<Page>
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 June 27, 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: 0-32685
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
incorporation or organization) Identification No.)
One New York Plaza, 13th Floor,
New York, New York 10292
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 778-7866
N/A
- --------------------------------------------------------------------------------
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>
June 27, December 31,
2003 2002
- ---------------------------------------------------------------------------------------------------
ASSETS
Cash in commodity trading accounts $17,942,940 $7,491,183
Net unrealized gain (loss) on open futures contracts (140,186) 131,946
Accrued interest receivable 17,612 --
----------- ------------
Total assets $17,820,366 $7,623,129
----------- ------------
----------- ------------
LIABILITIES AND TRUST CAPITAL
Liabilities
Incentive fees payable $ 324,318 $ --
Commissions and other transaction fees payable 84,188 41,392
Accrued expenses 75,045 60,329
Management fees payable 16,944 8,135
Redemptions payable 15,045 --
----------- ------------
Total liabilities 515,540 109,856
----------- ------------
Commitments
Trust capital
Limited interests (163,327.413 and 79,736.725 interests
outstanding) 17,092,869 7,429,420
General interests (2,025.373 and 900 interests outstanding) 211,957 83,853
----------- ------------
Total trust capital 17,304,826 7,513,273
----------- ------------
Total liabilities and trust capital $17,820,366 $7,623,129
----------- ------------
----------- ------------
Net asset value per limited and general interest $ 104.65 $ 93.17
----------- ------------
----------- ------------
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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 D
(a Delaware Business Trust)
Condensed Schedules of Investments
(Unaudited)
<Table>
<Caption>
June 27, 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 $ (33,213) $ (30,745)
Interest rates (449,431) 293,123
Currencies (20,983) 134,410
Commodities (136,019) (12,350)
-------------- --------------
Net unrealized gain (loss) on
futures contracts purchased (3.70)% (639,646) 5.12% 384,438
-------------- --------------
Futures contracts sold:
Stock indices 35,558 1,984
Interest rates 494,540 (209,367)
Currencies (30,800) (45,109)
Commodities 162
-------------- --------------
Net unrealized gain (loss) on
futures contracts sold 2.89 499,460 (3.36) (252,492)
------ -------------- ------ --------------
Net unrealized gain (loss) on
futures contracts (0.81)% $ (140,186) 1.76% $ 131,946
------ -------------- ------ --------------
------ -------------- ------ --------------
Forward currency contracts purchased 0.03% $ 4,694 (0.04)% $ (3,158)
Forward currency contracts sold (0.03) (4,694) 0.04 3,158
------ -------------- ------ --------------
Net unrealized gain (loss) on
forward contracts 0.00% $ 0 0.00% $ 0
------ -------------- ------ --------------
------ -------------- ------ --------------
Settlement Currency--Futures Contracts
British pound 0.82% $ 142,785 (1.44)% $ (107,988)
Canadian dollar 0.25 43,133 (0.56) (42,128)
Euro (2.99) (517,329) 2.30 172,455
Hong Kong dollar 0.04 6,463 0.00 0
Japanese yen 0.19 32,217 (0.10) (7,306)
Australian dollar 1.08 186,029 0.05 3,790
Swiss franc (0.04) (6,282) 0.28 20,752
Swedish krona 0.00 0 0.00 (9)
U.S. dollar (0.16) (27,202) 1.23 92,380
------ -------------- ------ --------------
Total (0.81)% $ (140,186) 1.76% $ 131,946
------ -------------- ------ --------------
------ -------------- ------ --------------
- -------------------------------------------------------------------------------------------------------------
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, 2003 to January 1, 2002 to March 29, 2003 to March 30, 2002 to
June 27, 2003 June 28, 2002 June 27, 2003 June 28, 2002
- -------------------------------------------------------------------------------------------------------------------
REVENUES
Net realized gain on
commodity transactions $ 2,516,599 $ 597,265 $ 1,700,882 $ 675,438
Change in net unrealized
gain/loss on open
commodity positions (272,132) 563,382 103,629 417,463
Interest income 72,364 40,554 46,642 23,449
------------------- ------------------- ------------------- -------------------
2,316,831 1,201,201 1,851,153 1,116,350
------------------- ------------------- ------------------- -------------------
EXPENSES
Commissions and other
transaction fees 383,472 156,919 247,551 90,901
General and administrative 65,687 61,837 32,649 30,918
Management fees 76,416 30,807 49,618 17,754
Incentive fees 330,062 5,791 324,318 5,791
------------------- ------------------- ------------------- -------------------
855,637 255,354 654,136 145,364
General and administrative
expenses borne by the
Managing Owner and its
affiliates (1,123) (24,172) 567 (9,523)
------------------- ------------------- ------------------- -------------------
Net expenses 854,514 231,182 654,703 135,841
------------------- ------------------- ------------------- -------------------
Net income $ 1,462,317 $ 970,019 $ 1,196,450 $ 980,509
------------------- ------------------- ------------------- -------------------
------------------- ------------------- ------------------- -------------------
ALLOCATION OF NET INCOME
Limited interests $ 1,443,994 $ 959,644 $ 1,180,043 $ 970,213
------------------- ------------------- ------------------- -------------------
------------------- ------------------- ------------------- -------------------
General interests $ 18,323 $ 10,375 $ 16,407 $ 10,296
------------------- ------------------- ------------------- -------------------
------------------- ------------------- ------------------- -------------------
NET INCOME PER WEIGHTED
AVERAGE LIMITED AND
GENERAL INTEREST
Net income per weighted
average limited and
general interest $ 12.10 $ 16.37 $ 7.87 $ 15.13
------------------- ------------------- ------------------- -------------------
------------------- ------------------- ------------------- -------------------
Weighted average number of
limited and general
interests outstanding 120,880 59,242 152,016 64,825
------------------- ------------------- ------------------- -------------------
------------------- ------------------- ------------------- -------------------
- -------------------------------------------------------------------------------------------------------------------
</Table>
STATEMENT OF CHANGES IN TRUST CAPITAL
(Unaudited)
<Table>
<Caption>
LIMITED GENERAL
INTERESTS INTERESTS INTERESTS TOTAL
- -----------------------------------------------------------------------------------------------------
Trust capital--December 31, 2002 80,636.725 $ 7,429,420 $ 83,853 $ 7,513,273
Contributions 93,309.506 9,110,700 109,781 9,220,481
Net income 1,443,994 18,323 1,462,317
Redemptions (8,593.445) (891,245) -- (891,245)
------------ ----------- --------- -----------
Trust capital--June 27, 2003 165,352.786 $17,092,869 $211,957 $17,304,826
------------ ----------- --------- -----------
------------ ----------- --------- -----------
- -----------------------------------------------------------------------------------------------------
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
JUNE 27, 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 D ('Series D') as of June 27, 2003 and December 31,
2002 and the results of its operations for the periods from January 1, 2003 to
June 27, 2003 ('Year-To-Date 2003'), January 1, 2002 to June 28, 2002
('Year-To-Date 2002'), March 29, 2003 to June 27, 2003 ('Second Quarter 2003')
and March 30, 2002 to June 28, 2002 ('Second Quarter 2002'). 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, 2002.
In February 2003, Prudential Financial, Inc. ('Prudential') and Wachovia
Corp. ('Wachovia') announced an agreement to combine each company's respective
retail securities brokerage and clearing operations within a new firm, which
will be headquartered in Richmond, Virginia. Under the agreement, Prudential
will have a 38% ownership interest in the new firm and Wachovia will own 62%.
The transaction, which includes the securities brokerage, securities clearing,
and debt capital markets operations of Prudential Securities Incorporated
('PSI'), but does not include the equity sales, trading and research operations
or commodity brokerage and derivative operations of PSI (which were renamed
Prudential Equity Group, Inc. upon closing), closed July 1, 2003. The Managing
Owner, as well as the commodity broker, will continue to be indirect wholly
owned subsidiaries of Prudential.
B. Related Parties
The Managing Owner of Series D is a wholly-owned subsidiary of Prudential
Equity Group, Inc. ('PEG'), which, in turn, is an indirect wholly-owned
subsidiary of Prudential Financial, Inc. Series D pays 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, the amount of general and administrative
expenses incurred by Series D is limited to 1.5% of its net asset value during
the year (with a maximum of 1.25% attributable to other than legal and audit
expenses). 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 2003,
Year-To-Date 2002, Second Quarter 2003 and Second Quarter 2002 have been borne
by the Managing Owner and its affiliates. Additionally, PEG 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 Second Quarter Second Quarter
2003 2002 2003 2002
------------ ------------ -------------- --------------
Commissions $363,699 $148,091 $235,360 $ 85,347
General and administrative 36,587 33,863 18,293 16,932
------------ ------------ -------------- --------------
$400,286 $181,954 $253,653 $102,279
------------ ------------ -------------- --------------
General and administrative
expenses borne by the
Managing Owner and its
affiliates (1,123) (24,172) 567 (9,523)
------------ ------------ -------------- --------------
$399,163 $157,782 $254,220 $ 92,756
------------ ------------ -------------- --------------
------------ ------------ -------------- --------------
</Table>
5
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Expenses payable to the Managing Owner and its affiliates (which are included
in accrued expenses) as of June 27, 2003 and December 31, 2002 were $18,865 and
$4,880, 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 PEG, Series D's
commodity broker. Series D's assets are maintained with PEG 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 PEG during each month at the 13-week Treasury bill
discount rate.
Series D, acting through its trading advisor, executes over-the-counter,
spot, forward and/or option foreign exchange transactions with PEG. PEG 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
PEG and Series D pursuant to a line of credit. PEG 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 or settle in cash. 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 PEG, Series D's commodity broker. Series
D has entered into a master netting agreement with PEG and, as a result, when
applicable, presents unrealized gains and losses on open forward positions as a
net amount in the statements of financial condition. The amount at risk
associated with counterparty non-performance of all of Series D's contracts is
the net unrealized gain included in the statements of financial condition;
however, counterparty non-performance on only certain of Series D's contracts
may result in greater loss than non-performance 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
6
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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 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.
PEG, 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 allowed to commingle such assets with other
assets of PEG. At June 27, 2003, such segregated assets totalled $5,416,275.
Part 30.7 of the CFTC regulations also requires PEG to secure assets of Series D
related to foreign futures trading, which totalled $12,386,479 at June 27, 2003.
There are no segregation requirements for assets related to forward trading.
As of June 27, 2003, all of Series D's open futures contracts mature within
one year.
D. Financial Highlights
<Table>
<Caption>
Year-To-Date Year-To-Date Second Quarter Second Quarter
2003 2002 2003 2002
------------ ------------ -------------- --------------
Performance per Interest
Net asset value, beginning of
period $ 93.17 $81.84 $ 96.62 $81.61
------------ ------------ -------------- --------------
Net realized gain (loss) and
change in unrealized gain/loss
on commodity transactions 17.60 17.62 12.07 16.41
Interest income 0.58 0.68 0.30 0.36
Net expenses (6.70) (3.84) (4.34) (2.08)
------------ ------------ -------------- --------------
Net increase for the period 11.48 14.46 8.03 14.69
------------ ------------ -------------- --------------
Net asset value, end of period $ 104.65 $96.30 $ 104.65 $96.30
------------ ------------ -------------- --------------
------------ ------------ -------------- --------------
Total return 12.32% 17.67% 8.31% 18.00%
Ratio to average net assets
(annualized)
Interest income 1.20% 1.63% 1.21% 1.67%
Net expenses, including incentive
fees of 5.46%, 0.23%, 8.40%
and 0.41% during Year-To-Date
2003, Year-To-Date 2002,
Second Quarter 2003 and Second
Quarter 2002 14.02% 9.27% 16.95% 9.68%
</Table>
These financial highlights represent the overall results of Series D during
Year-To-Date 2003, Year-To-Date 2002, Second Quarter 2003 and Second Quarter
2002. An individual limited Owner's actual results may differ depending on the
timing of contributions and redemptions.
7
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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 Year-To-Date 2003, Second Quarter 2003 and for
the period from March 13, 2000 (commencement of operations) to June 27, 2003
resulted in additional gross proceeds to Series D of $9,220,481, $3,676,784 and
$16,991,293, 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 2003, Second
Quarter 2003 and for the period from March 13, 2000 (commencement of operations)
to June 27, 2003 were $891,245, $720,541 and $5,839,652, respectively.
Redemptions of general interests for the period from March 13, 2000
(commencement of operations) to June 27, 2003 were $54,024. There were no
redemptions of general interests for Year-To-Date 2003. Limited interests and
general interests are sometimes collectively referred to as 'Interests'.
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. World Monitor Trust--Series E and
Series F are no longer offered to the public as those series substantially
achieved their subscription maximums during June 2003 and July 2003,
respectively. As such, Series D may no longer be exchanged for the other series.
In addition, as of the date of this report, the offering of interests in Series
D has been temporarily suspended, pending certain regulatory approvals that the
Managing Owner expects to obtain in the near future. Accordingly, at this time,
Interests may not be exchanged. Exchanges from Series E and Series F into Series
D may resume once the requirements discussed above are complied with. Future
contributions, redemptions and exchanges will impact the amount of funds
available for investment in commodity contracts in subsequent periods.
At June 27, 2003, 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. PEG credits Series D with interest income on 100%
of its average daily equity maintained in cash in its accounts with PEG 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
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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 June 27, 2003 was $104.65, an increase
of 12.32% from the December 31, 2002 net asset value per Interest of $93.17 and
an increase of 8.31% from the March 28, 2003 net asset value per Interest of
$96.62. Past performance is not necessarily indicative of future results.
Series D's trading gains before commissions and related fees were $2,244,000
and $1,805,000 during Year-To-Date 2003 and Second Quarter 2003, respectively,
compared to $1,161,000 and $1,093,000 for the corresponding periods in the prior
year. 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 Second Quarter 2003 trading results is presented below.
Quarterly Market Overview
In the U.S., the beginning of the second quarter of 2003 saw few signs of
relief from a sluggish economy with a growth rate of 2.4 percent. Nominal GDP
continued to trend downward in hand with falling consumer and producer prices
and interest rates. Concerns about the slump in American telecom and internet
industries, accounting fraud and the largest budget deficit the U.S. has ever
faced have hampered investments in the U.S. Despite resolution to the war in
Iraq, consumer and business confidence remained tepid. Companies desiring to
improve profits remained unwilling to make big capital spending commitments or
increase their workforces and inventories. Orders to U.S. factories for
big-ticket items and production figures fell in April. In June, the unemployment
rate jumped to a nine-year high of 6.4 percent. Payroll slashes in manufacturing
and information industries generated the greatest job losses. As companies
attempted to do more with leaner workforces, overall productivity rose and
provided support for household income. The rise in income, combined with low
interest rates, reduced taxes, and availability of substantial home equity
spurred gains in consumer spending and increased sales of new homes. Toward the
end of the quarter, manufacturing rose slightly, but still indicated that the
sector shrank for the fourth straight month. Meanwhile, new orders for durable
goods, machinery, automobiles, electrical equipment, home supplies and computers
increased, reversing previous downward trends.
Global economies remained weak in the second quarter of 2003 and were further
hampered by the decline of the U.S. dollar which made overseas goods more
expensive, thus curtailing demand. In May, Germany, Italy and the Netherlands
reported an unexpected contraction in their economies during the first three
months of the year with Germany and Netherlands experiencing a second quarter of
negative growth. The European Union stated that overall economic growth had
stalled and consequently, applied pressure on the central banks to ease interest
rates. Business investment dropped sharply while domestic demand remained bleak.
The Japanese economy continued to stumble as other Asian economies began to
recover from the effects of the SARS outbreak. Furthermore, fears of deflation
loomed over already troubled global economies.
Indices: Despite economic data indicating the worst is not yet over, global
equity markets surged in the second quarter of 2003. Spurred by the easing of
geopolitical tensions, massive short covering, excess liquidity, some positive
first quarter earnings reports, and optimism that economic recovery is near,
investors flocked toward equities. A rally in Japanese stocks was fueled
primarily by foreign mutual funds, hedge funds and other non-Japanese
institutional investors who invested more than ten times as much as local
investors in June. The Japanese Nikkei, London FTSE, Dow Jones Industrial
Average, NASDAQ and S&P 500 all ended the quarter higher.
Interest rates: Fixed income markets in May witnessed a drop in interest
rates of developed countries due to the U.S. Federal Reserve (the 'Fed')
deflation talk as well as institutions and hedge funds borrowing to purchase
longer maturities, possible Fed purchases of longer maturities, hedging by
mortgage investors as rates fell, and central banks buying dollars and investing
in Treasuries. The decline in interest rates led to gains in German, Japanese,
U.S. Treasury and Eurodollar bond prices. In June, the market reacted with
disappointment to the Fed's quarter point cut in short-term interest rates and
as a result, intermediate and long-term rates rose. Investors in Japan moved
capital into the equity markets at the expense of U.S. Treasury and Japanese
bonds. Concern about deteriorating public finances in most large economies and a
9
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renewed interest in equities in hopes of an economic recovery resulted in
falling bond prices through the quarter and the subsequent rising of long-term
rates.
Currencies: In the foreign exchange markets, the U.S. dollar moved sharply
lower against most major currencies during the quarter. Investors shifted their
focus from the war in Iraq to concerns about U.S. economic health with its
widening current account deficit and lower relative interest rate resulting in
the dollar's three-year low against the Canadian and Australian dollar and
four-year low against the Euro. The reversal of the U.S.'s strong dollar policy
by Treasury Secretary Snow led to a further sell off of the greenback leading to
a 4.5-year low against the Swiss franc.
Energies: Energy price declines began in March and continued as the war in
Iraq became inevitable. Because supplies were secured and unthreatened by the
war, the prices of crude oil, unleaded gasoline and London gas oil were down in
April of 2003. Natural gas prices were largely unaffected by events in the
Middle East, Nigeria and Venezuela. In order to stave off the declining prices
and correct an oversupply as crude demand reached a seasonal low, OPEC members
agreed to cut current output by seven percent in April. Toward the end of the
quarter, energy prices, in general, were higher due to Nigeria's general
worker's strike, low U.S. oil inventory levels and expectations of U.S. economic
growth.
Quarterly Performance of Series D
The following is a summary of performance for the major sectors in which the
Series D traded:
Currencies (+): The U.S. dollar fell against many foreign currencies amid
concerns of a weak U.S. economy. Canadian and Australian dollar and euro
strengthened this quarter resulting in net gains for long Australian and
Canadian dollar and euro positions.
Indices (+): Weak global economies, fears of deflation and renewed interest
in equities resulted in falling global bond prices. Short U.S. Treasury and
European bond positions led to net gains.
Metals (+): The falling U.S. dollar spurred speculative buying and consumer
interest resulting in rising gold prices. Long positions in gold resulted in net
gains. Declines in manufacturing resulted in falling base metal prices. Short
positions in copper resulted in net gains.
Interest rates (-): Weak global economies, fears of deflation and renewed
interest in equities resulted in falling global bond prices. Long U.S. Treasury
and European bond positions led to net losses.
Series D's average net asset levels during Year-To-Date 2003 and Second
Quarter 2003 increased significantly compared to Year-To-Date 2002 and Second
Quarter 2002. The increase was primarily due to contributions and favorable
trading performance during 2002 and the first half of 2003 offset, in part, by
redemptions. Commissions, management fees and general and administrative
expenses, which are largely based on net asset levels, increased in proportion
during Year-To-Date 2003 and Second Quarter 2003 as compared to Year-To-Date
2002 and Second Quarter 2002.
Interest income is earned on the average daily equity maintained with PEG at
the 13-week Treasury bill discount rate and, therefore, varies monthly according
to interest rates, trading performance, contributions and redemptions. Interest
income increased $32,000 and $23,000 during Year-To-Date 2003 and Second Quarter
2003 as compared to Year-To-Date 2002 and Second Quarter 2002, respectively,
primarily due to the increase in net asset levels, as discussed above, offset by
lower interest rates during Year-To-Date 2003 as compared to Year-To-Date 2002.
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, 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 $227,000 and $157,000
during Year-To-Date 2003 and Second Quarter 2003 as compared to Year-To-Date
2002 and Second Quarter 2002, respectively, primarily due to the increase in 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
<Page>
$46,000 and $32,000 during Year-To-Date 2003 and Second Quarter 2003 as compared
to Year-To-Date 2002 and Second Quarter 2002, respectively, due to the increase
in 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 the Trust, the
Managing Owner and the Trading Advisor. Incentive fees were $330,000, $6,000,
$324,000 and $6,000 during Year-To-Date 2003, Year-To-Date 2002, Second Quarter
2003 and Second Quarter 2002, respectively.
General and administrative expenses were $66,000, $62,000, $33,000 and
$31,000 for Year-To-Date 2003, Year-To-Date 2002, Second Quarter 2003 and Second
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 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 the 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
$35,000, $10,000, $18,000 and $7,000 during Year-To-Date 2003, Year-To-Date
2002, Second Quarter 2003 and Second Quarter 2002, 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
As of the end of the period covered by this report, the Managing Owner
carried out an evaluation, under the supervision and with the participation of
the officers of the Managing Owner, including the Managing Owner's Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of Series 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.
11
<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--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 June 27, 2003.
<Table>
<Caption>
Amount of
---------------------------------
Date of Sale Interests sold Cash received
-------------------------------- -------------- -------------
March 10, 2003 350.000 $ 34,997
April 14, 2003 775.373 74,785
-------------- -------------
Total 1,125.373 $ 109,782
-------------- -------------
-------------- -------------
</Table>
Item 3. Defaults Upon Senior Securities--None
Item 4. Submission of Matters to a Vote of Security Holders--None
Item 5. Other Information-- Effective May 2003, Ronald J. Ivans was elected by
the Board of Directors of Prudential Securities
Futures Management Inc. as Chief Financial Officer
and Treasurer replacing Steven Weinreb.
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)
31.1--Certification pursuant to Exchange Act Rules 13a-14 and 15d-14
(filed herewith)
31.2--Certification pursuant to Exchange Act Rules 13a-14 and 15d-14
(filed herewith)
32.1--Certification pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 906 of the SARBANES-OXLEY Act of 2002
(furnished herewith)
32.2--Certification pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 906 of the SARBANES-OXLEY Act of 2002
(furnished herewith)
(b) Reports on Form 8-K--None
12
<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.
WORLD MONITOR TRUST II--SERIES D
By: Prudential Securities Futures Management Inc.
A Delaware corporation, Managing Owner
By: /s/ Ronald J. Ivans Date: August 11, 2003
----------------------------------------
Ronald J. Ivans
Chief Financial Officer
13