FORM10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C.20549 (X) QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THESECURITIES EXCHANGE ACT OF 1934 OR (    ) TRANSITIONREPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF1934

For the Quarter ended September 30,2004

Commission File Number 0-26132

SMITH BARNEY DIVERSIFIED FUTURES FUNDL.P.

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(Exact nameof registrant as specified in its charter)

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| NewYork                                                      |  | 13-3729162                        |
| (State or otherjurisdiction ofincorporation or organization) |  | (I.R.S.EmployerIdentificationNo.) |
|                                                              |

c/o Citigroup ManagedFutures LLC 399 Park Avenue - 7th Fl. New York, New York10022

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(Addressand Zip Code of principal executive offices)

(212)599-2011

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(Registrant'stelephone number, including area code)

Indicateby check mark whether the registrant (1) has filed all reports requiredto be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period thatthe registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.

Yes    X                No          

Indicate by checkmark whether the registrant is an accelerated filer (as defined in rule12b-2 of the Exchange Act).

Yes                       No   X   

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SMITH BARNEY DIVERSIFIEDFUTURES FUND L.P.FORM 10-QINDEX

|                                                                                 |  |                                                                                                                                   |  |                         |  |  |  |  |  |  |  |  |  |  |
|---------------------------------------------------------------------------------|--|-----------------------------------------------------------------------------------------------------------------------------------|--|-------------------------|--|--|--|--|--|--|--|--|--|--|
|                                                                            |  |                                                                                                                              |  | PageNumber              |  |
| PARTI – Financial Information:                                            |  |
|             Item 1. |  | FinancialStatements:                                                                                                              |  |
|                                                                            |  | Statementsof Financial Condition at September 30, 2004 and December 31, 2003(unaudited)                                           |  | 3                       |  |
|                                                                            |  | Condensed Schedules of Investments atSeptember  30, 2004 and December 31, 2003(unaudited)                                         |  | 4 – 5   |  |
|                                                                            |  | Statements of Income and Expenses and Partners'Capital for the three and nine months ended September 30, 2004 and 2003(unaudited) |  | 6                       |  |
|                                                                            |  | Statements of CashFlows for the three and nine months ended September 30, 2004 and 2003(unaudited)                                |  | 7                       |  |
|                                                                            |  | Notes to FinancialStatements (unaudited)                                                                                          |  | 8 – 10  |  |
|             Item2.  |  | Management's Discussion and Analysis of FinancialCondition and Results ofOperations                                               |  | 11 – 13 |  |
|             Item 3. |  | Quantitative and QualitativeDisclosures about MarketRisk                                                                          |  | 14 – 15 |  |
|             Item 4. |  | Controls andProcedures                                                                                                            |  | 16                      |  |
| PART II – OtherInformation                                                |  | 17                                                                                                                                |  |
|                                                                                 |

2

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PART I

Item 1.Financial Statements

Smith Barney Diversified Futures FundL.P.Statements of FinancialCondition(Unaudited)

|                                                                                                                                        |  |                  |            |                 |  |        |            |        |  |  |  |  |  |  |
|----------------------------------------------------------------------------------------------------------------------------------------|--|------------------|------------|-----------------|--|--------|------------|--------|--|--|--|--|--|--|
|                                                                                                                                   |  | September30,2004 |            | December31,2003 |  |
| Assets:                                                                                                                                |  |             |       |            |  |   |       |   |  |
| Equityin commodity futures tradingaccount:                                                                                             |  |             |       |            |  |   |       |   |  |
| Cash (restricted$9,679,693 and $13,379,393 in 2004 and 2003, respectively)                                                             |  | $                | 60,305,995 |            |  | $      | 67,983,573 |   |  |
| Netunrealized appreciation on open futurespositions                                                                                    |  |             | 3,122,358  |            |  |   | 3,677,203  |   |  |
| Unrealizedappreciation on open forwardcontracts                                                                                        |  |             | 1,310,010  |            |  |   | 4,260,481  |   |  |
|                                                                                                                                   |  |             | 64,738,363 |            |  |   | 75,921,257 |   |  |
| Interestreceivable                                                                                                                     |  |             | 61,366     |            |  |   | 40,233     |   |  |
|                                                                                                                                   |  | $                | 64,799,729 |            |  | $      | 75,961,490 |   |  |
| LIABILITIES ANDPARTNERS'CAPITAL:                                                                                                       |  |             |       |            |  |   |       |   |  |
| Liabilities:                                                                                                                           |  |             |       |            |  |   |       |   |  |
| Unrealizeddepreciation on open forwardcontracts                                                                                        |  | $                | 975,354    |            |  | $      | 2,298,360  |   |  |
| Accruedexpenses:                                                                                                                       |  |             |       |            |  |   |       |   |  |
| Commissions                                                                                                                            |  |             | 287,733    |            |  |   | 344,098    |   |  |
| Managementfees                                                                                                                         |  |             | 98,050     |            |  |   | 119,768    |   |  |
| Incentivefees                                                                                                                          |  |             | —    |            |  |   | 761,281    |   |  |
| Other                                                                                                                                  |  |             | 77,021     |            |  |   | 41,458     |   |  |
| Redemptionspayable                                                                                                                     |  |             | 230,241    |            |  |   | 669,179    |   |  |
|                                                                                                                                   |  |             | 1,668,399  |            |  |   | 4,234,144  |   |  |
|                                                                                                                                   |  |             |       |            |  |   |       |   |  |
| Partners'Capital:                                                                                                                      |  |             |       |            |  |   |       |   |  |
| General Partner,1,276.7484 Unit equivalents outstanding in 2004 and2003                                                                |  |             | 1,966,180  |            |  |   | 2,089,578  |   |  |
| LimitedPartners, 39,717.7935 and 42,549.0942 Redeemable Units of LimitedPartnership Interest outstanding in 2004 and 2003,respectively |  |             | 61,165,150 |            |  |   | 69,637,768 |   |  |
|                                                                                                                                   |  |             | 63,131,330 |            |  |   | 71,727,346 |   |  |
|                                                                                                                                   |  | $                | 64,799,729 |            |  | $      | 75,961,490 |   |  |
|                                                                                                                                        |

|  |                                                          |
|--|----------------------------------------------------------|
|  | See Accompanying Notes toUnaudited Financial Statements. |

3

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Smith Barney Diversified Futures FundL.P. Condensed Schedule of Investments September 30,2004(Unaudited)

|                                   |  |                                                    |  |           |           |         |  |  |  |  |
|-----------------------------------|--|----------------------------------------------------|--|-----------|-----------|---------|--|--|--|--|
| Sector                            |  | Contract                                           |  | FairValue |
| Currencies                        |  |
|                              |  | Unrealizedappreciation on forward contracts1.54%   |  | $         | 969,136   |    |
|                              |  | Unrealizeddepreciation on forward contracts(1.02)% |  |      | (642,651  | )  |
|                              |  | Totalforward contracts0.52%                        |  |      | 326,485   |    |
|                              |  | Futurescontracts purchased1.27%                    |  |      | 806,488   |    |
|                              |  | Futurescontracts sold(0.59)%                       |  |      | (373,435  | )  |
|                              |  | Totalfutures contracts0.68%                        |  |      | 433,053   |    |
| TotalCurrencies1.20%              |  |                                               |  |      | 759,538   |    |
| Energy                            |  |                                               |  |      |      |    |
|                              |  | Futurescontracts purchased2.03%                    |  |      | 1,279,472 |    |
|                              |  | Futurescontracts sold(0.06)%                       |  |      | (36,300   | )  |
| Total Energy1.97%                 |  |                                               |  |      | 1,243,172 |    |
| Grains                            |  |                                               |  |      |      |    |
|                              |  | Futurescontracts purchased(0.13)%                  |  |      | (85,806   | )  |
|                              |  | Futurescontracts sold0.65%                         |  |      | 412,180   |    |
| Total Grains0.52%                 |  |                                               |  |      | 326,374   |    |
| InterestRatesU.S.                 |  |                                               |  |      |      |    |
|                              |  | Futurescontracts purchased(0.01)%                  |  |      | (5,462    | )  |
|                              |  | Futurescontracts sold(0.00)%*                      |  |      | 571       |    |
| Total InterestRates U.S.(0.01)%   |  |                                               |  |      | (4,891    | )  |
| InterestRates Non-U.S.            |  |
|                              |  | Futures contracts purchased1.47%                   |  |      | 926,058   |    |
|                              |  | Futures contracts sold(0.00)%*                     |  |      | (1.989    | )  |
| TotalInterest Rates Non-U.S.1.47% |  |                                               |  |      | 924,069   |    |
| Livestock                         |  |                                               |  |      |      |    |
|                              |  | Futurescontracts purchased0.02%                    |  |      | 13,193    |    |
|                              |  | Futurescontracts sold(0.00)%*                      |  |      | 1,850     |    |
| TotalLivestock0.02%               |  |                                               |  |      | 15,043    |    |
| TotalLumber 0.01%                 |  | Total futures contracts purchased0.01%             |  |      | 6,017     |    |
| Metals                            |  |                                               |  |      |      |    |
|                              |  | Futurescontracts purchased0.38%                    |  |      | 242,604   |    |
|                              |  | Futurescontracts sold(0.06)%                       |  |      | (42,265   | )  |
|                              |  | Totalfutures contracts0.32%                        |  |      | 200,339   |    |
|                              |  | Unrealizedappreciation on forward contracts0.54%   |  |      | 340,874   |    |
|                              |  | Unrealizeddepreciation on forward contracts(0.53)% |  |      | (332,703  | )  |
|                              |  | Totalforward contracts0.01%                        |  |      | 8,171     |    |
| Total Metals0.33%                 |  |                                               |  |      | 208,510   |    |
| Softs                             |  |                                               |  |      |      |    |
|                              |  | Futurescontracts purchased0.01%                    |  |      | 5,748     |    |
|                              |  | Futurescontracts sold0.02%                         |  |      | 15,238    |    |
| Total Softs0.03%                  |  |                                               |  |      | 20,986    |    |
| Indices                           |  |                                               |  |      |      |    |
|                              |  | Futurescontracts purchased(0.14)%                  |  |      | (90,071   | )  |
|                              |  | Futurescontracts sold0.08%                         |  |      | 48,267    |    |
| Total Indices(0.06)%              |  |                                               |  |      | (41,804   | )  |
| Total FairValue 5.48%             |  |                                               |  | $         | 3,457,014 |    |
|                                   |

|                    |  |                           |           |                             |  |        |        |          |  |  |
|--------------------|--|---------------------------|-----------|-----------------------------|--|--------|--------|----------|--|--|
| CountryComposition |  | Investments at Fair Value |           | % ofInvestments atFairValue |
| Australia          |  | $                         | (19,046   | )                      |  |   | (0.55  | )%  |
| Canada             |  |                      | 18,272    |                        |  |   | 0.53   |     |
| Germany            |  |                      | 353,569   |                        |  |   | 10.23  |     |
| France             |  |                      | (13,629   | )                      |  |   | (0.39  | )   |
| HongKong           |  |                      | (27,892   | )                      |  |   | (0.81  | )   |
| Italy              |  |                      | (683      | )                      |  |   | (0.02  | )   |
| Japan              |  |                      | 202,989   |                        |  |   | 5.87   |     |
| Spain              |  |                      | (5,830    | )                      |  |   | (0.17  | )   |
| UnitedKingdom      |  |                      | 611,393   |                        |  |   | 17.68  |     |
| UnitedStates       |  |                      | 2,337,871 |                        |  |   | 67.63  |     |
|               |  | $                         | 3,457,014 |                        |  |   | 100.00 | %   |
|                    |

|  |                                                                      |
|--|----------------------------------------------------------------------|
|  | Percentagesare based on Partners' capital unless otherwiseindicated. |

|   |                |
|---|----------------|
| * | Due torounding |

|  |                                                          |
|--|----------------------------------------------------------|
|  | See Accompanying Notes toUnaudited Financial Statements. |

4

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Smith Barney Diversified Futures FundL.P.Condensed Schedule of InvestmentsDecember 31, 2003(Unaudited)

|                                   |  |                                                    |  |           |            |         |  |  |  |  |
|-----------------------------------|--|----------------------------------------------------|--|-----------|------------|---------|--|--|--|--|
| Sector                            |  | Contract                                           |  | FairValue |
| Currencies                        |  |                                               |  |      |       |    |
|                              |  | Futurescontracts purchased2.31%                    |  | $         | 1,653,934  |    |
|                              |  | Futurescontracts sold(0.14)%                       |  |      | (100,293   | )  |
|                              |  | Totalfutures contracts2.17%                        |  |      | 1,553,641  |    |
|                              |  | Unrealizedappreciation on forward contracts2.65%   |  |      | 1,897,711  |    |
|                              |  | Unrealizeddepreciation on forward contracts(1.56)% |  |      | (1,116,272 | )  |
|                              |  | Totalforward contracts1.09%                        |  |      | 781,439    |    |
| Total Currencies3.26%             |  |                                               |  |      | 2,335,080  |    |
| TotalEnergy (0.11)%               |  | Futures contracts purchased(0.11)%                 |  |      | (76,535    | )  |
| Grains                            |  | Futurescontracts purchased0.95%                    |  |      | 680,144    |    |
|                              |  | Futurescontracts sold(0.09)%                       |  |      | (66,550    | )  |
| Total Grains0.86%                 |  |                                               |  |      | 613,594    |    |
| TotalInterest Rates U.S. (0.17)%  |  | Futures contracts purchased(0.17)%                 |  |      | (119,927   | )  |
| InterestRates Non-U.S.            |  | Futures contracts purchased0.22%                   |  |      | 159,634    |    |
|                              |  | Futurescontracts sold(0.04)%                       |  |      | (28,643    | )  |
| TotalInterest Rates Non-U.S.0.18% |  |                                               |  |      | 130,991    |    |
| Livestock                         |  | Futurescontracts purchased(0.02)%                  |  |      | (13,500    | )  |
|                              |  | Futurescontracts sold0.01%                         |  |      | 9,408      |    |
| Total Livestock(0.01)%            |  |                                               |  |      | (4,092     | )  |
| TotalLumber 0.01%                 |  | Futures contracts purchased0.01%                   |  |      | 6,402      |    |
| Metals                            |  | Futurescontracts purchased0.58%                    |  |      | 413,768    |    |
|                              |  | Futurescontracts sold (0.00)%*                     |  |      | (1,550     | )  |
|                              |  | Total futurescontracts0.58%                        |  |      | 412,218    |    |
|                              |  | Unrealizedappreciation on forward contracts3.29%   |  |      | 2,362,770  |    |
|                              |  | Unrealizeddepreciation on forward contracts(1.65)% |  |      | (1,182,088 | )  |
|                              |  | Totalforward contracts1.64%                        |  |      | 1,180,682  |    |
| Total Metals2.22%                 |  |                                               |  |      | 1,592,900  |    |
| Softs                             |  | Futurescontracts purchased(0.14)%                  |  |      | (99,050    | )  |
|                              |  | Futurescontracts sold0.03%                         |  |      | 22,953     |    |
| Total Softs(0.11)%                |  |                                               |  |      | (76,097    | )  |
| Indices                           |  | Futurescontracts purchased1.67%                    |  |      | 1,195,478  |    |
|                              |  | Futurescontracts sold0.06%                         |  |      | 41,530     |    |
| Total Indices1.73%                |  |                                               |  |      | 1,237,008  |    |
| TotalFair Value7.86%              |  |                                               |  | $         | 5,639,324  |    |
|                                   |

|                    |  |                          |  |                              |        |         |  |  |  |  |
|--------------------|--|--------------------------|--|------------------------------|--------|---------|--|--|--|--|
| CountryComposition |  | Investmentsat Fair Value |  | % of Investments atFairValue |
| Australia          |  | $57,663                  |  |                         | 1.02   | %  |
| Canada             |  | 35,485                   |  |                         | 0.63   |    |
| France             |  | 33,586                   |  |                         | 0.60   |    |
| Germany            |  | 312,479                  |  |                         | 5.54   |    |
| HongKong           |  | 3,903                    |  |                         | 0.07   |    |
| Italy              |  | (10,477)                 |  |                         | (0.19  | )  |
| Japan              |  | 27,224                   |  |                         | 0.48   |    |
| Spain              |  | 113,433                  |  |                         | 2.01   |    |
| UnitedKingdom      |  | 1,411,139                |  |                         | 25.02  |    |
| UnitedStates       |  | 3,654,889                |  |                         | 64.82  |    |
|               |  | $5,639,324               |  |                         | 100.00 | %  |
|                    |

|  |                                                                     |
|--|---------------------------------------------------------------------|
|  | Percentagesare based on Partners' capital unless otherwiseindicated |

|   |                |
|---|----------------|
| * | Due torounding |

|  |                                                          |
|--|----------------------------------------------------------|
|  | See Accompanying Notes toUnaudited Financial Statements. |

5

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Smith BarneyDiversified Futures Fund L.P. Statements of Income and Expensesand Partners'Captial(Unaudited)

|                                                                                                                                           |  |                                |            |                               |  |        |            |         |  |        |            |         |  |        |            |         |  |  |
|-------------------------------------------------------------------------------------------------------------------------------------------|--|--------------------------------|------------|-------------------------------|--|--------|------------|---------|--|--------|------------|---------|--|--------|------------|---------|--|--|
|                                                                                                                                      |  | ThreeMonths EndedSeptember 30, |            | Nine Months EndedSeptember30, |
|                                                                                                                                      |  | 2004                           |            | 2003                          |  | 2004   |            | 2003    |
| Income:                                                                                                                                   |  |                           |       |                          |  |
| Netgains (losses) on trading of commodityinterests:                                                                                       |  |                           |       |                          |  |   |       |    |  |
| Realized gains(losses) on closed positions                                                                                                |  | $                              | (5,189,578 | )                        |  | $      | (7,926,752 | )  |  | $      | 3,838,093  |    |  | $      | 11,219,567 |    |
| Change in unrealized gains(losses) on open positions                                                                                      |  |                           | 4,545,762  |                          |  |   | 5,540,836  |    |  |   | (2,182,310 | )  |  |   | (1,525,620 | )  |
|                                                                                                                                      |  |                           | (643,816   | )                        |  |   | (2,385,916 | )  |  |   | 1,655,783  |    |  |   | 9,693,947  |    |
| Interestincome                                                                                                                            |  |                           | 172,145    |                          |  |   | 124,003    |    |  |   | 438,467    |    |  |   | 455,871    |    |
|                                                                                                                                      |  |                           | (471,671   | )                        |  |   | (2,261,913 | )  |  |   | 2,094,250  |    |  |   | 10,149,818 |    |
| Expenses:                                                                                                                                 |  |                           |       |                          |  |   |       |    |  |
| Brokeragecommissions including clearing fees of $26,601, $36,601, $87,401 and$115,482, respectively                                       |  |                           | 939,449    |                          |  |   | 1,046,402  |    |  |   | 3,098,581  |    |  |   | 3,309,082  |    |
| Managementfees                                                                                                                            |  |                           | 302,918    |                          |  |   | 339,584    |    |  |   | 1,007,824  |    |  |   | 1,103,354  |    |
| Incentivefees                                                                                                                             |  |                           | —    |                          |  |   | —    |    |  |   | 1,880,089  |    |  |   | 1,497,113  |    |
| Otherexpenses                                                                                                                             |  |                           | 20,442     |                          |  |   | 17,456     |    |  |   | 64,679     |    |  |   | 62,410     |    |
|                                                                                                                                      |  |                           | 1,262,809  |                          |  |   | 1,403,442  |    |  |   | 6,051,173  |    |  |   | 5,971,959  |    |
| Net income (loss)                                                                                                                         |  |                           | (1,734,480 | )                        |  |   | (3,665,355 | )  |  |   | (3,956,923 | )  |  |   | 4,177,859  |    |
| Additions                                                                                                                                 |  |                           | —    |                          |  |   | 2,223      |    |  |   | 1,995      |    |  |   | 6,741      |    |
| Redemptions                                                                                                                               |  |                           | (1,171,949 | )                        |  |   | (2,237,946 | )  |  |   | (4,641,088 | )  |  |   | (5,326,882 | )  |
| Netincrease (decrease) in Partners' capital                                                                                               |  |                           | (2,906,429 | )                        |  |   | (5,901,078 | )  |  |   | (8,596,016 | )  |  |   | (1,142,282 | )  |
| Partners'capital, beginning of period                                                                                                     |  |                           | 66,037,759 |                          |  |   | 72,820,743 |    |  |   | 71,727,346 |    |  |   | 68,061,947 |    |
| Partners'capital, end of period                                                                                                           |  | $                              | 63,131,330 |                          |  | $      | 66,919,665 |    |  | $      | 63,131,330 |    |  | $      | 66,919,665 |    |
| Net asset value per Redeemable Unit(40,994.5419 and 44,570.1703 Redeemable Units outstanding at September30, 2004 and 2003, respectively) |  | $                              | 1,539.99   |                          |  | $      | 1,501.45   |    |  | $      | 1,539.99   |    |  | $      | 1,501.45   |    |
| Net income (loss) per Redeemable Unit ofLimited Partnership Interest and General Partner Unit equivalent                                  |  | $                              | (41.39     | )                        |  | $      | (79.85     | )  |  | $      | (96.65     | )  |  | $      | 83.02      |    |
|                                                                                                                                           |

See Accompanying Notes to UnauditedFinancial Statements.

6

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Smith Barney Diversified Futures FundL.P. Statements of CashFlows(Unaudited)

|                                                                                                                 |  |                                |            |                                |  |        |             |         |  |        |            |         |  |        |            |         |  |  |
|-----------------------------------------------------------------------------------------------------------------|--|--------------------------------|------------|--------------------------------|--|--------|-------------|---------|--|--------|------------|---------|--|--------|------------|---------|--|--|
|                                                                                                            |  | ThreeMonths EndedSeptember 30, |            | Nine Months EndedSeptember 30, |
|                                                                                                            |  | 2004                           |            | 2003                           |  | 2004   |             | 2003    |
| Cashflows from operating activities:                                                                            |  |
| Net income(loss)                                                                                                |  | $                              | (1,734,480 | )                         |  | $      | (3,665,355  | )  |  | $      | (3,956,923 | )  |  | $      | 4,177,859  |    |
| Adjustmentsto reconcile net income (loss) to net cash provided by (used in)operating activities:                |  |
| Changes inoperating assets and liabilities:                                                                     |  |
| (Increase)decrease in net unrealized appreciation/depreciation on openfutures     positions |  |                           | (3,631,966 | )                         |  |   | (4,394,827  | )  |  |   | 554,845    |    |  |   | 2,740,546  |    |
| (Increase)decrease in unrealized appreciation on open forward contracts                                         |  |                           | (812,292   | )                         |  |   | (477,419    | )  |  |   | 2,950,471  |    |  |   | (922,102   | )  |
| (Increase)decrease in interest     receivable                                               |  |                           | (14,779    | )                         |  |   | 11,302      |    |  |   | (21,133    | )  |  |   | 13,124     |    |
| Increase(decrease) in unrealized depreciation on open forward contracts                                         |  |                           | (101,504   | )                         |  |   | (668,590    | )  |  |   | (1,323,006 | )  |  |   | (292,824   | )  |
| Accruedexpenses:                                                                                                |  |
| Increase (decrease) in commissions                                                                              |  |                           | (16,166    | )                         |  |   | (24,510     | )  |  |   | (56,365    | )  |  |   | (9,204     | )  |
| Increase(decrease) in management fees                                                                           |  |                           | (6,285     | )                         |  |   | (8,686      | )  |  |   | (21,718    | )  |  |   | (34,654    | )  |
| Increase(decrease) in incentive fees                                                                            |  |                           | —    |                           |  |   | (491,756    | )  |  |   | (761,281   | )  |  |   | (55,035    | )  |
| Increase (decrease) in other                                                                                    |  |                           | 12,902     |                           |  |   | (68,193     | )  |  |   | 35,563     |    |  |   | (23,238    | )  |
| Increase (decrease) in redemptions payable                                                                      |  |                           | (670,047   | )                         |  |   | 1,072,400   |    |  |   | (438,938   | )  |  |   | 1,132,104  |    |
| Netcash provided by (used in)     operating activities                                      |  |                           | (6,974,617 | )                         |  |   | (8,715,634  | )  |  |   | (3,038,485 | )  |  |   | 6,726,576  |    |
| Cashflows from financing activities:                                                                            |  |
| Proceedsfrom additions—Limited Partners                                                                   |  |                           | —    |                           |  |   | 2,223       |    |  |   | 1,995      |    |  |   | 6,741      |    |
| Paymentsfor redemptions—Limted Partners                                                                   |  |                           | (1,171,949 | )                         |  |   | (2,237,946  | )  |  |   | (4,641,088 | )  |  |   | (5,326,882 | )  |
| Netcash provided by (used in)     financing activities                                      |  |                           | (1,171,949 | )                         |  |   | (2,235,723  | )  |  |   | (4,639,093 | )  |  |   | (5,320,141 | )  |
| Netchange in cash                                                                                               |  |                           | (8,146,566 | )                         |  |   | (10,951,357 | )  |  |   | (7,677,578 | )  |  |   | 1,406,435  |    |
| Cash,at beginning of period                                                                                     |  |                           | 68,452,561 |                           |  |   | 76,415,093  |    |  |   | 67,983,573 |    |  |   | 64,057,301 |    |
| Cash,at end of period                                                                                           |  | $                              | 60,305,995 |                           |  | $      | 65,463,736  |    |  | $      | 60,305,995 |    |  | $      | 65,463,736 |    |
|                                                                                                                 |

SeeAccompanying Notes to Unaudited FinancialStatements.

7

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SmithBarney Diversified Futures Fund L.P.Notes to FinancialStatementsSeptember 30, 2004(Unaudited)

1.    General:

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

CitigroupManaged Futures LLC, formerly Smith Barney Futures Management LLC, actsas the general partner (the "GeneralPartner") of the Partnership. The Partnership'scommodity broker is Citigroup Global Markets Inc.("CGM"), formerly Salomon Smith Barney Inc.CGM is an affiliate of the General Partner. The General Partner iswholly owned by Citigroup Global Markets Holdings Inc.("CGMHI"), formerly Salomon Smith BarneyHoldings Inc., which is the sole owner of CGM. CGMHI is a wholly ownedsubsidiary of Citigroup Inc. ("Citigroup").As of September 30, 2004, all trading decisions are made for thePartnership by Campbell & Company, Inc., Willowbridge Associates,Inc., Winton Capital Management and Graham Capital Management L.P.(each an "Advisor" and collectively, the"Advisors").

The accompanyingfinancial statements are unaudited but, in the opinion of management,include all adjustments, consisting only of normal recurringadjustments, necessary for a fair presentation of thePartnership's financial condition at September 30, 2004 andDecember 31, 2003 and the results of its operations and cash flows forthe three and nine months ended September 30, 2004 and 2003. Thesefinancial statements present the results of interim periods and do notinclude all disclosures normally provided in annual financialstatements. You should read these financial statements together withthe financial statements and notes included in the Partnership'sannual report on Form 10-K filed with the Securities and ExchangeCommission for the year ended December 31, 2003.

Due to thenature of commodity trading, the results of operations for the interimperiods presented should not be considered indicative of the resultsthat may be expected for the entire year.

2.    FinancialHighlights:

Changes in Net Asset Value per Redeemable Unit ofLimited Partnership Interest for the three and nine months endedSeptember 30, 2004 and 2003 were asfollows:

|                                                        |  |                                |          |                             |  |        |          |         |  |        |          |         |  |        |          |         |  |  |
|--------------------------------------------------------|--|--------------------------------|----------|-----------------------------|--|--------|----------|---------|--|--------|----------|---------|--|--------|----------|---------|--|--|
|                                                   |  | ThreeMonths EndedSeptember 30, |          | NineMonthsEndedSeptember30, |
|                                                   |  | 2004                           |          | 2003                        |  | 2004   |          | 2003    |
| Netrealized and unrealized gains(losses)*              |  | $                              | (37.75   | )                      |  | $      | (74.76   | )  |  | $      | (38.41   | )  |  | $      | 129.33   |    |
| Interestincome                                         |  |                           | 4.15     |                        |  |   | 2.70     |    |  |   | 10.34    |    |  |   | 9.72     |    |
| Expenses**                                             |  |                           | (7.79    | )                      |  |   | (7.79    | )  |  |   | (68.58   | )  |  |   | (56.03   | )  |
| Increase(decrease) for the period                      |  |                           | (41.39   | )                      |  |   | (79.85   | )  |  |   | (96.65   | )  |  |   | 83.02    |    |
| NetAsset Value per Redeemable Unit, beginning ofperiod |  |                           | 1,581.38 |                        |  |   | 1,581.30 |    |  |   | 1,636.64 |    |  |   | 1,418.43 |    |
| NetAsset Value per Redeemable Unit, end ofperiod       |  | $                              | 1,539.99 |                        |  | $      | 1,501.45 |    |  | $      | 1,539.99 |    |  | $      | 1,501.45 |    |
|                                                        |

|   |                                |
|---|--------------------------------|
| * | Includesbrokerage commissions. |

|    |                                |
|----|--------------------------------|
| ** | Excludes brokeragecommissions. |

8

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SmithBarney Diversified Futures Fund L.P.Notes to FinancialStatementsSeptember 30, 2004(Unaudited) (Continued)

Financial Highlights(continued):

|                                              |  |                                |      |                             |  |        |      |          |  |        |      |          |  |        |      |          |  |  |
|----------------------------------------------|--|--------------------------------|------|-----------------------------|--|--------|------|----------|--|--------|------|----------|--|--------|------|----------|--|--|
|                                         |  | ThreeMonths EndedSeptember 30, |      | NineMonthsEndedSeptember30, |
|                                         |  | 2004                           |      | 2003                        |  | 2004   |      | 2003     |
| Ratioto average net assets: ***              |  |
| Netinvestment loss before incentive fees**** |  |                           | (6.8 | )%                     |  |   | (7.3 | )%  |  |   | (7.1 | )%  |  |   | (7.4 | )%  |
| Operatingexpenses                            |  |                           | 7.9  | %                      |  |   | 8.0  | %   |  |   | 8.0  | %   |  |   | 8.2  | %   |
| Incentivefees                                |  |                           | 0.0  | %                      |  |   | 0.0  | %   |  |   | 2.7  | %   |  |   | 2.8  | %   |
| Totalexpenses                                |  |                           | 7.9  | %                      |  |   | 8.0  | %   |  |   | 10.7 | %   |  |   | 11.0 | %   |
| Totalreturn:                                 |  |
| Total return before incentivefees            |  |                           | (2.6 | )%                     |  |   | (5.1 | )%  |  |   | (3.1 | )%  |  |   | 8.2  | %   |
| Incentivefees                                |  |                           | (0.0 | )%                     |  |   | 0.0  | %   |  |   | (2.8 | )%  |  |   | (2.3 | )%  |
| Totalreturn after incentivefees              |  |                           | (2.6 | )%                     |  |   | (5.1 | )%  |  |   | (5.9 | )%  |  |   | 5.9  | %   |
|                                              |

|     |                                       |
|-----|---------------------------------------|
| *** | Annualized(other than incentive fees) |

|      |                                                                   |
|------|-------------------------------------------------------------------|
| **** | Interest income less total expenses(exclusive of incentive fees). |

The above ratios mayvary for individual investors based on the timing of capitaltransactions during the period. Additionally, these ratios arecalculated for the Limited Partner class using the LimitedPartners' share of income, expenses and average net assets.

3.    Trading Activities:

The Partnership was formed forthe purpose of trading contracts in a variety of commodity interests,including derivative financial instruments and derivative commodityinstruments. The results of the Partnership's trading activitiesare shown in the Statements of Income and Expenses and Partners'Capital and are discussed in Item 2, Management's Discussion andAnalysis of Financial Condition and Results of Operations.

TheCustomer Agreement between the Partnership and CGM gives thePartnership the legal right to net unrealized gains and losses on openfutures positions.

All of the commodity interests owned by thePartnership are held for trading purposes. The average fair values ofthese interests during the nine and twelve months ended September 30,2004 and December 31, 2003, based on a monthly calculation, were$2,789,356 and $4,386,216, respectively. The fair values of thesecommodity interests, including options thereon, if applicable, atSeptember 30, 2004 and December 31, 2003, were $3,457,014 and$5,639,324, respectively. Fair values for exchange traded commodityfutures and options are based on quoted market prices for those futuresand options. Fair values for all other financial instruments for whichmarket quotations are not readily available are based on calculationsapproved by the General Partner.

4.    Financial InstrumentRisks:

In the normal course of its business, the Partnership isparty to financial instruments with off-balance sheet risk, includingderivative financial instruments and derivative commodity instruments.These financial instruments may include forwards, futures and options,whose values are based upon an 

9

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SmithBarney Diversified Futures Fund L.P.Notes to FinancialStatementsSeptember 30, 2004(Unaudited) (Continued)

underlying asset, index, or reference rate,and generally represent future commitments to exchange currencies orcash flows, to purchase or sell other financial instruments at specificterms at specified future dates, or, in the case of derivativecommodity instruments, to have a reasonable possibility to be settledin cash, through physical delivery or with another financialinstrument. These instruments may be traded on an exchange orover-the-counter ("OTC"). Exchange-tradedinstruments are standardized and include futures and certain optioncontracts. OTC contracts are negotiated between contracting parties andinclude forwards and certain options.

Each of these instrumentsis subject to various risks similar to those related to the underlyingfinancial instruments including market and credit risk. In general, therisks associated with OTC contracts are greater than those associatedwith exchange-traded instruments because of the greater risk of defaultby the counterparty to an OTC contract.

Market risk is thepotential for changes in the value of the financial instruments tradedby the Partnership due to market changes, including interest andforeign exchange rate movements and fluctuations in commodity orsecurity prices. Market risk is directly impacted by the volatility andliquidity in the markets in which the related underlying assets aretraded.

Credit risk is the possibility that a loss may occur dueto the failure of a counterparty to perform according to the terms of acontract. Credit risk with respect to exchange traded instruments isreduced to the extent that an exchange or clearing organization acts asa counterparty to the transactions. The Partnership's risk ofloss in the event of counterparty default is typically limited to theamounts recognized as unrealized appreciation in the statements offinancial condition and not represented by the contract or notionalamounts of the instruments. The Partnership has credit risk andconcentration risk because the sole counterparty or broker with respectto the Partnership's assets is CGM.

The General Partnermonitors and controls the Partnership's risk exposure on a dailybasis through financial, credit and risk management monitoring systems,and accordingly believes that it has effective procedures forevaluating and limiting the credit and market risks to which thePartnership is subject. These monitoring systems allow the GeneralPartner to statistically analyze actual trading results withrisk-adjusted performance indicators and correlation statistics. Inaddition, on-line monitoring systems provide account analysis offutures, forwards and options positions by sector, margin requirements,gain and loss transactions and collateral positions.

Themajority of these instruments mature within one year of September 30,2004. However, due to the nature of the Partnership's business,these instruments may not be held to maturity.

10

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Item2.    Management's Discussion and Analysis of FinancialCondition and Results of Operations.

Liquidity and CapitalResources

The Partnership does not engage in the sale ofgoods or services. Its only assets are its equity in its commodityfutures trading account, consisting of cash, net unrealizedappreciation on open futures and forward contracts and interestreceivable. Because of the low margin deposits normally required incommodity futures trading, relatively small price movements may resultin substantial losses to the Partnership. While substantial lossescould lead to a decrease in liquidity, no such losses occurred duringthe third quarter of 2004.

The Partnership's capitalconsists of the capital contributions of the partners as increased ordecreased by realized and/or unrealized gains or losses on commodityfutures trading, expenses, interest income, additions and redemptionsof Redeemable Units and distributions of profits, if any.

Forthe nine months ended September 30, 2004, Partnership capital decreased12.0% from $71,727,346 to $63,131,330. This decrease wasattributable to a net loss from operations of $3,956,923 coupled withthe redemption of 2,832.4855 Redeemable Units totaling $4,641,088,partially offset by additional sales of 1.1848 Redeemable Units ofLimited Partnership Interest totaling $1,995. Persons investing$1,000,000 or more will pay a reduced brokerage fee, receiving thedifferential in the form of additional Redeemable Units. Futureredemptions can impact the amount of funds available for investment incommodity contract positions in subsequent periods.

CriticalAccounting Policies

The preparation of financial statementsin conformity with accounting principles generally accepted in theUnited States of America requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities,disclosures of contingent assets and liabilities at the date of thefinancial statements and reported amounts of revenues and expensesduring the reporting period. Actual results could differ from theseestimates.

All commodity interests (including derivativefinancial instruments and derivative commodity instruments) are usedfor trading purposes. The commodity interests are recorded on tradedate and open contracts are recorded in the statements of financialcondition at fair value on the last business day of the period, whichrepresents market value for those commodity interests for which marketquotations are readily available or other measures of fair value deemedappropriate by management of the General Partner for those commodityinterests and foreign currencies for which market quotations are notreadily available. Investments in commodity interests denominated inforeign currencies are translated into U.S. dollars at the exchangerates prevailing on the last business day of the period. Realized gains(losses) and changes in unrealized values on open positions arerecognized in the period in which the contract is closed or the changesoccur and are included in net gains (losses) on trading of commodityinterests.

Foreign currency contracts are those contracts wherethe Partnership agrees to receive or deliver a fixed quantity offoreign currency for an agreed-upon price on an agreed future date.Foreign currency contracts are valued daily, and thePartnership's net equity therein, representing unrealized gain orloss on the contracts as measured by the difference between the forwardforeign exchange rates at the date of entry into the contracts and theforward rates at the reporting dates, is included in the statement offinancial condition. Realized gains (losses) and changes in unrealizedvalues on foreign currency contracts are recognized in the period inwhich the contract is closed or the changes occur and are included inthe statements of income and expenses and partners' capital.

Results of Operations

During the Partnership'sthird quarter of 2004 the net asset value per unit decreased2.6% from $1,581.38 to $1,539.99 as compared to a decrease of5.1% in the third quarter of 2003. The Partnership experienced anet trading loss before brokerage commissions and related fees in thethird quarter of 2004 of $643,816. Losses were primarily attributableto the trading of commodity futures in currencies, U.S. interest rates,livestock, metals, indices and softs and were partially offset by gainsin energy, grains, 

11

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non-U.S. interest rates and lumber. ThePartnership experienced a net trading loss before brokerage commissionsand related fees in the third quarter of 2003 of $2,385,916. Losseswere primarily attributable to the trading of commodity futures incurrencies, energy, U.S. and non U.S. interest rates and softs and werepartially offset by gains in grains, indices, livestock andmetals.

During the Partnership's nine months endedSeptember  30, 2004, the net asset value per Redeemable unitdecreased 5.9% from $1,636.64 to $1,539.99 as compared to anincrease of 5.9% for the nine months ended September  30,2003. The Partnership experienced a net trading gain before commissionsand related fees for the nine months ended September  30, 2004 of$1,655,783. Gains were primarily attributable to the trading ofcommodity futures in energy, grains, non-U.S. interest rates, livestockand lumber and were partially offset by losses in currencies, U.S.interest rates, metals, softs and indices. The Partnership experienceda net trading gain before brokerage commissions and related fees forthe nine months ended September  30, 2003 of $9,693,947. Gainswere primarily attributable to the trading of commodity futures incurrencies, energy, U.S. and non-U.S. interest rates, livestock andindices and were partially offset by losses in grains, metals andsofts.

The third quarter of 2004 was characterized by continueddifficult trading conditions for the Partnership'strend-following Advisors. The currency sector produced the greatestlosses as the European and Asian currencies were unable to sustain anysolid direction versus a weak U.S. dollar. These choppy marketconditions carried over to the U.S. interest rate markets as theFederal Reserve Bank tightened short-term rates in spite of persistentmarket-driven lower long-term interest rates. Trading in global stockmarket indices was also unprofitable for the Partnership'sAdvisors as the same lack of direction caused trends to be initiatedand only a short time later to be reversed.

The most significantmarket for the Partnership during the quarter was energy. Trading incrude oil, natural gas and gas oil contributed profits as crude oil hitsuccessive highs each month ending September at over $50 per barrel.Trading in grains was profitable for the period while trading in metalsand softs was slightly negative for the period.

Overall, after adifficult second quarter and beginning of the third quarter, markettrends emerged late in the third quarter in both commodity andfinancial markets that were conducive to the Advisors'trend-following approaches. While a decline in the price of energy ispossible in the fourth quarter that might lead to a give-back in openprofits over the short term, the overall expectation is for continueddirectionless financial markets and potentially volatile commoditymarkets until political, financial and economic trends become moreevident.

Commodity futures markets are highly volatile. Thepotential for broad and rapid price fluctuations increases the risksinvolved in commodity trading, but also increases the possibility ofprofit. The profitability of the Partnership depends on the existenceof major price trends and the ability of the Advisors to correctlyidentify those price trends. Price trends are influenced by, amongother things, changing supply and demand relationships, weather,governmental, agricultural, commercial and trade programs and policies,national and international political and economic events and changes ininterest rates. To the extent that market trends exist and the Advisorsare able to identify them, the Partnership expects to increase capitalthrough operations.

Interest income on 80% of thePartnership's daily equity maintained in cash was earned at themonthly average 30-day U.S. Treasury bill rate determined weekly by CGMbased on the non-competitive yield on three month U.S. Treasury billsmaturing 30 days from the date in which such weekly rate is determined.CGM may continue to maintain the Partnership's assets in cashand/or place all of the Partnership's assets in 90-day Treasurybills and pay the Partnership 80% of the interest earned on theTreasury bills purchased. CGM will retain 20% of any interestearned on Treasury bills. Interest income for the three months endedSeptember 30, 2004 increased by $48,142 , as compared to thecorresponding period in 2003. The increase in interest income isprimarily due to an increase in interest rates during the three monthsended September 30, 2004 as compared to the corresponding period in2003. Interest income for the nine months ended September 30, 2004decreased by $17,404, as compared to the corresponding period in 2003.This decrease was due to a decrease in net assets during the ninemonths ended September 30, 2004, as compared to the correspondingperiod in 2003.

12

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Brokerage commissions are calculated onthe Partnership's net asset value as of the last day of eachmonth and are affected by trading performance and redemptions.Accordingly, they must be compared in relation to the fluctuations inmonthly net asset values. Commissions and fees for the three and ninemonths ended September 30, 2004 decreased by $106,953 and $210,501,respectively, as compared to the corresponding periods in 2003. Thedecrease in brokerage commissions is due to lower average net assetsduring the three and nine months ended September 30, 2004 as comparedto the corresponding periods in 2003.

Management fees arecalculated on the portion of the Partnership's net asset valueallocated to each Advisor at the end of the month and, therefore, areaffected by trading performance and redemptions. Management fees forthe three and nine months ended September 30, 2004 decreased by $36,666and $95,530, respectively, as compared to the corresponding periods in2003. The decrease in management fees is due to lower average netassets during the three and nine months ended September 30, 2004 ascompared to the corresponding periods in 2003.

Incentive feesare based on the new trading profits generated by each Advisor at theend of the quarter as defined in the advisory agreements between thePartnership, the General Partner and each Advisor. Trading performancefor the three and nine months ended September 30, 2004 resulted inincentive fees of $0 and $1,880,089, respectively. Trading performancefor the three and nine months ended September 30, 2003 resulted inincentive fees of $0 and $1,497,113, respectively.

13

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Item 3.    Quantitative and QualitativeDisclosures about Market Risk

The Partnership is a speculativecommodity pool. The market sensitive instruments held by it areacquired for speculative trading purposes, and all or substantially allof the Partnership's assets are subject to the risk of tradingloss. Unlike an operating company, the risk of market sensitiveinstruments is integral, not incidental, to the Partnership'smain line of business.

Market movements result in frequentchanges in the fair value of the Partnership's open positionsand, consequently, in its earnings and cash flow. ThePartnership's market risk is influenced by a wide variety offactors, including the level and volatility of interest rates, exchangerates, equity price levels, the value of financial instruments andcontracts, the diversification effects among the Partnership'sopen positions and the liquidity of the markets in which it trades.

The Partnership rapidly acquires and liquidates both long and shortpositions in a wide range of different markets. Consequently, it is notpossible to predict how a particular future market scenario will affectperformance, and the Partnership's past performance is notnecessarily indicative of its future results.

Value at Risk is ameasure of the maximum amount which the Partnership could reasonably beexpected to lose in a given market sector. However, the inherentuncertainty of the Partnership's speculative trading and therecurrence in the markets traded by the Partnership of market movementsfar exceeding expectations could result in actual trading ornon-trading losses far beyond the indicated Value at Risk or thePartnership's experience to date (i.e., "risk ofruin"). In light of the foregoing as well as the risks anduncertainties intrinsic to all future projections, the inclusion of thequantification in this section should not be considered to constituteany assurance or representation that the Partnership's losses inany market sector will be limited to Value at Risk or by thePartnership's attempts to manage its market risk. 

Exchangemaintenance margin requirements have been used by the Partnership asthe measure of its Value at Risk. Maintenance margin requirements areset by exchanges to equal or exceed the maximum losses reasonablyexpected to be incurred in the fair value of any given contract in95%-99% of any one-day interval. Maintenance margin hasbeen used rather than the more generally available initial margin,because initial margin includes a credit risk component, which is notrelevant to Value at Risk.

14

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The following table indicates thetrading Value at Risk associated with the Partnership's openpositions by market category as of September 30, 2004 and the highest,lowest and average value during the three months ended September 30,2004. All open position trading risk exposures of the Partnership havebeen included in calculating the figures set forth below. As ofSeptember 30, 2004, the Partnership's total capitalization was$63,131,330. There has been no material change in the trading Value atRisk information previously disclosed in the Partnership's AnnualReport on Form 10-K for the year ended December 31, 2003.

September 30, 2004(Unaudited)

|                           |  |               |           |                         |  |                                     |       |                  |  |                       |           |        |  |        |           |        |  |        |           |        |  |  |
|---------------------------|--|---------------|-----------|-------------------------|--|-------------------------------------|-------|------------------|--|-----------------------|-----------|--------|--|--------|-----------|--------|--|--------|-----------|--------|--|--|
|                      |  |          |           |                    |  | ThreeMonths Ended September 30,2004 |
| MarketSector              |  | Value at Risk |           | % ofTotalCapitalization |  | HighValue atRisk                    |       | LowValue at Risk |  | Average**Value atRisk |
| Currencies:               |  |
| - ExchangeTradedContracts |  | $             | 898,362   |                    |  |                                | 1.42  | %           |  | $                     | 1,582,785 |   |  | $      | 553,365   |   |  | $      | 726,798   |   |
| -OTCContracts             |  |          | 627,148   |                    |  |                                | 0.99  | %           |  |                  | 1,146,847 |   |  |   | 422,027   |   |  |   | 787,277   |   |
| Energy                    |  |          | 1,523,645 |                    |  |                                | 2.41  | %           |  |                  | 1,621,935 |   |  |   | 659,215   |   |  |   | 1,094,772 |   |
| Grains                    |  |          | 101,312   |                    |  |                                | 0.16  | %           |  |                  | 181,474   |   |  |   | 84,737    |   |  |   | 112,043   |   |
| InterestRatesU.S.         |  |          | 773,350   |                    |  |                                | 1.22  | %           |  |                  | 875,200   |   |  |   | 219,200   |   |  |   | 528,217   |   |
| InterestRatesNon-U.S.     |  |          | 2,549,427 |                    |  |                                | 4.04  | %           |  |                  | 2,575,095 |   |  |   | 1,049,629 |   |  |   | 2,031,542 |   |
| Livestock                 |  |          | 42,495    |                    |  |                                | 0.07  | %           |  |                  | 135,950   |   |  |   | 41,900    |   |  |   | 72,532    |   |
| Metals:                   |  |
| -Exchange TradedContracts |  |          | 396,500   |                    |  |                                | 0.63  | %           |  |                  | 545,000   |   |  |   | 99,000    |   |  |   | 271,500   |   |
| -OTCContracts             |  |          | 245,810   |                    |  |                                | 0.39  | %           |  |                  | 296,975   |   |  |   | 73,085    |   |  |   | 197,357   |   |
| Softs                     |  |          | 101,245   |                    |  |                                | 0.16  | %           |  |                  | 250,845   |   |  |   | 39,181    |   |  |   | 162,259   |   |
| Indices                   |  |          | 1,061,763 |                    |  |                                | 1.69  | %           |  |                  | 2,124,348 |   |  |   | 679,052   |   |  |   | 1,261,191 |   |
| Lumber                    |  |          | 2,200     |                    |  |                                | 0.00  | %*          |  |                  | 2,200     |   |  |   | 2,200     |   |  |   | 2,200     |   |
| Total                     |  | $             | 8,323,257 |                    |  |                                | 13.18 | %           |  |
|                           |

|   |                |
|---|----------------|
| * | Dueto rounding |

|    |                                     |
|----|-------------------------------------|
| ** | Average of month-end Values atRisk. |

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Item 4.    Controls and Procedures

Based on their evaluation of the Partnership's disclosurecontrols and procedures as of September 30, 2004, the President andChief Financial Officer of the General Partner have concluded that suchcontrols and procedures are effective.

During thePartnership's last fiscal quarter, no changes occurred in thePartnership's internal control over financial reporting that havematerially affected, or are reasonably likely to materially affect, thePartnership's internal control over financialreporting.

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PART II.    OTHERINFORMATION

Item 1.    Legal Proceedings

Thefollowing information supplements and amends our discussion set forthunder Part I, Item 3 "Legal Proceedings" inthe Partnership's Annual Report on Form 10-K for the fiscal yearended December 31, 2003 and under Part II, Item 1 "LegalProceedings" in the Partnership's Quarterly Reporton Form 10-Q for the fiscal quarters ended March 31, 2004 and June 30,2004.

Enron Corp.

 A Citigroup affiliate, alongwith other defendants, settled all claims against it in IN RE NEWPOWERHOLDINGS SECURITIES LITIGATION, a class action brought on behalf ofcertain investors in NewPower securities. Citigroup reached thissettlement agreement without admitting any wrongdoing. OnSeptember  13, 2004, the United States District Court for theSouthern District of New York preliminarily approved thesettlement.

Dynegy  Inc.

 On October7, 2004, the United States District Court for the Southern District ofTexas granted the motion to dismiss all claims against the Citigroupdefendants in IN RE DYNEGY  INC. SECURITIES LITIGATION. TheDistrict Court also denied lead plaintiff's request for leave toreplead. The case was a putative class action brought on behalf ofpurchasers of publicly traded Dynegy debt and equity securities.

WorldCom,  Inc.

 The United States Court ofAppeals for the Second Circuit has affirmed the orders of the UnitedStates District Court for the Southern District of New York denyingplaintiffs' motions to remand to state court a large group ofWorldCom-related actions. On September  13, 2004, plaintiffsfiled a petition for a writ of certiorari to the United States SupremeCourt seeking review of the Second Circuit's ruling.

 On September  17, 2004, WEINSTEIN, ET AL. V. EBBERS, ETAL., a putative class action against CGM and others brought on behalfof holders of WorldCom securities asserting claims based on, amongother things, CGM's research reports concerning WorldCom, wasdismissed with prejudice in its entirety by the United States DistrictCourt for the Southern District of New York. Plaintiffs have noticed anappeal of the dismissal to the United States Court of Appeals for theSecond Circuit.

 Citigroup and CGM, along with a number ofother defendants, have settled RETIREMENT SYSTEMS OF ALABAMA, ET AL. V.J.P. MORGAN CHASE  & CO., ET AL., a WorldCom individualaction that had been remanded to the Circuit Court of MontgomeryCounty, Alabama. The settlement became final on September  30,2004.

 On June  28, 2004, the United States DistrictCourt for the Southern District of New York dismissed all claims underthe Securities Act of 1933 and certain claims under the SecuritiesExchange Act of 1934 in IN RE TARGETS SECURITIES LITIGATION, a putativeclass action against Citigroup and CGM and certain former employees,leaving only claims under the 1934 Act for purchases of Targeted GrowthEnhanced Terms Securities With Respect to the Common Stock of MCIWorldCom,  Inc. ("TARGETS") afterJuly  30, 1999. On October  20, 2004, the parties signed aMemorandum of Understanding setting forth the terms of a settlement ofall remaining claims in this action. The settlement must be approved bythe Court.

On November 5, 2004, the United States District Courtfor the Southern District of New York approved the class settlementbetween plaintiffs and the Citigroup-related defendants in IN REWORLDCOM,  INC. SECURITIES LITIGATION. The Court's approvalis subject to possible appeal by plaintiffs.

Research

 Several individual actions have been filed against Citigroupand CGM relating to, among other things, research on QwestCommunications International,  Inc. alleging violations of stateand federal securities laws.

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Other

 On October13, 2004, the United States District Court for the Southern District ofNew York certified a class in various representative cases with respectto the allocation of shares for certain initial public offerings andrelated aftermarket transactions.

 An appeal of thedismissal granted to CGM in November  2003 with respect to theantitrust case relating to the allocation of shares for certain initialpublic offerings is scheduled to be argued in December  2004.

Item 2.    Unregistered Sales of Equity Securities and Use ofProceeds

Additional Redeemable Units offered represent areduced brokerage fee to existing limited partners who invested$1,000,000 or more.

The following chart sets forth the purchasesof Redeemable Units by the Partnership.

|                                             |
|---------------------------------------------|
|                                             |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Period                                      |  | (a)TotalNumber of Shares(or Units) Purchased* |  | (b)Average PricePaid per Share(or Unit)** |  | (c) TotalNumber ofShares (or Units)Purchased as Partof PubliclyAnnouncedPlans or Programs |  | (d) Maximum Number(orApproximateDollar Value) ofShares (or Units)that May YetBePurchased Under thePlans orPrograms |
| July 1, 2004 – July 31, 2004          |  |   | 245.6660 |   |  | $ | 1,544.45 |   |  |   | N/A |   |  |   | N/A |   |
| August1, 2004 – August 31, 2004       |  |   | 369.7565 |   |  | $ | 1,520.70 |   |  |   | N/A |   |  |   | N/A |   |
| September1, 2004 – September 30, 2004 |  |   | 149.5081 |   |  | $ | 1,539.99 |   |  |   | N/A |   |  |   | N/A |   |
| Total                                       |  |   | 764.9306 |   |  | $ | 1,535.05 |   |  |   | N/A |   |  |   | N/A |   |
|                                             |

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|---|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| * | Generally,Limited Partners are permitted to redeem their Redeemable Units as ofthe end of each month on 10 days' notice to the General Partner.Under certain circumstances, the General Partner can compel redemptionbut, to date, the General Partner has not exercised this right.Purchases of Redeemable Units by the Partnership reflected in the chartabove were made in the ordinary course of the Partnership'sbusiness in connection with effecting redemptions for LimitedPartners. |

|    |                                                                                                                                        |
|----|----------------------------------------------------------------------------------------------------------------------------------------|
| ** | Redemptions ofRedeemable Units are effected as of the last day of each month at theNet Asset Value per Redeemable Unit as of that day. |

Item3.    Defaults Upon Senior Securities — None

Item4.    Submission of Matters to a Vote of Security Holders —None

Item 5.    Other Information — None

Item6.    Exhibits

The exhibits required to be filedby Item 601 of Regulation S-K are incorporated herein by reference tothe exhibit index of the Partnership's Annual Report on Form 10-Kfor the year ended December 31, 2003.

Exhibit- 31.1 — Rule 13a-14(a)/15d-14(a) Certification (Certification ofPresident and Director).

Exhibit - 31.2 —Rule 13a-14(a)/15d-14(a) Certification (Certification of ChiefFinancial Officer and Director).

Exhibit - 32.1— Section 1350 Certification (Certification of President andDirector).

Exhibit - 32.2 — Section 1350Certification (Certification of Chief Financial Officer andDirector).

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934,the registrant has duly caused this report to be signed on its behalfby the undersigned thereunto duly authorized.

|                                           |  |                                                             |  |        |  |  |  |  |  |  |
|-------------------------------------------|--|-------------------------------------------------------------|--|--------|--|--|--|--|--|--|
| SMITHBARNEY DIVERSIFIED FUTURES FUND L.P. |  |                                                        |
| By:                                       |  | CitigroupManaged FuturesLLC                                 |  |   |
|                                      |  | (GeneralPartner)                                            |  |
| By:                                       |  | /s/ David J.Vogel                                           |  |
|                                      |  | David J.VogelPresident and Director                         |  |
| Date:                                     |  | November 12,2004                                            |  |
| By:                                       |  | /s/ Daniel R.McAuliffe, Jr.                                 |  |
|                                      |  | Daniel R. McAuliffe,Jr.Chief Financial Officer and Director |  |
| Date:                                     |  | November 12,2004                                            |  |
|                                           |

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