-----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, JBFpOlWyXYsnpdLWsQIYxR6F1l6S2yjC2LMOTKeuWp3SpAW6qGqjqWbOYRbn4FLA dGkH4EL7a9k/mQCcWMgfbw== 0000898733-97-000921.txt : 19971117 0000898733-97-000921.hdr.sgml : 19971117 ACCESSION NUMBER: 0000898733-97-000921 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: NONE 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-Q SEC ACT: SEC FILE NUMBER: 000-18418 FILM NUMBER: 97718546 BUSINESS ADDRESS: STREET 1: ONE NEW YORK PLAZA CITY: NEW YORK STATE: NY ZIP: 10005 BUSINESS PHONE: 2128047866 10-Q 1 P-B CAPITAL RETURN FUTURES FUND 2, L.P. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1997 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, 14th Floor New York, New York 10292 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (212) 778-7866 N/A - -------------------------------------------------------------------------------- Former name, former address and former fiscal year, if changed since last report. Indicate by check CK whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes CK No __ Part I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS PRUDENTIAL-BACHE CAPITAL RETURN FUTURES FUND 2, L.P. (a limited partnership) STATEMENTS OF FINANCIAL CONDITION (Unaudited)
September 30, December 31, 1997 1996 - ---------------------------------------------------------------------------------------------------- ASSETS Equity in commodity trading accounts: Cash $ 6,062,572 $ 7,947,679 U.S. Treasury bills, at amortized cost 23,622,209 25,015,580 Net unrealized gain on open commodity positions 2,282,060 658,774 ------------- ------------ Total assets $31,966,841 $33,622,033 ------------- ------------ ------------- ------------ LIABILITIES AND PARTNERS' CAPITAL Liabilities Redemptions payable $ 1,038,621 $ 1,692,233 Incentive fees payable 177,442 657,105 Management fees payable 95,865 117,811 Accrued expenses 40,988 49,264 Due to affiliates 39,609 54,587 Options, at market 30,550 44,006 ------------- ------------ Total liabilities 1,423,075 2,615,006 ------------- ------------ Commitments Partners' capital Limited partners (121,959 and 131,697 units outstanding) 30,238,305 30,696,788 General partner (1,232 and 1,331 units outstanding) 305,461 310,239 ------------- ------------ Total partners' capital 30,543,766 31,007,027 ------------- ------------ Total liabilities and partners' capital $31,966,841 $33,622,033 ------------- ------------ ------------- ------------ Net asset value per limited and general partnership unit ('Units') $ 247.94 $ 233.09 ------------- ------------ ------------- ------------ - ---------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these statements
2 PRUDENTIAL-BACHE CAPITAL RETURN FUTURES FUND 2, L.P. (a limited partnership) STATEMENTS OF OPERATIONS (Unaudited)
Nine Months Three Months Ended September 30, Ended September 30, ------------------------- ------------------------- 1997 1996 1997 1996 - ----------------------------------------------------------------------------------------------------- REVENUES Net realized gain (loss) on commodity transactions $2,465,020 $ 643,905 $2,938,161 $ (998,421) Change in net unrealized gain on open commodity positions 1,614,438 1,629,512 1,465,952 1,573,720 Interest from U.S. Treasury bills 913,775 824,799 318,399 280,859 ---------- ---------- ---------- ---------- 4,993,233 3,098,216 4,722,512 856,158 ---------- ---------- ---------- ---------- EXPENSES Commissions 1,948,700 1,915,509 642,255 607,124 Management fees 838,388 802,593 286,709 253,413 Incentive fees 207,032 47,687 177,442 -- General and administrative 135,033 97,583 40,286 17,553 ---------- ---------- ---------- ---------- 3,129,153 2,863,372 1,146,692 878,090 ---------- ---------- ---------- ---------- Net income (loss) $1,864,080 $ 234,844 $3,575,820 $ (21,932) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ALLOCATION OF NET INCOME (LOSS) Limited partners $1,845,442 $ 241,064 $3,540,056 $ (21,713) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- General partner $ 18,638 $ (6,220) $ 35,764 $ (219) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- NET INCOME (LOSS) PER WEIGHTED AVERAGE LIMITED AND GENERAL PARTNERSHIP UNIT Net income (loss) per weighted average limited and general partnership unit $ 14.31 $ 1.54 $ 28.07 $ (.15) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Weighted average number of limited and general partnership units outstanding 130,279 152,881 127,380 147,062 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- - -----------------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (Unaudited)
LIMITED GENERAL UNITS PARTNERS PARTNER TOTAL - ----------------------------------------------------------------------------------------------------- Partners' capital--December 31, 1996 133,028 $30,696,788 $ 310,239 $31,007,027 Net income -- 1,845,442 18,638 1,864,080 Redemptions (9,837) (2,303,925) (23,416) (2,327,341) -------- ----------- ----------- ----------- Partners' capital--September 30, 1997 123,191 $30,238,305 $ 305,461 $30,543,766 -------- ----------- ----------- ----------- -------- ----------- ----------- ----------- - ----------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these statements
3 PRUDENTIAL-BACHE CAPITAL RETURN FUTURES FUND 2, L.P. (a limited partnership) NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1997 (Unaudited) A. General These financial statements have been prepared without audit. In the opinion of management, the financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position of Prudential-Bache Capital Return Futures Fund 2, L.P. (the 'Partnership') as of September 30, 1997 and the results of its operations for the nine and three months ended September 30, 1997 and 1996. However, the operating results for the interim periods may not be indicative of the results expected for a full year. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been omitted. It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto included in the Partnership's Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 1996 (the 'Annual Report'). Certain balances from the prior period have been reclassified to conform with the current financial statement presentation. Effective July 1, 1997, all assets previously managed by Analytic/TSA Capital Management ('TSA') were reallocated to Eclipse Capital Management, Inc. ('Eclipse'). Eclipse receives management fees at the same rate as did TSA (a monthly fee on traded assets equal to a 2% annual rate). In addition, Eclipse will earn a quarterly incentive fee equal to 20% of New High Net Trading Profits (as defined in the Advisory Agreement between the Partnership, the General Partner and Eclipse) as compared to 15% paid to TSA. B. Related Parties Prudential Securities Futures Management Inc. (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 nine months ended September 30, 1997 and 1996 were:
1997 1996 - --------------------------------------------------------------------------- Commissions $1,948,700 $1,915,509 General and administrative 71,624 59,039 ---------- ---------- $2,020,324 $1,974,548 ---------- ---------- ---------- ----------
The costs incurred for these services for the three months ended September 30, 1997 and 1996 were:
1997 1996 - ----------------------------------------------------------------------- Commissions $642,255 $607,124 General and administrative 30,348 17,504 -------- -------- $672,603 $624,628 -------- -------- -------- --------
The General Partner is a wholly-owned subsidiary of Prudential Securities Incorporated ('PSI'). The Partnership maintains its trading and cash accounts at PSI, the Partnership's commodity broker. Approximately 75% of the net asset value is invested 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. As described in the Annual Report, all commissions for brokerage services are paid to PSI. In connection with the Partnership's interbank transactions, PSI engages in foreign currency forward transactions with the Partnership and an affiliate of PSI who, as principal, attempts to earn a profit on the 4 bid-ask spreads (which must be competitive) on any foreign currency forward transactions entered into between the Partnership and PSI, on the one hand, and PSI and such affiliate on the other. In connection with its trading of foreign currencies in the interbank market, PSI may arrange bank lines of credit at major international banks. To the extent such lines of credit are arranged, PSI does not charge the Partnership for maintaining such lines of credit, but requires margin deposits with respect to forward contract transactions. C. 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 of 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 commodity positions reflected on 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 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's 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 (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. The General Partner may impose additional restrictions (through modifications of such trading limitations and policies) upon the trading activities of the trading managers as it, in good faith, deems to be in the best interest 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 September 30, 1997 and December 31, 1996, such segregated assets totalled $23,570,996 and $24,078,572, respectively. 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 $8,380,002 and $9,271,094 at September 30, 1997 and December 31, 1996, respectively. There are no segregation requirements for assets related to forward trading. As of September 30, 1997 and December 31, 1996, the Partnership's open futures, forward, and options contracts mature within one year. 5 At September 30, 1997 and December 31, 1996, gross contract amounts of open futures, forward and options contracts are:
September 30, December 31, 1997 1996 ------------- ------------ Currency Forward Contracts: Commitments to purchase $ 9,396,290 $27,427,116 Commitments to sell $ 23,668,057 $19,223,534 Currency Futures Contracts: Commitments to purchase $ 4,454,070 $ 7,651,893 Commitments to sell $ 1,603,299 $15,877,256 Financial Futures and Options Contracts: Commitments to purchase $339,392,469 $110,757,098 Commitments to sell $ 43,731,583 $38,688,741 Other Futures and Options Contracts: Commitments to purchase $ 5,967,715 -- Commitments to sell $ 1,379,000 $ 320,262
The 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). The gross contract amounts significantly exceed the 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, forward and options contracts to be the net unrealized gain or loss on the contracts (plus premiums on options). 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. At September 30, 1997 and December 31, 1996, the fair values of futures, forward and options contracts were:
September 30, 1997 December 31, 1996 -------------------------- -------------------------- Fair Value Fair Value -------------------------- -------------------------- Assets Liabilities Assets Liabilities ---------- ----------- ---------- ----------- Futures Contracts: Domestic exchanges Financial $ 178,956 $ (39,281) $ -- $ (55,900) Currencies 57,334 (7,516) 194,561 (96,820) Other 197,181 -- 313,497 (6,743) Foreign exchanges Financial 1,887,935 (1,859) 316,218 (238,492) Other 62,950 (38,933) 4,092 -- Forward Contracts: Currencies 151,046 (165,753) 535,753 (307,392) Options Contracts: Domestic exchanges Financial -- (30,550) -- (10,000) Other -- -- -- (23,168) Foreign exchanges Financial -- -- -- (10,838) ---------- ----------- ---------- ----------- $2,535,402 $ (283,892) $1,364,121 $ (749,353) ---------- ----------- ---------- ----------- ---------- ----------- ---------- -----------
6 The following table presents the average fair values of futures, forward and options contracts during the nine months ended September 30, 1997 and 1996, respectively.
Nine months ended Nine months ended September 30, 1997 September 30, 1996 -------------------------- -------------------------- Average Fair Value Average Fair Value -------------------------- -------------------------- Assets Liabilities Assets Liabilities ---------- ----------- ---------- ----------- Futures Contracts: Domestic exchanges Financial $ 255,773 $ (20,324) $ 334,843 $ (67,562) Currencies 256,610 (34,099) 274,254 (183,700) Other 277,697 (16,819) 110,124 (43,304) Foreign exchanges Financial 787,999 (113,382) 947,290 (51,694) Other 24,447 (12,926) 1,644 (4,434) Forward Contracts: Currencies 579,280 (672,949) 678,762 (351,167) Options Contracts: Domestic exchanges Financial -- (22,008) -- -- Currencies 2,560 (42,408) 25,214 (3,239) Other 18,619 (3,271) -- -- Foreign exchanges Other 4,473 (5,886) -- -- ---------- ----------- ---------- ----------- $2,207,458 $ (944,072) $2,372,131 $ (705,100) ---------- ----------- ---------- ----------- ---------- ----------- ---------- -----------
The following table presents the average fair values of futures, forward and options contracts during the three months ended September 30, 1997 and 1996, respectively.
Three months ended Three months ended September 30, 1997 September 30, 1996 -------------------------- -------------------------- Average Fair Value Average Fair Value -------------------------- -------------------------- Assets Liabilities Assets Liabilities ---------- ----------- ---------- ----------- Futures Contracts: Domestic exchanges Financial $ 532,441 $ (15,336) $ 19,758 $ (163,783) Currencies 118,752 (3,609) 96,848 (123,197) Other 368,017 (12,916) 249,454 (24,544) Foreign exchanges Financial 1,448,006 (27,611) 1,552,421 (34,738) Other 51,169 (25,874) 4,000 (432) Forward Contracts: Currencies 503,901 (707,965) 420,466 (297,837) Options Contracts: Domestic exchanges Financial -- (28,496) -- -- Currencies 6,400 (4,044) 44,218 (78) Other 12,945 (1,088) -- -- Foreign exchanges Financial 566 (344) -- -- ---------- ----------- ---------- ----------- $3,042,197 $ (827,283) $2,387,165 $ 644,609 ---------- ----------- ---------- ----------- ---------- ----------- ---------- -----------
7 The following table presents the net realized gains (losses) and the change in net unrealized gains/losses of futures, forward and options contracts during the nine months ended September 30, 1997 and 1996, respectively.
Nine months ended September 30, 1997 Nine months ended September 30, 1996 ----------------------------------------------- ---------------------------------------------- Change in Change in Net Realized Net Unrealized Net Realized Net Unrealized Gains (Losses) Gains/Losses Total Gains (Losses) Gains/Losses Total -------------- -------------- ----------- -------------- -------------- ---------- Futures Contracts: Domestic exchanges Financial $ 152,994 $ 195,575 $ 348,569 $ 505,338 $ (665,612) $ (160,274) Currencies 367,804 (47,923) 319,881 596,691 178,230 774,921 Other 1,075,333 (109,573) 965,760 (71,605) 454,608 383,003 Foreign exchanges Financial 1,429,645 1,808,350 3,237,995 (363,635) 1,284,008 920,373 Other 44,459 19,925 64,384 (24,036) 9,500 (14,536) Forward Contracts: Currencies (771,022) (243,068) (1,014,090) (88,470) 384,453 295,983 Options Contracts: Domestic exchanges Financial 43,680 (27,985) 15,695 -- -- -- Currencies 110,600 -- 110,600 89,622 (15,675) 73,947 Other 86,823 15,733 102,556 -- -- -- Foreign exchanges Financial (75,296) 3,404 (71,892) -- -- -- -------------- -------------- ----------- -------------- -------------- ---------- $2,465,020 $1,614,438 $ 4,079,458 $ 643,905 $1,629,512 $2,273,417 -------------- -------------- ----------- -------------- -------------- ---------- -------------- -------------- ----------- -------------- -------------- ----------
The following table presents the net realized gains (losses) and the change in net unrealized gains/ losses of futures, forward and options contracts during the three months ended September 30, 1997 and 1996, respectively.
Three months ended September 30, 1997 Three months ended September 30, 1996 ---------------------------------------------- ----------------------------------------------- Change in Change in Net Realized Net Unrealized Net Realized Net Unrealized Gains (Losses) Gains/Losses Total Gains (Losses) Gains/Losses Total -------------- -------------- ---------- -------------- -------------- ----------- Futures Contracts: Domestic exchanges Financial $ 651,082 $ (169,975) $ 481,107 $ (853,500) $ (77,781) $ (931,281) Currencies 103,800 2,863 106,663 (83,137) 54,451 (28,686) Other 642,491 (327,118) 315,373 65,789 (39,472) 26,317 Foreign exchanges Financial 1,842,078 1,495,459 3,337,537 737,046 1,830,506 2,567,552 Other 21,050 9,767 30,817 460 7,706 8,166 Forward Contracts: Currencies (364,359) 466,673 102,314 (880,534) (194,252) (1,074,786) Options Contracts: Domestic exchanges Financial 44,084 (543) 43,541 -- -- -- Currencies 6,000 19,404 25,404 15,455 (7,438) 8,017 Other 4,515 (39,033) (34,518) -- -- -- Foreign exchanges Financial (12,580) 8,455 (4,125) -- -- -- -------------- -------------- ---------- -------------- -------------- ----------- $2,938,161 $1,465,952 $4,404,113 $ (998,421) $1,573,720 $ 575,299 -------------- -------------- ---------- -------------- -------------- ----------- -------------- -------------- ---------- -------------- -------------- -----------
8 PRUDENTIAL-BACHE CAPITAL RETURN FUTURES FUND 2, L.P. (a limited partnership) ITEM 2. 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 the inception of the Partnership, sixty percent of the net proceeds was allocated to commodities trading activity and forty percent was placed in reserve and invested in investment grade interest-bearing obligations ('Reserve Assets'). On January 3, 1995, the Reserve Assets matured and the resulting proceeds were allocated to commodities trading. As of September 30, 1997, 100% of the Partnership's assets were allocated to commodities trading. A significant portion of the net asset value was held in U.S. Treasury bills (which represented approximately 75% 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 total 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 General Partner attempts to minimize these risks by requiring the Partnership's trading managers to abide by various trading limitations and policies. See Note C 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 recorded for the nine and three months ended September 30, 1997 were $2,303,925 and $1,028,207, respectively. Redemptions by the General Partner recorded for the nine and three months ended September 30, 1997 were $23,416 and $10,414, respectively. Redemptions by limited partners and the General Partner from commencement of operations, October 6, 1989, through September 30, 1997 totalled $117,583,907 and $1,733,761, 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. Effective July 1, 1997, all assets previously managed by TSA were reallocated to Eclipse. Eclipse receives management fees at the same rate as did TSA (a monthly fee on traded assets equal to a 2% annual rate). In addition, Eclipse will earn a quarterly incentive fee equal to 20% of New High Net Trading Profits (as defined in the Advisory Agreement between the Partnership, the General Partner and Eclipse) as compared to 15% paid to TSA. Results of Operations The net asset value per Unit as of September 30, 1997 was $247.94, an increase of 6.37%, from the December 31, 1996 net asset value per Unit of $233.09. 9 July's positive performance resulted from gains in the financial, currency, metal and meat sectors. Positions in the index, energy, soft and grain sectors were unprofitable. Following the Federal Reserve Chairman's generally upbeat congressional testimony on the state of the U.S. economy, investor sentiment soared, sending U.S. bond prices higher and the yield on the benchmark 30-year U.S. Treasury bond down to levels not seen in 18 months. Positions in U.S. Treasuries, Australian 10-year bonds and Eurodollar bonds resulted in strong gains as did positions in Japanese Government bonds. In the currency sector, strong gains were seen in German deutsche mark and Swiss franc positions as the U.S. dollar soared in response to investors exchanging the mark and franc for U.S. dollars. Positions in the Japanese yen and British pound were unprofitable. In the metal sector, as the Australian central bank sold approximately 60% of their gold reserves, prices tumbled, profiting the Partnership's short positions in gold and silver. In the index sector, losses were seen in the Nikkei Dow and the Australian stock index. In the energy sector, losses were incurred in light crude oil and natural gas positions as the market failed to establish a firm direction. Losses were experienced in the soft sector as shifting inventory expectations and fickle weather patterns altered investor sentiment, specifically in coffee and cocoa. In the grain sector, soybean oil positions incurred losses as the short-term weather outlook caused fluctuations in the market. August's negative performance resulted from losses in the currency, financial, metal, grain, soft and meat sectors. Positions in index and energy sectors were profitable. The currency markets proved to be a major detractor to the Partnership's overall performance. The Deutsche mark's weakness over the past few months, prior to August, contributed to some decent gains, but its strength in August against several currencies, including the U.S. dollar, Japanese yen and British pound contributed to the Partnership's negative performance. The Swiss franc also added to the Partnership's losses as it rose against the U.S. dollar. In the financial sector, the Partnership gave back profits in Italian, U.S. Treasury and Euro dollar bond positions. This was due, in part, to a faltering U.S. bond market which impacted bond markets around the world. Losses were seen in silver and aluminum in the metal sector as well as bean oil, sugar and cattle positions in the grain, soft and meat sectors, respectively. The Partnership experienced gains in both domestic and global stock indices as positions in both the S&P 500 and the Nikkei were profitable. Specifically, short positions in the Nikkei Dow profited as the Japanese economy failed to rebound from its current doldrums. September's positive performance resulted from gains in the financial, energy, index and meat sectors. Positions in the metal, currency and soft sectors were unprofitable. Performance for the month resulted, in part, from significant gains in financial positions. The main factor for the financial sector in September was the drop in U.S. long-term interest rates from 6.75% to 6.40%. This fall in U.S. interest rates impacted Australian, Japanese, and European bond prices as they all trended higher, contributing to the positive performance of the Partnership. In addition, country specific factors affected the upward movement in global bond prices. In Europe, the anticipation still remains that Italy and Spain will be included in the first round of the European Monetary Union. Thus, long-term interest rates in those countries continued to fall as their yields must eventually converge with German bond yields, the benchmark for the bond market in Europe. The Partnership also recognized profits in the energy sector as positions in natural gas and light crude oil profited partly due to increasing inventories following this summer's lows. In the index sector, the Partnership recognized gains in the Nikkei, S&P 500 and FTSE 100 as all moved in profitable directions. Short metal positions were unprofitable as precious metal prices, including gold, rose on indications of strengthening demand. Positions in non-precious metals experienced losses as well. British pound, Deutsche mark and Swiss franc positions were all unprofitable for the Partnership. Interest income from U.S. Treasury bills for the nine and three months ended September 30, 1997 increased by approximately $89,000 and $38,000, respectively, as compared to the same periods in 1996. These increases were due to a greater amount of funds invested in U.S. Treasury bills during the nine months ended September 30, 1997 as compared to the same period in 1996 following a strong 1996 fourth quarter and a profitable nine months in 1997. 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 increased by approximately $33,000 and $35,000 for the nine and three months ended September 30, 1997 as compared to the same periods in 1996. These increases principally reflect the impact of strong trading performance in the last quarter of 1996 and a profitable nine months in 1997 on monthly net asset values, offset by 1996 and 1997 redemptions. 10 All trading decisions are currently being made by John W. Henry & Company, Inc. ('JWH'), Welton Investment Systems Corporation ('Welton') and Eclipse Capital Management, Inc. ('Eclipse'). Management fees are calculated on the 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 increased by approximately $36,000 and $33,000 for the nine and three months ended September 30, 1997, respectively, as compared to the same periods in 1996 due to same reasons commissions increased as discussed above. Incentive fees are based on the New High Net Trading Profits generated by each trading manager, as defined in the Advisory Agreements between the Partnership, the General Partner and each trading manager. JWH, Welton and Eclipse each generated sufficient trading profits to earn incentive fees of $47,000, $50,000, and $110,000 for the nine months ended September 30, 1997, respectively. With the exception of Welton, which earned incentive fees of $30,000 during the three months ended June 30, 1997, all 1997 incentive fees were earned during the three months ended September 30, 1997. During the nine months ended September 30, 1996 trading performance resulted in incentive fees of approximately $48,000 (no incentive fees were earned during the three months ended September 30, 1996). General and administrative expenses increased by approximately $37,000 and $23,000 for the nine and three months ended September 30, 1997 as compared to the same periods in 1996. These expenses include reimbursement 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. These increases were primarily due to the timing of certain expense accruals recorded during the respective periods. 11 PART II. OTHER INFORMATION Item 1. Legal Proceedings--There are no material legal proceedings pending by or against the Registrant or the General Partner. Item 2. Changes in Securities--None Item 3. Defaults Upon Senior Securities--None Item 4. Submission of Matters to a Vote of Security Holders--None Item 5. Other Information--None Item 6. Exhibits and Reports on Form 8-K: (a) Exhibits 4.1 Agreement of Limited Partnership of the Registrant, dated as of June 8, 1989 as amended and restated as of July 21, 1989 (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 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) 27 Financial Data Schedule (filed herewith) (b) Reports on Form 8-K--No reports on Form 8-K were filed during the quarter. 12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto 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: November 14, 1997 ---------------------------------------- Steven Carlino Vice President Chief Accounting Officer for the Registrant 13 EX-27 2 ART. 5 FDS FOR 3RD QUARTER 10-Q
5 The Schedule contains summary financial information extracted from the financial statements for P-B Capital Return Futures Fund 2, L.P. and is qualified in its entirety by reference to such financial statements 0000851786 P-B Capital Return Futures Fund 2, L.P. 1 Dec-31-1997 Jan-1-1997 Sep-30-1997 9-Mos 6,062,572 25,904,269 0 0 0 31,966,841 0 0 31,966,841 1,423,075 0 0 0 0 30,543,766 31,966,841 0 4,993,233 0 0 3,129,153 0 0 0 0 0 0 0 0 1,864,080 14.31 0
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