10-K 1 sf15379k.txt DIVERSIFIED FUTURES FUND -- 12/31/2001 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2001 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 0-17592 PRUDENTIAL-BACHE DIVERSIFIED FUTURES FUND L.P. ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 13-3464456 ------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification incorporation or organization) 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 Securities registered pursuant to Section 12(b) of the Act: None ------------------------------------------------------------------------------- Securities registered pursuant to Section 12(g) of the Act: Units of Limited Partnership Interest ------------------------------------------------------------------------------- (Title of class) Indicate by check mark 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 _ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [CK] DOCUMENTS INCORPORATED BY REFERENCE Annual Report to Limited Partners for the year ended December 31, 2001 is incorporated by reference into Parts II and IV of this Annual Report on Form 10-K Index to exhibits can be found on pages 8 and 9. PRUDENTIAL-BACHE DIVERSIFIED FUTURES FUND L.P. (a limited partnership) TABLE OF CONTENTS
PART I PAGE Item 1 Business......................................................................... 3 Item 2 Properties....................................................................... 3 Item 3 Legal Proceedings................................................................ 3 Item 4 Submission of Matters to a Vote of Limited Partners.............................. 3 PART II Item 5 Market for the Registrant's Units and Related Limited Partner Matters............ 4 Item 6 Selected Financial Data.......................................................... 4 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations..................................................................... 4 Item 7A Quantitative and Qualitative Disclosures About Market Risk....................... 4 Item 8 Financial Statements and Supplementary Data...................................... 4 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..................................................................... 5 PART III Item 10 Directors and Executive Officers of the Registrant............................... 5 Item 11 Executive Compensation........................................................... 7 Item 12 Security Ownership of Certain Beneficial Owners and Management................... 7 Item 13 Certain Relationships and Related Transactions................................... 7 PART IV Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K................. 8 Financial Statements and Financial Statement Schedules........................... 8 Exhibits......................................................................... 8 Reports on Form 8-K.............................................................. 9 SIGNATURES.................................................................................. 10
2 PART I Item 1. Business General Prudential-Bache Diversified Futures Fund L.P. (the 'Registrant'), a Delaware limited partnership, was formed on May 25, 1988 and will terminate on December 31, 2007 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 October 19, 1988, the Registrant completed its offering and raised $30,107,800 from the sale of 297,468 units of limited partnership interest and 3,610 units of general partnership interest (collectively, 'Units') which resulted in net proceeds to the Registrant of $29,387,470. The Registrant's fiscal year for book and tax purposes ends on December 31. All trading decisions for the Registrant are made by John W. Henry & Company, Inc. (the 'Trading Manager'), an independent commodity trading manager which manages the Registrant's assets pursuant to three trading programs developed by the Trading Manager. The general partner of the Registrant retains the authority to override trading instructions that violate the Registrant's trading policies. 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 and its Affiliates 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 indirect wholly owned subsidiaries of Prudential Financial, Inc. 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 Manager recommends similar or identical trades to the Registrant and other accounts which it manages, the Registrant may compete with those accounts for the execution of the same or similar trades, as well as with other market participants. 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 financial statements included in its annual report to the limited partners for the year ended December 31, 2001 ('Registrant's 2001 Annual Report') which is filed as an exhibit hereto. Item 2. Properties The Registrant does not own or lease any property. Item 3. Legal Proceedings There are no material legal proceedings pending by or against the Registrant or the General Partner. Item 4. Submission of Matters to a Vote of Limited Partners None 3 PART II Item 5. Market for the Registrant's Units and Related Limited Partner Matters On October 19, 1988, the Registrant completed its offering. 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 limited partner may redeem its units as of the last business day of any 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 21, 2002, there were 333 holders of record owning 21,929 Units which include 220 units of general partnership interest. 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 2001 Annual Report which is filed as an exhibit hereto.
Year ended December 31, ----------------------------------------------------------------- 2001 2000 1999 1998 1997 ---------- ---------- ----------- ----------- ----------- Total revenues (including interest)...................... $ 79,245 $ 766,189 $ (953,797) $ 2,595,752 $ 4,284,472 ---------- ---------- ----------- ----------- ----------- ---------- ---------- ----------- ----------- ----------- Net income (loss)................ $ (830,796) $ (350,188) $(2,933,491) $ 254,155 $ 1,599,123 ---------- ---------- ----------- ----------- ----------- ---------- ---------- ----------- ----------- ----------- Net income (loss) per weighted average Unit................... $ (35.46) $ (12.57) $ (80.12) $ 6.08 $ 34.66 ---------- ---------- ----------- ----------- ----------- ---------- ---------- ----------- ----------- ----------- Total assets..................... $7,577,152 $9,268,631 $13,002,258 $18,118,204 $20,044,570 ---------- ---------- ----------- ----------- ----------- ---------- ---------- ----------- ----------- ----------- Net asset value per Unit......... $ 331.94 $ 369.48 $ 369.26 $ 452.97 $ 444.27 ---------- ---------- ----------- ----------- ----------- ---------- ---------- ----------- ----------- -----------
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This information is incorporated by reference to pages 12 through 14 of the Registrant's 2001 Annual Report which is filed as an exhibit hereto. 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. Financial Statements and Supplementary Data The financial statements are incorporated by reference to pages 2 through 10 of the Registrant's 2001 Annual Report which is filed as an exhibit hereto. 4 Selected unaudited quarterly financial data for the years ended December 31, 2001 and 2000 are summarized below:
First Second Third Fourth Quarter Quarter Quarter Quarter ---------- ----------- --------- ---------- 2001: Total revenues (including interest) $1,162,933 $(1,289,917) $ 565,888 $ (359,659) ---------- ----------- --------- ---------- ---------- ----------- --------- ---------- Total revenues (including interest) less commissions $ 984,397 $(1,469,696) $ 408,215 $ (517,217) ---------- ----------- --------- ---------- ---------- ----------- --------- ---------- Net income (loss) $ 919,494 $(1,529,264) $ 351,044 $ (572,070) ---------- ----------- --------- ---------- ---------- ----------- --------- ---------- Net income (loss) per weighted average Unit $ 37.63 $ (65.03) $ 15.16 $ (25.29) ---------- ----------- --------- ---------- ---------- ----------- --------- ---------- 2000: Total revenues (including interest) $ (441,805) $ (928,240) $(345,221) $2,481,455 ---------- ----------- --------- ---------- ---------- ----------- --------- ---------- Total revenues (including interest) less commissions $ (675,133) $(1,115,396) $(501,792) $2,331,586 ---------- ----------- --------- ---------- ---------- ----------- --------- ---------- Net income (loss) $ (806,443) $(1,221,840) $(595,302) $2,273,397 ---------- ----------- --------- ---------- ---------- ----------- --------- ---------- Net income (loss) per weighted average Unit $ (25.22) $ (43.27) $ (22.62) $ 91.33 ---------- ----------- --------- ---------- ---------- ----------- --------- ----------
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None PART III 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 Registrant with copies of all Forms 3, 4 and 5 they file. All of these filing requirements were satisfied on a timely basis. 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.
Name Position Alex H. Ladouceur Chairman of the Board of Directors and Director Eleanor L. Thomas President and Director Barbara J. Brooks Chief Financial Officer Guy S. Scarpaci Director Tamara B. Wright Senior Vice President and Director Thomas T. Bales Vice President David Buchalter Secretary
The directors and executive officers of Seaport Futures Management, Inc. and their positions with respect to the Registrant are as follows: ALEX H. LADOUCEUR, born 1960, has been Chairman of the Board of Directors and a Director of the General Partner since November 2001 and also has held such positions with Prudential Securities Futures Management Inc. ('PSFMI') an affiliate of the General Partner, since such date. Mr. Ladouceur joined PSI in August 2001 as Executive Vice President, Head of the Global Derivatives division. He is responsible for all 5 operating activities of PSI's Global Derivatives division including sales and trading, foreign exchange, base and precious metals, and the trading floors. In addition, Mr. Ladouceur has responsibility for Alternative Investment Strategies. Mr. Ladouceur joined PSI from Credit Lyonnais Rouse Ltd. ('CLR'), where he served as president of their United States operations since 1992 and as a main board director of CLR in London since 1994. In 1998, he was appointed managing director of Global Cash Markets at CLR with responsibility for leading global market-making and sales for OTC products, including structured derivative products. Mr. Ladouceur earned his bachelor's degree in Economics from the University of Calgary in Alberta, Canada, and his master's degree in European Studies from the College of Europe in Bruges, Belgium. ELEANOR L. THOMAS, born 1954, has been a Director and President of the General Partner since September 2000 and was a Director and Executive Vice President from April 1999 to September 2000. She was a First Vice President of the General Partner and PSFMI from October 1998 to April 1999 and a Director and the President of PSFMI since such date. Ms. Thomas is a Senior Vice President and the Director of Alternative Investment Strategies at PSI. She is responsible for origination, asset allocation, due diligence, marketing and sales for the group's product offerings. 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. She graduated Summa Cum Laude from Long Island University with a B.A. in English Literature, and graduated Baruch College in 1986 with an M.B.A. in Accounting. Ms. Thomas is a certified public accountant. BARBARA J. BROOKS, born 1948, became the Treasurer and Chief Financial Officer of the General Partner in May 1990, at which time she also became the Treasurer and Chief Financial Officer of PSFMI. In 1998, she relinquished her position as Treasurer of the General Partner and PSFMI. She is a Senior Vice President of PSI and is the Vice President-Finance and the Chief Financial Officer of various entities affiliated with PSI. She has been employed by PSI since 1983. Ms. Brooks is a certified public accountant. GUY S. SCARPACI, born 1947, has been a Director of the General Partner since July 1987 and was Assistant Treasurer from May 1988 until December 1989. In addition, Mr. Scarpaci has been a Director of PSFMI since May 1989. Mr. Scarpaci was first affiliated with the General Partner in July 1987. Mr. Scarpaci has been employed by PSI in positions of increasing responsibility since August 1974, and he is currently a Senior Vice President of the Global Derivatives division. TAMARA B. WRIGHT, born 1959, has been a Senior Vice President of the General Partner and PSFMI since October 1998 and a Director of the General Partner since December 1998. She is also a Senior Vice President and the Chief Administrative Officer for the International Division at Prudential Securities. In this capacity, her responsibilities include financial management, risk management, systems implementation, employment matters and internal control policies and procedures. Previously, Mrs. Wright served as Director of Consumer Markets Risk Management, where she led the Domestic and International Branch efforts in ensuring the timely resolution of audit, compliance and legal concerns. Prior to joining the firm, Mrs. Wright was a manager with PricewaterhouseCoopers LLP in its Management Consulting division in New York, New York. THOMAS T. BALES, born 1959, is a Vice President of the General Partner. He is also a Senior Vice President of Futures Administration in the Global Derivatives division for PSI, and he serves in various capacities for other affiliated companies. Prior to joining the Global Derivatives division, Mr. Bales served as in-house counsel in the Law Department of PSI from October 1987 through May 1996. Mr. Bales joined PSI in November 1981 as an Analyst in the Credit Analysis Department and later served as a Section Manager. DAVID BUCHALTER, born 1958, has been the Secretary of both the General Partner and PSFMI since October 1996. Mr. Buchalter is a Senior Vice President and is Senior Counsel in the Law Department of PSI. Prior to joining PSI in January 1992, Mr. Buchalter was associated with the law firm of Rosenman & Colin LLP from April 1988 to January 1992. Prior to that, from May 1983 though March 1988, Mr. Buchalter served as in-house counsel for Shearson Lehman Hutton, Inc. and its predecessor firm, E.F. Hutton & Co., Inc. Effective March 2001, A. Laurence Norton, Jr. resigned as a Director of both the General Partner and PSFMI. Additionally, Steven Carlino resigned as Vice President and Treasurer for both the General Partner and PSFMI effective March 2002. 6 Effective November 2001, Alex H. Ladouceur was elected by the Board of Directors of the General Partner as Chairman of the Board and he has served as Chairman of the Board of PSFMI since November 2001. 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. 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. Security Ownership of Certain Beneficial Owners and Management As of March 21, 2002, 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 21, 2002, no director or officer of the General Partner owns directly or beneficially any of the Units issued by the Registrant. As of March 21, 2002, no partner beneficially owns more than five percent (5%) of the outstanding limited partnership units issued by the Registrant. 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 2001 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. 7 PART IV
Page in Annual Report Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) 1. Financial Statements and Report of Independent Accountants--incorporated by reference to the Registrant's 2001 Annual Report which is filed as an exhibit hereto Report of Independent Accountants 2 Financial Statements: Statements of Financial Condition--December 31, 2001 and 2000 3 Condensed Schedule of Investments at December 31, 2001 4 Statements of Operations--Three years ended December 31, 2001 5 Statements of Changes in Partners' Capital--Three years ended December 31, 2001 5 Notes to Financial Statements 6 2. Financial Statement Schedules All schedules have been omitted because they are not applicable or the required information is included in the financial statements or the notes thereto. 3. Exhibits Description: 3.1 Agreement of Limited Partnership of the Registrant, dated as of May 25, and 1988 as amended and restated as of July 12, 1988 (incorporated by 4.1 reference to Exhibit 3.1 and 4.1 of Registrant's Annual Report on Form 10-K for the period ended December 31, 1988) 4.2 Subscription Agreement (incorporated by reference to Exhibit 4.2 to the Registrant's Registration Statement on Form S-1, File No. 33-22100) 4.3 Request for Redemption (incorporated by reference to Exhibit 4.3 to the Registrant's Registration Statement on Form S-1, File No. 33-22100) 10.1 Escrow Agreement, dated July 14, 1988 among the Registrant, Seaport Futures Management, Inc., Prudential-Bache Securities Inc. and Bankers Trust Company (incorporated by reference to Exhibit 10.1 of Registrant's Annual Report on Form 10-K for the period ended December 31, 1988) 10.2 Brokerage Agreement dated October 18, 1988 between the Registrant and Prudential-Bache Securities Inc. (incorporated by reference to Exhibit 10.2 of Registrant's Annual Report on Form 10-K for the period ended December 31, 1988) 10.3 Advisory Agreement dated June 1, 1988 among the Registrant, Seaport Futures Management, Inc., and John W. Henry & Company, Inc. (incorporated by reference to Exhibit 10.3 of Registrant's Annual Report on Form 10-K for the period ended December 31, 1988) 10.4 Addendum to Advisory Agreement dated as of July 13, 1988 among the Registrant, Seaport Futures Management, Inc., and John W. Henry & Company, Inc. (incorporated by reference to Exhibit 10.4 of Registrant's Annual Report on Form 10-K for the period ended December 31, 1988)
8 10.5 Representation Agreement Concerning the Registration Statement and the Prospectus, dated as of July 14, 1988 among the Registrant, Seaport Futures Management, Inc., Prudential-Bache Securities Inc. and John W. Henry & Company, Inc. (incorporated by reference to Exhibit 10.5 of Registrant's Annual Report on Form 10-K for the period ended December 31, 1988) 10.6 Net Worth Agreement, dated as of July 14, 1988 between Seaport Futures Management, Inc. and Prudential Securities Group Inc. (incorporated by reference to Exhibit 10.6 of Registrant's Annual Report on Form 10-K for the period ended December 31, 1988) 10.7 Secured Demand Note Collateral Agreement dated as of February 15, 1991 between Seaport Futures Management, Inc. and Prudential Securities Group Inc. (incorporated by reference to Exhibit 10.7 of Registrant's Annual Report on Form 10-K for the year ended December 31, 1991) 10.8 Amendment to Advisory Agreement as of June 1, 1988 among the Registrant, Seaport Futures Management, Inc., and John W. Henry & Company, Inc. (incorporated by reference to Exhibit 10.8 of Registrant's Annual Report on Form 10-K for the year ended December 31, 1993) 10.9 Form of Foreign Currency Addendum to Brokerage Agreement between the Registrant and Prudential Securities Incorporated (incorporated by reference to Exhibit 10.9 of the Registrant's Quarterly Report on Form 10-Q for the period ended March 31, 1996) 10.10 Amendment to Advisory Agreement, dated October 1, 2000, among the Registrant, Seaport Futures Management, Inc. and John W. Henry & Company, Inc. (incorporated by reference to Exhibit 10.10 of the Registrant's Quarterly Report on Form 10-Q for the period ended September 30, 2000) 13.1 Registrant's 2000 Annual Report (with the exception of the information and data incorporated by reference in Items 1, 7 and 8 of this Annual Report on Form 10-K, no other information or data appearing in the Registrant's 2000 Annual Report is to be deemed filed as part of this report) (filed herewith) (b) Reports on Form 8-K--None
9 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 Diversified Futures Fund L.P. By: Seaport Futures Management, Inc. A Delaware corporation, General Partner By: /s/ Barbara J. Brooks Date: March 28, 2002 ----------------------------------------------------------------- Barbara J. Brooks Chief Financial Officer
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 Registrant 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/ Alex H. Ladouceur Date: March 28, 2002 ------------------------------------------------------------------ Alex H. Ladouceur Chairman of the Board of Directors By: /s/ Eleanor L. Thomas Date: March 28, 2002 ------------------------------------------------------------------ Eleanor L. Thomas President and Director By: /s/ Barbara J. Brooks Date: March 28, 2002 ------------------------------------------------------------------ Barbara J. Brooks Chief Financial Officer (chief accounting officer) By: /s/ Guy S. Scarpaci Date: March 28, 2002 ------------------------------------------------------------------ Guy S. Scarpaci Director By: Date: ------------------------------------------------------------------ Tamara B. Wright Senior Vice President and Director
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