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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______________________ to ______________________
Commission file number 0-18417
PRUDENTIAL-BACHE CAPITAL RETURN FUTURES FUND L.P.
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(Exact name of registrant as specified in its charter)
Delaware 13-3516796
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One New York Plaza, 14th Floor, New York, New York 10292
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 778-7866
Securities registered pursuant to Section 12(b) of the Act:
None
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Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes CK No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [CK]
DOCUMENTS INCORPORATED BY REFERENCE
Agreement of Limited Partnership of the Registrant, dated January 26, 1989,
included as part of the Registration Statement on Form S-1 (File No. 33-26777)
filed with the Securities and Exchange Commission on January 31, 1989 pursuant
to Rule 424(b) of the Securities Act of 1933, and amended and restated as of
March 15, 1989, is incorporated by reference into Part IV of this Annual Report
on Form 10-K
Registrant's Annual Report to Limited Partners for the year ended December
31, 1996 is incorporated by reference into Parts II and IV of this Annual Report
on Form 10-K
Index to exhibits can be found on pages 8 through 10.
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PRUDENTIAL-BACHE CAPITAL RETURN FUTURES FUND L.P.
(a limited partnership)
TABLE OF CONTENTS
<TABLE>
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PART I PAGE
<S> <C> <C>
Item 1 Business......................................................................... 3
Item 2 Properties....................................................................... 4
Item 3 Legal Proceedings................................................................ 4
Item 4 Submission of Matters to a Vote of Limited Partners.............................. 4
PART II
Item 5 Market for the Registrant's Units and Related Limited Partner Matters............ 4
Item 6 Selected Financial Data.......................................................... 5
Item 7 Management's Discussion and Analysis of Financial Condition and Results of
Operations..................................................................... 5
Item 8 Financial Statements and Supplementary Data...................................... 5
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure..................................................................... 5
PART III
Item 10 Directors and Executive Officers of the Registrant............................... 5
Item 11 Executive Compensation........................................................... 6
Item 12 Security Ownership of Certain Beneficial Owners and Management................... 7
Item 13 Certain Relationships and Related Transactions................................... 7
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K
Financial Statements and Financial Statement Schedules........................... 8
Exhibits......................................................................... 8
Reports on Form 8-K.............................................................. 10
SIGNATURES ................................................................................. 11
</TABLE>
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PART I
Item 1. Business
General
Prudential-Bache Capital Return Futures Fund L.P. (the ``Registrant''), a
Delaware limited partnership, was formed on January 26, 1989 and will terminate
on December 31, 2009 unless terminated sooner under the provisions of the
Amended and Restated Agreement of Limited Partnership (the ``Partnership
Agreement''). The Registrant was formed to engage in the speculative trading of
a portfolio consisting primarily of commodity futures, forward and options
contracts. On May 12, 1989, the Registrant completed its offering and raised
$139,151,000 from the sale of 1,377,053 units of limited partnership interest
and 14,457 units of general partnership interest (collectively, ``Units'') which
resulted in net proceeds to the Registrant of $137,151,000. The Registrant's
fiscal year for book and tax purposes ends on December 31.
At the inception of the Registrant, sixty percent of the net asset value was
allocated to commodities trading. As a protective device in conjunction with the
letter of credit (see further discussion below), the remaining forty percent of
the net asset value was placed in reserve (the ``Reserve Assets'') and was not
committed to commodities trading until June 30, 1994 (the ``Capital Return
Date''). On the Capital Return Date, the letter of credit expired and the
Reserve Assets were allocated for commodities trading to John W. Henry & Co.,
Inc., an independent commodities trading manager.
All trading decisions for the Registrant are currently being made by John W.
Henry & Co., Inc. (the ``Trading Manager''). Through June 30, 1994, several
independent commodity trading managers shared responsibilities for the
Registrant's trading decisions. The General Partner retains the authority to
override trading instructions that violate the Registrant's trading policies.
The Registrant is engaged solely in the business of commodity futures,
forward and options trading; therefore, presentation of industry segment
information is not applicable.
General Partner
The general partner of the Registrant is Seaport Futures Management, Inc.
(the ``General Partner'') which is an affiliate of Prudential Securities
Incorporated (``PSI''), the Registrant's commodity broker. Both the General
Partner and PSI are wholly-owned subsidiaries of Prudential Securities Group
Inc. (``PSGI''). The General Partner is required to maintain at least a 1%
interest in the Registrant as long as it is acting as the Registrant's general
partner.
Letter of Credit
An irrevocable letter of credit (``Letter of Credit'') was issued in favor of
the Registrant by Citibank, N.A. (the ``Bank'') on May 12, 1989. The Letter of
Credit was intended to provide protection to the limited partners against loss
of their initial investment as of the Capital Return Date when the limited
partners had the option to redeem their units and receive the greater of the
then current net asset value per Unit or 100% of their initial investment. As
described above, the Letter of Credit expired on June 30, 1994 (with no payment
required by the Bank) and does not provide protection thereafter.
Competition
The General Partner and its affiliates have formed and may continue to form
various entities to engage in the speculative trading of futures, forward and
options contracts which, in part, have certain of the same investment policies
as the Registrant.
The Registrant is a closed-end fund which does not currently, and does not
intend in the future to, solicit the sale of additional Units. As such, the
Registrant does not compete with other entities to attract new fund
participants. However, to the extent that the Trading Manager recommends similar
or identical trades to the Registrant and other accounts which it manages, the
Registrant may compete with those accounts for the execution of the same or
similar trades.
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Employees
The Registrant has no employees. Management and administrative services for
the Registrant are performed by the General Partner and its affiliates pursuant
to the Partnership Agreement. See Notes A, C and D to the Registrant's annual
report to limited partners for the year ended December 31, 1996 (``Registrant's
1996 Annual Report'') which is filed as an exhibit hereto.
Item 2. Properties
The Registrant does not own or lease any property.
Item 3. Legal Proceedings
There are no material legal proceedings pending by or against the Registrant
or the General Partner.
Item 4. Submission of Matters to a Vote of Limited Partners
None
PART II
Item 5. Market for the Registrant's Units and Related Limited Partner Matters
As of March 3, 1997 there were 1,517 holders of record owning 130,609 Units,
including 1,307 units of general partnership interest. A significant secondary
market for the Units has not developed, and it is not expected that one will
develop in the future. There are also certain restrictions set forth in the
Partnership Agreement limiting the ability of a partner to transfer Units. The
Partnership Agreement does, however, provide that a limited partner may only
redeem its units as of the last business day of any full calendar quarter
(beginning with the end of the first full fiscal quarter of the Registrant's
operations, which was the quarter ended September 30, 1989) at the then current
net asset value per Unit reduced by each Unit's pro rata portion of unamortized
organizational costs. Consequently, holders of Units may not be able to
liquidate their investments in the event of an emergency or for any other
reason.
There are no material restrictions upon the Registrant's present or future
ability to make distributions in accordance with the provisions of the
Partnership Agreement. No distributions have been made since inception and no
distributions are anticipated in the future.
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Item 6. Selected Financial Data
The following table presents selected financial data of the Registrant. This
data should be read in conjunction with the financial statements of the
Registrant and the notes thereto on pages 2 through 9 of the Registrant's 1996
Annual Report which is filed as an exhibit hereto.
<TABLE>
<CAPTION>
Year ended December 31,
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<S> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992
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Net realized gain (loss) $ 3,400,298 $ 7,231,676 $(5,337,170) $ 9,568,847 $ 1,540,667
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Change in net unrealized gain $ (470,820) $ 24,602 $ (189,239) $ (382,252) $ (67,879)
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Commissions $ 1,416,851 $ 1,725,325 $ 1,616,313 $ 2,028,878 $ 2,217,126
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Management fees $ 715,244 $ 882,190 $ 750,008 $ 862,168 $ 847,923
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Incentive fees $ -- $ 437,793 $ -- $ 616,838 $ 477,868
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Net income (loss) $ 1,330,842 $ 4,963,090 $(7,333,588) $ 6,614,407 $ (449,499)
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Allocation of net income
(loss):
Limited partners $ 1,341,731 $ 4,814,944 $(7,164,969) $ 6,494,501 $ (448,823)
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----------- ----------- ----------- ----------- -----------
General partner $ (10,889) $ 148,146 $ (168,619) $ 119,906 $ (676)
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Net income (loss) per
weighted average Unit $ 9.23 $ 28.30 $ (27.40) $ 14.41 $ (.82)
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Total assets $18,703,847 $20,553,690 $21,732,249 $56,492,082 $58,537,653
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Redemptions $ 3,052,033 $ 5,181,142 $14,539,167 $21,687,018 $12,177,356
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Net asset value per Unit $ 137.02 $ 126.19 $ 101.79 $ 129.56 $ 115.35
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</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This information is incorporated by reference to pages 10 and 11 of the
Registrant's 1996 Annual Report which is filed as an exhibit hereto.
Item 8. Financial Statements and Supplementary Data
The financial statements are incorporated by reference to pages 2 through 9
of the Registrant's 1996 Annual Report which is filed as an exhibit hereto.
Supplementary data specified by Item 302 of Regulation S-K (selected
quarterly financial data) is not applicable.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Reference is made to the Registrant's Current Report on Form 8-K dated May
14, 1996, as filed with the Securities and Exchange Commission on May 16, 1996
regarding the change in the Registrant's certifying accountant from Deloitte &
Touche LLP to Price Waterhouse LLP.
PART III
Item 10. Directors and Executive Officers of the Registrant
There are no directors or executive officers of the Registrant. The
Registrant is managed by the General Partner.
The General Partner's directors and executive officers and any persons
holding more than ten percent of the Registrant's Units (``Ten Percent Owners'')
are required to report their initial ownership of such Units and
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any subsequent changes in that ownership to the Securities and Exchange
Commission on Forms 3, 4 or 5. Such executive officers, directors and Ten
Percent Owners are required by Securities and Exchange Commission regulations to
furnish the Registrant with copies of all Forms 3, 4 and 5 they file. All of
these filing requirements were satisfied on a timely basis. In making these
disclosures, the Registrant has relied solely on written representations of the
General Partner's directors and executive officers or copies of the reports that
they have filed with the Securities and Exchange Commission during and with
respect to its most recent fiscal year.
The directors and executive officers of Seaport Futures Management, Inc. and
their positions with respect to the Registrant are as follows:
<TABLE>
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Name Position
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<S> <C>
James M. Kelso President and Director
Barbara J. Brooks Treasurer and Chief Financial Officer
Steven Carlino Vice President and Chief Accounting Officer
A. Laurence Norton, Jr. Director
Guy S. Scarpaci Director
</TABLE>
JAMES M. KELSO, age 42, is the President and a Director of Seaport Futures
Management, Inc. He is a Senior Vice President of Futures Administration of PSI.
He is also the President and a Director of Prudential Securities Futures
Management Inc. and serves in various capacities for other affiliated companies.
He has held several positions within PSI since July 1981.
BARBARA J. BROOKS, age 48, is the Treasurer and Chief Financial Officer of
Seaport Futures Management, Inc. She is a Senior Vice President of PSI. She is
also the Treasurer and Chief Financial Officer of Prudential Securities Futures
Management Inc. and serves in various capacities for other affiliated companies.
She has held several positions within PSI since April 1983. Ms. Brooks is a
certified public accountant.
STEVEN CARLINO, age 33, is a Vice President of Seaport Futures Management,
Inc. He is a First Vice President of PSI. He is also a Vice President of
Prudential Securities Futures Management Inc. and serves in various capacities
for other affiliated companies. Prior to joining PSI in October 1992, he was
with Ernst & Young for six years. Mr. Carlino is a certified public accountant.
A. LAURENCE NORTON, JR., age 58, is a Director of Seaport Futures Management,
Inc. He is an Executive Vice President of PSI and head of its Futures Division.
He is also a Director of Prudential Securities Futures Management Inc. Most
recently, he held the position of Executive Director of Retail Development and
Retail Strategies at Prudential Securities Incorporated. Prior to joining PSI in
1991, Mr. Norton was a Senior Vice President and Branch Manager of Shearson
Lehman Brothers.
GUY S. SCARPACI, age 50, is a Director of Seaport Futures Management, Inc. He
is a First Vice President of the Futures Division of PSI. He is also a Director
of Prudential Securities Futures Management Inc. Mr. Scarpaci has been employed
by PSI in positions of increasing responsibility since August 1974.
There are no family relationships among any of the foregoing directors or
executive officers. All of the foregoing directors and/or executive officers
have indefinite terms.
Item 11. Executive Compensation
The Registrant does not pay or accrue any fees, salaries or any other form of
compensation to directors and officers of the General Partner for their
services. Certain officers and directors of the General Partner receive
compensation from affiliates of the General Partner, not from the Registrant,
for services performed for various affiliated entities, which may include
services performed for the Registrant; however, the General Partner believes
that any compensation attributable to services performed for the Registrant is
immaterial. (See also Item 13, Certain Relationships and Related Transactions,
for information regarding compensation to the General Partner.)
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Item 12. Security Ownership of Certain Beneficial Owners and Management
As of March 3, 1997, no director or officer of the General Partner owns
directly or beneficially any interest in the voting securities of the General
Partner.
As of March 3, 1997, no director or officer of the General Partner owns
directly or beneficially any of the Units issued by the Registrant.
As of March 3, 1997, no partner beneficially owns more than five percent (5%)
of the limited partnership units issued by the Registrant.
Item 13. Certain Relationships and Related Transactions
The Registrant has and will continue to have certain relationships with the
General Partner and its affiliates. However, there have been no direct financial
transactions between the Registrant and the directors or officers of the General
Partner.
Reference is made to Notes A, C and D to the financial statements in the
Registrant's 1996 Annual Report which is filed as an exhibit hereto, which
identify the related parties and discuss the services provided by these parties
and the amounts paid or payable for their services.
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PART IV
<TABLE>
<CAPTION>
Page in
Annual Report
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Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements and Reports of Independent
Accountants--Incorporated by reference to the Registrant's 1996
Annual Report which is filed as an exhibit hereto
Reports of Independent Accountants:
Report of Independent Accountants as of December 31, 1996 and for
the year then ended 2
Independent Auditors' Report as of December 31, 1995 and for the
years ended December 31, 1995 and 1994 2A
Financial Statements:
Statements of Financial Condition--December 31, 1996 and 1995 3
Statements of Operations--Three years ended December 31, 1996 4
Statements of Changes in Partners' Capital--Three years ended
December 31, 1996 4
Notes to Financial Statements 5
2. Financial Statement Schedules
All schedules have been omitted because they are not applicable or
the required information is included in the financial statements or
the notes thereto.
3. Exhibits:
Description:
3.1 Agreement of Limited Partnership of the Registrant, dated as of
and January 26, 1989 as amended and restated as of March 15, 1989
4.1 (Incorporated by reference to Exhibits 3.1 and 4.1 to the
Registrant's Annual Report on Form 10-K for the period ended
December 31, 1989)
4.2 Subscription Agreement (Incorporated by reference to Exhibit 4.2 to
the Registrant's Annual Report on Form 10-K for the period ended
December 31, 1989)
4.3 Request for Redemption (Incorporated by reference to Exhibit 4.3 to
the Registrant's Annual Report on Form 10-K for the period ended
December 31, 1989)
10.1 Escrow Agreement, dated March 17, 1989 among the Registrant, Seaport
Futures Management, Inc., Prudential-Bache Securities Inc. and
Bankers Trust Company (Incorporated by reference to Exhibit 10.1 to
the Registrant's Annual Report on Form 10-K for the period ended
December 31, 1989)
10.2 Brokerage Agreement dated May 12, 1989 between the Registrant and
Prudential-Bache Securities Inc. (Incorporated by reference to
Exhibit 10.2 to the Registrant's Annual Report on Form 10-K for the
period ended December 31, 1989)
</TABLE>
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<TABLE>
<S> <C> <C> <C>
10.3 Advisory Agreement dated March 17, 1989 among the Registrant,
Seaport Futures Management, Inc., and Tiverton Trading Inc.
(Incorporated by reference to Exhibit 10.3 to the Registrant's
Annual Report on Form 10-K for the period ended December 31, 1989)
10.4 Advisory Agreement, dated September 1, 1990 between the Registrant,
Seaport Futures Management, Inc. and John W. Henry & Co., Inc.
(Incorporated by reference to Exhibit 10.4 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1990)
10.5 Representation Agreement Concerning the Registration Statement and
the Prospectus, dated as of March 17, 1989 among the Registrant,
Seaport Futures Management, Inc., Prudential-Bache Securities Inc.
and Tiverton Trading Inc. (Incorporated by reference to Exhibit 10.5
to the Registrant's Annual Report on Form 10-K for the period ended
December 31, 1989)
10.6 Net Worth Agreement, dated as of March 17, 1989 between Seaport
Futures Management, Inc. and Prudential Securities Group Inc.
(Incorporated by reference to Exhibit 10.6 to the Registrant's
Annual Report on Form 10-K for the period ended December 31, 1989)
10.7 Promissory Note issued by Prudential Securities Group Inc. to
Seaport Futures Management, Inc., dated May 12, 1989 (Incorporated
by reference to Exhibit 10.7 to the Registrant's Annual Report on
Form 10-K for the period ended December 31, 1989)
10.8 Letter of Credit and Reimbursement Agreement among the Registrant,
Seaport Futures Management, Inc., Prudential Securities Group Inc.
and Citibank, N.A. dated March 17, 1989 (Incorporated by reference
to Exhibit 10.8 to the Registrant's Annual Report on Form 10-K for
the period ended December 31, 1989)
10.9 Secured Demand Note Collateral Agreement dated February 15, 1991
between Seaport Futures Management, Inc. and Prudential Securities
Group Inc. (Incorporated by reference to Exhibit 28.2 to the
Registrant's 10-Q for the period ended March 31, 1991)
10.10 Advisory Agreement, dated January 1, 1992 among the Registrant,
Seaport Futures Management, Inc. and Chang-Crowell Management
Corporation (Incorporated by reference to Exhibit 10.10 to the
Registrant's Annual Report on Form 10-K for the year ended December
31, 1991)
10.11 Amendment No 1 to Letter of Credit and Reimbursement Agreement dated
October 24, 1989 among the Registrant, Citibank, N.A., Seaport
Futures Management, Inc. and Prudential Securities Group Inc.
(Incorporated by reference to Exhibit 10.11 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1991)
10.12 Amendment No 2 to Letter of Credit and Reimbursement Agreement dated
January 22, 1990 among the Registrant, Citibank, N.A., Seaport
Futures Management, Inc. and Prudential Securities Group Inc.
(Incorporated by reference to Exhibit 10.12 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1991)
</TABLE>
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<TABLE>
<S> <C> <C> <C>
10.13 Amendment No 3 to Letter of Credit and Reimbursement Agreement dated
February 15, 1991 among the Registrant, Citibank, N.A., Seaport
Futures Management, Inc. and Prudential Securities Group Inc.
(Incorporated by reference to Exhibit 10.13 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1991)
10.14 Amendment No 4 to Letter of Credit and Reimbursement Agreement dated
March 28, 1991 among the Registrant, Citibank, N.A., Seaport Futures
Management, Inc. and Prudential Securities Group Inc. (Incorporated
by reference to Exhibit 28.1 to the Registrant's Quarterly Report on
Form 10-Q for the period ended March 31, 1991)
10.15 Amendment No 5 to Letter of Credit and Reimbursement Agreement dated
April 15, 1993 among the Registrant, Citibank, N.A., Seaport Futures
Management, Inc. and Prudential Securities Group Inc. (Incorporated
by reference to Exhibit 10.15 to the Registrant's Quarterly Report
on Form 10-Q for the period ended March 31, 1993)
10.16 Amendment to Advisory Agreement dated June 30, 1994 among the
Registrant, Seaport Futures Management, Inc. and John W. Henry &
Co., Inc. (Incorporated by reference to Exhibit 10.16 to the
Registrant's Quarterly Report on Form 10-Q for the period ended June
30, 1994)
10.17 Addendum to Brokerage Agreement dated July 1, 1994 among the
Registrant, Seaport Futures Management, Inc. and Prudential
Securities Incorporated (Incorporated by reference to Exhibit 10.17
to the Registrant's Quarterly Report on Form 10-Q for the period
ended September 30, 1994)
10.18 Form of Foreign Currency Addendum to Brokerage Agreement between the
Registrant and Prudential Securities Incorporated (incorporated by
reference to Exhibit 10.16 of the Registrant's Quarterly Report on
Form 10-Q for the period ended March 31, 1996)
13.1 Registrant's 1996 Annual Report (with the exception of the
information and data incorporated by reference in Items 7 and 8 of
this Annual Report on Form 10-K, no other information or data
appearing in the Registrant's 1996 Annual Report is to be deemed
filed as part of this report) (filed herewith)
16.1 Letter dated May 14, 1996 from Deloitte & Touche LLP to the
Securities and Exchange Commission regarding change in certifying
accountant (incorporated by reference to Exhibit 16.1 to the
Registrant's Current Report on Form 8-K dated May 14, 1996)
27.1 Financial Data Schedule (filed herewith)
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the
period covered by this report
</TABLE>
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
Prudential-Bache Capital Return Futures Fund L.P.
By: Seaport Futures Management, Inc.
A Delaware corporation, General Partner
By: /s/ Steven Carlino Date: March 27, 1997
------------------------------------------------------
Steven Carlino
Vice President and Chief Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities (with respect to the General Partner) and on
the dates indicated.
By: Seaport Futures Management, Inc.
A Delaware corporation, General Partner
By: /s/ James M. Kelso Date: March 27, 1997
-----------------------------------------------------
James M. Kelso
President and Director
By: /s/ Barbara J. Brooks Date: March 27, 1997
-----------------------------------------------------
Barbara J. Brooks
Treasurer and Chief Financial Officer
By: /s/ Steven Carlino Date: March 27, 1997
-----------------------------------------------------
Steven Carlino
Vice President
By: /s/ A. Laurence Norton, Jr. Date: March 27, 1997
-----------------------------------------------------
A. Laurence Norton, Jr.
Director
By: /s/ Guy S. Scarpaci Date: March 27, 1997
-----------------------------------------------------
Guy S. Scarpaci
Director
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1996
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Prudential-Bache Annual
Capital Return Futures Fund L.P. Report
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PRUDENTIAL-BACHE CAPITAL RETURN FUTURES FUND L.P.
LETTER TO THE LIMITED PARTNERS FOR THE YEAR ENDED DECEMBER 31, 1996
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1177 Avenue of the Americas Telephone 212 596 7000
New York, NY 10036 Facsimile 212 596 8910
Price Waterhouse LLP (LOGO)
Report of Independent Accountants
January 29, 1997
To the General Partner and
Limited Partners of
Prudential-Bache Capital Return Futures Fund L.P.
In our opinion, the accompanying statement of financial condition and the
related statements of operations and of changes in partners' capital present
fairly, in all material respects, the financial position of Prudential-Bache
Capital Return Futures Fund L.P. (the ``Partnership'') at December 31, 1996, and
the results of its operations and the changes in its partners' capital for the
year then ended, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the general partner; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by the
general partner, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
/s/ Price Waterhouse LLP
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Deloitte &
Touche LLP
--------------------------------------------------------
Two World Financial Center Telephone: (212) 436-2000
New York, New York 10281-1414 Facsimile: (212) 436-5000
INDEPENDENT AUDITORS' REPORT
To the Partners of
Prudential-Bache Capital Return Futures Fund L.P.
We have audited the accompanying statement of financial condition of
Prudential-Bache Capital Return Futures Fund L.P. as of December 31, 1995 and
the related statements of operations and changes in partners' capital for the
years ended December 31, 1995 and 1994. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Prudential-Bache Capital Return Futures Fund
L.P. as of December 31, 1995, and the results of its operations for the years
ended December 31, 1995 and 1994 in conformity with generally accepted
accounting principles.
/s/ Deloitte & Touche LLP
January 29, 1996
- -----------------
Deloitte Touche
Tohmatsu
International
- -----------------
2A
<PAGE>
PRUDENTIAL-BACHE CAPITAL RETURN FUTURES FUND L.P.
(a limited partnership)
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
December 31,
--------------------------
1996 1995
<S> <C> <C>
- --------------------------------------------------------------------------------------------------
ASSETS
Equity in commodity trading accounts:
Cash $ 4,416,242 $ 4,882,612
U.S. Treasury bills, at amortized cost 13,869,729 15,256,948
Net unrealized gain on open commodity positions 417,876 414,130
----------- -----------
Total assets $18,703,847 $20,553,690
----------- -----------
----------- -----------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Redemptions payable $ 664,958 $ 770,138
Management fees payable 62,075 68,183
Accrued expenses 61,858 51,018
Due to affiliates 19,472 47,676
----------- -----------
Total liabilities 808,363 937,015
----------- -----------
Commitments
Partners' capital
Limited partners (129,302 and 149,378 units outstanding) 17,716,405 18,850,694
General partner (1,307 and 6,070 units outstanding) 179,079 765,981
----------- -----------
Total partners' capital 17,895,484 19,616,675
----------- -----------
Total liabilities and partners' capital $18,703,847 $20,553,690
----------- -----------
----------- -----------
Net asset value per limited and general partnership unit (``Units'') $ 137.02 $ 126.19
----------- -----------
----------- -----------
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
3
<PAGE>
<PAGE>
PRUDENTIAL-BACHE CAPITAL RETURN FUTURES FUND L.P.
(a limited partnership)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------
1996 1995 1994
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
REVENUES
Net realized gain (loss) $3,400,298 $7,231,676 $(5,337,170)
Change in net unrealized gain (470,820) 24,602 (189,239)
Interest from U.S. Treasury bills 694,789 931,320 641,564
Realized gain on reserve assets -- -- 33,752
Change in net unrealized gain on reserve assets -- -- (142,344)
Interest from reserve assets -- -- 455,032
---------- ---------- -----------
3,624,267 8,187,598 (4,538,405)
---------- ---------- -----------
EXPENSES
Commissions 1,416,851 1,725,325 1,616,313
Letter of credit fees -- -- 235,782
Management fees 715,244 882,190 750,008
Incentive fees -- 437,793 --
General and administrative 161,330 179,200 182,015
Amortization of organizational costs -- -- 11,065
---------- ---------- -----------
2,293,425 3,224,508 2,795,183
---------- ---------- -----------
Net income (loss) $1,330,842 $4,963,090 $(7,333,588)
---------- ---------- -----------
---------- ---------- -----------
ALLOCATION OF NET INCOME (LOSS)
Limited partners $1,341,731 $4,814,944 $(7,164,969)
---------- ---------- -----------
---------- ---------- -----------
General partner $ (10,889) $ 148,146 $ (168,619)
---------- ---------- -----------
---------- ---------- -----------
NET INCOME (LOSS) PER WEIGHTED AVERAGE LIMITED AND
GENERAL PARTNERSHIP UNIT
Net income (loss) per weighted average limited and
general partnership unit $ 9.23 $ 28.30 $ (27.40)
---------- ---------- -----------
---------- ---------- -----------
Weighted average number of limited and general
partnership units outstanding 144,158 175,382 267,683
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
<TABLE>
<CAPTION>
LIMITED GENERAL
UNITS PARTNERS PARTNER TOTAL
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
Partners' capital--December 31, 1993 321,900 $ 40,921,028 $ 786,454 $ 41,707,482
Net loss (7,164,969) (168,619) (7,333,588)
Redemptions (127,036) (14,539,167) -- (14,539,167)
-------- ------------ --------- ------------
Partners' capital--December 31, 1994 194,864 19,216,892 617,835 19,834,727
Net income 4,814,944 148,146 4,963,090
Redemptions (39,416) (5,181,142) -- (5,181,142)
-------- ------------ --------- ------------
Partners' capital--December 31, 1995 155,448 18,850,694 765,981 19,616,675
Net income (loss) 1,341,731 (10,889) 1,330,842
Redemptions (24,839) (2,476,020) (576,013) (3,052,033)
-------- ------------ --------- ------------
Partners' capital--December 31, 1996 130,609 $ 17,716,405 $ 179,079 $ 17,895,484
-------- ------------ --------- ------------
-------- ------------ --------- ------------
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
4
<PAGE>
<PAGE>
PRUDENTIAL-BACHE CAPITAL RETURN FUTURES FUND L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
A. General
Prudential-Bache Capital Return Futures Fund L.P. (the ``Partnership'') is a
Delaware limited partnership formed on January 26, 1989 which will terminate on
December 31, 2009 unless terminated sooner under the provisions of the Amended
and Restated Agreement of Limited Partnership (the ``Partnership Agreement'').
On May 12, 1989, the Partnership completed its offering and raised $139,151,000
from the sale of 1,377,053 units of limited partnership interest and 14,457
units of general partnership interest. The Partnership was formed to engage in
the speculative trading of commodity futures, forward and options contracts.
Physical commodities may also be traded from time to time. The general partner
of the Partnership is Seaport Futures Management, Inc. (the ``General Partner'')
which is an affiliate of Prudential Securities Incorporated (``PSI''), the
Partnership's commodity broker. Both the General Partner and PSI are
wholly-owned subsidiaries of Prudential Securities Group Inc. (``PSGI''). The
General Partner is required to maintain at least a 1% interest in the
Partnership as long as it is acting as the Partnership's general partner.
Initially, sixty percent (60%) of the net proceeds of the offering was
deposited in the Partnership's trading accounts for commodity trading purposes
(referred to as the Partnership's ``Traded Assets''). The General Partner
generally maintains not less than seventy-five percent (75%) of the Traded
Assets in interest-bearing U.S. Government obligations (primarily U.S. Treasury
bills), a significant portion of which is utilized for margin purposes for the
Partnership's commodity trading activities. The remaining twenty-five percent
(25%) of the Traded Assets is held in cash in commodity trading accounts. As a
protective device in conjunction with the letter of credit (see further
discussion below), the remaining forty percent (40%) of the net proceeds was
placed in reserve (the ``Reserve Assets'') and was not committed to commodities
trading until June 30, 1994 (the ``Capital Return Date''). On the Capital Return
Date, the letter of credit expired and the Reserve Assets were allocated for
commodities trading to John W. Henry & Co., Inc., an independent commodities
trading manager.
All trading decisions for the Partnership are currently made by John W. Henry
& Co., Inc. During the period January 1, 1992 through June 30, 1994, John W.
Henry & Co., Inc., and Chang-Crowell Management Corporation (``CCM'') shared
responsibilities for the Partnership's trading decisions. John W. Henry & Co.,
Inc. became the sole trading advisor to the Partnership beginning July 1, 1994.
(The independent commodity trading managers are each a ``Trading Manager''). The
General Partner retains the authority to override trading instructions that
violate the Partnership's trading policies.
On May 12, 1989, an irrevocable letter of credit (``Letter of Credit'') was
issued in favor of the Partnership by Citibank, N.A. (the ``Bank''). The Letter
of Credit was intended to provide protection to the limited partners against
loss of their initial investment as of the Capital Return Date when the limited
partners had the option to redeem their units and receive the greater of the
then current net asset value per Unit or 100% of their initial investment. The
Letter of Credit expired on June 30, 1994 (with no payment required of the Bank)
and does not provide protection thereafter.
B. Summary of Significant Accounting Policies
Basis of accounting
The books and records of the Partnership are maintained on the accrual basis
of accounting in accordance with generally accepted accounting principles.
The preparation of financial statements in conformity with generally accepted
accounting principles requires the General Partner to make estimates and
assumptions that affect the reported amounts of liabilities at the date of the
financial statements and the reported amounts of expenses during the reporting
period. Actual results could differ from those estimates.
Commodity futures and forward transactions are reflected in the accompanying
statements of financial condition on trade date. The difference between the
original contract amount and market value is reflected as net unrealized gain or
loss. The market value of each contract is based upon the closing quotation on
the exchange, clearing firm or bank on, or through, which the contract is
traded.
To the extent practicable, the Partnership invests a significant portion of
its Traded Assets in U.S. Treasury bills to fulfill original margin
requirements. Reserve Assets were invested in U.S. Treasury strips.
5
<PAGE>
<PAGE>
U.S. Treasury bills are carried at amortized cost, which approximates market,
while the U.S. Treasury strips were carried at their market value. Interest on
these obligations accrues for the benefit of the Partnership.
The weighted average number of limited and general partnership units
outstanding was computed for purposes of disclosing net income (loss) per
weighted average limited and general partnership unit. The weighted average
limited and general partnership units are equal to the number of Units
outstanding at year end, adjusted proportionately for the Units redeemed based
on their respective time outstanding during such year.
The Partnership has elected not to provide a Statement of Cash Flows as
permitted by Statement of Financial Accounting Standard No. 102, ``Statement of
Cash Flows--Exemption of Certain Enterprises and Classification of Cash Flows
from Certain Securities Acquired for Resale.''
Certain balances from prior years have been reclassified to conform with the
current financial statement presentation.
Income taxes
The Partnership is not required to provide for, or pay, any Federal or state
income taxes. Income tax attributes that arise from the Partnership's operations
are passed directly to the individual partners. The Partnership may be subject
to other state and local taxes in jurisdictions in which it operates.
Profit and loss allocations, distributions and redemptions
Net realized profits or losses for tax purposes are allocated first to
partners who redeem Units to the extent the amounts received on redemption are
greater than or are less than the amounts paid for the redeemed Units by the
partners. Net realized profits or losses remaining after these allocations are
allocated to each partner in proportion to such partner's capital account at
year-end. Net income or loss for financial reporting purposes is allocated
quarterly to all partners on a pro rata basis based on each partner's number of
Units outstanding during the quarter.
Distributions (other than on redemptions of Units) are made at the sole
discretion of the General Partner on a pro rata basis in accordance with the
respective capital accounts of the partners. No distributions have been made
since inception.
The Partnership Agreement provides that a limited partner may redeem its
units as of the last business day of any full calendar quarter at the then
current net asset value per Unit reduced by each Unit's pro rata portion of
unamortized organizational costs.
C. Costs, Fees and Expenses
Organizational costs
Costs incurred to organize the Partnership, including but not limited to
legal, accounting, registration fees and certain printing costs, are considered
deferred organizational costs. These costs were capitalized and amortized over a
60-month period ending in 1994.
Commissions and Letter of Credit fees
The General Partner, on behalf of the Partnership, entered into an agreement
with PSI to act as commodity broker for the Partnership. The Partnership paid
PSI fees comprised of brokerage and Letter of Credit fees at an initial rate of
5/6 of 1% per month (a 10% annual rate) of the Partnership's as of the first day
of each month. In conjunction with the expiration of the Letter of Credit (See
Note A), a decrease to the rate of 2/3 of 1% per month (an 8% annual rate) for
brokerage fees was implemented on July 1, 1994.
Through June 30, 1994, the portion of the monthly fee paid to PSI
representing Letter of Credit fees was calculated as follows: (i) .0010416 (a
1.25% annual rate) of the outstanding letter of credit amount as of the first
day of each month was due to the Bank for issuing and maintaining the letter of
credit, and (ii) .0002083 (a .25% annual rate) of the outstanding letter of
credit amount as of the first day of each month was due to PSGI for being
obligated to make payment of a portion of the General Partner's repayment
obligation in the event the General Partner was unable to do so. Following the
expiration of the Letter of Credit on June 30, 1994 (see Note A), the
Partnership was no longer obligated to pay these fees.
Management and incentive fees
The Partnership has paid each Trading Manager monthly management fees ranging
from 3/16 of 1% (2 1/4% annual rate) to 1/3 of 1% (a 4% annual rate) of the
portion of the Partnership's Traded Assets allocated to that Trading Manager as
of the end of each month. The current Trading Manager is paid at a 4% annual
rate.
6
<PAGE>
<PAGE>
In addition, the Partnership has also paid each Trading Manager a quarterly
incentive fee ranging from 15% to 20% of the ``New High Net Trading Profits''
generated by each Trading Manager (as defined in the Advisory Agreement between
the Partnership, the General Partner and each Trading Manager). The current
Trading Manager is paid at a 15% rate effective July 1, 1994.
General and administrative expenses
In addition to the costs, fees and expenses previously discussed, the
Partnership reimburses the General Partner and its affiliates for actual
Partnership operating expenses payable by, or allocable to, the Partnership. The
amount of reimbursement from the Partnership is limited by the provisions of the
Partnership Agreement. The Partnership also pays amounts directly to unrelated
parties for certain operating expenses.
D. Related Parties
The General Partner and its affiliates perform services for the Partnership
which include, but are not limited to: brokerage services, accounting and
financial management, registrar, transfer and assignment functions, investor
communications, printing services, and other administrative services.
The costs incurred for these services for the years ended December 31, 1996,
1995 and 1994 were:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
----------------------------------------
Commissions $1,416,851 $1,725,325 $1,616,313
Letter of Credit fees -- -- 39,297
General and administrative 92,346 111,364 107,150
---------- ---------- ----------
Total $1,509,197 $1,836,689 $1,762,760
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The Partnership maintains its trading and cash accounts at PSI. Approximately
75% of the Traded Assets 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.
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 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.
E. Income Taxes
The following is a reconciliation of net income (loss) for financial
reporting purposes to net income (loss) for tax reporting purposes for the years
ended December 31, 1996, 1995 and 1994, respectively:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
-----------------------------------------
Net income (loss) per financial statements $1,330,842 $4,963,090 $(7,333,588)
Change in net unrealized gain on Reserve Assets -- -- 142,344
Change in unrealized gain/loss on nonregulated
commodity positions and foreign currencies 709,383 14,371 (214,768)
Original issue discount adjustments to interest income -- -- 128,458
---------- ---------- -----------
Tax basis net income (loss) $2,040,225 $4,977,461 $(7,277,554)
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
The differences between the tax and book bases of partners' capital are
primarily attributable to the cumulative effect of the book to tax income
adjustments.
F. Credit and Market Risk
Since the Partnership's business is to trade futures, forward and options
contracts, its capital is at risk due to changes in the value of these contracts
(market risk) or the inability of counterparties to perform under the terms of
the contracts (credit risk).
Futures, forward and options contracts involve varying degrees of off-balance
sheet risk; and changes in the level 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
7
<PAGE>
<PAGE>
(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 at 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 Manager to abide by various trading
limitations and policies. The General Partner monitors compliance with these
trading limitations and policies which include, but are not limited to,
executing and clearing all trades with creditworthy counterparties (currently
PSI is the sole counterparty or broker); limiting the amount of margin or
premium required for any one commodity or all commodities combined; and
generally limiting transactions to contracts which are traded in sufficient
volume to permit the taking and liquidating of positions. The General Partner
may impose additional restrictions (through modifications of such trading
limitations and policies) upon the trading activities of the Trading Manager as
it, in good faith, deems to be in the best interests of the Partnership.
PSI, when acting as the Partnership's futures commission merchant in
accepting orders for the purchase or sale of domestic futures and options
contracts, is required by Commodity Futures Trading Commission (``CFTC'')
regulations to separately account for and segregate as belonging to the
Partnership all assets of the Partnership relating to domestic futures and
options trading and is not to commingle such assets with other assets of PSI. At
December 31, 1996 and 1995, such segregated assets totalled $17,277,553 and
$17,263,200, 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 $1,148,057 and $3,385,792 at December 31, 1996 and 1995,
respectively. There are no segregation requirements for assets related to
forward trading.
As of December 31, 1996 and 1995, the Partnership's open forward contracts
mature within three months, but open futures contracts mature within nine months
and one year, respectively.
At December 31, 1996 and 1995, gross contract amounts of open futures and
forward contracts are:
<TABLE>
<CAPTION>
December December
31, 31,
1996 1995
----------- -----------
<S> <C> <C>
Currency Forward Contracts:
Commitments to purchase $14,780,831 $ 2,908,537
Commitments to sell $21,404,866 $12,481,234
Currency Futures Contracts:
Commitments to purchase $1,527,963 $ 440,660
Commitments to sell $2,058,838 $ 5,021,700
Financial Futures Contracts:
Commitments to purchase $37,638,257 $70,094,468
Commitments to sell $8,448,337 $11,556,783
Other Futures Contracts:
Commitments to purchase $ 419,159 $ 537,121
Commitments to sell $2,628,405 $ 1,300,800
</TABLE>
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 or forward 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
and forward contracts to be the net unrealized gain or loss on the contracts.
Thus, the amount at risk associated with counterparty nonperformance of all
contracts is the net unrealized gain included in the statements of financial
condition. The market risk associated with the Partnership's commitments to
8
<PAGE>
<PAGE>
purchase commodities is limited to the gross contract amounts, 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 December 31, 1996 and 1995, the fair value of open futures and forwards
contracts was:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
------------------------- -----------------------
<S> <C> <C> <C> <C>
Fair Value Fair Value
------------------------- -----------------------
Assets Liabilities Assets Liabilities
---------- ----------- -------- -----------
Futures Contracts:
Domestic exchanges
Financial $ 13,200 $ 13,625 $116,513 $ --
Currencies 74,723 175 5,771 23,988
Other 80,797 1,456 54,057 600
Foreign exchanges
Financial 129,424 143,249 358,529 850
Forward Contracts:
Currencies 522,582 244,345 321,721 417,023
---------- ----------- -------- -----------
$ 820,726 $ 402,850 $856,591 $ 442,461
---------- ----------- -------- -----------
---------- ----------- -------- -----------
</TABLE>
The following table presents the average fair value of futures and forward
contracts during the year ended December 31, 1996 and 1995, respectively.
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1996 December 31, 1995
------------------------- -------------------------
<S> <C> <C> <C> <C>
Average Fair Value Average Fair Value
------------------------- -------------------------
Assets Liabilities Assets Liabilities
---------- ----------- ---------- -----------
Futures Contracts:
Domestic exchanges
Financial $ 83,801 $ 16,095 $ 93,296 $ 6,699
Currencies 107,987 6,777 160,089 139,716
Other 68,075 9,742 69,288 20,751
Foreign exchanges
Financial 624,117 30,627 288,249 27,110
Forward Contracts:
Currencies 640,634 373,816 1,799,532 997,679
---------- ----------- ---------- -----------
$1,524,614 $ 473,057 $2,410,454 $ 1,191,955
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
</TABLE>
The following table presents the net realized gains (losses) and the change
in net unrealized gains/losses during the years ended December 31, 1996 and
1995, respectively.
<TABLE>
<CAPTION>
Year Ended December 31, 1996 Year Ended December 31, 1995
-------------------------------------------------- --------------------------------------------------
Change in Change in
Net Realized Net Unrealized Net Realized Net Unrealized
Gains (Losses) Gains/Losses Total Gains (Losses) Gains/Losses Total
-------------- -------------------- ---------- -------------- -------------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Futures Contracts:
Domestic exchanges
Financial $ 198,794 $ (116,938) $ 81,856 $ 645,738 $(21,050) $ 624,688
Currencies 452,656 92,765 545,421 519,095 167,672 686,767
Other 404,316 25,884 430,200 (198,020) (86,477) (284,497)
Foreign exchanges
Financial 2,187,546 (371,504) 1,816,042 1,907,276 (89,434) 1,817,842
Currencies (445,409) -- (445,409) (394,837) -- (394,837)
Other -- -- -- 7,256 -- 7,256
Forward Contracts:
Currencies 658,248 373,539 1,031,787 4,745,168 53,891 4,799,059
Foreign Currencies (55,853) (474,566) (530,419) -- -- --
-------------- ----------- -------------- ----------- ---------- ----------
-------------- ----------- -------------- ----------- ---------- ----------
$3,400,298 $ (470,820) $2,929,478 $7,231,676 $ 24,602 $7,256,278
-------------- ----------- -------------- ----------- ---------- ----------
-------------- ----------- -------------- ----------- ---------- ----------
</TABLE>
9
<PAGE>
<PAGE>
PRUDENTIAL-BACHE CAPITAL RETURN FUTURES FUND L.P.
(a limited partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Partnership commenced operations on May 12, 1989 with gross proceeds of
$139,151,000. After accounting for organizational and offering costs, the
Partnership's net proceeds were $137,151,000. At the inception of the
Partnership, sixty percent of the net proceeds were allocated to commodities
trading activity (``Traded Assets'') and forty percent was placed in reserve
(``Reserve Assets'') and invested in investment grade interest-bearing
obligations (i.e. U.S. Treasury strips). On February 15, 1994 these U.S.
Treasury strips matured. The resulting proceeds were invested in U.S. Treasury
bills, which earned a lower rate of return.
On June 30, 1994, the letter of credit expired and the Reserve Assets became
available for commodities trading. These assets were allocated to John W. Henry
& Co., Inc., the Partnership's Trading Manager. As such, at December 31, 1996,
100% of the Partnership's total net assets are allocated to commodities trading.
At December 31, 1996, a significant portion of the Traded Assets was held in
U.S. Treasury bills (which represented approximately 75% of the Traded Assets
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 Traded Assets varies
each day, and from month to month, as the market value of commodity interests
change. All interest earned on the Partnership's interest-bearing funds is paid
to the Partnership.
The commodities contracts are subject to periods of illiquidity because of
market conditions, regulatory considerations and other reasons. For example,
commodity exchanges limit fluctuations in commodity futures contract prices
during a single day by regulations referred to as ``daily limits.'' During a
single day, no trades may be executed at prices beyond the daily limit. Once the
price of a futures contract for a particular commodity has increased or
decreased by an amount equal to the daily limit, positions in the commodity can
neither be taken nor liquidated unless traders are willing to effect trades at
or within the limit. Commodity futures prices have occasionally moved the daily
limit for several consecutive days with little or no trading. Such market
conditions could prevent the Partnership from promptly liquidating its commodity
futures positions.
Since the Partnership's business is to trade futures, forward and options
contracts, its capital is at risk due to changes in the value of these contracts
(market risk) or the inability of counterparties to perform under the terms of
the contracts (credit risk). The General Partner attempts to minimize these
risks by requiring the Partnership's Trading Manager to abide by various trading
limitations and policies. See Note F to the financial statements for a further
discussion on the credit and market risks associated with the Partnership's
futures, forward and options contracts.
Redemptions by limited partners recorded for the years ended December 31,
1996, 1995 and 1994 were $2,476,020, $5,181,142 and $14,539,167, respectively.
Redemptions by the General Partner for the year ended December 31, 1996 were
$576,013. Redemptions by limited partners and the general partner from the
commencement of operations, May 12, 1989, through December 31, 1996 totalled
$138,191,647 and $1,577,085, respectively. Future redemptions will impact the
amount of funds available for investment in commodity contracts in subsequent
periods.
The Partnership does not have, nor does it expect to have, any capital
assets.
Results of Operations
The net asset value per Unit as of December 31, 1996 was $137.02, an increase
of 8.58% from the December 31, 1995 net asset value per Unit of $126.19, which
was an increase of 23.97% from the December 31, 1994 net asset value per Unit of
$101.79. The MAR (Managed Account Reports) Fund/Pool Index, which tracked the
performance of 420 futures funds in 1996, returned 11.89%, outperforming the
Partnership. Past performance is not necessarily indicative of future results.
10
<PAGE>
<PAGE>
The global interest rate, currency and metal sectors were solid performers
for 1996. Trends in world currency markets reflected economic fundamentals as
well as political developments, particularly the progress of the planned
European Monetary Union. Global bond markets gained momentum in the second half
of the year due to the low interest rate policies set by the U.S. Federal
Reserve Bank and the central banks of Europe. After reaching a five year high in
February, gold prices began a relentless decline throughout the year.
As discussed in Liquidity and Capital Resources above, the letter of credit
expired on June 30, 1994. As a result, there were no letter of credit fees
charged since that date. With the expiration of the letter of credit, Reserve
Assets were allocated to commodities trading thus increasing the Partnership's
Traded Assets, including its investments in U.S. Treasury bills. This increase
in U.S. Treasury bills, coupled with higher interest rates in 1995 versus 1994,
resulted in an increase of approximately $290,000 in interest income from U.S.
Treasury bills for the year ended December 31, 1995 as compared to 1994.
However, poor trading performance during the first nine months of 1996 as well
as redemptions reduced the amount of funds available for investment in U.S.
Treasury bills during 1996. These factors, as well as a decrease in interest
rates in 1996 versus 1995, resulted in a decrease in interest income from U.S.
Treasury bills of approximately $237,000 for the year ended December 31, 1996 as
compared to 1995. Additionally, interest income from Reserve Assets was
eliminated following the allocation of Reserve Assets to commodities trading.
The interest earned on Reserve Assets was $455,302 for the year ended December
31, 1994.
Commissions are calculated on the Traded Assets at the beginning of each
month and, therefore, vary based on monthly trading performance and redemptions.
The Traded Assets increased when Reserve Assets were allocated to commodities
trading as discussed above. However, the commission rate decreased by 2% from
10% (inclusive of letter of credit fees) to 8% effective July 1, 1994. The
combination of these factors caused commissions plus letter of credit fees to
decrease by approximately $127,000 for the year ended December 31, 1995 as
compared to 1994. Commissions decreased by approximately $308,000 for the year
ended December 31, 1996 as compared to 1995 due to the effect of poor trading
performance during the first nine months of 1996 as well as redemptions on the
monthly Traded Assets.
All trading decisions are currently made by John W. Henry & Co., Inc.
Management fees are calculated on the Traded Assets as of the end of each month
and, therefore, are affected by trading performance and redemptions.
Additionally, the Traded Assets increased when Reserve Assets were allocated to
commodities trading as discussed above. Effective July 1, 1994, all assets
previously allocated to Chang-Crowell Management Corporation (``CCM'') were
allocated to John W. Henry & Co., Inc. CCM was paid management fees at a 2 1/4%
annual rate compared to a 4% annual rate paid to John W. Henry & Co., Inc. As a
result, management fees increased by approximately $132,000 for the year ended
December 31, 1995 as compared to 1994. However, management fees decreased by
approximately $167,000 for the year ended December 31, 1996 as compared to 1995
due to the effect of poor trading performance during the first nine months of
1996, as well as redemptions on the monthly Traded Assets.
Incentive fees are based on New High Net Trading Profits generated by each
Trading Manager, as defined in the Advisory Agreement between the Partnership,
the General Partner and each Trading Manager. Prior to July 1, 1994, incentive
fees were paid to CCM and John W. Henry & Co., Inc. at rates ranging from 15% to
20% of the New High Net Trading Profits. Effective July 1, 1994, John W. Henry &
Co., Inc. is paid a quarterly incentive fee of 15%. Trading performance resulted
in incentive fees of approximately $438,000 for the year ended December 31,
1995. No incentive fees were paid during 1996 and 1994.
General and administrative expenses decreased by approximately $18,000 for
the year ended December 31, 1996 compared to 1995 and decreased by approximately
$3,000 for the year ended December 31, 1995 compared to 1994. These expenses
include reimbursements of costs incurred by the General Partner on behalf of the
Partnership, in addition to accounting, audit, tax and legal fees as well as
printing and postage costs related to reports sent to limited partners. The
decreases noted above were primarily due to a reduction in overall costs
associated with administering the Partnership.
Inflation
Inflation has had no material impact on operations or on the financial
condition of the Partnership from inception through December 31, 1996.
11
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
I hereby affirm that, to the best of my knowledge and belief, the
information contained herein relating to Prudential-Bache Capital Return Futures
Fund L.P. is accurate and complete.
SEAPORT FUTURES
MANAGEMENT, INC.
(General Partner)
By: Barbara J. Brooks
Treasurer and Chief Financial Officer
- --------------------------------------------------------------------------------
12
<PAGE>
<PAGE>
OTHER INFORMATION
The actual round-turn equivalents of brokerage commissions paid per contract
for the year ended December 31, 1996 was $200.
The Partnership's Annual Report on Form 10-K as filed with the Securities and
Exchange Commission is available to limited partners without charge upon written
request to:
Prudential Securities Incorporated
P.O. Box 2016
Peck Slip Station
New York, New York 10272-2016
13
<PAGE>
<PAGE>
Peck Slip Station
BULK RATE
P.O. Box 2016
U.S. POSTAGE
New York, NY 10272
PAID
Automatic Mail
9N17172-0
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial
information extracted from the financial
statements for Prudential-Bache Capital Return
Futures Fund and is qualified in its entirety
by reference to such financial statements
</LEGEND>
<RESTATED>
<CIK> 0000846176
<NAME> Prudential-Bache Capital Return Futures Fund
<MULTIPLIER> 1
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-1-1996
<PERIOD-END> Dec-31-1996
<PERIOD-TYPE> 12-Mos
<CASH> 4,416,242
<SECURITIES> 14,287,605
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 18,703,847
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 18,703,847
<CURRENT-LIABILITIES> 808,363
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 17,895,484
<TOTAL-LIABILITY-AND-EQUITY> 18,703,847
<SALES> 0
<TOTAL-REVENUES> 3,624,267
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,293,425
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,330,842
<EPS-PRIMARY> 9.23
<EPS-DILUTED> 0
</TABLE>
