<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1998
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
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One New York Plaza, 13th Floor New York, New York 10292
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 778-7866
N/A
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check CK whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes CK No __
<PAGE>
Part I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PRUDENTIAL-BACHE CAPITAL RETURN FUTURES FUND 2, L.P.
(a limited partnership)
STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------
ASSETS
Equity in commodity trading accounts:
Cash $ 6,605,995 $ 6,552,063
U.S. Treasury bills, at amortized cost 19,911,347 24,241,834
Net unrealized (loss) gain on open commodity positions (812,000) 1,584,684
----------- ------------
Total assets $25,705,342 $32,378,581
----------- ------------
----------- ------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Redemptions payable $ 2,361,660 $ 740,550
Management fees payable 77,007 97,818
Due to affiliates 38,903 7,663
Accrued expenses 29,364 55,038
Incentive fees payable -- 226,348
Options, at market 44,693 3,600
----------- ------------
Total liabilities 2,551,627 1,131,017
----------- ------------
Commitments
Partners' capital
Limited partners (106,630 and 119,135 units outstanding) 22,921,766 30,934,928
General partner (1,079 and 1,204 units outstanding) 231,949 312,636
----------- ------------
Total partners' capital 23,153,715 31,247,564
----------- ------------
Total liabilities and partners' capital $25,705,342 $32,378,581
----------- ------------
----------- ------------
Net asset value per limited and general partnership unit ('Units') $ 214.97 $ 259.66
----------- ------------
----------- ------------
- ---------------------------------------------------------------------------------------------------
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,
--------------------------- ---------------------------
1998 1997 1998 1997
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
REVENUES
Net realized loss on commodity
transactions $(1,695,670) $ (473,141) $(1,023,978) $(2,252,501)
Change in net unrealized gain/loss on
open commodity positions (2,395,169) 148,486 (1,354,420) 574,505
Interest from U.S. Treasury bills 559,623 595,376 265,112 303,009
----------- ----------- ----------- -----------
(3,531,216) 270,721 (2,113,286) (1,374,987)
----------- ----------- ----------- -----------
EXPENSES
Commissions 1,217,740 1,306,445 574,461 633,918
Management fees 503,306 551,679 236,231 261,645
Incentive fees 7,756 29,590 -- 29,590
General and administrative 77,759 94,747 37,109 54,018
----------- ----------- ----------- -----------
1,806,561 1,982,461 847,801 979,171
----------- ----------- ----------- -----------
Net loss $(5,337,777) $(1,711,740) $(2,961,087) $(2,354,158)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
ALLOCATION OF NET LOSS
Limited partners $(5,284,361) $(1,694,614) $(2,931,450) $(2,330,604)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
General partner $ (53,416) $ (17,126) $ (29,637) $ (23,554)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
NET LOSS PER WEIGHTED AVERAGE
LIMITED AND GENERAL PARTNERSHIP UNIT
Net loss per weighted average
limited and general partnership unit $ (44.66) $ (12.99) $ (24.95) $ (18.05)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average number of limited and
general partnership units outstanding 119,517 131,729 118,695 130,430
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
- -------------------------------------------------------------------------------------------------------
</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, 1997 120,339 $30,934,928 $ 312,636 $31,247,564
Net loss -- (5,284,361) (53,416) (5,337,777)
Redemptions (12,630) (2,728,801) (27,271) (2,756,072)
-------- ----------- ----------- -----------
Partners' capital--June 30, 1998 107,709 $22,921,766 $ 231,949 $23,153,715
-------- ----------- ----------- -----------
-------- ----------- ----------- -----------
- -----------------------------------------------------------------------------------------------------
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, 1998
(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, 1998 and the results of its operations for the six
and three months ended June 30, 1998 and 1997. 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, 1997.
B. Related Parties
Prudential Securities Futures Management Inc. (the 'General Partner') and its
affiliates perform services for the Partnership which include, but are not
limited to: brokerage services, accounting and financial management, registrar,
transfer and assignment functions, investor communications, printing and other
administrative services.
The costs incurred for these services for the six months ended June 30, 1998
and 1997 were:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
- ---------------------------------------------------------------------------
Commissions $1,217,740 $1,306,445
General and administrative 41,385 41,276
---------- ----------
$1,259,125 $1,347,721
---------- ----------
---------- ----------
</TABLE>
The costs incurred for these services for the three months ended June 30,
1998 and 1997 were:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
- -----------------------------------------------------------------------
Commissions $574,461 $633,918
General and administrative 20,105 12,417
-------- --------
$594,566 $646,335
-------- --------
-------- --------
</TABLE>
The General Partner is a wholly owned subsidiary of Prudential Securities
Incorporated ('PSI'), the Partnership's commodity broker. The Partnership
maintains its trading and cash accounts at PSI. Except for the portion of assets
that is deposited as margin to maintain forward currency contract positions as
further discussed below, the Partnership's assets are maintained either with PSI
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 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 (including
foreign exchange transactions) and options contracts, its capital is at risk due
to changes in the value of these contracts (market risk) or the inability of
counterparties to perform under the terms of the contracts (credit risk).
Futures, forward and options contracts involve varying degrees of off-balance
sheet risk; and changes in the level of volatility of interest rates, foreign
currency exchange rates or the market values of the contracts (or commodities
underlying the contracts) frequently result in changes in the Partnership's
unrealized gain (loss) on open commodity positions reflected 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's trading managers to abide by various trading
limitations and policies. The General Partner monitors compliance with these
trading limitations and policies which include, but are not limited to,
executing and clearing all trades with creditworthy counterparties (currently,
PSI is the sole counterparty or broker); limiting the amount of margin or
premium required for any one commodity or all commodities combined; and
generally limiting transactions to contracts which are traded in sufficient
volume to permit the taking and liquidating of positions. The General Partner
may impose additional restrictions (through modifications of such trading
limitations and policies) upon the trading activities of the trading managers as
it, in good faith, deems to be in the best interest of the Partnership.
PSI, when acting as the Partnership's futures commission merchant in
accepting orders for the purchase or sale of domestic futures and options
contracts, is required by Commodity Futures Trading Commission ('CFTC')
regulations to separately account for and segregate as belonging to the
Partnership all assets of the Partnership relating to domestic futures and
options trading and is not to commingle such assets with other assets of PSI. At
June 30, 1998 and December 31, 1997, such segregated assets totalled $19,883,650
and $22,947,166, respectively. Part 30.7 of the CFTC regulations also requires
PSI to secure assets of the Partnership related to foreign futures and options
trading which totalled $6,796,634 and $9,499,572 at June 30, 1998 and December
31, 1997, respectively. There are no segregation requirements for assets related
to forward trading.
As of June 30, 1998, the Partnership's open futures, forward and options
contracts mature within one year.
5
<PAGE>
At June 30, 1998 and December 31, 1997, gross contract amounts of open
futures, forward and options contracts are:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Currency Forward Contracts:
Commitments to purchase $ 6,421,063 $ 318,066
Commitments to sell 32,238,099 24,765,572
Currency Futures and Options
Contracts:
Commitments to purchase 3,340,451 1,232,952
Commitments to sell 4,649,798 4,626,480
Financial Futures and Options
Contracts:
Commitments to purchase 424,801,003 183,537,088
Commitments to sell 137,701,473 126,817,265
Other Futures and Options Contracts:
Commitments to purchase 261,214 2,876,350
Commitments to sell 10,574,682 14,809,027
</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, 1998 and December 31, 1997, the fair value of open futures,
forward and options contracts was:
<TABLE>
<CAPTION>
1998 1997
-------------------------- --------------------------
Assets Liabilities Assets Liabilities
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Futures Contracts:
Domestic exchanges
Financial $ 258,669 $ (79,844) $ 178,094 $ (4,700)
Currencies 52,549 (15,369) 41,016 (6,677)
Other 11,732 (182,356) 1,020,252 (1,810)
Foreign exchanges
Financial 513,603 (331,380) 493,686 (229,030)
Other 34,830 (54,799) 170,110 (4,500)
Forward Contracts:
Currencies -- (1,019,635) 374,665 (446,422)
Options Contracts:
Domestic exchanges
Financial -- (39,988) -- (3,600)
Currencies -- (4,225) -- --
Other -- (480) -- --
---------- ----------- ---------- -----------
$ 871,383 $(1,728,076) $2,277,823 $ (696,739)
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
</TABLE>
6
<PAGE>
The following table presents the average fair value of futures, forward and
options contracts during the six months ended June 30, 1998 and 1997,
respectively.
<TABLE>
<CAPTION>
1998 1997
-------------------------- --------------------------
Assets Liabilities Assets Liabilities
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Futures Contracts:
Domestic exchanges
Financial $ 184,131 $ (46,846) $ 105,668 $ (20,566)
Currencies 89,125 (22,493) 305,963 (47,179)
Other 229,945 (75,189) 261,928 (17,652)
Foreign exchanges
Financial 647,819 (150,314) 365,258 (157,370)
Other 81,373 (58,059) 7,720 (3,680)
Forward Contracts:
Currencies 243,663 (560,885) 580,379 (666,353)
Options Contracts:
Domestic exchanges
Financial -- (12,836) -- (18,108)
Currencies -- (3,895) 1,186 (59,832)
Other -- (233) 26,992 (4,537)
Foreign exchanges
Financial -- -- 6,390 (8,408)
---------- ----------- ---------- -----------
$1,476,056 $ (930,750) $1,661,484 $(1,003,685)
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
</TABLE>
The following table presents the average fair value of futures, forward
and options contracts during the three months ended June 30, 1998 and 1997,
respectively.
<TABLE>
<CAPTION>
1998 1997
-------------------------- --------------------------
Assets Liabilities Assets Liabilities
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Futures Contracts:
Domestic exchanges
Financial $ 90,163 $ (80,588) $ 174,716 $ (8,617)
Currencies 139,309 (15,209) 108,608 (47,476)
Other 52,514 (109,873) 175,835 (26,761)
Foreign exchanges
Financial 436,983 (131,079) 347,566 (199,425)
Other 31,252 (70,747) 7,500 (1,391)
Forward Contracts:
Currencies 332,744 (444,025) 234,800 (784,932)
Options Contracts:
Domestic exchanges
Financial -- (21,441) -- (24,693)
Currencies -- (1,541) 2,075 (19,019)
Other -- (408) 32,638 (1,163)
Foreign exchanges
Financial -- -- 11,182 (9,952)
---------- ----------- ---------- -----------
$1,082,965 $ (874,911) $1,094,920 $(1,123,429)
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
</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, 1998 and
1997, respectively.
<TABLE>
<CAPTION>
Six Months Three Months
Ended June 30, Ended June 30,
--------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
1998 1997 1998 1997
-------------- -------------- -------------- --------------
Futures Contracts:
Domestic exchanges
Financial $ (785,587) $ (132,538) $ (654,219) $ (45,138)
Currencies (53,945) 213,218 (34,727) (240,628)
Other (1,506,132) 650,387 (651,882) 505,680
Foreign exchanges
Financial (1,036,632) (99,542) (772,699) (207,634)
Other 7,532 33,567 (6,136) 22,250
Forward Contracts:
Currencies (767,145) (1,116,404) (290,387) (1,727,192)
Options Contracts:
Domestic exchanges
Financial 51,550 (27,846) 35,612 (8,600)
Currencies (2,700) 85,196 (5,750) 51,110
Other 2,220 137,074 1,790 66,735
Foreign exchanges
Financial -- (67,767) -- (94,579)
-------------- -------------- -------------- --------------
$ (4,090,839) $ (324,655) $ (2,378,398) $ (1,677,996)
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</TABLE>
D. Subsequent Events
During July 1998, John W. Henry & Company, Inc. agreed to resign as one of
the Partnership's trading managers effective as of August 31, 1998. The
Partnership is currently negotiating with other independent commodities trading
managers to trade those Partnership assets currently traded by John W. Henry &
Company, Inc. commencing on or after September 1, 1998.
Effective August 1, 1998, the General Partner reduced the annual rate of
commissions charged to the Partnership from 8.5% to 8.0% of net asset value.
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, 1998, 100% of the Partnership's total net assets (the '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 78%
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 general partner attempts to minimize these
risks by requiring the Partnership's trading managers to abide by various
trading limitations and policies. See Note C to the financial statements for a
further discussion on the credit and market risks associated with the
Partnership's futures, forward and options contracts.
Redemptions by limited partners recorded for the six and three months ended
June 30, 1998 were $2,728,801 and $2,338,228, respectively. Redemptions by the
general partner recorded for the six and three months ended June 30, 1998 were
$27,271 and $23,432, respectively. Redemptions by limited partners and the
general partner from commencement of operations, October 6, 1989, through June
30, 1998, totalled $121,045,989 and $1,768,301, respectively. Future redemptions
will impact the amount of funds available for investment in commodity contracts
in subsequent periods.
The Partnership does not have, nor does it expect to have, any capital
assets.
Results of Operations
The net asset value per Unit as of June 30, 1998 was $214.97, a decrease of
17.21% from the December 31, 1997 net asset value per Unit of $259.66.
April trading proved difficult for the Partnership resulting in losses.
Unprofitable sectors included the financial, currency, metal, index, energy and
meat sectors. Losses were slightly offset by gains in the grain and soft
sectors. Financial sector trading provided the largest losses. Early in the
month, 30-year U.S. Treasury bond yields approached record lows, driving prices
higher. On April 28th, the market suffered what seemed to be a major setback on
a report that Federal Reserve policy makers were leaning toward a rate hike
which would cause bond prices to fall. However, mild inflation data released on
April 29th sent bond prices soaring again, pushing the yield back below 6%. In
Europe, bond yields, which had been declining for much of the first quarter,
rose in April resulting in losses in most positions held. Currency sector
positions were generally unprofitable for the Partnership. As the German
government contemplated a tax increase, the deutsche mark moved higher versus
the U.S. dollar resulting in Partnership losses. Swiss franc positions
9
<PAGE>
lost value as well. In the crossrate arena, the Partnership's exposure in
Japanese yen/deutsche mark, Japanese yen/British pound and Swiss franc/British
pound resulted in net losses. Unprofitable trading in the metal sector was due
mainly to gold selling at month-end on a strengthening bond market. Zinc and
aluminum positions also lost value. Grain sector positions in wheat and cotton
resulted in slight gains. In the soft sector, expectations of a bumper sugar
crop in Brazil profited the Partnership's short positions.
May trading proved profitable for the Partnership. Profitable sectors
included the financial, currency, energy and meat sectors. Losses were incurred
in the metal, soft, grain and index sectors. In the financial sector, the
Japanese Government bond reached record highs as it rallied in response to
reports that Japans's economic problems were not yet over. This rise generated
profits for the Partnership's long Japanese Government bond positions. Long
positions in Australian 3-year and 30-year bonds increased in value as well. In
the currency sector, the Japanese yen continued its slide versus the U.S. dollar
in response to Japanese economic instability. Skeptical investors drove the yen
to a new seven year low, resulting in profits for the Partnership's short
positions. In addition, Australian dollar and Japanese yen/German deutsche mark
positions generated profits. Partially offsetting gains, the Partnership
incurred losses in its long gold positions in the metal sector as gold prices
fell more than $10 during the month due to a perceived lessening of demand in
Asia. Copper and zinc positions lost value as well. Losses were also incurred in
cotton, sugar and coffee positions in the soft sector.
June trading proved unprofitable. Trading resulted in losses in most sectors
including the financial, metal, index, currency, energy, grain and soft sectors.
In the financial sector, the reversal of the Japanese yen drove losses in
Australian 10-year and 3-year bonds, as well as Japanese bonds and Eurodollar
positions. Metal sector positions lost value as the price of both gold and
silver remained linked to movements in the Japanese yen. As concerns grew over
the worsening economic picture in Russia, the value of the deutsche mark began
to decline versus the U.S. dollar. This was partially due to the significant
amount of outstanding loans to Russian businesses by German banks. This
initiated a flight to the safety of the British pound driving it higher versus
the U.S. dollar. This shift was unprofitable for the Partnership. In the energy
sector, oil complex positions lost value as investors questioned the commitment
of OPEC countries to proposed cuts in production, causing prices to decline.
Trading in natural gas was unprofitable as well. Finally, positions in the
British FTSE 100, corn and sugar lost value during the month.
Interest income from U.S. Treasury bills for the six and three months ended
June 30, 1998 decreased by approximately $36,000 and $38,000, respectively, as
compared to the same periods in 1997. These declines in interest income were the
result of fewer funds available for investment in U.S. Treasury bills
principally due to the effect of weak trading performance and redemptions during
the first half of 1998 on the investments in U.S. Treasury bills.
Commissions are calculated on the Net Asset Value on the first day of each
month and, therefore, vary based on monthly trading performance and redemptions.
Commissions decreased by approximately $89,000 and $59,000 for the six and three
months ended June 30, 1998, respectively, as compared to the same periods in
1997 principally due to the effect of weak trading performance and redemptions
during the first half of 1998 on the monthly Net Asset Values.
All trading decisions are currently being made by John W. Henry & Company,
Inc., Welton Investment Corporation and Eclipse Capital Management (the 'Trading
Managers'). Management fees are calculated on the portion of the Net Asset Value
allocated to each Trading Manager as of the end of each month and, therefore,
are affected by trading performance and redemptions. Management fees decreased
by approximately $48,000 and $25,000 for the six and three months ended June 30,
1998, respectively, as compared to the same periods in 1997 primarily due to
fluctuations in monthly Net Asset Values as described above.
Incentive fees are based on the New High Net Trading Profits generated by
each Trading Manager, as defined in each Advisory Agreement among the
Partnership, the General Partner and each Trading Manager. Despite overall
Partnership trading losses during the six months ended June 30, 1998 and 1997,
Welton Investment Corporation generated sufficient trading profits to earn
incentive fees of approximately $8,000 and $30,000, respectively.
General and administrative expenses decreased by approximately $17,000 for
each of the six and three month periods ended June 30, 1998 as compared to the
same periods in 1997. These expenses include reimbursement of costs incurred by
the General Partner on behalf of the Partnership, in addition to accounting,
audit, tax and legal fees as well as printing and postage costs related to
reports sent to limited partners.
10
<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.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Prudential-Bache Capital Return Futures Fund 2, L.P.
By: Prudential Securities Futures Management Inc.
A Delaware corporation, General Partner
By: /s/ Steven Carlino Date: August 14, 1998
----------------------------------------
Steven Carlino
Vice President
Chief Accounting Officer for the Registrant
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial
information extracted from the financial
statements for 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-31-1998
<PERIOD-START> Jan-1-1998
<PERIOD-END> Jun-30-1998
<PERIOD-TYPE> 6-Mos
<CASH> 6,605,995
<SECURITIES> 19,099,347
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 25,705,342
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 25,705,342
<CURRENT-LIABILITIES> 2,551,627
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 23,153,715
<TOTAL-LIABILITY-AND-EQUITY> 25,705,342
<SALES> 0
<TOTAL-REVENUES> (3,531,216)
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,806,561
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,337,777)
<EPS-PRIMARY> (44.66)
<EPS-DILUTED> 0
</TABLE>
