<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, 1999
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
- --------------------------------------------------------------------------------
(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,
1999 1998
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------
ASSETS
Equity in commodity trading accounts:
Cash $ 2,513,469 $ 2,838,700
U.S. Treasury bills, at amortized cost 9,923,843 10,175,171
Net unrealized gain on open commodity positions 267,705 494,136
----------- ------------
Total assets $12,705,017 $13,508,007
----------- ------------
----------- ------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Redemptions payable $ 714,140 $ 712,663
Accrued expenses 34,780 66,586
Due to affiliates 52,627 14,709
Management fees payable 21,125 22,378
Incentive fee payable 55,057 --
----------- ------------
Total liabilities 877,729 816,336
----------- ------------
Commitments
Partners' capital
Limited partners (73,357 and 83,196 units outstanding) 11,709,013 12,564,659
General partner (741 and 841 units outstanding) 118,275 127,012
----------- ------------
Total partners' capital 11,827,288 12,691,671
----------- ------------
Total liabilities and partners' capital $12,705,017 $13,508,007
----------- ------------
----------- ------------
Net asset value per limited and general partnership unit ('Units') $ 159.62 $ 151.02
----------- ------------
----------- ------------
- ---------------------------------------------------------------------------------------------------
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,
------------------------- -----------------------
1999 1998 1999 1998
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
REVENUES
Net realized gain (loss) on commodity
transactions $1,487,996 $ (442,371) $934,046 $ (812,932)
Change in net unrealized gain on open commodity
positions (226,431) (651,430) (92,145) (348,742)
Interest from U.S. Treasury bills 210,159 328,839 104,681 146,673
---------- ----------- -------- -----------
1,471,724 (764,962) 946,582 (1,015,001)
---------- ----------- -------- -----------
EXPENSES
Commissions 471,972 619,772 234,205 286,681
Other transaction fees 31,467 104,497 15,005 47,149
Management fees 127,761 202,093 63,964 90,868
Incentive fees 78,984 -- 55,057 --
General and administrative 77,168 88,936 36,830 44,341
---------- ----------- -------- -----------
787,352 1,015,298 405,061 469,039
---------- ----------- -------- -----------
Net income (loss) $ 684,372 $(1,780,260) $541,521 $(1,484,040)
---------- ----------- -------- -----------
---------- ----------- -------- -----------
ALLOCATION OF NET INCOME (LOSS)
Limited partners $ 677,526 $(1,762,427) $536,104 $(1,469,170)
---------- ----------- -------- -----------
---------- ----------- -------- -----------
General partner $ 6,846 $ (17,833) $ 5,417 $ (14,870)
---------- ----------- -------- -----------
---------- ----------- -------- -----------
NET INCOME (LOSS) PER WEIGHTED AVERAGE LIMITED
AND GENERAL PARTNERSHIP UNIT
Net income (loss) per weighted average limited
and general partnership unit $ 8.42 $ (17.46) $ 6.89 $ (14.87)
---------- ----------- -------- -----------
---------- ----------- -------- -----------
Weighted average number of limited and general
partnership units outstanding 81,305 101,939 78,572 99,804
---------- ----------- -------- -----------
---------- ----------- -------- -----------
- -------------------------------------------------------------------------------------------------------
</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 84,037 $12,564,659 $127,012 $12,691,671
Net income -- 677,526 6,846 684,372
Redemptions (9,939) (1,533,172) (15,583) (1,548,755)
------- ----------- -------- -----------
Partners' capital--June 30, 1999 74,098 $11,709,013 $118,275 $11,827,288
------- ----------- -------- -----------
------- ----------- -------- -----------
- ----------------------------------------------------------------------------------------------------
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, 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 3, L.P. (the
'Partnership') as of June 30, 1999 and the results of its operations for the six
and three months ended June 30, 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 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.
New Accounting Guidance
In June 1999, the Financial Accounting Standards Board ('FASB') issued
Statement No. 137, Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133--an
amendment of FASB Statement No. 133, which delayed the effective date of FASB
Statement No. 133, Accounting for Derivative Instruments and Hedging Activities
('SFAS 133'). The Partnership does not believe the effect of adoption of SFAS
133, now required effective January 1, 2001, will be material.
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, 1999
and 1998 were:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
-----------------------------------------------------------------------------------
Commissions $471,972 $619,772
General and administrative 40,700 50,676
-------- --------
$512,672 $670,448
-------- --------
-------- --------
</TABLE>
The costs incurred for these services for the three months ended June 30, 1999
and 1998 were:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
-----------------------------------------------------------------------------------
Commissions $234,205 $286,681
General and administrative 20,350 25,026
-------- --------
$254,555 $311,707
-------- --------
-------- --------
</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 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,
4
<PAGE>
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.
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 and its 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. Additionally, pursuant
to the Advisory Agreements among the Partnership, the General Partner and each
trading manager, a trading manager will automatically be terminated if the net
asset value allocated to that trading manager declines by 33 1/3% in any year or
since the initial allocation of assets to that trading manager
(except for Sjo, Inc. which would require a decline of 40% from the value as of
the first day of the then current year). Furthermore, the Agreement of Limited
Partnership provides that the Partnership will liquidate its positions, and
eventually dissolve, if the Partnership experiences a decline in the net asset
value of 50% since the commencement of trading activities. In each case, the
decline in the net asset value is after giving effect for distributions and
redemptions. 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, 1999, such segregated assets totalled $8,416,157. 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 $4,295,876 at June 30, 1999.
There are no segregation requirements for assets related to forward trading.
As of June 30, 1999, the Partnership's open futures and forward contracts
generally mature within one year.
5
<PAGE>
At June 30, 1999 and December 31, 1998, gross contract amounts of open
futures and forward contracts were:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Financial Futures Contracts:
Commitments to purchase $21,564,047 $42,939,543
Commitments to sell 59,227,392 70,231,314
Currency Futures Contracts:
Commitments to purchase 2,561,888 4,047,975
Commitments to sell 8,632,946 6,715,726
Other Futures Contracts:
Commitments to purchase 2,391,753 1,180,941
Commitments to sell 3,456,766 5,823,477
Currency Forward Contracts:
Commitments to purchase 17,943,171 8,606,922
Commitments to sell 22,335,353 8,306,752
</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, 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, 1999 and December 31, 1998, the fair value of open futures and
forward contracts was:
<TABLE>
<CAPTION>
1999 1998
------------------------ ------------------------
<S> <C> <C> <C> <C>
Assets Liabilities Assets Liabilities
-------- ------------ -------- ------------
Futures Contracts:
Domestic exchanges
Financial $ 14,579 $ 40,206 $ 17,975 $ 3,591
Currencies 38,685 52,880 239,260 37,299
Other 201,977 7,618 155,300 36,717
Foreign exchanges
Financial 213,300 15,403 462,890 72,197
Other 31,396 109,109 84,761 52,321
Forward Contracts:
Currencies 275,572 282,588 -- 263,925
-------- ------------ -------- ------------
$775,509 $507,804 $960,186 $466,050
-------- ------------ -------- ------------
-------- ------------ -------- ------------
</TABLE>
6
<PAGE>
The following table presents the average fair value of futures, forward and
options contracts during the six months ended June 30, 1999 and 1998,
respectively.
<TABLE>
<CAPTION>
1999 1998
-------------------------- --------------------------
<S> <C> <C> <C> <C>
Assets Liabilities Assets Liabilities
---------- ------------ ---------- ------------
Futures Contracts:
Domestic exchanges
Financial $ 41,434 $ 10,689 $ 150,464 $ 34,235
Currencies 139,451 34,805 237,220 60,613
Other 128,175 22,142 182,751 123,930
Foreign exchanges
Financial 224,590 45,118 413,337 44,818
Other 59,186 60,475 80,898 78,582
Forward Contracts:
Currencies 503,283 288,555 5,335 94,103
Other -- -- 57,889 79,883
Options Contracts:
Domestic exchanges
Financial -- -- 30,464 --
Currencies -- -- 19,693 --
Foreign exchanges
Financial -- -- 3,268 --
Other -- -- 7,154 --
---------- ------------ ---------- ------------
$1,096,119 $461,784 $1,188,473 $516,164
---------- ------------ ---------- ------------
---------- ------------ ---------- ------------
</TABLE>
The following table presents the average fair value of futures, forward and
options contracts during the three months ended June 30, 1999 and 1998,
respectively.
<TABLE>
<CAPTION>
1999 1998
-------------------------- --------------------------
Assets Liabilities Assets Liabilities
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Futures Contracts:
Domestic exchanges
Financial $ 27,489 $ 16,471 $ 129,073 $ 24,987
Currencies 142,309 25,803 332,416 85,201
Other 115,147 19,462 193,445 150,539
Foreign exchanges
Financial 208,835 31,691 188,433 70,089
Other 45,147 62,680 71,267 77,776
Forward Contracts:
Currencies 649,798 276,352 9,336 74,100
Other -- -- 43,995 139,221
Options Contracts:
Domestic exchanges
Financial -- -- 47,469 --
Currencies -- -- 9,163 --
Foreign exchanges
Financial -- -- 5,719 --
Other -- -- 12,519 --
---------- ----------- ---------- -----------
$1,188,725 $ 432,459 $1,042,835 $ 621,913
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
</TABLE>
7
<PAGE>
The following table presents the Partnership's trading revenue for the six
and three months ended June 30, 1999 and 1998:
<TABLE>
<CAPTION>
Six months ended Three months ended
June 30, June 30,
-------------------------- ------------------------
<S> <C> <C> <C> <C>
1999 1998 1999 1998
---------- ----------- -------- -----------
Futures Contracts:
Domestic exchanges
Financial $ 51,683 $ (347,948) $ 81,652 $ (88,235)
Currencies (192,658) (700,409) 34,281 (529,305)
Other 27,656 (64,135) 56,847 283,737
Foreign exchanges
Financial 142,307 1,233,668 221,958 118,287
Other (61,224) (152,078) (30,077) 45,971
Forward Contracts:
Currencies 1,293,801 (172,487) 477,240 (47,550)
Other -- (349,188) -- (543,422)
Options Contracts:
Domestic exchanges
Financial -- (293,831) -- (247,096)
Currencies -- (214,125) -- (125,850)
Other -- (1,670) -- (1,670)
Foreign exchanges
Financial -- (25,054) -- (25,054)
Other -- (6,544) -- (1,487)
---------- ----------- -------- -----------
$1,261,565 $(1,093,801) $841,901 $(1,161,674)
---------- ----------- -------- -----------
---------- ----------- -------- -----------
</TABLE>
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 June 30, 1999, 100% of the Partnership's net assets were allocated to
commodities trading. At June 30, 1999, a significant portion of the net assets
was held in U.S. Treasury bills (which represented approximately 79% 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 assets varies each
day, and from month to month, as the market values 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 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 and its
trading managers to abide by various trading limitations and policies which
include limiting margin amounts, trading only in liquid markets and utilizing
stop loss provisions. 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.
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, 1999 were $1,533,172 and $706,957, respectively. Redemptions by the
General Partner recorded for the six and three months ended June 30, 1999 were
$15,583 and $7,183, respectively. Redemptions by limited partners and the
General Partner from commencement of operations, May 30, 1990, through June 30,
1999 totalled $66,701,424 and $780,155, respectively. Future redemptions will
impact the amount of funds available for investment in commodity contracts in
subsequent periods.
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 June 30, 1999 was $159.62, an increase of
5.69% from the December 31, 1998 net asset value per Unit of $151.02.
Quarterly Market Overview
In the United States, as economic indicators strengthened and the Federal
Reserve Bank announced they would raise interest rates, the U.S. dollar rose
against most major currencies, especially European which
9
<PAGE>
were spurred by deteriorating confidence in the Euro. Throughout the second
quarter, several issues weighed on world markets including significant price
declines in global long-term interest bonds, the U.S. Federal Reserve's
tightening of monetary policy and an increased supply of corporate debt.
Furthermore, as the U.S. economy generated strength, investors feared possible
inflation. U.S. bond prices fell, followed by European bonds which were
depressed by rumors regarding Italy's retreat from the European Economic Union.
Global stock markets recorded gains over the quarter, supported by solid
corporate earnings and improved economies (especially Asian). In the commodity
markets, the energy sector rallied as OPEC announced production cuts and lower
inventories in oil and gasoline. A consistent tone prevailed in the agricultural
and soft commodity markets as favorable seasonal growing conditions continued to
weigh on prices.
Quarterly Partnership Performance
Currency sector positions led by the Swiss franc and Euro captured gains for
the Partnership. Weakness in the Euro continued due to deteriorating confidence
in that currency and Italy's possible retraction from the European Economic
Union. Consequently, the European Central Bank has been rumored to be
considering an interest rate increase. The Swiss franc fell in value versus the
U.S. dollar after losing its safe haven attraction as the war in Kosovo ended,
and as the U.S. dollar gained strength when the Federal Reserve increased the
U.S. interest rate by .25%.
The Partnership recorded profits in the financial sector driven by Japanese
government and short-term cash (Montreal) bonds. Throughout the quarter, the
Japanese economy appeared to strengthen prompting a bond market rally. In June,
the Federal Reserve raised the federal funds rate by 25 basis points. Short
positions in Canadian and European bonds benefited from this rise in interest
rates.
In the energy sector, trading in light crude oil and natural gas provided
profits. Crude oil products rallied as extremely hot U.S. weather drove utility
demand during June. The rally continued following statements by oil ministers
from Saudi Arabia and Mexico regarding the high degree of compliance with
current OPEC production cuts. Additionally, natural gas products experienced low
quarterly inventories.
Losses were incurred in the metal sector from positions in copper and lead.
Base metals rallied sharply following announcements that two major companies
would significantly cut copper output. If carried out, the estimated production
cuts would almost eliminate the estimated global copper supply surplus.
Interest income is earned on the Partnership's investments in U.S. Treasury
bills and, therefore, varies monthly based on interest rates as well as the
effect of trading performance and redemptions on the level of funds available
for investment in U.S. Treasury bills. Interest income from U.S. Treasury bills
decreased by $119,000 and $42,000 for the six and three months ended June 30,
1999 as compared to the same periods in 1998. These decreases were primarily due
to the effect of declining interest rates as well as the effect of fewer funds
available for investment in U.S. Treasury bills resulting from the liquidation
of such investments for the payment of redemptions and poor trading performance
during 1998 offset, in part, by positive trading performance during 1999.
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 $148,000 and $52,000 for the six and three months ended
June 30, 1999 as compared to the same periods in 1998 due primarily to the
effect on the monthly net asset values of quarterly redemptions and poor trading
performance during 1998 offset, in part, by positive trading performance during
1999.
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 as well as which exchange, clearing firm or bank on, or
through, which the contract is traded. Other transaction fees decreased by
$73,000 and $32,000 for the six and three months ended June 30, 1999 as compared
to the same periods in 1998 due to lower trading volume. Additionally, beginning
in August 1998, the Partnership experienced a higher concentration of interbank
trading, which does not generate other transactions fees, as a result of a
change in trading managers as further discussed below.
All trading decisions are currently being made by Sjo, Inc. and Robert M.
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 $74,000 and $27,000 for the six and three months ended June 30,
1999 as compared to the
10
<PAGE>
same periods in 1998 for the same reasons commissions decreased as discussed
above. Additionally, these decreases were due to a reduction from a 3% annual
rate to 2% when Willowbridge Associates, Inc. ('Willowbridge') ceased to serve
as a Trading Manager to the Partnership and the portion of the net assets traded
by Willowbridge were reallocated to Robert M. Tamiso during July 1998.
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. Robert M. Tamiso generated
sufficient profits to earn incentive fees of $79,000 and $55,000 during the six
and three months ended June 30, 1999. No incentive fees were earned during the
six and three months ended June 30, 1998.
General and administrative expenses decreased by $12,000 and $8,000 for the
six and three months ended June 30, 1999 as compared to the same periods in
1998. These expenses include reimbursements of costs incurred by the General
Partner on behalf of the Partnership, in addition to accounting, audit, tax and
legal fees as well as printing and postage costs related to reports sent to
limited partners. These decreases were due to reductions in overall costs
associated with administering the Partnership including continuing declines in
printing and postage costs as limited partners redeem their units.
New Accounting Guidance
In June 1999, the Financial Accounting Standards Board ('FASB') issued
Statement No. 137, Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133--an
amendment of FASB Statement No. 133, which delayed the effective date of FASB
Statement No. 133, Accounting for Derivative Instruments and Hedging Activities
('SFAS 133'). The Partnership does not believe the effect of adoption of SFAS
133, now required effective January 1, 2001, will be material.
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.
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 13, 1999
----------------------------------------
Steven Carlino
Vice President and Treasurer
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-31-1999
<PERIOD-START> Jan-1-1999
<PERIOD-END> Jun-30-1999
<PERIOD-TYPE> 6-MOS
<CASH> 2,513,469
<SECURITIES> 10,191,548
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 12,705,017
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 12,705,017
<CURRENT-LIABILITIES> 877,729
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 11,827,288
<TOTAL-LIABILITY-AND-EQUITY> 12,705,017
<SALES> 0
<TOTAL-REVENUES> 1,471,724
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 787,352
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 684,372
<EPS-BASIC> 8.42
<EPS-DILUTED> 0
</TABLE>
