<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 June 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
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(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>
June 30, December 31,
1999 1998
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------
ASSETS
Equity in commodity trading accounts:
Cash $ 5,600,157 $ 4,870,709
U.S. Treasury bills, at amortized cost 17,013,828 19,282,809
Net unrealized gain on open commodity positions 800,622 587,862
------------- ------------
Total assets $23,414,607 $24,741,380
------------- ------------
------------- ------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Redemptions payable $ 1,124,997 $ 566,962
Incentive fees payable 101,013 19,484
Options, at market 50,975 10,929
Management fees payable 41,115 44,165
Due to affiliates 40,764 11,263
Accrued expenses 33,338 56,959
------------- ------------
Total liabilities 1,392,202 709,762
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Commitments
Partners' capital
Limited partners (89,652 and 98,989 units outstanding) 21,802,078 23,791,274
General partner (906 and 1,000 units outstanding) 220,327 240,344
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Total partners' capital 22,022,405 24,031,618
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Total liabilities and partners' capital $23,414,607 $24,741,380
------------- ------------
------------- ------------
Net asset value per limited and general partnership unit ('Units') $ 243.19 $ 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>
Six Months Three Months
Ended June 30, Ended June 30,
-------------------------- --------------------------
1999 1998 1999 1998
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
REVENUES
Net realized gain (loss) on commodity
transactions $1,042,199 $(1,695,670) $ 443,664 $(1,023,978)
Change in net unrealized gain on open
commodity positions 225,214 (2,395,169) 614,853 (1,354,420)
Interest from U.S. Treasury bills 381,734 559,623 185,226 265,112
---------- ----------- ---------- -----------
1,649,147 (3,531,216) 1,243,743 (2,113,286)
---------- ----------- ---------- -----------
EXPENSES
Commissions 934,049 1,217,740 457,442 574,461
Management fees 249,837 503,306 122,887 236,231
Incentive fees 125,526 7,756 101,013 --
General and administrative 81,658 77,759 42,929 37,109
---------- ----------- ---------- -----------
1,391,070 1,806,561 724,271 847,801
---------- ----------- ---------- -----------
Net income (loss) $ 258,077 $(5,337,777) $ 519,472 $(2,961,087)
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
ALLOCATION OF NET INCOME (LOSS)
Limited partners $ 255,496 $(5,284,361) $ 514,277 $(2,931,450)
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
General partner $ 2,581 $ (53,416) $ 5,195 $ (29,637)
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
NET INCOME (LOSS) PER WEIGHTED AVERAGE
LIMITED AND GENERAL PARTNERSHIP UNIT
Net income (loss) per weighted average
limited and general partnership unit $ 2.64 $ (44.66) $ 5.46 $ (24.95)
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
Weighted average number of limited
and general partnership units
outstanding 97,587 119,517 95,184 118,695
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
- ------------------------------------------------------------------------------------------------------
</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 income -- 255,496 2,581 258,077
Redemptions (9,431) (2,244,692) (22,598) (2,267,290)
-------- ----------- --------- -----------
Partners' capital--June 30, 1999 90,558 $21,802,078 $ 220,327 $22,022,405
-------- ----------- --------- -----------
-------- ----------- --------- -----------
- -----------------------------------------------------------------------------------------------------
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
JUNE 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 June 30, 1999 and the results of its operations for the six
and three months ended June 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 (the 'Annual Report').
New Accounting Guidance
In June 1999, the Financial Accounting Standards Board ('FASB') issued
Statement No. 137, Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133--an
amendment of FASB Statement No. 133, which delayed the effective date of FASB
Statement No. 133, Accounting for Derivative Instruments and Hedging Activities
('SFAS 133'). The Partnership does not believe the effect of adoption of SFAS
133, now required effective January 1, 2001, will be material.
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 six and three months ended June
30, 1999 and 1998 were:
<TABLE>
<CAPTION>
For the three months
For the six months ended ended
June 30, June 30,
--------------------------- -------------------------
1999 1998 1999 1998
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
Commissions $934,049 $1,217,740 $457,442 $574,461
General and administrative 35,785 41,385 17,830 20,105
-------- ---------- -------- --------
$969,834 $1,259,125 $475,272 $594,566
-------- ---------- -------- --------
-------- ---------- -------- --------
</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.
4
<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 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
June 30, 1999, such segregated assets totalled $17,438,162. 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 $5,750,120 at June 30,
1999. There are no segregation requirements for assets related to forward
trading.
As of June 30, 1999, the Partnership's open futures, forward and options
contracts mature within one year.
5
<PAGE>
At June 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 $ 49,415,589 $22,873,426
Commitments to sell 6,660,195 34,657,512
Currency Futures and Options
Contracts:
Commitments to purchase 5,397,880 5,856,239
Commitments to sell 17,228,870 6,186,805
Financial Futures and Options
Contracts:
Commitments to purchase 34,566,874 64,800,054
Commitments to sell 157,431,763 63,817,191
Other Futures and Options Contracts:
Commitments to purchase 4,294,601 67,482
Commitments to sell 3,138,912 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 June 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 $ 200,717 $ 17,834 $ 182,195 $ 10,003
Currencies 144,435 68,218 163,687 80,275
Other 214,746 7,574 105,886 31,160
Foreign exchanges
Financial 415,969 86,252 640,142 45,819
Other 90,123 260,840 61,678 98,026
Forward Contracts:
Currencies 236,168 60,818 445,954 746,397
Options Contracts:
Domestic exchanges
Financial -- 4,331 -- 2,046
Currencies -- 12,525 -- 7,150
Other -- 34,119 -- 1,733
---------- ----------- ---------- -----------
$1,302,158 $ 552,511 $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 six and three months ended June 30, 1999 and 1998,
respectively:
<TABLE>
<CAPTION>
For the six months ended
---------------------------------------------------------
June 30, 1999 June 30, 1998
-------------------------- --------------------------
<S> <C> <C> <C> <C>
Assets Liabilities Assets Liabilities
---------- ----------- ---------- -----------
Futures Contracts:
Domestic exchanges
Financial $ 153,231 $ 20,986 $ 184,131 $ 46,846
Currencies 241,521 94,602 89,125 22,493
Other 145,333 32,375 229,945 75,189
Foreign exchanges
Financial 359,405 70,806 647,819 150,314
Other 60,746 191,260 81,373 58,059
Forward Contracts:
Currencies 329,647 240,247 243,663 560,885
Options Contracts:
Domestic exchanges
Financial 10,293 12,046 -- 12,836
Currencies -- 9,961 -- 3,895
Other -- 12,481 -- 233
Foreign exchanges
Financial -- 1,477 -- --
---------- ----------- ---------- -----------
$1,300,176 $ 686,241 $1,476,056 $ 930,750
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
</TABLE>
<TABLE>
<CAPTION>
For the three months ended
---------------------------------------------------------
June 30, 1999 June 30, 1998
-------------------------- --------------------------
<S> <C> <C> <C> <C>
Assets Liabilities Assets Liabilities
---------- ----------- ---------- -----------
Futures Contracts:
Domestic exchanges
Financial $ 104,422 $ 23,110 $ 90,163 $ 80,588
Currencies 245,208 39,523 139,309 15,209
Other 160,618 39,065 52,514 109,873
Foreign exchanges
Financial 274,700 60,398 436,983 131,079
Other 44,796 239,656 31,252 70,747
Forward Contracts:
Currencies 277,480 137,185 332,744 444,025
Options Contracts:
Domestic exchanges
Financial 18,013 17,484 -- 21,441
Currencies -- 12,506 -- 1,541
Other -- 21,083 -- 408
Foreign exchanges
Financial -- 2,584 -- --
---------- ----------- ---------- -----------
$1,125,237 $ 592,594 $1,082,965 $ 874,911
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
</TABLE>
7
<PAGE>
The following table presents the trading revenues from futures, forward
and options contracts during the six and three months ended June 30, 1999 and
1998, respectively.
<TABLE>
<CAPTION>
For the six months ended For the three months ended
June 30, June 30,
-------------------------- --------------------------
1999 1998 1999 1998
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
Futures Contracts:
Domestic exchanges
Financial $ 123,343 $ (785,587) $ 169,764 $ (654,219)
Currencies 188,741 (53,945) 118,383 (34,727)
Other 35,412 (1,506,132) (44,090) (651,882)
Foreign exchanges
Financial 159,498 (1,036,632) 685,146 (772,699)
Other (259,446) 7,532 (85,637) (6,136)
Forward Contracts:
Currencies 907,725 (767,145) 168,861 (290,387)
Options Contracts:
Domestic exchanges
Financial 96,151 51,550 23,966 35,612
Currencies 30,768 (2,700) 29,963 (5,750)
Other (21,094) 2,220 (14,154) 1,790
Foreign exchanges
Financial 6,315 -- 6,315 --
---------- ----------- ---------- -----------
$1,267,413 $(4,090,839) $1,058,517 $(2,378,398)
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
</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 June 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 74% 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 six and three months ended June 30, 1999 were
$2,244,692 and $1,113,810, respectively, for the limited partners and $22,598
and $11,187, respectively, for the General Partner, and from commencement of
operations, October 6, 1989, through June 30, 1999, totalled $125,166,808 for
the limited partners and $1,810,297 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 June 30, 1999 was $243.19, an increase of
1.19% from the December 31, 1998 net asset value per Unit of $240.34.
Quarterly Market Overview
In the United States, as economic indicators strengthened and the Federal
Reserve Bank announced they would raise interest rates, the U.S. dollar rose
against most major currencies, especially European which were spurred by
deteriorating confidence in the Euro. Throughout the second quarter, several
issues weighed on world markets including significant price declines in global
long-term interest bonds, the U.S.
9
<PAGE>
Federal Reserve's tightening of monetary policy, and an increased supply of
corporate debt. Furthermore, as the U.S. economy generated strength, investors
feared possible inflation. U.S. bond prices fell, followed by European bonds
which were depressed by rumors regarding Italy's retreat from the European
Economic Union. Global stock markets recorded gains over the quarter, supported
by solid corporate earnings and improved economies (especially Asian). In the
commodity markets, the energy sector rallied as OPEC announced production cuts
and lower inventories in oil and gasoline. A consistent tone prevailed in the
agricultural and soft commodity markets as favorable seasonal growing conditions
continued to weigh on prices.
Quarterly Partnership Performance
The Partnership recorded profits in the financial sector driven by Japanese
government and German long bonds. Throughout the quarter, the Japanese economy
appeared to strengthen prompting a bond market rally. U.S. Treasury bond prices
declined continuing a trend that had existed for several months. U.S. interest
rates rose and bond prices fell during June as strong consumer demand and an
improving manufacturing sector caused economic growth to exceed most market
expectations. European bonds followed the lead of the U.S. bond markets.
Currency sector positions led by the Swiss franc captured gains for the
Partnership. The Swiss franc fell in value versus the U.S. dollar after losing
its safe haven attraction as the war in Kosovo ended, and as the U.S. dollar
gained strength when the Federal Reserve increased U.S. interest rates by .25%.
Partnership gains were also attributable to the index sector. In the first
week of January, the Nikkei Dow recorded a low near 13050 and preceded to
accelerate up to the 18455 mark within the last two weeks of June. Capital flows
out of the U.S. market and into the Asian region helped to drive the Nikkei
Dow's upward move under the perception that Asian economies have formed a base
from which to improve.
Losses were incurred in the metal sector from positions in zinc, copper, and
silver. Base metals rallied sharply following announcements that two major
companies would significantly cut copper output. If carried out, the estimated
production cuts would almost eliminate the estimated global copper supply
surplus. Silver experienced extreme volatility throughout the second quarter,
and failed to recognize a trend.
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 $178,000 and
$80,000, respectively, for the six and three months ended June 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 $284,000 and
$117,000 for the six and three months ended June 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 Limited ('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
$253,000 and $113,000 for the six and three months ended June 30, 1999 as
compared to the same periods in 1998 due to the effect of redemptions on 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. Eclipse generated
sufficient trading profits to earn incentive fees of approximately $126,000 and
$101,000 during the six and three months ended June 30, 1999 and Welton
generated sufficient trading profits to earn
10
<PAGE>
incentive fees of approximately $8,000 during the six month period ended June
30, 1998, despite overall Partnership net trading losses during the 1998 period.
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 increased by approximately
$4,000 and $6,000 for the six and three months ended June 30, 1999 as compared
to the same periods in 1998 as additional costs resulted from the increase in
the number of trading managers effective September 1, 1998.
New Accounting Guidance
In June 1999, the Financial Accounting Standards Board ('FASB') issued
Statement No. 137, Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133--an
amendment of FASB Statement No. 133, which delayed the effective date of FASB
Statement No. 133, Accounting for Derivative Instruments and Hedging Activities
('SFAS 133'). The Partnership does not believe the effect of adoption of SFAS
133, now required effective January 1, 2001, will be material.
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: August 13, 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> Jun-30-1999
<PERIOD-TYPE> 6-Mos
<CASH> 5,600,157
<SECURITIES> 17,814,450
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 23,414,607
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 23,414,607
<CURRENT-LIABILITIES> 1,392,202
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 22,022,405
<TOTAL-LIABILITY-AND-EQUITY> 23,414,607
<SALES> 0
<TOTAL-REVENUES> 1,649,147
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,391,070
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 258,077
<EPS-BASIC> 2.64
<EPS-DILUTED> 0
</TABLE>
