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, 1997
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 Identification No.)
of incorporation or organization)
One New York Plaza, 14th 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,
1997 1996
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ASSETS
Equity in commodity trading accounts:
Cash and cash equivalents $18,236,654 $22,358,921
Net unrealized gain on open commodity positions 857,084 341,870
Options, at market 55,589 --
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Total assets $19,149,327 $22,700,791
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------------- ------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Redemptions payable $ 390,719 $ 991,115
Due to affiliates 70,650 77,638
Accrued expenses 42,408 62,974
Management fees payable 46,050 54,531
Incentive fees payable -- 256,496
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Total liabilities 549,827 1,442,754
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Commitments
Partners' capital
Limited partners (110,421 and 115,048 units outstanding) 18,413,400 21,045,294
General partner (1,116 and 1,163 units outstanding) 186,100 212,743
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Total partners' capital 18,599,500 21,258,037
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Total liabilities and partners' capital $19,149,327 $22,700,791
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Net asset value per limited and general partnership unit ('Units') $ 166.76 $ 182.93
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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,
-------------------------- ------------------------
1997 1996 1997 1996
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REVENUES
Net realized gain (loss) on commodity
transactions $(1,263,957) $ 675,198 $ (290,619) $ 187,626
Change in net unrealized gain on open
commodity positions 512,320 (636,363) (932,429) (108,409)
Interest from U.S. Treasury bills 382,094 374,863 194,109 175,578
----------- ----------- ----------- ---------
(369,543) 413,698 (1,028,939) 254,795
----------- ----------- ----------- ---------
EXPENSES
Commissions 758,588 767,602 369,092 371,119
Other transaction fees 121,560 93,757 57,747 36,773
Management fees 290,834 296,482 139,390 144,160
Incentive fees 226,785 175,422 -- 108,067
General and administrative 78,480 98,616 32,675 49,669
----------- ----------- ----------- ---------
1,476,247 1,431,879 598,904 709,788
----------- ----------- ----------- ---------
Net loss $(1,845,790) $(1,018,181) $(1,627,843) $(454,993)
----------- ----------- ----------- ---------
----------- ----------- ----------- ---------
ALLOCATION OF NET LOSS
Limited partners $(1,827,299) $ (998,924) $(1,611,533) $(450,441)
----------- ----------- ----------- ---------
----------- ----------- ----------- ---------
General partner $ (18,491) $ (19,257) $ (16,310) $ (4,552)
----------- ----------- ----------- ---------
----------- ----------- ----------- ---------
NET LOSS PER WEIGHTED AVERAGE LIMITED AND
GENERAL PARTNERSHIP UNIT
Net loss per weighted average limited and
general partnership unit $ (16.04) $ (7.72) $ (14.29) $ (3.53)
----------- ----------- ----------- ---------
----------- ----------- ----------- ---------
Weighted average number of limited and general
partnership units outstanding 115,046 131,949 113,880 129,031
----------- ----------- ----------- ---------
----------- ----------- ----------- ---------
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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, 1996 116,211 $21,045,294 $212,743 $21,258,037
Net loss -- (1,827,299) (18,491) (1,845,790)
Redemptions (4,674) (804,595) (8,152) (812,747)
------- ----------- -------- -----------
Partners' capital--June 30, 1997 111,537 $18,413,400 $186,100 $18,599,500
------- ----------- -------- -----------
------- ----------- -------- -----------
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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, 1997
(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, 1997 and the results of its operations for the six
and three months ended June 30, 1997 and 1996. 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, 1996 (the 'Annual Report').
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, 1997 and 1996 were:
1997 1996
----------------------------------------------------------------------------------------
Commissions $758,588 $ 767,602
General and administrative 50,453 50,247
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$809,041 $ 817,849
------------ -----------
------------ -----------
The costs incurred for these services for the three months ended June 30,
1997 and 1996 were:
1997 1996
----------------------------------------------------------------------------------------
Commissions $369,092 $ 371,119
General and administrative 24,781 22,366
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$393,873 $ 393,485
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------------ -----------
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 percent (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.
In connection with the Partnership's interbank transactions, PSI engages in
foreign currency forward transactions with the Partnership and an affiliate of
PSI who, as principal, attempts to earn a profit on the bid-ask spreads (which
must be competitive) on any foreign currency forward transactions entered into
between the Partnership and PSI, on the one hand, and PSI and such affiliate on
the other. In connection with its trading of foreign currencies in the interbank
market, PSI may arrange bank lines of credit at major international banks. To
the extent such lines of credit are arranged, PSI does not charge the
Partnership for maintaining such lines of credit, but requires margin deposits
with respect to forward contract transactions.
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 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, 1997 and December 31, 1996, such segregated assets totalled $15,332,329
and $20,318,217, 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 $3,816,998 and $2,382,574 at June 30, 1997 and December
31, 1996, respectively. There are no segregation requirements for assets related
to forward trading.
As of June 30, 1997 and December 31, 1996, the Partnership's open futures and
options contracts mature within one year.
5
At June 30, 1997 and December 31, 1996, gross contract amounts of open
futures and options contracts are:
June 30, December 31,
1997 1996
------------ ------------
Financial Futures Contracts:
Commitments to purchase $229,828,468 $229,278,898
Commitments to sell $ 30,598,217 $ 41,744,989
Currency Futures and
Options Contracts:
Commitments to purchase $ 8,625 $ --
Commitments to sell $ 13,564,725 $ --
Other Futures and
Options Contracts:
Commitments to purchase $ 11,382,785 $ 6,484
Commitments to sell $ 166,285 $ 227,403
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 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, 1997 and December 31, 1996, the fair value of futures and options
contracts was:
June 30, 1997 December 31, 1996
-------------------------------- ------------------------
Fair Value Fair Value
-------------------------------- ------------------------
Assets Liabilities Assets Liabilities
-------------- -------------- -------- ------------
Futures Contracts:
Domestic exchanges
Currencies $ 16,975 $-- $ -- $ --
Other 4,045 -- -- --
Foreign exchanges
Financial 452,346 72,067 333,578 212,627
Other 550,532 94,747 227,403 6,484
Options Contracts:
Domestic exchanges
Currencies 9,400 -- -- --
Foreign exchanges
Other 46,189 -- -- --
-------------- -------------- -------- ------------
$1,079,487 $166,814 $560,981 $219,111
-------------- -------------- -------- ------------
-------------- -------------- -------- ------------
6
The following table presents the average fair value of futures, forward and
options contracts during the six months ended June 30, 1997 and 1996,
respectively.
Six months ended Six months ended
June 30, 1997 June 30, 1996
-------------------------------- --------------------------
Average Fair Value Average Fair Value
-------------------------------- --------------------------
Assets Liabilities Assets Liabilities
-------------- -------------- ---------- ------------
Futures Contracts:
Domestic exchanges
Financial $ 102,793 $-- $ 65,054 $ 49,040
Currencies 15,421 314 146,733 26,332
Other 219,126 66,384 876,164 135,012
Foreign exchanges
Financial 292,133 150,994 194,307 22,885
Other 475,853 46,446 59,573 85,958
Forward Contracts:
Other -- -- 2,268 4,523
Options Contracts:
Domestic exchanges
Currencies 1,343 -- -- --
Other 10,898 -- 32,773 --
Foreign exchanges
Other 6,994 -- -- --
-------------- -------------- ---------- ------------
$1,124,561 $264,138 $1,376,872 $323,750
-------------- -------------- ---------- ------------
-------------- -------------- ---------- ------------
The following table presents the average fair value of futures, forward and
options contracts during the three months ended June 30, 1997 and 1996,
respectively.
Three months ended Three months ended
June 30, 1997 June 30, 1996
-------------------------- ------------------------
Average Fair Value Average Fair Value
-------------------------- ------------------------
Assets Liabilities Assets Liabilities
---------- ----------- -------- -----------
Futures Contracts:
Domestic exchanges
Financial $ 179,888 $ -- $ 38,927 $ --
Currencies 14,397 -- 167,695 26,332
Other 279,509 57,089 562,160 65,996
Foreign exchanges
Financial 345,905 146,739 121,789 20,542
Other 559,074 53,959 62,119 37,989
Forward Contracts:
Other -- -- 2,592 4,523
Options Contracts:
Domestic exchanges
Currencies 2,350 -- -- --
Other 19,072 -- 31,574 --
Foreign exchanges
Other 11,562 -- -- --
---------- ----------- -------- -----------
$1,411,757 $ 257,787 $986,856 $ 155,382
---------- ----------- -------- -----------
---------- ----------- -------- -----------
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 six months ended June 30, 1997 and 1996, respectively:
Six months ended June 30, 1997 Six months ended June 30, 1996
------------------------------------------------ -------------------------------------------------
Change in Change in
Net Realized Net Unrealized Net Realized Net Unrealized
Gains (Losses) Gains/Losses Total Gains (Losses) Gains/Losses Total
-------------- -------------- ---------- -------------- -------------- -----------
Futures Contracts:
Domestic exchanges
Financial $ (522,806) $ -- $ (522,806) $ (11,167) $ (37,000) $ (48,167)
Currencies 278,855 16,975 295,830 436,717 (51,237) 385,480
Other 205,568 4,045 209,613 1,490,391 25,951 1,516,342
Foreign exchanges
Financial (1,908,723) 259,328 (1,649,395) (959,072) (583,987) (1,543,059)
Other 593,315 234,866 828,181 (119,906) 13,347 (106,559)
Forward Contracts:
Other -- -- -- 10,680 -- 10,680
Options Contracts:
Domestic exchanges
Financial 183,937 -- 183,937 -- -- --
Currencies (11,200) 775 (10,425) (34,125) -- (34,125)
Other (58,181) -- (58,181) (118,632) (3,437) (122,069)
Foreign exchanges
Other (24,722) (3,669) (28,391) (19,688) -- (19,688)
-------------- -------------- ---------- -------------- -------------- -----------
$ (1,263,957) $ 512,320 $ (751,637) $ 675,198 $ (636,363) $ 38,835
-------------- -------------- ---------- -------------- -------------- -----------
-------------- -------------- ---------- -------------- -------------- -----------
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, 1997 and 1996, respectively:
Three months ended June 30, 1997 Three months ended June 30, 1996
------------------------------------------------- -----------------------------------------------
Change in Change in
Net Realized Net Unrealized Net Realized Net Unrealized
Gains (Losses) Gains/Losses Total Gains (Losses) Gains/Losses Total
-------------- -------------- ----------- -------------- -------------- ---------
Futures Contracts:
Domestic exchanges
Financial $ 157,456 $ (670,900) $ (513,444) $ (232,703) $ (969) $(233,672)
Currencies 425,728 16,975 442,703 545,032 (66,226) 478,806
Other (99,057) (378,855) (477,912) 732,786 (94,638) 638,148
Foreign exchanges
Financial (1,052,524) 215,620 (836,904) (732,456) 35,946 (696,510)
Other 368,416 (117,651) 250,765 (63,836) 1,658 (62,178)
Forward Contracts:
Other -- -- -- (13,322) 15,784 2,462
Options Contracts:
Domestic exchanges
Financial (47) -- (47) -- -- --
Currencies (11,200) 775 (10,425) (34,125) -- (34,125)
Other (58,231) (3,250) (61,481) (13,750) 36 (13,714)
Foreign exchange
Other (21,160) 4,857 (16,303) -- -- --
-------------- -------------- ----------- -------------- -------------- ---------
$ (290,619) $ (932,429) $(1,223,048) $ 187,626 $ (108,409) $ 79,217
-------------- -------------- ----------- -------------- -------------- ---------
-------------- -------------- ----------- -------------- -------------- ---------
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.
At June 30, 1997, 100% of the Partnership's 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 80% of the net asset value
prior to redemptions payable) and cash, which are used as margin for the
Partnership's trading in commodities. Inasmuch as the sole business of the
Partnership is to trade in commodities, the Partnership continues to own such
liquid assets to be used as margin.
The percentage that U.S. Treasury bills bears to the total net assets varies
each day, and from month to month, as the market 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, 1997 were $804,595 and $386,550, respectively. Redemptions by the
General Partner recorded for the six and three months ended June 30, 1997 were
$8,152 and $4,169, respectively. Redemptions by limited partners and the General
Partner from commencement of operations, May 30, 1990, through June 30, 1997
totalled $60,786,235 and $720,341, 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, 1997 was $166.76, a decrease of
8.84% from the December 31, 1996 net asset value per Unit of $182.93.
The Partnership's negative performance in the month of April resulted from
losses in the financial, stock index and metal sectors. Profits were earned in
the grain, currency and soft sectors. In the financial sector, losses were taken
in long Australian and Japanese bond positions and short British, Canadian,
French, Japanese, Italian and Spanish bond positions. The aftershock from the
U.S. Federal Reserve's 25 basis point interest rate increase on March 25th
resulted in little movement to higher interest rates. Instead, global bond
prices dropped to 1997 lows in the second week of April and then rallied as
economic reports showing slower economic growth with little inflation caused
U.S. interest rates to fall. In Australia, a bearish
employ-
9
ment report caused a loss in long Australian bond positions. In the grain
sector, positions in soybean meal, soybean oil, soybeans and wheat posted gains.
Grain markets were volatile following advances in February and March. Driving
this volatility were changing expectations about total world grain production
and the intentions of the key grain importing nations.
The Partnership's positive performance in the month of May resulted from
gains in the currency, metal and financial sectors. Losses were experienced in
the grain, index, energy and soft sectors. The largest gains during the month
were achieved in the currency sector as the Partnership participated in the
higher prices of the Japanese yen in relation to the U.S. dollar. The yen rose
against the dollar on the possibility of Japanese central bank intervention in
the currency markets and signs that Japanese growth might be accelerating. There
were also market expectations that interest rates could rise in Japan. The
dollar remained weak as moderate U.S. price data lessened the likelihood of an
increase in interest rates by the Federal Reserve. This was furthered by Federal
Reserve Chairman Alan Greenspan's expectation of slowing economic growth later
in the year. In the metal sector, profits were realized in the base metals, with
copper providing most of the gains due to signs of good demand and indications
of declines in inventories. Additionally, there were mining industry predictions
of shortage due to expected growth in demand later this year and next year.
Offsetting these profitable sectors were the grain markets which fell in price.
Wheat and soybeans were affected the most by the U.S. Agriculture Department's
report that planting was proceeding this year at a near record pace. The report
projected an increase in worldwide wheat production attributable to larger crops
from importing countries and from weather conditions favorable to planting.
The Partnership's negative performance in June resulted from losses in the
metal, grain, currency and energy sectors. Losses were offset somewhat by gains
in the financial, index and soft sectors. In the metal sector, the Partnership
had the greatest losses in copper as it reversed direction mid-month on market
concerns that included a possible seasonal decline in demand in the northern
hemisphere. There was also news that output of Chile's El Teniente mine would
return to normal and that production of Inco's strike-bound Sudbury facility in
Canada might resume production. Aluminum and nickel positions were unprofitable
as well. In the grain sector, the Partnership had losses in soybean and soybean
related positions due to an increase in supply resulting from Brazilian imports.
In the currency sector, losses were incurred in the Swiss franc and the German
mark. Gains in the financial sector helped to mitigate Partnership losses.
Profits were seen in Australian bond positions as well as Euromark, German and
Canadian bond positions. Italian bonds strengthened on improved prospects for
Italy's first-round entry into the European Monetary Union.
Beginning in July, Sjo, Inc., a trading manager to the Partnership,
implemented their enhanced Foreign Financials program. This enhancement adds a
third component that determines market and portfolio weights utilizing a
modified efficient frontier methodology.
Interest income from U.S. Treasury bills increased by $7,231 and $18,531 for
the six and three months ended June 30, 1997 as compared to the same periods in
1996 due to increases in both interest rates and funds invested in U.S. Treasury
bills during 1997 versus 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 $9,014 and $2,027 for the six and three months ended
June 30, 1997 as compared to the same periods in 1996 primarily due to the
effect of redemptions on the monthly net asset values.
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 increased by $27,803 and
$20,974 for the six and three months ended June 30, 1997 as compared to the same
periods in 1996 primarily due to increased trading volume.
All trading decisions are currently being made by Sjo, Inc. and Willowbridge
Associates Inc. (the 'Trading Managers'). Management fees are calculated on the
net asset value allocated to each Trading Manager as of the end of each month
and, therefore, are affected by trading performance and redemptions. Management
fees decreased by $5,648 and $4,770 for the six and three months ended June 30,
1997 as compared to the same periods in 1996 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 each
Trading Manager, as defined in the Advisory Agreements between the Partnership,
the General Partner and each Trading Manager. Despite overall net trading losses
for the Partnership, Willowbridge Associates Inc. generated profits during
10
each of the three months ended March 31, 1997, March 31, 1996 and June 30, 1996,
earning incentive fees of $226,785, $67,355 and $108,067, respectively.
General and administrative expenses decreased by $20,136 and $16,994 for the
six and three months ended June 30, 1997 as compared to the same periods in
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.
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--None
12
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, 1997
----------------------------------------
Steven Carlino
Vice President
Chief Accounting Officer for the Registrant
13