Item 1. Business
General
Prudential-Bache Diversified Futures Fund L.P. (the 'Registrant'), a Delaware limited partnership, was formed on May 25, 1988 and will terminate on December 31, 2007 unless terminated sooner under the provisions of the Amended and Restated Agreement of Limited Partnership (the 'Partnership Agreement'). The Registrant was formed to engage primarily in the speculative trading of a portfolio consisting primarily of commodity futures, forward and options contracts. On October 19, 1988, the Registrant completed its offering and raised $30,107,800 from the sale of 297,468 units of limited partnership interest and 3,610 units of general partnership interest (collectively, 'Units') which resulted in net proceeds to the Registrant of $29,387,470. The Registrant's fiscal year for book and tax purposes ends on December 31.
All trading decisions for the Registrant are made by John W. Henry & Company, Inc. (the 'Trading Manager'), an independent commodity trading manager which manages the Registrant's assets pursuant to three trading programs developed by the Trading Manager. The general partner of the Registrant retains the authority to override trading instructions that violate the Registrant's trading policies.
The Registrant is engaged solely in the business of commodity futures, forward and options trading; therefore, presentation of industry segment information is not applicable.
General Partner and its Affiliates
The general partner of the Registrant is Seaport Futures Management, Inc. (the 'General Partner'), which is an affiliate of Prudential Securities Incorporated ('PSI'), the Registrant's commodity broker. Both the General Partner and PSI are indirect wholly owned subsidiaries of Prudential Financial, Inc. ('Prudential').
In February 2003, Prudential and Wachovia Corp. ('Wachovia') announced an agreement to combine each company's respective retail securities brokerage and clearing operations within a new firm, which will be headquartered in Richmond, Virginia. Under the agreement, Prudential will have a 38% ownership interest in the new firm and Wachovia will own 62%. The transaction, which includes the securities brokerage, securities clearing, and debt capital markets operations of PSI, but does not include the equity sales, trading and research operations or commodity brokerage and derivative operations of PSI, is anticipated to close in the third quarter of 2003. The General Partner, as well as the commodity broker, will continue to be indirect wholly owned subsidiaries of Prudential.
The General Partner is required to maintain at least a 1% interest in the Registrant as long as it is acting as the Registrant's general partner.
Competition
The General Partner and its affiliates have formed, and may continue to form, various entities to engage in the speculative trading of futures, forward and options contracts which, in part, have certain of the same investment policies as the Registrant.
The Registrant is a closed-end fund which does not currently, and does not intend in the future to, solicit the sale of additional Units. As such, the Registrant does not compete with other entities to attract new fund participants. However, to the extent that the Trading Manager recommends similar or identical trades to the Registrant and other accounts which it manages, the Registrant may compete with those accounts for the execution of the same or similar trades, as well as with other market participants.
Employees
The Registrant has no employees. Management and administrative services for the Registrant are performed by the General Partner and its affiliates pursuant to the Partnership Agreement as further discussed in Notes A, C and D to the Registrant's financial statements included in its annual report to the limited partners for the year ended December 31, 2002 ('Registrant's 2002 Annual Report') which is filed as an exhibit hereto.
Item 2.
Item 2. Properties
The Registrant does not own or lease any property.
Item 3.
Item 3. Legal Proceedings
There are no material legal proceedings pending by or against the Registrant or the General Partner.
Item 4.
Item 4. Submission of Matters to a Vote of Limited Partners
None
PART II
Item 5.
Item 5. Market for the Registrant's Units and Related Limited Partner Matters
On October 19, 1988, the Registrant completed its offering. A significant secondary market for the Units has not developed, and it is not expected that one will develop in the future. There are also certain restrictions set forth in the Partnership Agreement limiting the ability of a partner to transfer Units. The Partnership Agreement does, however, provide that a limited partner may redeem its units as of the last business day of any calendar quarter at the then current net asset value per Unit. Consequently, holders of Units may not be able to liquidate their investments in the event of an emergency or for any other reason.
There are no material restrictions upon the Registrant's present or future ability to make distributions in accordance with the provisions of the Partnership Agreement. No distributions have been made since inception and no distributions are anticipated in the future.
As of March 21, 2003, there were 280 holders of record owning 17,863 Units which include 179 units of general partnership interest.
Item 6.
Item 6. Selected Financial Data
The following table presents selected financial data of the Registrant. This data should be read in conjunction with the financial statements of the Registrant and the notes thereto on pages 2 through 10 of the Registrant's 2002 Annual Report which is filed as an exhibit hereto.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
This information is incorporated by reference to pages 12 through 14 of the Registrant's 2002 Annual Report which is filed as an exhibit hereto.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Information regarding quantitative and qualitative disclosures about market risk is not required pursuant to Item 305(e) of Regulation S-K.
Item 8.
Item 8. Financial Statements and Supplementary Data
The financial statements are incorporated by reference to pages 2 through 10 of the Registrant's 2002 Annual Report which is filed as an exhibit hereto.
Selected unaudited quarterly financial data for the years ended December 31, 2002 and 2001 are summarized below:
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant
There are no directors or executive officers of the Registrant. The Registrant is managed by the General Partner.
The General Partner's directors and executive officers, and any persons holding more than 10% of the Registrant's Units ('Ten Percent Owners') are required to report their initial ownership of such Units and any subsequent changes in that ownership to the Securities and Exchange Commission on Forms 3, 4 or 5. Such executive officers, directors and Ten Percent Owners are required by Securities and Exchange Commission regulations to furnish the Registrant with copies of all Forms 3, 4 and 5 they file. All of these filing requirements were satisfied on a timely basis. In making these disclosures, the Registrant has relied solely on written representations of the General Partner's directors and executive officers and Ten Percent Owners or copies of the reports that they have filed with the Securities and Exchange Commission during and with respect to its most recent fiscal year.
The directors and executive officers of the General Partner and their positions with respect to the Registrant are as follows:
Name Position Alex H. Ladouceur Chairman of the Board of Directors and Director Eleanor L. Thomas President and Director Steven Weinreb Treasurer and Chief Financial Officer Guy S. Scarpaci Director Tamara B. Wright Senior Vice President and Director Thomas T. Bales Vice President Paul Waldman Secretary
ALEX H. LADOUCEUR, born 1960, has been Chairman of the Board of Directors and a Director of the General Partner since November 2001 and also has held such positions with Prudential Securities Futures Management Inc. ('PSFMI') an affiliate of the General Partner, since such date. Mr. Ladouceur joined PSI in August 2001 and is an Executive Vice President and Head of the Global Derivatives Division. He is responsible for all operating activities of PSI's Global Derivatives Division including sales and trading, foreign exchange, base and precious metals, and the trading floors. Mr. Ladouceur joined PSI from Credit Lyonnais Rouse Ltd. ('CLR'), where he served as president of their United States operations since 1992 and as a main board director of CLR in London since 1994. In 1998, he was appointed managing director of Global Cash Markets at CLR with responsibility for leading global market-making and sales for OTC products, including structured derivative products. Mr. Ladouceur earned his bachelor's degree in Economics from the University of Calgary in Alberta, Canada, and his master's degree in European Studies from the College of Europe in Bruges, Belgium.
ELEANOR L. THOMAS, born 1954, has been a Director and President of the General Partner since September 2000 and was a Director and Executive Vice President from April 1999 to September 2000. She was a First Vice President of the General Partner and PSFMI from October 1998 to April 1999 and a Director and the President of PSFMI since such date. Ms. Thomas is a Senior Vice President and the Director of Alternative Investment Strategies at PSI. She is responsible for origination, asset allocation, due diligence, marketing and sales for the group's product offerings. Prior to joining PSI in March 1993, she was with MC Baldwin Financial Company from June 1990 through February 1993 and Arthur Andersen & Co. from 1986 through May 1990. She graduated Summa Cum Laude from Long Island University with a B.A. in English Literature, and graduated Baruch College in 1986 with an M.B.A. in Accounting. Ms. Thomas is a Certified Public Accountant.
STEVEN WEINREB, born 1962, became the Treasurer and Chief Financial Officer of the General Partner in May 2002, at which time he also became the Treasurer and Chief Financial Officer of PSFMI. He is a Senior Vice President and Controller of PSI. Prior to joining Prudential Securities in May 1991, he was with the public accounting firms Deloitte & Touche from 1986 to 1991 and from 1984 to 1986 with Laventhol & Horwath. Mr. Weinreb graduated in 1984 from the State University of New York at Albany with a B.S. in Accounting. Mr. Weinreb is a Certified Public Accountant.
GUY S. SCARPACI, born 1947, has been a Director of the General Partner since July 1987 and was Assistant Treasurer from May 1988 until December 1989. In addition, Mr. Scarpaci has been a Director of PSFMI since May 1989. Mr. Scarpaci was first affiliated with the General Partner in July 1987. Mr. Scarpaci has been employed by PSI in positions of increasing responsibility since August 1974, and he is currently a Senior Vice President of the Global Derivatives Division.
TAMARA B. WRIGHT, born 1959, has been a Senior Vice President of the General Partner and PSFMI since October 1998 and a Director of the General Partner since December 1998. She is also a Senior Vice President and the Chief Administrative Officer for the International Division at Prudential Securities. In this capacity, her responsibilities include financial management, risk management, systems implementation, employment matters and internal control policies and procedures. Previously, Mrs. Wright served as Director of Consumer Markets Risk Management, where she led the Domestic and International Branch efforts in ensuring the timely resolution of audit, compliance and legal concerns. Prior to joining the firm, Mrs. Wright was a manager with PricewaterhouseCoopers LLP in its Management Consulting division in New York, New York.
THOMAS T. BALES, born 1959, is a Vice President of the General Partner. He is also a Senior Vice President of Futures Administration in the Global Derivatives division for PSI, and he serves in various capacities for other affiliated companies. Prior to joining the Global Derivatives division, Mr. Bales served as in-house counsel in the Law Department of PSI from October 1987 through May 1996. Mr. Bales joined PSI in November 1981 as an Analyst in the Credit Analysis Department and later served as a Section Manager.
PAUL WALDMAN, born 1957, became the Secretary of the General Partner in November 2002, at which time he also became the Secretary of PSFMI. Prior to being elected Secretary, Mr. Waldman had served as Assistant Secretary for both the managing owner and Seaport Futures since December 1997. He is a First
Vice President and Associate General Counsel of Prudential Securities. Mr. Waldman is responsible for the day-to-day corporate governance of Prudential Securities and its subsidiary companies. Prior to joining Prudential Securities in September 1988, Mr. Waldman worked for E.A. Sheslow & Co., a specialist firm on the NYSE and American Stock Exchange in 1986, and for F.P. Quinn & Co., a member firm of the Chicago Board Options Exchange, from 1984 to 1985. Mr. Waldman received a B.A. in Journalism from the University of Georgia in 1979, an M.A. in Political Science from Boston University in 1981, and a Juris Doctor from New York Law School in 1992. He is admitted to the New York and Connecticut bars.
Effective May 2002, Steven Weinreb was elected by the Board of Directors of the General Partner as Chief Financial Officer replacing Barbara Brooks.
Effective November 2002, Paul Waldman was elected by the Board of Directors of the General Partner as Secretary replacing David Buchalter.
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.
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.
Item 12. Security Ownership of Certain Beneficial Owners and Management
As of March 21, 2003, no director or officer of the General Partner owns directly or beneficially any interest in the voting securities of the General Partner.
As of March 21, 2003, no director or officer of the General Partner owns directly or beneficially any of the Units issued by the Registrant.
As of March 21, 2003, no partner beneficially owns more than five percent (5%) of the outstanding limited partnership units issued by the Registrant.
Item 13.
Item 13. Certain Relationships and Related Transactions
The Registrant has and will continue to have certain relationships with the General Partner and its affiliates. However, there have been no direct financial transactions between the Registrant and the directors or officers of the General Partner.
Reference is made to Notes A, C and D to the financial statements in the Registrant's 2002 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.
Item 14.
Item 14. Controls and Procedures
Within the 90 days prior to the date of this report, the General Partner carried out an evaluation, under the supervision and with the participation of the officers of the General Partner, including the General Partner's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Registrant's disclosure controls and procedures. Based upon that evaluation, the General Partner's Chief Executive Officer and Chief Financial Officer concluded that the Registrant's disclosure controls and procedures are effective. There were no significant changes in Registrant's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.
PART IV
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.
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.
CERTIFICATIONS
I, Eleanor L. Thomas, certify that:
1. I have reviewed this annual report on Form 10-K of Prudential-Bache Diversified Futures Fund L.P. (the 'Partnership');
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the Partnership as of, and for, the periods presented in this annual report;
4. The Partnership's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Partnership and we have:
a) designed such disclosure controls and procedures to ensure that material information relating to the Partnership, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the Partnership's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the 'Evaluation Date'); and
c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The Partnership's other certifying officers and I have disclosed, based on our most recent evaluation, to the Partnership's auditors and the board of directors of the general partner of the Partnership:
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the Partnership's ability to record, process, summarize and report financial data and have identified for the Partnership's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Partnership's internal controls; and
6. The Partnership's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: March 28, 2003 /s/ Eleanor L. Thomas -------------------------------------- Eleanor L. Thomas President (chief executive officer) of the general partner of the Partnership
I, Steven Weinreb, certify that:
1. I have reviewed this annual report on Form 10-K of Prudential-Bache Diversified Futures Fund L.P. (the 'Partnership');
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the Partnership as of, and for, the periods presented in this annual report;
4. The Partnership's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Partnership and we have:
a) designed such disclosure controls and procedures to ensure that material information relating to the Partnership, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the Partnership's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the 'Evaluation Date'); and
c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The Partnership's other certifying officers and I have disclosed, based on our most recent evaluation, to the Partnership's auditors and the board of directors of the general partner of the Partnership:
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the Partnership's ability to record, process, summarize and report financial data and have identified for the Partnership's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Partnership's internal controls; and
6. The Partnership's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: March 28, 2003 /s/ Steven Weinreb -------------------------------------- Steven Weinreb Chief Financial Officer of the general partner of the Partnership