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 September 30, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______________________ to ______________________
Commission file number: 0-19070
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 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 3, L.P.
(a limited partnership)
STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
September 30, December 31,
1998 1997
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ASSETS
Equity in commodity trading accounts:
Cash $ 3,217,186 $ 3,247,888
U.S. Treasury bills, at amortized cost 10,989,532 14,063,335
Net unrealized gain on open commodity positions 1,560,357 795,209
Options, at market -- 124,575
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Total assets $15,767,075 $18,231,007
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LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Redemptions payable $ 988,018 $ 587,036
Due to affiliates 40,102 20,512
Accrued expenses 49,915 64,500
Management fees payable 26,128 37,646
Incentive fees payable 8,831 --
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Total liabilities 1,112,994 709,694
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Commitments
Partners' capital
Limited partners (87,867 and 103,033 units outstanding) 14,507,302 17,346,056
General partner (889 and 1,041 units outstanding) 146,779 175,257
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Total partners' capital 14,654,081 17,521,313
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Total liabilities and partners' capital $15,767,075 $18,231,007
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Net asset value per limited and general partnership unit ('Units') $ 165.11 $ 168.35
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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)
Nine months ended Three months ended
September 30, September 30,
------------------------- ------------------------
1998 1997 1998 1997
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REVENUES
Net realized gain (loss) on commodity
transactions $ (211,661) $ 21,351 $ 230,710 $1,285,308
Change in net unrealized gain on open
commodity positions 721,223 (189,095) 1,372,653 (701,415)
Interest from U.S. Treasury bills 468,885 576,254 140,046 194,160
---------- ----------- ---------- ----------
978,447 408,510 1,743,409 778,053
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EXPENSES
Commissions 846,642 1,128,980 226,870 370,392
Other transaction fees 131,061 181,642 26,564 60,082
Management fees 268,543 428,860 66,450 138,026
Incentive fees 8,831 226,785 8,831 --
General and administrative 133,015 121,716 44,079 43,236
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1,388,092 2,087,983 372,794 611,736
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Net income (loss) $ (409,645) $(1,679,473) $1,370,615 $ 166,317
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---------- ----------- ---------- ----------
ALLOCATION OF NET INCOME (LOSS)
Limited partners $ (405,527) $(1,662,646) $1,356,900 $ 164,653
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---------- ----------- ---------- ----------
General partner $ (4,118) $ (16,827) $ 13,715 $ 1,664
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NET INCOME (LOSS) PER WEIGHTED AVERAGE LIMITED
AND GENERAL PARTNERSHIP UNIT
Net income (loss) per weighted average limited
and general partnership unit $ (4.12) $ (14.75) $ 14.47 $ 1.49
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---------- ----------- ---------- ----------
Weighted average number of limited and general
partnership units outstanding 99,539 113,876 94,740 111,537
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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, 1997 104,074 $17,346,056 $175,257 $17,521,313
Net loss -- (405,527) (4,118) (409,645)
Redemptions (15,318) (2,433,227) (24,360) (2,457,587)
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Partners' capital--September 30, 1998 88,756 $14,507,302 $146,779 $14,654,081
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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
SEPTEMBER 30, 1998
(Unaudited)
A. General
These financial statements have been prepared without audit. In the opinion
of management, the financial statements contain all adjustments (consisting of
only normal recurring adjustments) necessary to present fairly the financial
position of Prudential-Bache Capital Return Futures Fund 3, L.P. (the
'Partnership') as of September 30, 1998 and the results of its operations for
the nine and three months ended September 30, 1998 and 1997. However, the
operating results for the interim periods may not be indicative of the results
expected for a full year.
Certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with generally accepted accounting
principles have been omitted. It is suggested that these financial statements be
read in conjunction with the financial statements and notes thereto included in
the Partnership's Annual Report on Form 10-K filed with the Securities and
Exchange Commission for the year ended December 31, 1997.
Certain balances from the prior year have been reclassified to conform with
the current financial statement presentation.
During July 1998, Willowbridge Associates Inc. ('Willowbridge') ceased to
serve as a Trading Manager to the Partnership. All assets previously managed by
Willowbridge were allocated to Tamiso & Company ('Tamiso'), who began trading
Partnership assets on August 28, 1998. The monthly management fee paid to Tamiso
equals 1/6 of 1% (a 2% annual rate) of its traded assets as compared to 1/4 of
1% (a 3% annual rate) paid to Willowbridge. The quarterly incentive fee paid to
Tamiso equals 17% of the New High Net Trading Profits (as defined in the
Advisory Agreement among the Partnership, the General Partner and Tamiso) as
compared to 20% of the New High Net Trading Profits paid to Willowbridge.
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 nine months ended
September 30, 1998 and 1997 were:
1998 1997
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Commissions $846,642 $ 1,128,980
General and administrative 76,950 75,680
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$923,592 $ 1,204,660
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------------ -----------
The costs incurred for these services for the three months ended September
30, 1998 and 1997 were:
1998 1997
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Commissions $226,870 $ 370,392
General and administrative 26,274 25,227
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$253,144 $ 395,619
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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. Except for the portion of assets that is
deposited as margin to maintain forward currency contract positions as further
discussed below, the Partnership's assets are maintained either with PSI or, for
margin purposes, with the various exchanges on which the Partnership is
permitted to trade.
4
The Partnership acting through its trading managers, executes
over-the-counter, spot, forward and/or option foreign exchange transactions with
PSI. PSI then engages in back-to-back trading with an affiliate,
Prudential-Bache Global Markets Inc. ('PBGM'). PBGM attempts to earn a profit on
such transactions. PBGM keeps its prices on foreign currency competitive with
other interbank currency trading desks. All over-the-counter currency
transactions are conducted between PSI and the Partnership pursuant to a line of
credit. PSI may require that collateral be posted against the marked-to-market
position of the Partnership.
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
September 30, 1998 and December 31, 1997, such segregated assets totalled
$10,179,308 and $13,304,825, 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 $5,449,617 and $4,996,751 at September 30,
1998 and December 31, 1997, respectively. There are no segregation requirements
for assets related to forward trading.
As of September 30, 1998, the Partnership's open futures, forward and options
contracts mature within one year.
5
At September 30, 1998 and December 31, 1997, gross contract amounts of open
futures, forward and options contracts are:
1998 1997
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Financial Futures and Options Contracts:
Commitments to purchase $232,416,163 $232,456,787
Commitments to sell 14,261,076 3,415,906
Currency Futures and Options Contracts:
Commitments to purchase 8,657,740 3,813,407
Commitments to sell 3,599,358 20,598,159
Other Futures and Options Contracts:
Commitments to purchase 1,381,036 3,477,900
Commitments to sell 8,188,383 7,212,160
Currency Forward Contracts:
Commitments to purchase 12,161,623 2,621,143
Commitments to sell 7,380,915 477,804
Other Forward Contracts:
Commitments to purchase -- 333,510
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 September 30, 1998 and December 31, 1997, the fair value of open futures,
forward and options contracts was:
1998 1997
--------------------------------- -------------------------
Assets Liabilities Assets Liabilities
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Futures Contracts:
Domestic exchanges
Financial $ 428,303 $ 22,500 $ 204,288 $ 83,550
Currencies 217,214 110,792 171,503 10,585
Other 206,569 28,941 279,386 41,549
Foreign exchanges
Financial 775,576 5,077 396,408 9,479
Other 101,976 140,121 63,081 103,725
Forward Contracts:
Currencies 725,067 586,917 -- 68,270
Other -- -- -- 2,299
Options Contracts:
Domestic exchanges
Financial -- -- 23,375 --
Currencies -- -- 101,200 --
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$2,454,705 $894,348 $1,239,241 $ 319,457
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6
The following table presents the average fair value of futures, forward and
options contracts during the nine months ended September 30, 1998 and 1997,
respectively.
1998 1997
--------------------------------- -------------------------
Assets Liabilities Assets Liabilities
-------------- -------------- ---------- ----------
Futures Contracts:
Domestic exchanges
Financial $ 157,672 $ 27,820 $ 107,206 $ 378
Currencies 230,440 55,577 159,818 9,009
Other 212,146 108,662 176,225 54,958
Foreign exchanges
Financial 463,340 36,685 329,687 129,496
Other 79,314 101,376 393,602 116,327
Forward Contracts:
Currencies 113,023 164,430 1,452 5,488
Other 40,523 55,918 4,214 --
Options Contracts:
Domestic exchanges
Financial 21,325 -- 8,008 --
Currencies 13,785 -- 940 --
Other -- -- 7,629 --
Foreign exchanges
Financial 2,287 -- -- --
Other 5,008 -- 26,989 --
-------------- -------------- ---------- ----------
$1,338,863 $550,468 $1,215,770 $ 315,656
-------------- -------------- ---------- ----------
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The following table presents the average fair value of futures, forward and
options contracts during the three months ended September 30, 1998 and 1997,
respectively.
1998 1997
-------------------------- --------------------------
Assets Liabilities Assets Liabilities
---------- ----------- ---------- -----------
Futures Contracts:
Domestic exchanges
Financial $ 221,275 $ 14,046 $ 88,127 $ 944
Currencies 173,743 66,305 376,800 21,972
Other 268,077 107,702 58,106 21,223
Foreign exchanges
Financial 506,553 31,469 426,070 77,517
Other 95,089 128,692 288,894 233,224
Forward Contracts:
Currencies 273,221 277,754 3,629 13,721
Other -- 69,202 10,536 --
Options Contracts:
Domestic exchanges
Financial -- -- 20,019 --
Currencies -- -- 2,350 --
Foreign exchanges
Other 3,345 -- 66,782 --
---------- ----------- ---------- -----------
$1,541,303 $ 695,170 $1,341,313 $ 368,601
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7
The following table presents the Partnership's trading revenue for the nine
and three months ended September 30, 1998 and 1997:
Nine months ended Three months ended
September 30, September 30,
-------------------------- -------------------------
1998 1997 1998 1997
---------- ----------- ---------- ----------
Futures Contracts:
Domestic exchanges
Financial $ 199,421 $(1,038,896) $ 547,369 $ (516,090)
Currencies (926,374) 1,351,687 (225,965) 1,055,857
Other (143,494) 355,696 (79,359) 146,083
Foreign exchanges
Financial 2,616,289 (1,397,549) 1,382,621 251,846
Other (271,371) 688,984 (119,293) (139,197)
Forward Contracts:
Currencies 91,099 (40,367) 263,586 (40,367)
Other (508,154) 42,142 (158,966) 42,142
Options Contracts:
Domestic exchanges
Financial (287,081) 144,101 6,750 (39,836)
Currencies (214,125) (113,416) -- (102,991)
Other (1,670) (71,738) -- (13,557)
Foreign exchanges
Financial (25,054) -- -- --
Other (19,924) (88,388) (13,380) (59,997)
---------- ----------- ---------- ----------
$ 509,562 $ (167,744) $1,603,363 $ 583,893
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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, 60% of the net proceeds was allocated to trading activity and 40%
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 September 30, 1998, 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 70% 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 nine and three months ended
September 30, 1998 were $2,433,227 and $978,277, respectively. Redemptions by
the General Partner recorded for the nine and three months ended September 30,
1998 were $24,360 and $9,741, respectively. Redemptions by limited partners and
the General Partner from commencement of operations, May 30, 1990, through
September 30, 1998 totalled 64,462,838 and $757,323, respectively. Future
redemptions will impact the amount of funds available for investment in
commodity contracts in subsequent periods.
Year 2000 Risk
Investment funds, like financial and business organizations and individuals
around the world, depend on the smooth functioning of computer systems. The year
2000, however, holds the potential for a significant disruption in the operation
of these systems. Many computer systems in use today cannot distinguish the year
2000 from the year 1900 because of the way in which dates are encoded. This is
commonly known as the 'Year 2000 Problem.' The Partnership could be adversely
affected if computer systems used by it or any third party with whom it has a
material relationship do not properly perform date comparisons and calculations
concerning dates on or after January 1, 2000, which in turn could have a
negative impact on the handling or determination of trades and prices and the
services provided to the Partnership.
The Partnership has engaged third parties to perform primarily all of the
services it needs. Accordingly, the Partnership's Year 2000 problems, if any,
are not its own but those that center around the ability of the
9
General Partner, Prudential Securities Incorporated, its Trading Managers and
any other third party with whom the Partnership has a material relationship
(individually, a 'Service Provider,' and collectively, the 'Service Providers')
to address and correct problems that may cause their systems not to function as
intended as a result of the Year 2000 Problem.
The Partnership has received assurances from its General Partner and
Prudential Securities Incorporated that they anticipate being able to continue
their operations without any material adverse impact from the Year 2000 Problem.
Although other Service Providers, such as the Partnership's Trading Managers,
have not made similar representations to the Partnership, the Partnership has no
reason to believe that these Service Providers will not take steps necessary to
avoid any material adverse impact on the Partnership, though there can be no
assurance that this will be the case. The costs or consequences of incomplete or
untimely resolution of the Year 2000 Problem by the Service Providers, or by
governments, exchanges, clearing houses, regulators, banks and other third
parties, are unknown to the Partnership at this time, but could have a material
adverse impact on the operations of the Partnership. The General Partner will
promptly notify the Partnership's limited partners in the event it determines
that the Year 2000 Problem will have a material adverse impact on the
Partnership's operations.
The Partnership has considered various alternatives as a contingency plan. If
the Year 2000 Problems are systemic, for example, the federal government, the
banking system, exchanges or utilities are affected materially, there may be no
adequate contingency plan for the Partnership to follow other than to suspend
operations. If the Year 2000 Problems are related to one or more of the other
Service Providers selected by the Partnership, the Partnership believes that
each such Service Provider is prepared to address any Year 2000 Problems which
arise that could have a material adverse impact on the Partnership's operations.
Results of Operations
The net asset value per Unit as of September 30, 1998 was $165.11, a decrease
of 1.92% from the December 31, 1997 net asset value per Unit of $168.35.
Additionally, the net asset value per Unit increased 9.61% during the third
quarter.
Third quarter profits resulted from gains in the financial, index and energy
sectors. Losses were incurred in the metal, soft and grain sectors. Performance
early on in the quarter was slightly negative as generally flat markets left
little room for profitable trading opportunities. Also, price movements of many
industrial metals such as copper, zinc and lead provided a difficult trading
environment, leading to losses for the Partnership. As the quarter progressed
and world stock markets became unglued, investors turned to the financial sector
as a safe haven. This caused bond prices around the world to rise, significantly
profiting the Partnership's long bond positions. Particularly, gains were
experienced in Eurodollar, German ten-year, U.S. five-year and Japanese bonds.
Falling world stock markets also opened up opportunities for the Partnership to
profit by taking short positions in indices such as the U.S. S&P 500 and the
German DAX.
During July 1998, Willowbridge ceased to serve as a Trading Manager to the
Partnership. All assets previously managed by Willowbridge were allocated to
Tamiso, who began trading Partnership assets on August 28, 1998. As a result,
the Partnership did not incur management fees, commissions or other transaction
fees during the period these assets were not allocated for commodities trading.
The monthly management fee paid to Tamiso equals 1/6 of 1% (a 2% annual rate) of
its traded assets as compared to 1/4 of 1% (a 3% annual rate) paid to
Willowbridge. The quarterly incentive fee paid to Tamiso equals 17% of the New
High Net Trading Profits (as defined in the Advisory Agreement among the
Partnership, the General Partner and Tamiso) as compared to 20% of the New High
Net Trading Profits paid to Willowbridge.
Interest income from U.S. Treasury bills decreased by approximately $107,000
and $54,000 for the nine and three months ended September 30, 1998 as compared
to the same periods in 1997. These decreases are primarily due to the effect of
poor trading performance during the first six months of 1998 and redemptions on
funds available for investment in U.S. Treasury bills, as well as declining
interest rates during the current year.
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 $282,000 and $144,000 for the nine and
three months ended September 30, 1998 as compared to the same periods in
1997. The effect on the monthly net asset values of poor trading performance
during the second quarter of 1997 and the first six months of 1998,
as well as redemptions, caused a majority of these
10
decreases. The replacement of Willowbridge as a Trading
Manager as discussed above also resulted in decreases to commissions.
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
$51,000 and $34,000 for the nine and three months ended September 30, 1998 as
compared to the same periods in 1997 primarily due to lower trading volume. The
replacement of Willowbridge as a Trading Manager as discussed above also
resulted in decreases to other transaction fees.
As of September 30, 1998, all trading decisions were made by Sjo, Inc. and
Tamiso (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 approximately $160,000 and $72,000 for the nine and three months
ended September 30, 1998 as compared to the same periods in 1997 for the same
reasons commissions decreased, as well as a reduction in the rate paid to Tamiso
as compared to Willowbridge, as discussed above.
Incentive fees are based on New High Net Trading Profits generated by each
Trading Manager, as defined in the Advisory Agreements among the Partnership,
the General Partner and each Trading Manager. Despite overall net trading losses
for the Partnership, Tamiso generated profits during the three months ended
September 30, 1998 which resulted in incentive fees of approximately $9,000.
General and administrative expenses increased by approximately $11,000 and
$1,000 for the nine and three months ended September 30, 1998 as compared to the
same periods in 1997. 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)
10.20 Advisory Agreement dated July 27,
1998 among the Registrant, Seaport
Futures Management, Inc. and Robert
M. Tamiso (filed herewith)
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: November 13, 1998
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Steven Carlino
Vice President
Chief Accounting Officer for the Registrant
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