<PAGE>
                                                         1998
--------------------------------------------------------------------------------
Diversified Futures Trust I                              Annual
                                                         Report

<PAGE>
                          LETTER TO LIMITED OWNERS FOR
                          DIVERSIFIED FUTURES TRUST I
 


                                       1

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


                       Report of Independent Accountants
 
January 26, 1999
 
To the Managing Owner and
Limited Owners of
Diversified Futures Trust I
 
In our opinion, the accompanying statements of financial condition and the
related statements of operations and changes in trust capital present fairly, in
all material respects, the financial position of Diversified Futures Trust I at
December 31, 1998 and 1997, and the results of its operations for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the managing owner; 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 generally accepted auditing
standards 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 managing owner,
and evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
 
/s/ PricewaterhouseCoopers LLP
                                       2
<PAGE>
                          DIVERSIFIED FUTURES TRUST I
                          (a Delaware Business Trust)
                       STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
                                                                               December 31,
                                                                      -------------------------------
                                                                          1998              1997
<S>                                                                   <C>               <C>
-----------------------------------------------------------------------------------------------------
ASSETS
Equity in commodity trading accounts:
Cash                                                                   $55,481,234      $  65,565,864
Net unrealized gain on open commodity positions                          6,197,212          4,447,026
                                                                      -------------     -------------
Net equity                                                              61,678,446         70,012,890
Other receivable                                                             8,874             11,866
                                                                      -------------     -------------
Total assets                                                           $61,687,320      $  70,024,756
                                                                      -------------     -------------
                                                                      -------------     -------------
LIABILITIES AND TRUST CAPITAL
Liabilities
Redemptions payable                                                    $ 2,543,697      $   1,973,508
Management fee payable                                                     205,624            233,415
Incentive fee payable                                                           --            305,704
                                                                      -------------     -------------
Total liabilities                                                        2,749,321          2,512,627
                                                                      -------------     -------------
Commitments
 
Trust capital
Limited interests (290,423.624 and 348,652.217 interests
outstanding)                                                            58,348,534         66,836,959
General interests (2,934 and 3,522 interests outstanding)                  589,465            675,170
                                                                      -------------     -------------
Total trust capital                                                     58,937,999         67,512,129
                                                                      -------------     -------------
Total liabilities and trust capital                                    $61,687,320      $  70,024,756
                                                                      -------------     -------------
                                                                      -------------     -------------
 
Net asset value per limited and general interests                      $    200.91      $      191.70
                                                                      -------------     -------------
                                                                      -------------     -------------
-----------------------------------------------------------------------------------------------------
                  The accompanying notes are an integral part of these statements.
</TABLE>
                                       3
<PAGE>
                          DIVERSIFIED FUTURES TRUST I
                          (a Delaware Business Trust)
                            STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
                                                                  Year Ended December 31,
                                                          ----------------------------------------
                                                             1998          1997           1996
<S>                                                       <C>           <C>            <C>
--------------------------------------------------------------------------------------------------
REVENUES
Net realized gain on commodity transactions               $4,475,810    $ 7,279,598    $22,881,256
Change in net unrealized gain on open commodity
  positions                                                1,750,186      2,933,683     (1,477,961)
Interest income                                            3,303,182      3,741,838      3,082,397
                                                          ----------    -----------    -----------
                                                           9,529,178     13,955,119     24,485,692
                                                          ----------    -----------    -----------
EXPENSES
Commissions                                                4,666,065      5,289,700      4,747,920
Management fees                                            2,424,509      2,761,108      2,529,237
Incentive fees                                                97,868        376,419      2,098,515
                                                          ----------    -----------    -----------
                                                           7,188,442      8,427,227      9,375,672
                                                          ----------    -----------    -----------
Net income                                                $2,340,736    $ 5,527,892    $15,110,020
                                                          ----------    -----------    -----------
                                                          ----------    -----------    -----------
ALLOCATION OF NET INCOME
Limited interests                                         $2,317,331    $ 5,472,611    $14,958,815
                                                          ----------    -----------    -----------
                                                          ----------    -----------    -----------
General interests                                         $   23,405    $    55,281    $   151,205
                                                          ----------    -----------    -----------
                                                          ----------    -----------    -----------
NET INCOME PER WEIGHTED AVERAGE LIMITED AND GENERAL
INTEREST
Net income per weighted average limited and general
  interest                                                $     7.09    $     14.43    $     36.56
                                                          ----------    -----------    -----------
                                                          ----------    -----------    -----------
Weighted average number of limited and general
  interests outstanding                                      330,196        383,058        413,244
                                                          ----------    -----------    -----------
                                                          ----------    -----------    -----------
--------------------------------------------------------------------------------------------------
</TABLE>
 
                     STATEMENTS OF CHANGES IN TRUST CAPITAL
<TABLE>
<CAPTION>
                                                              LIMITED        GENERAL
                                             INTERESTS       INTERESTS      INTERESTS        TOTAL
<S>                                         <C>             <C>             <C>           <C>
-----------------------------------------------------------------------------------------------------
Trust capital--December 31, 1995            327,345.725     $46,119,407     $576,089      $46,695,496
Contributions                               164,986.430      23,425,200       83,500       23,508,700
Net income                                           --      14,958,815      151,205       15,110,020
Redemptions                                 (86,488.452)    (13,726,923)     (95,780 )    (13,822,703)
                                            -----------     -----------     ---------     -----------
Trust capital--December 31, 1996            405,843.703      70,776,499      715,014       71,491,513
Net income                                           --       5,472,611       55,281        5,527,892
Redemptions                                 (53,669.486)     (9,412,151)     (95,125 )     (9,507,276)
                                            -----------     -----------     ---------     -----------
Trust capital--December 31, 1997            352,174.217      66,836,959      675,170       67,512,129
Net income                                           --       2,317,331       23,405        2,340,736
Redemptions                                 (58,816.593)    (10,805,756)    (109,110 )    (10,914,866)
                                            -----------     -----------     ---------     -----------
Trust capital--December 31, 1998            293,357.624     $58,348,534     $589,465      $58,937,999
                                            -----------     -----------     ---------     -----------
                                            -----------     -----------     ---------     -----------
-----------------------------------------------------------------------------------------------------
                  The accompanying notes are an integral part of these statements.
</TABLE>
                                       4
<PAGE>
                          DIVERSIFIED FUTURES TRUST I
                          (a Delaware Business Trust)
                         NOTES TO FINANCIAL STATEMENTS
 
A. General
 
   Diversified Futures Trust I (the 'Trust') was organized under the Delaware
Business Trust Act on May 18, 1994 and will continue until December 31, 2014
unless terminated sooner under the provisions of the Amended and Restated
Declaration of Trust and Trust Agreement (the 'Trust Agreement'). On January 5,
1995, the Trust completed its initial offering having raised $25,262,800 from
the sale of 249,628 limited interests ('Limited Interests') and 3,000 general
interests ('General Interests') (collectively, the 'Interests') and commenced
operations. The Trust was formed to engage in the speculative trading of
commodity futures and forward contracts. The Trust's trustee is Wilmington Trust
Company. The managing owner of the Trust is Prudential Securities Futures
Management Inc. (the 'Managing Owner'), a wholly owned subsidiary of Prudential
Securities Incorporated ('PSI'), which, in turn, is a wholly owned subsidiary of
Prudential Securities Group Inc. ('PSGI'). PSI was the principal underwriter of
the Interests and is the commodity broker of the Trust. The Managing Owner is
required to maintain at least a 1% interest in the Trust so long as it is acting
as the Managing Owner.
 
   The Trust was permitted to sell a maximum of $50,000,000 of Limited
Interests, plus $50,000,000 of additional Limited Interests when PSI and the
Managing Owner exercised the over-subscription option granted to them by the
Trust Agreement. Following the close of the initial offering period, additional
Interests were offered and sold monthly at their month-end net asset value
('NAV') per Interest during a continuous offering period which expired on August
31, 1996. Additional contributions raised during the continuous offering period
resulted in additional proceeds to the Trust of $41,129,100 from the sale of
299,640 Limited Interests and 1,628 General Interests.
 
   All trading decisions are made for the Trust by John W. Henry & Company, Inc.
(the 'Trading Manager'), an independent commodity trading manager. The Trading
Manager trades the Trust's assets pursuant to four of its trading programs: the
Financial and Metals Portfolio; the Global Financial Portfolio; the Original
Investment Program; and the G-7 Currency Portfolio. The Managing Owner retains
the authority to override trading instructions that violate the Trust's trading
policies.
 
B. Summary of Significant Accounting Principles
 
Basis of accounting
 
   The books and records of the Trust are maintained on the accrual basis of
accounting in accordance with generally accepted accounting principles.
 
   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.
 
   The weighted average number of limited and general interests outstanding was
computed for purposes of disclosing net income per weighted average limited and
general interest. The weighted average limited and general interests are equal
to the number of Interests outstanding at year end, adjusted proportionately for
Interests subscribed and redeemed based on their respective time outstanding
during such year.
 
   The Trust 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.'
 
Income taxes
 
   The Trust is treated as a partnership for Federal income tax purposes. As
such, the Trust 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 Interest holders. The Trust may be subject to other
state and local taxes in jurisdictions in which it operates.
 
                                       5
<PAGE>
Profit and loss allocation, subscriptions, distributions and redemptions
 
   Net realized profits or losses for tax purposes are allocated first to
Interest holders who redeem Interests to the extent the amounts received on
redemption are greater than or are less than the amounts paid for the redeemed
Interests by the Interest holders. Net realized profits or losses remaining
after these allocations are allocated to each Interest holder in proportion to
such Interest holder's capital account at month-end. Net income or loss for
financial reporting purposes is allocated monthly to all Interest holders on a
pro rata basis based on each Interest holder's number of Interests outstanding
during the month.
 
   Distributions (other than redemptions of Interests) are made at the sole
discretion of the Managing Owner on a pro rata basis in accordance with the
respective capital accounts of the Interest holders. No distributions have been
made since inception.
 
   Additional Interests were offered monthly at their month-end NAV per Interest
until the continuous offering period expired on August 31, 1996 as further
discussed in Note A.
 
   The Trust Agreement provides that an Interest holder may redeem its Interests
as of the last business day of any full calendar quarter at the then current NAV
per Interest.
 
New Accounting Guidance
 
   In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities ('SFAS 133'),
which the Trust is required to adopt effective January 1, 2000. SFAS 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. The Trust does not believe the
effect of adoption will be material.
 
C. Fees
 
Organizational and general and administrative costs
 
   PSI or its affiliates paid the costs of organizing the Trust and offering its
Interests and pay the routine operational, administrative, legal and auditing
expenses.
 
Management and incentive fees
 
   The Trust pays the Trading Manager a monthly management fee equal to 1/3 of
1% (a 4% annual rate) of the Trust's NAV as of the end of each month.
 
   In addition, the Trust 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 Trust, the Managing Owner and the Trading Manager).
 
Commissions
 
   The Managing Owner, on behalf of the Trust, entered into an agreement with
PSI as commodity broker whereby the Trust pays a fixed monthly fee for brokerage
services rendered. The monthly fee equals .64583 of 1% (7.75% per annum) of the
Trust's NAV as of the first day of each month. From this fee, PSI pays all of
the Trust's execution (including floor brokerage expenses and NFA, clearing and
exchange fees) and account maintenance costs.
 
D. Related Parties
 
   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
communications, printing and other administrative services. Except for costs
related to brokerage services, PSI or its affiliates pay the costs of these
services in addition to costs of organizing the Trust and offering its Interests
as well as the routine operational, administrative, legal and auditing fees.
 
   The costs charged to the Trust for brokerage services for the years ended
December 31, 1998, 1997 and 1996 were $4,666,065, $5,289,700 and $4,747,920,
respectively.
 
   The Trust's assets are maintained either in trading or cash accounts with
PSI, the Trust's commodity broker, or for margin purposes, with the various
exchanges on which the Trust is permitted to trade. PSI credits the Trust
monthly with 100% of the interest it earns on the net assets in these accounts.
 
                                       6
<PAGE>
   The Trust, 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 Trust pursuant to a line of credit. PSI may require that
collateral be posted against the marked-to-market position of the Trust.
 
   As of December 31, 1998, a non-U.S. affiliate of the Managing Owner owns
2,463.953 Limited Interests of the Trust.
 
E. Income Taxes
 
   There have been no differences between the tax basis and book basis of
Interest holders' capital since inception of the Trust.
 
F. Credit and Market Risk
 
   Since the Trust's business is to trade futures and forward (including foreign
exchange transactions) contracts, its capital is at risk due to changes in the
value of these contracts (market risk) or the inability of counterparties to
perform under the terms of the contracts (credit risk).
 
   Futures and forward 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 Trust's unrealized gain
(loss) on open commodity positions reflected in the statements of financial
condition. The Trust's exposure to market risk is influenced by a number of
factors including the relationships among the contracts held by the Trust as
well as the liquidity of the markets in which the contracts are traded.
 
   Futures 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 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 Trust must rely solely on the credit of its broker (PSI) with respect to
forward transactions. The Trust 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 Managing Owner attempts to minimize both credit and market risks by
requiring the Trust's 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 (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. The Managing Owner 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 Trust.
 
   PSI, 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 PSI. At December 31, 1998, such segregated assets totalled $47,295,189. Part
30.7 of the CFTC regulations also requires PSI to secure assets of the Trust
related to foreign futures trading which totalled $14,585,018 at December 31,
1998. There are no segregation requirements for assets related to forward
trading.
 
   As of December 31, 1998, the Trust's open futures and forward contracts
mature within one year.
 
                                       7
<PAGE>
   At December 31, 1998 and 1997, gross contract amounts of open futures and
forward contracts are:
 
<TABLE>
<CAPTION>
                                                       1998             1997
                                                   ------------     ------------
<S>                                                <C>              <C>
Financial Futures Contracts:
  Commitments to purchase                          $241,713,301     $323,162,224
  Commitments to sell                               450,175,973      164,238,663
Currency Futures Contracts:
  Commitments to purchase                            29,926,525               --
  Commitments to sell                                22,716,988               --
Other Futures Contracts:
  Commitments to purchase                             2,666,083        9,518,584
  Commitments to sell                                15,300,056       32,427,955
Currency Forward Contracts:
  Commitments to purchase                               464,787       19,553,488
  Commitments to sell                                 7,297,275       80,175,259
</TABLE>
 
   The gross contract amounts represent the Trust's potential involvement in a
particular class of financial instrument (if it were to take or make delivery on
an underlying futures or forward contract). The gross contract amounts
significantly exceed the future cash requirements as the Trust 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
Trust 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 Trust'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 Trust's potential involvement is
to make delivery of an underlying commodity at the contract price; therefore, it
must repurchase the contract at prevailing market prices.
 
   At December 31, 1998 and 1997, the fair value of open futures and forward
contracts was:
 
<TABLE>
<CAPTION>
                                            1998                                    1997
                            -------------------------------------   -------------------------------------
                                 Assets            Liabilities           Assets            Liabilities
                            -----------------   -----------------   -----------------   -----------------
<S>                         <C>                 <C>                 <C>                 <C>
Futures Contracts:
  Domestic exchanges
     Financial                 $    59,531         $   607,294         $   436,575         $        --
     Currencies                    969,688             187,500                  --                  --
     Other                         589,283             134,120           2,522,268             137,955
  Foreign exchanges
     Financial                   5,991,154             385,014           1,204,856             371,572
     Other                         114,259              11,014              72,375               3,475
Forward Contracts:
  Currencies                         5,365             207,126           1,538,801             814,847
                            -----------------   -----------------   -----------------   -----------------
                               $ 7,729,280         $ 1,532,068         $ 5,774,875         $ 1,327,849
                            -----------------   -----------------   -----------------   -----------------
                            -----------------   -----------------   -----------------   -----------------
</TABLE>
 
                                       8
<PAGE>
   The following table presents the average fair value of futures and forward
contracts during the years ended December 31, 1998 and 1997, respectively.
 
<TABLE>
<CAPTION>
                                            1998                                      1997
<S>                        <C>                  <C>                  <C>                  <C>
                                Assets             Liabilities            Assets             Liabilities
                           -----------------    -----------------    -----------------    -----------------
Futures Contracts:
  Domestic exchanges
     Financial                $   744,665          $   152,149          $   559,707          $    63,625
     Currencies                    74,591               21,197                   --                   --
     Other                        832,436              231,205            1,147,030              275,922
  Foreign exchanges
     Financial                  2,557,314              319,871            1,917,123              296,742
     Other                         74,156               26,229               23,147               14,578
Forward Contracts:
     Currencies                 1,813,641            1,709,484            2,112,523            1,336,640
                           -----------------    -----------------    -----------------    -----------------
                              $ 6,096,803          $ 2,460,135          $ 5,759,530          $ 1,987,507
                           -----------------    -----------------    -----------------    -----------------
                           -----------------    -----------------    -----------------    -----------------
</TABLE>
 
   The following table presents the trading revenues from futures and forward
contracts during the years ended December 31, 1998, 1997 and 1996, respectively.
 
<TABLE>
<CAPTION>
                                               1998            1997            1996
                                            -----------     -----------     -----------
<S>                                         <C>             <C>             <C>
Futures Contracts:
  Domestic exchanges
     Financial                              $   748,929     $ 1,108,889     $   746,240
     Currencies                                 435,938              --              --
     Other                                   (2,713,903)     (1,144,183)      4,352,894
  Foreign exchanges
     Financial                                9,093,501       5,491,781       7,931,309
     Other                                      405,655        (297,738)         (7,312)
Forward Contracts:
     Currencies                              (1,744,124)      5,054,532       8,380,164
                                            -----------     -----------     -----------
                                            $ 6,225,996     $10,213,281     $21,403,295
                                            -----------     -----------     -----------
                                            -----------     -----------     -----------
</TABLE>
                                       9
<PAGE>
                          DIVERSIFIED FUTURES TRUST I
                          (a Delaware Business Trust)
               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS
 
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.
 
   At December 31, 1998, 100% of the Trust's net assets were allocated to
commodities trading. A significant portion of the net assets was held in cash
which is 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. PSI credits the Trust monthly with
100% of the interest it earns on the net assets in these accounts.
 
   The commodities contracts are subject to periods of illiquidity because of
market conditions, regulatory considerations and other reasons. For example,
commodity exchanges limit fluctuations in certain commodity futures contract
prices during a single day by regulations referred to as 'daily limits.' During
a single day, no trades may be executed at prices beyond the daily limit. Once
the price of a futures contract for a particular commodity has increased or
decreased by an amount equal to the daily limit, positions in the commodity can
neither be taken nor liquidated unless traders are willing to effect trades at
or within the limit. Commodity futures prices have occasionally moved the daily
limit for several consecutive days with little or no trading. Such market
conditions could prevent the 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
relationship 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 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's Trading Manager to abide by various trading limitations
and policies. See Note F to the financial statements for a further discussion on
the credit and market risks associated with the Trust's futures and forward
contracts.
 
   Redemptions of Limited Interests for the years ended December 31, 1998, 1997
and 1996 were $10,805,756, $9,412,151 and $13,726,923, respectively. Redemptions
of General Interests for the years ended December 31, 1998, 1997 and 1996 were
$109,110, $95,125 and $95,780, respectively. Redemptions of Limited and General
Interests from the commencement of operations, January 5, 1995, to December 31,
1998 totalled $42,563,023 and $300,015, respectively. Future redemptions will
impact the amount of funds available for investment in commodity contracts in
subsequent periods.
 
   The Trust does not have, nor does it expect to have, any capital assets.
 
Results of Operations
 
   The net asset value per Interest as of December 31, 1998 was $200.91, an
increase of 4.80% from the December 31, 1997 net asset value per Interest of
$191.70, which was an increase of 8.82% from the December 31, 1996 net asset
value per Interest of $176.16. The MAR (Managed Account Reports) Fund/Pool
Index, which tracked the performance of 281 and 315 futures funds in 1998 and
1997, returned 6.57% and 9.34%, respectively. Past performance is not
necessarily indicative of future results.
 
   The Trust's positive performance in 1998 resulted from gains in the
financial, energy, grain and meat sectors. Losses were incurred in the metal,
index, currency, and soft sectors.
 
   The Trust profited significantly from financial sector positions. Trades in
Japanese government bonds ('JGB') profited as the result of economic and
political events in the Far East. JGB prices reached record
 
                                       10
 <PAGE>
<PAGE>
highs in response to mid-year reports that the Japanese economy had ceased to
stabilize. Other profitable positions included 10-year U.S. Treasury, German,
and short-term British bonds.
 
   Energy sector positions also achieved gains for the Trust. Positions in most
energy markets, including light crude and crude oil, were profitable as prices
continued to reflect ample inventories worldwide.
 
   The metal sector positions in gold, silver, and copper incurred the largest
losses for the Trust. Silver positions lost value as declining warehouse
inventories caused prices to rise. In the index sector, volatile global stock
markets--affecting positions in the Nikkei Dow (Japan), and SFE index
(Australia)--fueled losses for the Trust.
 
   Additionally, short coffee positions in the soft sector detracted from the
Trust's performance as a result of storm damage in Central America.
 
   Interest income is earned on the net assets held at PSI and, therefore,
varies monthly according to interest rates, trading performance, and
redemptions. Interest income decreased approximately $439,000 for the year ended
December 31, 1998 compared to 1997. This decrease was primarily due to lower net
assets as a result of redemptions and weak trading performance during the first
six months of 1998. Interest income increased approximately $659,000 for the
year ended December 31, 1997 compared to 1996, due to higher average net assets
in 1997 versus 1996. During 1996, net assets continuously increased as a result
of additional contributions through August as well as strong trading performance
beginning in September. In 1997, net assets remained relatively stable as a
result of strong trading performance, particularly during the second half of
1997, offset by redemptions.
 
   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 decreased approximately $624,000 for the year ended
December 31, 1998 compared to 1997. This decrease was primarily due to lower
monthly net asset values as a result of redemptions and weak trading performance
during the first six months of 1998. Commissions increased approximately
$542,000 for the year ended December 31, 1997 compared to 1996. This increase
was due to higher net assets in 1997 versus 1996 as described in the interest
income discussion above.
 
   All trading decisions for the Trust are made by John W. Henry & Company, Inc.
(the 'Trading Manager'). 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 decreased approximately $337,000
for the year ended December 31, 1998 versus 1997, but increased approximately
$232,000 for the year ended December 31, 1997 versus 1996 for the same reasons
commissions fluctuated as discussed above.
 
   Incentive fees are based on the New High Net Trading Profits generated by the
Trading Manager, as defined in the Advisory Agreement among the Trust, the
Managing Owner and the Trading Manager. Trading performance resulted in
incentive fees of approximately $98,000, $376,000 and $2,099,000 for the years
ended December 31, 1998, 1997 and 1996, respectively.
 
New Accounting Guidance
 
   In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities ('SFAS 133'),
which the Trust is required to adopt effective January 1, 2000. SFAS 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. The Trust does not believe the
effect of adoption will be material.
 
Year 2000 Risk
 
   Investment funds, like financial and business organizations and individuals
around the world, depend on the smooth functioning of computer systems. The year
2000, however, holds the potential for a significant disruption in the operation
of these systems. Many computer systems in use today cannot distinguish the year
2000 from the year 1900 because of the way in which dates are encoded. This is
commonly known as the 'Year 2000 Problem.' The Trust could be adversely affected
if computer systems used by it or any third party with whom it has a material
relationship do not properly perform date comparisons and calculations
concerning dates on or after January 1, 2000, which in turn could have a
negative impact on the handling or determination of trades and prices and the
services provided to the Trust.
 
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   The Trust has engaged third parties to perform primarily all of the services
it needs. Accordingly, the Trust's Year 2000 Problems, if any, are not its own
but those that center on the ability of the Managing Owner, Prudential
Securities Incorporated, its Trading Manager and any other third party with whom
the Trust has a material relationship (individually, a 'Service Provider,' and
collectively, the 'Service Providers') to address and correct problems that may
cause their systems not to function as intended as a result of the Year 2000
Problem.
 
   The Trust has received assurances from its Managing Owner and Prudential
Securities Incorporated that they anticipate being able to continue their
operations without any material adverse impact from the Year 2000 Problem.
Although other Service Providers, such as the Trust's Trading Manager, have not
made similar representations to the Trust, the Trust has no reason to believe
that these Service Providers will not take steps necessary to avoid any material
adverse impact on the Trust, though there can be no assurance that this will be
the case. The costs or consequences of incomplete or untimely resolution of the
Year 2000 Problem by the Service Providers, or by governments, exchanges,
clearinghouses, regulators, banks and other third parties, are unknown to the
Trust at this time, but could have a material adverse impact on the operations
of the Trust. The Managing Owner will promptly notify the Trust's limited owners
in the event it determines that the Year 2000 Problem will have a material
adverse impact on the Trust's operations.
 
   The Trust has considered various alternatives as a contingency plan. If the
Year 2000 Problems are systemic, for example, the federal government, the
banking system, exchanges or utilities are affected materially, there may no
adequate contingency plan for the Trust to follow other than to suspend
operations. If the Year 2000 Problems are related to one or more of the other
Service Providers selected by the Trust, the Trust believes that each such
Service Provider is prepared to address any Year 2000 Problems which arise that
could have a material adverse impact on the Trust's operations.
 
Inflation
 
   Inflation has had no material impact on operations or on the financial
condition of the Trust from inception through December 31, 1998.
 
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--------------------------------------------------------------------------------
 
      I hereby affirm that, to the best of my knowledge and belief, the
information contained herein relating to Diversified Futures Trust I is accurate
and complete.
 
     PRUDENTIAL SECURITIES
     FUTURES MANAGEMENT INC.
     (Managing Owner)
 
     By: Barbara J. Brooks
     Chief Financial Officer
--------------------------------------------------------------------------------
 
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                               OTHER INFORMATION
 
   The actual round-turn equivalent of brokerage commissions paid per contract
for the year ended December 31, 1998 was $112.
 
   The Trust's Annual Report on Form 10-K as filed with the Securities and
Exchange Commission is available to limited owners without charge upon written
request to:
 
        Diversified Futures Trust I
        P.O. Box 2016
        Peck Slip Station
        New York, New York 10272-2016
 
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Peck Slip Station                                   BULK RATE
P.O. Box 2016                                      U.S. POSTAGE
New York, NY 10272                                    PAID
                                                   Automatic Mail
DFT1/17152