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, 1996
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: 0-19070
PRUDENTIAL-BACHE CAPITAL RETURN FUTURES FUND 3, L.P.
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(Exact name of Registrant as specified in its charter)
Delaware 13-3544867
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
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 3, L.P.
(a limited partnership)
STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
June 30, December 31,
1996 1995
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ASSETS
Equity in commodity trading accounts:
Cash $ 4,044,325 $ 5,764,135
U.S. Treasury bills, at amortized cost 14,762,823 15,124,874
Net unrealized gain on open commodity positions 707,868 1,340,794
Options, at market -- 41,162
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Total assets $19,515,016 $22,270,965
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LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Redemptions payable $ 551,302 $ 877,911
Incentive fees payable 108,067 74,959
Due to affiliates 76,152 77,692
Accrued expenses 68,143 63,404
Management fees payable 46,884 53,350
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Total liabilities 850,548 1,147,316
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Commitments
Partners' capital
Limited partners (124,075 and 131,345 units outstanding) 18,477,717 20,572,015
General partner (1,254 and 3,522 units outstanding) 186,751 551,634
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Total partners' capital 18,664,468 21,123,649
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Total liabilities and partners' capital $19,515,016 $22,270,965
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Net asset value per limited and general partnership unit
(``Units'') $ 148.92 $ 156.63
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The accompanying notes are an integral part of these statements
2
PRUDENTIAL-BACHE CAPITAL RETURN FUTURES FUND 3, L.P.
(a limited partnership)
STATEMENTS OF OPERATIONS
(Unaudited)
Six months ended Three months ended
June 30, June 30,
-------------------------- -------------------------
1996 1995 1996 1995
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REVENUES
Net realized gain on commodity transactions $ 675,198 $ 3,699,158 $ 187,626 $4,129,275
Change in net unrealized gain/loss on open
commodity positions (636,363) (187,041) (108,409) (1,290,157)
Interest from U.S. Treasury bills 374,863 334,989 175,578 176,712
Realized gain on reserve assets -- 7,370 -- 3,665
Change in net unrealized gain on reserve
assets -- (91,359) -- (70,052)
Interest from reserve assets -- 506,190 -- 250,187
----------- ----------- ----------- ----------
413,698 4,269,307 254,795 3,199,630
----------- ----------- ----------- ----------
EXPENSES
Commissions 767,602 450,685 371,119 238,083
Other transaction fees 93,757 122,367 36,773 85,079
Letter of credit fees -- 103,003 -- 50,035
Management fees 296,482 202,681 144,160 108,265
Incentive fees 175,422 131,688 108,067 131,688
General and administrative 98,616 77,953 49,669 44,013
Amortization of organizational costs -- 6,245 -- 2,435
----------- ----------- ----------- ----------
1,431,879 1,094,622 709,788 659,598
----------- ----------- ----------- ----------
Net income (loss) $(1,018,181) $ 3,174,685 $ (454,993) $2,540,032
----------- ----------- ----------- ----------
----------- ----------- ----------- ----------
ALLOCATION OF NET INCOME (LOSS)
Limited partners $ (998,924) $ 3,112,533 $ (450,441) $2,489,748
----------- ----------- ----------- ----------
----------- ----------- ----------- ----------
General partner $ (19,257) $ 62,152 $ (4,552) $ 50,284
----------- ----------- ----------- ----------
----------- ----------- ----------- ----------
NET INCOME (LOSS) PER WEIGHTED AVERAGE
LIMITED AND GENERAL PARTNERSHIP UNIT
Net income (loss) per weighted average
limited and general partnership unit $ (7.72) $ 17.34 $ (3.53) $ 14.28
----------- ----------- ----------- ----------
----------- ----------- ----------- ----------
Weighted average number of limited and
general partnership units outstanding 131,949 183,124 129,031 177,909
----------- ----------- ----------- ----------
----------- ----------- ----------- ----------
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STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(Unaudited)
LIMITED GENERAL
UNITS PARTNERS PARTNER TOTAL
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Partners' capital--December 31, 1995 134,867 $20,572,015 $551,634 $21,123,649
Net loss -- (998,924) (19,257) (1,018,181)
Redemptions (9,538) (1,095,374) (345,626) (1,441,000)
------- ----------- -------- -----------
Partners' capital--June 30, 1996 125,329 $18,477,717 $186,751 $18,664,468
------- ----------- -------- -----------
------- ----------- -------- -----------
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The accompanying notes are an integral part of these statements
3
PRUDENTIAL-BACHE CAPITAL RETURN FUTURES FUND 3, L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 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 3, L.P. (the
``Partnership'') as of June 30, 1996 and the results of its operations for the
six and three months ended June 30, 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 filed with the Securities and
Exchange Commission for the year ended December 31, 1995 (the ``Annual
Report'').
Certain balances for prior periods have been reclassified to conform with
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 six months ended June
30, 1996 and 1995 were:
1996 1995
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Commissions and letter of credit fees $767,602 $ 473,572
General and administrative 50,247 32,839
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$817,849 $ 506,411
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The costs incurred for these services for the three months ended June 30,
1996 and 1995 were:
1996 1995
----------------------------------------------------------------------------------------
Commissions and letter of credit fees $371,119 $ 249,201
General and administrative 22,366 22,750
------------ -----------
$393,485 $ 271,951
------------ -----------
------------ -----------
The Partnership maintains its trading and cash accounts with Prudential
Securities Incorporated (``PSI''), the Partnership's commodity broker and an
affiliate of the General Partner. Approximately seventy-five (75%) of the
Partnership's trading assets is invested 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.
Additionally, the Partnership maintained a 9.16% guaranteed investment
contract (``GIC'') which matured on June 30, 1995 with The Prudential Asset
Management Company, Inc., an affiliate of the General Partner. Interest earned
on the GIC for the six and three months ended June 30, 1995 was $502,511 and
248,403, respectively.
4
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 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 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
June 30, 1996 and December 31, 1995, such segregated assets totalled $18,941,376
and $20,592,976, 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 $616,364 and $1,677,989 at June 30, 1996 and December 31,
1995, respectively. There are no segregation requirements for assets related to
forward trading.
As of June 30, 1996 and December 31, 1995, the Partnership's open futures,
forward and options contracts mature within one year.
At June 30, 1996 and December 31, 1995, gross contract amounts of open
futures, forward and options contracts are:
June 30, December 31,
1996 1995
------------ ------------
Currency Futures Contracts:
Commitments to sell $26,178,263 $ --
Financial Futures Contracts:
Commitments to purchase $60,794,994 $211,622,618
Commitments to sell $29,854,442 $109,152,492
Other Futures, Forward
and Options Contracts:
Commitments to purchase $10,850,841 $ 19,550,940
Commitments to sell $ 6,749,930 $ 1,851,942
5
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, 1996 and December 31, 1995, the fair value of futures, forward
and options contracts was:
June 30, 1996 December 31, 1995
-------------------------------- --------------------------
Fair Value Fair Value
-------------------------------- --------------------------
Assets Liabilities Assets Liabilities
-------------- -------------- ---------- ------------
Futures Contracts:
Domestic exchanges
Financial $ -- $-- $ 247,938 $210,938
Currencies 76,363 127,600 -- --
Other 701,073 13,464 831,073 169,415
Foreign exchanges
Financial 173,795 59,575 701,932 3,725
Other -- -- 20,892 76,963
Forward Contracts:
Other -- 42,724 -- --
Options Contracts:
Domestic exchanges
Other -- -- 41,162 --
-------------- -------------- ---------- ------------
$ 951,231 $243,363 $1,842,997 $461,041
-------------- -------------- ---------- ------------
-------------- -------------- ---------- ------------
The following table presents the average fair value of futures, forward and
options contracts during the six months ended June 30, 1996 and 1995,
respectively.
Six months ended Six months ended
June 30, 1996 June 30, 1995
-------------------------------- ------------------------
Average Fair Value Average Fair Value
-------------------------------- ------------------------
Assets Liabilities Assets Liabilities
-------------- -------------- -------- ------------
Futures Contracts:
Domestic exchanges
Financial $ 65,054 $ 49,040 $ -- $ --
Currencies 146,733 26,332 -- --
Other 876,164 135,012 -- --
Foreign exchanges
Financial 194,307 22,885 827,339 60,241
Other 59,573 85,958 -- --
Forward Contracts:
Other 2,268 4,523 -- --
Options Contracts:
Domestic exchanges
Other 32,773 -- -- --
-------------- -------------- -------- ------------
$1,376,872 $323,750 $827,339 $ 60,241
-------------- -------------- -------- ------------
-------------- -------------- -------- ------------
6
The following table presents the average fair value of futures, forward and
options contracts during the three months ended June 30, 1996 and 1995,
respectively.
Three months ended Three months ended
June 30, 1996 June 30, 1995
------------------------ --------------------------
Average Fair Value Average Fair Value
------------------------ --------------------------
Assets Liabilities Assets Liabilities
-------- ----------- ---------- -----------
Futures Contracts:
Domestic exchanges
Financial $ 38,927 $ -- $ -- $ --
Currencies 167,695 26,332 -- --
Other 562,160 65,996 -- --
Foreign exchanges
Financial 121,789 20,542 1,258,620 86,384
Other 62,119 37,989 -- --
Forward Contracts:
Other 2,592 4,523 -- --
Options Contracts:
Domestic exchanges
Other 31,574 -- -- --
-------- ----------- ---------- -----------
$986,856 $ 155,382 $1,258,620 $86,384
-------- ----------- ---------- -----------
-------- ----------- ---------- -----------
The following table presents the net realized gains (losses) and the change
in net unrealized gains/losses of futures, forward and options contracts during
the six months ended June 30, 1996 and 1995, respectively:
Six months ended June 30, 1996 Six months ended June 30, 1995
---------------------------------------------- ------------------------------------------------
Change in Change in
Net Realized Net Unrealized Net Realized Net Unrealized
Gains (Losses) Gains/Losses Total Gains Gains/Losses Total
-------------- ------------ ---------- -------------- -------------- ----------
Futures Contracts:
Domestic exchanges
Financial $ (11,167) $ (37,000) $ (48,167) $ -- $ -- $ --
Currencies 436,717 (51,237) 385,480 -- -- --
Other 1,490,391 25,951 1,516,342 -- -- --
Foreign exchanges
Currencies -- -- -- 89,353 -- 89,353
Financial (959,072) (583,987) (1,543,059) 3,609,805 (187,041) 3,422,764
Other (119,906) 13,347 (106,559) -- -- --
Forward Contracts:
Other 10,680 -- 10,680 -- -- --
Options Contracts:
Domestic exchanges
Currencies (34,125) -- (34,125) -- -- --
Other (118,632) (3,437) (122,069) -- -- --
Foreign exchanges
Other (19,688) -- (19,688) -- -- --
-------------- ------------ ---------- -------------- -------------- ----------
$ 675,198 $ (636,363) $ 38,835 $3,699,158 $ (187,041) $3,512,117
-------------- ------------ ---------- -------------- -------------- ----------
-------------- ------------ ---------- -------------- -------------- ----------
7
The following table presents the net realized gains (losses) and the change
in net unrealized gains/losses of futures, forward and options contracts during
the three months ended June 30, 1996 and 1995, respectively:
Three months ended June 30, 1996 Three months ended June 30, 1995
--------------------------------------------- ------------------------------------------------
Change in Change in
Net Realized Net Unrealized Net Realized Net Unrealized
Gains (Losses) Gains/Losses Total Gains Gains/Losses Total
-------------- ------------ --------- -------------- -------------- ----------
Futures Contracts:
Domestic exchanges
Financial $ (232,703) $ (969) $(233,672) $ -- $ -- $ --
Currencies 545,032 (66,226) 478,806 -- -- --
Other 732,786 (94,638) 638,148 -- -- --
Foreign exchanges
Financial (732,456) 35,946 (696,510) 4,039,922 (1,290,157) 2,749,765
Currencies -- -- -- 89,353 -- 89,353
Other (63,836) 1,658 (62,178) -- -- --
Forward Contracts:
Other (13,322) 15,784 2,462 -- --
Options Contracts:
Domestic exchanges
Currencies (34,125) -- (34,125) -- -- --
Other (13,750) 36 (13,714) -- -- --
-------------- ------------ --------- -------------- -------------- ----------
$ 187,626 $ (108,409) $ 79,217 $4,129,275 $ (1,290,157) $2,839,118
-------------- ------------ --------- -------------- -------------- ----------
-------------- ------------ --------- -------------- -------------- ----------
8
PRUDENTIAL-BACHE CAPITAL RETURN FUTURES FUND 3, 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 30, 1990 with gross proceeds of
$65,520,000. After accounting for organizational and offering costs, the
Partnership's net proceeds were $64,222,750. At the inception of the
Partnership, sixty percent of the net proceeds was allocated to trading activity
and forty percent was placed in reserve and invested in investment grade
interest-bearing obligations (``Reserve Assets'').
On June 30, 1995, the letter of credit expired and the Reserve Assets became
available for commodities trading. During July 1995, these assets were allocated
for trading to Willowbridge Associates Inc. (``Willowbridge''), a new
independent commodity trading manager to the Partnership. As such, at June 30,
1996, 100% of the Partnership's net assets were allocated to commodities trading
(the ``Adjusted Net Asset Value''). A significant portion of the Adjusted Net
Asset Value was held in U.S. Treasury bills (which represented approximately 77%
of the Adjusted 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 value 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 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.
The Partnership does not have, nor does it expect to have, any capital
assets.
Redemptions by limited partners recorded for the six and three months ended
June 30, 1996 were $1,095,374 and $545,792, respectively. Redemptions by the
General Partner recorded for the six and three months ended June 30, 1996 were
$345,626 and $5,510, respectively. Redemptions by limited partners and the
General Partner from commencement of operations, May 30, 1990, through June 30,
1996 totalled $58,392,565 and $696,171, respectively. Future redemptions will
impact the amount of funds available for investment in commodity contracts in
subsequent periods.
Results of Operations
The net asset value per Unit as of June 30, 1996 was $148.92, a decrease of
4.92% from the December 31, 1995 net asset value per Unit of $156.63.
The Partnership's performance was positive in the month of April. Profits
earned in the grains, currencies and energies sectors offset losses in the
financials, metals, meats and stock indices sectors. Profits were reaped in the
grains sector as prices rose on strong demand, especially from the Far East.
Prices of wheat and corn rose further due to dry weather conditions in parts of
the United States. In the currencies sector,
9
gains were derived from the strength of the U.S. dollar in relation to the
Deutsche mark and the Swiss franc. In the financials sector, losses were taken
in buying British and Japanese bond positions and selling Australian, British,
Canadian, German, Italian and Swiss bond positions. Except for in Japan, world
bond prices reacted negatively to a fall in U.S. bond prices as January U.S.
non-farm payroll employment was much greater than market expectations and the
U.S. Federal Open Market Committee voted to keep the federal funds rate
unchanged at its February meeting.
The Partnership's performance was negative in the month of May. Profits
earned in the grains sector were offset by losses in the currencies, softs,
financials, energies, metals and stock indices sectors. In the grain markets,
profits in corn offset losses in wheat and soybean by-products. Corn prices rose
steadily during most of May as heavy rains in the U.S. prevented farmers from
planting their spring crops. However, late in the month, forecasts for clear
weather in these regions pushed corn prices down, thereby reducing profits. In
the energies sector, political pressure and prospects of increased supply
brought crude oil and heating oil prices down causing losses in crude oil
positions. In the financials sector, U.S. bond markets remained volatile,
affecting bond markets worldwide, as investors struggled to interpret
conflicting U.S. economic reports. Losses were incurred in British, French, and
Australian bond positions. European bond prices traded sideways to higher in
reaction to U.S. interest rates failing to surpass 7%. In France, moderate
growth in the Consumer Price Index and first quarter Gross Domestic Product
added support to bond prices. British bond prices remained under pressure due to
stronger than expected producer and retail price increases. Weaker than expected
March employment growth and a smaller than expected increase in consumer prices
added support to Australian bond prices. Discussions by the Bank of Japan to
keep interest rates unchanged caused Japanese bond prices to trade higher.
The Partnership's performance was negative in the month of June. Profits
earned in the currencies, energies and metals sectors were offset by losses in
the grains, financials and stock indices sectors. In the financials sector,
losses were taken in long French, German and Japanese bond positions and short
British, French, German and Japanese bond positions. Volatility in the global
interest rate markets negatively impacted performance. Bond markets worldwide
largely reacted to the U.S. bond market which remained particularly sensitive to
U.S. economic data and hints of inflation. In the U.S. financial markets,
interest rates rose sharply on a very strong Labor Department non-farm payroll
figure. Later in the month, the market reflected conflicting expectations of the
degree of U.S. economic strength and the level of inflation. The Partnership
also incurred losses in the grains sector. More favorable weather conditions
during June and reports of cancellations of some grain export orders caused
grain futures to decline during the month. However, at month-end, prices were
somewhat boosted by new indications of tight grain supply and hot weather
conditions in some of the grain producing areas. In the currencies sector, gains
in the Japanese yen offset losses in the German mark.
As discussed in Liquidity and Capital Resources above, the letter of credit
expired on June 30, 1995. As a result, there were no letter of credit fees
charged during 1996. With the expiration of the letter of credit, Reserve Assets
previously invested primarily in a GIC were allocated to commodities trading
thus increasing the Partnership's Adjusted Net Asset Value, including its
investments in U.S. Treasury bills. This increase in U.S. Treasury bills
resulted in an increase of approximately $40,000 in interest income from U.S.
Treasury bills for the six months ended June 30, 1996 as compared to the same
period in 1995. However, the effect of poor trading performance in 1996 and
redemptions on the funds available for investment in U.S. Treasury bills, as
well as a decrease in interest rates in 1996 versus 1995 resulted in a decrease
in interest income from U.S. Treasury bills of approximately $1,000 for the
three months ended June 30, 1996 as compared to the same period in 1995.
Additionally, interest income from Reserve Assets was eliminated following the
allocation of Reserve Assets to commodities trading and the interest rate on
Reserve Assets was higher than the interest rates on U.S. Treasury bills. As a
result of the above, interest income (from both U.S. Treasury bills and Reserve
Assets) decreased by approximately $466,000 and $251,000, respectively, for the
six and three months ended June 30, 1996 as compared to the same periods in
1995.
Commissions are calculated on the Adjusted Net Asset Value on the first day
of each month and, therefore, vary based on monthly trading performance and
redemptions. The Adjusted Net Asset Value increased when the letter of credit
expired and Reserve Assets were allocated to commodities trading as discussed
above. However, the commission rate decreased by 1/2 of 1% from 8% (inclusive of
letter of credit fees) to 7.5% effective July 1, 1995. The combination of these
factors caused commissions plus letter of credit fees to increase by
approximately $214,000 and $83,000, respectively, for the six and three months
ended June 30, 1996 as compared to the same periods in 1995.
10
Other transaction fees consist of National Futures Association, exchange,
floor brokerage and clearing fees which are based on the number of trades the
trading managers execute. Other transaction fees decreased by approximately
$29,000 and $48,000, respectively, for the six and three months ended June 30,
1996 as compared to the same periods in 1995 primarily due to decreased trading
volume.
All trading decisions are currently being made by Sjo, Inc. and Willowbridge
(the ``Trading Managers''). Management fees are calculated on the Adjusted Net
Asset Value allocated to each Trading Manager as of the end of each month and,
therefore, are affected by trading performance and redemptions. Additionally,
the Adjusted Net Asset Value increased when Reserve Assets were allocated to
commodities trading as discussed above. As a result, management fees increased
by approximately $94,000 and $36,000 for the six and three months ended June 30,
1996 as compared to the same periods in 1995.
Incentive fees are based on New High Net Trading Profits generated by each
Trading Manager, as defined in the Advisory Agreements between the Partnership,
the General Partner and each Trading Manager. Despite overall trading losses for
the Partnership during 1996, Willowbridge generated profits, earning incentive
fees of approximately $175,000 and $108,000, respectively for the six and three
months ended June 30, 1996. Incentive fees earned during the three months ended
June 30, 1995 was approximately $132,000.
General and administrative expenses increased by approximately $21,000 and
$6,000, respectively, for the six and three months ended June 30, 1996 as
compared to the same periods in 1995. 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 increases were primarily due
to the timing of certain expense accruals recorded in the respective periods.
11
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 November 27, 1989 as amended and restated as of January
30, 1990 (incorporated by reference to Exhibits 3.1 and 4.1
to the Registrant's Quarterly Report on Form 10-Q for the
period ended June 30, 1990)
4.2 Subscription Agreement (incorporated by reference to
Exhibit 4.2 to the Registrant's Registration
Statement on Form S-1, File No. 33-32355)
4.3 Request for Redemption (incorporated by
reference to Exhibit 4.3 to the Registrant's
Registration Statement on Form S-1, File No.
33-32355)
27.1 Financial Data Schedule (filed
herewith)
(b) Reports on Form 8-K--Registrant's Current Report on Form 8-K dated
May 14, 1996, as filed with the Securities and Exchange Commission on
May 16, 1996, relating to Item 4 regarding the change in the
Registrant's certifying accountant from Deloitte & Touche LLP to
Price Waterhouse LLP.
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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 3, L.P.
By: Seaport Futures Management, Inc.
A Delaware corporation, General Partner
By: /s/ Steven Carlino Date: August 14, 1996
----------------------------------------
Steven Carlino
Vice President
Chief Accounting Officer for the
Registrant
13