-----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, I6QV3dZBJAr2gT58ANet7KMAvChx+JeLb8xRT2hWDSrwKwualZFNFFZ0wqXDeKNf ZqiMju8PLPtrK3VfP5NzKw== 0000898733-01-000181.txt : 20010330 0000898733-01-000181.hdr.sgml : 20010330 ACCESSION NUMBER: 0000898733-01-000181 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRUDENTIAL BACHE CAPITAL RETURN FUTURES FUND 2 L P CENTRAL INDEX KEY: 0000851786 STANDARD INDUSTRIAL CLASSIFICATION: [6221] IRS NUMBER: 133533120 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-18418 FILM NUMBER: 1584032 BUSINESS ADDRESS: STREET 1: ONE NEW YORK PLAZA CITY: NEW YORK STATE: NY ZIP: 10005 BUSINESS PHONE: 2128047866 10-K 1 0001.txt P-B CAPITAL RETURN FUTURES FUND 2, L.P. 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, 2000 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 0-18418 PRUDENTIAL-BACHE CAPITAL RETURN FUTURES FUND 2, L.P. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 13-3533120 - -------------------------------------------------------------------------------- (State or other jurisdiction (I.R.S. Employer Identification No.) of 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 Registrant's Annual Report to Limited Partners for the year ended December 31, 2000 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 through 10. PRUDENTIAL-BACHE CAPITAL RETURN FUTURES FUND 2, L.P. (a limited partnership) TABLE OF CONTENTS
PART I PAGE Item 1 Business......................................................................... 3 Item 2 Properties....................................................................... 3 Item 3 Legal Proceedings................................................................ 3 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....................... 4 Item 8 Financial Statements and Supplementary Data...................................... 4 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.............................................................. 10 SIGNATURES.................................................................................. 11
2 PART I Item 1. Business General Prudential-Bache Capital Return Futures Fund 2, L.P. (the 'Registrant'), a Delaware limited partnership, was formed on June 8, 1989 and will terminate on December 31, 2009 unless terminated sooner under the provisions of the Amended and Restated Agreement of Limited Partnership (the 'Partnership Agreement'). The Registrant was formed to engage primarily in the speculative trading of a portfolio consisting primarily of commodity futures, forward and options contracts. Physical commodities also may be traded from time to time. On October 6, 1989, the Registrant completed its offering having raised $101,010,000 from the sale of 1,000,000 units of limited partnership interest and 10,100 units of general partnership interest (collectively, 'Units') which resulted in net proceeds to the Registrant of $99,010,000. The Registrant's fiscal year for book and tax purposes ends on December 31. All trading decisions for the Registrant are currently being made by Welton Investment Corporation, Eclipse Capital Management, Inc., Appleton Capital Management (formerly known as Gaiacorp Ireland Limited) and Trendlogic Associates, Inc., independent commodity trading managers (collectively, the 'Trading Managers'). The General Partner retains the authority to override trading instructions that violate the Registrant's trading policies. The Registrant is engaged solely in the business of commodity futures, forward and options trading; therefore, presentation of industry segment information is not applicable. General Partner and its Affiliates The general partner of the Registrant is Prudential Securities Futures Management Inc. (the 'General Partner'), which is a wholly owned subsidiary of Prudential Securities Incorporated ('PSI'), the Registrant's commodity broker. PSI is a wholly owned subsidiary 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 Managers recommend similar or identical trades to the Registrant and the other accounts which they manage, the Registrant may compete with those accounts for the execution of the same or similar trades, as well as with other market participants. 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 in Notes A, C and D to the Registrant's financial statements included in its annual report to limited partners for the year ended December 31, 2000 ('Registrant's 2000 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. 3 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 On October 6, 1989, the Registrant completed its offering. 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. However, the Partnership Agreement provides that a limited partner may redeem units as of the last business day of any 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 12, 2001, there were 737 holders of record owning 61,423 Units, including 615 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 9 of the Registrant's 2000 Annual Report which is filed as an exhibit hereto.
Year ended December 31, ------------------------------------------------------------------------ 2000 1999 1998 1997 1996 ------------ ------------ ------------ ------------ ------------ Total revenue (including interest) $ 938,800 $ 1,490,997 $ 654,083 $ 7,625,240 $ 9,760,109 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Net income (loss) $ (712,434) $(1,077,632) $(2,564,349) $ 3,308,428 $ 5,247,292 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Net income (loss) per weighted average Unit $ (9.95) $ (11.57) $ (22.84) $ 25.75 $ 35.04 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Total assets $14,316,560 $19,954,668 $25,030,894 $32,378,581 $33,622,033 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Net asset value per Unit $ 222.83 $ 227.98 $ 240.34 $ 259.66 $ 233.09 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This information is incorporated by reference to pages 11 through 13 of the Registrant's 2000 Annual Report which is filed as an exhibit hereto. 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 9 of the Registrant's 2000 Annual Report which is filed as an exhibit hereto. 4 Selected unaudited quarterly financial data for the years ended December 31, 2000 and 1999 are summarized below:
First Second Third Fourth Quarter Quarter Quarter Quarter ----------- ----------- ----------- ----------- 2000: Total revenues (including interest) $ (312,979) $ (663,022) $ (639,906) $ 2,554,707 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total revenues (including interest) less commissions $ (685,798) $ (979,080) $ (908,277) $ 2,310,510 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Net income (loss) $ (816,446) $(1,095,304) $(1,011,757) $ 2,211,073 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Net income (loss) per weighted average Interest $ (9.89) $ (14.99) $ (15.07) $ 34.79 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- 1999: Total revenues (including interest) $ 405,404 $ 1,243,743 $ 220,422 $ (378,572) ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total revenues (including interest) less commissions $ (71,203) $ 786,301 $ (214,308) $ (775,802) ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Net income (loss) $ (261,395) $ 519,472 $ (419,283) $ (916,426) ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Net income (loss) per weighted average Interest $ (2.61) $ 5.46 $ (4.63) $ (10.57) ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
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 10% 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 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 Prudential Securities Futures Management Inc. and their positions with respect to the Registrant are as follows: Name Position - ---------------------------- ---------------------------------------- Eleanor L. Thomas President and Director Barbara J. Brooks Chief Financial Officer Steven Carlino Vice President and Treasurer A. Laurence Norton, Jr. Director Guy S. Scarpaci Director Tamara B. Wright Senior Vice President and Director ELEANOR L. THOMAS, age 46, has been the President of Prudential Securities Futures Management Inc. since September 2000 and a Director since April 1999. She has also been the President and a Director of Seaport Futures Management, Inc. (an affiliate of the General Partner) since April 1999. She has held various 5 positions of increasing responsibility in both Prudential Securities Futures Management Inc. and Seaport Futures Management, Inc. since joining PSI in 1993. She is a First Vice President of PSI and the director of the Futures and Hedge Fund Group within PSI. Prior to joining PSI in March 1993, she was with MC Baldwin Financial Company from June 1990 through February 1993 and Arthur Anderson & Co. from 1986 through May 1990. Ms. Thomas is a certified public accountant. BARBARA J. BROOKS, age 52, is the Chief Financial Officer of Prudential Securities Futures Management Inc. She is a Senior Vice President of PSI. She is also the Chief Financial Officer of Seaport 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 37, is a Vice President and Treasurer of Prudential Securities Futures Management Inc. He is a Senior Vice President of PSI. He is also a Vice President and Treasurer of Seaport 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. A. LAURENCE NORTON, JR., age 62, is a Director of Prudential Securities Futures Management Inc. He is an Executive Vice President of PSI and, since March 1994, has been the director of the Futures Division of PSI. He is also a Director of Seaport 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 54, is a Director of Prudential Securities Futures Management Inc. He is a First Vice President of the Futures Division of PSI. He is also a Director of Seaport Futures Management, Inc. Mr. Scarpaci has been employed by PSI in positions of increasing responsibility since August 1974. TAMARA B. WRIGHT, age 42, is a Director and a Senior Vice President of Prudential Securities Futures Management Inc. She is a Senior Vice President and Chief Administrative Officer for the International Division of PSI. She is also a Director and a Senior Vice President of Seaport 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 July 2000, Joseph A. Filicetti resigned as President and as a Director of Prudential Securities Futures Management Inc. Effective September 2000, Eleanor L. Thomas was elected by the Board of Directors of Prudential Securities Futures Management Inc. as President replacing Joseph A. Filicetti. Additionally, Joseph A. Filicetti resigned as Executive Vice President and as a Director of Seaport Futures Management, Inc. Effective February 2001, Alan J. Brody resigned as a Director of both Prudential Securities Futures Management Inc. and Seaport Futures Management, Inc. Additionally, effective March 30, 2001, A. Laurence Norton, Jr. will resign as a Director of both Prudential Securities Futures Management Inc. and Seaport Futures Management, Inc. 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 directors and officers of the General Partner 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.) 6 Item 12. Security Ownership of Certain Beneficial Owners and Management As of March 12, 2001, 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 12, 2001, no director or officer of the General Partner owns directly or beneficially any of the Units issued by the Registrant. As of March 12, 2001, no partner beneficially owns more than five percent (5%) of the limited partnership units issued by the Registrant. 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 2000 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 Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
Page in Annual Report (a) 1. Financial Statements and Report of Independent Accountants--incorporated by reference to the Registrant's 2000 Annual Report which is filed as an exhibit hereto Report of Independent Accountants 2 Financial Statements: Statements of Financial Condition--December 31, 2000 and 1999 3 Statements of Operations--Three years ended December 31, 2000 4 Statements of Changes in Partners' Capital--Three years ended December 31, 2000 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 notes thereto. 3. Exhibits Description: 3.1 Agreement of Limited Partnership of the Registrant, dated as of June 8, and 1989 as amended and restated as of July 21, 1989 (incorporated by 4.1 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 Registration Statement on Form S-1, File No. 33-29039) 4.3 Request for Redemption (incorporated by reference to Exhibit 4.3 to the Registrant's Registration Statement on Form S-1, File No. 33-29039) 10.1 Escrow Agreement, dated July 21, 1989 among the Registrant, Prudential Securities Futures Management Inc. (formerly known as P-B Futures Management, Inc.), Prudential Securities Incorporated (formerly known as 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 October 6, 1989 between the Registrant and Prudential Securities Incorporated (formerly known as 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) 10.3 Advisory Agreement dated July 21, 1989 among the Registrant, Prudential Securities Futures Management Inc. (formerly known as P-B Futures Management, Inc.), Eclipse Capital Management, Inc., C.M. Wilson & Associates, Inc. and John W. Henry & Company, Inc. (incorporated by reference to Exhibit 10.3 to the Registrant's Annual Report on Form 10-K for the period ended December 31, 1989)
8 10.4 Representation Agreement Concerning the Registration Statement and the Prospectus, dated as of July 21, 1989 among the Registrant, Prudential Securities Futures Management Inc. (formerly known as P-B Futures Management, Inc.), Prudential Securities Incorporated (formerly known as Prudential-Bache Securities Inc.), Eclipse Capital Management, Inc., C.M. Wilson & Associates, Inc. and John W. Henry & Company, Inc. (incorporated by reference to Exhibit 10.4 to the Registrant's Annual Report on Form 10-K for the period ended December 31, 1989) 10.5 Net Worth Agreement, dated as of July 21, 1989 between Prudential Securities Futures Management Inc. (formerly known as P-B Futures Management, Inc.) and Prudential Securities Group Inc. (incorporated by reference to Exhibit 10.5 to the Registrant's Annual Report on Form 10-K for the period ended December 31, 1989) 10.6 Promissory Note issued by Prudential Securities Group Inc. to Prudential Securities Futures Management Inc. (formerly known as P-B Futures Management, Inc.), dated October 6, 1989 (incorporated by reference to Exhibit 10.6 to the Registrant's Annual Report on Form 10-K for the period ended December 31, 1989) 10.10 Addendum to Advisory Agreement dated October 1, 1990 among the Registrant, Prudential Securities Futures Management Inc. (formerly known as P-B Futures Management, Inc.), Eclipse Capital Management, Inc. and John W. Henry & Co., Inc. (incorporated by reference to Exhibit 10.10 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1991) 10.11 Advisory Agreement dated May 1, 1994 among the Registrant, Prudential Securities Futures Management, Inc. and Welton Investment Corporation (formerly known as Welton Investment Services Corporation) (incorporated by reference to Exhibit 10.11 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994) 10.12 Advisory Agreement dated January 1, 1995 among the Registrant, Prudential Securities Futures Management Inc. and Analytic/TSA Capital Management (incorporated by reference to Exhibit 10.12 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994) 10.13 Addendum to Brokerage Agreement dated January 1, 1995 among the Regis- trant, Prudential Securities Futures Management Inc. and Prudential Securities Incorporated (incorporated by reference to Exhibit 10.13 to the Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 1995) 10.14 Form of Foreign Currency Addendum to Brokerage Agreement between the Registrant and Prudential Securities Incorporated (incorporated by reference to Exhibit 10.13 to the Registrant's Quarterly Report on Form 10-Q for the period ended March 31, 1996) 10.15 Advisory Agreement, dated July 1, 1997, among the Registrant, Prudential Securities Futures Management Inc. and Eclipse Capital Management, Inc. (incorporated by reference to Exhibit 10.15 to Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 1997) 10.16 Advisory Agreement, dated September 1, 1998, among the Registrant, Prudential Securities Futures Management Inc. and Trendlogic Associates, Inc. (incorporated by reference to Exhibit 10.16 to Registrant's Quarterly Report on Form 10-Q for the period ended September 30, 1998)
9 10.17 Advisory Agreement, dated September 1, 1998, among the Registrant, Prudential Securities Futures Management Inc. and Appleton Capital Management (formerly known as Gaiacorp Ireland Limited) (incorporated by reference to Exhibit 10.17 to Registrant's Quarterly Report on Form 10-Q for the period ended September 30, 1998) 10.18 Amendment to Advisory Agreement, dated September 1, 1998, among the Reg- istrant, Prudential Securities Futures Management Inc. and Welton Investment Corporation (incorporated by reference to Exhibit 10.18 to Registrant's Quarterly Report on Form 10-Q for the period ended September 30, 1998) 13.1 Registrant's 2000 Annual Report (with the exception of the information and data incorporated by reference in Items 1, 7 and 8 of this Annual Report on Form 10-K, no other information or data appearing in the Registrant's 2000 Annual Report is to be deemed filed as part of this report) (filed herewith) (b) Reports on Form 8-K--None
10 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 2, L.P. By: Prudential Securities Futures Management Inc. A Delaware corporation, General Partner By: /s/ Steven Carlino Date: March 29, 2001 ---------------------------------------- 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: Prudential Securities Futures Management Inc. A Delaware corporation, General Partner By: /s/ Eleanor L. Thomas Date: March 29, 2001 ----------------------------------------- Eleanor L. Thomas President and Director By: /s/ Barbara J. Brooks Date: March 29, 2001 ----------------------------------------- Barbara J. Brooks Chief Financial Officer By: /s/ Steven Carlino Date: March 29, 2001 ----------------------------------------- Steven Carlino Vice President and Treasurer By: /s/ A. Laurence Norton, Jr. Date: March 29, 2001 ----------------------------------------- A. Laurence Norton, Jr. Director By: /s/ Guy S. Scarpaci Date: March 29, 2001 ----------------------------------------- Guy S. Scarpaci Director By: /s/ Tamara B. Wright Date: March 29, 2001 ----------------------------------------- Tamara B. Wright Senior Vice President and Director 11 EX-13 2 0002.txt ANNUAL REPORT 2000 - -------------------------------------------------------------------------------- Prudential-Bache Annual Capital Return Futures Report Fund 2, L.P. PRUDENTIAL-BACHE CAPITAL RETURN FUTURES FUND 2, L.P. March 2001 Letter to Limited Partners 1 PricewaterhouseCoopers LLP (LOGO) 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 2, 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 2, L.P. at December 31, 2000 and 1999, and the results of its operations for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. 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 of America, 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 our opinion. /s/ PricewaterhouseCoopers LLP January 26, 2001 2 PRUDENTIAL-BACHE CAPITAL RETURN FUTURES FUND 2, L.P. (a limited partnership) STATEMENTS OF FINANCIAL CONDITION
December 31, -------------------------- 2000 1999 - -------------------------------------------------------------------------------------------------- ASSETS Cash $ 2,989,531 $ 4,573,677 U.S. Treasury bills, at amortized cost 9,890,040 14,715,473 Net unrealized gain on open futures and options contracts 1,179,039 582,280 Net unrealized gain on open forward contracts 265,456 -- Net premiums (received) paid on options (7,506) 83,238 ----------- ----------- Total assets $14,316,560 $19,954,668 ----------- ----------- ----------- ----------- LIABILITIES AND PARTNERS' CAPITAL Liabilities Redemptions payable $ 473,514 $ 935,402 Due to affiliates 74,303 40,762 Accrued expenses payable 57,254 60,689 Management fees payable 24,772 34,924 Net unrealized loss on open forward contracts -- 59,834 ----------- ----------- Total liabilities 629,843 1,131,611 ----------- ----------- Commitments Partners' capital Limited partners (60,808 and 81,738 units outstanding) 13,549,677 18,634,742 General partner (615 and 826 units outstanding) 137,040 188,315 ----------- ----------- Total partners' capital 13,686,717 18,823,057 ----------- ----------- Total liabilities and partners' capital $14,316,560 $19,954,668 ----------- ----------- ----------- ----------- Net asset value per limited and general partnership unit ('Units') $ 222.83 $ 227.98 ----------- ----------- ----------- ----------- - -------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these statements.
3 PRUDENTIAL-BACHE CAPITAL RETURN FUTURES FUND 2, L.P. (a limited partnership) STATEMENTS OF OPERATIONS
Year ended December 31, ----------------------------------------------------- 2000 1999 1998 - --------------------------------------------------------------------------------------------------------- REVENUES Net realized gain (loss) on commodity transactions $ (623,699) $ 800,974 $ 669,325 Change in net unrealized gain/loss on open commodity positions 922,049 (73,845) (1,001,790) Interest from U.S. Treasury bills 640,450 763,868 986,548 --------------- --------------- --------------- 938,800 1,490,997 654,083 --------------- --------------- --------------- EXPENSES Commissions 1,201,445 1,766,009 2,208,844 Management fees 315,641 467,596 831,579 Incentive fees -- 180,115 27,241 General and administrative 134,148 154,909 150,768 --------------- --------------- --------------- 1,651,234 2,568,629 3,218,432 --------------- --------------- --------------- Net loss $ (712,434) $(1,077,632) $(2,564,349) --------------- --------------- --------------- --------------- --------------- --------------- ALLOCATION OF NET LOSS Limited partners $ (705,313) $(1,066,852) $(2,538,726) --------------- --------------- --------------- --------------- --------------- --------------- General partner $ (7,121) $ (10,780) $ (25,623) --------------- --------------- --------------- --------------- --------------- --------------- NET LOSS PER WEIGHTED AVERAGE LIMITED AND GENERAL PARTNERSHIP UNIT Net loss per weighted average limited and general partnership unit $ (9.95) $ (11.57) $ (22.84) --------------- --------------- --------------- --------------- --------------- --------------- Weighted average number of limited and general partnership units outstanding 71,580 93,100 112,273 --------------- --------------- --------------- --------------- --------------- --------------- - ---------------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
LIMITED GENERAL UNITS PARTNERS PARTNER TOTAL - ----------------------------------------------------------------------------------------------------- Partners' capital--December 31, 1997 120,339 $30,934,928 $ 312,636 $31,247,564 Net loss (2,538,726) (25,623) (2,564,349) Redemptions (20,350) (4,604,928) (46,669) (4,651,597) -------- ----------- ----------- ----------- Partners' capital--December 31, 1998 99,989 23,791,274 240,344 24,031,618 Net loss (1,066,852) (10,780) (1,077,632) Redemptions (17,425) (4,089,680) (41,249) (4,130,929) -------- ----------- ----------- ----------- Partners' capital--December 31, 1999 82,564 18,634,742 188,315 18,823,057 Net loss (705,313) (7,121) (712,434) Redemptions (21,141) (4,379,752) (44,154) (4,423,906) -------- ----------- ----------- ----------- Partners' capital--December 31, 2000 61,423 $13,549,677 $ 137,040 $13,686,717 -------- ----------- ----------- ----------- -------- ----------- ----------- ----------- - ----------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these statements.
4 PRUDENTIAL-BACHE CAPITAL RETURN FUTURES FUND 2, L.P. (a limited partnership) NOTES TO FINANCIAL STATEMENTS A. General Prudential-Bache Capital Return Futures Fund 2, L.P. (the 'Partnership') is a Delaware limited partnership formed on June 8, 1989 which will terminate on December 31, 2009 unless terminated sooner under the provisions of its Amended and Restated Agreement of Limited Partnership (the 'Partnership Agreement'). On October 6, 1989, the Partnership completed its offering having raised $101,010,000 from the sale of 1,000,000 units of limited partnership interest and 10,100 units of general partnership interest (collectively, 'Units') and commenced operations. The Partnership was formed to engage in the speculative trading of commodity futures, forward and options contracts. Physical commodities may also be traded from time to time. The general partner of the Partnership is Prudential Securities Futures Management Inc. (the 'General Partner'), a wholly owned subsidiary of Prudential Securities Incorporated ('PSI') which, in turn, is a wholly owned subsidiary of Prudential Securities Group Inc. PSI was the principal underwriter of the Units and is the commodity broker. 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. The General Partner generally maintains not less than 75% of the Partnership's net asset value ('NAV') 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 NAV is held in cash in the Partnership's commodity trading accounts. All trading decisions for the Partnership are currently being made by Welton Investment Corporation ('Welton'), Eclipse Capital Management, Inc. ('Eclipse'), Appleton Capital Management (formerly known as Gaiacorp Ireland Limited) ('Appleton') and Trendlogic Associates, Inc. ('Trendlogic'), independent commodity trading managers (collectively, the 'Trading Managers'). Effective September 1, 1998, all assets previously managed by John W. Henry & Company, Inc. (the 'Reallocated Assets') were reallocated to Welton, Eclipse and to two trading managers new to the Partnership--Appleton and Trendlogic--so that each Trading Manager began managing approximately 27% of the Partnership's assets, except for Trendlogic, which began managing approximately 19%. The Trading Managers receive monthly management fees on their portion of the Reallocated Assets equal to a 2% annual rate as compared to the 4% annual rate paid to John W. Henry & Company, Inc. The Trading Managers earn a quarterly incentive fee equal to 20% of New High Net Trading Profits (as defined in the Advisory Agreement among the Partnership, the General Partner and each respective Trading Manager) on the Reallocated Assets, except for Trendlogic whose quarterly incentive fee rate is 17.5%. John W. Henry & Company, Inc. received quarterly incentive fees at a 15% rate. The General Partner retains the authority to override trading instructions that violate the Partnership's trading policies. B. Summary of Significant Accounting Policies Basis of accounting The financial statements of the Partnership are prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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 of futures and forward contracts is reflected as net unrealized gain or loss. Options transactions are reflected in the statements of financial condition at market value which is inclusive of the 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. 5 To the extent practicable, the Partnership invests a significant portion of its NAV 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 value. 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 year end, adjusted proportionately for 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 Standards No. 102, 'Statement of Cash Flows--Exemption of Certain Enterprises and Classification of Cash Flows from Certain Securities Acquired for Resale.' 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 income or loss for tax purposes shall generally be allocated first to partners who redeem Units to the extent the redeemed amount is greater than or less than those partners' tax capital accounts at the beginning of the year. Net income or loss remaining after these allocations are allocated to each partner in proportion to such partner's tax 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 on 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 calendar quarter at the then current net asset value per Unit. New Accounting Guidance In June 2000, the Financial Accounting Standards Board ('FASB') issued Statement No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities--an amendment of FASB Statement No. 133 ('SFAS 138'), which became effective for the Partnership on July 1, 2000. SFAS 138 amends the accounting and reporting standards of FASB Statement No. 133 for certain derivative instruments and certain hedging activities. SAFS 138 has not had 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. Effective August 1, 1998, the Partnership pays PSI commissions at a flat rate of .6666% per month (8% annually) of the Partnership's NAV as of the first day of each month. Prior to August 1998, the Partnership paid commissions at a flat rate of .7083% per month (8.5% annually). Management and incentive fees The Partnership pays Eclipse, Appleton, and Trendlogic monthly management fees equal to 1/6 of 1% (2% annually) of the portion of the Partnership's NAV allocated to each of these Trading Managers as of the end of each month. The Partnership pays Welton monthly management fees ranging from 1/6 of 1% (2% annually) to 1/3 of 1% (4% annually) of its allocated portion of the Partnership's NAV as of the end of each month. In addition, the Partnership pays Eclipse and Appleton a quarterly incentive fee equal to 20%, Trendlogic 17.5% and Welton 15% to 20% of the 'New High Net Trading Profits' (as defined in each Advisory Agreement among the Partnership, the General Partner and each Trading Manager). 6 See Note A for further information concerning changes in Trading Managers which has resulted in changes to management fees and incentive fees since the changes took effect on September 1, 1998. 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 the three years ended December 31, 2000 were:
2000 1999 1998 ---------- ---------- ---------- Commissions $1,201,445 $1,766,009 $2,208,844 General and administrative 70,441 68,070 69,689 ---------- ---------- ---------- $1,271,886 $1,834,079 $2,278,533 ---------- ---------- ---------- ---------- ---------- ----------
The Partnership's assets are maintained either in trading or cash accounts with PSI, or for margin purposes, with the various exchanges on which the Partnership is permitted to trade. The Partnership, acting through its Trading Managers, 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 loss for financial reporting purposes to net loss for tax reporting purposes for the three years ended December 31, 2000:
2000 1999 1998 --------- ----------- ----------- Net loss for financial reporting purposes $(712,434) $(1,077,632) $(2,564,349) Change in unrealized gain/loss on nonregulated commodity positions 220,221 (336,198) 153,409 --------- ----------- ----------- Tax basis net loss $(492,213) $(1,413,830) $(2,410,940) --------- ----------- ----------- --------- ----------- -----------
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. Derivative Instruments and Associated Risks The Partnership 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 the Partnership's investment activities (credit risk). Market risk Trading in futures and forward (including foreign exchange transactions) contracts 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 the Partnership's net assets being traded, significantly exceeds the Partnership's future cash requirements since the Partnership intends to close out its open positions prior to settlement. As a result, the Partnership is generally subject only to the 7 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. The market risk associated with the Partnership's commitments to purchase commodities is limited to the gross or face amount of the contracts held. However, when the Partnership enters into a contractual commitment to sell commodities, it must make delivery of the underlying commodity at the contract price and then repurchase the contract at prevailing market prices. Since the repurchase price to which a commodity can rise is unlimited, entering into commitments to sell commodities exposes the Partnership to unlimited risk. Trading in options involves the payment or receipt of a premium and the corresponding right or obligation, as the case may be, to either purchase or sell the underlying commodity for a specified price during a limited period of time. Purchasing options involves the risk that the underlying commodity does not change price as expected, so that the option expires worthless and the premium is lost. On the other hand, selling options involves unlimited risk because the Partnership is exposed to the potentially unlimited price movement in the underlying commodity. 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 the Partnership holds and the liquidity and inherent volatility of the markets in which the Partnership trades. Credit risk When entering into futures, forward and options contracts, the Partnership is exposed to credit risk that the counterparty to the contract will not meet its obligations. The counterparty for futures and options contracts traded in the United States and on most foreign futures and options exchanges is the clearinghouse associated with such exchanges. In general, clearinghouses are backed by their corporate members who are required to share any financial burden resulting from the nonperformance by one of their members and, as such, should significantly reduce this credit risk. In cases where the clearinghouse is not backed by the clearing members (i.e., some foreign exchanges), it is normally backed by a consortium of banks or other financial institutions. On the other hand, the sole counterparty to the Partnership's forward transactions is PSI, the Partnership's commodity broker. The Partnership has entered into a master netting agreement with PSI and, as a result, presents unrealized gains and losses on open forward positions as a net amount in the statements of financial condition. The amount at risk associated with counterparty nonperformance of all of the Partnership's contracts is the net unrealized gain (plus premiums paid on options) included in the statements of financial condition. There can be no assurance that any counterparty, clearing member or clearinghouse will meet its obligations to the Partnership. The General Partner attempts to minimize both credit and market risks by requiring the Partnership and its Trading Managers 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, 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 each Advisory Agreement among the Partnership, the General Partner and each Trading Manager, the General Partner shall automatically terminate a Trading Manager if the NAV allocated to the Trading Manager declines by 33 1/3% since the commencement of its trading activities or from the value at the beginning of any year (except for Welton for which automatic termination relates only to a decline from the commencement of trading activities). Futhermore, the Amended and Restated Agreement of Limited Partnership provides that the Partnership will liquidate its positions, and eventually dissolve, if the Partnership experiences a decline in the NAV to less than 50% of the value at commencement of trading activities. In each case, the decline in NAV is after giving effect for distributions and redemptions. The General Partner may impose additional restrictions (through modifications of trading limitations and policies) upon the trading activities of the Trading Managers 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, 2000, such segregated assets totalled $10,442,041. Part 30.7 of the CFTC regulations also requires PSI to secure assets of the Partnership related to foreign futures and options 8 trading which totalled $3,609,063 at December 31, 2000. There are no segregation requirements for assets related to forward trading. As of December 31, 2000, the Partnership's open futures, forward and options contracts mature within nine months. At December 31, 2000 and 1999, the fair value of open futures, forward and options contracts was:
2000 1999 ------------------------- ----------------------- Assets Liabilities Assets Liabilities ---------- ----------- -------- ----------- Futures Contracts: Domestic exchanges Interest rates $ 342,034 $ -- $ 78,005 $ -- Stock indices 9,940 -- 75,245 5,420 Currencies 524,721 4,640 76,089 30,830 Commodities 77,160 25,700 52,327 24,170 Foreign exchanges Interest rates 259,017 493 116,588 1,038 Stock indices 46,489 -- 81,199 1,899 Commodities 9,819 62,840 168,686 26,889 Forward Contracts: Currencies 436,854 171,398 14,912 74,746 Options Contracts: Domestic exchanges Interest rates -- 1,219 -- -- Stock indices -- -- 95,700 -- Currencies -- 1,875 -- -- Commodities -- 880 13,050 1,125 ---------- ----------- -------- ----------- $1,706,034 $ 269,045 $771,801 $ 166,117 ---------- ----------- -------- ----------- ---------- ----------- -------- -----------
9 - -------------------------------------------------------------------------------- I hereby affirm that, to the best of my knowledge and belief, the information contained herein relating to Prudential-Bache Capital Return Futures Fund 2, L.P. is accurate and complete. PRUDENTIAL SECURITIES FUTURES MANAGEMENT INC. (General Partner) by: Barbara J. Brooks Chief Financial Officer - -------------------------------------------------------------------------------- 10 PRUDENTIAL-BACHE CAPITAL RETURN FUTURES FUND 2, L.P. (a limited partnership) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources The Partnership commenced trading operations on October 6, 1989 with gross proceeds of $101,010,000. After accounting for organizational and offering costs, the Partnership's net proceeds were $99,010,000. At December 31, 2000, 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 70% 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 total net assets varies each day, and from month to month, as the market values of commodity interests change. The balance of the net assets is held in cash. 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 certain commodity futures contract prices during a single day by regulations referred to as 'daily limits.' During a single day, no trades may be executed at prices beyond the daily limit. Once the price of a futures contract for a particular commodity has increased or decreased by an amount equal to the daily limit, positions in the commodity can neither be taken nor liquidated unless traders are willing to effect trades at or within the limit. Commodity futures prices have occasionally moved the daily limit for several consecutive days with little or no trading. Such market conditions could prevent 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 relationships 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 Managers 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 F to the financial statements for a further discussion on the credit and market risks associated with the Partnership's futures, forward and options contracts. Redemptions by limited partners and the General Partner for the year ended December 31, 2000 were $4,379,752 and $44,154, respectively. Redemptions by limited partners and the General Partner recorded from the commencement of operations, October 6, 1989, through December 31, 2000 totalled $131,391,548 and $1,873,102, respectively. Future redemptions will impact the amount of funds available for investment in commodity contracts in subsequent periods. 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, 2000 was $222.83, a decrease of 2.26% from the December 31, 1999 net asset value per Unit of $227.98, which was a decrease of 5.14% from the December 31, 1998 net asset value per Unit of $240.34. The MAR (Managed Account Reports) Fund/Pool Index, which tracks the performance of approximately 300 futures funds, returned gains of 9.41% and 1.48%, respectively. Past performance is not necessarily indicative of future results. 11 The Partnership had gross trading gains/(losses) of $298,000, $727,000 and $(332,000) for the years ended December 31, 2000, 1999 and 1998, respectively. Due to the nature of the Partnership's trading activities, a year to year comparison of its trading results is not meaningful. However, a detailed discussion of the Partnership's current year trading results is presented below. The Partnership's unfavorable performance in 2000 was attributed to losses in the stock indices, metal, currency and interest rate sectors. Gains were recognized in the energy sector. Extreme volatility in world financial markets during the first half of 2000 led to lack of trending opportunities and resulted in losses for positions in stock indices. During the second half of the year, equity markets experienced continued volatility, but markets trended downward as global economies began to show signs of slowing down. Most major indices ended the year lower incurring losses for long positions. Short metal positions incurred losses for the Partnership throughout most of the year as strong demand and fears of inflation drove prices higher. In addition, the high cost of energy, which is used in the production of base metals, caused a decrease in metal supply driving prices higher and incurring losses for short positions. The euro began 2000 lower versus the U.S. dollar, Japanese yen and British pound before rallying slightly in June as a result of solid European economic data and sentiment that the currency was undervalued. Despite a brief rally after intervention by the European Central Bank and other G-7 central banks to boost the failing euro in September, the euro settled back down more than $0.02 below its intervention peaks. The euro reversed its downtrend during the fourth quarter as it rose against the U.S. dollar and Japanese yen resulting in gains for long positions. Gains in the euro were not sufficient to overcome losses in other currency positions. The Japanese yen rallied sharply, gaining on the U.S. dollar and most other currencies in the final months of Japan's fiscal year (which ended March 31st). This was attributed to positive sentiment regarding Japan's economy. In May, the yen rose slightly against the U.S. dollar supported by expectations of a possible change in the Bank of Japan's (BOJ) zero-interest rate policy and continued to rise when the BOJ increased short-term interest rates in August incurring losses for short positions. Political and economic uncertainty in Japan during the fourth quarter caused the yen to fall against the U.S. dollar and short Japanese yen positions resulted in gains. Fourth quarter gains were not sufficient to offset losses incurred during the second and third quarters of the year. The Swiss franc spent most of the first three quarters drifting lower against the U.S. dollar, tracking the euro's trend and incurring losses for long positions. The Swiss franc, Australian dollar, and Canadian dollar were among other currencies that rose against the U.S. dollar in the fourth quarter due to a weakening U.S. economy incurring losses in short positions. Global bond markets began 2000 on a strong note. The U.S. Federal Reserve, European Central Bank, Bank of England, Reserve Bank of Australia, and Bank of Canada increased interest rates in early February. These rate increases shared motivation of strong economic growth and concerns about inflation. Despite rate hikes and news of robust worldwide economic growth, global bond markets continued to rally partially due to investors seeking refuge from volatile equity markets. Short U.S., Japanese and euro bond positions resulted in losses during the first three quarters of the year. Negative equity performance throughout the fourth quarter and mounting fears of a global economic slowdown contributed to a bond market rally towards year end as investors continued their flight to quality from the stock market. Prices of long- and short-term interest rate instruments rose, but gains from long U.S., Japanese and euro bond positions during the last quarter were not sufficient to offset losses incurred during the rest of the year. Energy prices climbed throughout January and February and into the first week of March. Prices of crude oil futures rose above $33 a barrel, the highest level for a front-month (the most liquid) contract since the Gulf War in 1991. The energy sector reached a high early in March just prior to OPEC's agreement to increase production sufficiently to stabilize prices. Political pressure by the United States, along with a desire among OPEC members to maintain crude oil prices in the range of $22-$28 per barrel, prompted the cartel to announce a production increase and crude oil prices reversed downward. Increased demand and low supplies caused oil prices to surge once again during the second quarter resulting in gains for long energy positions. Energy markets ended a year long uptrend with natural gas surging to an all time high in December as low supplies were strained by unusually cold temperatures in the U.S. Long positions in heating oil, crude oil and natural gas resulted in gains. Interest income is earned on the Partnership's investments in U.S. Treasury bills and varies monthly according to interest rates as well as the effect of trading performance and redemptions on the level of 12 interest-bearing funds. Interest income from U.S. Treasury bills decreased by $123,000 during 2000 compared to 1999 and decreased $223,000 during 1999 as compared to 1998 principally due to fewer funds being invested in U.S. Treasury bills as a result of redemptions and weak trading performance during most of 2000 and 1999. The decline in interest income in 2000 versus 1999 was partially offset by higher overall interest rates in 2000. Commissions paid to PSI are calculated on the Partnership's net asset value on the first day of each month and, therefore, vary monthly according to trading performance and redemptions. Commissions decreased by approximately $565,000 during 2000 as compared to 1999 and decreased by $443,000 during 1999 as compared to 1998 principally due to the effect of weak trading performance during most of 2000 and 1999 and redemptions on the monthly net asset values. Additionally, the August 1998 reduction in the commission rate from 8.5% to 8% resulted in a decrease in commissions from 1998 levels. All trading decisions are currently being made by Welton, Eclipse, Trendlogic and Appleton. Management fees are calculated on the portion of the Partnership's net asset value allocated to each Trading Manager as of the end of each month and, therefore, are affected by trading performance and redemptions. Management fees decreased by $152,000 during 2000 as compared to 1999, and decreased by $364,000 during 1999 as compared to 1998 due to fluctuations in monthly net asset values as described in the discussion on commissions above. The decline in management fees from 1998 levels were also caused by a reduction in the management fee rate from a 4% annual rate to a 2% annual rate on the portion of net assets that were reallocated from John W. Henry & Company, Inc. to the current Trading Managers effective September 1, 1998. Incentive fees are based on the 'New High Net Trading Profits' generated by each Trading Manager, as defined in each Advisory Agreement among the Partnership, the General Partner and each Trading Manager. Despite overall Partnership trading losses during 1999 and 1998, Eclipse generated sufficient trading profits during 1999 to earn incentive fees of $180,000 and during 1998, Welton and Trendlogic earned incentive fees of $22,000 and $5,000, respectively. No incentive fees were incurred by the Partnership during 2000. General and administrative expenses decreased by $21,000 during 2000 as compared to 1999, but remained relatively constant during the two years ended December 31, 1999. 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. New Accounting Guidance In June 2000, FASB issued Statement No. 138, Accouting for Certain Derivative Instruments and Certain Hedging Activities--an amendment of FASB Statement No. 133 ('SFAS 138'), which became effective for the Partnership on July 1, 2000. SFAS 138 amends the accounting and reporting standards of FASB Statement No. 133 for certain derivative instruments and certain hedging activities. SFAS 138 has not had a material effect on the carrying value of assets and liabilities within the financial statements. Inflation Inflation has had no material impact on operations or on the financial condition of the Partnership from inception through December 31, 2000. 13 OTHER INFORMATION The actual round-turn equivalent of brokerage commissions paid per contract for the year ended December 31, 2000 was $78. 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-Bache Capital Return Futures Fund 2, L.P. P.O. Box 2016 Peck Slip Station New York, New York 10272-2016 14 Peck Slip Station PRESORTED P.O. Box 2016 STANDARD New York, NY 10272 U.S. POSTAGE PAID Automatic Mail PBCR2/171781 -----END PRIVACY-ENHANCED MESSAGE-----