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 __ 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) June 30, December 31, 1998 1997 - --------------------------------------------------------------------------------------------------- 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. 2 PRUDENTIAL-BACHE CAPITAL RETURN FUTURES FUND 2, L.P. (a limited partnership) STATEMENTS OF OPERATIONS (Unaudited) Six Months Three Months Ended June 30, Ended June 30, --------------------------- --------------------------- 1998 1997 1998 1997 - ------------------------------------------------------------------------------------------------------- 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 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- - ------------------------------------------------------------------------------------------------------- STATEMENT OF CHANGES IN PARTNERS' CAPITAL (Unaudited) LIMITED GENERAL UNITS PARTNERS PARTNER TOTAL - ----------------------------------------------------------------------------------------------------- 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. 3 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: 1998 1997 - --------------------------------------------------------------------------- Commissions $1,217,740 $1,306,445 General and administrative 41,385 41,276 ---------- ---------- $1,259,125 $1,347,721 ---------- ---------- ---------- ---------- The costs incurred for these services for the three months ended June 30, 1998 and 1997 were: 1998 1997 - ----------------------------------------------------------------------- Commissions $574,461 $633,918 General and administrative 20,105 12,417 -------- -------- $594,566 $646,335 -------- -------- -------- -------- 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 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 At June 30, 1998 and December 31, 1997, gross contract amounts of open futures, forward and options contracts are: 1998 1997 ------------ ------------ 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 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: 1998 1997 -------------------------- -------------------------- Assets Liabilities Assets Liabilities ---------- ----------- ---------- ----------- 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) ---------- ----------- ---------- ----------- ---------- ----------- ---------- ----------- 6 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. 1998 1997 -------------------------- -------------------------- Assets Liabilities Assets Liabilities ---------- ----------- ---------- ----------- 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) ---------- ----------- ---------- ----------- ---------- ----------- ---------- ----------- 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. 1998 1997 -------------------------- -------------------------- Assets Liabilities Assets Liabilities ---------- ----------- ---------- ----------- 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) ---------- ----------- ---------- ----------- ---------- ----------- ---------- ----------- 7 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. Six Months Three Months Ended June 30, Ended June 30, --------------------------------- --------------------------------- 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) -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- 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 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 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 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 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