<PAGE>
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 March 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: 0-18418
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
incorporation or organization) Identification No.)
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 __
<PAGE>
<PAGE>
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)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
<S> <C> <C>
- - ----------------------------------------------------------------------------------------------------
ASSETS
Equity in commodity trading accounts:
Cash $ 6,973,735 $16,630,972
U.S. Treasury bills, at amortized cost 23,530,243 15,519,076
Net unrealized gain on open commodity positions 1,206,254 872,394
Options, net, at market 28,650 --
------------- ------------
Total assets $31,738,882 $33,022,442
------------- ------------
------------- ------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Redemptions payable $ 2,347,109 $ 1,143,534
Management fees payable 93,334 97,931
Incentive fees payable 32,968 --
Accrued expenses 51,983 45,374
Due to affiliates 55,238 63,134
Options, at market -- 3,000
------------- ------------
Total liabilities 2,580,632 1,352,973
------------- ------------
Commitments
Partners' capital
Limited partners (148,265 and 151,718 units outstanding) 28,866,596 29,692,794
General partner (1,498 and 10,100 units outstanding) 291,654 1,976,675
------------- ------------
Total partners' capital 29,158,250 31,669,469
------------- ------------
Total liabilities and partners' capital $31,738,882 $33,022,442
------------- ------------
------------- ------------
Net asset value per limited and general partnership unit
(``Units'')
$ 194.70 $ 195.71
------------- ------------
------------- ------------
- - ----------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements
2
<PAGE>
<PAGE>
PRUDENTIAL-BACHE CAPITAL RETURN FUTURES FUND 2, L.P.
(a limited partnership)
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
-------------------------
1996 1995
<S> <C> <C>
- - --------------------------------------------------------------------------------------------------
REVENUES
Net realized gain on commodity transactions $ 273,086 $3,791,236
Change in net unrealized gain on open commodity positions 357,361 3,266,550
Interest from U.S. Treasury bills 272,486 319,110
---------- ----------
902,933 7,376,896
---------- ----------
EXPENSES
Commissions 686,225 650,254
Management fees 287,838 288,046
Incentive fees 32,968 186,812
General and administrative 60,012 41,795
---------- ----------
1,067,043 1,166,907
---------- ----------
Net income (loss) $ (164,110) $6,209,989
---------- ----------
---------- ----------
ALLOCATION OF NET INCOME (LOSS)
Limited partners $ (153,899) $5,891,512
---------- ----------
---------- ----------
General partner $ (10,211) $ 318,477
---------- ----------
---------- ----------
NET INCOME (LOSS) PER WEIGHTED AVERAGE
LIMITED AND GENERAL PARTNERSHIP UNIT
Net income (loss) per weighted average
limited and general partnership unit $ (1.01) $ 31.53
---------- ----------
---------- ----------
Weighted average number of limited
and general partnership units outstanding 161,818 196,940
---------- ----------
---------- ----------
- - --------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(Unaudited)
<TABLE>
<CAPTION>
LIMITED GENERAL
UNITS PARTNERS PARTNER TOTAL
<S> <C> <C> <C> <C>
- - -----------------------------------------------------------------------------------------------------
Partners' capital--December 31, 1995 161,818 $29,692,794 $ 1,976,675 $31,669,469
Net loss (153,899) (10,211) (164,110)
Redemptions (12,055) (672,299) (1,674,810) (2,347,109)
-------- ----------- ----------- -----------
Partners' capital--March 31, 1996 149,763 $28,866,596 $ 291,654 $29,158,250
-------- ----------- ----------- -----------
-------- ----------- ----------- -----------
- - -----------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements
3
<PAGE>
<PAGE>
PRUDENTIAL-BACHE CAPITAL RETURN FUTURES FUND 2, L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
(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 March 31, 1996 and the results of its operations for the
three months ended March 31, 1996 and 1995. 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, 1995 (the ``Annual
Report'').
Certain balances from the prior period have been reclassified to conform with
the current financial statement presentation.
B. Related Parties
Prudential Securities Futures Management Inc. (the ``General Partner'') and
its affiliates perform services for the Partnership which include, but are not
limited to: brokerage services, accounting and financial management, registrar,
transfer and assignment functions, investor communications, printing and other
administrative services.
The costs incurred for these services for the three months ended March 31,
1996 and 1995 were:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
- - -----------------------------------------------------------------------
Commissions $686,225 $650,254
General and administrative 28,400 23,695
-------- --------
$714,625 $673,949
-------- --------
-------- --------
</TABLE>
The General Partner is a wholly-owned subsidiary of Prudential Securities
Incorporated (``PSI''). The Partnership maintains its trading and cash accounts
at PSI, the Partnership's commodity broker. Approximately 75% of the net asset
value is invested in interest-bearing U.S. Government obligations (primarily
U.S. Treasury bills), a significant portion of which is utilized for margin
purposes for the Partnership's commodity trading activities. As described in the
Annual Report, all commissions for brokerage services are paid to PSI.
When the Partnership engages in forward foreign currency transactions, it
trades with PSI who simultaneously engages in back-to-back transactions with an
affiliate who, pursuant to the Partnership's prospectus, is obligated to charge
a competitive price.
C. Credit and Market Risk
Since the Partnership's business is to trade futures, forward and options
contracts, its capital is at risk due to changes in the value of these contracts
(market risk) or the inability of counterparties to perform under the terms of
the contracts (credit risk).
Futures, forward and options contracts involve varying degrees of off-balance
sheet risk; and changes in the level of volatility of interest rates, foreign
currency exchange rates or the market values of the contracts (or commodities
underlying the contracts) frequently result in changes in the Partnership's
unrealized gain (loss) on open commodity positions reflected on the statements
of financial condition. The Partnership's exposure to market risk is influenced
by a number of factors including the relationships among the contracts held by
the Partnership as well as the liquidity of the markets in which the contracts
are traded.
4
<PAGE>
<PAGE>
Futures and options contracts are traded on organized exchanges and are thus
distinguished from forward contracts which are entered into privately by the
parties. The credit risks associated with futures and options contracts are
typically perceived to be less than those associated with forward contracts,
because exchanges typically provide clearinghouse arrangements in which the
collective credit (subject to certain limitations) of the members of the
exchanges is pledged to support the financial integrity of the exchange. On the
other hand, the Partnership must rely solely on the credit of its broker (PSI)
with respect to forward transactions. The Partnership presents unrealized gains
and losses on open forward positions as a net amount in the statements of
financial condition because it has a master netting agreement with PSI.
The General Partner attempts to minimize both credit and market risks by
requiring the Partnership's trading managers to abide by various trading
limitations and policies. The General Partner monitors compliance with these
trading limitations and policies which include, but are not limited to,
executing and clearing all trades with creditworthy counterparties (currently
PSI is the sole counterparty or broker); limiting the amount of margin or
premium required for any one commodity or all commodities combined; and
generally limiting transactions to contracts which are traded in sufficient
volume to permit the taking and liquidating of positions. The General Partner
may impose additional restrictions (through modifications of such trading
limitations and policies) upon the trading activities of the trading managers
as it, in good faith, deems to be in the best interest of the Partnership.
PSI, when acting as the Partnership's futures commission merchant in
accepting orders for the purchase or sale of domestic futures and options
contracts, is required by Commodity Futures Trading Commission (``CFTC'')
regulations to separately account for and segregate as belonging to the
Partnership all assets of the Partnership relating to domestic futures and
options trading and is not to commingle such assets with other assets of PSI.
At March 31, 1996 and December 31, 1995, such segregated assets totalled
$25,233,630 and $26,171,977, 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 $6,330,962 and $7,008,411 at March 31, 1996
and December 31, 1995, respectively. There are no segregation requirements for
assets related to forward trading.
As of March 31, 1996 and December 31, 1995, the Partnership's open forward
and options contracts mature within three months, but open futures contracts
mature within one year.
At March 31, 1996 and December 31, 1995, gross contract amounts of open
futures, forward and options contracts are:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Currency Forward Contracts:
Commitments to purchase $ 8,227,465 $19,425,878
Commitments to sell $ 34,481,203 $36,217,031
Currency Futures and Options
Contracts:
Commitments to purchase $ 8,770,570 $14,350,975
Commitments to sell $ 23,555,290 $28,217,838
Financial Futures Contracts:
Commitments to purchase $ 15,969,683 $359,544,988
Commitments to sell $325,844,160 $25,500,889
Commodity Futures Contracts:
Commitments to purchase $ 59,600 --
Commitments to sell $ 4,552,680 $ 3,593,525
</TABLE>
Included in the gross forward contract amounts are offsetting commitments
to purchase and to sell the same currency on the same date in the future. The
commitments are economically offsetting but are not, as a technical matter,
offset in the forward market until the settlement date.
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
5
<PAGE>
<PAGE>
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 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 March 31, 1996 and December 31, 1995, the fair value of futures, forward
and options contracts were:
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
-------------------------- --------------------------
Fair Value Fair Value
-------------------------- --------------------------
Assets Liabilities Assets Liabilities
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Futures Contracts:
Domestic exchanges
Commodities $ -- $ (12,090) $ 795 $ (100)
Financial 645,775 (19,775) 461,831 --
Currencies 221,565 (93,760) 133,670 (338,563)
Foreign exchanges
Financial 326,561 (36,312) 785,691 (9,984)
Forward Contracts:
Currencies 184,149 (9,859) 244,587 (405,533)
Options Contracts:
Domestic exchanges
Currencies 45,888 (17,238) -- (3,000)
---------- ----------- ---------- -----------
$1,423,938 $ (189,034) $1,626,574 $ (757,180)
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
</TABLE>
The following table represents the average fair value of futures, forward and
options contracts during the three months ended March 31, 1996 and 1995,
respectively.
<TABLE>
<CAPTION>
Three months ended Three months ended
March 31, 1996 March 31, 1995
-------------------------- --------------------------
Average Fair Value Average Fair Value
-------------------------- --------------------------
Assets Liabilities Assets Liabilities
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Futures Contracts:
Domestic exchanges
Commodities $ 4,329 $ (70,860) $ 278,631 $ (32,538)
Financial 506,566 (4,944) 675,893 (87,305)
Currencies 361,084 (256,146) 83,386 (25,479)
Foreign exchanges
Commodities -- -- 14,614 --
Financial 761,634 (54,268) 998,766 (26,640)
Forward Contracts:
Currencies 736,468 (448,658) 2,381,609 (1,657,204)
Options Contracts:
Domestic exchanges
Currencies 18,816 (7,794) 91,277 (150,048)
---------- ----------- ---------- -----------
$2,388,897 $ (842,670) $4,524,176 $ 1,979,214
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
</TABLE>
6
<PAGE>
<PAGE>
The following table represents the net realized gains (losses) and the
change in unrealized gains/losses of futures, forward and options contracts
during the three months ended March 31, 1996 and 1995, respectively.
<TABLE>
<CAPTION>
Three months ended March 31, 1996 Three months ended March 31, 1995
--------------------------------------------- ----------------------------------------------
Change in Change in
Net Realized Unrealized Net Realized Unrealized
Gains (Losses) Gains/Losses Total Gains (Losses) Gains/Losses Total
-------------- -------------- --------- -------------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Futures Contracts:
Domestic exchanges
Commodities $ (372,070) $ (12,785) $(384,855) $ 492,526 $ (552,825) $ (60,299)
Financial 403,450 164,169 567,619 849,694 (422,863) 426,831
Currencies 159,680 332,698 492,378 913,976 56,127 970,103
Foreign exchanges
Commodities -- -- -- 51,602 58,456 110,058
Financial (94,598) (485,458) (580,056) 1,554,890 (285,101) 1,269,789
Forward Contracts:
Currencies 105,707 335,237 440,944 (71,452) 5,354,135 5,282,683
Options Contracts:
Domestic exchanges
Currencies 70,917 23,500 94,417 -- (941,379) (941,379)
-------------- -------------- --------- -------------- -------------- ----------
$ 273,086 $ 357,361 $ 630,447 $3,791,236 $3,266,550 $7,057,786
-------------- -------------- --------- -------------- -------------- ----------
-------------- -------------- --------- -------------- -------------- ----------
</TABLE>
7
<PAGE>
<PAGE>
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 operations on October 6, 1989 with gross proceeds
of $101,010,000. After accounting for organizational and offering costs, the
Partnership's net proceeds were $99,010,000. At the inception of the
Partnership, sixty percent of the net proceeds was allocated to trading activity
and forty percent was placed in reserve and invested in investment grade
interest-bearing obligations (``Reserve Assets''). On January 3, 1995, the
Reserve Assets matured and the resulting proceeds were allocated to commodities
trading.
As of March 31, 1996, 100% of the Partnership's assets were allocated to
commodities trading. A significant portion of the net asset value was held in
U.S. Treasury bills (which represented approximately 75% of the net asset value
prior to redemptions payable) and cash, which are used as margin for the
Partnership's trading in commodities. Inasmuch as the sole business of the
Partnership is to trade in commodities, the Partnership continues to own such
liquid assets to be used as margin.
The percentage that U.S. Treasury bills bears to the net asset value varies
each day, and from month to month, as the market value of commodity interests
change. The balance of the net asset value 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 commodity futures contract prices
during a single day by regulations referred to as ``daily limits.'' During a
single day no trades may be executed at prices beyond the daily limit. Once the
price of a futures contract for a particular commodity has increased or
decreased by an amount equal to the daily limit, positions in the commodity can
neither be taken nor liquidated unless traders are willing to effect trades at
or within the limit. Commodity futures prices have occasionally moved the daily
limit for several consecutive days with little or no trading. Such market
conditions could prevent the Partnership from promptly liquidating its commodity
futures positions.
Since the Partnership's business is to trade futures, forward and options
contracts, its capital is at risk due to changes in the value of these contracts
(market risk) or the inability of counterparties to perform under the terms of
the contracts (credit risk). The General Partner attempts to minimize these
risks by requiring the Partnership's trading managers to abide by various
trading limitations and policies. See Note C to the financial statements for a
further discussion on the credit and market risks associated with the
Partnership's futures, forward and options contracts.
Redemptions by limited partners and the general partner recorded for the
three months ended March 31, 1996 were $672,299 and $1,674,810, respectively.
Redemptions by limited partners and the general partner from commencement of
operations, October 6, 1989, through March 31, 1996 totalled $111,752,892 and
$1,674,810, 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 March 31, 1996 was $194.70, a decrease of
.52% from the December 31, 1995 net asset value per Unit of $195.71.
January's performance was positive with trading profits generated from
currencies, bonds, stock indices and metals. These profits were partially offset
by losses incurred in silver, U.S. bonds, Japanese government bonds and the
German mark. The month of January was marked by volatile U.S. equities and
strong global financial markets. The primary influence on markets was the U.S.
dollar, which rose against most currencies and hit its highest level in two
years against the Japanese yen. As a result, trading in foreign exchange,
particularly in selling the French franc, Japanese yen, Swiss franc and British
pound, provided Partnership profits. Interest rate markets also provided profit
opportunities as European bonds rallied during the month. Positions in the Matif
bond, German bund, Italian bond, Australian long bond and Euromark were
profitable.
8
<PAGE>
<PAGE>
The Matif CAC 40 index also provided Fund profits. Outside the financial
sectors, buying gold reaped profits. Late in the month gold began to move up
strongly from the increasingly narrow price range below $400 where it had traded
for several years. Losses in silver partially offset gold profits.
The Partnership's performance was negative in the month of February. Losses
were incurred in the currencies, financials, metals and stock indices sectors.
The U.S. dollar lost ground against the Japanese yen, British pound, Swiss
franc, and German mark for most of February, unsettling currency markets overall
and resulting in unprofitable currency positions. The largest decline occurred
in yen positions. The U.S. dollar was generally weak due to fears of hardening
interest rates in Japan and Europe versus further cuts in U.S. interest rates.
The price of gold fell back below the $400 level only one month after breaking
that threshold for the first time in over two years, producing trading losses in
that area. Global bonds reversed a long-term downward trend in yields. With the
exception of positions held in U.S. and British bonds and Euroyen, trading in
interest rates was unprofitable for the month, as was trading in stock indices.
The Partnership's performance was flat in the month of March. Profits earned
in the currencies and financials sectors were largely offset by losses in the
metals and stock indices sectors. Trading was volatile in the financial markets,
reflecting investors' confusion over the state of the U.S. economy. Profits were
made in U.S. 30-year treasury bonds. In Japan, the Partnership posted losses in
the Japanese bond market. Financial woes in the banking sector made bondholders
uneasy as talk of government support brought back the spectre of inflation. In
the currency markets, selling the Japanese yen resulted in profits for the
Partnership. Stronger economic data in the U.S., particularly the employment
numbers and trade balance data, made the possibility of U.S. rate cuts seem more
remote. This, combined with more bad news for Japanese banks, pushed interest
rate expectations in the U.S. dollar's favor. The Partnership also profited from
buying the Australian dollar.
Interest income from U.S. Treasury bills for the three months ended March 31,
1996 decreased by approximately $47,000 as compared to the same period in 1995
due to the effect of redemptions on the funds available for investment in U.S.
Treasury bills as well as a decrease in interest rates in 1996.
Commissions are calculated on the net asset value on the first day of each
month and, therefore, vary based on monthly trading performance and redemptions.
Commissions increased by approximately $36,000 for the three months ended March
31, 1996 as compared to the same period in 1995 as a result of strong trading
performance in March and April 1995 which effected commissions beginning April
1995.
All trading decisions are currently being made by John W. Henry & Co., Inc.,
Welton Investment System Corp. and TSA Capital Management (the ``Trading
Managers''). Management fees are calculated on the net asset value allocated to
each Trading Manager as of the end of each month and, therefore, are affected by
trading performance and redemptions. Management fees were unchanged for the
three months ended March 31, 1996 as compared to the same period in 1995.
Incentive fees are based on 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. Trading performance
resulted in incentive fees of approximately $33,000 and $187,000 for the three
months ended March 31, 1996 and 1995, respectively.
General and administrative expenses increased by approximately $18,000 for
the three months ended March 31, 1996 as compared to the same period in 1995.
These expenses include reimbursement of costs incurred by the General Partner on
behalf of the Partnership, in addition to accounting, audit, tax and legal fees
as well as printing and postage costs related to reports sent to limited
partners. This increase was primarily due to the timing of certain expense
accruals recorded during the respective periods.
9
<PAGE>
<PAGE>
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)
10.13 Form of Foreign Currency Addendum to
Brokerage Agreement between the Registrant
and Prudential Securities Incorporated
(filed herewith)
27 Financial Data Schedule (filed herewith)
(b) Reports on Form 8-K--
No reports on Form 8-K were filed during the quarter
10
<PAGE>
<PAGE>
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: May 15, 1996
----------------------------------------
Steven Carlino
Vice President
Chief Accounting Officer for the Registrant
11
<PAGE>
FOREIGN CURRENCY ADDENDUM
This addendum ("Addendum) supplements the terms and conditions of
the Futures Account Client Agreement ("Agreement") entered into by and
between Prudential-Bache Capital Return Futures Fund 2, L.P. ("Customer")
and Prudential Securities Incorporated ("PSI") as of ___________, 199__.
In consideration of PSI agreeing to enter into various forward and
spot foreign currency and foreign currency options transactions
(collectively "Forex Contracts") with Customer, the parties agree
as follows:
1. Relationship to Agreement. Except as otherwise provided in
this Addendum, the terms and conditions of the Agreement shall remain
in full force and effect, and shall apply to all Forex Contracts that
PSI may transact with Customer. If there are any conflicts between
the terms and conditions of the Agreement and this Addendum, the terms
and conditions of this Addendum will govern with respect to Forex
Contracts.
2. Forex Contracts. PSI and Customer will each act as principals
with respect to Forex Contracts. Forex Contracts will be transacted within
the non-regulated portion of Customer's PSI futures account. Customer
acknowledges that Forex Contracts are not traded on or guaranteed by a
regulated exchange or its clearing house and accordingly, acknowledges
that trading in Forex Contracts is not subject to the same regulatory
or financial protections as is trading in futures contracts. Customer
represents and warrants that (a) it is authorized to enter into Forex
Contracts, (b) it understands that as principal opposite PSI the parties
will each be relying on the creditworthiness of the other, (c) each
Forex Contract will be individually negotiated as to its material
economic terms, and (d) PSI will be entitled to rely on any instructions,
notices and communications that it reasonably believes to have originated
with any authorized representative of Customer, including a person with
a Power of Attorney over trading decisions, and Customer shall be
bound thereby.
3. Limits. This Addendum does not evidence a commitment of PSI
or Customer to enter into Forex Contracts generally or to enter into
any specific Forex Contract. PSI shall have the right to set limits
on the number of Forex Contracts that PSI will transact with Customer.
PSI reserves the right to increase or decrease such limits as, in PSI's
good faith judgment, market and economic conditions warrant, including
but not limited to the material change in Customer's credit rating or
Customer's country or sovereign rating by an internationally recognized
rating agency. Additionally, PSI reserves the right, exercisable at
any time when warranted by market conditions in PSI's sole discretion,
to refuse acceptance of Customer's orders.
4. Confirmations. Upon entering into a Forex Contract with
Customer, PSI shall verbally confirm the economic terms to Customer
followed by a written confirmation (via letter, telex, facsimile or
telecopier at PSI's election) (the "Confirmation) specifying the
amount of
<PAGE>
foreign currency bought or sold by Customer against U.S.
dollars or another foreign currency, the exchange rate, and the date
on which, and the location where, the currency is to be delivered.
Confirmations shall be conclusive and binding on Customer unless
Customer promptly notifies PSI of any objection within three (3) days
of receipt by Customer of the Confirmation.
5. Collateral; Settlement. PSI reserves the right to require
customer to deposit collateral with respect to Forex Contract
transactions. All Forex Contracts will be transacted pursuant
to a line of credit or will be otherwise collateralized at PSI's
option, and will be subject to the netting provisions set forth in
Section 8 below. All payments due under a Forex Contract shall be
made by wire transfer on the delivery date specified in the Confirmation
in immediately available funds in the designated currency. In the
event that either party's performance of its payment obligations
shall be interrupted or delayed by reason of war, riot, civil
commotion, sovereign conduct or other acts of state, the time of
performance of such party's obligations shall be extended for the
period of such interruption.
6. Dispute Resolution. Any dispute between Customer and PSI
relating to Customer's Forex Contracts shall be settled and determined
by an arbitration panel of either the New York Stock Exchange, the
National Association of Securities Dealers Inc., or the National
Futures Association as Customer may elect, or if the foregoing qualified
forums decline to arbitrate such dispute, before such forum as may be
agreed upon between the parties. At such time that PSI notifies Customer
of its intent to submit a claim to arbitration Customer will have seven
business days to elect a qualified forum for conducting the proceeding.
If Customer fails to notify PSI of its selection within seven business
days, PSI shall have the absolute right to make such selection.
7. Governing Law. The interpretation and enforcement of this
Addendum (and the Forex Contracts covered hereunder) and the rights,
obligations and remedies of the parties shall be governed by and
construed in accordance with the laws of the State of New York,
without regard to principles of choice of law.
8. Netting Provisions.
(a) Netting by Novation. Unless separately agreed and set out
in the Confirmation regarding a specific Forex Contract, each Forex
Contract made between Customer and PSI will immediately, upon its
being entered into, be netted with all then existing Forex Contracts
between Customer and PSI for the same paired currencies having the
same delivery date. Each Forex Contract containing an obligation to
deliver that has been netted pursuant to the foregoing shall immediately
be deemed cancelled and simultaneously replaced by a single transaction.
For purposes hereof, each Forex Contract shall be deemed a Forex
Contract from and after its inception for all purposes.
(b) Payment Netting. If on any delivery date more than one
delivery of a particular currency is to be made between Customer and
PSI pursuant to a Forex Contract,
2
<PAGE>
each party shall aggregate the amounts deliverable by it and only
the difference, if any, between these aggregate amounts shall be
delivered by the party owing the larger amount to the other party.
(c) Discharge and Termination of Options. Any call option or
any put option written by a party will automatically be terminated and
discharged, in whole or in part, as applicable, against a call option
or a put option, respectively, written by the other party, such
termination and discharge to occur automatically upon the payment
in full of the premium payable in respect of such options; provided
that such termination and discharge may occur only in respect of
options:
(i) each being with respect to the same put currency and
the same call currency;
(ii) each having the same expiration date and expiration time;
(iii) each being of the same style, i.e. both being
America Style options or both being European Style options;
(iv) each having the same strike price; and
(v) neither of which shall have been exercised by delivery
of a notice of exercise;
and, upon the occurrence of such termination and discharge,
neither party shall have any further obligation to the other party in
respect of the relevant options or, as the case may be, parts thereof
so terminated and discharged. In the case of a partial termination and
discharge (i.e., where the relevant options are for different amounts
of the currency), the remaining portion of the option that is partially
discharged shall continue to be a Forex Contract for all purposes of
this Addendum.
(d) The occurrence at any time with respect to a party of any of
the following events constitutes an event of default (an Event of
Default ) with respect to such party:
(i) Failure to Pay or Deliver. Failure by the party to make,
when due, any payment under this Addendum or delivery required to be
made by it if such failure is not remedied on or before the third
business day after notice of such failure is given to such party;
(ii) Breach of Agreement. Failure by the party to comply
with or perform any agreement or obligation under this Addendum if
such failure is not remedied on or before the third business day after
notice of such failure is given to the Defaulting Party:
3
<PAGE>
(iii) Failure to Provide Adequate Assurances. Failure
by Customer to provide adequate assurances of its ability to perform
any of its obligations under this Addendum within three business days
of a written request from PSI to do so when PSI has reasonable grounds
for insecurity;
(iv) Bankruptcy. The Party - (A) is dissolved (other than
pursuant to a consolidation, amalgamation or merger); (B) becomes
insolvent or is unable to pay its debts or fails or admits in writing
its inability generally to pay its debts as they become due; (C) makes
a general assignment, arrangement or composition with or for the
benefit of its creditors; (D) institutes or has instituted against
it a proceeding seeking a judgment of insolvency or bankruptcy or
any other relief under any bankruptcy or insolvency law or other
similar law affecting creditors rights, or a petition is presented
for its winding-up or liquidation, and, in the case of any such
proceeding or petition instituted or presented against it, such
proceeding or petition (1) results in a judgment or insolvency or
bankruptcy or the entry of an order for relief or the making of an
order for its winding-up or liquidation or (2) is not dismissed,
discharged, stayed or restrained in each case within 30 days of the
institution or presentation thereof; (E) has a resolution passed for
its winding-up, official management or liquidation (other than pursuant
to a consolidation, amalgamation or merger); (F) seeks or becomes
subject to the appoint of an administrator, provisional liquidator,
conservator, receiver, trustee, custodian or other similar official
for it or for all or substantially all of its assets; (G) has a secured
party take possession of all or substantially all of its assets or has
a distress, execution, attachment, sequestration or other legal process
levied, enforced or sued on or against all or substantially all of its
assets and such secured party maintains possession, or any such process
is not dismissed, discharged, stayed or restrained, in each case within
30 days thereafter; (H) causes or is subject to any event with respect
to it which, under the applicable laws of any jurisdiction, has an
analogous effect to any of the events specified in clauses (A) to
(G) (inclusive); or (i) takes any action in furtherance of, or
indicating its consent to, approval of, or acquiescence in, any
of the foregoing acts.
(e) Close-Out Netting. If an Event of Default has occurred and
is continuing in respect of a party ("Defaulting Party"), the other
party ("Non-Defaulting Party") shall be entitled in its reasonable
discretion, immediately and at any time and upon notice (unless such
notice cannot practicably be provided in the circumstances) to close-out
all Defaulting Party's Forex Contracts, and may in its reasonable
discretion at any time or from time to time upon notice (unless such
notice cannot practicably be provided in the circumstances) liquidate
all or some of Defaulting Party's collateral in Non-Defaulting Party's
possession or control on any commercially reasonable basis and apply the
proceeds of such collateral to any
4
<PAGE>
amounts owing by Defaulting Party to Non-Defaulting Party resulting
from the close-out of such Forex Contracts. Any such close-out of
Forex Contracts shall be accomplished by the Non-Defaulting Party:
(i) closing-out each such Forex Contract so that each such
Forex Contract is cancelled and calculating settlement amounts
equal to the difference between the market value (as determined by PSI
in good faith) and contract value of the Forex Contract or, in the case
of options, settlement amounts equal to the current market premium for
a comparable option (as determined by PSI in good faith); (ii) discounting
each settlement amount then due to present value at the time of close-out
(to take into account the period between the date of close-out and the
maturity date of the relevant liquidated Forex Contract using an interest
rate equal to PSI's cost of funds as determined by PSI in good faith);
(iii) calculating an aggregate settlement payment in an amount equal
to the net amount of such discounted settlement amounts as is then due
from one party to the other; and (iv) setting off the settlement payments,
if any, that Non-Defaulting Party owes Defaulting Party as a result of
such liquidation and all collateral held by or for Non-Defaulting Party
against the settlement payments, if any, that Defaulting Party owes to
Non-Defaulting Party as a result of such close-out; so that all such
amounts are netted to a single liquidated amount payable by one party
to the other party, as appropriate, on the business day following the
close-out.
Notwithstanding anything to the contrary set forth above
regarding the Non- Defaulting Party's rights to close-out and value
Forex Contracts, if an event specified in clause (iv) of this sub-section
(d) has occurred, then upon the occurrence of such event, all outstanding
Forex Contracts will be deemed to have been automatically terminated as
of the time immediately preceding the institution of the relevant
proceeding, or the presentation of the relevant petition upon the
occurrence with respect to the party to such specified event.
The rights of PSI under this sub-section (e) shall be in
addition to, and not in limitation or exclusion of any other rights
that PSI may have (whether by agreement, operation of law or otherwise).
9. Liquidated Damages. The parties agree that the amount owing
by one party to the other party hereunder is a reasonable computation
of the loss or gain it would have incurred or received on the obligations
between the parties governed by this Addendum and is not a penalty.
Such amount is payable as liquidated damages to the other party for
the loss of the benefit of its bargains and neither party shall be
entitled to recover additional damages in respect of such loss of
the bargain. The determination of such amount shall be conclusive,
absent manifest error.
10. Understanding of Risks. Each party will be deemed to represent
to the other party on the date on which it enters into a Forex Contract
that it has the capability to evaluate and understand (on its own behalf
or through independent professional advice), and does understand, the
terms, conditions and risks of that Forex Contract and is willing to
accept those terms and conditions and to assume (financially and
otherwise) those risks.
5
<PAGE>
11. Termination. Each party may terminate this Addendum at
any time on three (3) business days prior written notice. No such
termination shall affect any Forex Contracts entered into prior to
such termination and this Addendum shall continue to govern any such
Forex Contract.
__________________________ ___________________________________
Date Name of Customer
By:_______________________________
Title: ___________________________
Signature:________________________
Accepted By Prudential Securities Incorporated
By:_____________________________ Date: ____________________________
Title:__________________________
Signature: _____________________
6
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
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
</LEGEND>
<RESTATED>
<CIK> 0000851786
<NAME> P-B Capital Return Futures Fund 2, L.P.
<MULTIPLIER> 1
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-1-1996
<PERIOD-END> Mar-31-1996
<PERIOD-TYPE> 3-Mos
<CASH> 6,973,735
<SECURITIES> 24,765,147
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 31,738,882
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 31,738,882
<CURRENT-LIABILITIES> 2,580,632
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 29,158,250
<TOTAL-LIABILITY-AND-EQUITY> 31,738,882
<SALES> 0
<TOTAL-REVENUES> 902,933
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,067,043
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (164,110)
<EPS-PRIMARY> (1.01)
<EPS-DILUTED> 0
</TABLE>
