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 September 30, 1996

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:

                      Statements of Financial Condition at
                      September 30, 1996 and December 31,
                      1995                                               3

                      Statements of Income and Expenses and
                      Partners' Capital for the three and
                      nine months ended September 30, 1996
                      and 1995.                                          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


                                      2

<PAGE>

                                     PART I

                          Item 1. Financial Statements

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



                                                     SEPTEMBER 30,  DECEMBER 31,
                                                         1996          1995
                                                     ------------   ------------
ASSETS                                               (Unaudited)


Equity in commodity futures trading account:
  Cash and cash equivalents                          $146,166,616   $181,687,564

  Net unrealized appreciation on open futures
   contracts                                           15,372,094     18,951,546

  Commodity options owned, at market
   value (cost $622,086 and $5,360, respectively)         434,503          5,520

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

                                                      161,973,213    200,644,630

Interest receivable                                       503,363        675,035

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

                                                     $162,476,576   $201,319,665

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

LIABILITIES AND PARTNERS' CAPITAL

Liabilities:

 Accrued expenses:
  Commissions                                        $    732,476   $    940,399
  Management fees                                         362,114        447,124
  Other                                                   103,118        107,357
  Redemptions payable                                   5,510,534      5,631,797
  Commodity options written, at market
    value (premiums received $2,400)                            -          2,560
                                                     ------------   ------------

                                                        6,708,242      7,129,237

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

General Partner, 2,048.9308 Unit
  equivalents outstanding in 1996 and 1995              2,229,607      2,236,736
Limited Partners, 141,096.4767 and
  175,835.9644 Units of Limited Partnership
  Interest outstanding in 1996 and 1995,
  respectively                                        153,538,727    191,953,692

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

                                                      155,768,334    194,190,428

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

                                                     $162,476,576   $201,319,665

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




                                      3

<PAGE>

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



<TABLE>
<CAPTION>


                                                                   THREE-MONTHS     THREE-MONTHS     NINE-MONTHS      NINE-MONTHS
                                                                      ENDED            ENDED            ENDED            ENDED
                                                                   SEPTEMBER 30,    SEPTEMBER 30,    SEPTEMBER 30,    SEPTEMBER 30,
                                                                       1996             1995             1996             1995

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

Income:
Net gains (losses) on trading of commodity futures:
  Realized gains (losses) on closed positions                      $  (1,262,655)   $ (14,899,361)   $   8,914,707    $  38,265,428
  Change in unrealized gains /losses on open positions                 7,325,730       (8,568,600)      (3,767,035)     (23,906,814)

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

                                                                       6,063,075      (23,467,961)       5,147,672       14,358,614
Less, brokerage commissions and clearing
  fees ($94,466, $118,061, $314,109 and $342,238,
  respectively)                                                       (2,477,914)      (2,945,182)      (8,052,478)      (8,854,268)

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

Net realized and unrealized gains (losses)                             3,585,161      (26,413,143)      (2,904,806)       5,504,346

  Interest income                                                      1,554,404        2,080,409        5,018,184        6,092,197

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

                                                                       5,139,565      (24,332,734)       2,113,378       11,596,543

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

Expenses:
  Management fees                                                      1,086,149        1,227,600        3,462,193        3,826,162
  Other expense                                                           64,439           98,633          219,411          244,608
  Incentive fees                                                               -            4,164          446,772        3,940,963

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

                                                                       1,150,588        1,330,397        4,128,376        8,011,733

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

Net income (loss)                                                      3,988,977      (25,663,131)      (2,014,998)       3,584,810

Additions                                                                      -       16,726,832        2,035,483       32,092,868
Redemptions                                                          (13,060,839)      (6,145,518)     (38,442,579)     (34,692,769)


                                                                   -------------    -------------    -------------    -------------
Net increase  (decrease) in Partners' capital                         (9,071,862)     (15,081,817)     (38,422,094)         984,909

Partners' capital, beginning of period                               164,840,196      195,327,247      194,190,428      179,260,521

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

Partners' capital, end of period                                   $ 155,768,334    $ 180,245,430    $ 155,768,334    $ 180,245,430

                                                                   =============    =============    =============    =============
Net Asset Value per Unit
  (143,145.4075 and 182,034.3026 Units outstanding
  at September 30, 1996 and 1995, respectively)                    $    1,088.18    $      990.17    $    1,088.18    $      990.17

                                                                   =============    =============    =============    =============
Net income (loss) per Unit of Limited Partnership
   Interest and General Partnership Unit equivalent                $       28.57    $     (141.33)   $       (3.48)   $       23.11

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

</TABLE>


                                      4

<PAGE>



                  SMITH BARNEY DIVERSIFIED FUTURES FUND L.P.
                         NOTES TO FINANCIAL STATEMENTS
                              September 30, 1996
                                  (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.,  Hyman Beck & Company Inc.,  Chesapeake  Capital  Corp.,
Abraham   Trading  Company  and  Rabar  Market   Research   (collectively,   the
"Advisors").

     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 September 30, 1996 and the results of its  operations for the three
and nine months ended September 30, 1996 and 1995.  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, 1995.

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



                                      5

<PAGE>



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


2. Net Asset Value Per Unit:

     Changes  in net asset  value per Unit for the three and nine  months  ended
September 30, 1996 and 1995, were as follows:

                                 THREE-MONTHS ENDED         NINE-MONTHS ENDED
                                    SEPTEMBER 30,              SEPTEMBER 30,
                                  1996        1995          1996        1995

Net realized and unrealized
 gains (losses)                $   25.91    $ (145.45)   $   (8.94)   $   33.99
Interest income                    10.25        11.43        30.50        33.77
Expenses                           (7.59)       (7.31)      (25.04)      (44.65)
                               ---------    ---------    ---------    ---------

Increase (decrease) for
 period                            28.57      (141.33)       (3.48)       23.11

Net Asset Value per Unit,
  beginning of period           1,059.61     1,131.50     1,091.66       967.06
                               ---------    ---------    ---------    ---------


Net Asset Value per Unit,
  end of period                $1,088.18    $  990.17    $1,088.18    $  990.17
                               =========    =========    =========    =========


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
activities 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 September 30, 1996 was $15,806,597 and the average fair value during
the nine months then ended, based on monthly calculation, was $11,941,259.

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.

     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 September 30,

                                       7

<PAGE>



1996, the notional or  contractual  amounts of the  Partnership's  commitment to
purchase  and  sell  these  instruments  was  $1,482,367,790  and  $520,142,438,
respectively, as detailed below. All of these instruments mature within one year
of September 30, 1996. However, due to the nature of the Partnership's business,
these  instruments  may not be held to  maturity.  At September  30,  1996,  the
Partnership had net unrealized trading gains of $15,184,511, as detailed below.

                                     NOTIONAL OR CONTRACTUAL             NET
                                     AMOUNT OF COMMITMENTS           UNREALIZED
                                   TO PURCHASE     TO SELL           GAIN/(LOSS)

Currencies:
- Exchange Traded contracts      $   47,875,309     $ 70,260,622    $   810,217
- OTC Contracts                     150,393,622      192,480,747      1,226,182
Energy                               41,980,406        1,358,000      3,222,995
Interest Rates US                    94,005,725       40,349,337       (661,994)
Interest Rates Non US             1,062,664,755       58,879,303      8,233,436
Grains                                8,097,142       26,018,830        692,912
Metals                               15,242,628      107,705,791      1,689,457
Indices                              41,053,893        1,270,828         68,629
Softs                                 9,701,150       21,818,980       (343,163)
Livestock                            11,353,160                0        245,840
                                  -------------     ------------    -----------

                                 $1,482,367,790     $520,142,438    $15,184,511
                                 ==============     ============    ===========

5. Subsequent Event:

     Effective  October 1, 1996,  AIS Futures  Management  Inc.  was added as an
Advisor to the  Partnership  and Hyman Beck & Company Inc. was  terminated as an
Advisor.




                                       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 and forward 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
third quarter of 1996.

     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 nine months ended September 30, 1996 Partnership  capital decreased
19.8% from  $194,190,428  to  $155,768,334.  This decrease was  attributable  to
redemptions  of  36,664.7677  units  totaling  $38,442,579  and a net loss  from
operations of  $2,014,998  which was  partially  offset by  additional  sales of
1,905.2800 units totaling  $2,035,483.  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  third  quarter of 1996,  the net asset value per
Unit increased  2.7% from  $1,059.61 to $1,088.18,  as compared to a decrease of
12.5% in the third quarter of 1995.  The  Partnership  experienced a net trading
gain before commissions and expenses in the third quarter of 1996 of $6,063,075.
Gains were  recognized  in the trading of commodity  futures in interest  rates,
energy  products  and  metals.  These  gains  were  partially  offset  by losses
recognized in the trading of indices,  currencies and agricultural products. The
Partnership  experienced a net trading loss before  commissions  and expenses in
the third  quarter of 1995 of  $23,467,961.  Losses were  recognized in interest
rates,  indices,  metals,  energy and  agricultural  products and were partially
offset by gains in currencies.

     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.

                                      9

<PAGE>



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 at the monthly  average  30-day U.S.  Treasury  Bill Yield.  Interest
income for the three and nine  months  ended  September  30, 1996  decreased  by
$526,005 and $1,074,013,  respectively, as compared to the corresponding periods
in 1995.  The decrease in interest  income is  primarily  due to the decrease in
interest  rates during the nine months ended  September  30, 1996 as compared to
the corresponding period in 1995 in addition to the effect of redemptions on the
Partnership's equity maintained in cash.

     Brokerage  commissions are calculated on the  Partnership's net asset value
as of the last day of each  month  and,  therefore,  vary  according  to trading
performance  and  redemptions.  Commissions  for the three and nine months ended
September 30, 1996 decreased by $467,268 and $801,790, respectively, as compared
to the corresponding periods in 1995.

     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 and nine months  ended  September  30,  1996  decreased  by  $141,451  and
$363,969, respectively, as compared to the corresponding periods in 1995.

     Incentive  fees are  based on the new  trading  profits  generated  by each
Advisor at the end of the quarter, as defined in the advisory agreements between
the  Partnership,  the General  Partner and each  Advisor.  Trading  performance
resulted in a decrease  in  incentive  fees for the three and nine months  ended
September 30, 1996 of $4,164 and  $3,494,191,  respectively,  as compared to the
corresponding periods in 1995.

                                      10

<PAGE>




                           PART II OTHER INFORMATION

Item 1.     Legal Proceedings - None

Item 2.     Changes in Securities - 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




                                      11

<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:      11/11/96


     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:      11/11/96

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

Date:     11/11/96


                                      12

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