<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1999
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______________________ to ______________________
Commission file number: 0-18417
PRUDENTIAL-BACHE CAPITAL RETURN FUTURES FUND L.P.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 13-3516796
- --------------------------------------------------------------------------------
(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
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 778-7866
N/A
- --------------------------------------------------------------------------------
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 __
<PAGE>
<PAGE>
Part I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PRUDENTIAL-BACHE CAPITAL RETURN FUTURES FUND L.P.
(a limited partnership)
STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------
ASSETS
Equity in commodity trading accounts:
Cash $ 2,841,561 $ 3,166,467
U.S. Treasury bills, at amortized cost 11,228,584 11,092,586
Net unrealized gain on open commodity positions 459,524 1,007,956
----------- ------------
Total assets $14,529,669 $15,267,009
----------- ------------
----------- ------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Redemptions payable $ 499,963 $ 408,971
Management fees payable 48,187 50,656
Accrued expenses 46,959 57,613
Due to affiliates 26,593 12,481
----------- ------------
Total liabilities 621,702 529,721
----------- ------------
Commitments
Partners' capital
Limited partners (96,282 and 99,743 units outstanding) 13,768,823 14,589,844
General partner (973 and 1,008 units outstanding) 139,144 147,444
----------- ------------
Total partners' capital 13,907,967 14,737,288
----------- ------------
Total liabilities and partners' capital $14,529,669 $15,267,009
----------- ------------
----------- ------------
Net asset value per limited and general partnership unit ('Units') $ 143.01 $ 146.27
----------- ------------
----------- ------------
- ---------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
</TABLE>
2
<PAGE>
PRUDENTIAL-BACHE CAPITAL RETURN FUTURES FUND L.P.
(a limited partnership)
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
-------------------------
1999 1998
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------
REVENUES
Net realized gain (loss) $ 565,224 $ (25,194)
Change in net unrealized gain (548,432) (715,090)
Interest from U.S. Treasury bills 121,712 167,740
--------- -----------
138,504 (572,544)
--------- -----------
EXPENSES
Commissions 289,136 330,047
Management fees 143,951 161,878
General and administrative 34,775 41,097
--------- -----------
467,862 533,022
--------- -----------
Net loss $(329,358) $(1,105,566)
--------- -----------
--------- -----------
ALLOCATION OF NET LOSS
Limited partners $(326,063) $(1,094,504)
--------- -----------
--------- -----------
General partner $ (3,295) $ (11,062)
--------- -----------
--------- -----------
NET LOSS PER WEIGHTED AVERAGE
LIMITED AND GENERAL PARTNERSHIP UNIT
Net loss per weighted average
limited and general partnership unit $ (3.27) $ (9.61)
--------- -----------
--------- -----------
Weighted average number of
limited and general partnership units outstanding 100,751 115,031
--------- -----------
--------- -----------
- ---------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(Unaudited)
<TABLE>
<CAPTION>
LIMITED GENERAL
UNITS PARTNERS PARTNER TOTAL
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
Partners' capital--December 31, 1998 100,751 $14,589,844 $147,444 $14,737,288
Net loss -- (326,063) (3,295) (329,358)
Redemptions (3,496) (494,958) (5,005) (499,963)
-------- ----------- -------- -----------
Partners' capital--March 31, 1999 97,255 $13,768,823 $139,144 $13,907,967
-------- ----------- -------- -----------
-------- ----------- -------- -----------
- ----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
</TABLE>
3
<PAGE>
PRUDENTIAL-BACHE CAPITAL RETURN FUTURES FUND L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
(Unaudited)
A. General
These financial statements have been prepared without audit. In the opinion
of management, the financial statements contain all adjustments (consisting of
only normal recurring adjustments) necessary to present fairly the financial
position of Prudential-Bache Capital Return Futures Fund L.P. (the
'Partnership') as of March 31, 1999 and the results of its operations for the
three months ended March 31, 1999 and 1998. However, the operating results for
the interim periods may not be indicative of the results expected for a full
year.
Certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with generally accepted accounting
principles have been omitted. It is suggested that these financial statements be
read in conjunction with the financial statements and notes thereto included in
the Partnership's Annual Report on Form 10-K as filed with the Securities and
Exchange Commission for the year ended December 31, 1998 (the 'Annual Report').
In accordance with the Agreement of Limited Partnership, if the Partnership's
net asset value declines below $10 million, the Partnership will dissolve.
B. Related Parties
Seaport Futures Management, Inc. (the 'General Partner') and its affiliates
perform services for the Partnership which include, but are not limited to:
brokerage services, accounting and financial management, registrar, transfer and
assignment functions, investor communications, printing and other administrative
services.
The costs incurred for these services for the three months ended March 31,
1999 and 1998 were:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
-------------------------------------------------------------------------------
Commissions $289,136 $330,047
General and administrative 16,350 22,950
-------- --------
$305,486 $352,997
-------- --------
-------- --------
</TABLE>
The Partnership's assets are maintained either in trading or cash accounts
with Prudential Securities Incorporated ('PSI'), the Partnership's commodity
broker, or for margin purposes, with the various exchanges on which the
Partnership is permitted to trade.
The Partnership, acting through its trading manager, executes
over-the-counter, spot, forward and/or option foreign exchange transactions with
PSI. PSI then engages in back-to-back trading with an affiliate,
Prudential-Bache Global Markets Inc. ('PBGM'). PBGM attempts to earn a profit on
such transactions. PBGM keeps its prices on foreign currency competitive with
other interbank currency trading desks. All over-the-counter currency
transactions are conducted between PSI and the Partnership pursuant to a line of
credit. PSI may require that collateral be posted against the marked-to-market
positions of the Partnership.
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 or volatility of interest rates, foreign
currency exchange rates or the market values of the contracts (or commodities
underlying the contracts) frequently result in changes in the Partnership's
unrealized gain (loss) on open commodity positions reflected in the statements
of financial condition. The Partnership's exposure to market risk is influenced
by a number of factors including the relationships among the contracts held by
the Partnership as well as the liquidity of the markets in which the contracts
are traded.
4
<PAGE>
Futures and options contracts are traded on organized exchanges and are thus
distinguished from forward contracts which are entered into privately by the
parties. The credit risks associated with futures and options contracts are
typically perceived to be less than those associated with forward contracts,
because exchanges typically provide clearinghouse arrangements in which the
collective credit (subject to certain limitations) of the members of the
exchanges is pledged to support the financial integrity of the exchange. On the
other hand, the Partnership must rely solely on the credit of its broker (PSI)
with respect to forward transactions. The Partnership presents unrealized gains
and losses on open forward positions as a net amount in the statements of
financial condition because it has a master netting agreement with PSI.
The General Partner attempts to minimize both credit and market risks by
requiring the Partnership's trading manager to abide by various trading
limitations and policies. The General Partner monitors compliance with these
trading limitations and policies which include, but are not limited to,
executing and clearing all trades with creditworthy counterparties (currently,
PSI is the sole counterparty or broker); limiting the amount of margin or
premium required for any one commodity or all commodities combined; and
generally limiting transactions to contracts which are traded in sufficient
volume to permit the taking and liquidating of positions. The General Partner
may impose additional restrictions (through modifications of such trading
limitations and policies) upon the trading activities of the trading manager as
it, in good faith, deems to be in the best interests of the Partnership.
PSI, when acting as the Partnership's futures commission merchant in
accepting orders for the purchase or sale of domestic futures and options
contracts, is required by Commodity Futures Trading Commission ('CFTC')
regulations to separately account for and segregate as belonging to the
Partnership all assets of the Partnership relating to domestic futures and
options trading and is not to commingle such assets with other assets of PSI. At
March 31, 1999, such segregated assets totalled $5,007,431. 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 $9,333,317 at March 31,
1999. There are no segregation requirements for assets related to forward
trading.
As of March 31, 1999, the Partnership's open futures and forward contracts
mature within one year.
At March 31, 1999 and December 31, 1998, gross contract amounts of open
futures and forward contracts were:
<TABLE>
<CAPTION>
1999 1998
----------- ------------
<S> <C> <C>
Currency Forward Contracts:
Commitments to purchase $ 6,783,402 $ 546,406
Commitments to sell 16,142,262 1,960,358
Currency Futures Contracts:
Commitments to purchase -- 5,617,987
Commitments to sell 12,466,363 4,238,887
Financial Futures Contracts:
Commitments to purchase 24,771,405 39,193,849
Commitments to sell 77,574,672 83,475,164
Other Futures Contracts:
Commitments to purchase 1,464,125 1,139,330
Commitments to sell 4,876,693 3,588,609
</TABLE>
The gross contract amounts represent the Partnership's potential involvement
in a particular class of financial instrument (if it were to take or make
delivery on an underlying futures or forward contract). The gross contract
amounts significantly exceed the future cash requirements as the Partnership
intends to close out open positions prior to settlement and thus is generally
subject only to the risk of loss arising from the change in the value of the
contracts. As such, the Partnership considers the 'fair value' of its futures
and forward contracts to be the net unrealized gain or loss on the contracts.
Thus, the amount at risk associated with counterparty nonperformance of all
contracts is the net unrealized gain included in the statements of financial
condition. The market risk associated with the Partnership's commitments to
purchase commodities is limited to the gross contract amounts involved, while
the market risk associated with its commitments to sell is unlimited since the
Partnership's potential involvement is to make delivery of
5
<PAGE>
an underlying commodity at the contract price; therefore, it must repurchase the
contract at prevailing market prices.
At March 31, 1999 and December 31, 1998, the fair value of open futures and
forward contracts was:
<TABLE>
<CAPTION>
1999 1998
------------------------ --------------------------
Assets Liabilities Assets Liabilities
-------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Futures Contracts:
Domestic exchanges
Financial $ 98,999 $ -- $ 9,844 $ 106,650
Currencies 100,362 53,950 178,225 41,112
Other 113,996 35,387 114,222 42,294
Foreign exchanges
Financial 116,243 102,265 1,080,633 88,960
Other 34,981 2,376 29,238 4,015
Forward Contracts:
Currencies 273,960 85,039 6,297 127,472
-------- ----------- ---------- -----------
$738,541 $ 279,017 $1,418,459 $ 410,503
-------- ----------- ---------- -----------
-------- ----------- ---------- -----------
</TABLE>
The following table presents the average fair value of futures and forward
contracts during the three months ended March 31, 1999 and 1998, respectively.
<TABLE>
<CAPTION>
1999 1998
-------------------------- --------------------------
Assets Liabilities Assets Liabilities
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Futures Contracts:
Domestic exchanges
Financial $ 55,901 $ 38,588 $ 98,410 $ 14,055
Currencies 150,512 32,634 -- --
Other 105,071 32,302 316,654 69,025
Foreign exchanges
Financial 655,915 82,533 270,487 65,498
Other 26,092 4,108 19,106 6,624
Forward Contracts:
Currencies 292,878 279,427 478,610 437,927
---------- ----------- ---------- -----------
$1,286,369 $ 469,592 $1,183,267 $ 593,129
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
</TABLE>
The following table presents the Partnership's trading revenues for the three
months ended March 31, 1999 and 1998, respectively.
<TABLE>
<CAPTION>
1999 1998
--------- -----------
<S> <C> <C>
Futures Contracts:
Domestic exchanges
Financial $ 311,127 $ (75,954)
Currencies (58,518) --
Other (151,029) (329,100)
Foreign exchanges
Financial (747,818) (99,682)
Other 50,305 51,284
Forward Contracts:
Currencies 612,725 (286,832)
--------- -----------
$ 16,792 $ (740,284)
--------- -----------
--------- -----------
</TABLE>
6
<PAGE>
PRUDENTIAL-BACHE CAPITAL RETURN FUTURES FUND L.P.
(a limited partnership)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Partnership commenced operations on May 12, 1989 with gross proceeds of
$139,151,000. After accounting for organizational and offering costs, the
Partnership's net proceeds were $137,151,000.
At March 31, 1999, 100% of the Partnership's total net assets were allocated
to commodities trading. A significant portion of the net asset value was held in
U.S. Treasury bills (which represented approximately 78% 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 net asset value varies
each day, and from month to month, as the market value of commodity interests
change. All interest earned on the Partnership's interest-bearing funds is paid
to the Partnership.
The commodities contracts are subject to periods of illiquidity because of
market conditions, regulatory considerations and other reasons. For example,
commodity exchanges limit fluctuations in commodity futures contract prices
during a single day by regulations referred to as 'daily limits.' During a
single day, no trades may be executed at prices beyond the daily limit. Once the
price of a futures contract for a particular commodity has increased or
decreased by an amount equal to the daily limit, positions in the commodity can
neither be taken nor liquidated unless traders are willing to effect trades at
or within the limit. Commodity futures prices have occasionally moved the daily
limit for several consecutive days with little or no trading. Such market
conditions could prevent the Partnership from promptly liquidating its commodity
futures positions.
Since the Partnership's business is to trade futures, forward and options
contracts, its capital is at risk due to changes in the value of these contracts
(market risk) or the inability of counterparties to perform under the terms of
the contracts (credit risk). The Partnership's exposure to market risk is
influenced by a number of factors including the volatility of interest rates and
foreign currency exchange rates, the liquidity of the markets in which the
contracts are traded and the relationships among the contracts held. The
inherent uncertainty of the Partnership's speculative trading as well as the
development of drastic market occurrences could result in monthly losses
considerably beyond the Partnership's experience to date and could ultimately
lead to a loss of all or substantially all of investors' capital. The General
Partner attempts to minimize these risks by requiring the Partnership's trading
manager to abide by various trading limitations and policies. See Note C to the
financial statements for a further discussion on the credit and market risks
associated with the Partnership's futures and forward contracts.
Redemptions by limited partners and the General Partner recorded for the
three months ended March 31, 1999 were $494,958 and $5,005, respectively.
Redemptions by limited partners and the General Partner from commencement of
operations, May 12, 1989, through March 31, 1999 totalled $142,822,971 and
$1,623,929, respectively. Future redemptions will impact the amount of funds
available for investment in commodity contracts in subsequent periods.
The Partnership does not have, nor does it expect to have, any capital
assets.
In accordance with the Agreement of Limited Partnership, if the Partnership's
net asset value declines below $10 million, the Partnership will dissolve.
Results of Operations
The net asset value per Unit as of March 31, 1999 was $143.01, a decrease of
2.23% from the December 31, 1998 net asset value per Unit of $146.27.
First quarter trading resulted in net losses for the Partnership. Profits
accumulated in the currency, energy, and index sectors failed to offset losses
incurred in the financial, metal, soft, grain, and meat sectors.
7
<PAGE>
In the financial sector, the bear market trend in Japanese bonds reversed
when the Ministry of Finance announced that the Bank of Japan would continue
supporting the bond market by purchasing sizable quantities of Japanese
government bonds ('JGBs'). As a result, the Partnership sustained sizable losses
in JGBs. In reaction to the International Monetary Fund's threat to sell gold,
gold prices declined during the quarter leading to losses in the metal sector.
The Partnership profited from the strength of the U.S. dollar as it benefited
from the considerable slow down in European growth and market sentiment that the
European Central Bank will have to smooth the transition to the Euro by cutting
rates. As a result, profits were derived from long U.S. dollar crossrate
positions against the Deutsche mark and Swiss franc.
Additional gains were generated from long positions in the energy sector as
OPEC announced substantial cuts in crude oil exports.
Interest income is earned on the Partnership's investment in U.S. Treasury
bills and varies monthly according to interest rates, trading performance, and
redemptions. Interest income from U.S. Treasury bills decreased by approximately
$46,000 for the three months ended March 31, 1999 as compared to the same period
in 1998 due to the effect of declining interest rates as well as the effect of
fewer funds available for investments in U.S. Treasury bills resulting from the
liquidation of such investments for the payment of redemptions.
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 $41,000 for the three months ended March
31, 1999 as compared to the same period in 1998 primarily due to the effect of
redemptions on the monthly net asset values and poor trading performance during
the first three months of 1999.
All trading decisions are currently made by John W. Henry & Company, Inc.
(the 'Trading Manager'). Management fees are calculated on the net asset value
as of the end of each month and, therefore, are affected by trading performance
and redemptions. Management fees decreased by approximately $18,000 for the
three months ended March 31, 1999 as compared to the same period in 1998 for the
same reasons commissions decreased as discussed above.
Incentive fees are based on New High Net Trading Profits generated by the
Trading Manager, as defined in the Advisory Agreement among the Partnership, the
General Partner and the Trading Manager. No incentive fees were earned for the
three months ended March 31, 1999 and 1998.
General and administrative expenses decreased by approximately $6,000 for the
three months ended March 31, 1999 as compared to the same period in 1998. These
expenses include reimbursements of cost incurred by the General Partner on
behalf of the Partnership in addition to accounting, audit, tax and legal fees
as well as printing and postage costs related to reports sent to limited
partners. This decrease was due to a reduction in overall costs associated with
administering the Partnership including continuing declines in printing and
postage costs as limited partners redeem their units.
Year 2000 Risk
A discussion of Year 2000 risk and its effect on the operations of the
Partnership is included in the Partnership's Annual Report.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information regarding quantitative and qualitative disclosures about market
risk is not required pursuant to Item 305(e) of Regulation S-K.
8
<PAGE>
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--Effective April 1999, Eleanor L. Thomas and Joseph
A. Filicetti were elected by the Board of Directors
of the General Partner as directors. In addition, Ms.
Thomas has also been elected by the Board of
Directors as President of the General Partner
replacing Thomas M. Lane. Ms. Thomas joined
Prudential Securities Incorporated in February 1993
and is primarily responsible for origination, asset
allocation, and due diligence for Managed Futures.
Mr. Filicetti was elected by the Board of Directors
of the General Partner as Executive Vice President.
Mr. Filicetti joined Prudential Securities
Incorporated in September 1998 and is the Director of
Sales and Marketing for Managed Futures.
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits
4.1 Agreement of Limited Partnership of the Registrant, dated
as of January 26, 1989 as amended and restated as of March
15, 1989. (incorporated by reference to Exhibits 3.1 and
4.1 to the Registrant's Annual Report on Form 10-K for the
period ended December 31, 1989)
4.2 Subscription Agreement (incorporated by
reference to Exhibit 4.2 to the Registrant's
Annual Report on Form 10-K for the period ended
December 31, 1989)
4.3 Request for Redemption (incorporated
by reference to Exhibit 4.3 to the
Registrant's Annual Report on Form
10-K for the period ended December 31,
1989)
27.1 Financial Data Schedule (filed herewith)
(b) Reports on Form 8-K
No reports on Form 8-K were filed for the period covered by this
report.
9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Prudential-Bache Capital Return Futures Fund L.P.
By: Seaport Futures Management, Inc.
A Delaware corporation, General Partner
By: /s/ Steven Carlino Date: May 14, 1999
----------------------------------------
Steven Carlino
Vice President and Treasurer
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial
information extracted from the financial
statements for P-B Capital Return Futures Fund L.P.
and is qualified in its entirety by reference
to such financial statements
</LEGEND>
<RESTATED>
<CIK> 0000846176
<NAME> P-B Capital Return Futures Fund L.P.
<MULTIPLIER> 1
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-1-1999
<PERIOD-END> Mar-31-1999
<PERIOD-TYPE> 3-Mos
<CASH> 2,841,561
<SECURITIES> 11,688,108
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 14,529,669
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 14,529,669
<CURRENT-LIABILITIES> 621,702
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 13,907,967
<TOTAL-LIABILITY-AND-EQUITY> 14,529,669
<SALES> 0
<TOTAL-REVENUES> 138,504
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 467,862
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (329,358)
<EPS-PRIMARY> (3.27)
<EPS-DILUTED> 0
</TABLE>
