<PAGE>
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, 1997
/ / 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 (I.R.S. Employer Identification No.)
of incorporation or organization)
One New York Plaza, 14th Floor, New York, New York
10292
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 778-7866
N/A
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check CK whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _CK_ No __
<PAGE>
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,
1997 1996
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------
ASSETS
Equity in commodity trading accounts:
Cash $ 2,388,463 $ 4,645,558
U.S. Treasury bills, at amortized cost 15,133,091 16,240,338
Net unrealized gain on open commodity positions 1,175,252 515,393
------------- ------------
Total assets $18,696,806 $21,401,289
------------- ------------
------------- ------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Redemptions payable $ 312,482 $ 1,181,254
Management fees payable 62,137 71,105
Accrued expenses 55,745 69,703
Incentive fees payable -- 532,138
------------- ------------
Total liabilities 430,364 1,854,200
------------- ------------
Commitments
Partners' capital
Limited partners (44,040 and 47,492 units outstanding) 18,083,716 19,351,504
General partner (445 and 480 units outstanding) 182,726 195,585
------------- ------------
Total partners' capital 18,266,442 19,547,089
------------- ------------
Total liabilities and partners' capital $18,696,806 $21,401,289
------------- ------------
------------- ------------
Net asset value per limited and general partnership unit ('Units') $ 410.62 $ 407.47
------------- ------------
------------- ------------
- ----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
</TABLE>
2
<PAGE>
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,
------------------------- -------------------------
1997 1996 1997 1996
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
REVENUES
Net realized gain (loss) on commodity
transactions $ 785,468 $ 529,613 $1,257,948 $ (592,346)
Change in net unrealized gain on open
commodity positions 659,859 1,046,538 557,973 1,232,566
Interest from U.S Treasury bills 561,921 525,530 193,988 166,813
---------- ---------- ---------- ----------
2,007,248 2,101,681 2,009,909 807,033
---------- ---------- ---------- ----------
EXPENSES
Commissions 1,275,482 1,197,871 410,976 377,411
Management fees 569,851 535,529 188,127 169,068
General and administrative 59,496 53,990 17,382 30,685
---------- ---------- ---------- ----------
1,904,829 1,787,390 616,485 577,164
---------- ---------- ---------- ----------
Net income $ 102,419 $ 314,291 $1,393,424 $ 229,869
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
ALLOCATION OF NET INCOME
Limited partners $ 101,393 $ 324,494 $1,379,473 $ 227,544
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
General partner $ 1,026 $ (10,203) $ 13,951 $ 2,325
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
NET INCOME PER WEIGHTED AVERAGE
LIMITED AND GENERAL PARTNERSHIP UNIT
Net income per weighted average
limited and general partnership unit $ 2.19 $ 5.77 $ 30.80 $ 4.42
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average number of
limited and general partnership units
outstanding 46,689 54,454 45,246 51,949
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
- -----------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(Unaudited)
<TABLE>
<CAPTION>
LIMITED GENERAL
UNITS PARTNERS PARTNER TOTAL
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
Partners' capital--December 31, 1996 47,972 $19,351,504 $195,585 $19,547,089
Net income 101,393 1,026 102,419
Redemptions (3,487) (1,369,181) (13,885) (1,383,066)
------ ----------- -------- -----------
Partners' capital--September 30, 1997 44,485 $18,083,716 $182,726 $18,266,442
------ ----------- -------- -----------
------ ----------- -------- -----------
- ----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
</TABLE>
3
<PAGE>
PRUDENTIAL-BACHE DIVERSIFIED FUTURES FUND L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 1997
(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, 1997 and the results of its operations for the nine and
three months ended September 30, 1997 and 1996. 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, 1996 (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, 1997 and 1996 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, 1997 and 1996 were:
<TABLE>
<CAPTION>
Nine months ended Three months ended
September 30, September 30,
------------------------- ---------------------
1997 1996 1997 1996
---------- ---------- -------- --------
<S> <C> <C> <C> <C>
Commissions $1,275,482 $1,197,871 $410,976 $377,411
Printing services 9,900 10,410 1,050 4,915
---------- ---------- -------- --------
$1,285,382 $1,208,281 $412,026 $382,326
---------- ---------- -------- --------
---------- ---------- -------- --------
</TABLE>
Expenses payable to the General Partner and its affiliates (which are
included in accrued expenses) as of September 30, 1997 and December 31, 1996
were $6,339 and $4,524, respectively.
The Partnership maintains its trading and cash accounts at PSI. 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.
In connection with the Partnership's interbank transactions, PSI engages in
foreign currency forward transactions with the Partnership and an affiliate of
PSI who, as principal, attempts to earn a profit on the bid-ask spreads (which
must be competitive) on any foreign currency forward transactions entered into
between the Partnership and PSI, on the one hand, and PSI and such affiliate on
the other. In connection with its trading of foreign currencies in the interbank
market, PSI may arrange bank lines of credit at major international banks. To
the extent such lines of credit are arranged, PSI does not charge the
Partnership for maintaining such lines of credit, but requires margin deposits
with respect to forward contract transactions.
4
<PAGE>
C. Credit and Market Risk
Since the Partnership's business is to trade futures, forward and options
contracts, its capital is at risk due to changes in the value of these contracts
(market risk) or the inability of counterparties to perform under the terms of
the contracts (credit risk).
Futures, forward and options contracts involve varying degrees of off-balance
sheet risk; and changes in the level of volatility of interest rates, foreign
currency exchange rates or the market values of the contracts (or commodities
underlying the contracts) frequently result in changes in the Partnership's
unrealized gain (loss) on open commodity positions reflected in the statements
of financial condition. The Partnership's exposure to market risk is influenced
by a number of factors including the relationships among the contracts held by
the Partnership as well as the liquidity of the markets in which the contracts
are traded.
Futures and options contracts are traded on organized exchanges and are thus
distinguished from forward contracts which are entered into privately by the
parties. The credit risks associated with futures and options contracts are
typically perceived to be less than those associated with forward contracts,
because exchanges typically provide clearinghouse arrangements in which the
collective credit (subject to certain limitations) of the members of the
exchanges is pledged to support the financial integrity of the exchange. On the
other hand, the Partnership must rely solely on the credit of its broker (PSI)
with respect to forward transactions. The Partnership presents unrealized gains
and losses on open forward positions as a net amount in the statements of
financial condition because it has a master netting agreement with PSI.
The General Partner attempts to minimize both credit and market risks by
requiring the Partnership's trading 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 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
September 30, 1997 and December 31, 1996, such segregated assets totalled
$15,282,216 and $14,167,179 respectively. Part 30.7 of the CFTC regulations also
requires PSI to secure assets of the Partnership related to foreign futures and
options trading which totalled $3,435,825 and $7,047,560 at September 30, 1997
and December 31, 1996, respectively. There are no segregation requirements for
assets related to forward trading.
As of September 30, 1997 and December 31, 1996, all open forward contracts
mature within three months, and all open futures contracts mature within one
year.
5
<PAGE>
At September 30, 1997 and December 31, 1996, gross contract amounts of open
futures and forward contracts are:
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
------------------ -----------------
<S> <C> <C>
Futures Currency Contracts:
Commitments to purchase $ 4,214,640 $ 1,109,825
Commitments to sell $ 7,184,763 $ 1,480,663
Forward Currency Contracts:
Commitments to purchase $ 7,250,261 $20,657,538
Commitments to sell $ 16,169,123 $15,746,034
Financial Futures Contracts:
Commitments to purchase $158,825,572 $73,942,614
Commitments to sell $ 5,002,838 $24,695,270
Other Futures Contracts:
Commitments to purchase $ 4,628,082 $ 1,028,076
Commitments to sell $ 2,441,681 $ 9,895,757
</TABLE>
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 or forward 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
and forward contracts to be the net unrealized gain or loss on the contracts.
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
purchase commodities is limited to the gross contract amounts involved, while
the market risk associated with its commitments to sell is unlimited since the
Partnership's potential involvement is to make delivery of an underlying
commodity at the contract price; therefore, it must repurchase the contract at
prevailing market prices.
At September 30, 1997 and December 31, 1996, the fair values of open futures
and forward contracts were:
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
-------------------------- ------------------------
Fair Value Fair Value
-------------------------- ------------------------
Assets Liabilities Assets Liabilities
---------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Futures Contracts:
Domestic exchanges
Financial $ 82,001 $ 34,875 $ 9,450 $ 46,687
Currencies 91,860 57,613 57,048 1,538
Other 229,485 114,119 286,710 14,936
Foreign exchanges
Financial 1,014,345 2,502 219,373 184,813
Other -- 12,095 4,236 --
Forward Contracts:
Currencies 82,223 103,458 420,042 233,492
---------- ----------- -------- -----------
$1,499,914 $ 324,662 $996,859 $ 481,466
---------- ----------- -------- -----------
---------- ----------- -------- -----------
</TABLE>
6
<PAGE>
The following table presents the average fair value of futures and forward
contracts during the nine months ended September 30, 1997 and 1996,
respectively.
<TABLE>
<CAPTION>
Nine months ended Nine months ended
September 30, 1997 September 30, 1996
-------------------------- --------------------------
Average Fair Value Average Fair Value
-------------------------- --------------------------
Assets Liabilities Assets Liabilities
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Futures Contracts:
Domestic exchanges
Financial $ 156,350 $ 17,608 $ 263,912 $ 58,175
Currencies 91,729 18,010 48,253 4,437
Other 273,732 47,647 219,340 54,824
Foreign exchanges
Financial 478,159 89,059 574,394 55,438
Other 4,747 2,195 8,437 3,968
Forward Contracts:
Currencies 428,646 438,809 683,817 413,749
---------- ----------- ---------- -----------
$1,433,363 $ 613,328 $1,798,153 $ 590,591
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
</TABLE>
The following table presents the average fair value of futures and forward
contracts during the three months ended September 30, 1997 and 1996,
respectively.
<TABLE>
<CAPTION>
Three months ended Three months ended
September 30, 1997 September 30, 1996
-------------------------- --------------------------
Average Fair Value Average Fair Value
-------------------------- --------------------------
Assets Liabilities Assets Liabilities
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Futures Contracts:
Domestic exchanges
Financial $ 331,403 $ 12,219 $ 16,527 $ 129,180
Currencies 153,447 28,188 39,639 5,550
Other 299,303 87,942 324,018 34,861
Foreign exchanges
Financial 825,113 29,189 1,119,437 31,462
Other 5,966 4,459 9,756 588
Forward Contracts:
Currencies 323,960 430,515 318,205 231,807
---------- ----------- ---------- -----------
$1,939,192 $ 592,512 $1,827,582 $ 433,448
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
</TABLE>
7
<PAGE>
The following table presents the net realized gains (losses) and the change
in net unrealized gains/losses of futures and forward contracts during the nine
months ended September 30, 1997 and 1996, respectively.
<TABLE>
<CAPTION>
Nine months ended September 30, 1997 Nine months ended September 30, 1996
-------------------------------------------- ---------------------------------------------
Change in Change in
Net Realized Net Net Realized Net
Gains Unrealized Gains Unrealized
(Losses) Gains/Losses Total (Losses) Gains/Losses Total
------------ ------------ ---------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Futures Contracts:
Domestic exchanges
Financial $ (65,018) $ 84,363 $ 19,345 $ 497,906 $ (515,057) $ (17,151)
Currencies (77,965) (21,263) (99,228) 86,623 64,765 151,388
Other 345,005 (156,408) 188,597 138,463 197,564 336,027
Foreign exchanges
Financial 741,527 977,283 1,718,810 (232,024) 977,904 745,880
Other (23,453) (16,331) (39,784) (3,005) 5,334 2,329
Forward Contracts:
Currencies (134,628) (207,785) (342,413) 41,650 316,028 357,678
------------ ------------ ---------- ------------ ------------ -----------
$ 785,468 $ 659,859 $1,445,327 $ 529,613 $1,046,538 $ 1,576,151
------------ ------------ ---------- ------------ ------------ -----------
------------ ------------ ---------- ------------ ------------ -----------
</TABLE>
The following table presents the net realized gains (losses) and the change
in net unrealized gains/losses of futures and forward contracts during the three
months ended September 30, 1997 and 1996, respectively.
<TABLE>
<CAPTION>
Three months ended September 30, 1997 Three months ended September 30, 1996
-------------------------------------------- ---------------------------------------------
Change in Change in
Net Realized Net Net Realized Net
Gains Unrealized Gains Unrealized
(Losses) Gains/Losses Total (Losses) Gains/Losses Total
------------ ------------ ---------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Futures Contracts:
Domestic exchanges
Financial $ 352,363 $ (178,874) $ 173,489 $ (618,782) $ (49,937) $ (668,719)
Currencies (63,401) (74,713) (138,114) (54,802) 27,017 (27,785)
Other 206,856 (204,444) 2,412 192,186 65,513 257,699
Foreign exchanges
Financial 975,650 808,778 1,784,428 529,709 1,312,838 1,842,547
Other (35,124) (22,449) (57,573) 4,550 2,437 6,987
Forward Contracts:
Currencies (178,396) 229,675 51,279 (645,207) (125,302) (770,509)
------------ ------------ ---------- ------------ ------------ -----------
$1,257,948 $ 557,973 $1,815,921 $ (592,346) $1,232,566 $ 640,220
------------ ------------ ---------- ------------ ------------ -----------
------------ ------------ ---------- ------------ ------------ -----------
</TABLE>
8
<PAGE>
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, 1997, 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 81% of the Net Asset Value at prior to redemptions payable) and
cash, which are used as margin for the Partnership's trading in commodities.
Inasmuch as the sole business of the Partnership is to trade in commodities, the
Partnership continues to own such liquid assets to be used as margin.
The percentage that U.S. Treasury bills bears to the 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.
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 C to the financial statements for a further
discussion on the credit and market risks associated with the Partnership's
futures, forward and options contracts.
Redemptions recorded for the nine and three months ended September 30, 1997
were $1,369,181 and $309,197 for the limited partners and $13,885 and $3,285 for
the General Partner, respectively. Redemptions by limited partners and the
General Partner from commencement of operations (October 19, 1988) through
September 30, 1997 totalled $41,213,150 and $1,021,373, respectively. 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.
All trading decisions for the Partnership are made by John W. Henry &
Company, Inc. (the 'Trading Manager'). As of April 1, 1997, the General Partner
reallocated assets previously traded pursuant to the Trading Manager's Global
Diversified and International Foreign Exchange Portfolios to its World Financial
Perspective Portfolio, increasing the percentage of the Partnership's assets
allocated to that Portfolio by 10%. Additionally, the General Partner
reallocated $2 million previously traded pursuant to the Trading Manager's
Financial and Metals Portfolio to its Original Investment Portfolio, also
increasing the percentage of the Partnership's assets allocated to that
Portfolio by 10%.
Results of Operations
The Net Asset Value per Unit as of September 30, 1997 was $410.62, an
increase of 0.77% from the December 31, 1996 Net Asset Value per Unit of
$407.47.
July's positive performance resulted from gains in the financial, metal and
currency sectors. Losses were experienced in the index, soft, grain and energy
sectors. Following the Federal Reserve Chairman's generally upbeat congressional
testimony on the state of the U.S. economy, investor sentiment soared, sending
U.S. bond prices higher and the yield on the benchmark 30-year U.S. Treasury
bond down to levels not seen
9
<PAGE>
in 18 months. Positions in U.S. Treasuries, Australian 10-year bonds and
Eurodollar bonds resulted in strong gains as did positions in Japanese
government bonds. In the metal sector, as the Australian central bank sold
approximately 60% of their gold reserves, prices tumbled profiting the
Partnership's short gold and silver positions. In the currency sector, strong
gains were seen in Deutsche mark and Swiss franc positions as the U.S. dollar
soared in response to investors exchanging their marks and francs for U.S.
dollars. Positions in the Japanese yen and British pound were unprofitable. In
the index sector, losses were seen in the Nikkei Dow and the Australian index.
Unprofitable positions were also experienced in the soft sector as shifting
inventory expectations and fickle weather patterns altered investor sentiment,
specifically in cotton, cocoa and coffee.
August's negative performance resulted from losses in the currency,
financial, energy and grain sectors. Gains were experienced in the index, soft
and metal sectors. The currency markets proved to be a major detractor to the
Partnership's overall performance. The Deutsche mark's weakness over the past
few months contributed to some decent gains, but its strength in August against
several currencies, including the U.S. dollar, Japanese yen and British pound
contributed to the Partnership's negative performance. The Swiss franc also
added to the Partnership's losses as it rose against the U.S. dollar. In the
financial sector, the month began with sharp sell-offs in the U.S. and German
bond markets driven by fears of inflation and higher interest rates.
Reverberations were also felt across the European financial markets. This
turnaround in the bull bond market resulted in losses in U.S., German and French
bond positions. In the energy sector, positions were unprofitable as light crude
oil and heating oil prices fell due, in part, to downward pressures related to
the recent return of Iraqi oil to world markets. Losses were somewhat offset by
gains in world stock indices. As the Japanese Nikkei continued to decline, the
Partnership capitalized on its short positions. Positions in cotton, coffee,
gold and copper were profitable as well.
September's positive performance resulted from gains in the financial and
metal sectors. Losses were experienced in the currency, soft, energy, index and
grain sectors. In the financial sector, the main factor in September was the
drop in U.S. long-term interest rates from 6.75% to 6.40%. This fall in U.S.
interest rates impacted bond prices around the world, contributing profits to
the Partnership. Anticipation of an increase in demand for silver drove prices
up approximately 11%. As a result, the Partnership was able to capture profits
in these positions. Copper positions were profitable as well. Currency sector
positions dampened September performance for the Partnership as the U.S. dollar
lost ground versus other currencies including the Deutsche mark, Swiss franc and
British pound. In the soft sector, significant price moves resulted in losses
for the Partnership. Coffee declined, plunging 9.3% in a single day, on
expectations of new supplies from Brazil and the transfer of European coffee
beans to the U.S. market. Sugar prices also dropped amid projections for large
Brazilian exports following the elimination of the sugar export tax. Positions
in cocoa were unprofitable as well. In the energy sector, the Partnership's
positions incurred losses as the price of crude oil fell in response to the
buildup of inventories from summer lows.
Interest income is earned on U.S. Treasury bills. Funds available for
investment in U.S. Treasury bills varies monthly according to trading
performances and redemptions. Interest income from U.S. Treasury bills increased
approximately $36,000 and $27,000 for the nine and three months ended September
30, 1997 as compared to the corresponding periods in 1996 primarily due to
larger investments in U.S. Treasury bills in 1997 as a result of strong trading
performance during the fourth quarter of 1996 and third quarter of 1997, offset,
in part, by redemptions.
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 increased by approximately $78,000 and
$34,000 for the nine and three months ended September 30, 1997 as compared to
the corresponding periods in 1996 primarily due to higher 1997 monthly Net Asset
Values as a result of strong trading performance during the fourth quarter of
1996 and third quarter 1997, offset, in part, by redemptions.
Management fees are calculated on the Partnership's Net Asset Value at the
end of each month and, therefore, are affected by trading performance and
redemptions. Management fees increased by approximately $34,000 and $19,000 for
the nine and three months ended September 30, 1997 as compared to the
corresponding periods in 1996 due to the same reasons commissions increased as
discussed above.
Incentive fees are based on the New High Net Trading Profits as defined in
the Advisory Agreement, as amended, between the Partnership, the General Partner
and the Trading Manager. No incentive fees were earned during the nine and three
months ended September 30, 1997 and 1996.
10
<PAGE>
General and administrative expenses include audit, tax and legal fees as well
as printing and postage costs. General and administrative expenses for the nine
months ended September 30, 1997 increased by approximately $6,000 but decreased
by approximately $13,000 for the three months ended September 30, 1997 as
compared to the corresponding periods in 1996.
11
<PAGE>
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
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)
(b) Reports on Form 8-K--None
12
<PAGE>
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.
By: Seaport Futures Management, Inc.
A Delaware corporation, General Partner
By: /s/ Steven Carlino Date: November 14, 1997
----------------------------------------
Steven Carlino
Vice President
Chief Accounting Officer for the Registrant
13
<TABLE> <S> <C>
<PAGE>
<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-31-1997
<PERIOD-START> Jan-1-1997
<PERIOD-END> Sep-30-1997
<PERIOD-TYPE> 9-MOS
<CASH> 2,388,463
<SECURITIES> 16,308,343
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 18,696,806
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 18,696,806
<CURRENT-LIABILITIES> 430,364
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 18,266,442
<TOTAL-LIABILITY-AND-EQUITY> 18,696,806
<SALES> 0
<TOTAL-REVENUES> 2,007,248
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,904,829
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 102,419
<EPS-PRIMARY> 2.19
<EPS-DILUTED> 0
</TABLE>
