<PAGE>

                                                         1997
--------------------------------------------------------------------------------
Diversified Futures Trust I
                                                         Annual
                                                         Report
<PAGE>
                          DIVERSIFIED FUTURES TRUST I

                                                                      March 1998
Dear Interest Holder:

   Enclosed is the Annual Report of Diversified Futures Trust I (the 'Trust')
for the year ended December 31, 1997, including audited financial statements for
the Trust which contain, among other things, the operating results for the year.

   The Trust posted a gain of 8.82% in 1997, compared to the MAR (Managed
Account Reports) Fund/Pool Index return of 9.34%. MAR tracked the performance of
315 futures funds in 1997. At year-end, the Trust's net asset value per interest
was $191.70*. Past performance is not necessarily indicative of future results.

   1997 was a profitable year for the Trust as gains were seen in the financial,
currency, metal and index sectors. Gains were somewhat offset by losses in the
energy, soft and grain sectors. Further information with respect to the Trust's
performance is included in the section of the report entitled 'Management's
Discussion and Analysis of Financial Condition and Results of Operations.'

   John W. Henry & Company, Inc. ('JWH') had been trading the Trust's assets
pursuant to five of its trading programs until April 1, 1997 when the Managing
Owner reallocated the portion of the Trust's assets which were traded pursuant
to JWH's Yen Financial Portfolio into its G-7 Currency Portfolio. We believe
that this reallocation more effectively compliments the performance of the
Trust.

   We value your continued participation as an Interest Holder of the Trust.
Should you have any questions, please contact your Prudential Securities
Financial Advisor. For account status inquiries, contact Prudential Securities
Client Services at 1-800-535-2077.

Sincerely yours,

Thomas M. Lane, Jr.
President and Director
Prudential Securities Futures Management Inc.

* As of March 25, 1998 the estimated net asset value per interest was $177.73.

                                       1
<PAGE>
1177 Avenue of Americas
New York, NY 10036
Telephone 212 596-7000
Facsimile 212 596-8910
Price Waterhouse LLP (LOGO)

                       Report of Independent Accountants

January 26, 1998

To the Interestholders 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, 1997 and 1996, and the results of its operations for the years 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 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/ Price Waterhouse LLP
                                       2
<PAGE>
Deloitte & Touche LLP (LOGO)
Two World Financial Center
New York, NY 10281-1414
Telephone (212) 436-2000
Facsimile (212) 436-5000

                          INDEPENDENT AUDITORS' REPORT

To the Interestholders of
Diversified Futures Trust I

We have audited the accompanying statements of operations and of changes in
trust capital of Diversified Futures Trust I 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 audit.

We conducted our audit 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 audit provides a reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material
respects, the results of operations and changes in trust capital of Diversified
Futures Trust I 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
                                       2A
<PAGE>
                          DIVERSIFIED FUTURES TRUST I
                          (a Delaware Business Trust)
                       STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
                                                                               December 31,
                                                                      -------------------------------
                                                                          1997              1996
<S>                                                                   <C>               <C>
-----------------------------------------------------------------------------------------------------
ASSETS
Equity in commodity trading accounts:
Cash                                                                   $65,565,864      $  79,506,881
Net unrealized gain on open commodity positions                          4,447,026          1,513,343
                                                                      -------------     -------------
Net equity                                                              70,012,890         81,020,224
Other receivables                                                           11,866             20,607
                                                                      -------------     -------------
Total assets                                                           $70,024,756      $  81,040,831
                                                                      -------------     -------------
                                                                      -------------     -------------
LIABILITIES AND TRUST CAPITAL
Liabilities
Redemptions payable                                                    $ 1,973,508      $   7,223,685
Management fee payable                                                     233,415            270,136
Incentive fee payable                                                      305,704          2,055,497
                                                                      -------------     -------------
Total liabilities                                                        2,512,627          9,549,318
                                                                      -------------     -------------
Commitments

Trust capital
Limited interests (348,652.217 and 401,784.703 interests
outstanding)                                                            66,836,959         70,776,499
General interests (3,522 and 4,059 interests outstanding)                  675,170            715,014
                                                                      -------------     -------------
Total trust capital                                                     67,512,129         71,491,513
                                                                      -------------     -------------
Total liabilities and trust capital                                    $70,024,756      $  81,040,831
                                                                      -------------     -------------
                                                                      -------------     -------------

Net asset value per limited and general interests ('Interests')        $    191.70      $      176.16
                                                                      -------------     -------------
                                                                      -------------     -------------
-----------------------------------------------------------------------------------------------------
                  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 December 31,        operations) to
                                                    ----------------------------      December 31,
                                                        1997            1996              1995
<S>                                                 <C>             <C>             <C>
----------------------------------------------------------------------------------------------------
REVENUES
Net realized gain on commodity transactions         $  7,279,598    $ 22,881,256      $ 13,730,954
Change in net unrealized gain on open commodity
  positions                                            2,933,683      (1,477,961)        2,991,304
Interest income                                        3,741,838       3,082,397         2,281,360
                                                    ------------    ------------    ----------------
                                                      13,955,119      24,485,692        19,003,618
                                                    ------------    ------------    ----------------
EXPENSES
Commissions                                            5,289,700       4,747,920         3,084,349
Management fees                                        2,761,108       2,529,237         1,647,574
Incentive fees                                           376,419       2,098,515         1,841,206
                                                    ------------    ------------    ----------------
                                                       8,427,227       9,375,672         6,573,129
                                                    ------------    ------------    ----------------
Net income                                          $  5,527,892    $ 15,110,020      $ 12,430,489
                                                    ------------    ------------    ----------------
                                                    ------------    ------------    ----------------
ALLOCATION OF NET INCOME
Limited interests                                   $  5,472,611    $ 14,958,815      $ 12,254,400
                                                    ------------    ------------    ----------------
                                                    ------------    ------------    ----------------
General interests                                   $     55,281    $    151,205      $    176,089
                                                    ------------    ------------    ----------------
                                                    ------------    ------------    ----------------
NET INCOME PER WEIGHTED AVERAGE LIMITED AND
GENERAL INTEREST
Net income per weighted average limited and
  general interest                                  $      14.43    $      36.56      $      40.56
                                                    ------------    ------------    ----------------
                                                    ------------    ------------    ----------------
Weighted average number of limited and general
  interests outstanding                                  383,058         413,244           306,476
                                                    ------------    ------------    ----------------
                                                    ------------    ------------    ----------------
----------------------------------------------------------------------------------------------------
</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
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
                                            -----------     -----------     ---------     -----------
                                            -----------     -----------     ---------     -----------
-----------------------------------------------------------------------------------------------------
                  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 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 determined that its Yen Financial Portfolio no longer met its
original investment objectives and therefore, terminated its Yen Financial
Portfolio effective March 31, 1997. Accordingly, as of April 1, 1997, the
Managing Owner reallocated assets previously traded pursuant to the Yen
Financial Portfolio to the Trading Manager's G-7 Currency Portfolio, increasing
the percentage of the Trust's assets allocated to that program by 3%. The
Trading Manager may alter the relative percentages only if the Managing Owner
does not object to any such alteration. 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 month-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 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 (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 service for the years ended
December 31, 1997, 1996 and for the period from January 5, 1995 (commencement of
operations) to December 31, 1995 were $5,289,700, $4,747,920 and $3,084,349,
respectively

   The Trust maintains its trading and cash accounts at PSI, the Trust's
commodity broker. Except for the portion of assets that is deposited as margin
to maintain forward currency contract positions as further discussed below, the
Trust's assets are maintained either on deposit with PSI 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 the accounts.

   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, 1997, a non-U.S. affiliate of the Managing Owner owns
3,527.755 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 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, 1997 and 1996, such
segregated assets totalled $32,697,304 and $53,711,518, 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 $36,591,632
and $26,551,088 at December 31, 1997 and 1996, respectively. There are no
segregation requirements for assets related to forward trading.

   As of December 31, 1997, the Trust's open forward and futures contracts
mature within one year.

   At December 31, 1997 and 1996, gross contract amounts of open futures and
forward contracts are:

<TABLE>
<CAPTION>
                                                       1997             1996
                                                   ------------     ------------
<S>                                                <C>              <C>
Financial Futures Contracts:
  Commitments to purchase                          $323,162,224     $246,536,386
  Commitments to sell                              $164,238,663     $ 85,149,239
Currency Forward Contracts:
  Commitments to purchase                          $ 19,553,488     $ 55,393,671
  Commitments to sell                              $ 80,175,259     $ 61,497,457
Other Futures Contracts:
  Commitments to purchase                          $  9,518,584     $  6,735,960
  Commitments to sell                              $ 32,427,955     $ 25,980,949
</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, 1997 and 1996, the fair value of open futures and forward
contracts was:

<TABLE>
<CAPTION>
                                            1997                                    1996
                            -------------------------------------   -------------------------------------
                                 Assets            Liabilities           Assets            Liabilities
                            -----------------   -----------------   -----------------   -----------------
<S>                         <C>                 <C>                 <C>                 <C>
Futures Contracts:
  Domestic exchanges
     Financial                 $   436,575         $  --               $    66,450         $   175,344
     Other                       2,522,268             137,955           1,219,801              58,011
  Foreign exchanges
     Financial                   1,204,856             371,572             542,415             847,344
     Other                          72,375               3,475               7,758                  --
Forward Contracts:
  Currencies                     1,538,801             814,847           1,592,852             835,234
                            -----------------   -----------------   -----------------   -----------------
                               $ 5,774,875         $ 1,327,849         $ 3,429,276         $ 1,915,933
                            -----------------   -----------------   -----------------   -----------------
                            -----------------   -----------------   -----------------   -----------------
</TABLE>
                                       8
<PAGE>
   The following table presents the average fair value of futures and forward
contracts during the years ended December 31, 1997 and 1996, respectively.

<TABLE>
<CAPTION>
                                            1997                                      1996
                                Assets             Liabilities            Assets             Liabilities
                           -----------------    -----------------    -----------------    -----------------
<S>                        <C>                  <C>                  <C>                  <C>
Futures Contracts:
  Domestic exchanges
     Financial                $   559,707          $    63,625          $   687,217          $   142,565
     Other                      1,147,030              275,922            1,170,685              209,225
  Foreign exchanges
     Financial                  1,917,123              296,742            2,812,953              208,886
     Other                         23,147               14,578               15,044                3,121
Forward Contracts:
     Currencies                 2,112,523            1,336,640            2,543,797              761,951
                           -----------------    -----------------    -----------------    -----------------
                              $ 5,759,530          $ 1,987,507          $ 7,229,696          $ 1,325,748
                           -----------------    -----------------    -----------------    -----------------
                           -----------------    -----------------    -----------------    -----------------
</TABLE>

   The following table presents the trading revenues from futures and forward
contracts during the years ended December 31, 1997 and 1996 and for the period
from January 5, 1995 (commencement of operations) through December 31, 1995:

<TABLE>
<CAPTION>
                                               1997            1996            1995
                                            -----------     -----------     -----------
<S>                                         <C>             <C>             <C>
Futures Contracts:
  Domestic exchanges
     Financial                              $ 1,108,889     $   746,240     $ 2,962,648
     Currencies                                      --              --       5,428,763
     Other                                   (1,144,183)      4,352,894      (1,208,395)
  Foreign exchanges
     Financial                                5,491,781       7,931,309       5,163,030
     Other                                     (297,738)         (7,312)        (52,142)
Forward Contracts:
     Currencies                               5,054,532       8,380,164       4,428,354
                                            -----------     -----------     -----------
                                            $10,213,281     $21,403,295     $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 on
August 31, 1996, resulting in additional proceeds to the Trust of $41,129,100.

   At December 31, 1997, 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 the 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 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 years ended December 31, 1997 and
1996 and for the period from January 5, 1995 (commencement of operations) to
December 31, 1995 were, $9,412,151, $13,726,923 and $8,618,193, respectively.
Redemptions of General Interests for the years ended December 31, 1997 and 1996
were $95,125 and $95,780, respectively. Redemptions of Limited and General
Interests from the commencement of operations, January 5, 1995, to December 31,
1997 totalled $31,757,267 and $190,905, 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, 1997 was $191.70, an
increase of 8.82% from the December 31, 1996 net asset value per Interest of
$176.16, which was an increase of 23.49% from the December 31, 1995 net asset
value per Interest of $142.65. The MAR (Managed Account Reports) Fund/Pool Index
return was 9.34% for 1997. MAR tracked the performance of 315 futures funds in
1997.

   1997 was a profitable year for the Trust as gains were seen in the financial,
currency, metal and index sectors. Gains were somewhat offset by losses in the
energy, soft and grain sectors. Financial sector positions profited as Japanese
Government bond yields fell to historic lows as Japan sank relentlessly into a
recession followed by a string of financial sector bankruptcies. Strong gains
were also recorded in Australian ten year bonds and three-year notes and in
Italian and German bond positions. In the currency sector, the Trust had strong
gains in deutsche marks which weakened in world markets, as did other European
currencies, as hopes for the fruition of the European Monetary Union rose. The
Japanese yen weakened throughout the year on volatility in the Asian market
resulting in gains. In the metal sector, gold prices pursued a steep path
downward and silver prices reached an eight-year high on strong global demand
leading to gains in corresponding positions. Offsetting gains were losses,
focused mainly in the energy

                                       10
<PAGE>
sector's light crude oil positions. Energy contracts lost across the board as
instability in the Middle East, the world's largest energy producing region,
caused increased volatility making it difficult to identify any trends.

   Interest income earned and commissions and management fees incurred during
the years ended December 31, 1997 and 1996 were not comparable to the prior
periods, and increased in connection with the increase in traded assets as a
result of the additional contributions discussed in Liquidity and Capital
Resources above.

   Interest income is earned on the net assets held as PSI and, therefore,
varies monthly according to interest rates, trading performance, contributions
and redemptions. Interest income increased approximately $659,000 and $801,000,
respectively, for the years ended December 31, 1997 and 1996 compared to the
prior periods. These increases were due to increasingly higher net equity in the
Trust as a result of additional contributions in 1995 and 1996 through August
and strong trading performance, particularly from September 1996 through January
1997 and during the second half of 1997.

   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 for the years ended December 31, 1997 and 1996
increased approximately $542,000 and $1,664,000, respectively, compared to to
the prior periods. These increases were primarily due to continuously increasing
monthly net asset values as a result of additional contributions in 1995 and
1996 through August and strong trading performance, particularly from September
1996 through January 1997 and during the second half of 1997.

   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, contributions and redemptions. Management fees for the years ended
December 31, 1997 and 1996 increased approximately $232,000 and $882,000,
respectively, as compared to the prior periods for the same reasons commissions
increased 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 between the Trust, the
Managing Owner and the Trading Manager. Incentive fees of approximately $376,000
generated during the year ended December 31, 1997 were the result of favorable
trading performance during January and the second half of 1997. Incentive fees
of approximately $2,099,000 and $1,841,000 for the year ended December 31, 1996
and for the period from January 5, 1995 through December 31, 1995, respectively,
resulted from strong overall trading performance during these periods.

Inflation

   Inflation has had no material impact on operations or on the financial
condition of the Trust from inception through December 31, 1997.

                                       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, 1997 was $151.

   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
PFT1/17152