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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 27, 2002
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______________________ to ______________________
Commission file number: 0-32685
WORLD MONITOR TRUST II--SERIES D
- -------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 13-4058318
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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 __
Indicate by check CK whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes __ No _CK_
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PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
WORLD MONITOR TRUST II--SERIES D
(a Delaware Business Trust)
STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
<Table>
<Caption>
September 27, December 31,
2002 2001
- ----------------------------------------------------------------------------------------------------
ASSETS
Cash $ 6,500,585 $4,474,005
Net unrealized loss on open futures contracts (176,020) (61,284)
Accrued interest receivable 9,153 --
------------- ------------
Total assets $ 6,333,718 $4,412,721
------------- ------------
------------- ------------
LIABILITIES AND TRUST CAPITAL
Liabilities
Accrued expenses $ 40,844 $ 52,055
Commissions and other transaction fees payable 31,649 22,857
Redemptions payable 15,594 22,989
Management fees payable 6,190 4,465
Net unrealized loss on open forward contracts 266 14,433
------------- ------------
Total liabilities 94,543 116,799
------------- ------------
Commitments
Trust capital
Limited interests (69,945.547 and 51,950.299 interests
outstanding) 6,172,986 4,251,727
General interests (750 and 540 interests outstanding) 66,189 44,195
------------- ------------
Total trust capital 6,239,175 4,295,922
------------- ------------
Total liabilities and trust capital $ 6,333,718 $4,412,721
------------- ------------
------------- ------------
Net asset value per limited and general interest ('Interests') $ 88.25 $ 81.84
------------- ------------
------------- ------------
- ----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
</Table>
2
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WORLD MONITOR TRUST II--SERIES D
(a Delaware Business Trust)
Condensed Schedules of Investments
(Unaudited)
<Table>
<Caption>
September 27, 2002 December 31, 2001
-------------------------------- --------------------------------
Net Unrealized Net Unrealized
Gain (Loss) Gain (Loss)
as a % of Net Unrealized as a % of Net Unrealized
Futures and Forward Contracts Trust Capital Gain (Loss) Trust Capital Gain (Loss)
- -------------------------------------------------------------------------------------------------------------
Futures contracts purchased:
Stock indices $ (74,011) $ 11,982
Interest rates 340,270 (67,480)
Currencies (86,989) (107,230)
Commodities (19,500) --
-------------- --------------
Net unrealized gain (loss) on
futures contracts purchased 2.56% 159,770 (3.79)% (162,728)
-------------- --------------
Futures contracts sold:
Stock indices 10,910 (2,981)
Interest rates (361,550) 15,412
Currencies 14,100 78,413
Commodities 750 10,600
-------------- --------------
Net unrealized gain (loss) on
futures contracts sold (5.38) (335,790) 2.36 101,444
------- -------------- ------ --------------
Net unrealized loss on futures
contracts (2.82)% $ (176,020) (1.43)% $ (61,284)
------- -------------- ------ --------------
------- -------------- ------ --------------
Forward currency contracts purchased 0.00% $ 104 0.11% $ 4,929
Forward currency contracts sold (0.01) (370) (0.45) (19,362)
------- -------------- ------ --------------
Net unrealized loss on forward
contracts (0.01)% $ (266) (0.34)% $ (14,433)
------- -------------- ------ --------------
------- -------------- ------ --------------
Settlement Currency--Futures Contracts
British pound (1.77)% $ (110,254) 0.71% $ 30,369
Canadian dollar 0.68 42,640 0.48 20,535
Euro 2.19 136,327 (2.32) (99,368)
Japanese yen 0.19 11,776 0.01 522
Australian dollar 0.01 554 (0.05) (2,248)
Swiss franc (0.05) (3,114) -- --
Swedish krona 0.05 3,415 -- --
U.S. dollar (4.12) (257,364) (0.26) (11,094)
------- -------------- ------ --------------
Total (2.82)% $ (176,020) (1.43)% $ (61,284)
------- -------------- ------ --------------
------- -------------- ------ --------------
Settlement Currency--Forward Contracts
Euro (0.01)% $ (266) (0.34)% $ (14,433)
------- -------------- ------ --------------
------- -------------- ------ --------------
- ----------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
</Table>
3
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WORLD MONITOR TRUST II--SERIES D
(a Delaware Business Trust)
STATEMENTS OF OPERATIONS
(Unaudited)
<Table>
<Caption>
For the period from For the period from For the period from For the period from
January 1, 2002 to January 1, 2001 to June 29, 2002 to June 30, 2001 to
September 27, 2002 September 28, 2001 September 27, 2002 September 28, 2001
- -------------------------------------------------------------------------------------------------------------------
REVENUES
Net realized gain (loss) on
commodity transactions $ 806,614 $(453,354) $ 209,349 $ 76,861
Change in net unrealized
gain/loss on open
commodity positions (100,569) 10,140 (663,951) 77,745
Interest income 69,034 139,027 28,480 30,167
------------------- ------------------- ------------------- -------------------
775,079 (304,187) (426,122) 184,773
------------------- ------------------- ------------------- -------------------
EXPENSES
Commissions and other
transaction fees 261,446 216,092 104,527 59,638
General and administrative 104,470 107,455 42,633 35,813
Management fees 51,514 41,550 20,707 11,308
Incentive fees 5,791 -- -- --
------------------- ------------------- ------------------- -------------------
423,221 365,097 167,867 106,759
General and administrative
expenses borne by the
Managing Owner and its
affiliates (41,857) (56,876) (17,685) (22,185)
------------------- ------------------- ------------------- -------------------
Net expenses 381,364 308,221 150,182 84,574
------------------- ------------------- ------------------- -------------------
Net income (loss) $ 393,715 $(612,408) $(576,304) $ 100,199
------------------- ------------------- ------------------- -------------------
------------------- ------------------- ------------------- -------------------
ALLOCATION OF NET INCOME
(LOSS)
Limited interests $ 389,379 $(605,925) $(570,265) $ 99,297
------------------- ------------------- ------------------- -------------------
------------------- ------------------- ------------------- -------------------
General interests $ 4,336 $ (6,483) $ (6,039) $ 902
------------------- ------------------- ------------------- -------------------
------------------- ------------------- ------------------- -------------------
NET INCOME (LOSS) PER
WEIGHTED AVERAGE LIMITED
AND GENERAL INTEREST
Net income (loss) per
weighted average limited
and general interest $ 6.20 $ (10.88) $ (7.96) $ 2.17
------------------- ------------------- ------------------- -------------------
------------------- ------------------- ------------------- -------------------
Weighted average number of
limited and general
interests outstanding 63,541 56,300 72,361 46,200
------------------- ------------------- ------------------- -------------------
------------------- ------------------- ------------------- -------------------
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</Table>
STATEMENT OF CHANGES IN TRUST CAPITAL
(Unaudited)
<Table>
<Caption>
LIMITED GENERAL
INTERESTS INTERESTS INTERESTS TOTAL
- ------------------------------------------------------------------------------------------------------
Trust capital--December 31, 2001 52,490.299 $4,251,727 $44,195 $ 4,295,922
Contributions 31,792.484 2,709,550 17,658 2,727,208
Net income 389,379 4,336 393,715
Redemptions (13,587.236) (1,177,670) -- (1,177,670)
----------- ---------- --------- -----------
Trust capital--September 27, 2002 70,695.547 $6,172,986 $66,189 $ 6,239,175
----------- ---------- --------- -----------
----------- ---------- --------- -----------
- -----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
</Table>
4
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WORLD MONITOR TRUST II--SERIES D
(a Delaware Business Trust)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 27, 2002
(Unaudited)
A. General
These financial statements have been prepared without audit. In the opinion
of Prudential Securities Futures Management Inc. (the 'Managing Owner'), the
financial statements contain all adjustments (consisting of only normal
recurring adjustments) necessary to state fairly the financial position of World
Monitor Trust II--Series D ('Series D') as of September 27, 2002 and December
31, 2001 and the results of its operations for the periods from January 1,
2002 to September 27, 2002 ('Year-To-Date 2002'), January 1, 2001 to
September 28, 2001 ('Year-To-Date 2001'), June 29, 2002 to September 27, 2002
('Third Quarter 2002') and June 30, 2001 to September 28, 2001 ('Third Quarter
2001'). However, the operating results for these interim periods may not be
indicative of the results expected for a full year.
Certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America have been omitted. It is suggested that
these financial statements be read in conjunction with the financial statements
and notes thereto included in Series D's annual report on Form 10-K filed with
the Securities and Exchange Commission for the year ended December 31, 2001.
Certain balances from the prior period have been reclassified to conform with
the current financial statement presentation.
B. Related Parties
The Managing Owner of Series D is a wholly-owned subsidiary of Prudential
Securities Incorporated ('PSI'), which, in turn, is an indirect wholly-owned
subsidiary of Prudential Financial, Inc. Series D reimburses the Managing Owner
or its affiliates for services they perform for Series D, which include, but are
not limited to: brokerage services; accounting and financial management;
registrar, transfer and assignment functions; investor communications; printing
and other administrative services. However, to the extent that general and
administrative expenses exceed 1.5% of Series D's net asset value during the
year (with a maximum of 1.25% attributable to other than legal and audit
expenses) such amounts will be borne by the Managing Owner and its affiliates.
Because general and administrative expenses exceeded such limitations, a portion
of the expenses related to services the Managing Owner performed for Series D,
other than brokerage services, during Year-To-Date 2002, Year-To-Date 2001,
Third Quarter 2002 and Third Quarter 2001 have been borne by the Managing Owner
and its affiliates. Additionally, PSI or its affiliates paid the costs of
organizing Series D and continue to pay the costs of offering its limited
interests.
The expenses incurred by Series D for services performed by the Managing
Owner and its affiliates for Series D were:
<Table>
<Caption>
Year-To-Date Year-To-Date Third Quarter Third Quarter
2002 2001 2002 2001
------------ ------------ ------------- -------------
Commissions $247,632 $199,740 $ 99,541 $ 54,360
General and administrative 56,235 54,152 22,372 18,051
------------ ------------ ------------- -------------
303,867 253,892 121,913 72,411
------------ ------------ ------------- -------------
General and administrative expenses
borne by the Managing Owner and
its affiliates (41,857) (56,876) (17,685) (22,185)
------------ ------------ ------------- -------------
$262,010 $197,016 $ 104,228 $ 50,226
------------ ------------ ------------- -------------
------------ ------------ ------------- -------------
</Table>
General and administrative expenses payable to the Managing Owner and its
affiliates (which are included in accrued expenses) as of September 27, 2002 and
December 31, 2001 were $266 and $922, respectively.
All of the proceeds of the offering of Series D are received in the name of
Series D and are deposited in trading or cash accounts at PSI, Series D's
commodity broker. Series D's assets are maintained either with
5
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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 its accounts with PSI during each month at the
13-week Treasury bill discount rate.
Series D, acting through its trading advisor, may execute over-the-counter,
spot, forward and/or 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.
C. Derivative Instruments and Associated Risks
Series D is exposed to various types of risks associated with the derivative
instruments and related markets in which it invests. These risks include, but
are not limited to, risk of loss from fluctuations in the value of derivative
instruments held (market risk) and the inability of counterparties to perform
under the terms of Series D's investment activities (credit risk).
Market risk
Trading in futures and forward contracts (including foreign exchange)
involves entering into contractual commitments to purchase or sell a particular
commodity at a specified date and price. The gross or face amount of the
contracts, which is typically many times that of Series D's net assets being
traded, significantly exceeds Series D's future cash requirements since Series D
intends to close out its open positions prior to settlement. As a result, Series
D is generally subject only to the risk of loss arising from the change in the
value of the contracts. As such, Series D considers the 'fair value' of its
derivative instruments to be the net unrealized gain or loss on the contracts.
The market risk associated with Series D's commitments to purchase commodities
is limited to the gross or face amount of the contracts held. However, when
Series D enters into a contractual commitment to sell commodities, it must make
delivery of the underlying commodity at the contract price and then repurchase
the contract at prevailing market prices. Since the repurchase price to which a
commodity can rise is unlimited, entering into commitments to sell commodities
exposes Series D to unlimited risk.
Market risk is influenced by a wide variety of factors including government
programs and policies, political and economic events, the level and volatility
of interest rates, foreign currency exchange rates, the diversification effects
among the derivative instruments Series D holds and the liquidity and inherent
volatility of the markets in which Series D trades.
Credit risk
When entering into futures or forward contracts, Series D is exposed to
credit risk that the counterparty to the contract will not meet its obligations.
The counterparty for futures contracts traded on United States and most foreign
futures exchanges is the clearinghouse associated with the particular exchange.
In general, clearinghouses are backed by their corporate members who are
required to share any financial burden resulting from the non-performance by one
of their members and, as such, should significantly reduce this credit risk. In
cases where the clearinghouse is not backed by the clearing members (i.e., some
foreign exchanges), it is normally backed by a consortium of banks or other
financial institutions. On the other hand, if Series D enters into forward
transactions, the sole counterparty is PSI, Series D's commodity broker. Series
D has entered into a master netting agreement with PSI 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 on all of Series D's contracts is
the net unrealized gain included in the statements of financial condition;
however, counterparty nonperformance on only certain of Series D's contracts may
result in greater loss than nonperformance on all of Series D's contracts. There
can be no assurance that any counterparty, clearing member or clearinghouse will
meet its obligations to Series D.
The Managing Owner attempts to minimize both credit and market risks by
requiring Series D and its trading advisor to abide by various trading
limitations and policies. The Managing Owner monitors compliance with these
trading limitations and policies which include, but are not limited to,
executing and clearing all trades with creditworthy counterparties; limiting the
amount of margin or premium required for any one commodity or all commodities
combined; and generally limiting transactions to contracts which are traded
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in sufficient volume to permit the taking and liquidating of positions.
Additionally, pursuant to the advisory agreement among Series D, the Managing
Owner and the trading advisor, Series D shall automatically terminate the
trading advisor if the net asset value allocated to the trading advisor declines
by 40% from the value at the beginning of any year or since the commencement of
trading activities. Furthermore, the Second Amended and Restated Declaration of
Trust and Trust Agreement of World Monitor Trust II provides that Series D will
liquidate its positions, and eventually dissolve, if Series D experiences a
decline in the net asset value of 50% from the value at the beginning of any
year or since the commencement of trading activities. In each case, the decline
in net asset value is after giving effect for distributions, contributions and
redemptions. The Managing Owner may impose additional restrictions (through
modifications of trading limitations and policies) upon the trading activities
of the trading advisor as it, in good faith, deems to be in the best interest of
Series D.
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 to separately account
for and segregate as belonging to Series D all assets of Series D relating to
domestic futures trading and is not permitted to commingle such assets with
other assets of PSI. At September 27, 2002, such segregated assets totalled
$2,135,409. Part 30.7 of the CFTC regulations also requires PSI to secure assets
of Series D related to foreign futures trading, which totalled $4,189,156 at
September 27, 2002. There are no segregation requirements for assets related to
forward trading.
As of September 27, 2002, Series D's open futures and forward contracts
mature within one year.
D. Financial Highlights
<Table>
<Caption>
Year-To-Date Year-To-Date Third Quarter Third Quarter
2002 2001 2002 2001
------------ ------------ ------------- -------------
Performance per Interest
Net asset value, beginning of period $ 81.84 $ 87.49 $ 96.30 $ 76.38
------------ ------------ ------------- -------------
Net realized gain (loss) and change in
unrealized gain/loss on commodity
transactions 11.25 (5.88) (6.37) 3.30
Interest income 1.07 2.39 0.39 0.65
Net expenses (5.91) (5.50) (2.07) (1.83)
------------ ------------ ------------- -------------
Net increase (decrease) for the period 6.41 (8.99) (8.05) 2.12
------------ ------------ ------------- -------------
Net asset value, end of period $ 88.25 $ 78.50 $ 88.25 $ 78.50
------------ ------------ ------------- -------------
------------ ------------ ------------- -------------
Total return 7.83% (10.28)% (8.36)% 2.78%
Ratio to average net assets (annualized)
Interest income 1.67% 4.10% 1.71% 3.33%
Net expenses, including incentive fees
of 0.10% during Year-To-Date 2002 9.20% 9.08% 9.02% 9.34%
</Table>
These financial highlights represent the overall results of Series D during
Year-To-Date 2002, Year-To-Date 2001, Third Quarter 2002 and Third Quarter 2001.
An individual limited owner's actual results may differ depending on the timing
of contributions and redemptions.
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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 during Year-To-Date 2002, Third Quarter 2002 and
for the period from March 13, 2000 (commencement of operations) to September 27,
2002 resulted in additional gross proceeds to Series D of $2,727,208, $565,800
and $6,685,097, respectively. Additional limited interests of Series D will
continue to be offered on a weekly basis at the net asset value per Interest
until the subscription maximum of $50,000,000 is sold.
Limited interests in Series D may be redeemed on a weekly basis but are
subject to a redemption fee if transacted within one year of the effective date
of purchase. Redemptions of limited interests for Year-To-Date 2002, Third
Quarter 2002 and for the period from March 13, 2000 (commencement of operations)
to September 27, 2002 were $1,177,670, $581,224 and $4,766,257, respectively.
Redemptions of general interests for the period from March 13, 2000
(commencement of operations) to September 27, 2002 were $54,024. There were no
general interests redeemed during Year-To-Date 2002. Additionally, Interests
owned in any series of World Monitor Trust II (Series D, E or F) may be
exchanged, without any charge, for Interests of one or more other series of
World Monitor Trust II on a weekly basis for as long as Interests in those
series are being offered to the public. Future contributions, redemptions and
exchanges will impact the amount of funds available for investment in commodity
contracts in subsequent periods.
At September 27, 2002, 100% of Series D's net assets were allocated to
commodities trading. A significant portion of the net assets was held in cash,
which was used as margin for trading in commodities. Inasmuch as the sole
business of Series D is to trade in commodities, Series D continues to own such
liquid assets to be used as margin. PSI credits Series D with interest income on
100% of its average daily equity maintained in its accounts with PSI during
each month at the 13-week Treasury bill discount rate.
The commodities contracts are subject to periods of illiquidity because of
market conditions, regulatory considerations and other reasons. For example,
commodity exchanges limit fluctuations in certain commodity futures contract
prices during a single day by regulations referred to as 'daily limits.' During
a single day, no trades may be executed at prices beyond the daily limit. Once
the price of a futures contract for a particular commodity has increased or
decreased by an amount equal to the daily limit, positions in the commodity can
neither be taken nor liquidated unless traders are willing to effect trades at
or within the limit. Commodity futures prices have occasionally moved the daily
limit for several consecutive days with little or no trading. Such market
conditions could prevent Series D from promptly liquidating its commodity
futures positions.
Since Series D's business is to trade futures and forward contracts, its
capital is at risk due to changes in the value of these contracts (market risk)
or the inability of counterparties to perform under the terms of the contracts
(credit risk). Series D's exposure to market risk is influenced by a number of
factors including the volatility of interest rates and foreign currency exchange
rates, the liquidity of the markets in which the contracts are traded and the
relationships among the contracts held. The inherent uncertainty of Series D's
speculative trading, as well as the development of drastic market occurrences,
could result in monthly losses considerably beyond Series D's experience to date
and could ultimately lead to a loss of all or substantially all of investors'
capital. The Managing Owner attempts to minimize these risks by requiring Series
D and its trading advisor to abide by various trading limitations and policies
which include limiting margin amounts, trading only in liquid markets and
permitting the use of stop loss provisions. See Note C to the financial
statements for a further discussion on the credit and market risks associated
with Series D's futures and forward contracts.
Series D does not have, nor does it expect to have, any capital assets.
Results of Operations
The net asset value per Interest as of September 27, 2002 was $88.25, an
increase of 7.83% from the December 31, 2001 net asset value per Interest of
$81.84 and a decrease of 8.36% from the June 28, 2002 net asset value per
Interest of $96.30. Past performance is not necessarily indicative of future
results.
8
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Series D's trading gains (losses) before commissions and related fees were
$706,000 and $(455,000) during Year-To-Date 2002 and Third Quarter 2002 compared
to $(443,000) and $155,000 during Year-To-Date 2001 and Third Quarter 2001,
respectively. Due to the nature of Series D's trading activities, a period to
period comparison of its trading results is not meaningful. However, a detailed
discussion of Series D's Third Quarter 2002 trading results is presented below.
Quarterly Market Overview
Throughout the third quarter of 2002, household wealth continued to decrease
as the result of pervasive declines in global equity markets and uncertainty
regarding worldwide economies. As a result, U.S. consumer spending, which helped
boost U.S. economic growth in the past, was adversely impacted. Additionally,
the higher cost of equity capital, heightened degree of risk aversion and
uncertainty regarding debt and equity markets further inhibited consumer and
business investment worldwide. In the U.S., decreasing wealth stemming from
losses on equities were offset, in part, by continuing increases in home equity
values. Low mortgage interest rates remained a key factor in sustaining the
housing market at a relatively elevated level. Fears of slowing global economies
resulted in major declines in long-term interest rates and bond markets surged.
Foreign economies followed the lead of the U.S. with persistent weakness evident
in European, Asian and Latin American economies, particularly in Japan and
Brazil.
In the interest rate sector, negative economic news throughout the quarter
coupled with significant downturns in world equity markets and disappointing
corporate profits caused a flight to quality into bond markets around the world.
The U.S. Federal Reserve Bank left interest rates unchanged at 1.75% in its two
meetings this quarter, switching its economic outlook for the near future from
'uncertain' to a bias toward 'economic weakness'. The European Central Bank left
short-term interest rates unchanged as well. The Japanese bond market was
particularly strong as the Japanese economy continued to struggle with recession
and investors fled to bonds for safety.
The S&P 500 fell 17.63%, the Dow Jones Industrial Average decreased 17.87%
and the London FTSE dropped 20.07% for the quarter as investor confidence
collapsed in response to continued concerns about accounting transparency,
government investigations, heightened tension in the Middle East, and decreased
corporate sales and profits. In Japan, the Nikkei Index hit new lows as the
economy continued to struggle with structural problems and the Japanese
government prepared new fiscal policy initiatives.
In foreign exchange markets, the U.S. dollar began the quarter down against
many foreign currencies, but reversed its trend towards quarter-end. The euro
surpassed parity with the U.S. dollar early in the quarter as investors' desire
for U.S. assets decreased, but ended the quarter lower. The British pound rose
against the U.S. dollar early in the quarter amid perceived strength in the
British economy, while the Japanese yen weakened as worries regarding the
Japanese economy persisted.
Energy markets continued their upward climb as fears of impending war with
Iraq pushed crude oil prices up significantly. Crude oil rose from the low $20's
per barrel earlier in the year to approximately $30 a barrel at quarter-end.
Gold and other precious metals soared throughout most of the quarter in
response to weaknesses in the U.S. dollar and global equity markets and
instability in the Middle East. In commodities markets, drought in the
Mid-Western United States drove price increases in corn, wheat and soybean
markets. Cocoa prices soared as supply deficits and violence in the Ivory Coast
pushed the markets to sixteen-year highs.
Quarterly Performance of Series D
The following is a summary of performance for the major sectors in which
Series D traded:
Currencies (-): The U.S. dollar reversed its downward trend against many
foreign currencies toward quarter-end resulting in losses for long euro,
Australian dollar, Canadian dollar and Japanese yen positions.
Indices (-): Long positions in the S&P 500, Euro DAX, London FTSE and Tokyo
TOPIX resulted in losses as weak economic data and disappointing earning reports
pressed global equity markets downward throughout the quarter.
Metals (-): Weak economic conditions caused price declines in industrial
metals resulting in losses for long copper positions.
Interest rates (+): Interest rate instruments rose throughout the quarter in
response to weak economies and poor equity market performance worldwide. Long
positions in U.S., Japanese and European bonds resulted in gains.
9
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Series D's average net asset levels increased during Year-To-Date 2002 and
Third Quarter 2002 as compared to Year-To-Date 2001 and Third Quarter 2001,
respectively. The increase was primarily due to contributions and favorable
trading performance during 2002 offset, in part, by redemptions. Commissions,
management fees and general and administrative expenses, which are largely based
on net asset levels, increased proportionately during Year-To-Date 2002 and
Third Quarter 2002 as compared to Year-To-Date 2001 and Third Quarter 2001.
Interest income is earned on the average daily equity maintained in its
accounts 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 decreased $70,000 and $2,000 during
Year-To-Date 2002 and Third Quarter 2002 as compared to Year-To-Date 2001
and Third Quarter 2001, respectively due to lower overall interest rates
during 2002 as compared to 2001, offset, in part, by the increase in average
net asset levels as discussed above.
Commissions are calculated on Series D's net asset value at the end of each
week and, therefore, vary according to weekly trading performance, contributions
and redemptions. Other transaction fees consist of National Futures Association,
exchange and clearing fees, as well as floor brokerage costs and give-up
charges, which are based on the number of trades the trading advisor executes,
as well as which exchange, clearing firm or bank on, or through, which the
contract is traded. Commissions and other transaction fees increased $45,000 and
$45,000 during Year-To-Date 2002 and Third Quarter 2002 as compared to
Year-To-Date 2001 and Third Quarter 2001, respectively due to the increase in
average net asset levels as discussed above.
All trading decisions for Series D are made by Bridgewater Associates, Inc.
(the 'Trading Advisor'). Management fees are calculated on Series D's net asset
value at the end of each week and, therefore, are affected by weekly trading
performance, contributions and redemptions. Management fees increased $10,000
and $9,000 during Year-To-Date 2002 and Third Quarter 2002 as compared to
Year-To-Date 2001 and Third Quarter 2001, respectively due to the increase 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 D, the
Managing Owner and the Trading Advisor. Incentive fees were $6,000 during
Year-To-Date 2002. There were no incentive fees during Third Quarter 2002 and
Year-To-Date 2001.
General and administrative expenses were $104,000, $107,000, $43,000 and
$36,000 for Year-To-Date 2002, Year-To-Date 2001, Third Quarter 2002 and Third
Quarter 2001, respectively. These expenses include accounting, audit, tax and
legal fees, as well as printing and postage costs related to reports sent to
limited owners and are before reimbursement of costs incurred by the Managing
Owner on behalf of Series D. To the extent that general and administrative
expenses exceed 1.5% of Series D's net asset value during the year (with a
maximum of 1.25% attributable to other than legal and audit expenses) such
amounts are borne by the Managing Owner and its affiliates. Because applicable
expenses exceeded these limits, a portion of these expenses has been borne by
the Managing Owner and its affiliates, resulting in a net cost to Series D of
$63,000, $51,000, $25,000 and $14,000 during Year-To-Date 2002, Year-To-Date
2001, Third Quarter 2002 and Third Quarter 2001, respectively.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Information regarding quantitative and qualitative disclosures about market
risk is not required pursuant to Item 305(e) of Regulation S-K.
ITEM 4. CONTROLS AND PROCEDURES
Within the 90 days prior to the date of this report, the Managing Owner
carried out an evaluation, under the supervision and with the participation of
the officers of the Managing Owner, including the Managing Owner's Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of Series D's disclosure controls and procedures. Based
upon that evaluation, the Managing Owner's Chief Executive Officer and Chief
Financial Officer concluded that Series D's disclosure controls and procedures
are effective. There were no significant changes in Series D's internal controls
or in other factors that could significantly affect these controls subsequent to
the date of their evaluation.
10
<Page>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings--There are no material legal proceedings pending by or
against Series D or the Managing Owner.
Item 2. Changes in Securities--None
Item 3. Defaults Upon Senior Securities--None
Item 4. Submission of Matters to a Vote of Security Holders--None
Item 5. Other Information--None
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits
3.1
and
4.1-- Second Amended and Restated Declaration of Trust and Trust
Agreement of World Monitor Trust II dated as of March 28, 2002
(incorporated by reference to Exhibits 3.1 and 4.1 to
Post-Effective Amendment No. 4 to Series D's Registration
Statement on Form S-1, File No. 333-83011)
4.2-- Form of Request for Redemption (incorporated by reference
to Exhibit 4.2 to Post-Effective Amendment No. 4 to Series
D's Registration Statement on Form S-1, File No. 333-83011)
4.3-- Form of Exchange Request (incorporated by reference
to Exhibit 4.3 to Post-Effective Amendment No. 4 to
Series D's Registration Statement on Form S-1, File
No. 333-83011)
4.4-- Form of Subscription Agreement (incorporated
by reference to Exhibit 4.4 to Post-Effective
Amendment No. 4 to Series D's Registration
Statement on Form S-1, File No. 333-83011)
99.1-- Certificate pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 906 of the SARBANES-OXLEY Act of
2002 (filed herewith)
(b) Reports on Form 8-K--None
11
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Series D
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
<Table>
WORLD MONITOR TRUST II--SERIES D
By: Prudential Securities Futures Management Inc.
A Delaware corporation, Managing Owner
By: /s/ Steven Weinreb Date: November 12, 2002
----------------------------------------
Steven Weinreb
Chief Financial Officer
</Table>
CERTIFICATIONS
I, Eleanor L. Thomas, certify that:
1. I have reviewed this quarterly report on Form 10-Q of World Monitor Trust
II--Series D ('Series D');
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of Series D as of, and for, the periods presented in this quarterly
report;
4. Series D's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for Series D and we
have:
a) designed such disclosure controls and procedures to ensure
that material information relating to Series D, including its
consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in
which this quarterly report is being prepared;
b) evaluated the effectiveness of Series D's disclosure controls
and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the 'Evaluation Date');
and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. Series D's other certifying officers and I have disclosed, based on our
most recent evaluation, to Series D's auditors and the board of directors
of the managing owner of Series D:
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect Series D's
ability to record, process, summarize and report financial
data and have identified for Series D's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in Series D's
internal controls; and
6. Series D's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
Date: November 12, 2002 /s/ Eleanor L. Thomas
--------------------------------------
Eleanor L. Thomas
President (chief executive officer)
of the managing owner of Series D
12
<Page>
I, Steven Weinreb, certify that:
1. I have reviewed this quarterly report on Form 10-Q of World Monitor Trust
II--Series D ('Series D');
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of Series D as of, and for, the periods presented in this quarterly
report;
4. Series D's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for Series D and we
have:
a) designed such disclosure controls and procedures to ensure
that material information relating to Series D, including its
consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in
which this quarterly report is being prepared;
b) evaluated the effectiveness of Series D's disclosure controls
and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the 'Evaluation Date');
and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. Series D's other certifying officers and I have disclosed, based on our
most recent evaluation, to Series D's auditors and the board of directors
of the managing owner of Series D:
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect Series D's
ability to record, process, summarize and report financial
data and have identified for Series D's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in Series D's
internal controls; and
6. Series D's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
Date: November 12, 2002 /s/ Steven Weinreb
--------------------------------------
Steven Weinreb
Chief Financial Officer
of the managing owner of Series D
13