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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 March 28, 2003
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______________________ to ______________________
Commission file number: 0-32687
WORLD MONITOR TRUST II--SERIES E
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 13-4058319
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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 1. FINANCIAL STATEMENTS
WORLD MONITOR TRUST II--SERIES E
(a Delaware Business Trust)
STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
<Table>
<Caption>
March 28, December 31,
2003 2002
- ---------------------------------------------------------------------------------------------------
ASSETS
Cash in commodity trading accounts $41,122,102 $25,058,188
Net unrealized (loss) gain on open futures contracts (779,124) 1,772,644
Net unrealized gain on open forward contracts -- 43,721
Accrued interest receivable 38,904 --
----------- ------------
Total assets $40,381,882 $26,874,553
----------- ------------
----------- ------------
LIABILITIES AND TRUST CAPITAL
Liabilities
Incentive fees payable $ 203,213 $ 65,555
Commissions and other transaction fees payable 182,500 135,497
Net unrealized loss on open forward contracts 86,336 --
Accrued expenses payable 71,643 89,968
Management fees payable 59,907 43,883
Redemptions payable 28,570 --
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Total liabilities 632,169 334,903
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Commitments
Trust capital
Limited interests (234,323.142 and 165,673.643 interests
outstanding) 39,313,504 26,238,737
General interests (2,600 and 1,900 interests outstanding) 436,209 300,913
----------- ------------
Total trust capital 39,749,713 26,539,650
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Total liabilities and trust capital $40,381,882 $26,874,553
----------- ------------
----------- ------------
Net asset value per limited and general interest $ 167.77 $ 158.38
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The accompanying notes are an integral part of these statements.
</Table>
2
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WORLD MONITOR TRUST II--SERIES E
(a Delaware Business Trust)
Condensed Schedules of Investments
(Unaudited)
<Table>
<Caption>
March 28, 2003 December 31, 2002
-------------------------------- --------------------------------
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 $ (8,000) $ --
Interest rates (276,004) 421,731
Currencies (6,163) 989,817
Commodities (803,647) 204,590
-------------- --------------
Net unrealized (loss) gain on
futures contracts purchased (2.75)% (1,093,814) 6.09% 1,616,138
-------------- --------------
Futures contracts sold:
Interest rates -- (421)
Stock indices (568,928) 63,999
Currencies (90,300) 104,559
Commodities 973,918 (11,631)
-------------- --------------
Net unrealized gain on futures
contracts sold 0.79 314,690 0.59 156,506
------ -------------- ------ --------------
Net unrealized (loss) gain on
futures contracts (1.96)% $ (779,124) 6.68% $1,772,644
------ -------------- ------ --------------
------ -------------- ------ --------------
Forward currency contracts purchased:
Net unrealized (loss) gain on
forward contracts purchased (0.26)% $ (104,358) 0.01% $ 2,833
Forward currency contracts sold:
Net unrealized gain on forward
contracts sold 0.04 18,022 0.15 40,888
------ -------------- ------ --------------
Net unrealized (loss) gain on
forward contracts (0.22)% $ (86,336) 0.16% $ 43,721
------ -------------- ------ --------------
------ -------------- ------ --------------
Settlement Currency--Futures Contracts
British pound (0.05)% $ (20,840) 0.50% $ 133,017
Japanese yen (1.11) (440,620) 0.13 35,657
Canadian dollars 0.00 -- 0.52 137,683
Swedish krona (0.04) (16,090) 0.00 --
U.S. dollar (0.45) (180,384) 3.48 923,280
Swiss francs 0.12 48,425 0.79 210,417
Australian dollars 0.00 -- 0.16 41,875
Euro (0.52) (206,055) 1.10 290,715
Hong Kong dollars 0.09 36,440 -- --
------ -------------- ------ --------------
Total (1.96)% $ (779,124) 6.68% $1,772,644
------ -------------- ------ --------------
------ -------------- ------ --------------
Settlement Currency--Forward Contracts
Canadian dollars (0.22)% $ (86,336) --% $ --
U.S. dollar 0.00 -- 0.16 43,721
------ -------------- ------ --------------
Total (0.22)% $ (86,336) 0.16% $ 43,721
------ -------------- ------ --------------
------ -------------- ------ --------------
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The accompanying notes are an integral part of these statements.
</Table>
3
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WORLD MONITOR TRUST II--SERIES E
(a Delaware Business Trust)
STATEMENTS OF OPERATIONS
(Unaudited)
<Table>
<Caption>
For the period from For the period from
January 1, 2003 to January 1, 2002 to
March 28, 2003 March 29, 2002
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REVENUES
Net realized gain (loss) on commodity transactions $ 4,667,579 $ (498,639)
Change in net unrealized gain/loss on open commodity
positions (2,681,825) 69,327
Interest income 100,430 40,367
------------------- -------------------
2,086,184 (388,945)
------------------- -------------------
EXPENSES
Commissions and other transaction fees 513,559 148,010
Management fees 164,217 46,399
Incentive fees 203,213 --
General and administrative 33,116 31,081
------------------- -------------------
914,105 225,490
General and administrative expenses borne by the Managing
Owner and its affiliates -- (6,572)
------------------- -------------------
Net expenses 914,105 218,918
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Net income (loss) $ 1,172,079 $ (607,863)
------------------- -------------------
------------------- -------------------
ALLOCATION OF NET INCOME (LOSS)
Limited interests $ 1,161,635 $ (599,617)
------------------- -------------------
------------------- -------------------
General interests $ 10,444 $ (8,246)
------------------- -------------------
------------------- -------------------
NET INCOME (LOSS) PER WEIGHTED AVERAGE LIMITED AND
GENERAL INTEREST
Net income (loss) per weighted average limited and
general interest $ 6.14 $ (8.06)
------------------- -------------------
------------------- -------------------
Weighted average number of limited and general interests
outstanding 190,858 75,387
------------------- -------------------
------------------- -------------------
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</Table>
STATEMENT OF CHANGES IN TRUST CAPITAL
(Unaudited)
<Table>
<Caption>
LIMITED GENERAL
INTERESTS INTERESTS INTERESTS TOTAL
- -----------------------------------------------------------------------------------------------------
Trust capital--December 31, 2002 167,573.643 $26,238,737 $300,913 $26,539,650
Contributions 79,168.576 13,721,161 124,852 13,846,013
Net income 1,161,635 10,444 1,172,079
Redemptions (9,819.077) (1,808,029) -- (1,808,029)
------------ ----------- --------- -----------
Trust capital--March 28, 2003 236,923.142 $39,313,504 $436,209 $39,749,713
------------ ----------- --------- -----------
------------ ----------- --------- -----------
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The accompanying notes are an integral part of these statements.
</Table>
4
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WORLD MONITOR TRUST II--SERIES E
(a Delaware Business Trust)
NOTES TO FINANCIAL STATEMENTS
March 28, 2003
(Unaudited)
A. General
These financial statements have been prepared without audit. In the opinion
of Prudential Securities Futures Management Inc. (the 'Managing Owner'), the
financial statements contain all adjustments (consisting of only normal
recurring adjustments) necessary to state fairly the financial position of World
Monitor Trust II--Series E ('Series E') as of March 28, 2003 and December 31,
2002 and the results of its operations for the periods from January 1, 2003 to
March 28, 2003 ('First Quarter 2003') and January 1, 2002 to March 29, 2002
('First Quarter 2002'). However, the operating results for the interim periods
may not be indicative of the results expected for a full year.
Certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America have been omitted. It is suggested that
these financial statements be read in conjunction with the financial statements
and notes thereto included in Series E's annual report on Form 10-K filed with
the Securities and Exchange Commission for the year ended December 31, 2002.
B. Related Parties
The Managing Owner of Series E is a wholly-owned subsidiary of Prudential
Securities Incorporated ('PSI'), which, in turn, is an indirect wholly-owned
subsidiary of Prudential Financial, Inc. Series E reimburses the Managing Owner
or its affiliates for services they perform for Series E, which include, but are
not limited to: brokerage services; accounting and financial management;
registrar, transfer and assignment functions; investor communications; printing
and other administrative services. However, to the extent that general and
administrative expenses exceed 1.5% of Series E's net asset value during the
year (with a maximum of 0.5% attributable to other than legal and audit
expenses) such amounts will be borne by the Managing Owner and its affiliates.
Because general and administrative expenses during First Quarter 2002 exceeded
such limitations, a portion of those expenses related to services the Managing
Owner performed for Series E, other than brokerage services, have been borne by
the Managing Owner and its affiliates. Additionally, PSI or its affiliates paid
the costs of organizing Series E and will continue to pay all costs of offering
its limited interests.
The expenses incurred by Series E for services performed by the Managing
Owner and its affiliates for Series E were:
<Table>
<Caption>
First Quarter 2003 First Quarter 2002
------------------- -------------------
Commissions $ 484,139 $ 139,364
General and administrative 20,798 16,552
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504,937 155,916
General and administrative expenses borne by
the Managing Owner and its affiliates -- (6,572)
------------------- -------------------
$ 504,937 $ 149,344
------------------- -------------------
------------------- -------------------
</Table>
Expenses payable to the Managing Owner and its affiliates as of March 28,
2003 and December 31, 2002 were $23,604 and $31,671, respectively.
All of the proceeds of the offering of Series E are received in the name of
Series E and deposited in trading or cash accounts at PSI, Series E's commodity
broker. Series E's assets are maintained with PSI for margin purposes. Series E
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 E, 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
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over-the-counter currency transactions are conducted between PSI and Series E
pursuant to a line of credit. PSI may require that collateral be posted against
the marked-to-market positions of Series E.
C. Derivative Instruments and Associated Risks
Series E is exposed to various types of risk associated with the derivative
instruments and related markets in which it invests. These risks include, but
are not limited to, risk of loss from fluctuations in the value of derivative
instruments held (market risk) and the inability of counterparties to perform
under the terms of Series E's investment activities (credit risk).
Market risk
Trading in futures and forward contracts (including foreign exchange)
involves entering into contractual commitments to purchase or sell a particular
commodity at a specified date and price. The gross or face amount of the
contracts, which is typically many times that of Series E's net assets being
traded, significantly exceeds Series E's future cash requirements since Series E
intends to close out its open positions prior to settlement. As a result, Series
E is generally subject only to the risk of loss arising from the change in the
value of the contracts. As such, Series E considers the 'fair value' of its
derivative instruments to be the net unrealized gain or loss on the contracts.
The market risk associated with Series E's commitments to purchase commodities
is limited to the gross or face amount of the contracts held. However, when
Series E enters into a contractual commitment to sell commodities, it must make
delivery of the underlying commodity at the contract price and then repurchase
the contract at prevailing market prices or settle in cash. Since the repurchase
price to which a commodity can rise is unlimited, entering into commitments to
sell commodities exposes Series E to unlimited risk.
Market risk is influenced by a wide variety of factors including government
programs and policies, political and economic events, the level and volatility
of interest rates, foreign currency exchange rates, the diversification effects
among the derivative instruments Series E holds and the liquidity and inherent
volatility of the markets in which Series E trades.
Credit risk
When entering into futures or forward contracts, Series E is exposed to
credit risk that the counterparty to the contract will not meet its obligations.
The counterparty for futures contracts traded on United States and most foreign
futures exchanges is the clearinghouse associated with the particular exchange.
In general, clearinghouses are backed by their corporate members who are
required to share any financial burden resulting from the nonperformance by one
of their members and, as such, should significantly reduce this credit risk. In
cases where the clearinghouse is not backed by the clearing members (i.e., some
foreign exchanges), it is normally backed by a consortium of banks or other
financial institutions. On the other hand, there is concentration risk on
forward transactions entered into by Series E as PSI, Series E's commodity
broker, is the sole counterparty. Series E 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 nonperformance of all of Series
E's contracts is the net unrealized gain included in the statements of financial
condition; however, counterparty non-performance on only certain of Series E's
contracts may result in greater loss than non-performance on all of Series E's
contracts. There can be no assurance that any counterparty, clearing member or
clearinghouse will meet its obligations to Series E.
The Managing Owner attempts to minimize both credit and market risks by
requiring Series E and its trading advisor to abide by various trading
limitations and policies. The Managing Owner monitors compliance with these
trading limitations and policies which include, but are not limited to,
executing and clearing all trades with creditworthy counterparties; limiting the
amount of margin or premium required for any one commodity or all commodities
combined; and generally limiting transactions to contracts which are traded in
sufficient volume to permit the taking and liquidating of positions.
Additionally, pursuant to the advisory agreement among Series E, the Managing
Owner and the trading advisor, Series E shall automatically terminate the
trading advisor if the net asset value allocated to the trading advisor declines
by 40% from the value at the beginning of any year or since the commencement of
trading activities. Furthermore, the Second Amended and Restated Declaration of
Trust and Trust Agreement of World Monitor Trust II provides that Series E will
liquidate its positions, and eventually dissolve, if Series E experiences a
decline in the net asset value of 50% from the value at the beginning of any
year or since the commencement of trading activities. In each case, the decline
in net asset value is after giving effect for
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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 interests of Series E.
PSI, when acting as Series E's futures commission merchant in accepting
orders for the purchase or sale of domestic futures contracts, is required by
Commodity Futures Trading Commission ('CFTC') regulations to separately account
for and segregate as belonging to Series E all assets of Series E relating to
domestic futures trading and is not allowed to commingle such assets with other
assets of PSI. At March 28, 2003, such segregated assets totalled $11,634,828.
Part 30.7 of the CFTC regulations also requires PSI to secure assets of Series E
related to foreign futures trading which totalled $28,708,150 at March 28, 2003.
There are no segregation requirements for assets related to forward trading.
As of March 28, 2003, Series E's open futures and forward contracts generally
mature within one year, although certain currency futures contracts have
maturities as distant as September 2004.
D. Financial Highlights
<Table>
<Caption>
First Quarter 2003 First Quarter 2002
------------------ ------------------
Performance per Interest
Net asset value, beginning of period $ 158.38 $ 129.29
------------------ ------------------
Net realized gain (loss) and change in net unrealized
gain/loss on commodity transactions 14.45 (5.16)
Interest income 0.52 .53
Net expenses (5.58) (2.88)
------------------ ------------------
Net increase (decrease) for the period 9.39 (7.51)
------------------ ------------------
Net asset value, end of period $ 167.77 $ 121.78
------------------ ------------------
------------------ ------------------
Total return 5.93% (5.81)%
Ratio to average net assets (annualized)
Interest income 1.22% 1.58%
Net expenses, including 2.48% of incentive fees during
First Quarter 2003 10.78% 8.53%
</Table>
These financial highlights represent the overall results of Series E during
First Quarter 2003 and First Quarter 2002. 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 E
(a Delaware Business Trust)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
Series E commenced operations on April 6, 2000 with gross proceeds of
$5,157,459 allocated to commodities trading. Additional contributions raised
through the continuous offering during First Quarter 2003 and for the period
from April 6, 2000 (commencement of operations) to March 28, 2003 resulted in
additional proceeds to Series E of $13,846,013 and $35,813,907, respectively.
Additional limited interests of Series E 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 E may be redeemed on a weekly basis but are
subject to a redemption fee if transacted within one year of the effective date
of purchase. Redemptions of limited interests for First Quarter 2003 and for the
period from April 6, 2000 (commencement of operations) to March 28, 2003
totalled $1,808,029, and $7,718,687, respectively. Since inception, the only
redemptions of general interests occurred during Second Quarter 2001 totalling
$19,576. 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 March 28, 2003, 100% of Series E's net assets were allocated 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 Series E is to trade in commodities, Series E continues to own such
liquid assets to be used as margin. PSI credits Series E 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 commodity futures contract prices
during a single day by regulations referred to as 'daily limits.' During a
single day, no trades may be executed at prices beyond the daily limit. Once the
price of a futures contract for a particular commodity has increased or
decreased by an amount equal to the daily limit, positions in the commodity can
neither be taken nor liquidated unless traders are willing to effect trades at
or within the limit. Commodity futures prices have occasionally moved the daily
limit for several consecutive days with little or no trading. Such market
conditions could prevent Series E from promptly liquidating its commodity
futures positions.
Since Series E's business is to trade futures and forward contracts, its
capital is at risk due to changes in the value of these contracts (market risk)
or the inability of counterparties to perform under the terms of the contracts
(credit risk). Series E's exposure to market risk is influenced by a number of
factors including the volatility of interest rates and foreign currency exchange
rates, the liquidity of the markets in which the contracts are traded and the
relationships among the contracts held. The inherent uncertainty of Series E's
speculative trading as well as the development of drastic market occurrences
could result in monthly losses considerably beyond Series E's experience to date
and could ultimately lead to a loss of all or substantially all of investors'
capital. The Managing Owner attempts to minimize these risks by requiring Series
E and its trading advisor to abide by various trading limitations and policies
which include limiting margin amounts, trading only in liquid markets and
permitting the use of stop loss provisions. See Note C to the financial
statements for a further discussion of the credit and market risks associated
with Series E's futures and forward contracts.
Series E does not have, nor does it expect to have, any capital assets.
Results of Operations
The net asset value per Interest as of March 28, 2003 was $167.77, an
increase of 5.93% from the December 31, 2002 net asset value per Interest of
$158.38. Past performance is not necessarily indicative of future results.
8
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Series E's trading gains (losses) before commissions and related fees were
approximately $1,986,000 and $(429,000) during First Quarter 2003 and First
Quarter 2002, respectively. Due to the nature of Series E's trading activities,
a period to period comparison of its trading results is not meaningful. However,
a detailed discussion of Series E's First Quarter 2003 trading results is
presented below.
Quarterly Market Overview
Global economic activity for the first quarter of 2003 was characterized by
weakness and volatility. The U.S. economy exhibited signs of a slowdown as
consumers and businesses continued to reduce spending due to concerns regarding
the war in Iraq, SARS outbreak, high oil price premiums, weak corporate profits
and depressed global economies. With the exception of steady automobile orders
and existing home sales fueled by attractive interest rates, retail sales
continued to be sluggish. Labor market indicators were negative and
manufacturing contracted. Foreign economies generally mirrored that of the U.S.
In Europe and Asia, economic recovery appeared to have slowed, but Canada
recorded moderate economic expansion.
Indices: Major global equity markets rallied early in the quarter but slid on
fears of an impending war with Iraq, possible terrorism and geopolitical
tension. Anticipation of a quick decisive victory in Iraq resulted in a brief
market run up in mid-March. However, toward the end of the quarter, markets were
whipsawed as investors responded to every turn of military events in the Middle
East. Ultimately, the markets ended the quarter lower as investors awaited a
resolution. The Dow Jones Industrial Average closed down 4.2% and the S&P 500
dropped 3.2%. Several encouraging earnings reports boosted the Nasdaq Composite
resulting in a net gain of 0.42% for the quarter. Japan's Nikkei 225 stock index
hit a 20-year low at the end of the first quarter.
Interest rates: At both the January and March meetings, the U.S. Federal
Reserve left the federal funds rate unchanged at the 41-year low of 1.25%. In
mid-March, initial optimism for the Coalition Forces' success in Iraq resulted
in a shift by investors to junk bonds and stocks marking the worst setback for
the U.S. Treasury markets in 18 months. U.S. Treasury yields increased by 41
basis points from a 44-year low, incurring the biggest weekly increase in yield
since November 2001. Toward the end of the quarter, uncertainty about the war
led investors to take defensive positions, with the price of 10-year Treasury
notes ending the quarter up 3.81%. In Europe, the European Central Bank cut
interest rates by 0.25% in the beginning of March. The lowered interest rate
coupled with weak global economic growth prospects resulted in the strengthening
of European bond prices.
Currencies: Perceptions of quick success in Iraq boosted the U.S. dollar
versus many foreign currencies. However, concerns that the war would disrupt the
U.S. economy strengthened the euro against the U.S. dollar. For the first time
in three years, the exchange rate between the euro and U.S. dollar reached
$1.10. As a result, the U.S. dollar ended the quarter down against the euro and
the Japanese yen. In Canada, the Bank of Canada increased its overnight interest
rate in March in response to inflation concerns, resulting in the strengthening
of the Canadian dollar.
Energies: Price increases in the world oil markets at the beginning of the
first quarter were fed by concerns of supply disruptions due to the conflict in
Iraq, civil strife in Venezuela, anticipation of a Nigerian strike and tensions
on the Korean peninsula. In mid-March, anticipation of a quick resolution of the
war in Iraq coupled with the end of an extended cold snap in the northeastern
United States led to a significant reversal in energy prices. However, at
quarter-end, fears of the possibility of a prolonged war in Iraq and low
supplies pushed energy futures prices higher despite the securing of Iraqi oil
wells.
Softs: Cocoa prices declined as a result of the continuing political
stability in the Ivory Coast. Expectations for less rain in the U.S. plains
states boosted wheat prices toward the end of the quarter and corn prices rose
as a result of bullish prospective planting and stocks data released by U.S.
Department of Agriculture. Soybean futures declined as a result of rain in key
growing regions in Southern Argentina and weaker overseas prices.
Quarterly Performance of Series E
The following is a summary of performance for the major sectors in which
Series E traded:
Energies (+): Long natural gas positions resulted in net gains as prices rose
amid expectations of unseasonable cold weather in Northeastern U.S. and sharp
drawdown of storage levels.
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Interest rates (+): Concerns around the war in Iraq, poor performance in the
equity markets and weak global economies strengthened Japanese, U.S. Treasury
and European bond prices resulting in net gains for long positions.
Currencies (+): The U.S. dollar fell against many foreign currencies amid
concerns that the war in Iraq would disrupt the U.S. economy. Long Australian
dollar and Canadian dollar positions resulted in net gains.
Grains (+): Wheat prices rose amid expectation for less rain in the U.S.
plain states and long wheat positions resulted in net gains.
Indices (+): Global equity markets declined throughout the quarter resulting
in net gains for short positions in the EUR DAX index.
Metals (-): Concerns over Iraq resulted in light selling that drove the price
of copper down. Long positions resulted in net losses.
Series E's average net asset levels were significantly higher during First
Quarter 2003 as compared to First Quarter 2002, primarily from additional
contributions and favorable trading performance during 2002 and First Quarter
2003, partially offset, by redemptions. The increasing asset levels have led to
proportionate increases in the amount of commissions and management fees
incurred by Series E.
Interest income is earned on the average daily equity maintained with PSI at
the 13-week Treasury bill discount rate and, therefore, varies weekly according
to interest rates, trading performance, contributions and redemptions. Interest
income increased $60,000 during First Quarter 2003 as compared to First Quarter
2002 due to the higher overall net asset levels, as discussed above, offset, in
part, by lower overall interest rates during First Quarter 2003 versus First
Quarter 2002.
Commissions are calculated on Series E's net asset value at the end of each
week and, therefore, vary according to weekly trading performance, contributions
and redemptions. Other transaction fees consist of National Futures Association,
exchange and clearing fees as well as floor brokerage costs and give-up charges,
which are based on the number of trades the trading advisor executes, as well as
which exchange, clearing firm or bank on, or through, which the contract is
traded. Commissions and other transaction fees increased $366,000 during First
Quarter 2003 as compared to First Quarter 2002 due to the increase in average
net asset levels as discussed above.
All trading decisions for Series E are made by Graham Capital Management,
L.P. (the 'Trading Advisor'). Management fees are calculated on Series E's net
asset value at the end of each week and, therefore, are affected by weekly
trading performance, contributions and redemptions. Management fees increased
$118,000 during First Quarter 2003 as compared to First Quarter 2002 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 E, the
Managing Owner and the Trading Advisor. Incentive fees incurred during First
Quarter 2003 were $203,000. Series E did not incur an incentive fee during First
Quarter 2002.
General and administrative expenses were $33,000 and $31,000 for First
Quarter 2003 and First Quarter 2002, respectively. These expenses include
accounting, audit, tax and legal fees as well as printing and postage costs
related to reports sent to limited owners, and are before reimbursement of costs
incurred by the Managing Owner on behalf of Series E. To the extent that general
and administrative expenses exceed 1.5% of Series E's net asset value during the
year (with a maximum of 0.5% attributable to other than legal and audit
expenses) such amounts are borne by the Managing Owner and its affiliates.
Because applicable expenses exceeded these limits in First Quarter 2002, a
portion of these expenses were borne by the Managing Owner and its affiliates,
resulting in a net cost to Series E of $25,000.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 305(c) of Regulation S-K requires disclosures during each interim
reporting period of material changes in the quantitative and qualitative market
risk information provided as of the end of the immediately preceding year. The
following information should be read in conjunction with Series E's Form 10-K as
filed with the Securities and Exchange Commission for the year ended December
31, 2002.
10
<Page>
The following table presents the trading value at risk associated with Series
E's open positions by market sector at March 28, 2003 and December 31, 2002. All
open position trading risk exposures of Series E have been included in
calculating the figure set forth below. At March 28, 2003 and December 31, 2002,
Series E had total capitalizations of approximately $39.7 million and $26.5
million, respectively.
<Table>
<Caption>
March 28, 2003 December 31, 2002
---------------------------- ----------------------------
Value at % of Total Value at % of Total
Market Sector Risk Capitalization Risk Capitalization
- ------------------------------------------------------------------------------------------------------------
Interest rates $ 557,649 1.40% $1,024,799 3.86%
Currencies 741,045 1.86 1,459,415 5.50
Commodities 443,700 1.12 1,266,350 4.77
Stock indices 2,185,182 5.50 332,696 1.25
---------- ------- ---------- -------
Total $3,927,576 9.88% $4,083,260 15.38%
---------- ------- ---------- -------
---------- ------- ---------- -------
</Table>
The following table presents the average trading value at risk of Series E's
open positions by market sector for First Quarter 2003.
<Table>
<Caption>
First Quarter 2003
--------------------------------
Value at % of Average Total
Market Sector Risk Capitalization
---------------------------------------------------------
Interest rates $1,153,177 3.42%
Currencies 1,265,540 3.76
Commodities 1,209,625 3.59
Stock indices 1,857,889 5.52
---------- ------------------
Total $5,486,230 16.29%
---------- ------------------
---------- ------------------
</Table>
Based on average trading value at risk during First Quarter 2003, Series E
experienced an overall increase in its value at risk, relative to capitalization
levels, as compared with value at risk at December 31, 2002. This increase was
primarily attributable to the stock indices sector where Series E significantly
increased positions in the NASDAQ 100, the S&P 500, the euro DAX and the Tse
Topix. At March 28, 2003, Series E had a significant decline in trading value at
risk, relative to capitalization levels, as compared with value at risk at
December 31, 2002. The decline was attributable to a reduction in a variety of
positions within the interest rates, currencies, and commodities sectors (during
a period of increasing average capitalization) offset, in part, by the increase
in positions within the indices sector (see discussion above). At March 28,
2003, Series E continues to have its primary interest rate exposure to interest
rate fluctuations in the U.S. and other G-7 countries (including countries
participating in the Euro). At March 28, 2003, Series E continues to have
significant exposure from positions in the Euro and in the local currencies of
some G-7 countries, but Series E no longer had direct exposure to the Thailand
thaibaht, the Swiss franc, and the Mexican peso. At March 28, 2003, Series E's
primary commodities exposure is in various agricultural commodities including
corn, wheat and cotton. At March 28, 2003, Series E had no direct exposure to
energy positions which resulted in a significant decrease in value at risk
versus levels at December 31, 2002.
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 E's disclosure controls and procedures. Based
upon that evaluation, the Managing Owner's chief executive officer and chief
financial officer concluded that Series E's disclosure controls and procedures
are effective. There were no significant changes in Series E's internal controls
or in other factors that could significantly affect these controls subsequent to
the date of their evaluation.
11
<Page>
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--The following table presents sales of
unregistered interests (i.e. general interests) exempt from
registration under Section 4(2) of the Securities Act of 1933 during
the period from January 1, 2003 to March 28, 2003.
<Table>
<Caption>
Amount of
-------------------------------
Date of Sale Interests sold Cash received
--------------------------------------------------------
February 10, 2003 700 $ 124,852
----- -------------
----- -------------
</Table>
Item 3. Defaults Upon Senior Securities--None
Item 4. Submission of Matters to a Vote of Security Holders--None
Item 5. Other Information--None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits--
3.1
and
4.1--Second Amended and Restated Declaration of Trust and Trust
Agreement of World Monitor Trust II dated as of March 28, 2002
(incorporated by reference to Exhibit 3.1 and 4.1 to Post-Effective
Amendment No. 4 to Series E's Registration Statement on Form S-1,
File No. 333-83015)
4.2--Form of Request for Redemption (incorporated by reference to
Exhibit 4.2 to Post-Effective Amendment No. 4 to Series E's
Registration Statement on Form S-1, File No. 333-83015)
4.3--Form of Exchange Request (incorporated by reference to
Exhibit 4.3 to Post-Effective Amendment No. 4 to Series E's
Registration Statement on Form S-1, File No. 333-83015)
4.4--Form of Subscription Agreement (incorporated by reference to
Exhibit 4.4 to Post-Effective Amendment No. 4 to Series E's
Registration Statement on Form S-1, File No. 333-83015)
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
12
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WORLD MONITOR TRUST II--SERIES E
By: Prudential Securities Futures Management Inc.
A Delaware corporation, Managing Owner
By: /s/ Steven Weinreb Date: May 12, 2003
----------------------------------------
Steven Weinreb
Chief Financial Officer
13
<Page>
CERTIFICATIONS
I, Eleanor L. Thomas, certify that:
1. I have reviewed this quarterly report on Form 10-Q of World Monitor Trust
II--Series E ('Series E');
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 E as of, and for, the periods presented in this quarterly
report;
4. Series E'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 E and we
have:
a) designed such disclosure controls and procedures to ensure
that material information relating to Series E, 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 E'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 E's other certifying officers and I have disclosed, based on our
most recent evaluation, to Series E's auditors and the board of directors
of the managing owner of Series E:
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect Series E's
ability to record, process, summarize and report financial
data and have identified for Series E'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 E's
internal controls; and
6. Series E'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: May 12, 2003 /s/ Eleanor L. Thomas
--------------------------------------
Eleanor L. Thomas
President (chief executive officer)
of the managing owner of Series E
I, Steven Weinreb, certify that:
1. I have reviewed this quarterly report on Form 10-Q of World Monitor Trust
II--Series E ('Series E');
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 E as of, and for, the periods presented in this quarterly
report;
14
<Page>
4. Series E'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 E and we
have:
a) designed such disclosure controls and procedures to ensure
that material information relating to Series E, 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 E'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 E's other certifying officers and I have disclosed, based on our
most recent evaluation, to Series E's auditors and the board of directors
of the managing owner of Series E:
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect Series E's
ability to record, process, summarize and report financial
data and have identified for Series E'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 E's
internal controls; and
6. Series E'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: May 12, 2003 /s/ Steven Weinreb
--------------------------------------
Steven Weinreb
Chief Financial Officer
of the managing owner of Series E
15