<PAGE>

                                                          1998
--------------------------------------------------------------------------------
Prudential-Bache                                          Annual
Capital Return Futures                                    Report
Fund L.P.

<PAGE>


                      LETTER TO LIMITED PARTNERS FOR
               PRUDENTIAL-BACHE CAPITAL RETURN FUTURES FUND L.P.
 


                                       1

<PAGE>
PricewaterhouseCoopers (LOGO)

                                          PricewaterhouseCoopers LLP
                                          1177 Avenue the Americas
                                          New York, NY 10036
                                          Telephone (212) 596 8000
                                          Facsimile (212) 596 8910
 
                       Report of Independent Accountants
 
January 26, 1999
 
To the General Partner and
Limited Partners of
Prudential-Bache Capital Return Futures Fund L.P.
 
In our opinion, the accompanying statements of financial condition and the
related statements of operations and changes in partners' capital present
fairly, in all material respects, the financial position of Prudential-Bache
Capital Return Futures Fund L.P. at December 31, 1998 and 1997, and the results
of its operations for each of the three years in the period ended December 31,
1998 in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the general partner; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by the
general partner, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
 
/s/ PricewaterhouseCoopers LLP
 
                                       2
<PAGE>
               PRUDENTIAL-BACHE CAPITAL RETURN FUTURES FUND L.P.
                            (a limited partnership)
                       STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
                                                                               December 31,
                                                                        --------------------------
                                                                           1998           1997
<S>                                                                     <C>            <C>
--------------------------------------------------------------------------------------------------
ASSETS
Equity in commodity trading accounts:
Cash                                                                    $ 3,166,467    $ 3,259,537
U.S. Treasury bills, at amortized cost                                   11,092,586     13,007,441
Net unrealized gain on open commodity positions                           1,007,956      1,177,521
                                                                        -----------    -----------
Total assets                                                            $15,267,009    $17,444,499
                                                                        -----------    -----------
                                                                        -----------    -----------
 
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Redemptions payable                                                     $   408,971    $   291,915
Management fees payable                                                      50,656         57,913
Accrued expenses                                                             57,613         52,908
Due to affiliates                                                            12,481         17,580
Incentive fee payable                                                            --         12,998
                                                                        -----------    -----------
Total liabilities                                                           529,721        433,314
                                                                        -----------    -----------
 
Commitments
Partners' capital
Limited partners (99,743 and 113,880 units outstanding)                  14,589,844     16,840,972
General partner (1,008 and 1,151 units outstanding)                         147,444        170,213
                                                                        -----------    -----------
Total partners' capital                                                  14,737,288     17,011,185
                                                                        -----------    -----------
Total liabilities and partners' capital                                 $15,267,009    $17,444,499
                                                                        -----------    -----------
                                                                        -----------    -----------
 
Net asset value per limited and general partnership unit ('Units')      $    146.27    $    147.88
                                                                        -----------    -----------
                                                                        -----------    -----------
--------------------------------------------------------------------------------------------------
                 The accompanying notes are an integral part of these statements.
</TABLE>
                                       3
<PAGE>
               PRUDENTIAL-BACHE CAPITAL RETURN FUTURES FUND L.P.
                            (a limited partnership)
                            STATEMENTS OF OPERATIONS
 
<TABLE>
<CAPTION>
                                                                    Year ended December 31,
                                                            ----------------------------------------
                                                               1998           1997           1996
<S>                                                         <C>            <C>            <C>
----------------------------------------------------------------------------------------------------
REVENUES
Net realized gain                                           $1,301,509     $1,602,156     $3,400,298
Change in net unrealized gain/loss                            (169,565)     1,234,209       (470,820)
Interest from U.S. Treasury bills                              572,873        676,690        694,789
                                                            ----------     ----------     ----------
                                                             1,704,817      3,513,055      3,624,267
                                                            ----------     ----------     ----------
EXPENSES
Commissions                                                  1,214,818      1,377,622      1,416,851
Management fees                                                608,574        695,451        715,244
Incentive fees                                                      --         12,998             --
General and administrative                                     140,001        148,399        161,330
                                                            ----------     ----------     ----------
                                                             1,963,393      2,234,470      2,293,425
                                                            ----------     ----------     ----------
Net income (loss)                                           $ (258,576)    $1,278,585     $1,330,842
                                                            ----------     ----------     ----------
                                                            ----------     ----------     ----------
ALLOCATION OF NET INCOME (LOSS)
Limited partners                                            $ (255,983)    $1,265,788     $1,341,731
                                                            ----------     ----------     ----------
                                                            ----------     ----------     ----------
General partner                                             $   (2,593)    $   12,797     $  (10,889)
                                                            ----------     ----------     ----------
                                                            ----------     ----------     ----------
NET INCOME (LOSS) PER WEIGHTED AVERAGE LIMITED AND
GENERAL PARTNERSHIP UNIT
Net income (loss) per weighted average limited and
  general partnership unit                                  $    (2.39)    $    10.34     $     9.23
                                                            ----------     ----------     ----------
                                                            ----------     ----------     ----------
Weighted average number of limited and general
  partnership units outstanding                                108,183        123,618        144,158
                                                            ----------     ----------     ----------
                                                            ----------     ----------     ----------
----------------------------------------------------------------------------------------------------
</TABLE>
 
                   STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
<TABLE>
<CAPTION>
                                                              LIMITED        GENERAL
                                                UNITS        PARTNERS        PARTNER         TOTAL
<S>                                            <C>          <C>             <C>           <C>
-----------------------------------------------------------------------------------------------------
Partners' capital--December 31, 1995            155,448     $18,850,694     $ 765,981     $19,616,675
Net income (loss)                                  --         1,341,731       (10,889)      1,330,842
Redemptions                                     (24,839)     (2,476,020)     (576,013)     (3,052,033)
                                               --------     -----------     ---------     -----------
Partners' capital--December 31, 1996            130,609      17,716,405       179,079      17,895,484
Net income                                         --         1,265,788        12,797       1,278,585
Redemptions                                     (15,578)     (2,141,221)      (21,663)     (2,162,884)
                                               --------     -----------     ---------     -----------
Partners' capital--December 31, 1997            115,031      16,840,972       170,213      17,011,185
Net loss                                           --          (255,983)       (2,593)       (258,576)
Redemptions                                     (14,280)     (1,995,145)      (20,176)     (2,015,321)
                                               --------     -----------     ---------     -----------
Partners' capital--December 31, 1998            100,751     $14,589,844     $ 147,444     $14,737,288
                                               --------     -----------     ---------     -----------
                                               --------     -----------     ---------     -----------
-----------------------------------------------------------------------------------------------------
                  The accompanying notes are an integral part of these statements.
</TABLE>
                                       4
<PAGE>
               PRUDENTIAL-BACHE CAPITAL RETURN FUTURES FUND L.P.
                            (a limited partnership)
                         NOTES TO FINANCIAL STATEMENTS
 
A. General
 
   Prudential-Bache Capital Return Futures Fund L.P. (the 'Partnership') is a
Delaware limited partnership formed on January 26, 1989 to engage in the
speculative trading of commodity futures, forward and options contracts. The
Partnership will terminate on December 31, 2009 unless terminated sooner under
the provisions of the Amended and Restated Agreement of Limited Partnership (the
'Partnership Agreement'). These provisions, as set forth in Article XVII of the
Partnership Agreement include, but are not limited to, the dissolution of the
Partnership if the Partnership's net asset value declines to less than $10
million as of the end of any business day. On May 12, 1989, the Partnership
completed its offering and raised $139,151,000 from the sale of 1,377,053 units
of limited partnership interest and 14,457 units of general partnership
interest.
 
   The general partner of the Partnership is Seaport Futures Management, Inc.
(the 'General Partner') which is an affiliate of Prudential Securities
Incorporated ('PSI'), the Partnership's commodity broker. Both the General
Partner and PSI are wholly owned subsidiaries of Prudential Securities Group
Inc. ('PSGI'). The General Partner is required to maintain at least a 1%
interest in the Partnership as long as it is acting as the Partnership's general
partner.
 
   During the three years ended December 31, 1998, 100% of the Partnership's
assets were allocated for commodity trading purposes. The General Partner
generally maintains not less than 75% of the Partnership's net assets in
interest-bearing U.S. Government obligations (primarily U.S. Treasury bills), a
significant portion of which is utilized for margin purposes for the
Partnership's commodity trading activities. The remaining 25% of the net assets
is held in cash in commodity trading accounts.
 
   Since July 1994, all trading decisions for the Partnership have been made by
John W. Henry & Company, Inc. (the 'Trading Manager'), an independent
commodities trading manager. The General Partner retains the authority to
override trading instructions that violate the Partnership's trading policies.
 
B. Summary of Significant Accounting Policies
 
Basis of accounting
 
   The books and records of the Partnership are maintained on the accrual basis
of accounting in accordance with generally accepted accounting principles.
 
   The preparation of financial statements in conformity with generally accepted
accounting principles requires the General Partner to make estimates and
assumptions that affect the reported amounts of liabilities at the date of the
financial statements and the reported amounts of expenses during the reporting
period. Actual results could differ from those estimates.
 
   Commodity futures and forward transactions are reflected in the accompanying
statements of financial condition on trade date. The difference between the
original contract amount and market value is reflected as net unrealized gain or
loss. The market value of each contract is based upon the closing quotation on
the exchange, clearing firm or bank on, or through, which the contract is
traded.
 
   To the extent practicable, the Partnership invests a significant portion of
its net assets in U.S. Treasury bills, which are often used to fulfill margin
requirements. U.S. Treasury bills are carried at amortized cost which
approximates market. Interest on these obligations accrues for the benefit of
the Partnership.
 
   The weighted average number of limited and general partnership units
outstanding was computed for purposes of disclosing net income (loss) per
weighted average limited and general partnership unit. The weighted average
limited and general partnership units are equal to the number of Units
outstanding at year-end, adjusted proportionately for the Units redeemed based
on their respective time outstanding during such year.
 
   The Partnership has elected not to provide a Statement of Cash Flows as
permitted by Statement of Financial Accounting Standard No. 102, 'Statement of
Cash Flows--Exemption of Certain Enterprises and Classification of Cash Flows
from Certain Securities Acquired for Resale.'
 
                                       5
<PAGE>
Income taxes
 
   The Partnership is not required to provide for, or pay, any Federal or state
income taxes. Income tax attributes that arise from the Partnership's operations
are passed directly to the individual partners. The Partnership may be subject
to other state and local taxes in jurisdictions in which it operates.
 
Profit and loss allocations, distributions and redemptions
 
   Net realized profits or losses for tax purposes are allocated first to
partners who redeem Units to the extent the amounts received on redemption are
greater than or are less than the amounts paid for the redeemed Units by the
partners. Net realized profits or losses remaining after these allocations are
allocated to each partner in proportion to such partner's capital account at
year-end. Net income or loss for financial reporting purposes is allocated
quarterly to all partners on a pro rata basis based on each partner's number of
Units outstanding during the quarter.
 
   Distributions (other than redemptions of Units) are made at the sole
discretion of the General Partner on a pro rata basis in accordance with the
respective capital accounts of the partners. No distributions have been made
since inception.
 
   The Partnership Agreement provides that a partner may redeem its Units as of
the last business day of any full calendar quarter at the then current net asset
value per Unit.
 
New Accounting Guidance
 
   In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities ('SFAS 133'),
which the Partnership is required to adopt effective January 1, 2000. SFAS 133
establishes accounting and reporting standards for derivative instruments and
for hedging activities and requires that an entity recognize all derivatives as
assets or liabilities measured at fair value. The Partnership does not believe
the effect of adoption will be material.
 
C. Costs, Fees and Expenses
 
Commissions
 
   The General Partner, on behalf of the Partnership, entered into an agreement
with PSI to act as commodity broker for the Partnership. The Partnership pays
PSI monthly fees equal to 2/3 of 1% (an 8% annual rate) of the Partnership's net
asset value as of the first day of each month.
 
Management and incentive fees
 
   The Partnership pays the Trading Manager a monthly management fee of 1/3 of
1% (a 4% annual rate) of the Partnership's net asset value as of the last day of
each month and a quarterly incentive fee of 15% of the 'New High Net Trading
Profits' (as defined in the Advisory Agreement among the Partnership, the
General Partner and the Trading Manager).
 
General and administrative expenses
 
   In addition to the costs, fees and expenses previously discussed, the
Partnership reimburses the General Partner and its affiliates for actual
Partnership operating expenses payable by, or allocable to, the Partnership. The
amount of reimbursement from the Partnership is limited by the provisions of the
Partnership Agreement. The Partnership also pays amounts directly to unrelated
parties for certain operating expenses.
 
D. Related Parties
 
   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 services and other administrative services.
 
   The costs incurred for these services for the years ended December 31, 1998,
1997 and 1996 were:
 
<TABLE>
<CAPTION>
                                                        1998           1997           1996
        <S>                                          <C>            <C>            <C>
                                                     ----------------------------------------
        Commissions                                  $1,214,818     $1,377,622     $1,416,851
        General and administrative                       65,400         91,077         92,346
                                                     ----------     ----------     ----------
             Total                                   $1,280,218     $1,468,699     $1,509,197
                                                     ----------     ----------     ----------
                                                     ----------     ----------     ----------
</TABLE>
                                       6
<PAGE>
   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 Manager, executes
over-the-counter, spot, forward and/or option foreign exchange transactions with
PSI. PSI then engages in back-to-back trading with an affiliate,
Prudential-Bache Global Markets Inc. ('PBGM'). PBGM attempts to earn a profit on
such transactions. PBGM keeps its prices on foreign currency competitive with
other interbank currency trading desks. All over-the-counter currency
transactions are conducted between PSI and the Partnership pursuant to a line of
credit. PSI may require that collateral be posted against the marked-to-market
positions of the Partnership.
 
E. Income Taxes
 
   The following is a reconciliation of net income (loss) for financial 
reporting purposes to net income (loss) for tax reporting purposes for the 
years ended December 31, 1998, 1997 and 1996, respectively:
 
<TABLE>
<CAPTION>
                                                               1998           1997           1996
<S>                                                          <C>           <C>            <C>
                                                             ---------------------------------------
Net income (loss) per financial statements                   $(258,576)    $1,278,585     $1,330,842
Change in unrealized gain/loss on nonregulated
  commodity positions and foreign currencies                   (51,990)      (532,445)       709,383
                                                             ---------     ----------     ----------
Tax basis net income (loss)                                  $(310,566)    $  746,140     $2,040,225
                                                             ---------     ----------     ----------
                                                             ---------     ----------     ----------
</TABLE>
 
   The differences between the tax and book bases of partners' capital are
primarily attributable to the cumulative effect of the book to tax income
adjustments.
 
F. Credit and Market Risk
 
   Since the Partnership's business is to trade futures, forward and options
contracts, its capital is at risk due to changes in the value of these contracts
(market risk) or the inability of counterparties to perform under the terms of
the contracts (credit risk).
 
   Futures, forward and options contracts involve varying degrees of off-balance
sheet risk; and changes in the level or volatility of interest rates, foreign
currency exchange rates or the market values of the contracts (or commodities
underlying the contracts) frequently result in changes in the Partnership's
unrealized gain (loss) on open commodity positions reflected in the statements
of financial condition. The Partnership's exposure to market risk is influenced
by a number of factors including the relationships among the contracts held by
the Partnership as well as the liquidity of the markets in which the contracts
are traded.
 
   Futures and options contracts are traded on organized exchanges and are thus
distinguished from forward contracts which are entered into privately by the
parties. The credit risks associated with futures and options contracts are
typically perceived to be less than those associated with forward contracts,
because exchanges typically provide clearinghouse arrangements in which the
collective credit (subject to certain limitations) of the members of the
exchanges is pledged to support the financial integrity of the exchange. On the
other hand, the Partnership must rely solely on the credit of its broker (PSI)
with respect to forward transactions. The Partnership presents unrealized gains
and losses on open forward positions as a net amount in the statements of
financial condition because it has a master netting agreement with PSI.
 
   The General Partner attempts to minimize both credit and market risks by
requiring the Partnership's Trading Manager 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 Manager as
it, in good faith, deems to be in the best interests 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
 
                                       7
<PAGE>
other assets of PSI. At December 31, 1998 such segregated assets totalled
$4,855,688. 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
$10,532,496 at December 31, 1998. There are no segregation requirements for
assets related to forward trading.
 
   As of December 31, 1998, the Partnership's open forward contracts mature
within three months and open futures contracts mature within one year.
 
   At December 31, 1998 and 1997, gross contract amounts of open futures and
forward contracts are:
 
<TABLE>
<CAPTION>
                                                                       1998             1997
                                                                    -----------      -----------
     <S>                                                            <C>              <C>
     Currency Forward Contracts:
       Commitments to purchase                                      $  546,406       $8,299,224
       Commitments to sell                                           1,960,358       21,741,261
     Currency Futures Contracts:
       Commitments to purchase                                       5,617,987               --
       Commitments to sell                                           4,238,887               --
     Financial Futures Contracts:
       Commitments to purchase                                      39,193,849       64,953,831
       Commitments to sell                                          83,475,164       28,551,074
     Other Futures Contracts:
       Commitments to purchase                                       1,139,330        3,287,779
       Commitments to sell                                           3,588,609        7,476,710
</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 or forward 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
and forward contracts to be the net unrealized gain or loss on the contracts.
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 December 31, 1998 and 1997, the fair value of open futures and forwards
contracts was:
 
<TABLE>
<CAPTION>
                                                     1998                         1997
                                           -------------------------    -------------------------
<S>                                        <C>           <C>            <C>           <C>
                                             Assets      Liabilities      Assets      Liabilities
                                           ----------    -----------    ----------    -----------
Futures Contracts:
  Domestic exchanges
     Financial                             $    9,844     $ 106,650     $   80,344     $      --
     Currencies                               178,225        41,112             --            --
     Other                                    114,222        42,294        611,279        68,124
  Foreign exchanges
     Financial                              1,080,633        88,960        250,118        66,494
     Other                                     29,238         4,015         16,249         1,735
Forward Contracts:
     Currencies                                 6,297       127,472        622,474       266,590
                                           ----------    -----------    ----------    -----------
                                           $1,418,459     $ 410,503     $1,580,464     $ 402,943
                                           ----------    -----------    ----------    -----------
                                           ----------    -----------    ----------    -----------
</TABLE>
                                       8
<PAGE>
   The following table presents the average fair value of futures and forward
contracts during the year ended December 31, 1998 and 1997, respectively.
 
<TABLE>
<CAPTION>
                                                     1998                         1997
                                           -------------------------    -------------------------
<S>                                        <C>           <C>            <C>           <C>
                                             Assets      Liabilities      Assets      Liabilities
                                           ----------    -----------    ----------    -----------
Futures Contracts:
  Domestic exchanges
     Financial                             $  134,577     $  26,687     $   92,498     $  12,619
     Currencies                                13,710         4,526         59,637        14,160
     Other                                    222,938        59,529        255,036       105,041
  Foreign exchanges
     Financial                                460,007        60,931        354,783        52,688
     Other                                     22,255         9,947          5,821         4,653
Forward Contracts:
     Currencies                               563,410       481,174        662,980       233,373
                                           ----------    -----------    ----------    -----------
                                           $1,416,897     $ 642,794     $1,430,755     $ 422,534
                                           ----------    -----------    ----------    -----------
                                           ----------    -----------    ----------    -----------
</TABLE>
 
   The following table presents the Partnership's trading revenues for the three
years ended December 31, 1998.
 
<TABLE>
<CAPTION>
                                              1998          1997          1996
                                           ----------    ----------    ----------
<S>                                        <C>           <C>           <C>
Futures Contracts:
  Domestic exchanges
     Financial                             $  145,038    $  210,426    $   81,856
     Currencies                                76,951        24,502       545,421
     Other                                   (457,560)     (555,667)      430,200
  Foreign exchanges
     Financial                              1,594,170     1,128,447     1,816,042
     Currencies                                    --            --      (445,409)
     Other                                     93,497      (109,842)           --
Forward Contracts:
     Currencies                              (320,152)    2,131,390     1,031,787
Foreign Currencies                                 --         7,109      (530,419)
                                           ----------    ----------    ----------
                                           $1,131,944    $2,836,365    $2,929,478
                                           ----------    ----------    ----------
                                           ----------    ----------    ----------
</TABLE>
 
                                       9
<PAGE>
               PRUDENTIAL-BACHE CAPITAL RETURN FUTURES FUND L.P.
                            (a limited partnership)
               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS
 
Liquidity and Capital Resources
 
   The Partnership commenced operations on May 12, 1989 with gross proceeds of
$139,151,000. After accounting for organizational and offering costs, the
Partnership's net proceeds were $137,151,000.
 
   At December 31, 1998, 100% of the Partnership's total net assets was
allocated to commodities trading. A significant portion of the net asset value
was held in U.S. Treasury bills (which represented approximately 73% 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 bear to the net asset value varies
each day, and from month to month, as the market value of commodity interests
changes. 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 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 relationship 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's Trading Manager to abide by
various trading limitations and policies. See Note F 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 years ended December 31,
1998, 1997 and 1996 were $1,995,145, $2,141,221 and $2,476,020, respectively.
Redemptions by the General Partner for the years ended December 31, 1998, 1997
and 1996 were $20,176, $21,663 and $576,013, respectively. Redemptions by
limited partners and the General Partner from the commencement of operations,
May 12, 1989, through December 31, 1998 totalled $142,328,013 and $1,618,924,
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 December 31, 1998 was $146.27, a decrease
of 1.09% from the December 31, 1997 net asset value per Unit of $147.88, which
was an increase of 7.93% from the December 31, 1996 net asset value per Unit of
$137.02. The MAR (Managed Account Reports) Fund/Pool Index, which tracked the
performance of 281 and 315 futures funds in 1998 and 1997, returned 6.57% and
9.34%, respectively. Past performance is not necessarily indicative of future
results.
 
   The Partnership's negative performance in 1998 was attributable to losses
incurred in the metal, index, currency and soft sectors offset, in part, by
gains in the financial, energy and grain sectors.
 
                                       10

<PAGE>
   The metal sector caused the largest losses for the Partnership due to
positions in gold, silver and copper. Silver positions incurred losses as
declining warehouse inventories caused prices to rise.
 
   Volatility in various global stock markets fueled 1998 losses, particularly
in the Nikkei Dow and the SFE index. Positions in the currency sector also
experienced losses. In Malaysia, we witnessed the introduction of capital
controls, and the potential for the chilling effects of a new order of
international capital controls. Also impacting the currency markets was Hong
Kong's severe intervention in its stock market and Japan's inability to come to
terms with banking and overall economic growth problems.
 
   The Partnership generated significant profits from positions in the financial
sector, which provided various profit earning opportunities throughout the year.
Sector performance was driven by governmental and economical conditions in the
Far East. Positions in Japanese government bonds were particularly profitable as
investors reacted throughout the year to news concerning the Japanese
government's economic stimulus package. As the year continued, investors, in a
flight to quality, moved out of stocks and back into bonds due to the
devaluation of the Russian ruble and concerns regarding the stability of
Japanese banks.
 
   Energy sector positions also achieved gains for the Partnership. Towards the
end of the year, crude oil prices fell to levels not seen since 1986 as OPEC
failed to reach an agreement on further production cutbacks.
 
   Interest income is earned on the Partnership's investment in U.S. Treasury
bills and varies monthly according to interest rates, trading performance, and
redemptions. Interest income declined approximately $104,000 for the year ended
December 31, 1998 compared to 1997. This decrease was primarily due to the
effect of declining interest rates during the current year, as well as the
effect of fewer funds available for investments in U.S. Treasury bills resulting
from the liquidation of such investments for the payment of redemptions.
Interest income declined approximately $18,000 for the year ended December 31,
1997 compared to 1996. This decrease was due primarily to the liquidation of
U.S. Treasury bills for the payment of redemptions, which outweighed the
increase in available funds from the Partnership's positive 1997 trading
performance.
 
   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 approximately $163,000 for the year ended December 31,
1998 compared to 1997 primarily due to the effect of redemptions on the monthly
net asset values. Commissions decreased by approximately $39,000 for the year
ended December 31, 1997 as compared to 1996 due to lower monthly net asset
values caused by redemptions offset, in part, by positive 1997 trading
performance.
 
   All trading decisions are currently made by John W. Henry & Company, Inc.
(the 'Trading Manager'). Management fees are calculated on the net asset value
as of the end of each month and, therefore, are affected by trading performance
and redemptions. Management fees decreased by approximately $87,000 and $20,000
during the years ended December 31, 1998 and 1997 compared to the comparable
periods in the prior years for the same reasons commissions decreased as
discussed above.
 
   Incentive fees are based on New High Net Trading Profits generated by the
Trading Manager, as defined in the Advisory Agreement among the Partnership, the
General Partner and the Trading Manager. Trading performance resulted in
incentive fees of approximately $13,000 for the year ended December 31, 1997. No
incentive fees were earned during 1998 and 1996.
 
   General and administrative expenses decreased by approximately $8,000 for the
year ended December 31, 1998 compared to 1997 and approximately $13,000 for the
year ended December 31, 1997 compared to 1996. 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. These
decreases were due to a reduction in overall costs associated with administering
the Partnership including continuing declines in printing and postage costs as
limited partners redeem their Units.
 
New Accounting Guidance
 
   In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities ('SFAS 133'),
which the Partnership is required to adopt
 
                                       11
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effective January 1, 2000. SFAS 133 establishes accounting and reporting
standards for derivative instruments and for hedging activities and requires
that an entity recognize all derivatives as assets or liabilities measured at
fair value. The Partnership does not believe the effect of adoption will be
material.
 
Year 2000 Risk
 
  Investment funds, like financial and business organizations and individuals
around the world, depend on the smooth functioning of computer systems. The year
2000, however, holds the potential for a significant disruption in the operation
of these systems. Many computer systems in use today cannot distinguish the year
2000 from the year 1900 because of the way in which dates are encoded. This is
commonly known as the 'Year 2000 Problem.' The Partnership could be adversely
affected if computer systems used by it or any third party with whom it has a
material relationship do not properly perform date comparisons and calculations
concerning dates on or after January 1, 2000, which in turn could have a
negative impact on the handling or determination of trades and prices and the
services provided to the Partnership.
 
  The Partnership has engaged third parties to perform primarily all of the
services it needs. Accordingly, the Partnership's Year 2000 problems, if any,
are not its own but those that center on the ability of the General Partner,
Prudential Securities Incorporated, its Trading Manager and any other third
party with whom the Partnership has a material relationship (individually, a
'Service Provider,' and collectively, the 'Service Providers') to address and
correct problems that may cause their systems not to function as intended as a
result of the Year 2000 Problem.
 
  The Partnership has received assurance from its General Partner and Prudential
Securities Incorporated that they anticipate being able to continue their
operations without any material adverse impact from the Year 2000 Problem.
Although other Service Providers, such as the Partnership's Trading Manager,
have not made similar representations to the Partnership, the Partnership has no
reason to believe that these Service Providers will not take steps necessary to
avoid any material adverse impact on the Partnership, though there can be no
assurance that this will be the case. The costs or consequences of incomplete or
untimely resolution of the Year 2000 Problem by the Service Providers, or by
governments, exchanges, clearinghouses, regulators, banks and other third
parties, are unknown to the Partnership at this time, but could have a material
adverse impact on the operations of the Partnership. The General Partner will
promptly notify the Partnership's limited partners in the event it determines
that the Year 2000 Problem will have a material adverse impact on the
Partnership's operations.
 
  The Partnership has considered various alternatives as a contingency plan. If
the Year 2000 Problems are systemic, for example, the federal government, the
banking system, exchanges or utilities are affected materially, there may no
adequate contingency plan for the Partnership to follow other than to suspend
operations. If the Year 2000 Problems are related to one or more of the other
Service Providers selected by the Partnership, the Partnership believes that
each such Service Provider is prepared to address any Year 2000 Problems which
arise that could have a material adverse impact on the Partnership's operations.
 
Inflation
 
   Inflation has had no material impact on operations or on the financial
condition of the Partnership from inception through December 31, 1998.
 
                                       12
<PAGE>
--------------------------------------------------------------------------------
      I hereby affirm that, to the best of my knowledge and belief, the
information contained herein relating to Prudential-Bache Capital Return Futures
Fund L.P. is accurate and complete.
 
     SEAPORT FUTURES
     MANAGEMENT, INC.
     (General Partner)
 
     By: Barbara J. Brooks
     Chief Financial Officer
--------------------------------------------------------------------------------
 
                                       13
<PAGE>
                               OTHER INFORMATION
 
   The actual round-turn equivalent of brokerage commissions paid per contract
for the year ended December 31, 1998 was $129.
 
   The Partnership's Annual Report on Form 10-K as filed with the Securities and
Exchange Commission is available to limited partners without charge upon written
request to:
 
        Prudential Securities Incorporated
        P.O. Box 2016
        Peck Slip Station
        New York, New York 10272-2016
 
                                       14

<PAGE>
Peck Slip Station                               BULK RATE
P.O. Box 2016                                  U.S. POSTAGE
New York, NY 10272                                 PAID
                                              Automatic Mail
9N17172-0