FORM 10-Q

                      SECURITIES AND EXCHANGE COMMISSION

                            WASHINGTON, D.C. 20549

                (X) QUARTERLY REPORT UNDER SECTION 13 or 15(d)

                    OF THE SECURITIES EXCHANGE ACT OF 1934

              OR ( ) TRANSITION REPORT UNDER SECTION 13 or 15(d)

                    OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarter ended June 30, 1998

Commission File Number 0-26132

            SMITH BARNEY DIVERSIFIED FUTURES FUND L.P.
            (Exact name of registrant as specified in its charter)

      New York                                13-3729162
 (State or other jurisdiction of           (I.R.S. Employer
 incorporation or organization)             Identification No.)


                   c/o Smith Barney Futures Management Inc.
                          390 Greenwich St. - 1st Fl.
                    New York, New York 10013
             (Address and Zip Code of principal executive offices)


                          (212) 723-5424
             (Registrant's telephone number, including area code)


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.
                              Yes   X    No


<PAGE>



                  SMITH BARNEY DIVERSIFIED FUTURES FUND L.P.
                                   FORM 10-Q
                                     INDEX


                                                                       Page
                                                                      Number

PART I - Financial Information:

            Item 1.     Financial Statements:

                        Statement of Financial Condition
                        at June 30, 1998 and December 31,
                        1997.                                             3

                        Statement of Income and Expenses
                        and Partners' Capital for the
                        three and six months ended June 30,
                        1998 and 1997.                                    4

                        Notes to Financial Statements                   5 - 8

            Item 2.     Management's Discussion and
                        Analysis of Financial Condition
                        and Results of Operations                       9 - 11

            Item 3.     Quantitative and Qualitative
                        Disclosures of Market Risk                        12

PART II - Other Information                                            13 - 14


                                      2

<PAGE>

                                     PART I
                          ITEM 1. FINANCIAL STATEMENTS




                   SMITH BARNEY DIVERSIFIED FUTURES FUND L.P.
                        STATEMENT OF FINANCIAL CONDITION



                                                      JUNE 30,      DECEMBER 31,
                                                       1998            1997
                                                  -------------    -------------
ASSETS:                                            (Unaudited)


Equity in commodity futures trading account:
  Cash and cash equivalents                       $ 134,617,932    $ 142,852,854

  Net unrealized appreciation (depreciation)
   on open futures contracts                           (729,085)      11,184,770


                                                  -------------    -------------
                                                    133,888,847      154,037,624
Interest receivable                                     424,188          518,917

                                                  -------------    -------------

                                                  $ 134,313,035    $ 154,556,541

                                                  =============    =============

LIABILITIES AND PARTNERS' CAPITAL:

Liabilities:
 Accrued expenses:
  Commissions                                     $     600,778    $     721,970
  Management fees                                       312,591          359,579
  Other                                                 100,709           79,457
   Incentive fees                                             -          492,736
  Redemptions payable                                 2,087,438        1,521,538

                                                  -------------    -------------
                                                      3,101,516        3,175,280

                                                  -------------    -------------
Partners' Capital:

General Partner, 2,048.9308 Unit
   equivalents outstanding in 1998 and 1997           2,501,109        2,660,393
Limited Partners, 105,440.5337 and
  114,539.1563 Units of Limited Partnership
  Interest outstanding in 1998 and 1997,
  respectively                                      128,710,410      148,720,868

                                                  -------------    -------------

                                                    131,211,519      151,381,261

                                                  -------------    -------------

                                                  $ 134,313,035    $ 154,556,541

                                                  =============    =============
See Notes to Financial Statements 
                                        3


<PAGE>



                   SMITH BARNEY DIVERSIFIED FUTURES FUND L.P.
             STATEMENT OF INCOME AND EXPENSES AND PARTNERS' CAPITAL
                                   (UNAUDITED)

<TABLE>
<CAPTION>


                                                                 THREE MONTHS ENDED                SIX MONTHS ENDED
                                                                       JUNE 30,                         JUNE 30,
                                                            ------------------------------    ------------------------------
                                                                 1998            1997             1998             1997

                                                            -------------    -------------    -------------    -------------
<S>                                                              <C>              <C>             <C>                <C>   

  Net gains (losses) on trading of commodity
   futures:
  Realized gains (losses) on closed positions               $   3,440,075    $  (7,058,923)   $   6,899,384    $   1,480,735
  Change in unrealized gains/losses on open
   positions                                                   (5,772,686)      (3,733,550)     (11,913,855)      (2,012,893)

                                                            -------------    -------------    -------------    -------------

                                                               (2,332,611)     (10,792,473)      (5,014,471)        (532,158)
Less, brokerage commissions and clearing fees
  ($65,721, $80,128, $158,898 and $163,508, respectively)      (2,066,837)      (2,465,556)      (4,324,843)      (5,130,100)

                                                            -------------    -------------    -------------    -------------

  Net realized and unrealized losses                           (4,399,448)     (13,258,029)      (9,339,314)      (5,662,258)
  Interest income                                               1,307,257        1,608,072        2,812,424        3,318,089

                                                            -------------    -------------    -------------    -------------

                                                               (3,092,191)     (11,649,957)      (6,526,890)      (2,344,169)

                                                            -------------    -------------    -------------    -------------


Expenses:
  Management fees                                                 962,005        1,107,294        1,985,152        2,310,723
  Other                                                            36,155           46,979           72,707           96,138
  Incentive fees                                                        -                -          242,074          747,694

                                                            -------------    -------------    -------------    -------------

                                                                  998,160        1,154,273        2,299,933        3,154,555

                                                            -------------    -------------    -------------    -------------

  Net loss                                                     (4,090,351)     (12,804,230)      (8,826,823)      (5,498,724)
  Additions                                                        26,830          252,639           59,306          252,639
  Redemptions                                                  (5,653,495)      (3,737,803)     (11,402,225)      (9,281,574)

                                                            -------------    -------------    -------------    -------------

  Net decrease in Partners' capital                            (9,717,016)     (16,289,394)     (20,169,742)     (14,527,659)

Partners' capital, beginning of period                        140,928,535      173,348,996      151,381,261      171,587,261

                                                            -------------    -------------    -------------    -------------

Partners' capital, end of period                            $ 131,211,519    $ 157,059,602    $ 131,211,519    $ 157,059,602
                                                            -------------    -------------    -------------    -------------

Net asset value per Unit
  (107,489.4645 and 130,119.5800 Units outstanding
  at June 30, 1998 and 1997, respectively)                  $    1,220.69    $    1,207.04    $    1,220.69    $    1,207.04
                                                            -------------    -------------    -------------    -------------


Net loss per Unit of Limited Partnership
  Interest and General Partner Unit equivalent              $      (36.39)   $      (96.46)   $      (77.74)   $      (43.32)
                                                            -------------    -------------    -------------    -------------

</TABLE>

See Notes to Financial Statements
                                        4

<PAGE>



                  SMITH BARNEY DIVERSIFIED FUTURES FUND L.P.
                         NOTES TO FINANCIAL STATEMENTS
                                 June 30, 1998
                                  (Unaudited)

1. General:

      Smith  Barney  Diversified  Futures  Fund L.P.  (the  "Partnership")  is a
limited partnership organized under the laws of the State of New York, on August
13, 1993 to engage in the  speculative  trading of a  diversified  portfolio  of
commodity interests including futures contracts,  options and forward contracts.
The  commodity  interests  that are traded by the  Partnership  are volatile and
involve  a high  degree  of  market  risk.  The  Partnership  commenced  trading
operations on January 12, 1994.

       Smith Barney  Futures  Management  Inc. acts as the general  partner (the
"General Partner") of the Partnership. Smith Barney Inc. ("SB"), an affiliate of
the General Partner,  acts as commodity broker for the Partnership.  All trading
decisions  are made for the  Partnership  by Campbell & Company,  Inc.,  John W.
Henry & Company, Inc., Trendview Management Inc., Telesis Management Inc., Rabar
Market  Research,  Inc.  and AIS Futures  Management,  Inc.  (collectively,  the
"Advisors").  On November 28, 1997,  Smith Barney  Holdings Inc. was merged with
Salomon Inc to form Salomon Smith Barney Holdings Inc. ("SSBH"),  a wholly owned
subsidiary of Travelers Group. SB is a wholly owned subsidiary of SSBH.

      The accompanying financial statements are unaudited but, in the opinion of
management,  include  all  adjustments  (consisting  only  of  normal  recurring
adjustments)  necessary for a fair presentation of the  Partnership's  financial
condition at June 30, 1998 and the results of its  operations  for the three and
six months ended June 30, 1998 and 1997. These financial  statements present the
results of interim periods and do not include all disclosures  normally provided
in annual financial statements.  It is suggested that these financial statements
be read in conjunction  with the financial  statements and notes included in the
Partnership's  annual  report on Form 10-K filed with  Securities  and  Exchange
Commission for the year ended December 31, 1997.

      Due to the nature of commodity trading,  the results of operations for the
interim  periods  presented  should not be considered  indicative of the results
that may be expected for the entire year.



                                      5

<PAGE>



                  SMITH BARNEY DIVERSIFIED FUTURES FUND L.P.
                         NOTES TO FINANCIAL STATEMENTS
                                  (continued)


2.   Net Asset Value Per Unit:

     Changes in net asset value per Unit for the three and six months ended June
30, 1998 and 1997, were as follows:

                                 THREE-MONTHS ENDED         SIX-MONTHS ENDED
                                      JUNE  30,                 JUNE 30,
                                  1998        1997          1998        1997

Net realized and unrealized
 losses                        $  (39.18)   $  (99.89)   $  (82.28)   $  (44.70)
Interest income                    11.81        12.16        24.87        24.72
Expenses                           (9.02)       (8.73)      (20.33)      (23.34)
                               ---------    ---------    ---------    ---------

Decrease for period               (36.39)      (96.46)      (77.74)      (43.32)

Net Asset Value per Unit,
  beginning of period           1,257.08     1,303.50     1,298.43     1,250.36
                               ---------    ---------    ---------    ---------

Net Asset Value per Unit,
  end of period                $1,220.69    $1,207.04    $1,220.69    $1,207.04
                               =========    =========    =========    =========


3.  Trading Activities:

      The  Partnership  was formed for the  purpose  of trading  contracts  in a
variety of commodity interests,  including derivative financial  instruments and
derivative  commodity  instruments.  The  results of the  Partnership's  trading
activity are shown in the statements of income and expenses.

      The  Customer   Agreement   between  the  Partnership  and  SB  gives  the
Partnership the legal right to net unrealized gains and losses.

      All of the  commodity  interests  owned  by the  Partnership  are held for
trading purposes. The fair value of these commodity interests, including options
thereon,  at June 30, 1998 and December 31, 1997 was $(729,085) and $11,184,770,
respectively,  and the average fair value during the six and twelve  months then
ended,   based  on  monthly   calculation,   was  $5,138,545  and   $10,552,252,
respectively.

4.   Financial Instrument Risk:

      The Partnership is party to financial  instruments with off- balance sheet
risk, including derivative financial instruments and

                                      6

<PAGE>



derivative commodity  instruments,  in the normal course of its business.  These
financial  instruments  include  forwards,  futures and options,  whose value is
based  upon an  underlying  asset,  index,  or  reference  rate,  and  generally
represent future  commitments to exchange  currencies or cash flows, to purchase
or sell other financial instruments at specific terms at specified future dates,
or,  in the  case of  derivative  commodity  instruments,  to have a  reasonable
possibility to be settled in cash or with another  financial  instrument.  These
instruments may be traded on an exchange or over-the-counter  ("OTC").  Exchange
traded  instruments  are  standardized  and include  futures and certain  option
contracts.  OTC contracts are negotiated between contracting parties and include
forwards and certain  options.  Each of these  instruments is subject to various
risks similar to those related to the underlying financial instruments including
market and credit risk. In general,  the risks associated with OTC contracts are
greater than those  associated with exchange traded  instruments  because of the
greater risk of default by the counterparty to an OTC contract.

      Market risk is the  potential  for  changes in the value of the  financial
instruments traded by the Partnership due to market changes,  including interest
and foreign  exchange rate movements and  fluctuations  in commodity or security
prices.  Market risk is directly impacted by the volatility and liquidity in the
markets in which the related underlying assets are traded.

      Credit risk is the possibility that a loss may occur due to the failure of
a counterparty to perform according to the terms of a contract. Credit risk with
respect to exchange traded instruments is reduced to the extent that an exchange
or  clearing  organization  acts  as a  counterparty  to the  transactions.  The
Partnership's  risk of loss in the event of  counterparty  default is  typically
limited to the amounts  recognized in the  statement of financial  condition and
not  represented  by the contract or notional  amounts of the  instruments.  The
Partnership has concentration  risk because the sole counterparty or broker with
respect to the Partnership's assets is SB.

      The General Partner monitors and controls the Partnership's  risk exposure
on a daily  basis  through  financial,  credit  and risk  management  monitoring
systems  and,   accordingly  believes  that  it  has  effective  procedures  for
evaluating and limiting the credit and market risks to which the  Partnership is
subject.  These  monitoring  systems allow the General Partner to  statistically
analyze actual  trading  results with risk adjusted  performance  indicators and
correlation statistics. In addition,  on-line monitoring systems provide account
analysis  of  futures,   forwards  and  options  positions  by  sector,   margin
requirements, gain and loss transactions and collateral positions.



                                      7

<PAGE>



      The  notional  or  contractual  amounts  of these  instruments,  while not
recorded in the financial  statements,  reflect the extent of the  Partnership's
involvement in these instruments.  At June 30, 1998, the notional or contractual
amounts of the  Partnership's  commitment to purchase and sell these instruments
was $919,099,955 and $978,596,441, respectively, as detailed below. All of these
instruments mature within one year of June 30, 1998. However,  due to the nature
of the Partnership's business, these instruments may not be held to maturity. At
June 30,  1998,  the  fair  value of the  Partnership's  derivatives,  including
options thereon, was $(729,085), as detailed below.

                                            JUNE 30, 1998
                                       NOTIONAL OR CONTRACTUAL
                                        AMOUNT OF COMMITMENTS
                                     TO PURCHASE       TO SELL      FAIR VALUE
Currencies:
- Exchange Traded Contracts          $  6,445,788   $ 28,958,535   $    250,258
- OTC Contracts                       196,371,141    268,658,636     (3,390,994)
Energy                                  2,059,100     25,838,888        876,198
Grains                                  1,115,855     15,471,445       (111,223)
Interest rate U.S.                    267,989,785      4,607,562        792,918
Interest rate Non U.S.                415,373,678    560,811,659        289,930
Livestock                                       -      2,199,640         35,518
Metals                                  6,211,175     39,535,562       (331,640)
Softs                                   5,527,250     14,958,713        873,395
Indices                                18,006,183     17,555,801        (13,445)
                                     ------------   ------------   ------------

Totals                               $919,099,955   $978,596,441   $   (729,085)
                                     ============   ============   ============

      At  December  31,  1997,  the  notional  or  contractual  amounts  of  the
Partnership's commitment to purchase and sell these instruments was $825,601,374
and $788,720,477, respectively, and fair value of the Partnership's derivatives,
including options thereon, was $11,184,770, as detailed below.

                                          DECEMBER 31,1997
                                       NOTIONAL OR CONTRACTUAL
                                        AMOUNT OF COMMITMENTS
                                     TO PURCHASE       TO SELL       FAIR VALUE
Currencies:
- Exchange Traded Contracts         $ 11,004,227    $ 85,052,231    $    710,480
- OTC Contracts                       91,780,207     172,891,448         430,261
Energy                                 2,293,498      51,019,266       2,859,466
Interest Rates U.S.                  221,651,270               -       1,004,688
Interest Rates Non U.S.              450,921,559     320,673,268       1,205,068
Grains                                 1,900,330      34,874,210         884,824
Metals                                23,394,060      69,472,845       2,414,000
Indices                                3,912,480      25,990,658         499,992
Softs                                 18,743,743      20,872,968         934,676
Livestock                                      -       7,873,583         241,315
                                    ------------    ------------    ------------

Totals                              $825,601,374    $788,720,477    $ 11,184,770
                                    ============    ============    ============

                                            8

<PAGE>




Item 2.    Management's Discussion and Analysis of Financial
           Condition and Results of Operations.

Liquidity and Capital Resources

     The Partnership does not engage in the sale of goods or services.  Its only
assets are its equity in its commodity  futures trading  account,  consisting of
cash and cash equivalents,  net unrealized  appreciation  (depreciation) on open
futures  contracts and interest  receivable.  Because of the low margin deposits
normally required in commodity futures trading, relatively small price movements
may result in substantial  losses to the Partnership.  While substantial  losses
could lead to a decrease in liquidity, no such losses occurred during the second
quarter of 1998.

     The  Partnership's  capital  consists of the capital  contributions  of the
partners as  increased  or  decreased  by gains or losses on  commodity  futures
trading,  expenses,  interest  income,  additions and  redemptions  of Units and
distributions of profits, if any.

     For the six months ended June 30, 1998, Partnership capital decreased 13.3%
from $151,381,261 to $131,211,519.  This decrease was attributable to a net loss
from  operations of $8,826,823  coupled with the redemption of 9,145.6004  units
totaling  $11,402,225  which was partially offset by additional sales of 46.9778
units totaling  $59,306.  Additional Units offered represent a reduced brokerage
fee  to  existing  limited  partners   investing   $1,000,000  or  more.  Future
redemptions  can  impact  the  amount  of funds  available  for  investments  in
commodity contract positions in subsequent periods.

Operational Risk

     The General Partner  administers  the business of the  Partnership  through
various  systems and processes  maintained by SSBH. SSBH has analyzed the impact
of the year 2000 on its systems and processes and  modifications  for compliance
are  proceeding  according to plan.  All  modifications  necessary for year 2000
compliance  are expected to be completed by the first  quarter of 1999.  In July
1998, SB participated  in successful  industry-wide  testing  coordinated by the
Securities  Industry  Association  and plans to participate in such tests in the
future.  The  purpose of  industry-wide  testing is to confirm  that  exchanges,
clearing organizations,  and other securities industry participants are prepared
for the year 2000.  The failure of vendors,  clients,  or  regulators to resolve
their  own Year  2000  compliance  issues  in a timely  manner  could  result in
material financial risk to the Partnership.

                                      9

<PAGE>



Results of Operations

     During the  Partnership's  second  quarter of 1998, the net asset value per
Unit decreased  2.9% from $1,257.08 to $1,220.69,  as compared to an decrease of
7.4% in the second  quarter of 1997. The  Partnership  experienced a net trading
loss  before  commissions  and  expenses  in  the  second  quarter  of  1998  of
$2,332,611.  Losses were  recognized  in  livestock,  grains,  U.S. and non U.S.
interest  rates  and  metals  and were  partially  offset  by gains in  indices,
currencies, energy and softs products. The Partnership experienced a net trading
loss  before  commissions  and  expenses  in  the  second  quarter  of  1997  of
$10,792,473.  Losses  were  recognized  in the trading of  commodity  futures in
currencies,  U.S. and non U.S. interest rates, energy products and livestock and
were  partially  offset by gains  recognized in the trading of grains,  indices,
metals and softs.

     Commodity futures markets are highly volatile. Broad price fluctuations and
rapid  inflation  increase  the risks  involved in commodity  trading,  but also
increase the possibility of profit. The profitability of the Partnership depends
on the  existence  of major  price  trends and the  ability of the  Advisors  to
identify  correctly  those price trends.  Price trends are  influenced by, among
other things, changing supply and demand relationships,  weather,  governmental,
agricultural,   commercial  and  trade  programs  and  policies,   national  and
international  political and economic  events and changes in interest  rates. To
the extent that market trends exist and the Advisors are able to identify  them,
the Partnership expects to increase capital through operations.

     Interest income on 80% of the Partnership's daily equity maintained in cash
was earned on the monthly  average  30-day U.S.  Treasury  bill rate  determined
weekly by SB based on the  noncompetitive  yield on three  month  U.S.  Treasury
bills maturing in 30 days from the date in which such weekly rate is determined.
Interest  income for the three and six months  ended June 30, 1998  decreased by
$300,815 and $505,665, respectively, as compared to the corresponding periods in
1997.  The  decrease  in  interest  income  is  primarily  due to the  effect of
redemptions on the Partnership's equity maintained in cash.

     Brokerage  commissions are calculated on the  Partnership's net asset value
as of the last day of each  month  and,  therefore,  vary  according  to trading
performance and redemptions. Commissions for the three and six months ended June
30, 1998  decreased by $398,719 and  $805,257  respectively,  as compared to the
corresponding periods in 1997.

     Management  fees are  calculated  on the portion of the  Partnership's  net
asset value  allocated to each  Advisor at the end of the month and,  therefore,
are affected by trading performance

                                      10

<PAGE>



and  redemptions.  Management  fees for the three and six months  ended June 30,
1998  decreased  by  $145,289  and $ 325,571,  respectively,  as compared to the
corresponding periods in 1997.

     Incentive  fees are  based on the new  trading  profits  generated  by each
Advisor at the end of the quarter, as defined in the advisory agreements between
the  Partnership,  the General  Partner and each  Advisor.  Trading  performance
resulted in incentive fees for the three and six months ended June 30, 1998 of $
0 and $242,074,  respectively.  Trading performance for the three and six months
ended June 30, 1997 resulted in incentive fees of $0 and $747,694, respectively.

                                      11

<PAGE>



Item 3.    Quantitative and Qualitative Disclosures of Market Risk

     The fund is subject to SEC Financial Reporting Release No. 48, Quantitative
and  Qualitative  Disclosures of Market Risk and will comply with the disclosure
and reporting requirements in its form 10K as of December 31, 1998.


                                      12

<PAGE>




                           PART II OTHER INFORMATION

Item 1.     Legal Proceedings

            Between May 1994 and the present,  Salomon Brothers Inc. ("SBI"), SB
            and The Robinson  Humphrey  Company,  Inc.  ("R- H"), all  currently
            subsidiaries of Salomon Smith Barney Holdings Inc. ("SSBHI"),  along
            with a number of other  broker-dealers,  were named as defendants in
            approximately   25  federal  court  lawsuits  and  two  state  court
            lawsuits,  principally  alleging that companies that make markets in
            securities  traded on NASDAQ violated the federal  antitrust laws by
            conspiring to maintain a minimum  spread of $.25 between the bid and
            asked price for certain  securities.  The federal  lawsuits  and one
            state court case were  consolidated  for  pre-trial  purposes in the
            Southern  District of New York in the fall of 1994 under the caption
            In re  NASDAQ  Market-Makers  Antitrust  Litigation,  United  States
            District Court, Southern District of New York No. 94-CIV-3996 (RWS);
            M.D.L.  No.  1023.  The other state court suit,  Lawrence A. Abel v.
            Merrill Lynch & Co., Inc. et al.;  Superior Court of San Diego, Case
            No. 677313, has been dismissed without prejudice in conjunction with
            a tolling agreement.

            In consolidated  action, the plaintiffs purport to represent a class
            of persons who bought one or more of what they currently estimate to
            be approximately  1,650 securities on NASDAQ between May 1, 1989 and
            May 27, 1994. They seek unspecified monetary damages, which would be
            trebled  under  the  antitrust   laws.  The  plaintiffs   also  seek
            injunctive  relief,  as well as attorney's fees and the costs of the
            action.  (The state cases seek similar  relief.)  Plaintiffs  in the
            consolidated  action filed an amended  consolidated  complaint  that
            defendants  answered in December  1995.  On November 26,  1996,  the
            Court certified a class composed of retail  purchasers.  A motion to
            include  institutional  investors  in the  class  and  to add  class
            representatives  was  granted.  In December  1997,  SBI, SB and R-H,
            along  with  several  other  broker-dealer  defendants,  executed  a
            settlement  agreement with the  plaintiffs.  This agreement has been
            preliminarily  approved by the U.S.  District Court for the Southern
            District of New York but is subject to final approval.

            On July 17,  1996,  the  Antitrust  Division  of the  Department  of
            Justice  filed a  complaint  against a number  of firms  that act as
            market makers in NASDAQ stocks. The complaint basically alleged that
            a common understanding

                                      13

<PAGE>



            arose among NASDAQ  market makers which worked to keep quote spreads
            in NASDAQ stocks artificially wide.  Contemporaneous with the filing
            of the  complaint,  SBI,  SB and  other  defendants  entered  into a
            stipulated  settlement  agreement,  pursuant to which the defendants
            would  agree not to  engage in  certain  practices  relating  to the
            quoting of NASDAQ  securities and would further agree to implement a
            program to ensure  compliance  with federal  antitrust laws and with
            the  terms  of the  settlement.  In  entering  into  the  stipulated
            settlement,  SBI and SB did not  admit any  liability.  There are no
            fines, penalties, or other payments of monies in connection with the
            settlement.  In April 1997, the U.S. District Court for the Southern
            District  of  New  York  approved  the  settlement.   In  May  1997,
            plaintiffs  in the  related  civil  action  (who were  permitted  to
            intervene  for  limited  purposes)  appealed  the  district  court's
            approval of the settlement.  The appeal was argued in March 1998 and
            was affirmed in August 1998.

            The Securities and Exchange  Commission ("SEC") is also conducting a
            review of the NASDAQ  marketplace,  during  which it has  subpoenaed
            documents and taken the testimony of various  individuals  including
            SBI and SB  personnel.  In July 1996,  the SEC reached a  settlement
            with the National  Association  of  Securities  Dealers and issued a
            report  detailing  certain  conclusions with respect to the NASD and
            the NASDAQ market.

            In December 1996, a complaint seeking  unspecified  monetary damages
            was filed by Orange County,  California  against numerous  brokerage
            firms,  including SB, in the U.S.  Bankruptcy  Court for the Central
            District of California.  Plaintiff alleged, among other things, that
            the  defendants   recommended  and  sold  to  plaintiff   unsuitable
            securities.  The case (County of Orange et al. v. Bear Stearns & Co.
            Inc. et al.) had been  subject to a stay by agreement of the parties
            which will expire on August 21, 1998.

Item 2.     Changes in Securities and Use of Proceeds - None

Item 3.     Defaults Upon Senior Securities - None

Item 4.     Submission of Matters to a Vote of Security Holders -
            None

Item 5.     Other Information - None

Item 6.     (a) Exhibits - None


                                      14


<PAGE>


                                   SIGNATURES
        Pursuant to the  requirements  of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

SMITH BARNEY DIVERSIFIED FUTURES FUND L.P.


By:     Smith Barney Futures Management Inc.
        (General Partner)


By:     /s/ David J. Vogel, President
        David J. Vogel, President

Date:   8/14/98


       Pursuant to the requirements of the Securities Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrant and in the capacities and on the dates indicated.

By:     Smith Barney Futures Management Inc.
        (General Partner)


By:     /s/ David J. Vogel, President
        David J. Vogel, President


Date:   8/14/98


By     /s/ Daniel A. Dantuono
       Daniel A. Dantuono
       Chief Financial Officer and
       Director

Date:  8/14/98


                                       15