DIVERSIFIED FUTURES TRUST I

ANNUAL REPORT

December 31, 2006



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DIVERSIFIED FUTURES TRUST I



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TABLE OF CONTENTS



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|                                                                                                   |  |      
|-------------------------------------------------------------------------------------------------- |  | -----
|                                                                                                   |  | PAGES
|                                                                                                   | 
|Report of Independent Registered Public Accounting Firm  Deloitte & Touche LLP                    |  | 1    
|                                                                                                   | 
|Report of Independent Registered Public Accounting Firm  Arthur F. Bell, Jr. & Associates, L.L.C. |  | 2    
|                                                                                                   | 
|Financial Statements                                                                               |  |      
|                                                                                                   | 
|Statements of Financial Condition                                                                  |  | 3    
|                                                                                                   | 
|Condensed Schedules of Investments                                                                 |  | 4    
|                                                                                                   | 
|Statements of Operations                                                                           |  | 5    
|                                                                                                   | 
|Statements of Changes in Trust Capital                                                             |  | 6    
|                                                                                                   | 
|Notes to Financial Statements                                                                      |  | 7-13 



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R
EPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Managing Owner and Limited Owners of

Diversified Futures Trust I

We have audited the accompanying statements of
financial condition, including the condensed schedule of investments, of Diversified Futures Trust I (the Trust) as of December 31, 2006 and 2005, and the related statements of operations and changes in trust capital for the two
years in the period then ended. 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. The statement of operations and
statement of changes in trust capital for the year ended December 31, 2004 were audited by another auditor whose report dated March 25, 2005 expressed an unqualified opinion on those statements.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Trust is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.
Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Trusts internal control over financial reporting. Accordingly, we express no such opinion. An audit also 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 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, the financial statements referred to above present fairly, in all material respects, the financial position of Diversified Futures Trust I at
December 31, 2006 and 2005, and the results of its operations and changes in its trust capital for the two years in the period then ended in conformity with accounting principles generally accepted in the United States of America.

Deloitte & Touche LLP

March 28, 2007



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LOGO

R
EPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Managing Owner and Limited Owners of

Diversified Futures Trust I

We have audited the accompanying statements of
operations and changes in trust capital of Diversified Futures Trust I for the year ended December 31, 2004. 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 the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Trust is not required to have, nor were we engaged to perform, an audit
of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Trusts internal control over financial reporting. Accordingly, we express no such opinion. An audit also 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, the financial statements referred to above present fairly, in all material respects, the results of
operations and changes in trust capital of Diversified Futures Trust I for the year ended December 31, 2004, in conformity with U.S. generally accepted accounting principles.



|                                            
|--------------------------------------------
|/s/ Arthur F. Bell, Jr. & Associates, L.L.C.
|                                            
|Hunt Valley, Maryland                       
|March 25, 2005                              



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DIVERSIFIED FUTURES TRUST I

STATEMENTS OF FINANCIAL CONDITION

December 31, 2006 and 2005



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|                                                                                                                 |  |      |            |   |      |   |           
|---------------------------------------------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ----------
|                                                                                                                 |  | 2006 |            |   | 2005
|ASSETS                                                                                                           |  |      |            |   |      |   |           
|Cash in commodity trading accounts                                                                               |  | $    | 14,297,622 |   |      | $ | 17,583,861
|Net unrealized gain (loss) on open futures contracts                                                             |  |      | (4,160     | ) |      |   | 126,660   
|Net unrealized gain on open forward contracts                                                                    |  |      | 76,103     |   |      |   | 28,843    
|                                                                                                                 |  |      |            |   |      |   |           
|Total assets                                                                                                     |  | $    | 14,369,565 |   |      | $ | 17,739,364
|                                                                                                                 |  |      |            |   |      |   |           
|                                                                                                                 |  |     
|LIABILITIES                                                                                                      |  |      |            |   |      |   |           
|Redemptions payable                                                                                              |  | $    | 1,330,406  |   |      | $ | 842,640   
|Management fees payable                                                                                          |  |      | 23,867     |   |      |   | 29,474    
|Commissions payable                                                                                              |  |      | 36,168     |   |      |   | 54,522    
|                                                                                                                 |  |      |            |   |      |   |           
|Total liabilities                                                                                                |  |      | 1,390,441  |   |      |   | 926,636   
|                                                                                                                 |  |      |            |   |      |   |           
|                                                                                                                 |  |     
|TRUST CAPITAL                                                                                                    |  |      |            |   |      |   |           
|Limited interests (57,632.560 and 71,586.736 interests outstanding) at December 31, 2006 and 2005, respectively. |  |      | 12,835,254 |   |      |   | 16,635,191
|General interests (646 and 764 interests outstanding) at December 31, 2006 and 2005, respectively.               |  |      | 143,870    |   |      |   | 177,537   
|                                                                                                                 |  |      |            |   |      |   |           
|Total trust capital                                                                                              |  |      | 12,979,124 |   |      |   | 16,812,728
|                                                                                                                 |  |      |            |   |      |   |           
|Total liabilities and trust capital                                                                              |  | $    | 14,369,565 |   |      | $ | 17,739,364
|                                                                                                                 |  |      |            |   |      |   |           

Net Asset Value per Limited and General Interest



|             |  |      |        |      |   |       
|------------ |  | ---- | ------ | ---- | - | ------
|December 31,
|2006         |  | 2005 |        | 2004
|$222.71      |  | $    | 232.38 |      | $ | 237.65
|             |  |      |        |      |   |       

See accompanying notes.



-3-



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DIVERSIFIED FUTURES TRUST I

CONDENSED SCHEDULES OF INVESTMENTS

December 31, 2006 and 2005



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|                                                   |  |                                                |    |  |                          |          |   |                                                |       |    |                          |   |          |  
|-------------------------------------------------- |  | ---------------------------------------------- | -- |  | ------------------------ | -------- | - | ---------------------------------------------- | ----- | -- | ------------------------ | - | -------- | -
|                                                   |  | 2006                                           |    |  | 2005                     |         
|Futures and Forward Contracts                      |  | NetUnrealizedGain (Loss)as a % ofTrust Capital |    |  | NetUnrealizedGain (Loss) |          |   | NetUnrealizedGain (Loss)as a % ofTrust Capital |       |    | NetUnrealizedGain (Loss) |  
|Futures contracts purchased:                       |  |                                                |    |  |                          |          |   |                                                |       |    |                          |   |          |  
|Commodities                                        |  | 0.37                                           | %  |  | $                        | 47,853   |   |                                                | 0.45  | %  |                          | $ | 75,228   |  
|Interest rates                                     |  | 0.00                                           | %  |  |                          | 0        |   |                                                | 0.14  | %  |                          |   | 23,270   |  
|Stock indices                                      |  | 0.00                                           | %  |  |                          | 0        |   |                                                | 0.22  | %  |                          |   | 37,459   |  
|                                                   |  |                                                |    |  |                          |          |   |                                                |       |    |                          |   |          |  
|Net unrealized gain on futures contracts purchased |  | 0.37                                           | %  |  |                          | 47,853   |   |                                                | 0.81  | %  |                          |   | 135,957  |  
|                                                   |  |                                                |    |  |                          |          |   |                                                |       |    |                          |   |          |  
|Futures contracts sold:                            |  |                                                |    |  |                          |          |   |                                                |       |    |                          |   |          |  
|Commodities                                        |  | (0.40                                          | )% |  |                          | (52,013  | ) |                                                | (0.45 | )% |                          |   | (74,840  | )
|Interest rates                                     |  | 0.00                                           | %  |  |                          | 0        |   |                                                | 0.39  | %  |                          |   | 65,543   |  
|                                                   |  |                                                |    |  |                          |          |   |                                                |       |    |                          |   |          |  
|Net unrealized loss on futures contracts sold      |  | (0.40                                          | )% |  |                          | (52,013  | ) |                                                | (0.06 | )% |                          |   | (9,297   | )
|                                                   |  |                                                |    |  |                          |          |   |                                                |       |    |                          |   |          |  
|Net unrealized gain (loss) on futures contracts    |  | (0.03                                          | )% |  | $                        | (4,160   | ) |                                                | 0.75  | %  |                          | $ | 126,660  |  
|                                                   |  |                                                |    |  |                          |          |   |                                                |       |    |                          |   |          |  
|Forward contracts purchased:                       |  |                                                |    |  |                          |          |   |                                                |       |    |                          |   |          |  
|Net unrealized gain on forward contracts sold      |  | 1.49                                           | %  |  | $                        | 192,679  |   |                                                | 0.85  | %  |                          | $ | 142,620  |  
|                                                   |  |                                                |    |  |                          |          |   |                                                |       |    |                          |   |          |  
|Forward contracts sold:                            |  |                                                |    |  |                          |          |   |                                                |       |    |                          |   |          |  
|Net unrealized loss on forward contracts sold      |  | (0.90                                          | )% |  |                          | (116,576 | ) |                                                | (0.68 | )% |                          |   | (113,777 | )
|                                                   |  |                                                |    |  |                          |          |   |                                                |       |    |                          |   |          |  
|Net unrealized gain on forward contracts           |  | 0.59                                           | %  |  | $                        | 76,103   |   |                                                | 0.17  | %  |                          | $ | 28,843   |  
|                                                   |  |                                                |    |  |                          |          |   |                                                |       |    |                          |   |          |  

See accompanying notes.



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DIVERSIFIED FUTURES TRUST I

STATEMENTS OF OPERATIONS

For the Years Ended December 31, 2006, 2005 and 2004



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|                                                                     |  |      |           |   |      |   |           |      |  |   |            |  
|-------------------------------------------------------------------- |  | ---- | --------- | - | ---- | - | --------- | ---- |  | - | ---------- | -
|                                                                     |  | 2006 |           |   | 2005 |   |           | 2004 | 
|REVENUES                                                             |  |      |           |   |      |   |           |      |  |   |            |  
|Realized                                                             |  | $    | 150,177   |   |      | $ | 926,998   |      |  | $ | 1,756,534  |  
|Change in unrealized                                                 |  |      | (83,560   | ) |      |   | (283,603  | )    |  |   | (1,475,374 | )
|Interest income                                                      |  |      | 750,618   |   |      |   | 583,481   |      |  |   | 278,113    |  
|                                                                     |  |      |           |   |      |   |           |      |  |   |            |  
|Total revenues                                                       |  |      | 817,235   |   |      |   | 1,226,876 |      |  |   | 559,273    |  
|                                                                     |  |      |           |   |      |   |           |      |  |   |            |  
|EXPENSES                                                             |  |      |           |   |      |   |           |      |  |   |            |  
|Brokerage commissions                                                |  |      | 1,190,211 |   |      |   | 1,387,137 |      |  |   | 1,647,827  |  
|Management fees                                                      |  |      | 306,529   |   |      |   | 357,694   |      |  |   | 424,210    |  
|Incentive fees                                                       |  |      | 0         |   |      |   | 0         |      |  |   | 237,102    |  
|                                                                     |  |      |           |   |      |   |           |      |  |   |            |  
|Total expenses                                                       |  |      | 1,496,740 |   |      |   | 1,744,831 |      |  |   | 2,309,139  |  
|                                                                     |  |      |           |   |      |   |           |      |  |   |            |  
|NET (LOSS)                                                           |  | $    | (679,505  | ) |      | $ | (517,955  | )    |  | $ | (1,749,866 | )
|                                                                     |  |      |           |   |      |   |           |      |  |   |            |  
|NET LOSS PER WEIGHTED AVERAGE LIMITED AND GENERAL INTEREST           |  |      |           |   |      |   |           |      |  |   |            |  
|Net (loss) per weighted average limited and general interest         |  | $    | (10.10    | ) |      | $ | (6.49     | )    |  | $ | (19.52     | )
|                                                                     |  |      |           |   |      |   |           |      |  |   |            |  
|Weighted average number of limited and general interests outstanding |  |      | 67,293    |   |      |   | 79,807    |      |  |   | 89,657     |  
|                                                                     |  |      |           |   |      |   |           |      |  |   |            |  

See accompanying notes.



-5-



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DIVERSIFIED FUTURES TRUST I

STATEMENTS OF CHANGES IN TRUST CAPITAL

For the Years Ended December 31, 2006, 2005 and 2004



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|                                                |  |             |   |  |                   |            |   |                   |   |         |       |  |   |            |  
|----------------------------------------------- |  | ----------- | - |  | ----------------- | ---------- | - | ----------------- | - | ------- | ----- |  | - | ---------- | -
|                                                |  | Interests   |   |  | Limited Interests |            |   | General Interests |   |         | Total | 
|Trust capital at December 31, 2003              |  | 92,961.991  |   |  | $                 | 23,521,958 |   |                   | $ | 237,691 |       |  | $ | 23,759,649 |  
|Net (loss) for the year ended December 31, 2004 |  |             |   |  |                   | (1,732,372 | ) |                   |   | (17,494 | )     |  |   | (1,749,866 | )
|Redemptions                                     |  | (8,117.307  | ) |  |                   | (1,833,152 | ) |                   |   | (13,443 | )     |  |   | (1,846,595 | )
|                                                |  |             |   |  |                   |            |   |                   |   |         |       |  |   |            |  
|Trust capital at December 31, 2004              |  | 84,844.684  |   |  |                   | 19,956,434 |   |                   |   | 206,754 |       |  |   | 20,163,188 |  
|Net (loss) for the year ended December 31, 2005 |  |             |   |  |                   | (513,082   | ) |                   |   | (4,873  | )     |  |   | (517,955   | )
|Redemptions                                     |  | (12,493.948 | ) |  |                   | (2,808,161 | ) |                   |   | (24,344 | )     |  |   | (2,832,505 | )
|                                                |  |             |   |  |                   |            |   |                   |   |         |       |  |   |            |  
|Trust capital at December 31, 2005              |  | 72,350.736  |   |  |                   | 16,635,191 |   |                   |   | 177,537 |       |  |   | 16,812,728 |  
|Net (loss) for the year ended December 31, 2006 |  |             |   |  |                   | (672,157   | ) |                   |   | (7,348  | )     |  |   | (679,505   | )
|Redemptions                                     |  | (14,072.176 | ) |  |                   | (3,127,780 | ) |                   |   | (26,319 | )     |  |   | (3,154,099 | )
|                                                |  |             |   |  |                   |            |   |                   |   |         |       |  |   |            |  
|Trust capital at December 31, 2006              |  | 58,278.560  |   |  | $                 | 12,835,254 |   |                   | $ | 143,870 |       |  | $ | 12,979,124 |  
|                                                |  |             |   |  |                   |            |   |                   |   |         |       |  |   |            |  

See accompanying notes.



-6-



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DIVERSIFIED FUTURES TRUST I

NOTES TO FINANCIAL STATEMENTS



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Note 1. ORGANIZATION



| | A. | General Description of the Trust
| | -- | --------------------------------

Diversified Futures
Trust I (the Trust) was organized under the Delaware Statutory Trust Act on May 18, 1994 and will continue until December 31, 2020 unless terminated sooner under the provisions of the Second Amended and Restated Declaration of
Trust and Trust Agreement (the Trust Agreement). 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 term (Managing Owner), as used herein, refers to Prudential Securities Futures Management Inc. (PSFM) up to
September 30, 2004. As of October 1, 2004, Preferred Investment Solutions Corp. (Preferred) acquired from Prudential Securities Group Inc. (PSG) all of the outstanding stock of PSFM. Immediately after such
acquisition, PSFM was merged with and into Preferred. Accordingly, as of October 1, 2004 all of the board of directors and officers of PSFM resigned. Following Preferreds acquisition of PSFM and its merger with and into Preferred,
Preferred became the successor Managing Owner of the Trust.



| | B. | Regulation
| | -- | ----------

As a registrant with the Securities and
Exchange Commission, the Trust is subject to the regulatory requirements under the Securities Act of 1933 and the Securities Exchange Act of 1934. As a commodity pool, the Trust is subject to the regulations of the Commodity Futures Trading
Commission, an agency of the United States (U.S.) government which regulates most aspects of the commodity futures industry; rules of the National Futures Association, an industry self-regulatory organization; and the requirements of the various
commodity exchanges where the Trust executes transactions. Additionally, the Trust is subject to the requirements of the futures commission merchants (brokers) and interbank market makers through which the Trust trades.



| | C. | The Offering
| | -- | ------------

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). Additional interests
were offered and sold monthly at the then current net asset value (NAV) per Interest until the continuous offering period 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. General Interests were sold exclusively to the Managing Owner.

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.



| | D. | The Trading Managers
| | -- | --------------------

Pursuant to the advisory agreements,
each of the trading managers (Appleton Capital Management Ltd. (Appleton), Graham Capital Management, L.P. (Graham) and Aspect Capital Limited (Aspect)) are paid a monthly management fee equal to 1/12 of 2%
annually and an incentive fee of 20% of the New High Net Trading Profits on the portion of Trust assets allocated to each. The advisory agreements may be terminated for a variety of reasons, including at the discretion of the Managing
Owner. Effective September 29, 2006, Preferred terminated the trading advisor agreement of Appleton, with the assets being reallocated to Graham and Aspect. After the termination of Appleton, Graham and Aspect each manage approximately 50% of
the portfolio. The Managing Owner retains the authority to override trading instructions that violate the Trusts trading policies.



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DIVERSIFIED FUTURES TRUST I

NOTES TO FINANCIAL STATEMENTS (CONTINUED)



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Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



| | A. | Basis of Accounting
| | -- | -------------------

The financial statements of the Trust
are prepared in accordance with accounting principles generally accepted in the United States of America. Such principles require the Managing Owner to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Commodity futures and forward transactions are reflected in the accompanying statements of financial condition on trade date. Net unrealized gain or loss
on open contracts (the difference between contract trade price and market price) is reflected in the statement of financial condition in accordance with Financial Accounting Standards Board Interpretation No. 39  Offsetting of
Amounts Related to Certain Contracts. The market value of futures (exchange-traded) contracts is based upon the closing quotation on the various futures exchanges on which the contract is traded. The fair value of swap and forward
(non-exchange traded) contracts is extrapolated on a forward basis from the spot prices. Any change in net unrealized gain or loss during the current period is reported in the statement of operations. Realized gains and losses on commodity
transactions are recognized in the period in which the contracts are closed.

The weighted average number of Limited and General Interests
outstanding was computed for purposes of disclosing net income (loss) 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 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 Account Standards No. 102, Statement of Cash Flows  Exemption of Certain Enterprises and Classification of Cash Flows from Certain Securities Acquired for Resale.

Consistent with standard business practices in the normal course of business, the Trust has provided general indemnifications to the
Managing Owner, its Trading Advisor and others when they act, in good faith, in the best interests of the Trust. The Trust is unable to develop an estimate of the maximum potential amount of future payments that could potentially result from any
hypothetical future claim, but expects the risk of having to make any payments under these general business indemnifications to be remote.

The SEC Staff Accounting Bulletin (SAB 108), Considering the Effects of Prior Year Misstatements When quantifying Misstatements in Current Year Financial Statements, which provides guidance on quantifying and
evaluating the materiality of unrecorded misstatements. It is effective for the first annual period ending after November 15, 2006. Preferred as Managing Owner of the Trust has evaluated the impact, if any, the implementation of SAB 108 may
have on its financial statements. In Preferreds opinion, no material unrecorded misstatements are in existence as of December 31, 2006 that would require a cumulative effect adjustment to the financial statements.



-8-



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DIVERSIFIED FUTURES TRUST I

NOTES TO FINANCIAL STATEMENTS (CONTINUED)



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Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)



| | A. | Basis of Accounting (Continued)
| | -- | -------------------------------

In July 2006, the
Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes  an interpretation of FASB Statement No. 109, which clarifies the
accounting for uncertainty in tax positions. FIN 48 requires that the Partnership recognize in its financial statements, the impact of a tax position if that position is more likely than not of being sustained on audit, based on the technical merits
of the position. The provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. Preferred as
Managing Owner of the Trust has evaluated the impact of adopting FIN 48 on Trusts financial statements. In Preferreds opinion as of December 31, 2006, FIN 48 has no material impact on the Trust, as the Trusts tax position is
based on established tax precedence for the tax treatment of investment partnerships as flow through tax entities.

In September 2006, the
FASB issued SFAS No. 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The provisions of SFAS No. 157 are effective
for fiscal years beginning after November 15, 2007. The Trust is currently evaluating the impact of adopting SFAS No. 157 on its financial statements. At this time, the impact to the Trusts financial statements has not been
determined.

Cash represents amounts deposited with clearing brokers, a portion of which are restricted for purposes of meeting margin
requirements, which typically range from 0% to 35% of the notional amounts of the derivatives traded. The Trust receives interest on all cash balances held by the clearing brokers at prevailing rates.



| | B. | 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.



| | C. | Profit and Loss Allocation, Distributions and Redemptions
| | -- | ---------------------------------------------------------

Net income or loss for both financial and tax reporting purposes is allocated monthly to all interest holders on a pro rata basis 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. The Managing Owner has not and does not intend to make any distributions.

The Trust
Agreement provides that an Interest holder may redeem its Interests as of the last business day of any calendar quarter at the then current NAV per interest.



-9-



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DIVERSIFIED FUTURES TRUST I

NOTES TO FINANCIAL STATEMENTS (CONTINUED)



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Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)



| | D. | Foreign currency transaction
| | -- | ----------------------------

The Trusts functional
currency is the U.S. dollar; however, it transacts business in currencies other than the U.S. dollar. Assets and liabilities denominated in currencies other than the U.S. dollar are translated into U.S. dollars at the rates in effect at the date of
the statement of financial condition. Income and expense items denominated in currencies other than U.S. dollars are translated into U.S. dollars at the rates in effect during the period. Gains and losses resulting from the translation to U.S.
dollars are reported in operations currently.

Note 3. FEES



| | A. | Organizational and General and Administrative Costs
| | -- | ---------------------------------------------------

Prudential Equity Group Inc. (PEG) or its affiliates paid the cost of organizing the Trust and offering its Interests and continued to pay the administrative costs incurred by the Managing Owner or its affiliates for services
they performed for the Trust through September 30, 2004. Effective October 1, 2004, Preferred pays all administrative costs for services it performs for the Trust. Administrative costs include, but are not limited to, those discussed in
Note 4 below. Routine legal, audit, postage, and other routine third party administrative costs also were paid by PEG or its affiliates through September 30, 2004 and by Preferred for the period October 1, 2004 to December 31, 2006.



| | B. | Management and Incentive Fees
| | -- | -----------------------------

Pursuant to the advisory
agreements, Appleton, Graham and Aspect are paid a monthly management fee equal to 1/6 of 1% (a 2% annual rate) and an incentive fee of 20% of the New High Net Trading Profits on the portion of Trust assets allocated to each.



| | C. | Commissions
| | -- | -----------

Prior to January 1, 2004, Prudential
Securities Futures Management, Inc. (PSFM), as Managing Owner, on behalf of the Trust, entered into an agreement with PEG as commodity broker whereby the Trust pays a fixed monthly fee for brokerage services rendered. The monthly fee equals
approximately .65 of 1% (7.75% per annum) of the Trusts NAV as of the first day of each month. From this fee, PEG paid all of the Trusts execution (including floor brokerage expenses and NFA, clearing and exchange fees) and account
maintenance costs.

On January 1, 2004, PEG, a wholly owned subsidiary of PSG, transferred its Global Derivatives Division to
Prudential Financial Derivatives LLC (PFD) and Pru Global Securities, LLC, two other indirect wholly-owned subsidiaries of PSG. In connection with this transfer, PEG assigned its brokerage agreement with the Trust to PFD, a properly
qualified futures commission merchant.

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



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DIVERSIFIED FUTURES TRUST I

NOTES TO FINANCIAL STATEMENTS (CONTINUED)



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Note 4. RELATED PARTIES

The Managing Owner or third
parties engaged by the Managing Owner perform services for the Trust which include, but are not limited to: brokerage services; accounting and financial management; registrar, transfer and assignment function; investor communications; printing and
other administrative services. Except for costs related to brokerage services, PEG or its affiliates paid all the costs of these services as well as the Trusts routine operational, administrative, legal and auditing costs through
September 30, 2004. Effective October 1, 2004, Preferred began performing such services for the Trust with the exception of brokerage services. Preferred pays all of the costs of such services.

The costs charged to the Trust for brokerage services for the years ended December 31, 2006, 2005 and 2004 were $1,190,211, $1,387,137 and
$1,647,827, respectively.

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

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

Note 5. INCOME TAX REPORTING

There
have been no differences between the tax basis and book basis of interest holders capital since inception of the Trust.

Note 6. DERIVATIVE
INSTRUMENTS AND ASSOCIATED RISKS

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

Market Risk

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



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DIVERSIFIED FUTURES TRUST I

NOTES TO FINANCIAL STATEMENTS (CONTINUED)



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Note 6. DERIVATIVE INSTRUMENTS AND ASSOCIATED RISKS (CONTINUED)

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

Credit Risk

When entering into futures or forward contracts, the Trust is exposed to credit risk
that the counterparty to the contract will not meet its obligations. The counterparty for futures contracts traded on United States and most foreign futures exchanges is the clearinghouse associated with the particular exchange. In general,
clearinghouses are backed by their corporate members who are required to share any financial burden resulting from the non-performance by one of their members and, as such, should significantly reduce this credit risk. In cases where the
clearinghouse is not backed by the clearing members (i.e. some foreign exchanges), it is normally backed by a consortium of banks or other financial institutions. On the other hand, there is concentration risk on forward transactions entered into by
the Trust as the Trusts commodity broker (as defined in Note 4) is the sole counterparty. The Trust has entered into a master netting agreement with its broker and, as a result when applicable, presents unrealized gains and losses on open
forward positions as a net amount in the statements of financial condition; however, counterparty non-performance on only certain of the Trusts contracts may result in greater loss than non-performance on all of the Trusts contracts. The
amount at risk associated with counterparty non-performance of all of the Trusts contracts is the net unrealized gain included in the statements of financial condition. There can be no assurance that any counterparty, clearing member or
clearinghouse will meet its obligations to the Trust.

The Managing Owner attempts to minimize both credit and market risks by requiring
the Trust and its trading managers to abide by various trading limitations and policies. The Managing Owner monitors compliance with these trading limitations and policies, which include, but are not limited to, executing and clearing all trades
with creditworthy counterparties; limiting the amount of margin or premium required for any one commodity or all commodities combined; and generally limiting transactions to contracts which are traded in sufficient volume to permit the taking and
liquidating of positions. Additionally, pursuant to the Advisory Agreement among the Trust, the Managing Owner has the right, among others, to terminate each trading manager if the net asset value allocated to the trading manager declines by 33-1/3%
from the value at the beginning of any year or since the commencement of trading activities. Furthermore, the Amended and Restated Declaration of Trust and Trust Agreement provides that the Trust will liquidate its positions, and eventually
dissolve, if the Trust experiences a decline in the net asset value of 50% from the value at the beginning of any year or since the commencement of trading activities. In each case, the decline in net asset value is after giving effect for
distributions and redemptions. The Managing Owner may impose additional restrictions (through modifications of trading limitations and policies) upon the trading activities of the trading manager as it, in good faith, deems to be in the best
interests of the Trust.

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 its other assets. At December 31, 2006 and 2005, such segregated assets totaled $8,808,029 and $8,829,027, respectively. Part 30.7 of the CFTC regulations also requires the Trusts futures commission merchant to secure assets
of the Trust related to foreign futures trading which totaled $993,947 and $340,601 at December 31, 2006 and 2005, respectively. There are no segregation requirements for assets related to forward trading.

As of December 31, 2006, all of the Trusts open futures and forward contracts mature within two years.



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DIVERSIFIED FUTURES TRUST I

NOTES TO FINANCIAL STATEMENTS (CONTINUED)



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Note 7. FINANCIAL HIGHLIGHTS

The following
information presents per interest performance data and other supplemental financial data for the years ended December 31, 2006, 2005 and 2004. This information has been derived from information presented in the financial statements.



|                                                                               |  |      |        |    |      |   |        |      |  |   |        |   
|------------------------------------------------------------------------------ |  | ---- | ------ | -- | ---- | - | ------ | ---- |  | - | ------ | --
|                                                                               |  | 2006 |        |    | 2005 |   |        | 2004 | 
|Per Interest Performance                                                       |  |      |        |    |      |   |        |      |  |   |        |   
|(for an interest outstanding throughout the entire year)                       |  |      |        |    |      |   |        |      |  |   |        |   
|                                                                               |  |      |       
|Net asset value, beginning of year                                             |  | $    | 232.38 |    |      | $ | 237.65 |      |  | $ | 255.58 |   
|                                                                               |  |      |        |    |      |   |        |      |  |   |        |   
|Net realized gain and change in net realized gain on commodity transactions(1) |  |      | 1.42   |    |      |   | 9.28   |      |  |   | 4.73   |   
|Interest income(1)                                                             |  |      | 11.15  |    |      |   | 7.31   |      |  |   | 3.10   |   
|Expenses(1)                                                                    |  |      | (22.24 | )  |      |   | (21.86 | )    |  |   | (25.76 | ) 
|                                                                               |  |      |        |    |      |   |        |      |  |   |        |   
|Net (decrease) for the year                                                    |  |      | (9.67  | )  |      |   | (5.27  | )    |  |   | (17.93 | ) 
|                                                                               |  |      |        |    |      |   |        |      |  |   |        |   
|Net asset value, end of year                                                   |  | $    | 222.71 |    |      | $ | 232.38 |      |  | $ | 237.65 |   
|                                                                               |  |      |        |    |      |   |        |      |  |   |        |   
|                                                                               |  |      |       
|Total Return                                                                   |  |      |        |    |      |   |        |      |  |   |        |   
|Total return before incentive fees                                             |  |      | (4.16  | )% |      |   | (2.22  | )%   |  |   | (5.90  | )%
|Incentive fees                                                                 |  |      | 0.00   | %  |      |   | 0.00   | %    |  |   | (1.12  | )%
|                                                                               |  |      |        |    |      |   |        |      |  |   |        |   
|Total return after incentive fees                                              |  |      | (4.16  | )% |      |   | (2.22  | )%   |  |   | (7.02  | )%
|                                                                               |  |      |        |    |      |   |        |      |  |   |        |   
|                                                                               |  |      |       
|Supplemental Data                                                              |  |      |        |    |      |   |        |      |  |   |        |   
|                                                                               |  |      |       
|Ratios to average net asset value:                                             |  |      |        |    |      |   |        |      |  |   |        |   
|Net investment loss before incentive fees(2)                                   |  |      | (4.92  | )% |      |   | (6.59  | )%   |  |   | (8.47  | )%
|Incentive fees                                                                 |  |      | 0.00   | %  |      |   | 0.00   | %    |  |   | (1.12  | )%
|                                                                               |  |      |        |    |      |   |        |      |  |   |        |   
|Net investment loss after incentive fees                                       |  |      | (4.92  | )% |      |   | (6.59  | )%   |  |   | (9.59  | )%
|                                                                               |  |      |        |    |      |   |        |      |  |   |        |   
|Interest income                                                                |  |      | 4.95   | %  |      |   | 3.31   | %    |  |   | 1.31   | % 
|                                                                               |  |      |        |    |      |   |        |      |  |   |        |   
|Incentive fees                                                                 |  |      | 0.00   | %  |      |   | 0.00   | %    |  |   | 1.12   | % 
|Other expenses                                                                 |  |      | 9.87   | %  |      |   | 9.90   | %    |  |   | 9.78   | % 
|                                                                               |  |      |        |    |      |   |        |      |  |   |        |   
|Total net expenses                                                             |  |      | 9.87   | %  |      |   | 9.90   | %    |  |   | 10.90  | % 
|                                                                               |  |      |        |    |      |   |        |      |  |   |        |   

Total returns are calculated based on the change in value of a interest during the year. An
individual interestholders total returns and ratios may vary from the above total returns and ratios based on the timing of additions and redemptions.

| | 
| | 

| | (1) | Interest income per interest and expenses per interest are calculated by dividing interest income and
expenses by the weighted average number of interests outstanding during the year. Net realized gain and change in net unrealized gain/loss on commodity transactions is a balancing amount necessary to reconcile the change in net asset value per
interest with the other per interest information.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Represents interest income less total expenses (exclusive of incentive fees).
| | --- | -----------------------------------------------------------------------------

Note 8. SUBSEQUENT EVENT

On December 31, 2006 the Managing Owner terminated the Trading Advisor agreements with Aspect and Graham and allocated those assets of the Trust to WCM Pool LLC (WCM), effective January 1, 2007. The trading advisor of
WCM, is Winton Capital Management (Winton) and is paid a 2% per annum management fee, accrued and paid monthly by WCM. In addition, Winton is paid a 20% incentive fee, accrued monthly and paid quarterly based on Net New High Profits
by the members of WCM.



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