<Page>
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 26, 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 incorporation (I.R.S. Employer Identification
or organization) 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
- --------------------------------------------------------------------------------
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>
September 26, December 31,
2003 2002
- ----------------------------------------------------------------------------------------------------
ASSETS
Cash in commodity trading accounts $45,537,615 $25,058,188
Net unrealized (loss) gain on open futures contracts (1,623,885) 1,772,644
Net unrealized gain on open forward contracts -- 43,721
Accrued interest receivable 37,488 --
------------- ------------
Total assets $43,951,218 $26,874,553
------------- ------------
------------- ------------
LIABILITIES AND TRUST CAPITAL
Liabilities
Commissions and other transaction fees payable $ 220,716 $ 135,497
Accrued expenses payable 100,753 89,968
Management fees payable 70,011 43,883
Net unrealized loss on open forward contracts 23,027 --
Redemptions payable 12,961 --
Incentive fees payable 1,148 65,555
------------- ------------
Total liabilities 428,616 334,903
------------- ------------
Commitments
Trust capital
Limited interests (278,132.214 and 165,673.643 interests
outstanding) 42,966,475 26,238,737
General interests (3,600 and 1,900 interests outstanding) 556,127 300,913
------------- ------------
Total trust capital 43,522,602 26,539,650
------------- ------------
Total liabilities and trust capital $43,951,218 $26,874,553
------------- ------------
------------- ------------
Net asset value per limited and general interest $ 154.48 $ 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>
September 26, 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 $ (1,004,401) $ --
Interest rates -- 421,731
Currencies 712,278 989,817
Commodities (184,397) 204,590
-------------- --------------
Net unrealized (loss) gain on
futures contracts purchased (1.09)% (476,520) 6.09% 1,616,138
-------------- --------------
Futures contracts sold:
Stock indices 3,390 63,999
Interest rates (802,306) (421)
Currencies (57,545) 104,559
Commodities (290,904) (11,631)
-------------- --------------
Net unrealized (loss) gain on
futures contracts sold (2.64) (1,147,365) 0.59 156,506
------ -------------- ------ --------------
Net unrealized (loss) gain on
futures contracts (3.73)% $ (1,623,885) 6.68% $1,772,644
------ -------------- ------ --------------
------ -------------- ------ --------------
Forward currency contracts purchased 0.09% $ 39,585 0.01% $ 2,833
Forward currency contracts sold (0.14) (62,612) 0.15 40,888
------ -------------- ------ --------------
Net unrealized (loss) gain on
forward contracts (0.05)% $ (23,027) 0.16% $ 43,721
------ -------------- ------ --------------
------ -------------- ------ --------------
Settlement Currency--Futures Contracts
British pound (0.67)% $ (291,171) 0.50% $ 133,017
Japanese yen (0.28) (122,956) 0.13 35,657
Canadian dollars (0.38) (164,390) 0.52 137,683
U.S. dollar (0.18) (79,948) 3.48 923,280
Swiss francs (0.09) (38,488) 0.79 210,417
Australian dollars 0.10 45,308 0.16 41,875
Euro (2.26) (984,126) 1.10 290,715
Hong Kong dollars 0.03 11,886 -- --
------ -------------- ------ --------------
Total (3.73)% $ (1,623,885) 6.68% $1,772,644
------ -------------- ------ --------------
------ -------------- ------ --------------
Settlement Currency--Forward Contracts
U.S. dollar (0.05)% $ (23,027) 0.16% $ 43,721
------ -------------- ------ --------------
------ -------------- ------ --------------
<Caption>
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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 For the period from For the period from
January 1, 2003 to January 1, 2002 to June 28, 2003 to June 29, 2002 to
September 26, 2003 September 27, 2002 September 26, 2003 September 27, 2002
- -------------------------------------------------------------------------------------------------------------------
REVENUES
Net realized gain (loss) on
commodity transactions $ 3,534,955 $ 4,936,020 $(5,225,831) $ 4,359,922
Change in net unrealized
gain/loss on open
commodity positions (3,463,277) 547,285 2,022,491 (84,233)
Interest income 346,677 167,324 111,475 77,521
------------------- ------------------- ------------------- -------------------
418,355 5,650,629 (3,091,865) 4,353,210
------------------- ------------------- ------------------- -------------------
EXPENSES
Commissions and other
transaction fees 2,038,078 615,895 759,225 276,656
Management fees 643,466 194,798 237,798 89,902
Incentive fees 259,338 920,588 1,148 852,812
General and administrative 117,294 104,092 48,312 41,927
------------------- ------------------- ------------------- -------------------
3,058,176 1,835,373 1,046,483 1,261,297
General and administrative
expenses borne by the
Managing Owner and its
affiliates -- (19,688) -- (9,217)
------------------- ------------------- ------------------- -------------------
Net expenses 3,058,176 1,815,685 1,046,483 1,252,080
------------------- ------------------- ------------------- -------------------
Net income (loss) $(2,639,821) $ 3,834,944 $(4,138,348) $ 3,101,130
------------------- ------------------- ------------------- -------------------
------------------- ------------------- ------------------- -------------------
ALLOCATION OF NET INCOME
(LOSS)
Limited interests $(2,604,793) $ 3,787,428 $(4,085,551) $ 3,062,942
------------------- ------------------- ------------------- -------------------
------------------- ------------------- ------------------- -------------------
General interests $ (35,028) $ 47,516 $ (52,797) $ 38,188
------------------- ------------------- ------------------- -------------------
------------------- ------------------- ------------------- -------------------
NET INCOME (LOSS) PER
WEIGHTED AVERAGE LIMITED
AND GENERAL INTEREST
Net income (loss) per
weighted average limited
and general interest $ (10.62) $ 40.32 $ (14.55) $ 27.17
------------------- ------------------- ------------------- -------------------
------------------- ------------------- ------------------- -------------------
Weighted average number of
limited and general
interests outstanding 248,482 95,122 284,446 114,131
------------------- ------------------- ------------------- -------------------
------------------- ------------------- ------------------- -------------------
<Caption>
- -------------------------------------------------------------------------------------------------------------------
</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 134,826.125 23,021,451 290,242 23,311,693
Net loss (2,604,793) (35,028 ) (2,639,821)
Redemptions (20,667.554) (3,688,920) -- (3,688,920)
------------ ----------- --------- -----------
Trust capital--September 26, 2003 281,732.214 $42,966,475 $556,127 $43,522,602
------------ ----------- --------- -----------
------------ ----------- --------- -----------
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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
September 26, 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 September 26, 2003 and December
31, 2002 and the results of its operations for the periods from January 1, 2003
to September 26, 2003 ('Year-To-Date 2003'), January 1, 2002 to September 27,
2002 ('Year-To-Date 2002'), June 28, 2003 to September 26, 2003 ('Third Quarter
2003') and June 29, 2002 to September 27, 2002 ('Third 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 E'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 their separate retail
securities brokerage and clearing businesses under a new holding company named
Wachovia/Prudential Financial Advisors, LLC ('WPFA'), to be owned 62% by
Wachovia and 38% by Prudential. The transaction closed July 1, 2003. As a
result, the retail brokerage operations of Prudential Securities Incorporated
('PSI') were contributed to Wachovia Securities, LLC ('Wachovia Securities').
Wachovia Securities is wholly-owned by WPFA and is a registered broker-dealer
and a member of the National Association of Securities Dealers, Inc. ('NASD')
and all major securities exchanges. Effective July 1, 2003, PSI changed its name
to Prudential Equity Group, Inc. ('PEG'). PEG remains an indirectly wholly-owned
subsidiary of Prudential and is a registered broker-dealer and a member of the
NASD and all major securities exchanges. PEG continues to conduct the equity
research, domestic and international equity sales and trading operations, and
commodity brokerage and derivative operations it previously conducted as PSI.
The Managing Owner also remains an indirectly wholly-owned subsidiary of
Prudential.
Series E's interests were offered until it substantially achieved its
subscription maximum of $50,000,000 on the sale of limited interests during June
2003.
B. Related Parties
The Managing Owner of Series E is a wholly-owned subsidiary of PEG, which, in
turn, is an indirect wholly-owned subsidiary of Prudential. 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 Year-To-Date
2002 and Third Quarter 2002 exceeded such limitations, a portion of these
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, PEG or its affiliates paid the costs of organizing
Series E and offering its limited interests.
5
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The expenses incurred by Series E for services performed by the Managing
Owner and its affiliates for Series E were:
<Table>
<Caption>
Year-To-Date Year-To-Date Third Quarter Third Quarter
2003 2002 2003 2002
------------ ------------ -------------- --------------
Commissions $1,914,172 $577,530 $712,869 $262,438
General and administrative 66,504 54,064 24,906 20,961
------------ ------------ -------------- --------------
1,980,676 631,594 737,775 283,399
General and administrative expenses
borne by the Managing Owner and
its affiliates -- (19,688) -- (9,217)
------------ ------------ -------------- --------------
$1,980,676 $611,906 $737,775 $274,182
------------ ------------ -------------- --------------
------------ ------------ -------------- --------------
</Table>
Expenses payable to the Managing Owner and its affiliates as of September 26,
2003 and December 31, 2002 were $59,395 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 PEG, Series E's commodity
broker. Series E's assets are maintained with PEG for margin purposes. Series E
receives interest income on 100% of its average daily equity maintained in its
accounts with PEG 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 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 E pursuant to a line of credit. PEG 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
6
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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 PEG, Series E's commodity broker, is the sole counterparty. Series E has
entered into a master netting agreement with PEG 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 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.
PEG, 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 PEG. At September 26, 2003, such segregated assets totalled
$10,636,845. Part 30.7 of the CFTC regulations also requires PEG to secure
assets of Series E related to foreign futures trading which totalled $33,276,885
at September 26, 2003. There are no segregation requirements for assets related
to forward trading.
As of September 26, 2003, Series E's open futures and forward contracts
generally mature within one year, although certain interest rates futures
contracts have maturities as distant as December 2004.
7
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D. Financial Highlights
<Table>
<Caption>
Year-To-Date Year-To-Date Third Quarter Third Quarter
2003 2002 2003 2002
------------ ------------ -------------- --------------
Performance per Interest
Net asset value, beginning of period $ 158.38 $ 129.29 $ 169.15 $ 133.80
------------ ------------ -------------- --------------
Net realized gain (loss) and change
in unrealized gain/loss on
commodity transactions 8.05 47.43 (11.38) 37.59
Interest income 1.40 1.72 .39 .68
Net expenses (13.35) (17.37) (3.68) (11.00)
------------ ------------ -------------- --------------
Net (decrease) increase for the
period (3.90) 31.78 (14.67) 27.27
------------ ------------ -------------- --------------
Net asset value, end of period $ 154.48 $ 161.07 $ 154.48 $ 161.07
------------ ------------ -------------- --------------
------------ ------------ -------------- --------------
Total return (2.46)% 24.58% (8.67)% 20.38%
Ratio to average net assets
(annualized)
Interest income 1.09% 1.75% .94% 1.81%
Net expenses, including 0.81%,
9.61%, 0.01% and 19.92% of
incentive fees during
Year-To-Date 2003, Year-To-Date
2002, Third Quarter 2003 and
Third Quarter 2002, respectively 9.60% 18.96% 8.80% 29.24%
</Table>
These financial highlights represent the overall results of Series E during
Year-To-Date 2003, Year-To-Date 2002, Third Quarter 2003 and Third Quarter 2002.
An individual limited owner's actual results may differ depending on the timing
of contributions and redemptions.
8
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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 Year-To-Date 2003 and for the period from
April 6, 2000 (commencement of operations) to June 27, 2003 were $23,311,693 and
$45,279,587, respectively. Series E's interests were offered until it
substantially achieved its subscription maximum of $50,000,000 on the sale of
limited interests during June 2003.
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 Year-To-Date 2003, Third
Quarter 2003 and for the period from April 6, 2000 (commencement of operations)
to September 26, 2003 totalled $3,688,920, $735,888 and $9,599,578,
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. Series E and World Monitor Trust
II--Series F are no longer offered to the public as those series substantially
achieved their subscription maximums during June 2003 and July 2003,
respectively. In addition, since July 2003, the offering of interests in World
Monitor Trust II--Series D ('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 into Series D may resume once the requirements discussed
above are complied with. Future redemptions and exchanges will impact the amount
of funds available for investment in commodity contracts in subsequent periods.
At September 26, 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. PEG credits Series E with interest income on
100% of its average daily equity maintained 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 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.
9
<Page>
Results of Operations
The net asset value per interest as of September 26, 2003 was $154.48, a
decrease of 2.46% from the December 31, 2002 net asset value per interest of
$158.38 and a decrease of 8.67% from the June 27, 2003 net asset value per
interest of $169.15. Past performance is not necessarily indicative of future
results.
Series E's trading gains and (losses) before commissions and related fees
were $72,000, $5,483,000, $(3,203,000) and $4,276,000 during Year-To-Date 2003,
Year-To-Date 2002, Third Quarter 2003 and Third 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 Third Quarter 2003 trading results is presented below.
Quarterly Market Overview
In the U.S., the third quarter of 2003 was marked by an economic growth rate
of 7.2 percent--the fastest rate since 1984--which was boosted by strong
consumer and business spending. Leading indicators rose throughout July and
August, but fell 0.2 percent in September, the first decline in four months.
Manufacturing and industrial production grew throughout the quarter, although at
a slower pace, as new orders and production gradually strengthened. Child tax
credit checks arrived in July and August in time for the crucial back-to-school
retail sales period boosting disposable income to its biggest gain in a year.
Consumer spending, which makes up two-thirds of the economy, rose throughout
most of the quarter as retail sales increased 1.4 percent in July--the largest
increase in four months--and 0.6 percent in August, but cooled in September.
Housing, automobile and durable goods markets aided by incentives and
low-interest rates continued at a high clip. However, consumer confidence was
mixed in July and declined in September to the lowest level since the war in
Iraq as a result of higher gas prices and continued job losses. Despite a
slowdown in layoffs, hiring has not picked up as companies continued to focus on
becoming more efficient. The U.S. economy lost 49,000 jobs in July and a record
93,000 jobs in August. The majority of job losses occurred in the manufacturing
sector, which experienced its 38th consecutive monthly drop in employment in
September. Non-farm payrolls, mostly in the private sector, rose for the first
time in eight months in September. Watching over the weak labor market, the U.S.
Federal Reserve maintained the target for the federal funds rate at one percent,
a 45-year low, at both its August and September meetings.
The global economy experienced mixed growth in the third quarter. Widening
deficits, rising unemployment, declining business and consumer confidence and
sluggish economic growth continued to dog the 12-nation euro zone. The European
Central Bank left rates untouched at the end of September. The outlook was
rosier in Japan as capital spending spurred a recovery from its third recession
in a decade. Unemployment reached its lowest level since mid-2001, and although
Japanese consumer spending remained flat, business investments have gradually
grown.
Indices: The three major U.S. market gauges (Dow Jones Industrial Average,
S&P 500 and NASDAQ) boasted a second quarter of gains after three years of
declines, even though they finished lower in September. Stronger corporate
earnings, growth in capital and consumer spending and a third consecutive month
of manufacturing growth boosted stock prices. Toward the end of September, the
Dow Jones Industrial Average, S&P 500 and NASDAQ declined based on weak economic
data and a rush by investors to lock in third quarter gains. Japanese stocks
experienced their biggest sell-off in two years as a result of the pullback in
U.S. equities and the U.S. dollar's 33-month low against the yen. Investors were
concerned about poor consumer confidence figures, weak third-quarter earnings
results, high stock valuations, sketchy corporate governance, persistent job
market weakness, escalating conflict in the Middle East, and a production cut by
OPEC. Nonetheless, the Japanese Nikkei reached a 15-month high in mid-September
with an overall gain of 12.5 percent. Most Asian markets reported robust returns
with European markets edging upwards throughout the quarter resulting in two
consecutive quarters of gains for global stock markets.
Interest Rates: Volatility marked the performance of U.S. Treasuries, as
prices fell 1.9 percent with yields rising to 3.9 percent in the third quarter.
The majority of damage occurred in July as U.S. Treasuries posted their worst
monthly return in more than two decades when investors shifted their allocations
from bonds to stocks on the basis of stronger economic data. Prices rebounded in
August, but dipped again in mid-September as a result of profit taking ahead of
economic data reports. U.S. Treasury prices jumped at the end of September on
the back of soft consumer confidence figures, depressed job market reports,
slower manufacturing activity reports, and a weaker dollar. As a result of
improved world growth, global
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<Page>
bond yields began low at the beginning of the quarter and rose in every major
developed bond market with Japanese bonds experiencing the greatest rise in
yields.
Currencies: In the foreign exchange markets, the U.S. dollar remained weak
and fell at the end of September when the Group of 7 and the U.S. Treasury
Secretary John Snow called for more exchange rate flexibility and further
supported a weak dollar policy. The dollar declined to a 33-month low against
the Japanese yen reversing only after intervention by the Bank of Japan. News of
the intervention forced European currencies lower. However, the Euro ended the
quarter at its highest level against the dollar since mid-June.
Energies: To hedge against inflation, investors began buying oil in August.
Unexpected growth in U.S. inventories drove oil prices lower, reaching
four-month lows. Oil prices spiked in September as OPEC announced an output
reduction of 3.5 percent ahead of peak winter demand to stem the decline in
prices. Prices stabilized slightly when investors realized supplies appeared to
be sufficient but ended the quarter at the highest level in three weeks.
Quarterly Performance of Series E
The following is a summary of performance for the major sectors in which
Series E traded:
Interest Rates (-): Improved domestic economic growth led to a decline in
bond prices and net losses in long U.S. Treasury, European and British bond
positions.
Energies (-): OPEC's announcement to cut production caused a significant
rally in energy prices. Short light crude and gas oil positions led to net
losses. An increase in storage in June as well as a relatively cool summer led
to a decline in natural gas prices and net losses for long positions.
Currencies (-): The Group of 7's support of a weak U.S. dollar led to the
strengthening of major global currencies. Short Swiss franc, Japanese
yen/British pound cross-rate and euro positions resulted in net losses.
Grains (-): Short corn and wheat positions resulted in net losses as drought
conditions drove prices upward.
Softs (-): High volatility in the softs markets led to net losses in sugar
positions.
Indices (+): Long NASDAQ, Japanese TOPIX and Japanese Nikkei Dow index
positions resulted in net gains as U.S. and major global stock markets rose for
the second consecutive quarter.
Metals (+): Speculation that manufacturers will boost metal purchases
increased base metal prices and led to net gains in nickel and copper positions.
Series E's average net asset levels were significantly higher during
Year-To-Date 2003 as compared to Year-To-Date 2002 and Third Quarter 2003
compared to Third Quarter 2002, primarily from additional contributions and
favorable trading performance during 2002 and the first half of 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 PEG at
the 13-week Treasury bill discount rate and, therefore, varies weekly according
to interest rates, trading performance, contributions and redemptions. Interest
income increased $179,000 and $34,000 during Year-To-Date 2003 as compared to
Year-To-Date 2002 and Third Quarter 2003 as compared to Third Quarter 2002,
respectively. These increases were due to the higher overall net asset levels,
as discussed above, offset, in part, by lower overall interest rates during
Year-To-Date 2003 versus Year-To-Date 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 $1,422,000 and $483,000
during Year-To-Date 2003 as compared to Year-To-Date 2002 and Third Quarter 2003
as compared to Third Quarter 2002, respectively, due to the increase in average
net asset levels as discussed above.
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<Page>
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
$449,000 and $148,000 during Year-To-Date 2003 as compared to Year-To-Date 2002
and Third Quarter 2003 as compared to Third Quarter 2002, 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 E, the
Managing Owner and the Trading Advisor. Incentive fees incurred during
Year-To-Date 2003, Year-To-Date 2002, Third Quarter 2003 and Third Quarter 2002
were $259,000, $921,000, $1,000 and $853,000, respectively.
General and administrative expenses were $117,000, $104,000, $48,000 and
$42,000 for Year-To-Date 2003, Year-To-Date 2002, Third Quarter 2003 and Third
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 during Year-To-Date 2002 and Third 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 $84,000 and $33,000, respectively, during
those periods.
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.
The following table presents the trading value at risk associated with Series
E's open positions by market sector at September 26, 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 September 26, 2003 and December 31,
2002, Series E had total capitalizations of approximately $43.5 million and
$26.5 million, respectively.
<Table>
<Caption>
September 26, 2003 December 31, 2002
---------------------------- ----------------------------
Value at % of Total Value at % of Total
Market Sector Risk Capitalization Risk Capitalization
- ------------------------------------------------------------------------------------------------------------
Interest rates $ 530,868 1.22% $1,024,799 3.86%
Currencies 1,531,976 3.52 1,459,415 5.50
Commodities 1,670,888 3.84 1,266,350 4.77
Stock indices 3,615,816 8.31 332,696 1.25
---------- ------- ---------- -------
Total $7,349,548 16.89% $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 Year-To-Date 2003 and Third Quarter 2003.
<Table>
<Caption>
Year-To-Date 2003 Third Quarter 2003
-------------------------------- --------------------------------
Value at % of Average Total Value at % of Average Total
Market Sector Risk Capitalization Risk Capitalization
- ---------------------------------------------------------------------------------------------------------
Interest rates $1,299,103 3.10% $1,304,114 2.77%
Currencies 1,232,388 2.93 844,800 1.79
Commodities 1,497,840 3.57 2,060,657 4.37
Stock indices 2,936,723 7.00 4,161,069 8.83
---------- ------------------ ---------- ------------------
Total $6,966,054 16.60% $8,370,640 17.76%
---------- ------------------ ---------- ------------------
---------- ------------------ ---------- ------------------
</Table>
12
<Page>
Based on average trading value at risk during Year-To-Date 2003 and Third
Quarter 2003 as well as value at risk at September 26, 2003, Series E
experienced some significant fluctuations in components of its value at risk,
relative to capitalization levels, as compared to value at risk at December 31,
2002.
In the currencies sector, there was a decrease in average trading value at
risk throughout Year-To-Date 2003 and there was a decrease in value at risk
relative to capitalization levels at September 26, 2003, both as compared to the
level at December 31, 2002. These declines in the currencies sector were
attributable to either a reduction in a variety of positions or not very
significant increases in the number of positions held in the currency sector
during a period of increasing average capitalization. At September 26, 2003 and
throughout Year-To-Date 2003, Series E continues to have exposure from positions
in the Euro and in the local currencies of some G-8 countries, but Series E had
a reduced exposure in certain currencies of the G-8 countries as well as to the
Thailand thaibaht, the Swiss franc, and the Mexican peso after December 31,
2002.
At September 26, 2003, there was a decrease in value at risk in the interest
rates sector as compared to December 31, 2002. This reflects a decrease in the
number of positions held in U.S. Treasury, European, Japanese and British bonds
at September 26, 2003 as compared to the number of positions held at December
31, 2002.
Throughout Year-To-Date 2003 and at September 26, 2003, there was an increase
in average trading value at risk and value at risk, respectively, in the stock
indices sector as compared to the level at December 31, 2002. The increase was
primarily attributable to the significant increases in the number of positions
taken in various stock indices including the NASDAQ 100, the S&P 500, and the
euro DAX.
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 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 have not been any changes in our internal controls over financial
reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities
Exchange Act of 1934, as amended) during the fiscal quarter to which this report
relates that have materially affected, or are reasonably likely to materially
affect, our internal controls over financial reporting.
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<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 September 26, 2003.
<Table>
<Caption>
Amount of
-------------------------------
Date of Sale Interests sold Cash received
--------------------------------------------------------
February 10, 2003 700 $ 124,852
April 7, 2003 1,000 165,390
------- -------------
Total 1,700 $ 290,242
------- -------------
------- -------------
</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)
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
14
<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/ Ronald J. Ivans Date: November 10, 2003
----------------------------------------
Ronald J. Ivans
Chief Financial Officer
15