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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarter ended September 30, 1995
/ / 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
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(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
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 778-7866
N/A
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Former name, former address and former fiscal year, if changed since last
report.
Indicate by check CK whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _CK_ No __
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Part I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PRUDENTIAL-BACHE DIVERSIFIED FUTURES FUND L.P.
(a limited partnership)
STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------
ASSETS
Equity in commodity trading accounts:
Cash $ 4,547,800 $ 2,260,467
U.S. Treasury bills, at amortized cost 14,626,647 12,337,975
Net unrealized gain (loss) on open commodity positions (343,526) 1,521,836
------------- ------------
Total assets $18,830,921 $16,120,278
------------- ------------
------------- ------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Redemptions payable $ 265,547 $ 317,093
Management fees payable 62,585 53,515
Accrued expenses 55,440 65,803
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Total liabilities 383,572 436,411
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Commitments
Partners' capital
Limited partners (55,658 and 60,749 units outstanding) 17,326,644 14,806,429
General partner (3,600 units outstanding) 1,120,705 877,438
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Total partners' capital 18,447,349 15,683,867
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Total liabilities and partners' capital $18,830,921 $16,120,278
------------- ------------
------------- ------------
Net asset value per limited and general partnership unit
(``Units'') $ 311.31 $ 243.73
------------- ------------
------------- ------------
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The accompanying notes are an integral part of these statements
</TABLE>
2
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PRUDENTIAL-BACHE DIVERSIFIED FUTURES FUND L.P.
(a limited partnership)
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended Three months ended
September 30, September 30,
-------------------------- -------------------------
1995 1994 1995 1994
<S> <C> <C> <C> <C>
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REVENUES
Net realized gain (loss) on commodity
transactions $ 7,772,781 $2,148,605 $ (23,349) $ 123,993
Change in net unrealized gain/loss on open
commodity positions (1,865,362) (794,175) (540,838) (1,546,720)
Interest from U.S Treasury bills 631,477 366,980 222,489 151,889
----------- ---------- --------- -----------
6,538,896 1,721,410 (341,698) (1,270,838)
----------- ---------- --------- -----------
EXPENSES
Commissions 1,249,757 1,256,812 435,410 411,725
Management fees 574,019 560,062 190,848 177,585
Incentive fees 268,499 226,735 -- --
General and administrative 61,182 55,664 22,792 18,134
Amortization of organizational costs -- 494 -- --
----------- ---------- --------- -----------
2,153,457 2,099,767 649,050 607,444
----------- ---------- --------- -----------
Net income (loss) $ 4,385,439 $ (378,357) $(990,748) $(1,878,282)
----------- ---------- --------- -----------
----------- ---------- --------- -----------
ALLOCATION OF NET INCOME (LOSS)
Limited partners $ 4,142,172 $ (354,992) $(931,413) $(1,776,639)
----------- ---------- --------- -----------
----------- ---------- --------- -----------
General partner $ 243,267 $ (23,365) $ (59,335) $ (101,643)
----------- ---------- --------- -----------
----------- ---------- --------- -----------
NET INCOME (LOSS) PER WEIGHTED AVERAGE
UNIT
Net income (loss) per weighted average
Unit $ 70.73 $ (5.52) $ (16.48) $ (28.23)
----------- ---------- --------- -----------
----------- ---------- --------- -----------
Weighted average number of Units 62,000 68,524 60,111 66,525
----------- ---------- --------- -----------
----------- ---------- --------- -----------
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</TABLE>
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(Unaudited)
<TABLE>
<CAPTION>
LIMITED GENERAL
UNITS PARTNERS PARTNER TOTAL
<S> <C> <C> <C> <C>
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Partners' capital--December 31, 1994 64,349 $14,806,429 $ 877,438 $15,683,867
Net income -- 4,142,172 243,267 4,385,439
Redemptions (5,091) (1,621,957) -- (1,621,957)
------ ----------- ---------- -----------
Partners' capital--September 30, 1995 59,258 $17,326,644 $1,120,705 $18,447,349
------ ----------- ---------- -----------
------ ----------- ---------- -----------
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The accompanying notes are an integral part of these statements
</TABLE>
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PRUDENTIAL-BACHE DIVERSIFIED FUTURES FUND L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(Unaudited)
A. General
These financial statements have been prepared without audit. In the opinion
of management, the financial statements contain all adjustments (consisting of
only normal recurring adjustments) necessary to present fairly the financial
position of Prudential-Bache Diversified Futures Fund L.P. (the ``Partnership'')
as of September 30, 1995 and the results of its operations for the nine and
three months ended September 30, 1995 and 1994. However, the operating results
for the interim periods may not be indicative of the results expected for the
full year.
Certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with generally accepted accounting
principles have been omitted. It is suggested that these financial statements be
read in conjunction with the financial statements and notes thereto included in
the Partnership's Annual Report on Form 10-K filed with the Securities and
Exchange Commission for the year ended December 31, 1994 (the ``Annual
Report'').
B. Related Parties
Seaport Futures Management, Inc. (the ``General Partner'') and its affiliates
perform services for the Partnership which include, but are not limited to:
brokerage services, accounting and financial management, registrar, transfer and
assignment functions, investor communications, printing and other administrative
services. A portion of the general and administrative expenses of the
Partnership for the nine and three months ended September 30, 1995 and 1994 was
borne by Prudential Securities Incorporated (``PSI'') and its affiliates.
Costs and expenses charged to the Partnership for these services for the nine
and three months ended September 30, 1995 and 1994 were:
<TABLE>
<CAPTION>
Nine months ended Three months ended
September 30, September 30,
------------------------- ---------------------
1995 1994 1995 1994
---------- ---------- -------- --------
<S> <C> <C> <C> <C>
Commissions $1,249,757 $1,256,812 $435,410 $411,725
Printing services 8,940 6,400 4,800 1,600
---------- ---------- -------- --------
$1,258,697 $1,263,212 $440,210 $413,325
---------- ---------- -------- --------
---------- ---------- -------- --------
</TABLE>
Expenses payable to the General Partner and its affiliates (which are
included in accrued expenses) as of September 30, 1995 and December 31, 1994
were $9,599 and $13,680, respectively.
The Partnership maintains its trading and cash accounts at PSI, the
Partnership's commodity broker and an affiliate of the General Partner.
Approximately 75% of the Partnership's net assets is invested in
interest-bearing U.S. Government obligations (primarily U.S. Treasury bills), a
significant portion of which is utilized for margin purposes for the
Partnership's commodity trading activities. As described in the Annual Report,
all commissions for brokerage services are paid to PSI.
When the Partnership engages in forward foreign currency transactions, it
trades with PSI who simultaneously engages in back-to-back transactions with an
affiliate who, pursuant to the Partnership's prospectus, is obligated to charge
a competitive price.
C. Off-Balance Sheet Financial Instruments
The Partnership trades in a variety of financial instruments in connection
with its normal trading activities. Each of these financial instruments contains
varying degrees of off-balance sheet risk whereby changes in
4
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the market values of the underlying open positions may be in excess of the
amounts recognized in the Statements of Financial Condition.
Futures and forward contracts represent commitments either to purchase or
sell commodities, including securities and foreign currencies, at a future date
and at a specified price. The Partnership is subject to the market risk
associated with changes in the value of the underlying financial instruments as
well as the credit risk that another party will fail to perform under the terms
of the contract. The credit risk associated with counterparty nonperformance is
the net unrealized gain, if any, on open commodity positions included in the
Statements of Financial Condition. The Partnership also has credit risk because
the counterparty in each of its foreign currency forward transactions is the
same party (its broker, PSI). 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 subject only to the risk of loss
arising from the change in the value of the instruments.
The following table identifies the underlying contract amounts of open
financial futures and forward contracts as of September 30, 1995 and December
31, 1994:
<TABLE>
<CAPTION>
September 30, 1995 December 31, 1994
------------------ -----------------
<S> <C> <C>
Foreign Currency Contracts:
Commitments to purchase $ 32,435,346 $18,500,877
Commitments to sell $ 35,925,312 $49,853,151
Financial Contracts:
Commitments to purchase $139,139,995 $99,127,187
Commitments to sell $ 7,979,967 $82,669,558
</TABLE>
A portion of the currency amounts disclosed above includes offsetting
commitments to purchase and to sell the same currency on the same date in the
future. These commitments are economically offsetting but are not, as a
technical matter, offset in the forward market until the settlement date.
5
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PRUDENTIAL-BACHE DIVERSIFIED FUTURES FUND L.P.
(a limited partnership)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Partnership commenced operations on October 19, 1988 with gross proceeds
of $30,107,800. After accounting for organizational and offering expenses, the
Partnership's net proceeds were $29,387,470.
At September 30, 1995, a significant portion of net assets was held in U.S.
Treasury bills (which represented approximately 78% of net assets at September
30, 1995 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 net assets varies
each day, and from month to month, as the market values of commodity interests
change. The balance of the 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 certain 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.
As further discussed in Note C to the financial statements, the Partnership's
commodities contracts are subject to both market and 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. 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 and all
commodities combined; and generally limiting investing to contracts which are
traded in sufficient volume to permit taking and liquidating positions. The
General Partner may impose additional restrictions (through modifications of
such 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.
Redemptions by limited partners recorded for the nine and three months ended
September 30, 1995 were $1,621,957 and $265,547, respectively. Redemptions by
limited partners from commencement of operations (October 19, 1988) through
September 30, 1995 totalled $36,945,690. Future redemptions will impact the
amount of funds available for investment in commodity contracts in subsequent
periods.
The Partnership does not have, nor does it expect to have, any capital
assets.
Results of Operations
The net asset value per Unit as of September 30, 1995 was $311.31, an
increase of 27.73% from the December 31, 1994 net asset value per Unit of
$243.73.
The Partnership experienced trading losses in July due in part to trend
reversals in several key financial markets. During the month, the financial
sector was influenced by worldwide interest rate policies. In the U.S., the
federal funds rate was lowered to 5.75% from 6%. Initially, U.S. bond prices
moved upward, but subsequently retraced to close lower for the month. In Europe,
bond prices fluctuated over uncertainty of a German interest rate cut. The
Bundesbank, however, left interest rates unchanged. In the tangible markets,
cotton prices, which had been rising consistently, declined sharply. In
addition, changing weather conditions created volatile grain markets.
6
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Foreign exchange markets provided the most favorable profit opportunities in
August. The majority of the Partnership's profits were generated from selling
Japanese yen as it plummeted in value against the dollar when Japan instituted a
new regulatory package designed to encourage overseas investing. As a result,
the U.S. dollar soared to its highest level against the yen in six months.
Additionally, selling yen against the German mark further added to profits amid
speculation that the German Bundesbank would ease rates.
Difficult foreign exchange and credit markets contributed to most of
September's losses. Aside from gains in the Japanese yen, positions in other
currencies were largely unprofitable as a result of the U.S. dollar's reversal
in the prior month. Early in September the dollar continued to rise in price
until a negative U.S. trade deficit report brought about a swift about-face.
Lack of continued dollar support from the Bank of Japan pushed the dollar even
lower resulting in unprofitable positions in the German mark, Swiss franc, and
British pound. Mid-month price reversals in foreign interest rate contracts
similarly led to net unprofitable results. On the long-end of the yield curve,
positions in British, French and Italian bonds were unprofitable while German
and Australian bonds registered gains. Small gains were made on the short-end as
winning positions in short sterling and Euroyen more than offset losses in the
French Pibor contract. Crude oil prices plunged in the middle of the month on
news of increased world supplies, turning long energy positions unprofitable.
Interest income is earned on U.S. Treasury bills and, therefore, varies
monthly according to interest rates, trading performance and redemptions.
Interest income from U.S. Treasury bills increased by approximately $264,000 and
$71,000 for the nine and three months ended September 30, 1995 as compared to
the corresponding periods in 1994 primarily due to increases in interest rates.
Commissions 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 decreased by approximately $7,000 for the
nine months ended September 30, 1995 as compared to the corresponding period in
1994 primarily due to the cumulative effect of redemptions on the monthly net
asset values. Commissions increased by approximately $24,000 for the three
months ended September 30, 1995 as compared to the corresponding period in 1994
due to strong trading performance offset, in part, by the effect of redemptions.
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 at the end of the month and, therefore, are
affected by trading performance and redemptions. Management fees increased by
approximately $14,000 and $13,000 for the nine and three months ended September
30, 1995 as compared to the corresponding periods in 1994 primarily due to
strong trading performance in 1995.
Incentive fees are based on the New High Net Trading Profits generated by the
Trading Manager as defined in the Advisory Agreement, as amended, between the
Partnership, the General Partner and the Trading Manager. The incentive fees for
the nine months ended September 30, 1995 and 1994 were approximately $268,000
and $227,000, respectively. There were no incentive fees for the three month
periods ended September 30 in the current or prior year.
7
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings--There are no material legal proceedings pending by
or against the Registrant or the General Partner.
Item 2. Changes in Securities--None
Item 3. Defaults Upon Senior Securities--None
Item 4. Submission of Matters to a Vote of Security Holders--None
Item 5. Other Information--None
Item 6. (a) Exhibits
<TABLE>
<S> <C>
4.1 Agreement of Limited Partnership of the Registrant, dated as of May 25, 1988
as amended and restated as of July 12, 1988 (incorporated by 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)
27.1 Financial Data Schedule (filed herewith)
</TABLE>
(b) Reports on Form 8-K--None
8
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PRUDENTIAL-BACHE DIVERSIFIED FUTURES FUND L.P.
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<S> <C>
By: Seaport Futures Management, Inc.
A Delaware corporation, General Partner
By: /s/ Steven Carlino Date: November 13, 1995
----------------------------------------
Steven Carlino
Vice President
Chief Accounting Officer for the
Registrant
</TABLE>
9
<TABLE> <S> <C>
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<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial
information extracted from the financial
statements for Prudential-Bache Diversified
Futures Fund L.P. and is qualified in its
entirety by reference to such financial statements
</LEGEND>
<RESTATED>
<CIK> 0000833225
<NAME> Prudential-Bache Diversified Futures Fund L.P.
<MULTIPLIER> 1
<FISCAL-YEAR-END> Dec-31-1995
<PERIOD-START> Jan-01-1995
<PERIOD-END> Sep-30-1995
<PERIOD-TYPE> 9-Mos
<CASH> 4,204,274
<SECURITIES> 14,626,647
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 18,830,921
<CURRENT-LIABILITIES> 383,572
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 18,447,349
<TOTAL-LIABILITY-AND-EQUITY> 18,830,921
<SALES> 0
<TOTAL-REVENUES> 6,538,896
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,153,457
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,385,439
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,385,439
<EPS-PRIMARY> 311.31
<EPS-DILUTED> 0
</TABLE>
