<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______________________ to ______________________
Commission file number: 0-18418
PRUDENTIAL-BACHE CAPITAL RETURN FUTURES FUND 2, L.P.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 13-3533120
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One New York Plaza, 13th Floor New York, New York 10292
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 778-7866
N/A
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check CK whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes CK No __
<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,
1999 1998
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------
ASSETS
Equity in commodity trading accounts:
Cash $ 4,794,134 $ 4,870,709
U.S. Treasury bills, at amortized cost 16,977,172 19,282,809
Net unrealized gain on open commodity positions 61,227 596,291
------------- ------------
Total assets $21,832,533 $24,749,809
------------- ------------
------------- ------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Redemptions payable $ 928,237 $ 566,962
Net premium on options 66,057 19,358
Incentive fees payable 54,589 19,484
Accrued expenses 42,212 56,959
Management fees payable 38,093 44,165
Due to affiliates 28,460 11,263
------------- ------------
Total liabilities 1,157,648 718,191
------------- ------------
Commitments
Partners' capital
Limited partners (85,800 and 98,989 units outstanding) 20,468,055 23,791,274
General partner (867 and 1,000 units outstanding) 206,830 240,344
------------- ------------
Total partners' capital 20,674,885 24,031,618
------------- ------------
Total liabilities and partners' capital $21,832,533 $24,749,809
------------- ------------
------------- ------------
Net asset value per limited and general partnership unit ('Units') $ 238.56 $ 240.34
------------- ------------
------------- ------------
- ----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
</TABLE>
2
<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,
-------------------------- ------------------------
1999 1998 1999 1998
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
REVENUES
Net realized gain on commodity transactions $1,827,008 $ 197,002 $ 784,809 $1,892,672
Change in net unrealized gain on open
commodity positions (535,064) (164,101) (760,278) 2,231,068
Interest from U.S. Treasury bills 577,625 787,466 195,891 227,843
---------- ----------- --------- ----------
1,869,569 820,367 220,422 4,351,583
---------- ----------- --------- ----------
EXPENSES
Commissions 1,368,779 1,703,654 434,730 485,914
Management fees 364,240 696,972 114,403 193,666
Incentive fees 180,115 103,710 54,589 95,954
General and administrative 117,641 115,376 35,983 37,617
---------- ----------- --------- ----------
2,030,775 2,619,712 639,705 813,151
---------- ----------- --------- ----------
Net income (loss) $ (161,206) $(1,799,345) $(419,283) $3,538,432
---------- ----------- --------- ----------
---------- ----------- --------- ----------
ALLOCATION OF NET INCOME (LOSS)
Limited partners $ (159,594) $(1,781,376) $(415,090) $3,502,985
---------- ----------- --------- ----------
---------- ----------- --------- ----------
General partner $ (1,612) $ (17,969) $ (4,193) $ 35,447
---------- ----------- --------- ----------
---------- ----------- --------- ----------
NET INCOME (LOSS) PER WEIGHTED AVERAGE
LIMITED AND GENERAL PARTNERSHIP UNIT
Net income (loss) per weighted average
limited and general partnership unit $ (1.69) $ (15.57) $ (4.63) $ 32.85
---------- ----------- --------- ----------
---------- ----------- --------- ----------
Weighted average number of limited
and general partnership units outstanding 95,244 115,581 90,558 107,709
---------- ----------- --------- ----------
---------- ----------- --------- ----------
- ------------------------------------------------------------------------------------------------------
</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, 1998 99,989 $23,791,274 $ 240,344 $24,031,618
Net loss -- (159,594) (1,612) (161,206)
Redemptions (13,322) (3,163,625) (31,902) (3,195,527)
-------- ----------- --------- -----------
Partners' capital--September 30, 1999 86,667 $20,468,055 $ 206,830 $20,674,885
-------- ----------- --------- -----------
-------- ----------- --------- -----------
- -----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
</TABLE>
3
<PAGE>
PRUDENTIAL-BACHE CAPITAL RETURN FUTURES FUND 2, L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(Unaudited)
A. General
These financial statements have been prepared without audit. In the opinion
of management, the financial statements contain all adjustments (consisting of
only normal recurring adjustments) necessary to present fairly the financial
position of Prudential-Bache Capital Return Futures Fund 2, L.P. (the
'Partnership') as of September 30, 1999 and the results of its operations for
the nine and three months ended September 30, 1999 and 1998. However, the
operating results for the interim periods may not be indicative of the results
expected for a full year.
Certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with generally accepted accounting
principles have been omitted. It is suggested that these financial statements be
read in conjunction with the financial statements and notes thereto included in
the Partnership's annual report on Form 10-K filed with the Securities and
Exchange Commission for the year ended December 31, 1998.
Certain balances from 1998 have been reclassified to conform with the current
financial statement presentation.
B. Related Parties
The General Partner of the Partnership is Prudential Securities Futures
Management Inc. (the 'General Partner'), a wholly owned subsidiary of Prudential
Securities Incorporated ('PSI'). The General Partner and its affiliates perform
services for the Partnership which include, but are not limited to: brokerage
services, accounting and financial management, registrar, transfer and
assignment functions, investor communications, printing and other administrative
services.
The costs incurred for these services for the nine and three months ended
September 30, 1999 and 1998 were:
<TABLE>
<CAPTION>
For the three months
For the nine months ended ended
September 30, September 30,
----------------------------- -------------------------
1999 1998 1999 1998
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
Commissions $1,368,779 $1,703,654 $434,730 $485,914
General and administrative 50,847 57,233 15,062 15,848
---------- ---------- -------- --------
$1,419,626 $1,760,887 $449,792 $501,762
---------- ---------- -------- --------
---------- ---------- -------- --------
</TABLE>
The Partnership's assets are maintained either in trading or cash accounts
with PSI, the Partnership's commodity broker, or for margin purposes, with the
various exchanges on which the Partnership is permitted to trade.
The Partnership, acting through its trading managers, executes
over-the-counter, spot, forward and/or option foreign exchange transactions with
PSI. PSI then engages in back-to-back trading with an affiliate,
Prudential-Bache Global Markets Inc. ('PBGM'). PBGM attempts to earn a profit on
such transactions. PBGM keeps its prices on foreign currency competitive with
other interbank currency trading desks. All over-the-counter currency
transactions are conducted between PSI and the Partnership pursuant to a line of
credit. PSI may require that collateral be posted against the marked-to-market
position of the Partnership.
C. Credit and Market Risk
Since the Partnership's business is to trade futures, forward and options
contracts, its capital is at risk due to changes in the value of these contracts
(market risk) or the inability of counterparties to perform under the terms of
the contracts (credit risk).
4
<PAGE>
Futures, forward and options contracts involve varying degrees of off-balance
sheet risk; and changes in the level or volatility of interest rates, foreign
currency exchange rates or the market values of the contracts (or commodities
underlying the contracts) frequently result in changes in the Partnership's
unrealized gain (loss) on open commodity positions reflected in the statements
of financial condition. The Partnership's exposure to market risk is influenced
by a number of factors including the relationships among the contracts held by
the Partnership as well as the liquidity of the markets in which the contracts
are traded.
Futures and options contracts are traded on organized exchanges and are thus
distinguished from forward contracts which are entered into privately by the
parties. The credit risks associated with futures and options contracts are
typically perceived to be less than those associated with forward contracts,
because exchanges typically provide clearinghouse arrangements in which the
collective credit (subject to certain limitations) of the members of the
exchanges is pledged to support the financial integrity of the exchange. On the
other hand, the Partnership must rely solely on the credit of its broker (PSI)
with respect to forward transactions. The Partnership presents unrealized gains
and losses on open forward positions as a net amount in the statements of
financial condition because it has a master netting agreement with PSI.
The General Partner attempts to minimize both credit and market risks by
requiring the Partnership and its trading managers to abide by various trading
limitations and policies. The General Partner monitors compliance with these
trading limitations and policies which include, but are not limited to:
executing and clearing all trades with creditworthy counterparties (currently,
PSI is the sole counterparty or broker), limiting the amount of margin or
premium required for any one commodity or all commodities combined and generally
limiting transactions to contracts which are traded in sufficient volume to
permit the taking and liquidating of positions. Additionally, pursuant to each
Advisory Agreement among the Partnership, the General Partner and each trading
manager, the General Partner shall automatically terminate a trading manager if
the net asset value allocated to the trading manager declines by 33 1/3% from
the value at the beginning of any year or since the commencement of trading
activities (except for Welton Investment Corporation for which automatic
termination specifically requires a decline of 33 1/3% from the value at the
commencement of trading activities; however, the General Partner has other
optional rights to terminate Welton Investment Corporation should its trading
result in significant declines). Furthermore, the Amended and Restated Agreement
of Limited Partnership provides that the Partnership will liquidate its
positions, and eventually dissolve, if the Partnership experiences a decline in
the net asset value to less than 50% of the value at commencement of trading
activities. In each case, the decline in net asset value is after giving effect
for distributions and redemptions. The General Partner may impose additional
restrictions (through modifications of such trading limitations and policies)
upon the trading activities of the trading managers as it, in good faith, deems
to be in the best interest of the Partnership.
PSI, when acting as the Partnership's futures commission merchant in
accepting orders for the purchase or sale of domestic futures and options
contracts, is required by Commodity Futures Trading Commission ('CFTC')
regulations to separately account for and segregate as belonging to the
Partnership all assets of the Partnership relating to domestic futures and
options trading and is not to commingle such assets with other assets of PSI. At
September 30, 1999, such segregated assets totalled $17,024,378. Part 30.7 of
the CFTC regulations also requires PSI to secure assets of the Partnership
related to foreign futures and options trading which totalled $4,928,333 at
September 30, 1999. There are no segregation requirements for assets related to
forward trading.
As of September 30, 1999, the Partnership's open futures, forward and options
contracts mature within one year.
5
<PAGE>
At September 30, 1999 and December 31, 1998, gross contract amounts of open
futures, forward and options contracts are:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Currency Forward Contracts:
Commitments to purchase $ 26,287,435 $22,873,426
Commitments to sell 11,144,068 34,657,512
Currency Futures and Options
Contracts:
Commitments to purchase 9,759,977 5,856,239
Commitments to sell 7,975,538 6,186,805
Financial Futures and Options
Contracts:
Commitments to purchase 11,972,787 64,800,054
Commitments to sell 119,456,177 63,817,191
Other Futures and Options Contracts:
Commitments to purchase 6,904,930 67,482
Commitments to sell 550,041 5,956,997
</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, 1999 and December 31, 1998, the fair value of open futures,
forward and options contracts was:
<TABLE>
<CAPTION>
1999 1998
------------------------ --------------------------
Assets Liabilities Assets Liabilities
-------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Futures Contracts:
Domestic exchanges
Financial $ 25,880 $ 23,517 $ 182,195 $ 10,003
Currencies 154,906 133,445 163,687 80,275
Other 131,630 17,074 105,886 31,160
Foreign exchanges
Financial 125,319 63,791 640,142 45,819
Other 150,842 117,076 61,678 98,026
Forward Contracts:
Currencies 123,421 309,656 445,954 746,397
Options Contracts:
Domestic exchanges
Financial -- 1,300 -- 2,046
Currencies -- 20,550 -- 7,150
Other -- 30,419 -- 1,733
-------- ----------- ---------- -----------
$711,998 $ 716,828 $1,599,542 $ 1,022,609
-------- ----------- ---------- -----------
-------- ----------- ---------- -----------
</TABLE>
6
<PAGE>
The following tables present the average fair value of futures, forward and
options contracts during the nine and three months ended September 30, 1999 and
1998, respectively:
<TABLE>
<CAPTION>
For the nine months ended
---------------------------------------------------------
September 30, 1999 September 30, 1998
-------------------------- --------------------------
<S> <C> <C> <C> <C>
Assets Liabilities Assets Liabilities
---------- ----------- ---------- -----------
Futures Contracts:
Domestic exchanges
Financial $ 132,011 $ 26,005 $ 198,912 $ 44,454
Currencies 253,285 88,137 107,239 29,058
Other 141,043 28,354 188,854 58,964
Foreign exchanges
Financial 316,081 71,891 646,542 123,082
Other 92,714 172,555 62,905 71,429
Forward Contracts:
Currencies 285,077 264,905 191,462 671,135
Options Contracts:
Domestic exchanges
Financial 7,205 10,424 -- 19,832
Currencies -- 13,720 -- 4,101
Other -- 15,460 -- 3,795
Foreign exchanges
Financial -- 1,897 -- 90
---------- ----------- ---------- -----------
$1,227,416 $ 693,348 $1,395,914 $ 1,025,940
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
</TABLE>
<TABLE>
<CAPTION>
For the three months ended
---------------------------------------------------------
September 30, 1999 September 30, 1998
-------------------------- --------------------------
<S> <C> <C> <C> <C>
Assets Liabilities Assets Liabilities
---------- ----------- ---------- -----------
Futures Contracts:
Domestic exchanges
Financial $ 112,053 $ 32,746 $ 239,717 $ 49,116
Currencies 246,660 71,843 125,264 37,123
Other 151,960 16,123 72,664 61,419
Foreign exchanges
Financial 265,235 77,380 611,072 127,501
Other 148,011 161,891 23,566 90,669
Forward Contracts:
Currencies 194,852 257,036 52,244 951,198
Options Contracts:
Domestic exchanges
Financial -- 6,064 -- 37,115
Currencies -- 20,000 -- 4,494
Other -- 25,337 -- 9,199
Foreign exchanges
Financial -- 2,157 -- 224
---------- ----------- ---------- -----------
$1,118,771 $ 670,577 $1,124,527 $ 1,368,058
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
</TABLE>
7
<PAGE>
The following table presents the trading revenues from futures, forward
and options contracts during the nine and three months ended September 30, 1999
and 1998, respectively.
<TABLE>
<CAPTION>
For the nine months For the three months
ended ended
September 30, September 30,
-------------------------- ------------------------
1999 1998 1999 1998
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
Futures Contracts:
Domestic exchanges
Financial $ (127,464) $ 771,584 $(250,807) $1,557,171
Currencies 257,341 48,492 68,600 102,437
Other 360,496 (1,228,397) 325,084 277,735
Foreign exchanges
Financial (261,598) 1,817,661 (421,096) 2,854,293
Other (30,781) (114,447) 228,665 (121,979)
Forward Contracts:
Currencies 1,011,956 (1,274,439) 104,231 (507,294)
Options Contracts:
Domestic exchanges
Financial 84,286 7,427 (11,865) (44,123)
Currencies (20,020) (3,975) (50,788) (1,275)
Other 2,026 7,844 23,120 5,624
Foreign exchanges
Financial 15,702 1,151 9,387 1,151
---------- ----------- --------- ----------
$1,291,944 $ 32,901 $ 24,531 $4,123,740
---------- ----------- --------- ----------
---------- ----------- --------- ----------
</TABLE>
8
<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 trading operations on October 6, 1989 with gross
proceeds of $101,010,000. After accounting for organizational and offering
costs, the Partnership's net proceeds were $99,010,000.
At September 30, 1999, 100% of the Partnership's total net asset value was
allocated to commodities trading. A significant portion of the net asset value
was held in U.S. Treasury bills (which represented approximately 79% of the net
asset value prior to redemptions payable) and cash, which are used as margin for
the Partnership's trading in commodities. Inasmuch as the sole business of the
Partnership is to trade in commodities, the Partnership continues to own such
liquid assets to be used as margin.
The percentage that U.S. Treasury bills bears to the total net assets varies
each day, and from month to month, as the market values of commodity interests
change. The balance of the total net assets is held in cash. All interest earned
on the Partnership's interest-bearing funds is paid to the Partnership.
The commodities contracts are subject to periods of illiquidity because of
market conditions, regulatory considerations and other reasons. For example,
commodity exchanges limit fluctuations in certain commodity futures contract
prices during a single day by regulations referred to as 'daily limits.' During
a single day, no trades may be executed at prices beyond the daily limit. Once
the price of a futures contract for a particular commodity has increased or
decreased by an amount equal to the daily limit, positions in the commodity can
neither be taken nor liquidated unless traders are willing to effect trades at
or within the limit. Commodity futures prices have occasionally moved the daily
limit for several consecutive days with little or no trading. Such market
conditions could prevent the Partnership from promptly liquidating its commodity
futures positions.
Since the Partnership's business is to trade futures, forward and options
contracts, its capital is at risk due to changes in the value of these contracts
(market risk) or the inability of counterparties to perform under the terms of
the contracts (credit risk). The Partnership's exposure to market risk is
influenced by a number of factors including the volatility of interest rates and
foreign currency exchange rates, the liquidity of the markets in which the
contracts are traded and the relationships among the contracts held. The
inherent uncertainty of the Partnership's speculative trading as well as the
development of drastic market occurrences could result in monthly losses
considerably beyond the Partnership's experience to date and could ultimately
lead to a loss of all or substantially all of investors' capital. The General
Partner attempts to minimize these risks by requiring the Partnership and its
trading managers to abide by various trading limitations and policies, which
include limiting margin amounts, trading only in liquid markets and utilizing
stop loss provisions. See Note C to the financial statements for a further
discussion on the credit and market risks associated with the Partnership's
futures, forward and options contracts.
Redemptions recorded for the nine and three months ended September 30, 1999
were $3,163,625 and $918,933, respectively, for the limited partners and $31,902
and $9,304, respectively, for the General Partner, and from commencement of
operations, October 6, 1989, through September 30, 1999, totalled $126,085,741
for the limited partners and $1,819,601 for the General Partner. Future
redemptions will impact the amount of funds available for investment in
commodity contracts in subsequent periods.
The Partnership does not have, nor does it expect to have, any capital
assets.
Results of Operations
The net asset value per Unit as of September 30, 1999 was $238.56, a decrease
of .74% from the December 31, 1998 net asset value per Unit of $240.34 and a
decrease of 1.90% from the June 30, 1999 net asset value per Unit of $243.19.
Quarterly Market Overview
During the quarter, global financial markets experienced heavy volatility. In
July, U.S. Federal Reserve policy gave markets a boost. However, record trade
deficits, higher employment costs, fears of inflation and higher interest rates
in the U.S. quickly caused a reversal in U.S. stock and bond markets. Global
stock and
9
<PAGE>
bond markets followed U.S. markets demonstrating increased volatility. The U.S.
dollar also experienced fluctuations throughout the quarter as signs of a
stronger U.S. economy versus the European community supported the dollar's rise
to new highs against most major currencies. However, later in the quarter as a
record trade gap and stronger than expected European economic data were
reported, the U.S. dollar came under pressure and continued to fall against most
major currencies and to record lows against the Japanese yen. In the commodities
markets, energy prices rose as OPEC members agreed to maintain cuts in oil
output. The metal sector experienced extreme movement as gold prices rose to a
two-year high following reports that 15 European Central banks would limit sales
and retain higher gold reserves.
Quarterly Partnership Performance
The Partnership experienced losses in the index sector due to positions in
the S&P 500 and Hang Seng (Hong Kong) indices. Global stock markets followed the
lead of the U.S. stock and bond markets. With investors speculating higher
interest rates throughout the world, coupled with fears of inflation, global
stock markets moved sideways to downward during the third quarter.
Financial sector positions also incurred losses as foreign markets
experienced bearish trends when economic data showed accelerating consumer
demand raising the risk of tighter monetary policy. In Japan, long-term interest
rates rose during the first half of the quarter on concerns that more government
bonds may be issued to finance the bailout of weaker Japanese banks. Short
positions in Japanese government bonds resulted in losses as the trend in bond
prices suddenly reversed when the Japanese yen strengthened against the U.S.
dollar. The stronger yen led to large purchases of Japanese securities by
non-Japanese investors. Additionally, Australian interest rate markets were
particularly choppy, rallying on fears of stock market weakness early in
September and reversing themselves near quarter end due to stronger U.S.
economic news. Positions in the Australian 10-year bond recorded losses.
Gains accumulated in the currency sector, particularly from Japanese yen
positions. The yen has continued to appreciate even in light of threats of
intervention by the Bank of Japan. Spurred by higher growth expectations and a
strong stock market, the yen reached levels in August not seen since the last
big rally in 1996.
Energy sector prices, mainly crude oil products, continued their upward move
as threat of a Venezuelan oil workers strike raised concerns about a disruption
in production. The markets were also supported by expectations of strong winter
demand in heating oil, acceptable levels of compliance with the OPEC production
quotas, and statements indicating that the current production pact would last
until March. Consequently, the Partnership experienced profits in long heating
and light crude oil and unleaded gas positions.
Profits in the metal sector were derived from long gold and aluminum
positions. Gold prices rose following an auction by the Bank of England which
yielded higher-than-expected prices. The market later surged following a joint
announcement by 15 European central banks that they would not sell or lease any
reserves, other than those previously designated for sale, for a period of five
years. This announcement removed a tremendous amount of supply uncertainty from
the market and allowed producer demand to send prices higher.
Interest income is earned on the Partnership's investment in U.S. Treasury
bills and varies monthly according to interest rates as well as the effect of
trading performance and redemptions on the level of interest-bearing funds.
Interest income from U.S. Treasury bills decreased by approximately $210,000 and
$32,000, respectively, for the nine and three months ended September 30, 1999
compared to the same periods in 1998. These declines in interest income were the
result of lower interest rates in 1999 as well as fewer funds being invested in
U.S. Treasury bills as a result of redemptions.
Commissions paid to PSI are calculated on the Partnership's net asset value
on the first day of each month and, therefore, vary monthly according to trading
performance and redemptions. Commissions decreased by approximately $335,000 and
$51,000 for the nine and three months ended September 30, 1999 as compared to
the same periods in 1998 principally due to the effect of redemptions on the
monthly net asset values as well as a reduction in the annual commission rate
from 8.5% to 8% of the monthly net asset values which took effect August 1,
1998.
All trading decisions are currently being made by Welton Investment
Corporation ('Welton'), Eclipse Capital Management, Inc. ('Eclipse'), Trendlogic
Associates, Inc. ('Trendlogic') and Gaiacorp Ireland
Lim-
10
<PAGE>
ited ('Gaiacorp'). Management fees are calculated on the Partnership's net asset
value allocated to each trading manager as of the end of each month and,
therefore, are affected by trading performance and redemptions. Management fees
decreased by approximately $333,000 and $79,000 for the nine and three months
ended September 30, 1999 as compared to the same periods in 1998 due to the
effect of redemptions on the monthly net asset values as well as a reduction in
the management fee rate from a 4% annual rate to a 2% rate on the portion of net
assets that were reallocated from John W. Henry & Company, Inc. to Welton,
Eclipse, Trendlogic and Gaiacorp effective September 1, 1998.
Incentive fees are based on the New High Net Trading Profits generated by
each trading manager, as defined in each Advisory Agreement among the
Partnership, the General Partner and each trading manager. Despite overall
Partnership trading losses, Eclipse generated sufficient trading profits to earn
incentive fees of approximately $180,000 and $55,000 during the nine and three
months ended September 30, 1999 and Welton, Gaiacorp and Trendlogic each
generated sufficient trading profits during the nine months ended September 30,
1998 to earn incentive fees of approximately $41,000, $10,000 and $53,000,
respectively. With the exception of Welton, who earned incentive fees of
approximately $8,000 during the three months ended March 31, 1998, all 1998
incentive fees were earned during the three months ended September 30, 1998.
General and administrative expenses include reimbursements of costs incurred
by the General Partner on behalf of the Partnership, in addition to accounting,
audit, tax and legal fees as well as printing and postage costs related to
reports sent to limited partners. These expenses were relatively stable during
the 1999 and 1998 nine and three month periods.
Year 2000 Risk
A discussion of Year 2000 risk and its effect on the operations of the
Partnership is included in the Partnership's Annual Report.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information regarding quantitative and qualitative disclosures about market
risk is not required pursuant to Item 305(e) of Regulation S-K.
11
<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--
No reports on Form 8-K were filed during the quarter.
12
<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 15, 1999
----------------------------------------
Steven Carlino
Vice President and Treasurer
13
<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-31-1999
<PERIOD-START> Jan-1-1999
<PERIOD-END> Sep-30-1999
<PERIOD-TYPE> 9-Mos
<CASH> 4,794,134
<SECURITIES> 17,038,399
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 21,832,533
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 21,832,533
<CURRENT-LIABILITIES> 1,157,648
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 20,674,885
<TOTAL-LIABILITY-AND-EQUITY> 21,832,533
<SALES> 0
<TOTAL-REVENUES> 1,869,569
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,030,775
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (161,206)
<EPS-BASIC> (1.69)
<EPS-DILUTED> 0
</TABLE>
