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 quarterly period ended September 30, 2004



OR



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



For the transition period from
 to



Commission file number: 0-26004



DIVERSIFIED FUTURES TRUST I

---

(Exact name of registrant
as specified in its charter)



|                                                                |  |                                     
|--------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                        |  | 13-3780260                          
|(State or other jurisdiction of incorporation or organization)  |  | (I.R.S. Employer Identification No.)
|                                                                | 
|51 Weaver Street, Building One South, 2nd Floor, Greenwich, Ct. |  | 06831                               
|(Address of principal executive offices)                        |  | (Zip Code)                          



Registrants telephone number, including
area code (203) 861-1000



One New York Plaza, 13th Floor, New York, New
York 10292

---

Former name, former address and former fiscal year, if changed since last report



Indicate by check Ö 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  Ö  No



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



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PART I. FINANCIAL INFORMATION

ITEM I. FINANCIAL STATEMENTS

DIVERSIFIED FUTURES TRUST I

(a Delaware Business Trust)



STATEMENTS OF FINANCIAL CONDITION

(Unaudited)



|                                                                    |  |                   |            |                  |   |           
|------------------------------------------------------------------- |  | ----------------- | ---------- | ---------------- | - | ----------
|                                                                    |  | September 30,2004 |            | December 31,2003
|                                                                    |  |                  
|ASSETS                                                              |  |                   |            |                  |   |           
|                                                                    |  |                  
|Cash in commodity trading accounts                                  |  | $                 | 17,680,826 |                  | $ | 22,622,377
|                                                                    |  |                  
|Net unrealized gain on open futures contracts                       |  |                   | 1,029,338  |                  |   | 1,536,047 
|                                                                    |  |                  
|Net unrealized gain on open forward contracts                       |  |                   | 280,246    |                  |   | 378,433   
|                                                                    |  |                  
|Other receivables                                                   |  |                   | 4,620      |                  |   | 4,282     
|                                                                    |  |                   |            |                  |   |           
|Total assets                                                        |  | $                 | 18,995,030 |                  | $ | 24,541,139
|                                                                    |  |                   |            |                  |   |           
|                                                                    |  |                  
|LIABILITIES AND TRUST CAPITAL                                       |  |                   |            |                  |   |           
|                                                                    |  |                  
|Liabilities                                                         |  |                   |            |                  |   |           
|                                                                    |  |                  
|Redemptions payable                                                 |  | $                 | 318,669    |                  | $ | 582,530   
|                                                                    |  |                  
|Management fees payable                                             |  |                   | 31,657     |                  |   | 40,902    
|                                                                    |  |                  
|Incentive fees payable                                              |  |                   |           |                  |   | 158,058   
|                                                                    |  |                   |            |                  |   |           
|Total liabilities                                                   |  |                   | 350,326    |                  |   | 781,490   
|                                                                    |  |                   |            |                  |   |           
|                                                                    |  |                  
|Commitments                                                         |  |                   |            |                  |   |           
|                                                                    |  |                  
|Trust capital                                                       |  |                   |            |                  |   |           
|                                                                    |  |                  
|Limited interests (86,123.839 and 92,031.991 interests outstanding) |  |                   | 18,458,244 |                  |   | 23,521,958
|                                                                    |  |                  
|General interests (870 and 930 interests outstanding)               |  |                   | 186,460    |                  |   | 237,691   
|                                                                    |  |                   |            |                  |   |           
|                                                                    |  |                  
|Total trust capital                                                 |  |                   | 18,644,704 |                  |   | 23,759,649
|                                                                    |  |                   |            |                  |   |           
|                                                                    |  |                  
|Total liabilities and trust capital                                 |  | $                 | 18,995,030 |                  | $ | 24,541,139
|                                                                    |  |                   |            |                  |   |           
|                                                                    |  |                  
|Net asset value per limited and general interest (Interests)      |  | $                 | 214.32     |                  | $ | 255.58    
|                                                                    |  |                   |            |                  |   |           

---

The accompanying notes are an integral part of these
statements.



2



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DIVERSIFIED FUTURES TRUST I

(a Delaware Business Trust)



CONDENSED SCHEDULES
OF INVESTMENTS

(Unaudited)



|                                                        |  |                                                  |    |  |                           |           |   |                                                   |       |    |                           |   |           |  
|------------------------------------------------------- |  | ------------------------------------------------ | -- |  | ------------------------- | --------- | - | ------------------------------------------------- | ----- | -- | ------------------------- | - | --------- | -
|                                                        |  | September 30, 2004                               |    |  | December 31, 2003         |          
|Futures and Forward Contracts                           |  | Net UnrealizedGain (Loss)as a % of Trust Capital |    |  | Net UnrealizedGain (Loss) |           |   | Net UnrealizedGain (Loss) as a % of Trust Capital |       |    | Net UnrealizedGain (Loss) |  
|Futures contracts purchased:                            |  |                                                  |    |  |                           |           |   |                                                   |       |    |                           |   |           |  
|Interest rates                                          |  |                                                  |    |  | $                         | 352,622   |   |                                                   |       |    |                           | $ | 85,814    |  
|Stock indices                                           |  |                                                  |    |  |                           | (6,843    | ) |                                                   |       |    |                           |   | 500,764   |  
|Currencies                                              |  |                                                  |    |  |                           | 128,489   |   |                                                   |       |    |                           |   | 144,239   |  
|Commodities                                             |  |                                                  |    |  |                           | 749,369   |   |                                                   |       |    |                           |   | 1,557,566 |  
|                                                        |  |                                                  |    |  |                           |           |   |                                                   |       |    |                           |   |           |  
|Net unrealized gain on open futures contracts purchased |  | 6.56                                             | %  |  |                           | 1,223,637 |   |                                                   | 9.63  | %  |                           |   | 2,288,383 |  
|                                                        |  |                                                  |    |  |                           |           |   |                                                   |       |    |                           |   |           |  
|Futures contracts sold:                                 |  |                                                  |    |  |                           |           |   |                                                   |       |    |                           |   |           |  
|Interest rates                                          |  |                                                  |    |  | $                         | (1,602    | ) |                                                   |       |    |                           | $ | (8,593    | )
|Stock indices                                           |  |                                                  |    |  |                           | 36,824    |   |                                                   |       |    |                           |   | 12,240    |  
|Currencies                                              |  |                                                  |    |  |                           | (7,273    | ) |                                                   |       |    |                           |   | (69,120   | )
|Commodities                                             |  |                                                  |    |  |                           | (222,248  | ) |                                                   |       |    |                           |   | (686,863  | )
|                                                        |  |                                                  |    |  |                           |           |   |                                                   |       |    |                           |   |           |  
|Net unrealized (loss) on open futures contracts sold    |  | (1.04                                            | )% |  |                           | (194,299  | ) |                                                   | (3.17 | )  |                           |   | (752,336  | )
|                                                        |  |                                                  |    |  |                           |           |   |                                                   |       |    |                           |   |           |  
|Net unrealized gain on open futures contracts           |  | 5.52                                             | %  |  | $                         | 1,029,338 |   |                                                   | 6.46  | %  |                           | $ | 1,536,047 |  
|                                                        |  |                                                  |    |  |                           |           |   |                                                   |       |    |                           |   |           |  
|Forward contracts purchased:                            |  |                                                  |    |  |                           |           |   |                                                   |       |    |                           |   |           |  
|Net unrealized gain on open forward contracts purchased |  | 1.43                                             | %  |  | $                         | 266,468   |   |                                                   | 1.57  | %  |                           | $ | 374,108   |  
|Forward currency contracts sold:                        |  |                                                  |    |  |                           |           |   |                                                   |       |    |                           |   |           |  
|Net unrealized gain on open forward contracts sold      |  | 0.07                                             |    |  |                           | 13,778    |   |                                                   | 0.02  |    |                           |   | 4,325     |  
|                                                        |  |                                                  |    |  |                           |           |   |                                                   |       |    |                           |   |           |  
|Net unrealized gain on open forward contracts           |  | 1.50                                             | %  |  | $                         | 280,246   |   |                                                   | 1.59  | %  |                           | $ | 378,433   |  
|                                                        |  |                                                  |    |  |                           |           |   |                                                   |       |    |                           |   |           |  
|                                                        |  |                                                  |    | 
|Settlement CurrencyFutures Contracts                   |  |                                                  |    |  |                           |           |   |                                                   |       |    |                           |   |           |  
|Australian dollar                                       |  | (0.12                                            | )% |  | $                         | (22,639   | ) |                                                   | 0.02  | %  |                           | $ | 4,801     |  
|British pound                                           |  | 0.44                                             |    |  |                           | 81,357    |   |                                                   | 0.09  |    |                           |   | 20,366    |  
|Canadian dollar                                         |  | 0.06                                             |    |  |                           | 11,031    |   |                                                   | 0.24  |    |                           |   | 57,835    |  
|Euro                                                    |  | 0.36                                             |    |  |                           | 68,033    |   |                                                   | 0.75  |    |                           |   | 178,763   |  
|Hong Kong dollar                                        |  |                                                 |    |  |                           | 6         |   |                                                   | 0.02  |    |                           |   | 5,602     |  
|Japanese yen                                            |  | 0.94                                             |    |  |                           | 174,996   |   |                                                   | 0.07  |    |                           |   | 17,697    |  
|Swedish krona                                           |  |                                                 |    |  |                           | 863       |   |                                                   | 0.02  |    |                           |   | 4,420     |  
|Swiss franc                                             |  | 0.05                                             |    |  |                           | 9,959     |   |                                                   | 0.05  |    |                           |   | 12,042    |  
|U.S. dollar                                             |  | 3.79                                             |    |  |                           | 705,732   |   |                                                   | 5.20  |    |                           |   | 1,234,521 |  
|                                                        |  |                                                  |    |  |                           |           |   |                                                   |       |    |                           |   |           |  
|Total                                                   |  | 5.52                                             | %  |  | $                         | 1,029,338 |   |                                                   | 6.46  | %  |                           | $ | 1,536,047 |  
|                                                        |  |                                                  |    |  |                           |           |   |                                                   |       |    |                           |   |           |  
|Settlement CurrencyForward Contracts                   |  |                                                  |    |  |                           |           |   |                                                   |       |    |                           |   |           |  
|Australian dollar                                       |  | 0.02                                             | %  |  | $                         | 2,543     |   |                                                   | (0.05 | )% |                           | $ | (12,157   | )
|British pound                                           |  | (0.02                                            | )  |  |                           | (3,731    | ) |                                                   | (0.02 | )  |                           |   | (4,356    | )
|Canadian dollar                                         |  | 0.11                                             |    |  |                           | 20,500    |   |                                                   | 0.05  |    |                           |   | 11,267    |  
|Japanese yen                                            |  | 1.15                                             |    |  |                           | 214,754   |   |                                                   | 0.80  |    |                           |   | 191,157   |  
|Other                                                   |  | 0.06                                             |    |  |                           | 12,175    |   |                                                   |      |    |                           |   |          |  
|Swedish krona                                           |  | 0.11                                             |    |  |                           | 20,032    |   |                                                   |      |    |                           |   |          |  
|Swiss franc                                             |  | (0.11                                            | )  |  |                           | (19,953   | ) |                                                   | 0.07  |    |                           |   | 15,493    |  
|U.S. dollar                                             |  | 0.18                                             |    |  |                           | 33,926    |   |                                                   | 0.74  |    |                           |   | 177,029   |  
|                                                        |  |                                                  |    |  |                           |           |   |                                                   |       |    |                           |   |           |  
|Total                                                   |  | 1.50                                             | %  |  | $                         | 280,246   |   |                                                   | 1.59  | %  |                           | $ | 378,433   |  
|                                                        |  |                                                  |    |  |                           |           |   |                                                   |       |    |                           |   |           |  

---

The accompanying notes are an integral part of these
statements.



3



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DIVERSIFIED FUTURES TRUST I

(a Delaware Business Trust)



STATEMENTS OF
OPERATIONS

(Unaudited)



|                                                                     |  |                                |            |   |                                 |   |            |      |  |   |            |   |  |   |            |  
|-------------------------------------------------------------------- |  | ------------------------------ | ---------- | - | ------------------------------- | - | ---------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                                                     |  | Nine months endedSeptember 30, |            |   | Three months endedSeptember 30, |  
|                                                                     |  | 2004                           |            |   | 2003                            |   |            | 2004 |  |   | 2003       |  
|REVENUES                                                             |  |                                |            |   |                                 |   |            |      |  |   |            |   |  |   |            |  
|Net realized gain (loss) on commodity transactions                   |  | $                              | (1,527,501 | ) |                                 | $ | 3,996,329  |      |  | $ | (1,261,560 | ) |  | $ | (2,290,887 | )
|Change in net unrealized gain/loss on open commodity positions       |  |                                | (604,896   | ) |                                 |   | (1,730,968 | )    |  |   | 1,627,911  |   |  |   | 1,024,739  |  
|Interest income                                                      |  |                                | 179,804    |   |                                 |   | 218,372    |      |  |   | 62,863     |   |  |   | 58,256     |  
|                                                                     |  |                                |            |   |                                 |   |            |      |  |   |            |   |  |   |            |  
|                                                                     |  |                                | (1,952,593 | ) |                                 |   | 2,483,733  |      |  |   | 429,214    |   |  |   | (1,207,892 | )
|                                                                     |  |                                |            |   |                                 |   |            |      |  |   |            |   |  |   |            |  
|EXPENSES                                                             |  |                                |            |   |                                 |   |            |      |  |   |            |   |  |   |            |  
|Commissions                                                          |  |                                | 1,267,014  |   |                                 |   | 1,296,319  |      |  |   | 359,423    |   |  |   | 458,006    |  
|Management fees                                                      |  |                                | 322,385    |   |                                 |   | 335,398    |      |  |   | 92,871     |   |  |   | 115,419    |  
|Incentive fees                                                       |  |                                | 237,102    |   |                                 |   | 202,680    |      |  |   |           |   |  |   |           |  
|                                                                     |  |                                |            |   |                                 |   |            |      |  |   |            |   |  |   |            |  
|                                                                     |  |                                | 1,826,501  |   |                                 |   | 1,834,397  |      |  |   | 452,294    |   |  |   | 573,425    |  
|                                                                     |  |                                |            |   |                                 |   |            |      |  |   |            |   |  |   |            |  
|Net income (loss)                                                    |  | $                              | (3,779,094 | ) |                                 | $ | 649,336    |      |  | $ | (23,080    | ) |  | $ | (1,781,317 | )
|                                                                     |  |                                |            |   |                                 |   |            |      |  |   |            |   |  |   |            |  
|ALLOCATION OF NET INCOME (LOSS)                                      |  |                                |            |   |                                 |   |            |      |  |   |            |   |  |   |            |  
|Limited interests                                                    |  | $                              | (3,741,305 | ) |                                 | $ | 642,835    |      |  | $ | (22,851    | ) |  | $ | (1,763,494 | )
|                                                                     |  |                                |            |   |                                 |   |            |      |  |   |            |   |  |   |            |  
|General interests                                                    |  | $                              | (37,789    | ) |                                 | $ | 6,501      |      |  | $ | (229       | ) |  | $ | (17,823    | )
|                                                                     |  |                                |            |   |                                 |   |            |      |  |   |            |   |  |   |            |  
|NET INCOME (LOSS) PER WEIGHTED AVERAGE LIMITED AND GENERAL INTEREST  |  |                                |            |   |                                 |   |            |      |  |   |            |   |  |   |            |  
|Net income (loss) per weighted average limited and general interest  |  | $                              | (41.49     | ) |                                 | $ | 6.41       |      |  | $ | (0.26      | ) |  | $ | (18.24     | )
|                                                                     |  |                                |            |   |                                 |   |            |      |  |   |            |   |  |   |            |  
|Weighted average number of limited and general interests outstanding |  |                                | 91,079     |   |                                 |   | 101,336    |      |  |   | 88,481     |   |  |   | 97,645     |  
|                                                                     |  |                                |            |   |                                 |   |            |      |  |   |            |   |  |   |            |  

---



STATEMENT OF CHANGES IN TRUST CAPITAL

(Unaudited)



|                                 |  |            |   |  |                  |            |   |                  |   |         |       |  |   |            |  
|-------------------------------- |  | ---------- | - |  | ---------------- | ---------- | - | ---------------- | - | ------- | ----- |  | - | ---------- | -
|                                 |  | INTERESTS  |   |  | LIMITEDINTERESTS |            |   | GENERALINTERESTS |   |         | TOTAL | 
|Trust capitalDecember 31, 2003  |  | 92,961.991 |   |  | $                | 23,521,958 |   |                  | $ | 237,691 |       |  | $ | 23,759,649 |  
|Net loss                         |  |            |   |  |                  | (3,741,305 | ) |                  |   | (37,789 | )     |  |   | (3,779,094 | )
|Redemptions                      |  | (5,968.152 | ) |  |                  | (1,322,409 | ) |                  |   | (13,442 | )     |  |   | (1,335,851 | )
|                                 |  |            |   |  |                  |            |   |                  |   |         |       |  |   |            |  
|Trust capitalSeptember 30, 2004 |  | 86,993.839 |   |  | $                | 18,458,244 |   |                  | $ | 186,460 |       |  | $ | 18,644,704 |  
|                                 |  |            |   |  |                  |            |   |                  |   |         |       |  |   |            |  

---

The accompanying notes are an integral part of these
statements.



4



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DIVERSIFIED FUTURES TRUST I

(a Delaware Business Trust)



NOTES TO FINANCIAL
STATEMENTS

SEPTEMBER 30, 2004

(Unaudited)



A. General



These financial statements have been prepared without audit. In the opinion of
Prudential Securities Futures Management Inc. (the Managing Owner), the financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to state fairly the financial position of Diversified
Futures Trust I (the Trust) as of September 30, 2004 and December 31, 2003 and the results of its operations for the nine and three months ended September 30, 2004 and 2003. 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 accounting principles generally accepted in the United States of America have been omitted. It is suggested that these financial
statements be read in conjunction with the financial statements and notes thereto included in the Trusts Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2003.



On July 1, 2003, Prudential Financial, Inc. (Prudential) and Wachovia
Corp. (Wachovia) combined their separate retail securities brokerage and clearing businesses under a new holding company named Wachovia/Prudential Financial Advisors, LLC (WPFA), owned 62% by Wachovia and 38% by Prudential.
As a result, the retail brokerage operations of Prudential Securities Incorporated (PSI) were contributed to Wachovia Securities, LLC (Wachovia Securities). Wachovia Securities is wholly-owned by WPFA and is a registered
broker-dealer and a member of the National Association of Securities Dealers, Inc. (NASD) and all major securities exchanges. The Trust and its managing owner, Prudential Securities Futures Management Inc., entered into a service
agreement with Wachovia Securities, effective July 1, 2003. Pursuant to this agreement, Wachovia Securities agrees to provide certain enumerated services to accounts of the limited interest owners carried at Wachovia. Effective July 1, 2003, PSI
changed its name to Prudential Equity Group, Inc. Effective February 2, 2004, Prudential Equity Group Inc., was converted to a limited liability company named Prudential Equity Group LLC (PEG). PEG remains an indirectly wholly-owned
subsidiary of Prudential. PEG was a registered broker-dealer and a member of the NASD and all major securities exchanges and conducted the equity research, domestic and international equity sales and trading operations, and commodity brokerage and
derivative operations it had previously conducted as PSI until December 31, 2003. As part of the process of reorganizing its business structure, Prudential Securities Group Inc. (PSG), the direct parent of PEG and a wholly-owned
subsidiary of Prudential, transferred the commodity brokerage, commodity clearing and derivative operations previously performed by PEG to another PSG indirect wholly-owned subsidiary, Prudential Financial Derivatives, LLC (PFD)
effective January 1, 2004. PFD is registered as a futures commission merchant under the Commodity Exchange Act and is a member of the National Futures Association. On April 1, 2004, PEG transferred the ownership of the Managing Owner and PFDS
Holdings, LLC, the direct parent of PFD, to PSG.



On June 30, 2004, PSG
and Preferred Investment Solutions Corp., formerly Kenmar Advisory Corp., (Preferred) entered into a Stock Purchase Agreement, pursuant to which PSG will sell, and Preferred will buy, all of the capital stock of the Managing Owner and
another commodity pool operator owned by PSG. In connection with the transaction, the Managing Owner solicited proxies seeking approval from the Trusts Interestholders for (i) the sale of the stock of the Managing Owner to Preferred; (ii) the
concomitant approval of Preferred as the new managing owner of the Trust; and (iii) the approval of certain amendments to the Amended and Restated Declaration of Trust and Trust Agreement of the Trust, dated August 25, 1994. A Report on Form 8-K
describing the transaction was filed with the Securities and Exchange Commission on July 1, 2004 and the definitive proxies were filed with the Securities and Exchange Commission on July 20, 2004, see Note E.



B. Related Parties



The Managing Owner of the Trust is a wholly owned subsidiary of PSG. The Managing Owner and its affiliates perform services for the
Trust, which include, but are not limited to: brokerage services; accounting and financial management; registrar, transfer and assignment functions; investor



5



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communications; printing and other administrative services. Except for costs related to brokerage services, PFD or its affiliates pay the costs of these services as
well as the Trusts routine operational, administrative, legal and auditing costs.



The costs charged to the Trust for brokerage services for the nine months ended September 30, 2004 and 2003 were $1,267,014 and $1,296,319, respectively and for the three months ended September 30, 2004 and 2003 were $359,423
and $458,006, respectively.



Amounts due from the Managing Owner and its
affiliates (which are included in other receivables) as of September 30, 2004 and December 31, 2003, were $3,877 and $4,282, respectively.



The Trusts assets are maintained either in trading or cash accounts for margin purposes with PFD, the Trusts commodity broker. PFD credits the Trust
monthly with 100% of the interest it earns on the average net assets in the Trusts accounts.



The Trust, acting through its trading manager, may execute over-the-counter, spot, forward and/or option foreign exchange transactions with PFD. PFD 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 PFD and PBGM pursuant to a line of credit. PFD may require that collateral be posted against the marked-to-market position of the Trust.



As of September 30, 2004, a non-U.S. affiliate of the Managing Owner owned 362 limited
interests of the Trust.



C. Derivative Instruments and Associated Risks



The Trust is exposed to various types of risks associated with the
derivative instruments and related markets in which it invests. These risks include, but are not limited to, risk of loss from fluctuations in the value of derivative instruments held (market risk) and the inability of counterparties to perform
under the terms of the Trusts investment activities (credit risk).



Market Risk



Trading in futures and forward contracts (including foreign
exchange) involves entering into contractual commitments to purchase or sell a particular commodity at a specified date and price. The gross or face amount of the contracts, which is typically many times that of the Trusts net assets being
traded, significantly exceeds the Trusts future cash requirements since the Trust intends to close out its open positions prior to settlement. As a result, the Trust is generally subject only to the risk of loss arising from the change in the
value of the contracts. As such, the Trust considers the fair value of its derivative instruments to be the net unrealized gain or loss on the contracts. The market risk associated with the Trusts commitments to purchase
commodities is limited to the gross or face amount of the contracts held. However, when the Trust enters into a contractual commitment to sell commodities, it must make delivery of the underlying commodity at the contract price and then repurchase
the contract at prevailing market prices or settle in cash. Since the repurchase price to which a commodity can rise is unlimited, entering into commitments to sell commodities exposes the Trust to unlimited risk.



Market risk is influenced by a wide variety of factors, including government programs
and policies, political and economic events, the level and volatility of interest rates, foreign currency exchange rates, the diversification effects among the derivative instruments the Trust holds and the liquidity and inherent volatility of the
markets in which the Trust trades.



Credit Risk



When entering into futures or forward contracts, the Trust is exposed to credit risk
that the counterparty to the contract will not meet its obligations. The counterparty for futures contracts traded on United States and most foreign futures exchanges is the clearinghouse associated with the particular exchange. In general,
clearinghouses are backed by their members who are required to share any financial burden resulting from the non-performance by one of their members and, as such, should significantly reduce this credit risk. In cases where the clearinghouse is not
backed by the clearing members (i.e., some foreign exchanges), it is normally backed by a consortium of banks or other financial institutions. On the other hand, there is concentration risk on forward transactions entered into by the Trust as PFD,
the Trusts



6



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commodity broker, is the sole counterparty. The Trust has entered into a master netting agreement with PFD and, as a result, when applicable, presents unrealized gains
and losses on open forward positions as a net amount in the statements of financial condition. The amount at risk associated with counterparty non- performance on all of the Trusts contracts is the net unrealized gain included in the
statements of financial condition; however, counterparty non-performance on only certain of the Trusts contracts may result in greater loss than non-performance on all of the Trusts contracts. There can be no assurance that any
counterparty, clearing member or clearinghouse will meet its obligations to the Trust.



The Managing Owner attempts to minimize both credit and market risks by requiring the Trust and its trading manager to abide by various trading limitations and policies. The Managing Owner monitors compliance with these trading
limitations and policies, which include, but are not limited to, executing and clearing all trades with creditworthy counterparties; 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 agreements among the Trust, the Managing Owner and its trading managers, the Trust
shall automatically terminate any trading manager if the net asset value allocated to that trading manager declines by 331/3% from the value at the beginning of any year or since the commencement of trading activities. Furthermore, the Trust Agreement provides that the Trust will liquidate its positions, and eventually dissolve, if the Trust experiences a
decline in the net asset value of 50% from the value at the beginning of any year or since the commencement of trading activities. In each case, the decline in net asset value is after giving effect for distributions and redemptions. The Managing
Owner may impose additional restrictions (through modifications of 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 Trust.



PFD, when acting as the Trusts futures commission merchant in accepting orders
for the purchase or sale of domestic futures contracts, is required by Commodity Futures Trading Commission (CFTC) regulations to separately account for and segregate as belonging to the Trust all assets of the Trust relating to domestic
futures trading and is not to commingle such assets with other assets of PFD. At September 30, 2004, and December 31, 2003, such segregated assets totalled $13,849,114 and $17,843,950, respectively. Part 30.7 of the CFTC regulations also
requires PFD to secure assets of the Trust related to foreign futures trading, which totalled $4,861,050 and $6,314,474 at September 30, 2004 and December 31, 2003, respectively. There are no segregation requirements for assets related to forward
trading.



As of September 30, 2004, all of the Trusts open futures
and forward contracts mature within one year, except for certain interest rate futures contracts that have maturities as distant as September 2006.



D. Financial Highlights



|                                                                                          |  |                                 |        |    |                                  |   |        |      |  |   |        |    |  |   |        |   
|----------------------------------------------------------------------------------------- |  | ------------------------------- | ------ | -- | -------------------------------- | - | ------ | ---- |  | - | ------ | -- |  | - | ------ | --
|                                                                                          |  | Nine Months Ended September 30, |        |    | Three Months Ended September 30, |  
|                                                                                          |  | 2004                            |        |    | 2003                             |   |        | 2004 |  |   | 2003   |   
|Performance per Interest                                                                  |  |                                 |        |    |                                  |   |        |      |  |   |        |    |  |   |        |   
|Net asset value, beginning of period                                                      |  | $                               | 255.58 |    |                                  | $ | 223.61 |      |  | $ | 214.58 |    |  | $ | 247.32 |   
|                                                                                          |  |                                 |        |    |                                  |   |        |      |  |   |        |    |  |   |        |   
|Net realized gain (loss) and change in net unrealized gain/loss on commodity transactions |  |                                 | (23.27 | )  |                                  |   | 21.48  |      |  |   | 4.14   |    |  |   | (12.98 | ) 
|Interest income                                                                           |  |                                 | 1.98   |    |                                  |   | 2.15   |      |  |   | .71    |    |  |   | 0.60   |   
|Expenses                                                                                  |  |                                 | (19.97 | )  |                                  |   | (18.17 | )    |  |   | (5.11  | )  |  |   | (5.87  | ) 
|                                                                                          |  |                                 |        |    |                                  |   |        |      |  |   |        |    |  |   |        |   
|Net increase (decrease) for the period                                                    |  |                                 | (41.26 | )  |                                  |   | 5.46   |      |  |   | (.26   | )  |  |   | (18.25 | ) 
|                                                                                          |  |                                 |        |    |                                  |   |        |      |  |   |        |    |  |   |        |   
|Net asset value, end of period                                                            |  | $                               | 214.32 |    |                                  | $ | 229.07 |      |  | $ | 214.32 |    |  | $ | 229.07 |   
|                                                                                          |  |                                 |        |    |                                  |   |        |      |  |   |        |    |  |   |        |   
|Total return (non-annualized):                                                            |  |                                 |        |    |                                  |   |        |      |  |   |        |    |  |   |        |   
|Total return before incentive fees                                                        |  |                                 | (15.04 | )% |                                  |   | 3.27   | %    |  |   | (0.12  | )% |  |   | (7.38  | )%
|Incentive fees                                                                            |  |                                 | (1.10  | )  |                                  |   | (0.83  | )    |  |   |       |    |  |   |       |   
|                                                                                          |  |                                 |        |    |                                  |   |        |      |  |   |        |    |  |   |        |   
|Total return after incentive fees                                                         |  |                                 | (16.14 | )% |                                  |   | 2.44   | %    |  |   | (0.12  | )% |  |   | (7.38  | )%
|                                                                                          |  |                                 |        |    |                                  |   |        |      |  |   |        |    |  |   |        |   



7



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|                                                         |  |                                 |    |  |                                  |    |  |       |    |  |       |   
|-------------------------------------------------------- |  | ------------------------------- | -- |  | -------------------------------- | -- |  | ----- | -- |  | ----- | --
|                                                         |  | Nine Months Ended September 30, |    |  | Three Months Ended September 30, |   
|                                                         |  | 2004                            |    |  | 2003                             |    |  | 2004  |    |  | 2003  |   
|Ratio to average net assets:                             |  |                                 |    |  |                                  |    |  |       |    |  |       |   
|Net investment loss before incentive fees** (annualized) |  | (8.74                           | )% |  | (7.73                            | )% |  | (8.35 | )% |  | (8.84 | )%
|Incentive fees (non-annualized)                          |  | (1.10                           | )  |  | (0.83                            | )  |  |      |    |  |      |   
|                                                         |  |                                 |    |  |                                  |    |  |       |    |  |       |   
|Net investment loss after incentive fees                 |  | (9.84                           | )% |  | (8.56                            | )% |  | (8.35 | )% |  | (8.84 | )%
|                                                         |  |                                 |    |  |                                  |    |  |       |    |  |       |   
|                                                         |  |                                 |    | 
|Interest income (annualized)                             |  | 1.11                            | %  |  | 1.19                             | %  |  | 1.35  | %  |  | 1.00  | % 
|                                                         |  |                                 |    |  |                                  |    |  |       |    |  |       |   
|                                                         |  |                                 |    | 
|Expenses before incentive fees (annualized)              |  | 9.85                            | %  |  | 8.92                             | %  |  | 9.70  | %  |  | 9.84  | % 
|Incentive Fees (non-annualized)                          |  | 1.10                            |    |  | 0.83                             |    |  |      |    |  |      |   
|                                                         |  |                                 |    |  |                                  |    |  |       |    |  |       |   
|Total expenses after incentive fees                      |  | 10.95                           | %  |  | 9.75                             | %  |  | 9.70  | %  |  | 9.84  | % 
|                                                         |  |                                 |    |  |                                  |    |  |       |    |  |       |   



|** | Represents interest income less total expenses (exclusive of incentive fees). The Managing Owner believes that the disclosure of the ratio of net investment loss to average net assets as
required under the AICPA Audit Guide For Investment Companies is not a meaningful or appropriate measure for the Trust as it is not a portfolio designed to return investment income. The Managing Owner believes that the total return ratio is the
appropriate ratio as it also considers the Trusts commodity trading gains/losses.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



These financial highlights represent the overall results of the Trust during the nine and three month periods ended September 30, 2004 and 2003, respectively. An
individual interest owners actual results may differ depending on the timing of redemptions.



E. Subsequent Events



The Managing Owner
has been the sole managing owner of the Trust and, pursuant to the Trusts Declaration of Trust and Trust Agreement, manages the Trust. The managing owner holds the Trusts general interests. (The general interests are not a class of
equity of the Trust that is registered under the Securities Exchange Act of 1933).



As of October 1, 2004, Preferred acquired from PSG all of the outstanding stock of the Managing Owner. Immediately after such acquisition, the Managing Owner was merged with and into Preferred. Accordingly, as of October 1,
2004 all of the board of directors and officers of Prudential Securities Futures Management Inc. resigned. Following Preferreds acquisition of the Managing Owner and its merger with and into Preferred, Preferred became the successor managing
owner of the Trust. A report on Form 8-K describing the acquisition was filed with the Securities and Exchange Commission on October 7, 2004.



The Managing Owner held interests in other assets and investments besides its interest in the Trust. In this transaction, Preferred also acquired all of the
outstanding stock of another commodity pool operator owned by PSG.



On
October 1, 2004, an agreement was executed between Preferred and PFD which amended and restated the brokerage agreement between the Trust and PFD. On such date, Preferred will commence receiving the brokerage commissions which were previously paid
to PFD, excluding transaction fees which will be paid to PFD. The agreement incorporates the previous PFD brokerage agreements terms, including the total fees paid by the Trust. Under the agreement, PFDs transaction based fee will be
paid out of the total fees paid by the Trust to Preferred.



8



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DIVERSIFIED FUTURES TRUST I

(a Delaware Business Trust)



ITEM 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS



Critical Accounting Policies



Preparation of the financial statements and related disclosures in compliance with accounting principles generally accepted in the
United States of America requires the application of appropriate accounting rules and guidance, as well as the use of estimates. The Trusts application of these policies involves judgments and actual results may differ from the estimates used.



The Managing Owner has evaluated the nature and types of estimates that
it makes in preparing the Trusts financial statements and related disclosures and has determined that the valuation of its investments which are not traded on a United States or Internationally recognized futures exchange involves a critical
accounting policy. The values used by the Trust for its open forward positions are provided by its commodity broker, PFD, who uses market prices when available, while over-the-counter derivative financial instruments, principally forwards, options
and swaps are valued based on the present value of estimated future cash flows that would be received from or paid to a third party in settlement of these derivative contracts prior to their delivery date.



As such, if actual results vary from estimates used, they are anticipated to not have
a material impact on the financial statements and related disclosures.



Liquidity and
Capital Resources



The Trust commenced operations on January 5, 1995
with gross proceeds of $25,262,800 allocated to commodities trading. The Trust continued to offer interests on a monthly basis until the continuous offering period ended on August 31, 1996, resulting in additional gross proceeds to the Trust of
$41,129,100.



The Trust Agreement provides that an interest holder may
redeem its interests as of the last business day of any calendar quarter at the then current NAV per interest. Redemptions of limited interests and general interests for the nine months ended September 30, 2004 were $1,322,409 and $13,442,
respectively and for the three months ended September 30, 2004 were $315,453 and $3,216, respectively. Redemptions of limited interests and general interests from the commencement of operations, (January 5, 1995), to September 30, 2004 totalled
$80,249,322 and $680,800 respectively. Future redemptions will impact the amount of funds available for investment in commodity contracts in subsequent periods.



At September 30, 2004, 100% of the Trusts net assets were allocated to commodities trading. A significant portion of the net
assets was held in cash which was used as margin for the Trusts trading in commodities. Inasmuch as the sole business of the Trust is to trade in commodities, the Trust continues to own such liquid assets to be used as margin. PFD credits the
Trust monthly with 100% of the interest it earns on the average net assets in these accounts.



The commodities contracts may be subject to periods of illiquidity because of market conditions, regulatory considerations and other reasons. For example, some 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 Trust from promptly liquidating its commodity futures positions.



Since the Trusts business is to trade futures and forward 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 Trust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 Trusts speculative trading, as well as the development of drastic
market occurrences could result in



9



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monthly losses considerably beyond the Trusts experience to date and could ultimately lead to a loss of all or substantially all of investors capital. The
Managing Owner attempts to minimize these risks by requiring the Trust and its trading manager to abide by various trading limitations and policies which include limiting margin amounts, trading only in liquid markets and permitting the use of stop
loss provisions. See Note C to the financial statements for a further discussion of the credit and market risks associated with the Trusts futures and forward contracts.



The Trust does not have, nor does it expect to have, any capital assets.



Off-Balance Sheet Arrangements and Contractual Obligations



As of September 30, 2004, the Trust had not utilized special purpose entities to
facilitate off-balance sheet financing arrangements and has no loan guarantee arrangements or off-balance sheet arrangements of any kind other than agreements entered into in the normal course of business, which may include indemnification
provisions related to certain risks service providers, such as our accountants, undertake in performing services which are in the best interests of The Trust. While the Trust exposure under such indemnification provisions can not be estimated, these
general business indemnifications are not expected to have material impact on the Trusts financial position.



The Trusts contractual obligations are with the trading managers and its commodity broker. Payments made under the Trusts agreement with the trading
managers are at a fixed rate, calculated as a percentage of the Trusts New High Net Trading Profits. Management fee payments made to the trading manager and commission payments to the commodity broker are calculated as a fixed
percentage of the Trusts NAVs. As such the Managing Owner cannot anticipate the amount of payments that will be required under these agreements for future periods as NAVs are not known until a future date. These agreements are
effective for one-year terms, renewable automatically for additional one-year terms unless terminated. Additionally, these agreements may be terminated by either party for various reasons. For a further discussion on these payments, see Notes A
& C of the Trusts 2003 Annual Report.



Results of Operations



The net asset value per interest as of September 30, 2004 was
$214.32 a decrease of 16.14% from the December 31, 2003 net asset value per interest of $255.58, and a decrease of 0.12% from the June 30, 2004 net asset per interest of $214.58. Past performance is not necessarily indicative of future results.



The Trusts trading gains (losses) before commissions were
$(2,132,000) and $366,000 during the nine and three months ended September 30, 2004 compared to $2,265,000 and $(1,266,000) for the corresponding periods in the prior year. Due to the nature of the Trusts trading activities, a period to period
comparison of its trading results is not meaningful. However, a detailed discussion of the Trusts current quarter trading results is presented below.



Quarterly Market Overview



U.S. economic activity in the third quarter of 2004 exhibited strength in July followed by slower than expected growth in August and September. While the third
quarter has traditionally been weaker than the other quarters in the year, the U.S. economy faced many issues that added to the usual seasonal third quarter slump such as high energy prices, soft domestic and global economies, a weak U.S. job
market, growing U.S. current-account and budget deficits, terrorism, as well as the uncertain presidential election outcome and future of Iraq. On the other hand, despite soaring crude oil prices, inflation remained within expectations and the
Federal Reserve Board continued its program of gradually raising interest rates. Domestic manufacturing and construction were robust due to a strong housing market in the beginning of the quarter but ended the quarter below estimated projections. In
September, housing starts increased to their highest levels in five months despite hurricanes and a declining trend in home sales. September brought more warnings of quarterly corporate earnings disappointments than any other month this year as well
as an increase in announcements of layoffs. In July, payrolls exhibited the smallest gain in hiring since December of 2003, rebounded slightly in August and ended lower than expected in September with growth continuing in service sectors and
reductions for the first time in three months in the manufacturing sector. Weak labor markets combined with rising grocery and energy bills reduced consumer confidence from a two-year high in July but consumer spending strengthened in the early
summer and through the end of September due to incentives and deep discounting from auto manufacturers. Retail sales had a rocky third quarter as consumers spent less for the fourth straight month in September resulting in disappointing



10



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back-to-school sales and concerns about a potentially disappointing holiday shopping season. Hurricanes in the Southeast and unusually warm weather in the Midwest also
contributed to lackluster sales.



Many central banks around the world
raised interest rates during the third quarter. In Europe, worries about high oil prices, weakening global economic growth, loss of corporate investment to more vibrant economies, rising unemployment and the worst service-sector activity in a year
and despite rising exports there was a decline in confidence across many economic sectors. Household spending was hampered by low consumer confidence and sluggish employment recovery. In Asia, Japans government and central bank released a
report in early July stating that the recovery in production and corporate profits was spreading to domestic consumption, an indication of steady economic improvement. However, revised industrial output data and shrinking economic activity raised
doubts about the pace of recovery. While August unemployment figures declined, weak consumer spending and wage growth indicated that Japan was still battling a fifth year of deflation. Dependent on imports as a source of oil, the high cost of oil
struck Japan particularly hard but the Japanese domestic economy regained some footing towards the end of the quarter. The Chinese governments credit tightening has been leading to a soft economic landing and a reduction in expansion
throughout Asia despite rising prices. Developing Asian countries benefited from stronger trade, domestic consumption and investments. India expanded slower than expected due to the impact of unusual wet weather conditions on farm output as well as
a surprise victory by the opposition party in the Indian elections. Indonesias economy received a boost when it participated in its first direct presidential election. In the Americas, concerns surrounding the economic outlook and the impact
of high oil prices led the Bank of Canada to increase its rates for the first time in 17 months. Brazils economy expanded throughout the quarter resulting in an interest rate increase by the Banco Central Do Brazil in September and upgraded
credit ratings.



Indices: U.S. equity indices had low volatility and
were range bound in a lack-luster third quarter as the three major U.S. equity indices experienced declines for the third quarter. The S&P 500 Index declined by 1.9%, the Dow Jones Industrial Average declined by 3.4% and the NASDAQ Composite
declined by 7.4%. Contradictory economic figures, weaker than expected earnings reports, and higher energy costs resulted in a drag on performance. European stock indices performed poorly over worries of increasing oil prices, rising unemployment,
and projected slowing global economic growth. However, the London FTSE bucked the trend by increasing 2.4%, while the Paris CAC 40 Index was down 2.5%, and the German DAX slid 3.9%. In Asia, Japans Tokyo Nikkei Stock Index declined by 8.7% due
to doubts about the pace of Japans recovery and the Hong Kong Hang Seng Index reported an increase of 6.8%.



Interest rates: Economic growth in the United States slowed from earlier expectations resulting in a rally in the bond market in the third quarter of 2004. The
rally was in response to the market perception that aggressive tightening of credit by the U.S. Federal Reserve will not be forthcoming, but replaced with the Greenspan gradualism of raising the Fed funds rate. Additionally, inflation fears subsided
as inflation numbers had been within expectations and were not overly affected by the oil price shock. The Lehman Aggregate Bond Index returned a positive 3.2% in the third quarter. In Europe, the bund market also rallied in the third quarter due to
slowing economic growth expectations resulting in a flight to quality. Similarly, the Japanese Government Bond saw decreasing yields as prices increased resulting from fears of a slowdown in its economic recovery.



Currencies: The U.S. dollar began the 2004 third quarter depreciating against the
worlds major currencies, then rallied over a cautious Fed and mixed economic data only to reverse course based on concerns that high oil prices will temper the pace of expansion in the U.S. economy. The currency market continued to be range
bound with increasing market gyrations netting high levels of volatility. This has resulted in a difficult trading environment with no long-term trends developing. The euro gained ground on the U.S. dollar as a weak U.S. job market and a slowing of
the U.S. economy as indicated from decreasing consumer confidence. Weak economic numbers also helped to push the Japanese yen higher versus the U.S. dollar.



Energies: Demand for energy remained strong throughout the third quarter and supply level fears and geopolitical risk premiums have sustained oil prices above the
prescribed price range for crude oil by the Organization of the Petroleum Exporting Countries (OPEC). The 2004 third quarter started with increasing crude oil prices from high disruption fears in many key oil-producing regions like Iraq, Russia,
Nigeria, Venezuela, and Saudi Arabia. As the quarter progressed, oil prices decreased only to see a reversal that



11



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sent prices to new highs of over $50 per barrel by the end of the quarter. The increase in prices were also due to disruptions in oil refineries as Hurricanes Jeanne,
Ivan, Charley, and Frances stormed through the Southeastern region of the U.S. leading to decreased inventory levels.



Metals: Gold and silver prices were higher in the third quarter given geopolitical concerns and speculation that the U.S. Dollar will continue to decline against
the euro, and rising energy costs will slow U.S. economic growth. Gold and silvers rally paralleled that of crude oil because higher oil prices depressed economic growth in the U.S. which led to the depreciation the U.S. dollar. Additionally,
investors that held U.S. dollars purchased gold as protection against further loss because gold is priced in U.S. dollars and it holds value better than the depreciating U.S. dollar. In the base metals, prices were mixed because of short-term supply
constraints but rallied at the end of the quarter.



Grains: The grain
market continued to march lower in response to expectations that harvests will be very strong. Favorable weather conditions in the quarter were conducive for a very good growing season in the U.S. This has given rise to estimates that soybean
production could reach record levels. The weakened soy market has pushed prices of soy products lower. Corn yield is also projected higher, thereby, pushing prices lower.



Softs: Cotton prices rallied during August in response to worries of lower yields from unfavorably wet growing conditions caused by
Hurricane Charley but ultimately ended the quarter lower. Further price advances came on the prospects of more disruptions in cotton supplies due to Hurricane Frances. Damage to the orange crop in Florida from Hurricanes Charley and Frances also led
to rising prices for orange juice futures. Sugar prices climbed higher on news of lower inventory supply of sugar in Brazil.



Quarterly Trust Performance



The following is a summary of performance for the major sectors in which the Trust traded:



Indices (): Fears of a slow down in economic growth resulted in many indices losing ground throughout the quarter. Long
positions in the mini-NASDAQ, the German DAX Index, the Japanese Nikkei Index resulted in a net loss.



Currencies (): The U.S. dollar was range bound in the third quarter of 2004 against many foreign currencies. Long U.S. dollar contracts against the Japanese
yen and the euro resulted in a net loss for the Trust.



Softs ():
Because of poor weather due to Hurricanes Charley and Frances, cotton prices rose in August on worries of a lower yield but ultimately ended the quarter lower. Sugar prices also rose on news of lower than expected inventory in Brazil. Short
positions in cotton and sugar netted a loss for the Trust.



Metals
(): The prices of base metals were mixed because of short-term supply constraints but rallied at the end of the quarter. Long positions in copper resulted in profits however these were more than offset by long positions in zinc and short
positions in nickel that resulted in net a loss for the Trust.



Interest
Rates (+): Economic growth in the United States slowed from earlier expectations resulting in a rally in the bond market in the third quarter of 2004. Long positions in the Euro Bund, the U.S. 10-year Note, and the U.S. 30-year Bond resulted in
gains.



Energies (+): Supply level fears and geopolitical risk helped
push energy prices to record levels, with the price of crude oil pushing pass $50/barrel. Long positions in light crude, natural gas, crude oil, and heating oil resulted in gains.



Grains (+): Favorable weather conditions led to expectations of record yields in the corn and soybean harvest, thereby, driving down
prices. Short corn and wheat positions resulted in net gains.



Interest
income is earned on the average net assets held at PFD and, therefore, varies monthly according to interest rates, trading performance, and redemptions. Interest income decreased $39,000 and increased $5,000 for the nine and three months ended
September 30, 2004 compared to the corresponding periods in 2003. These changes were due to a decrease in average net assets as a result of weak trading performance and redemptions, offset, by higher Third Quarter 2004 interest rates.



Commissions are calculated on the Trusts net asset value at the beginning of
each month and, therefore, vary according to trading performance and redemptions. Commissions for the nine and three



12



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months ended September 30, 2004 decreased $29,000 and $99,000 compared to the corresponding periods in 2003. The decreases were due to lower net assets as a result of
weak trading performance and redemptions during 2004, partially offset, by the Trust not incurring commissions on the portion of assets unallocated to trading until February 2003 when each of the new trading managers began trading.



Management fees are calculated on the Trusts net asset value at the end of each
month and, therefore, are affected by trading performance and redemptions. Management fees for the nine and three months ended September 30, 2004 decreased $13,000 and $23,000 compared to the corresponding period in 2003 for the same reasons
commissions decreased as previously discussed above.



Incentive fees are
based on the New High Net Trading Profits generated by the trading managers, as defined in the Advisory Agreements among the Trust, the Managing Owner and the trading managers. Incentive fees for the nine months ended September 30, 2004 and 2003
were $237,000 and $203,000, respectively. No incentive fees were incurred during the three months ended September 30, 2004 and 2003.



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.



ITEM 4. CONTROLS AND PROCEDURES



As of the end of the period covered by this report, the Managing Owner carried out an evaluation, under the supervision and with the
participation of the officers of the Managing Owner, including the Managing Owners chief executive officer and chief financial officer, of the effectiveness of the design and operation of the Trusts disclosure controls and procedures.
Based upon that evaluation, the Managing Owners chief executive officer and chief financial officer concluded that the Trusts disclosure controls and procedures are effective.



In designing and evaluating the Trusts disclosure controls and procedures (as
defined in Rules 13a-15(e) or 15d-15(e) of the Exchange Act), the Managing Owner recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurances of achieving the desired control
objectives, as ours are designed to do, and the Managing Owner necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. We believe that our disclosure controls and procedures
provide such reasonable assurance.



There have not been any changes in
our internal controls over financial reporting (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) during the fiscal quarter to which this report relates that have materially affected, or are
reasonably likely to materially affect, our internal controls over financial reporting.



13



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PART II. OTHER INFORMATION



|        |  |                                                                                                                       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                         |  | 
|------- |  | --------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | 
|        | 
|Item 1. |  | Legal ProceedingsThere are no material legal proceedings pending by or against the Registrant or the Managing Owner.
|        | 
|Item 2. |  | Unregistered Sales of Equity and Use of ProceedsNone                                                                
|        | 
|Item 3. |  | Defaults Upon Senior SecuritiesNone                                                                                 
|        | 
|Item 4. |  | Submission of Matters to a Vote of Security Holders:                                                                 
|        |  |                                                                                                                      
|        |  |                                                                                                                       |  | The Registrant held a Special Meeting of limited interests on September 21, 2004 (the Meeting). At the Meeting the limited interests were asked to
vote on the sale of the stock of the Managing Owner to Preferred; the concomitant approval of Preferred as the new managing owner of the Fund; and the approval of certain amendments to the Trust Agreement (the Proposal)  The Proposal was approved by the limited interests.



|           |  |          |  |            
|---------- |  | -------- |  | -----------
|Votes Cast
|For        |  | Against  |  | Abstentions
|49,121.62  |  | 2,304.58 |  | 1,181.46   



|        |  |                        |  |              |  |                                                                                                                                                                                                                                        
|------- |  | ---------------------- |  | ------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        | 
|Item 5. |  | Other InformationNone
|        | 
|Item 6. |  | Exhibits              
|        |  |                        | 
|        |  |                        |  | 3.1 and 4.1 |  | Second Amended and Restated Declaration of Trust and Trust Agreement of the Registrant dated as of October 1, 2004, (incorporated by reference to Exhibits 3
(ii) to Registrants Current Report on Form 8-K Filed on October 7, 2004.)
|        |  |                        | 
|        |  |                        |  | 4.2         |  | Subscription Agreement (incorporated by reference to Exhibit C to the Registrants Registration Statement on Form S-1, File No. 33-81534)                                                                                              
|        |  |                        | 
|        |  |                        |  | 4.3         |  | Request for Redemption (incorporated by reference to Exhibit D to the Registrants Registration Statement on Form S-1, File No. 33-81534)                                                                                              
|        |  |                        | 
|        |  |                        |  | 31.1        |  | Certificate pursuant to Exchange Act Rules 13a-14 and 15d-14 (filed herewith)                                                                                                                                                          
|        |  |                        | 
|        |  |                        |  | 31.2        |  | Certificate pursuant to Exchange Act Rules 13a-14 and 15d-14 (filed herewith)                                                                                                                                                          
|        |  |                        | 
|        |  |                        |  | 32.1        |  | Certificate pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the SARBANES-OXLEY Act of 2002 (furnished herewith)                                                                                               
|        |  |                        | 
|        |  |                        |  | 32.2        |  | Certificate pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the SARBANES-OXLEY Act of 2002 (furnished herewith)                                                                                               



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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.



|                            |  |                                                                                                      |  |                        
|--------------------------- |  | ---------------------------------------------------------------------------------------------------- |  | -----------------------
|DIVERSIFIED FUTURES TRUST I |  |                                                                                                     
|                            |  |                                                                                                     
|By:                         |  | Preferred Investment Solutions Corp. A Connecticut corporation, managing
owner as of October 1, 2004 |  |                        
|                            |  |                                                                                                     
|                            |  | By: /s/ Kenneth A. Shewer                                                                            |  | Date: November 15, 2004
|                            |  | Kenneth A. Shewer Chief Executive Officer                                                            |  |                        



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