-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KTppic80dOzjkhS6K6yM94yTo6ZpjWCX3OW95xPjM3qK1dH/6ZwvxOEgz2tVXtxY S0FSMa+IiunogoNukeHTOA== 0000898733-96-000405.txt : 19960620 0000898733-96-000405.hdr.sgml : 19960620 ACCESSION NUMBER: 0000898733-96-000405 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRUDENTIAL BACHE CAPITAL RETURN FUTURES FUND 3 L P CENTRAL INDEX KEY: 0000857850 STANDARD INDUSTRIAL CLASSIFICATION: 6794 IRS NUMBER: 133544867 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-19070 FILM NUMBER: 96564646 BUSINESS ADDRESS: STREET 1: FINANCIAL SQ STREET 2: 6TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10005 BUSINESS PHONE: 2128047866 MAIL ADDRESS: STREET 1: ONE NEW YORK PLAZA STREET 2: 13TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10292 10-Q 1 P-B CAPITAL RETURN FUTURES FUND 3, L.P. 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, 1996 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 (I.R.S. Employer of incorporation or organization) Identification No.) 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 __ 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)
March 31, December 31, 1996 1995 - - ---------------------------------------------------------------------------------------------------- ASSETS Equity in commodity trading accounts: Cash $ 5,056,200 $ 5,764,135 U.S. Treasury bills, at amortized cost 14,924,590 15,124,874 Net unrealized gain on open commodity positions 816,277 1,340,794 Options, at market -- 41,162 ------------- ------------ Total assets $20,797,067 $22,270,965 ------------- ------------ ------------- ------------ LIABILITIES AND PARTNERS' CAPITAL Liabilities Redemptions payable $ 889,698 $ 877,911 Incentive fees payable 67,355 74,959 Due to affiliates 64,795 77,692 Accrued expenses 54,519 63,404 Management fees payable 49,937 53,350 ------------- ------------ Total liabilities 1,126,304 1,147,316 ------------- ------------ Commitments Partners' capital Limited partners (127,740 and 131,345 units outstanding) 19,473,950 20,572,015 General partner (1,291 and 3,522 units outstanding) 196,813 551,634 ------------- ------------ Total partners' capital 19,670,763 21,123,649 ------------- ------------ Total liabilities and partners' capital $20,797,067 $22,270,965 ------------- ------------ ------------- ------------ Net asset value per limited and general partnership unit (``Units'') $ 152.45 $ 156.63 ------------- ------------ ------------- ------------ - - ---------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these statements
2 PRUDENTIAL-BACHE CAPITAL RETURN FUTURES FUND 3, L.P. (a limited partnership) STATEMENTS OF OPERATIONS (Unaudited)
Three months ended March 31, ----------------------- 1996 1995 - - --------------------------------------------------------------------------------------------------- REVENUES Net realized gain (loss) on commodity transactions $ 487,572 $ (430,117) Change in net unrealized gain/loss on open commodity positions (527,954) 1,103,116 Interest from U.S. Treasury bills 199,285 158,277 Realized gain on reserve assets -- 3,705 Change in net unrealized gain on reserve assets -- (21,307) Interest from reserve assets -- 256,003 --------- ---------- 158,903 1,069,677 --------- ---------- EXPENSES Commissions 396,483 212,602 Other transaction fees 56,984 37,288 Letter of credit fees -- 52,968 Management fees 152,322 94,416 Incentive fees 67,355 -- General and administrative 48,947 33,940 Amortization of organizational costs -- 3,810 --------- ---------- 722,091 435,024 --------- ---------- Net income (loss) $(563,188) $ 634,653 --------- ---------- --------- ---------- ALLOCATION OF NET INCOME (LOSS) Limited partners $(548,483) $ 622,785 --------- ---------- --------- ---------- General partner $ (14,705) $ 11,868 --------- ---------- --------- ---------- NET INCOME (LOSS) PER WEIGHTED AVERAGE LIMITED AND GENERAL PARTNERSHIP UNIT Net income (loss) per weighted average limited and general partnership unit $ (4.16) $ 3.37 --------- ---------- --------- ---------- Weighted average number of limited and general partnership units outstanding 134,867 188,338 --------- ---------- --------- ---------- - - ---------------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (Unaudited)
LIMITED GENERAL UNITS PARTNERS PARTNER TOTAL - - ---------------------------------------------------------------------------------------------------- Partners' capital--December 31, 1995 134,867 $20,572,015 $551,634 $21,123,649 Net loss -- (548,483) (14,705) (563,188) Redemptions (5,836) (549,582) (340,116) (889,698) ------- ----------- -------- ----------- Partners' capital--March 31, 1996 129,031 $19,473,950 $196,813 $19,670,763 ------- ----------- -------- ----------- ------- ----------- -------- ----------- - - ---------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these statements
3 PRUDENTIAL-BACHE CAPITAL RETURN FUTURES FUND 3, L.P. (a limited partnership) NOTES TO FINANCIAL STATEMENTS MARCH 31, 1996 (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 March 31, 1996 and the results of its operations for the three months ended March 31, 1996 and 1995. 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, 1995 (the ``Annual Report''). Certain balances from the prior period 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 three months ended March 31, 1996 and 1995 were:
1996 1995 ---------------------------------------------------------------------------------------- Commissions and letter of credit fees $396,483 $ 224,371 General and administrative 27,881 10,089 ------------ ----------- $424,364 $ 234,460 ------------ ----------- ------------ -----------
The Partnership maintains its trading and cash accounts with Prudential Securities Incorporated (``PSI''), the Partnership's commodity broker and an affiliate of the General Partner. Approximately seventy-five (75%) of the Partnership's trading assets is invested in interest-bearing U.S. Government obligations (primarily U.S. Treasury bills), a significant portion of which is utilized for margin purposes for the Partnership's commodity trading activities. As described in the Annual Report, all commissions for brokerage services are paid to PSI. When the Partnership engages in forward foreign currency transactions it trades with PSI who simultaneously engages in back-to-back transactions with an affiliate who, pursuant to the Partnership's prospectus, is obligated to charge a competitive price. Additionally, the Partnership maintained a 9.16% guaranteed investment contract (``GIC'') which matured on June 30, 1995 with The Prudential Asset Management Company, Inc., an affiliate of the General Partner. Interest earned on the GIC for the three months ended March 31, 1995 was $254,108. 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 4 (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 March 31, 1996 and December 31, 1995, such segregated assets totalled $20,778,995 and $20,592,976, 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 $33,857 and $1,677,989 at March 31, 1996 and December 31, 1995, respectively. There are no segregation requirements for assets related to forward trading. As of March 31, 1996 and December 31, 1995, the Partnership's open futures, forward and options contracts mature within one year. At March 31, 1996 and December 31, 1995, gross contract amounts of open futures, forward and options contracts are:
March 31, December 31, 1996 1995 ------------ ------------ Currency Futures Contracts: Commitments to purchase $ 7,837,288 $ -- Financial Futures Contracts: Commitments to purchase $ 22,871,881 $211,622,618 Commitments to sell $100,475,500 $109,152,492 Commodity Futures, Forward and Options Contracts: Commitments to purchase $ 31,754,483 $ 19,550,940 Commitments to sell $ 21,370 $ 1,851,942
Included in the gross forward contract amounts are offsetting commitments to purchase and to sell the same commodity on the same date in the future. The commitments are economically offsetting but are not, as a technical matter, offset in the forward market until the settlement date. 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 5 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 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 March 31, 1996 and December 31, 1995, the fair values of futures, forward and options contracts were:
March 31, 1996 December 31, 1995 -------------------------------- -------------------------- Fair Value Fair Value -------------------------------- -------------------------- Assets Liabilities Assets Liabilities -------------- -------------- ---------- ------------ Futures Contracts: Domestic exchanges Commodities $ 938,762 $156,514 $ 831,073 $169,415 Financial 969 -- 247,938 210,938 Currencies 14,988 -- -- -- Foreign exchanges Commodities 35,581 79,963 20,892 76,963 Financial 115,461 37,222 701,932 3,725 Forward contracts: Commodities 15,875 31,660 -- -- Options Contracts: Domestic exchanges Commodities -- -- 41,162 -- -------------- -------------- ---------- ------------ $1,121,636 $305,359 $1,842,997 $461,041 -------------- -------------- ---------- ------------ -------------- -------------- ---------- ------------
The following table represents the average fair value of futures, forward and options contracts during the three months ended March 31, 1996 and 1995, respectively.
Three months ended Three months ended March 31, 1996 March 31, 1995 -------------------------------- -------------------------- Average Fair Value Average Fair Value -------------------------------- -------------------------- Assets Liabilities Assets Liabilities -------------- -------------- ---------- ------------ Futures Contracts: Domestic exchanges Commodities $ 768,572 $156,737 $ -- $ -- Financial 69,146 44,115 656,928 (62,308) Currencies 79,150 -- -- -- Foreign exchanges Commodities 124,917 112,928 -- -- Financial 68,042 16,632 -- -- Forward Contracts: Commodities 5,292 10,553 -- -- Options Contracts: Domestic exchanges Commodities 33,216 -- -- -- -------------- -------------- ---------- ------------ $1,148,335 $340,965 $ 656,928 $(62,308) -------------- -------------- ---------- ------------ -------------- -------------- ---------- ------------
6 The following table represents the net realized gains (losses) and the change in unrealized gains/losses of futures, forward and options contracts during the three months ended March 31, 1996 and 1995, respectively:
Three months ended March 31, 1996 Three months ended March 31, 1995 --------------------------------------------- --------------------------------------------- Change in Change in Net Realized Unrealized Net Realized Unrealized Gains (Losses) Gains/Losses Total Gains (Losses) Gains/Losses Total -------------- ------------ --------- -------------- ------------ --------- Futures Contracts: Domestic exchanges Commodities $ 757,605 $ 120,589 $ 878,194 $ -- $ -- $ -- Financial 221,536 (36,031) 185,505 -- -- -- Currencies (108,315) 14,988 (93,327) -- -- -- Foreign exchanges Commodities (56,070) 11,689 (44,381) -- -- -- Financial (226,616) (619,968) (846,584) (430,117) 1,103,116 672,999 Forward Contracts: Commodities 24,002 (15,784) 8,218 -- -- -- Options Contracts: Domestic exchanges Commodities (104,882) (3,437) (108,319) -- -- -- Foreign exchanges Commodities (19,688) -- (19,688) -- -- -- -------------- ------------ --------- -------------- ------------ --------- $ 487,572 $ (527,954) $ (40,382) $ (430,117) $1,103,116 $ 672,999 -------------- ------------ --------- -------------- ------------ --------- -------------- ------------ --------- -------------- ------------ ---------
7 PRUDENTIAL-BACHE CAPITAL RETURN FUTURES FUND 3, L.P. (a limited partnership) ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources The Partnership commenced operations on May 30, 1990 with gross proceeds of $65,520,000. After accounting for organizational and offering costs, the Partnership's net proceeds were $64,222,750. At the inception of the Partnership, sixty percent of the net proceeds was allocated to trading activity and forty percent was placed in reserve and invested in investment grade interest-bearing obligations (``Reserve Assets''). On June 30, 1995, the letter of credit expired and the Reserve Assets became available for commodities trading. During July, these assets were allocated for trading to Willowbridge Associates Inc. (``Willowbridge''), a new independent commodity trading manager to the Partnership. As such, at March 31, 1996, 100% of the Partnership's net assets were allocated to commodities trading (the ``Adjusted Net Asset Value''). A significant portion of the Adjusted Net Asset Value was held in U.S. Treasury bills (which represented approximately 73% of the Adjusted 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 and options contracts. The Partnership does not have, nor does it expect to have, any capital assets. Redemptions by limited partners and the General Partner recorded for the three months ended March 31, 1996 were $549,582 and $340,116, respectively. Redemptions by limited partners and the General Partner from commencement of operations, May 30, 1990, through March 31, 1996 totalled $57,846,773 and $690,661, 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 March 31, 1996 was $152.45, a decrease of 2.67% from the December 31, 1995 net asset value per Unit of $156.63. The Partnership's January gain was a result of trading in both the financial and non-financial sectors. Profits were taken in the currency, financial and metals sectors, while losses were sustained in the grain, stock indices, and meat sectors. The stronger dollar in relation to the Deutsche mark provided the profits in the foreign exchange sector during the month. There were losses in the U.S. and international interest rate markets which slightly offset some of the currency profits. The largest sector profits came from precious 8 metals in both gold and silver. Late in the month, gold moved up strongly from the increasingly narrow price range below $400 where it had traded for several years. Silver strengthened as well. The grains, which had added to profits in the prior month reversed direction, as did the live hog market. In the financial sector, European bonds rallied during the first half of January but sold off during the last week of the month. Profits were generated from the German bund and French and Italian bonds. Losses were taken in long Australian, British, Canadian, and Swiss bond positions and a short Japanese government bond position. The Partnership's performance was negative in the month of February. Trading was mixed, as profits were earned in the grains, financials, and meats sectors while losses were incurred in the stock indices, metals and energies sectors. In the financials sector, U.S. Treasury bonds provided gains which offset losses on positions in long Australian, French, Italian and Swiss bonds. European interest rates rose on stronger than expected economic data and a reaction to rising U.S. interest rates. The grains markets provided profits as the markets responded to indications of strong worldwide demand. There were also gains in live hogs in the meats sector. The precious metals sector, which had provided profits in January, reversed direction, causing losses. Crude oil prices recovered mid-February from a previous decline only to tumble again at month end, negatively impacting positions. The Partnership's performance was negative in the month of March. Profits earned in the grains, energies and meats sectors were offset by losses in the currencies, financials, metals, and stock indices sectors. In the financials sector, losses were taken in selling Australian, British, Canadian, French, German, Japanese and Swiss bond positions. Except for Japan, world bond prices reacted negatively to a fall in U.S. bond prices as U.S. non-farm payroll employment in January was much greater than market expectations and the U.S. Federal Open Market Committee voted to keep the federal funds rate unchanged at its February meeting. This changed the sentiment of global bond market participants such that further short-term interest rate cuts seemed unlikely. During March, profits were made in the grains markets. The demand for grains, particularly in the Far East, remained strong. Profits in crude oil occurred as prices rose on indications of tight supplies. Oil inventories were at historic lows and oil purchasers were reluctant to add to inventories in the face of possible sales of Iraqi oil, which could cause lower prices. As discussed in Liquidity and Capital Resources above, the letter of credit expired on June 30, 1995. As a result, there were no letter of credit fees charged during the first quarter of 1996. With the expiration of the letter of credit, Reserve Assets previously invested in a GIC were allocated to commodities trading thus increasing the Partnership's Adjusted Net Asset Value, including its investments in U.S. Treasury bills. This increase in U.S. Treasury bills resulted in an increase of approximately $41,000 in interest income from U.S. Treasury bills for the three months ended March 31, 1996 as compared to the same period in 1995. However, interest income from Reserve Assets was eliminated following the allocation of Reserve Assets to commodities trading. Additionally, the interest rate on Reserve Assets was higher than the interest rates on U.S. Treasury bills. As a result of the above, as well as the effect of trading performance and redemptions on the funds available for investment in U.S. Treasury bills, interest income (from both U.S. Treasury bills and Reserve Assets) decreased by approximately $215,000 for the three months ended March 31, 1996 as compared to the same period in 1995. Commissions are calculated on the Adjusted Net Asset Value on the first day of each month and, therefore, vary based on monthly trading performance and redemptions. The Adjusted Net Asset Value increased when the letter of credit expired and Reserve Assets were allocated to commodities trading as discussed above. However, the commission rate decreased by 1/2 of 1% from 8% (inclusive of letter of credit fees) to 7.5% effective July 1, 1995. The combination of these factors caused commissions plus letter of credit fees to increase by approximately $131,000 for the three months ended March 31, 1996 as compared to the same period in 1995. Other transaction fees consist of National Futures Association, exchange, floor brokerage and clearing fees which are based on the number of trades the trading managers execute. Other transaction fees increased by approximately $20,000 for the three months ended March 31, 1996 as compared to the same period in 1995 primarily due to increased trading volume. All trading decisions are currently being made by Sjo, Inc. and Willowbridge (the ``Trading Managers''). Management fees are calculated on the Adjusted Net Asset Value allocated to each Trading Manager as of the end of each month and, therefore, are affected by trading performance and redemptions. Additionally, the Adjusted Net Asset Value increased when Reserve Assets were allocated to commodities trading as 9 discussed above. As a result, management fees increased by approximately $58,000 for the three months ended March 31, 1996 as compared to the same period in 1995. Incentive fees are based on New High Net Trading Profits generated by each Trading Manager, as defined in the Advisory Agreements between the Partnership, the General Partner and each Trading Manager. Despite overall trading losses for the Partnership, Willowbridge made profits, earning incentive fees of approximately $67,000 during the three months ended March 31, 1996. No incentive fees were earned during the three months ended March 31, 1995. General and administrative expenses increased by approximately $15,000 for the three months ended March 31, 1996 as compared to the same period in 1995. 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. The increase was primarily due to the timing of certain accruals recorded in the respective periods. 10 PART II. OTHER INFORMATION Item 1. Legal Proceedings--There are no material legal proceedings pending by or against the Registrant or the General Partner. Item 2. Changes in Securities--None Item 3. Defaults Upon Senior Securities--None Item 4. Submission of Matters to a Vote of Security Holders--None Item 5. Other Information--None Item 6. Exhibits and Reports on Form 8-K: (a) Exhibits 4.1 Agreement of Limited Partnership of the Registrant, dated as of November 27, 1989 as amended and restated as of January 30, 1990 (incorporated by reference to Exhibits 3.1 and 4.1 to the Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 1990) 4.2 Subscription Agreement (incorporated by reference to Exhibit 4.2 to the Registrant's Registration Statement on Form S-1, File No. 33-32355) 4.3 Request for Redemption (incorporated by reference to Exhibit 4.3 to the Registrant's Registration Statement on Form S-1, File No. 33-32355) 10.15 Form of Foreign Currency Addendum to Brokerage Agreement between the Registrant and PSI (filed herewith) 27.1 Financial Data Schedule (filed herewith) (b) Reports on Form 8-K--No reports on Form 8-K were filed during the period covered by this report. 11 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: May 15, 1996 ---------------------------------------- Steven Carlino Vice President Chief Accounting Officer for the Registrant 12 EX-10.15 2 EXHIBIT 10.15 FOREIGN CURRENCY ADDENDUM This addendum ("Addendum) supplements the terms and conditions of the Futures Account Client Agreement ("Agreement") entered into by and between Prudential-Bache Capital Return Futures Fund 3, L.P. ("Customer") and Prudential Securities Incorporated ("PSI") as of ___________, 199__. In consideration of PSI agreeing to enter into various forward and spot foreign currency and foreign currency options transactions (collectively "Forex Contracts") with Customer, the parties agree as follows: 1. Relationship to Agreement. Except as otherwise provided in this Addendum, the terms and conditions of the Agreement shall remain in full force and effect, and shall apply to all Forex Contracts that PSI may transact with Customer. If there are any conflicts between the terms and conditions of the Agreement and this Addendum, the terms and conditions of this Addendum will govern with respect to Forex Contracts. 2. Forex Contracts. PSI and Customer will each act as principals with respect to Forex Contracts. Forex Contracts will be transacted within the non-regulated portion of Customer's PSI futures account. Customer acknowledges that Forex Contracts are not traded on or guaranteed by a regulated exchange or its clearing house and accordingly, acknowledges that trading in Forex Contracts is not subject to the same regulatory or financial protections as is trading in futures contracts. Customer represents and warrants that (a) it is authorized to enter into Forex Contracts, (b) it understands that as principal opposite PSI the parties will each be relying on the creditworthiness of the other, (c) each Forex Contract will be individually negotiated as to its material economic terms, and (d) PSI will be entitled to rely on any instructions, notices and communications that it reasonably believes to have originated with any authorized representative of Customer, including a person with a Power of Attorney over trading decisions, and Customer shall be bound thereby. 3. Limits. This Addendum does not evidence a commitment of PSI or Customer to enter into Forex Contracts generally or to enter into any specific Forex Contract. PSI shall have the right to set limits on the number of Forex Contracts that PSI will transact with Customer. PSI reserves the right to increase or decrease such limits as, in PSI's good faith judgment, market and economic conditions warrant, including but not limited to the material change in Customer's credit rating or Customer's country or sovereign rating by an internationally recognized rating agency. Additionally, PSI reserves the right, exercisable at any time when warranted by market conditions in PSI's sole discretion, to refuse acceptance of Customer's orders. 4. Confirmations. Upon entering into a Forex Contract with Customer, PSI shall verbally confirm the economic terms to Customer followed by a written confirmation (via letter, telex, facsimile or telecopier at PSI's election) (the "Confirmation) specifying the amount of foreign currency bought or sold by Customer against U.S. dollars or another foreign currency, the exchange rate, and the date on which, and the location where, the currency is to be delivered. Confirmations shall be conclusive and binding on Customer unless Customer promptly notifies PSI of any objection within three (3) days of receipt by Customer of the Confirmation. 5. Collateral; Settlement. PSI reserves the right to require customer to deposit collateral with respect to Forex Contract transactions. All Forex Contracts will be transacted pursuant to a line of credit or will be otherwise collateralized at PSI's option, and will be subject to the netting provisions set forth in Section 8 below. All payments due under a Forex Contract shall be made by wire transfer on the delivery date specified in the Confirmation in immediately available funds in the designated currency. In the event that either party's performance of its payment obligations shall be interrupted or delayed by reason of war, riot, civil commotion, sovereign conduct or other acts of state, the time of performance of such party's obligations shall be extended for the period of such interruption. 6. Dispute Resolution. Any dispute between Customer and PSI relating to Customer's Forex Contracts shall be settled and determined by an arbitration panel of either the New York Stock Exchange, the National Association of Securities Dealers Inc., or the National Futures Association as Customer may elect, or if the foregoing qualified forums decline to arbitrate such dispute, before such forum as may be agreed upon between the parties. At such time that PSI notifies Customer of its intent to submit a claim to arbitration Customer will have seven business days to elect a qualified forum for conducting the proceeding. If Customer fails to notify PSI of its selection within seven business days, PSI shall have the absolute right to make such selection. 7. Governing Law. The interpretation and enforcement of this Addendum (and the Forex Contracts covered hereunder) and the rights, obligations and remedies of the parties shall be governed by and construed in accordance with the laws of the State of New York, without regard to principles of choice of law. 8. Netting Provisions. (a) Netting by Novation. Unless separately agreed and set out in the Confirmation regarding a specific Forex Contract, each Forex Contract made between Customer and PSI will immediately, upon its being entered into, be netted with all then existing Forex Contracts between Customer and PSI for the same paired currencies having the same delivery date. Each Forex Contract containing an obligation to deliver that has been netted pursuant to the foregoing shall immediately be deemed cancelled and simultaneously replaced by a single transaction. For purposes hereof, each Forex Contract shall be deemed a Forex Contract from and after its inception for all purposes. (b) Payment Netting. If on any delivery date more than one delivery of a particular currency is to be made between Customer and PSI pursuant to a Forex Contract, 2 each party shall aggregate the amounts deliverable by it and only the difference, if any, between these aggregate amounts shall be delivered by the party owing the larger amount to the other party. (c) Discharge and Termination of Options. Any call option or any put option written by a party will automatically be terminated and discharged, in whole or in part, as applicable, against a call option or a put option, respectively, written by the other party, such termination and discharge to occur automatically upon the payment in full of the premium payable in respect of such options; provided that such termination and discharge may occur only in respect of options: (i) each being with respect to the same put currency and the same call currency; (ii) each having the same expiration date and expiration time; (iii) each being of the same style, i.e. both being America Style options or both being European Style options; (iv) each having the same strike price; and (v) neither of which shall have been exercised by delivery of a notice of exercise; and, upon the occurrence of such termination and discharge, neither party shall have any further obligation to the other party in respect of the relevant options or, as the case may be, parts thereof so terminated and discharged. In the case of a partial termination and discharge (i.e., where the relevant options are for different amounts of the currency), the remaining portion of the option that is partially discharged shall continue to be a Forex Contract for all purposes of this Addendum. (d) The occurrence at any time with respect to a party of any of the following events constitutes an event of default (an Event of Default ) with respect to such party: (i) Failure to Pay or Deliver. Failure by the party to make, when due, any payment under this Addendum or delivery required to be made by it if such failure is not remedied on or before the third business day after notice of such failure is given to such party; (ii) Breach of Agreement. Failure by the party to comply with or perform any agreement or obligation under this Addendum if such failure is not remedied on or before the third business day after notice of such failure is given to the Defaulting Party: 3 (iii) Failure to Provide Adequate Assurances. Failure by Customer to provide adequate assurances of its ability to perform any of its obligations under this Addendum within three business days of a written request from PSI to do so when PSI has reasonable grounds for insecurity; (iv) Bankruptcy. The Party - (A) is dissolved (other than pursuant to a consolidation, amalgamation or merger); (B) becomes insolvent or is unable to pay its debts or fails or admits in writing its inability generally to pay its debts as they become due; (C) makes a general assignment, arrangement or composition with or for the benefit of its creditors; (D) institutes or has instituted against it a proceeding seeking a judgment of insolvency or bankruptcy or any other relief under any bankruptcy or insolvency law or other similar law affecting creditors rights, or a petition is presented for its winding-up or liquidation, and, in the case of any such proceeding or petition instituted or presented against it, such proceeding or petition (1) results in a judgment or insolvency or bankruptcy or the entry of an order for relief or the making of an order for its winding-up or liquidation or (2) is not dismissed, discharged, stayed or restrained in each case within 30 days of the institution or presentation thereof; (E) has a resolution passed for its winding-up, official management or liquidation (other than pursuant to a consolidation, amalgamation or merger); (F) seeks or becomes subject to the appoint of an administrator, provisional liquidator, conservator, receiver, trustee, custodian or other similar official for it or for all or substantially all of its assets; (G) has a secured party take possession of all or substantially all of its assets or has a distress, execution, attachment, sequestration or other legal process levied, enforced or sued on or against all or substantially all of its assets and such secured party maintains possession, or any such process is not dismissed, discharged, stayed or restrained, in each case within 30 days thereafter; (H) causes or is subject to any event with respect to it which, under the applicable laws of any jurisdiction, has an analogous effect to any of the events specified in clauses (A) to (G) (inclusive); or (i) takes any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the foregoing acts. (e) Close-Out Netting. If an Event of Default has occurred and is continuing in respect of a party ("Defaulting Party"), the other party ("Non-Defaulting Party") shall be entitled in its reasonable discretion, immediately and at any time and upon notice (unless such notice cannot practicably be provided in the circumstances) to close-out all Defaulting Party's Forex Contracts, and may in its reasonable discretion at any time or from time to time upon notice (unless such notice cannot practicably be provided in the circumstances) liquidate all or some of Defaulting Party's collateral in Non-Defaulting Party's possession or control on any commercially reasonable basis and apply the proceeds of such collateral to any 4 amounts owing by Defaulting Party to Non-Defaulting Party resulting from the close-out of such Forex Contracts. Any such close-out of Forex Contracts shall be accomplished by the Non-Defaulting Party: (i) closing-out each such Forex Contract so that each such Forex Contract is cancelled and calculating settlement amounts equal to the difference between the market value (as determined by PSI in good faith) and contract value of the Forex Contract or, in the case of options, settlement amounts equal to the current market premium for a comparable option (as determined by PSI in good faith); (ii) discounting each settlement amount then due to present value at the time of close-out (to take into account the period between the date of close-out and the maturity date of the relevant liquidated Forex Contract using an interest rate equal to PSI's cost of funds as determined by PSI in good faith); (iii) calculating an aggregate settlement payment in an amount equal to the net amount of such discounted settlement amounts as is then due from one party to the other; and (iv) setting off the settlement payments, if any, that Non-Defaulting Party owes Defaulting Party as a result of such liquidation and all collateral held by or for Non-Defaulting Party against the settlement payments, if any, that Defaulting Party owes to Non-Defaulting Party as a result of such close-out; so that all such amounts are netted to a single liquidated amount payable by one party to the other party, as appropriate, on the business day following the close-out. Notwithstanding anything to the contrary set forth above regarding the Non- Defaulting Party's rights to close-out and value Forex Contracts, if an event specified in clause (iv) of this sub-section (d) has occurred, then upon the occurrence of such event, all outstanding Forex Contracts will be deemed to have been automatically terminated as of the time immediately preceding the institution of the relevant proceeding, or the presentation of the relevant petition upon the occurrence with respect to the party to such specified event. The rights of PSI under this sub-section (e) shall be in addition to, and not in limitation or exclusion of any other rights that PSI may have (whether by agreement, operation of law or otherwise). 9. Liquidated Damages. The parties agree that the amount owing by one party to the other party hereunder is a reasonable computation of the loss or gain it would have incurred or received on the obligations between the parties governed by this Addendum and is not a penalty. Such amount is payable as liquidated damages to the other party for the loss of the benefit of its bargains and neither party shall be entitled to recover additional damages in respect of such loss of the bargain. The determination of such amount shall be conclusive, absent manifest error. 10. Understanding of Risks. Each party will be deemed to represent to the other party on the date on which it enters into a Forex Contract that it has the capability to evaluate and understand (on its own behalf or through independent professional advice), and does understand, the terms, conditions and risks of that Forex Contract and is willing to accept those terms and conditions and to assume (financially and otherwise) those risks. 5 11. Termination. Each party may terminate this Addendum at any time on three (3) business days prior written notice. No such termination shall affect any Forex Contracts entered into prior to such termination and this Addendum shall continue to govern any such Forex Contract. __________________________ ___________________________________ Date Name of Customer By:_______________________________ Title: ___________________________ Signature:________________________ Accepted By Prudential Securities Incorporated By:_____________________________ Date: ____________________________ Title:__________________________ Signature: _____________________ 6 EX-27.1 3 ART. 5 FDS FOR 1ST QUARTER 10-Q
5 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 0000857850 P-B Capital Return Futures Fund 3, L.P. 1 Dec-31-1996 Jan-1-1996 Mar-31-1996 3-Mos 5,056,200 15,740,867 0 0 0 20,797,067 0 0 20,797,067 1,126,304 0 0 0 0 19,670,763 20,797,067 0 158,903 0 0 772,091 0 0 0 0 0 0 0 0 (563,188) (4.16) 0
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