-----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, I3cH7SkHRnqj2Lsjw1WvGh8P9oi9pGMgTmtrb9mSlV5IBUxGuO1LHiEN07s1KeC8 Gq+EFKXu0PmH5JnEeMr6sQ== 0000898733-99-000974.txt : 19991117 0000898733-99-000974.hdr.sgml : 19991117 ACCESSION NUMBER: 0000898733-99-000974 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 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: 99752710 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 September 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)
September 30, December 31, 1999 1998 - ---------------------------------------------------------------------------------------------------- ASSETS Equity in commodity trading accounts: Cash $ 4,794,134 $ 4,870,709 U.S. Treasury bills, at amortized cost 16,977,172 19,282,809 Net unrealized gain on open commodity positions 61,227 596,291 ------------- ------------ Total assets $21,832,533 $24,749,809 ------------- ------------ ------------- ------------ LIABILITIES AND PARTNERS' CAPITAL Liabilities Redemptions payable $ 928,237 $ 566,962 Net premium on options 66,057 19,358 Incentive fees payable 54,589 19,484 Accrued expenses 42,212 56,959 Management fees payable 38,093 44,165 Due to affiliates 28,460 11,263 ------------- ------------ Total liabilities 1,157,648 718,191 ------------- ------------ Commitments Partners' capital Limited partners (85,800 and 98,989 units outstanding) 20,468,055 23,791,274 General partner (867 and 1,000 units outstanding) 206,830 240,344 ------------- ------------ Total partners' capital 20,674,885 24,031,618 ------------- ------------ Total liabilities and partners' capital $21,832,533 $24,749,809 ------------- ------------ ------------- ------------ Net asset value per limited and general partnership unit ('Units') $ 238.56 $ 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)
Nine Months Three Months Ended September 30, Ended September 30, -------------------------- ------------------------ 1999 1998 1999 1998 - ------------------------------------------------------------------------------------------------------ REVENUES Net realized gain on commodity transactions $1,827,008 $ 197,002 $ 784,809 $1,892,672 Change in net unrealized gain on open commodity positions (535,064) (164,101) (760,278) 2,231,068 Interest from U.S. Treasury bills 577,625 787,466 195,891 227,843 ---------- ----------- --------- ---------- 1,869,569 820,367 220,422 4,351,583 ---------- ----------- --------- ---------- EXPENSES Commissions 1,368,779 1,703,654 434,730 485,914 Management fees 364,240 696,972 114,403 193,666 Incentive fees 180,115 103,710 54,589 95,954 General and administrative 117,641 115,376 35,983 37,617 ---------- ----------- --------- ---------- 2,030,775 2,619,712 639,705 813,151 ---------- ----------- --------- ---------- Net income (loss) $ (161,206) $(1,799,345) $(419,283) $3,538,432 ---------- ----------- --------- ---------- ---------- ----------- --------- ---------- ALLOCATION OF NET INCOME (LOSS) Limited partners $ (159,594) $(1,781,376) $(415,090) $3,502,985 ---------- ----------- --------- ---------- ---------- ----------- --------- ---------- General partner $ (1,612) $ (17,969) $ (4,193) $ 35,447 ---------- ----------- --------- ---------- ---------- ----------- --------- ---------- NET INCOME (LOSS) PER WEIGHTED AVERAGE LIMITED AND GENERAL PARTNERSHIP UNIT Net income (loss) per weighted average limited and general partnership unit $ (1.69) $ (15.57) $ (4.63) $ 32.85 ---------- ----------- --------- ---------- ---------- ----------- --------- ---------- Weighted average number of limited and general partnership units outstanding 95,244 115,581 90,558 107,709 ---------- ----------- --------- ---------- ---------- ----------- --------- ---------- - ------------------------------------------------------------------------------------------------------
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 loss -- (159,594) (1,612) (161,206) Redemptions (13,322) (3,163,625) (31,902) (3,195,527) -------- ----------- --------- ----------- Partners' capital--September 30, 1999 86,667 $20,468,055 $ 206,830 $20,674,885 -------- ----------- --------- ----------- -------- ----------- --------- ----------- - ----------------------------------------------------------------------------------------------------- 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, 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 September 30, 1999 and the results of its operations for the nine and three months ended September 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. Certain balances from 1998 have been reclassified to conform with the current financial statement presentation. 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 nine and three months ended September 30, 1999 and 1998 were:
For the three months For the nine months ended ended September 30, September 30, ----------------------------- ------------------------- 1999 1998 1999 1998 - ---------------------------------------------------------------------------------------------------- Commissions $1,368,779 $1,703,654 $434,730 $485,914 General and administrative 50,847 57,233 15,062 15,848 ---------- ---------- -------- -------- $1,419,626 $1,760,887 $449,792 $501,762 ---------- ---------- -------- -------- ---------- ---------- -------- --------
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. 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). 4 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 September 30, 1999, such segregated assets totalled $17,024,378. Part 30.7 of the CFTC regulations also requires PSI to secure assets of the Partnership related to foreign futures and options trading which totalled $4,928,333 at September 30, 1999. There are no segregation requirements for assets related to forward trading. As of September 30, 1999, the Partnership's open futures, forward and options contracts mature within one year. 5 At September 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 $ 26,287,435 $22,873,426 Commitments to sell 11,144,068 34,657,512 Currency Futures and Options Contracts: Commitments to purchase 9,759,977 5,856,239 Commitments to sell 7,975,538 6,186,805 Financial Futures and Options Contracts: Commitments to purchase 11,972,787 64,800,054 Commitments to sell 119,456,177 63,817,191 Other Futures and Options Contracts: Commitments to purchase 6,904,930 67,482 Commitments to sell 550,041 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 September 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 $ 25,880 $ 23,517 $ 182,195 $ 10,003 Currencies 154,906 133,445 163,687 80,275 Other 131,630 17,074 105,886 31,160 Foreign exchanges Financial 125,319 63,791 640,142 45,819 Other 150,842 117,076 61,678 98,026 Forward Contracts: Currencies 123,421 309,656 445,954 746,397 Options Contracts: Domestic exchanges Financial -- 1,300 -- 2,046 Currencies -- 20,550 -- 7,150 Other -- 30,419 -- 1,733 -------- ----------- ---------- ----------- $711,998 $ 716,828 $1,599,542 $ 1,022,609 -------- ----------- ---------- ----------- -------- ----------- ---------- -----------
6 The following tables present the average fair value of futures, forward and options contracts during the nine and three months ended September 30, 1999 and 1998, respectively:
For the nine months ended --------------------------------------------------------- September 30, 1999 September 30, 1998 -------------------------- -------------------------- Assets Liabilities Assets Liabilities ---------- ----------- ---------- ----------- Futures Contracts: Domestic exchanges Financial $ 132,011 $ 26,005 $ 198,912 $ 44,454 Currencies 253,285 88,137 107,239 29,058 Other 141,043 28,354 188,854 58,964 Foreign exchanges Financial 316,081 71,891 646,542 123,082 Other 92,714 172,555 62,905 71,429 Forward Contracts: Currencies 285,077 264,905 191,462 671,135 Options Contracts: Domestic exchanges Financial 7,205 10,424 -- 19,832 Currencies -- 13,720 -- 4,101 Other -- 15,460 -- 3,795 Foreign exchanges Financial -- 1,897 -- 90 ---------- ----------- ---------- ----------- $1,227,416 $ 693,348 $1,395,914 $ 1,025,940 ---------- ----------- ---------- ----------- ---------- ----------- ---------- -----------
For the three months ended --------------------------------------------------------- September 30, 1999 September 30, 1998 -------------------------- -------------------------- Assets Liabilities Assets Liabilities ---------- ----------- ---------- ----------- Futures Contracts: Domestic exchanges Financial $ 112,053 $ 32,746 $ 239,717 $ 49,116 Currencies 246,660 71,843 125,264 37,123 Other 151,960 16,123 72,664 61,419 Foreign exchanges Financial 265,235 77,380 611,072 127,501 Other 148,011 161,891 23,566 90,669 Forward Contracts: Currencies 194,852 257,036 52,244 951,198 Options Contracts: Domestic exchanges Financial -- 6,064 -- 37,115 Currencies -- 20,000 -- 4,494 Other -- 25,337 -- 9,199 Foreign exchanges Financial -- 2,157 -- 224 ---------- ----------- ---------- ----------- $1,118,771 $ 670,577 $1,124,527 $ 1,368,058 ---------- ----------- ---------- ----------- ---------- ----------- ---------- -----------
7 The following table presents the trading revenues from futures, forward and options contracts during the nine and three months ended September 30, 1999 and 1998, respectively.
For the nine months For the three months ended ended September 30, September 30, -------------------------- ------------------------ 1999 1998 1999 1998 - ---------------------------------------------------------------------------------------------- Futures Contracts: Domestic exchanges Financial $ (127,464) $ 771,584 $(250,807) $1,557,171 Currencies 257,341 48,492 68,600 102,437 Other 360,496 (1,228,397) 325,084 277,735 Foreign exchanges Financial (261,598) 1,817,661 (421,096) 2,854,293 Other (30,781) (114,447) 228,665 (121,979) Forward Contracts: Currencies 1,011,956 (1,274,439) 104,231 (507,294) Options Contracts: Domestic exchanges Financial 84,286 7,427 (11,865) (44,123) Currencies (20,020) (3,975) (50,788) (1,275) Other 2,026 7,844 23,120 5,624 Foreign exchanges Financial 15,702 1,151 9,387 1,151 ---------- ----------- --------- ---------- $1,291,944 $ 32,901 $ 24,531 $4,123,740 ---------- ----------- --------- ---------- ---------- ----------- --------- ----------
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 September 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 79% 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 nine and three months ended September 30, 1999 were $3,163,625 and $918,933, respectively, for the limited partners and $31,902 and $9,304, respectively, for the General Partner, and from commencement of operations, October 6, 1989, through September 30, 1999, totalled $126,085,741 for the limited partners and $1,819,601 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 September 30, 1999 was $238.56, a decrease of .74% from the December 31, 1998 net asset value per Unit of $240.34 and a decrease of 1.90% from the June 30, 1999 net asset value per Unit of $243.19. Quarterly Market Overview During the quarter, global financial markets experienced heavy volatility. In July, U.S. Federal Reserve policy gave markets a boost. However, record trade deficits, higher employment costs, fears of inflation and higher interest rates in the U.S. quickly caused a reversal in U.S. stock and bond markets. Global stock and 9 bond markets followed U.S. markets demonstrating increased volatility. The U.S. dollar also experienced fluctuations throughout the quarter as signs of a stronger U.S. economy versus the European community supported the dollar's rise to new highs against most major currencies. However, later in the quarter as a record trade gap and stronger than expected European economic data were reported, the U.S. dollar came under pressure and continued to fall against most major currencies and to record lows against the Japanese yen. In the commodities markets, energy prices rose as OPEC members agreed to maintain cuts in oil output. The metal sector experienced extreme movement as gold prices rose to a two-year high following reports that 15 European Central banks would limit sales and retain higher gold reserves. Quarterly Partnership Performance The Partnership experienced losses in the index sector due to positions in the S&P 500 and Hang Seng (Hong Kong) indices. Global stock markets followed the lead of the U.S. stock and bond markets. With investors speculating higher interest rates throughout the world, coupled with fears of inflation, global stock markets moved sideways to downward during the third quarter. Financial sector positions also incurred losses as foreign markets experienced bearish trends when economic data showed accelerating consumer demand raising the risk of tighter monetary policy. In Japan, long-term interest rates rose during the first half of the quarter on concerns that more government bonds may be issued to finance the bailout of weaker Japanese banks. Short positions in Japanese government bonds resulted in losses as the trend in bond prices suddenly reversed when the Japanese yen strengthened against the U.S. dollar. The stronger yen led to large purchases of Japanese securities by non-Japanese investors. Additionally, Australian interest rate markets were particularly choppy, rallying on fears of stock market weakness early in September and reversing themselves near quarter end due to stronger U.S. economic news. Positions in the Australian 10-year bond recorded losses. Gains accumulated in the currency sector, particularly from Japanese yen positions. The yen has continued to appreciate even in light of threats of intervention by the Bank of Japan. Spurred by higher growth expectations and a strong stock market, the yen reached levels in August not seen since the last big rally in 1996. Energy sector prices, mainly crude oil products, continued their upward move as threat of a Venezuelan oil workers strike raised concerns about a disruption in production. The markets were also supported by expectations of strong winter demand in heating oil, acceptable levels of compliance with the OPEC production quotas, and statements indicating that the current production pact would last until March. Consequently, the Partnership experienced profits in long heating and light crude oil and unleaded gas positions. Profits in the metal sector were derived from long gold and aluminum positions. Gold prices rose following an auction by the Bank of England which yielded higher-than-expected prices. The market later surged following a joint announcement by 15 European central banks that they would not sell or lease any reserves, other than those previously designated for sale, for a period of five years. This announcement removed a tremendous amount of supply uncertainty from the market and allowed producer demand to send prices higher. 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 $210,000 and $32,000, respectively, for the nine and three months ended September 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 $335,000 and $51,000 for the nine and three months ended September 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 Lim- 10 ited ('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 $333,000 and $79,000 for the nine and three months ended September 30, 1999 as compared to the same periods in 1998 due to the effect of redemptions on the 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. Despite overall Partnership trading losses, Eclipse generated sufficient trading profits to earn incentive fees of approximately $180,000 and $55,000 during the nine and three months ended September 30, 1999 and Welton, Gaiacorp and Trendlogic each generated sufficient trading profits during the nine months ended September 30, 1998 to earn incentive fees of approximately $41,000, $10,000 and $53,000, respectively. With the exception of Welton, who earned incentive fees of approximately $8,000 during the three months ended March 31, 1998, all 1998 incentive fees were earned during the three months ended September 30, 1998. 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 were relatively stable during the 1999 and 1998 nine and three month periods. 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: November 15, 1999 ---------------------------------------- Steven Carlino Vice President and Treasurer 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-31-1999 Jan-1-1999 Sep-30-1999 9-Mos 4,794,134 17,038,399 0 0 0 21,832,533 0 0 21,832,533 1,157,648 0 0 0 0 20,674,885 21,832,533 0 1,869,569 0 0 2,030,775 0 0 0 0 0 0 0 0 (161,206) (1.69) 0
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