-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NrYLN+4s+wx42LOu8PunxRWMo6+mSfXzmhRmXYP5ooGYkDN17ZTSWGRDlMBVOs+u JsGQDtUEFuLXzsW9aihR8w== 0000898733-00-000200.txt : 20000331 0000898733-00-000200.hdr.sgml : 20000331 ACCESSION NUMBER: 0000898733-00-000200 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRUDENTIAL BACHE CAPITAL RETURN FUTURES FUND L P CENTRAL INDEX KEY: 0000846176 STANDARD INDUSTRIAL CLASSIFICATION: [6221] IRS NUMBER: 133516796 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-18417 FILM NUMBER: 587704 BUSINESS ADDRESS: STREET 1: ONE NEW YORK PLAZA STREET 2: 13TH FL CITY: NEW YORK STATE: NY ZIP: 10292 BUSINESS PHONE: 2127787866 MAIL ADDRESS: STREET 1: ONE NEW YORK PLAZA STREET 2: 13TH FL CITY: NEW YORK STATE: NY ZIP: 10292 10-K 1 PRUDENTIAL-BACHE CAPITAL RETURN FUTURES FUND UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1999 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 0-18417 PRUDENTIAL-BACHE CAPITAL RETURN FUTURES FUND L.P. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 13-3516796 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) One New York Plaza, 13th Floor, New York, New York 10292 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (212) 778-7866 Securities registered pursuant to Section 12(b) of the Act: None - ------------------------------------------------------------------------------- Securities registered pursuant to Section 12(g) of the Act: Units of Limited Partnership Interest - ------------------------------------------------------------------------------- (Title of class) Indicate by check mark 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 mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [CK] DOCUMENTS INCORPORATED BY REFERENCE Agreement of Limited Partnership of the Registrant, dated January 26, 1989, included as part of the Registration Statement on Form S-1 (File No. 33-26777) filed with the Securities and Exchange Commission on January 31, 1989 pursuant to Rule 424(b) of the Securities Act of 1933, and amended and restated as of March 15, 1989, is incorporated by reference into Part IV of this Annual Report on Form 10-K Registrant's Annual Report to Limited Partners for the year ended December 31, 1999 is incorporated by reference into Parts II and IV of this Annual Report on Form 10-K Index to exhibits can be found on pages 8 and 9. PRUDENTIAL-BACHE CAPITAL RETURN FUTURES FUND L.P. (a limited partnership) TABLE OF CONTENTS
PART I PAGE Item 1 Business......................................................................... 3 Item 2 Properties....................................................................... 4 Item 3 Legal Proceedings................................................................ 4 Item 4 Submission of Matters to a Vote of Limited Partners.............................. 4 PART II Item 5 Market for the Registrant's Units and Related Limited Partner Matters............ 4 Item 6 Selected Financial Data.......................................................... 4 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations..................................................................... 4 Item 7A Quantitative and Qualitative Disclosures About Market Risk....................... 5 Item 8 Financial Statements and Supplementary Data...................................... 5 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..................................................................... 5 PART III Item 10 Directors and Executive Officers of the Registrant............................... 5 Item 11 Executive Compensation........................................................... 6 Item 12 Security Ownership of Certain Beneficial Owners and Management................... 7 Item 13 Certain Relationships and Related Transactions................................... 7 PART IV Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K.................. 8 Financial Statements and Financial Statement Schedules........................... 8 Exhibits......................................................................... 8 Reports on Form 8-K.............................................................. 9 SIGNATURES ................................................................................. 10
2 PART I Item 1. Business General Prudential-Bache Capital Return Futures Fund L.P. (the 'Registrant'), a Delaware limited partnership, was formed on January 26, 1989 to engage in the speculative trading of a portfolio consisting primarily of commodity futures, forward and options contracts. On May 12, 1989, the Registrant completed its offering having raised $139,151,000 from the sale of 1,377,053 units of limited partnership interest and 14,457 units of general partnership interest (collectively, the 'Units') which resulted in net proceeds to the Registrant of $137,151,000. The Registrant's fiscal year for book and tax purposes ends on December 31. The Registrant is engaged solely in the business of commodity futures, forward and options trading; therefore, presentation of industry segment information is not applicable. Termination of the Registrant The Registrant will terminate on December 31, 2009 unless terminated sooner under the provisions of the Amended and Restated Agreement of Limited Partnership (the 'Partnership Agreement'). These provisions, as set forth in Article XVII of the Partnership Agreement, include the dissolution of the Registrant if the Registrant's net asset value declines to less than $10 million as of the end of any business day. As of March 28, 2000, the Registrant's estimated net asset value was approximately $10,432,000. Additionally, the general partner has received first quarter 2000 redemption requests from limited partners which, when recorded on March 31, 2000, at $121.15 per Unit (the estimated net asset value per unit as of March 28, 2000), would cause the Registrant's net asset value to fall below $10 million and would require the General Partner to dissolve the Registrant and begin its orderly liquidation. However, the net asset value as of March 31, 2000 is subject to the Registrant's trading results of March 29 through March 31, 2000. Trading Manager Since July 1994, all trading decisions for the Registrant have been made by John W. Henry & Company, Inc. (the 'Trading Manager'), an independent commodities trading manager. The general partner retains the authority to override trading instructions that violate the Registrant's trading policies. General Partner and its Affiliates The general partner of the Registrant is Seaport Futures Management, Inc. (the 'General Partner') which is an affiliate of Prudential Securities Incorporated ('PSI'), the Registrant's commodity broker. Both the General Partner and PSI are wholly owned subsidiaries of Prudential Securities Group Inc. ('PSGI'). The General Partner is required to maintain at least a 1% interest in the Registrant as long as it is acting as the Registrant's general partner. Competition The General Partner and its affiliates have formed and may continue to form various entities to engage in the speculative trading of futures, forward and options contracts which, in part, have certain of the same investment policies as the Registrant. The Registrant is a closed-end fund which does not currently, and does not intend in the future to, solicit the sale of additional Units. As such, the Registrant does not compete with other entities to attract new fund participants. However, to the extent that the Trading Manager recommends similar or identical trades to the Registrant and other accounts which it manages, the Registrant may compete with those accounts for the execution of the same or similar trades. Employees The Registrant has no employees. Management and administrative services for the Registrant are performed by the General Partner and its affiliates pursuant to the Partnership Agreement as further discussed 3 in Notes A, C and D to the Registrant's annual report to limited partners for the year ended December 31, 1999 ('Registrant's 1999 Annual Report') which is filed as an exhibit hereto. Item 2. Properties The Registrant does not own or lease any property. Item 3. Legal Proceedings There are no material legal proceedings pending by or against the Registrant or the General Partner. Item 4. Submission of Matters to a Vote of Limited Partners None PART II Item 5. Market for the Registrant's Units and Related Limited Partner Matters Information with respect to the offering of Units is incorporated by reference to Note A to the Registrant's 1999 Annual Report, which is filed as an exhibit hereto. A significant secondary market for the Units has not developed, and it is not expected that one will develop in the future. There are also certain restrictions set forth in the Partnership Agreement limiting the ability of a partner to transfer Units. The Partnership Agreement does, however, provide that a partner may redeem its Units as of the last business day of any full calendar quarter at the then current net asset value per Unit. Consequently, holders of Units may not be able to liquidate their investments in the event of an emergency or for any other reason. There are no material restrictions upon the Registrant's present or future ability to make distributions in accordance with the provisions of the Partnership Agreement. No distributions have been made since inception and no distributions are anticipated in the future. As of March 21, 2000, there were 1,074 holders of record owning 86,107 Units, including 862 units of general partnership interest. Item 6. Selected Financial Data The following table presents selected financial data of the Registrant. This data should be read in conjunction with the financial statements of the Registrant and the notes thereto on pages 2 through 10 of the Registrant's 1999 Annual Report which is filed as an exhibit hereto.
Year ended December 31, ------------------------------------------------------------------- 1999 1998 1997 1996 1995 ----------- ----------- ----------- ----------- ----------- Total revenues (including interest) $ 321,395 $ 1,704,817 $ 3,513,055 $ 3,624,267 $ 8,187,598 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Net income (loss) $(1,450,139) $ (258,576) $ 1,278,585 $ 1,330,842 $ 4,963,090 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Net income (loss) per weighted average Unit $ (15.31) $ (2.39) $ 10.34 $ 9.23 $ 28.30 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total assets $11,641,092 $15,388,184 $17,444,499 $18,703,847 $20,648,992 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Net asset value per Unit $ 129.99 $ 146.27 $ 147.88 $ 137.02 $ 126.19 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This information is incorporated by reference to pages 12 through 14 of the Registrant's 1999 Annual Report which is filed as an exhibit hereto. 4 Item 7A. 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 8. Financial Statements and Supplementary Data The financial statements are incorporated by reference to pages 2 through 10 of the Registrant's 1999 Annual Report which is filed as an exhibit hereto. Supplementary data specified by Item 302 of Regulation S-K (selected quarterly financial data) is not applicable. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None PART III Item 10. Directors and Executive Officers of the Registrant There are no directors or executive officers of the Registrant. The Registrant is managed by the General Partner. The General Partner's directors and executive officers and any persons holding more than ten percent of the Registrant's Units ('Ten Percent Owners') are required to report their initial ownership of such Units and any subsequent changes in that ownership to the Securities and Exchange Commission on Forms 3, 4 or 5. Such executive officers, directors and Ten Percent Owners are required by Securities and Exchange Commission regulations to furnish the Registrant with copies of all Forms 3, 4 and 5 they file. All of these filing requirements were satisfied on a timely basis. In making these disclosures, the Registrant has relied solely on written representations of the General Partner's directors and executive officers and Ten Percent Owners or copies of the reports that they have filed with the Securities and Exchange Commission during and with respect to its most recent fiscal year. The directors and executive officers of Seaport Futures Management, Inc. and their positions with respect to the Registrant are as follows: Name Position - ------------------------- ----------------------------------------- Eleanor L. Thomas President and Director Joseph A. Filicetti Executive Vice President and Director Barbara J. Brooks Chief Financial Officer Steven Carlino Vice President and Treasurer Alan J. Brody Director A. Laurence Norton, Jr. Director Guy S. Scarpaci Director Tamara B. Wright Senior Vice President and Director ELEANOR L. THOMAS, age 45, is the President and a Director of Seaport Futures Management, Inc. and is the Executive Vice President and a Director of Prudential Securities Futures Management Inc. She is primarily responsible for origination, asset allocation, and due diligence for the managed futures department within PSI. She is also a First Vice President of PSI. Prior to joining PSI in March 1993, she was with MC Baldwin Financial Company from June 1990 through February 1993 and Arthur Andersen & Co. from 1986 through May 1990. Ms. Thomas is a certified public accountant. JOSEPH A. FILICETTI, age 37, is the Executive Vice President and a Director of Seaport Futures Management, Inc. He had been a Vice President of Seaport Futures Management, Inc. and Prudential Securities Futures Management Inc. from October 1998 to March 1999. In April 1999, Mr. Filicetti was named to his 5 current positions at Seaport Futures Management, Inc. and became the President and a Director of Prudential Securities Futures Management Inc. Mr. Filicetti is also a Vice President of PSI and the Director of Sales and Marketing for its managed futures department. Prior to joining PSI, Mr. Filicetti was with Rotella Capital Management as Director of Sales and Marketing from September 1996 through September 1998, and was with Merrill Lynch as a market maker trading bonds from July 1992 to August 1996. BARBARA J. BROOKS, age 51, is the Chief Financial Officer of Seaport Futures Management, Inc. She is a Senior Vice President of PSI. She is also the Chief Financial Officer of Prudential Securities Futures Management Inc. and serves in various capacities for other affiliated companies. She has held several positions within PSI since April 1983. Ms. Brooks is a certified public accountant. STEVEN CARLINO, age 36, is a Vice President and Treasurer of Seaport Futures Management, Inc. He is a First Vice President of PSI. He is also a Vice President and Treasurer of Prudential Securities Futures Management Inc. and serves in various capacities for other affiliated companies. Prior to joining PSI in October 1992, he was with Ernst & Young for six years. Mr. Carlino is a certified public accountant. ALAN J. BRODY, age 48, is a Director of Seaport Futures Management, Inc. and Prudential Securities Futures Management Inc. Mr. Brody has been a Senior Vice President and Director of International Sales and Marketing for PSI since 1996. Based in London, Mr. Brody is currently responsible for the marketing and sales of all PSI products and services to international clientele throughout the firm's global branch system. Additionally, Mr. Brody has overall responsibility for the managed futures department within PSI. Prior to joining PSI, Mr. Brody was an Executive Director and Senior Vice President with Lehman Brothers' Financial Services Division in London and President of Lehman Brothers Futures Asset Management Corp. from 1990 to 1996. Prior to joining Lehman Brothers, Mr. Brody served as President and Chief Executive Officer of Commodity Exchange, Inc. from 1980 to 1989. Earlier in his career, Mr. Brody was associated with the law firm of Baer Marks & Upham from 1977 to 1980. A. LAURENCE NORTON, JR., age 61, is a Director of Seaport Futures Management, Inc. He is an Executive Vice President of PSI and, since March 1994, has been the director of the International and Futures Divisions of PSI. He is also a Director of Prudential Securities Futures Management Inc. and is a member of PSI's Operating Committee. From October 1991 to March 1994, he held the position of Executive Director of Retail Development and Retail Strategies at PSI. Prior to joining PSI in 1991, Mr. Norton was a Senior Vice President and Branch Manager of Shearson Lehman Brothers. GUY S. SCARPACI, age 53, is a Director of Seaport Futures Management, Inc. He is a First Vice President of the Futures Division of PSI. He is also a Director of Prudential Securities Futures Management Inc. Mr. Scarpaci has been employed by PSI in positions of increasing responsibility since August 1974. TAMARA B. WRIGHT, age 41, is a Senior Vice President and Director of Seaport Futures Management, Inc. She is a Senior Vice President and Chief Administrative Officer for the International and Futures Divisions of PSI. She is also a Senior Vice President and Director of Prudential Securities Futures Management Inc. and serves in various capacities for other affiliated companies. Prior to joining PSI in July 1988, she was a manager with Price Waterhouse. Effective April 1999, i->Eleanor L. Thomas and Joseph A. Filicetti were elected as Directors of both Seaport Futures Management, Inc. and Prudential Securities Futures Management Inc. In addition, Ms. Thomas was elected as President of Seaport Futures Management, Inc. replacing Thomas M. Lane, Jr. and Mr. Filicetti was elected as the Executive Vice President of Seaport Futures Management, Inc. Additionally, Alan J. Brody was elected as a Director of Seaport Futures Management, Inc. and Prudential Securities Futures Management Inc. during May 1999. There are no family relationships among any of the foregoing directors or executive officers. All of the foregoing directors and/or executive officers have indefinite terms. Item 11. Executive Compensation The Registrant does not pay or accrue any fees, salaries or any other form of compensation to directors and officers of the General Partner for their services. Certain officers and directors of the General Partner 6 receive compensation from affiliates of the General Partner, not from the Registrant, for services performed for various affiliated entities, which may include services performed for the Registrant; however, the General Partner believes that any compensation attributable to services performed for the Registrant is immaterial. (See also Item 13, Certain Relationships and Related Transactions, for information regarding compensation to the General Partner.) Item 12. Security Ownership of Certain Beneficial Owners and Management As of March 21, 2000, no director or officer of the General Partner owns directly or beneficially any interest in the voting securities of the General Partner. As of March 21, 2000, no director or officer of the General Partner owns directly or beneficially any of the Units issued by the Registrant. As of March 21, 2000, the following owner of limited partnership units beneficially owns more than five percent (5%) of the limited partnership units issued by the Registrant.
Title Name and Address of Amount and Nature of Percent of of Class Beneficial Owner Beneficial Ownership Class - ------------------ --------------------------- ---------------------------- ---------- units of Eugene Ramos 5,000 units of limited 6% limited FBO Julia Ramos partnership interest partnership 7035 Gleneagle Drive interest Miami Lakes, FL 33014-6509
Item 13. Certain Relationships and Related Transactions The Registrant has and will continue to have certain relationships with the General Partner and its affiliates. However, there have been no direct financial transactions between the Registrant and the directors or officers of the General Partner. Reference is made to Notes A, C and D to the financial statements in the Registrant's 1999 Annual Report which is filed as an exhibit hereto, which identify the related parties and discuss the services provided by these parties and the amounts paid or payable for their services. 7 PART IV
Page in Annual Report Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) 1. Financial Statements and Report of Independent Accountants--incorporated by reference to the Registrant's 1999 Annual Report which is filed as an exhibit hereto Report of Independent Accountants 2 Financial Statements: Statements of Financial Condition--December 31, 1999 and 1998 3 Statements of Operations--Three years ended December 31, 1999 4 Statements of Changes in Partners' Capital--Three years ended December 31, 1999 4 Notes to Financial Statements 5 2. Financial Statement Schedules All schedules have been omitted because they are not applicable or the required information is included in the financial statements or the notes thereto. 3. Exhibits: 3.1 Agreement of Limited Partnership of the Registrant, dated as of and January 26, 1989 as amended and restated as of March 15, 1989 4.1 (incorporated by reference to Exhibits 3.1 and 4.1 to the Registrant's Annual Report on Form 10-K for the period ended December 31, 1989) 4.2 Subscription Agreement (incorporated by reference to Exhibit 4.2 to the Registrant's Annual Report on Form 10-K for the period ended December 31, 1989) 4.3 Request for Redemption (incorporated by reference to Exhibit 4.3 to the Registrant's Annual Report on Form 10-K for the period ended December 31, 1989) 10.1 Escrow Agreement, dated March 17, 1989 among the Registrant, Seaport Futures Management, Inc., Prudential-Bache Securities Inc. and Bankers Trust Company (incorporated by reference to Exhibit 10.1 to the Registrant's Annual Report on Form 10-K for the period ended December 31, 1989) 10.2 Brokerage Agreement dated May 12, 1989 between the Registrant and Prudential-Bache Securities Inc. (incorporated by reference to Exhibit 10.2 to the Registrant's Annual Report on Form 10-K for the period ended December 31, 1989) 10.4 Advisory Agreement, dated September 1, 1990 between the Registrant, Seaport Futures Management, Inc. and John W. Henry & Co., Inc. (incorporated by reference to Exhibit 10.4 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1990) 10.6 Net Worth Agreement, dated as of March 17, 1989 between Seaport Futures Management, Inc. and Prudential Securities Group Inc. (incorporated by reference to Exhibit 10.6 to the Registrant's Annual Report on Form 10-K for the period ended December 31, 1989)
8 10.7 Promissory Note issued by Prudential Securities Group Inc. to Seaport Futures Management, Inc., dated May 12, 1989 (incorporated by reference to Exhibit 10.7 to the Registrant's Annual Report on Form 10-K for the period ended December 31, 1989) 10.9 Secured Demand Note Collateral Agreement dated February 15, 1991 between Seaport Futures Management, Inc. and Prudential Securities Group Inc. (incorporated by reference to Exhibit 28.2 to the Registrant's Quarterly Report on Form 10-Q for the period ended March 31, 1991) 10.16 Amendment to Advisory Agreement dated June 30, 1994 among the Registrant, Seaport Futures Management, Inc. and John W. Henry & Company, Inc. (incorporated by reference to Exhibit 10.16 to the Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 1994) 10.17 Addendum to Brokerage Agreement dated July 1, 1994 among the Registrant, Seaport Futures Management, Inc. and Prudential Securities Incorporated (incorporated by reference to Exhibit 10.17 to the Registrant's Quarterly Report on Form 10-Q for the period ended September 30, 1994) 10.18 Form of Foreign Currency Addendum to Brokerage Agreement between the Registrant and Prudential Securities Incorporated (incorporated by reference to Exhibit 10.18 of the Registrant's Quarterly Report on Form 10-Q for the period ended March 31, 1996) 13.1 Registrant's 1999 Annual Report (with the exception of the information and data incorporated by reference in Items 5, 7 and 8 of this Annual Report on Form 10-K, no other information or data appearing in the Registrant's 1999 Annual Report is to be deemed filed as part of this report) (filed herewith) 27.1 Financial Data Schedule (filed herewith) (b) Reports on Form 8-K No reports on Form 8-K were filed during the last quarter of the period covered by this report
9 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. Prudential-Bache Capital Return Futures Fund L.P. By: Seaport Futures Management, Inc. A Delaware corporation, General Partner By: /s/ Steven Carlino Date: March 30, 2000 ------------------------------------------- Steven Carlino Vice President and Treasurer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities (with respect to the General Partner) and on the dates indicated. By: Seaport Futures Management, Inc. A Delaware corporation, General Partner By: /s/ Eleanor L. Thomas Date: March 30, 2000 --------------------------------------------- Eleanor L. Thomas President and Director By: /s/ Joseph A. Filicetti Date: March 30, 2000 --------------------------------------------- Joseph A. Filicetti Executive Vice President and Director By: /s/ Barbara J. Brooks Date: March 30, 2000 --------------------------------------------- Barbara J. Brooks Chief Financial Officer By: /s/ Steven Carlino Date: March 30, 2000 --------------------------------------------- Steven Carlino Vice President and Treasurer By: /s/ Alan J. Brody Date: March 30, 2000 -------------------------------------------- Alan J. Brody Director By: Date: -------------------------------------------- A. Laurence Norton, Jr. Director By: /s/ Guy S. Scarpaci Date: March 30, 2000 ------------------------------------------- Guy S. Scarpaci Director By: Date: ------------------------------------------- Tamara B. Wright Senior Vice President and Director 10 EX-13 2 ANNUAL REPORT LETTER TO LIMITED OWNERS FOR PRUDENTIAL-BACHE CAPITAL RETURN FUTURES FUND L.P. 1 PricewaterhouseCoopers (LOGO) PricewaterhouseCoopers LLP 1177 Avenue of the Americas New York, NY 10036 Telephone (212) 596 8000 Facsimile (212) 596 8910 Report of Independent Accountants To the General Partner and Limited Partners of Prudential-Bache Capital Return Futures Fund L.P. In our opinion, the accompanying statements of financial condition and the related statements of operations and changes in partners' capital present fairly, in all material respects, the financial position of Prudential-Bache Capital Return Futures Fund L.P. at December 31, 1999 and 1998, and the results of its operations for each of the three years in the period ended December 31, 1999 in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the General Partner; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by the General Partner, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PricewaterhouseCoopers LLP January 28, 2000 2 PRUDENTIAL-BACHE CAPITAL RETURN FUTURES FUND L.P. (a limited partnership) STATEMENTS OF FINANCIAL CONDITION
December 31, -------------------------- 1999 1998 - -------------------------------------------------------------------------------------------------- ASSETS Cash $ 2,746,277 $ 3,166,467 U.S. Treasury bills, at amortized cost 8,532,471 11,092,586 Net unrealized gain on open futures contracts 287,516 1,129,131 Net unrealized gain on open forward contracts 74,828 -- ----------- ----------- Total assets $11,641,092 $15,388,184 ----------- ----------- ----------- ----------- LIABILITIES AND PARTNERS' CAPITAL Liabilities Redemptions payable $ 301,577 $ 408,971 Net unrealized loss on open forward contracts -- 121,175 Management fees payable 38,444 50,656 Accrued expenses 62,651 57,613 Due to affiliates 45,198 12,481 ----------- ----------- Total liabilities 447,870 650,896 ----------- ----------- Commitments Partners' capital Limited partners (85,245 and 99,743 units outstanding) 11,081,169 14,589,844 General partner (862 and 1,008 units outstanding) 112,053 147,444 ----------- ----------- Total partners' capital 11,193,222 14,737,288 ----------- ----------- Total liabilities and partners' capital $11,641,092 $15,388,184 ----------- ----------- ----------- ----------- Net asset value per limited and general partnership unit ('Units') $ 129.99 $ 146.27 ----------- ----------- ----------- ----------- - -------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these statements.
3 PRUDENTIAL-BACHE CAPITAL RETURN FUTURES FUND L.P. (a limited partnership) STATEMENTS OF OPERATIONS
Year ended December 31, ----------------------------------------- 1999 1998 1997 - ---------------------------------------------------------------------------------------------------- REVENUES Net realized gain $ 496,859 $1,301,509 $1,602,156 Change in net unrealized gain/loss (645,612) (169,565) 1,234,209 Interest from U.S. Treasury bills 470,148 572,873 676,690 ----------- ---------- ---------- 321,395 1,704,817 3,513,055 ----------- ---------- ---------- EXPENSES Commissions 1,084,856 1,214,818 1,377,622 Management fees 539,392 608,574 695,451 Incentive fees -- -- 12,998 General and administrative 147,286 140,001 148,399 ----------- ---------- ---------- 1,771,534 1,963,393 2,234,470 ----------- ---------- ---------- Net income (loss) $(1,450,139) $ (258,576) $1,278,585 ----------- ---------- ---------- ----------- ---------- ---------- ALLOCATION OF NET INCOME (LOSS) Limited partners $(1,435,625) $ (255,983) $1,265,788 ----------- ---------- ---------- ----------- ---------- ---------- General partner $ (14,514) $ (2,593) $ 12,797 ----------- ---------- ---------- ----------- ---------- ---------- NET INCOME (LOSS) PER WEIGHTED AVERAGE LIMITED AND GENERAL PARTNERSHIP UNIT Net income (loss) per weighted average limited and general partnership unit $ (15.31) $ (2.39) $ 10.34 ----------- ---------- ---------- ----------- ---------- ---------- Weighted average number of limited and general partnership units outstanding 94,717 108,183 123,618 ----------- ---------- ---------- ----------- ---------- ---------- - ----------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
LIMITED GENERAL UNITS PARTNERS PARTNER TOTAL - ----------------------------------------------------------------------------------------------------- Partners' capital--December 31, 1996 130,609 $17,716,405 $ 179,079 $17,895,484 Net income -- 1,265,788 12,797 1,278,585 Redemptions (15,578) (2,141,221) (21,663) (2,162,884) -------- ----------- --------- ----------- Partners' capital--December 31, 1997 115,031 16,840,972 170,213 17,011,185 Net loss -- (255,983) (2,593) (258,576) Redemptions (14,280) (1,995,145) (20,176) (2,015,321) -------- ----------- --------- ----------- Partners' capital--December 31, 1998 100,751 14,589,844 147,444 14,737,288 Net loss -- (1,435,625) (14,514) (1,450,139) Redemptions (14,644) (2,073,050) (20,877) (2,093,927) -------- ----------- --------- ----------- Partners' capital--December 31, 1999 86,107 $11,081,169 $ 112,053 $11,193,222 -------- ----------- --------- ----------- -------- ----------- --------- ----------- - ----------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these statements.
4 PRUDENTIAL-BACHE CAPITAL RETURN FUTURES FUND L.P. (a limited partnership) NOTES TO FINANCIAL STATEMENTS A. General Prudential-Bache Capital Return Futures Fund L.P. (the 'Partnership') is a Delaware limited partnership formed on January 26, 1989 to engage in the speculative trading of commodity futures, forward and options contracts. On May 12, 1989, the Partnership completed its offering having raised $139,151,000 from the sale of 1,377,053 units of limited partnership interest and 14,457 units of general partnership interest. The general partner of the Partnership is Seaport Futures Management, Inc. (the 'General Partner') which is an affiliate of Prudential Securities Incorporated ('PSI'), the Partnership's commodity broker. Both the General Partner and PSI are wholly owned subsidiaries of Prudential Securities Group Inc. ('PSGI'). The General Partner is required to maintain at least a 1% interest in the Partnership as long as it is acting as the Partnership's general partner. During the three years ended December 31, 1999, 100% of the Partnership's assets were allocated for commodity trading purposes. The General Partner generally maintains not less than 75% of the Partnership's net assets in interest-bearing U.S. Government obligations (primarily U.S. Treasury bills), a significant portion of which is utilized for margin purposes for the Partnership's commodity trading activities. The remaining 25% of the net assets is held in cash in commodity trading accounts. Since July 1994, all trading decisions for the Partnership have been made by John W. Henry & Company, Inc. (the 'Trading Manager'), an independent commodities trading manager. The General Partner retains the authority to override trading instructions that violate the Partnership's trading policies. Termination of the Partnership The Partnership will terminate on December 31, 2009 unless terminated sooner under the provisions of the Amended and Restated Agreement of Limited Partnership (the 'Partnership Agreement'). These provisions, as set forth in Article XVII of the Partnership Agreement, include the dissolution of the Partnership if the Partnership's net asset value declines to less than $10 million as of the end of any business day. Consequently, given the Partnership's net asset value at December 31, 1999, subsequent poor trading performance and/or redemptions may cause the Partnership's net asset value to fall below $10 million as early as March 31, 2000 and, therefore, would result in the ultimate liquidation and dissolution of the Partnership. B. Summary of Significant Accounting Policies Basis of accounting The financial statements of the Partnership are prepared in accordance with generally accepted accounting principles. The preparation of financial statements in conformity with generally accepted accounting principles requires the General Partner to make estimates and assumptions that affect the reported amounts of liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates. Commodity futures and forward transactions are reflected in the accompanying statements of financial condition on trade date. The difference between the original contract amount and market value is reflected as net unrealized gain or loss. The market value of each contract is based upon the closing quotation on the exchange, clearing firm or bank on, or through, which the contract is traded. To the extent practicable, the Partnership invests a significant portion of its net assets in U.S. Treasury bills, which are often used to fulfill margin requirements. U.S. Treasury bills are carried at amortized cost which approximates market. Interest on these obligations accrues for the benefit of the Partnership. The weighted average number of limited and general partnership units outstanding was computed for purposes of disclosing net income (loss) per weighted average limited and general partnership unit. The weighted average limited and general partnership units are equal to the number of Units outstanding at 5 year-end, adjusted proportionately for the Units redeemed based on their respective time outstanding during such year. The Partnership has elected not to provide a Statement of Cash Flows as permitted by Statement of Financial Accounting Standard No. 102, 'Statement of Cash Flows--Exemption of Certain Enterprises and Classification of Cash Flows from Certain Securities Acquired for Resale.' Certain balances from the prior year have been reclassified to conform with the current financial statement presentation. Income taxes The Partnership is not required to provide for, or pay, any Federal or state income taxes. Income tax attributes that arise from the Partnership's operations are passed directly to the individual partners. The Partnership may be subject to other state and local taxes in jurisdictions in which it operates. Profit and loss allocations, distributions and redemptions Net realized profits or losses for tax purposes are allocated first to partners who redeem Units to the extent the amounts received on redemption are greater than or are less than the amounts paid for the redeemed Units by the partners. Net realized profits or losses remaining after these allocations are allocated to each partner in proportion to such partner's capital account at year-end. Net income or loss for financial reporting purposes is allocated quarterly to all partners on a pro rata basis based on each partner's number of Units outstanding during the quarter. Distributions (other than redemptions of Units) are made at the sole discretion of the General Partner on a pro rata basis in accordance with the respective capital accounts of the partners. No distributions have been made since inception. The Partnership Agreement provides that a partner may redeem its Units as of the last business day of any full calendar quarter at the then current net asset value per Unit. Accounting for Derivative Instruments In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ('SFAS') No. 133, Accounting for Derivative Instruments and Hedging Activities, which the Partnership adopted effective October 1, 1999. SFAS No. 133 establishes accounting and reporting standards for derivative instruments and for hedging activities and requires that an entity recognize all derivatives as assets or liabilities measured at fair value. SFAS No. 133 supersedes SFAS No. 119, Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments and SFAS No. 105, Disclosure of Information about Financial Instruments with Off-Balance Sheet Risk and Financial Instruments with Concentrations of Credit Risk which required the disclosure of average aggregate fair values and contract/notional values, respectively, of derivative financial instruments for an entity like the Partnership which carries its assets at fair value. The General Partner does not believe the adoption of SFAS No. 133 has a material effect on the carrying value of assets and liabilities within the financial statements. C. Costs, Fees and Expenses Commissions The General Partner, on behalf of the Partnership, entered into an agreement with PSI to act as commodity broker for the Partnership. The Partnership pays PSI monthly fees equal to 2/3 of 1% (an 8% annual rate) of the Partnership's net asset value as of the first day of each month. Management and incentive fees The Partnership pays the Trading Manager a monthly management fee of 1/3 of 1% (a 4% annual rate) of the Partnership's net asset value as of the last day of each month and a quarterly incentive fee of 15% of the 'New High Net Trading Profits' (as defined in the Advisory Agreement among the Partnership, the General Partner and the Trading Manager). 6 General and administrative expenses In addition to the costs, fees and expenses previously discussed, the Partnership reimburses the General Partner and its affiliates for actual Partnership operating expenses payable by, or allocable to, the Partnership. The amount of reimbursement from the Partnership is limited by the provisions of the Partnership Agreement. The Partnership also pays amounts directly to unrelated parties for certain operating expenses. D. Related Parties The General Partner and its affiliates perform services for the Partnership 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. The costs incurred for these services for the years ended December 31, 1999, 1998 and 1997 were:
1999 1998 1997 ---------------------------------------- Commissions $1,084,856 $1,214,818 $1,377,622 General and administrative 72,450 65,400 91,077 ---------- ---------- ---------- Total $1,157,306 $1,280,218 $1,468,699 ---------- ---------- ---------- ---------- ---------- ----------
The Partnership's assets are maintained either in trading or cash accounts with PSI, the Partnership's commodity broker, or for margin purposes, with the various exchanges on which the Partnership is permitted to trade. The Partnership, acting through its Trading Manager, executes over-the-counter, spot, forward and/or option foreign exchange transactions with PSI. PSI then engages in back-to-back trading with an affiliate, Prudential-Bache Global Markets Inc. ('PBGM'). PBGM attempts to earn a profit on such transactions. PBGM keeps its prices on foreign currency competitive with other interbank currency trading desks. All over-the-counter currency transactions are conducted between PSI and the Partnership pursuant to a line of credit. PSI may require that collateral be posted against the marked-to-market positions of the Partnership. E. Income Taxes The following is a reconciliation of net income (loss) for financial reporting purposes to net income (loss) for tax reporting purposes for the years ended December 31, 1999, 1998 and 1997, respectively:
1999 1998 1997 ---------------------------------------- Net income (loss) per financial statements $(1,450,139) $(258,576) $1,278,585 Change in unrealized gain/loss on nonregulated commodity positions and foreign currencies 103,661 (51,990) (532,445) ----------- --------- ---------- Tax basis net income (loss) $(1,346,478) $(310,566) $ 746,140 ----------- --------- ---------- ----------- --------- ----------
The differences between the tax and book bases of partners' capital are primarily attributable to the cumulative effect of the book to tax income adjustments. F. Credit and Market Risk Since the Partnership's business is to trade futures, forward and options 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). Futures, forward and options contracts involve varying degrees of off-balance sheet risk; and changes in the level or volatility of interest rates, foreign currency exchange rates or the market values of the contracts (or commodities underlying the contracts) frequently result in changes in the Partnership's unrealized gain (loss) on open futures and forward positions reflected in the statements of financial condition. The Partnership's exposure to market risk is influenced by a number of factors including the relationships among the contracts held by the Partnership as well as the liquidity of the markets in which the contracts are traded. Futures and options contracts are traded on organized exchanges and are thus distinguished from forward contracts which are entered into privately by the parties. The credit risks associated with futures and options contracts are typically perceived to be less than those associated with forward contracts, because 7 exchanges typically provide clearinghouse arrangements in which the collective credit (subject to certain limitations) of the members of the exchanges is pledged to support the financial integrity of the exchange. On the other hand, the Partnership must rely solely on the credit of its broker (PSI) with respect to forward transactions. The Partnership presents unrealized gains and losses on open forward positions as a net amount in the statements of financial condition because it has a master netting agreement with PSI. The General Partner attempts to minimize both credit and market risks by requiring the Partnership and its Trading Manager to abide by various trading limitations and policies. The General Partner monitors compliance with these trading limitations and policies which include, but are not limited to, executing and clearing all trades with creditworthy counterparties (currently, PSI is the sole counterparty or broker); limiting the amount of margin or premium required for any one commodity or all commodities combined; and generally limiting transactions to contracts which are traded in sufficient volume to permit the taking and liquidating of positions. Additionally, the Advisory Agreement among the Partnership, the General Partner and the Trading Manager may be terminated if the net asset value allocated to the Trading Manager as of the last day of the then current year declines by 40% from the beginning of any year and will terminate automatically if the net asset value declines by 33 1/3% since the initial allocation of assets to the Trading Manager (September 1, 1990). Furthermore, the Agreement of Limited Partnership provides that the Partnership will liquidate its positions, and eventually dissolve, if the Partnership experiences a decline in the net asset value of 50% since the commencement of trading activities. In each case, the decline in the net asset value is after giving effect for distributions and redemptions. The General Partner may impose additional restrictions (through modifications of such trading limitations and policies) upon the trading activities of the Trading Manager as it, in good faith, deems to be in the best interests of the Partnership. PSI, when acting as the Partnership's futures commission merchant in accepting orders for the purchase or sale of domestic futures and options contracts, is required by Commodity Futures Trading Commission ('CFTC') regulations to separately account for and segregate as belonging to the Partnership all assets of the Partnership relating to domestic futures and options trading and is not to commingle such assets with other assets of PSI. At December 31, 1999 such segregated assets totalled $6,836,293. Part 30.7 of the CFTC regulations also requires PSI to secure assets of the Partnership related to foreign futures and options trading which totalled $4,729,971 at December 31, 1999. There are no segregation requirements for assets related to forward trading. As of December 31, 1999, the Partnership's open forward contracts mature within three months and open futures contracts mature within one year. Gross contract amounts represent the Partnership's potential involvement in a particular class of financial instrument (if it were to take or make delivery on an underlying futures, forward or options contract). Gross contract amounts significantly exceed future cash requirements as the Partnership intends to close out open positions prior to settlement and thus is generally subject only to the risk of loss arising from the change in the value of the contracts. As such, the Partnership considers the 'fair value' of its futures and forward contracts to be the net unrealized gain or loss on the contracts. Thus, the amount at risk associated with counterparty nonperformance of all contracts is the net unrealized gain included in the statements of financial condition. The market risk associated with the Partnership's commitments to purchase commodities is limited to the gross contract amounts involved, while the market risk associated with its commitments to sell is unlimited since the Partnership's potential involvement is to make delivery of an underlying commodity at the contract price; therefore, it must repurchase the contract at prevailing market prices. 8 At December 31, 1998, gross contract amounts of open futures and forward contracts were: 1998 ----------- Currency Forwards: Commitments to purchase $ 546,406 Commitments to sell 1,960,358 Currency Futures: Commitments to purchase 5,617,987 Commitments to sell 4,238,887 Interest Rate Futures: Commitments to purchase 37,950,345 Commitments to sell 83,475,164 Stock Index Futures: Commitments to purchase 1,243,504 Commodity Futures: Commitments to purchase 1,139,330 Commitments to sell 3,588,609 At December 31, 1999 and 1998, the fair value of open futures and forward contracts was:
1999 1998 ----------------------- ------------------------- Assets Liabilities Assets Liabilities -------- ----------- ---------- ----------- Futures Contracts: Domestic exchanges Interest rates $101,013 $ -- $ 9,844 $ 106,650 Currencies 121,537 38,060 178,225 41,112 Commodities 104,468 59,741 114,222 42,294 Foreign exchanges Interest rates 49,056 24,607 1,068,363 43,340 Stock indices 22,927 -- 12,270 45,620 Commodities 20,908 9,985 29,238 4,015 Forward Contracts: Currencies 116,345 41,517 6,297 127,472 -------- ----------- ---------- ----------- $536,254 $ 173,910 $1,418,459 $ 410,503 -------- ----------- ---------- ----------- -------- ----------- ---------- -----------
The following table presents the average fair value of futures and forward contracts during the year ended December 31, 1998.
1998 -------------------------- Assets Liabilities ---------- ----------- Futures Contracts: Domestic exchanges Interest rates $ 134,577 $ 26,687 Currencies 13,710 4,526 Commodities 222,938 59,529 Foreign exchanges Interest rates 428,420 41,763 Stock indices 31,587 19,168 Commodities 22,255 9,947 Forward Contracts: Currencies 563,410 481,174 ---------- ----------- $1,416,897 $ 642,794 ---------- ----------- ---------- -----------
9 The following table presents the Partnership's trading revenues for the years ended December 31, 1998 and 1997.
1998 1997 ---------- ---------- Future Contracts: Domestic exchanges Interest rates $ 145,038 $ 210,426 Currencies 76,951 24,502 Commodities (457,560) (555,667) Foreign exchanges Interest rates 2,018,258 897,749 Stock indices (424,088) 230,698 Commodities 93,497 (109,842) Forward Contracts: Currencies (320,152) 2,131,390 Foreign Currencies: -- 7,109 ---------- ---------- $1,131,944 $2,836,365 ---------- ---------- ---------- ----------
10 - -------------------------------------------------------------------------------- I hereby affirm that, to the best of my knowledge and belief, the information contained herein relating to Prudential-Bache Capital Return Futures Fund L.P. is accurate and complete. SEAPORT FUTURES MANAGEMENT, INC. (General Partner) By: Barbara J. Brooks Chief Financial Officer - -------------------------------------------------------------------------------- 11 PRUDENTIAL-BACHE CAPITAL RETURN FUTURES FUND L.P. (a limited partnership) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources The Partnership commenced operations on May 12, 1989 with gross proceeds of $139,151,000. After accounting for organizational and offering costs, the Partnership's net proceeds were $137,151,000. The Partnership Agreement provides that a partner may redeem its Units as of the last business day of any full calendar quarter at the then current net asset value per Unit. Redemptions by limited partners recorded for the years ended December 31, 1999, 1998 and 1997 were $2,073,050, $1,995,145 and $2,141,221, respectively. Redemptions by the General Partner for the years ended December 31, 1999, 1998 and 1997 were $20,877, $20,176 and $21,663, respectively. Redemptions by limited partners and the General Partner from the commencement of operations, May 12, 1989, through December 31, 1999 totalled $144,401,063 and $1,639,801, respectively. Future redemptions will impact the amount of funds available for investment in commodity contracts in subsequent periods. As of March 28, 2000, the Partnership's estimated net asset value was approximately $10,432,000. Additionally, the General Partner has received first quarter 2000 redemption requests from limited partners, which when recorded on March 31, 2000, at $121.15 per Unit (the estimated net asset value per unit as of March 28, 2000), would cause the Partnership's net asset value to fall below $10 million and, in accordance with the provisions of the Partnership Agreement, would require the General Partner to dissolve the Partnership and begin its orderly liquidation. However, the net asset value as of March 31, 2000 is subject to the Partnership's trading results of March 29 through March 31, 2000. At December 31, 1999, 100% of the Partnership's total net assets was allocated to commodities trading. A significant portion of the net asset value was held in U.S. Treasury bills (which represented approximately 74% of the net asset value prior to redemptions payable) and cash, which are used as margin for the Partnership's trading in commodities. Inasmuch as the sole business of the Partnership is to trade in commodities, the Partnership continues to own such liquid assets to be used as margin. The percentage that U.S. Treasury bills bears to the net asset value varies each day, and from month to month, as the market value of commodity interests changes. All interest earned on the Partnership's interest-bearing funds is paid to the Partnership. 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 the Partnership from promptly liquidating its commodity futures positions. Since the Partnership's business is to trade futures, forward and options 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). The Partnership'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 relationship among the contracts held. The inherent uncertainty of the Partnership's speculative trading as well as the development of drastic market occurrences could result in monthly losses considerably beyond the Partnership's experience to date and could ultimately lead to a loss of all or substantially all of investors' capital. The General Partner attempts to minimize these risks by requiring the Partnership and its Trading Manager to abide by various trading limitations and policies which include limiting margin amounts, trading only in liquid markets and utilizing stop loss provisions. See Note F to the financial statements for a further discussion on the credit and market risks associated with the Partnership's futures and forward contracts. 12 The Partnership does not have, nor does it expect to have, any capital assets. Results of Operations The net asset value per Unit as of December 31, 1999 was $129.99, a decrease of 11.13% from the December 31, 1998 net asset value per Unit of $146.27, which was an decrease of 1.09% from the December 31, 1997 net asset value per Unit of $147.88. The MAR (Managed Account Reports) Fund/Pool Index, which tracked the performance of 317 and 281 futures funds in 1999 and 1998, returned gains of 1.48% and 6.81%, respectively, outperforming the Partnership. Past performance is not necessarily indicative of future results. The Partnership's unfavorable performance in 1999 was attributed to losses from positions in the metal, financial, soft and index sectors. The currency and energy sectors incurred gains. The Partnership incurred losses in the metal sector primarily due to gold and silver positions. In the first quarter as the International Monetary Fund threatened to sell gold, prices declined causing losses for the Partnership's long positions. Further losses were incurred in September when the European Central Bank decided to limit sales and lending of gold, thus triggering strong market movement. Gold prices rose to 2-year highs over a 10-day period, causing short positions to incur losses. Silver moved in conjunction with gold as prices rallied towards the end of the third quarter and into the fourth quarter also generating losses. In the financial sector, the bear market trend in Japanese government bonds reversed when the Ministry of Finance announced that the Bank of Japan would continue supporting the bond market by purchasing sizable quantities of Japanese government bonds (JGBs). As a result, the Partnership sustained sizable losses from long JGB positions in the first quarter. JGBs added profits during the second quarter when long-term Japanese interest rates rose on concerns that more government bonds may be issued to finance the bailout of weaker Japanese banks. Volatile market action during the third and fourth quarters caused the Partnership's JGB positions to end the year at an overall net loss. In the third quarter long-term interest rates rose early on from concerns that more government bonds may be issued to finance the bailout of weaker Japanese banks. In the fourth quarter, JGBs benefited from a strong yen through November, but declined in price when a major rating agency was rumored to be considering a downgrade. Currency sector positions in the euro, Japanese yen and Swiss franc provided substantial profits for the Partnership. In the first quarter, the Partnership gained from the strength of the U.S. dollar as it benefited from the considerable slowdown in European growth and market sentiment that the European Central Bank would have to smooth the transition to the euro by cutting rates. As a result, gains were derived from long U.S. dollar crossrate positions against the Deutsche mark and Swiss franc. The euro's weakness continued into the second quarter due to deteriorating confidence in that currency and Italy's possible retraction from the European Economic Union. Consequently, the European Central Bank was rumored to be considering an interest rate hike in June. With the exception of the third quarter, short euro positions provided profits throughout the year. Strong profits were earned from Swiss franc positions in the first half of the year. Mid-year, the Swiss franc fell in value versus the U.S. dollar when the U.S. Federal Reserve increased interest rates by 0.25%. In Japan, the economy showed signs of a recovery during the second quarter, but Japanese officials feared a premature strengthening of the yen might dampen growth. The Bank of Japan intervened at various points throughout the year by selling yen. During November, the Japanese yen surged to a 4-year high against the U.S. dollar. Consequently, from the second through the fourth quarters, long yen positions benefited the Partnership. Long positions in the energy sector, specifically crude oil and derivative products, provided gains as prices rose throughout 1999. In the first quarter, energy markets surged as OPEC announced substantial cuts in crude oil exports. Crude oil prices continued to rally into the second quarter as extremely hot U.S. weather drove increased utility demand during June and following statements by Saudi Arabian and Mexican oil ministers reporting a high degree of compliance with OPEC production cuts. These production cuts continued to prove beneficial for oil markets throughout the third and fourth quarters. Interest income is earned on the Partnership's investment in U.S. Treasury bills and, therefore, varies monthly based on interest rates as well as the effect of trading performance and redemptions on the level of funds available for investment in U.S. Treasury bills. Interest income from U.S. Treasury bills declined approximately $103,000 and $104,000 for the years ended December 31, 1999 and 1998 compared to the prior years. These decreases are due to redemptions and poor trading performance as well as declining interest rates during 1999 and 1998. 13 Commissions are calculated on the net asset value on the first day of each month and, therefore, vary based on monthly trading performance and redemptions. Commissions decreased approximately $130,000 and $163,000 for the years ended December 31, 1999 and 1998 compared to the prior years primarily due to the effect of redemptions and poor trading performance on the monthly net asset values. All trading decisions are currently made by John W. Henry & Company, Inc. (the 'Trading Manager'). Management fees are calculated on the net asset value as of the end of each month and, therefore, are affected by trading performance and redemptions. Management fees decreased by approximately $69,000 and $87,000 during the years ended December 31, 1999 and 1998 compared to the prior years for the same reasons commissions decreased as discussed above. Incentive fees are based on New High Net Trading Profits generated by the Trading Manager, as defined in the Advisory Agreement among the Partnership, the General Partner and the Trading Manager. Trading performance resulted in incentive fees of approximately $13,000 for the year ended December 31, 1997. No incentive fees were earned during 1999 and 1998. General and administrative expenses increased by approximately $7,000 for the year ended December 31, 1999 compared to 1998 but decreased approximately $8,000 for the year ended December 31, 1998 compared to 1997. These expenses include reimbursements of costs incurred by the General Partner on behalf of the Partnership in addition to accounting, audit, tax and legal fees as well as printing and postage costs related to reports sent to limited partners. Accounting for Derivative Instruments In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ('SFAS') No. 133, Accounting for Derivative Instruments and Hedging Activities, which the Partnership adopted effective October 1, 1999. SFAS No. 133 establishes accounting and reporting standards for derivative instruments and for hedging activities and requires that an entity recognize all derivatives as assets or liabilities measured at fair value. SFAS No. 133 supersedes SFAS No. 119, Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments and SFAS No. 105, Disclosure of Information about Financial Instruments with Off-Balance Sheet Risk and Financial Instruments with Concentrations of Credit Risk which required the disclosure of average aggregate fair values and contract/notional values, respectively, of derivative financial instruments for an entity like the Partnership which carries its assets at fair value. The adoption of SFAS No. 133 has not had a material effect on the carrying value of assets and liabilities within the financial statements. Year 2000 Risk The arrival of year 2000 was much anticipated and raised serious concerns about whether or not computer systems around the world would continue to function properly and the degree of 'Year 2000 Problems' that would have to be resolved. The Partnership engages third parties to perform primarily all of the services it needs and also relies on other third parties such as governments, exchanges, clearinghouses, vendors and banks. The Partnership has not experienced any material adverse impact on operations related to Year 2000 Problems. While the Partnership believes that it has mitigated its Year 2000 risk, the Partnership cannot guarantee that an as yet unknown Year 2000 failure will not have a material adverse effect on the Partnership's operations. Inflation Inflation has had no material impact on operations or on the financial condition of the Partnership from inception through December 31, 1999. 14 OTHER INFORMATION The actual round-turn equivalent of brokerage commissions paid per contract for the year ended December 31, 1999 was $125. The Partnership's Annual Report on Form 10-K as filed with the Securities and Exchange Commission is available to limited partners without charge upon written request to: Prudential Securities Incorporated P.O. Box 2016 Peck Slip Station New York, New York 10272-2016 15 1999 - -------------------------------------------------------------------------------- Prudential-Bache Annual Capital Return Futures Report Fund L.P. Peck Slip Station BULK RATE P.O. Box 2016 U.S. POSTAGE New York, NY 1027 PAID Automatic Mail 9N17172-0 EX-27 3 ART. 5 FDS FOR 10-K
5 The Schedule contains summary financial information extracted from the financial statements for Prudential-Bache Capital Return Futures Fund and is qualified in its entirety by reference to such financial statements 0000846176 Prudential-Bache Capital Return Futures Fund 1 Dec-31-1999 Jan-1-1999 Dec-31-1999 12-Mos 2,746,277 8,894,815 0 0 0 11,641,092 0 0 11,641,092 447,870 0 0 0 0 11,193,222 11,641,092 0 321,395 0 0 1,771,534 0 0 0 0 0 0 0 0 (1,450,139) (15.31) 0
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