Item 1. Business
General
Prudential-Bache Capital Return Futures Fund 3, L.P. (the 'Registrant'), a Delaware limited partnership, was formed on November 27, 1989 and will terminate on December 31, 2009 unless terminated sooner under the provisions of the Amended and Restated Agreement of Limited Partnership (the 'Partnership Agreement'). The Registrant was formed to engage primarily in the speculative trading of a portfolio consisting primarily of commodity futures, forward and options contracts. On May 30, 1990, the Registrant completed its offering and raised $65,520,000 from the sale of 648,625 units of limited partnership interest and 6,575 units of general partnership interest (collectively, the 'Units') which resulted in net proceeds to the Registrant of $64,222,750. The Registrant's fiscal year for book and tax purposes ends on December 31.
All trading decisions for the Registrant are being made by Sjo, Inc. ('Sjo') and Tamiso & Company ('Tamiso') (the 'Trading Managers'). During July 1998, Willowbridge Associates Inc. ('Willowbridge') ceased to serve as a Trading Manager to the Registrant. All assets previously managed by Willowbridge were allocated to Tamiso, who began trading the Registrant's assets on August 28, 1998. The monthly management fee paid to Tamiso equals 1/6 of 1% (a 2% annual rate) of assets allocated to Tamiso compared to 1/4 of 1% (a 3% annual rate) paid to Willowbridge. The quarterly incentive fee paid to Tamiso equals 17% of the New High Net Trading Profits (as defined in the Advisory Agreement among the Registrant, the general partner and Tamiso) as compared to 20% of the New High Net Trading Profits paid to Willowbridge. The general partner retains the authority to override trading instructions that violate the Registrant's trading policies.
Effective September 1, 1997, Sjo implemented their Global Diversified Program which replaced their Foreign Financials Program. Additionally, the fee structure of the assets under Sjo's management was changed to a monthly management fee at an annual rate of 2% of assets allocated to Sjo and a quarterly incentive fee of 17% of New High Net Trading Profits (as defined in the Advisory Agreement among the Registrant, the General Partner and Sjo). Prior to the change, Sjo was paid a monthly management fee at an annual rate ranging from 2%-3% and a quarterly incentive fee ranging from 15%-17%.
The Registrant is engaged solely in the business of commodity futures, forward and options trading; therefore, presentation of industry segment information is not applicable.
General Partner
The general partner of the Registrant is Seaport Futures Management, Inc. (the 'General Partner') which is an affiliate of Prudential Securities Incorporated ('PSI'), the Registrant's commodity broker. Both the General Partner and PSI are wholly owned subsidiaries of Prudential Securities Group Inc. ('PSGI'). The General Partner is required to maintain at least a 1% interest in the Registrant as long as it is acting as the Registrant's general partner.
Competition
The General Partner and its affiliates have formed and may continue to form various entities to engage in the speculative trading of futures, forward and options contracts which, in part, have certain of the same investment policies as the Registrant.
The Registrant is a closed-end fund which does not currently, and does not intend in the future to, solicit the sale of additional Units. As such, the Registrant does not compete with other entities to attract new fund participants. However, to the extent that the Trading Managers recommend similar or identical trades to the Registrant and the other accounts which they manage, the Registrant may compete with those accounts for the execution of the same or similar trades.
Employees
The Registrant has no employees. Management and administrative services for the Registrant are performed by the General Partner and its affiliates pursuant to the Partnership Agreement as further discussed
in Notes A, C and D to the Registrant's annual report to limited partners for the year ended December 31, 1998 ('Registrant's 1998 Annual Report') which is filed as an exhibit hereto.
Item 2.
Item 2. Properties
The Registrant does not own or lease any property.
Item 3.
Item 3. Legal Proceedings
There are no material legal proceedings pending by or against the Registrant or the General Partner.
Item 4.
Item 4. Submission of Matters to a Vote of Limited Partners
None
PART II
Item 5.
Item 5. Market for the Registrant's Units and Related Limited Partner Matters
Information with respect to the offering of Units is incorporated by reference to Note A to the Registrant's 1998 Annual Report, which is filed as an exhibit hereto.
A significant secondary market for the Units has not developed, and it is not expected that one will develop in the future. There are also certain restrictions set forth in the Partnership Agreement limiting the ability of a partner to transfer Units. The Partnership Agreement does, however, provide that a partner may redeem its Units as of the last business day of any full calendar quarter at the then current net asset value per Unit. Consequently, holders of Units may not be able to liquidate their investments in the event of an emergency or for any other reason.
There are no material restrictions upon the Registrant's present or future ability to make distributions in accordance with the provisions of the Partnership Agreement. No distributions have been made since inception and no distributions are anticipated in the future.
As of March 4, 1999 there were 1,065 holders of record owning 84,037 Units, including 841 units of general partnership interest.
Item 6.
Item 6. Selected Financial Data
The following table presents selected financial data of the Registrant. This data should be read in conjunction with the financial statements of the Registrant and the notes thereto on pages 2 through 10 of the Registrant's 1998 Annual Report which is filed as an exhibit hereto.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
This information is incorporated by reference to pages 11 through 14 of the Registrant's 1998 Annual Report which is filed as an exhibit hereto.
Item 7A.
Item 7A. 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.
Item 8.
Item 8. Financial Statements and Supplementary Data
The financial statements are incorporated by reference to pages 2 through 10 of the Registrant's 1998 Annual Report which is filed as an exhibit hereto.
Supplementary data specified by Item 302 of Regulation S-K (selected quarterly financial data) is not applicable.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant
There are no directors or executive officers of the Registrant. The Registrant is managed by the General Partner.
The General Partner's directors and executive officers, and any persons holding more than 10% of the Registrant's Units ('Ten Percent Owners') are required to report their initial ownership of such Units and any subsequent changes in that ownership to the Securities and Exchange Commission on Forms 3, 4 or 5. Such executive officers, directors and Ten Percent Owners are required by Securities and Exchange Commission regulations to furnish the Partnership with copies of all Forms 3, 4 and 5 they file. All of these filing requirements were satisfied on a timely basis (other than Tamara B. Wright who did not file Form 3 in a timely manner upon becoming a Director but subequently filed and is now current in all filings.) In making these disclosures, the Registrant has relied solely on written representations of the General Partner's directors and executive officers and Ten Percent Owners or copies of the reports that they have filed with the Securities and Exchange Commission during and with respect to its most recent fiscal year.
The directors and executive officers of Seaport Futures Management, Inc. and their positions with respect to the Registrant are as follows:
Name Position - ---------------------------- ----------------------------------------------- Eleanor L. Thomas First Vice President Barbara J. Brooks Chief Financial Officer Steven Carlino Vice President, Chief Accounting Officer and Treasurer A. Laurence Norton, Jr. Director Guy S. Scarpaci Director Tamara B. Wright Senior Vice President and Director
ELEANOR L. THOMAS, age 44, has been a Vice President of Seaport Futures Management, Inc. and Prudential Securities Futures Management Inc. since April 1993 and a First Vice President since October 1998. She is primarily responsible for origination, asset allocation, and due diligence for the managed futures group within PSI. She is also a First Vice President of PSI. Prior to joining PSI in March 1993, she was with MC Baldwin Financial Company from June 1990 through February 1993 and Arthur Andersen & Co. from 1986 through May 1990. Ms. Thomas is a certified public accountant.
BARBARA J. BROOKS, age 50, is the Chief Financial Officer of Seaport Futures Management, Inc. She is a Senior Vice President of PSI. She is also the Chief Financial Officer of Prudential Securities Futures Management Inc. and serves in various capacities for other affiliated companies. She has held several positions within PSI since April 1983. Ms. Brooks is a certified public accountant.
STEVEN CARLINO, age 35, is a Vice President and Treasurer of Seaport Futures Management, Inc. He is a First Vice President of PSI. He is also a Vice President and Treasurer of Prudential Securities Futures Management Inc. and serves in various capacities for other affiliated companies. Prior to joining PSI in October 1992, he was with Ernst & Young for six years. Mr. Carlino is a certified public accountant.
A. LAURENCE NORTON, JR., age 60, is a Director of Seaport Futures Management, Inc. He is an Executive Vice President of PSI and, since March 1994, has been the head of the International and Futures Divisions of PSI. He is also a Director of Prudential Securities Futures Management Inc. From October 1991 to March 1994, he held the position of Executive Director of Retail Development and Retail Strategies at PSI. Prior to joining PSI in 1991, Mr. Norton was a Senior Vice President and Branch Manager of Shearson Lehman Brothers.
GUY S. SCARPACI, age 52, is a Director of Seaport Futures Management, Inc. He is a First Vice President of the Futures Division of PSI. He is also a Director of Prudential Securities Futures Management Inc. Mr. Scarpaci has been employed by PSI in positions of increasing responsibility since August 1974.
TAMARA B. WRIGHT, age 40, is a Senior Vice President and Director of Seaport Futures Management, Inc. She is a Senior Vice President and Chief Administrative Officer for the International and Futures Divisions of PSI. She is also a Senior Vice President and Director of Prudential Securities Futures Management Inc. and serves in various capacities for other affiliated companies. Prior to joining PSI in July 1988, she was a manager with Price Waterhouse.
During the fourth quarter of 1998, Steven Carlino replaced Barbara J. Brooks as Treasurer of Seaport Futures Management, Inc. and Prudential Securities Futures Management Inc. Additionally, during December 1998, Tamara B. Wright was elected as a Senior Vice President and Director of Seaport Futures Management, Inc. and Prudential Securities Futures Management Inc. On March 26, 1999, Thomas M. Lane, Jr. resigned as President and Director of Seaport Futures Management, Inc. and Prudential Securities Futures Management Inc.
There are no family relationships among any of the foregoing directors or executive officers. All of the foregoing directors and/or executive officers have indefinite terms.
Item 11.
Item 11. Executive Compensation
The Registrant does not pay or accrue any fees, salaries or any other form of compensation to directors and officers of the General Partner for their services. Certain directors and officers of the General Partner receive compensation from affiliates of the General Partner, not from the Registrant, for services performed for various affiliated entities, which may include services performed for the Registrant; however, the General Partner believes that any compensation attributable to services performed for the Registrant is immaterial. (See also Item 13, Certain Relationships and Related Transactions, for information regarding compensation to the General Partner.)
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
As of March 4, 1999, no director or officer of the General Partner owns directly or beneficially any interest in the voting securities of the General Partner.
As of March 4, 1999, no director or officer of the General Partner owns directly or beneficially any of the Units issued by the Registrant.
As of March 4, 1999, no partner beneficially owns more than five percent (5%) of the limited partnership units issued by the Registrant.
Item 13.
Item 13. Certain Relationships and Related Transactions
The Registrant has and will continue to have certain relationships with the General Partner and its affiliates. However, there have been no direct financial transactions between the Registrant and the directors or officers of the General Partner.
Reference is made to Notes A, C and D to the financial statements in the Registrant's 1998 Annual Report which is filed as an exhibit hereto, which identify the related parties and discuss the services provided by these parties and the amounts paid or payable for their services.
PART IV
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: March 31, 1999 ---------------------------------------- Steven Carlino Vice President, Chief Accounting Officer and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Partnership and in the capacities (with respect to the General Partner) and on the dates indicated.
By: Seaport Futures Management, Inc. A Delaware corporation, General Partner
By: /s/ Eleanor L. Thomas Date: March 31, 1999 ---------------------------------------- Eleanor L. Thomas First Vice President
By: /s/ Barbara J. Brooks Date: March 31, 1999 ---------------------------------------- Barbara J. Brooks Chief Financial Officer
By: /s/ Steven Carlino Date: March 31, 1999 ---------------------------------------- Steven Carlino Vice President and Treasurer
By: Date: ---------------------------------------- A. Laurence Norton, Jr. Director
By: /s/ Guy S. Scarpaci Date: March 31, 1999 ---------------------------------------- Guy S. Scarpaci Director
By: /s/ Tamara B. Wright Date: March 31, 1999 ---------------------------------------- Tamara B. Wright Senior Vice President and Director