<PAGE>
UNITED STATES
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, 1999
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______________________ to ______________________
Commission file number: 0-17592
PRUDENTIAL-BACHE DIVERSIFIED FUTURES FUND L.P.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 13-3464456
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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
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>
June 30, December 31,
1999 1998
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------
ASSETS
Equity in commodity trading accounts:
Cash $ 3,854,698 $ 3,671,967
U.S. Treasury bills, at amortized cost 12,369,698 12,676,437
Net unrealized gain on open commodity positions 1,411,804 1,700,674
------------- ------------
Total assets $17,636,200 $18,049,078
------------- ------------
------------- ------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Redemptions payable $ 881,993 $ 276,765
Management fees payable 58,685 59,976
Accrued expenses 30,954 56,613
------------- ------------
Total liabilities 971,632 393,354
------------- ------------
Commitments
Partners' capital
Limited partners (35,016 and 38,588 units outstanding) 16,497,780 17,479,065
General partner (354 and 390 units outstanding) 166,788 176,659
------------- ------------
Total partners' capital 16,664,568 17,655,724
------------- ------------
Total liabilities and partners' capital $17,636,200 $18,049,078
------------- ------------
------------- ------------
Net asset value per limited and general partnership unit ('Units') $ 471.15 $ 452.97
------------- ------------
------------- ------------
- ----------------------------------------------------------------------------------------------------
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,
--------------------------- ---------------------------
1999 1998 1999 1998
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
REVENUES
Net realized gain on commodity
transactions $ 1,708,103 $ 150,639 $ 872,632 $ 39,967
Change in net unrealized gain on open
commodity positions (288,870) (1,937,822) 901,514 (1,014,644)
Interest from U.S Treasury bills 277,394 342,080 134,169 160,032
----------- ----------- ----------- -----------
1,696,627 (1,445,103) 1,908,315 (814,645)
----------- ----------- ----------- -----------
EXPENSES
Commissions 674,651 811,799 329,299 382,810
Management fees 340,642 353,157 169,870 166,090
General and administrative 37,420 36,739 18,140 17,523
----------- ----------- ----------- -----------
1,052,713 1,201,695 517,309 566,423
----------- ----------- ----------- -----------
Net income (loss) $ 643,914 $(2,646,798) $ 1,391,006 $(1,381,068)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
ALLOCATION OF NET INCOME (LOSS)
Limited partners $ 637,458 $(2,620,320) $ 1,377,075 $(1,367,255)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
General partner $ 6,456 $ (26,478) $ 13,931 $ (13,813)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
NET INCOME (LOSS) PER WEIGHTED AVERAGE
LIMITED AND GENERAL PARTNERSHIP UNIT
Net income (loss) per weighted average
limited and general partnership unit $ 16.90 $ (61.29) $ 37.35 $ (32.58)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average number of
limited and general partnership units
outstanding 38,110 43,182 37,242 42,390
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
- -------------------------------------------------------------------------------------------------------
</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, 1998 38,978 $17,479,065 $176,659 $17,655,724
Net income -- 637,458 6,456 643,914
Redemptions (3,608) (1,618,743) (16,327) (1,635,070)
------ ----------- -------- -----------
Partners' capital--June 30, 1999 35,370 $16,497,780 $166,788 $16,664,568
------ ----------- -------- -----------
------ ----------- -------- -----------
- ----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
</TABLE>
3
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PRUDENTIAL-BACHE DIVERSIFIED FUTURES FUND L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
June 30, 1999
(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, 1999 and the results of its operations for the six and three
months ended June 30, 1999 and 1998. 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, 1998.
New Accounting Guidance
In June 1999, the Financial Accounting Standards Board ('FASB') issued
Statement No. 137, Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133--an
amendment of FASB Statement No. 133, which delayed the effective date of FASB
Statement No. 133, Accounting for Derivative Instruments and Hedging Activities
('SFAS 133'). The Partnership does not believe the effect of adoption of SFAS
133, now required effective January 1, 2001, will be material.
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 and three months ended June 30, 1999 and 1998 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, 1999 and 1998 were:
<TABLE>
<CAPTION>
For the three months
For the six months ended ended
June 30, June 30,
------------------------- -------------------------
1999 1998 1999 1998
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
Commissions $674,651 $811,799 $329,299 $382,810
General and administrative 2,776 5,753 1,669 2,472
-------- -------- -------- --------
$677,427 $817,552 $330,968 $385,282
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
Expenses payable to the General Partner and its affiliates (which are
included in accrued expenses) as of June 30, 1999 and December 31, 1998 were
$5,146 and $6,853, respectively.
The Partnership's assets are maintained either in trading or cash accounts
with PSI, the Partnership's commodity broker and an affiliate of the General
Partner, or for margin purposes, with the various exchanges on which the
Partnership is permitted to trade.
The Partnership, acting through its trading manager, executes
over-the-counter, spot, forward and/or option foreign exchange transactions
with PSI. PSI then engages in back-to-back trading with an affiliate,
Prudential-Bache Global Markets Inc. ('PBGM'). PBGM attempts to earn a profit
on such transactions. PBGM keeps its prices on foreign currency competitive
with other interbank currency trading desks. All
4
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over-the-counter currency transactions are conducted between PSI and the
Partnership pursuant to a line of credit. PSI may require that collateral be
posted against the marked-to-market position of the Partnership.
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 or 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 and its 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. Additionally, pursuant to the
Advisory Agreement among the Partnership, the General Partner and the trading
manager, the General Partner has the right, among other rights, to terminate the
trading manager if the net asset value allocated to the trading manager declines
by 50% from the value at the beginning of any year or 40% since the commencement
of trading activities. Furthermore, the Amended and Restated Agreement of
Limited Partnership provides that the Partnership will liquidate its positions,
and eventually dissolve, if the Partnership experiences a decline in the net
asset value to less than 50% of the value at commencement of trading activities.
In each case, the decline in net asset value is after giving effect for
distributions and redemptions. 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, 1999, such segregated assets totalled $12,568,465. 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 $5,017,580 at June 30,
1999. There are no segregation requirements for assets related to forward
trading.
As of June 30, 1999, all open futures and forward contracts mature within one
year.
5
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At June 30, 1999 and December 31, 1998, gross contract amounts of open
futures and forward contracts are:
<TABLE>
<CAPTION>
1999 1998
-------------- -----------------
<S> <C> <C>
Futures Currency Contracts:
Commitments to purchase $ 736,830 $ 10,565,568
Commitments to sell 22,558,450 4,949,313
Forward Currency Contracts:
Commitments to sell 5,644,116 4,219,516
Financial Futures Contracts:
Commitments to purchase 3,510,999 78,684,333
Commitments to sell 288,910,751 146,222,704
Other Futures Contracts:
Commitments to purchase 2,015,246 696,677
Commitments to sell 6,321,232 3,973,905
</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, 1999 and December 31, 1998, the fair values of open futures and
forward contracts were:
<TABLE>
<CAPTION>
1999 1998
-------------------------- --------------------------
Assets Liabilities Assets Liabilities
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Futures Contracts:
Domestic exchanges
Financial $ 224,720 $ 20,375 $ 76,613 $ 186,825
Currencies 162,158 17,500 313,683 34,663
Other 338,446 50,417 118,553 37,369
Foreign exchanges
Financial 755,646 10,006 1,616,559 110,998
Other 13,900 34,923 17,057 2,810
Forward Contracts:
Currencies 50,155 -- -- 69,126
---------- ----------- ---------- -----------
$1,545,025 $ 133,221 $2,142,465 $ 441,791
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
</TABLE>
6
<PAGE>
The following tables present the average fair value of futures and forward
contracts during the six and three months ended June 30, 1999 and 1998,
respectively:
<TABLE>
<CAPTION>
For the six months ended
---------------------------------------------------------
June 30, 1999 June 30, 1998
-------------------------- --------------------------
<S> <C> <C> <C> <C>
Assets Liabilities Assets Liabilities
---------- ----------- ---------- -----------
Futures Contracts:
Domestic exchanges
Financial $ 141,843 $ 47,669 $ 150,109 $ 30,041
Currencies 321,064 54,270 147,444 30,371
Other 142,151 70,670 316,313 68,607
Foreign exchanges
Financial 808,407 93,025 397,159 108,260
Other 16,769 11,777 10,547 5,280
Forward Contracts:
Currencies 150,380 12,234 224,175 356,110
---------- ----------- ---------- -----------
$1,580,614 $ 289,645 $1,245,747 $ 598,669
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
</TABLE>
<TABLE>
<CAPTION>
For the three months ended
---------------------------------------------------------
June 30, 1999 June 30, 1998
-------------------------- --------------------------
<S> <C> <C> <C> <C>
Assets Liabilities Assets Liabilities
---------- ----------- ---------- -----------
Futures Contracts:
Domestic exchanges
Financial $ 157,199 $ 15,120 $ 83,776 $ 52,572
Currencies 320,799 61,978 154,643 33,795
Other 178,129 92,783 176,910 82,100
Foreign exchanges
Financial 527,057 80,252 262,465 106,412
Other 18,788 18,139 12,260 7,132
Forward Contracts:
Currencies 181,961 -- 288,900 283,909
---------- ----------- ---------- -----------
$1,383,933 $ 268,272 $ 978,954 $ 565,920
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
</TABLE>
7
<PAGE>
The following tables present trading revenues from futures and forward
contracts during the six and three months ended June 30, 1999 and 1998,
respectively:
<TABLE>
<CAPTION>
For the three months
For the six months ended ended
June 30, June 30,
--------------------------- -------------------------
1999 1998 1999 1998
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Futures Contracts:
Domestic exchanges
Financial $ 742,279 $ (340,297) $ 304,114 $(304,218)
Currencies 342,645 (100,774) 380,748 (159,777)
Other 15,428 (475,379) 197,639 21,007
Foreign exchanges
Financial (452,436) (410,930) 650,032 (321,401)
Other 9,819 24,535 (22,414) (3,082)
Forward Contracts:
Currencies 761,498 (484,338) 264,027 (207,206)
----------- ----------- ----------- ---------
$ 1,419,233 $(1,787,183) $ 1,774,146 $(974,677)
----------- ----------- ----------- ---------
----------- ----------- ----------- ---------
</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 costs, the
Partnership's net proceeds were $29,387,470.
At June 30, 1999, 100% of the Partnership's net asset value was allocated to
commodities trading. A significant portion of the net asset value was held in
U.S. Treasury bills (which represented approximately 70% of the net asset value
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 Partnership's exposure to market risk is
influenced by a number of factors including the volatility of interest rates and
foreign currency exchange rates, the liquidity of the markets in which the
contracts are traded and the relationships among the contracts held. The
inherent uncertainty of the Partnership's speculative trading as well as the
development of drastic market occurrences could result in monthly losses
considerably beyond the Partnership's experience to date and could ultimately
lead to a loss of all or substantially all of investors' capital. The General
Partner attempts to minimize these risks by requiring the Partnership and its
trading manager to abide by various trading limitations and policies, which
include limiting margin amounts, trading only in liquid markets and utilizing
stop loss provisions. 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, 1999 were
$1,618,743 and $873,041, respectively, for the limited partners and $16,327 and
$8,952, respectively, for the General Partner, and from commencement of
operations, October 19, 1988 through June 30, 1999, totalled $45,169,880 for the
limited partners and $1,061,290 for the General Partner. Future redemptions will
impact the amount of funds available for investment in commodity contracts in
subsequent periods.
The Partnership does not have, nor does it expect to have, any capital
assets.
Results of Operations
The net asset value per Unit as of June 30, 1999 was $471.15, an increase of
4.01% from the December 31, 1998 net asset value per Unit of $452.97.
Quarterly Market Overview
In the United States, as economic indicators strengthened and the Federal
Reserve Bank announced they would raise interest rates, the U.S. dollar rose
against most major currencies, especially European which were also spurred by
deteriorating confidence in the Euro. Throughout the second quarter, several
issues weighed on world markets including significant price declines in global
long-term interest bonds, the U.S.
9
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Federal Reserve's tightening of monetary policy and an increased supply of
corporate debt. Furthermore, as the U.S. economy generated strength, investors
feared possible inflation. U.S. bond prices fell, followed by European bonds
which were depressed by rumors regarding Italy's retreat from the European
Economic Union. Global stock markets recorded gains over the quarter, supported
by solid corporate earnings and improved economies (especially Asian). In the
commodity markets, the energy sector rallied as OPEC announced production cuts
and lower inventories in oil and gasoline. A consistent tone prevailed in the
agricultural and soft commodity markets as favorable seasonal growing conditions
continued to weigh on prices.
Quarterly Partnership Performance
The Partnership recorded profits in the financial sector driven by Japanese
government, U.S. Treasury, and British gilt bonds. Throughout the quarter, the
Japanese economy appeared to strengthen prompting a bond market rally. In the
U.S., Treasury bond prices declined continuing a trend that had existed for
several months. U.S. interest rates rose during June as strong consumer demand
and an improving manufacturing sector caused economic growth to exceed most
market expectations. European bonds followed the lead of the U.S. bond markets.
Currency sector positions captured gains for the Partnership, particularly
the Swiss franc, Euro, and Japanese yen. The Swiss franc fell in value versus
the U.S. dollar after losing its safe haven attraction as the war in Kosovo
ended, and as the U.S. dollar gained strength when the Federal Reserve increased
U.S. interest rates by .25%. Weakness in the Euro continued due to deteriorating
confidence in that currency and Italy's possible retraction from the European
Economic Union. Consequently, the European Central Bank has been rumored to be
considering an interest rate increase. In Japan, the economy showed signs of a
recovery but Japanese officials feared a premature strengthening of the yen
might dampen growth. In reaction to this concern, the Bank of Japan intervened
by selling yen.
Gains were achieved in the index sector. In the first week of January, the
Nikkei Dow recorded a low near 13050 and preceded to accelerate up to the 18455
mark within the last two weeks of June. Capital flows out of the U.S. market and
into the Asian region helped to drive the Nikkei Dow's upward move under the
perception that Asian economies have formed a base from which to improve.
In the energy sector, trading in light crude and crude oil was profitable.
Crude oil products rallied as extremely hot U.S. weather drove utility demand
during June. The rally continued following statements by oil ministers from
Saudi Arabia and Mexico reporting a high degree of compliance with current OPEC
production cuts.
Short gold positions provided gains for the Partnership. The gold market
reached a 20-year low as further details of Britain's previously announced plan
to sell a portion of its reserves became public. Weak physical demand also
served to exacerbate the gold sell-off.
Losses were experienced in the soft sector as coffee and cotton prices fell.
Coffee prices plummeted as seasonably warm weather in Brazil reduced the
likelihood that a winter freeze would damage the vulnerable crop, thus promising
ample supplies.
Interest income is earned on the Partnership's investment in U.S. Treasury
bills and varies monthly according to interest rates, as well as the effect of
trading performance and redemptions on the level of interest-bearing funds.
Interest income from U.S. Treasury bills for the six and three months ended June
30, 1999 decreased by approximately $65,000 and $26,000 as compared to the
corresponding periods in 1998. The decline in interest income was the result of
lower interest rates in 1999 as well as fewer funds being invested in U.S.
Treasury bills due to redemptions.
Commissions paid to PSI are calculated on the Partnership's net asset value
on the first day of each month and, therefore, vary according to trading
performance and redemptions. Commissions decreased by approximately $137,000 and
$54,000 for the six and three months ended June 30, 1999 as compared to the
corresponding periods in 1998 principally due to the effect of redemptions on
the monthly net asset values as well as a reduction in the annual commission
rate from 9% to 8% of the monthly net asset values which took effect August 1,
1998.
All trading decisions for the Partnership are made by John W. Henry &
Company, Inc. Management fees are calculated on the Partnership's net asset
value as of the end of each month and, therefore, are affected by trading
performance and redemptions. Management fees decreased by approximately $13,000
for the
10
<PAGE>
six months ended June 30, 1999, but increased by approximately $4,000 for the
three months ended June 30, 1999 as compared to the corresponding periods in
1998. These variances reflect the effect of redemptions on the monthly net asset
values, as further impacted by weak trading during the first half of 1998, and
favorable trading performance during the remainder of 1998 and the second
quarter of 1999.
Incentive fees are based on the New High Net Trading Profits generated by the
trading manager, as defined in the Advisory Agreement among the Partnership, the
General Partner and the trading manager. No incentive fees were earned during
the six and three months ended June 30, 1999 and 1998.
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, 1999 were comparable to the corresponding
periods in 1998.
New Accounting Guidance
In June 1999, the Financial Accounting Standards Board ('FASB') issued
Statement No. 137, Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133--an
amendment of FASB Statement No. 133, which delayed the effective date of FASB
Statement No. 133, Accounting for Derivative Instruments and Hedging Activities
('SFAS 133'). The Partnership does not believe the effect of adoption of SFAS
133, now required effective January 1, 2001, will be material.
Year 2000 Risk
A discussion of Year 2000 risk and its effect on the operations of the
Partnership is included in the Partnership's annual report on Form 10-K filed
with the Securities and Exchange Commission for the year ended December 31,
1998.
ITEM 3. 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.
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
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PRUDENTIAL-BACHE DIVERSIFIED FUTURES FUND L.P.
By: Seaport Futures Management, Inc.
A Delaware corporation, General Partner
By: /s/ Steven Carlino Date: August 13, 1999
----------------------------------------
Steven Carlino
Vice President and Treasurer
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-31-1999
<PERIOD-START> Jan-1-1999
<PERIOD-END> Jun-30-1999
<PERIOD-TYPE> 6-MOS
<CASH> 3,854,698
<SECURITIES> 13,781,502
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 17,636,200
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 17,636,200
<CURRENT-LIABILITIES> 971,632
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 16,664,568
<TOTAL-LIABILITY-AND-EQUITY> 17,636,200
<SALES> 0
<TOTAL-REVENUES> 1,696,627
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,052,713
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 643,914
<EPS-BASIC> 16.90
<EPS-DILUTED> 0
</TABLE>
