<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 September 30, 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
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(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>
September 30, December 31,
1996 1995
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Equity in commodity trading accounts:
Cash $ 6,023,646 $16,630,972
U.S. Treasury bills, at amortized cost 20,663,385 15,519,076
Net unrealized gain on open commodity positions 2,517,581 872,394
Options, at market 70,000 --
------------- ------------
Total assets $29,274,612 $33,022,442
------------- ------------
------------- ------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Redemptions payable $ 1,336,917 $ 1,143,534
Management fees payable 169,422 97,931
Accrued expenses 44,393 45,374
Due to affiliates 37,068 63,134
Options, at market -- 3,000
------------- ------------
Total liabilities 1,587,800 1,352,973
------------- ------------
Commitments
Partners' capital
Limited partners (138,885 and 151,718 units outstanding) 27,409,920 29,692,794
General partner (1,403 and 10,100 units outstanding) 276,892 1,976,675
------------- ------------
Total partners' capital 27,686,812 31,669,469
------------- ------------
Total liabilities and partners' capital $29,274,612 $33,022,442
------------- ------------
------------- ------------
Net asset value per limited and general partnership unit
(``Units'')
$ 197.36 $ 195.71
------------- ------------
------------- ------------
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</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>
Nine Months Three Months
Ended September 30, Ended September 30,
-------------------------- -------------------------
1996 1995 1996 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
Net realized gain (loss) on commodity
transactions $ 643,905 $11,970,102 $ (998,421) $ 680,518
Change in net unrealized gain/loss on
open commodity positions 1,629,512 (2,329,121) 1,573,720 (778,983)
Interest from U.S. Treasury bills 824,799 1,061,614 280,859 348,677
---------- ----------- ---------- ----------
3,098,216 10,702,595 856,158 250,212
---------- ----------- ---------- ----------
EXPENSES
Commissions 1,915,509 2,111,730 607,124 708,662
Management fees 802,593 910,803 253,413 295,970
Incentive fees 47,687 365,789 -- --
General and administrative 97,583 123,196 17,553 45,020
---------- ----------- ---------- ----------
2,863,372 3,511,518 878,090 1,049,652
---------- ----------- ---------- ----------
Net income (loss) $ 234,844 $ 7,191,077 $ (21,932) $ (799,440)
---------- ----------- ---------- ----------
---------- ----------- ---------- ----------
ALLOCATION OF NET INCOME (LOSS)
Limited partners $ 241,064 $ 6,821,604 $ (21,713) $ (752,700)
---------- ----------- ---------- ----------
---------- ----------- ---------- ----------
General partner $ (6,220) $ 369,473 $ (219) $ (46,740)
---------- ----------- ---------- ----------
---------- ----------- ---------- ----------
NET INCOME (LOSS) PER WEIGHTED AVERAGE
LIMITED AND GENERAL PARTNERSHIP UNIT
Net income (loss) per weighted average
limited and general partnership unit $ 1.54 $ 38.96 $ (.15) $ (4.63)
---------- ----------- ---------- ----------
---------- ----------- ---------- ----------
Weighted average number of limited and
general partnership units outstanding 152,881 184,563 147,062 172,751
---------- ----------- ---------- ----------
---------- ----------- ---------- ----------
- -----------------------------------------------------------------------------------------------------
</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 income (loss) -- 241,064 (6,220) 234,844
Redemptions (21,530) (2,523,938) (1,693,563) (4,217,501)
-------- ----------- ----------- -----------
Partners' capital--September 30, 1996 140,288 $27,409,920 $ 276,892 $27,686,812
-------- ----------- ----------- -----------
-------- ----------- ----------- -----------
- -----------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements
3
<PAGE>
PRUDENTIAL-BACHE CAPITAL RETURN FUTURES FUND 2, L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 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 September 30, 1996 and the results of its operations for
the nine and three months ended September 30, 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 nine months ended September 30,
1996 and 1995 were:
<TABLE>
<CAPTION>
1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C>
Commissions $1,915,509 $2,111,730
General and administrative 59,039 85,924
---------- ----------
$1,974,548 $2,197,654
---------- ----------
---------- ----------
</TABLE>
The costs incurred for these services for the three months ended September
30, 1996 and 1995 were:
<TABLE>
<CAPTION>
1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C>
Commissions $ 607,124 $ 708,662
General and administrative 17,504 42,144
---------- ----------
$ 624,628 $ 750,806
---------- ----------
---------- ----------
</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.
4
<PAGE>
<PAGE>
C. Credit and Market Risk
Since the Partnership's business is to trade futures, forward and options
contracts, its capital is at risk due to changes in the value of these contracts
(market risk) or the inability of counterparties to perform under the terms of
the contracts (credit risk).
Futures, forward and options contracts involve varying degrees of off-balance
sheet risk; and changes in the level of volatility of interest rates, foreign
currency exchange rates or the market values of the contracts (or commodities
underlying the contracts) frequently result in changes in the Partnership's
unrealized gain (loss) on open commodity positions reflected on the statements
of financial condition. The Partnership's exposure to market risk is influenced
by a number of factors including the relationships among the contracts held by
the Partnership as well as the liquidity of the markets in which the contracts
are traded.
Futures and options contracts are traded on organized exchanges and are thus
distinguished from forward contracts which are entered into privately by the
parties. The credit risks associated with futures and options contracts are
typically perceived to be less than those associated with forward contracts,
because exchanges typically provide clearinghouse arrangements in which the
collective credit (subject to certain limitations) of the members of the
exchanges is pledged to support the financial integrity of the exchange. On the
other hand, the Partnership must rely solely on the credit of its broker (PSI)
with respect to forward transactions. The Partnership presents unrealized gains
and losses on open forward positions as a net amount in the statements of
financial condition because it has a master netting agreement with PSI.
The General Partner attempts to minimize both credit and market risks by
requiring the Partnership's trading managers to abide by various trading
limitations and policies. The General Partner monitors compliance with these
trading limitations and policies which include, but are not limited to,
executing and clearing all trades with creditworthy counterparties (currently
PSI is the sole counterparty or broker); limiting the amount of margin or
premium required for any one commodity or all commodities combined; and
generally limiting transactions to contracts which are traded in sufficient
volume to permit the taking and liquidating of positions. The General Partner
may impose additional restrictions (through modifications of such trading
limitations and policies) upon the trading activities of the trading managers as
it, in good faith, deems to be in the best interest of the Partnership.
PSI, when acting as the Partnership's futures commission merchant in
accepting orders for the purchase or sale of domestic futures and options
contracts, is required by Commodity Futures Trading Commission (``CFTC'')
regulations to separately account for and segregate as belonging to the
Partnership all assets of the Partnership relating to domestic futures and
options trading and is not to commingle such assets with other assets of PSI. At
September 30, 1996 and December 31, 1995, such segregated assets totalled
$21,871,036 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 $7,180,069 and $7,008,411 at September 30,
1996 and December 31, 1995, respectively. There are no segregation requirements
for assets related to forward trading.
As of September 30, 1996 and December 31, 1995, the Partnership's open
forward and options contracts mature within three months, and open futures
contracts mature within nine months and one year, respectively.
5
<PAGE>
At September 30, 1996 and December 31, 1995, gross contract amounts of open
futures, forward and options contracts are:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
Financial Futures Contracts:
Commitments to purchase $302,674,950 $359,544,988
Commitments to sell $ 9,076,406 $25,500,889
Currency Forward Contracts:
Commitments to purchase $ 34,014,283 $ 372,619
Commitments to sell $ 38,113,143 $17,163,772
Currency Futures and Options
Contracts:
Commitments to purchase $ 8,817,876 $14,350,975
Commitments to sell $ 13,810,101 $28,217,838
Other Futures Contracts:
Commitments to purchase $ 524,866 --
Commitments to sell $ 28,609,645 $ 3,593,525
</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, forward or options contract). The gross
contract amounts significantly exceed the future cash requirements as the
Partnership intends to close out open positions prior to settlement and thus is
generally subject only to the risk of loss arising from the change in the value
of the contracts. As such, the Partnership considers the ``fair value'' of its
futures, forward and options contracts to be the net unrealized gain or loss on
the contracts (plus premiums on options). Thus, the amount at risk associated
with counterparty nonperformance of all contracts is the net unrealized gain
included in the statements of financial condition. The market risk associated
with the Partnership's commitments to purchase commodities is limited to the
gross contract amounts involved, while the market risk associated with its
commitments to sell is unlimited since the Partnership's potential involvement
is to make delivery of an underlying commodity at the contract price; therefore,
it must repurchase the contract at prevailing market prices.
At September 30, 1996 and December 31, 1995, the fair values of futures,
forward and options contracts were:
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
-------------------------- --------------------------
Fair Value Fair Value
-------------------------- --------------------------
Assets Liabilities Assets Liabilities
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Futures Contracts:
Domestic exchanges
Financial $ 750 $ 204,531 $ 461,831 $ --
Currencies 95,544 122,207 133,670 338,563
Other 456,608 1,305 795 100
Foreign exchanges
Financial 2,132,358 72,643 785,691 9,984
Other 9,500 -- -- --
Forward Contracts:
Currencies 400,196 176,689 211,673 372,619
Options Contracts:
Domestic exchanges
Currencies 70,000 -- -- 3,000
---------- ----------- ---------- -----------
$3,164,956 $ 577,375 $1,593,660 $ 724,266
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
</TABLE>
6
<PAGE>
<PAGE>
The following table presents the average fair values of futures, forward and
options contracts during the nine months ended September 30, 1996 and 1995,
respectively.
<TABLE>
<CAPTION>
Nine months ended Nine months ended
September 30, 1996 September 30, 1995
-------------------------- --------------------------
Average Fair Value Average Fair Value
-------------------------- --------------------------
Assets Liabilities Assets Liabilities
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Futures Contracts:
Domestic exchanges
Financial $ 334,843 $ 67,562 $ 395,518 $ 55,307
Currencies 274,254 183,700 198,666 126,241
Other 110,124 43,304 148,428 43,047
Foreign exchanges
Financial 947,290 51,694 727,939 49,200
Other 1,644 4,434 10,635 --
Forward Contracts:
Currencies 678,762 351,167 1,961,744 685,307
Options Contracts:
Domestic exchanges
Currencies 25,214 3,239 74,043 67,571
---------- ----------- ---------- -----------
$2,372,131 $ 705,100 $3,516,973 $ 1,026,673
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
</TABLE>
The following table presents the average fair values of futures, forward
and options contracts during the three months ended September 30, 1996 and 1995,
respectively.
<TABLE>
<CAPTION>
Three months ended Three months ended
September 30, 1996 September 30, 1995
-------------------------- --------------------------
Average Fair Value Average Fair Value
-------------------------- --------------------------
Assets Liabilities Assets Liabilities
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Futures Contracts:
Domestic exchanges
Financial $ 19,758 $ 163,783 $ 97,011 $ 50,963
Currencies 96,848 123,197 348,432 184,470
Other 249,454 24,544 65,217 356
Foreign exchanges
Financial 1,552,421 34,738 265,140 89,054
Other 4,000 432 -- --
Forward Contracts:
Currencies 420,466 297,837 354,940 436,507
Options Contracts:
Domestic exchanges
Currencies 44,218 78 -- 290
---------- ----------- ---------- -----------
$2,387,165 $ 644,609 $1,130,740 $ 761,640
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
</TABLE>
7
<PAGE>
The following table presents the net realized gains (losses) and the
change in net unrealized
gains/losses of futures, forward and options contracts during the nine months
ended September 30, 1996 and 1995, respectively.
<TABLE>
<CAPTION>
Nine months ended September 30, 1996 Nine months ended September 30, 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 $ 505,338 $ (665,612) $ (160,274) $ 2,007,104 $ (774,769) $ 1,232,335
Currencies 596,691 178,230 774,921 1,535,793 28,705 1,564,498
Other (71,605) 454,608 383,003 (166,390) (365,080) (531,470)
Foreign exchanges
Financial (363,635) 1,284,008 920,373 3,518,698 (872,969) 2,645,729
Other (24,036) 9,500 (14,536) 122,154 -- 122,154
Forward Contracts:
Currencies (88,470) 384,453 295,983 6,003,633 (285,420) 5,718,213
Options Contracts:
Domestic exchanges
Currencies 89,622 (15,675) 73,947 (1,050,890) (59,588) (1,110,478)
-------------- -------------- ---------- -------------- -------------- -----------
$ 643,905 $1,629,512 $2,273,417 $ 11,970,102 $ (2,329,121) $ 9,640,981
-------------- -------------- ---------- -------------- -------------- -----------
-------------- -------------- ---------- -------------- -------------- -----------
</TABLE>
The following table presents the net realized gains (losses) and the
change in net unrealized gains/
losses of futures, forward and options contracts during the three months ended
September 30, 1996 and 1995, respectively.
<TABLE>
<CAPTION>
Three months ended September 30, 1996 Three months ended September 30, 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 $ (853,500) $ (77,781) $ (931,281) $ (482,106) $ (273,782) $(755,888)
Currencies (83,137) 54,451 (28,686) 573,325 (160,853) 412,472
Other 65,789 (39,472) 26,317 (267,240) 116,805 (150,435)
Foreign exchanges
Financial 737,046 1,830,506 2,567,552 (495,521) 23,546 (471,975)
Other 460 7,706 8,166 -- -- --
Forward Contracts:
Currencies (880,534) (194,252) (1,074,786) 1,332,003 (484,699) 847,304
Options Contracts:
Domestic exchanges
Currencies 15,455 (7,438) 8,017 20,057 -- 20,057
-------------- -------------- ----------- -------------- -------------- ---------
$ (998,421) $1,573,720 $ 575,299 $ 680,518 $ (778,983) $ (98,465)
-------------- -------------- ----------- -------------- -------------- ---------
-------------- -------------- ----------- -------------- -------------- ---------
</TABLE>
8
<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 September 30, 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 71% 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 recorded for the nine and three months ended
September 30, 1996 were $2,523,938 and $1,323,497, respectively. Redemptions by
the General Partner recorded for the nine and three months ended September 30,
1996 were $1,693,563 and $13,420, respectively. Redemptions by limited partners
and the General Partner from commencement of operations, October 6, 1989,
through September 30, 1996 totalled $113,604,531 and $1,693,563, 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 September 30, 1996 was $197.36, an
increase of .84% from the December 31, 1995 net asset value per Unit of $195.71.
The Partnership's net asset value declined in the month of July. Profits
earned in the financials, softs and meats sectors were offset by losses in the
metals, stock indices, currencies, energies and grains sectors. July was notable
for remarkable market volatility across numerous sectors effecting the global
equity index, currency, energy, grain and metal markets. Whipsawed by a volatile
U.S. stock market, global bond markets recovered somewhat by month's end as
reports indicated a slowing U.S. economy. Long positions in German, British,
French, Italian and Australian bonds produced gains. In the softs sector, long
exposure to sugar and coffee was profitable. Positions in gold, silver and
copper were unprofitable as were positions in global stock indices. In foreign
exchange markets, strong U.S. Producer Price Inflation data reported on July
12th began a sell-off in U.S. equities that was partially responsible for a
general weakness in the U.S. dollar.
9
<PAGE>
<PAGE>
German mark positions were profitable as the mark strengthened on better than
expected employment data in Germany. However, Japanese yen and French franc
positions were unprofitable. In the energies sector, positions in natural gas
incurred losses while light crude and heating oil trades were flat.
The Partnership's performance was slightly negative in the month of August.
Profits earned in the financials, stock indices, and energies sectors were
offset by losses in the currencies, metals, softs and grains sectors. In the
financials sector, positions in Japanese and Australian bonds were profitable.
Japanese government bonds benefited from a key report indicating the business
outlook for the Japanese economy had worsened. With fears of rising rates
abated, bond prices of that nation hit new contract highs. In the energies
sector, positions in light crude oil, heating oil and natural gas were
profitable. Crude oil soared as increasing demand from developing nations, low
inventories worldwide and a potentially disruptive hurricane season caused
concern. In the currencies sector, positions in the Australian dollar, German
mark, British pound and Swiss franc were unprofitable. The U.S. dollar, German
mark and Japanese yen fluctuated as investors responded to various economic
reports and policy decisions on interest rates. In the metals sector, positions
in nickel, gold and silver were unprofitable.
The Partnership's performance was positive in the month of September. Profits
earned in the financials, metals, energies and meats sectors offset losses in
the currencies, stock indices, softs and grains sectors. In the financials
sector, positions in German, Italian, French and Japanese bonds were profitable.
Bond markets remained unsettled for much of the month, prior to the U.S. Federal
Reserve Board's policy committee meeting on interest rates. The Committee's
decision to keep short-term interest rates at current levels did little to
diminish expectations of higher U.S. rates down the road. Weighing that outlook
against increasing pressure in Europe and Japan to keep rates low, central banks
moved assets into the higher yielding U.S. bond market. In the metals sector,
positions in gold, silver, aluminum and nickel were profitable. Investors were
net sellers in gold on news of the International Monetary Fund's plan to sell
five million ounces from its own reserves to help pay the debts of the poorest
nations. In the energies sector, prices continued their upward climb as
positions in heating and light crude oil were profitable. In the currencies
sector, Swiss franc, German mark and Japanese yen positions were unprofitable.
During the month, the U.S. dollar continued to strengthen against both European
and Japanese currencies. The market expected a widening interest rate spread
which rallied the dollar higher.
Interest income from U.S. Treasury bills for the nine and three months ended
September 30, 1996 decreased by approximately $237,000 and $68,000 as compared
to the same periods in 1995 primarily due to lower interest rates in 1996 and
less funds available for investment in U.S. Treasury bills during 1996 due to
redemptions.
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 decreased by approximately $196,000 and $102,000 for the nine and
three months ended September 30, 1996 as compared to the same periods in 1995
primarily due to the effect of redemptions on the monthly net asset values.
All trading decisions are currently being made by John W. Henry & Co., Inc.,
Welton Investment System Corp. and Analytic/TSA Investors Inc. (formerly called
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 decreased by approximately $108,000 and $43,000 for
the nine and three months ended September 30, 1996 as compared to the same
periods in 1995 primarily due to the effect of redemptions on the monthly net
asset values.
Incentive fees are based on the New High Net Trading Profits generated by
each Trading Manager, as defined in the Advisory Agreements between the
Partnership, the General Partner and each Trading Manager. Trading performance
resulted in incentive fees of approximately $48,000 and $366,000 for the nine
months ended September 30, 1996 and September 30, 1995, respectively. No
incentive fees were earned in the third quarter of 1996 or 1995.
General and administrative expenses decreased by approximately $26,000 and
$27,000 for the nine and three months ended September 30, 1996 as compared to
the same periods 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. These variances were primarily due to a
reduction in overall costs associated with administrating the Partnership.
10
<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)
27 Financial Data Schedule (filed herewith)
(b) Reports on Form 8-K--None
11
<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: November 14, 1996
----------------------------------------
Steven Carlino
Vice President
Chief Accounting Officer for the
Registrant
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial information
extracted from the financial statements for
Pru-Bache Capital Return Futures Fund 2, L.P.
and is qualified in its entirety by reference
to such financial statements
</LEGEND>
<RESTATED>
<CIK> 0000851786
<NAME> Pru-Bache Capital Return Futures Fund 2, L.P.
<MULTIPLIER> 1
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-1-1996
<PERIOD-END> Sep-30-1996
<PERIOD-TYPE> 9-Mos
<CASH> 6,023,646
<SECURITIES> 23,250,966
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 29,274,612
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 29,274,612
<CURRENT-LIABILITIES> 1,587,800
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 27,686,812
<TOTAL-LIABILITY-AND-EQUITY> 29,274,612
<SALES> 0
<TOTAL-REVENUES> 3,098,216
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,863,372
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 234,844
<EPS-PRIMARY> 1.54
<EPS-DILUTED> 0
</TABLE>
