SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1997
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.
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(Exact name of registrant as specified in its charter)
Delaware 13-3533120
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of 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
Securities registered pursuant to Section 12(b) of the Act:
None
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Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
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(Title of class)
Indicate by check mark 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__
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [CK]
DOCUMENTS INCORPORATED BY REFERENCE
Agreement of Limited Partnership of the Registrant, dated June 8, 1989,
included as part of the Registration Statement on Form S-1 (File No. 33-29039)
filed with the Securities and Exchange Commission on June 9, 1989 pursuant to
Rule 424(b) of the Securities Act of 1933, and amended and restated as of July
21, 1989, is incorporated by reference into Part IV of this Annual Report on
Form 10-K
Registrant's Annual Report to Limited Partners for the year ended December
31, 1997 is incorporated by reference into Parts II and IV of this Annual Report
on Form 10-K
Index to exhibits can be found on pages 7 through 9.
PRUDENTIAL-BACHE CAPITAL RETURN FUTURES FUND 2, L.P.
(a limited partnership)
TABLE OF CONTENTS
PART I PAGE
Item 1 Business......................................................................... 3
Item 2 Properties....................................................................... 3
Item 3 Legal Proceedings................................................................ 4
Item 4 Submission of Matters to a Vote of Limited Partners.............................. 4
PART II
Item 5 Market for the Registrant's Units and Related Limited Partner Matters............ 4
Item 6 Selected Financial Data.......................................................... 4
Item 7 Management's Discussion and Analysis of Financial Condition and Results of
Operations..................................................................... 5
Item 8 Financial Statements and Supplementary Data...................................... 5
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure..................................................................... 5
PART III
Item 10 Directors and Executive Officers of the Registrant............................... 5
Item 11 Executive Compensation........................................................... 6
Item 12 Security Ownership of Certain Beneficial Owners and Management................... 6
Item 13 Certain Relationships and Related Transactions................................... 6
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K.................. 7
Financial Statements and Financial Statement Schedules........................... 7
Exhibits......................................................................... 7
Reports on Form 8-K.............................................................. 9
SIGNATURES.................................................................................. 10
2
PART I
Item 1. Business
General
Prudential-Bache Capital Return Futures Fund 2, L.P. (the 'Registrant'), a
Delaware limited partnership, was formed on June 8, 1989 and will terminate on
December 31, 2009 unless terminated sooner under the provisions of the Amended
and Restated Agreement of Limited Partnership (the 'Partnership Agreement'). The
Registrant was formed to engage primarily in the speculative trading of a
portfolio consisting primarily of commodity futures, forward and options
contracts. Physical commodities also may be traded from time to time. On October
6, 1989, the Registrant completed its offering and raised $101,010,000 from the
sale of 1,000,000 units of limited partnership interest and 10,100 units of
general partnership interest (collectively, 'Units') which resulted in net
proceeds to the Registrant of $99,010,000. The Registrant's fiscal year for book
and tax purposes ends on December 31.
All trading decisions for the Registrant are currently being made by Welton
Investment Services Corporation, Eclipse Capital Management, Inc. ('Eclipse')
and John W. Henry & Company, Inc., independent commodity trading managers.
Eclipse replaced Analytic/TSA Capital Management ('TSA') as a trading manager
effective July 1, 1997. Eclipse receives management fees at the same rate as did
TSA (a monthly fee on traded assets equal to a 2% annual rate). In addition,
Eclipse earns a quarterly incentive fee equal to 20% of New High Net Trading
Profits (as defined in the Advisory Agreement between the Partnership, the
General Partner and Eclipse) as compared to 15% paid to TSA. Except for the July
1, 1997 replacement of TSA, there were no changes in trading managers during the
three years ended December 31, 1997. (The independent commodity trading managers
are each a 'Trading Manager.') The General Partner retains the authority to
override trading instructions that violate the Registrant's trading policies.
The Registrant is engaged solely in the business of commodity futures,
forward and options trading; therefore, presentation of industry segment
information is not applicable.
General partner
The general partner of the Registrant is Prudential Securities Futures
Management Inc. (the 'General Partner') which is a wholly owned subsidiary of
Prudential Securities Incorporated ('PSI'), the Registrant's commodity broker.
PSI is a wholly owned subsidiary of Prudential Securities Group Inc. ('PSGI').
The General Partner is required to maintain at least a 1% interest in the
Registrant as long as it is acting as the Registrant's general partner.
Competition
The General Partner and its affiliates have formed and may continue to form
various entities to engage in the speculative trading of futures, forward and
options contracts which, in part, have certain of the same investment policies
as the Registrant.
The Registrant is a closed-end fund which does not currently, and does not
intend in the future to, solicit the sale of additional Units. As such, the
Registrant does not compete with other entities to attract new fund
participants. However, to the extent that the Trading Managers recommend similar
or identical trades to the Registrant and the other accounts which they manage,
the Registrant may compete with those accounts for the execution of the same or
similar trades.
Employees
The Registrant has no employees. Management and administrative services for
the Registrant are performed by the General Partner and its affiliates pursuant
to the Partnership Agreement. See Notes A, C and D to the Registrant's annual
report to limited partners for the year ended December 31, 1997 ('Registrant's
1997 Annual Report') which is filed as an exhibit hereto.
Item 2. Properties
The Registrant does not own or lease any property.
3
Item 3. Legal Proceedings
There are no material legal proceedings pending by or against the Registrant
or the General Partner.
Item 4. Submission of Matters to a Vote of Limited Partners
None
PART II
Item 5. Market for the Registrant's Units and Related Limited Partner Matters
As of March 5, 1998, there were 1,342 holders of record owning 120,339 Units,
including 1,204 units of general partnership interest. A significant secondary
market for the Units has not developed, and it is not expected that one will
develop in the future. There are also certain restrictions set forth in the
Partnership Agreement limiting the ability of a partner to transfer Units.
However, the Partnership Agreement provides that a limited partner may redeem
units as of the last business day of any full calendar quarter at the then
current net asset value per Unit. Consequently, holders of Units may not be able
to liquidate their investments in the event of an emergency or for any other
reason.
There are no material restrictions upon the Registrant's present or future
ability to make distributions in accordance with the provisions of the
Partnership Agreement. No distributions have been made since inception and no
distributions are anticipated in the future.
Item 6. Selected Financial Data
The following table presents selected financial data of the Registrant. This
data should be read in conjunction with the financial statements of the
Registrant and the notes thereto on pages 2 through 10 of the Registrant's 1997
Annual Report which is filed as an exhibit hereto.
Year ended December 31,
------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------
Net realized gain (loss) on
commodity transactions $ 5,486,720 $ 8,858,731 $12,172,603 $ (567,322) $15,946,092
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Change in net unrealized gain
on open commodity positions $ 919,014 $ (212,725) $ (955,977) $ 193,155 $ 725,326
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Commissions $ 2,602,752 $ 2,566,587 $ 2,795,106 $ 2,453,619 $ 3,593,450
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Management fees $ 1,124,398 $ 1,101,928 $ 1,200,458 $ 1,077,040 $ 1,651,948
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Incentive fees $ 433,379 $ 704,792 $ 365,699 $ 269,470 $ 1,246,742
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Net income (loss) $ 3,308,428 $ 5,247,292 $ 8,086,514 $(3,196,076) $12,070,026
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------------ ------------ ------------ ------------ ------------
Allocation of net income
(loss):
Limited partners $ 3,275,346 $ 5,203,383 $ 7,663,099 $(3,059,652) $11,773,064
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
General partner $ 33,082 $ 43,909 $ 423,415 $ (136,424) $ 296,962
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Net income (loss) per weighted
average Unit $ 25.75 $ 35.04 $ 44.84 $ (12.31) $ 29.92
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Total assets $32,378,581 $33,622,033 $33,022,442 $37,316,402 $64,971,990
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------------ ------------ ------------ ------------ ------------
Redemptions $ 3,067,891 $ 5,909,734 $ 6,704,103 $13,205,896 $23,534,310
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Net asset value per Unit $ 259.66 $ 233.09 $ 195.71 $ 153.79 $ 167.30
------------ ------------ ------------ ------------ ------------
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4
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This information is incorporated by reference to pages 11 and 12 of the
Registrant's 1997 Annual Report which is filed as an exhibit hereto.
Item 8. Financial Statements and Supplementary Data
The financial statements are incorporated by reference to pages 2 through 10
of the Registrant's 1997 Annual Report which is filed as an exhibit hereto.
Supplementary data specified by Item 302 of Regulation S-K (selected
quarterly financial data) is not applicable.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Reference is made to the Registrant's Current Report on Form 8-K dated May
14, 1996, as filed with the Securities and Exchange Commission on May 16, 1996
regarding the change in the Registrant's certifying accountant from Deloitte &
Touche LLP to Price Waterhouse LLP.
PART III
Item 10. Directors and Executive Officers of the Registrant
There are no directors or executive officers of the Registrant. The
Registrant is managed by the General Partner.
The General Partner's directors and executive officers and any persons
holding more than 10% of the Registrant's Units ('Ten Percent Owners') are
required to report their initial ownership of such Units and any subsequent
changes in that ownership to the Securities and Exchange Commission on Forms 3,
4, or 5. Such executive officers, directors and Ten Percent Owners are required
by Securities and Exchange Commission regulations to furnish the Registrant with
copies of all Forms 3, 4 and 5 they file. All of these filing requirements were
satisfied on a timely basis. In making these disclosures, the Registrant has
relied solely on written representations of the General Partner's directors and
executive officers or copies of the reports that they have filed with the
Securities and Exchange Commission during and with respect to its most recent
fiscal year.
The directors and executive officers of Prudential Securities Futures
Management Inc. and their positions with respect to the Registrant are as
follows:
Name Position
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Thomas M. Lane, Jr. President and Director
Barbara J. Brooks Treasurer and Chief Financial Officer
Steven Carlino Vice President and Chief Accounting Officer
A. Laurence Norton, Jr. Director
Guy S. Scarpaci Director
THOMAS M. LANE, JR., age 49, is the President and a Director of Prudential
Securities Futures Management Inc. He is also the President and a Director of
Seaport Futures Management, Inc. Mr. Lane has been a Senior Vice President of
Futures Sales and Execution Services in the Futures Division since joining PSI
in September 1995. Prior to joining PSI, Mr. Lane was employed by Merrill Lynch
as the Vice President of Group Future Sales and Marketing from November 1983
until September 1995, and prior to that, Imperial Chemical as a Marketing
Manager.
BARBARA J. BROOKS, age 49, is the Treasurer and Chief Financial Officer of
Prudential Securities Futures Management Inc. She is a Senior Vice President of
PSI. She is also the Treasurer and Chief Financial Officer of Seaport Futures
Management, Inc. and serves in various capacities for other affiliated
companies. She has held several positions within PSI since April 1983. Ms.
Brooks is a certified public accountant.
5
STEVEN CARLINO, age 34, is a Vice President of Prudential Securities Futures
Management Inc. He is a First Vice President of PSI. He is also a Vice President
of Seaport Futures Management, Inc. and serves in various capacities for other
affiliated companies. Prior to joining PSI in October 1992, he was with Ernst &
Young for six years. Mr. Carlino is a certified public accountant.
A. LAURENCE NORTON, JR., age 59, is a Director of Prudential Securities Futures
Management Inc. He is an Executive Vice President of PSI and head of its Futures
Division. He is also a Director of Seaport Futures Management, Inc. Most
recently, he held the position of Executive Director of Retail Development and
Retail Strategies at PSI. Prior to joining PSI in 1991, Mr. Norton was a Senior
Vice President and Branch Manager of Shearson Lehman Brothers.
GUY S. SCARPACI, age 51, is a Director of Prudential Securities Futures
Management Inc. He is a First Vice President of the Futures Division of PSI. He
is also a Director of Seaport Futures Management, Inc. Mr. Scarpaci has been
employed by PSI in positions of increasing responsibility since August 1974.
During December 1997, Thomas M. Lane, Jr. replaced James M. Kelso as
President and as a Director of Prudential Securities Futures Management Inc.
There are no family relationships among any of the foregoing directors or
executive officers. All of the foregoing directors and/or executive officers
have indefinite terms.
Item 11. Executive Compensation
The Registrant does not pay or accrue any fees, salaries or any other form of
compensation to directors and officers of the General Partner for their
services. Certain directors and officers of the General Partner receive
compensation from affiliates of the General Partner, not from the Registrant,
for services performed for various affiliated entities, which may include
services performed for the Registrant; however, the General Partner believes
that any compensation attributable to services performed for the Registrant is
immaterial. (See also Item 13, Certain Relationships and Related Transactions,
for information regarding compensation to the General Partner.)
Item 12. Security Ownership of Certain Beneficial Owners and Management
As of March 5, 1998, no director or officer of the General Partner owns
directly or beneficially any interest in the voting securities of the General
Partner.
As of March 5, 1998, no director or officer of the General Partner owns
directly or beneficially any of the Units issued by the Registrant.
As of March 5, 1998, no partner beneficially owns more than five percent (5%)
of the limited partnership units issued by the Registrant.
Item 13. Certain Relationships and Related Transactions
The Registrant has and will continue to have certain relationships with the
General Partner and its affiliates. However, there have been no direct financial
transactions between the Registrant and the directors or officers of the General
Partner.
Reference is made to Notes A, C and D to the financial statements in the
Registrant's 1997 Annual Report which is filed as an exhibit hereto, which
identify the related parties and discuss the services provided by these parties
and the amounts paid or payable for their services.
6
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
Page in
Annual Report
(a) 1. Financial Statements and Report of Independent Accountants--incorporated
by reference to the Registrant's 1997 Annual Report which is filed as an
exhibit hereto
Reports of Independent Accountants:
Report of Independent Accountants at December 31, 1997 and 1996 and for
the years then ended 2
Independent Auditors' Report for the year ended December 31, 1995 2A
Financial Statements:
Statements of Financial Condition--December 31, 1997 and 1996 3
Statements of Operations--Three years ended December 31, 1997 4
Statements of Changes in Partners' Capital--Three years ended December
31, 1997 4
Notes to Financial Statements 5
2. Financial Statement Schedules
All schedules have been omitted because they are not applicable or the
required information is included in the financial statements or notes
thereto.
3. Exhibits
Description:
3.1 Agreement of Limited Partnership of the Registrant, dated as of June 8,
and 1989 as amended and restated as of July 21, 1989 (incorporated by
4.1 reference to Exhibits 3.1 and 4.1 to the Registrant's Annual Report on
Form 10-K for the period ended December 31, 1989)
4.2 Subscription Agreement (incorporated by reference to Exhibit 4.2 to the
Registrant's Registration Statement on Form S-1, File No. 33-29039)
4.3 Request for Redemption (incorporated by reference to Exhibit 4.3 to the
Registrant's Registration Statement on Form S-1, File No. 33-29039)
10.1 Escrow Agreement, dated July 21, 1989 among the Registrant, P-B Futures
Management, Inc., Prudential-Bache Securities Inc. and Bankers Trust
Company (incorporated by reference to Exhibit 10.1 to the Registrant's
Annual Report on Form 10-K for the period ended December 31, 1989)
10.2 Brokerage Agreement dated October 6, 1989 between the Registrant and
Prudential-Bache Securities Inc. (incorporated by reference to Exhibit
10.2 to the Registrant's Annual Report on Form 10-K for the period ended
December 31, 1989)
10.3 Advisory Agreement dated July 21, 1989 among the Registrant, P-B Futures
Management, Inc., Eclipse Capital Management, Inc., C.M. Wilson &
Associates, Inc. and John W. Henry & Company, Inc. (incorporated by
reference to Exhibit 10.3 to the Registrant's Annual Report on Form 10-K
for the period ended December 31, 1989)
7
10.4 Representation Agreement Concerning the Registration Statement and the
Prospectus, dated as of July 21, 1989 among the Registrant, P-B Futures
Management, Inc., Prudential-Bache Securities Inc., Eclipse Capital
Management, Inc., C.M. Wilson & Associates, Inc. and John W. Henry &
Company, Inc. (incorporated by reference to Exhibit 10.4 to the
Registrant's Annual Report on Form 10-K for the period ended December
31, 1989)
10.5 Net Worth Agreement, dated as of July 21, 1989 between P-B Futures
Management, Inc. and Prudential Securities Group Inc. (incorporated by
reference to Exhibit 10.5 to the Registrant's Annual Report on Form 10-K
for the period ended December 31, 1989)
10.6 Promissory Note issued by Prudential Securities Group Inc. to P-B
Futures Management, Inc., dated October 6, 1989 (incorporated by
reference to Exhibit 10.6 to the Registrant's Annual Report on Form 10-K
for the period ended December 31, 1989)
10.7 Letter of Credit and Reimbursement Agreement among the Registrant, P-B
Futures Management, Inc., Prudential Securities Group Inc. and Barclays
Bank plc dated July 21, 1989 (incorporated by reference to Exhibit 10.7
to the Registrant's Annual Report on Form 10-K for the period ended
December 31, 1989)
10.8 Amendment to Letter of Credit and Reimbursement Agreement dated March
27, 1991 between Barclays Bank plc, New York Branch, P-B Futures
Management, Inc. and Prudential Securities Group Inc. (incorporated by
reference to Exhibit 10.8 to Registrant's Quarterly Report on Form 10-Q
for the period ended March 31, 1991)
10.9 Advisory Agreement dated April 25, 1990 among the Registrant, P-B
Futures Management Inc. and Reynwood Trading Corporation (incorporated
by reference to Exhibit 10.9 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1991)
10.10 Addendum to Advisory Agreement dated October 1, 1990 among the
Registrant, P-B Futures Management, Inc., Eclipse Capital Management,
Inc. and John W. Henry & Co., Inc. (incorporated by reference to Exhibit
10.10 to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1991)
10.11 Advisory Agreement dated May 1, 1994 among the Registrant, Prudential
Securities Futures Management, Inc. and Welton Investment Services
Corporation (incorporated by reference to Exhibit 10.11 to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1994)
10.12 Advisory Agreement dated January 1, 1995 among the Registrant,
Prudential Securities Futures Management Inc. and Analytic/TSA Capital
Management (incorporated by reference to Exhibit 10.12 to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1994)
10.13 Addendum to Brokerage Agreement dated January 1, 1995 among the Regis-
trant, Prudential Securities Futures Management Inc. and Prudential
Securities Incorporated (incorporated by reference to Exhibit 10.13 to
the Registrant's Quarterly Report on Form 10-Q for the period ended June
30, 1995)
10.14 Form of Foreign Currency Addendum to Brokerage Agreement between the
Registrant and Prudential Securities Incorporated (incorporated by
reference to Exhibit 10.13 to the Registrant's Quarterly Report on Form
10-Q for the period ended March 31, 1996)
8
10.15 Advisory Agreement, dated July 1, 1997, among the Registrant, Prudential
Securities Futures Management Inc. and Eclipse Capital Management, Inc.
(incorporated by reference to Exhibit 10.15 to Registrant's Quarterly
Report on Form 10-Q for the period ended June 30, 1997)
13.1 Registrant's 1997 Annual Report (with the exception of the information
and data incorporated by reference in Items 7 and 8 of this Annual
Report on Form 10-K, no other information or data appearing in the
Registrant's 1997 Annual Report is to be deemed filed as part of this
report) (filed herewith)
16.1 Letter dated May 15, 1996 from Deloitte & Touche LLP to the Securities
and Exchange Commission regarding change in certifying accountant
(incorporated by reference to Exhibit 16.1 to the Registrant's Current
Report on Form 8-K dated May 14, 1996)
27.1 Financial Data Schedule (filed herewith)
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the period
covered by this report
9
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto 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: March 30, 1998
----------------------------------------
Steven Carlino
Vice President and Chief Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities (with respect to the General Partner) and on
the dates indicated.
By: Prudential Securities Futures Management Inc.
A Delaware corporation, General Partner
By: /s/ Thomas M. Lane, Jr. Date: March 30, 1998
-----------------------------------------
Thomas M. Lane, Jr.
President and Director
By: /s/ Barbara J. Brooks Date: March 30, 1998
-----------------------------------------
Barbara J. Brooks
Treasurer and Chief Financial Officer
By: /s/ Steven Carlino Date: March 30, 1998
-----------------------------------------
Steven Carlino
Vice President
By: Date: March , 1998
-----------------------------------------
A. Laurence Norton, Jr.
Director
By: /s/ Guy S. Scarpaci Date: March 30, 1998
-----------------------------------------
Guy S. Scarpaci
Director
10