-----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, SFLH6GtWslJc0Dy7hjTxr+Eh+llmpvjlgAGiARxbCu89dZg0PqjhqVWF5PQieo7M TAf3XaW2H8HLKTauA00uIA== 0000898733-99-000722.txt : 19990816 0000898733-99-000722.hdr.sgml : 19990816 ACCESSION NUMBER: 0000898733-99-000722 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990813 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: 99689269 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. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1999 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________________ to ______________________ Commission file number: 0-18418 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 of (I.R.S. Employer Identification No.) incorporation or organization) One New York Plaza, 13th Floor New York, New York 10292 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (212) 778-7866 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)
June 30, December 31, 1999 1998 - ---------------------------------------------------------------------------------------------------- ASSETS Equity in commodity trading accounts: Cash $ 5,600,157 $ 4,870,709 U.S. Treasury bills, at amortized cost 17,013,828 19,282,809 Net unrealized gain on open commodity positions 800,622 587,862 ------------- ------------ Total assets $23,414,607 $24,741,380 ------------- ------------ ------------- ------------ LIABILITIES AND PARTNERS' CAPITAL Liabilities Redemptions payable $ 1,124,997 $ 566,962 Incentive fees payable 101,013 19,484 Options, at market 50,975 10,929 Management fees payable 41,115 44,165 Due to affiliates 40,764 11,263 Accrued expenses 33,338 56,959 ------------- ------------ Total liabilities 1,392,202 709,762 ------------- ------------ Commitments Partners' capital Limited partners (89,652 and 98,989 units outstanding) 21,802,078 23,791,274 General partner (906 and 1,000 units outstanding) 220,327 240,344 ------------- ------------ Total partners' capital 22,022,405 24,031,618 ------------- ------------ Total liabilities and partners' capital $23,414,607 $24,741,380 ------------- ------------ ------------- ------------ Net asset value per limited and general partnership unit ('Units') $ 243.19 $ 240.34 ------------- ------------ ------------- ------------ - ---------------------------------------------------------------------------------------------------- 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)
Six Months Three Months Ended June 30, Ended June 30, -------------------------- -------------------------- 1999 1998 1999 1998 - ------------------------------------------------------------------------------------------------------ REVENUES Net realized gain (loss) on commodity transactions $1,042,199 $(1,695,670) $ 443,664 $(1,023,978) Change in net unrealized gain on open commodity positions 225,214 (2,395,169) 614,853 (1,354,420) Interest from U.S. Treasury bills 381,734 559,623 185,226 265,112 ---------- ----------- ---------- ----------- 1,649,147 (3,531,216) 1,243,743 (2,113,286) ---------- ----------- ---------- ----------- EXPENSES Commissions 934,049 1,217,740 457,442 574,461 Management fees 249,837 503,306 122,887 236,231 Incentive fees 125,526 7,756 101,013 -- General and administrative 81,658 77,759 42,929 37,109 ---------- ----------- ---------- ----------- 1,391,070 1,806,561 724,271 847,801 ---------- ----------- ---------- ----------- Net income (loss) $ 258,077 $(5,337,777) $ 519,472 $(2,961,087) ---------- ----------- ---------- ----------- ---------- ----------- ---------- ----------- ALLOCATION OF NET INCOME (LOSS) Limited partners $ 255,496 $(5,284,361) $ 514,277 $(2,931,450) ---------- ----------- ---------- ----------- ---------- ----------- ---------- ----------- General partner $ 2,581 $ (53,416) $ 5,195 $ (29,637) ---------- ----------- ---------- ----------- ---------- ----------- ---------- ----------- NET INCOME (LOSS) PER WEIGHTED AVERAGE LIMITED AND GENERAL PARTNERSHIP UNIT Net income (loss) per weighted average limited and general partnership unit $ 2.64 $ (44.66) $ 5.46 $ (24.95) ---------- ----------- ---------- ----------- ---------- ----------- ---------- ----------- Weighted average number of limited and general partnership units outstanding 97,587 119,517 95,184 118,695 ---------- ----------- ---------- ----------- ---------- ----------- ---------- ----------- - ------------------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (Unaudited)
LIMITED GENERAL UNITS PARTNERS PARTNER TOTAL - ----------------------------------------------------------------------------------------------------- Partners' capital--December 31, 1998 99,989 $23,791,274 $ 240,344 $24,031,618 Net income -- 255,496 2,581 258,077 Redemptions (9,431) (2,244,692) (22,598) (2,267,290) -------- ----------- --------- ----------- Partners' capital--June 30, 1999 90,558 $21,802,078 $ 220,327 $22,022,405 -------- ----------- --------- ----------- -------- ----------- --------- ----------- - ----------------------------------------------------------------------------------------------------- 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 JUNE 30, 1999 (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 June 30, 1999 and the results of its operations for the six and three months ended June 30, 1999 and 1998. 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, 1998 (the 'Annual Report'). New Accounting Guidance In June 1999, the Financial Accounting Standards Board ('FASB') issued Statement No. 137, Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133--an amendment of FASB Statement No. 133, which delayed the effective date of FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities ('SFAS 133'). The Partnership does not believe the effect of adoption of SFAS 133, now required effective January 1, 2001, will be material. B. Related Parties The General Partner of the Partnership is Prudential Securities Futures Management Inc. (the 'General Partner'), a wholly owned subsidiary of Prudential Securities Incorporated ('PSI'). 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 six and three months ended June 30, 1999 and 1998 were:
For the three months For the six months ended ended June 30, June 30, --------------------------- ------------------------- 1999 1998 1999 1998 - -------------------------------------------------------------------------------------------------- Commissions $934,049 $1,217,740 $457,442 $574,461 General and administrative 35,785 41,385 17,830 20,105 -------- ---------- -------- -------- $969,834 $1,259,125 $475,272 $594,566 -------- ---------- -------- -------- -------- ---------- -------- --------
The Partnership's assets are maintained either in trading or cash accounts with PSI, the Partnership's commodity broker, or for margin purposes, with the various exchanges on which the Partnership is permitted to trade. The Partnership, acting through its trading 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 position of the Partnership. 4 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 or volatility of interest rates, foreign currency exchange rates or the market values of the contracts (or commodities underlying the contracts) frequently result in changes in the Partnership's unrealized gain (loss) on open commodity positions reflected in the statements of financial condition. The Partnership's exposure to market risk is influenced by a number of factors including the relationships among the contracts held by the Partnership as well as the liquidity of the markets in which the contracts are traded. Futures and options contracts are traded on organized exchanges and are thus distinguished from forward contracts which are entered into privately by the parties. The credit risks associated with futures and options contracts are typically perceived to be less than those associated with forward contracts, because exchanges typically provide clearinghouse arrangements in which the collective credit (subject to certain limitations) of the members of the exchanges is pledged to support the financial integrity of the exchange. On the other hand, the Partnership must rely solely on the credit of its broker (PSI) with respect to forward transactions. The Partnership presents unrealized gains and losses on open forward positions as a net amount in the statements of financial condition because it has a master netting agreement with PSI. The General Partner attempts to minimize both credit and market risks by requiring the Partnership and its trading 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. 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 net asset value allocated to the trading manager declines by 33 1/3% from the value at the beginning of any year or since the commencement of trading activities (except for Welton Investment Corporation for which automatic termination specifically requires a decline of 33 1/3% from the value at the commencement of trading activities; however, the General Partner has other optional rights to terminate Welton Investment Corporation should its trading result in significant declines). Furthermore, 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 net asset value to less than 50% of the value at commencement of trading activities. In each case, the decline in net asset value is after giving effect for distributions and redemptions. The General Partner may impose additional restrictions (through modifications of such trading limitations and policies) upon the trading activities of the trading 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 June 30, 1999, such segregated assets totalled $17,438,162. 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 $5,750,120 at June 30, 1999. There are no segregation requirements for assets related to forward trading. As of June 30, 1999, the Partnership's open futures, forward and options contracts mature within one year. 5 At June 30, 1999 and December 31, 1998, gross contract amounts of open futures, forward and options contracts are:
1999 1998 ------------ ------------ Currency Forward Contracts: Commitments to purchase $ 49,415,589 $22,873,426 Commitments to sell 6,660,195 34,657,512 Currency Futures and Options Contracts: Commitments to purchase 5,397,880 5,856,239 Commitments to sell 17,228,870 6,186,805 Financial Futures and Options Contracts: Commitments to purchase 34,566,874 64,800,054 Commitments to sell 157,431,763 63,817,191 Other Futures and Options Contracts: Commitments to purchase 4,294,601 67,482 Commitments to sell 3,138,912 5,956,997
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 June 30, 1999 and December 31, 1998, the fair value of open futures, forward and options contracts was:
1999 1998 -------------------------- -------------------------- Assets Liabilities Assets Liabilities ---------- ----------- ---------- ----------- Futures Contracts: Domestic exchanges Financial $ 200,717 $ 17,834 $ 182,195 $ 10,003 Currencies 144,435 68,218 163,687 80,275 Other 214,746 7,574 105,886 31,160 Foreign exchanges Financial 415,969 86,252 640,142 45,819 Other 90,123 260,840 61,678 98,026 Forward Contracts: Currencies 236,168 60,818 445,954 746,397 Options Contracts: Domestic exchanges Financial -- 4,331 -- 2,046 Currencies -- 12,525 -- 7,150 Other -- 34,119 -- 1,733 ---------- ----------- ---------- ----------- $1,302,158 $ 552,511 $1,599,542 $ 1,022,609 ---------- ----------- ---------- ----------- ---------- ----------- ---------- -----------
6 The following tables present the average fair value of futures, forward and options contracts during the six and three months ended June 30, 1999 and 1998, respectively:
For the six months ended --------------------------------------------------------- June 30, 1999 June 30, 1998 -------------------------- -------------------------- Assets Liabilities Assets Liabilities ---------- ----------- ---------- ----------- Futures Contracts: Domestic exchanges Financial $ 153,231 $ 20,986 $ 184,131 $ 46,846 Currencies 241,521 94,602 89,125 22,493 Other 145,333 32,375 229,945 75,189 Foreign exchanges Financial 359,405 70,806 647,819 150,314 Other 60,746 191,260 81,373 58,059 Forward Contracts: Currencies 329,647 240,247 243,663 560,885 Options Contracts: Domestic exchanges Financial 10,293 12,046 -- 12,836 Currencies -- 9,961 -- 3,895 Other -- 12,481 -- 233 Foreign exchanges Financial -- 1,477 -- -- ---------- ----------- ---------- ----------- $1,300,176 $ 686,241 $1,476,056 $ 930,750 ---------- ----------- ---------- ----------- ---------- ----------- ---------- -----------
For the three months ended --------------------------------------------------------- June 30, 1999 June 30, 1998 -------------------------- -------------------------- Assets Liabilities Assets Liabilities ---------- ----------- ---------- ----------- Futures Contracts: Domestic exchanges Financial $ 104,422 $ 23,110 $ 90,163 $ 80,588 Currencies 245,208 39,523 139,309 15,209 Other 160,618 39,065 52,514 109,873 Foreign exchanges Financial 274,700 60,398 436,983 131,079 Other 44,796 239,656 31,252 70,747 Forward Contracts: Currencies 277,480 137,185 332,744 444,025 Options Contracts: Domestic exchanges Financial 18,013 17,484 -- 21,441 Currencies -- 12,506 -- 1,541 Other -- 21,083 -- 408 Foreign exchanges Financial -- 2,584 -- -- ---------- ----------- ---------- ----------- $1,125,237 $ 592,594 $1,082,965 $ 874,911 ---------- ----------- ---------- ----------- ---------- ----------- ---------- -----------
7 The following table presents the trading revenues from futures, forward and options contracts during the six and three months ended June 30, 1999 and 1998, respectively.
For the six months ended For the three months ended June 30, June 30, -------------------------- -------------------------- 1999 1998 1999 1998 - ------------------------------------------------------------------------------------------------ Futures Contracts: Domestic exchanges Financial $ 123,343 $ (785,587) $ 169,764 $ (654,219) Currencies 188,741 (53,945) 118,383 (34,727) Other 35,412 (1,506,132) (44,090) (651,882) Foreign exchanges Financial 159,498 (1,036,632) 685,146 (772,699) Other (259,446) 7,532 (85,637) (6,136) Forward Contracts: Currencies 907,725 (767,145) 168,861 (290,387) Options Contracts: Domestic exchanges Financial 96,151 51,550 23,966 35,612 Currencies 30,768 (2,700) 29,963 (5,750) Other (21,094) 2,220 (14,154) 1,790 Foreign exchanges Financial 6,315 -- 6,315 -- ---------- ----------- ---------- ----------- $1,267,413 $(4,090,839) $1,058,517 $(2,378,398) ---------- ----------- ---------- ----------- ---------- ----------- ---------- -----------
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 June 30, 1999, 100% of the Partnership's total net asset value was allocated to commodities trading. A significant portion of the net asset value was held in U.S. Treasury bills (which represented approximately 74% of the net asset value prior to redemptions payable) and cash, which are used as margin for the Partnership's trading in commodities. Inasmuch as the sole business of the Partnership is to trade in commodities, the Partnership continues to own such liquid assets to be used as margin. The percentage that U.S. Treasury bills bears to the 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 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 utilizing stop loss provisions. 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 recorded for the six and three months ended June 30, 1999 were $2,244,692 and $1,113,810, respectively, for the limited partners and $22,598 and $11,187, respectively, for the General Partner, and from commencement of operations, October 6, 1989, through June 30, 1999, totalled $125,166,808 for the limited partners and $1,810,297 for the General Partner. 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 June 30, 1999 was $243.19, an increase of 1.19% from the December 31, 1998 net asset value per Unit of $240.34. Quarterly Market Overview In the United States, as economic indicators strengthened and the Federal Reserve Bank announced they would raise interest rates, the U.S. dollar rose against most major currencies, especially European which were spurred by deteriorating confidence in the Euro. Throughout the second quarter, several issues weighed on world markets including significant price declines in global long-term interest bonds, the U.S. 9 Federal Reserve's tightening of monetary policy, and an increased supply of corporate debt. Furthermore, as the U.S. economy generated strength, investors feared possible inflation. U.S. bond prices fell, followed by European bonds which were depressed by rumors regarding Italy's retreat from the European Economic Union. Global stock markets recorded gains over the quarter, supported by solid corporate earnings and improved economies (especially Asian). In the commodity markets, the energy sector rallied as OPEC announced production cuts and lower inventories in oil and gasoline. A consistent tone prevailed in the agricultural and soft commodity markets as favorable seasonal growing conditions continued to weigh on prices. Quarterly Partnership Performance The Partnership recorded profits in the financial sector driven by Japanese government and German long bonds. Throughout the quarter, the Japanese economy appeared to strengthen prompting a bond market rally. U.S. Treasury bond prices declined continuing a trend that had existed for several months. U.S. interest rates rose and bond prices fell during June as strong consumer demand and an improving manufacturing sector caused economic growth to exceed most market expectations. European bonds followed the lead of the U.S. bond markets. Currency sector positions led by the Swiss franc captured gains for the Partnership. The Swiss franc fell in value versus the U.S. dollar after losing its safe haven attraction as the war in Kosovo ended, and as the U.S. dollar gained strength when the Federal Reserve increased U.S. interest rates by .25%. Partnership gains were also attributable to the index sector. In the first week of January, the Nikkei Dow recorded a low near 13050 and preceded to accelerate up to the 18455 mark within the last two weeks of June. Capital flows out of the U.S. market and into the Asian region helped to drive the Nikkei Dow's upward move under the perception that Asian economies have formed a base from which to improve. Losses were incurred in the metal sector from positions in zinc, copper, and silver. Base metals rallied sharply following announcements that two major companies would significantly cut copper output. If carried out, the estimated production cuts would almost eliminate the estimated global copper supply surplus. Silver experienced extreme volatility throughout the second quarter, and failed to recognize a trend. Interest income is earned on the Partnership's investment 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 interest-bearing funds. Interest income from U.S. Treasury bills decreased by approximately $178,000 and $80,000, respectively, for the six and three months ended June 30, 1999 compared to the same periods in 1998. These declines in interest income were the result of lower interest rates in 1999 as well as fewer funds being invested in U.S. Treasury bills as a result of redemptions. 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 $284,000 and $117,000 for the six and three months ended June 30, 1999 as compared to the same periods in 1998 principally due to the effect of redemptions on the monthly net asset values as well as a reduction in the annual commission rate from 8.5% to 8% of the monthly net asset values which took effect August 1, 1998. All trading decisions are currently being made by Welton Investment Corporation ('Welton'), Eclipse Capital Management, Inc. ('Eclipse'), Trendlogic Associates, Inc. ('Trendlogic') and Gaiacorp Ireland Limited ('Gaiacorp'). Management fees are calculated on 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 approximately $253,000 and $113,000 for the six and three months ended June 30, 1999 as compared to the same periods in 1998 due to the effect of redemptions on monthly net asset values as well as a reduction in the management fee rate from a 4% annual rate to a 2% rate on the portion of net assets that were reallocated from John W. Henry & Company, Inc. to Welton, Eclipse, Trendlogic and Gaiacorp 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. Eclipse generated sufficient trading profits to earn incentive fees of approximately $126,000 and $101,000 during the six and three months ended June 30, 1999 and Welton generated sufficient trading profits to earn 10 incentive fees of approximately $8,000 during the six month period ended June 30, 1998, despite overall Partnership net trading losses during the 1998 period. General and administrative 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. These expenses increased by approximately $4,000 and $6,000 for the six and three months ended June 30, 1999 as compared to the same periods in 1998 as additional costs resulted from the increase in the number of trading managers effective September 1, 1998. New Accounting Guidance In June 1999, the Financial Accounting Standards Board ('FASB') issued Statement No. 137, Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133--an amendment of FASB Statement No. 133, which delayed the effective date of FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities ('SFAS 133'). The Partnership does not believe the effect of adoption of SFAS 133, now required effective January 1, 2001, will be material. Year 2000 Risk A discussion of Year 2000 risk and its effect on the operations of the Partnership is included in the Partnership's Annual Report. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Information regarding quantitative and qualitative disclosures about market risk is not required pursuant to Item 305(e) of Regulation S-K. 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: August 13, 1999 ---------------------------------------- Steven Carlino Vice President and Treasurer 13 EX-27 2 ART. 5 FDS FOR 2ND 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-31-1999 Jan-1-1999 Jun-30-1999 6-Mos 5,600,157 17,814,450 0 0 0 23,414,607 0 0 23,414,607 1,392,202 0 0 0 0 22,022,405 23,414,607 0 1,649,147 0 0 1,391,070 0 0 0 0 0 0 0 0 258,077 2.64 0
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