<PAGE>
                                                  1996
--------------------------------------------------------------------------------
Diversif ied Futures Trust I                      Annual
                                                  Report

<PAGE>
                          DIVERSIFIED FUTURES TRUST I
    LETTER TO THE INTEREST HOLDERS FOR THE YEAR ENDED DECEMBER 31, 1996


                                       1
<PAGE>
                         1177 Avenue of the Americas      Telephone 212 596 7000
                         New York, NY 10036               Facsimile 212 596 8910

Price Waterhouse LLP                                      (LOGO)

                       Report of Independent Accountants
 
January 29, 1997
 
To the Interestholders of
Diversified Futures Trust I
 
   In our opinion, the accompanying statement of financial condition and the
related statements of operations and of changes in trust capital present fairly,
in all material respects, the financial position of Diversified Futures Trust I
(the ``Trust'') at December 31, 1996, and the results of its operations and the
changes in its trust capital for the year then ended, 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 audit. We conducted our audit
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 audit provides a
reasonable basis for the opinion expressed above.
 
/s/ Price Waterhouse LLP
 
                                       2
<PAGE>
Deloitte &
   Touche LLP
                        --------------------------------------------------------
                        Two World Financial Center     Telephone: (212) 436-2000
                        New York, New York 10281-1414  Facsimile: (212) 436-5000

 
                          INDEPENDENT AUDITORS' REPORT
 
To the Interestholders of
Diversified Futures Trust I
 
   We have audited the accompanying statement of financial condition of
Diversified Futures Trust I as of December 31, 1995, and the related statements
of operations and changes in trust capital for the period from January 5, 1995
(commencement of operations) to December 31, 1995. These financial statements
are the responsibility of the Trust's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
 
   We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
   In our opinion, such financial statements present fairly, in all material
respects, the financial position of Diversified Futures Trust I as of December
31, 1995, and the results of its operations for the period from January 5, 1995
(commencement of operations) to December 31, 1995 in conformity with generally
accepted accounting principles.
 
/s/ Deloitte & Touche LLP

January 29, 1996

-----------------
Deloitte Touche
Tohmatsu
International
-----------------
                                       2A
<PAGE>
 
                          DIVERSIFIED FUTURES TRUST I
                          (a Delaware Business Trust)
                       STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
                                                                               December 31,
                                                                      -------------------------------
                                                                          1996              1995
<S>                                                                   <C>               <C>
-----------------------------------------------------------------------------------------------------
ASSETS
Equity in commodity trading accounts:
Cash                                                                   $79,506,881      $  46,513,372
Net unrealized gain on open commodity positions                          1,513,343          2,991,304
                                                                      -------------     -------------
Net equity                                                              81,020,224         49,504,676
Other receivable                                                            20,607             14,831
                                                                      -------------     -------------
Total assets                                                           $81,040,831      $  49,519,507
                                                                      -------------     -------------
                                                                      -------------     -------------
LIABILITIES AND TRUST CAPITAL
Liabilities
Redemptions payable                                                    $ 7,223,685      $   2,658,946
Management fee payable                                                     270,136            165,065
Incentive fee payable                                                    2,055,497                 --
                                                                      -------------     -------------
Total liabilities                                                        9,549,318          2,824,011
                                                                      -------------     -------------
Commitments
Trust capital
Limited interests (401,784.703 and 323,307.195 interests
outstanding)                                                            70,776,499         46,119,407
General interests (4,059 and 4,038.53 interests outstanding)               715,014            576,089
                                                                      -------------     -------------
Total trust capital                                                     71,491,513         46,695,496
                                                                      -------------     -------------
Total liabilities and trust capital                                    $81,040,831      $  49,519,507
                                                                      -------------     -------------
                                                                      -------------     -------------
Net asset value per limited and general interests (``Interests'')      $    176.16      $      142.65
                                                                      -------------     -------------
                                                                      -------------     -------------
-----------------------------------------------------------------------------------------------------
                   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>
                                                                                 Period from
                                                                               January 5, 1995
                                                                               (commencement of
                                                          Year Ended            operations) to
                                                         December 31,            December 31,
                                                             1996                    1995
<S>                                                      <C>              <C>
----------------------------------------------------------------------------------------------------
REVENUES
Net realized gain on commodity transactions              $ 22,881,256            $ 13,730,954
Change in net unrealized gain on open commodity
  positions                                                (1,477,961)              2,991,304
Interest income                                             3,082,397               2,281,360
                                                         ------------     --------------------------
                                                           24,485,692              19,003,618
                                                         ------------     --------------------------
EXPENSES
Commissions                                                 4,747,920               3,084,349
Management fees                                             2,529,237               1,647,574
Incentive fees                                              2,098,515               1,841,206
                                                         ------------     --------------------------
                                                            9,375,672               6,573,129
                                                         ------------     --------------------------
Net income                                               $ 15,110,020            $ 12,430,489
                                                         ------------     --------------------------
                                                         ------------     --------------------------
ALLOCATION OF NET INCOME
Limited interests                                        $ 14,958,815            $ 12,254,400
                                                         ------------     --------------------------
                                                         ------------     --------------------------
General interests                                        $    151,205            $    176,089
                                                         ------------     --------------------------
                                                         ------------     --------------------------
NET INCOME PER WEIGHTED AVERAGE LIMITED AND GENERAL
INTEREST
Net income per weighted average limited and general
  interest                                               $      36.56            $      40.56
                                                         ------------     --------------------------
                                                         ------------     --------------------------
Weighted average number of limited and general
  interests outstanding                                   413,243.780             306,476.399
                                                         ------------     --------------------------
                                                         ------------     --------------------------
----------------------------------------------------------------------------------------------------
</TABLE>
 
                     STATEMENTS OF CHANGES IN TRUST CAPITAL
<TABLE>
<CAPTION>
                                                              LIMITED        GENERAL
                                             INTERESTS       INTERESTS      INTERESTS        TOTAL
<S>                                         <C>             <C>             <C>           <C>
-----------------------------------------------------------------------------------------------------
Initial trust capital--December 31, 1994         10.000     $        --     $  1,000      $     1,000
Contributions                               388,899.267      42,483,200      399,000       42,882,200
Net income                                           --      12,254,400      176,089       12,430,489
Redemptions                                 (61,563.542)     (8,618,193)          --       (8,618,193)
                                            -----------     -----------     ---------     -----------
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
                                            -----------     -----------     ---------     -----------
                                            -----------     -----------     ---------     -----------
-----------------------------------------------------------------------------------------------------
                   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 & Co., Inc.
(the ``Trading Manager''). The Trading Manager was initially allocated the
Trust's assets to be traded pursuant to five of its trading programs as follows:
50% to the Financial and Metals Portfolio; 20% to the Global Financial
Portfolio; 20% to the Original Investment Program; 5% to the G-7 Currency
Portfolio; and 5% to the Yen Financial Portfolio. The Trading Manager may alter
the relative percentages only if the Managing Owner does not object to any such
alteration. No alterations have been made to date; however, the relative
percentages change from time to time as a result of the performance of the
various trading programs. 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 period end, adjusted proportionately
for Interests subscribed and redeemed based on their respective time outstanding
during such period.
 
   The Partnership has elected not to provide a Statement of Cash Flows as
permitted by Statement of Financial Accounting Standards No. 102, ``Statement of
Cash Flows--Exemption of Certain Enterprises and Classification of Cash Flows
from Certain Securities Acquired for Resale.''
 
                                       5
<PAGE>
 
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.
 
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 year-end. Net income or loss for
financial reporting purposes is allocated monthly for all Interest holders on a
pro rata basis based on each Interest holder's number of Interests outstanding
during the month.
 
   Distributions (other than on 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 (beginning with the end
of the first full calendar quarter of the Trust's operations, which was June 30,
1995) at the then current NAV per Interest.
 
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 between 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 (i.e., 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.
 
                                       6
<PAGE>
 
   The costs charged to the Trust for brokerage services for the year ended
December 31, 1996 and for the period from January 5, 1995 (commencement of
operations) to December 31, 1995 were $4,747,920 and $3,084,349, respectively.
 
   The Trust maintains its trading and cash accounts at PSI, the Trust's
commodity broker. A significant portion of the Trust's cash is utilized for
margin purposes for the Trust's commodity trading activities. PSI credits the
Trust monthly with 100% of the interest it earns on the equity in these
accounts.
 
   In connection with the Trust's interbank transactions, PSI engages in foreign
currency forward transactions with the Trust and an affiliate of PSI who, as
principal, attempts to earn a profit on the bid-ask spreads (which must be
competitive) on any foreign currency forward transactions entered into between
the Trust and PSI, on the one hand and, PSI and such affiliate on the other. In
connection with its trading of foreign currencies in the interbank market, PSI
may arrange bank lines of credit at major international banks. To the extent
such lines of credit are arranged, PSI does not charge the Partnership for
maintaining such lines of credit, but requires margin deposits with respect to
forward contract transactions.
 
   As of December 31, 1996, a non-U.S. affiliate of the Managing Owner owns
5,170.071 Limited Interests of the Trust.
 
E. Income Taxes
 
   There are no differences between the tax basis and book basis of Interest
holders' capital for the year ended December 31, 1996 and for the period from
January 5, 1995 (commencement of operations) to December 31, 1995.
 
F. Credit and Market Risk
 
   Since the Trust's business is to trade futures, forward and options
contracts, its capital is at risk due to changes in the value of these contracts
(market risk) or the inability of counterparties to perform under the terms of
the contracts (credit risk).
 
   Futures, forward and options contracts involve varying degrees of off-balance
sheet risk; and changes in the level of 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 and options contracts are traded on organized exchanges and are thus
distinguished from forward contracts which are entered into privately by the
parties. The credit risks associated with futures and options contracts are
typically perceived to be less than those associated with forward contracts,
because exchanges typically provide clearinghouse arrangements in which the
collective credit (subject to certain limitations) of the members of the
exchanges is pledged to support the financial integrity of the exchange. On the
other hand, the 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 at 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 and options 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 and options trading and is not to commingle
such assets with other assets of PSI. At December 31, 1996 and 1995, such
segregated assets totalled $53,711,518 and $38,453,139, respectively.
                                       7
<PAGE>
Part 30.7 of the CFTC regulations also requires PSI to secure assets of the
Trust related to foreign futures and options trading which totalled $26,551,088
and $11,074,805 at December 31, 1996 and 1995 respectively. There are no
segregation requirements for assets related to forward trading.
 
   As of December 31, 1996 and 1995, the Trust's open forward and futures
contracts mature within one year.
 
   At December 31, 1996 and 1995, gross contract amounts of open futures and
forward contracts are:
 
<TABLE>
<CAPTION>
                                                   December 31,     December 31,
                                                       1996             1995
                                                   ------------     ------------
<S>                                                <C>              <C>
Financial Futures Contracts:
  Commitments to purchase                          $246,536,386     $355,381,599
  Commitments to sell                              $ 85,149,239     $ 43,243,625
Currency Forward Contracts:
  Commitments to purchase                          $ 55,393,671     $  2,211,904
  Commitments to sell                              $ 61,497,457     $ 65,731,133
Other Futures Contracts:
  Commitments to purchase                          $  6,735,960     $  9,454,717
  Commitments to sell                              $ 25,980,949     $ 12,669,806
</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, 1996 and 1995, the fair value of open futures and forward
contracts was:
 
<TABLE>
<CAPTION>
                                      December 31, 1996                       December 31, 1995
                            -------------------------------------   -------------------------------------
<S>                         <C>                 <C>                 <C>                 <C>
                                         Fair Value                              Fair Value
                            -------------------------------------   -------------------------------------
                                 Assets            Liabilities           Assets            Liabilities
                            -----------------   -----------------   -----------------   -----------------
Futures Contracts:
  Domestic exchanges
     Financial                 $    66,450         $   175,344         $   780,969          $      --
     Other                       1,219,801              58,011           1,264,572              5,200
  Foreign exchanges
     Financial                     542,415             847,344             975,707              4,182
     Other                           7,758                  --               2,706                 --
Forward Contracts:
  Currencies                     1,592,852             835,234             597,726            620,994
                            -----------------   -----------------   -----------------   -----------------
                               $ 3,429,276         $ 1,915,933         $ 3,621,680          $ 630,376
                            -----------------   -----------------   -----------------   -----------------
                            -----------------   -----------------   -----------------   -----------------
</TABLE>
 
                                       8
<PAGE>
 
   The following table presents the average fair value of futures and options
contracts during the years ended December 31, 1996 and 1995, respectively.
 
<TABLE>
<CAPTION>
                                         Year ended                                Year ended
                                     December 31, 1996                         December 31, 1995
                           --------------------------------------    --------------------------------------
<S>                        <C>                  <C>                  <C>                  <C>
                                     Average Fair Value                        Average Fair Value
                           --------------------------------------    --------------------------------------
                                Assets             Liabilities            Assets             Liabilities
                           -----------------    -----------------    -----------------    -----------------
Futures Contracts:
  Domestic exchanges
     Financial                $   687,217          $   142,565          $   368,334          $    31,913
     Currencies                        --                   --            1,227,367              122,872
     Other                      1,170,685              209,225              591,415              142,176
  Foreign exchanges
     Financial                  2,812,953              208,886              675,573               58,066
     Other                         15,044                3,121                7,333                3,210
Forward Contracts:
     Currencies                 2,543,797              761,951            1,818,978              945,462
                           -----------------    -----------------    -----------------    -----------------
                              $ 7,229,696          $ 1,325,748          $ 4,689,000          $ 1,303,699
                           -----------------    -----------------    -----------------    -----------------
                           -----------------    -----------------    -----------------    -----------------
</TABLE>
 
   The following table presents the net realized gains (loses) and the change in
net unrealized gains/losses of futures and options contracts during the years
ended December 31, 1996 and 1995, respectively:
 
<TABLE>
<CAPTION>
                                                Year ended                                      Year ended
                                             December 31, 1996                               December 31, 1995
                               ---------------------------------------------   ---------------------------------------------
<S>                            <C>              <C>              <C>           <C>              <C>              <C>
                                                  Change in                                       Change in
                                Net Realized    Net Unrealized                  Net Realized    Net Unrealized
                               Gains (Losses)    Gains/Losses       Total      Gains (Losses)    Gains/Losses       Total
                               --------------   --------------   -----------   --------------   --------------   -----------
Futures Contracts:
  Domestic exchanges
    Financial                   $  1,636,103     $   (889,863)   $   746,240    $  2,181,679      $  780,969     $ 2,962,648
    Currencies                            --               --             --       5,428,763              --       5,428,763
    Other                          4,450,476          (97,582)     4,352,894      (2,467,767)      1,259,372      (1,208,395)
  Foreign exchanges
    Financial                      9,207,763       (1,276,454)     7,931,309       4,191,506         971,524       5,163,030
    Other                            (12,364)           5,052         (7,312)        (54,848)          2,706         (52,142)
Forward Contracts:
    Currencies                     7,599,278          780,886      8,380,164       4,451,621         (23,267)      4,428,354
                               --------------   --------------   -----------   --------------   --------------   -----------
                                $ 22,881,256     $ (1,477,961)   $21,403,295    $ 13,730,954      $2,991,304     $16,722,258
                               --------------   --------------   -----------   --------------   --------------   -----------
                               --------------   --------------   -----------   --------------   --------------   -----------
</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 pursuant
to the terms of the offering on August 31, 1996.
 
   At December 31, 1996, 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 equity 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, forward and options
contracts, its capital is at risk due to changes in the value of these contracts
(market risk) or the inability of counterparties to perform under the terms of
the contracts (credit risk). The 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, forward and
options contracts.
 
   Redemptions of Limited Interests for the year ended December 31, 1996 and for
the period from January 5, 1995 (commencement of operations) to December 31,
1995 were $13,726,923 and $8,618,193, respectively. Redemptions of General
Interests for the year ended December 31, 1996 were $95,780. Redemptions of
Limited and General Interests from the commencement of operations, January 5,
1995, to December 31, 1996 were $22,345,116 and $95,780, respectively.
Additional contributions raised through the continuous offering period, which
began on January 5, 1995 and expired on August 31, 1996, resulted in additional
gross proceeds to the Trust of $23,508,700 during the year ended December 31,
1996 and $41,129,100 from the commencement of operations to August 31, 1996.
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, 1996 was $176.16, an
increase of 23.49% from the December 31, 1995 net asset value per Interest of
$142.65, which was an increase of 42.65% from the Trust's initial net asset
value per Interest of $100. The Trust outperformed the MAR (Managed Account
Reports) Fund/Pool Index return in 1996 of 11.89%. The MAR tracked the
performance of 420 futures funds in 1996. Past performance is not necessarily
indicative of future results.
 
   The global interest rate, currency and metal sectors were solid performers
for 1996. Trends in world currency markets reflected economic fundamentals as
well as political developments, particularly the progress of the planned
European Monetary Union. Global bond markets gained momentum in the second half
of the year due to the low interest rate policies set by the U.S. Federal
Reserve Bank and the central banks of Europe. After reaching a five year high in
February, gold prices began a relentless decline throughout the year.
 
                                       10
<PAGE>
 
   Interest income earned and commissions and management fees incurred during
the year ended December 31, 1996 were not comparable to the prior period, and
increased in connection with the increase in traded assets as a result of the
additional contributions discussed in Liquidty and Capital Resources above.
 
   Interest income is earned on deposits held at PSI and, therefore, varies
monthly according to interest rates, trading performance, contributions and
redemptions. Interest income was approximately $3,082,000 and $2,281,000 for the
year ended December 31, 1996 and for the period from January 5, 1995
(commencement of operations) to December 31, 1995, respectively. The increase in
interest income during 1996 was offset, in part, by a decline in interest rates
in 1996 versus 1995.
 
   Commissions are calculated on the Trust's net asset value at the beginning of
each month and, therefore, vary according to trading performance, contributions
and redemptions. Commissions were approximately $4,748,000 and $3,084,000 for
the year ended December, 31, 1996 and for the period from January 5, 1995 to
December 31, 1995, respectively.
 
   All trading decisions for the Trust are made by John W. Henry & Co., Inc.
Management fees are calculated on the Trust's net asset value at the end of each
month and, therefore, are affected by trading performance, contributions and
redemptions. Management fees were approximately $2,529,000 and $1,648,000 for
the year ended December 31, 1996 and for the period from January 5, 1995 to
December 31, 1995, respectively.
 
   Incentive fees are based on the New High Net Trading Profits generated by the
Trading Manager, as defined in the Advisory Agreement between the Trust, the
Managing Owner and the Trading Manager. Incentive fees of approximately
$2,099,000 and $1,841,000 resulted from strong trading performance for the year
ended December 31, 1996 and for the period from January 5, 1995 through December
31, 1995, respectively.
 
Inflation
 
   Inflation has had no material impact on operations or on the financial
condition of the Trust from inception through December 31, 1996.
 
                                       11
<PAGE>
 
--------------------------------------------------------------------------------
      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
     Treasurer and Chief Financial Officer
--------------------------------------------------------------------------------
 
                                       12
<PAGE>
 
                               OTHER INFORMATION
 
   The actual round-turn equivalent of brokerage commissions paid per contract
for the year ended December 31, 1996 was $126.
 
   The Trust's Annual Report on Form 10-K as filed with the Securities and
Exchange Commission is available to limited Interest holders without charge upon
written request to:
 
       Diversified Futures Trust I
        P.O. Box 2016
        Peck Slip Station
        New York, New York 10272-2016
 
                                       13
<PAGE>
Peck Slip Station                                  BULK RATE
P.O. Box 2016                                     U.S. POSTAGE
New York, NY 10272                                    PAID
                                                  Automatic Mail
 
PBDF1/171534