<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 June 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.
- --------------------------------------------------------------------------------
(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
- --------------------------------------------------------------------------------
(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>
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)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------
ASSETS
Equity in commodity trading accounts:
Cash $ 2,753,582 $ 3,247,888
U.S. Treasury bills, at amortized cost 12,212,062 14,063,335
Net unrealized gain on open commodity positions 193,380 795,209
Options, at market 13,380 124,575
------------- ------------
Total assets $15,172,404 $18,231,007
------------- ------------
------------- ------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Redemptions payable $ 762,841 $ 587,036
Due to affiliates 64,525 20,512
Accrued expenses 42,842 64,500
Management fees payable 30,712 37,646
------------- ------------
Total liabilities 900,920 709,694
------------- ------------
Commitments
Partners' capital
Limited partners (93,792 and 103,033 units outstanding) 14,128,679 17,346,056
General partner (948 and 1,041 units outstanding) 142,805 175,257
------------- ------------
Total partners' capital 14,271,484 17,521,313
------------- ------------
Total liabilities and partners' capital $15,172,404 $18,231,007
------------- ------------
------------- ------------
Net asset value per limited and general partnership unit ('Units') $ 150.64 $ 168.35
------------- ------------
------------- ------------
- ----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
</TABLE>
2
<PAGE>
PRUDENTIAL-BACHE CAPITAL RETURN FUTURES FUND 3, L.P.
(a limited partnership)
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Six months ended Three months ended
June 30, June 30,
-------------------------- --------------------------
1998 1997 1998 1997
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
REVENUES
Net realized loss on commodity transactions $ (442,371) $(1,263,957) $ (812,932) $ (290,619)
Change in net unrealized gain on open
commodity positions (651,430) 512,320 (348,742) (932,429)
Interest from U.S. Treasury bills 328,839 382,094 146,673 194,109
----------- ----------- ----------- -----------
(764,962) (369,543) (1,015,001) (1,028,939)
----------- ----------- ----------- -----------
EXPENSES
Commissions 619,772 758,588 286,681 369,092
Other transaction fees 104,497 121,560 47,149 57,747
Management fees 202,093 290,834 90,868 139,390
Incentive fees -- 226,785 -- --
General and administrative 88,936 78,480 44,341 32,675
----------- ----------- ----------- -----------
1,015,298 1,476,247 469,039 598,904
----------- ----------- ----------- -----------
Net loss $(1,780,260) $(1,845,790) $(1,484,040) $(1,627,843)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
ALLOCATION OF NET LOSS
Limited partners $(1,762,427) $(1,827,299) $(1,469,170) $(1,611,533)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
General partner $ (17,833) $ (18,491) $ (14,870) $ (16,310)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
NET LOSS PER WEIGHTED AVERAGE LIMITED AND
GENERAL PARTNERSHIP UNIT
Net loss per weighted average limited and
general partnership unit $ (17.46) $ (16.04) $ (14.87) $ (14.29)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average number of limited and
general partnership units outstanding 101,939 115,046 99,804 113,880
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
- --------------------------------------------------------------------------------------------------------
</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, 1997 104,074 $17,346,056 $175,257 $17,521,313
Net loss -- (1,762,427) (17,833) (1,780,260)
Redemptions (9,334) (1,454,950) (14,619) (1,469,569)
------- ----------- -------- -----------
Partners' capital--June 30, 1998 94,740 $14,128,679 $142,805 $14,271,484
------- ----------- -------- -----------
------- ----------- -------- -----------
- ----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
</TABLE>
3
<PAGE>
PRUDENTIAL-BACHE CAPITAL RETURN FUTURES FUND 3, L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
JUNE 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 June 30, 1998 and the results of its operations for the six
and three months ended June 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.
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, 1998 and 1997 were:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
----------------------------------------------------------------------------------------
Commissions 619,772 $ 758,588
General and administrative 50,676 50,453
------------ -----------
$670,448 $ 809,041
------------ -----------
------------ -----------
</TABLE>
The costs incurred for these services for the three months ended June 30,
1998 and 1997 were:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
----------------------------------------------------------------------------------------
Commissions $286,681 $ 369,092
General and administrative 25,026 24,781
------------ -----------
$311,707 $ 393,873
------------ -----------
------------ -----------
</TABLE>
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.
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.
4
<PAGE>
C. Credit and Market Risk
Since the Partnership's business is to trade futures, forward and options
contracts, its capital is at risk due to changes in the value of these contracts
(market risk) or the inability of counterparties to perform under the terms of
the contracts (credit risk).
Futures, forward and options contracts involve varying degrees of off-balance
sheet risk; and changes in the level of volatility of interest rates, foreign
currency exchange rates or the market values of the contracts (or commodities
underlying the contracts) frequently result in changes in the Partnership's
unrealized gain (loss) on open commodity positions reflected in the statements
of financial condition. The Partnership's exposure to market risk is influenced
by a number of factors including the relationships among the contracts held by
the Partnership as well as the liquidity of the markets in which the contracts
are traded.
Futures and options contracts are traded on organized exchanges and are thus
distinguished from forward contracts which are entered into privately by the
parties. The credit risks associated with futures and options contracts are
typically perceived to be less than those associated with forward contracts,
because exchanges typically provide clearinghouse arrangements in which the
collective credit (subject to certain limitations) of the members of the
exchanges is pledged to support the financial integrity of the exchange. On the
other hand, the Partnership must rely solely on the credit of its broker (PSI)
with respect to forward transactions. The Partnership presents unrealized gains
and losses on open forward positions as a net amount in the statements of
financial condition because it has a master netting agreement with PSI.
The General Partner attempts to minimize both credit and market risks by
requiring the Partnership's trading managers to abide by various trading
limitations and policies. The General Partner monitors compliance with these
trading limitations and policies which include, but are not limited to,
executing and clearing all trades with creditworthy counterparties (currently,
PSI is the sole counterparty or broker); limiting the amount of margin or
premium required for any one commodity or all commodities combined; and
generally limiting transactions to contracts which are traded in sufficient
volume to permit the taking and liquidating of positions. The General Partner
may impose additional restrictions (through modifications of such trading
limitations and policies) upon the trading activities of the trading managers as
it, in good faith, deems to be in the best interests of the Partnership.
PSI, when acting as the Partnership's futures commission merchant in
accepting orders for the purchase or sale of domestic futures and options
contracts, is required by Commodity Futures Trading Commission ('CFTC')
regulations to separately account for and segregate as belonging to the
Partnership all assets of the Partnership relating to domestic futures and
options trading and is not to commingle such assets with other assets of PSI. At
June 30, 1998 and December 31, 1997, such segregated assets totalled $10,744,714
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 $4,829,935 and $4,996,751 at June 30, 1998 and December
31, 1997, respectively. There are no segregation requirements for assets related
to forward trading.
As of June 30, 1998, the Partnership's open futures, forward and options
contracts mature within one year.
5
<PAGE>
At June 30, 1998 and December 31, 1997, gross contract amounts of open
futures, forward and options contracts are:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Financial Futures and Options Contracts:
Commitments to purchase $185,959,657 $232,456,787
Commitments to sell 32,378,028 3,415,906
Currency Futures and Options Contracts:
Commitments to purchase 5,317,661 3,813,407
Commitments to sell 5,477,810 20,598,159
Other Futures and Options Contracts:
Commitments to purchase 7,840,971 3,477,900
Commitments to sell 8,478,577 7,212,160
Currency Forward Contracts:
Commitments to purchase 2,081,605 2,621,143
Commitments to sell 1,018,587 477,804
Other Forward Contracts:
Commitments to purchase 276,809 333,510
</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, forward or options contract). The gross
contract amounts significantly exceed the future cash requirements as the
Partnership intends to close out open positions prior to settlement and thus is
generally subject only to the risk of loss arising from the change in the value
of the contracts. As such, the Partnership considers the 'fair value' of its
futures, forward and options contracts to be the net unrealized gain or loss on
the contracts (plus premiums on options.) Thus, the amount at risk associated
with counterparty nonperformance of all contracts is the net unrealized gain
included in the statements of financial condition. The market risk associated
with the Partnership's commitments to purchase commodities is limited to the
gross contract amounts involved, while the market risk associated with its
commitments to sell is unlimited since the Partnership's potential involvement
is to make delivery of an underlying commodity at the contract price; therefore,
it must repurchase the contract at prevailing market prices.
At June 30, 1998 and December 31, 1997, the fair value of open futures,
forward and options contracts was:
<TABLE>
<CAPTION>
1998 1997
--------------------------------- -------------------------
<S> <C> <C> <C> <C>
Assets Liabilities Assets Liabilities
-------------- -------------- ---------- ----------
Futures Contracts:
Domestic exchanges
Financial $ 361,628 $ 17,625 $ 204,288 $ 83,550
Currencies 51,112 133,737 171,503 10,585
Other 230,107 211,697 279,386 41,549
Foreign exchanges
Financial 286,173 72,762 396,408 9,479
Other 153,503 51,077 63,081 103,725
Forward Contracts:
Currencies -- 125,436 -- 68,270
Other -- 276,809 -- 2,299
Options Contracts:
Domestic exchanges
Financial -- -- 23,375 --
Currencies -- -- 101,200 --
Foreign exchanges
Other 13,380 -- -- --
-------------- -------------- ---------- ----------
$1,095,903 $889,143 $1,239,241 $ 319,457
-------------- -------------- ---------- ----------
-------------- -------------- ---------- ----------
</TABLE>
6
<PAGE>
The following table presents the average fair value of futures, forward and
options contracts during the six months ended June 30, 1998 and 1997,
respectively.
<TABLE>
<CAPTION>
1998 1997
--------------------------------- -------------------------
Assets Liabilities Assets Liabilities
-------------- -------------- ---------- ----------
<S> <C> <C> <C> <C>
Futures Contracts:
Domestic exchanges
Financial 150,464 34,235 $ 102,793 $ --
Currencies 237,220 60,613 15,421 314
Other 182,751 123,930 219,126 66,384
Foreign exchanges
Financial 413,337 44,818 292,133 150,994
Other 80,898 78,582 475,853 46,446
Forward Contracts:
Currencies 5,335 94,103 -- --
Other 57,889 79,883 -- --
Options Contracts:
Domestic exchanges
Financial 30,464 -- -- --
Currencies 19,693 -- 1,343 --
Other -- -- 10,898 --
Foreign exchanges
Financial 3,268 -- -- --
Other 7,154 -- 6,994 --
-------------- -------------- ---------- ----------
$1,188,473 $516,164 $1,124,561 $ 264,138
-------------- -------------- ---------- ----------
-------------- -------------- ---------- ----------
</TABLE>
The following table presents the average fair value of futures, forward and
options contracts during the three months ended June 30, 1998 and 1997,
respectively.
<TABLE>
<CAPTION>
1998 1997
-------------------------- --------------------------
Assets Liabilities Assets Liabilities
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Futures Contracts:
Domestic exchanges
Financial $ 129,073 $ 24,987 $ 179,888 $ --
Currencies 332,416 85,201 14,397 --
Other 193,445 150,539 279,509 57,089
Foreign exchanges
Financial 188,433 70,089 345,905 146,739
Other 71,267 77,776 559,074 53,959
Forward Contracts:
Currencies 9,336 74,100 -- --
Other 43,995 139,221 -- --
Options Contracts:
Domestic exchanges
Financial 47,469 -- -- --
Currencies 9,163 -- 2,350 --
Other -- -- 19,072 --
Foreign exchanges
Financial 5,719 -- -- --
Other 12,519 -- 11,562 --
---------- ----------- ---------- -----------
$1,042,835 $ 621,913 $1,411,757 $ 257,787
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
</TABLE>
7
<PAGE>
The following table presents the Partnership's trading revenue for the six
and three months ended June 30, 1998 and 1997:
<TABLE>
<CAPTION>
Six months ended Three months ended
June 30, June 30,
--------------------------- ---------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Futures Contracts:
Domestic exchanges
Financial $ (347,948) $ (522,806) $ (88,235) $ (513,444)
Currencies (700,409) 295,830 (529,305) 442,703
Other (64,135) 209,613 283,737 (477,912)
Foreign exchanges
Financial 1,233,668 (1,649,395) 118,287 (836,904)
Other (152,078) 828,181 45,971 250,765
Forward Contracts:
Currencies (172,487) -- (47,550) --
Other (349,188) -- (543,422) --
Options Contracts:
Domestic exchanges
Financial (293,831) 183,937 (247,096) (47)
Currencies (214,125) (10,425) (125,850) (10,425)
Other (1,670) (58,181) (1,670) (61,481)
Foreign exchanges
Financial (25,054) -- (25,054) --
Other (6,544) (28,391) (1,487) (16,303)
----------- ----------- ----------- -----------
$(1,093,801) $ (751,637) $(1,161,674) $(1,223,048)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
D. Subsequent Event
During July 1998, Willowbridge Associates Inc. ceased to serve as a Trading
Manager to the Partnership. The Partnership is currently negotiating with other
independent commodities trading managers to trade those Partnership assets
previously traded by Willowbridge Associates Inc.
8
<PAGE>
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 June 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 81% 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, 1998 were $1,454,950 and $755,008, respectively. Redemptions by the
General Partner recorded for the six and three months ended June 30, 1998 were
$14,619 and $7,833, respectively. Redemptions by limited partners and the
General Partner from commencement of operations, May 30, 1990, through June 30,
1998 totalled 63,484,561 and 747,582, 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, 1998 was $150.64 a decrease of
10.52% from the December 31, 1997 net asset value per Unit of $168.35.
The Partnership's negative performance during the month of April resulted
from losses in the currency, financial, metal, index and energy sectors. Profits
were experienced in the grain and soft sectors. Currency sector positions,
particularly the Japanese yen, led to losses for the Partnership. Early in the
month, the U.S. dollar rose sharply against the Japanese yen due to the
lessening of restrictions on currency movements out of Japan and a report that
showed signs of a very weak Japanese economy. This market action led to profits
in short yen positions. Following this move, there was a large reversal across
the currency markets with the U.S. dollar weakening against many currencies
including the Japanese yen. This was accentuated by intervention by the Bank of
Japan over the Easter holiday weekend. In the European currencies, the U.S.
9
<PAGE>
dollar was weaker versus the deutsche mark in anticipation of a German tax rate
increase. Positions in Canadian dollar/deutsche mark and Canadian
dollar/Japanese yen crossrates added to losses for the month. In the financial
sector, the Partnership lost value as the U.S. Treasury market was quite
volatile due, in part, to Federal Reserve policy rumors of a rate increase and,
contradicting these rumors, signs of mild inflation. Positions in Japanese,
Eurodollar and German bonds lost value as well. In the grain sector, the
Partnership's positions in wheat and corn gained throughout the month.
Additionally, in the soft sector, the Partnership profited from short sugar
positions as expectations of a bumper Brazilian crop caused prices to fall to
five-year lows. Coffee positions also experienced gains.
The Partnership's positive performance during the month of May resulted from
gains in the currency, financial, energy and index sectors. Losses were incurred
in the metal, soft and grain sectors. During May, the Japanese yen fell to a new
seven-year low resulting in profits in the Partnership's short positions.
Australia felt the effects of its neighbor's problems as it too experienced a
decline in its currency which led to gains for the Partnership. Japanese
yen/deutsche mark and Canadian dollar/Japanese yen crossrate positions were also
profitable in the currency sector. In the financial sector, positions in the
Japanese Government Bond (JGB) led to this sector's largest profits. The JGB
rallied to its highest price ever on news that economic turmoil in South East
Asia was not over. The U.S. 30-year bond rallied on the overall strength of the
U.S. dollar throughout the month, profiting the Partnership. French notional,
Australian three-year and ten-year and German five-year long bond positions
recognized gains as well. Losses in the metal sector offset gains. Silver was
the most disappointing, as investors who had purchased silver on hopes of a
price increase began to liquidate their holdings. This caused silver prices to
fall, leading to losses for the Partnership's long positions. Coffee positions
in the soft sector and wheat positions in the grain sector also added to losses
for the Partnership.
The Partnership's positive performance during the month of June resulted from
gains in the soft, financial, metal, index, currency and energy sectors. Losses
were incurred in the grain sector. In the financial sector, the Partnership
gained as the price of the 30-year U.S. Treasury bond rallied when yields
dropped to lows not seen since the Treasury department began issuing the bond in
1977. Gains were also recognized in German, French and British bonds. In the
soft sector, coffee prices reached an 18-month low on indications of abundant
supplies, profiting the Partnership's short positions. Trading in cotton added
to profits as well. In the metal sector, long silver positions benefited as
prices rose throughout the month. Index sector profits were earned in S&P 500
positions as it advanced during the second half of the month. Gains were
somewhat offset by losses in the grain sector, particularly in wheat, soybean
meal and corn as changing weather conditions wreaked havoc on market prices.
Interest income from U.S. Treasury bills decreased by $53,255 and $47,436 for
the six and three months ended June 30, 1998 as compared to the same periods in
1997 due to the effect of poor trading performance in 1998 as well as
redemptions on funds available for investment in U.S. Treasury bills.
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.
The effect of poor trading performance during the second quarter of 1997 and the
first six months of 1998, as well as redemptions on the monthly net asset values
caused commissions to decrease by $138,816 and $82,411 for the six and three
months ended June 30, 1998 as compared to the same periods in 1997.
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 $17,063 and
$10,598 for the six and three months ended June 30, 1998 as compared to the same
periods in 1997 primarily due to lower trading volume.
As of June 30, 1998, all trading decisions were made by Sjo, Inc. and
Willowbridge Associates Inc. (the 'Trading Managers'). During July 1998,
Willowbridge Associates Inc. ceased to serve as a Trading Manager to the
Partnership. The Partnership is currently negotiating with other independent
commodities trading managers to trade those Partnership assets previously traded
by Willowbridge Associates Inc. 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 $88,741 and $48,522 for the six and three months ended June 30,
1998 as compared to the same periods in 1997 for the same reasons commissions
decreased as discussed above.
10
<PAGE>
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. No incentive fees were earned
during the six months and three months ended June 30, 1998. However,
Willowbridge Associates Inc. earned incentive fees of $226,785 during the three
months ended March 31, 1997. No incentive fees were earned during the three
months ended June 30, 1997.
General and administrative expenses increased by $10,456 and $11,666 for the
six and three months ended June 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
<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--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
<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 3, L.P.
By: Seaport Futures Management, Inc.
A Delaware corporation, General Partner
By: /s/ Steven Carlino Date: August 14, 1998
----------------------------------------
Steven Carlino
Vice President
Chief Accounting Officer for the Registrant
13
<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 3, L.P.
and is qualified in its entirety by reference
to such financial statements
</LEGEND>
<RESTATED>
<CIK> 0000857850
<NAME> P-B Capital Return Futures Fund 3, L.P.
<MULTIPLIER> 1
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-1-1998
<PERIOD-END> Jun-30-1998
<PERIOD-TYPE> 6-MOS
<CASH> 14,965,644
<SECURITIES> 206,760
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 15,172,404
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 15,172,404
<CURRENT-LIABILITIES> 900,920
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 14,271,484
<TOTAL-LIABILITY-AND-EQUITY> 15,172,404
<SALES> 0
<TOTAL-REVENUES> (764,962)
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,015,298
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,780,260)
<EPS-PRIMARY> (17.46)
<EPS-DILUTED> (17.46)
</TABLE>
