PRUDENTIAL BACHE DIVERSIFIED FUTURES FUND L P, 10-K, 2000-03-30

PRUDENTIAL BACHE DIVERSIFIED FUTURES FUND L P
10-K, 2000-03-30
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<PAGE>
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, 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
- --------------------------------------------------------------------------------
(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

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
- -------------------------------------------------------------------------------
(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]

DOCUMENTS INCORPORATED BY REFERENCE

Agreement of Limited Partnership of the Registrant, dated May 25, 1988, as
amended and restated as of July 12, 1988, included as part of the Registration
Statement on Form S-1 (File No. 33-22100) filed with the Securities and Exchange
Commission on June 1, 1988 pursuant to Rule 424(b) of the Securities Act of
1933, is incorporated by reference into Part IV of this Annual Report on Form
10-K.

Annual Report to Limited Partners for the year ended December 31, 1999 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.
<PAGE>
PRUDENTIAL-BACHE DIVERSIFIED FUTURES FUND L.P.
(a limited partnership)

TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I PAGE
<S> <C> <C>
Item 1 Business......................................................................... 3
Item 2 Properties....................................................................... 3
Item 3 Legal Proceedings................................................................ 3
Item 4 Submission of Matters to a Vote of Limited Partners.............................. 4

<CAPTION>
PART II
<S> <C> <C>
Item 5 Market for the Registrant's Units and Related Limited Partner Matters............ 4
Item 6 Selected Financial Data.......................................................... 4
Item 7 Management's Discussion and Analysis of Financial Condition and Results of
Operations..................................................................... 4
Item 7A Quantitative and Qualitative Disclosures About Market Risk....................... 4
Item 8 Financial Statements and Supplementary Data...................................... 4
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure..................................................................... 4

<CAPTION>
PART III
<S> <C> <C>
Item 10 Directors and Executive Officers of the Registrant............................... 5
Item 11 Executive Compensation........................................................... 6
Item 12 Security Ownership of Certain Beneficial Owners and Management................... 6
Item 13 Certain Relationships and Related Transactions................................... 7

<CAPTION>
PART IV
<S> <C> <C>
Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K................. 8
Financial Statements and Financial Statement Schedules........................... 8
Exhibits......................................................................... 8
Reports on Form 8-K.............................................................. 9

SIGNATURES.................................................................................. 10
</TABLE>

<PAGE>
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 Trading Manager had been trading the Registrant's
assets pursuant to five of its trading programs since commencement of operations
until April 1, 1997 when the general partner of the Registrant reallocated the
Registrant's assets so that only three of the trading programs remained as
further discussed in Note A to the Registrant's annual report to the limited
partners for the year ended December 31, 1999 ('Registrant's 1999 Annual
Report') which is filed as an exhibit hereto. 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 wholly owned subsidiaries of Prudential Securities Group
Inc. ('PSGI'). 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.

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 1999 Annual Report which is filed as an exhibit hereto.

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.

<PAGE>
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

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 full
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, 2000, there were 476 holders of record owning 31,978 Units
which include 322 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 9 of the Registrant's 1999
Annual Report which is filed as an exhibit hereto.

<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total revenues (including
interest).................... $ (953,797) $ 2,595,752 $ 4,284,472 $ 7,090,392 $ 8,060,997
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------

Net income (loss).............. $(2,933,491) $ 254,155 $ 1,599,123 $ 4,107,441 $ 5,284,484
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net income (loss) per weighted
average Unit................. $ (80.12) $ 6.08 $ 34.66 $ 76.69 $ 86.19
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------

Total assets................... $13,002,258 $18,118,204 $20,044,570 $21,401,289 $19,578,777
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net asset value per Unit....... $ 369.26 $ 452.97 $ 444.27 $ 407.47 $ 326.48
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>

Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations

This information is incorporated by reference to pages 11 through 13 of the
Registrant's 1999 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.

Item 8. Financial Statements and Supplementary Data

The financial statements are incorporated by reference to pages 2 through 9
of the Registrant's 1999 Annual Report which is filed as an exhibit hereto.

Supplementary data specified by Item 302 of Regulation S-K (selected
quarterly financial data) is not applicable.

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

None

<PAGE>
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 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 Seaport Futures Management, Inc. and
their positions with respect to the Registrant are as follows:

Name Position
Eleanor L. Thomas President and Director
Joseph A. Filicetti Executive Vice President and Director
Barbara J. Brooks Chief Financial Officer
Steven Carlino Vice President and Treasurer
Alan J. Brody Director
A. Laurence Norton, Jr. Director
Guy S. Scarpaci Director
Tamara B. Wright Senior Vice President and Director

ELEANOR L. THOMAS, age 45, is the President and a Director of Seaport Futures
Management, Inc. and is the Executive Vice President and a Director of
Prudential Securities Futures Management Inc. She is primarily responsible for
origination, asset allocation, and due diligence for the managed futures
department within PSI. She is also a First Vice President of PSI. 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.
Ms. Thomas is a certified public accountant.

JOSEPH A. FILICETTI, age 37, is the Executive Vice President and a Director
of Seaport Futures Management, Inc. He had been a Vice President of Seaport
Futures Management, Inc. and Prudential Securities Futures Management Inc. from
October 1998 to March 1999. In April 1999, Mr. Filicetti was named to his
current positions at Seaport Futures Management, Inc. and became the President
and a Director of Prudential Securities Futures Management Inc. Mr. Filicetti is
also a Vice President of PSI and the Director of Sales and Marketing for its
managed futures department. Prior to joining PSI, Mr. Filicetti was with Rotella
Capital Management as Director of Sales and Marketing from September 1996
through September 1998, and was with Merrill Lynch as a market maker trading
bonds from July 1992 to August 1996.

BARBARA J. BROOKS, age 51, is the Chief Financial Officer of Seaport Futures
Management, Inc. She is a Senior Vice President of PSI. She is also the Chief
Financial Officer of Prudential Securities Futures Management Inc. and serves in
various capacities for other affiliated companies. She has held several
positions within PSI since April 1983. Ms. Brooks is a certified public
accountant.

STEVEN CARLINO, age 36, is a Vice President and Treasurer of Seaport Futures
Management, Inc. He is a First Vice President of PSI. He is also a Vice
President and Treasurer of Prudential Securities Futures Management Inc. and
serves in various capacities for other affiliated companies. Prior to joining
PSI in October 1992, he was with Ernst & Young for six years. Mr. Carlino is a
certified public accountant.

<PAGE>
ALAN J. BRODY, age 48, is a Director of Seaport Futures Management, Inc. and
Prudential Securities Futures Management Inc. Mr. Brody has been a Senior Vice
President and Director of International Sales and Marketing for PSI since 1996.
Based in London, Mr. Brody is currently responsible for the marketing and sales
of all PSI products and services to international clientele throughout the
firm's global branch system. Additionally, Mr. Brody has overall responsibility
for the managed futures department within PSI. Prior to joining PSI, Mr. Brody
was an Executive Director and Senior Vice President with Lehman Brothers'
Financial Services Division in London and President of Lehman Brothers Futures
Asset Management Corp. from 1990 to 1996. Prior to joining Lehman Brothers, Mr.
Brody served as President and Chief Executive Officer of Commodity Exchange,
Inc. from 1980 to 1989. Earlier in his career, Mr. Brody was associated with the
law firm of Baer Marks & Upham from 1977 to 1980.

A. LAURENCE NORTON, JR., age 61, is a Director of Seaport Futures Management,
Inc. He is an Executive Vice President of PSI and, since March 1994, has been
the director of the International and Futures Divisions of PSI. He is also a
Director of Prudential Securities Futures Management Inc. and is a member of
PSI's Operating Committee. From October 1991 to March 1994, he held the position
of Executive Director of Retail Development and Retail Strategies at PSI. Prior
to joining PSI in 1991, Mr. Norton was a Senior Vice President and Branch
Manager of Shearson Lehman Brothers.

GUY S. SCARPACI, age 53, is a Director of Seaport Futures Management, Inc. He
is a First Vice President of the Futures Division of PSI. He is also a Director
of Prudential Securities Futures Management Inc. Mr. Scarpaci has been employed
by PSI in positions of increasing responsibility since August 1974.

TAMARA B. WRIGHT, age 41, is a Director and a Senior Vice President of
Seaport Futures Management, Inc. She is a Senior Vice President and Chief
Administrative Officer for the International and Futures Divisions of PSI. She
is also a Director and a Senior Vice President of Prudential Securities Futures
Management Inc. and serves in various capacities for other affiliated companies.
Prior to joining PSI in July 1988, she was a manager with Price Waterhouse.

Effective April 1999, Eleanor L. Thomas and Joseph A. Filicetti were elected
as directors of both Seaport Futures Management, Inc. and Prudential Securities
Futures Management Inc. In addition, Ms. Thomas was elected as President of
Seaport Futures Management, Inc. replacing Thomas M. Lane Jr. and Mr. Filicetti
was elected as the Executive Vice President of Seaport Futures Management, Inc.
Additionally, Alan J. Brody was elected as a Director of Seaport Futures
Management, Inc. and Prudential Securities Futures Management Inc. during May
1999.

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, 2000, 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, 2000, no director or officer of the General Partner owns
directly or beneficially any of the Units issued by the Registrant.

As of March 21, 2000, no partner beneficially owns more than five percent
(5%) of the outstanding limited partnership units issued by the Registrant.

<PAGE>
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 1999 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.

<PAGE>
PART IV

<TABLE>
<CAPTION>
Page in
Annual Report
<C> <S> <C>
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a) 1. Financial Statements and Report of Independent
Accountants--incorporated by reference to the Registrant's 1999 Annual
Report which is filed as an exhibit hereto

Report of Independent Accountants 2

Financial Statements:

Statements of Financial Condition--December 31, 1999 and 1998 3

Statements of Operations--Three years ended December 31, 1999 4

Statements of Changes in Partners' Capital--Three years ended December
31, 1999 4

Notes to Financial Statements 5

2. Financial Statement Schedules

All schedules have been omitted because they are not applicable or the
required information is included in the financial statements or the
notes thereto.

3. Exhibits
Description:

3.1 Agreement of Limited Partnership of the Registrant, dated as of May 25,
and 1988 as amended and restated as of July 12, 1988 (incorporated by
4.1 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)

10.1 Escrow Agreement, dated July 14, 1988 among the Registrant, Seaport
Futures Management, Inc., Prudential-Bache Securities Inc. and Bankers
Trust Company (incorporated by reference to Exhibit 10.1 of
Registrant's Annual Report on Form 10-K for the period ended December
31, 1988)

10.2 Brokerage Agreement dated October 18, 1988 between the Registrant and
Prudential-Bache Securities Inc. (incorporated by reference to Exhibit
10.2 of Registrant's Annual Report on Form 10-K for the period ended
December 31, 1988)

10.3 Advisory Agreement dated June 1, 1988 among the Registrant, Seaport
Futures Management, Inc., and John W. Henry & Company, Inc.
(incorporated by reference to Exhibit 10.3 of Registrant's Annual
Report on Form 10-K for the period ended December 31, 1988)

10.4 Addendum to Advisory Agreement dated as of July 13, 1988 among the
Registrant, Seaport Futures Management, Inc., and John W. Henry &
Company, Inc. (incorporated by reference to Exhibit 10.4 of
Registrant's Annual Report on Form 10-K for the period ended December
31, 1988)
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
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)

13.1 Registrant's 1999 Annual Report (with the exception of the information
and data incorporated by reference in Items 7 and 8 of this Annual
Report on Form 10-K, no other information or data appearing in the
Registrant's 1999 Annual Report is to be deemed filed as part of this
report) (filed herewith)

27.1 Financial Data Schedule (filed herewith)

(b) Reports on Form 8-K

No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
</TABLE>
9
<PAGE>
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 Carlino Date: March 30, 2000
------------------------------------
Steven Carlino
Vice President and Treasurer

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/ Eleanor L. Thomas Date: March 30, 2000
-------------------------------------------
Eleanor L. Thomas
President and Director

By: /s/ Joseph A. Filicetti Date: March 30, 2000
-------------------------------------------
Joseph A. Filicetti
Executive Vice President and Director

By: /s/ Barbara J. Brooks Date: March 30, 2000
-------------------------------------------
Barbara J. Brooks
Chief Financial Officer

By: /s/ Steven Carlino Date: March 30, 2000
-------------------------------------------
Steven Carlino
Vice President and Treasurer

By: /s/ Alan J. Brody Date: March 30, 2000
-------------------------------------------
Alan J. Brody
Director

By: Date:
-------------------------------------------
A. Laurence Norton, Jr.
Director

By: /s/ Guy S. Scarpaci Date: March 30, 2000
--------------------------------------------
Guy S. Scarpaci
Director

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

<PAGE>
1999
- --------------------------------------------------------------------------------
Prudential-Bache Annual
Diversified Futures Fund L.P. Report

<PAGE>
LETTER TO LIMITED PARTNERS FOR
PRUDENTIAL-BACHE DIVERSIFIED FUTURES FUND L.P.

1
<PAGE>
PricewaterhouseCoopers LLP (LOGO)

PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Telephone (212) 596 8000
Facsimile (212) 596 8910

Report of Independent Accountants

To the General Partner and
Limited Partners of
Prudential-Bache Diversified Futures Fund L.P.

In our opinion, the accompanying statements of financial condition and the
related statements of operations and changes in partners' capital present
fairly, in all material respects, the financial position of Prudential-Bache
Diversified Futures Fund L.P. at December 31, 1999 and 1998, and the results of
its operations for each of the three years in the period ended December 31, 1999
in conformity with accounting principles generally accepted in the United
States. These financial statements are the responsiblity of the General Partner;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by the General Partner, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.

/s/ PricewaterhouseCoopers LLP
January 28, 2000

<PAGE>
PRUDENTIAL-BACHE DIVERSIFIED FUTURES FUND L.P.
(a limited partnership)
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
December 31,
-----------------------------
<S> <C> <C>
1999 1998
- ----------------------------------------------------------------------------------------------------
ASSETS
Cash $ 2,812,735 $ 3,671,967
U.S. Treasury bills, at amortized cost 9,753,685 12,676,437
Net unrealized gain on open futures contracts 435,838 1,769,800
------------ ------------
Total assets $13,002,258 $18,118,204
------------ ------------
------------ ------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Redemptions payable $ 1,066,423 $ 276,765
Accrued expenses payable 61,298 56,613
Management fees payable 43,063 59,976
Net unrealized loss on open forward contracts 23,437 69,126
------------ ------------
Total liabilities 1,194,221 462,480
------------ ------------
Commitments
Partners' capital
Limited partners (31,656 and 38,588 units outstanding) 11,689,137 17,479,065
General partner (322 and 390 units outstanding) 118,900 176,659
------------ ------------
Total partners' capital 11,808,037 17,655,724
------------ ------------
Total liabilities and partners' capital $13,002,258 $18,118,204
------------ ------------
------------ ------------
Net asset value per limited and general partnership unit ('Units') $ 369.26 $ 452.97
------------ ------------
------------ ------------
- ----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
</TABLE>
3
<PAGE>
PRUDENTIAL-BACHE DIVERSIFIED FUTURES FUND L.P.
(a limited partnership)
STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------
1999 1998 1997
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
REVENUES
Net realized gain (loss) on commodity transactions $ (218,696) $1,684,975 $2,609,616
Change in net unrealized gain/loss on open commodity
positions (1,288,273) 268,734 916,547
Interest from U.S. Treasury bills 553,172 642,043 758,309
----------- ---------- ----------
(953,797) 2,595,752 4,284,472
----------- ---------- ----------
EXPENSES
Commissions 1,272,503 1,498,431 1,695,025
Management fees 628,635 700,964 762,664
Incentive fees -- 61,366 160,551
General and administrative 78,556 80,836 67,109
----------- ---------- ----------
1,979,694 2,341,597 2,685,349
----------- ---------- ----------
Net income (loss) $(2,933,491) $ 254,155 $1,599,123
----------- ---------- ----------
----------- ---------- ----------
ALLOCATION OF NET INCOME (LOSS)
Limited partners $(2,904,139) $ 251,604 $1,583,125
----------- ---------- ----------
----------- ---------- ----------
General partner $ (29,352) $ 2,551 $ 15,998
----------- ---------- ----------
----------- ---------- ----------
NET INCOME (LOSS) PER WEIGHTED AVERAGE LIMITED AND
GENERAL PARTNERSHIP UNIT
Net income (loss) per weighted average limited and
general partnership unit $ (80.12) $ 6.08 $ 34.66
----------- ---------- ----------
----------- ---------- ----------
Weighted average number of limited and general
partnership units outstanding 36,614 41,783 46,138
----------- ---------- ----------
----------- ---------- ----------
- ----------------------------------------------------------------------------------------------------
</TABLE>

STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
<TABLE>
<CAPTION>
LIMITED GENERAL
UNITS PARTNERS PARTNER TOTAL
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
Partners' capital--December 31, 1996 47,972 $19,351,504 $195,585 $19,547,089
Net income -- 1,583,125 15,998 1,599,123
Redemptions (3,998) (1,593,982) (16,106) (1,610,088)
------ ----------- -------- -----------
Partners' capital--December 31, 1997 43,974 19,340,647 195,477 19,536,124
Net income -- 251,604 2,551 254,155
Redemptions (4,996) (2,113,186) (21,369) (2,134,555)
------ ----------- -------- -----------
Partners' capital--December 31, 1998 38,978 17,479,065 176,659 17,655,724
Net loss -- (2,904,139) (29,352) (2,933,491)
Redemptions (7,000) (2,885,789) (28,407) (2,914,196)
------ ----------- -------- -----------
Partners' capital--December 31, 1999 31,978 $11,689,137 $118,900 $11,808,037
------ ----------- -------- -----------
------ ----------- -------- -----------
- ----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
</TABLE>
4
<PAGE>
PRUDENTIAL-BACHE DIVERSIFIED FUTURES FUND L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS

A. General

Prudential-Bache Diversified Futures Fund L.P. (the 'Partnership') is a
Delaware limited partnership formed on May 25, 1988 which will terminate on
December 31, 2007 unless terminated sooner under the provisions of the Amended
and Restated Agreement of Limited Partnership (the 'Partnership Agreement'). On
October 19, 1988, the Partnership completed its offering having 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') and
commenced operations. The Partnership was formed to engage in the speculative
trading of commodity futures, forward and options contracts. The general partner
of the Partnership is Seaport Futures Management, Inc. (the 'General Partner'),
which is an affiliate of Prudential Securities Incorporated ('PSI'), the
Partnership's commodity broker. Both the General Partner and PSI are wholly
owned subsidiaries of Prudential Securities Group Inc. ('PSGI'). The General
Partner is required to maintain at least a 1% interest in the Partnership as
long as it is acting as the Partnership's general partner.

The General Partner generally maintains not less than 75% of the
Partnership's net asset value ('NAV') 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.
The remaining 25% of NAV is held in cash in the Partnership's commodity trading
accounts.

All trading decisions for the Partnership since its inception have been made
by John W. Henry & Company, Inc. (the 'Trading Manager'). The Trading Manager
was initially allocated the Partnership's assets to be traded pursuant to five
of its trading programs as follows: 19% according to the Original Investment
Program, 21% according to the Global Diversified Portfolio Program, 23%
according to the Financial and Metals Portfolio Program, 27% according to the
International Foreign Exchange Program and 10% according to the World Financial
Perspective Program. As of April 1, 1997, the General Partner reallocated all
assets previously traded pursuant to the Trading Manager's Global Diversified
Portfolio Program and International Foreign Exchange Program to its World
Financial Perspective Program, increasing the percentage of the Partnership's
assets allocated to that program by 10%. Additionally, the General Partner
reallocated $2 million previously traded pursuant to the Trading Manager's
Financial and Metals Portfolio Program to its Original Investment Program, also
increasing the percentage of the Partnership's assets allocated to that program
by 10%. The relative percentages may be further altered only if the General
Partner does not object to any such alteration. No alterations have been made
since April 1, 1997; however, the relative percentages among the trading
programs continuously change as a result of the performance of the various
trading programs. The General Partner retains the authority to override trading
instructions that violate the Partnership's trading policies.

B. Summary of Significant Accounting Policies

Basis of accounting

The financial statements of the Partnership are prepared in accordance with
generally accepted accounting principles.

The preparation of financial statements in conformity with generally accepted
accounting principles requires the General Partner to make estimates and
assumptions that affect the reported amounts of liabilities at the date of the
financial statements and the reported amounts of expenses during the reporting
period. Actual results could differ from those estimates.

Commodity futures and forward transactions are reflected in the accompanying
statements of financial condition on trade date. The difference between the
original contract amount and market value is reflected as net unrealized gain or
loss. The market value of each contract is based upon the closing quotation on
the exchange, clearing firm or bank on, or through, which the contract is
traded.

To the extent practicable, the Partnership invests a significant portion of
its NAV in U.S. Treasury bills, which are often used to fulfill margin
requirements. U.S. Treasury bills are carried at amortized cost, which
approximates market value. Interest on these obligations accrues for the benefit
of the Partnership.

<PAGE>
The weighted average number of limited and general partnership units
outstanding was computed for purposes of disclosing net income (loss) per
weighted average limited and general partnership unit. The weighted average
limited and general partnership units are equal to the number of Units
outstanding at year-end, adjusted proportionately for Units redeemed based on
their respective time outstanding during such year.

The Partnership has elected not to provide a Statement of Cash Flows as
permitted by Statement of Financial Accounting Standards No. 102, 'Statement of
Cash Flows--Exemption of Certain Enterprises and Classification of Cash Flows
from Certain Securities Acquired for Resale.'

Certain balances from prior years have been reclassified to conform with the
current financial statement presentation.

Income taxes

The Partnership is not required to provide for, or pay, any Federal or state
income taxes. Income tax attributes that arise from its operations are passed
directly to the individual partners. The Partnership may be subject to other
state and local taxes in jurisdictions in which it operates.

Profit and loss allocations, distributions and redemptions

Net realized profits or losses for tax purposes are allocated first to
partners who redeem Units to the extent the amounts received on redemption are
greater than or less than the amounts paid for the redeemed Units by the
partners. Net realized profits or losses remaining after these allocations are
allocated to each partner in proportion to such partner's capital account at
year-end. Net income or loss for financial reporting purposes is allocated
quarterly to all partners on a pro rata basis based on each partner's number of
Units outstanding during the quarter.

Distributions (other than on redemptions of Units) are made at the sole
discretion of the General Partner on a pro rata basis in accordance with the
respective capital accounts of the partners. No distributions have been made
since inception.

The Partnership Agreement provides that a partner may redeem its Units as of
the last business day of any full calendar quarter at the then current net asset
value per Unit.

Accounting for Derivative Instruments

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ('SFAS') No. 133, Accounting for Derivative
Instruments and Hedging Activities, which the Partnership adopted effective
October 1, 1999. SFAS No. 133 establishes accounting and reporting standards for
derivative instruments and for hedging activities and requires that an entity
recognize all derivatives as assets or liabilities measured at fair value. SFAS
No. 133 supersedes SFAS No. 119, Disclosure about Derivative Financial
Instruments and Fair Value of Financial Instruments and SFAS No. 105, Disclosure
of Information about Financial Instruments with Off-Balance Sheet Risk and
Financial Instruments with Concentrations of Credit Risk which required the
disclosure of average aggregate fair values and contract/notional values,
respectively, of derivative financial instruments for an entity like the
Partnership which carries its assets at fair value. The adoption of SFAS No. 133
has not had a material effect on the carrying value of assets and liabilities
within the financial statements.

C. Costs, Fees and Expenses

Commissions

The General Partner, on behalf of the Partnership, entered into an agreement
with PSI to act as commodity broker for the Partnership. Effective August 1,
1998, the Partnership pays PSI commissions at a flat rate of 2/3 of 1% per month
(8% annualized) of the Partnership's NAV as of the first day of each month.
Prior to August 1998, the Partnership paid commissions at a flat rate of 3/4 of
1% per month (9% annualized).

Management and incentive fees

The Partnership pays the Trading Manager a monthly management fee equal to
1/3 of 1% of the Partnership's NAV as of the end of each month (4% annualized).
The Partnership also pays the Trading Manager a quarterly incentive fee equal to
15% of the 'New High Net Trading Profits' (as defined in the Advisory Agreement
among the Partnership, the General Partner and the Trading Manager).

<PAGE>
General and administrative expenses

In addition to the costs, fees and expenses previously discussed, the
Partnership reimburses the General Partner and its affiliates for certain
Partnership operating expenses payable by, or allocable to, the Partnership. The
amount of reimbursement from the Partnership is limited by the provisions of the
Partnership Agreement. The Partnership also pays amounts directly to unrelated
parties for certain operating expenses.

D. Related Parties

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 years ended
December 31, 1999, 1998 and 1997 was borne by PSI and its affiliates.

Costs and expenses charged to the Partnership for the years ended December
31, 1999, 1998 and 1997 were:

<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
----------------------------------------
Commissions $1,272,503 $1,498,431 $1,695,025
General and administrative 6,229 11,624 11,480
---------- ---------- ----------
$1,278,732 $1,510,055 $1,706,505
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

Expenses payable to the General Partner and its affiliates (which are
included in accrued expenses) as of December 31, 1999 and 1998 were $4,750 and
$6,853, respectively.

The Partnership's assets are maintained either in trading or cash accounts
with PSI 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 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.

E. Income Taxes

The following is a reconciliation of net income (loss) for financial
reporting purposes to net income (loss) for tax reporting purposes for the years
ended December 31, 1999, 1998 and 1997, respectively:

<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
-----------------------------------------
Net income (loss) per financial statements $(2,933,491) $ 254,155 $1,599,123
Change in net unrealized gain/loss on nonregulated
commodity positions 280,053 (198,896) 64,778
----------- ---------- ----------
Tax basis net income (loss) $(2,653,438) $ 55,259 $1,663,901
----------- ---------- ----------
----------- ---------- ----------
</TABLE>

The differences between the tax and book capital are primarily attributable
to the cumulative effect of the book to tax income adjustments.

F. Credit and Market 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

<PAGE>
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 NAV 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 Partnership Agreement provides that the Partnership
will liquidate its positions, and eventually dissolve, if the Partnership
experiences a decline in the NAV to less than 50% of the value at commencement
of trading activities. In each case, the decline in NAV 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
December 31, 1999, such segregated assets totalled $10,225,289. 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 $2,776,969 at December 31,
1999. There are no segregation requirements for assets related to forward
trading.

As of December 31, 1999, all open forward contracts mature within three
months and all open futures contracts mature within one year.

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). Gross contract amounts significantly
exceed 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.

<PAGE>
At December 31, 1998 gross contract amounts of open futures and forward
contracts were:

<TABLE>
<CAPTION>
1998
------------
<S> <C>
Currency Futures:
Commitments to purchase $10,565,568
Commitments to sell 4,949,313
Currency Forwards:
Commitments to sell 4,219,516
Stock Index Futures:
Commitments to purchase 2,037,357
Interest Rate Futures:
Commitments to purchase 76,646,976
Commitments to sell 146,222,704
Commodity Futures:
Commitments to purchase 696,677
Commitments to sell 3,973,905
</TABLE>

At December 31, 1999 and 1998, the fair value of open futures and forward
contracts was:

<TABLE>
<CAPTION>
1999 1998
------------------------ --------------------------
Assets Liabilities Assets Liabilities
-------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Futures Contracts:
Domestic exchanges
Stock indices $ 25,150 $ -- $ 52,238 $ --
Interest rates 138,494 9,609 24,375 186,825
Currencies 255,065 86,970 313,683 34,663
Commodities 116,930 88,085 118,553 37,369
Foreign exchanges
Stock indices 35,511 9,447 83,285 27,372
Interest rates 78,774 30,983 1,533,274 83,626
Commodities 18,593 7,585 17,057 2,810
Forward Contracts:
Currencies 6,413 29,850 -- 69,126
-------- ----------- ---------- -----------
$674,930 $ 262,529 $2,142,465 $ 441,791
-------- ----------- ---------- -----------
-------- ----------- ---------- -----------
</TABLE>

The following tables present the average fair value of futures and forward
contracts during the year ended December 31, 1998 and the trading revenues from
futures and forward contracts during each of the two years in the period ended
December 31, 1998:

<TABLE>
<CAPTION>
Average Fair Value Trading Revenues
-------------------------- --------------------------
Assets Liabilities 1998 1997
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Futures Contracts:
Domestic exchanges
Stock indices $ 30,305 $ 24,148 $ (105,976) $ 81,388
Interest rates 223,617 31,989 469,644 211,782
Currencies 149,793 33,932 (48,788) 287,772
Commodities 256,903 65,150 (825,004) 528,343
Foreign exchanges
Stock indices 133,841 18,523 (512,695) 442,524
Interest rates 642,247 69,523 3,369,003 1,177,953
Commodities 11,822 6,224 45,291 (51,877)
Forward Contracts:
Currencies 371,779 393,836 (437,766) 848,278
---------- ----------- ---------- -----------
$1,820,307 $ 643,325 $1,953,709 $ 3,526,163
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
</TABLE>

<PAGE>
- --------------------------------------------------------------------------------

I hereby affirm that, to the best of my knowledge and belief, the information
contained herein relating to Prudential-Bache Diversified Futures Fund L.P. is
accurate and complete.

SEAPORT FUTURES
MANAGEMENT, INC.
(General Partner)

by: Barbara J. Brooks
Chief Financial Officer
- --------------------------------------------------------------------------------

10
<PAGE>
PRUDENTIAL-BACHE DIVERSIFIED FUTURES FUND L.P.
(a limited partnership)
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 December 31, 1999, 100% of the Partnership's total net assets was
allocated to commodities trading. A significant portion of the net asset value
was held in U.S. Treasury bills (which represented approximately 76% 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 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 relationship 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 F 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 by limited partners and the General Partner for the year ended
December 31, 1999 were $2,885,789 and $28,407, respectively. Redemptions by
limited partners and the General Partner from commencement of operations
(October 19, 1988) through December 31, 1999 totalled $46,436,926 and
$1,073,370, 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.

Results of Operations

The net asset value per Unit as of December 31, 1999 was $369.26, a decrease
of 18.48% from the December 31, 1998 net asset value per Unit of $452.97, which
was an increase of 1.96% from the December 31, 1997 net asset value per Unit of
$444.27. The MAR (Managed Account Reports) Fund/Pool Index, which tracked the
performance of 317 and 281 futures funds in 1999 and 1998, returned gains of
1.48% and 6.81%, respectively, outperforming the Partnership. Past performance
is not necessarily indicative of future results.

<PAGE>
The Partnership's performance in 1999 was attributed to losses in the metal,
financial, index, and soft sectors. The currency and energy sectors generated
gains.

In the metal sector, gold and silver positions incurred losses for the
Partnership. During the first quarter, the sector rallied until events in Kosovo
led to NATO military attacks on Yugoslavia resulting in losses for the
Partnership. In September, the European Central Bank's (ECB) decision to limit
both gold sales and lending triggered strong movement in the gold market. Gold
prices rose to two-year highs over a ten-day period, causing short positions to
incur losses. Silver moved in conjunction with gold as prices rallied towards
the end of the third quarter and into the fourth also generating losses.

Positions in the financial sector also recorded losses for the Partnership.
Volatility in the interest rate markets throughout the first quarter led the
Partnership to incur losses in the Euro 10-year bond, Japanese government bond,
and LIFFE three month interest rate. As the year progressed, except for Japan,
global interest rates followed the lead of the U.S. bond market as rates moved
higher. In August, the Federal Open Market Committee decided to increase the
U.S. federal funds rate by 25 basis points. European bond prices were weaker
than the U.S. bond prices due to fear of a tightening bias and a rate hike by
the ECB. However, European bonds were slightly profitable for the year, but
could not outpace losses in Australian and Japanese bond positions. In
particular, Japanese bond positions lost value as those markets experienced
volatility throughout the year as a result of continuing economic uncertainty.

Significant gains were achieved in the currency sector due to Swiss franc,
euro, and Japanese yen positions. In the second quarter, the Swiss franc fell,
profiting the Partnership, as it lost its safe haven attraction as the war ended
in Kosovo and lost value versus the U.S. dollar when the Federal Reserve
increased U.S. interest rates by 0.25%. Weakness in the euro continued due to
deteriorating confidence in that currency and Italy's possible retraction from
the European Economic Union. Consequently, the ECB was rumored to be considering
an interest rate increase. With the exception of the third quarter, short euro
positions provided profits throughout the year. In Japan, the economy showed
signs of a recovery during the second quarter, but Japanese officials feared a
premature strengthening of the yen might dampen growth. The Bank of Japan
intervened at various points throughout the year by selling yen. During
November, the Japanese yen surged to a 4-year high against the U.S. dollar.
Consequently, from the second through the fourth quarter, long yen positions
were profitable.

Long positions in the energy sector, specifically crude oil and derivative
products, provided gains as prices rose throughout 1999. In the first quarter,
energy markets surged as OPEC announced substantial cuts in crude oil exports.
Crude oil prices continued to rally into the second quarter as extremely hot
U.S. weather drove increased utility demand during June and following statements
by Saudi Arabian and Mexican oil ministers reporting a high degree of compliance
with OPEC production cuts. These production cuts continued to prove beneficial
for oil markets throughout the third and fourth quarters.

Interest income is earned on the Partnership's investments 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 decreased by approximately $89,000
during 1999 as compared to 1998, and decreased approximately $116,000 during
1998 as compared to 1997. These declines in interest income were the result of
fewer funds being invested in U.S. Treasury bills principally due to weak
trading performance during 1999 and the first half of 1998 and redemptions, as
well as lower overall interest rates in 1999 versus 1998 and 1998 versus 1997.

Commissions paid to PSI 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. Commissions decreased by approximately $226,000
during 1999 as compared to 1998, and decreased approximately $197,000 during
1998 as compared to 1997. These declines were primarily due to the effect of
weak trading performance during 1999 and the first half of 1998 and redemptions
on the monthly net asset values, as well as a reduction in the commissions rate
from 9% to 8% during August 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 $72,000
during 1999 as compared to 1998, and decreased by approximately $62,000 during
1998 as compared to 1997 primarily due to fluctuations in monthly net asset
values as further discussed above.

<PAGE>
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. The quarterly incentive fees earned by
the Trading Manager during the years ended December 31, 1998 and 1997 of
approximately $61,000 and $161,000, respectively, were primarily the result of
favorable trading performance during the third quarter of 1998 and the second
half of 1997. No incentive fees were earned during the year ended December 31,
1999.

General and administrative expenses include audit, tax and legal fees as well
as printing and postage costs. General and administrative expenses decreased by
approximately $2,000 in 1999 as compared to 1998, but increased by approximately
$14,000 in 1998 as compared to 1997.

Accounting for Derivative Instruments

Year 2000 Risk

The arrival of year 2000 was much anticipated and raised serious concerns
about whether or not computer systems around the world would continue to
function properly and the degree of 'Year 2000 Problems' that would have to be
resolved.

The Partnership engages third parties to perform primarily all of the
services it needs and also relies on other third parties such as governments,
exchanges, clearinghouses, vendors and banks. The Partnership has not
experienced any material adverse impact on operations related to Year 2000
Problems. While the Partnership believes that it has mitigated its Year 2000
risk, The Partnership cannot guarantee that an as yet unknown Year 2000 failure
will not have a material adverse effect on the Partnership's operations.

Inflation

Inflation has had no material impact on operations or on the financial
condition of the Partnership from inception through December 31, 1999.

<PAGE>
OTHER INFORMATION

The actual round-turn equivalent of brokerage commissions paid per trade
for the year ended December 31, 1999 was $91.

The Partnership's Annual Report on Form 10-K as filed with the Securities and
Exchange Commission is available to limited partners without charge upon written
request to:

Prudential-Bache Diversified Futures Fund L.P.
P.O. Box 2016
Peck Slip Station
New York, NY 10272-2016

14
<PAGE>
Peck Slip Station BULK RATE
P.O. Box 2016 U.S. POSTAGE
New York, NY 10272-2016 PAID
Automatic Mail
PBDF1/171534

<PAGE>

<ARTICLE> 5

<LEGEND>
The Schedule contains summary financial
information extracted from the financial
statements for P-B Diversified Futures Fund LP
and is qualified in its entirety by reference
to such financial statements
</LEGEND>

<CIK> 0000833225
<NAME> P-B Diversified Futures Fund LP
<MULTIPLIER> 1

<FISCAL-YEAR-END> Dec-31-1999

<PERIOD-START> Jan-1-1999

<PERIOD-END> Dec-31-1999

<PERIOD-TYPE> 12-Mos

<CASH> 2,812,735

<SECURITIES> 10,189,523

<RECEIVABLES> 0

<ALLOWANCES> 0

<INVENTORY> 0

<CURRENT-ASSETS> 13,002,258

<PP&E> 0

<DEPRECIATION> 0

<TOTAL-ASSETS> 13,002,258

<CURRENT-LIABILITIES> 1,194,221

<BONDS> 0

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</TABLE>