PRUDENTIAL BACHE DIVERSIFIED FUTURES FUND L P - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)

/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934

For the fiscal year ended December 31, 2002

OR

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the transition period from _______________________ to ______________________

Commission file number 0-17592

PRUDENTIAL-BACHE DIVERSIFIED FUTURES FUND L.P.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)

Delaware 13-3464456
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

One New York Plaza, 13th Floor,
New York, New York 10292
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (212) 778-7866

Securities registered pursuant to Section 12(b) of the Act:

None
- --------------------------------------------------------------------------------

Securities registered pursuant to Section 12(g) of the Act:

Units of Limited Partnership Interest
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(Title of class)

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes CK No _

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [CK]

Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes __ No CK

DOCUMENTS INCORPORATED BY REFERENCE

Annual Report to Limited Partners for the year ended December 31, 2002 is
incorporated by reference into Parts II and IV of this Annual Report on Form
10-K

Index to exhibits can be found on pages 8 and 9.

PRUDENTIAL-BACHE DIVERSIFIED FUTURES FUND L.P.
(a limited partnership)

TABLE OF CONTENTS

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PART I

Item 1. Business

General

Prudential-Bache Diversified Futures Fund L.P. (the 'Registrant'), a Delaware
limited partnership, was formed on May 25, 1988 and will terminate on December
31, 2007 unless terminated sooner under the provisions of the Amended and
Restated Agreement of Limited Partnership (the 'Partnership Agreement'). The
Registrant was formed to engage primarily in the speculative trading of a
portfolio consisting primarily of commodity futures, forward and options
contracts. On October 19, 1988, the Registrant completed its offering and raised
$30,107,800 from the sale of 297,468 units of limited partnership interest and
3,610 units of general partnership interest (collectively, '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.

3

Item 2. Properties

The Registrant does not own or lease any property.

Item 3. Legal Proceedings

There are no material legal proceedings pending by or against the Registrant
or the General Partner.

Item 4. Submission of Matters to a Vote of Limited Partners

None

PART II

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. 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. 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. 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.

4

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. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

None

PART III

Item 10. Directors and Executive Officers of the Registrant

There are no directors or executive officers of the Registrant. The
Registrant is managed by the General Partner.

The General Partner's directors and executive officers, and any persons
holding more than 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

5

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

6

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. Executive Compensation

The Registrant does not pay or accrue any fees, salaries or any other form of
compensation to directors and officers of the General Partner for their
services. Certain directors and officers of the General Partner receive
compensation from affiliates of the General Partner, not from the Registrant,
for services performed for various affiliated entities, which may include
services performed for the Registrant; however, the General Partner believes
that any compensation attributable to services performed for the Registrant is
immaterial. (See also Item 13, Certain Relationships and Related Transactions,
for information regarding compensation to the General Partner.)

Item 12. Security Ownership of Certain Beneficial Owners and Management

As of March 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. 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. 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.

7

PART IV

8

10.5 Representation Agreement Concerning the Registration Statement and the
Prospectus, dated as of July 14, 1988 among the Registrant, Seaport
Futures Management, Inc., Prudential-Bache Securities Inc. and John W.
Henry & Company, Inc. (incorporated by reference to Exhibit 10.5 of
Registrant's Annual Report on Form 10-K for the period ended December
31, 1988)

10.6 Net Worth Agreement, dated as of July 14, 1988 between Seaport Futures
Management, Inc. and Prudential Securities Group Inc. (incorporated by
reference to Exhibit 10.6 of Registrant's Annual Report on Form 10-K
for the period ended December 31, 1988)

10.7 Secured Demand Note Collateral Agreement dated as of February 15, 1991
between Seaport Futures Management, Inc. and Prudential Securities
Group Inc. (incorporated by reference to Exhibit 10.7 of Registrant's
Annual Report on Form 10-K for the year ended December 31, 1991)

10.8 Amendment to Advisory Agreement as of June 1, 1988 among the
Registrant, Seaport Futures Management, Inc., and John W. Henry &
Company, Inc. (incorporated by reference to Exhibit 10.8 of
Registrant's Annual Report on Form 10-K for the year ended December 31,
1993)

10.9 Form of Foreign Currency Addendum to Brokerage Agreement between the
Registrant and Prudential Securities Incorporated (incorporated by
reference to Exhibit 10.9 of the Registrant's Quarterly Report on Form
10-Q for the period ended March 31, 1996)

10.10 Amendment to Advisory Agreement, dated October 1, 2000, among the
Registrant, Seaport Futures Management, Inc. and John W. Henry &
Company, Inc. (incorporated by reference to Exhibit 10.10 of the
Registrant's Quarterly Report on Form 10-Q for the period ended
September 30, 2000)

13.1 Registrant's 2002 Annual Report (with the exception of the information
and data incorporated by reference in Items 1, 7 and 8 of this Annual
Report on Form 10-K, no other information or data appearing in the
Registrant's 2002 Annual Report is to be deemed filed as part of this
report) (filed herewith)

99.1 Certificate pursuant to 18 U.S.C. Section 1350 as adopted pursuant to
Section 906 of the SARBANES-OXLEY Act of 2002 (filed herewith)

(b) Reports on Form 8-K--None

9

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

Prudential-Bache Diversified Futures Fund L.P.

By: Seaport Futures Management, Inc.
A Delaware corporation, General Partner

By: /s/ Steven Weinreb Date: March 28, 2003
-----------------------------------------------------------------
Steven Weinreb
Treasurer and Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities (with respect to the General Partner) and on
the dates indicated.

By: Seaport Futures Management, Inc.
A Delaware corporation, General Partner

By: /s/ Alex H. Ladouceur Date: March 28, 2003
------------------------------------------------------------------
Alex H. Ladouceur
Chairman of the Board of Directors and Director

By: /s/ Eleanor L. Thomas Date: March 28, 2003
------------------------------------------------------------------
Eleanor L. Thomas
President and Director

By: /s/ Steven Weinreb Date: March 28, 2003
------------------------------------------------------------------
Steven Weinreb
Treasurer and Chief Financial Officer (chief accounting officer)

By: /s/ Guy S. Scarpaci Date: March 28, 2003
------------------------------------------------------------------
Guy S. Scarpaci
Director

By: Date:
------------------------------------------------------------------
Tamara B. Wright
Senior Vice President and Director

10

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

11

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

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