-----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, DTFq6rL8mST5yOYm5oyf/0rkNK7XmkSqgvRTdOIfvBP8dHk3Nj+wPRyEqBrIvh48 3188f+icNTOClmWyyM/MPg== 0000898733-96-000190.txt : 19960605 0000898733-96-000190.hdr.sgml : 19960605 ACCESSION NUMBER: 0000898733-96-000190 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960329 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRUDENTIAL BACHE DIVERSIFIED FUTURES FUND L P CENTRAL INDEX KEY: 0000833225 STANDARD INDUSTRIAL CLASSIFICATION: 6792 IRS NUMBER: 133464456 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-17592 FILM NUMBER: 96541465 BUSINESS ADDRESS: STREET 1: ONE NEW YORK PLZ STREET 2: 13TH FLR CITY: NEW YORK STATE: NY ZIP: 10292 BUSINESS PHONE: 2127787866 MAIL ADDRESS: STREET 1: ONE NEW YORK PLAZA 13TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10292 10-K 1 P-B DIVERSIFIED FUTURES FUND LP 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, 1995 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 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 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 Agreement of Limited Partnership of the Registrant, dated May 25, 1988, as amended and restated as of July 12, 1988, included as part of the Registration Statement on Form S-1 (File No. 33-22100) filed with the Securities and Exchange Commission on June 1, 1988 pursuant to Rule 424(b) of the Securities Act of 1933, is incorporated by reference into Part IV of this Annual Report on Form 10-K. Annual Report to Limited Partners for the year ended December 31, 1995 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 7 and 8. 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 8 Financial Statements and Supplementary Data...................................... 5 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........................................................... 6 Item 12 Security Ownership of Certain Beneficial Owners and Management................... 6 Item 13 Certain Relationships and Related Transactions................................... 6 PART IV Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K Financial Statements and Financial Statement Schedules........................... 7 Exhibits......................................................................... 7 Reports on Form 8-K.............................................................. 8 SIGNATURES.................................................................................. 9
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, the ``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 & Co., Inc. (the ``Trading Manager''), an independent commodity trading manager which manages the Registrant's assets pursuant to five trading programs developed by the Trading Manager. The General Partner 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, forwards 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 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. 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. See Notes A, C and D to the Registrant's annual report to limited partners for the year ended December 31, 1995 (``Registrant's 1995 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 As of March 14, 1996, there were 787 holders of record owning 57,956 Units which include 3,600 units of general partnership interest. 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 only redeem its units as of the last business day of any full calendar quarter (beginning with the end of the first full quarter of the Registrant's operations, which was March 31, 1989) at the then current net asset value per Unit reduced by each Unit's pro rata portion of unamortized organizational costs. 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. 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 9 of the Registrant's 1995 Annual Report which is filed as an exhibit hereto.
Year ended December 31, --------------------------------------------------------------------- 1995 1994 1993 1992 1991 ----------- ------------ ----------- ------------ ----------- Net realized gain on commodity transactions...... $ 7,694,647 $ 195,099 $ 6,760,365 $ 7,098,724 $ 1,105,860 ----------- ------------ ----------- ------------ ----------- ----------- ------------ ----------- ------------ ----------- Change in net unrealized gain on open commodity positions................... $ (460,239) $ 215,941 $ 654,157 $ (7,880,542) $ 7,603,442 ----------- ------------ ----------- ------------ ----------- ----------- ------------ ----------- ------------ ----------- Commissions................... $ 1,668,063 $ 1,641,756 $ 1,667,523 $ 1,543,216 $ 1,654,075 ----------- ------------ ----------- ------------ ----------- ----------- ------------ ----------- ------------ ----------- Management fees............... $ 763,562 $ 727,169 $ 763,902 $ 681,835 $ 761,425 ----------- ------------ ----------- ------------ ----------- ----------- ------------ ----------- ------------ ----------- Incentive fees................ $ 268,499 $ 226,735 $ 399,990 $ 121,252 $ 368,073 ----------- ------------ ----------- ------------ ----------- ----------- ------------ ----------- ------------ ----------- Net income (loss)............. $ 5,284,484 $ (1,739,097) $ 4,939,250 $ (2,713,190) $ 6,754,682 ----------- ------------ ----------- ------------ ----------- ----------- ------------ ----------- ------------ ----------- Allocation of net income (loss): Limited partners............ $ 4,986,601 $ (1,641,114) $ 4,709,119 $ (2,632,558) $ 6,526,939 ----------- ------------ ----------- ------------ ----------- ----------- ------------ ----------- ------------ ----------- General partner............. $ 297,883 $ (97,983) $ 230,131 $ (80,632) $ 227,743 ----------- ------------ ----------- ------------ ----------- ----------- ------------ ----------- ------------ ----------- Net income (loss) per weighted average Unit................ $ 86.19 $ (25.65) $ 66.05 $ (29.78) $ 59.20 ----------- ------------ ----------- ------------ ----------- ----------- ------------ ----------- ------------ ----------- Total assets.................. $19,467,438 $ 16,120,278 $19,612,027 $ 17,200,931 $24,642,188 ----------- ------------ ----------- ------------ ----------- ----------- ------------ ----------- ------------ ----------- Redemptions................... $ 2,047,033 $ 1,671,602 $ 2,027,435 $ 4,014,399 $ 4,188,120 ----------- ------------ ----------- ------------ ----------- ----------- ------------ ----------- ------------ ----------- Net asset value per Unit...... $ 326.48 $ 243.73 $ 270.95 $ 206.07 $ 228.46 ----------- ------------ ----------- ------------ ----------- ----------- ------------ ----------- ------------ -----------
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This information is incorporated by reference to pages 10 and 11 of the Registrant's 1995 Annual Report which is filed as an exhibit hereto. 4 Item 8. Financial Statements and Supplementary Data The financial statements are incorporated by reference to pages 2 through 9 of the Registrant's 1995 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. 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 ten percent 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 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 James M. Kelso President and Director Barbara J. Brooks Treasurer and Chief Financial Officer Steven Carlino Vice President and Chief Accounting Officer A. Laurence Norton, Jr. Director Guy S. Scarpaci Director JAMES M. KELSO, age 41, is the President and a Director of Seaport Futures Management, Inc. He is a Senior Vice President of Futures Administration of PSI. He is also the President and a Director of Prudential Securities Futures Management Inc. and serves in various capacities for other affiliated companies. He has held several positions within PSI since July 1981. BARBARA J. BROOKS, age 47, is the Treasurer and Chief Financial Officer of Seaport Futures Management, Inc. She is a Senior Vice President of PSI. She is also the Treasurer and 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 32, is a Vice President of Seaport Futures Management, Inc. He is a First Vice President of PSI. He is also a Vice President 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 57, is a Director of Seaport Futures Management, Inc. He is an Executive Vice President of PSI and head of its Futures Division. He is also a Director of Prudential Securities Futures Management Inc. Most recently, he held the position of Executive Director of Retail Development 5 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 49, 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. James M. Kelso replaced Edward J. Mader as Director and replaced A. Laurence Norton, Jr. as President effective May 1995. Edward J. Mader ceased to serve as Vice President effective May 1995. Steven Carlino was elected Vice President effective July 1995 and replaced Eleanor L. Thomas as Chief Accounting Officer on behalf of the Registrant. Gale Eisner ceased to serve as Director effective June 1995. 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 14, 1996, 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 14, 1996, no director or officer of the General Partner owns directly or beneficially any of the Units issued by the Registrant. As of March 14, 1996, no owner of limited partnership units 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 of the Registrant's 1995 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. 6 PART IV
Page in Annual Report Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) 1. Financial Statements and Independent Auditors' Report--Incorporated by reference to the Registrant's 1995 Annual Report which is filed as an exhibit hereto Independent Auditors' Report 2 Financial Statements: Statements of Financial Condition--December 31, 1995 and 1994 3 Statements of Operations--Three years ended December 31, 1995 4 Statements of Changes in Partners' Capital--Three years ended December 31, 1995 4 Notes to Financial Statements 5 2. Financial Statement Schedules and Independent Auditors' Report on 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 & Co., 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 & Co., Inc. (incorporated by reference to Exhibit 10.4 of Registrant's Annual Report on Form 10-K for the period ended December 31, 1988)
7 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 & Co., 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 & Co., Inc. (incorporated by reference to Exhibit 10.8 of Registrant's Annual Report on Form 10-K for the year ended December 31, 1993) 13 Registrant's 1995 Annual Report (with the exception of the information and data incorporated by reference in Items 7 and 8 of this Annual Report on Form 10-K, no other information or data appearing in the Registrant's 1995 Annual Report is to be deemed filed as part of this report) (filed herewith) 27. Financial Data Schedule (b) Reports on Form 8-K No reports on Form 8-K were filed during the last quarter of the period covered by this report.
8 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/ Steven Carlino Date: March 29, 1996 ----------------------------------------------------------------- Steven Carlino Vice President and Chief Accounting 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/ James M. Kelso Date: March 29, 1996 ----------------------------------------------------------------- James M. Kelso President and Director By: /s/ Barbara J. Brooks Date: March 29, 1996 ----------------------------------------------------------------- Barbara J. Brooks Treasurer and Chief Financial Officer By: /s/ Steven Carlino Date: March 29, 1996 ----------------------------------------------------------------- Steven Carlino Vice President By: /s/ A. Laurence Norton, Jr. Date: March 29, 1996 ----------------------------------------------------------------- A. Laurence Norton, Jr. Director By: /s/ Guy S. Scarpaci Date: March 29, 1996 ----------------------------------------------------------------- Guy S. Scarpaci Director
9 EX-13 2 ANNUAL REPORT 1995 - - ------------------------------------------------------------------------------- Prudential-Bache Annual Diversified Futures Fund L.P. Report PRUDENTIAL-BACHE DIVERSIFIED FUTURES FUND L.P. LETTER TO THE LIMITED PARTNERS FOR THE YEAR ENDED DECEMBER 31, 1995 1 INDEPENDENT AUDITORS' REPORT To the Partners of Prudential-Bache Diversified Futures Fund L.P.: We have audited the accompanying statements of financial condition of Prudential-Bache Diversified Futures Fund L.P. as of December 31, 1995 and 1994, and the related statements of operations and changes in partners' capital for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of Prudential-Bache Diversified Futures Fund L.P. as of December 31, 1995 and 1994, and the results of its operations for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. January 29, 1996 2 PRUDENTIAL-BACHE DIVERSIFIED FUTURES FUND L.P. (a limited partnership) STATEMENTS OF FINANCIAL CONDITION
December 31, ----------------------------- 1995 1994 - - ---------------------------------------------------------------------------------------------------- ASSETS Equity in commodity trading accounts: Cash $ 3,783,451 $ 2,260,467 U.S. Treasury bills, at amortized cost 14,622,390 12,337,975 Net unrealized gain on open commodity positions 1,061,597 1,521,836 ------------ ------------ Total assets $ 19,467,438 $ 16,120,278 ------------ ------------ ------------ ------------ LIABILITIES AND PARTNERS' CAPITAL Liabilities Redemptions payable $ 425,077 $ 317,093 Management fees payable 64,703 53,515 Accrued expenses 56,340 65,803 ------------ ------------ Total liabilities 546,120 436,411 ------------ ------------ Commitments Partners' capital Limited partners (54,356 and 60,749 units outstanding) 17,745,997 14,806,429 General partner (3,600 units outstanding) 1,175,321 877,438 ------------ ------------ Total partners' capital 18,921,318 15,683,867 ------------ ------------ Total liabilities and partners' capital $ 19,467,438 $ 16,120,278 ------------ ------------ ------------ ------------ Net asset value per limited and general partnership unit (``Units'') $ 326.48 $ 243.73 ------------ ------------ ------------ ------------ - - ----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements 3 PRUDENTIAL-BACHE DIVERSIFIED FUTURES FUND L.P. (a limited partnership) STATEMENTS OF OPERATIONS
Year ended December 31, ------------------------------------------- 1995 1994 1993 - - ----------------------------------------------------------------------------------------------------- REVENUES Net realized gain on commodity transactions $ 7,694,647 $ 195,099 $ 6,760,365 Change in net unrealized gain on open commodity positions (460,239) 215,941 654,157 Interest from U.S. Treasury bills 826,589 518,136 447,766 ----------- ----------- ----------- 8,060,997 929,176 7,862,288 ----------- ----------- ----------- EXPENSES Commissions 1,668,063 1,641,756 1,667,523 Management fees 763,562 727,169 763,902 Incentive fees 268,499 226,735 399,990 General and administrative 76,389 72,119 85,929 Amortization of organizational costs -- 494 5,694 ----------- ----------- ----------- 2,776,513 2,668,273 2,923,038 ----------- ----------- ----------- Net income (loss) $ 5,284,484 $(1,739,097) $ 4,939,250 ----------- ----------- ----------- ----------- ----------- ----------- ALLOCATION OF NET INCOME (LOSS) Limited partners $ 4,986,601 $(1,641,114) $ 4,709,119 ----------- ----------- ----------- ----------- ----------- ----------- General partner $ 297,883 $ (97,983) $ 230,131 ----------- ----------- ----------- ----------- ----------- ----------- NET INCOME (LOSS) PER WEIGHTED AVERAGE LIMITED AND GENERAL PARTNERSHIP UNIT Net income (loss) per weighted average limited and general partnership unit $ 86.19 $ (25.65) $ 66.05 ----------- ----------- ----------- ----------- ----------- ----------- Weighted average number of limited and general partnership units outstanding 61,314 67,805 74,780 ----------- ----------- ----------- ----------- ----------- ----------- - - -----------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
LIMITED GENERAL UNITS PARTNERS PARTNER TOTAL - - ----------------------------------------------------------------------------------------------------- Partners' capital--December 31, 1992 78,532 $15,437,461 $ 745,290 $16,182,751 Net income -- 4,709,119 230,131 4,939,250 Redemptions (8,059) (2,027,435) -- (2,027,435) ------ ----------- ---------- ----------- Partners' capital--December 31, 1993 70,473 18,119,145 975,421 19,094,566 Net loss -- (1,641,114) (97,983) (1,739,097) Redemptions (6,124) (1,671,602) -- (1,671,602) ------ ----------- ---------- ----------- Partners' capital--December 31, 1994 64,349 14,806,429 877,438 15,683,867 Net income -- 4,986,601 297,883 5,284,484 Redemptions (6,393) (2,047,033) -- (2,047,033) ------ ----------- ---------- ----------- Partners' capital--December 31, 1995 57,956 $17,745,997 $1,175,321 $18,921,318 ------ ----------- ---------- ----------- ------ ----------- ---------- ----------- - - -----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements 4 PRUDENTIAL-BACHE DIVERSIFIED FUTURES FUND L.P. (a limited partnership) NOTES TO FINANCIAL STATEMENTS A. General Prudential-Bache Diversified Futures Fund L.P. (the ``Partnership'') is a Delaware limited partnership formed on May 25, 1988 which will terminate on December 31, 2007 unless terminated sooner under the provisions of the Amended and Restated Agreement of Limited Partnership (the ``Partnership Agreement''). On October 19, 1988, the Partnership completed its offering, having raised $30,107,800 from the sale of 297,468 units of limited partnership interest and 3,610 units of general partnership interest and commenced operations. The Partnership was formed to engage in the speculative trading of commodity futures, forward and options contracts. The general partner of the Partnership is Seaport Futures Management, Inc. (the ``General Partner''), which is an affiliate of Prudential Securities Incorporated (``PSI''), the Partnership'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 Partnership as long as it is acting as the Partnership's general partner. The General Partner generally maintains not less than seventy-five percent (75%) of the Partnership's net asset value (``NAV'') 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. The remaining twenty-five percent (25%) of NAV is held in cash in the Partnership's commodity trading accounts. All trading decisions for the Partnership since its inception have been made by John W. Henry & Co., Inc. (the ``Trading Manager''). The Trading Manager was initially allocated the Partnership's assets to be traded pursuant to five of its trading programs as follows: 19% according to the Original Investment Program, 21% according to the KT Diversified Program, 23% according to the KT Financial and Metals Portfolios Program, 27% according to the JWH International Foreign Exchange Program and 10% according to the World Financial Perspective Program. The Trading Manager may alter the relative percentages only if the General Partner does not object to any such alteration. No alterations have been made to date; however, based on trading activity, the relative percentages change from time to time as a result of the performance of the various trading programs. The General Partner retains the authority to override trading instructions that violate the Partnership's trading policies. B. Summary of Significant Accounting Policies Basis of accounting The books and records of the Partnership are maintained on the accrual basis of accounting in accordance with generally accepted accounting principles. The preparation of financial statements in conformity with generally accepted accounting principles requires the General Partner to make estimates and assumptions that affect the reported amounts of liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates. Commodity futures and forward transactions are reflected in the accompanying Statements of Financial Condition on trade date. The difference between the original contract amount and market value is reflected as net unrealized gain or loss. The market value of each contract is based upon the closing quotation on the exchange, clearing firm or bank on, or through, which the contract is traded. To the extent practicable, the Partnership invests a significant portion of its NAV in U.S. Treasury bills to fulfill original margin requirements. U.S. Treasury bills are carried at amortized cost, which approximates market value. Interest on these obligations accrues for the benefit of the Partnership. The weighted average number of limited and general partnership units outstanding was computed for purposes of disclosing net income (loss) per weighted average limited and general partnership unit. The weighted average limited and general partnership units are equal to the number of Units outstanding at year end, adjusted proportionately for Units redeemed based on their respective time outstanding during such year. 5 The Partnership has elected not to provide a Statement of Cash Flows as permitted by Statement of Financial Accounting Standards No. 102, ``Statement of Cash Flows--Exemption of Certain Enterprises and Classification of Cash Flows from Certain Securities Acquired for Resale.'' Certain balances from prior years have been reclassified to conform with the 1995 financial statement presentation. Income taxes The Partnership is not required to provide for, or pay, any Federal or state income taxes. Income tax attributes that arise from its operations are passed directly to the individual partners. The Partnership may be subject to other state and local taxes in jurisdictions in which it operates. Profit and loss allocations, distributions and redemptions Net realized profits or losses for tax purposes are allocated first to partners who redeem Units to the extent the amounts received on redemption are greater than or less than the amounts paid for the redeemed Units by the partners. Net realized profits or losses remaining after these allocations are allocated to each partner in proportion to such partner's capital account at year-end. Net income or loss for financial reporting purposes is allocated quarterly to all partners on a pro rata basis based on each partner's number of Units outstanding during the quarter. Distributions (other than on redemptions of Units) are made at the sole discretion of the General Partner on a pro rata basis in accordance with the respective capital accounts of the partners. No distributions have been made since inception. The Partnership Agreement provides that a limited partner may redeem its units as of the last business day of any full calendar quarter (beginning with the end of the first full calendar quarter of the Partnership's operations, which was March 31, 1989) at the then current NAV per Unit reduced by each Unit's pro rata portion of unamortized organizational costs. C. Costs, Fees and Expenses Organizational costs Costs incurred to organize the Partnership, including but not limited to legal, accounting, registration fees and certain printing costs, are considered deferred organizational costs. These costs were capitalized and amortized over a 60-month period ending in 1994. Commissions The General Partner, on behalf of the Partnership, entered into an agreement with PSI to act as commodity broker for the Partnership. The Partnership pays PSI commissions at a flat rate of 3/4 of 1% per month (a 9% annual rate) of the Partnership's NAV as of the first day of each month. Management and incentive fees The Partnership pays the Trading Manager a monthly management fee equal to 1/3 of 1% (a 4% annual rate) of the Partnership's NAV as of the end of each month. The Partnership also pays the Trading Manager a quarterly incentive fee equal to 15% of the ``New High Net Trading Profits'' (as defined in the Advisory Agreement between the Partnership, the General Partner and the Trading Manager). General and administrative expenses In addition to the costs, fees and expenses previously discussed, the Partnership reimburses the General Partner and its affiliates for certain Partnership operating expenses payable by, or allocable to, the Partnership. The amount of reimbursement from the Partnership is limited by the provisions of the Partnership Agreement. The Partnership also pays amounts directly to unrelated parties for certain operating expenses. D. 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. A portion of the general and administrative expenses of the Partnership for the years ended December 31, 1995, 1994 and 1993 was borne by PSI and its affiliates. 6 Costs and expenses charged to the Partnership for the years ended December 31, 1995, 1994 and 1993 were:
1995 1994 1993 ---------------------------------------- Commissions $1,668,063 $1,641,756 $1,667,523 Printing 12,175 6,400 10,300 ---------- ---------- ---------- $1,680,238 $1,648,156 $1,677,823 ---------- ---------- ---------- ---------- ---------- ----------
Expenses payable to the General Partner and its affiliates (which are included in accrued expenses) as of December 31, 1995 and 1994 were $9,300 and $13,680, respectively. The Partnership maintains its trading and cash accounts at PSI. Approximately 75% of the NAV 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. 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. E. Income Taxes The following is a reconciliation of net income (loss) for financial reporting purposes to net income (loss) for tax reporting purposes for the years ended December 31, 1995, 1994 and 1993, respectively:
1995 1994 1993 ------------------------------------------- Net income (loss) per financial statements $ 5,284,484 $(1,739,097) $ 4,939,250 Change in net unrealized gain on non-regulated commodity positions (157,188) (35,915) 31,046 ----------- ----------- ----------- Tax basis net income (loss) $ 5,127,296 $(1,775,012) $ 4,970,296 ----------- ----------- ----------- ----------- ----------- -----------
The differences between the tax and book bases of partners' capital are primarily attributable to the cumulative effect of the book to tax income adjustments. F. Credit and Market Risk Since the Partnership's business is to trade futures, forward and options contracts, its capital is at risk due to changes in the value of these contracts (market risk) or the inability of counterparties to perform under the terms of the contracts (credit risk). Futures, forward and options contracts involve varying degrees of off-balance sheet risk; and changes in the level of volatility of interest rates, foreign currency exchange rates or the market values of the contracts (or commodities underlying the contracts) frequently result in changes in the Partnership's unrealized gain (loss) on open commodity positions reflected in the statements of financial condition. The Partnership's exposure to market risk is influenced by a number of factors including the relationships among the contracts held by the Partnership as well as the liquidity of the markets in which the contracts are traded. Futures and options contracts are traded on organized exchanges and are thus distinguished from forward contracts which are entered into privately by the parties. The credit risks associated with futures and options contracts are typically perceived to be less than those associated with forward contracts because exchanges typically provide clearinghouse arrangements in which the collective credit (subject to certain limitations) of the members of the exchanges is pledged to support the financial integrity of the exchange. On the other hand, the Partnership must rely solely on the credit of its broker (PSI) with respect to forward transactions. The General Partner attempts to minimize both credit and market risks by requiring the Partnership's Trading Manager 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 7 positions. The General Partner may impose additional restrictions (through modifications of such trading limitations and policies) upon the trading activities of the Trading Manager 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 December 31, 1995, such segregated assets totalled $10,874,252. Part 30.7 of the CFTC regulations also requires PSI to secure assets of the Partnership related to foreign futures trading which totalled $8,704,525 at December 31, 1995. There are no segregation requirements for assets related to forward trading. As of December 31, 1995, open forward contracts mature within three months, but open futures contracts mature within one year. At December 31, 1995 and 1994 gross contract amounts of open futures and forward contracts are:
December 31, December 31, 1995 1994 ------------ ------------ Futures Currency Contracts: Commitments to purchase $ 3,101,098 $ 656,650 Commitments to sell $ 3,918,450 $ 5,993,069 Forward Currency Contracts: Commitments to purchase $ 14,753,643 $ 17,844,227 Commitments to sell $ 29,445,534 $ 43,860,082 Financial Futures Contracts: Commitments to purchase $198,771,784 $ 99,127,187 Commitments to sell $ 9,245,157 $ 82,669,558 Commodities Futures Contracts: Commitments to purchase $ 3,128,616 $ 2,490,153 Commitments to sell $ 4,522,406 $ 15,814,440
Included in the gross forward contract amounts are offsetting commitments to purchase and to sell the same currency 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 contract). The gross contract amounts significantly exceed the future cash requirements as the Partnership intends to close out open positions prior to settlement and thus is generally subject only to the risk of loss arising from the change in the value of the contracts. As such, the Partnership considers the ``fair value'' of its futures, forward 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. 8 The following table represents the average fair value of futures and forward contracts during the year ended December 31, 1995 and the related fair value of such contracts as of December 31, 1995.
For the year ended December 31,1995 December 31, 1995 ------------------------- ------------------------- Average Fair Value Fair Value Assets Liabilities Assets Liabilities ---------- ----------- ---------- ----------- Futures Contracts: Domestic exchanges Commodities $ 308,399 $ 49,801 $ 304,613 $ 2,955 Financial 260,585 18,134 361,913 -- Currencies 155,603 38,316 10,305 7,450 Foreign exchanges Commodities 4,447 3,702 7,120 1,250 Financial 464,058 38,782 507,205 6,565 Forward Contracts: Currencies 1,419,864 810,141 203,352 314,691 ---------- ----------- ---------- ----------- $2,612,956 $ 958,876 $1,394,508 $ 332,911 ---------- ----------- ---------- ----------- ---------- ----------- ---------- -----------
The following table represents the net realized gains (losses) and the change in unrealized gains/losses of futures and forward contracts during the year ended December 31, 1995.
Change in Net Realized Unrealized Gains (Losses) Gains/Losses Total -------------- -------------------- ---------- Futures Contracts: Domestic exchanges Commodities $ (277,439) $ (399,002) $ (676,441) Financial 1,926,406 (120,769) 1,805,637 Currencies 1,451,704 18,403 1,470,107 Foreign exchanges Commodities (26,812) 2,792 (24,020) Financial 2,172,294 (103,645) 2,068,649 Forward Contracts: Currencies 2,448,494 141,982 2,590,476 -------------- -------------------- ---------- $7,694,647 $ (460,239) $7,234,408 -------------- -------------------- ---------- -------------- -------------------- ----------
9 PRUDENTIAL-BACHE DIVERSIFIED FUTURES FUND L.P. (a limited partnership) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources The Partnership commenced operations on October 19, 1988 with gross proceeds of $30,107,800. After accounting for organizational and offering costs, the Partnership's net proceeds were $29,387,470. At December 31, 1995, 100% of the Partnership's total net assets were allocated to commodities trading (the ``Net Asset Value''). A significant portion of the Net Asset Value was held in U.S. Treasury bills (which represented approximately 76% 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 the U.S. Treasury bills bear to the total 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 General Partner attempts to minimize these risks by requiring the Partnership's Trading Manager to abide by various trading limitations and policies. See Note F to the financial statements for a further discussion on the credit and market risks associated with the Partnership's futures, forward and options contracts. The Partnership does not have, nor does it expect to have, any capital assets. Redemptions by limited partners recorded for the three years ended December 31, 1995, 1994 and 1993 were $2,047,033, $1,671,602 and $2,027,435, respectively. Redemptions by limited partners recorded from commencement of operations, October 19, 1988, through December 31, 1995 totalled $37,369,787. 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 December 31, 1995 was $326.48, a increase of 33.95% from the December 31, 1994 Net Asset Value per Unit of $243.73, which was an decrease of 10.05% from the December 31, 1993 Net Asset Value per Unit of $270.95. During the year ended December 31, 1995, the Partnership outperformed the MAR Fund/Pool Index. This index, which tracked the performance of 433 futures funds for the year ended December 31, 1995 gained 9.66%. The trading environment in 1995 was particularly favorable and the Partnership capitalized on emerging trends in the world's global markets. Currencies and interest rates experienced sustained price movements throughout the year generating returns for the Partnership. Interest income from U.S. Treasury bills increased by approximately $308,000 during 1995 as compared to 1994 and approximately $70,000 during 1994 as compared to 1993. These increases were due primarily to increasingly higher interest rates in the respective years. Additionally, strong trading performance in 1995 increased the Net Asset Value, including investments in U.S. Treasury bills and the related interest income. 10 Commissions paid to PSI are calculated on the Partnership's Net Asset Value on the first day of each month and, therefore, vary monthly according to trading performance and redemptions. Accordingly, they must be compared to the fluctuations in the monthly Net Asset Values. Commissions increased by approximately $26,000 during 1995 as compared to 1994 primarily due to strong trading performance in 1995. Commissions decreased by approximately $26,000 during 1994 as compared to 1993 primarily due to unfavorable trading performance in the third and fourth quarters of 1994, as well as the effect of redemptions at the monthly Net Asset Values. All trading decisions for the Partnership are made by John W. Henry & Co., Inc. (the ``Trading Manager''). Management fees are calculated on the Partnership's Net Asset Value as of the end of each month and, therefore, are affected by trading performance and redemptions. Management fees increased by approximately $36,000 during 1995 as compared to 1994 but decreased by approximately $37,000 during 1994 as compared to 1993 primarily due to fluctuations in monthly Net Asset Values as further discussed above. Incentive fees are based on the New High Net Trading profits generated by the Trading Manager, as defined in the Advisory Agreement between the Partnership, the General Partner and the Trading Manager. The incentive fees paid in the years ended December 31, 1995, 1994 and 1993 of approximately $268,000, $227,000 and $400,000 were the result of favorable trading performance during the first six months of 1995 and 1994 and the last nine months of 1993. General and administrative expenses include audit, tax and legal fees as well as printing and postage costs. General and administrative expenses increased approximately $4,000 in 1995 as compared to 1994 but decreased approximately $14,000 in 1994 as compared to 1993 due to the timing of certain expense accruals recorded in the respective years. Inflation Inflation has had no material impact on operations or on the financial condition of the Partnership from inception through December 31, 1995. 11 - - -------------------------------------------------------------------------------- I hereby affirm that, to the best of my knowledge and belief, the information contained herein relating to Prudential-Bache Diversified Futures Fund L.P. is accurate and complete. SEAPORT FUTURES MANAGEMENT, INC. (General Partner) by: Barbara J. Brooks Treasurer and Chief Financial Officer - - -------------------------------------------------------------------------------- 12 OTHER INFORMATION The actual round-term equivalent of brokerage commissions paid per trade for the year ended December 31, 1995 was $68. The Partnership's Annual Report on Form 10-K as filed with the Securities and Exchange Commission is available to limited partners without charge upon written request to: Prudential-Bache Diversified Futures Fund L.P. P.O. Box 2016 Peck Slip Station New York, NY 10272-2016 13 Prudential Securities Incorporated BULK RATE Peck Slip Station U.S. POSTAGE P.O. Box 2016 PAID New York, NY 10272 Automatic Mail PBDF1/171534 EX-27 3 ART. 5 FDS FOR 4TH QUARTER 10-K
5 The Schedule contains summary financial information extracted from the financial statements for P-B Diversified Futures Fund LP and is qualified in its entirety by reference to such financial statements 0000833225 P-B Diversified Futures Fund LP 1 Dec-31-1995 Jan-1-1995 Dec-31-1995 12-Mos 4,845,048 14,622,390 0 0 0 0 0 0 19,467,438 546,120 0 0 0 0 18,921,318 19,467,438 0 8,060,997 0 0 2,776,513 0 0 5,284,484 0 0 0 0 0 5,284,484 326.48 0
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