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 March 31, 1996
/ / 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: 0-18417
PRUDENTIAL-BACHE CAPITAL RETURN FUTURES FUND L.P.
- - --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 13-3516796
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(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
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 778-7866
N/A
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Former name, former address and former fiscal year, if changed since last report
Indicate by check CK whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _CK_ No __
Part I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PRUDENTIAL-BACHE CAPITAL RETURN FUTURES FUND L.P.
(a limited partnership)
STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
March 31, December 31,
1996 1995
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ASSETS
Equity in commodity trading accounts:
Cash $ 4,696,808 $ 4,882,612
U.S. Treasury bills, at amortized cost 14,003,182 15,256,948
Net unrealized gain on open commodity positions 234,260 414,130
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Total assets $18,934,250 $20,553,690
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LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Redemptions payable $ 1,173,743 $ 770,138
Management fees payable 62,819 68,183
Accrued expenses 49,313 51,018
Due to affiliates 39,355 47,676
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Total liabilities 1,325,230 937,015
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Commitments
Partners' capital
Limited partners (144,276 and 149,378 units outstanding) 17,432,850 18,850,694
General partner (1,458 and 6,070 units outstanding) 176,170 765,981
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Total partners' capital 17,609,020 19,616,675
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Total liabilities and partners' capital $18,934,250 $20,553,690
------------- ------------
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Net asset value per limited and general partnership unit
(``Units'') $ 120.83 $ 126.19
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The accompanying notes are an integral part of these statements
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PRUDENTIAL-BACHE CAPITAL RETURN FUTURES FUND L.P.
(a limited partnership)
STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended
March 31,
-------------------------
1996 1995
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REVENUES
Net realized gain (loss) on commodity transactions $(213,232) $ 3,752,983
Change in net unrealized gain on open commodity positions (179,870) 3,512,929
Interest from U.S. Treasury bills 194,865 226,102
--------- -----------
(198,237) 7,492,014
--------- -----------
EXPENSES
Commissions 393,649 404,202
Management fees 194,694 225,098
Incentive fees -- 437,793
General and administrative 47,332 47,914
--------- -----------
635,675 1,115,007
--------- -----------
Net income (loss) $(833,912) $ 6,377,007
--------- -----------
--------- -----------
ALLOCATION OF NET INCOME (LOSS)
Limited partners $(801,369) $ 6,178,364
--------- -----------
--------- -----------
General partner $ (32,543) $ 198,643
--------- -----------
--------- -----------
NET INCOME (LOSS) PER WEIGHTED AVERAGE
LIMITED AND GENERAL PARTNERSHIP UNIT
Net income (loss) per weighted average
limited and general partnership unit $ (5.36) $ 32.73
--------- -----------
--------- -----------
Weighted average number of
limited and general partnership units outstanding 155,448 194,864
--------- -----------
--------- -----------
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STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(Unaudited)
LIMITED GENERAL
UNITS PARTNERS PARTNER TOTAL
- - ----------------------------------------------------------------------------------------------------
Partners' capital--December 31, 1995 155,448 $18,850,694 $765,981 $19,616,675
Net loss (801,369) (32,543) (833,912)
Redemptions (9,714) (616,475) (557,268) (1,173,743)
-------- ----------- -------- -----------
Partners' capital--March 31, 1996 145,734 $17,432,850 $176,170 $17,609,020
-------- ----------- -------- -----------
-------- ----------- -------- -----------
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The accompanying notes are an integral part of these statements
3
PRUDENTIAL-BACHE CAPITAL RETURN FUTURES FUND L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
(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 L.P. (the
``Partnership'') as of March 31, 1996 and the results of its operations for the
three months ended March 31, 1996 and 1995. 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 as filed with the Securities and
Exchange Commission for the year ended December 31, 1995 (the ``Annual
Report'').
Certain balances from the prior period have been reclassified to conform with
the current financial statement presentation.
B. Related Parties
Seaport 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 three months ended March 31,
1996 and 1995 were:
1996 1995
-------------------------------------------------------------------------------
Commissions $393,649 $404,202
General and administrative 25,503 27,099
-------- --------
$419,152 $431,301
-------- --------
-------- --------
The Partnership maintains its trading and cash accounts at Prudential
Securities Incorporated (``PSI''), the Partnership's commodity broker and an
affiliate of the General Partner. Approximately 75% of the Partnership's net
asset value invested is 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. As described
in the Annual Report, all commissions for brokerage services are paid to PSI.
When the Partnership engages in forward foreign currency transactions it
trades with PSI who simultaneously engages in back-to-back transactions with an
affiliate who, pursuant to the Partnership's prospectus, is obligated to charge
a competitive price.
C. 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 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 on 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.
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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 other assets of PSI. At
March 31, 1996 and December 31, 1995, such segregated assets totalled
$15,691,039 and $17,263,200, 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 $3,392,246 and $3,385,792 at March 31, 1996
and December 31, 1995, respectively. There are no segregation requirements for
assets related to forward trading.
As of March 31, 1996 and December 31, 1995, the Partnership's open forward
contracts mature within three months but open futures contracts mature within
one year.
At March 31, 1996 and December 31, 1995, gross contract amounts of open
futures and forward contracts are:
March 31, December 31,
1996 1995
----------- ------------
Currency Forward Contracts:
Commitments to purchase $29,361,456 $19,623,150
Commitments to sell $43,536,153 $29,195,847
Currency Futures Contracts:
Commitments to purchase $ 661,038 $ 440,660
Commitments to sell $ 2,770,625 $ 5,021,700
Financial Futures Contracts:
Commitments to purchase $14,072,843 $70,094,468
Commitments to sell $66,659,090 $11,556,783
Commodity Futures Contracts:
Commitments to purchase $ 906,840 $ 537,121
Commitments to sell $ 1,077,760 $ 1,300,800
Included in the gross forward contract amounts are offsetting commitments to
purchase and to sell the same currency on the same date in the future. The
commitments are economically offsetting but are not, as a technical matter,
offset in the forward market until the settlement date.
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
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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 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 March 31, 1996 and December 31, 1995, the fair value of futures and
forward contracts were:
March 31, 1996 December 31, 1995
------------------------ ------------------------
Fair Value Fair Value
------------------------ ------------------------
Assets Liabilities Assets Liabilities
-------- ----------- -------- -----------
Futures Contracts:
Domestic exchanges
Commodities $ 29,200 $ (9,153) $ 54,057 $ (600)
Financial 181,056 (1,150) 116,513 --
Currencies 35,508 (1,838) 5,771 (23,988)
Foreign exchanges
Financial 157,975 (8,303) 358,529 (850)
Forward Contracts:
Currencies 285,479 (434,514) 321,721 (417,023)
-------- ----------- -------- -----------
$689,218 $ (454,958) $856,591 $ (442,461)
-------- ----------- -------- -----------
-------- ----------- -------- -----------
The following table represents the average fair value of futures and forward
contracts during the three months ended March 31, 1996 and 1995, respectively.
Three months ended Three months ended
March 31, 1996 March 31, 1995
-------------------------- --------------------------
Average Fair Value Average Fair Value
-------------------------- --------------------------
Assets Liabilities Assets Liabilities
---------- ----------- ---------- -----------
Futures Contracts:
Domestic exchanges
Commodities $ 27,654 $ (19,086) $ 123,035 $ (9,540)
Financial 132,460 (1,188) 109,961 (4,391)
Currencies 82,499 (13,310) 250,892 (316,732)
Foreign exchanges
Financial 342,470 (31,757) 420,232 (20,911)
Forward Contracts:
Currencies 497,556 (428,024) 2,086,558 (1,369,390)
---------- ----------- ---------- -----------
$1,082,639 $ (493,365) $2,990,678 $(1,720,964)
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
6
The following table represents the net realized gains (losses) and the change
in unrealized gains/losses of futures and forward contracts during the three
months ended March 31, 1996 and 1995, respectively.
Three months ended March 31, 1996 Three months ended March 31, 1995
----------------------------------------------- ------------------------------------------------
Change in Change in
Net Realized Unrealized Net Realized Unrealized
Gains (Losses) Gains/Losses Total Gains (Losses) Gains/Losses Total
-------------- -------------- --------- -------------- -------------- ----------
Futures Contracts:
Domestic exchanges
Commodities $ (46,494) $ (33,410) $ (79,904) $ 110,765 $ (158,229) $ (47,464)
Financial 88,231 63,393 151,624 175,156 (62,188) 112,968
Currencies 94,593 51,881 146,474 336,347 449,042 785,389
Foreign exchanges
Financial (105,210) (208,009) (313,219) 1,660,384 (317,735) 1,342,649
Currencies (170,121) -- (170,121) 622,359 -- 622,359
Forward Contracts:
Currencies (74,231) (53,725) (127,956) 847,972 3,602,039 4,450,011
-------------- -------------- --------- -------------- -------------- ----------
$ (213,232) $ (179,870) $(393,102) $3,752,983 $3,512,929 $7,265,912
-------------- -------------- --------- -------------- -------------- ----------
-------------- -------------- --------- -------------- -------------- ----------
7
PRUDENTIAL-BACHE CAPITAL RETURN FUTURES FUND 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 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 the inception of the
Partnership, sixty percent of the net proceeds was allocated to commodities
trading activity and forty percent was placed in reserve and invested in
investment grade interest-bearing obligations (``Reserve Assets''). On June 30,
1994, the Reserve Assets matured and the resulting proceeds were allocated to
commodities trading.
As of March 31, 1996, 100% of the Partnership's total net assets were
allocated to commodities trading. A significant portion of the net asset value
was held in U.S. Treasury bills (which represented approximately 75% 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 will continue to own
such liquid assets to be used as margin.
The percentage that U.S. Treasury bills bears to the net asset value varies
each day, and from month to month, as the market value of commodity interests
change. The balance of the net asset value 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 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 manager 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 and the general partner recorded for the
three months ended March 31, 1996 were $616,475 and $557,268, respectively.
Redemptions by limited partners and the general partner from commencement of
operations, May 12, 1989, through March 31, 1996 totalled $136,332,102 and
$1,558,340, 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 March 31, 1996 was $120.83, a decrease of
4.25% from the December 31, 1995 net asset value per Unit of $126.19.
January's performance was positive with trading profits recognized in the
currency, financial and stock indices sectors, but these were partially offset
by losses in the energy and metals sectors. The primary influence in the markets
was the U.S. dollar which rose against most currencies and hit its highest level
in two years against the Japanese yen. Trading in foreign exchange, particularly
in selling the Japanese yen, Swiss franc and German mark, generated the majority
of profits. Interest rate markets also provided profit opportunities as European
bonds rallied during the month. As a result, positions in French, German and
Italian bonds posted gains. Trading in stock indices was profitable overall,
particularly in the Nikkei. In the non-financial sectors, crude oil prices
plummeted in January, reversing a lengthy uptrend that had fueled
8
performance for several prior months. As a result, crude oil positions were
negatively impacted and losses were incurred. Late in the month, gold began to
move up strongly from the increasingly narrow price range below $400 where it
had traded for several years. Buying gold reaped profits, but these were
partially offset by losses in silver.
The Partnership's performance was negative in the month of February. Small
gains in the energies sector were offset by losses in the currencies, stock
indices, financials, and metals sectors. After an impressive start to the year,
the U.S. dollar slumped against major currencies in February despite efforts by
the Bank of Japan to support the dollar against the yen, resulting in
unprofitable currency positions. Global bonds reversed a long-term trend of
declining interest rates, negatively impacting positions in the European and
Japanese bond markets. The price of gold fell back below the $400 level only one
month after breaking that threshold for the first time in over two years,
producing trading losses in that area. Prices in the energies sector remained
strong for most of February but weakened at month's end as stronger than
anticipated inventories and forecasts of warmer weather took a toll. Crude oil
prices recovered mid-February from a previous decline only to tumble again at
month end, which negatively impacted positions. Trading in heating oil was
profitable.
The Partnership's performance was negative in the month of March. Gains in
the energies and currencies sectors were offset by losses in the financials,
stock indices, and metals sectors. Crude oil prices, which had been suppressed
by the expectation of a United Nations deal with Iraq for a humanitarian sale of
oil, rose again in March as it became evident that the deal would not occur
before the summertime demand for gasoline. In the currency markets, positions
were most profitable in the Japanese yen, which weakened versus the U.S. dollar
as tensions between China and Taiwan eased. Trading was volatile in the
financials sector, reflecting investors' confusion over the state of the U.S.
economy and uncertainty over the direction of German and Japanese interest
rates. The Partnership posted losses in the Japanese interest rate markets.
Japanese financial markets were affected by news of significant loan losses by
Japanese banks and talk of a possible government bailout.
Interest income from U.S. Treasury bills for the three months ended March 31,
1996 decreased by approximately $31,000 as compared to the same period in 1995
due to the effect of redemptions on the funds available for investment in U.S.
Treasury bills as well as a decrease in interest rates in 1996.
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 $11,000 for the three months ended March
31, 1996 as compared to the same period in 1995 primarily due to the effect of
redemptions on the monthly net asset values.
All trading decisions are currently made by John W. Henry & Co., 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 $30,000 for the three
months ended March 31, 1996 as compared to the same period in 1995 primarily due
to the effect of redemptions on the monthly net asset values.
Incentive fees are based on New High Net Trading Profits generated by the
Trading Manager, as defined in the Advisory Agreement between the Partnership,
the General Partner and the Trading Manager. No incentive fees were earned for
the three months ended March 31, 1996 but approximately $438,000 was earned for
the three months ended March 31, 1995.
General and administrative expenses were unchanged for the three months ended
March 31, 1996 as compared to the same period in 1995. These expenses include
reimbursements of cost 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.
9
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 January 26, 1989 as amended and restated as of March
15, 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 Annual Report on Form
10-K for the period ended December 31, 1989)
4.3 Request for Redemption. (Incorporated by reference to
Exhibit 4.3 to the Registrant's Annual Report on Form
10-K for the period ended December 31, 1989)
10.16 Form of Foreign Currency Addendum to Brokerage Agreement
between the Registrant and Prudential Securities
Incorporated (filed herewith)
27 Financial Data Schedule (filed herewith)
(b) Reports on Form 8-K--
No reports on Form 8-K were filed for the period covered by this
report.
10
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 thereunto duly authorized.
Prudential-Bache Capital Return Futures Fund L.P.
By: Seaport Futures Management, Inc.
A Delaware corporation, General Partner
By: /s/ Steven Carlino Date: May 15, 1996
----------------------------------------
Steven Carlino
Vice President
Chief Accounting Officer for the
Registrant
11