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 March 31, 1998

Commission File Number 33-75056

            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 March 31, 1998 and December 31,
              1997.                                               3

              Statement of Income and Expenses
              and Partners' Capital for the
              three months ended March 31,
              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 - 10

PART II - Other Information                                    11 - 12


                                                         2

<PAGE>



                                     PART I
                          ITEM 1. FINANCIAL STATEMENTS



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


<TABLE>
<CAPTION>

                                                   MARCH 31,    DECEMBER 31,
                                                     1998          1997
                                                ------------   ------------
ASSETS:                                           (Unaudited)

<S>                                                 <C>              <C>

Equity in commodity futures trading account:
  Cash and cash equivalents                     $138,611,787   $142,852,854

  Net unrealized appreciation on open futures
  contracts                                        5,043,601     11,184,770

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

                                                 143,655,388    154,037,624

Interest receivable                                  513,598        518,917

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

                                                $144,168,986   $154,556,541

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

LIABILITIES AND PARTNERS' CAPITAL:

Liabilities:
 Accrued expenses:
  Commissions                                   $    673,447   $    721,970
  Management fees                                    346,780        359,579
  Incentive fees                                     242,074        492,736
  Other                                               78,375         79,457
 Redemptions payable                               1,899,775      1,521,538
                                                ------------   ------------

                                                   3,240,451      3,175,280

Partners' Capital:

General Partner, 2,048.9308 Unit
   equivalents outstanding in 1998 and 1997        2,575,670      2,660,393
Limited Partners, 110,059.0267 and
  114,539.1563 Units of Limited Partnership
  Interest outstanding in 1998 and 1997,
  respectively                                   138,352,865    148,720,868

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

                                                 140,928,535    151,381,261

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

                                                $144,168,986   $154,556,541

                                                ============   ============
</TABLE>
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
                                                            MARCH 31,
                                                  -----------------------------
                                                         1998             1997

                                                  -----------------------------
<S>                                                         <C>           <C> 
Income:
  Net gains (losses) on trading of commodity
   futures:
  Realized gains on closed positions             $   3,459,309    $   8,539,658
  Change in unrealized gains/losses on open
   positions                                        (6,141,169)       1,720,657

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

                                                    (2,681,860)      10,260,315
Less, brokerage commissions and clearing fees
  ($93,177 and $83,380, respectively)               (2,258,006)      (2,664,544)

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

  Net realized and unrealized gains (losses)        (4,939,866)       7,595,771



  Interest income                                    1,505,167        1,710,017

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

                                                    (3,434,699)       9,305,788

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


Expenses:
  Management fees                                    1,023,147        1,203,429
  Other                                                 36,552           49,159
  Incentive fees                                       242,074          747,694

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

                                                     1,301,773        2,000,282

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

  Net income (loss)                                 (4,736,472)       7,305,506
  Additions                                             32,476               --
  Redemptions                                       (5,748,730)     (5,543,771)

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

  Net increase (decrease) in Partners' capital     (10,452,726)       1,761,735

Partners' capital, beginning of period             151,381,261      171,587,261

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

Partners' capital, end of period                 $ 140,928,535    $ 173,348,996
                                                 -------------    -------------

Net asset value per Unit
  (112,107.9575 and 132,986.9975 Units
  outstanding at March 31, 1998 and
  1997, respectively)                            $    1,257.08    $    1,303.50
                                                 -------------    -------------


Net income (loss) per Unit of Limited
  Partnership Interest and General
  Partner Unit equivalent                        $     (41.35)   $       53.14
                                                 -------------    -------------
</TABLE>


                                        4

                                     <PAGE>



                   SMITH BARNEY DIVERSIFIED FUTURES FUND L.P.
                          NOTES TO FINANCIAL STATEMENTS
                                 March 31, 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").  Chesapeake  Capital  Corporation  and Abraham  Trading Co.  ceased
trading for the Partnership effective January 31, 1998.

         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 March 31,  1998 and the  results of its  operations  for the three
months ended March 31, 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  months  ended March
31, 1998 and 1997, were as follows:

                                         THREE-MONTHS ENDED
                                             MARCH 31
                                       1998             1997

Net realized and unrealized
 gains (losses)                  $     (43.10)    $     55.19
Interest income                         13.06           12.56
Expenses                               (11.31)         (14.61)
                                      ---------       ---------

Increase (decrease) for period         (41.35)          53.14

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

Net Asset Value per Unit,
  end of period                  $   1,257.08     $  1,303.50
                                     =========       =========


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 March 31, 1998 and 1997 was $5,043,601 and $8,522,812, respectively,
and the average fair value during the three months then ended,  based on monthly
calculation, was $5,233,659 and $13,780,877, respectively.

4.     Financial Instrument Risk:

         The  Partnership  is party to financial  instruments  with off- balance
sheet risk, including derivative financial  instruments and derivative commodity
instruments, in the normal course of its

                                        6

<PAGE>



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 March 31, 1998, the notional or contractual
amounts of the  Partnership's  commitment to purchase and sell these instruments
was $906,727,667 and $668,931,029, respectively, as detailed below. All of these
instruments mature within one year of March 31, 1998. However, due to the nature
of the Partnership's business, these instruments may not be held to maturity. At
March 31,  1998,  the fair  value of the  Partnership's  derivatives,  including
options thereon, was $5,043,601, as detailed below.

                                 MARCH 31, 1998
                             NOTIONAL OR CONTRACTUAL
                              AMOUNT OF COMMITMENTS
                               TO PURCHASE        TO SELL     FAIR VALUE
Currencies:
- Exchange Traded contracts   $ 14,305,004   $ 39,857,760   $    967,157
- OTC Contracts                123,902,516    204,375,043      2,688,924
Energy                           9,083,300     27,813,630       (228,003)
Grains                          12,423,430     27,493,245        865,257
Interest Rates U.S.             40,087,572    154,827,598       (375,640)
Interest Rates Non U.S.        632,458,368    167,136,760        157,448
Livestock                             --        1,667,140         (4,497)
Metals                          21,360,136     29,745,708       (672,495)
Softs                            6,185,930     15,463,180        424,535
Indices                         46,921,411        550,965      1,220,915
                              ------------   ------------   ------------

Totals                        $906,727,667   $668,931,029   $  5,043,601
                              ============   ============   ============

         At  March  31,  1997,  the  notional  or  contractual  amounts  of  the
Partnership's commitment to purchase and sell these instruments was $344,823,521
and  $1,258,341,081,  respectively,  and the  fair  value  of the  Partnership's
derivatives, including options thereon, was $8,522,812, as detailed below.

                                      MARCH 31, 1997
                                  NOTIONAL OR CONTRACTUAL
                                   AMOUNT OF COMMITMENTS
                                 TO PURCHASE       TO SELL           FAIR VALUE
Currencies:
- Exchange Traded contracts   $   22,189,840   $   89,080,665   $       98,733
- OTC Contracts                   55,478,615       85,124,469         (766,933)
Energy                            14,203,779       18,907,399         (521,654)
Interest Rates U.S.                     --        324,516,241        2,404,849
Interest Rates Non U.S.           76,628,913      678,338,113          742,551
Grains                            58,856,993        1,782,480        5,077,801
Metals                            57,372,543       34,104,056          586,576
Indices                           38,211,998        9,376,219       (1,212,892)
Softs                             15,283,370       16,207,989        2,211,801
Livestock                          6,597,470          903,450          (98,020)
                              --------------   --------------   --------------

Totals                        $  344,823,521   $1,258,341,081   $    8,522,812
                              ==============   ==============   ==============

                                        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 first
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 three months ended March 31, 1998, Partnership capital decreased
6.9% from $151,381,261 to $140,928,535.  This decrease was attributable to a net
loss from  operations of $4,736,472  coupled with the  redemptions of 4,505.3006
units  totaling  $5,748,730  which was partially  offset by additional  sales of
25.1710 units totaling  $32,476.  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.

Results of Operations

        During the Partnership's  first quarter of 1998, the net asset value per
Unit decreased  3.2% from $1,298.43 to $1,257.08,  as compared to an increase of
4.2% in the first  quarter of 1997.  The  Partnership  experienced a net trading
loss before commissions and expenses in the first quarter of 1998 of $2,681,860.
Losses were recognized in currencies, softs, grains, U.S. interest rates, metals
and energy products and were partially offset by gains in indices, livestock and
non-U.S.  interest rates. The Partnership  experienced a net trading gain before
commissions and expenses in the first quarter of 1997 of $10,260,315. Gains were
recognized in the trading of commodity  futures in  currencies,  grains,  softs,
indices,  metals and U.S.  interest  rates and were  partially  offset by losses
recognized in the trading of energy  products,  livestock and non-U.S.  interest
rates.


                                        9

<PAGE>



        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 months ended March 31, 1998 decreased by $204,850
as compared to the corresponding period 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 months ended March 31,
1998 decreased by $406,538, as compared to the corresponding period 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  and  redemptions.  Management fees for the
three  months  ended  March 31,  1998  decreased  by $180,282 as compared to the
corresponding period 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 for
the three  months ended March 31, 1998 and 1997  resulted in  incentive  fees of
$242,074 and and $747,694, respectively.

                                       10

<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

                                       11

<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 is pending.

        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  Sterns & Co.  Inc.  et al.) Has been
        stayed by agreement of the parties.

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

                  (b) Reports on Form 8-K - None


                                       12


<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:      5/15/98


  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:      5/15/98


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

Date: 5/15/98


                                       13