<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 June 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>
<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>
June 30, December 31,
1997 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Equity in commodity trading accounts:
Cash $ 3,600,506 $ 4,645,558
U.S. Treasury bills, at amortized cost 13,779,042 16,240,338
Net unrealized gain on open commodity positions 617,279 515,393
------------- ------------
Total assets $17,996,827 $21,401,289
------------- ------------
------------- ------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Redemptions payable $ 608,851 $ 1,181,254
Management fees payable 118,043 71,105
Accrued expenses 84,433 69,703
Incentive fees payable -- 532,138
------------- ------------
Total liabilities 811,327 1,854,200
------------- ------------
Commitments
Partners' capital
Limited partners (44,793 and 47,492 units outstanding) 17,013,440 19,351,504
General partner (453 and 480 units outstanding) 172,060 195,585
------------- ------------
Total partners' capital 17,185,500 19,547,089
------------- ------------
Total liabilities and partners' capital $17,996,827 $21,401,289
------------- ------------
------------- ------------
Net asset value per limited and general partnership unit ('Units') $ 379.82 $ 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>
Six months ended Three months ended
June 30, June 30,
-------------------------- -------------------------
1997 1996 1997 1996
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
REVENUES
Net realized gain (loss) on commodity
transactions (472,480) $1,121,959 $(1,479,432) $ 849,490
Change in net unrealized gain on open
commodity positions 101,886 (186,028) 446,911 (112,793)
Interest from U.S Treasury bills 367,933 358,717 183,442 170,645
----------- ---------- ----------- ---------
(2,661) 1,294,648 (849,079) 907,342
----------- ---------- ----------- ---------
EXPENSES
Commissions 864,506 820,460 416,562 389,392
Management fees 381,724 366,461 180,847 174,784
General and administrative 42,114 23,305 21,608 1,928
----------- ---------- ----------- ---------
1,288,344 1,210,226 619,017 566,104
----------- ---------- ----------- ---------
Net income (loss) (1,291,005) 84,422 $(1,468,096) $ 341,238
----------- ---------- ----------- ---------
----------- ---------- ----------- ---------
ALLOCATION OF NET INCOME (LOSS)
Limited partners $(1,278,080) $ 96,950 $(1,453,399) $ 337,823
----------- ---------- ----------- ---------
----------- ---------- ----------- ---------
General partner $ (12,925) $ (12,528) $ (14,697) $ 3,415
----------- ---------- ----------- ---------
----------- ---------- ----------- ---------
NET INCOME (LOSS) PER WEIGHTED AVERAGE
LIMITED AND GENERAL PARTNERSHIP UNIT
Net income (loss) per weighted average
limited and general partnership unit $ (27.23) $ 1.52 $ (31.34) $ 6.38
----------- ---------- ----------- ---------
----------- ---------- ----------- ---------
Weighted average number of
limited and general partnership units
outstanding 47,411 55,707 46,849 53,457
----------- ---------- ----------- ---------
----------- ---------- ----------- ---------
- ------------------------------------------------------------------------------------------------------
</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 loss -- (1,278,080) (12,925) (1,291,005)
Redemptions (2,726) (1,059,984) (10,600) (1,070,584)
------ ----------- -------- -----------
Partners' capital--June 30, 1997 45,246 $17,013,440 $172,060 $17,185,500
------ ----------- -------- -----------
------ ----------- -------- -----------
- ----------------------------------------------------------------------------------------------------
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
June 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 June 30, 1997 and the results of its operations for the six and three
months ended June 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 six months ended June 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 six
and three months ended June 30, 1997 and 1996 were:
<TABLE>
<CAPTION>
Six months ended Three months ended
June 30, June 30,
--------------------- ---------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Commissions $864,506 $820,460 $416,562 $389,392
Printing services 8,850 5,495 4,424 1,010
-------- -------- -------- --------
$873,356 $825,955 $420,986 $390,402
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
Expenses payable to the General Partner and its affiliates (which are
included in accrued expenses) as of June 30, 1997 and December 31, 1996 were
$8,268 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
June 30, 1997 and December 31, 1996, such segregated assets totalled $16,075,979
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 $2,171,758 and $7,047,560 at June 30, 1997 and December
31, 1996, respectively. There are no segregation requirements for assets related
to forward trading.
As of June 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>
<PAGE>
At June 30, 1997 and December 31, 1996, gross contract amounts of open
futures and forward contracts are:
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
-------------- -----------------
<S> <C> <C>
Futures Currency Contracts:
Commitments to purchase $ 5,705,340 $ 1,109,825
Commitments to sell $ 3,465,320 $ 1,480,663
Forward Currency Contracts:
Commitments to purchase $ 23,811,752 $20,657,538
Commitments to sell $ 13,112,877 $15,746,034
Financial Futures Contracts:
Commitments to purchase $290,543,607 $73,942,614
Commitments to sell $ 30,627,129 $24,695,270
Other Futures Contracts:
Commitments to purchase $ 1,440,656 $ 1,028,076
Commitments to sell $ 13,191,519 $ 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 June 30, 1997 and December 31, 1996, the fair values of open futures and
forward contracts were:
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
-------------------------- ------------------------
Fair Value Fair Value
-------------------------- ------------------------
Assets Liabilities Assets Liabilities
---------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Futures Contracts:
Domestic exchanges
Financial $ 226,000 $ -- $ 9,450 $ 46,687
Currencies 119,875 10,915 57,048 1,538
Other 382,379 62,569 286,710 14,936
Foreign exchanges
Financial 300,617 97,552 219,373 184,813
Other 10,354 -- 4,236 --
Forward Contracts:
Currencies 200,277 451,187 420,042 233,492
---------- ----------- -------- -----------
$1,239,502 $ 622,223 $996,859 $ 481,466
---------- ----------- -------- -----------
---------- ----------- -------- -----------
</TABLE>
6
<PAGE>
The following table presents the average fair value of futures and forward
contracts during the six months ended June 30, 1997 and 1996, respectively.
<TABLE>
<CAPTION>
Six months ended Six months ended
June 30, 1997 June 30, 1996
-------------------------- --------------------------
Average Fair Value Average Fair Value
-------------------------- --------------------------
Assets Liabilities Assets Liabilities
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Futures Contracts:
Domestic exchanges
Financial $ 88,861 $ 10,529 $ 373,188 $ 17,376
Currencies 59,208 13,299 58,529 5,740
Other 274,642 31,931 192,458 52,453
Foreign exchanges
Financial 242,109 138,158 353,706 53,279
Other 4,942 789 7,623 4,107
Forward Contracts:
Currencies 356,121 489,636 617,035 254,767
---------- ----------- ---------- -----------
$1,025,883 $ 684,342 $1,602,539 $ 387,722
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
</TABLE>
The following table presents the average fair value of futures and forward
contracts during the three months ended June 30, 1997 and 1996, respectively.
<TABLE>
<CAPTION>
Three months ended Three months ended
June 30, 1997 June 30, 1996
-------------------------- --------------------------
Average Fair Value Average Fair Value
-------------------------- --------------------------
Assets Liabilities Assets Liabilities
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Futures Contracts:
Domestic exchanges
Financial $ 109,760 $ 10,844 $ 382,913 $ 29,227
Currencies 56,772 14,963 46,689 3,304
Other 230,470 37,953 219,305 28,498
Foreign exchanges
Financial 241,009 158,995 172,555 61,949
Other 5,341 818 8,234 6,799
Forward Contracts:
Currencies 179,050 503,227 842,284 420,236
---------- ----------- ---------- -----------
$ 822,402 $ 726,800 $1,671,980 $ 550,013
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
</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 six
months ended June 30, 1997 and 1996, respectively.
<TABLE>
<CAPTION>
Six months ended June 30, 1997 Six months ended June 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 $ (417,383) $ 263,237 $ (154,146) $ 1,116,688 $ (465,119) $ 651,569
Currencies (14,564) 53,450 38,886 141,425 37,748 179,173
Other 138,149 48,036 186,185 (53,723) 132,051 78,328
Foreign exchanges
Financial (234,121) 168,505 (65,616) (761,733) (334,934) (1,096,667)
Other 11,671 6,118 17,789 (7,555) 2,896 (4,659)
Forward Contracts:
Currencies 43,768 (437,460 ) (393,692) 686,857 441,330 1,128,187
------------ ------------ ----------- ------------ ------------ -----------
$ (472,480) $ 101,886 $ (370,594) $ 1,121,959 $ (186,028) $ 935,931
------------ ------------ ----------- ------------ ------------ -----------
------------ ------------ ----------- ------------ ------------ -----------
</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 June 30, 1997 and 1996, respectively.
<TABLE>
<CAPTION>
Three months ended June 30, 1997 Three months ended June 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 $ (128,877) $ 41,212 $ (87,665) $ 791,844 $ (619,663) $ 172,181
Currencies (101,462) 105,008 3,546 65,930 17,781 83,711
Other (102,689) 238,495 135,806 227,015 341,889 568,904
Foreign exchanges
Financial (271,017) 147,320 (123,697) (766,990) (75,909) (842,899)
Other 8,524 10,051 18,575 (9,859) 14,864 5,005
Forward Contracts:
Currencies (883,911) (95,175 ) (979,086) 541,550 208,245 749,795
------------ ------------ ----------- ------------ ------------ -----------
$ (1,479,432) $ 446,911 $(1,032,521) $ 849,490 $ (112,793) $ 736,697
------------ ------------ ----------- ------------ ------------ -----------
------------ ------------ ----------- ------------ ------------ -----------
</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 June 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 77%
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 six and three months ended June 30, 1997 were
$1,059,984 and $602,774 for the limited partners and $10,600 and $6,077 for the
General Partner, respectively. Redemptions by limited partners and the general
partner from commencement of operations (October 19, 1988) through June 30, 1997
totalled $40,903,953 and $1,018,088, 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 & Co.,
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 June 30, 1997 was $379.82, a decrease of
6.79% from the December 31, 1996 Net Asset Value per Unit of $407.47.
April's negative performance resulted from losses in the financial and grain
sectors offsetting profits earned in the currency, metal, soft, stock index and
energy sectors. Global equity markets tracked the downward movement of U.S. bond
and stock prices as economic reports seemed to strengthen the argument for
another short-term rate increase by the U.S. Federal Reserve Bank during the
first two weeks
9
<PAGE>
of the month. However, bearish sentiment gave way to exuberance in the second
half as new data, strong corporate earnings and a budget deal in Washington
restored investor confidence. This sharp shift in the interest rate markets
resulted in losses for the Partnership, as U.S., Australian, Japanese, Canadian,
British, German and French bond positions were unprofitable. In the currency
sector, the Partnership benefited from continuing trends. There was little to
shift the U.S. dollar from its position of strength in world markets. Talk of
central bank intervention to stem the dollar's rise against the Japanese yen
ruffled the markets throughout the month. However, the dollar continued to rise
in the weeks leading up to the meeting of G-7 finance ministers on April 27,
1997, reaching new highs against both the yen and German mark. In the final week
of trading, new economic data dampened expectations for a second U.S. rate hike
and the dollar sagged against its major counterparts. Positions in Japanese yen,
German mark and Swiss franc posted gains.
May's negative performance resulted from losses in the currency, energy,
financial and metal sectors offsetting profits earned in the index, soft and
grain sectors. In the currency sector, the Partnership suffered losses in
Japanese yen, British pound, Deutsche mark and Canadian dollar positions. Upset
elections in France and Great Britain, verbal intervention by Japanese
officials, another U.S. Federal Reserve meeting on interest-rate policy, and
extraordinary public bickering between the German government and central bank
contributed to a general state of confusion in the foreign exchange markets. In
Japan, official warnings of intervention to cap the U.S. dollar's rise against
the Japanese yen and a report that the Bank of Japan might raise a key interest
rate pushed the dollar to a 4 1/2 month low against the yen. Towards month end,
the dollar reversed itself as Japanese officials warned of intervention and said
interest rates would not be increased. In the financial sector, bond markets
were equally unsettled reflecting U.S. interest rate concerns and renewed doubts
about monetary union in Europe. Japanese and European bond positions were
unprofitable. In the soft sector, the Partnership benefited from coffee's
continuous upward trend as intermittent labor unrest and heavy rains in major
producing countries threatened to reduce already tight inventories. Positions in
cotton, cocoa and sugar were also profitable. In the world equity markets, both
the Nikkei and the Australian All Ordinaries indices soared, reflecting renewed
investor confidence in their respective economies. Positions in both were
profitable.
June's positive performance resulted from gains in the financial, metal,
index and grain sectors. These gains were slightly offset by losses in the soft
and energy sectors. In the financial sector, the Partnership profited from
numerous bond positions including U.S., Australian, Italian and German bonds.
This was due, in part, to continued uncertainty surrounding the European
Monetary Union (EMU) which benefited positions held in bonds from countries
outside and within the EMU. Italian bonds, for example, strengthened on improved
prospects for Italy's entry into the EMU. Profits were also achieved in the
metal sector, specifically in gold and silver. In the index sector, the
Partnership saw gains in both the Nikkei Dow and the Australian index. In the
soft sector, the Partnership incurred losses in coffee as a result of improved
supplies. The availability of 2.5 million bags of coffee promised by the
Colombian Coffee Federation, Brazilian exports at record rates to take advantage
of high prices, and good weather prognostications in Brazil helped to drive
coffee prices down. In the energy sector, light crude oil positions were
unprofitable as OPEC pressure caused prices to rise. In currency sector, the
Swiss monetary authority's determination to keep the franc from appreciating
against major currencies succeeded in pushing the price of that currency down.
As a result, the Partnership had losses in Swiss franc and German mark
positions.
Interest income is earned on U.S. Treasury bills and, therefore, varies
monthly according to interest rates, trading performances and redemptions.
Interest income from U.S. Treasury bills increased approximately $9,000 and
$16,000 for the six and three months ended June 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, to a lesser extent, an increase 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 increased by approximately $44,000 and
$27,000 for the six and three months ended June 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.
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
approxi-
10
<PAGE>
mately $15,000 and $6,000 for the six and three months ended June 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 six and three
months ended June 30, 1997 and 1996.
General and administrative expenses include audit, tax and legal fees as well
as printing and postage costs. General and administrative expenses for the six
and three months ended June 30, 1997 increased by approximately $19,000 and
$20,000 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: August 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> Jun-30-1997
<PERIOD-TYPE> 6-MOS
<CASH> 3,600,506
<SECURITIES> 14,396,321
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 17,996,827
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 17,996,827
<CURRENT-LIABILITIES> 811,327
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 17,185,500
<TOTAL-LIABILITY-AND-EQUITY> 17,996,827
<SALES> 0
<TOTAL-REVENUES> (2,661)
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,288,344
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,291,005)
<EPS-PRIMARY> 379.82
<EPS-DILUTED> 0
</TABLE>
