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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, 2001
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 incorporation or organization)
(I.R.S. Employer Identification No.)
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
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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 __
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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,
2001 2000
- ----------------------------------------------------------------------------------------------------
ASSETS
Cash $ 2,493,416 $ 2,989,531
U.S. Treasury bills, at amortized cost (pledged at broker) 9,126,675 9,890,040
Net unrealized gain on open futures and options contracts 396,668 1,179,039
Net unrealized gain on open forward contracts -- 265,456
------------- ------------
Total assets $12,016,759 $14,324,066
------------- ------------
------------- ------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Redemptions payable $ 206,443 $ 473,514
Due to affiliates 70,655 74,303
Accrued expenses payable 44,908 57,254
Management fees payable 19,827 24,772
Net unrealized loss on open forward contracts 5,224 --
Premiums received on options -- 7,506
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Total liabilities 347,057 637,349
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Commitments
Partners' capital
Limited partners (55,906 and 60,808 units outstanding) 11,552,944 13,549,677
General partner (565 and 615 units outstanding) 116,758 137,040
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Total partners' capital 11,669,702 13,686,717
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Total liabilities and partners' capital $12,016,759 $14,324,066
------------- ------------
------------- ------------
Net asset value per limited and general partnership unit ('Units') $ 206.65 $ 222.83
------------- ------------
------------- ------------
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</Table>
The accompanying notes are an integral part of these statements.
2
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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,
-------------------------- --------------------------
2001 2000 2001 2000
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REVENUES
Net realized gain (loss) on commodity
transactions $ 919,849 $(1,262,870) $ (314,176) $ (620,817)
Change in net unrealized gain/loss on open
commodity positions (1,053,051) (852,267) 202,357 (169,207)
Interest from U.S. Treasury bills 313,608 499,230 82,411 150,118
----------- ----------- ----------- -----------
180,406 (1,615,907) (29,408) (639,906)
----------- ----------- ----------- -----------
EXPENSES
Commissions 754,918 957,248 238,017 268,371
Management fees 192,324 247,635 58,983 68,875
Incentive fees 60,570 -- -- --
General and administrative 103,975 102,717 33,432 34,605
----------- ----------- ----------- -----------
1,111,787 1,307,600 330,432 371,851
----------- ----------- ----------- -----------
Net loss $ (931,381) $(2,923,507) $ (359,840) $(1,011,757)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
ALLOCATION OF NET LOSS
Limited partners $ (922,059) $(2,894,256) $ (356,240) $(1,001,633)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
General partner $ (9,322) $ (29,251) $ (3,600) $ (10,124)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
NET LOSS PER WEIGHTED AVERAGE LIMITED
AND GENERAL PARTNERSHIP UNIT
Net loss per weighted average limited
and general partnership unit $ (15.69) $ (39.37) $ (6.26) $ (15.07)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average number of limited
and general partnership units outstanding 59,375 74,257 57,470 67,159
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
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</Table>
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(Unaudited)
<Table>
<Caption>
LIMITED GENERAL
UNITS PARTNERS PARTNER TOTAL
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Partners' capital--December 31, 2000 61,423 $13,549,677 $137,040 $13,686,717
Net loss (922,059) (9,322) (931,381)
Redemptions (4,952) (1,074,674) (10,960) (1,085,634)
-------- ----------- -------- -----------
Partners' capital--September 30, 2001 56,471 $11,552,944 $116,758 $11,669,702
-------- ----------- -------- -----------
-------- ----------- -------- -----------
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</Table>
The accompanying notes are an integral part of these statements.
3
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PRUDENTIAL-BACHE CAPITAL RETURN FUTURES FUND 2, L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(Unaudited)
A. General
These financial statements have been prepared without audit. In the opinion
of Prudential Securities Futures Management Inc. (the 'General Partner'), the
financial statements contain all adjustments (consisting of only normal
recurring adjustments) necessary to state fairly the financial position of
Prudential-Bache Capital Return Futures Fund 2, L.P. (the 'Partnership') as of
September 30, 2001 and the results of its operations for the nine and three
months ended September 30, 2001 and 2000. 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 accounting principles generally
accepted in the United States of America 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,
2000.
Certain balances from 2000 have been reclassified to conform with the current
financial statement presentation.
Welton Investment Corporation ('Welton'), a trading manager to the
Partnership, was terminated effective May 31, 2001 due to performance not
meeting expectations relative to its peers. The assets previously managed by
Welton (the 'Welton Assets'), which totalled approximately $2,189,000 as of June
30, 2001, were reallocated to commodities trading on July 8, 2001. The Welton
Assets earned interest but were not subject to management fees or commissions
during the period that the assets were not allocated to trading. During July
2001, the Partnership entered into agreements to reallocate the Welton Assets
evenly between two of the Partnership's trading managers--Appleton Capital
Management ('Appleton') and Eclipse Capital Management, Inc. ('Eclipse').
Appleton and Eclipse receive monthly management fees on their portion of the
reallocated assets equal to 1/6 of 1% (2% annually) as compared to management
fees paid to Welton ranging between 1/6 of 1% (2% annually) and 1/3 of 1% (4%
annually). Appleton and Eclipse earn a quarterly incentive fee equal to 20% of
the 'New High Net Trading Profits' (as defined in each advisory agreement among
the Partnership, the General Partner and each trading manager) as compared to
the range of 15% to 20% for Welton. Additionally, Appleton must recoup 100% (or
$964,000) of Welton's cumulative trading losses associated with its portion of
the reallocated assets and Eclipse must recoup only 50% (or $482,000) of its
portion, before earning any incentive fees.
In accordance with the Amended and Restated Agreement of Limited Partnership,
if the Partnership's net asset value declines below $10 million as of the end of
any business day, the Partnership will dissolve.
B. Related Parties
The General Partner is 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, 2001 and 2000 were:
<Table>
<Caption>
For the nine months For the three months
ended September 30, ended September 30,
----------------------- ---------------------
2001 2000 2001 2000
- ------------------------------------------------------------------------------------------
Commissions $754,918 $ 957,248 $238,017 $268,371
General and administrative 58,149 52,747 18,153 17,693
-------- ---------- -------- --------
$813,067 $1,009,995 $256,170 $286,064
-------- ---------- -------- --------
-------- ---------- -------- --------
</Table>
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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, may execute
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
positions of the Partnership.
C. Derivative Instruments and Associated Risks
The Partnership is exposed to various types of risk associated with the
derivative instruments and related markets in which it invests. These risks
include, but are not limited to, risk of loss from fluctuations in the value of
derivative instruments held (market risk) and the inability of counterparties to
perform under the terms of the Partnership's investment activities (credit
risk).
Market risk
Trading in futures and forward (including foreign exchange) contracts
involves entering into contractual commitments to purchase or sell a particular
commodity at a specified date and price. The gross or face amount of the
contracts, which is typically many times that of the Partnership's net assets
being traded, significantly exceeds the Partnership's future cash requirements
since the Partnership intends to close out its open positions prior to
settlement. As a result, the Partnership is generally subject only to the risk
of loss arising from the change in the value of the contracts. As such, the
Partnership considers the 'fair value' of its futures and forward contracts to
be the net unrealized gain or loss on the contracts. The market risk associated
with the Partnership's commitments to purchase commodities is limited to the
gross or face amount of the contracts held. However, when the Partnership enters
into a contractual commitment to sell commodities, it must make delivery of the
underlying commodity at the contract price and then repurchase the contract at
prevailing market prices. Since the repurchase price to which a commodity can
rise is unlimited, entering into commitments to sell commodities exposes the
Partnership to unlimited risk.
Trading in options involves the payment or receipt of a premium and the
corresponding right or obligation, as the case may be, to either purchase or
sell the underlying commodity for a specified price during a limited period of
time. Purchasing options involves the risk that the underlying commodity does
not change price as expected, so that the option expires worthless and the
premium is lost. On the other hand, selling options involves unlimited risk
because the Partnership is exposed to the potentially unlimited price movement
in the underlying commodity.
Market risk is influenced by a wide variety of factors including government
programs and policies, political and economic events, the level and volatility
of interest rates, foreign currency exchange rates, the diversification effects
among the derivative instruments the Partnership holds and the liquidity and
inherent volatility of the markets in which the Partnership trades.
Credit risk
When entering into futures, forward and options contracts, the Partnership is
exposed to credit risk that the counterparty to the contract will not meet its
obligations. The counterparty for futures and options contracts traded on United
States and most foreign futures and options exchanges is the clearinghouse
associated with such exchanges. In general, clearinghouses are backed by their
corporate members who are required to share any financial burden resulting from
the nonperformance by one of their members and, as such, should significantly
reduce this credit risk. In cases where the clearinghouse is not backed by the
clearing members (i.e., some foreign exchanges), it is normally backed by a
consortium of banks or other financial institutions. On the other hand, the sole
counterparty to the Partnership's forward transactions is PSI, the Partnership's
commodity broker. The Partnership has entered into a master netting agreement
with PSI and, as a result, presents unrealized gains and losses on open forward
positions as a net amount in the statements of financial condition. The amount
at risk associated with counterparty nonperformance of all of the Partnership's
contracts is the net unrealized gain (plus premiums paid on options) included in
the statements of financial condition. There can be no assurance that any
counterparty, clearing member or clearinghouse will meet its obligations to the
Partnership.
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
5
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compliance with these trading limitations and policies which include, but are
not limited to: executing and clearing all trades with creditworthy
counterparties, 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% since the commencement of
its trading activities or from the value at the beginning of any year.
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
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 (subject to the opt out provisions discussed below) and is not
allowed to commingle such assets with other assets of PSI. At September 30,
2001, such segregated assets totalled $10,174,280. Part 30.7 of the CFTC
regulations also requires PSI to secure assets of the Partnership related to
foreign futures and options trading which totalled $1,842,479 at September 30,
2001. There are no segregation requirements for assets related to forward
trading.
The CFTC promulgated rules that allow futures commission merchants to permit
certain customers, including the Partnership, to opt out of segregation with
regard to trading on certain exchanges, but PSI has not done so to date. If the
Partnership were to opt out, its funds could be held in a broader and riskier
range of investments.
As of September 30, 2001, the Partnership's open futures and forward
contracts mature within one year.
At September 30, 2001 and December 31, 2000, the fair value of open futures,
forward and options contracts was:
<Table>
<Caption>
2001 2000
------------------------ --------------------------
Assets Liabilities Assets Liabilities
-------- ----------- ---------- -----------
Futures Contracts:
Domestic exchanges
Interest rates $222,879 $ 4,530 $ 342,034 $ --
Stock indices 7,423 -- 9,940 --
Currencies 9,655 37,700 524,721 4,640
Commodities 34,870 -- 77,160 25,700
Foreign exchanges
Interest rates 79,563 1,625 259,017 493
Stock indices 8,659 3,286 46,489 --
Commodities 80,760 -- 9,819 62,840
Forward Contracts:
Currencies 177,049 182,273 436,854 171,398
Options Contracts:
Domestic exchanges
Interest rates -- -- -- 1,219
Currencies -- -- -- 1,875
Commodities -- -- -- 880
-------- ----------- ---------- -----------
$620,858 $ 229,414 $1,706,034 $ 269,045
-------- ----------- ---------- -----------
-------- ----------- ---------- -----------
</Table>
6
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D. Financial Highlights
<Table>
<Caption>
Nine Months Ended Three Months Ended
September 30, 2001 September 30, 2001
------------------ ------------------
Performance per Unit
Net asset value, beginning of period $ 222.83 $ 212.91
------------------ ------------------
Net realized gain (loss) and change in net
unrealized gain/loss on commodity
transactions (2.77) (1.94)
Interest from U.S. Treasury bills 5.26 1.43
Expenses (18.67) (5.75)
------------------ ------------------
Decrease for the period (16.18) (6.26)
------------------ ------------------
Net asset value, end of period $ 206.65 $ 206.65
------------------ ------------------
------------------ ------------------
Total return (7.26)% (2.94)%
Ratio to average net assets
Interest income 3.27% 2.74%
Expenses, including .63% and 0% of
incentive fees 11.59% 10.98%
</Table>
7
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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, 2001, 100% of the Partnership's total net assets was
allocated to commodities trading. A significant portion of the net asset value
as of September 30, 2001 was held in U.S. Treasury bills (which represented
approximately 77% 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 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 permitting
the use of stop loss provisions. See Note C to the financial statements for a
further discussion of 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, 2001
were $1,074,674 and $204,376, respectively, for the limited partners and $10,960
and $2,067, respectively, for the general partner, and from commencement of
operations, October 6, 1989, through September 30, 2001, totalled $132,466,222
for the limited partners and $1,884,062 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.
In accordance with the Amended and Restated Agreement of Limited Partnership,
if the Partnership's net asset value declines below $10 million as of the end of
any business day, the Partnership will dissolve.
Results of Operations
After the attacks of September 11th, the General Partner contacted the
Partnership's trading managers who reported that there was no material
disruption to their ability to follow their trading systems and to function
normally. Additionally, there was no material disruption to the General
Partner's ability to maintain operations and perform its functions as a result
of the tragic events.
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The net asset value per Unit as of September 30, 2001 was $206.65, a decrease
of 7.26% from the December 31, 2000 net asset value per Unit of $222.83 and a
decrease of 2.94% from the June 30, 2001 net asset value per Unit of $212.91.
Past performance is not necessarily indicative of future results.
The Partnership had gross trading losses of approximately $133,000 and
$112,000 during the nine and three months ended September 30, 2001,
respectively, compared to losses of $2,115,000 and $790,000 for the
corresponding periods in the prior year. Due to the nature of the Partnership's
trading activities, a period to period comparison of its trading results is not
meaningful. However, a detailed discussion of the Partnership's current quarter
trading results is presented below.
Quarterly Market Overview
The pace of global economic activity remained slow throughout the third
quarter of 2001. Weakened business expenditure and efforts to reduce inventory
resulted in decreased manufacturing activity. Labor demand declined in most
sectors and the unemployment rate edged up to 4.9% in August. After a period of
strength, the U.S. dollar fell against most major foreign currencies,
particularly the Japanese yen, the euro and the Swiss franc. Global equity
markets fell throughout most of the quarter while short- and long-term interest
rates declined pushing bond prices higher. Consumer spending weakened slightly,
but generally remained strong through most of the quarter, supported in part by
low mortgage rates, tax rebates, declining energy prices and widespread
discounting of retail prices. Consumer confidence remained at moderately
favorable levels during the first two months of the quarter and helped moderate
economic weakness. Growth in many foreign industrial economies, including Japan
and much of Europe, weakened during the third quarter as well. Financial
conditions deteriorated markedly in Argentina and many other developing
countries.
The terrorist attacks of September 11th further weakened the sluggish U.S.
and global economies. Equity markets throughout the world plunged in the week
following the attacks. The Dow Jones industrial average suffered its worst
percentage loss since the Great Depression due to uncertainty about how the
economy would perform as a result of these attacks and other threats of
terrorism. U.S. equity indices recovered somewhat at the end of September as
interest rate cuts by the U.S. Federal Reserve and fiscal stimuli by Congress
combined to help fuel an economic rebound. Global equity markets followed suit
rebounding from earlier lows as well.
The U.S. dollar's downward trend against many foreign currencies accelerated
after September 11th. As a result of the attacks, many investors switched
exposure from the U.S. dollar to other currencies such as the Swiss franc,
British pound and euro all of which rose against the U.S. dollar.
U.S. and European interest rate instruments rose throughout most of the
quarter as data indicated persistent weakness in the U.S. economy. The U.S.
Federal Reserve lowered interest rates by 25 basis points in August in an effort
to stimulate the economy. Interest rate instruments continued to rally in the
wake of September 11th as the U.S. Federal Reserve moved to inject liquidity
into the economy, cutting interest rates 50 basis points on September 17th to
3%. This move was soon followed by the Central Bank of Canada, the European
Central Bank and Swiss National Central Bank who also lowered their rates 0.50%.
Energy prices began the quarter low, but peaked sharply immediately after the
September 11th attacks amid worries of a potential interruption in supplies.
Energy prices soon reversed course as concerns of decreased demand caused by a
global economic recession outweighed fears of scarcity. Two weeks after the
attacks, oil prices plunged more than 12% to a 22-month low of $23 a barrel.
OPEC leaders announced that with prices within their $22 to $28 a barrel target,
they see no need to alter output and assured that there will be no disruption in
supplies.
Quarterly Partnership Performance
The following is a summary of performance for the major sectors in which the
Partnership traded:
Currencies (-): Long Japanese yen and long Japanese yen/U.S. dollar
cross-rate, Japanese yen/Australian dollar cross-rate and Japanese yen/British
pound cross-rate positions resulted in losses as the Bank of Japan intervened to
stop the recent appreciation of the yen in response to concerns regarding
Japanese exports.
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Energies (-): Energy prices fell from their September 11th peak on concerns
that demand will wane due to weakening global economies. Long crude and natural
gas positions resulted in losses.
Interest rates (+): Long European and U.S. bond positions resulted in gains
throughout the quarter as short- and long-term interest rates fell due to
weakening global economies.
Metals (+): Short aluminum and copper positions resulted in gains as fears of
a global economic recession and decreasing industrial production lowered prices
of industrial commodities. Long gold positions resulted in gains as gold prices
rose in the wake of the September 11th attacks.
Indices (+): The attacks on September 11th further weakened slowing global
economies and declining equity markets. Short positions in the NASDAQ, DAX and
Matif CAC indices resulted in gains for the Partnership.
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 $186,000 and
$68,000, respectively, for the nine and three months ended September 30, 2001
compared to the same periods in 2000. These declines in interest income were
principally due to lower interest rates during the nine and three months ended
September 30, 2001 versus the corresponding periods in 2000 and, to a lesser
extent, resulted from lower overall investment in U.S. Treasury bills primarily
due to the effect of redemptions on the monthly net asset values.
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 $202,000 and
$30,000, respectively, for the nine and three months ended September 30, 2001 as
compared to the same periods in 2000 principally due to the effect of
redemptions on the monthly net asset values. Additionally, a portion of the
Partnership's assets was not allocated to commodities trading between June 1,
2001 and July 7, 2001 (as more fully discussed in Note A to the financial
statements) and, therefore, was not subject to commissions during that period.
All trading decisions are currently being made by Eclipse Capital Management,
Inc., Trendlogic Associates, Inc. and Appleton Capital Management ('Appleton').
Welton made trading decisions on the Welton Assets until their termination,
effective May 31, 2001. Management fees are calculated on the portion of 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 $55,000 and $10,000, respectively,
for the nine and three months ended September 30, 2001 as compared to the same
periods in 2000 primarily due to the fluctuations in monthly net asset values as
described in the discussion on commissions above. Additionally, the portion of
assets which was not allocated to commodities trading between June 1, 2001 and
July 7, 2001, as referred to in the discussion on commissions above, was not
subject to management fees.
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. Appleton generated
sufficient trading profits during the first quarter of 2001 to earn incentive
fees of approximately $61,000 during that quarter. No incentive fees were
incurred by the Partnership during the nine and three months ended September 30,
2000 or for the six months ended September 30, 2001.
General and administrative expenses for the nine and three months ended
September 30, 2001 were relatively comparable to the corresponding periods in
2000. These expenses include reimbursements of costs incurred by the General
Partner on behalf of the Partnership, in addition to accounting, audit, tax and
legal fees as well as printing and postage costs related to reports sent to
limited partners.
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.
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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)
(b) Reports on Form 8-K--
No reports on Form 8-K were filed during the quarter.
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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 13, 2001
----------------------------------------
Steven Carlino
Vice President and Treasurer
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