driven by strong growth and soaring asset prices,
resulting in record levels of foreign capital coming into the United States.
Since its inception a year ago, the euro has declined more than 17% against the
U.S. dollar, 21% against the Japanese yen and 11% against the British pound. The
euro touched an all time low at .9500 against the U.S. dollar in March. The
currency's weakness has raised political problems for the European Central Bank
and contributed to the recent decision to hike interest rates without any clear
inflation threat. The Swiss franc had spent most of the last few months drifting
lower against the U.S. dollar, tracking the euro's trend. The Japanese yen
rallied sharply, gaining on the U.S. dollar and most other currencies in the
final months of Japan's fiscal year (which ended March 31st). This is attributed
to positive sentiment regarding Japan's economic recovery. Additionally,
uncertainty regarding the direction of U.S. equities prompted many market
participants to convert assets into yen.
Energy prices continued their climb throughout January and February and into
the first week of March. Crude oil futures prices rose above $33 a barrel, the
highest level for a front-month (the most liquid) contract since the Gulf War in
1991. The energy sector reached a high early in March just prior to OPEC's
agreement to increase production sufficiently to stabilize prices. Political
pressure by the United States, along with a desire among OPEC members to
maintain a crude oil price in the range of $22-$28 per barrel, prompted the
cartel to announce a production increase. The May contract closed below $27 a
barrel at quarter end.
Performance for Series D
The following is a summary of performance for the major sectors in which
Series D traded:
Interest rates (+): Global bond yields generally declined as inflationary
pressure continued to build and economies improved. Long positions in the
10-year Euro and the 10-year Australian Treasury bonds resulted in gains.
Stock indices (-): Extreme volatility in the world's financial markets led to
lack of trending opportunities and resulted in losses for S&P 500 positions.
Metals (+): Increased demand benefited long copper positions.
Interest income is earned on the average daily equity maintained in cash with
PSI at the 13-week Treasury bill discount rate and, therefore, varies monthly
according to interest rates, trading performance, contributions and redemptions.
Interest income was $18,200 for the period from March 13, 2000 (commencement of
operations) to March 31, 2000.
Commissions are calculated on Series D's net asset value at the end of each
week and therefore, vary according to weekly trading performance, contributions
and redemptions. Commissions were $16,500 for the period from March 13, 2000
(commencement of operations) to March 31, 2000.
All trading decisions for Series D are made by Bridgewater Associates, Inc.
(the 'Trading Advisor'). Management fees are calculated on Series D's net asset
value at the end of each week and therefore, are affected by weekly trading
performance, contributions and redemptions. Management fees were $3,400 for the
period from March 13, 2000 (commencement of operations) to March 31, 2000.
8
Incentive fees are based on the New High Net Trading Profits generated by the
Trading Advisor, as defined in the Advisory Agreement among the Trust, the
Managing Owner and the Trading Advisor. No incentive fee was generated for the
period from March 13, 2000 (commencement of operations) to March 31, 2000.
Other transaction fees consist of National Futures Association, exchange,
clearing fees as well as floor brokerage costs and give-up charges, which are
based on the number of trades the Trading Advisor executes, as well as which
exchange, clearing firm or bank on, or through, which the contract is traded.
Other transaction fees were $2,900 for the period from March 13, 2000
(commencement of operations) to March 31, 2000.
General and administrative expenses were $4,600 for the period from March 13,
2000 (commencement of operations) to March 31, 2000. These expenses include
reimbursement of costs incurred by the Managing Owner on behalf of Series D, in
addition to accounting, audit, tax and legal fees as well as printing and
postage costs related to reports sent to limited owners. The amount of expenses
charged to Series D is limited to 1.5% of its net asset value during any one
year.
Year 2000 Risk
The arrival of year 2000 was much anticipated and raised serious concerns
about whether or not computer systems around the world would continue to
function properly and the degree of 'Year 2000 Problems' that would have to be
resolved.
Series D engages third parties such as the Trading Advisor and Commodity
Broker to perform primarily all of the services it needs and also relies on
other third parties such as governments, exchanges, clearinghouses, vendors, and
banks. Series D has not experienced any material adverse impact on operations
related to Year 2000 Problems. While Series D believes that it has mitigated its
Year 2000 risk, Series D cannot guarantee that an as yet unknown Year 2000
failure will not have a material adverse effect on Series D operations.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Information regarding quantitative and qualitative discloures about market
risk is not required pursuant to Item 305(e) of Regulation S-K.
9
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. (a) Exhibits--
3.1
and
4.1-- First Amended and Restated Declaration of Trust and Trust Agreement of
World Monitor Trust II dated as of May 15, 1999 (incorporated by reference
to Exhibits 3.1 and 4.1 to Series D's Registration Statement on Form S-1,
File No. 333-83011)
4.2-- Form of Request for Redemption (incorporated by reference to Exhibit 4.2
to Series D's Registration Statement on Form S-1, File No. 333-83011)
4.3-- Form of Exchange Request (incorporated by reference to Exhibit 4.3 to
Series D's Registration Statement on Form S-1, File No. 333-83011)
4.4-- Form of Subscription Agreement (incorporated by reference to Exhibit 4.4
to Series D's Registration Statement on Form S-1, File No. 333-83011)
27.1--Financial Data Schedule (filed herewith)
(b) Reports on Form 8-K--None
10
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 D
By: Prudential Securities Futures Management Inc.
A Delaware corporation, Managing Owner
By: /s/ Steven Carlino Date: May 12, 2000
----------------------------------------
Steven Carlino
Vice President and Treasurer
11